VRX - Valeant Pharmaceuticals International Inc.

[Picasso]

Merkhet, how do you feel about Valeant using terminal values on their IRR per the last 8-k?

[giofranchi]

Interesting.

 

Well, I don't know if it is interesting, but I surely got lucky… I have put the half I sold in FFH, which appreciated almost 5% in just a few days… In the meantime I have gathered enough information to believe I had overreacted, and that the government intervention threat is much less serious than I had thought… That’s why I bought back some yesterday.

I still own less shares than before, because I still think government intervention is an unknown, and will probably remain so during the whole presidential campaign.

 

Cheers,

 

Gio

 

[Bagehot]

If they stop making acquistions, they'll just start having a ton of taxable income. 

 

Why?

 

They lose the "recurring" restructuring charges and amortization begins to roll off from previous acquisitions.  They start having pre-tax operating income that needs to get taxed at some point.

 

This actually isn't correct, Picasso. Virtually all of the amortization is for GAAP purposes, not tax. Without going too far down a rabbit trail, GAAP treats all acquisitions the same, the tax code distinguishes between an asset purchase (new, stepped up basis in the assets acquired which gives rise to a 15 year tax shield) and a stock purchase (which yields a carryover basis and no concomitant tax benefit). The real secret to the tax rate is: 1) Canada's territorial tax system; 2) offshore IP migration; and 3) US "earnings stripping" (effectively loading up the US subsidiary with debt to shield US taxable income-think John Malone). None of those are in danger if deals decrease or stop.

[merkhet]

Merkhet, how do you feel about Valeant using terminal values on their IRR per the last 8-k?

 

It seems very weird to me. They seem to be making the same mistake as others by thinking that AZ's point was that the company's acquisitions will stop making money after year ten. That was not his point.

 

I'm hesitant to ascribe any sinister intentions to Valeant though. It might be as Ackman said on Bloomberg yesterday that Valeant just has poor communication skills.

 

[Edited for clarity]

 

Let's be clear though. This is what Valeant said in response to AZ's IRR examples:

 

These calculations are misleading when comparing to a company acquisition as they only look at a 10 year period and do not include terminal value of the asset at the end of the forecast period.

 

They're saying that the IRR examples were misleading because they, and let me paraphrase, "value the asset at zero at the end of the forecast period." This is not a statement indicating that they are using terminal values in their IRR. (I mean, honestly, how would you even do that?)

[Picasso]

If they stop making acquistions, they'll just start having a ton of taxable income. 

 

Why?

 

They lose the "recurring" restructuring charges and amortization begins to roll off from previous acquisitions.  They start having pre-tax operating income that needs to get taxed at some point.

 

This actually isn't correct, Picasso. Virtually all of the amortization is for GAAP purposes, not tax. Without going too far down a rabbit trail, GAAP treats all acquisitions the same, the tax code distinguishes between an asset purchase (new, stepped up basis in the assets acquired which gives rise to a 15 year tax shield) and a stock purchase (which yields a carryover basis and no concomitant tax benefit). The real secret to the tax rate is: 1) Canada's territorial tax system; 2) offshore IP migration; and 3) US "earnings stripping" (effectively loading up the US subsidiary with debt to shield US taxable income-think John Malone). None of those are in danger if deals decrease or stop.

 

Thanks for this clarification.

[original mungerville]

Merkhet,

 

I did not start off with that presumption and its somewhat presumptuous for you to assume that. I picked up on small things along the way. I do agree that "not everyone who was commenting negatively on this stock is a part of the short & distort crowd". I did not think you were part of that crowd even though the line between #2 and #1 is blurry. I don't think my past bias is distorting my judgment on this here though (as there have been thousands of other posts and threads on this board since then which I have not reacted to).

 

In terms of IRRs, there is not much point discussing this with you. I am not trying to mathematically explain how an IRR works to you because you understand as do I.

