VRX - Valeant Pharmaceuticals International Inc.

[pdoak]

Pearson has confirmed that Philidor is consolidated into VRX's financial statements. Under ASC 810-10-502AA, the following disclosures should be made in the financial statements:

 

"All Entities Within the Scope of the VIE Model in ASC 810-10

50-2AA The principal objectives of this Subsection’s required disclosures are to provide financial statement users with an

understanding of all of the following:

a. The significant judgments and assumptions made by a reporting entity in determining whether it must do any of the following:

1. Consolidate a variable interest entity (VIE)

2. Disclose information about its involvement in a VIE.

b. The nature of restrictions on a consolidated VIE’s assets reported by a reporting entity in its statement of financial position, including the carrying amounts of such assets and liabilities.

c. The nature of, and changes in, the risks associated with a reporting entity’s involvement with the VIE.

d. How a reporting entity’s involvement with the VIE affects the reporting entity’s financial position, financial performance, and cash flows. [Paragraph 22B]"

 

I cannot find any disclosures regarding the above in any recent 10Qs or 10Ks.

 

Does anyone know on what basis this disclosure may not apply in this case?

[mertons_opus]

Just found those, don't know what to think about these guys whatsoever..

 

Bronte Capital: John Hempton

Southern Investigative Reporting Foundation: Roddy Boyd

Citron Research: Andrew Left

 

-----------------

 

According to former FBI agents’ investigations, illegal stock short sellers Roddy Boyd (link) and his father Michael Boyd (a hedge fund manager whose $30 million trust accounts name his tabloid writer son Roddy Boyd as a beneficiary), are co-conspirators of the Jon Carnes crime family. Michael Boyd Exposed - the “Godfather” of Short Sellers Exposed: Investigative reports provided by former FBI agents have indicated that Roddy Boyd's father Michael Anthony Boyd (age 72, white male, born 10/24/1941, CRD #: 27695), the founder and affiliate of several Connecticut based hedge funds Forest Investment Management, Forest Fulcrum Fund, Forest Performance Fund, Forest Alternative Strategies Fund, and Boyd Family Holdings LLC has misled law enforcement officials for years. Roddy Boyd is the modern-day Barry Minkow.colluded with other identified tabloid writers and hedge funds and together had built heavy short positions in HRBN shares that was subsequently followed by coordinated "short and distort" negative article attacks on HRBN stock led by his son, Roddy Boyd, who disseminated knowingly false and fabricated data involving Harbin. Michael Boyd has a history of securities law violations involving illegal naked short selling.

http://www.nyggroup.com/wp-content/uploads/2013/08/IPOresearch.pdf

 

Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide 

by Roddy Boyd

Reviews Written by John Hempton

http://www.amazon.com/gp/cdp/member-reviews/A324RROVP22XQJ/ref=pdp_new

 

 

Citron has seen this movie before. In 2008, Arthrocare, a successful medical device company, was doing its dirty deeds through Discocare, an undisclosed captive "independent company".

Texas-based Arthrocare insists that its business is on the up-and-up. But it can't convince the small army of short-sellers who have the medical device firm in their sights.

By Roddy Boyd, writer

http://archive.fortune.com/2008/02/05/news/companies/boyd_arthro.fortune/index.htm

 

Regular readers of Deep Capture are aware that we have sought to expose certain journalists who seem to serve the interests of a network of market miscreants, many of whom are tied to the famous criminal Michael Milken or his close associates. One of these journalists is Roddy Boyd, who worked at the New York Post before moving to Fortune magazine. It has come to our attention that Roddy has left Fortune. The magazine did not return a phone call seeking comments on the circumstances behind his departure, but whatever those circumstances might be, it seems fit to honor his departure by publishing an excerpt from a book called “House of Cards.”

http://www.deepcapture.com/2009/10/roddy-boyd-and-the-bear-stearns-insider/#comments

 

[merkhet]

Has anyone considered the following?

 

So the claim is that VRX is pushing product through specialty pharmaceutical companies that then put the product in the hands of end consumers. Some of these consumers are effectively getting the medication for free (w/o co-pay) and some of the insurance companies are not paying for the medication. In other words, there are some insurance companies that are, in effect, subsidizing the insurance companies and/or the end users that are paying nothing.

