Sunday, October 25, 2015

Valeant and its captive pharmacies: some questions


Some Questions for State Attorneys General and Boards of Pharmacy
  • Is a pharmaceutical manufacturer allowed to own or effectively control a pharmacy in your home state?
  • If a third party obtains effective control over a pharmacy licensed in your state, is a new registration filing required?
  • If a pharmacy owner sells all or a portion of its economic interest in a pharmacy in your state, is it required to update its registration?
  • Is it a violation of state law in your state to fail to disclose the ultimate holder of control and/or economic interest in a pharmacy? That is, if Valeant exercises control or holds an economic interest in Philidor, and Philidor is a regulated owner of a Pharmacy, has Philidor violated your state registration laws by failing to mention the ownership and/or control of Philidor by Valeant?
  • May two pharmacies “share” a National Provider Identifier when dispensing medications in your state, as it has been alleged R&O and Philidor have done?
  • Does the law in your state allow a pharmacy to seek reimbursement for prescriptions filled from government or private payers using an identifier such as an NPI#, NDPCP#, or NABP# not assigned to it? If not, what potential legal consequences and penalties would attach?
  • For the California Attorney General: as Philidor Rx Services LLC is not licensed as a mail-order pharmacy, is it allowed to purchase directly or indirectly, the equity of or an option to purchase the equity of a pharmacy (R&O) that is registered in California?
  • For the California Attorney General: if we interpose another entity into the prior question—Valeant owns and controls part of Philidor that owns and controls part of Isolani that owns and controls part of R&O Pharmacy—has R&O complied with California licensing and disclosure laws, on penalty of perjury?
  • For the Pennsylvania Attorney General: as Isolani LLC is not registered as a foreign corporation in your state but owns an interest in a pharmacy (R&O) that is registered in Pennsylvania, how is it able to operate based in Hatboro, PA?

Some Questions for US Attorneys and Inspectors General of Medicare, HHS, and the VA
  • May two pharmacies “share” a National Provider Identifier when introducing medications into interstate commerce, using the telephone and mail, as Philidor and R&O are alleged to have done?
  • Does federal law allow a pharmacy to seek reimbursement for prescriptions filled from government or private payers using an identifier such as an NPI#, NDPCP#, or NABP# not assigned to it? If not, what potential legal consequences and penalties would attach? 
  • It has been alleged in documents filed with the court in a lawsuit by Isolani against R&O Pharmacy that Philidor encouraged the owner of R&O to falsely certify the results of a prescription audit by one of its payer clients. It has also been alleged that Philidor used identifiers (such as NPI#, NCPDP#, and NABP#) belonging to other pharmacies to send invoices to payers for prescriptions filled.
    • Will you investigate whether the actions of Philidor Rx Services to constitutes “health care fraud” under 18 USC § 1347, which applies to public and private providers of health benefits and does not require actual knowledge or specific intent?
    • Similarly, if proven, will you investigate what is alleged to be a specific intent to deceive payers in this way could potentially constitute mail or wire fraud, as defined in the federal statutes?
  • What steps are pharmaceutical manufacturers and/or their wholly-or-partially owned pharmacies required to take to ensure that persons eligible for government-paid prescriptions are not offered waivers, coupons, or charity assistance, in whole or in part, for prescription co-payments?  Will you investigate whether such steps have been taken by Philidor and its affiliate pharmacies?

A Question for Senator Claire McCaskill
  • Will your staff investigate and will you convene a hearing of the Senate’s Permanent Subcommittee on Investigations to discuss these issues and others related to Valeant's business practices and their compliance with state and federal laws?

Some Questions for Government and Private Payers
  • Have you - as alleged in some internet posts by disgruntled employees - failed to reimburse drugs distributed by Valeant but then been shopped by Valeant to other "seemingly independent" pharmacies. [Philidor it is alleged tried switching distributor codes to fool your controls.]
  • Will you continue to accept claims for payment from Philidor Rx Services LLC, R&O Pharmacy, West Wilshire Pharmacy, Safe Rx Pharmacy, Orbit Pharmacy?
  • Will you undertake an audit (or re-open past audits) of these pharmacies to determine their continued eligibility to seek reimbursement from you for prescriptions dispensed?
  • Will drugs manufactured or marketed by Valeant in the future require more stringent pre-clearances or other restrictions?

