Valeant Pharmaceuticals International Inc.

[HitandRun]

Interesting stuff. Anyone else following this drama?

A nice article by Matt Levine: When ownership is not ownership...

If I were a PWC partner, I might request for early retirement...

[GFG]

Interesting stuff. Anyone else following this drama?

A nice article by Matt Levine: When ownership is not ownership...

If I were a PWC partner, I might request for early retirement...

IMHO, Valeant probably would get a big heavy fine from regulators, business model would have to change, revenue would probably be impacted.
BUT at current prices, it's a steal. Everyone is running for the exits.
At <$100, there's tremendous upside when all this blows off.
It always seem darkest just before sunrise.

<vested - 2000 shares>

[HitandRun]

Wah... GFG san

Looks like you are mighty confident in VRX or Ackman.

Personally, I have no idea on the actual value of VRX and that's why I am not vested. Since Philidor is shutting down, I guess it can't be good => One smoking gun 

Would you mind sharing your model on VRX's valuation? Thanks.

[GFG]

Wah... GFG san

Looks like you are mighty confident in VRX or Ackman.

Personally, I have no idea on the actual value of VRX and that's why I am not vested. Since Philidor is shutting down, I guess it can't be good => One smoking gun 

Would you mind sharing your model on VRX's valuation? Thanks.

I valued it based on earnings, it's not much different from what's already said on Ackman's presentation except that I'm less optimistic than him. I'm not expecting it to go up to $400+ by 2019. His earnings projections and valuations can be found easily by googling.
That forms the base for my quantitative analysis. Of course, this is based on 2 assumptions:
1) no more other hidden bombs, fraud etc 
2) philidor really accounts for only 6.8% of revenue (as of mrq)
But just by looking at the earnings base, the projected earnings, and comparing the valuation to similar competitors... I can get valeant now at under PER 7 or 8. Most other competitors are >15.
Investing is all about weighing the pro v cons. If it's all good news, or no bad news at least, you can get valeant at this price. So the question now is not how terrible valeant is...(all the terrible news are out). The question is really whether there are more bad news that the markets don't already know.
Now a simple qualitative analysis :
-ve:
Valeant's revenue and earnings will get impacted by cutting away philidor
(As mentioned, it's 6.8% of REVENUE. Not even earnings. And it won't even be that much cos they can just switch to other means of distributorships. It's really quite negligible.
I also noted several other big pharma uses philidor as well and all have cut ties)

Regulators are examining valeant not just based on Philidor but on the price increases
(Here I do think valeant cannot escape. There's too much negative press and politicians are just dying to milk the publicity and be seen as champions of the small guy. They will likely get some fine EVEN though they did nothing illegal. Many grey areas can get them into trouble though. The fine will be manageable, and in any case it'll take several months if not years before investigations are complete)

Supposedly "broken model" of acquisitions
( this is actually more +ve. I think valeant will now focus on reducing debt and with the strong cash flow, and now that they are slowing or stopping acquisitions... How can that be a bad thing in the long run. Yet the market thinks valeant a screwed cos they're going to reduce debt lead acquisitions? And when they did that, the same experts were criticizing that it's unsustainable? )

+ve:
Very strong product lines. I am in the healthcare sector and understand their products. Most are "branded" products where they may be generics, but given a choice, pats would still prefer the brand name originals. For eg.Bausch face care products. (Esp when your insurer pays for it....)

The price now (<$100) is reflecting all these negatives: regulatory spotlight on pricing, change of business model, philidor, And a large part... Left's potentially damaging report due Monday.
Left's report if u read it... Is a total joke. It's amateurish and I really wonder why he can move prices just by releasing such a report. It looks like something I can do too. His core thesis is valeant is faking revenue numbers through philidor and his evidence is to show they use the same phone numbers, and the CEO talks in a similar manner to enron's CEO then etc. no hard evidence.
In fact, after valeant asked SEC to investigate him, he started going on the defensive by saying he's just warning of a "potential fire in the cinema". There's just no hard evidence and now he has to try to divert attention from his earlier allegations of fraud (faking revenue)

Past history of big pharma companies getting into trouble, surviving AND doing well. Novartis is a big culprit. Essential qn is, will valeant still be around in 3,4,5 yrs from now? 
When this dies down, they can easily divest any part of their portfolio of drugs that's deemed problematic.

The sharp and rapid fall of the price is actually one of the +ves for me. I think the downside risks from here are minimal, while the potential upside risks are great. I do admit that it's likely going to be a rollercoster ride... At 1 point valeant fell 40% in a single day!

Thus far the greatest returns I have gotten are always from situations like this.... When it looks bleak, bad news are coming out all the time, everyone suddenly swings to the negative side. Examples are BP oil spill and TEPCO after the radiation leak from Japan earthquake.

