Mar 16, 2016
Executives
Laurie Little - Head of IR Michael Pearson - Chairman and CEO Robert Rosiello - EVP and Chief Financial Officer Ari Kellen - Company Group Chairman
Analysts
Louise Chen - Guggenheim Annabel Samimy - Stifel Marc Goodman - UBS Andrew Finkelstein - Susquehanna Tim Chiang - BTIG Chris Schott - JPMorgan Corey Davis - Canaccord Genuity Shibani Malhotra - Nomura Securities Umer Raffat - Evercore ISI David Risinger - Morgan Stanley David Amsellem - Piper Jaffary Ram Selvaraju - H.C. Wainwright Alex Arfaei - BMO Capital Markets David Mattern - Wells Fargo Alan Ridgeway - Scotiabank Gregg Gilbert - DB David Steinberg - Jefferies Randy Raisman - Marathon Asset Management Irina Koffler - Mizuho David Common - JP Morgan Tim Chiang - BTIG Cindy Guan - Goldman Sachs David Maris - Wells Fargo Henry Ritchotte - Deutsche Bank Dmitry Kamenetsky - Veritas
Operator
Good morning. My name is Heidi, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Valeant Fourth Quarter 2015 Unaudited Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Head of Investor Relations, Laurie Little, you may begin your conference.
Laurie Little
Thanks, Heidi and good morning, everyone, and welcome to Valeant’s Investor Conference Call. Participating on today’s call are Michael Pearson, Chief Executive Officer; Rob Rosiello, Chief Financial Officer; Dr.
Ari Kellen, Company Group Chairman; Anne Whitaker, Company Group Chairman; and Linda LaGorga, our Treasurer. In addition to a live webcast, a copy of today’s slide presentation can be found on our website under the Investor Relations section.
Before we begin, our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information.
In addition, this presentation contains non-GAAP financial measures. Non-GAAP financial reconciliations can be found in the press release issued earlier today and posted on our website.
Finally, the financial guidance in this presentation is effective only as of today. It is our policy to update or affirm guidance only through broadly disseminated public disclosure.
And with that, I will turn the call over to Mike.
Michael Pearson
Good morning, everyone and thank you, Laurie. Thanks for joining us.
Today we would like to cover the following topics. First, we will discuss our preliminary unaudited fourth quarter 2015 results.
Second, we are going to take you through our new tax presentation. Third, we are going to provide revised Q1 2016 financial guidance.
Fourth, I would like to take a few minutes to provide my perspective on the current state of the business since I have been back a couple of weeks, including a revised 2016 guidance and other key business updates. Fifth, Linda LaGorga, our Treasurer, will provide liquidity and cash flow updates, and finally, I am going to address some questions that we have got ahead of the call, and then we will open up to Q&A.
We have added a number of slides in the appendix around assumptions and our top 30 products, which we will not be going through but will be made available to you. As we have previously disclosed, there is an ongoing review of our 2014 financials, and as such we are not able to provide year-over-year comparisons today.
Financial metrics that are impacted by this include the organic growth, business unit growth and price volume detail. What we can provide today are preliminary unaudited 2015 fourth quarter results.
With this, let me turn the call over to our CFO, Rob Rosiello, to cover Q1 and – our Q4 and Q1.
Robert Rosiello
One page 5 for the quarter our total revenue was $2.8 billion versus our guidance of $2.7 billion to $2.8 billion. GAAP EPS was a loss of $0.98, adjusted non-GAAP EPS was $2.50, which falls below the guidance range of $2.55 to $2.65 we provided in December.
This shortfall was caused by unexpected reductions in higher margin product sales driven in part by channel destocking, a negative reaction to our agreement with Walgreens. GAAP cash flow from operations was $562 million; adjusted cash flow from operations came in at $838 million, above our expected target of greater than $600 million.
As a reminder, we have listed adjusted cash flow from operations on this slide, but as we reported previously we will no longer provide this metric going forward. On the next slide, I would like to discuss changes in Valeant’s tax reporting for 2016.
Historically Valeant has reported our non-GAAP tax provision on table 2a and b of the press tables that combines the tax effect of non-GAAP adjustments and the use of tax attributes and other timing issues. This number, approximately 5%, matched the actual cash tax that Valeant paid each year.
Going forward, we will no longer include the tax effects from the use of tax attributes and other timing issues, which will in turn raise our reported tax rate to between 10% and 15%. This new reporting metric has no change to either cash flow for actual taxes paid.
On the next page, we are also updating our previous guidance for [2015] Q1, from revenue of $2.8 billion to $3.1 billion to $2.3 billion to $2.4 billion. We expect adjusted EPS will now be $1.30 to $1.55 from $2.35 to $2.55 as compared to the guidance we provided in December.
With the new tax presentation shown on the far right adjusted EPS will be $1.18 to $1.43 for the first quarter. While most of our businesses remain strong, there are a few areas that changed since December that will impact our first quarter.
First we are realizing a decrease of roughly approximately $0.80 per share coming from the underperformce in several businesses. This includes slower than expected growth in GI, including additional product destocking.
We are also realizing a slower than expected rebound in dermatology that includes additional product destocking and lost refills from the Philidor transition to Walgreens. Finally, we are also seeing underperformance in several other US businesses such as ophthalmology RX, [Indiscernible] and women’s health as well as in Western Europe.
We have also experienced headwinds from currency fluctuations since our guidance was first set. We also expect that another $0.20 roughly comes from the fact that even as revenue was brought down, we took little expense reductions despite the slower revenue forecast.
Let me turn it back to Mike.
Michael Pearson
Thanks Rob. So as you all know, I have been back from my medical leave for about two weeks and I have had a chance to review what is happening in the businesses and there is a mixed combination of some good news and some bad news, and I just wanted to take a few minutes to sort of give you my assessment and then what we plan to do about it.
While our businesses continue to grow, we are now forecasting a lower growth rate in certain businesses such as dermatology given the continued external pressure for managed care, the pricing environment and our slower than expected start in 2016. We continue to expect strong growth in GI, contact lenses, oral health, oncology, generics in certain emerging markets.
This strong growth will be somewhat offset by some of our other businesses, including Western Europe, ophthalmology RX, Solta, and Obagi. Many of our business units have lowered their revenue forecast for the year from when they first put them together in the fall.
We have launched our branded access program with Walgreens and this is a piece of the good news, in mid-January, with our dermatology portfolio, followed in mid-February with Ophthalmology Rx and [Indiscernible]. Negotiations are underway to add networks of independent pharmacies.
The program itself is off to a terrific start. Within two months of launch in dermatology, approximately 30% of our dermatology scripts are flowing through Walgreens.
This is approximately two times the volume flowing through Walgreens from when we started. More importantly, well over 90% of our doctors who are using Philidor are now using Walgreens, and many new doctors are also using this channel.
Walgreens senior management, whom we met with last week, is equally excited about the program, and we continue to fine tune it to better serve our physicians and patients and improve the economics. Our Brand for Generic program is on track to launch sometime this summer.
Finally, another piece of good news, we are continuing to focus on improving patient access as well as improving our relationships with our channel partners. We have strengthened our managed-care organization with several key hires and we have been in active discussions with the payers to ensure continued patient coverage and access.
I will address this point in more detail in a minute. During the past two weeks we have already taken steps to restructure a number of our underperforming [Indiscernible] businesses and we are taking steps to launch a broad-based cost reduction program.
These actions will be partially offset by increased investment in key functions such as financial reporting, public and government relations and our managed-care organization. We are also currently exploring divestitures of non-core assets, which will enhance our liquidity.
Returning to market access, maintaining US market access is critical for our entire portfolio. It is critical to our success.
To achieve this goal, we are investing more in rebates and building our organization to managed care capability. The increases in rebates are due to more competitive pressure and in response to our historic price increases for our late lifecycle products.
Our US market access team led by Sandy Loreaux, who joined us in January this year, continues to have productive dialogue and negotiations concerning access for our entire portfolio with national health plans, PVMs and regional plans. These negotiations include our Part D and commercial bids for 2017, response to ad hoc therapeutic area reviews by peers, and requests for price inflation protection agreements.
Through these negotiations beginning in late last fall this year, we have been able to maintain good coverage of commercial lives through our key brands and franchises including dermatology, GI and our ophthalmology franchise. We are working hard as a team including the senior management team sitting here in this room today to continue to improve our relationships with PVMs and health plans, as well as access for our current portfolio and importantly future launch products.
We have made a great deal of progress and feel confident that we will improve our access in 2016 and 2017 and are laying a strong foundation for access through our expected new product launches. We are committed to engaging with these important customers more broadly across the organizations, building back trust through our actions and strengthening our capability to collaborate with them on initiatives involving our products.
Turning to our revised guidance, for the first quarter now updated, our new full year 2016 guidance as compared to what we previously reported is expected to be $11 billion to $11.2 billion in revenue and adjusted EPS of $9.50 to $10.50. With our change to a different tax presentation, we expect to report adjusted EPS of $8.50 to $9.50.
As we are moving away from adjusted cash flow from operations we will now report an expected adjusted EBITDA number of $5.6 to $5.8 for 2016. As we look at the budget we prepared in December several factors have changed our outlook for 2016.
First as Rob covered, the Q1 underperformance is expected to reduce adjusted EPS by $1 due to the higher than expected inventory reductions, the transition from Philidor to Walgreens and the cancellation of almost all price increases. In addition, there has been negative impact from FX.
Next, we are taking a more conservative approach to our revenue assumptions and we are assuming lower growth rates for most of our franchises and geographies, including a slower rebound in dermatology, more modest growth in GI, and underperformance in women’s health, Commonwealth in Western Europe based on current expectations from economic factors, and the current managed care environment in the US. This conservatism is expected to reduce adjusted EPS approximately $1 in 2016.
As previously mentioned, any future price increases will be more modest and in line with industry practices and managed-care contracts. We have experienced increased competitive pressure at the payer level, resulting in increased rebates for access for our key growth products like Jublia, and this accounts for a further $1 reduction from our budget in the fall of last year.
