VRX - Valeant Pharmaceuticals International Inc.

[LongHaul]

FYI - the drug reps on cafepharma are saying the dermatologists are throwing them out of the offices and sounds like their business has taken a hit in the number of scrips.  If a drug company was ripping off insurance companies would you deal with them?  It's only negative goodwill.  Kind of confirms the sell side report.

[cmlber]

 

Ourkid,

 

I think the problem is that many of Valeant's Derm products are variations of "one tube instead of two tubes or slightly different dosages of generics." So a Valeant product will contain a mix of two very cheap generic ingredients.  Valeant will charge a very high price for the one tube, while the generic two tubes are available much more cheaply. The doctor, as a shorthand, may write the name of the Valeant product on the prescription. If the patient goes to a regular pharmacy, the pharmacist will just substitute the two tubes and give instructions on how to mix the products together. (Cheaper for them to stock the product regularly in inventory, easier to get reimbursed, higher margins). The advantage of Philidor is that it would ensure this substitution was not made - sometimes through altering prescriptions to read "dispense as written."  The doctors may continue to write the name of the Valeant product on the script, but as long as they do not write dispense as written (and I have to think they're less likely to do that after all this), then regular pharmacies can make the substitution.

 

But, more importantly than the derms, is the reactions of the PBMs. I may be wrong, but I see no reason why a PBM can't either drop Valeant drugs all together from formularies, or, during the upcoming renegotiations, simply refuse to offer a higher net price than the two generics (easier than trying to play whack-a-mole with Valeant's attempts to game the system). 

 

 

I'm fairly certain most of this is incorrect.  In your "combine two tubes that are generic into one branded tube" scenario, the pharmacy can not substitute the one branded tube that was prescribed for the two generic tubes even if it does not say dispense as written.  The product needs to be chemically identical, or they can't substitute.  Games like this are played all the time in the industry to extend patent life. 

 

Also, PBMs can't just drop them, because in most states there are any willing provider laws that require PBMs to accept drugs from companies that comply with certain requirements.

[dorsiacapital]

 

Ourkid,

 

I think the problem is that many of Valeant's Derm products are variations of "one tube instead of two tubes or slightly different dosages of generics." So a Valeant product will contain a mix of two very cheap generic ingredients.  Valeant will charge a very high price for the one tube, while the generic two tubes are available much more cheaply. The doctor, as a shorthand, may write the name of the Valeant product on the prescription. If the patient goes to a regular pharmacy, the pharmacist will just substitute the two tubes and give instructions on how to mix the products together. (Cheaper for them to stock the product regularly in inventory, easier to get reimbursed, higher margins). The advantage of Philidor is that it would ensure this substitution was not made - sometimes through altering prescriptions to read "dispense as written."  The doctors may continue to write the name of the Valeant product on the script, but as long as they do not write dispense as written (and I have to think they're less likely to do that after all this), then regular pharmacies can make the substitution.

 

But, more importantly than the derms, is the reactions of the PBMs. I may be wrong, but I see no reason why a PBM can't either drop Valeant drugs all together from formularies, or, during the upcoming renegotiations, simply refuse to offer a higher net price than the two generics (easier than trying to play whack-a-mole with Valeant's attempts to game the system). 

 

 

I'm fairly certain most of this is incorrect.  In your "combine two tubes that are generic into one branded tube" scenario, the pharmacy can not substitute the one branded tube that was prescribed for the two generic tubes even if it does not say dispense as written.  The product needs to be chemically identical, or they can't substitute.  Games like this are played all the time in the industry to extend patent life. 

 

Also, PBMs can't just drop them, because in most states there are any willing provider laws that require PBMs to accept drugs from companies that comply with certain requirements.

 

I could definitely be wrong about the two tubes/one tube thing. I thought I'd read that somewhere but not sure. That said, many of Valeant's list of top 30 selling products appear to have either chemically identical drugs available, or be extended release versions of the same underlying chemical (not sure about substitution rules for that).

 

Solodyn - appears to have a generic (http://www.drugs.com/availability/generic-solodyn.html)

Clindagel - appears to be several different versions under various brand names (http://www.drugs.com/mtm/clindagel.html)

Retin-A - appears to have generics (http://www.goodrx.com/blog/acne-stinks-but-treatment-doesn%E2%80%99t-have-to-cost/)

Ziana - appears to have generics (http://www.drugs.com/availability/generic-ziana.html)

Carac - appears to have a generic (http://www.drugs.com/availability/generic-carac.html)

Cerave - really appears to have a generic (

)

Elidel - possibility of generic in 2016 (http://www.drugs.com/availability/generic-elidel.html)

Glumetza - no generic, but underlying chemical available without extended release (http://www.goodrx.com/blog/metformin-vs-metformin-mod-vs-osm-whats-the-difference/) - not sure if that's an acceptable substitute...I've heard some very dismissive talk about Glumetza on various pharma boards but talk is cheap.

