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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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