VRX - Valeant Pharmaceuticals International Inc.

[original mungerville]

Right they'll do a lot of acquisitions with their current credit rating.

+1

 

The poster was talking about the situation BEFORE the last month or so.

[original mungerville]

Right they'll do a lot of acquisitions with their current credit rating.

 

Read the post. The poster was talking about the situation before all this happened. That Philidor was the only option for growth and that no other acquisitions were possible,.

[original mungerville]

Oh come on are you serious? That's ridiculous! There is lots of evidence that they were running the operations of Philidor even if they didn't TECHNICALLY own it. The name alone (chess reference) makes it entirely obvious.

 

If you have (former?) employees working there, "joint steering committee" etc, and an OPTION STRUCK AT ZERO DOLLARS, then you are running that business. It is as simple as that.

 

The only reason to use an option struck at zero and not make an outright purchase is if you are trying to hide ownership from someone. If you say anything else you are totally deluded. Wake up from your slumber here and see the light of day.

 

The important question is materiality-- what's the actual effect on the business. Still ZERO people have tried to actually lay out all the ways Valeants products are distributed and try to see which ones could be affected.

 

I'll give you a start-- contact lenses are probably not affected. Sales through wholesalers and then through retail are probably not affected. I believe that already accounts for the majority of US sales. What about the rest? What about Europe?

 

I'm not saying they didn't have ultimate control over the entity's destiny. I'm saying that it's one thing to have high level, strategic control (of the kind of "we should get distribution in states X, Y and Z... we will invest in more staff to add two new products in 6 months...") and to have day-to-day control over how employees are trained, how they're told to fill out form, compliance, etc.

 

Maybe Valeant knew about everything and told them to do it. I don't know. But I think it's also plausible that Philidor management committed fraud to get their earnouts without the knowledge of Valeant. The net worth of Andrew Davenport and his cronies might double if they get those earnouts, so that's certainly an incentive for someone unscrupulous. But Valeant was doing quite well long before Philidor was ever on the scene, these tactics were worth at most a couple points of growth (I'm sure a lot of the 6-7% was legit, and if Philidor hadn't existed, it would've gone through other channels -- after all, doctors do prescribe the stuff), and the downside is huge...

 

So maybe they did it, I don't know. But I think right now a lot of people are ready to put handcuffs on management with very few hard facts.

 

My impression from WSJ/Bloomberg articles is that Philidor training materials have VRX products explicitly defined and tell employees how not to take no for an answer. Anyways no one can say 100% for sure but my gut says they were pretty much involved in day to day operations.

 

It seems VRX was doing fine before Philidor but wasn't Philidor still one of the key component of their growth story? Don't know, perhaps they were out of options with acquisitions etc. so Philidor was the next big thing for them...

 

The doctor prescribed the drug, and you can be damn sure the call center manuals try to ensure that nobody takes "no" for an answer. Have you ever worked at a call center? Every fuckin' one of them has manuals that tell employees how not to take "no" for an answer. If Philidor took that too far in their manuals and broke the law, it doesn't mean Pearson knew about it.

 

Out of options for acquisitions? Uh...no.

Sorry but what is your argument here? Are you defending the practices at Philidor as normal business at any call center or your argument is "as long as Person does not know" we'll go back living in wonderland again and everything would be fine. I don't buy either of those arguments.

 

My argument is that there is a difference between Pearson understanding Philidor was going to be aggressive, and Pearson understanding that Philidor was going to break the law (if in fact they did break the law).

[shalab]

Valueact can do a lot of things - to name a few:

 

    - they can change incentives to management

    - they can change management

    - they can change the board composition

    - effect changes to the company org structure

    - make changes to the business model

 

I am expecting Valueact to act quickly to stem the damage

 

 

If WSJ article is true (Valeant employees using pseudonyms and working in Philidor), given the Philidor volumes, I dont know how management wouldnt be aware.

 

That said, management will never acknowledge they knew - ala Volkswagen.  I expect Valueact to take some step to salvage their image and dollars. ( and take steps to re-assure the fidgety investors )

Not to pick on you, but what exactly do you think that valueact can do?

[Guest Schwab711]

 

 

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.

 

Only financial impact? No, 5% of sales are gone, a % of ongoing growth is gone. Furthermore, their debt is more expensive to issue, and 50 billion plus of market cap is gone. And that assumes there are no more cockroaches.

