Bausch Health Companies Inc.
Q4 2014 Earnings Call Transcript

Published: 24 Feb 2015

[Operator:]

Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant Pharmaceuticals Q4 and Full Year 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] Thank you. Head of Investor Relations Laurie Little, you may begin your conference.

[Laurie Little:]

Thanks Steve. Good morning, everyone, and welcome to Valeant's Investor Conference Call where we will be discussing our fourth quarter and full year 2014 financial results as well as the acquisition of Salix Pharmaceuticals. Presenting on the call today are Howard Schiller, Chief Financial Officer; who will present our fourth quarter results and first quarter guidance and J. Michael Pearson, Chairman and Chief Executive Officer; who will cover the recently announced acquisitions of Dendreon and Salix. Dr. Ari Kellen, Company Group Chairman, will be available for questions after our prepared remarks. In addition to a live webcast, a copy of today's slide presentation can be found on our website under the Investor Relations section. Before we begin, our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. Now please note that the tender offering connection with the Salix merger has not yet commenced and our communication is not an offer or solicitation on an offer to purchasing a security. On the commencement date of the offer, an offer to purchase and other related documents will be filed with the SEC and the tender offer will only be made pursuant to those documents. Investors and security holders are urged to read both the tender offer documents and the solicitation recommendation statement regarding the offer when they become available and are filed with the SEC as they will contain important information. 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. And with that, I'll turn the call over to Howard Schiller.

[Howard Schiller:]

