original mungerville Posted October 22, 2015 Share Posted October 22, 2015 http://www.cnbc.com/2015/10/21/valeant-halted-in-heavy-trading-down-28-after-citron-research-report.html Ackman adds shares. Strangely familiar to Herbalife, no. The cynical side of me silently wonders if the true business model is to play both sides of the field. Make money on the fall, use the drop to aquire shares. Yes - why not make money both ways. Its not like their "research" is accurate, they just need to sow the seeds of doubt, engage with the journalists and class action law firms, complain to government officials, etc. And all of a sudden a new public reality is formed. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 22, 2015 Share Posted October 22, 2015 Fraud is fraud.End of the story Link to comment Share on other sites More sharing options...
Liberty Posted October 22, 2015 Share Posted October 22, 2015 Philidor press release: http://www.businesswire.com/news/home/20151021006812/en/Philidor-Rx-Services-Comments-Network-Pharmacy-Relationships Link to comment Share on other sites More sharing options...
Guest wellmont Posted October 22, 2015 Share Posted October 22, 2015 More good Citron "research": The Many Similarities of Fairfax Financial (FFH) to Enron. http://www.citronresearch.com/stocklemon-updates-fairfax-financial-ffh/ Cheap attack on the messenger instead of the message. So what that Citron didn't get 100% of their calls right. When you are a long-only investor you get zero comments when you get 40% wrong and 60% right. When you are a short seller you are suddenly supposed to hit a 100% hit ratio? Afaik Citron "picks" have performed something like -26% versus the S&P on average... the messenger here is entirely relevant. and being wrong when you accuse someone of being a fraud is an entirely different and more serious way of being wrong than picking a long and being wrong because it didn't perform. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 22, 2015 Share Posted October 22, 2015 And why are we judging a stock manipulator based on his performance at manipulating stocks. What percentage of companies where he has alleged fraud or similar were actually frauds? Link to comment Share on other sites More sharing options...
Liberty Posted October 22, 2015 Share Posted October 22, 2015 More good Citron "research": The Many Similarities of Fairfax Financial (FFH) to Enron. http://www.citronresearch.com/stocklemon-updates-fairfax-financial-ffh/ Cheap attack on the messenger instead of the message. So what that Citron didn't get 100% of their calls right. When you are a long-only investor you get zero comments when you get 40% wrong and 60% right. When you are a short seller you are suddenly supposed to hit a 100% hit ratio? Afaik Citron "picks" have performed something like -26% versus the S&P on average... the messenger here is entirely relevant. and being wrong when you accuse someone of being a fraud is an entirely different and more serious way of being wrong than picking a long and being wrong because it didn't perform. The messenger matters because this isn't a math theorem that stands on its own, it's more like an article written by a journalist. The writer can decide to omit things, frame them in a certain way to make them appear just so, create innuendo, cherry pick facts, make misleading analogies, etc. The shorts are asking us to judge VRX's credibility based on facts that they know very well can't be verified in a day or two. This creates a panic window during which they can make millions with highly levered options and then get out, and if over the longer term it turns out their thesis was wrong, well.. They can always say they were wrong in good faith. Who cares? They're on the beach somewhere. This isn't some small chinese reverse merger small cap, this is big fish, I bet they got some hedge funds to pay for play a while ago and a bunch of players possibly made hundreds of millions from this. And if the 'journalist' happens to have a history of fraud and misleading statements, well, you might want to take things with a grain of salt... https://en.m.wikipedia.org/wiki/Andrew_Left#Criticism Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 22, 2015 Share Posted October 22, 2015 Philidor press release: http://www.businesswire.com/news/home/20151021006812/en/Philidor-Rx-Services-Comments-Network-Pharmacy-Relationships Pause. 1. Can they own R&O outright legally? (I know it's an option to acquire) 2. So R&O is a subsidiary suing the parent? Link to comment Share on other sites More sharing options...
