Bagehot Posted October 7, 2015 Share Posted October 7, 2015 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). DTC launch costs for Jublia, Onexton, etc. Plus lower-margin acqs like Dendreon. Should trend back lower over time. Link to comment Share on other sites More sharing options...
LongHaul Posted October 7, 2015 Share Posted October 7, 2015 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? I looked but I did not see! My bad. Thanks for the correction and post I like this joke. "A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, "this is where the light is." Link to comment Share on other sites More sharing options...
original mungerville Posted October 8, 2015 Share Posted October 8, 2015 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. Picasso, I have these same views as well. But earnings are going to be strong if you ask me - this quarter, next quarter, the quarter after. At some point, when the rhetoric fades and there is a new issue to focus on the stock should rise. But for sure, the longs are fully loaded up. Ackman hasn't bought more, he already has a huge position. Link to comment Share on other sites More sharing options...
giofranchi Posted October 8, 2015 Author Share Posted October 8, 2015 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. All this simply misses the point I was making: I said AZ_Value should be more careful to accuse publicly anyone of lying. You then answered my post, saying VRX has not proved anything… Imo they have proved they were not lying, and that’s all I was talking about. Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted October 8, 2015 Author Share Posted October 8, 2015 So the question for me is, who exactly is the marginal buyer of the stock here? Well, if the stock keeps falling, VRX will become a much smaller percentage of those portfolios you mentioned. If those managers like to keep VRX a fixed percentage of their portfolios, they will have to buy more. Right? Cheers, Gio Link to comment Share on other sites More sharing options...
jay21 Posted October 9, 2015 Share Posted October 9, 2015 Regardless of the merit of AZ's points, I am finding the rhetoric to be off putting on the re-read I am doing. He is writing like he is exposing a fraud instead of letting the work letting speak for itself. Some examples of things I take issue with: "Folks, I know all of this is plain silly, but you see, I really had no choice but to engage in those acrobatics, in order for me to achieve a 20% IRR on a $16 billion investment" -> plain silly? Maybe you can learn how to do an IRR calc before discussing the feasibility of a 20% IRR. "An "Adjusted Pro Forma EBITDA" (quite a mouthful)" -> Right. "Quite a mouthful". Why don't you analyze the adjustments? What else would you call projected EBITDA after an acquisition? "I call it “Doing the Valeant” or simply #DoTheValeant." -> attempting to build a meme seems disingenuous to me (but it's a minor point) etc. Not to takeaway from everything he did because I think there's some good points that every investor needs to think about. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 9, 2015 Share Posted October 9, 2015 Regardless of the merit of AZ's points, I am finding the rhetoric to be off putting on the re-read I am doing. He is writing like he is exposing a fraud instead of letting the work letting speak for itself. Some examples of things I take issue with: "Folks, I know all of this is plain silly, but you see, I really had no choice but to engage in those acrobatics, in order for me to achieve a 20% IRR on a $16 billion investment" -> plain silly? Maybe you can learn how to do an IRR calc before discussing the feasibility of a 20% IRR. "An "Adjusted Pro Forma EBITDA" (quite a mouthful)" -> Right. "Quite a mouthful". Why don't you analyze the adjustments? What else would you call projected EBITDA after an acquisition? "I call it “Doing the Valeant” or simply #DoTheValeant." -> attempting to build a meme seems disingenuous to me (but it's a minor point) etc. Not to takeaway from everything he did because I think there's some good points that every investor needs to think about. I sort of agree with the gist of what you're saying but at the same time I wish someone like AZ prepared a piece like this for all of the companies that I am invested. Investors probably read a lot of analysis that confirms their directional bias (long/short) and I'll bet they don't bristle when someone constantly drives home facts/analysis that agree with their own perspective. (if AZ is a taker - short case on FCAU, IBKR, or RYCEY? -haha) Link to comment Share on other sites More sharing options...
Picasso Posted October 9, 2015 Share Posted October 9, 2015 That's just his writing style. Sort of like this stuff on Twitter: AZ Value @AZ_Value Oct 6 Hold on guys. I'm on the phone explaining to my mum what an 8-K is and why her son is in it. It'd be easier to take some of his points more seriously without it, but then again a lot of investors probably wouldn't read through it without the period comic relief. And perhaps he finds the whole Valeant story so silly that it is just a big joke and so it's easy to come off that way. At any rate, I don't take any issues with his IRR calculations. An IRR is based on cash flows, not asset values after a period of years. Unless of course you want to make the calculation look better than the real net cash flows you receive. Which unfortunately seems to be what Valeant has implied in their 8-K. Raises more questions than answers much of anything. They should have just not responded to that accusation or included an example of a previous deal like Salix. But if Valeant says that's how they want to calculate the IRR, then fine whatever, unless you are investing in the debt and trying to figure out the coverage ratios on a deal, all equity investors would care about are the net operating cash flows. Does anyone have any examples of a company which calls EBITA cash? I can't think of any. I mean sure reference EBITA or EBIT or EBITDA, but how can you really call that cash? I also haven't seen a company call adjusted net income just net income. Then there's the constant shifting in disclosures of pricing/volume, on track/off track, and that kind of thing which will get any short seller excited. If this was any other company that didn't have Ackman, Sequoia, ValueAct, Simpson heavily involved we'd be putting this firmly in the too hard pile. Just like the rhetoric from AZ takes away from the analysis, the shiftiness of Valeant takes away from their accomplishments. Maybe it is like Ackman says where they grew up very quickly and now they need to start acting like a $60 billion public company. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 9, 2015 Share Posted October 9, 2015 If this was any other company that didn't have Ackman, Sequoia, ValueAct, Simpson heavily involved we'd be putting this firmly in the too hard pile. I've come to the opposite view. This is a reasonably straightforward company. We are making it seem complex by debating trivial details. If I can raise the cash, I will make this a 5% position. Link to comment Share on other sites More sharing options...
