Bausch Health Companies Inc (BHC) 2015 Q3 法說會逐字稿

Good morning. My name is Shawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valeant third-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. Laurie Little, Head of Investor Relations, please go ahead.

Thank you, Shawn. Good morning, everyone, and welcome to Valeant's third-quarter financial results conference call, where we will be discussing both our financial results and other matters. Participating on today's call are J. Michael Pearson, Chairman and Chief Executive Officer; Rob Rosiello, Chief Financial Officer; Dr. Ari Kellen, Company Group Chairman; and Anne Whitaker, Company Group Chairman. In addition to a live webcast, a copy of today's live 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.

In addition, this presentation contains non-GAAP financial measures. For more information about non-GAAP financial measures, please refer to slide 1. Non-GAAP financial reconciliations can be found in the press release issued earlier today and posted on our website.

Finally, the financial guidance in this presentation is effective only as of today, and it is our policy to update or affirm guidance only through broadly disseminated public disclosure. With that, I will turn the call over to Mike.

Thank you, Laurie. Good morning, everyone, and thank you for joining us. We are pleased to report exceptional results for our third quarter. We once again exceeded both top-line and bottom-line guidance, and realized our fifth consecutive quarter of greater-than-10% same-store organic growth.

This outperformance absorbs the negative foreign exchange impact of $172 million in revenues and $0.13 cash EPS, and is primarily driven by the performance of our US businesses, particularly the stellar execution in both dermatology and contact lenses. Our dermatology portfolio is now performing at a $1.9 billion annual run rate. And our US contact lens business has grown 46% on an annual basis since we closed the Bausch + Lomb acquisition in August of 2013.

We also realized strong results in several key geographies outside the US, notably China, which saw 23% organic growth, South Korea at 15% organic growth, and Mexico with over 10% organic growth. We continue to see our Salix integration exceeding expectations following the regulatory approval for the Xifaxan IBS-D indication in May, and we recently launched both our unbranded and branded DTC campaigns. Other brands within the sales portfolio are also showing strong growth. Finally, Salix inventory levels have been reduced to approximately 8 to 10 weeks.

This quarter, we also saw continued weakness in both western Europe and eastern Europe across all lines of our Business. We are taking steps to reignite the growth in these markets in 2016.

On the business development front, eight deals were signed in Q3, and all are closed as of today. We previously announced Amoun, Commonwealth Labs, Eyegate, Humax and Unilens on our Q2 earning call. Since that call, we have signed and closed brodalumab, Sprout and Synergetics.

Based on our strong base performance, and despite the genericization of Targretin and Xenazine, we delivered GAAP cash flow of $737 million, with a 90% cash conversion. For the quarter, our total revenues were $2.8 billion, an increase of 36% over the prior year, largely driven by the exceptionally strong growth in many of our US businesses which offset negative headwinds from FX. Adjusting for the negative FX of $172 million, revenue grew 44% over Q3 2014.

Cash EPS was $2.74, an increase of 30% over the prior year, which includes the negative impact of $0.13 from the strengthening US dollar. Adjusted for FX, cash EPS grew 36% over Q3 2014.

Our overall same-store total Company organic growth was 13% for the quarter. The exceptional growth of our US businesses was complemented by many of our Asian and Latin American emerging markets. Our same-store sales organic growth for the entire Company is 15% year to date, well above guidance. Our overall pro forma total Company organic growth, including the Salix and other acquisitions, is 17% year to date.

Although we stated last quarter that we will not be reporting separate B+ L organic results going forward, I thought it was important to include on today's call, given the softness in our US ophthalmology Rx business unit this quarter. The negative 3% growth for ophthalmology Rx was mainly due to a supply outage of legacy Valeant's Macugen product. Our US B+ L ophthalmology business was essentially flat this quarter. Overall, Bausch + Lomb organic growth in Q3 was 7% in the US and 10% in Asia, but globally was 5% due to our weakness in Europe.

In response to our shareholders, we are now expanding our quarterly disclosure to include the top 30 products in our portfolio. The top 30 worldwide products represented 54% of total quarter revenue. Our top 30 products delivered organic same-stores growth of 30% for the quarter.

A couple of important note: First, Jublia scripts at a 4 ml equivalent grew 28% sequentially from Q2 2015 to Q3 2015, while revenue only grew 4%. This is primarily due to an approximately $10 million reduction in wholesaler inventory due to a stocking of the 8 ml SKU in Q2, coupled with a shift in Jublia sales from the traditional wholesaler channels towards our specialty network where inventory is held on a consignment basis. We should see revenue growth more closely matching script growth next quarter.

Second, 12 of our top 30 products are global and, therefore, had depressed sales compared to prior periods due to the negative headwinds from foreign exchange. As a reminder, Glumetza will lose its patent protection in February 2016, and will fall out of the list in 2016.

We are pleased with the recent DTC campaign for Xifaxan that was launched in September with unbranded ads, and is now out in full force with the branded marketing materials. Scripts were up 15% on a sequential quarterly basis and 25% over the prior year.

Other products in the sales portfolio also saw strong growth, with Uceris up 20%, Relistor scripts up 36%, and Apriso up 7% year over year. Ruconest was up 29% on a sequential basis from last quarter. Inventory levels have been reduced to approximately 8 to 10 weeks, and we expect to reach our target of four to six weeks by the end of the year.

Moving on to Sprout: The team at Sprout had a very exciting last couple weeks, as the field force was trained and Addyi was officially launched this past weekend. We have 148 reps and 8 MSLs in the field. We are launching these in the package insert, and will be submitting our marketing materials to OPDP shortly. We are not planning on any DTC at this time. We are also excited that Cindy Whitehead has agreed to remain as CEO.

Many of you have asked about the performance in our emerging markets, specifically China, Russian and Brazil. China continues to do well, with 23% year-over-year organic growth, which we will discuss on the next slide.

Our Russian business has had a difficult first three quarters of the year, and was basically flat in constant dollars compared to 2015 over this time frame. This has been compounded by the sharp drop in the ruble versus the US dollar. This is largely attributable to the economic slowdown of the Russian pharmaceutical market. We are cautiously optimistic looking forward, as our Business has recently returned to growth on a local-currency basis.

The Brazil and Argentina business has been our most difficult set of businesses in 2015 due to the continuing devaluation of the real and the peso. The FX outlook remains poor. Fortunately, these businesses currently generate only $0.03 to $0.04 to our cash EPS on a full-year basis.

