Valeant Q4 Earnings Conference Call: Full Transcript

Operator: Good morning. My name is Heidi and I'll be your conference operator today. At this time, I would like to welcome everyone to the Valeant's Fourth Quarter 2015 Unaudited Financial Results Conference Call. All lines have been placed on mute to prevent any back ground noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Head of Investor Relations, Laurie Little. You may begin your conference. Laurie W. Little: Investor Relations: Thanks Heidi and good morning everyone. Welcome to Valeant's investor conference call. Participating on today's call are Mike Pearson, Chief Executive Officer; Rob Rosiello, Chief Financial Officer; Dr. Ari Kellen, Company Group Chairman; Anne Whitaker, Company Group Chairman; and our Lin LaGorga, our Treasurer. In addition to a live webcast, a copy of today's live presentation can be found on our website under the Investor Relations section. Before we begin, our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. In addition, this presentation contains non-GAAP financial measures. Non-GAAP financial reconciliations can be found in the press release issued earlier today and posted on our website. Finally, the financial guidance in this presentation is effective only as of today. It is our policy to update or affirm guidance only through broadly disseminated public disclosures. And with that, I will turn the call over to Mike. J. Michael Pearson: Chief Executive Officer: Good morning, everyone and thank you, Laurie. Thanks for joining us. Today we would like to cover the following topics. First we'll discuss our on preliminary unaudited fourth quarter 2015 results. Second, we're going to take you through our new tax presentation. Third, we're going to provide revised Q1 2016 financial guidance. Fourth, I would like to take a few minutes to provide my perspective of the current state of the business since I have been back a couple of weeks including a revised 2016 guidance and other key business updates. Fifth, Linda LaGorga our Treasurer will provide liquidity and cash flow update, and finally I am going to address some questions of we've got ahead of the call and then we'll open to Q&A. We've added a number of slides in the appendix around assumptions and our top-30 products which we will not be going through but will be made available to you. As we have previously disclosed, there is an ongoing review of our 2014 financials and as such we are not able to derive year-over-year comparisons today. Financial methods that are impacted by this include the organic growth, business unit growth, enterprise volume detail. What we can provide today are preliminarily unaudited 2015 fourth quarter results. With this, let me turn the call over to CFO, Rob Rosiello to cover Q1 and--our Q4 and Q1. Robert Rosiello: Executive Vice President and Chief Financial Officer: On page 5, for the quarter our total revenue was $2.8 billion versus our guidance of $2.7 billion to $2.8 billion. GAAP EPS was a loss of $0.98. Adjusted non-GAAP EPS was $2.50 which falls below the guidance range of $2.25 to $2.65 we provided in December. The shortfall was caused by unexpected reductions in higher margin product sales driven in part by channel destocking and negative reaction to our agreement with Walgreens. GAAP cash flow from operations was $562 million, adjusted cash flow from operations came in at $838 million above our expected target of greater than $600 million. As a reminder, we have listed adjusted cash flow from operations on this slide but as we recorded previously, we will no longer provide this metric going forward. On the next slide I'd like to discuss changes in Valeant's tax reporting for 2016. Historically, Valeant has reported our non-GAAP cash provision on Table 2a and b of the press tables, the combined tax effect of non-GAAP adjustments and the use of tax attributes and other timing issues. This number approximately 5% match the actual tax--the actual cash tax that Valeant paid each year. Going forward we will no longer include the tax effects from the use of tax attributes and other timing issues which will in turn weighs our reported tax rate between 10% and 15%. This new reporting metric has no change to either cash flow or actual taxes paid. On the next page we are also updating our previous guidance for 2015 Q1 from revenue of $2.8 billion to $3.1 billion to $2.3 billion to $2.4 billion. We expected adjusted EPS will now be $1.30 to $1.55 from $2.35 to $2.55 as compared to the guidance we provided in December. With the new tax presentation shown on the far right, adjusted EPS will be $1.18 to $1.43 for the first quarter. While most of our businesses remain strong, there are a few areas that changed since December that will impact our first quarter. Firstly we are realizing a decrease of roughly approximately $0.80 per share coming from the underperformance in several businesses. This includes slower than expected growth in GI including additional product destocking. We're also realizing a slower than expected rebound in dermatology that includes additional product destocking and lost refills from the Philidor transition. Finally we're also seeing underperformance in several other US businesses such as Ophthalmology Rx, Obagi, Solta, and Women's Health, as well as in Western Europe. We have also experienced headwinds from currency fluctuations since our guidance was first set. We also expect that another $0.20 roughly comes from the fact that even as revenue was brought down, we took little expense reduction despite the slower revenue forecast. Let me turn it back to Mike. J. Michael Pearson: Thanks Rob. So as you all know, I have been back from my medical leave for about two weeks and I've had a chance to review what's happening in the businesses and there is a combination, mix combination of some good news and some bad news and I just want to take a few minutes to sort of give you my assessment and then what we're trying to do about it. While our businesses continue to grow, we are now forecasting a lower growth rate in certain business such as dermatology given the continued external pressure from managed care, the pricing environment, and our slower than expect start in 2016. We continue to expect strong growth in GI, contact lenses, oral health, oncology, generics, and certain emerging markets. This strong growth will be somewhat offset by some of our other businesses including Western Europe, Ophthalmology Rx, Solta, and Obagi. Many of our business units have lowered their revenue forecast for the year from when they first put them together in the fall. We have launched our branded access program with Walgreens and this is a piece of the good news in mid-January with our dermatology portfolio, followed in mid-February with Ophthalmology RX and--negotiations are underway to add networks of independent pharmacies. The program itself is off to a terrific start. Within two months of launch in dermatology, approximately 30% of our dermatology scripts are flowing through Walgreens. This is approximately two times the volume flowing through Walgreens from when we started. More importantly, well over 90% of our doctors who are using Philidor are now using Walgreens and many new doctors are also using this channel. Walgreens' senior management that we met with last week is equally excited about the program and we continue to fine tune it to better serve our physicians and patients and improve the economics. Our Brand for Generic program is on track to launch sometime this summer. Finally, in another piece of good news we are continuing to focus on improving patient access as well as improving our relationships with our channel partners. We have strengthened our managed care organization with several key hires and we've been in active discussions with the payors to ensure continued patient coverage and access. I'll address this point in more detail in a minute. Doing the past two weeks, we have already taken steps to restructure a number of our underperforming smaller businesses and we are taking steps to launch a broad based cost production program. These actions will be partially offset by increased investment in key functions such as financial reporting, public and government relations, and our managed care organization. We are also currently exploring divestitures of non-core assets which will enhance our liquidity. Returning to market access. Maintaining US market access is critical of our entire portfolio is critical to our success. To achieve this goal, we invest in warrant rebates and building our organization's managed care capability. The increases in rebates are due to more competitive pressure in response to our end--in response to our historic price increases for our late life cycle products. Our US market access team led by Sandy Loreaux, who joined us in January this year, continues to have productive dialog and negotiations concerning access for our entire portfolio with national health plans, PBMs and regional plans. These negotiations include our Part D and commercial bids for 2017, response ad hoc therapeutic area reviews by peers and request for price inflation protection agreements. Through these negotiations beginning in late last fall this year, we've been able to maintain good coverage of commercial lives for our key brands and franchises, including dermatology, GI, and our ophthalmology franchise. We're working hard as a team, including the senior management team sitting here in this room today to continue to improve our relationships with PBMs and health plans, as well as access for our current portfolio and importantly future launch products. We've made a great deal of progress and feel confident that we'll improve our access in 2016 and 2017 and are laying a strong foundation for access to our expected new product launches. We're committed to engaging with these important customers more broadly across their organizations, building back trust through our actions and strengthening our capability to collaborate with them on initiatives involving our products. Turning to our revised guidance, with the first quarter now updated our new full year 2016 guidance as compared to what we previously reported is expected to be $11 billion to $11.2 billion in revenue and adjusted EPS of $9.50 to $10.50. With our change to a different tax presentation, we expect to report adjusted EPS of $8.50 to $9.50. As we are moving away from adjusted cash flow from operations, we will now report an expected adjusted EBITDA number of 5.6 to 5.8 for 2016. As we look at the budget we prepared in December, several factors have changed our outlook for 2016. First is Rob covered the Q1 under performance is expected to reduce adjusted EPS by $1 due to the higher than expected inventory reductions and transition from Philidor to Walgreens and the cancellation of almost all price increases. In addition there has been the negative impact from FX. Next, we are taking the more conservative of approach to our revenue assumptions and we are assuming lower growth rates for most of our franchises and geographies including a slower rebound in dermatology while modest growth in GI and underperformance in Women's Health, Common Wealth and Western Europe based on current expectations from economic factors and the current managed care environment in the US. This conservatism is expected to reduce adjusted EPS approximately $1 in 2015. As previously mentioned, any future price increases will be more modest and in line with industry practices and managed care contracts. We have experienced an increased competitive pressure at the payor level resulting in increases rebates for access for our key growth products and this accounts for a further $1 reduction from our budget in the fall of last year. Other items that have reduced our outlook for 2016 include increased investments in select functions, FX headwinds and continued organizational distractions be a cause we estimate another $0.50 in 2016. Finally the new tax presentation will reduce reported adjusted EPS by another dollar although it has no impact on either the actual taxes paid or the cash flow. To assist in the walk down from a revenue guidance in December to today, we have bucketed the main areas. GI, dermatology, and neurology portfolios represent the bulk of the change through the items already mentioned. Underperformance in current US business units accounts for approximately $300 million and ex US $200 million in revenue reduction. In term of FX, we estimate that to be $110 million and the remaining $90 million covers the rest of the decrease. As we look out to the next several years, we want to highlight our growth expectations for our major business units. We expect double digit growth from GI, Dendreon, Dentistry, Contact Lens, and Women's Health