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- Valeant's Phase 3 trial results compared its latanoprostene bunod with the generic timolol. There is no proof it is better than the market-leading prostaglandin analogs because it wasn't compared.
- Prostaglandin analogs such as latanoprost, bimatoprost, travoprost are well-established drugs known to be more effective than timolol. They have been around for many years.
- Valeant claims its latanoprostene bunod (Vesneo) will get peak sales of $500 million to $1 billion. Valeant did not compare Vesneo to any prostaglandin analog in the clinical trial.
- Peak sales estimates by pharma companies are simple and unscientific. They can be off by a huge factor.
- How would Valeant's drug achieve such a high peak sales number when as effective or more effective drugs have gone generic?
- Allergan says shareholders who voted for the special meeting won't remove directors. This is what Allergan heard from shareholders.
- Valeant spiked today due to its Q3 forecast that is devoid of details. Did Valeant get higher "organic growth" with one-time price hikes on recent acquisitions?
- By hiking Q3 forecast without any details, with just 5 trading days left before the Q3 close, Valeant has bailed out its shareholders. Great way to bang the close.
- Pearson had said in the Q4 earnings call that he saw significant pricing opportunity on day 1 in the Precision Dermatology acquisition (closed on July 8).
- Valeant's organic same store sales growth was 0% in 2013, 1% in Q1, 2.4% in Q2. B&L stayed at 10% throughout. How does Q3 get to 15%?
- Warren Buffett recommended Business Adventures by John Brooks as the best business book, when Bill Gates asked Buffett to recommend the best.
- John Brooks is Gates's favorite business writer. Brooks has also written "The Go-Go Years", this book is the most famous of Brooks's books.
- The book has a great chapter on acquisitions and creative accounting. This is the milieu in which the Williams Act came into being.
- Those who don't learn from history are condemned to repeat it. Similarities between investor behavior regarding conglomerates of the 1960s and the current investor adoration for serial acquirers is astonishing.
- Valeant's largest shareholder's fate has become inextricably intertwined with Valeant. Valeant is 23% of their portfolio and they own 10% of Valeant. They can't exit without ruining their returns.
- This led to a highly desperate defense at the Ruane, Cunniff, Goldfarb annual meeting.
- Article discusses why Pearson is no "Outsider".
- Several inaccurate and misleading statements on Valeant and Allergan from the transcript are pointed out.
- Goldfarb revealed that Valeant's debt resides in the US. Treasury is targeting this tax trick in its regulations that don't require Congress - expect Valeant to take a major hit.
- Valeant has repeatedly stonewalled analysts and investors when it comes to pricing information.
- Despite all the pressure from Allergan and investors to disclose pricing information, Valeant has refused with ridiculous excuses.
- I suspect if Valeant reveals its price increases like other pharmas do, it will show everyone how Ponzi-like Valeant's business model is.
- Other Canadian companies have a much higher tax rate (> 20%) than Valeant. Nobody knows how Valeant can claim a tax rate of less than 5%.
- Eugene Melnyk, the former CEO of Biovail, has become a whistleblower on Valeant's tax rate tricks. This whistleblowing has caused the IRS to begin an investigation of Valeant's tax apparatus.
- Allergan might acquire Salix according to "people familiar with the matter". Allergan might possibly get a tax inversion by buying Salix. Or it could make it all-cash without an inversion.
- Valeant's tender fiasco means that Allergan shareholders should approve any deal. Despite Valeant's aggressive claims, just 4% of Allergan shares were tendered in two months.
- Chairman of Salix is 70 years old and the CEO and President is 65. This is a great way for them to retire.
- Salix went up 15% today due to the acquisition rumor. It is not certain that Salix is the one Allergan will acquire.
- The WSJ article (i.e. "people familiar with the matter") also says Allergan might acquire "another unknown party" if not Salix.
- Allergan shareholder support for Valeant is below even my expectations. Must be extremely disappointing for Valeant.
- Just 12.5 million shares tendered out of the 298 million Allergan shares outstanding. That is just 4.2%.
- Pershing Square continues to struggle to gather enough votes for the special meeting, blames it on documentation requirements.
