2015Q3 Pershing Square Holdings, Ltd. - Shareholder_Analyst Call on Valeant

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Pershing Square Holding

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Shareholder/Analyst Call Friday, October 30, 2015 1:00 PM GMT

CALL PARTICIPANTS 2

PRESENTATION 3

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PERSHING SQUARE HOLDINGS, LTD. SHAREHOLDER/ANALYST CALL OCT 30, 2015

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Copyright © 2014, S&P Capital IQ, a part of McGraw Hill Financial.

Call Participants....................................................................................................................................................................

EXECUTIVES

Brian Welch

Charles Korn

David Klafter

Jenna Dabbs

Jordan Rubin

Mark J. ErcegChief Financial Officer and Executive Vice President

Unknown Executive

William Albert AckmanChief Executive Officer and Portfolio Manager

William F. Doyle

ANALYSTS

Unknown Analyst

ATTENDEES

Unknown Attendee







Presentation....................................................................................................................................................................

Operator

Good morning, everyone, and welcome to the Pershing Square Capital Management Conference Call onits investment in Valeant Pharmaceuticals International. I would now like to turn the call over to to BillAckerman, Founder and CEO of Pershing Square Capital Management.


Thank you, operator. So we're going to begin, I apologize for the delay, we had maybe 10,000 moreparticipants than anticipated. I'm going to skip the disclaimer, but we encourage you to read it and we willbe providing these slides on our website subsequent to the presentation.

So just why are we holding this webcast? So our standard for transparency for investors is basicallyto provide you with information we would want. If our position were to reverse, that is if you were themanager, we'll call you manager and we were the investor. Obviously, we won't disclose information thatwe think will create competitive disadvantage with the firm unless we're required to do so by law.

So big picture, Valeant, multinational, global pharmaceutical company. Big categories, they participate inthe dermatology, ophthalmology, branded generics and gastroenterology, and they've got a meaningfulpresence both in developed and emerging markets. Market cap of $40 billion, total enterprise value $68billion, about 40 manufacturing plants worldwide and 18,000 employees.

Stock was 111.50 at 4:00 yesterday and went down after hours.

Pearson became CEO in February of 2008. At the time, it was a small company undergoing significantproblems. Pearson made meaningful changes in the strategy and become redirecting the product portfolioto a what you call durable, diverse portfolio of products, focusing on specialties where doctors weredecision-makers and where there's limited government endorsement. The company is designed to becentralized, efficient, nimble, responsive organizational structure. Our focus on returns, high returns oncapital, investments in R&D, that earn attractive risk-adjusted returns, excess capital, directed in a way

that makes the most sense coming grew very rapidly both organically and through acquisition. Acquiringa diverse portfolio of products, and different strategies under 1 roof. The company has historicallybought assets opportunistically, including distressed assets, companies under high regulatory scrutinythe because of problems, channel staffing for example, 6, and company's inherited multiple corporateintegrity agreements. Again, you buy a troubled pharmaceutical company, they're under settled with theGovernment, they enter into some kind of CIA and the company's had that kind of monitoring over mostof its life. Preference for debt versus equity, the company has been just below investment grade businessover the last 5 or 6 years.

And this is complicated business. Any business has grown quickly is complicated, GAAP accounting is not agood measure of a acquisitive company.

Operator, we're hearing music. Operator?

Okay, hopefully were back on. And the complexity.

Okay, we're having some technical difficulties. Okay. Okay, investor base is, of course, a sophisticatedone. And this, I would say, who's who of kind of little smart money, Ruane Cunniff, T Rowe Price, ValueAct,Lone Pine, Brave Warrior, Brahman Capital and companies get the shareholders they deserve. Thecomplexity, the high returns lead you to a shareholder base that looks like this.

So what is -- in order for this company to succeed in light of the complexity of its business, it requires astrong, high integrity management, and it also requires a high level of transparency. Shareholders need tounderstand the business and the progress of the company, and we really to hear about bad news properly.Pending less than complete transparency is makes the company vulnerable to attack, and Valeant's had







its share of critics over the years. So we view this as a compact for shareholders. As exchange for highreturns, investors are willing to accept complexity, so long as there is transparency.

Valeant, we think, has made a meaningful mistake historically and under-investing in public relationsgovernment relations and investor relations.

I apologize for the music. And the point we're making here is a Valeant is a very low-cost operating model

I don't really served having investor relations public relations, government relations not an area thecompany has meaningfully invested in.

Beginning in January 2015, I have a stock price chart on Page 6, for people who are listening on the call,if you want to follow the webcast, you can do so by going to www.pershingsquareholdings.com or web-mac. We began to just actually provide remind -- rewind further, we started building our stake in Valeantin February, but this company got to know quite well a year prior. We did a fair amount of due diligence onValeant in early 2014 in connection with a eventual partnership with Valeant to make an offer to acquireAllergan. At the time, we own Allergan stock and we were restricted from acquiring the Valeant sharesuntil just around the time we began buying shares in January and February of 2015.

Started billing mistake, beginning $161 a share. Early on our accumulation period, the companyannounced the acquisition of Salix driving the stock price up creating liquidity for us to the position and we

bought 3 million shares in a offering of the company to raise capital through the sale of this transaction.In April of 2015, the company announced good earnings, Howard announced his retirement, but he plansto stay on Board of Directors and maintain his stakes in the business. And in the second quarter, earningsraised the guidance for the year, and then Howard testify and Congress about corporate taxation.

[indiscernible] the stock is off the high call it 250, and then there was an article in The Times focused onprice increases, in particular, on a small company called Pharmaceuticals with 1 product with the companyhad raised the price fiftyfold. Shortly, thereafter, Hilary Clinton tweeted about the price in pharma sectorand then a week later, House Democrats requested the Republican Chairman subpoena Valeant about theprice increases and the sent a letter, public letter to Valeant.

Valeant received federal subpoenas about its patient assistance program and some other issues, and thenit responded the same way to the with a public response. On October 19, the company announced strong

Q3 earnings, but the company investors were confused by the company's discussion about changes inthe strategy. Along with Valeant talked about not focusing on businesses or assets that were requiredmeaningful price increases and returns and talked about increasing R&D to $400 million to $500 million,and investors view this as a change in strategy and the stock price reacted accordingly.

More recent events. In September, Citroen release a research report claiming the company was bookingrevenues is from Phantom revenues from its specialty pharmacy channel, in particular Philidor. And thenmost recently, the company held a conference call to respond to the Citroen report and other mediacritics, and then October 29, which, I guess, was last night, 3 large PBMs announced they're terminatingrelationship with Philidor. And of course, this morning, the company announcing that they are terminatingtheir relationship with Philidor, and then Philidor would wind down its operations. The company alsoannounced hiring a lawyer by name of Marco, [indiscernible].

So just big picture. Let's talk about specialty pharmacies. Why do patients and doctors like specialtypharmacies? Because they help patients get the drug the doctors prescribed, and they get easy andconvenient in reducing a lot of the administrative burden associated with getting reimbursed by theinsurance. Patients got the prescription, often by FedEx, and often before te insurance companies evenapprove the claim. And so it's sort of been a popular channel both with doctors and with patients. Manycompanies use this channel, samples are Allergan, Novartis and aldermen subsidiary of Nestlé.

Valeant's use of specialty pharmacy begun really from a program they acquired with Medicis, I guess alate, I've got 2012 acquisition. Medicis is a dermatology company. And dermatologist are notable for beingvery particular about the drugs they prescribe for their patients. And some sort of good example wouldbe patient that has an acne problem, and the doctor believes that particular concentration of an act theingredient is sufficient to address the problem. Perhaps a higher dose of the generic version, at least rash







or something like that. And the doctor was a patient of the branded version, they're often they get thescript to a pharmacy and they rejected and they downgrade you to a generic, and with the function of Philidor serves is to basically increase the probability the patients gets the drug that the doctor prescribed.

Philidor has been Valeant's largest specialty pharmacy, growing from less than 1% of revenues by the endof 2014 to approaching 7% of revenues by the end of the third quarter of 2015.

A few facts about Valeant strategy. Valeant's drug are available at both retail pharmacies and throughPhilidor, and Philidor offers low cash pay prices on drugs to patients without insurance coverage.Government-insured patients cannot get co-pay assistance. And actually a point here, this is somethingthat has been missed by the media, people have viewed something to this co-pay programs. And if youthink about what a co-pay program is, the co-pay program is a disincentive designed to decrease theprobability that the patient buys the drug the doctor has prescribed. So imagine the low-income patient,doctor prescribes a heart drug, they go to the pharmacy, the pharmacy says the co-pay is $50. They can'tafford it, they can't take their drug. The result is that the patient ends up not taking the drug and ends upin the hospital for a heart condition, obviously adding meaningful cost to the health care systems in thecountry. So we view, frankly, a co-pay, subsidizing co-pay is something that is actually good for America.as opposed to something that's somehow insidious.

Jordan. Actually why don't I introduce the team why done the call. I'm Bill Ackman, if people haven't

figure out. With me is Jordan Rubin, he'll discussed the next slide to. Jordan is on the investment team,and part of our lead on the investment in Valeant; Bill Doyle, also from Pershing Square. I have DavidKlafter, Senior Counselor of Pershing Square. I have John, formerly of Justice Department on the legalteam at Pershing Square. Charles Korn, an analyst at Pershing Square, along with Brian Welch. Jordan,why don't you take us through this beautiful page you put together here.

Jordan Rubin

Sure. So one way to think about the mystery is on hand, you've got payers are looking to reduce costand control drug utilization. On the other hand, you got manufacturers want to make sure that patientshave access to their products. So what Valeant, as Bill mentioned, manufacturers has done, has eliminatedthe middleman to bring manufactured closer to patients. And tool that used to do that is the specialtypharmacy. So what do specialty pharmacies do? Well, the help patients overcome the financial andadministrative burden that the payers create to get the patients access in medications the the doctorsaccess to. The other thing that the specialty pharmacy allows the pharmaceutical companies to do this byboarding the middlemen, their cost to bringing a drug to market is lower, it reduces cost to the system andcan allow a manufacturer to offer drugs at a lower price to patients that they would be able to otherwise.


If you look at the chart at the bottom of the page, you'll note that specialty pharmacy version, thewholesale distributor disappears. And actually, last night, as I was thinking about the specialty pharmacymodel, it struck me at I had a 90 [indiscernible] basis, why is an Amazon the biggest pharmacy in thecountry? All right, if you think about it, you go to your doctor, they prescribed the drug, you get a fullpiece of paper, you walk down done the car, you driving to the pharmacy, you hand it in, you wait on line,then hand it back to and then you go home. Why isn't that your doctor sends an e-Prescription to Amazon,

they've got the best distribution in the country and then in New York, you get it same-day delivered toyour home. And you just -- they need to build a new infrastructure with you with claims adjudication.So it seems to me actually wanted to think about the pharmacy, the traditional retail pharmacy shouldbe something that enter and I think from specialty pharmacy is, in effect, is the future of the pharmacyindustry.

Regulatory risk. So Valeant, of course, and Philidor operate in a highly regulated industry. There are manydifferent state laws that are legislate how pharmacies have to operate. It's legal for a drug manufacturerto own a pharmacy and some do. While Valeant consolidates Philidor for accounting purposes, Valeant hasstated that they don't control Philidor. Philidor has been accused by a former contractor and debtor of legaactivity. You've seen a lot more since even the slide deck has been put together. And then last night, of








course, CVS Caremark expressed grips have terminated relationship with Philidor and this morning, thecompany announced that it was Philidor is being shut down. Government regulators are looking into legaland regulatory violations. And when they do, it's very fact-specific in terms of whether the law has beenviolated.

So we're giving you a timeline by Valeant and Philidor. Kind be piecing this back into time. So basically, inMarch of 2012, Medicis, I guess then a public company, launched what they call their alternative fulfillmentprogram, and it was a pilot program focused on 2 drugs, so then and say on 2 dermatological drugs.And this was an alternative distribution system. They spoke about, but they didn't provide much detailabout. In December of 2012, Valeant acquired Medicis, and then in early January, Philidor Rx Serviceshas created this Delaware corporation, Andy Davenport, the CEO, who is we believed to be the majorityshareholder. If you look, we did some research on the owners of this entity our. And they all seem to beaffiliated with be called [indiscernible] Group which is a pharmaceutical consultancy, which list Valeantas client, and my understanding is that it consulted to Medicis beforehand. I think Davenport maybe ormay have been the CEO of that business. If you look at the footnote, we did the research of who the otherowners are, and it looks, I think many of these people are employees or kind of friends or families of Andrew Davenport.

So later in 2013, apparently this pilot went well. Valeant decided to expand its relationship with Philidor,adding more products and adding more states when the program was available. I guess Philidor was

building out the network of pharmacies around countries so that it can dispense on a national basis.

And Valeant, did not mention Philidor by name, but if you look at the conference call transcripts, whichI read it yesterday, they talked about their alternative fulfillment program in dermatology withoutmentioning the name of Philidor.

Philidor starts to grow quite rapidly in 2014, reaching a total of $111 million sales by the end of 2014. Soit grew from start-up to $111 million of sales, a little less than 1%, so about 1% of Valeant revenues.

Valeant, at the end of 2014 in December, enters into an agreement to acquire an auction, versus Philidor,the pay $100 million for the option. Agreed to earn out [indiscernible] $133 million. My understanding is$100 million of those, $133 million are earnouts based on performance, and $33 million is a time-based ofvesting payment.

Philidor remains a separate company. Valeant own sets of an entity called KGA Fullfillment Services, whichis a wholly-owned subsidiary to own the option. They used law firm called someone, which is very wellregarded firm. By the way, I forgot to mention on the phone, but not on the room, is Steve who is the ViceChairman of Pershing Square, formerly a partner at [indiscernible].

Valeant's 10-K, they make, they've determined that Philidor it's a variable interest entity. There's areference on their list of acquisitions to consolidating interest in their 10-K. But Philidor is not mentionedby name.

Philidor grows over the course of 2015, and by Q3, this business is 5.9% of Valeant's sales year-to-date.

Okay, now Philidor, and Mr. Reitz, just kind of quickly walk you through this -- a lot of the stuff becomesless relevant, I think, in light of today's announcement but just to give you the detail. So is formed asa pharmacy in California. It gets its license July 11, 2013. This is -- I'm sorry. [indiscernible] createdreceives California license in July. In August, Philidor applies for a nonresidence license in California. InMay 2014, the Board of Pharmacy rejects Philidor's license application. Our understanding is it's rejectedfor not accurately describing all of the owners of Philidor. My recent understanding was they left outcertain names of owners in that filing and apparently in other states, they had mentioned a full list of owners.

July 2014, the Board of Pharmacy acknowledges that Philidor was appealing of denial of the license.In October 2014, an entity called Isolani LLC has created, for the purpose acquiring the ownership of [indiscernible]. And Philidor holds an unexercised option to acquire Isolani. In November 2014, Isolaninegotiates a purchase agreement to acquire is, really a storefront pharmacy, purchase price $350,000.10% is paid upfront, ahead of regulatory approvals. And then Isolani R&O, Russell Reitz, I guess, is the







owner of R&O entered into a management service agreement and basically transferred control of thepharmacy into Isolani. And Reitz remain the pharmacy in charge, and what this looks like to us is basicallythe Philidor acquiring access to be able to sell drugs in California by acquiring or getting control of thelicense through R&O. And R&O this business has licenses in 34 other states. I guess, that's what theappeal. R&O sales meaningfully accelerates as Valeant began shipping to R& O, and they shipped thepayments of $18.4 million for drugs that Valeant sells in the 75 separate shipments.

In May, Mr. Reitz withholds the sign-off and to execute the Pershing agreement, and it begins confiscatingchecks. These are reimbursement checks from the drug companies and does not deposit them into ourbank account. And then in July, Isolani demands payments, withheld checks, and ask for Reitz to resignas pharmacy in charge. Valeant, having not been paid stock shipping in August, and then August 31, Mr.Reitz's lawyers, notify Isolani the decision to terminate the Pershing agreement and they claim all kind of pharmaceutical products.

September, Valeant provides written notice to R&O asking for payment. And September 8, Isolani sues Mr.Reitz and R&O for breach of contract. In October, R&O used Valeant claiming Valeant parties with fraudand then Valeant a cover claim last night, which I encourage you to read.

And Mr. Reitz's lawsuit, and this is something that attracted a lot of attention obviously from shortsellers. He says that he received a letter in September 4 from Robert, Valeant's legal chief officer the first

correspondence that R&O had ever received directly from Valeant. Mr. claimed that that R&O, as Californiapharmacy owed Valeant over $69 million. However, R&O has never received a single invoice from Valeantin any amount and until September 4, had never received a single demand for payment from Valeant.R&O has requested copies of invoices, but to no avail. Indeed, it seems that Valeant has no evidencewhatsoever to back up its claims. This, believe something and of course rno says, if one of 2 things mustbe true, Valeant and R&O are victims of a massive fraud perpetuated by third parties or Valeant conspiredwith other persons to bridge with a massive fraud against R&O and others.

This e-mail is in Valeant's answer to plaintiff complaint [indiscernible] and it's pretty interesting one. It'sDecember 1, 2014. It is -- once you start at the bottom, you will see that Russell Reitz writes an e-mail toJohn Carney. This says, hi Jim, the wire was received. I assume that was the payment. Thank you. We areeager to begin adjusting our service to start dispensing VRX projects by Philidor Rx Services, additionalparts stuff to cover the expected hours and also available for your view when the need arises. Most rate of

participants discussing licensed and issued you a copy of my last correspondence from California Board of Pharmacy. This document from the board is in response to my change of ownership filing prior to my firstmeeting with you. I'm not response was once the question rescheduling Philidor Rx while taking place andavailable this week to conference with you and [indiscernible]. So it appears that Mr. Reitz, he says neverheard of Valeant, had a different point of view in this email about 9 months earlier.

So quickly on Mr. Reitz, what appears is going on as, I guess, I would speculate since he agreed to sellthe business for $350,000, and then very quickly, sales ramp to a very large number and he realized thatperhaps he had sold his business for less than he should, attempted to properly negotiate a higher price,and then when the parties did not agree to a change in the contract terms of fair bit of dust great thereputation issues for a public company.

So just in terms of Valeant's disclosure about Philidor and R&O. In September 4, 2012, Valeant for thefirst time talks about their newly acquired called alternative the fulfillment strategy for dermatology. Theyacquired Medicis December 2012. On October 20, [indiscernible] research analyst asked Valeant on theQ3 earnings call about the ratio of scripts written through Valeant both the specialty pharmacy at Philidor.Pearson disclosed that the specialty pharmacy channels comprised of multiple purposes, which collectivelycontribute 40% of [indiscernible] volume. The reason for the analyst question is as you look at the IMSdata, you don't see all of Valeant's -- particularly for certain drugs, you don't see all their sales. And sothe question the company where are the sales going and answer is the sales are going to the specialtypharmacy channels, which was picked up by IMS.

Advance forward to the October 14, 2015, and by the way, between 2012 and 2015, Valeant talks aboutthe revolving "alternative fulfillment strategy on 10 different occasions but does not mention Philidor.October 14, the blogger tweets Philidor means anything and October 19, the Southern investigative








Research Foundation publishes article describing Valeant's specialty pharmacy channel and Philidor andR&O are now in the media. October 19, Valeant's discusses the relationship and accounting practicewhich to Philidor. This is the third quarter conference call and this is the first time the company hastalked about Philidor in detail. October 21, Research accuses Valeant of engaging in fraud using phantomcaptive pharmacies to generate false revenues and analogize that the company says this is the next endrun, stock collapses. Valeant takes a few hours to respond. They issued a 1-page press release with a

few bullets, attempting to address and really denying the allegations. October 22, a blogger writes apost-critical a Valeant specialty pharmaceutical strategy, and then the media major biggest focus on therelationship and more negative details emerged. Someone could turn off -- the temperature is quite coldin here.

October 26, Valeant holds a conference call to impress concerns. Certain questions were remainedunanswered. The call was -- I would say, call it a scripted call. Clearly the lawyers were involved in puttingthe documents together. Some analyst's questions were answered, but clearly there were more questionsthat when the call terminated, about 90 minutes.

On the call, I think the company convincingly explains the investors that this there is no accountingfraud or revenue recognition issue. They announced forming ad hoc board members to review Valeant'srelationship with Philidor. They filed their 10-Q, and they provide more detail in the Q. And really the firsttime in the SEC filing, they disclosed the name Philidor appears.

So with this, I'm going to turn it over to David Klafter, if you can just give us a kind of a high levelregulatory overview.

David Klafter

Thanks, Bill. And I apologize I have a sore throat. So I would like to provide some context for the overallindustry in which Valeant operates. At the moment, headlines are drowning up in appreciation of theunderlying business. The overarching point is that health care industry is highly regulated, which everyonein the industry knows phenols worked very hard. All participants are subject to intensive federal staterelations. Parties compete with each other. They cooperate and they also comply with [indiscernible]. Theregulations are not always intuitive. Things that can be done in other businesses may be impermissiblein health care industry, depending on the precise facts of how they been structured and implemented.We listed here some of the types of inquiries you get in the pharmaceutical -- in the health care industry.Not all of them are involving drug companies, but [indiscernible] companies. There can be inquiries aboutmarketing practices, including off-label marketing or making unsubstantiated claims. There could bemanufacturing and product safety issues. And in this area, there are often tragic physical consequencesto patients. There can be insurance fraud, which can apply to patients, doctors, hospitals, pharmaceuticalcompanies.

There can be Medicare fraud, again there are many different parties to Medicare relationship. Therecan be kick backs or false claims, usually the false claims involve both claims for reimbursements fromthe government. The pharmaceutical companies are required to provide information to the centersfor Medicare and Medicaid services, and there's something called the best price requirements. Andthen there's confidentiality requirements surrounding the patient's private information. When inquiriesarise about any of these areas in the health care industry, they're taking it very seriously. They haveto be handled conscientiously and thoroughly both by the government and by whatever company isresponding to it. The process takes time. The facts will come out fully as they should. If a companymesses an insurance company, a hospital, a doctor, a pharma company has crossed the line, there willbe consequences. They can include monetary penalties, reforming their conduct and their practices andappoint a monitor, independent monitor who will monitor their conduct going forward.