Moving back to China: Many of you have raised questions regarding the health of our business in China, given the country's current economic challenges. We continue to see very strong growth in our business in China, with 23% organic growth in the quarter. We price our products to appeal to the middle class, and the vast majority of our business is consumer cash pay. We have a leading market share position in contact lenses, and we continue to gain share.

It is interesting to note that 90% of all our products sold in China are manufactured outside of China, including at our US plants in Rochester, New York, and Greenville, South Carolina. Finally, we are expanding our Chinese portfolio to enter skincare and aesthetics with CeraVe and other products. This will provide another platform for future growth.

Before I turn the call over to Rob, I wanted to provide a quick update on a number of R&D milestones. We have recently received the Phase 2 data for the FSD trial for rifaximin, and it failed. We are currently studying the signals to determine whether or not to pursue a new program at different dosages.

Our Phase 3 program, IDP-118 for psoriasis, is well under way. We expect the efficacy and safety trials to read out by Q2 next year, and would expect to file Q3 2016. We expect to submit our NDA filing for broda in November. We also expect to begin the alcohol studies for Addyi later this quarter.

Now let me turn the call over to Rob to discuss this quarter's financials.

Thank you, Mike. Beginning on slide 12, our revenue of $2.8 billion approached the top end of our guidance, despite a negative impact of approximately $30 million since the guidance we provided during our Q2 earnings call. This is primarily driven by the outperformance of our US businesses, including dermatology and contact lens.

Our cost of goods sold improved to 22% in the third quarter, primarily due to the continued growth in dermatology, as well as the acquisition of Salix, and the ramp-up and yield improvement in our contact lens manufacturing. This resulted in overall improved gross margins of 78%. We expect our gross margins to approach 80% in the fourth quarter, driven by continued growth in our dermatology and Salix businesses, the launch of Addyi, and decreased sales of Xenazine.

SG&A was in line with the previous year at 24%, and improved by 1 point from last quarter on an overall basis, despite increased costs associated with our launch initiatives. In the third quarter, we spent approximately $45 million in DTC advertising supporting Jublia, Onexton, Luzu and Xifaxan, as compared to $60 million in the second quarter. The sequential decrease is due to the seasonality of our DTC campaigns and typical reduced spending in the summer months. The overall SG&A improvement was also driven by growth from Salix. R&D was $102 million in the quarter, an increase of approximately 26% relative to Q2, reflecting our continued investment in legacy Valeant programs, including IDP-118 for psoriasis, other late-stage derm programs, a range of surgical programs, and continued development of new contact lenses.

Our GAAP cash flow this quarter was $737 million. Excluding Q4 2013, the one quarter where we had an investment gain from the Allergan transaction, the third quarter represents the highest GAAP cash flow that Valeant has achieved. We also achieved our target of 90% cash conversion this quarter, a significant improvement from the second quarter. Given the recent acquisitions of Sprout and Amoun, as well as historical Q4 working capital trends, we expect Q4 cash conversion to be less than Q3.

Net sales from Salix were $461 million in the third quarter, a significant increase from the second quarter, reflecting the progress we are making in inventory drawdown, as well as the uptake from the FDA approval for IBS-D in May. We began the quarter with total channel inventories of approximately 3 to 3.5 months on hand, and are now at approximately 2 to 2.5 months at the end of the quarter. We remain on track to reduce total channel inventories to 1 to 1.5 months by the end of the year. Our estimates of total channel inventories are based on actual data received from the big three wholesalers, as well as estimates of remaining inventory at smaller distributors. We expect revenues attributable to Salix will be approximately $600 million in the fourth quarter, and approximately $1.35 billion for 2015. We continue to take a conservative approach to our sales expectations until this business is completely normalized.

In terms of balance sheet, we ended the quarter with a strong liquidity position through a combination of $1.5 billion undrawn revolver and $1.4 billion of cash on hand. Since quarter end, we have closed several acquisitions, and used a combination of cash and revolver to fund these transactions. We expect our revolver draw to approach zero by year end. Our net debt to pro forma adjusted EBITDA ratio was approximately 5.3 times, and we remain committed to reducing that ratio to below 4 times by the end of 2016. We are committed to debt paydowns in excess of mandatory amortizations required by our term loans.

As we stated in our press release, we are increasing our 2015 guidance for the fourth quarter and the full year. Fourth-quarter guidance will now be revenues of $3.25 billion to $3.45 billion, and cash EPS guidance of $4 to $4.20. Full-year revenue guidance for 2015 will be $11 billion to $11.2 billion in revenue, and cash EPS guidance will be $11.67 to $11.87. Full-year adjusted cash flow from operations is expected to be over $3.35 billion.

In April, we provided a 2016 outlook that included a $7.5 billion 2016 EBITDA expectation. We remain very comfortable with that number and expect to exceed it. While we have identified and incorporated some headwind adjustments, such as continued FX erosion and new expectations for future pricing environment, we also have completed several new transactions that provide upside in addition to the continued momentum and outperformance of our base business. We expect that organic growth will be approximately 10% in Q4, and we expect double-digit organic growth in 2016. We will provide our full 2016 guidance in early January.

Based on recent acquisitions and other external events, many of you have been asking if our strategy has changed. Our mission remains the same as it always has. We will always put patients and physicians first, while taking our responsibility for our employees and communities we do business in equally importantly. We also know who our owners are. We listen to you, and work hard for you every day.

Our focus also remains the same. We concentrate on high-growth markets, both therapeutically and geographically. We prefer durable products sold to concentrated specialist populations where physician education matters. We focus on products where consumer pay or commercial reimbursement is significant. And finally, we are committed to remain diversified, where no one product or small set of products disproportionately impacts our earnings.

What has changed is that our portfolio has shifted over time to newer and higher growth products, making pricing a smaller part of our growth looking forward. Given the evolution of our product mix, coupled with the recent events, it is likely that we will pursue fewer, if any, transactions that are focused on mispriced products.

Now let me shift to some modifications to our strategy. First, our Neuro and Other portfolio, which is dependent on price, will represent approximately 10% of our revenues in 2016, and will continue to shrink as a percentage of the Company. We have and are seriously considering spinning off or selling this piece of our Business. Second, due to our increasing success in internal R&D, especially in the areas of dermatology, contact lenses, surgical and OTC products, internal R&D will become more of a focus. Third, if our stock price remains at current levels, share repurchases will be seriously considered.

