Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant's Fourth Quarter and Full Year 2017 Earnings 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. Thank you. Art Shannon, SVP of Investor Relations and Global Communications, you may begin your conference.

Thank you, Amy. Good morning, everyone, and welcome to Valeant Pharmaceuticals' fourth quarter and full year 2017 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Joe Papa; and Chief Financial Officer, Mr. Paul Herendeen. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, we would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation, as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to slide 2 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only. It is our policy generally to not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it is my pleasure to turn the call over to Joe.

Thanks, Art. Let's start with the topics for today's call. First, I will run through the fourth quarter and full year highlights and briefly review the key achievements of our businesses. I'll then turn the call over to our CFO, Paul Herendeen, to review about the fourth quarter and full year financial results and provide our guidance for 2018. Finally, I will wrap up with the 2018 catalysts before opening the line for questions. Beginning on slide 4, approximately 21 months ago, we established a multi-year plan for Valeant's turnaround. After working to stabilize the company, we are now well into the second phase of the plan, the turnaround, where we're taking steps to drive shareholder value. Our three main areas of focus are resolving legacy issues and derisking the balance sheet, investing in core franchises with attractive growth, and launching new products with meaningful opportunities. We've built a world-class organization and we are confident that we can continue successfully execute on these initiatives. Moving now to slide 5. We've provided an overview of what we have accomplished in 2017. It's been a very busy and productive year. Bausch + Lomb/International, which represents more than half of our 2017 revenues, grew organically in the mid-single-digits during each of the four quarters of 2017. Our Salix business is also growing nicely. That business generated mid-single-digit or higher organic revenue growth during the last three quarters of 2017. In addition to growing our core businesses, another important area of focus throughout the year has been advancing our new product pipeline. We launched more than 100 products globally last year, including AQUALOX contact lenses in Japan, and Biotrue ONEday lenses for astigmatism in Europe. In the U.S., we launched VYZULTA and SILIQ. We received FDA approval for LUMIFY, FDA acceptance to file for…

Thanks, Joe. Before I start, when we talk about organic growth, I just want to make sure everyone understands, that means on a constant currency basis and adjusted to remove the impact of the businesses that we divested. So here we go. Starting with the quarter on slide 10, with segment details on slide 11, 12 and 13. We posted a solid quarter with reported revenue and adjusted EBITDA squarely in line with our expectations. Reported revenues were down 10%. Divested assets accounted for roughly 9 percentage points, or $221 million of that reported decline. Further adjusting for FX on an organic basis, revenue was down 2%. If you peel back the impact of the LOE bucket, our core or go-forward assets actually grew about 1%. The major items driving that growth were the B+L/International segment, which grew 4% organically, and our Salix business, which grew 5% organically. Within the B+L/International segment, all five sub units posted organic growth over the prior year quarter. In order, Global Consumer was the star, up 9%, Global Vision Care up 5%; Global Surgical and International Rx were both up 2%, and Global Ophtho was up 1%. In Salix, XIFAXAN led the way, was up 10%. Ortho Dermatologics was a growth headwind in the quarter, down 36% as the re-basing of that business continues. I'll spend a second. Our ASPs in derm have stabilized and now units are stabilizing as well, not compared with the prior year, but looking at time series Rx data as a proxy for units, you can see the flattening out. The dermatology has market has undergone significant changes during the last two years. Third-party payers have dramatically reduced patient access to products like those that comprise our legacy derm portfolio. That has had an impact on both net realized…