 

That's one way of looking at it.  On the other hand, they won't be doing any acquisitions soon anyways so don't need to tap the debt markets in the short term, so I'd frame it as their debt is now cheaper to repay.  They can deliver much more rapidly when their debt trades at a 10-15% discount to par.

 

There is $61 billion in enterprise value right now.  Let's say a fair multiple on whatever cash flow there is when this storm passes is 15x unlevered free cash flow.  I think a discount to the levered market multiple is fairly conservative for an industry that typically trades at a premium to the market on levered earnings.  So to make this valuation fair, you need $4 billion in free cash flow unlevered.  With the tax rate and low capex requirements, that means you need about $4.5 billion in EBITDA. That's a 40% discount to guidance. Philidor is 7% of sales and a lot of that will just get diverted to other channels.

 

Even if Pearson is found to be personally involved in Philidor, who cares at $90?

 

But I highly doubt there will be any smoking gun evidence that Pearson was involved.  A) because his incentives give him no reason to engage in fraud to boost short term results and B) because even if he was stupid enough  to do it you also need to believe he was stupid enough to commit fraud in a way that could be traced back to him.  We'll see on Monday.

 

 

Agree and good post. I have been thinking the same thing: at a certain price, none of this matters and I agree we may be near that price. I was just trying to demonstrate to the other poster that in no way do I think the fine is the only issue. In fact the fine is the only non-issue.

 

* I don't think it's conservative to use book taxes when cash taxes have ranged from 33% - 100%+ over the past 5 quarters. The factors that led to higher cash tax rates are still present.

* Specialty pharmacies represented 9% of sales during 3Q15. This seems like a more accurate estimate to use when adjusting future estimates or guidance.

* How can $4.5b EBITDA generate $4b in FCF when 2016 interest should be ~$1.7b? Guidance assumes USD is flat vs. EM currencies and a Fed rate hike would likely strengthen the USD in 2016.

 

That's a 40% discount to guidance.

 

I showed evidence a few weeks ago that it was very probable that VRX was making their numbers through unsustainable and untraceable methods. Now we know the exact methods of how they did it, which supports my theories presented over the past couple months. It also explains why I couldn't pinpoint the cause of the revenue gaps at the time. VRX has only met their guidance in each of the last 5 quarters due to Isuprel/Nitropress and/or Philidor, which is likely unsustainable moving forward. Morgan Stanley estimated that VRX would have missed by ~10% without Isuprel/Nitropress price increases. Current guidance no longer seems relevant.

 

The Philidor relationship likely began when VRX acquired Medicis (VRX raved about Medicis's "sales team"). The Philidor purchase was also presented to and approved by the board (and presumably senior management). I find it hard to believe that the board would approve VRX's deal structure and high price paid for Philidor (based on sales at the time) without knowledge of Philidor's true purpose. Jeff Ubben was on the board at the time of approval.

 

Almost every VRX investing narrative from 2 years ago seems out-of-date at this point ("durable" products, low tax rate, "organic growth", 20% IRR, and so on). All of VRX's orphan drugs will lose exclusivity by 2019 (Xifaxan in 2017/2018 and Jublia in 2019). Without much in-house R&D and the large debt load, VRX is vulnerable to competition from new compounds and novel treatments of ailments they treat. Intermediate to long-term cash flows may never be realized as currently projected. VRX also wrote-off 1/4th of their remaining IPR&D intangibles relating to the Salix acquisition in 3Q15. VRX doesn't seem very optimistic about their current pipeline.

 

I have no position in VRX.

[Picasso]

OM, here is what I am talking about:

 

In 2012 gross sales (millions) were $4,068 with provisions of $779; net sales of $3,289 or 19% provisions to sales.

 

In 3Q 2015 gross sales were $4,666 with provisions of $1,918; net sales of $2,748 or 41% provisions to sales.

 

And look at their commentary under it:

 

The increase was driven primarily by product mix due to increased sales of products which carry higher

contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual

price increase limitations.  Specifically, the comparisons were impacted by (i) higher provisions for rebates, chargebacks, and returns, including managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including

Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii) higher rebate percentages for sales to

the U.S. government (including Wellbutrin XL®).

