Liberty Posted May 21, 2015 Share Posted May 21, 2015 I wouldn't like that either, at all. When Buffett said at this annual meeting that it basically always was a mistake to issue BRK stock, it reminded me of Valeant and how much they would have paid already to issue so much stock for Allergan. Maybe the upside was so huge that it would have been transformational anyways, but the cost certainly would have been huge and keep compounding. If the quality of your business is this high and your business is continually undervalued because the market fails to factor in value-creation from future acquisitions, you should be extremely reluctant to issue stock. And to do a deal with only stock, the deal you get would have to be a tremendous bargain (including the synergies). It seems far safer and better to patiently pay down debt and then do another deal when you can pay for most of it with debt. I would add equity only if I need to stretch so much that paying all of it in debt is just too risky. Note that the amount of equity that would've been issued to get Allergan was a compromise. Pearson said that he wanted to issue less, and Ackman was pushing for more :) Link to comment Share on other sites More sharing options...
Happy Posted May 21, 2015 Share Posted May 21, 2015 Note that the amount of equity that would've been issued to get Allergan was a compromise. Pearson said that he wanted to issue less, and Ackman was pushing for more :) As I am sure you know, that only makes my viewpoint stronger because as the shareholder of Allergan Ackman would have benefited from Valeant issuing "too much" of their undervalued stock in that case. Link to comment Share on other sites More sharing options...
Liberty Posted May 21, 2015 Share Posted May 21, 2015 Note that the amount of equity that would've been issued to get Allergan was a compromise. Pearson said that he wanted to issue less, and Ackman was pushing for more :) As I am sure you know, that only makes my viewpoint stronger because as the shareholder of Allergan Ackman would have benefited from Valeant issuing "too much" of their undervalued stock in that case. That's what I was saying. Ackman preferred equity to the cash because he knew it was a good value, and Pearson knew the same so he didn't want to issue anymore than he had to. Link to comment Share on other sites More sharing options...
giofranchi Posted May 21, 2015 Author Share Posted May 21, 2015 That's what I was saying. Ackman preferred equity to the cash because he knew it was a good value, and Pearson knew the same so he didn't want to issue anymore than he had to. And right now they are on the same side! ;) Gio Link to comment Share on other sites More sharing options...
original mungerville Posted May 22, 2015 Share Posted May 22, 2015 I really really really like Pearson - good 18 minute Bloomberg interview: http://www.bloomberg.com/news/videos/2015-05-21/valeant-s-pearson-health-care-m-a-acquisition-strategy?cmpid=yhoo Link to comment Share on other sites More sharing options...
giofranchi Posted May 22, 2015 Author Share Posted May 22, 2015 I really really really like Pearson - good 18 minute Bloomberg interview: http://www.bloomberg.com/news/videos/2015-05-21/valeant-s-pearson-health-care-m-a-acquisition-strategy?cmpid=yhoo Thank you! :) But why is he so out of shape?... He is not even 60 yet! He who loves his body more than dominion over the empire can be given custody of the empire. --Lao Tzu, Tao Te Ching Cheers, Gio Link to comment Share on other sites More sharing options...
original mungerville Posted May 22, 2015 Share Posted May 22, 2015 I think 1) the fact he is out of shape; combined with 2) his simple vocabulary; and 3) monotonous speaking tone may lead people to underestimate him. He doesn't look or speak like a CEO - which from my perspective is perfect. Clearly, being with McKinsey & Co for 20 years and heading the global pharma practice means he had plenty of boardroom experience (and probably a few million a year in salary for quite a number of years) before becoming the Valeant CEO. Actually, joining Valeant when it was so small was probably a step down in pay - unless he performed...which of course he did over the past 6-8 years. I just like everything about it. A very rational guy, with good understanding of industry dynamics, with a great board, tackling a very high margin/ROE industry which became extremely bloated because of those margins. It just seems like one of those no-brainer investments. The forward p/e for 2016 is only around 14x currently - this is cheap given this thing can grow 30% annually. Debt is high - however, the bloody business model is so powerful that debt levels are constantly reduced. Link to comment Share on other sites More sharing options...