Some Questions for Valeant
  • Are there any other entities with whom Valeant has relationships like Philidor Rx Services LLC or its affiliates that haven’t been disclosed yet? 
  • Are there any other entities for which Valeant holds an option to acquire ownership that have not yet been disclosed?
  • You have stated that Philidor administers Valeant’s patient co-pay assistance programs. In the last conference call, Mr. Pearson indicated that spending on these programs has grown at a compounded rate of 128% annually, rising from $53M in 2012 to a projected total of over $1 billion in 2016. (In your letter to Senator McCaskill, Mr. Pearson indicated that spending on such assistance programs totalled $544M in 2014 and an estimated $630M for 2015.)
    • What portion of these annual amounts does Philidor administer?
    • What instructions have you given Philidor in administering these programs?
    • What criteria have you instructed Philidor to use in determining patient eligibility for these programs?
    • How do you monitor Philidor and other entities to ensure that patients meet the criteria you have established?
    • How do you reward (or punish) Philidor and other entities for adhering (or not) to these criteria?
    • What controls do you have in place to ensure that Philidor administers these programs legally? Systematically waiving co-pays for claims that would otherwise be paid by Medicare or other government programs is illegal.
    • Have you ever, prior to the arrival of subpoenas from US Attorneys, disciplined Philidor or withheld or otherwise delayed payment because individual staff of Philidor have broken these laws? If so, what actions were taken? In what amounts, when and why? How have you ensured that any such problem has not recurred and will not do so again in the future?
    • How many Valeant employees, contractors, or agents (whether full or part-time) are responsible, in whole or in part, for monitoring Philidor’s compliance with your guidelines and state and federal law? How often do you and your executive team review Philidor’s adherence to your guidelines and to state and federal law regarding co-pay assistance?
    • How is Philidor compensated for operating this program on your behalf? Is any portion of their compensation based on prescription volume dispensed or revenue generated?
    • In the conference call Mr. Pearson stated that Valeant funds multiple outside foundations that have multiple donors. What are the names and locations of these foundations and what portion of its operating revenue do Valeant donations represent? Who are the five largest donors to each?
    • Presumably these foundations fund copays for medicare and other government sponsored pharmaceutical insurance. Which outside institutions? How much money?
    • How are these donations accounted for in your GAAP accounts? Where do these donations appear in your audited financials reported on form 10-K?  
    • How do you determine the amount of assistance to provide each year? How did you select the $1B projected total for 2016?
    • How do you assess whether you are getting value for money for your charitable deductions?
    • What controls do you maintain to ensure that shareholders receive value for the $1B in contributions? Have your auditors inspected those controls?
    • Who (which individual or group of individuals) determines which patients will receive co-pay assistance, and for which products? Are the individuals making such award determinations employees of Valeant, Philidor, or a third party? (If a third party, who?) How are these individuals compensated?
    • Of the billion dollars of patient assistance expense that you expect in 2016 how much is administered through Philidor and how much is through other parties? Who are the other parties and for what amounts of this expenditure do you expect each will be responsible?
    • Can you provide a detailed breakdown of patient assistance costs by product or business line? How much for instance is neurology, dermatology, ophthalmology, etc.?
    • It is our impression that Philidor is heavily focussed on dermatology. Is that correct?
    • If so, who administers the patient assistance outside dermatology and how do you control them?
    • What proportion of your dermatology products are sold with patient assistance?
    • What proportion of your products (in dermatology or not) are sold to government-insured patients?
    • What proportion of your products (in dermatology or not) are sold to government-insured patients with patient assistance programs?
    • How is it the case that Philidor administers your co-pay assistance programs, yet you indicated that Philidor is responsible for only certain of your products, most of which are dermatological in nature?
    • You indicate that the form of assistance ranges from capped co-pays to subsidized prescriptions to referrals to a foundation (for patients in federal programs) to which you contribute. What was the total amount of assistance awarded for each category?
    • Which foundations received such grants from Valeant, and in what amounts, over the past three years? How much did each of those foundations dispense as part of the assistance programs for drugs produced and or marketed by Valeant? What portion of each charity’s total funding does Valeant represent in each case?
    • What portion of this and prior years’ “patient assistance” programs funding was used to reimburse prescriptions filled by Philidor or other affiliated pharmacies? What portion went to non-Valeant affiliated “specialty pharmacies?” What portion went to non-Valeant affiliated “traditional” pharmacies?
    • For each of the products that you indicate is covered by your patient assistance programs, how much assistance has been provided for each, in what form, and by whom?
    • How do you ensure that patients who receive a reduced co-payment, in whole or in part, do not subsequently submit reimbursement requests to government-paid programs for which they may be eligible?
  • Before you received the subpoenas from two US Attorneys had you been having ongoing dialogue with them or did the subpoenas come entirely by surprise?
    • I know that you are not disclosing the detailed questions in these subpoenas but can you answer one question: in aggregate, how long are these document requests by number of pages? Are they five pages, fifty pages or five hundred pages?
    • Do you know if any of your independent administrators of your patient assistance programs have received subpoenas? Has Philidor (or any of its affiliates) received subpoenas?
  • How is Philidor compensated for the services it provides to you? Is any part of Philidor’s compensation based on the volume of prescriptions filled, revenues or co-pay assistance (of any type) awarded?
  • You have stated that Philidor will dispense a drug in advance of an insurer’s commitment to reimburse you for the cost of that drug, and that Valeant thus bears the risk that the insurer billed by Philidor will not pay.
    • If a co-pay is waived, diminished via a coupon, or paid in whole or in part by a charity, how do you ensure that prescriptions filled by Philidor will ultimately be approved by the insurance company?
    • Are Philidor employees given any sort of incentive to ensure that the prescriptions are indeed reimbursable?
    • What portion of insurance claims submitted by Philidor over the past several quarters were disputed or went unpaid?
    • To your knowledge, has Philidor ever failed an audit by a payer? If so, who, when, and why?
  • How often do senior staff members of Valeant meet with senior staff of Philidor?
  • Will Valeant file copies of its contracts and agreements with Philidor Rx Services LLC, its owners/members, and its affiliates with the Securities and Exchange Commission?
  • It has been reported online by individuals purporting to be former Philidor employees that Valeant had its own employees on-site and that Philidor employees were instructed to deny any link to Valeant. To your knowledge:
    • Do any Valeant employees, contractors or agents presently work full- or part-time in any Philidor office? Have they previously?
    • Has any employee of Philidor been instructed to deny or otherwise obfuscate the relationship between Valeant and Philidor? Has any Valeant employee, contractor, or agent so instructed any employee or member of Philidor?
  • In your relationship with Philidor, past and present, what was and what is the role of Gary Tanner?
  • Why does Gary Tanner, upon belief an employee of Valeant until recently, have an internal email at Philidor in the name of a “Super Hero?” Can you tell us which “Super Hero” Mr. Tanner uses for his “avatar?”
  • Will the Board of Directors capable law firm/forensic accounting firm be hired to independently assess the situation? When?
  • When were members of the Board of Directors first informed of your commercial, operational, and/or financial relationship with Philidor, its owners, or its employees? What were they told? What such information have they been provided since?
  • When were your auditors, PriceWaterhouseCoopers LLP, first informed of your commercial, operational, and/or financial relationship with Philidor, its owners, or its employees? What were they told? What such information have they been provided since?
  • Had it not been for press reports regarding the relationship with Philidor, the lawsuits between you and R&O, and the lawsuit between Isolani LLC and Russell Reitz, what plans did you have to disclose your relationship with Philidor and R&O? If you had no plans, why not?
  • There are reports online of doctors suggesting that their patients fill prescriptions at Philidor to save money on co-payments.
    • How do doctors know about Philidor? Do you or your salespeople inform them? If not, how are the doctors finding out about Philidor?
    • Are your sales representatives aware of your relationship with Philidor? When were they so informed? Was Philidor or its affiliates mentioned as part of your representative training?
    • Are your sales representatives instructed to or in any way compensated for informing the prescribers they visit of Philidor’s existence or its ability to waive or diminish, in whole or in part, co-payments for products produced or marketed by Valeant?
    • Do your sales reps carry literature of any kind that mentions Philidor?
    • How does Philidor compensate Valeant for such referrals, if any?
  • Alternatively, how are patients made aware of Philidor’s existence? If it is by prescribers, why? Are any incentives or materials provided by Valeant or Philidor or its employees or contractors to make patients aware of such pharmacies’ existence?
  • You have stated that Valeant takes reimbursement risk on prescriptions filled through Philidor, which is patient-dependent. To your knowledge, have patients filled prescriptions for drugs other than those sold by Valeant at Philidor pharmacies? [On belief this may happen if a Valeant prescription is written along with a prescription for a non-Valeant product. Does it happen when there is no Valeant product on the script?]
  • What is the total amount of revenue from Philidor that is consolidated on your financial statements that is derived from cash co-payments Philidor received for prescriptions it filled?
  • You stated on your 3Q2015 conference call that “[Philidor] does not restrict prescriptions it fills to any particular manufacturer.” What portion of Philidor’s revenue that is consolidated on your financial statements is from sales of non-Valeant products?
  • You also stated that “[Philidor] dispenses generic products as specified in the patient's prescription or as requested by the patient.”
    • What portion of prescriptions filled by Philidor are for non-branded generics? What portion of total prescriptions filled with non-branded generics were written on the prescription and what portion were requested by the patient?
    • If a patient does not request a generic but a non-branded generic is available, will the Philidor pharmacist suggest such a generic?
    • To your knowledge has Philidor or Philidor staff ever written a dispense as written code on the script without being specifically directed to by the doctor or the patient?
  • To your knowledge, are pharmacists at Philidor pharmacies allowed to suggest generic alternatives when available?
    • If not, why not? Who gave the pharmacists you employ such direction? And if not, what gives you legal comfort that the states in which Philidor is licensed allow a non-pharmacist to give such instruction to a pharmacist?
    • Have Valeant officers or employees, whether full or part-time and present or former, given any direction to pharmacists employed, whether current or former, full or part-time, as to whether to suggest substitution of generic drugs? To your knowledge, have officers or senior staff at Philidor or its affiliates so instructed the licensed pharmacists they employ?
  • What portion of the revenue from Philidor that you consolidate on your financial statements is derived from products not produced or marketed by Valeant? What portion of such revenue is for generic substitutes for prescriptions written for brand-name products, and for which products?
  • In its rejected filing in California, Philidor indicated that its upstream wholesale supplier was Kinray, a division of Cardinal Health.
    • To your knowledge, is that correct? To your knowledge, has Philidor purchased your products from any other wholesalers? If so, whom? Do you now, or have you previously, shipped products produced or marketed by Valeant directly to Philidor?
    • Do you include inventory held at Kinray or any other wholesaler used by Philidor or its affiliates as part of the consolidated inventory of Philidor held on your balance sheet?
  • Were you aware that Philidor’s application for licensure as a mail-order pharmacy had been rejected by the state of California? How were you so informed and when? What actions did you take or communications did you have with your employees, the management, or the owners of Philidor, if any, upon learning that information?
  • To your knowledge, did Philidor ship any prescriptions to consumers in California or other states in which it was not licensed?
    • If so, when were you so informed? What corrective action did you suggest if any?
    • If not, what impact did Philidor’s inability to legally fill prescriptions in California have on its relationship with you and/or the entries consolidated on your financial statements?
  • What steps did you take, if any, to ensure that Philidor was licensed in each of the states to which it shipped prescriptions for your products?
  • Before you acquired an option to purchase Philidor, did your employees or agents perform any sort of audit or inspection of Philidor’s state licensing status? Did they inquire as to whether Philidor had ever had a license denied or revoked, or if Philidor had improperly shipped product to states in which it was not licensed?
  • Were any Valeant officers, employees, agents, or contractors aware, as Philidor CEO Andy Davenport indicated in an email to Russell Reitz and filed in a court proceeding, that Philidor had a practice of using an identifier (such as an NPI, NCPDP, or NABP number) belonging to another entity to bill payers for prescriptions it filled? Did you inquire about this in your diligence process as part of the option to acquire equity in Philidor? If not, why not?
  • Was any officer, employee, agent or contractor of Valeant involved in the acquisition of R&O Pharmacy from Russell Reitz by Isolani LLC?
  • To your knowledge, as you consolidate its results, when was the last inventory audit at Philidor or its affiliate pharmacies?
  • To your knowledge, as you consolidate its results, has a payer ever ceased accepting prescriptions from Philidor or so threatened? If so, who and when?
  • Did you investigate Norma Provencio’s co-investment in Recom/Signalife alongside Mitchell J. Stein before renewing her position on the Audit Committee? If not, why not?
  • According to online sources, several employees at Philidor Rx Services formerly worked at Unitek, a Blue Bell, PA, company that was alleged to have experienced a fraud. Before they were hired, did you determine that these employees were not in any way involved in the alleged fraud? Are these employees involved in any accounting function at Philidor? 
  • You failed to inform shareholders of the nature or purpose of KGA Fulfillment Services Inc., the entity that holds secured interests over the owners of Philidor. There are a few other such entities about which you have mentioned little. For instance, you registered many Delaware entities, some on roughly the same day in 2012, by the names of Audrey Enterprise LLC, Emma Z LP, Erin S LP, Katie Z LP, Kika LP, Stephanie LP, and Tori LP.
    • For what purpose were these entities established?
    • What is the nature of these partnerships and what assets do they hold?
    • Who besides Valeant has or may potentially receive an economic benefit from these entities? Is Valeant the sole member or limited partner?
  • Prior to the lawsuit in California Central District Court, had you or your employees had any direct communication with officers or employees of R&O Pharmacy?
  • Why did Robert Chai-Onn identify $69 million at R&O as owed to Valeant? Is any money owed to Valeant by R&O additional to monies owed to Philidor - or is Philidor just an arm of Valeant. 
  • Have you or any of your employees had direct communication with officers or employees of Brighton Way Pharmacy (d/b/a West Wilshire Pharmacy), Safe Rx Pharmacy, or RAAS Pharmacy (d/b/a Orbit Pharmacy)? If so, when and on what topic?
  • Are the payers Philidor invoices for prescriptions filled aware that Valeant has the option to acquire an equity stake in Philidor? Are they aware that, as you stated, you bear the reimbursement risk on prescriptions filled by Philidor and presumably by these related pharmacies. 
  • Several of your competitors have indicated that they have arms-length relationships with their specialty pharmacy channel, and that they do not own any equity or equity-like stake in such pharmacies. Yet you own an option to acquire Philidor, and when I called them, a Philidor representative said they deal almost entirely in Valeant products. Why do you believe your competitors not chosen to replicate your arrangements with Philidor (and its affiliates) with their own semi-captive specialty pharmacies?
  • Philidor was incorporated in early 2013. When did your relationship (of any type) with Philidor begin? What was the first quarter in which Philidor was consolidated into your financial statements? Since that time:
    • Has your accounting treatment of Philidor on your own financial statements changed? If so, how and when? If not, do you believe the acquisition of an option to acquire the equity of Philidor require a restatement of any prior year’s filing before the Securities and Exchange Commission? Why or why not?
    • By quarter, what was the total amount of your revenue (gross and net) for products that have been dispensed by Philidor?
    • By quarter, how much inventory have you had on your balance sheet on consignment with or related to Philidor? Is that inventory held at Valeant or at a distributor?
    • By quarter, what was the total amount of receivables from payers generated from prescriptions filled by Philidor (and its affiliates)?
    • By quarter, what was the total amount of your provision for potentially uncollectible receivables from payers generated from prescriptions filled by Philidor (and its affiliates)?
  • How did your relationship with Philidor develop? Who brought them to your attention?
  • Were any Valeant or Medicis employees or agents, current or former, whether full or part-time, involved in launching Philidor?
  • How many days worth of R&O's revenue does the $69M you sought to recover represent? How many square feet is R&O pharmacy? How does a small pharmacy generate that substantial an amount of business?
  • If Philidor holds an option to acquire R&O or other pharmacies, are those pharmacies' results consolidated on your financial statements as well?
  • Are Philidor owners, executives, or employees eligible to receive any form of monetary incentive from Valeant?  Have any such incentives been delivered? If so, in what amounts? What are the criteria for receiving such compensation? Have such amounts been disclosed to the Board?
  • Mr. Pearson, have you ever met with or communicated with Philidor executives or employees? If so, how often? For what purpose?
  • In addition to Robert Chai-Onn, which other members of your executive team were aware of the Valeant's relationship with Philidor, R&O, and its other possibly-affiliated pharmacies, such as West Wilshire, Safe Rx, and Orbit Pharmacy?
  • Which executive at Valeant has responsibility for the relationship with Philidor? Which executive has oversight and profit-and-loss responsibility for Philidor's operations?
  • What direction have you given your employees, contractors or agents with regard to discussions of the existence of Philidor and its relationship with Valeant, if any?
  • Why did you decide to purchase an option to acquire Philidor? What did you pay for that option? When did you purchase it, and when does the option expire?
  • Before the most recent disclosures, was the Board of Directors aware of your commercial and financial relationship with Philidor, its owners, and its affiliate pharmacies? Were these relationships discussed by and/or approved by the Board of Directors, the Audit Committee, and your external auditors?
  • Did the Board of Directors approve the acquisition of an option to acquire Philidor?  If so, when?  What due diligence did you perform on Philidor, and what was the investment case presented to the Board?
  • Are the insurance companies whom you/Philidor invoice, and from whom you bear reimbursement risk, aware that patients have been offered co-pay coupons, waivers, and/or charity assistance for the co-pay portion of the claims submitted?
  • Regarding your auditor, PriceWaterhouseCoopers LLP:
    • Are they aware of your relationship with Philidor? What information did you provide to them about this relationship? When?
    • To your knowledge, have they audited Philidor, its operations, or its financial controls?
    • To your knowledge, did they inspect Philidor to determine whether it maintains effective internal controls?
    • Were there any disagreements with PWC over how your relationship with Philidor should be disclosed in your filings before the Securities and Exchange Commission?
    • What portion of the operations of Philidor and its affiliates were included in the audit scope on which you and PWC agreed for your 2014 Annual Report?
    • What evidence did you provide to your auditors to convince them that Philidor Rx Services constitutes a variable interest entity that meets the tests for consolidation on your financial statements?
    • Did you have any discussions with your auditor regarding the need, if any, to disclose your relationship with Philidor and its affiliates?
  • Which products were fulfilled through Philidor (and its possible affiliates), and what has been the rate of growth in prescription volume and revenue for those products?
  • You have stated that Valeant takes reimbursement risk for products fulfilled by Philidor. Does this extend to Philidor's affiliates as well? So if an insurance company in California declines to cover a prescription shipped by R&O or West Wilshire, who is out the money for that prescription?
  • Have you established a reserve for prescriptions dispensed by Philidor for which the payer refuses to pay? If so, what is the present level of that reserve and how has it changed over time?
  • Is the inventory held at R&O and West Wilshire (and other Philidor affiliates) consolidated on your balance sheet?
  • Why did you purchase an "option to acquire" Philidor rather than the equity itself? At any point in your internal discussions of such a transaction did anyone, whether an employee or agent of Valeant or Philidor, indicate that pursuing a transaction in this form would perhaps avoid the need to file updated pharmacy registration forms in any state in which Philidor or its affiliates operate?
  • How many of your former employees, contractors or agents work at Philidor? What are their names and titles and what is the nature of their responsibilities?
  • What was Valeant's role in establishing Philidor or its affiliates, if any?
  • As suggested online by Probes Reporter:
    • What communications, if any, has Valeant had with the SEC’s Division of Enforcement, the US Attorney/DOJ, or Canadian regulators, regarding any matter, in the past 30 days?
    • If such communications exist, what was the purpose and date of those communications?
    • Last week the company said it received a subpoena from the U.S. Attorney's Office for the District of Massachusetts and a subpoena from the U.S. Attorney's Office for the Southern District of New York. Who they were sent to?
  • Have you received any as-yet undisclosed subpoenas, requests for documents, or notices of the commencement of investigations by any other government entity since your prior disclosure?

