Good morning. My name is Sharette, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant Second Quarter 2014 Earnings Call. [Operator Instructions] At this time, I'd like to turn the conference over to Laurie Little. Ma'am, you may begin.

Thank you, Sharette. Good morning, everyone, and welcome to Valeant's second quarter 2014 financial results conference call. Presenting on the call today are J. Michael Pearson, Chairman and Chief Executive Officer; and Howard Schiller, Chief Financial Officer. 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'd ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. Next, this communication does not constitute an offer to buy or solicitation of an offer to sell any securities. This communication relates to the exchange offer which Valeant has made to Allergan stockholders. The exchange offer is being made pursuant to a tender offer statement on Schedule TO and a registration statement on Form S-4 filed by Valeant with the SEC on June 18, 2014, and with the CSA, as each may be amended from time to time. These materials contain important information including the terms and conditions of the offer. In addition, Valeant has filed a preliminary proxy statement with the SEC on June 24, 2014, as may be amended from time to time. Pershing Square Capital Management has filed a definitive solicitation statement with the SEC on July 11, 2014, and a preliminary proxy statement on July 23, 2014, and Valeant and Pershing Square may file one or more additional proxy statements or other documents with the SEC. This communication is not a substitute to any proxy statement, registration statement, prospectus or other documents Valeant, Pershing Square and/or Allergan may have filed or may file with the SEC in connection with the proposed transaction. Investors and security holders of Valeant and Allergan are urged to…

Thank you, Laurie. Good morning, everyone, and thank you for joining us. On today's call, I will begin by reviewing Valeant's second quarter results by major products and by major business segments. I will then provide an update on our business development activities and our recent product launches and finally, review our product status and early thoughts on the Allergan integration. I will turn the call over to Howard, who will provide an update on Valeant's guidance for the second half of 2014 and our outlook for 2015 and '16, both as a stand-alone company and as a potentially combined company with Allergan. Finally, we will provide you with a brief update on our offer for Allergan. After our remarks, Howard and I will be available for Q&A. The second quarter of 2014 was highlighted by strong growth and strong performance across our entire business. We are pleased to report that as expected, organic growth is accelerating and significantly improved from the first quarter. As previously reported, Bausch + Lomb grew organically at 12%, and we have now successfully launched 17 new products in the U.S. alone. This past May, we announced that we were selling our injectable products to Galderma. By selling these assets early, we were able to clear the major FTC hurdle towards the June regulatory approval for Allergan and realize the full value for these products. We closed the sale to Galderma on July 10. The $1.4 billion raised by this transaction will be used for Allergan -- for the Allergan transaction and/or other future business development opportunities. We were excited this quarter to receive FDA approval for Jublia, earlier than expected and with the addition of a stronger label than anticipated. The physician and patient interest in Jublia has been exceptional. During the quarter, we…

Thank you, Mike. I certainly agree with Mike that Q2 was another very strong quarter for Valeant. Our revenue was in excess of $2 billion, with our U.S. businesses and emerging market businesses, including the Bausch + Lomb businesses globally, exhibiting particularly strong growth. Our gross margins at 72% of sales were in line with our expectations and previous guidance. As expected, SG&A was above historical levels at 25%. We expect this trend to continue for the balance of the year through the increased investments we are making in our recent launch products and to begin to trend downward towards historical levels in 2015 once we have achieved all the B+L synergy and as revenues of the launch brands increases. Our R&D expenses were $66 million, which was in line with our previous guidance. We continue to expect to achieve an annualized run rate of $200 million in R&D spend by the end of 2014. As we mentioned on the call in June, subject to the outcome of the negotiations to restructure the cost base at our Waterford contact lens facility, we expect that restructuring and integration costs to begin trending down in Q2. And excluding Waterford, we're able to reduce restructuring costs by 36% to $87 million. In addition, as Mike mentioned, we're thrilled to have been able to quickly and successfully conclude our negotiations with the Irish government and labor unions to be able to reduce the operating costs in Waterford by $29 million and bring the overall cost base in Waterford in line with our Rochester plant. In order to achieve these savings, we took an additional accounting charge of $56 million. We expect that restructuring costs will continue to decline sequentially in the second half of 2014 from $143 million in Q2 to less than $70…

[Operator Instructions] And your first question comes from Gary Nachman with Goldman Sachs.

This is Roger Kumar in for Gary Nachman. Just a couple of quick ones. First, in terms of other business development, we were wondering if you guys are still actively looking for bolt-on deals? And what areas you're mostly focused in, both in terms of geography and therapeutic area? And I've got one follow-up after that.

Sure. As you can see this quarter, we did about 4 smaller deals in the emerging markets. We continue to be focused on the emerging markets, but we also like to continue to build out our ophthalmology presence, both in the prescription side and the surgical side, since we recently did sign on the contact lens side.

Okay. Great. And the quick follow-up was also, after the sale to Galderma, do you think that not having those aesthetic products will impact the rest of your derm portfolio?

