Son to grow up and run a company in the manner that valeant was run. How do you respond . We made a lot of changes in the last few weeks. I have been on the board for about five weeks. We have a new ceo, joe papa, who is starting today. Today is his First Official day. Appropriate i should be on your show. The companys made some mistakes but i think where charlie is wrong, hes wrong to indict an entire company on the basis of a few mistakes and a leader that is no longer with the business now. And the 22,000 people work for this company, i think this is a Great Company. When you look at the one of the things i was sort of thinking about to give you a sense of context, think about when berkshire invested in Goldman Sachs. Goldman sachs had to be one of the most reviled companies in the country, accused of all kinds of bad subprime, misleading investors, every day another negative article. Feels like this is the same moment for valeant. It didnt stop buffett from making an investment in the company. Goldman paid a lot of fines. I have enormous respect for lloyd blankfein. They owned up to their mistakes, made appropriate changes in personnel and the company companies. You dont indict Goldman Sachs on the actions of a few people or valeant on the actions of a few people. There were issues with the Business Model, no . Sure. Fortunately its a small part of the business. The drugs in question, less than 5 of the revenue of the company. The strategy in question which is not something we approve of, 13 of the business was buying old drugs and marking the prices to market. They had a justification for it. Im not going to defend it. If you think about the balance of the business, baush and lomb is one of the greatest ophthalmology companies in the business. You have middle east, eastern europe, asia, all over the world, south america has been extremely successful. You have a company they acquired last year which makes a lifesaving drug, drug that makes people more comfortable every day. The Company Makes a lot of very good products. I met many of the employees. These are hardworking people. Their offices are not so far, the u. S. Office is not so far from where we are. The company is not a sewer. Neither is Goldman Sachs. Did Goldman Sachs make mistakes . Did bank of america make mistakes . Of course they did. But you dont indict all the employees. Buffett said you should have been able to see or could have been able to see the problems at valeant from a mile away. You said before Congress Last week there were things you didnt understand about the business that you wish you had done better Due Diligence. You called it a failure of Due Diligence on your part. You called some of the practices horrible and wrong. I think its wrong to buy a drug and mark the price up 5x even if the therapeutic value of the drug, in their mind they marked it to market. They hired a consultant, the consultant looked at alternative products and the therapeutic value and said this is an underpriced drug, this is an opportunity. If this were a Specialty Chemical Company and they bought, we own platform specialty products, the platform bought a chemical used in Industrial Production and a comparable chemical was 6x the price and they bought a chemical and marked it up, no one would make issue of it. What valeant forgot is this is a product that is used to save peoples lives and theres a social contract a drug company has with patients and the hospitals it serves. My point is you knew what the Business Model was before you made the investment. Even though you say you wish you did better Due Diligence. You still made the investment. Let me be clear. Valeants Business Model, again, the whole media thing, small portion of the business. If you think about baush, they sell products to walmart. Theres no marking up the prices of drugs in their Business Model. In emerging markets, when they sell pharmaceuticals theres no marking up the price. The salex asset they bought, they havent meaningfully changed the price of the products. There was a subset we didnt assign a lot of value to, buying tail products, products about to go off patent. They have 12 or eight months to go. It is a common practice in the industry whether or not you like it. Pfizer does it and other Big Pharmaceutical Companies do it. They mark up drug prices right before they go off patent because theres a Generic Product coming in and the paiyes allow it to happen. That will come under a lot of scrutiny. Because its a very short stream of cash flow, when valeant marked up a price of a drug that went off patent a few months later, they squeezed a little bit of value out of it before it went off patent. Its a practice that is not a Good Practice but its not something as part of our Due Diligence we assign a lot of value to. We looked at a Company North of 20 p. E. When it was an independent public company, we looked at the branded generics business, they sell for 15 or 20 times ebitda when they trade on the public market. Our bad for not focusing on this practice. The drugs in question, the prices were marked up after we made our investment. You said you regret not selling the stock when it got around or above 200. You said that in your annual letter. Any price would be better than the current price. Do you regret even owning the stock . Do you regret the investment to begin with . Of course. Of course. No one wants to have an investment down 85 or 90 . I had to spend a lot of brain damage in the last five weeks working with the board to fix the problem. I think in a very short period of time we helped do a lot for the company. We were invited to join the board, i joined the board march 21st, that weekend. We did a number of important things. We announced we would be launching a search for a new ceo, announced