Liberty

Valeant Pharmaceuticals To Hold Conference Call On Tuesday, June 17, 2014 To Correct Recent Misrepresentations http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Pharmaceuticals-To-Hold-Conference-Call-On-Tuesday-June-17-2014-To-Correct-Recent-Misrepresentations/default.aspx

Tepper's so frugal, LCD screens are a luxury he doesn't need!

https://secure.marketwatch.com/story/biosyent-pharma-receives-health-canada-approval-to-market-new-urgent-care-product-2014-06-12

http://www.mining.com/bhp-admits-mistakes-in-its-china-iron-ore-strategy-12893/

http://www.teslamotors.com/blog/all-our-patent-are-belong-you

That's a better way to look at it, but that's still low because VRX is a fairly seasonal business. They usually get about 40% of their revenue in Q1 and Q2 and 60% in Q3 and Q4 (B&L might have made them somewhat less seasonal, though..). Plus this year they have more R&D expenses in the first half than usual because they have some late-stage pipeline stuff from B&L that they're spending on. So full year should be a good chunk higher than just Q1 annualized (though that gives a ballpark).

You're so right, this is annoying as all hell. If there was a god, I'd ask her for the strength to ignore people who claim that valeant's basically a terminal runoff pulling basic accounting fraud over Greenberg, Ackman, Sequoia, and ValueAct (two of which have inside information access to do their DD). But I'm weak. Forgive me for I have sinned.

This makes no sense. You are aware that 'branded' doesn't mean 'patented', right? And that not everything that is patented faces the same kind of cliff in revenues when the patent expires? "Every branded product that VRX owns now will be generic by that time." A lot of their products are already not protected by patents and doing well in the market place, growing in fact. Their whole M.O. is finding durable products that don't need patent protection, or that have protection that can easily be extended (reformulation, etc), or that don't interest generic makers for various reasons. They do spend on R&D in areas where they are sure to get good ROIs, so it's not like there's no maintenance of the assets. They have more product launches than Allergan planned for the next few years, with higher peak sales estimates in the near-term pipeline, but that's a different story. Their durable portfolio is growing at high single digits. In 10 years, it'll be making more money for them than it is now, not less. You can see this by tracking how past deals are doing. That's why it makes sense to leverage up. It's not a declining asset, despite how their profitable investments in declining things like Zovirax make it seem on a consolidated basis. And their adjusted cash flow from operations makes sense because the one-time items that are related to acquisitions really are one time items, and they are great investments. If it costs them 450m to get 900m extra a year from B&L in synergies (I don't have the numbers handy, but on B&L they said: "Cost to achieve synergies will be approximately half of full synergies"), that's a huge return, and they only have to spend it once on B&L yet will reap the benefits every year (and they include the cost of those synergies in their acquisition cost to track their IRR). Maybe they'll have more one-time costs on other acquisitions, but these are real one-time costs in the way that matters, in that if they were to stop acquiring, these would go to zero relatively quick and the real earning power of the business would match the adjusted number, not the current number that includes those one-time costs. Here's the CFO at last year's investor day: If they stopped spending all that money on restructuring/synergies, their un-adjusted numbers would look much better, but their real economic performance would be much worse. I suppose that would make some people happy..

Medicis wasn't just the toxin and fillers. http://i.imgur.com/1563ULr.png

Yes, this was explained by management. They sold them because they expect the Allergan deal to go through and feel they had better bargaining power selling now rather than later (don't want to be a forced seller). They had to divest those assets because they are competing with Botox and they can't keep both for regulatory reasons.

