VRX - Valeant Pharmaceuticals International Inc.

[LongHaul]

If you are old enough, you will recall the 60s and early 70s when the corporate Earth was ruled by great beasts named Bluhdorn (Gulf+Western), Ling (LTV), Riklis (Rapid American) and others who acquired everything in sight and used accounting nonsense to paint up earnings until the game ended and they collapsed. Those beasts died an ugly death, their companies passed away and the Earth was saved. That is, until Enron and Tyco and some others emerged earlier this century. And now we have the most modern of modern day beasts, Valeant, run no less than by a "McKinsey Master of the Universe." Same old stuff, different day. The only disappointment that I have about Valeant is that money managers who I respect could not help themselves and bought millions of shares of this trash. Shame on them. And shame on people like gio who keep trying to pump up this stock.

 

Well a lot has happened this month.

 

+100

You nailed it.

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

[feynmanresearch]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

[merkhet]

I don't think most posters here are unhappy about the price increases. (TBF, I suspect there are a small handful that are...)

 

I think most posters here are unhappy about (A) the articles coming out that say Philidor has been changing prescriptions in terms of drug type and/or amounts and (B) the way that Valeant has handled the entire situation which casts aspersions (possibly deservedly so) on Valeant's modus operandi.

[Picasso]

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

 

You have a good point there.  I've always argued that with MCD or KO or KRFT, whatever.  But society gets to choose to drink or consume those products.  You don't need to drink Coca Cola.

 

However when you have a rare form of a fatal disease and you are forced to pay a high price for a cure which exists, that's a different story.

 

And society has chosen that you should be protected from being unable to reasonable purchase something which can save your life, if that treatment is available.  It's not a popular opinion to say market forces will determine the market price.

 

If Valeant had the cure for all cancers, could they charge $1 million per treatment?  I bet a lot of people would find a way to save their loved ones by coming up with that cash if insurance won't cover it.  But society has said that is unfair.

 

Maybe one day these drug companies get regulated and returns on equity end up being capped at a certain level. 

 

Edit: Anyway this isn't the bear case for Valeant.  Most of their business isn't coming from this "immorality."

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

Consumers don't willingly buy Valeant's products?

[feynmanresearch]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

Consumers don't willingly buy Valeant's products?

Have you been reading on the story, or do you just like to make stuff up?

[cmlber]

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

 

You have a good point there.  I've always argued that with MCD or KO or KRFT, whatever.  But society gets to choose to drink or consume those products.  You don't need to drink Coca Cola.

 

However when you have a rare form of a fatal disease and you are forced to pay a high price for a cure which exists, that's a different story.

 

And society has chosen that you should be protected from being unable to reasonable purchase something which can save your life, if that treatment is available.  It's not a popular opinion to say market forces will determine the market price.

 

If Valeant had the cure for all cancers, could they charge $1 million per treatment?  I bet a lot of people would find a way to save their loved ones by coming up with that cash if insurance won't cover it.  But society has said that is unfair.

 

Maybe one day these drug companies get regulated and returns on equity end up being capped at a certain level. 

 

Edit: Anyway this isn't the bear case for Valeant.  Most of their business isn't coming from this "immorality."

 

Valeant's product portfolio is without any doubt, worth substantially more to society than Coca Cola's product portfolio.  And Coca-Cola's product portfolio generates twice as much free cash flow.

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

Consumers don't willingly buy Valeant's products?

Have you been reading on the story, or do you just like to make stuff up?

 

What stuff am I making up?  Yes I have been reading on the story...

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

If I sold an AK-47 to a 10 year old (or anybody for that matter), is it moral because both sides of the transaction willingly engaged?

 

[Picasso]

Consumers don't willingly buy Valeant's products?

 

I don't think anyone really cares that Valeant raises the price on some branded foot or face cream. 

 

The issue is the method they go about forcing sales of those products by using very aggressive techniques of filling prescriptions.  Such as changing codes to specifically fill their branded product versus the generic, using other pharmacy ID's to trick insurance companies to pay, etc.  Not that insurance companies are ethical themselves, but that kind of behavior was altering what typically would occur in a free market.  Instead Valeant was forcing the purchase of their product by pretending they were not the owners of the pharmacy that was directly altering those prescriptions.  Big difference.

