VRX - Valeant Pharmaceuticals International Inc.

[Picasso]

Common stock is like $35 billion not $10 billion.  Free cash flow is going to be who knows what next year.  Maybe $3 billion?  On a $35 billion company yeah that's like a 8.5% FCF yield.  Unlevered maybe 7.5% FCF yield if you add back the interest and tax savings of the debt.

 

But yeah there's a lot of other similar returns out there.

[ERICOPOLY]

The reason why I don't dismiss Reitz over this superficial "lie" is that the man is a licensed pharmacist in California at age 64.  I think it's worth hearing what he has to say.

 

Who fed you this story about him "lying" over 60+ emails from Valeant?  Did you fact check that with Reitz or are you accepting Valeants show trial of Reitz?

 

How the fuck could Reitz have known for sure that Valeant was consolidated with Philador given that the relationship was held through a secret option relationship?  So when he says he's never heard of Valeant after getting so many emails from them, doesn't it seem more likely that he is quoted out of context in order to be made to look like a liar so you guys would gobble it down hook, line and sinker?

 

Maybe Reitz was really saying "i don't understand what Valeant's ties are to Philidor which is where the checks normally go"

 

I'd like to hear Reitz side of the story rather than hear the interpretation of it from Valeant -- i don't need the show-trial version of what Reitz meant -- i need to hear Reitz rebuttal.

 

Is this how things are done in Canada?

That's not how things are done in Canada. And let's leave Canada out of it. Valeant is an American pharma with a Canadian address of convenience. The CEO is not even at headquarters. His office is in New Jersey. I'm frankly getting annoyed from reading all the newspapers talking about Canada's Valeant.

 

You missed the joke.

 

this morning there were some "that's not what happens in Canada" comments.  They were saying that in Canada you conduct a full trial before throwing a guy like Pearson under the bus.

 

So I'm saying let's do the same for Reitz!  Too many have thrown him under the bus without an investigation.  He is a convicted liar of Valeant's show trial and so I'm saying he needs equal time.

 

 

[rb]

You missed the joke.

 

this morning there were some "that's not what happens in Canada" comments.  They were saying that in Canada you conduct a full trial before throwing a guy like Pearson under the bus.

 

So I'm saying let's do the same for Reitz!  Too many have thrown him under the bus without an investigation.  He is a convicted liar of Valeant's show trial and so I'm saying he needs equal time.

No, I picked up on it cause I saw the other guys post. But Canada's Valeant's been eating at me for a while so I guess I took the chance to open that relief valve.  ;)

[rb]

i just have a general question about businesses models involving inorganic growth by acquisitions - the VRX and the likes---

 

Would you consider the acquisition cost part of the 'capital expenditure' in the owner's earning ?  I am wondering if companies like these need to keep making acquisitions ---- is the acquisition cost part of the business model and therefore should be a capital expenditure    Or that's completely wrong ?

 

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

But if I spend money on it to make the business better or maintain its competitive position, then that's a capital expenditure.

 

 

Thanks

So if I build a mine I make more earnings and that's capex. But if someone builds a mine, I but his mine, I make more exrnings, that's not capex? What's the difference?

[sampr01]

Wally Weitz backs up the *dump* truck...

 

http://finance.yahoo.com/news/value-investor-wally-weitz-sells-203424264.html

 

Eric

 

He had 251,900 shares as of 06/30/2015. That's not exactly backing up the dump  truck.

[original mungerville]

I'm down the street from the West Wilshire Pharmacy.  I should drive by and peer in the window to see what's up.  Eric aren't you close by as well?  I'll meet you down there for a cup of coffee at McCafe next door.

