rb Posted October 30, 2015 Share Posted October 30, 2015 Kinda funny, I but I do have *some* sympathy for VRX managers & board of directors. There are just pages & pages & pages of questions coming at them from all directions: press, shareholders, Citron, Hempton, etc. VRX is overwhelmed. They are known for running a "lean operation" so they do not have 1000s of people who can be thrown at this. Then (to hedge) they discuss and run everything past their lawyers, etc. This process takes time. Those who expect an *immediate* answer to all the concerns will be disappointed. This will be a long and arduous road for VRX imo. Lots of volatility ahead. Likely pointing downwards. Valeant's law firm is probably delighted though. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 30, 2015 Share Posted October 30, 2015 Let me ask you this: if you were (or in fact, maybe you are currently) an investor in Sequoia today, knowing what you know (e.g. you know that 2 Sequoia directors resigned recently, so there is a sign of discord; signs of emotion in the letter to shareholders), would you not pull some of your capital? Link to comment Share on other sites More sharing options...
tylerdurden Posted October 30, 2015 Share Posted October 30, 2015 Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. Thanks for reminding us the other side of the argument Liberty, but I don't buy this argument as much. To me, they could have bought Philidor for the same price $100M and having that entity as part of the organization would only incur some additional salary/admin expense etc. for them. For the size of VRX, I don't think that additional cost would have been significant. I have no idea how many people work at Philidor but VRX could have easily afforded to employ those people without entering into this very questionable mechanic with them. When you hear the business practices at Philidor, it's not hard to guess why they did not want to own them. VRX employees actively getting involved there etc. no way they did not know what was going on there... Link to comment Share on other sites More sharing options...
fareastwarriors Posted October 30, 2015 Share Posted October 30, 2015 16% cash for SEQUX. Doesn't matter, if they receive redemption's and pay in cash rather then selling proportionally then they are effectively increasing VRX exposure. I did not get the impression that this was something they were planning on doing after reading their letter to shareholders Well yeah of course lower cash increases effective exposure. It sounds like you are assuming that Sequoia will get this large amount of redemptions which may or may not happen. Human psychology (to me) says that there's an 80%+ chance that redemptions will happen. And in size. But what do I know. I added a bit to my SEQUX holding. a rounding error for the fund but better than nothing! ;) Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 30, 2015 Share Posted October 30, 2015 16% cash for SEQUX. Doesn't matter, if they receive redemption's and pay in cash rather then selling proportionally then they are effectively increasing VRX exposure. I did not get the impression that this was something they were planning on doing after reading their letter to shareholders Well yeah of course lower cash increases effective exposure. It sounds like you are assuming that Sequoia will get this large amount of redemptions which may or may not happen. Human psychology (to me) says that there's an 80%+ chance that redemptions will happen. And in size. But what do I know. I added a bit to my SEQUX holding. a rounding error to the fund but better than nothing! ;) Those are some cojones. Hat tip. That's what makes a market, I guess. I still expect net redemptions though. We'll see in a few months. Link to comment Share on other sites More sharing options...
AzCactus Posted October 30, 2015 Share Posted October 30, 2015 Let me ask you this: if you were (or in fact, maybe you are currently) an investor in Sequoia today, knowing what you know (e.g. you know that 2 Sequoia directors resigned recently, so there is a sign of discord; signs of emotion in the letter to shareholders), would you not pull some of your capital? I would ask myself do I trust that Sequoia is a fund that will deliver good results in the long term. Historically the answer has been yes. Than I would ask do I really want to pull capital at a time when the largest holding is trading significantly lower than it was six weeks ago. The answer would be maybe, maybe not. Lastly, I would hopefully remember Buffett's good regarding greed/fear and probably do what farecast did and add to my position. Link to comment Share on other sites More sharing options...