Thank you, Laurie. Good morning, everyone. And thank you for joining us. Yesterday, we announced very strong financial results for the fourth quarter and full year 2014, as well as our agreement to acquire all the outstanding stock of Salix Pharmaceuticals. We plan to discuss three topics on today's call. First, discuss our strong fourth quarter financial results. We have much to talk about today, and we will not spend as much time on our full year financial results, but will focus our prepared comments on the fourth quarter results, which were very strong across all metrics, and ahead of our previous guidance. We have provided additional details of our financial performance at the end of this presentation for you to review at a later time. Second, we will provide you with Q1 2015 guidance. And lastly, we will discuss our recent announcements surrounding our acquisitions of Dendreon and Salix. We are pleased to report exceptionally strong results for the fourth quarter. For the quarter, our total revenue was $2.3 billion, an increase of 10% over the prior year, largely driven by exceptionally strong growth in many of our U.S. businesses, which more than offset the negative headwinds from foreign exchange in our ex U.S. markets. Our cash EPS was $2.58 a share, an increase of 20% over the prior year. Our GAAP cash flows from operations for the quarter was $816 million, an increase of 191% over the prior year. This increase included a $287 million gain from the Allergan investment, net of fees and out of pocket expenses, which we realized in the quarter. Adjusted cash flow from operations which excludes this gain was $624 million. We are pleased to have exceeded our Q4 guidance on every metric. Our original forecasts projected us to deliver organic growth greater than 12%, and we delivered 16% same store organic growth. Bausch and Lomb reported 8% organic growth for the fourth quarter and 11% organic growth for the full year, and we expect B&L to continue to deliver double digit growth in 2015. Our total revenue came in almost $100 million greater than our guidance, despite significant FX headwinds, and cash EPS was $2.58 versus greater than $2.55 cash EPS guidance. Adjusted cash flow from operations, excluding the Allergan investment gain, was $624 million, in line with our guidance of greater than $600 million. And finally, our restructuring and integration charges for the quarter came in at $47 million. Turning to organic growth, our overall same store total company organic growth, including generics, was 16% for the quarter. If we had excluded generics in Q4, total company same store organic growth would have been 18%. Many of our regions contributed to the strong total company organic growth with our U.S. business at 28%, total develop -- other total developed markets at 20% and our emerging market business at 6%, same store organic growth. Our same store organic growth for the year was 13%, and we expect continued, strong, double-digit same store growth in 2015. Same store organic growth excludes acquisitions for one year post close, and therefore Dendreon and Salix will not be included in this calculation. Dendreon and Salix however will be included in our pro forma organic growth calculation. B&L continued its strong growth performance, delivering 8% organic growth in Q4, 11% for the full year, and 10% organic growth since the acquisition in August 2013. Most of the Bausch and Lomb businesses continued their consistently strong growth patterns. Our surgical business however, had a weaker quarter due to a flat cataract surgery market overall, and declining sales of our Excimer lasers. In addition, we switched our Victus commercial model from a sales model to a lease model, which contributed to lower sales for the quarter. If you adjusted for the change in the Victus commercial model, sales were flat for the quarter. For the quarter and for the year, our surgical business continued to gain share in premium IOLs and in Femtosecond laser replacement. As promised, we are continuing to show revenue for the quarter and the year for our top 20 products. We are very pleased to report that all 20 products grew in the quarter over the prior year. The two new additions to the list this quarter are Jublia and Carac. It is truly exciting to see that Jublia was our fourth largest product in Q4, and recently reported weekly script trends showed 20,000 plus scripts. Carac delivered a very strong quarter based on 40% growth from sales of the brand and from the channel load of the recently launched authorized generic, which we manufacture. Also, just to point out in response to a few questions from investors, we've now included Wellbutrin sales on a global basis on this chart. Earlier in the year, the sales in our top 20 chart were U.S. only. As a percentage, our top 20 products represent 36% of total revenue in the fourth quarter, with top 20 growing 28% over the fourth quarter in 2013 and 20% on a full year basis. Our top 20 products continue to demonstrate the diversification of our portfolio with no product more than 4% of revenue. Similar to last quarter, the growth of our total product portfolio was driven by approximately 50-50 mix of volume and price. Highlights for our U.S. business and the rest of the -- the rest of the world are contained in the next four slides. Revenues for our dermatology business were very strong and increased 70% year over year. The outstanding work of our sales team's implementation of innovative marketing approaches, great leadership, a portfolio of great products, and our four new launch products have contributed to the turnaround and the outstanding results in our dermatology business in Q4 in 2014. Core products such as Zyclara, Elidel, and the RAM franchise continued their strong growth and Solodyn grew in Q4, and grew 5% for all of 2014, after a tough year in 2013. Jublia continues its rapid growth trajectory, and reported more than 20,000 weekly scripts for the last reported weekly sales report. This yields an annualized run rate of greater than $250 million for the product. Our DTC campaign continues to increase awareness with patients, as we are seeing primary care physicians representing approximately 40% of the script volume. I hope that you all saw our Super Bowl ad, which received 1.2 billion digital impressions, and it significantly raised the awareness of the product. LUZU and Retin-A Micro 0.08% continue to perform well, with script trends up 12%, and approximately 200% sequentially. Our consumer business revenue grew 6% over the prior year as we continue to out-pace the market. CeraVe remains the fastest growing major skin care brand with 49% year-over-year growth. Preser Vision also continues its strong growth trajectory with AREDS the number one selling vitamin skew, delivering 17% growth in the quarter based on consumption. The entire brand grew 14% year-over-year. Finally, our Bio True multipurpose solution delivered 7% growth over the prior year. Our prescription ophthalmology revenues grew 8% year-over-year with continued strong performance from Prolensa and the Lotemax franchise. Revenues for our contact lens business grew 13% year-over-year, our third straight quarter of double-digit growth. We currently have 10% of the U.S. contact lens market, a three point market share improvement since we acquired B&L. Ultra, while still not a significant contribute -- contributor to revenues due to production capacity constraint had $4.2 million in revenues for the quarter. We expect the first full production line to be validated in Q-2, followed by a second commercial line in Q-4. And finally, we recently agreed to a new strategic partnership with Vision Source, the largest doctor alliance group with 3,000 locations across all of our contact lens brands and solutions. I've already described the reasons behind the revenue decline in Q-4 for our surgical business. The cataract market continues to be fine in Q-1, but we expect the market to rebound to normal growth levels of approximately 5% later this year. As I mentioned earlier, our surgical business continued to gain share in premium IOLs and in femtosecond laser placements. In addition, we are beginning to conduct clinical trials in the U.S. for our TENEO excimer laser, which is already approved and selling in Europe, and will enable us to improve our competitive positioning in this important market segment. With revenue growth at 28% for our neuro and other and generics portfolio is driven by products, including Xenazine, Wellbutrin, and Virazole, while generics business continues to benefit from competitor stockout and authorized generic launches. Finally, our dental business continues its double-digit growth due to the performance of Arestin in the 2014 product launches Onset and Optics Plus. Now turning to the rest of the world. Our emerging markets business in Central and Eastern Europe and the Middle East delivered strong performance with 9% growth year-over-year, despite significant FX headwinds from negative $60 million in revenues. On a local currency basis, Russia delivered 13% growth and the Middle East delivered more than 20% growth. Our acquisition of MedPharma, a brand and generics platform in the Middle East and Northern Africa, is off to a great start, and will augment our growth in this important region. Revenues for our emerging market business in Asia grew 12% versus the prior year. We continue to see strong growth in a number of countries, including -- as China saw 12% growth, Korea grew 15%, and Malaysia grew 24%, just to mention a few. In Q-1 of this year, our Bescon lenses, which we acquired last year, were launched in China, Korea and Japan. And given the expected demand around the world, we have recently begun to expand our production capacity. A recent acquisition of Armoxindo, a brand of generic platform in Indonesia, is also performing well in its early stages. In Latin America, we saw a decline of 7% year-over-year, which was mainly due to FX. Mexico preformed very well and delivered double-digit organic growth of 11% in the quarter. Brazil continues to struggle to the slower market growth and the weakness in our Probiotica line. The rest of world developed markets declined 13% year-over-year, almost entirely due to a strengthening dollar against the Euro, Yen, Canadian dollar and Australian dollar. The underlying businesses remain strong with both Europe and Japan delivering low single-digit organic growth. And Canada and Australia businesses were flat. Both businesses had their last quarter of generic headwinds from Wellbutrin XL in Canada and Aldara and Tambocor in Australia. Given the absence of significant business development activity, we have been guiding all year to declining restructuring and integration charges. This quarter, restructuring and integration charges were $47 million, in line with our estimate of less than $50 million. The reported charges were derived of approximately $15 million for Bausch and Lomb, down -- down from $36 million in Q-3 and $29 million related to deals -- other deals closed in 2014. Only $3 million of the Q-4 charges were from acquisitions closed more than 12 months ago, and was primarily related to the closure of an Obagi facility. Excluding Dendreon and Salix, restructuring and integration charges will continue to trend towards zero. This quarter, our GAAP cash flow from operations was very robust at $816 million, for which $287 million was related to our gain from the Allergan investment, net of fees and out-of-pocket expenses. Just the cash flow from operations, excluding the Allergan gain, was $624 million. Our Q4 adjusted cash flow from operations was negatively impacted by the acceleration of interest payments in the amount of $33 million following the repayment of $945 million in bonds in the 4th quarter, and a large increase in prepaid expenses. The prepaid expense balance will be a benefit to cash flow in future quarters. At the time we announced the B&L acquisition, our debt to pro-forma just EBITDA ratio was 4.5 times. And we committed to reducing that ratio to below four times. In 2014, we reduced our debt by more than $2 billion, and we ended the year with a 3.5 times debt to EBITDA ratio. Our day sales outstanding remained in line with past quarters at 66 days. And as we have previously discussed, we believe that calculating the DSOs based on gross sales and gross accounts receivables makes sense given the fact that we have a number of older products, and there are a large amount of provisions to gross sales to get to net sales. As in last quarter, we have disclosed our gross revenue in our 10K that will allow investors to calculate our day sales outstanding using gross quarterly sales and gross accounts receivable. Overall, accounts receivable increased by $196 million this quarter, with an offsetting increase and accrued liabilities of approximately $123 million, primarily related to rebates, returns and allowances. This is a net increase of approximately $73 million, net of the accrued liabilities, compared to an increase of approximately $224 million in net sales. 2015 is off to a very strong start. Given the timing of the recently announced acquisitions of Dendreon and Salix, we'll update our 2015 guidance on our first quarter earnings conference call. Until then, we thought it would be helpful to give you guidance for Q-1, 2015. In Q-1, we expect to see same score organic growth of 10% to 15% due to several factors. This includes the contribution of continued out performance of many of our U.S. businesses, including dermatology, contact lens, consumer dentistry and Obagi, and ex-U.S. markets such as China, Thailand, Malaysia, Mexico, Middle East and Poland, as well as the continued momentum of our 2014 product launches such as Jublia, Ultra, Retin-A, Micro .08, and the Onexton launch in Q1 that is off to a great start. While most of our markets are experiencing robust growth, we do expect some softness in Western Europe and Russia, which will result in low single-digit organic growth for our Europe business in it in Q-1. We expect cash EPS of at least $2.30 per share for the first quarter of 2015, as the strong growth in the U.S. will continue to offset potential currency headwinds. Now, I would like to turn the call over to Mike.

