Guest roark33 Posted September 28, 2015 Share Posted September 28, 2015 I am sure some have seen this, but I thought I would poset anyway. This is from Zhou. He is the first one to write about LL. http://seekingalpha.com/article/3536686-the-drug-carry-trade-valeants-massively-leveraged-long-short-strategy-is-about-to-unwind?isDirectRoadblock=true&uprof=82 Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 I believe Bagehot has already addressed the drugs that Zhou has mentioned in that article. It's a weak analysis when you don't include the impact of those drugs to the bottom line, especially ahead of a patent cliff. Low or no ROIC on R&D (or low profitability of a pharma) isn't very good for the public either so I don't know what point he is trying to make. This has to be one of the most misunderstood large cap stocks. I see a lot of commentary like this lately: $VRX Valeant doesn't make drugs. They buy it, move abroad to avoid taxes, and jack up the price. This is the poster child for bad pharma. Bearish Link to comment Share on other sites More sharing options...
Liberty Posted September 28, 2015 Share Posted September 28, 2015 This has to be one of the most misunderstood large cap stocks. I see a lot of commentary like this lately: $VRX Valeant doesn't make drugs. They buy it, move abroad to avoid taxes, and jack up the price. This is the poster child for bad pharma. Bearish Valeant's public coming out was when they tried to buy Allergan. Before that they were pretty under the radar for the mainstream. The AGN side was much better at shaping the narrative than VRX was, and a lot of what they've thrown at them has stuck. Once in a while, they try to set the record straight, like today, but that's hard because they're not particularly good at PR and they have a complex model that is different from most other pharmas and requires some time and effort to understand. So the soundbytes dominate. That's not necessarily bad since over time the performance of the business has proven the bears wrong (remember when organic growth was supposed to plummet?), but if it ends up hindering their ability to do some big acquisitions because the people on the other side misunderstand the business and mistrust it, that could be a problem. Link to comment Share on other sites More sharing options...
Liberty Posted September 28, 2015 Share Posted September 28, 2015 News on Twitter is: "HOUSE OVERSIGHT CMTE DEMOCRATS REQUEST SUBPOENA FOR VALEANT" Link to comment Share on other sites More sharing options...
tombgrt Posted September 28, 2015 Share Posted September 28, 2015 Do you agree that the current news cycle (Hillary, price increases) could in itself be reason enough to put a letter out to try to correct some misconceptions? A high P/E multiple when investors are looking to sell/short over valued biotech stocks, a ton of debt, and most investors couldn't name off 3 of their top products. I don't completely agree that some tweet removed 20%+ of value from this large cap stock other than people needed a reason to sell. The stock is still up 40% YTD for pete's sake. Jup. I'm getting some serious "I told you so vibes" these days: I repeat: imo those focusing on valuation are missing the forest for the tree... Cheers, Gio I saw that you said that. But what do you mean? That price doesn't matter? It doesn't matter simply because, if what they are reporting in their quarterly releases and conference calls is true, VRX is cheap today! If they truly are able to get the results they talk about, opportunities out there abound, and they will be able to go on growing for at least the next 5 years. Therefore, the question shareholders must answer is the following: are VRX's power point presentations reliable? Do they report business results that are true? Or, like AZ_Value has said, do they belong to the garbage can? Cheers, Gio So it does matter because the word "cheap" indicates an opinion/judgement on current valuation? I'm confused! If you're not looking at valuation when evaluating your stocks and portfolio in general, you are the patsy at the table. VRX in particular had half the current market cap just a year ago and that is after a 10% drop in the stock. That is just to point out that there are a lot of people with big gains that are likely to sell out when fear hits. People aren't as likely to sell off losers, just look at the average holding period in the '30's for proof! It's a good reason not to be too fond of stocks that have run up a lot lately when you fear overall stock market levels (like I thought you did Gio). But that's just me. I hope you all make good returns with VRX but would personally hedge this. Sorry, I can't help it... I generally view a CEO defending his company's stock price as a kiss of death. Maybe... But I would never generalize… A 20%+ drop in 5 days is something extremely unusual… A comment might be justifiable… I don’t know… Anyway, I prefer to concentrate on the content of Pearson’s letter. Cheers, Gio No it's not, it just seems that way in bull markets. Point proven. Link to comment Share on other sites More sharing options...