- 13-F filings show very little Allergan purchased by hedge funds in Q2.
- Since April, Allergan and Valeant Pharmaceuticals have been locked in a takeover battle.
- Valeant is also backed by activist investor Bill Ackman and his Pershing Square hedge fund.
- Ackman is also the biggest shareholder of Allergan.
- Given the fact that Valeant is highly leveraged, it is best for Allergan to remain independent.
- The 50-page lawsuit is the most entertaining document I have read so far in the entire Allergan-Valeant-Ackman affair. It has a blow-by-blow account that reads like a thriller.
- The lawsuit says that to escape securities laws Ackman and Valeant pretend to be one single entity and pretend that Ackman is a co-acquirer with Valeant.
- But Ackman in open letters and TV appearances calls himself an Allergan shareholder instead of acquirer. Valeant itself denies control of the 9.7% to escape Allergan's articles of incorporation.
- I believe the Williams Act and securities laws were made to prevent the transfer of wealth from unsuspecting shareholders to people with material nonpublic information ("unfair disparities in market information").
- I think such a transfer of wealth is precisely what happened when Pershing Square made more than a $1 billion profit in no time. Can they get away with it?
- The last two days saw SEC filings by Allergan and Pershing Square. The SEC filings are regarding Pershing Square's complaints to proxy advisory firms about the Allergan special meeting bylaws.
- If Pershing Square has to struggle to gather just 25% of shareholder votes for the special meeting, how will it get 50% to win?
- I had suggested in my previous article that Ackman and Valeant did not have enough shareholder support. These complaints confirm my suspicion that they are struggling to get the votes.
- Allergan's CEO looks set to make an acquisition. I haven't seen him this open-minded and aggressive about acquisitions before. He is confident of making his moves before any special meeting.
- EPS benefit from any acquisition made by Allergan would have twice the effect compared to a deal with Valeant, because Allergan's cash-rich balance sheet won't be shared with Valeant shareholders.
- Allergan's cuts and improved EPS are facts. Valeant's synergy hypotheses are just vague opinions. Valeant has managed to avoid describing exactly what it would cut - both R&D and SG&A.
- Valeant has repeatedly said it is confident the deal will happen. If the deal doesn't happen, any investors who buy into Valeant based on such assurances will be sorely disappointed.
- Because Valeant's proposal would have Allergan shareholders owning just 44% of the combined company, Valeant would have to more than double any move Allergan makes. Therefore this deal won't happen.
- Valeant complained to the SEC about Allergan's "misstatements" on B&L organic growth. The SEC should take this opportunity to examine Valeant's earnings releases and ask the following from Valeant.
- Clearly report the negative organic growth from acquisitions older than a year. Valeant trumpets B&L organic growth even though the B&L acquisition closed in August 2013.
- Report organic growth on a consistent same-store sales basis. Valeant until recently reported "pro-forma" organic growth. Report same-store-sales organic growth figures in earnings releases that contain only pro-forma data.
- Valeant repeatedly tells investors it gets an IRR of at least 20%. How does Valeant reconcile this with Valeant low return on capital of 13%?
- Valeant claims it has low R&D. But it "pre-pays" for R&D in a one-time payment called an acquisition. The SEC should ask Valeant to include "pre-payment" along with "low R&D".
- The war of words between Valeant and Allergan continues, with prominent hedge fund managers on both sides.
- Valeant has stretched the truth on several occasions in its attempt to defend its acquisition-heavy strategy.
- The Allergan board is right to try to keep the company independent from Valeant's value-destroying strategy.
- Valeant's CEO and Allergan's CEO are contradicting each other on Valeant's filler market share gain/loss. The Wall Street Journal's research backs Allergan's CEO.
- Valeant debt's weighted average maturity is just 5 years and 4 months. Valeant's leverage is very aggressive compared to even utilities like Comcast and DirecTV.
- Valeant's debt would be OK if it were a cable company. Cable companies are local monopolies when it comes to Internet access. But drug revenues can disappear suddenly.
