matts Posted October 26, 2015 Share Posted October 26, 2015 http://www.wsj.com/articles/valeants-ties-to-pharmacy-scrutinized-1445817449 Valeant and Pharmacy More Intertwined Than Thought Relationship with Philidor draws scrutiny; workers used alternative names ??? seems totally legit (sarcasm) Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 26, 2015 Share Posted October 26, 2015 How did you arrive at 80/20 split for durable v. non-durable? How do you figure that VRX could distribute 100% of "Cash EPS"? I really don't mind being wrong. I just don't think I am. First, I don't cash EPS will ever equal FCF. My FCF is at a 15-20% discount to cash EPS. Start with the $7.5 billion of 2016 EBITA and add in taxes, interest expense and capex. They need a certain amount of leverage to strip out earnings in the U.S. to pay lower taxes. As long as they generate the cash flows they will have a relatively large 3-4x EBITDA debt burden. But unlike other 3-4x levered stocks, VRX actually pays very little tax, very little depreciation, minimal expense from amortization (when you adjust for non-durable), and minimal capex. In theory Valeant could probably lever up more because of their large and sustainable interest expense coverage. I went through all the products to figure out what's durable and what isn't. Neuro/other is not durable as well as some stuff going off patent. Other than that, everything else is very durable including the Salix stuff you seem to think is not durable. I haven't walked through your numbers yet but 15-20% looks pretty arbitrary. Why can't we use traditional FCF measurements? As to durable v. non-durable, you are really reaching here. Even VRX doesn't consider Salix to be durable! Do we really think a bunch of $1m-$5m annual revenue products in China or Russia are durable in the same sense as Tylenol? Link to comment Share on other sites More sharing options...
giofranchi Posted October 26, 2015 Author Share Posted October 26, 2015 Why can't we use traditional FCF measurements? Amortization of “finite lived intangibles” is added back to calculate FCF, exactly as it is added back to calculate Cash EPS. Cheers, Gio Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 I can't argue with you anymore Schwab. If you work through to free cash flow from pro forma EBITDA you'll get around 85% of cash EPS targets for 2016. I dont 100% agree with industry usage of cash EPS as a form of free cash flow. If you want to say a drug that goes off patent in 2029 isn't durable then I guess we can agree to disagree. The reason why those small products are durable is because it makes no financial sense for anyone else to compete on those drugs. When adding in the scale and distribution systems that Valeant has in place (similar to other branded pharmas which no one is targetting) you have a product portfolio that becomes durable. I'll let you figure out the rest. Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 If you think VRX may cut Philidor loose, you have to consider what impact using traditional pharmacies without "aggressive" call centers will have on VRX's growth. That's the issue I have at this point. The board's investigation would be easy if that option were a non-issue with regards to impact on revenue, but I have a strong feeling it isn't, hence the reason that VRX decided to use Philidor. I think Valeant needs Philidor (or some kosher version of it) in order to boost growth in the derma portion of the US branded portfolio. It would definitely suck to lose it and probably knock off $0.50 from cash EPS. The organic growth suddenly doesn't look as good and the bears will latch on again. The other problem is what happens to neuro/other and how that gets monetized. We might be down to $12.50 of cash EPS if you wipeout those two cash flow drivers. Most of that extra cash EPS was in some form of runoff anyway. If you strip out the growth and neuro you're probably looking at 10x cash EPS at these price levels. Link to comment Share on other sites More sharing options...