My final note would be that we have always believed that any company's strategy must be agile and flexible in order to navigate in an ever-changing world. During my 23 years at McKinsey, we found that companies that were successful over long periods of time had one thing in common. They were willing to move in and out of geographic and business areas over time, and they have modified and changed their strategy as the environment changed. We plan to be one of these companies.

With the turmoil over the past few weeks from both governmental and media scrutiny, and erroneous research reports, we thought it would be useful if we addressed your questions up front. You can clearly see the questions on the slide, so I won't read each one, but let's move on to the answers.

Valeant's price-volume growth: In the 8-K we furnished a few years ago, we tried to lay out our various business units, and the impact price has had on them. Contrary to what is reflected in the media and certain research reports, our Business is not 100% pharmaceuticals. Breaking down the Business into ex-US, US devices and consumer, US brand pharmaceuticals, and US generics, one gets a much better picture of our business breakdown.

For our 2015 year to date, you can see that, although price did play a part in our branded pharmaceutical unit's growth, which accounts for roughly 43% of our revenue, revenue has grown almost 20% -- volume has grown almost 20%. In the remaining 57% of our Business, price does not play much of a role. In the end, of the 16% same-store organic growth we have realized so far across our entire portfolio this year, our price-volume mixture was roughly 50/50.

Focusing on our US branded pharmaceutical portfolio, you can see that Valeant's price-volume mix has changed over time. In 2014, we had organic growth of 20%, with volume contributing 8% and price contributing 12%. Year to date in 2015, our organic growth has increased to 41%, with volume contributing 17%. For this last quarter, volume growth has increased to 19%. You can clearly see this trend in the past seven quarters, as volume growth is accelerating, and our average net realized price per script peaking in the fourth quarter of 2014 and slowly declining in 2015. It is important to note that we realize only approximately $300 in revenues for each 30-day prescription product that we sell.

Slide 24 bridges the price-volume dynamic for the third quarter from the previous year, with 19% of our growth in the US branded portfolio coming from volume and 15% from price. It is important to note that growth from price where a generic alternative is not available accounts for less than $75 million a quarter.

As most of the commentary around price centers on the wholesale price or list price, we wanted to provide a more clear picture on what Valeant actually realizes from a price action, which is considerably different than what has been portrayed. If you look at the top 10 dermatology products, which represent approximately 62% of our dermatology portfolio, we took, on average, a 14% gross price increase on these products this year, yet we realized less than a 2% price increase on a net basis. Doing the same exercise for ophthalmology, you can see we realized a little bit more of price, but all these products were only raised 10% on a gross basis.

Turning to our US Neuro and Other portfolio, a portfolio that is predominantly made up of legacy products from acquisitions made over the years, our year-to-date volume decline is 7% over that time period. We realized 30% on a net price basis. It is important to note that 61% of this portfolio has generic alternatives in the market, providing doctors and patients with lower-cost alternatives. Going forward, this portfolio will represent a smaller and smaller portion of our US business. We expect it to be approximately 10% of the portfolio in 2016, and continuing to decline thereafter.

As I mentioned before, there have been several research reports that contribute to the overall misinformation about our pricing. While these reports represent the individual's own opinions, when incorrect numbers begin to be quoted widely by others in the media, we feel compelled to correct this misinformation. A recent report from Deutsche Bank looked at the products that were over $10 million in sales. It reported that we raised price on 56 of our 69 products, representing 81% of our portfolio. It further suggested that we took, on average, a price increase of 66% on each of these products.

In reality, we increased price on 85 of our 156 branded pharmaceutical products, or 54% of our products. And our average gross price increase was 36%. It is important to note that our realized price increase was 24%.

While we have listened to our shareholders to provide more price-volume disclosure, we also took a look at what other companies provide. When looking at the top 15 pharma companies, only four provide quantitative disclosure on their full portfolio. Historically, Valeant has provided qualitative disclosure on its full portfolio. Going forward, we will provide quantitative price-volume disclosure on our full portfolio. Specifically, we're committing to provide the chart on slide 20 and the chart on slide 21 every quarter. We believe this disclosure should address your concerns.

More important than the look-back is the influence of price as we move forward. As I mentioned in the memo a few weeks back, price flexibility is very limited outside the US. In the US, our business units, such as contact lenses, surgical, consumer, Solta and Obagi, also have limited price flexibility. In the pharmaceutical portfolio, we assume low single-digit price increases looking into 2016 and beyond. Furthermore, our mix is evolving, so the US Neuro and Other portfolio will only represent approximately 10% of our sales, and our US branded pharmaceuticals will represent approximately 40% of our total sales.

Turning to our approach to US drug distribution, I want to clearly state that all of Valeant's drugs are available to all patients. Most of our US pharmaceutical products are available through the big three distributors. Our distribution is not designed to restrict access to our products.

Turning to: How does Valeant work with specialty pharmacies, especially Philidor? The topic of specialty pharmacies has not been a focus of ours on past calls because we believe this was a competitive advantage that we did not want to disclose to our competitors. But given all the incorrect assertions by some, we will provide an update on this call.

Similar to many pharmaceutical companies in the US, an increasing percentage of our revenue is coming from products dispensed through multiple specialty pharmacies. We find specialty pharmacies improve patients' access to medicines at an affordable price, and help ensure physicians are able to prescribe the medications they believe most appropriate for their patients. In almost all cases, our inventory with specialty pharmacies in this channel and the title to our medicine only transfers to the pharmacy when the actual prescription is filled. We find this significantly reduces our distribution fees and product returns.

Currently, only [$15] million of inventory at WAC, or gross price, sits in our US specialty pharmacy channel. This is a small fraction, less than 5%, of our total in-channel inventory. The largest component of this specialty inventory is [Arestin].

Philidor, one of our specialty pharmacy partners, provides prescription services to patients across the country, and provides administrative services for our copay cards and is a dispensary that fills prescriptions. We have a contractual relationship with Philidor, and late last year we purchased an option to acquire Philidor if we so choose. Given accounting rules, we consolidate Philidor's financials. Inventory held at Philidor remains on Valeant's books, and is not included in the specialty pharmacy channel inventory.

For many of our dermatology products, Philidor and other specialty pharmacies dispense our medicines before adjudication of the reimbursement is finalized to ensure patients get the medicines prescribed quickly. As a result, we take on the risk for non-reimbursement. We understand that Philidor provides services under our programs for commercially insured and cash paying claims only. Any claim that would be reimbursed in whole or in part by government insurance is not eligible for our copay subsidy programs. It does not restrict prescriptions it fills to any particular manufacturer. It dispenses generic products as specified in the patient's prescription or as requested by the patient.

