VRX - Valeant Pharmaceuticals International Inc.

[KCLarkin]

I assume not.

[Liberty]

Interesting thread, probably old enough to not be faked.

 

http://ask.metafilter.com/275605/Economics-of-my-prescription

[original mungerville]

The only thing that matters to me right now is that on Monday Pearson adresses convincingly once and for all this issue: has VRX cut the corners somehow? I don't think so, but I need him to be very clear and convincing.

 

Cheers,

 

Gio

 

 

As a guy who has only read 10-20% of what is available here and who is not a long-term investor or long-term short in VRX (short term puts and calls, just for fun) I would suggest that if this turns out like other similar situations, that Monday will not be, "...once and for all...".  It will be the start of a 6-12 month ordeal that will probably end one of two ways. Pretty bad or marginally good.  I have never seen a similar situation solved in a few weeks or a few conference calls or a few quarters or a few press releases.  This feels like years to me, especially given the size of VRX, the debt and the fact that Ackman is involved.  I will check back in Oct 2016 and see if this is a completed matter.  In the meantime, 10-20% weekly moves will be the norm, imo.

 

In general +1, that is usually the case. Could be somewhat different this time... usually a large cap like this will correct more quickly in the right direction than say a Fairfax years ago. Also, this is a lot smaller chunk of the business which is under pressure - in fact its miniscule. Instead of years to reprice, it may be quarters (or who knows, maybe less time given large cap and the problem areas are small parts of that large cap).

 

I am pretty sure someone, say Philidor, is cutting some corners somewhere - but that is a whole different thing than VRX being Enron. 

[Guest wellmont]

The only thing that matters to me right now is that on Monday Pearson adresses convincingly once and for all this issue: has VRX cut the corners somehow? I don't think so, but I need him to be very clear and convincing.

 

Cheers,

 

Gio

 

As a guy who has only read 10-20% of what is available here and who is not a long-term investor or long-term short in VRX (short term puts and calls, just for fun) I would suggest that if this turns out like other similar situations, that Monday will not be, "...once and for all...".  It will be the start of a 6-12 month ordeal that will probably end one of two ways. Pretty bad or marginally good.  I have never seen a similar situation solved in a few weeks or a few conference calls or a few quarters or a few press releases.  This feels like years to me, especially given the size of VRX, the debt and the fact that Ackman is involved.  I will check back in Oct 2016 and see if this is a completed matter.  In the meantime, 10-20% weekly moves will be the norm, imo.

yep they are not going to be able to answer all the questions tomorrow. in fact they may raise some new ones. they may in fact come out of this legally unscathed. vrx must have some of the best lawyers money can buy after all. however, a lot of reputational damage has been done. that does not just vanish overnight. there are going to be ongoing trust issues with pearson.

 

they are going to look at every aspect of his business. there is still the cash earnings issue that makes it hard to figure out the true level of owners earnings, and provides ammo to shorts. there is a lot of debt. there have been price increases. now it appears that distribution structure may have given a bump to unit growth in usa at least. who knows what's going on overseas. insurance companies may have been exploited. and it appears there may be some funny business involved in getting SP distribution in California. there are government regulators investigating the company and it's practices. it has become the poster boy for what's wrong and dysfunctional about our hc system.

 

the point is the company is going to be under a cloud for quite a while. as such it will trade at a discount to the group. and it may never get a high multiple again because some investors will never be able to fully trust mp. it is going to be very hard to acquire quality companies (agn effect). we may get a bounce monday. but I don't think it's business as usual anymore. something fairly dramatic has changed. and we will see how bod and certain investors will want to deal with it.

[giofranchi]

The only thing that matters to me right now is that on Monday Pearson adresses convincingly once and for all this issue: has VRX cut the corners somehow? I don't think so, but I need him to be very clear and convincing.

 

Cheers,

 

Gio

 

 

As a guy who has only read 10-20% of what is available here and who is not a long-term investor or long-term short in VRX (short term puts and calls, just for fun) I would suggest that if this turns out like other similar situations, that Monday will not be, "...once and for all...".  It will be the start of a 6-12 month ordeal that will probably end one of two ways. Pretty bad or marginally good.  I have never seen a similar situation solved in a few weeks or a few conference calls or a few quarters or a few press releases.  This feels like years to me, especially given the size of VRX, the debt and the fact that Ackman is involved.  I will check back in Oct 2016 and see if this is a completed matter.  In the meantime, 10-20% weekly moves will be the norm, imo.