Actually not. I think to some degree maybe Solta and Obagi, which is a minor part of the business, although we will remain part of the MVP Program with Galderma through the rest of this year. But in terms of the prescription RX business, we've actually seen an increase in growth over the last quarter, and we feel very, very good about the health of that business. That being said, once we do get the Allergan business, we do think there's potential revenue synergies in that area, but we have not modeled that into our base case.

And your next question comes from Sachin Shah with Albert Fried.

Just kind of an update on Allergan. I mean, they're discussing some stuff with ISS on a special meeting. Is there any kind of surprises that you guys are expecting? Obviously, they're trying to hold off announcing the special meeting. But just out of curiosity, from your understanding, is there any surprises as far as when and just the timing of the special meeting?

No, I mean, we expect ISS to come out with their views shortly, and we would hope to have their support. And as I mentioned in the final slide, Pershing Square hopes to have the requisite proxies to deliver to Galderma -- to Allergan rather, and then they have 10 to 120 days to call the special meeting. So that is the plan.

Okay. So the second question is Mr. Ackman, Pershing Square, when he hosted his call, was also referencing how you guys need something above the 25% threshold. Just wanted to -- that was about 2 weeks ago or so. Just wanted to get an update on just the comfort level of getting that threshold knowing that shareholders need to hold their shares, making sure that there's no excuse for Allergan to say that -- when they do announce the special meeting, that the requisite hasn't been met. Any update on that?

Well, you mentioned one of the owners bylaws or requisites for calling a special meeting, the holding of the shares through the meeting. And certainly, Pershing is looking to get above 25%, but we're not going to predict the outcome. And I think we stated clearly, the expectation is to be able to deliver the 25% in mid to late August.

Your next question comes from Marc Goldman (sic) [Goodman] with UBS.

A couple of questions. First of all, Mike, with respect to the Allergan synergies, could you talk about whether your synergy target changes based on the $475 million that Allergan has now decided to take out of their business as part of their strategy? Second question is, you made 4 small acquisitions in the emerging markets. Can just give us a sense of annualized revenues for what you acquired? And then the third question is, can you talk about just the aesthetics, just so we have the exact numbers? The divestiture to Galderma, what exactly in sales in 2013 were those products, and what were the sales basically in the first half of the year? Maybe you could just tell us what were you forecasting for the full year to give us a sense of the magnitude there of the growth that you were expecting 2014 versus 2013.

Great. So let me take the first 2 and have Howard take the third. In terms of the Allergan synergies, our base case model remains that they take no synergies out and we still get the $2.7 billion plus. To the extent that once the deal [ph] gets the transaction that they have reduced cost in areas that we were going to reduce cost, then that will reduce our synergies in those areas because they will already have been captured. We're not 100% sure, though, there'll be an overlap. But in some cases, we actually may put back some of the programs that they've taken out. More of our -- a lot of their synergies are coming from customer-facing activities, and so like sales forces and some of the marketing programs, so those we may actually put back in. Ours are much more focused on sort of corporate headquarters, which I don't think they talk too much about. They did talk about regional and some global organizations, so those will probably overlap. But to the extent they pulled out synergies, which are the same synergies we would have pulled out, that will lower our synergy number by that amount but will have no impact on the bottom line results because we won't be double counting. In terms of small acquisitions, none of these acquisitions have closed. These are all signed up. I think the total revenue across all of them were probably less than $100 million. But we don't have full clarity on closing dates, so those are not included in our guidance for the rest of the year. Some of these deals in some of these countries actually take a while to close. It's been our experience. So somewhat less than $100 million and not built into our guidance.

So we should be thinking $75 million to $100 million kind of in that range in total for the 4 kind of added in for your guidance in 2015, not for this year?

Yes, I think that's a fair...

Yes, but it's closer -- Marc, it's closer to $75 million than it is to $100 million. And I think the real value of somebody -- like Indonesia, they have an on-the-ground presence with a manufacturing facility, they'll be able to build out a branded generic strategy in such a populous country is -- and the same in the Middle East, where we're expanding country coverage and having an on-the-ground presence in manufacturing is really what those are about.

But Marc, they're not -- they're also not included in our '15 and '16 outlook at this point either, those -- so they will be incremental, too.

And in terms of the facial injectables, I don't have the precise numbers for last year. This year, we're in the $400 million range for the business, and my recollection is it's a little over 25% growth from last year. And if you recall, at the beginning of the year, we said that this was -- this and dental will make big investments in building out our sales and marketing, our commercial organizations because of the opportunity we saw. Particularly in aesthetics, we doubled the size of our sales force, which we did in the first quarter and expected a very big second quarter and coupled with the natural growth in the market. We -- I honestly do not think it was overly ambitious given that you can really track revenue per doctor in this market. And productivity of sales folks, we felt pretty good about our forecast.

So it was just Dysport and Restylane Perlane that was sold?

And Sculptra.

And Sculptra, got it.

Your next question comes from Chris Schott with JPMorgan.

The first one is just on the investments you're making over time. When I look at this longer-term Valeant expense structure, it does seem like SG&A is a bit higher than what we've been expecting and somewhat above the company's historic model. I know you haven't given long-term guidance before, but is there any change in the approach given this new mix of business you now operate? And then I had a couple of follow-ups from there.

