VRX - Valeant Pharmaceuticals International Inc.

[Spekulatius]

I look at I levered cash flow (taking EV as an denominator ) because taking he levered cash flounders not account for the risk that comes with high leverage. Just subtracting the cash expense of interest rates is not enough - with large leveragr comes large risk.

 

At current valuation, VRX is mot cheap using EV based metrics, in fact it trades in line with many consumer good pharma  companies that do not have controversial issues hat VRX has.

[original mungerville]

1) This is a consumer products company like P&G, deserving of a P&G multiple (85% durable according to Ackman)

2) Pershing estimated $7.5 billion 2016 EBITDA and $16 of cash EPS which gave him a $250 fair value

 

Ackman thinks there should be a premium for the "platform value."  That's not exactly happening either?  These guys are locked out of the capital markets.

 

I think we've seen enough evidence to know this is isn't consumer products like P&G and they aren't going to hit $16 of cash EPS anytime soon.  It's ignoring whether cash EPS matters in the case of Valeant, but that's at least two big parts of the thesis gone very wrong.

 

Well, he didn't understand the details going on at Philidor that's for sure. Take the Philidor blow-up out of the picture and they would have not only met those 2016 targets but they would have exceeded them.

 

A P&G multiple is in the 20x range if I am not mistaken. I think Ackman's point was that 15x was not unreasonable and that gives no value to the platform value, which if you trust management, was significant. Having said this, the bonehead Marathon and Philidor issues/decisions by management and related negative publicity have taken a substantial amount of that platform value away in the short- and potentially even medium-term. On top of that, we have the earnings impact of Philidor to deal with along with legal issues, etc. so the market has dropped enterprise value by half.

 

Philidor is what gave VRX its pricing power and appearance of durability in a good part of their portfolio.  Philidor wasn't just a blow up; it was aggressive and unethical activity (which may have been outright fraud) that made 2015 results look better than they otherwise should have been.  It doesn't matter if they would have beat 2015, 2016, or 2017 targets with Philidor.  That wasn't a sustainable strategy.

 

Also Ackman said 85% of Valeant deserved a 20x multiple and the other 15% deserved an 8x multiple.  And that's not even GAAP EPS, that's cash EPS multiples.  Do you think that's turned out to be a realistic view of this company?

 

 

Ya, ya - let's just say there was illegal activity at Philidor. Check. Yes, of course Philidor made the first half of 2015 results look better than they should have been (and will make the last quarter of 2015 looks very bad). Yes, that is not sustainable as a strategy. We agree on all that.

 

But it is a big stretch to then say that Philidor "is what gave VRX its pricing power and appearance of durability in a good part of their portfolio" - other than if you are stating the obvious and talking only about the part of the portfolio which was distributed by Philidor (around 7-8% of Valeant or something).

 

With respect to what I assume you mean by "good part of their portfolio", two points: 1) durability is not some binary thing where if you have revenues growing for a product through some volume/price growth combination the product is durable, and if you don't its not durable; 2) even if revenues are flat and only being held up by price increases this is not a clear sign that your overall portfolio in aggregate is not durable because you still have to factor in the pipeline of new products coming into that portfolio.

 

All these worst case analyses of durability for the dermatology business seem to totally neglect any potential contributions from the pipeline. And its not like this is high risk research, but it should help maintain units sold for the dermatology portfolio (after the one time step down in sales due to Philidor and eventually Marathon is taken into account).

 

Isn't the above a fair description of the possible reality? Or are you just saying screw it, I don't trust Pearson, the pipeline is all bullshit so I'll assume nothing will be developed for that "good part of their portfolio"?

 

Hi OM,

 

Valeant lists its late stage portfolio here. http://www.valeant.com/operational-expertise/valeant-united-states/pipeline

 

There's two listed dermatology products both still compounds without names. The earliest is expected to launch 2017/2018. This does not sound like a strong pipeline.. Perhaps there are products, like jublia, that Valeant is launching right now with small sales, but I would think we'd have heard more about them.

 

Aren't we trusting Pearson if we say the current pipeline is bullshit? After all, it's Pearson who has been saying for years that Valeant with certain (Jublia) exceptions is not good at drug development and only acquires it through M&A. Do you think the pipeline can be replenished with M&A over the next year or two? Do you think Valeant will have the cash flow to boost R&D to 500 million in 2016 like they'd promised? (Also, if you note, Valeant has consistently made 50-100 million a year over the last several years selling compounds in development to other drug companies. I think that must be Valeant selling its most promising assets, but could be wrong). 

