VRX - Valeant Pharmaceuticals International Inc.

[LongHaul]

I was looking at the VRX presentations and some things stood out:

 

If one compares the Q3 2014 presentation to the Q3 2015 presentation specifically looking at the Q3 2015 top 30 brands vs the Q3 2014 top 20 there seems to be some serious differences.

 

Going down the Q3 2015 list.

 

1.  Wellbutrin sales were claimed at $80m in Q3 2014 (per Q3 2015 presentation) but in the Q3 2014 presentation Wellbutrin is $72m.

2.  Retin A sales were claimed at $9m in Q3 2014 (per Q3 2015 presentation) but in the Q3 2014 presentation Retin A  is $30m. 

 

 

3.  Slide 21 in Q3 2015 shows 15% price increase for US Branded Pharma, Slide 23 has the average net realized price per script up only 12.8%  YTD 2015 shows 24% change in price while the net realized price per scrip is up 20.5% per slide 23 when I take an average.  I can't explain these discrepancies. 

 

4.  Solodyn revenues in Q3 2014 filed in 8-K (10/5/2015) were different from the 4Q 2014 presentation 1m off.  Specifically Q3 2014 was different.  This was the 8-k VRX filed to rebutt certain claims made by bloggers, etc. 

 

Perhaps there are valid reasons for all of these differences but these "differences" seem" to happen frequently with VRX.

[stahleyp]

If one of the largest shareholders liquidated,  wouldn't the negative pressure be more severe?

[cayale]

If one of the largest shareholders liquidated,  wouldn't the negative pressure be more severe?

The shares were down ~15% on Thursday, the day in question.

[ourkid8]

To me that is definitely severe negative pressure as it hit a 20% drop intraday. 

 

If one of the largest shareholders liquidated,  wouldn't the negative pressure be more severe?

The shares were down ~15% on Thursday, the day in question.

[100 Shares]

Email IR and let us know their response.

 

I was looking at the VRX presentations and some things stood out:

 

If one compares the Q3 2014 presentation to the Q3 2015 presentation specifically looking at the Q3 2015 top 30 brands vs the Q3 2014 top 20 there seems to be some serious differences.

 

Going down the Q3 2015 list.

 

1.  Wellbutrin sales were claimed at $80m in Q3 2014 (per Q3 2015 presentation) but in the Q3 2014 presentation Wellbutrin is $72m.

2.  Retin A sales were claimed at $9m in Q3 2014 (per Q3 2015 presentation) but in the Q3 2014 presentation Retin A  is $30m. 

 

 

3.  Slide 21 in Q3 2015 shows 15% price increase for US Branded Pharma, Slide 23 has the average net realized price per script up only 12.8%  YTD 2015 shows 24% change in price while the net realized price per scrip is up 20.5% per slide 23 when I take an average.  I can't explain these discrepancies. 

 

4.  Solodyn revenues in Q3 2014 filed in 8-K (10/5/2015) were different from the 4Q 2014 presentation 1m off.  Specifically Q3 2014 was different.  This was the 8-k VRX filed to rebutt certain claims made by bloggers, etc. 

 

Perhaps there are valid reasons for all of these differences but these "differences" seem" to happen frequently with VRX.

 

Excellent detective work. I did a little digging of my own inspired by you. I didn't find any answers but here are some comments/color/observations. Let us know if you are going to email IR. As you can probably deduce from my comments below I am especially interested in hearing  Valeant's resolution to 1. and 3. and will email them if you have no interest in doing so.

 

1. The Wellbutrin looks like it might have been a typo. If you look through the quarterly presentations from 2014 and 2015, you'll notice that the 72 vs. 80 has been 80 in all but that one you looked at. Interestingly, Q2 2014 was $72M, which makes me think it is a typo and how it would have been possible to accidentally put $72M as Q3 2014.

 

2. Again if you look through all the quartly presentations this one is particularly interesting.

Q1 2014 through Q1 2015 are all consistent and list sales as:

$18 $19 $30 $30 $28

 

Then all in Q2 2015 Retin A is no longer in the top 20 (which is consistent with the sales then posted in Q3 2015). Then in Q3 2015 the last 5 quarters are listed as:

$9 $17 $16 $19 $32

 

In Q2 2014 Valeant launched Retin A Micro. Maybe they are showing the growing sales of that product line. Anyways I will wait to see what Valeant says and why it looks like they redefined this one.

