VRX - Valeant Pharmaceuticals International Inc.

[Guest Schwab711]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

[Rasputin]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

[Rasputin]

http://ir.valeant.com/news-releases/2016/06-07-2016-110324216

 

The underlying business just isn't that great and they will not be able to paper over that with acquisitions any longer.  Check out derm declines and credit line drawdown. 

 

The reality at this point is these are now wasting assets that can no longer be replaced, so you are up against a ticking time bomb of debt with a questionable runway for how long each product will last.  Now that insurance is no longer playing bat, the profitability of all of these headline revenue numbers is in serious doubt.

 

Wasting assets?  Ticking time bomb?  Insurance not playing?  Profitability in serious doubt? 

 

Are we looking at the same company?  :D

[cmlber]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

[Rasputin]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

 

CORRECTION: That $1.3 B is EBITA after depreciation. 

 

This type of analysis assume everything has to be sold today with proceeds used to pay down debt, which is not reality.  They will pay down debt by $1.5 B this year, $2.5 B next year (with no milestone payment) and so forth.  In 4 years, debt will be closer to $20 B range, while B+L consumer otc would have grown, new drugs would have been launched, etc. 

 

I actually thought the businesses overall held up very well under duress.  It shows the strength of the franchise. 

[cmlber]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

 

CORRECTION: That $1.3 B is EBITA after depreciation. 

 

This type of analysis assume everything has to be sold today with proceeds used to pay down debt, which is not reality.  They will pay down debt by $1.5 B this year, $2.5 B next year (with no milestone payment) and so forth.  In 4 years, debt will be closer to $20 B range, while B+L consumer otc would have grown, new drugs would have been launched, etc. 

 

I actually thought the businesses overall held up very well under duress.  It shows the strength of the franchise.

 

You're right, I misread that slide.  So $1.3B EBITA, let's say tax at 15%, $1.1B FCF, at 20x is $22B.  Add $14.5B for Salix (which they say is underperforming) and you get $36.5B or $5.5B in equity value + the other crap, whatever it's worth.  I get your point on the debt pay down and t's probably not a $0, but where is the upside coming from that justifies the risks?

 

[Rasputin]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

 

CORRECTION: That $1.3 B is EBITA after depreciation. 

 

This type of analysis assume everything has to be sold today with proceeds used to pay down debt, which is not reality.  They will pay down debt by $1.5 B this year, $2.5 B next year (with no milestone payment) and so forth.  In 4 years, debt will be closer to $20 B range, while B+L consumer otc would have grown, new drugs would have been launched, etc. 

 

I actually thought the businesses overall held up very well under duress.  It shows the strength of the franchise.

 

You're right, I misread that slide.  So $1.3B EBITA, let's say tax at 15%, $1.1B FCF, at 20x is $22B.  Add $14.5B for Salix (which they say is underperforming) and you get $36.5B or $5.5B in equity value + the other crap, whatever it's worth.  I get your point on the debt pay down and t's probably not a $0, but where is the upside coming from that justifies the risks?

 

Just use your $36.5 B (assuming dermatology rx $230 million in Q1 2016 US revenue, neuro + others/generics roughly $550 million US revenue in Q1 2016, dental, oncology/urology is ZERO) but do it in 2020 when debt is $20 B.  You get $16.5 B in equity value or roughly $47 a double from current price. 

[Guest roark33]

I think that number of Ebitda for B&L + consumer is very suspect.  Umer pressed them on that specific number and there was a lot of pushback as to specifics.  That's one of the interesting things is that people keep pushing this idea that B&L is worth X without having any specific numbers on its profitability.  That's just an unknown.  My personal opinion is that the profitability is highly related to its drugs in runoff where the price hikes occur, but VRX obviously doesn't want to disclose that.  If you think about the two heart drugs, they still aren't willing to even give the stated 30% discounts because that cut in profits would hurt their overall profit so much...which tells me that's where a lot of the profit is coming from. 

[cmlber]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

 

CORRECTION: That $1.3 B is EBITA after depreciation. 

 

This type of analysis assume everything has to be sold today with proceeds used to pay down debt, which is not reality.  They will pay down debt by $1.5 B this year, $2.5 B next year (with no milestone payment) and so forth.  In 4 years, debt will be closer to $20 B range, while B+L consumer otc would have grown, new drugs would have been launched, etc. 

 

I actually thought the businesses overall held up very well under duress.  It shows the strength of the franchise.

 

You're right, I misread that slide.  So $1.3B EBITA, let's say tax at 15%, $1.1B FCF, at 20x is $22B.  Add $14.5B for Salix (which they say is underperforming) and you get $36.5B or $5.5B in equity value + the other crap, whatever it's worth.  I get your point on the debt pay down and t's probably not a $0, but where is the upside coming from that justifies the risks?