I think for the rest of this year, you should expect SG&A sort of in the 25 percentage range, which is higher than -- but next year, we expect to get down to the low 20s again, which is historic. I think we're launching ahead of revenues, in this case, partly fueled by Anacor getting their approval, and we want -- we have the lead. We want to take advantage of that lead, and we think that will greatly benefit our shareholders over time. And I don't think we expect to have 3 major products all sort of launch simultaneously. I don't think that's a normal. If it happened every year, that would be wonderful, and maybe our SG&A would trail up. But we have Ultra, Luzu and Jublia, and both Ultra and Jublia have huge potential. So I think it was just more a confluence of events, quite frankly. All that being said, if we have 3 major launch products every year in the United States, we probably -- our SG&A might drift up closer to 25%. But it's sort of like the generics, too. As we get larger, it's also going to have less impact on any one product. But we feel comfortable that for our '14 and '15 outlook with our current plans, it will be low 20s.

Right. And then on 2 that were kind of Allergan-related. I guess, first, there's been quite a bit of discussion around the potential for Allergan to pursue a defensive acquisition and/or a large capital return initiative. Realizing that's kind of hypothetical at this point, can you just talk about how you respond to that outcome? And the second question is just, in the event an Allergan acquisition doesn't go through, can you just kind of talk about plan B? I mean, if I look at the numbers you're laying out here, you've got a couple non-Allergan scenarios. They certainly suggest to us very limited downside in your stock and potentially substantial upside without Allergan. But can you just elaborate a little bit more just what the priorities are for larger opportunities x Allergan? Or just how you think about that plan B in the event this deal doesn't happen.

Yes, the first question was...

In terms of how we'd react to a defensive acquisition, that's really how Allergan shareholders are going to react or not -- we put an incredibly compelling proposal on the table. We hope and believe it will be supported by shareholders, and that's really our focus.

Yes, and capital redeployment, actually, we'll just adjust our offer accordingly. I don't think that has really any -- a dividend or something like that will have -- we can just adjust our offer. So that really has very little impact, we believe. But Chris, you know us, and we -- even though we're constrained from doing a large acquisition right now given the financing covenants and agreements and quite frankly, our commitment to the deal, we continue to be in active discussions, so both in sort of small, medium and large. In the very short term, we're -- we'll only be doing the types of deals that you're seeing that we did this quarter, small tuck-ins. But in a sense, we lined up a number of medium and larger transactions that if, for some reason, we have to go to plan B, I think we're going to be well positioned to move pretty quickly.

And Chris, I think you've put out exactly right that the plan B, it you look at the stand-alone Valeant, it's an incredibly attractive profile. And that's, again, why we're so excited. And you get through the fog of all -- the generitization of those large products and you start seeing plan B now, after a year, you start seeing clearly the power of the franchise and of the business model.

Your next question comes from Alex Arfaei with BMO Capital.

You reported Bausch + Lomb sales of $891 million, which is 10% growth over the number we had last year, which was about 8 -- 8 12. You reported 12% growth -- or preannounced 12% growth. I'm just wondering what that discrepancy is between that 10% to 12%. It's small, but it'd be good to know what's being excluded and why. And the follow-up, could you comment on any recent steps you -- on the recent steps you have taken with the U.S. and Canadian regulators about the statements Allergan has made? And what can we expect coming out of that?

Yes, in terms of that delta, the only adjustment we have made to the Bausch + Lomb numbers relates to Prolensa and Bromday. If you recall, Bausch + Lomb pulled Bromday. They discontinued Bromday last year actually before we closed, and our practice has been to exclude discontinued products. Now in this case, we took a much more conservative approach. We did not exclude it. We just assumed that the Prolensa, Bromday franchise didn't grow. So instead of getting the benefit of the Prolensa growth, we assumed 0 growth, and -- but we -- our practice would've been to exclude discontinued products. But given the way this happened, we chose not to take that approach and to take a more conservative approach, and that's only difference between the numbers that you mentioned and the 12% that we have reported.

In terms of the discussions with Canada and the United States in terms of the complaints we've made, our lawyers have been in conversations with both agencies, and I think that's the only update we can give at this time.

Your next question comes from Louise Chen with Guggenheim.

I just had a few. First question I had was, if you could give more color on your inventory levels this quarter and relative to how they have compared historically. Second question is just maybe a little bit more color on the organic growth drivers in the second half '14 that are now being masked by generic competition. And then last question is just a follow-up on what Chris was asking, which is, obviously there's been a lot of concern that if this Allergan deal doesn't go through, there's a lack of large, high-quality deals to pursue, and just kind of wanted to follow up on some of your comments you made to Chris there. Just to confirm that you said that you're in discussions and you could move quickly to do another large deal if Allergan doesn't happen. And then could you remind us kind of what kind of areas you had historically been interested before and -- before Allergan was announced?

