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CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page1of31
VALEANTPHARMACEUTICALSINTL(VRX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingVALEANTPHARMACEUTICALSINTLconferencecalltookplaceonMarch15,2016,08:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
LaurieLittle;ValeantPharmaceuticalsInternationalIncorporated;HeadofIRMikePearson;ValeantPharmaceuticalsInternationalIncorporated;CEORobRosiello;ValeantPharmaceuticalsInternationalIncorporated;CFOLindaLaGorga;ValeantPharmaceuticalsInternationalIncorporated;TreasurerAnneWhitaker;ValeantPharmaceuticalsInternationalIncorporated;CompanyGroupChairmanAriKellen;ValeantPharmaceuticalsInternationalIncorporated;CompanyGroupChairman
OtherPart icipants
LouiseChen;Guggenheim;AnalystAnnabelSamimy;StifelNicolaus;AnalystMarcGoodman;UBS;AnalystAndrewFinkelstein;SusquehannaFinancialGroup;AnalystTimChiang;BTIG;AnalystDavidAmsellem;PiperJaffray&Co.;AnalystDavidRissinger;MorganStanley;AnalystAlexArfaei;BMOCapitalMarkets;AnalystDavidMerrill;WellsFargo;AnalystAlanRidgeway;Scotiabank;AnalystDavidSteinberg;Jefferies;AnalystRandyRaisman;MarathonAssetManagement;AnalystIrinaKoffler;Mizuho;AnalystDavidCommon;JPMorgan;AnalystCynthiaWong;GoldmanSachs;AnalystHenryReukauf;DeutscheBank;AnalystDavidMaris;WellsFargo;AnalystChrisSchott;JPMorgan;AnalystCoreyDavis;CanaccordGenuity;AnalystShibaniMalhotra;NomuraSecurities;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator:Thisisconference#66610318.
Operator :
Goodmorning.MynameisHeidiandIwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetotheValeantfourthquarter2015unauditedfinancialresultsconferencecall.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page2of31
Thankyou.HeadofInvestorRelations,LaurieLittle,youmaybeginyourconference.
LaurieLitt le (HeadofIR):
ThanksHeidi.AndgoodmorningeveryoneandwelcometoValeant'sinvestorconferencecall.Participatingontoday'scallareMikePearson,ChiefExecutiveOfficer;RobRosiello,ChiefFinancialOfficer;Dr.AriKellen,CompanyGroupChairman;AnneWhitaker,CompanyGroupChairman;andLindaLaGorga,ourTreasurer.Inadditiontoalivewebcast,acopyoftoday'sslidepresentationcanbefoundonourwebsite,undertheInvestorRelationssection.
Beforewebegin,ourpresentationtodaycontainsforward-lookinginformation.Wewouldaskthatyoutakeamomenttoreadtheforward-lookingstatementlegendatthebeginningofourpresentation,asitcontainsimportantinformation.
Inaddition,thispresentationcontainsnon-GAAPfinancialmeasures.Non-GAAPfinancialreconciliationscanbefoundinthepressreleaseissuedearliertodayandpostedonourwebsite.Finally,thefinancialguidanceinthispresentationiseffectiveonlyasoftoday.Itisourpolicytoaffirm--toupdateoraffirmguidanceonlythroughbroadlydisseminatedpublicdisclosureandwiththat,IwillturnthecallovertoMike.
MikePearson (CEO):
Goodmorning,everyone.Andthankyou,Lori.Thanksforjoiningus.Today,wewouldliketocoverthefollowingtopics.First,wewilldiscussourpreliminaryunauditedfourth-quarter2015results.Second,wearegoingtotakeyouthroughournewtaxpresentation.Third,we'regoingtoproviderevisedQ12016financialguidance.
Fourth,I'dliketotakeafewminutestoprovidemyperspectiveonthecurrentstateofthebusinesssinceI'vebeenbackacoupleweeks,includingarevised2016guidanceandotherkeybusinessupdates.Fifth,LindaLaGorga,ourTreasurer,willprovidealiquidityandcashflowupdate.Andfinally,I'mgoingtoaddresssomequestionsthatwe'vegottenaheadofthecall.AndthenwewillopenituptoQ&A.
We'veaddedanumberofslidesintheAppendixaroundassumptionsandourtop30productswhichwewillnotbegoingthroughbutare--willbemadeavailabletoyou.Aswe'vepreviouslydisclosed,thereisanongoingreviewofour2014financialsandassuch,we'renotabletoprovideyear-over-yearcomparisonstoday.
Financialmetricsthatareimpactedbythisincludetheorganicgrowth,businessunitgrowth,andpricevolumedetail.Whatwecanprovidetodayarepreliminaryunaudited2015fourth-quarterresults.Withthis,letmeturnthecallovertoourCFO,RobRosiello,tocoverQ1and--Q4andQ1.
RobRosiello (CFO):
OnPage5,forthequarter,ourtotalrevenuewas$2.8billionversusourguidanceof$2.7billionto$2.8billion.GAAPEPSwasalossof$0.98.Adjustednon-GAAPEPSwas$2.50,whichfallsbelowtheguidancerangeof$2.55to$2.65weprovidedinDecember.Theshortfallwascausedbyunexpectedreductionsinhighermarginproductsales,driveninpartbychanneldestockingandnegativereactiontoouragreementwithWalgreens.
Cashflowfromoperationswas$562million.Adjustedcashflowfromoperationscameinat$838million,aboveourexpectedtargetofgreaterthan$600million.Asareminder,wehavelistedadjustedcashflowfromoperationsonthisslidebutaswereportedpreviously,wewillnolongerprovidethismetricgoingforward.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page3of31
Onthenextslide,IwouldliketodiscusschangesinValeant'staxreportingfor2016.Historically,Valeanthasreportedournon-GAAPtaxprovisiononTable2aand2bofthepresstablesthatcombinedthetaxeffectsofnon-GAAPadjustmentsandtheuseoftaxattributesandothertimingissues.
Thisnumber,approximately5%,matchedtheactualcashtaxthatValeantpaideachyear.Goingforward,wewillnolongerincludethetaxeffectsfromtheuseoftaxattributesandothertimingissues,whichwill,inturn,raiseourreportedtaxratetobetween10%and15%.Thisnewreportingmetrichasnochangetoeithercashfloworactualtaxespaid.
Onthenextpage,wearealsoupdatingourpreviousguidancefor2015Q1fromrevenueof$2.8billionto$3.1billionto$2.3billionto$2.4billion.WeexpectadjustedEPSwillnowbe$1.30to$1.55from$2.35to$2.55,ascomparedtotheguidanceweprovidedinDecember.
Withthenewtaxpresentationshownonthefarright,adjustedEPSwillbe$1.18to$1.43forthefirstquarter.Whilemostofourbusinessesremainstrong,thereareafewareasthatchangedsinceDecemberthatwillimpactourfirstquarter.First,wearerealizingadecreaseofroughlyapproximately$0.80persharecomingfromtheunderperformanceinseveralbusinesses.
Thisincludesslower-than-expectedgrowthinGI,includingadditionalproductdestocking.Wearealsorealizingaslower-than-expectedreboundindermatologythatincludesadditionalproductdestockingandlossrefillsfromthePhilidortransitiontoWalgreens.
Finally,wearealsoseeingunderperformanceinseveralotherUSbusinesses,suchasOphthalmologyRx,Obagi,SoltaandWomen'sHealthaswellasinWesternEurope.Wehavealsoexperiencedheadwindsfromcurrencyfluctuations,henceourguidancewasfirstset.
Wealsoexpectthatanother$0.20roughlycomesfromthefactthatevenasrevenuewasbroughtdown,wetooklittleexpensereductiondespitethislowerrevenueforecast.LetmeturnitbacktoMike.
MikePearson (CEO):
Thanks,Rob.Soasyouallknow,I'vebeenbackfrommymedicalleaveforabouttwoweeks.I'vehadachancetoreviewwhat'shappeninginthebusinessesandthere'samixedcombinationofsomegoodnewsandsomebadnews.
Ijustwanttotakeafewminutestosortofgiveyoumyassessmentandwhatweplantodoaboutit.Whileourbusinessescontinuetogrowwearenowforecastingalowergrowthrateincertainbusiness,suchasdermatology,giventhecontinuedexternalpressurefrommanaged-care,thepricingenvironmentandourslower-than-expectedstartin2016.
WecontinuetoexpectstronggrowthinGI,contactlenses,oralhealth,oncology,genericsincertainemergingmarkets.Thisstronggrowthwillbesomewhatoffsetbysomeofourotherbusinesses,includingWesternEurope,OphthalmologyRx,SoltaandObagi.
ManyofourbusinessunitshaveloweredtheirrevenueforecastsfortheyearfromwhentheyfirstputthemtogetherintheFall.WehavelaunchedourBrandedAccessProgramwithWalgreensandthisisapieceofthegoodnewsinmid-Januarywithourdermatologyportfolio,followingthemid-FebruarywithOphthalmologyRxandAddyi.Negotiationsontoaddnetworksofindependentpharmacies.
Theprogramitselfisofftoaterrificstart.Withintwomonthsoflaunchindermatology,approximately30%ofourdermatologyscriptsareflowingthroughWalgreens.Thisisapproximately2timesthevolumeflowingthroughWalgreensfromwhenwestarted.Moreimportantly,wellover90%ofourdoctorswhowereusingPhilidorarenowusingWalgreensandmanynewdoctorsarealsousingthischannel.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page4of31
Walgreen'sseniormanagement,whomwemetwithlastweek,isequallyexcitedabouttheprogramandwecontinuetofine-tuneittobetterserveourphysiciansandpatientsandimprovetheeconomics.Ourbrandforgenericprogramisontracktolaunchsometimethissummer.
Finally,anotherpieceofgoodnews,wearecontinuingtofocusonimprovingpatientaccessaswellasimprovingourrelationshipswithourchannelpartners.Wehavestrengthenedourmanaged-careorganizationwithseveralkeyhiresandwehavebeeninactivediscussionswiththepayerstoensurecontinuedpatientcoverageandaccess.Iwilladdressthispointinmoredetailinaminute.
Duringthepasttwoweeks,wehavealreadytakenstepstorestructureanumberofourunderperformanceofoursmallerbusinessesandwearetakingstepstolaunchabroad-basedcostreductionprogram.Theseactionswillbepartiallyoffsetbyincreasedinvestmentinkeyfunctions,suchasfinancialreporting,publicandgovernmentrelations,andourmanaged-careorganization.Wearealsocurrentlyexploringdivestituresofnon-coreassetswhichwillenhanceourliquidity.
Returningtomarketaccess.MaintainingUSmarketaccessiscriticalforourentireportfolioandiscriticaltooursuccess.Toachievethisgoal,weareinvestingmoreinrebatesandbuildingourorganization'smanaged-carecapability.Theincreasesinrebatesareduetomorecompetitivepressureinresponsetoourstorepriceincreasesforourlatelifecycleproducts.
OurUSmarketaccessteam,ledbySandyLoreaux,whojoinedusinJanuaryofthisyear,continuestohaveproductivedialogueandnegotiationsconcerningaccessforourentireportfoliowithnationalhealthplans,PBMsandregionalplans.ThesenegotiationsincludeourPartDandcommercialbidsfor2017,responsetoadhoctherapeuticareareviewsbypayers,andrequestsforpriceinflationprotectionagreements.
Throughthesenegotiations,beginninglatelastFallthisyear,wehavebeenabletomaintaingoodcoverageofcommercializedforourkeybrandsandfranchisesincludingdermatology,GIandophthalmologyfranchise.Weareworkinghardasateam,includingtheseniormanagementteamsittinghereinthisroomtoday,tocontinuetoimproveourrelationshipswithPBMsandhealthplansaswellasaccessforourcurrentportfolioandimportantly,futurelaunchproducts.
Wehavemadeagreatdealofprogressandfeelconfidentthatwewillimproveouraccessin2016and2017andarelayingthestrongfoundationforaccesstoourexpectednewproductlaunches.Wearecommittedtoengagingwiththeseimportantcustomersmorebroadlyacrossourorganizations,buildingbacktrustthroughouractionsandstrengtheningourcapabilitytocollaboratewiththemoninitiativesinvolvingourproducts.
Turningtoourrevisedguidance.Withthefirstquarternowupdated,ournewfullyear2016guidanceascomparedtowhatwepreviouslyreported,isexpectedtobe$11billionto$11.2billioninrevenueandadjustedEPSof$9.50to$10.50.Withourchangetoadifferenttaxpresentation,weexpecttoreportadjustedEPSof$8.50to$9.50.
Aswearemovingawayfromadjustedcashflowfromoperations,wewillnowreportanexpectedadjustedEBITDAnumberof$5.6billionto$5.8billionfor2016.AswelookatthebudgetwepreparedinDecember,severalfactorshavechangedouroutlookfor2016.
First,asRobcovered,thekeyoneunderperformanceisexpectedtoreduceadjustedEPSby$1duetothehigher-than-expectedinventoryreductionsthattransitionfromPhilidortoWalgreensandthecancellationofalmostallpriceincreases.Inaddition,therehasbeennegativeimpactfromFX.
