Client Id: 43
`
`THOMSON REUTERS STREETEVENTS
`EDITED TRANSCRIPT
`VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings
`Call Unaudited
`
`EVENT DATE/TIME: MARCH 15, 2016 / 12:00PM GMT
`
`OVERVIEW:
`VRX reported 4Q15 preliminary unaudited financial results. 4Q15 total revenue was
`$2.8b and GAAP loss per share was $0.98. Expects full-year 2016 revenues to be
`$11.0-11.2b and adjusted EPS to be $9.50-10.50. Expects 1Q16 revenues to be
`$2.3-2.4b and adjusted EPS to be $1.30-1.55.
`
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`without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its
`affiliated companies.
`
`ACRUX DDS PTY LTD. et al.
`
`EXHIBIT 1576
`
`IPR Petition for
`
`U.S. Patent No. 7,214,506
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`Page 1 of 37
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`Client Id: 43
`
`C O R P O R A T E P A R T I C I P A N T S
`Laurie Little Valeant Pharmaceuticals International Incorporated - Head of IR
`
`Mike Pearson Valeant Pharmaceuticals International Incorporated - CEO
`
`Rob Rosiello Valeant Pharmaceuticals International Incorporated - CFO
`
`Linda LaGorga Valeant Pharmaceuticals International Incorporated - Treasurer
`
`Anne Whitaker Valeant Pharmaceuticals International Incorporated - Company Group Chairman
`
`Ari Kellen Valeant Pharmaceuticals International Incorporated - Company Group Chairman
`
`C O N F E R E N C E C A L L P A R T I C I P A N T S
`Louise Chen Guggenheim Securities LLC - Analyst
`
`Annabel Samimy Stifel Nicolaus - Analyst
`
`Marc Goodman UBS - Analyst
`
`Andrew Finkelstein Susquehanna Financial Group - Analyst
`
`Tim Chiang BTIG - Analyst
`
`Chris Schott JPMorgan - Analyst
`
`Corey Davis Canaccord Genuity - Analyst
`
`Shibani Malhotra Nomura Securities - Analyst
`
`Umer Raffat Evercore ISI - Analyst
`
`David Risinger Morgan Stanley - Analyst
`
`David Amsellem Piper Jaffray & Co. - Analyst
`
`Ram Selvaraju HC Wainwright - Analyst
`
`Alex Arfaei BMO Capital Markets - Analyst
`
`David Maris Wells Fargo Securities - Analyst
`
`Alan Ridgeway Scotiabank - Analyst
`
`Gregg Gilbert Deutsche Bank - Analyst
`
`David Steinberg Jefferies LLC - Analyst
`
`Randy Raisman Marathon Asset Management - Analyst
`
`Irina Koffler Mizuho Securities - Analyst
`
`David Common JPMorgan - Analyst
`
`Derek McGirt Marathon Asset Management - Analyst
`
`Cindy Quan Goldman Sachs - Analyst
`
`Henry Reukauf Deutsche Bank - Analyst
`
`Dmitry Khmelnitsky Veritas Investment Research - Analyst
`
`P R E S E N T A T I O N
`
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`Client Id: 43
`
`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`Operator
`
`Good morning. My name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant fourth
`quarter 2015 unaudited financial results conference call.
`
`(Operator Instructions)
`
`Thank you. Head of Investor Relations, Laurie Little, you may begin your conference.
`
`Laurie Little - Valeant Pharmaceuticals International Incorporated - Head of IR
`
`Thanks Heidi. And good morning everyone and 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
`Linda LaGorga, our Treasurer. In addition to a live webcast, a copy of today's slide 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 affirm -- to update or affirm guidance only through
`broadly disseminated public disclosure and with that, I will turn the call over to Mike.
`
`Mike Pearson - Valeant Pharmaceuticals International Incorporated - CEO
`
`Good morning, everyone. And thank you, Lori. Thanks for joining us. Today, we would like to cover the following topics. First, we will discuss our
`preliminary unaudited fourth-quarter 2015 results. Second, we are going to take you through our new tax presentation. Third, we're going to
`provide revised Q1 2016 financial guidance.
`
`Fourth, I'd like to take a few minutes to provide my perspective on the current state of the business since I've been back a couple weeks, including
`a revised 2016 guidance and other key business updates. Fifth, Linda LaGorga, our Treasurer, will provide a liquidity and cash flow update.
`
`And finally, I'm going to address some questions that we've gotten ahead of the call. And then we will open it up 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 are -- will be made available to
`you.
`
`As we've previously disclosed, there is an ongoing review of our 2014 financials and as such, we're not able to provide year-over-year comparisons
`today. Financial metrics that are impacted by this include the organic growth, business unit growth, and price volume detail. What we can provide
`today are preliminary unaudited 2015 fourth-quarter results.
`
`With this, let me turn the call over to our CFO, Rob Rosiello, to cover Q1 and -- Q4 and Q1.
