Guest wellmont Posted July 19, 2015 Share Posted July 19, 2015 I suspect that Zoetis is currently not for sale. I think Ackman & team is going to cut SG&A, R&D and COGS close to VRX type levels, they will acquire/merge with a company in a much better tax jurisdiction. They've said they're willing to take on debt and make acquisitions as well. In short I believe Ackman is starting his own little VRX there are already 2 or 3 others out there who are proven acquirers. I don't think adding another competitor helps anybody especially vrx, where he has a lot of money invested. i think his end game is to sell it at a big price to one of these consolidators. Link to comment Share on other sites More sharing options...
loganc Posted July 20, 2015 Share Posted July 20, 2015 Pearson talking about Amoun and commitment to reducing leverage: http://www.bnn.ca/News/2015/7/17/Valeant-to-buy-Egyptian-drug-maker-for-800-million.aspx Totally sucks that VRX isn't going to buy PetSmart. Huge synergies there, obviously. Link to comment Share on other sites More sharing options...
loganc Posted July 20, 2015 Share Posted July 20, 2015 I suspect that Zoetis is currently not for sale. I think Ackman & team is going to cut SG&A, R&D and COGS close to VRX type levels, they will acquire/merge with a company in a much better tax jurisdiction. They've said they're willing to take on debt and make acquisitions as well. In short I believe Ackman is starting his own little VRX there are already 2 or 3 others out there who are proven acquirers. I don't think adding another competitor helps anybody especially vrx, where he has a lot of money invested. i think his end game is to sell it at a big price to one of these consolidators. I think ZTS is very obviously for sale. The question for ZTS shareholders is which pharma entity is going to pay a huge premium for the asset? I am hard pressed to think that any VRX shareholder would be happy with VRX going out and bidding for this asset. The interesting dynamic is that Pershing Square owns substantial equity in both entities. My view is that VRX paying a huge premium for ZTS (which would have to happen to consummate a deal) would then invalidate the core thesis for holding VRX - Pearson overpaying for assets destroys the entire thesis. Edit: Doing tuck in deals like Amoun and deleveraging is exactly what they should do. Based on Pearson's comments in the interview, that is what they are doing. So, I think shareholders should be quite pleased. Link to comment Share on other sites More sharing options...
giofranchi Posted July 20, 2015 Author Share Posted July 20, 2015 My view is that VRX paying a huge premium for ZTS (which would have to happen to consummate a deal) would then invalidate the core thesis for holding VRX - Pearson overpaying for assets destroys the entire thesis. I agree. Edit: Doing tuck in deals like Amoun and deleveraging is exactly what they should do. Based on Pearson's comments in the interview, that is what they are doing. So, I think shareholders should be quite pleased. I agree. Cheers, Gio Link to comment Share on other sites More sharing options...
indythinker85 Posted July 22, 2015 Share Posted July 22, 2015 New developments with AGN http://www.valuewalk.com/2015/07/allergan-meeting-takeover/ Link to comment Share on other sites More sharing options...
giofranchi Posted July 23, 2015 Author Share Posted July 23, 2015 Valeant Pharmaceuticals Reports Second Quarter 2015 Financial Results 07/23/2015 LAVAL, Quebec, July 23, 2015 /PRNewswire/ -- 2015 Second Quarter Results •Total Revenue $2.7 billion; an increase of 34% over the prior year ◦Excluding negative impact of foreign exchange ($173 million) and the contribution of Salix ($313 million), revenue increased 27% over the prior year •Same Store Sales Organic Growth was 19%, driven by: ◦U.S. businesses, driven by the strength of dermatology, contact lenses, dental and Obagi ◦Emerging markets including China, the Middle East/North Africa, and Russia •GAAP EPS Loss of $0.15; Cash EPS $2.56 ◦Excluding negative impact of foreign exchange ($0.13) and the negative contribution of Salix ($0.04) , Cash EPS would have been $2.73, a growth rate of 43% •GAAP Operating Cash Flow $411 million; Adjusted Operating Cash Flow $773 million ◦Excluding Salix, GAAP Operating Cash Flow $714 million •Salix Revenue was $313 million ◦Strong Xifaxan script uptake following IBS-D approval ◦Salix wholesaler inventory levels reduced from 4-5 months to 3-3.5 months Continued Progress of R&D pipeline •New Drug Application (NDA) submitted for RELISTOR® (methylnaltrexone bromide) Tablets •NDA submitted for VESNEO™ (latanoprostene bunod ophthalmic solution) 0.024% Full Year 2015 Guidance Update •Increasing 2015 Total Revenue to $10.7 - $11.1 billion up from $10.4 - $10.6 billion ◦Salix revenue expected to be ~$1.2 billion •Increasing 2015 Cash EPS to $11.50 - $11.80 per share up from $10.90 - $11.20 to reflect continued business outperformance and approval of IBS-D indication for Xifaxan •Increasing Adjusted Cash Flow from Operations to greater than $3.2 billion, up from greater than $3.1 billion •Expect Same Store Sales Organic Growth of >10% for second half of 2015 Third Quarter 2015 Guidance •Total Revenue $2.6 - $2.8 billion •Cash EPS $2.60 - $2.70 per share Fourth Quarter 2015 Guidance •Total Revenue $3.2 - $3.4 billion •Cash EPS $3.98 - $4.18 per share http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-Reports-Second-Quarter-2015-Financial-Results/default.aspx Gio Link to comment Share on other sites More sharing options...