 

3. Looks like you're spot on in noticing that.

 

4. This seems pretty minor compared to the other two. Probably a rounding discrepancy.  In Q4 2014 it is listed as $53M. In Q3 2014, all of 2015 and the 8K it is listed as $54.

 

 

[FFHWatcher]

On Sept 25th VRX broke below $200.  Since that time, which is about 30 trading days, almost 575M have traded.  There are 341M shares o/s and public float is about 315M.  Only 10M odd shares short as of Oct 15th, seemed unusual. No shortage of liquidity.

[stahleyp]

Ohhh got it.  Thanks.  That seems odd that they would send out the letter in support and then dumping it shortly thereafter.

[LongHaul]

Thanks guys.  We'll see what IR etc says. 

 

The bigger point however is that I have never seen a company with so many "discrepancies" in my life.

At this point I don't trust anything mgmt says.  I don't know what is true and what is false.

Certain people have an ego oriented toward truth and accuracy.  For others it can be an after thought.

 

The Solodyn may be a rounding error.  But this was an 8-k meant to refute serious negative assertions.

 

I'll wager a lot of money there are tons of other issues here but people haven't found them yet.

 

 

 

[ourkid8]

I also sent the discrepancies to Ackman and he said, "We will run this down."  I am assuming when he has his next call, he will have a response or if he emails me i'll share it with the group.  I have to admit, he does spend time and look into all questions he receives... I give him credit for that!

 

Thanks guys.  We'll see what IR etc says. 

 

The bigger point however is that I have never seen a company with so many "discrepancies" in my life.

At this point I don't trust anything mgmt says.  I don't know what is true and what is false.

Certain people have an ego oriented toward truth and accuracy.  For others it can be an after thought.

 

The Solodyn may be a rounding error.  But this was an 8-k meant to refute serious negative assertions.

 

I'll wager a lot of money there are tons of other issues here but people haven't found them yet.

[Guest Schwab711]

To go with LongHaul, 2014 10-K shows 2012 EM revenue as $978.1m, but in 2013 10-K they reported $1.05b. They never issued a restatement or explanation.

 

This is the difference in EM revenue definition:

agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts)

[100 Shares]

To go with LongHaul, 2014 10-K shows 2012 EM revenue as $978.1m, but in 2013 10-K they reported $1.05b. They never issued a restatement or explanation.

 

This is the difference in EM revenue definition:

agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts)

 

Sounds to me like you mostly answered your own question...

 

And what restatement/explanation are you looking for?? In the 10-K right above where you took that snippet it says:

 

"As a result of the Company’s acquisition strategy and continued growth, impacted by the December 2012 Medicis Acquisition, the

Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), began to manage the business

differently in 2013, which necessitated a realignment of the segment structure, effective in the first quarter of 2013. Pursuant to this change,

the Company now has two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. Accordingly, the

Company has restated prior period segment information to conform to the current period presentation. The following is a brief description of

the Company’s segments:"

[Guest Schwab711]

To go with LongHaul, 2014 10-K shows 2012 EM revenue as $978.1m, but in 2013 10-K they reported $1.05b. They never issued a restatement or explanation.

 

This is the difference in EM revenue definition:

agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts)

 

Sounds to me like you mostly answered your own question...

 

And what restatement/explanation are you looking for?? In the 10-K right above where you took that snippet it says:

 

"As a result of the Company’s acquisition strategy and continued growth, impacted by the December 2012 Medicis Acquisition, the

Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), began to manage the business

differently in 2013, which necessitated a realignment of the segment structure, effective in the first quarter of 2013. Pursuant to this change,

the Company now has two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. Accordingly, the

Company has restated prior period segment information to conform to the current period presentation. The following is a brief description of

the Company’s segments:"

 

Maybe I don't understand the situation. Where did this revenue go? I can see them making a change if they no longer do this business. However, they did do this business in 2012. How can they lower reported 2012 FY revenue without an explanation, after the fact?

 

2012 revenue from the 2014 AR does not match 2012 revenue from the 2013 AR.

[LongHaul]

According to this site Kate Stevenson (A member of the audit committee of VRX) was Treasurer of Nortel

from 2000 - 2007. 

 

http://finance.sandiegouniontribune.com/what-is-the-history-of-katharine-b-stevenson-and-the-latest-information-about-katharine-b-stevenson/cm/executive/katharine-b-stevenson/katharine-b-stevenson-3911302.htm

 

Her Valeant board bio:

http://www.valeant.com/about/board-of-directors/kate-stevenson

 

I do not see her ever charged with any wrong doing.