over the next three years. Single digit growths to be realized in dermatology emerging markets in Europe, Asia, Latin America, US Consumer Ophthalmology Rx, Canada Surgical and our aesthetics businesses. Finally, we expect our neurology and other Western Europe and US generic units stay flat to declining revenue growth over this three year period. I do want to highlight that we do have some very exciting products that are either in the market and there are new launches or we hope together approved over the next year or so. We continue to be very excited about the prospects for Xifaxan and you've seen us continue to skip growth. We're also excited about growth opportunities in a number of our emerging markets and are also through our contact lens alliance. Potential opportunities lie with several R&D projects such as Latanoprostene bunod for glaucoma which we hope to get approved later this year, IDP-118, a topical for moderate-to-severe psoriasis, which we hope to get approved next year, and Brodalumab for moderate-to-severe psoriasis which we hope to get approved at the end of this year. A number of these growth pilots have $1 billion plus potential. In terms of the next four quarters' guidance. With the weak results for the first quarter of 2016, we are providing a forward look at the next four quarters taking us through the first quarter of 2017. On a roll forward basis, we expect to realize between $11.6 billion and $11.8 billion in total revenues and approximately $9.55 to $10.15 on adjusted EPS under the new tax reporting. And we expect to realize approximately $6 billion in adjusted EBITDA over this time period. At this point, let me turn the call over to Linda LaGorga, our Treasurer to discuss our balance sheet. Linda LaGorga: Senior Vice President and Treasurer: Thank you Mike. First, focusing on our liquidity, we are comfortable with our current liquidity and expect strong cash flow generation from our business for the remainder of the year and beyond. Currently, we've approximately $1.2 billion of cash on hand including the proceeds from recent revolver draws. Our revolver is currently is on drawn at $1.45 billion. We most recently drew our revolver to fund cash timing related to ordinary course needs for operations including anticipated upcoming debt payment. We're expecting to close the sale of the Synergetics contract manufacturing business in the second quarter providing additional cash. To-date in the first quarter, we've completed the Sprout payment of $500 million in January and have repaid $405 million in term loans, including our Q1 $145 million mandatory amortization and $260 million in term loan maturities. We've approximately $520 million of remaining mandatory term loan repayments in 2016 including $417 million of mandatory amortization and an estimated $100 million mandatory excess cash low payment which is an annual calculation under our credit agreement, which will due at the end of March. We believe our term loan amortization and term loan and bond maturities in 2017 and '18 are manageable. Next, turning to some covenant highlights. Based on preliminary unaudited 2015 financial information and our 2016 guidance, we expect to remain in compliance with the financial maintenance covenants in our credit agreement for year-end 2015 and throughout 2016. There are no financial maintenance covenants in our indentures governing our bonds. Our credit agreement includes two maintenance covenants, a secured leverage ratio and an interest coverage ratio. For the year end 2015, we expect our secured leverage ratio to be approximately 2.1 times and our interest coverage ratio to be approximately 3.3 times, both within credit agreement requirements. Our net leverage to pro forma adjusted EBITDA for the credit agreement is expected to be approximately 5.8 times at year-end 2015. A couple of key factors contributed to the increase of our Q4 leverage ratio relative to our Q3 leverage ratio. First, for our last 12 months adjusted EBITDA per credit agreement, we no longer have the benefit of the Allergan gain from Q4 '14 of approximately $287 million. Second, also for our adjusted EBITDA capacity to adopt credit agreement, our Q4 adjusted EBITDA was impacted by $100 million by a greater transaction which is treated as cash IT R&D and reduces adjusted EBITDA in our credit agreement. Based on our 2016 guidance, we expect our net leverage to pro forma adjusted EBITDA per our credit agreement to be approximately five times by year end 2016. Now moving to some covenant highlights for latest in financial statement reporting. Both are credit agreement and our bond indentures contain financial recording requirements which are impacted by the delay in the filing of our 10-K. If we do not file our 10-K my March 30, a default will occur under our credit agreement. We lost 30 days until April 29 to cure this default by following our 10-K. If our 10-K has not been filed before March 16, a breach or reporting covenant occurs under our bond indentures. At any time after this breach the trusty or holdings of at least 25% of any theories of note notice the default. From repeated this notice, we would have 60 days to file our 10-K and thus secure the default. While the store needs to file the 10-K before March 16, does not have any immediate implications under our bond indentures, it does in result in a cross default under our credit agreement. The credit agreement lenders do not immediately have the right to accelerate on account of this class default but our ability to borrow under there revolver is restricted while the default continues. We now--next week we intend to launch an amendment process with our lenders to waive this class default and also to extend the time period for delivery of our 10-K and our Q1 10-Q. Moving now to cash available for debt repayment and other processes. One of our key 2016 priorities is to focus on our balance sheet. We remain committed to using the vast majority of our cash flow to pay down debt. We said we expect to pay down more than $2.25 billion of permanent debt in 2016. Based on our revised guidance, we remain committed to debt repayment and now expect to pay down more than $1.7 billion of permanent debt this year. Relative to our prior guidance, the reduction in cash available for debt repayment and other purposes into less than the reduction in adjusted EBITDA. This is primarily due to less use of cash from working cap and less taxes based on our reduced sales expectation. I will now turn it back over to Mike. J. Michael Pearson: We have received several key questions from many of you, so we thought we would address a number of them during the presentation. First, our efforts to pricing, we have already committed to reducing pricing on our brand new dermatology and ophthalmology products within the Walgreens portfolio on average 10%. This price reduction is on lack and will impact and will be taking across all channels not just Walgreens. Other price increases will be modest and in line with market and payor contracts. In terms of divestitures, as a public company, we continue to review our assets in order to maximize shareholder value. We have no current plans to divest any major platform. However, we will continue to look at non-strategic assets and make appropriate decisions. The Ad Hoc Committee. The Ad Hoc Committee has provided the following statement. I quote. ""The Ad-Hoc Committee has completed a substantial amount of work related to Philidor and certain accounting and financial reporting matters. The Committee and its advisors are working diligently and hope to complete the Committee's work in the near future."" As noted in light of the ongoing nature of these matters, we will not be providing any further comments on the Ad-Hoc Committee at this time. Finally, we have been subject to several ongoing investigations. These include investigations by the US Attorney's Office for Massachusetts and the Southern District of New York, The SEC and Congress. We are cooperating in these investigations and had provided and will be providing documents, information and testimony in these various investigations, whether pursuant to subpoenas or otherwise. We are also subject to shareholder litigation in both the United States and Canada which we intend to defend vigorously. Giving the ongoing nature of the investigations and litigation, we do not intend to comment further at this time. So in summary, our business is not operating on all cylinders, but we and I are committed to getting it back on track. We have a set of terrific products and brands and a loyal set of physicians, patients and customers. Through both revenue enhancement and cost reduction, we are confident that we can and again we will be able to begin to deliver the cash flows our shareholders and debtholders are accustomed to. With that -- with this, I will open the line to questions. Question & Answer Operator: [Operator Instructions]. Your first question comes from the line of Louise Chen from Guggenheim. Go ahead, your line is open. Louise Chen: Guggenheim Securities LL Hi, thanks for taking my questions. I had a few here. So, first question I had was on your weak GI sales in the fourth quarter related to Walgreens. I was wondering if you could give more color there, since our focus was on derm, as you mentioned before on Walgreens. There was only 15 days left in the quarter and there was already some de-stocking from the Salix deal. And then second thing I was wondering if you could talk about the changes in your managed care contracts that you mentioned in your press release. And the last thing, maybe more color on the gross margin and how we think about gross to net for the Walgreens drugs? Thanks. J. Michael Pearson: Sure. Let me talk about the weak GI sales, Anne Whitaker will talk about the changes in managed care, and I will come back and address the Walgreens' economics. So at the end of the fourth quarter, a number of orders were cancelled of Salix products. This was sort of -- at least we were told based on reducing inventories and some distributors and some retailers, there was a negative reaction initially to the Walgreens program and some aspects of it. The managed care team has done a terrific job working with the payors to modify the Walgreens program to make it sort of acceptable and so we feel good about that. You can notice the script trends in the GI franchise which continue to be very strong. So, we think that will even out over time. And managed care? Anne Whitaker: Executive Vice President and Company Group Chairman: As Mike mentioned with regard to our contracting since last call, we've been involved in submitting our bids for the Part D program for 2017. We've been going through the process of renewing contracts for 2017, and some of those we did extensions for 2016 even last fall. And payor on a routine basis each quarter pick categories that they do reviews of therapeutic areas, they do reviews of. And so we've been responding to some of those reviews. Dermatology is one of those reviews that many of the payors are undertaking because as they look back and their clients look back at last year, dermatology was one of the biggest trend drivers for them. So they've picked that category to focus on this year. And then we also have been engaging in discussions as part of the process of our contracting and in these ad hoc reviews on price inflation protection. We've had price protection agreements in place with payors. We've been negotiating through that process on specific rates in those range depending on the volume and the particular product. So I will just echo what Mike said. I feel very good about the progress that we are making as a company with really rebuilding our relationships with the payors and working through this negotiations process and I think we are building a strong team here at Valeant with some of the new folks that we have brought in and we've brought a number of the managers over the past few months to really beef up that capability and I am confident we have good prospects for laying a firm foundation for the launch products that Mike mentioned as well. J. Michael Pearson: Let me address sort of the way the Walgreens economics work and that's the gross margins growth and -- the way the contracts negotiated, it's an activity-based fee that we pay Walgreens. What I mean by activity-based is that they get paid different amounts based on different scripts. If it's cash paid script, it's one fee. If they adjudicate insurance, we pay a little bit more. If they do a prior order, we do a little bit more, if they do workaround refills we pay a little bit more. So it's an activity-based fee. The early experience with Walgreens compared to Philidor is that there is more cash pay than what we had--what we saw with Philidor but that's