Ofloxacin Otic - lots of generics (http://www.drugs.com/availability/generic-floxin-otic.html)

Artelac - B&L eye drops -underlying ingredient is hypromellose, appears to be lots of versions of that (https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=hypromellose+eye+drops)

Apriso - appears to be mesalamine in an extended release. There are other approved versions of mesalamine from competitors. Not sure if it's an acceptable substitute.

 

For reference, the rest of the top 30 is a lot of B&L products (not sure about margins there), Jublia, Xifaxan, Dendreon, a few Salix things, and the drugs they've really jacked prices on (Nitropress, Isuprel, Cuprimine.) The top 30 is 54% of revenue. I'd think the margins would be higher on these then their unnamed drugs, but could be wrong...

 

On the PBM point. Do the willing provider laws require the PBMs to purchase the drug at a certain price? Could Valeant's actions constitute a breach of those requirements? Does Valeant have the leverage to get into a public fight with the PBMs if they play hardball?

 

 

[Guest Schwab711]

What's everyone think of Hempton's new post?

 

Valeant headline in Slovenia:

http://www.finance.si/8838444/Slovenia-involved-in-Valeant-scandal

 

 

I think this might be the Salix guidance slide some folks refer to.

[Drokos]

1) Re: the Deutsche Bank report. Did anyone read the actual responses from Figure 5? They appear to be much less pessimistic than the headline and the tone of the article makes it out to.

 

2) I don't understand the Slovenia article. If there was stuffing, why would wholesalers "officially deny any stuff, and said inventory of their Valeant products are not increasing". They would have no incentive to lie about that, it isn't their problem if Valeant was giving them huge deals to take on additional product.

 

Also, how is the fact that PharmaSwiss is looking for a new warehouse a smoking gun that they are stuffing? First off, if you are stuffing the wholesalers you no longer have possession of the product. Secondly, maybe they are moving, or need a bigger space or are downsizing to a more efficient space. I just don't see how that is relevant to support or contradict the stuffing theory.

[KCLarkin]

What's everyone think of Hempton's new post?

 

Valeant headline in Slovenia:

http://www.finance.si/8838444/Slovenia-involved-in-Valeant-scandal

 

HAHAHA. Schwab, you always make me laugh.

 

Hempton claims this is an English translation of the original Slovenian article. It isn't.

 

This is the original:

http://www.finance.si/8838427/Slovenija-v-%C5%A1kandalu-farmacevta-Valeant-Je-ta-novi-Enron

 

Search the article for "cafepharma.com". That's right. The "journalist's" unofficial source appears to be CafePharma.com. The fun part -- all three Slovenian wholesalers quoted flat-out deny there is any channel stuffing. Both the quotes and the cafepharma content are conveniently left out of the English translation.

 

Here is the CafePharma link from the article:

http://www.cafepharma.com/boards/threads/fake-sales-at-vrx-too.586197/page-3

 

Love that that the CafePharma thread is started by "Anonymous in Australia".

[dorsiacapital]

Two things on Xifaxan

 

1 - I checked the patents relatively closely, and I'm pretty confident (to my disappointment!) that even though the compound dates back to the 1980s, their 2009 patent is solid because the purification process is novel and thus will stand up so they do have 15 years exclusivity. The 2017 orphan drug designation, I think, is just a marketing thing that does not affect the patent question. The extension patents on release methodologies and such, I do not think, will extend it beyond 2024 but I could be wrong. 

 

2 - Salix basically is Xifaxan (and a few other patented small drugs).  Xifaxan may be a great product, still trying to figure it out, but it is definitely a patented drug that is quite likely to have a generic in 2024. Genericization should significantly reduce the profits of the drug and perhaps almost eliminate them. What is the justification for deducting the amortization expenses for the debt that Valeant used to buy Salix from the cash earnings calculation  - we can argue about branded generic , but whatever, I just see no reason why the money used on Salix is not a real expense even if it is labeled as amortization? I don't think that Valeant will be able to sell Xifaxan for 10 billion in 2024. Am I missing something? 

[original mungerville]

What's everyone think of Hempton's new post?

 

Valeant headline in Slovenia:

http://www.finance.si/8838444/Slovenia-involved-in-Valeant-scandal

 

HAHAHA. Schwab, you always make me laugh.

 

Hempton claims this is an English translation of the original Slovenian article. It isn't.

 

This is the original:

http://www.finance.si/8838427/Slovenija-v-%C5%A1kandalu-farmacevta-Valeant-Je-ta-novi-Enron

 

Search the article for "cafepharma.com". That's right. The "journalist's" unofficial source appears to be CafePharma.com. The fun part -- all three Slovenian wholesalers quoted flat-out deny there is any channel stuffing. Both the quotes and the cafepharma content are conveniently left out of the English translation.

