VRX - Valeant Pharmaceuticals International Inc.

[rishig]

Reuters Exclusive: U.S. insurer caught on to odd billing at Valeant-linked pharmacy (more than a year ago)

 

http://mobile.reuters.com/article/idUSKCN0ST2EU20151104

[Rasputin]

Holy crap, check out page 76 under the Salix forecasts.  They took a ruler out to 2024 saying they would earn around $10 billion of revenue and $44 of adjusted EPS.

 

I don't know how I missed that the last time I reviewed that information.  Management was certainly bullish but why the hell would they sell then?  Scandal and everything set aside.

 

I think stand-alone revenue forecast in the Salix merger doc is more believable.  JP Morgan also issued unlevered fcf forecast in that merger doc.  Doesn't take into account $500 million cost cut.

 

Can someone post the link? I hate sorting through proxies and they usually have a ton of good info.

 

Here is JP Morgan unlevered fcf forecast

 

2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

Unlevered Free Cash

Flow $ 75 $ 468 $ 744 $ 856 $1,109 $1,234 $1,384 $1,444 $1,740 $1,878 $1,872 $1,633 $1,380 $1,131 $ 974

 

I'm attaching management revenue forecast.

 

But I highly recommend reading the merger doc, doesnt take long.

 

Thanks - I meant a link to the whole merger doc. Do you have it? What's the standard form number so I don't have to ask again.

 

Thanks

 

Here is the link to merger doc

 

http://www.sec.gov/Archives/edgar/data/1009356/000119312515079935/d884202dsc14d9.htm

[blainehodder]

-10% again, wow.

 

So where is Pearson right now?  Pretty shocking lack of communication to the market.

[AzCactus]

Yeah this is pretty crazy. In 3 months this business has lost nearly 70% of its value. 

[tombgrt]

Under $80. But still high EV thanks to the debt load. Leverage works both ways.

 

[wisdom]

Potentially a large holder getting out?

[luck]

from the recent wall street journal article, it looks like ackman is still in it after questioning valeant.    wild that two of buffett's most admired investors, lou simpson & greg alexander were probably in this.  the company really does need to come out and say something at this point with price under $80.  if there were massive fraud, i think value act would have cut and run by now since there guys are on the board.

[ERICOPOLY]

Reuters Exclusive: U.S. insurer caught on to odd billing at Valeant-linked pharmacy (more than a year ago)

 

http://mobile.reuters.com/article/idUSKCN0ST2EU20151104

 

Seems to me it raises the odds that R&O pharmacists isn't nuts.  But doesn't confirm it.

 

OptumRx's September cease-and-desist letter cited a breach of its contract with Philidor, the sources familiar with the matter said. It isn't clear what billing irregularities caused OptumRx to send the letter, the sources said.

 

In the months that followed, OptumRx recognized that drug reimbursement claims filed with the identification numbers of four other pharmacies could be traced to Philidor, the sources said. Starting in January, OptumRx sent cease-and-desist letters to the pharmacies, which worked in a network run by Philidor, the sources said.

[rishig]

Valeant late on royalties to PDL Biopharma:

 

"Total revenues decreased by 24% and 11% respectively for the three and nine months ended September 30, 2015 when compared to the same periods in 2014. The decrease is primarily driven by the decrease in the Depomed royalty rights cash proceeds related to Valeant Pharmaceuticals sales of Glumetza, decreased interest revenues due to the early payoff of the AxoGen and Durata notes receivables, and decreased Actemra royalties as a result of the conclusion of the Actemra license agreement.

 

The decrease in the Depomed royalty rights proceeds in the quarter ended September 30, 2015 is the result of no royalty payments being made by Valeant during the quarter. While Valeant reported revenue for Glumetza of $53 million for the period ending September 30, 2015, it had not provided monthly reports or payments per its assumed contract during this period. In late October 2015, Valeant issued to us reports of net royalties of $16.9 million due and a cash payment of $18.9 million for the third quarter of 2015.

 

We have reflected this information in our quarter end fair value assessment. Another way to explain this is that these cash flows are included in or future cash flow projections and reflected in the present value of the Depomed assets. As a result of the continued uncertainty with inventory levels, the impact of gross to net reporting and the delays in reporting by Valeant we expect to exercise our royalty audit right for Glumetza in the near future."

 

http://seekingalpha.com/article/3647606-pdl-biopharmas-pdli-ceo-john-mclaughlin-on-q3-2015-results-earnings-call-transcript?part=single

 

This is what happens when you cut out all SG&A. Not everything is "fat".

[merkhet]

from the recent wall street journal article, it looks like ackman is still in it after questioning valeant.    wild that two of buffett's most admired investors, lou simpson & greg alexander were probably in this.  the company really does need to come out and say something at this point with price under $80.  if there were massive fraud, i think value act would have cut and run by now since there guys are on the board.

 

Actually, since they're on the board, it's significantly more difficult for ValueAct to just cut and run.

[wisdom]

The price is getting interesting at these levels

[luck]

yeah, that's true.  value act's g. mason morfit was on the board for quite some time.  guessing no one asked the hard questions in the board meetings all these years.

[S2S]

Yeah this is pretty crazy. In 3 months this business has lost nearly 70% of its value.

 

The business has not lost 70% of its value. The equity stub has.

[PatientCheetah]

In the short term, VRX trades on sentiments and newsflow. I bought tiny amount of short term calls today to keep myself entertained  ;)

[shalab]

Looks like the hedge fund hotel is becoming less crowded - I think the possibility of business model change, management change or restructuring is becoming more likely.

[AzCactus]

Yeah this is pretty crazy. In 3 months this business has lost nearly 70% of its value.

