VRX - Valeant Pharmaceuticals International Inc.

[Liberty]

ValueAct in the NYT about their role with VRX:

 

http://www.nytimes.com/2016/03/29/business/dealbook/valueact-pays-a-price-for-its-supporting-role-at-valeant.html

 

Bill Ackman gets a lot of ink and a lot of criticism as one of the largest investors behind the crisis-ridden Valeant Pharmaceuticals.

 

But another activist investment firm with a much larger role in Valeant’s activities has largely gone unquestioned: ValueAct, a San Francisco based investor that also has a large stake and board seat on Microsoft.

 

ValueAct, founded by Jeffrey Ubben, deserves credit — and perhaps a large dose of disapproval — for virtually everything that’s happened to the company over nearly the last decade, both good and bad.

 

ValueAct has been a longtime investor in Valeant, dating to 2006. The company has held at least one seat on the company’s board since 2007, and more recently held two seats. It helped install Valeant’s now-dethroned chief executive, J. Michael Pearson. It oversaw the design of the company’s compensation policies that some critics now suggest created incentives to use aggressive accounting practices. It also backed Valeant’s controversial strategy to cut research and development and to significantly increase the price of its drugs.

[Picasso]

Can anyone here tell me what the accounting "issue" is that VRX is facing? Hint: it's not too much debt.

 

Let's see, Valeant said their ex-CFO (and interim CEO) was cooking the books, there was a lack of internal controls and oh by the way, that guy is still on the board. Why would PWC sign off on that?  Would you?

[shalab]

After a Canadian drugmaker doubled the price for the most commonly prescribed aid-in-dying drug, Washington Death-with-Dignity advocates created a cheaper new medication to help terminally ill patients who choose to end their lives under the law.

 

http://www.seattletimes.com/seattle-news/health/death-with-dignity-doctors-thwart-steep-price-hike-for-lethal-drug/

 

[snowball82]

If you like the sector, take a look there :

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/rx-biosyent/180/

 

Let us know what you think about this idea. I do a monologue there :)

 

Biosyent (RX.v) is a bit smaller (!) but has a better ROE and ROI, comparable growth without acquisition and no debt.

 

http://financials.morningstar.com/ratios/r.html?t=XTSX:RX&region=CAN

 

Disclosure : I own a position in Biosyent stock

[Eye4Valu]

www.nytimes.com/2016/03/30/business/dealbook/explaining-valeant-the-main-theories.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=EndOfArticle&pgtype=article

 

This is a good article that is more objective than 99% of what I've been reading on Valeant lately.

[big_triece]

http://www.wsj.com/articles/valeant-finishes-accounting-and-philidor-review-with-no-more-problems-1459862081?cb=logged0.8082989672431766

[Guest roark33]

www.nytimes.com/2016/03/30/business/dealbook/explaining-valeant-the-main-theories.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=EndOfArticle&pgtype=article

 

This is a good article that is more objective than 99% of what I've been reading on Valeant lately.

 

I worked in a law firm when this Deal Book Professor started writing.  It was during the 06/07 time when a lot of deals were getting cancelled and he was writing about them.  I was a second year attorney and the paralegals knew more about the deals than this guy. 

 

His knowledge of the VRX situation is even worse. 

[doughishere]

www.nytimes.com/2016/03/30/business/dealbook/explaining-valeant-the-main-theories.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=EndOfArticle&pgtype=article

 

This is a good article that is more objective than 99% of what I've been reading on Valeant lately.

 

But Valeant is a real company. It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. A rival drug company, Allergan, for example, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

 

is responsible for the turmoil at Valeant Pharmaceuticals International as it falls from a darling of Wall Street to its punching bag. commentators and analysts have drawn lessons, but few of them are convincing and many seem similar to the kinds of snap judgments that led to this mess.

 

 

This is the first bit of sanity ive heard. I'm not claiming victory and i may be a bit too naive to believe the 8Ks ill give you that..but I just dont get the populists commentary. Shit on this board included.

 

 

They just miscounted revenue. Guys like are calling it cooking the books...whatever. I go to UChicago and as I look around my classes its not fucking malicious stuff.....its just plain ineptitude......Combine that with a bit of Psychological Misjudgments that Munger talks about and you get this lollapalooza.