ourkid8 Posted September 28, 2015 Share Posted September 28, 2015 Anyone adding to their position? This is selling-off today pretty hard... Link to comment Share on other sites More sharing options...
jay21 Posted September 28, 2015 Share Posted September 28, 2015 Anyone adding to their position? This is selling-off today pretty hard... Probably around $150 for me. Sized this one like an option. Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 Ackman is probably setting up some lunch meetings in Washington this week. One to give Fannie and Freddie back, another to put Herbalife out of business, and another to say how Valeant is actually good for their constituents. Not going to be the best year for that closed-end fund of his unless things start turning the other way quick. Link to comment Share on other sites More sharing options...
luck Posted September 28, 2015 Share Posted September 28, 2015 "pretty hard" indeed. numerous top-performing hedge funds were long with 10% or more positions as of the latest 13F release: brave warrior, ruane, pershing, ratan, marble arch, hound, sq advisors. wondering if some of these folks are locking profits & reducing size/risk. if i had cash lying around, i'd consider buying despite the subpoena. Link to comment Share on other sites More sharing options...
KCLarkin Posted September 28, 2015 Share Posted September 28, 2015 Probably around $150 for me. Sized this one like an option. Me too. This is a small position and getting smaller but I like the risk reward here. If it drops below $160 again, I will add. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted September 28, 2015 Share Posted September 28, 2015 I'm short (slightly). Willing to turn around and go long around US$80 per share. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted September 28, 2015 Share Posted September 28, 2015 Do you agree that the current news cycle (Hillary, price increases) could in itself be reason enough to put a letter out to try to correct some misconceptions? I'm sure no one will believe it now, but I thought I had posted my response to this saying "it's dangerous to comment on price movements because what if something else happens? If the stock drops another 15% do you comment again? If you don't comment again, you are going to spook investors on why the 2nd drop is different from the 1st. I can understand why Pearson would write the letter, but it's a dangerous example to set." News on Twitter is: "HOUSE OVERSIGHT CMTE DEMOCRATS REQUEST SUBPOENA FOR VALEANT" I didn't think that "something" would occur within the hour. So should Pearson comment again on the new price drop? I think Picasso's insight that incentives point to VRX eventually selling itself makes a lot of sense given the restrictions on Pearson's holdings. @roark: I really believe VRX could experience a "death spiral" if there's a run on their debt. Look at my previous posts for more detail, but they have >$26b (of their $30b) in debt maturing between 2018-2023. They set themselves up for a huge liquidity crunch each year during that period. I really don't see how this is worth much more than $57. Link to comment Share on other sites More sharing options...
KCLarkin Posted September 28, 2015 Share Posted September 28, 2015 @roark: I really believe VRX could experience a "death spiral" if there's a run on their debt. Look at my previous posts for more detail, but they have >$26b (of their $30b) in debt maturing between 2018-2023. They set themselves up for a huge liquidity crunch each year during that period. They were able to pay down $2B last year and have added cash generating assets since then so they shouldn't be too worried until 2020. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 28, 2015 Share Posted September 28, 2015 That Xuhua article is really concerning. Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 How is that Xuhua article concerning? Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 I think that Seeking Alpha article was very juvenile. By making the asset portfolio riskless yet earning much higher return than a risk-free return, Valeant's business model flies in the face of basic economics - riskless asset should only be able to earn riskless returns. You have a lot of fluff like that which makes no sense. Isn't he trying to short a risk asset at a risk-free return? So I guess all investors with better returns are just taking on more risk. He doesn't even say how much of the total revenue are from massive price hikes on branded generics. And VRX isn't a carry trade. Any business that generates returns above their cost of capital is creating value from the strict academic stance. Is Berkshire a carry trade? Just not a lot of substance in that article even though I agree you should try and be as skeptical of VRX as possible. If you can disprove every bear argument then great. That article is fairly easy to debunk. Link to comment Share on other sites More sharing options...
rpadebet Posted September 28, 2015 Share Posted September 28, 2015 Just saw the price action... OUCH!! Link to comment Share on other sites More sharing options...