On the next slide, we've provided a list of the 10 largest settlements and judgments in the last over 20years, from 1991 to 2012. And you'll see on here the names of most of the best-known pharmaceuticalcompanies. They have paid substantial judgments, where their behavior given the legal standards, butthere businesses have gone on. And we're not saying that these numbers applies to Valeant, but we're just using this as an illustration of the types of beliefs the government has achieved.








On the next page, we have aggregate penalties paid by various companies. And again, the totals arelarge, but you notice this is that the businesses go on. It's not the government's interest or in patient'sinterests for pharmaceutical companies to been able to deliver the necessary drugs to patients. So if theyair, if they crossed the line, they pay for their wrongdoing, but the business goes on.


I actually I'd also point out. If you look at this list, it's the well-regarded companies in the country arerepeat offenders. I mean if you look at Merck, it had 27 settlements paid, almost $2 billion of financialpenalties. You look at Pfizer, 15, 19, Bristol-Myers 12, Novartis 12. So it's quite pervasive and investor if pharma sector, you have to be comfortable that the companies you invest in, unfortunately particularly inlight of the nature of the industry would likely to have sanctions. We know that Valeant is not on this list.

David Klafter

Although we should also say Valeant emerged with or acquired companies that had lived under corporateintegrity agreements, and so they know what the standards are and how to deal with these things.And certainly based on what we have seen publicly and so far, including the announcements overnightof Philidor and the appointing former a deputy AGE it appears to us Valeant is taking the matterappropriately and seriously, and we expect over the next couple of years, the process will be play out,and the business will go on. In the meantime, Valeant has 18,000 employees who are doing what they doevery day, which is providing drugs to patients.


Actually, Steve who's on the line, Mark and Philip was mentioned in the Valeant press release, is fromJack Mandel as. I don't know Mark, obviously you must do perhaps you can get some context of thisbackground before Kirkland and what play thoroughly ther eand what you think of him as active counselfor Valeant. Remember to unmute your line if you can. I guess, he's trying to figure that out.

So in the meantime, Jenna, why don't we go to Novartis. And this is particularly interesting one becauseit's quite timely. It relates to the specialty pharmacy industry, that's obviously a high-profile company.

So Jenna, why don't you walk us through -- Jenna, is formerly, just by way of background, Columbia LawSchool, federal judge and she worked at a continuity, and then she went on Southern District to workfor [indiscernible] as Assistant District Attorney. U.S. attorney, excuse me. And then joined PershingSquare. I know Jenna because when I released my research report on MDIA, they didn't like it. They gotto investigate me and higher something and Jenna was the associate working on matter. So I've knownhere for quite some time. Jenna, tell us about Novartis.

Unknown Attendee

So we'd look at a number of cases and recent days to frame our understanding of the legal and theregulatory environment. The Novartis case is one of those, and highlighted this here. As Bill mentioned,because it involves the specialty pharmacy channel can see particularly relevant our analysis of what'sbeen happening in recent days. The case began with the filing of a whistleblower or key to a complaint.It was filed by a former Novartis employee. The Department of Justice then commenced an investigation

into the allegations and ultimately intervened in the case publicly. In April of 2013, we have quote on theslide here from the Manhattan U.S. attorney we were are explaining the nature of the kickback schemethat was alleged in the case. The government effectively alleged 2 different kickback schemes, 1 relatedto effectively the conversion process where the evidence, the allegation was that Novartis had entered intoagreements with the specialty pharmacies, in which those pharmacies endeavored to switch patients fromcompetitor drugs to Novartis drugs, there was a particular drug that was highlighted in the government'scomplaint with respect to the scheme, an immunosuppressant that's typically given to patient followingtransplant of the drug called take. And the allegations in the case that Novartis endeavored the contractonly with those pharmacies that represented that they would in fact be able to convert many phonenumbers of patients to Novartis drugs. So this is scenery where effectively the company was alleged tohave made specific payments to the pharmacy and actually a number of pharmacies were included in the







allegations in the case. So that they would undertake to counsel patients and doctors to switch patients totheir products.

The second scheme that was a part of the government's allegation in the case involved a different drug, adrug called someone that's used to lower iron level in patients. And the scheme here involved a particularspecialty pharmacy that was highlighted by the government called bioscript. That pharmacy was alleged tohave given biased medical advice. Effectively, their personnel were alleged to have presented themselvesas objective medical personnel in interactions with patients, and they were encouraging those patients torefill prescriptions for the Novartis drug and to continue their course of treatment on that Novartis drug. Itwas a particularly meaningful type of counseling for this product because it's a product that actually hasa black box warning on disabled that's the most serious warning that the FDA can require on a drug label.And the allegations by the government were that in these consultations with patients, pharmacists wereunderstating serious potentially life-threatening side effects of continuing the course of treatment of thedrug or refilling the prescription. Without regard to the actual medical circumstances of the patients thatthey were speaking with.

The allegations in the case that were made by the whistleblower were somewhat broader than thosethat were ultimately pressed by the Government, though it was the same source of conduct. It doesinvolve some detail about the additional pharmacies that played a role, additional Novartis drugs andsome allegations concerning concerted efforts by the company to actually design and to oversee these

effectively kickbacks schemes or these programs to recommend their products and to increase sales of their products. We have a timeline on the next slide, but I'm not going to go through in great detail. Thereare really a couple of things to note there. I think that they originate in the filing of the whistleblowercomplaint that happened in November of 2011. We just heard this week an agreement in principlewith reach in the case between the government and Novartis. And so, it's a 4-year timeline from thefiling of the whistleblower complaint to the resolution of the case. David made this point as well. Theseinvestigations often take a fair amount of time. Also on this timeline slide, I would just point out that alongthe way, some of the specialty pharmacies that were involved in the alleged conduct reached settlementagreements with the government. We've highlighted 2 of them here, Bioscript reached a settlement withthe government in January of 2014, that's the company that I mentioned that was alleged to have beeninvolved in effectively encouraging patients to continue the course of treatment tha tpotentially had safetyconsiderations associated with it. And also someone, in May of 2015, both of those specialty pharmacies

agreed to pay fines to resolve their cases. Both of them agreed to admit certain facts regarding theirrelationship with Novartis and also to cooperate in the prosecution of the government's claims againstNovartis.

As I said, it was just announced earlier this week that the settlement in principle had been reached, andthat Novarties entirely has agreed to pay $390 million. That's a payment that cover all claims relating to5...


Jenna, you left out 1 bullet point, which is what the government from Novartis. I think it's relevant. If youcould...

Unknown Attendee

Sorry about that. The government thought in the filing that they made in court in June of this year,$3.35 million. [ph] That's a combination of trouble damages that apply in the context of False ClaimsAct violations, and also civil penalties. So they sought over $3 billion and it appears the case is going tosettle for $390 million. On the next slide, I just want to contextualized the example of this case. Therewere a handful of considerations that appear to them, particularly important to the government. The firstbeing that Novartis was a repeat offender, meaning that the company was already under a corporateintegrity agreement that had been put in place because of violations of the same general type of kickbackviolations that were issued in the instant case. There's also the fact that the misconduct was alleged tohave taken place over quite a long period of time and less extensive in terms of the number of claims thatwere involved. As I mentioned, the government sought more than $3 billion. The false claims that were








alleged by the government covered more than $500 million of reimbursements from government healthcare programs. So a substantial timeframe and amount of claims, volume of claims.

And safety consideration appears to have played a very significant role, David. I had mentioned inconnection with 1 of his slides. that the very high penalties that can sometimes apply in the healthcare sector when wrongdoing is found, are particularly heightened, of course, when there is safetyconsiderations that come into play for patients. And as I mentioned, the one of the schemes that thegovernment really focused on in the Novartis case was the idea of the pharmacist who presentedthemselves as objective medical advisors, and effectively assure patients that side effects they might havebeen experiencing would improve and they did so expressly to ensure for those patients will continue theircourse of treatment or referral to continue the course of treatment without any regard for their medicalcircumstances.

Just Slide 24, a few final things to know with respect to our analysis of this case. In connection with theannouncement of the settlement in principle with the Department of Justice, the company, Novartis,made some public statements in which they acknowledge, of course, the seriousness of the conductthat was alleged in the case. They also however made clear that they intend to continue to use thespecialty pharmacy channel. And it appears in some statements, at least from analysts, they don't expecta significant impact on their business. No doubt, if 1 would expect it to involve some changes to businesspractices, even if it fundamentally doesn't impact the business.

It's interesting looking at this case, there really hasn't been a lot of coverage of it since the allegationswere first publicly announced, and there really hasn't been a lot of coverage thus far of what therevolution is going to be, but perhaps when its formerly announced by the Department of Justice, therewill be more. I think it's helpful to note, in this context, there's often a lot of coverage when theseinvestigations are first made public. There's a lot of discussions about them. But what happens after that,we've talked about the timelines of these investigations, sometimes being quite lengthy. What happensafter that is everybody gets down to work. The government will do its investigation. The company thatis involved to take steps to modify their practices as necessary. They will cooperate in the investigationsand it's always an evolving situation as the facts develop. Ultimately, any wrongdoing those identified hasto be taken seriously and it has to be fixed. And we're confident that, that serious engagement and thatthoughtful consideration of business practices is exactly what's going to happen here.


With that, actually, Steve was turned off by the operator. Assuming it's now on, Steve if you would, if youhave any comments about Mark Philip, team is the choice. And anything you might want to add as to whatJenna said.

Unknown Attendee

Certainly, can you hear me good?


Yes,.

Unknown Attendee

Excellent. So before I joined Pershing Square in February, I was a partner for about 12 years at Kirkland,analyst specializing in corporate governance and M&A. Mark Philip was a partner there. I dealt with him agreat deal. I'll give you a little of his background, and I want to emphasize, he's only about 50 years old,which is remarkable considering his extraordinary background. He was a partner at [indiscernible]. Afterthat, he became highly regarded federal judge, then when the [indiscernible] Ashcroft Justice Departmentrun into some issues, Phillip was asked to leave the bench to become Deputy Attorney General, which isthe number 2 position in the Justice Department, and to basically straighten up the way it was running. Hedid that, he did it in everyone's judgment, extraordinarily well. And he then joined Kirkland [indiscernible],








headed the practice, representing people before government agencies and federal prosecutors. He's anabsolutely brilliant lawyer. I think he's the best lawyer in this field in the country. He's extraordinarilyeffective. He's person a really sterling reputation, which is [indiscernible]. But they think it's a brilliantchoice on the part of Valeant. I think it's really a step in the right direction because he's going to helpthem do the right thing. So I find that very personally encouraging.

And obviously, Valeant, I think, by their recent public announcement has acknowledged to the worldwhat they should have acknowledged, which is that they take the responsibilities very seriously. I'm notdoubting that they always did, but this is a public acknowledgment that they do. And I think that's a verypositive step in the right direction.


Thank you, Steve. So 1 question again, at the end, we'll address all of the questions we've received fromone of our investors, as well as short-sellers, media, et cetera. So be prepared for a long call. But oneof the questions we've got is how much do we know about specialty pharmacy strategy. And the answeris we were aware of the specialty pharmacy strategy at the time of our investment. We believe it was arelatively small part of Valeants' business. But let me turn over to Jordan here. Jordan, when do we -- inJuly, we began doing some due diligence in specialty pharmacy?

Jordan Rubin

Yes. In July, we began doing some work on specialty pharmacy strategy at Valeant. Specialty pharmacies,in general. We were aware in early 2015 that there was a strategy at the time, we believed, it was a verysmall we have heard from folks in the industry that strategies growing importance for Valeants of thedecided to do some work. And our work gave us the accurate impression that the specialty pharmaciesstrategy, both for Valeant in the industry as a whole, the doctors patients and manufacturers and wasplaying an increasingly important role in distribution of prescription drugs across the industry. We believeat the time of the business practices, we're similar to those of other specialty pharmacies. We're actuallycontact Philidor [indiscernible] they were owned by Valeant and the response we got back was now, andit wasn't until last week that we have learned that Valeant had acquired and disclosed option to purchasePhilidor in December 2014.


So when Valeant held their call, they answered a lot of questions. I think very convincingly addressedaccounting issues, the revenue recognition claims and even Mr. Someone of Citroen, as well as otherbloggers have acknowledged that assertion was a false assertion. But certainly, we felt they didn'tadequately answer to the questions. 1 question was why the Valeant provide more disclosure aboutPhilidor. Valeant, we've reviewed the Philidor and specialty pharmacies as proprietary as one of ourcompetitive advantages. And they said Philidor was not specifically mentioned in disclosures bigger theyhave not been material to the consolidated financial statements.

Second question we felt -- we just felt there's sort more color would be helpful there. So actually, whatI did last night is I asked Howard asked a question and why wasn't more fully disclosed in the 10-K or

otherwise. Basically, he said at the time of the 10-K, we -- beginning of each year, we set a standardfor what size acquisition we included in our 10-K. This wouldn't didn't meet our size standard but we doalso disclosed businesses if we think otherwise material to investors. But in light of being less than 1% of our revenues and in light of being immaterial for assets, we discussed another committee and includedit did make sense to put it in the 10-K. And again I mentioned at the beginning of the call, certainlyour standard of Pershing Square, we're not a public company, but our standard is that we disclose whatinformation we would want if we really invests around sort of our investors and managers. I think Valeantshould did the same smart. In a suspect, respect to this point, the time of the 10-K, certainly by businessbecome more material, I think Valeant would much rather have disclosed this earlier. One of Valeantsstructured as another option with the $100 million premium and a 0-dollar strike price ultimately returndetermine that structured option acquisition would over the rights we initiative to preserve the flexibility








required for future revenue growth platform. The rationale of the option to keep the Philidor focused andValeant business and ensure continued strong customer service. The option also give Valeants the levelof contraction in the midst of the benefit or businesses are providing option to the long-term ownership.I think these statements are true. And again, it's just the reason why I don't like scripted conferencecall where the lawyers read everything is that misses of the Conners understand the business sessiongoes behind decision making. Can of spoke with Howard last night, and basically what was a Philidor was

originally a test and as it became more successful, the Philidor management team wanted to expand, toinclude other as other entrepreneur to include other potential products from other manufacturers andValeant felt that customer service they wanted to focus on Valeant as opposed to other companies. Andtwo, the business growing very quickly, and that was very customer-service-intensive. And that they feltput a risk of the business and obviously disadvantage of Valeants. So they begun by negotiating as anexclusivity arrangement with Philidor, and Philidor wanted a fair amount of money for that exclusivity.Ultimately agreed that the price of exclusivity versus the price options buy the business were approachingus in a place. So I think the way that Valeants talked about this as maybe $100 million for exclusivity andreally an option to acquire the business. In terms of why they didn't just buy the business outright, whatHoward described this look, we knew nothing about the pharmacy business. We knew nothing about theregulatory requirements. And in fact, it's very hard for us to find a lawyer to talk about the pharmacybusiness and what the business operating in 50 states and the laws are different. It's just somethingwe didn't feel confident enough that we bought many pharmaceutical products. These are assets, we

understand regulatory understand, which is not our expertise and that structure of the upfront paymentand the ability to the earn out, those were required by the seller, but we can make a our decision as towhen to acquire when ready to do so. That seems to be perfectly but I wouldn't patient that color on aconference call. Did the violate laws lots of revelations and operation of the to specialty pharmacy? Itcould not, answer that question adequately. We have certainly, the press has alleged wrongdoing of thecountry.

So what do we think is going to happen from here? So one of more precious moments, we said in thevery near term, decision to terminate the Philidor and develop new channel partners. I guess, they madethat decision yesterday. I assume they're working quite hard to replace this channel. We also expect morenegative press, more lots of scrutiny from regulators and politicians. But expect the committee is goingto work quickly to get the answers. And with that, expect the business to performed very well. With thinksome time, in the next 2 to 4 years, the investigation will be complete, and all the facts will be known.

The point here is that life will go on for Valeant. And while this is a very damaging the reputation momentfor the company, the dramatic decline in the stock price and the front-page stories, all kinds of negativepress about the business and various assertions and tax, within the valid business is quite robust. And wethink are going to continue to buy contact lenses and going to the to use a skin cream and seeing doctorsto prescribe various products, and that will drive the cash flows of this company as it has for Novartis andas for Maersk, Merck Pfizer and other companies that have been subject for many, many more regulatoryincrease than Valeant.

But we're fundamentally investors, and we make decisions about what to buy and sell based on facts, andwe try to stay as economically rational as possible questions aggressiveness what have investor forgottenfor the degree of the media. The answer is investors have forgotten about the rest of Valeant's business.Philidor is 7 distribution channel that generated 7% of the revenues of Valeant's company in 2015. Let'stalk about the rest of the company.

Bausch + Lomb is arguably the best franchise in ophthalmology, and since it was acquired in mid-2013,Valeant's done a remarkable job building and growing this band. And buy to let them remember can thinkthat Bausch + Lomb has its own major, major issue where people moisture lock, if you remember that,which is a brand caused all kinds of eye problems consumers and business was acquired by [indiscernible]and they have to fix it. Again this is the case for people were going blind using the product in here, againthe robustness of the brand, the company take appropriate steps, rebuilt what has the become certainlythe rest of pathology. Gastrointestinal is a part of the business. This is part of the recent Salix acquisition.Salix a company that had its own scandal. Again, Valeant best of opportunities in the business, investingour cases were a onetime really bad thing happens to an otherwise good company with good products.And I think that's a story of Salix. We had the management team trying to meet the numbers, the








channel, which is an accounting fraud SEC security issue. It has actually nothing to do with the underlyingproduct. The stock was obliterated, went from 200-something to 90, I think. And then Valeant acquiredthe business misinterpreted something 158 and they have to pay off a competitive transaction with Endo.And what's interesting about it again here is the market wanted nothing to do withit when the scandalbroke. The first reaction is just dump the stock, forget valuation price. They don't want to be able to tomeet investors, their own this thing, that's good up if it shows up at night, quarterly mutual funds filing,

and meanwhile the people have bought it for $90 a share, did quite well in Valeants acquired the companyNow Valeants has got a great position of kind of emerging, kind of developing markets around the globe,recent acquisitions in Middle East. This is 18% of sales and this business operates under a very largenumber of different brands. And this is a very high-quality, high-return, brand and generic businessglobally. Dermatology franchise, Valeant is is the number 1 company in dermatology, and they're probablythe most innovative in terms of new product launches, Jubilant being 1 recent example. And then,neurology. While breaching portfolio of other products, this is -- Neurology and Other, this is a categorythat the company considers spitting to shareholders know the recent conference call, I think they made itright statement. [indiscernible] putting [indiscernible] I think it's a good idea for this asset to be retainedby the company and the cash flows from this business to be redeployed into either debt repayment orother businesses development activities. But a very diversified portfolio, both geographically, by product,by patent, by durability, a terrific portfolio, and this is everything else.

Looking at the business in 2015, the business grew 15% organic revenue growth and we'll discuss whatthe locations of [indiscernible] away, 13% in Q3 and business growth has been driven by both volume,volume up 8% and net realized price increasing about 4%. So the combination of strong revenue growth,[indiscernible] disciplined cost management and their approach to capital allocation have contributed to avery significant increase in earnings expectations in the business. The consensus expectations in Januarywere $11.47. And now as of October 2015, the consensus is $16.15. A big component of this is their veryattractive and very opportunistic acquisition of Salix. And I think Valeant, one of the things we have alot of respect for management here is the way they think about investing. They think about investing inthe same way that we do which is, at one time a bad thing happens to the company, then that has, webelieve, has nothing to do with the long-term cash flows of the business and the value of the franchise.That creates an opportunity and the management took advantage of that in buying Salix and why theywould want to acquire Salix in a pricing that allowed them to be obviously accretive, [indiscernible] many

pharmaceutical companies won't touch something that's been involved in a scandal. If you think aboutthe acquisitions Valeant has done over time, beginning with Biovail in 2010, Biovail was a accountingfraud issue -- a lot of short-sellers all over it, and for many years and they bought the business andhelped build -- had an exact level government scrutiny because they acquired the -- they call it the[indiscernible] corporate integrity agreements and that -- because they believe they run a disciplined --from a compliance point of view ethical business. They were not afraid to assume that kind of oversight.

If you look at valuation, and again, there's not one article about Valeant that's talked at all aboutvaluation. And if you look at the $7.5 billion [ph] EBITDA for guidance for next year and I would say we'lladjust the floor slightly for the impact of sales, we'll talk about that in a second, the stock is at $111.50[ph], which was as of yesterday's close it was trading at 7x 2016 cash EPS, and this is a business that'snot particularly capital intensive generates [indiscernible] free cash flow, very significant organic growthand has meaningful competitive advantages in this ability to deploy capital. And so we think this price isan extraordinarily low price.

Now if you consume that all [indiscernible] sales were lost, effectively saying that they completely madeup sales, the description written by employees at Philidor and there were no real customers, it's purelyinsurance fraud, which we think is a very, very low probability, clearly some things are likely to have gonedown there, but we do not thing this was a fictional company. But let's assume for valuation purposes, allPhilidor sales disappear and not return, EBITDA will drop about $500 million, generating about $13 [ph] of cash EPS in 2016. And at the closing price of the stock is 8x at 2016 earnings.

