VRX - Valeant Pharmaceuticals International Inc.

[Valueguy134]

I probably should provide some quotes from the article given the paywall.  But here is the Sprout story.

 

The group started testing the drug on women with hypoactive sexual desire disorder — a loss of libido that cannot be explained by relationship problems, mental health issues, medication or illness. The FDA refused to approve the drug to treat HSDD in 2009 because there was scant evidence it worked, however.

 

Two years later, Boehringer sold the global rights to Flibanserin to Sprout Pharmaceuticals, a private company founded by husband and wife team Cindy and Robert Whitehead, for the sole purpose of getting the drug approved. The terms of the deal were not disclosed.

Sprout too failed to get the green light in 2013. By measuring sexual desire using a different method, the company managed to show the drug had a small but statistically significant effect on the female libido, but the FDA was concerned about its safety.

 

I guess third time was the charm.

 

But some doctors are asking what prompted the FDA to change its stance, having turned down the drug twice before. Sprout did not present any new data on the drug’s effectiveness this time round, although it did submit further safety reports, some of which were described as dubious by experts.

For example, one such study looked at the interaction between Flibanserin and alcohol. It tested just 25 patients, 23 of whom were men, a fact that one doctor on the expert panel said was “inexplicable” given that the drug is being developed for women.

 

Attached.

It's funny we sit here talking about sprout as if the findings are new. This was clear day one, but we convinced ourselves that Pearson purchased a billion dollar option

[original mungerville]

Surprising that a pill that you have to take every single day and that reacts incredibly poorly with any alcohol consumption whatsoever would sell poorly...(read the begrudging FDA approval: http://www.fiercebiotech.com/story/fda-advisers-back-approval-sprouts-twice-rejected-female-libido-drug-fliban/2015-06-04)

 

At the risk of sounding like a conspiracy theorist, Sprout seems like a product designed to work with a Philidor aggressive auto-refill model.

 

http://www.bloomberg.com/news/articles/2015-11-17/valeant-s-newest-problem-the-female-libido-pill-isn-t-selling

 

More than half a million men got prescriptions for Viagra in its first month on the market in 1998. The number of prescriptions for Addyi, the women’s libido-boosting pill, in its first few weeks? 227.

 

Viagra, Cialis, and Levitra need to be prescribed by a doctor, lower blood pressure, and are not supposed to be mixed with alcohol, and are quite expensive.  I'm not sure Addyi will be a hit, but I doubt the blood pressure thing is what is causing the low sales, and would imagine it is due to low market awareness and low availabilty.

 

I spoke to my wife's internist (her best friend) about Addyi.  She has a lot of female clients/patients.

 

She said it's a joke.  Not a single one of her clients wants it.

 

It's expensive and at best it maybe leads to desire once a month.  I mean, come on, that's not going to be a blockbuster drug.

 

She was pretty much laughing.

 

It's not a low awareness/visibility thing -- it's a low effectiveness thing.

 

I can see this. I am not a big believer in drugs more generally. Many are barely useful and the side-effects longer-term not well understood.

 

Its hard for me to predict pick-up in demand on something like this (because my views on drugs are generally so negative). I figure this could be a blockbuster for all I know, or I guess it could be a flop.

[dorsiacapital]

Dorsia, at what pice would you consider selling your puts?

 

I would hope that I have the discipline to start reevaluating/closing my position below 50 if no more cockroaches emerge...

[dorsiacapital]

Dorsia,

 

I am fairly certain that Hempton is the one posting most of the negative rumours on the Cafe Pharma boards.  He has a history of building up multiple online personalities to attack companies and people. For more details, check out the FFH emails.

 

Here is an article on similar tactics he used in the past.  Yes this is deepcapture run by Byrne, but read the post.

 

https://www.deepcapture.com/2008/12/introducing-john-hempton-the-plunderer-from-down-under/

 

You will notice he always chimes in on the Cafe Pharma boards right away saying "thanks for the great tip etc." I know you have pointed out recenrt allegations of massive Salix layoffs and B&L cuts on the Cafe Pharma boards, but I caution you to think twice about sourcing them for real info.