Valueguy134 Posted September 28, 2015 Share Posted September 28, 2015 If only someone, somewhere had warned us about VRX growth assumptions............................ Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 I attached the Democrat letter. This is all about the Marathon purchase which cost.....drumroll.... $286 million. We wiped off $10 billion of market cap today. Ridiculous even with some of my longer-term concerns for the stock. 2015-09-28.EEC_and_Dems_to_Chairman_Chaffetz_Re_Valeant_Pharmaceuticals_Subpeona.pdf Link to comment Share on other sites More sharing options...
Liberty Posted September 28, 2015 Share Posted September 28, 2015 If only someone, somewhere had warned us about VRX growth assumptions............................ I don't think there's a growth problem. This is headline risk combined with macro (whole sector selling off). The company has a $2bn buyback authorization. It'll be interesting to see if they use it (though there might be restrictions around the end of the quarter). Link to comment Share on other sites More sharing options...
rpadebet Posted September 28, 2015 Share Posted September 28, 2015 If the issue is not with growth assumptions Liberty... Are you suggesting that Pearson wrote the letter today because he had prior knowledge of potential subpoena? I didn't get a chance to read the letter yet, but did he disclose there might be a subpoena problem? I don't know, but if he had material non-public information like this, he could have disclosed it directly in the letter no? why did he address only growth concerns? In my opinion the stock is selling off because the valuation is tied tightly to organic growth. Organic growth can be though price increases and/or unit volume growth. With the price increase lever now under threat, the stock is coming back to earth as unit volume growth information is not that easy to verify. Anyway that is my theory. Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 I've started to repurchase stock based on what I know today. I don't think the drop is justified on the recent news although that may change in the future. This looks waaaay overblown. Link to comment Share on other sites More sharing options...
Liberty Posted September 28, 2015 Share Posted September 28, 2015 If the issue is not with growth assumptions Liberty... Are you suggesting that Pearson wrote the letter today because he had prior knowledge of potential subpoena? I didn't get a chance to read the letter yet, but did he disclose there might be a subpoena problem? I don't know, but if he had material non-public information like this, he could have disclosed it directly in the letter no? why did he address only growth concerns? In my opinion the stock is selling off because the valuation is tied tightly to organic growth. Organic growth can be though price increases and/or unit volume growth. With the price increase lever now under threat, the stock is coming back to earth as unit volume growth information is not that easy to verify. Anyway that is my theory. I'm not suggesting that. You should read the letter. Link to comment Share on other sites More sharing options...
rpadebet Posted September 28, 2015 Share Posted September 28, 2015 Just read MP's letter. He is basically giving up on price increases on this portion of the business.And seeing the other "news" focusing on Nitropress and Isuprel, I am pretty certain he knew it was coming. The letter seems like an attempt at damage control before damage happened. Some might feel this is trying to manipulate the stock price, but I wont go there ;D I am looking forward to the hearing. It could be fun with all the political posturing and Mike Pearson's bluntness. If politicians use this to start legislation about price regulations in the industry, I think the macro/headline risk shouldn't be written off. [glow=red,2,300]Finally, we expect the remaining approximately 10% of our business in 2016 to come from our Neuro and Other portfolio, where we have historically taken price increases. This business is becoming a smaller part of our portfolio over time, and is one area whose growth is not driven by volume. With the recent genericization of Xenazine, this portfolio is composed primarily of off-patent, legacy products that are competing against low-priced generics. This segment also includes Isuprel and Nitropress, which have been the focus of much of the U.S. press. We purchased these two assets earlier this year and we thought the best long-term commercial strategy was to reprice these brands. However, it is worth mentioning that neither product’s revenue is part of our organic same-store sales growth calculation since we have owned them for less than a year. On average, we have budgeted a mid-single digit revenue growth rate for this segment in 2016.[/glow] Link to comment Share on other sites More sharing options...
Picasso Posted September 28, 2015 Share Posted September 28, 2015 And now Citron is bearish: http://www.citronresearch.com/wp-content/uploads/2015/09/valeant-part-1-final.pdf Everyone is upset with Turing because that isn't a real pharma company. It isn't even close to comparable to Valeant. It will be funny to see Pearson sit next to the guy who is clearly just trolling around. Even that Citron piece is weak. I'm liking the value here more and more. I'll probably still give the bulls a hard time about certain assumptions, but overall the bear case still looks too weak to wipe out $30 billion of market cap or so. Link to comment Share on other sites More sharing options...
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