VRX - Valeant Pharmaceuticals International Inc.

[enoch01]

dorsia, you couldn't be more wrong about Salix/Xifaxan.

 

Clearly this is just a clever bear raid by John Hempton who took on a side gig as an R&D scientist at Allergan.  He toiled away for months, shit posting on Cafe Pharma during lunch breaks, and eventually coming up with the Xifaxan killer.  What better way to show the nonsense of free cash flow in this kind of pharma business than to deliver the dagger yourself? 

 

 

Dude John Hempton once lost money on Fairfax.  Therefore he is scum and the worst investor in the world.  Therefore VRX is a steal at these prices.

 

You sound like a guy who eats IRR's for breakfast.  And not someone who does shit analysis either.

 

Let me drop some knowledge for you.  The kind of thing you'll never pick up reading some John Hempton scum garbage re: Philidor.  Listen up.  One thing I learned really quick when playing the markets: always have a strong opinion about everything, even better when it's not important.

[AzCactus]

And the gloves came off....ding.ding. ding.

[Guest neiljgsingh]

Anyone else think they purposefully scheduled this news to be released on the Ides of March?

[Poor Charlie]

From Sequoia's investor day last year (May):

 

"If you adjust for the dividend that Valeant paid out before the Biovail merger, earnings per share have gone from 81 cents to probably close to $27 this year. Next year’s EPS will be close to $38 a share. So the earnings will have gone up over 45 times in seven years."

 

These guys sure drank the Kool-Aid.  Stock price is now lower than their 2016 EPS projections.  And that was just 10 months ago!

[Picasso]

http://www.bloombergview.com/articles/2016-03-15/ackman-s-valeant-investment-keeps-getting-worse

[rishig]

Anyone know what these debt covenants that are suposed to be tripped are about? Are we looking at a bankruptcy here soon? I think theres value in the drug patents. Anyone have any insight into liquidation value.

 

I dont give a shit about earnings and am most likely going to stay on the sidelines of this one. but what kind of position are they in if they start getting down grades and such?  I'm kinda thinking like a pre-bk GGP here.

 

I wrote this in Nov 2015:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg242514/#msg242514

 

Valeant's assets were acquired for an aggregate of $40B in negotiated transactions where the sellers were not distressed. No reason to think that the sellers sold these assets for anything but a fair price. The $40B in purchase price reflects the economics of these assets without Valeant's aggressive strategy to juice the assets using (i) aggressive pricing (ii) aggressive growth through their specialty channels (iii) cut costs (iv) low taxes. Three of four of these are not sustainable.

 

At $30B in outstanding debt and $30B in market cap (when the stock was in mid 90s), I didn't think it was a screaming discount. At $30B in debt and $12B in market cap ($42B in enterprise value), I don't think it is a discount. I asked this many times in the thread earlier, why are assets purchased at $40B worth significantly higher in Valeant's hands? I haven't gotten a compelling response so far from the longs. 

 

On the debt covenant, delay on the filing can trip it into a technical default, if 25% of the notes demand it.

[dbuch]

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

$6B EBITDA less $1.5B interest less $300M taxes less $300M CapEx = $3.9B FCF on a normalized basis. This is probably low on a normal basis given the disruption in their business but assuming that is run rate they could pay $12B of debt down in three years. Every billion paid down also saves $50M in interest expense. In Three years you would have a 3x debt to ebitda levered company which is not outrageous. If you valued it at 10x FCF at that point it would be $115 stock for a 43% IRR. I think this is draconian and the company will be valued much higher on higher FCF at that point.

 

I think it comes down to whether you believe the products are durable or not. If you think these are cliff based pharmaceuticals with a 10yr life then the $2B of D&A is a real expense and should be deducted from FCF as cash flow will have to be replaced. If you think they have a more durable portfolio then you probably believe the D&A should not be counted.

 

My thoughts are the stock is tanking on lower guidance but also the 10k delay and possibility that debt holders push them into BK which I think is very unlikely to happen. A fire sale of assets would not be in debtholders best interest.

 

No offense but the way you calculate FCF is a bit of a BS-ey way to do that. It's BS, pure BS.    For a second, just forget about EBITDA. Just go to the cash flow statement.