[Mike Pearson:]

Thank you, Howard, and good morning, everyone. Let me briefly touch on our Dendreon acquisition before moving on to sales. On January 29th, we entered into an agreement to acquire assets from Dendreon, including its lead immunotherapy product, Provenge. We expect to close the Dendreon transaction later today. We would like -- like to briefly discuss the strategic and financial rationale for the deal. First, we believe that oncology is a platform that fits well in Valeant's business model, with strong market growth, a concentrate specialist set of prescribers, where relationships really matter, a favorable reimbursement regime, and a market that other pharma companies are beginning to de-emphasize. We also have the opportunity to invest in low-risk targeted R&D projects for additional indications for products that are already approved. Dendreon also fits our investment criteria with a durable asset, PROVENGE. We believe that we can accelerate the growth of PROVENGE over the coming years. Dendreon also provides us a platform for additional tuck-in acquisitions. Initially, we agreed on a purchase price of $400 million. We then agreed to pay an incremental $15 million for a pipeline product and sizable tax attributes. The price paid represents 1.3 times last year's sales of the company. In addition to growth opportunities, we believe this asset has been undermanaged as it has an infrastructure in place built for a billion dollar product. We expect to be able to extract synergies of over $130 million, including manufacturing savings, and this does not include the benefit of our corporate structure. We have -- we believe that we have the ability to raise the gross margins of this business to more than 65% by the end of 2015 and to reach 80% gross margins in the longer term. Finally, the transaction will result in an IRR of approximately 30% at statutory tax rates and with a cash payback period of less than five years. Now, turning to Salix. Yesterday, we announced that we will be acquiring all the outstanding shares of Salix for $158 per share in cash -- in cash. The total transaction is valued at approximately $14.5 billion and we have fully committed financing. We expect the transaction to close in the second quarter of 2015. This transaction creates an exciting new specialty platform for future growth. Salix has a strong product portfolio with key promoted products delivering double-digit volume growth far exceeding the market growth rate of 5%. The near-term expected approval of the IBS-D indication of Xifaxin provides an additional catalyst for growth, as do the launches of Uceris Foam and the approval of Relistor Oral and the potential approvals of other key pipeline assets. We also believe that this transaction will offer compelling returns for Valeant shareholders. In our base case model, we assume Salix will spend $750 million in OPEX in 2015. OPEX includes SG&A and R&D. This is a pre-synergy number. We expect to achieve run rate synergies of more than $500 million across the combined companies' OPEX, $750 million OPEX from Salix and Valeant's budgeted OPEX for 2015. We expect to capture these cost savings within six months of closing. We did not include any benefits from our corporate -- our corporate structure in our synergy targets. Therefore, in addition to the $500 million in cost savings, we expect the combined company's tax rate will be approximately 5%. We do not plan any reduction to Salix's specialty sales forces or its hospital, key account and field reimbursement teams. We believe Salix's sales force is, by far, the strongest in the GI space and it has been a key part of their success. We have not had the time to fully determine the optimal size of the primary care sales force, but will do so between signing and closing. We expect an IRR and cash payback in line with our other large transactions. Slide 23 shows you the criteria that we look for in a therapeutic area, and Salix checks all the boxes. From a market perspective, they have a concentrated special prescriber population and important field force prescriber relationships. GI is a lower priority for most other pharmaceutical companies. The products have a favorable reimbursement status with payers. We also believe Salix's products and the entire GI therapeutic area provide an opportunity for low-risk innovation. GI has above-average prescription growth rate compared to other therapeutic areas. Salix has a strong underlying volume growth well above the market and an attractive near-term pipeline. In addition, there is significant opportunity to apply Valeant's operating model and deliver financially compelling returns while setting up a platform for value-added tuck-in acquisitions. As mentioned previously, the GI space has very attractive underlying market fundamentals. It is a growing market with attractive sub segments, a disease state that is typically chronic, damaging to someone's quality of life and is significantly undertreated. We believe we can expand the IBS-D market through DTC and other commercial levers. Finally, the opportunity to expand into other undeserved indication provides additional avenues of growth. Many of you are familiar with Salix and its portfolio, but for those of you who are not, we wanted to provide an overview of their product portfolio. Salix is a mid-sized pharmaceutical company that has a significant leadership position in the GI market. Its sales force has been ranked as the number one sales force in its space by IMS for three of the past four years. Salix has 22 total products, of which they actively promote 13. Xifaxin represents roughly 50% of total revenue and has been approved for HE and traveler's diarrhea. Salix is currently waiting for a PDUFA date in May for additional indications of IBS-D, irritable bowel syndrome-diarrhea. Other major products include Apriso, Uceris and Relistor that all have attractive growth prospects. Salix has a low-risk, short-term pipeline with additional indications for currently approved products that we believe have strong future potential. Slide 27 shows the recent FX trends from Salix's major products, all which are trending in the right -- in a positive direction. The acquisition of Salix further diversifies our U.S. product portfolio. Including Salix, 30% of our portfolio will come from our neuro and other dental and generic portfolios, 24% from GI, 22% from dermatology, 12% from eye health and then consumer and oncology at 8 and 4% respectively. Our total U.S. revenue will represent approximately 65% of total revenue. We do believe over time this ratio will return to roughly 50-50. On November 6th, 2014, Salix reported five-to nine-month wholesaler inventory levels for its top four products. We have conducted extensive due diligence on Salix's inventory estimates, its stand alone inventory remediation plan as well as the associated potential litigation and regulatory exposure. While Salix has made strides in executing their plan, we expect to be able to work down the inventory to approximately two months or less by the end of the year. The net impact on this -- of this on 2015 revenues is expected to be greater than $500 million. On the next slide, we list each of Salix's significant products with their projected 2015 demand-based revenue and our 2015 volume-based growth assumptions and patent expiry dates. We do not have the time to discuss each product, but wanted to provide you with this information for your review later. As in all our past acquisitions, we have a careful plan to achieve cost synergies from the combined products. As we mentioned earlier, we assumed a $750 million, ex G&A and R&D, for our base 2015 Salix business plan. This number if different than what GAAP -- that Salix has reported on a non-GAAP basis. For example, depreciation and stock-based costs have not been historically reported in Salix's non-GAAP operating expenses, whereas Valeant includes these numbers in our non-GAAP numbers. Post-close, we will conform Salix's methodology to our methodology in our non-GAAP disclosures. We have targeted more than $500 million in synergies on a combined company basis, but we do not plan any reductions to Salix's specialty sales forces or hospital, key account and field reimbursement teams, as we believe these customer-facing roles have played and will play a huge role in the success of the company. As mentioned earlier, we will determine the optimal size of the primary care sales force. On a run rate basis, we expect to achieve these synergies within six months, and believe that it will cost less than 65% of the total annual synergies to achieve these synergies. We also have additional opportunities through improved combined product portfolio formulary status and leveraging the hospital sales force for Valeant products that we've not built into our deal model. Lastly, the transaction will be an all-cash deal that will be financed with a combination of bank debt and bonds. We expect the interest rate on our new debt to be between 5.5% to 6%. Our pro forma interest rates for the combined company post this transaction will be approximately 5.5%. We have committed financing of $22.2 billion in debt consisting of $15 billion for the transaction and a $7.5 billion backstop -- to backstop Valeant's existing secured debt while we seek amendments to our current credit agreement. We are launching the amendment today, and when we receive this amendment, the $7.5 billion backstop will fall away. We fully expect to secure an amendment to our current credit agreement within the next two weeks. Our net debt to pro forma adjusted EBITDA will be roughly 5.6 times as we will be negatively impacted by Salix's artificially low EBITDA, due to its plan to reduce wholesale or inventory levels. We have an attractive, deleveraging profile, as we expect to get below four times leverage by the second half of 2016. Similar to our B&L acquisition, we are committed to reduce our leverage to under four times in the time frame. In 2016, we expect to have pro forma EBITDA in excess of $7.5 billion and free cash flow in excess of $4 billion before any mandatory repayments. In the near term, we would expect that our combined company tax rate would be approximately 5%. Finally, our accretion should be more than 20% in 2016, while being modestly accretive in 2015 due to the client wholesale inventory reductions. We have had quite a few questions post the deal announcement about the $14.5 billion valuation versus the equity component of the deal. On this page, we show the bridge between the $10.4 billion equity value and the approximately $14.5 billion enterprise value. The primary additional costs, comes from the retirement of the 2015 and 2019 converts, the repayment of their term loan and the retirement of their bond. In closing, we are very pleased about the strong performance of the Valeant operations and the exciting opportunities that we expect to realize from the acquisitions of Dendreon and Salix. We will report Salix and Dendreon going forward as two U.S. business units, including revenue and restructuring and integration charges, as this will enable investors to continue to see the strong, organic growth performance of our base business and see the restructuring charges again turning to zero. We look forward to updating you on our financial and operational progress and sharing our updated guidance for 2015 on our first quarter call in April. With that, we will now open the call for questions.