 

None of this has to do with the value of Valeant, but I just thought I'd point it out.

 

Blaine,

 

Although I don't know the details, I understand Hempton behaved very, very badly during the Fairfax controversy. I think in general his approach to Valeant has been detailed and through without being clearly unfair (perhaps he's changed), but I understand if you wouldn't trust him based on the past. (I still think it's merely a coincidence that AZ posted on fairfax and valeant). Also, for the record, I think Leff is a lucky clown and place no stock on what he says. I'm so, so glad he has vanished from the scene.

 

For Cafe Pharma, I do not place much faith,  if any, on recent posts on the main Valeant board (much as I would sometimes like to) because I think it is probably littered with trolls. Although I adjust for bitter employee griping, I do place some faith on posts from the Cafe Pharma board pre-September. I think this is particularly justified for B&L because, so far, I have not seen any bear argue that there are even problems at B&L. It's all about philidor. Perhaps this is a clever bear placing a trap, but I would be somewhat surprised. For recent turmoil at Salix, it's a closer question, but, for example, there are mentions going far, far back about the head of sales, JT, who was initially retained by Valeant and appears to have been well regarded by many. JT, it appears, recently departed Salix with some questions about fulfillment of sales goals. 

[blainehodder]

Todays conference call was mostly a rehash of Q3 which obviously no one cares about now, but one point was made:

 

B&L was stated to expect double digit growth (and that in fact they are limited on production capacity keeping up with demand).  Not a make or break of a bull or bear thesis, but definitely shows that B&L is doing just fine.

[KCLarkin]

http://www.bloomberg.com/news/articles/2015-11-18/the-law-of-pharma-pricing-physics-what-goes-up-often-stays-up

[original mungerville]

Todays conference call was mostly a rehash of Q3 which obviously no one cares about now, but one point was made:

 

B&L was stated to expect double digit growth (and that in fact they are limited on production capacity keeping up with demand).  Not a make or break of a bull or bear thesis, but definitely shows that B&L is doing just fine.

 

What conference call? There was one today?

[Liberty]

Todays conference call was mostly a rehash of Q3 which obviously no one cares about now, but one point was made:

 

B&L was stated to expect double digit growth (and that in fact they are limited on production capacity keeping up with demand).  Not a make or break of a bull or bear thesis, but definitely shows that B&L is doing just fine.

 

What conference call? There was one today?

 

I missed it, didn't notice they gave the time in GMT. Will listen to the recording later. The deck doesn't seem to have much that is new at first glance.

 

http://ir.valeant.com/files/doc_presentations/2015/Jefferies-2015-Final.pdf

 

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-To-Present-At-Industry-Conference/default.aspx

[original mungerville]

Agree. Deck seems to just reinforce that they still have diverse and sound assets still growing and believe they can get debt to pro-forma EBITDA down 4.0x by end 2016 which means they feel good about cash flows.

[Guest roark33]

This was about 18 months too early, but sounds somewhat prophetic now.  Grant's is a great read...highly recommend.  Only newsletter I subscribe to.

 

 

http://www.grantspub.com/userfiles/files/g32n05b-gd2.pdf

[jay21]

This was about 18 months too early, but sounds somewhat prophetic now.  Grant's is a great read...highly recommend.  Only newsletter I subscribe to.

 

 

http://www.grantspub.com/userfiles/files/g32n05b-gd2.pdf

 

This isn't that high quality. It's basically the argument against all roll-ups.

[dorsiacapital]

Agree. Deck seems to just reinforce that they still have diverse and sound assets still growing and believe they can get debt to pro-forma EBITDA down 4.0x by end 2016 which means they feel good about cash flows.

 

Only important part appears to be the Xifaxan estimates and projections at the end. I am more and more convinced that it's all about Xifaxan.  (Valeant's come a long way from durable branded assets with no patent issues). 

