VRX - Valeant Pharmaceuticals International Inc.

[Liberty]

Misleading? Shareholders asked them to break out the growth ex-generics so things would be clearer. You now have a more granular view of what's taking place, 2 metrics instead of one (not like they stopped publishing the other), how is that more misleading than a single metric that hides what's going on? And we've been over the rest many times...

 

You know what, your last message reeks of bad faith. You didn't even look at the less-than-15-minutes I suggested that would answer many of the same questions you've been asking 15 times. Good day, sir, and good luck.

[bmathews03]

I've been following the company since Mason Morfit talked about in 2009 at a small meeting I attended. And I've gone through the recent bear arguments from Chanos (too short to even judge), Grant/Evan Lorenz (disingenuous, misinformed and written in the most arrogant style I could imagine), Allergan management (self-serving at best), and now Bronte/John Hempton (credit to him for putting some detail behind his argument to prove beyond a doubt that he is a clown).

 

So what do I think? I like the cut of Pearson's jib. I like the strategy, the incentives are right, and I love the prospective of shaking up the pharma industry, which has been broken for at least a decade. So, I'm a Valeant shareholder, and I only wish that I'd bought in earlier.

 

I recognize that I'm not distinguishing myself with a detailed "deep dive" on the company, so forgive me for that. And, I recognize that the market requires buyers and sellers, so I'm not looking to stir up an argument with the bears. I'm just bringing my personal perspective to this interesting thread.

 

 

[giofranchi]

Valeant may not technically be lying, but at the least, they paint a very misleading picture.  And yet, on this board, the main rebuttal to any point I have raised has been a quote from management.  I think they've shown pretty clearly that they can't be trusted.

 

lu_hawk,

unfortunately I don’t think numbers are useful to make a good judgment about VRX. VRX, like any business, should be understood first of all qualitatively. Then, of course, if possible we would like to see the numbers support our thesis about the business… but with VRX it still is not possible.

 

All of your quotes from VRX’s annual reports can be found almost exactly the same in the annual reports of the great majority of pharma companies around the world! Their business is constantly changing, and therefore their managers constantly make adjustments to portray a picture they think is the less misleading… If you blame VRX for this, just forget investing in the pharma industry!

 

When I asked you if you had read all the conference call transcripts from the last 3 years, it was because that is the place where you truly find management talking qualitatively about VRX strategy. And, if you want to really understand the business model they are trying to implement, those conference call transcripts are the place to start. Have you read them?

 

If you have, and still don’t trust management, then we simply think about what’s important in business too differently… it is just obvious then we come to different conclusions!

 

For instance, you go on repeating that I quote from management… but let me ask you: would you ever even consider investing in a company, if your view about the business differs from the one of management?! Or if you think you know more about the business than management does?!

If I quote from management, it is because I have listened extensively to management talking qualitatively about their business, I have reasoned a long time about what I have heard them say, and I have found what I always look for in the people I partner with.

If and when I start having opinions about a business which are different from how its owners/managers talk about it, that’s the reason I sell! Not because I know better! I couldn’t care less about knowing better!

 

Numbers are not the place to look for, if you want to form a strong opinion about the people you do business with… Business is still done by human beings, not computers… Let me ask you: besides investing, in your daily business life how important are the people you have to deal with? How do you judge them? Do you talk to them, ask them questions, examine their answers, try to understand how they reason, come to know what their cultural background is, what their values are, etc. Or do you ask them “show me the numbers”?

Good business is always based on trust, at least in my experience, and trust is based on qualitative features… after all, if it were based on something quantitative, we couldn’t call it trust anymore, could we?! ;)

 

I admit “good investing” might be somehow different from “good business”, but as far as VRX is concerned, they seem to be the very same thing! Being their business model what’s attacked or defended.

 

I have still to find a business owner (and I know lots of them!), who think about business differently… therefore, more than our discussion about VRX, now I am curious to know what your business experience actually is… Do you own and run some businesses? If so, which kind of businesses? And for how long have you been owning them? I would really like to know!

 

Gio

 

[Bagehot]

As I said in my prior post, the 10-K states unequivocally (albeit in a bizarre and misleading way) that organic growth in Developed Markets in 2013 was negative.  Likewise for Q4, both for Developed Markets overall and for the U.S.  Let's compare those FACTS, with certain things that management has SAID:

 

From the FY 2013 Earnings Release:

 

9% organic growth (same store sales) for the Developed Markets segment, excluding the impact from certain generic products

 

OK, not technically a lie, because they do say it excludes certain generic products.  But the tone is clearly misleading and trumpets an INCREASE, when there was in fact a decrease.  And excluding generics is kind of like an investment manager saying "Results were great! (excluding certain trades that turned overall results into a loss)."