`
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`Client Id: 43
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`Rob Rosiello - Valeant Pharmaceuticals International Incorporated - CFO
`
`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 $2.55 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.
`
`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 reported previously, we will no longer
`provide this metric going forward.
`
`On the next slide, I would like to discuss changes in Valeant's tax reporting for 2016. Historically, Valeant has reported our non-GAAP tax provision
`on Table 2a and 2b of the press tables that combined the tax effects of non-GAAP adjustments and the use of tax attributes and other timing issues.
`
`This number, approximately 5%, matched 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, raise our reported tax rate to 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 expect 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. First, 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 are also realizing a slower-than-expected rebound
`in dermatology that includes additional product destocking and loss refills from the Philidor transition to Walgreens.
`
`Finally, we are 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, hence 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
`this lower revenue forecast. Let me turn it back to Mike.
`
`Mike Pearson - Valeant Pharmaceuticals International Incorporated - CEO
`
`Thanks, Rob. So as you all know, I've been back from my medical leave for about two weeks. I've had a chance to review what's happening in the
`businesses and there's a mixed combination of some good news and some bad news. I just want to take a few minutes to sort of give you my
`assessment and what we plan 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-expected start in 2016.
`
`We continue to expect strong growth in GI, contact lenses, oral health, oncology, generics in 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 forecasts 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,
`following the mid-February with Ophthalmology Rx and Addyi. Negotiations are underway to add networks of independent pharmacies.
`
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`Client Id: 43
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
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`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 2 times the volume flowing through Walgreens from when we started. More importantly, well over 90%
`of our doctors who were using Philidor are now using Walgreens and many new doctors are also using this channel.
`
`Walgreen's senior management, whom 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, 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 have been in active discussions with the payers to
`ensure continued patient coverage and access. I will address this point in more detail in a minute.
`
`During the past two weeks, we have already taken steps to restructure a number of our underperformance of our smaller businesses and we are
`taking steps to launch a broad-based cost reduction 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 for our entire portfolio and is critical to our success. To achieve this goal, we
`are investing more in rebates and building our organization's managed-care capability. The increases in rebates are due to more competitive
`pressure in response to our store price increases for our late life cycle products.
`
`Our US market access team, led by Sandy Loreaux, who joined us in January of this year, continues to have productive dialogue 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 to ad hoc therapeutic area reviews by payers, and requests for price inflation protection agreements.
`
`Through these negotiations, beginning late last Fall this year, we have been able to maintain good coverage of commercialized for our key brands
`and franchises including dermatology, GI and ophthalmology franchise. We are 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 have made a great deal of progress and feel confident that we will improve our access in 2016 and 2017 and are laying the strong foundation
`for access to our expected new product launches. We are committed to engaging with these important customers more broadly across our
`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 billion to $5.8
`billion for 2016. As we look at the budget we prepared in December, several factors have changed our outlook for 2016.
`
`First, as Rob covered, the key one underperformance is expected to reduce adjusted EPS by $1 due to the higher-than-expected inventory reductions
`that transition from Philidor to Walgreens and the cancellation of almost all price increases. In addition, there has been negative impact from FX.
`
`Next, we are taking a more conservative 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, more modest growth in GI and underperformance in Women's Health, Commonwealth
`and Western Europe based on current expectations from economic factors and the current managed-care environment in the US.
`
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`Client Id: 43
`
`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`This conservatism is expected to reduce adjusted EPS of approximately $1 in 2016. As previously mentioned, any future price increases will be
`more modest and in line with industry practices and managed-care contracts. We have experienced increased competitive pressure at the payer
`level, resulting an increased rebates for access for our key growth products, like Jublia, 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 that will be cause of -- we estimate another $0.50 in 2016.
`
`Finally, the new tax presentation will reduce reported adjusted EPS by another $1, although it has no impact on either the actual taxes paid or the
`cash flow. To assist in the walk down from our revenue guidance in December to today, we have bucketed the main areas: GI, dermatology and
`neurology portfolios represent the bulk of the change due to the items already mentioned.
`
`Underperformance in certain US business units accounts for approximately $300 million and ex-US, $200 million in revenue reduction. In terms 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 wanted to highlight our growth expectations for our major business units. We expect double-digit
`growth from GI, Dendreon, dentistry, contact lenses and Women's Health over the next three years.
`
`Single-digit growth should 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 to have 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 are new launches or we hope to get approved
`over the next year or so. We continue to be very excited about the prospects for Xifaxan and you've seen this continue the script growth.
`
`We're also excited about growth opportunities in a number of our emerging markets and are Ultra and Biotrue contact lens lines. 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 products 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 fourth
`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 $9.65 to $10.15 on adjusted
`EPS under the new tax reporting. 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 - Valeant Pharmaceuticals International Incorporated - 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 have approximately $1.2 billion of cash on hand, including the proceeds from
`recent revolver draws.
