Download pdf - Valeant Pharmaceuticals (VRX) Earnings Report: Q4 2014 ...s.t.st/media/xtranscript/2015/Q1/13056166.pdf · Valeant Pharmaceuticals (VRX) Earnings Report: Q4 2014 Conference Call Transcript

CompanyName:ValeantPharmaceut icalsInternat ionalIncCompanyTicker:VRXSector:HealthCare

Industry:DrugsEventDescription:Q4 2014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 24

ValeantPharmaceuticals(VRX)EarningsReport:Q42014ConferenceCallTranscriptThefollowingValeantPharmaceuticalsconferencecalltookplaceonFebruary23,2015,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LaurieLittle;Valeant;InvestorRelationsHowardSchiller;Valeant;CFOJ.MichaelPearson;Valeant;Chairman,CEOAriKellen;Valeant;CompanyGroupChairman

OtherPart icipants

IrinaKoffler;CantorFitzgerad;AnalystAnnabelleSamimy;Stifel;AnalystChrisShaw;JPMorgan;AnalystAndrewFinkelstein;SusquehannaFinancialGroup;AnalystDouglasTsao;BarclaysCapital;AnalystDavidRisinger;MorganStanley;AnalystMarcGoodman;UBS;AnalystLouiseChen;Guggenheim;AnalystAlexArfaei;BMO;AnalystDavidAmsellem;PiperJaffray;AnalystCoreyDavis;CanaccordGenuity;AnalystTimChang;CRTCapital;AnalystGreggGilbert;DeutscheBank;AnalystShaneShaw;AlbertFried;AnalystDavidSteinberg;Jefferies;AnalystDouglasMiehm;RBCCapitalMarkets;AnalystDivyaHarikesh;GoldmanSachs;AnalystBrianLombardi;MerrillLynch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

Goodmorning.

Mynameis[Steve],andIwillbeyourconferenceoperatortoday.

Atthistime,IwouldliketowelcomeeveryonetotheValeantPharmaceuticalsQ4andfullyear2014earningsconferencecall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.

Ifyouwouldliketoaskaquestionduringthistime,simplypressstar,thenthenumberoneonyourtelephonekeypad.Ifyouwouldliketowithdrawyourquestion,pleasepressthepoundkey.Thankyou.

HeadofInvestorRelations,LaurieLittle,youmaybeginyourconference.




LaurieLit t le (InvestorRelations):

ThanksSteve.

Goodmorningeveryone,andwelcometoValeant'sinvestorconferencecall,wherewewillbediscussingourfourthquarterandfullyear2014financialresults,aswellastheacquisitionofSalixPharmaceuticals.

PresentingonthecalltodayareHowardSchiller,ChiefFinancialOfficer,whowillpresentourfourthquarterresultsandfirstquarterguidance,andJ.MichaelPearson,ChairmanandChiefExecutiveOfficer,whowillcovertherecentlyannouncedacquisitionsofDendreonandSalix.

Dr.AriKellen,CompanyGroupChairmanwillbeavailableforquestionsafterourpreparedremarks.

InadditiontotheliveWebcast,acopyoftoday'sslidepresentationcanbefoundonourWebsiteundertheinvestorrelationssection.

Beforewebegin,ourpresentationtodaycontainsforward-lookinginformation.Wewouldaskthatyoutakeamomenttoreadtheforward-lookingstatementlegendatthebeginningofourpresentation,asitcontainsimportantinformation.

NowpleasenotethatthetenderofferinconnectionwiththeSalixmergerhasnotyetcommenced,andourcommunicationisnotanofferorasolicitationofanoffertopurchaseanysecurities.

Onthecommencementdateoftheoffer,anoffertopurchaseandotherrelateddocumentswillbefiledwiththeSEC,andthetenderofferwillonlybemadepursuanttothosedocuments.

InvestorsandsecurityholdersareurgedtoreadboththetenderofferdocumentsandthesolicitationrecommendationstatementregardingtheofferwhentheybecomeavailableandarefiledwiththeSEC,astheywillcontainimportantinformation.

Inaddition,thispresentationcontainsnon-GAAPfinancialmeasures.Formoreinformationaboutnon-GAAPfinancialmeasures,pleaserefertoslidenumbertwo.

Non-GAAPreconciliationscanbefoundinthepressreleaseissuedearliertodayandpostedonourWebsite.Andwiththat,IwillturnthecallovertoHowardSchiller.

HowardSchiller(CFO):

Thankyou,Laurie.

Goodmorning,everyone.Andthankyouforjoiningus.

Yesterday,weannouncedverystrongfinancialresultsforthefourthquarterandfullyear2014,aswellasouragreementtoacquirealltheoutstandingstockofSalixPharmaceuticals.

Weplantodiscussthreetopicsontoday'scall.First,discussourstrongfourthquarterfinancialresults.Wehavemuchtotalkabouttoday,andwewillnotspendasmuchtimeonourfullyearfinancialresults,butwillfocusourpreparedcommentsonthefourthquarterresults,whichwereverystrongacrossallmetrics,andaheadofourpreviousguidance.

Wehaveprovidedadditionaldetailsofourfinancialperformanceattheendofthispresentationforyoutoreviewatalatertime.

Second,wewillprovideyouwithQ12015guidance.

Andlastly,wewilldiscussourrecentannouncementssurroundingouracquisitionsofDendreonandSalix.




Wearepleasedtoreportexceptionallystrongresultsforthefourthquarter.Forthequarter,ourtotalrevenuewas$2.3billion,anincreaseof10%overtheprioryear,largelydrivenbyexceptionallystronggrowthinmanyofourU.S.businesses,whichmorethanoffsetthenegativeheadwindsfromforeignexchangeinourexU.S.markets.

OurcashEPSwas$2.58ashare,anincreaseof20%overtheprioryear.OurGAAPcashflowsfromoperationsforthequarterwas$816million,anincreaseof191%overtheprioryear.Thisincreaseincludeda$287milliongainfromtheAllerganinvestment,netoffeesandoutofpocketexpenses,whichwerealizedinthequarter.

Adjustedcashflowfromoperationswhichexcludesthisgainwas$624million.

WearepleasedtohaveexceededourQ4guidanceoneverymetric.Ouroriginalforecastsprojectedustodeliverorganicgrowthgreaterthan12%,andwedelivered16%samestoreorganicgrowth.

[Yobshalom]reported8%organicgrowthforthefourthquarterand11%organicgrowthforthefullyear,andweexpectB&Ltocontinuetodeliverdoubledigitgrowthin2015.

Ourtotalrevenuecameinalmost$100milliongreaterthanourguidance,despitesignificant[inaudible]headwinds,andcashEPSwas$2.58versusgreaterthan$2.55cashEPSguidance.

Adjustedcashflowfromoperations,excludingtheAllerganinvestmentgain,was$624million,inlinewithourguidanceofgreaterthan$600million.

Andfinally,ourrestructuringandintegrationchargesforthequartercameinat$47million.

Turningtoorganicgrowth,ouroverallsamestoretotalcompanyorganicgrowth,includinggenerics,was16%forthequarter.IfwehadexcludedgenericsinQ4,totalcompanysamestoreorganicgrowthwouldhavebeen18%.

ManyofourregionscontributedtothestrongtotalcompanyorganicgrowthwithourU.S.businessat28%,totaldevelop--othertotaldevelopedmarketsat20%andouremergingmarketbusinessat6%,samestoreorganicgrowth.

Oursamestoreorganicgrowthfortheyearwas13%,andweexpectcontinued,strong,double-digitsamestoregrowthin2015.

Samestoreorganicgrowthexcludesacquisitionsforoneyearpostclose,andthereforeDendreonandSalixwillnotbeincludedinthiscalculation.

DendreonandSalixhoweverwillbeincludedinourproformaorganicgrowthcalculation.

B&Lcontinueditsstronggrowthperformance,delivering8%organicgrowthinQ4,11%forthefullyear,and10%organicgrowthsincetheacquisitioninAugust2013.

MostoftheBauschandLombbusinessescontinuedtheirconsistentlystronggrowthpatterns.

Oursurgicalbusinesshowever,hadaweakerquarterduetoaflatcataractsurgerymarketoverall,anddecliningsalesofourExcimerlasers.

Inaddition,weswitchedourVictuscommercialmodelfromasalesmodeltoaleasemodel,whichcontributedtolowersalesforthequarter.

IfyouadjustedforthechangeintheVictuscommercialmodel,saleswereflatforthequarter.

Forthequarterandfortheyear,oursurgicalbusinesscontinuedtogainshareinpremiumIOLsandin




Femtosecondlaserreplacement.

Aspromised,wearecontinuingtoshowrevenueforthequarterandtheyearforourtop20products.Weareverypleasedtoreportthatall20productsgrewinthequarterovertheprioryear.ThetwonewadditionstothelistthisquarterareJubliaandCarac.

