original mungerville Posted October 30, 2015 Share Posted October 30, 2015 I'm still thinking about it as well, I am not totally convinced. If you have chance to give it more thought, I would appreciate your view in due course. Did you see what I'm saying? I don't think the way you're looking at it makes sense. The interest expense of an option is the price you're paying to borrow a portion of the common stock. It doesn't matter what the common does- you still paid the interest expense. If earnings go up 20% a year, the common will participate just like the option will. You still paid the interest expense to borrow it. I see your point. I think the difference between the LEAPS and borrowing to buy the common is that the call LEAPS are a form non-recourse leverage whereas that is not the case for borrowing to buy the common. Certainly, if you knew for sure that the non-recourse nature was not useful, then as you say borrowing to buy the common would make much more sense relative to buying the LEAPS. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 30, 2015 Share Posted October 30, 2015 The answer and the counterclaim are available at this dropbox folder and a few of the exhibits. Or they are up on pacer now. https://www.dropbox.com/sh/narnzjrbtfqk83p/AAC2QjCdPoIsr58s3NGkiBWCa?dl=0 Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 If I read it correctly CVS is looking into 3 other pharmacies related to either Philidor or VRX. I took that to mean the ones that Philidor holds options on, and thus within the "Philidor network". Is that not correct? Because I read that Philidor has options on yet other specialty pharmacies. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 30, 2015 Share Posted October 30, 2015 The reason I am bringing this up is a bulk of VRX drugs really "speciality drug". I can see the PBM's squeezing them on price going forward if Philidor was used to help protect the drug price to 1 degree or another. Then again I maybe off my rocker. But right now their is so much hand waving going on it's hard to see and get a feel for how PBM's and insurers are going to react to all this. With them looking deep into the process with VRX they may find ways to save money intentially or not. Pearson said in the last call the specialty pharma drive volume- profitability is better through other distribution channels. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 Remember when we had the 10% of book value "whoops" restatement from FFH in July 2006? Trying to keep this in perspective. The thing I'm most worried about (where so much of the value lies) is if the current management is unable to continue forward (like they're in jail or something). However I bought some back. The real thing that is bugging me and driving me insane is that literally there is a 50 acre fire out my window. It started at 5am and I woke up smelling smoke. At 6am I went to the bathroom, looked out the window, and said "that's nice the mountain is glowing red". So now my kids were home all day from school because a lot of the families are now under evacuation orders. The forecast is for a 40 MPH sundowner blowing in my direction tonight, and we're actively packing for evacuation of my house. This sucks! So yes, there really is smoke and fire! Hope that fire backs off and things work out... Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 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. I agree. I figured the committee would likely conclude they would have to cut ties with Philidor and now the clients have made the decision for them. So there goes 7%, but the stock is down 60%. Assume worst case and that there is legal recourse, I don't think there is a way it can exceed $1 billion, surprised if it is over $500 million, and expect low $100 millions. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 market starting to price in 6% of revenue or more going bye bye as vrx cuts ties with them. it certainly looks like philidor is dirty. how much of this is "culture"? the question is how immunized is valeant from philidor. I would assume they are not immunized, and the question becomes how large is the fine? Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 So taking an abrupt cut to revenue with Philidor being dropped by CVS, etc... They need to forget about buying back shares and instead retire debt pronto right? I mean, they just got a lot more leveraged by the disappearing revenue, even if it's just mostly temporary (until they set up new relationships with third party specialty pharmacies where they can restore a % of their prior revenue). Buybacks are just returning cash to shareholders when there is no better use for cash in the business. It would seem that doesn't fit the current situation. It isn't time to boost leverage by returning cash. It's more likely a better time to reduce leverage by either holding the cash to stay liquid or pay down debt so the debt isn't so visible. Probably, but I have been thinking 1/3rd for buy-backs and 2/3 for accelerated debt repayment. 7% of revenues went away, 7% of debt (I think they are at $35 billion or so) is around $2.5 billion. Add $500 million for fines. They have to buy back less than $3 billion in debt to keep leverage the same. Link to comment Share on other sites More sharing options...
