U.S. Markets open in 6 hrs 49 mins

Edited Transcript of VRX.TO earnings conference call or presentation 7-Nov-17 1:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 Valeant Pharmaceuticals International Inc Earnings Call

MISSISSAUGA Nov 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Valeant Pharmaceuticals International Inc earnings conference call or presentation Tuesday, November 7, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Arthur J. Shannon

Valeant Pharmaceuticals International, Inc. - Senior VP and Head of IR & Communications

* Joseph C. Papa

Valeant Pharmaceuticals International, Inc. - Chairman & CEO

* Paul S. Herendeen

Valeant Pharmaceuticals International, Inc. - EVP of Finance & CFO

================================================================================

Conference Call Participants

================================================================================

* Andrew Abriol Santos Ang

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Christopher Z. Neyor

JP Morgan Chase & Co, Research Division - Analyst

* David A. Amsellem

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* David Reed Risinger

Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst

* Gregory B. Gilbert

Deutsche Bank AG, Research Division - MD and Senior Analyst

* Louise Alesandra Chen

Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD

* Umer Raffat

Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant Third Quarter 2017 Earnings Conference Call. (Operator Instructions)

Art Shannon, Senior Vice President and Head of Investor Relations, you may begin your conference.

--------------------------------------------------------------------------------

Arthur J. Shannon, Valeant Pharmaceuticals International, Inc. - Senior VP and Head of IR & Communications [2]

--------------------------------------------------------------------------------

Thank you, Chris, good morning, everyone, and welcome to Valeant Pharmaceuticals Third Quarter 2017 Financial Results Conference Call. Participating on today's call are Chairman and Chief Executive Officer, Joe Papa; and Chief Financial Officer, Paul Herendeen. In addition to this live webcast, a copy of today's slide presentation and replay of this conference call will be available on our website under the Investor Relations section.

Before we begin, we would like to remind you that our presentation today contains forward-looking information. We would like -- we would ask you to take a moment to read through the forward-looking statement legend at the beginning of our presentation as it contains important information.

The presentation contains non-GAAP financial measures. For more information about these measures, please refer to Slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website.

Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure.

With that, it's my pleasure to turn the call over to Joe.

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Thank you, Art. Before we jump into the quarter, let me first review the topics for today's call. I'll start with the progress since our last earnings call. I'll then turn the call over to our CFO, Paul Herendeen, to review our third quarter financial results in detail and go through the updates to our 2017 guidance. Then I'll briefly cover some of the business and pipeline highlights.

Starting with Slide 5. This is the checklist we use to measure our progress against the goals for the turnaround. As I've said before, transforming Valeant will not happen overnight. It will take a multiyear process to require the hard work of thousands of people taking incremental steps to build the right foundation for the company's future success.

Since I joined Valeant 18 months ago, we focused on addressing the key action steps, including new leadership, a renewed focus on quality and innovation, and creating a culture that is in line with the people who use our health care products to improve their lives.

While there is more to do to complete the turnaround to be clear, Valeant today is a stronger company than it was a year ago. We've recruited a new management team, introduced new reportable business segments and stabilized the company.

Now as we're nearing the middle of the turnaround phase, we have taken actions to strengthen our balance sheet, simplify our business and allocate resources efficiently. 21,000 employees at Valeant are focused on the successful turnaround of Valeant. In fact, every time an analyst criticizes our company, it further unites our Valeant team.

How do I know? We recently completed a global employee survey. The results are outstanding. 82% of the respondents consider Valeant to be on the right track for growth, an increase from last year. Additionally, 92% of the employees would recommend Valeant as a great place to work, which is up 12 percentage points from last year and significantly above the normal for this specific survey question.

These endorsements of our business direction and culture, along with our strong third quarter performance, demonstrates our continued progress for the turnaround of Valeant.

Over to Slide 6. A quick summary of the quarter. It was a great quarter, with revenues above expectations, with EBITDA above expectations and with adjusted net income above expectations. This allows us to maintain EBITDA guidance, notwithstanding the completion of additional asset sales.

In terms of execution, once again, our 2 largest business are doing great and are now showing solid organic growth of 6% due to better resource allocation and additional investments. Our largest segment, Bausch + Lomb/International, which represents approximately 57% of our revenues in the quarter, delivered another quarter of solid growth. The business, which is flat to declining a year ago, grew 6% organically in the third quarter as compared to 3Q 2016. This is the third consecutive quarter of 6% organic revenue growth.

Salix, the largest part of the Branded Rx segment, represented about 20% of the company's revenue, also generated organic revenue of 6% largely due to the uptick of XIFAXAN that increased revenue growth by 5% and the launch of RELISTOR Tablets, which drove prescription growth by 61%.

Moving now on to our product pipeline. We had another active quarter. Last week, the FDA improved VYZULTA, which is great news for patients with open-angle glaucoma. Our team is busy preparing for the commercial launch, and we expect the product to be available in the fourth quarter of 2017.

Also, we recently received a June 18, 2018 PDUFA date for IDP-118, a topical lotion for the treatment of plaque psoriasis that we believe has the potential to be a game changer. I'll talk more about IDP later.

Our team introduced Biotrue ONEday for astigmatism daily disposable contact lenses in 20 countries in Europe, and the Thermage system received clearance from the FDA to noninvasively smooth skin on the face, eyes and body.

There are enormous opportunities for B + L in Asia, where our lens care portfolio has the leading market share and is growing. In September, I visited with the team who launched AQUALOX contact lenses in Japan. They are doing an outstanding job with this launch, and our new ULTRA monthly contact lenses are currently under review in China.

On to Slide 7, let's turn to the progress we have made in our efforts to reduce debt and divest noncore assets. First, we are pleased to report that we reduced total debt by approximately $6 billion since the end of the first quarter of 2016.

In addition, we've exceeded our commitment to pay down $5 billion of debt from divestiture proceeds and free cash flow by February 2018. And we've delivered on that commitment earlier than we previously had stated.

Moving on to asset sales. Since the beginning of 2015, we have announced approximately $3.8 billion in total asset sales. In addition, we announced yesterday that we are divesting Sprout Pharmaceuticals. While we believe ADDYI may represent an opportunity, women's health does not fit within our core business portfolio, which are eye health, GI and dermatology.