 

Also, you mention cash eps. Why is it reasonable to deduct amortization for the loan expense (at least 8-9 billion, maybe another 4 if they're amoritizing Salix loans they assumed) of acquiring Salix's portfolio since those are all patented products that I have trouble defining as durable assets? Do you have a thesis for why Xifaxan will retain pricing power after its patent exclusivity expires (there are at least grounds for an ANDA challenge in 2017 and the first/strongest patents expire in 2024).

 

OK, on Salix, let's say we amortize that into 2024 from 2015, so over 9 years. At $14 billion in debt, that's $1.5B per year plus interest expense annually (say in early years $900M, then later as years go by and debt paid down progressively less). So their bogey in the early years is to have EBIDA cross above $2.4B with that bogey declining by 2019 to $2B [ie $1.5B plus interest of 6%*($14- 4 years *1.5] and then declining further by 2024 to $1.5B (ie just the amortization expense)]. If we assume patent expiration by 2024, it is therefore a bet on very significant Salix growth. I would say under this assumption, they would need to hit $2B in EBIDA at Salix by 2019. What are the odds of that? Where are we now, what do we expect in 2016/17?

 

On dermatology, I do think Julia sales will continue to grow quite substantially without Philidor (doctors recommend it because its a better product than the no-pill alternatives, at least according to clinical trials; personally I don't put as much weight on that and think the improvement is marginal, if any; but doctors seem to go with it at this point). I have no idea re the potential of those other two drugs in the pipeline. I am pretty certain Jublia will continue to grow significantly.

 

Has anyone done an analysis of the dermatology portfolio growth prospects after carving out the Philidor (and Marathon) one-time sales hits?

 

 

 

[ni-co]

More cockroaches:

 

http://brontecapital.blogspot.co.uk/2015/11/philidor-20-valeant-and-stephen-king.html

[Guest Grey512]

More cockroaches:

 

http://brontecapital.blogspot.co.uk/2015/11/philidor-20-valeant-and-stephen-king.html

]

 

Except that someone else on this very thread (many many pages back) already alluded to a network of Valeant-controlled pharmacies with chess names, effectively guaranteeing that more & more names will see the light of day; the poster implored us to "wake up from [your] slumber". This isn't new.

[dorsiacapital]

More cockroaches:

 

http://brontecapital.blogspot.co.uk/2015/11/philidor-20-valeant-and-stephen-king.html

 

I think the more intriguing cockroach, somewhat surprisingly not highlighted in the bronte capital post, is this video from November 18th of Gary Tanner, key player in the Valeant/Philidor connection, appearing at an Arizona Pharmacy board hearing with a new application for a pharmacy.

 

http://cafepharma.com/boards/threads/vvv-is-valeant-planning-philidor-2-gary-tanner-exposed.588475/

 

Valeant's response to Bronte was that all these applications are from before September. I suppose their answer to the Gary Tanner thing would be he's not even a Valeant employee anymore, so who knows what he's doing now. Responses to that response may vary depending on the listener.

[dorsiacapital]

The topic of how much actual cash flow will VRX earn in 2016, not bullshit "cash EPS" or EBITDA, but actual, "stuff that I can see on the cash-flow statement" cash flow continues to occupy my mind. On this thread, I've tried out several approaches to ball-park a number. Let's try another one.

 

Did anyone yet get a rock solid, absolutely conservative, "downside case" FCFF for Valeant for 2016?

 

Please, walk with me. I look at current trailing FCFF of Valeant and check what further FCFF can be contributed from B&L and Salix. I would be grateful if someone could look at this and critique this. I am focused on unlevered FCF (calculated as Cash from Ops, adding back interest expense, subtracting capex).

 

B&L: In the years prior to getting bought by Valeant, B&L earned revenues of about $3b, EBITDA around $600-700m and free cash flows (ex acquisitions, before interest expense) of about $200m annual. Valeant then went and bought B&L for $8b. Valeant paid 40x FCF. To the best of my knowledge, B&L organic growth under VRX ownership is mid-single digits. Let's say that 2016 B&L revenues will be $4b, FCF will be $1b; (i.e. $800m higher than in the current year). Next:

 

Salix: Prior to getting bought by VRX, Salix reported $1.1b revenues, $300b EBITDA (in its best year). Not much FCF. VRX then bought Salix for $14b. Let's use adjusted guidance and assume revenues next year for Salix will be around $3b; EBITDA of $1.5b. Let's say that the FCF margin will be the same as B&L (which is generous! B&L is a better business). I.e. Salix too will get FCF of $1b.