 

"An IRR calculation, by definition, does not have a terminal value appended to it". Maybe in your mathematical, legal, pick at details, frame of mind this could be theoretically correct, I don't know and don't want to argue theory with you. But in the real world of finance and business valuations, many (some might say most) IRRs on businesses do have terminal values appended to them. This is why Valeant publicly filed what they filed with the SEC on this subject - because they know investors reading it understand you generally put IRRs on terminal values. But I don't want to waste my time with you on this subject because we will just keep going

 

"it's just the calculation of the return necessary to bring an NPV to zero for a defined amount of time between zero and n years. (That's the equation I put up about a month ago.)" I think we both know this.

 

"The reason AZ did an IRR that ended in year 10 is because Valeant's own deck says that they are targeting a 20% IRR at statutory tax rates." This is a logically incorrect reason. The fact they are targeting a 20% IRR at statutory tax rates does not logically support why AZ did an IRR that ended in year 10 with no terminal value (instead of year 20 or 30, or instead of year 5).

 

"It makes no sense to include a terminal value in this particular case because neither of them is making a statement about the acquisition's total cash flows past time n." Wrong, you are presuming Valeant made statements about total cash flows up to but not past year 10 somewhere. In terms of the "up to 10 year part of that", they only provide guidance going a year or two out generally, not 10. In terms of the "not past year 10" part, you are assuming just because they did not make some statement (??) on that, that they do not have an internal view on a terminal value. Well, they just filled with the SEC implying they do have an internal view on the terminal value at year 10 and that it is misleading not to include one (because everyone else in the real world, maybe other than you, generally thinks that you usually need something there OR you should continue the cash flow assumptions out further into a flat growth phase, then a declining growth phase, at which point you could say the biz has a zero terminal value). This is just standard/basic finance.

 

"In order to see what I mean, it's easy to just invert the situation. Let's say AZ included a terminal value after Year 10 of his IRRs for B+L of $40 billion. That's a good and healthy number, right? So now he has an IRR of X% for n years + $40 billion for the value of the cash flows past time n, and he compares that to the part of Valeant's deck that says their deal model requires an IRR of 20%." Ya, its calculation is very subjective - that was a point in my last post on this. But you just don't drop it because it skews the analysis too much (the alternative is to assume a flat growth and then declining growth stage after the growth prior to year 10, you don't just introduce a cliff effect to zero value henceforth).

 

"What extra information does the $40 billion terminal value add to the validation of the Valeant deal model which only concerns itself with the cash flows from time 0 to n?" Your point adds no value. 0 to n? Everybody's model assumes something from 0 to n (unless they want to look back into negative years!)

 

"Just to belabor the point here, you keep pointing out that the correct way to value a business is to count the cash flows from now until judgment day (e.g. including a terminal value), but no one is actually disagreeing with you on that. (Not even me. Really.)" Great glad we can agree on that.

 

"The only disagreement is that when comparing one IRR to another IRR, neither of them needs a terminal value."

I did not say that two IRRs being compared always need a terminal value. I said in the context of a 10-year IRR (ie when n is relatively small), you better figure out what to do for N+1 or explain the potential impact on your analysis and conclusions (or possible ranges of the impact) which AZ did not do. He instead used a flawed truncated calculation to bolster his case without explaining his assumption or boundary conditions at year 10. This is misleading as Valeant has pointed out publicly and filed with the SEC."

 

 

 

 

 

 

[Ross812]

I'm sorry I must have misunderstood what you were saying. It's hard to tell over the internet sometimes, especially with people whos first language isn't English.

 

I would appreciate it if you could clarify your thoughts without resorting to sarcasm. Your regular English is hard enough to understand.

 

Ok, no problem: I meant he should be careful to accuse publicly someone else of lying. Because, if you are later proven wrong, you simply lose all credibility. Period.

 

AZ_Value wrote: “let me say right away as categorically as I possibly can that the $99M [in Sanitas cash generated] claimed by Valeant is a lie”.

VRX instead has explained why it is the accurate number. And filed its replied with the SEC.

 

Now, as I have said, you should be more careful with public accusations of that sort, which later turn out to be unfounded.