By proactively managing our working capital, we have continued to provide positive results in the quarter and year-to-date performance. From September 30, 2016, to September 30, 2017, we've reduced working capital days by approximately 45 days and inventory days by (technical difficulty) on hand by approximately 30 days.

We've taken a number of actions that have resulted in greater financial flexibility that can create more opportunities going forward. Thanks to the hard work of Paul Herendeen, Linda LaGorga and their teams, we have no debt maturities until 2020 and no mandatory amortization requirements now or in the future.

Turning now to Slide 8. For the past several quarters, we've been dealing with 3 legacy challenges: the Ortho Dermalogics business, supply chain issues and legacy legal cases. We've made measurable progress in addressing each of these areas, and we have a lot of positive developments to share today.

First, we continue to make progress stabilizing the dermatology business and advancing the pipeline. The launch of SILIQ in third quarter introduced the lowest-priced injectable biologic for moderate-to-severe plaque psoriasis in the United States.

Just a few months post launch, 75% of dispensed prescriptions are covered by managed care, and we recently presented 2-year findings demonstrating the impressive long-term efficacy profile of SILIQ. Dermatology pricing is continuing to stabilize.

Finally, advancing innovative new products through our pipeline will be the key growth driver of the dermatology business. In addition to the filing acceptance for IDP-118, we submitted IDP-121 for acne to the FDA and are preparing to submit IDP-122, another psoriasis product, by the end of the year.

Turning now to our manufacturing facilities. Our focus on and investment in supply chain and quality leadership has made a huge difference. A year ago, Rochester, New York and the Bridgewater, New Jersey facilities were operating with warning letters related to quality control manufacturing practices.

Now we resolved the 2 warning letters, and the FDA has upgraded our Tampa, Florida facility from an OAI to VAI or Voluntary Action Indicated status. We've also made progress in simplifying our supply chain by reducing the number of manufacturing sites by 25% and discontinuing approximately 1,300 SKUs.

Finally, we've been able to deal with some of the legacy legal cases the company has been facing since before I joined in May 2016. We achieved dismissals and/or positive outcomes in 21 litigations and investigations relating to historical matters since the end of Q2, including the dismissal of action related to a September 2015 DOJ investigation regarding Bausch + Lomb and a settlement and dismissal of the Depomed/GLUMETZA royalty dispute relating to the royalty period starting in October 2013 through December 2015. Christina Ackermann and her legal team have done a great job resolving these models -- these matters.

On Slide 9, we presented Q3 revenue and adjusted EBITDA for each of the business segments. I want to call out the fact that Bausch + Lomb/International and Salix, which together represents 77% of our revenue this quarter, delivered strong top line performance for the second quarter in a row. Last quarter, these 2 businesses represented approximately 73% of revenues. Now they're at 77%.

I'll provide more comments on each of these businesses after Paul reviews our financial results. Now I'll turn it over to Paul.

--------------------------------------------------------------------------------

Paul S. Herendeen, Valeant Pharmaceuticals International, Inc. - EVP of Finance & CFO [4]

--------------------------------------------------------------------------------

Thank you, Joe. Before I get started, I do want to remind people what we mean when we talk about organic change. That means our actual results adjusted for fluctuation in FX rates, what we call constant currency, and further adjusted to remove the impact of divested assets or businesses. Organic change highlights the fundamental growth or decline of our go-forward businesses.

I want to start by providing a little color on the quarter starting with a walk down of the P&L on Slide 10. Total revenues were down 10% versus Q3 of 2016. Adjusted for FX and divested assets, again what we refer to as organic change, we posted a 4% decline in revenue.

We saw about 90 basis points of growth in realized net prices compared with the prior year quarter. And importantly, we saw improved net pricing in both the B + L/International segment and the Branded Rx segment. Total volumes declined nearly 5%, with 80% of that decline coming from the expected impact of the LOE asset shown in the appendix to the slides.

Setting aside the LOE assets, the balance of our business was basically flat with the third quarter 2016 as the growth in our B + L/International segment and the Salix business, which, as Joe said, together accounted for 77% of our revenues, were up 6% organically, offsetting volume declines in our Dermatology business and our Diversified segment.

Our gross margin in the quarter declined by some 330 basis points, mainly due to mix, unfavorable FX in our non-U. S. businesses and the impact of the $13 million settlement of the royalty audit on GLUMETZA. As Joe said that it's important the GLUMETZA settlement cover the period from 2013 through 2015, and it reduced our gross margin in the quarter by some 60 basis points.

The revenue declines in our Diversified segment, driven mainly by the LOE products, fed a roughly 630 basis point decline in gross margins in that segment, which accounts for the bulk of the company-wide reduced gross margin.

Selling and A&P together increased roughly 1%. You should recall that, in 2017, we have chosen to add to our sales forces in the Salix and women's health businesses, and the cost of those incremental investments more than offset other successful efforts to align our total selling and A&P costs with our current revenue levels.

G&A costs decreased by 20%. In the current year quarter, we had an elevated level of spending for outside services in support of our efforts to prepare assets for divestment and to complete the separation of previously sold assets.

Legal expenses also increased year-over-year. However, we incurred significantly less recruiting and retention costs in the current year quarter, which led to the favorable variance in G&A.

In R&D, our investment in the quarter was down some $20 million compared with the prior year quarter. Very important. As we go through the process of divesting assets, we have been terminating R&D projects related to those businesses. The process of redeploying those freed up resources has been slower than we would have liked, but we want to be deliberate to ensure that the mix of the continuing projects is consistent with our evolving view of priorities amongst our core business units.

To be very clear, we're not intentionally reducing our investment in R&D. We fully expect to spend more in 2018 than we did in 2016. With the impact of 2017 divestitures, we are simply experiencing a time lag as we work to reallocate resources to our list of potential projects. In the quarter, we posted adjusted EBITDA of $951 million.

Before I move on to the segments, I do want to spend a minute addressing how our GAAP net income flipped from a $1.2 billion loss in the prior year quarter to a $1.3 billion of net income in the current year quarter. There's a lot happening in both the prior year quarter and the current quarter, particularly with respect to our intangible assets, goodwill, contingent consideration and our tax accounts, none of which impact what we believe is our most important performance metric, adjusted EBITDA.

It's worth spending a minute or 2 on how these items impacted our Q3 2017 results. In this quarter, we reclassified Sprout as an asset held for sale. That triggered the write-down of intangible assets associated with Sprout and a goodwill impairment in our Branded Rx segment.