 

Here is the CafePharma link from the article:

http://www.cafepharma.com/boards/threads/fake-sales-at-vrx-too.586197/page-3

 

Love that that the CafePharma thread is started by "Anonymous in Australia".

 

Schwab, I think Hempton is a fuckin' scumbag.

[jay21]

og - re: covenants:

 

Biggest issue appears to be 2.5x secured covenant. I think secured debt would be about 12b. So if they hit downside of 5 to 6b in EBITDA then they are close.

[blainehodder]

1) Re: the Deutsche Bank report. Did anyone read the actual responses from Figure 5? They appear to be much less pessimistic than the headline and the tone of the article makes it out to.

 

2) I don't understand the Slovenia article. If there was stuffing, why would wholesalers "officially deny any stuff, and said inventory of their Valeant products are not increasing". They would have no incentive to lie about that, it isn't their problem if Valeant was giving them huge deals to take on additional product.

 

Also, how is the fact that PharmaSwiss is looking for a new warehouse a smoking gun that they are stuffing? First off, if you are stuffing the wholesalers you no longer have possession of the product. Secondly, maybe they are moving, or need a bigger space or are downsizing to a more efficient space. I just don't see how that is relevant to support or contradict the stuffing theory.

 

Concur 100%. That is a main reason why longs respect short sellers like you, and think little of Hempton and of course Left.

 

You present a fair criticism of organic growth which could lead to valuation downside. Hempton on the other hand, screams fire in a theatre or worse, is planting false information on Cafe Pharma boards, and feeding it to any media that will print it.

 

 

[KCLarkin]

Schwab, I think Hempton is a fuckin' scumbag.

 

He's definitely headed in that direction.

 

Title of his blog post:

"Channel stuffing by Valeant in Europe confirmed"

 

Actual content of the Slovenian article:

"Channel stuffing by Valeant in Europe unconfirmed and vigorously denied by Slovenian wholesalers"

[LongHaul]

Keep calling Hempton names, that will help change the facts.

 

The article in Slovenia basically states that there was channel stuffing and irregularities. 

 

The reason the distributors might not want to talk about it is that they benefit from it and it may be illegal for their clients to do.

 

So far Hempton has been generally right vs many others. 

 

[LongHaul]

Wow.  500 pages on VRX on COBF.

The only stock I could find that has more is SHLD.

 

Probably correlates with complexity and risk.

[LongHaul]

B&L soft contact lens business sounds like it is doing well from field research. 

 

I have heard that Ultra contacts have gained share and have not heard there is any channel stuffing. 

 

Sounds like it is doing well actually.  Very real business.

[KCLarkin]

Keep calling Hempton names, that will help change the facts.

 

The article in Slovenia basically states that there was channel stuffing and irregularities. 

 

The reason the distributors might not want to talk about it is that they benefit from it and it may be illegal for their clients to do.

 

So far Hempton has been generally right vs many others.

 

It's true that the article states that there are allegations of channel stuffing and irregularities. What it fails to do is confirm those allegations.

 

In fact, the only real evidence dis-confirms those allegations. Despite your claim that "the distributors might not want to talk about it". They did talk about it. AND VIGOROUSLY DENIED THE ALLEGATIONS.

 

Hempton's claim that "Channel stuffing by Valeant in Europe confirmed" is a lie. His allegations that they are channel stuffing might be true. The difference is subtle but important.

 

Disclosure: No position and need to better enforce my self-imposed ban on this thread.

[blainehodder]

Keep calling Hempton names, that will help change the facts.

 

The article in Slovenia basically states that there was channel stuffing and irregularities. 

 

The reason the distributors might not want to talk about it is that they benefit from it and it may be illegal for their clients to do.

 

So far Hempton has been generally right vs many others.

 

The article is linked to an anon post from Australia on Cafe Pharma. Useless to use as info. None of it is relevant. About as relevant as me saying right now that Xifaxin is selling like hotcakes, and being quoted on it.

 

 

[ourkid8]

What's happening to Valeant today? I am not used to it moving to the upside... lol

[Liberty]

 

I see the slides but no audio -they usually put up an audio eventually right?

 

Audio is here: http://wsw.com/webcast/jeff92/vrx/index.aspx

[wisdom]

http://www.bloomberg.com/news/articles/2015-11-19/valeant-shares-surge-as-credit-analyst-says-reaction-overdone-?cmpid=yhoo.headline

 

 

[blainehodder]

Valeant updated the rebuttal sheet to address the Hempton BS. Upward on onward.

 

http://www.valeant.com/Portals/25/PDF/11192015_rebuttal.pdf

 

On the upside, I am finally Green!  :D

[ZenaidaMacroura]

Valeant updated the rebuttal sheet to address the Hempton BS. Upward on onward.