Thank you, Paul. Let me now turn to slide number 24. Today, I'm excited to announce the global expansion of our dermatology business, Ortho Dermatologics, and our aesthetics business, Solta, is a long proven model demonstrating the synergies between aesthetics and medical dermatology. We've now reached the point with our five new launches in late-stage products in dermatology, including SILIQ, DUOBRII, JEMDEL, RAM 06, ALTRENO, along with our investment cycle in Solta, with Thermage, Fraxel and Clear + Brilliant that are all bearing out, that we decided to combine our dermatology portfolio. Solta is available in countries all around the world, and with a geographic expansion of our U.S. business dermatology business combined with our new product growth, this will help us to double this business over the next several years. With differentiated products, we believe dermatology and aesthetics are high-growth therapeutic areas with strong consumer qualities that will prove durable and successful over time, especially as our market share increases in the global field. Let's discuss the opportunities for our products. Starting with psoriasis. We estimate that the combined market for biologic and non-biologic products to be more than $7 billion per year. We believe acne adds another $2 billion. So this is a large and growing area with an addressable market of over $9 billion per year. In addition, there are 7.5 million patients in the U.S. with psoriasis, the majority of which are treated with a topical either alone or as an adjunct to biologics. Ortho Dermatologics has distinct competitive advantages in this area. For example, based on publicly reported data, we believe approximately 35% of the major products in Phase 3 are waiting approval in the U. S. for acne, atopic dermatitis and psoriasis are Ortho Dermatologics assets. We also have an opportunity to leverage the…

Your first question comes from the line of Gregg Gilbert with Deutsche Bank. Gregg, your line is open.

Thanks. Good morning, team. I have a few, starting with you, Paul. On the tax rate, does the 13% represent a cash rate and how should we think about the cash rate beyond this year? Secondly, for both of you, perhaps, on the heels of your comments about the shelf, your decision to share longer term growth goals, what's your sense of urgency and your appetite to reduce debt in addition to doing it the old fashioned way with cash flow? And lastly for Joe, can you update us on any recent developments in the XIFAXAN case with Teva? If the litigation stay were to be extended beyond April 30, is that something you would discuss soon? Any update on that front would be helpful. Thanks.

Okay. Paul, why don't you start with the tax rate and then we'll go to that long-term growth.

Yeah, sure. Yeah. Starting with the tax rate, the 13% – to the cash tax rate is a component of the 13%. And I think that when we're passed on a public – something's going wrong with the phone here. Okay.

Everyone, please mute their phones.

Yeah.

Yeah, we're back. Thank you. When we were last speaking publicly about the impact of tax reform, our belief was that there would be a marginal increase in our tax rate and specifically called out that we expected that the U.S. cash component of our global tax rate would go up. And that's the way it is playing out. I think you saw – heard my prepared remarks around the tax rate. We're guiding in 2018 to a 13% rate on our adjusted earnings. So that's a global effective tax rate. So the cash component is a part of that. Very importantly, and I did have this in my prepared remarks, we continue to have a very good tax structure, which enables us to convert a large proportion of our earnings to cash, which is a good thing when you're a leveraged company like ours, where we need to generate cash in order to continue to address our debt maturities. The second thing on the shelf – and we covered that. I said you linked it into the providing longer term guidance, let me first say that we're providing the longer term guidance because it is difficult for the market to look at the progression of our company, as Joe's says, moving from stabilizing the company and getting us back to a growth mode. It's hard for the market at large to be able to see that. So we wanted to provide some information about our expectations about revenue and profit over the three years following 2018, because they're important years for us where we get past the stabilization and we get back to a growth mode with our company. Clearly, in looking at the way people model us, we wanted to just help put some balance around what we expect. You can believe it or you can choose not to, but we certainly believe in the CAGRs that we put out for both revenue and profit. With respect to the shelf, if we hadn't had our challenges a year or more ago, we'd have always had a shelf in place. And this is – as I said, this is just good corporate finance practice. You have it, so if you need it, it's readily available. To your question about do we use – or how do you feel about reducing debt other than through cash flow, we've consistently said that all levers need to be considered. But as I said, we're not sitting here today saying there's an urgency to go do something, not tomorrow.

