VRX - Valeant Pharmaceuticals International Inc.

[dorsiacapital]

On the perpetual headwind assumption, I guess I don't know exactly how to understand the adjustment that they're making. Is it because the US dollar is getting stronger every quarter (for example, the dollar has been largely flat against the Euro for much of 2015)? Can we even attempt to double check their math? Hard because I don't think we know anything about what percentage of EM revenues are coming from Russia, Poland, Euro countries, China etc., Are they definitely adjusting the currency impact quarter over quarter or are they just comparing it to a set point perhaps from the beginning of the year?  It's very unclear.

 

Also, who knows what's going to happen to the dollar? Maybe it does continue to strengthen, and that would continue to have a large negative effect on their realized dollar revenues. 

 

Thanks Dorsia.

 

I am assuming they are taking the Google approach - that is, stating yr/yr revenue growth on a constant currency basis to arrive at the organic growth number, then backing out the actual FX translated yr/yr growth for the adjustment.

 

I agree we can't know what will happen to the USD.  I am a short CAD/long USD Canadian, so I personally see some further USD strength.  My point is that if they are using the "standard" Google approach to the FX adjustment, the headwind cannot be perpetual and can be hedged at current forward rates.

 

Again I appreciate the discussion

 

This is the only significant discussion I found in the 2015 annual report. It seems a bit oblique to me about the basis point for their adjustment, but perhaps I am missing something obvious:

 

Foreign Currency Translation

The assets and liabilities of the Company’s foreign operations having a functional currency other than the U.S. dollar are translated into

U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the reporting period for revenue

and expense accounts. The cumulative foreign currency translation adjustment is recorded as a component of accumulated other

comprehensive income in shareholders’ equity. Foreign currency exchange gains and losses on transactions occurring in a currency other than an operation’s functional currency are

recognized in net income.

[dorsiacapital]

On the perpetual headwind assumption, I guess I don't know exactly how to understand the adjustment that they're making. Is it because the US dollar is getting stronger every quarter (for example, the dollar has been largely flat against the Euro for much of 2015)? Can we even attempt to double check their math? Hard because I don't think we know anything about what percentage of EM revenues are coming from Russia, Poland, Euro countries, China etc., Are they definitely adjusting the currency impact quarter over quarter or are they just comparing it to a set point perhaps from the beginning of the year?  It's very unclear.

 

Also, who knows what's going to happen to the dollar? Maybe it does continue to strengthen, and that would continue to have a large negative effect on their realized dollar revenues. 

 

Thanks Dorsia.

 

I am assuming they are taking the Google approach - that is, stating yr/yr revenue growth on a constant currency basis to arrive at the organic growth number, then backing out the actual FX translated yr/yr growth for the adjustment.

 

I agree we can't know what will happen to the USD.  I am a short CAD/long USD Canadian, so I personally see some further USD strength.  My point is that if they are using the "standard" Google approach to the FX adjustment, the headwind cannot be perpetual and can be hedged at current forward rates.

 

Again I appreciate the discussion

 

Blaine, if I may ask a question back, what is your margin of safety on this investment? I know people think Valeant is cheap because it has fallen very, very far, but apart from that, what metrics are you looking at that make you comfortable that there is not much more room for slippage? Is it things you see in the current reports and/or projections?

[blainehodder]

Dorsia,

 

Here are a few reasons:

 

I believe Ebitda will come in at low end of guidance or slightly below, 6.5B min

I see no reason why they can't delever for 2 yrs,

I am not bearish on organic growth

I do believe the future holds more M&A and tax insversions after a few yrs of delevering

I think Salix and B&L organic growth will continue, particularly B&L.

I don't believe the multiple is permanently depressed

I see almost no case where they can't afford the debt interest and maturities unless I point to future unknown cockroaches or rates rocketing

I don't think any of the above is unreasonable at all. Do you?

 

So overall I believe in a toned down, (lower organic growth low end multiplie) version of the Ackman valuation which you can find in his recent defense slides.

 

As for margin of safety, I see downside as being complete Derm rx death leading to lower organic growth and a narrative causing an much lower multiple and I would believe that to be temporary. I see the downside at maybe 60. Not far from where it trades now. It is highly levered, so margin of safety is of course a more NPV risk/reward concept than a don't lose money at any cost concept.