muscleman Posted October 30, 2015 Share Posted October 30, 2015 market starting to price in 6% of revenue or more going bye bye as vrx cuts ties with them. it certainly looks like philidor is dirty. how much of this is "culture"? the question is how immunized is valeant from philidor. I would assume they are not immunized, and the question becomes how large is the fine? http://www.wsj.com/articles/cvs-cuts-off-philidor-pharmacy-used-by-valeant-pharmaceuticals-1446151453 " Express Scripts Holding Co. released a similar statement about an hour later, saying it was cutting off Philidor and also evaluating four additional pharmacies with which Valeant “has a similar relationship.”" It is surprising to me how these Pharmacies make the same decision at exactly the same time. Did they talk to each other before doing this? It sounds like they want to all quit Philidor together, because if one quit and the other doesn't, the one doesn't will get more business. This is so similar to BRK's General RE acquisition. BRK was on fire for quite a while. Link to comment Share on other sites More sharing options...
CONeal Posted October 30, 2015 Share Posted October 30, 2015 If I read it correctly CVS is looking into 3 other pharmacies related to either Philidor or VRX. I took that to mean the ones that Philidor holds options on, and thus within the "Philidor network". Is that not correct? Because I read that Philidor has options on yet other specialty pharmacies. I can't find the source where I read it now. You could be right Link to comment Share on other sites More sharing options...
CONeal Posted October 30, 2015 Share Posted October 30, 2015 The reason I am bringing this up is a bulk of VRX drugs really "speciality drug". I can see the PBM's squeezing them on price going forward if Philidor was used to help protect the drug price to 1 degree or another. Then again I maybe off my rocker. But right now their is so much hand waving going on it's hard to see and get a feel for how PBM's and insurers are going to react to all this. With them looking deep into the process with VRX they may find ways to save money intentially or not. Pearson said in the last call the specialty pharma drive volume- profitability is better through other distribution channels. But if you have a Pharmacy helping with volume when normally generic would be prescribed. It makes a difference. "As we have stated many times, Valeant's core operating principles include a focus on volume growth and a concentration on private and cash pay markets that avoid government reimbursement in the U.S. and across the world." Internal memo to employees Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 So taking an abrupt cut to revenue with Philidor being dropped by CVS, etc... They need to forget about buying back shares and instead retire debt pronto right? I mean, they just got a lot more leveraged by the disappearing revenue, even if it's just mostly temporary (until they set up new relationships with third party specialty pharmacies where they can restore a % of their prior revenue). Buybacks are just returning cash to shareholders when there is no better use for cash in the business. It would seem that doesn't fit the current situation. It isn't time to boost leverage by returning cash. It's more likely a better time to reduce leverage by either holding the cash to stay liquid or pay down debt so the debt isn't so visible. Probably, but I have been thinking 1/3rd for buy-backs and 2/3 for accelerated debt repayment. 7% of revenues went away, 7% of debt (I think they are at $35 billion or so) is around $2.5 billion. Add $500 million for fines. They have to buy back less than $3 billion in debt to keep leverage the same. And I suppose by end of June the organic revenue growth that is allegedly in excess of 10% will restore revenues to where they were before losing Philidor. So if you did retire $3b of debt/fines, you'd be 7% deleveraged at that point relative to where you were before the Philidor story broke. From that point on I suppose you could call it deleveraging if instead of retiring more debt you just make more acquisitions with cash only where the cash yield from the new assets greatly exceeds the coupon on the existing debt. That's probably a lot less risky than retiring shares and thus my preference even if the return on either is 20%. It's less risky because it adds more income relative to a static debt amount, and that new income adds to the diversity of the income stream so it's more dependable. Link to comment Share on other sites More sharing options...
wisdom Posted October 30, 2015 Share Posted October 30, 2015 UNH cuts off Philidor too Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 If I read it correctly CVS is looking into 3 other pharmacies related to either Philidor or VRX. I took that to mean the ones that Philidor holds options on, and thus within the "Philidor network". Is that not correct? Because I read that Philidor has options on yet other specialty pharmacies. I can't find the source where I read it now. You could be right I figure one of them was that "West Wilshire" one with the California license, and another is that "Cambria" one. You know how they would submit claims and shuffle around which pharmacy submitted the claim until finally it was not refused? That's why they would want to investigate their relationship with the others and not just Philidor alone. Link to comment Share on other sites More sharing options...