 

In general +1, that is usually the case. Could be somewhat different this time... usually a large cap like this will correct more quickly in the right direction than say a Fairfax years ago. Also, this is a lot smaller chunk of the business which is under pressure - in fact its miniscule. Instead of years to reprice, it may be quarters (or who knows, maybe less time given large cap and the problem areas are small parts of that large cap).

 

I am pretty sure someone, say Philidor, is cutting some corners somewhere - but that is a whole different thing than VRX being Enron.

 

FFHWatcher and OM,

I agree it might take lots of time before VRX could regain the trust of the public and the market. But that was not what I meant. Instead, I would like to see what's needed for me to be sure enough there has not been any wrong doing, and Pearson has always acted in perfect honesty towards both VRX's clients and VRX's shareholders. This is all I am interested in right now.

 

We have seen a bunch of guys making serious accusations and threatening VRX's shareholders investment. What I want to see from the management of a company I own is they work hard to defend their shareholders' interests. And to do so, they now need to respond publicly to any accusation of fraud. And must do it very convincingly and very clearly, as I have said.

 

This is what I am looking for on Monday. If I think Pearson & Co have defended my interests clearly and convincingly enough, I'll keep my investment and I might even consider buying more. Otherwise, it will be a disappointment.

 

Cheers,

 

Gio

[LongHaul]

Do you really trust anything Mike Pearson says?

 

check this out:

 

The name of the discussion on cafepharma is "Mike Pearson is a Liar - Part 2" posted by Anonymous, Aug 9, 2013 at 3:57 PM

 

"Third: I was there in 2008 when Mike Pearson came on board and lied to all of our faces in a meeting when he said that our jobs were safe. That we were valued and that our purpose was to help others. Then, less than 6 weeks later, all of us were laid off...doctors, nurses, PhDs, administrators. It was a royal slap in the face."

 

http://cafepharma.com/boards/threads/mike-pearson-is-a-liar-part-2.537146/

 

 

Very recent post from Glassdoor calling mgmt sociopathic (not sure what levels exactly)

Oct 24, 2015

 

“Loss of trust in the senior leadership ”

 

Current Employee - Anonymous Employee in Bridgewater, NJ

Doesn't Recommend

Negative Outlook

Disapproves of CEO

I have been working at Valeant full-time (More than a year)

 

Pros

A lot of autonomy; lots of very nice people; people want the company to succeed in its business model. Line managers tend to be very good.

 

Cons

No faith that the leadership is telling the truth any longer. Not clear what is really going on with the way the business is run. Unhappy that the company jacks up prices on treatments without carrying a darn about it. It's the general managers and group chairpeople that are basically sociopathic, and worse than the norm in pharma. HR organization is too small.

 

Advice to Management

Resign and let new leaders come in.

 

[Mephistopheles]

If you're laid off, you're more likely to be biased against your manager, whether or not he was right. Also, a disproportionately larger percentage of people who are unhappy are likely to post reviews over those who are happy. I wouldn't rely on such anecdotes.

[abitofvalue]

 

One issue that Hempton brought up does deserve be to explored or considered by longs imo is the issue about waiving co-pays. At what point does a private insurer come out and simply refuse to allow participants to purchase drugs via a co-pay waiver. Already certain plans require the use of generics so it's not like an insurance company can't make such rules in theory at least.  Once that is in place how does that impact growth and Valeant's ability to push product through Philidor et al.? Seems to me that clearly the ability to waive co-pays was something Philidor was exploiting to push product out to the market... if I was at an insurance company this would be an issue I would be exploring in some detail.  Also would certainly be re-auditing philidor and affiliated reimbursements to ensure there were real prescriptions etc.