[Operator:]

Thank you. [Operator Instructions]. Thank you. And our first question comes from Umer Raffat, Evercore ISI your line is open.

[Umer Raffat:]

Hi guys. Thanks for taking my question. First one maybe on Xifaxin. So Salix has reported quarterly revenues in the last few quarters that have annualized anywhere between $460 million and $700 million. And presumably that included an inventory build. And I saw you guys reported a normalized Salix, Xifaxin run rate of around $900 million, so just wanted to understand that and also quick one for Howard. Howard, I saw cash flow conversions on GAAP-free cash flows is about 60% if you adjust for the Allergan payment. So just wanted to understand, working capital or any other important levers there. Thank you.

[Howard Schiller:]

Thanks Umer. On the first one, we've built up our -- our 2015 number based on script demand and an analysis of net pricing. You have to recall that while for some period of time, we don't know exactly how long, that this inventory was filling up under Salix's management, that in order to accomplish that, they had to take heavy discounts to -- to incent distributors to continue to build up inventory in the channel. So from a net pricing standpoint, there will be an automatic price increase on day one, when we stop discounting these products so heavily. Coupled with this part continues to grow quite rapidly. So again, we took a bottoms up approach to what we believe will be sold in this year, coupled with adjusting the price for that and other things that we can do to reduce sort of gross to net.

[Mike Pearson:]

And on -- on the working capital point, we were just about 90% conversion for the year is what we -- we had talked about all year. For the quarter, we said upfront there’d be in excess of $600 million. We are at $624 million. We paid $33 million of interest early this quarter when we called the bonds. We would've normally paid our interest in February, but when we called the bonds, we had to accelerate the payment of interest that we accrued for the bonds. So that was -- that was one impact. The second was a significant increase in prepaid expenses, a lot of which had to do with the accounting -- the payment up front for -- related to a number of DTC campaigns for some of the launch products that we -- that we will then get the benefit of in 2015. So that will work its way down and will benefit future quarters. And then third point, and this is why we guided to a lower number in Q4 was just the timing of fourth quarter sales tended to be -- tend to be more towards the -- the end of the quarter. So we had adjusted our views on -- on cash flow. We continued to focus on beating 90% conversion, and -- and like you saw in the chart, our day sales outstanding and our A.R. balance is -- has been pretty flat. Our inventories were well -- were well in check. So, you know, we're laser focused on this, and you know, we want to do better going forward, but we achieved a 90% goal for the year that we had set out.

[Operator:]

Well thank you. Your next question comes from the line of Irina Koffler with Cantor Fitzgerald. Your line is open.

[Irina Koffler:]

Hi, thanks for taking the call. Just wanted to get a little deeper into how you're thinking about primary care promotion of Salix's assets and you know, not starving this brand, which needs primary care, as is seen by heavy investment by other companies in IBS. Thanks.

[Mike Pearson:]

Sure, thanks for the question. Well, well -- hopefully, given our base business, you can see that we have no intention of starving our brands. I think our organic growth across our businesses is -- is far better than most pharmaceutical companies. The question in terms of once we get the IBSD indication, what's the best way, what -- what combination of -- of commercial levers is the best way to grow the brand in primary care? Right now, the Salix had plans to increase their primary care sales force from at a current 160 to I think it was 240, 250. We are going to evaluate that, but we're also going to look at other approaches, including DTC, like we've done with Jublia. I think diarrhea, just like onychomycosis is a disease that people can self-diagnose. And we just have to figure out what set of investments has the highest ROI. But you can be assured that we -- we will be focused on -- on growing this product as quickly as we can once we get that approval.

[Operator:]

Thank you. Your next question comes from the line of Annabel Samimy with Stifle. Your line is open.

[Annabel Samimy:]

Hi. Thanks for taking my question. I was wondering if you can help us with the breakdown of the $500 million synergies. And this goes along the lines of the prior question, specialty versus primary care. Salix had lost some of their primary care sales already with the -- following the Santarus acquisition. So, maybe you can help us understand where the $500 million is coming from, if it's -- they had about $175 million to $200 million in R&D and the rest of it was SG&A. So, maybe you can just help us there and understand that breakdown of the $500 million.