 

I see the likelihood of extreme fines being low, given history in the sector.

 

I see how it could have been an attractive short before but I am not long at prices much higher than today (81).  I don't see it as a compelling short case as I see downside limited to fines + Neuro decline + derm rx death, and I just can't slap azero on derm and Neuro.

Jublia might be overpriced, but it will continue to sell. Doctors are prescribing it.

 

I don't think most docs or patients give a rats ass about insurance cos. I think they will buy/prescribe whatever they want and I see insurance companies eating it. I even see future "gouging" as highly probable given the non life supporting nature of Valeant lines. I'm not sure how it can be stopped in practice.

 

I think almost every retail " turnaround"  as an easier short.

 

Do you see a margin of safety on a short? 

 

Another way of looking at it is to take Aswath's model and adjust for the tax rate alone and there is upside.

 

Sorry for the badly formatting rant as I am typing on my phone.

[original mungerville]

Thanks, Blaine.

 

On the sinister case, I, myself, don't think this is likely because I do think/hope that the auditors would catch this. I also don't think Valeant necessarily cares enough to do that because, at least up till now, the people responsible for its valuation haven't minded the foreign currency impact.

 

On the perpetual headwind assumption, I guess I don't know exactly how to understand the adjustment that they're making. Is it because the US dollar is getting stronger every quarter (for example, the dollar has been largely flat against the Euro for much of 2015)? Can we even attempt to double check their math? Hard because I don't think we know anything about what percentage of EM revenues are coming from Russia, Poland, Euro countries, China etc., Are they definitely adjusting the currency impact quarter over quarter or are they just comparing it to a set point perhaps from the beginning of the year?  It's very unclear.

 

Also, who knows what's going to happen to the dollar? Maybe it does continue to strengthen, and that would continue to have a large negative effect on their realized dollar revenues. 

 

But, you do raise good points, and I want to try (as much as possible) to avoid ad hominem attacks on Valeant, so I do want to make clear that my suggestion in the post was (perhaps too) mischevious and I have no evidence that they are manipulating the foreign currency headwinds.

 

 

 

 

 

 

Dorsia,

 

With regards to the FX headwinds obscuring foreign organic growth, I see 2 assumptions on your blog that I think are unlikely (but not impossible) to be true:

 

1) The sinister case: the possibility they are lying about the FX headwinds to hide weak organic growth. This would require auditors to essentially be "in" on the fraud or extremely negligent.  It certainly would not be the first case of fraudulent/negligent auditing, but I think it is an unlikely assumption for a base case. It also seems like a fairly complex method of cookie jarring to improve an adjusted organic growth metric, but I suppose it is possible.

 

2) The perpetual FX headwind assumption: 

Over the first 9 months of the year, Valeant realized an incremental product revenue increase of approximately 71 million in the emerging markets.

 

Unfortunately the emerging markets had a negative foreign currency exchange impact of 275 million.

.

 

This is an ugly headwind for sure,  but for you to believe that this continues to be a problem for the future years requires you to believe that the USD not only maintains its strength, but continually strengthens relative to foreign currencies and outpaces the organic growth.  I can't say that this won't happen, but again it seems pretty pessimistic to assume they continue to get slammed on currency forever.  If that is likely, it is prob not a bad idea to short SPY as well.  As you noted, they can hedge this out at today's forward rates, and pure organic growth rate will emerge (for better or worse).

 

Thoughts? Thanks for posting Dorsia. I am a recent long, and appreciate the non confrontational conversation.

 

Trade-weighted global currencies have been far weaker relative to the US dollar in comparison to say a measure of the US dollar versus a currency weighted basket (ie such as the DXY which has heavy Euro and Yen components). So even if the US dollar has not strengthened in a period versus the Euro, it doesn't mean it hasn't strengthened significantly relative to other Eastern European or Asian currencies.

 

For example, currently the trade-weighted US dollar is at a high whereas the DXY has not yet broken the highs we saw earlier in the year.

[original mungerville]

Dorsia,

 

Here are a few reasons:

 

I believe Ebitda will come in at low end of guidance or slightly below, 6.5B min

I see no reason why they can't delever for 2 yrs,

I am not bearish on organic growth

I do believe the future holds more M&A and tax insversions after a few yrs of delevering

I think Salix and B&L organic growth will continue, particularly B&L.