Next,wearetakingamoreconservativeapproachtoourrevenueassumptionsandweareassuminglowergrowthratesformostofourfranchisesandgeographies,includingaslowerreboundin
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page5of31
dermatology,moremodestgrowthinGIandunderperformanceinWomen'sHealth,CommonwealthandWesternEuropebasedoncurrentexpectationsfromeconomicfactorsandthecurrentmanaged-careenvironmentintheUS.
ThisconservatismisexpectedtoreduceadjustedEPSofapproximately$1in2016.Aspreviouslymentioned,anyfuturepriceincreaseswillbemoremodestandinlinewithindustrypracticesandmanaged-carecontracts.Wehaveexperiencedincreasedcompetitivepressureatthepayerlevel,resultinganincreasedrebatesforaccessforourkeygrowthproducts,likeJublia,andthisaccountsforafurther$1reductionfromourbudgetintheFalloflastyear.
Otheritemsthathavereducedouroutlookfor2016includeincreasedinvestmentsinselectfunctions,FXheadwindsandcontinuedorganizationaldistractionsthatwillbecauseof--weestimateanother$0.50in2016.
Finally,thenewtaxpresentationwillreducereportedadjustedEPSbyanother$1,althoughithasnoimpactoneithertheactualtaxespaidorthecashflow.ToassistinthewalkdownfromourrevenueguidanceinDecembertotoday,wehavebucketedthemainareas:GI,dermatologyandneurologyportfoliosrepresentthebulkofthechangeduetotheitemsalreadymentioned.
UnderperformanceincertainUSbusinessunitsaccountsforapproximately$300millionandex-US,$200millioninrevenuereduction.IntermsofFX,weestimatethattobe$110millionandtheremaining$90millioncoverstherestofthedecrease.
Aswelookouttothenextseveralyears,wewantedtohighlightourgrowthexpectationsforourmajorbusinessunits.Weexpectdouble-digitgrowthfromGI,Dendreon,dentistry,contactlensesandWomen'sHealthoverthenextthreeyears.
Single-digitgrowthshouldberealizedindermatology,emergingmarketsinEurope,Asia,LatinAmerica,USconsumer,OphthalmologyRxCanada,surgicalandouraestheticsbusinesses.Finally,weexpectourneurologyandotherWesternEuropeandUSgenericunitstohaveflattodecliningrevenuegrowthoverthisthree-yearperiod.
Idowanttohighlightthatwedohavesomeveryexcitingproductsthatareeitherinthemarketandarenewlaunchesorwehopetogetapprovedoverthenextyearorso.WecontinuetobeveryexcitedabouttheprospectsforXifaxanandyou'veseenthiscontinuethescriptgrowth.
We'realsoexcitedaboutgrowthopportunitiesinanumberofouremergingmarketsandareUltraandBiotruecontactlenslines.PotentialopportunitiesliewithseveralR&DprojectssuchasLatanoprostenebunodforglaucoma,whichwehopetogetapprovedlaterthisyear;IDP-118,atopicalformoderatetoseverepsoriasis,whichwehopetogetapprovednextyear;andBrodalumabformoderatetoseverepsoriasis,whichwehopetogetapprovedattheendofthisyear.Anumberofthesegrowthproductshave$1billion-pluspotential.
Intermsofthenextfourquarters'guidance.Withtheweakresultsforthefirstquarterof2016,weareprovidingaforward-lookatthenextfourthquarters,takingusthroughthefirstquarterof2017.
Onaroll-forwardbasis,weexpecttorealizebetween$11.6billionand$11.8billionintotalrevenues,andapproximately$9.65to$10.15onadjustedEPSunderthenewtaxreporting.Weexpecttorealizeapproximately$6billioninadjustedEBITDAoverthistimeperiod.Atthispoint,letmeturnthecallovertoLindaLaGorga,ourTreasurer,todiscussourbalancesheet.
LindaLaGorga(Treasurer):
Thankyou,Mike.First,focusingonourliquidity.Wearecomfortablewithourcurrentliquidityandexpect
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page6of31
strongcashflowgenerationfromourbusinessfortheremainderoftheyearandbeyond.Currently,wehaveapproximately$1.2billionofcashonhand,includingtheproceedsfromrecentrevolverdraws.
Ourrevolveriscurrentlydrawnat$1.45billion.Wemostrecentlydrewourrevolvertofundcashtimingrelatedtoordinarycourseneedsforoperations,includinganticipatedupcomingdebtpayments.
WeareexpectingtoclosethesaleoftheSynergeticscontractmanufacturingbusinessinthesecondquarter,providingadditionalcash.Todateinthefirstquarter,wehavecompletedtheSproutpaymentof$500millioninJanuaryandhaverepaid$405millionintermloans,includingourQ1$145millionmandatoryamortizationand$260millionintermloanmaturities.
Wehaveapproximately$520millionofremainingmandatorytermloanrepaymentsin2016,including$417millionofmandatoryamortizationandanestimated$100millionmandatoryexcesscashflowpayment,whichisanannualcalculationunderourcreditagreement,whichwillbedueattheendofMarch.Webelieveourtermloanamortizationandtermloanandbondmaturitiesin2017and2018aremanageable.
Next,turningtosomecovenanthighlights.Basedonpreliminaryunaudited2015financialinformationandour2016guidance,weexpecttoremainincompliancewiththefinancialmaintenancecovenantsandourcreditagreementforyear-end2015andthroughout2016.Therearenofinancialmaintenancecovenantsinourindenturesgoverningourbonds.
Ourcreditagreementincludestwomaintenancecovenants,asecuredleverageratioandaninterestcoverageratio.Fortheyear-end2015,weexpectoursecuredleverageratiotobeapproximately2.1timesandourinterestcoverageratiotobeapproximately3.3times,bothwithincreditagreementrequirements.
OurnetleveragetoproformaadjustedEBITDAforthecreditagreementexpectedtobeapproximately5.8timesatyear-end2015.AcoupleofkeyfactorscontributedtotheincreaseofourQ4leverageratiorelativetoourQ3leverageratio.First,forourlast12monthsadjustedEBITDAperourcreditagreement,wenolongerhavethebenefitoftheAllergangainfromQ42014ofapproximately$287million.
Second,alsoforouradjustedEBITDAperourcreditagreement,ourQ4adjustedEBITDAwasimpactedby$100millionbyourBrodatransactionwhichistreatedascashIPR&DandreducesadjustedEBITDAinourcreditagreement.Basedonour2016guidance,weexpectournetleveragetoproformaadjustedEBITDAperourcreditagreementtobeapproximately5timesbyyear-end2016.
Nowmovingtosomecovenanthighlightsrelatedtofinancialstatementreporting.Bothourcreditagreementandourbondindenturecontainfinancialreportingrequirementswhichareimpactedbythedelayinthefilingofour10-K.
Ifwedonotfileour10-KbyMarch30,adefaultwilloccurunderourcreditagreement.Wewillhave30days,oruntilApril29,tocurethisdefaultbyfilingour10-K.Ifour10-KhasnotbeenfiledbeforeMarch16,abreachofreportingcovenantoccursunderourbondindentures.
Atanytimeafterthisbreach,thetrusteeorholdersofatleast25%ofanyseriesofnotesmaydeliveranoticeofdefault.Fromreceiptofthisnotice,wewouldhave60daystofileour10-Kandthat'stocurethedefault.Whilethefailuretofilethe10-KbeforeMarch16doesnothaveanyimmediateimplicationsunderourbondindentures,itdoesresultincross-defaultunderourcreditagreement.
Thecreditagreementrendereddonotimmediatelyhavetherighttoaccelerateonaccountofthiscross-defaultbutourabilitytoborrowundertherevolverisrestrictedwhilethedefaultcontinues.Wenow--nextweek,weintendtolaunchanamendmentprocesswithourlenderstowaivethiscross-defaultand
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page7of31
alsotoextendthetimeperiodfordeliveryofour10-KandourQ110-Q.
Movingnowtocashavailablefordebtrepaymentandotherpurposes.Oneofourkey2016prioritiesistofocusonourbalancesheet.Weremaincommittedtousingthevastmajorityofourcashflowtopaydowndebt.AtourInvestorDayinDecember,wesaidweexpecttopaydownmorethan$2.25billionofpermanentdebtin2016.
Basedonourrevisedguidance,weremaincommittedtodebtrepaymentandnowexpecttopaydownmorethan$1.7billionofpermanentdebtthisyear.Relativetoourpriorguidance,thereductionincashavailablefordebtrepaymentandotherpurposesislessthanthereductioninadjustedEBITDA.
Thisisprimarilyduetolessuseofcashfromworkingcapandlesstaxesbasedonourreducedsalesexpectations.IwillnowturnitbackovertoMike.
MikePearson (CEO):
Wehavereceivedseveralkeyquestionsfrommanyofyousowethoughtwewouldaddressanumberofthemduringourpresentation.First,ourapproachtopricing.Wehavealreadycommittedtoreducingpricingonourbrand-newdermatologyandophthalmologyproductswithintheWalgreens'portfolio,onaverage,10%.
ThispricereductionisonWACandwillimpactandwillbetakenacrossallchannels,notjustWalgreens.Otherpriceincreaseswillbemodestandinlinewithmarketandpayercontracts.Intermsofdivestitures,asapubliccompany,wecontinuetoreviewourassetsinordertomaximizeshareholdervalue.
Wehavenocurrentplanstodivestanymajorplatform;however,wewillcontinuetolookatnon-strategicassetsandmakeappropriatedecisions.
Theadhoccommittee.Theadhoccommitteehasprovidedthefollowingstatement.Iquote--theadhoccommitteehascompletedasubstantialamountofworkrelatedtoPhilidorandcertainaccountingandfinancialreportingmatters.Thecommitteeanditsadvisorsareworkingdiligentlyandhopetocompletethecommittee'sworkinthenearfuture--endquote.Asnoted,inlightoftheongoingnatureofthesematters,wewillnotbeprovidinganyfurthercommentsontheadhoccommitteeatthistime.
Finally,wehaveasubjecttoseveralongoinginvestigations.TheseincludeinvestigationsbytheUSAttorney'sOfficeforMassachusettsandtheSouthernDistrictofNewYork,theSECandCongress.Wearecooperatingintheseinvestigationsandhaveprovidedandwillbeprovidingdocuments,informationandtestimonyinthesevariousinvestigations,whetherpursuanttosubpoenasorotherwise.
We'realsosubjecttoshareholderlitigationinboththeUnitedStatesandCanada,whichweintendtodefendvigorously.Giventheongoingnatureoftheinvestigationsandlitigation,wedonotintendtocommentfurtheratthistime.
Soinsummary,ourbusinessisnotoperatingonallcylindersbutweandIarecommittedtogettingitbackontrack.Wehaveasetofterrificproductsandbrandsandaloyalsetofphysicians,patientsandcustomers.
Throughbothrevenueenhancementandcostreduction,weareconfidentthatwecanand,again,willbeabletobegintodeliverthecashflowsourshareholdersanddebtholdersareaccustomedto.Withthat--withthis,Iwillopenthelinetoquestions.
QUESTIONS&ANSWERS
Operator :
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page8of31
(OperatorInstructions)
LouiseChen (Analyst-Guggenheim):
LouiseChen,GuggenheimSecuritiesLLC-Analyst
Hi.Thanksfortakingmyquestions.Ihadafewhere.SofirstquestionIhadwasonyourweakGIsalesinthefourthquarterrelatedtoWalgreens.Iwaswonderingifyoucouldgivemorecolortheresinceourfocuswasonderm,asyoumentionedbefore,onWalgreens.Therewasonly15daysleftinthequarterandtherewasalreadysomedestockingfromtheSalixdeal.
Andthensecondthing,Iwaswonderingifyoucouldtalkaboutthechangesinyourmanagedcarecontractsthatyoumentionedinyourpressrelease.Andthelastthing,maybemorecoloronthegrossmarginandhowwethinkaboutgrosstonetfortheWalgreensdrugs?Thanks.
MikePearson (CEO):
Sure.LetmetalkabouttheweakGIsales.I'llhaveAnneWhitakertalkaboutthechangesinmanagedcare.IwillcomebackandaddresstheWalgreenseconomics.Soattheendofthefourthquarter,anumberoforderswerecanceledofSalixproducts.
Thiswassortofatleast--weweretold,basedonreducinginventoriesinsomedistributorsandsomeretailers,therewasanegativereactioninitiallytotheWalgreensprogramandsomeaspectsofit.ThemanagedcareteamhasdoneaterrificjobworkingwiththepayerstomodifytheWalgreensprogramtomakeitsortofacceptableandsowefeelgoodaboutthat.YoucannoticethescripttrendsintheGIfranchisewillcontinuetobeverystrongsowethinkthatwillevenoutovertime.Anne,managedcare?
AnneWhitaker (CompanyGroupChairman):
Sure.AsMikementioned,withregardtoourcontractingsincelastFall,wehavebeeninvolvedwithsubmittingourbidsforthePartDprogramfor2017.We'vebeengoingthroughtheprocessofrenewingcontractsfor2017andsomeofthose,wehave--didextensionsfor2016,evenlastFall.