 

Think the most likely outcome here is (1) VRX is going to be the subject of state AG actions in atleast CA (prob others too) and end up paying fines etc. (2) Insurance companies are going to get stricter somehow about the use of captive specialty pharma's (3) VRX is going to have to pay out small fines on the recently filed shareholder disclosure lawsuits (4) stock remains moribund for the next 6-12 months (after a nice pop post-call tomm.). 

 

The one big caveat is that state AGs and no one else find anything illegal on VRX's part. Would be shocked if VRX debt did not have covenants requiring them to follow the law so if at some point they are found to have broken the law inadvertently - it will be awful tempting for a short to get long bonds and sue claiming VRX has triggered an event of default on the debt and all the debt is due.

 

Only here as an observer as I think this is a fascinating case study in a stock and how the market reacts to information.

 

[oddballstocks]

If you're laid off, you're more likely to be biased against your manager, whether or not he was right. Also, a disproportionately larger percentage of people who are unhappy are likely to post reviews over those who are happy. I wouldn't rely on such anecdotes.

 

Maybe. Knew a fund manager who had this tip. For each company you're researching. Contact an equal number of employees and ex-employees. Ask a few simple questions such as do you like management. As a rule employees will always agree. If an ex-employee says management sucks that's expected. If an ex-employee praises management then it's likely they're very good. And if employees are trashing management then look out below. Because the allegations are probably true, but more so  it speaks volumes about the type of people the company will hire. They will openly trash management and yet stick around. A toxic match.

[Picasso]

Some good information on the specialty pharmacy industry.  From BGC on twitter.

 

http://www.goldstandard.com/wp-content/uploads/Specialty-Pharmacy.pdf

[Picasso]

 

One issue that Hempton brought up does deserve be to explored or considered by longs imo is the issue about waiving co-pays. At what point does a private insurer come out and simply refuse to allow participants to purchase drugs via a co-pay waiver. Already certain plans require the use of generics so it's not like an insurance company can't make such rules in theory at least.  Once that is in place how does that impact growth and Valeant's ability to push product through Philidor et al.? Seems to me that clearly the ability to waive co-pays was something Philidor was exploiting to push product out to the market... if I was at an insurance company this would be an issue I would be exploring in some detail.  Also would certainly be re-auditing philidor and affiliated reimbursements to ensure there were real prescriptions etc.

 

 

Let's look at the largest specialty drugs:

 

Humira (Abbvie) copay assitance though Opus Health specialty pharmacies:  https://www.humira.com/humira-complete/cost-and-copay

Enbrel (Amgen) copay assitance also through Opus Health specialty pharmacies: https://www.enbrel.com/support/financial-assistance/

Remicase (Johnson and Johnson) copay assitance through Jannsen (appears captive through Johnson & Johnson): http://www.remistart.com

 

This goes well beyond Valeant. 

[original mungerville]

Interesting thread, probably old enough to not be faked.

 

http://ask.metafilter.com/275605/Economics-of-my-prescription

 

Here is the old WSJ article imbedded in the thread above noted by Liberty. Its on how co-pay works, all the big pharmas have been doing this for years.

 

http://www.wsj.com/articles/SB124804603437163631

(If you can't access the WSJ article, just copy the title, paste into google, search, then access the full WSJ article by clicking the link from google)

 

[Picasso]

And does this not sound very similar to what Valeant is doing?

 

http://www.prometrics.com/#!How-Teva-Leveraged-its-Hub-to-Convert-Patients-to-its-New-Copaxone-Formulation/clxm/5519936c0cf215f35a29830a

 

Why was Teva so successful?

This conversion was driven by patient and physician choice of the 40 mg/mL version and supported by Teva’s patient support activities. Teva further encouraged this conversion by pricing the new formulation cheaper and by waiving off the copays. (Source: AIS Health)

 

Teva’s Shared Solution program, its internal Hub services arm, has been in place since 1996. It helps patients comply with their treatments, ensures timely delivery of medicines and assists patients in securing reimbursement. The  program handles nearly 1 million calls a year from patients (Source: Fiercepharma). It is also responsible for significant marketing activities to patients and physicians. The Shared Solution’s Enrollment Form requires patients to sign HIPAA authorization with marketing consent allowing them to call and email patients about the new formulation.