 

If Valeant raises the prices and it flows through normal channels and people choose to pay more for it, fine.  But that's not what was going on here.  Illegal or not, they've chosen to cut ties with that approach and now it's back to the normal channels and we'll see what profits will look like given that dramatic 180. 

 

So far we haven't seen evidence of "immorality" beyond 70% of their drug portfolio. 

[rb]

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

 

You have a good point there.  I've always argued that with MCD or KO or KRFT, whatever.  But society gets to choose to drink or consume those products.  You don't need to drink Coca Cola.

 

However when you have a rare form of a fatal disease and you are forced to pay a high price for a cure which exists, that's a different story.

 

And society has chosen that you should be protected from being unable to reasonable purchase something which can save your life, if that treatment is available.  It's not a popular opinion to say market forces will determine the market price.

 

If Valeant had the cure for all cancers, could they charge $1 million per treatment?  I bet a lot of people would find a way to save their loved ones by coming up with that cash if insurance won't cover it.  But society has said that is unfair.

 

Maybe one day these drug companies get regulated and returns on equity end up being capped at a certain level. 

 

Edit: Anyway this isn't the bear case for Valeant.  Most of their business isn't coming from this "immorality."

The issue with Valeant's pricing is not that it's high. If Valeant cured cancer and spent a lot of money and a lot of work on it I'd have no problem for them to make a profit. Maybe there should be a cap on that but I don't know. I can get behind the argument that pharmas charge a lot for drugs cause making new drugs is expensive. That argument may have it's problems but it has a lot of truth in it.

 

The thing is that Valeant charges a lot of money and turns around and says fuck the R&D. So when you buy expensive Valeant drugs you're no subsidizing life saving treatments it's just a pure transfer of wealth from society to shareholders and the shareholders of the acquired companies. That's not so cool. It gets even worse when Valeant uses every tool it has to sell ridiculously expensive versions of generic drugs. It's basically a Private Equity company wrapping itself with the life saving cloak. Well that's a little too much hypocrisy for me to swallow.

[cmlber]

Consumers don't willingly buy Valeant's products?

 

I don't think anyone really cares that Valeant raises the price on some branded foot or face cream. 

 

The issue is the method they go about forcing sales of those products by using very aggressive techniques of filling prescriptions.  Such as changing codes to specifically fill their branded product versus the generic, using other pharmacy ID's to trick insurance companies to pay, etc.  Not that insurance companies are ethical themselves, but that kind of behavior was altering what typically would occur in a free market.  Instead Valeant was forcing the purchase of their product by pretending they were not the owners of the pharmacy that was directly altering those prescriptions.  Big difference.

 

If Valeant raises the prices and it flows through normal channels and people choose to pay more for it, fine.  But that's not what was going on here.  Illegal or not, they've chosen to cut ties with that approach and now it's back to the normal channels and we'll see what profits will look like given that dramatic 180. 

 

So far we haven't seen evidence of "immorality" beyond 70% of their drug portfolio.

 

Directly altering a prescription is not in itself unethical or immoral.  All we know is prescriptions were altered to say the doctor prefers the brand.  Do we know that it was changed without the doctors consent?  No, we do not.  In all likelihood, the manual said call the doctor if a script doesn't say fill as written and ask if they would like it to say fill as written.  Some % of the time, they probably say yes, and Valeant makes more money.  Is that immoral?

 

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

If I sold an AK-47 to a 10 year old (or anybody for that matter), is it moral because both sides of the transaction willingly engaged?

Yes

 

Was that sarcasm?  Yes it is moral for me to sell an AK-47 to a 10 year old if he willingly purchased it?

[rb]

So far we haven't seen evidence of "immorality" beyond 70% of their drug portfolio.

So they're only a little bit pregnant?

[cmlber]

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

 

You have a good point there.  I've always argued that with MCD or KO or KRFT, whatever.  But society gets to choose to drink or consume those products.  You don't need to drink Coca Cola.

