Jurgis Posted August 23, 2015 Share Posted August 23, 2015 I highly discounted Hempton's analysis because he was clearly foaming at the mouth, trying to get Ackman. That impacts his judgement. Pot meet kettle. Link to comment Share on other sites More sharing options...
giofranchi Posted August 23, 2015 Author Share Posted August 23, 2015 Last time I checked the FDA was considered an extremely conservative institution... Actually, I have read many articles in which the FDA was accused of slowing down the development of new important drugs, just because it needs way too much evidence they truly work and are safe and useful! Now, all of a sudden, the FDA is accused of yielding to feminist groups pressure... Come on! It is simply amazing how people are willing to say the most stupid things just in order to attacking VRX... I understand success, extreme success!, might bother lots of people... But, please... Show a little decency! I will leave it at that. I repeat: if VRX is telling us the truth, their deal making abilities are not to be questioned. People should instead admire them and hopefully learn something! Cheers, Gio Link to comment Share on other sites More sharing options...
Liberty Posted August 23, 2015 Share Posted August 23, 2015 I highly discounted Hempton's analysis because he was clearly foaming at the mouth, trying to get Ackman. That impacts his judgement. Pot meet kettle. Believe what you want. I value Hempton's opinion way more than yours. Link to comment Share on other sites More sharing options...
Liberty Posted August 23, 2015 Share Posted August 23, 2015 I will leave it at that. I repeat: if VRX is telling us the truth, their deal making abilities are not to be questioned. People should instead admire them and hopefully learn something! Gio, saying things like "if they're telling the truth then X" is tautological, it's not the best argument. Rather, what I'd like to see is someone actually convince me that they're not performing the way they claim. All I'm seeing so far is accusations of the type Allergan and Hempton did, which are based on estimates and other proxy numbers that when the company takes the time to refute, turn out to be wrong or missing something. I don't have answers to all of AZ Value's questions, but as I pointed out, raising questions is not enough. We have to assume massive incompetence from the part of a whole lots of top people who are basically black belts at analyzing businesses and good corporate governance if, with board access and billions on the line, they can't do a better job than an anonymous blogger. So far I haven't been convinced, and I find the other side much more convincing, but maybe something will come up tomorrow, you never know, which is why I keep looking. Link to comment Share on other sites More sharing options...
Jurgis Posted August 23, 2015 Share Posted August 23, 2015 I highly discounted Hempton's analysis because he was clearly foaming at the mouth, trying to get Ackman. That impacts his judgement. Pot meet kettle. Believe what you want. I value Hempton's opinion way more than yours. I am heartbroken. Gonna go and kill myself probably. Link to comment Share on other sites More sharing options...
Jurgis Posted August 23, 2015 Share Posted August 23, 2015 Come on! It is simply amazing how people are willing to say the most stupid things just in order to attacking VRX... I understand success, extreme success!, might bother lots of people... But, please... Show a little decency! Come on! It is simply amazing how people are willing to say the most stupid things just in order to defend VRX ... I understand success, extreme success!, might make lots of people emotionally attached to their stock... But, please... Show a little decency! Link to comment Share on other sites More sharing options...
jawn619 Posted August 23, 2015 Share Posted August 23, 2015 Come on! It is simply amazing how people are willing to say the most stupid things just in order to attacking VRX... I understand success, extreme success!, might bother lots of people... But, please... Show a little decency! Come on! It is simply amazing how people are willing to say the most stupid things just in order to defend VRX ... I understand success, extreme success!, might make lots of people emotionally attached to their stock... But, please... Show a little decency! +1 Link to comment Share on other sites More sharing options...
no_free_lunch Posted August 23, 2015 Share Posted August 23, 2015 Come on guys, everyone is just here to make money. This is coming down to basically name calling and personal feelings, let's just try to stick to the facts and maybe we can all get a little richer. Link to comment Share on other sites More sharing options...