 

I hope my poor English has not prevented me from explaining my thought clearly enough this time! ;)

 

Cheers,

 

Gio

 

From SEC Filing:

 

AZ Blog: 

“let me say right away as categorically as I possibly can that the $99M [in Sanitas cash generated] claimed by Valeant is a lie”  

 

 

VRX:

 

•      This statement is inaccurate; the $99M generated is accurate. The publicly filed Sanitas numbers were for the specific legal (public) entity acquired, Sanitas AB. Upon acquisition we integrated Sanitas into Valeant which is described in footnote 1 of the Sanitas unaudited interim condensed consolidated and separate financial statements for the period ended 31 December 2012:

 

•      As at 30 December 2011 Jelfa S.A. [a subsidiary of Sanitas AB] transferred all its intangible assets, related to the medicines licenses, which constituted intellectual property business, as contribution in kind to [of] 36.56% of [to] the associate company Valeant IPM sp. z.o.o.

 

This is further supported in footnote 10, where there is a significant increase in related party transactions due to the integration of Sanitas assets into Valeant. The financials reported for the legal entity was a fraction of the overall Sanitas business.

 

•      For deal tracking we consolidate sales and costs across all Valeant affiliates for the acquired company and eliminate intercompany transactions.

 

•      While the Sanitas acquisition was completed and integrated into the Valeant portfolio, Valeant continued to file Sanitas financial statements to comply with local law requirements. Specifically:

 

•      Lithuania securities laws required Sanitas AB to continue reporting standalone financial statements until the supervisory authority (the Bank of Lithuania) adopted a decision not to consider Sanitas AB as an issuer after completion of the squeeze-out procedure of minority shareholders who did not tender their shares in the tender offer.

 

My look at Sanitas' pre intangible asset transfer:

 

It seems like the asset transfer is making it difficult to reconcile the post merger cash generated since close in the Valeant power point. Maybe we can just take a look at 2010 CF from ops:

 

http://www.nasdaqomxbaltic.com/upload/reports/san/2011_q4_en_ltl_con_ias.pdf

 

Cash from Operation in 2010 was 63M LTL. In Q3 2012 USD (2.75 LTL : USD) this is $22.9M. Valeant uses 5 Qs of from Q3 11 to Q3 12. So lets give them a 5.7M bump to compare AZ values Q3'11 to Q3'12 CF from Ops of 14.8M to the 2010 CF from ops + an extra normalized quarter of ~$28.6M.

 

Bagehot says IR directs investors to use EBITA when calculating return.

 

EBITA for 2010 was:

 

108.2M LTL or $39.3M USD

 

Add in another 25% for the missing Q4 2011 and its up to $49M EBITA for 5 quarters ended Q4 2010.

 

Now they also have $57.5M USD worth of selling and distribution, R&D, Administrative, and regulatory expenses for 5 Quarters ended Q4 of 2010.

 

I have no idea how much of this 57.5M Valeant would be able to reduce. Maybe 50%?

 

So now we are up to 68.05M for the 5 Qs ended Q4'10. This is EBITA - 50% of non cost of sales Expenses.

 

This sounds a lot better than AZ's scenario, but I still have a really hard time believing:

 

Valeant could "organically" grow sales the instant they took the portfolio turning 49M in EBITA 20% to 59M

 

decrease costs by 70% to get to a 99M in cash generated.

 

The B&L and Salix examples of 20% IRR are a nice thought experiment too. Valeant might have a good business model but their "Deal Model" looks very suspect.   

 

Valeant's rebuttal doesn't really prove anything. I still do not see how Valeant takes a company with:

 

$49M in EBITA and $57.5M in opex for the 5 quarters preceding the intangible asset transfer and turn it into $99M of "Cash Generated".   

 

To do this they would have to increase EBITA by 50% and decrease expenses by 50% in 5 quarters.

 

AZ was incorrect for not catching the intangible asset transfer, but does the above scenario really make sense? I don't see this happening and their answer to the AZ blog is still:

 

We put this company into our black box and it generated $99M. I suspect to answer this question you have to know how VRX calculates "Cash Generated" and no one has been able to produce the formula yet. 

[Liberty]

In the past, they've used Sanitas as an example of a company that they improved by plugging into their multinational distribution system. I suspect that part of the improvement that we're seeing is that they started selling their products in many new territories, something that Sanitas couldn't do on its own. But this is just from memory, so I could be misremembering.