Additionally, we also had a reversal of the acquisition-related contingent consideration associated with Sprout. These items together significantly reduced our GAAP pretax income in the quarter. More than offsetting those pretax charges was the recognition of a significant income tax benefit in the quarter.

In the fourth quarter last year, we initiated a restructuring of our global organization with the goals of reducing operating complexity and strengthening our tax structure.

In Q3 of '17, we completed the restructuring, resulting in the reversal of certain deferred tax assets and liabilities, which resulted in the large tax benefit being recorded in the quarter.

I'm sure there'll be questions about the impairments of our intangible assets and goodwill and the tax recovery. I'll point you to the disclosures that will be contained in our 10-Q, which we expect to file shortly, and I'll emphasize, again, these items do not impact cash or our adjusted EBITDA.

With that behind us, let's turn to the segments, beginning on Slide 11. The B + L/International segment posted another solid quarter with organic growth of 6% versus Q3 of '16. Three of the 4 B + L businesses delivered organic growth led by Global Vision Care, up 8% organically, driven by 10% -- increase of 10% in volume and a 2% decrease in realized pricing; Global Consumer, which was up 6% organically all due to volume as prices were flat quarter-to-quarter; and Global Surgical, which was up 2% organically, up 4% in volume, offset by minus 2% in realized pricing. Our Global Ophtho Rx business was down 9% organically, but 7% of that was a volume decline driven by a reduction in U.S. pipeline inventories relative to Q3 of 2016.

The International grouping, containing all of our non-U. S. pharma businesses, grew 16% mainly due to 2 factors. First, we had a favorable comparison versus the prior year quarter when we absorbed a meaningful contraction of pipeline inventories in Eastern Europe, mainly Poland. And second, we realized higher, realized prices during the quarter, mainly coming out of Egypt, where were able to get governmental approval to increase prices to help offset the impact of the devaluation of the currency back in 2016.

Gross margins in this segment were down from the prior year about 70 basis points with FX being a factor. Selling and A&P expenses together were slightly unfavorable on a constant currency basis, about 1%.

I submit that our expense control across this segment has been quite good. In a nutshell, a solid quarter for the B + L/International segment.

On to the Branded Rx segment on Slide 12. Reported revenues were down 17%. However, the divestitures of Ruconest and Dendreon accounted for 10 percentage points of that decline. So the organic decline was 7%.

Organic growth in Salix of 6% and dentistry of 10% were more than offset by the 34% year-over-year decline in the Derm business. The main issue with our Dermatology business continues to be a difficult reimbursement environment for our legacy products. The good news is that pricing of the business has stabilized. Realized prices across the Dermatology business were flat compared with the third quarter last year.

Sequentially, unit volumes improved slightly, but compared with the year ago, volumes are up more than 32%. Note that the third quarter's typically the strongest seasonal quarter for our Derm portfolio, particularly our acne products, so keep that in mind when you're thinking about Q4.

With realized net pricing stabilizing, we now shift our attention to driving volume increases for our legacy portfolio, having a successful launch of SILIQ and being well prepared for future launches coming out of our R&D pipeline such as IDP-118, IDP-121 and IDP-122. The factor that will change our outlook in Dermatology is innovation, and we're fortunate that we have a panoply of late-stage derm R&D projects that can put us in position to return this important business to growth mode.

The largest component of our Branded Rx segment, Salix, grew 6% organically, up 10% in pricing and down 5% in volume. The 2 main drivers in Salix were XIFAXAN and GLUMETZA. XIFAXAN was up 5% year-over-year on an 8% increase in realized pricing, offset by a 4% reported decline in volume. The difference between reported 4% volume decline and the plus 3% year-over-year growth in extended unit TRx with XIFAXAN is fully explained by a relative contraction in pipeline inventories.

GLUMETZA sales remain strong right until the end of the quarter, at which time we saw demand shift away from our brand to our authorized generic that is in our Diversified segment. Dentistry revenues in the Branded Rx segment were up 10% organically mainly due to our relaunch of Neutrasal.

Branded Rx selling and A&P expenses together increased by 5% or about $6 million. As I said, when looking at our consolidated results, this is mainly due to the increased cost of the Salix and women's health care sales forces, offset in part by successful efforts to rationalize costs in Ortho Dermatologics.

On to the Diversified segment on Slide 13, where the story of the roughly 29% year-over-year decline are 2 things. First, the LOE assets, which accounted for 18 percentage points of the decline; and second, our generics business, where we saw the predictable declines associated with that portfolio.

On to Slide 14, where we continue to make -- which is the balance sheet, where we continue to make progress reducing the quantum of our debt through cash generated by the business and asset sales. I'd point out that we ended the quarter with a high cash balance with the proceeds from the iNova sale sitting in cash at quarter close.

Subsequent to September 30, we used $923 million of the iNova proceeds to repay senior secured term loans. And last week, we used another $125 million of cash to prepay more senior secured term loans.

Moving to Slide 15. This shows a pro forma snapshot of our debt maturities and mandatory amortization as of today. Key takeaways. We have no mandatory amortization remaining on our term loans and our next debt maturity is out in 2020.

Managing our debt load requires that we continually look for ways to address our debt stack in 2020 and beyond. The good work we've completed over the last, say, 6 quarters has provided us with the time and flexibility to be successful in managing through a challenging situation.

Next, our cash flow summary, Slide 16. I'm going to repeat a couple of things Joe mentioned because they're important. We generated $490 million of cash from operations in the quarter; and year-to-date, we generated more than $1.7 billion. An important part of this effort has been a focus on improving our working capital efficiency, and we made excellent progress there.

From September 30 of '16 to '17, we reduced our working capital by roughly 45 days and our inventory by more than 30 days on hand. Working capital efficiency is a high priority for us, and we intend to make additional progress on this front to unlock cash from the balance sheet that we can use to reduce debt.

Turning now to our guidance slide, Slide 17. Today, we revised our revenue and adjusted EBITDA guidance to reflect the impact of the closed iNova divestiture, the imminent Obagi divestiture and for a modest improvement in the outlook for the basket of LOE assets detailed in the appendix to our slides.

The balance of our business is tracking slightly ahead of our expectations, and we've narrowed our guidance ranges to $150 million for both revenue and adjusted EBITDA. Our revised guidance for 2017 is for revenue in the range of $8.65 billion to $8.80 billion and for adjusted EBITDA in the range of $3.60 billion to $3.75 billion.