Liberty Posted October 30, 2015 Share Posted October 30, 2015 Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. Thanks for reminding us the other side of the argument Liberty, but I don't buy this argument as much. To me, they could have bought Philidor for the same price $100M and having that entity as part of the organization would only incur some additional salary/admin expense etc. for them. For the size of VRX, I don't think that additional cost would have been significant. I have no idea how many people work at Philidor but VRX could have easily afforded to employ those people without entering into this very questionable mechanic with them. When you hear the business practices at Philidor, it's not hard to guess why they did not want to own them. VRX employees actively getting involved there etc. no way they did not know what was going on there... I think the point was that they didn't want to buy it because being a pharmacy wasn't their business, they didn't understand it well. I don't think it was necessarily about size or costs. But it grew fast and they wanted exclusivity, and if it was to becomes important to them or down the road they decided that they wanted to make it their business (after learning about spec pharma over time), then they had that option. And pretend everything went well and Philidor became super important to their distribution 5 years down the line, they wouldn't want them to have leverage over them and threaten to go to other manufacturers or sell to a bigger competitor, so the option keeps them captive. You can believe that's not true and they were actually aware of bad practices and just wanted to play legal games to pretend there's no responsibility, but I think there's a logic to the CFO's version. It's kind of like the superhero names. Maybe it didn't look like anything at the time, but now that there's a scandal, it looks suspicious as hell. Link to comment Share on other sites More sharing options...
blainehodder Posted October 30, 2015 Share Posted October 30, 2015 Is the insider buy statement even remotely legit?if there is insider info that Valeant has that proves innocence, release it. Even if it has to do with Philidor/ R&O lawsuit. At this point, disclosing info seems to be the only thing that can possibly alleviate selling. Link to comment Share on other sites More sharing options...
tylerdurden Posted October 30, 2015 Share Posted October 30, 2015 Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. Thanks for reminding us the other side of the argument Liberty, but I don't buy this argument as much. To me, they could have bought Philidor for the same price $100M and having that entity as part of the organization would only incur some additional salary/admin expense etc. for them. For the size of VRX, I don't think that additional cost would have been significant. I have no idea how many people work at Philidor but VRX could have easily afforded to employ those people without entering into this very questionable mechanic with them. When you hear the business practices at Philidor, it's not hard to guess why they did not want to own them. VRX employees actively getting involved there etc. no way they did not know what was going on there... I think the point was that they didn't want to buy it because being a pharmacy wasn't their business, they didn't understand it well. I don't think it was necessarily about size or costs. But it grew fast and they wanted exclusivity, and if it was to becomes important to them or down the road they decided that they wanted to make it their business (after learning about spec pharma over time), then they had that option. And pretend everything went well and Philidor became super important to their distribution 5 years down the line, they wouldn't want them to have leverage over them and threaten to go to other manufacturers or sell to a big chain, so the option keeps them captive. You can believe that's not true and they were actually aware of bad practices and just wanted to play legal games to pretend there's no responsibility, but I think there's a logic to the CFO's version. It's kind of like the superhero names. Maybe it didn't look like anything at the time, but now that there's a scandal, it looks suspicious as hell. Thanks for the extra color. I am also trying to keep an open mind on this but the optics also does not help. You pay $100M upfront for an option to buy for $0. Gives the feeling that you want some kind of control but not legal ownership. Don't know much about these specialty pharmacies but what's so special about Philidor anyways? If Philidor doesn't give you the exclusivity you want then you can contract with other special pharmacies as well so their leverage would be much less on you actually going forward... Well, if you want to enter into some very questionable business practices on an exclusive/secretive manner of course, it could be a little bit different :-) well just having some fun I guess... Link to comment Share on other sites More sharing options...
Guest wellmont Posted October 30, 2015 Share Posted October 30, 2015 16% cash for SEQUX. Doesn't matter, if they receive redemption's and pay in cash rather then selling proportionally then they are effectively increasing VRX exposure. I did not get the impression that this was something they were planning on doing after reading their letter to shareholders Well yeah of course lower cash increases effective exposure. It sounds like you are assuming that Sequoia will get this large amount of redemptions which may or may not happen. Human psychology (to me) says that there's an 80%+ chance that redemptions will happen. And in size. But what do I know. there will be redemptions. most of the 2015 investor meeting was about the risks of valeant and "do you know what you are doing?" you have to consider some of the nuances here. this fund was started 45 years ago. buffett sent many of his limited partners here. many have been with sequx for 45 years. so then munger comes out and throws up a red cape on vrx. sequx defends the allegations and keeps position at close to 40% at it's peak in 2015. munger is revered by this shareholder group. and sequoia basically said we know better than you charlie. that's not going to go over well. so they hardly sold a share at $250. they easily could have sold some stock and taken a little victory lap. so two mistakes. position got too large. didn't sell any shares at what was a pretty rich multiple. and they were given opportunity by ackman who was pounding the table. vrx was not the kind of stock these shareholders were used to seeing in the fund. they didn't understand it. what on earth did they see in this thing that looks like everything buffett and munger warn about they thought? now you have 2 directors resign one of whom is pals with buffett. so this is a big problem for sequx. a big big problem. and I frankly don't see how they can escape ramifications and consequences for what has happened and continues to happen. I will predict there will be resignations at sequx. there will be redemptions, and lots of them. and the fund will reopen probably next year to the general public. the good thing is that the fund should be smaller and they will get back to core competencies, allowing them to be able to buy smaller business that might be cheaper with faster growth potential. chchchchanges. Link to comment Share on other sites More sharing options...