[giofranchi]

Valeant's rebuttal doesn't really prove anything. 

 

Ah! Ok! Now you are saying that they lied some years ago and, instead of keeping quiet and waiting for the storm to pass, they have intentionally brought up the subject again… Lying again!... In a SEC filing!... Remember all those accusations about “power point investing”?... Come on! If they are so fond of lying to shareholders, at least you’d expect them to do it again through a power point presentation, wouldn’t you? But no… Instead, they have chosen to lie again in a document that has legal validity…

It doesn’t make any sense to me… But of course you could choose to believe whatever you want!

 

Cheers,

 

Gio

 

[LongHaul]

I agree with Ross812 on Sanitas.  I read over the 2012 Sanitas annual yesterday.  Sanitas is a generic drug producer.  There was ~$125m in revenues in 2012 at Sanitas.  Gross Profit Margins were ~64% in 2011 and 2012.  How can EBITA be significantly above Gross Profit?  VRX explanation did not make any sense if you dig into the annual.  I added back all Integration charges and the IP transfer and VRX's Sanitas explanation still did not hold up at all. 

 

2012 Sanitas Annual report

http://www.nasdaqomxbaltic.com/upload/reports/san/2012_ar_en_ltl_con_ias.pdf

 

 

Notice that mgmt did not address the CAGR issue.  That presentation is gone from their website.  Too obvious.

If you do the CAGR on a beginning weighted revenue basis you get only 2.6%.  AZ Value was being generous.

 

I think it is obvious why mgmt of Valeant obfuscates, etc.  The business model makes no sense. 

If you gut R&D, you kill off future high margin revenue streams.  Plus anyone can bid for pharma assets and bid them up to lower return levels. 

 

BTW - I agree with Valeant that noneconomic amortization should be added back and that AZ value should have taken out interest expense, etc for his CFFO analysis.

 

There is a lot more to this story - and I mean some serious dirt.  But all of us will only find out about it in the future.

I think there will be a book written on Valeant at some point. 

 

Also - don't ignore the Norma Provencio blog post by Bronte. 

 

I think there are too many red flags to be long. 

 

Ebit:  I am neither long or short.

[jay21]

Review the related party disclosures

[merkhet]

I'm just going to focus on the one thing that we can actually discuss so as to avoid taking potshots and one another and having this devolve as it has in the past.

 

If I'm reading you correctly, and I might not be, you're saying that AZ's choice of 10 years is both arbitrary and misleading because it doesn't provide a true view of the economics behind an acquisition.

 

"The reason AZ did an IRR that ended in year 10 is because Valeant's own deck says that they are targeting a 20% IRR at statutory tax rates." This is a logically incorrect reason. The fact they are targeting a 20% IRR at statutory tax rates does not logically support why AZ did an IRR that ended in year 10 with no terminal value (instead of year 20 or 30, or instead of year 5).

 

While I agree that AZ chose an arbitrary time period, he specifically addressed that in his post.

 

And, no, I don't think AZ's use of IRR was misleading. In fact, AZ writes in his blog post that:

 

Anybody can play with these numbers as much as they want and build many scenarios.

 

Of course I'm not really showing anything new here, we all know that this is how time value of money and discounting works. The further out you push those cash flows, the more you will need them to be really really big to achieve a 20% IRR.

 

The only way that it's misleading is if you choose specifically not to look at the explicit assumptions that he calls out in his own analysis.

[Ross812]

Valeant's rebuttal doesn't really prove anything. 

 

Ah! Ok! Now you are saying that they lied some years ago and, instead of keeping quiet and waiting for the storm to pass, they have intentionally brought up the subject again… Lying again!... In a SEC filing!... Remember all those accusations about “power point investing”?... Come on! If they are so fond of lying to shareholders, at least you’d expect them to do it again through a power point presentation, wouldn’t you? But no… Instead, they have chosen to lie again in a document that has legal validity…

It doesn’t make any sense to me… But of course you could choose to believe whatever you want!

 

Cheers,

 

Gio

 

I'm not saying VRX is lying. Where did you get that?