rishig Posted October 30, 2015 Share Posted October 30, 2015 I looked through where Valeant's "growth" drugs are on the PBM's formulary today. I searched for these: Dermatology: Jublia, Onexton Salix: Xifaxsan, Apriso, Uceris, Relistor It turns out all of them are already in tier-3 and 4. Drugs in these tiers have higher co-pays. Valeant got the organic growth despite these large co-pays thanks to coupons and patient assistance programs. With the crackdown in patient assistance programs, the organic growth would anyway slowdown. PBMs pulling out is *not* a double whammy in my opinion, because even if they didn't pull out, the number of patients paying those large co-pays would have anyway slowed down. So in a sense, it is double counting. https://www.express-scripts.com/art/medicare15/pdf/15pdp_formulary_value.pdf Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 Can we reinvite AZ Value or is he still banned from this thread "by" Gio? Fucking brilliant.... I have only said imo he should be more careful to accuse people of lying. That’s all I have said. But I guess we always can count on you to distort anything I say… ::) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 Valeant To Terminate Relationship With Philidor http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-To-Terminate-Relationship-With-Philidor/default.aspx Cheers, Gio Link to comment Share on other sites More sharing options...
Phaceliacapital Posted October 30, 2015 Share Posted October 30, 2015 BN) Express Scripts, CVS Cut Ties With Valeant Partner Philidor (3) +------------------------------------------------------------------------------+ Express Scripts, CVS Cut Ties With Valeant Partner Philidor (3) 2015-10-30 00:12:52.539 GMT (Updates with Optum statement in sixth paragraph.) By Robert Langreth and Zachary Tracer (Bloomberg) -- The three largest pharmacy-benefit managers said they’re moving to terminate Philidor RX Services, the mail- order pharmacy that’s a partner of drugmaker Valeant Pharmaceuticals International Inc., from their networks. Express Scripts Holding Co., the nation’s largest manager of prescription drug benefits, said in a statement that it’s “in the process of terminating the Philidor pharmacy from our network.” It’s also evaluating four other pharmacies that Valeant has a similar relationship with. The company also said it was reviewing and evaluating “all similar captive pharmacy arrangements,” referring to pharmacies that derive the vast majority of their prescription volume from one manufacturer or one product. The second-largest drug benefits manager, CVS Health Corp., also said in an e-mailed statement that it would remove Philidor from its network of pharmacies after an audit of its practices. “CVS/caremark maintains a broad national network of 68,000 pharmacies. In accordance with CVS/caremark’s standard auditing protocols, over the last several weeks we have been monitoring and reviewing the results of recent audits of Philidor’s practices. Based on the findings from those activities, we have terminated Philidor for noncompliance with the terms of its provider agreement,” CVS said in an e-mailed statement. OptumRx Audit OptumRx, UnitedHealth Group Inc.’s pharmacy-benefits business, “conducted an audit of Philidor in late 2014 and subsequently began terminating them from all networks in the interests of our customers,” according to Matt Stearns, an Optum spokesman. Optum is the third-largest drug manager in the U.S. Valeant, in a statement, said it sells its drugs through a variety of channels. “We look forward to continuing to work with our full range of partners to ensure patients have access to the important medicines they need,” the company said in an e-mail. Some Blue Cross and Blue Shield health insurers also are looking into Valeant’s specialty pharmacies, according to a person familiar with the matter, who asked not to be identified because the process is still under way. Philidor declined to comment. Anthem’s Evaluation Anthem Inc., which has about 38.7 million health-insurance customers, uses Express Scripts to handle its pharmacy benefits, but sometimes makes its own decisions on drug coverage. The company, which operates some Blue Cross and Blue Shield plans, said in a statement that it’s “working collaboratively” with Express Scripts as the pharmacy-benefits manager evaluates Valeant’s use of affiliated pharmacies. “Anthem Inc. contracts with Express Scripts to provide access to pharmacy networks,” the health insurer said in an e- mail. “Anthem will continually monitor any developments that could impact members in this area and work collaboratively with ESI to take appropriate action For those that don't know the industry, the three largest account for around 65% of the PBM market.. Very oligopolistic market that favors the companies with scale.. @ Rishi: Express Scripts is actually the largest PBM, and as a pureplay (CVS has brick & mortar pharmacies) they have significantly higher EBITDAs per claim handled (which I expect to tick up even further as they properly integrate Medco and use high margin "mail order delivery"). Link to comment Share on other sites More sharing options...