[Howard Schiller:]

Sure, well first, when we talk about the $500 million in savings, again, we did this more bottoms up. What are the costs that we would need to run Salix and what were some of the opportunities across both the combined companies to get synergies? So the first point is not all $500 million will come from Salix. Part of that will come from Valeant, because as we get larger, there's always opportunity to streamline our operations. Second is the most obvious area, there's sort of the back office functions, the corporate functions they have, I.T. and finance and -- and those -- those types of areas, they'll be also significant purchasing savings across the two companies. Again, we plan to keep their commercial activities and spending in place subject to more work on the primary care side, which we just don't have the final answer for you today. And in fact, I would not be surprised, similar to Bausch and Lomb, that once we really start to understand the business, we actually spend more -- we expanded sales forces. Our contact lens sales force in the United States is 50% larger than it was when we acquired the company. We have -- we have built up an O.D. sales force in the pharmaceutical space. We have more surgical reps than we had when we acquired Bausch and Lomb. So, we will thoughtfully integrate these two companies, and whether we need to and determine, you know, where we should be spending -- spending the money. All that being said, we are comfortable with our $500 million estimate, and every transaction we've done to date, we've actually over-delivered in terms of cost synergies and I suspect we will do so again.

[Operator:]

Thank you. Your next question comes from the line of Chris Schott, JPMorgan. Your line is open.

[Chris Schott:]

Great. Thanks very much, just a few here. First, could you just talk about your confidence into the Xifaxan IBS-D PDUFA and just how you thought about risks heading into that event? Second question on the IBS-D, the size of that opportunity. I believe Salix has made some comments on the peak opportunity there. Just how are you thinking about peak commercial potential for Xifaxan in IBS-D? And then finally, on the management structure that you'll be adding with Salix, who's going to be leading this part of the organization? I know there's been some transition there, but just how do we think about the leadership team at Salix? Thanks very much.

[Mike Pearson:]

Sure, Thanks Chris. In terms of the IBSD submission, we've had the opportunity in due diligence to review all the materials, look through all the clinical studies, the safety, efficacy profiles. We've also had the chance to review FDSA correspondence and have -- have long conversations. It's obviously a key part of this acquisition. Net, net, I'd say we feel quite comfortable that this indication will be approved. In terms of timing, we are certainly hopeful that it's this spring, but if it's not, we -- we run a number of scenarios when we've analyzed the financials in terms of what impact that would have on the acquisition. So, maybe the best way to say it is -- is we are hopeful it gets approved this spring, but we are confident that it will be approved over the next, you know, in a reasonable short -- reasonable time frame. In terms of the IBS-D size, we have seen their estimates in terms of peak sales. I think our -- our peak sales estimates would be lower. But again, we -- just announced this deal yesterday, so I don't want -- want to disclose what -- what our base phase peak sales are for Xifaxin. There's still -- still sizable but significantly lower than the management projections. In terms of leadership of the -- of this area, we have not made that decision yet, but obviously we'll -- we'll do so before we complete the transaction.

[Howard Schiller:]

And Mike, just on Chris's question about the relative size, I think we see the IBSD opportunity as significantly larger than the current A.G. in traveler diarrhea indications.

[Laurie Little:]

Next question, please.

[Operator:]

Thank you. Your next question comes from the line of Andrew Finkelstein with Sesquehanna Financial. Your line is open.

[Andrew Finkelstein:]

Hi, thanks very much for taking the question. I was hoping you could talk a little bit more on your thinking behind the financing for the deal. It's obviously -- you have the ability to take up the leverage ratio quite significantly in the short term, but did he consider, you know, the opportunity to do an equity secondary? And where do you think this puts you in terms of the capacity for tuck-ins in the near term, particularly, you know, what opportunities you see in G.I. and oncology and how actionable those might be. And as you look to do some of those, whether it's more likely to be on market assets, you know, or pipeline products. And then on the value you see in the Salix pipeline beyond the IBS indication, you know, any sense of what seems promising to you and not, given you know, it seems like your net R&D budget is only about $50 million higher than it was on the standalone basis? Thanks.

[Mike Pearson:]

Sure. On the -- the financing, as you'd expect, we look at a range of -- of options. At the end of the day we chose to go all cash. And you know, as we've mentioned to you all quite often, you know, we -- we -- last resort is to use our share. So it's our investors. Those belong to our investors. We have -- we hope -- we believe we're significantly undervalued, and we're not looking to dilute the ownership interests of our holders unless the relative value of what we're swapping for is so compelling or and that'd really be the situation. So -- so here, we believe that we're delivering. We have a prudent capital structure. We've got a tremendous delevering story. We have north of $7.5 billion in 2016 in EBITDA and -- and this structure is going to give all -- give our current shareholders all the upside of -- from the Salix transaction, which we think is -- is quite compelling. We'll still have the ability to do small tuck-ins. I think if you look at the post D&L period as a -- as a blueprint, we were significantly above four times. We have made the same kind of commitments and we're 3.5 times, 3.5 times now. We're still able to do some important, albeit smaller transactions while we -- while we're delevering. So, you can never say there's no opportunity costs to having the higher leverage. It's a trade-off, but we thought the benefits to our shareholders outweighed issuing equity at -- at the current price at the current time.

[Ari Kellen:]

In terms of filling the pipeline, product, the earlier stage pipeline products, we've had a -- a chance to get a first glimpse of those. We did not build those into our assumptions that they would end up as approved products in terms of our base case, and that's our policy. But that does not mean that we won't pursue those -- those programs. And when we do -- when we look across our entire R&D portfolio, we do that across all of our programs in dermatology and ophthalmology and now in G.I.. And if some of their programs have a better profile than some that we're currently working on, we may end up spending a lot more than the $50 million on G.I. programs that you're calculating. And I'll also remind you that we do, do R&D in a lower cost way than most companies. And I think we've mentioned that we launched -- the total spend for Jublia from start to launch was $38 million. So our budgets, we tend to be able to do a lot more than most companies and still come out with high quality products.

[Operator:]

Thank you. [Operator Instructions]. Your next question comes from the line of Douglas Tsao with Barclays. Your line is open.