Other items that have reduced our outlook for 2016 include increased investments in select functions, FX headwinds and continued organizational distractions that will be the cause of we estimate another $0.50 in 2016. Finally, the new tax presentation will reduce reported adjusted EPS by $1, although it has no impact on either the actual taxes paid or the cash flow.
To assist in the walk down from our revenue guidance in December to today, we have bucketed the main areas, GI, dermatology and neurology portfolios represent the bulk of the change due to the items already mentioned. Underperformance in certain US business units accounts for approximately $300 million and ex-US $200 million in revenue reduction.
In terms of FX, we estimate that to be $110 million and the remaining $90 million covers the rest of the decrease. As we look out to the next several years, we want to highlight our growth expectations for our major business units.
We expect double-digit growth from GI, Dendreon, dentistry, contact lenses and women’s health over the next three years. Single-digit growth should be realized in dermatology emerging markets in Europe, Asia, Latin America, US consumer ophthalmology Rx, Canada, Surgical and our aesthetics businesses.
Finally we expect our neurology and other Western Europe US generic units to have flat to declining revenue growth over this three year period. I do want to highlight that we do have some very exciting products that are either in the market and there are new launches or we hope to get approved over the next year or so.
We continue to be very excited about the prospects for Xifaxan, and you have seen this continued script growth. We are also exited about growth opportunities in a number of our emerging markets, and our ULTRA and BioTrue contact lens lines.
Potential opportunities lie with several R&D projects such as Latanoprostene bunod for glaucoma, which we hope to get approved later this year, IDP-118, a topical for moderate to severe psoriasis, which we hope to get approved next year, and Brodalumab for moderate to severe psoriasis, which we hope to get approved at the end of this year. A number of these growth products have $1 billion plus.
In terms of the next four quarters guidance, with the weak results for the first quarter of 2016, we are providing a forward look at the next four quarters taking us through the first quarter of 2017. On a roll forward basis, we expect to realize between $11.6 billion and $11.8 billion in total revenues and approximately $9.65 to $10.15 on adjusted EPS under the new tax reporting.
And we expect to realize approximately $6 billion in adjusted EBITDA over this time period. At this point let me turn the call over to Linda LaGorga, our Treasurer, to discuss our balance sheet.
Linda LaGorga
Thank you, Mike. First, focusing on our liquidity, we are comfortable with our current liquidity and expect strong cash flow generation from our business for the remainder of the year and beyond.
Currently we have approximately $1.2 billion of cash on hand including the proceeds from recently revolver draws. Our revolver is currently drawn at $1.45 billion.
We most recently drew our revolver to fund cash timing related to ordinary course in each of our operations, including anticipated upcoming debt payments. We are expecting to close the sale of the Synergetics contract manufacturing business in the second quarter providing additional cash.
To date in the first quarter, we have completed the Sprout payment of $500 million in January, and have repaid $405 million in term loans, including our Q1 $145 million mandatory amortization and $216 million in term loan maturities. We have approximately $520 million of remaining mandatory term loan repayments in 2016, including $417 million of mandatory amortization and an estimated $100 million mandatory excess cash flow payment, which is an annual calculation under our credit agreement, which will be due at the end of March.
We believe our term loan amortization and term loan and bond maturities in 2017 and 2018 are manageable. Next turning to some covenant highlights, based on preliminary unaudited 2015 financial information and our 2016 guidance we expect to remain in compliance with the financial maintenance covenants in our credit agreements for year-end 2015 and throughout 2016.
There are no financial maintenance covenants in our indentures governing our bonds. Our credit agreement includes two maintenance covenants, a secured leverage ratio, and an interest coverage ratio.
For the year end 2015, we expect our secured leverage ratio to be approximately 2.1x and our interest coverage ratio to be approximately 3.3x, both within credit agreement requirements. Our net leverage to pro forma adjusted EBITDA per the credit agreement is expected to be approximately 5.8x at year-end 2015.
A couple of key factors contributed to the increase of our Q4 leverage ratio to our Q3 leverage ratio. First, for our last 12 months adjusted EBITDA per credit agreement, we no longer have the benefit of the Allergan gain from Q4 ’14 of approximately $287 million.
Second, also for our adjusted EBITDA per our credit agreement, our Q4 Second, also for our adjusted EBITDA for our credit agreement, our Q4 adjusted EBITDA was impacted by $100 million by our Broda transaction, which is treated as cash IPR&D and reduces adjusted EBITDA in our credit agreement. Based on our 2016 guidance, we expect our net leverage to pro forma adjusted EBITDA per our credit agreement to be approximately five times by year-end 2016.
Now, moving to covenant highlights related to financial statement reporting. Both our credit agreement and our bond indenture contain financial reporting requirements which are impacted by the delay in the filing of our 10-K.
I we do not sell our 10-K by March 30th, a default will occur under our credit agreement. We want 30 days or until April 29th to cure this default by filing our 10-K.
If our 10-K has not been filed before March 16th, a breach of reporting covenant occurred under our bond indentures. At any time after this breach, the trustee are holders of at least 25% of any series of notes may deliver a notice of default.
From receipt of this notice, we would have 60 days to file our 10-K in that secured default. While the failure to file the 10-K before March 16th, does not have any immediate implications under our bond indentures.
It does result in a cross default under our credit agreement. The credit agreement lenders do not immediately have the right to accelerate on account of this cross default, that our ability to borrow under the revolver is restricted while the default continues.
We now, next week we intent to launch an amendment process with our lenders to waive this cross default and also to extent the time period for delivery of our 10-K and our Q1 10-Q. Moving now to cash available for debt repayment and other purposes.
One of our key 2016 priorities is to focus on our balance sheet. We remain committed to using the vast majority of our cash flow to pay down debts.
At our Investor Day in December, we said we expect to pay down more than 2.25 billion of permanent debt in 2016. Based on our revised guidance, we remain committed to debt repayment and now expect to pay down more than 1.7 billion of permanent debt this year.
Relative to our prior guidance, the reduction in cash available for debt repayment and other purposes is less than the reduction in adjusted EBITDA. This is primarily due to less use of cash from working cap and less taxes, based on our reduced sales expectation.
I will now turn it back over to Mike.
Michael Pearson
We have received several key questions from many of you. So, with that we would address a number of them during our presentation.
First, our approach to pricing. We have already committed to reducing pricing on our brand in dermatology and ophthalmology products, within the Walgreens portfolio an average 10%.
This price reduction is on lack, and will impact and will be taken across all channels, not just Walgreens. Other price increases will be modest and in line with market and payer contracts.
In terms of divestitures, as a public company, we continue to review our assets in order to maximize shareholder value. We have no current plans to divest any major platform.
However, we will continue to look at our non-strategic assets and make appropriate decisions. The ad hoc committee.
The ad hoc committee has provided the following statement. I quote: "The ad hoc committee has completed a substantial amount of work related to Philidor and certain accounting and financial reporter matters.
The committee and its advisors are working diligently and hope to complete the committees work in the near future." As noticed, in light of the ongoing nature of these matters, we will not really provide any further comments on the ad hoc committee at this time.
Finally, we are the subject to several ongoing investigations. These include investigations by the U.S.
Attorney's Office for Massachusetts in the Southern District of New York, the SEC, and Congress. We are cooperating in these investigations and have provided and will be providing documents, information, and testimony in this various investigations; whether pursuing to subpoenas or otherwise.
We are also subject to shareholder litigation in both United States and Canada which we intent to defend vigorously. Given the ongoing nature of the investigations and litigation, we do not intent to comment further at this time.
So, in summary, our business is not operating in all centers, but we and I are committed to gain it back on track. We have a set of terrific products and brands and a loyal set of physicians, patients, and customers, to both revenue enhancement cost reduction, we are confident that we can and again will be able to begin to deliver the cash flows or shareholders and debt holders are accustomed to.
With this, I will open the line to questions.
Operator
[Operator Instructions] Your first question comes from the line of Louise Chen from Guggenheim. Go ahead, your line is open.
Louise Chen
Hi, thanks for taking my questions. I had a few here.
Michael Pearson
Yes.
Louise Chen
So, first question I had was on your weak GI sales in the fourth quarter, related to Walgreens. Wonder if you can give more color there.
Michael Pearson
Yes.
Louise Chen
And focus with on Dendreon as you mentioned the firm Walgreens, there was only 15 days left in the quarter, and there was already 70 stocking from the Salix deal. And then second thing, I was wondering if you could talk about the changes in your managed care contracts that you mentioned in your press release.
And then last thing, maybe more color on the gross margin and how we think about growth in that for the Walgreens stocks. Thanks.
Michael Pearson
Sure. Let me talk about the weak GI sales and Whitaker talked about the changes in managed care.
And I'll come back and address the Walgreens economics. So, at the end of the fourth quarter, a number of orders were cancelled of Salix products.
This was sort of at least we were told based on reducing inventories and some distributors and some retailers. There was negative reaction initially to the Walgreens program and some aspects of it.
The managed care team has done a terrific job, working with the payers to modify the Walgreens program to make it sort of acceptable. And so we feel good about that.
You can notice the script trends in the GI franchise was continued to be very strong. So, we think that will even that over time.
And managed care?
Ari Kellen
And so, as Mike mentioned with regard to our contracting since last call. We've been involved in submitting our bids for the Part D program for 2017.
We've been going through the process of renewing contracts for 2017 and some of those we had did extensions for 2016, even last fall. And payer on a routine basis each quarter bid categories that they do reviews us, therapeutic areas they do review them.
And so, we've been responding to some of those reviews. Dermatology is one of those reviews that many of the payers are undertaking, because as they look back and their clients look back at last year, dermatology was one of the biggest trend drivers for them.
So, they've picked that category to focus on this year. And then we also have been engaging in discussions as part of the process of our contracting and in these ad hoc reviews on prices left in -- price inflation protection.
We had price protection agreements in place with payers. We've been negotiating through that process on specific rates in those range, depending on the volume and the particular product.
So, I'll just echo what Mike said. I feel very good about the progress that we are making at the company, with really rebuilding our relationships with the payers and working through this negotiations process.
And I think we're building a strong team here at Valeant, with some of the new folks that we have brought in. And we've brought a number of them.