And with regards to your musing about an appropriate multiple for the business - given VRX's pricing practices, VRX's distribution practices, regulatory scrutiny as well as the unsustainable state of American healthcare spending & entitlements, why would 10x be the multiple that a knowledgeable counterparty would be fine with paying?

 

No offense but people who start sentences with no offense usually mean to offend. That being said I get that people hate EBITDA and it's always "BS" but I think FCF is understated at $2B. Q4 CFO was $562M GAAP. Adj CFO was $838M which equates to a run rate $3.2B. Within the adjusted number they add back $123.8M restructuring related to acq, excess tax benefit of $35M, Acquired in process R&D of $104M. Given they won't be doing any acquisitions any time soon I think we'll start getting cleaner numbers. I think CFO was likely low due to all the issues in Q4 as well but time will tell. The fixed income sell side seem to be coming up with similar numbers. I'm not a Healthcare analyst and by no means an expert on VRX but I have a small position because generally I think Ubben is right that "people are dying for some new crisis" and this seems way over done. I think for VRX to be a short at this point you have to assume the assets aren't durable and the $2B of D&A is reality and they need to be reinvesting $2B in CapEx every year to replace the revenue cliff products.

 

My "musings" on 10x FCF is not crazy optimistic. They are facing a sh*t storm right now but if the underlying business is generating $4B in FCF in 3 years a $115 seems easy to do.

 

 

UBBEN ON VALEANT'S VALUE

 

KELLY EVANS: Do you think it'll be—a $200 dollar stock again?

 

JEFF UBBEN: --so I think you can earn your way into that. Yeah. I mean, I, you know, the you know, we really haven't been able to control the narrative at all, the short sellers and the media, you know, that are dying for some new crisis like Enron-- --or whatever is-- it's kind of filling the space. We're just-- as we do here we-- just put our head down and, you know-- try to make sure the company is better when we leave it than it was when we got there.

 

[Guest Schwab711]

UBBEN ON VALEANT'S VALUE

 

KELLY EVANS: Do you think it'll be—a $200 dollar stock again?

 

JEFF UBBEN: --so I think you can earn your way into that. Yeah. I mean, I, you know, the you know, we really haven't been able to control the narrative at all, the short sellers and the media, you know, that are dying for some new crisis like Enron-- --or whatever is-- it's kind of filling the space. We're just-- as we do here we-- just put our head down and, you know-- try to make sure the company is better when we leave it than it was when we got there.

 

What follows is a transcript of that short exchange, taken from the now-infamous Enron conference call of April 17, 2001.

 

Operator: Richard Grubman of Highfield Capital.

 

Grubman: Good morning. Can you tell us what the assets and liabilities from price risk management were at quarter-end, what those balances were?

 

Skilling: We do not have the balance sheet completed. We will have that done shortly when we file the Q. But until we put all of that together, we just cannot give you that.

 

Grubman: I’m trying to understand why that would appear to be an unreasonable request, in light of your comments about daily control of all your credits. I mean, you have a trading desk with a $21 million matched book that’s two times your book value, and you cannot tell us what the balances are?

 

Skilling: I’m not saying we can’t tell you what the balances are. We clearly have all of those positions on a daily basis, but at this point, we will wait to disclose those until all of the netting and the right accounting is put together.

 

Grubman: You’re the only financial institution that cannot produce a balance sheet or cash flow statement with their earnings.

 

Skilling: Thank you very much, we appreciate that.

 

Grubman: We appreciate that.

 

Skilling: A%%-hole.

[rishig]

Out of curiosity... how do you calculate the $3b FCF?

If FCF (I assume your number is levered FCF) is $3-4b, then roughly speaking it would take the company 8-10 years to pay down its outstanding debt. That does not concern you?

 

$6B EBITDA less $1.5B interest less $300M taxes less $300M CapEx = $3.9B FCF on a normalized basis. This is probably low on a normal basis given the disruption in their business but assuming that is run rate they could pay $12B of debt down in three years. Every billion paid down also saves $50M in interest expense. In Three years you would have a 3x debt to ebitda levered company which is not outrageous. If you valued it at 10x FCF at that point it would be $115 stock for a 43% IRR. I think this is draconian and the company will be valued much higher on higher FCF at that point.

