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`425 1 d807652d425.htm 425
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`Filed by Valeant Pharmaceuticals International, Inc.
`(Commission File No. 001-14956) pursuant to Rule 425 under the Securities Act of 1933
`and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934
`Subject Company: Allergan, Inc.
`Commission File No.: 001-10269
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 1
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`Operator:
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`
`Moderator: Laurie Little
`October 20, 2014
`8:00 a.m. ET
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`Good morning. My name is (Keith) and I will be your conference operator today. At this time, I’d like to welcome everyone to
`the Valeant Third Quarter 2014 Earnings conference call.
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`All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and
`answer session. If you’d like to ask a question during this time, simply press star and the number one on your telephone keypad.
`If you’d like to withdraw your question, press the pound key. Thank you.
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` Laurie Little, Head of Investor Relations, you may begin your conference.
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`Laurie Little:
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` Thank you, (Keith). Good morning, everyone, and welcome to Valeant’s Third Quarter 2014 Financial Results conference call.
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`Presenting on the call today are J. Michael Pearson, Chairman and Chief Executive Officer, and Howard Schiller, Chief Financial
`Officer.
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`In addition, Dr. Ari Kellen, the company co-chairman, will be available for questions. In addition to a live webcast, a copy of
`today’s live presentation will be found on our website under the Investor Relations section.
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`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 some important information.
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`ACRUX DDS PTY LTD. et al.
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`EXHIBIT 1598
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`IPR Petition for
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`U.S. Patent No. 7,214,506
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 2
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`In addition, this communication does not constitute an offer to buy or a solicitation of an offer to sell any security. This
`communication relates to the exchange offer which Valeant has made to our account share stockholders.
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`The exchange offers being made pursuant to a tender offer statement on Schedule T.O. including the offer to exchange, the letter
`election and transmittal and other related offer materials, and a registration statement on Form S-4 filed by Valeant with the SEC
`on June 18, 2014 and with the CSA as each may be amended from time-to-time.
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`These materials contain important information including the terms and conditions of the offer. In addition, Valeant has filed a
`preliminary proxy statement with the SEC on June 24, 2014, as may be amended from time-to-time.
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`Pershing Square Capital Management has filed a definitive solicitation statement with the SEC on July 11, 2014, and a preliminary
`proxy statement on July 23, 2014, and Valeant and Pershing Square may file one or more additional proxy statements or other
`documents with the SEC. This communication is not a substitute for any proxy statement, registration statement, prospectus, or
`any other document Valeant, Pershing Square and/or Allergan have filed or may file with the SEC in connection with the proposed
`transaction.
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`Investors and security holders of Valeant and Allergan are urged to read the tender offer statement, registration statement and any
`other documents filed with the SEC carefully in their entirety if and when they become available as they will contain important
`information about those transactions.
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`An independent proxy statement will be mailed to stockholders of Allergan and/or Valeant as applicable. Investors and security
`holders may obtain free copies of the tender offer statement, registration statement and other documents filed with the SEC by
`Valeant and/or Pershing Square through the website and maintained by the SEC at SEC.gov.
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`J. Michael Pearson:
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 3
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`Information regarding the names and interests in Allergan and Valeant, of Valeant and persons related to Valeant who may be
`deemed participants in any solicitation of Allergan or Valeant shareholders, in respect to the Valeant proposal for a business
`combination with Allergan is available in the additional definitive proxy soliciting materials in respect of Allergan filed with the
`SEC by Valeant on April 21, 2014, and May 28, 2014.
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`The information regarding the names and interests in Allergan and Valeant and Pershing Square and persons related to Pershing
`Square who may be deemed participants at any solicitations of Allergan or Valeant shareholders in respect of a Valeant proposal
`for a business combination with Allergan is available in additional definitive proxy soliciting material in respect of Allergan filed
`with the SEC by Pershing Square.
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`The additional definitive proxy soliciting material referred to in this paragraph can be obtained free of charge from the sources
`indicated above.
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`Finally, in addition, this presentation contains non-GAAP financial measures. For more information about non-GAAP financial
`measures, please refer to slide number 2. Non-GAAP reconciliations can be found in the press release issued earlier today and
`posted on our website.