 

Does that sound like a durable portfolio with Philidor gone?  They're pushing more product through these different channels with bigger discounts to get more volume.  Now that Philidor is no longer driving that, I can't see how you won't get some bad numbers out of those fast growing drugs in that channel.  Suddenly amortization becomes a real cost in that scenario.  And that scenario was Valeant losing Philidor.  It's no wonder they didn't want to distance themselves from Philidor right off the bat.  They had to wait until they were forced to do it.

 

 

[original mungerville]

 

No Liberty, you are fuckin' wrong. Pearson knew, he's been at the call center the whole time - cubicle 1013, in fact. Right next to Peter Parker in cubicle 1014. After he wound down the Allergan acquisition from that cubicle, him and Parker went out for a night on the town. The next morning he woke up and decided he better refocus on operating the entire Valeant company from there, and after that and then getting bored over the next few months trying to get payers to pay for various doctor-prescribed medicines, and not taking "no" for an answer at the call center he said "fuck this shit, Parker you keep going girl, I got other shit to do", he then went after Salix - all from that same cubicle. His McKinsey ass has been in that call-center cubicle the whole time Liberty, you dumb shit. Take your head out of your ass and understand that Philidor was Valeant's only viable option for future global growth, understand that Valeant does not run a decentralized business model and that Pearson, despite running a company with thousands and thousands of employees, for sure knew exactly, I MEAN EXACTLY, what was going on on a day-to-day basis at Philidor. He is the type of guy that runs EVERYTHING. He knew they crossed the line between aggressiveness and illegality - HE WAS THERE THE WHOLE TIME. CLEARLY.

 

Speaking of McKinsey, how do you rise to the top of McKinsey's global pharma practice with directness, and lacking PR and communication abilities? There is only one possible answer: Bribes. There is no other way, clearly. It has to be bribes. Only bribes. Bribes.

 

He's an aggressive bribe-taking, control-freakin', never take "no" for an answer, Parker fondling, take-over addicted, Mckinsey call center hooer.

 

100% sure of that. And God bless Andrew Left.

Wow, angry much?

 

Not directed at you. Your posts are balanced. Its just several people have been implying Liberty is being too optimistic and leaning to management's side, implying he can't see the other side of the story. And that is not the case.

[Guest Schwab711]

OM, here is what I am talking about:

 

In 2012 gross sales (millions) were $4,068 with provisions of $779; net sales of $3,289 or 19% provisions to sales.

 

In 3Q 2015 gross sales were $4,666 with provisions of $1,918; net sales of $2,748 or 41% provisions to sales.

 

And look at their commentary under it:

 

The increase was driven primarily by product mix due to increased sales of products which carry higher

contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual

price increase limitations.  Specifically, the comparisons were impacted by (i) higher provisions for rebates, chargebacks, and returns, including managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including

Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii) higher rebate percentages for sales to

the U.S. government (including Wellbutrin XL®).

 

Does that sound like a durable portfolio with Philidor gone?  They're pushing more product through these different channels with bigger discounts to get more volume.  Now that Philidor is no longer driving that, I can't see how you won't get some bad numbers out of those fast growing drugs in that channel.  Suddenly amortization becomes a real cost in that scenario.  And that scenario was Valeant losing Philidor.  Tt's no wonder they didn't want to distance themselves from Philidor right off the bat.  They had to wait until they were forced to do it.

 

This does seem under-appreciated.

[Picasso]

Schwab, 2016 EBITA guidance was $7.5 billion not $4.5 billion just FYI.

[original mungerville]

No Liberty, you are fuckin' wrong. Pearson knew, he's been at the call center the whole time - cubicle 1013, in fact. Right next to Peter Parker in cubicle 1014. After he wound down the Allergan acquisition from that cubicle, him and Parker went out for a night on the town. The next morning he woke up and decided he better refocus on operating the entire Valeant company from there, and after that and then getting bored over the next few months trying to get payers to pay for various doctor-prescribed medicines, and not taking "no" for an answer at the call center he said "fuck this shit, Parker you keep going girl, I got other shit to do", he then went after Salix - all from that same cubicle. His McKinsey ass has been in that call-center cubicle the whole time Liberty, you dumb shit. Take your head out of your ass and understand that Philidor was Valeant's only viable option for future global growth, understand that Valeant does not run a decentralized business model and that Pearson, despite running a company with thousands and thousands of employees, for sure knew exactly, I MEAN EXACTLY, what was going on on a day-to-day basis at Philidor. He is the type of guy that runs EVERYTHING. He knew they crossed the line between aggressiveness and illegality - HE WAS THERE THE WHOLE TIME. CLEARLY.

