VRX - Valeant Pharmaceuticals International Inc.

[Picasso]

Their conference call indicated between 10-20% of sales from these channels.  Like I said, it was kind of an odd response if you go back to the audio.

[giofranchi]

Gio,

 

did you buy today?? Quite the entry point :D

 

Yeah! I know...  ::)

 

Cheers,

 

Gio

[Hielko]

Could be fraud, but do you trust AZ Value / Citron / Roddy Boyd / Hempton's analyses after what they have put out in the past or Valeant/Pearson?

Seems to me that both Citron and Hempton have an excellent track record.

[writser]

Could be fraud, but do you trust AZ Value / Citron / Roddy Boyd / Hempton's analyses after what they have put out in the past or Valeant/Pearson?

 

I could certainly be making a mistake here, but I have to act on my judgement of character and what type of people are in each of the opposing camps here.

 

Isn't there another option?  The Not Completely Sure bin (or the Too Hard bin as Charlie calls it)?  I think it could be reasonable to think that one side or the other is more "right" but for one not to be as certain as necessary about that judgment to invest either way.

 

Agreed. As I argued a few months ago this name should probably have been in the 'too hard' pile for 99% of the posters here right from the start - both longs and shorts.

 

Call me simplistic but within 10ms of looking at Valeant a few neurons in my brain start to fire up: "stay away from this!". That does not mean I think Valeant is a fraud - their story might check out. I don't even care. What I am certain about is that this is not a one-foot hurdle. I'm just as unlikely to go long as to go short.

 

That does not mean that I think that Valeant is the next Enron but it means that I think it is more likely something bad will happen at Valeant. And, if something bad happens, the consequences are probably harsher for Valeant. Which means, in turn, that I require more certainty before concluding Valeant is a good investment than I would require for Berkshire.

[indirect]

"Seems to me that both Citron and Hempton have an excellent track record."

 

I am thankful to Hempton for allowing me to buy FFH at 90 and below during his bear raid on FFH many years ago. The players are all still here, original Mungerville, Ericopoly and Uccal. This time I will pass, VRX "not sure pile" esp. with CM comment.

[cogitator8]

I will be a good idea to watch VRX bonds as it drops, would love to buy it 50% off, but right now it is down only to 83! will keep watching though.

[Malitar]

http://cafepharma.com/boards/threads/can-someone-tell-me-what-the-philidor-valeant-relationship-is.585518/

 

just founds this from Sep/Oct 15...thoughts?

[Phaceliacapital]

Allergan discloses no relationships with spec. pharma..

 

Bloomberg news:

 

Valeant Plummets on Allegation of Enron-Like Sales Accounting

2015-10-21 15:44:59.834 GMT

 

 

By Crayton Harrison

    (Bloomberg) -- Valeant Pharmaceuticals International Inc.

shares took a beating, falling more than 20 percent, after a stock-commentary site run by a short seller accused the company of an Enron-like strategy of recording fake sales by using phony customers.

    Citron Research said Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. “Is this Enron part deux?” the report said. “These similarities are too close to ignore.”

    Valeant fell 21 percent to $115.50 at 11:40 a.m. in New York, headed for its biggest one-day drop since at least 1994.

Citron, founded by Andrew Left, has been a dogged critic of Valeant’s business model, denouncing its reliance on acquiring drugmakers and then jacking up the prices of their products, which have been on the market for years. The report published Wednesday said Valeant uses “phantom accounts” to fool auditors and investors.

    A spokeswoman for Valeant declined to comment.

    The company has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. Last week it said it had received subpoenas from the U.S. Attorney’s Office in Massachusetts and the Manhattan U.S. Attorney’s Office seeking information on its patient assistance programs, drug distribution and pricing decisions. Valeant has also been scrutinized by lawmakers for pushing up the prices of heart drugs Isuprel and Nitropress -- and Citron has said those price hikes have disguised a lack of growth. Valeant has disputed Citron’s figures.

    It’s all taken a heavy toll on Valeant shares, which were up 83 percent for the year in August and are now down 22 percent for 2015.

