RBC Dominion Securities Inc.
`Douglas Miehm (Analyst)
`(416) 842-7823
`douglas.miehm@rbccm.com
`
`Joel Hurren (Senior Associate)
`(416) 842-7876
`joel.hurren@rbccm.com
`
`Sector: Biotech & Pharma, Healthcare
`
`Sector Perform
`NYSE: VRX; USD 13.47; TSX: VRX
`Price Target USD 19.00
`WHAT'S INSIDE
`
` Rating/Risk Change
`
` Price Target Change
`
` In-Depth Report
`
` Preview
`Scenario Analysis*
`
` Est. Change
`
` News Analysis
`
`Downside
`Scenario
`
`Current
`Price
`
`4.00
`70%
`
`13.47
`
`Price
`Target
`
`19.00
`41%
`
`Upside
`Scenario
`
`44.00
`227%
`
`*Implied Total Returns
`Key Statistics
`Shares O/S (MM):
`Dividend:
`
`349.1
`0.00
`
`Market Cap (MM):
`Yield:
`Avg. Daily Volume:
`
`4,702
`0.0%
`26,327,378
`
`RBC Estimates
`FY Dec
`Revenue
`EBITDA, Adj
`EPS, cash Diluted
`
`2015A
`10,446.5
`5,565.1
`8.14
`
`2016A
`9,674.4
`3,977.9
`5.47
`
`2017E
`8,740.0
`3,562.1
`3.81
`
`2018E
`8,755.0
`3,559.4
`3.71
`
`Q4
`Q3
`Q2
`Q1
`2,371.6A 2,420.2A 2,479.6A 2,403.0A
`2,109.0A 2,282.4E 2,145.9E 2,202.7E
`
`Revenue
`2016
`2017
`EBITDA, Adj
`1,007.7A 1,087.7A 1,162.7A
`2016
`861.1A
`929.8E
`870.9E
`2017
`2014 and 2015 numbers were restated in April 2016.
`All values in USD unless otherwise noted.
`
`719.8A
`900.3E
`
`May 19, 2017
`
`Valeant Pharmaceuticals
`International
`Script Tracker - Week Ended May 12th
`Our view: Derm NRx were up 0.2% WoW and ophth NRx decreased 3.8%
`WoW. Derm continues to trend down on a 4-week YoY rolling average
`basis.
`
`Key points:
`NRx derm products up 0.2% WoW. For the week ending May 12th, new
`derm scripts (NRx) were up 0.2% WoW vs. down 1.5% the prior week.
`Derm NRx are down 39.8% YoY on a 4-week rolling basis vs. down 39.9%
`the prior week. We view this continued downward trend negatively but
`note that we cannot track net pricing levels and the trend is gradually
`improving. Exhibit 2 outlines derm script trends.
`
`• NRx were down 39.8% YoY (4-week average) vs. down 39.9% YoY last
`week.
`• NRx in the week were 32,295 up from 32,224 the prior week.
`• Derm TRx were down 1.7% WoW vs. down 1.4% the prior week.
`• TRx were 47,266 vs. 48,062 the prior week.
`• Symphony Health data, which reports sold Rx, not dispensed Rx, shows
`NRx up 3.2% WoW and TRx increasing 0.6%.
`
`NRx ophth products decreased 3.8% WoW. New ophth scripts (NRx) were
`down 3.8% WoW vs. up 2.6% the prior week. Exhibit 3 outlines ophth
`script trends.
`
`• NRx were 45,903 vs. 47,722 the prior week.
`• NRx were down 5.2% YoY (4-week average) vs. down 7.0% YoY last week.
`• Ophth TRx were down 3.1% vs. up 2.7% the prior week.
`• Symphony Health data shows ophth NRx down 5.2% WoW and TRx
`decreasing 4.3%.
`
`Xifaxan TRx down 3.0% WoW and Jublia TRx down 4.7% WoW. Exhibit
`4 outlines Jublia and Kerydin growth and Exhibits 5 and 6 outline Xifaxan
`and Viberzi growth and IBS market share dynamics.
