VRX - Valeant Pharmaceuticals International Inc.

[giofranchi]

It is always a great joy, whenever I come to know a wonderful business, managed by an outstanding capital allocator!

 

We continue to believe that Valeant is a unique pharmaceutical company and we are excited that you have taken the step to better understand our company. Valeant’s primary strategy is to leverage our speed, scale, financial strength and disciplined approach to business development, coupled with our focus on organic growth to pursue substantial growth opportunities and generate long-term value for all of our shareholders. Our strategy and philosophy are both simple and powerful. They are anchored in diversified operating units led by empowered entrepreneurs – who will be rewarded for growing their businesses, their cash flows, and building leadership positions in the marketplace. Our dual engines of growth will be superior execution of well-thought-through business plans and continued new growth opportunities via disciplined acquisitions. We do “more with less” than our competitors.

 

We were also very busy on business development activities as we completed over 25 transactions in 2012 and, as in previous years, we had a mix of small tuck-in acquisitions, mid-size transactions, as well as a more significant acquisition of Medicis Pharmaceutical Corporation that closed in December.

 

I am also pleased that we greatly enhanced our management team at Valeant, with the addition of several new executives following a strategic plan review conducted in 2012. Following this process, we determined that it is essential to preserve our decentralized model as we aspire to grow from a $3-4 billion revenue company to a $10-20 billion company in the foreseeable future. Unlike most traditional pharmaceutical companies that organize centrally by function coupled with regional commercial operations, we created the role of Company Group Chairman, each of whom will have a set of distinct but disparate set of businesses and functions reporting to them. This new structure allows me to focus on helping to troubleshoot problem businesses and to focus on the larger business development opportunities around the world. We welcomed Laizer Kornwasser, Ryan Weldon and Jason Hanson to our executive team in these new roles, in addition to expanding the number of General Managers throughout our operations.

 

2012 was also a very strong year in the area of Research and Development. We have continued our unique approach to traditional R&D in that we don’t bet purely on science for our future growth. We like to buy in-line products that we believe we can grow and take the development risk out of the equation. We prefer to access our innovation through acquiring companies and products. And when we do invest in R&D, it is primarily focused on dermatology, ophthalmology, branded generics, and OTC products, where the risk-reward profile actually works from a standpoint of our company’s philosophy. We also seek partners for our significant development efforts, thereby reducing our R&D expenditures as compared with our peers.

 

Our footprint is purposefully international, yet not global. We intentionally do not operate in a number of international markets, such as Western Europe, Japan, China and India, which are the strategic focus of other pharmaceutical companies. We continue to explore and invest in other territories that we believe are high growth opportunities through the successful application of our business model. Pursuing these opportunities in the select regions that larger pharmaceutical companies are not focusing on is another key element of our operating philosophy.

 

--J. Michael Pearson, AL 2012

 

What else should we look for in a business?

I have always loved the pharmaceutical business, and my firm has been a shareholder in Johnson&Johnson, Novartis, and Abbott Laboratories for a long time. I had chosen those three companies, because of the capital allocation abilities they had proven to possess. Especially Novartis, under the lead of Mr. Daniel Vasella, whose letters to shareholders are imo the best in the industry… until I read Mr. Pearson’s!

JNJ, NVS, and ABT size was also somewhat of a concern to me: it is one thing to grow a “$3-4 billion revenue company to a $10-20 billion company”, it is a completely different thing to grow a business that already has sales around $60 billion… I just think the former goal is much more predictable than the latter!

So, it is with extreme pleasure that I think I have now found a pharmaceutical company, with a great focus on capital allocation and therefore maximization of shareholders return, and with a size that still guarantees a lot of room for future growth. Furthermore, Mr. Pearson embodies all the features I look for in a reliable business partner, he is only 52, and will be able to compound shareholders capital for a very long time.