 

I am saying I have no idea how they can generate $99M in cash in 5 quarters of ownership when in the preceding 5 quarters they only had an EBITA of $49M.

 

I'm sure they have some metric to get to $99M of "cash generated" but they don't outline what metric for cash generated they use. It is unpublished an no one can demonstrate how they get to their numbers using any typical accounting adjustments. They should publish what formula they use for "cash generated" and see if that stands up to scrutiny.

 

If your company has extraordinary results citing their own extraordinary accounting adjustments then the accounting adjustments should be public just like the results. 

 

If they would produce a slide or have commentary showing how they adjust the numbers and demonstrate how their "cash generated" metric is the correct way to value the business, I would absolutely make VRX a top holding in my accounts.

 

It is actually kind of sad that the response from the company to the SEC provided no more guidance than what was discussed on this forum regarding the questions posed by the AZ blog post. Pearson could have just made a profile on the board and quoted the relevant posts. The filing wasn't an epiphany for me with regard to what has been discussed here. I haven't researched the drug pricing scandal as I've already struck this off my list for the above reason.   

[Picasso]

Hmm, it does appear they removed the Q2 presentation from 2013 on the investors relations site?

[original mungerville]

I'm just going to focus on the one thing that we can actually discuss so as to avoid taking potshots and one another and having this devolve as it has in the past.

 

If I'm reading you correctly, and I might not be, you're saying that AZ's choice of 10 years is both arbitrary and misleading because it doesn't provide a true view of the economics behind an acquisition.

 

"The reason AZ did an IRR that ended in year 10 is because Valeant's own deck says that they are targeting a 20% IRR at statutory tax rates." This is a logically incorrect reason. The fact they are targeting a 20% IRR at statutory tax rates does not logically support why AZ did an IRR that ended in year 10 with no terminal value (instead of year 20 or 30, or instead of year 5).

 

While I agree that AZ chose an arbitrary time period, he specifically addressed that in his post.

 

And, no, I don't think AZ's use of IRR was misleading. In fact, AZ writes in his blog post that:

 

Anybody can play with these numbers as much as they want and build many scenarios.

 

Of course I'm not really showing anything new here, we all know that this is how time value of money and discounting works. The further out you push those cash flows, the more you will need them to be really really big to achieve a 20% IRR.

 

The only way that it's misleading is if you choose specifically not to look at the explicit assumptions that he calls out in his own analysis.

 

 

"While I agree that AZ chose an arbitrary time period, he specifically addressed that in his post."

 

Yes arbitrary and misleading. (In terms of arbitrary, I take it you agree with me that the fact they were doing an IRR at statutory tax rates is not logical support for why he used 10 years. Clearly that makes no sense and I am sure I have made a statement here in this dialogue that you could also pick out that makes no sense. So lets leave that there. So now we agree its arbitrary - great. (On the surface, with your posts it would seem to be misleading to you but I actually don't think so because you are smarter than that.)

 

Now the interesting thing is is that the fact the AZ_Value "addressed" that in his post is actually what pissed me off. Why? Am I contradicting myself? No, because in my view it shows AZ_Value probably knows exactly how an IRR works and the various scenarios which can be used to skew the results of an IRR (which I also noted in my post when I mention terminal value). Now, he potentially uses this "Good Cop" persona to potentially mislead others who can't see through what is a potential misdirection. This is standard hustle technique, I recognize that right away as a possibility rather than assume this is innocent misanalysis. I certainly do not give 0% odds to this being an attempt to misdirect, that's for sure.

 

"The only way that it's misleading is if you choose specifically not to look at the explicit assumptions that he calls out in his own analysis."

 

What specific assumptions did he call out, and explain the impact of, and possible range of impact on the point he was trying to make? None that I can see

 

"Of course I'm not really showing anything new here, we all know that this is how time value of money and discounting works. The further out you push those cash flows, the more you will need them to be really really big to achieve a 20% IRR."

 

Potentially more "Good Cop", you and I both know this is how time value of money and discounting work so it sounds convincing to us at first blush which is potentially the objective being pursued. The last sentence, however has some truth to it, but is basically false in this context. You are smart enough to know why so I don't have to explain it to you. Right?