Yeah. Maybe I'll just add a little bit to what Paul said because I think Paul is absolutely right. What Paul and team has done is just I think an outstanding job in dealing with the debt of our company. What we've done, as you know, is we've turned all the cash that we generated in paying down debt, first and foremost. Number two, we looked historically at non-core asset divestitures. And we've been able to sell and receive proceeds of $3.8 billion on those non-core assets divestitures. I think as we've said publicly, from this point forward, we may look at some non-core asset divestitures, but they would simply be opportunistic. We're not out here trying to increase those. So that gives us also the opportunity to take some of the working capital improvements and apply those to debt. And I think those would be the primary areas. I just supplemented what Paul said because I think he answered it quite well. On the question of XIFAXAN and the situation. Just as a reminder to those that – to our knowledge, there's only been one filing to date. That was the Actavis/Teva filing. Sandoz had a program in place but by everything that we've seen, they discontinued that program. You're correct, there's a one-year stay through April 30. That's associated with a regulatory stay as well through July 28 of 2019. At this point, we have not heard anything from Teva. At this point, we have not notified. I think Teva's clearly trying to work to understand that they – or they have the ability to meet the new FDA requirement for a XIFAXAN generic, given the fact that we now know there is some significant difference with the different polymorphs associated with XIFAXAN product. In the meantime, the only thing I would add to your question is say, we continue to develop what we think is a more patient-friendly formulation for the existing and for new indications of XIFAXAN. So we're not sitting still, we are continuing to go forward. And I think as I've said publicly, we are very confident in our intellectual property that supports XIFAXAN to make this a durable franchise. Operator, next question?

Thank you.

Your next question comes from the line of Umer Raffat with Evercore ISI. Umer, your line is open.

Hi. Thanks so much for taking my question. Paul, let me ask it more directly. Is there a realistic possibility you may tap capital markets? Or maybe said another way, is there a certain share price you need to see for you to pull the trigger? And I have a follow-up.

Yeah. Obviously, we would never comment on what our plans might be with respect to raising equity capital. You started the question by saying, will you tap the capital markets. I think we tapped the capital markets multiple times, i.e. in 2017, but that being the term loan market, the secured note market and the unsecured note market. Yeah, we will continue to evaluate opportunities to address our cap structure. I think the important thing here is, we stressed it over and over again, the work that we completed in 2017 was by no means over. Not done, enabled us to – gave us the runway where I think everybody should be able to have a visual about how we work our way through what is and was a challenging debt stack. And then the last thing – I say it every time – I'd say equity has to be on the table but I don't sit here today thinking that's something that's urgent. Again, please, we reasonably put it into our script. Last thing we want is we file a shelf and somebody says, oh, look at this. It's like this is just good corporate practice. If you sat in my seat, you would file a shelf.

Got it, got it. And my follow-up, Paul, if I may is I think one of the themes throughout 2017 has been – and maybe this is also for Joe – the theme in 2017 has been that you have a certain guidance in place, which assumes most of the LOE impact, and the LOE impact is not as pronounced as was guided and that results in beats. So my question is this. You have a similar phenomenon going on in 2018. But there's something else is going on as well. You're guiding to your base business, growing the revenues at a certain 3% to 5%. But then the incremental EBITDA margin on that base revenue growth is only 15% to 40%. It's not the 90% EBITDA hit you get on LOEs. So my point is, are you being conservative when you say LOEs get a 90% hit, whereas incremental revenues on base business are only at an incremental margin of 15% to 40% while SG&A will be flat year-over-year?

Yeah. Umer, thank you for the question, because it focuses right in on something that I tried to hit multiple times in my prepared remarks. You're absolutely correct is that the change in the adjusted EBITDA is not as pronounced as the change in what we expect in our base business. And the primary reason for that is we continue to invest behind our businesses in order to get the best long-term result. And the things that I called out is, as Joe said, we're increasing the size of our derm sales force. We are continuing to use media, TV ads to support our U.S. B+L Consumer business. We are continuing to engage in incremental promotional activities to drive our global lens business. We are intending to invest greater than 15% more in 2018 versus 2017 in our R&D efforts. So you're not seeing any leverage on adjusted EBITDA relative to what you're seeing is growth in that base business. And that's kind of why I pointed to those things. I'll say it, again, our goal is not to maximize adjusted EBITDA in 2018, it's to ensure that we get each and every one of our core businesses stabilized and invested behind so that we get the best long-term result. Quickly with respect to the LOE assets, the challenge here has always been that these are date uncertain. And when you have things that are date uncertain, one is I feel – we feel as a company compelled to provide as much transparency as we can to the market. I dare say we're as good at it as anybody. Now we've got the Class of 2017 LOEs and Class of 2018 LOEs, each and every one of you can make your own determination about what you think that trajectory will look like. But the point for me is that's a bucket of revenue that you need to think about in the near term, whether it's hitting in 2018, whether it's hitting in 2019, whether it's Q2 of 2018 or Q4 of 2018, you need to be thinking about it and you need to come to a point of view. We have taken what we believe is a good point of view by taking into consideration the things that can happen to us at the revenue line based on LOEs in 2018 v. 2017, and we've shared that with people. If people have a different view, that's what makes markets.