 

 

From the 8k a few weeks back

 

Prior to consolidation, revenue on sales to Philidor was recognized by the Company on a sell-in basis (i.e., recorded when the Company delivered product to Philidor).......As a result of these actions, revenue for certain transactions should have been recognized on a sell-through basis (i.e., record revenue when Philidor dispensed the products to patients) prior to entry into the option agreement rather than incorrectly recognized on the sell-in basis utilized by the Company

 

 

I dont think ive seen one person mention this and then try to figure out the ramifications on the other drugs it has......on this board included. Perhaps im wrong...i dont pay enough attention to this board but hey...seems like a logical explanation.

 

 

"preliminary determined that approximately $58 million in net revenues relating to sales to Philidor during the second half of 2014 should not have been recognized upon delivery of product to Philidor."

 

This seems like a small "drop" in the bucket of revenues which for 2014 $8,264 million of revenue was booked. Misstatements of Phildor revenue recognition only represent .7% of revenues.This along with the "channel stuffing" regarding Wellbutrin XL, as described in your post dated February 24th of this year, You yourself state that Wellbutrin XL is accounted for $93M. I assume, perhaps wrong, that this figure of $93M is for 2014.this time 1.12% of revenues.  Again seems to me to be a small "drop" in the bucket or revenues.

 

 

Can anyone tell me why this will go any further?... I say give them time to go over their books to see if this is a huge problem. Fire the CFO who f**k up on doing his job. But f**king up on revenue counting is hardly the smoking gun everyone wants it to be.....

 

 

This article is spot on.....who gives a shit about value act, who gives a shit about who likes who on the BOD...every one of those points in that NYT article were spot on.

 

[doughishere]

www.nytimes.com/2016/03/30/business/dealbook/explaining-valeant-the-main-theories.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=EndOfArticle&pgtype=article

 

This is a good article that is more objective than 99% of what I've been reading on Valeant lately.

 

I worked in a law firm when this Deal Book Professor started writing.  It was during the 06/07 time when a lot of deals were getting cancelled and he was writing about them.  I was a second year attorney and the paralegals knew more about the deals than this guy. 

 

His knowledge of the VRX situation is even worse.

 

 

enlighten us if you are so confident its worse....dont just shout fire. Bring something to the table thats new and what you have claimed to have this all seeing vision about a worse VRX.

 

I'm not a dumb person....prove its worse.....untill then youre just noise from the cheep seats.

 

[Guest roark33]

Doug--I am not going to get into a screaming match with you, but let me ask you a simple question.  If VRX miscounted revenues of only 58m for 2014/2015 and were in compliance with all financial covenants (as stated in today's press release), why are they seeking to amend those financial covenants going forward:

 

"While seeking these waivers, the Company is also asking its lenders to amend, among other things, the interest coverage maintenance covenant and certain financial definitions which would provide additional cushion in its financial covenants." PR from 3/30.

 

Philidor was a huge margin and volume driver for VRX--and without that alternative channel, they are in serious trouble. 

 

Additionally the WAG deal is really going to hurt them in the long run and especially in the short run.

 

Distributors, such as McKesson, Amerisource, etc are all stopping their orders for VRX derm products and trying to negotiate prices in line with WAG. 

 

Think about the economics.  For example, Retin-A, basically around 1k per script is now being sold by WAG at $125 cash pay, but McKesson was being charged around $400.  The inventory de-stocking that VRX mentioned on their last call was all of the non-WAG distributors refusing to order more at prices significantly above the cash pay option at WAG.

 

 

I think the bull vs. bear case has been laid out pretty well on this board actually. Some people pick sides and refuse to change despite all evidence to the contrary. 

 

 

 

[doughishere]

Doug--I am not going to get into a screaming match with you, but let me ask you a simple question.  If VRX miscounted revenues of only 58m for 2014/2015 and were in compliance with all financial covenants (as stated in today's press release), why are they seeking to amend those financial covenants going forward:

 

"While seeking these waivers, the Company is also asking its lenders to amend, among other things, the interest coverage maintenance covenant and certain financial definitions which would provide additional cushion in its financial covenants." PR from 3/30.

