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BHC trading at 7.8x ebitda estimates, ebitda estimated to trough this year.

BHC likely to show LSD organic growth this year. They paid down $1bn of debt last year but still 6.7x net debt which is still very high but unsecured 2025 debt trading at $88-89. [Intermediate debt would be 4-5x]

They replaced some senior sec debt which unsecured debt.

By 2022 their 'Significant Seven' should grow to anywhere from $800m to $1bn in sales. stock is 22.


Stock up 72% ytd. Should have bot when execs did.
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No. of Recommendations: 4
thanks for posting.

What is the positive outcomes you see and what kind of price would you sell at?

Do you trust the revenues and numbers? GAAP numbers are horrible and Non-GAAP are like any other company that uses Non -GAAP. Might as well remove all G&A and Op ex too while at it?

Debt is huge. 10-15 years of FCF to pay it off. Not saying they need to pay it all off. but shows a level of debt. We talk about companies at 10-15x FCF. Here the Debt is 10-15x FCF!

FCF numbers are also not very clear. Not sure what it is for 2015.

Yes if they file the 10-K there could be a pop on short covering. Maybe as much as 50%. Who knows. Would that be the point to exit?

I had 2 investments in 2014 that were down 50-90%. I would have been better off selling them every single day after the thesis was broken.
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Today I added this to my notes. "On the conference call, Pearson stated all companies get SEC comment letters once a year. That is not at all correct. "It's a comment letter that all companies get."


Here are my notes on OneDrive https://onedrive.live.com/view.aspx?resid=D2E383FA446C03A!59...
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No. of Recommendations: 2
Company now trading at 6.7x revised downwards ebitda. I feel confident they can file accurate financials by April 30th. No lender wants to put them in anything close to BK.

PFE trades at 9x ebitda. Rest of pharma trades at 10-14x ebitda. Most of these are slow/no-growth firms.

If VRX files properly, gets its act together over the next 12-24 months -- they have very few maturities until 2018 -- you'd think it could trade up to 9x ebitda. Also they did not increase prices this year so going fwd, I think they can increase the traditional 6-10% that all the other pharmas do.

I don't know what the upside is, nor how long it would take to get there. Certainly, the time to generally buy is at the darkest point for numbers and news releases, and VRX could be there.

But, my #3 rule is don't buy turnarounds until they turn around.


No position.







ps Frankly, I think the bonds are a better bet as of today. It's not like VRX can waste their cash on another acquisition or borrow more, those days are over for a long time.
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No. of Recommendations: 1
Today I added this to my notes. "On the conference call, Pearson stated all companies get SEC comment letters once a year. That is not at all correct. "It's a comment letter that all companies get."

Virtually all firms get them from time to time, it seems random to me, not annually, but not surprised a CEO would think that either.
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Hi IT,

Thanks for reading my notes. My years have not been awful, but certainly underperforming. We are about flat after today YTD.


What is the positive outcomes you see and what kind of price would you sell at?

If they filed timely without issue would be nice. Them meeting covenants would be nice. Some profitability would be nice. Confidence back in the company would not suck. Selling price is a moving target. If they could get back to the same as past operationally, my selling price would be much higher. I don't know the number, and I am not sure that is relevant to me in this situation. I am willing to ride this mofo to zero.

Do you trust the revenues and numbers?

No, I do not. I thought I made that clear in my notes.

Yes if they file the 10-K there could be a pop on short covering. Maybe as much as 50%. Who knows. Would that be the point to exit?

Depends what is in the K. We all have different exit points. I would anticipate that if VRX stays solvent, and operationally similar to the past (at least the reported past if not fraudulent), that I would possibly hold for a long time.

Peace,

BGM
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No. of Recommendations: 1
3. 2016 non-GAAP eps is expected to be $9.50 - $10.50, prior guidance was $13.25 - $13.75B.


BGM,

No B at the end by the way. But I can't believe you are even quoting these BS (not balance sheet) numbers. I am open to the idea that this might be a contrarian bet, for someone who wants to swing the bat real hard and knows they will probably miss the ball, but I am slightly open. Whether I make up my mind before the stock goes to zero is another question.

Today I added this to my notes. "On the conference call, Pearson stated all companies get SEC comment letters once a year. That is not at all correct. "It's a comment letter that all companies get."


Here are my notes on OneDrive https://onedrive.live.com/view.aspx?resid=D2E383FA446C03A!59...