 

Therefore:

2016 FCFF (before new acquisitions, before interest) = current trailing FCFF ($3.5b) + extra $0.8b from B&L + $1b from Salix = $5.5b.

 

Now that is beginning to look kinda reasonable, against a total enterprise value of $60b, of which $30b is debt. Buying VRX equity at current prices means paying about 10.5x FCFF. There are more than a few other things that you could buy at that sort of price, in the current environment (e.g. WMT) but without the regulatory risk & the 2016/17 covenant risk that VRX has. 

 

So: I still don't get Ackman and other buyers at current prices.

 

Now you're talking my language! I think your analysis is generally correct.

 

Few points - B&L should already be in the TTM trailing cash flow, so I wouldn't add it to the 2016 cash flow? As far as I know Valeant said all synergies were basically done by end of 2014, so we should be seeing all that cash right now. 

 

-Not sure why you prefer unlevered free cash flow since levering is such a key part of the Valeant story? The interest expense will be about 1.7 billion over the next year (using last quarter's $420 million that includes Salix debt). Unlevered free cash flow seems more important as a metric before you load a company up with debt but, to each his own!

 

-Not sure how you want to handle the 400 million from Pershing Square lurking in the CFFO and, on the other hand, the 400-500 million in integration costs. Assuming good faith, works out to basically a wash.

 

-I don't know if a conservative case for Valeant would use the adjusted Salix guidance (or not incorporate potential problems from dermatological). If you look at the last Salix 10-k, after they adjusted for the inventory scandal, then it's a picture of a company that's not exactly thriving. But I do not know how getting the IBS-D indication affects formulary coverage/reimbursement (Cafepharma boards pre-Citron indicate that Salix is still having to fight quite hard to get satisfactory formulary coverage). And then there's derm, but that's obviously a very black box subject.

 

-There should probably be some consideration of Marathon, Xenazine, other generic competition but maybe that's only 100-200 million of effect. 

 

Anyway, not huge changes as long as we accept usage of unlevered free cash flow. I get about 4.5 billion (primarily from not re-adding B&L). Adding interest expense takes you under 3 billion and that's before any long-term hit to derm, bad formulary renegotiations, etc., etc.,

 

dorsiacapital - excellent, many thanks. And I appreciate your nametag reference to American Psycho (liked the film; didn't read the book).

 

If $4.5b unlevered and $3b levered is a good conservative set of numbers for 2016, then the next logical question: what is a fair EV/unlevered or mcap/levered multiple. But I think that is a topic that people can debate forever. Still, if those are the current numbers, then I don't get how at current prices (13x EV/unlevered, 10x mcap/levered) Valeant is "a steal" or a "bargain" (two of the epithets that people are throwing around). Pfizer or Merck at 14x P/E - a steal. Valeant - at 10x? Not so sure.

 

Yes, the issue of whether Valeant is a steal/bargain based on either ttm or pro forma Q3 normal metrics (i.e. not cash eps or adjusted ebitda) is something I tried to highlight at the bottom of this post (http://seekingalpha.com/article/3696816-valeant-wherefore-art-thou-positive-catalyst) by comparing it to J&J, Pfeizer, Gileand, and Cooper (an eye care company).  I thought those metrics showed that Valeant is still somewhat to severely overvalued under most comparisons.

 

Now, I'm the wrong person to ask obviously, but the quantitative response of Valeant supporters appears to be based primarily on working down from forward guidance. Which could be perfectly valid, but is not quite as good a margin of safety, I think, as basing your quantitative analysis on the known knowns of ttm... 

 

Switching to total opinion alert - I think when the scandals happened to BP/GM/(probably) those businesses were (relatively) normally valued, the market (probably) overreacted as it does, and that left the core underlying business undervalued.  But here, and again total opinion, I think Valeant was errm speculatively valued, the market overreacted, but I'm not sure if that reaction has even led to the core underlying business being properly valued based on peers, much less significantly undervalued unless (and it's an important caveat) you are still relatively convinced that the forward guidance is fine...