 

Check out this world class distribution facility, lol: https://www.google.com/maps/place/West+Wilshire+Pharmacy/@34.0635352,-118.3663159,3a,75y,347.11h,92.12t/data=!3m6!1e1!3m4!1sMEj8L4fqONsNnK1nz4m2Mw!2e0!7i13312!8i6656!4m2!3m1!1s0x0:0xc9e914713241498c!6m1!1e1

 

Anyway I think investors are missing the big deal about Philidor.  It isn't just the fraud.  Everyone thought they had a durable portfolio because despite cutting R&D and SG&A they had organic growth from both pricing and sales.  No one brought up the reason why that was: Philidor and alternative fulfillment.  Well guess what, the shorts got that side business killed whether there's fraud or not.  Now all of a sudden there's this "cash EPS' which adds back 100% of amortization and some of that cash EPS is now considered a return of capital.  You can no longer give a 15x multiple to all of cash EPS.  I haven't seen anyone try to figure out what's durable and what isn't now that Philidor is gone.  Or whether Valeant has used other methods to make their business appear more durable than it actually is.  Most bulls (including myself at one point) thought, "oh cool, these guys have sustainable cash flows on practically everything in their portfolio based on organic growth."  No one, not even Ackman, has said they made a mistake and the portfolio of assets are now less "durable."

 

Picasso, there was 15% organic growth ytd, specialty pharma is 7% of revenue, so even if that was all new there was still 8% organic growth.

 

Secondly, lets see what it would look like if Valeant just became a normal pharma company.  Big pharma companies who everybody thinks have sustainable earnings spend 15-20% on R&D.  So if you add $2 billion in R&D per year for Valeant so that it becomes one of the heaviest R&D spenders, and you take off the 7% specialty pharma sales from 2016 guidance, you'd still get $9/share cash EPS with above industry average R&D spend that Valeant would spend way more efficiently than big pharma companies.

 

Except that you are wrong on your organic growth calculation - its too conservative. With specialty at 7% of revenue, we have to assume there was some revenue there last year as well, so the contribution of specialty to overally growth has to be less than 7% of revenue. So north of 8%, maybe 10% growth.

 

And then you have to back out Marathon growth from that which will bring those numbers down.

 

If I assume 9% growth remains (after backing out all sales/growth from Philidor, and not assuming it flows to other channels), the Marathon drugs would actually not need to be deducted as Marathon was purchased in early 2015 and so won't show up in year-over-year organic growth numbers. (They are doing about $400M/year in Marathon revenues which is about 4-5% of total revenues...but they may scale that back going forward.) Anyway, looks like about 9% organic growth remains on the assumption the rest of the distribution is legit.

[rishig]

i just have a general question about businesses models involving inorganic growth by acquisitions - the VRX and the likes---

 

Would you consider the acquisition cost part of the 'capital expenditure' in the owner's earning ?  I am wondering if companies like these need to keep making acquisitions ---- is the acquisition cost part of the business model and therefore should be a capital expenditure    Or that's completely wrong ?

 

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

But if I spend money on it to make the business better or maintain its competitive position, then that's a capital expenditure.

 

 

Thanks

 

If you buy a business and don't spend any money on it, then it becomes a depleting asset with a finite life. You should not value it using a multiple of 8x, but use a DCF over a finite period.

[rishig]

i just have a general question about businesses models involving inorganic growth by acquisitions - the VRX and the likes---

 

Would you consider the acquisition cost part of the 'capital expenditure' in the owner's earning ?  I am wondering if companies like these need to keep making acquisitions ---- is the acquisition cost part of the business model and therefore should be a capital expenditure    Or that's completely wrong ?

 

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

But if I spend money on it to make the business better or maintain its competitive position, then that's a capital expenditure.

 

 

Thanks

For certain companies that acquire strategically -it can be argued that they are making the acquisition in lieu of R&D/or to maintain a level of operating performance/bolster the competitive position of their existing offerings.  These acquisitions are usually considered capex.

 

What you said:

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

Is true so long as the returns generated by the business can be maintained without having to spend capex.  Or more specific to VRX, whether the income stream from acquired businesses are "durable."  If they are not durable then they are melting ice cubes and to some extent VRX has to keep buying these ice cubes to report the type of performance shareholders are use to (and adding back acquisition related costs is disingenuous and not an accurate proxy for the true economic benefit of ownership (you can't actually take the money out of the business without impairing future results).

 

+1. That's what I was trying to say, but you said it better.

[rishig]

I'm down the street from the West Wilshire Pharmacy.  I should drive by and peer in the window to see what's up.  Eric aren't you close by as well?  I'll meet you down there for a cup of coffee at McCafe next door.