And just over the past few months, to really beef up that capability, and I confidently have good prospects relaying a firm foundation for the launch products that Mike mentioned as well.
Michael Pearson
Let me address, or the way the Walgreens economics work and thus the gross margins growth and that [indiscernible]. In the way the contracts negotiated, it's an activity based fee that we pay Walgreens.
What I mean by activity based is that they get paid different amounts based on different scripts. If its cash paid script, it's one fee, if they adjudicate insurance, we pay a little bit more.
If they do a prior up, we do a little bit more of a, they do workaround refills, we pay a little bit more. So, it's an activity based fee.
The early experience with Walgreens, compared to Philidor, is that there is more cash pay than what we saw with Philidor. But that's largely a function of the early experience with Walgreens, compared to Philidor, is that there is more cash pay than what we saw with Philidor.
But that's largely a function of prior loss and that's not a capability that Walgreens currently has. So, what we'll be doing is using a third party.
We agreed with them last week, we use a third party until they either build that capability or continue to use the third party. So, we expect the economics as I mentioned to improve still improve overtime.
What we have been focused primarily on is volume. The key is to get scripts and through Walgreens and to make sure the physicians have a good alternative to Philidor.
Many physicians really like the Philidor program. And again as I mentioned, well over 90% of the physicians are using Philidor, are currently using Walgreens.
But perhaps more important is the number of new doctors that given Walgreens reputation and national brand are now using Walgreens that were using Philidor. So we've been focused on gain our physicians comfortable with Walgreens and then we will continue to tweak the program with Walgreens to better serve patients and patients and doctors and also improve the economics of both companies.
Next question?
Operator
Your next question comes from the line of Annabel Samimy from Stifel. Go ahead, your line is open.
Annabel Samimy
Hi, thanks for taking my question. First, I want to go back to the adjustments that you made for GI with regard to the Walgreens program.
Originally it's supposed to be only Derm, and Ophthalmology. So, can you just explain a little bit more what the issues were that they were upset with and what specific changes you made for GI within Walgreens because originally it was not going to included.
Also there were lot of inventories changes within GI in the first quarter. And I guess in the past, it was thought that the Salix inventories were going to be.
The destocking for Salix is going to be finished at the end of 2015. So, is this destocking now related to this canceled orders and that continues into the first quarter and do you see more normal growth after that second quarter forward.
And then finally on the divestitures, can you just detail what businesses that you generally believe are none core to Valeant and how much that might be able to contribute to debt pay down on going forward? Thank you.
Michael Pearson
Yes. So, first of all to clarify that, is that GI is not part of the Walgreens program.
But I think that maybe we weren't clear on that and therefore they did have -- the natural Walgreens did have an impact on GI. This is I think just like you probably assume GI was going to be part of it.
So, did other players. We probably we should take responsibility, I'll take responsibility.
We probably did not communicate the Walgreens program as well as we could have to payers and channel partners. We've done that.
They had some suggestion in terms of how we could modify it, that they get more comfortable and not going to go onto the specifics of those. We have accepted their suggestions; Walgreens and us.
So, we've been working well together. So, the comfort level is much higher now.
So, but GI is not part of Walgreens program. In December, I think we tried to be clear and if we weren't clear I apologize but in terms of destocking we talked about destocking taking place both in the fourth quarter and first quarter.
For example, we didn't turn on the Walgreens program till January 15th, and at that point all the inventory in Walgreens that they were carrying, converted to consignment. So, by definition there was a destocking element.
We do expect that both Dermatology and Ophthalmology franchises will return to growth in the second quarter, once the destocking will occur. We were unable to measure precisely how much would happen in fourth quarter and how much would happen in first quarter.
So, we gave our best estimate in December. It turns out little bit more happened in the fourth quarter.
We've given you our first quarter estimates, but going forward at second quarter, we expect that destocking to occur. In terms of divestitures of noncore, we do not want to give specifics.
We are in discussions with other parties, we have confidentiality around that. But it will in terms of divestitures of noncore, we do not want to give specifics.
We are in discussions with other parties, we have confidentiality around that. But it will be things like Synergetics, where when we bought Synergetics the part that we are interested in was strategic was the Ophthalmology versus the franchise.
What we sold was a contract manufacturing and surgical neurology which is not an area that we compete in, we had no salesforce. And rather than build the salesforce and get into entirely new area, we ended up selling it to a company that was in that area.
And that if you look at the net price we ended up paying for the Ophthalmology assets, it was less than $15 million. So, that is an example of sort of a non-strategic assets that we were able to monetize.
Again, we will only do this if we believe that the cash flows that we would expect from our franchise are less than what someone's willing to pay for the assets. Next question please?
Operator
Your next question comes from the line of Marc Goodman from UBS. Go ahead, your line is open.
Mr. Goodman please proceed on.
Marc Goodman
Yes, hello.
Michael Pearson
Hey, Marc.
Marc Goodman
Yes. Hey, Mike.
Couple of things. 1) I didn't see you talk about the emerging markets at all.
Can you talk a little bit about what's happening there and obviously those markets have weakened a little bit, you didn't really talk about them. 2) What happened with Solta and Obagi, relative to how you are thinking about this two or three months ago?
Did these businesses just slow down just dramatically or is there something going on there. 3) Can you give us an update on the contact lens capacity I know this is important to, as you may have about capacity then you can be able to sell your lenses just in the U.S.
or is the new lens still just going, is it still going in the U.S. or you're able to sell it in Europe.
Just trying to get a sense of what capacity is ramping up. 4) And then the last on tax, can you just explain to us like why the change in tax now?
Thank you.
Michael Pearson
Sure. So, emerging markets.
So, two things are happening in emerging market. 1) FX continues to work against us, which in the sense doesn't necessarily have an impact on market demand but does have an impact in terms of gross margins because as you guys know mostly API is sourced either from the U.S.
or Europe. And so, there is a Europe denominated or dollar denominated and as the dollar continues to strengthen relative to the emerging markets, it puts pressure on the profitability.
In terms of it's sort of by market rush, continues to be a challenge. Some of the eastern European markets continued to be influenced by Europe and they continue to be challenged.
There are some bright stocks bright spots our Middle East in particular our Amoun acquisition continues to grow very robustly. Mexico continues to be a strong market for us and Asia continues to do very well, in particular China which is a real strength for us.
So, I think emerging markets will always be a mix I think one of the advantages of being in many of the emerging markets is there is always some that are at performing and some that are not at performing. So, we do continue to expect to have sort of a high single digit growth in the emerging markets.
But in terms of actual dollar is FX continues to strengthen both on the revenue side, the dollars will be depressed and then in terms of profitability because of the API issue, it will continue to hurt us if the dollar stays where it is or continues to strengthen versus where we were in December. Maybe, I've already talked a little bit about Solta and Obagi which you just took over recently.
Maybe you can also talk about the ultra-capacity and then Rob maybe going to address the tax issue.
Robert Rosiello
Yes, Marc. On the contact lens capacity, we've said before that we'll have three to four lines of ultra up and running this year.
We are out of capacity through Q1 and Q2 but we have capacity coming on line in Q3 and Q4. So, we actually are going to be expanding ourselves into Europe and other parts of Asia.
And we are fortunate to have additional capacity on the spherical. We've also launched the multi focal and that's gaining a lot of traction in the U.S.
So, there will be a good amount of ultra that will be able to expand outside the U.S. in Q3 and Q4 while still doubling sales of ultra in the U.S.
this year. On Biotrue, we are having some several lines.
There we are still tight for capacity, the demand is being very strong in the North America and elsewhere in the world. So, there it's really catch up that we're investing heavily in capacity.
On turning to Solta and Obagi, Obagi is a nicely profitable business. We were at the American Academy of Dermatology, last week spent several days there talking to many key opinion leaders across Medical Dermatology and Aesthetics.
And we actually have a lot of public suggestions and encouragement across both these businesses. So, Obagi is profitable.
I think what we need to do a better job on spending our focus across the national accounts both during leadership and basic sales execution. We have a terrific team across marketing and sales, I think we probably have not put in our focus against this business.
This is a great set of products, so the great brand and we I think we could do a better job and we are accountable for that and we'll do the job we need to. Likewise in Solta, we had our machines on display at the AAD.
We actually had a good number of sales there. Again, we have a terrific team with Vlad who is well known in the business.
But there we have work to do, we have to restore this business to profitability. The good news is we have a new to launch system coming online, also recently launched a Pelo hair removal system, which again we expect to do well in North America.
We also had representatives from the Latin American region and we are going to selling these system across the world. There again, it's just restoring profitability, getting focused in the field, improving sales execution, again we believe we have a good set of products and it's our job to make sure that we support the appropriate demand in the field.
Michael Pearson
Hey Marc, on the tax issue, we've had ongoing dialogue with the SEC. It has been quite productive from our perspective.
We think this is an appropriate presentation. I'd point out that it has no impact on the cash flow or actual taxes paid.
Next question, please.
Operator
Your next question comes from the line of Andrew Finkelstein from Susquehanna. Go ahead, your line is now open.
Andrew Finkelstein
Hi, good morning and thanks for taking the question. Could you talk a bit more about the cash flow guidance for the year and some of the level of clarity around the individual moving parts given both the operational factors with destocking and uncertainties on pricing as well as the additional adjustments, you talked about restructuring and the other things that don't affect the non-GAAP P&L.
What's the level of confidence in achieving that level of cash generation in 2016? And then as you approach these payer negotiations particularly for 2017, can you talk a little bit more about the process in particular to what extent are you able to leverage your portfolio of products and trying to maintain access for some of the categories that have been more of a focus for payers to show savings to their clients?
Thanks, very much.
Robert Rosiello
Sure. I will take a shot at these, well, as when to and to expand if I miss anything.
In terms of capital guidance, we try to be conservative. You can do the math, you can take our guidance and do the arithmetic and see how much cash flow at that guidance level when we've tried to tell.
I think we feel quite comfortable at the 1.7 that we now have good line of sight on price for our entire portfolio for the year. And managed care, we have good sight line of sight.
Most of these negotiations, either been completed in terms of managed care or close to completion. So, we're not embarking sort of on the negotiations, we're sort of finalizing them and we're in final rounds and they've been very constructive.
