Jim Cramer ( The Street ) Valeant Ranked HOLD ( Cooperman Hedge Fund Adds)

RECOMMENDATION

We rate VALEANT PHARMACEUTICALS INTL (VRX) a HOLD.

The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and generally higher debt management risk.

HIGHLIGHTS The revenue growth greatly exceeded the industry average of 3.7%. Since the same quarter one year prior, revenues rose by 35.5%. This growth in revenue does not appear to have trickled down to the company’s bottom line, displayed by a decline in earnings per share.

Net operating cash flow has increased to $736.40 million or 19.02% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.70%.

VALEANT PHARMACEUTICALS INTL has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year.

During the past fiscal year, VALEANT PHARMACEUTICALS INTL turned its bottom line around by earning $2.67 versus -$2.62 in the prior year. This year, the market expects an improvement in earnings ($11.32 versus $2.67). The company’s current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization.

In comparison to the other companies in the Pharmaceuticals industry and the overall market, VALEANT PHARMACEUTICALS INTL’s return on equity is significantly below that of the industry average and is below that of the S&P 500. Despite any intermediate fluctuations, we have only bad news to report on this stock’s performance over the last year: it has tumbled by 43.73%, worse than the S&P 500’s performance. Consistent with the plunge in the stock price, the company’s earnings per share are down 82.71% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, VRX is still more expensive than most of the other companies in its industry.

US pharmaceutical companies are involved in the discovery, manufacturing, distribution, and research of generic and branded drugs. The industry accounts for 27.3% of the healthcare sector and is capital-intensive with exorbitant R&D costs. Most companies are mature and characterized by high margins and higher dividend pay-outs. Major players include Pfizer (PFE), Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT), and Eli Lilly (LLY).

The industry employs more than 400,000 in the US. The 50 largest companies control over 80% of the market. The industry faces unprecedented challenges from stringent environmental regulations and patent expirations on billion-dollar products. Industry experts believe that generic competition will wipe out more than $60 billion from US industry sales over the next five years as more than three dozen drugs lose patent protection. Merck lost a $3 billion patent protection for its osteoporosis drug Fosamax in 2008 while Eli Lilly lost an estimated 90% of Zyprexa sales. The FDA is rejecting more drugs on safety concerns and a lack of compelling evidence of definite advancement from existing drugs.

The industry depends on federal subsidies for cost reductions. The US government enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) in 2003 to provide prescription drug benefits to the elderly and disabled. Medicare Part D, a component of MMA, which came into effect in 2006, altered the revenue model of pharma companies. Revenue from such programs is expected to reach $724 billion by 2015 as federal subsidies will lower co-payments and deductibles for specialty drugs.

Horizontal and vertical integration has created health maintenance organizations (HMOs) and pharmacy benefit management firms (PBMs). In order to cut costs and remain competitive, the US pharma majors have been outsourcing research to low-cost service providers in India and China.

The promising era of personalized medicine has begun. Dozens of exciting new drugs for the treatment of dire diseases such as cancer, AIDS, Parkinson’s, and Alzheimer’s are either on the market or are very close to regulatory approval. The industry has shifted its focus from blockbuster drugs (chemistry-based drugs) to specialized products, geared towards specific disorders. According to government estimates, American drug purchases may reach $497 billion by 2016, supported by a rapidly aging population, inflation, and the introduction of expensive new drugs.

Leon Cooperman’s Omega Advisors to the list of investors pinched by the rout ofValeant Pharmaceuticals (VRX).

In a quarterly 13-F filing unveiled today, Omega revealed it added a new position in the controversial drug maker to its portfolio during the third quarter that totaled 484,915 shares worth $86.5 million as of Sept. 30. During that three-month period, the stock price ranged from an intraday high of nearly $264 to a low of $152.

Since Sept. 30, when Valeant closed at just over $178, the stock has dropped almost 60% to a recent $73.32. At the most recent price, Omega’s stake is worth roughly $35 million.

Today marks the deadline for big money managers to reveal holdings as of Sept. 30. Firms that wield more than $100 million need to hand over lists of equity holdings within 45 days following the quarter’s end.

Valeant wasn’t the only new position reported by Omega. The fund also added a new stake inPfizer (PFE) totaling 4.8 million shares and a position in Amazon (AMZN) worth $18.3 million.