sleepydragon Posted October 22, 2015 Share Posted October 22, 2015 regardless if this is a fraud, this company no longer worth its current PE. It used a lot of debt to acquire revenue, getting returns through taking advantage of the insurance system, unethically and unfairly to tax payers, and now going forward they will have a hard time do raise prices and buying growth. Looks like a bubble stock bursting like in dot com era. Link to comment Share on other sites More sharing options...
luck Posted October 22, 2015 Share Posted October 22, 2015 FWIW, Barclays keeps its $300 price target on VRX. Not sure if I can paste the link as it is on another investor message board. If anyone's interested, I can post the text I guess (pretty long). Link to comment Share on other sites More sharing options...
wescobrk Posted October 22, 2015 Share Posted October 22, 2015 I bought some today between $90-92. A rare bit of propitious timing for me. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 22, 2015 Share Posted October 22, 2015 CITRON'S "RESEARCH" REPORT IS RUBBISH If you want a more nuanced view from a short, read Bronte's blog post: http://brontecapital.blogspot.ca/2015/10/some-comments-on-valeant-conference-call.html I know Hempton is not popular here, but this is actually pretty good sleuthing. Anyway, here is the summary based on today's events. 1. Valeant uses specialty distributors to help patients navigate insurance (and regulatory issues) 2. Philidor is an independent, but captive specialty pharmacy. 3. Valeant has tried to hide relationship with Philidor (possibly for competitive or regulatory reasons) 4. Philidor can only provide service to 45 states 5. For the other 5 states, Philidor has a network of independent pharmacies (including R&O) 6. R&O is having a dispute with Philidor and/or Valeant 7. Valeant has an option to buy Philidor and is consolidating their revenue Based on this evidence, I think it is 100% clear that the allegations of Citron's are false. Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 22, 2015 Share Posted October 22, 2015 On this one...the shorts are scummy and the company is scummy. Everything they put out is legalize that they followed the law. But we all know the spirit of the law is more important. They go right to the edge, what for? 'Cause they don't believe the idea of staying a mile away from the front page news? Also, I hate to say this but the CEO of this drug/healthcare company needs to lose some weight, or maybe he is trying to endorse the need for their products? Link to comment Share on other sites More sharing options...
RadMan24 Posted October 22, 2015 Share Posted October 22, 2015 So, Valeant is a good business, but even if there is fraud or structural issies, what price is it safe to pay for a clean house? Link to comment Share on other sites More sharing options...
Picasso Posted October 22, 2015 Share Posted October 22, 2015 Cool, we've descended into calling Pearson fat. ??? Link to comment Share on other sites More sharing options...
KCLarkin Posted October 22, 2015 Share Posted October 22, 2015 If you read Citron's report, he claims he uncovered fraud at Arthrocare. The CEO is now serving 20 years. Arthrocare was recently purchased for $1.7B or 15x EBITDA. Not exactly Enron. Or more recently, Salix stuffed the channel. Those poor Salix shareholders must be very poor. See the "buying opportunity" -- http://us.topstockresearch.com/charts/weekly/weeklySalix_Pharmaceuticals_Ltd.png EVEN IF THERE IS FRAUD, PAST EXAMPLES WOULD SUGGEST THIS IS ALREADY PRICED IN. In other words, if you imagine the scary future where Pearson is doing hard time, the stock price would very likely be higher than the close today. Mr. Market hates uncertainty. Link to comment Share on other sites More sharing options...