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` And with that, I am glad to turn the call over to J. Michael Pearson.
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`Thank you, Laurie. Good morning, everyone, and thank you for joining us for our Third Quarter Earnings call. We are pleased to
`report an exceptionally strong Q3. On our call today, I will review our results, highlight the key drivers of our successful
`performance across our businesses, and update you on recent and near-term product launches.
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`Howard will then provide an update on our financial performance, an update on our B&L integration and our expectations for the
`remainder of 2014. Finally, we will provide you a brief update on our offer for Allergan. After our remarks, Howard, Ari Kellen
`and I will be available for Q&A.
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`For the quarter, our total revenue was $2.1 billion, an increase of 33 percent over the prior year. This is our second best revenue
`quarter ever. Our cash EPS was $2.11, an increase of 48 percent over the prior year and well in excess of our guidance.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 4
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`Our adjusted cash flow from operations for the quarter was $771 million, an increase of 89 percent over the prior year. GAAP cash
`flow from operations was $619 million, a 207 percent increase over the prior year.
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` This quarter’s exceptionally strong cash flow generation resulted in a cash conversion of 107 percent of adjusted cash net income.
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`Great execution by our employees around the world led to exceptional results this quarter. Our results are within or above the high
`end of our guidance for all key metrics. Our same store’s organic growth for the total company, including the full impact of
`generics exceeded our early read of the quarter.
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`Bausch & Lomb continued its outstanding performance and achieved double-digit organic growth in line with our guidance for the
`second half of 2014. Our revenues are at the high end of our guidance even with the negative $31 million FX impact and our cash
`EPS significantly exceeded guidance even with a negative FX impact of 4 cents.
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`Adjusted cash flow from operations, $771 million, significantly exceeded our guidance of 90 percent cash conversion. Our
`restructuring charges continue to decrease and we’re below our expectations as we near the end of the B&L integration.
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`Turning to organic growth, our overall same-store company organic growth including all generics was 19 percent for the quarter. If
`we had excluded generics in Q3, our total company same-store organic growth would have been 3 percent higher or 22 percent.
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`In Q2, our total same store’s organic growth with generics was 4 percent and without generics was 10 percent, a differential of 6
`percent. The differential narrowed as the generic impact Zovirax, Retin-A Micro and BenzaClin have annualized and are largely
`behind us in the U.S. and due to the inclusion of Bausch & Lomb and our same-store organic growth calculations from August 5th
`onward.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 5
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`The impact of generic entrance in Q4 ’13 for both Vanos and Wellbutrin XL in Canada have not yet analyzed and are included in
`our Q3 organic growth and our Q4 organic growth guidance. Vanos and Wellbutrin XL in Canada will both annualize at the end of
`the year.
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`All of our regions contribute to the strong total company organic growth with our U.S. business at 29 percent, our total developed
`market business at 22 percent and our merging market business at 12 percent same-store organic growth.
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`Our same-store organic growth through the first 3 quarters of 2014 year-to-date is 11 percent. We expect continued strong, double-
`digit same-store organic growth in the fourth quarter, but certainly reduced from the 19 percent we achieved this quarter, and
`therefore, we expect double-digit organic growth for the full-year 2014.
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`B&L continues its strong performance delivering 12 percent organic growth in Q3 adjusted only for FX. There is no adjustment
`for the discontinuation of Bromday. B&L’s third quarter revenues in 2012, 2013 and 2014 has been consistent at approximately 24
`to 25 percent of B&L’s annual revenues.
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`Under Valeant’s ownership, B&L has grown at a compound annual growth rate of 10 percent. We expect this trend to continue in
`the fourth quarter. Our businesses broadly performed well beyond our expectations this quarter.
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`The turnaround of our base dermatology business coupled with a number of strong launches including Jublia, LUZU and RAM
`0.08% was the strongest outperformer. Neurology exceeded forecast primarily due to the growth of Xenazine, Wellbutrin XL and
`our orphan products.