Puerto Rico Tax Haven Welcomes Americans this – and every- April 15th

Posted on November 16, 2015

Valeant : Dead Company Walking ?

 

The Valeant saga is probably a long way from a resolution. Anyone that says they know how it will end is either delusional or looking to influence the stock. That being said, there are a few clear lessons to be gleaned from the story thus far:

1. Organic growth is superior to growth by acquisitions—especially when growth by acquisitions is financed with large amounts of debt and even more especially when that debt is fueled by Wall Street bond offerings.
2. In industries that rely on intellectual property, research and development spending is critical for survival.
3. Accounting transparency is a big deal. I’m not saying for sure that Valeant is Enron Part II, but I will say that unscrupulous behavior is a lot harder to detect when its wrapped up in complicated financial arrangements.
4. The more a company works to highlight non-GAAP (AKA crap) results, the more investors should focus on GAAP results instead. As Gretchen Morgenson pointed out last week in the New York Times, Valeant earned $912 million in 2014 GAAP profits, while its non-GAAP reported cash earnings were $2.85 billion.

None of these lessons are new. They’re commonsense, investing 101, which leads one to wonder why so many successful money managers have risked huge amounts on such an inherently sketchy business. Sequoia Fund’s stake in Valeant is a staggering 34 million shares. Bill Ackman’s Pershing Square Capital owns 20 million; SF-based ValueAct, 15 million; NYC-based Paulson & Co, 9 million; NYC-based Lone Pine, 5 million; and Greenwich-based Viking Capital, 5 million. New York’s Brave Warrior Advisors (managed by Glenn Greenberg, son of legendary baseball player Hank Greenberg) has reportedly tied up more than a third of its assets in Valeant. These are massive investments from some of the biggest, best-known funds in the world—and that is exactly where the problem lies.

These outsized bets are a side effect of liquidity. As assets under management grow, liquidity constraints reduce the number of potential stocks and bonds where a manager might make a meaningful investment.

Asset Protection Trusts – put your assets beyond the reach of ex-spouses, ex -partners, lawsuits and even the I.R.S – read more at http://www.youroffshoremoney.com

Charlie Munger Isn’t Done Bashing Valeant : Legal BUT Immoral

Charles Munger saw it coming, and now he’s shaking his head.

Months before Valeant Pharmaceuticals International Inc. tumbled under attack from short sellers, Munger told investors in Los Angeles the company reminded him of the excesses of the 1960s conglomerate craze. “I’m holding my nose,” Warren Buffett’s longtime business partner said.

Turns out, those remarks were just the start of his concerns.

In an interview Saturday, Munger tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, “I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong.”

Once a high-flying stock — and a darling of star money managers like Bill Ackman — Valeant has slid more than 60 percent since its peak in August. A short-seller accused it of using a mail-order pharmacy, Philidor RX Services LLC, to inflate sales and engage in accounting tactics reminiscent of Enron Corp., the power trader that collapsed in 2001. Lawmakers are examining how Valeant set higher prices for medications.

The company denied the short-seller’s allegations in a conference call on Oct. 26 and said Friday it would sever ties with Philidor. It also has said that price increases for treatments are often whittled down in negotiations with insurers.

‘Holding My Nose’

“We operate our business based on the highest standard of ethics, and we are confident in our compliance with applicable accounting rules, regulations and laws,” Laval, Quebec-based Valeant said in an e-mailed statement Sunday. “Our commitment is to the patients who use our drugs, the doctors who prescribe them, our partners who make them available across the country, and to our shareholders.”

Munger’s stance has extra significance, because some of the drugmaker’s largest shareholders follow the style of investing that he and Buffett, 85, popularized. Ackman frequently expresses his admiration for their firm, Berkshire Hathaway Inc. And Valeant’s largest investor, Ruane Cunniff & Goldfarb, which runs the Sequoia Fund, shares a decades-long history with Buffett.

Munger, 91, brought up Valeant in March, before an audience of about 200 people assembled to hear him at the annual meeting of Daily Journal Corp., where he is chairman. He was discussing a passage in Buffett’s recent letter.

Companies like ITT Corp., Munger said, made money back in the 1960s in an “evil way” by buying businesses with low-quality earnings then playing accounting games to push valuations higher. Investment managers looked the other way. And worse, he added, it was happening again.

“Valeant, the pharmaceutical company, is ITT come back to life,” Munger said at the gathering. “It wasn’t moral the first time. And the second time, it’s not better. And people are enthusiastic about it. I’m holding my nose.”