In terms of the inventories, you mentioned the investment in inventories, how it's come down, and inventories -- and it's been a real focal point of ours. As we -- given that we have a lot of small products, it's a challenge to manage our inventory levels. We also use a lot of CSOs -- CMOs who require us to buy, in some cases, a year's worth of product at any one point in time. So we're looking at all kinds of options to manage it. And I think -- you hate to call a quarter a trend, but we invested less in inventory this quarter than we did the quarter before, and we'll continue to focus on that. In terms of the drivers of organic growth, I think -- you mentioned, we start getting through the -- we got through Zovirax. We'll get through RAM. Eventually, we'll get through Vanos and Wellbutrin XL not until, I guess, not until the end of the year. And the underlying businesses continue to grow, and that's what -- that's really what is coming to the surface.

It's across the board. If you look at the growth rates, the emerging markets is growing; developed -- not Canada, not Australia, but Western Europe is mid-single digits. And then if you look at sort of the franchises, all the dermatology-promoted brands are growing. Ophthalmology RX is growing, consumer is growing, contact lenses is really growing, but most of these businesses are growing double digit. So the nice thing is we're not dependent on any one business for this growth. It's highly diversified growth, which is one of the fundamental strengths of our model, which is decentralized and diversified. So we feel very, very good about organic growth prospects. And just like this quarter, Ukraine was slow, and we had a slowdown in Mexico. But overall, organic growth was very strong. Next quarter, there'll probably be 2 other parts of our operation that will not grow as expected, but others will overachieve. And so we're not dependent on any one geography or any one set of products given the diversification. And so I think it's a very low-risk prediction to say in terms of the organic growth. In terms of business development, I don't think it should surprise anyone that knows us that we're always in discussions with other companies in terms of -- around the world in terms of potential acquisitions. Most deals, especially large ones, have a relatively long gestation period. I think Biovail was 1 year, 1.5 years. Medicis was a couple of years. Allergan has been over a couple of years. So it's not like you put things on hold where you're in the middle of pursuing one transaction. And so I'm not going to comment on the companies. Usually, we end up acquiring something that people are not expecting. I don't think anyone expected us to buy B+L. It wasn't on anyone's radar screen, but then it happened. So we obviously can't talk about specifics, but you can be assured that we're continuing to pursue shareholder-enhancing transactions.

Mike, I'd also add, our footprint outside of the U.S., and in particular the emerging markets, continues to surprise us on the upside in terms of the opportunities or the quality of the opportunities we're seeing. As we all know, that's where the growth in health care is going to be in the short, medium and long term.

[Operator Instructions] And your next question comes from David Krempa with Morningstar.

Two quick ones on the contact lens market. First, we saw Cooper buy Sauflon this quarter. It seems like Sauflon would've been a nice fit in your portfolio, get you into the silicone daily lenses. Is this something we'll have to chalk up to an opportunity cost of waiting for Allergan? Or were you not interested at all? And then secondly, now that you've had the contact lens market for close to a year, I was wondering if you could share your thoughts in the market? I know in the past you've said you don't want to be in markets where you're the smallest player and the rest of the market is very concentrated. So are you satisfied with your scale in the lens market? Or would you be seeking to grow or divest from that market?

On Sauflon, we actually were in contact with -- we looked at that asset, and we congratulate Cooper for getting it. It was probably at a price that we would've been unwilling to pay, quite frankly, but I hope they're right and we're wrong in terms of the value. We actually did pick up a daily silicone hydrogel through this most recent acquisition that we do have in the FDA, and it's being registered in the U.S. And we think it's actually quite high quality, so that could be a real upside to this acquisition we just made. But clearly, that's a market we need to get into, if not through this particular lens. I think we're a lot more bullish -- at least I'm a lot more bullish on contact lenses today than when we bought the company. We have an outstanding team. I spent part of yesterday with them, the U.S. team, and it's a mix of -- it's led by a B+L employee but who was not leading it at the time. I think he's been with the company a decade. A young guy, Mark McKenna. He's doing a terrific job. Going around the room, we have some of the key players. Some of the marketing and sales team come from a combination of Alcon, J&J and Bausch + Lomb. I think we feel we have a real winner in Ultra, and we'll continue to gain significant share as production ramps up. I think the Biotrue Daily is a product that growth has actually accelerated since we bought it, even though it had been launched a year earlier. Part of that is the focus of the team, and part of it's now that we have Ultra and Biotrue Daily, a lot of doctors are saying, "You're now back in the game. You're -- Bausch + Lomb is now back on the radar screen." But as you can -- as we showed this quarter in acquiring [indiscernible] in South Korea, we will continue to look for acquisitions. Probably, the biggest learning for me is the number of small contact lens companies there are around the world with very interesting technologies. So it's consolidated at the top in terms of sales. But in terms of where innovation is happening, it's happening all over the place, and I think that's a real opportunity. So we are committed to contact lenses. We're committed to not being a distant #4. I think our aspiration is to get our fair share and being equal, if not a larger, competitor than some of the big 3.

Okay. And that $1 billion or so size was something you were still willing to take on while you're waiting for Allergan?

I'm sorry?