And I think pointing out these specific products that Paul's talking about, Lotemax, CUPRIMINE, APRISO and UCERIS, all not date certain. I mean we try to put our numbers forward and realizing that there is no specific date on when they will lose exclusivity, we simply are being prepared for that. If they do not lose exclusivity, obviously, there's an upside. But we wanted to put forward the dates that people had them as we – how we're thinking about them. Operator, our next question.

Your next question comes from the line of David Risinger with Morgan Stanley. David, your line is open. David R. Risinger - Morgan Stanley & Co. LLC: Great. Thanks very much. Can you hear me?

Yeah, David. David R. Risinger - Morgan Stanley & Co. LLC: Perfect. So, I just wanted to ask about cash flow and expectations for year-end debt. And so, Paul, could you please discuss your expectations for cash flow in 2018 in some more detail, including operating cash flow and free cash flow, and what that would imply for year-end debt in 2018 relative to 2017? Thanks so much.

Sure. Thanks for the question, David. And we look forward to seeing you later today. We don't guide to cash flow. But I will say a couple things – repeat a couple things that we said during the course of 2017 and then put 2018 in context. We generally said that a kind of middle of the road cash flow number per quarter, operating cash flow was about $500 million. And then it ended up that – for the year, we ended up generating better than that, about $2.2 billion, $2.3 billion of cash flow from operations in 2017. That was in part due to some movements in accruals and settle ups and such things. But that $500 million per quarter number was a half decent estimate. Now not linear, just like everything, not linear. Thinking ahead to 2018, you have a reduced revenue and profit base and therefore the $500 million needs to be adjusted based on your view of profitability in 2018. And I dare say, obviously, it's not $500 million. It is a lesser number than that due to divested assets, due to the continued runoff of the LOE bucket, and the contraction of the dermatology business. That said, I expect that we will continue to produce cash flow in the neighborhood of the low 400s million per quarter. And then we use that to invest back in the business. And by the way, that's cash flow from operations. So, of course, you got to cover CapEx and all of our other cash costs and investments that we might make over the course of the year. We can continue to reduce debt through cash flow. I think you've seen some recent things. Earlier this year, we paid off another couple hundred million dollars. We had a press release actually this morning. We paid off another $71 million just using cash that was available. We will continue to have that ability as we go forward in 2018, and, frankly, beyond. Again, this comes back to – it always comes back to tax. We generate a significant – or convert a significant proportion of our earnings into cash. And we will use that cash to reduce debt. We are very focused on improving our working capital efficiency. And to the extent that we improve our working capital efficiency, we'll use that cash as a priority to reduce our debt. I'm not sure that answered your question but I think it gave you direction.

Your next question comes from the line of Annabel Samimy with Stifel. Annabel, your line is open.

Hi, guys. This is Andrew (50:57) in for Annabel. Thanks for taking my question. So any thoughts on go-forward margin impact of new launches, both for gross and operating margin expectations as the product base turns over in your launch? Do you have any medium or long-term profitability targets? And also are the new dermatology launches you announced in your numbers? Thanks.