 

I'm trying to study this issue very closely.  Their Xifaxan projections appear strong so if I was a bull, I would be heartened by that. 

[100 Shares]

Agree. Deck seems to just reinforce that they still have diverse and sound assets still growing and believe they can get debt to pro-forma EBITDA down 4.0x by end 2016 which means they feel good about cash flows.

 

Only important part appears to be the Xifaxan estimates and projections at the end. I am more and more convinced that it's all about Xifaxan.  (Valeant's come a long way from durable branded assets with no patent issues). 

 

I'm trying to study this issue very closely.  Their Xifaxan projections appear strong so if I was a bull, I would be heartened by that.

Which slide are you referring to for xifaxan projections? I don't see any

[Picasso]

http://www.bloomberg.com/news/articles/2015-11-17/deutsche-bank-our-survey-suggests-dermatologists-have-soured-on-valeant

 

This is like the exact opposite of salad oil. 

[ourkid8]

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Case studies (Based on the current market noise)

 

1.  Valeant has the best in breed product and there is no close competitor, I cannot see a doctor not prescribing the Valeant product.

2.  Valeant has a product equal to a competitor, the doctor would usually stick with what he is currently familiar with but may sway based on price. 

3.  Valeant has a product inferior to a competitor or just inferior all together, obviously the doctor will not prescribe.

 

When do you think a doctor would look at market news prior to prescribing a product? 

 

http://www.bloomberg.com/news/articles/2015-11-17/deutsche-bank-our-survey-suggests-dermatologists-have-soured-on-valeant

 

This is like the exact opposite of salad oil.

[ZenaidaMacroura]

Todays conference call was mostly a rehash of Q3 which obviously no one cares about now, but one point was made:

 

B&L was stated to expect double digit growth (and that in fact they are limited on production capacity keeping up with demand).  Not a make or break of a bull or bear thesis, but definitely shows that B&L is doing just fine.

 

What conference call? There was one today?

 

I missed it, didn't notice they gave the time in GMT. Will listen to the recording later. The deck doesn't seem to have much that is new at first glance.

 

http://ir.valeant.com/files/doc_presentations/2015/Jefferies-2015-Final.pdf

 

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Pharmaceuticals-To-Present-At-Industry-Conference/default.aspx

I see the slides but no audio -they usually put up an audio eventually right?

[LongHaul]

Also, I really like this Yiddish phrase:  "A fish rots from the head down."

[Picasso]

Those 8-K's have been more about making the longs feel better about various allegations than to actually fully address the negative views. 

 

I'm reminded when the market was looking at Jeffries in 2011 and thinking they were also exposed to the same risks as MF Global.  Handler came out and stomped on those flames and made sure there was no doubt about the solvency of his firm.  I believe it was that response which impressed Leucadia enough to create the merger. 

 

I don't think anyone can say that of Pearson & Co.  He's lightly blowing on the fires thinking the fire should be logical enough to know he's got a plan to have a market cap greater than $150 billion by 2017.  The fire has been burning brighter and bigger and we're just getting lip service.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

[LongHaul]

Those 8-K's have been more about making the longs feel better about various allegations than to actually fully address the negative views. 

 

I'm reminded when the market was looking at Jeffries in 2011 and thinking they were also exposed to the same risks as MF Global.  Handler came out and stomped on those flames and made sure there was no doubt about the solvency of his firm.  I believe it was that response which impressed Leucadia enough to create the merger. 

 

I don't think anyone can say that of Pearson & Co.  He's lightly blowing on the fires thinking the fire should be logical enough to know he's got a plan to have a market cap greater than $150 billion by 2017.  The fire has been burning brighter and bigger and we're just getting lip service.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

 

I agree. 

 

[ourkid8]

1. It was a population of 25 doctors

2. Philidor did make life easier for doctors taking care of the admin work. (remember, Valeant is not abandoning the specialty pharma model.)

 

Let's look at Toyota/GM, individuals are still buying their vehicles after how man deaths were cause by negligence? This noise around Valeant will pass just like it did for Toyota/GM. 