We've done a lot of listening to the payers. And we have tried to be very accommodating and her team has just done a terrific job, sort of changing the momentum from a managed case standpoint.
And as we talked about the whole company is involved and is in on this. So, it's moved from sort of sign that was lower down in the organization to the with Anne's joining the company to sort of a top level priority for the company.
So, that's where the highest level I know. Linda, any other comments on the cash flow and then --.
Andrew Finkelstein
And just to be clear if I can interrupt, when you are talking about the visibility you are talking about visibility for 2017?
Robert Rosiello
Correct, '16 and '17.
Linda LaGorga
So, I'd make a couple of quick comments. You asked about cash restructuring.
This is our estimate at this time. We had previously estimated 200 million, we've reduced it to 175, based on getting to the end of the year and having more information now that it's March.
As you might remember from our prior call or more than a prior call, the Salix severance is a big piece of that. There is a lot of Salix charges that were paid out for over a year and so that is still flowing through just based on how the severance was structured.
On contingent consideration, milestones and payments, again that number does include the Sprout payment which is done. And the other big payment there is the $150 million milestone payment for the debt that's listed on the page.
And we have to say is depending there is something that are scheduled for fourth quarter and if they don't happen in fourth quarter, they could happen in first quarter but that's our best estimate.
Anne Whitaker
Joe, this is Anne. I'll add a few comments just on manage care to add what Mike has said.
So, Mike, I do want to emphasize I think that the payer negotiations are going very well. The process is you usually get your Part D bids in the first quarter of the year and then you have the negotiation process until the plans have to submit into C, I mean, as you're usually notified and the third quarter the decision.
So, we feel good about our submissions. We have been going back and forth with the payers.
The commercial contracts are on different schedule based on the terms of our contact and I mentioned the ad hoc or therapeutic reviews. With regard to your question around portfolio and how our portfolio helps us.
Well 1) Valeant has a sizable portfolio now in the U.S. with over 8 billion in sales.
So, we are important to payers as they are important to us. We evaluate with each pair how we build our contract with them based on their needs and how they go about it.
So, where it makes sense, we're leveraging our portfolios like in Ophthalmology or Dermatology and GI and various formats. So, I think that kind of covers your questions on the payers?
Andrew Finkelstein
Yes. Thank you.
Michael Pearson
Next question, please.
Operator
Your next question comes from the line of Tim Chiang from BTIG. Go ahead, your line is open.
Tim Chiang
Hey Mike, could you talk a little bit more about the noncore assets that you would consider selling. Certainly you've got a lot of that your books.
You are trying revamp the business and I realize you just got back foot. It just seems like given how the stock is reacting in the pre-market and all the investors' concerns, I mean would not that be payment be one of your largest priorities right now?
Michael Pearson
It is, fully agree. We are very committed as when to say, in '16, I mean, seven -- to reduce our debt.
And that way we've not changed that commitment and we will do that through generating cash flow. We hope to generate more cash this year than what we're projecting at this point.
But projections are projections. And but we'll be looking at revenue enhancement, we'll be looking at further cost reduction, because what we've done is taken revenue down significantly, we have not attacked the cost space in any major way and that's one and that we will do.
And we will continue to look at opportunities to raise cash. And those divestitures, as I mentioned I'm not going to get into specifics, but you should expect that there will be a series of noncore divestitures over the course of the year and those divestitures, as I mentioned I'm not going to get into specifics, but you should expect that there will be a series of noncore divestitures over the course of the year, which will use that cash to pay that debt and to accelerate the debt pay down.
Tim Chiang
And Mike, is the fact that your tax rate is going up for your change in reporting stress on your tax rate. Is that tied to the fact that you're deleveraging the balance sheet at all?
Michael Pearson
No. Every year there is a comment letter from the SEC.
It's not the investigations. It's a comment letter that all companies get and we sit down the SEC.
It's a change as Rob said that they suggested and we thought their suggestion made a lot of sense. But I think the key from an equity investor standpoint and also from a debt standpoint is that it has zero impact on our cash flows.
So, the reported tax rate will change because the NOL it will sort of be pre-NOL, in terms of what's reported, but in terms of the actual taxes paid. Our previous guidance so stands, we expect it to sort of stay in the 5% range.
So, it's purely a presentation difference. It has zero impact at all in terms of generation of cash flows.
Tim Chiang
Use the mike? Okay.
Michael Pearson
Why don’t you get back in queue just because we have a lot of names on the board here?
Tim Chiang
Okay, will do.
Operator
And your next question comes from the line of Chris Schott from JPMorgan. Go ahead, your line is open.
Chris Schott
Great. Thanks, very much.
Just two questions here. First, I know you went through a lot of details, the reasons for the updated guidance but maybe just broadly how did so much change so quickly with the business?
I think when investors turning their hands around is how much this guidance is conservative and just different approach to guidance given the management disruptions and controversies as compared to deterioration of fundamentals over the last three months. So, any color there will be really helpful.
The second question is coming back to the divestitures. I know you are not planning to divest core assets.
But as you just think about the evolution of Valeant, once you kind of address some of these near term challenges, if the stock doesn’t recover, I mean what would cause the company to go down a path and consider a broader breakup of the Valeant business units? Thanks, very much.
Michael Pearson
Sure. So, in terms of if you look at what's happening, the one of the big differences in the reduction in guidance is Q1, in a sense, the last quarter.
So, Q1 is and that's which is why we try to show sort of Q2 through Q1 of next year where we remain very conservative to the substance on Q1 and next year always is. So, Q1 of this year what we expect then add it to it's on a going forward basis.
I don't think there has been a big deterioration at all in the business that you guys see the script trends. Things like FX, you just live with.
So, that's a piece of it. I think we have the managed care environment was something that we certainly needed to address.
And so, that is certainly has led us to take a more conservative outlook on revenues than we had before. So, hopefully those are numbers that we need to be beat.
There was a pretty high deductible plan and fact in the first quarter as of now to 26% of our lives. So, each year, that increases.
So, first quarter will always be tough. So, I think it's a first quarter phenomena, we feel good about the rest of the year, the fundamentals are good.
And probably we have taken a little bit more conservative approach on the forecasting. In terms of if the stock price is not recovered, I think that will be a function of not delivering the cash flows that we're promising and or exceeding the cash flow.
And then the company should think about other moves.
Robert Rosiello
We are here to see our shareholders. And I know our board is committed to that, and our management is committed to it, but we do think we have a plan that will generate strong cash flows, allow to reduce debt.
And we can demonstrate real growth, organic growth in our businesses. And I think we believe we were successful doing that.
And we can demonstrate real growth, organic growth in our businesses. And I think we believe we were successful doing that.
The stock price will start trading more on fundamentals, which is not right now. Thanks for the questions, Chris.
We'll move on.
Chris Schott
Thank you.
Operator
Your next question comes from the line of Corey Davis from Canaccord Genuity. Go ahead, your line is open.
Corey Davis
Thanks, very much. Just probably two questions.
1) Would you be willing to give us FX in normalized run rate next inventory on annualized basis, to 10 in Q4 but I suspect that once inventories are normalized starting in Q2 of this year, it's going to be much higher than that?
Michael Pearson
And the second question?
Corey Davis
Second question is how do you think your retention program is going now and will be going over the next six months to ensure that you keep pertained and then how are all your key employees, not just at the upper levels but all the way down the ranks?
Michael Pearson
So, let me talk about retention and then I have already talked little bit about the FX. So far, the retention program is working.
We've had very few losses. We obviously lost debt torn and that we are disappointed.
It's just been on the EMT at a very senior level we don't have retention program. We did not put that in place for -- we had nothing in place firmly for the EMT.
Well, she was a member. What we have is below the EMT, we have about 70 people there in what we call AIT, which they're sort of their next level of sort of key and we've had minimal venue losses there.
We just make bonuses, put a year on Friday. So, this is we'll see what happens in the next few weeks.
But there is sort of come on, we have a meeting with the AIT group every week where we have an open discussion and with the leaders of the company. And this is a very positive attitude in the group that we're committed.
I think they know how strong our brands are, how strong our products are. They spend a lot of time with our customers.
With be it physicians, be it retailers, and many of them have been -- a lot of other countries and have got not to reseller types of experiences. So, I think there is a speedy core.
So, we are hopeful. The board was very supportive of what we believe to be pretty generous retention program for this level.
So, so far so good. But as you point out this is tough, it's a ring out, this is a tough company to work for us.
So, I really thank our employees and for their commitment and dedication. Or else is there taxes?
Corey Davis
Yes. Tax and simply said back in December we expect it'll be greater than a $1 billion drug.
So, we obviously expect that to be the case. We have over 400 reps in the field, promoting our facts and we continue to believe that we will see growth across the IBS-D increasingly AG.
Where, as we've said before, the medical communications for compartments and users, Xifaxan and with Lactulose, is in the guidelines. And we are putting in another 100 reps into the field.
They've just gone through training. So, putting a lot of energy behind the drug scripts are as you, as Mike said you see them, they're running north of 12,000 a week.
And in total this year we expect to see in and around 50% growth of total FX.
Michael Pearson
Thank you, Cory. Next question?
Corey Davis
Thank you.
Operator
Your next question comes from the line of Shibani Malhotra from Nomura Securities. Go ahead, your line is now open.
Shibani Malhotra
Hi, thanks for the questions. I have got a couple.
The first is, Mike, can you just clarify you were saying that the reason the Salix inventory or Salix revenues are been brought down is because managed care didn't read the Walgreens press release correctly. Is that correct?
That's a bit difficult for us to kind of fathom that it would have such a big impact on your sales. And then second, over the last six months we've been talking to you and I guess investors have as well about the fact that management needs to rebuild credibility with investors.
And we've been through a state of negative news, it started with pricing, then Philidor, then just general communication. And now the guidance which I would say below what far more than any investor kind of anticipate it.
And now the guidance which I would say is lowered far more than any investor kind of anticipated. I guess the question is how can be confident in what you are saying today about the business given that you were positive in December and January and how do we get comfortable that Valeant is able to execute and deliver for shareholders?
Thanks.
Michael Pearson
Yes. Maybe, I misspoke.