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`In addition, a number of our smaller businesses including dental, the U.S. generics and Obagi performed well above their
`forecasted growth. Our emerging markets and B&L also contributed strong double-digit growth.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 6
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`Importantly, for the total company, more of our growth was from volume than price. As promised, we are continuing to show
`revenue for the quarter and year-to-date for our top 20 products, as well as, the primary growth driver of either price or volume for
`each product.
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`All 20 of our top 20 products grew this quarter. Seventeen of our top 20 products are at — are the same as the second quarter. New
`additions to the top 20 products this quarter include the Retin-A franchise, which includes RAM 0.08%, Cardizem CD AG and
`Excimer.
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` The products, which are no longer in the top 20 this quarter, include Thermage Tips, Acanya, as well as the Excimer laser.
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`Year-to-date revenue for our top 20 products is $1.8 billion representing 31 percent of our total revenue. The same percentage of
`total revenue as the second quarter. In total, our top 20 products grew 32 percent in the third quarter year-over-year and 16 percent
`year-to-date over the last year with approximately 50 percent of the growth coming through volume.
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`All 20 of our largest products showed growth in the third quarter year-over-year. Jublia is currently our 28th largest product
`demonstrating a strong start since launch and we expect it to be a top 20 product next quarter.
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`No product represents greater than 3.5 percent of our total revenues this quarter, which again, demonstrates the diversification of
`our business. Our mix of the top 20 products includes R.X. products, OTC and devices.
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`These products continue to demonstrate the durability and diversity of our portfolio. Highlights for our U.S. business and the rest
`of the world are contained in the next four slides. We have expanded our disclosure in Table 3 of our press table to include
`additional data for our U.S. businesses.
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`Revenue in growth numbers for this table are actual and do not include sales for Bausch & Lomb before August 5th in 2013.
`Revenues for our dermatology business including a recent PreCision acquisition grew 33 percent quarter-over-quarter.
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`The turnaround of our dermatology business is continuing. New leadership has brought stability to the sales force and it has led to
`innovative new marketing approaches that are working well. This has resulted in market share and revenue gains across the
`portfolio including launch products.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`Elidel, Acanya, Zyclara and Ziana have all gained market share since the beginning of 2014. Elidel has had an exceptional year
`increasing market share from 45 percent to 52 percent and has overtaken Protopic as the leader in this category.
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`After years of decline, Solodyn market shares stabilized. On the new product side, both Jublia and LUZU quickly gained share
`with Jublia reaching 7 percent script share of the total onychomycosis market both branded and generics, and LUZU accelerating
`its scripture to 13 percent of the branded topical anti-fungal market.
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`In addition, quarter-over-quarter result growth for all our dermatology promoted brands was over 40 percent. Our consumer
`business grew 43 percent quarter-over-quarter. Our consumer health care business as reported by IRI is one of the fastest growing
`OTC health care companies in the U.S. this year.
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`Key consumer growth brands include CeraVe, PreserVision, Ocuvite and BioTrue multipurpose solutions. Our prescription
`ophthalmology revenues grew 57 percent quarter-over-quarter.
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`Our core brands, Prolensa and the Lotemax franchise continue to grow and are complimented by the strong performance of
`Besivance, Zylet and Zirgan.
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`Revenues for our contact lens business grew 82 percent quarter-over-quarter. According to third party data, the business has
`expanded its U.S. market share from 7 percent to over 10 percent since our acquisition of B&L.
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`Biotrue ONEday and Pure Vision 2 for Presbyopia continue to capture market share. Our new lens, Bausch & Lomb Ultra, while
`not a significant contributor to revenues today as it still is only being produced on our private line, has received very positive
`reviews from eye care professionals and will be an important new product in our lens franchise.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`Our surgical business continued its strong performance with 74 percent quarter-over-quarter revenue growth. We continue to
`improve our market position at IOLs. According to Market Scope data, we are now the number 2 players in the Posterior Chamber
`IOL market in the U.S.
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`As we continue to further invest in this business, key products that will continue to drive growth will include the enVista and
`Trulign IOLs and our Victus and Stellaris equipment platforms.
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`Revenue growth of 40 percent for our neuro and other portfolio was driven by promoted brands including Xenazine, Wellbutrin
`XL and Syprine/Cuprimine. Our generic fast business benefitted both from portfolio expansion and competitor stockouts.