Payers,onaroutinebasiseachquarter,pickcategoriesthattheydoreviewsoftherapeuticareas--theydoreviewsofanndsowe'vebeenrespondingtosomeofthosereviews.Dermatologyisoneofthosereviewsthatmanyofthepayersareundertakingbecauseastheylookbackandtheirclientslookbackatlastyear,dermatologywasoneofthebiggesttrenddriversforthem.
Sothey'vepickedthatcategorytofocusonthisyear.Wealsohavebeenengagingindiscussionsaspartoftheprocessofourcontractingintheseadhocreviewsonpriceinflationprotection.We'vehadpriceprotectionagreementsinplacewithpayers.We'vebeennegotiatingthroughthatprocessonspecificratesandthoserangedependingonthevolumeandtheparticularproduct.
SoIwilljustechowhatMikesaid.IfeelverygoodabouttheprogressthatwearemakingasaCompany,withreallyrebuildingourrelationshipswiththepayersandworkingthroughthisnegotiationsprocess.AndIthinkwe'rebuildingastrongteamhereatValeantwithsomeofthenewfolksthatwehavebroughtin.
WehavebroughtanumberofmanagersoverthepastfewmonthstoreallybeefupthatcapabilityandI'mconfidentwehavegoodprospectsforlayingfirmfoundationforthelaunchproductsthatMikementionedaswell.
MikePearson (CEO):
LetmeaddresssortofthewaytheWalgreenseconomicsworkandthus,thegrossmargins,grosstonet,
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page9of31
etcetera.Thewaythecontractisnegotiated,it'sanactivity-basedfeethatwepayWalgreens.WhatImeanbyactivity-basedisthattheygetpaiddifferentamountsbasedondifferentscripts.
Ifit'sacashpaidscripts,it'sonefee;iftheyadjudicateinsurance,wepayalittlebitmore.Iftheydoapriorauths,wedoalittlebitmore;iftheydoworkaroundrefills,wepayalittlebitmore.Soit'sanactivity-basedfee.
TheearlyexperiencewithWalgreenscomparedtoPhilidoristhatthereismorecashpaythanwhatwehad--whatwesawwithPhilidor,butthat'slargelyafunctionofpriorauths.That'snotacapabilitythatWalgreenscurrentlyhassowhatwe'llbedoingisusingathird-party.Weagreedwiththemlastweek.Weuseathird-partyuntiltheyeitherbuildthatcapabilityorwe'llcontinuetouseathirdparty.
Weexpecttheeconomics,asImentioned,toimproveovertime.Whatwe'vebeenfocusedprimarilyonisvolume.Thekeyistogetscripts,andthroughWalgreensandtomakesurethephysicianshaveagoodalternativetoPhilidorandmanyphysiciansreallylikethePhilidorprogram.
Andagain,asImentioned,wellover90%ofthephysiciansthatwereusingPhilidorarecurrentlyusingWalgreensbutperhapsmoreimportantlyisthenumberofnewdoctorsthat,givenWalgreens'greatreputationandnationalbrand,arenowusingWalgreensthatweren'tusingPhilidor.
Sowe'vebeenfocusedongettingourphysicianscomfortablewithWalgreensandthenwewillcontinuetotweaktheprogramwithWalgreenstobetterservepatientsanddoctorsandalsoimprovetheeconomicstobothcompanies.Nextquestion.
Operator :
AnnabelSamimy,Stifel.
AnnabelSamimy(Analyst-StifelNicolaus):
Thanksfortakingmyquestion.First,IwanttogobacktotheadjustmentsthatyoumadeforGIwithregardtotheWalgreensprogram.Originally,itwassupposedtobeonlydermandophthalmology,socanyoujustexplainalittlebitmorewhattheissueswerethattheywereupsetwithandwhatspecificchangesyoumadeforGIwithinWalgreensbecauseoriginally,itwasnotgoingtobeincluded.
AlsotherewerealotofinventorychangeswithinGIinthefirstquarterandIguessinthepast,itwasthoughtthattheSalixinventoriesweregoingtobe--thedestockingforSalixwasgoingtobefinishedattheof2015soisthisdestockingnowrelatedtothosecancelledordersandthatcontinuesintothefirstquarteranddoyouseemorenormalgrowthafterthatsecondquarterforward?Andthenfinallyonthedivestitures,canyoujustdetailwhatbusinessesyougenerallybelievearenon-coretoValeantandhowmuchthatmightbeabletocontributetodebtpaydowngoingforward?Thankyou.
MikePearson (CEO):
So,firstofall,toclarifythatis--GIisnotpartoftheWalgreensprogram.ButIthinkthatmaybeweweren'tclearonthat.Therefore,itdidhave--theannouncementwithWalgreensdidhaveanimpactonGI,becauseIthinkjustlikeyouprobablyassumedGIwasgoingtobepartofit,sodidotherplayers.
Weprobably--weshouldtakeresponsibility,IwilltakeresponsibilityandprobablydidnotcommunicatetheWalgreensprogramaswellaswecouldhavetopayersandchannelpartners.We'vedonethat.Theyhadsomesuggestionsintermsofhowwecanmodifyitthattheygetmorecomfortable.I'mnotgoingtogointothespecificsofthose.
Wehaveacceptedtheirsuggestions.Walgreensandushave--we'vebeenworkingwelltogethersothe
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
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comfortlevelismuchhighernow.So,butGIisnotpartoftheWalgreensprogram.InDecember,we--Ithinkwetriedtobeclearandifweweren'tclear,Iapologizebutintermsofdestocking,wetalkedaboutdestockingtakingplace,bothinthefourthquarterandfirstquarter.
Forexample,wedidn'tturnontheWalgreensprogramuntilJanuary15.Atthatpoint,alltheinventoryinWalgreensthattheywerecarryingconvertedtoconsignment.Sobydefinition,therewasadestockingelement.Wedoexpectthatboththedermatologyandophthalmologyfranchiseswillreturntogrowthinthesecondquarteroncethedestockingwilloccur.
WewereunabletomeasurepreciselyhowmuchwouldhappeninfourthquarterandhowmuchwouldhappeninfirstquartersowegaveourbestestimateinDecember.Turnsoutalittlebitmorehappenedinthefourthquarter.We'vegivenyouourfirst-quarterestimatesbutgoingforward,inthesecondquarter,weexpectthatdestockingtooccur.
Intermsofthedivestituresofnon-core,wedonotwanttogivespecifics.Weareindiscussionswithotherparties.Wehaveconfidentiallyaroundthat.ButitwillbethingslikeSynergeticswherewhenweboughtSynergetics,thepartthatwewereinterestedinandthatwasstrategicwastheophthalmologyversusthefranchise.Whatwesoldwasacontractmanufacturingandsurgicalneurology,whichisnotanareathatwecompetein.
Wehadnosalesforceandratherthanbuildasalesforceandgetintoanentirelynewarea,weendedupsellingittoacompanythatwasinthatarea.Thenifyoulookthenetprice,weendeduppayingfortheophthalmologyassets,itwaslessthan$50million.
Sothatitisanexampleofsortofanon-strategicassetthattherewewereabletomonetize.Again,wewillonlydothisifwebelievethatthecashflowsthatwewouldexpectfromourfranchisearelessthanwhatsomeone'swillingtopayfortheassets.Nextquestion,please..
Operator :
MarcGoodman,UBS.Mr.Goodman.
MarcGoodman (Analyst-UBS):
Hi,Mike.Acouplethings.Numberone,Ididn'tseeyoutalkabouttheemergingmarketsatall.Canyoutalkalittlebitaboutwhat'shappeningthereandobviously,thosemarketshaveweakenedalittlebit.Youdidn'treallytalkaboutthem.Second,whathappenedwithSoltaandObagi?Relativetohowyouwerethinkingaboutthistwoorthreemonthsago,didthesebusinessesjustslowdownjustdramaticallyoristheresomethinggoingonthere?
Thirdthingis,canyougiveusanupdateonthecontactlenscapacity?Iknowthisisimportanttoyouasyourampupcapacity,areyougoingtobeabletosellyourlensesjustintheUSoristhenewlensstilljustgoing--isitstilljustgoingintheUS?AreyouabletosellitinEuropethisyear?I'mjusttryingtogetasenseofhowmuchcapacityisrampingup?Andthenlastontax,canyoujustexplaintous,like,whythechangeintaxnow?Thankyou.
MikePearson (CEO):
Sure.So,emergingmarkets.Twothingsarehappeninginemergingmarkets.One,FXcontinuestoworkagainstus,whichinasense,doesn'tnecessarilyhaveanimpactonmarketdemandbutdoeshaveanimpactintermsofgrossmargins,becauseasyouguysknow,mostoftheAPIissourcedeitherfromtheUSorEurope.
Sothere--it'seitherEuro-denominatedordollar-denominatedandasthedollarcontinuestostrengthen
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
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relativetotheemergingmarkets,itputspressureontheprofitability.Intermsof--it'ssortofbymarket.Russiacontinuestobeachallenge.SomeoftheEasternEuropeanmarketsare--continuetobeinfluencedbyEuropeandtheycontinuetobechallenged.
Therearesomebrightspots--ourMiddleEast,inparticular,ourAmounacquisitioncontinuestogrowveryrobustly.Mexicancontinuestobeastrongmarketforus.AndAsiacontinuestodoverywell,inparticular,China,whichisarealstrengthforus.SoIthinkemergingmarketswillalwaysbeamixandIthinkoneoftheadvantagesofbeinginmanyoftheemergingmarketsisthere'salwayssomethatareoutperformingandsomethatarenotperforming.
Sowedocontinuetoexpecttohavehighsingle-digitgrowthintheemergingmarkets.Butintermsofactualdollars,asFXcontinuestostrengthen,bothontherevenueside,thedollarswill--itwillbedepressedandthenintermsofprofitability,becauseoftheAPIissue,itwillcontinuetohurtusifthedollarstayswhereitisoritcontinuestostrengthenversuswherewewereinDecember.
MaybeI'llhaveAritalkalittlebitaboutSoltaandObagi,whichhejusttookoverrecentlyandmaybehecanalsotalkabouttheUltracapacity.AndthenRob,maybeyoucanaddressthetaxissues.
AriKellen (CompanyGroupChairman):
Yes,Marc,onthecontactlenscapacity,we'vesaidbeforethatwewillhavethreetofourlinesofUltraupandrunningthisyear.We'reoutofcapacitythroughQ1andQ2butwehavecapacitycomingonlineQ3andQ4.SoweactuallyaregoingtobeexpandingsalesintoEuropeandotherpartsofAsiaandwearefortunatetohaveadditionalcapacityonthesphericals.We'vealsolaunchedamulti-focalandthat'sgainingalotoftractionintheUS.
SotherewillbeagoodamountofUltrathatwillbeabletoexpandoutsidetheUSinQ3andQ4whilestilldoublingsalesofUltraintheUSthisyear.OnBiotrue,we'readdingseverallines.Therewe'restilltightforcapacity;thedemandhasbeenverystronginNorthAmericaandelsewhereintheworld.Sothere,it'sreallycatch-upbutwe'reinvestingheavilyincapacity.
TurningtoSoltaandObagi.Obagiisanicelyprofitablebusiness.WewereattheAmericanAcademyofDermatologylastweek,spentseveraldaystheretalkingtomanykeyopinionleadersacrossmedicaldermatologyandanestheticsandweactuallyhavealotofpublicsuggestionsandencouragementacrossbothofthesebusinesses.
SoObagiisprofitable.Ithinkwhatweneedtodoabetterjobonisexpandingourfocusacrossthenationalaccounts,bolsteringleadershipandbasicsalesexecution.Wehaveaterrificteamacrossmarketingandsales.Ithinkweprobablyhavenotputenoughfocusagainstthisbusiness.Thisisagreatsetofproductswithagreatbrandandwethinkwecoulddoabetterjobandweareaccountableforthatandwe'lldothejobthatweneedto.
LikewiseonSolta,wehadourmachinesondisplayattheAAD.Weactuallyhadagoodnumbersalesthere.Again,wehaveaterrificteamwithVlad,whoiswell-knowninthebusiness.Therewehaveworktodo.Wehavetorestorethisbusinesstoprofitability.ThegoodnewsiswehaveanewThermagesystemcomingonline.Wehavealsorecentlylaunchedthepelohairloss--hairremovalsystem,whichagain,weexpecttodowellinNorthAmerica.
ButwealsohaverepresentativesfromtheLatinAmericanregionandwe'regoingtobesettingthissystemacrosstheworld.Thereagain,it'sjustrestoringprofitability,gettingfocusedinthefield,improvingsalesexecutionandagain,we're--webelievewehaveagoodsetofproductsandit'sourjobtomakesurethatwesupporttheappropriatedemandinthefield.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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RobRosiello (CFO):
Hey,Mark,onthetaxissue.WehavehadongoingdialoguewiththeSEC.Ithasbeenquiteproductivefromourperspective.Wethinkthisisanappropriatepresentation.Ipointoutthatithasnoimpactonthecashfloworactualtaxespaid.
MikePearson (CEO):
Nextquestion,please.
Operator :
AndrewFinkelstein,Susquehanna.