cobafdek Posted August 23, 2015 Share Posted August 23, 2015 So Addyi works slightly different than Viagra , it apparently targets neurotransmitters in the brain to try increase sexual desire....hmm you think doctors and women would be willing to fuck with the brain chemistry to fuck once more a month..that's the documented libido effect? And it causes unconsciousness taken with alcohol (wine)... I am pretty sure people taking it would try it with a lot more things than alcohol...if Viagra use cases are any indicator...let's see the effects of this one :). If you think VRX is dumber about acquisitions and drug potential than anyone with a cursory understanding of this drug, sure... Or maybe they know better than you and are good at this stuff. I accept i am only spouting what I read elsewhere. Thought it was funny that with the drug female libido could increase chances of having sex from 0.5-1 time a month. I think people are way too quick to label deals good or bad based on little info. Same thing happened with Provenge. Maybe the deal will turn out to be bad, but I think at this point, with this track record, we should at least give them the benefit of the doubt that they know what they're doing. I'll give a devil's advocate response to my own flippant negative comments earlier. Here's a simple-minded, back-of-the-envelope calculation, to put the $1B purchase price into some context. Spread out purchase price for Addyi over 10 years, as an estimate of remaining patent life and useful generic lifespan for the drug. That's $100M/yr. Depending on one's source for these stats, the worldwide developed world's female population, between the ages of 15-64, is about 600M. Estimates are said to be that 10% have HSDD. The drug's target population can then be said to be 60M. If only 10M patients regularly refill the drug, that's $10/patient/yr, or less than $1 per month that translates into the $1B purchase price. The male pharmaceutical counterparts can command $20 per pill retail. Insurance companies typically allow 6 pills per month. So the sexual dysfunction drug market can command a retail charge of $120 per month. I don't know what numbers Sprout, Pearson, and Ackman use for their assumptions, but these numbers suggest they know what they're doing. Link to comment Share on other sites More sharing options...
giofranchi Posted August 23, 2015 Author Share Posted August 23, 2015 Come on! It is simply amazing how people are willing to say the most stupid things just in order to attacking VRX... I understand success, extreme success!, might bother lots of people... But, please... Show a little decency! Come on! It is simply amazing how people are willing to say the most stupid things just in order to defend VRX ... I understand success, extreme success!, might make lots of people emotionally attached to their stock... But, please... Show a little decency! Ahahah!! Cheers, Gio Link to comment Share on other sites More sharing options...
ccplz Posted August 23, 2015 Share Posted August 23, 2015 There are no short cuts in life: ‘We can not gain anything without first giving something in return. To obtain, something of equal value must be lost.’ If it was actually possible to maintain growth whilst reducing expenses at the same time by cutting out R&D, don’t you think someone else would’ve tried it already? It's not exactly the most complex or ingenious idea in the world. So why haven't other pharma companies done this? Bulls like Ackman and gio see Mike Pearson as a great capital allocator in the mold of Henry Singleton, John Malone, and other people profiled in William Thorndike's The Outsiders, and VRX as a ‘platform company’, able to continually grow through astute acquisitions. VRX's presentations encourage this kind of comparison, touting its commitment to "superior capital allocation" and running a decentralized company. I think that what VRX does is a very good job of copying the superficial elements of successful capital allocators, but is really just a debt-fueled roll-up with bad accounting. • The outsider CEOs were fanatical about cutting expenses, but the expenses they cut were things like glitzy headquarters that contributed nothing to future profits. The outsiders' cost-cutting was essentially about resolving the agency-principal problem. VRX cuts expenses that, although they may be made in an undisciplined fashion, contribute to future profits. The outsiders cut fat, VRX cuts muscle. • Many successful capital allocators emphasize cash flow rather than reported earnings because reported earnings can understate a business's true earnings power, so VRX reports "adjusted earnings" to bridge the gap between the two. But VRX also reports "adjusted cash flow," which is a travesty of the logic behind adjusted earnings. • VRX paid a mid-teens EBITDA multiple for Bausch & Lomb. It got into bidding wars for two of its smaller acquisitions. It got into a bidding war with itself for Allergan. This isn't the behavior of a great capital allocator. • VRX's adjusted earnings exclude amortization of finite-life intangibles. This kind of amortization isn't a cash cost, but it’s a very real economic cost so VRX's "adjusted earnings" distort economic reality. There's a big difference between e.g. Capital Cities amortizing a broadcasting license and VRX amortizing a drug it's acquired that will go off patent in two years. • The outsiders who did roll-ups did so to achieve a scale advantage, e.g. John Malone and his cable systems. VRX's scale advantages are minimal by comparison. Many people say that Pearson is impressive in his presentations and public statements. I care a lot less about how articulate a CEO is than how much integrity he has, and VRX's effort to acquire Allergan raises serious questions about that. Pearson partnered with Ackman in a way that let him reap insider-trading profits. What Ackman did was technically legal, but it was still grossly unethical, and Pearson's willingness to partner with him suggests bad judgment at a minimum. 'All people are most credulous when they are most happy.' And bulls like gio seem very happy indeed. Link to comment Share on other sites More sharing options...
