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WHEN: Today, Tuesday, December 15th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a FIRST ON CNBC interview with Valeant Chairman & CEO J. Michael Pearson and CNBC's Meg Tirrell today, Tuesday, December 15thon "Squawk Box" (M-F, 6AM-9AM ET). Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000466263, http://video.cnbc.com/gallery/?video=3000466265 and http://video.cnbc.com/gallery/?video=3000466266.
All references must be sourced to CNBC.
JOE KERNEN: MEG TIRRELL IS BACK WITH THE AFOREMENTIONED SPECIAL GUEST. MEG.
MEG TIRRELL: THAT'S RIGHT. JOINING US NOW IS THE CEO OF VALEANT, MIKE PEARSON. MIKE, THANK YOU FOR COMING TO JOIN US.
J. MICHAEL PEARSON: THANKS FOR HAVING ME ON.
TIRRELL: SO SOME BIG NEWS THIS MORNING, AND WE DO WANT TO TALK ABOUT THAT, BEFORE WE GET TO IT, WE HAVE TO ASK YOU, BECAUSE THERE HAS JUST BEEN SUCH A TRANSFORMATION IN WHAT HAS HAPPENED TO VALEANT IN THE LAST THREE MONTHS. YOU'VE GONE THROUGH A LOT. AND I THINK WHAT PEOPLE ARE REALLY WONDERING ABOUT IS WITH ALL OF THIS BUSINESS WITH PHILIDOR, JUST HOW MUCH DID YOU KNOW ABOUT WHAT WAS GOING ON?
PEARSON: WELL, THERE'S LOTS OF ALLEGATIONS THAT HAVE BEEN MADE, BUT NOTHING HAS BEEN PROVEN YET. AND I WAS UNAWARE OF ANY OF THE ALLEGATIONS.
TIRRELL: SO, DID YOU KNOW – NONE OF THE ALLEGATIONS – SO WHAT WAS GOING ON AT PHILIDOR WITH SOME OF THE PRESCRIPTION – CHANGING PRESCRIPTIONS – THINGS HAVE BEEN REPORTED LIKE THAT. I MEAN, BECAUSE YOU GUYS ENDED YOUR RELATIONSHIP WITH THEM PRETTY QUICKLY AFTER THESE THINGS CAME OUT.
PEARSON: WE ENDED IT QUICKLY BECAUSE TWO THINGS. ONE IS, IF THEY WERE TRUE, THAT'S A REAL, REAL PROBLEM. BUT WE HAD NO EVIDENCE THAT THEY WERE TRUE. BUT SECOND, GIVEN THE INVESTOR REACTION, WE JUST WANTED TO SEPARATE AND MOVE TO A NEW SOLUTION, WHICH THIS MORNING WE ANNOUNCED OUR NEW SOLUTION.
TIRRELL: RIGHT. AND IN TERMS OF – YOU KNOW, THIS IS 7% OF YOUR REVENUE. SO I THINK A LOT OF PEOPLE ARE QUESTIONING HOW DOES SOMETHING THAT IS THIS BIG OF A PART OF YOUR BUSINESS NOT GET UP TO YOU? IF YOU DIDN'T KNOW ANY OF THESE THINGS WERE GOING ON, WHAT HAPPENED?
PEARSON: OH, I WAS PERFECTLY AWARE OF PHILIDOR AND THE PARTNERSHIP. WHAT I WAS TALKING ABOUT WAS THAT THE ALLEGATIONS, WHICH, AGAIN, I'LL SAY IT AGAIN, THERE'S BEEN NO PROOF THAT THESE ALLEGATIONS ARE TRUE. I WAS UNAWARE OF ANY OF THE ALLEGATIONS GOING ON.
TIRRELL: SO IN THE NEWS TODAY WITH WALGREENS. DOES THIS REPLACE THAT PHILIDOR REVENUE? SHOULD PEOPLE EXPECT THIS WILL BE THE SAME SORT OF LEVEL OF PROFITABILITY AND GROWTH THAT YOU ARE ANNOUNCING IN THIS DEAL THIS MORNING?
