VRX - Valeant Pharmaceuticals International Inc.

[Liberty]

http://www.reuters.com/article/us-valeant-court-idUSKBN13C1QI?il=0

 

"U.S. unveils criminal charges in Valeant probe: prosecutors"

[johnny]

20. ANDREW DAVENPORT, the defendant, recognized TANNER's central role in enabling Philidor's growth and success within Valeant. In an email DAVENPORT sent to TANNER in or about August 2013, DAVENPORT stated of TANNER: "We both know that this endeavor would face a nearly insurmountable uphill struggle to succeed in the present Valeant environment without your confident support and the efforts of your team. I don't want you to think that fact will escape my mind for even a moment as we continue to build and refine this business."

 

I'm always impressed with how otherwise successful people can be so stupid in some ways.

 

 

 

[johnny]

Another tidbit: Valeant wanted to be less reliant on Philidor, so Tanner was tasked with reaching out to competing pharmacies and making deals. The only problem was that he was communicating these plans and schedules with Philidor/Davenport, and possibly passing along competitive information from his trips to Philidor.

 

However, on or about October 11, 2013, TANNER, using an email account under the alias "Brain Wilson" that was provided to TANNER by Philidor and not disclosed to or authorized by Valeant, sent an email to ANDREW DAVENPORT, the defendant, in which TANNER wrote, in substance and in part: "I have been talking with the [Pharmacy-1] guy and have a meeting with him and his partner on Tuesday. After thinking about this more, figured it may be best for me to go Solo as the manufacturer so they don't perceive the meeting being a investigatory trip with a vendor in an attempt to get information. As such, no need for you to make the trip."

 

The fact that Tanner even -sent- an email to Davenport saying that he shouldn't go strikes me as very weird and even totally consistent with the FBI's narrative here. But still, incredible decision making on display here.

 

[johnny]

In order to get the acquisition deal closed, Tanner FABRICATED a story about Philidor exploring deals with other Valeant's competitors to create a sense of urgency:

 

In communications during the fall of 2014 with Valeant's CEO...and others, TANNER stated that Philidor was planning to begin doing business with Valeant's competitors, absent acquisition of Philidor by Valeant. Based on my review of Philidor documents and interviews of Valeant and Philidor employees, I have found no evidence that any such interest was expressed by Valeant's competitors, nor that Philidor had developed any specific business plans to do business with Valeant's competitors.

[Picasso]

In that weird FB interview with some congressman, Davenport talked about being a distributor for various pharmaceutical companies.

 

Reminds me of that Maury show....

 

"And the lie detector determined that.... that was a lie"

[Liberty]

http://aswathdamodaran.blogspot.ca/2016/11/faith-feedback-and-fear-returning-to.html

[zenith]

Shareholder letter from Pershing Square out.  https://www.pershingsquareholdings.com/company-reports/letters-to-shareholders/

[rb]

Does anyone know why the Valeant senior bonds are trading at such a discounts? Even if the company is total crap and it goes bankrupt Salix and B&L have more than enough value to fully pay senior bonds.

 

Is it just a case that it's a toxic name and IMs don't want to explain to clients why it's in their portfolio?

[marazul]

there is significant amount of term loans outstanding, which go before this senior unsecured debt...that can be an explanation

[muscleman]

http://www.wsj.com/articles/valeant-nears-deal-to-sell-dendreon-cancer-business-to-sanpower-for-more-than-750-million-1484019727

http://www.wsj.com/articles/valeant-approved-to-buy-dendreon-assets-for-495-million-1424460438

 

This business was bought in 2015 for 495 m. Now sold for 750 m in less than two years. Not bad.

I don't have a subscription for WSJ so I can't know how much debt was wrapped in both buy and sell deals.

 

[Liberty]

Skin care biz sold to L'Oreal for $1.3bn.