[Douglas Tsao:]

Hi, thanks for taking the questions. Just maybe switching gears a little bit to thinking about the Dendreon acquisition. I mean, you sort of gave a range of -- of gross margins. I'm just curious, in terms of what the swing factors there are, in particular on the revenue base, it certainly sounds like you think that -- that you can grow the revenue base from the current product run rate and sort of what the key drivers would be there.

[Howard Schiller:]

I think there were a couple questions there. One around gross margins, one around revenue. In terms of revenues, Dendreon is currently, probably because they were in bankruptcy or whatever reason, have been primarily just targeting positions that currently use the drug, and there's still a high quartile first, second, third, or decile doctors, first, second, third, fourth decline doctors that are not using the drug and aren't being called on. So, we think we -- you know, I think that just calling on people that are using a product is -- is not probably the best strategy. It's almost, by definition, you're going to -- you're going to lose sales over time. So, we're going to broaden, broaden the doctors that we call on. We've had -- I think we have some good ideas in terms of some -- some new promotional campaigns, and also some -- some other studies that we can do that combination studies and other studies that we can do that will allow us to broaden -- broaden the usage of the drug. In terms of gross margin, again, we may have two numbers. One, we believe we can -- we'll get it to 65% gross margin by the end of the year, and have developed plans to do so, and we -- and we see a path to the 80% that will take longer -- a longer time period than just the next six months.

[Operator:]

And thank you. Your next question comes from the line of David Risinger with Morgan Stanley. Your line is open.

[David Risinger:]

Thanks very much, and congrats again on both the Dendreon and Salix deals. My question is on return on invested capital. Could you please remind us, Howard, of Valeant's hurdles? And obviously the Dendreon deal will far exceed your hurdles. But can you just talk about your expected ROIC for the Salix transaction? Thank you.

[Howard Schiller:]

Sure. As we've consistently stated when we look at acquisitions, we're looking at a 20% IRR. And that's unlevered IRR that is assuming statutory tax rates. We also focus, laser focus on our payback periods, which we believe is a strong governor against overly optimistic forecasts in the later years and overly optimistic terminal value assumptions. And we targeted six years or less. And I think for sure on small- and medium-sized deals, we consistently been -- our models have consistently delivered those kinds of returns. Most of the time in reality we've done that as well, although we can't say that we have an unblemished and perfect record. But I'd stack it up as a pretty good record. On the larger deals, we've also said that we have done transactions when you think about Medicis and B&L that have return characteristics that are slightly below that. And we run multiple scenarios through these larger deals. There's multiple levers, variables that drive returns. So you know on our larger deals we have scenarios that are above those criteria and some that are slightly below that -- those criteria. And we've tended to have payback periods that are a little big higher, higher single digits versus the six years. And as Mike pointed out, that this transaction will be a -- is very consistent with what we talked about as relates to B&L, for instance.

[Operator:]

Thank you. Your next question comes from the line of Marc Goodman with UBS. Your line is open

[Marc Goodman:]

So, first on Salix OpEx, you had mentioned that you were pointing to $750 million. But, the non-GAAP that they had been talking about was $625 million to $650, so I'm just trying to understand. You mentioned depreciation. You mentioned stock-based compensation. Is that it, or are there some other things there? That's the first question. Second question is dermatology sales were $273 million in the third quarter and $425 million in the fourth quarter. Obviously I see the ramp in Jublia and a couple other products, but that's a massive ramp. Were there other products in there? Were there any other launches that we're missing? And then just third, acquisitions. Can you just tell us from the acquisitions what kind of sales you had done? You mentioned one acquisition in Asia, what kind of sales were added, and if there were any others that were not mentioned. Thanks.

[Mike Pearson:]

Yes. First, in terms of the OpEx for Salix, we have -- working with Salix management over the last two, three weeks and doing due diligence together came up with sort of what the budget or what the planned spend was in this year. So I can't speak to other numbers that have been spoken about. You have to remember management has changed a lot at Salix over the last six months and there's really a new team there. So the budget that was going to be spent at standalone Salix was going to be $750 million, and that's what we based all our work off of. Probably -- I don't think it's actually that useful to try to reconcile it to things previously said, given the turmoil. In terms of dermatology, Jublia was by far the largest single contributor. But we had strong growth in many of the other brands Howard mentioned, Elidel, Solodyn Zyclara. But none of them were singly stood out. You also have to remember that Q4 is always a little bit higher as the quarter. It's always the strongest quarter of the year. But quite frankly, business is just doing very, very well. You know will I think it -- you know it's sort of firing on all cylinders. We don't continue to think that it'll fire on all cylinders forever. But right now, the derma business is doing extremely well. I will say that we just launched ONEXTON and the ramp on ONEXTON right now it's early days. I think we only had four weeks. But it's the exact same ramp that we had on Jublia. So we're cautiously optimistic on ONEXTON as well. Acquisitions, those were all made previously weren't they, Howard?

[Howard Schiller:]

Yes. We talked about them previously. They are mixed in, though. The deal for [Burns] in Indonesia was about a $17 million deal. Bescon was much smaller than that. So these -- when you add them all up, it was a reasonable number individually none of them work with at large.

[Operator:]

And thank you. Your next question comes from the line of Louise Chen with Guggenheim. Your line is open.

[Louise Chen:]

Hi. Thanks for taking my questions. So, the first question I had was historically Valeant has not been as interested in companies with multiple bidders, and wanted to see if you could give more color on the Salix sales process and how you were able to win the asset. And then secondly, with Dendreon and Salix, you will now have two new verticals, and just interested to understand, going forward, are you going to dive deeper into the established verticals or continue to be opportunistic. I know in the past you had talked about additional ophthalmology assets, animal health, or consumer healthcare assets. Just curious if you're still interested in those areas. Thanks.

[Mike Pearson:]

So we don't exactly know what the sales process was. We were just interacting with Salix and their bankers. So you'd have to ask Salix about how that happened. In terms of where we want to invest capital, we -- again, we're probably more opportunistic than -- we're not a company that sits in a room and says for the next year we're just going to focus on oncology and we're going to buy oncology assets and fill that up, because so much of what we do is governed by the economic side of things. So we'll look at -- what it does do is expand the number of opportunities available to the company. So we now have two new important therapeutic areas where we've really not paid a lot of time or attention to what are all the opportunities there. So what we continue to do by adding more verticals is continue to increase in a sense the number of targets out there. So over time I'm sure we'll continue to build the oncology and GI space. But we'll continue to build the dermatology and ophthalmology space as well.

[Operator:]

Thank you. Your next question comes from the line of Alex Arfaei with BMO. Your line is open.