Unlike Enron

ITT acquired more than 350 companies during its years as a conglomerate, wrapping together Sheraton hotels, Avis Rent-a-Car, the maker of Wonder Bread and other businesses. It broke up in 1990s. One of its descendants, an industrial company, later took back the name.

As Valeant’s stock plummeted over the past two weeks, some big shareholders came to its defense, propelling the debate into a business-media spectacle. Ackman held a four-hour presentation on Friday, comparing the company to Berkshire as he sought to persuade investors that Valeant should be trading higher. His pitch fell flat, and the stock closed lower.

Ackman said during the presentation that he spoke with Munger about his March remarks. The Berkshire vice chairman’s objections focused on leverage, tax rates and acquisitions, and Munger explained that he says what comes to his mind, according to Ackman.

Munger elaborated on Saturday: Valeant relied on “gamesmanship” to run up its value. Its strategy, using acquisitions and price increases, is different from ITT, but it still created a “phony growth record,” he said. Unlike Enron, Valeant’s stock isn’t a house of cards because it has some some valuable properties, including its portfolio of treatments, he said. He isn’t holding or shorting the shares.

Old Ties

Valeant said Sunday that it sets prices that reflect the value of its drugs, and that it offers assistance programs to “remove the financial obstacles that may keep patients from obtaining the medications they need.”

A spokesman for Ackman declined to comment further on Munger’s latest remarks, referring to the Friday presentation. Sequoia’s managers, Robert Goldfarb and David Poppe, didn’t respond to messages seeking comment. They also have defended their investment.

Buffett’s ties with the fund stretch back decades. In 1969, he shut down his investment partnership to focus on Berkshire and suggested that clients put their money with William Ruane, a friend from Columbia University.

Ruane co-founded the Sequoia Fund in 1970 along with Richard Cunniff. Over the next decades, the pair used many of the same investing strategies that Buffett and Munger employed, looking for undervalued stocks that would climb over the long-haul. While both Ruane and Cunniff are now deceased, Berkshire is the second-largest holding at the $8.1 billion fund.

The biggest is Valeant. On June 30, the holding accounted for 29 percent of assets, largely because it had gained so much since Ruane Cunniff bought the stock.

Dismissing Comparison

Munger’s critique has been a topic of conversation at the fund manager. At a May investor meeting for Ruane Cunniff, someone asked what Goldfarb and his colleagues thought about the dig from Buffett’s right-hand man, according to a transcript of the event.

Ruane Cunniff dismissed the comparison to ITT, saying that Valeant is more concentrated in a single industry and less likely to dilute shareholders by issuing stock to fund deals. The share plunge in recent weeks has pushed Sequoia’s current managers to publicly defend their pick to investors.

“Valeant is an aggressively managed business that may push boundaries, but operates within the law,” they wrote in a letter last week. The recent value of $110 a share “does not strike us as a rational price for a company with a diverse collection of product lines and strong earnings growth.”

Having so much of the fund in one company troubled two of its independent directors — Vinod Ahooja and Sharon Osberg — who resigned last week, the Wall Street Journal reported Thursday, citing an unidentified source. The fund’s chairman, Roger Lowenstein, confirmed the departures, without giving a reason for why they stepped down.

Praising Goldfarb

Munger said Saturday that he had lots of admiration for Goldfarb, adding that “he’s been very right” on Valeant because the Sequoia Fund invested so early in the drugmaker.

It’s easy to see why investors have been so taken with the stock, Munger said. “It looks kind of Buffett-like,” because Chief Executive Officer Mike Pearson “cut out all the glitz” of running a drug company, he said. However, Valeant’s tumbling share price shows why morals should still be a part of the calculation for making an investment, Munger said.

“They’re deeply intertwined,” he said. “I don’t think that investing should be divorced from reality.”

Read more about the morality of reducing your taxes by going offshore at http://www.youroffshoremoney.com

Valeant Pharmaceuticals International Inc. Update

VRX : NYSE : US$125.35
VRX : TSX
BUY 
Target: US$145

COMPANY DESCRIPTION:
Valeant is a specialty pharmaceutical focused on dermatology,
branded generics, and neurology indications in the US, Canada,
Latin America, Europe and South East Asia. The company
continues to grow through strategic acquisitions highlighted by
the $2.6 billion acquisition of Medicis. In 2010, Valeant
Pharmaceuticals International and Biovail Corporation completed
a merger to form a single Canadian-based specialty
pharmaceutical company.
All amounts in US$ unless otherwise noted.