 

A doctor's #1 responsibility is patient care an he/she would always prescribe the best product regardless of market noise. If there is a specialty pharma model that makes life easier all the better!

 

I cannot imagine a doctor saying, let me avoid a SUPERIOR product as there are allegations against a company for channel stuffing. Let me experiment and try something new. It just does not make sense.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

[ZenaidaMacroura]

Well I enjoyed the fact that AC Slater is helping market Jublia.

[Guest roark33]

1. It was a population of 25 doctors

2. Philidor did make life easier for doctors taking care of the admin work. (remember, Valeant is not abandoning the specialty pharma model.)

 

Let's look at Toyota/GM, individuals are still buying their vehicles after how man deaths were cause by negligence? This noise around Valeant will pass just like it did for Toyota/GM. 

 

A doctor's #1 responsibility is patient care an he/she would always prescribe the best product regardless of market noise. If there is a specialty pharma model that makes life easier all the better!

 

I cannot imagine a doctor saying, let me avoid a SUPERIOR product as there are allegations against a company for channel stuffing. Let me experiment and try something new. It just does not make sense.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

 

 

If you spend some time looking at the derm products Vrx portfolio, you will not use the words superior and vrx's products in the same sentence--unless you are making a joke.

[Picasso]

If I called around and talked to 25 doctors who frequently prescribed Valeant products and got those responses, I think that would convince me the business is taking a heavy hit.  Perhaps your reaction would be different.  But let's be clear here: Valeant isn't a similar franchise to JNJ or Toyota.  JNJ can poison a few kids and Toyota can kill a few people and it doesn't affect the business all that much. 

[dorsiacapital]

1. It was a population of 25 doctors

2. Philidor did make life easier for doctors taking care of the admin work. (remember, Valeant is not abandoning the specialty pharma model.)

 

Let's look at Toyota/GM, individuals are still buying their vehicles after how man deaths were cause by negligence? This noise around Valeant will pass just like it did for Toyota/GM. 

 

A doctor's #1 responsibility is patient care an he/she would always prescribe the best product regardless of market noise. If there is a specialty pharma model that makes life easier all the better!

 

I cannot imagine a doctor saying, let me avoid a SUPERIOR product as there are allegations against a company for channel stuffing. Let me experiment and try something new. It just does not make sense.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

 

Ourkid,

 

I think the problem is that many of Valeant's Derm products are variations of "one tube instead of two tubes or slightly different dosages of generics." So a Valeant product will contain a mix of two very cheap generic ingredients.  Valeant will charge a very high price for the one tube, while the generic two tubes are available much more cheaply. The doctor, as a shorthand, may write the name of the Valeant product on the prescription. If the patient goes to a regular pharmacy, the pharmacist will just substitute the two tubes and give instructions on how to mix the products together. (Cheaper for them to stock the product regularly in inventory, easier to get reimbursed, higher margins). The advantage of Philidor is that it would ensure this substitution was not made - sometimes through altering prescriptions to read "dispense as written."  The doctors may continue to write the name of the Valeant product on the script, but as long as they do not write dispense as written (and I have to think they're less likely to do that after all this), then regular pharmacies can make the substitution.

 

But, more importantly than the derms, is the reactions of the PBMs. I may be wrong, but I see no reason why a PBM can't either drop Valeant drugs all together from formularies, or, during the upcoming renegotiations, simply refuse to offer a higher net price than the two generics (easier than trying to play whack-a-mole with Valeant's attempts to game the system). 

 

Based on the PBMs reaction so far (dropping Philidor, suing Horizon's specialty pharmacy), I think their reaction will be significantly more negative than the derms, and Valeant is very, very exposed on the back end, even if its relations with the front end are not that negatively affected.