 

I think it comes down to whether you believe the products are durable or not. If you think these are cliff based pharmaceuticals with a 10yr life then the $2B of D&A is a real expense and should be deducted from FCF as cash flow will have to be replaced. If you think they have a more durable portfolio then you probably believe the D&A should not be counted.

 

My thoughts are the stock is tanking on lower guidance but also the 10k delay and possibility that debt holders push them into BK which I think is very unlikely to happen. A fire sale of assets would not be in debtholders best interest.

 

No offense but the way you calculate FCF is a bit of a BS-ey way to do that. It's BS, pure BS.    For a second, just forget about EBITDA. Just go to the cash flow statement.

And with regards to your musing about an appropriate multiple for the business - given VRX's pricing practices, VRX's distribution practices, regulatory scrutiny as well as the unsustainable state of American healthcare spending & entitlements, why would 10x be the multiple that a knowledgeable counterparty would be fine with paying?

 

No offense but people who start sentences with no offense usually mean to offend. That being said I get that people hate EBITDA and it's always "BS" but I think FCF is understated at $2B. Q4 CFO was $562M GAAP. Adj CFO was $838M which equates to a run rate $3.2B. Within the adjusted number they add back $123.8M restructuring related to acq, excess tax benefit of $35M, Acquired in process R&D of $104M. Given they won't be doing any acquisitions any time soon I think we'll start getting cleaner numbers. I think CFO was likely low due to all the issues in Q4 as well but time will tell. The fixed income sell side seem to be coming up with similar numbers. I'm not a Healthcare analyst and by no means an expert on VRX but I have a small position because generally I think Ubben is right that "people are dying for some new crisis" and this seems way over done. I think for VRX to be a short at this point you have to assume the assets aren't durable and the $2B of D&A is reality and they need to be reinvesting $2B in CapEx every year to replace the revenue cliff products.

 

My "musings" on 10x FCF is not crazy optimistic. They are facing a sh*t storm right now but if the underlying business is generating $4B in FCF in 3 years a $115 seems easy to do.

 

 

UBBEN ON VALEANT'S VALUE

 

KELLY EVANS: Do you think it'll be—a $200 dollar stock again?

 

JEFF UBBEN: --so I think you can earn your way into that. Yeah. I mean, I, you know, the you know, we really haven't been able to control the narrative at all, the short sellers and the media, you know, that are dying for some new crisis like Enron-- --or whatever is-- it's kind of filling the space. We're just-- as we do here we-- just put our head down and, you know-- try to make sure the company is better when we leave it than it was when we got there.

 

dbuch, can you please explain why the assets purchased by Valeant for $40B from seller's who were not distressed and arguably wouldn't sell their assets (and know them well) for anything but fair value be worth significantly higher than $40B (current enterprise value) in Valeant's hands.

[Ballinvarosig Investors]

http://www.bloombergview.com/articles/2016-03-15/ackman-s-valeant-investment-keeps-getting-worse

People keep talking about Ackman and Pershing losing their shirts in this, but I think the real scandal is the Sequoia Fund's involvement. With a hedge fund like Pershing Square who have a track record in what you'd regard as fairly risky investments, you expect high volatility given how close he flies to the sun at times. Sequoia on the other hand have nearly 50 years of a track record of safe, reliable, steady investing in quality with high diversification. Last year, despite the warnings from Buffett and non-executive directors, they loaded 32% of their fund with this train wreck and now they've been crushed. The reputation of the firm, that has taken decades to build up has probably been irreparably damaged in less than a year.

[Liberty]

http://www.bloombergview.com/articles/2016-03-15/ackman-s-valeant-investment-keeps-getting-worse

People keep talking about Ackman and Pershing losing their shirts in this, but I think the real scandal is the Sequoia Fund's involvement. With a hedge fund like Pershing Square who have a track record in what you'd regard as fairly risky investments, you expect high volatility given how close he flies to the sun at times. Sequoia on the other hand have nearly 50 years of a track record of safe, reliable, steady investing in quality with high diversification. Last year, despite the warnings from Buffett and non-executive directors, they loaded 32% of their fund with this train wreck and now they've been crushed. The reputation of the firm, that has taken decades to build up has probably been irreparably damaged in less than a year.