 

Cash EPS for 2013 are expected to be in between $5.55 and $5.85. $5.55 represents more or less a 7.5% FCF yield on yesterday closing price. Although most of us look for at least a 10% FCF yield, please consider that Cash EPS have increased at an “out of this world” annual rate of 45.4% since 2008! If for the next 10 years the CAGR in Cash EPS dramatically falls to “just” 15%, and at the end of the 10 years VRX still sells for a multiple of 13x (which is not implausible at all!), the return from the investment would be a 15% compounded annual.

 

Yesterday I initiated a small position on behalf of my firm in Valeant Pharmaceuticals, with the hope to average down aggressively in the future.

 

PS

Drokos’s post in the “Outsiders” thread compelled me to dig deeper and read much more about Valeant, than I had already done until that moment. :)

Also Christopher1’s suggestions were much useful, as always! :)

 

giofranchi

 

[Phaceliacapital]

Did you also check ENDP which is now run by ex-Valeant COO Rajiv De Silva?

[giofranchi]

Did you also check ENDP which is now run by ex-Valeant COO Rajiv De Silva?

 

Not yet, but I will surely do! Thank you! :)

 

giofranchi

[Phaceliacapital]

No problem, would appreciate your thoughts

[finetrader]

I looked at this one on the basis that the CEO use a value investing style managing his business.

 

But then I've been afraid by the level of debt that has risen substantially in the past years.

 

My opinion is they won't be able to grow as fast as they've done.

[giofranchi]

I looked at this one on the basis that the CEO use a value investing style managing his business.

 

But then I've been afraid by the level of debt that has risen substantially in the past years.

 

My opinion is they won't be able to grow as fast as they've done.

 

True. Long term debt is a very substantial $10 billion. But, based on the projection of $5.55 Cash EPS for 2013, and 305,864,659 shares issued and outstanding as of April 30, 2013, FCF for this year is expected to be circa $1.7 billion. And if they grow FCF at 15% annual, it will take them little more than 4 years of FCF to pay long term debt down. Still, not something that could be overlooked, but I think a certain amount of debt might be justified and even useful for a company that is growing, trying to take advantage of many opportunities, and building scale. After the transition from a state of very high but ultimately unsustainable growth to a state of slower but more sustainable growth will have occurred, I expect them to decrease debt substantially.

 

giofranchi

 

[vinod1]

giofranchi,

 

I have been planning to look into this for a while but never got around to it, but have taken a few notes from Sequoia fund shareholders 2012 meeting transcript. They have commented on this in their past annual meetings and the transcripts are available on their website.

 

Vinod

 

Rory Priday:

Just to preface, when we first bought Valeant, it

was a smaller position; it was probably a 6% to 7%

position. The fund has grown quite a bit since then,

but the stock has more than doubled. That is the

reason it’s closer to a 10% position in Sequoia and

maybe 15% in some of the private accounts. More

money has come into Sequoia than into the separate

accounts. It’s outsized to some degree just because

the stock has gone up a lot.

The reason that we still like Valeant is the

reason we liked it in the first place. It is a

pharmaceutical company that does not really function

like a traditional pharmaceutical company. By that I

mean most pharma companies, if you look at how

much they spend on research and development might

spend 10%, 15% or in the high teens as a percentage

of sales on research and development. Last year

Valeant did about $2.3 billion in sales and it spent

$66 million on R&D, which is about 3% of sales. So

instead of spending money on R&D, it spends

money acquiring whole companies and/or products

and other assets. And what it does is restructure

those assets. So we think of it as a value investor in

other companies or in the assets of other companies

which are available for purchase.

The reason that Valeant can do that is that it has

a good team at the top led by Mike Pearson, who

has been an extraordinary and very aggressive

manager. The types of returns that Valeant can

generate by acquiring another company and cutting

costs can be in the 15% to 20% range. Just to give

you an idea of that, when Valeant merged with

Biovail, Biovail was doing a billion dollars in sales,

and management cut out — the year-end synergy

target this year is $300 million to $350 million.