loganc Posted May 23, 2015 Share Posted May 23, 2015 I think the following interview clip embedded in the article is much better than the 20 minute interview: http://www.bloomberg.com/news/articles/2015-05-21/valeant-ceo-pearson-sees-bit-of-a-bubble-in-health-care-m-a In the event that it is prohibitively expensive to do deals in terms of financing, he is prepared to do stock repurchases. Maybe this is well known, but Pearson is giving the perfect answer here, in my view. Link to comment Share on other sites More sharing options...
Liberty Posted May 23, 2015 Share Posted May 23, 2015 I think the following interview clip embedded in the article is much better than the 20 minute interview: http://www.bloomberg.com/news/articles/2015-05-21/valeant-ceo-pearson-sees-bit-of-a-bubble-in-health-care-m-a In the event that it is prohibitively expensive to do deals in terms of financing, he is prepared to do stock repurchases. Maybe this is well known, but Pearson is giving the perfect answer here, in my view. Both Pearson and Howley (of TDG) have been asked about this on conference calls a while ago, probably because both companies are fairly active with M&A and like to use debt. I don't remember if it was Pearson or Howley who said this (maybe both said similar thing and that's why memory is fuzzy), but the general idea is that if you are a mediocre acquirer who makes 10% IRRs on deals, if the price of debt goes up close to 10%, you're screwed. You lose your margin of safety and your returns evaporate. But if you get 20-30% long-term IRRs on your acquisitions, even if capital markets go through a rough patch and debt goes up to 10%-15%, you are still making very decent returns. It still makes sense to buy even with a higher cost of debt. The long-term part is especially important, because if you can keep growing your acquisitions, chances are that you can refinance your debt at better rates a few years down the line when capital is flowing more freely, so you can dump a lot of the carrying cost but you keep the good businesses. Link to comment Share on other sites More sharing options...
gfp Posted May 27, 2015 Share Posted May 27, 2015 This director purchased some stock at these levels - must not think it overvalued (well, she's new so it looks like her first purchase) http://www.sec.gov/Archives/edgar/data/885590/000088559015000045/xslF345X03/primary_doc.xml Link to comment Share on other sites More sharing options...
Liberty Posted May 27, 2015 Share Posted May 27, 2015 FDA approves! http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Salix-Announces-FDA-Approval-of-Xifaxan-550-mg-for-the-Treatment-of-IBS-D-Irritable-Bowel-Syndrome-with-Diarrhea/default.aspx Link to comment Share on other sites More sharing options...
original mungerville Posted May 27, 2015 Share Posted May 27, 2015 Xifaxan is pretty big, but it's mostly big for Salix. It's about 50% of their revenues, but once integrated into Valeant, it would be a bit over 10% of total revenues. That's more manageable, especially as they keep adding new products, reducing the relative size of it over time. I think the 10% of total revenue number for Xifaxan is low (ex-inventory issue) if they are correct about the opportunity for the IBS-D indication. So, VRX says that Xifaxan will be doing a 900MM run rate in 2015 (ex-inventory issue). How much of the impact of the IBS-D indication is factored into this number? It seems to me that it would be minimal. First, the approval is not an absolute certainty, so it wouldn't be conservative to include a large contribution of IBS-D in the base case number. Plus, VRX would seem to have incentive to provide quite conservative numbers in the presentation so as not to invite other bids. I am inclined to believe that the 900MM number simply includes the impact of more rational pricing, since Salix had to take discounts to stuff the channel as mentioned on the call. So, Schiller mentioned on the call that they view the market opportunity for the IBS-D indication as larger than the current HE and traveler's diarrhea indications. While it is possible that they factored in some contribution to IBS-D approval into the 900MM and that some physicians are already serving IBS-D patients with "off label" Xifaxan prescriptions, it seems to me that the 900MM sales is going to increase very substantially if they are correct about the IBS-D market size. Getting to the percentage of total revenue really depends on your assumptions for the rest of Salix and the VRX base business, but I view Xifaxan as growing quite a bit faster than either one. That being said, it seems likely that the large contribution of Xifaxan to the sales of the pro forma company will be a relatively short term issue, due to business development activity. It doesn't seem like it would be a stretch for VRX to do another substantial deal in early 2017. They have a 900 million run rate for 2015, so any idea on the additional run-rate associated to the opportunity for the IBS-D indication - ie a broad range. Are we talking 200M, 500M, or 1 Billion? Just reposting as this was our last discussion on the IBS-D indication potential. Anybody hazard to narrow that range? Is it closer to an additional $1 Billion or 500M? Any educated guesses? Link to comment Share on other sites More sharing options...