Any non-Valeant prescriptions dispensed by Philidor are recorded as other revenue in our income statement, not product sales, and are, therefore, excluded from our organic growth calculations. The revenue for non-Valeant products is approximately $1 million per quarter. Since we do not recognize the revenue of our products until the prescriptions are filled, this consolidation has the impact of delaying revenue recognition as compared to products that are sold through traditional distribution channels.

Next question: Why did Valeant's General Counsel send a letter to R&O? R&O is one of the specialty pharmacies in our network, and Valeant has shipped approximately $69 million at wholesale prices to them. This represents approximately $25 million at net prices. Any products R&O dispensed to patients were recognized as our revenues, and are reflected in our receivables. Any products still held by R&O are reflected in our inventory. R&O is currently improperly holding significant amounts it receives from payers. We will refrain from comment on active litigation, and look forward to showing in court that we are owed the money.

Valeant's patient assistant programs are administered by a reputable third party, and we fund outside foundations that have multiple donors. Eligibility is determined by the independent foundations. It is also important to note that eligibility for our in-house commercial access programs is limited to patients not covered by government programs. Looking at history, our commitment to patient assistant programs has grown at an annual compound rate of 128% from $53 million in 2012 to approximately $1 billion we expect to spend in 2016.

Recent government inquiries: As you all know, Valeant has responded to Senator McCaskill, and addressed her questions regarding Nitropress and Isuprel. In a letter to her last Wednesday, we discussed the history of Nitropress and Isuprel, the reimbursement process for hospital procedures involving Nitropress and Isuprel, the analysis and reasons underlying Valeant's pricing decision, and Valeant's programs designed to improve patient access, among other topics. We also noted that we are beginning an outreach to hospitals where the impact of a price change was significantly greater than average.

The Company recently received a subpoena from the US Attorney's Office for the District of Massachusetts, and a subpoena from the US Attorney's Office for the Southern District of New York. Our counsel is already in touch with the government, and the Company intends to cooperate with the investigations. We will not be answering questions or providing more information that was already covered in the press release on these matters.

Our approach to compliance and legal: Like other critical areas, we take both compliance and legal compliance seriously. For the past five years, we have been under a corporate integrity agreement started under legacy Biovail, and this CIA was just recently concluded. The CIA required extensive written policies and systems, significant training, a well-functioning compliance committee, and an annual audit by an independent organization. We were also required to file annual reports with the OIG. Our final report was filed in early 2015.

In connection with Bausch + Lomb, we assumed compliance commitments made to the DOJ that includes maintaining an effective compliance program and annual certifications. In this industry, we must and we do take the matter of compliance very seriously.

With that, I will open up the call to questions.

(Operator Instructions)

Your first question comes from the line of Shibani Malhotra from Nomura Securities International. Your line is now open.

Hi. Thank you for taking my question. My question is on R&D, Mike. You said that R&D is going to become more of a focus for Valeant going forward. Could you expand on that? How are you thinking of internal R&D versus your previous assertions that it's more efficient to license or buy in smaller companies or products? Thank you.

Let me start and then I'm going to turn it over to Ari who leads our R&D efforts. I think what we've been able to show, at least to ourselves, is that our variable cost approach to R&D -- i.e., avoiding all the big fixed costs -- has been hugely productive. We've had a large return on our investment in dermatology, more recently in contact lenses and in surgical.

So, we do think there's a path forward where we can earn a very good return. But how we spend the money will be different than the approach of most large pharmaceutical companies. Ari, maybe we can talk a little bit about some of the programs and what we're doing.

The fundamental approach to R&D hasn't changed in terms of our controlling the critical points in R&D. For example, trial design and so on. We continue to believe that a lot of innovation occurs outside of large pharma in small institutions, academic start-ups, physician practices. We'll continue to source programs from there.

But as Mike said, we, through several years of dermatology [and dom], believe we have the capability needed to successfully launch products. And our pipeline of Phase 2 and 3 products in dermatology is [thinning]. Those obviously will attract funding and will continue to create opportunities like IDB-118, some of our normal acne compounds, other compounds in psoriasis, and in the future atopic dermatitis.

Eye care we've now had for two years and we're developing greater competency in the area. Mike alluded earlier to programs that are expanding in contact lens, in surgical, and consumer parts of eye care. And as we build the competencies in house, we understand the programs, the risk-reward profile and we'll continue to fund those.

Over time, we expect to develop similar competencies in GI, potentially in areas of oncology. So, we'll continue to be very prudent with investment, but what we're saying is we're better able now to chart the risk return of late-stage derisked assets.

Okay. How should we think about it from a financial perspective? And if you can't answer I'll just step out of the queue.

Sure. R&D exceeded $100 million for the first time, at least since I've been here, in the quarter. We haven't put together a full 2016 budget but it's probably going to be between [$400] and [$500], is my guess, for next year.

$400 million and $500 million.

Yes -- million dollars. (laughter) $400, $500, that would be really good.

Your next question comes from Gregg Gilbert from Deutsche Bank. Your line is now open.

Yes, thanks. My question is not surprisingly about pricing. I wanted to ask you about this new disclosure you made today that you see a new pricing environment going forward. Can you talk about what's behind that? And how does that specifically affect how you model 2016? For example, you're talking about the EBITDA floor still being something you're very confident in. Is that because you're now all of a sudden more confident in volume growth or other factors? Can you talk to that point with some specificity? Thanks.

Sure. You just have to read the newspapers. I think it's clear that the pharmaceutical industry is being aggressively attacked for past pricing actions. And that's not just Valeant, but I think it's all companies. I do think given that environment, the pricing that pharmaceutical companies will take in the future will be more modest, and we built that into our forecast for next year.

I think we assume no more than 10% realized price for any of our products. But when we made that change to our 2016, but, as Rob pointed out, and then add the new businesses we're in and the outperformance from a growth standpoint, that's what makes us very comfortable with the 2016, all four being the $7.5 billion EBITDA. Those are our base assumptions in our plans for 2016 and we will provide specific guidance earlier in January of next year.

Your next question comes from Tim Chiang from BTIG. Your line is now open.

Hi. Thanks. Mike, I know you talked about deleveraging. Could you provide a little bit more granularity in terms of how much debt you plan to pay down in 2016? Certainly you generate a lot of cash flow.

Sure. We have mandatory drawdown of about $560 million.