I don't believe the multiple is permanently depressed

I see almost no case where they can't afford the debt interest and maturities unless I point to future unknown cockroaches or rates rocketing

I don't think any of the above is unreasonable at all. Do you?

 

So overall I believe in a toned down, (lower organic growth low end multiplie) version of the Ackman valuation which you can find in his recent defense slides.

 

As for margin of safety, I see downside as being complete Derm rx death leading to lower organic growth and a narrative causing an much lower multiple and I would believe that to be temporary. I see the downside at maybe 60. Not far from where it trades now. It is highly levered, so margin of safety is of course a more NPV risk/reward concept than a don't lose money at any cost concept.

 

I see the likelihood of extreme fines being low, given history in the sector.

 

I see how it could have been an attractive short before but I am not long at prices much higher than today (81).  I don't see it as a compelling short case as I see downside limited to fines + Neuro decline + derm rx death. I just can't slap azero on derm and Neuro.

Jublia might be overpriced, but it will continue to sell. Doctors are prescribing it.

 

I don't think most docs or patience give a rats ass about insurance cos. I think they will buy/prescribe whatever they want. I even see future "gouging" as highly probable given the non life supporting nature of Valeant lines. I'm not sure how it can be stopped in practice.

 

I think almost every retail " turnaround"  as an easier short.

 

Do you see a margin of safety on a short? 

 

Another way of looking at it is to take Aswath's model and adjust for the tax rate alone and there is upside.

 

Sorry for the bad formatting as I am typing on my phone.

 

This is pretty much where I am at. I see the downside at $60 (unless there is a shit-show of further cockroaches or a general market sell-off). Some people have been totally writing off Jublia and some of the other derm business, that's not reality. And on the Marathon drugs whose prices were hiked, I haven't heard Pearson backing down on those prices yet (it could come but I don't think he has lowered them yet) - so Jublia, derm and these Marathon products are still contributing to EBITDA.

 

I think Q4 is going to be a disaster for EBITDA though (giving away free drugs, restructuring charges, legal fees, etc), but I think December guidance for fiscal 2016 will be a lot higher than most expect - and then Valeant will look to exceed that higher number.

 

I bought calls initially (as I never liked the debt load) and bought more call LEAPS as the tailspin started and gained momentum as I did not trust the shorts such as Citron, Hempton, etc at all. Their analyses were highly flawed and therefore lacked credibility.

 

On the other hand, I didn't like the company's response at all in terms of the conference calls, or the details that surfaced on their dealings with R&O, etc. and hedged out somewhere in the high 90s or so. I am currently looking to get back in. I would be surprised to see it go below 60 (without more cockroaches or a huge general market sell-off) which makes me think we are at or near the low here. I guess we could get some tax-loss and year-end window-dressing selling here to bring it lower. In any case, if or when I do get back in, and even if it is likely that the stock won't go below $60, I will get back in with the call LEAPS (despite their extreme expense they have downside protection, had I owned the common through the tailspin all the way to these prices it would have been a net worth disaster for me). I still kinda trust Pearson overall rather than don't trust him - he may have really screwed up with Philidor though. We may never get to the truth of the matter on that though.

[dorsiacapital]

Dorsia,

 

Here are a few reasons:

 

I believe Ebitda will come in at low end of guidance or slightly below, 6.5B min

I see no reason why they can't delever for 2 yrs,

I am not bearish on organic growth

I do believe the future holds more M&A and tax insversions after a few yrs of delevering

I think Salix and B&L organic growth will continue, particularly B&L.

I don't believe the multiple is permanently depressed

I see almost no case where they can't afford the debt interest and maturities unless I point to future unknown cockroaches or rates rocketing

I don't think any of the above is unreasonable at all. Do you?

 

So overall I believe in a toned down, (lower organic growth low end multiplie) version of the Ackman valuation which you can find in his recent defense slides.

 

As for margin of safety, I see downside as being complete Derm rx death leading to lower organic growth and a narrative causing an much lower multiple and I would believe that to be temporary. I see the downside at maybe 60. Not far from where it trades now. It is highly levered, so margin of safety is of course a more NPV risk/reward concept than a don't lose money at any cost concept.

 

I see the likelihood of extreme fines being low, given history in the sector.

 

I see how it could have been an attractive short before but I am not long at prices much higher than today (81).  I don't see it as a compelling short case as I see downside limited to fines + Neuro decline + derm rx death. I just can't slap azero on derm and Neuro.

