Good morning. My name is Sean, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Valeant Third Quarter 2015 Earnings Conference Call. [Operator Instructions] Laurie Little, Head of Investor Relations, please go ahead.

Thank you, Sean. Good morning, everyone, and welcome to Valeant's Third Quarter Financial Results Conference Call, where we will be discussing our -- 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 slide presentation can be found on our website under the Investor Relations section. Before we begin, our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. 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. And 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 U.S. 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 U.S. 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 U.S., notably China, which saw a 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 Salix 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, 8 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…

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 U.S. 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 1 quarter where we had an investment gain from the Allergan transaction, the third quarter represents the highest GAAP cash flow that Valeant has achieved.…

Based on our 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 disproportionally 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 & Other portfolio, which is dependent on price, will represent approximately 10% of our revenues in 2016 but 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 always believe -- we have always believed…

[Operator Instructions] Your first question comes from the line of Shibani Malhotra from Nomura Securities International.

I guess 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 kind of license or kind of buy in smaller companies or products?

Great. 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 of 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. And 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. But, Ari, maybe we can talk a little bit about some of the programs and what we're doing.

Yes. 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 down, believe we have the capability needed to successfully launch products, and our pipeline of Phase II and III products in dermatology is filling. And those obviously will attract funding and will continue to create opportunities like IDP-118, some of our novel acne compounds, other compounds in psoriasis and, in the future, atopic dermatitis. Eye care, we've now had for 2 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 judge 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. Well, I guess, R&D exceeded $100 million for the first time, at least since I've been here, in the quarter, and we haven't put together our 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.

$400 million and $500 million.

$400 million and $500 million, that would be really good.

That's a pivot.

Your next question comes from Greg Gilbert from Deutsche Bank.

Yes. 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?

Sure. Well, you just have to read the newspapers, and I think it's clear that the pharmaceutical industry is being aggressively sort of 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 that 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 make that change to our 2016, but, as Rob pointed out, and then adding the new businesses we're in and in the outperformance from a growth standpoint, that's -- it's very comfortable with the 2016 floor being the $7.5 billion EBITDA. So those are our base assumptions in our plans and -- for 2016, and we will provide specific guidance earlier in January, January of next year.

Your next question comes from Tim Chiang from BTIG.

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 generated a lot of cash flow.

Sure. Well, we have mandatory drive down of about 5.60?

5.62.

5.62. So obviously, we'll pay that next year. But we've also made a commitment when we raised the debt during the Salix transaction. We made the commitment to our bondholders 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, and we will generate a lot of cash next year. And so I suspect that in 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?

So we've been debating with our board for the last few years. It's always been a plan of ours to increase the sort of 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, 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 it's something we've been debating, but I think given, again, everything that's happening, everything that's happened and 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 the stock buybacks. I mean, are you in a position to do that today or in the near future?

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

Your next question comes from Louise Chen from Guggenheim.

So my question here is, if you don't have the benefit of price increases, can you still meet or beat your '16 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?

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 continued to go up significantly that the yields are improving, and our value to 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 begin -- we'll continue to see the impact. We'll see the impact there. What's really going to dramatically, on a going-forward basis, improve our COGS will be the fact that Xenazine is not generic.

Correct.

And I think we were only realizing because of the agreement with...

Lundbeck.

With our partner, Lundbeck. We were -- we only realized like 50% gross margins. In terms of the -- our EBITDA for '16, 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 the expected cost synergies from Salix?

Could you explain what you mean by discretionary revenue?

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

Yes, well, I think a couple of things. One is we don't know exactly -- we know what the inventory is with the big 3. We don't know how much inventory there is in some of the other distributors because we have no agreements in place that Salix has. What we're not doing is providing any discounts or any incentives for people to provide Salix products. Also, the inventory was not sort of -- it wasn't that everyone has like 5 months of extra inventory of everything. It really varied by product. So there might have been a year's worth of 1 product and 4 months of another product. So that's why it's taking time. We can't just -- it's taking time to reduce those inventories. But I think the sales -- the fact that sales have increased, again, no -- 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. Oh, and then you asked on the integration costs, we've exceeded the...