 

Maybe we should also start shorting Teva for 1) reformulating a drug to avoid impact of generics, 2) assisting in reimbursements and waiving copays, 3) providing sales literature and resources for patients to contact Teva's specialty pharmacy, etc.

 

http://www.fiercepharma.com/story/does-new-scrutiny-threaten-pharmas-specialty-pharmacy-strategy/2015-10-22

 

I'm curious how much evidence one could find which is pre-July 2015 indicating shipments of specialty drugs from Philidor.  That along with getting around the California loophole are the concerning things.  But you would think a lot of people would complain about boxes of Jublia sitting on their doorsteps that never ordered it.  I need to go back through and see how many of these allegations have been noted before all the fake posts on Cafe Pharma, etc.

[cmlber]

 

One issue that Hempton brought up does deserve be to explored or considered by longs imo is the issue about waiving co-pays. At what point does a private insurer come out and simply refuse to allow participants to purchase drugs via a co-pay waiver. Already certain plans require the use of generics so it's not like an insurance company can't make such rules in theory at least.  Once that is in place how does that impact growth and Valeant's ability to push product through Philidor et al.? Seems to me that clearly the ability to waive co-pays was something Philidor was exploiting to push product out to the market... if I was at an insurance company this would be an issue I would be exploring in some detail.  Also would certainly be re-auditing philidor and affiliated reimbursements to ensure there were real prescriptions etc.

 

 

Let's look at the largest specialty drugs:

 

Humira (Abbvie) copay assitance though Opus Health specialty pharmacies:  https://www.humira.com/humira-complete/cost-and-copay

Enbrel (Amgen) copay assitance also through Opus Health specialty pharmacies: https://www.enbrel.com/support/financial-assistance/

Remicase (Johnson and Johnson) copay assitance through Jannsen (appears captive through Johnson & Johnson): http://www.remistart.com

 

This goes well beyond Valeant.

 

Co-pay assistance is nothing new, it has been around forever and isn't going away because of Citron Research...  Do you think Bernie Sanders is going to be complaining about co-pay assistance? 

[Picasso]

That's my point.  You aren't going to wake up in a few months or a few years and suddenly see co-pay waivers disappear.  That's not one of the risks to Valeant.

 

http://www.opushealth.com/patient/pharmacylocator.aspx

 

You can see how a lot of the big specialty drugs use the Opus network of specialty pharmacies.  Just type in your zipcode and see the weird locations they occupy.  When I look through my local area, it quickly becomes apparent that these are operated at minimal operating costs.  I can see how they would operate like sweat shops to just pump out as much volume as the doctors prescribe. 

 

I read that Medicis was the pharma that used the specialty pharma channel aggressively.  I need to read through their annuals and see if there's some differences in disclosures versus Valeant.

[abitofvalue]

Two quick points: I think Specialty Pharmacy is being rather widely used by VRX to describe Philidor as one. My understanding, which could be very wrong - i don't invest in the healthcare sector so don't follow beyond reading news, interesting articles, is most of the specialty pharma's as used by other drug companies - specialize in a particular space e.g. oncology drugs. (see slide 5 of the following - http://www.goldstandard.com/wp-content/uploads/Specialty-Pharmacy.pdf) These pharmacies will not dispense the entire catalog of a single manufacturer - so describing Philador as a specialty pharmacy is conflating the issue a bit. The co-pay assistance makes more sense when you think of it as a targeted response to particular drugs vs for acne or a foot cream to treat athlete's foot. The latter could very much be scrutinized and deemed out of coverage in the future by insurance companies - without a co-pay.

 

My point is insurance company's can require co-pays (even minimal ones say $5 a prescription) to come from the patient even if there is a pharmacy co-pay assistance program. This could prevent fraud and ensure the patient actually needs the product. Govt programs already do this.

 

If and it is a big IF - VRX has been achieving part of its organic growth say - 1% of total growth through aggressive sales then such a requirement could have an impact on future growth.  Given the hoops VRX jumped through to keep the relationships secret and further has said they thought of the specialty pharma's as a competitive advantage, anything that lowers their contribution could / should be considered in the VRX valuation. I mean - you have the company publicly telling you this is a competitive advantage and that's why it was a secret. Now it's not a secret and is under scrutiny. How can you not consider what that means for future growth?