 

Check out this world class distribution facility, lol: https://www.google.com/maps/place/West+Wilshire+Pharmacy/@34.0635352,-118.3663159,3a,75y,347.11h,92.12t/data=!3m6!1e1!3m4!1sMEj8L4fqONsNnK1nz4m2Mw!2e0!7i13312!8i6656!4m2!3m1!1s0x0:0xc9e914713241498c!6m1!1e1

 

Anyway I think investors are missing the big deal about Philidor.  It isn't just the fraud.  Everyone thought they had a durable portfolio because despite cutting R&D and SG&A they had organic growth from both pricing and sales.  No one brought up the reason why that was: Philidor and alternative fulfillment.  Well guess what, the shorts got that side business killed whether there's fraud or not.  Now all of a sudden there's this "cash EPS' which adds back 100% of amortization and some of that cash EPS is now considered a return of capital.  You can no longer give a 15x multiple to all of cash EPS.  I haven't seen anyone try to figure out what's durable and what isn't now that Philidor is gone.  Or whether Valeant has used other methods to make their business appear more durable than it actually is.  Most bulls (including myself at one point) thought, "oh cool, these guys have sustainable cash flows on practically everything in their portfolio based on organic growth."  No one, not even Ackman, has said they made a mistake and the portfolio of assets are now less "durable."

 

Picasso, there was 15% organic growth ytd, specialty pharma is 7% of revenue, so even if that was all new there was still 8% organic growth.

 

Secondly, lets see what it would look like if Valeant just became a normal pharma company.  Big pharma companies who everybody thinks have sustainable earnings spend 15-20% on R&D.  So if you add $2 billion in R&D per year for Valeant so that it becomes one of the heaviest R&D spenders, and you take off the 7% specialty pharma sales from 2016 guidance, you'd still get $9/share cash EPS with above industry average R&D spend that Valeant would spend way more efficiently than big pharma companies.

 

Except that you are wrong on your organic growth calculation - its too conservative. With specialty at 7% of revenue, we have to assume there was some revenue there last year as well, so the contribution of specialty to overally growth has to be less than 7% of revenue. So north of 8%, maybe 10% growth.

 

And then you have to back out Marathon growth from that which will bring those numbers down.

 

If I assume 9% growth remains (after backing out all sales/growth from Philidor, and not assuming it flows to other channels), the Marathon drugs would actually not need to be deducted as Marathon was purchased in early 2015 and so won't show up in year-over-year organic growth numbers. (They are doing about $400M/year in Marathon revenues which is about 4-5% of total revenues...but they may scale that back going forward.) Anyway, looks like about 9% organic growth remains on the assumption the rest of the distribution is legit.

 

Where do get these organic growth numbers from. I opened the 2014 10-K, searched for the word "organic" and no matches.

[LongHaul]

I shouldn't have to list out the mistakes. If you've followed the stock long enough you would know.

 

Partnering up with Ackman to buy Allergan. That rubbed a lot of people the wrong way, including judges where you don't want to make enemies.

 

Constantly shifting disclosures based on what looks financially appealing.

 

Stating they want to be a top 5 pharma by market cap by 2016.

 

Placing the Allergan gains into operating earnings instead of investment income.

 

Putting non weighted CAGR's in slide decks to show better growth numbers.

 

Improperly answering short allegations in recent 8-K's

 

Not responding to senator requests for information

 

Allowing Philidor to operate in an aggressive manner

 

Setting up VIE's to limit exposure to those captive pharmacies

 

Calling those pharmacies specialty pharmacies when they aren't

 

Acting dumb about Philidor disputes until being dropped by PBM's

 

Buying tail assets under heavy scrutiny from Congress such as Marathon to show higher short term cash flow growth

 

etc etc

 

I'd call all that behavior detroying what they initially had success at.

 

This is an excellent summary post of the deceptive stuff VRX mgmt has done. Thanks for doing it Picasso.  I would add the following:

 

1. Sanitas deal model cash was baloney and so was their explanation of it in the 8-k filed.

2. Incoherent organic growth.

3. Norma Provencio as head of the audit and risk committee.

 

Sam Walton had a great PR policy.  It was: "Tell the truth."

