Guest Schwab711 Posted October 1, 2015 Share Posted October 1, 2015 I think you've posted these quotes. Details of 2014 guidance was way off and most likely required price increases (as I've shown logic behind), which aren't sustainable. The majority of 16' EBITDA increase will be due to increases in amort + interest. I'd be surprised if GAAP NI is >$1b and it'll probably be closer to $500m, assuming their estimates prove true. Why should we even trust 2016 guidance though? Right. How many times has their guidance disappointed over the years? Emerging market currencies and others relative to $US are down substantially - that could affect guidance negatively. I don't think much else will - maybe they will reduce pricing on some small part of the portfolio but given the $7.5 was probably conservative, they will probably still hit that. Clearly we should trust guidance because in the past it has been too conservative. Doesn't mean its always going to be that way but odds are you are very wrong (again, unless the currencies keep coming down which in my view is actually likely here in the next year, and also the macro economic environment globally just tanking, which I also think is a good possibility). But you know, on a constant currency basis and assuming the global economy doesn't completely tank (which are pure macro concerns), I think you are way way off thinking their guidance will disappoint. Guidance disappointed as recently as 04/22/2014 for FY14 numbers... No one cared because they made up for it with price increases, which improved margins. It's either not sustainable and the market will realize this or EM revenues will increase again. Why are you ignoring the numbers? I stated that they hit total guidance, but that there division estimates (there are only 2) were way off. Considering there comments on pricing in the US vs the rest of the globe and the rest articles/websites on price increases, it seems quite likely that large price increases covered the difference. The whole point of VRX stating they have volume growth so often is because people know that large price increases are not sustainable for growth. That's all I was saying. Their own presentations state currencies caused revenue to be lower by $42m (4Q14) and $31m (3Q14). Their projections were made on 4/22/2014, which is why it is so unusual that their guidance missed by such a large amount for EM. That is no where near $1b (not counting the fact that they assume all EM revenue is non-Rx). You can think whatever you want. Their numbers are pointing towards my thesis (which is supported by a request for a subpoena). Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 Exactly what I remember. This is probably why not only did they not include the new indication in the 7.5 EBTIDA but they did not even talk about it as potentially helping EBITDA at that point because it wasn't even approved. This is a great example of why, Schwab, they hit or exceed their estimates - they leave a lot of stuff out to be conservative with their estimates, get it? It was approved during 2Q15 (as Liberty's slide shows). They already stated approved Salix products are included in guidance. Why wouldn't it be included in guidance? The 7.5bn guidance was announced in 1Q15, before that. Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 Guidance disappointed as recently as 04/22/2014 for FY14 numbers... http://i.imgur.com/wNKecLB.png http://i.imgur.com/BcoNcCt.png Looks pretty middle of the range to me. Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 Yup middle of the range overall... but Liberty it sounds like Schwab wants us to talk about US versus EM guidance (because he says they are making up for EM volume shortfalls with US price increases in order to make their numbers overall) Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 Exactly what I remember. This is probably why not only did they not include the new indication in the 7.5 EBTIDA but they did not even talk about it as potentially helping EBITDA at that point because it wasn't even approved. This is a great example of why, Schwab, they hit or exceed their estimates - they leave a lot of stuff out to be conservative with their estimates, get it? It was approved during 2Q15 (as Liberty's slide shows). They already stated approved Salix products are included in guidance. Why wouldn't it be included in guidance? No you are confused, guidance happened before the new indication was approved - they did not even want to give an idea of what the new indication revenues would look like - but they are looking quite good aren't they? Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 If you follow your link, the 2nd slide states that durable revenue accounts for 26% of total 2014 revenue. You are misreading it, I believe. They mean that ±60% of rx revenues are durable, and that this 60% of rx represents ±26% of total. That's just the rx and durable, not the total durable. You are right, 90% appears a little high. I didn't have time to post a full rebuttal today but I didn't want you to think that I'm ignoring your response or that I was "trolling" with that estimate. I'll try to post soon. Here is a quick response. 