In terms of the first one, it's not managed care per say, because managed care was I think were really a product -- distributors and retailers which lead to revenue recognition. So, and again I think Walgreens did not do a very good job explaining.
And then there are aspects of Walgreens programs that people didn’t like. So, I think we got a better job explaining, and we modified the program to accommodate and import new channel partners.
And so, I don't think it would be and then there was sort of lack of clarity while whether GI was part of the program or not. So, on that on, I guess I wouldn't necessarily agree that it was completely unexpected negative response to the GI.
But I would point to the script in the end demand is based on scripts written and filled and I would sort of point to continue strong strict growth across the Salix portfolio. Has sort of been a leading indicator of how that's doing and we are quite pleased with the growth that we continue to see.
And as already said, we are putting more resources behind it because we think there is a lot of unpatch growth in Xifaxan in particular. In the 80s indication.
In terms of management credibility, we have to earn it. And you raised some terrific points, I would argue January, I don't think we said a whole lot in January, I think it was in a hospital but I do accept your point and it starts with me.
So, our team has been working hard and we are deliver on our commitments. So, the world has changed to some degree since December but we have to do a better job.
We've had some underperforming businesses; that's on us. Right that's totally on us.
So we have to earn back the credibility we have to deliver on the results, we have to meet or exceed this guidance and I think we are all recognize that. And so it's a bit of a starting over point at this point for me and the company.
And clearly if we don't deliver, then again that's on me. And but I can assure you, I am completely committed to making sure that we do deliver and I do think we knew we have a lot more line of sight in terms of managed care at this point.
We have a lot more line of sight in terms of pricing at this point and I think we have better line of sight in terms of script trends. So, I think that all three of those helped.
There are certain things we don't control like CapEx but we have built our guidance, so we hope that's manageable as well. But thanks for the question, Shibani, and we'll go to the next one.
Shibani Malhotra
Okay.
Operator
Your next question comes from the line of Umer Raffat from Evercore ISI. Go ahead.
Umer Raffat
Thanks for taking my question. I have a few today if I may.
I just really want to focus in on some of the changes and fundamentals of that team. Would be coming out on the first quarter.
So, first you from Mike if I may, Mike how different is the guidance number today versus what you came out, versus when you first came back couple of weeks ago. And then on the Phantom, what I'm trying to understand is if orders were canceled towards the end of first quarter but the TRX continue to grow that would imply to me that there is more inventory in the channel and expectation.
Am I on the right track there? And then on Ophthalmology Rx, I don't see any disruption in IMX.
So, I'm trying to understand what is it that you are seeing disruption wise and the first quarter based business trends you'll like. How does the January + February compared to what you are seeing in March?
And then Rob, I am sorry if I may couple of things number one, free cash on EBITDA to free cash flow bridge. You previously mentioned working capital change of 600 million, is now 200 million.
So, what's driving that, is it just Walgreens, secondly, Rob, tax rates. So, Howard previously said, if you guys.
So, what's driving that, is it just Walgreens? Secondly, Rob, tax rates.
Howard previously said, if you guys do delever, cash tax is going to the low team, versus about mid single digits that it used to be. So, my question is if you guys do delever with the non-GAAP tax rate approached 20%.
And then finally on EBITDA for next full quarter so said that adjusted EBITDA for 27 for the next four quarters. So, the press release says that the adjusted EBITDA for the next four quarters will be 6.2 billion to 6.6 billion, but the slide 16 I believe says 6 billion.
So, I just want to understand that. Thank you.
Michael Pearson
That's a lot of questions, Umer. Let's try to pick them off.
I will start. So, guidance assign we have and having a lot of debate with the management and with the board, in terms of where we take guidance.
And quite frankly we've had continue to have discussions, we have made a lot of progress with managed care over the last couple of weeks. And so again we have some of the numbers on the negatives have increased but there a certainty around them.
And then the first quarter we have got in a lot more clarification on first quarter as the quarter has progressed. So, we feel comfortable with the guidance that we gave out this morning.
In terms of inventory, as you said if scripts continues to grow, but people aren't ordering as much products. Is one of two things, one is there is more inventory out there than we thought and second is we were holding lower levels of inventory.
Those are the two possible explanations and actually we think it's a little bit the ladder in terms of both distributors and retailers. And they are also focused on cash management.
And we do think inventories throughout the channel continue to go down, but by definition as scripts continue to grow. At some point, we do believe as we get into the second quarter everything will be normalized.
Ophthalmology, again I don't think we said there is a major change, is not a major change. What we have is a set of older products that alone are we're having -- we experience a slow decline.
This is not actually our branded share is increasing. This is largely due to more and more generics is what's growing.
And sort of the pool of branded Ophthalmology products in the areas we compete, is going down. Now, we have not included in our guidance, any new launches.
So, we get if we get approval on our Glaucoma drug, then we would expect that, that will help pull through Ophthalmology. Similarly, in Dermatology, we got approval on some of our pipeline products that will manage there.
So, we're forecasting now in our guidance, is parts that are currently on the market and we don't have launch products in there. In terms of progression, January, February, March.
March is always the much larger month than January February and it's even more in the first quarter because of these high deductible plants. It's even more acute in terms of what we see in March.
But so clearly March is a much better month than January and February. Rob, there are a number of --.
Robert Rosiello
So, let me only take yours as the intern, firstly with respect to the working capital on slide 20. The reduction reflects the lower growth in the updated guidance and it's simply 30% of the change in revenue.
In terms of the tax rate, I agree that overtime it would increase if we were to delever that 10% to 15% that we are showing is to try to do it on a comparable basis to the 5% that we were showing. And then we've always said that over the longer term our tax rate would increase and likewise and commence rate to 10 to 15 would increase.
And with respect to the four quarter guidance, which Mike presented on page 16, the chart is correct. These up to EBITDA, non-GAAP guidance is 6 billion and we will correct them.
Umer Raffat
Wait, Rob, to be clear. The next four quarters, EBITDA is 6 million?
Robert Rosiello
Correct.
Umer Raffat
Or 6.2 to 6.6?
Robert Rosiello
6 billion.
Umer Raffat
Robert Rosiello
Next question, please.
Operator
Your next question comes from the line of David Risinger from Morgan Stanley. Go ahead, your line is open.
David Risinger
Thanks, very much. I have 13 questions also.
But I'll keep it a little bit briefer. So, first, with respect to the divestitures, should we expect them to be dilutive to EPS given the fact that you will be paying off low interest rates debt.
Second, with respect to the rebates discounts and channel fees including Walgreens, could you just explain to us I am assuming most of those are netted out of revenue and reflected in net revenue but any of those channel payment etcetera reflected in COGS or SG&A? And then finally, with respect to the launches, Mike, you mentioned that you are excluding launches from revenue guidance are you also excluding launch expenses from your guidance as well?
Thank you.
Michael Pearson
Yes. Thank you, David, for prioritizing your questions and I hope your colleagues take from your lead.
So, thank you very much. Depending on the divestitures, some could be diluted, some could actually may not be it kind of depends on the assets.
If it's an early stage asset, if it's obviously it's not. So, as you know it really depends on the asset the price we get.
If we do anything major it could be they could lower our EPS, there is no question about that. But we'll be clear just like that we are if when in the past when we made acquisitions whether it will be or won't be dilutive.
In terms of the launch expenses are also not included in the budget. So, but I will note that launches in the area of dermatology and ophthalmology, we don't anticipate major changes to our infrastructure.
I think we will prioritize our call patterns differently, but the launch, we do have good strong critical math's in Dermatology and Ophthalmology and GI, in terms of our sales force capabilities, etcetera. So, I don't anticipate we'll be adding lots of people for as part of these launches.
In terms of Walgreens, in terms of revenue deductions versus cost, I think we're taking the Walgreens cost through our SG&A, in terms -- that's how we are treating the Walgreens, sort of they are doing -- we're basically taking them at dispensing fee based on activity and that will run through. So, not be in that reduction and revenue.
It will be in it, it will flow through SG&A. Thank you for your questions, David.
Next?
David Risinger
Thank you.
Operator
Your next question comes from David Amsellem from Piper Jaffary. Go ahead, your line is open.
David Amsellem
Thanks. I just have two.
So, first on the tax reporting, the new tax reporting. And I know you made it clear that there is no impact on cash flow or actual taxes paid but I guess what I am trying to understand here is under the old reporting you had characterized your EPS guidance ranges and you reported EPS as cash EPS.
So, under the old reporting for cash EPS, does that cash EPS not really "cash EPS?" Something, and I'm just trying to understand if there is an inconsistency here.
And then secondly, this is a high level question, can you I think one of my peers had talked asked about retention, earlier. Maybe, you can.
Can you speak to morale in the company and you had talked about distractions. Can you speak to that and how that potentially had impact the business and is there an issue internally in your view in terms of confidence in our ability.
Can you speak to that and how that potentially had impact the business and is there an issue internally in your view in terms of confidence in your ability to lead the company going forward given what's transpired. Thank you.
Michael Pearson
All right. So, I'm going to ask let's take your second question first and then Rob we can talk about the tax.
I am going to ask Ari and Anne that have already commented a little bit on morale. I'd like to get their takes and the large portions of the company report to both of them in terms of the people side.
So, I'll address the personal questions but Ari and Anne why don't you -- or you can go first, talk about what you think about morale.
David Amsellem
Okay. We call the tech?
Michael Pearson
No.
Robert Rosiello
Okay. Thanks to Mike because you said these are challenging times, as we truly have an amazing bench of general managers and leaders of functions in the businesses and you've heard the names repeated again and again.
I think we have strong and tentative leadership and people who are committed to GI to Derm, to Ophthalmology, Solta Obagi, Latin America, the B&L businesses. I'm thinking across the teams, and these incredibly talented people.
We come to work every day. Obviously we have to return money to shareholders or we come to work worrying about patients putting quality products into the market and selling our doctor customers compliantly into the best of our ability.
And I think that's what motivates our team. I think we believe in our mission.
We believe in what our company is trying to achieve and that's what we do day-to-day. The issues surrounding us are distracting and it takes courage to forge ahead to execute our mission day-to-day in the face of all that.