merkhet Posted October 22, 2015 Share Posted October 22, 2015 Oh, VRX thread on CoBF. "I wish I knew how to quit you." (Unfortunately, there's just so much interesting stuff happening with Valeant land recently that it's tough.) In any case, I decided to do a little bit a research during some of my downtime on some of the stuff that has come out recently. So, as far as I understand it, VRX sent R&O a letter demanding payment. R&O sent back a letter basically saying "we have no idea who you are." Okay, that's a bit weird, but it turns out that VRX "owns" Philidor which "owns" R&O. I'm using air quotes for reasons that will be obvious pretty soon. I'll even use this * to indicate that I'm going to come back to it. Now, Zenaida has pointed out that it's a little weird for a "subsidiary" to sue its ultimate "parent," but I have no comment on that one way or the other. It's definitely weird, but it's unclear how or why it's playing out. I suspect it's playing out this way because something hanky is going on. ** We'll come back to this in a second as well. What's significantly more interesting is that VRX had a presentation today indicating that they were consolidating Philidor's financials (revenue and balance sheet) onto their consolidated financials based on a Variable Interest Entity (VIE) assessment under ASC 810. (Note: In the presentation today, they did not specifically call out that they also consolidated R&O's financials, e.g. revenue and balance sheet, into their consolidated financials. The presentation only talks about Philidor.) Why is this important? Here's where the * gets interesting. If you pull up ASC 810, you'll see that on page 13, you have a stupidly complicated chart. Alternatively, you could read the following page which is slightly more comprehensible. Now, someone with more knowledge on this might want to review this to make sure that I'm not getting this wrong, but basically it says that a VIE assessment results in consolidated financials when (A) you've determined that you're dealing with a VIE and (b) the reporting company has the power to direct the actions of the VIE that most significantly impact the VIE's economic performance. (There's one other step, but since VRX says they're consolidating things, then we assume that last step is fulfilled, and it's irrelevant for this discussion, IMO.) In essence, the reporting company must "control" the VIE. Why is this important? Well, now we're back to **. If VRX has effective control (for consolidation purposes) over Philidor and Philidor has effective control (for consolidation purposes) over R&O, then if R&O or Philidor is doing something hanky, then I'm wondering whether, under regulatory scrutiny or a court of law, VRX is going to be able to argue their independence. I mention this only because someone either on Twitter or CoBF mentioned that it's possible that R&O and/or Philidor was doing something wrong, but it doesn't mean you can impute such knowledge to VRX or Pearson. Except, that might not actually be true. Disclaimer: I have never had any position in VRX. I'm really just here for the popcorn. Link to comment Share on other sites More sharing options...
rpadebet Posted October 22, 2015 Share Posted October 22, 2015 I think they are going to argue that Philidor doesn't control R&O. In press release they say it's an outsourcing relationship. Link to comment Share on other sites More sharing options...
original mungerville Posted October 22, 2015 Share Posted October 22, 2015 Philidor press release: http://www.businesswire.com/news/home/20151021006812/en/Philidor-Rx-Services-Comments-Network-Pharmacy-Relationships My nose is pretty good for this stuff. I think this is the worst case: - No Fraud, No inflation of revenues, nothing illegal - However, like raising prices on a subset of the biz, this specialty pharma thing, in the light of day and upon broad public debate, will be looked upon negatively and eventually will no longer be permitted in the industry in due course. That's the worst case, and it will affect many pharma companies, not just Valeant. Any idiots that think this is fraud have to assume at least a dozen pharma companies are concurrently committing fraud. Also, there are no SEC violations. Having said that, I am sure the latter idiots will investigate. They always seem to investigate the wrong guys first, so they'll investigate Valeant. Hold on to your socks, this is a rocky ride. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 22, 2015 Share Posted October 22, 2015 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3411231/ http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3474456/ Interesting read about specialty pharmacies. Seems like they actually provide very valuable services. (doesn't cover captive ones though) Link to comment Share on other sites More sharing options...