tombgrt Posted October 30, 2015 Share Posted October 30, 2015 Looking forward to what the investigations will reveal about what was going on at Philidor. Until then we can only speculate, but I think it's likely that if the Philidor guys gamed the system, it was to get their performance earnouts. I seriously doubt that Valeant asked them to break the law or knew that they were, they have a lot more to lose than to gain from that, just like with fraud in any other part of their business; the Philidor people, though, probably had a lot to gain proportionally to their net worth by meeting their earnout targets. Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. I'm sorry but this looks like some extreme rationalizing... Read like you are in too deep. Are any of the longs actually adding or can they just muster enough self control to hold the stock and keep telling themselves that everything is alright? Also fun to see the extreme moods swings in this topic as the stock price moves up and down. Link to comment Share on other sites More sharing options...
rb Posted October 30, 2015 Share Posted October 30, 2015 Thanks for the extra color. I am also trying to keep an open mind on this but the optics also does not help. You pay $100M upfront for an option to buy for $0. Gives the feeling that you want some kind of control but not legal ownership. Don't know much about these specialty pharmacies but what's so special about Philidor anyways? If Philidor doesn't give you the exclusivity you want then you can contract with other special pharmacies as well so their leverage would be much less on you actually going forward... Well, if you want to enter into some very questionable business practices on an exclusive/secretive manner of course, it could be a little bit different :-) well just having some fun I guess... The other thing is that a journalist was able to find the irregularities at Philidor in about a week. But Valeant who controls Philidor and had people on the premises didn't know anything about that. That's a little hard to believe. Besides wasn't the argument that Valeant's people at Philidor were there to make sure Philidor doesn't do things the wrong way? Seems like either the superheroes were involved or they weren't very good at their jobs. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 30, 2015 Share Posted October 30, 2015 Looking forward to what the investigations will reveal about what was going on at Philidor. Until then we can only speculate, but I think it's likely that if the Philidor guys gamed the system, it was to get their performance earnouts. I seriously doubt that Valeant asked them to break the law or knew that they were, they have a lot more to lose than to gain from that, just like with fraud in any other part of their business; the Philidor people, though, probably had a lot to gain proportionally to their net worth by meeting their earnout targets. Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. I'm sorry but this looks like some extreme rationalizing... Read like you are in too deep. Are any of the longs actually adding or can they just muster enough self control to hold the stock and keep telling themselves that everything is alright? Also fun to see the extreme moods swings in this topic as the stock price moves up and down. Agreed. Valeant is worth about $35/share if you look at it rationally Link to comment Share on other sites More sharing options...