 

Not to mention that hedge fund investors tend to be wealthy individuals and institutions (though some pension funds do invest the small guy's money, but they diversify a lot). Mutual fund investors probably aren't nearly as well endowed in the wallet region, on average.

[doughishere]

Anyone know what these debt covenants that are suposed to be tripped are about? Are we looking at a bankruptcy here soon? I think theres value in the drug patents. Anyone have any insight into liquidation value.

 

I dont give a shit about earnings and am most likely going to stay on the sidelines of this one. but what kind of position are they in if they start getting down grades and such?  I'm kinda thinking like a pre-bk GGP here.

 

I wrote this in Nov 2015:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg242514/#msg242514

 

 

 

Valeant's assets were acquired for an aggregate of $40B in negotiated transactions where the sellers were not distressed. No reason to think that the sellers sold these assets for anything but a fair price. The $40B in purchase price reflects the economics of these assets without Valeant's aggressive strategy to juice the assets using (i) aggressive pricing (ii) aggressive growth through their specialty channels (iii) cut costs (iv) low taxes. Three of four of these are not sustainable.

 

At $30B in outstanding debt and $30B in market cap (when the stock was in mid 90s), I didn't think it was a screaming discount. At $30B in debt and $12B in market cap ($42B in enterprise value), I don't think it is a discount. I asked this many times in the thread earlier, why are assets purchased at $40B worth significantly higher in Valeant's hands? I haven't gotten a compelling response so far from the longs. 

 

On the debt covenant, delay on the filing can trip it into a technical default, if 25% of the notes demand it.

 

I think what the have been doing is capitalizing/monetizing the patent values...when a firm does r&d gaap doesnt allow you to make it an asset even if you have been granted a patent....in order to make in an asset you need to find a market rate for it....vrx's model has been to purchase the patent and thus you can shift the expenses to the balance sheet as an asset.....I wonder what the "cap rates" for each patent or each drug unit looks like...to me theres value in that at some point. If thats agressive then fine but i dont think threre's 0 profits like enron or the banks in the "Big crisis." VRX has some value > than price at some low enough price point.

 

Bills experienced in real estate so I think thats what they may be seeing. Instead of a drug patent think an outlet mall similar to say Water Tower Place in Chicago. Good property, monopolistic cash flows...raise rent.

 

I have a feeling that maybe we come out on the other side in some sort of bankruptcy (just like GGP) with a fresh capital? who knows.....the argument on this board seems to be crazy but this isn't an enron(there is significant value to the capitalization of the patents and cash flows of the patents) and it reminisces of Buffets old AXP trade...the salad oil one....so that leaves us with trying to apply some sort of cash flow value to the "Malls".......theres value in this at some point low enough...trick is wheres that point.

 

at some point the expectations are going to get reset by all market participants......I'm only concerned with 2 things 1) whats a non agressive fair value of the assets, the "cap rates" on the drugs if you will and 2) hopefully the stocks/bonds get low enough to buy in. Ie. What the value?  Has or will Mr. Market sell it low enough become actionable on that value?

 

I could give a shit about the drama. The right type of investor might be able to score a deal off of Ackman et all instead of bitching about the fall or gleefully watch current investors get heir faces ripped of (maybe only temporarily).

 

 

Maybe the debt holders want to trip that and go into bankrupcy...its a dog eat dog world out there. Final thing.....im almost willing to bet were going to be hearing from the credit ratings agencies soon.....

 

Thanks to whoever posted this....I agree.

 

I think you can earn your way into that. Yeah. I mean, I, you know, the you know, we really haven't been able to control the narrative at all, the short sellers and the media, you know, that are dying for some new crisis like Enron-- --or whatever is-- it's kind of filling the space. We're just-- as we do here we-- just put our head down and, you know-- try to make sure the company is better when we leave it than it was when we got there.

