VRX - Valeant Pharmaceuticals International Inc.

[aws]

Battle of the 3:30pm rumors this week.  First it drops 15% Monday on fraud charge rumors, then spikes 30% today on Salix sale rumors.  Wonder what tomorrow is - 45% drop on...?

[fareastwarriors]

Valeant, in Push for Cash, Looks to Sell Stomach-Drug Business

 

Deal to sell Salix unit for $10 billion would reverse acquisition made in March 2015

 

http://www.wsj.com/articles/valeant-is-in-talks-to-sell-its-salix-stomach-drug-business-for-about-10-billion-1478028972

[fareastwarriors]

Valeant Exploring Sale of Eye-Surgery Equipment Business

Sale of the business could fetch $2.5 billion, people familiar with the matter said

 

http://www.wsj.com/articles/valeant-exploring-sale-of-eye-surgery-equipment-business-1478114287

[Guest Schwab711]

Valeant Exploring Sale of Eye-Surgery Equipment Business

Sale of the business could fetch $2.5 billion, people familiar with the matter said

 

http://www.wsj.com/articles/valeant-exploring-sale-of-eye-surgery-equipment-business-1478114287

 

https://www.sec.gov/Archives/edgar/data/1416436/000119312513122167/d502777ds1.htm

 

See p.61, F-57, and F-58 for B&L's surgical equipment segment through FY2012.

[Liberty]

I wouldn't normally bother posting the results, but just because they announced on the day of the US election hoping nobody would notice, I'll post:

 

http://ir.valeant.com/news-releases/2016/11-08-2016-110124528

 

Total Revenues

 

Total Revenues in the third quarter of 2016 were $2.48 billion as compared to $2.79 billion in the third quarter of 2015, a decrease of 11%, primarily due to a decline in product sales revenues from our existing businesses. Third quarter revenues were also impacted by negative foreign currency exchange, as well as divestitures and discontinuations, which were partially offset by incremental product sales revenues from acquisitions completed in 2015.

 

On a sequential basis, revenues grew from a base of $2.37 billion in the first quarter of 2016 to $2.42 billion in the second quarter to $2.48 billion in the third quarter.

 

GAAP Earnings Per Share (EPS)

 

GAAP EPS for the third quarter of 2016 came in at ($3.49) as compared to $0.14 in the third quarter of 2015.  On a sequential basis, GAAP EPS moved from ($1.08) in the first quarter of 2016 to ($0.88) in the second quarter to ($3.49) in the third quarter.

 

Adjusted EPS (non-GAAP)

 

Adjusted EPS (non-GAAP) for the third quarter of 2016 came in at $1.55 as compared to $2.41 in the third quarter of 2015.  On a sequential basis, adjusted EPS (non-GAAP) grew from $1.27 in the first quarter of 2016 to $1.40 in the second quarter to $1.55 in the third quarter.

 

Net Income (Loss)

 

Net loss in the third quarter of 2016 was ($1.22) billion as compared to net income of $49.5 million in the third quarter of 2015.  As a result of the goodwill impairment analyses conducted in connection with the change in its reporting units, the Company recognized a goodwill impairment charge of $1.05 billion in the three months ended September 30, 2016, mainly attributable to the lower fair value in certain US businesses, mainly the Salix business. The net loss in the third quarter was mainly attributable to this goodwill impairment charge.

 

2016 Full Year Guidance Revised

 

Valeant has revised its full year 2016 guidance as follows:

Total Revenues now expected to be in the range $9.55 billion - $9.65 billion, from previous range of  $9.9 billion to $10.1 billion

Adjusted EPS (non-GAAP) now expected to be $5.30 - $5.50, from previous range of  $6.60 -$7.00

Adjusted EBITDA (non-GAAP) now $4.25 billion - $4.35 billion, from previous range of $4.80 billion - $4.95 billion

 

The disintegration continues.

[brendanb22]

Obviously guidance was going to be reduced, they are selling off large portions of their earnings. Presumably that is still cash shareholders will have access too. At some point this has to be a screaming buy, no?

[Guest cherzeca]

Obviously guidance was going to be reduced, they are selling off large portions of their earnings. Presumably that is still cash shareholders will have access too. At some point this has to be a screaming buy, no?

 

i assume that guidance was reduced on a status quo basis, assuming no sales.  but i also believe vrx will make at least a couple of sales this Q.  repay bank debt, get breathing room on amortization of debt until 2020.

 

turnarounds are never pretty, but they can be profitable.  i think at $15, vrx is a value buy, not a value trap

[Liberty]

At some point this has to be a screaming buy, no?

 

If you can trust the business and model and management, then you can look at price. I can't. Who knows how many more skeletons are in the closets?

 

Even those who had seats on the board were negatively surprised time after time after time with this one. Avoid.

[TwoCitiesCapital]

Obviously guidance was going to be reduced, they are selling off large portions of their earnings. Presumably that is still cash shareholders will have access too. At some point this has to be a screaming buy, no?

 

i assume that guidance was reduced on a status quo basis, assuming no sales.  but i also believe vrx will make at least a couple of sales this Q.  repay bank debt, get breathing room on amortization of debt until 2020.

 

turnarounds are never pretty, but they can be profitable.  i think at $15, vrx is a value buy, not a value trap

 

I sold puts on it. Not sure if I want to own the equity outright yet, but don't expect disaster in the next 5 weeks to justify the current premiums so collecting the insurance.

 

I want to wait for December to pass when I expect that there will be A LOT of pressure from tax loss harvesting before considering getting into the equity.