If you look at the bit of a longer-term basis which is the way we think about it, what we've done iswe've adjusted our EBITDA assumption down by $250 million. We're assuming that 50% of total propercontributions lost. The assumption here is that those sales go to -- replaced by other specialty pharmacy








channels, and the third party is not controlled by Valeant, as well as the traditional retail, and I guess,mail order pharmacy sector. We assume organic growth, a mid-single-digit organic growth number.Valeant will tell you their estimates are on the high side of single digits over this period of time. Weassume the company delevers to a 3 turns of EBITDA and cost of debt is 6%. We're not assuming actuallyany additional debt, we're assuming the company's going to use 100% of its free cash flow and by theend of next year it gets down to about 3 turns of leverage. We assume the tax rate doubles in 2020

at 10% and they use all of their excess cash flow to buy back stock, some of the stocks trading at 15xnonearnings. So they delever at 3.5 turns at 2016, is net debt-to-EBITDA and we think we the accountingwill be common investment grade credit at these levels, earnings per share of 2020 will be $22 a share.So this is no business development, any delevering strategy, they're out of business in acquiring assetsand they're just an investment grade company that generates a yield and they use that earnings yieldto repurchase shares at a 15 multiple. And for the purpose of our analysis, we assume the multiple isactually, 12x, so again, we're buying back stock at 25% higher than we see the stocks are going to tradeand that's the low case. We look at a 14x and a 16x multiple in 2020. We're coming up with a 2019value for the business, stock 811 [ph] 2019, $264 a share or up $353 [ph] Per share just on a run thebusiness generate cash, buyback stock, don't buy anything new. Whereas in today's value for the businessdiscounting that, let's say that 308 [ph] number at the 10%, discount rate from 2019 tells you the stocktoday is 89% upside today, which we think is obviously unattractive.

In terms of the long-term model for the business which we think is the more likely case, is that thecompany deleverage, maintains constant leverage of 3.5 turns. They take all of their cash flow and theyuse cash flow to buy acquisitions. So there's no assumption of any equity issuance going forward, andtheir business grows -- kind of mid-single digits. And on this basis, the stock is tremendously undervaluedWe take the same seven and a quarter dilution of EBITDA, assuming 50% [ph] of Philidor profits are gone.7.5% assumption which we think is a -- the company's kind of at a high-end or 10% organic growth. Weuse 5% in conservative model. Here, we're using 7.5%, again we delever 3.5 turns which we think takesthem to an investment grade credit. By the way, we believe that Valeant should operate heading in thedirection of operating as investment grade business. Any business of this scale could not comfortably relyon the noninvestment grade credit markets, and I think this is just something that should -- regardless of Philidor or something, should do anyway. 6% is actually, a high cost of debt for investment-grade issuer,but again I think it's a reasonably conservative assumption. We assume a 10% tax rate, again, doublethe current tax rate and the company will be less levered. So we assume the tax rate will rise somewhat.

The company in this model, basically uses all of its free cash flow other than what's required to maintainthe constant leverage ratio and to make acquisitions at 7x EBITDA, which I would say is probably a higherthan normal price than Valeant has paid historically for businesses, and we assume that the amount of acquisitions they can make is no more than $10 billion per year, and to the extent they hit that $10 billioncap with both free cash flow and I guess, the incremental leverage can take on once they have delevered,I think business generates more cash, they build up financial capacity. They can buy $10 billion of assets,everything about $10 billion used to buy back stock at 15x earnings. Again, we look at the model. We'rehappy Jordan will get a spare moment of 2 hours of sleep. We'll make that model available to investorsand they can plug in their own assumptions. If you take the midpoint of 14P multiple, we expect thebusiness to earn approximately $32 a share and be worth in 3 years, $448 a share. Of course it looks likea pretty interesting price relative to today's number. If you discount that price to come up with today'svalue after the stock, 10% discount rate, it's coming back from $48 [ph] you get to a $306, price 2.7xabove the current share price.

So it's very helpful investing if you're I think I find that you're a bit of an investment historian and to try tothink about what other example has a high profile company at reasonable scale have a stock price declineof 40% or 50%, and we think a great example is the volume. And for those of you who are not around in1963, and I was not, but many people who follow the markets know the story, it's called the Great SaladOil Scandal of 1963, and the company that was affected by the scandal is American Express. AmericanExpress was known for growth business in credit cards and travelers checks, and the business was doingextremely well, revenues were operating income had grown a 12% compound rate with the prior decade.11% compound annual growth rates thereafter, and the -- what was not well-known by investors wasthey had a relatively new business. It was called AmEx Warehousing Division, and it made loans, andthey made loans secured by warehouse receipts and they made loans to a company called Allied Crude








Vegetable Oil Refining Corp. It was run by a unknown con man known as Anthony Tino DeAngelis, andthey had previously swindled the government under what someone called the National School LunchProgram, and he filed for bankruptcy, still, AMEX lent him a large amount of money. And if they had donea little more due diligence, they would've realized that the amount of soybean oil he had claimed wasin his storage tanks, was more than the entire U.S. inventory of soybean oil. But they lent him moneynonetheless and they had their inspectors and do their diligence and inspectors put their little dipsticks

into the tanks and it came out with oil, they felt comfortable. In fact, only the top footage of the tankswas soybean oil, everything else was water. And of course this was an incredible scandal, and AMEX'sshare price fell over a day or 2 to 40%, [indiscernible] $110 million of the market cap which was a verybig number then, and they end up [indiscernible] hedge fund manager, at that time 35 years old put 40%of his fund into AMEX. And he said every trust department in the United States panicked, [indiscernible]the stock just poured out. Although it was not obvious to them at that time, dislocation of the stock pricewas one of the great buying opportunities of all time. And overtime, the business was resilient and wedug up the [indiscernible] record last night and as described in the sections of this report, the extremelycomplex warehousing situation has not interfered with the continued growth and attainment of recordhighs in our main lines of business. And for those of you who follow the story, the 35-year-old hedge fundmanager of course was Mr. Buffett. Mr. Buffett, most famous for a rule. He says a simple group dictatesmy buying. We are fearful when others are greedy, and they will be greedy when others are fearful. Andcertainly, fear is now widespread, gripping even seasoned investors. And if you look at this situation and

what's happened, he had a really incredible constellation of events. You had entered congressional interestand a letter from the senator asking for subpoenas. Then you had subpoenas, then you had a short attack,where an entity that was previously undisclosed was named. And then you had an investor put out a lettersaying this is the next end run. That investor did not disclose [indiscernible] short the stock. But this is amoment when your boss says to you sell. Their choices well, sell or, if it's a home run, you might be ableto keep your job. If it's a fraud, you're fired. You decide what to do. If you work for lending partners, thisis [indiscernible] shoulders and says, sell, and he does that, he sells. That's basically what happened. Andselling begets more selling and people panic and it's sell and ask questions later. And that's what we thinkthe story is. We stepped in and bought 2.1 million [ph] shares of Valeant. Maybe because we believe thatfundamentally, the Philidor situation would not impair a lot about of the franchise and was not material tothe value of the business and then it was an enormous margin of safety. We like stock at $250 a share,that's why we had it sold a share. That price and we're willing to buy it at $108. We thought it was one of the great opportunities. An early disappointment it was. Unfortunately, we didn't have a lot of money lying

around. We were fully invested in Pershing Square and we scraped together a couple of hundred milliondollars to buy those shares.

So with that, we can go to Q&A. And what we're going to do here is we received several hundredquestions over the last several days, and more coming in as I speak. The good news, if you will, is thatthere were many [indiscernible] questions. So my team went through and we're going to read to you thequestions exactly as they were given. We will answer all of them. I think it breaks down to about 160 andwe'll answer as we quick as we can. We did cover a lot of the presentation. We are going to have a normalPershing Square third quarter call on November 9. So if you more questions, feel free to ask. So here wego.

Has your thesis price target of casual upside changed on Valeant? Do you believe the upside potentialis broken at least for the foreseeable future, and you think the business is permanently impaired? The

answer is, I would say, not materially is really the answer. You don't think the business model is broken,nor is the upside potential and we do think it takes some time for the stock price to recover and thereason for that is somewhat the complexity of the story. Also, the big investors here all have very largepositions. [indiscernible fairly large positions, the same thing is for Brave Warrior. I think is true forBrahman Capital. Same thing is true for Pershing Square. So you don't have a lot of the existing investorbase that could buy more stock. And because of the complexity of the story, it takes a new investor timeto do the due diligence to get comfortable, but we do think the passage of time will lead to revaluation of the company.

When the cloud over Valeant prevents shares from recovering even when the questions are cleared up,what do you think are the realistic catalysts that will build confidence and interest in the name? I think








the first catalyst of course is the announcement this morning the company has terminated the relationshipwith Philidor.

They've hired a very good counsel and they're going to take this very seriously. [indiscernible]presentations focus on economic earnings is there a risk that historic actual and future expected earningsare overstated either through sales in Specialty Pharmacies, Philidor, higher R&D expense required tomaintain revenues and margins. I think earnings were probably somewhat overstated if in fact therewas some fraudulent activity at Philidor. Moving away from Philidor will cause some leakage in terms of revenues and earnings, and we estimate it at about $250 million.

With respect to higher R&D expense, Valeant is going to spend more in R&D in 2016 than they spent in2015. But they're going to spend about the same in the 3% to 4% of revenues they spent historicallyand forty five hundred million is a big number. They're a major investor in R&D. But they had a -- they'renot an investor in early-stage R&D. They have a much lower cost model, they outsource what they canoutsource, they outsource the commodity parts of the business of developing new drugs. So a lot of investors walk away from the conference calls assuming all of a sudden, this is becoming normal pharmacompany is spending 10% or 15% of R&D. That's really not correct.

We initiated the value position, and in the [indiscernible] a conference, you talked about investing inValeant because their products were durable and do not rely on patent protection insurance coverage,

et cetera, why is there then so much talk about pricing reimbursement insurance? How confident areyou in the durability of the portfolio? What kind of due diligence did you do to evaluate the durability?Did you go through every drug? Did you have discussions with practitioners about these drugs? How doyou see the durability affected by the low differentiation? Some of the drug [indiscernible] to genericsand similar products. You believe this Lamisil. A few price differentials, currently, working out through asmart distribution system, but will it still work in the future? With increased blocking of drugs by insurers,although high prices might attract competition [indiscernible] Do you see a threat to durability from that?So with that, I'm going to turn it over to some combination of Jordan and Bill.

William F. Doyle

Sure, so we did have a translation in '14 when we started to work with Valeant we sat down with Mikeand his team and go through all this major drugs and business lines. And important thing to remember isthat when people think of Valeantis a pharmaceutical company, only half of it, revenues come from U.S.branded RX products, which is a part of the business that people get worried about when they talk aboutdurability. [indiscernible] remember the products only complete with generic alternatives. Two, some of the products [indiscernible] have generic alternatives because of their size or some complexities in theattraction [indiscernible]. And three, a number of franchises that we believe will of been a benefit fromincremental innovation that has a potential to meaningfully extend the lives of these franchises. And thenfor the products that will be impacted when you lose exclusivity, many of [indiscernible] largest projectshave patent exclusivity for a decade plus 1 into the 2020s. Over to you.

Unknown Executive

Bill's nodding his head. So drug prices are therefore the industry returns on invested capital likely will belower and featured in the recent past. When you combine this with Valeant's increased focus on R&D, howhas this changed your expectations of Valeant's terminal value relative to your expectation in the acquired

position, has to have some terminal around specialty pharma, change your expectations of Valeant'sterminal value relative to you representations, is the same question. Bill, you want to take that on?

William F. Doyle

Well, I can talk about 2 things. I think when we talk about pricing, there are 2 categories here. One isnew innovative products and I think really that is understood by the most parties that focus on this area issomething that we want to encourage and that the real focus has been on the so-called mispriced assets.These are all drugs for which there is not a competition and it has created this opportunity. I think ourview is that, that particular element of Valeant in other company strategy is probably not going to bean element that's going to be part of the strategy going forward. I think Valeant stated that publicly it








was always a relatively small part, and I think in terms of pricing for new products, innovative productsthat don't think it will always be discussion, but I don't think these or other innovated businesses will beimpaired.

Unknown Executive

By the way, the questions with the teams is we took all the questions, only [indiscernible] questions,

organize them by category and we are in the valuation category. The platform value role of strategy isdiminished due to higher debt load and lower equity value. How do you value the company? Can Valeant-- so let's address that. The answer to value the business based on the present value ofthe cash we expectto value over time is we disclose in kind of our simple version of the model. We expect the company,our expectations actually work for the company to deleverage and not make additional acquisitions untilthe company got to an investment grade credit rating. Thereafter, we're assuming a up to $10 billionof acquisitions a year using cash as opposed to equities. We're not dependent on the equity value indetermining the future cash flows in the business. And Valeant made accretive public market acquisitionsat the current stock price. Again, Valeant is not going to -- we don't expect them to acquisitions until theydelever the company. They considerably can make accretive acquisitions if they have cash to invest, theycouldn't -- it would be very difficult to make accretive acquisition issuance of stock at this price, and wehave no intention of doing that.

After good to get the moment the value is believe in the role model, there were some of which allowValeant can acquire any company at any price, nor would sell to them, nor should issue that other usersa reasonable weight? Is this thesis offers the wrong which warrants selling? The answer is we don't thinkValeant is going to acquire new business until it delivers to a conservative capital structure. At that point, Ithink anyone would be delighted to sell to Valeant at the highest price that they can get for their companyassuming that Valeant is the high bidder. Valeant has I believe a competitive advantage of buying businessboth in the way they do deals. Mike and the team show up personally and negotiate, it's a very unusualthing for a company this kind of size. They also have one of the lowest cost structures in the industrywhich gives them the ability to pay what looks like a high price seller but Valeant is an accretive price.

You gave us significant challenges in the Valeant business while in the current environment becausethe company recovers an independent entity or is a strategic transaction necessary to preserve realizedvalue for common shareholders? We think Valeant is more valuable as a standalone business pursuing

its strategy over the next foreseeable future. We do believe however that the company has very, veryvaluable assets, and that would be -- as a worst-case scenario, you could sell the business and there willbe multiple at that are meaningfully higher than the current price. We do think, however, that the beststrategy for the foreseeable future is for the company to continue on its business plan. And obviously,there are still plenty of M&A activity in the sector with the recent Pfizer-Allergan announcement. Allergan,of course, in virtue of its product portfolio and a new Pfizer Allergan will be a great buyer for Valeant, butagain, we think the business is worth more if it continues to pursue its strategy as historically.

Given your permission to disclose in the recent weeks, would you invest in Valeant at this point in time?What can you deem to be fair value? The answer is if we had more capital, we put a lot more into Valeantat this current share price. We gave estimates of fair value in the previous presentation.

[indiscernible] growth especially pharmaceutical network and its contribution to Valeant? We did not makespecific assumptions relative to the network in building our model of the business. Given negative pressfor Valeant, what do you think is the chance the bottom market will turn away from the company is thechoice to rollover its debt? What are the options of this happening? Valeant does not have any meaningfuldebt expirations until 2018 and the free cash flow generation of the business will be able them to viewwhat their debt retirements is. But again, the goal here we think is to get to investment grade promptlyas practicable and then, we'll have a couple more years where if they want to delever it further, they can,or we think they can just access the market. We think the spread widening of the bond market is a short-term phenomenon. We're generally not credit investors but we think the debt is at least -- as attractive asequity of existing income investor and you can buy Valeant debt at $0.86 and $1 and 18.5% [ph] yield tomaturity where it's trading. That's a gift I think is quite interesting.







Concern about the company's leverage and valuations by debt incurred in markets following S&P'srevised ratings outlook? I think that S&P revised their rating to say that they're on watch, not an watch,they reduce the outlook. I think, as more facts cover the surface as they deliver another quarter or 2performance I expect S&P to revise its -- remove the outlook and then ultimately upgrade the company toinvestment grade over the course by the end of 2016.

As an equity investor, would you support the use of free cash flow to pay down debt and bonds early onshare buybacks? As discussed in their investor letter, yes. And by the way if your debt really trades at adeep discount, one of the best ways to delever is to acquire your bonds in the public markets at a discountto face value. The only negative is bonds that trade at the biggest discount or generally the longest turnbonds and you really want to get rid of the shorter maturities first. But everything I think trends at adiscount and that is a way to both create equity value and delever quickly.

What are the assumptions for price and volume growth in 2016, '17? Will the Pershing's assumptionsfor Valeant be created through M&A? What assumptions is the impact of Salix as a model, the impact of drugs coming up with patent, what is in some balance pipeline, what's the distress case look like, whatinformation would cause the thesis to change? We will provide a model we use for the company on ourwebsite which people can download that show the various assumptions.

How much of the historical revenue growth should be attributed to the M&A strategy? What growth

number do you assume is a sustainable figure, assuming Valeant can't won't do many deals as reducedcapacity increase gross prices? So while the company is generating meaningful organic growth that hasobviously the revenue growth has been largely delivered by making large acquisitions [indiscernible]Salix et cetera in huge drivers of the revenues of the business. The assumptions in our model, both theconservative assumption, they go through another deal, kind of a standalone around their business modeland our $10 billion assumption or how we think about a reasonable way to think about the business.

In of the R&D costs of Valeant on a sustainable basis don't you think one should include the acquiredpipelines as R&D cost? How confident are you that this low R&D model can sustain a stable growth x M&Aand the very high margins are not competed in a way? So Valeant has a lot of misunderstandings aboutits R&D model. The company invests -- it's going to invest something approaching $500 million in R&Dnext year. They also license in-license drugs, they also buy drugs that have recently been approved. Themost recent version is the Addy product for hyposexual disorder, which I think I'm quite confident would

be off to a good start. And we think -- we don't account for the business we don't use GAAP accountingto account for the business. We basically have built a free cash flow model for the company. This is abusiness that doesn't have, if you will, a lot of maintenance CapEx, but it's a business that we think wherea large percentage of the portfolio is durable and we expected to grow over time. We also think theirability to acquire licenses on attractive returns. Think of it almost like you say this is a company in the oildrilling business, they have some wells that will exist for the next 20, 30 years. They have some wells thatwill exist for the next 7 or 8 years, but the vast majority of their wells are long life or new technologiesdevelop and enable them to, if you will, drill more oil over time. But Bill, do you have further thought onthat?

William F. Doyle

I'll just mention a couple of points. I think one point, because of the specifics of their R&D strategy, theyactually get much more for an R&D dollar than the typical company. Their focus on high probability, laterstage opportunities that demonstrated the particular expertise in the dermatology area, in developinginternal products. And when we talk about M&A, it's really important to remember that there are 2categories, if you will. One is the very large M&A which have always described as opportunistic and part of their capital allocation strategy. There's an opportunity to -- and availability of capital for something thatmakes sense for shareholders, they'll do it. But every single day, they're working on the so-called bolt-onacquisitions that can be seamlessly integrated into their global infrastructure. They're exceptionally goodat both striking those deals and doing the subsequent integration. It's a core competence of this particularteam, and that's going to result in growth over the long term along with the high-value R&D.

Unknown Executive








What were some of the determining factor swing that [indiscernible] Valeant. As you remember, we endedup -- Allegant in shareholder migration partnership with Valeant last year and we transitioned Valeantbiggest week frankly we liked the business franchises they owned. Better and we had a better knowledgeof the team and the company. Pershing's mission underwrite the downside case associated with the lossof confidence in Mike Pearson, especially given the knowledge that Valeant is a complex business andPearson is a poor communicator/introverted. The answer is we do not believe that this downside case,

i.e. the mark-to-market loss we're taking in the stock is it reflects a change in the intrinsic value of thebusiness. We think there are some shareholders who lost confidence in Mike Pearson, let me be clear wehave not. We know the team very, very well. We work very closely with Mike, Howard. A broad group of Valeant executives that we got to know over time. We spent a lot of time with them and we have a lot of respect for them. And so we think they do need help on the PR side, and the one of the pieces of advicewe gave them last year is that a one person PR/GR/IR team was not appropriate for a company of thissize. Mike maybe one of his weak points is he's so disciplined about cost. You can accuse him of beinga cheap, and this is a not a good decision. Let me also make a very important point, which is Valeanthas 18,000 employees. I had the opportunity to meet about 500 of them this past Friday when speakingto Mike, I offered to come out to Bridgewater, and if you will keep a pep talk to the employees from theprospective of a shareholder, maybe answer some questions that the shareholder have of what was goingon and Mike said, we'd be delighted to do that. And I had lunch. Mike held a town hall for employees.Mike spoke first, answered some employee questions, then I had the opportunity to address the team, to

answer a lot of questions -- again, if someone can turn off the air-conditioning, I'm freezing -- not turnit off, but turn down the thermostat. And I spoke next and Cindy, wearing her pink outfit, talking aboutAddie, which is an important part of the future of Valeant and we expect to be a major drug and I thinkthe good news is I felt there was a lot of spirit in the room, the morale seemed good, and I think a risk of something like this is the impact on employees. 18,000 people working in this company don't like readingbad things about their company of the newspaper on the front page everyday. And the attacks tend tocome on Pearson, but there are a lot of people whose lives are affected, both at the company and patientsand doctors, people in the community.

[indiscernible] now includes onetime expenses with recent events. What is the magnitude of thoseexpenses and are they onetime in nature? I expect there will be significant expenses associated with the[indiscernible] advisors. I expect the IR, PR government relations expenses to be recurring. HopefullyI expect now and the understanding is that they're now building a bigger team, both internally and

externally, and I think I want to add that back as an expense and take that out of earnings going forward.I don't expect it to be a material number, but I think it's an important investment. I do think some of thisexpense will be -- I would certainly call it one time in nature, but let's assume there's some kind of finelike the examples we gave. I think Valeant has been fortunate in not having big regulatory problems of their own. They've acquired some programs that they resolved over time. So I expect they're not goingto have a lot of problems going forward. But I think some event like this is in some ways a good reminderto the organization about compliance and the implications for the company if there are failures from acompliance point of view.

Those are the valuation questions and strategy. What can Valeant do to become more of a transparent,less complex, if anything in terms of financial structure and strategy. So one that will happen, and yousaw some of this in the 2014 is that Valeant made very few deals in 2014, and a lot of the [indiscernible]to get from GAAP to non-GAAP accounting relate to transactions. Charges you take when you acquire

a business for terminating employees and so on and so forth. The more the faster the company grows,the more it loses because of the nature of those charges. Assuming they get fewer deals which I thinkis likely, again, they may do small tuck-ins over the course of this year. I'm not saying that there are notransaction. I don't think they will do anything big until they deleverage the company, but that alone willmake the financials more transparent. I think the company will do a better job going forward explaining inthe business so they can broaden their shareholder base from a less sophisticated shareholder base to amore traditional shareholder base, so I think that will contribute to a higher valuation.