The CFO recently said that he thinks VRX will be investment grade. This would help. But if they were not doing acquisitions, they would earn cash EPS relatively soon and could then use that to do buybacks, pay dividends, or spin off various assets that would be worth more on their own or in the hands of strategic buyers (they just got 5x sales for their dysport divestiture). They have many ways of creating value other than M&A. The size of their fishing ponds is probably something like 10 trillion if you count both the public and private assets (there are many places around the world where almost everything is private), and the subset that would be of interest to them is probably at least in the hundreds of billions if not more. They don't even have to find whole companies that are a fit, they can buy just certain assets without buying the whole thing (that's how they got the Dow assets, and I think they bought some stuff from JNJ too). This was in the first 3-hour merger presentation (in the prepared remarks + in the Q&A at the end where they say they were very conservative with the numbers in the slides). And they see themselves as a healthcare company in general, so they can go outside of traditional pharma.

txlaw, I think we're reaching the point of diminishing returns with these long back-and-forths. I think our respective positions have been made clear. I respect your arguments, but I'll just say that I disagree to varying degrees with each section of your latest message and leave it at that. Thanks for the conversation! :)

Allergan Inc rejects Valeant Pharmaceuticals International and Bill Ackman’s raised takeover offer http://agn.client.shareholder.com/releasedetail.cfm?ReleaseID=853769

I think worries about the model being so replicated that it'll keep VRX from applying it successfully are premature. Pearson has been asked this question many times, in many forms ("what are the barriers to entry to your model?"), and he isn't worried for the next decade. I think it's like value investing. There's no huge secret, it's simple, but it's hard to do, requires discipline, and compared to being safely with the herd, it's not fun for those who don't have that independent (dare I say outsider) streak. That's why there isn't a thousand Berkshire Hathaways making it impossible for the real Berkshire to acquire good assets at fair prices despite everybody seeing what Buffett's doing and Buffett himself explaining it very clearly. Just look at how much flack VRX is getting for doing things differently from others, and that's after being a multi-bagger in a few years. Imagine if they were still waiting for success... Changing a company's culture is very hard. I expect some other pharmas to do a few of the things, like tax inversions, cutting some R&D, but the discipline at the core of the model will be harder to adopt (only enter certain markets, walks away rather than overpay, zero-budget everything, don't be afraid to do big painful cuts on low ROI items, let local managers take most of the operational decisions, outsource lots of R&D so you don't have carrying costs, etc). It's like how every CEO knows in theory that lean operations are a good thing, but in practice, it takes people like 3G to really go against the institutional imperative and be the bad guys who say "no" to almost everything.

A doctor's perspective on HealthKit: http://www.quora.com/What-do-doctors-think-of-HealthKit I've seen similar things to this from many developers/tech people: http://daringfireball.net/linked/2014/06/09/the-next-five-years This is also interesting: http://daringfireball.net/linked/2014/06/09/ios-8-webkit Because of the new XPC infrastructure, all webviews will now benefit from the faster javascript engine in Mobile Safari without compromising security. Cool side benefit of Extensions. This means that all apps that show you a web view that aren't safari will now be faster (twitter, chrome, RSS readers, whatever). Looks like Costco will start carrying iPhones and iPads (that can't hurt): http://www.macrumors.com/2014/06/09/costco-iphone-ipad/

I'd have to look up if they added back the intangibles on Zovirax and such transactions, I don't know off the top of my head, but it's still a small part of their business so even if they have, we're talking about a few percents difference, as 80-85% isn't declining, and the real economics of those runoff transactions on a cash basis are still very attractive even if they were to distort cash EPS. The runoff part should be looked at on a DCF basis anyway, and only the rest of the business should be valued based on multiples. The way Valeant looks at things, when they acquire an asset, they add up the cost of the asset + the cost of getting all the synergies, and if they can't get 20% on that at statutory tax rates without taking into account anything from the pipeline, they won't do the deal. And once it's done, they keep tracking it basically forever. And they probably have a different model for the declining assets that still aims for that 20% IRR. Management only optimizes for cashflow, not for GAAP EPS or adjusted cash EPS or whatever (I don't think cash EPS is perfect, just better than GAAP EPS in this case). That's all just to give you an idea of what the business could earn on a steady state, but it's not going to be steady, so that's kind of moot. Nobody said this was easy to value. The fact that they are on track or above their models on pretty much all of their deal models on a cash flow basis and that they have good growth on the durable part is good enough for me.