largely a function of prior ops and that's not a capability that Walgreens currently has. So what we'll be doing is using a third party. We agreed with them last week, we'll use a third party till they either build that capability we'll continue to use a third party. So we expect the economics as I mentioned to improve over time. What we've been focused primarily on is volume. The key is to get scripts and through Walgreens and to make sure the physicians have a good alternative to Philidor. Many physicians really liked the Philidor program. And again as I mentioned, well over 90% of the physicians that were using Philidor are currently using Walgreens but perhaps more important is the number of new doctors that given Walgreens reputation and that our brands are now using Walgreens that weren't using Philidor. So, we've been focused on getting our physicians comfortable with Walgreens and then we'll continue to tweak the program with Walgreens to better serve patients and patients and doctors and also improve the economics of both companies. Next question. Operator: Your next question comes from the line Annabel Samimy from Stifel. Go ahead, your line is open. Annabel Samimy: Stifel Nicolaus: Hi. Thanks for taking my question. First, I want to go back to the adjustments you made for GI with regard to the Walgreens program, originally and specifically only in derm and ophthalmology. So, can you just explain a little bit more what the issues were that they were set with and what specific changes you made for GI within Walgreens because originally it was not going to be included. Also, there were a lot of inventory changes within GI in the first quarter and I guess in the past saw that the sales inventories were going to be--their destocking for sales is going to be finished at the end of quarter and I guess in the past it was saw that the Salix inventories were going to be--their destocking for Salix is going to be finished at the end of 2015. So is this destocking now related to this cancelled orders and that continues into the first quarter and do you see more normal growth after that second quarter forward? And then finally on the divestures, can you just detail what businesses that you generally believe are non-core to Valeant and how much that might be able to contribute to debt pay down going forward? Thank you. J. Michael Pearson: Yes so first of all to clarify that is, GI is not part of the Walgreens program but I think that maybe we weren't clear on that and therefore it did have, the announcement of Walgreens did have an impact on GI. This is I think just like you probably assumed GI was going to be a part it. So did other players. We point--we should take responsibility, I'll take the responsibility we probably did not communicate the Walgreens program as well as we could have to payors and channel partners. We've done that. They had some suggestions in terms of how we could modify it so they'd get more comfortable. I am not going to go into the specifics of those. We have accepted their suggestions. Walgreens and us have been working well together so comfort level is much higher now. But GI is not part of the Walgreens program. In December we--I think we tried to be clear and if we weren't clear, I apologize. But in terms of destocking, we talked about destocking taking place both in the fourth quarter and first quarter. For example we didn't turn on the Walgreens program till January 15 and at that point, all the inventory in Walgreens that they were carrying converted into consignment. So by definition there was a destocking element. We do expect that both dermatology and ophthalmology franchises will return to growth in the second quarter once the destocking will occur we were unable to measure precisely how much would happen in fourth quarter, how much would happen in first quarter, so we gave out best estimate. It turns out a little bit more happened in the fourth quarter. We have given you our first quarter estimates but going forward second quarter we expect that destocking to occur. In terms of divestitures of non-core we do not want to give specifics. We are in discussions with other parties with confidentiality around that but it will be things like Synergetics where when we bought Synergetics, the part that we were interested in were strategic was the ophthalmology versus the franchise. What we sold was a contract manufacturing and surgical neurology which is not an area that we compete in, we had no sales force and rather than build a sales force and get into an entirely new area, we ended up selling it to a company that was in that area and then if you look at the et price, we ended up paying for the ophthalmology assets, it was less than $15 million. So that is an example of sort of a non-strategic asset that we were able to monetize. Again, we will only do this if we believe that the some cash flows that we would expect from our franchise are less than what someone's willing to pay for the assets. Next question please. Operator: Your next question comes from the line of Mark Goodman from UBS. Go ahead, your line is open. Mr. Goodman, please go ahead. Mark Goodman: UBS: Yes. J. Michael Pearson: Hey Mark. Mark Goodman: UBS: Yes, hey Mike. A couple of things, number one, I didn't see you talk about the emerging markets at all. Can you talk a little bit about what's happening there and obviously those markets have weakened a little bit, you didn't really talk about them. Second what happened was so for oncology relative to how you were thinking about this two or three months ago that these businesses slow down just dramatically or is there something going on there. Third thing is, can you give us an update on the contact lens capacity. I know this is important as you ramp up capacity I mean you're going to be able to sell your lenses just in the US or is the new lens still just going--is it still just going in the US, you were able to sell it in Europe this year just trying to get a sense of launch capacities or anything there. And then the last on tax, can you just explain to us like why the change in tax now? Thank you. Robert Rosiello: Sure. So emerging markets so a few things are happening in emerging markets. One FX continues to work against us which in a sense doesn't necessarily have an impact on market demand but does have an impact in terms of gross margins because as you guys know most of the API is sourced either from the US or Europe and so there euro-denominated or dollar-denominated and as the dollar continues to strengthen relative to the emerging markets, it puts pressure on the profitability. In terms of -- and certainly market pressure continues to be a challenge. Some of the Eastern European markets continued to be influenced by Europe and they continue to be challenged. There are some bright spots. Our Middle East and in particular our acquisition continues to grow very robustly. Mexico continues to be a strong market for us and Asia continues to do very well, in particular, China which is a real strength for us. So I think emerging markets will always be a mix I think one of the advantages of being in many of the emerging markets is always some that are outperforming and some that are not performing. So we do continue to expect to have sort of high single digit growth in the emerging markets but in terms of actual dollar is FX continues to strengthen both on the revenue side, the dollars will be depressed and then in terms of profitability because of the API issue, it will continue to hurt us if the dollar stays where it is or continues to strengthen versus where we were in December. Maybe, I've already talked a little bit about Solta and Obagi which you just took over recently. Maybe you can also talk about the Ultra capacity and then Rob maybe going to address the tax issue. Robert Rosiello: Yes, Marc. On the contact lens capacity, we've said before that we'll have three to four lines of Ultra up and running this year. We are out of capacity through Q1 and Q2, but we have capacity coming on line in Q3 and Q4. So we actually are going to be expanding sales into Europe and other parts of Asia and we are fortunate to have additional capacity on the sphericals. We've also launched the multi-focal and that's gaining a lot of traction in the U.S. So, there will be a good amount of Ultra that we will be able to expand outside the U.S. in Q3 and Q4 while still doubling sales of ultra in the U.S. this year. On Biotrue, we are having some several lines. There we're still hyper-capacity; the demand is being very strong in North America and elsewhere in the world. So there it's really catch-up, but we're investing heavily in capacity. Turning to Solta and Obagi, Obagi is a nicely profitable business. We were at the American Academy of Dermatology last week, spent several days there talking to many key opinion leaders across medical dermatology and aesthetics, and we actually have a lot of public suggestions and encouragements across both these businesses. So Obagi is profitable. I think what we need to do a better job on and we're expanding our focus across the national accounts, both during leadership and basic sales execution. We have a terrific team across marketing and sales. I think we probably have not put in our focus against this business. This is a great set of products with a great brand and I think we could do a better job and we are accountable for that and we'll do the job we need to. Likewise in Solta, we had machines on display at the AAD. We actually had a good number of sales there. Again, we have a terrific team with Vlad who is well-known in the business. But there we have work to do, we have to restore this business to profitability. The good news is we've new launch system coming online, we've also recently launched a pelo hair loss -- hair removal system, which again we expect to do well in North America, but we also had representatives from the Latin American region and we're going to selling this system across the world. There again, it's just restoring profitability, getting focused in the field, improving sales execution. Again, we believe we have a good set of products and it's our job to make sure that we support the appropriate demand in the field. Robert Rosiello: Marc, on the tax issue, we've had ongoing dialogue with the SEC. It has been quite productive from our perspective. We think this is an appropriate presentation. I'd point out that it has no impact on the cash flow or actual taxes paid. J. Michael Pearson: Next question please. Operator: Your next question comes from the line of Andrew Finkelstein from Susquehanna. Go ahead, your line is open. Andrew Finkelstein: Susquehanna Financial Group: Hi, good morning and thanks for taking the question. Could you talk a bit more about the cash flow guidance for the year and some of the level of clarity around the individual moving parts given both the operational factors with de-stocking and uncertainties on pricing, as well as the additional adjustments? You talk about restructuring and the other things that don't affect the non-GAAP P&L. What's the level of confidence in achieving that level of cash generation in 2016? And then as you approach these payor negotiations, particularly for 2017, can you talk a little bit more about the process in particular, to what extent are you able to leverage your portfolio of products in portfolio of products in trying to maintain access for some of the categories that had been more of a focus for payors to show savings to their clients. Thanks very much. J. Michael Pearson: Sure. I will take a shot at these while I am going to ask one to and to explain it if I miss anything. During the past, we've tried to be conservative. You can do the math. You can take our guidance and do the arithmetic and see how much cash flow we at that guidance levels and we've tried to sell. I think we feel quite comfortable at the 1.7 that we now have good live insight on price for our entire portfolio for the year and managed care we have good sight, line of sight. Most of these negotiations have either been completed in terms of managed care or are closer to completion. So we're not embarking so to on the negotiations or sort of finalizing the main one in final rounds and they've been very constructive. We've done a lot of listening to the payors and we have tried to be very accommodating and Anne and her team has just done a perfect job sort of changing the momentum from a managed care standpoint as we talked about, the whole company's involved is on this so it's moved from sort of a sign that was lower down in the organization to with Anne's joining the company to sort of a top level priority for the company. So that's where the higher was. Linda, any other comments on the cash flow on it. Andrew Finkelstein: And just to be clear, if