PEARSON: MORE THAN REPLACES PHILIDOR BECAUSE THERE'S ACTUALLY TWO PROGRAMS. MAYBE IT MAKES SENSE FOR ME TO TALK THROUGH THE TWO DIFFERENT PROGRAMS WITH THE PARTNERSHIP WITH WALGREENS. ONE IS IT – WHAT WE'RE DOING IS BYPASSING THE TRADITIONAL PHARMACEUTICAL DISTRIBUTION SYSTEM, WHICH ALLOWS US TO SAVE SUBSTANTIAL AMOUNT OF MONEY IN TERMS OF SYSTEM COSTS. SO RATHER THAN SELLING TO MIDDLEMEN, WHAT WE WILL DO IS DIRECTLY DELIVER TO WALGREENS. WE WON'T SELL THE PRODUCT TO WALGREENS, IT WILL ALL BE ON CONSIGNMENT. WE WILL PAY WALGREENS A DISTRIBUTION AND DISPENSING FEE, AND THEN OUR PRODUCTS WILL BE SOLD DIRECTLY TO THE PAYERS WITHOUT SORT OF ALL OF THE MIDDLEMEN IN BETWEEN.
BECKY QUICK: DOES THAT MEAN I CAN ONLY GET YOUR DRUGS AT WALGREENS?
PEARSON: NO, OUR DRUGS WILL BE AVAILABLE THROUGH TRADITIONAL CHANNELS AT OTHER PHARMACIES. BUT WHAT IT WILL ALLOW US TO DO IS OFFER CHEAPER PRICES IN WALGREENS AND ALSO TO ENSURE PATIENT ACCESS WHICH IS REALLY, REALLY IMPORTANT.
TIRRELL: JUBLIA IS INCLUDED IN THIS DEAL.
KERNEN: YOU WERE ASKING. THAT WAS JUST A THEORETICAL – OK.
PEARSON: YES. JUBLIA WILL BE AVAILABLE AT WALGREENS.
KERNEN: I THOUGHT YOU WERE – TO THAT BECAUSE YOU LOOKED VERY INTERESTED.
TIRRELL: TELLS ABOUT THE OFFERING, THE BRANDED DRUGS AT GENERIC PRICES WHERE GENERICS ARE AVAILABLE.
PEARSON: YEAH. THIS IS THE SECOND PART OF THE PROGRAM, WHICH IS TERRIFIC. WE HAVE A NUMBER OF BRANDS THAT HAVE GONE GENERIC. WHEREAS IF YOU GO INTO A PHARMACY TODAY AND PICK UP A GENERIC, IT'S UNLIKELY YOU WILL GET OUR PRODUCT, RIGHT? BECAUSE OUR IS THE BRANDED.
TIRRELL: THAT ACTUALLY HAPPENED TO ME. I WAS PRESCRIBED ONE OF YOUR EYE DROPS, AND I COULDN'T GET IT. I MEAN, I'D HAVE TO PAY, LIKE, EIGHT MILLION TIMES AS MUCH. IT WAS CRAZY.
PEARSON: EXACTLY. NOW YOU WILL BE ABLE TO GET OUR BRANDED PRODUCTS AT GENERIC PRICES. AND IN FACT, WHEN YOU GO TO WALGREENS, YOU WILL BE GUARANTEED TO GET THE BRANDED PRODUCT, OUR BRANDED PRODUCTS, INSTEAD OF A GENERIC. AND AT LEAST FOR SOME DOCTORS AND SOME PATIENTS, THAT'S IMPORTANT.
QUICK: BUT YOU'RE SAYING THAT THE ENTIRE SAVINGS, THE ENTIRE COST SAVINGS IS COMING FROM STRIPPING OUT THE MIDDLEMEN? IT'S NOT GOING TO TAKE ANY IMPACT TO YOUR BOTTOM LINE?