 

Speaking of McKinsey, how do you rise to the top of McKinsey's global pharma practice with directness, and lacking PR and communication abilities? There is only one possible answer: Bribes. There is no other way, clearly. It has to be bribes. Only bribes. Bribes.

 

He's an aggressive bribe-taking, control-freakin', never take "no" for an answer, Parker fondling, take-over addicted, Mckinsey call center hooer.

 

100% sure of that. And God bless Andrew Left.

 

Oh my god, I'm dying over here.

 

Apparently you guys can't take a joke? Here, let me plunk in some smiley faces:  :) ;D ;) 

[rb]

Valueact can do a lot of things - to name a few:

 

    - they can change incentives to management

    - they can change management

    - they can change the board composition

    - effect changes to the company org structure

    - make changes to the business model

 

I am expecting Valueact to act quickly to stem the damage

 

 

If WSJ article is true (Valeant employees using pseudonyms and working in Philidor), given the Philidor volumes, I dont know how management wouldnt be aware.

 

That said, management will never acknowledge they knew - ala Volkswagen.  I expect Valueact to take some step to salvage their image and dollars. ( and take steps to re-assure the fidgety investors )

Not to pick on you, but what exactly do you think that valueact can do?

Wow! They can do all that with just about 5% ownership? From your post it sounds like they own the company. Change management? You mean fire Mike Pearson? Let's be real here

[Picasso]

I definitely got your joke OM, it seriously made me laugh.  You should use that humor more often.

[Guest Schwab711]

Schwab, 2016 EBITA guidance was $7.5 billion not $4.5 billion just FYI.

 

Haha I know. I'm just going off OM's quote. Hopefully he meant $7.5b and I'll withdraw my objection. A lot of numbers are made up in this thread so my objection is based on the assumption that EBITDA -> FCF conversion is ~90%.

[Picasso]

EBITA to FCF is definitely not 90%.  FCF should be around 80-90% of cash EPS.  Cash EPS does not equal EBITA.

[rb]

Valueact has affected changes with even lower ownership in other companies. They have talked or are in the process of talking to the top 10 shareholders - I expect them to act and make needed changes.

 

Valueact can do a lot of things - to name a few:

 

    - they can change incentives to management

    - they can change management

    - they can change the board composition

    - effect changes to the company org structure

    - make changes to the business model

 

I am expecting Valueact to act quickly to stem the damage

 

 

If WSJ article is true (Valeant employees using pseudonyms and working in Philidor), given the Philidor volumes, I dont know how management wouldnt be aware.

 

That said, management will never acknowledge they knew - ala Volkswagen.  I expect Valueact to take some step to salvage their image and dollars. ( and take steps to re-assure the fidgety investors )

Not to pick on you, but what exactly do you think that valueact can do?

Wow! They can do all that with just about 5% ownership? From your post it sounds like they own the company. Change management? You mean fire Mike Pearson? Let's be real here

I guess we'll see. It may be interesting. We'll all definitely learn something out of this.

[original mungerville]

OM, here is what I am talking about:

 

In 2012 gross sales (millions) were $4,068 with provisions of $779; net sales of $3,289 or 19% provisions to sales.

 

In 3Q 2015 gross sales were $4,666 with provisions of $1,918; net sales of $2,748 or 41% provisions to sales.

 

And look at their commentary under it:

 

The increase was driven primarily by product mix due to increased sales of products which carry higher

contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual

price increase limitations.  Specifically, the comparisons were impacted by (i) higher provisions for rebates, chargebacks, and returns, including managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including

Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii) higher rebate percentages for sales to

the U.S. government (including Wellbutrin XL®).

 

Does that sound like a durable portfolio with Philidor gone?  They're pushing more product through these different channels with bigger discounts to get more volume.  Now that Philidor is no longer driving that, I can't see how you won't get some bad numbers out of those fast growing drugs in that channel.  Suddenly amortization becomes a real cost in that scenario.  And that scenario was Valeant losing Philidor.  It's no wonder they didn't want to distance themselves from Philidor right off the bat.  They had to wait until they were forced to do it.