I can interrupt. When you're talking about the visibility, you're talking about visibility for 2017? J. Michael Pearson: Correct. '16 and '17. Linda LaGorga: So just a couple of quick comments. You asked about tax restructuring. This is our estimate at this time. We have previously estimated $200 million, we've reduced it to $175 million based on getting to the end of the year and having more information now that it is March. As you might remember from a prior call or more than a prior call, the sale of severance is a big piece of that. There is a lot of Salix charges that were paid out for over a year and so that is still flowing through just based on how the severance was structured. On contingent consideration milestones and payments, again that number does include the Sprout payment which is done. And the other big payment is there is the $150 million milestone payment for the--that's listed on the page and we have to say is depending there is some things that are scheduled for fourth quarter and if they don't happen in fourth quarter, they could happen in first quarter but that's our best estimate. Anne Whitaker: Joe, this is Anne. I'll add a few comments just on managed care to add what Mike has said. And I do want to emphasize I think that the payor negotiations are going very well. The process is you usually get your Part D bids in the first quarter of the year and then you have the negotiation process until the plans have to submit into C, I mean and you're usually notified in the third quarter of the decision. So, we feel good about our submissions. We have been going back and forth with the payors. The commercial contracts are on different schedule based on the terms of our contact and I mentioned the Ad-Hoc sort of therapeutic reviews. With regard to your question around portfolio and how our portfolio helps us, well number one, Valeant has a sizable portfolio now in the US U.S. was over $8 billion in sales. So, we are important to payors as they are important to us. We evaluate with each payor how we build our contract with them based on their needs and how they go about it. So where it makes sense, we're leveraging our portfolios like in ophthalmology or dermatology and GI and various formats. So I think that kind of -- I think that covers your questions on the payors? Andrew Finkelstein: Yeah, thank you. J. Michael Pearson: Next question please. Operator: Your next question comes from the line of Tim Chiang from BTIG. Go ahead, your line is open. Tim Chiang: BTIG: Hi, Mike. Could you talk a little bit more about the non-core assets that you would consider selling? I mean, certainly you've got a lot of debt on your books. You are trying to revamp the business and I realize you've just gotten back, but just seems like given how the stock is reacting in the pre-market and all the investors' concerns, I mean, would not that repayment be one of your largest priorities right now? J. Michael Pearson: It is, I fully agree. We are very committed, as Linda said, in '16 and '17 to reduce our debt and that we've not changed that commitment and we will do that through generating cash flow. We hope to generate more cash this year than what we're projecting at this point, but projections are projections. And -- but we'll be looking at revenue enhancement, we'll be looking at further cost reduction because what we've done is taken revenue down significantly. We have not attacked the cost space in any major way, and that's something that we will do. And we will continue to look at opportunities to raise cash through divestitures. As I mentioned, I'm not going to get into specifics, but you should expect that there will be a series of non-core divestitures over the course of the year, which we will use that to pay down debt, and to accelerate the debt pay down. Tim Chiang: And Mike, is the fact that your tax rate is going up or you are changing your reporting structure in your tax rate, is that part of -- is that tied to the fact that you're de-leveraging the balance sheet at all? J. Michael Pearson: No, no. Every year there is a comment letter from the SEC. It's not the investigation, it's a comment letter that all companies get and we sit down with the SEC. It's a change, as Rob said, that they suggested and we thought their suggestion made a lot of sense. But I think the key from an equity investor standpoint and also from a debt standpoint is that it has zero impact on our cash flows, right? It's -- so, the reported tax rate will change because the NOLs, it will sort of be pre-NOL in terms of what's reported, but in terms of the actual taxes paid, our previous guidance still stands. We expect it to sort of stay in the 5% range. So it's purely a presentation difference that has zero impact at all in terms of generation of cash flows. Tim Chiang: Okay. J. Michael Pearson: Why don't you get back in queue just because we have a lot of names on the board here? Tim Chiang: Okay, will do. J. Michael Pearson: Thank you. Operator: Your next question comes from the line of Chris Schott from J.P. Morgan. Go ahead, your line is open. Christopher Schott: J.P. Morgan: Great. Thanks very much. Just two questions here. First, I know you went through a lot of detail the reasons for the updated guidance but maybe just broadly how did so much change so quickly with the business? I think when investors are turning their hands around this--how much this guidance is conservatism and just different approaches to guidance given the management disruptions and controversies as compared to a deterioration of fundamentals over the last three months. So, any color there will be really helpful. The second question is coming back to the divestitures. I know you are not planning to divest core assets. But as you just think about the evolution of Valeant, once you kind of address some of these near term challenges, if the stock doesn't recover, I mean what would cause the company go down a path and consider a broader breakup of the Valeant business units? Thanks, very much. J. Michael Pearson: Sure. So, in terms of if you look at what's happening, one of the big differences in the reduction of guidance is Q1, in a sense, with last quarter. So, Q1 is--and that's which is why we tried to show sort of Q2 through Q1 of next year where we remain very conservative to the substance on Q1 and next year always is took Q1 of this year what we expected and added it to it. On a going forward basis, I don't think there has been a big deterioration at all in the business. If you guys see the script trends, things like FX, you just live with. So, that's a piece of it. I think we have the managed care environment was something that we certainly needed to address and so, that is certainly has led us to take a more conservative outlook on revenues than we had before. So, hopefully those are numbers that we can meet and beat. There was a pretty high deductible client impact in the first quarter, is up now to 26% of our lives. So each year that increases. So first quarter will always be tough. So I think it's a first quarter phenomenon. We feel good about the rest of the year, the fundamentals are good and probably we have taken a little bit more conservative approach on the forecasting. In terms of if the stock price is not recovered, I think that will be a function of not delivering the cash flows that we're promising and or exceeding the cash flow and then the company should think about other moves. We are here to see our shareholders and I know our Board is committed to that, and our management is committed to it, but we do think we have a plan that will generate strong cash flows, allow us to reduce debt, and we can demonstrate real growth, organic growth in our businesses and I think we believe we were successful doing that the stock price. We will start trading more on fundamentals which is not right now. Thanks for the questions, Chris. We'll move on. Operator: Your next question comes from the line of Corey Davis from Canaccord Genuity. Go ahead, your line is open. Corey Davis: Canaccord Genuity: Thanks very much. Just probably two questions. Number one, would you be willing to give us FX in normalized run rate next inventory on an annualized basis, 2.10 in Q4 but I suspect that once inventories are normalized starting in Q2 of this year, it's going to be much higher than that. J. Michael Pearson: And the second question? Corey Davis: Second question is how do you think your retention program is going now and will be going over the next six months to ensure that you keep, retain and empower all your key employees, not just at the upper levels, but all the way down the ranks? J. Michael Pearson: So, let me talk about retention and then I'll have Ari talk a little bit about Xifaxan. So far the retention program is working. We've had very few losses. We obviously lost Deb Jorn and that we are disappointed. On the EMT, at a very senior level, we don't have a retention program, right? We did not put that in place for -- we have nothing in place firmly for the EMT where she was a member. What we have is below the EMT, we have about 70 people there in what we call ART, which are sort of the next level of sort of key and we've had minimal, if any, losses there. We just paid bonuses for the year on Friday. So, this is -- we'll see what happens in the next few weeks. But there is sort of -- we have a meeting with the ART group every week where we have an open discussion and they are the leaders of the company. And there is a very positive attitude in the group that we're committed. I think they know how strong our brands are, how strong our products are. They spend a lot of time with our customers whether it be physicians, be it retailers. And many of them have been at other pharma companies and have gone through some other types of experiences. So I think there is a suit of core, so we are hopeful. The Board was very supportive of what we believe to be a pretty generous retention program for this level. So, so far so good. But as you point out, this is tough. Right now it's a bit of a tough company to work for. So, I really thank our employees for their commitment and dedication. Ari, on Xifaxan? Dr. Ari Kellen: Executive Vice President and Company Group Chairman: Yeah, on Xifaxan, as we've said back in December, we expect it'll be greater than a billion dollar drug this year. We obviously expect that to be the case. We have over 400 reps in the field promoting Xifaxan. We continue to believe that we will see growth across both IBS-D and increasingly AG where, as we've said before, the medical indications for compartment end-users, Xifaxan with Lactulose is in the guidelines and we are just -- we're putting in another 100 reps into the field. They've just gone through training. So, we're putting a lot of energy behind the drug. Scripts are, as you -- as Mike said you see them, they're running north of 12,000 a week. And in total this year we expect to see in and around a 50% growth of total Xifaxan group. J. Michael Pearson: Thank you, Corey. Next question please. Corey Davis: Thank you. Operator: Your next question comes from the line of Shibani Malhotra from Nomura Securities. Go ahead, your line is now open. Shibani Malhotra: Nomura Securities: Hi, thanks for the questions. I've got a couple. The first is, Mike, can you just clarify you were saying that the reason the Salix inventory or Salix revenues are being brought down is because managed care didn't read the Walgreens press release correctly. Is that correct? That's a bit difficult to for us to kind of fathom that it would have such a big impact on your sales. And then second, over the last six months, we've been talking to you and I guess investors have as well, about the fact that management needs to rebuild credibility with investors. And we've been through a state of negative news, it started with pricing, then Philidor, then just general communication and now the guidance which I would say is lowered far more than any investor kind of anticipated. I guess the question is how can we be confident in what you are saying today about the business given that you were positive in December and January and how do we get comfortable that Valeant is able to execute and deliver for shareholders? Thanks. J. Michael Pearson: Yes. Maybe, I misspoke. In terms of the first one, it's not managed care per say, because managed care--distributors and retailers which lead to revenue recognition. So and again I think Walgreens did not do a very good job explaining and then there were aspects of Walgreens program that people didn't like. So, I think we've done a better job explaining and we modified the program to accommodate and import new channel partners. And so, I don't think it would be--and then there was sort of lack in clarity whether GI was part of the program or