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`New customers and strong early performance of launched products such as Onset, a local anesthetic, continue to drive our dental
`business resulting in 20 percent quarter-over-quarter revenue growth.
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`Finally, in aesthetics, Obagi demonstrated excellent quarter-over-quarter organic growth of 21 percent as a result of improved sales
`force effectiveness.
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`Now, turning to the rest of the world. Our emerging markets in Central and Eastern Europe and the Middle East continue to
`demonstrate strong performance with 36 percent quarter-over-quarter revenue growth.
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`Even with a significant FX impact this quarter, a negative $18 million in revenues, Russia, Ukraine and CIS continue their strong
`performance, demonstrating 20 percent organic growth. Revenues for our emerging market business in Asia and Africa grew 66
`percent quarter-over-quarter.
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`China’s 11 percent pro forma organic growth was from primarily by the lens franchise. Our iNova, Southeast Asia/South Africa
`business pro forma organic growth was 18 percent. In Latin America, quarter-over-quarter revenue growth was 13 percent.
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`The strong organic growth of 12 percent for Mexico was offset by the continued economic slowdown in Brazil and Argentina and
`import restrictions in Argentina. In addition, our export business was negatively impacted by capital controls in Venezuela.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`The rest of the world’s developed markets grew 29 percent quarter-over-quarter. Australia benefitted this quarter from a strong
`cough and cold season, which contributed to its 15 percent same-store organic growth rate.
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`Our Western European business grew mid-single digit organically. This growth was offset by a decline in the Canadian business,
`which is primarily due to Wellbutrin XL being genericized as well as foreign exchange.
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`We are off to a great start in both the U.S. and Canada post the launch of Jublia in July. Jublia script trends in the U.S. are currently
`reigning at 5,831 scripts per week through the week ending October 10th.
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`Canada, monthly script trends are currently 5,462 scripts per month through the month end September, an impressive 18 percent
`market share after only 3 months. This performance increases our confidence in our ability to significantly exceed our estimates
`for Jublia of $150 million revenue in 2015 and $300 million of revenue in 2016. We continue to believe that Jublia will likely
`become our largest product.
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`We are investing in the growth at Jublia through a comprehensive marketing campaign and an expanded sales force. In the first
`half of the third quarter prior to the FDA review of our promotional materials, we were only able to sell Jublia using the packaged
`insert.
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`In the second half of the third quarter, we began the rollout of our print and digital campaigns to both physicians and consumers.
`Our results to date are prior to our planned TV advertising, which the FDA completed its review of last week.
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`We plan to be on-air by mid-November. Our initial sales find had included a contracted primary care sales force. After assessing
`the effectiveness of the sales force at the end of Q3, we have decided to shift this spend to additional dermatology representatives
`and consumer advertising.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`Between the U.S. and Canada, we have approximately 175 sales representatives consisting of both podiatry and dermatology
`representatives selling to Jublia. LUZU uptake continues to grow since launch with current script volume accounting for 13
`percent of the branded topical anti-fungal market.
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`LUZU has broken the 1,300 prescription per week level for the week ending October 10th. LUZU performance has benefitted
`from the expanded coverage to both dermatology and podiatry through the same sales force that is also selling Jublia.
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`Retin-A Micro Pump 0.08% uptake has exceeded expectations since its launch in early July. After only 15 weeks, we have
`exceeded 1,400 prescriptions per week. Retin-A is the most widely recognized brand name in dermatology.
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`The entire Retin-A franchise, including our generics brand, is growing strongly. In our 2015 outlook, both Retin-A Micro 0.08%
`and Onexton were expected to generate $35 million in revenues. We now expect Retin-A Micro 0.08% to generate $35 million on
`its own in 2014 — 2015, thus providing the additional upside for our 2015 outlook. Other recently launched products in the U.S.
`are also contributing to our current and expected contribute to our future business.
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`Biotrue ONEday lens continues to accelerate. For the second quarter in a row, it grew 90 — it grew over 90 percent per year.
`Bausch & Lomb Ultra, a recently introduced lens, is currently selling to capacity on a pilot line.