 

http://www.valeant.com/Portals/25/PDF/11192015_rebuttal.pdf

 

On the upside, I am finally Green!  :D

Hempton/shorts may lose a bit of credibility with this one,..

[Guest Schwab711]

What's everyone think of Hempton's new post?

 

Valeant headline in Slovenia:

http://www.finance.si/8838444/Slovenia-involved-in-Valeant-scandal

 

HAHAHA. Schwab, you always make me laugh.

 

Hempton claims this is an English translation of the original Slovenian article. It isn't.

 

This is the original:

http://www.finance.si/8838427/Slovenija-v-%C5%A1kandalu-farmacevta-Valeant-Je-ta-novi-Enron

 

Search the article for "cafepharma.com". That's right. The "journalist's" unofficial source appears to be CafePharma.com. The fun part -- all three Slovenian wholesalers quoted flat-out deny there is any channel stuffing. Both the quotes and the cafepharma content are conveniently left out of the English translation.

 

Here is the CafePharma link from the article:

http://www.cafepharma.com/boards/threads/fake-sales-at-vrx-too.586197/page-3

 

Love that that the CafePharma thread is started by "Anonymous in Australia".

 

I think you read into my question a little too deeply.

[Spekulatius]

1) Re: the Deutsche Bank report. Did anyone read the actual responses from Figure 5? They appear to be much less pessimistic than the headline and the tone of the article makes it out to.

 

2) I don't understand the Slovenia article. If there was stuffing, why would wholesalers "officially deny any stuff, and said inventory of their Valeant products are not increasing". They would have no incentive to lie about that, it isn't their problem if Valeant was giving them huge deals to take on additional product.

 

Also, how is the fact that PharmaSwiss is looking for a new warehouse a smoking gun that they are stuffing? First off, if you are stuffing the wholesalers you no longer have possession of the product. Secondly, maybe they are moving, or need a bigger space or are downsizing to a more efficient space. I just don't see how that is relevant to support or contradict the stuffing theory.

 

Concur 100%. That is a main reason why longs respect short sellers like you, and think little of Hempton and of course Left.

 

You present a fair criticism of organic growth which could lead to valuation downside. Hempton on the other hand, screams fire in a theatre or worse, is planting false information on Cafe Pharma boards, and feeding it to any media that will print it.

 

Hempton has been right with his short positions far more than being wrong. He certainly is somewhat promotional, but I think he picks his targets well. I think he is right on VRX as well, maybe for the wrong reasons. The company has so many vulnerable spots that close scrutiny very likely will uncover many failings.

 

The vulnerable spots are aggressive accounting, high debt load, rolls business model, aggressive incentives for management, weak and overexposed shareholder base, questionable distribution models, price gauging and probably other that I forgot.

[dorsiacapital]

Valeant updated the rebuttal sheet to address the Hempton BS. Upward on onward.

 

http://www.valeant.com/Portals/25/PDF/11192015_rebuttal.pdf

 

On the upside, I am finally Green!  :D

 

I'm glad someone is green. I am Santa Claus today.

[dorsiacapital]

1) Re: the Deutsche Bank report. Did anyone read the actual responses from Figure 5? They appear to be much less pessimistic than the headline and the tone of the article makes it out to.

 

2) I don't understand the Slovenia article. If there was stuffing, why would wholesalers "officially deny any stuff, and said inventory of their Valeant products are not increasing". They would have no incentive to lie about that, it isn't their problem if Valeant was giving them huge deals to take on additional product.

 

Also, how is the fact that PharmaSwiss is looking for a new warehouse a smoking gun that they are stuffing? First off, if you are stuffing the wholesalers you no longer have possession of the product. Secondly, maybe they are moving, or need a bigger space or are downsizing to a more efficient space. I just don't see how that is relevant to support or contradict the stuffing theory.

 

Concur 100%. That is a main reason why longs respect short sellers like you, and think little of Hempton and of course Left.

 

You present a fair criticism of organic growth which could lead to valuation downside. Hempton on the other hand, screams fire in a theatre or worse, is planting false information on Cafe Pharma boards, and feeding it to any media that will print it.

 

Hempton has been right with his short positions far more than being wrong. He certainly is somewhat promotional, but I think he picks his taRgwts well. I think he is right on VRX as well, maybe for the wrong reasons. The company has so many vulnerable spots that close scrutiny very likely will uncover many failings.

 

The vulnerable spots are aggressive accounting, high debt load, rolls business model, aggressive incentives for management, weak and overexposed shareholder base, questionable distribution models, price gauging and probably other that I forgot.

 

I agree that the Hempton article was not particularly persuasive, although, if you read the Cafe Pharma posts, it is surprising the level of specificity with employee names and such that is used.

 

But anyway, still interested in talking about valuation/cash flows/etc.!