 

However when you have a rare form of a fatal disease and you are forced to pay a high price for a cure which exists, that's a different story.

 

And society has chosen that you should be protected from being unable to reasonable purchase something which can save your life, if that treatment is available.  It's not a popular opinion to say market forces will determine the market price.

 

If Valeant had the cure for all cancers, could they charge $1 million per treatment?  I bet a lot of people would find a way to save their loved ones by coming up with that cash if insurance won't cover it.  But society has said that is unfair.

 

Maybe one day these drug companies get regulated and returns on equity end up being capped at a certain level. 

 

Edit: Anyway this isn't the bear case for Valeant.  Most of their business isn't coming from this "immorality."

The issue with Valeant's pricing is not that it's high. If Valeant cured cancer and spent a lot of money and a lot of work on it I'd have no problem for them to make a profit. Maybe there should be a cap on that but I don't know. I can get behind the argument that pharmas charge a lot for drugs cause making new drugs is expensive. That argument may have it's problems but it has a lot of truth in it.

 

The thing is that Valeant charges a lot of money and turns around and says fuck the R&D. So when you buy expensive Valeant drugs you're no subsidizing life saving treatments it's just a pure transfer of wealth from society to shareholders and the shareholders of the acquired companies. That's not so cool. It gets even worse when Valeant uses every tool it has to sell ridiculously expensive versions of generic drugs. It's basically a Private Equity company wrapping itself with the life saving cloak. Well that's a little too much hypocrisy for me to swallow.

 

Well this argument gets right back to the Coca-Cola question then.  Coca-Cola makes twice as much money and also doesn't do R&D.  So is the immoral part making a bunch of money on low volume?  So low volume is the line that determines morality? 

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

If I sold an AK-47 to a 10 year old (or anybody for that matter), is it moral because both sides of the transaction willingly engaged?

Yes

 

Was that sarcasm?  Yes it is moral for me to sell an AK-47 to a 10 year old if he willingly purchased it?

 

No sarcasm here.

 

Wow.  Ok, so let's go a step further, if I sell a nuclear weapon to a known terrorist, is that immoral?  Or not since it was a willing exchange?

[Liberty]

http://www.wsj.com/articles/valeant-short-seller-dials-back-warning-of-bombshell-report-on-monday-1446417120

[cmlber]

What makes one business moral and another immoral?  Price increases is the bright line of immorality?

 

Let's compare Coca-Cola, which Charlie Munger has no issue with, and Valeant, which Charlie Munger says is highly immoral.

 

One generates $8 billion per year in free cash flow selling sugar water that is a huge contributor to the obesity epidemic that costs the US $150 billion per year.

 

One generates $5 billion per year (if we give management credit for 2016 cash EPS guidance) selling a diversified portfolio of healthcare products, most of which are highly valuable, some of which are overpriced with little value.

 

Which is more immoral?

 

I'd argue the costs to the US healthcare system of Coca Cola's products are in excess of the profit generated by Valeant's overpriced products.

You forgot one little thing-consumers buy Coca-Cola products willingly, for the most part.

 

If I sold an AK-47 to a 10 year old (or anybody for that matter), is it moral because both sides of the transaction willingly engaged?

Yes

 

Was that sarcasm?  Yes it is moral for me to sell an AK-47 to a 10 year old if he willingly purchased it?

 

Wow.  Ok, so let's go a step further, if I sell a nuclear weapon to a known terrorist, is that immoral?  Or not since it was a willing exchange?

No sarcasm here.

It's a free market, there are always people willing to sell nuclear weapons.I don't see anything wrong as long as they are WILLING to buy the product. Defense contractors devise weapons that will be used in a war that can be construed as unjust. Is that immoral?

 

Sorry, but you're an idiot if you think Valeant's actions are immoral but selling a nuclear weapon to a known terrorist is moral.