[Picasso]

Good points, but looking through Valeant's 10-K, the only customers larger than 10% are McKesson and ABC.  Philidor would therefore max out at 9% of revenue.  The market was valuing the company at 18x before and we now sit at 7x cash EPS and over $30 billion of wiped out market cap post price gouging worries that started the first stock drop.  It might be 2% of organic growth but is that drop warranted?

 

You would think that patients need the product if the doctor is prescribing it.  Whether Valeant offers assistance of $0 or $5 or $10 is debatable but probably still competitive to a generic copay.  Also keep in mind that Valeant is taking the risk by getting the drugs out in a timely manner without knowing whether they will be reimbursed or not.  Commercial insurance is in essence already negotiating the pricing/co-pay issue by rejecting a lot of the coverage.

 

Saw something interesting in the Medicis 10-K:

 

We periodically offer promotions to wholesale and chain drugstore customers to encourage dispensing of our prescription products, consistent with prescriptions written by licensed health care providers. Because many of our prescription products compete in multi-source markets, it is important for us to ensure the licensed health care providers’ dispensing instructions are fulfilled with our branded products and are not substituted with a generic product or another therapeutic alternative product which may be contrary to the licensed health care providers’ recommended prescribed Medicis brand. We believe that a critical component of our brand protection program is maintenance of full product availability at drugstore and wholesale customers. We believe such availability reduces the probability of local and regional product substitutions, shortages and backorders, which could result in lost sales. We expect to continue providing favorable terms to wholesale and retail drug chain customers as may be necessary to ensure the fullest possible distribution of our branded products within the pharmaceutical chain of commerce. From time to time, we may enter into business arrangements (e.g., loans or investments) involving our customers and those arrangements may be reviewed by federal and state regulators.

 

The vast majority of Medicis revenue was distributed through McKesson, Cardinal, and ABC.  Given that last line, I'm curious what kind of investments Medicis was making in their customers and how that was reviewed by regulators.  That may have been the start of this Philidor business, particularly given the costs of operating through their primary customers.  I don't see anything like that in the Valeant 10-K.

[Picasso]

Wow really interesting information from a Medicis earnings call (AF is their alternative fulfillment):

 

Christopher T. Schott - JP Morgan Securities Inc.

Great, thanks very much. Just I had a couple of questions on the SOLODYN. First, and sorry if I missed this in the prepared remarks. Can you just talk about overall volume trends you saw for SOLODYN when you look at the IMS scripts that we see plus the prescriptions that are going through the AF program?

 

Jonah Shacknai - Chairman and Chief Executive Officer

I think when all are combined, there has been a slight decrement, but we would have expected that. In fact, in the last quarter's call we predicted it. So in essence, what we have done is isolated to the IMS reported prescriptions those SOLODYN and ZIANA prescriptions, which are profitable, where the company is making money. This represents the majority, well the majority of prescriptions for those brands. Patients take their prescription to the pharmacy.

 

The pharmacist processes the insurance information, adjudicates the claim, the patient is given the medication on the spot. We are unwilling, however, to do what we’ve been doing historically, and that is to, in essence, buy Solodyn prescriptions, so that they’re available at every pharmacy at an expense that exceeds that which we sell the product to wholesalers for.

 

So there was a significant load in our system of prescriptions where we’re actually losing money; they were highly unprofitable. We did this to create in an essence universal access to the product. We instead I think thoughtfully, but with inadequate anticipation of demand, implemented a system whereby those prescriptions which working for us at the pharmacy, would not be profitable.

 

And in essence we have created a mail order system where those prescriptions are now given to a mail order pharmacy, which processes them, adjudicates them, when there is appropriate insurance coverage, and when there isn’t charges the patient a co-pay and ships the prescription in a timely way by mail.

 

I think our error in this, and it was a significant one, was really failing to anticipate the load of prescriptions that would come in. We’re dealing with a very established vendor that’s a Fortune 50 company that has up till now a superb reputation in handling these kinds of transactions. And I think we and they underestimated the demand that would come through the system and their preparedness to deal with the volume of prescriptions and their complexity. But the idea from a financial standpoint has been validated.