Life Sciences — Pharmaceuticals
A BRIGHT OUTLOOK BEYOND 2014
Investment recommendation
Valeant provided 2014 guidance that was in line with consensus. While
cash EPS guidance places the Street estimate near the top end of the
range (we expect consensus to come down modestly), we believe that
higher spending in 2014 will drive medium-term organic growth.
Despite the reinforcement of our positive fundamental view, we believe
that much of the stock appreciation was a result of the company’s
stretch goal to become a top five healthcare company by the end of
2016. As such, we recommend that investors watch for a pullback to
present a more attractive entry point. Nonetheless, we continue to see
substantial upside potential even from current levels and reiterate our
BUY rating.
Investment highlights
 Valeant is investing in growth. Management highlighted R&D and
SG&A expenditures that are expected to drive product launches and
sales force expansion. We believe this spending should amplify
organic growth, which was a key investor concern following Q3
results.
 M&A execution continues to be a key driver. Valeant indicated that
it will pursue smaller tuck-in acquisitions, hopes to complete at least
one larger acquisition this year, and continues to pursue a ‘merger
of equals’ that could accelerate de-levering of the balance sheet.
 Sound familiar? Valeant’s ‘stretch goal’ to become a top five
healthcare company harkens back to Jan. 2012, when a $15 billion
market cap company aimed to reach $50 billion by the end of 2013.
Valuation
We value Valeant based on a DCF model using a WACC of 8.9% and a
terminal growth rate of 1.0%. We have updated our model following
2014 guidance and, based on this analysis, we arrive at a revised target
of US$145.00 (increased from US$119.00), which supports our BUY rating.

Valeant Pharmaceuticals International Inc.

Valeant Pharmaceuticals (Photo credit: Wikipedia)

VRX : NYSE : US$84.47
VRX : TSX
BUY 
Target: US$112.00

COMPANY DESCRIPTION:
Valeant is a specialty pharmaceutical focused on dermatology, branded generics, and neurology indications in the US, Canada, Latin America, urope and South East Asia. The company continues to grow through strategic acquisitions highlighted by the $2.6 billion acquisition of Medicis. In 2010, Valeant Pharmaceuticals International and Biovail Corporation completed a merger to form a single Canadian-based specialty pharmaceutical company.
All amounts in US$ unless otherwise noted.

VALEANT REELS IN A BIG ONE

Investment recommendation
Valeant has announced the previously speculated acquisition of Bausch & Lomb (B+L) for $8.7 billion. Contrast to our expectations, this is not a
‘merger of equals,’ and instead Valeant will pay cash funded by debt and up to $2 billion in new equity. In our note published yesterday, we had
highlighted B+L’s strategic fit and strong growth profile. However, based on our revised analysis (assuming the updated deal structure), we now
see significant accretion of 43.5%, in line with company guidance.
Investment highlights
 Wringing out the cost synergies from B+L. Valeant sees potential cost savings of $800 million, excluding manufacturing and tax synergies. Based on our discussions with management, we now expect that greater synergies can likely be extracted from B+L’s commercial infrastructure.
 B+L to take leverage modestly higher. The company has guided to 4.6x net debt to EBITDA following the expected close of the transaction in Q3. However, management expects that leverage can be reduced to under 4.0x by the end of next year.
Valuation
We value the combination of Valeant and B+L based on expected 43.5% accretion to our 2014E cash EPS. By applying (pre-B+L speculation)
P/cash EPS (~11.5x) and EV/EBITDA (13.2x) multiples to our accretion analysis, we arrive at a 12-month target of US$112.00 (increased from
US$82.00), which implies a 32.6% return and supports our BUY rating .

Related articles

• Quebec’s Valeant Pharmaceuticals to buy Bausch + Lomb for $8.7-billion US (vancouversun.com)
• Valeant Acquires PE-Backed Bausch + Lomb for $8.7B (pehub.com)

Valeant Pharmaceuticals International Inc.