[dorsiacapital]

1) This is a consumer products company like P&G, deserving of a P&G multiple (85% durable according to Ackman)

2) Pershing estimated $7.5 billion 2016 EBITDA and $16 of cash EPS which gave him a $250 fair value

 

Ackman thinks there should be a premium for the "platform value."  That's not exactly happening either?  These guys are locked out of the capital markets.

 

I think we've seen enough evidence to know this is isn't consumer products like P&G and they aren't going to hit $16 of cash EPS anytime soon.  It's ignoring whether cash EPS matters in the case of Valeant, but that's at least two big parts of the thesis gone very wrong.

 

Well, he didn't understand the details going on at Philidor that's for sure. Take the Philidor blow-up out of the picture and they would have not only met those 2016 targets but they would have exceeded them.

 

A P&G multiple is in the 20x range if I am not mistaken. I think Ackman's point was that 15x was not unreasonable and that gives no value to the platform value, which if you trust management, was significant. Having said this, the bonehead Marathon and Philidor issues/decisions by management and related negative publicity have taken a substantial amount of that platform value away in the short- and potentially even medium-term. On top of that, we have the earnings impact of Philidor to deal with along with legal issues, etc. so the market has dropped enterprise value by half.

 

Philidor is what gave VRX its pricing power and appearance of durability in a good part of their portfolio.  Philidor wasn't just a blow up; it was aggressive and unethical activity (which may have been outright fraud) that made 2015 results look better than they otherwise should have been.  It doesn't matter if they would have beat 2015, 2016, or 2017 targets with Philidor.  That wasn't a sustainable strategy.

 

Also Ackman said 85% of Valeant deserved a 20x multiple and the other 15% deserved an 8x multiple.  And that's not even GAAP EPS, that's cash EPS multiples.  Do you think that's turned out to be a realistic view of this company?

 

 

Ya, ya - let's just say there was illegal activity at Philidor. Check. Yes, of course Philidor made the first half of 2015 results look better than they should have been (and will make the last quarter of 2015 looks very bad). Yes, that is not sustainable as a strategy. We agree on all that.

 

But it is a big stretch to then say that Philidor "is what gave VRX its pricing power and appearance of durability in a good part of their portfolio" - other than if you are stating the obvious and talking only about the part of the portfolio which was distributed by Philidor (around 7-8% of Valeant or something).

 

With respect to what I assume you mean by "good part of their portfolio", two points: 1) durability is not some binary thing where if you have revenues growing for a product through some volume/price growth combination the product is durable, and if you don't its not durable; 2) even if revenues are flat and only being held up by price increases this is not a clear sign that your overall portfolio in aggregate is not durable because you still have to factor in the pipeline of new products coming into that portfolio.

 

All these worst case analyses of durability for the dermatology business seem to totally neglect any potential contributions from the pipeline. And its not like this is high risk research, but it should help maintain units sold for the dermatology portfolio (after the one time step down in sales due to Philidor and eventually Marathon is taken into account).

 

Isn't the above a fair description of the possible reality? Or are you just saying screw it, I don't trust Pearson, the pipeline is all bullshit so I'll assume nothing will be developed for that "good part of their portfolio"?

 

Hi OM,

 

Valeant lists its late stage portfolio here. http://www.valeant.com/operational-expertise/valeant-united-states/pipeline

 

There's two listed dermatology products both still compounds without names. The earliest is expected to launch 2017/2018. This does not sound like a strong pipeline.. Perhaps there are products, like jublia, that Valeant is launching right now with small sales, but I would think we'd have heard more about them.

 

Aren't we trusting Pearson if we say the current pipeline is bullshit? After all, it's Pearson who has been saying for years that Valeant with certain (Jublia) exceptions is not good at drug development and only acquires it through M&A. Do you think the pipeline can be replenished with M&A over the next year or two? Do you think Valeant will have the cash flow to boost R&D to 500 million in 2016 like they'd promised? (Also, if you note, Valeant has consistently made 50-100 million a year over the last several years selling compounds in development to other drug companies. I think that must be Valeant selling its most promising assets, but could be wrong). 

 

Also, you mention cash eps. Why is it reasonable to deduct amortization for the loan expense (at least 8-9 billion, maybe another 4 if they're amoritizing Salix loans they assumed) of acquiring Salix's portfolio since those are all patented products that I have trouble defining as durable assets? Do you have a thesis for why Xifaxan will retain pricing power after its patent exclusivity expires (there are at least grounds for an ANDA challenge in 2017 and the first/strongest patents expire in 2024).