 

 

 

 

[lessthaniv]

I would love to know the  structure of the compensation contract for Andrew Davenport.

[stahleyp]

Wally Weitz backs up the *dump* truck...

 

http://finance.yahoo.com/news/value-investor-wally-weitz-sells-203424264.html

 

wouldn't this be a bullish signal? A guy selling (after it dropped) and has lagged the benchmark of 5 and 10 years - for most of his funds.

[ERICOPOLY]

1)

One of the things that Reitz said is that they never responded to his suggestion that widespread fraud was taking place.  Never!

 

2)

We also know that they've portrayed him as a liar because of some sideshow dispute over whether he knew what Valeant is.

 

3)

First you completely ignore his claims, then you discredit him so as to make it reasonable that you would have ignored his fraud claims (even though the fraud claims came first well before the nonpayment and the emails). 

 

4)

You operate a network of pharmacies in a limited liability structure and you as such will not be liable for any frauds that you were unaware of.  The cash making machine is still intact until the day you learn that fraud is taking place.

 

5) 

I believe the way it works is you would begin to be liable if you continue to operate the Philador structure after discovering evidence of a fraud. 

 

So refer back to step 1 and read this in a loop a few time.  Remember that Reitz is a pharmacist with a license, not a disreputable call girl.

 

 

[rpadebet]

Can someone please explain the fraud perpetrated on R&O? Is it the allegation that Rietz's california license was being used without his permission on prescriptions ?

 

I am unable to figure this out. VRX contracted Philidor to sell their drugs. Phillidor subcontracted R&O to sell in California due to them being denied a license to sell there. Phillidor purchases option to buy R&O. They believe they own the pharmacy. Rietz also knows this, but feels his contract limits him to dispensing drugs in California alone. R&O uses the relationship to direct prescriptions they sourced through other network pharmacies or sourced directly themselves, to dispense via R&O. (This could be because of simple logistics or because R&O could get the payors to pay the highest price for their drugs). R&O suddenly sees a deluge of prescriptions from everywhere with their license numbers on it. Rietz is now apparently scared of losing his license.

 

I would think - if Phillidor was using R&O license to sell in states he wasn't licensed in, then that is a problem. If they were dispensing drugs through R&O name in other states apart from California where he was licensed, then what is the problem? If they were putting R&O license number on California prescriptions which directly came to Philidor, then again, what is the issue?

 

On the other hand if phillidor was using the same prescription with multiple license numbers to get payors to pay multiple times for the same drug, then that would be insurance fraud. Is there evidence of that?

 

I don't see the illegality in using a subcontractors license number (which you practically own now) to direct prescriptions (which you sourced elsewhere) to be dispensed from and reimbursed. What is actually wrong or unethical about this?

 

 

Consider this - if Rietz is actually complaining about this deluge of sales being made on his license number, and wants to be compensated for this "privilege" his license number is affording Philidor, then that is a valid business argument. But that is not fraud. It is a collections dispute as Pearson said.

 

You need a license even as a manager/administrator of another pharmacy.  Instead Philidor/Isolani had no license but dispensed the drugs anyway under R&O's license.  And apparently others as well.

 

There's also very strict rules for a pharmacist-in-charge (PIC) who needs to make sure everything is up to code and he/she signs off on the audits.  Instead Isolani was signing off in place of the PIC.  It was shortly after that the PBM's dropped Philidor for failing audit standards.  I'm guessing they saw Eric Rice's signature on the forms instead of the real PIC.

 

None of that was being disputed by the counter suits from Valeant.  It's weird.  Like they just ignore all those accusations and say "hey you guys have our money, give it."

 

Thank you for the explanation Picasso, really appreciate it.

 

Based on what you said,

a) Is it illegal for a manufacturer or distributor to ship drugs directly to patients? Should the drugs be first shipped to the local pharmacy physically and only then the local pharmacy ships to the patient? I ask because, it is quite possible that, Philidor was booking the sales under R&O license and name, but instead of physically adding to R&O inventory (due to various reasons) they probably shipped directly. Is something like this kosher under California law?