Jublia might be overpriced, but it will continue to sell. Doctors are prescribing it.

 

I don't think most docs or patience give a rats ass about insurance cos. I think they will buy/prescribe whatever they want. I even see future "gouging" as highly probable given the non life supporting nature of Valeant lines. I'm not sure how it can be stopped in practice.

 

I think almost every retail " turnaround"  as an easier short.

 

Do you see a margin of safety on a short? 

 

Another way of looking at it is to take Aswath's model and adjust for the tax rate alone and there is upside.

 

Sorry for the bad formatting as I am typing on my phone.

 

This is pretty much where I am at. I see the downside at $60 (unless there is a shit-show of further cockroaches or a general market sell-off). Some people have been totally writing off Jublia and some of the other derm business, that's not reality. And on the Marathon drugs whose prices were hiked, I haven't heard Pearson backing down on those prices yet (it could come but I don't think he has lowered them yet) - so Jublia, derm and these Marathon products are still contributing to EBITDA.

 

I think Q4 is going to be a disaster for EBITDA though (giving away free drugs, restructuring charges, legal fees, etc), but I think December guidance for fiscal 2016 will be a lot higher than most expect - and then Valeant will look to exceed that higher number.

 

I bought calls initially (as I never liked the debt load) and bought more call LEAPS as the tailspin started and gained momentum as I did not trust the shorts such as Citron, Hempton, etc at all. Their analyses were highly flawed and therefore lacked credibility.

 

On the other hand, I didn't like the company's response at all in terms of the conference calls, or the details that surfaced on their dealings with R&O, etc. and hedged out somewhere in the high 90s or so. I am currently looking to get back in. I would be surprised to see it go below 60 (without more cockroaches or a huge general market sell-off) which makes me think we are at or near the low here. I guess we could get some tax-loss and year-end window-dressing selling here to bring it lower. In any case, if or when I do get back in, and even if it is likely that the stock won't go below $60, I will get back in with the call LEAPS (despite their extreme expense they have downside protection, had I owned the common through the tailspin all the way to these prices it would have been a net worth disaster for me). I still kinda trust Pearson overall rather than don't trust him - he may have really screwed up with Philidor though. We may never get to the truth of the matter on that though.

 

I actually think it's interesting that our opposite versions of pessimism leave us not that far apart....my take is that there's a reasonable argument that Valeant is worth about $40-50, which isn't too different from $60. I can get to that figure in a lot of different ways, perhaps the simplest is to say that Valeant has spent $40-ish billion on acquisitions - assume a bit of value add in the acquired businesses minus patent run offs and the like, and you should have an enterprise value around $45 billion - leaving the equity at about $15 billion, which would put it at $45. 

 

On the points you raised:

 

"I believe Ebitda will come in at low end of guidance or slightly below, 6.5B min"

I prefer to start from the last twelve months ebitda of about $4.5 billion (excluding Allergan) and work up, rather than start from their guidance and work down. Either way you go, it's hard to do because of how general their breakdown into developed vs. emerging. So, for example, if we knew that Derm was definitely responsible for $X ebitda, then we could just worst case kill Derm. But we don't.

 

"I see no reason why they can't delever for 2 yrs,"

I agree on this, I just think it will be interesting to see how quickly they are able to delever. That will be the real, ultimate test of the strength of their cash flows. If they cannot delever a fair amount, then I do think that the terms of the large amounts of debt that they must repay may need to change.

 

I am not bearish on organic growth

This is a point of relative disagreement. I think, apart from Philidor, Valeant has generally shown an ability to grow 0-5-ish percent a year. That was the point of my blog post, but, I understand, people have different views on currency transactions.

 

I do believe the future holds more M&A and tax insversions after a few yrs of delevering

Agree.

 

I think Salix and B&L organic growth will continue, particularly B&L.

 

This is an underrated area of disagreement. I think Salix has a lot of problems, although I'm still researching the subject. I think if you are a strong bull on Valeant, you need to be a very, very big believer in the earnings growth potential of Xifaxan. I'd actually really be curious to have a longer discussion about that topic. 