Valeant has announced a number of changes in business strategy, pricing changes, higher R&D,potential sales of neuro, change in acquisition philosophy. Does this imply the prior business modelwas unsustainable? The answer there is number one, I think there's a lot of misunderstandings about








what they actually said in the conference call. I do think their days of acquiring mispriced products andmarketing up those products to market are largely totally gone. That is not a big part of the business less[ph] than 10% of revenues. R&D I expect will still be a modest single-digit percentage of revenues. I stillexpect them to earn very high returns at R&D and as they get better at R&D, they'll probably spend more.So this is a -- the best strategy is one that's not set in stone. The best strategy is one where you adapt toyour own -- as your core competencies grows and what you learn from expenses that you have.

William F. Doyle

I'll summarize the strategy and I agree with you on this, misunderstood but it's just 1 of 2 elements.A highly efficient decentralized operating model, coupled with a shareholder-focused capital allocationmodel where they're constantly evaluating the opportunities to deploy their excess cash and over thecourse of history when share buybacks were the most sensible thing, they bought back shares whendoing acquisitions with the most sensible things are the largest mall, they made acquisitions. Andwhen developing internal products, were the most sensible thing to do. They develop internal products.With the constantly evaluate that makes and at any point in time, they will figure out what's the mostadvantageous use of that capital up for shareholders. But from point a to point b, that makes me change.


Actually, if you look at the portfolio today versus what it was 5 years ago with the additional of loan, theaddition of Salix, some people would say that the portfolio is a much higher quality of portfolio. We agreeand is that a change in energy and does that mean the old strategy doesn't make sense? What's yourthought on that?

William F. Doyle

Again, I just said I don't think it changes strategy at all. I think they have opportunities to deploy capitalparticularly with [indiscernible] loan and the cynics, as he mentioned earlier, it's a distressed situation. itwas a new therapeutic category, highly attractive assets with not only the assets they purchase but witha pipeline of clinical trials that have very high potential on forward. So again, I don't see it as a changein the strategy, but I think the execution of that strategy will naturally result in a change in mix as thecompany evolves.

Unknown Executive

Valeant's decentralized model will remain intact in its current form? The answer is largely yes, but they wilmake some adjustments for sure.

William F. Doyle

And yes, yes, I'll just add one thing here. I think this is where Mike's 25 plus years of Mackenzie alongwith other members of the senior team, he's often said that the companies that he's studied and thathave demonstrated superior growth over long to boot periods of time have in fact been companies with adecentralized model. And so I think that is one of the fundamental elements but will remain at Valeant.

Unknown Executive

At what point will Valeant start buying back its own shares? Number one, I think they're going todeleverage the business to investment grade. Number two, I think their highest investors of capitalis smart tuck-in business developments and other type business development transactions. And thenthree, to the extent that there's excess capital after that, and there's no better use of that capital, in thebusiness, and the stock is trading at a price, that makes the buyback attractive to buyback stock.

What is the plan for neuro and other? I think you heard on the call, they shelved the plan to spin thatoff. I think we would recommend they would be in that asset, generate, use it, generate cash flow in theredeployment cash flow in the way that makes the most sense.








Which are the sentiment about is able to do their part company's of the Valeant platform so quickly andhow sustainable is a tax efficient model altogether? Valeant has an enormous amount of experience,probably more than any other pharmaceutical company in doing deals and integrating companies andexperience helps obviously with execution. They got very strong teams. Also, they're buying businessesin many cases in parts and sectors in a [indiscernible] and a lot of the acquisitions in the pharma sectorreally relate to you buying a portfolio products as opposed to a company and you can layer those products

on to existing platform, and that's why it's relatively easy to do versus a conglomerate buying lots of different unrelated businesses.

How sustainable is a tax-efficient model altogether? One of the things we were able to do as part of ourdue diligence on Valeant in February of 2014 is we worked with [indiscernible] and their tax team to dodue diligence for Valeant's tax structure. I think we do the same kind of due diligence one will do in a trueprivate equity transaction, but we work through there -- working with their head of tax structure in thebusiness and we and our advisors were comfortable in the structure and also its -- and sustainability. Of the company deleverage is has less debt, it will pay on your tax rate, somewhat higher.

You understand OTC EM products, generics and [indiscernible] products don't get a lot of R&D and thenValeant spends around 8% of sales on R&D at dermatology [indiscernible] and probably gastroenterology.Why is Valeant not communicating this more because this would help through [indiscernible] of the modeland help politicians understand the company? So I guess what the questioner was asking, the point of his

question is making is that the people look at R&D as a percentage of sales. And since Valeant's portfolioincludes a lot of products where investment in R&D like a branded generic in Russia, doesn't requiremeaningful R&D investment [indiscernible] are 20, 34 years old and will continue. Taking the denominatorof their total sales and putting R&D on top gives you a misleadingly low estimate of their actual R&Dspending and why haven't they communicated this more? It really relates to the point I made before thatValeant have not done a good job describing their strategy to broader audiences. And they work on it.

Seems like Valeant is merely answering exactly the questions asked instead of addressing the realquestion which is show me, not tell me. Were they doing something fraudulent over the line? Usually themarket is responding to assess from management or [indiscernible] call. They're not answering the realquestions. I think there's some merit to what the questioner was saying which is the conference call Idid was one that was where they had scripted answers that I believe to be true, but when you read ascripted answer, it doesn't have the same kind of credibility unlike when the CEO or CFO stands up and

answers the question. And also, while technically correct, I felt like some of the color was missing in those3 questions I gave. When I got to speak to Howard last night and I thought his answers were -- made alot of sense to me. I think had he answer -- have you the opportunity to answer the questions on the callthat way, it would be a much better response.

What are the business practices Valeant engage in that could be used to erode investor confidence andmake the stock vulnerable? The answer is I am not aware of another business practice they're engagingthat can erode business confidence, and make the stock vulnerable. That does not mean that their pressmight not scrutinize some element of Valeant's business and I'm the article about it that makes them lookbad. One of the things I've learned is that in people who do things differently come under a lot of scrutinyparticularly high-profile people and Valeant went from being a very low-profile company to becoming avery high-profile company and did not build a Investor Relations team along the way, nor a governmentrelations team, I don't think Mike Pearson has walked the halls of Congress probably ever, and I do think

he has to make a few of those trips or at least some of the team does so that people can have a betterunderstanding how Valeant runs the business and the contribution it's made terms of R&D, as well asacquiring products like an Addie and bringing those products to market where the best scientists workingat a startup or a biotechnology company develops the product and then Valeant acquires it and bestenables that product to market.

Given the demonstrated vulnerability similar tax without that management will about it with some of thedisclosure policies even if it comes with the expense of some loss of near-term competitive advantageand gains as we believe the trade-off in terms of risk and shareholders probably not worth it. So we saythe biggest lesson for Valeant here is what I would call the Wall Street Journal or the New York TimesTest which is regardless of legality, you don't ever want to do someone that if something were to write an








accurate article about it of the front page of the New York Times, you wouldn't -- it would be embarrassingto the company or damaging to the reputation of the company and I think there are arguments for marketto market this [indiscernible] drugs and I can make a pretty compelling argument why it's certainly,a legitimate business practice. It just doesn't look good on the front page of a newspaper and I thinkValeant is going to be much, much more conscious of entering in the businesses where there is the riskwhere there's headline risk.

Okay, that's strategy, we're now on the management board. How concerned are you about management'sability to execute given all the headline noise and risk? That of course should be anyone's concern. Ifelt very good about the team and the spirit of the team when I met the plus or minus 500 people inBridgewater at our lunch. Mike seems to be considering everything and was not talking to them everyday,but seems to be in decent spirits. This is [indiscernible] he takes his job very seriously and he's builtValeant and this is his baby and this is pretty much all he does. He is one of the hardest working peopleI've ever met, so I have to believe that watching the stock crash and all the negative press has beenvery tough on him. But I feel like certainly, with this morning's announcement, we're heading in the rightdirection. And I think what Mike is going to tell the team and what he told the team on Friday is whatwe need to do is just deliver. We need to focus on the business, we need to execute, we need to satisfyour doctors and our patients and the stock price noise will go away and will go back to our business.And if you think about or Valeant was during the Allergan situation, Allergan would constantly attack

the company with all kinds of false accusations and the company would have to respond and the stockfor a period of time sat for a period of time and sat at an extremely cheap price and we sat there veryfrustrated at Pershing Square where we were able to buy the stock at 106 or 112 and the moment wecould, we started by the stock. Of that moment now exists we believe for people who are interested inValeant.

Has been a mistake CEO lightning rod for criticism. Should you have taken more notice of the campaignsthat people like the Allergan CEO seemed to run against him? The answer is Pershing Square, I think I canidentify with Mike Pearson because we do things different at Pershing Square. We're not your conventionalmoney manager in terms of concentration, in terms of shareholder activism. We can be a lightning rodfor criticism. And so what matters is are you doing what's -- are you pursuing a mission that's goodfor America. Are you stay within the bounds of the law? Do you operate appropriately and ethically? Ithink Mike does all of those things. That doesn't mean he's not going to be a lightning rod for criticism.

There are a lot of people in the pharma sector who don't like Mike Pearson because it's embarrassingto have twice the operating margins they do. So they're going to be whispering to lots of people. Thereare a number of pharma executives supposedly criticizing Valeant for this whole Philidor scandal andthen, you look at the wall of shame, if you look at the list of big drug companies that settled with thegovernment and written very large checks, the more example, the 27 supplements. If you look at theNovartis specialty pharmacy thing, it's been going on for 10 years, involved in Novartis' active participationin involved drugs. That caused harm to people and again, I don't want to diminish in any way the Philidorsituation. Philidor sold toenail fungus cream and acne medication and it did business for approximately 12months and it's not a 10-year situation. All the details will come out in the investigation, but no one tooknotice of Novartis, especially pharmacy practices or the settlement. The stock price didn't go down, therewas short seller because Novartis is kind of a conventional pharmaceutical company and pharmaceutical isa great business. And because Pearson is Valeant is not conventional and I would say Mike comes acrossas little bit gruff, very businesslike, people describe them as more than an introvert. He doesn't look like a

typical CEO on TV, and that's not a good reason in or might not invest with Mike. I think he's very talentedand I think the team behind him is extremely strong.

Is there an issue behind investing an outsider CEO who are highly incentivized by their stock prices andat some point may be tempted to do things that are overly aggressive and illegal? The answer is thatincentives can drive all human behavior. Mike owns and has received restrictive stock grants in Valeantthat he gets more. The higher the compound increase in the stock price, and he's not sold one shareas far as we've been able to determine and I guess, the company will correct me if I'm wrong. I don'tthink he's sold one share of stock since he became CEO of the company. It's all restricted stock. It's notearning any dividends, he's not taken any money off the table any believe you sold those of shares evenafter he retires after some period of time. So I think that's actually, pretty good incentive structure. If








you had someone who was trying to pump up revenues in the short term or earnings and then, when thestock options and they dump the stock into that, then you'd have that kind of incentive. I don't think thispackage is designed to do that.

Credibility and the gritty, got a chair prevents as you know, the initial bison directorship signal this aconcern to you the statement of his the somewhat congested fronts there? with SMI just Janet do look abit. Jeni, what have you found?

Unknown Executive

I think this bad thing a response that this is starting point that you went with his presentation, Bill, whichis the lead value transparency. I think investors and stockholders value transparency, always want moreinformation in order to make your assessments and your judgments. With respect to the credibility anddetermination level, you have to look at the mirror and you have to look at the facts. And this companysignalize that there was a full criminal investigation into allegations of market manipulation and effectivelyartificially inflating the stock price. And over my own experience when there's a criminal investigator,the objective is to determine all of the individuals who are involved in the wrongdoing and hold themappropriately accountable. The outcome of that case is we understand that a number of individuals werecharged and also ultimately, Mr. Nuncio was not accused of any wrongdoing in connection with his time atthat company. So we take our cues from that.


Thank you, Jenna. Left Valeant to pursue another opportunity. Do you know what that opportunity is?Valeant CFO left earlier this year. Is there any concern there? The answer is Howard didn't leave to pursuea specific opportunity. I think Howard left Valeant because I think he said he intended to run a privatecompany. The negative for Howard at Valeant is that Mike's got a lot of energy. He's planning to do this fora long time and that Howard at this stage of the career, we have assets, wealth, as a community overtime,you need to do that for the money and life sometimes, you decided to want to ruin your own thing andthat is my understanding of what Howard has been planning to do. I don't think he took some time off,chatted with him about Board opportunity here in the here and there and he was still not yet ready tothink about what to do next. And that's unfortunate because he was available immediately to help outwhen the excitement took place.

Valeant is announcing it's bringing back an independent work member of conductors and littleinvestigation of the allegations. What the direction you have with the board member? Valeant at its more[indiscernible] campaign for Valeant have been taught that the value had? So [indiscernible] that wasa joined the board. I think it's a pretty strong signal that Valeant [indiscernible] was committed to thisinvestment. I know Mason incredibly well and I think very highly of him as a person in terms of integrityand intelligence. He has -- we've had multiple interactions with him over the last -- call it week or so, andI think he is doing all of the right things, and we don't have a campaign for Valeant, but what we love tobe helpful in any way we can be helpful and I made that clear to Mason if he needs us.

Does Valeant plan to add [indiscernible] member to its board? [indiscernible] I think they have any plansto an your plans to ask him. To withhold the board, 1 of 2 items would you bring to the agenda? I wouldhead up the Investor Relations committee of the Board of Directors. In addition to the explanation for

management, what was on the confirm what they said is the truth. Accounting fraud but the clearlychatting staffing is something you can really see the numbers particularly if it rises to any globalmateriality. We saw no your evidence in the financial statements at the rest child stuffing going on andour understanding of how the business operates specialty pharmacies business operates, the revenuerecognition, the way the company answers the questions and also, we hope you asked that we have metsenior members of the accounting team and we think they are scrupulous, honest, hard-working and goodpeople.

How would you grade Valeant's hunting of the situation wasn't done well [indiscernible] Groups? Imentioned this many times, they need an extremely responsible Investor Relations department. I madethe same mistake with Pershing Square for years. You to have somewhat internally who immediately








when there's a negative article about the company, follows up, corrects the article. By the way, not justa negative article, an inaccurate article. You leave an inaccurate article on the public domain, it affectsyour reputation. And you have to get a correction as quickly as possible. Would be the IP meal and Valeantneeds to do the same for them for them. But allowing hours to go by after this kind of an attack, I thinkwas a big mistake and the announce finally going to take several days later and I understand when acompany has received a couple of government subpoenas but it really have a lot of expense receive in

government subpoenas the heads of the funds counsel defense counsel give conservative advice and theysay look, everything is a can be held against you. It's much safer to answer the questions and read thescript. The problem is that it's a public company and shareholders want to hear from the management. If management starts believing their belief in the way to be behaving for the past it contributes to negativeperception.

Has the condition of Valeant's management been shaken? No. How does Pershing Square plan to improvegovernment's [indiscernible] CEO and Chairman? I think Valeant has excellent governance. I thinkthey have a very strong lead director. Bob Ingram, who is one of the leading [indiscernible] in thepharmaceutical sector. He is the CEO of Glaxo Wellcome. I've spent a lot with Emma the phone with himon the last week than I have ever. I could meet him way back when. I think is a first-class person, he'svery comforting to talk to you. I think they're handling things in the right way. I wrote a note to the boardand Mike very quickly called the board meeting to consider it within an hour, it gave him the opportunity to

talk to the full board. He's a very responsive board to take the job very seriously.Is there a succession plan in place for Mike Pearson in the event he's no longer able to carry out hisduties? I'm sure that there is. I think he's in excellent health and he's certainly going to stay the course.

Have you spoken with Mike Pearson since the news broke out? Yes, multiple times. Now the[indiscernible], does the change the opinion on Mike Pearson? No. Did not give the green light all theseactivities before. Moreover, even if he did business and makes Pershing what about the government'sability to management. If you look at the history of Philidor, this was a call that test for a couple of drugsin early 2014. It started growing quickly but the still wasn't even 1% of Valeant's revenues by the end of the year and the grew very quickly over the course of this year. I can't know for sure that Mike Pearsondidn't give the green light to all of these tactics. I need tactics -- I don't really know what taking placeat this point. But knowing Mike Pearson, I think that is extremely remote outcome and so look, I thinkunfortunately, as in again like of our very reputable companies, stuff happens within Novartis, it wasn't

a question of some stuff in Novartis working with especially pharmacy, they didn't control, inducingthem to do things should be doing. Novartis is a very reputable company and is still are. More thananother company, we have to rely on faith and management here due to on them with parts of Valeantacquisition's targets on it Salix. How do you think of this issue? Well, I think if you do your homework, youcan get through a lot of the complexity from accounting and other sort of points of view and narrowingdown to fairly small things that you have achieved will take on faith. But every investment to some extenthas an element of faith and you can't -- even if you own 100% of the business and on the board of theday, dignity things you don't know you have 18,000 employees. Iphigenia dominator into B market to bethe best was of the wealth and going to have a real traitor and stuff happening on your watch this wasembarrassing, that's going to call to your question reputation as an age of running the big business.

Portfolio concentration. Is there any max position individual needs of the portfolio or the audienceconsiders and exceptions. Will any of this policies, rules but it's a just think into position sizing limits?

Valeant certainly is one of our large investments. Costs approximately 19% to 20% of capital at marketvalue, it reached 25% or 26% of capital. This is one of our largest investments it's a business we knowextremely well. It's a diversified portfolio. The way we think about sizing positions is we don't want to won-- we don't what to risk 6% or 7% of capital that can be permanently impaired by virtue of an investmentin a company. So our view was a price at the invested in Valeant the prices and straining it would bedifficult for permanent elements could take place to destroy call 35% of the value at Valeant which wehappen to incur that kind of portfolio, loss -- that doesn't mean stock can't trade on more than that.Stock is going to trade at any price, at anytime and Valeant is perfect example of that. Will this adjustour thinking around position sizing limits? We are -- our typical position size of Pershing is between 10%or 20% per core investments. Because there is a regulatory -- a greater regulatory issue here, maybein the future we'll think more about businesses that have more regulatory sensitivity in terms of sizing.








So it may have some of that going forward. In the absence of nonpublic inside information, what givesyou confidence to maintain and add to a concentrated position in Valeant? Have you hedged this position-- used derivatives to hedge the position? The answer is what gave us confidence is the work we do onthe business, the nature and diversity of the cash flows, where they come from, the size of the Philidorsituation and how we expected it to be managed from a regulatory point of view, what the potentialoutcomes could be if they had to pay a fine, if they were inappropriate practices, if Dr. Mike Pearson

was caught up in all of it. We talk though all those various initiatives. We just speak to the company-- I did speak to Mike personally, and I feel comfortable with Mike Pearson and I also felt this was notmaterial even in a worst-case scenario and then $108 a share, it seems very cheap. What are the lessonyou've learned from this is experience, if any? The answer is we've learned a lot of things. One, we'velearned the importance of investor relations, government relations and public relations in a business thathas a regulatory sense of business and really any business of scale. I would say, the irony here is SardVerbinnen is -- Valeant's PR firm, they've done a fabulous job for Herbalife and they've done an absolutelyhorrible job for Valeant. I guess, they're too distracting working on the Herbalife events. What is the rightsize in this and what else did we learn? Jordan, what have you learned from this experience?

Jordan Rubin

As you said a while, stocks contributed any price at anytime for any reason. This is a great example of that. What's important is price changes and fast-changing continue to stay calm, stay rational, update

your sense of intrinsic value. The honest about your analysis include other members of the team and youmake sure you look at things the right way. I also agree that one of the things that we didn't discountenough here was given the complexity of the business, Valeant's lack of strong government relations,public relations and broader Investor Relations effort, I think it would've helped them withstand thisavalanche of events that have started about a month ago with pharmaceuticals.


What's interesting, which I didn't haven't really thought a lot about is Valeant was a perfect target forMr. Left, et cetera, right? You had -- the company was already in the eye of the storm because of thesubpoenas, the press reports, the political scrutiny. The company itself is a very complicated business. Youhave to use non-GAAP accounting to think about the cash flows of the company. The shareholder base was

not your conventional shareholder base. In order for an investor to figure out the business, if drops 50%,i'm spending a lot time with the end report to decide whether or not you want to buy the company. TheValeant start stock dropped 50% and you don't know anything about the company, and you got a month'sworth of work to do. So it creates this air pocket between fair value and where the stock can go for thestock to decline. So if you put out a report that says -- and presents itself as a research report, doesn'tdisclose that you want short-dated put options on a company. And you say this is the next Enron and thenyou mentioned something that has not been disclosed by management, right, which -- so it immediatelydestroys anyone's confidence in the management being transparent. There's no buyer and stock collapses,and so I guess, we'll look for these kind of short targets in the future.

Jordan Rubin

If you think a bit about this issue, but we were comforted by what the government did last year. Wewere with him side by side helping them tell their story, defend themselves -- defending themselves fromAllergan and it turns out, it happened again.

William F. Doyle

Yes. and I just I think historically, and we knew this that management's philosophy had been -- we maybe somewhat understood but we'll let our numbers do the talk, and if they continue to deliver impressiveperformance then that was not sufficient in this circumstance.