 

This has probably had some impact (unclear how much) on VRX's ability to show unit volume increases (because if some people are getting it for free, then of course you're going to show unit volume increases) and it seems that, definitionally, the price increases are getting absorbed by the insurance companies that pay.

 

So here are my questions:

 

• How many other pharmaceutical companies do this?
  
• Does Valeant just push this particular channel extra hard?
  
• What has been the overall impact of pushing this channel so hard?
  
• Will the insurance companies that are currently acting as the subsidizers continue to do so?
  
• If so, why?
  

 

I don't know the answers here. Just trying to think through the economics and/or the implications.

[rpadebet]

This is what i have been considering since yesterday...

 

VRX says their organic growth is 50% through volume and 50% through price increase this year...now if Volume growth is because of such aggressive sales tactics, then that isn't sustainable either. It is just price growth masked as volume growth right?

 

If most of the organic growth is unsustainable and it really is only 2-3%, then VRX deserves a low valuation multiple.(10-12 x true EPS)

[Liberty]

This is what i have been considering since yesterday...

 

VRX says their organic growth is 50% through volume and 50% through price increase this year...now if Volume growth is because of such aggressive sales tactics, then that isn't sustainable either. It is just price growth masked as volume growth right?

 

If most of the organic growth is unsustainable and it really is only 2-3%, then VRX deserves a low valuation multiple.(10-12 x true EPS)

 

If those pharmacies are the channel for between 10-20% of the US drug business, they can't have that much of an impact on total volume (add back rest of the world and other channels that are covered by IMS where you can check volumes, as well as medical devices). So far all we have is anecdotal evidence from anonymous message boards (possibly planted by the shorts) that there's aggressive sales (refills, etc). Not saying it never happens, it probably does at many pharmacies, but for that small portion of the total distribution channel to have a material impact on overall company-wide volumes, these tactics would have to be of gigantic scale IMO.

 

And in that 50% price growth, a lot of that comes from the Neuro & other part of the portfolio. If you adjust for that, a lot more of the growth comes from volume.

[rpadebet]

This is what i have been considering since yesterday...

 

VRX says their organic growth is 50% through volume and 50% through price increase this year...now if Volume growth is because of such aggressive sales tactics, then that isn't sustainable either. It is just price growth masked as volume growth right?

 

If most of the organic growth is unsustainable and it really is only 2-3%, then VRX deserves a low valuation multiple.(10-12 x true EPS)

 

If those pharmacies are the channel for between 10-20% of the US business, they can't have that much of an impact on total volume (add back rest of the world and other channels that are covered by IMS where you can check volumes, as well as medical devices). So far all we have is anecdotal evidence from anonymous message boards (possibly planted by the shorts) that there's aggressive sales (refills, etc). Not saying it never happens, it probably does at many pharmacies, but for that small portion of the total distribution channel to have a material impact on overall company-wide volumes, these tactics would have to be of gigantic scale IMO.

 

And in that 50% price growth, a lot of that comes from the Neuro & other part of the portfolio. If you adjust for that, a lot more of the growth comes from volume.

 

According to their recent presentation, majority of volume growth came from US Branded Pharmaceuticals (43% of total revenue, 19% volume growth in recent quarter and 17% vol growth YTD). I think I am right in guessing that most of this is Jublia which is sold through these pharmacies. So unless we know

 

1) exact % of revenue from these pharmacies

2) volume growth attributable to sales through these channels

 

I think it would be prudent to assume that this is a 2-3% growing business on average (Rest of the businesses ex-Us, generics and contact lens etc put together have approximately 1.6% volume growth and almost no price growth)

 

Worst case scenario, if you attribute the price growth to Neuro and unit volume growth to Derm, then the recent news is going to hit VRX hard on the organic growth metrics. As a result I am not surprised at the valuation.(it is pessimistic nonetheless but for good reason)

 

 

 

[jay21]

I bought a little more at $150 and will take another bute sub $80. After which the position still won't exceed more than 3% of capital from a cost basis.

 

Always looked at this as an option.

 

TBH - I don't really understand this whole Philidor thing. So there's some obscure relationship in a huge international company that MAY impact a small segment of US sales? I guess it's the implication that they may be channel stuffing or booking inappropriate revenue in this one instance and then extrapolating to the entire company. But the first one is a leap of faith in and of itself.

