rpadebet Posted April 28, 2015 Share Posted April 28, 2015 Off VRX topic again.....but Shouldn't we also consider the societal cost of "not raising prices" on successful medicines? Solvadi was a poster child for over the top drug pricing recently. Consider the fact that Solvadi actually cures the underlying disease as opposed to lower priced competitor drugs which only help manage the disease. If you couldn't charge what they charged for Solvadi, whats the incentive next time to find a cure for even more onerous diseases? It's easy to not care for things not yet in existence. Yes the patient needing Solvadi might feel he/she is being ripped off, but he/she is in a much better situation than another patient with a severe and maybe fatal disease for which there is no drug yet. Maybe the "ridiculous" prices charged for Solvadi temporarily will enable more R&D in future (need not be internal/external, acquisitions of other drug companies is also a form of investing in R&D-because you wouldn't acquire companies without good products) Link to comment Share on other sites More sharing options...
Liberty Posted April 28, 2015 Share Posted April 28, 2015 I have only pointed out that candy != medicine. Ok, end of discussion, I think we can all agree on that. Link to comment Share on other sites More sharing options...
giofranchi Posted April 29, 2015 Author Share Posted April 29, 2015 Valeant Pharmaceuticals Reports First Quarter 2015 Financial Results 2015 First Quarter Results •Total Revenue $2.2 billion; an increase of 16% over the prior year despite negative foreign exchange impact of $140 million ◦Excluding negative impact of foreign exchange and last year's divestiture of the aesthetics injectable business, revenue increased 27% over the prior year •Same Store Sales Organic Growth was 15%, driven by: •Growth from launch brands, including BioTrue Multipurpose Solution, BioTrue ONEday Contact Lens, Jublia, Luzu, and Ultra Contact Lens •Double digit growth in U.S. businesses such as Contact Lens, Dermatology, Neurology and Other, Obagi, and Oral Health •Double digit growth in many Emerging Markets including Asia, Mexico, the Middle East, and Poland •GAAP EPS $0.21; Cash EPS $2.36, an increase of 34% despite negative foreign exchange impact of $0.12 over the prior year ◦Excluding negative impact of foreign exchange and last year's divestiture of the aesthetics injectable business, Cash EPS increased 50% over the prior year •GAAP Operating Cash Flow $491 million; Adjusted Operating Cash Flow $708 million •As projected, restructuring, integration and other acquisition related costs for pre-2015 transactions were less than $25 million •Salix and Dendreon integrations largely complete •Salix to exceed $530 million in synergies and will achieve $500 million run rate synergies by the end of Q2 •Dendreon, profitable in Q1, to exceed $130 million in synergies and achieve 90% run rate by year-end •Valeant currently in labeling discussions with the FDA regarding IBS-D indication for Xifaxan, ahead of the May 28, 2015 PDUFA date http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-Reports-First-Quarter-2015-Financial-Results/default.aspx Gio04-29-15-1Q-2015-Financial-Results-Final.pdf Link to comment Share on other sites More sharing options...
giofranchi Posted April 29, 2015 Author Share Posted April 29, 2015 Valeant Announces CFO Succession Plan And Additional Executive Appointment http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Announces-CFO-Succession-Plan-And-Additional-Executive-Appointment/default.aspx Gio Link to comment Share on other sites More sharing options...
giofranchi Posted April 29, 2015 Author Share Posted April 29, 2015 I repeat: there MUST be easier things to short than VRX! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
frommi Posted April 29, 2015 Share Posted April 29, 2015 Yes you are right. :) I covered yesterday with a small profit and increased my short in XBI. Thanks. Link to comment Share on other sites More sharing options...
giofranchi Posted April 29, 2015 Author Share Posted April 29, 2015 I covered yesterday with a small profit and increased my short in XBI. Imo a good choice! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
Liberty Posted April 29, 2015 Share Posted April 29, 2015 Interesting tidbit about R&D on the call. Developing Jublia from nothing and putting it through regulatory approval cost Valeant $40m. Just this quarter, revenue from Jublia was $62m. Jublia launched 3 quarters ago (it did $3m in Q2 2014). Pretty good ROI... Link to comment Share on other sites More sharing options...
original mungerville Posted April 29, 2015 Share Posted April 29, 2015 Numbers look normal (ie beat expectations). They did not say but I wonder why the CFO is stepping down. Link to comment Share on other sites More sharing options...
giofranchi Posted April 29, 2015 Author Share Posted April 29, 2015 Numbers look normal (ie beat expectations). I wouldn't define a 15% organic growth "normal"... Most of all for VRX, which got so much accused about its lack of organic growth! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
Liberty Posted April 29, 2015 Share Posted April 29, 2015 Numbers look normal (ie beat expectations). They did not say but I wonder why the CFO is stepping down. He's staying on the board, so there's that. He's not running away. Sounds like he wants to shift down a few gears. This kind of life can be exhausting, so probably just personal motivations. We might never know exactly. Link to comment Share on other sites More sharing options...