 

[rb]

cmlber, give it a rest dude. The pharma customer has no idea what he's buying. None. He goes to the doctor who issues a scrip. He goes to get it filled. He doesn't know that's a drug who's price got jacked to shit by Valeant. He doesn't know that there's a generic version available for a fraction of the cost. He can't comparison shop. And he may or may not be able to do without the drug. This is why ethics is a central part of medicine. Because in medicine you can screw your customer in a lot of legal ways.

[rb]

No, you are the idiot here my friend. You are pretty challenged if you think what Coca-Cola is doing is worse than Valeant.

I'm sorry, I don't think our fellow poster is either an idiot or challenged. Just willfully disingenuous.

[cmlber]

No, you are the idiot here my friend. You are pretty challenged if you think what Coca-Cola is doing is worse than Valeant.

I'm sorry, I don't think our fellow poster is either an idiot or challenged. Just willfully disingenuous.

 

What is willingly disingenuous about what I said?

 

I do think that a lot of what Valeant does is immoral.  I also think a lot of what Coca-Cola does is immoral.  I was just pointing out what I think is hypocritical about Mungers statement.  And I think anybody who says voluntary exchange is always moral is absolutely wrong.  That logic implies slavery is moral, because there is a willing exchange.

 

[Picasso]

The issue with Valeant's pricing is not that it's high. If Valeant cured cancer and spent a lot of money and a lot of work on it I'd have no problem for them to make a profit. Maybe there should be a cap on that but I don't know. I can get behind the argument that pharmas charge a lot for drugs cause making new drugs is expensive. That argument may have it's problems but it has a lot of truth in it.

 

The thing is that Valeant charges a lot of money and turns around and says fuck the R&D. So when you buy expensive Valeant drugs you're no subsidizing life saving treatments it's just a pure transfer of wealth from society to shareholders and the shareholders of the acquired companies. That's not so cool. It gets even worse when Valeant uses every tool it has to sell ridiculously expensive versions of generic drugs. It's basically a Private Equity company wrapping itself with the life saving cloak. Well that's a little too much hypocrisy for me to swallow.

 

 

It's the same reason no one is building a massive short campaign against BUD or KHC or QSR.  They're not operating in industries where immediate life or death decisions are made.  Valeant has been able to take advantage of this and it was part of what made the story so lucrative.  They were willing to pick up the returns other pharmaceuticals left behind.  It's just happening in an industry people think it shouldn't happen in.  That seems to tie into Munger's latest comments as well.

 

But there's more to Valeant than price gouging or redirecting sales into their own pharmacy channels.  They can cut costs on a health care related business with lots of fat and apply leverage and a low tax rate to get very good returns.  Right now the market is focused on the negatives, but I think Valeant can still succeed by refocusing on less touchy areas where their platform can still create value.  But right now Pearson has to defend his job against two very costly mistakes.

[ccplz]

No, you are the idiot here my friend. You are pretty challenged if you think what Coca-Cola is doing is worse than Valeant.

I'm sorry, I don't think our fellow poster is either an idiot or challenged. Just willfully disingenuous.

 

What is willingly disingenuous about what I said?

 

I do think that a lot of what Valeant does is immoral.  I also think a lot of what Coca-Cola does is immoral.  I was just pointing out what I think is hypocritical about Mungers statement.  And I think anybody who says voluntary exchange is always moral is absolutely wrong.  That logic implies slavery is moral, because there is a willing exchange.

 

Slavery is the opposite of a willing exchange.

 

 

[feynmanresearch]

No, you are the idiot here my friend. You are pretty challenged if you think what Coca-Cola is doing is worse than Valeant.

I'm sorry, I don't think our fellow poster is either an idiot or challenged. Just willfully disingenuous.

 

What is willingly disingenuous about what I said?

 

I do think that a lot of what Valeant does is immoral.  I also think a lot of what Coca-Cola does is immoral.  I was just pointing out what I think is hypocritical about Mungers statement.  And I think anybody who says voluntary exchange is always moral is absolutely wrong.  That logic implies slavery is moral, because there is a willing exchange.

Okay, so going back to your example, let's say we have a 12 year old in a war zone in some African country. His tribe/family/whatever is in danger for their life. Would you deny the kid the right to buy a gun/rifle from you?