We are pleased that we are able to maintain our guidance for adjusted EBITDA despite adjusting for the iNova and Obagi divestitures. We've also updated key assumptions for expense categories, noncash adjustments and additional cash items, so that you can update your models.

Two quick last things before I turn it back to Joe. In response to feedback we received from many of you, we've changed the format of how we present the impact of the LOE assets on 2017, so that you can see the sales and profits from these products in 2016 and the sales and profits that we expect in 2017, not the change versus '16.

To be clear, there is no change in the underlying LOE data other than the update to the estimate for the full year 2017. We simply changed the form of how we present the information with the intention of making it more straightforward for you to come to points of view about how both revenues and profits may carry forward beyond 2017.

We also added a slide in the appendix to show you the amount of revenue and profits associated with assets divested in 2017 that are expected to be included in our reported 2017 results. This is intended to make it easier for you to isolate those 2017 revenues and profits as you model our go-forward business.

With that, I turn it back to you, Joe.

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [5]

--------------------------------------------------------------------------------

Thank you, Paul. The chart on Slide 19 has been updated from last quarter to show the progress we've made in closing the previously announced divestitures.

As you can see, we have now closed 11 of the 12 previously announced asset sales, and we're expecting to close Obagi very soon. As we transform Valeant, we continue to focus our resources on core businesses because we believe these are the areas where we can best drive value for our shareholders, customers and patients.

On Slide 20, third quarter revenues for Bausch + Lomb/International segment were $1.254 billion. The business is growing organically 6%. To me, the chart on the right of the Page 20 says it all for Bausch + Lomb. We've taken a business that was declining to flat a year ago and delivered 3 consecutive quarters of 6% organic growth.

Bausch + Lomb's presence is also growing on Amazon, with a remarkable 69% growth year-over-year. This is a strong indicator of the strength of the Bausch + Lomb brand.

Staying with Bausch + Lomb, we provided update on our Consumer and Vision Care business. To call out a few highlights. First, in the international markets, Bausch + Lomb is the #1 Vision Care brand in China, and it's outgrowing the category with a 5-year CAGR of 20%. Our OTC eye drop franchise #is 2 in China, with a strong annual growth rate of 19%.

In the U.S., consumer revenues are up 9% organically year-over-year, and the chart in the right shows in the third quarter performance for U.S. Consumer health care companies. While the health and beauty category was down 2.8% in the aggregate, B + L is one of the clear leaders in the category, up 2.5%.

On Slide 22, we announced last week that VYZULTA had been approved by the FDA. This is the first novel treatment for patients with glaucoma in over 20 years. VYZULTA is indicative for the reduction of intraocular pressure in patients with open-angle glaucoma. What differentiates VYZULTA is that is the first prostaglandin analog with one of its metabolites being nitric oxide.

The efficacy and safety of VYZULTA was evaluated in 2 randomized multicenter studies and also in a Phase 2 versus latanoprost. As the chart on the right demonstrates, latanoprost, or Xalatan's generic equivalent, still account for 2/3 of the market.

So why are we excited about VYZULTA? Because globally, glaucoma is a large market opportunity and it's expected to grow at a CAGR of 15% over the next 4-year period. As the first novel treatment in 2 decades, we believe there is great opportunity for VYZULTA.

Moving now to Slide 23 for the update on our Salix business, which generated $452 million of revenue, was up 17% from last quarter and 6% year-over-year excluding divestitures.

A few highlights on XIFAXAN. Revenues sequentially increased 23% from $233 million to $286 million in the quarter, and 5% versus a year ago. XIFAXAN TRx extended units grew by 3% versus third quarter 2016 driven by the IBS-D in Primary Care. And market shares continue to grow, it's up 400 basis points from 73% to 77% since the first quarter of 2017.

Finally, the expanded sales force effort we made in Primary Care contributed to strong growth in TRx volume and new Rx share growth. As you can see from the chart in the upper right, which highlights a 1,300 basis points increase in new Rx share since the addition of the sales force team in Primary Care and February.

Moving on to our other GI promoted brands. RELISTOR prescriptions grew 61% compared to last year. In the lower right-hand corner, you can see how the increased effort from the sales force expansion in Pain and Primary Care is driving RELISTOR oral tablet growth.

On to Slide 24. The Ortho Dermalogics business generated $148 million of revenue compared to $130 million last quarter, but was down 34% versus a year ago. Advancing innovative new products to our pipeline will be the key to growing our Dermatology business, and we believe that the products in our pipeline over the next 5 years can double the size of our Dermatology business.

The U.S. launch of SILIQ in third quarter demonstrates the strength of our strategy and execution. Early market access is better than expected, and we are continuing to expand and gain additional coverage. Efficacy, durability of efficacy, low induction cost per patient are resonating as key points of differentiation for SILIQ.

Since the launch, approximately 75% of the patients have been commercially covered by managed care. 98.7% of physicians that have been detailed have agreed to be REMS certified, and there are 371 physicians who've already completed their certification process in the first 2 months.

I want to highlight the next potential product in our psoriasis pipeline on Slide #25, IDP-118, an investigational topical treatment for plaque psoriasis. The FDA accepted a New Drug Application for IDP-118 with a PDUFA date of June 18, 2018. If approved, IDP-118 will be the first and only topical lotion that contains a unique combination of halobetasol propionate and tazarotene.

Why is IDP-118 important? Existing super-high potency steroids have a 2-week treatment duration limit. In clinical trials, we dosed IDP-118 for up to 1 year. IDP-118 has the potential to be the first high-potency corticosteroid combination for longer-term treatment of psoriasis.

Moving on to Slide 26. We expect 50 new product launches in 2017, including the launch of RELISTOR, SILIQ, the Bausch + Lomb ULTRA and Biotrue ONEday lenses and VYZULTA. I'm delighted to mention another approval recently approved for the Retin-A Micro 0.06% pump, which will be an important line extension in our strong acne franchise. New product launches are expected to generate more than $100 million of annualized revenues in 2017 and, importantly, drive sustainable long-term growth.

On Slide 27, we have an R&D update. As you know, we made significant divestitures over the last 6 to 8 months. As a result, we are refocusing our R&D efforts on those products and businesses that we have identified as core. Therefore, R&D investments for the quarter was lower than expected. That said, as we rotate investment back into the core businesses, we are focused on putting capital into the right projects, which will result in long-term growth opportunities.