Phaceliacapital Posted October 30, 2015 Share Posted October 30, 2015 "The newest allegations about activities at Philidor raise additional questions about the company's business practices," said J. Michael Pearson, Valeant's chairman and chief executive officer. "We have lost confidence in Philidor's ability to continue to operate in a manner that is acceptable to Valeant and the patients and doctors we serve."" Too little too late? Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 With the $100 million option to buy Philador, there is an indemnification clause. If I remember correctly, the maximum Valeant is liable for is $25 or $35 million. Can anyone validate this from the presentation? Philidor Said to Modify Prescriptions to Boost Valeant Sales http://www.bloomberg.com/news/articles/2015-10-29/philidor-said-to-modify-prescriptions-to-boost-valeant-sales What would happen to Valeant if Philidor is found guilty? Can Philidor take down Valeant? Been gone from this thread for two weeks and a couple hundred pages, but the question in my view is not how much the legal liability might be for Philidor (and anyway, it's likely that if this stuff rises to the level of a criminal charge whatever veil VRX thinks it has will be pierced), the question is how much VRX can grow without Philidor. B+L/Salix/Consumer are good assets. The rest of the business is iffy and might reset to a much lower base without Philidor. For example, last Q Jublia was 40% of total US organic sales growth and 50% of sales went through Philidor. What is the true demand for Jublia without Philidor jamming the insurers? I don't know. It also looks for all the world like VRX stuffed the channel with Salix to make their 3Q numbers (check their $300M salix sales estimate on the 2Q call v actual salix sales of $450M in 3Q combined with Xifaxan scripts growing at only 15% sequentially and then go read the gross:net disclosure in the 10Q MD&A--as an aside it's hard for me not to see how exploding gross:nets are not indicative of a broader issue in the business, but that's not the real point here). At any rate, the risk runs much deeper than the size of the fine in my view. Thanks for posting. For what it is worth, I think it is a good idea to review Bagehot's posts about VRX, if you have or want to make an investment in VRX. I believe Bagehot has made some of the highest quality posts since I have followed the thread. It is unfortunate that his/her post has been buried because of all of the breaking news and subsequent chatter. Good luck to all. I agree. So, basically he is saying that without Philidor VRX’s organic growth will take a hit. And that they will probably show no organic growth in the quarters ahead. Have I understood correctly? If it is so, well then it looks to me very much like the thesis of those people who think VRX is a fraud. Cheers, Gio Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 With the $100 million option to buy Philador, there is an indemnification clause. If I remember correctly, the maximum Valeant is liable for is $25 or $35 million. Can anyone validate this from the presentation? Philidor Said to Modify Prescriptions to Boost Valeant Sales http://www.bloomberg.com/news/articles/2015-10-29/philidor-said-to-modify-prescriptions-to-boost-valeant-sales What would happen to Valeant if Philidor is found guilty? Can Philidor take down Valeant? Been gone from this thread for two weeks and a couple hundred pages, but the question in my view is not how much the legal liability might be for Philidor (and anyway, it's likely that if this stuff rises to the level of a criminal charge whatever veil VRX thinks it has will be pierced), the question is how much VRX can grow without Philidor. B+L/Salix/Consumer are good assets. The rest of the business is iffy and might reset to a much lower base without Philidor. For example, last Q Jublia was 40% of total US organic sales growth and 50% of sales went through Philidor. What is the true demand for Jublia without Philidor jamming the insurers? I don't know. It also looks for all the world like VRX stuffed the channel with Salix to make their 3Q numbers (check their $300M salix sales estimate on the 2Q call v actual salix sales of $450M in 3Q combined with Xifaxan scripts growing at only 15% sequentially and then go read the gross:net disclosure in the 10Q MD&A--as an aside it's hard for me not to see how exploding gross:nets are not indicative of a broader issue in the business, but that's not the real point here). At any rate, the risk runs much deeper than the size of the fine in my view. Thanks for posting. For what it is worth, I think it is a good idea to review Bagehot's posts about VRX, if you have or want to make an investment in VRX. I believe Bagehot has made some of the highest quality posts since I have followed the thread. It