AndrewFinkelstein (Analyst-SusquehannaFinancialGroup):
Goodmorning.Thanksfortakingthequestion.Couldyoutalkabitmoreaboutthecashflowguidancefortheyearandsomeofthelevelofclarityaroundtheindividualmovingparts,givenboththeoperationalfactorswithdestockinganduncertaintiesonpricingaswellastheadditionaladjustments?Youtalkaboutrestructuringandtheotherthingsthatdon'taffectthenon-GAAPP&L.
Whatisthelevelofconfidenceinachievingthatlevelofcashgenerationin2016?Andthenasyouapproachthesepayernegotiationsparticularlyfor2017,canyoutalkalittlebitmoreabouttheprocess,inparticular,towhatextentareyouabletoleverageyourportfolioofproductsintryingtomaintainaccessforsomeofthecategoriesthathavebeenmoreofafocusforpayerstoshowsavingstotheirclients?Thanksverymuch.
MikePearson (CEO):
Sure.Iwilltakeashotatthese,butI'mgoingtoaskLindaandAnneandtoexpandifImissanything.Intermsofcashflowguidance,we'vetriedtobeconservative.Youcandothemath.Youcantakeourguidanceanddothearithmeticandseehowmuchcashflowwe--thatguidancelevels.
Andwe'vetriedto--Ithinkwefeelquitecomfortableatthe$1.7billionthatwenowhavegoodlineofsightonpriceforourentireportfoliofortheyear.Managedcare,wehavegoodsight,lineofsight.Mostofthesenegotiationshaveeitherbeencompletedintermsofmanagedcareorclosetocompletion.We'renotembarkingonthenegotiations.We'refinalizingthemandwe'reinfinalroundsandthey'vebeenveryconstructive.
We'vedonealotoflisteningtothepayers.WehavetriedtobeveryaccommodatingandAnneandherteamhasjustdoneaterrificjobsortofchangingthemomentumfromamanagedcarestandpoint.AndaswetalkedaboutthewholeCompanyisinvolvedandinonthis.
It'smovedfromsortofsignthatwasloweredoutintheorganizationtothe--withAnne'sjoiningtheCompanytoatop-levelpriorityfortheCompany.That'sthehighestlevel.Iknow,Linda,anyothercommentsonthecashflow?AndthenAnne--
AndrewFinkelstein (Analyst-SusquehannaFinancialGroup):
Justtobeclear,ifIcaninterrupt,whenyou'retalkingaboutthevisibility,you'retalkingaboutvisibilityfor2017?
MikePearson (CEO):
Correct.2016and2017.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
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LindaLaGorga(Treasurer):
Sotomakeacoupleofquickcomments,youaskedaboutcashrestructuring.Thisisourestimateatthistime.Wehadpreviouslyestimated$200million.Wereduceditto$175millionbasedongettingtotheendoftheyearandhavingmoreinformationnowthatit'sMarch.
Asyoumightrememberfromapriorcall,ormorethanapriorcall,theSalixseveranceisabigpieceofthat.There'salotofSalixchargesthatwerepaidoutforoveryear.Sothatisstillflowingthroughjustbasedonhowtheseverancewasstructured.Oncontingentconsiderationmilestonesandpayments,again,thatnumberdoesincludethesproutpayment,whichisdone.
Theotherbigpaymentisthereisthe$150millionmilestonepaymentforthedrugthat'slistedonthepage.WhatIwouldsayisdepending,there'ssomethingsthat'sscheduledforfourthquarterandiftheydon'thappeninfourthquarter,theycouldhappeninfirstquarterbutthat'sourbestestimate.
AnneWhitaker (CompanyGroupChairman):
SoI'lladd--thisisAnne.I'lladdafewcommentsjustonmanagedcare,toaddtowhatMikehadsaid.SoIdowanttoemphasize,asMikesaid,thepayernegotiationsaregoingverywell.TheprocessisyouusuallygetyourPartDbidsinthefirstquarteroftheyearandthenyouhavethenegotiationprocessuntiltheplanshavetosubmitintoCMSandyou'reusuallynotifiedinthethirdquarterofthedecision.
Sowefeelgoodaboutoursubmissions.We'vebeengoingbackandforthwiththepayers.ThecommercialcontractsareondifferentschedulebasedonthetermsofourcontractandImentionedtheadhocs,ortherapeuticreviews.
Withregardtoyourquestionaroundportfolioandhowourportfoliohelpsus,well,numberone,ValeanthasasizableportfolionowintheUSwithover$8billioninsalessoweareimportantpayers,astheyareimportanttous.Weevaluatewitheachpayerhowwebuildourcontractwiththembasedontheirneedsandhowtheygoaboutit.
Whereitmakessense,weareleveragingourportfolioslikeinophthalmologyordermatologyandGIandvariousformats.SoIthinkthatkindofcoversyourquestionsonthepayers.
AndrewFinkelstein (Analyst-SusquehannaFinancialGroup):
Thankyou.
MikePearson (CEO):
Nextquestion,please.
Operator :
TimChang,BTIG.
T imChiang (Analyst-BTIG):
Hi,Mike.Couldyoutalkalittlebitmoreaboutthenon-coreassetsthatyouwouldconsiderselling?Imean,certainly,you'vegotalotofdebtonyourbooks.You'retryingtorevampthebusinessandIrealizeyou'vejustgottenbackbutitjustseemslikegivenhowthestocksreactinginthepre-marketandalltheinvestors'concerns--wouldn'tthatdebt--bepaymentbeoneofyourlargestprioritiesrightnow?
MikePearson (CEO):
Itis.Fullyagree.Weareverycommitted,asLindasaid,in2016and--toreduceourdebt.Thatwehave
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
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notchangedthatcommitment.Wewilldothatthroughgeneratingcashflow.
Wehopetogeneratemorecashthisyearthanwhatwe'reprojectingatthispoint,butprojectionsareprojections.We'llbelookingatrevenueenhancement.Wewillbelookingatfurthercostreductionbecausewhatwe'vedoneistakenrevenuedownsignificantly.Wehavenotattackedthatspaceinanymajorway.Andthat'ssomethingwewilldo.
We'llcontinuetolookatopportunitiestoraisecashwiththevestigesasImentionedI'mnotgoingtogetintospecificsbutyoushouldexpectthattherewillbeaseriesofnon-coredivestiture'soverthecourseoftheyear.Whichwewillusethecashtopaydowndebt.Andtoacceleratethedebtpaydown.
T imChiang (Analyst-BTIG):
Mikeisthefactthatyourtaxrateisgoinguporyouchangingyourreportingonyourtaxrateisthatpartofortiedtothefactthatyourdeleveragingthebalancesheetatall?
MikePearson (CEO):
No.EveryyearthereisacommentletterfromtheSEC.Itisnottheinvestigation.Itisacomment,letter.Allcompaniesget.WesitdownwiththeSECinthechangeasRobsaidtheysuggested.Theirsuggestionmadealotofsense.ButIthinkthekeyfromanequityinvestorstandpointandfromadebtstandpointithaszeroimpactonourcashflows.ThereportedtaxratewillchangebecausetheNOLwillbepre-NOLintermsofwasreportedbutintermsoftheactualtaxespaidourpreviousguidancestillstands.Weexpecttosortstayinthe5%range.It'strulyapresentation.Differencethathaszeroimpactinatallintermsofgenerationofcashflows.
Whydon'tyougetbackinqueue.Wehavealotofnamesontheboardhere.
Operator :
ChrisSchottJPMorgan
ChrisSchott (Analyst-JPMorgan):
Great.Thanksverymuch.Astwoquestionshere.FirstIknowyouwentintoalotaboutdetailthereasonsfortheupdatedguidance.Butmorebroadlyhowdidsomuchchangesoquicklywiththebusiness.Ithinkwhatinvestorsareputtingtheirhandsaroundhowmuchofthisguidanceisconservatismorjustdifferentapproachtoguidance.Giventhemanagementdisruptionsandcontroversiesascomparedtodeteriorationoffundamentalsoverthelastthreemonths.Anycolortherewouldbereallyhelpful.Thesecondquestioniscomingbacktothedivestitures.IknownotplanningtodivestcoreassetsbutjustthinkingabouttheevolutionofValeantkindofaddresssomeofthesenear-termchallengesifthestockdoesn'trecoverwhatwouldcausethecompanytogodownapathandconsiderabroaderbreakupoftheValeantbusinessunit.Thanksverymuch.
MikePearson (CEO):
Sure.Intermsofifyoulookatwhat'shappeningoneofthebigdifferencesinthereductioninguidanceQ1.Inasensewelostaquarter.ForQ1which--iswhywetriedtoshowsortQ2throughQ1ofnextyearwherewemadeveryconservativesubstanceonQ1ofnextyear.AllwedidwastookQ1ofthisyearwithweexpectedandaddedittoit.Onagoingforwardbasisandnothingthere'sbeenabigdeteriorationatallthebusiness.IfyouguysseethescripttrendsthingslikeFXyoujustlivewith.Thatisapieceofit.Ithinkwehavethemanagedcareenvironmentcertainlyneededtoaddress.Thatcertainlyishasledustoamoreconservativeoutlookonrevenuesthanwhatwehadbefore.Hopefullythosearenumbersthatwecanmeet.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
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Therewasaprettyhighdeductibletimeimpactedinthefirstquarter.Therewasstoppedattwiceatpercentofourlivessothatincreaseoffirstquarterwillalwaysbetough.Ithinkit'safirst-quarterphenomenon.Wefeelgoodabouttherestoftheyearfundamentalsaregood.Andprobablywehavetakenalittlebitmoreconservativeapproachonforecasting.IntermsofifthestockpricesnotrecoveredIthinkthat'llbeafunctionofnotdeliveringthecashflowsthatwe'repromisingand/orexceeding.Thecashflows.Andonthecompanyshouldthinkaboutothermovesaswe'retoserveshareholders.IknowtheboardiscommittedtothatandIknowmanagementiscommittedtoitbutwedothinkwehaveaplan.Thatwillgeneratestrongcashflowsandallowustoreducedebtandwecandemonstraterealgrowth.Organicgrowthinourbusinesses.Ithinkwebelieveweresuccessfuldoingthat.Thestockpricewillstarttotrademoreonfundamentals.Whichisnotrightnow.ThanksforthequestionsChriswe'llmoveon.
Operator :
CoreyDavis,CanaccordGenuity.
CoreyDavis (Analyst-CanaccordGenuity):
Thanksverymuch.Twoquestions.Numberone,wouldyoubewillingtogiveasXifaxinnormalizedrunrateXinventoryonannualizedbasis210andQ4butIsuspectonceinventoriesarenormalizedstartinginQ2ofthisyearisgoingtobemuchhigherthanthat.
MikePearson (CEO):
Andthesecondquestion
CoreyDavis (Analyst-CanaccordGenuity):
Thesecondquestionishowdoyouthinkyourretentionprogramisgoingnowandwillbegoingoverthenextsixmonthstoensurethatyoukeepretainandpowerallyourkeyemployeesnotjustattheupperlevelsbutallawaydowntheranks.
Unidentif iedPart icipant :
LetmetalkaboutretentionandthatAriwilltalkalittleaboutXifaxan.Sofartheretentionprogramisworking.We'vehadveryfewlosses.We'veobviouslylostDebandwe'redisappointed.ItwasinterestingontheEMTattheveryseniorlevelwedon'thavearetentionprogram.WedonotputthatinplaceandnothinginplacecurrentlyfortheEMT.Shewasamember.WhatwehaveisbelowtheEMTwehaveabout70peoplethatarewhatwecalltheAIP.Whicharesortofnextlevelkey.We'vehadminimalifanylossesthere.WejustpaidbonusesfortheyearonFriday.Wewillseewhathappensinthenextfewweeks.Thereisasortofa—wehavemeetingwithanAIPgroupeveryweekwherehaveanopendiscussionandtheleadersofthecompanyandthere'saverypositiveattitudeinthegroupthatwerecommitted.
Theyknowhowstrongourbrandsareandhowstrongourproductsare.Theyspentalotoftimewithourcustomersviapositionsbeitretailersandmanyofthemhavebeenopenedothercompanieshavegottentypeofexperiences.Sothere'sa(spirited)corewe'rehopefultheboardwasverysupportiveofwhatwebelieveistobeapretty(inaudible)retentionprogramforthislevel.Sofarsogood.Butasyoupointoutit'stough.It'satoughcompanytoworkfor.Ireallythankouremployeesfortheircommitmentanddedication.Ari?
AriKellen (CompanyGroupChairman):
OnXifaxanwesaidbackinDecemberweexpecttobegreaterthana$1billionindrugsthisyear.Weobviouslyexpectthattobethecase.Wehaveover400repsinthefieldpromotingXifaxanandwe
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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continuetobelievethatwewillseegrowthacrossIBDSandincreasinglyAGaswe'vesaidbeforethemedicalindicationsforpermanentuseofXifaxanwith(inaudible)isintheguidelinesandwereputtinginother100repsintothefield.Theyhavegonethroughtraining.WehaveputtingalotofenergybehindthedrugscriptsareasMikesaidyouseethemthererunningnorthof12,000aweek.Intotalthisyearweexpecttoseeinaround50%growthofXifaxanscripts.Thankyou.