ItistrulyexcitingtoseethatJubliawasourfourthlargestproductinQ4,andrecentlyreportedweeklyscripttrendsshowed20,000plusscripts.

Caracdeliveredaverystrongquarterbasedon40%growthfromsalesofthebrandandfromthechannelloadoftherecentlylaunchedauthorizedgeneric,whichwemanufacture.

Also,justtopointoutinresponsetoafewquestionsfrominvestors,we'venowincludedWellbutrinsalesonaglobalbasisonthischart.Earlierintheyear,thesalesinourtop20chartwereU.S.only.Asapercentage,ourtop20productsrepresent36%oftotalrevenueinthefourthquarter,withtop20growing28%overthefourthquarterin2013and20%onafullyearbasis.

Ourtop20productscontinuetodemonstratethediversificationofourportfoliowithnoproductmorethan4%ofrevenue.Similartolastquarter,thegrowthofourtotalproductportfoliowasdrivenbyapproximately50-50mixofvolumeandprice.

HighlightsforourU.S.businessandtherestofthe--therestoftheworldarecontainedinthenextfourslides.

Revenuesforourdermatologybusinesswereverystrongandincreased70%yearoveryear.Theoutstandingworkofoursalesteam'simplementationofinnovativemarketingapproaches,greatleadership,aportfolioofgreatproducts,andourfournewlaunchproductshavecontributedtotheturnaroundandtheoutstandingresultsinourdermatologybusinessinQ4in2014.

Coreproductssuchas[Xyclar],Elidel,andthe[ramfranchise]continuedthestronggrowth.And[solodac]grewinQ4,andgrew5%forallof2014,afteratoughyearin2013.

Jubliacontinuesitsrapidgrowthtrajectory,andreportedmorethan20,000weeklyscriptsforthelastreportedweeklysalesreport.Thisyieldsanannualizedrunrateofgreaterthan$250millionfortheproduct.

OurDTCcampaigncontinuestoincreaseawarenesswithpatients,asweareseeingprimarycarephysiciansrepresentingapproximately40%ofthescriptvolume.

IhopethatyouallsawourSuperBowlad,whichreceived1.2billiondigitalimpressions,anditsignificantlyraisedtheawarenessoftheproduct.

LUZUandRetin-AMicro0.08%continuetoperformwell,withscript[showns]up12%,andapproximately200%sequentially.

Ourconsumerbusinessrevenuegrew6%overtheprioryearaswecontinuetoout-pacethemarket.

CeraVeremainsthefastestgrowingmajorskincarebrandwith49%year-over-yeargrowth.PreserVisionalsocontinuesitsstronggrowthtrajectorywith[A-Retin]thenumberonesellingvitaminskew,delivering17%growthinthequarterbasedonconsumption.

Theentirebrandgrew14%year-over-year.

Finally,ourBioTruemultipurposesolutiondelivered7%growthovertheprioryear.

Ourprescriptionophthalmologyrevenuesgrew8%year-over-yearwithcontinuedstrongperformancefrom




ProlensaandtheLotemaxfranchise.

Revenuesforourcontactlensbusinessgrew13%year-over-year,ourthirdstraightquarterofdouble-digitgrowth.

Wecurrentlyhave10%oftheU.S.contactlensmarket,athreepointmarketshareimprovementsinceweacquired[B&L].

Ultra,whilestillnotasignificantcontribute--contributortorevenuesduetoproductioncapacityconstrainthad$4.2millioninrevenuesforthequarter.WeexpectthefirstfullproductionlinetobevalidatedinQ-2,followedbyasecondcommerciallineinQ-4.

Andfinally,werecentlyagreedtoanewstrategicpartnershipwithVisionSource,thelargestdoctoralliancegroupwith3,000locationsacrossallofourcontactlensbrandsandsolutions.

I'vealreadydescribedthereasonsbehindtherevenuedeclineinQ-4foroursurgicalbusiness.ThecataractmarketcontinuestobefineinQ-1,butweexpectthemarkettoreboundtonormalgrowthlevelsofapproximately5%laterthisyear.

AsImentionedearlier,oursurgicalbusinesscontinuedtogainshareinpremiumIOLsand[incentive]secondlaserplacements.

Inaddition,wearebeginningtoconductclinicaltrialsintheU.S.for[Artenio]ExcimerLaser,whichisalreadyapprovedandsellinginEurope,andwillenableustoimproveourcompetitivepositioninginthisimportantmarketsegment.

Withrevenuegrowthat28%forourneuroandotherandgenericsportfolioisdrivenbyproducts,includingXenazine,Wellbutrinand[Virosol],whilegenericsbusinesscontinuestobenefitfromcompetitorstockoutandauthorizedgenericlaunches.

Finally,ourdentalbusinesscontinuesitsdouble-digitgrowthduetotheperformanceofArestininthe2014productlaunchesOnsetandOpticsPlus.

Nowturningtotherestoftheworld.OuremergingmarketsbusinessinCentralandEasternEuropeandtheMiddleEastdeliveredstrongperformancewith9%growthyear-over-year,despitesignificant[inaudible]headwindsfromnegative$60millioninrevenues.

Onalocalcurrencybasis,Russiadelivered13%growthandtheMiddleEastdeliveredmorethan20%growth.

OuracquisitionofMedPharma,abrandandgenericsplatformintheMiddleEastandNorthernAfrica,isofftoagreatstart,andwillaugmentourgrowthinthisimportantregion.

RevenuesforouremergingmarketbusinessinAsiagrew12%versustheprioryear.

Wecontinuetoseestronggrowthinanumberofcountries,including--asChinasaw12%growth,Koreagrew15%,andMalaysiagrew24%,justtomentionafew.

InQ-1ofthisyear,our[BestCome]lenses,whichweacquiredlastyear,werelaunchedinChina,KoreaandJapan.Andgiventheexpecteddemandaroundtheworld,wehaverecentlybeguntoexpandourproductioncapacity.

Arecentacquisitionof[ArmicSindo],abrandofgenericplatforminIndonesia,isalsoperformingwellinitsearlystages.




InLatinAmerica,wesawadeclineof7%year-over-year,whichwasmainlydueto[FX].

Mexicopreformedverywellanddelivereddouble-digitorganicgrowthof11%inthequarter.

Brazilcontinuestostruggletotheslowermarketgrowthandtheweaknessinour[ProBatica]line.

Therestofworlddevelopedmarketsdeclined13%year-over-year,almostentirelyduetoastrengtheningdollaragainsttheEuro,Yen,CanadiandollarandAustraliandollar.

TheunderlyingbusinessesremainstrongwithbothEuropeandJapandeliveringlowsingle-digitorganicgrowth.AndCanadaandAustraliabusinesseswereflat.BothbusinesseshadtheirlastquarterofgenericheadwindsfromWellbutrinXLinCanadaandAlverain[CambaCourt],Australia.

Giventheabsenceofsignificantbusinessdevelopmentactivity,wehavebeenguidingallyeartodecliningrestructuringandintegrationcharges.Thisquarter,restructuringandintegrationchargeswere$47million,inlinewithourestimateoflessthan$50million.

Thereportedchargeswerederivedofapproximately$15millionforBauschandLomb,down--downfrom$36millioninQ-3and$29millionrelatedtodeals--otherdealsclosedin2014.

Only$3millionoftheQ-4chargeswerefromacquisitionsclosedmorethan12monthsago,andwasprimarilyrelatedtotheclosureofanObagifacility.

ExcludingDendreonandSalix,restructuringandintegrationchargeswillcontinuetotrendtowardszero.

Thisquarter,ourGAAPcashflowfromoperationswasveryrobustat$816million,forwhich$287millionwasrelatedtoourgainfromthe[Alegen]investment,netoffeesandout-of-pocketexpenses.

Justthecashflowfromoperations,excludingthe[Alegen]gain,was$624million.

Our[sheets]wereadjustedup.Cashflowfromoperationswasnegativelyimpactedbytheaccelerationofinterestpaymentsintheamountof$33millionfollowingtherepaymentof$945millioninbondsinthe4thquarter,andalargeincreaseinprepaidexpenses.

Theprepaidexpensebalancewillbeabenefittocashflowinfuturequarters.

Atthetimeweannouncedthe[B&L]acquisition,ourdebttopro-formajustEBITDAratiowas4.5times.Andwecommittedtoreducingthatratiotobelowfourtimes.

In2014,wereducedourdebtbymorethan$2billion,andweendedtheyearwitha3.5timesdebttoEBITDAratio.

Ourdaysalesoutstandingremainedinlinewithpastquartersat66days.Andaswehavepreviouslydiscussed,webelievethatcalculatingthe[BFOs]basedongrosssalesandgrossaccountsreceivablesmakessensegiventhefactthatwehaveanumberofolderproducts,andtherearealargeamountofprovisionstogrosssalestogettonetsales.