 

I think Bausch & Lomb has had decent growth of about 10% even just taking Valeant management at face value but that's not great. I will say that I struggle with these two slides (assume it's currency headwinds but still)

 

In Q2 2014 pg. 13 - Valeant reported B&L total revenues of $891 million and Q/Q% growth of 12%. (Generics accounted for $46 million).

(http://ir.valeant.com/files/doc_presentations/2014/2Q14%20Presentation%20Draft%20Final2.pdf)

 

 

In Q2 2015 pg. 6, Valeant reported B&L total revenue of $836 million and Y/Y& growth of 8%.  This figure was excluding generics.

 

So, excluding U.S. generics, in Q2 2014, B&L had revenue of $845 million.  In Q2 2015, B&L had revenue of $836 million, but that represented an 8% Y/Y growth over the prior figure of...$845 million. (Relatedly, in Q1 2015, B&L had revenue of $745 million.).

 

I am probably missing something obvious (it's already happened several humiliating times in my postings on this board), but I struggle to 

reconcile these figures. My guess is that the difference is about B&L's foreign generics, because those weren't broken out in 2014 (only U.S. was) but, if so, I wish that Valeant would make it a bit easier to follow.

 

And, I know that Cafepharma has strong skeptics, but this 100+ post thread from B&L in July of this year (http://cafepharma.com/boards/threads/if-you-have-heard-or-know-something-add-here.582869/) seems to indicate that there were very deep sales cuts to the U.S. team. Interestingly, I see no real discussion of these cuts in any of the 2015 quarterly reports (about $6 million in additional integration expenses and that's it) or in the quarterly transcripts.

 

I don't believe the multiple is permanently depressed

 

I guess it depends on what multiple we're using. Are we relying on EV/Ebitda (the most favorable normal metric for Valeant I think). It's at about 11.1 and JNJ is at 11.5)? If we're talking PE or price/revenue or something else, then I'm not sure if the multiple is depressed when you look at comps. Are we talking about Valeant's prior multiple when it was in the 200-250 range? I think it may be a while before that multiple comes back. Are we talking about cash EPS? If so, I think we are probably talking different languages and that's fine.

 

I see almost no case where they can't afford the debt interest and maturities unless I point to future unknown cockroaches or rates rocketing

 

-I think Valeant can pay its interest payments. I think repaying the debt maturities is a funny thing. You can have large amounts of debt and everybody's happy and fine until there's questions about whether you can actually pay the debt (aka the preferred stock) off. If there are those questions, then the equity takes a back of the bus seat (at an appropriate low price) while those questions are resolved. 

 

I don't think any of the above is unreasonable at all. Do you?

I disagree with quite a few of these, but I think there are reasonable arguments/thought processes behind each point. That's what makes a market!

 

But, without causing unproductive argument, I do want to continue to flag that the cockroach issue should not be underestimated for bulls (just as, for bears, the fact that there's a lot of smart money still on the long side and the possibility of an acquirer are both very, very legitimate concerns). (I think the optimistic take on the cockroach issue is that you may be able to get in below $60.)

 

I was reading through the Q3 2015 transcript and came across this

 

Doug Miehm - RBC Capital Markets

Thank you. Couple questions as well. Number one, with respect to patient access and foundations, maybe you could walk us through how many foundations you fund. And of those foundations what proportion of their annual operating budget would you provide to them? The second one just has to do with, if you were to split out the US neuro business, can you give us a sense of what EPS contribution or EBITDA contribution that business would have? And I'll leave it there.

 

Laurie Little - Head of IR

Hey guys, why don't you just concentrate just a couple right now. We are trying to get through everybody so why don't we answer the -

 

Mike Pearson - Chairman and CEO

Yes, pick your two favorite.

 

Douglas Miehm

 

Just the foundations, just elaborate on that.

 

Mike Pearson - Chairman and CEO

Okay. So it is -- I don't have the price number but it's like four or five and so its small number. We make sure as we mentioned that they have other companies are also contributing or other organizations, so these are also contributing, we do not want to be the only one to contribute. Again, we just given the money and they do what they want to with that money. And I don't have -- I don't want to give you a price figure in terms of what percent of our funding, I don't have that and I don't want to guess. Next question?

 

---

 

Knowing what we know about Philidor, I find that to be an interesting response. Not to turn into John Hempton, but, if I was a Valeant bull, I would be a little more comfortable if I knew the names and details (both funding & operational) of these charitable organizations that are paying for government health care deductibles. I'd even be happy if it involved Mike Pearson guessing a little.