- If Valeant's market share falls like it appears for fillers, Valeant would have to issue a lot of equity to repay debt. Fillers were supposed to be what Valeant calls "durable, cash-pay".
- AbbVie is placing a fourth bid for Shire. If AbbVie buys Shire, Perrigo is the only company left that is large enough for Allergan's tax inversion.
- Perrigo is undervalued compared to Shire. It trades at about 18 times my earnings estimate for the next 12 months. Perrigo has durable competitive advantages unlike any other pharma.
- The combined company could retain both the CEOs of Allergan and Perrigo since they know those businesses best (maybe Chairman and CEO respectively). They are both very good CEOs.
- Valeant didn't explain its lower return on capital, lower per-employee cash-flow compared to Allergan, negative organic growth, high EV/EBITDA multiple, and excellent Allergan R&D productivity. Can Valeant forecast 2015 organic growth?.
- What Valeant omits in its "fact-based" presentations is very dangerous to investors. Considering that Valeant has already presented hundreds of slides, Valeant doesn't intend to ever address these dangerous questions.
- Valeant is in a huge hurry to complete a deal before the B&L anniversary. If Valeant doesn't complete a deal soon, it will be in an existential crisis.
- There are eerie parallels to Enron and Worldcom. Cheerleading analysts, McKinsey partner who invents a new business model, breathtaking revenue and cash-flow growth by capitalizing expenses, opaque accounting, and financial engineering.
- What Valeant doesn't say is very dangerous compared to what it says. Just concentrate on what Valeant chooses not to address. That is where the scary truth lies.
- The key to understanding Valeant's accounting and business model is understanding the impact of capitalizing versus expensing. Valeant bulls apparently don't understand this accounting principle.
- This article uses a simple example to clearly illustrate this accounting trick. Valeant's stock is hugely overvalued, due to the usage of its favored price-to-cash earnings measure.
- Valeant is in a big hurry to acquire someone with its overvalued stock before the anniversary of its Bausch and Lomb acquisition. After the anniversary, Valeant's year-over-year revenue growth plummets.
- Understanding the accounting impact of capitalizing versus expensing will enable readers to understand the difference between Valeant and other pharmas like Allergan.
- Allergan shareholders should understand capitalizing versus expensing, they are being offered highly overvalued Valeant stock. The table in my previous article indicates Valeant's stock price is twice its fair value.
- Valeant's May 28 presentation was what I had expected. There was no mention of Allergan's R&D productivity, EV/EBITDA, or Valeant's negative non-B&L growth rate.
- Valeant is in a hurry to do a deal before the B&L acquisition anniversary. Otherwise, momentum investors will exit Valeant stock when they see Valeant's anemic organic growth rate.
- Valeant is highly overvalued, with $50 debt per share. EV/EBITDA multiple of 10 puts Valeant's stock price at $58. Valeant's cash earnings are overstated because it capitalizes what others expense.
- Valeant's offer for Allergan is 40% cash, 60% stock. It's a bad deal for Allergan shareholders. Allergan is growing through 2019 at 20%, Valeant revenue grew at 1% in Q1.
- Valeant trashes the business model of other pharmas all the time. But Valeant has a poor return on capital (12.8%) compared to Allergan (36%) and other pharmas.
- Valeant is likely to talk about the industry's R&D productivity in general, and not about Allergan's excellent R&D productivity.
- Valeant will likely not mention the EV/EBITDA valuation of Allergan and Valeant. Instead, Valeant is likely to talk about Allergan's "unaffected" share price to avoid drawing attention to Allergan's undervaluation.
- Valeant is likely to talk mostly about Bausch & Lomb, and ignore non-Bausch & Lomb revenues. Most of Valeant's revenues are non-Bausch & Lomb, but it has negative organic growth.
- If you look at the valuation table in this article, it's a no-brainer that Allergan is far better.
- Comparing Allergan and Valeant valuations debunks the myth that Allergan's stock price will fall without the takeover.
- Using Allergan's growth forecasts from Monday, if I value Allergan at an EV/2019 EBITDA ratio of 21 and discount it back at 15%, current Allergan stock price should be $251.
- Highlights from Allergan's investor presentation on Monday.