original mungerville Posted April 29, 2015 Share Posted April 29, 2015 Numbers look normal (ie beat expectations). I wouldn't define a 15% organic growth "normal"... Most of all for VRX, which got so much accused about its lack of organic growth! ;) Cheers, Gio You are right, 15% organic growth seems very strong. My growth model is simple: at least 5-10% organic growth combined with investing all earnings every year into a 15-25% ROI acquisition provides 20 to 35% compounded earnings. That's a double every 3 years, 4x in next 6 years. I am assuming this multiple to earnings holds - so stock would rise by the same amount. This assumes no major acquisition blunder or macro blow up along the way though. Link to comment Share on other sites More sharing options...
original mungerville Posted April 29, 2015 Share Posted April 29, 2015 They should say why the CFO is stepping down though. There should be no shame in providing a professional or personal reason. Link to comment Share on other sites More sharing options...
Liberty Posted April 29, 2015 Share Posted April 29, 2015 They should say why the CFO is stepping down though. There should be no shame in providing a professional or personal reason. Mr. Schiller stated, "My time at Valeant has been incredible, and I am very proud of all that we have accomplished together. Although I am leaving to pursue new opportunities most likely in areas outside of a publicly-traded company, I look forward to working closely with Mike and the rest of the management team to ensure a seamless transition of my CFO responsibilities and to continuing to serve on the Board of a company with enormous potential to deliver even more long-term value for shareholders." http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Announces-CFO-Succession-Plan-And-Additional-Executive-Appointment/default.aspx Link to comment Share on other sites More sharing options...
original mungerville Posted April 29, 2015 Share Posted April 29, 2015 They should say why the CFO is stepping down though. There should be no shame in providing a professional or personal reason. Mr. Schiller stated, "My time at Valeant has been incredible, and I am very proud of all that we have accomplished together. Although I am leaving to pursue new opportunities most likely in areas outside of a publicly-traded company, I look forward to working closely with Mike and the rest of the management team to ensure a seamless transition of my CFO responsibilities and to continuing to serve on the Board of a company with enormous potential to deliver even more long-term value for shareholders." http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Announces-CFO-Succession-Plan-And-Additional-Executive-Appointment/default.aspx Ya, I guess they did provide what he was thinking of doing. I would like to know why though - maybe the Allergan fight last year with all the public company pressures and financial disclosures burnt him out? Link to comment Share on other sites More sharing options...
Liberty Posted April 29, 2015 Share Posted April 29, 2015 They should say why the CFO is stepping down though. There should be no shame in providing a professional or personal reason. Mr. Schiller stated, "My time at Valeant has been incredible, and I am very proud of all that we have accomplished together. Although I am leaving to pursue new opportunities most likely in areas outside of a publicly-traded company, I look forward to working closely with Mike and the rest of the management team to ensure a seamless transition of my CFO responsibilities and to continuing to serve on the Board of a company with enormous potential to deliver even more long-term value for shareholders." http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Announces-CFO-Succession-Plan-And-Additional-Executive-Appointment/default.aspx Ya, I guess they did provide what he was thinking of doing. I would like to know why though - maybe the Allergan fight last year with all the public company pressures and financial disclosures burnt him out? We'll probably never know, but it's a tough job. So many divisions all around the world, so many aquisitions, so much international travel, constantly making plans for restructuring and integrating. and then all of the media circus in the last year. This isn't a steady-state company where you can get used to a comfortable routine. I wouldn't be surprised if he was working almost a hundred hours a week. Maybe he just wanted to spend more time with his family and his kids, and spend some of his hard earned money. It's certainly not a job that I could do... Link to comment Share on other sites More sharing options...
Liberty Posted April 30, 2015 Share Posted April 30, 2015 Frommi, it looks like you were right; timing is something you do well. Happy for you that you stopped shorting VRX right before it went up almost 10%. Link to comment Share on other sites More sharing options...
frommi Posted April 30, 2015 Share Posted April 30, 2015 Frommi, it looks like you were right; timing is something you do well. Happy for you that you stopped shorting VRX right before it went up almost 10%. If that would translate 1-1 into my account i would be a rich man. Sadly i am not, because there is always something in my portfolio dragging me down the drain. Link to comment Share on other sites More sharing options...