We’ve raised our average selling price of Solodyn and Ziana by removing or reducing the cost of the unprofitable prescriptions, while still maintaining a theoretical access for all patients to the drug. And I think physicians have taken time to get comfortable with this new regime. It is different, just as it took them time to get comfortable with the Medisafe card when we originally introduced that. We think that that is happening, and I think the more recent prescription trends would corroborate that view.

 

In that context, Philidor makes a lot of financial sense.

[Picasso]

And one more comment from the Medicis call:

 

Again just to take you back a little bit, before we introduced the alternate fulfillment program, we had a Medisafe card, which basically gave all comers a prescription for SOLODYN and ZIANA at the pharmacy at the same co-payment. And on those prescriptions, we lost a lot of money when the prescriptions we are not covered adequately by the patient's prescription drug benefit under their health insurance program.

 

So we have taken those unprofitable prescriptions moved them to a place where they are far less unprofitable. But again, there was definite dislocation in the market. And I said earlier that I think we bear responsibility for that to some measure, because we were slow to process many prescriptions that came into the alternate fulfillment system, because it was not staffed up and it was not processed correctly to be able to move through all the prescriptions that were coming in.

 

So we got a bullish of prescriptions, unexpected in terms of the rapidity of demand and we didn’t have enough people there to staff them. And some of the adjudicatory processes there really were in adequate to meet the demand. So there was a process engineering issue, where we’d relied on a very established vendor and we have to work with them I think to come up with a better system.

 

We had to increase the staffing of both at the pharmacy level and the customer service level. We did all those things. But we had to win back the confidence of physicians that they could reliably put prescriptions through that system. I believe we’ve done that the system is up and working and reportedly very well. We monitor the statistics on a daily basis, and I think we’re convinced of that and we have slowly, but truly gotten back not confidence in the brand that had always existed, not confidence in Medicis that had always existed, but confidence in the alternate fulfillment program.

 

So a few things here.  1) Their version of the "AF," or specialty mail-order pharmacy, was partly to put in place a system to turn unprofitable sales into something less unprofitable.  2) Their vendor at the time did not do the best job of managing the flow of prescriptions.  3) Doctors needed to be able to have confidence in sending their patients through these mail-order channels. 

 

Philidor seems to enter the stage shortly after these attempts at an early version of what Philidor is today.  Medicis mentioned they may have some kind of investments in these "customers" but that is not disclosed from Valeant.  Medicis however did not disclose any financial figures relating to those investments or as a customer.  If it was not financially material to Medicis then, it's much less material to Valeant now (given the business mix away from those specialty products).

 

Valeant having employees at Philidor may be largely due to the mistakes from Medicis.  The inability to manage the demand for various drugs makes doctors less likely to send patients to Philidor. 

 

Maybe it would be helpful to find out exactly what kind of investments or loans Medicis made (and which vendor they used) so we can compare to the Valeant disclosures. 

[100 Shares]

Wow really interesting information from a Medicis earnings call (AF is their alternative fulfillment):

 

Christopher T. Schott - JP Morgan Securities Inc.

Great, thanks very much. Just I had a couple of questions on the SOLODYN. First, and sorry if I missed this in the prepared remarks. Can you just talk about overall volume trends you saw for SOLODYN when you look at the IMS scripts that we see plus the prescriptions that are going through the AF program?

 

Jonah Shacknai - Chairman and Chief Executive Officer

I think when all are combined, there has been a slight decrement, but we would have expected that. In fact, in the last quarter's call we predicted it. So in essence, what we have done is isolated to the IMS reported prescriptions those SOLODYN and ZIANA prescriptions, which are profitable, where the company is making money. This represents the majority, well the majority of prescriptions for those brands. Patients take their prescription to the pharmacy.

 

The pharmacist processes the insurance information, adjudicates the claim, the patient is given the medication on the spot. We are unwilling, however, to do what we’ve been doing historically, and that is to, in essence, buy Solodyn prescriptions, so that they’re available at every pharmacy at an expense that exceeds that which we sell the product to wholesalers for.