Next, given the price -- hold on. What is the right size of this position in the portfolio given the currentrisk of our profile? What scope do you have to allocate further capital to Valeant should you wish to do so?We're done in terms of capital. We've already taken additional capital. We've devoted a similar percent of the current portfolio to this position, but we have no plans to buy more stock unless we've taken additionacapital. Given the price decline in high conviction, that hasn't changed the Valeant investment why not buymore? At these levels, we think the position size is appropriate and we're out of money. Was the recent

value purchase in stock derivatives bought 2 million shares of stock. What's the intention buying 2 millionshares last week? What was the intention? The buying of 2 million shares last week is it only representsaround 1% of AUM. It's not a sin to be a high commission given the concentration of the rest of theportfolio. The position was already big and we thought it made sense to buy. There's only 2 choices whena stock drops 50%. Either you got to sell the whole thing because you didn't know what you owned or yougot to buy more assuming you have some money because it should be incredibly cheap if you light it up100% from there. What percentage of the portfolio is Valeant? I don't have that number off the top of myhead, mid-teens? High teens. What is the average price of the investment that Valeant acquired? Boughtoriginal shares in an average of $196, new shares at $108, I think average cost is now $186. Why are youso confident that Valeant is not engaging in large-scale accounting manipulation? As you know, purchaseaccounting provides a lot of leeway for management to potentially manipulate accounting earnings.Looking at the purchase price allocation -- okay. So I'll get that in the second, wait. Oh, yes, looking atthe purchase price allocation from Valeant deals accounting section, you can tell. For Valeant deals with

the discerning eye, the apparent understating a fair asset value, the apparent overstating a fair liabilityvalue, the amount allocated to goodwill and intangibles the of processed R&D, the lack of free cash flowgeneration relative to cash EPS that could not be explained away by restructuring consumption workingcapital all suggests that it's highly likely that Valeant is engaging in deceptive accounting practices. This iswhat you call a what -- did you beat your wife question. Why did you beat your wife question. The answerhere is we've won -- we do the normal kind of due diligence that we do when we look at the business, andwe look at the kind of the numbers to see whether they make sense to is actually not that complicateda business from a core accounting point of view. This is not a bank, where you're estimating reserves onloans over long periods of time. They're selling a product that costs a certain amount, they book a certainamount of money. Now, there are some amount of that product that gets returned. You have to estimateco-pays and various things, but you've got a lot of data on that, and so I think it's -- the complexity isreally in the GAAP accounting. The non-GAAP cash flows of the business are much less controversial, andthis is what the questioner is sort of alleging here is this sort of the next Tyco. And if you look at Tyco back

then, this was a company, where GAAP accounting was incredibly important to Tyco, and we do all kindsof stuff to make the numbers look really better than they were because the analysts focused on GAAPearnings. Why, because Tyco paid for the vast majority of its deals by issuing stock and so they reallycared about what stock price was. Mike Pearson does not generally care about stock price historically,which is why it wasn't much of an Investor Relations effort because most of the acquisitions were done forcash. Second, I would say again, it's about the people, and the character, and we know more about theaccounting team here than any other company we own except for companies that were on the Board of Directors and we feel very comfortable with the team. We also feel very comfortable with the incentives, ofthe way the the compensation plans are designed in terms of requirements the whole restricted stock andso on and so forth. I would suggest starting SEC complaints from higher purchase accounting frauds ascase studies, Tyco. That was like just the point I was making. Seems to be the channel in Europe Philidorripping off commercial insurers, the potential Medicare for all side effects of assuming accounting drivenrollout strategy. Again, another probably the same person. The short story -- or this is not an accounting-driven strategy at all. In fact, they do a lot of things that meaningfully impairs the GAAP earnings in thebusiness. They're making decisions based on the economic rationale on a cash flow generation basisand that makes the accounting incredibly complicated. An accounting driven story people do all kindsof things to make the GAAP numbers look good. Valeant's engaging in deceptive accounting practiceswhat gives you confidence that fair value of the company is higher than the $110 a share. We don't thinkthey're engaging in deceptive accounting practices. Up until now, I haven't been too stressed by the issuesince "consolidation for accounting purposes means Valeant can't use Philidor to inflate its revenues andearnings via channel stuffing." We saw the stories of how the pharmacy have been using "backdoor ways"of getting descriptions filled and the 3 PBMs verify these by saying they are seizing doing business withpharmacy because Philidor was allowing Valeant to get around PBMs tools to contain drug costs and I








thought maybe the earnings are somewhat exaggerated because of aggressive tactics like this. This getsme thinking that if Valeant did this with a company, their significant operation are doing this with therest of the company and how can I trust my estimates of cash EPS which rely heavily on managementinformation. The answer is that I do believe it's likely based on what we're hearing that some amountsof Philidor's revenues are overstated by aggressive practices, a script that was written as a generic butI filled it as a Valeant script. And again sometimes consensus driver behavior $133 million earn-out and

$100 million down payment sometimes people get aggressive to meet the numbers and perhaps that ledto bad behaviors. So I do think some of Philidor's numbers are exaggerated. I don't think that's the casefor -- I also think it's Valeant did not have sufficient control over Philidor, and that's why this was allowedto happen. All right, patient access programs. Is Valeant's patient's access program significantly differentfrom other companies with any of its processes, pricing distribution for example may be consideredquestionable or inappropriate? With that, I'll turn it to Bill or Jordan.

William F. Doyle

So maybe I'll start and say that...


If you're going to talk I'm going to take a bathroom break. Please turn off my microphone.

William F. Doyle

Patient access programs are common throughout the pharmaceutical industry. Essentially, the variouspolicies of our government have moved insurance plans to high deductibles, high co-pays. And as Billmentioned in the opening presentation, these are instruments that various constituencies use to limit theaccess to drugs. And inevitably, this limitation falls most strongly on low-income groups. In the case of patients that are covered by Medicare, Medicaid and other government programs, there's no direct co-paysystems that can be provided. It's illegal, off the table, and pharmaceutical companies all understand this.In the case of patients that are covered by private insurance, it is absolutely accepted business practiceand again routinely practiced by companies to provide lower-income patients with some assistance withrespect to co-pay. As far as we know, Valeant's practices are consistent and, in some cases, even moregenerous than in the industry. We understand that their margin and profitability, for instance, on the

products that flow through Philidor was actually lower than their margin of products that flowed throughthe conventional pharmacy chain, in large measure, because they were giving special discounts to patientswho are paying cash only. So Bill's back, but again, we don't believe that there's anything that we knowthat's questionable or inappropriate or inconsistent with other practices.


Okay, let's see where was I here? To what extent have you been able to get comfortable with Valeant'svery financial commitment to patient assistance programs? Valeant estimates they will spend $635 millionin 2015, $1 billion in 2016 on such programs. This represents a material investment relative to sales.What factors determine the scale and scope of these investments, why $1 billion next year? Have youbeen able to confirm the identity -- let's go -- let's do this question. So my assumption here is that these

investments relate to the size of the various products and the expected growth and what their plans are.But Bill or Jordan? Jordan your point of view on this?

Jordan Rubin

I think, Bill's answer to the prior question covers most of this.


Okay.

William F. Doyle








Yes, there are more low-income patients that are being prescribed to drugs than the higher patientassistance programs. They're typically set up as a function of patient income.


Would some of this relate to the Salix deal, for example?

William F. Doyle

It -- I don't know, the breakdown, but it probably does.


What factors determine the scale d scope's of these -- oh, sorry. Have you been able to confirm identityof the largest foundation that Valeant supports? Are you confident they are both well diversified in termsof funding? Valeant is not the primary donor enacting a legal manner about providing commercial accessprograms for patients in government programs. Maybe Bill, you can describe the...

William F. Doyle

Yes. So this relates to the second bucket that I mentioned. So these are patients who are covered byMedicare, Medicaid, government programs, again, where co-pay assistance cannot be provided directly.So what pharmaceutical companies have done historically, in order to help either retirees or low-incomepatients who don't have access to their drugs and for who they cannot provide copay assistance is theydonate money to charities and those charities can do a lot of things with those money. They can dopatient education. They can do family assistance programs, and they also can help families buy drugs. Ourunderstanding is that Valeant provides money to new charity, where they are the only group that givesmoney. So they require that at least 2 companies are providing money to those charities, and they provideno guidelines, restrictions or guidance of any kind with respect to how that money may be spent. It maygo to help patients buy drugs. It may go to help them get access to doctors that may go to help theirfamilies.

William Albert Ackman

Chief Executive Officer and Portfolio Manager

I heard him say at least 2 I heard multiple other donors, but I guess, we'll have to answer that in the rightquestion. We're confident they're operating in a legal manner and we think Valeant operates in a legal andethical manner, and we have not done specific due diligence on these foundations.

William F. Doyle

But these issues are well understood and the lines are pretty bright here.

Jordan Rubin

The government has made lines because the government wants patients who can't afford their medicationto have a way to pay for their drugs, and they want to be able to make these types of contributions. Iknow that Dave and Jen have done a bit of work in today's comments...


Stop whispering David. If you have something to say say it.

David Klafter

I can only whisper. There are specific regulations that apply to these combinations. So it's very wellunderstood by HSS and by drug companies what they can and can't do in terms of providing generalsupport.








Jenna, any further...

Jenna Dabbs

I couldn't have said it any better.William Albert AckmanChief Executive Officer and Portfolio Manager

Terrific. Okay. Why do you think the Philidor is 0 even Pearson ending the call at 0 is unusual. I think if you look at this transaction, it was really Valeant that negotiated a deal for both exclusivity and to buythe company. That's effectively what they did and then they decided they didn't want own it because theydidn't have expertise in pharmacy regulations, and they wanted to take a baby step in that direction. Iguess, is the seller wanted as much as is possible and didn't really care whether or not Valeant wantedto own it outright or own it -- and own the economics of the business. And so the seller would probablyindifferent to whether they paid $100 million for the option or for $100 million for the business and it'searning $133 million. What does this look like? It looks like Valeant want a total return swap on Philidor.So we use total return swap in cases where there's a regulatory restriction on owning more than a certain

number of shares. We use total return swaps in acquiring a stake kind of business or a forward contractto get economic exposure for falling with the FTC to get HSR approval. So again, Valeant bought thisbusiness and have to go through similar kind of regulatory steps. Other example is you've got 45 differentstates and if there's change of control of a pharmacy you've going to get approval from 45 differentregimes. You need 45 local lawyers to tell you what the rules are for what was at the time a relativelysmall business. They were still not quite sure about, but they were intrigued they want to get controlof. This transaction structure make sense. Why not just Philidor outright rather than structuring thetransaction right after you buy it. That's basically the answer. While the considerations are already beenpaid and everything's already consolidated, what is the benefit of an on-site relationship? We're not juston them it's a the regulatory hurdle or a regulatory benefit representing independence, I think the sameanswer. Did Valeant provide details on how they valued Philidor? What do you think about the price paidfor a 2-year-old company? The answer is they have not provided those details unless we asked. Whatdo we think about the price? The answer is I don't know enough about the business to know, but $100million revenues growing $800 million. $100 million with an earn-out for another $133 million could becheap. My guess, is if Mike was paying -- Mike sure negotiated the deal. He was probably stealing thecompany. Why set up the specialty pharmacy this way with coordinated chess moves names entitiesrandom individual shareholders of Philidor. Why make $100 million payment and ask for $69 million back?Why is secret proxy setting up the websites, et cetera? Why all the cloak and dagger? The answer is somany corporations have been created in the world that people have run out of names to name the so-called fictitious corporation are going liability company someone here likes chess maybe their breath thatthey like chess but many other less -- I think chess is a fairly high-level exercise so it's a pretty goodname. I think we've explained why this deal structure is probably the way it's structured. The $69 millionVAC really is unrelated to the price paid to the business. $69 million is the WAC price for the drugs thatwere sold to RNO that they refused to pay. What was the rationale for creating such a complicated webespecially pharmacy companies? I don't know this. I think the rationale on the part of -- again it's all

speculation, but I think their goal was to build a network of pharmacies around the country. Clearly theyscrewed up in their application in California, and so they had to -- they did what effectively Valeant did,which was because they couldn't own RNO directly because they have -- we're still waiting for their licenseto be -- the appeal to go through, they entered into getting control of the economics and managementagreement gave them effective control of that entity.

William F. Doyle

Still I think there are other aspects. It's quite simply that pharmacies are regulated in the 50 states,and so that need to comply with a whole variety of individual licensing requirements. So the web, if youwill, is not complicated because you need the web. It's complicated because you need entities in every jurisdiction in order to mail the pharmaceutical products to the patients in need.








All right. Imagine -- I'll go back to my example I really do think -- I mean, Bill, how big is the drugindustry in terms of drugs sold per year in the U.S, plus or minus, do we know? It's a massive number.

William F. Doyle

It's a massive number.


It's tens of -- hundred-plus millions?

William F. Doyle

Hundreds of...


Hundreds of billions?William F. Doyle

Yes.


Okay. So here's a market with hundreds of billions where Amazon could literally -- excuse me, couldliterally dominate the market because they've got the distribution. Let's assume they wanted to gobusiness quickly. What would they do? They'd go and buy an existing pharmacy that was licensed in50 states as opposed to trying to go get licensed in each of these jurisdictions on their own when whoknows how long it takes to get a license in North Dakota, right? And that's what it looks like Philidortried to do somewhat clumsily certainly, but that's what they tried to do. Let's see, on the money call,Pearson said that the former Valeant people have been working at Philidor why the Wall Street Journalindicated the current Valeant people are there using fake names, et cetera? Which is it? Do you havea plausible explanation for the fake names? So this is third-hand, but my understanding is that therewere some Valeant employees that were seconded at Philidor and working there effectively full time, andthere are issues about patient privacy, where you don't want to share certain information about patientto the manufacturer. And so to prevent information from inadvertently getting to Valeant, they operatedinternally using, "fake names and fake e-mail addresses" for those fake names, so their Valeant e-mailaddress never got mixed up with their -- when they were doing work at Philidor when they could be incontact with information that could not go back to Valeant. What is your to interpretation of the allegationsof Valeant employees fulling time with Philidor and utilizing pseudonyms? It's the same question, okay.When did Pershing Square become aware of the specialty pharma at Philidor. Specialty pharmacies along time ago, but we started digging into it over the summer I think in July Philidor about this summer

correct? Yes. How much has been announced in the last 2 weeks new information to you? The answer isprincipally the structure of the transaction with Philidor and what the revenues of Philidor were. Pleasedetail what additional work that the team conducting in associated with the investment compliance legalviolation at Philidor maybe David or Jenna you want to just talk about what work we've done on pharmacylaw?

Jenna Dabbs

I think what we've done is we've just tried to get and steeped in the relevant areas of regulation as wepossibly can to understand what possible facts could develop and how that would affect the analysis.Ultimately, we're in a position of awaiting the fact-finding by the ad hoc committee of the board andby regulators who appea to be looking at perhaps the number of different areas. And I think we're in a








posture of reacting to new information as we get it, and determining whether that changes any of ourviews


Next. You said last year, before embarking in the Allergan deal, that you have been able to do due

diligence with Valeant. You can't deal with others. How do you explain your inability to see the holes in thestrategy? So we -- difference with our investment with Valeant versus others is we have the ability to dodue diligence in certain cases get access to inside information, tax structure, et cetera, about Valeant atthe time of our investment, and I don't think we've lost...

Jordan Rubin

At the time of our investment?


I'm sorry, at the time of our partnership with Valeant and at the time of our investment in Allergan.

Jordan Rubin

2014.


And that was about a week or 2 after the LLC was formed in the purpose of creating Philidor if I had mytiming right, and it was not something that was discussed with us nor I think it was something relevantat the time and we learned about Philidor and became more material to the company. Have you contacteinsurers to find out what they think about Philidor? Well, we have not. Are you planning to do this? Ithink we know what they have to say. Why did CVS expressed scripts canceling they relationships withPhilidor last night? I assume they found inappropriate behavior at Philidor. Why are these new allegationscoming to light after management have the opportunity to come clean on the conference call? We think

there's more we don't know. I'm sure there's more we don't know, but I don't -- I guess, we don't believethere's more than we don't know that as an indictment of management of Valeant. There's a phonethat's vibrating, will someone turn that off please? What, if any, correlation does the to above haveto Valeant's stock price? Does any of that above matter because drugs need to get consumer anywayrevenue maintain realize they're a different vehicle. So really the question is let's talk about the channelfor a moment. Philidor was gone, okay. So that's 6% 7% of revenue go through Philidor. it's not going togo through Philidor anymore. Where is it going to go and how do we think about it? So obviously, if theallegations are correct, some percentage of it, my guess is something like 10% or 15% or maybe 20%,but not 50%. If I had to guess what fraud could be here, we're assuming half is recovered. Where doesthe half come from in terms of the cash flows of the company? Does it get shifted to retail pharmacies?Does it go to other specialty pharmacies? Jordan, do you have a point of view?

Jordan Rubin

Yes, sorry. Mike has said publicly he's been working on a Plan B for some time now. And I think whathe means by that is finding another specialty pharmacy partner who can take over the role that Philidorwas filling but do it in a obviously, more compliant, transparent way. The core of what Philidor was doing,helping patients overcome these burdens that peers create to keep them from getting drugs or doctors,one is even turned to leave administrative burden administrating co-pays of programs, that's all commonindustry practice. Our sense is that the first they were doing some things that were wrong, and I'm surethat Mike will ensure that the next partner they choose will not be doing that.








Look the best thing about the company that goes through a scandal is they're going to be that much morecareful and scrupulous going forward. So your investment risk of this kind of thing occurring going forwardis reduced.

William F. Doyle

Yes. And maybe just back to the drugs, all of these drugs are available through the traditional channels.

Doctors and patients have expressed a preference for the specialty channel because again as Jordanmentioned it reduces some of the administrative burden that would otherwise fall on them, and I thinkthat doctors and patients will continue to seek out this type of service from legitimate providers.

Jordan Rubin

And I only to get lost everyone of these scripts starts with a doctor somewhere, who believes thismedication is in the best interest of the patient given their condition.


So people are not going to stop clearing up their as a result of this?

Jordan Rubin

People still have acne people still need Solodyn and other drugs.


Okay. Regarding CVS, do you think that Valeant should sever ties with Philidor? Yes. Just last night,alleged Philidor employees responsible for altering doctors orders for drug prescriptions in order togenerate higher-branded prescription volumes. Do you believe Philidor committed insurance fraud anddo you believe Valeant management given their close interaction with Philidor was aware of this activitywas occurring? I don't know whether Philidor committed insurance fraud. I don't know whether Valeantmanagement was aware of this activity occurring and what members of the team could be. I just don'tknow the answer. What does Pershing Square want management about the Philidor and what they're

doing? We believe Valeant should sever ties. Okay. What's your overall comfort level with Valeant'srelationships with their affiliates, especially in pharmacies? At this point, we're not with comfortablewith their relationship with Philidor. Now, other specialty pharmacies, and assuming proper practices areinvolved, we think it's a very good channel. And again I love my Amazon idea. Okay. So I predict thatAmazon will open a -- the best-run lowest-cost specialty pharmacy.

Jordan Rubin

Some of the payers run specialty pharmacies that provide services like what Philidor was doing so thereare lots of options that Valeant has.


Actually, if you own a small pharmacy, store front somewhere in your Amazon, I would sell it through a bignumber as soon as I walk up I'm going to buy from you, okay. He's bald and short. No. Okay, I have littlehumor, few hours into it. Discuss the strategic rationale for owning your own specialty pharmacy. Is caringpeople via specialty pharmacies that there is strong contractual relationship towards Valeant productsagainst the law? Jenna?

Jenna Dabbs

So what you can't do is you can't bribe or make a payment to a pharmacy to pitch and sell more of yourproducts. So the answer to the question really depends on what is meant I the term steering. It's acompletely different scenario and we said already in the presentation that we believe it's entirely lawful fora manufacturer on their own specialty pharmacy if they can prove that, that's in their business interest.







But it's entirely in the mix and happens as we understand on a very regular basis that companies willmake known to physicians certain specialty pharma channels that could be available to them. Physiciansand patients in certain contexts are really positive about specialty pharmacy channels as I think haveconcluded that get great benefit from them. So to the extent a pharmaceutical company providesliterature or provides information about a specialty pharmacy channel that they are closely affiliated withto a doctor and that doctor concludes that, that is a step that makes sense for a particular patient and

instructs the patient to fill their prescription there, I think it'll be a difficult to say there would be anythingwrong with that. Some of the lines are clear, and it depends on all of the specific facts. But the fact of ownership or the facts of this relationship doesn't necessarily mean that use of that channel is going to bea legal violation.

Mark J. ErcegChief Financial Officer and Executive Vice President

Assuming that Philidor was doing nothing wrong, what is benefit that Valeant in getting Philidor versusother specialty pharmacies? Bill, do you have a point of view?


I would say that probably someone has yet to build maybe I'm not aware of this at first -- I mean, is therea first-class global specialty pharmacy that can...

William F. Doyle

I think it will be less expensive. Clearly, if you're going to go to third-party specialty pharma, there's goingto be some margin there. We know that Valeant has focused throughout their businesses, and this is oneof the things we like about them on optimizing every aspect of their delivery of their products. So it'sgoing to cost them some margin to use a third party.

Jordan Rubin

It's going to cost them -- the reasons they didn't parting because it cost them less and because theythought be very focused on them and therefore provide them and patients and doctors working at highlevel of service. They may not be able to get that same level of service they certainly will be paying moreusing a third party, but there are many third parties out there they can use.


Why are specialty pharmacies better getting reimbursements from insurance companies?

William F. Doyle

Well, I think the fact is that insurance companies require, in many instances, a lot of paperwork that forsome constituents, and again, particularly lower income was informed patients they administrative burdenthe specialty pharmacies are -- have staffs that are expert in complying with the requirements of thepayers in order to gain access to medications that are typically allowed by their clients but to have anadministrative hurdle, and they're very good at that, and they can -- they're almost expediters on behalf

of the patients to get their drugs.


And I think Pershing Square is a perfect example. Yes, I think we've got a great health plan. How manytimes have you not been properly reimbursed for something? You got to get on the phone we're --assistant has to do it or unfortunately having a team of people who can help you with stuff like that,and that's pain in the ass. And, by the way, it's much less relevant for me because the dollars are small,but think about the person -- if you -- again, the whole discussion has been -- all the attacks have beenfocused on the pharmaceutical companies who actually make drug that save people's lives. Why don't we








focus a little bit on the insurance companies? How do insurance companies do payers work? What theydo is they try to put as many barriers as possible between you and getting the drug that your doctor hasprescribed you to take. So they give you economic disincentive to take it, which is a co-pay, which canbe $250. And Hillary Clinton wants to limit co-pays to $250. I think that would be great thing. But theproblem is, well, first of all, $250 is a lot of money, particularly for some monthly or other prescription. Sowhy is that something that -- why isn't Valeant viewed as a great company for subsidizing that number?

Why aren't insurance companies scrutinizing more for rejecting claims? Why aren't they -- gettingsomeone on the phone, having fill out lots of forms, getting an affidavit from your doctor? I mean, it'sincredibly written something...