 

There is no analogy for the PBMs in your car example, or, indeed, many of the other corporate scandals. It would be different if Valeant clearly had best in class drugs where there would be a backlash against PBMs if they played hardball, but I haven't really been able to find patented versions of those drugs. (The areas where Valeant does have a drug that people actually need, like isuprel or the Wilson's Disease drugs, it has jacked the prices incredibly high. Perhaps Valeant will be able to keep those prices high (although these products are generics where Valeant is simply taking advantage of being the sole manufacturer) but if it does so, then it just fuels the government scrutiny. Valeant's pricing on these drugs is what allowed McCaskil to enlist a republican senator and get a bipartisan congressional subpoena that can then start ranging more broadly than the initial prompt.

 

[rishig]

1. It was a population of 25 doctors

2. Philidor did make life easier for doctors taking care of the admin work. (remember, Valeant is not abandoning the specialty pharma model.)

 

Let's look at Toyota/GM, individuals are still buying their vehicles after how man deaths were cause by negligence? This noise around Valeant will pass just like it did for Toyota/GM. 

 

A doctor's #1 responsibility is patient care an he/she would always prescribe the best product regardless of market noise. If there is a specialty pharma model that makes life easier all the better!

 

I cannot imagine a doctor saying, let me avoid a SUPERIOR product as there are allegations against a company for channel stuffing. Let me experiment and try something new. It just does not make sense.

 

I disagree, I think the pharma business has much stickier products especially in the derm space.

 

Those were all derma doctors saying very negative things about future usage of Valeant derma products.  How can you say the reality is the opposite when you have actual doctors telling you what has changed post-Philidor?

 

Ourkid,

 

I think the problem is that many of Valeant's Derm products are variations of "one tube instead of two tubes or slightly different dosages of generics." So a Valeant product will contain a mix of two very cheap generic ingredients.  Valeant will charge a very high price for the one tube, while the generic two tubes are available much more cheaply. The doctor, as a shorthand, may write the name of the Valeant product on the prescription. If the patient goes to a regular pharmacy, the pharmacist will just substitute the two tubes and give instructions on how to mix the products together. (Cheaper for them to stock the product regularly in inventory, easier to get reimbursed, higher margins). The advantage of Philidor is that it would ensure this substitution was not made - sometimes through altering prescriptions to read "dispense as written."  The doctors may continue to write the name of the Valeant product on the script, but as long as they do not write dispense as written (and I have to think they're less likely to do that after all this), then regular pharmacies can make the substitution.

 

But, more importantly than the derms, is the reactions of the PBMs. I may be wrong, but I see no reason why a PBM can't either drop Valeant drugs all together from formularies, or, during the upcoming renegotiations, simply refuse to offer a higher net price than the two generics (easier than trying to play whack-a-mole with Valeant's attempts to game the system). 

 

Based on the PBMs reaction so far (dropping Philidor, suing Horizon's specialty pharmacy), I think their reaction will be significantly more negative than the derms, and Valeant is very, very exposed on the back end, even if its relations with the front end are not that negatively affected.

 

There is no analogy for the PBMs in your car example, or, indeed, many of the other corporate scandals. It would be different if Valeant clearly had best in class drugs where there would be a backlash against PBMs if they played hardball, but I haven't really been able to find patented versions of those drugs. (The areas where Valeant does have a drug that people actually need, like isuprel or the Wilson's Disease drugs, it has jacked the prices incredibly high. Perhaps Valeant will be able to keep those prices high (although these products are generics where Valeant is simply taking advantage of being the sole manufacturer) but if it does so, then it just fuels the government scrutiny. Valeant's pricing on these drugs is what allowed McCaskil to enlist a republican senator and get a bipartisan congressional subpoena that can then start ranging more broadly than the initial prompt.

 

+1. This is spot on.

 

Had the drugs been absolutely critical with no generic substitutes, why would the prior owner sell the drug to Valeant at anything but a premium? The prior owners of all these acquisitions were under no distress.

 

I think Valeant was overconfident that they could take these not-so-great drugs from the hands of prior owners and wring out more profits by selling it through its specialty channels. Remember when MP would talk about how specialty distribution was their competitive advantage.