 

[dorsiacapital]

Thanks, Blaine.

 

On the sinister case, I, myself, don't think this is likely because I do think/hope that the auditors would catch this. I also don't think Valeant necessarily cares enough to do that because, at least up till now, the people responsible for its valuation haven't minded the foreign currency impact.

 

On the perpetual headwind assumption, I guess I don't know exactly how to understand the adjustment that they're making. Is it because the US dollar is getting stronger every quarter (for example, the dollar has been largely flat against the Euro for much of 2015)? Can we even attempt to double check their math? Hard because I don't think we know anything about what percentage of EM revenues are coming from Russia, Poland, Euro countries, China etc., Are they definitely adjusting the currency impact quarter over quarter or are they just comparing it to a set point perhaps from the beginning of the year?  It's very unclear.

 

Also, who knows what's going to happen to the dollar? Maybe it does continue to strengthen, and that would continue to have a large negative effect on their realized dollar revenues. 

 

But, you do raise good points, and I want to try (as much as possible) to avoid ad hominem attacks on Valeant, so I do want to make clear that my suggestion in the post was (perhaps too) mischevious and I have no evidence that they are manipulating the foreign currency headwinds.

 

 

 

 

 

 

Dorsia,

 

With regards to the FX headwinds obscuring foreign organic growth, I see 2 assumptions on your blog that I think are unlikely (but not impossible) to be true:

 

1) The sinister case: the possibility they are lying about the FX headwinds to hide weak organic growth. This would require auditors to essentially be "in" on the fraud or extremely negligent.  It certainly would not be the first case of fraudulent/negligent auditing, but I think it is an unlikely assumption for a base case. It also seems like a fairly complex method of cookie jarring to improve an adjusted organic growth metric, but I suppose it is possible.

 

2) The perpetual FX headwind assumption: 

Over the first 9 months of the year, Valeant realized an incremental product revenue increase of approximately 71 million in the emerging markets.

 

Unfortunately the emerging markets had a negative foreign currency exchange impact of 275 million.

.

 

This is an ugly headwind for sure,  but for you to believe that this continues to be a problem for the future years requires you to believe that the USD not only maintains its strength, but continually strengthens relative to foreign currencies and outpaces the organic growth.  I can't say that this won't happen, but again it seems pretty pessimistic to assume they continue to get slammed on currency forever.  If that is likely, it is prob not a bad idea to short SPY as well.  As you noted, they can hedge this out at today's forward rates, and pure organic growth rate will emerge (for better or worse).

 

Thoughts? Thanks for posting Dorsia. I am a recent long, and appreciate the non confrontational conversation.

 

Trade-weighted global currencies have been far weaker relative to the US dollar in comparison to say a measure of the US dollar versus a currency weighted basket (ie such as the DXY which has heavy Euro and Yen components). So even if the US dollar has not strengthened in a period versus the Euro, it doesn't mean it hasn't strengthened significantly relative to other Eastern European or Asian currencies.

 

For example, currently the trade-weighted US dollar is at a high whereas the DXY has not yet broken the highs we saw earlier in the year.

 

Hi OM,

 

Thanks - that's a good point. I checked DXY, and it appears the dollar has gone up about 12% so the currency headwinds are significant.

 

I do wonder if you think there's any discrepancy in Valeant's treatment of foreign currency headwinds in these two presentations

 

In Q3 2014, Valeant (pg. 26) has a really, really (no bulls**t) great slide that breaks down the individual revenue impact of each of the major foreign currencies that it deals with (http://ir.valeant.com/files/doc_presentations/2014/q3/3Q14-Presentation-Draft-vFinal_v001_v370g7.pdf).  Interestingly, they say that they calculate the headwind based on the spot change % between 7/31/14 and 10/15/14.

 

In Q3 2015, Valeant (pg. 6) has a footnote that says there was a negative year over year foreign currency impact of $172 million.

 

I think they're reconcilable. In Q3 2014, Valeant was explaining why its 7/31 guidance had been affected, in Q3 2015, Valeant is explaining the effect Y/Y. I do, and I am biased, think it's interesting that Valeant can, if it wants, show a very detailed currency breakdown.