 

Moving on to the Q4 conference call:

 

Excluding the aforementioned products, our U.S. business exhibited outstanding same-store sales organic growth of 14% [in q4], driven by many of our dermatology prescription brands, our aesthetic, consumer and oral health portfolios and certain neurology products. Our rest-of-world Developed Markets, which included Canada and Australia, delivered same-store sales organic growth rate of 12% in the quarter.

 

Again, not technically misleading, because it is "excluding the aforementioned products."  But for Pearson to say there was OUTSTANDING same-store sales organic growth of 14%, when US organic growth was actually -3% isn't trust-inspiring, at least to someone like me who believes certain traditional GAAP concepts like "revenue" and traditional ethical concepts like "integrity" are important.

 

 

Valeant may not technically be lying, but at the least, they paint a very misleading picture.  And yet, on this board, the main rebuttal to any point I have raised has been a quote from management.  I think they've shown pretty clearly that they can't be trusted.

 

Not sure what is bizarre and misleading about the revenue disclosure in the 10-K. Would you rather they just present one net number so that you as an investor in fact have less detail? Also, check Pfizer and Merck's 10-K and you will see that this is standard industry practice in pharma.

[Fat Pitch]

It's becoming obvious some people here are definitely outside their circle of competence. That's okay, just remember the market doesn't reward extra credit for attempting difficult things. Someone should create a new thread for people to argue the theories of accounting so we can stop cluttering up this thread with the same argument repeated to ad nauseam.

[cubsfan]

http://www.vpsevent.com/may-webcast/

 

Anyone who wants to understand the growth-or-not of Valeant should watch this video from about 21:30 minutes to about 34 minutes (it's faster than reading a 10K, so no excuses, and quickly scanning the presentation slides doesn't give you the same depth of info). Early in those times in the video they explain how they buy drugs at the end of their lives that nobody else wants for 1-1.2x sales and milk them for cash for a few years very profitably (established products so almost no promotion needed, so very low costs). At around 32 minutes they explain the biovail transaction where they got the big declining assets that are masking organic growth lately, and how they're using it as a cash cow, what are the cash on cash returns of that transaction so far, and how it was very valuable because that's how they got their tax structure. Before that they look at their 3 earliest acquisitions and look at the same products over the whole period until 2013 (so many years) and show the CAGR in revenue for those very same products they bought at the start since then, as well as what they got out of those pipelines (Dow has been particularly productive).

 

At 2 hour 29 minutes the CFO discusses the acquisition model, along with the declining tail drugs they buy that mask organic growth, and talks about the returns on all their acquisitions so far.

 

I encourage you to watch the whole thing, as well as the April presentation, but at least watching between 21-34 mins on the May presentation should explain how it doesn't make sense to mash everything together when you look at organic growth.

 

Great video Liberty - thanks for pointing out the relevant sections.

[bmathews03]

Here's a question I have for those of you positive on Valeant. How do the economics of the deal for Allergan make sense unless VRX stock is considerably overvalued?

 

VRX trades at 14x EBITDA. If synergies are achieved, essentially AGN will be bought at 9x EBITDA.

[Liberty]

2014 sales from the Medicis assets after the divestitures are going to be around $500m and there are some relatively big product launches coming. Medicis had a pretty big dermatology portfolio, not just the toxin + fillers that they sold. I'm not sure where you get that they sold everything except one drug. (note that they include the costs of restructuring in the cost of purchase below)

 

http://i.imgur.com/1563ULr.png

[lu_hawk]

Thanks Liberty, I was going off the list of drugs that were in the market already.  I assume if Luzu and Metrogel were developed to approval by VRX then they were likely far along in the r&d process on those drugs?  Are there any additional drugs coming down the pipe from Medicis?

[loganc]

lu_hawk,

 

Do you realize you can look at the old SEC filings for Medicis?  If you did look at them, I don't understand how you could say that the only thing Medicis had left was Solodyn considering a majority of the revenues for Medicis were generated from the acne derm products prior to the acquisition.  In other words, the aesthetic products sold to Galderma included products that represented a minority of the total Medicis sales prior to the VRX acquisition.

