ERICOPOLY 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. I see. I go to Philidor and enroll in auto-refills. They wave the copays. I might stop taking the drug (I'm cured or the side effects are terrible) but I can't be bothered or I forget to ask them to stop refilling it. So it would boost sales volumes. However, as a customer I would vastly prefer that experience rather than going to CVS to keep getting refills every 30 days. What a chore if it's a long term chronic problem. I hate standing in line and I hate doing things that can be automated. So it's not like Philidor doesn't serve the customer well -- it does. But clearly without it sales for Valeant won't "ahem" be better off. Link to comment Share on other sites More sharing options...
johnny Posted October 30, 2015 Share Posted October 30, 2015 Well, the site for the conference call stream is down Service Unavailable The service is temporarily unavailable. Please try again later. And if you call into the actual line you are just on hold waiting for an operator. So I think this means there may be a little bit of coverage of the call on CNBC later today. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 Regarding the Salix channel-stuffing accusation... You are Pearson and you can't sell your shares. But there are rewards if it can be proven that an acquisition is working out well within a year right? The channel-stuffing can't be done through a consolidated entity like Philidor, so they would have to be getting third-party entities to agree to buy the product, correct? So if those third parties can't unload the huge new inventory on the customer, it merely robs from the next quarter's demand for Salix products. So what is the incentive for Pearson to run the company on a quarterly channel-stuffing basis -- and again doesn't he need a complicit third-party that agrees to buy a lot of inventory exactly when it suits Pearson's quarterly numbers? What do the third party pharmacies get out of it by helping out with the quarterly pumping? Link to comment Share on other sites More sharing options...
AzCactus Posted October 30, 2015 Share Posted October 30, 2015 Operator we're hearing music (2X). 5 minutes later---operator you're fired lol Link to comment Share on other sites More sharing options...
cmlber Posted October 30, 2015 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 Wasn't the YTD organic growth 15%? Specialty pharma is 7%? So if that is all new this year (which it isn't) and all disappeared in the future, "real" organic growth was still 8%? Link to comment Share on other sites More sharing options...
rishig Posted October 30, 2015 Share Posted October 30, 2015 Operator we're hearing music (2X). 5 minutes later---operator you're fired lol http://livestream.com/PershingSquare/events/4464622 Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 Regarding the Salix channel-stuffing accusation... You are Pearson and you can't sell your shares. But there are rewards if it can be proven that an acquisition is working out well within a year right? The channel-stuffing can't be done through a consolidated entity like Philidor, so they would have to be getting third-party entities to agree to buy the product, correct? So if those third parties can't unload the huge new inventory on the customer, it merely robs from the next quarter's demand for Salix products. So what is the incentive for Pearson to run the company on a quarterly channel-stuffing basis -- and again doesn't he need a complicit third-party that agrees to buy a lot of inventory exactly when it suits Pearson's quarterly numbers? What do the third party pharmacies get out of it by helping out with the quarterly pumping? That makes sense. Thank you! A clear analysis imo is the following: http://seekingalpha.com/article/3625216-pbms-boot-philidor-how-will-it-affect-valeant?app=1&auth_param=7i5hb:1b36mr0:f2457636f44ddd64e971c4631c4907e9&uprof=25# Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 Wasn't the YTD organic growth 15%? Specialty pharma is 7%? So if that is all new this year (which it isn't) and all disappeared in the future, "real" organic growth was still 8%? That would be great! I sincerely hope you are right! Cheers, Gio Link to comment Share on other sites More sharing options...
sswan11 Posted October 30, 2015 Share Posted October 30, 2015 ML 10/30/15 reportml_103005.pdf Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 So far on the cc nothing new, other than Ackman thinks direct pharma is the way of the future and he has a business suggestion that Amazon, with their broad distribution, get into that business! They are just going over the history of what has transpired in the Valeant / Citron / Philidor story. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 On the cc, top 10 largest fines in history of pharma range from $650 to $3 billion. All major pharmas have been fined (some 27 times and the business continues). Those are the top 10 in last 20 years, most fines are much smaller. In any case, this corroborates my view that the fine would be less than $500M. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 Expert lawyer in industry giving example of Novartis settlement, took 4 years, at year 3 govt sought $3B, sounds like settling/settled for $400M, but might be something a bit more. Lawyer saying Novartis situation seemed worse, $500M taken from govt reimbursement. Patient safety concerns were really high in this case as well (unlike, like have been saying, selling toenail polish). Despite this, Novartis wants to continue to use speciality pharma channel, not much coverage of this case so far. Link to comment Share on other sites More sharing options...
johnny Posted October 30, 2015 Share Posted October 30, 2015 Ackman reminds us of other pharma companies that got hit by scandals and tanked. Points out that investors at those scandal points did quite well...when Valeant acquired them. Not the most compelling argument. Link to comment Share on other sites More sharing options...