Some Questions for Philidor Rx Services LLC
  • Who owns and has owned Philidor?
  • Do you fill prescriptions for patients living in California? When we phoned, your representative indicated that you ship to "all 50 states." How are you legally able to ship products to states such as California, where you are not licensed?
  • What advice did you obtain, and from whom, that you could legally fill prescriptions and mail them to customers in California, a state in which you are not licensed?
  • Why did you, as the California Pharmacy Board found, omit required information from your filing to become licensed in California?
  • For what products (and from what manufacturers) do you fill prescriptions? What is your annual prescription volume and revenue from each product?
  • Has Philidor Rx Services ever submitted a claim for reimbursement to a payer, whether government or private, using an identifier (such as NPI, NCPDP, or NABP) assigned to R&O Pharmacy, West Wilshire Pharmacy, or any another entity?
    • Your CEO said in an email to Russell Reitz, filed in a court proceeding, that you no longer do so. For how long did you do so? From when to when?
    • How many prescriptions were filled using another entity’s identifier? What was the total amount of revenue from these prescriptions, at wholesale cost and net to you?
    • What advice did you obtain, when, and from whom, that made you comfortable, as your CEO Andy Davenport indicated, that such practices were legal and did not constitute insurance fraud or “health care benefits fraud” as defined in 18 USC § 1347? 
    • Did you switch as was alleged for the purposes of reducing the scrutiny of insurance companies on your claims?
  • What portion of your prescription volume and revenue is for products sold by Valeant and its subsidiaries?
  • When did you first form a business relationship with Valeant?  What has been the nature of your relationships (financial, legal, commercial) with Valeant over time? What is the nature of that relationship today?
  • Does Valeant provide your owners, officers, or employees with any incentive derived in whole or in part on the volume, type, or price of prescriptions filled?
  • What are your responsibilities for administering Valeant’s prescription access programs? How are you compensated?
  • What happens if an insurance claim for a prescription is denied? Does Valeant compensate you for the wholesale cost of the medication you dispensed?
  • From which wholesalers do you purchase products? Are these products physically located in and dispensed from premises owned by or leased by Philidor?
  • What procedures do you have in place to ensure that patients receiving co-pay waivers do not subsequently submit claims for reimbursement to government-funded programs such as Medicare, Medicaid, TriCare, and the VA?  What portion of your customers (and what portion of your revenue) is from customers eligible for such government-funded programs?
  • How much investment capital, working capital, or other funding has Philidor Rx Services LLC received since inception? Who provided that funding?
  • Did Valeant or any of its subsidiaries, current or former, provide any equity, debt or other form of financing to Philidor, now or in the future?
  • It has been reported by several sources that patients have received calls from Philidor to refill prescriptions, whether they requested such a refill or not. Do your employees or automated systems place outbound phone calls to patients for the purpose of or with the effect of generating refill requests? Have your employees offered to waive co-pays on prescription refills generated through outbound phone calls? Were any of these calls made by automated means, commonly known as “robocalls?” If so, did you secure your customers’ prior permission to place such automated calls, as required by the Telephone Consumer Protection Act?
  • If such reminder calls are indeed placed, who is placing them? Are these persons licensed pharmacists, pharmacy technicians, or pharmacy interns?
  • Do any of your employees have quotas or other volume-based incentives, monetary or otherwise, for generating prescription refills from prior patients?
  • Do any of your customers have their prescriptions refilled automatically, whether requested or not?
  • If a prescription that you mail is returned as undeliverable, is the claim cancelled and the payment refunded to the insurance company?
  • Who are the largest customers for your services and how much revenue do you generate from each?
  • How are your employees compensated? Are any employees required to meet quotas in terms of numbers of prescriptions filled (or refilled), claims filed, or reimbursements obtained over a specified period? Are any employees rewarded through incentive compensation for exceeding such targets?
  • What is the nature of your relationship with BQ6 Media and its employees, who are members of Philidor Rx Services?
  • Are any executives, employees, contractors, or agents, whether full or part-time, of Valeant or its subsidiaries, current or former, assigned to, resident in, or commonly present in your offices in Pennsylvania or Arizona? Who? How much time did they spend in your office? What was the nature of their responsibility?
  • How many of your employees, current or former, are or have been employees of Valeant Pharmaceuticals and its subsidiaries, current or former?
  • How many employees do you have? How many hold state licenses as pharmacists, pharmacy technicians, or pharmacy interns?
  • Are any of your employees subject to quotas or other incentives (positive or negative) for number of phone calls or prescriptions filled over any period? If so, what are the terms of the quotas and/or incentives and to whom do they apply?
  • How many prescriptions do you dispense per day? What has that total been, per quarter, for the past three years?
  • Have any payers ceased to cover prescriptions filled by Philidor Rx Services or its affiliates? If so, who, when, and why? 
  • Did you solve this by changing the pharmacist identification number to as small pharmacist that you had purchased for the person of diversifying the distributing pharmacy.
  • Have you at any time failed an audit by a payer? If so, who, when, and why?
  • Has any payer ceased to do business with Philidor, including withholding payment for prescriptions filled? Has any payer so threatened? Who, when and why?
  • What portion of your revenues from drugs sold by or produced by Valeant Pharmaceuticals and its subsidiaries?
  • What was the total amount of co-payments collected, by quarter, for the past three years? What was the median, average, and total co-payment amount collected, by drug?
  • Are the operations of any other entity consolidated on the financial statements of Philidor Rx Services LLC?
  • At any point was the work or performance of any current or former employee, whether full- or part-time, or member of Philidor Rx Services subject to direction or review by any other person or entity currently or formerly employed or retained by Valeant Pharmaceuticals and its subsidiaries, current or former?
  • Has Philidor Rx Services LLC or any entity other entity in which it owns an economic interest or exercises operational control received an audit from a PCAOB-registered accounting firm? If so, whom?
  • How often did you meet with executives, employees, or agents of Valeant Pharmaceuticals or its subsidiaries, current or former?
  • Did Valeant’s auditors, PriceWaterhouseCoopers LLP, conduct an audit of your operations and financial results before your operations were consolidated into Valeant’s financial statements? If not, why not?
  • When did Valeant purchase an option to acquire an equity interest from the members of Philidor Rx Services LLC? What did they pay for that option? What were the terms of the agreement? Why did you choose to sell an option rather than your membership interests directly?
  • When your members sold an option to Valeant to acquire your interests, did you update your registration with any state or federal authorities, such as Boards of Pharmacy, the DEA, VA, DOD/TriCare, HHS, or CMS? If not, why not?
  • You stated in your press release that “Philidor does not currently have a direct equity ownership in R&O Pharmacy or the affiliated pharmacies, but does have a contractual right to acquire the pharmacies now or in the future subject to regulatory approval.” As court documents filed by Isolani LLC indicate that it is Isolani LLC that would own 90% of R&O upon consummation of the transaction with Mr. Reitz, how is it that you came to own an option to acquire R&O?
  • Do you believe that an entity that has been denied a license to operate a mail-order pharmacy in California can purchase—either directly or through an option to acquire—a licensed pharmacy in California?
  • What is the nature of your relationship (commercial, legal, financial, operating) with R&O Pharmacy now and over the past three years?
    • What is your role in R&O’s pharmacy operations?
    • Why did you send invoices, as filed with the court, from Philidor to purchase products from Valeant Pharmaceuticals, to the attention of the R&O Pharmacy finance department?
    • Why did your employee send emails suggesting to Russell Reitz
    • Why did you use and then discontinue the use of, as the email from your CEO Andrew Davenport filed with the LA County court by R&O Pharmacy indicates, the various identifiers (NPI, NCPDP, NABP) assigned to R&O Pharmacy?
    • As you are licensed in many states, why did you desire to use such identifiers assigned to R&O Pharmacy?
    • As the acquisition agreement filed with the LA County Court indicates that such identifiers were to be assigned to Isolani LLC as part of the purchase of R&O, how did Philidor Rx Services obtain the right to use such identifiers itself?
    • To your knowledge, have any of your employees—including licensed pharmacists or pharmacy technicians—resigned due to reservations about the conduct they observed and/or in which they were asked to participate? What did you do, if anything, to learn of those concerns and/or ameliorate those of which you were informed?
    • What information did Russell Reitz provide you that made you agree to stop using identifiers such as NPI#, NCPDP# or NABP# belonging to R&O Pharmacy?
  • Are you aware that this document - that you filed in State Court in California contains a putative list of products distributed by R&O but in fact fulfilled by you. Moreover are you aware that the identification numbers in that document correspond to UPS tracking numbers and hence you have provided evidence that product was shipped to areas where you or R&O were not licensed?
  • Are you aware that changing the pharmacist identification number for the purpose of deceiving the payer is wire fraud against a financial institution? Are you aware that the fine is $1 million per instance and the instances are cumulative?
  • What is the nature of your relationship (commercial, legal, financial, operating) with Isolani LLC? What services does Philidor provide, if any, to Isolani LLC?
  • Is Eric Rice an employee or has Eric Rice ever been an employee, contractor or agent of Philidor or its affiliates? If so, what are/were his responsibilities? What are/were his dates of employment, title, and assigned office location?
  • What is the nature of your relationship (commercial, legal, financial, operating) with Lucena Holdings LLC? Are its operations reported on Philidor’s financial statements? How?
  • What is the nature of your relationship (commercial, legal, financial, operating) with Brighton Way Pharmacy (d/b/a West Wilshire Pharmacy) now and over the past three years? Why was such a relationship formed? What was the genesis of such a relationship and what benefits did it provide to you? Are Bright Way Pharmacy’s operations reported on Philidor’s financial statements? How?
  • What is the breakdown of prescriptions filled by Philidor (and its affiliates) by dispensing code? Where no DAW code has been supplied, do pharmacists in your employ (whether full or part-time) offer a generic alternative to the patient when available?
  • Does Philidor report data on the prescriptions it fills to IMS Health or other third-party supply chain reporting services?
  • What reports does Philidor provide to Valeant management and on what schedule?
  • Why are all the entities related to Philidor (BQ6, Isolini, Lucena, Philidor itself, KGA) named for chess moves?
  • What other pharmacy relationships does Philidor have that have not yet been disclosed? What is the nature of those relationships?
  • Why did a member of Philidor, Fabien Forrester-Charles, register a second domain name for R&O Pharmacy? Similarly, why were domain names created for West Wilshire Pharmacy, Orbit Pharmacy, Safe Rx Pharmacy, and dandapharmacy.com?
  • What exactly is your relationship with West Wilshire Pharmacy today and over time?
  • Why is Sherri Leon, a pharmacist you employ, listed as the Registered Agent in CA state filings for Brighton Way Pharmacy, the legal name of West Wilshire Pharmacy?