550 milligrams was the original target. We had exceeded it. I think we reported that in the last quarter. Just one other thing on inventory, and we mentioned this on the last call. Again, we know factually and in detail what's at the big 3. We don't know what was out there. And I think as we got under it, we found out there was more out there and more wholesalers, and we're, frankly, just being conservative.

Your next question comes from Marc Goodman from UBS.

So, Mike, I'm curious about this in-licensing of brodalumab. This is a different type of R&D risk that you've done before. So 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 -- I mean, 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. And I guess you described it as if we were a private company, would 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?

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

But I mean, does that mean -- hold on 1 sec. Does that mean you wouldn't do like a Targretin type of product anymore?

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

Yes. 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 conditions of the disease and the debilitating illness. Second, our focus on doctors. And 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'll -- we expect to submit in November, as Mike had mentioned earlier, and we have a great team of dermatology marketers and salespeople and we -- and MSLs who we believe we'll do a terrific job in the market for our shareholders.

Marc, I just want 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, only -- I can sort of count on one hand the number of deals where we have acquired sort of mispriced assets, and it's part of the thesis of the deal.

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

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.

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 from Piper Jaffray.

So what's your level of confidence that you'd be able to find a taker for the Neuro business given the environment? And do you think that business is -- 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 a percentage basis or in an absolute terms, given that it looks like you're recalibrating your thinking as it relates to R&D?

Yes. Well, so, David, I think the Neuro & Other has very good cash flows. And again, we could think of a spin, we could 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 anything like this that 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 those -- that of most of our competitors that do R&D in the traditional way because I think what we'd proven to ourselves is sort of our nontraditional R&D approach is highly productive and we're getting very, very strong returns on investment. So anywhere that we are earning an additional proportionate return, we are happy to deploy more capital, which is what we'll be doing.

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

So 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 takeaways?

[indiscernible]

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

Okay, sorry. Are there...

We lost him. I think we lost him.

Your next question comes from Gary Nachman from Goldman Sachs.

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 U.S.-branded, where did most of that come from, new versus legacy products?

Well, maybe in reverse, most of the pricing came from the Neuro & 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 and almost solely for the Neuro & Other segment of our business. In terms of the hospitals, we have reached out to the -- 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, so we don't use GPOs. So we're talking about directly contracting with the hospitals. And if we can do that, we can avoid selling the products through distributors, which will save us money, and we can pass along those savings. And what we're going to try to do is see if we can have individual contacts across all of 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.

Mike, could you just restate or provide a little bit more detail on your 2016 outlook with respect to price? So what your pricing expectations are for the U.S. 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 U.S. Rx or global Rx. So any additional color you could provide would be great.

Great, yes. So for our budget for 2016, I was answering the question about what assumptions we made that allow us to -- 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 -- that was the -- 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 and -- probably will be the most significant, but also some derm launches and Luminesse. So there's a number of products where -- 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 U.S. 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 products that -- some of the other orphan drugs. For certain products, it's quite large. For Jublia, it's probably 50%. For a lot of other dermatologies, it's much, much less. David, 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 U.S. portfolio sort of 10%, 20% maybe. Maybe -- Tommy is sort of nodding, probably closer to 10%.

Your next question comes from Annabel Samimy from Stifel.

Just you had mentioned that the Rifaximin SSD program failed. So 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?

Well, it's different because it's a recent acquisition, and we don't want to get too far in front of our skis. So we're going to -- rule #1 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 HAE and RUCONEST and so on.

Your next question comes from Chris Schott from JPMorgan.

Great. Just had a 2 here, maybe -- which is a bigger question one on the broader M&A environment. Your business increasingly seems focused on kind of durable growth. Can you just talk about how large of an opportunity set and how competitive of an environment you're seeing for these type of assets? And that 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? And I think you mentioned some efforts to reaccelerate growth. Can you maybe just elaborate a little bit more on that portion, but I guess specifically on the Latin American business and Russia as well?