    The Citron report published Wednesday names several pharmacies, including R&O Pharmacy, that share a phone number with Philidor and have similar text on their websites. Valeant said Monday that it has an option to acquire Philidor.

 

                          R&O Lawsuit

 

    The twist in Citron’s allegation is that R&O Pharmacy has sued Valeant. In a lawsuit filed in federal court in California, R&O said it had gotten a letter from Valeant’s general counsel on Sept. 4 indicating that it owed Valeant more than $69 million.  It had never received a previous invoice from Valeant for any amount.

    The lawsuit says that R&O believes that either Valeant and R&O are "victims of a massive fraud perpetuated by third parties" or that "Valeant is conspiring with other persons or entities to perpetuate a massive fraud against R&O and others."

    Citron said that lawsuit is evidence that Valeant is creating invoices "to deceive the auditors and book revenue."

    “Valeant/Philidor have created an entire network of phantom captive pharmacies” to create fake sales of drugs or to avoid scrutiny from auditors, Citron said.

    A spokeswoman for Philidor didn’t immediately respond to comment. The R&0 answering services offered up a customer service number that is the answering service for Philidor.

 

                      Inventory Comments

 

    On a conference call Monday, Valeant said inventory held by Philidor is on Valeant’s books, and the company doesn’t recognize revenue until prescriptions are filled. The drugmaker’s general counsel sent a letter to R&O because the pharmacy "is currently improperly holding significant amounts it receives from payers," or insurers, Valeant Chief Executive Officer Michael Pearson said on the call. Inventory held by R&O is on Valeant’s books, he said.

    Valeant said Monday it may spin off one line of drugs that has benefited from price increases. The company said it will focus less on acquisitions that depend on buying old treatments and raising their prices.

    Valeant’s 1.5 billion euros ($1.7 billion) bonds due 2023 dropped 7.5 cents on the euro on Wednesday to 83 cents, the lowest since the bonds were issued in March, Bloomberg data show.

 

[Liberty]

I thought these tweets from DumbLuckCapital, who is really informed about this industry, were really interesting:

 

DLC: Just got through the report... Looks like DLC getting back in the $VRX game after all. Can't jump to that conclusion because they manage a

 

DLC: ...pharmacy network of their own. Real due diligence would require you to call and ask others if they do the same thing, you'll find they do

 

DLC: But price action trumps logic, so it must be right! Appreciate the free $40 when I was almost pulling the trigger at $160.

 

Someone else: @DumbLuckCapital I thought this same thing...I haven't read the report yet just have seen pics floating around...is that all he has??

 

DLC: @Lance0333 Basically just that and the 'Philidor being aggressive' story again though there's nothing illegal about that

 

That's definitely something that would be interesting to know, if these networks of pharmacies are common and legal.

[cogitator8]

I foresee their debt going into distress, they owe about $30B, so more bad new will affect but equity and debt, but since debt is senior, it will be better to own debt, once it hit below 70. I know they have been gouging prices on cheap drugs, I am a physician and I have seen some of the common drugs prices quadrupling for no reason other than a different owner. I dont think this company create any value, they just want to acquire drugs and jack up the prices. And once you are in cross hair of regulators, you can say good bye to that business model. So this company doesn't have "sustainable competitive advantage", to quote Buffett ! So I would to suggest a pair trade of shorting the equity and going long on bond, once they hit <70.

[tylerdurden]

Isn't investing into this stock now similar to just going to the casino and playing black or red (well it could be 0 or 00 too I guess) at the roulette table? There is no way we can know whether this is fraud or not at this point and personally I can not see how anyone can invest in this circumstances. Investing based on character... I don't know, I guess I'd pass on that as well... Just my quick thoughts...

[Phaceliacapital]

Allergan Says It Uses No Specialty Pharmacies for Brand Products

2015-10-21 16:17:38.635 GMT

 

 

By Drew Armstrong

    (Bloomberg) -- Allergan Plc, which fell after competitor Valeant Pharmaceuticals International Inc. came under criticism by a stock commentary site, said it doesn’t use specialty pharmacies that are the focus of the short seller’s report.