EliG Posted May 28, 2015 Share Posted May 28, 2015 Just reposting as this was our last discussion on the IBS-D indication potential. Anybody hazard to narrow that range? Is it closer to an additional $1 Billion or 500M? Any educated guesses? Irritable bowel syndrome therapeutics market dynamics | Formulary Journal "Salix is investigating the label expansion of its antibiotic, Xifaxan, for IBS-D. Xifaxan is currently used off-label, mainly by gastroenterologists, in patients with suspected intestinal bacterial overgrowth. It is not widely prescribed, however, due to the safety concerns associated with the long-term use of antibiotics, such as the induction of antibiotic resistance and an imbalance in the intestinal flora. Following Xifaxan’s label expansion for IBS-D, which is anticipated in 2016 in the US, primary care physicians will be more confident about prescribing this product, which will subsequently increase its uptake and drive sales growth. GlobalData does not anticipate the label expansion of Xifaxan for IBS to change the treatment paradigm for patients with IBS-D. Due to its high price tag (a $660 estimated cost for 2-week treatment course in US), however, IBS sales for Xifaxan could reach approximately $220 million by 2023 in the 7MM." 7MM = 7 major markets (United States, France, Germany, Italy, Spain, United Kingdom, Japan) Link to comment Share on other sites More sharing options...
NBL0303 Posted May 28, 2015 Share Posted May 28, 2015 The forward p/e for 2016 is only around 14x currently They are going to earn about $6 billion next year? Link to comment Share on other sites More sharing options...
original mungerville Posted May 28, 2015 Share Posted May 28, 2015 Just reposting as this was our last discussion on the IBS-D indication potential. Anybody hazard to narrow that range? Is it closer to an additional $1 Billion or 500M? Any educated guesses? Irritable bowel syndrome therapeutics market dynamics | Formulary Journal "Salix is investigating the label expansion of its antibiotic, Xifaxan, for IBS-D. Xifaxan is currently used off-label, mainly by gastroenterologists, in patients with suspected intestinal bacterial overgrowth. It is not widely prescribed, however, due to the safety concerns associated with the long-term use of antibiotics, such as the induction of antibiotic resistance and an imbalance in the intestinal flora. Following Xifaxan’s label expansion for IBS-D, which is anticipated in 2016 in the US, primary care physicians will be more confident about prescribing this product, which will subsequently increase its uptake and drive sales growth. GlobalData does not anticipate the label expansion of Xifaxan for IBS to change the treatment paradigm for patients with IBS-D. Due to its high price tag (a $660 estimated cost for 2-week treatment course in US), however, IBS sales for Xifaxan could reach approximately $220 million by 2023 in the 7MM." 7MM = 7 major markets (United States, France, Germany, Italy, Spain, United Kingdom, Japan) So we are talking peanuts here? $220 million in 8 years?? Why is mgmt talking about this so much? Link to comment Share on other sites More sharing options...
original mungerville Posted May 28, 2015 Share Posted May 28, 2015 The forward p/e for 2016 is only around 14x currently They are going to earn about $6 billion next year? $6 might be a little high, maybe $5.5 billion (on $7.5 billion EBITDA) or $16 adjusted EPS. Link to comment Share on other sites More sharing options...