I skimmed through your notes, and BTW thanks very much for posting these - it's a nice transparent touch.

But what on earth does #3 have to do with anything? Now that we have been taught to take basically anything Pearson says as probable self-serving nonsense, and given the fact that we pretty much know that these non-GAAP numbers make no sense, I think we should stop paying ANY attention to them. No, the company is not trading at 3x revised earnings. Those are not earnings. Period.

It's good to re-read what we were thinking, and how Ackman thought this was a great deal at $110 a few months ago (now sub $30), and how Jason Donville was outraged that 'some turkey in Nevada', an is even allowed to say these critical things about hist top pick in October 2015, Valeant (and causing the stock to plunge from about $180 to $120). (In fact, Donville was plugging it $213 (maybe Canadian dollars), saying he didn't think the price would stick around at that (low!) level too long.

Didn't see anything about SEC comment letters - what were you referring to ?

Regards, DTB
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No. of Recommendations: 7
The risks include:

3. Excessive debt levels, which could become difficult or impossible to maintain. Valeant mentioned they will be able to meet debt levels, but of course that can be taken with a grain of salt.

5. The presentation of Non- GAAP numbers are concerning, primarily because management has given us no reason to trust them ... a company who doesn’t seem to know its ass from its head.


I think VRX is going to produce substantial cash flows in the coming years but the pertinent questions are a) how much cash and b) to whom does it go?

Of course, creditors feed on the cash flow before equity holders get a single morsel.

With such a substantial debt load, Valeant appears to me to be particularly sensitive to any threat to its business model that would impinge cash flow growth or even stability.

So I would add another risk:

Slowly but surely Valeant customers retake some of the pricing power previously sacrificed to VRX, leading to price erosion or only modest price increases for VRX drugs

I'm concerned that Valeant pricing and marketing "innovation" (massive price hikes, Phildor) is off the table for many years.

I'm also concerned that the other VRX skill (according to its supporters) - acquisitons - is also off the table.

I wonder if there is any way an outsider - or even an insider - can now predict future cash flows for the business.

Unfortunately I lack the skill and Valeant knowledge to invert the question and calculate an answer - How much future cash flow generation is imputed into today's stock price?

On some level, this company is SO toxic and SO despised and trading volume is SO heavy one has to think that the end (of the downside) is nigh.

Of course some VRX bears will suggest the end is not nigh for VRX, the end is a zero.

Good luck!

ET
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No. of Recommendations: 3
I do not relative valuation is of much use here. Not any company in the pharma space has that kind of debt. And for the heck of it,

GILD is at 5.6x EBITDA. and 7-8x FCF. here are some simple numbers on GILD
There is NON - GAAP BULL bull $$$$

Market Cap $120B
$4B net cash
FCF $20B


That is 6x FCF. Forget 10x Debt to FCF. This Is 6x P/FCF.

But just because it is so cheap, does not make it a buy. There are fears about peak revenues for its HEP C drug and competition. None of that is even in the numbers yet...

And check its history in terms of numbers, drugs discovery , approval etc. HIV leader and Hep C and then a backlog too.

So why would you buy any thing with that kind of debt and non- trusted revenues etc etc...

When you can buy a Pure GAAP / FCF machine for 6-7x FCF. (trailing)..

I think people love catching falling knives. and the fact that it fell from $250 makes people think the upside is multi fold. No one thinks hey maybe that $200+ level was just baloney.... that only happens later...

Like CSCO at $500B market Cap...
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No. of Recommendations: 6
Jason Donville was outraged that 'some turkey in Nevada', an is even allowed to say these critical things about hist top pick in October 2015, Valeant (and causing the stock to plunge from about $180 to $120). (In fact, Donville was plugging it $213 (maybe Canadian dollars), saying he didn't think the price would stick around at that (low!) level too long.

track record - batting average - everybody miss one every so often

martian (aka big DK fan), sitting on a 50% loss in TRIB and a lot more than that in CPHR (among many, many issues)
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No. of Recommendations: 7
track record - batting average - everybody miss one every so often



I agree with you, Raccoon, that Donville can afford to miss on a few like Valeant, given his awe-inspiring track record.

But still, it is one thing to invest in Valeant, as many smart people did, and it is quite another to disparage criticisms coming from some turkey in Nevada, and even question the turkey's right to make the criticisms of this fine outstanding company (and what next? What if he criticizes and takes down the National Bank of Canada, horrors? And then, one of the Big Five Canadian banks? Etc.).