Valeant is eliminating costs that represent 35% of

sales. Because of the company’s tax structure, it pays

taxes at very low rates. So a lot of that $350 million

is going to flow through to the bottom line. You can

generate huge returns if you do those kinds of deals.

Last year Valeant acquired Ortho Dermatologics,

Dermik, Sanitas, PharmaSwiss and a few other

companies. In aggregate, these companies added

another billion dollars in sales and the synergy target

is $250 million. Again, a lot of that is going to fall

through to the bottom line. So Valeant is generating

really high returns by acquiring other businesses in

the pharmaceutical industry.

One of the most attractive things about the

company is that it is going to generate $1.3 billion in

cash earnings this year and there are not many

companies that can retain that amount of money and

reinvest it at a rate of return of 15% to 20%, and we

could potentially see Valeant doing that for a number

of years. You can get a huge amount of growth if

you can reinvest that amount of earnings at those

rates of return. That is the main reason that we are

excited about it.

 

Question:

I have two questions for the two companies that

Rory mentioned. For Valeant I was wondering how

much longer it can continue to make such accretive

acquisitions, and what will allow the company to do

that. Then for O’Reilly and the auto parts businesses,

what is the risk of disintermediation by online

websites such as Amazon?

Rory Priday:

I’ll start with the Valeant question. The

company can continue to grow for a long period of

time. As you have seen in the last six months,

Valeant has spent $600 million to $700 million on

some companies in Russia that you have probably

never heard of, a podiatry company in the US, a

nutritional supplements company in Brazil and a

branded generics pharmaceutical business in Mexico.

Valeant currently has a market capitalization of $15

billion, which compares to a market value of over

one trillion dollars in the industries that management

has targeted. Valeant’s addressable market is smaller

than that, however, because many of the companies

or assets which comprise a significant portion of that

trillion dollars are in countries or product categories

in which Valeant has no interest.

The question is can Valeant get the asset or the

company at the right price. Companies that are for

sale but do not want to see major changes after

selling are not good candidates. Private equity firms

whose interests are primarily financial are more

likely sellers. More significantly, there are

innumerable private businesses, a lot of which are

smaller companies we have never heard of. The

pathway to growth is there and the company has a

plan. Not only does management want to create a lot

of shareholder value, but it wants to do it quickly.

Management seems to be in a hurry. So the prospects

are fine for Valeant to continue to grow.

 

Bob Goldfarb:

We generally do not look for big trends,

megatrends. Again, one company at a time, one stock

at a time. So anybody have any trends?

David Poppe:

The only trend in the last few years— we

talked about it last year or the year before — is we

really tried to own through a period of a lot of

financial uncertainty businesses that did not have any

debt and were not reliant on the financial markets to

grow. Bob, was it ’09 — we sold some positions like

Caterpillar that subsequently just did fantastic. But

we were nervous about anything that relied on a

healthy liquid financing market to be able to conduct

business. We have also always — I do not think this

is a new thing — we have always shied away from

companies that are using a lot of leverage to try to

grow. Because we do not use leverage, we prefer

companies that generate so much cash flow that they

can self-finance their growth, and maybe there is

even more of that element. But I would also say for

every rule there is an exception. Valeant is a

company that we think can grow fast using a lot of

leverage and we think we are making the right

decision there. So there is an exception to every rule.

But in general we have tried to avoid highly

leveraged situations.

 

 

Question:

The pharmaceutical and healthcare divisions — I

came in a little bit late so you may have touched on

this — what about Johnson & Johnson and a number

of the other companies that are out there, do you

think there is a platform to go forward or are they

pretty much stagnant during the next few years?

Bob Goldfarb:

I would just say we are more comfortable with

the Valeant model where you spend very little on

R&D. The big pharma model where you spend a lot

of money on R&D has not been productive over a

number of years in aggregate. It is like wildcatting.

We are more comfortable with the R&D-light model

that Valeant has. That does not mean that J&J won’t

be successful.