[rishig]

Anyone know what these debt covenants that are suposed to be tripped are about? Are we looking at a bankruptcy here soon? I think theres value in the drug patents. Anyone have any insight into liquidation value.

 

I dont give a shit about earnings and am most likely going to stay on the sidelines of this one. but what kind of position are they in if they start getting down grades and such?  I'm kinda thinking like a pre-bk GGP here.

 

I wrote this in Nov 2015:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg242514/#msg242514

 

 

 

Valeant's assets were acquired for an aggregate of $40B in negotiated transactions where the sellers were not distressed. No reason to think that the sellers sold these assets for anything but a fair price. The $40B in purchase price reflects the economics of these assets without Valeant's aggressive strategy to juice the assets using (i) aggressive pricing (ii) aggressive growth through their specialty channels (iii) cut costs (iv) low taxes. Three of four of these are not sustainable.

 

At $30B in outstanding debt and $30B in market cap (when the stock was in mid 90s), I didn't think it was a screaming discount. At $30B in debt and $12B in market cap ($42B in enterprise value), I don't think it is a discount. I asked this many times in the thread earlier, why are assets purchased at $40B worth significantly higher in Valeant's hands? I haven't gotten a compelling response so far from the longs. 

 

On the debt covenant, delay on the filing can trip it into a technical default, if 25% of the notes demand it.

 

I think what the have been doing is capitalizing/monetizing the patent values...when a firm does r&d gaap doesnt allow you to make it an asset even if you have been granted a patent....in order to make in an asset you need to find a market rate for it....vrx's model has been to purchase the patent and thus you can shift the expenses it to thus balance sheet as an asset.....

 

I am confused by your response. My argument is that the "fair" value of Valeant is no higher than what they paid for each of its acquisitions, given that these were negotiated transactions with sellers who exactly knew what their assets were worth based on economics of a normal operating pharma company.

 

So, it does not matter how what is expensed and where it sits on the balance sheet - what can Valeant do today going forward beyond what the old owners of the assets to get more economic value for the assets than what they paid (and they paid $40B).

 

If you purchase the stock today, you are saying that you believe that these assets are worth a lot more than what Valeant paid for it. Explain to me why.

 

(I have tried asking this exact question multiple times in the past, so far, I have only being ignored or may be I am too dumb to understand these responses that seem "convoluted" to me).

[doughishere]

Anyone know what these debt covenants that are suposed to be tripped are about? Are we looking at a bankruptcy here soon? I think theres value in the drug patents. Anyone have any insight into liquidation value.

 

I dont give a shit about earnings and am most likely going to stay on the sidelines of this one. but what kind of position are they in if they start getting down grades and such?  I'm kinda thinking like a pre-bk GGP here.

 

I wrote this in Nov 2015:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg242514/#msg242514

 

 

 

Valeant's assets were acquired for an aggregate of $40B in negotiated transactions where the sellers were not distressed. No reason to think that the sellers sold these assets for anything but a fair price. The $40B in purchase price reflects the economics of these assets without Valeant's aggressive strategy to juice the assets using (i) aggressive pricing (ii) aggressive growth through their specialty channels (iii) cut costs (iv) low taxes. Three of four of these are not sustainable.

 

At $30B in outstanding debt and $30B in market cap (when the stock was in mid 90s), I didn't think it was a screaming discount. At $30B in debt and $12B in market cap ($42B in enterprise value), I don't think it is a discount. I asked this many times in the thread earlier, why are assets purchased at $40B worth significantly higher in Valeant's hands? I haven't gotten a compelling response so far from the longs. 

 

On the debt covenant, delay on the filing can trip it into a technical default, if 25% of the notes demand it.

 

I think what the have been doing is capitalizing/monetizing the patent values...when a firm does r&d gaap doesnt allow you to make it an asset even if you have been granted a patent....in order to make in an asset you need to find a market rate for it....vrx's model has been to purchase the patent and thus you can shift the expenses it to thus balance sheet as an asset.....

 

I am confused by your response. My argument is that the "fair" value of Valeant is no higher than what they paid for each of its acquisitions, given that these were negotiated transactions with sellers who exactly knew what their assets were worth based on economics of a normal operating pharma company.