And then of course all these criticisms that Left was making turn out to be true, in fact it's even a fair bit worse. Which is a fine illustration of why having free speech is kind of a useful thing, and make Donville's really over the top anger seem even sillier. I guess the most irritating criticism is the criticism that you have a sneaking feeling might be true. Good lesson here for any investor on the importance of considering the opposite viewpoint...

Regards, DTB
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But still, it is one thing to invest in Valeant, as many smart people did, and it is quite another to disparage criticisms coming from some turkey in Nevada, and even question the turkey's right to make the criticisms of this fine outstanding company (and what next? What if he criticizes and takes down the National Bank of Canada, horrors? And then, one of the Big Five Canadian banks? Etc.). And then of course all these criticisms that Left was making turn out to be true, in fact it's even a fair bit worse. Which is a fine illustration of why having free speech is kind of a useful thing, and make Donville's really over the top anger seem even sillier. I guess the most irritating criticism is the criticism that you have a sneaking feeling might be true. Good lesson here for any investor on the importance of considering the opposite viewpoint...

Hear you and don't disagree. I guess from my point of view, Donville has no obligation or duty to give out anything and any idea is given entirely for free, and certainly if I act on anything he says then the responsibility goes from my ears to my mind and thus it becomes my idea and mine alone. What I have seen with him is almost truly awe-inspiring generosity and willingness to interact with Joe Investor, and for every rant and rave (only seen one - & was clearly in tizzy and shouldn't have shown up then), he has given out remarkable after remarkable idea, including ideas he mentions repeatedly. In the end, his ranting and raving didn't make me buy VRX (though I'd owned it before and finally punted a long time ago), so his ranting and raving doesn't bother me one iota. All his other contributions - geez....calling me a "fan" is like calling Brady a decent QB....it if matters, he is the only person I follow where I will often first buy each idea he mentions (excluding resources and financials) and then do the investigation...though that doesn't mean I've kept everything. Course, if I'd just blindly followed the guy, I'd be a lot more successful.

Course, all this is spoken by a dude (me) who doesn't know if VRX should be $30 or $300....
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And then of course all these criticisms that Left was making turn out to be true, in fact it's even a fair bit worse


Not remotely true. The stock has done worse than his initial downside target, if that's what you mean.

He called them a 'pharmaceutical Enron,' i.e. a total fraud. Enron's whole balance sheet, earnings, and cash flows were fraudulent.

No one has even suggested VRX' balance sheet is wrong, just overleveraged. Earnings were adjusted forward by $58m, a revenue-recognition timing issue that is not unfamiliar in many industries.

Future cash flows are the entirety of the issue at this point.

More to come.
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Future cash flows are the entirety of the issue at this point

How many doctors, hospitals, plans will avoid VRX products due to these negative headlines? Will it be short-term or long-term impact?
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And then of course all these criticisms that Left was making turn out to be true, in fact it's even a fair bit worse
====
Not remotely true. The stock has done worse than his initial downside target, if that's what you mean.


No, I didn't mean his stock price prediction was wrong, I mean his criticism of one important aspect of the company's business model has turned out to be quite accurate, and other aspects turn out to be problematic as well.

Prominent among Left's criticisms was the drug distribution model with specialty pharmacies: http://www.bloomberg.com/news/articles/2015-10-22/valeant-st...

For example the association with Phildor, and the insurance fraud that allowed Phildor to generate sales of very expensive generics where cheaper alternatives are available (see for instance the story here about $2500 cold sore cream with equivalents available for $15-20: http://www.latimes.com/business/la-fi-lazarus-20150306-colum...)

Where I will agree with you is that I think Left misattributed the motivation behind these specialty pharmacies: he said they were to create phantom revenue, à la Enron, whereas I think they were more a matter of making sure insurance companies covered expensive products for which there are more economical alternatives, by using and abusing billing procedures.

But as scrutiny has increased, we find out that there is not just one cockroach in the kitchen; there are serious problems with accounting, with management, with reporting, and of course now there are also problems with the business model of acquisitions financed by cheap debt and margins juiced by massive price increases. So where Left described one problem (Phildor etc.), the problems with Valeant turn out to be much, much worse, as I think even people with long positions must surely agree by now.