 

So there was a significant load in our system of prescriptions where we’re actually losing money; they were highly unprofitable. We did this to create in an essence universal access to the product. We instead I think thoughtfully, but with inadequate anticipation of demand, implemented a system whereby those prescriptions which working for us at the pharmacy, would not be profitable.

 

And in essence we have created a mail order system where those prescriptions are now given to a mail order pharmacy, which processes them, adjudicates them, when there is appropriate insurance coverage, and when there isn’t charges the patient a co-pay and ships the prescription in a timely way by mail.

 

I think our error in this, and it was a significant one, was really failing to anticipate the load of prescriptions that would come in. We’re dealing with a very established vendor that’s a Fortune 50 company that has up till now a superb reputation in handling these kinds of transactions. And I think we and they underestimated the demand that would come through the system and their preparedness to deal with the volume of prescriptions and their complexity. But the idea from a financial standpoint has been validated.

We’ve raised our average selling price of Solodyn and Ziana by removing or reducing the cost of the unprofitable prescriptions, while still maintaining a theoretical access for all patients to the drug. And I think physicians have taken time to get comfortable with this new regime. It is different, just as it took them time to get comfortable with the Medisafe card when we originally introduced that. We think that that is happening, and I think the more recent prescription trends would corroborate that view.

 

In that context, Philidor makes a lot of financial sense.

 

Really excellent find. Of all the content in the last 50 pages of this thread this one of the most valuable posts as we all try to understand Valeant's practices. Thank you for sharing this.

[CONeal]

A pharmaceutical company having a rep at a fulfillment center is nothing new and has happened with other companies.  The reps are there to make sure their drugs are fulfilled correctly and to make sure no issues pop up with their drugs.  At the end of the day, its the pharmaceutical company that would take the hit in regards to reputation and associated cost if something happened with a script (ie metal schards braking off the machine and fell into the bottle) since their name is on the bottle (ie the drug). 

[Picasso]

http://sirf-online.org/2015/10/25/the-kings-gambit-accepted-the-annals-of-fraud/

 

Latest from Roddy Boyd.  Notice the people in common?  All ex-Medicis employees establishing the alternate fulfillment channels.

[original mungerville]

And one more comment from the Medicis call:

 

Again just to take you back a little bit, before we introduced the alternate fulfillment program, we had a Medisafe card, which basically gave all comers a prescription for SOLODYN and ZIANA at the pharmacy at the same co-payment. And on those prescriptions, we lost a lot of money when the prescriptions we are not covered adequately by the patient's prescription drug benefit under their health insurance program.

 

So we have taken those unprofitable prescriptions moved them to a place where they are far less unprofitable. But again, there was definite dislocation in the market. And I said earlier that I think we bear responsibility for that to some measure, because we were slow to process many prescriptions that came into the alternate fulfillment system, because it was not staffed up and it was not processed correctly to be able to move through all the prescriptions that were coming in.

 

So we got a bullish of prescriptions, unexpected in terms of the rapidity of demand and we didn’t have enough people there to staff them. And some of the adjudicatory processes there really were in adequate to meet the demand. So there was a process engineering issue, where we’d relied on a very established vendor and we have to work with them I think to come up with a better system.

 

We had to increase the staffing of both at the pharmacy level and the customer service level. We did all those things. But we had to win back the confidence of physicians that they could reliably put prescriptions through that system. I believe we’ve done that the system is up and working and reportedly very well. We monitor the statistics on a daily basis, and I think we’re convinced of that and we have slowly, but truly gotten back not confidence in the brand that had always existed, not confidence in Medicis that had always existed, but confidence in the alternate fulfillment program.

 

So a few things here.  1) Their version of the "AF," or specialty mail-order pharmacy, was partly to put in place a system to turn unprofitable sales into something less unprofitable.  2) Their vendor at the time did not do the best job of managing the flow of prescriptions.  3) Doctors needed to be able to have confidence in sending their patients through these mail-order channels. 

 

Philidor seems to enter the stage shortly after these attempts at an early version of what Philidor is today.  Medicis mentioned they may have some kind of investments in these "customers" but that is not disclosed from Valeant.  Medicis however did not disclose any financial figures relating to those investments or as a customer.  If it was not financially material to Medicis then, it's much less material to Valeant now (given the business mix away from those specialty products).