On the left side of the page, we review a few of our global R&D catalysts that we will launch in the U.S. and then later introduce globally. On the right, we summarize later-stage R&D pipeline. To call out a few, we have launched 5 new products across our businesses, 2 new contact lenses, 2 surgical vision systems and an innovative biologic treatment for psoriasis.

The development of new products will drive future growth and enable us to deliver on our mission of improving peoples' lives and delivering total shareholder returns.

Turning to the next slide, one area that has been critically important for me since I joined the company is delivering on the commitments to our stakeholders. We have taken and will continue to take action that drives shareholder value and benefit to our -- all of our stakeholders. This includes improving operational and commercial excellence, reducing our debt, effectively managing working capital and launching new products.

To date, we have fulfilled our commitments in each of these areas by organically growing 77% of our business by more than 5% in the past 2 quarters; by exceeding our commitment to pay down $5 billion of debt sooner than we expected; by reducing inventory on hand, simplifying our supply chain and discontinuing more than 1,300 SKUs; and finally, by launching new products and advancing promising projects through our pipeline.

In conclusion, our strong third quarter results demonstrate that the actions we are taking to move us forward in our efforts to turn the company and transform the (inaudible) several quarters of flat to declining growth. Our largest segment, Bausch + Lomb/International, has been growing 6%. We've built a Primary Care sales force that is driving the growth of the Salix business. Ortho Dermalogics continues to stabilize, and I'm optimistic about the potential pipeline opportunities for acne and psoriasis.

We have taken action to address the quality and efficiency issues at all of our manufacturing sites. We remain committed to investing in innovation as the foundation of our future growth. And finally, we will continue to hold ourselves accountable for delivering on our promises to better serve our customers, employees and shareholders.

With that, operator, let's open up the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Umer Raffat with Evercore ISI.

--------------------------------------------------------------------------------

Umer Raffat, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [2]

--------------------------------------------------------------------------------

I wanted to focus on 2 topics, if I may. First, just on Bausch + Lomb. I was looking at the organic growth estimates, and one of the questions I had was how much of the year-over-year growth is coming from the channel refill in Eastern Europe? Just wanted to understand and quantify that, if I may. And just to put it in the context of 6% year-over-year growth reported for the Bausch segment. So this is, again, from the Eastern European and international channel refill. And the second one is maybe for Paul. Paul, can you help us understand exactly what the year-over-year -- so if I just take the latest quarter's EBITDA, annualize it, how much of a year-over-year, like going into 2018, LOE impact would you guide that to? Because I see that slide you guys put up in the appendix, and I just want to make sure I fully understand what's -- what you guys are baking in versus not.

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Umer, I'll take the first part of the question. And then, Paul, I'll turn it to you for that second part of the question. Well, I mean, first of all, if you think about what's happening with Bausch + Lomb, you can see that all of the businesses, with the exception of the Ophtho Rx, are growing organically. So we have the Global Vision Care at plus 8% organically, there's Global Surgical at plus 2%, the Global Consumer at plus 6%. Those together account for a fairly large part of the, let's call it, more than the 50%, 60% of our total business in the Bausch + Lomb/International segment. So that's clearly the largest part of the business. There is some significant international revenue growth, and I think as Paul said that the restocking of Poland did help that international business. But we also got some significant price appreciation in Egypt as a result of the some of the currency devaluation that has occurred previously. So I think it's been a combination of factors. I don't have the specific impact of the international side, but I would say a large part of that international growth, going from the $327 million to the $344 million, or let's call it the $17 million, a large part of that is result of some of the restocking but also the Egyptian currency devaluation and the price increases there. That's really the majority of that portion. But you can really quickly -- because of the way we've done it, you can really look at it by each of the individuals. We give you exactly the sales numbers and the actual growth rates. So it gives you a chance to break it out, to answer exactly the questions. I just don't want to give you the math as I'm sitting here right now.

--------------------------------------------------------------------------------

Paul S. Herendeen, Valeant Pharmaceuticals International, Inc. - EVP of Finance & CFO [4]

--------------------------------------------------------------------------------

Umer, it's Paul. I can do the math because I have those kind of worksheets in front of me all the time. About 30% of the volume pickup in B + L/International was related to the pipeline activity. So 70% of it came -- 70% of the volume pickup in international came from other than the pipeline. Surely, we benefited from it. That's why I called it out in my remarks. Second -- the second question you had was how do you think about using the revised presentation of the LOE assets. And what I would say is now we're showing that, that basket of LOE assets -- very specific baskets, like the products included in that basket, have not changed. We expect to have sales in our 2017 results totaling approximately $524 million in profit, which I don't have that slide right in front of me right now, but the associated profit. It won't go away in its entirety in 2018. We're also not providing guidance today on 2018, but that's certainly -- a solid portion of that will carry forward into 2018 and potentially beyond. I mean, while they're LOE assets, they won't go to 0. They may asymptotically approach 0, but they won't go to 0. I hope that answers. And if it doesn't, I'll hopefully see you at lunch later, we can talk more.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

Your next question comes from Gregg Gilbert with Deutsche Bank.

--------------------------------------------------------------------------------

Gregory B. Gilbert, Deutsche Bank AG, Research Division - MD and Senior Analyst [6]

--------------------------------------------------------------------------------

Paul, I know you're not looking to give guidance for 2018, but can you offer any observations as you consider how people are modeling it and things you'd like to point out now to avoid any confusion as we head into '18? And maybe kind of offer some preliminary thoughts on the items in tax reform that you have an eye on that could be issues for Valeant.