 

Just use your $36.5 B (assuming dermatology rx $230 million in Q1 2016 US revenue, neuro + others/generics roughly $550 million US revenue in Q1 2016, dental, oncology/urology is ZERO) but do it in 2020 when debt is $20 B.  You get $16.5 B in equity value or roughly $47 a double from current price.

 

That analysis assumes Salix is still worth $14.5B in 2020 after they suck out probably $4B (maybe more) in cash flow for interest and principal payments from a depleting asset.  If you assume it's worth $10.5B in 2020 you have equity value of $12.5B assuming debt of $20B and B&L + other "consumer" businesses are still worth $22B.  The debt in the 70s and 80s gives you a higher IRR if you think the equity is worth $12.5B...

 

And what about the risks of further price declines?  What if Congress figures out a way to stop copay assistance and prices decline by 10%?  All your equity value would disappear. 

 

Btw, some of the dermatology assets are included in the "consumer" businesses that we already valued.

[Guest Schwab711]

I highly doubt the assumptions thrown around are even plausible. That is and has been the issue. I don't think VRX looks as good when you switch from back-of-the-envelope to detailed analysis.

 

I have TTM adjusted tax rate as roughly 25%. How are you getting 15%?

 

The company actually increased net debt in the 1Q16. So they would have to pay off $1.7b in net debt over the next 3 quarters to meet your assumption. That's roughly 1Q16's annualized OCF.

 

This has been fun to follow. Good luck to all

[Rasputin]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

:D Love the stock price, would love to buy at $10.  What did they use EBITDA on?  It's on the slides (Sprout payment $500 million for one).

 

B&L + all other consumer businesses doing $1.3B in EBITDA.  That's 10% lower than Ackman's estimate of B&L alone a year ago.  If you assume a 15% tax rate and $100MM capex, that's $1B FCF.  At 20x (probably aggressive) that's $20B.  Salix they paid $14.5B for, let's say that's right.  So you're only at $3.5B above the debt.  What is the other crap worth?  If they trip a covenant who is going to provide them with liquidity?

 

CORRECTION: That $1.3 B is EBITA after depreciation. 

 

This type of analysis assume everything has to be sold today with proceeds used to pay down debt, which is not reality.  They will pay down debt by $1.5 B this year, $2.5 B next year (with no milestone payment) and so forth.  In 4 years, debt will be closer to $20 B range, while B+L consumer otc would have grown, new drugs would have been launched, etc. 

 

I actually thought the businesses overall held up very well under duress.  It shows the strength of the franchise.

 

You're right, I misread that slide.  So $1.3B EBITA, let's say tax at 15%, $1.1B FCF, at 20x is $22B.  Add $14.5B for Salix (which they say is underperforming) and you get $36.5B or $5.5B in equity value + the other crap, whatever it's worth.  I get your point on the debt pay down and t's probably not a $0, but where is the upside coming from that justifies the risks?

 

Just use your $36.5 B (assuming dermatology rx $230 million in Q1 2016 US revenue, neuro + others/generics roughly $550 million US revenue in Q1 2016, dental, oncology/urology is ZERO) but do it in 2020 when debt is $20 B.  You get $16.5 B in equity value or roughly $47 a double from current price.

 

That analysis assumes Salix is still worth $14.5B in 2020 after they suck out probably $4B (maybe more) in cash flow for interest and principal payments from a depleting asset.  If you assume it's worth $10.5B in 2020 you have equity value of $12.5B assuming debt of $20B and B&L + other "consumer" businesses are still worth $22B.  The debt in the 70s and 80s gives you a higher IRR if you think the equity is worth $12.5B...

 

And what about the risks of further price declines?  What if Congress figures out a way to stop copay assistance and prices decline by 10%?  All your equity value would disappear. 

 

Btw, some of the dermatology assets are included in the "consumer" businesses that we already valued.

 

1.  Obviously I think VRX equity will be worth a lot more than $47 in 4 years. 

 

2.  That $230 million US revenue in Q1 is ONLY for derm RX (NON OTC) that includes Negative ASP in Q1 due to Walgreen deal kinks.  Negative ASP is worse than the congress mandated 10% price decrease in your scenario.

 

3.  B+L + consumer OTC is growing, very sticky business.  I believe it will grow in value over time. 

 

To each his own, I've never seen a global pharma+consumer otc business that sells for less than 4 times Cash flow from operations. 

 

2016 FCF excluding milestone+contingency+Sprout payment is $2.5 Billion or $7 per share even with all the one time costs, duress, kinks, etc. 

