giofranchi

Dude, the bull argument is that all of it tripled not just doubled!! I can't argue with that. Agreed. 3x prior acquisitions still leaves VRX overvalued by $30b equity! They have 2 years to pile up cash before the 5 years of refinancing dependence. That is a major risk in the face of rising rates. I don't even know how you can cut anything from Salix. Everything is about potential of future products with them. Salix is not even benefiting from VRX's competitive advantage. You go on trying to value VRX based on its balance sheet... Imo 5 years from now revenues will have more than doubled, and Cash EPS will have grown faster, and the market will still be assigning a certain multiple to VRX's Cash EPS... Choose the multiple you prefer, and see which rate of return you get! Maybe that's why Ackman has invested billions at a price slightly lower than today's price, and VRX itself has repurchased shares at a price higher than today's price during Q2! Cheers, Gio

I have invested in JNJ, ABT, and NVS for a long time before getting interested in VRX, and the market has always priced them assigning a multiple to the cash they generated. The measure used by VRX is Cash EPS. I think we have seen they don’t lie about the cash they generate. If the adjustments they make to get to Cash EPS are not flawed, and I don’t think they are because during the Allergan saga they have talked extensively about those adjustments, you should ask yourself: is their multiple too high? If the answer is no, you should reconcile your thesis with the multiple of Cash EPS they are selling for. Probably, the only answer is they are actually doing a great job! ;) Cheers, Gio

Fortunately, we don’t need the same bang for their buck! Even assuming a significant contraction in the multiple VRX is selling for today, it might turn out to be a decent investment. If it is not a fraud, of course! ;) Cheers, Gio

I don't understand… isn’t it the same question I have tried to answer just a few posts ago? ??? Gio

??? Where did you get that number? Last time I checked VRX was going to spend around $375 million in R&D for 2015... Cheers, Gio

Yeah! That is a very useful example! Thanks! Cheers, Gio

Ross, Sorry I don’t understand: have you added interest payments back? Have you considered the cash from the sale of the portfolio of aesthetic drugs in 2014? Thank you, Gio

Well, not so in pharma! All this (or a lot!) is based on wasteful R&D… Which is a huge cost that could be better managed! Furthermore, they don’t only cut costs, but also improve sales, and exploit synergies, and lower their fiscal burden. I repeat: I don’t know how much inefficient the pharma industry actually is… Therefore, it is very difficult for me to quantify that “one-time gain”, but I wouldn’t be surprised if lots a businesses in the pharma industry could do much better with the right management! Revenue growth: I don’t think they will have to grow organically at 15% to compound value at 15%, because they will go on making deals and taking advantage of inefficiencies. Therefore, what I have called a “one-time gain” will be possibly repeated many times in the future adding to their organic growth. Cheers, Gio

Well, 1), 2), and 3) are ways they have perfected to take advantage of what I have called the inefficiencies of the pharma industry. They could be viewed imo as a one-time gain. Think of it as a stock that trades for half its IV and reaches IV in a relatively short period of time. But then you shouldn’t forget: a) The pharma and biotech business is among the best out there, and imo it will only grow and get better over time. b) What Ackman refers to as “platform value”, which is nothing but their ability to go on making new deals, taking advantages of the inefficiencies of the pharma industry, and growing the newly acquired businesses. Think of a) and b) this way: after reaching IV, the business goes on growing and creating value. Now compute the present value of $45 billion in equity that grow at a CAGR of 15% (except, of course, that no one knows how long this could go on…). Cheers, Gio

I know this misses the whole picture... But I think it interesting to follow how this trend evolves: http://www.bloomberg.com/news/articles/2015-09-03/the-iphone-company Cheers, Gio

By the way, I am not saying they will succeed in getting that kind of returns… Until now I don’t think there is evidence enough either they will be successful or they will fail. All we know until now is the following: CFFO 2009-2015: $6 billion CFFI (sale of a business) 2009-2015: $1.4 billion Interests paid 2010-2015: $3.4 billion Total cash generated since 2008: $6 + $1.4 + $3.4 = $11 billion, which is roughly the cash they claim they have generated Purchase price 2008-2015 (cumulative): $35.7 billion Restructuring charges 2010-2015 (cumulative): $1.8 billion Total capital deployed since 2008: $35.7 + $1.8 = $37.5 billion, which is roughly the capital they claim they have deployed Can we infer from this either they will be successful or they won’t in achieving their goal of 20% IRRs? I don’t see how. One thing I agree with AZ_Value is a 20% IRR is a very ambitious goal and one that usually is out of reach. To achieve that goal imo there must be something extremely inefficient in an industry. Remember: they are not playing the inefficiencies of the stock market… When you buy a whole business, I agree with AZ_Value that those inefficiencies tend to disappear… Instead, they are playing the inefficiencies of the pharma industry. When you take away a poor management from a wonderful business, you could achieve great results. How much inefficient is the pharma industry today?... I suspect a lot! But I truly cannot tell... therefore, I cannot say if VRX will be successful in achieving their goal. Cheers, Gio

