valueyoda Posted October 29, 2015 Share Posted October 29, 2015 Come on. It was obvious that the ad hoc committee was going to conclude that Valeant should sever ties with Philador. Now Philador's clients have made this decision for Valeant. Philador is only 7% of revenues and EBITDA, with a significant portion flowing through different channels or speciality pharmas over the course of 2-3 quarters. Legal recourse should be limited and the option cost is a sunk cost at this point. Once the shock effect dissapates, investors should recognize the long term opportunity here. Link to comment Share on other sites More sharing options...
AzCactus Posted October 29, 2015 Share Posted October 29, 2015 Doesn't this really come down to like Eric hinted at whether or not you trust management? From what I know Pearson seems like a great capital allocator who takes a unique view on his industry. And at the $85-$95 level a lot of the issues appear to be priced in. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 29, 2015 Share Posted October 29, 2015 Come on. It was obvious that the ad hoc committee was going to conclude that Valeant should sever ties with Philador. Now Philador's clients have made this decision for Valeant. Philador is only 7% of revenues and EBITDA, with a significant portion flowing through different channels or speciality pharmas over the course of 2-3 quarters. Legal recourse should be limited and the option cost is a sunk cost at this point. Once the shock effect dissapates, investors should recognize the long term opportunity here. What exactly would this"long term opportunity be"? Don't you realize in what shitty situation VRX is and will likely be for quite some time? Link to comment Share on other sites More sharing options...
valueyoda Posted October 29, 2015 Share Posted October 29, 2015 It is hard to beat perception. For all, we know the stock opens below last week's $88. However, maybe investors realize at the end of day how cheap Valeant is and it closes up. Hard to assess when the Enron talk bubble bursts. Link to comment Share on other sites More sharing options...
valueyoda Posted October 29, 2015 Share Posted October 29, 2015 Long term means that I have confidence in Michael Pearson's overall strategy and capital allocation skills. I never understood people's fascination with the stock at $260. It was clearly overvalued and a crowded hedge fund trade at those valuations. However, at below a $100 it trades below at 7x adjusted consensus EPS for next year. What's fair? A range of $130-$140 seems a fair value range for me. Link to comment Share on other sites More sharing options...
tombgrt Posted October 29, 2015 Share Posted October 29, 2015 Come on. It was obvious that the ad hoc committee was going to conclude that Valeant should sever ties with Philador. Now Philador's clients have made this decision for Valeant. Philador is only 7% of revenues and EBITDA, with a significant portion flowing through different channels or speciality pharmas over the course of 2-3 quarters. Legal recourse should be limited and the option cost is a sunk cost at this point. Once the shock effect dissapates, investors should recognize the long term opportunity here. Limited unless Philidor is one of a few of course... Or is that highly unlikely? Link to comment Share on other sites More sharing options...
valueyoda Posted October 29, 2015 Share Posted October 29, 2015 Philador was most of Valeant's specialty pharma distribution, so I would guess at this point that this should comprise most of the pain. Link to comment Share on other sites More sharing options...
CONeal Posted October 29, 2015 Share Posted October 29, 2015 Damn this company just got confusing. Noticed that CVS is looking at 3 other pharmacies. Concerned that VRX using different pharmacies for the PBM's might result in more competition and also losing a pricing advantage for some of their drugs. Link to comment Share on other sites More sharing options...
walt373 Posted October 29, 2015 Share Posted October 29, 2015 If you think it's cheap, you're assuming the rest of the business is unaffected. But that's a big if. Everyone knows for all intents and purposes Philador = Valeant. Loss of reputation is a real cost. Nobody knew about Philador a couple weeks ago. What other landmines hidden in VRX do we not know about? Cockroach theory has worked brilliantly - bad news just keeps showing up. And so far the selling has been justified imo. Can you truly say the selling has been irrational? Many of the would-be knife-catchers are already invested, and possibly overexposed. Huge funds with concentrated positions are stuck and taking a beating. Some are doubting their original thesis but reluctant or simply unable to exit without losing a limb. But there may very well be forced selling before this is over. That would be your entry point if you are interested. If you think it's cheap now, there's a good chance it will get a lot cheaper. Link to comment Share on other sites More sharing options...