 

So, it does not matter how what is expensed and where it sits on the balance sheet - what can Valeant do today going forward beyond what the old owners of the assets to get more economic value for the assets than what they paid (and they paid $40B).

 

If you purchase the stock today, you are saying that you believe that these assets are worth a lot more than what Valeant paid for it. Explain to me why.

 

(I have tried asking this exact question multiple times in the past, so far, I have only being ignored or may be I am too dumb to understand what the longs are saying).

 

I was just iterating my feelings on the business model....i dont think its broken I just think they have applied the REIT model to drugs....I honestly dont know and have other things on my plate so this is just my minor information gathering...from this board and the situation in general.

 

"Fair Value" i think can be applied to the inividual cash flows to the individual or groups of patents. Instead of a drug thnk a A+ Mall location...it has tenants that pay cash to the operatior...yadda yadda yadda that flows into revenue.....why cant the people who pay for these drugs be the "tenant" of the patent....

 

You have to be familiar with the REIT structure of business......I dont know where the "Net Operating Income (NOI) to property asset value" (called capitalization rate) is for each drug but it seems to me that if the NOI is sustainable at some point then the property value (appropriately depreciated) has some value.

 

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B valuation of the combined cashflows over the longterm life of the patent.

[Patmo]

So now are we using Seritage as comp for VRX?

[doughishere]

So now are we using Seritage as comp for VRX?

 

In a way yes...but think GGP or SPG. Why not? Seems to me like you have a capialization rate, a Net Operating Income (NOI) to property(drug patent) asset value.

[Guest Schwab711]

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B of the long sum of the life of the patent.

 

Nearly all of the patents expire by 2026. They have no pipeline. Orphan protection is gone by 2018. Generic competition has already started where VRX once cornered specific generic markets. This is not real estate.

 

Cap rates are used because we can be fairly confident the structure will still be standing after some lengthy period. Name one drug that has sold at a premium price for >20 years. Wellbutrin XL is a nice, trusted product and it still generates a fraction of the revenue it used to.

[arcube]

So now are we using Seritage as comp for VRX?

 

In a way yes...but think GGP or SPG. Why not? Seems to me like you have a capialization rate, a Net Operating Income (NOI) to property(drug patent) asset value.

 

Or maybe Sears! Holy Almighty!

[doughishere]

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B of the long sum of the life of the patent.

 

Nearly all of the patents expire by 2026. They have no pipeline. Orphan protection is gone by 2018. Generic competition has already started where VRX once cornered specific generic markets. This is not real estate.

 

but they still have a capitalization rate...just because the patent expires doesnt mean they stop making it. there are still  NOIs associated with every drug. even if there is no patent.  For get the old model of drug manufactures...I think it makes sense

 

 

Maybe when the patent runs out it becomes a B+ or C+ "mall".

[dbuch]

Doughishere well said.

 

dbuch, can you please explain why the assets purchased by Valeant for $40B from seller's who were not distressed and arguably wouldn't sell their assets (and know them well) for anything but fair value be worth significantly higher than $40B (current enterprise value) in Valeant's hands.

 

I think generally the view is Pearson can focus R&D, reduce costs, create scale through a common distribution system and leverage their sales force. I'm sure raising prices and cheap debt and a very low tax structure was also part of the model. Manufacturing companies like Danaher, Roper, ITW, and other successful rollups or platform companies or whatever you want to call them have successfully done the same thing. They have made acquisitions at prices that didn't look appealing and leaned them out or leveraged know how, shared services, salespeople what have you.  I realize there have been terrible roll ups as well like ITT but not every instance is a fraud. At the end of the day I could be wrong and lose my money but I don't think this is an Enron and I think FCF will start to show the earnings power of the business soon.

[doughishere]

Who cares about R&D thats expensed and not "Assetized." They arnt in the business of R&D. Leave that to some other guy....let them "build the mall." just buy it from them when they have a completed mall with NOIs and cut expenses....you stop poring money into depreciating assets you can squeeze out every penny then discard the rind.

 

 

I dont think thats fraud....while all be it there is a small amount of fraud..i dont think its enron level or "Big Recession" subprime level. and certainly recoverable.....we just want a scandal so bad......