 

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

[Picasso]

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

 

We should create a CoBF dumpster fire portfolio. VRX, FELP, BCOR, etc.

[Guest Schwab711]

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

 

Net Debt/FCF = 17.6x

All their current drugs will no longer have patent protection by 2029. Nearly all non-Salix Rx revenue goes off protection by 2021 and most Salix drugs have compeition that was recently approved or near approval. When do you get any of that FCF and what assets will be left at that time?

[CorpRaider]

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

 

We should create a CoBF dumpster fire portfolio. VRX, FELP, BCOR, etc.

 

SD, ZINC.  You. Complete. Me. 

 

 

[Mephistopheles]

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

 

We should create a CoBF dumpster fire portfolio. VRX, FELP, BCOR, etc.

 

SD, ZINC.  You. Complete. Me.

 

Let's not forget the mother of them all: SHLD

[Picasso]

I'm pretty sure ZINCQ and SDOCQ have left the dumpster fire and are sitting in their resting places. Above the fireplace in an urn where their ashes will be remembered for years to come.

[doughishere]

Looks like a pretty bad quarter. I can't believe the shares are >$10. There is no upside left. We might see a US organic growth boost in Q3 and Q4 this year due to easy Xifaxan comps, but the situation is becoming dire. I don't see how they refinance the 2018 debt at this point.

 

* Total net debt increased by $177m (what did they use EBITDA on? I think we can start to ignore company claims of debt repayment)

* EM sales declining quickly; inventory moving to normal levels (currently "3-4 months", so they say)

* US organic growth was -21.5% (a lot lower than my "conservative" estimate of -3% to 3% a few months ago)

* Taxes appear to be ~$7.5m, which is very scary. That company could be near break-even before D&A. We'll see if we get more clues when the BS and CFS come out. I've already showed that low tax rate structure is a myth.

 

Again, I'd be interested to see how they calculate the currency impact. The results they report don't make sense to me.

 

Only spent a few minutes looking at the results, but why don't the FX effects in Table 3 and Table 6 reconcile (very small difference but why is it an issue)?

 

 

Every day Im reminded how treacherous this investing business is.......its not easy folks.

[Graham Osborn]

The thing that I keep going back to is that, despite all of their issues, VRX certainly owns some valuable drugs / brands that several of their competitors would love to own.  In my mind, that should put a floor under the stock - at least at some price above $0.

 

Huh?  EV obviously has a floor > 0.  MC has no floor > 0.

[Graham Osborn]

The amazing thing is there are still people on this thread using EBITDA and FCF before acquisitions to value VRX.  Amortization and restructuring expense for employee severance should NOT be deducted.  Even if you use an EV/ Rev of 6 based on 10% CAGR (way optimistic at this point) you still get only $30 or so for the bull case.  When you incorporate price decreases and unit volume trends concealed by their accounting, the creditors will be lucky to get paid off.

 

I hope Teva shareholders are paying heed as they prepare to buy an analogous business with even more debt relative to revenue.  Saunders is committed to use 20B of the proceeds from a presumed deal to finance more acquisitions even though specialty is also under pressure.  It is quite possible we will see VRX, AGN, and TEVA all go under by sometime in 2018.  They'll be restructured of course, but their shareholders will learn a tough lesson.

[Rasputin]

VRX is trading at FELP like valuation and this is not coal, with plenty of fcf even under duress :D

 

Net Debt/FCF = 17.6x

All their current drugs will no longer have patent protection by 2029. Nearly all non-Salix Rx revenue goes off protection by 2021 and most Salix drugs have compeition that was recently approved or near approval. When do you get any of that FCF and what assets will be left at that time?

 

I think you are from Mars and I am from earth.  FCF is after deducting interest expense.  Net debt should be compared to a number that exclude interest expense. 

 

Your fcf is also after deducting NON RECURRING milestone+contingency+Sprout payment...NON RECURRING means the $900 million payment will not occur in 2017. 

 

My remark with FELP like valuation is market cap/fcf. 

 

$3.5 B B+L, consumer OTC = durable.  Generics are not always = branded, I gave example with retin A franchise. 

 

Every pharmaceutical business have patent expiration.  Can you name a public pharma other than VRX where market cap = 4 X cash flow from operation?  Cash flow from operation is also after deducting interest expense. 

 

We will see what fcf will be in 2020. 

 

 

 

[LongHaul]

The FDA approval issue for generic drugs does not seem discussed many places but I think it has been critically important for pricing power of the pharma companies on the way up and now is a serious headwind for them.  The US government basically created a bigger barrier to entry for generic drug competition from lengthening drug approval time.  That has now reversed bigtime.  This allows much quicker generic competition in response to price gouging pharma companies like VRX.  Capitalism and competition work and act as a check on short term gouging. 