Asinlastquarter,wehavedisclosedourgrossrevenueinour10Kthatwillallowinvestorstocalculateourdaysalesoutstandingusinggrossquarterlysalesandgrossaccountsreceivable.

Overall,accountsreceivableincreasedby$196millionthisquarter,withanoffsettingincreaseandaccruedliabilitiesofapproximately$123million,primarilyrelatedtorebates,returnsandallowances.

Thisisanetincreaseofapproximately$73million,netoftheaccruedliabilities,comparedtoanincreaseofapproximately$224millioninnetsales.




2015isofftoaverystrongstart.GiventhetimingoftherecentlyannouncedacquisitionsofDendreonandSalix,we'llupdateour2015guidanceonourfirstquarterearningsconferencecall.Untilthen,wethoughtitwouldbehelpfultogiveyouguidanceforQ-1,2015.

InQ-1,weexpecttoseesamescoreorganicgrowthof10%to15%duetoseveralfactors.

ThisincludesthecontributionofcontinuedoutperformanceofmanyofourU.S.businesses,includingdermatology,contactlens,consumerdentistryandObagi,andex-U.S.marketssuchasChina,Thailand,Malaysia,Mexico,MiddleEastandPoland,aswellasthecontinuedmomentumofour2014productlaunchessuchasJublia,Ultra,Retin-A,Micro.08,andthe[Anextin]launchinQ-1thatisofftoagreatstart.

Whilemostofourmarketsareexperiencingrobustgrowth,wedoexpectsomesoftnessinWesternEuropeandRussia,whichwillresultinlowsingle-digitorganicgrowthforourEuropebusinessinitinQ-1.

WeexpectcashEPSofatleast$2.30pershareforthefirstquarterof2015,asthestronggrowthintheU.S.willcontinuetooffsetpotentialcurrencyheadwinds.

Now,IwouldliketoturnthecallovertoMike.

J.MichaelPearson(Chairman,CEO):

Thankyou,Howard,andgoodmorning,everyone.

LetmebrieflytouchonourDendreonacquisitionbeforemovingontosales.

OnJanuary29th,weenteredintoanagreementtoacquireassetsfromDendreon,includingitslead[immune]therapyproduct,PROVENGE.

WeexpecttoclosetheDendreontransactionlatertoday.

Wewouldlike--liketobrieflydiscussthestrategicandfinancialrationaleforthedeal.

First,webelievethatoncologyisaplatformthatfitswellinValeant'sbusinessmodel,withstrongmarketgrowth,aconcentratespecialistsetofprescribers,whererelationshipsreallymatter,afavorablereimbursementregime,andamarketthatotherpharmacompaniesarebeginningtode-emphasize.

Wealsohavetheopportunitytoinvestinlow-risktargetedR&Dprojectsforadditionalindicationsforproductsthatarealreadyapproved.

Dendreonalsofitsourinvestmentcriteriawithadurableasset,PROVENGE.WebelievethatwecanacceleratethegrowthofPROVENGEoverthecomingyears.

Dendreonalsoprovidesusaplatformforadditionaltuck-inacquisitions.Initially,weagreedonapurchasepriceof$400million.Wethenagreedtopayanincremental$15millionforapipelineproductandsizabletaxattributes.Thepricepaidrepresents1.3timeslastyear'ssalesofthecompany.

Inadditiontogrowthopportunities,webelievethisassethasbeenundermanagedasithasaninfrastructureinplacebuiltforabilliondollarproduct.Weexpecttobeabletoextractsynergiesofover$130million,includingmanufacturingsavings,andthisdoesnotincludethebenefitofourcorporatestructure.

Wehave--webelievethatwehavetheabilitytoraisethegrossmarginsofthisbusinesstomorethan65%bytheendof2015andtoreach80%grossmarginsinthelongerterm.

Finally,thetransactionwillresultinanIRRofapproximately30%atstatutorytaxratesandwithacashpaybackperiodoflessthanfiveyears.



©2014TheStreet,Inc.AllRightsReserved Page8 of 24

Now,turningtoSalix.Yesterday,weannouncedthatwewillbeacquiringalltheoutstandingsharesofSalixfor$158pershareincash--incash.Thetotaltransactionisvaluedatapproximately$14.5billionandwehavefullycommittedfinancing.Weexpectthetransactiontocloseinthesecondquarterof2015.

Thistransactioncreatesanexcitingnewspecialtyplatformforfuturegrowth.Salixhasastrongproductportfoliowithkeypromotedproductsdeliveringdouble-digitvolumegrowthfarexceedingthemarketgrowthrateof5%.

Thenear-termexpectedapprovaloftheIBS-DindicationofXifaxinprovidesanadditionalcatalystforgrowth,asdothelaunchesofUcerisFoamandtheapprovalofRelistorOralandthepotentialapprovalsofotherkeypipelineassets.WealsobelievethatthistransactionwilloffercompellingreturnsforValeantshareholders.

Inourbasecasemodel,weassumeSalixwillspend$750millioninOPEXin2015.OPEXincludesSG&AandR&D.Thisisapre-synergynumber.Weexpecttoachieverunratesynergiesofmorethan$500millionacrossthecombinedcompanies'OPEX,$750millionOPEXfromSalixandValeant'sbudgetedOPEXfor2015.Weexpecttocapturethesecostsavingswithinsixmonthsofclosing.

Wedidnotincludeanybenefitsfromourcorporate--ourcorporatestructureinoursynergytargets.Therefore,inadditiontothe$500millionincostsavings,weexpectthecombinedcompany'staxratewillbeapproximately5%.WedonotplananyreductiontoSalix'sspecialtysalesforcesoritshospital,keyaccountandfieldreimbursementteams.WebelieveSalix'ssalesforceis,byfar,thestrongestintheGIspaceandithasbeenakeypartoftheirsuccess.

Wehavenothadthetimetofullydeterminetheoptimalsizeoftheprimarycaresalesforce,butwilldosobetweensigningandclosing.WeexpectanIRRandcashpaybackinlinewithourotherlargetransactions.

Slide23showsyouthecriteriathatwelookforinatherapeuticarea,andSalixchecksalltheboxes.Fromamarketperspective,theyhaveaconcentratedspecialprescriberpopulationandimportantfieldforceprescriberrelationships.

GIisalowerpriorityformostotherpharmaceuticalcompanies.Theproductshaveafavorablereimbursementstatuswithpayers.WealsobelieveSalix'sproductsandtheentireGItherapeuticareaprovideanopportunityforlow-riskinnovation.GIhasabove-averageprescriptiongrowthratecomparedtoothertherapeuticareas.Salixhasastrongunderlyingvolumegrowthwellabovethemarketandanattractivenear-termpipeline.

Inaddition,thereissignificantopportunitytoapplyValeant'soperatingmodelanddeliverfinanciallycompellingreturnswhilesettingupaplatformforvalue-addedtuck-inacquisitions.

Asmentionedpreviously,theGIspacehasveryattractiveunderlyingmarketfundamentals.Itisagrowingmarketwithattractivesubsegments,adiseasestatethatistypicallychronic,damagingtosomeone'squalityoflifeandissignificantlyundertreateed.WebelievewecanexpandtheIBS-DmarketthroughDTCandothercommerciallevers.Finally,theopportunitytoexpandintootherundeservedindicationprovidesadditionalavenuesofgrowth.

ManyofyouarefamiliarwithSalixanditsportfolio,butforthoseofyouwhoarenot,wewantedtoprovideanoverviewoftheirproductportfolio.Salixisamid-sizedpharmaceuticalcompanythathasasignificantleadershippositionintheGImarket.ItssalesforcehasbeenrankedasthenumberonesalesforceinitsspacebyIMSforthreeofthepastfouryears.

Salixhas22totalproducts,ofwhichtheyactivelypromote13.Xifaxinrepresentsroughly50%oftotalrevenueandhasbeenapprovedforHEandtraveler'sdiarrhea.SalixiscurrentlywaitingforaPDUFAdateinMayforadditionalindicationsofIBS-D,irritablebowelsyndrome-diarrhea.

OthermajorproductsincludeApriso,UcerisandRelistorthatallhaveattractivegrowthprospects.Salixhasa




low-risk,short-termpipelinewithadditionalindicationsforcurrentlyapprovedproductsthatwebelievehavestrongfuturepotential.

Slide27showstherecent[script]trendsfromSalix'smajorproducts,allwhicharetrendingintheright--inapositivedirection.TheacquisitionofSalixfurtherdiversifiesourU.S.productportfolio.IncludingSalix,30%ofourportfoliowillcomefromourneuroandotherdentalandgenericportfolios,24%fromGI,22%fromdermatology,12%fromeyehealthandthenconsumerandoncologyat8and4%respectively.OurtotalU.S.revenuewillrepresentapproximately65%oftotalrevenue.Wedobelieveovertimethisratiowillreturntoroughly50-50.