original mungerville Posted May 6, 2015 Share Posted May 6, 2015 Ackman valuation of Valeant starts on page 14 of the presentation at the below link: http://www.marketfolly.com/2015/05/bill-ackmans-sohn-conference_4.html My growth model was very simple which included 5-10% organic and 20-25% IRR on annual owner earnings. It implicitly implied a deleveraging (as Valeant would not need to issue much more incremental debt at 5% yield to achieve 20-25% IRR on equity FCF) whereas Ackman's assumes 4x debt to EBITDA is maintained (more aggressive than my model) yet I think he is assuming some debt is required to achieve a 20-25% IRR on equity (less aggressive than my model in terms of the assumed return on capital - ie debt plus equity - with respect to acquisitions). Regardless, I think what is interesting is that he demonstrates that if you assume 4x EBITDA is maintained, Valeant could do $20 billion in annual acquisitions on average over the next 4 years (2016, 17, 18 and 19). His base case, however, assumes $10 billion per year in acquisitions, which they could readily start in 2016. So this $10 billion per year assumes they do not use all their FCF and debt capacity for acquisitions over the following years and, like my very simple model, means either it has to assume 1) a deleveraging, or 2) in Ackman's case 4x EBITDA is maintained and the extra capital goes to share buybacks, or 3) a dividend (which is not going to happen). Ackman, in his $10 billion base case, assumes share buybacks whereas I implicitly assume a deleveraging. My sense is Sequoia, their largest shareholder, will not tolerate over 4x debt to EBITDA and may indeed like a little less than that. ValueAct may feel somewhat similarly. If I don't like the debt levels, I can buy the LEAPS to protect my downside, however at their size, they need to be comfortable owning the stock and Sequoia has stated that this is the highest level of debt they feel comfortable with. So I could see a base case of $15 billion in annual average acquisitions (eg, 10 billion in 2016, $10 billion in 2017, $20 in 2018, and $20 2019, or something along those lines), no share buybacks and instead reduce the debt to EBITDA down from 4x to something like 3.6-3.7X. Based on Ackman's model, this implies a stock price of $570 (ie the average of $518 and $618 on slide 30) by January 2020 (or 5.5 years from now) or 2.6x the current price (a 160% gain). This seems low to me, however. I think he may be too conservatives on the return on capital with regard to acquisitions, and on his assumption of only 5% organic growth (which he concedes does not include the full pipeline potential). When you look at his analysis, please let me know what you think of his return on capital assumption (ie incremental debt plus equity derived solely from annual FCF) for acquisitions. Relative to say the B&L acquisition, does this seem low? Relative to Salix, his assumption may not be low (although this statement is probably contingent on whether or not they get the late May FDA approval)? Link to comment Share on other sites More sharing options...
giofranchi Posted May 8, 2015 Author Share Posted May 8, 2015 original mungerville, basically I don’t see meaningful flaws in Ackman’s assumptions. Do you? Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted May 8, 2015 Author Share Posted May 8, 2015 Actually, I have found Ackman’s valuation so convincing that I have just doubled my investment in VRX, and increased my investment in PSH. ;) Gio Link to comment Share on other sites More sharing options...
Liberty Posted May 8, 2015 Share Posted May 8, 2015 Actually, I have found Ackman’s valuation so convincing that I have just doubled my investment in VRX, and increased my investment in PSH. ;) Gio If the investment turns out well, remember that I convinced you first. If it doesn't, remember that it was all Ackman's fault ;) Link to comment Share on other sites More sharing options...
giofranchi Posted May 8, 2015 Author Share Posted May 8, 2015 If the investment turns out well, remember that I convinced you first. If it doesn't, remember that it was all Ackman's fault ;) Ahahah!!!! ;D Well, truth be told, Pearson also played a meaningful role... when he started declaring organic growth results that were truly unexpected! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
Liberty Posted May 8, 2015 Share Posted May 8, 2015 If the investment turns out well, remember that I convinced you first. If it doesn't, remember that it was all Ackman's fault ;) Ahahah!!!! ;D Well, truth be told, Pearson also played a meaningful role... when he started declaring organic growth results that were truly unexpected! ;) Cheers, Gio Of course. But if you go back a few pages in this thread, you'll see that you were telling me that you wanted to wait a few more years to see how he did :) Link to comment Share on other sites More sharing options...
giofranchi Posted May 8, 2015 Author Share Posted May 8, 2015 Of course. But if you go back a few pages in this thread, you'll see that you were telling me that you wanted to wait a few more years to see how he did :) Years!!... Ahahah!! Did I really speak of “years”??... Well, that’s why you shouldn’t take what’s written on a public board too seriously! ;) I had in mind to wait, because I had thought that was VRX plan as well. After the failed attempt to purchase Allergan, it seemed to me they were not inclined to make another major acquisition soon, and wanted to concentrate instead on their existing businesses + some bolt-on acquisitions. Evidently, I was mistaken… Anyway, they now show organic growth in each quarterly results very clearly, and in 2014 it has been much better than I had expected. I cannot know if such a trend will go on (of course, I hope it will!), but now I have all the information I need to be comfortable with my judgement of VRX business results. Cheers, Gio Link to comment Share on other sites More sharing options...
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