    “There has been recent and potentially distracting speculation regarding the use of specialty pharmacies for the distribution of pharmaceutical products by certain pharmaceutical companies,” Allergan said in a statement. The company “does not rely on specialty pharmacies for the distribution of its products.”

    Allergan shares were halted before the announcement. They fell 5.1 percent to $250.10 at 12:04 p.m. in New York.

    Allergan said that 97 percent of its brand-name

[Picasso]

Guys, we haven't had a response from Valeant yet (and AGN is adding salt to the wound) but we have Mr. Price Gouger himself helping get out the truth.

 

https://twitter.com/MartinShkreli/status/656846936314654721

 

Honestly, I don't know what would make this a sillier turn of events.

[cmlber]

I haven't really followed this stock and just skimmed the Citron report, but why would a company that you control to defraud investors sue you??

[original mungerville]

I thought these tweets from DumbLuckCapital, who is really informed about this industry, were really interesting:

 

DLC: Just got through the report... Looks like DLC getting back in the $VRX game after all. Can't jump to that conclusion because they manage a

 

DLC: ...pharmacy network of their own. Real due diligence would require you to call and ask others if they do the same thing, you'll find they do

 

DLC: But price action trumps logic, so it must be right! Appreciate the free $40 when I was almost pulling the trigger at $160.

 

Someone else: @DumbLuckCapital I thought this same thing...I haven't read the report yet just have seen pics floating around...is that all he has??

 

DLC: @Lance0333 Basically just that and the 'Philidor being aggressive' story again though there's nothing illegal about that

 

That's definitely something that would be interesting to know, if these networks of pharmacies are common and legal.

 

My feeling (just gut and am no expert) is that this is not illegal, but might have bad optics / and be an aggressive tactic (for one stream of their business). Any more unbias information we can get on this would be great so keep posting!

[elevensecsrt4]

and I thought shld was volatile ....

[ZenaidaMacroura]

http://imgur.com/phEk0jQ

[Liberty]

http://www.streetinsider.com/Analyst+Comments/Valeant+%28VRX%29+Philidor+Concern+Likely+Misinformation+-+Nomura/10990463.html

 

VRX shares were halted earlier today, following reports (e.g., Bloomberg) stating that Philidor, the specialty pharmacy Valeant disclosed it has an option to acquire on Monday’s 3Q15 call, appears to be the owner of the resident California specialty pharmacy R&O. On the 3Q15 call, Valeant also discussed that R&O is one of the specialty pharmacies in the company’s network, and Valeant had sent a letter to R&O requesting payment for ~$69mn gross and $25mn in net revenues for products R&O dispensed to patients that are reflected in Valeant’s receivables. The report primarily alleges that these specialty pharmacies were created for Valeant to book revenues for product it has not sold. While we have been unable to share our analysis with or speak with Valeant, our own diligence suggests that this is not accurate.

 

Key reason: Valeant has stated numerous times and publicly that it only books revenues on products sold through specialty pharmacies when they have been dispensed; we would use the current weakness as a buying opportunity.

 

Background on Philidor and Valeant Relationship (Per Valeant’s 3Q15 Slide Presentation)

 

• R&O does appear to be the California division of Philidor, which appears to have been a strategic decision. In 2013, Philidor was denied a specialty pharmacy license in California, and we believe that R&O was created to allow Philidor access to the California market. We believe that R&O is supposed to pay Philidor for product dispensed by R&O and that Philidor is supposed to then pay its manufacturer clients.

 

• Valeant is a third party to R&O’s California lawsuit, as R&O appears to owe Philidor revenues for Valeant products dispensed in California. Because it appears that R&O is the California arm of Philidor, it seems R&O was supposed to pay Philidor for Valeant product dispensed and Philidor in turn should have paid Valeant. We believe that this is why a Valeant legal representative sent a letter to R&O requesting payment.

 

• Valeant assumes collection risk when suing specialty pharmacies. Because revenue is booked when products are dispensed, Valeant’s products are sent to specialty pharmacies on consignment. The company must collect from the specialty pharmacy after products are dispensed. This appears to be why Valeant sent a letter to R&O requesting payment for the “substantial amount of Valeant product” R&O dispensed to patients.