OnNovember6th,2014,Salixreportedfive-tonine-monthwholesalerinventorylevelsforitstopfourproducts.WehaveconductedextensiveduediligenceonSalix'sinventoryestimates,itsstandaloneinventoryremediationplanaswellastheassociatedpotentiallitigationandregulatoryexposure.WhileSalixhasmadestridesinexecutingtheirplan,weexpecttobeabletoworkdowntheinventorytoapproximatelytwomonthsorlessbytheendoftheyear.Thenetimpactonthis--ofthison2015revenuesisexpectedtobegreaterthan$500million.

Onthenextslide,welisteachofSalix'ssignificantproductswiththeirprojected2015demand-basedrevenueandour2015volume-basedgrowthassumptionsandpatentexpirydates.Wedonothavethetimetodiscusseachproduct,butwantedtoprovideyouwiththisinformationforyourreviewlater.

Asinallourpastacquisitions,wehaveacarefulplantoachievecostsynergiesfromthecombinedproducts.Aswementionedearlier,weassumeda$750million,exG&AandR&D,forourbase2015Salixbusinessplan.ThisnumberifdifferentthanwhatGAAP--thatSalixhasreportedonanon-GAAPbasis.Forexample,depreciationandstock-basedcostshavenotbeenhistoricallyreportedinSalix'snon-GAAPoperatingexpenses,whereasValeantincludesthesenumbersinournon-GAAPnumbers.Post-close,wewillconformSalix'smethodologytoourmethodologyinournon-GAAPdisclosures.

Wehavetargetedmorethan$500millioninsynergiesonacombinedcompanybasis,butwedonotplananyreductionstoSalix'sspecialtysalesforcesorhospital,keyaccountandfieldreimbursementteams,aswebelievethesecustomer-facingroleshaveplayedandwillplayahugeroleinthesuccessofthecompany.

Asmentionedearlier,wewilldeterminetheoptimalsizeoftheprimarycaresalesforce.Onarunratebasis,weexpecttoachievethesesynergieswithinsixmonths,andbelievethatitwillcostlessthan65%ofthetotalannualsynergiestoachievethesesynergies.WealsohaveadditionalopportunitiesthroughimprovedcombinedproductportfolioformularystatusandleveragingthehospitalsalesforceforValeantproductsthatwe'venotbuiltintoourdealmodel.

Lastly,thetransactionwillbeanall-cashdealthatwillbefinancedwithacombinationofbankdebtandbonds.Weexpecttheinterestrateonournewdebttobebetween5.5to6%.Ourproformainterestratesforthecombinedcompanypostthistransactionwillbeapproximately5.5%.Wehavecommittedfinancingof$22.2billionindebtconsistingof$15billionforthetransactionanda$7.5billionbackstop--tobackstopValeant'sexistingsecureddebtwhileweseekamendmentstoourcurrentcreditagreement.

Wearelaunchingtheamendmenttoday,andwhenwereceivethisamendment,the$7.5billionbackstopwillfallaway.

Wefullyexpecttosecureanamendmenttoourcurrentcreditagreementwithinthenexttwoweeks.OurnetdebttoproformaadjustedEBITDAwillberoughly5.6timesaswewillbenegativelyimpactedby[self]toitsartificiallylowEBITDA,dueto[it'sfine]toreducewholesaleorinventorylevels.

Wehaveanattractive,deleveragingprofile,asweexpecttogetbelowfourtimesleveragebythesecondhalfof2016.SimilartoourB&Lacquisition,wearecommittedtoreduceourleveragetounderfourtimesin




thetimeframe.

In2016,weexpecttohaveproformaEBITDAinexcessof$7.5billionandfreecashflowinexcessof$4billionbeforeanymandatoryrepayments.

Inthenearterm,wewouldexpectthatourcombinedcompanytaxratewouldbeapproximately5%.

Finally,ouraccretionshouldbemorethan20%in2016,whilebeingmodestlyaccretivein2015duetotheclientwholesaleinventoryreductions.

Wehavehadquiteafewquestionspostthedealannouncementaboutthe$14.5billionvaluationversustheequitycomponentofthedeal.Onthispage,weshowthebridgebetweenthe$10.4billionequityvalueandtheapproximately$14.5billionenterprisevalue.

Theprimaryadditionalcostscomesfromtheretirementofthe2015and2019converts,therepaymentoftheirtermloanandtheretirementoftheirbond.

Inclosing,weareverypleasedaboutthestrongperformanceoftheValeantoperationsandtheexcitingopportunitiesthatweexpecttorealizefromtheacquisitionsofDendreonandSalix.

WewillreportSalixandDendreongoingforwardastwoU.S.businessunits,includingrevenueandrestructuringandintegrationcharges,asthiswillenableinvestorstocontinuetoseethestrong,organicgrowthperformanceofourbasebusinessandseetherestructuringchargesagainturningtozero.

Welookforwardtoupdatingyouonourfinancialandoperationalprogressandsharingourupdatedguidancefor2015onourfirstquartercallinApril.

Withthat,wewillnowopenthecallforquestions.

QUESTIONS&ANSWERS

Operator:

Thankyou.

(OperatorInstructions)

[IrmaRaffit],EvercoreISI.

Unident if iedPart icipant :

Higuys.

Thanksfortakingmyquestion.

FirstonemaybeonXifaxin.SoSalixhasreportedquarterlyrevenuesinthelastfewquartersthathaveannualizedanywherebetween$460millionand$700million.

Andpresumablythatincludedaninventorybuild.AndIsawyouguysreportedanormalizedSalix,Xifaxinrunrateofaround$900million,sojustwantedtounderstandthatandalsoquickoneforHoward.

Howard,IsawcashflowconversionsonGAAP-freecashflowsisabout60%ifyouadjustfortheAllerganpayment.

Sojustwantedtounderstand,workingcapitaloranyotherimportantleversthere.Thankyou.





Thanks,[Irma].

Onthefirstone,we'vebuiltupour--our2015numberbasedonscriptdemandandananalysisofnetpricing.Youhavetorecallthatwhileforsomeperiodoftime,wedon'tknowexactlyhowlong,thatthisinventorywasfillingupunderSalix'smanagement,thatinordertoaccomplishthat,theyhadtotakeheavydiscountsto--toincentdistributorstocontinuetobuildupinventoryinthechannel.Sofromanetpricingstandpoint,therewillbeanautomaticpriceincreaseondayone,whenwestopdiscountingtheseproductssoheavily.

Coupledwiththisthispartcontinuestogrowquiterapidly.

Soagain,wetookabottomsupapproachtowhatwebelievewillbesoldinthisyear,coupledwithadjustingthepriceforthatandotherthingsthatwecandotoreducesortofgrosstonet.


Andon--ontheworkingcapitalpoint,wewerejustabout90%conversionfortheyeariswhatwe--wehadtalkedaboutallyear.Forthequarter,wesetup[grunt]couldbeinexcessof$600million.

Weareat$624million.Wepaid$33millionofinterestearlythisquarterwhenwecalledthebonds.Wewould'venormallypaidourinterestinFebruary,butwhenwecalledthebonds,wehadtoacceleratethepaymentofinterestthatweaccruedforthebonds.Sothatwas--thatwasoneimpact.

Thesecondwasasignificantincreaseinprepaidexpenses,alotofwhichhadtodowiththeaccounting--thepaymentupfrontfor--relatedtoanumberofDTCcampaignsforsomeofthelaunchproductsthatwe--thatwewillthengetthebenefitofin2015.Sothatwillworkitswaydownandwillbenefitfuturequarters.

Andthenthirdpoint,andthisiswhyweguidedtoalowernumberinQ4wasjustthetimingoffourthquartersalestendedtobe--tendtobemoretowardsthe--theendofthequarter.

Sowe--we--wehadadjustedourviewson--oncashflow.Wecontinuedtofocusonbeating90%conversion,and--andlikeyousawinthechart,ourday'ssalesoutstandingandourA.R.balanceis--hasbeenprettyflat.Ourinventorieswerewell--werewellincheck.

So,youknow,we'relaserfocusedonthis,andyouknow,wewanttodobettergoingforward,butweachieveda90%goalfortheyearthatwehadsetout.

Operator:

Wellthankyou.

IrinaKoffler,CantorFitzgerald.

IrinaKof f ler(Analyst-CantorFitzgerad):

Hi,thanksfortakingthecall.

Justwantedtogetalittledeeperintohowyou'rethinkingaboutprimarycarepromotionofSalix'sassetsandyouknow,notstarvingthisbrand,whichneedsprimarycare,asisseenbyheavyinvestmentbyothercompaniesinIBS.

Thanks.

Unident if iedCompanyRepresentat ive :

Sure,thanksforthequestion.