`
`• Xifaxan 550mg TRx was up 2.0% YoY (vs. up 2.1% YoY last week), with TRx
`down 3.0% WoW vs. up 1.8% last week. We continue to closely monitor
`Xifaxan scripts but note that we have seen YoY growth continue after a
`slight ~2-month slowdown.
`• Allergan's Viberzi (launched Dec/15) TRx decreased 2.7% WoW vs. a
`0.8% increase last week.
`• Jublia TRx were down 4.7% WoW vs. Kerydin TRx, which were down
`6.8%.
`
`EQUITY RESEARCH
`
`Disseminated: May 19, 2017 09:29ET; Produced: May 19, 2017 09:29ET Priced as of prior trading day's market close, EST (unless otherwise noted).
`For Required Non-U.S. Analyst and Conflicts Disclosures, see page 10.
`
`ACRUX DDS PTY LTD. et al.
`
`EXHIBIT 1577
`
`IPR Petition for
`
`U.S. Patent No. 7,214,506
`
`Page 1 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Investment summary
`We believe Valeant shares will perform in line with the peer
`group for the following key reasons:
`
`Overhang associated with various outstanding issues. Until
`various issues noted under the risk section below are
`addressed, we expect the shares to trade in a range with little
`opportunity to significantly outperform the peer group.
`
`Reduced R&D risk profile. Management's strategy is to reduce
`exposure to patent risks. As a result, the company plans
`to share more of the risk with partners for development
`programs and to invest in approved products that have
`eclipsed the regulatory hurdles. Focusing on niche markets
`within dermatology, neurology, and GI also avoids the
`competitive markets that big pharma dominates.
`
`Risks
`The group multiple in the spec pharma industry has deflated
`quite rapidly following discussions on pricing increases and
`organic growth. Valeant terminated its relationship with
`Philidor in Q4/15 due to its practices. Valeant is also being
`investigated in the U.S. (including an SEC investigation) for
`pricing increases that it has taken and for its patient assistance
`programs. VRX's multiple could be reduced further along with
`the group if there were continued pricing concerns in the
`U.S. or due to other matters associated with the various
`investigations. We also note that Valeant is considerably
`levered, with net debt of $27.3B at the end of Q1/17.
`
`Target/Upside/Downside Scenarios
`Exhibit 1: Valeant Pharmaceuticals International, Inc.
`
`125 Weeks
`
`282
`82
`
`32
`
`7.00
`
`400m
`300m
`200m
`100m
`
`27DEC14 - 18MAY17
`
`UPSIDE
`
`TARGET
`
`CURRENT
`
`44.00
`
`19.00
`
`13.47
`
`DOWNSIDE 4.00
`
`2017
`2016
`2015
`D J F M A
`D J F M A M J
`J F M A M J
`J A S O N
`J A S O N
`VRX
`Rel. S&P 500 COMPOSITE
`MA 40 weeks
`
`M
`
`May 2018
`
`Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
`Target price/base case
`Our $19 price target is based on the average of our DCF
`and our EV/EBITDA valuations. Applying an 8.6x multiple to
`our 2018 adj. EBITDA estimate of $3.56B derives a $18.43
`valuation. The 8.6x multiple is an ~0.5x discount to the
`Specialty Pharma group. We believe a discount is warranted
`owing to the heightened risk profile that Valeant faces
`due to ongoing government investigations and continued
`organizational issues. Our EV/EBITDA valuation is averaged
`with a DCF value of ~$19.39 to arrive at our $19 price target.
`
`Upside scenario
`Our $44 upside scenario is based on a 9.6x multiple applied
`to 2018 adj. EBITDA of $4.1B. The higher EBITDA and multiple
`are driven by stronger-than-anticipated organic growth from
`all segments, positive pipeline developments, and resolution
`of various investigations.
`
`Downside scenario
`Our $4 downside scenario assumes an 8.1x multiple applied
`to 2018 adj. EBITDA of $3.2B. Organic growth for the business
`would also moderate under this scenario, and the Jublia/
`Luzu/Xifaxan outlooks could be further diminished with low
`levels of reimbursement from payers. Disappointing pipeline
`developments would also play a role in decreasing the
`multiple.