In fact I was monitoring VOM (Volkswagen) closely but it didn't fall sufficiently for me to start a position. (Also don't know too much about the auto industry as well)

Oh. And the last point is my average price is much much lower  than Ackman's $186.
Closer to the $110 mark so if $186 gives the mighty Ackman comfort, it sure as hell works out for me. I'm expecting a 100% return within 3 yrs. ($220)

[D123]

What about the reports from:

- Wall Street Journal,
- Southern Investigative Reporting Foundation,
- and Bronte Capital?

None of the issues they raised are a concern to you? Or are they like you said, factored in the price?

[GFG]

What about the reports from:

- Wall Street Journal,
- Southern Investigative Reporting Foundation,
- and Bronte Capital?

None of the issues they raised are a concern to you? Or are they like you said, factored in the price?

Those raise the issues that I'd already listed out:
Initially, large price increases.
Then the relation to Philidor and Rx
then the report by Left etc etc
and yes, of course, without these reports the price wouldnt be what it is.
Of course they raise a concern, but again like i mentioned, its a balance between what's the pros vs the cons. Without these negative reports, the price wouldnt be what it is now. I just dont think any of this is deterimental enough to warrant the current price, nor are any of these news bad enough to warrant a doomsday scenario for Valeant. The big gains are always made in cases like these.
When I bought Tepco, the news was even more bleak than this. Imagine the liabilities for a nuclear meltdown! On top of that, to support the electrical needs, they had to quickly switch to fossil fuels when the nuclear plant was shut down, so its double whammy as they had to pay a high price for the fossil fuels (in addition to containment costs). And that's not even talking about future liabilities.
Fast forward a few years, Tepco is still around, Japan has restarted nuclear plants, of course I've long exited, and got a nice profit (not sure if it'd be better or worse if I'd continued on)
In fact, I think the risk now for valeant is actually LOWER than if you bought valeant at the $250? $260 range BEFORE all these negative reports.
But all these "experts" who were busy proclaiming valeant was a great buy at $260 before, are now clamouring to lower their price targets, with some outright saying it's a terrible company now at $90.
I'd only change my mind (and of course accept a loss by selling) if something really deterimental happens. i.e. the CEO has really been fraudulaently faking revenue etc. Cos that kind of information is not about a short term hit or change to what is otherwise a very strong company. That kind of information means the company has to be shut down.
Anyway, i've openly indicated my position and average price purchased here. (which is actually substantially higher than the current price) Let's see in a yr or 2.

[HitandRun]

Thanks GFG for sharing your views.

[HitandRun]

GFG

I, too, like distressed stories. Similarly, I've bought BP when it's down, Jap stocks after the tsunami, Stand Chart after it was whacked in the US, etc.

However, I baulk at VRX because I'm not sure I can understand the business model, especially with critical analysis like this: AZ Value

[GFG]

GFG

I, too, like distressed stories. Similarly, I've bought BP when it's down, Jap stocks after the tsunami, Stand Chart after it was whacked in the US, etc.

However, I baulk at VRX because I'm not sure I can understand the business model, especially with critical analysis like this: AZ Value

Thanks for pointing out this article, it's been fun to read.
If I could summarize, the main points of the post are that:
1) Valeant's presentations do not show figures to substantiate their growth rates, the time taken for cash flows to recover Valent's acquisition costs etc
2) In the "rare" event that a slide does show figures, the author compared it to total cashflows in the AR to show that the figures in the slides are overstated. (Most of the examples use only Sanitas as he could get the financials of Sanitas post-acquisition by Valenat)

The author also stated that the figures and data are only in the slides, and not given in the ARs, and he believes the reason is that anything in the AR is legally binding i.e. management could go to jail for falsifying figures in the ARs, but in the slides the figures are not "backed by law" as you could always say they are estimates/there's an error etc