The approximate $1 billion of the Sauflon purchase price, you were willing to do that during the Allergan deal? So you'd be doing up to $1 billion deal?

No, no, no. No, I didn't say that. What I said was we were in discussions with -- we were actually in discussion with Sauflon well before we actually launched the offer on Allergan, or met with them almost immediately after we bought B+L. Brent introduced me to -- because he'd been in discussions with Sauflon. So we spent time with them. If the question is specifically during this period where we've had the financing, could we have done a $1 billion deal, I think the answer is probably no.

Certainly not cash.

But in terms of lost opportunities, specifically, the answer to that was no. Although if theory is there's some lost opportunity during this period of time, absolutely. But that's why we're in such active discussions, lining things up and -- to make sure that either way, if the deal goes through, we'll have a lot of capital. And if the deal doesn't go through, we'll have a lot of capital.

Your next question comes from Tim Chiang with CRT Capital.

Mike, you're experiencing some really strong growth in a number of your Bausch + Lomb products. Could you comment, is it really focused marketing or is it just pent-up demand? Or is just there a lack of new products in the eye care space, especially in areas that Bausch + Lomb had invested in maybe 2 or 3 years ago? And some of -- a lot of these new products. Are you just hitting the market at the right time? Is that why you're getting so much growth right now? Or is it something you guys are doing on top of what Bausch had been doing.

Yes, I think it's 3 things. One is Bausch + Lomb has made a number of smart sort of late-stage investments. Again, they called R&D, D&R. They would in-license products in late stages and sort of finish them off, by and large. They had a few products like Ultra that they took all the way through, just like we've taken Jublia all the way through. So when we look at their pipeline, we were sort of optimistic, but we didn't build it into the base case model. But I give Brent Saunders, Fred Hassan and their management team, Cal Roberts, who's still with us, a huge, huge amount of credit for being smart in terms of some of the products that they brought in and developed. And so yes, we're benefiting from a lot of great new products. I think the second, though, was we have a much more energized management team. I think the decentralization is something that has really appealed to the Bausch + Lomb managers. And so I look at Joe Gordon, who's running our consumer -- all of our consumer group, he's just an outstanding consumer marketer. And he's actually enhanced the growth of -- in one short year, he's enhanced the growth of the Valeant consumer products. So he's just really good. He and his team are just really, really good. If I look at what we're doing in China, and I look at Tom Appio on what he's doing, he's -- we're growing 20% plus in China. Basically the same set of products but in this decentralized, focused approach. So I think it's the management focus coupled with some great people that we got from Allergan [ph] that continue to focus on the business. And I think the third is sort of opening up the business development opportunities at a lower level. That's not making it a sort of corporate centralized function. Tom Appio found this contact lens opportunity in South Korea. He worked like crazy. Howard was on the phone. I was on the phone. But he went, he found it and he did it. So I think that's also unleashed a fair amount of energy, which gives me confidence that the innovation will continue to occur.

And Mike, maybe just one follow-up. That's very helpful. Just on the Jublia launch, when do you expect you'll get the marketing materials approved? I mean, is -- given the fact that you got an approval earlier than expected?

We think mid-August is about the time frame. We're going to bring our sales force in. We haven't trained them on this product. Again, they can talk through the package insert, but we're going to have a launch meeting. We're going to do it in New Jersey. It's not going to be a big fancy launch meeting, but it will be one that will bring all the sales force in and train them on the materials, which we've submitted to the FDA. Once we get those materials approved, then we have to submit our advertising that we've developed, our TV ads. So we have them largely developed, but then the FDA has to review those and make sure that they're comfortable with those. So we'll get the first set of marketing materials, call it, in August, and then we'll probably get the ad approved sometime in the fall. And we're lining up TV spots and -- because we really plan to blitz the market in terms of the DTC. Because this is one that -- it's going to be largely consumer-driven because the prescribe -- if you look at like Lamisil scripts, a ton of them are in primary care because people can self-diagnose this problem. And you just look at your toes and you can tell that you have onychomycosis. So -- and the fact that the product and the label, the safety profile is so strong that when we have a TV ad, we're not going to be spending the whole time talking about the side effects. We'll be talking about the product. So we think this is a smart DTC investment, and so we think we'll both generate demand to people that maybe are taking Lamisil, generic Lamisil today, but there's huge untapped market potential here, too. People that have the condition that don't want to go oral, don't want to have a liver test. And so -- and you can see it. Recently, there's been a lot of DTC ads on some OTC products, which we think is great because it's going to increase awareness, and we have the best product out there. So really, 2 stages of marketing approvals from the FDA. One on the materials, the sales reps are able to take out in the field, which will be sort of August time frame and probably September, October for the TV ads.

Your next question comes from David Steinberg with Jefferies.

I just wanted to expand on the previous commentary on Jublia. You've highlighted in the past, Michael, for some time that this has very substantial peak opportunities, and it looks reinforced by some of the commentary today. And it also looks like you're expecting a really sharp uptake. In the second year, it looks like $300 million of sales, which appear it would be your biggest product. So just a couple questions. First, on sampling. To what extent are you going to sample the product? If so, how long would the aggressive sampling go on? And so hence, how long would the scripts be understated? And then could you give us some color on discussions with managed care reimbursement, particularly with the generic orals out there? And finally, you mentioned that the label is stronger than you thought. What were you originally expecting, and what's stronger than initially thought?