 

 

[giofranchi]

Thank you very much, Vinod! ;)

 

giofranchi

[Guest valueInv]

I looked at this one on the basis that the CEO use a value investing style managing his business.

 

But then I've been afraid by the level of debt that has risen substantially in the past years.

 

My opinion is they won't be able to grow as fast as they've done.

 

Since they are a pharma, their revenues should be quite stable even in down years. Shouldn't this give them a margin of safety and allow them to take on more debt than usual?

[giofranchi]

Q1 2013 Conference Call

 

giofranchi

valeant-pharmaceuticals-Q1-2013-conference-call.pdf

[Cunninghamew]

I have been tempted to invest in VRX off and on for the past two years. The reason I never pulled the trigger was bc it is a roll-up strategy. People point to how the company generates high ROIC and strong free cash flow, but are the numbers misleading. Should the company's acquistions really be treated as R&D expense or CAPEX? Second, is the roll-up strategy sustainable? What if it is purchasing pharma's with declining sales? Wouldn't that imply the acquistions are akin to maintenance CAPEX vs growth CAPEX?

 

Not trying to knock the thesis. I have really wanted an excuse to buy VRX (and now ENDP), but I have never been able to resolve those questions.  Just some food for thought

[Guest wellmont]

I have been tempted to invest in VRX off and on for the past two years. The reason I never pulled the trigger was bc it is a roll-up strategy. People point to how the company generates high ROIC and strong free cash flow, but are the numbers misleading. Should the company's acquistions really be treated as R&D expense or CAPEX? Second, is the roll-up strategy sustainable? What if it is purchasing pharma's with declining sales? Wouldn't that imply the acquistions are akin to maintenance CAPEX vs growth CAPEX?

 

Not trying to knock the thesis. I have really wanted an excuse to buy VRX (and now ENDP), but I have never been able to resolve those questions.  Just some food for thought

 

isn't berkshire a rollup in the sense that it grows mostly by acquisition? and with regards to your accounting question, isn't what's important the FCF at the end of the year and not how the expenses are accounted for on the statements? I guess what you are really questioning is management, and whether they are making smart acquisitions. and if you have doubts that they are, then you probably don't want to own this company. But the thesis is that management is smart and knows exactly what they are doing.

[Cunninghamew]

I guess my previous post was poorly worded, so let me tackle it from another angle.

 

Pharma companies make money by developing drugs and selling drugs. To be a successful pharma co you have to be constantly investing in R&D to come up with new drugs. Valeant has obviously taken a different approach (that I think makes some sense). Pearson is essentially saying it is difficult to develop new drugs. It is expensive and at the end of the day you have no clue if the drug will be a success or not. Instead of developing (or pumping money into R&D) why don't we just acquire pharma cos with drugs already in the pipeline. From there we can cut costs, raise prices, ramp marketing, whatever it takes to generate cash. (Note that I have no problems with this strategy if it is employed in a disciplined manner).

 

Bc he is not pursuing organic growth, but rather growth via acquistion you have to think about how to treat the acquistions and this is where things get confusing. How much of each acquistion should be treated as maineance CAPEX (i.e. just refilling the run-off in the pharma pipeline) versus how much is growth CAPEX (additional pipeline)?

 

People talk about VRX's cash earnings (which are amazing), but if the acquisitions are partially M CAPEX (or a replacement for R&D spend) than yes they do matter. I.e. peoples estimates for free cash flow are overstated.

 

I am not saying run for the hill. It can very well be a good biz, but the free cash flow of the biz may be overstated if you are just looking at CFO - investments in property, plant, and equip.

 

Just food for thought. Like I said, I thought it was an interesting biz and I wanted to buy, but couldnt get all of the way there.

[LC]

Sounds like betting on the jockey, not the business. If they're making good deals, then great! If they start making bad deals, then the pipeline won't be there and/or they will have overpaid.