--------------------------------------------------------------------------------

Paul S. Herendeen, Valeant Pharmaceuticals International, Inc. - EVP of Finance & CFO [7]

--------------------------------------------------------------------------------

Yes, sure. I mean, let me address first thinking about '18. Obviously, as I said, we're not providing guidance for '18. That said, I mean, in the spirit of transparency, and as I said, we're being responsive to feedback that we got from number of investors, we've added -- I've added, and we changed the presentation of that LOE slide and we've added a slide to show you exactly the -- exactly, the estimates of what we expect revenue and profits will be from divested assets included in our actual 2017 results. And so using your own estimate of 2017, you should be able to pull apart and get rid of the divested assets. And then as Umer was -- the road Umer was going down, come to your own points of view about how to think about that basket of the 2017 LOE products, how that $524 million translates into 2018 and, as I said, potentially beyond. So the pieces are all there, but I'll give you one qualitative point, which I'm very comfortable making the statement is, to set aside the LOE assets, set aside all the divested assets, we are confident that the base business, the business that we manage, the business that we can control and manage and drive fundamentals for, will grow in '18 v. '17. That's our core businesses. And so that, I hope, provides at least a framework for how you might think about 2018. The tax reform thing like, gee, it came out last week. And while there's a lot there, in the proposal obviously contains several provisions that could impact on our go-forward tax rate. And before I get into those 3 areas, I'll just point out none of this is final. And all companies, including us, are guessing at this stage how it might impact our situations. You've heard me say in the past I think one of the best features of our global structure is our flexibility, and it affords us the ability to respond to changing environments. So that's good news, and we will need that flexibility depending on how this shakes out. With respect to the proposal, there were 3 major areas that could impact us, and I'll list them kind of in order of potential magnitude. The first is the proposal contains a 20% excise tax on payments made by U.S. entities to related foreign companies. If this is enacted just that way, this is going to be a problem not just for us, but for any multinational companies, U.S. or otherwise, that do business in the U.S. and have manufacturing and intellectual property located outside the U.S. That one's going to be one that we're going to need to work on. And by the way, that's not -- it's not known how that'll sort out. I think there was a Chairman's amendment as recently as yesterday that further modified the proposal. So we're all scrambling to try to understand that as well. The second thing that I'd point out is it also contains a mechanism for taxing unrepatriated foreign earnings of U.S. entities. Now while we are a Canadian company, we do have U.S. entities and we do have entities that are below that U.S. entity, where we do have some repatriation issues. I'll say that, ultimately, this is not going to be an enormous amount of -- depending on how it plays out, an enormous impact on us, but it's not 0 either. It will result in incremental tax to us, not reported in our GAAP tax rate, but it will be cash that would be paid. Not of a great magnitude. I think the current proposal, that could be paid over 8 years and so not that big a deal. And the last part of the proposal that could impact us would be the limits placed on the deductibility of interest on intercompany debt by U.S. entities. Again, I'm just going to say it's very, very early days here. And what the final legislation might look like when it comes out of the House is anybody's guess. But based on what's proposed now, the 20% excise tax would present our biggest challenge. And I'm certainly glad that we have a flexible structure that will enable us to do the things that we can do to appropriately manage our overall global tax rate.

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [8]

--------------------------------------------------------------------------------

The only comment I'd add to what Paul said, Gregg, is I think, clearly, we're not going to provide 2018 guidance. But the key variables for us and for all pharmaceutical and health care companies has always been come back to the new products. Fortunately, we've got a number of over 50 launches in 2017 in new products, products including RELISTOR, SILIQ, VYZULTA, the RAM or Retin-A Micro 0.06%, Stellaris Elite, Vitesse, the Ultra Toric multifocal. And then rolling into 2018, we're going to have products like the IDP-118 if approved, PLENVU if approved, Si-Hy daily, Luminesse if approved. So we've got a number of good opportunities for the new product side as we think about 2018, and I think that's going to be an important driver for us.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Your next question comes from Louise Chen of Cantor.

--------------------------------------------------------------------------------

Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [10]

--------------------------------------------------------------------------------

So I'm just curious, what gives you confidence that you can enhance equity shareholder value given the large amount of debt that you have to pay down? And what are some of the key growth drivers that you feel good about right now as the base business actually is stabilizing? And then are you still considering creative ways to lower your leverage ratio?

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [11]

--------------------------------------------------------------------------------

Well, let me start. And then I think, first and foremost, what we've done since I arrived and since Paul has arrived is really focus our attention towards what are the key growth drivers for this business, which in the health care is always going to come out with new products. So we continue to look at these new products, introduce new products, get new products through the pipeline. As I said, we're really excited about product -- a product like VYZULTA. If you look at what -- the market today for glaucoma, it's a large market. It's a growing market. And the reality is that 2/3 of the market in the U.S. at least is either a Xalatan or a generic equivalent to Xalatan. We have a dual mechanism of action that includes the latanoprostene, but also has the nitric oxide donation. That dual action is really what we think is going to be important. If we go through -- the same comments for IDP-118. The facts are that the current treatment of psoriasis were the topical products, but the super-high potency steroid are limited to a 2-week duration because of the potential effects on the thinning or attribute of the skin. We believe that based on what we've submitted to the FDA, if approved, this could be a game-changer with IDP-118 because of the ability to use it for a longer duration. Those are the types of reasons why we think that we've got a very strong business and good, strong growth opportunities. Clearly, we're seeing the results with XIFAXAN in our incremental promotion efforts. So we put those forward as ways that we could help drive the bottom line of our business, increase our EBITDA. And as that EBITDA comes forward, reduce our debt. Final comment I'd say is if you look at what Paul and Linda have done in terms of moving out the debt, we've done a lot to take the debt, push it out further. So there's no debt due between now and 2020. That gives us the, what I call, freedom to operate to ensure that, over the long term, we can drive shareholder value for the future. So to me, that's really the game plan. Grow the base business, launching new products and then, obviously, take the bottom line, look at the improvements we made in working capital and put that towards debt reduction, which makes us a stronger company for the future.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Our next question comes from Annabel Samimy of Stifel.

--------------------------------------------------------------------------------

Andrew Abriol Santos Ang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [13]

--------------------------------------------------------------------------------

This is Andrew in for Annabel. So my question is so SILIQ appears to be getting strong reimbursement and good feedback, but we're still seeing an extremely competitive environment in psoriasis with some competing products. Specifically, (inaudible) rebate pressure. When we think about next year, can SILIQ offset the declines in Derm and expected LOEs by next year? Or do we have to wait until 2019 when other products are on board? And if I could squeeze in another one. Your near-term debt goals have been met and you still have strong cash flow. So can you be more constructive on capital allocation now that you refocus on -- to refocus on operational investment or business development? Or are you still more focused on balance sheet strengthening? And do you have a plan -- do you have another debt pay-down target?