 

OK, on Salix, let's say we amortize that into 2024 from 2015, so over 9 years. At $14 billion in debt, that's $1.5B per year plus interest expense annually (say in early years $900M, then later as years go by and debt paid down progressively less). So their bogey in the early years is to have EBIDA cross above $2.4B with that bogey declining by 2019 to $2B [ie $1.5B plus interest of 6%*($14- 4 years *1.5] and then declining further by 2024 to $1.5B (ie just the amortization expense)]. If we assume patent expiration by 2024, it is therefore a bet on very significant Salix growth. I would say under this assumption, they would need to hit $2B in EBIDA at Salix by 2019. What are the odds of that? Where are we now, what do we expect in 2016/17?

 

On dermatology, I do think Julia sales will continue to grow quite substantially without Philidor (doctors recommend it because its a better product than the no-pill alternatives, at least according to clinical trials; personally I don't put as much weight on that and think the improvement is marginal, if any; but doctors seem to go with it at this point). I have no idea re the potential of those other two drugs in the pipeline. I am pretty certain Jublia will continue to grow significantly.

 

Has anyone done an analysis of the dermatology portfolio growth prospects after carving out the Philidor (and Marathon) one-time sales hits?

 

From what I can see, Salix is primarily Xifaxan (other assets, like Glumetza, are primarily chemicals with a twist like extended release). Xifaxan certainly could be a huge blockbuster. When Salix was on the chopping block, many big pharma companies sniffed around so I agree that there is something there there. As I see them (and I am not a pharma expert)

 

Pros

-Huge potential market of IBS-D sufferers

-Few competing products (although Allergan just got something approved)

-Indication finally approved - may lead to significantly increased formulary coverage and massive marketing.

 

Cons

-The treatment mechanism for Xifaxan, from what I can tell (and I am NOT a doctor) is somewhat speculative. Basically, it's a hypothesis that (some) IBS-D is caused by an overgrowth of gut bacteria. They did FDA testing and it was moderately effective (like 10%) over Placebo. Even under the thesis for the drug, you are still (at least technically) supposed to establish that you have the overgrowth of bacteria (SIBO) before the drug would work on you.  It is not something like Harvoni where it just definitely cures you.

 

-Xifaxan is an antibiotic. The FDA limited retreatment cycles to two (not sure if that's two in a year, two in a decade etc.,) so that limits its ability to be an everyday drug.

 

-The IBS properties of Xifaxan have been known since 2011. If you google IBS forums, you can find people talking about trying it. Their responses are mixed between really like it, no effect, bad side effects, not worth the expense. Salix also is only GI and I think they've been pitching the properties for a while even without the formal indication. 

 

So, who knows right? I guess I find it interesting that pre-2015, Valeant pitched pretty hard the idea that we are not a traditional pharmaceutical company reliant on blockbusters. Instead, we are about these durable branded products and a very diverse product line. Then in 2015 they acquire Xifaxan, Sprout, Dendreon, all of which are high upside, high downside products.  (My totally biased opinion is that they switched because they needed a blockbuster drug breakout to justify the rather frothy stock prices that Valeant was trading at end of 2014 as well as trigger those option packages but again that is just an inference I am making from my  perspective of motivated reasoning.)

 

On Jublia - this cranky but in my eyes somewhat adorable doctor disagrees with you:

I know you are concerned about the possibility of liver damage from the standard treatment, and that does seem a valid concern so you may be right.

 

On the dermatology products, that's a black box. I was somewhat puzzled by Valeant's response today to this NY Times story on dermatology prices that called out Valeant: (http://www.nytimes.com/2015/11/26/business/2-valeant-dermatology-drugs-lead-steep-price-increases-study-finds.html?_r=0)

 

Basically, Valeant responded (http://thefly.com/landingPageNews.php?id=2292359&headline=VRX-Valeant-comments-on-JAMA-Dermatology-study)

 

"Valeant sets prices based on a number of factors, including the cost of the

development or acquisition of a drug, the availability of substitutes or

generics, and the benefits it offers versus alternative treatments that might be

more costly. When possible, we offer patient assistance programs to mitigate

the effects of price adjustments and keep out of pocket costs affordable for

patients.