Some Questions for Eric Rice, Sole Member of Isolani LLC
  • Is Philidor Rx Services LLC your full-time employer, as indicated on your LinkedIn profile? If not, who is?
  • Did you form Isolani LLC of your own volition, or were you directed to do so by another party? If so, whom? If not, why did you personally decide to acquire a pharmacy in California?
  • By name and amount, who has ownership of, or the right to acquire ownership of, an economic interest in Isolani LLC?
  • How many employees does Isolani LLC have and what are their names, titles, and dates of employment? Are any of them now, or have any of them been, employees of Philidor Rx Services LLC or Valeant Pharmaceuticals (and its subsidiaries, current or former)?
  • Were you the sole provider of initial start-up capital for Isolani LLC? If not, what other person or entity provided capital? Were Philidor, Valeant, or their subsidiaries (current or former), or employees (current or former) among those who provided capital?
  • Did you personally provide the $350,000 to purchase R&O Pharmacy from Russell Reitz, as outlined in the purchase agreement you filed with the court in your lawsuit against R&O? If not, who did? Did Philidor, Valeant, their subsidiaries, or their employees provide any capital to you personally or to Isolani LLC to facilitate this purchase?
  • As Isolani LLC is entitled to all of the profits and losses of the operations of R&O Pharmacy according to the purchase agreement you filed with the Court, do you personally receive such profits and bear such losses?  If not, who does? Are any of the persons who are entitled to receive such profits or bear such losses current or former employees or entities currently or formerly associated with Philidor Rx Services LLC or Valeant Pharmaceuticals in any respect?
  • Have you signed any agreement governing the operations of Isolani LLC or the assignment of its profits and losses to any other entity, including Philidor Rx Services LLC, Valeant Pharmaceuticals, their subsidiaries (current or former), or their employees (current or former)?
  • Who is providing the funds to pay attorneys and other expenses in your lawsuit against R&O Pharmacy in California? Are any of these funds provided by Philidor Rx Services LLC, Valeant Pharmaceuticals, their subsidiaries, or their employees?
  • Why was Isolani LLC formed to purchase a 90% stake in R&O Pharmacy rather than having Philidor Rx Services LLC or Valeant (or its subsidiaries) purchase it directly?
  • Why did you request, as part of the purchase agreement you filed with the LA County Court in your lawsuit against R&O Pharmacy, that Russell Reitz transfer, at your request, his NABP/NCPDP and NPI numbers into Isolani LLC’s name? In using such identifiers, do you believe that Isolani LLC, itself not a registered pharmacy in any state or with the federal government, be in compliance with pharmacy registration requirements?
  • Are you based in Pennsylvania, from whence you direct the operations of Isolani LLC? If so, why are you not registered as a foreign corporation in Pennsylvania?
  • Why, according to emails filed with the court, did a controller for Philidor Rx Services LLC undertake to assist R&O Pharmacy with its compliance audits by a payer customer, when the 90% owner of R&O is Isolani LLC?
  • Philidor Rx Services indicated in a press release that they own an option to acquire R&O Pharmacy, of which Isolani LLC owns 90%. What are the terms of this option? When did Philidor acquire this option and for what compensation? Did you receive any proceeds from this sale personally? If not, as you were the sole member of Isolani LLC, why not?