Liberty Posted August 23, 2015 Share Posted August 23, 2015 Nice, the efficient market theory for ideas. "If it was really a good idea, don't you think someone else would already have done it?" Link to comment Share on other sites More sharing options...
ccplz Posted August 23, 2015 Share Posted August 23, 2015 Nice, the efficient market theory for ideas. "If it was really a good idea, don't you think someone else would already have done it?" I am skeptical that you can maintain the quality of your portfolio and pipeline by cutting expenses to the bone ('doing more with [much] less'), but Valeant is free to prove me wrong. Link to comment Share on other sites More sharing options...
KCLarkin Posted August 23, 2015 Share Posted August 23, 2015 If it was actually possible to maintain growth whilst reducing expenses at the same time by cutting out R&D, don’t you think someone else would’ve tried it already? It's not exactly the most complex or ingenious idea in the world. So why haven't other pharma companies done this? Read Buffett on Institutional Imperative. Also, read http://www.amazon.com/Double-Your-Profits-Months-Less-ebook/dp/B005PMWM1I Not saying you aren't right, but you can't expect CEOs to act rationally. Link to comment Share on other sites More sharing options...
Liberty Posted August 23, 2015 Share Posted August 23, 2015 Nice, the efficient market theory for ideas. "If it was really a good idea, don't you think someone else would already have done it?" I am skeptical that you can maintain the quality of your portfolio and pipeline by cutting expenses to the bone ('doing more with [much] less'), but Valeant is free to prove me wrong. Cutting to the bone? No, I don't think so either. But I don't think that's what Valeant is doing. They are just spending differently. They cut the R&D that gets below a certain estimate ROI and keep the rest, try to be more efficient with that spending too (using spare capacity at external labs, doing zero-based budgeting rather than just spending a % of revenue every year), and then they do tuck ins to add products to their portfolio. So when they buy a small south-korean contact lens company and plug it into B&L's worldwide distribution, that might get them a better ROI than if they had spent the R&D dollars in-house to develop a new contact lens. Most CEOs in the industry have come up inside big pharmas and they only knew one way to do things all their lives. Pearson worked closely with the industry, but from a different vantage position, and that seems to have given him a different view of how to maximize returns (focus on certain geographic markets, on certain therapeutic areas, keep a certain kind of R&D, focus more on M&A and sales, get a low tax rate, operate very lean, keep things very un-bureaucratic and decentralized with good incentives for local managers so they feel ownership, operate with a low-margin mentality even if in a high-margin industry, etc). You can dislike the strategy, but there's more to it than "cut R&D to the bone and hope things grow faster". Link to comment Share on other sites More sharing options...
ccplz Posted August 23, 2015 Share Posted August 23, 2015 Yea. And somehow you think the other biopharma CEOs don't take ROI into account? What, are they just sitting around, twiddling their thumbs whilst watching their own piles of cash burn? 'Most CEOs in the industry have come up inside big pharmas and they only knew one way to do things all their lives' Do you actually think they are idiots or something? 'Being more efficient with spending, operating lean, decentralize, reduce bureaucracy'.. these aren't exactly the most complex or ingenious ideas in the world. Plus there are actually plenty of people leading biotech and pharma firms who are from outside the industry. This may come as a surprise to you, but Pearson isn't the only one. Link to comment Share on other sites More sharing options...