[brendanb22]

At what price are you selling puts? Premium is probably quite high

[Guest cherzeca]

@liberty

 

"If you can trust the business and model and management, then you can look at price."

 

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

[Liberty]

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

 

How do you know that?

[Guest cherzeca]

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

 

How do you know that?

 

i did my valuation analysis at numbers higher than vrx just reported.  but do you truly "know" anything in investing?

[Guest cherzeca]

@liberty

 

btw, this is just a trade.  writing down salix means they are close to selling it at the valuation they just wrote it down to.  when that is announced, should be a small bump in share price.  if this happens i expect to be out

 

edit: now, if salix is pulled then i am out and wrong

[Liberty]

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

 

How do you know that?

 

i did my valuation analysis at numbers higher than vrx just reported.  but do you truly "know" anything in investing?

 

That's why I talked about trust first. Some you can trust more than others. I trust Mark Leonard more than I trust, say, Pearson or Papa.

[Ballinvarosig Investors]

I supposed everything hinges on whether this ice cube continues to melt or not.

 

If the mooted sale of Salix for $10B goes through, then I think Valeant can do well at these levels.

 

Pre-Salix

 

Debt $30B

EBIDTA $4B

Interest expense $1.8B

Market cap $6B

 

Post-Salix

 

Debt $20B

EBITDA $3.2B

Interest expense $1.2B

Market cap $20B???

 

At the same time, I could easily see Valeant going to zero here. Interest is just about covered by current earnings, if this ice cube continued to melt, then I could see Valeant triggering a credit event.

 

Personally, while I find the whole thing riveting to watch, it's just not for me at any price. when you've already got a business in decline where debt is 9x EBITDA, then I think you don't need much to be going wrong to end up with a donut.

[Liberty]

@liberty

 

btw, this is just a trade.  writing down salix means they are close to selling it at the valuation they just wrote it down to.  when that is announced, should be a small bump in share price.  if this happens i expect to be out

 

Ah, that's a bit different I suppose. I don't know how to underwrite such a trade. Cross your fingers and hope that nothing negative comes out in the meantime, I suppose.

[Liberty]

Is it worrying to you guys that VRX still seems to be playing games with drug prices and hasn't done everything they said they would on that front? Still huge crosshair on their foreheads for politicians...

 

Also, not sure this has been posted here yet:

 

http://www.businessinsider.com/leaked-valeant-documents-show-philidor-strategy-2016-11

[Guest cherzeca]

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

 

How do you know that?

 

i did my valuation analysis at numbers higher than vrx just reported.  but do you truly "know" anything in investing?

 

That's why I talked about trust first. Some you can trust more than others. I trust Mark Leonard more than I trust, say, Pearson or Papa.

 

i have bought falling knives before, and i have won some and lost some. not a rec by any means, but sometimes a variant perception is worth it

[Larry]

I havent paid much attention to this company lately, but took a look at their results.

 

Revenue dropped 307M (from 2,787M to 2480M Y/Y). 227M of that 307M was due to their derm business. B&L seems to be doing alright. EBITDA is dropping more though, I guess derm was really high margin business (Jublia, Philidor..)

 

Interesting to see if they're going to sell Salix soon, or something else.

[Guest cherzeca]

I supposed everything hinges on whether this ice cube continues to melt or not.

 

If the mooted sale of Salix for $10B goes through, then I think Valeant can do well at these levels.

 

Pre-Salix

 

Debt $30B

EBIDTA $4B

Interest expense $1.8B

Market cap $6B

 

Post-Salix

 

Debt $20B

EBITDA $3.2B

Interest expense $1.2B

Market cap $20B???

 

At the same time, I could easily see Valeant going to zero here. Interest is just about covered by current earnings, if this ice cube continued to melt, then I could see Valeant triggering a credit event.

 

Personally, while I find the whole thing riveting to watch, it's just not for me at any price. when you've already got a business in decline where debt is 9x EBITDA, then I think you don't need much to be going wrong to end up with a donut.

 

i would only add that the first sale will be the hardest. once vrx gets breathing room on principal repayment schedule, i think the way buyers will view valuation of vrx assets will move from distressed to conventional.  but ackman's whole premise that vrx is a platform is dead and gone.  this is a slow moving liquidation

[Spekulatius]

@liberty

 

"If you can trust the business and model and management, then you can look at price."

 

there is safety in that approach.  but these assets are worth more to vrx and much more to a buyer than EV with $15/share

 

The real question is whether the equity is worth anything after accounting for the huge debt. The way the cash flows are shrinking, this is a fair question. I take solace in the fact that it is probably better for our society, if this piece of crap goes bankrupt.

[no_free_lunch]

Where does the $4B in EBITDA come from?  When I try to build an EBITDA I am getting $2.5-$3B.

[Rasputin]

For me, VRX is taking its medicine with one time reset to its realized rx asp.  Yes, the reduction in EBITDA is disappointing and 2017 guidance is disastrous.  My $5 B worst case scenario ebitda has been proven wildly optimistic.  I didn't anticipate the big loss in pricing and physicians' trust. 

 

The good news is everyday VRX generates cash thus increasing equity value, and the new team seem able. 

 

I'm holding on to what I have (my avg cost is $28) but I'm not adding until I see significant debt reduction. 

[antao]

http://finance.yahoo.com/news/bill-ackman-valeant-diversified-pharma-213023975.html

 

Interesting to see how Ackman is expecting asset sales and/or spins to unlock hidden asset value while helping to reduce debt and focusing on the high quality business.