Any thoughts on the Nortel accounting scandal? Looks like according the SEC there was some aggressive accounting between 2000-2003 or so.

 

 

[LongHaul]

To go with LongHaul, 2014 10-K shows 2012 EM revenue as $978.1m, but in 2013 10-K they reported $1.05b. They never issued a restatement or explanation.

 

This is the difference in EM revenue definition:

agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts)

 

Sounds to me like you mostly answered your own question...

 

And what restatement/explanation are you looking for?? In the 10-K right above where you took that snippet it says:

 

"As a result of the Company’s acquisition strategy and continued growth, impacted by the December 2012 Medicis Acquisition, the

Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), began to manage the business

differently in 2013, which necessitated a realignment of the segment structure, effective in the first quarter of 2013. Pursuant to this change,

the Company now has two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. Accordingly, the

Company has restated prior period segment information to conform to the current period presentation. The following is a brief description of

the Company’s segments:"

 

Maybe I don't understand the situation. Where did this revenue go? I can see them making a change if they no longer do this business. However, they did do this business in 2012. How can they lower reported 2012 FY revenue without an explanation, after the fact?

 

2012 revenue from the 2014 AR does not match 2012 revenue from the 2013 AR.

 

I am not fully sure either but there were discontinuations so maybe that was subtracted. 

Sometimes companies divest their losers and it can make their comparisons easier.  So a company's growth can be overstated this way.  Not sure if VRX did anything like that here. 

[100 Shares]

To go with LongHaul, 2014 10-K shows 2012 EM revenue as $978.1m, but in 2013 10-K they reported $1.05b. They never issued a restatement or explanation.

 

This is the difference in EM revenue definition:

agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts)

 

Sounds to me like you mostly answered your own question...

 

And what restatement/explanation are you looking for?? In the 10-K right above where you took that snippet it says:

 

"As a result of the Company’s acquisition strategy and continued growth, impacted by the December 2012 Medicis Acquisition, the

Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), began to manage the business

differently in 2013, which necessitated a realignment of the segment structure, effective in the first quarter of 2013. Pursuant to this change,

the Company now has two operating and reportable segments: (i) Developed Markets, and (ii) Emerging Markets. Accordingly, the

Company has restated prior period segment information to conform to the current period presentation. The following is a brief description of

the Company’s segments:"

 

Maybe I don't understand the situation. Where did this revenue go? I can see them making a change if they no longer do this business. However, they did do this business in 2012. How can they lower reported 2012 FY revenue without an explanation, after the fact?

 

2012 revenue from the 2014 AR does not match 2012 revenue from the 2013 AR.

 

I am not fully sure either but there were discontinuations so maybe that was subtracted. 

Sometimes companies divest their losers and it can make their comparisons easier.  So a company's growth can be overstated this way.  Not sure if VRX did anything like that here.

 

No, its not divestitures. I do not think companies can restate for divestitures, they may do some adjustments in non-GAAP numbers that they may use as supplementary to investors, which Valeant does and the reconciliation to GAAP can be seeing the News Releases..

 

So, from a conceptual standpoint, say you're selling an item on Amazon for $100 and Amazon takes a 10% or $10 cut. Is your revenue $100 and the $10 is part of COGS, or do you book it as $90 in revenue.?

 

If you go to page F-8 in the 2012 Annual Report and page F-6 in the 2013 Annual Report, you will be able to reconcile the different overall revenues and see that Earnings were not restated. So if Revenue went down, then expenses must have gone down....and voila, that is the case. Its spread across a few categories, but the vast majority is in the COGS and Cost of Alliance and service revenues.

 

The likely answer is the when changing their accounting to align with a big acquisition they had to standardize one accounting method. Personally, I am not going to dig through the 10-K to find the statement where they may or may not go into more detail than the one segment we already found. This is a non-issue to me. I am much more interested in a few of the discrepancies that LongHaul brought up.

[Guest wellmont]

First time their fund value didn't move with the fluctuation of VRX.

 

May be other holdings compensated for VRX gains (4%) on Friday and now VRX is 26% of their fund. I briefly looked at the top holdings (>1%) and most of them are down except for VRX and MA on Friday.

is vrx still 26% of fund? I think at one point it was 39% and the stock is about 1/3 of peak.  I think the position if they still have it would be more like 12% of nav.

[sampr01]

First time their fund value didn't move with the fluctuation of VRX.