Matson125 Posted October 9, 2015 Share Posted October 9, 2015 CEO Pearson vows to shift from VRX strategy of buying older drugs and hiking prices http://on.ft.com/1hsqwyt According to the article going forward VRX will be breaking out organic growth and price hikes. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted October 9, 2015 Share Posted October 9, 2015 "After the Financial Times inquired about Ms Heyman’s case, Valeant contacted her to see if it could offer exceptional support to get her back on the drug. She declined on the grounds that the same offer would not be extended to other patients in the same situation." Wow Link to comment Share on other sites More sharing options...
jay21 Posted October 9, 2015 Share Posted October 9, 2015 That's just his writing style. Sort of like this stuff on Twitter: AZ Value @AZ_Value Oct 6 Hold on guys. I'm on the phone explaining to my mum what an 8-K is and why her son is in it. His joking tone is different than what I am talking about. He is being done right misleading by saying things like "he has no choice but to do acrobatics". He does not consider the other side of the argument, which is poor analysis. By putting qualifiers around EBITDA, he makes the reader cast doubt on the numbers without even referencing the numbers etc. It's just poor syntax for analytical work. But it's fine for sensationalism. At any rate, I don't take any issues with his IRR calculations. An IRR is based on cash flows, not asset values after a period of years. I would question anyone that doesn't take issue with his IRR calculations. They do not conform to the definition and are, therefore, not IRR calcs. IRRs by definition include all cash flows generated by the investment. They do not stop at an arbitrary year. They stop when the cash flows stop. A terminal value is nothing more than a shorthand DCF (ie it is based on the remaining CFs of the investment) and is acceptable to use when performing an IRR. Link to comment Share on other sites More sharing options...
Picasso Posted October 9, 2015 Share Posted October 9, 2015 http://awesomegifs.com/wp-content/uploads/dead-horse.gif Link to comment Share on other sites More sharing options...
Liberty Posted October 15, 2015 Share Posted October 15, 2015 http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Provides-Update-Regarding-Government-Inquiries/default.aspx Link to comment Share on other sites More sharing options...
original mungerville Posted October 15, 2015 Share Posted October 15, 2015 Could be a good buying opportunity...let's see what happens to the stock. Link to comment Share on other sites More sharing options...
Picasso Posted October 15, 2015 Share Posted October 15, 2015 Looks like this board needed something to replace the Ocwen thread from last year. We definitely got it with Valeant. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 15, 2015 Share Posted October 15, 2015 Not sure how material this is. DaVita had a big settlement for a kickback scheme. Their shareholders have still done well. Link to comment Share on other sites More sharing options...
giofranchi Posted October 15, 2015 Author Share Posted October 15, 2015 According to the article going forward VRX will be breaking out organic growth and price hikes. As far as I know VRX has always responded to criticism very constructively: it has always been willing to add more information to its business results disclosures. Cheers, Gio Link to comment Share on other sites More sharing options...
Against the crowd Posted October 15, 2015 Share Posted October 15, 2015 VRX gets subpeona over drug pricing and other related issues from capitol hill. Link to comment Share on other sites More sharing options...
Picasso Posted October 15, 2015 Share Posted October 15, 2015 http://philidor-rx-services.pissedconsumer.com/philidor-rx-services-llc-took-my-hsa-funds-20150102577512.html Anyone know the relationship between Philidor and Valeant? Seems like Philidor is involved with different Valeant copay assistance (Jublia, Zyclara). Link to comment Share on other sites More sharing options...
original mungerville Posted October 15, 2015 Share Posted October 15, 2015 Three different inquiries here. Pretty substantial at least in the short-term for the stock. In terms of issues, it would probably have to be pretty bad illegal activity to materially affect the business. Just my guesstimate - I am no expert. Link to comment Share on other sites More sharing options...
shalab Posted October 15, 2015 Share Posted October 15, 2015 I won't be surprised if more states piled on. There is enough incentive for state AGs to fight the "bad guy". Many state AGs eventually run for political office - it is a good opportunity for them to show their toughness on big business. VRX business model provides enough ammunition for this as this "business model" is not possible in any other country: - Fire U.S workers - Move tax domicile to pay less U.S taxes - Increase prices on U.S customers Three different inquiries here. Pretty substantial at least in the short-term for the stock. In terms of issues, it would probably have to be pretty bad illegal activity to materially affect the business. Just my guesstimate - I am no expert. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 15, 2015 Share Posted October 15, 2015 Three different inquiries here. Pretty substantial at least in the short-term for the stock. It seems like subpoena's and eventual settlements are just a cost of doing business. They will just increase prices to pay the legal fees. I encourage you to look at DaVita's history of legal issues and then look at their stock chart. By purchasing a specialty pharma company, you are making an implicit bet that the U.S. healthcare system will remain dysfunctional. Seems like a safe bet. Link to comment Share on other sites More sharing options...
Liberty Posted October 15, 2015 Share Posted October 15, 2015 Pearson's letter to McCaskill: http://online.wsj.com/public/resources/documents/valeantpdf.pdf Link to comment Share on other sites More sharing options...
Picasso Posted October 15, 2015 Share Posted October 15, 2015 McCaskill responds: https://pbs.twimg.com/media/CRYbEjxUkAALK9T.jpg:large Link to comment Share on other sites More sharing options...
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