valueyoda Posted October 30, 2015 Share Posted October 30, 2015 It is the $40 billion question. No doubt about it. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 30, 2015 Share Posted October 30, 2015 If you think it's cheap, you're assuming the rest of the business is unaffected. But that's a big if. Everyone knows for all intents and purposes Philador = Valeant. Loss of reputation is a real cost. Nobody knew about Philador a couple weeks ago. What other landmines hidden in VRX do we not know about? Cockroach theory has worked brilliantly - bad news just keeps showing up. And so far the selling has been justified imo. Can you truly say the selling has been irrational? Many of the would-be knife-catchers are already invested, and possibly overexposed. Huge funds with concentrated positions are stuck and taking a beating. Some are doubting their original thesis but reluctant or simply unable to exit without losing a limb. But there may very well be forced selling before this is over. That would be your entry point if you are interested. If you think it's cheap now, there's a good chance it will get a lot cheaper. +1 Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 30, 2015 Share Posted October 30, 2015 I think most folks are underestimating the impact of the USD appreciating against EM currencies. If USD continues to appreciate then the tax rate could remain well above US corporate rates throughout 2016. I'm pretty confident that VRX never transferred SLXP IP to Barbados. It's worth noting that a large % of revenue comes from wholesalers and VRX's "grey market" actions are also under investigation by congress. I also previously mentioned that there are very severe penalties (criminal charges/fines/multi-year bans) attached to unauthorized access to patient records. The Philidor issue could result in much larger fines for VRX than what other pharmas have historically experienced if the option is consider equal to full equity ownership (this is a big if). The wholesaler and patient record issues are speculative at this time. I'm just bringing them up because they are under-appreciated downside possibilities to consider (in addition to what has already been discussed). Link to comment Share on other sites More sharing options...
rishig Posted October 30, 2015 Share Posted October 30, 2015 If you think it's cheap, you're assuming the rest of the business is unaffected. But that's a big if. Everyone knows for all intents and purposes Philador = Valeant. Loss of reputation is a real cost. Nobody knew about Philador a couple weeks ago. What other landmines hidden in VRX do we not know about? Cockroach theory has worked brilliantly - bad news just keeps showing up. And so far the selling has been justified imo. Can you truly say the selling has been irrational? Many of the would-be knife-catchers are already invested, and possibly overexposed. Huge funds with concentrated positions are stuck and taking a beating. Some are doubting their original thesis but reluctant or simply unable to exit without losing a limb. But there may very well be forced selling before this is over. That would be your entry point if you are interested. If you think it's cheap now, there's a good chance it will get a lot cheaper. +1 Just to expand on this a bit more - This ordeal basically lets the cat out of the bag. Until now, Valeant was very slickly (too slick for its own good) using its "affiliated" pharmacies to dispense the drugs that it was hiking the prices on. This helped it stay out of the radar. PBMs, not knowing the actual game here, would reimburse for the prescriptions for the most part. Now that they know what was really going on, not only is Philidor out, but any other such affiliated specialty pharmacy is out. Most importantly, the way it can affect Valeant is that PBMs will be on watch for similar games for Valeant drugs. They could (and very highly they will) change the formulary to have Valeant drugs to be in the higher tier and put alternate drugs in the lower tier, for not only the drugs that were dispensed through Philidor, but any Valeant drug that seems to be at a higher price point. That's what PBMs do. What does this mean - not only are drug price increases on Valeant's branded generics gone out of the window, but drug volumes could drop as PBMs encourage dispensing of alternate drugs through its formulary changes. When it comes to generics, PBMs have a lot of power and leverage. Unless the drug is really one-of-a-kind, PBMs and large retail pharmacies make most of the margins on a generic drug. There is a reason why these drugs weren't as profitable in the hands of the "old" owner. They weren't stupid owners, it is just hard to make money on old generics when most of the volume flows through 2-3 PBMs and 2-3 retail pharmacies, that have the power to completely replace you with an alternate. That was Pearson's "capital allocation" game. Buy "mispriced" drugs, cut costs, cut R&D, and raise prices. As competition got heated (Endo, Allergan, ..), they started paying up. All those models that Valeant built for IRR on what they will make on the acquisitions should probably out of the window. I have a very small position at $105. So, why the heck am I long? The small position keeps me interested. My take is that ValueAct will clean up the house. Bring in some operational guy. If all hell breaks lose, they may start selling off these assets. Sum of parts, it is worth some discount to what they paid for these large acquisitions. Total spent on acquisitions is roughly $40 billion. Market cap seems to be going in the direction where it is at discount to this number. Link to comment Share on other sites More sharing options...
sswan11 Posted October 30, 2015 Share Posted October 30, 2015 Wasn't Ackman to speak at 9am tomorrow (EST?) on VRX? Should be interesting to see effect on stock at open. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 30, 2015 Share Posted October 30, 2015 Wasn't Ackman to speak at 9am tomorrow (EST?) on VRX? Should be interesting to see effect on stock at open. It will still say down. There's not much Ackman can do tomorrow to raise the price Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 The Philidor issue could result in much larger fines for VRX than what other pharmas have historically experienced if the option is consider equal to full equity ownership (this is a big if). Doesn't Allergan own Warner Chilcot who pled guilty to felony health care fraud scheme? $125m payment to resolve criminal liability and False Claims Act allegations. Link to comment Share on other sites More sharing options...