Regards, DTB
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No. of Recommendations: 9
I do not relative valuation is of much use here.

Of course it is. Otherwise you'd say VRX is far less levered than other firms in other industries. But we don't say that because we compare it to other pharmas.

So why would you buy any thing with... non- trusted revenues

Well, the total revenues have been correct so far, just a tiny ~1% portion booked 1Q early. Corrected and punished for as well. If you're merely saying they may not hit their 2nd downwardly revised forecasts, that's true, but any pharma can miss on 2016 and I'd say VRX has more shot than anyone to hit numbers that must be lowballed by now!

But you're ignoring the currently correct way to value Valeant. Purely on what their assets are worth in a sale or split-off. Ignore the cash-flows for now.

Valeant has a lot of levers to improve the valuation. I had a nice long chat with a major holder...let's call him Gill Mackman.

Salix was acquired with a stuffed channel of products at a public auction. Their operations have been improved, so even if you haircut the value from $16Bn, it is still worth a lot of money as a % of a $38 Billion EV.

Then there's B+L. What would a JNJ or etc pay for them? 12-13x ebitda looks about right to me. Lotta cash.

Then the branded generics business which is nicely profitable. Could easily be swallowed up by a big player - seems like the definition of a non-core asset to me.

Finally you have the other pharma - Neuro can be sold, etc.

What are some other levers?

Sell the company! Once the ad hoc committee's investigation is finalized and 10-K is filed [the most important thing], this becomes an alternative again. A GILD or JNJ might be very interested at this reduced valuation. As noted, GILD has lots of cash but not diversified enough. They could pay it off in ~15 months.

What else? Fire the CEO and bring in a highly-trusted industry veteran. Mgmt reputational issues gone overnight.


Neither the banks nor bondholders want to put this into BK. The lenders will roll over their term loans at a....50-100bps penalty. Costs cash but not a serious wound or anything.

In addition, the CEOs of the largest banks are willing to support VRX' survival as an independent firm or financing their purchase by a suitor. The market is open, in other words.

No serious investor thinks the $262 price is meaningful from last year. The upside IS probably 3-4x. That's the bullish case. Downside is not zero but a big loss from here.



No position.
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For example the association with Phildor, and the insurance fraud

You've said this a number of times, but all pharmas use 3rd party distributors [or almost all] and there is no proof of insurance fraud no matter how often that mud is slung by you and others.

'Very often manufacturers are having a hard time to get coverage and often at first they get unfavorable tiers and only long after the launch advance to the better ones. So, in the meantime, they offer vouchers, samples, copay assistance, etc. to make sure that patients get immediate access to their drugs despite the dismal payer coverage.

Adam Fein has some data from early 2014:
There are now 561 co-pay offset programs, up by 34% in less than two years. More than 700 brand-name drugs have co-pay offset programs.

So copay is far from being only a Valeant/Philidor issue. Dr. Fein also explains that:

For some major therapeutic categories, IMS documents that copay offset programs are used more frequently by patients in deductible plans. [...] Before any deductible is reached, a patient's "copayment" always equals the full prescription price. Consequently, for diabetes therapies (DPP-4 and GLP-1), manufacturers could be paying full price for 15% to 25% of their own prescriptions.'



Finally, selling your pharmas or branded generics for more than the competition is not fraud no matter how often the media pushes it.
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there is no proof of insurance fraud no matter how often that mud is slung by you and others.

'Very often manufacturers are having a hard time to get coverage and often at first they get unfavorable tiers and only long after the launch advance to the better ones. So, in the meantime, they offer vouchers, samples, copay assistance, etc. to make sure that patients get immediate access to their drugs despite the dismal payer coverage.

Adam Fein has some data from early 2014:
There are now 561 co-pay offset programs, up by 34% in less than two years. More than 700 brand-name drugs have co-pay offset programs.

So copay is far from being only a Valeant/Philidor issue.



I know my criticism must be getting tiresome, and I should say that I am not in disagreement with you on your main point, which is that at $30, VRX is probably a pretty good bet. In fact, despite some misgivings, I have to grudgingly acknowledge that I think it is underpriced, on a sum of the parts basis, and as of this afternoon I have a small bet long at $27. So now I hope the Mackman people are going to be helping my bet by selling off some obviously valuable bits for good prices, as well as firing a lot of the management that got them (us) into this pickle.