 

Valeant having employees at Philidor may be largely due to the mistakes from Medicis.  The inability to manage the demand for various drugs makes doctors less likely to send patients to Philidor. 

 

Maybe it would be helpful to find out exactly what kind of investments or loans Medicis made (and which vendor they used) so we can compare to the Valeant disclosures.

 

So we have another pharma that has entered into an outsourcing call center arrangement to sell only their drugs directly while providing co-pay.  I am not even sure what we are talking about here, other than this is legal and its also legal to provide coupons for co-pay (to the non-government insured). Its just a little different from how everybody else does it.

 

Any illegal activity would have occurred with Philidor being too aggressive with California licenses/market. But even there, Philidor did not buy control in R&O, or in these other pharmacies. Their officers set up a separate company or they bought a 10% stake with an option to purchase the company with prior regulatory approval.

 

Finally, how can one suppose that they control these pharmacies when they need prior regulatory approval before exercising any option to buy? And if they are eligible for regulatory approval, then what is the issue with them having the option to purchase? Its sort of a logical loop.

 

 

 

 

[Picasso]

What a joke from Roddy Boyd.

 

Uses pages 35 & 36 to base sales back to Valeant: http://sirfonline.wpengine.netdna-cdn.com/files/2015/10/Isolani-vs.-Reitz-Gary-Kaufman-Declaration.pdf Those figures are gross not net so you can't use that to say it's some large percent of organic sales.

 

Thus the importance of looking at what Philidor's newly exposed captive pharmaceutical network reveals. Here's what it shows: In the second quarter, Valeant's 8-K reported "organic" sales growth of 19%, with revenue growing $691 million, to $2.73 billion from $2.04 billion.

 

Of this $691 million, however, at least $392 million was attributable to acquisitions, with the $299 million balance organic revenue.

 

Isn't organic growth a same store sales figure so how can $392 million of that come from acquisitions?  19% organic growth only leaves $304 million from non-same store sales.  Unless my math or logic is wrong, that's a silly error to make when trying to take down a supposed "growth engine."

 

But the wrong usage of WAC just makes the ex-R&O growth claims invalid regardless of the growth from organics/acquisitions.

[Picasso]

So we have another pharma that has entered into an outsourcing call center arrangement to sell only their drugs directly while providing co-pay.  I am not even sure what we are talking about here, other than this is legal and its also legal to provide coupons for co-pay (to the non-government insured). Its just a little different from how everybody else does it.

 

Any illegal activity would have occurred with Philidor being too aggressive with California licenses/market. But even there, Philidor did not buy control in R&O, or in these other pharmacies. Their officers set up a separate company or they bought a 10% stake with an option to purchase the company with prior regulatory approval.

 

Finally, how can one suppose that they control these pharmacies when they need prior regulatory approval before exercising any option to buy? And if they are eligible for regulatory approval, then what is the issue with them having the option to purchase? Its sort of a logical loop.

 

Beyond the aggressive sales methods of the Philidor network, I think what we (or really I) am trying to figure out is how out of the ordinary the captive mail-order pharmacy is.  The bears want to win in one of three ways.  Either A) Philidor is liable for big fines as a result of selling in states with no direct license, B) this hits Valeant in one of their competitive advantages by no longer using this direct mail-order method which has provided growth in the recent past, C) Philidor liability in case A makes its way up to Valeant.

 

I don't know how A is going to play out.  But I plan to contact some lawyers on Monday to get an idea of what kind of fines or rules Philidor broke. 

 

If A doesn't happen for the bears, they want to say that this method is aggressive and not sustainable which is why Valeant never disclosed it.  But we have clear evidence of how/why this method works for the majority of parties involved from Medicis pre-merger with several wall street analysts.  So if the bears want to point out this growth engine is gone, well why can't Valeant create a more "kosher" version of this distribution strategy?

 

And then there is C which is hard to pin down. 

 

From what I am gathering, this is a competitive advantage to Valeant and it's a win-win for almost every party involved. 

 

By the way, why haven't the other California network pharmacies come out and sued Valeant yet?  This seems to be their chance if this kind of behavior was present at the other networked sites.  That strikes me as odd.