[Guest wellmont]

I guess my previous post was poorly worded, so let me tackle it from another angle.

 

Bc he is not pursuing organic growth, but rather growth via acquistion you have to think about how to treat the acquistions and this is where things get confusing. How much of each acquistion should be treated as maineance CAPEX (i.e. just refilling the run-off in the pharma pipeline) versus how much is growth CAPEX (additional pipeline)?

 

People talk about VRX's cash earnings (which are amazing), but if the acquisitions are partially M CAPEX (or a replacement for R&D spend) than yes they do matter. I.e. peoples estimates for free cash flow are overstated.

 

I think you're doing a good job of restating the existing bear case here. It seems to me the answer to your question depends on your fundamental business analysis, and how you choose to treat the acquisitions. I mean, the kind of accounting for acquisitions treatment you propose here does not seem to be unique to this company. Every company is subject to certain assumptions about cap ex/maint cap ex, and it's effect on owner's earnings, especially companies that make acquisitions to grow. But you do remind us that even good stocks have a bearish thesis out there that must be considered. If you believe that the analyst community is marking these acquisitions wrong, then you may have found yourself an opportunity on the short side. :)

[ItsAValueTrap]

Pharma companies make money by developing drugs and selling drugs. To be a successful pharma co you have to be constantly investing in R&D to come up with new drugs. Valeant has obviously taken a different approach (that I think makes some sense). Pearson is essentially saying it is difficult to develop new drugs. It is expensive and at the end of the day you have no clue if the drug will be a success or not. Instead of developing (or pumping money into R&D) why don't we just acquire pharma cos with drugs already in the pipeline. From there we can cut costs, raise prices, ramp marketing, whatever it takes to generate cash. (Note that I have no problems with this strategy if it is employed in a disciplined manner).

I don't think that any pharma company has to maintain their pipeline.  There's no rule in capitalism that says you have to swing at every pitch.  If the returns on R&D are poor (which seems to be the case over the past several years) then you should stop.

 

I don't think it makes sense to treat their acquisitions as maintenance capex.  It would make more sense to look at each drug as a depleting asset.  Value each drug based on discounted cash flow.  The entire business could have some value due to economies of scale in distribution and so forth.

 

I don't understand pharmaceuticals that well so I haven't looked into this company much.

[giofranchi]

muscleman wrote me a message, asking what I know about the pharma industry. My answer follows:

 

Hi muscleman!

To tell the truth, I am a big fan of… great businesses!!  :)

I don’t think I have any particular insights into the pharma industry, other than I have followed for some years companies like JNJ, NVS, ABT, and TEVA. But, let’s be clear: I don’t think you must have great insights into the pharma industry, to understand that pharma companies might be great businesses!

 

First of all, we will always need drugs, unfortunately they will never go "out of fashion" or become useless… Second, the prospects for future developments are bright: it was Mr. Feynman, one of the greatest minds of the twentieth century, who proclaimed himself to be a great fan of biology. I think he said something like this:

From a biological point of view, there is no true scientific evidence that we must die.

Third, I like “knowledge” businesses: they are scalable, and a business, which enjoys scalability, tends to be a cash flow machine. Third, they are not capital intensive: not only they generate a lot of cash, they also generate a lot of FREE cash. I know of no better environment for an outstanding capital allocator to leverage his/her skills.

 

On the other hand, the drawbacks with pharma are very well known: first, huge investments in R&D are needed, and second, the uncertainties of the returns on those investments are many and hard to fathom.

 

That’s why I agree with Mr. Buffett's point of view: a basket approach with pharma is the way to go. And the basket I chose for my firm was made of 4 companies (JNJ, NVS, ABT, TEVA), which were themselves very diversified companies, and which had an outstanding track record as capital allocators.

 

The same, imo, is true for VRX, with the added benefit of a still much smaller size, and therefore still much more room for growth. Mr. Pearson, of course, is clearly very shrewd, deeply motivated, and truly committed to deliver outstanding results for his shareholders. So, imo, he is among the very best people with whom I would like to partner.