the status of the companys Ad Hoc Committee process. I along with bob ingram and by the way, he has been chairman of the board since i have been a member of the board, is an outstanding director. What you will find on this board even though this company made mistakes is a group of outstanding people that presided over some mistakes. It happens. I worked with bob and the other members of the Search Committee and found an outstanding ceo. How close did you come to getting out of valeant completely rather than getting further in, some with say, by joining the board . Very close. We thought very very seriously about it. At Prices Higher than current prices. We decided the value of the assets is much greater than the stock trades and this would be an opportunity. We also thought we could fix it. I think we made huge progress in the last five weeks. We have actually, this is also to the credit of the current board. Some article, i read recently, sort of claimed i threw a bunch of directors off the board. Totally false. The directors here did something you dont see very often. They said we made a lot of progress, we have been on the board for a period of time, its time for a fresh start and im not going to put my name in at the upcoming annual meeting which is something you dont see directors do. You had to have a lot of influence in those changes, whether you were directly responsible for in your words, throwing these people we had a lot of influence, i worked very hard to help recruit a talented ceo and joe papa was our first choice candidate. I think for many reasons he will be outstanding for the company. The rest of the board, the chair of the Audit Committee, i have never seen a director work harder, you can imagine what was required to get this 10k filed and how many, 24 7 days not just of management, but even the Audit Committee has done a ton of work here. Not surprisingly, folks obviously knew you were coming on today, a note from an analyst hit this morning which says despite everything thats happened the 10k is filed, you have a new ceo, that sentiment remains cautious. Company still has 30 billion in debt. Has in many ways become the poster child of drug pricing in the president ial campaign and is likely to remain that way for months to come. Some say the stock is uninvestable. How do you convince them its not . Its not my job to convince them. I do think up until friday, for many people, it was uninvestable. When they announced on the Conference Call a month or so ago, march 15, that they werent sure when the 10k would be filed, the stock dropped 50 within minutes of that statement. Why . Because many investors are not permitted to own a stock without current financial statements. You think about 10k the company just filed. I would say this is the most highly scrutinized 10k perhaps in the history of price waterhouse. We had deloitte and touch working with an Ad Hoc Committee of the board, looking at every accusation against the company, looking at inventory, accounting issues. Fortunately we were correct on this. This is not some massive accounting fraud at the company. There was a revenue recognition issue thats been acknowledged but i think now 10k is filed, you now have numbers you can rely on and be comfortable with. The company was uninvestable because people werent sure who would be running the business going forward. We established that today. Joe papa is now ceo of the company. I think hes got a long term, 35 year track record in the industry of excellence. Not that he hasnt made some mistakes. He made a mistake with an acquisition. I frankly like that. The problem with the ceo that never makes mistakes, the mistake will be a big one. I think whats been forgotten here is valuation. This is probably the cheapest Large Company i have seen in my career in terms of value relative to the cash the business will generate. We think valeant will generate meaningful, take a look at the companys published numbers, 6 billion ebitda for the next months, even if you haircut the number, this is plenty of capital to service the debt. Company doesnt pay a lot of taxes. As a result, that debt gets amortized quickly. There will be an Investment GradeBalance Sheet within the next two, three years without selling one asset. In some respects, you are making the case that it is investable. I know steve weiss has a question. If you are a Health Care Investor going to big pharma or a company like this, and you are seeing the Business Model has to change because while only 13 of the business you say has been priced, actually if you look at all last eight quarters, price has exceeded volume in terms of bringing in the revenues. Im looking at other companies that had Investment Grade ratings now that arent that much more expensive than a p. E. Basis but giving 3 or 4 dividend. Why buy valeant instead of one of those . Not sure which companies youre referring to. Next 12 months trading at three times earnings. You have to change the model to get there. No, no, no. No, no, no. The numbers the company put out today is not the projections for the next 12 months that were put out on the call on march 15th reflect the meaningful price concessions the company has taken, reflect the 30 reduction and also the company not raising price over the course of the year. I think three times earnings, a lot of bad things can happen. You can still make a lot of money. Also, three times earnings and a levered Balance Sheet. I did go through the 10k. I had to read through it a four times. 