So, all I can say is we have fabulous people we are blessed to have them, we believe in them and we think they'll do the right thing for the business.
Anne Whitaker
So, I'll just add a few comments to what Ari has said. I think he described it in a well.
When you talk about morale, I think people have sort of worked through the process internally through a typical change process and people now are actually they are angry, I think more about at the outside because they see the company being described in a way that they know is not what they experienced at Valeant. And so, encouraged that I've really seen people trying to move to action.
They want to help they want to help change the image of the company, and we have really strong leaders who I think are channeling that energy into the best thing that everyone can do in this organization, to really change and shift the organization it performed every day. And that's what we're emphasizing each and every day.
So, it's really it was [indiscernible] performance. It's going to get us out as the situation that we're in.
I think the pinot that Valeant has really built the organization around a decentralized approach helps us here. Against we have some new businesses, you have an identity where there is select set of customers who are really building their image even in their ongoing as a Valeant company.
One of those being Dendreon that I think is doing very well. And then just a couple of other points, I think we have one of the best incentive comp programs in the industry force, our sales representatives.
And so, that keep them motivated on clear goals that they can achieve and we are working to shape the environment such that they can do that. And then, I'll just end with I think Ari's point around people really believing in the products that they are selling.
When I talked to our sales reps, when I talked to our marketers, in our R&D folks, they are very committed to these products that we brought to market and are bringing to market, make a real difference in patient slide. And so and keeping that commitment, that conviction and that determination, to really change our image and perform our way out of this.
And will keep our organization in the morale, going in the right directions.
Michael Pearson
And that's a good point. I can just add this, there's important functions that enable [indiscernible] people to do their work in that specifically and that's a good point.
If I can just add this, there's important function that enable our front-end people to do their work and that's specifically manufacturing and R&D. And I think, Pageant, his team and R&D are cranking our products that are going to fill our pipeline.
It's okay to bring down a map, hard to be 118s. China [indiscernible] can do not these things, of being worked on by these terrific team or remaining focused on the future.
I think Dennis, Angela, when their team and manufacturing as we travel around to the operations you couldn't hope to a team of people more focused on just driving quality and efficiency day-to-day.
Robert Rosiello
And David, you were being placed. I guess the question is might be appropriate person to lead this company, that's clearly up to the board.
I do think we have a great board, we made a number of new editions to our board. They will provide even more dependence.
And we basically have representation from two activist investors, Pershing Square and ValueAct. And so, I think we have two major investors also on our board and our board interacts with investors and so I can't comment on I am not going to choose to comment in terms of that's up to the board.
And but I do think our board is a lot closer to the investors than the many boards both given the composition, the new independent directors as well as sort of representation from a couple of activists. Tax?
Michael Pearson
Yes historically our tax presentation table 2A and 2B showed a single number and it was the combined tax effect of the non-GAAP adjustment as well as the use of tax attributes, another timing issue, such as NOL. What we've done in Q4 on audited preliminary presentation is to break that out into two pieces; the tax provision plus the effects of the non-GAAP adjustment as well as the tax effects of use of tax attribution of the timing items.
We're reporting the combined amount of that as 5%. Going forward or just going to report the tax provision plus the effect of the non-GAAP adjustments only, on table 2A and 2B.
We will continue to note in a separate table the tax effect of tax attribute and another timing effect. So, there is as we mentioned there is no impact on cash flow or actual taxes paid.
Our approach has been to match the actual past tax that Valeant paid each year, but again it's been made up of those two terms which we historically combined. Next question, please.
Operator
Your next question comes from the line of Ram Selvaraju from H.C. Wainwright.
Go ahead, your line is open.
Ram Selvaraju
Thanks, very much, for taking my question. I just have two.
One, is in general sense whether you can comment on your philosophy of curtailing price increases versus what your peers in the specialty pharmaceutical arena are doing and how high your conviction is that going forward this is the best approach to take given changes in the managed care environment, i.e. get rid of as many price increases as possible versus pursuing the judicial approach to maybe increasing prices on some products and not.
And then the second question is specific to what you previously commented on back in December regarding converting written prescriptions to filled prescription on Addyi. Could you give us an update on that, please?
Michael Pearson
Sure. So, I think we're trying to be very clear on our approach to pricing and which is that going forward and this has been in place since September.
We will take single digit price increases across some of our portfolio in line with managed care contracts. What we made was a commitment as far as Walgreens steel this year reduced prices of Dermatology and quack prices on Dermatology and Ophthalmology, the branded products 10% this year.
And we are no longer sort of in the market for sort of underpriced assets out there. If you actually quack price increases are public knowledge and if you actually look at us versus competitors both in the specialty and then in the big pharma space, and like what whack prices increases have been this year, you will see that we are actually below what most of and all the other companies that have done.
So, I think we talked about that and I guess the question is how committed are we? We are very committed.
And in fact that's been one of the keys in managed care is that commitment and they are applauding and appreciating the approach we're taking and they are using that when we talk to other companies. So, I think one of the very smart thing that Anne and her team have done is offer sign that the rest of the industry has not offered yet and that has played a big role in terms of improving overall relationships.
Is that correct?
Ari Kellen
Yes. I think that's very accurate what the payers need and they are very clear and just I understand this after being in the industry for 25 years with other Pharma company.
They want predictability. And so we are working with each of the payers, whether they are a health plan or a PBM and on contracts around price inflation protection.
And as Mike said, aligning our price increases with more modest industry standards. So I think you have the Addyi question?
Ram Selvaraju
Yes. When you address the Addyi.
Ari Kellen
Yes. So, with that you're right.
We see the number of written prescription versus field. And in at the beginning, back in the fourth quarter, we were only seeing between 25% and 30% of the prescriptions actually get paid for our field.
That number is now up to and the most recent week 57% of those prescriptions are being field and paid for. And really that sort of ramp up with the number of prescriptions as being impacted by one having a complex reps program.
This is the first time that we are according to our knowledge that there has been pharmacists and physician certification process. And so, really working through that has been a challenge.
But we've certainly addressed it with the pharmacies were down to around anywhere 10% to 12% of scripts being kicked back for pharmacies. We are still working through the physician certification and making sure that those that are writing are certified.
And part of that has to do with as if this is a new product, we weren't sure exactly who the targets and the writers of a product would be. We have much more clear information now on who the targets are, who is treating HSDD and other diseases like that and so we are taking more targeted effect.
And then lastly, the managed care process has changed dramatically just even this past year in all of the large PBMs now walk new products, in those cases from launch. And they take six to nine months to actually do the clinical review and then enter into negotiation.
And so it has taken us that time as we transition from Sprout to Valeant and our managed care team here picking it up to really work through that process. And I feel very confident by mid-year we will have improved access and for Addyi and we'll start to see and the prescriptions that are coming through being filled.
And then based on the enhancements we've made or commercial organization and filing an actual marketing material this month to OBDC that second half will be a much better I think time period to really judge the performance of this product.
Michael Pearson
That been said, we take sort of full responsibility for the reduction in the sort of, we've made a move, quick enough that's my fault and but I think the answer, when we have not given up on this product.
Anne Whitaker
Yes --.
Michael Pearson
There is some, but clearly we have to demonstrate our ability to have success and we have not done that yet. So, that's on us and we are working hard to deliver.
Anne Whitaker
Yes. Just last comment.
The testimonials we hear from physicians and patients each day inspire us, every day to keep going with Addyi and really educating around HSDD. So, as Mike said, we haven't given up, I have a lot of confidence in this product.
Michael Pearson
All right. Next question, please.
Operator
Your next question comes from Alex Arfaei from BMO Capital Markets. Go ahead, your line is open.
Alex Arfaei
Good morning and thank you for taking the questions. Most of my questions have been asked and answered.
Looking at some of your top 30 products, specifically Jublia and SOLODYN. It looks like much of the total business isn't being made up from other channels.
Could you provide your outlook for these products specifically for Jublia which was thought to be a growth driver? And just a follow-up on Addyi.
Do you still expect it to be a $100 million to $115 million drug in 2016? Thank you.
Michael Pearson
Well, in terms of Addyi now, we don't expect to be a 100 to 115 in 2016. That's one of the products that we have reduced the forecast significantly on.
What we are as hopeful and if we are hopeful that we will get it to that level but certainly not 2016. In terms of Jublia, it is one of the products that is -- there was a question earlier about sort of leverage, can you leverage your portfolio.
And then as Anne said or mentioned that Derm has been one of the reduced as a managed care company. So, really folks in Jublia, in particular.
So, we have -- the net of many of our negotiations is we sacrifice the price on Jublia, in order to ensure access to the rest of our portfolio. So, we would expect and we have better access for Jublia, as a result of this than we have before.
So, we would expect scripts to continue to grow on Jublia. We think it's a great product but the average price will come down.
And so, in order to return to growth, we will really need to expand the number of scripts but it has been a disproportionately hit in terms of managed care in order to protect because that's what many managed care plans we are looking for. And again as Anne said, each negotiation is specific it's not a case with every managed care plan, everyone has their own needs but that's what we're seeing in Jublia.
Next question, please.
Operator
Your next question is from David Mattern from Wells Fargo. Please go ahead.
David Mattern
Good morning. I have a few questions.
The first, Rob, why no GAAP guidance and then a bridge to non-GAAP, since then investors could make a decision on what to include and what not to include. Second, on the tax effects, I want to get it right, use of tax attributes in other timing issues.
I know a few questions have been asked about this but does this relate to deferred tax liabilities and use of recovery of income tax or anything else like that. I know I asked that when I met with you about a month ago but just wondering if that's related to that.
And then the second half guidance seems to be a dramatic increase other than the inventory draw down is there anything else that we should expect that should account for that? And then lastly, I think Mike you just mentioned that launch expenses for a couple of these launches are not included in the guidance.
Why would they not be included?
Michael Pearson
Let me. We have no launch, until our parts approve we don't include it in our guidance.
So, we only include the revenues or the launch expenses. Now because most of our products are in -- the launch products are in categories where we already have strong sales and marketing.
The net impact of launching these products, we believe will be [indiscernible] a course in terms of our EPS. So, that's just the way we treat it.