loganc Posted May 28, 2015 Share Posted May 28, 2015 So we are talking peanuts here? $220 million in 8 years?? Why is mgmt talking about this so much? I am taking the over. Management guidance is far more bullish and I believe management more than prognostications from a random website (which was wrong about the timing of the IBS-D indication). IBS is a very large market and there are a significant number of IBS patients that are not consulting clinicians (hence the plan to do a DTC advertising campaign similar to Jublia). I think it is fairly easy to substantiate that claim by doing a search for peer review journal articles on the epidemiology of IBS. Further, why would VRX management want to spend capital on DTC advertising if the potential sales were so small? Link to comment Share on other sites More sharing options...
Liberty Posted May 28, 2015 Share Posted May 28, 2015 So we are talking peanuts here? $220 million in 8 years?? Why is mgmt talking about this so much? I am taking the over. Management guidance is far more bullish and I believe management more than prognostications from a random website (which was wrong about the timing of the IBS-D indication). IBS is a very large market and there are a significant number of IBS patients that are not consulting clinicians (hence the plan to do a DTC advertising campaign similar to Jublia). I think it is fairly easy to substantiate that claim by doing a search for peer review journal articles on the epidemiology of IBS. Further, why would VRX management want to spend capital on DTC advertising if the potential sales were so small? Based on what I've heard, I wouldn't be surprised if it did more than 220m in the first year, but that's just my guess. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 28, 2015 Share Posted May 28, 2015 This makes me nervous especially since I had many friends at Nortel in 1999: http://business.financialpost.com/investing/valeant-pharmaceuticals-international-inc-is-now-worth-more-than-toronto-dominion-canadas-second-largest-stock VRX still seems reasonably priced though. Link to comment Share on other sites More sharing options...
original mungerville Posted May 28, 2015 Share Posted May 28, 2015 So we are talking peanuts here? $220 million in 8 years?? Why is mgmt talking about this so much? I am taking the over. Management guidance is far more bullish and I believe management more than prognostications from a random website (which was wrong about the timing of the IBS-D indication). IBS is a very large market and there are a significant number of IBS patients that are not consulting clinicians (hence the plan to do a DTC advertising campaign similar to Jublia). I think it is fairly easy to substantiate that claim by doing a search for peer review journal articles on the epidemiology of IBS. Further, why would VRX management want to spend capital on DTC advertising if the potential sales were so small? Based on what I've heard, I wouldn't be surprised if it did more than 220m in the first year, but that's just my guess. Based on the following, it seems that peak sales could be about $1 billion just for IBS-D (I am interpolating/triangulating opinions in these articles). This would make the Salix acquisition quite a good deal. http://www.reuters.com/article/2015/05/27/us-actavis-eluxadoline-fda-idUSKBN0OC2QQ20150527 "Analysts expect Viberzi to generate U.S. sales of about $450 million by 2020 according to Thomson Reuters data. They expect Xifaxan sales for IBS-D to top $1 billion. The two drugs work differently. Xifaxan is an antibiotic that was approved in 2004 to treat traveler's diarrhea. It was approved in 2010 to reduce the risk of hepatic encephalopathy, or brain abnormalities associated with liver disorders. Viberzi is known as a combination mu opioid receptor agonist and delta opioid receptor antagonist. It is designed to treat IBS-D while reducing the risk of constipation that can occur with other mu opioid receptor agonists, such as the anti-diarrhea drug Imodium." http://www.biospace.com/News/your-analyst-vetted-guide-to-the-five-blockbuster/378477 Xifaxan: This gastrointestinal drug has a May 28 deadline for IBS-D approval. Salix Pharmaceuticals, Ltd. (SLXP), recently acquired by Canadian firm Valeant Pharmaceuticals International, Inc. (VRX), has been marketed for travelers’ diarrhea since 2004 and since 2010 at a higher dose for hepatic encephalopathy. On April 1, 2014, Valeant acquired Salix for about $11 billion. The latest expected approval will be for the use of Xifaxan for the treatment of irritable bowel syndrome. Valeant indicates it already has ongoing discussions with the FDA over labeling. Approval could give Valeant another $1.6 billion a year to Xifaxan’s revenue, totaling $3 billion a year. “Valeant hasn't given a guidance on Xifaxan peak yet [but] Salix said $3 billion or more peak (and $1.5 billion in IBS-D alone),” said biotech analyst Umer Raffat with ISI Evercore last week. “Valeant said [those numbers will be] ‘significantly lower,’” though, warned Raffat, who pointed to remarks made by Valeant leadership on what to expect for Xifaxan. Valeant CEO Michael Pearson told analysts, “In terms of the IBS-D size, we have seen their estimates in terms of peak sales. I think our peak sales estimates would be lower. So, I don't want to disclose what our base case peak sales are for Xifaxan. They're still sizable but significantly lower than the management projections.” Link to comment Share on other sites More sharing options...