85% durable revenue is laughably out-dated and looks like it was wrong when they published it. Clearly it's at least 20% from SLXP + on-patent Rx + reasonable estimates of durable v. non-durable for the other 3 categories. That is >35% + splits from other 3 categories. Is VRX really claiming that every $ of revenue in emerging markets comes from durable products (not patented)? Also in that 85% slide they estimate $8.5b in 2014 revenue (which was almost dead-on), but they assumed $3.1b in emerging market revenue, not including on-patent Rx. However, most of the on-patent Rx in the top-20 have additional patents worldwide (and VRX holds these rights). Also, actual emerging market revenue for 2014 came in at just $2.1b, which is ~$1b less than they projected on 04/22/2014 (excluding on-patent Rx). What happened here? If you look at the "85%" slide you can see that all non-Rx revenue is considered durable. As I go through the products individually I'm having a hard time determining how VRX classifies durable, since there are many patent protected drugs that are labeled "durable". As a quick example, Asertin is clearly an on-patent Rx product but they automatically assume all "physician dispensed" products are durable. VRX cornered the market on all Minocyclines (they have 4 brands each with multiple strengths) by purchasing every approved generic and then raised the prices. Sun Pharmaceuticals has manufactured these products for VRX (and previously for Medicis/Precision) and has recently gained approval for a new Minicycline generic, now the only generic for this drug that is not owned by VRX. The fact that VRX outsources their manufacturing seems to be a new risk since their manufacturers are also their competitors. This is in addition to the debt/liquidity, tax inversion, and drug pricing concerns. Also, just because I was off on my % of durable v. non-durable revenue does not mean the content of my comment was wrong. If the non-durable revenue is even around 50% then that is a big difference from the current assumptions and my post on liquidity concerns is relevant. Has anyone else attempted to estimate the current durable v. non-durable revenue split? Has anyone been able to reconcile their AGN presentation to what actually happened? I don't understand how they missed by so much for developed and emerging. Did I miss something obvious? Anyone interested in starting a new thread for VRX that is limited to just a discussion of numbers? Liberty, I think Schwab is pointing to these numbers of his: Also in that 85% slide they estimate $8.5b in 2014 revenue (which was almost dead-on), but they assumed $3.1b in emerging market revenue, not including on-patent Rx. However, most of the on-patent Rx in the top-20 have additional patents worldwide (and VRX holds these rights). Also, actual emerging market revenue for 2014 came in at just $2.1b, which is ~$1b less than they projected on 04/22/2014 (excluding on-patent Rx). What happened here? Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 I'm sorry, it wasn't clear to me. What I think happened is they were going to beat their overall guidance but EM slowdowns and FX made them land in the middle of it, which isn't bad since it was +40% YoY. These things won't always work against them. FX was big this year, but if it just stabilizes or if the USD falls, next year could be interesting. Same for EM getting healthier. Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 First, there is discrepancy in that 4/22/2014 slide deck which projections for 2014. Schwab is taking $3.1B from page 31, whereas on page 27 it seems to indicate $2.5 to 2.7B for EM (up from 1.5 billion in 2013 or a 76% increase). Currency overall plus just Russia might have taken that $2.6 down to $2.1. And, as you say, in any case when you are trying to estimate a 76% increase, its pretty damn hard. I have no idea where that $3.1B EM revenues on slide 31 comes from. Slide 31 is focused on the durable / non-durable split whereas slide 27 on EM growth and projections. I would tend to cite the one on EM growth if I was going to pick an estimate. One thing for sure is that no management (whether fraudulent or not) would actually try to put out two totally different numbers, 4 slides apart, in such an important presentation unless a) it was a mistake, or b) there was a simple explanation for it that is not readily clear. Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 Schwab man, you are killing me, makes me want to cry with your short thesis resting on this level of analysis (first the indication / $7.5B EBITDA thing, now this): Slide 30 prior to slide 31 defines the categories on slide 31. There is more than EM in the $3.1B, its EM, OTC and some other fuckin' thing. The real projection is on slide 27 and its $2.6B. You then say Hey, where did that billion go (they projected $3.1 and only got $2.1) so to meet their guidance for 2014 clearly that came from price increases in US and other drug markets!! First off, your numbers are all wrong. Secondly, even if your numbers on EM were right, practically how exactly would they do that? Presentation in late April, they find out in late May something is wrong in EM and plan to hike prices across the board by 1 July. So they gotta hike at a $2 billion annualized rate over 6 months to make up for that fictitious $1billion annual short-fall you came up with. Holy fuck man?!? And you say Hempton did a shit analysis? Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 Schwab, I actually called IR, the lady was very pleasant - she took notes about the "discrepancy" and stated the SVP would get back to me today. I then went back to stare at those slides some more. Anyway, I called the nice lady back to tell here not to bother wasting her time - because I am sure they have been really busy. Anyway, maybe I'm being too harsh, we all make major mistakes - even two - which are core to your short thesis. But the point is next time you find a "discrepancy", maybe one option would be to call the nice lady over there and go over it with them first? Not to be mean, but I have wasted too much of my time now on your "analysis". Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 And another thing. You allude to the fact nobody noticed/cared about the EM "miss" because they made their overall numbers? If they missed EM by $1 billion you don't think anybody would care/notice? Especially when they refer to their EM growth abilities as a reason the Allergan acquisition would have made sense? You know Wall Street is filled with over-paid little hamster-like Ivy League analysts running frickin' spreadsheets to forecast quarterly earnings? You don't think anybody is going to notice or care? Its just your post is so wrong on so many levels that if indeed you had a core point, I am not sure why I should try to listen. My time is valuable. Link to comment Share on other sites More sharing options...