We don't put in the revenue and we don't put in the cost because they are not approved yet and that's always been the approach we've taken, to guidance and at least from our range point, that makes sense to include revenues and not a cost when makes sense to improve the cost, but that the revenues will make sense. So, we choose not to include the year.
Rob?
David Mattern
But is it very -- just as a follow up to that, Mike, is it fair to say then if they are approved since products aren't usually profitable in the first year or two that we'd see an increase in the expenses just for the launch expenses not for the infrastructure of the new sales people but just for launch expenses.
Michael Pearson
For the net, our belief at least for the product this year we would not expect it to have an impact on overall guidance for example if that's the question. So, we'll have Ophthalmology we hope to get approved.
David Mattern
Its due dates, July?
Michael Pearson
July. And so we believe we'll have enough revenues to cover any of the launch expenses.
And Broda, we do not expect to get approved till November, December and so again so that minimal impact on our guidance. So we don't expect to be taking down guidance if we get products approved effects.
So, Rob?
Robert Rosiello
Take your second question first, tax effects are largely NOLs in the use of deferred tax assets not liabilities. With respect to the GAAP guidance as we explained in the footnotes of the press release due to inherent difficulty in forecasting and quantifying certain amounts that are necessary to do it.
We find it more accurate and better for our investors to guide to the non-GAAP measures that we do.
Michael Pearson
Next question, please.
Operator
Your next question comes from [Luka Sadvero] [ph] from Neumann Capital. Please go ahead.
Ari Kellen
Next question, please.
Operator
Your next question comes from Alan Ridgeway from Scotiabank. Please go ahead.
Alan Ridgeway
Hi, good morning. Thanks for taking the question.
I just have a question about the bridge to the 2016 guidance and trying to just get a feel for your reduced revenue expectations for both the Derm and the Salix business and then the managed care contracting piece as well. Can you speak to sort of in your reduced expectations from a revenue perspective this year, what the sort of split between volume declines or decline in your expectations for demand versus your expectations on pricing and then how that may have changed in the last for the while as you contracted with managed care?
I will leave it at that. Thanks.
Michael Pearson
Great. Well, the managed care is all price.
We've quantified that as hopefully what we hope to be able to do is with its better access actually drive more volume. We have not built a lot of that into our forecast and that should be upside but in terms of managed care that is basically price.
In terms of as we think about prices that the prices captured there, obviously with there is some price in the revenue side. [Indiscernible] not managed therapies barely through the price reductions that we're giving the Ophthalmology and Dermatology as well as the fact that we are sort of price increases were more limited.
And what we can do in some cases some of the commitments in managed care was to keep price increases lower than we have historically. So, there is a price element.
We actually and then there is first quarter where demand has been lower, but we do expect if you actually look at scripts we are running ahead of last year in Dermatology and so we are quite pleased with that. We are seeing experiencing great script growth and the GI franchise.
In terms of Ophthalmology, again there we have a decrease in scripts but we are increasing share in the branded portion and those are the three main franchises. So, overall we expect demand and continue to increase over the course of the year.
Next question?
Operator
Your next question comes from Gregg Gilbert from DB. Please go ahead.
Gregg Gilbert
Thank you. First, Mike, when you talked about script growth for Derm, are you talking about scripts of IMS plus Philidor's i.e.
real prescriptions or just those that we see on IMS which might be inflated due to the Walgreens shift, away from Philidor. Secondly, when do you expect to be able to file the 10-K, continue share your game plan with us.
What is the New York control, what is in the board controller, gated by the board and are your auditors in agreement with your game plan and your timeline, that we see on IMS, which might be inflated due to the Walgreens shift away from Philidor. Secondly when do you expect to be able to file the 10(K) and can you share your game plan with us, i.e., what is in your control, what is in the board’s control or gated by the board and are your auditors integrated with your game plan and your timeline, I suspect a lot of folks are going to wonder after this call when you expect to get the K done and all the implications that come with that and lastly Mike can you comment on the situation specifically with Deb and with Tanya given that we only have media reports to rely on and clearly at a personal level what happened in those cases?
Thanks very much.
Michael Pearson
Okay so script growth.
Robert Rosiello
Derm is running year-to-date roughly 10% ahead of last year all in. We are now using [Symphony] data so just so that what's what we are going to be tracking.
So far derm is growing the access program is still relatively new as Mike described and we are expanding into networks of independence so we will continue to expect good TRx growth through the course of the year.
Michael Pearson
Yes, and in terms of 10(k) certain things are within our control and certain things aren't as management. We have the ad hoc committee continuing to do their review and so it partly depends on that.
It partly depends on us. We have to do our work in terms of submitting the 10(k) and then we are in constant conversations with PWC in terms of – it is actually their work.
The best estimate I can give but again we don't control. We hopefully get this 10(k) filed sometime in April, but I can't commit to that but that would be my best estimate based on everything that I know.
In terms of Deb and Tanya, Deb has resigned. She was a valued employee.
She led a lot of marketing initiatives. She led our derm business and did a great job.
We were disappointed that she left. As I mentioned she was part of the EMT where we had no retention in place, so because they are executive officers of the company and we wish her well and we are quite clear that it had nothing to do with the ad hoc committee or anything else.
It was decision that she made. And Tanya again that happened when I wasn't here, so I cannot comment on the time – I don't have information on that.
So I can't comment on that.
Gregg Gilbert
Thanks.
Operator
Your next question comes from the line of David Steinberg with Jefferies. Please go ahead.
David Steinberg
Thank you. You mentioned destocking quite a few times in the call, particularly for some of your key brands, I was wondering if you could help us with inventory levels.
I believe in the past you said normal levels in the US were about 2 to 6 weeks and 2 to 4 months globally, can you confirm you are within that normal range and then perhaps pinpoint in the United States given the last public forum are you higher or lower than you were last time you spoke to the investment community. Secondly, Valeant benefited from the lowest tax rate in your industry, I am just curious could you remind us how long that tax rate is ironclad.
There is a tax treaty and if there is a period of time when it will be reviewed and if when that time is? And then lastly bigger picture question Mike on your corporate culture do you think elements of it need to change and do you think there is some components that incentivize sub-optimal behavior and then could you comment on – are there any changes the top level management was not part of the retention plan, has there been any changes to the compensation package?
Thank you.
Michael Pearson
So in terms of compensation package there has been no changes in terms of the senior management. In terms of the inventory levels those continue to be sort of our guidelines two to six and sort of four outside, although that varies by country, Greg, I think we have been completely flat in terms of inventory levels and in terms of the US and outside the US I think actually inventories have been down a little bit, but so no changes in inventory levels.
Since the volume has increased through Walgreens that in terms of absolute dollars that means our inventory levels have come down because when we are talking about flat we are talking in terms of weeks and since Walgreens is consignment, sort of the absolute level of distributor inventories in the US for dermatology, for example, has come down a little over a week. So it remains in the same, so hopefully that's clear.
In terms of tax rates, we do not know of any eminent and or any changes that are coming down, so again we will see that space [Indiscernible]. We are unaware of anything that would change our tax rate.
In terms of we have talked about bolstering in terms of corporate culture, it is interesting, when we met with our [AIP], I think there is a couple of areas that we are investing in. We will continue to try to upgrade our financial reporting, certainly from a PR and government relation side.
We are committed to investing and are in the process of investing in those functions and as we said in the press release, we are as all pharma companies do we are continuing to emphasize compliance. We are continuing to emphasize – from a quality standpoint continuing to build that capability quite a bit.
I think we have almost doubled our quality department corporate in the US, we made big investment in quality in terms of headcount and capability and we feel very good about that. So we will – we have grown pretty quickly and we are going to continue to invest in the core functions to make sure that we deliver high quality products to physicians and to patients, and work in the most compliant way in the US and beyond the US.
Next question please.
Operator
Your next question comes from Randy Raisman from marathon asset management. Please go ahead.
Randy Raisman
Hi guys, how are you doing? Can you just kind of provide us a little bit of a bridge on the cash balance because when we look at it we see you had roughly $600 million of cash at Q4, it looks like you drew down a $1 billion too on the revolver, so it will take you to $1.8 billion, you paid $900 million between the – for the term loan and then there was another payment that you made, so that should have left you with about $900 million of cash and you are saying you are $1.2 billion of cash so that would imply then that you generated $300 million of cash in the first quarter and that doesn't really line up with the guidance for $2.2 billion of cash flow for the year, so like how do we get comfortable that you are going to generate extra billion dollars of cash than where you currently running?
Linda LaGorga
So it's Linda. On the revolver we ended the year with $250 million drawn on the revolver, and we are now at $1.45 billion.
We obviously are generating cash in the first quarter. We did however some large payments in the first quarter that we discussed, $500 for Sprout that we talked about.
We paid early. They were not due until April 20, $260 million of maturities.
I mentioned the excess cash flow payment of about 100, which will be due at the end of March 31, and those are some of the big payments, but again without these large payments we were generating cash this quarter.
Randy Raisman
Alright, but my question is based on my math it looks like you generated maybe $300 million of cash quarter-to-date from what you have disclosed and you are telling us we should think you are going to generate $2.2 billion of cash for the year, so where is the ramp going to come, from Q1 that's a big jump.
Michael Pearson
It is, but we took down revenue in Q1 considerably because of, anyway we have talked to that explanation and starting in Q2 and Q3 and Q4 cash generation will be stronger than it has been in Q1.
Linda LaGorga
That's correct and, obviously cash generation depends on working cap, so we are not quite done with the quarter. So that's going to impact.
So I can't confirm specifically if it is exactly 300 but you should think of it as cash generation before these types of payments.
Randy Raisman
And then just on the leverage governance so if you are at 2.1x and the covenant is 2.5x, is that something you are going to look to amend as well when you go out to the bank group because it's not that big of a cushion there?
Linda LaGorga
Right now as per what we spoke about before, we are thinking about amending – we are going to amend for the cross default as well as timing. We think we have done such cases on our covenants based on our guidance and we are comfortable as we said in the call.
Randy Raisman
Great. Thank you.
Operator
Your next question comes from Irina Koffler from Mizuho. Please go ahead.