Some Questions for Brighton Way Pharmacy, Inc., d/b/a West Wilshire Pharmacy?
  • Have you mailed any prescriptions to patients outside of California, the only state where you are licensed?
  • What is the nature of your relationship (commercial, legal, financial, operational) with Philidor Rx Services at present and historically?
  • To your knowledge, has anyone not a direct employee of Brighton Way Pharmacy caused any identifier assigned to Brighton Way Pharmacy (such as an NPI, NCPDP, or NABP number) to invoice a payer for a prescription or other services?
  • What is the nature of your relationship with Lucena Holdings, a Delaware LLC?
  • Have any employees, contractors or agents of Valeant or its subsidiaries, current or former, been physically present on your premises in Los Angeles? For what purpose?
  • Have any employees, contractors or agents of Philidor Rx Services or its subsidiaries, current or former, been physically present on your premises in Los Angeles? For what purpose?
  • How many persons do you employ? How many are licensed pharmacists, pharmacy technicians, or pharmacy interns?
  • How long has Aisan Zagarian been licensed as a pharmacist in California? Is West Wilshire Pharmacy her first employer as a registered pharmacist? How many prescriptions has she filled in the time she's been employed at West Wilshire?
  • For what products do you fulfill prescriptions? Do you fill prescriptions for any products not manufactured or marketed by Valeant Pharmaceuticals or its subsidiaries, current or former?

A Question for Fabien Forrester-Charles

  • You know it's always the guy named “Fab” who gets blamed for the whole mess, right?

51 comments:

Anonymous said...

This is smart, well done. By presenting an exhaustive list of great questions, Valeant's inevitably shallow comments tomorrow will look even more evasive and should cast even more doubt on the company's future. I have little doubt that Pearson will focus on nothing more than straw man arguments and further reiterations of what the company has already said twice now, both during the third quarter call and separate press release a few days later. Considering Valeant's ham-handed responses to date, I think there's a good possibility that tomorrow's call ends up being memorably disastrous. Merely having the call at all I think will prove to be a huge tactical error (much to my delight as someone who is short) since it opens the door to these questions. Very generous of Valeant to provide shorts with catalysts!

Quarrel said...

Epic.

(Mostly just want to subscribe to the follow up comments - was pretty entertaining on the last post :)

Quarrel said...

239 questions, not counting sub-components on my quick count. :)

393 question marks though, so - yeah, a bit to answer.


--Q

Anonymous said...

You are at your most interesting when you smell blood in the water. :)

Fantastic post. People are going to complain about the length, but there are a lot of great questions here.

Anonymous said...

Hi John, This is the most comprehensive, most exhaustive list of questions to be aired at Valeant. I would be very surprised if VRX / Pearson attempts to answer most of this. The BOD, Pearson and team have had 4 days to be fully trained. Some key questions for me is related to the charities:

1) To which charities does VRX contribute towards'patient assistance programs?
2) Can Mr.Pearson/ Audit Committee/CFO confirm that VRX is NOT the sole contributory to any of these charities?
3) How does this contribution gets accounted in Cash EPS? (I know it may be shown as SG&A in GAAP books. However, the investors rely on Cash EPS more than GAAP EPS and hence my question is whether this is part of Cash EPS
4) Can we assume that the Charities only support Patient Assistance programs with the contributions provided? Do they contribute to industry associations, etc and is that also 'counted' as Patient Assistance program?

Anonymous said...

Hi John, This is the most comprehensive, most exhaustive list of questions to be aired at Valeant. I would be very surprised if VRX / Pearson attempts to answer most of this. The BOD, Pearson and team have had 4 days to be fully trained. Some key questions for me is related to the charities:

1) To which charities does VRX contribute towards'patient assistance programs?
2) Can Mr.Pearson/ Audit Committee/CFO confirm that VRX is NOT the sole contributory to any of these charities?
3) How does this contribution gets accounted in Cash EPS? (I know it may be shown as SG&A in GAAP books. However, the investors rely on Cash EPS more than GAAP EPS and hence my question is whether this is part of Cash EPS
4) Can we assume that the Charities only support Patient Assistance programs with the contributions provided? Do they contribute to industry associations, etc and is that also 'counted' as Patient Assistance program?

Anonymous said...

Audrey Enterprises owns the two Gulfstream jets. No clue on the other female subsidiaries.

Anonymous said...

Is Valeant a client of BQ6 as claimed on their website? What level management of Valeant management maintained the relationship

At any point in that relationship did Valeant suggest creating a specialty pharmacy?

Why did the principals of BQ6 create a specialty pharmacy to solely or almost entirely serve Valeant if they were not relatively assured of Valeants business?

If as seems likely Valeant encouraged the formation of Philidor, or at the least was informed of its creation, why did it not ask about licensing?

If Valeant was aware of and perhaps instrumental in the formation of Philidor why did it elect to buy an option late last year?

Was Valeant aware of the extent of the deception Philidor and related entities used to hide corporate ownership? What was the point do the subterfuge, particularly since it was actually all quite sloppy?

Matthew Davenport has a long history in health care, why is Andy Davenport CEO of Philidor given his lack of experience?

Why did Matthew Davenport lie about who was the owner of Philidor on the CA application?

Was Valeant unaware of Philidor's relationship with R&O? When Valeant purchased the option in Philidor did they do any diligence about its licensing status.

How can the auditors attest to financial controls at Valeant when it is billing a material amount to an entity under the control of an entity it consolidates?

Anonymous said...

Question for Bronte Capital: How much faith do you really want to put in the allegations of Russell Reitz, a guy who appears to be trying to abscond with tens of millions of dollars that are pretty clearly not his?

This was a nice short from $145-150 and higher levels. Given VRX's gigantic free cash flow and ownership of businesses like Bausch & Lomb that have little relation to the speciality pharmacy channel and price increase issues, shorting $115 seems like an invitation to get your head ripped off on a snapback rally.

longVRX said...

A couple of questions for John Hempton:

(i) If Mike Pearson comes out tomorrow and says the speciality pharmacies adventure has become a big mess and they have decided to close the whole thing down and go back to selling only through regular pharmacies, what is the likely impact on Valeant's total earnings for the next 12 months? By what percentage (roughly) would the forward earnings be reduced?

(ii) With the reduced forward earnings you get in (i), and the current share price, what is the discount of VRX's forward P/E relative to the forward P/E's of its peer group? If 'peer group' is too vague then just take AGN. Discount of more than 50%?

P.S. I enjoyed and appreciate your insightful analysis of the VRX saga...but the full picture consists of a lot more than just those issues...

Anonymous said...

Great work. Would you consider to number each question for easy reference? Thank you.

Anonymous said...

Excellent work.

Could I add:

The merger agreement between Isolani and R&O had NO termination date.

The contemporaneous management services agreement (MSA) allowing Isolani to operate R&O would have terminated Dec 1, 2015.

R&O attempted to enter binding arbitration re: the MSA in July. Isolani then asked Reitz to resign from R&O as a pre-condition.

R&O then unilaterally terminated the DMA and asserted fraud, with only 90 days to run on the management agreement.

What seems to have set Reitz (owner of R&O) off was an "IHS audit" and questions from auditor regarding prescriptions shipped to PA. Identity of acronym not identified. Maybe Indian Health Services (IHS.gov)? Dunno.

Absent a strong belief in ongoing fraud or personal liability regarding the audit, he took a very non-economic path (vs. sit tight for 3 months).

I think you're right in focusing on the interstate shipments and licensing.



Anonymous said...

You would have to write to the attorney generals, they wouldn't know about your blog.

Anonymous said...

Throw a thousand darts and see if one sticks?

Every big pharma and corporation has legal issues - thats the nature of business. Even if your dart was to land on something that might result in some consequence for Valeant it would be minor. Definitely not as big and scary as it is made out.

Thanks to all shorts for the buying opportunity and soon to come short squeeze

Anonymous said...

This was just posted on Yahoo Message boards for VRX
My Health Insurance Is Going Up 22% January 1st
I'm mad.

here is why I think VRX is in serious trouble:

John, I enjoy your blog very much. I happened to see your cryptic message and I think I know what it is.

I'm no expert on Valeant, but I just so happened to have been prescribed one of their pharmaceuticals about 6 months ago. It was a foot cream to treat athletes foot called Luzu. What was strange was that the podiatrist suggested that the prescription be set up with a "by mail" pharmacy, telling me that they would cover the co-pay for the first prescription.

I went ahead and had the podiatrist sign me up with Philidor and the prescription was delivered. A few weeks later, I got a call from Philidor. They offered to cover the co-pay for all of the remaining refills, which was maybe 3 more refills. What is important is that this really isn't the type of prescription that would normally require constant refilling. I probably wouldn't have never ordered these refills if someone else hadn't offered to cover my cash costs.

I found this to be a pretty aggressive marketing tactic, which certainly could be used to attempt to stuff sales and bilk insurance companies. I do understand that Philidor was either created by or strongly associated with Valeant. Less

Anonymous said...

Hi John,

5:39 am anonymous back.

I've thought about it some more.

If Reitz wanted to renegotiate the DMA in his favor, he had all the cards in his favor for the renewal of Management Services agreement, which had to be re-negotiated by 12/1/15.

He would have continued to deposit the checks and done nothing unusual for 90 days.

Had he just wanted a better deal, he could have asked for any terms he wanted, with the credible threat of kicking Isolani out as manager.

In just 90 days.

Instead, he unilaterally terminated the DMA and MSA and stopped depositing checks.

I think he saw illegality. Nothing else is consistent with his course of action.

CK_LSEA said...

Great list! Must have taken you the entire weekend to put it together.

I'd add a specific section "Questions to the auditor".
I cannot really believe that (1) they knew and (2) agreed to all of this.