Sure. In terms of sampling, we're heavily sampling this year. We -- coupled with a 0 co-pay coupon card, which -- so we want access out there. We want to get -- because we want for everyone to try this product. We have not made the decision in terms of 2015 exactly what our sampling strategy will be. It will all depend. But for this year, heavy sampling. And you're absolutely correct, that has a significant impact on sort of revenue that we book. But we think it's more important to get this product out there, especially in light of a competitor coming out a month or 2 later. The $300 million figure I think is a 2016 figure. Just maybe later [ph], having 2015 as the launch year. So I think 2015, we're forecasting $150 million and that $300 million for 2016. And we think that will take 3 or 4 years to sort of get to the peak sales, which we had set 300 to 700, and we hope we're conservative. At least, we hope it's closer to the 700, and that's just the U.S. figure. In terms of managed care, we have a strong managed care team. They're out there talking already in terms of contracting this product. We're beginning -- we have not signed any contracts yet, but we expect to in this quarter. Usually, you'll have sort of this 6-month sort of grace period. We want to get -- we do think the fact the safety profile is relative to the generics will be a strong argument for managed care. But until we get the results of those discussions, we're cautiously optimistic, but we're hopeful that we can get it out there. And I think your last question?

It was about the label. You'd indicated that it was a stronger-than-expected label.

Yes, in terms of the efficacy profile in terms of the data that was included in the label, again, honestly, we probably should get back with a more specific -- this is feedback from our R&D department and the people who are working with the FDA. We may have taken too conservative of an approach in terms of what we would've gotten. But why don't we follow up with you on that one and get you the more specifics? Because I don't want to say something that's, especially since it involves the FDA, that is not absolutely correct.

Okay. And just one quick follow-up. Appreciate more the granularity on the top 20 global brands. You indicate that about 50% of the growth is from price and volume. I was wondering on the primary growth driver going forward if you could break out what percent might be volume, what percent might be price versus just a comment volume/price given that a lot of these products are pretty hard to track in terms of prescription growth.

We'll take your comment under advisement, although I must say that when we looked at all competitors, we didn't see anyone that was even disclosing this much information. And we heard the investors loud and clear. Our investors said, "We'd appreciate this." That's why we're doing it, and we're committed to continue to do it. But whatever we disclose, we know there's always going to be a request to disclose even more. So we'll take the advice under advisement, but I do think at this point, we're disclosing probably more than just about anyone else in the industry in terms of if we show our breakdown by business unit, which Howard went through, and which we've committed to continue to disclose on a going-forward basis. And the top 20 products, price, volume, what's growing by quarter, by year, again, for the foreseeable future, we hope that addresses the vast majority of the concerns, but we do appreciate the input.

Your next question comes from Alan Ridgeway with Paradigm Capital.

First of all, maybe just on the assumptions that you guys have used around the Allergan impact to your earnings outlook going forward. When you talk about $14 in 2016 as cash earnings, can you just explain what your assumptions are for the taxes and the impact of tax out of that acquisition for that number?

Yes, as we've said when we originally presented our proposal that we'd be high-single digits. We also said we would expect to do better, but there are some key diligence points that are very difficult to get at from the outside. And so until we get access, we'll just stick with the high-single digits.

Okay. Fair enough. That's good clarity. And then just on the sales of the injectables and the impact of that on your guidance going forward, can you maybe talk about -- or if you could give the details on what the Q1 sales of those products were year-over-year? And what were your expectations for that product in Q2 versus the $47 million that you guys posted? These were announced -- the sale was announced at the end of May, so the magnitude of the decrease from one month of lack of promotion. I'd just like to get some clarity around that.

Well, the -- keep in mind, we -- when -- we announced that we were going to sell this business when we announced the Allergan deal, number one. And also...

Back in April.

Back in April. And also, keep in mind that the majority of sales in this business occurs in the third month of the quarter, and the second month is larger sales than the first month. So it was a precipitous. I think I mentioned we had about $400 million in the -- for the year for this business embedded in our guidance originally in 230, and it was growing as the sales force became seasoned, developed relationships with the physicians and injectors and started being more productive. And the second quarter is clearly a big quarter in this business. So it was a very significant decline from where we expected it to be in Q2. You see the impacts year-over-year for Q2 in our organic growth, or you will see in our organic growth press tables. And as I mentioned, the 230 was what we embedded in our guidance for the second half of the year.

Okay. And maybe just one last one, how much of the Medicis business remains post the sale? And when you're talking about the payback period now from this acquisition, does that include Luzu and some of the other products that have come to market? And where those originally in your forecast? And I'll leave it at that.