Well,well--hopefully,givenourbasebusiness,youcanseethatwehavenointentionofstarvingourbrands.Ithinkourorganicgrowthacrossourbusinessesis--isfarbetterthanmostpharmaceuticalcompanies.

ThequestionintermsofoncewegettheIBSDindication,what'sthebestway,what--whatcombinationof--ofcommercialleversisthebestwaytogrowthebrandinprimarycare?

Rightnow,theSalixhadplanstoincreasetheirprimarycaresalesforcefromatacurrent160toIthinkitwas240,250.

Wearegoingtoevaluatethat,butwe'realsogoingtolookatotherapproaches,includingDTC,likewe'vedonewithJublia.Ithinkdiarrhea,justlike[onacomicosis]isadiseasethatpeoplecanself-diagnose.AndwejusthavetofigureoutwhatsetofinvestmentshasthehighestROI.

Butyoucanbeassuredthatwe--wewillbefocusedon--ongrowingthisproductasquicklyaswecanoncewegetthatapproval.

Operator:

Thankyou.

AnnabelleSamimy,Stifle.

AnnabelleSamimy(Analyst-Stifel):

Hi,thanksfortakingmyquestion.

Iwaswonderingifyoucanhelpuswiththebreakdownofthe500millionsynergies,andthisgoesalongthelinesof--ofthepriorquestion,specialtyversusprimarycare.

Youknow,Salixhadlostsome--someoftheirprimarycaresalesalreadywith[Santeris]--followingthe[Santeris]acquisition.Somaybeyoucanhelpusunderstandwherethe$500millioniscomingfrom.Ifit's--youknow,theyhadaboutyouknow,$175millionto$200millioninR&Dandtherestofitwas[SJNA],somaybeifyoucanjusthelpusthere.

AndIunderstandthatbreaksdownto500.


Sure,wellfirst,whenwetalkaboutthe$500millioninsavings,again,wedidthismorebottomsup.

WhatarethecoststhatwewouldneedtorunSalixandwhatweresomeoftheopportunitiesacrossboththecombinedcompaniestogetsynergies?

Sothefirstpointisnotall$500millionwillcomefromSalix.PartofthatwillcomefromValeant,becauseaswegetlarger,there'salwaysopportunitytostreamlineouroperations.

Secondisthemostobviousarea,there'ssortofthebackofficefunctions,thecorporatefunctionstheyhave,I.T.andfinanceand--andthose--thosetypesofareas,they'llbealsosignificantpurchasingsavingsacrossthetwocompanies.

Again,weplantokeeptheircommercialactivitiesandspendinginplacesubjecttomoreworkontheprimarycareside,whichwejustdon'thavethefinalanswerforyoutoday.Andinfact,Iwouldnotbesurprised,similartoBauschandLomb,thatoncewereallystarttounderstandthebusiness,weactuallyspendmore--weexpandedsalesforces.

OurcontactlenssalesforceintheUnitedStatesis50%largerthanitwaswhenweacquiredthecompany.




Wehave--wehavebuiltupanO.D.salesforceinthepharmaceuticalspace.WehavemoresurgicalrepsthanwehadwhenweacquiredBauschandLomb.

So,wewillthoughtfullyintegratethesetwocompanies,andwhetherweneedtoanddetermine,youknow,whereweshouldbespending--spendingthemoney.

Allthatbeingsaid,wearecomfortablewithour$500millionestimate,andeverytransactionwe'vedonetodate,we'veactuallyover-deliveredintermsofcostsynergiesandIsuspectwewilldosoagain.

Operator:

Thankyou.

ChrisShaw,JPMorgan.

ChrisShaw(Analyst-JPMorgan):

Great,thanksverymuch.

Justa--justafewhere.

First,canyoujusttalkaboutyourconfidenceintotheXifaxin[IDST]PDUFAandjusthowyouthoughtaboutrisksheadingintothatevent.

SecondquestionisontheIBSC,thesizeofthatopportunity.IbelieveSalixhasmadesomecommentsonthe--onthepeakopportunitythere.JusthowwereyouthinkingaboutpeakcommercialpotentialforXifaxinandIBS-D?

Andthenfinallyonthemanagementstructurethatyou'llbeaddingwithSalix,Iguess,who'sgoingtobeleadingthispartoftheorganization?Iknowthere'sbeensometransitionthere,butjusthowdowethinkabouttheleadershipteamat--atSalix?

Thanksverymuch.


Sure,ThanksChris.

IntermsoftheIBSDsubmission,we'vehadtheopportunityinduediligencetoreviewallthematerials,lookthroughalltheclinicalstudies,thesafety,efficacyprofiles.We'vealsohadthechancetoreviewFDSAcorrespondenceandhave--havelongconversations.It'sobviouslyakeypartofthisacquisition.

Netnet,I'dsaywefeelquitecomfortablethatthisindicationwillbeapproved.Intermsoftiming,wearecertainlyhopefulthatit'sthisspring,butifit'snot,we--werunanumberofscenarioswhenwe'veanalyzedthefinancialsintermsofwhatimpactthatwouldhaveontheacquisition.So,maybethebestwaytosayitis--iswearehopefulitgetsapprovedthisspring,butweareconfidentthatitwillbeapprovedoverthenext,youknow,inareasonableshort--reasonabletimeframe.

IntermsoftheIBS-Dsize,wehaveseentheirestimatesintermsofpeaksales.Ithinkour--ourpeaksalesestimateswouldbelower.Butagain,we--justannouncedthisdealyesterday,soIdon'twant--wanttodisclosewhat--whatourbasephasepeaksalesareforXifaxin.There'sstill--stillsizablebutsignificantlylowerthanthemanagementprojections.Intermsofleadershipofthe--ofthisarea,wehavenotmadethatdecisionyet,butobviouslywe'll--we'lldosobeforewecompletethetransaction.





AndMike,justonChris'squestionabouttherelativesize,IthinkweseetheIBSDopportunityassignificantlylargerthanthecurrentA.G.intravelerdiarrheaindications.


Nextquestion,please.

Operator:

Thankyou.

AndrewFinkelstein,SesquehannaFinancial.

AndrewFinkelstein(Analyst-SusquehannaFinancialGroup):

Hi,thanksverymuchfortakingthequestion.

Iwashopingyoucouldtalkalittlebitmoreonyourthinkingbehindthefinancingforthedeal.It'sobviously--youhavetheabilitytotakeuptheleverageratioquitesignificantlyintheshortterm,butdidheconsider,youknow,theopportunitytodoanequitysecondary?Andwheredoyouthinkthisputsyouintermsofthecapacityfor[tuck-ins]inthenearterm,particularly,youknow,whatopportunitiesyouseeinG.I.andoncologyandhowactionablethosemightbe.

Andasyoulooktodosomeofthose,whetherit'smorelikelytobeonmarketassets,youknow,orpipelineproducts.AndthenonthevalueyouseeintheSalixpipelinebeyondtheIBSindication,youknow,anysenseofwhatseemspromisingtoyouandnot,givenyouknow,itseemslikeyournetR&Dbudgetisonlyabout$50millionhigherthanitwasonthestandalonebasis?Thanks.


Sure.

Onthe--thefinancing,asyou'dexpect,welookatarangeof--ofoptions.Attheendofthedaywechosetogoallcash.

Andyouknow,aswe'vementionedtoyouallquiteoften,youknow,we--we--lastresortistouseourshare.Soit'sourinvestors.Thosebelongtoourinvestors.Wehave--wehope--webelievewe'resignificantlyundervalued,andwe'renotlookingtodilutetheownershipinterestsofourholdersunlesstherelativevalueofwhatwe'reswappingforissocompellingorandthat'dreallybethesituation.

So--sohere,webelievethatwe'redelivering.Wehaveaprudentcapitalstructure.We'vegotatremendousdeleveringstory.Wehavenorthof$7.5billionin2016inEBITDAand--andthisstructureisgoingtogiveall--giveourcurrentshareholdersalltheupsideof--fromtheSalixtransaction,whichwethinkis--isquitecompelling.

We'llstillhavetheabilitytodosmall[tuck-ins].Ithinkifyoulookatthepost[D&L]periodasa--asablueprint,weweresignificantlyabovefourtimes.Wehavemadethesamekindofcommitmentsandwe're3.5times,3.5timesnow.

We'restillabletodosomeimportant,albeitsmallertransactionswhilewe--whilewe'redelevering.

So,youcanneversaythere'snoopportunitycoststohavingthehigherleverage.It'satrade-off,butwethoughtthebenefitstoourshareholdersoutweighedissuingequityat--atthecurrentpriceatthecurrenttime.