PEARSON: WELL, WE'VE – BOTH WALGREENS AND I AND VALEANT WILL BENEFIT, AND WHAT WE HAVE DECIDED TO DO IS SHARE A PART OF THAT BENEFIT IN TERMS OF RETURNING MONEY TO THE SYSTEM. IN TERMS OF THE LOWER PRICES OF 10% IN OUR PARENT PRODUCTS AND OUR GENERIC BRANDED PRICES WILL DROP ON AVERAGE DROP 50% IN TERMS OF –
QUICK: I GUESS I'M JUST TRYING TO UNDERSTAND. I MEAN, THAT MAKES IT SOUND LIKE THE INCREASES THAT WE SEE, THE BIG PRICES THAT PEOPLE ARE PAYING FOR DRUGS, YOU'RE SAYING IS ALL COMING FROM THE MIDDLEMEN IN THE SYSTEM AND THAT IT'S NOT GOING TO AFFECT YOUR EARNINGS IN ANY WAY, SHAPE, OR FORM? THAT IT WILL ACTUALLY MAKE MONEY FOR YOU?
PEARSON: THIS PROGRAM WILL HELP US MAKE MONEY. SO PRICING IN THE SYSTEM – PRICING IN THE DRUG INDUSTRY IS VERY, VERY COMPLICATED. BUT MANUFACTURERS TAKE THE ACTUAL PRICE INCREASES, BUT VERY LITTLE OF THAT ACTUALLY ACRUES TO THE PHARMACEUTICAL COMPANIES.
QUICK: I'M SORRY, I'M JUST TRYING TO MAKE SURE THAT I UNDERSTAND. IF YOU WERE STILL DEALING WITH PHILIDOR, YOU – THIS WOULD BE THE SAME SORT OF SITUATION WHERE THIS MONEY ALL GOES BACK TO YOUR BOTTOM LINE? I'M JUST CONFUSED. WHEN YOU SAY THIS WILL HELP YOU MAKE MONEY, THIS WILL HELP YOU MAKE MORE MONEY THAN YOU WOULD –
PEARSON: WELL, IT WILL DRIVE GROWTH. THIS IS GOING TO DRIVE GROWTH. RIGHT NOW, IF YOU LOOK AT OUR BRANDED PRODUCTS, FOR EXAMPLE, THAT HAVE GENERIC COMPETITORS, WE HAVE MINUSCULE SHARE.
QUICK: BUT IS THIS DRIVING GROWTH FROM INCREASED VOLUMES?
QUICK: OR IS THIS DRIVING GROWTH FROM INCREASED MARGINS?
PEARSON: ALL VOLUME.
QUICK: IT'S ALL VOLUME.
ANDREW ROSS SORKIN: IT'S A BUY IN BUSINESS. WHICH IS A MAJOR SHIFT, THOUGH, IN THE WAY YOU'VE APPROACHED THIS.
PEARSON: WELL, WE'VE ALWAYS HAD STRONG GROWTH AND VOLUME GROWTH, BUT THE SKEPTICS HAVE ALL SAID IT IS PRICE. BUT THIS WILL TURN IT ALMOST ALL TO VOLUME.
KERNEN: SKEPTICS, YOU KNOW, THE ONES THAT ARE SORT OF, YOU KNOW, IT'S SORT OF IN FASHION THESE DAYS FOR A CORPORATION TO BE GOOD CITIZENS, GOOD CORPORATE CITIZENS. AND THEY IMPUGN YOUR BUSINESS MODEL IN TERMS OF BEING A ROLLUP, AND, YOU KNOW, CUTTING, YOU KNOW, THE COST CUTTING, NOT AS MUCH SPENT ON RESEARCH AND DEVELOPMENT. DO YOU THINK IT'S ENOUGH FOR A PHARMACEUTICAL COMPANY TO JUST DELIVER VALUE TO ITS SHAREHOLDERS AND TO ITS CUSTOMERS? OR DO YOU THINK IT HAS A SOCIETAL RESPONSIBILITY TO PLOW IT BACK INTO RESEARCH AND DEVELOPMENT AT THE SAME RATE THAT OTHERS DO TO TRY TO FURTHER MANKIND'S WELL BEING?