 

I don’t really have much more to add about my knowledge of the pharma industry… with the exception, perhaps, that I am reading [amazonsearch]Shaping The Industrial Century: The Remarkable Story Of The Modern Chemical And Pharmaceutical Industries[/amazonsearch], and I find it a fascinating read! Highly recommended.

 

Best regards,

 

giofranchi

 

[muscleman]

I just checked the latest 10-Q and the numbers look confusing to me.

Book value is only $3 bn but market cap for this stock is $23 bn?

the 10-k said: "Net loss was $116.0 million (basic and diluted loss per share of $0.38 ) in 2012, compared with net income of $159.6 million (basic and diluted earnings per share (“EPS”) of $0.52 and $0.49, respectively) in 2011"

 

So they are losing money.

 

Why do you say they are making a lot of money?

[ExpectedValue]

I just checked the latest 10-Q and the numbers look confusing to me.

Book value is only $3 bn but market cap for this stock is $23 bn?

the 10-k said: "Net loss was $116.0 million (basic and diluted loss per share of $0.38 ) in 2012, compared with net income of $159.6 million (basic and diluted earnings per share (“EPS”) of $0.52 and $0.49, respectively) in 2011"

 

So they are losing money.

 

Why do you say they are making a lot of money?

 

They've done a lot of acquisitions so looking at GAAP earnings is going to understate the business. You'd be better off looking at them on a cash p/e basis which is more reasonable.

[Guest wellmont]

I just checked the latest 10-Q and the numbers look confusing to me.

Book value is only $3 bn but market cap for this stock is $23 bn?

the 10-k said: "Net loss was $116.0 million (basic and diluted loss per share of $0.38 ) in 2012, compared with net income of $159.6 million (basic and diluted earnings per share (“EPS”) of $0.52 and $0.49, respectively) in 2011"

 

So they are losing money.

 

Why do you say they are making a lot of money?

 

gaap they lost money. but on a cash basis they are making money. for example in the latest q they reported d & a of $341m net income of -$28m and cap ex of $14m. they produced $420m of ebita in the quarter. So you can see that this company produces a lot of cash. they used  some of their FCF to purchase other businesses. Roughly speaking it's trading at 19 tmv/ebita (current run rate). but then you add growth via acquisition, and cost cutting on acquired assets, it's trading for less than that. This is a bet on management plain and simple.

[LC]

Yes on a cash basis they are making money...but look at how they've levered up the past two years for acquisitions. IMO this is a bet on whether those acquisitions will pay off or not.

 

A summary of their long term debt can be found on pg 20 of the 10Q, the majority of which is around 6.75-7.00% interest.

[biaggio]

Giofranco, and others, I think you need to be careful with this one.

 

FWIW because you have been so helpful and I would hate for you to lose money I would like to say that I think there is a significant risk of this being a value trap based on:

 

-I don t think this is a good business-  The drug business used to be a great business-its not what it used to be due to the patent cliff + lack of productivity from R&D. Then you add in the intense competition from generics, and the fiscal constraints from governments and insurance companies. I am not impressed by VRX's products (basically marketing rebranded products and small niche products- by the time a patient attends his doctor s office he has already forgot about it-as there are alternatives).

Look at the lack of consistency of earnings.

 

-a lot of debt ($10billion)

 

-serial acquirer=can you trust the accounting

 

-was there not some controversy in the former Biovail.

 

There are so many other owner operators that have been discussed (many by you) that seem better then this

 

Have quickly studied most recent 10K so I could be wrong.