Intermsoffillingthepipeline,product,theearlierstagepipelineproducts,we'vehada--achancetogetafirstglimpseofthose.Wedidnotbuildthoseintoourassumptionsthattheywouldendupasapprovedproductsintermsofourbasecase,andthat'sourpolicy.Butthatdoesnotmeanthatwewon'tpursuethose--thoseprograms.

Andwhenwedo--whenwelookacrossourentireR&Dportfolio,wedothatacrossallofourprogramsindermatologyandopthamologyandnowinG.I..

Andifsomeoftheirprogramshaveabetterprofilethansomethatwe'recurrentlyworkingon,wemayendupspendingalotmorethanthe$50milliononG.I.programsthatyou'recalculating.

AndI' llalsoremindyouthatwedodoR&Dinalowercostwaythanmostcompanies.AndIthinkwe'vementionedthatwelaunched--thetotalspendforJubliafromstarttolaunchwas$38million.

Soourbudgets,wetendtobeabletodoalotmorethanmostcompaniesandstillcomeoutwithhighqualityproducts.

Operator:

Thankyou.

DouglasTsao,Barclays.

Yourlineisopen.

DouglasTsao (Analyst-BarclaysCapital):

Hi,thanksfortakingthequestions.

JustmaybeswitchinggearsalittlebittothinkingabouttheDendreonacquisition.Imean,yousortofgavearangeof--ofgrossmargins.I'mjustcurious,intermsofwhattheswingfactorsthereare,inparticularontherevenuebase,itcertainlysoundslikeyouthinkthat--thatyoucangrowtherevenuebasefromthecurrentproductrunrateandsortofwhatthekeydriverswouldbethere.


Ithinktherewereacouplequestionsthere.Onearoundgrossmargins,onearoundrevenue.

Intermsofrevenues,Dendreoniscurrently,probablybecausetheywereinbankruptcyorwhateverreason,havebeenprimarilyjusttargetingpositionsthatcurrentlyusethedrug,andthere'sstillahighquartilefirst,second,third,or[deathaisle]doctors.First,second,third,fourth[dethtile]doctorsthatarenotusingthedrugandaren'tbeingcalledon.

So,wethinkwe--youknow,Ithinkthatjustcallingonpeoplethatareusingaproductis--isnotprobablythebeststrategy.It'salmost,bydefinition,you'regoingto--you'regoingtolosesalesovertime.

So,we'regoingtobroaden,broadenthedoctorsthatwecallon.We'vehad--Ithinkwehavesomegoodideasintermsofsome--somenewpromotionalcampaigns,andalsosome--someotherstudiesthatwecandothatcombinationstudiesandotherstudiesthatwecandothatwillallowustobroaden--broadentheusageofthedrug.

Intermsofgrossmargin,again,wemayhavetwonumbers.One,webelievewecan--we'llgetitto65%grossmarginbytheendoftheyear,andhavedevelopedplanstodoso,andwe--andweseeapathtothe80%thatwilltakelonger--alongertimeperiodthanjustthenextsixmonths.




Operator:

Andthankyou.

DavidRisinger,MorganStanley.

DavidRisinger(Analyst-MorganStanley):

Thanksverymuch,andcongratsagainonboththeDendreonandSalixdeals.Myquestionisonreturnoninvestedcapital.Couldyoupleaseremindus,Howard,ofValeant'shurdles?AndobviouslytheDendreondealwillfarexceedyourhurdles.ButcanyoujusttalkaboutyourexpectedROICfortheSalixtransaction?Thankyou.


Sure.Aswe'veconsistentlystatedwhenwelookatacquisitions,we'relookingata20%IRR.Andthat'sunleveredIRRthatisassumingstatutorytaxrates.Wealsofocus,laserfocusonourpaybackperiods,whichwebelieveisastronggovernoragainstoverlyoptimisticforecastsinthelateryearsandoverlyoptimisticterminalvalueassumptions.Andwetargetedsixyearsorless.

AndIthinkforsureonsmall-andmedium-sizeddeals,weconsistentlybeen--ourmodelshaveconsistentlydeliveredthosekindsofreturns.Mostofthetimeinrealitywe'vedonethataswell,althoughwecan'tsaythatwehaveanunblemishedandperfectrecord.ButI'dstackitupasaprettygoodrecord.

Onthelargerdeals,we'vealsosaidthatwehavedonetransactionswhenyouthinkaboutMedicisandB&Lthathavereturncharacteristicsthatareslightlybelowthat.Andwerunmultiplescenariosthroughtheselargerdeals.There'smultiplelevers,variablesthatdrivereturns.

Soyouknowonourlargerdealswehavescenariosthatareabovethosecriteriaandsomethatareslightlybelowthat--thosecriteria.Andwe'vetendedtohavepaybackperiodsthatarealittlebighigher,highersingledigitsversusthesixyears.AndasMikepointedout,thatthistransactionwillbea--isveryconsistentwithwhatwetalkedaboutasrelatestoB&L,forinstance.

Operator:

Thankyou.MarcGoodman,UBS.

MarcGoodman(Analyst-UBS):

Goodmorning.SofirstonSalix[opex]youhadmentionedthatyouwerepointingto[750].Butthenon-GAAPthattheyhadbeentalkingaboutwas[625]to[650].SoI'mtryingtounderstand.Youmentioneddepreciation.Youmentionedstockbasedcompensation.Isthatit?Oraretheresomeotherthingsthere?That'sthefirstquestion.

Secondquestionisdermatologysaleswere$273millioninthethirdquarterand$425millioninthefourthquarter.ObviouslyIseethattherampinJubliaandacoupleotherproducts.Butthat'samassiveramp.Arethereotherproductsinthere?Werethereanyotherlaunchesthatwe'remissing?

Andthenjustthird,acquisitions.CanyoujusttellusfromtheacquisitionswhatkindofsalesthatyouhaddonethatyoumentionedoneacquisitioninAsia?Whatkindsofsaleswereadded?Andiftherewereanyothersthatwerenotmentioned?Thanks.


Yes.First,intermsoftheOpExforSalix,wehave--workingwithSalixmanagementoverthelasttwo,three




weeksanddoingduediligencetogethercameupwithsortofwhatthebudgetorwhattheplannedspendwasinthisyear.SoIcan'tspeaktoothernumbersthathavebeenspokenabout.YouhavetoremembermanagementhaschangedalotatSalixoverthelastsixmonthsandthere'sreallyanewteamthere.SothebudgetthatwasgoingtobespentatstandaloneSalixwasgoingtobe$750million,andthat'swhatwebasedallourworkoffof.Probably--Idon'tthinkit'sactuallythatusefultotrytoreconcileittothingspreviouslysaid,giventheturmoil.

Intermsofdermatology,Jubliawasbyfarthelargestsinglecontributor.Butwehadstronggrowthinmanyoftheother[brands]Howardmentioned,Elidel,[Foligi],Zyclara.Butnoneofthemweresinglystoodout.YoualsohavetorememberthatQ4isalwaysalittlebithigherasthequarter.It'salwaysthestrongestquarteroftheyear.

Butquitefrankly,businessisjustdoingvery,verywell.YouknowwillIthinkit--youknowit'ssortoffiringonallcylinders.Wedon'tcontinuetothinkthatit' llfireonallcylindersforever.Butrightnow,thedermabusinessisdoingextremelywell.IwillsaythatwejustlaunchedONEXTONandtheramponONEXTONrightnowit'searlydays.Ithinkweonlyhadfourweeks.Butit'stheexactsamerampthatwehadonJublia.Sowe'recautiouslyoptimisticonONEXTONaswell.

Acquisitions,thosewereallmadepreviouslyweren'tthey,Howard?


Yes.Wetalkedaboutthempreviously[attheRMXbeennodealforearnings]inIndonesiawasabouta$17milliondeal.[S-Con]wasmuchsmallerthanthat.Sothese--whenyouaddthemallup,itwasareasonablenumberindividuallynoneofthemworkwithatlarge.

Operator:

Andthankyou.YournextquestioncomesfromthelineofLouiseChenwithGuggenheim.Yourlineisopen.

LouiseChen(Analyst-Guggenheim):

Hi.Thanksfortakingmyquestions.SothefirstquestionIhadwashistoricallyValeanthasnotbeenasinterestedincompanieswithmultiplebidders,andwantedtoseeifyoucouldgivemorecolorontheSalixsalesprocessandhowyouwereabletowintheasset.

Andthensecondly,withDendreonandSalixyouwillnowhavetwonewverticals.Andjustinterestedtounderstandgoingforwardareyougoingtodivedeeperintotheestablishedverticalsorcontinuetobeopportunistic?Iknowinthepastyouhadtalkedaboutadditionalophthalmologyassets,animalhealthorconsumerhealthcareassets,justcuriousthatyou'restillinterestedinthoseareas.Thanks.


Sowedon'texactlyknowwhatthesalesprocesswas.WewerejustinteractingwithSalixandtheirbankers.Soyou'dhavetoaskSalixabouthowthathappened.