 With respect to the JAMA Dermatology study published 25 November 2015,

we note the following:

 Valeant has the highest U.S. market share in dermatology (excluding

biologics) with over 90 products available.

 5 of the 19 products listed in the JAMA study are Valeant products,

which is lower than would be expected given Valeant’s overall market

share in dermatology.

 10 of the remaining 14 products are owned by other large, public,

pharmaceutical companies who in aggregate have significantly less

market share.

 The retail prices cited in the study rarely represent the prices that

patients and insurers are paying or what the pharmaceutical company

receives.

 There are generic alternatives available for four of the five Valeant

products on the list (Retin-A-Micro, Targretin, Benzaclin, and Carac

cream). These products faced generic competition during the time period

examined by the JAMA study, and therefore lower price options were

and continue to be available.

 Valeant owned only one of the five identified products during this entire

time period. Some of these price increases were taken by predecessor

companies.

 One product which Valeant owned over the period, Oxsoralen-Ultra

achieved peak sales of $10.4M in 2012"

 

Which all sounds fair, but if there is generic competition for 4 of the 5 products available, why does Valeant set the list prices so high? Is it because they possess confidence that they can find a way to get some approximation of those list prices paid? Is that confidence still warranted?

 

 

 

[ni-co]

More cockroaches:

 

http://brontecapital.blogspot.co.uk/2015/11/philidor-20-valeant-and-stephen-king.html

 

Valeant's response to Bronte was that all these applications are from before September. I suppose their answer to the Gary Tanner thing would be he's not even a Valeant employee anymore, so who knows what he's doing now. Responses to that response may vary depending on the listener.

 

Oh fine, I suppose this makes it okay, then. Didn't they say that Philidor was an isolated case?

 

[update] They also found at least one that was set up after Philidor had been uncovered: http://brontecapital.blogspot.co.uk/2015/11/valeant-affiliates-still-setting-up-and.html

[ZenaidaMacroura]

So, who knows right? I guess I find it interesting that pre-2015, Valeant pitched pretty hard the idea that we are not a traditional pharmaceutical company reliant on blockbusters. Instead, we are about these durable branded products and a very diverse product line. Then in 2015 they acquire Xifaxan, Sprout, Dendreon, all of which are high upside, high downside products.  (My totally biased opinion is that they switched because they needed a blockbuster drug breakout to justify the rather frothy stock prices that Valeant was trading at end of 2014 as well as trigger those option packages but again that is just an inference I am making from my  perspective of motivated reasoning.)

 

I see it as more nuanced than that.  Ackman pitched the durable hardline and for the most part it was true and that was probably their business plan.  Subsequently the durable/generic price game began to show up on the radar of their competitors. 

 

Valeant pivoted when they saw the chance to pick up a few blockbuster/blockbuster-hopefuls at attractive prices.  I mean why limit yourself to durables if you're in the acquiring mispriced assets game?  I don't think it has anything to do with trying to reach compensation benchmarks-that's a bit cynical.  It's like that old Howard Marksism about riskier assets produce higher returns (if they did so reliably then why are they riskier?).  If just plopping down for blockbusters generated higher returns then what is Valeant doing diverging from the "tried and true" pharma playbook?

 

I think Pearson and Co try to pick their spots.  They don't have a predilection to either durables or exclusive blockbusters -they just want assets that the market is undervaluing (if it is the most favorable opportunity relative to the other options they have with regards to deploying capital).

 

[original mungerville]

I think its actually something in between. Not comp related, but I think with the Allergan fight, all else being equal, they wanted to buy stuff that will have growth (rather than a run-off type or stable business) in order to show organic growth in future periods. Salix helps them get there to a degree.

[randallchsu]

Changes in Retail Prices of Prescription Dermatologic Drugs From 2009 to 2015

http://archderm.jamanetwork.com/article.aspx?articleid=2471623&resultClick=3

 

[LongTermView]

This is the longest forum thread I've ever read.

 

Is anyone going to the December 16th Investor Day?

[dontdodebt]

Listen to the latest dr. drew podcast. (Episode 203 with Simone Bienne)

 

Around 13 min in they mention this new female viagra.

[LC]

More cockroaches:

 

http://brontecapital.blogspot.co.uk/2015/11/philidor-20-valeant-and-stephen-king.html

]

 

Except that someone else on this very thread (many many pages back) already alluded to a network of Valeant-controlled pharmacies with chess names, effectively guaranteeing that more & more names will see the light of day; the poster implored us to "wake up from [your] slumber". This isn't new.