AzCactus Posted October 30, 2015 Share Posted October 30, 2015 Ackman reminds us of other pharma companies that got hit by scandals and tanked. Points out that investors at those scandal points did quite well...when Valeant acquired them. Not the most compelling argument. Johnny---If you are indicating that Valeant will be bought out at these prices because it has tanked I would say that's very unlikely. Remember the large investors who own these shares (Sequoia, Pershing etc) are not going to sell out anywhere near these prices. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 New key info: Ackman talked to Howard Shiller (former CFO and current board member) on why they structured philidor transaction the way they did: - channel was original a test, started working well - philidor biz was growing quite substantially - philidor wanted to expand with other pharma manufacturers - Valeant wanted philidor to focus on Valeant products, also thought it would hurt service - Valeant wanted to pay for exclusivity, philidor wanted lots of $$ for that - price for exclusivity started to converge with price to buy the whole biz - Valeant did not understand the speciality pharma biz with licenses in over 40 states and could not get good legal advice on a deal - they understood their biz well, but did not feel comfortable buying Philidor outright - as such, structured the option to purchase deal (rather than buy Philidor outright) Link to comment Share on other sites More sharing options...
tylerdurden Posted October 30, 2015 Share Posted October 30, 2015 Bill Ackman is comparing VRX to the Amex scandal in 1960s in order to "show" the value in VRX today. Bring it all Bill! Link to comment Share on other sites More sharing options...
Bagehot Posted October 30, 2015 Share Posted October 30, 2015 Regarding the Salix channel-stuffing accusation... You are Pearson and you can't sell your shares. But there are rewards if it can be proven that an acquisition is working out well within a year right? The channel-stuffing can't be done through a consolidated entity like Philidor, so they would have to be getting third-party entities to agree to buy the product, correct? So if those third parties can't unload the huge new inventory on the customer, it merely robs from the next quarter's demand for Salix products. So what is the incentive for Pearson to run the company on a quarterly channel-stuffing basis -- and again doesn't he need a complicit third-party that agrees to buy a lot of inventory exactly when it suits Pearson's quarterly numbers? What do the third party pharmacies get out of it by helping out with the quarterly pumping? They get to buy their inventory at a lower price. Gross to net went from 32% last Q to 41% this Q. That's a very large move in one quarter, especially for a business that is as diversified as VRX. Salix went from decreasing gross to net last Q (ie being sold at a smaller than 32% discount to WAC) to increasing gross to net this Q. It is quite fishy and another in a fairly long line of instances where Mike Pearon's words on the earnings call deviate from the language in SEC documents. ETA: Pearson may not get anything from it. One thing that the 2008 crisis taught me (and I've heard Alan Greenspan say this too) is that economic actors don't always act rationally. It made no sense from a long-term economic wellbeing perspective for any of the banks to gorge on CDOs. But they did. It made no sense for Rajat Gupta to tip off Rajaratnam. But he did. Etc, etc, etc. Or Pearson may have thought his equity was overvalued at >$200 and since his compensation is at this point entirely dependent on the stock price he was hoping to paper over a bad quarter and make it up in the future. Jensen wrote a good paper on this, "The Agency Costs of Overvalued Equity" about 10 years ago. To be clear, I don't think Valeant is a fraud, I owned the stock for over two years. However over time, based on my analysis of SEC docs, management statements, and my conversations with the company, I've come to believe that management plays very close to the line in multiple respects and they often give, at best, evasive answers that if you squint could be viewed as dishonest. So I ultimately decided there are better ways to make money than with a management team I don't fully trust, that is currently in receipt of three subpoenas, that appears to have known that Philidor was going to be very very aggressive and so came up with a cute structure to garner economic exposure without legal obligation, etc, etc, etc. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 So far, that is about it for the call. Ackman not providing any further info than we already knew. Stock at 50% discount looking out a few years (just based on getting leverage to 3.5x EBITDA), and buying in shares. Stock even bigger discount if you assume delever to 3.5 x, buy some shares, acquisitions of $10billion a year after that using cash/debt (not equity), shares worth $300 plus looking out a few years. Both these analyses assume delevering first (ie over the next year). Basically, over four years, 2x or 3x. Link to comment Share on other sites More sharing options...