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 2
`
`Page 2 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Exhibit 2: Derm products launch progress
`
`Source: QuintilesIMS, Symphony Health Solutions
`
`
`
`
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 3
`
`100,000
`
`90,000
`
`80,000
`
`70,000
`
`60,000
`
`50,000
`
`40,000
`
`30,000
`
`20,000
`
`10,000
`
`0
`
`Derm Growth (4-week YoY)
`
`Symphony Derm TRx
`
`Symphony Derm NRx
`
`IMS Derm TRx
`
`IMS Derm NRx
`
`140.0%
`
`120.0%
`
`100.0%
`
`80.0%
`
`60.0%
`
`40.0%
`
`20.0%
`
`0.0%
`
`-20.0%
`
`-40.0%
`
`-60.0%
`
`Derm NRx 4-week average YoY growth
`
`Products included (from Walgreens Access Program): Acanya, Atralin, Carac, Clindagel, Elidel, Jublia, Locoid, Loprox, Luzu, Noritate, Onexton, Retin-A Micro, Solodyn, Xerese, Ziana, Zovirax, Zyclara.
`
`Page 3 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Exhibit 3: Ophth products launch progress
`
`Source: QuintilesIMS, Symphony Health Solutions
`
`
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 4
`
`Symphony Ophth TRx
`
`Symphony Ophth NRx
`
`IMS Ophth TRx
`
`IMS Ophth NRx
`
`80,000
`
`70,000
`
`60,000
`
`50,000
`
`40,000
`
`30,000
`
`20,000
`
`10,000
`
`0
`
`
`
`Products included (from Walgreens Access Program): Alrex, Bepreve, Besivance, Istalol, Lacrisert, Lotemax, Prolensa, Timoptic, Zylet. Products included (from Walgreens Access Program): Acanya, Atralin, Carac, Clindagel, Elidel, Jublia, Locoid, Loprox, Luzu, Noritate, Onexton, Retin-A Micro, Solodyn, Xerese, Ziana, Zovirax, Zyclara.
`
`Page 4 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Exhibit 4: Jublia and Kerydin weekly scripts
`
`Source: QuintilesIMS, Symphony Health Solutions
`
`
`
`
`
`
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 5
`
`IMS Jublia TRx
`
`IMS Kerydin TRx
`
`Symphony Jublia TRx
`
`Symphony Kerydin TRx
`
`25,000
`
`20,000
`
`15,000
`
`10,000
`
`5,000
`
`Page 5 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Exhibit 5: Xifaxan and Viberzi weekly scripts
`
`Source: QuintilesIMS
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 6
`
`Xifaxan 550mg YoY TRx Growth (4-week average)
`
`50%
`
`40%
`
`30%
`
`20%
`
`10%
`
`0%
`
`-10%
`
`Xifaxan 550mg TRx growth (4-week avg YoY)
`Total Xifaxan NRx
`Total Viberzi (AGN) NRx
`
`Total Xifaxan TRx
`Total Viberzi (AGN) TRx
`
`Xifaxan 4-week average YoY TRx growth
`
`20,000
`
`18,000
`
`16,000
`
`14,000
`
`12,000
`
`10,000
`
`8,000
`
`6,000
`
`4,000
`
`2,000
`
`Scripts (Rx)
`
`Page 6 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Exhibit 6: IBS market weekly market share trends (NRx)
`
`Source: QuintilesIMS
`
`
`
`
`
`
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 7
`
`60%
`
`Linzess
`
`50%
`
`40%
`
`NRx Market Share
`
`Amitiza
`
`30%
`
`Xifaxan
`
`20%
`
`10%
`
`Viberzi
`
`Donnatal
`
`0%
`
`Total Scripts
`
`Linzess NRx Share
`
`Amitiza NRx Share
`
`Viberzi NRx Share
`
`Donnatal NRx Share
`
`Xifaxan NRx Share
`
`60,000
`
`50,000
`
`40,000
`
`30,000
`
`Total NRx
`
`20,000
`
`10,000
`
`Page 7 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Valuation
`
`Our $19 price target is based on applying an 8.6x multiple to our 2018 Adj. EBITDA estimate of
`$3.56B to generate an $18.43 valuation. The 8.6x multiple is an ~0.5x discount to the Specialty
`Pharma group. We believe a discount is warranted owing to the heightened risk profile that
`Valeant faces due to ongoing government investigations and continued organizational issues.