 

Philidor was a huge margin and volume driver for VRX--and without that alternative channel, they are in serious trouble. 

 

Additionally the WAG deal is really going to hurt them in the long run and especially in the short run.

 

Distributors, such as McKesson, Amerisource, etc are all stopping their orders for VRX derm products and trying to negotiate prices in line with WAG. 

 

Think about the economics.  For example, Retin-A, basically around 1k per script is now being sold by WAG at $125 cash pay, but McKesson was being charged around $400.  The inventory de-stocking that VRX mentioned on their last call was all of the non-WAG distributors refusing to order more at prices significantly above the cash pay option at WAG.

 

 

I think the bull vs. bear case has been laid out pretty well on this board actually. Some people pick sides and refuse to change despite all evidence to the contrary. 

 

 

"While seeking these waivers, the Company is also asking its lenders to amend, among other things, the interest coverage maintenance covenant and certain financial definitions which would provide additional cushion in its financial covenants." PR from 3/30.

 

The "new" BOD may not know whats all going on completely themselves. Sometimes you need time to asses the situation. The NYT even states that But such a situation is not that uncommon. Companies typically pay a fee to the banks and get a waiver from the debt holder."

 

To me something significant would be a debt caveat where payment of interest or principle has been violated...can anyone show me that?

 

 

 

 

Distributors, such as McKesson, Amerisource, etc are all stopping their orders for VRX derm products and trying to negotiate prices in line with WAG. 

 

 

Fine....give me a percentage of total revenues you think are going to decline due to the WAG.....ballpark it.

 

 

 

[Guest roark33]

The "new" BOD doesn't know what is going on and that gives you some sort of comfort?  There really aren't that many new members....Ackman already had his own guy on the board a few months ago.  The increased interest rate is not a small amount.  They will trip their covenants, which means the projections they gave just a few weeks ago aren't even realistic anymore. 

[Eye4Valu]

"Some people pick sides and refuse to change despite all evidence to the contrary."

 

This would apply to you too, right Roark? Or did I misread VRX's press release today? 

[Guest roark33]

Totally applies to me also.  Just haven't seen anything yet to change my mind that the business has problems that are not limited to a measly 58m in revenue shift.  If you recall the 58m was originally just counted in the "wrong" year, but now it was double-counted.  I just don't think it stops there.  Why would the CEO be forced out for that. 

[ourkid8]

He was forced out for that TERRIBLE earnings call. That was the worst display I have ever seen. They need to rebuild credibility and it starts with the CEO.

 

Totally applies to me also.  Just haven't seen anything yet to change my mind that the business has problems that are not limited to a measly 58m in revenue shift.  If you recall the 58m was originally just counted in the "wrong" year, but now it was double-counted.  I just don't think it stops there.  Why would the CEO be forced out for that.

[Patmo]

He was forced out for that TERRIBLE earnings call. That was the worst display I have ever seen. They need to rebuild credibility and it starts with the CEO.

 

Totally applies to me also.  Just haven't seen anything yet to change my mind that the business has problems that are not limited to a measly 58m in revenue shift.  If you recall the 58m was originally just counted in the "wrong" year, but now it was double-counted.  I just don't think it stops there.  Why would the CEO be forced out for that.

 

You don't replace a CEO based on an earnings call, and neither for what would amount to a small accounting mistake. Either of those things alone would be a straight up ludicrous reason to send this guy packing. That said, the summation of everything that's happened to date is more than enough to justify the ousting, I doubt there is a necessity for another big bad thing around the corner for it to make sense. The big bad thing is already out in the open...

 

At this point, most of the bad news I expect to come out are investigations/lawsuits, increased legislation/oversight, and worse-than-anticipated business results. The rest should be spooky small beans like this accounting thing.

[ourkid8]

So you don't replacement management after an earnings call where the investment community totally loses credibility in management? (stock fell 51%, there was typos in the deck and management sounded confused and was not able to answer basis questions from analyst)  I don't know what type of companies you invest in but the board had no choice and either had to have him committed to a mental asylum or fired.  He came back early from his sick leave to build credibility and lost whatever was remaining.  I personally like MP however I cannot comprehend what happened on the call besides not being ready to return to work. 