Jordan Rubin

[indiscernible] a little bit CVS, despite you having a contractual right to the script with your coverage thatburdens actually get you to reimbursement drug are so high that CVS at retail pharmacies would just tellyou come and say ask for the doctor to script something else. That's not fair to the beneficiary.


What is the analysis behind $69 million dispute between RNO? Our assessment in the situation is Mr.Wright's sold his pharmacy at a price that he regretted. When he saw the business booming, he triedto re-trade them. When they didn't agree to a re-trade or whatever, he stopped paying them andaccused them of all kinds of craps, but we don't know for sure. We know it is not uncommon for drugmanufacturers to distribute to specialty pharmacy. We understand that Abbvie announced pharmacysolutions specialty pharmacy by pharmacy solutions prominently discloses its Abbvie affiliation in all publicdisclosures and has NPIs registered under Abbvie endocrinology. I'm not aware of any pharmaceuticalexecutives who are not appalled by Valeant's strategy of distributing its products on the web especiallypharmacies that it secretly owns. Why do you think Valeant chose to do this? What you think will be theresponse who don't conflict interest led to more rigorous audit had it in properly? I'm not convinced thereis a conflict of interest in owning a specialty pharmacy as long as its operating ethically whether you ownit, whether you control it or otherwise. I think Valeant -- this business was very small. A year ago thiswas a tiny little business. Sales were very, very rapidly and becoming a meaningful part of the meaningfulbut still less than, call it, 6%, 7% of revenues in the business. The company said that they view this

as a competitive advantage to the strategy, and they weren't excited about letting their competitorsknow about it. I find that a plausible explanation, but I think the -- what overwhelms that is really therequirement to keep your shareholders informed and to provide transparency, which is why would'vedisclosed its peers and apparently there's a letter I encourage everyone to read the folks that letter andin the letter they said when they asked Pearson the question why did he do it it was stupid. Mike is willingto admit when he makes mistakes. You have any insight in the outstanding government investigationsAG DOJ FTC sort of settlements associated with DOJ in general with regards to investigations they havestarted? David is going mute at this point. So let's try Jenna.

Jenna Dabbs

So I mean, our insight into the outstanding investigations in terms of the scope of the investigations andwhat might be looked at in the course of those investigations really comes from the disclosures that thecompany has made. We don't have insight into sort of the agenesis of them or the origin of them as weindicated in the main part of the presentation. Many of these investigations are triggered by the filingof complaints by whistleblowers, but we just don't know whether that's the case here and won't knowuntil the event that such a thing is made public to the extent that's what happened here. Our insightreally comes from the context of these types of investigations in this industry and the way that theytypically resolved, and I think we gave a number of examples earlier on. It is very typical and the vastmajority of these investigations do result with some sort of a settlement or a resolution whether thatresolution has a purely civil component or also a criminal component depends entirely on the facts asthey evolve and are uncovered and developed. There is typically the payment of some sort of a fine. Thatdepends on the scope of wrongdoing. It depends on the time frame, the nature of it, a lot of differentfactors that as we said are highly fact-specific, and it's an early stage at this point and the facts are just








developing. So there's a likelihood that there will be a resolution of that type assuming a wrongdoingor a problematic conduct is uncovered, and as I've said we'll obviously be paying attention to that anyadditional disclosures and provide further information or react accordingly.


Thank you. There still appears to be uncertainty in the RNO front management described in situations of simple collection issues and this may very well be the case number of unresolved issues. Some of theseinclude exact ties between Philidor, RNO and Isiloni, whether R&O and as Philidor probably did businessin California to what extent Valeant would be culpable for any possible valuations we think further legalauthority will be required before this heads into debates. Hopefully we've provided a fair amount of detailon this. At this point, I don't think it R&O stuff is particularly relevant. They shut down Philidor. What wasValeant response in the R&O lawsuit? Do you think it was appropriate? Valeant sought payment for drugsthat -- if Valeant was trying to hide R&O they would have sued them in a public forum, and we think theirresponse -- I'm sorry, but didn't Valeant...

Jordan Rubin

Isolani sued RNO and then RNO sued Valeant, and Valeant responded last night and their response waspublic, mean it was included in the presentation.


Thank you. Any sense of Philidor's activity involving any other licensure-related billing issues, i.e., e-mailfraud, antikickback? We don't know. Use of NCPDB, NABP, NPI numbers who regulates the use of thesenumbers and would a potential regulatory action entail from misuse? Jenna do you have a point of view onthat.

Jenna Dabbs

Yes, and this is not something that we've done a full deep dive on just because as Bill mentioned earlierthat this is an area that is governed by legislation and regulations in all the states.


It could be different each state.

Jenna Dabbs

Correct. And it is largely a matter state regulation with the exception of licenses that relate to controlledsubstances, which has a federal component to it as well. So the different states have different regimes.Some of them impose sort of more probationary or suspension-type penalties when there are licenserestrictions or there's more aggressive penalties. It's really a state-by-state issue. So it's a little bit hard tocome up with a comprehensive answer to that, that appropriately characterizes that because it is in fact soindividualized.


I guess, I might get the same answer here. Can you assign these numbers for another entity or use as theagreement between R&O and Isolani seems to imply on the effective date? Jenna, do you know?

Charles Korn

We understand you can if there's services agreement between the entity and the pharmacies licensingboth states in which they're doing business. As an example...








Just take it a little slow. This is Charles Korn. He's making his debut on the Valeant call.

Charles Korn

We understand that you can if there's a services agreement on the back end and the pharmacy is licensedin both states to do business, but again this is state-specific. So state-by-state, the rules will very. Forinstance, we know that Walgreens does load-balancing across different geographic regions. So we think

that it will be fact-specific, and it is governed by state law.


Thank you. Explain the difference between nonprofit NCPDP and potential regulatory body that regulatesNPI numbers. Do you understand the question? We don't understand the question. It seems as thoughhaving a relationship -- well we don't know the answer to either one. It seems as though havingrelationship with specialty pharma company as a distributor seems toxic assuming Valeant short piecescame up and Allergan both came up you don't have specialty pharma relationships. Now CVS expressesabout terminating relationships with Philidor. What gives? I think the issue really isn't -- first of all, whenthe companies ask you to have a -- specialty pharmacies if you don't use them you should say, you don'tuse specialty pharmacies. Valeant is the largest player in dermatology dermatologists are apparently arevery particular about the kind of drugs they prescribe, whether it's a cream or an ointment, whether it'sthis concentration, that concentration because it can have an effect on the patient. So that's why specialtypharma is an area -- it may have a drug with the same active ingredient. One's a generic, one's not.One has a slightly higher concentration and the doctor may want to use the branded version because it'son patent it's more expensive it's better for the patient that's why this channel makes a lot of sense forcompany that has a bigger presence. And why the -- CVS expressed scripts terminating relationships?Something inappropriate was happening I believe at Philidor. Valeant provided Slide 27 a question aboutthe ownership of Philidor stating that no Valeant senior executives nor board members own stake inPhilidor. This does not eliminate the possibility that Valeant's senior employees previously held ownershipat Philidor? Nor does it eliminate the possibility that non-senior non-board members of Valeant own orhave a stake in Philidor. Can you confirm there's never been any portion of Philidor owned by current orformer Valeant employees? The answer is, of course, we can't confirm this. But the list of owners we got instate filings...

Brian Welch

North Carolina state filings and other sources.


This is Brian Welch making his debut on the call. Brian, can you say that again please?

Brian Welch

We did get a full list of the owners according to North Carolina State filings and other sources.


I guess, to the extent that Philidor misled state of North Carolina we would know otherwise we believe thisis it's inaccurate my understanding is friends and family and work colleagues, et cetera, principal originalfunders of this business. And my understanding is we're not allowed of original capital that was used tolaunch the business. Valeant has at its option and Philidor avoid legal liability I'm not sure that they saidthat to many people that sounds like on expense code or something illegal something distance for that.How can they own something without legal liability? Pershing Square contract, can you explain it? Doyou have any alternate reason demand no liability for something they own consolidated into earnings? Itdoesn't like this is upheld in the court of law much less regulators. A lot presumptions in this question Idisagree, but let me see if I can do my best with it. The structure option at Philidor avoid legal liability.I think what they've said is they weren't yet prepared to own a pharmacy business because they didn't








understand the law in 50 states this was a way to get exclusivity and have effectively the option to acquirewhen they were prepared to go forward and in light of the size of the business at the time. They didn'twant to deal with the headaches associated with being an owner of the business. I can understand howsomeone would look at this and say this is a sneaky way to do it. In fact, they didn't disclose it whichmakes it even more sneaky. I do believe Valeant's explanation that they have given. Have they ownedsomething without legal liability? This is what we call limited liability corporation. Hopefully most of the

things we own we don't have legal liability. I'm not making fun of this person because it's a reporter rightnow, but just trying to answer the questions. Have you looked at the contract? No, we do not have accessto the contract. Philidor has several other pharmacies that works with revealed media what is reason forthis? My guess -- my assumption is this is how they build out the network so they can't ship to lots of different states and dispense in different states. Some speculation shares grown pay for value claims andthat is the reason for multiple pharmacies to fool insurers. That's really why I'm reading the press. I don'tknow, whether it's true or not. I believe the principal reason would be network in order to operate youhave license in the state and their multiple pharmacies maybe what you think David.

David Klafter

It may also be that certain pharmacies are more geographically convenient and and reduce shipping. Soyou might save for me shipping from billing process, but we don't really know.


Okay. In our view the issues swirling around the R&O Isolani Valeant are those causing us greatestconcern at present. This is from a analyst. Was Isolani sole purpose R&O license thus, an entry intoCalifornia market for Philidor we believe that to be true. Will then terminate the agreement Philidor? Orwill it acquire Philidor? We know for sure that they will terminate their agreements Philidor. Will the exValeant employees hired by Philidor the same as Wall Street Journal set up email accounts using fakenames in order to separate Valeant and Philidor communications? We don't know for sure, but we -- as Iwe understand the fake names were for the purpose of separating Valeant and Philidor communications Ithink to achieve a regulatory purpose set nature information did not get to Valeant.

William F. Doyle

And again what we understand this was to comply with HIPAA. We don't know for sure but that's ourunderstanding. So there's.


The fact that Clark Kent works at Philidor, it's suspicious. And I'm joking around because i'm gettinglong in the tooth as they say. Philidor done anything wrong probably using R&Os and CPDB numberwell properly something that sounds like they did something wrong. We're not sure on the rules here. If Valeant is consolidating R&O revenues of its own, what do they plan to do now that the agreements Isilonias far as RNO has been terminated. I think at this point it's not a relevant question. How long do youthink -- I guess, if R&O was no longer generating revenues and they weren't shipping to it you wouldn'tbe -- there wouldn't be any revenues or anything to consolidate how long do you think it will take the

independent review to complete for any sort of action on the Philidor especially pharmacy strategy will you just hire a lawyer I'm sure they're digging in with an army of people and they want to get to the bottomof this as quickly as possible but there's really no to way to know for sure. What level of due diligenceissues that the ad hoc committee will address ? My guess is they will do an extremely good job and they'lllook the reputations of a lot of people are on the line right? You've got Mike Pearson and the managementof the company. You have the Board of Directors. You have -- I can know what Mason Morfit must feelthe folks of ValueAct that have been involved story they've got build a lot reputation on equity from thesituation obviously this is not a good current outcome and they're going to work very hard to do this in thebest possible manner with the highest degree of standards. What is the relation threshold to the ad hoccommittee recommend terminating the Philidor relationship? The threshold has already been achieved.When do you think investment clarity on Philidor and government investigations? I think it's hard for us








to know. Do you think it's years David? How long will it take Valeant to set up a backup plan for specialtypharmacy distribution segment? I think as quickly as practicable, and knowing this management team,Mike was staying up late last night working on it.

William F. Doyle

Well, we knew that they are already working on a Plan B.


What is the risk to revenue profitably we see entire network shutdown. There's a reasonable assumption inthat. I think what we do is -- assume this goes to 0 right? Now that from realistic assumption is we believethe vast majority of these groups are likely real doctor prescribes a drug write a paper about fraudulentsaying dispenses written as opposed to giving the pharmacy of choice of dispensing generate. We can'tknow today what percentage. We assume that our model that half of the sales go away. The sales go toretail pharmacy those are higher-margin sales go to another specialty pharmacy part of the lower-marginsales. Let's say 50%. Specialty pharmacy go away from what reason prospect what hospice for growth inJubilee and in derm franchise is our understanding is about 56% of Jubilee revenues are in nonspecialtypharmacy channels, and it depends on what if they can replace it with another high service level pharmacybut Jubilee is growing at a very attractive rate, and this is still -- as a percentage of the derm franchise it'smeaningful for sure, but we think they're all alternative forms of distribution.

William F. Doyle

It's a great drug and it's a big problem at the end of the day,.


More people have heard about Jublia. So any one on this call with toe nail fungus, I encourage you...

Jordan Rubin

[indiscernible] competitor carrying is distributor specialty pharmacy.


Okay. Good point, Jordan. What are the financing expectations to operating free cash flows upcoming 4quarters by quarter given cost of Philidor replacement other expenses once investigation and legal, etcetera. We don't expense -- expect the cost of Philidor replacement in the expenses to be material as itrelates to their ability to generate cash flow or service debt or things like that. Which other distributionchannels will pick up the loss of sales through specialty pharmacies? What percentage of sales is likely lostaltogether? Is there a difference in the selling prices you can obtain? I think we've addressed that. To whatextent does Pershing believe that aggressive sales tactics utilized by affiliates of Valeant have boostedtheir sales growth figures? We think if the allegations are true, some percentage of Philidor sales areartificially boosted. We don't know for sure what percent that is. You expect there to be an impact aroundpotential Valeant products being removed or renegotiated larger discounts off insurance reimbursements

and PBMs. Yes, look there's an ongoing battle between the PBMs and the insurance companies to reducethe price they pay and they will use every opportunity that they can to do that after. I'm sure they do thatanyway. But Bill, do you have any particular reaction there?

William F. Doyle

Yes, it's hard to judge.








What type of reaction any of you expect from managed care following increased transparency in some of the alleged aggressive practices? I think the manager of the companies -- well, first of all, I think everyspecialty pharmacy in the world right now is updating its compliance manual and looking very closely whatthey're doing because if you read about the Novartis case in specialty pharmacies you learn about Philidorclearly has initiated this with some specialty pharmacies and I think they're all going to have to get theiract together.

William F. Doyle

I think as Jordan noted earlier, most of the PBMs own their own specialty pharmacies, which are by farthe largest specialty pharmacies, and there is some evidence to suggest reduces the total costing system.UnitedHealthcare published white paper, they found it reduced total cost by 13% going to the specialtychannel to the overall health care system.


So what we think, this is a very good distribution channel assuming it's operated ethically and legally.That's really the only issue. We're thinking why should you manufacturer, produce a drug, ship it to awholesaler who then ships it to a pharmacy we have to go walk and pick it up versus the manufacture of the drug shipping directly to -- either directly to the specialty pharmacy who sends it to the consumer.Let's see. Is the reinsurance reimbursement more or less the same specialty pharmacies resins otherareas? We think so basically. There's the same process you have to go through to get a drug approvedif there's a generic equivalent except instead of the patient doing it the pharmacy does? Is there a riskValeant is seen to be effectively owning Philidor even as it formally severs ties by vocation seen as havingactive possibly inappropriately. I'm sure, there's a risk. It will depend on the facts. Would the ongoingsubpoenas affect insurers' reimbursements? I guess, if insurers stop reimbursing for drugs, companieswill get subpoenas. No drug company would be able to distribute drugs. Does Pershing have any ability tohandicap what impact the recent media attention and government investigations might have on Valeant'sbusiness? I think if this is handled appropriately, which we expect it to be, we do not expect it to have amaterial long-term effect in the business.

Jordan Rubin

I think that in terms branding it's important to note that only dermatology franchise is sold under -- it'sthe only large franchise sold under the Valeant brand name. Yes, there are franchises GI ophthalmology,the emerging market portfolio all have around segment-specific trade names.


Look, I think there are many examples of very good companies J&J, Bill worked with J&J, having seriousissues that have a reputational consequence, TYLENOL, et cetera. How they handle those issues has ahuge impact on the business is viability going forward. We would expect Valeant to operate and take someof those examples and learn from them.

William F. Doyle

Yes. And I think the reason that we included the list that we included in the presentation was not to pickon any particular company, but to show that in this exceptionally highly regulated industry, virtually everymajor participant has found themselves in a circumstance, in many cases, much more serious than sort of the worst case scenario here and have managed to deal appropriately, learn from those circumstances andcontinue on as a very successful enterprise.


The regulatory sanctions penalties require business practices legal changes of some traction to effortsto put pressure on pricing. What do you think is the worst case scenario to the model and how do youget there? We think the worst case scenario is that one we outlined no further acquisitions, no -- all








Philidor business goes away, et cetera, et cetera. The only thing I would add to it is some kind of penalty,which is in the range of what's appropriate based on the circumstances, how long have the bad practicesbeen going on. In the first place obviously, the first $133 million Valeant has a indemnity from theindividuals who received $133 million with respect to compliance for law according to what they said onthe conference calls for the first $33 million. Obviously, Philidor if this is true has some issues. And theyhave to go out-of-pocket and then Valeant had any involvement or they just want to get it behind and

they're going to have to make some kind of the payment. And if you look at the Novartis settlement aswithin the realm of best analogy we can come up with apparently these practices have been going on for10 years or more. Novartis was directly involved in creating the incentives and the product and it relatedto things that have serious health life safety issues and that led to a penalty that was...

Jenna Dabbs

$390 million


$390 million, so that gives you some sense of a reference point.

William F. Doyle

And the penalty is sort of a formulaic multiple of the quantity of the actual drugs at question and thequantity of drugs at question Novartis was much, much more than anything we'd be talking about heregiven the recency of this channel and the small amount of drugs.


Because the good news is the good news is that Philidor's has only been around for call it a year, and sobad things were going on, and it's also was growing. So most of the damage that was done probably tookplace recently as opposed to obviously, when it was a much smaller business. Okay, what is known aboutthe specialty pharmacies used by Valeant? What is the potential regulatory business impacting Californiaacross the U.S.? Jenna, any view on state law?

Jenna Dabbs

I just really am not I would be speculating if I tried to dive into a summary of how the law there works asopposed to I mean I think we have learned in the analysis that we've done thus far, that appears Californiadoes have some more stringent licensing requirements. It requires more information and perhaps on theback end that informs regulatory impact, but I would really just be guessing at this point.

Unknown Executive

I guess, when you have come from the special unit, I was under the impression the margin were better inthis division, [indiscernible] this call and make less money from this channel.

Unknown Executive

Yes. Because they skip the middleman, they can get the drug to the customer more cheaply. But becausethey offer these co-pay system programs and special low cash prices, they receive less money from thecustomer, so the net of it is, it looks as though it's more profitable as going through retail.

Unknown Executive

And the biggest component of that, Delta is there, programmed for uninsured patients where they have acap price so if you will remain punished for providing a low price in uninsured patients.

Unknown Executive

Most of the carrier was accrued about 1 month after Jublia and [indiscernible] on the [indiscernible]runway was approximately 50% of Jublia based on strip trends. Now it has all spent more to market








Jublia. Jublia didn't go through the [indiscernible] channel, how do you think will that impact Jublia sales,you would pointed out that Cadbury didn't also through a specialty pharmacy. But do have a point of viewon that? You didn't go through Philidor, do you think the impact would be?

Unknown Executive

If he didn't go through Philidor, [indiscernible] so the majority of it is through retail. If it didn't go through

Philidor, they would -- in terms of the specialty channel we talked about, or literally dozens of folks in theUnited States who could do run programs where Jublia that are similar with what Philidor was doing butcompliant with the law.

Unknown Executive

So I figured backlog from insurance come from riding price increases of demand in elastic products thathave been forced to absorb thus far, could this result in legal risk lawsuits? Has this impact on thesis? Bill?

William F. Doyle

First of all, it's legal trade law that prevents you from raising the price of the drug. Not that I'm awareof. So what I think the New York Times risk, the Wall Street Journal risk, we've got to be respectful to allour friends in the news room, the financial times risk of the story on the cover of the paper highlighting a

particular drug where you raised the price by some meaningful amount is something that pharmaceuticalexecutive in the countries, particularly, concerned with right now. And by the way this practice is notunique to Valeant, it's pervasive in the industry. And I think you're going to see -- you're not going to seecompanies buying drugs and marking them up 2x.

Unknown Executive

Medicaid is protected. Their inflation cash from Medicaid that protect drugs purchased through Medicaidprograms from large price increases, which is one of the reasons why Medicaid business is marginallyprofitable.

Unknown Executive

And one of the things we noted in the presentation that we didn't comment on it verbally was that one

of the, I think very confusing aspects of the headline is that the difference between gross and net pricethat most of the headlines have focused on so called gross or list price in this case. But the pharmaceuticamanufacturers are essentially negotiating the price with the large PBNs anyway. This is a constant give-and-take on every product whether they're negotiate price, they're negotiating access. And this is, I think,standard business practice between participants in the market economy.

Unknown Executive

So was my own question, let's assume that Hillary Clinton Quentin or the next President is gets interestedin price controls and puts price controls in place on drugs. What are the impact on innovation in theindustry and how do you think of them?

Unknown Executive

Well, this is my opinion, but I think, we been down the road of price controls in various forms in thiscountry before. It's always a popular or can be a popular thing to talk about during a campaign. But Ithink the probability, given the Constitution of our government right now of actual price controls is remoteI think for a whole bunch of different reasons, some of them philosophical, but also from the reason thatyou're alluding too, which is we have a system today that encourages innovation in medicine. We have oneof the most productive innovation ecosystems in the world. The envy other countries and I don't think wewant to do anything to curtail that.

Unknown Executive

Thank you, Bill. Okay. There's been a suggestion at Philidor may only make up 7% of revenues andaccounts 40% of organic growth. If that business was up for any reason price reduction changes the way







Philidor does business, new management and alternative arrangement, what would be the impact at thebottom line now that growth for acquisition is off the table, can you estimate whether a 10% or 25% isimpacting a business was due to earnings, valuation of stocks? So we covered a lot of this. Let's addressthe premise here that Philidor generates 40% of organic growth. Jordan, you have a point of view there?