I don't see what you're trying to get at here. That's not primarily why Wintel won. They won because they had all the software, and the software wasn't compatible with the Mac or anything else (making them a non-starter for like 90% of people). The only thing that loosened that grip is the internet; it's now the primary platform for what people do, not the local OS. If Apple hadn't been locked out of the larger developer ecosystem by the Microsoft monopoly, they likely would have had a much bigger market share at the high end. They also weren't always as good as they are now, so that didn't help either (they lost focus for a long while in the 1990s). I guess the modular approach isn't good enough for you to fully live with, eh? Exactly. All kinds of people can build on Apple's platform, because it's open in many ways. I'll grant you the greater hardware variation available. But quantity doesn't equal quality. Apple has never been about making the most models. As long as they make products that are most desirable to a large fraction of the profitable end of the market, they'll do just fine. It's not about spin. When most of your users are 1-2 versions behind (and many with recent phones can't upgrade even if they want to), and a large fraction are 3-4 versions behind, that's not choice, it's a problem. When developers have no idea how their stuff will run on a lot of devices, that's a problem. When users have to deal with a crapload of duplicated software because the hardware maker wants to differentiate and so there are two photo apps and two setting apps, it's a problem. I still don't see how Apple is locked out of doing good things that are available to modular players. The beauty of smartphones is that a lot of the time, it's not either/or, you can have everything. Screen size is one of those either/or things, but for a lot of the rest, you can pile on. If a new sensors is added on the android side and everybody loves it, Apple can add it, so it's not truly an advantage. No need to create a new fork of the iPhone with the sensor and one without. Apple's platform is already open enough to get the benefits of modularity (open to third party services, apps, a lot of the plumbing is now flexible, etc). The only thing they don't have - and it's a plus - is a zillion different product. But focus matters. Your solution to fragmentation is a new fork? That's original :) The problem with that is that users would want the Google version but manufacturers all want their own thing to try to differentiate and not give all the branding value to Google. There's always been a tension there. So soon Samsung will push Tizen more unless Google keeps twisting their arm, etc In any case, your fork wouldn't solve the version fragmentation and device feature fragmentation and such mentioned above. It would just allow you to get a less crappy experience by bypassing the crappy software that hardware makers insist on putting on their phones. When Apple sells at the multiples that KO was selling, you can believe me that I'll be selling too. In the meantime, Apple still sells for less than the SP500 and they're about to release many major updates (the non-S years are always bigger) and new categories, after showing us some pretty amazing work on the software side.

Zovirax is their biggest thing in that category right now. If you look up the numbers, I think you'll see that despite the fast-declining revenues, it was quite a profitable asset to own because of the low price paid. Here's your starting point: http://ir.valeant.com/investor-relations/news-releases/news-release-details/2011/Valeant-Pharmaceuticals-to-Acquire-US-and-Canadian-Rights-to-ZoviraxR/default.aspx There's some info about it here too if you don't want to dig it all up youself: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg174857/#msg174857 But they have a bunch of assets like that, some much smaller. Also, in Q2 of every year, they usually have a slide that shows the IRRs of all their acquired assets since they got them (or maybe it's Q3, can't remember exactly) where you can see if they are on track with their 20% IRR at statutory tax hurdle. Page 7 here shows that slide: Note that the CAGR column only shows year revenues vs LTM revenues prior to acquisition, not VRX's returns on the asset. Some assets they've grown, some have declined because they bought them close to their patent cliff (the runoff model), but the profitability of each deal is in the last column. Their model is 20% IRR at statutory tax rates while giving zero value to future pipeline (and their cash taxes are much lower than statutory, so real IRRs are actually higher). Page 8 on same presentation gives a bit more details on where each thing is vs. their hurdle. Note that Afexa, which was behind on revenues, still came on track in cash flow. Probably got more synergies than they had modelled there, but I'm not sure. The reason VRX provides ex-generics number is not to create a "everything but the bad stuff" number to fool people. Who would that fool anyway, it's written right next to the with generics number? It's shareholders who understand the company that asked them to provide this so they can have a better idea of how the durable part of the business is growing without the noise from stuff like Zovirax, which was bought knowing that it would rapidly decline.