arcube Posted October 30, 2015 Share Posted October 30, 2015 My best advice to Valeant management would be to disclose your other "immaterial" VIEs before Andrew Left discloses them for you. You don't like the way he characterized it as Enron did you? Are you just waiting for it to happen a second, and then a third time because you're betting he won't find them? And if he finds them you don't think it will once again be sensationalized? +1 Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 30, 2015 Share Posted October 30, 2015 Thanks for the extra color. I am also trying to keep an open mind on this but the optics also does not help. You pay $100M upfront for an option to buy for $0. Gives the feeling that you want some kind of control but not legal ownership. Don't know much about these specialty pharmacies but what's so special about Philidor anyways? If Philidor doesn't give you the exclusivity you want then you can contract with other special pharmacies as well so their leverage would be much less on you actually going forward... Well, if you want to enter into some very questionable business practices on an exclusive/secretive manner of course, it could be a little bit different :-) well just having some fun I guess... The other thing is that a journalist was able to find the irregularities at Philidor in about a week. But Valeant who controls Philidor and had people on the premises didn't know anything about that. That's a little hard to believe. Besides wasn't the argument that Valeant's people at Philidor were there to make sure Philidor doesn't do things the wrong way? Seems like either the superheroes were involved or they weren't very good at their jobs. Happy to make money doing business with a counter-party that's likely breaking rules as long as there's no legal liability, as if ethics and legal liability are exactly aligned! So you don't have ethics -- you just have a lawyer to tell you what's going to get you in jail and what isn't. So maybe there is a need to legislate morality after all. But yes I am assuming a big thing -- that management knew. I think after watching everyone at AIG, MBIA, etc... doing business with Countrywide and others, as counterparties, I don't think it's all that unlikely that the same kind of thing could go on at Valeant. They profited with Ackman on what looks a lot like insider trading which looks pretty bad too, but legal. Link to comment Share on other sites More sharing options...
tylerdurden Posted October 30, 2015 Share Posted October 30, 2015 Agreed. Valeant is worth about $35/share if you look at it rationally Woaw $35 sounds really aggressive. Care to shed a little bit more light in terms of your thinking? Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 Looking forward to what the investigations will reveal about what was going on at Philidor. Until then we can only speculate, but I think it's likely that if the Philidor guys gamed the system, it was to get their performance earnouts. I seriously doubt that Valeant asked them to break the law or knew that they were, they have a lot more to lose than to gain from that, just like with fraud in any other part of their business; the Philidor people, though, probably had a lot to gain proportionally to their net worth by meeting their earnout targets. Ackman talked to Howard Schiller (former CFO) and got a bit more color on why they structured the option that way. I think it sounds plausible; they had that young experiment in distribution which was growing fast and working well, Philidor probably wanted to start expanding to more drugs from other manufacturers, which would have reduced the attention/throughput/service that Valeant would've gotten. Valeant didn't know the specialty pharmacy business, which is different from the pharma business, with complex laws and regulations in each state, so they did an option which bought them the exclusivity they wanted without the headaches of actually running operations. I'm sorry but this looks like some extreme rationalizing... Read like you are in too deep. Are any of the longs actually adding or can they just muster enough self control to hold the stock and keep telling themselves that everything is alright? Also fun to see the extreme moods swings in this topic as the stock price moves up and down. Tombgrt, I am glad we are amusing for you. That said, I am not convinced Valeant mgmt did not know what was going on a Philidor. I would be surprised if it made it all the way to the c-suite though. We have all said that the bet has been on Pearson being honest. If we are wrong on that, we will be wrong on this investment. If middle management at Valeant is involved, I maintain fines will not be larger than .5 billion and definitely not more than $1B with my most likely scenario low 100 millions. Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 30, 2015 Share Posted October 30, 2015 vrx was not the kind of stock these shareholders were used to seeing in the fund. they didn't understand it. what on earth did they see in this thing that looks like everything buffett and munger warn about they thought? now you have 2 directors resign one of whom is pals with buffett. so this is a big problem for sequx. a big big problem. and I frankly don't see how they can escape ramifications and consequences for what has happened and continues to happen. I will predict there will be resignations at sequx. there will be redemptions, and lots of them. and the fund will reopen probably next year to the general public. the good thing is that the fund should be smaller and they will get back to core competencies, allowing them to be able to buy smaller business that might be cheaper with faster growth potential. chchchchanges. The founders of that fund are deceased. I don't think Buffett has any recommendation for the successors. This does exemplify a thing I've seen at Loews and Leucadia for example. A new management takes over that does not have the same ideas or skills as the founders. Hard to say if the original 2 would have invested in Valeant. It's called diworsification and a very real risk. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 30, 2015 Share Posted October 30, 2015 He found a hidden undisclosed pile of shit. But technically, yes, his suspicions of what it was for were wrong. Citron did us shorts a favour, agreed. But the pile of garbage that Citron originally found is likely garbage for reasons different than Citron believed (at least IMO). And I personally think the Enron comparison (because Citron probably was thinking of all the LJMs and Raptors) was a little off.. The more correct Enron comparison's probably the California power markets manipulation (VRX milking the payors and the general healthcare system, just like Enron was milking the power markets post de-regulation). No idea what Citron will come up with on Monday, tbh. Boy, who needs a Netflix subscription when the VRX drama is so captivating. Link to comment Share on other sites More sharing options...