giofranchi Posted October 30, 2015 Author Share Posted October 30, 2015 They get to buy their inventory at a lower price. Gross to net went from 32% last Q to 41% this Q. That's a very large move in one quarter, especially for a business that is as diversified as VRX. Salix went from decreasing gross to net last Q (ie being sold at a smaller than 32% discount to WAC) to increasing gross to net this Q. It is quite fishy and another in a fairly long line of instances where Mike Pearon's words on the earnings call deviate from the language in SEC documents. So, you are getting quite bearish. Reading your previous posts, I was under the impression you thought there was no fraud at VRX. Maybe I interpreted them the wrong way… And if it is so, simply forget my question! Instead, if my impression was right, what made you change your mind? Q3 results and the trend gross to net you don’t like? Thank you! Gio Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 Pershing Square has no more available capital to invest, otherwise Ackman says they would be buying a lot more at this price. Will put their valuation model up on their website for everyone to access. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 So far, that is about it for the call. Ackman not providing any further info than we already knew. Stock at 50% discount looking out a few years (just based on getting leverage to 3.5x EBITDA), and buying in shares. Stock even bigger discount if you assume delever to 3.5 x, buy some shares, acquisitions of $10billion a year after that using cash/debt (not equity), shares worth $300 plus looking out a few years. Both these analyses assume delevering first (ie over the next year). Basically, over four years, 2x or 3x. Ackman's assumptions are very conservative. So real upside could be 3-4x - I don't know, have to run my numbers/analysis against his valuation model when they release it on the web-site. I am pretty sure 2x is way too low. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 Regarding the Salix channel-stuffing accusation... You are Pearson and you can't sell your shares. But there are rewards if it can be proven that an acquisition is working out well within a year right? The channel-stuffing can't be done through a consolidated entity like Philidor, so they would have to be getting third-party entities to agree to buy the product, correct? So if those third parties can't unload the huge new inventory on the customer, it merely robs from the next quarter's demand for Salix products. So what is the incentive for Pearson to run the company on a quarterly channel-stuffing basis -- and again doesn't he need a complicit third-party that agrees to buy a lot of inventory exactly when it suits Pearson's quarterly numbers? What do the third party pharmacies get out of it by helping out with the quarterly pumping? They get to buy their inventory at a lower price. Gross to net went from 32% last Q to 41% this Q. That's a very large move in one quarter, especially for a business that is as diversified as VRX. Salix went from decreasing gross to net last Q (ie being sold at a smaller than 32% discount to WAC) to increasing gross to net this Q. It is quite fishy and another in a fairly long line of instances where Mike Pearon's words on the earnings call deviate from the language in SEC documents. I'm sure that's perfectly clear to an adult, but I don't grasp what you are saying. Also, pretend that I know what you are saying and that I agree it's fishy. How does this benefit Pearson? How does he personally cash in on this sort of thing? The police when they suspect foul play start thinking if somebody has a motive. What is Pearson's? Link to comment Share on other sites More sharing options...
Picasso Posted October 30, 2015 Share Posted October 30, 2015 Probably the best thing to come out of this mornings Ackman call: Alan Hoffman, executive vice president at Herbalife, a company in which Ackman has a short position on, said in a Friday statement: "I hope Bill Ackman has done more research on Valeant than he did on Herbalife, Target, Borders and J.C. Penny." It's just too much to take....Please, no more...I'm running out of popcorn.... Link to comment Share on other sites More sharing options...
CONeal Posted October 30, 2015 Share Posted October 30, 2015 So far, that is about it for the call. Ackman not providing any further info than we already knew. Stock at 50% discount looking out a few years (just based on getting leverage to 3.5x EBITDA), and buying in shares. Stock even bigger discount if you assume delever to 3.5 x, buy some shares, acquisitions of $10billion a year after that using cash/debt (not equity), shares worth $300 plus looking out a few years. Both these analyses assume delevering first (ie over the next year). Basically, over four years, 2x or 3x. Ackman's assumptions are very conservative. So real upside could be 3-4x - I don't know, have to run my numbers/analysis against his valuation model when they release it on the web-site. I am pretty sure 2x is way too low. Thing thing about assumptions is that you can do what ever you want if you able to assume. The motive behind the assumptions should also be taken into account. Hell I can have this stock at $600 $1200 or even $1800 a share if I am able to make assumptions. I just get annoyed at people following well known investors without taking everything into account. At the end of the day people need to remember if you lose money based on what other people are doing they are not going to give you a refund if they are wrong. I'm still interested interested in the company but am going to need to see next qtr numbers before doing anything. This things isn't going to go back to $200 in the next month so I have time to figure this out and to try and find an edge. Link to comment Share on other sites More sharing options...
krazeenyc Posted October 30, 2015 Share Posted October 30, 2015 So I can go along with the premise that VRX possibly won't be penalized very harshly for their mistakes here. Personally I think the variety of outcomes is pretty wide in terms of fines, punishments, pushback from insurers etc. But... for people to take Valeant management at its word that they were unaware of the activities at Phillador weren't Kosher is absolutely laughable. The only reason to structure the acquisition in that manner -- pay 100% in cash and have an option to buy for $0 is that you want to legally protect yourself from something you know is wrong. I mean, seriously. Link to comment Share on other sites More sharing options...
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