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`While Ultra only contributed less than $5 million in revenue to our current quarter, we expect this to increase significantly when
`commercial quantities are available from our first installed commercial line in the second quarter of 2015.
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`The double-digit organic growth of our surgical business is benefitting from the successful launch of the Trulign Toric IOL. In
`addition, with the approval of the Victus lens fragmentation indication, we expect to place 28 Victus machines in 2014, twice as
`many as in 2013, which would position us for pull-through sales of IOLs and other consumables in future years.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`In our consumer business, we continue to promote and gain position recommendations for our 2014 launches, the CeraVe, part of
`the extended — continued extension of the brand, Peroxiclear, a superior hydrogen peroxide-based lens cleaner and SootheXP, a
`dry eye product.
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`In addition to the products already launched, we have a rich pipeline of near-term launches with significant commercial potential.
`Consistent with our business model, these products have been — have been sourced both internally and externally.
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`Our expected near-term U.S. RX launches include Onexton, Vesneo, and Lotemax Next Generation. Onexton, a new combination
`acne product, was developed internally. We have a PDUFA date of November 30th and expect to launch in early 2015.
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`We recently announced positive phase 3 results for Vesneo, a novel nitric oxide-donating glaucoma product to treat intraocular
`pressure for patients with glaucoma or ocular hypertension. We expect to file the NDA in the first half of 2015.
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`As a reminder, Vesneo beat Xalatan in a previous phase 2 study. Lotemax Next Generation, which also received positive phase 3
`results, will allow us to extend the life of the Lotemax franchise.
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`We are also very excited about the potential for Emerade, an adrenaline auto-injector anaphylaxis. After launching in selected
`European markets in the first half of 2014, we are off to a strong start in Europe with more than 20 percent market share in the
`U.K. and Sweden and approximately 6 percent market share in Germany where we just launched a month ago.
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`Emerade is currently undergoing stability trials in the U.S. We continue to extend the CeraVe brands with various planned
`launches including a CeraVe hydrating cleansing bar, which locks in moisture three times longer than the leading cleansing bar,
`Dove, and six times longer than the Cetaphil bar.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
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`We will also be extending the Ocuvite brand with the introduction of gummies, the fastest-growing vitamin segment in the first
`quarter of 2015. We recently completed a phase 3 study for our eye-whitening positioned dispense product, Brimonidine. We are
`planning our NDA submission in the first quarter of 2015.
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`Since our second quarter earnings call, we signed or closed several transactions including Croma, Zarracom and several others that
`we highlighted last quarter. We recently signed a deal to acquire the worldwide rights to Croma’s ophthalmic and orthopedic
`portfolio.
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`Croma’s products consist primarily of viscolelastics and IOLs with existing sales concentrated in Western Europe. We are very
`excited to bring these products to other markets including the U.S., Asia and elsewhere around the world.
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`As another addition to our surgical portfolio, we completed a transaction with Zarracom, which is based in Turkey. Zarracom
`provides us a lower price point IOL in Europe.
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` A quick update on transactions that we highlighted last quarter are now closed.
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`These transactions will all contribute to further penetration and attractive international markets. P.T. Armoxindo Farma and
`MedPharma will provide important on the ground presence in Indonesia and the Middle East respectively.
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`Bescon, based in South Korea, presents us a global opportunity to expand our contact lens business through their full range of both
`clear and color eye and lower-end lens including a daily (sky-high) lens.
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` With this, I will now turn the call over to Howard.
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`Howard Schiller:
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 13
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`Thank you, Mike. We are very excited to report exceptional Q3 results across all of our key businesses. Our revenue was again in
`excess of $2 billion with our U.S. and emerging market businesses contributing strong double-digit same-store organic growth.
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`In addition, while we have recently had a number of successful launches, they added only 3 percent to our organic growth this
`quarter. These products and the other products Mike just reviewed as near-term launches are expected to contribute significantly
`to organic growth in 2015 and 2016.
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`Our impressive revenue growth at 33 percent and cash EPS growth of 48 percent in Q3 were off of a strong Q3 2013. If you
`recall, Q3 of last year was a very good quarter, but we suffered from the generization of Zovirax, RAM and BenzaClin when
`comparing that quarter to Q3 2012.