cubsfan Posted August 23, 2015 Share Posted August 23, 2015 It's interesting that since Pearson took over Valeant, VRX is a 20 bagger in under 10 years - and people still don't believe he's built a better mousetrap. Since the beginning he's talked about big pharma and all the wasteful R&D spending - and lack of capital allocation discipline. He has totally gone against most of the pharma industry with his approach. He looking more like a candidate for an "Outsider" type of CEO to me. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted August 23, 2015 Share Posted August 23, 2015 All right, I'm not going to be sucked in repeating all kinds of stuff that I said 5 times earlier in this thread now that VRX is back in the spotlight and all kinds of new people are joining the fray, but I'll say that I don't think anyone ever said that Valeant doesn't have significant patent protected products. Just that patents cliffs for the near future are very small, that a lot of their stuff is in areas of lesser generics competition and where it's easier to do reformulation and extension work, etc. They also have a very diversified portfolio of products compared to many other pharmas, which reduces the impact of losing any single product (ie. don't have a couple billion-dollar blockbusters on which everything depends). A lot of smaller products also add up to a lot of revenue when you put them together (lots of OTC, branded generics, etc), even if not in the top 5. A 70-80bn company who's biggest product is 148m (which they just acquired) isn't too dependent on any one thing... And btw, Jublia was internally developed and recently launched (if I remember correctly, it was mentioned somewhere that the cost of developing it was something like 50m). No R&D, yea.... I missed your "/year" qualifier. We are both right, just saying different things regarding rev from patented compounds. Your 2%-3%/year might even be conservative at this point considering how little each individual product sold contributes to total revenue. The only reason I posted again about BOL was to defend my work since I wanted to confirm that I did not overlook the change in accounting for generics. There are significant issues at BOL. That is a fact, according to their numbers. That makes two acquisitions that have performed badly out when broken-out. As you hinted at, I'm new to looking at VRX and it's only because of AZ, so I'm probably biased negatively. I have read through most of this thread and I would not expect you to repeat yourself - I genuinely thought I was providing new information with the BOL post. I just want to find all the facts; no more, no less. I think your comparison between VRX and BRK is interesting since I agree that the disclosure for VRX is no worse than what Warren Buffett provides (we both know trusting BRK disclosure is the same thing as considering ValueAct/Ackman's involvement sufficient to become comfortable with VRX disclosure). However, I've always been under the impression that the early years of Berkshire provided fantastic disclosure [more than legally required at the time] and that their disclosure only degraded as new acquisitions made legacy business less relevant to the top/bottom line. Berkshire still does provide excellent disclosure for their largest companies. This is where the comparison fails, imo (though I could see a reasonable argument made that VRX would be at a competitive disadvantage were they to detail the performance of their acquisitions - especially considering their stated business model). I don't think the suggestions of fraud are fair at this point (baseless allegations can severely damage a company, as this board saw with Fairfax). I think AZ's piece went out of it's way to avoid those allegations for a reason. I have yet to see any proof that could even hint at fraud, at this point. However, the BOL #s do not reconcile across quarterly presentations, which I think is a serious concern. As I showed, the change in accounting for Generics does not adequately explain these conflicts. A summary of my concerns with BOL #s: - VRX did not provide numbers for BOL in their 1Q14 presentation. - VRX's 2Q14 pres provides Q/Q% growth which should provide a small range for revs by segment - The 1Q14 #s calculated from Q/Q% growth in 2Q14 pres do not fully reconcile with the 1Q14 #s calculated from the 1Q15 presentation. - The difference between the calculated 1Q14 BOL #s cannot be explained by rounding errors or changes in accounting (such as generics) Link to comment Share on other sites More sharing options...
Liberty Posted August 23, 2015 Share Posted August 23, 2015 Yea. And somehow you think the other biopharma CEOs don't take ROI into account? What, are they just sitting around, twiddling their thumbs whilst watching their own piles of cash burn? 'Most CEOs in the industry have come up inside big pharmas and they only knew one way to do things all their lives' Do you actually think they are idiots or something? 'Being more efficient with spending, operating lean, decentralize, reduce bureaucracy'.. these aren't exactly the most complex or ingenious ideas in the world. Plus there are actually plenty of people leading biotech and pharma firms who are from outside the industry. This may come as a surprise to you, but Pearson isn't the only one. Valeant's ideas don't work because they are original trade secrets that nobody thought of before. Pearson even said so himself when asked by analysts about what keeps others from just copying their model ("nothing"). It works because of the execution and because it's hard, uncomfortable work that most are not willing to do, or even consider. That's also why there aren't tons of other people who do what Buffett or Malone or Singleton did despite these models of high returns being available for all to see. It's like value investing, good capital allocation, whatever. If it works and it's not a secret, why doesn't everybody just do it, right? Back to the efficient market theory for ideas. Other pharma CEOs most definitely aren't idiots, but that's not the bar for great value creation that accretes to shareholders. Same for CEOs in most industries, for that matter. Link to comment Share on other sites More sharing options...