Liberty Posted October 26, 2015 Share Posted October 26, 2015 So we go from "the smoking gun" on the "pharmaceutical Enron" with "phantom pharmacies" that are "stuffing the channel" with "fake sales", trying to defraud a poor little "pharmacy that had never heard of them" to... what exactly? Link to comment Share on other sites More sharing options...
ourkid8 Posted October 26, 2015 Share Posted October 26, 2015 I asked myself the same thing. I am surprised we are not getting a bounce today... So we go from "the smoking gun" on the "pharmaceutical Enron" with "phantom pharmacies" that are "stuffing the channel" with "fake sales", trying to defraud a poor little "pharmacy that had never heard of them" to... what exactly? Link to comment Share on other sites More sharing options...
cogitator8 Posted October 26, 2015 Share Posted October 26, 2015 I think now we have spiderman as a pharmcist, VRX is legit, how can you distrust spiderman ? (Hint: Sarcasm). I love the drama, hope we can keep this interesting and someday somebody can write a book on it, just like Enron!! Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 Liberty probably remembers this, but when Apple stock went from $700 to under $400 there was all kinds of garbage put out on how the business was losing ground to Android, tax inquiries, etc etc. Apple announced good earnings and the largest stock buyback in history + higher dividend and the stock STILL dropped from $415 to $385. It took some time for the stock to react but it taught me to never completely trust market movements. Sometimes it takes a lot of time for the market to digest information. In this case, people want to believe that Valeant is doomed so they're not really spending time to understand the business (that probably goes for some longs too) and just bring up something they aren't completely happy with. And I suppose there's the risk of new headlines and a refocus on neuro/other. Not to mention the large investors are already "all in." You need to bring in marginal buyers to get improvements in the stock price. But I'm not going to complain about that. If Valeant sticks to their word and buys up a lot of stock at these prices over the next few years, shareholders will do very well. Link to comment Share on other sites More sharing options...
original mungerville Posted October 26, 2015 Share Posted October 26, 2015 If you think VRX may cut Philidor loose, you have to consider what impact using traditional pharmacies without "aggressive" call centers will have on VRX's growth. That's the issue I have at this point. The board's investigation would be easy if that option were a non-issue with regards to impact on revenue, but I have a strong feeling it isn't, hence the reason that VRX decided to use Philidor. No, they'll go with another proprietary outsourcing relationship to a online pharma, not traditional. Link to comment Share on other sites More sharing options...
cogitator8 Posted October 26, 2015 Share Posted October 26, 2015 VRX is not Apple ! There is no comparsion between Jobs and Pearson !! There is never really one Cockroach !! Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 VRX is not Apple ! There is no comparsion between Jobs and Pearson !! There is never really one Cockroach !! Dude what is your problem? My point is a widely followed and "efficient" stock like Apple couldn't apprpriately reprice within the first few days. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 26, 2015 Share Posted October 26, 2015 Picasso, I theoretically agree with your point, but I think the marginal buyer in this case is waiting for the CA AG letter to come, which it surely will... Link to comment Share on other sites More sharing options...
cogitator8 Posted October 26, 2015 Share Posted October 26, 2015 I have no issues with Apple ( Great company with Outsider like late CEO), my issue is with VRX, the price drop of VRX is not buying opportunity but a warning for future. So I will trade very carefully here and wait for more disclosure and repricing of stock. I have no position in the stock, long or short, so have no interest. And I am not even trying to prove my point, it is quite clear. Link to comment Share on other sites More sharing options...
ccplz Posted October 26, 2015 Share Posted October 26, 2015 VRX is not Apple ! There is no comparsion between Jobs and Pearson !! There is never really one Cockroach !! Dude what is your problem? My point is a widely followed and "efficient" stock like Apple couldn't apprpriately reprice within the first few days. You're assuming that VRX is not a fraud, and that there is just one cockroach. It's actually quite amusing how the longs cling to their dogma despite evidence to the contrary that is slowly coming out. The red flags were there, don't say we didn't warn you. Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 I have no issues with Apple ( Great company with Outsider like late CEO), my issue is with VRX, the price drop of VRX is not buying opportunity but a warning for future. So I will trade very carefully here and wait for more disclosure and repricing of stock. I have no position in the stock, long or short, so have no interest. And I am not even trying to prove my point, it is quite clear. You literally support none of your claims and just yell out fraud, Enron, cockroaches, ITT, blah blah. With that approach it doesn't matter if you're long or short. Just go take that kind of talk to the Yahoo Message boards. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 26, 2015 Share Posted October 26, 2015 VRX is not Apple ! There is no comparsion between Jobs and Pearson !! There is never really one Cockroach !! I love how suddenly nobody is talking about Philidor. Total non-event knocks 35% off stock and now we can go back to arguing about whether Cash EPS is real. I thought I addressed the Jobs / Pearson analogy clearly. Steve Jobs had plenty of cockroaches. I also called BS on the whole cockroach theory. Read buffett's history of scandals (SEC settlement, clayton homes, AIG sham transcations). Plenty of cockroaches there. Munger's DJCO fired its auditor after a real accounting scandal. Business is messy. Link to comment Share on other sites More sharing options...