 

He was forced out for that TERRIBLE earnings call. That was the worst display I have ever seen. They need to rebuild credibility and it starts with the CEO.

 

Totally applies to me also.  Just haven't seen anything yet to change my mind that the business has problems that are not limited to a measly 58m in revenue shift.  If you recall the 58m was originally just counted in the "wrong" year, but now it was double-counted.  I just don't think it stops there.  Why would the CEO be forced out for that.

 

You don't replace a CEO based on an earnings call, and neither for what would amount to a small accounting mistake. Either of those things alone would be a straight up ludicrous reason to send this guy packing. That said, the summation of everything that's happened to date is more than enough to justify the ousting, I doubt there is a necessity for another big bad thing around the corner for it to make sense. The big bad thing is already out in the open...

 

At this point, most of the bad news I expect to come out are investigations/lawsuits, increased legislation/oversight, and worse-than-anticipated business results. The rest should be spooky small beans like this accounting thing.

[PatientCheetah]

what drives a specific stock up or down? a lot people lost sight of this on this board.

[Patmo]

So you don't replacement management after an earnings call where the investment community totally loses credibility in management? (stock fell 51%, there was typos in the deck and management sounded confused and was not able to answer basis questions from analyst)  I don't know what type of companies you invest in but the board had no choice and either had to have him committed to a mental asylum or fired.  He came back early from his sick leave to build credibility and lost whatever was remaining.  I personally like MP however I cannot comprehend what happened on the call besides not being ready to return to work. 

 

He was forced out for that TERRIBLE earnings call. That was the worst display I have ever seen. They need to rebuild credibility and it starts with the CEO.

 

Totally applies to me also.  Just haven't seen anything yet to change my mind that the business has problems that are not limited to a measly 58m in revenue shift.  If you recall the 58m was originally just counted in the "wrong" year, but now it was double-counted.  I just don't think it stops there.  Why would the CEO be forced out for that.

 

You don't replace a CEO based on an earnings call, and neither for what would amount to a small accounting mistake. Either of those things alone would be a straight up ludicrous reason to send this guy packing. That said, the summation of everything that's happened to date is more than enough to justify the ousting, I doubt there is a necessity for another big bad thing around the corner for it to make sense. The big bad thing is already out in the open...

 

At this point, most of the bad news I expect to come out are investigations/lawsuits, increased legislation/oversight, and worse-than-anticipated business results. The rest should be spooky small beans like this accounting thing.

 

I invest in companies whose executives' role is to run a business, not suck my babyboomer. If a CEO is truly let go based on typos in a slide deck (god damn LOL), then there's no business to be run and they hired a clown for the sole purpose of painting you pretty pictures so that you pay as high a price as possible for your fraction of nothing. Good luck

 

[Guest roark33]

Well said, Patmo.  Pearson being let go is obviously the work of Ackman who is trying to change the perception and provide short-term relief, but over the long run the business results will have to prove themselves.  Will be interesting to see when they release Q1 results. 

[fareastwarriors]

Ruane Cunniff Sold 4 Million Valeant Shares in First Quarter

 

http://www.bloomberg.com/news/articles/2016-04-08/ruane-cunniff-sold-4-million-valeant-shares-in-first-quarter

[ZenaidaMacroura]

http://www.bloomberg.com/news/articles/2016-04-09/valeant-ceo-pearson-may-be-held-in-contempt-by-senate-committee?cmpid=yhoo.headline

 

The badboy of pharma?

[doughishere]

Him and martin shkreli are the bad boys of pharma

 

 

 

I'm convinced if you put "Big" in front of "charity" Americans would be against Big Charity.

 

 

 

[Guest roark33]

Ruane Cunniff Sold 4 Million Valeant Shares in First Quarter

 

http://www.bloomberg.com/news/articles/2016-04-08/ruane-cunniff-sold-4-million-valeant-shares-in-first-quarter

 

What regulatory filing is he referring to here.  I am not seeing a 13D/A or anything referencing this under VRX? 

[fareastwarriors]

Big Valeant Bond Investor Calls for Default

 

Investor Centerbridge points to drugmaker’s delay in filing its annual report

 

http://www.wsj.com/articles/big-valeant-bond-investor-notifies-company-of-intent-to-call-a-default-1460493155