 

The business has not lost 70% of its value. The equity stub has.

 

Ah yes, let me rephrase.  In the past three months the market capitalization of the company has dropped 70%.  I don't think people who have owned it for that period of time feel so much better due to a modification in diction.   

[ERICOPOLY]

from the recent wall street journal article, it looks like ackman is still in it after questioning valeant.    wild that two of buffett's most admired investors, lou simpson & greg alexander were probably in this.  the company really does need to come out and say something at this point with price under $80.  if there were massive fraud, i think value act would have cut and run by now since there guys are on the board.

 

Actually, since they're on the board, it's significantly more difficult for ValueAct to just cut and run.

 

With boardmembers like ValueAct, why is this a company that gives quarterly EPS forecasts and has a reputation of half-truth powerpoint presentations?  I mean, doesn't ValueAct want things presented in a more straightforward way?  I'm not making any insinuations, but it should frustrate them just as much as the next guy and if you have a couple of seats on the board you've had ample opportunity to say to Pearson: "Enough of this bullshit, it's eroding investor confidence."

 

How does ValueAct track the performance of the individual acquisitions via the 10-K?  They must see AZ_Value's point, but for whatever reason things are the way they are.

[rishig]

from the recent wall street journal article, it looks like ackman is still in it after questioning valeant.    wild that two of buffett's most admired investors, lou simpson & greg alexander were probably in this.  the company really does need to come out and say something at this point with price under $80.  if there were massive fraud, i think value act would have cut and run by now since there guys are on the board.

 

Actually, since they're on the board, it's significantly more difficult for ValueAct to just cut and run.

 

With boardmembers like ValueAct, why is this a company that gives quarterly EPS forecasts and has a reputation of half-truth powerpoint presentations?  I mean, doesn't ValueAct want things presented in a more straightforward way?  I'm not making any insinuations, but it should frustrate them just as much as the next guy and if you have a couple of seats on the board you've had ample opportunity to say to Pearson: "Enough of this bullshit, it's eroding investor confidence."

 

They didn't say anything until two months back, probably because they of the "halo" effect of J. Pearson and the direction of the stock. I imagine now they are all over of him and the rest of management as they realize some really crazy s**t went on, but probably they are taking time to figure out how to do damage control without destroying too much value.

[jay21]

 

 

How does ValueAct track the performance of the individual acquisitions via the 10-K?  They must see AZ_Value's point, but for whatever reason things are the way they are.

 

They don't. And almost no company breaks out acquisitions via 10-K. They have access to whatever they want though as part of the board. That's how they track the deals.

 

Morfit actually did a lot of DD personally on the early acquisitions.

[ZenaidaMacroura]

Part of the reason I bought shares recently is that this is Valueact's wheelhouse.

 

In one of the interviews Ubben was asked what they look for as activists and he said "growth companies that hit a wall."  Not sure if that wall was Hillary, mcaskill, citron or philidor but I'm fairly sure they've hit something  :P

[petec]

Sure, patent law creates an artificial monopolistic situation. But we as a society created this law because we wanted to incentivize people to invent things. As a society, I guess we then felt that even though patents could lead to inefficient monopoly for limited time, the benefit of new inventions out weighs that as a whole.

 

I personally think our patent laws need revision. Especially with regards to drugs where minor changes in mixture, molecule or delivery is granted a new patent. I think full blown patents should be limited to true inventions. Minor modifications could probably be used to extend patent life for a year or two at a time if proven useful.

 

Again, I agree with you on the inefficiency this introduces at specific product level, but it is not because of inherent immorality of drug company but due to one size fits all regulations. The solution cannot be more regulations to control price increases.

 

I'm inclined to agree but I still say that you can't argue, in this instance, that prices rises are moral because they optimise resource allocation.  In many instances they are highly immoral because they do precisely the opposite.  And they are often (as you allowed) certainly bad business practice.

[original mungerville]

As noted last week, I hedged out on Friday waiting for Citron but also on basis that VRX major shareholders are already all in, viewed as toxic right now, really bad headline / reputational risk for any mutual fund to hold, add in tax-loss selling season.

 

On macro side: also I think a primary bear market may have started in July. With Fed threatening tightening and more Europe easing in December (and Japan as well), US dollar has been climbing in recent weeks, this may start to pressure S&P.

 

So all that to say regardless of long-term value (which frankly is not crystal clear right now), short-term pressures seem to be there. Having said that, stock is getting quite low today (with caveat that enterprise value has not dropped as much as the stock price).

 

Would be interesting to understand who is out, or is long already, or buying more now?

 

 

[ni-co]

I bought some LEAPs today. Looks like a bimodal outcome is most likely. Either it's a fraud (and a zero) or a very cheap growth stock. VRX at $80 one year from now seems unlikely.

[ERICOPOLY]

What you do know for certain is no money has been pulled out of VRX.  Exactly the same number of dollars are being put in by investors as are being taken out of it.

 

Call it desperate buying or desperate selling.  Or stalemate (maybe a chess term for that?).  What headline plays best?

[plato1976]

I think it's neither a fraud nor a very cheap growth stock, and that's why I don't dare to buy a meaningful position here

In my opinion it's a business whose business model is being doubted. Is it a growth platform business that finds opp to acquire, cut cost etc; or a faked growth story in which they mainly use very aggressive/unsustainable sales tactics to boost sales after acquisition? After reading all the arguments I still don't know the answer

 

Anyone can help convince me it's a real growth?

 

I bought some LEAPs today. Looks like a bimodal outcome is most likely. Either it's a fraud (and a zero) or a very cheap growth stock. VRX at $80 one year from now seems unlikely.