Yeah. So I'll start with this one. On the point of view, what we're saying is that we are going to invest in launching these new products, especially as we've referred to the Significant Seven as they get approved. There will be some investment there. But probably the best way to say it is just if you think about what we're saying about how we're thinking about EBITDA and the leverage we see in the P&L, so, yes, we do think there will be leverage in the P&L as you move from the revenue growth numbers to the operating line. I think it's important to say that the individual products that we're talking about will get incremental sales, marketing and promotional activities behind them. But we also think that the gross to nets for these products will be better than the overall Valeant as they represent new innovation in the marketplace. So probably that's about all I can really say in terms of how we're thinking about it in terms of, yes, we will launch these new products. Yes, we think there's new innovation here. Yes, we believe the gross to nets will be better than historical Valeant products. And I think the only final comment is as you think about the growth, especially in the dermatology, that growth is going to come with what we think is some improved leverage in the P&L.

Yeah. Andrew (52:34), it's Paul. I just want to follow on, because consistent with what we talked about in our prepared remarks and that we have continued to talk about here. I think when you're thinking about margin, if you think about operating margin in 2018 v 2017, you look at it, you're going to expect a contraction. I mean, Umer brought up this point about the base business growing at one rate and the adjusted EBITDA growing at a slower rate. So we are going to see a decline in that margin as that tees us up for, as I said, better long-term performance. Our longer term guidance implies that we will get leverage on our OpEx over the course of the period from 2019 through 2021. And I can tell you, I firmly believe that it's timing of supporting launches. I went through the list in my prepared remarks. If I missed one, I'll try and come back to it, but SILIQ, LUMIFY, VYZULTA coming up, DUOBRII, JEMDEL, contact lenses, et cetera, et cetera. You invest behind those launches including not just in promotional campaigns but, as Joe said, the increase in the size of sales force in dermatology, that has a short-term impact on your margin and beneficial impact on your long-term revenue and profit growth trajectories.

Operator, next question.

Your next question comes from the line of Louise Chen with Cantor. Louise, your line is open.

Hi. Thanks for taking my questions. I had a few here. So first question I have is that you talk about this turnaround of a lifetime, but I think it's not really being reflected in your valuation. So just curious what you think the Street might be missing here. Second question I have is following up on another question earlier, if you could provide more color on your ending debt balance and the leverage ratio for the year. And the last question was, seems like derm is still a very important part of your business. Just curious if you have any interest in aesthetics for dermatology, or really your focus remains on medical dermatology? Thank you.

Right. I'll start with the commentary. Yes, I do absolutely believe the turnaround of lifetime is true. I do think it takes some time and we have to demonstrate the performance and what we're trying to do right now is show that in more than 75% of the business, Bausch + Lomb/International plus the Salix business. If you combine those, we're seeing mid-single-digit growth rate. We think that's obviously important. At the same time, we try to be as transparent as possible that we do have some loss of exclusivity, some divestitures that we made. Because of those, we have a 2018, as what Paul referred to, I believe, as a trough year. I'd probably go one step further and say that based on the seasonality of any year we probably are in the trough quarter if you think about Q1 being the lowest percentage of the performance. Having said that, where we are going from there is always going to be about launching these new products. We're launching the new products as we think they represent the significant turnaround for dermatology, first and foremost, but also, as we referred to the Significant Seven, help us in the Bausch + Lomb business, the Salix business and, of course, the dermatology. So that to me is the reason why we're excited about the future and where it goes. Paul, why don't you talk about the ending debt balance?

Yeah. We're not going to guide to – I mean this is kind of a different way of coming at the cash flow, how you're going to use it to reduce debt. We're not going to guide to an ending lead balance, sorry, Louise.

And then the last part was the derm interest in aesthetics. We have a great business in Solta. As we look at Solta, there's an opportunity, we believe, to leverage our Solta business, combine it with what we're doing with our medical dermatology and get the value for the total dermatology patients and physicians. So yes, we do think there's value in the medical dermatology. We're excited about some of the new innovation that we have in our Thermage and Fraxel. All those products, we think, will help us for the future. Operator, next question.

Your next question comes from Chris Schott with JPMorgan. Your line is open.