 

https://finance.yahoo.com/news/valeant-sell-cerave-acnefree-ambi-081700774.html

[Ballinvarosig Investors]

$1.3bn for the skin care biz for $168mn of revenue puts a multiple of 7.5x. Not a bad price for the loss of about $50mn in EBITDA (by my estimates?).

 

$750mn for the Denderon assets is also a decent price considering what they paid for it. Most recent numbers have it doing about $300mn in revenue, EBITDA margin on it is about 25%, so you'd be looking at $75M in lost EBITDA.

 

Debt will be cut to about $28bn from these assets sales. Based on guidance going forward and minus the two sold businesses, Valeant should do $9.2bn in revenue for 2017 on EBITDA of about $4.7bn.

 

I am not sure if I am bullish, but the situation looks much better.

[Rasputin]

I'm surprised at how high the Chinese paid for Dendreon considering Provenge LOE in 2018. 

 

I have them at $9 B revenue, $3.8 B EBITDA in 2017, since they're losing roughly $675 million of very high margin revenue (Nitropress, Isuprel, Syprine, Mephyton, Ammonul, Edecrin, Virazole) and $140 million in the branded RX division (Lotemax) offset by Walgreen derm fix, Salix and B+L growth, $75 million cost saves.  This will result in $1.5 B in 2017 FCF that they will use to pay down debt. 

[plato1976]

a small good news in quite a long time?

 

I'm surprised at how high the Chinese paid for Dendreon considering Provenge LOE in 2018. 

 

I have them at $9 B revenue, $3.8 B EBITDA in 2017, since they're losing roughly $675 million of very high margin revenue (Nitropress, Isuprel, Syprine, Mephyton, Ammonul, Edecrin, Virazole) and $140 million in the branded RX division (Lotemax) offset by Walgreen derm fix, Salix and B+L growth, $75 million cost saves.  This will result in $1.5 B in 2017 FCF that they will use to pay down debt.

[fareastwarriors]

Valeant gets breathing Room but Little Else

 

https://www.bloomberg.com/gadfly/articles/2017-01-10/valeant-skin-care-dendreon-sales-only-buy-some-breathing-room

[Haasje]

http://seekingalpha.com/article/4035536-objective-review-valeants-asset-sales

 

Gadfly column is pretty good. Its debatable whether current cash-cows should be qualified as "most important products" and the closing is giving very little credit:

 

"Without evidence of real improvement in the business, Valeant's asset sales so far are just steps toward a better-managed decline, rather than an actual turnaround."

 

I mean a turnaround without asset sales would be some kind of a miracle. Everyone is saying they cant sell assets except at distressed prices or they cant sell assets except losing a lot of FCF. Here they are getting rid of 7% of debt or a much bigger % of debt they need to lose while hardly losing any current FCF.

 

Sure there need to be more asset sales before 2018 even, and FCF will decline some organically. But at this point a Salix sale after all and it starts to look like a sustainable business.

[Ballinvarosig Investors]

This thread has died a little, no reaction at all to the latest guidance for 2017.

 

1.) Total Revenues $9.55 billion to $9.65 billion, from previous range of $9.9 billion to $10.1 billion

 

2.) Adjusted EPS (non-GAAP) $5.30-$5.50, from previous range of $6.60-$7.00

 

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

[Haasje]

Here's my current take:

 

http://seekingalpha.com/article/4051513-valeant-quarter-next-quarter

 

The debt repayment today is kind of non-news but if they can get a refinancing on somewhat agreeable terms that's very good. Have an article upcoming discussing it. Its very advantageous for Valeant if they can push out maturities beyond 2022 even if they are forced to pay higher interest rates in the short term.

[aws]

It's clear now from the 2017 guidance how much of the earnings were from the "old valeant" model of buying drugs and jacking up the prices.  In the good times those earnings blended in with everything else and a huge multiple was attached to them, when in fact it should been 2x or less due to how quickly they are running off.  Maybe even negative due to how much reputation damage they suffered from the practice.