PEARSON: I THINK ALL COMPANIES HAVE A SOCIAL RESPONSIBILITY, AND WE TAKE OURS VERY SERIOUSLY. I THINK WHY PEOPLE CHALLENGE WHAT WE'RE DOING IS BECAUSE WE DO THINGS DIFFERENTLY. AND WHENEVER YOU DO SOMETHING A LITTLE BIT UNCONVENTIONAL, PEOPLE TEND TO CRITICIZE. AND I THINK OVER TIME, WE WILL SEE THAT OUR MODEL WILL WORK AND IS SUSTAINABLE. WE DO SPEND MONEY ON R&D. WE WILL SPEND BETWEEN 400 AND $500 MILLION IN R&D NEXT YEAR. IF YOU LOOK AT IT AS A PERCENT OF PHARMACEUTICAL SALES, BECAUSE WE HAVE A LOT OF OTHER PRODUCTS – OTCs, AND GENERICS – IT'S GOING TO BE LIKE 7 OR 8%, WHICH IS NOT THE 15%, BUT IT'S HALF. AND IF YOU LOOK AT THE OUTPUT, IF YOU LOOK AT THE PRODUCTS THAT WE'VE LAUNCHED, JUBLIA, FOR ONE, WHICH STARTED IN-HOUSE THE WHOLE WAY AND I THINK WE'VE GOT FOUR OR FIVE PHARMACEUTICAL PRODUCTS APPROVED BY THE FDA LAST YEAR. WE ARE EXPECTING TO HAVE THREE MORE APPROVED NEXT YEAR. SO I THINK IF YOU LOOK AT THE EVIDENCE, IF YOU LOOK AT THE FACTS, YOU'LL SEE THAT WE ARE GROWING THROUGH DEVELOPMENT OF NEW PRODUCTS AND NOT JUST THROUGH ACQUISITIONS.
SORKIN: BUT TO THE EXTENT THAT YOUR MODEL RELIES, AT SOME LEVEL, I THINK WE'D AGREE ON ACQUISITIONS – GIVEN WHAT'S HAPPENED OVER THE PAST SEVERAL MONTHS HOW DIFFICULT WILL IT BE FOR YOU TO FINANCE AND PURSUE AND THOSE ACQUISITIONS THE SAME WAY YOU HAD BEFORE?
PEARSON: SO OUR MODEL DOES NOT DEPEND ON ACQUISITIONS, BUT IT WAS ENHANCED BY ACQUISITIONS. SO WHAT WE WERE ABLE TO GROW MORE QUICKLY BECAUSE OF IT, BUT OUR BASE BUSINESS CONTINUES TO GROW. NEXT YEAR, WE'RE GOING TO SPEND MOST OF THE YEAR JUST BUYING DOWN OUR DEBT. AND WE'LL SEE NEXT YEAR.
SORKIN: SO IT'S GOING TO BE A DIFFERENT – BUT NO, NO, BUT BILL ACKMAN AND OTHERS HAVE TALKED ABOUT THIS BEING A PLATFORM COMPANY. A PLATFORM COMPANY TO SOME EXTENT IS AN ACQUISITION VEHICLE, RIGHT? AND THE REASON WHY IT WORKS, IF IT WORKS, IS BECAUSE YOU'RE BUYING BUSINESSES AND PUTTING THEM TOGETHER.
PEARSON: LOOK, I LOVE BILL, BUT I'VE NEVER TALKED ABOUT A PLATFORM COMPANY. WHAT I HAVE TALKED ABOUT IS A COMPANY THAT GROWS ORGANICALLY, CAN GROW ORGANICALLY WITH OR WITHOUT ACQUISITIONS AND WILL CONTINUE TO GROW ORGANICALLY WITH OR WITHOUT. WILL WE GET BACK TO ACQUISITIONS? YES, BUT NOT NEXT YEAR.