 

New to me as I just periodically stop into this thread. It's kind of like going to an occasional Monster truck rally and/or WWE match.

 

I really enjoy the chess terms. I haven't seen the term zugzwang in years. I gotta give it to Ackman/Pearson/whomever else...this is really great entertainment.

 

Next they can move on to Go: http://senseis.xmp.net/?GoTerms

Heck, Ackman should already be familiar with "Tesuji".

 

Seriously, VRX is way too over-complicated to figure out with a degree of certainty, even to make a calculated guess. I feel it's not worth my time...and if it's not worth my time, it's definitely not worth your guys time.

[jay21]

It's hard enough to know your own circle of competence so I am surprised so many people know what other's circle of competence is.

[LC]

I was just saying u guys bill more per hr than I do.

[LongTermView]

I feel it's not worth my time...and if it's not worth my time, it's definitely not worth your guys time.

Yeah, at first I was a little confused by this but then I figured you didn't mean it in a bad way.

[jay21]

I was just saying u guys bill more per hr than I do.

 

Ha! Sorry to misinterpret.

[LC]

No problem!  ;D

[LongTermView]

It's no secret that prescription drugs for U.S. residents can be cheaper in places like Canada.  The http://www.wsj.com/articles/why-the-u-s-pays-more-than-other-countries-for-drugs-1448939481?mod=e2fb article summarizes some of the issues:

What it found, in the case of Norway, was that U.S. prices were higher for 93% of 40 top branded drugs available in both countries in the third quarter. Similar patterns appeared when U.S. prices were compared with those in England and Canada’s Ontario province.

...

Norway’s cost-effectiveness reviews sometimes cite the work of England’s health-care cost watchdog, known as one of Europe’s toughest. England’s National Institute for Health and Care Excellence, or NICE, conducts extensive analyses and recommends that the taxpayer-funded health system not cover drugs providing low value. Sometimes after one is rejected, its maker offers a discount.

 

England also controls prices by capping the level of National Health Service spending on drugs each year and requiring the pharmaceutical industry to reimburse the NHS for any spending over those limits.

 

Of 40 branded drugs covered by Medicare Part B and also available in England in the third quarter, 98% were more expensive in the U.S., according to the Journal’s analysis of data from Medicare and the NHS’s Business Services Authority.

 

Much of the above article talks about Medicare but Pearson's September 28th http://www.businessinsider.com/mike-pearson-letter-to-valeant-employees-2015-9 letter to employees downplays the importance of Medicare to Valeant:

Turning to the second concern about proposed changes to government reimbursed products in the U.S., our exposure to U.S. government reimbursement currently represents approximately 15% of our total revenue. Of this, about one third, or ~5%, represents sales to Medicaid, the Department of Veterans Affairs, the Department of Defense, and other government entities, where the business is at best marginally profitable. Despite this, we continue to offer our products through these programs to ensure these patients continue to have access to needed medications. The remaining 10% of our government exposure is related to Medicare.

[Liberty]

http://www.ft.com/intl/cms/s/0/e8092a62-9744-11e5-9228-87e603d47bdc.html

 

FT has a kind of recap of the VRX situation so far, with a few peaks at what is going on behind the scenes.

[LongTermView]

This article is bullish about the Xifaxan prospects among other things: http://business.financialpost.com/investing/trading-desk/debunking-6-concerns-about-valeant-pharmaceuticals-international-inc

[original mungerville]

More of Pearson being found to have pushed the boundaries too far:

 

http://www.bloomberg.com/news/articles/2015-12-08/valeant-said-to-consider-sale-of-paragon-unit-reuters-reports?cmpid=yhoo.headline

 

Not good.

[fareastwarriors]

Architect of Valeant’s Turnaround Is Under Fire

 

CEO Michael Pearson, who reshaped Valeant into a deal machine, finds himself on the defensive

 

 

http://www.wsj.com/articles/architect-of-valeants-turnaround-is-under-fire-1449536561

[dorsiacapital]

I was coming over here to post these two links and got edged out! This board, as usual, is on point.