CoreyDavis (Analyst-CanaccordGenuity):
Thankyou.
Operator :
ShibaniMalhotra,NomuraSecurities.
ShibaniMalhotra(Analyst-NomuraSecurities):
Thanksforthequestions,I'vegotacouplethefirstis.MikecanyoujustkindclarifyyouweresayingthatthereasontheSalixrevenuehasbeenbroughtdownbecausemanagedcaredidn'treadtheWalgreenspressreleasecorrectly.Isthatcorrectabitdifficulttokindoffathomthat,thatwouldhavesuchabigimpactonyoursales.Andthensecondoverthelastsixmonthswe'vebeentalkingtoyouIguessinvestorshaveaswellaboutthefactthatmanagementneedstorebuildcredibilitywithinvestorsandwe'vebeenthroughastateofnegativenewsthatstartedwithpricingandthenPhilidorandthengeneralcommunicationandnowtheguidancewhichIwouldsayisloweredfarmorethananyinvestorkindofanticipated.Iguessthequestionishowcanwebeconfidentinwhatyou'resayingtodayaboutthebusinessgiventhatyouwerepositiveinDecemberandJanuary.HowdowegetcomfortablethatValeantisabletoexecuteanddeliverforshareholders.Thanks.
MikePearson (CEO):
MaybeImisspoke.Intermsofthefirstone.It'snotmanagedcarepersebecausemanagedcare(inaudible).Distributorsandretailers.Whichleadtorevenuerecognition.AgainIthinkWalgreensdidnotdoaverygoodjobexplainingandtheaspectsoftheWalgreensprogramsthatpeopledidn'tlike.Ithinkwe'vedoneabetterjobexplaining.We'vemodifiedtheprogramtoaccommodateimportantchannelpartners.Idon'tthinkitwouldbe.AndthentherewassomelackofclarityofwhetherGIwaspartoftheprogramarenot.Iwouldn'tnecessarilyagreedthatitwascompletelyunexpectednegativeresponsetotheGIbutIwouldpointtothescriptandtheondemandisbasedonscriptswrittenandfilled.IsortofpointwecontinuestronggrowthacrosstheSalixportfolioasbeingtheleadingindicatorofhowthat'sdoingandwe'requitepleasedwiththegrowththatwecontinuetosee.AsArisaidweareputtingmoreresourcesbehinditbecausewethinkthere'salotofuntappedgrowinXifaxanEGindication.
Intermsofmanagementcredibility.Wehavetoearnit.Youraisedsometerrificpoints.IwouldargueJanuaryIdon'tthinkIsaidawholelotinJanuary.IthinkIwasinthehospitalbed.ButIdoacceptyourpointandstartswithme.Ourteamshavebeenworkinghardandweobviouslyhavetodeliveronourcommitments.Theworldhaschanged.TosomedegreesinceDecemberbutwehavetodoabetterjob.We'vegotsomeunderperformingbusinessesthat'sonus.Right.That'stotallyonus.WehavetoearnbackthecredibilitywehadtodeliverontheresultsandwehavetomeetorexceedthisguidanceandIthinkweallrecognizethat.It'sabitofastartingoverpointatthispointformeandthecompany.Clearlyifwedon'tdeliverthenagainthat'sonme.IcanassureyouI'mcompletelycommittedtomakingsurethatwedodeliverasIdothinkwehavealotmorelineofsightintermsofmanagedcareatthispoint.We'vealotmorelineofsightintermsofpricingatthispoint.Ithinkwehavebetterlineofsightintermsofscript.Ithinkallthreeofthosehelps.Therearecertainthingswedon'tcontrollikeFXbutwe(havefilledourguidance)sowehopethat'smanageableaswell.Thankyouforthequestion.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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Operator :
(inaudible)EvercoreISI
Unidentif iedPart icipant :
ThanksfortakingmyquestionIhaveafewtoday.IreallywanttofocusinonsomeofthechangesandfundamentalbusinessofthescenecomingoutinthefirstquarterthefirstoneforMike.Howdifferentisaguidancenumbertodayversuswhatyoucameoutwith--whenyoufirstcamebackacoupleweeksago.AndthenontheXifaxanwhatI'mtryingtounderstandis,iforderswerecanceledtowardstheendoffirstquarterbuttheTRXcontinuetogrow,thatwouldimplytomethatthere'smoreinventoryinthechannelthanexpectation.AmIintherighttrackthere?AndonOphthalmologyRXIdon'tseedisruptionon(INS)andI'mtryingtounderstandwhatisitthatyourseeingdisruptionwiseinthefirstquarterbasis(inaudible)howdoestheJanuaryplusFebruarycomparedtowhatyou'reseeinginMarchandthenRobI'msorryifImayacouplethingsnumberonefreecashonEBITDAfreecashflowblitzyoubasicallymentionworkingcapitalchangeof$600millionyounowmention$200millionwhat'sdrivingthat?IsitjustWalgreens?SecondlyRobtaxratesHowardpreviouslysaid,thatifyoudodelivercashtaxesgoingtothelowteensversusthemid-singledigitsthatitusedtobesomyquestionisifyouguysdodelevercashtaxisgoingtolowteensversusmidsingledigitthatitusedtobe.Somyquestionis,ifyoudodelever,willthenon-GAAPtaxrateapproach20%?AndthenfinallyonEBITDAfor20--forthenextfourquarterssothepressreleasesaysthatadjustedEBITDAforthenextfourquarterswillbe6.2to6.6billionbuttheslide16saysitis6billionsoIjustwantunderstandthatthankyou.
MikePearson:That'salotofquestionsLetterquestionsthere(Umer).(I'mnotsureIpickedthemoff.)I'llstart(inaudible).Wehavebeenhavingalotofdebatewithamanagementandwiththeboardintermsofwherewetakeguidanceandquitefranklywecontinuedourdiscussionsandmadealotofprogresswithmanagedcareoverthelastcoupleofweeks.Someofthenegativeshaveincreased.But(inaudible).Thefirstquarterwe'vegotalotmoreclarificationonfirst-quarterasthequarterhasprogressed.Wefeelcomfortablewiththeguidancethatwegaveoutthismorning.Intermsofinventory.Asyousaidscriptcontinuetogrowbutpeoplearen'torderingasmuchproductit'soneoftwothings.
Onethereismoreinventoryotherthanwethought.Thesecondispeopleareholdinglowerlevelsofinventory.Thosearethetwopossibleexplanationsandactuallywethinkisalittlebitofthelatter.Intermsofbothdistributorsandretailersarefocusedoncashmanagementandwedothinkinventoriesthroughoutthechannelcontinuetogodownbutbydefinitioniscontinuetogrow.Thatissomepointwedobelieveaswegetintothesecondquartereverythingwillbenormalized.OphthalmologyagainIdon'tthinkwesaidthere'sanymajorchange.Whatwehaveisasetofolderpartsthataloneexperienceslowdecline.Thisisnotouractuallybrandedsharesisincreasingthisislargelyduetomoregenericsiswithgrowing.Sortofthepoolofbrandedophthalmologyproductsaswecompeteisgoingdown.Nowwehavenotincludedinourguidanceanynewlaunches.IfwegetapprovalonourGlaucomadrugthenweacceptthatwouldbehelpfulbolsterophthalmology.Certainlyindermatologyifwegetapprovalonsomeofourpipelineproductsthatwillmanagetherewhatwereforecastingnowinourguidanceisproductsthatarecurrentlyonthemarket.Wedon'thavelaunchproductsinthere.IntermsofprogressionJanuaryFebruaryMarchwasalwaysamuchlargermonththanJanuaryorFebruary.It'sevenmoreinthefirstquarter.Becauseofthesehighdeductibleplansit'sevenmoreacuteintermswhatweseeinMarch.SoclearlyMarchisamuchbettermonththanJanuaryFebruary.Rob?
RobRosiello (CFO):
Letmetakeofcareofthe(internal).Withrespecttotheworkingcapitalonslide20thereductionreflectsthelowergrowthintheupdatedguidanceanditsimply30%ofthechangeinrevenue.IntermsofthetaxrateIagreethatovertimeitwillincreaseifweweretodeleverthe10to15%thatweareshowingistotry
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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toshowitonacomparablebasistothe5%thatwewereshowing.Ithinkwe'vealwayssaidthatourlonger-termourtaxratewouldincreaseandlikewiseandcommensuratethe10to15%wouldincrease.AndwithrespecttothefourthquarterguidancewhichMikepresentedonpage16.Thechartiscorrect.TheadjustedEBITDAofnon-GAAPguidanceis$6billionandwewillcorrectthat.
Unidentif iedPart icipant :
RobtobeclearthenextforquarterstheEBITDAissixbillion?Or6.2to6.6
RobRosiello (CFO):
6billion
Operator :
DavidRissinger,MorganStanley.
DavidRissinger (Analyst-MorganStanley):
Thanksverymuch.Ihave13questionsalso.I'llkeepitalittlebitbriefer.FirstwithrespecttodivestituresshouldweexpectthemtobedilutedtoEPSgiventhefactthatyou'llbepayingofflowinterestratethat.SecondwithrespecttotherebatesdiscountsandchannelfeesincludingWalgreenscouldyoujustexplaintousI'massumingmostofthosearenettedoutofrevenueandarereflectedinthatrevenuebutanyofthosechannelpaymentsetc.reflectedinCOGSorSG&A.AndthenfinallywithrespecttolaunchesMikeyoumentionedthatyourexcludinglaunchesfromrevenueguidanceareyoualsoexcludinglaunchexpensesfromyourguidanceaswell.Thankyou.
MikePearson (CEO):
ThankyouDavidforprioritizingyourquestions.Ihopeyourcolleaguestakefromyourlead.Thankyouverymuch.Dependingonourdivestitures.Somecouldbedilutedsomecouldbeactuallymaynotbeitkindofdependsontheasset.Ifit'sanearlystageassetobviously--asyouknowit'sreallydependsontheassetandthepriceweget.IfwedoanythingmajoritcouldbelowerourEPS.Thereisnoquestionaboutthat.Butwewillbeclearinthepastwemadeacquisitionswhetherwhatitwouldbeyearwillbedilutive.Intermsofthelaunchexpensesarealsonotincludedinthebudget.ButIwillnotethatlaunchesintheareaofdermatologyandophthalmologywedon'tanticipatemajorchangestoourinfrastructure.IthinkwewouldprioritizeourcallpatternsdifferentlybutthelaunchwedohavegoodstrongcriticalmassanddermatologyandophthalmologyandinGIintermsofoursalesforcecapabilities,etcetera.Idon'tanticipatewewillbeaddinglotsofpeopleasfarastheselaunches.IntermsofWalgreens.IntermsofrevenuereductionsversusCOGSwearetakingtheWalgreenscostsforSG&AintermsofourretrievingWalgreens.Theyaredoingwe'rebasicallypayingthedispensingfeebasedonactivity.Andthatwillrunthroughitwillnotbeinthereductionofrevenueitwillbeflow-throughSG&A.
Unidentif iedPart icipant :
Thankyouforyourquestions,David.Nextquestion,please.
Operator :
DavidAmsellem,PiperJaffray.
DavidAmsellem(Analyst-PiperJaffray&Co.):
Ijusthavetwo.Sofirstonthetaxreporting.Thenewtaxreporting.AndIknowyoumadeitclearthatthere'snoimpactoncashfloworactualtaxespaid.ButIguesswhatI'mtryingtounderstandhereis
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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undertheoldreportingyouhadcharacterizedyourEPSguidancerangesandyourreportedEPSascashEPSsoundertheoldreportingforpastEPSisthatcashEPSnotreallycashEPS.I'mjusttryingtounderstandifthere'saninconsistencyhere.Secondlythisisahigh-levelquestion.Ithinkoneofmypeershadaskedaboutretention.Earliermaybecanyouspeaktomoraleinthecompanyandyoutalkedaboutdistractionscanyouspeaktothatandhowthatpotentiallyimpactsthebusinessandisthereanissueinternallyinyourviewintermsofconfidenceinyourabilitytoleadthecompanygoingforwardgivenwhat'stranspired.Thankyou.
MikePearson (CEO):
I'mgoingtoasktotakeyoursecondquestionfirstandthenwecouldtalkabouttax.I'mgoingtoaskedAriandAnneasI'vealreadycommented(inaudible)I'dliketogettheirtakesalargeportionsofthecompanyreporttobothofthemintermsofthepeopleside.Iwilladdressthepersonalquestions.ButAriandAnnewhydon'tyou—Arigofirstandtalkaboutmorale
AriKellen (CompanyGroupChairman):
LookIthinkasyousaidthesearechallengingtimesaswetrulyhaveanamazingbenchofgeneralmanagersandleadersoffunctionsinthebusinessesandyou'veheardtheirnamesrepeatedagainandagain.IthinkwehavestrongandtalentedleadershipandpeoplewhoarecommittedtoGItoophthalmology(inaudible)LatinAmericatheBNLbusinessandthinkingacrosstheteamsandtheseincrediblytalentedpeople.Wecometoworkeverydayobviouslywehavetoreturnmoneytoshareholdersbutwecometoworkworryingaboutpatientsandqualityproductsintothemarketandservingourdoctorcustomerscompliantlyintothebestofourability.Ithinkthat'swhatmotivatesourteamIthinkwebelieveinourmission.Webelieveinwhatourcompanyistryingtoachieve.That'swhatwedoday-to-day.Theissuessurroundingusaredistractingandittakescouragetoforgeaheadtoexecuteourmissionday-to-dayinthefaceofallthat.AllIcansayisthatwearefabulouspeoplewe'reblessedtohavethemwebelieveinthemandwethinktheywilldotherightthingforthebusiness.