not. So, on that one I guess I wouldn't necessarily agree that it was completely unexpected negative response to the GI. But I would point to the script, in the end demand is based on scripts written and filled and I would sort of point to the continued strong script growth across the Salix portfolio as sort of being the leading indicator of how that's doing and we are quite pleased with the growth that we continue to see and as already said, we are putting more resources behind it because we think there is a lot of untapped growth in Xifaxan in particular in the indication. In terms of management credibility, we have to earn it. And you raised some terrific points. I would argue January, I don't think I said a whole lot of January, I think I was in a hospital but I do accept your point and it starts with me. So our team has been working hard and we obviously have to deliver on our commitments. The world has changed to some degree since December but we have to do a better job. We've had some underperforming businesses, that's on us. Right, that's totally on us. So we have to earn back the credibility, we have to deliver on the results, we have to meet or exceed this guidance and I think we all recognize that. And so it's a bit of a starting over point at this point for me and the company. And clearly if we don't deliver, then again that's on me but I can assure you, I am completely committed to making sure that we do deliver and I do think we knew we have a lot more line of sight in terms of managed care at this point. We have a lot more line of sight in terms of pricing at this point and I think we have a better line of sight in terms of script trends. So, I think that all three of those help. There are certain things we don't control like FX but we have built our guidance so we hope that's manageable as well. But thanks for the question, Shibani, and we'll go to the next one. Operator: Your next question comes from the line of Umer Raffat from Evercore ISI. Go ahead. Umer Raffat: Evercore ISI: Thanks for taking my question. I have a few today if I may. I just really want to focus in on some of the changes in fundamentals of that team to be coming out the first quarter. So, first you for Mike if I may. Mike how different is the guidance number today versus what you came out versus when you first came back a couple of weeks ago? And then on the far side, what I'm trying to understand is if orders were canceled towards the end of first quarter but the TRX continues to grow that would imply to me that there is more inventory in the channel than expectation. Am I on the right track there? And then on Ophthalmology Rx, I don't see any disruption in IMS. So, I'm trying to understand what is it that you are seeing disruption wise and the first quarter based business trends to you Mike. How does the January plus February compared to what you are seeing in March? And then Rob, I am sorry if I may a couple of things. Number one, free cash on EBITDA to free cash flow bridge, you previously mentioned working capital change of $600 million, it is now $200 million. So, what's driving that? Is it just Walgreens? Secondly, Rob, tax rates. So, Howard previously said, if you guys de lever cash taxes going to low teens versus about mid-single digits that it used to be, so my question is, if you guys do de-lever with the non-GAAP tax rate approach 20% and then finally on EBITDA for next four quarters. So the press release says the adjusted EBITDA for the next four quarters $6.2 billion to $6.6 billion, but the slide, the slide 16 I believe says its $6 billion. So, I just want to understand that. Thank you. J. Michael Pearson: That's a lot of questions, Umer. Let's try to pick them up. I will start. So guidance assigned that we are having a lot of debate with the management and with the Board in terms of where we take guidance and quite frankly, we've had continue to have discussions, we have made a lot of progress with managed care over the last couple of weeks and so again we have some of the numbers on the negatives have increased but there's a certainty around them. And then the first quarter we have got a lot more clarification on first quarter as the quarter has progressed. So, we feel comfortable with the guidance that we gave out this morning. In terms of inventory, as you said, if scripts continue to grow but people aren't ordering as much products, it is one of two things, one is there is more inventory out there than we thought and second is we were holding lower levels of inventory. Those are the two possible explanations and actually we think it's a little bit the latter in terms of both distributors and retailers. In that they are also focused on cash management and we do think inventories throughout the channel continue to go down but by definition as scripts continue to grow, at t some point, we do believe as we get into the second quarter everything will be normalized. Ophthalmology, again I don't think we said there is a major change. What we have is a set of older products that alone are we're having -- we experience a slow decline. This is not actually our branded share is increasing. This is largely due to more and more generics is what's growing and sort of a pool of branded ophthalmology products in the areas we compete is going down. Now, we have not included in our guidance, any new launches. So we get--if we get approval on our glaucoma drug, then we will expect that that will help pull us through ophthalmology. Similarly in Dermatology, if we get approval on some of our pipeline products that will manage there. So, we're forecasting now in our guidance is products that are currently on the market and we don't have launch products in there. In terms of progression, January, February, March. March is always the much larger month than January and February. It's even more in the first quarter because of these high deductible plants. It's even more acute in terms of what we see in March. But so clearly March is a much better month than January and February. Rob, there are a number of... Robert Rosiello: Sure, let me only take yours in turn, firstly with respect to the working capital on slide 20, the reduction reflects the lower growth in the updated guidance and it's simply 30% of the change in revenue. In terms of the tax rate, I agree that overtime it would increase if we were to delever the 10% to 15% that we are showing, it took do it on a comparable basis to the 5% that we were showing and then we've always said that over the longer term, our tax rate would increase and likewise and commensurate to 10 to 15 would increase. And with respect to the four quarter guidance, which Mike presented on page 16, the chart is correct. The adjusted EBITDA non-GAAP guidance is $6 billion and we will correct that. Umer Raffat: Wait, Rob to be clear. The next four quarters EBITDA is $6 billion? Robert Rosiello: Correct. Umer Raffat: Or 6.2 to 6.6? J. Michael Pearson: $6 billion. Umer Raffat: Okay. J. Michael Pearson: Next question, please. Operator: Your next question comes from the line of David Risinger from Morgan Stanley. Go ahead, your line is open. David Risinger: Morgan Stanley: Thanks, very much. I have 13 questions also but I'll keep it a little bit briefer. So first, with respect to divestitures, should we expect them to be dilutive to EPS given the fact that you will be paying off low interest rate debt? Second, with respect to the rebates discounts and channel fees including Walgreens, could you just explain to us I am assuming most of those are netted out of revenue and are reflected in net revenue but any of those channel payments et cetera reflected in COGS or SG&A? And then finally with respect to the launches, Mike, you mentioned that you are excluding launches from revenue guidance, are you also excluding launch expenses from your guidance as well? Thank you. J. Michael Pearson: Yes. Thank you, David for prioritizing your questions and I hope your colleagues take from your lead. So, thank you very much. Depending on the divestitures, some could be dilutive, some actually may not be. It kind of depends on the assets. If it's an early stage asset, if it's obviously it's not. So, as you know, it really depends on the asset, the price we get. If we do anything major, it could be -- that could lower our EPS, there is no question about that. But we'll be clear just like that we are if -- in the past, when we made acquisitions whether it will be or won't be dilutive. In terms of -- the launch expenses are also not included in the budget. So -- but I will note that launches in the area of dermatology and ophthalmology, we don't anticipate major changes to our infrastructure. I think we will prioritize our call patterns differently, but the launch, we do have good strong critical mass in dermatology and ophthalmology and in GI in terms of our sales force capabilities, etc. So, I don't anticipate we will be adding lots of people as part of these launches. In terms of Walgreens, in terms of revenue deductions versus cost, I think we're taking the Walgreens costs through our SG&A in terms -- that's how we are treating the Walgreens. They are doing -- we're basically paying them at dispensing fee based on activity and that will run through. So it will not be in that reduction in revenue. It will be in -- it will flow through SG&A. Thank you for your questions, David. Next question? Thank you. David Risinger: Thank you. Operator: Your next question comes from David Amsellem from Piper Jaffary. Go ahead, your line is open. David Amsellem: Piper Jaffray & Co.: Thanks. I just have two. So first on the tax reporting, the new tax reporting and I know you made it clear that there's no impact on cash flow or actual taxes paid. But I guess what I'm trying to understand here is under the old reporting, you had characterized your EPS guidance ranges and you reported EPS as cash EPS. So under the old reporting for past EPS, is that cash EPS not really ""cash EPS""? I mean, I'm just trying to understand if there's an inconsistency here. And then secondly, this is a high-level question. Can you -- I think one of my peers had asked about retention earlier. Maybe can you speak to morale in the company and you hadn't talked about distractions. Can you speak to that and how that potentially would impact the business, and is there an issue internally in your view in terms of confidence in your ability to lead the company going forward given what's transpired? Thank you. J. Michael Pearson: Alight. So, I'm going to ask -- let's take your second question first and then Rob -- we can talk about tax. I am going to ask Ari and Anne as I have already commented a little bit on morale. I'd like to get their takes and the large portions of the company report to both of them in terms of the people side. So I'll address the personal question, but Ari and Anne why don't you -- Ari, you can go first and talk about what you think about what you think about morale. Dr. Ari Kellen: Executive Vice President/Company Group Chairman: Okay. Thanks to Mike because you said these are challenging times. As we truly have an amazing bench of general managers and leaders of functions in the businesses and you've heard their names repeated again and again. I think we have strong leadership and people who are committed to GI to derm, ophthalmology, Solta, Obagi, Latin America, the B&L businesses. I'm thinking across the teams, and these incredibly talented people. We come to work every day. Obviously we have to return money to shareholders or we come to work worrying about patients, putting quality products into the market and serving our doctor customers compliantly into the best of our ability and I think that's what motivates our team. I think we believe in our mission. We believe in what our company is trying to achieve and that's what we do day-to-day. The issues surrounding us are distracting and it takes courage to forge ahead to execute our mission day-to-day in the face of all that. So, all I can say is we have fabulous people. We are blessed to have them. We believe in them and we think they'll do the right thing for the business. Anne Whitaker: So, I'll just add a few comments to what Ari said. I think he described it well. When you talk about morale, I think people have sort of worked through the process internally through typical change process and people now are actually they are angry of I think more about at the outside because they see the company being described in a way that they know is not what they experience at Valeant and so, I am encouraged that I've really seen people trying to move to action. They want to help. They want to help change the image of the company and we have really strong leaders who I think are channeling that energy into the best thing that everyone can do in this