$562 million.

$562 million. So obviously we'll pay that next year. But we've also made a commitment -- we raised the debt during the Salix transaction -- we made a commitment to our bond holders and our bank on our bank debt that we would go beyond the mandatory. We haven't precisely come up with the exact number but we have a number of notes that are now callable. We will generate a lot of cash next year, so I suspect that the first half of next year we will make more than the mandatory reductions in debt.

And, Mike, just one follow-up. You mentioned that you're considering selling the legacy business at the Company. Any thoughts on the timing of such a sale?

We've been debating with our Board for the last few years. It's always been a plan of ours to increase the quality of the assets that we own. And I think the first major shift was when we bought B+ L which is a truly durable, great business that is doing really well for us.

And then with Salix, another set of products that are quite durable and with a lot of organic growth. So, we've been debating but I think given, again, everything that's happening, everything that's happened, what's happened to our multiple, I think that there's a reasonable chance that something happens over the next 12 months or so.

And maybe just one last question -- you did mention stock buybacks. Are you in a position to do that today or in the near future?

We're in closed window today. But we will have to take a look at our cash. Again, we made a commitment to reduce our debt and it obviously depends on where our share price is. But I think that statement was as we think through the rest of this year in 2016, in view of this, that's the time frame.

Your next question comes from Lois Chen from Guggenheim. Your line is now open.

Thanks for taking my question. My question here is, if you don't have the benefit of price increases, can you still meet or beat your 2016 EBITDA guidance? I know you addressed some of this earlier. And then, secondly, just on the 80% gross margin forecast, how much of that is based on price increase, how much of that is manufacturing efficiency, scale and volume gains? Thank you.

Our reduction in COGS has to do with efficiencies and mix, not on price. So efficiencies, primarily in the contact lens where we're just gearing up ULTRA, and then BioTrue volumes continue to go up significantly, that the yields are improving. The guys in manufacturing are just doing a great job there.

From a mix standpoint, Salix is becoming a larger piece of our portfolio every quarter. And the COGS there are lower than in the legacy business and we'll continue to see the impact there. What's really going to dramatically, on a going forward basis, improve our COGS will be the fact that Xenazine's gone generic.

Correct.

And I think we were only realizing, because of the agreement with our partner, Lundbeck, we were only realizing like 50% gross margins. In terms of our EBITDA for 2016, I think we're only going to say today that we feel very comfortable with the $7.5 billion and we expect our guidance next year will exceed that.

(Operator Instructions)

Your next question comes from the line of Alex Arfaei from BMO Capital Markets.

A question on the Salix revenue -- you recognized $460 million versus guidance of $300 million. How much of that difference was discretionary revenue recognition? Or does it reflect changes in demand since you provided that guidance?

And, also, could you update us on the status of expected cost synergies from Salix? Thank you.

Could you explain what you mean by discretionary revenue?

Sure. Just trying to figure out -- you said it was going to be about $300 million, you're recognizing $460 million. So, I'm just trying to figure out what changed since you provided that guidance.

I think a couple things. One is we don't know exactly -- we know what the inventory is with the big three, we don't know how much inventory there is in some of the other distributors because there were no agreements in place to tell us that. What we're not doing is providing any discounts or any incentives for people to buy Salix products.

Also, the inventory was not sort of -- it wasn't that everyone had like five months of extra inventory of everything. It really varied by product. So, there might have been a year's worth of one product and four months of another product. That's why it's taking time. It's taking time to reduce those inventories.

But I think the sales, the fact that sales have increased -- again, there's no sales incentive, I think it's all growth. The products continue to grow above what we had forecasted in our deal model. And, as Rob mentioned, we're going to continue to try to be conservative. We don't want to get ahead of ourselves.

Then integration costs, the integration costs we've exceeded --.

$550 million was the original target. We've exceeded it. I think we reported that in the last quarter.

Just one other thing on the inventory, and we mentioned this on the last call, again, we know factually and in detail what's at the big three. We don't know what was out there. I think as we got under it we found out there was more out there and more wholesalers and were, frankly, just being conservative.

Your next question comes from Marc Goodman from UBS. Your line is now open.

Mike, I'm curious about this in-licensing of brodalumab. This is a different type of R&D risk than you've done before. Why are you doing this deal? Will there be more deals like it?

And then if you're going to divest neuro and those types of products, in the past you've bought these types of products that have high NPV but obviously are anchors to the growth of the Company, but obviously create a lot of value. You described it as -- if we were a private company wouldn't you want me to do this because this is adding a lot of value. So, if you're divesting this portfolio, does that mean you are no longer going to pursue that type of strategy? Thanks.

Let me answer the second one first and then I'll have Ari talk about broda. We didn't say we'd sell it. We said we would sell it or spin it off. If we spin it off then shareholders would have the opportunity to remain shareholders of that type of Company that certainly could create value over time. But given the current environment, I think that probably doesn't make sense for us to hold onto it, especially given what's happened to our multiple with everything there in the press. So, hopefully we'll figure out a way to do it. The shareholders could continue to participate in an entity that is maybe not a growth co, but could be a big dividend co. Ari?

Hold on one second. Does that mean you wouldn't do a Targretin type of product anymore?

As we mentioned, it's unlikely. It's unlikely we would do a Targretin type deal in the foreseeable future.

Okay.

On your question of brodalumab, I think this is emblematic of Valeant's mission. First of all, moderate to severe psoriasis is a debilitating disease. It's an area of significant unmet need and, consistent with our mission, we are focused on this area. We have IDP-118. We understand the condition, the disease, and the debilitating illness.

Second, our focus on doctors. A big reason we went after this compound was that many of our physicians and KOLs recommended that we do this. They wanted Valeant to pick up this drug and bring it to the market for the sake of the many patients who will benefit. And we listened to our doctors and moved forward.

Finally, we believe that this will generate good returns for shareholders. We're very comfortable with the safety and efficacy profile. We have a terrific team in R&D and in regulatory. We're going to be in discussions with the FDA. We expect to submit in November, as Mike had mentioned earlier. And we have a great team of dermatology marketers and salespeople and MSLs who we believe will do a terrific job in the market for our shareholders.

Marc, I just wanted to return to your question about the types of deals that we do. I would like to note that of the approximately 150 deals that we've done since I've gotten here, I can count on one hand the number of deals where we have acquired mispriced assets as part of the thesis of the deal. Next question.

Your next question comes from the line of Irina Koffler from Mizuho. Your line is now open.