Jordan Rubin

I think the math, this person's doing is organic growth is 15% and for our sales, your data are 6%, lastyear, they were 1%, so at least 6 plus 1 is 5, 5/15 is 1/3. I think we should probably was attractingmonster sales. So 16 or 15 is 40%. But regardless of how you do the math, the premise is wrong. The-- I am sure that a chunk of sales are sales that would have been made this year for Valeant drugs[indiscernible] exist. The sales would have been made at retail. So the shift of scripts from retail CBSto Philidor is a shift in channel is not appropriate to consider those sales as sales that wouldn't havehappened if Philidor didn't exist. But we don't know precisely what Philidor -- so we don't know per sewhat Philidor's contribution is to growth. But certainly, it's not 100% of Philidor's growth this year.

Unknown Analyst

Is any other answer the [indiscernible] on [indiscernible] insurance are blocking a pain for Valeant drugs?

William F. Doyle

No.

Unknown Analyst

Other. This is the last category before we get to new questions here. I'm going to have 1/2 pages leftwith single space. Everyone, I'm having flu delivered. Is it conceivable for [indiscernible] to take a moreengaged role with the company? The answer is we're here to help if we can be helpful. [indiscernible]consult them with lawyers but the legality of the practice is disclosed by Valeant. In short, they have 0legal training and are making claims about law. Do you think this whole issue is something that can beproperly understood by people who with deep knowledge and the legality of the practices involved. Justlet me make some comments about short-sellers. So I'm a big believer that short-sellers, what aboutother people? Other people are hungry too. I got food no one else is getting food. So let's talk aboutshort-sellers for a second. So I think, a short seller who does a ton of research, identifies an undisclosedfact that investors would like to know has done a service for the capital markets. I think that it's a verygood thing, particularly, if that practice is fraudulent or people being harmed or economically or froma health point of view, that's a very healthy thing. Where I disagree working short-selling is harmfulis when someone puts out a 6-page research report, doesn't disclose the report that they have anyeconomic interest in the stock when, in fact, they're a short seller or maybe worse, they fall shortly toput options and they write the report in such a manner as to can this people did something really, reallybad is going on. They make references to Enron, they quote [indiscernible], they -- and frankly, I can'tbelieve they have a reasonable basis for what they say. I.e. just a the day before, Valeant said veryclearly, they explained the accounting for the new product that was shipped to Philidor and as it -- in lightof the consolidation, in light of the fact that these are consignment sales, there would be recognitionsmore conservative. There's no -- if you look at the financial statements for the company, there's noballooning in the receivables of the business. Receivables are growing in line with revenues. So any

reasonable analyst, I think, would fairly will conclude, particularly, in light of the company statementsthat he really is in a basis to phantom revenue. But the words phantom revenue and Ameron and e-mail around research report, time to coincide with a decline after the earnings, the subpoenas and everything else, is guaranteed to have a stock price impact and people sold in panicked and a large amounts money will be lost and the stock decline by a much greater percentage that it would. And the personwho was sure or bought put options who has yet to disclose -- yet the disclose this position. We don'tnecessarily -- he doesn't disclose this trade. I compare that with our investment in Herbalife where we didan enormous amount of information, we disclosed the size of our position and we didn't cover when thestock collapsed and we wanted [indiscernible] to have the opportunity to respond. This was -- I agree withMike Pearson, this was shouting fire in the crowd [indiscernible] and I think that's a very bad thing for thecapital markets and a lot of people were harmed. But I do credit short-sellers and Mr. Hampton, I think,







has done a very good job digging up some information. I don't agree with many of his conclusions, he'sgot a lot of things wrong but I think highlighting some negative business practices at Philidor. I think themedia has done a good job digging things up. So I think that is a good thing and it should be encouraged.Okay. How much is pricing drive their business? How much pricing drive Valeant's business? Jordan?

Jordan Rubin

So in the last quarter, growth was organic. Percentage of sales growth was 13%, 8% was volume, 4% wasprice. Valeant gave a very detailed summary on the contribution of price and volume to their growth intheir Q3 recent presentation. I encourage you to read that detail.

Unknown Analyst

Okay. Have they looked at any of an idea on the [indiscernible] cost the business? Arrange of any of thevarious government investigations? It will cost a lot of money, it's tens and millions of dollars, probably.We present your thesis on the zone conference back in May, your closing remarks compared Valeant isan early struggle [indiscernible] believe that to be true and could you comment on the following? Letme first address that. Again, this was not accurately described on the media. The point I was making isthat a company that has a competitive advantage in buying businesses because of its cost structure, taxstructure and its attraction to the sellers should be valued not just on the basis of its existing earnings

potential on the core of the assets owned, but you should assign some value to deploy capital in order onattractive returns. And I talk about -- but you're halfway, you -- I think the market historically valued --you're halfway because they [indiscernible] in the company based on the existing asset base and gaveno value to Mr. Buffet's ability to deploy capital and earned hard risk return and gave no value to the factthat the business had very low cost floated, took a very long time for people to understand. [indiscernible]doesn't have a tax advantage but has a low-cost capital advantage. I think the market really doesn't neverassign much value to those feature of the business. And that's really the comparison I was making. AndBuffett also is a guy who did things very differently from other people. And he didn't actively seek WallStreet attention for very long period of time and that was really the comparison. Okay. You commenton the phone. The company strategy laid out simply was to borrow, acquire, raise prices, cut R&D andother efforts would translate to higher earnings growth. It seems like the strategy worked very well inthe short-term. Again, can someone turn of the AC. Its freezing. But at the expense of long term freecash flow, additionally, there seems to have been a small margin for error given the debt low which was

increasingly higher and expect to do the rapid increase in valuations of target company. So again, this isa question why you I don't agree with the premise. We think the company has followed a strategy that isvery coherent in both selecting, excuse me, the products and the markets that it pursues. They've chosento finance their acquisitions with a combination of cash flow and debt because they felt their stock pricewas not valued correctly by the market. We think that's an intelligent thing. We think they have a generate-- they never stretch their balance sheet to create financial risk for the company. Part of the reason whythey have a below investment grade rating is the unconventional nature of business and not because of their ability to generate enormous cash flows and to delever the company quickly. In some sense, therating agencies have the same kind of discount to the company that the stock market does because it'sunconventional. And so we think it's a smart strategy, we think it's not at the expense of the long-term.We think the approach to R&D makes tremendous sense. Many drug company spend a fixed percentageof revenues on R&D. Allegen CEO would net get his bonus if he didn't spend 17% or 18% of revenues onR&D. That's a absurd compensation program. But of course, he spent 17% or 18% on R&D regardless of

his productivity because that's what you need to do to get paid. I believe the last time a target cominginside the Valeant stock to the cash is 2010. It's a source of concern. I think the question again as we canbackwards. The last time Valeant was willing to issue stock in a transaction, you're referring, I think you'rewith [indiscernible] the reason why Valeant doesn't like issuing stock because they think their stock hasbeen undervalued. And the reason why they issue stock in the Valeant deal is they thought that deal wastransformational enough in many ways that it was worth giving up part of the business to own part of theoverall business. And it makes me -- Mr. Buffet has given up stock very, very, rarely in his history. The lasttime he did it, he regretted it blessing he regretted it was I think Dexter shoe company and he turned it,what was a $700 million investment that went into 0 into a $5 million investment or whatever the numberis because he issued stock. And we like the fact that Valeant is very careful about issuing stock. And asit will be a long time the Democrats can have control over the senate and the house. And when they had







Bill smiling about that. In the politics of the mix [indiscernible] And when they had some years ago, theydid not do anything. What threat do you see from politics and legislations. So Bill, both your point of onthe election? And do you think the impact of legislation and the Democrat-controlled Congress, and aRepublican-controlled Congress and an uncontrolled Congress.

William F. Doyle

Well as I said earlier, I don't think in any scenario when we see price controls. So let me move to whatI would hope we would see. I think that, particularly, in the case of the older assets, the most effectivemeans to control price is competition. And I think any legislation that makes it more cost effective orentrance to compete, particularly, for smaller drugs and great generics it's going to be better for thesystem. So that's the direction that I would hope that Democrats and Republicans would find commonground and enhance the ability of companies to get to market with safe and effective generics sothat everybody has access to low-cost products that their off patent. But the same token, I hope thatthe politicians and I believe they will continue to sustain the incredible environment that we have forinnovation because we certainly have many unmet medical needs and challenges and the way we're goingto solve those is by providing incentives for our best and brightest to work in various entrepreneurialcircumstances to create those chores.

Unknown Executive

Wendy only remaining bodies and the due diligence of Valeant which are hard to understand from outsideshareholder. I think the hardest thing for an outside shareholders to validate is actually the tax structureof the company. And Brian?

Brian Welch

And I would just say the credibility of the management team. You spend a lot of time with them and youunderstand their character, I think it gives you much more comfort with the complexity of the issues that.

Unknown Executive

Here's what I would say. No one in the room, no one at Valeant is a perfect person. We all have our flaws,but in our judgment, this is a very high-quality group of people. Very hard-working group of people. theincentives are designed in the way that they're focused on what makes sense. I think they've learnedenormously in the last couple of weeks. And I think they'll be a better team going forward.

Jordan Rubin

I would say we took up everything we learned, are learnings from that diligence and included them inmultiple presentations over the course of last year and this year you should review.

Unknown Executive

Once you consider the keynote risk associated with investment in Valeant in the recent developments thathave materialized would trigger a sale in the holdings. Look, if the company that did not cooperate fullywith the government and took kind of an aggressive stance with the government, wasn't fully open, itdidn't complete detail the whole truth, they would sell. We would encourage them to sell the company,I guess. We wouldn't have confidence in them. We probably encourage them of change in the team, in

that sort of sense. I'm not sure I'd sell the stock because again, I think the stock -- the assets are veryvaluable and that's not the management team that we know, but if they do the wrong thing there, thatwould cause us to get a little bit more active in our investment, which is maybe a better way to answerthe question. The company, I would say that's the key thing.

William F. Doyle

What were your initial reaction sitting on a report referencing Valeant is a pharmaceutical Enron. Wasmisunderstanding [indiscernible] less than the market have about Valeant. Again, it's hard. What's that?The principal thing was that he suggested that Valeant was looking revenues, fake revenues by shippingproduct to a effectively controlled affiliate. I.e. valeant was shifting billions of -- hundreds and millions of







dollars in product to phantom warehouse. We've seen frauds like that. That was effectively a sure it was inthe report.

Jordan Rubin

It was immediately obvious to us that given the accounting for this [indiscernible] of the obvious does thecommittee accounting for Philidor and solar network that less claims, less specific claims were inaccurate.

Unknown Analyst

Which is why I believe that he knew what he said was not true. But, of course, we'll mature on that. TheStory on [indiscernible] October 27 said that value act was meeting with the to 10 investors in Valeant tofair the value [indiscernible] as 2 people on the board against the disclosed information, pleased investorsand not every investor and can you say what is being disclosed?

Unknown Executive

So value act as a board member cannot share confidential information which shareholders of the companywithout violating great FD unless those shareholders agreed to confidentiality and agree not to trade untilthe information is made public. I don't know what value act is talking to other investors about. I guess asthey're doing a lot of listening and they want to get feedback from the big owners as to what they should

do and what they'd like to see, it certainly asked us those kind of questions and we're not shy aboutsharing our point of view.

Unknown Executive

Can you comment on the issues outlined on the AZ value investing blogs, some of the points appear tomake sense and so this is much bigger problem than Philidor? I unfortunately, this the 1 blog I've not hada chance to read.

Jordan Rubin

So the company, Valeant, 2 or 3 weeks ago issued a white paper rebuttal to a number of claims madeabout the company including claims made at AZ --

Unknown Executive

So we refer to you to their website, the Valeant website for those answers. What percentage of Valeantdrugs are reimbursed through insurance? What percentage of drugs have other generic alternatives? Wasthe [indiscernible] for these drugs into a higher tier of formulary? Effective in displacement drugs, given atthe top 3 PBM control 90% of all prescription [indiscernible] given these structures are generics pharmacyis allowed to spend without doctor approval if she could have the alternative. What percentage of Valeantdrugs are [indiscernible] being displaced, which it become most profitable, given that chain promisescontrol 65% of the market? Buyers unlikely to be able to use any kind of specialty pharmacy? Is was likelythe PBM new Valeant products, aggressive practices? Overall question, Bill, do you have a point of view onwhat the impact is?

William F. Doyle

We reject that Valeant is likely to be able to use any specialty firms.Unknown Executive

Right. This is got [indiscernible] a lot of these questions have kind of a leading questions that presumesomething. We think -- we know that they're not going to use Philidor anymore, we think any specialtypharmacy would be happy to do with Valeant. Again, if people indicted companies based on subpoenas, Ithink, number one, no one would be able to do business in the drug industry if companies, the pharmaciesnot we're not one to do business with drug companies that have been convicted of various things or havesettled various claims, obviously, what are pharmacies care about. They want to sell products that thedoctors prescribed. So Valeant has products that are appealing to doctors, the pharmacies will be happyto.[indiscernible]







Jordan Rubin

In any case, we're in the PNB specialty pharmacies are related with PBMs included in the.

Unknown Executive

I'm actually not sure of the answer to my question.

Unknown Executive

And there were 20 different pharmacies involved. So there's a very broad branching that were coupledthat would focus, but it's a very broad range in the scheme of alleged by the government.

Unknown Executive

And I would make the point here that these are, there have been no alleged patient safety issues. Therehave been no alleged product safety issues. These are high-quality products that are being prescribed bydoctors.

Unknown Executive

We're able to deal with diseases.

Unknown Executive

2 patient's conditions.

Unknown Executive

There is a constant negotiation between payers and their, the various PBMs within the contract andmanufacturers and this will continue. Products with great differentiation, the manufacturers have thebalance of power for products with less differentiation. The balance of power main move in anotherdirection. One of the great advantages of Valeant, one of the reasons that we love the company so muchis we are not dependent on 1 or 2 or 3 products. This is a very large and diverse product portfolio. It's aninternational portfolio. So I think those are all factors.

Unknown Executive

Why are 2 Valeant board members resign. And then what's your take on the 2 independent directorsresigning? This was a miss, it was press article that said that 2 Valeant directors have resigned. Soapparently 2 directors of this [indiscernible] resigned apparently in connection of [indiscernible] explainedwith their investment in Valeant. I'm speculate here, but it looked being a Director of a mutual fund is, youget paid a lot of money generally -- mutual fund directors don't do a lot. Mutual fund director's principal job is to decide whether the mutual fund manager should continue managing the fund. And I don'tremember the last time I saw a mutual fund board replaced the manager go from fidelity to Vanguardeven though some people make arguments at all, money should be managed by a lower cost provider.I don't really know the details here but just to clear the record, now that the Valeant directors haveresigned, in fact, Jason joined the board. And if I had to guess, being in a Director of fund that owns alarge stake on a controversial company. A lot of the directors don't like that. And I give credit to the folksthat [indiscernible] here, we're sticking to their conviction on their investment and not caving to a director

that might feel some discomfort with an investment that they have. That would make me more confidentabout putting money with this [indiscernible] And by the way, interestingly, the history of growing if you'rebrochure devote and you read the brochure partnership letters, at the very end, when Buffett was shuttingdown his fund, and a Buffet partnership to go run Berkshire Hathaway, he gave his investors a choiceof cash or stock. I.e. you can have stock and brochure or you can have cash and basically, downplayedwith he planned to do with Berkshire. And I guess he had no idea what it would become. And manyinvestors took cash and then they asked Buffett who would manage their money for the previous 12 yearswhere they should invest and Buffett gave them a recommendation, the recommendation, I think wasBill [indiscernible] from [indiscernible]. And Bershire was the largest investment of [indiscernible] from1968 until come I think in the last several years when Valeant became their large investment because itoutgrew Berkshire, I think, largely due to compounding. So this is a firm that is very comfortable, taking







very larger stakes in companies and owning them for many years. Well, we don't take comfort by someother investor owning a stock, we do own work. I think it's interesting to note our understanding is that[indiscernible] has at least 1 analyst and all they do is study Valeant. And they travel around the worldmeeting with members of management and they really spend a lot of time focused on the business. Sowe're delighted to have them as a co- shareholder. Today, I'll again, paid $125 million fine and was foundguilty of healthcare fraud for bribing doctors. If Valeant end up paying a similar fine, how much of that

hurt going forward? I think what's being referred to here is our Allergan, one of the predecessor entitiesthat's not part of Allergan that became Allergan [indiscernible] and some executives there paid a fineand there was bad stuff that took place. And by the way, when this was announced, no one cared aboutAllergan stock price. Look, I don't want to diminish any penalty that's paid to the government in any way,but we do not think the government will try to take down Valeant by assessing a penalty that will destroythe company. There are 18,000 plus people work for the business. I would guess if half the revenuesare here and you probably half or so of the employees are in the United States. There's thousand homeemployees in Rochester in New York that -- this is a company you don't have another Arthur Anderson, wedestroyed business. And so that's why given these penalties are very substantial but they're not designedto destroy companies.

Unknown Executive

You may not want to cover this on the call. But if the most optimal fast forward in the company is to

proceed without Mike Pearson at the helm, delever the balance sheet by buying back debt and slow haulto acquisitions, it arguably becomes an operational turnaround value situation rather than a capital marketgrowth investment given the purchasing has no board control in this case, what would be to approach?

Look, I think, it's very, very, unlikely that the most optimal path is to proceed without Mike Pearson atthe helm. But what this board and facts came to light that suggested that was the right course of action.I don't think they'd be afraid to do the right thing. But the bottom line for us is we are very confidentboth in the management, in Mike Pearson and the larger team and the Board of Directors. We think it's afirst-class board. We think they are taking this incredibly seriously. They're remarkably responsive to theowners of the company and we're very comfortable with the board and as a result, we are not currentlyseeking any board representation.

Unknown Executive

This balance sheet's highly leveraged, is there risk of substantial rights issue as profitability seems to becoming under inevitable pressures in the current fallout? The companies are enormously free cash flowgenerative, it will delever very quickly. I think it will be very judicious about spending money on significantacquisitions until they get to an investment-grade credit rating. And as a result, I think the risk of therights issue is very small.


The only other thing I would point out is when people think leverage levels. They often use simplisticshortcuts like debt to EBITDA. And debt-to-EBITDA does not account for tax rates, it does not account forCapEx, it does not account for other things that in this particular circumstance make Valeant, particularlywell equipped to service load even relative to the sadistic metrics generally used.

Unknown Executive

Actually, a very good point. If it's an industrial company and you're looking at debt-to-EBITDA, yougot a very capital-intensive business and you're compared to other industrial companies. I think it's areasonable back on the envelope metric. But if you're a company that has minimal CapEx, a very low taxrate, this company will generate a huge amount of free cash flow. And the company's ability in servicesdebts is not based on some quick measure of EBITDA [indiscernible] based how much cash is generatesthat's not needed in the business that can be used for debt service. Now in that basis, we think thecompany is comfortably leveraged. Now because the rating agencies can often use other analyst, and








more simplistic measures of leverage, companies like Valeant can end up with a lower credit rating in itthan it deserves. We think that's the case here.

Unknown Executive

Your Chairman of the Board businesses would leverage what is the proper capitalization for Valeant goingforward? Are you concerned that recent events are going to affect the credit ratings?

Unknown Executive

We think they are well capitalized the way they are, but we've had the point of view that once they'vereached kind of sufficient scale, they should be an investment grade company and I think they're going tohead in that direction going forward. Discussed the continued availability of Valeant to maintain a 2.2%cash tax rate on EBITDA. I don't think about tax rate on an EBITDA basis. The company has about a mid-single digit [indiscernible]

Jordan Rubin

[indiscernible] Their current tax rate to continue the model that we provided in the presentation assumesthat they are cash tax rate rises to 10%.

Unknown Executive

So Valeant is a Canadian company. It is taxed from a territorial point of view and they do within thebounds of the law. They manage their business as do other Pharma companies to minimize taxationglobally and because they are more levered and because I think they take minimizing tax a little moreseriously than other companies, they've been very effective at keeping their tax rate low.

Unknown Executive

Money see public statement only discuss Philidor issues. Is there something else that's brewing? You willbe the lead plaintiff for lawsuit and we will get all our money back. I guess it's not a question. Do you feelthat the investment team knows Valeant as a company as well as it knows some of your other currentpast investment, in Herbalife's case for example, you worked out into granular details of the company'soperations in China, [indiscernible] in highly complex bonus structures, dubious nutrition clubs and how

they preyed on and the n recruited advantage populations. We are curious how much company levelgranularity the team uncovered on Valeant prior to making a sizable investment.

The answer is we did amount of work to get comfortable with the investments at the price that we payedand this may be an all-time record for [indiscernible] presentation, we are now 3.5 hours in. If that's anyreflection of the work product, then we have done a fair amount of work here.

Did your research process uncovered Valeant's specialty pharmacy issue in the [indiscernible] ownershipoption. We do not know about the ownership option structure, we are aware of specialty pharmacychannel but not Valeant's control over it.

The team consider possibility that Valeant is using the structure to voice state license. This is I guess wehad his question.

Do you think it's possible your relation with Valeant via Pershing's past investment Allegen biased, theinvestment teams used on the company and maybe too comfortable with standing behind Mike Pearsonprior to completion extensive due diligence on the company.

So a few things, #1, our investment in Allergen and our experience working the management team did usgive us a comfort with management. They don't think it made us too comfortable. Do you think it gave usan appropriate level of comfort. And we did not -- we did sufficient extensive due diligence, not just at thetime of the Allergen investment but at a time of our most recent investment in the company.

Okay. With regards to Valeant in your view. Now we're going into more recent question and the good newsis they're very few. It looks like only 20 or so, and I think we're going to be done. The [indiscernible]Valeant [indiscernible] given the ongoing situation, what are the chances of a permanent loss of capital?