 

What percent of net went through Philidor in Q3? Schwab, not that I can trust his numbers, says 9% of income. Pearson says it is lower margin, so lets assume 12% of sales. So how can the other 88% of those numbers not be sustainable? This issue is not affecting the entirety of Valeant at this point although they could get a bit better PR going in a hurry.

 

By the way, Pearson said it was 7% for Q32015 not Schwab's 9%. And I think the Pearson number is 7% of revenues so even less in terms of profit (as they mentioned lower margins through this channel I believe). In any case, pick a number, and the rest of the sales don't go poof or anything right?

[Picasso]

OM, where is the growth coming from?

 

Salix

Assisted co-pay products like Jublia, Solodyn, etc.

 

And why are those products showing growth?  Higher provisions for co-pay assistance and rebates, etc.  That's now gone with Philidor out of commission. 

 

So what about B+L?  We won't know because of these comments from Pearson:

 

B&L continued to demonstrate strong organic growth led by Rx Pharmaceuticals in the United States, our US contact lens business, and our emerging markets. Q2 revenues increased to $836 million from Q1 revenues of $745 million. We continue to expect B&L organic growth to be approximately 10% for the full year. As we approach our two-year anniversary of the B&L acquisition, we have fully integrated the business and manage it as an integrated eye health portfolio. Therefore this will be the last quarter that we breakout the US B&L organic growth by sub-category.

 

The growth is gone without Philidor and you're having stuff like Marathon fall off.  If the growth is gone then we have some issues with cash EPS because now you have to account for that cost.  It's not the full amortization of course, but it's something. 

[Guest Schwab711]

OM, here is what I am talking about:

 

In 2012 gross sales (millions) were $4,068 with provisions of $779; net sales of $3,289 or 19% provisions to sales.

 

In 3Q 2015 gross sales were $4,666 with provisions of $1,918; net sales of $2,748 or 41% provisions to sales.

 

And look at their commentary under it:

 

The increase was driven primarily by product mix due to increased sales of products which carry higher

contractual rebates and co-pay assistance programs, including the impact of gross price increases where customers receive incremental rebates based on contractual

price increase limitations.  Specifically, the comparisons were impacted by (i) higher provisions for rebates, chargebacks, and returns, including managed care rebates for Jublia® and the co-pay assistance programs for launch products and other promoted products including

Jublia®, Onexton®, Retin-A Micro® Microsphere 0.08% (“RAM 0.08%”), and Solodyn®, as well as Salix products and (ii) higher rebate percentages for sales to

the U.S. government (including Wellbutrin XL®).

 

Does that sound like a durable portfolio with Philidor gone?  They're pushing more product through these different channels with bigger discounts to get more volume.  Now that Philidor is no longer driving that, I can't see how you won't get some bad numbers out of those fast growing drugs in that channel.  Suddenly amortization becomes a real cost in that scenario.  And that scenario was Valeant losing Philidor.  It's no wonder they didn't want to distance themselves from Philidor right off the bat.  They had to wait until they were forced to do it.

 

What percent of net went through Philidor in Q3? Schwab, not that I can trust his numbers, says 9% of income. Pearson says it is lower margin, so lets assume 12% of sales. So how can the other 88% of those numbers not be sustainable? This issue is not affecting the entirety of Valeant at this point although they could get a bit better PR going in a hurry.

 

 

* Specialty pharmacies represented 9% of sales during 3Q15.

 

Just Philidor was 7% of revenue in 3Q15. Philidor is just one of many specialty pharmacies. I can't find the transcript but it's 9% of revenue for specialty pharmacies. Your reading comprehension needs work.

 

I'm reminded of a certain Billy Madison scene.

[original mungerville]

I am not following how the growth suddenly dies here with Philidor out the picture. (Let's leave Marathon aside for now.)

 

 

[original mungerville]

Schwab saying 9% of revenues, lets go with that. Pearson says lower margin biz, so 7% or 8% of EBITDA / cash EPS?

 

Ackman claims 50% will be gone, I'll assume 75%. So EBITDA / cash EPS takes a hit of 6%...

 

Leaving aside Marathon for a second, you see no growth with a 6% hit when organic growth is double digits?

[rb]

Schwab saying 9% of revenues, lets go with that. Pearson says lower margin biz, so 7% or 8% of EBITDA / cash EPS?

 

Ackman claims 50% will be gone, I'll assume 75%. So EBITDA / cash EPS takes a hit of 6%...