Then I 'd seperate between "questions to VRX management " and the board

The use of these copay charities seems to be especially nefarious. Somehow this reminds me of the downpayment assistance programs. Just as much as DAP drove up housing prices (in the process not helping, but reducing affordability) and in the end bilked the government (Fannie and Freddie) etc out of billions, these "charities" lead to the spike in drug cost.

Anonymous said...

longVRX,
the shorts are not interested in valuation analisys of a diversified business mix. they are all about yelling fire over and over again in the hopes of covering lower. This is like the JPM london whale thing, a one time hit to a company that has no relevance for the long-term. All the idiots who sold JPM during the london whale made a huge mistake. same thing here, they will pay whatever fine and move on. stock will recover, but of course, the shorts won't lose because they all covered in the panic that they created themselves

longVRX said...

Anon,
That might be true in general but our host John H professes a great interest in valuations, it's one of the main topics in his blogging. But apparently not in this instance...

Good luck to the shorts today. I hope they can succeed to knock the shares down below $100 so we can buy more at a cheaper price.

Anonymous said...

longVRX, In your view, what is a reasonable valuation? What multiple do you want to put on FCF?

4Q run rate FCF is roughly $1.5 bil. 343 mm shs. VRX $116 is roughly 27 x FCF. Right?


1) Growth is not going to be what it has been. Is the business model sustainable?

2) Looks fully levered. A/o 6/30/15 . . . $30.8 in debt with $1.9 bil cash interest expense.

Do you want to pay 25 x FCF for a stock that has these problems? Maybe they go away soon or maybe things get worse?

Cheers,

Dmitry Kozlov said...

Hi John,
a small one. (Was I the only one reading all that word-by-word? :)

Did you solve this by changing the pharmacist identification number to as small pharmacist that you had purchased for the person of diversifying the distributing pharmacy.

----> for the PURPOSE, most likely.

very understandable slip for such a big and demanding endeavor.

another buysider said...

John, have you been speaking with David Pyott? Just curious.

Quoting an un-named buy-sider:
'These allegations appear to be a coordinated and cynical media attack abetted by David Pyott, the bitter ex-CEO of Allergan, who lost his job as a result of Valeant’s efforts to buy Allergan last year.'


Where would you cover VRX? If it dropped to 75? $50? Clearly they have many profitable biz not related to Philidor/dermatological products.

Anonymous said...

Familiar format - http://www.factsaboutherbalife.com/media/2013/04/Key-Herbalife-Questions_Final_4_9_13.pdf

Anonymous said...

TOday's call was interesting. it did not answer the intense questions, but Valeant thought it would get away with another investor type presentation. Granted, they revealed more than ever about Philidor, but was well scripted. Appeared to disclose. Secondly, the BOD Committee is a joke. Why would the Lead Independent Director who issued a statement in admirable terms about Mr.Pearson, be expected to unearth anything and report?

I was always wondering about how Philidor is funded especially given the high working capital needs (delays in reimbursement coupled with bi weekly payment terms to Valeant). The unusual option to buy / milestone payments from Valeant to Philidor are a way to fund the working capital needs of Philidor.

Saga will never end with more to come I think.

longVRX said...

Anon (Oct 26, 10:20pm),

FCF is important but again not the full picture. For an acquisitive company like VRX I would expect high leverage and FCF multiple. The more interesting question for me is how well they are able to use that leverage. For this we can look, e.g., at ROE. For VRX it is ~30% for the year ending June 30 2015 and has been in a strong up-trend for the last 2 years (data from wikinvest). We can compare this with a couple of other large acquisitive pharma companies, TEVA and AGN. TEVA’s ROE for the same period is ~11% and with a much weaker up-trend. AGN’s ROE was flat around ~20% for most of the last 2 years (it’s currently negative, presumably as a consequence of its old self Actavis purchasing its new self). So VRX is doing very well and significantly better than its peers by this measure.

Since you mentioned the large interest payments VRX has to make on its debt, let’s look at EV/EBITDA which takes this into account. For VRX it is 6.1 for the year ending Sept 30 2015. For TEVA and AGN it is 14.7 and 16.0 respectively. So VRX is ridiculously cheap, not only compared to its peers but in general. How many other companies do you know with ROE ~ 30% and EV/EBITDA ~6 ? Maybe you can find some but I bet they are all low quality low margin businesses. (VRX has operating margin ~20%.)

The only way VRX’s current share price can be justified is if it has suddenly become a “broken company”. The bears claim that it has, so let’s examine their thesis. They claim that the business model is unsustainable because the growth relies (i) on jacking up prices and (ii) continual acquisitions which they won’t be able to continue at the same level in future. Let’s consider both of these in turn.

Re (i): At the latest earnings call VRX said they will limit price increases to 10% for the next year, and yet they were able to not only maintain the forward full year guidance but in fact raise it. Explain that one, bears. The reality is that the contribution to revenue growth from price increases is relatively small. E.g. a large part of their business is outside USA where the possibility for price increases is limited, nevertheless that part of the business is doing very well.

Re (ii): With their large and increasing revenue growth they will have no problem continuing to make acquisitions at the same pace if they want to. Or has something changed which makes acquisitions harder for them now than it was 3, 2 or 1 year ago? Bears, tell us what this big change is. One thing that could hurt them is if long-term interest rates rise significantly. But all the indications are that they will remain low for the foreseeable future, regardless of what the Fed does with short-term rates. Salix was a huge purchase for them and they have sensibly decided to pay down some of the debt from that over the coming year, but otherwise it will be business as usual.

But all this is irrelevant for understanding what has happened with the VRX share price in the last month. There’s the “official reason” for the sell-off, and the real reason which is completely different. I'll elaborate on this in a follow-up comment below

longVRX said...

[Resubmitting since it seemed not to go through the first time. Blogger is a real pain]

Anon (Oct 26, 10:20pm),

FCF is important but again not the full picture. For an acquisitive company like VRX I would expect high leverage and FCF multiple. The more interesting question for me is how well they are able to use that leverage. For this we can look, e.g., at ROE. For VRX it is ~30% for the year ending June 30 2015 and has been in a strong up-trend for the last 2 years (data from wikinvest). We can compare this with a couple of other large acquisitive pharma companies, TEVA and AGN. TEVA’s ROE for the same period is ~11% and with a much weaker up-trend. AGN’s ROE was flat around ~20% for most of the last 2 years (it’s currently negative, presumably as a consequence of its old self Actavis purchasing its new self). So VRX is doing very well and significantly better than its peers by this measure.

Since you mentioned the large interest payments VRX has to make on its debt, let’s look at EV/EBITDA which takes this into account. For VRX it is 6.1 for the year ending Sept 30 2015. For TEVA and AGN it is 14.7 and 16.0 respectively. So VRX is ridiculously cheap, not only compared to its peers but in general. How many other companies do you know with ROE ~ 30% and EV/EBITDA ~6 ? Maybe you can find some but I bet they are all low quality low margin businesses. (VRX has operating margin ~20%.)

The only way VRX’s current share price can be justified is if it has suddenly become a “broken company”. The bears claim that it has, so let’s examine their thesis. They claim that the business model is unsustainable because the growth relies (i) on jacking up prices and (ii) continual acquisitions which they won’t be able to continue at the same level in future. Let’s consider both of these in turn.

Re (i): At the latest earnings call VRX said they will limit price increases to 10% for the next year, and yet they were able to not only maintain the forward full year guidance but in fact raise it. Explain that one, bears. The reality is that the contribution to revenue growth from price increases is relatively small. E.g. a large part of their business is outside USA where the possibility for price increases is limited, nevertheless that part of the business is doing very well.

Re (ii): With their large and increasing revenue growth they will have no problem continuing to make acquisitions at the same pace if they want to. Or has something changed which makes acquisitions harder for them now than it was 3, 2 or 1 year ago? Bears, tell us what this big change is. One thing that could hurt them is if long-term interest rates rise significantly. But all the indications are that they will remain low for the foreseeable future, regardless of what the Fed does with short-term rates.
Salix was a huge purchase for them and they have sensibly decided to pay down some of the debt from that over the coming year, but otherwise it will be business as usual.

But all this is irrelevant for understanding what has happened with the VRX share price in the last month. There’s the “official reason” for the sell-off, and the real reason which is completely different. I'll elaborate on this in a follow-up comment

longVRX said...

Follow-up to my previous comment [which replied to Anon of Oct 26, 10:20pm, and which I'm not sure got through...the blogger software is such a pain.]

But all this is irrelevant for understanding what has happened with the VRX share price in the last month. There’s the “official reason” for the sell-off, and the real reason which is completely different. The official reason consists of two parts, (a) the bear thesis above, and (b) the unsettling revelations that have come to light via Citron, Bronte and others. Both parts are fake though as reasons/explanations for the sell-off. Part (a) is fake because if it was real it would have applied just as much 3, 2 and 1 year ago when the share price was steadily increasing. Part (b) is fake because the overall impact on the business is limited. (Might be enough to justify a 10-15% share price decline, but no more than that.)

The real reason, which I’m sure John Hempton and everyone else in the finance industry knows even though they keep quiet about it, is this: After the recent market sell-off many hedge funds are vulnerable - they’ve suffered big losses and are getting hit with redemptions. Among the vulnerable HFs there are many that hold large positions in VRX. The sharks smell (or taste I guess) blood and we know what happens – they go all out to short the companies in which the vulnerable HFs have large positions in the hope of crushing them and profiting from their demise. That’s how the game is played.

Of course, the sharks like to have an “official reason” for the shorting when they are playing this game. A tweet from Hillary, a rant from Uncle Carl about junk bonds, an over-the-top note from a nobody short seller, and article in the NYT/WSJ,…it’s all good. Whatever the environment provides them with. And if the environment is uncooperative they just manufacture reasons themselves (example below).