Sure, Chris. 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 have to remember that I do think our strategy, both in terms of the emerging piece of it as well as we're in contact lenses, we're in surgical devices for ophthalmology, most -- 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. And so probably, the area that would probably be most competitive is ophthalmology RX, and prices for those assets are quite high. So I'd say that's probably the area where it's going to be the most difficult. And there's not a ton of pipeline available, unlike dermatology and GI. In terms of the emerging markets, we're very, very pleased with Asia, and our team's doing an outstanding job there. I think Latin America, our team's doing great down there. In Mexico, despite tough, 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, which is a tough, tough market. And it's just -- it's almost a very, very small business. Where we've had our problems have -- recently has been in Europe, and 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. So in a sense, we've replenished our pipeline, which will help a lot. This year, we didn't have as many product launches and -- which is my fault. The -- 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, and 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.

Your next question comes from Andrew Finkelstein from Susquehanna.

You're talking a bit about the emerging markets and the business now is much more heavily weighted to the U.S. 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?

Yes. Well, it's an excellent point that emerging markets in ex U.S. has become a less large part of our business, but it's -- it really hasn't been anything we've done. It's really been the U.S. dollar. Its FX is just -- it's third year in a row that it's really, really -- so all companies. All companies are I think seeing that, that piece of their business continues to shrink. I think that if we thought that the U.S. dollar would only continue to strengthen, we would not put any capital to work outside of the U.S., but we don't believe that it's not sustainable for the world. So we will continue to look both in the U.S. and outside the U.S. for opportunities. There are some markets, which -- and I mentioned earlier in the call markets like Argentina and Brazil, where I think the outlook for their currency is not great, so they work through their issues. So those are markets that we probably wouldn't deploy capital. So in like the Middle East with the high growth rates, and if you look at the population or demographics are going to do in terms of health care and then if you look at the pricing of drugs, which I think in Egypt, the average 30-pack is like $0.70, there I think the economics will, over the long term, work in our favor.

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

Mike, just 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 sort of spec pharma and biotech names? Has that sort of increased your sort of opportunity set or are things looking more active right now?

Well, certainly, at lower prices, if you believe -- 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. So I think we will continue to look for cash deals and -- but, again, I do want to reemphasize that our commitment to reducing our leverage is first and foremost. And so we will make sure we do get under 4x, 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 one Valeant shares, so that will also be part of the consideration.

Your next question comes from Sumant Kulkarni from Bank of America Merrill Lynch.

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?

Sure. Well, I think that outside the U.S., again, I think most of our emerging markets are going to -- the markets are just going to grow in demographics, and I do -- we are assuming that at some point, the U.S. dollar weakens against those. I think those will be strong growth drivers for many, many years ahead. I think that countries like Western Europe, Canada and Australia, other developed markets, we are assuming sort of 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 U.S., 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, 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. I guess 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 5 years plus, not only in the U.S., but around the world. So I think that, that piece of the business is -- 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 health-care reimbursement through the government programs, where people have to pay a higher piece of cash. So we can only delay cataract surgery for like 9 to 12 months. And then after that, people that need it can't drive anymore or whatever. So we do expect the organic growth of the business to flip around. And if you look over the long term, that business should grow 5% a year. So our job is to just continue to take share. And again, we have a number of program -- products in our pipeline, and I think that B&L is doing very well in the surgical area. And then -- so we feel good about that. I think Salix seems, with the products we have, we have strong growth prospects for 5-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.

Luminesse, and -- that should provide us some growth drivers, but we need to strengthen that pipeline as well. So long way of saying that I think we feel quite good about our growth prospects for the next 4 or 5 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.