Yes, I think we reported in one of our presentations about $500 million of sales going at this point. That did not include any Luzu or BV MetroGel. In our original filing, we do not -- as we've often said, we do not include pipeline products, so those are not part of our original model. However, if pipeline products emerged, then we -- then that contributes to the sort of the reduction in cash paybacks. So we have roughly $1 billion left in terms of capital if you include the proceeds we got from Galderma, after-tax, and if you look at the amount of cash we've earned from those products so far. So we have about $1 billion left to get to breakeven. We have $500 million of sales. We've owned it for essentially a couple of years now. So I think our -- I think we put in 6 years, which is probably a -- we would hope to be a very conservative estimate in terms of when we get our cash back. We also note that all the key brands now are growing. Last year was not -- we did not meet the expectations. But this year, all -- the Solodyn, Ziana, Zyclara, they're growing. There's also a number of -- there was an order for a product or 2 in there that are actually growing quite well, and there were some tail assets that are growing. We have -- we got a Canadian business which has some other products. So $500 million total sales, and we will include Luzu and BV MetroGel in terms of the cash that we attribute to that acquisition, which I believe we should since that's where the assets came from.

Your next question comes from David Amsellem with Piper Jaffray.

Just a couple. So I just wanted to come back to your thoughts on the synergies on the Allergan transaction should the deal come to pass. I mean, you've talked about significant DTC investment on Jublia. And then on Allergan, you've talked about retaining the aesthetics and neuro teams and retaining key R&D people and programs. So I guess in that sense, how do you get to the synergy targets that you've promised should the acquisition occur? And then the second question I have, and this may have been answered since I've been toggling between a couple of calls, is what's your level of interest in established brands, legacy brands? Is that something that's still of interest to you, and what are your thoughts there?

Yes, well, I think the best way we can point to how do we get the synergies but still sort of retain the sales forces and DTCs is maybe I can reflect back on B+L, where we kept 100% of the sales forces in the U.S. and many of the sales representatives throughout the world for B+L. So today, we have more sales reps than we did when we bought B+L in terms of the B+L businesses. And we also -- in that case, we, for many of the products, Ocuvite for example, they have a DTC program that initially that we thought we were going to reduce. We actually kept it. Joe Gordon, who I've talked about earlier, convinced us it had high ROI. He was absolutely right. We kept that, and we found cost in other areas. So -- but net-net, on B+L, we're -- we said we'd save $800 million. We're on track to save $900 million, but we've kept the sales force, the commercial, the customer-facing. I think that a little bit of mystery here is there's so much money spent in most pharmaceutical companies in noncustomer-facing activities. And that's sort of the little secret in the industry, and that's why we're able to get these savings. In terms of established products, we've -- it depends on what the established products are. What we're not interested is getting sort of generic products in the U.S. and in Western Europe sort of nongrowing or products about to hit a patent cliff and geographies that -- with huge -- like in the United States, when things go off-patent, you lose most of the sales. So if we can get established products in emerging markets, we love those businesses, and we'd be a very interested buyer. If there was established products under-marketed, consumer DTC products in some of these other markets, we'd love to take a look at that, so it all depends. In our minds, established products depends on what the established products are and where in the world they're being sold.

Your next question comes from Greg Fraser with Deutsche Bank.

It's Greg Fraser on for Gregg Gilbert. On the change to the cash flow guidance, does that reflect any change in your prior thinking on cash conversion? Or is it primarily driven by the divestitures and the increased investment behind the new launches that you discussed?

We're still targeting the 90% range in terms of net income operating cash flow conversion. Obviously, we're going to not be satisfied till we get to 100%, but we're still comfortable in that range and that's where we've been trending so far this year.

And the slight creep-up for tax rate in 2015 and 2016 in the stand-alone scenario, what's driving that change?

As we've said before that if we do nothing, no additional business development activities will tend to be accretive because we'll use up certain tax attributes in Canada and the U.S. Now the reality is, is that -- and that's how we model it, conservatively, assuming nothing change -- we had no additional tax attributes. So -- but the reality is we will do things, and we will get tax attributes and we should be able to manage it. There's no reason we shouldn't be able to manage it to current levels. But again, as I mentioned, when we went through the outlook, we decided to take conservative assumptions, so the limited number of shots that folks might take at it. And really, hopefully get you all focused on what's really important, which is the strong organic growth that is coming through in our businesses around the globe [ph]. But we should be able to manage that to current levels in reality.

Okay. And then just my last question on the alternative fulfillment initiatives, I know you've made improvements there versus what Medicis was doing. Can you just give us a sense of how much volume tends to run through that channel and what products you've rolled that program out to?

We're not going to give specifics. It's -- we think it's a competitive advantage that we have, and it's still primarily the Medicis products, although not exclusively the Medicis products. And -- but I don't want to give specific numbers, but it is a very successful initiative.

Your next question comes from Mitch Nordon with Schecter Capital.

Just a couple of questions on Slide 37 where you talk about accretion. Wondering if you could speak to what cost synergy number you were using for your numbers in Slide 37, and also tax rate and interest rate on the funding.