 

May be other holdings compensated for VRX gains (4%) on Friday and now VRX is 26% of their fund. I briefly looked at the top holdings (>1%) and most of them are down except for VRX and MA on Friday.

is vrx still 26% of fund? I think at one point it was 39% and the stock is about 1/3 of peak.  I think the position if they still have it would be more like 12% of nav.

 

That number is from morningstar and don't know if its true or NOT.

[Guest wellmont]

First time their fund value didn't move with the fluctuation of VRX.

 

May be other holdings compensated for VRX gains (4%) on Friday and now VRX is 26% of their fund. I briefly looked at the top holdings (>1%) and most of them are down except for VRX and MA on Friday.

is vrx still 26% of fund? I think at one point it was 39% and the stock is about 1/3 of peak.  I think the position if they still have it would be more like 12% of nav.

 

That number is from morningstar and don't know if its true or NOT.

if it was reported at 26% of fund last week then my estimation is they would have had to blown out of some or all of it on Thursday. a 26% pos moving 4% higher would have impacted the fund more than it did Friday. my guess is these guys wouldn't hedge the position with puts. not their expertise. if the 26% was reported as of 9/30/15 then it's more an open question then what they are doing with it, because the pos would be far smaller % last week.

[Guest Schwab711]

No, its not divestitures. I do not think companies can restate for divestitures, they may do some adjustments in non-GAAP numbers that they may use as supplementary to investors, which Valeant does and the reconciliation to GAAP can be seeing the News Releases..

 

So, from a conceptual standpoint, say you're selling an item on Amazon for $100 and Amazon takes a 10% or $10 cut. Is your revenue $100 and the $10 is part of COGS, or do you book it as $90 in revenue.?

 

If you go to page F-8 in the 2012 Annual Report and page F-6 in the 2013 Annual Report, you will be able to reconcile the different overall revenues and see that Earnings were not restated. So if Revenue went down, then expenses must have gone down....and voila, that is the case. Its spread across a few categories, but the vast majority is in the COGS and Cost of Alliance and service revenues.

 

The likely answer is the when changing their accounting to align with a big acquisition they had to standardize one accounting method. Personally, I am not going to dig through the 10-K to find the statement where they may or may not go into more detail than the one segment we already found. This is a non-issue to me. I am much more interested in a few of the discrepancies that LongHaul brought up.

 

Thanks! The explanation helped.

[JayGatsby]

I am not sure I would measure "value" addition the way you described. Buffett says value is created when $1 of investment produces more than $1 in return.

 

Current scoreboard shows that Pearson over his tenure invested $40B (using debt out of which $30B still sits on balance sheet) and has produced a company that is worth $25B in market cap. Valeant's book value when Pearson took over was negligible compared to $30 billion, so let's ignore that. And all of this happened over 6-7 years.

 

Is taking in $30B in debt + negligible equity and creating a company that is today worth $25B in market cap over 6-7 years considered value creation? If you measure just the growth in equity has obviously been phenomenal, but couldn't anyone that takes on a large amount of debt do the same? It is considered valuable if you take on $30B in debt and then create a company that is far more valuable than the $30B you took on (or pay off all the debt and have some significant pile left over as equity).

 

May be that will happen if given time (although I think it is "too hard" to tell, hence in my "too hard" pile) and at best, the jury is still out on this question in my opinion.

I think the jury's still out. While taking on that debt the equity value has tripled. At least for now the debt appears manageable (I guess the jury is still out on that too). If it were that easy to use debt to create value, private equity firms (or "LBO operators" as Buffett describes them) would have far better returns than they actually do.

 

[Guest roark33]

VRX to hold another press conference tomorrow at 8am.  see website for full press release.

[ourkid8]

The CC will provide current plans and priorities, including the transition plan from Philidor, and an update on the Company's operations.  They also plan to hold an investor day to update its annual and quarterly financial guidance period to the end of 2015.  Finally, additional communication on the durability of the business which the investor community has been dying for.

 

VRX to hold another press conference tomorrow at 8am.  see website for full press release.

[fareastwarriors]

Ackman Says Biggest Valeant Regret Is Not Buying More

 

http://www.bloomberg.com/news/articles/2015-11-09/ackman-says-biggest-valeant-regret-is-not-buying-more

[Mephistopheles]

Ackman Says Biggest Valeant Regret Is Not Buying More

 

http://www.bloomberg.com/news/articles/2015-11-09/ackman-says-biggest-valeant-regret-is-not-buying-more

 

Uh that window of opportunity is still open

[John Hjorth]

There is a major difference between "is not" and "is not in a position to buy more". It's a regret of position sizing.