[TonyG]

https://www.eventbrite.com/e/william-a-ackman-interviewed-by-professor-frank-partnoy-tickets-18539134049

 

Anyone going to that? Should be interesting lol

[LongHaul]

The New York Global Group seems to have taken a lot of Chinese reverse mergers public. 

 

Benjamin Wey seems to be the CEO and he was arrested for securities fraud back in Sept of 2015.

 

https://www.fbi.gov/newyork/press-releases/2015/benjamin-wey-founder-and-president-of-new-york-global-group-arrested-and-charged-in-manhattan-federal-court-for-securities-fraud-arising-out-of-fraudulent-reverse-merger-scheme-involving-chinese-companies

 

http://www.nyggroup.com/nygg-team/leadership/benjamin-wey/

 

At the end of they day you have to get the information then verify it.  >90% of the stuff on CafePharma is garbage but there is a small percentage that you can then test and triangulate to the truth.  Same with any info - verify it yourself. 

 

 

 

Just found those, don't know what to think about these guys whatsoever..

 

Bronte Capital: John Hempton

Southern Investigative Reporting Foundation: Roddy Boyd

Citron Research: Andrew Left

 

-----------------

 

According to former FBI agents’ investigations, illegal stock short sellers Roddy Boyd (link) and his father Michael Boyd (a hedge fund manager whose $30 million trust accounts name his tabloid writer son Roddy Boyd as a beneficiary), are co-conspirators of the Jon Carnes crime family. Michael Boyd Exposed - the “Godfather” of Short Sellers Exposed: Investigative reports provided by former FBI agents have indicated that Roddy Boyd's father Michael Anthony Boyd (age 72, white male, born 10/24/1941, CRD #: 27695), the founder and affiliate of several Connecticut based hedge funds Forest Investment Management, Forest Fulcrum Fund, Forest Performance Fund, Forest Alternative Strategies Fund, and Boyd Family Holdings LLC has misled law enforcement officials for years. Roddy Boyd is the modern-day Barry Minkow.colluded with other identified tabloid writers and hedge funds and together had built heavy short positions in HRBN shares that was subsequently followed by coordinated "short and distort" negative article attacks on HRBN stock led by his son, Roddy Boyd, who disseminated knowingly false and fabricated data involving Harbin. Michael Boyd has a history of securities law violations involving illegal naked short selling.

http://www.nyggroup.com/wp-content/uploads/2013/08/IPOresearch.pdf

 

 

 

 

 

[Liberty]

For those wondering what the analysts have been saying:

 

http://www.bloomberg.com/news/articles/2015-10-22/wall-street-analysts-say-valeant-s-stock-collapse-is-a-buying-opportunity

[Guest Schwab711]

Looking at VRX's presentation of WAC vs. Net Realized Price I can't figure out why VRX would raise drug prices so dramatically for some drugs if the net result was null? This is what stood out to me the most. What is the logic behind it?

[Liberty]

Looking at VRX's presentation of WAC vs. Net Realized Price I can't figure out why VRX would raise drug prices so dramatically for some drugs if the net result was null? This is what stood out to me the most. What is the logic behind it?

 

One analyst asked about that one on the last call. Management said that they made a mistake.

[Guest Schwab711]

Looking at VRX's presentation of WAC vs. Net Realized Price I can't figure out why VRX would raise drug prices so dramatically for some drugs if the net result was null? This is what stood out to me the most. What is the logic behind it?

 

One analyst asked about that one on the last call. Management said that they made a mistake.

 

Thanks. I missed that. What's the logic behind 15% price increases that result in a net 2% increase?

[Liberty]

Thanks. I missed that. What's the logic behind 15% price increases that result in a net 2% increase?

 

This appears to be how the US system works, for complicated historical reasons that I don't fully understand. Nobody pays list prices, what matters is realized pricing.

[gary17]

this story is unfolding like the Chinese RTO before.

 

short seller releases report

stock plunges

management issues statement

analysts come out and say now is a good time to buy

 

next step would be some form of investigation

 

then more plunge

short seller covers

longs think they won a quick battle.

investigation unveils something negative

stock plunges again

nobody talks about the name anymore

[Gamecock-YT]

For those wondering what the analysts have been saying:

 

http://www.bloomberg.com/news/articles/2015-10-22/wall-street-analysts-say-valeant-s-stock-collapse-is-a-buying-opportunity

 

What banks does Valeant use for their M&A activity? Must be a lot of business they generate being a serial acquirer...