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [14]

--------------------------------------------------------------------------------

Okay, well, I'll take the first one, and then, Paul, you take the second one. Let me start with we're very pleased with SILIQ. We knew that the update for SILIQ was going to be slow in the sense that, well, we knew that we had to put physicians, get them through a REMS certification. We're doing that as we speak. And as I said, we have over 371 physicians already REMS certified. We think that's an important first step. We are seeing patients in terms of -- as they enroll. We're seeing the usage of product. We think the important comment about SILIQ is that the long-term value of it is really going to be in the rapid onset of efficacy with the product and then the long duration of efficacy. Because once again, we are the receptor blocker versus the other products that inhibits the enzymatic pathway around the inflammatory factors. We block the receptor. We think that's what's good for the long term. The only other comment I would say on 2018 is, clearly, the other areas that we are looking for growth in the Dermatology business is the IDP-118, first and foremost is being approved -- or has a PDUFA date in June 18, 2018. We think that would be potentially a contributor to our long-term growth of the Dermatology business, especially based on the comments I made before in terms of it being a unique product potentially with the opportunity to use longer duration of therapy than previous high-potency corticosteroids. And then obviously, we have the Retin-A Micro 0.06% as another way to strengthen our acne. So we think it's the combination of all those activities that are really going to help us to grow the Dermatology business. And importantly, as I said before, we have enough products in our pipeline over the next 5 years that we believe double the size of the business based on where it is today. Paul, you want to talk about the capital allocation?

--------------------------------------------------------------------------------

Paul S. Herendeen, Valeant Pharmaceuticals International, Inc. - EVP of Finance & CFO [15]

--------------------------------------------------------------------------------

Sure. If I may, I may just spend 2 seconds on the Derm as well. Because I think that, one, we have the opportunity to deal -- we have a very attractive legacy portfolio. We watched it, obviously, face a very difficult reimbursement environment as I said in my prepared remarks. I mean, we've seen stabilization of our realized net pricing. And now that becomes a volume game. And it becomes a game where, over a period of time, we would expect to maximize the value of that legacy portfolio. We're not just turning away from it. I think there's real value there. And as Joe said then you lay on top of that in -- looking ahead to '18, again, not providing guidance but stating that we've got SILIQ, you've got IDP-118, you've got RAM 0.06%. I mean, we've got a number of new products that we would expect to help us turn that franchise back to a growth mode, and we think we have great opportunity with Ortho Dermatologics. On the balance sheet, you hit it, Andrew. You hit on a topic that's very challenging going forward. As I said at all times, is -- first, if you had a list of 5 priorities, the first 4 are generate cash to reduce debt. That's top of our mind for sure. That said, we do come across some modest, and I -- emphasis on modest or even call them small-sized opportunities to use capital to acquire rights, to lay things into our R&D pipeline and all. And so to the extent that we see those things, we're likely to pursue them if they make sense. And I think that you should be encouraged as either debt or equity investors that as we think about deploying that capital to those sorts of activities, we have a very tight screen. We have to. We have a priority of reducing our indebtedness. We're not going to establish a new debt pay-down structure, and kind of responding to both yours and a bit to Louise's question as well, is we feel like a year ago, it was mandatory that we pursue divestitures in order to be able to reduce the quantum of that debt and make progress against reducing the quantum of debt. Sitting here today, I think we think of our go-forward position on future divestitures for pay-down as being more in the opportunistic category. We don't have to. However, we do have a well-defined point of view with respect to the value of each and every one of our business units. And to the extent that someone picked up that phone and called us and said, gee, I want to own that asset, and that we think that asset is worth 100 and they say they're willing to pay 120, we're going to entertain that and probably sell that asset. But it is more opportunistic than, I would say, a year ago when it was pretty much mandatory that we pursue the divestiture of a number of assets.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Your next question comes from David Amsellem of Piper Jaffray.

--------------------------------------------------------------------------------

David A. Amsellem, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [17]

--------------------------------------------------------------------------------

So I got a couple of XIFAXAN questions. So I realize that the NRx share has grown based on the chart in Slide 23. But it does look like overall volumes year-over-year are kind of stuck in the single-digit range. So do you feel that you're getting enough out of the Primary Care sales force? And then secondly, what are your expectations for 2018? Do you still think that you can get an uptick in sales? Or are we looking at more of a maturing type of landscape for XIFAXAN? And then lastly, in terms of gross-to-nets, maybe give us some color on what you think 2018 might be for the product as well?

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [18]

--------------------------------------------------------------------------------

Okay. I'll start and I hope I get all the pieces that you said. So first and foremost, as I said, we think we're going to get single -- we've been at single-digit growth in the business in terms of what we've seen historically. I think what we've tried to do, and looking at Primary Care though, is really open up for a very large opportunity as it would relate to the IBS-D category. We're seeing in IBS-D an opportunity to grow -- significantly grow our share in that category, and we've not yet saturated that market anything close to it. We think there's a lot more opportunity there in IBS-D. When we looked at the Primary Care team we put together, it was 200-plus sales professionals. We looked at it from a return on investment point of view, and we're going to always continue to look at it that way. We're pleased with the results we're seeing already. Obviously, the teams got to continue to develop. They've only been out there as of the date that we presented really for about 8 months. So we think we're still in the early stages of the success of that. We think that will continue to accelerate for 2018 and beyond. So that brings me to that part of the question. Where do we see growth in 2018 and beyond? We think there is an opportunity to have a growth in volume. We're not going to give guidance specifically now, but we think that the volume will go up. We also think that there is an opportunity to have, what I'd call, a single-digit price increase, which, in my mind, if I use 8% just for the sake of argument, I'm not saying we're going to be increase prices 8%, we'd get about 4% pricing. In other words, we get about half of what we put forward as a gross price as a net realized price is the logic we have. We're not, once again, saying what prices will do next year. On the comment on gross-to-nets, my comment on gross-to-net is there will always be additional pressure on gross-to-net. We're somewhere -- in the GI category, somewhere in that 40% gross-to-net. Do I believe it's somewhere around that next year? The answer is yes. It's been relatively consistent. We -- in the time I've been with the business, 2016, 2017 is approximately that 40% gross-to-net. I expect it to be relatively consistent with that going into 2018 and beyond as well.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Your next question comes from Dave Risinger of Morgan Stanley.

--------------------------------------------------------------------------------

David Reed Risinger, Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst [20]

--------------------------------------------------------------------------------

In terms of questions, so first, could you just talk about fill rates? How you're experiencing fill rates in the U.S., whether there are any changes. We're hearing from some other companies that they are experiencing some fill rate pressure. Second, could you just update us on your focus on resolving litigation issues and, I don't know, key areas to watch in the near term? And then third, if you could discuss cost-cutting opportunities ahead. I'm not clear on where you are in rationalizing the cost structure.