[LongHaul]

I am not Hempton or Citron.  I have independently come to same conclusion about Philidor as both of them.  Valeant is in bed with Philidor in a bad way.  The extent of this debacle will only be known after a lot of investigation. 

 

I don't trust anything that Pearson says or writes. 

 

Still $35b market cap and ~$2b FCF LTM which is 17.5x

 

Munger's comment about Valeant and ITT was interesting.  The history of ITT and Geneen was that ITT was cooking the books.  In one instance there was an international registration document that disclosed gains not disclosed in the consolidated financials.  Kind of reminded me of Valeant and Sanitas.

 

 

 

 

 

 

 

 

[Liberty]

Remember that the cash eps VRX Claims is much higher than the real FCF.

 

I'm not sure how it's supposed to, as it excludes the restructuring charges. If you look at FCF after the B&L restructuring charges fell (when they were going after AGN and hadn't made a big acquisition in a while), it went up significantly, as did the GAAP EPS. But anyway, this isn't the main thing to focus on right now.

[ourkid8]

We are all waiting for VRX's response...

[CONeal]

Started looking at this today and have 1 question that I hope longs can answer.

 

How are you comfortable investing in this company when they can't provide the most basic financial report, a balance sheet?  What is the reason why they can't provide one?

 

When Fairfaix was going through their issue was they still providing all financial material?  (I wasn't around then to know)

[writser]

Isn't investing into this stock now similar to just going to the casino and playing black or red (well it could be 0 or 00 too I guess) at the roulette table? There is no way we can know whether this is fraud or not at this point and personally I can not see how anyone can invest in this circumstances. Investing based on character... I don't know, I guess I'd pass on that as well... Just my quick thoughts...

 

The thing is, if you defend a stock fiercely with hundreds of posts (even a few rage-fuelled caps-locked rants in which you call people 'fucking idiots') you maneuver yourself into a position in which it is extremely hard to change your mind. Your subconscious doesn't want you to look like a fool in public so when new information comes out you have a strong tendency to change your thesis rather than your opinion. I'm not even saying the initial thesis was wrong - just that it has changed from '25% growth into perpetuity' to a 'character judgement' in a few weeks. Textbook example of thesis creep.

[gary17]

Started looking at this today and have 1 question that I hope longs can answer.

 

How are you comfortable investing in this company when they can't provide the most basic financial report, a balance sheet?  What is the reason why they can't provide one?

 

When Fairfaix was going through their issue was they still providing all financial material?  (I wasn't around then to know)

 

they don't release a balance sheet?  how's that possible ?  I'm pretty sure i saw it from their quarterly release.

[rpadebet]

Why is VRX not issuing a press release yet?

 

Here is my take after going through the report. The optics are very bad. PR will be a nightmare for VRX going forward and some new rules may come out of it. There could be a SEC investigation into Revenue booking by VRX for revenues generated through these special distributors. (delay in balance sheet & other financials could be because of that).

 

However, this doesn't seem illegal to me. This is similar to banks selling mortgages through captive mortgage brokers during the financial crisis. The mortgage brokers were mostly scumbags and the banks financed them fully. I guess only a small % of those brokers went to jail or settled. The banks on the other hand had to consolidate them into their financials. Once investigations went deep, popular opinion went deeply against banks, then the banks had to settle.

 

I see something similar happening here but not to the same scale, as "regular joe" isn't as directly affected by this as he was in the financial crisis. So the political will to go after these companies will not be as much.

 

It would be interesting though to see how much of sales VRX makes through such distributors. It would also be interesting to see how much others in the industry use such vehicles. If big pharma also uses these sort of distributors, then the lobbying power against regulation is going to be significant. I know Allergan has come out with their share, but does anyone know if Pfizer, JnJ, GSK, Gilead etc use something like this too?

 

PHarma was the first organization to sign on to Obamacare before it became law, so it would be tough for democrats to now argue big pharma is defrauding the big "bad" insurance companies and in turn screwing regular joe with his health care costs. If they do, republicans can use it to dismantle obamacare itself. Politically this going to be a careful balancing act.