 

So the potential hustle (and I am not sure of whether this is the case or not, but I certainly don't give the objective of misdirection a zero chance - in some neighbourhoods you wind up dead if you do) is lots of truth and good cop play will a false statement buried in there.

[Picasso]

Has anyone thought out the market forces at play here, versus just looking at the fundamentals?

 

If we step back and think for a moment that Ackman has 16.5 million shares of VRX which are now firmly underwater, who is the logical next buyer of the stock?  There were some massive purchases from Paulson & Co and Pershing over the past year against some small selling from ValueAct.  As a percentage of their AUM, Pershing, ValueAct, Sequoia, and probably some others are unable to buy more during this stock price decline.  Some hedge funds must have figured this out, no? 

 

For example, there have been recent upgrades of the stock at $290-300 price targets and it has completely failed to move the stock.  One downgrade to $200 by MS led to much more downside volatility.

 

Think about it this too: if Valeant keeps dropping, you put a ton of pressure on Ackman to either hold and hope, or start to cut some losses.  He can't buy more.  Neither of those are a great situation to be in, and heaven forbid he sold some or all of his shares this whole story would fall apart.  Maybe the fundamentals of the business might not change, but the market sure won't like its most ardent supporters pulling out.

 

So the question for me is, who exactly is the marginal buyer of the stock here?  This is checking off so many boxes for a group of hedge funds to target as a short.  Low short interest, lots of debt, questionable reporting, easy to set a negative narrative, you just need to get one large holder to dump stock (like Paulson), etc.  I think that also explains a lot of the media/market activity in the stock over the past month or so.  It also happens to coincide with Valeant tapping out most of their debt/acquisition capacity from Salix.  I'm sure the shorts know there isn't a ton of wiggle room for the company to start repurchasing shares or do another large cash deal funded through debt.  It makes the risk on shorting small over the next six months.

 

You can disregard my comment if you don't care about market psychology.

[jay21]

At some price, the company becomes the marginal buyer.

[KCLarkin]

So the question for me is, who exactly is the marginal buyer of the stock here?

 

The shorts. The stock dropped 30% in two weeks. Several short reports came out at the same time. A reporter, who is very friendly with short sellers, wrote a scathing article in the NYT. There is clearly a very concentrated bear raid. The question is how long they can sustain. Especially if the earnings report is good.

[merkhet]

OM, you do recognize that (from my perspective) your response basically boils down to the following, right?

 

If AZ didn't provide a disclaimer about his assumptions, then clearly he's trying to mislead.

If AZ does provide a disclaimer about his assumptions, that's even worse because he's playing "Good Cop," and, again, trying to mislead. Like a hustler.

 

So, I felt like the Dan Kahan thing was possibly responsive in such a situation. In any case, you mentioned that you didn't see him calling out any "specific assumptions," but the very next paragraph of that article says the following.

 

So I'm not really looking to quibble about exact details, everybody should decide what set of assumptions they want to use and then see how it affects the IRR picture. My goal is to simply make sure that people see and understand what a 20 or 30% IRR entails, because it's quite an incredible claim to make.

 

So, maybe you'll quibble that he didn't specifically state that you could use 20 years or 30 years or that his original ten year decision was just an arbitrary pick. But, I don't know. Even if he did, maybe you'd see that as another "Good Cop" thing.

 

We may have to, as we have many times before, agree to disagree.

[Bagehot]

Hmm, it does appear they removed the Q2 presentation from 2013 on the investors relations site?

 

Was it recently there? The wayback machine doesn't show it being there on any of the caches in 2015 or 2014. At any rate, it's readily available on CapIQ, or even via the wayback machine:

 

https://web.archive.org/web/20140513173105/http://ir.valeant.com/files/doc_presentations/2Q13%20Presentation%20Final.pdf

 

ETA: It is available on the 3q/4q 2013 caches, but not 2014 or 2015 that I could ascertain.

 

 

 

[100 Shares]

Hmm, it does appear they removed the Q2 presentation from 2013 on the investors relations site?