If any naïve soul (or, more likely, a pretending to be naïve soul) wants to dispute the above, just look at what has happened to the share prices of other HF darlings. A couple of examples just to illustrate: Biomarin and Palo Alto Networks. BMRN was trading at around $150 and had a fine Q3 earnings report, no problems, everything looking good. Now it trades at around $100. All because of a tweet from Hillary? Come on, give me a break. Its fundamentals and situation going forward are completely unchanged. Let’s not pretend we don’t know the real reason for why its share price was knocked down by a third.

PANW is an even more interesting case. In this case the environment was highly uncooperative to the sharks: before the Q3 earnings there were stories in the financial media that PANW was rapidly increasing market share and being viewed increasingly favourably by cyber security customers. So the sharks had to manufacture a reason for knocking it down. They did this by circulating rumours (“whispers”) that its growth had peaked, and proceeded to whack down the shares. The bogus nature of their “official reason” was soon revealed though when PANW reported a spectacular Q3 with a massive beat and raise in guidance and told how their market share was growing increasingly strongly just like the media articles had suggested. The share price jumped and the sharks were temporarily squeezed. What happened next? The sharks went right back to their manifestly bogus “growth has peaked” whisperings and proceeded to knock the shares down even further than before…

Where does it end for VRX? Well, the shares will keep selling off until the crushable HFs with large positions in it have been crushed, or until the valuation becomes so cheap that the big boys can’t resist jumping in. After that happens the share price will steadily rise back to where it was and continue upwards until the next shark fest. I’m looking forward to making a 100+% profit on my position after a couple of years, and hopefully a larger gain if the shorts can knock the price down to below my previous entry level so I can buy more :).

longVRX said...

Hi, i submitted 2 comments but am not sure if either got through...maybe they were a bit long and ended up in a junk folder...just to let you know. (This comment isn't intended for posting, just for your info)

Anonymous said...

You ask more questions that the Warren Commission. Well played.

P.S. I miss Fab (and Rob) from Milli Vanilli. See, there is at least one good Fab.

Mark Needham said...

Emma Z, Erin S, et al. apparently share ownership in a Poland subsidiary. Dunno why it's structured that way.

Retired for now said...

To Long VRX. After hearing that the 3 largest PBM's have cut off Philador and are looking into other Valeant specialty pharmacies, my humble feeling is that you either have a helluva great long that will prove the shorts wrong.....or otherwise you might have a terrible investment. It might not be an Enron, but the PBM's are not going to let them back and this changes everything.

I find it surprising that Sequoia reportedly has 29% of its holdings in just one stock, which is VRX and now two members of the board have questioned it and resigned.

Good luck with your long. I personally would not touch it.

longVRX said...

Retired,

This development was to be expected after the recent revelations. But it’s not a big deal in the general scheme of things.

Let’s try to quantify the impact in the worst case where Valeant simply loses Philidor (and its network of specialty pharmacies) and goes back to selling through the regular pharmacies only. Revenue from the specialty pharmacies network is ~7% of Valeant’s total Q3 revenue and EBITDA. If this network is removed, a significant fraction of that revenue will survive but will flow through the regular pharmacies instead (since doctors will refer patients to the regular pharmacies instead of Philidor). At worst they might lose half of it.

With the current share price of $111.50 and forward p/e of 5.0 (from Morningstar), the forward eps is $22.30. So if the forward eps gets reduced by 4% (an extreme worst case estimate), it becomes $21.41 and the forward p/e becomes 5.2 – a marginal difference and still ridiculously cheap for a high quality high margin company like Valeant.

I find it hilarious that this latest development caused the share price to tank more than 10% (yesterday’s trading and today’s premarket). Obviously nothing to do with fundamentals; just shows that the sharks haven’t finished trying to crush the vulnerable hedge funds with large positions in VRX.

longVRX said...

Regarding Valeant’s free cash flow (FCF), which was brought up as a concern by a previous commenter: The Sequoia folks mentioned this in a letter yesterday. They wrote

“In 2016, we believe Valeant should grow earnings by at least 30%, generate free cash flow in excess of $4 billion and have the liquidity to pay down some of its bonds before their scheduled maturities. At a recent price of $110, Valeant trades for about seven times the consensus estimate of 2016 cash earnings, which does not strike us as a rational price for a company with a diverse collection of product lines and strong earnings growth.”

http://www.sequoiafund.com/Letter%20to%20Clients%20and%20Shareholders.pdf

Retired for now said...

In the least, VRX has badly damaged credibility and that is not easy to restore. Relying on quantitative assumptions doesn't seem to work very well if the underlying assumptions are shaky or unknown. The revenue growth pattern has been altered clearly, but we don't know how much. With the publicity problem, it appears that doing more acquisitions will be difficult until the air clears. VRX has a lot of debt too. Not much I can see that is very positive at this time.

John Watson said...

@longVRX -- You seem to have some misconceptions over how capital markets work. There appears to have been pervasive and systematic fraud at VRX, with both criminal and civil implications. This is the type of thing which puts companies out of business. There does not appear to be massive accounting fraud as the amounts where treatment was aggressive were relatively small.

Who would want to do business with a company who regularly cheats them? That is the question you should be asking yourself. Philidor, as a subsidiary, represents Valeant. So the PBMs are going to want to remove Valeant drugs from their formularies wherever possible. The dermatology franchise in particular is going to get cut in half, or more, in the next year. Valeant will not be able to stop the disease at just dermatology -- problems will hit the entire US drug portfolio.

Add to this the various investigations from numerous federal enforcement agencies (including the DOJ), Congress, and a growing list of states, you are looking at a multi-billion dollar litigation exposure, plus legal costs. Valeant will be lucky to escape as a going concern.

And this is a company whose inception to date losses are $3.85 BILLION according to the Q3 10Q.

Bondholders have to be getting rather nervous by now as it looks like repayment in full is at risk. Stockholders have less of a clue.

Retired for now said...

TO John Watson. You nailed it. Better said than I could. My feeling is that the PBM's have been reading the stories and are very upset with pharma companies that work around their protocols to get more expensive drugs approved. This is just not Valeant. PBM's have probably been suspicious all along but didn't have enough of a solid trail to deny Valeant's approvals through Philador.

Even though Valeant now has cut the ties to Philador, we don't know how many other specialty pharmacy operations exist that are similar. I would guess that when any request for a Valeant drug comes into a PBM, the alarms are going to go off.

The real question here is how many unique prescription drugs does Valeant offer that have no lower cost substitutes. I have no idea. Maybe LongVRX knows. The math needs to be redone with a new assumption that the high priced drugs which can be substituted are going to be cut back severely and what stock price is then justified. The debt issue is a different problem, but could be solved I suppose with the aid of the big money equity investors.

longVRX said...

“So the PBMs are going to want to remove Valeant drugs from their formularies wherever possible.”

No they won’t because they make lots of money from selling them and there are no legal issues with it.

Valeant has a fine record of operating within the law since Mike Pearson became CEO in 2008 – no fines or convictions during that time as far as I’m aware. This is in stark contrast to the rest of the pharma industry where criminality is the norm. Bill Ackman had a slide in his presentation yesterday showing the 10 largest pharma company fines between ’91—’12 and the striking thing for me was the number of repeat offenders on the list. Criminality is apparently in their genes. As Ackman pointed out, Valeant has been able to maintain an operating margin twice as large as the other pharmas without resorting to criminality like they do.

All this talk about how Valeant’s business model is supposedly broken gives me flashbacks to the vilification of Amazon back in 2014 when its shares sold off from 400 to 300. Now it trades at 600+. Like VRX the business model of AMZN was perceived as being very successful for many years until suddenly the market sentiment flipped 180 degrees… And just as now, those claiming AMZN’s model was broken did not feel a need to back it up with specific concrete rational arguments, it was enough just to state it as a self-evident fact.

Probably we should agree to disagree at this point. Let’s revisit this in one years time and see who was right.

Retired for now said...

to longVRX. You might want to do some research into PBMs to see how they make money and why any pharma company, not just Valeant, is highly dependent on having good relations with PBM's.

PBM's price out coverage for most health insurance at the beginning of each calendar year and decide which drugs will be reimbursed. They have no incentive to approve higher priced drugs---it works the opposite. All VRX has done here is to find a way around the rules of the PBMs. Go look into what Express Scripts is doing about it in the WSJ.

Unknown said...

I have just one very simply question:

How can VRX be undervalued with a TTM PE Ratio of 60+ selling mainly generics (I checked their products list) when Gilead is presumably fairly valued TTM PE Ratio of 11+ selling what is currently BEST IN CLASS patented HEP C drugs. In making the above statement, I'm completely discounting GILD's on going revenue from HIV drugs because they are coming off patent and I assuming that it will earn ZERO revenue once it does so - a very conservative assumption.

longVRX said...

Retired, my thinking was that since CVS earns money each time it dispenses a Valeant drug it will not want to cut them. I'm assuming CVS has control or at least some influence over its own PBM. But maybe that's wrong. (I'm not so familiar with the US healthcare system and probably should research it more as you suggested.)

But in any case, from the reading I've done it seems clear that the change in the fundamentals of Valeant's business overall is relatively small and way out of proportion with the huge selloff in the stock. Market overreaction to adverse developments in a previously hot stock is nothing new... Probably best to wait until the sharks have finished doing their thing before buying more though.

Retired for now said...

TO longVRX

Read Charlie Mungers comments published Nov 1 about Valeant on Bloomberg News.

Munger went out of his way to say that Valeant has created a "phony growth record". He is Buffett's partner and usually does not go out of his way to bash other companies. He also is very rich and if Valeant sues for defamation, I am sure Munger will back up his claims and have plenty of lawyers. He isn't shorting it but just warning his friends who are hedge fund managers to stay away from Valeant.