organization, to really change and shift the organization, it performed every day. And that's what we're emphasizing each and every day. So, it's really delivering performance is going to get us out as the situation that we're in. I think the pivot that Valeant has really built the organization around a decentralized approach helps us here. We have some new businesses who have an identity with a select set of customers who kind of really building their image even in their ongoing as a Valeant company. One of those being Dendreon that I think is doing very well. And then just a couple of other points, I think we have one of the best incentive comp programs in the industry for us, our sales representatives and so, that keeps them motivated on clear goals that they can achieve and we are working to shape the environment such that they can do that. And then, I'll just end with I think Ari's point around people really believing in the products that they are selling. When I talk to our sales reps, when I talk to our marketers, R&D folks, they are very committed to these products that we brought to market and are bringing to market make a real difference in patients' lives slide. And so I think keeping that commitment, that conviction and that determination to really change our image and perform our way out of this, and we will keep our organization and the morale going in the right directions. Dr. Ari Kellen: And that's a good point. If I can just add this, there's important functions enable all our front line people to do their work and that's specifically manufacturing and R&D. And I think Page and his team in R&D are cranking our products that are going to fill our pipeline. It's all about putting down the map, IDP-118s, (inaudible) these things are being worked on by this terrific team, or remaining focused on the future. I think Dennis, Angela, their team in manufacturing, as we travel around to the operations, you couldn't hope to have a team of people more focused on just driving quality and efficiency day-to-day. J. Michael Pearson: And David, you were being -- I guess the question is am I the appropriate person to lead this company. That's clearly up to the Board. I do think we have a great Board, we made a number of new additions to our Board that will provide even more independence. And we basically have representation from two activist investors, Pershing Square and ValueAct. And so, I think we have two major investors also on our Board and our Board interacts with investors and so, I can't comment on -- or I am not going to choose to comment in terms of, that's up to the Board. And -- but I do think our Board is a lot closer to the investors than many Boards both given the composition, the new independent directors as well as well as sort of representation from a couple of activists. Tax? Robert Rosiello: Historically our tax presentation table 2A and 2B showed a single number and it was the combined tax effect of the non-GAAP adjustment as well as the use of tax attributes and other timing issue such as NOLs. What we've done in Q4 unaudited preliminary presentation is to break that out into two pieces: the tax provision plus the effect of the non-GAAP adjustment, as well as the tax effect of use of tax attributes and other timing items. We're reporting the combined amount of that as 5%. Going forward, we're just going to report the tax provision plus the effect of the non-GAAP adjustments only on table 2A and 2B. We will continue to note in a separate table the tax effect of tax attribute and other timing effects. So, there is -- as we mentioned, there is no impact on cash flow or actual taxes paid. Our approach has been to match the actual cash tax that Valeant paid each year, but again, it's been made up of those two terms which we historically combined. J. Michael Pearson: Next question, please. Operator: Your next question comes from the line of Ram Selvaraju from H.C. Wainwright. Go ahead, your line is open. Ram Selvaraju: H.C Wainwright: Thanks very much for taking my question. I just have two. One is in a general sense, whether you can comment on your philosophy of curtailing price increases versus what your peers in the specialty pharmaceuticals arena are doing? And how high your conviction is that going forward this is the best approach to take given changes in the managed care environment. i.e. Get rid of as many price increases as possible versus pursuing a judicious approach to maybe increasing prices on some products or not. And then the second question is specific to what you previously commented on back in December regarding converting written prescriptions to filled prescriptions on Addyi. Could you give us an update on that, please? J. Michael Pearson: Sure. So, I think we're trying to be very clear on our approach to pricing and which is that going forward and this has been in place since September. We will take single digit price increases across some of our portfolio in line with managed care contracts. What we made was a commitment as far as Walgreens this year reduced prices of dermatology and prices on dermatology and ophthalmology, the branded products 10% this year and we are no longer sort of in the market for sort of underpriced assets out there. If you actually rack price increases are public knowledge and if you actually look at us versus competitors both in the specialty and in the big pharma space, and like what whack prices increases have been this year, you will see that we are actually below what most of and all the other companies that have done. So, I think we've talked about that and I guess the question is how committed are we? We are very committed and in fact that's been one of the keys in managed care is that commitment and they are applauding and appreciating the approach we're taking and they are using that when we talk to other companies. So, I think one of the very smart things that Anne and her team have done is offer sign that the rest of the industry has not offered yet and that has played big role in terms of improving overall relationships. Is that Fair Anne? Anne Whitaker: Yes. I think that's very accurate what the payors need and they are very clear in this line and understand this after being in the industry for 25 years with other pharma company. They want predictability and so we are working with each of the payors, whether they are a health plan or a PBM and on contracts around price inflation protection and as Mike said, aligning our price increases with more modest industry standards. So I think you have the Addyi question. Ram Selvaraju: H.C Wainwright: Yes, can you address the Addyi. Anne Whitaker: Yes. So, with Addyi, you're right. We see the number of written prescriptions versus field and in at the beginning, back in the fourth quarter, we were only seeing between 25% and 30% of the prescriptions actually get paid for our field. That number is now up to in the most recent week, 57% of those prescriptions are being filled and paid for and really that sort of ramp up with the number of prescriptions as being impacted by one having a complex ramps program. This is the first time that we are according to our knowledge that there has been a pharmacist and physician certification process. And so really working through that has been a challenge, but we've certainly addressed it with the pharmacies, we're down to around anywhere 10% to 12% scripts being kick back for pharmacists. We are still working through the physician, physician certification and making sure that those that are writing are certified. And part of that has to do with, this is a new product that we weren't sure exactly who the targets and the writers of the product would be. We have much more clear information now on who the targets are, who is treating HSDD and other diseases like that and so we are taking more targeted effect. And then lastly, the managed care process has changed dramatically. Just even this past year, all of the large PBMs now walk new products, in those cases from launch, and they take six to nine months to actually do the clinical review and then enter into negotiations. And so, it has taken us that time as we transitioned from Sprout to Valeant and our managed care team here picking it up to really work through that process and I feel very confident by mid-year we will have improved access and for Addyi, and we'll start to see and the prescriptions that are coming through being filled. And then based on the enhancements we've made or commercial organization and filing of actual marketing materials this month to OPDP, the second half will be a much better I think time period to really judge the performance of this product. J. Michael Pearson: That being said, we take sort of full responsibility for the reduction in the sort of -- we've quite didn't move quick enough, that's my fault and but I think to answer the point, we have not given up on this product. Anne Whitaker: Yes, absolutely not. J. Michael Pearson: There is some -- but clearly we have to demonstrate our ability to have success and we have not done that yet. So that's on us and we're working hard to deliver. Anne Whitaker: Yes, just last comment. The testimonials we hear from physicians and patients each day inspire us, every day to keep going with Addyi and really educating around HSDD. So as Mike said, we haven't given up. I have a lot of confidence in this product. J. Michael Pearson: Alright. Next question please. Operator: Your next question comes from Alex Arfaei from BMO Capital Markets. Go ahead, your line is open. Alex Arfaei: BMO Capital Markets: Good morning and thank you for taking the questions. Most of my questions have been asked and answered. Looking at some of your top 30 products, specifically Jublia on Solodyn, it looks like much of the Solo business isn't being made up from other channels. Could you provide your outlook for these products, specifically for Jublia, which was thought to be a growth driver? And just to follow-up on Addyi, do you still expect it to be a $100 million to $115 million drug in 2016? Thank you. J. Michael Pearson: Well, in terms of Addyi, no, we don't expect it to be a 100 to 115 in 2016. That's one of the products that we have reduced the forecast significantly on. What we are as hopeful and if we -- we are hopeful that we will get it to that level, but certainly not 2016. In terms of Jublia, it is one of the products that is, there was a question earlier about sort of leverage, can you leverage your portfolio. And as Anne said or mentioned, derm has been one of the reviews that the managed care companies have really focused on, Jublia, in particular. So, we have -- the net of many of our negotiations is we sacrifice the price on Jublia in order to ensure access to the rest of our portfolio. So, we would expect and we have better access for Jublia as a result of this than we had before. So we would expect scripts to continue to grow on Jublia. We think it's a great product, but the average price will come down. And so, in order to return to growth, we will really need to expand the number of scripts, but it has been disproportionately hit in terms of managed care in order to protect because that's what many managed care clients were looking for. And again, as Anne said, each negotiation is specific, it's not the case with every managed care plan. Everyone has their own needs, but that's what we're seeing in Jublia. Next question please. Operator: Your next question is from David Maris from Wells Fargo. Please go ahead. David Maris: Wells Fargo: Good morning. I have a few questions. The first, Rob, why no GAAP guidance and then a bridge to non-GAAP since then investors could make a decision on what to include and what not to include? Second, on the tax effect, I want to get it right, use of tax attributes and other timing issues. I know a few questions have been asked about this. But does this relate to deferred tax liabilities and use of recovery of income tax, or anything else like that? I know I asked that when I met with you about a month ago. I was just wondering if that's related to that. And then the second half guidance seems to be a dramatic increase. Other than the inventory drawdown, is there anything else that we should expect that should account for that? And then lastly, I think Mike, you just mentioned that launch expenses for a couple of these launches are not included in the guidance. Why would they not be included? J. Michael Pearson: Let me -- we have no launch -- until our productions are approved, we don't include it in our guidance. So we don't include the revenues or the launch expenses. Now, because most of our products are in new launch products, they are in categories where we already have strong sales and marketing. The net impact of launching these products we believe will be neutral in