thepupil Posted October 30, 2015 Share Posted October 30, 2015 Sum of parts, it is worth some discount to what they paid for these large acquisitions. Total spent on acquisitions is roughly $40 billion. Market cap seems to be going in the direction where it is at discount to this number. ummmm... if you think it is worth less than total spent on acquisitions, you should be massively short, not long. They have $30B of debt. It's at a $62B EV and still implies value creation. No position, but felt the need to point out the apparent inconsistency. Link to comment Share on other sites More sharing options...
sswan11 Posted October 30, 2015 Share Posted October 30, 2015 I imagine Ackman in on the phone to Valeant right now. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 30, 2015 Share Posted October 30, 2015 http://www.justice.gov/opa/pr/warner-chilcott-agrees-plead-guilty-felony-health-care-fraud-scheme-and-pay-125-million Anyone who is interested in potential legal liability should read this, announced today. This company was bought by Allergen. They paid kickbacks directly to doctors for 4 years and ended up paying 125m in fines. Link to comment Share on other sites More sharing options...
Picasso Posted October 30, 2015 Share Posted October 30, 2015 Well if history is any guide with the HLF saga the stock will go down when Ackman gives his pitch. I'm pretty sure Ackman is going to push for a seat on the board or something. After he's done smashing his Bloomberg terminal. You can't do this to Baby Buffett! Honestly, I should have just gone long popcorn stocks. This whole thing has become ridiculous.... http://images.forbes.com/media/2015/05/05/0505_forbes-cover-global-2000-ackman-052515_1000x1307.jpg Link to comment Share on other sites More sharing options...
KCLarkin Posted October 30, 2015 Share Posted October 30, 2015 The Philidor issue could result in much larger fines for VRX than what other pharmas have historically experienced if the option is consider equal to full equity ownership (this is a big if). Doesn't Allergan own Warner Chilcot who pled guilty to felony health care fraud scheme? $125m payment to resolve criminal liability and False Claims Act allegations. First, you should look at what other companies have been guilty of. Then you should look at how long and how many $B of fraud. Philador looks like it is guilty, but it is peanuts compared to JNJ or similar frauds. By the way, fines isn't really the right term. These are negotiated settlements. The fact that Philidor is independent will give Valeant some leverage in negotiations. But the DOJ will get its pound of flesh. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 30, 2015 Share Posted October 30, 2015 The Philidor issue could result in much larger fines for VRX than what other pharmas have historically experienced if the option is consider equal to full equity ownership (this is a big if). Doesn't Allergan own Warner Chilcot who pled guilty to felony health care fraud scheme? $125m payment to resolve criminal liability and False Claims Act allegations. Two hospitals in Kern County also were fined. Kern Medical Center in Bakersfield was fined twice for a total of $310,000 after 596 patients’ medical information was stolen in October 2009 from an unlocked outdoor storage locker http://latimesblogs.latimes.com/lanow/2010/11/hospital-fines.html Let's assume $25k fine/patient record. I thought VRX disclosed the number of Philidor CA patients but I can't find it now. I feel like they mentioned a very high number of CA patients but now I don't want to post it because it implies unprecedented territory. This is obviously complete speculation and I don't mean to create fear. It's just my opinion but Philidor does sound like a pretty clear case of unauthorized access to me. I don't know much about false claims violation penalties so I really can't compare the two. I do know that patient record violation penalties should be proportional to the number of records affected (minimum >150 records affected). With a case like this, it's unlikely they could fine anyone at $25k/record, but it's a very serious issue. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 At least this means the banks will be left alone for a while. The govt lawyers now have a pharma payments pipeline building. Link to comment Share on other sites More sharing options...
rishig Posted October 30, 2015 Share Posted October 30, 2015 Sum of parts, it is worth some discount to what they paid for these large acquisitions. Total spent on acquisitions is roughly $40 billion. Market cap seems to be going in the direction where it is at discount to this number. ummmm... if you think it is worth less than total spent on acquisitions, you should be massively short, not long. They have $30B of debt. It's at a $62B EV and still implies value creation. No position, but felt the need to point out the apparent inconsistency. I said in worst case they would sell all the pieces, and yes, in that case it would be worth 1/4th of what it is today. Thanks for pointing that out - it was unclear in my original comment. Hence, I have a very small position. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 Sum of parts, it is worth some discount to what they paid for these large acquisitions. Total spent on acquisitions is roughly $40 billion. Market cap seems to be going in the direction where it is at discount to this number. ummmm... if you think it is worth less than total spent on acquisitions, you should be massively short, not long. They have $30B of debt. It's at a $62B EV and still implies value creation. No position, but felt the need to point out the apparent inconsistency. I said in worst case they would sell all the pieces, and yes, in that case it would be worth 1/4th of what it is today. Thanks for pointing that out - it was unclear in my original comment. Hence, I have a very small position. Why is it only worth 2.5x 2016 FCF? Link to comment Share on other sites More sharing options...
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