`
`The EV/EBITDA valuation is averaged with a DCF value of $19.39 (discount rate 12.0% and
`terminal growth 3.5%—all else equal, we would expect to lower the admittedly high discount
`rate once we have greater clarity on operations). The average of the two valuations is $18.91
`rounded to our $19 price target. We note that although there are several unknowns, we
`believe our outlook reflects a conservative view of the business. Due to our conservative
`forecasts, we have utilized a slightly higher discount rate. Our price target supports our Sector
`Perform rating.
`
`Risks to rating and price target
`In the event that the potential product launches fall below our expectations, this would be
`negative for our price target and rating. Valeant also counts on acquisitions for a material
`portion of its growth, so if it has difficulty identifying new assets at reasonable prices or
`arranging financing for these transactions, the shares could be negatively impacted. Valeant
`recently terminated its relationship with Philidor due to its practices. Valeant is also being
`investigated in the U.S. for pricing increases that it has taken and for its patient assistance
`programs.
`
`Company description
`
`Valeant International is a fully integrated specialty pharmaceutical and branded generics
`company with operations in the US, Canada, Australia, Latin America, and Europe. The
`company is focused on lean R&D operations and an acquisitive strategy revolving around
`dermatology, eye health, neurology, GI, and consumer products.
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 8
`
`Page 8 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Valeant International (NYSE:VRX)
`
`Income Statement
`December 31 ($MM)
`Revenues
`Basuch & Lomb/International
`Branded Rx
`U.S. Diversified
`Total Revenues
`Operating Expenses
` Cost of Goods Sold
` Cost of Services
` Selling & Administrative
` R & D
` Amortization
` Other
`Total Operating Expenses
`Adj. EBITDA
`Operating Income, EBIT (Loss)
`
` Interest Income
` Interest Expense
` Other Income (Expense)
`Total Other Income (Expense)
`
`Total Non-Operating Items
`
`Mar
`Q1/16A
`
`Jun
`Q2/16A
`
`Sep
`Q3/16A
`
`Dec
`Q4/16A
`
`Mar
`Q1/17A
`
`Jun
`Q2/17E
`
`Sep
`Q3/17E
`
`Dec
`Q4/17E
`
`2015A
`
`2016A
`
`2017E
`
`2018E
`
`1,072.2
`$739.2
`560.2
`$2,371.6
`
`1,197.9
`$731.7
`490.6
`$2,420.2
`
`
`1,161.8$
`847.3
`470.5
`$2,479.6
`
`
`1,176.0$
`829.0
`398.0
`$2,403.0
`
`
`1,150.0$
`604.0
`355.0
`$2,109.0
`
`
`1,218.8$
`695.9
`367.7
`$2,282.4
`
`
`1,200.8$
`628.5
`316.7
`$2,145.9
`
`
`1,240.1$
`652.5
`310.1
`$2,202.7
`
`8,537.2$
`
`1,909.3
`0.0
`$10,446.5
`
`4,607.9$
`
`3,147.2
`1,919.3
`$9,674.4
`
`4,809.6$
`
`2,580.9
`1,349.5
`$8,740.0
`
`5,064.4$
`
`2,603.0
`1,087.6
`$8,755.0
`
`620.2$
`
`
`9.7
`812.6
`103.1
`694.5
`65.3
`2,305.4$
`
`1,007.7
`$66.2
`
`
`647.3$
`10.5
`671.5
`124.3
`887.6
`(1.5)
`2,339.7$
`
`1,087.7
`$80.5
`
`
`649.2$
`8.8
`660.9
`100.8
`807.1
`1,115.8
`
`3,342.6$
`1,162.7
`-$863.0
`
`
`655.0$
`10.0
`665.0