 

b) if the PIC needs to sign off, then why were PBM's and others okay until now when someone else was signing them off until now? Are these sophisticated firms going to claim stupidity on their part? I get a feeling there is more to this part. Maybe it was an accepted practice within the industry (between manufacturers and pbm's), but now that the stuff is public everyone is suddenly following the letter of the law - is that possible?

 

But even if Philidor was wrong on both counts, I don't see fraud here.(no one lost money or died) At best they may have broken some California rules - so they will probably get away with an appropriately large fine, a ban or both. Now, with their business effectively dead, i am not sure if that fine is collectible unless Reitz pays them :).

 

I am concerned about the long term impact of this on VRX. Surely in the short term, some business will be lost. In the medium term that business will be regained and routed through alternate routes. What is the long term (5-10 years+ ) consequence of this drama? If there is no fraud then VRX survives. If they survive, they are either successful independently or are bought out. In both cases the current price seems  a bargain.

 

Like Gio said a few months back- if this is a fraudulent enterprise then it is worth 0 otherwise something more than this eventually.

[rpadebet]

i just have a general question about businesses models involving inorganic growth by acquisitions - the VRX and the likes---

 

Would you consider the acquisition cost part of the 'capital expenditure' in the owner's earning ?  I am wondering if companies like these need to keep making acquisitions ---- is the acquisition cost part of the business model and therefore should be a capital expenditure    Or that's completely wrong ?

 

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

But if I spend money on it to make the business better or maintain its competitive position, then that's a capital expenditure.

 

 

Thanks

For certain companies that acquire strategically -it can be argued that they are making the acquisition in lieu of R&D/or to maintain a level of operating performance/bolster the competitive position of their existing offerings.  These acquisitions are usually considered capex.

 

What you said:

In my mind if I just buy a business and don't spend any money on it; that's not really a capital expenditure.

 

Is true so long as the returns generated by the business can be maintained without having to spend capex.  Or more specific to VRX, whether the income stream from acquired businesses are "durable."  If they are not durable then they are melting ice cubes and to some extent VRX has to keep buying these ice cubes to report the type of performance shareholders are use to (and adding back acquisition related costs is disingenuous and not an accurate proxy for the true economic benefit of ownership (you can't actually take the money out of the business without impairing future results).

 

+1. That's what I was trying to say, but you said it better.

 

I have been saying this for so long here - cash eps is crap. It can only be used as a trending tool at best.

 

Forget amortization (people keep referencing buffet on this), but even when growth rate is >0%, there is a non-zero maintenance capex amount. some here seem to suggest that 0% growth is somehow a magical level above which amortization is not an expense and below which it suddenly is an expense. I could never figure that one out.

 

Here is how I estimate it - I know VRX buys companies to actually buy R&D, so i estimate cost of R&D for VRX. Other pharmas seem to be doing 15%-20% of sales on R&D, so I assume VRX must be "investing" the same in R&D but with better outcomes than internally developed R&D in other pharma companies. It is a rough estimate, but at least related to the real cost of doing business.

 

From cash eps, we also have to take out stock comp. These guys are paid like hedge fund managers, so stock comp is real expense.

 

[Picasso]

Let me try to answer the easiest question first.  In terms of the impact post-Philidor, all you need to do is read through the Medicis earnings from 2012 and before.  They had a really hard time earning a profit on sales earned in typical channels.  Actually AZ Value mentioned some of this in his first write up:

 

In 2011, all 3 analysts had Solodyn sales at roughly $370M. Their estimates for 2012 sales ranged from $322M to $330M and for 2013 the average of the 3 estimates was $358M and sales were expected to rise thereafter.