Picasso Posted October 1, 2015 Share Posted October 1, 2015 Stop giving Hempton more things to "investigate." Now he's going to need to look into whether the IR lady is indeed nice. Link to comment Share on other sites More sharing options...
original mungerville Posted October 1, 2015 Share Posted October 1, 2015 Stop giving Hempton more things to "investigate." Now he's going to need to look into whether the IR lady is indeed nice. You think Schwab is Hempton? Link to comment Share on other sites More sharing options...
Picasso Posted October 1, 2015 Share Posted October 1, 2015 Naw I'm just kidding about Hempton hearing about how nice the IR lady is and launching a new blog post about how she's a direct decendent of Hitler. Link to comment Share on other sites More sharing options...
Liberty Posted October 2, 2015 Share Posted October 2, 2015 Naw I'm just kidding about Hempton hearing about how nice the IR lady is and launching a new blog post about how she's a direct decendent of Hitler. I actually laughed out loud at this one :D Link to comment Share on other sites More sharing options...
giofranchi Posted October 2, 2015 Author Share Posted October 2, 2015 FWIW: Valeant Pharmaceuticals (NYSE:VRX) initiated with Buy rating and $290 (61% upside) price target by B of A Merrill Lynch http://seekingalpha.com/news/2809066-healthcare-ratings-roundup?app=1&uprof=25 Cheers, Gio Link to comment Share on other sites More sharing options...
original mungerville Posted October 2, 2015 Share Posted October 2, 2015 Morgan Stanley downgraded Valeant this morning - said that had price increases not occurred Q2 2015 EBITDA would have been 12% lower. More than they have estimated. I would like to see that number annualised though - ie price increase impact on the last 12 months rather than just a quarter. In any case, its about a 10% impact, so EBITDA would drop 10%, but equity + debt dropped by much more in the last two weeks. I'm OK with the newly reset price on Valeant given pricing concerns. Link to comment Share on other sites More sharing options...
Bagehot Posted October 2, 2015 Share Posted October 2, 2015 Morgan Stanley downgraded Valeant this morning - said that had price increases not occurred Q2 2015 EBITDA would have been 12% lower. More than they have estimated. I would like to see that number annualised though - ie price increase impact on the last 12 months rather than just a quarter. In any case, its about a 10% impact, so EBITDA would drop 10%, but equity + debt dropped by much more in the last two weeks. I'm OK with the newly reset price on Valeant given pricing concerns. I don't think anyone can make a good case that VRX hasn't historically been raising prices, in some cases by a whole bunch. The thing is, though, of the 8 products MS cites, 3 will go generic in the next six months (two, Xenazine and Targretin already have, the other is Glumetza which goes generic in February, I believe). 2 are Isuprel and Nitropress which were acquired in February, will likely be fully paid back by the end of this Q, and VRX fully expects them to "go generic" (they already are off patent, but VRX expects a competitive product within ~3 years) in a short time period. That leaves 3 drugs that should matter to VRX investors on an "ongoing" basis: Wellbutrin, Arestin, and Syprine which collectively represented ~5% of 2Q15 sales, but will be probably something like 3-4% of 2016 sales as Jublia/Ultra/Xifaxan/Onexton/etc ramp. So, first, the problem is certainly manageable. Second, Wellbutrin and Syprine are already off patent, so clearly VRX has some degree of distribution control that is allowing them to continue pricing. Arestin is patented through 2022 and is used to treat periodontal disease in dental offices, so it is hard to imagine Congress intervening there. Plus they are raising price at about 30% per year, so that isn't egregious, especially as it relates to my next point. People are ignoring absolute dollars in this entire argument. Arestin is a great example. Dentists pay ~$15 for Arestin and charge anywhere from $50-$90 for it. It is a great drug that works well. Should anyone be up in arms if dentists now have to pay $20 or $25 for it? Isuprel and Nitropress have had their prices hiked, but in the context of overall HC spend they are trivial. If cancer/Hep C/virtually all orphan drugs can go for $200k/yr (many of which are prescribed for years on end) on the basis of their life-extending qualities, is it egregious that VRX charges $1k for Isuprel or Nitropress which require one dosage and are equally life-saving? I mean, I'm not trying to be insensitive or make a moral judgment, but the Cleveland Clinic is claiming that its drug budget "might not be flat" this year due to those two price increases. That doesn't sound like runaway inflation to me. Of course the best example is this, here's what the 2,288% price hike in Ofloxacin means in real dollars: Link to comment Share on other sites More sharing options...