I wanted to see if through this pricing controversy if you've had any dialogue with the pharma lobby or any other industry groups, and whether or not there's been any feedback or direction that way. Thanks.

As we mentioned on the call, unfortunately we're not able to expand further on any dealings with the government.

Your next question comes from David Amsellem with Piper Jaffray. Your line is now open.

Thanks. What's the level of confidence that you'll be able to find a taker for the neuro business, given the environment? And are you essentially conceding that that business is radioactive?

And then in terms of R&D, do you have a sense going forward, or maybe give us a sense of R&D as a percentage of sales or how you're thinking about it in terms of either percentage basis or in absolute terms given that it looks like you're recalibrating your thinking as it relates to R&D. Thanks.

David, I think the neuro and other has very good cash flows. Again, we can think of a spin, we can think of taking it private, or we could think of selling it. So, there's many ways of creating value. I think a number of our shareholders have already mentioned to me that they'd like to be part of, if we were ever to consider doing a sale like this, they'd like to have an ownership stake in this business on a going forward basis.

But obviously if we can't come up with an approach that creates value for our current shareholders then we won't be able to dispose of it. It's too premature to think about our R&D spend as a percentage of sales, but it would certainly continue to be well below that of most of our competitors to do R&D in the traditional way. Because I think what we have proven to ourself is our non-traditional R&D approach is highly productive. We're getting very strong returns on investment. So, anywhere that we are earning that disproportionate return we are happy to pull in more capital, which is what we'll be doing. Next question.

Your next question comes from the line of Lennox Gibbs from TD Securities. Your line is now open.

Good morning. Thanks. The Senate subcommittee hearings that Howard Schiller presented to back in late July. What, if any, were your specific concerns coming out of those sessions? What were the key take-aways?

Again, Lennox, I'm sorry, we just can't comment on anything that has to do with the government on this call.

Sorry. Are there --.

I think we lost him. Next question.

Your next question comes from Gary Nachman from Goldman Sachs. Your line is open.

Hi, Mike. Could you elaborate on what kind of pricing discussions you're having with some of the hospitals regarding Isuprel and Nitropress? Would you reconsider the current pricing for any of your other products, maybe taking it down, in certain cases? And the 15% pricing contribution in US branded, where did most of that come from, new versus legacy products? Thanks.

Maybe in reverse -- most of the pricing came from the neuro and other, as we showed. We showed you the top derm products which represent a big portion of our sales. We showed you the top ophthalmology. So it's primarily, almost solely, from the neuro and other segment of our business.

In terms of the hospitals, we reached out to a number of the hospitals. More is being done. And what we're discussing is right now we do not use GPOs. We just recently got into the hospital business. We don't use GPOs so we're talking about directly contracting with hospitals. And if we can do that we can avoid sending the products through distributors, which will save us money and we can pass along those savings. What we're going to try to do is see if we can't have individual contracts across all our products, which we think in the end could benefit us.

And in terms of taking prices up and down, we always review our portfolio. We have taken price down this year on some products and price up. So we'll continue to do that as we move forward.

Your next question comes from the line of David Risinger from Morgan Stanley. Your line is now open.

Thanks very much. Mike, could you just restate or provide a little bit more detail on your 2016 outlook with respect to price, what your pricing expectations are for the US prescription drug business overall? And then I think you made a comment that you're not going to be raising price any more than 10%. I didn't know if that was for US Rx or global Rx, so any additional color you could provide would be great.

For our budget for 2016, I was answering a question about what assumptions we made that allowed us to reaffirm the $7.5 billion EBITDA. In that budget we did not assume more than a 10% realized price -- that's realized price -- on any of our products. So that's how we got to the budget.

We're not saying we're never going to take a price increase of more than 10% on our products. As you've seen, sometimes you need to take a little bit more in order to actually realize price increases. But certainly the pricing assumptions we made for next year on our most recent budget are lower than what we had in our previous budget.

But we also have higher growth rates for some of our core businesses because of the performance we're seeing and the growth we're getting. And we also have a number of new businesses, like Sprout and Amoun. And we have a number of new product launches that we believe next year, Vesneo probably being the most significant but also some derm launches and Luminesse. So, there's a number of products which will also help on the growth side.

That's great. And then just separately, you discussed alternate fulfillment, could you just put that in perspective, maybe what percentage of the US brand Rx business alternate fulfillment is and how much of that is Philidor?

Sure. It's really primarily our dermatology brands and then some of our specialty products like Ruconest, Arestin, and some of the other orphan drugs. For certain products it's quite large. For Jublia it's probably 15%. For a lot of other dermatologies it's much less. I'm sorry, I can't -- it's significant but it's -- I don't know the precise number but it's certainly, of our US portfolio, 10%, 20%, maybe. Tanya's nodding probably closer to 10%.

Your next question comes from Annabel Samimy from Stifel. Your line is now open.

Hi. Thanks for taking my question. You had mentioned that rifaximin SSD program failed. Can you talk about, with R&D, where you're going to be continuing to focus the GI R&D, which programs are still ongoing? And how are you approaching GI R&D? Is it any different than what you're doing in derm or the other areas? Thanks.

It's different because it's a recent acquisition and we don't want to get too far in front of our skis. So, rule number one is we take the programs, we see them through to completion, we see what we have and we inherit them. So, the SSD program failed. It doesn't mean we won't pursue a program like that we're looking with our R&D team. We're analyzing the signals, as Mike said earlier. We're going to see if there might be a possibility to create a program with different dosages.

And as we continue to build our expertise in GI we'll find other programs. There are a couple of legacy studies programs that are continuing, such as the prophylaxis for [HE] and Ruconest and so on.

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

Great. Thanks for the question. Just had two here. Maybe just a bigger picture one on the broader M&A environment. Your business increasingly seems focused on durable growth. Could you talk about how large of an opportunity set and how competitive of an environment you're seeing for these type of assets? As we listen to these calls, it seems like many of your competitors are looking to make a similar pivot in their business towards more growth, towards more durable assets. I'm just trying to understand a little bit as you focus what that means.

The second question was on emerging market growth. It slowed in several regions. Has the longer-term outlook changed for these markets? I think you mentioned some efforts to reaccelerate growth. Can you maybe just elaborate a little more on that portion of it, specifically on the Latin American business and Russia, as well. Thanks so much.