 

 

FDA approval time for generic drugs (ANDA approval)

• Increased from 18 months in 2008 to ~34 months in 2014.

• FDA time now (5/16) down drastically after ramped up hiring.

• I think I saw ~15 months in FY 2015 and want to get to 10 months soon

• Bottom line – more competition for drug companies and generic drug companies

 

 

This should have been more in the media but hasn't - at least to my knowledge.

 

[sampr01]

This problem was mentioned by Ackman at senate hearing. The generic competition still have to make money after the approval because its expensive is to get FDA approval. Just my 2 cents.

The FDA approval issue for generic drugs does not seem discussed many places but I think it has been critically important for pricing power of the pharma companies on the way up and now is a serious headwind for them.  The US government basically created a bigger barrier to entry for generic drug competition from lengthening drug approval time.  That has now reversed bigtime.  This allows much quicker generic competition in response to price gouging pharma companies like VRX.  Capitalism and competition work and act as a check on short term gouging. 

 

 

FDA approval time for generic drugs (ANDA approval)

• Increased from 18 months in 2008 to ~34 months in 2014.

• FDA time now (5/16) down drastically after ramped up hiring.

• I think I saw ~15 months in FY 2015 and want to get to 10 months soon

• Bottom line – more competition for drug companies and generic drug companies

 

 

This should have been more in the media but hasn't - at least to my knowledge.

[cmlber]

 

2.  That $230 million US revenue in Q1 is ONLY for derm RX (NON OTC) that includes Negative ASP in Q1 due to Walgreen deal kinks.  Negative ASP is worse than the congress mandated 10% price decrease in your scenario.

 

3.  B+L + consumer OTC is growing, very sticky business.  I believe it will grow in value over time. 

 

 

If you believe that bullshit about negative ASP (and especially if you really think that's even remotely close to a 10% across the board price cut) then you don't know enough about this business to be calling it a bargain.  They sell a tube of Jublia for $20,000 and it costs them probably $5.(numbers made up, but probably close to right).  The customers that get it for free are the "negative ASP" customers.  The "negative ASP" is a distraction.  The only way to charge $20,000 a tube and still have patient access is to have some of these "negative ASP" customers.  They can't keep the high prices and get rid of those, that's the whole point of the Walgreens deal.  That "negative ASP" customer is a customer they never would have had anyways so the loss is $5 not $20,000.  If you take some of the customers actually paying $20,000 and lower it to $18,000, it has a much bigger difference.

 

 

[Guest roark33]

The negative ASP on some customers is pretty easy to understand. 

 

Walgreens deal is transaction based, so if you need prior authorization (PA) which is time-consuming, WBA gets paid $100, but since the insurance will pay $1000, it's fine.  However, WBA doesn't actually wait for the PA to hand out the drug.  The patient comes on monday and gets the drug.  Over the course of the next week WBA tries to get the PA, but sometimes they don't get it.  So, now this customer was a negative ASP, VRX paid WBA $100, plus the price of the drug, but only collected the $10 co-pay.  What this really tell you is that insurance companies are rejecting their claims.  Also, in the slides VRX mentions that they are going to contract with third-party contractors to get the PA, because the pharmacists at WBA just aren't getting it done.  The real question is whether this third-party can get it done or if insurance companies have said enough when it comes to these drugs.  Take Glumetza.  This was a top 3 drug in Q4 and now in Q1, it isn't even in the top 30...that some drop off.  Why, well Express Scripts said they were going to exclude it, why, well there's a generic and a fairly similar version (without the time release) has been generic for quite some time. 

 

Also, this third-party contractor to get the PA sounds eerily familiar, like haven't we seen this story before? 

 

 

[rb]

Every day Im reminded how treacherous this investing business is.......its not easy folks.

That is such bullshit. This wasn't hard. It had tons of signs of a bad ending: A torrent of M&A, lots of debt, lots of rumors of unethical behavior, very aggressive management, incentives for management to pump the stock price, lots of adjusted non gaap numbers, and every time you try to read a 10-k you get a splitting headache. If you see these things, it's easy to figure out the right thing to do as an investor - you stay away.

 

The people that got burnt on this didn't do investing. They joined a cult in which common sense is suspended driven by a combination of greed and hero worship. All you have to do is go back a couple of hundred pages on this thread to see it in all its glory. If anyone would say anything negative about VRX then you would have a chorus of people basically:

1. Keep repeating: Well Value Act and Sequoia are is so it must be great!

2. Parroting numbers from the management presentation without any reasonable analysis

3. Declaring: You don't get it man, Pearson is an outsider.

 

There are some things that are hard. This one wasn't!