 

Well, in 2013 as soon as Valeant acquired Medicis, Solodyn sales began collapsing pretty rapidly. Here are a few excerpts from various VRX conference calls throughout 2013:

 

2013 guidance conference call on 1/4/2013:

“(…) We are also projecting SOLODYN sales of $250 million to $275 million in 2013, and we believe this is a conservative assumption. (…)” – Howard Schiller

“(…) When we mentioned or when we talked about when we acquired Medicis, we talked about taking a very conservative approach to the revenues and the forecast, and so we continue to do so with SOLODYN. As Howard mentioned, we would hope to beat those numbers, but we thought it was useful for our investors to know what were -- what was the basis of SOLODYN revenues that we included in the budgeting process we went through. So again, we would hope that over the course of the year that would prove to be conservative. (…)” – Michael Pearson

 

You can go and double check those numbers but I briefly looked and verified that they were accurate.  So is that a durable asset outside of Philidor or what Medicis called alternative fulfillment?  Probably not. 

 

The other issue are the large amount of provisions (think of the copay assistance for stuff like Jublia) on gross sales over the past year.  As of last quarter it was running at an annual rate of $7.6 billion!  That's a lot of copay assistance and products with higher rebates.  Valeant says only 9% of sales is coming from the "specialty pharmacy" channel which would indicate like $1.6 billion of gross product moving through there if you apply a similar provision rate.  That seems like it's going to be really hard to manage through other channels.  Anyway some of that might be durable some might not be, I don't know.

 

What I haven't figured out is why so much Jublia goes through that channel.  Is it because of the copay assistance?  Jublia was classified by the PBM's as tier 3/4 if I wasn't mistaken so maybe that's why. 

[Picasso]

Based on what you said,

a) Is it illegal for a manufacturer or distributor to ship drugs directly to patients? Should the drugs be first shipped to the local pharmacy physically and only then the local pharmacy ships to the patient? I ask because, it is quite possible that, Philidor was booking the sales under R&O license and name, but instead of physically adding to R&O inventory (due to various reasons) they probably shipped directly. Is something like this kosher under California law?

 

b) if the PIC needs to sign off, then why were PBM's and others okay until now when someone else was signing them off until now? Are these sophisticated firms going to claim stupidity on their part? I get a feeling there is more to this part. Maybe it was an accepted practice within the industry (between manufacturers and pbm's), but now that the stuff is public everyone is suddenly following the letter of the law - is that possible?

 

c) But even if Philidor was wrong on both counts, I don't see fraud here.(no one lost money or died) At best they may have broken some California rules - so they will probably get away with an appropriately large fine, a ban or both. Now, with their business effectively dead, i am not sure if that fine is collectible unless Reitz pays them :).

 

 

a) Yes, only the pharmacy is able to ship out the products.  There are very strict audits (which vary by state) and there's all kinds of stuff that need to be signed off on.  Like who received shipment of the products, who it was sent to, how much, etc etc.  Philidor can send it out to R&O but then R&O needs to sign off on the audit involving a bunch of questions Philidor would be unable to answer.  Would you be able to start shipping out drugs to someone using another pharmacist license?  Absolutely not.  Philidor had a MSA which also involved employing Reitz for 18 months since he was the PIC.  Until Philidor got their license they really couldn't do a heck of a lot except ship inventory to R&O and handle back office support.  You'll notice that Valeant never mentioned that Philidor also handled shipping drugs out to customers for networked pharmacies.  There are different documents online where you can view the type of stuff required for the PIC to sign off on the audit.

 

b) I don't know.  Eric Rice was signing off on them, maybe they didn't check the signature for some reason.  Caremark mentioned in their PR that there was something off about an audit but nothing beyond that.

 

c) Yeah I don't think the fine will be that huge.  No one died from fungal toe drops or face creams.  But that's never really been a big negative for the stock.  For some reason some investors still think that's what driving it up or down.  It's the impact to the rest of the business and loss of profitability for key drugs which compounds two issues: 1) some of the amortization is a cost and 2) any collateral damage to other parts of their business only increases the cost of that amortization.  Now multiple that cost by 10x, 15x or whatever multiple this thing was supposed to trade for.

 

 

[Picasso]

http://www.oregon.gov/pharmacy/imports/compliance/quarterly_comp_audit_form.pdf

 

There's a dated example from Oregon.  You can use your judgement whether Philidor should be signing off on those kinds of forms.

 

Anyway it's a mute point now.  We got this sad PR release from Philidor today:

 

http://www.prnewswire.com/news-releases/statement-from-philidor-rx-services-300170795.html

[doughishere]

Merk and Glenn, I guess I just don't understand how Valent are responsible. Is it the fact that they claim to have ownerships of parts of these sub companies?