Sometimes I wonder if China was actually 13 different 100-million-population countries (13 Philippines? or maybe 4 United States?) if people would be less worried. Maybe the scale would be more apparent that way? Not that I have any idea if they're going to power through or crash and burn any time soon... If I had to venture a guess: The situation in China for many decades in the 20th century was them being held back by communism, and what we're seeing now is the reversion to the mean. Reversion to the mean isn't them going back to abject poverty. Though it doesn't mean they haven't overshot... Who knows.

True (if they really value the screen size over "most other attributes"), but what I said is that nothing prevents Apple from having larger screens. It's only a temporary advantage for these Android makers. Apple's advantages are a lot harder to replicate, unlike what you seem to think. You wrote: Nothing. But as I said, it's not the approach that makes them good. It's necessary, but not sufficient. If Samsung started to design its own software and services, it wouldn't magically be good at it. That stuff is incredibly hard to get right. Google tried more hardware with Motorola and they quickly dropped that (some will say they only wanted the patents, but if the Motorola phones had been a big hit, Google would've kept them)... What? Macs were only better at the beginning but now they are competing on price with comparable enough stuff? So why are Mac sales going up while the industry declines despite Macs only selling in the higher price points and consistently making a massively disproportionate portion of profits in the industry? Could it be because they are better and people are ready to pay more for them? Why would people pay more if they could get something comparable more cheaply? Could it be because OSX is only available on Macs, differentiating them from the zillion Windows machines, and the hardware is better designed too? I don't agree with that either. Ever is a long time. But I think they're clearly the best at designing consumer computing devices right now. Whether that changes over time or not, that requires monitoring the company and the competition, but that doesn't happen overnight. And in fact, I see the competition becoming weaker lately (the Galaxy S5 was very 'meh'), Android looks dated since iOS 7 came out, most others are moving to the lower end and losing money, which makes it hard to attract the best people, reinvest and be competitive in the profitable, differentiated higher end. Experience comparable to Apple? Samsung does this? Amazon will do this? When's the last time you owned an Apple phone? Have you ever owned a Mac computer? In any case, the point of my last post was not to talk about design, it was to show that what you call "modularity" is something that Apple has in its toolkit. You didn't give me any examples of things that an Android maker can do that Apple can't do. It's not really an advantage for Android, but it can be disadvantage when it turns into fragmentation (in many ways -- during the design-integration process, for developers, for carriers trying to keep things up to date, etc).

In theory, what you say should be correct. In practice, the numbers don't back up your theory. Mac is a 30 year old product with a much weaker competitive position than the iPhone. Yet it generates almost half of PC industry profits. And what has happened to the profit pool for the PC industry? It's maturing, but a big part of the decline is because PCs are being cannibalized by tablets and smartphones. Two areas where Apple dominates profit-wise. It's similar to how Apple cannibalized its iPod business with the iPhone (people didn't stop wanting to listen to music, they just got their fix elsewhere -- people don't stop needing computing devices, they just get different ones). Until something displaces smartphones and tablets, I'd say there's still a pretty good runway ahead of us. The good news is that the replacement cycle is a lot shorter with phones than PCs (for a larger variety of reasons than why PCs are upgraded -- this isn't just about specs). I expect the iPhone 6 to show us the mother of replacement cycles, as people with iPhones 4 and 4s upgrade en masse.