[Alex Arfaei:]

Good morning, folks, and congratulations on a strong finish in 2014 and the deal. Could you provide more color on any tax related NOLs that you got from Dendreon and Salix? I think you mentioned you got tax attributes from Dendreon, which is surprising give that I think it was an asset sale. And Howard, it looks like Salix improves your gross margin by 1% and operating margin by at least 2%. Is that in line with what you see, and is there any potential for gross margin synergies? Thank you.

[Howard Schiller:]

Well, in terms of the tax attribute, Salix did have some NOLs. I believe there were some around $500 million that we'll be able to utilize. Dendreon , you're right. It's an asset deal. But the way it was structured in the bankruptcy court allowed us to get access. But then sort of -- as Mike said, there's considerable amount of NOLs. Under the rules you're limited to how much you can take on an annual basis. But there will be some there. And we talked about the fact that we paid $15 million for the pipeline asset plus access to the NOLs. You're right. Salix's gross margins were around 80%. So that will help. Dendreon, on the other hand, at -- you know we'll get in the 65%, as Mike mentioned, will pull it down a little bit. Dendreon, as Mike mentioned, we've taken a look at the manufacturing processes and have identified some opportunities. At this point, we've not really taken any synergies. We haven't taken any from the manufacturing process. Salix uses CMOs we'll have to look at the whole supply chain. But typical with most of our acquisitions, we take our time and do that at a later date. So for now you should assume the gross margins are what they are. They'll go up a little bit as the gross-to-nets improve. And then Dendreon you'll see the improvement, as Mike articulated.

[Operator:]

Thank you. Your next question comes from the line of David Amsellem with Piper Jaffray. Your line is open.

[David Amsellem:]

Thanks. So, a question on Xifaxan. Do you think there is pricing power for the asset, particularly is there pricing power here if we don't see an approval in IBS and the label is more limited? And just I guess in a vacuum, even if we do see approval, is this an asset where you think there is significant pricing power, and is that one of the reasons why you're taking a more modest view of the IBS sales potential vis-a-vis Salix's management internal projections? Thanks.

[Mike Pearson:]

I can say that we took a very conservative view on price when we built our models for Salix. And once we get to know the product better and the customer base and the payer environment we can change that assumption. But we took very modest views on pricing opportunities.

[Operator:]

Thank you. Your next question comes from the line of Corey Davis with Canaccord Genuity. Your line is open.

[Corey Davis:]

Thanks very much. The first one, can you just clarify if the 20% accretion in 2016 is relative to your, I think it was around $12 a share EPS that you put out in November as your estimate? And secondly, just a few years ago Brazil was one of the hottest emerging pharma markets and now seems to be slowing. Can you elaborate on Brazil and Latin America in general, and how we should think about that component of your business for the next couple years? Is that something that you might think to divest if it continues to struggle? Or is it still profitable enough and strategic enough that warrants keeping it?

[Mike Pearson:]

All right, Corey. Yes, in terms of -- I think the last outlook we had for 2016 was in the presentation that was done at ISS in the November time frame. I think it was a range of sort of no deals de-levering, which was about $12.05 range out to like $14.50 if we did a number of deals. So since that time a number of other things have been built into our thinking on 2016. One is the business continues to outperform. Second is we did the Marathon deal, which was we talked about last quarter or earlier. And then we also have done a Dendreon deal. So if you add those into the base at 2016 that gives you a new 2016. And then you -- and then what we're saying is this will be at least 20% accretive on that. And in terms of Brazil, the market has slowed down. There's been -- the whole economy has slowed down, as you know. And so the growth rate was -- as you said, it was a strong market. And then our performance -- well actually in B&L it's been quite strong. We continue to have strong organic growth. And our biggest issue down there is Probiotica, which is a business that we bought three years ago, four years ago, which is in the nutrition area in terms of nutritional supplements. And from that standpoint the -- you know, we've actually declined as a market. It's interesting to note that our actual profitability in Brazil has improved year-on-year. So from a cash flow standpoint it continues to grow for us. But from a top line standpoint, with FX, coupled with losing some share in the nutritional area, our top line has not been strong.

[Operator:]

Thank you. Your next question comes from the line of Tim Chiang with CRT Capital Group. Your line is open.

[Tim Chiang:]

Hi, Mike. Congrats on these two deals. You know on Dendreon I look back at some of their financials. I think their gross margins are somewhere in the low 50s at best. And you know is there anything you could talk about in terms of how you guys will get the margins on the Provenge product into the mid-60s by year end? It seems like it's a sort of a unique product in itself.

[Mike Pearson:]

Yes. So when we -- yes, they have been around 50% historically. There is an awful lot of above the plant costs in Dendreon in terms of -- so we're not really going to touch the manufacturing facility at all. There's actually two of them. One is in Seal Beach and one is in Atlanta, Georgia. So the actual manufacturing sites, you know we plan not to make really much change at all. What there was a large infrastructure, tech ops and other types of infrastructure above the plant level. We have many of those functions ourselves. So we don't need additional functions in that area. And then as we were mentioning before, this thing was built to be a billion-dollar company at least. And they've spent ahead of demand, and they never really right-sized this business when the product did not come out and become a billion-dollar product. So it's just basic things that you can go and do. So that represents gains at 65%. I think the 80% will take a little bit more work, probably some investment in terms of doing things a little bit different. But 65% is just eliminating things that any one of you who walked into the organization would immediately see.

[Operator:]

Thank you. Your next question comes from the line of Gregg Gilbert with Deutsche Bank. Your line is open.

[Gregg Gilbert:]

Thanks, guys. Could you discuss the duration of the Xifaxan, an asset that you use in your base case, and maybe talk about the legal and regulatory diligence you did on Xifaxan and how that informed what your base case assumption is? Thanks.

[Mike Pearson:]

Yes. Well, we did -- as you can imagine given the size and the potential of the product, we've spent an awful lot of time. Multiple offerings we hired to look at the IP situation. And I'm not sure we want to disclose -- I'm not sure we had a base case per se. We had all sorts of scenarios in terms of when this patent could expire. Not because we thought it would but we just wanted -- it's easy to run the sensitivities for the models. And we feel quite comfortable that -- we feel quite comfortable that even in the most -- the worst case scenarios we'll still earn a return for our shareholders. It will not be our historic return. But we also felt quite comfortable that this is a strong set of multiple patents. And we put this proportion effort in looking at it.

[Operator:]

Thank you. Your next question comes from the line of Sachin Shah with Albert Fried. Your line is open.