I have a few, if I may. First, so in 3Q '15 -- or actually, let's use a year-to-date basis. For the year to date, U.S. 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, so there's a slide that talks about gross-to-net disclosures. I really appreciate that. So 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.

So I'm sorry the first question, Umer, I got all -- 24%, 17%, what it would've been without Neuro? The second one, what's our -- were you asking about gross margins or...

Yes, gross margin for the company.

Okay. So let's go in reverse. Nitropress, I think it had -- in the first quarter is when we have that large number. And I think at that point, we were trying to be clear, I mean, on the call that, that was a disproportionate quarter because the inventories were basically depleted out on the markets. 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, 16%. Honestly, that was probably a mistake, and I think we've talked to our team there. I think that -- so we would not do that again because it makes no sense, as you point out, Umer. So that's one on us. In terms of Neuro gross margins, actually, they'll improve. If we didn't have Neuro, they would improve. Because we have -- a number of those products are partnered, where we pay high royalties like Xenazine. So 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 I think in terms of the price in derm and ophthalmology is probably 5%, and so it's all really Neuro & Other that's the big one. So it's probably -- and all the growth in volume -- if we didn't have Neuro & Other, our volume would certainly be above 20%. So without Neuro & Other, we'd probably have 20 -- we'd have at least 20% volume, and then we'd probably have about 5% price, which would -- 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.

A couple of questions as well. Number one, with respect to patient access in 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 U.S. Neuro business, can you give us a sense of what EPS contribution or EBITDA contribution that business would have? And I'll leave it at that.

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

Yes. Pick your 2 favorites.

Just the foundations. Just elaborate on that.

Okay. So it's -- I don't have the precise number, but it's like 4 or 5, and so it's a small number. We make sure, as we mentioned, that they have -- 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. And I don't have -- 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.

Your next question comes from Greg Gilbert from Deutsche Bank.

Had a quick comment and then a question. So 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 I 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 margins in the short term?

Well, I think the latter part is if we're going to reduce debt, we don't want to increase debt first. So I don't -- I think we have access to our revolver, which is a little bit down, but we don't plan on issuing new debt. If we have to retire some over time, then -- but that's not in the short term. And so I think we're fortunate because the environment's not wonderful today. But for the next -- basically the next 5 quarters, we're looking to reduce debt, not take on any more debt. And, Greg, 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 it up on our website.

Your next question comes from the line of Alan Ridgeway from Scotia Bank.

Just wondering if you could provide an update on contact lens business and the Ultra manufacturing. And if the lines are -- how many lines are online and what the outlook there is?

Yes. So we have line 1 operating already, producing spherical Ultras. And line 2, we expect to have up and running probably in the April time frame. Now line 2 is going to produce our toric lenses. Line 1 will produce a combination of sphericals and multifocals. And as we've said on previous calls, we've got line 3 and 4, 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.

Just a quick question for Mike. Just kind of 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 midcap spec pharma players are looking for CNS assets and also looking to tax inverts. So kind of 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.

I think -- 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'd be a 2-year time frame or something like that. It could then merge with some other entity. So it's -- 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.

The last question comes from Shibani Malhotra from Nomura Securities International.

I guess, Mike, on your commentary regarding pricing and the change in environment, et cetera, I guess, we understand that the press has gone -- and the media has gone after Valeant for some of the price increases you've taken. But in the larger scheme of things, I mean, by talking about not doing such deals anymore, et cetera, aren't you just validating the concerns the media has? I mean, 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? I mean, we could have seen products just not being manufactured anymore.

Yes, no, I think that we're pragmatic. And in the end, we'd rather focus our time on writing our business, and that's what we enjoy doing the most. Again, as -- in terms of our acquisitions, as I mentioned earlier, only a very few of them were ones where we thought that assets were mispriced, right, where they actually were not being priced at the value they delivered to the health-care system. And I agree with you, Shibani. 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. And what was it?

61%.

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 in the market, I don't know why there should be any new restriction on prices. 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 are 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 just moves away from them. So I agree with your points, 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.