 

I understand the social, moral aspect of the fact that they have claimed to own these sub companies that are corrupt but I don't understand how bad it is for valeant.

 

I apologize in advance for my ignorance schoolis taking a tone of time and have places this in the top hard for right now categorie.

[doughishere]

The reason I ask is what little I read is directed at these sub companies and little directly at vrx. Maybe my reading sample size is too small but even Glenn's blog post mentions vrx like once.

[ZenaidaMacroura]

http://www.reuters.com/article/2015/11/03/us-valeant-pharmacies-healthcare-exclusi-idUSKCN0SR2J820151103

 

 

 

“We plan to replace Philidor over the next few weeks with one or more other specialty pharmacies to ensure continuity of this cash pay program,” the letter said.

 

After Nov. 8, Valeant is developing a program that will be available through major drugstore chains and independent pharmacies.

 

“Over the next few months, we will work to develop a new, more comprehensive program to ensure your patients can continue to have access to Valeant’s products at affordable prices,” the letter said.

 

“This decision will certainly have a near-term impact on Valeant's revenues and profitability,” an RBC Capital Markets analyst said of Valeant’s plan to cut off Philidor. “Having said this, we expect that the company will maintain some portion of these sales as Valeant will be able to transition a portion of this business to traditional distribution channels.”

[merkhet]

Merk and Glenn, I guess I just don't understand how Valent are responsible. Is it the fact that they claim to have ownerships of parts of these sub companies?

 

I understand the social, moral aspect of the fact that they have claimed to own these sub companies that are corrupt but I don't understand how bad it is for valeant.

 

I apologize in advance for my ignorance schoolis taking a tone of time and have places this in the top hard for right now categorie.

 

It depends on whether economic control translates into legal liability. However, that's not really the boogeyman that most are worried about. It is fallout and the concomitant impact on revenue and profits that is more important. (And any regulatory and/or witch hunt tail risk.)

[ERICOPOLY]

Merk and Glenn, I guess I just don't understand how Valent are responsible. Is it the fact that they claim to have ownerships of parts of these sub companies?

 

I understand the social, moral aspect of the fact that they have claimed to own these sub companies that are corrupt but I don't understand how bad it is for valeant.

 

I apologize in advance for my ignorance schoolis taking a tone of time and have places this in the top hard for right now categorie.

 

It depends on whether economic control translates into legal liability. However, that's not really the boogeyman that most are worried about. It is fallout and the concomitant impact on revenue and profits that is more important. (And any regulatory and/or witch hunt tail risk.)

 

Isn't it the case that you are not protected from liability if you knew about a fraud and continued to do business with the known fraudulent entity?  You become an accessory to the crime or a facilitator at some point.

 

So it depends not just on the economic control argument, but also on knowledge too.

 

Like if a pharmacist reports a suspected fraud to you but you don't investigate and thus have no evidence of a fraud, you can keep on operating your alleged fraudulent companies that you hold purchase options on.  But if you looked into the pharmacists' claims and found damning evidence, then you'd have to shut down the fraud and miss out on the ongoing profits.

 

I'm not a lawyer by the way, just my understanding and using common sense.

 

Possibly the law could hold you responsible for your negligence -- surely if whistleblowers are reporting that they are suspecting a fraud and you completely ignore them, you are negligent.  When ignoring them works towards your economic gain, it looks especially awkward.

 

Maybe a lawyer can offer a comment.

[merkhet]

Former lawyer. Unfortunately, I'm going to give you a very lawyer-ly answer. It depends.

 

Different laws require different levels of imputed knowledge and/or intent.

[KJP]

Former lawyer. Unfortunately, I'm going to give you a very lawyer-ly answer. It depends.

 

Different laws require different levels of imputed knowledge and/or intent.

 

Yes, there is no simple answer.  But in general, the more knowledge you have and the more control you have, the more likely to are to be liable, either directly for your own conduct or vicariously for the conduct of someone else.  It's a murky, fact-specific area of the law, which is one of the factors that encourages settlements.