giofranchi Posted July 23, 2015 Author Share Posted July 23, 2015 Organic growth continues to be almost unbelievable! Cheers, Gio Link to comment Share on other sites More sharing options...
Liberty Posted July 23, 2015 Share Posted July 23, 2015 What a monster. And this is with Salix drawing down a ton of excess inventory, and big FX headwinds since they have a big international presence. When that's done... Link to comment Share on other sites More sharing options...
original mungerville Posted July 23, 2015 Share Posted July 23, 2015 Just as importantly as the organic growth, maybe even more so, is 1) their average IRR on deals since inception is 26% without the benefit of their tax advantages, and 2) 37% including their tax advantages. Deploying capital at a 37% IRR on average. Last year, I bought LEAPS on Valeant representing 100% in notional of my portfolio. I guess I should have bought 200% of notional or more! Link to comment Share on other sites More sharing options...
Liberty Posted July 23, 2015 Share Posted July 23, 2015 Commonwealth Laboratories, Inc. Announces Agreement with Valeant Pharmaceuticals for the Acquisition of Commonwealth’s U.S. and Canadian Business http://www.businesswire.com/news/home/20150723005551/en/Commonwealth-Laboratories-Announces-Agreement-Valeant-Pharmaceuticals-Acquisition#.VbFvbXiQHoB Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 Commonwealth Laboratories, Inc. Announces Agreement with Valeant Pharmaceuticals for the Acquisition of Commonwealth’s U.S. and Canadian Business http://www.businesswire.com/news/home/20150723005551/en/Commonwealth-Laboratories-Announces-Agreement-Valeant-Pharmaceuticals-Acquisition#.VbFvbXiQHoB Pearson mentioned this on the call today. Looks like another way to help grow Salix revenues. Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 Just as importantly as the organic growth, maybe even more so, is 1) their average IRR on deals since inception is 26% without the benefit of their tax advantages, and 2) 37% including their tax advantages. Deploying capital at a 37% IRR on average. Last year, I bought LEAPS on Valeant representing 100% in notional of my portfolio. I guess I should have bought 200% of notional or more! I should have noted that the above information was provided verbally by Pearson on the quarterly call today. Link to comment Share on other sites More sharing options...
Guest glavacem Posted July 24, 2015 Share Posted July 24, 2015 What does everyone think about Munger disliking this company? Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 What does everyone think about Munger disliking this company? I think its pretty hard to argue with a 37% IRR, 26% of which is before any tax advantages. Link to comment Share on other sites More sharing options...