Good morning. This is Chris Neyor on for Chris Schott. Congrats on that strong 2017 performance. My first question's on the branded Rx pricing environment just generally. Last year you had a reset in the dermatology business. When we think about pricing and access for your GI and dermatology business in the U.S. this year, should we think about a more normalized price environment, or are there any headwinds that we should be keeping in mind? Second question is on just the dermatology launches you guys have coming up in the second half of 2018. Should we think about these as more gradual or should we think we potentially have a more rapid launch process? Thank you very much.

Sure. Let me start on the brand Rx pricing environment. We think it is a market where with any ever price increase we take, we will realize approximately half of that in terms of net realized price. So we, as you may know, have tried very hard to stay within our branded prescription product pricing market within the single-digit range. And since we put together our Patient Access and Pricing Committee, we've been able to do that and keep pricing at a single-digit range. I would say that, if I just use a number just for the sake of argument. On any product that if we take an 8% price increase or a 6% price increase, we expect we would realize approximately half of that in terms of the value, in terms of the net realized price. The rest of it would be absorbed by the channel. On the question of where we see that gross to net, I think our gross to net, we think, is going to be relatively stable. The big change on gross to net usually always occur if there's significant new competitors showing up in the category. Otherwise, it's a relatively stable pricing. There's a push-pull on that, of course, from our channel dynamics. On the question on the derm launches. We think that each one of them is a different category by itself. The SILIQ product, we expect it to be a slower launch. I made that comment in my remarks based on the labeling. But based on the fact that it is a IL-17 receptor blocker, we believe that that receptor blockade is going to give good patient response over the long term. So that's clearly one that we do think over the long term, we're delighted to see that 90% of the patients are staying on therapy. The other products in the derm category, we do believe are going to be a faster ramp than the SILIQ product as we look – go forward with the future. We're already very excited about some of the initial prescription data we're seeing on the RETIN-A MICRO 06. That's ramping up very nicely in a very quick timetable already. Operator, I think I have time for one more question.

Your next question comes from Gary Nachman with BMO Capital Markets. Your line is open.

Hi. Good morning. Back on the 2018 EBITDA guidance. I know you want to spend more this year, but how much flexibility do you have with expenses? So if there are some headwinds on the top line during the year that you'd be able to hold back spending; and where would that potentially come from? And then how aggressive are you looking at additional divestitures? And are you actually at a point where you could consider bringing in some new assets and what areas might you do that? Thanks.

Sure. I'll start on the EBITDA guidance comment and say when we crafted this guidance, we tried to be aware of all the issues that could potentially affect it like the loss of exclusivity, like the new products, like our investment that Paul mentioned. Our view is it's the correct number for what we're trying to do with our plan right now. But as with any plan, you always have the ability to manage it during the course of the year. On the second part of that question was about divestitures, we've been very successful. We sold – realized proceeds of $3.8 billion over the last 18 months. We believe that those proceeds are coming at an approximate EBITDA multiple, on average, of approximately 10 times, with the milestone payments. So we feel we've realized what we needed to do. And we, fortunately, have done it with all non – what I would refer to as non-core asset sales. So for that reason, we've been able to continue to keep our core, our core being where we want to be in the Bausch + Lomb eye care business, the dermatology business and the Salix GI business are really the primary core by which we want to build around. I think on where we'd go with potential new assets here, you heard some of that today when we talked about the Kaken asset that we acquired for new opportunity to treat topically the product category for psoriasis. That we think is an exciting product for us for the future. You've heard us talk about in the past when we licensed in the PLENVU product. PLENVU product is a product that we're awaiting FDA approval. We have a May 18 PDUFA date. That's another example of what's building out in our GI category. So what you expect to hear from us, as we look to the future, is that we have continued to make investments in areas where we want to remain in our core of dermatology, eye care and our GI our business.

Okay. Thank you.

That concludes what we wanted to say today. Everyone, thank you very much for joining us. We look forward to meeting many of you over the next few weeks and months ahead. Please let us know if there are any questions. We'll be happy to try to provide some additional information. Thank you everyone for joining us. Have a great day.

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