`93.0
`657.0
`172.0
`
`2,252.0$
`719.8
`$151.0
`
`
`584.0$
`12.0
`661.0
`96.0
`635.0
`(90.0)
`
`1,898.0$
`861.1
`$211.0
`
`
`636.6$
`11.0
`709.6
`114.1
`545.2
`15.0
`
`2,031.6$
`929.8
`$250.7
`
`
`616.3$
`9.2
`661.9
`107.3
`500.7
`50.0
`
`1,945.5$
`870.9
`$200.5
`
`
`628.3$
`10.5
`673.9
`110.1
`483.5
`15.0
`
`1,921.3$
`900.3
`$281.4
`
`
`2,531.6$
`53.1
`2,699.8
`334.4
`2,418.3
`881.9
`8,919.1$
`
`5,565.1
`$1,527.4
`
`
`2,571.7$
`39.0
`2,810.0
`421.2
`3,046.2
`1,351.6
`
`10,239.7$
`3,977.9
`-$565.3
`
`
`2,465.3$
`42.8
`2,706.4
`427.6
`2,164.4
`(10.0)
`7,796.4$
`
`3,562.1
`$943.6
`
`
`2,473.7$
`44.9
`2,626.5
`359.0
`1,866.3
`56.8
`7,427.3$
`
`3,559.4
`$1,327.7
`
`0.0
`(425.7)
`0.0
`($425.7)
`
`0.0
`(470.4)
`0.0
`($470.4)
`
`(7.0)
`
`14.8
`
`0.0
`(467.1)
`0.0
`($467.1)
`
`(1.6)
`
`0.0
`(465.0)
`0.0
`($465.0)
`
`(49.0)
`
`-
`(471.0)
`0.0
`($471.0)
`
`888.0
`
`1.4
`(447.3)
`0.0
`($447.3)
`
`0.0
`
`-$196.5
`58.0
`17.8
`($272.4)
`($272.4)
`
`1.2
`(433.4)
`0.0
`($433.4)
`
`0.0
`
`-$232.9
`52.0
`16.0
`($301.0)
`($301.0)
`
`1.1
`(425.3)
`0.0
`($425.3)
`
`0.0
`
`-$143.9
`56.8
`17.5
`($218.2)
`($218.2)
`
`3.3
`(1,563.2)
`0.0
`($1,559.9)
`
`(126.7)
`
`-$159.2
`184.6
`(52.1)
`($291.7)
`($291.7)
`
`0.0
`(1,828.2)
`0.0
`($1,828.2)
`
`(42.8)
`
`-$2,436.3
`0.0
`(26.9)
`($2,409.4)
`($2,409.4)
`
`3.7
`(1,777.0)
`0.0
`($1,777.0)
`
`888.0
`
`$54.6
`166.9
`51.3
`($163.6)
`($163.6)
`
`1.3
`(1,659.9)
`0.0
`($1,659.9)
`
`0.0
`
`-$332.2
`204.1
`62.8
`($599.1)
`($599.1)
`
`Earnings before income taxes
`Future Tax
`Cash Tax
`Net Income
`Net Income (US GAAP) Reported
`
`-$366.5
`0.0
`7.2
`($373.7)
`($373.7)
`
`-$375.1
`0.0
`(72.8)
`($302.3)
`($302.3)
`
`-$1,331.7
`0.0
`(113.3)
`($1,218.4)
`($1,218.4)
`
`-$363.0
`0.0
`152.0
`($515.0)
`($515.0)
`
`$628.0
`0.0
`0.0
`$628.0
`$628.0
`
`($1.08)
`
`EPS (FD) - (US GAAP)
`Adj. EPS Reconciliation
`$694.5
` Amortization
`0.5
` Acquired IPR&D
`63.5
` Stock compensation
`39.8
` Restructuring & acquisition costs
`
`Amortization of deferred financing costs and debt discounts 0.0
` Inventory step up
`28.9
` Contingent consideration
`2.4
` Other
`66.6
` Tax
`(79.9)
`
`Adj. net income for Adj. EPS
`
`Adj. EPS (non-GAAP)
`
`Basic Shares O/S
`Fully Diluted Shares O/S
`Source: Company Reports, RBC Capital Markets Estimates
`
`Douglas Miehm (Analyst); (416) 842-7823
`douglas.miehm@rbccm.com
`
`442.6
`
`$1.27
`
`344.9
`349.7
`
`($0.88)
`
`($3.49)
`
`($1.47)
`
`$1.80
`
`($0.78)
`
`($0.86)
`
`($0.62)
`
`($0.85)
`
`($6.92)
`
`($0.47)
`
`($1.73)
`
`$887.6
`17.4
`(1.7)
`19.5
`36.1
`7.5
`6.9
`(22.7)
`(160.8)
`
`487.5
`
`$1.40
`
`345.0
`349.1
`
`$807.1
`36.0
`36.8
`20.7
`32.6
`0.0
`0.0
`1,083.2
`(218.2)
`
`543.0
`
`$1.55
`
`349.5
`350.3
`
`$657.0
`0.0
`0.0
`54.3
`29.0
`0.0
`(31.0)
`183.0
`64.0
`
`441.3
`
`$1.26
`
`349.6
`350.4
`
`$635.0
`4.0
`0.0
`18.0
`0.0
`0.0
`0.0
`(38.0)
`(974.0)
`
`273.0
`
`$0.78
`
`349.8
`350.5
`
`$545.2
`0.0
`0.0
`75.0
`7.5
`0.0
`15.0
`0.0
`0.0
`
`370.4
`
`$1.05
`
`349.8
`352.0
`
`$500.7
`0.0
`0.0
`75.0
`7.5
`0.0
`50.0
`0.0
`0.0