Picasso Posted October 22, 2015 Share Posted October 22, 2015 I'm trying to square a couple different comments from Pearson. It's been a long day so maybe I'm missing something here, but I'm trying to figure out what's changed over four quarters: This is from 3Q 2014 David Steinberg - Jefferies Looks like in the prescription graph that you added up the : Wolters Kluwer and the Specialty Pharmacy data. I was just curious what's the rough breakout between the prescription and other information and that you get through your Specialty Pharmacy. And secondly, is sampling still a significant part of your program? And if so, perhaps how much through scripts buy? And then could you give us an update on how managed care discussions are going on that product? Mike Pearson - Chairman and Chief Executive Officer In terms of the breakdown, the Specialty Pharmacy channels, actually multiple specialty pharmacies throughout the United States, but the rough script breakdown is about 40% of the volume is going through specialty pharma and 60% is going through traditional pharmacies. Sampling is not a key part of what we're doing. One of the reasons is you may recall that we had to shift manufacturers to our Japanese partner, which is doing a terrific job for us, where they only have trade size bottles at this point. And so until we get more sample bottles, we would expect to start sampling next year once we get the smaller bottle. Then these comments 3Q 2015 David Risinger - Morgan Stanley That's great. And then just separately, you discussed alternate fulfillment, could you just put that in perspective, maybe what percentage of the US brand Rx business alternate fulfillment is and how much of that is Philidor? Mike Pearson - Chairman and CEO Sure. It's really primarily our dermatology brands and then some of our specialty products like Ruconest, Arestin and some of the products that some of the other orphan drugs. For certain products it is quite larger, for Jublia it is probably 50%, for a lot of other dermatology it is much, much less. David, I am sorry I can't-- it's significant but I don't know the precise number but it is certainly of our US portfolio, so 10%, 20% maybe, maybe Tanya's nodding probably closer to 10%. So it's changed from 40% to 10-20%? Unless he is only talking about Philidor. It's sort of hard to decipher if he's referring to the specialty pharmacies or only Philidor. Link to comment Share on other sites More sharing options...
original mungerville Posted October 22, 2015 Share Posted October 22, 2015 Picasso, I think in the prior discussion Pearson is talking about a subset of the biz whereas in this conference call he was talking about just over 10% of the entire US portfolio (but he wasn't that sure). Link to comment Share on other sites More sharing options...
Picasso Posted October 22, 2015 Share Posted October 22, 2015 Ah looks like they are referring only to Jublia (based on the chart from that presentation), which ties into his latest remarks. So then these comments from SIRF are false: A better description is a "specialty pharmacy," filling, shipping and getting insurance approval for prescriptions of the more complex drugs Valeant makes. In its third quarter conference call last year, the only instance where Philidor has been publicly mentioned by an analyst, Valeant chief executive Mike Pearson said that perhaps 40% of its business flows through specialty pharmacies. In July, he reiterated the company's guidance for up to $11.1 billion in 2015 revenue, implying that as much as $4.4 billion in product could move through this channel. Link to comment Share on other sites More sharing options...
original mungerville Posted October 22, 2015 Share Posted October 22, 2015 Oh, VRX thread on CoBF. "I wish I knew how to quit you." (Unfortunately, there's just so much interesting stuff happening with Valeant land recently that it's tough.) In any case, I decided to do a little bit a research during some of my downtime on some of the stuff that has come out recently. So, as far as I understand it, VRX sent R&O a letter demanding payment. R&O sent back a letter basically saying "we have no idea who you are." Okay, that's a bit weird, but it turns out that VRX "owns" Philidor which "owns" R&O. I'm using air quotes for reasons that will be obvious pretty soon. I'll even use this * to indicate that I'm going to come back to it. Now, Zenaida has pointed out that it's a little weird for a "subsidiary" to sue its ultimate "parent," but I have no comment on that one way or the other. It's definitely weird, but it's unclear how or why it's playing out. I suspect it's playing out this way because something hanky is going on. ** We'll come back to this in a second as well. What's significantly more interesting is that VRX had a presentation today indicating that they were consolidating Philidor's financials (revenue and balance sheet) onto their consolidated financials based on a Variable Interest Entity (VIE) assessment under ASC 810. (Note: In the presentation today, they did not specifically call out that they also consolidated R&O's financials, e.g. revenue and balance sheet, into their