merkhet Posted October 26, 2015 Share Posted October 26, 2015 Are people not bothered at all by the fact that Valeant employees were using random pseudonyms in their e-mails at Philidor? http://www.wsj.com/articles/valeants-ties-to-pharmacy-scrutinized-1445817449 Around the Phoenix-area offices of mail-order pharmacy Philidor Rx Services LLC, employees said they often ran into a friendly colleague named Bijal Patel who tracked prescriptions. But when the employees got an email from the colleague, they say he used a different name: Peter Parker, the alter ego of Spider-Man. He was among a few workers at Philidor offices who went by one name in person and another in emails during the past two years, according to three former employees. Mr. Patel and the other people weren’t employed by Philidor, though the emails used a Philidor address, these people said. They were employees of drug company Valeant Pharmaceuticals International Inc. http://www.wsj.com/articles/valeant-forms-board-committee-to-review-philidor-arrangement-1445856795 Valeant also said the new committee would investigate issues raised in Monday’s The Wall Street Journal, which reported that Valeant employees working in Philidor’s offices went by the names of fictional characters like “Peter Parker” in emails. The company said Monday that it was “not clear” whether the email issue violated any provision of the agreement between Valeant and Philidor. Clearly, it's not illegal to use a pseudonym in your correspondence, but it is... odd. Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 VRX is not Apple ! There is no comparsion between Jobs and Pearson !! There is never really one Cockroach !! Dude what is your problem? My point is a widely followed and "efficient" stock like Apple couldn't apprpriately reprice within the first few days. You're assuming that VRX is not a fraud, and that there is just one cockroach. It's actually quite amusing how the longs cling to their dogma despite evidence to the contrary that is slowly coming out. The red flags were there, don't say we didn't warn you. Can you explain to me what parts of the Citron report that caused the stock to lose $20 billion of market cap are now clearly fruadulent behavior on the part of Valeant? By the way, I sold my previous VRX stock in the 200's and became skeptical before all this stuff came out. I'm well aware of the "cockroaches." Link to comment Share on other sites More sharing options...
CONeal Posted October 26, 2015 Share Posted October 26, 2015 Was hoping for more of a pop today but no luck. Sold my shares but had more to do with paying taxes then anything else. May revisit at a later time. Link to comment Share on other sites More sharing options...
cogitator8 Posted October 26, 2015 Share Posted October 26, 2015 COneal: Agree with you, although I never bought VRX, A value investor is an egoless person, only look at the margin of safety ! I have lost money in the past by not realizing material change in the realities on the ground. So I admire people who dissociate their emotions from investement. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 26, 2015 Share Posted October 26, 2015 Clearly, it's not illegal to use a pseudonym in your correspondence, but it is... odd. Is Merkhet your real name? Valeant is clearly bothered. They said that will be one of the first, if not the first thing the special committee investigates. Link to comment Share on other sites More sharing options...
Yours Truly Posted October 26, 2015 Share Posted October 26, 2015 Can we all agree to change the name of this forum to "Corner of VRX and PDH" ? Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2015 Share Posted October 26, 2015 I prefer Corner of Valeant and Zinc. Has a bit of a zing to it. Link to comment Share on other sites More sharing options...
usdtor05 Posted October 26, 2015 Share Posted October 26, 2015 I prefer Corner of Valeant and Zinc. Has a bit of a zing to it. Let's be honest here guys SHLD has to be involved. Link to comment Share on other sites More sharing options...
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