`
`332.3
`
`$0.94
`
`349.8
`352.0
`
`$483.5
`0.0
`0.0
`75.0
`7.5
`0.0
`15.0
`0.0
`0.0
`
`362.8
`
`$1.03
`
`349.8
`352.0
`
`$2,431.9
`248.4
`179.9
`400.4
`118.2
`133.7
`(23.0)
`352.6
`(709.7)
`
`2,840.7
`
`$8.14
`
`342.7
`348.8
`
`$3,046.2
`53.9
`98.6
`134.3
`97.7
`36.4
`(21.7)
`1,310.1
`(394.9)
`
`1,914.4
`
`$5.47
`
`347.3
`349.9
`
`$2,164.4
`4.0
`0.0
`243.0
`22.6
`0.0
`80.0
`(38.0)
`(974.0)
`
`1,338.4
`
`$3.81
`
`349.8
`351.6
`
`$1,866.3
`0.0
`0.0
`0.0
`24.0
`0.0
`12.0
`0.0
`0.0
`
`1,303.2
`
`$3.71
`
`346.8
`351.6
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 9
`
`Page 9 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Required disclosures
`
`Non-U.S. analyst disclosure
`Douglas Miehm and Joel Hurren (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may
`not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on
`communications with a subject company, public appearances and trading securities held by a research analyst account.
`Conflicts disclosures
`The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
`total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
`by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
`
`Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
`this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
`DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
`29th Floor, South Tower, Toronto, Ontario M5J 2W7.
`
`A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for
`Valeant Pharmaceuticals International, Inc. in the past 12 months.
`
`A member company of RBC Capital Markets or one of its affiliates received compensation for investment banking services from
`Valeant Pharmaceuticals International, Inc. in the past 12 months.
`
`A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for
`investment banking services from Valeant Pharmaceuticals International, Inc. in the next three months.
`
`RBC Capital Markets, LLC makes a market in the securities of Valeant Pharmaceuticals International, Inc..
`
`RBC Dominion Securities Inc. makes a market in the securities of Valeant Pharmaceuticals International, Inc..
`
`Royal Bank of Canada, together with its affiliates, beneficially owns 1 percent or more of a class of common equity securities of
`Valeant Pharmaceuticals International, Inc..
`
`A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than
`investment banking services from Valeant Pharmaceuticals International, Inc. during the past 12 months. During this time, a
`member company of RBC Capital Markets or one of its affiliates provided non-securities services to Valeant Pharmaceuticals
`International, Inc..
`
`RBC Capital Markets is currently providing Valeant Pharmaceuticals International, Inc. with investment banking services.
`
`RBC Capital Markets has provided Valeant Pharmaceuticals International, Inc. with investment banking services in the past 12
`months.
`
`RBC Capital Markets has provided Valeant Pharmaceuticals International, Inc. with non-securities services in the past 12 months.