Intermsofwherewewanttoinvestcapital,we--again,we'reprobablymoreopportunisticthan--we'renotacompanythatsitsinaroomandsaysforthenextyearwe'rejustgoingtofocuson[ecology]andwe'regoingtobuya(inaudible)fillthatup.Becausesomuchofwhatwedoisgovernedbytheeconomicsideofthings.Sowe'lllookat--whatitdoesdoisexpandthenumberofopportunitiesavailabletothecompany.

Sowenowhavetwonewimportanttherapeuticareaswherewe'vereallynotpaidalotoftimeorattentiontowhatarealltheopportunitiesthere.Sowhatwecontinuetodobyaddingmoreverticalsiscontinuetoincreaseinasensethenumberoftargetsoutthere.SoovertimeI'msurewe'llcontinuetobuildtheoncology



©2014TheStreet,Inc.AllRightsReserved Page18 of 24

andGIspace.Butwe'llcontinuetobuildthedermatologyandophthalmologyspaceaswell.

Operator:

AlexArfaei,BMO.

AlexArfaei(Analyst-BMO):

Goodmorning,folks,andcongratulationsonastrongfinancial2014andadeal.Couldyouprovidemorecoloronanytax-relatedNOLsthatyougotfromDendreonandSalix?IthinkyoumentionedyougottaxattributesfromDendreon,whichissurprisinggiventhatIthinkitwasanassetsale.And,Howard,tousitlookslikeSaliximprovesyourgrossmarginby1%andoperatingmarginbyatleast2%.Isthatinlinewithwhatyousee?Andisthereanypotentialforgrossmarginsynergies?Thankyou.


Well,intermsofthetaxattribute,SalixdidhavesomeNOLs.Ibelievethereweresomearound$500millionthatwe'llbeabletoutilize.Dendreon,you'reright.It'sanassetdeal.Butthewayitwasstructuredinthebankruptcycourtallowedustogetaccess.Butthensortof--asMikesaid,there'sconsiderableamountofNOLs.Undertherulesyou'relimitedtohowmuchyoucantakeonanannualbasis.Buttherewillbesomethere.Andwetalkedaboutthefactthatwepaid$15millionforthepipelineassetplusaccesstotheNOLs.You'reright.Salix'sgrossmarginswerearound80%.Sothatwillhelp.

Dendreon,ontheotherhand,at--youknowwe'llgetinthe65%,asMikementioned,willpullitdownalittlebit.Dendreon,asMikementioned,we'vetakenalookatthemanufacturingprocessesandhaveidentifiedsomeopportunities.Atthispoint,we'venotreallytakenanysynergies.Wehaven'ttakenanyfromthemanufacturingprocess.

Salix(inaudible)CMOswe'llhavetolookatthewholesupplychain.Buttypicalwithmostofouracquisitions,wetakeourtimeanddothatatalaterdate.Sofornowyoushouldassumethegrossmarginsarewhattheyare.They'llgoupalittlebitasthegross-to-netsimprove.AndthenDendreonyou'llseetheimprovement,asMikearticulated.

Operator:

Thankyou.DavidAmsellem,PiperJaffray.

DavidAmsellem(Analyst-PiperJaffray):

Thanks.So,questiononXifaxan.Doyouthinkthere'spricingpowerfortheasset?Particularlyistherepricingpowerhereifwedon'tseeanapprovalinIBSandthelabelismorelimited?AndjustIguessinavacuum,evenifwedoseeapproval,isthisanassetwhereyouthinkthereissignificantpricingpower?Andisthatoneofthereasonswhyyou'retakingamoremodestviewoftheIBSsalespotentialvis-à-visSalix'smanagementinternalprojections?Thanks.


IcansaythatwetookaveryconservativeviewonpricewhenwebuiltourmodelsforSalix.Andoncewegettoknowtheproductbetterandthecustomerbaseandthepayerenvironmentwecanchangethatassumption.Butwetookverymodestviewsonpricingopportunities.

Operator:

Thankyou.CoreyDaviswithCanaccordGenuity.




CoreyDavis (Analyst-CanaccordGenuity):

Thanksverymuch.Thefirstone,canyoujustclarifyifthe20%accretionin2016isrelativetoyour,Ithinkitwasaround$12ashareEPSthatyouputoutinNovemberasyourestimate?

Andsecondly,justafewyearsagoBrazilwasoneofthehottestemergingpharmamarketsandnowseemstobeslowing.CanyouelaborateonBrazilandLatinAmericaingeneral,andhowweshouldthinkaboutthatcomponentofyourbusinessforthenextcoupleyears?Isthatsomethingthatyoumightthinktodivestifitcontinuestostruggle?Orisitstillprofitableenoughandstrategicenoughthatwarrantskeepingit?


Allright,Corey.Yes,intermsof--Ithinkthelastoutlookwehadfor2016wasinthepresentationthatwasdoneatISSintheNovembertimeframe.Ithinkitwasarangeofsortofnodealsde-levering,whichwasabout12…


05.


$12.05rangeouttolike$14.50ifwedidanumberofdeals.Sosincethattimeanumberofotherthingshavebeenbuiltintoourthinkingon2016.Oneisthebusinesscontinuestooutperform.SecondiswedidtheMarathondeal,whichwaswetalkedaboutlastquarterorearlier.AndthenwealsohavedoneaDendreondeal.Soifyouaddthoseintothebaseat2016thatgivesyouanew2016.Andthenyou--andthenwhatwe'resayingisthiswillbeatleast20%accretiveonthat.

AndintermsofBrazil,themarkethassloweddown.There'sbeen--thewholeeconomyhassloweddown,asyouknow.Andsothegrowthratewas--asyousaid,itwasastrongmarket.Andthenourperformance--wellactuallyinB&Lit'sbeenquitestrong.Wecontinuetohavestrongorganicgrowth.AndourbiggestissuedownthereisProbiotica,whichisabusinessthatweboughtthreeyearsago,fouryearsago,whichisinthenutritionareaintermsofnutritionalsupplements.Andfromthatstandpointthe--youknow,we'veactuallydeclinedasamarket.

It'sinterestingtonotethatouractualprofitabilityinBrazilhasimprovedyear-on-year.Sofromacashflowstandpointitcontinuestogrowforus.Butfromatoplinestandpoint,withFX,coupledwithlosingsomeshareinthenutritionalarea,ourtoplinehasnotbeenstrong.

Operator:

Thankyou.TimChangwithCRTCapital.

TimChang(Analyst-CRTCapital):

Hi,Mike.Congratsonthesetwodeals.YouknowonDendreonIlookbackatsomeoftheirfinancials.Ithinktheirgrossmarginsaresomewhereinthelow50satbest.AndyouknowisthereanythingyoucouldtalkaboutintermsofhowyouguyswillgetthemarginsontheProvengeproductintothemid-60sbyyearend?Itseemslikeit'sasortofauniqueproductinitself.


Yes.Sowhenwe--yes,theyhavebeenaround50%historically.ThereisanawfullotofabovetheplantcostsinDendreonintermsof--sowe'renotreallygoingtotouchthemanufacturingfacilityatall.There'sactuallytwoofthem.OneisinSealBeachandoneisinAtlanta,Georgia.Sotheactualmanufacturingsites,you




knowweplannottomakereallymuchchangeatall.Whattherewasalargeinfrastructure,techopsandothertypesofinfrastructureabovetheplantlevel.Wehavemanyofthosefunctionsourselves.Sowedon'tneedadditionalfunctionsinthatarea.

Andthenaswewerementioningbefore,thisthingwasbuilttobeabillion-dollarcompanyatleast.Andthey'vespentaheadofdemand,andtheyneverreallyright-sizedthisbusinesswhentheproductdidnotcomeoutandbecomeabillion-dollarproduct.Soit'sjustbasicthingsthatyoucangoanddo.Sothatrepresentsgainsat65%.Ithinkthe80%willtakealittlebitmorework,probablysomeinvestmentintermsofdoingthingsalittlebitdifferent.But65%isjusteliminatingthingsthatanyoneofyouwhowalkedintotheorganizationwouldimmediatelysee.

Operator:

Thankyou.GreggGilbertwithDeutscheBank.

GreggGilbert (Analyst-DeutscheBank):

Thanks,guys.CanyoudiscussthedurationoftheXifaxanassetthatyouuseinyourbasecase,andmaybetalkaboutthelegalandregulatorydiligencyonXifaxanandhowthatinformedwhatyourbasecaseassumptionis?Thanks.


Yes.Well,wedid--asyoucanimaginegiventhesizeandthepotentialoftheproduct,we'vespentanawfullotoftime.MultipleofferingswehiredtolookattheIPsituation.AndI'mnotsurewewanttodisclose--I'mnotsurewehadabasecaseperse.