Can we define a permanent as the company values been impaired sufficiently that we not just have amark-to-market loss, we have a permanent loss, I think the chances are small.

Unknown Executive

What's this whole favor at Philidor say about [indiscernible] is due diligence and [indiscernible] duediligence of Valeant's business dealings. I think we certainly covered our due diligence. If Valeant -- if

Philidor did that things and Valeant didn't adequately understand that, they need to do a better job goingforward.

Unknown Executive

2 questions, the loss of Philidor effect to organic growth long-term, I don't think it will have a long-termeffect, again, it's only had a short-term effect because Philidor has only been around for a short period of time. ANd we do think people continue to use specialty pharmacy channel. And I think the whole specialtypharmacy channel is going to improve as a result of this whole experience and publicity.

How confident were you with the explanation for Valeant regarding the guidance for sales revenue of $300million for the third quarter and then sales posting $461 million in Q3.

I guess the fact that they exceeded guidance.

Jordan Rubin

I think the inventory drawdown was a bit less than expected in the quarter. So then they had a booking --each channel inventory drawdown's a bit less than expected saying that booking more revenue than theyhad expected. And their explanation for this and I find is credible is that it's hard for them to know exactlyhow quickly to channel [indiscernible] prior to the management the channel, channel stocking wasn'tuniform across all wholesalers. It's hard for them to know in any given quarter how quickly [indiscernible]that will work out. So the result was the -- their estimate was slightly off in Q3.

Unknown Executive

Thanks so much for answering the call. My questions are probably the same as everyone else is. Andgenerally, I think people get that valuations and expenses being if you take out the Philidor contribution.

That being said, what gives you confidence that there's not a larger issue here. I would [indiscernible]papers like the Wall Street comment if there was no truth to the allegations? Why do you think there is somuch focus on Valeant?

Unknown Executive

So with think that the focus on Valeant comes form the fact that Valeant is not your typical company,it's an outlier. It's -- we have entitled the presentation as an outsider. It's a company that is done, doesdifferently than others. People are skeptical of people who do things differently. People are skeptical of other people's success. People are resentful of other people's success. And I think that makes it a highprofile target. The company has not done a lot to [indiscernible] themselves with -- as I said before, thepublic, the government, the media and as a result, I think that makes them a target. And also they'reowned by hedge funds. Hedge funds are evil, according to many members of the media. So that is doublybad.

Okay, can you speak to the tax structure of Valeant, is there any risk with the way that Valeant has beenable to move onshore, IPO offshore? [indiscernible] you're not moving to manufacturing in sales andoperations on these graphs?

A little too technical question but we did go through the tax structure of the company. We feel comfortablethat what they're doing is well within the balance of the tax law.








And it's also consistent with industry practice. There's nothing that they're doing that is, particularly,different than other companies. They're more comprehensive about the way they focus on the laws in thevarious jurisdictions. They do have the benefit of the Canadian domicile, but we didn't find anything thatwas extraordinary.

Jordan Rubin

Yes, the only thing I would say is you certainly wouldn't tax policy that encourages companies not justto move their IPO offshore but to move their manufacturing and the sales operation offshore. And so Ithink the whole attack on inversions, all that's done in effect is driving U.S. businesses overseas. Pfizer ismerging with Allergen. The talk is this is for tax benefit. We need to solve our corporate tax regime in theU.S. or every business will be acquired by a foreign company.

Unknown Executive

Is only way they're -- only way you can compete if all of your competitors are offering with a lower taxrate, that means they've got more cash flow, they can invest in R&D. It's more casual. They can invest inmarketing and they're going to outcompete you unless you reduce your cost structure and that's what'sdriving our business oversees.



And a very interesting fact in the case of Valeant, when they were -- when [indiscernible] was aU.S. company, they were planning to expand their contact lens manufacturing in Ireland. As soon as[indiscernible] became a Canadian company, it became more cost-effective to make those contact lensesin Rochester than in Ireland. So it's a crazy irony. But the actual cost in upstate New York is more thanadvantage, and it was just the regulatory displacement that was driving them to Ireland.

Unknown Executive

And look, the success of Valeant's ophthalmology business is driving job growth in Rochester, a placewhich has been relative job acumen since Kodak. And others will [indiscernible].



And it would have driven job growth in Ireland but for the Valeant acquisition.

Unknown Analyst

Conservatively, does what is company's look through earnings power, free cash flow moving forward?Are you confident the balance sheet can absorb one-time damages? How long are Valeant's the currentshare price versus the trends of [indiscernible] or in reverse order. You think stock price is extremelyundervalued.

As we've explained, we think the balance sheet can absorb any one-time damages. The fine here would-- is actually a proper couple of years or so down the road, and we don't expect it to be material to thebusiness. Obviously, it's not under stating what fines and penalties could be but we do think it will be --

market will react assuming the way reacted in the Novartis circumstance.

Unknown Executive

What's kind of this look through earnings power would give you a couple of scenarios or kind of moreconservative scenario and a more likely scenario. You can cut those by whatever percent you want. Thestock is still cheap. When you're buying a business for 7x earnings, a lot of debt and the business isgrowing at a very nice rate. A lot of bad things, 1/3 of the business can go away and you can still make alot of money.

What does purchasing value Valeant occurrence [indiscernible] products with no more roll up? We did atthe presentation.







My Christmas will come $10 million last year, what do you think about Valeant's matching program whichgives executives 1 performance share for each share they purchased personally? I am not sure what Mikegot be last year, this year, I think he went to his new compensation plan I think he makes $1 a year, oncehe gets his restricted stock which he can't get unless the stocks compounds at a greater than 10% in rateand it only gets more, increases at a higher rate than that. So I don't really know about the matchingprogram. And I don't know how big it is but I think rather than right, and people are checked for a bonus

if you give them the opportunity to buy Valeant stock and you give them a matching bonus along withthat, I like that better than -- the best thing, of course, is people write their own checks but a lot of peopledon't have the financial resources to invest in the company. And encouraging to do so, I think, is a goodthing. A lot of shareholders at Valeant who build their wealth at the company with the stock prices.

Dear team, thank you for hosting this call. I'm following the story of closely. As fixed income investor, Isee on-run Valeant 6 and 8, it's trading at 8 and 8. In your analysis, you use a 6% cost of debt in yourwack calculations with your average cost of capital. Can you show us the implications of the frozen creditmarkets for the long-term health of Valeant. Clearly, the credit markets are weaker before this eventhappened but so the debt has been trading weaker in light of the equity move, also in short-sell our piecesand with all-time the diversifying of [indiscernible] level with the Hillary Clinton Tweet, he mentioned.

So I think, first of all, I think it's a desperately currently at an 8 and 8 yield. I think it's a good buy. I don'tthink it's going to stay there for long. We're at the period of maximum uncertainty or maybe that was.

A our current maximum uncertainty, it was around 6:00 last night, okay, when the press script stuff wascoming out. I think the announcement this morning about terminating the relationship with Philidor, Ithink we provided a lot help and transparency.

Jordan Rubin

It's because their bonds to them as an issuer, it's about 6% and in their relatively long-dated -- theywould suspect that they would use free cash flow to pay down their term loan first.

Unknown Executive

Are you tired of my answers? Go ahead, I'm kidding, go ahead, I'm learning.

Jordan Rubin

Anyways, go ahead, Bill.

William F. Doyle

No, no, no. Come on.

Jordan Rubin

That's the answer.

William F. Doyle

Okay. The answer is that [indiscernible] 8 and 8 yield delever faster because of the buyback discount. Asit approach an investment-grade credit, we think credit spreads will be tighter. And again, I think as we

do a better job with Investor Relations. It's not just equity Investor Relations, it's fixed income InvestorRelations. This has been a story bond -- a story credit, a long story happening.


And credit rating agencies.

William F. Doyle

[indiscernible] your press release, during your call, Bill Ackman and other members of [indiscernible]investments seem to address questions from investor's e-mails to [email protected].








True.

Dear Pershing, with how many more Philidor type entities you've severely immaterial for the disclosurepurposes is valiant affiliated? How can you know?

The answer is we can only know what we know. I mean, I think, again, investing and painting is a judgment call. We rely on accountants, auditors, audit committees and ultimately, management to deliver

accurate information. Could someone grab me a water please. 'And but the company has disclosed theyhave 2 other VIE entities. I don't have much detail on one. One hell of an interest in Indonesian, 15%interest in some Indonesian company and there was one other small one, I don't think immaterial and Ithink that we will get. The company is going to be much more careful about disclosure going forward.

William F. Doyle

Given Bill [indiscernible] 2 to 4 years for Valeant's to recover from this event in the size and thepositioning of portfolio, how will this impact Perhing's performance in 2016 and going forward?


I don't -- that's not what. We said was we think it's 2 to 4 years for the outcome of the regulatory

investigations to be resolved. I do think that the markets will -- bargain, so it won't remain on bargainforever. I think the stock price drop has attracted a lot of interest from value investors in the last whatevernumber of days. We've got many calls from in some cases, some of the most sophisticated investors inthe world were examining the company. I hope Mr. Buffet takes a look. He knows those looks at Lorraine.And if quite well, I think he would have do his homework, you'd like this business. We welcome him as ashareholder. Thank you for the presentation. I'm not implying that he's buying the stock, I'm not implyinghe called me but if he calls, Ill return the call. Thank you for the presentation. Given that Valeant isattractively valued, but what do you think about the pharmaceutical industry in general in terms of tacticsand moral issues? Bill, you reported in the industry more than any of us.


Yes, I think that this is one of the most important industries in the world. That this is an industry that isdedicated to the alleviation of human suffering. This is an industry that I think is on the cuss of a newera and I've described this before, I think much as the advances of physics in the '20s and '30s led to theinformation age, advances in the understanding of the human genome have us on the cuss of a biologicage right now that will not only have implications for medicine but for the way we do everything. And Ithink that while their valid actors in every industry everywhere, the vast majority of the participants in thepharmaceutical industry, first and foremost, are dedicated to their patients and to their doctors. And inevery statement that Valeant ever makes, that's where they start, that this is an organization dedicatedto their patients and their doctors. I think in our system, we found the best way that to deliver innovationto the most people is in the -- into the catalyst framework where they attract the best and the brightest.And I'm delighted for a lot of the work that I have exposure to and Harvard and MIT, [indiscernible] SpringHarvard, that this industry is attractive, the very best and the very best to all of our betterment.

William F. Doyle

Thank you, Bill. Hi, Valeant didn't know about filler as an unethical practices. Doesn't that come intoquestion how tightly run the company is? Before and certainly after the [indiscernible] report managementcould or should have been able to identify the shady practices before report [indiscernible]

the answer is that, look, I go back to my bank example. I think Jamie Diamond is one of the highestquality executives in the banking business. He runs a company with a lot of employees. These were noteven employees of Valeant as far as we know. So I think in every big company, bad things happen. That'swhy we have examples of all these various pharmaceutical companies with problems. So it's a black guy,I would say, or whatever you want to call it on management that they missed this issue at Philidor. Butthey're going to learn from it.







I don't give a hoot about any other answers to any other questions, you can go on and on for another2 hours. But that's the question that matters to the street right now. Why isn't Mike Pearson personallybuying stock? Same for all the officers? Where are they?

The answer to this question is Mike Pearson would love to buy back stock but his lawyers have told himhe can't because he may be in a position of having inside information. The last thing he needs right nowis an insider trading investigation relating to his investment [indiscernible]. That's the answer. I asked thequestion.

Okay. David [indiscernible], he's a well-known Valeant critic. He's written a several-page essey here. So[indiscernible] near time, Joe [indiscernible] called Valeant sleezy just this is just past week and a hostof other news papers have said similar things by reference to what they have chosen to write about. Youpreviously stated that Valeant is a cultural operational excellence. This whole mess might be easy to blameon Philidor rouges but you have to admit when Valeant sent board members to inspect Philidor, and thisbecame a board and CEO decision, whereas about stock. I mean, at 1:5 of Valeant's U.S. perceptionsare something like that to go through pharmacy, that is involved with bad business practices. It seemslike this is something a CEO should have had a good handle on. It's not the CEO's job to avoid being inbusinesses and business relation if that put the company in a position to be called squeezy and whose jobis that?

William F. Doyle

Everyone keeps repeating that Philidor was 7% of sales but is that the same Philidor and its network of pharmacies also. What was the contribution of Philidor in this network this past quarter as percentageof growth. There's pharma growth, there's profit growth, there's all sort of the sales go away with whatdoes Valeant grow, isn't that more important? Please answer my specific number as you did some work onthe specialty pharma business, but you did not see it as a risk. Keep saying this is small part of Valeant.It's actually large part of Valeant's pharma business growth, which is a large part of the multiple theyget. know? You mentioned that in 3 or 4 years as Mike all be known and they can pay their funds andmove on. But the funny thing is that in 3 or 4 years, you start the first of several years, $1 billion-plusmaturities, debt maturities as they go to refinance that [indiscernible] interest rates to be significantlyhigher. It seems that [indiscernible] CDS trading so high and the debts are so low. Marketing seems to besaying that refinancing will be at higher rates. Isn't the real story of that without builder with payers mad

of Valeant growth of slow deals and the slight the dealt will cost more of us longer-term EBITDA will beimpacted? Do you think today, you were so quick to mention stories about Warren Buffet in your speechesthat kind of like wrapping yourself in closing of him. May [indiscernible] in the stock was [ph] 2 24 inlight with Valeant [indiscernible] are assumed someone who knows you something at Berkshire Hathawayearlier this year before the stock dropped 50% surely longer was reported saying dying is like ITT and how[indiscernible] and back to the life only the guys worse this time. Don't you think this floor is pretty clearon this one. Know the idea is that the combined Pfizer, Allegen be interested in Valeant laughable speciallyprints on was the FCC as [indiscernible] do about it. Significant overlap in [indiscernible] at the malls. Youmake it 0 chance of happening. It said, Allegen attack Valeant with untrue allegations, this seems insaneas the last 12 months shown Allegen's concerns were 100% right. Valeant does [indiscernible] Allegen'ssignificant risk. You have to admit that is [indiscernible]. If an Allegen shows some Valeant stock to behosed with the current state of Valeant and stock, don't you?

Okay. This long question.William F. Doyle

I think we have addressed the vast minority of this. The one thing we need to address which I think isa good question is the Charlie [indiscernible] statement, Valeant is like ITT [indiscernible] come back tolife only to guide us worse this time. Well, I called Charlie Monger and asked him about that statement.And what he said to me, is he said, "look Bill," what's nice about Charlie Monger is, I call Charlie Mongerand he'd pick up so. And he said that -- he said, "look, call me old-fashioned, I just don't like loss of acquisitions, low tax rates and leverage." And that was his point of view. He said, "look, I've heard verygood things about Mike Pearson from our friends at [indiscernible] and I probably shouldn't have saidit. But 90-something years old and I say what I think." He says what comes to mind. Can they ever go








through what the legal liability of the total as it relates to Valeant? How separate are these 2 entities astheir technique [indiscernible] case for 0 of Philidor's actions having any effect on Valeant?


Well, we had not seen the deal documents between Philidor and Valeant. They were structured using

very's fine law firm that's an expert in the area of healthcare regulation. The company reaffirmed in theircall on Monday that they don't control the company, put their separate entities. So based on what weknow right now, we just have to accept that.

William F. Doyle

And I think they're right. The conservative way to look at it is to assume they're responsible. What'sthe worst case. And I think is a right way to look at it. And I think the worse case is that Valeant has toassume some responsibility and has to enter into some kind of settlement as a result.

Can you please let us know you what you believe the impact on accounts receivable at Valeant may begiven? The insulance company termination represented of ARs attributable to Philidor and could this havea bigger impact than the revenue number failure to collect?


I think, again, Philidor is consignment related selling and I don't -- to the extent they were a drugcompany -- I'm sorry, an insurance company refused to pay, it would simply be the last 30 or 45 daysof sales. And quite query, with what their ability is to not pay as long as it this is an invalid prescription.Maybe they've returned the product, I mean, I don't expect to be material, new material. What's thematter, Tony? Tony is with me here from IR.

Unknown Executive

You just say a [indiscernible] plans to issue another negative report, how do you expect Valeant to be ableto outperform and give them the constant state of short attacks, also can you believe that mangement'sgetting distracted and less focused and on running the business. I have no idea what Mr. Citron has to say.

And we'll take a look at it when he puts it out. Look, I do expect the company to be short-sellers. I'm surehe wants the stock to go down. And if you finds some information, we'll get to the bottom of it, Valeantwill get to the bottom of it. What we do not believe that -- we'll see, we'll what he has to say. And by theway, I think that a lot of this noise starts to go away, the company, a quarter from now, we think is goingto report good results. And they're going to have a conference call, they can answer shareholder questionsand it's going to go back to being a normal company. And people ask questions about how things aregoing, it'll be very little, they're going to be a little calmative about the investigations. We'll provide moredisclosure in their filings and then move on. Does your Council think that less Citron serve may have someSEC related liability whether it's civil or criminal? I'd rather leave that out to the SEC. Okay. Why don'tyou sell something that will probably buy more [indiscernible] in such high conviction? The answer is it'salready a very large position and we expected it to grow as the stock price increases.

I know that this is out of order, but can you quickly go through the math and your thoughts regarding

the value that we reduced from only moving Philidor all else the same? Actually, we'll do this but can youcomment another name on your portfolio? No, that's for the next conference call.

[indiscernible] says he will respond on Monday for to your information.

Notice how that how we became more quickly go to the math and your thoughts regarding the value theyreduced by only moving Philidor? Jordan?

Jordan Rubin

So the answer is I think that PWC -- I don't have any problem with PWC. I do have a lot of problem with,which is an approximate contribution attribution last quarter Philidor to revenue and operating profits. And







then from there, we work down to EPS using an estimate of interest expense, depreciation, stock-basedcompensation and the share count.

William F. Doyle

Thank you. Sorry for the last late question, but where does PS stand with its Valeant investment as of now? We're -- we like our Valeant investment and as of now, if you're asking how much money we made

or lost, we disclosed our average cost at $186 a share including our recent purchases. I think we ownapproximately 22 million shares and the thing where the stock price is that's how much money we've lost.

Why is Valeant on suing Citron research? Hi, my question is simple, Valeant was not a [indiscernible] whyis it not suing Citron Research? Look, I think Valeant, I think that's a distraction, let the SEC look into Mr.Citron and what he did or didn't do.

Next. I'd like to ask a question on the call. HLF case, you asked PWC to answer for its work as auditor,even quoted my writing on the subject. TWC is also Valeant's auditor. You commented being a goodwatchdog, what kind of additional scope and [indiscernible] do you expect for them to make sure Valeantis doing what is the same is doing on account on accounting and controls? Well, the answer is I think PWC-- I don't have any problem with PWC and I do have a lot of problem with Herbalife. And I think PWCdoesn't consider it within its responsibility to determine whether or not Herbalife is a pyramid scheme or

whether they're operating illegally in China or they're probably got letters from various people. I don'tknow. I don't even know the answer. So we think PWC is doing perfectly fine accounting firm. I'm surein light of all the [indiscernible], they'll look at this thing very carefully. The audit committee is obviouslyto do its own work. I don't -- there's not really an accounting issue here that even the short-sellers arecompared about. The issue has to do with really healthcare law, insurance law as it relates to Philidor.

Thanks for taking my question. You did not address FTC issue of being now in Paragon AntitrustLitigation, there's -- the company receives subpoenas, by the way, I guess another, I'll make an Herbalifecomparison. Take a look at the disclosure that Herbalife gives with respect with government investigationand compare that with the kind of detail about what's in the subpoenas. Actually, we were receivingsubpoenas that Valeant gives, but I don't have anything about the P&L in Paragon Antitrust. Subpoenasagainst a drug company, they receive subpoenas, Valeant will cooperate and I don't know anything more.

Centralized being investigated for relationship with Philidor which is under investigation pharmacy

[indiscernible] FTC investigation PNL. Additionally, why was laser [indiscernible] required to let go. Thisgroup chairman of neurology and major higher lesson July, it was not disclosed, he was hired from[indiscernible] I don't know anything about laser. Do have a point of view, Jordan?

Last year guidance were strong organic growth [indiscernible] Philidor doing $1 billion-plus in revenuenext year and being on ramping revenue. But now they've gotten issue around big price increases[indiscernible] approximately, we still believe the company will grow. If not, 5%. 5%, not 15% topline.Again, our assumptions are not -- you should make your own assumptions. That's the way, I guess, is theanswer.

Okay, are you aware of today's announcement by Citron. I guess [indiscernible] afraid to be announced.There were [indiscernible] Citron plans to update a report on Monday. Supposedly disclosing even moredamning information on Valeant, we should it and we'll take a look.

What are your thoughts on Charlie comment? I may that, I hope I didn't -- Charlie doesn't mine peoplesaying what they think. So I said what I thought.

Since [indiscernible] are brining up opinions f all Bershire-related folks in full disclosure, don't forget thatLucent's an ex-Geico, has been a big Valeant shareholder for many years. I did not know that.

We'll present our Valeant prescription sales -- at only one more question if they keep coming in. Whatpercent of Valeant sales are via specialty pharmacies including others besides Philidor. Talking too fast.Is there a significant risk those sales may be inflated? Si the aggressive tactics used by such pharmaciesget scaled back due a combination of regulatory pressure, congressional pressure recognition by thosepharmacy managements and lawyers. They cannot go on being as aggressive as have been. I don't know







if you can indict all specialty pharmacies. Clearly, there's some that have problems. But I think it's onlyanother incremental 100 basis points of revenue that go through specialty pharmacies at Valeant.

Do you know how Valeant got to its estimation of $700 billion EBITDA for next year? They have access toinside information and they build a financial model on how all the sales are doing and they come up with anumber they thing is going to end up being conservative that they hope that they can beat.Let's see. There's some more questions by the same guy. All right. I would say we'll give it to the Collegetry. We really appreciate you guys taking the time. We're just under 4 hours and I have a lot of veryhungry people looking at me. So thank you, very much. If you have further questions, there's always theNovember 9 earnings call. Thank you very much.






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2015Q3 Pershing Square Holdings, Ltd. - Shareholder_Analyst Call on Valeant