What are those modular things that Apple can't do? They've just increased the flexibility of iOS tremendously with iOS 8 (while keeping the security, which Android lacks). Third party keyboards, extensions allowing all kinds of apps to inter-operate and new kinds of apps to be created, more cloud access for their developers and users, better and more flexible tools for their developers, etc. Different screen sizes has always been something that Apple could do, even if they haven't chosen to do it so far. But that's likely coming soon. And I don't see 37 sizes as better than 2-3. In fact, worse for many reasons. Services from third party companies run on iOS and OSX. In fact, they all want to be on this higher end platform because it's quite profitable. And the App store is the ultimate modular platform. I had to read this one twice to realize the "for some attributes" clause. Yes, indeed, Apple isn't the best at every single thing. But it's the best overall, and that's what matters for most high-end customers in the real-world, and the control that they keep over the whole experience is necessary for them to be as good as they can be. They're not good because they're integrated, though. If they had bad taste and technology, being integrated would only allow them to screw things up worse. But when you're good, being integrated allows you to get the most out of your skills rather than handing off your half-finished baby to someone less talented so they can add their own touch to your work. It's kind of tautological to say that the way to avoid commoditization is to differentiate yourself. But how can Android makers differentiate themselves if they all run the same software and a lot of the same hardware? How can the software be the very best if it's not designed with the specific hardware in mind? How can the hardware be the best if the hardware maker has limited control over the software that will be on its product (and probably doesn't even know what the software will be able to do by the time its hardware design cycle is over)?

This has been explained ad nauseam. This 80-85% includes all kinds of stuff that, for various reasons, can be grown with minimal maintenance investments. Esthetics, dermatology, ophthalmology, and dental, the specific countries where they sell each thing, haven't been chosen at random... That's not what is going on. Imagine two side to a single business: 1) Growing at 5-10% a year. 2) Buys something for X, and over it's 4 year life it spits 2X in cash before dying. The two combined give you a business that can easily support debt, even if #2 masks the growth of #1 and gives the impression that the assets are declining and shouldn't be able to support debt. They don't buy type 2 assets at the same multiples as the type 1 assets. #2 isn't just whatever random part of #1 happens to have a patent cliff this year. It's a separate thing that is managed with a different model to get good IRRs. #1 doesn't become #2 over time, it keeps growing overall (some stuff dies, other replaces it, but overall there's organic growth). They are separate things under the same roof.

Is it maybe possible that GAAP accounting distorts the picture in this case, as it often does? Would you value Charter (CHTR) on just the GAAP numbers, or would you be better served by trying to understand the real economics of the business? Please explain why Valeant's amortization of finite-lived intangibles is a non-economic expense? (This is the single largest add-back to get "cash earnings", this line item was $364mm last quarter). Are drug patents the type of assets that do not deplete? When a drug goes generic is its profitability unaffected? If a drug's profitability is unaffected when the patent expires then yes, you should be adding back all of the amortization charges to get a true picture of earnings. Comparing this to CHTR is like comparing this to P&G and saying that because amortization is not a true expense for P&G, then it's also not a real expense for VRX. The assets aren't similar: VRX holds declining assets while CHTR and P&G do not. Because 80-85% of Valeant's assets are not declining, they are growing at mid to high single digit rates (the remaining portion is getting good IRRs, like a company in runoff that you bought at a low enough price).

That would make sense. Grant did mention the VRX short idea in one of his newsletters, and said that he got the idea from Chanos. And since they've both called Jim/James, it gets confusing... btw, it looks like CNBC is changing the first link that I posted above. They've changed the orders of the videos. Here are some direct links to videos: http://video.cnbc.com/gallery/?video=3000282619&play=1 (this is the Chanos one, where he also explains the way to look at the organic growth/runoff products) http://video.cnbc.com/gallery/?video=3000282601&play=1 http://video.cnbc.com/gallery/?video=3000282598&play=1 http://video.cnbc.com/gallery/?video=3000282597&play=1 In other news: http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Pharmaceuticals-Announces-FDA-Approval-Of-Jublia-for-the-Treatment-of-Onychomycosis/default.aspx Valeant Pharmaceuticals Announces FDA Approval Of Jublia® for the Treatment of Onychomycosis Valeant acquired the Dow assets for 277 million: http://www.contractpharma.com/contents/view_breaking-news/2008-12-10/valeant-to-acquire-dow-pharmaceutical-sciences/