`
`Our revolver is currently 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 payments.
`
`We are 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 have 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.
`
`6
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`Client Id: 43
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`We have 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 flow payment, which is an annual calculation under our credit agreement, which will be due
`at the end of March. We believe our term loan amortization and term loan and bond maturities in 2017 and 2018 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 and 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 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 our
`credit agreement, we no longer have the benefit of the Allergan gain from Q4 2014 of approximately $287 million.
`
`Second, also for our adjusted EBITDA per our credit agreement, our Q4 adjusted EBITDA was impacted by $100 million by our Broda transaction
`which is treated as cash IPR&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 5 times by year-end 2016.
`
`Now moving to some covenant highlights related to financial statement reporting. Both our credit agreement and our bond indenture contain
`financial reporting requirements which are impacted by the delay in the filing of our 10-K.
`
`If we do not file our 10-K by March 30, a default will occur under our credit agreement. We will have 30 days, or until April 29, to cure this default
`by filing our 10-K. If our 10-K has not been filed before March 16, a breach of reporting covenant occurs under our bond indentures.
`
`At any time after this breach, the trustee or holders of at least 25% of any series of notes may deliver a notice of default. From receipt of this notice,
`we would have 60 days to file our 10-K and that's to cure the default. While the failure to file the 10-K before March 16 does not have any immediate
`implications under our bond indentures, it does result in cross-default under our credit agreement.
`
`The credit agreement lenders do not immediately have the right to accelerate on account of this cross-default but our ability to borrow under the
`revolver is restricted while the default continues. We now -- next week, we intend to launch an amendment process with our lenders to waive this
`cross-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 purposes. 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. At our Investor Day in December, 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 is 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 expectations.
`
`I will now turn it back over to Mike.
`
`Mike Pearson - Valeant Pharmaceuticals International Incorporated - CEO
`
`We have received several key questions from many of you so we thought we would address a number of them during our presentation. First, our
`approach to pricing. We have already committed to reducing pricing on our brand-new dermatology and ophthalmology products within the
`Walgreens' portfolio, on average, 10%.
`
`7
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`Client Id: 43
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`This price reduction is on WAC and will impact and will be taken across all channels, not just Walgreens. Other price increases will be modest and
`in line with market and payer 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 -- end quote. 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 a 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 have provided and will be providing documents,
`information and testimony in these various investigations, whether pursuant to subpoenas or otherwise.
`
`We're also subject to shareholder litigation in both the United States and Canada, which we intend to defend vigorously. Given 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, will be able to begin to deliver the cash flows
`our shareholders and debt holders are accustomed to. With that -- with this, I will open the line to questions.
`
`Q U E S T I O N S A N D A N S W E R S
`Operator
`
`(Operator Instructions)
`
`Louise Chen, Guggenheim
`
`Louise Chen - Guggenheim Securities LLC - Analyst
`
`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 destocking 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.
`
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`Client Id: 43
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`MARCH 15, 2016 / 12:00PM, VRX.TO - Q4 2015 Valeant Pharmaceuticals International Inc Earnings Call
`Unaudited
`
`Mike Pearson - Valeant Pharmaceuticals International Incorporated - CEO
`
`Sure. Let me talk about the weak GI sales. I'll have Anne Whitaker talk about the changes in managed care. I will come back and address the
`Walgreens economics.
`
`So at the end of the fourth quarter, a number of orders were canceled of Salix products. This was sort of at least -- we were told, based on reducing
`inventories in 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 payers to modify the Walgreens program to make it acceptable and so we feel good
`about that.
`
`You can notice the script trends in the GI franchise will continue to be very strong so we think that will even out over time.
`
`Anne, managed care?
`
`Anne Whitaker - Valeant Pharmaceuticals International Incorporated - Company Group Chairman
`
`Sure. As Mike mentioned, with regard to our contracting since last Fall, we have been involved with 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 have -- did extensions for 2016, even last Fall.
`
`Payers, 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 payers 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.
`
`We also have been engaging in discussions as part of the process of our contracting in these ad hoc reviews on price inflation protection. We've
`had price protection agreements in place with payers. We've been negotiating through that process on specific rates, and 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 payers and working through this negotiations process. And I think we're building a strong team here at Valeant with some of the new
`folks that we have brought in. We have brought a number of them in over the past few months. To really beef up that capability and I'm confident
`we have good prospects for laying a firm foundation for the launch products that Mike mentioned as well.
`
`Mike Pearson - Valeant Pharmaceuticals International Incorporated - CEO
`
`Let me address sort of the way the Walgreens economics work, and thus the gross margins, gross to net, et cetera. The way the contract is 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 a cash paid scripts, it's one fee; if they adjudicate insurance, we pay a little bit more. If they do a prior auth, we do a little bit more; if they do
`work around refills, we pay a little bit more. So it's an activ