[lessthaniv]

http://www.cnbc.com/2015/10/21/valeant-halted-in-heavy-trading-down-28-after-citron-research-report.html

 

Ackman adds shares.

 

Strangely familiar to Herbalife, no.  The cynical side of me silently wonders if the true business model is to play both sides of the field.  Make money on the fall, use the drop to aquire shares.

 

Yes - why not make money both ways. Its not like their "research" is accurate, they just need to sow the seeds of doubt, engage with the journalists and class action law firms, complain to government officials, etc.  And all of a sudden a new public reality is formed.

 

Ackman was down 17% this year...

[S2S]

Thanks. I missed that. What's the logic behind 15% price increases that result in a net 2% increase?

 

This appears to be how the US system works, for complicated historical reasons that I don't fully understand. Nobody pays list prices, what matters is realized pricing.

 

Has it occured to you that maybe VRX should've been in the "too hard" pile all along?

 

What banks does Valeant use for their M&A activity? Must be a lot of business they generate being a serial acquirer...

 

Morgan Stanley, JP Morgan, Barclays, Deutsche Bank, RBC, HSBC and a few others depending on the deal.

 

Another fun tidbit: since Pearson took over, VRX has spent approximately $700M on R&D and approximately $1.3B in fees to banks.

[Ross812]

Negatives:

 

• Aggressive accounting - i.e. "Cash Generated" a made up metric with unclear parameters
  
• Promotional Powerpoints to be used in lieu of GAAP financials
  
• Organic growth due to price increases and the government is asking questions
  
• Organic growth due to volume increases - some % of which comes from strange specialty pharma relationships
  
• A rollup that cannot do big acquisitions right now due to stock price
  
• 30B in debt and 2.5B in EBITA+restructuring Expenses
  

 

On the list of positives you have:

A great stable of fund managers invested in the company

[ourkid8]

I just added a small position to my portfolio, anyone else?  This is starting to get ridiculously cheap...

[scorpioncapital]

I always find it fascinating how in a business environment that is neither good nor bad, companies that have cash flow and would otherwise just chug along, manage to shoot themselves in the foot and implode - for no apparently good reason. VRX has 30 billion in debt and equity of 6 billion and cash flow of what 1.7 billion (in run-off I might add)? It's like a 5% return on invested capital after interest - mostly acquisitions. Even less for a buyer of the stock. But of course if you operate like a bank at 5:1 leverage that return looks like 25%. Everything implied growth in drug prices to far offset run-off and inflation. I'm not sure if their model is anything else but price increases to justify the pre-crash stock price. Of course, if the leverage was 10:1 returns would be 50%! Or 20:1...Who judges where the blow-up potential occurs? How can Ackman in his right mind compare this in his Value conference presentation to the platform of Berkshire with such a reckless financial structure? Has he gone bonkers? You have some short sellers like now push the equity down much more and soon you have 'Game Over' written on the screen.

 

[Picasso]

How do you get $1.7 billion of cash flow in run off?

[sleepydragon]

I am not sure all the funds invested in this stock are "great investors". Paulson had poor track record (gold, HPQ), Ackman is more like a promotor ( he set up this giant conference where he presented HLF thesis). Ruane were wrong on FSLR( and i am not sure if they still hold VRX as in the lastest wsj story i found they no longer say they are a holder), Lou were wrong on carmax ,valueAct has a lot of analysts that come and go.

 

[vinod1]

Thanks. I missed that. What's the logic behind 15% price increases that result in a net 2% increase?

 

This appears to be how the US system works, for complicated historical reasons that I don't fully understand. Nobody pays list prices, what matters is realized pricing.

 

Some of the Govt. programs like Medicare cannot negotiate drug prices with the companies (they are explicitly prohibited by law!). Most others negotiate the prices and get a discount. A notable exception is self insured or uninsured who are charged list prices.

 

That is how you could end up with a 15% price increase translating into a 2% net increase.

 

Vinod

[Picasso]

I am not sure all the funds invested in this stock are "great investors". Paulson had poor track record (gold, HPQ), Ackman is more like a promotor ( he set up this giant conference where he presented HLF thesis). Ruane were wrong on FSLR( and i am not sure if they still hold VRX as in the lastest wsj story i found they no longer say they are a holder), Lou were wrong on carmax ,valueAct has a lot of analysts that come and go.

 

Where did you see Ruane was out of VRX?