Liberty Posted October 2, 2015 Share Posted October 2, 2015 So I did a tiny, tiny bit of detective work and found who created the ValeantPricing.com website (the one with no dollar amounts anywhere) that the shorts have been passing around lately: http://imgur.com/8imJh7e http://i.imgur.com/8imJh7e.png Edit: Well, apparently it was mentioned in the Citron report that he made it. Guess I either couldn't make it to that part or didn't notice, but it doesn't say anywhere on the site that the author is a short seller and who it is, and the URL is being passed around so much lately on a standalone basis that I had no idea who the original source was. Still good to know. I think what irked me about it is that the site was made to go be passed around, doesn't say anywhere it was created by a short-seller, kind of supposed to look like some grassroots thing from outraged citizens with torches and pitchforks. Link to comment Share on other sites More sharing options...
ccplz Posted October 2, 2015 Share Posted October 2, 2015 Wow this thread has really turned into a bulls circle jerk hasn't it Link to comment Share on other sites More sharing options...
Picasso Posted October 2, 2015 Share Posted October 2, 2015 It doesn't have to be a bull circle jerk. You can tell us all the reasons why it's over priced. I certainly have in the past and I've grown a lot more comfortable with certain risks. The big drop in price certainly took care of a few of them. But the way, the part 2 of the Citron report is such a joke. Where's the beef? Link to comment Share on other sites More sharing options...
Liberty Posted October 2, 2015 Share Posted October 2, 2015 http://www.bloomberg.com/news/articles/2015-10-02/pfizer-raised-prices-on-133-drugs-this-year-and-it-s-not-alone Pfizer Inc., the nation’s biggest drugmaker, has raised prices on 133 of its brand-name products in the U.S. this year, according to research from UBS, more than three-quarters of which added up to hikes of 10 percent or more. It’s not alone. Rival Merck & Co. raised the price of 38 drugs, about a quarter of which resulted in increases of 10 percent or more. Pfizer sells more than 600 drugs globally while Merck has more than 200 worldwide, including almost 100 in the U.S [...] Pfizer has raised list prices on some of its biggest drugs this year, including two 9.4 percent increases on Lyrica, the pain medicine that’s expected to be its second-biggest selling drug globally in 2015 with $4.8 billion in sales, according to a poll of Bloomberg analysts. That compares with $5.17 billion last year, when it was the company’s top-selling product.[...] List prices on drugs from large pharmaceutical companies grew 12 percent a year in that span, leading to an 8 percent annual increase in net prices, after discounts, the analysts said Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 3, 2015 Share Posted October 3, 2015 Exactly what I remember. This is probably why not only did they not include the new indication in the 7.5 EBTIDA but they did not even talk about it as potentially helping EBITDA at that point because it wasn't even approved. This is a great example of why, Schwab, they hit or exceed their estimates - they leave a lot of stuff out to be conservative with their estimates, get it? It was approved during 2Q15 (as Liberty's slide shows). They already stated approved Salix products are included in guidance. Why wouldn't it be included in guidance? No you are confused, guidance happened before the new indication was approved - they did not even want to give an idea of what the new indication revenues would look like - but they are looking quite good aren't they? I know your time is very valuable so I'll look this one up for you :) 2Q15 presentation (from 7/23/2015) p.2 "Strong Xifaxan TRx uptake following IBS-D approval" p.33 "Signed or closed business development transactions factored into guidance" IBS-D was approved on 5/27/2015, which is during Q2. It is included. Any confusion is probably due to the fact that 2Q15 guidance did not update the estimate for EBITDA. http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Salix-Announces-FDA-Approval-of-Xifaxan-550-mg-for-the-Treatment-of-IBS-D-Irritable-Bowel-Syndrome-with-Diarrhea/default.aspx Link to comment Share on other sites More sharing options...
original mungerville Posted October 3, 2015 Share Posted October 3, 2015 Its great you now figured out the approval happened in Q2... and you did it for me with a smiley face (like I and everyone else did not already know that) Anyway, sticking to facts: Liberty and I were saying the guidance of 7.5B EBTIDA was provided in Q1 and that guidance clearly did not include the benefits of the approval which took place in Q2. As such, that approval provides a cushion to the $7.5B EBITDA target being hit even though EM currencies are weak, price increases on a portion of biz may be more limited due to politics, etc - which was my point. Any confusion is solely on your part: you said the $7.5B guidance (from Q1) incorporated the approval. That is incorrect because they did not include the unapproved business of Q2 in their forecast in Q1. This is really simple. Link to comment Share on other sites More sharing options...
original mungerville Posted October 3, 2015 Share Posted October 3, 2015 By the way, now that you have purposely wasted more time, I'm done with you. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now