AnneWhitaker (CompanyGroupChairman):
Iwilljustaddafewcomments.TowhatArihassaid.Ithinkyoudescribeditwell.WhenyoutalkaboutmoraleIthinkpeoplehavesortofworkedthroughtheprocessinternally,adifficultchangeprocessandpeoplenowareangrymoreaboutattheoutside.TheyseethecompanybeingdescribedinawaythattheyknowisnotwhattheyexperienceatValeant.I'mencouragedthatI'vereallyseenpeoplemovedtoaction.Theywanttohelp.TheywanttohelpchangetheimageofthecompanyandwehavereallystrongleaderswhoIthinkarechannelingthatenergyintothebestthingthateveryonecandoandthisorganization.Toreallychangeandshifttheorganizationandperformeveryday.Andthat'swhatweareemphasizingeachandeveryday.Reallydeliveringperformanceistogetusoutofthesituationthatwearein.IthinkthetenetthatValeanthasbuilttheorganizationaroundadecentralizedapproachhelpsushere.BecausewehavesomenewbusinesseswhohaveanidentitywithaselectsetofcustomerswhobuildingtheirimageandownbrandasaValeantcompany.Oneofthosebeing)whichisdoingverywell.Coupleofotherpoints.Ithinkwehaveoneofthebest(inaudible)compprogramintheindustry.Foroursalesrepresentativessothatkeepsthemmotivatedoncleargoalsthattheycanachieveandwe'reworkingtoshaketheenvironmentsuchthattheycandothat.AndIwilljustendwithIthinkAri'spointaroundpeoplereallybelievingintheproductsthatthey'reselling.WhenItalkedtooursalesRepresentativewhenItalktoaremarketersandourR&Dfolkstheyareverycommittedthattheseproductsthatwebroughttomarketandarebringingtomarketmakearealdifferenceinpatientslives.Ithinkkeepingthatcommitmentthatconvictionandthatdeterminationtoreallychangeourimageandperformourwayoutofthiswillkeepourorganizationandthemoralegoingintherightdirection.
AriKellen (CompanyGroupChairman):
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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Thatisagoodpoint.IfIcouldjustaddthis.It'simportantfunctionsthatenableourcurrentpeopletodotheirworkandthatspecificallymanufacturingandR&DandIthink(PageandhisteaminR&Darecrankingourproductsthataregoingtofillpipeline.Wetalk(aboutinaudible)IDP-118(inaudible)thesethingsarebeingworkedonbythisterrificteamwhileremainingfocusonthefuture.IthinkDennis(inaudible)manufacturingaswetravelaroundtotheoperationsyoucouldn'thopetohaveateamofpeoplemorefocusedonjustdrivingqualityandefficiencyday-to-day.
MikePearson (CEO):
Davidyou'rebeingpolitetoguessthequestionisamIappropriatetoleadthiscompany.It'sclearlyuptotheboard.Idothinkwehaveagreatboardwe'vemadeanumberofnewadditionstoourboardwillprovideevenmoreindependence.WebasicallyhavemorerepresentationfromtwoactivistinvestorsPershingSquareand(ValueX).Ithinkwehavetwomajorinvestorsalso.Onourboard.OurboardinteractwithinvestorsandsoIcan'tcommentorI'mnotgoingtochoosetocomment,intermsofthatisuptotheboard.Idothinkourboardisalotclosertotheinvestorsthanmanyboards.Bothgiventhecompositionthenewindependentdirectorsaswellassortofrepresentationfromacoupleactivists.Tax?
Unidentif iedPart icipant :
Historicallyourtaxpresentationtable2Aand2Bshowedthatsinglenumberitisacombinedtaxeffectofanon-GAAPadjustmentaswellasthetaxattributesandothertimingissues.SuchasNOLs.Whatwe'vedoneintheQ4onauditedpreliminarypresentationistobreakthatoutintotwopiecesthetaxprovisionplustheeffectsofthenon-GAAPadjustmentsaswellasthetaxeffectofuseoftaxattributesandothertimingitems.We'rereportingcombinedamountofthatas5%.Goingforwardwerejustgoingtoreportthetaxprovisionplustheeffectsofthenon-GAAPadjustmentonlyontable2Aand2B.Wewillcontinuetonoteinaseparatetablethetaxeffectoftaxattributesandothertimingaffectsothersasyoumentionedthere'snoimpactoncashfloworactualtaxespaid.OurapproachhasbeentomatchtheactualcashtaxthatValeantpaideachyearbutagainit'sbeenmadeupofthosetwotermswhichwehistoricallycombined.
Unidentif iedPart icipant :
Nextquestion,please..
Operator :
Solvatru)HCWainwright
Unidentif iedPart icipant :
Thanksverymuchfortakingmyquestion.Ijusthavetwo.Oneisinageneralsensewhetheryoucancommentonyouphilosophyofcurtailingpriceincreasesversuswhatyourpeersandinthespecialtypharmaarenaaredoingandhowhighyourconvictionisthatgoingforwardthisisthebestapproachtotakegivenchangesinthemanagedcareenvironment,i.e.,getridofasmanypriceincreasesaspossibleversuspursuingajudiciousapproachtomaybeincreasingpricesonsomeproductsornot.AndinthesecondquestionisspecifictowhatyoupreviouslycommentedonbackinDecemberregardingconvertingwrittenprescriptionstofilledprescriptions.OnAddyicouldyougiveusanupdateonthatplease.
MikePearson (CEO):
Sure.IthinkweretryingtobeveryclearonourapproachtopricingwhichisgoingforwardandthisisbeeninplacesinceSeptember.Wewilltakesingle-digitpriceincreasesacrosssomeofourportfolioinlinewithmanagedcarecontracts.WewillbemadewiththecommitmentasfarastheWalgreensdeal,
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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thisyeartoreduceprices(ondermatologyandophthalmologythebrandedproductsis10%thisyear).Wearenolongerinthemarketforunderpricedassetsoutthere.Ifyouactually—backpriceincreasesarepublicknowledge.Ifyouactuallylookatusversuscompetitorsbothinthespecialtyandinthebigpharmaonspacethe(black)priceincreaseshavebeenthisyearyouwillseethatwe'reactuallybelowwhatmostifnotalltheothercompanieshavedone.
Ithinkwe'vetalkedaboutthatandIguessthequestionishowcommittedarewe.Weareverycommitted.Infactthatsomeoneofthekeysinthemanagedcare.Isthatcommitmentandtheyareplottinginappreciatingtheapproachwe'retakingandthey'reusingthatwhentheytalktoothercompanies.IthinkoneoftheverysmartthingsthatAnneandourteamhasdoneis(offersomething)thattheresttheindustryhasnotoffereditandthathasplayedabigroleintermsofimprovingoverallrelationships.Isitfair?
AnneWhitaker (CompanyGroupChairman):
Thatisveryaccurate.Whatthepayers(inourlead)andtheyareveryclearandIunderstandthisfrombeingintheindustryfor25yearswithotherPharmacompaniestheywantpredictability.Weareworkingwitheachofthepayerswhethertheyahealthplanora(PDM)oncontractsaroundpriceinflationprotectionandasMikesaidaligningourpriceincreaseswithmoremodestindustrystandards.SoIthinkyouhadthatAddyiquestion?
SowithAddyiyou'rerightweseethenumberofwrittenprescriptionversusfilled.Inthebeginningbackinthefourthquarterwewereonlyseeing25and30%oftheprescriptionsgetpaidfororfilled.Thatnumberisnowuptointhemostrecentweeks57%ofthoseprescriptionsarebeingfilledandpaidfor.Reallythatsortoframpupwithanumberofprescriptionsisbeingimpactedbyonehavingacomplexriskprogramthisisthefirsttimethatwhereaccordingtoourknowledgethattherebeenapharmacistandphysiciancertificationprocessandsoreallyworkingthroughthat.Hasbeenachallengebutwecertainlyaddresseditwiththepharmacieswe'redowntoaround10to12%ofscriptsbeingkickbackfrompharmacists.
We'restillworkingthroughthephysiciancertificationandmakingsurethatthosethatarewritingarecertified.Andpartofthathastodowiththisisanewproductandwewanttomakesureexactlywhothetargetsandthewritersoftheproductwouldbe.Wehavemuchmoreclearinformationnowonwhothetargetsareandwhosetreating(HSDD)andotherdiseaseslikethatandweretakingmoretargetedeffect.Andthenlastlythemanagedcareprocesshaschangeddramaticallyjusteventhispastyear.AllofthelargePDMsknowinmostcasesfromlaunch.TheytakesixtoninemonthstoactuallydotheclinicalreviewandthenenterintonegotiationandsoithastakenusthattimeaswetransitionfromSprouttoValeantandourmanagedcareteamhere.Pickingitup.ToreallyworkthroughthatprocessandIfeelveryconfidentbymidyearwewillhaveimprovedaccessforAddyiandwillstarttoseetheprescriptionsthatarecomingthroughbeingfilledandbasedontheenhancementswemadetoourpromotionalorganizationandfilingofactualmarketingmaterialsthismonthtoOPDP.Thatsecondhalfwillbeamuchbettertimeperiodtoreallyjudgetheperformanceofthisproduct.
MikePearson (CEO):
Thatbeingsaidwetakefullresponsibilityforreduction—weprobablydidn'tmovequickenoughupandthat'smyfaultbutIthinktoAnne'spointwearenotgivenuponthisproduct.Clearlywehavetodemonstrateourabilitytohavesuccessandwehavenotdonethatyet.Sothat'sonus.Weareworkinghardtodeliver.
AnneWhitaker (CompanyGroupChairman):
Andalastcomment.Thetestimonialsthatwehearfromphysiciansandpatientseachdayinspireusand
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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everydaytokeepgoingwithAddyiandreallyeducatingaroundHSDD.AsMikesaidwehaven'tgivenupIhavealotofconfidenceinthisproduct.
MikePearson (CEO):
Nextquestion,please.
Operator :
AlexArfaeiBMOCapitalMarkets
AlexArf aei(Analyst-BMOCapitalMarkets):
Thankyoufortakingthequestionsmostofmyquestionshavebeenaskedandanswered.Lookingatsomeofyourtop30productsspecifically(inaudible).Itlookslikemuchofthe(solobusiness)isbeingmadeupfromotherchannelscouldyouprovideyouroutlookfortheseproductsspecifically(Juvia)whichwasthoughttobeagrowthdriver.Andjustafollow-uponAddyidoyoustillexpectittobea100andmilliondollars$250milliondrugin2016thankyou.
MikePearson (CEO):
IntermsofAddyinowedon'texpecttobe100betterthan15',in2016.That'soneoftheproductsthatwereducedtheforecastsignificantlyon.Whatweareishopefulwewillgettothatlevelbutcertainlynotin2016.IntermsofJubliaitisoneoftheproductsthatis—therewasaquestionearlyaboutleverage.Canyouleverageyourportfolio?AndasAnnesaidormentionthat(derm)hasbeenoneofreviewsthemanagedcarecompanieshavereallyfocusedonJubliainparticular.SothenetofmanyofournegotiationsisthatwesacrificethepriceonJubliatoensureaccesstotherestofourportfolio.WewouldexpectandwehavebetteraccessforJubliathanwehadbefore.SowewouldexpectscriptstocontinuetogrowonJubliabuttheaveragepricewillcomedown.Inordertoreturntogrowthwe'rereallyneedtoexpandthenumberofscriptsbutithasbeendisproportionatelyhitintermsofmanagedcareinordertoprotectbecausethat'swhatmanymanagedcareplanswerelookingfor.AgainasAnneWhitakersaideachnegotiationisspecificit'snotthecasewitheverymanagedcareplanandeveryonehastheirownneedsbutthat'swhatwe'reseeinginJublia.Nextquestion,please..
Operator :
DavidMerrill,WellsFargo.
DavidMerrill(Analyst-WellsFargo):
MorningIhaveafewquestions.FirstRobwhynoGAAPguidanceandthenabridgetonon-GAAPsincetheinvestorscouldmakeadecisiononwhattoincludeandwanttoinclude?.Secondonthetaxassessment,useoftaxattributesandothertimingissues.Iknowafewquestionshavebeenaskedaboutthisbutdoesthisrelatetodeferredtaxliability'sanduseofrecoveryofincometaxoranythingelselikethat.IknowIaskedthatwhenImetwithyouaboutamonthago.Iwasjustwonderingifthat'srelatedtothat.AndthenthesecondhalfguidanceseemstobeadramaticincreaseotherthantheinventorydrawdownisthereanythingelsethatweshouldexpectthatshouldaccountforthatandlastlyIthinkMikejustmentionedthatlaunchexpensesforacoupleoftheselaunchesarenotincludedintheguidance.Whywouldtheynotbeincluded?