Sure, Chris. In terms of competition we're seeing in the M&A area, quite honestly we're still not seeing much in the assets that we're pursuing. Now, you may have to remember that I do think our strategy, both in terms of the emerging market piece of it as well as we're in contact lenses, we're in surgical devices for ophthalmology, many of these companies I think you're alluding to aren't in those areas so they wouldn't be competing there.

Most of them I don't think are looking at derm Rx assets. So probably the area that would probably be most competitive would be ophthalmology Rx, and prices for those assets are quite high. So I'd says that's probably the area where it's going to be most difficult. And there's not a ton of pipeline available, unlike dermatology and GI.

In terms of the emerging markets, we're very pleased with Asia. Our team's doing an outstanding job there. I think Latin America, our team's doing great down there. Mexico, despite a tough market, they're doing extremely well.

We just got into Colombia which we think is a good market. Our team down in Argentina and Brazil are doing a good job. It's just a tough market. It's almost a very small business.

Where we've had our problems recently has been in Europe. That's where I was talking about we need to reaccelerate growth. We have a number of products across many of these countries, new products that we'll be introducing this year. In a sense, we've replenished our pipeline, which will help a lot.

This year we didn't have as many product launches, which is my fault. I think we weren't as focused on the pipeline as we should have been in Europe. And then also it's just a tough environment. We all know what's happening in Russia and the price of oil. Russia I think will come back strongly.

I think with the closing of Amoun, we're a significant player in the Middle East where the market continues to grow quite nicely. And in Poland we made a switch in terms of our general manager. That's always been an important, strong market for us and our performance there has not been as strong recently so we made a change in management there which I think will help, as well. Next question.

Your next question comes from Andrew Finkelstein from Susquehanna. Your line is now open.

Thanks very much for taking the question. You're talking a bit about the emerging markets and the business now is much more heavily weighted to the US than it has been in the past. So, as you look at business development in views of the type of durable assets you want as well as the focus you've always had on where disproportionate returns can be found, how do you think about what the balance of the business should look like as you look out over the medium term?

It's an excellent point that emerging markets and ex-US has become a less large part of our business but it really hasn't been anything we've done. It's really been the US dollar. It's FX. It's the third year in a row that it's really -- so, all companies are, I think, seeing that piece of their business continues to shrink.

I think that if we thought that the US dollar would only continue to strengthen we would not put any capital to work outside of the US. But we don't believe that. It's just not sustainable for the world. So, we will continue to look both in the US and outside the US for opportunities.

There are some markets, and I mentioned earlier in the call, markets like Argentina and Brazil, where I think the outlook for their currencies is not great until they work through their issues. So, those are markets that we probably wouldn't deploy capital. Someone like the Middle East with the high growth rates, and if you look at the population or what demographics are going to do in terms of healthcare. I think if you look at the pricing of drugs, which I think in Egypt the average 30-pack is like $0.70, there I do think economics will over the long term work in our favor.

Your next question comes from the line of Douglas Tsao from Barclays. Your line is now open.

Hi. Good morning. Thanks for taking the questions. Mike, when we step back and think about business development, how are you viewing the landscape today, especially given the dislocation that we've seen in the capital markets for a lot of spec pharma and biotech names? Has that increased your opportunity set or are things looking more attractive right now?

Certainly at lower prices, as long as the Company has good fundamentals, it certainly makes it more attractive. I think, on the other hand, we've been hit more than most, if not anyone, so actually using our equity is no longer an option at all for us. I think we will continue to look for cash deals.

But, again, I do want to re-emphasize that our commitment to reducing our leverage is first and foremost, so we will make sure we do get under four times. But that still leaves a lot of cash to either do deals or deploy. I don't think there's any acquisition right now that would earn the return of buying back Valeant shares. So, that will also be part of the consideration.

Your next question comes from Sumant Kulkarni of Bank of America-Merrill Lynch. Your line is now open.

Thanks for taking my question. Mike, this one's for you. With the current asset base that you have, how should we conceptually think about longer term top- and bottom-line growth on an organic basis, that's assuming Valeant doesn't have to do or want to do any more acquisitions at all?

I think outside the US, again, I think most of our emerging markets are just going to grow, in demographics. And we are assuming that at some point the US dollar weakens against those. I think those will be strong growth drivers for many years ahead. I think that countries like Western Europe, Canada and Australia, other developed markets, we're assuming low single-digit growth over the longer term. Those businesses compared to most pharmaceutical companies are disproportionately smaller for us and that's not by accident.

If I look in the US, again, in dermatology I think, given our prowess in terms of our development and the pipeline that we have, we would continue to expect strong growth. It may not always be double digit but certainly high single digit. But for the foreseeable future, I think double digit.

I think in terms of ophthalmology, contact lenses our only constraint to actually gaining share right now is manufacturing capacity. Unfortunately, it takes time to get that manufacturing capacity on-board. The silver lining is it means that we should be growing in contact lenses just bringing out manufacturing and some new products that we have for the next five years-plus, not only in the US, but around the world. So, I think that piece of the business has great growth prospects for a very long time.

If I think of surgical, the same thing. We still have small shares. We have been gaining share. The cataract surgery market has flattened. It's actually shrunk this year in this country. There's lots of speculation why, including the recent changes to healthcare reimbursement through the government programs where people have to pay a higher piece of cash.

But you can only delay cataract surgery for like 9 to 12 months and then after that people that need it can't drive anymore, whatever. So, we do expect the organic growth of the business to flip around.

And over the long term that business should grow 5% a year. So our job is to just continue to take share. Again, we have a number of products in our pipeline and I think that B+ L is doing very well in the surgical area. So we feel good about that.

I think Salix, even with the products we have, we have strong growth prospects for five-plus years. And as Ari said we will be working to bring new products to market. And ophthalmology Rx, again, assuming we get approvals for products like Vesneo and Luminesse, that should provide some growth drivers. But we need to strengthen that pipeline, as well.

It's a long way of saying that I think we feel quite good about our growth prospects for the next four or five years even if we were to do no more acquisitions. But I think the case of us doing no more acquisitions is a highly unlikely one.

Your next question comes from the line of Umer Raffat from Evercore ISI. Your line is now open.

Hi. Thanks for taking my questions. I have a few, if I may. First, in 3Q 2015 -- or actually let's do it on a year-to-date basis -- for the year to date, US pharma business is up 24% in price, 17% in volume. If you take out the neuro/other, what does that look like for price to volume? That's first.

Secondly, what do gross margins for the Company look like if neuro/other were to be divested?