This is what I think they mean: Through: 1) Not overpaying 2) Cutting unnecessary costs 3) Synergies 4) A more efficient sales force 5) Fiscal advantages 6) Satisfactory future developments They aim at buying businesses the results of which could be compared to bonds that yield 20% annually on the purchase price + all restructuring charges, before any interest payment. This way they are going to receive cash that after 5/6 years will have covered the purchase price + all restructuring charges. Then with that cash they must of course pay interests on their debt. By the way, as I think I have shown, the cash their businesses have produced since 2008 almost exactly matches my interpretation. ;) How long is the duration of those bond-like 20% yields?... Of course it depends on both a) the durability of the products sold (how many of them are subject to patent expiration and when, how much competition there is in the market for those products that are not subject to patent expiration), and b) how satisfactory future developments can be. a) That’s why VRX looks for products that generally are not subject to patent expiration (or if so, that might expire as far in the future as possible… basically buying products that have just been approved, or are about to be approved), and VRX concentrates on very specific areas (like dermatology or eye care) in which it becomes the n.1 player very soon, this way having a strong hand to keep competition at bay. b) That's also why VRX actually invests in R&D and keeps improving its products. Cheers, Gio

You keep insulting me!! ;D ;D ;D Cheers, Gio

Cannot tell… As far as I am concerned, AGN reports results on a pro-forma basis (meaning the same assets compared to how they performed the year before), though maybe not every quarter… And that’s enough information. AGN and PRGO are my way to concentrate on the pharma and biotech industry, while diversifying away from VRX a little… They are smaller positions. Cheers, Gio

Imo a lot could be explained by these facts: 1) AGN has no net debt right now (that’s only now… because they will lever up again soon!) 2) They spend much more on R&D (that’s a more usual course of action… though I cannot tell if it is good for AGN shareholders’ financial returns…) 3) MOST IMPORTANT imo: they have not been nearly as successful as VRX so far… VRX’s success imo is the main reason why they generate so much controversy. Cheers, Gio

Allergan Announces FDA Approval of Updated Label for TEFLARO® (ceftaroline fosamil) http://www.prnewswire.com/news-releases/allergan-announces-fda-approval-of-updated-label-for-teflaro-ceftaroline-fosamil-300136587.html Gio

Valeant Pharmaceuticals To Acquire Synergetics USA http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-To-Acquire-Synergetics-USA/default.aspx Gio

Positive Phase III Results Demonstrate Efficacy Of Antibiotic Medicine AVYCAZTM (ceftazidime-avibactam) In Complicated Urinary Tract Infections http://www.prnewswire.com/news-releases/positive-phase-iii-results-demonstrate-efficacy-of-antibiotic-medicine-avycaz-ceftazidime-avibactam-in-complicated-urinary-tract-infections-300136763.html Gio

FWIW http://fortune.com/2015/08/19/this-is-what-its-like-to-take-female-viagra/?xid=soc_socialflow_twitter_FORTUNE Gio

Well, there is also the $1.4 billion from the sale of the portfolio of aesthetic drugs in 2014. And from $9.6 billion you’d get to $11 billion. Gio

If to that CFFO you add back interest payments, you'd probably get a much higher IRR. Wouldn't you? And if you want to show your shareholders how each single business is performing, why is it wrong to add back interest payments? Shareholders already know VRX as a whole is indebted, don't they? Gio

By the way, I don’t know if this has already been mentioned: AZ_Value has estimated a $4 billion difference between the VRX CFFO and the Cash generated by its acquisitions since 2008. Then he rightly says you shouldn’t add back restructuring charges nor depreciation / amortization. But then he also says VRX spends more than $1 billion per year in interest payments… If you want to convey to shareholders a sense about how those acquisitions are performing, imo to add back interest payments makes perfect sense: they are simply showing shareholders how those businesses would perform as standalone companies, without the debt burden the mother company has incurred to purchase them. Instead, of course interest payments are not added back when calculating Cash EPS for the whole company. Therefore, imo the $4 billion gap could be easily justified simply adding back interest payments from 2008 until today. Cheers, Gio

Ok, sorry! I didn’t understand what you were referring to exactly… My fault! But, like I have said, Sequoia adds back the restructuring charges to the purchase price. That’s what you’d like to see, isn’t it? And they seem to be quite satisfied with the results… During Q2 2015 Conference Call Pearson said their achieved outcome exceeds their deal model by 59%... If you add back restructuring charges then, you’d probably still get an IRR close to their stated goal! So, what’s the matter here? Are we talking about the fact that Pearson & Co don’t know how to make an IRR calculation? Or, once again, do you fear they are purposefully deceiving their investors? Why?! When results are more than good enough adding back restructuring charges?... I still don’t get this… Gio

It seems another controversial acquisition... http://www.fiercebiotech.com/story/astrazeneca-auctions-troubled-psoriasis-drug-valeant-445m/2015-09-01 Gio

Valeant And AstraZeneca To Partner On Brodalumab http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-And-AstraZeneca-To-Partner-On-Brodalumab/default.aspx Gio