[biaggio]

If you really like VRX, you might want to look at Paladin Labs instead

 

Same kind of company in that it is buying other companies with perceived products that are mature but under marketed, low risk/low expense. i.e big pharma thought they were crap (can t retain a profit) products

 

They are much smaller at EV of ~ $600million. Have cash net of debt of $234 million. Pretax earnings of $56 million. Owners earnings of $72 million (these are from my Nov 2012 notes so they could be out of date)

 

Management/Goodman family own 25% of company (I think Moore likes Goodman family- i think they are well respected as capitalist)

 

Full disclosure-I don t own any of these either, as I don t like their products + generally try to stay away from serial acquirers.

 

[giofranchi]

Thank you wellmont, biaggio, muscleman, and others.

 

First of all, let’s be clear: I am still studying VRX, and I am still reading all their conference call transcripts. I think conference call transcripts are very useful, because to read them is basically to listen to people who know the business very well, and therefore can explain it to you easily. Usually, I have found that, as I go on reading conference call transcripts, the whole picture gets clearer and clearer, until you get conviction, or else you quit and put it in the “too hard pile”.

 

That being said, muscleman, let’s take a look at the numbers: in 2012 their Revenues were $3.55 billion, then they reported $0.93 billion in Amortization of intangible assets, $0.34 billion in Restructuring, integration and other costs, and $0.078 billion in Acquisition-related costs. A total of $0.93 + $0.34 + $0.078 = $1.348 billion in acquisition related costs, or 38% of Revenues.

But: acquisition related costs are not costs, they are investments! What’s the point of declaring Amortization costs on assets they bought precisely because they think those assets are worth more, and not less, the price they paid them for? They are activist investors: they purchase assets and then they hasten to make them better, implementing change, and increasing their profitability. So, I expect also their value to increase over time, not decrease. Restructuring and integration costs are the capital, the labor, and the resources they use to make those purchased assets better and more valuable. So, I repeat, they are not costs, they are investments.

In pharma I rarely look at the Net Income, I prefer much more the trend in Revenues and FCF.

 

My current view on long-term debt: I have already expressed it in a previous post. Basically, I think a heavier debt load might be justified and sustained during their high growth years. When growth will inevitably taper down, then I would like to see a rapid decrease in debt too.

 

biaggio, what about their products? Well, let me ask you a question: can you formulate a more predictable and therefore dependable need and/or desire in us humans than to be beautiful? Any business that helps us feeling more beautiful is a business I want to own. Hey! Do you know that even a genius of John Maynard Keynes’s caliber had an extremely hard time throughout his life accepting his “ugly appearance”? He said he “didn’t feel entitled to be touched by another person”, because of his ugliness… Even one of the brightest mind of the last century craved for the beauty he didn’t possess! Well, VRX is just big, and getting bigger, in dermatology, oral health (that glamorous Tom Cruise smile, right?), and aesthetics! What’s not to be liked about it?

 

As long as the “serial acquirer” status is concerned, let me ask you another question: if you include the stock market, aren’t BRK, MKL, FFH, OAK, LMCA, LUK, etc. just that? Serial acquirers? They all are in the business of buying $1 assets for 50 cents… and that is a wonderful business! Of course they are serial acquirers! And when they cannot be, they lament the fact, like Mr. Buffett who sadly admitted he could find no elephant to shoot in 2012.

 

The best definition of VRX I can come up with follows: an activist investor on a value basis in beauty related products searched for in inefficient markets. Why inefficient markets? Because their strategy purposely focuses on markets that are overlooked by other large pharma companies, and therefore are intrinsically more inefficient. And I like that definition very much! :)

 

Finally, I agree with wellmont: future results will almost entirely depend on the quality of the decision making process by Mr. Pearson and his team: if I am wrong about their skillfulness, VRX will prove to be a disappointing investment.

 

Disclosure: my firm has a relatively small position in VRX right now (3.5%). It will change together with my judgment on the quality of management.

 

giofranchi

 

[UK]

VRX is one of the largest holdings of Sequoia Fund, so you can search for "valeant" in these links to know their reasoning:

 

http://www.sequoiafund.com/Reports/Transcript11.htm

http://www.sequoiafund.com/Reports/Transcript12.htm

 

UK