 

 

[loganc]

It's becoming obvious some people here are definitely outside their circle of competence. That's okay, just remember the market doesn't reward extra credit for attempting difficult things. Someone should create a new thread for people to argue the theories of accounting so we can stop cluttering up this thread with the same argument repeated to ad nauseam.

 

+1. 

[loganc]

lu_hawk,

 

I guess the VRX bulls read SEC filings after all.

 

[AZ_Value]

Wow... This thread has taken on a whole new life. I see poor Lu_Hawk has been playing defense alone against a lot of people while I was away.

 

 

lu_hawk,

 

Do you realize you can look at the old SEC filings for Medicis?  If you did look at them, I don't understand how you could say that the only thing Medicis had left was Solodyn considering a majority of the revenues for Medicis were generated from the acne derm products prior to the acquisition.  In other words, the aesthetic products sold to Galderma included products that represented a minority of the total Medicis sales prior to the VRX acquisition.

 

 

 

For the last couple of points made, double read and double check your posts gents before calling lu_hawk stupid. Please. A lot of stuff here is not a good look on many of you.

 

Solodyn IS the dermatology drug that drove Medicis, it's an oral antibiotic used to treat acne. It was anywhere between 50 to 60% of revenue and an even bigger portion of profits. The other two, Ziana and Vanos are super small compared to Solodyn.

So he is totally right to point it out. The fact that Solodyn had been under siege by generics for quite some time is a big part of the Medicis story. I promised a write up on this but then got busy and couldn't finish (there are other places in the market where money can be made rather than arm wrestle all day long about VRX), I'll get back to it tho. I'd suggest some of my CBF friends here also step away from this thread for a bit as it has turned into a constant repetition of the same points, long enough for them to actually be considered by some to be self-evident arguments even though zero proof has been provided.

 

AZ

[loganc]

Wow... This thread has taken on a whole new life. I see poor Lu_Hawk has been playing defense alone against a lot of people while I was away.

 

 

lu_hawk,

 

Do you realize you can look at the old SEC filings for Medicis?  If you did look at them, I don't understand how you could say that the only thing Medicis had left was Solodyn considering a majority of the revenues for Medicis were generated from the acne derm products prior to the acquisition.  In other words, the aesthetic products sold to Galderma included products that represented a minority of the total Medicis sales prior to the VRX acquisition.

 

 

 

For the last couple of points made, double read and double check your posts gents before calling lu_hawk stupid. Please. A lot of stuff here is not a good look on many of you.

 

Solodyn IS the dermatology drug that drove Medicis, it's an oral antibiotic used to treat acne. It was anywhere between 50 to 60% of revenue and an even bigger portion of profits. The other two, Ziana and Vanos are super small compared to Solodyn.

So he is totally right to point it out. The fact that Solodyn had been under siege by generics for quite some time is a big part of the Medicis story. I promised a write up on this but then got busy and couldn't finish (there are other places in the market where money can be made rather than arm wrestle all day long about VRX), I'll get back to it tho. I'd suggest some of my CBF friends here also step away from this thread for a bit as it has turned into a constant repetition of the same points, long enough for them to actually be considered by some to be self-evident arguments even though zero proof has been provided.

 

AZ

 

Poor lu_hawk?  The guy has obviously not done the work on this idea and then comes in to this thread and acts like everyone that is long is a complete jackass.

 

As for your work, I guess I need more time to see.  You certainly share in the arrogance of lu_hawk.  Have you done any real work here? 

[Liberty]

Anyone ever seen something like this?

 

http://www.marketwatch.com/story/allergan-reiterates-its-belief-that-valeants-business-model-is-unsustainable-2014-06-16

[original mungerville]

Yes, looks like Fairfax 2002-2005: roll-up not adding value, etc, etc. GAAP accounting is the only accounting that matters, etc etc. Combined ratios are too high (ie lets not include the high combined ratios in the two years following a major acquisition in the purchase price of acquirees because GAAP doesn't allow for integration costs to be capitalised), and forget that we are acquiring at 70% of book, its a worthless roll-up.

 

Look at the Allergan press release - even good ol' Brogalboy is in on it for old times sake (ie John Hempton)

 

John Hempton, Chief Investment Officer, Bronte Capital

“Valeant Pharmaceuticals: Part IIIA: Corrections and Amplifications on the Medicis Restructuring Charges.” Bronte Capital Blog, June 13, 2014

 

“There is a possibility that the whole Valeant exercise is something from the Wizard of Oz. Profits are going up nicely if you pay no attention to that man behind the curtain — the man being the large restructuring and one-time items.”*

 

Now all we need is some naked short-selling, and collusion and we can have a repeat of 2002-2005!