46 of the revenues come from, as most companies, pbms that are getting even more conscious on price compression. Again, the numbers reflect deals the company has made with those pbms. I think in the numbers, its in the numbers already. You couldnt ask for a company with more negative sentiment but the time to invest is pretty much when everyone thinks this is a bad idea. I do think many investors waiting until the 10k is filed, waiting until you know who the new ceo is, waiting until you see who the new board is, these are things worth waiting for. But this is an incredibly undervalued business. The big concern when we cite the fact there are good drugs at the company which i dont think anyone would dispute, the crown jewels may have to be sold. Maybe not yet. If they are sold, probably not anywhere near what they were paid for. Baush being one example. Not the case. We dont have to sell one asset to meet obligations to creditors. Is it likely it would make sense to get rid of the 30 billion debt load . No. Absolutely not. In terms of asset sales the company has no plans to sell any crown jewel type assets. The only things we are considering are noncore asset sales and here, there are assets in the company that have meaningful value that dont generate a lot of cash, perhaps lose money. Pearson bought a lot of assets over a long period of time. Those would be first on the list. In terms of the core franchises of the business, these are not things we are considering selling. If someone walked in and offered a massive price for something, its a public company. By the way, the phone has been ringing off the hook from other Pharma Companies interested in lots of different pieces of the company. But we think best thing for the company to do right now, we have a great ceo, we need to run the business, we need to put up a few quarters of results and you will see meaningful change in the value of the company. Let me ask about mr. Papa. You clearly made the case hes the right guy. Why is he the right one to be the guy . First, i encourage you at some point, im sure he will want to come on. This is his first day. If you talk to people who invested with him over a long period of time, look at track record. 35 years in the industry, all aspects of the industry. Generics, otc business. Spent a meaningful part of his career and branded pharmaceuticals, prescription pharmaceuticals, worked in wholesale and distribution. Every element of the business. Think about perigo, it has very good relationships with various forms of distribution of pharma with payers and otherwise. Hes a very experienced executive and also a very calm, lowkey, stable super High Integrity person. When i asked someone else, i was doing Due Diligence on joe, someone i highly respect in the industry, everyone loves joe. Hes a very likeable guy. People have enormous respect for him. Totally nonpromotional. Exactly the person you want to bring into a situation like this. Let me ask you another question. His pay package has drawn some criticism. He will make 67 million but if the stock hits 270 a share, he will get a pay package and stock equivalent of 500 million. 270 is about 10x the current. I would give it to him. My point is, doesnt that incentivize him to do some of the same things that mr. Pearson was criticized . No. Senator collins calls the pay structure of mr. Papa quote, outrageous. First of all, unfortunately, when you read the story in the media they dont often get it right. Let me tell you what we did and the thoughts behind it. So we gave him several things. He makes a million and a half base. Theres a bonus opportunity of a million and three quarters. Its a lot of money by most peoples standards but for the ceo of a company this size, its certainly probably on the low side in terms much how executives are paid. In addition, he walked away from about 20 million worth of restricted stock and other things that had already invested, will invest later this year, hes going to lose. We had to make that up to him. Make him whole. That was 20 million of the package. Okay . We gave that to him 8 million in cash and 12 million restricted stock that dop doesn invest for four years unless the Company Meets qualitative objectives like relationships with the government and patients and with the community. The big economic component of his compensation is he gets 30 million of restricted stock units. What we did for him, instead of paying him like a typical ceo, many ceos, we did the same thing we did for hunter harrison. We said youre coming into a turnaround. We think its appropriate you get paid for the value you create from this baseline. So instead of giving him 10 million in restricted stock each year for the next four years which is certainly within the range, maybe even the lower side of market compensation, we gave him the 30 million of restricted stock or performance units up front and they only vest if the Company Achieves fairly dramatic increases over time. I will get to your point in a second. But at 60, only the stock, the measuring period by the way is four years from now. So four years from now if the stock does not hit 60, he does not, performance stock units, he dont make very much. Above 60 he gets 25 of the 30 million restricted stock. At 90, he gets 50 . At 120, 75 . At 150, 100 . If he gets to 270 he gets twice the 30 million of performance units hes receiving today. In that circumstance of course the stock is up tenfold. I think the shareholders are very happy. Why doesnt it cause him to do some of the things pearson, mistakes pearson made. Number one, first of all, i enjoyed being part of the Senate Hearings. I was actually quite impressed with the whole process. I think they certainly accomplished their objectives when they asked how do we prevent this from happening going forward, i said you have already done that when you knocked the stock price down 85 from mistakes management made, many of which on the pricing side of the business, you have accomplished your objective. My point here is value in stock prices is not going to inc