 

Now for my bloviating:

 

On the FTC thing - I think OM has the exact right take. This propublica article from October (http://1.usa.gov/1R1bhv6) gives some background - it sounds like rather blatant monopolistic behavior. If they hadn't turned around and sold, I'd say maybe Propublica was exaggerating, but the fact that they folded so quickly seems to indicate that there's a there there. And that, in turn, indicates the possibility of other there's: aggressive transfers of assets for tax purposes, aggressive use of integration costs, aggressive use of inventories in foreign markets. None of those are death blows, but they're each potentially painful. (I'd say the tax issue may be the most significant...)

 

On twitter, Valeant bears were saying that this indicates a liquidity crisis and I think that's not true. Paragon wasn't big enough to be disclosed in the quarterlys (as far as I can see) so I think purchase price had to be well under 100 million. (And I doubt they'll find a buyer that paid as much as they did because any buyer will not have their upside). 

 

On the WSJ article, I'm quite puzzled by the fact that a BoD member decided to make comments like:

 

“We are being attacked by everyone. We have few friends to defend ourselves,” and "“We all wish we had disclosed it,” said Mr. Melas-Kyriazi, who isn’t on the committee reviewing Philidor. “The hurricane of that publicity has hurt us enormously.”

 

Was the BoD member authorized to say that? If so, why would they let him? The only thing I can see is that the BoD wants to back, back, back, back away from Pearson.  If not, why is this BoD member (who has the least impressive credentials of any of the BoD) speaking up?

 

(To be fair, Morfit is still on point “Mike saw what few others did: that smaller durable assets and off-the-beaten path geographies held more promise for companies like Valeant than trying to match the big pharma companies in an R&D arms race,” said board member Mason Morfit, president of ValueAct, in an email.)

 

Also, I enjoyed this example of Pearson's strategic genius:

 

"When Valeant did a takeover, Mr. Pearson would personally delve into the details to identify cost cuts, people familiar with the matter said. With Canada’s Biovail Corp., for example, with which Valeant merged in 2010 in a deal that helped slash Valeant’s tax rate, Mr. Pearson questioned why the company was helping to develop an oral treatment for distressed schizophrenic and bipolar patients.

 

How many people would be willing to put their fingers in an agitated person’s mouth to give them the treatment? Mr. Pearson asked, said people familiar with the company. Valeant canceled its partnership with the drug’s developer."

 

I mean, if the therapy is actually effective, I imagine that trained medical professionals or a familiar caretaker would be willing to take such a risk in order to end a violent outburst? Is this really an example of Pearson as GREAT THINKER?

 

Now, in the interest of adding something productive....

 

Here's a letter from Senators Grassley and McCain (both republicans obviously) to the Secretary of Health and Human Services that I was sort of stunned by (http://www.grassley.senate.gov/sites/default/files/news/upload/Grassley-McCain%20%20Letter%20to%20HHS%2C%2011-20-15.pdf)

 

Under the 2003 medicare act, wholesalers, pharmacists, and individual users can import drugs from Canada if the Secretary of Health and Human Services certifies that the importation would not harm public health and would result in significant cost savings.

 

McCain & Grassley are asking the Secretary to use its power (which it can exercise, as far as I can tell, at any time) if

 

1) the drug is off patent and not marketed by the original innovater

2) significant and unexplained increase in price

3) No direct competitor drug is currently in the market

4) the drug is produced in another country by original manufacturer or a well known generic manufacturer

 

AND THEN, Grassley & McCain say if the regulatory authority that you already have is not enough, just tell us what you need and we'll see what we can do.

 

Now, I think the genesis for such a letter is Turing/Shkreli(although they broadly phrase it for "several drugs in the news"), but I think that, at the very least, Valeant's Marathon and Wilson's disease products easily meet each of these criteria. They are also, I think, Valeant's highest margin products. (Nitropress, Isuprel, and Cuprimine did $112 million in revenue last quarter. That's a $450 million run rate, and, I think is almost pure cash - they require no marketing (because people & hospitals desperately need them) and they're cheap to make because they're long off-patent drugs.

 

Now, we have Republicans asking a Democratic administration to take a very, very easy step against pharmaceutical high prices. Why would the Obama administration not take such a step?

 

(This is why the durable branded generics bullet point was always so strange to me - it depended on artificial restraints against the free market since almost all of these drugs were available from reputable, EU certified generic manufacturers at infinitesimal fractions of the U.s. price. If the restrains were removed (which could largely be done by regulatory action and didn't even legislation) then the durability vanished. And since the regulatory solution was actually just more free market, it seems like something that republicans could even get behind.)