 

Leaving aside Marathon for a second, you see no growth with a 6% hit when organic growth is double digits?

I don't quite follow why you think that the decline in EBITDA will be proportional to the decline in revenues. The marginal cost for the last pills will be quite small. So when you're talking about economic effect actually the margin on these should be quite high - maybe around 80% (just finger in the air)

[Guest roark33]

OM, where is the growth coming from?

 

Salix

Assisted co-pay products like Jublia, Solodyn, etc.

 

And why are those products showing growth?  Higher provisions for co-pay assistance and rebates, etc.  That's now gone with Philidor out of commission. 

 

So what about B+L?  We won't know because of these comments from Pearson:

 

B&L continued to demonstrate strong organic growth led by Rx Pharmaceuticals in the United States, our US contact lens business, and our emerging markets. Q2 revenues increased to $836 million from Q1 revenues of $745 million. We continue to expect B&L organic growth to be approximately 10% for the full year. As we approach our two-year anniversary of the B&L acquisition, we have fully integrated the business and manage it as an integrated eye health portfolio. Therefore this will be the last quarter that we breakout the US B&L organic growth by sub-category.

 

The growth is gone without Philidor and you're having stuff like Marathon fall off.  If the growth is gone then we have some issues with cash EPS because now you have to account for that cost.  It's not the full amortization of course, but it's something.

 

 

Co-pay assistance programs are available without Philidor, lots of other drug companies offer them, doctors hand out the cards, etc.  It won't be as easy, but they are available.  But, I am not in the camp that it won't hurt sales, but that there is some mitigation. 

[Picasso]

Let's break it out by segment.

 

B+L is no longer being disclosed for organic growth.  That's 14% sales we may not see growth in.  Otherwise why not just disclose it?

 

Salix is growing nicely still but it seems to be done at higher discounts as well.  Need to look into that further.

 

Emerging markets will be what they are.  Probably not that great in the near term.

 

But branded U.S. drugs are 43% of sales.  Look at slide 22 from the last earnings call.  41% growth with 17% from RX volume and 24% from price.  We only have 2014 annual data (it would be much more useful to get quarterly so we could see the effects of Philidor as it ramped up) but no matter.  Philidor would direct RX to their branded versus generic so we don't know if that's real RX volume.  And without Philidor directing various methods of reimbursement from insurance, pricing wouldn't be up as well.  So you're really throwing both drivers of organic growth out the window.

 

If you read through the Medicis conference calls you found that many of these branded generics in the typical channels like retail were not profitable at all.  These are mostly tier 3 and 4 drugs that pharmacies have no interest in helping sort out reimbursement. 

 

You're right that it's only 9% of sales versus that segment at 43% of total.  But that's where I'm starting to have trouble.  Valeant was suddenly able to drive price + volume right after the AGN deal fell through which coincided with the Philidor launch.  So either there is something we are missing (and key to the long thesis) or Valeant is lying about how much of revenue is being improved through these alternative channels.

[Picasso]

Co-pay assistance programs are available without Philidor, lots of other drug companies offer them, doctors hand out the cards, etc.  It won't be as easy, but they are available.  But, I am not in the camp that it won't hurt sales, but that there is some mitigation.

 

Right, and that is probably where you have to look at price/volume before Philidor to get an idea of those sales trends.  That was a huge part of the AGN attack against VRX.  But organic growth picked up really fast all of a sudden (again as Philidor ramped up) which coincided with the stock rallying to $260 from $120. 

 

I don't necessarily want to be the conspiracy theorist on this but after everything we've seen, maybe it's a good idea to try and cross check the 9% figure to what we can actually measure.  Otherwise maybe people are just suddenly ordering a bunch of foot and face creams.  I don't know....

[Picasso]

Last thing I want to mention is a mistake I (and maybe others like Sequoia) are making when trying to value the business.

 

We're taking management guidance of $16 cash EPS and sucking out what might go away (like neuro, other, some branded volume).  So we say "oh, that leaves $12, this trades for 8x."  Or Sequoia who uses consensus EPS of $16 to say it's inexpensive.

 

Maybe we should look at cash EPS for this year and start making adjustments based on what we can reasonably assess.  We need to throw their guidance out the window and just work up from what we can consider trough earnings (whether that is a blend of 2014/2015 for branded and some adjustments to the rest of the portfolio while putting neuro/other into runoff and excluding it from cash EPS).