 

[jay21]

On B&L quickly before acquisition:

 

LTM Revenue: 3,076

LTM EBITDA: 621

Margin: ~20.2%

 

If the $900 synergies go through:

 

Pro forma EBITDA: 1,521

Margin: ~49%

 

That's much more in line with what VRX has done. And I think B&L is one of the reasons people like VRX so much. That improvement is ridiculous.

 

EDIT: And disclosed pro forma EBITDA margin was ~37% from the merger docs. They are significantly higher than that.

 

[blainehodder]

Exactly. B&L, if the nums are accurate, is a massive, sustainable, and growing, high margin business.

 

I also expect Xifaxin to be massive and I think It is likely Valeant even sandbagged the Xifaxin guidance.

[ourkid8]

MP has the ability to remove costs like 3G and now he needs to find additional businesses of this caliber. 

 

Exactly. B&L, if the nums are accurate, is a massive, sustainable, and growing, high margin business.

 

I also expect Xifaxin to be massive.

[original mungerville]

I looked at the page 26 slide re currencies. They picked spot differences and used 15 October as the end point (ie mid-way through Q3 and Q4) to show the rough impact thus far for both quarters. Staring at trade-weighted and other charts, I don't think the dates were cherry-picked or anything. Spot is fine, no advantage to using spot versus average rates in that period.

 

They could have reported impact for Q3 separately, and then up to 15 Oct for Q4 separately, I guess. If you are a skeptical bear you would say they didn't because they were hiding something. If you aren't skeptical, you would say they were trying to save space, lumped impact on second half thus far together in one slide. In the latter scenario, I see no cherry picking of dates, etc.

[blainehodder]

MS thinks it trades at PE of 5 next yr. lol.

[Picasso]

Sell side is a damn joke.

[Picasso]

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

[fareastwarriors]

Hedge fund Omega sold entire stake in Valeant

 

http://www.reuters.com/article/2015/11/16/us-investing-einhorn-valeant-idUSKCN0T528120151116#X2mBx74JSdIOxZX7.97

[dorsiacapital]

Surprising that a pill that you have to take every single day and that reacts incredibly poorly with any alcohol consumption whatsoever would sell poorly...(read the begrudging FDA approval: http://www.fiercebiotech.com/story/fda-advisers-back-approval-sprouts-twice-rejected-female-libido-drug-fliban/2015-06-04)

 

At the risk of sounding like a conspiracy theorist, Sprout seems like a product designed to work with a Philidor aggressive auto-refill model.

 

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

[dorsiacapital]

Why does sell side even exist? I can't imagine institutional investors or any kind of real money relies on it. I thought post 2001/Blodgett that it was not as purely promotional, but I'm just not sure who that matters cares about its conclusions. 

 

I would assume it makes some kind of profit for Wall Street, otherwise why have it, but I don't know where legitimate sources of profit would come from. (Illegitimate sources are that it helps other branches, IB, etc., with promotion and perhaps trading desks...) 

 

Sell side is a damn joke.

[blainehodder]

Surprising that a pill that you have to take every single day and that reacts incredibly poorly with any alcohol consumption whatsoever would sell poorly...(read the begrudging FDA approval: http://www.fiercebiotech.com/story/fda-advisers-back-approval-sprouts-twice-rejected-female-libido-drug-fliban/2015-06-04)

 

At the risk of sounding like a conspiracy theorist, Sprout seems like a product designed to work with a Philidor aggressive auto-refill model.

 

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

 

Viagra, Cialis, and Levitra need to be prescribed by a doctor, lower blood pressure, and are not supposed to be mixed with alcohol, and are quite expensive.  I'm not sure Addyi will be a hit, but I doubt the blood pressure thing is what is causing the low sales, and would imagine it is due to low market awareness and low availabilty.

 

[ERICOPOLY]

Surprising that a pill that you have to take every single day and that reacts incredibly poorly with any alcohol consumption whatsoever would sell poorly...(read the begrudging FDA approval: http://www.fiercebiotech.com/story/fda-advisers-back-approval-sprouts-twice-rejected-female-libido-drug-fliban/2015-06-04)

 

At the risk of sounding like a conspiracy theorist, Sprout seems like a product designed to work with a Philidor aggressive auto-refill model.

 

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

 

Viagra, Cialis, and Levitra need to be prescribed by a doctor, lower blood pressure, and are not supposed to be mixed with alcohol, and are quite expensive.  I'm not sure Addyi will be a hit, but I doubt the blood pressure thing is what is causing the low sales, and would imagine it is due to low market awareness and low availabilty.