consolidated financials. The presentation only talks about Philidor.) Why is this important? Here's where the * gets interesting. If you pull up ASC 810, you'll see that on page 13, you have a stupidly complicated chart. Alternatively, you could read the following page which is slightly more comprehensible. Now, someone with more knowledge on this might want to review this to make sure that I'm not getting this wrong, but basically it says that a VIE assessment results in consolidated financials when (A) you've determined that you're dealing with a VIE and (b) the reporting company has the power to direct the actions of the VIE that most significantly impact the VIE's economic performance. (There's one other step, but since VRX says they're consolidating things, then we assume that last step is fulfilled, and it's irrelevant for this discussion, IMO.) In essence, the reporting company must "control" the VIE. Why is this important? Well, now we're back to **. If VRX has effective control (for consolidation purposes) over Philidor and Philidor has effective control (for consolidation purposes) over R&O, then if R&O or Philidor is doing something hanky, then I'm wondering whether, under regulatory scrutiny or a court of law, VRX is going to be able to argue their independence. I mention this only because someone either on Twitter or CoBF mentioned that it's possible that R&O and/or Philidor was doing something wrong, but it doesn't mean you can impute such knowledge to VRX or Pearson. Except, that might not actually be true. Disclaimer: I have never had any position in VRX. I'm really just here for the popcorn. Merkhet, Glad we don't have to talk about IRRs anymore! I will generally agree with you here, this smells weird and I would note the following: 1. I would caution on your VIE explanation because if my memory serves me correctly, its a lot more complicated than that in terms of the accounting test, and I would not be in a position to correct you myself. You said as much and I agree. My vague recollection is that you can also consolidate a VIE if you control it OR if you received the majority of the variable economic interest from the business of the VIE, but I could be wrong. Valeant could be receiving the latter. 2. The definition of control for tax purposes can be different than the definition of control for accounting purposes which can be different than control as determined by courts - as you would probably know. Its important to not mix these in this type of situation. Of course one of these definitions can influence another or be a partial input into another however we should understand and be clear that control for accounting purposes does not equal control as determined by the courts. 3. Valeant has an option to acquire this Philidor, but does not have an equity stake, similarly Philidor has an option to acquire R&O Pharmacy but does not have an equity stake. Why? Probably to legally get around regulatory hurdles. You don't start setting up these complicated relationships for no reason. Its most often a regulatory or tax reason. 4. Valeant has an option to buy, and similarly Philidor, but this does not mean they are the "parent" or currently "control" R&O legally - until they exercise that option. As such, a dispute on a payment doesn't seem that crazy to me. Maybe a little weird, but not out of question that this could arise. As per my prior post, my view is worst case there is no fraud, nothing illegal by Valeant in any major way, but after broad public debate, this practice could eventually be banned or curtailed in the pharma industry over the next couple of years. (Multiple pharma companies are using these speciality pharma outfits, its unlikely they are all committing fraud. I should add that Valeant potentially has set-up what looks to be a captive network with the option to buy; but if this complicated web was set up for regulatory purposes, you would think the option to buy would need prior regulatory approval.) Link to comment Share on other sites More sharing options...
original mungerville Posted October 22, 2015 Share Posted October 22, 2015 Ah looks like they are referring only to Jublia (based on the chart from that presentation), which ties into his latest remarks. So then these comments from SIRF are false: A better description is a "specialty pharmacy," filling, shipping and getting insurance approval for prescriptions of the more complex drugs Valeant makes. In its third quarter conference call last year, the only instance where Philidor has been publicly mentioned by an analyst, Valeant chief executive Mike Pearson said that perhaps 40% of its business flows through specialty pharmacies. In July, he reiterated the company's guidance for up to $11.1 billion in 2015 revenue, implying that as much as $4.4 billion in product could move through this channel. Who is SIRF? Link to comment Share on other sites More sharing options...
Picasso Posted October 22, 2015 Share Posted October 22, 2015 The Roddy Boyd site which is being referenced by Bronte and Citron. Link to comment Share on other sites More sharing options...
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