MikePearson (CEO):
Wehavenolaunchuntilproductsapprovedwedon'tincludedandourguidancesowedon'tincludetherevenues.Orthelaunchexpenses.Nowbecausemostofourproductsare--areincategorieswherewe
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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alreadyhavestrongsalesandmarketingthenetimpactoflaunchingtheseproductswebelievewillbeneutralatworstintermsofourEPS.Thisisthewaywetreatit.Wedon'tputintherevenuesandwedon'tputinthecostsbecauseisnotapprovedit.Andthat'salwaysbeenwhattheapproachwe'vetakentoguidanceandatleastfromourvantagepointthatmakesense.Toincluderevenuesnotcostwouldn'tmakesensetoimprovethecostswithouttherevenueswouldn't'makesenseofwechoosenottoincludeeither.
DavidMerrill(Analyst-WellsFargo):
Justasafollow-uptothatisafairtosayifthereimprovedsinceproductsaren'tusuallyprofitableinthefirstyearortwothatwe'dseeanincreaseintheexpensesjustforthelaunchexpensesnotfortheinfrastructureorthenewsalespeoplebutasforlaunchexpenses
MikePearson (CEO):
Ourbelieffortheproductsthisyearwewouldnotexpecttohaveanimpactonoverallguidanceforexampleifthat'sthequestion.Wewillhaveophthalmologywehopegetapproved--July.WebelievewillhaveenoughrevenuestocoveranyofthelaunchexpensesandfurtherwedonotexpecttogetapprovedtoNovemberDecember.Andsoagain,itshouldhaveminimalimpactonourguidance.Sowedon'texpecttobetakingthatguidanceuntilweproductsapproved.Rob
RobRosiello (CFO):
TakeyoursecondquestionfirsttaxeffectsarelargelyNOLs.Andtheuseofdeferredtaxassetsandnotliabilities.WithrespecttotheGAAPguidanceasweexplainedinthefootnoteforpressreleaseduetotheinherentdifficultyinforecastingandquantifyingcertainamountsthatarenecessarytodoitwefinditmoreaccurateandbetterforourinvestorstoguidetothenon-GAAPmeasuresthatwedo.
MikePearson (CEO):
Nextquestion,please..
Operator :
(Lucas)Unioncapital
AnneWhitaker (CompanyGroupChairman):
Nextquestion,please.
Operator :
AlanRidgeway;Scotiabank
AlanRidgeway(Analyst-Scotiabank):
Higoodmorningthanksfortakingthequestions.Idecidedquestionaboutthebridgetothe2016guidance.Intryingtogetafeelforreducedrevenueexpectationsforboththe(derm)andtheSalixbusinessandthemanagedcarecontractingpieceaswell.Canyouspeaktosortofinyourreducedexpectationsfromarevenueperspectivethisyearwhatthesortofsplitbetweenvolumedeclinesordeclineinyourexpectationsfordemandversusyourexpectationsonpricing.Andthenhowthatmayhavechangedinthelastlittlewhileasyou'vecontractedwithmanagedcareandI'llleaveitatthat.Thanks.
MikePearson (CEO):
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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Great.Themanagedcareisjustallprice.Right.We'vequantifiedthat.Hopefullywhatwehopetobeabletodoistogiveusbetteraccesstodrivemorevolume.Wehavenotbuiltalotofthatandoftoourforecastandthatshouldbetheupside.Butintermsofmanagedcarethatisbasicallyprice.Intermsaswethinkaboutpriceiscapturedthereandobviouslythereissomepriceandtherevenueside.Nottomanaged-carepiecepartlythroughthepricereductionsthatwe'regivingandophthalmologyindermatologyaswellasthefactthatwearesortofpriceincreasesweremorelimitedandwhatwecandoinsomecasessomeofthecommitmenttomanaged-carewastokeeppriceincreaseslowerthanwehavehistoricallysoasapriceelement.Weactuallyinthefirstquarterwheredemandhasbeenlower.Wedoexpectifyouactuallylookatthescriptswe'rerunningaheadoflastyearindermatologyandsowearequitepleasedwiththat.WeareexperiencinggreatscriptgrowthintheG.I.franchise.Intermsofophthalmologyagaintherewehaveadecreaseinscriptsthatwereincreaseandshareinthebrandedportionandthosearethethreemainfranchises.Overallweexpectdemandtocontinuetoincreaseoverthecourseoftheyear.
Operator :
GregGilbertfrom(VB)
Unidentif iedPart icipant :
Thankyou.FirstMikewhenyoutalkaboutscriptgrowthfordermareyoutalkingaboutscriptsof(IMS)orplus(Philidor)I'ErealsprescriptionsorjustthosethatweseeonIMSwhichmightbeinflatedduetotheWalgreensshiftawayfromPhilidor.Secondlywhenyouexpecttobeabletofilethe10KandcanyousureyourgameplanwithIEwhatisinyourcontrolwhatisintheboardcontrolorgatedbytheboardandareyourauditorsinagreementwithyourgameplaninyourtimeline.IsuspectsalotoffolksaregoingtowonderafterthecallwhenyouexpecttogettheKdone..Andalltheimplicationsthatcomewiththat.AndlastlyMikewhenyoucommentonthesituationspecificallywithDebandTanyagivenweonlyhavemediareportstorelyonandclearlyyouknowatapersonallevelwhathappenedinthosecases.Thanksverymuch.
MikePearson (CEO):
Soscriptgrowth.
AriKellen (CompanyGroupChairman):
Dermisrunningroughly10%aheadoflastyearallin.Wearenowusingsymphony(inaudible)datatoseeyouknowthat'swhatweregoingtobetracking.SofarallindermisgrowingtheaccessprogramisstillrelativelynewasMikedescribedandwe'reexpandingintonetworksandindependentsandsoitcontinuedtoexpectgoodTRXgrowththroughthecourseoftheyear.
MikePearson (CEO):
Intermsofthe10K.Certainthingsarewithinourcontrolandcertainthingsaren'tasmanagement.Wehavetheadhoccommitteecontinuetodotheirreview.Sopartlydependsonthanapartlydependsonus.Wehavetodoourworkintermsofsubmittinga10K.WeareinconstantconversationswithPWCintermsofthemtodotheirwork.ThebestestimatethatIcangivebutagainwedon'tcontrolitishopefullygetthis10KfiledsometimeinApril.Ican'tcommittothat.ThatwouldbemybestestimateiftheybasedoneverythingthatIknow.IntermsofDebandTanya.Debresigned.Shewasavaluedemployee.Shedidalotofthemarketingsheledourdermbusinessanddidagreatjob.Weweredisappointedthatsheleft.AsImentionedshewaspartoftheEMTwherewehadnoretentioninplace.Becauseofourexecutiveofficersofthecompany.Wewishherwellandwe'requiteclearthathadnothingdowiththeadhoccommitteeoranythingelseitwasadecisionthatshemade.AndTanya.AgainthathappenedwhenI
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
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wasn'theresoIcan'tcommentIdon'thaveinformationonthatIcan'tcommentonthat.
Operator :
DavidSteinberg,Jefferies
DavidSteinberg (Analyst-Jefferies):
Thankyou.Youmentioneddestockingquiteafewtimesonthecallinparticularforsomeyourkeybrands.Iwaswonderingifyoucouldhelpuswithinventorylevels.IbelieveinthepastnormallevelsintheUSwereabout2to6weeksand2to4monthsglobally.Canyouconfirmyourwithinthatnormalrange.AndperhapsperpointintheUnitedStatesgiventhelastpublicforumareyouhigherorlowerthanyouwerelasttimeyouspoketotheinvestmentcommittee.SecondlyValeantbenefittedfromthelowesttaxrateinyourindustryandIwasjustwonderingcanyouremindushowlongthattaxrateisironcladthere'sataxtreaty.Ifthere'saperiodoftimewhenitwillbereviewedandwhenthattimeis.AndthenlastlybiggerpicturequestionMikeonyourcorporatecultureyouthinkelementsofitneedtochangedoyouthinkthere'ssomecomponentincentivizesuboptimalbehaviorandcouldyoucommentwhetheranychangesthatthetop-levelmanagementwasnotpartoftheretentionplanhasn'tbeenanychangestothecompensationpackage..
MikePearson (CEO):
Sointermsofcompensationpackagethere'sbeennochanges.Intermsoftheseniormanagement.Intermsofinventorylevels.Thosecontinuetobesortofourguidelines2to6andfouroutsideofthatvariesbycountry.IthinkwebeencompletelyflatintermsofourinventorylevelsintermsoftheUS.OutsidetheusIthinkactuallyinventorieshavebeendownalittlebit.NochangesininventorylevelssincethevolumehasincreasedthroughWalgreensintermsofabsolutedollarsthatmeansourinventorylevershavecomedownbecausewhatweretalkingaboutthatweretalkingabouttermsofweeks.
SinceWalgreensisconsignmenttheabsolutelevelofdistributorinventoriesintheUSfordermatologyforexamplehascomedown.Althoughtheweekshaveremainedinthesame.Hopefullythat'sclear.Intermsoftaxrate.Wedonotknowofanyimminentoranychangesthatarecomingdown.Againwewillseethatspaceuncovered.We'reunawareofanythingthatwouldchangeourtaxrate.Intermsof--talkedaboutbolsteringcorporateculture.Itisinterestingoneweekwiththere'sacouplevariablesthatweareinvestingitwillcontinuetotrytoupgradeourfinancialreporting.
CertainlyfromaPRandgovernmentrelationsside.Wearecommittedtoinvestingintheprocessofinvestinginthosefunctions.AswesaidinthepressreleaseweareallPharmacompaniesdocontinuetoemphasizecompliancewearecontinuetoemphasizefromaqualitystandpointandcontinuingtofillthatcapabilityquiteabit.Ithinkwe'vealmostdoubledourqualitydepartmentcorporateintheUSwillmaketheinvestmenttermsofheadcountandcapabilitywouldfeelverygoodaboutthat.Wehavegrownprettyquickly.We'regoingtocontinuetoinvestinthecorefunctionstomakesurethatwedeliverhigh-qualityproductstophysiciansandtopatientsandworkinthemostcompliantway.IntheUSandbeyondtheUS.Nextquestion,please..
Operator :
RandyRaisman,MarathonAssetManagement
RandyRaisman (Analyst-MarathonAssetManagement):
Heyguys.Howareyoudoingcouldyouprovideusalittlebitofabridgeonthecashbalance.Becausewhenwelookatitweseethatyouhadroughly$600millionofcashatQ4lookslikeyoudodown$1billionontherevolver.Takeyouto1billion8,youpaid900millionbetweentheforthetermloanand
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page26of31
therewasanotherpaymentthatyoumade.Thatshouldleftyouwithabout$900millionincashinandyoursayingyouhave1.2billionincashthatwouldimplythatyougenerated$300millionofcashinthefirstquarter.Andthatdoesn'treallylineupwiththeguidancefor2.2billionofcashflowfortheyear.Howdowegetcomfortablethatyou'regoingtogenerateanotherbilliondollarsofcashthanwhereyouarecurrentlyrunning?
AnneWhitaker (CompanyGroupChairman):
Ontherevolverweendedtheyearwith$250milliondrawnontherevolverandwerenowat$1.45billion.Weareobviouslyaregeneratingcashinthefirstquarter.Wedidhavehoweversomelargepaymentsinthefirstquarterthatwediscussed.$500millionforSproutthatwetalkedabout.WepaidearlytheywerenotdueuntilApril20.$260millionofmaturitiesandImentionedtheexcesscashflowpaymentofabout$100millionwhichwillbedueattheendofMarch31.Andthosearesomeofthebigpayments.Butagainwithouttheselargepaymentsweweregeneratingcashthisquarter.
RandyRaisman (Analyst-MarathonAssetManagement):
Butmyquestionisbasedonmymathitlookslikeyougeneratedmaybe$300millionincashquartertodatefromwhatyoudisclosedandyou'retellingusweshouldthinkyou'regoingtogenerate$2.2billionfortheyear.WhereistheramptocomefromQ1that'sabigjump.
MikePearson (CEO):
ItisbutwetookdownrevenueinQ1considerablybecauseofthatexplanationandQ2andQ3andQ4.CashgenerationwillbestrongerthanithasbeeninQ1.
AnneWhitaker (CompanyGroupChairman):
Thatiscorrect.Obviouslycashgenerationdependsonworkingcapsowerenotquitedonewiththequartersothat'sgoingtoimpact.Ican'tconfirmspecificallybutexactly$300millionbutyoushouldthinkofitascashgenerationbeforethesetypesofpayments.
RandyRaisman (Analyst-MarathonAssetManagement):
Thenjustontheleveragecovenantsifyou'relookat2.1timesandthecovenantis21/2isitsomethingyou'regoingtolooktoamendaswellwhenyougoouttothebankgroupisnotthatbigofacushionthere.
AnneWhitaker (CompanyGroupChairman):
Rightnowperwhatwespokeaboutbeforewerethinkingaboutamendingaregoingtoamendforthecostdefaultaswellastiming.