 

I spoke to my wife's internist (her best friend) about Addyi.  She has a lot of female clients/patients.

 

She said it's a joke.  Not a single one of her clients wants it.

 

It's expensive and at best it maybe leads to desire once a month.  I mean, come on, that's not going to be a blockbuster drug.

 

She was pretty much laughing.

 

It's not a low awareness/visibility thing -- it's a low effectiveness thing.

[dorsiacapital]

Surprising that a pill that you have to take every single day and that reacts incredibly poorly with any alcohol consumption whatsoever would sell poorly...(read the begrudging FDA approval: http://www.fiercebiotech.com/story/fda-advisers-back-approval-sprouts-twice-rejected-female-libido-drug-fliban/2015-06-04)

 

At the risk of sounding like a conspiracy theorist, Sprout seems like a product designed to work with a Philidor aggressive auto-refill model.

 

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

 

Viagra, Cialis, and Levitra need to be prescribed by a doctor, lower blood pressure, and are not supposed to be mixed with alcohol, and are quite expensive.  I'm not sure Addyi will be a hit, but I doubt the blood pressure thing is what is causing the low sales, and would imagine it is due to low market awareness and low availabilty.

 

Fair enough. My point about the mixing with alcohol thing is that, because you need to take Sprout every day (rather than only at specific times like Viagra) then you may, if you want to follow the FDA's instructions, either choose to take Sprout or drink, but not both.

[dorsiacapital]

While we're on the subject of drug effectiveness, and, because people with medical experience occasionally chime in, I want to see if I understand the FDA's approval of Xifaxan

 

(http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm448328.htm)

 

"Xifaxan can be taken orally three times a day for 14 days, for the treatment of abdominal pain and diarrhea in patients with IBS-D. Patients who experience a recurrence of symptoms can be retreated with a 14 day treatment course, up to two times."

 

What does it mean that patients can be retreated up to two times. Is the two times a yearly limit? A longer period of time? A lifetime limit to avoid antibiotic resistance? Can PBMs/Insurers use the terms of the FDA approval to deny coverage beyond three total treatment cycles?

 

Now, IBS-D still affects millions of people, and at $1200 a treatment cycle (http://www.drugs.com/price-guide/xifaxan) that still has the potential to be very profitable, but limiting treatment cycles would prevent Lipitor-like upside potential. 

[blainehodder]

Dorsia, at what pice would you consider selling your puts?

[dontdodebt]

My first serious post here ever and I don´t feel terrible proud of the contribution of what I have to say but still feel it is a contribution enough.

 

Of what I have heard doctors talking about is that if a women have a low sex drive it´s most often because her hormones are off or there is some mental problem going on. In both cases there is treatments for this and it is not this pill.

 

Men can have a problem with erection and than we can correct that with a pill called viagra. We do not correct our sexdrive with viagra, viagra does not change our sex drive.

 

Therefore, a pill to heigthen womens sexdrive seems like a redundant contribution. There seems to be other and better/more logical ways to fix this problem.

 

Having that said, I do not know enough about it so there may be something I don´t see.

 

To me it looks like they have burnt up 1 billion dollar.

[Picasso]

Based on what we've heard from Valeant/Sprout about Addyi it sounded like the perfect drug to put through Philidor, not too dissimilar from Jublia.  I don't know how Pearson kept a straight face when he said it was potentially a billion dollar a year blockbuster for them. 

[blainehodder]

Dorsia,

 

I am fairly certain that Hempton is the one posting most of the negative rumours on the Cafe Pharma boards.  He has a history of building up multiple online personalities to attack companies and people. For more details, check out the FFH emails.

 

Here is an article on similar tactics he used in the past.  Yes this is deepcapture run by Byrne, but read the post.

 

https://www.deepcapture.com/2008/12/introducing-john-hempton-the-plunderer-from-down-under/

 

You will notice he always chimes in on the Cafe Pharma boards right away saying "thanks for the great tip etc." I know you have pointed out recenrt allegations of massive Salix layoffs and B&L cuts on the Cafe Pharma boards, but I caution you to think twice about sourcing them for real info.

 

None of this has to do with the value of Valeant, but I just thought I'd point it out.