`Explanation of RBC Capital Markets Equity rating system
`An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
`to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to
`the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and
`Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because
`our ratings are determined on a relative basis.
`Ratings
`Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
`with a favorable risk-reward ratio.
`Outperform (O): Expected to materially outperform sector average over 12 months.
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 10
`
`Page 10 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
`Underperform (U): Returns expected to be materially below sector average over 12 months.
`Risk Rating
`As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects
`a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited
`operating history that result in a higher expectation of financial and/or stock price volatility.
`Distribution of ratings
`For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
`- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
`Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
`the meanings are not the same because our ratings are determined on a relative basis (as described above).
`Distribution of ratings
`RBC Capital Markets, Equity Research
`
`As of 31-Mar-2017
`
`Rating
`
`BUY [Top Pick & Outperform]
`HOLD [Sector Perform]
`SELL [Underperform]
`
`Count
`
`843
`679
`101
`
`Investment Banking
`Serv./Past 12 Mos.
`
`Count
`
`Percent
`
`285
`149
`8
`
`33.81
`21.94
`7.92
`
`Percent
`
`51.94
`41.84
`6.22
`
`
`
`
`
`
`
`
`
`References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
`portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
`the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), and the Guided Portfolio: ADR (RL
`10), and former lists called the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Midcap 111 (RL 9), and the Guided
`Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental
`Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a Recommended List. The
`abbreviation 'RL Off' means the date a security was removed from a Recommended List.
`
`Equity valuation and risks
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 11
`
`Page 11 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
`see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets
`Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
`
`Valeant Pharmaceuticals International, Inc.
`
`Valuation
`
`Our $19 price target is based on applying an 8.6x multiple to our 2018 Adj. EBITDA estimate of $3.56B to generate an $18.43
`valuation. The 8.6x multiple is an ~0.5x discount to the Specialty Pharma group. We believe a discount is warranted owing to the
`heightened risk profile that Valeant faces due to ongoing government investigations and continued organizational issues.
`
`The EV/EBITDA valuation is averaged with a DCF value of $19.39 (discount rate 12.0% and terminal growth 3.5%—all else equal,
`we would expect to lower the admittedly high discount rate once we have greater clarity on operations). The average of the two
`valuations is $18.91 rounded to our $19 price target. We note that although there are several unknowns, we believe our outlook
`reflects a conservative view of the business. Due to our conservative forecasts, we have utilized a slightly higher discount rate.
`Our price target supports our Sector Perform rating.
`
`Risks to rating and price target
`
`In the event that the potential product launches fall below our expectations, this would be negative for our price target and rating.
`Valeant also counts on acquisitions for a material portion of its growth, so if it has difficulty identifying new assets at reasonable
`prices or arranging financing for these transactions, the shares could be negatively impacted. Valeant recently terminated its
`relationship with Philidor due to its practices. Valeant is also being investigated in the U.S. for pricing increases that it has taken
`and for its patient assistance programs.
`
`Conflicts policy
`RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
`To access our current policy, clients should refer to
`https://www.rbccm.com/global/file-414164.pdf
`or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
`Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
`Dissemination of research and short-term trade ideas
`RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having
`regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website
`to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional
`distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also
`receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firms
`proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding
`subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
`include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on
`how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A
`short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the
`research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
`methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term
`'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure
`in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible
`to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and
`the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade
`ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and
`investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact
`your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research.
`
`May 19, 2017
`
`Douglas Miehm, (416) 842-7823; douglas.miehm@rbccm.com 12
`
`Page 12 of 14
`
`

`

`Biotech & Pharma, Healthcare
`Valeant Pharmaceuticals International, Inc.
`
`For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the
`following link: https://rbcnew.bluematrix.com/sellside/MAR.action
`The 12 month history of SPARCs can be viewed at https://www.rbcinsight.com/CM/Login.
`Analyst certification
`All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
`the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
`indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
`Third-party-disclaimers
`
`The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services
`LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
`warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties
`of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,
`in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,
`punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
`
`References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other
`person that takes over the administration of such rate).
`
`Disclaimer
`
`RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC
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