RandyRaisman (Analyst-MarathonAssetManagement):
Okay.
AnneWhitaker (CompanyGroupChairman):
We'vedonesuchcases.Onourcovenantsbasedonourguidance.Andwearecomfortableaswesaidinthepast.
Operator :
IrinaKoffler,Mizuho
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page27of31
Ir inaKof f ler (Analyst-Mizuho):
Thankyoufortakingthequestion.Justcuriousandhavingphoneissues.Whatwouldyoudointhefutureonceyourbusinessisnormalized.Imeanisitmorebacktobuyingadditionalassetsyoumentionedyou'renotgoingtobuyexpensesormispricedassetsinthefuture.Butwhatcanwelookforfromthecompanyoncethisperiodblowsover.Thanks.
MikePearson (CEO):
Wearegoingtoworkhardtogetthisperiodtoblowover.We'regoingtoreduceourdebt.We'vemadeacommitmenttogetunderfourtimes.Untilwegetunderfourtimeswearenotlookingtomakeanyacquisitionssothat'sour—we'reexcitedaboutourlaunchproductswereexcitedaboutmanyofourproductsthatwe'verecentlylaunchedlike(alsoBiotrue)andwewanttodemonstratewecandrivegrow.
WithourcurrentportfolioinourR&Dpipelinewhichwefeelthatwecan.Ifwefastforwardtothatperiod.Throughthatperiodwhichisalongtimefromnowthatwecontinuetolookforassetsthatfitintoprobablyareaswherewehavestrengthstoday.WhichwillbedermatologyophthalmologyG.I.andemergingmarkets.Butasyoumentionedwewillnotbelookingatacquisitionsthatinvolvesortofamisplacedassetsthatwillnotbepartofouragenda.
Nextquestion,please.
Operator :
DavidCommon,JPMorgan
DavidCommon (Analyst-JPMorgan):
Terrific.Thanks.Forthefixedincomequestionopportunity.Myquestionrelatestoanynon-coreassetssold.Canyoutelluswhetheryouarecurrentlyrequiredorexpectedtoberequiredtopayoffsecureddebtwiththoseassets?Totheextentthatyou'vegivenusanexpecteddebtreductionfor2016doesthatpresumeanyassetsales?AndalsoyoupreviouslyIbelieveplantopayoffIthinkitwas$800millionyouhadinyourrevolveratDecemberinadditiontoabelieve$2.25billionofotherdebt.Couldyoutelluswhatyourexpectationsareforreductionintherevolverbalanceoverthenext12monthsorthisfiscalyear.Thankyou.
AnneWhitaker (CompanyGroupChairman):
Davidfirstonassetsalesperourcreditagreementwehave365daysthatwecouldreinvesttheproceeds.ButasMikesaidweareveryfocusedondebtpaydown.Iexpectthatwewillusesomeofthoseproceedstopaydowndebtfurther.Secondlythe$1.7billionthatImentionedintheslideispermanentdebtreduction.Itdoesn'tincludeanyadditionaldebtreduction.Wewouldreducesomeassetsales.AndtoansweryourthirdquestiongoingbacktotheJPMorganslideandIknowexactlywhatyou'rereferencingontheA25thatA25waspayingdownyearendrevolverbalanceaswellasdiscretionarycash.Theyearendrevolverbalancewas250soIdidwanttoclarifythatthatwasn'timplyingwe'retopaydowna25asrevolver.Lastlywearecommittedtothe$1.7billionofpermanentdebt.Wealsowanttobringtherevolverdownbalancedown.SignificantlybutthroughthecourseoftheyearbutIdon'twanttocommitrightnowthat'llbezeroattheendoftheyear.
DavidCommon (Analyst-JPMorgan):
Perfect.Thankyou.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page28of31
Operator :
TimChiangBTIG
T imChiang (Analyst-BTIG):
HelloMike.IhadonefollowupIknowyouguysandsaidyou'regoingtoloweryourcoststructureontheSG&Asideforsomeofthesenichedivisionswhetherit's(Solta,Aubagio).Iknowthatthesegroupsallthesehavebeenprettyleanalready.I'mjustwonderinghowmuchadditionalcostscuttingcanyoureallydointhesetypesofgroupshere.
MikePearson (CEO):
Ithinkwetalkedaboutcost-reductionbothintermsofsomeofthesmallerbusinessesbutwealsohadtostepbackandlookattheoverallSG&Awhichasapercentofincreaseandwehavetotakealookatthat.Withthecaveatreinventingcorefunctionsthatwewanttobuildcapabilitiesin.Someoftheseexpenseshavegrowninsomeofthesmallerbusinesses.AndasArimentionedwe'renotinthebusinessofrunningunprofitablebusinessessoSoltawearetakingstepstomakesurethatitisprofitableanddeliveringcashflowtoourinvestors.On(inaudible)therewillbecost-reduction.WearespendingtoomuchintermsofrelativetotherevenuesintheUS.(Aubiagio)isadifferentissueismorearoundsales.It'smakingmoneyandthere(folksseeing)nonincreasinggrowthratesthewehaveagreatfranchisethereetcetera.
IntermsofbusinesseslikeCommonwealthwehadaplantoexpandsalesandmarketingquiteabit.Thedemandisslower.Itisgrowing.Itcontinuestogrowwhichispositive.Butwearenotgoingtoincreasespendingatthesameratethatweareplanningonincreasingspendingwearegoingtobemoremoderateintermsofourapproachandastherevenuesbuildthatwe'llcontinuetoinvest.Butwe'lldoitinaprofitableway.Itsortofthesameapproachaslaunchinganynewproduct.Youcanchoosetospendalotofmoneyintheshort-termandhopesofacceleratingrevenueoryoucouldtakeamoremeasuredapproachandthat'swhatwe'regoingtodointhesebusinessestoensurethatwecontinuetogrowthebusinessisbutwealsocontinuetoputdollarstothebottomline.
T imChiang (Analyst-BTIG):
Mikejustonefollowup.BackinDecemberyouguyshadoriginallythoughtthisisonXifaxinbytheway,thatyouguysweregoingtohireinanotherhundredrepstosupportXifaxin'sgrowthinAGisisstillpartoftheplan?
MikePearson (CEO):
Yes,andasAriIthinkmentionedearlier.Thoserepshavebeenhiredandtrained.(inaudible)
AriKellen (CompanyGroupChairman):
Inthenextcoupleweeks
MikePearson (CEO):
Certainlyinthenextquarter.Bytheendofthesecondquarterofrunningandfullytrained.Thathasnotchanged.
Operator :
(DerrickMcGurkMarathon)
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page29of31
Unidentif iedPart icipant :
Thankyou.Myauntsquestionhasbeenanswered.
Operator:CynthiaWongGoldmanSachs
CynthiaWong (Analyst-GoldmanSachs):
Hithankyou.Iwantedtoaskhaveyouboughtbackanybondsin4Qor1Qtointheopenmarket.IthinkIsawtheseniornotebalanceisabout$35millionlowerfrom3Qbutisthatjustcompletionfortheeuroortrendsorwasanydebtbuybackseniornoteside.Thanks.
AnneWhitaker (CompanyGroupChairman):
Cindynodebthasbeenboughtbackintheopenmarketforbondsandyou'reabsolutelycorrect.Thatitwouldbetranslation.TheEurobondneedstobemarkedtothosecurrentaffectrates.
CynthiaWong (Analyst-GoldmanSachs):
Anycommentand1Qiftherewasanydebtboughtback.
AnneWhitaker (CompanyGroupChairman):
No.Therehavebeennobondsboughtbackin1Qtodate.
Operator :
DavidMaris,WellsFargo
DavidMaris (Analyst-WellsFargo):
Sorryaboutthatoneofthequestionsthataninvestoraskedtometoaskhastodowiththespeedofthebusinessandthedeclineofthemarketcapandalltherest.TheyhadseenthatanewsreportthattheboardhadthoughtofbringinganewCEOanewmanagementteamtostartthingsafreshbutoneofthepushbackswasthattherewasalargeparachuteordownstreampayments.Isthattruetoyourknowledge?AndsecondgiventhewaythePhilidorandalltheresthasplayedoutsofarareyouwillingiftheboardsaidtothattheywantedtobringanynewmanagementteamtoforgothosesometimescalledgoldenparachutepayments.
MikePearson (CEO):
Idon'thaveagoldenparachutepayment.
DavidMaris (Analyst-WellsFargo):
Anyterminationrelatedpayments.
MikePearson (CEO):
AgainIdon'tthinkI'mnotsure.Idon'tknowifeverythinginthatarticlewascorrectIwasn'tinontheboard.Ican'tspeaktothat.MaybeIshouldwishIcouldgettwohundredmilliondollarsifIleavebutunfortunatelyIdon'tthinkthat'sthecase.Fortunatelyfromaninvestorstandpoint.It'snotthecase.ActuallyIthinkI'mprettymodest.IfIgotfireditisprettymodest.Itmaybereferringtosomestockthatisvestedthat'snotdeliveredtillthefuturebutthat'sbeendivestedourthat'sthensoDavidI'mnotawareofanygoldenparachutethatIhave.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page30of31
DavidMaris (Analyst-WellsFargo):
Okay.Thankyouforclearingthatup.
Operator:HenryReukauf,DeutscheBank
HenryReukauf (Analyst-DeutscheBank):
Quickquestionontheforward-lookingguidanceforthenext12months.Ithinkyousaidit'sgoingtobe$6millioninsteadof6.2to$6.4billioninthepressreleasetoday.DidIhearthatcorrectly?IfIdidwhat'sthereasonforthechange?Andonemoreafterthat.
MikePearson (CEO):
Thechartwascorrectwasinthepressreleasewasanerror.
HenryReukauf (Analyst-DeutscheBank):
Itdefinitelylookslikeitwasswitchkindofintentionallywasoranyotherfurthercommentonthatorno.
MikePearson (CEO):
Itwasnotswitchedintentionallyitwasawrongnumberandweapologize.
HenryReukauf (Analyst-DeutscheBank):
OK.Andthelastonesjustonthedebtyouwanttogettothattofourtimes.Youmentionednomoreacquisitionsdoesitalsoincludesharerepurchasessocanweassumethatbasicallyallthefreecashflowisgoingtorepaydebt
MikePearson (CEO):
Againthat'sourcurrentintentistodothat.Wereservetherighttochangethatbutwhatwearehundredpercentcommittedtoisreducingdebtto1.7.Andourfocusisondebtrepaydown.
Operator :
(DimitriKomensky)Veritas
Unidentif iedPart icipant :
HelloMikethanksfortakingmycall.Ihavetwoquestions.Onerelatestothe$68millionrestatementIwaswonderingifyoucouldelaboratewhetherthatrestatementprimarilyrelatedtoQ4andifyoucouldbreakoutthedetailsbyproductswhatproductsit'srelated.Ifyoucanquantifythat.
Andtheotherquestionhastodowiththechangeintaxpresentation.CanyoupleaseclarifyonslidesixwhenyoutalkaboutQ42015unauditedresultsthere.Isthistheoldpresentationoristhisthenewpresentationtalkingaboutthemiddlesectionoftheslide.Andifyoucanalsoelaboratewhatyoumeanbytaxprovisionthere.Isthattaxprovisionthatincludesbothdeferredaswellascurrentincometaxes?Orisitsomethingelse?AndthesamethingalsoappliestoFXanon-GAAPadjustmentsisitrelatedtodeferredorcurrenttaxes.Thankyouverymuch.
MikePearson (CEO):
Sointermsoftheadhoccommitteeputoutapressreleasethattalkedaboutthetimingand2014whatwas$68million.I'msorry$58millionintermsofQ42014versusQ12015.
CompanyName:ValeantPharmaceuticalsInternationalIncCompanyTicker:VRXSector:HealthCareIndustry:Drugs
EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.69BPriceasofEventDate:33.4293
©2014TheStreet,Inc.Al l R ightsReserved Page31of31
(Crosstalk)
Thesecondhalf.ButisprimarilyQ4.Intermsofamixofproductswetookalookatthatit'snormalmix.Youmaybereferringtotherewassomespeculationthatitwasall(Solodyne)orsomethinglikethat,whichisnottrue.Itwasanormalmixacrossourdermatologyprimarilyourdermatologyproductportfolio.
RobRosiello (CFO):
Twothingsthemiddlepartofthechartisthewaywearepresentingthepresstablesthatwerereleasedthismorning.We'rewerebreakingoutforthefirstthetaxprovisionplustheeffectsofthenon-GAAPadjustmentswhicharetherebothcurrentanddeferred.Onanongoingbasis.Fromthatgoingforwardwhatwewillreportisjustthatfirstterm.Ifyoulookattables2Aand2bit'sthefirsttermthatwewillreportandwewillapplythattocalculateouradjustedEPS.AndsothereforearereportedtaxrateagainonacomparablebasisinthiswillchangeifwereduceourNOLswouldmovefromapproximately5%toapproximately10-15%.
MikePearson (CEO):
Myunderstandingthatthelastquestion.Weappreciateeveryone'spatience.Welookforwardtoournextcall.Thankyou.
Operator :
Thisconcludestoday'sconferencego.Youmaynowdisconnect.
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