But that said, I still think that pushing $2500 tubes of acyclovir, and making sure the insurance company covers it by one of the strategies you refer to (vouchers, samples, copay assistance) etc. is basically fraud. Maybe it is not illegal, and maybe the word fraud has to be used only for illegal schemes (sue me, I'm not a lawyer), but then you need another word. Deceipt? Scam? Artifice? Extortion? Duplicity? OK, now that I'm a shareholder, we'll just call it pushing the limits of the rules, in a situation where the rules are very poorly drawn up and enforced. Somewhere between:

Sequoia: "Sequoia defended Valeant, calling the company “an aggressively-managed business that may push boundaries, but operates within the law."

and

Munger: “It’s just a company that was too aggressive in ignoring moral considerations in the way it did business,” Mr. Munger said in an interview Monday."

Regards, DTB
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Deceipt? Scam? Artifice? Extortion? Duplicity?

I'm shocked that this is happening in the healthcare industry!

https://www.youtube.com/watch?v=SjbPi00k_ME
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But, my #3 rule is don't buy turnarounds until they turn around.


No position.







ps Frankly, I think the bonds are a better bet as of today. It's not like VRX can waste their cash on another acquisition or borrow more, those days are over for a long time.



Bonds hit their high of the year today at 87.875 or 8.1% yield for the benchmark 6 1/8 coupon issue maturing in 2025.
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ps Frankly, I think the bonds are a better bet as of today. It's not like VRX can waste their cash on another acquisition or borrow more, those days are over for a long time.


Author: NajdorfSicilian | Date: 8/22/2016 5:08:28 PM | Number: 26181

Bonds hit their high of the year today at 87.875 or 8.1% yield for the benchmark 6 1/8 coupon issue maturing in 2025.



Fwiw, these bonds are currently priced at ~$94, but no longer active benchmark issue. Looks like ~11.5% annual return past 2 years.

Stock is down 15-20% over that time frame.
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naj,

there are so many intelligent things that come out of your fingers it is hard to keep up....

fanboy
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Buy enough stuff, some of it is bound to suceed!
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BHC trading at 7.8x ebitda estimates, ebitda estimated to trough this year.

BHC likely to show LSD organic growth this year. They paid down $1bn of debt last year but still 6.7x net debt which is still very high but unsecured 2025 debt trading at $88-89. [Intermediate debt would be 4-5x]

They replaced some senior sec debt which unsecured debt.

By 2022 their 'Significant Seven' should grow to anywhere from $800m to $1bn in sales.

There is now a new IR slide deck for their JPM conference participation last week.

JPM has an underweight with target of $21, stock is 22.

Execs put in around $6.7m of stock buys at these levels 4 months ago. Stock sold off with everything else in Dec and has rebounded nicely since then.

Bausch Health CEO on eye-care business

Novartis' spin-off of Alcon may bring fresh competition to the eye-care space, but Bausch Health Companies BHC-CA is still its undisputed leader, CEO Joseph Papa argued in a Monday interview with Cramer.

"We think we have the most integrated eye-care company in the world, even including Alcon, because we have the surgical business, we have the prescription business, we have the over-the-counter consumer business and, clearly, we have the Rx business," Papa said.

The CEO said the Alcon deal could even help the stock of Bausch, which changed its name from Valeant Pharmaceuticals to one closer to its leading franchise, Bausch + Lomb, last May.

The resulting company is "going to probably trade at a very high EBITDA multiple, which I actually think is going to be good for the Bausch stock because people will reevaluate the sum of the parts," Papa said.
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BHC 2023 debt trading above $101, fwiw.

Since the new CEO's arrival the stock is down 40% while debt prices are up 35%. He has stayed true to his promises to pay down debt as fast as he reasonably can, having paid down $8bn.

Stock is probably worth a look here.
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The 2025s are also over $101, stupid no-edit feature.
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BHC trading at 7.8x ebitda estimates, ebitda estimated to trough this year.

BHC likely to show LSD organic growth this year. They paid down $1bn of debt last year but still 6.7x net debt which is still very high but unsecured 2025 debt trading at $88-89. [Intermediate debt would be 4-5x]

They replaced some senior sec debt which unsecured debt.

By 2022 their 'Significant Seven' should grow to anywhere from $800m to $1bn in sales. stock is 22.


Stock up 72% ytd. Should have bot when execs did.
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