is unfortunate that his/her post has been buried because of all of the breaking news and subsequent chatter. Good luck to all. I agree. So, basically he is saying that without Philidor VRX’s organic growth will take a hit. And that they will probably show no organic growth in the quarters ahead. Have I understood correctly? If it is so, well then it looks to me very much like the thesis of those people who think VRX is a fraud. Cheers, Gio Like somebody else pointed out though, why would Jublia sales be lower without Philidor if there is no generic substitute available? So last quarter, 50% of Jublia sales went though Philidor, which amounts to Philidor->Jublia sales tallying 20% of the total organic sales growth. But it sounds like the Philidor is mainly useful to Valeant in situations where they can try to block a generic from being substituted? Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 30, 2015 Share Posted October 30, 2015 The reason I am bringing this up is a bulk of VRX drugs really "speciality drug". I can see the PBM's squeezing them on price going forward if Philidor was used to help protect the drug price to 1 degree or another. Then again I maybe off my rocker. But right now their is so much hand waving going on it's hard to see and get a feel for how PBM's and insurers are going to react to all this. With them looking deep into the process with VRX they may find ways to save money intentially or not. Pearson said in the last call the specialty pharma drive volume- profitability is better through other distribution channels. But if you have a Pharmacy helping with volume when normally generic would be prescribed. It makes a difference. "As we have stated many times, Valeant's core operating principles include a focus on volume growth and a concentration on private and cash pay markets that avoid government reimbursement in the U.S. and across the world." Internal memo to employees True. I recall that jublia sales made up 40-50% of organic growth last quarter though and I'm assuming since it was launched the quarter before (non generic) they didn't increase price sequentially? So it's volume I presume? So roughly half the last quarter growth was definitely not pricing driven... I wonder if we can similarly deduce whether salix products were channel stuffed to exceed guidance .., Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 30, 2015 Share Posted October 30, 2015 Those asking how Jublia can be helped by Philidor, it is i the refills. I have read estimates between 50-75% of refills go unfilled, no idea if that is accurate. But, your local CVS doesn't call you to fill your refill or set you up on auto-refill after 28 days or something. Philidor does that. I have no idea how much of an impact this could have on Jublia, but Philidor is certainly helpful in this way. Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 Like somebody else pointed out though, why would Jublia sales be lower without Philidor if there is no generic substitute available? So last quarter, 50% of Jublia sales went though Philidor, which amounts to Philidor->Jublia sales tallying 20% of the total organic sales growth. But it sounds like the Philidor is mainly useful to Valeant in situations where they can try to block a generic from being substituted? Eric, I hope you are right. One thing I am sure of: there must be organic growth. When you buy lots of businesses with debt, overall they must become more valuable over time. And organic growth is what tells you if they are increasing in value or shrinking. I don’t need to see double digits organic growth. A 2-3 percentage points above the general economy would be fine. I still think Pearson is a very good value manager, has articulated a business strategy that makes a lot of sense, and has executed brilliantly until now… But, if organic growth was achieved in ways that are not repeatable going forward, and we don’t see organic growth at least in the middle single digit (4%-5%), I would have to admit I am wrong. Cheers, Gio Link to comment Share on other sites More sharing options...
mcmaaaaath Posted October 30, 2015 Share Posted October 30, 2015 Philidor Said to Modify Prescriptions to Boost Valeant Sales http://www.bloomberg.com/news/articles/2015-10-29/philidor-said-to-modify-prescriptions-to-boost-valeant-sales What would happen to Valeant if Philidor is found guilty? Can Philidor take down Valeant? Score one for cockroach theory. Ha yes. Looking worse with the day. Can we reinvite AZ Value or is he still banned from this thread "by" Gio? Fucking brilliant.... Tom, Please stay cool, the game is focused on the ball, not the legs of the other players. Wait, did AZ Value really get banned from the thread? Link to comment Share on other sites More sharing options...
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