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [21]

--------------------------------------------------------------------------------

Sure. So I will say on this question of fill rates and what we're seeing in our -- the people picking up our prescriptions, we do have the data. We are looking at -- what I'd refer to all of that is really compliance and how patients are filling their prescriptions. We check that, especially in all of our chronic medications, XIFAXAN for example. We have put together a number of programs where we think we're trying to put programs in place that improves the patients' compliance. Those types of programs that -- especially as you do them with specialty pharmacies like we do with SILIQ, are all designed to try to help patients and make sure that we improve that. But we -- it is something we're keeping our mind on. We're not seeing a lot of challenges there, but it is something we're keeping a look on all the time, David. On the question of resolving litigation, what can I -- I don't know if I can say much more than what we've done in the presentation. Christina Ackermann and her legal team have just done an outstanding job. If you think about from the second quarter earnings call to now, resolving 21 litigation or legal matters we think is an outstanding achievement and very much credit to the team that's done that as we've worked our way through it. The issues that we've identified, I mean, each one of them are in the slides, I think are all very important matters for us. I mean, if you think about the -- we had a GLUMETZA case that got identified. We've been working with them. For some reason, they filed a lawsuit. We did solve that though very quickly, got it behind us and that's really the important way that we're approaching it. Where we can get these resolved, we're going to get them resolved, move forward with all of our litigations. But obviously, defending our cases rigorously where we believe we have the right answers and we're going to do that, and that's whether it's any kind of litigation or intellectual property. On the last part of your question on cost-cutting, we've done a lot. We've taken out operating expense nearly $100 million from 2016, 2017. As we look at the divested assets that we have in 2017, we're going to continue to look at where can we reduce the operating expenses of the company to make sure that we put it towards, what I've referred to before, the core business. Places where we think we have the best return on investment for our growth is really we're going to focus on for our cost-cutting. Obviously, as you divest a product like ADDYI, there is -- which was a negative EBITDA, that will be a positive or certainly neutral for 2018 as we no longer have that asset. So those are some of the things that I would say on our cost-cutting relative. I think that's about as far as I can go on -- can't say too much more about '18.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Our final question comes from Chris Schott of JPMorgan.

--------------------------------------------------------------------------------

Christopher Z. Neyor, JP Morgan Chase & Co, Research Division - Analyst [23]

--------------------------------------------------------------------------------

This is Chris on for Chris. First one's on Salix. Recently, you had adverse District Court ruling on the patent for UCERIS. Could you just talk about the impact of that for Salix, and maybe the timing and overall expectation for a competitive product launch? And then secondly, on Ortho Dermatologics. Could you maybe talk about IDP-121 and 122 and how you see those fitting into the marketplace over time? And then also, bigger picture, how are you thinking about peer access and pricing given current pressures in the derm market?

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [24]

--------------------------------------------------------------------------------

Okay. I'll do my best to catch all 3 of them. So let me start with the UCERIS question. As you know, there was some intellectual property challenges on the UCERIS. The judge issued his opinion in late October. We have looked at that opinion. We certainly plan to appeal that ruling on the opinion of the judge. However, I think it's important to say that in any product case where certainly there's intellectual property, another important aspect of that is whether or not a company or one of the generic companies has an approval. To our knowledge, according to FDA publications, no company currently has an FDA approval to market a generic version of UCERIS. We think that's an, probably, as important part of this question as we think about whether or not somebody can come to the marketplace. So we are looking at the intellectual property. We will defend our intellectual property. But the other important comment certainly is the lack of any regulatory approval at this time relative to a generic ability to market a generic version of UCERIS. On the question of the Ortho Dermalogics business, once again, we're excited. We think 121 and 122 in addition to 118 are all very good opportunities for us. We have 121, it has, as I mentioned in my public comments, we've had a chance to file that one for acne. We do think it has a very good opportunity to continue to expand our Retin-A portfolio with a new formulation. And then 122 as a product is a, once again, it's a high-dose or high-potency corticosteroid in a very unique formulation that's got very good results. You can see some of the results of -- as I presented 118, 122 is a component of the 118. So we think that's the other reason why we have a high-potency corticosteroid opportunity that has a very unique formulation that we think is going to help for those patients with psoriasis. And the final question was on pricing. I'm sorry, repeat the last part of the pricing question?

--------------------------------------------------------------------------------

Christopher Z. Neyor, JP Morgan Chase & Co, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Yes. So I guess, for the topical ones that you have in dermatology, how are you thinking about peer access and pricing just given current dynamics in the derm market?

--------------------------------------------------------------------------------

Joseph C. Papa, Valeant Pharmaceuticals International, Inc. - Chairman & CEO [26]

--------------------------------------------------------------------------------

Sure. Thank you. Sorry, just the 3 questions, I got the first 2. I knew it was pricing. On the question on pricing, we haven't set any pricing to be clear. But think of it this way, and I'm going to start with IDP-118 because I think it's probably the easiest way to start. Unfortunately, patients with psoriasis need long-term chronic treatment. Many patients go on to biologics. If we, with IDP-118, can offer patients either a delayed start to the biologic and/or for that patient who's on biologic but unfortunately still has a breakthrough and, let's call it, on their elbow just for the sake of argument, and they can treat that breakthrough in that area by the use of the IDP-118, that's, we think, a very significant opportunity for the patient to get the 100 -- potential 100% clearance to the skin. Obviously, we are going to SILIQ. We do think we have good efficacy and a PASI 100. But just some of the drugs, they don't have the PASI 100 results. Therefore, we think we can supplement the biologic with our product potentially, depending on FDA approval, and allow the patient to get that better clearance for their skin. So relative to pricing, we haven't set any specific pricing, but we do think there's opportunities there, especially to make our products very cost-effective versus the alternative for patients who have psoriasis. That's probably about as far as I can say right now on pricing. We'll have a lot more to say as we bring out these new products.

But let me conclude with thanks everybody. Thank you very much for joining us today. We're really excited about the opportunities in front of us. I think you could hear the excitement from myself and from Paul. We want to thank all of the employees, the Valeant organization for what they've done to help continue to build the strength of this business and turnaround the Valeant company.

We'll conclude the call right now. Thank you. Thank you very much for joining us today. Have a great day, everyone.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.