constructive Posted August 23, 2015 Share Posted August 23, 2015 Can anyone name some potential acquisitions that they think VRX can earn 25% ROI on? The total pharmaceutical market is in the trillions, implying that there are plenty of potential acquisitions. But I think very very few earn good returns on capital, are the right scale, and trade for a reasonable price. But then again, maybe I am wrong. I don't understand how VRX has earned 25% on their past acquisitions, paying the multiples they have, so it's not very likely I will understand how they earn 25% on future acquisitions. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted August 23, 2015 Share Posted August 23, 2015 It's interesting that since Pearson took over Valeant, VRX is a 20 bagger in under 10 years - and people still don't believe he's built a better mousetrap. Since the beginning he's talked about big pharma and all the wasteful R&D spending - and lack of capital allocation discipline. He has totally gone against most of the pharma industry with his approach. He looking more like a candidate for an "Outsider" type of CEO to me. But this is not a new business model. VRX may be the most extreme in implementing it (and that is their advantage), but every major pharma company buys smaller biotechs at times instead of relying on their own R&D (just like VRX). It's called "reloading their pipeline" and it can include drugs still in testing (phase I/II/III) or recently approved drugs. I'm not trying to say anything about Pearson's ability to identify and execute acquisitions. Just pointing out that, in general, this description of the business model is not new or innovative. - QCOR purchased Acthar in 2000 and immediately started raising prices each year and got an orphan drug designation. GSK (discusses ROI from R&D): - http://www.fiercebiotech.com/story/glaxosmithkline-reloads-its-pipeline-new-phiii-drugs-following-approvals-se/2014-02-05 Roche: - http://www.roche.com/media/store/releases/med-cor-2014-06-02.htm - http://www.roche.com/media/store/releases/med-cor-2015-08-13.htm - Roche "reloading the pipeline" summary: http://www.fool.com/investing/general/2013/12/27/roche-some-companies-rebuild-this-one-reloads.aspx AstraZeneca: - http://www.rsc.org/chemistryworld/2014/07/astrazeneca-stocks-respiratory-and-cancer-pipelines Allergan (mentions wanting to reinvest all of it's $1b in FCF - just like VRX): - http://www.firstwordpharma.com/node/920569?tsid=17#axzz3jfUahTeP Bristol-Myers (BMY): - http://www.wsj.com/articles/bristol-myers-pricey-pipeline-1437673722 Link to comment Share on other sites More sharing options...
original mungerville Posted August 23, 2015 Share Posted August 23, 2015 Nice, the efficient market theory for ideas. "If it was really a good idea, don't you think someone else would already have done it?" I am skeptical that you can maintain the quality of your portfolio and pipeline by cutting expenses to the bone ('doing more with [much] less'), but Valeant is free to prove me wrong. The goal is not to maintain the prior portfolio or revenues of an acquiree's business. The goal is to have a high return on capital, rinse, repeat. Cutting helps that - sometimes some fat, all the fat, some muscle or too the bone. The latter two are likely negative for returns on capital, but does anyone here not believe that these pharma companies are quite bloated? Common', really? So their cutting some and all the fat improves return. I would even go so far to say that given the track-record of internal early-stage R&D in big pharma, a lot of Valeant bulls, like me, aren't too concerned about taking a chainsaw to the situation because cutting a lot of what people believe to be R&D "muscle" is just actually fat. Valeant makes clear that they don't cut the salesforce to the bone, they zero in on R&D first, and middle managers second. I am just not that concerned about supposed "muscle" in those areas being cut. It makes sense to me to be bolder rather than more timid in those areas when cutting. Link to comment Share on other sites More sharing options...
original mungerville Posted August 23, 2015 Share Posted August 23, 2015 If it was actually possible to maintain growth whilst reducing expenses at the same time by cutting out R&D, don’t you think someone else would’ve tried it already? It's not exactly the most complex or ingenious idea in the world. So why haven't other pharma companies done this? Read Buffett on Institutional Imperative. Also, read http://www.amazon.com/Double-Your-Profits-Months-Less-ebook/dp/B005PMWM1I Not saying you aren't right, but you can't expect CEOs to act rationally. Allergan...how many billion market cap before being bought out by Activis? Allergan was tying compensation of executives to a metric targeting a certain percentage of revenues being spent on R&D!!!! Need I say more about big pharma? Link to comment Share on other sites More sharing options...
abyli Posted August 23, 2015 Share Posted August 23, 2015 The same questions goes: Why do not CEOs copy Warren Buffett since it seems right thing to do. The last time I checked zero CEO copied Buffett. Link to comment Share on other sites More sharing options...
rb Posted August 23, 2015 Share Posted August 23, 2015 The same questions goes: Why do not CEOs copy Warren Buffett since it seems right thing to do. The last time I checked zero CEO copied Buffett. Fairfax is a Berkshire clone Link to comment Share on other sites More sharing options...
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