Well, I did delve into the ARs earlier, and there is some important information that the author didn't include in his post. I'd also admit that I havent done a detailed comparison of EACH acquisition, probably not as detailed as him too. Yes, he is right in saying that they have not provided hard figures to show the revenue and earnings of EACH of their acquisitions post acquisition. The ARs tend to lump them into broad categories and to show performance as a group. There can be many many reasons for doing that, and even though I'm vested, I'd be the 1st to admit that at least part of it is shady. part of it could be due to the fact that there're simply too many acquisitions, too much data
And at least a substantial reason I believe, is because it is not in Valeant's interests to let it's competitors and regulators know in exact detail these figures. Think about it, if you are approached to be acquired by Valeant, and you know that just based on cashflow, and that if you cut off R&D, cut headcount, consolidate your distributorships or start utilising specialty pharmas to distribute etc, basically employ the strategies Valeant has been using, (and that everyone knows by now), you could cover the entire acquisition costs within 5,6 years?
Of course you'd either refuse to sell to Valeant, or expect a much higher multiple
Ditto for Valeant's competitors.
The other comment I'd made is that since the author says that the data in the presentations are garbage, and they're not included in the ARs (which are audited) for the sake of legal reasons, then why not accept the data in the ARs? Why doubt the revenue,cashflow etc in the AR and expect a detailed breakdown?
Again, I'd like to say that I do think that some of the things that Valeant did was not right morally. That's probably the reason why they had to go through all these loops to try to hide their shady business. eg. same employee using different names to work at Philidor etc.
But again, I reiterate, my investment thesis is that the price is factoring a doomsday scenario, giving too little credit to the wide variety of assets in its portfolio. They will get a big fine, get negative publicity for a long while to come, but like all things, with time it will disappear.
Which is why I said I am less optimistic than Ackman (of course he has to generally appear much more optimistic to his investors).
I did my own calculations based on cashflow, and a very conservative growth rate (much lower than Pearson's guidance), and looping off a huge MOS to account for potential fines, shareholder lawsuits blah blah and at current $100, I still think it's wide off the mark. even if it recovers to just $150 within a year, that's a 50% ROI.

[GFG]

GFG

I, too, like distressed stories. Similarly, I've bought BP when it's down, Jap stocks after the tsunami, Stand Chart after it was whacked in the US, etc.

However, I baulk at VRX because I'm not sure I can understand the business model, especially with critical analysis like this: AZ Value

Thanks for pointing out this article, it's been fun to read.
If I could summarize, the main points of the post are that:
1) Valeant's presentations do not show figures to substantiate their growth rates, the time taken for cash flows to recover Valent's acquisition costs etc
2) In the "rare" event that a slide does show figures, the author compared it to total cashflows in the AR to show that the figures in the slides are overstated. (Most of the examples use only Sanitas as he could get the financials of Sanitas post-acquisition by Valenat)

The author also stated that the figures and data are only in the slides, and not given in the ARs, and he believes the reason is that anything in the AR is legally binding i.e. management could go to jail for falsifying figures in the ARs, but in the slides the figures are not "backed by law" as you could always say they are estimates/there's an error etc

Well, I did delve into the ARs earlier, and there is some important information that the author didn't include in his post. I'd also admit that I havent done a detailed comparison of EACH acquisition, probably not as detailed as him too. Yes, he is right in saying that they have not provided hard figures to show the revenue and earnings of EACH of their acquisitions post acquisition. The ARs tend to lump them into broad categories and to show performance as a group. There can be many many reasons for doing that, and even though I'm vested, I'd be the 1st to admit that at least part of it is shady. part of it could be due to the fact that there're simply too many acquisitions, too much data
And at least a substantial reason I believe, is because it is not in Valeant's interests to let it's competitors and regulators know in exact detail these figures. Think about it, if you are approached to be acquired by Valeant, and you know that just based on cashflow, and that if you cut off R&D, cut headcount, consolidate your distributorships or start utilising specialty pharmas to distribute etc, basically employ the strategies Valeant has been using, (and that everyone knows by now), you could cover the entire acquisition costs within 5,6 years?
Of course you'd either refuse to sell to Valeant, or expect a much higher multiple
Ditto for Valeant's competitors.
The other comment I'd made is that since the author says that the data in the presentations are garbage, and they're not included in the ARs (which are audited) for the sake of legal reasons, then why not accept the data in the ARs? Why doubt the revenue,cashflow etc in the AR and expect a detailed breakdown?
Again, I'd like to say that I do think that some of the things that Valeant did was not right morally. That's probably the reason why they had to go through all these loops to try to hide their shady business. eg. same employee using different names to work at Philidor etc.
But again, I reiterate, my investment thesis is that the price is factoring a doomsday scenario, giving too little credit to the wide variety of assets in its portfolio. They will get a big fine, get negative publicity for a long while to come, but like all things, with time it will disappear.
Which is why I said I am less optimistic than Ackman (of course he has to generally appear much more optimistic to his investors).
I did my own calculations based on cashflow, and a very conservative growth rate (much lower than Pearson's guidance), and looping off a huge MOS to account for potential fines, shareholder lawsuits blah blah and at current $100, I still think it's wide off the mark. even if it recovers to just $150 within a year, that's a 50% ROI.

OK just want to add the latest comments by Charlie Munger pretty up sums up what I feel: may not be right, may not be moral, but no, it's not going to be the end of the road for Valeant just yet.

http://www.bloomberg.com/news/articles/2...lding-nose

Add to that, the fact that the short sellers or panic sellers at least, are basing their decisions on reports from this guy:
http://www.wsj.com/articles/valeant-shor...1446417120

I really wonder why the press doesn't talk about better researched articles like AZ's and instead there's so much focus on this 1 man show Left. With a dismal track record too.