As far as I can tell, your quantitative approach to valuing this company is highly irrelevant if the underlying assumptions in your valuation model don't hold up.

I advise that you do some quick learning about how PBM's operate in the USA. PBM's, depending on the contract they have signed with employers who sponsor health insurance plans, can lose a lot of money on Valeant's tactics to skirt their protocols.

Most of Valeants revenues in the USA, probably are channeled through one of the PBM's. The only exceptions to this would be for patients who do not carry any drug insurance coverage.

What would your models say the stock is worth if I told you and Valeant revenues could be down 40% next year and about 20% more in 2017? It might be better or worse, than these estimates, but the whole revenue picture looks bad to me. The credit rating agencies seem to be saying the same thing

longVRX said...

Retired,

I've already read the comments from Charlie Munger. Much as I respect his investment record I found his arguments unconvincing in this case (to the extend that he actually gave any; most of it just sounded like opinions). There are highly regarded investors in the Valeant camp too, most notably ValueAct with two members on the Valeant board. They could easily have sold out with a huge profit if they wanted to.

Despite the existence of Philidor the majority of the Jublia and other dermatology drug sales were still via the regular pharmacies such as CVS. Doctors were prescribing them, patients were paying the copays, and the PBMs were approving them for payment. I doubt very much that this is all suddenly going to change now. Common sense alone tells me that, even without detailed knowledge of the system.

No offense, but scary sounding opinions that everything is about to dramatically change remind me of the things people were saying about Amazon when its stock was selling off in 2014 (and countless other similar cases). I tune it out as noise, unless I see a specific concrete rational argument that convinces. Opinions and conjecture alone are not enough.

Enough of this for now. I will be back here on 2nd November 2016, then we can discuss who was right.

longVRX said...

@Unknown,

The trailing p/e is not so interesting; the forward p/e is what matters most since investing is basically about trying to front run the future growth of companies.

The forward p/es of VRX and GILD are currently 4.2 and 8.5 respectively (from Morningstar). VRX is ridiculously cheap by this valuation; it can only be justified if it has suddenly become a "broken company". GILD is also cheap, this is probably because the market currently does not have a high opinion of its future growth prospects.

The earnings growth of VRX is reflected in the large difference between its trailing and forward p/es. And the small difference between these quantities for GILD reflects low earnings growth.

Retired for now said...

long VRX

You are confusing two different types of pharmaceutical transactions. CVS does operate a large drug store chain in the USA. If those stand alone pharmacies fill Valeant prescriptions, then that CVS store collects some level of revenue, probably a capitated amount. You are correct, this hasn't changed if there is no insurance involved.

In the majority of cases, CVS stores (or Walgreens or others), however, fill a prescription that is paid for through a PBM, which may be Express Scripts, Optum, the CVS/Caremark, Prime, Humana, MedImpact etc. It is impossible to know about the future revenue potential of Valeant, unless you are very famiiiar with the formularies and policies of these PBM's with specific Valeant drugs.

This is a very critical part driving your quantitative assumptions, whether you know it or not.

As far as the speculation about vastly lower revenues, you are right in that nobody knows for sure. In terms of risk modeling, however, you are making a major mistake if you don't consider both possibilities of a downside as well as an upside.

My point here is to look at some scenarios with much lower revenue assumptions, then regularly assign a probability to them as new facts emerge. Then consider if the downside risk here is small or really large.

My personal belief is the downside is considerable and much more likely than the upside, which seems to be very limited at this point in time.

Anonymous said...

"A Question for Fabien Forrester-Charles
You know it's always the guy named “Fab” who gets blamed for the whole mess, right?"

This looks to be the case on the refill scheme. http://cafepharma.com/boards/threads/can-someone-tell-me-what-the-philidor-valeant-relationship-is.585518/page-5#post-5542379

Retired for now said...

Most of what has been talked about here is linked to Philidor, but Canada's Globe and Mail has another concern. Worth reading this link:

http://www.theglobeandmail.com/report-on-business/international-business/us-regulators-investigating-valeants-grip-on-niche-contact-lens-market/article27081644/

John Watson said...

@ Retired For Now - I work at a place which uses a Caremark PBM. I can look up actual cost for any prescription, both patient portion and PBM portion. The missing part of the data is the approximately 25% of the PBM portion which is rebated to my employer's plan. It varies by drug. For my own medicine, I generally pay full freight just with the patient portion. This gripes me a lot since I want that additional 25% discount in my pocket, not the overall health plan.

Most Valeant drugs that I've looked up, at least on the dermatological front, are uncovered by my plan due to being outside of the formulary -- if I want brand name $1000 acne cream, I can pay out of pocket. Most Salix drugs are still covered, but they haven't had the massive price gouging yet, or scrutiny.

Comparing notes together in a room between the PBMs would be an antitrust violation. Looking up each others formularies online would not. You can be sure these competitors check each other's lists.

I think Valeant is about to encounter a world of pain with regard to formularies, Even in the rare cases where prices haven't been jacked up 2000%, PBMs will want to remove this bad actor except for the rare case where R&D has resulted in a unique and effective medicine. Too bad Valeant doesn't do R&D for unique medicines and instead just copycats for the most part.

When I look at the VRX portfolio, only Bausch & Lomb along with Salix offer products where a PBM cannot just tell Valeant to take their prices for a long walk down a short pier. And even with these medications, alternatives are available, so the PBMs can say take it or leave it.

Take it or leave it will be an important PBM formulary concern this open enrollment period. I expect most Valeant medications to move into the highest copay tier. Generics work just as well for most, and really lousy products like Jublia are bested by $200 laser treatments or existing generics.

Retired for now said...

to John Watson The following link from Reuters today sheds much light on how PBM's will deal with Valeant. Optum, owned by UNH, figured out some of this fraud several months ago and shut off Philidor and other sham pharmacy routing. NO doubt all of the other PBM's have done the same or will shortly.

http://www.reuters.com/article/2015/11/04/valeant-pharmacies-claims-idUSL1N12Z28M20151104

Retired for now said...

Interesting to note that Valeant attracted huge amounts of money from supposedly sophisticated hedge fund managers and it now turns out that it is a business nobody can claim to fully understand. From a pure risk point of view here, anyone who devotes 20% or more of a portfolio to one security sure as hell ought to know what they bought. Many of these ownership positions are so large, it appears the funds could be trapped as it would require finding another large buyer.

From my experience this Valeant investment structure seems pretty odd because much of the company is owned by perhaps a dozen or less entities. The other owners seem to be Canadian managers who were forced to buy Valeant because it was the largest capitalization on the Toronto Stock exchange and if they hedged or were an index fund they also got trapped.

All in all, these seem to be pretty strange circumstances because I don't recall such concentration of ownership of publicly traded company that is now shaken. Shares were down 15% this morning. Ouch.

Retired for now said...

CEO Pearson sold a block of 880,000 shares at a price slightly below $77 on 11/5 according to SEC filing. Apparently this was done by Goldman as a margin call as reported in the news. Considering he is a key player and must have had no alternative to take a fire sale price, this is a bit disturbing to hear. It's really strange they could not have come up with some type of alternate solution to the problem and may indicate how much out on a limb that Pearson is willing to go on business deals.

Looking at Valeant financials, I find them to probably be beyond the ability of many professionals and investment managers to comprehend. This is a company that I think requires many hours of study to understand the 10K. It is much more complicated than 95% of all public companies. I would bet that most funds that own Valeant also find that it takes much more time than average to follow.

I wonder how much patience the fund managers really had to study this operation before they bought in?

On a rough basis, Valeant has around $30 bil. in assets and two-thirds of that is intangible or goodwill. On the liability side it has about $30 bil in debt. This is fine if the drug products and companies they bought are really going to generate a substantial amount of future cash flow for many years.

How certain can anyone be about a future revenue stream even from drugs which may not have competition now?? They will need a lot of cash flow just to pay the $1 bil per year interest expense and refund the debt.

My guess is that just a handful of people on earth probably actually fully understand or appreciate Valeant's complexity and what it's cash flow generating power truly is. And they probably are not employed outside of the company HQ. (It might just be one or two persons that are key.)

I am not sure how a solid valuation and risk assessment are possible without comprehending the nuts and bolts of each revenue stream for a diverse collection of drugs sold in many markets outside of North America. The stock probably ought to trade at a big discount just because it is so complex---in my view.

Retired for now said...

NY Times writer Jim Stewart looked into Sequoia's large investment in Valeant.

He pointed out that Sequoia calls itself a "value fund" and somehow it invested a whopping 32% of the fund in just one stock---Valeant, which had a PE ratio on the moon. And then when independent directors attempted to get the management of the fund from taking on more risk for just one security, fund managers defied them and bought even more.

I wonder what Sequoia thinks about the 500,000 shares that Pearson was awarded "in error" and then returned the shares later to the company to fix the error, but Pearson apparently retained a $28 million profit according to SIRF.

Ackman defends his enormous disproportionate investment in Valeant as well. He must have believed the story that Valeant was making it easier for physicians to get expensive drugs to their patients and someone else would work out the insurance details. Valeant would continue to make gobs of money on a model that was sucking money out of the PBM's and just passing on the high cost to all enrollees of a drug plan. The model was basically like a magic trick, from what I am learning now.

What planet are they living on?????

Taking huge bets on stuff they really didn't understand as well as they should have. Or has this become delusionary for these big investors. Perhaps they should check into a hospital. As the disclosures about Valeant roll out, their past judgement is called into question in the least.

You can't make it up. A great Hollywood script is in process.

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.