Picasso Posted October 30, 2015 Share Posted October 30, 2015 The issue isn't the fines. The problem is the long-term affect on their operating business. Medicis had big problems with Solodyn and other treatments because of the existing distribution method that Valeant likely has to go back to. That's a bad thing because it's clear that was driving a lot of the organic growth. The sell side is still saying they'll earn $16 of cash EPS. Throw those earnings out the window now that Philidor is gone. The fines are irrelevant at this point. What do you think the stock will do if they start showing negative growth? All of a sudden the amortization is an expense and it's going to snowball. Link to comment Share on other sites More sharing options...
original mungerville Posted October 30, 2015 Share Posted October 30, 2015 Thanks for the extra color. I am also trying to keep an open mind on this but the optics also does not help. You pay $100M upfront for an option to buy for $0. Gives the feeling that you want some kind of control but not legal ownership. Don't know much about these specialty pharmacies but what's so special about Philidor anyways? If Philidor doesn't give you the exclusivity you want then you can contract with other special pharmacies as well so their leverage would be much less on you actually going forward... Well, if you want to enter into some very questionable business practices on an exclusive/secretive manner of course, it could be a little bit different :-) well just having some fun I guess... The other thing is that a journalist was able to find the irregularities at Philidor in about a week. But Valeant who controls Philidor and had people on the premises didn't know anything about that. That's a little hard to believe. Besides wasn't the argument that Valeant's people at Philidor were there to make sure Philidor doesn't do things the wrong way? Seems like either the superheroes were involved or they weren't very good at their jobs. Happy to make money doing business with a counter-party that's likely breaking rules as long as there's no legal liability, as if ethics and legal liability are exactly aligned! So you don't have ethics -- you just have a lawyer to tell you what's going to get you in jail and what isn't. So maybe there is a need to legislate morality after all. But yes I am assuming a big thing -- that management knew. I think after watching everyone at AIG, MBIA, etc... doing business with Countrywide and others, as counterparties, I don't think it's all that unlikely that the same kind of thing could go on at Valeant. They profited with Ackman on what looks a lot like insider trading which looks pretty bad too, but legal. Agree. How is that fire by your house? Did it get better today? Link to comment Share on other sites More sharing options...
tylerdurden Posted October 30, 2015 Share Posted October 30, 2015 Tombgrt, I am glad we are amusing for you. That said, I am not convinced Valeant mgmt did not know what was going on a Philidor. I would be surprised if it made it all the way to the c-suite though. We have all said that the bet has been on Pearson being honest. If we are wrong on that, we will be wrong on this investment. If middle management at Valeant is involved, I maintain fines will not be larger than .5 billion and definitely not more than $1B with my most likely scenario low 100 millions. I know hard to quantify at this point but hard for me to believe the legal fine would be the only financial impact on VRX. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 30, 2015 Share Posted October 30, 2015 Agreed. Valeant is worth about $35/share if you look at it rationally Woaw $35 sounds really aggressive. Care to shed a little bit more light in terms of your thinking? I'm assuming a multiple of around 20, and relatively unchanged EPS. That way you get a range of $30-$35. If things get worse as more revelations come to light though, it could be lower than that Link to comment Share on other sites More sharing options...
Picasso Posted October 30, 2015 Share Posted October 30, 2015 Agreed. Valeant is worth about $35/share if you look at it rationally Woaw $35 sounds really aggressive. Care to shed a little bit more light in terms of your thinking? I'm assuming a multiple of around 20, and relatively unchanged EPS. That way you get a range of $30-$35. If things get worse as more revelations come to light though, it could be lower than that That's a fairly retarded way of valuing the stock. Link to comment Share on other sites More sharing options...
feynmanresearch Posted October 30, 2015 Share Posted October 30, 2015 So you're right, my projection was somewhat optimistic Link to comment Share on other sites More sharing options...
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