Wehadallsortsofscenariosintermsofwhenthispatentcouldexpire.Notbecausewethoughtitwouldbutwejustwanted--it'seasytorunthesensitivitiesforthemodels.Andwefeelquitecomfortablethat--wefeelquitecomfortablethateveninthemost--theworstcasescenarioswe'llstillearnareturnforourshareholders.Itwillnotbeourhistoricreturn.Butwealsofeltquitecomfortablethatthisisastrongsetofmultiplepatents.Andweputthisproportioneffortinlookingatit.

Operator:

Thankyou.ShaneShawwithAlbertFried.

ShaneShaw(Analyst-AlbertFried):

Hey.Goodmorning.Congratulationsonthedeal,guys.Sojusthadaquickquestionasfaraswhatweneedfordealcompletion.IsitjusttheHSRandthetenderingofshares?Andanyideawhenyou'regoingtobelaunchingthetenderoffer?Andifthat'sthecase,ifit'sjustHSR,canweexpectthedealtoclosemaybekindofearlytomid-Apriltimeframe?


You'rerightintermsofthe--intermsofclosing.HSRisreallyit.We'llfilethetenderoffer,launchtenderofferwithintwoweeks,thenhopefullysoonerratherthanlater.AndIdon'tthinkwewanttopredictwhenwe'regoingtogetHSR.Butthere'snooverlap.Soitshouldbehopefullyasmoothprocess.

Operator:

Thankyou.DavidSteinbergwithJefferies.

DavidSteinberg(Analyst-Jefferies):




Thanks.Iknowinpreviousacquisitionswherethere'sbeenoutstandinglitigationyouknowthecompaniesmoveddecisivelytoresolvethat.Andinyourcommentsyou'dmentionedyou'ddoneduediligenceonassociatedpotentiallitigationexposure.Curious,particularlygiventheinventoryrevelationsofNovemberwhatyourviewonpotentiallitigationexposurethereis,ifany.

Andthensecondly,justcuriousonwhatyourbreakupinthistransactionmightbe?


We'renotgoingtocommentonlitigationexposureotherthanwetookahardlookatitanditwasstillpinnedtoourthinking.Thebreak-upfee?


Thebreak-upfeeis$355millionplusexpenses.

Operator:

Thankyou.YournextquestioncomesfromthelineofDouglasMiehm,RBCCapitalMarkets.

DouglasMiehm(Analyst-RBCCapitalMarkets):

Well,congratulationsfrommeaswell.Mike,withrespecttotheoutlookforthisyearslightlyaccretiveandthenover20%nextyear,canyouspeaktothenecessityforanapprovalinMayforIBS-D?Andthenperhapsyoucouldjustgointoalittlebitmoredetailintermsoftheduediligencethatone'sactuallydoneontheinventories.

AndthenforHoward,justcouldyouspeaktothedifferencebetweenthe$7.5billioninEBITDAandthe$4billioninfreecashflow?Weknowit'sinpartofitsinterest,butmaybesomeoftheotherdifferences?AndI' llleaveitthere.Thankyou.


Doug,justone--toclarify,the--youwantourviewonwillitbeapprovedin…?

DouglasMiehm(Analyst-RBCCapitalMarkets):

No.JustIwanttogetasenseforhowcontingentistheoutlookonanIBS-Dapproval,sayMay?Isitnotatall?Andyoucanbeslightlyaccretivethisyear?OrisaMayapprovalneededtobeslightlyaccretivethisyearandover20%nextyear,justintermsofhowyou'dexpecttolaunchtheproductandseeitkickoff?


Igotit.Thankyoufortheclarification.No,we'renotdependentonaMayapprovaltomeetthenumbers.Weareassumingthatweactuallydogettheapprovalintermsofthemodelswebuildandhowwevaluedthecompany.

Intermsofourinventories,wefeelverygoodabouttheduediligencewedid.Itwasactuallyprettystraightforward.Youknowwewentinandweactuallygotourfinancing,gotthewholesalerreports.Weknowpreciselyhowmuchofeachproduct,eachSKUisinthechannelindetail.AndsoIdon'twanttosaywehaveperfectinformation,butaboutasclosetoperfectinformationyoucouldhaveintermsofwhattheinventorysituationis.


Yes.AndthentheresultsbetweenEBITDAandfreecashflow,youpointedoutbyfarthebiggestitemiscash




interestexpense.Thentaxesand[CapEx]andobviouslyworkinvestmentsandworkingcapital.Butinterestexpenseisbyfarthebiggestcomponent.

Operator:

Thankyou.[EmilKisina],MitsubishiSecurities.


Goodmorning.AtthispointIonlyhaveamechanicalquestion.OnyourEnterpriseValueslideyoushowtheSalixseniornoteswithabreakagefee.Howarewethinkingofthat?Isthatcontemplatedtooccuratclosing?Isitaconditiontoclosing?Howexactlyareyouthinkingaboutthat,please?


Well,there'samake-wholeposition.It' lloccuratclosing.Andthere'samake-wholeprovision.Youknowwewishtherewasn't,butthereis.Andsowehadtoaccountforit.

Operator:

Thankyou.GaryNachman,GoldmanSachs.

DivyaHarikesh(Analyst-GoldmanSachs):

Goodmorning.ThisisDivyaHarikeshonbehalfofGaryNachman.Congratulationsonastrongquarterandgoodday.Ijustwantedtounderstandiftherewillbemeaningfulrevenuesynergiesthatyoucanexpect.AndwillyoubeabletotakeXifaxanandotherproductsoutsidetheU.S.?

Andsecondly,doyoufactorthedebtpaydownwhenyoutalkaboutyour20%accretionin2016?


IntermsoftakingtherevenuesynergiesoutsidetheU.S.,weassumenothinginourmodel.They'vegivenawaymostoftherights.IthinktheydohavesomerightsinCanada,maybeafewothercountriestosomeotherproducts.That'snotbuiltintoourbasecase.Butthatalsodoesn'tassume--it' llbeincremental.Itwillnotbe[productive].


Yes.Andwedoassumethatwe'regoingtobepayingdowndebtbecausethat'swhatwe'retellingyouwe'regoingtobedoing.Sowetookintoconsiderationwhenwetalkedabouttheaccretion.

Operator:

Thankyou.BrianLombardiwithMerrillLynch.

BrianLombardi(Analyst-MerrillLynch):

Goodmorning.Ijustwantedtodigintothesynergyassumptionsalittlebitmore.IthinkifIheardcorrectlyitsoundslikethe$500millioninsynergiesaren'tentirelycomingoutofSalix.Whatportionisitcomingfromthen?


We'renotgoingtocommentontheproportion.Thankyou.

Operator:




AndyournextquestioncomesfromthelineofShaneShawwithAlbertFried.Yourlineisopen.

ShaneShaw(Analyst-AlbertFried):

Hiagain.Sojustwantedtofindout,areyouexpectedtolaunchamarketingperiod?Areyougoingtodothatbeforethetenderofferexpires?Orareyougoingtodoitafterwards?Justcurioustofindout--Iknowyouhavecommitmentsinplace.Isawthecommitmentletter,butjustcuriousasfarasthe[syndication].


Thereisamarketingperiodbuiltintotheagreementthatwouldoccurpre-closing.Sowewouldexpecttoputinplacethepermanentfinancingbeforeweclose.

Operator:

Thankyou.AndyourlastquestioncomesfromthelineofDavidSteinbergwithJefferies.Yourlineisopen.

DavidSteinberg(Analyst-Jefferies):

Yes.JustquickquestiononJublia,Iknowthatit'sbeenalmostsixmonthssinceitwasonthemarketandit'sexceededallexpectation.Iwascurious,aroundthistimetypicallythere'ssomeviewoncontractofManagedCare.AndIwascuriousyouknowwherethatstands.Andgoingforwarddoyoustillsee50%growthinthat?Orwoulditamelioratebacktothemorenormalized30%level?Thanks.


Sure.We'reindiscussionswithManagedCareaswespeak,andhopetohavethosewrappedupinthefirsthalfofthisyear.Andwealsoareofferingazeroco-payonthisproductatthispoint,bothintermsoftheinitialaswellasrefills.Andsothatalsoishavinganimpactonourgross-to-net.

Butaswementionedlasttime,aslongas--obviouslywe'llgettheManagedCarecontractsinplace,andthatwillprobablyhelpabit.Butaslongasthisproductcontinuestogrowandaccelerate,we'llcontinuetomakesureit'savailabletoeverypatientandkeepthatgrowthtrajectory.Butoverthelongerterm,thegross-to-netsituationshouldimprove.

Allright.Well,Ithinkwe'verunalittlebitover.Butanyway,thankyouforallyourinterest.Andwe'lltalkagainnextquarter.Thankyou.

Operator:

Thisconcludestoday'sconferencecall.Youmaynowdisconnect.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOT




PROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.