 

I guess the question now is: Is what's left in their earning power plus in the pipeline enough to cover the mountain of debt they acquired?  If their cost of funds were lower things would probably be fine, but when they are paying something like 3% higher interest rates than their peers on top of the massive leverage it is just so hard to get ahead.  If they had the ability to make some big impact like selling Salix or selling or IPOing B&L then it seems like they would have done it already.  Just the value they would get from dramatically reducing their interest cost and being able to refinance on good terms would probably outweigh whatever growth they think they might miss out on by selling that core asset.

 

I'd love as much as anyone to buy a great bargain, but it's just so hard to be excited about anything that's happened with the company in the past two years. 

[Rasputin]

The problem they're facing is due to pbms putting up hurdles, causing doctors to choose other brands vs vrx's, even after higher rebates (in 1 word, ACCESS).  Thus declining net selling price combined with declining volume.  EBITDA lost in 2016 due to this issue was roughly $1.2 B. 

 

I'm hoping it's a one time reset, that net selling price has stabilized, and in time, vrx will earn doctors confidence. 

 

The nonRX business is doing fine.  Some better than I thought. 

 

If market continues to allow vrx to earn their way out, current price will look really cheap.  Otherwise, it's a zero. 

 

 

 

 

[Happy]

I sold a part at $31 and all the rest at $13.50. Their profits relied much more on jacking up the prices than I once thought. As things got worse, I always felt that I could justify a position and that the lower price accounted for a lot and still made it cheap. I think confirmation bias played a large role. At some point I looked at the sum of everything negative that has happened and thought it was just too much. The situation is just so incredibly much worse than it was like 2 years ago. For example I thought that Papa would put everything negative in his first guidance so that he can outperform going foward. It now looks to me as if Papa clearly miscalculated in taking the job. By now I think it is very unlikely that Valeant will stabilize enough and even return to growth to pay back all that debt. They simply lost too much cash flow. If there were a buyer for the total business or for Salix, I think they would have sold it by now. I actually think now consider it most likely that this goes to zero. But I don't short, so I don't have to think about that.

 

I clearly was very wrong about this one. The most important thing that I missed was that great sustainable businesses try to offer a strong deal for their customers. It probably wasn't that hard to see that Valeant was trying to milk its customers for all they could get away with.

[aws]

Ackman sold his stake and the stock is touching 10s after hours.

[Ballinvarosig Investors]

I thought Ackman's interview on Dealbook last November was illuminating. His tone seemed to suggest to me that even then Valeant was an investment that was in his rear-view mirror. I wonder if the guidance that they issued last month for 2017 was just the straw that broke the camel's back. Looking at it objectively, you had to ask yourself, what's the upside, and what's the possibility that thing could become a zero?

 

Dealbook interview -

 

[Mephistopheles]

We shouldn't give much credibility to Ackman's comments. The VRX collapse was not only a financial, but PR disaster for him and you can be sure that everything he said was geared towards repairing his reputation and that his plan was to sell all along.

 

Joining the board showed he cared and consistency. He got a new CEO, they refinanced some debt. This way he can say he did everything he could to help, and exit a bit more gracefully.

[ScottHall]

Well we all have Ws and Ls. Took a small L on this one (relative to port), but sold closer to $18 or $19. I feel bad for Ackman to have staked so much, but I also think it's a cost of doing business in the game he's playing. Marketing wise he's built his career on big bets and they do differentiate him from the market. He may win or he may lose, but he's not going to match the market's return.

 

I don't know this, but I would guess that for him personally it is a +EV move to be so concentrated because when he's right he outperforms big and b/c of his big position sizes he gets in the news often; I bet that has attracted a lot of money over the years in this manner. He's going to collect fees on a bigger base, so even if there's a larger potential for permanent loss of capital this way, it gives him way more leverage to his investments than I suspect the alternative would bring.

 

I'd rather be Ackman right now after the most humiliating loss of his career than 100 out of 100 minor league hedge fund managers who may be good investors but lack the marketing skill to raise billions.

 

Anyone who writes him off after this is crazy.