Well, as I just mentioned on the last question, we -- a couple of questions ago, we assumed the $2.7 billion and we assumed in 2016 because we assumed the January 1 or December 31, 2014 close, by then we'll have 100% of the synergies -- just about 100% of the synergies in there. And we've assumed high-single-digit tax rate, and again, as I just mentioned, we would hope to do better than that. And in terms of -- yes, we use around a 6% average blend between fixed and floating, both bank and bonds for the funding, which is where we'd expect to be at this point.

Great. And then also with regard to the synergy number, just want to make sure that's not double counting given Allergan recently increased their cost saves. Did you reduce your -- I apologize if you answered this question, did you reduce your synergy number to account for that?

No, if you go back -- if you go to the assumptions on the slide, we use their 2014 guidance, and in their 2014 guidance, they've not taken the synergy...

Beginning of the year [ph], right?

No, the most recent, where they've not taken out any cost synergies in 2014. We did not use their '15 and '16 guidance where they did assume that they were going to take out the cost. So it's their current cost base that we took the $2.7 billion out of.

But again, if they actually do reduce cost, and we're not going -- we don't double count synergies. We'll just thank them for taking the synergies before we acquire them.

Understood. Great. And when are you assuming that the special meeting would be held?

Well, I mean, we're -- we would -- Pershing is intending to deliver the requisite number of proxies in mid-August. And once they're certified, Allergan has no -- can't call the meeting any fewer than 10 days, and they have up to 120 days. From our perspective, we'd love them to call it as soon as possible, but that's not within our control.

Your next question comes from Annabel Samimy with Stifel.

I have a few. Just regarding the special meeting on Slide 39, you have a comment that you would request the Allergan Board of Directors to appoint a slate of 6 new independent directors. What does this mean for the slate of directors that you've put forth? That was question number one. The other 2 questions are related to the guidance. For 2014, I think you've laid out about $255 million in changes related to aesthetics and divestitures and the PreCision delay, but you're lowering guidance by about $300 million to $400 million. So I guess I'm wondering what we're missing in 2014. And then in 2015, the top line is relatively in line with consensus. The bottom line is a good dollar -- about $1 lower. So we've got similar assumptions of use. So is there anything below the line that we're missing maybe in terms of that differential? And I guess one other question is related to stocking. You've had 3 launches -- or several launches. How much is the performances from stocking into these launches?

I think we've got most of the questions and tell us if we didn't get them all. But in terms of the guidance, I think your question was there was $250 million, and we lowered the sales guidance more than that. On the bottom, it was more rounding more than anything, more than anything else. At the top end, we're just -- as we get into the year, we'll just try and be more precise as to where we think we're going to be. So this is our best view at this point. In terms of 2015, we tried to give a very conservative view, as we mentioned, for 2015 and get -- make -- get people really focused on the strong organic growth. We didn't try and push the edges of the envelope. Obviously, we would expect to do a lot better. I can't comment on all the individual models for 2015, and I don't know when the last time a number of them had been updated to 2015. But this is a, we believe, a very solid, conservative view of what a stand-alone Valeant would look like. And lastly, in terms of how much of the performance is driven by stocking of these new products, at this point, it's very little.

Minimal, a couple million dollars.

Yes, it's very small.

Okay. And just on the other question regarding the board members, who is it that is responsible for putting forth the new -- the slate of new board members? You've proposed some. Allergan -- other board members believe that they can propose their slate. So how does that play out or work out?

Well, preparatory [ph], we're requesting the shareholders to remove the majority. So 6 out of the 9, and it's a preparatory [ph] proposal to appoint ours. We would hope that the board, who has the right to replace directors, would replace the directors with ours. If not, there's a court process in Delaware where you can follow to have that occur. But it is a technically a prepatorius [ph], so it's non-binding, our slate. But as -- we put our slate forth, and I've not heard of any other shareholders putting forth another slate, so I can't comment on that.

Your next question is a follow-up question from Sachin Shah with Albert Fried.

I'm actually surprised, you mentioned the $10 that they mentioned as far as the guidance in 2016, but I'm not sure if I heard today anything in regards to the legitimacy or the validity of that and among other estimates that they provided going forward. So can you maybe just comment on that? Because obviously, they're using that as a compare/contrast to your offer saying, "Okay, your offer is x or on an implied basis," versus what their stand-alone value that they could be extracting on this $10 plus?

Yes, so what I think we gave you is choices. Every investor will make their own choices. We provided a number of numbers. We started with what they achieved in 2013, and that's just the fact, which is $4.77. Then we collected 3 research reports that before the deal, what they had is an estimate for 2016. And we took Goldman Sachs and Bank of America because those are their advisers, and we took Bank of Montréal because that seems to be a big supporter of the deal, and that was $7.27 and that was in April of this year. Then we put down the most recent Allergan guidance of $10. And then the other thing that in our mind is pretty well factors our conservative 2016 case coupled with our offer would be about $20. So I think most investors probably take that 2016 somewhere between the $7.27 and the $10, but it's up to every investor to make their own. My personal opinion doesn't matter in terms of what I think they could do. It's up to the investors who will be voting on this deal. All right. Sounds like questions are over. It's 9 -- past 9:30. So thank you very much, and we look forward to talking in the next quarter.

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