terms of our EPS. So, that's just the way we treat it. We don't put in the revenues and we don't put in the costs because they are not approved yet and that's always been what we've -- that's always been the approach we've taken to guidance at least from our point, that makes sense to include revenues and not the cost when it makes sense to improve the cost, but that -- the revenues won't make sense. So, we choose not to include it here. Rob? David Maris: But just as a follow-up to that, Mike, is it fair to say then if they're approved, since products aren't usually profitable in the first year or two, that we'd see an increase in the expenses just for the launch expenses, not for the infrastructure or the new salespeople, but just for launch expenses? J. Michael Pearson: Our belief at least for the product this year, we would not expect it to have an impact on overall guidance for example, if that's the question. So, we'll have Ophthalmology we hope to get approved. David Maris: PDUFA date's July? J. Michael Pearson: July so we believe we'll have enough revenues to cover any of the launch expenses and Broda, we do not expect to get approved till November, December and so again so it should have minimal impact on our guidance. So we don't expect to be taking down guidance if we get products approved. So, Rob? Robert Rosiello: Take your second question first, tax effects are largely NOLs and the use of deferred tax assets not liabilities. With respect to the GAAP guidance as we explained in the footnotes of the press release, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary to do it, we find it more accurate and better for our investors to guide to the non-GAAP measures that we do. J. Michael Pearson: Next question, please. Operator: Your next question comes from Lucas Saberro from Newman Capital. Please go ahead. Anne Whitaker: Next question, please. Operator: Your next question comes from Alan Ridgeway from Scotiabank. Please go ahead. Alan Ridgeway: Scotiabank: Hi, good morning. Thanks for taking the questions. I just have a question about the bridge to the 2016 guidance and trying to just get a feel for your reduced revenue expectations for both the derm and the Salix business and then the managed care contracting piece as well. Can you speak to sort of in your reduced expectations from a revenue perspective this year, what the sort of split between volume declines or decline in your expectations for demand versus your expectations on pricing and then how that may have changed in the last sort of while as you contracted with managed care? I will leave it at that. Thanks. J. Michael Pearson: Great. Well, the managed care is all price. We've quantified that hopefully what we hope to be able to do is with its better access actually drive more volume. We have not built a lot of that into our forecast and that should be upside but in terms of managed care that is basically price. In terms of as we think about prices, the prices are captured there. Obviously there is some price in the revenue side. Ex, ex, not in managed therapies partly through the price reductions that we're giving the ophthalmology and dermatology as well as the fact that we are sort of price increases were more limited and what we can do in some cases some of the commitments in managed care was to keep price increases lower than we have historically. So, there is a price element. We actually and then there is first quarter where demand is lower but we do expect if you actually look at the scripts, we are running ahead of last year in dermatology and so we are quite pleased with that. We are seeing experiencing great script growth in the GI franchise. In terms of ophthalmology, again there we have a decrease in scripts but we are increasing share in the branded portion and those are the three main franchises. So, overall we expect demand to continue to increase over the course of the year. Next question? Operator: Your next question comes from Gregg Gilbert from DB. Please go ahead. Gregg Gilbert: Deutsche Bank: Thank you. First Mike will you talk about script growth for derma, are you talking about scripts of IMS plus Philidor, i.e., real prescriptions, or just those that we see on IMS, which might be inflated due to the Walgreens shift away from Philidor? Secondly, when do you expect to be able to file the 10-K and can you share your game plan with us? i.e., what is in your control, what is in the Board's control or gated by the Board? And are your auditors in agreement with your game plan and your timeline? I suspect a lot of folks are going to wonder after this call when you expect to get the K done and all the implications that come with that. And lastly, Mike, can you comment on the situations, specifically with Deb and with Tanya, given that we only have media reports to rely on and clearly you know at a personal level what happened in those cases. Thanks very much. J. Michael Pearson: Okay. So script growth... Dr. Ari Kellen: Derm is running year-to-date roughly 10% ahead of last year all in. We are now using Symphony IDV data, so that's what we are going to be tracking. So far, all-in derm is growing, the access program is still relatively new, as Mike described, and we are expanding into networks of independents, so we will continue to expect good TRx growth through the course of the year. J. Michael Pearson: Yes, and in terms of 10-K, certain things are within our control and certain things aren't as management. We have the Ad Hoc Committee continuing to do their review and so it partly depends on that. It partly depends on us. We have to do our work in terms of submitting the 10-K. And then we are in constant conversations with PWC in terms of, it is actually their work. The best estimate I can give, but again we don't control, we'd hopefully get this 10-K filed sometime in April, but I can't commit to that. But that would be my best estimate based on everything that I know. In terms of Deb and Tanya, Deb has resigned. She was a valued employee. She led a lot of marketing initiatives, she led our derm business and did a great job. We were disappointed that she left. As I mentioned, she was part of the EMT where we had no retention in place. So because they are executive officers of the company and we wish her well and we were quite clear that it had nothing to do with the Ad Hoc Committee or anything else. It was a decision that she made. And Tanya, again that happened when I wasn't here. So I can't comment on the time. I don't have information on that. So I can't comment on that. Gregg Gilbert: Thanks. Operator: Your next question comes from the line of David Steinberg with Jefferies. Please go ahead. David Steinberg: Jefferies & Co.: Thank you. You mentioned destocking quite a few times on the call, in particular for some your key brands. I was wondering if you could help us with inventory levels. I believe in the past you said normal levels in the US were about two to six weeks and two to four months globally. Can you confirm you're within that normal range? And then perhaps pinpoint in the United States, given the last public forum, are you higher or lower than you were last time you spoke to the investment community. Secondly, Valeant's benefited from the lowest tax rate in your industry. I am just curious, could you remind us how long that tax rate is ironclad? There is a tax treaty and if there is a period of time when it will be reviewed and when that time is? And then lastly bigger picture question Mike on your corporate culture. Do you think elements of it need to change and do you think there is some components that incentivize sub-optimal behavior and then could you comment on -- are there any changes that the top level management was not part of the retention plan, has there been any changes to the compensation package? Thank you. J. Michael Pearson: So in terms of compensation package there has been no changes in terms of the senior management. In terms of the inventory levels those continue to be sort of our guidelines two to six and sort of four outside, although that varies by country. Greg, I think we have been completely flat in terms of inventory levels and in terms of the US and outside the US I think actually inventories have been down a little bit but so no changes in inventory levels. Since the volume has increased through Walgreens that in terms of absolute dollars that means our inventory levels have come down because when we are talking about flat we are talking in terms of weeks and since Walgreens' consignment, sort of the absolute level of distributor inventories in the US for dermatology for example, has come down a little over a week. So it remains in the same. So hopefully that's clear. In terms of tax rates, we do not know of any eminent and or any changes that are coming down. So again we will see that space like on governments whoever are right. We are unaware of anything that would change our tax rate. In terms of we have talked about bolstering in terms of corporate culture, it is interesting, when we meet with our AVP, I think there is a bit of couple of areas that we are investing in. We will continue to try to upgrade our financial reporting, certainly from a PR and government relations side. We are committed to investing and are in the process of investing in those functions and as we said in the press release, we are as all pharma companies do or continue to emphasize compliance or continuing to emphasize, from a quality standpoint, continuing to build that capability quite a bit and I think we have almost doubled our quality department corporate in the US, we made big investments in quality in terms of headcount and capability and we feel very good about that. So we will -- we have grown pretty quickly and we are going to continue to invest in the core functions to make sure that we deliver high quality products to physicians and to patients, and work in the most compliant way in the US and beyond the US. Next question please. Operator: Your next question comes from Randy Raisman from Marathon Asset Management. Please go ahead. Randy Raisman: Marathon Asset Management: Hi guys. How are you doing? Can you just kind of provide us a little bit of a bridge on the cash balance because when we look at it, we see you had roughly $600 million of cash at Q4. It looks like you drew down $1.2 billion on the revolver. So it'd take you to $1.8 billion. You paid $900 million between the -- for the term loan and then there was another payment that you made. So that should have left you with about $900 million of cash, and you're saying you have $1.2 billion of cash so that would imply then that you generated $300 million of cash in the first quarter and that doesn't really line up with the guidance for $2.2 billion of cash flow for the year. So like, how do we get comfortable that you're going to generate an extra billion dollars of cash than where you are currently running? Linda LaGorga: So, it's Linda. On the revolver, we ended the year with $250 million drawn on the revolver and we are now at $1.45 billion. We obviously are generating cash in the first quarter. We did have, however, some large payments in the first quarter that we discussed. $500 for Sprout that we talked about. We paid early, they were not due until April 20th, $260 million of maturities. I mentioned the excess cash flow payment of about 100, which will be due at the end of March 31st. And those are some of the big payments, but again, without these large payments, we were generating cash this quarter. Randy Raisman: Alright, but my question is based on my math, it looks like you generated maybe $300 million of cash quarter-to-date from what you've disclosed, and you're telling us we should think you're going to generate $2.2 billion of cash for the year. So where is the ramp going to come from, from Q1, that's a big jump. J. Michael Pearson: It is, but we took down revenue in Q1 considerably because of, I think we've talked to that explanation and starting in Q2 and Q3 and Q4, cash generation will be stronger than it has been in Q1. Linda LaGorga: That's correct and, obviously cash generation depends on working cap, so we are not quite done with the quarter. So that's going to impact. So I can't confirm specifically if it's exactly 300, but you should think of it as cash generation before these types of payments. Randy Raisman: And then just on a leverage covenants, so if you're look at 2.1 times and the covenant is 2.5, is that something you're going to look to amend as well when you go out to the bank group because there's not that big of a cushion there? Linda LaGorga: Right now, per what we've spoke about before, we are thinking about amending -- we are going to amend for the cross-default as well as timing. We think -- we have done such cases on our covenants based on our