 

 

 

[original mungerville]

But have I ever seen an acquiree release something like that directly? No, although I am no expert on hostile acquisitions.

[fareastwarriors]

Allergan's Bitter Pill for Morgan Stanley

 

 

http://online.wsj.com/articles/allergans-bitter-pill-for-morgan-stanley-1402966554?mod=WSJ_hp_LEFTTopStories

[CorpRaider]

Anyone ever seen something like this?

 

http://www.marketwatch.com/story/allergan-reiterates-its-belief-that-valeants-business-model-is-unsustainable-2014-06-16

 

Don't recall any like it offhand.  I wonder why I care if I'm an AGN shareholder getting paid in cash.

[Liberty]

http://ir.valeant.com/files/doc_presentations/2014/VRX%20Rebuttal%20Deck%20Final2.pdf

 

Call going on right now. Worth listening to (there's good stuff in the Q&A part that isn't on the slides -- I'm saving the audio, if anyone wants it). Saying they'll keep posting corrections to misrepresentation later this week and over time as needed, too.

 

What the CFO is saying right now basically destroys what Bronte has been saying.

 

Lots of good stuff in the Q&A part.

 

One interesting thing that they pointed out is that for some products, they don't have the worldwide rights. I think some people assume that because they have the rights in some countries, they must have them everywhere, and so they assign some things to VRX that actually belong to other companies.

 

They also reiterated that without acquisitions, GAAP and non-GAAP would converge, and that since the AGN process is slowing them down on the M&A front, people will see over the next quarters how the business performs with that type of noise.

 

They also implied that they'd be doing buybacks right now if they weren't prevented by the AGN offer.

[Phaceliacapital]

I would like the audio once it's finished..

[Liberty]

I would like the audio once it's finished..

 

Here you go (attached to this post).

VRX-2014-jun-17-AGN-4th.m4a

[giofranchi]

I would like the audio once it's finished..

 

Here you go (attached to this post).

 

Thank you very much, Liberty!

Of course, don’t think this very good presentation might come even close to scratching the bears firm resolve against VRX! After all, it is a presentation put together by management… And we all know whatever VRX’s management conceives and says is deceiving and cannot be trusted! Absolutely! ;) ;)

 

Gio

 

[peter1234]

Anyone ever seen something like this?

 

http://www.marketwatch.com/story/allergan-reiterates-its-belief-that-valeants-business-model-is-unsustainable-2014-06-16

 

Don't recall any like it offhand.  I wonder why I care if I'm an AGN shareholder getting paid in cash.

 

Feels like they ran out of rational arguments and have to resort to 'unapproved' quotes: *Permission to use quotations was neither sought nor obtained.

;)

Delivered by Berkshire's BusinessWire  ;D

[Liberty]

Anyone ever seen something like this?

 

http://www.marketwatch.com/story/allergan-reiterates-its-belief-that-valeants-business-model-is-unsustainable-2014-06-16

 

Don't recall any like it offhand.  I wonder why I care if I'm an AGN shareholder getting paid in cash.

 

Feels like they ran out of rational arguments and have to resort to 'unapproved' quotes: *Permission to use quotations was neither sought nor obtained.

;)

Delivered by Berkshire's BusinessWire  ;D

 

Kind of pathetic, really. Fat Tail Capital said it best on twitter:

 

 

As Pearson clearly explained on the call, when there's a big merger like this, all the banks send their pitches to both sides, and they'll tell both what they want to hear. Banks are profit-motivated, not really known to take stands on principle. Goldman who worked with Valeant in the past is now with Allergan, and while they were working with Valeant they underwrote an offering and ratified their business model, etc. Now they're probably telling Allergan it's crap.

 

Bottom line is, this will go to a shareholder vote. Shareholders own the business. If Allergan management is so sure that they're right and that they have shareholder support, they should welcome that vote and get it happening as soon as possible rather than try to delay it. The sooner they win the vote and their business gets back to normal, the better, right? But I think they know they'll very likely lose, so they're desperate to try to create as much noise as possible in case something sticks. This is because management has different interests than shareholders (they'll lose their high-paying jobs, and they'll lose some power and reputation if this goes through).

 

edit: Unrelated, but there's a good point made in the call this morning. Pearson points out that VRX is the only pharma that breaks out organic growth. Allergan talks only about overall growth, but they do acquisitions too. So who is it that's not disclosing enough?