Irina Koffler
Hi, thanks for taking the question, just curious, sorry phone issues – what would you do in the future once your business is normalized, I mean is it more going back to buying additional asset, you mentioned [Indiscernible] in the future, or it is mixed price assets in the future, but what can we look for from the company once this period goes over? Thanks.
Michael Pearson
Well, we are going to work hard to get this period of low over, and we are going to reduce our debt and we have made a commitment to get under four times, and until we get under four times we will – we are not looking to make any acquisitions. So that's our – we are exited about our launch products, we are excited about many of our products that we have recently launched like ULTRA and BioTrue, and we want to demonstrate we can drive growth with our current portfolio and our R&D pipeline, which we feel that we can.
If we fast forward to that period through that period, which is probably a long time from now then we will continue to look for assets that fit into probably the areas where we have strength today, which will be dermatology, ophthalmology, GI and emerging markets. And – but as you mentioned we will not be looking at acquisitions that involve sort of mispriced assets that will not be part of our agenda.
Irina Koffler
Okay. Thanks.
Michael Pearson
Next question please.
Operator
Your next question comes from David Common from JP Morgan. Please go ahead.
David Common
Terrific. Thanks for the fixed income question opportunity.
My question relates to any non-core assets sold, can you tell us whether you are currently required or expect to be required to pay off secured debt with those assets to the extent that you have given us expected debt reduction for 2016, does that presume any asset sales and also you previously I believe planned to pay off I think it was $800 million you had in your revolver at December in addition to a I believe $2.25 billion of other debt, could you tell us what your expectations are for reduction in the revolver balance over the next 12 months or in this fiscal year? Thank you.
Linda LaGorga
Sure David. First on asset sales per our credit agreement, we have 365 days that we could reinvest the proceeds, but as Mike said, we are very focused on debt pay down.
So I expect we will use some of those proceeds to pay down debt further. Secondly the $1.7 billion that I mentioned in the slide is permanent debt reduction and it doesn't include any additional debt reduction we would do from asset sales, and into your third question going back to the JP Morgan slides, and I know exactly what you are referencing on the 825, that 825 was paying down year-end revolver balance as well as discretionary cash.
The year-end revolver balance was 250, so I did want to clarify that that wasn’t implying we are going to pay down 825 of revolver. Lastly we are committed to the $1.7 billion of permanent debt, and we also want to bring the revolver balance down significantly through the course of the year, but I don't want to commit right now that it will be zero at the end of the year.
David Common
Perfect, thank you.
Operator
Your next question comes from Tim Chiang from BTIG. Please go ahead.
Tim Chiang
Hi Mike, I have one follow-up, I know that you guys have said that you are going to lower your cost structure on the SG&A side for some of these niche divisions, whether Solta or Obagi, I know that these goods have been pretty – they have been run pretty lean already and I am just sort of wondering, how much additional cost cutting can you really do in these types of groups here?
Michael Pearson
So I think we talked about cost reduction both in terms of some of the smaller businesses, but we also had to step back and look at the overall SG&A which as a percentage has increased, and we have to take a look at that. With again the caveat of ring-fencing core functions that we want to build capabilities in.
Some of the expenses quite frankly have grown some of these smaller businesses, and as I already mentioned we are not in the business of running unprofitable businesses. So Solta, we are taking steps to make sure it's profitable and delivering cash flow to our investors.
So Solta, there will be cost reduction and we are spending too much in terms of relative to the revenues in the US. Obagi is a different issue, it's more around sales, it's making money and there it's focusing on increasing the growth rates.
We have a great franchise there et cetera. In terms of businesses like Commonwealth we had a plan to expand sales and marketing quite a bit and the demand is slower.
It's growing and continues to grow with [Indiscernible], but we are not going to increase spending at the same rate that we were planning on increasing spending. We are going to be more moderate in terms of our approach and as the revenues build then we will continue to invest.
But we will do it in a profitable way. It's sort of the same approach as launching any new product, you can choose to spend a lot of money and in the short term and in hopes of accelerating revenue where you can take a more measured approach and that's what we are going to do in these businesses to ensure that we continue to grow the businesses, but we also continue to put dollars to the bottom line.
Tim Chiang
And Mike just one follow-up I think back in December you guys had originally thought this is on Xifaxan by the way, that you guys are originally going to hire another 100 reps to support Xifaxan’s growth [Indiscernible], is that still part of the plan in 2016.
Michael Pearson
Yes, it is on that – as Ari had I think mentioned earlier is those reps have been hired and trained, and when do they get out in the field Ari?
Ari Kellen
Within the next couple of weeks.
Michael Pearson
In the next couple of weeks, so certainly by second quarter, – by the end of second quarter up and running and fully trained. So that has not changed.
Tim Chiang
Okay. Thanks.
Operator
Your next question comes from [Indiscernible]. Please go ahead.
Unidentified Analyst
Thank you. My question has been answered.
Michael Pearson
Thank you. Next question.
Operator
Your next question comes from Cindy Guan from Goldman Sachs. Please go ahead.
Cindy Guan
Hi, thank you. I wanted to ask have you bought back any bonds in 4Q or 1Q in the open market.
I think I saw the senior note balance is about $35 million lower from 3Q but is that just translation for the year, [Indiscernible] was any debt bought back in senior note side? Thanks.
Linda LaGorga
Cindy, no that has been bought back in the open market for bonds and you are absolutely correct that it would be translation because the Eurobond needs to be marked to the current FX rate.
Cindy Guan
Any comment in 1Q if there was any debt bought back?
Linda LaGorga
No, there has been no bonds bought back in 1Q to date.
Cindy Guan
Thanks.
Operator
Your next question comes from David Maris from Wells Fargo. Please go ahead.
David Maris, please go ahead.
David Maris
Sorry about that, Mike one of the questions that an investor asked me to ask has to do with the kind of seed of the business and the decline of the market cap and all the rest in that they had seen that in the news report, that the board had thought of bringing in a new CEO new management team to start things afresh, but one of the push backs was that there was a large parachute or downstream payments. Is that true to your knowledge and second are you given the way the Philidor thing and all the rest has played out so far.
Are you willing if the board said to that they wanted to bring in a new management team to forgo those what are sometimes called golden parachute payments?
Michael Pearson
Yes. I am not aware of the golden parachute payment.
So --.
David Maris
Any sort of termination related payments?
Michael Pearson
Again I don't think I am not sure I don't know if everything in that article is correct, I wasn't on the board. So, I can't speak to that.
I do not -- maybe I should wish I should get $200 million if I raise. But unfortunately I don't think that's the case.
So, fortunately from an investor standpoint it's not a case. So, actually I think I am pretty modest if I got fired.
It's pretty modest they maybe referring to some stock that is invested that's not delivered until in the future but that's been divested, I mean, that was. So, David I am not aware of any golden parachute that I have.
David Maris
Okay. Thank you, for clearing that up.
Operator
Your next question comes from the Henry Ritchotte from Deutsche Bank. Please go ahead.
Henry Ritchotte
Sort of quick question on the forward looking guidance for the next 12 months. I think you said it's going to be 6 billion now instead of 6.2 to 6.4 that was in the press release today.
Did I hear that correctly and if I did, what's the reason for the change? And one more after that.
Michael Pearson
The term was correct and what was in the press release within there.
Henry Ritchotte
Was it? It definitely looks like it was switched kind of intentionally as there was there any other further comment on that or no?
Michael Pearson
No. It wasn't switched intentionally.
It was just the wrong number and we apologize.
Henry Ritchotte
Okay. And then the last one is just on the debt you want to get the debt to four times and you mentioned no more acquisitions, does that also include share repurchases?
So, can we assume basically all the free cash flow is going to go to repay debt?
Michael Pearson
Again that's probably our current intent is to do that, while we reserve the right to change that. But what we are a 100% committed to is reducing debt to 1.7 and our focus is on debt repayment.
Henry Ritchotte
Thanks a lot.
Operator
Your next question comes from Dmitry Kamenetsky from Veritas. Please go ahead.
Dmitry Kamenetsky
Hi, Mike. And thanks a lot for taking my call.
So, I have two questions. One, relates to the $58 million restatement.
I was wondering if you can elaborate whether that restatement primarily related to Q4, and if could break out the details by product. So, what products it's related.
If you can potentially quantify that. And on the other question has to do with the change in tax presentation.
So, can you please clarify on slide 6 when you talk about Q4 2015 on in order to results there? Is these the old presentation or is that the new presentation, I'm talking about the middle section of this slide.
And if you can also elaborate what do you mean by tax provision there. Is that tax provision that includes both deferred as well as current income taxes or is it something else and the same thing obviously plays too.
In fact, so, non-GAAP adjustments. Is it related to deferred or current taxes?
Thank you, very much.
Michael Pearson
Okay. So, in terms of the ad hoc committee I think put out a press release that talked about the timing in 2014 of what was $68 million?
Linda LaGorga
58 million. A - Michael Pearson $58 million in terms of Q4 2014 versus Q1 2015.
So, that is what --.
Dmitry Kamenetsky
So, it's all Q4 related?
Michael Pearson
It was second half?
Linda LaGorga
Second half.
Michael Pearson
Second half but it's primarily Q4. In terms of the mix of products, we took a look at that and it's a normal mix.
It would you maybe referring over some I heard some speculation it was like also with like that which is not true. It was sort of a normal mix across our Dermatology, primarily our Dermatology product portfolio.
Rob, tax.
Robert Rosiello
So, two things. The middle part of the chart is the way we are presenting the prep tables that were released this morning, where we're breaking out for the first time the tax provision plus the effect of non-GAAP adjustment, which are they are both current and deferred on an ongoing basis.
From the other going forward, what we will report is just that first turn. So, if you look at tables 2A and 2B, it's the first turn that we will report and we will apply that to calculate our adjusted EPS.
And so, therefore our reported tax rate, again on a comparable basis and this will change if we you ever and reduced our NOL, would move from approximately 5% to approximately 10% to 15%.
Michael Pearson
My understanding, that's the last question. So, and appreciate everyone's patience.
And we look forward to our next call. Thank you.
Operator
This concludes today's conference call. You may now disconnect.