guidance and we are comfortable as we said in the call. Randy Raisman: Great, thank you. J. Michael Pearson: Next question please. Operator: Your next question comes from Irina Koffler from Mizuho. Please go ahead. Irina Koffler: Mizuho Securities: Hi, thanks for taking the question. Just curious -- sorry, phone issues. What will you do in the future once your business is normalized? I mean, is it more going back to buying additional assets? You mentioned you're not going to buy inexpensive or mis-priced assets in the future, but what can we look for from the company once this period blows over? Thanks. J. Michael Pearson: Well, we're going to work hard to get this period to blow over, and we're going to reduce our debt and we have made a commitment to get under four times, and until we get under four times, we will -- we are not looking to make any acquisitions. So that's our -- we are excited about our launch products, we are excited about many of our products that we have recently launched like Ultra and BioTrue, and we want to demonstrate we can drive growth with our current portfolio and our R&D pipeline, which we feel that we can. If we fast forward to that period, through that period which is probably a long time from now, then we will continue to look for assets that fit into probably the areas where we have strength today which will be dermatology, ophthalmology, GI, and emerging markets, and but as you mentioned we will not be looking at acquisitions that involve sort of mispriced assets that will not be part of our agenda. Irina Koffler: Okay. Thanks. J. Michael Pearson: Next question please. Operator: Your next question comes from David Common from JP Morgan. Please go ahead. David Common: JP Morgan: Terrific. Thanks for the fixed income question opportunity. My question relates to any non-core assets sold. Can you tell us whether you are currently required or expect to be required to pay off secure debt with those assets to the extent that you have given us an expected debt reduction for 2016, does that presume any asset sales and also you previously I believe planned to pay off I think it was $800 million you had in your revolver at December in addition to a, I believe, $2.25 billion of other debt, could you tell us what your expectations are for reduction in the revolver balance over the next 12 months or in this fiscal year? Thank you. Linda LaGorga: Sure David. First on asset sales, per our credit agreement, we have 365 days that we could reinvest the proceeds but as Mike said we are very focused on debt pay down. So I expect we will use some of those proceeds to pay down debt further. Secondly, the $1.7 billion that I mentioned in the slide is permanent debt reduction and it doesn't include any additional debt reduction we would do from asset sales. And into your third question going back to the JP Morgan slides, and I know exactly what you are referencing on the $825 million, that $825 million was paying down yearend revolver balance as well as discretionary cash. The year-end revolver balance was $250 million, so I did want to clarify that that wasn't implying we were going to pay down $825 million of revolver. Lastly we are committed to the $1.7 billion of permanent debt and we also want to bring the revolver balance down significantly through the course of the year, but I don't want to commit right now that it will be zero at the end of the year. David Common: Perfect, thank you. Operator: Your next question comes from Tim Chiang from BTIG. Please go ahead. Tim Chiang: BTIG: Hi Mike. I had one follow-up. I know that you guys have said that you are going to lower your cost structure on the SG&A side for some of these niche divisions, whether Solta, Obagi, I know that these groups have been pretty, they have been run pretty lean already and I am just sort of wondering, how much additional cost cutting can you really do in these types of groups here? J. Michael Pearson: So I think we talked about cost reduction both in terms of some of the smaller businesses, but we also have to step back and look at the overall SG&A which as a percentage has increased, and we have to take a look at that. With again the caveat of ring fencing core functions that we want to build capabilities in. Some of the expenses quite frankly have grown some of these smaller businesses, and as I already mentioned, we are not in the business of running unprofitable businesses. So Solta, we are taking steps to make sure its profitable and delivering cash flow to our investors. So sound like Solta, there will be cost reduction and we are spending too much in terms of relative to the revenues in the US. Obagi is a different issue, it's more around sales, it's making money and there it's focusing on increasing the growth rates. We have a great franchise there et cetera. In terms of businesses like Commonwealth we had a plan to expand sales and marketing quite a bit and the demand is slower. It's growing and continues to grow which is positive but we are not going to increase spending at the same rate that we were planning on to increasing spending. We are going to be more moderate in terms of our approach and as the revenues build then we will continue to invest. But we will do it in a profitable way. It's sort of the same approach as launching any new product. You can choose to spend a lot of money and in the short term and in hopes of accelerating revenue where you can take a more measured approach and that's what we are going to do in these businesses to ensure that we continue to grow the businesses but we also continue to put dollars to the bottom line. Tim Chiang: And Mike just one follow-up I think back in December you guys had originally thought this is on Xifaxan by the way, that you guys are originally going to hire another 100 reps to support Xifaxan's growth and HE, is that still part of the plan in 2016? J. Michael Pearson: Yes, it is on that. As Ari had I think mentioned earlier is those reps have been hired and trained and when do they get out in the field Ari? Dr. Ari Kellen: In the next couple of weeks. J. Michael Pearson: In the next couple of weeks, so certainly by second quarter, by the end of second quarter up and running and fully trained. So that has not changed. Tim Chiang: Okay. Thanks. Operator: Your next question comes from Derek McGirt from Marathon. Please go ahead. Derek McGirt: Marathon Asset Management: Thank you. My questions has been answered. J. Michael Pearson: Thank you. Next question. Operator: Your next question comes from Cindy Guan from Goldman Sachs. Please go ahead. Cindy Guan: Goldman Sachs: Hi, thank you. I wanted to ask have you bought back any bonds in 4Q or 1Q in the open market. I think I saw the senior note balance is about $35 million lower from 3Q but is that just translation for the year, sure was any debt bought back in senior note side? Thanks. Linda LaGorga: Cindy, no that has been bought back in the open market for bonds and you are absolutely correct that it would be translation because the Eurobond needs to be marked to the current FX rate. Cindy Guan: Any comment in 1Q if there was any debt bought back? Linda LaGorga: No, there has been no bonds bought back in 1Q to date. Cindy Guan: Thanks. Operator: Your next question comes from David Maris from Wells Fargo. Please go ahead. David Maris, please go ahead. David Maris: Wells Fargo: Sorry about that. Mike one of the questions that an investor asked me to ask has to do with the kind of seed of the business and the decline of the market cap and all the rest. They had seen that -- in a news report that the Board had thought of bringing in a new CEO, a new management team to start things afresh, but one of the pushbacks was that there was a large parachute or downstream payment. Is that true to your knowledge? And second, are you -- given the way the Philidor thing and all the rest has played out so far, are you willing, if the Board said to, that they wanted to bring in a new management team to forego those what are sometimes called golden parachute payments? J. Michael Pearson: Yeah, I am not aware of the golden parachute payment. So... David Maris: Any sort of termination-related payments. J. Michael Pearson: Again, I don't think -- I am not sure -- I don't know if everything in that article is correct. I wasn't on the Board. So I can't speak to that. I do not -- maybe I should wish I could get $200 million if I leave. But unfortunately, I don't think that's the case, or fortunately from an investor standpoint, it's not the case. So, actually I think I am pretty modest -- if I got fired, it's pretty modest. They maybe referring to some stock that is vested that's not delivered till in the future, but that's been divested -- I mean, that was. So, David, I am not aware of any golden parachute that I have. David Maris: Okay, thank you for clearing that up. Operator: Your next question comes from the Henry Reukauf from Deutsche Bank. Please go ahead. Henry Reukauf: Deutsche Bank: Just got a quick question on the forward-looking guidance for the next 12 months. I think you said it's going to be $6 billion now instead of $6.2 billion to $6.4 billion that was in the press release today. Did I hear that correctly? And if I did, what's the reason for the change? I have one more after that. Robert Rosiello: The term was correct and what was in the press release was an error. Henry Reukauf: It definitely looks like it was switched kind of intentionally. Is there -- was there any other further comment on that or no? J. Michael Pearson: No, it wasn't switched intentionally. It was just the wrong number and we apologize. Henry Reukauf: Okay. And then the last one is just on the debt, you want to get to debt to 4 times. And you mentioned no more acquisitions. Does that also include share repurchases? So can we assume that basically all the free cash flow is going to go to repay debt? J. Michael Pearson: Again, that's probably our current intent is to do that, but we reserve the right to change that. But what we are a 100% committed to is reducing debt to 1.7 and our focus is on debt re-pay down. Henry Reukauf: Thanks a lot. Operator: Your next question comes from Dimitry Khmelnitsky from Veritas. Please go ahead. Dimitry Khmelnitsky: Veritas Investment Research: Hi, Mike. Thanks a lot for taking my call. So I have two questions. One relates to the $58 million restatement. I was wondering if you can elaborate whether that restatement primarily related to Q4, and if you could break out the deals by products, what products is related. If you can potentially quantify that. And the other question has to do with the change in tax presentation. So can you please clarify on slide six, when you talked about Q4 2015 unaudited results there. Is this the old presentation or is that the new presentation? I'm talking about the middle section of this slide. And if you can also elaborate what do you mean by tax provision there. Is that tax provision that includes both deferred as well as current income taxes or is it something else and the same thing obviously applies to effects so, non-GAAP adjustments. Is it related to deferred or current taxes? Thank you very much. J. Michael Pearson: Okay. So, in terms of the Ad-Hoc committee I think put a press release that talked about the timing in 2014 of what was $68 million? Linda LaGorga: $58 million. J. Michael Pearson: $58 million in terms of Q4 2014 versus Q1 2015. So, that is what... Dimitry Khmelnitsky: So, it's all Q4 related? J. Michael Pearson: It was second half? Linda LaGorga: Second half. J. Michael Pearson: Second half but it's primarily Q4. In terms of the mix of products, we took a look at that and it's a normal mix. It would you maybe referring over some I heard some speculation it was like also with like that which is not true. It was sort of a normal mix across our dermatology, primarily our dermatology product portfolio. Rob, tax. Robert Rosiello: So, two things. The middle part of the chart is the way we are presenting the prep tables that were released this morning, where we're breaking out for the first time the tax provision plus the effect of non-GAAP adjustment, which are they are both current and deferred on an ongoing basis. From the other going forward, what we will report is just that first turn. So, if you look at tables 2A and 2B, it's the first turn that we will report and we will apply that to calculate our adjusted EPS. And so therefore our reported tax rate, again on a comparable basis and this will change if we delever and reduce our NOLs, would move from approximately 5% to approximately 10% to 15%. J. Michael Pearson: My understanding that's the last question. So, and we appreciate everyone's patience and we look forward to our next call. Thank you. Operator: This concludes today's conference call. You may now disconnect.