SORKIN: CAN I JUST ASK ONE OTHER THING. COMPANIES LIKE TURING OR EVEN YOUR OWN, WHERE YOU HAVE HAD DRUGS THAT WERE PRICED AT A CERTAIN NUMBER AND THEN YOU SEE THE EXPONENTIAL RISE. JUST WHAT IS YOUR VIEW OF THAT PHILOSOPHICALLY?
PEARSON: WELL TO COMPARE US TO TURING, IS RIDICULOUS. THAT IS A SINGLE PRODUCT COMPANY. WE HAVE 22,000 EMPLOYEES AROUND THE WORLD. WE HAVE THOUSANDS OF PRODUCTS. WE MANUFACTURE – IN 11 MANUFACTURING – LARGE MANUFACTURING SITES IN THE U.S. ALONE, AND WE ARE A PRETTY LARGE COMPANY. AND WE HAVE THOUSANDS OF PRODUCTS, AND WE TAKE – AND EVREYONE IS ISOLATED ON A COUPLE OF PRODUCTS WHERE BIG PRICE INCREASES WERE TAKEN. MOST OF OUR PRODUCTS, WE HAVE NEGATIVE PRICE.
TIRRELL: BUT YOU ARE BEING LUMPED IN WITH TURING AT LEAST IN TERMS OF THOSE PRICE INCREASES BY CONGRESS. I MEAN, YOU'RE THE SUBJECT OF SEVERAL FEDERAL INVESTIGATIONS INTO DRUG PRICING PRACTICES AND PATIENT ACCESS PROGRAMS, AND THOSE THINGS SEEM LIKE AN OVERHANG, EVEN THOUGH TODAY'S NEWS DOES SEEM TO BE GIVING PEOPLE SOME CONFIDENCE IN REPLACING PHILIDOR, A NEW MODEL THAT WAY, BUT YOU STILL HAVE A LOT OF THINGS TO CONTEND WITH OVER THE NEXT YEAR.
PEARSON: YEAH. THE LAST THREE MONTHS HAVE BEEN PRETTY BUSY, BUT I'VE SPENT A FAIR AMOUNT OF TIME DOWN IN WASHINGTON, AND WE ARE GETTING TO KNOW AND TALKING TO A NUMBER OF PEOPLE AND SORT OF EXPLAINING OUR COMPANY. AND PEOPLE HAVE BEEN RECEPTIVE IN TERMS OF UNDERSTANDING THE DIFFERENCE BETWEEN A SINGLE PRODUCT COMPANY THAT INCREASED PRICE VERSUS A BROAD PORTFOLIO OF PRODUCTS AND IF YOU LOOK ACROSS THE PHARMACEUTICAL INDUSTRY, AND YOU ACTUALLY LOOK AT THE DATA, ALL THESE LARGE COMPANIES HAVE TAKEN SIGNIFICANT PRICE INCREASES AS WELL.
SORKIN: HOW HAS YOUR RELATIONSHIP WITH BILL ACKMAN CHANGED OVER THIS PERIOD? OBVIOUSLY, HE EVEN RAISED PRIVATELY IN TERMS OF E-MAILS THAT WHERE THEN REPORTED IN THE WALL STREET JOURNAL, ISSUES ABOUT YOUR OWN CREDIBILITY WITH YOU.
PEARSON: WELL, HE'S A VERY DIRECT PERSON. OBVIOUSLY, WHEN WE WERE WORKING TOGETHER ON THE ALLERGAN SITUATION, WE INTERACTED QUITE A BIT. BUT I'D SAY OUR RELATIONSHIP'S STILL PRETTY CORDIAL. HE'S DIRECT WITH ME, AND I'M DIRECT WITH HIM.
TIRRELL: MIKE, WE COULD ASK YOU QUESTIONS ALL DAY, BUT WE'VE GOT TO GO. THANK YOU SO MUCH.
PEARSON: THANK YOU.
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