 

Was it recently there? The wayback machine doesn't show it being there on any of the caches in 2015 or 2014. At any rate, it's readily available on CapIQ, or even via the wayback machine:

 

https://web.archive.org/web/20140513173105/http://ir.valeant.com/files/doc_presentations/2Q13%20Presentation%20Final.pdf

 

ETA: It is available on the 3q/4q 2013 caches, but not 2014 or 2015 that I could ascertain.

 

I don't see how there is any confusion about this. The Q2 2013 presentation is where it has always been: http://ir.valeant.com/files/doc_presentations/2Q13%20Presentation%20Final.pdf

 

Does nobody bother to look?

[Liberty]

Hmm, it does appear they removed the Q2 presentation from 2013 on the investors relations site?

 

Was it recently there? The wayback machine doesn't show it being there on any of the caches in 2015 or 2014. At any rate, it's readily available on CapIQ, or even via the wayback machine:

 

https://web.archive.org/web/20140513173105/http://ir.valeant.com/files/doc_presentations/2Q13%20Presentation%20Final.pdf

 

ETA: It is available on the 3q/4q 2013 caches, but not 2014 or 2015 that I could ascertain.

 

I don't see how there is any confusion about this. The Q2 2013 presentation is where it has always been: http://ir.valeant.com/files/doc_presentations/2Q13%20Presentation%20Final.pdf

 

Does nobody bother to look?

 

Yep, right there:

 

http://ir.valeant.com/investor-relations/events-and-presentations/2013/default.aspx

 

Guess people didn't notice that there's a different page for each year.

[kab60]

Thanks! I almost shorted the shit out of Valeant due to the missing presentation - time to go long instead! :D (no position, 'never' will, but interesting to follow)

[original mungerville]

OM, you do recognize that (from my perspective) your response basically boils down to the following, right?

 

If AZ didn't provide a disclaimer about his assumptions, then clearly he's trying to mislead.

If AZ does provide a disclaimer about his assumptions, that's even worse because he's playing "Good Cop," and, again, trying to mislead. Like a hustler.

 

So, I felt like the Dan Kahan thing was possibly responsive in such a situation. In any case, you mentioned that you didn't see him calling out any "specific assumptions," but the very next paragraph of that article says the following.

 

So I'm not really looking to quibble about exact details, everybody should decide what set of assumptions they want to use and then see how it affects the IRR picture. My goal is to simply make sure that people see and understand what a 20 or 30% IRR entails, because it's quite an incredible claim to make.

 

So, maybe you'll quibble that he didn't specifically state that you could use 20 years or 30 years or that his original ten year decision was just an arbitrary pick. But, I don't know. Even if he did, maybe you'd see that as another "Good Cop" thing.

 

We may have to, as we have many times before, agree to disagree.

 

The very next paragraph is even worse! So AZ doesn't want to quibble about "exact details", his goal is simply to make sure that (apparently from his little 10-year truncated IRR analysis) people see and understand what a 20% IRR entails?

 

Its basically total BS:

 

With a terminal value of zero at year 10, AZ inflated his numbers from years 1 through 10 to make it look like achieving a 20% IRR is near impossible. Its pretty obvious he is misleading by using this assumption and at the same time saying "Hey, don't worry, I am not going to quibble about the details". In no way does his IRR analysis help people see how incredible a claim a 20% IRR is. It actually does the opposite by misleading people to believe that their numbers would have to be larger than his in every year of 1 through 10. He hopes that people forget there is no need for a terminal value for his argument to hold. And he certainly does not mention that a) he didn't include a terminal value, or b) he is using a non-standard IRR calculation because generally they have "a)" or you move to a no growth phase followed by a decline phase in the business which extends the numbers out further.

 

He claims you need really really big numbers to make the 20% IRR and this is not the case for his set of examples. You could have no growth after year 10 in some instances and make higher than 20% IRR if I recall. And no growth is not a bigger number, its the same number in year 11 to N as in year 10. So its not "really really big" as he claims is needed.

 

 

 

 

 

[Libs]

I have a question about S G & A- as a % of revenues, it has steadily drifted from 23% in 2012 to 26% YTD.

 

Is part of the thesis that VRX will cut these costs? or is the emphasis more on cutting R & D ( which they've done obviously).