Liberty Posted July 24, 2015 Share Posted July 24, 2015 What does everyone think about Munger disliking this company? Not much. This was addressed earlier in this thread. If I remember correctly, Ackman actually asked Munger about it, and basically Munger wasn't really that familiar with VRX. Link to comment Share on other sites More sharing options...
giofranchi Posted July 24, 2015 Author Share Posted July 24, 2015 If I remember correctly, Ackman actually asked Munger about it, and basically Munger wasn't really that familiar with VRX. +1 Gio Link to comment Share on other sites More sharing options...
giofranchi Posted July 24, 2015 Author Share Posted July 24, 2015 Just as importantly as the organic growth, maybe even more so, is 1) their average IRR on deals since inception is 26% without the benefit of their tax advantages, and 2) 37% including their tax advantages. Deploying capital at a 37% IRR on average. Well, they are joined at the hip, aren't they? ;) Last year, I bought LEAPS on Valeant representing 100% in notional of my portfolio. I guess I should have bought 200% of notional or more! Wow! Congratulations for the wonderful trade! :) Cheers, Gio Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 Just as importantly as the organic growth, maybe even more so, is 1) their average IRR on deals since inception is 26% without the benefit of their tax advantages, and 2) 37% including their tax advantages. Deploying capital at a 37% IRR on average. Well, they are joined at the hip, aren't they? ;) Last year, I bought LEAPS on Valeant representing 100% in notional of my portfolio. I guess I should have bought 200% of notional or more! Wow! Congratulations for the wonderful trade! :) Cheers, Gio The trade sounds better that it is. Right now I have 4/5ths of my net worth tied up, so only 1/5th of my net worth is in liquid securities. As such, 100% of notional only represents 20% of my net worth. Not a small position but not 100% of net worth either. Link to comment Share on other sites More sharing options...
peter1234 Posted July 24, 2015 Share Posted July 24, 2015 Thanks for sharing and the details. Congrats! :) Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 Gio, they are joined at the hip to some degree because for an IRR calculation, I would assume you need to make an assumption about the current cash flows and the growth of those flows relative to the total cost of acquisition plus restructuring charges. In any case, assuming Pearson is making reasonable assumptions there, 37% is a hell of a return. My investment base case assumes, as I have stated a few times now, is around 25% (and up to 30% on the very high end). This means earnings power should double every 3 years or so. Link to comment Share on other sites More sharing options...
frommi Posted July 24, 2015 Share Posted July 24, 2015 These numbers are only comparable when you know how long the cashflows last. 37% in the first year and zero after that is a pretty bad return, so is there a rough estimate how long the lifespan of a drug/product is on average? Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 These numbers are only comparable when you know how long the cashflows last. 37% in the first year and zero after that is a pretty bad return, so is there a rough estimate how long the lifespan of a drug/product is on average? Exactly, the IRR is effectively some kind of projection by Pearson re cash flows in future to get to his current IRR estimates. No, there is no estimate, whatever projections he is using are internal. Link to comment Share on other sites More sharing options...
Liberty Posted July 24, 2015 Share Posted July 24, 2015 These numbers are only comparable when you know how long the cashflows last. 37% in the first year and zero after that is a pretty bad return, so is there a rough estimate how long the lifespan of a drug/product is on average? You can have a look and see for yourself. They have something like 2-3% of revenue hitting patent cliffs per year over the foreseeable future, and organic growth keeps getting stronger (despite big FX headwinds). Link to comment Share on other sites More sharing options...
rpadebet Posted July 24, 2015 Share Posted July 24, 2015 It maybe tough to do 37% or even 25% as they get bigger. AAPL and BRK have the same problems now, so it is good idea to adjust for that instead of assuming they would double the earnings power every 3 years into perpetuity. I would assume 4-6 years based on 3-10 year horizon. But even if they have that problem, it would be a good problem to have. There is still some runway given the industry size before they run into the "opportunity set" problem. Link to comment Share on other sites More sharing options...
original mungerville Posted July 24, 2015 Share Posted July 24, 2015 It maybe tough to do 37% or even 25% as they get bigger. AAPL and BRK have the same problems now, so it is good idea to adjust for that instead of assuming they would double the earnings power every 3 years into perpetuity. I would assume 4-6 years based on 3-10 year horizon. But even if they have that problem, it would be a good problem to have. There is still some runway given the industry size before they run into the "opportunity set" problem. I am not assuming 25% into perpetuity, however, I am assuming 25% for the next 3 years, and probably a year or two after that. For now, however, I am content with the potential high growth for the next 3 years. 25% is not a heroic assumption at all. To get there, all I have to do is assume they grow same store earnings at 5-10%, and get an IRR on retained earnings deployed on deals of 15-20%. When you think about that, 10% (or around half ie 10% divided by 20%) of that 20% deal IRR comes from tax advantages. So while 25% sounds aggressive, it really isn't at all. Follow? Link to comment Share on other sites More sharing options...
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