giofranchi Posted June 3, 2015 Author Share Posted June 3, 2015 http://seekingalpha.com/article/3221146-ibs-now-an-actavis-vs-valeant-game?auth_param=7i5hb:1amgh7m:67befdd8e90a68da90380233c9ee1ce4&uprof=25 Gio Link to comment Share on other sites More sharing options...
original mungerville Posted June 3, 2015 Share Posted June 3, 2015 http://seekingalpha.com/article/3221146-ibs-now-an-actavis-vs-valeant-game?auth_param=7i5hb:1amgh7m:67befdd8e90a68da90380233c9ee1ce4&uprof=25 Gio Also, I believe I read somewhere that the potential side effects of Activis' Viberzi are much more significant relative to Valiant's drug. Link to comment Share on other sites More sharing options...
giofranchi Posted June 3, 2015 Author Share Posted June 3, 2015 http://seekingalpha.com/news/2559146-new-indication-for-relistor-cleared-in-europe?uprof=25#email_link Gio Link to comment Share on other sites More sharing options...
giofranchi Posted June 4, 2015 Author Share Posted June 4, 2015 http://seekingalpha.com/article/3235266-valeant-pharmaceuticals-not-your-average-pharma-stock?auth_param=7i5hb:1an06fs:c579632ea972687b2d5cde20482b5b30&uprof=25 Gio Link to comment Share on other sites More sharing options...
original mungerville Posted June 4, 2015 Share Posted June 4, 2015 http://seekingalpha.com/article/3235266-valeant-pharmaceuticals-not-your-average-pharma-stock?auth_param=7i5hb:1an06fs:c579632ea972687b2d5cde20482b5b30&uprof=25 Gio This is the second time in less than a week where I see 38% growth in earnings over the last five years, and 15% going forward!: "The stock currently has a forward price-to-earnings (P/E) ratio of 15.3, based on next year's earnings estimates of $15.53 per share. The company has been growing its earnings at an annual rate of 38% over the last five years. It is expected to continue to grow by 15.2% per year over the next five years. This makes for a very favorable PEG ratio of 1.01." A good analyst would ask the following: What has changed to slow Valeant's growth from almost 40% compounded to 15% going forward? The answer may be something along the following lines: Not that much (ie debt/equity may have increased, earnings are greater now so takes a bit bigger acquisition to move the needle, p/e may be a little higher; on the other hand, organic growth is now viewed by most to be double digits - as this article states - which would support the slightly higher p/e and greater debt/equity). My point is, assuming Valeant gets double digit organic growth over the next five years (as this article assumes), there is no fuc*&%$ing way that earnings are going to just grow 15%... and the stock only be at $400 because that assumes they make virtually no other acquisitions (or just very small tuck-ins). So how do you go from 38% annual growth to 15%? You don't. Earnings growth should be 20-30% annually in my view (unless the global economy goes into depression or the bond market completely shuts down) over the next few years (sure, that's down from 38% over the past five years, but its not 15%!!) Link to comment Share on other sites More sharing options...
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