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`In addition, Q3 2012 was particularly strong given that we sold approximately $90 million of Zovirax following a stock-out in
`Q2 of 2012.
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`Our cost of goods sold improved in the third quarter primarily due to product mix resulting in improved gross margins of 74
`percent of sales. We’re expecting a similar gross margin in the fourth quarter subject to foreign exchange movements.
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`While SG&A percentage improved each quarter this year, SG&A remains above historical levels as expected at 24 percent of
`sales primarily due to costs associated with their numerous launch products.
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`Excluding these launch costs, our SG&A would’ve been less than 22 percent of sales. The table on this page shows change and
`foreign exchange spot rates since our July 31st earnings call. The currency order is based on the financial impact of currency
`movement versus our Q3 guidance given on July 31st.
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`Most of the movement in currencies occurred in September, as the dollar significantly strengthened versus most currencies
`around the world. The negative impact in our third quarter revenue and cash EPS relative to our July 31st guidance was $31
`million and 4 cents of earnings per share.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 14
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`We were able to absorb all of this impact and still generate revenue at the upper end of our guidance and deliver cash EPS above
`our guidance. Looking forward to our fourth quarter at current rates, the negative impact to revenues and cash EPS would be
`approximately $53 million and approximately 6 cents per share.
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`Obviously, our results will be impacted either up or down with further movements in FX rates. As we have discussed previously,
`we continue to look for opportunities to produce products locally in order to create more of a natural hedge and reduce the bottom
`line impact of currency swings.
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`As we discussed at our second quarter earnings conference call, given that we have passed the one-year anniversary of Bausch &
`Lomb and we have not done any significant large transactions, we expected a restructuring integration charges to decline
`significantly in the second half of the year.
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`This quarter, our restructuring integration charges declined from $143 million Q2 to $63 million in Q3, less than our guidance of
`$70 million. The restructuring integration charges included charges of approximately $3 million for deals completed in Q3 for our
`PT Armoxindo Farma and Bescon, which were not included in our July estimates due to the uncertainty of timing for close.
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`We expect a further reduction in our fourth quarter restructuring charges to less than $50 million and in the first quarter 2015 to
`less than $25 million.
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`This quarter, our GAAP and adjusted cash flow from operations are the highest in Valeant’s history. As we’ve said in the past,
`we’re extremely focused on converting the maximum amount of net income to cash flow.
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`Our adjusted cash flow from operations this quarter was $771 million resulting in 107 percent cash conversion for the quarter and
`97 percent cash conversion year-to-date, both well above our guidance of 90 percent.
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`In addition, in the absence of significant business development activity, our GAAP and adjusted operating cash flows will
`converge as cash payments for restructuring and integration wind down.
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`VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
`Moderator: Laurie Little
`10-20-14/8:00 a.m. ET
`Confirmation # 6783694
`Page 15
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`At the beginning of the year, we set a strategic objective to reduce our leverage ratio to four times or below. We achieved this goal
`this quarter by reducing our term loans by $1.1 billion resulting in a net leverage ratio of approximately 4 times adjusted pro forma
`EBITDA down from 4.4 times at the beginning of 2014.
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`In addition to our term loan repayment in Q3, we recently redeemed $500 million to bond in Q4. Our day sales outstanding have
`continued to decline this quarter to 64 days from 66 days in Q2 and 72 days in Q1.
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`As we’ve previously discussed, we believe that calculating DSO is based on gross sales and gross account receivables make sense
`for us given the fact that we have a number of old products and there are a large amount of provisions to gross sales to get to net
`sales.
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`This quarter, we are adding additional disclosure in our 10-Q that will allow investors to calculate our day sales outstanding using
`gross quarterly sales and gross accounts receivables. We have included that table in the appendix of this presentation.
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`Our overall accounts receivable this quarter increased by $109 million with an offsetting increase in accrued liabilities of
`approximately $90 million related to rebates, returns and allowances. This is a net increase of approximately $20 million compared
`to an increase of approximately $30 million in net sales.
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`In addition, our U.S. RX wholesale inventory levels with the major wholesalers were flat this quarter on a unit basis and lower on
`a dollar basis compared to levels at