Valeant Pharmaceuticals (Photo credit: Wikipedia)

VRX : NYSE : US$73.33
VRX : TSX
BUY 
Target: US$83.00

COMPANY DESCRIPTION:
Valeant is a specialty pharmaceutical focused on dermatology, branded generics, and neurology indications in the US, Canada, Latin America, Europe and South East Asia. The company continues to grow through strategic acquisitions highlighted by the $2.6 billion acquisition of Medicis. In 2010, Valeant Pharmaceuticals International and Biovail Corporation completed a merger to form a single Canadian-based specialty
pharmaceutical company.

Investment recommendation

Valeant has agreed to acquire Obagi Medical Products (OMPI:Nasdaq) for $19.75 per share or ~$365 million. We believe that Obagi’s aesthetics
and skin therapeutic products are a good fit with Valeant’s large dermatology franchise. Given Valeant’s efficient tax structure, its strong
position in dermatology, and its core strength in integrating acquisitions (and driving synergies), we believe that this deal has a high probability
of completion. The Board of Obagi has approved the transaction.
Investment highlights
 Valeant again flexes its integration muscle. Valeant expects that this acquisition will be immediately accretive to cash EPS and sees a cost
synergy run rate of $40 million within six months of closing.
 More value in Medicis than originally believed. Now that Medicis is largely integrated, management recently indicated that it sees additional upside potential from this acquisition. Valeant expects to update its financial guidance on its Q1/13 call.
 M&A remains active. Obagi is a medium-sized acquisition for Valeant, in line with our expectations for smaller deals in the nearterm.
Nonetheless, management has discussed the idea of a ‘merger of equals’ that could potentially alleviate balance sheet constraints. We expect that speculation on this front could continue to buoy the stock.
Valuation
We value Valeant based on a DCF model using a WACC of 8.2% and a terminal growth rate of 1.0%. We have updated our model to include this acquisition and, as a result, we are increasing our 12-month target price to US$83.00 (from US$79.00), which supports our BUY recommendation.

Related articles

• Valeant reports fourth-quarter loss on Medicis acquisition costs (business.financialpost.com)
• Valeant Pharmaceuticals to buy skin-care drugmaker Obagi for $343.7-million (business.financialpost.com)

Valeant Pharmaceuticals International Inc.

Valeant Pharmaceuticals (Photo credit: Wikipedia)

Valeant Pharmaceuticals International Inc.

VRX : NYSE : US$60.71
VRX : TSX
BUY Target: US$74.00

COMPANY DESCRIPTION:
Valeant is a specialty pharmaceutical company focused on neurology and dermatology indications in the US, Canada, Latin America, Europe, Australia and South East Asia. The company has grown through strategic acquisitions and has a robust pipeline of therapeutic products, highlighted by epilepsy drug Potiga. Valeant Pharmaceuticals International merged with Biovail Corporation in 2010 to form a Canadian-based specialty pharmaceutical company.

Investment recommendation

Valeant announced 2013 guidance that was in line with Street estimates. While the top line guidance was below our previous projections, greater cost synergies from Medicis have partially offset any adjustments we have made. We now anticipate 2013 revenue of $4.7 billion and cash EPS of $5.64, both within Valeant’s guided range. We look to efficient execution of the Medicis integration with the potential for upside to ‘conservative’ guidance (particularly related to Solodyn), and the strong likelihood of additional M&A activity, as potential drivers for the stock in 2013.
Investment highlights
 Solodyn revenue guidance was well below our expectations, as the AF program slowly gains traction. While CEO Mike Pearson remains confident that Solodyn will grow, we have substantially lowered our revenue projections for this product going forward.
 Valeant increased its guidance for Medicis cost synergies to $275 million. However, we believe that this number could ultimately be higher and provide upside potential to current guidance.
 While Valeant is likely to take a breather from larger transactions, we still anticipate smaller deals in 2013. Nonetheless, management has floated the idea of a potential merger with a larger peer that could allow Valeant to maintain control, as well as its existing tax rate. We expect that speculation on this front could buoy the stock.
Valuation
We value Valeant based on a DCF model using a WACC of 8.2% and 1.0% terminal growth. We have taken this opportunity to include base efinaconazole revenue (pending an evolving competitive landscape); additionally, we have modestly lowered projected cash tax rates. Based on these and other incremental changes, we have revised our 12-month target to US$74.00 (from US$70.00), which supports our BUY rating

Related articles

• Valeant Pharmaceuticals To Present At 31st Annual J.P. Morgan Healthcare Conference (sys-con.com)