 

 

If i were reading this I would be trying to apply NOIs to the subsidiaries or groups of patents and seeing where those cap rates are leading me......If they can get the next 10 years of cash flows above that $40B mark then they would be fine assuming they dont trip covenants and the bond holders wisen up and take the "assets."

 

 

thats all im saying....

[arcube]

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B of the long sum of the life of the patent.

 

Nearly all of the patents expire by 2026. They have no pipeline. Orphan protection is gone by 2018. Generic competition has already started where VRX once cornered specific generic markets. This is not real estate.

 

but they still have a capitalization rate...just because the patent expires doesnt mean they stop making it. there are still  NOIs associated with every drug. even if there is no patent.  For get the old model of drug manufactures...I think it makes sense

 

 

Maybe when the patent runs out it becomes a B+ or C+ "mall".

 

I can live with that. Or maybe A- mall in Suburban America where people eat themseves to sickness then come to VRX mall where Dr. Pearson sees them and sells some of his snake oil. Anything is possible! Wink wink!

[Guest Schwab711]

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B of the long sum of the life of the patent.

 

Nearly all of the patents expire by 2026. They have no pipeline. Orphan protection is gone by 2018. Generic competition has already started where VRX once cornered specific generic markets. This is not real estate.

 

but they still have a capitalization rate...just because the patent expires doesnt mean they stop making it. there are still  NOIs associated with every drug. even if there is no patent.  For get the old model of drug manufactures...I think it makes sense

 

 

Maybe when the patent runs out it becomes a B+ or C+ "mall".

 

Just replace cap rate with yield, that's all it is. However, in this case you get nothing at maturity (drug patent). In RE, they use cap rates because you have a building at the end. Saying "cap rate" doesn't make sense in this case.

 

There are actually some pretty natural comps for VRX. They are called pharmaceutical companies. VRX literally copied the JNJ business model and called it new (minus any R&D).

[arcube]

Maybe like an A+ mall that can appreciate over time. probably not but the cash flows discounted back to the present may support $40B of the long sum of the life of the patent.

 

Nearly all of the patents expire by 2026. They have no pipeline. Orphan protection is gone by 2018. Generic competition has already started where VRX once cornered specific generic markets. This is not real estate.

 

but they still have a capitalization rate...just because the patent expires doesnt mean they stop making it. there are still  NOIs associated with every drug. even if there is no patent.  For get the old model of drug manufactures...I think it makes sense

 

 

Maybe when the patent runs out it becomes a B+ or C+ "mall".

 

Just replace cap rate with yield, that's all it is. However, in this case you get nothing at maturity (drug patent). In RE, they use cap rates because you have a building at the end. Saying "cap rate" doesn't make sense in this case.

 

There are actually some pretty natural comps for VRX. They are called pharmaceutical companies. VRX literally copied the JNJ business model and called it new (minus any R&D).

 

Minus any R&D plus exponential price increases!

[Patmo]

dorsia, you couldn't be more wrong about Salix/Xifaxan.

 

Clearly this is just a clever bear raid by John Hempton who took on a side gig as an R&D scientist at Allergan.  He toiled away for months, shit posting on Cafe Pharma during lunch breaks, and eventually coming up with the Xifaxan killer.  What better way to show the nonsense of free cash flow in this kind of pharma business than to deliver the dagger yourself? 

 

And nevermind the brand value attached to the Xifaxan pink fellow.  Have you see how adorable that guy is?  Think about the theme parks and Halloween licensing potential from that asset.  Even if (and it's a big "if") Xifaxan has real, massive amortization expense, I think the brand value of the pink Mr. Xifaxan provides downside support on the stock price.

 

Sir, do you even understand the platform value of this cuddly creature?

 

 

Oddly enough, he appears to be a VRX shareholder... Perhaps the secret master plan was to give VRX shareholders massive IBS from seeing their stock prices dive 50%, to drive sales of Xifaxan!  I can't even get on Pearson's level...  A visionary!

 

We should invite Mr. Pearson to the BTU thread and organize a knowledge exchange. It would be good to pick his brains and accrete some new mental models in our mental model network collection.