[Shane Shaw:]

Hey, good morning. Congratulations on the deal, guys. So, just a quick question as far as what we need for deal completion. Is it just the HSR and the tendering of shares? And any idea when you're going to be launching the tender offer? And if that's the case, if it's just HSR, can we expect the deal to close maybe kind of early to mid April timeframe?

[Mike Pearson:]

You're right in terms of the -- in terms of closing. HSR is really it. We'll file the tender offer, launch tender offer within two weeks, then hopefully sooner rather than later. And I don't think we want to predict when we're going to get HSR. But there's no overlap. So it should be hopefully a smooth process.

[Operator:]

Thank you. Your next question comes from the line of David Steinberg with Jefferies. Your line is open.

[David Steinberg:]

Thanks. I know in previous acquisitions where there's been outstanding litigation, the company has moved decisively to resolve that. And in your comments, you'd mentioned you've done due diligence on associated potential litigation exposure. Curious, particularly given the inventory revelations of November, what -- your view on potential litigation exposure there is, if any. And then secondly, just curious on what your breakup in this transaction might be.

[Mike Pearson:]

We're not going to comment on litigation exposure other than we took a hard look at it and it was still pinned to our thinking. The break-up fee?

[Howard Schiller:]

The break-up fee is $355 million plus expenses.

[Operator:]

Thank you. And our next question comes from the line of Douglas Miehm, RBC Capital Markets. Your line is open.

[Douglas Miehm:]

Well, Congratulations from me as well. Mike, with respect to the outlook for this year is slightly accretive and then over 20% next year, can you speak to the necessity for an approval in May for IBS-D? And then, perhaps you could just go into a little bit more detail in terms of the due diligence that was actually done on the inventories. And then, for Howard, just could you speak to the difference between the $7.5 billion in EBITDA and the $4 billion in free cash flow? We know part of it's interest, but maybe some of the other differences. And I'll leave it there. Thank you.

[Mike Pearson:]

Doug, just one -- to clarify, the -- you want our view on will it be approved in…

[Douglas Miehm:]

No, no, I just -- I want to get a sense for how contingent is the outlook on an IBS-D approval, say in May? Is it not at all and you can be slightly accretive this year, or is a May approval needed to be slightly accretive this year and over 20% next year just in terms of how you'd expect to launch the product and see it kick off?

[Mike Pearson:]

I got it. Thank you for the clarification. No, we're not dependent on a May approval to meet the numbers. We are assuming that we actually do get the approval in terms of the models we build and how we valued the company. In terms of our inventories, we feel very good about the due diligence we did. It was actually pretty straightforward. You know we went in and we actually got our financing, got the wholesaler reports. We know precisely how much of each product, each SKU is in the channel in detail. And so I don't want to say we have perfect information, but about as close to perfect information you could have in terms of what the inventory situation is.

[Howard Schiller:]

Yes. And then the results between EBITDA and free cash flow, you pointed out by far the biggest item is cash interest expense. Then taxes and CapEx and obviously work investments and working capital. But interest expense is by far the biggest component.

[Operator:]

Thank you. Your next question comes from the line of M.L. Schiaffino with Mitsubishi Securities. Your line is open.

[M.L. Schiaffino:]

Good morning. At this point, I only have a mechanical question. On your enterprise value slide, you show the Salix senior notes with a breakage fee. How are we thinking of that? Is that contemplated to occur at closing? Is it a condition to closing? How exactly are you thinking about that, please?

[Mike Pearson:]

Well, there's a make-whole position. It'll occur at closing. And there's a make-whole provision. You know we wish there wasn't, but there is. And so we had to account for it.

[Operator:]

Thank you. Your next question comes from the line of Gary Nachman with Goldman Sachs. Your line is open.

[Delia Harakesh:]

Good morning. This is Delia Harakesh on behalf of Gary Nachman. Congratulations on a strong quarter and the deal. I just wanted to understand if there will be meaningful revenue synergies that you can expect and if you're able to take the Xifaxan and other products outside of the U.S. And secondly, do you factor the debt pay down when you talk about your greater than 20% accretion in 2016?

[Mike Pearson:]

In terms of taking the revenue synergies outside the U.S., we assume nothing in our model. They've given away most of the rights. I think they do have some rights in Canada, maybe a few other countries to some other products. That's not built into our base case. But that also doesn't assume -- it'll be incremental. It will not be significant.

[Howard Schiller:]

Yes. And we do assume that we're going to be paying down debt because that's what we're telling you we're going to be doing. So we took into consideration when we talked about the accretion.

[Operator:]

Thank you. Your next question comes from the line of Brian Lombardi with Merrill Lynch. Your line is open.

[Brian Lombardi:]

Good morning. Just wanted to dig into the synergy assumptions a little bit more. I think, if I heard correctly, it sounds like the $500 million in synergies aren't entirely coming out of Salix. What portion of those are coming from Valeant?

[Mike Pearson:]

We're not going to comment on the proportion. Thank you.

[Operator:]

And comes from the line of Sachin Shah with Albert Fried. Your line is open.

[Sachin Shah:]

Hi again. Just want to find out, are you expected to launch a marketing period? Are you going to do that before the tender offer expires, or are you going to do it afterwards? Just curious to find out. I know you have commitments in place. I saw the commitment letter, but just curious as far as the syndication.

[Mike Pearson:]

There is a marketing period built into the agreement that would occur pre-closing. So we would expect to put in place the permanent financing before we close.

[Operator:]

Thank you. And your last question comes from the line of David Steinberg with Jefferies. Your line is open.

[David Steinberg:]

Yes, just a quick question on Jublia. I now that it's been almost six months since it was on the market and it's exceeded all expectation. I was curious. Around this time typically there is some view on contracting with managed care and I was curious where that stands. And going forward, do you still see 50% gross to net, or would it ameliorate back to the more normalized 30% level? Thanks.

[Mike Pearson:]

Sure. We're in discussions with Managed Care as we speak, and hope to have those wrapped up in the first half of this year. And we also are offering a zero co-pay on this product at this point, both in terms of the initial as well as refills. And so that also is having an impact on our gross-to-net. But as we mentioned last time, as long as -- obviously we'll get the Managed Care contracts in place, and that will probably help a bit. But as long as this product continues to grow and accelerate, we'll continue to make sure it's available to every patient and keep that growth trajectory. But over the longer term, the gross-to-net situation should improve. All right. Well, I think we've run a little bit over. But anyway, thank you for all your interest. And we'll talk again next quarter. Thank you.

[Operator:]

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