Number three, there's a slide that talks about growth to net disclosures. I really appreciate that. One of the products on there is Atralin, which took a 61% gross price increase, but less than 1% net increase. So, my question is, why even do that increase? Just want to understand how you think about that.

And then, finally, Nitropress was $35 million this quarter versus $60 million last quarter or the quarter before. So, I just want to understand the trend there. Thank you.

I'm sorry, the first question, Umer? 24% and 17%, what would it have been without neuro? The second one, were you asking about gross margins?

Yes, gross margin for the Company.

Okay. So, let's go in reverse. Nitropress, I think it had -- in first quarter is when we had that large number. I think at that point -- we tried to be clear on the call -- that that was a disproportionate quarter because the inventories were basically depleted out in the market. So, it represented more than a quarter's worth of sales. That being said, the product is declining but it's not declining at the rate if you take the first quarter.

Atralin at 60%, honestly that was probably a mistake and I think we've talked to our team there. So, we would not do that again because it makes no sense, as you point out, Umer. So that one's on us.

In terms of neuro gross margins, actually they'll improve. If we didn't have neuro they would improve because a number of those products are partnered where we pay high royalties, like Xenazine. In total, the gross margins in neuro are not that good. So, that actually helps.

And I don't have the calculation in terms of -- but in terms of the price in derm and ophthalmology, it's probably 5%. It's all really neuro and other that's the big one. And all the growth in volume, if we didn't have neuro and other our volume would certainly be above 20%. Without neuro and other we'd have at least 20% volume and then we'd probably have about 5% price. So, we'd be growing at least 25%, and probably a little bit more.

Your next question comes from the line of Doug Miehm from RBC Capital Markets. Your line is now open.

Thank you. Couple questions, as well. Number one, with respect to patient access and foundations, maybe you could walk us through how many foundations you fund. And of those foundations what proportion of their annual operating budget would you provide to them?

The second one just has to do with, if you were to split out the US neuro business, can you give us a sense of what EPS contribution or EBITDA contribution that business would have? And I'll leave it there.

Why don't you concentrate on just a couple right now. We're trying to get through everybody. So, why don't we answer the --.

Pick your two favorite.

Just the foundations, just elaborate on that.

Okay. I don't have a precise number but it's like four or five, so it's a small number. We make sure, as we mentioned, that other companies are also contributing, or other organizations, at least, are also contributing. We do not want to be the only one to contribute.

Again, we just give them the money and they do what they want to with that money. I don't want to give you a precise figure in terms of what percent of our funding because I don't have that and I don't want to guess. Next question.

Your next question comes from Gregg Gilbert from Deutsche Bank. Your line is now open.

Yes, thanks. I had a quick comment and then a question. I just wanted to make the point that on slide 28 there's some important context missing in the footnotes, as you compare apples to oranges on the left versus the right. So, wanted to make that point.

But my question is about access to capital. Perhaps you could quantify the cost of the access you'd be accessing in this environment. Or is that not a relevant question in that you don't expect to access the market in the short term?

I think the latter part is if we're going to reduce debt we don't want to increase debt first. I think we have access to our revolver which will go up and down but we don't plan on issuing new debt. If we have to retire some over time. But that's not in the short term. I think we're fortunate because the environment's not wonderful today, so basically the next five quarters we're looking to reduce debt, not take on any more debt.

And Gregg, I'm sorry if some of the footnotes were not correct. We will correct those. We'll talk to you, we'll correct them and we'll put them up on our website.

Your next question comes from the line of Alan Ridgeway from Scotiabank. Your line is now open.

Hi, good morning. Just wondering if you could provide an update on contact lens business and the ULTRA manufacturing, and how many lines are online and what the outlook there is. Thanks.

Yes. We have line one operating already producing spherical ULTRAs. And line two we expect to have up and running probably in the April time frame. Line two is going to produce our toric lenses, line one will produce a combination of spherical and multifocals. And as we've said on previous calls, we've got lines three and four which we expect to be up and running sometime in the second half of next year.

Your next question comes from the line of Jason Gerberry from Leerink Partners. Your line is now open.

Hi. Good morning. Thanks for taking my question. Just a quick question for Mike. Just curious as you think about divesting the neuro business, your thoughts on ability to fetch a tax inversion premium. I know that a number of mid-cap spec pharma players are looking for CNS assets and also looking to tax invert. So, curious your thoughts on the legislative landscape there and if those days are over or if you think that that may be an optimal way to maximize value for that part of the business. Thanks.

I don't think the days are entirely over. I think in mergers of equals I do think that it's still quite possible. And it's an interesting concept that we have thought about, of spinning it off and eventually -- I think there would be a two-year time frame or something like that -- it could then merge with some other entities. Again, we're just trying to sort through the options and figuring out what will maximize value for our shareholders. But it's an interesting idea.

Our last question comes from Shibani Malhotra from Nomura Securities International. Your line is you now open.

Thanks for taking the follow-up. Mike, on your commentary regarding pricing and the change in environment, et cetera, we understand the press and the media has gone after Valeant for some of the price increases you've taken. But in the larger scheme of things, by talking about not doing such deals anymore, et cetera, aren't you just validating the concerns the media has?

Can you talk a bit about what was happening in some of these markets where you took the price increases and what would have happened if you didn't buy those assets? We could have seen products just not being manufactured anymore.

I think that we're pragmatic and in the end we'd rather focus our time on righting our business. That's what we enjoy doing the most. Again, in terms of our acquisitions, as I mentioned earlier, only a very few of them were ones where we thought that assets were mispriced, where they actually were not being priced at the value they delivered to the healthcare system.

And I agree with you. If people are not able to price products at where they -- at the right -- it's not good for long-term markets because then you will not get more competitors in. It's interesting, a lot of our price increases that we took were on products where generics are available. Over 60% of our neuro products. So, other products, generic equivalents are available. And if doctors want to think those generics are of the same quality as the branded products, they're going to write those. So, I think if there's generics on the market I don't know why there should be any restriction on pricing.

So, I think I agree with your question. I think the prices that we took when there were mispriced assets were appropriate. But the field is very large and we'll just be pragmatic and why focus on areas of the business that is just going to create a lot of media stir. Because the attention moves away from, I think, the strong volume organic growth that we're getting in places like dermatology, ophthalmology, Salix, contact lenses, our OTC business which is growing 8%, and the focus moves away from them. So, I agree with your point, but we're just being pragmatic.

All right, I think that's all the questions. We appreciate the large attendance on this call and we'll look forward to talking to you next quarter.

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