The original Citron post which caused Valeant stock to crash alleged that Valeant used a hitherto undisclosed relationship with Philidor to stuff the channel.
This was (correctly) denied by Valeant who noted that they could not use specialty pharmacies to stuff the channel as the sale by a specialty pharmacy was only recognised by Valeant when the end customer was identified (and the drugs effectively sold to the end consumer).
It turns out that specialty pharmacy (and its attendant issues of ripping off insurance companies) is common at Valeant. It extends well beyond Philidor (as I will demonstrate in a future post).
In other words it is unlikely the channel is stuffed at all in America. But insurance copayment issues are far more widespread than Valeant asserts.
Yet receivable levels at Valeant are fairly high which leaves open the possibility that the channel was stuffed in places other than America.
This is now confirmed.
The Slovenian business press have done a fabulous job tracking down the stuffed warehouses in Slovenia. It is the front story on the main Slovenian business website (link) and they have kindly reproduced the story in English (link).
With a few forthcoming speciality finance scandals and confirmed channel stuffing this is getting uglier by the minute.
John
PS. Letter to Valeant longs (ie tragics)...
Dear former winners,
Valeant owns the big branded analgesic business in Russia (one example). Branded versus unbranded paracetamol/acetaminophen etc.
This sort of stuff is economically sensitive. No-name but identical products sell on the same shelves at 10% of the cost of the branded stuff.
Did you ever wonder why the sales of this did not fall in Russia and Eastern Europe given the economic issues there?
That is right - they stuffed the channel.
http://www.finance.si/8838444/Slovenia-involved-in-Valeant-scandal
Keep your spirits up.
It is only (your clients') money.
John
24 comments:
I encourage readers to check out the full article in Slovenian (google chrome will translate). You will see for yourself the quality of the journalism. The author asked multiple distributors about channel stuffing and each said that was definitely not the case. One said inventory was actually below average. Not to mention the article also says Solvenia sales are just 7m Euro, tiny vs. overall VRX sales, but suppose makes sense for country of just 2m people. Also, the author has no legit sources for the allegations …in fact the only named source is a reference to anonymous Café Pharma posts….talk about a circular reference. See below distributor quotes:
Kemofarmacija (a distributor): "The above-mentioned practices, channel stuffing does not know and can not happen. Stocks PHARMASWISS are below average Kemofarmacija. "They add that PharmaSwiss their business partner for many years, is a medium-sized supplier of medicines with an annual turnover of around seven million euros.
Salusu (another distributor) emphasize that "procurement of products adapted exclusively to sales demand, while diligently considering internal procedures regarding the management and optimization of their stocks /.../, which means that any stockpiling is not.
The Pharmacy Ljubljana and its wholesaler LL Grosist say that the PharmaSwissom part "for many years and so far has been our cooperation correct, without any tendency to channel stuffingu." They say further that procure from suppliers based on needs and customer demand, and that PharmaSwiss among their top ten suppliers, but the volume of business and the stocks maintained at the same annual level
That link is shady as hell and is in no way the "smoking gun" you make it out to be. The stuff you said about Valeant being evil though, and charging 10x the price of identical generics, is spot on.
You have officially crossed the line to scumbag at this point. Shame. You used to be interesting.
Really? Is this what your blog has deteriorated into? How very disappointing.
the article proved nothing other than speculations. Potentially a struggling journalist that wants attention. Let's just hope more digs get released.
Wow youve stooped pretty low to title your article 'confirmed' when this is everything but. Sorry but I think you should have more integrity, or you will lose credibility
Channel stuffing in Slovenia, oh dear. If only they could switch to the misdemeanors that nice pharma companies do, such as kickbacks to doctors, defrauding the U.S public health system, endangering patients lives by lying about drugs etc.
I recently read that Bayer sells branded asprin in CVS for 3x the price of generic asprin. 3x the price for a medicine that does exactly the same as the generic, how crazy is that! Just wait till the doctors/patients/PBMs/politicians notice this...there will be hell to pay! Bayer share price is going to zero for sure. Short it now while you have the chance!
Yet receivable levels at Valeant are fairly high which leaves open the possibility that the channel was stuffed in places other than America.
This is now confirmed.
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Making this Statement ("is" instead of "seems") based on that source seems to me to be a misleading statement. Have fun.
What's "shady" about the link?
John, how do you define receivables as "fairly high"? DSO? They used to be higher. Could you maybe expand on that a little? The problems I see are in net sales to gross sales.
I have been following your blog for some time. While I appreciate your anecdotal research and in-depth look at numbers...I have noticed that you often miss the forest for the trees. An example is your analysis of BABA when it was down in the $60s or with SUNE when it was in $9s. However, I always thought you had intellectual honesty....until now! As the first commentator said that this article that you link in your blog is in no way a "Smoking Gun" that you make it to be. A company is buying a warehouse and you jump to conclusion that it must be for channel stuffing. It could simply be preparing to grow or to consolidate different warehouses or to get into a more efficient warehouse. The bottom line is I don't know but neither do you or this silly newspaper reporter who arrived at that conclusion that you are touting. I did not expect this from you.
The link is to anon Cafe Pharma posts? LOL. Smoking gun? hardly.
In the Slovenian, non-summary version (which I ran through translation software - I do not speak the language, to be clear) it sounds like they are mainly recycling CafePharma allegations. Not saying those are false accusations but the reporting does not sound like it managed to confirm anything. Perhaps I'm missing something, John?
You seem to have a set story in your head and only pick/post things that fit your story no matter what. Tunnel vision much? Noticed the same thing with you and Herbalife. Ironically, Ackman is involved with these stocks on the opposite ends you are. Maybe letting your personal bias get involved in your stock picking Johnny boy which can be very dangerous.
Well that was embarrassing. Market fades quack news stories.
http://www.valeant.com/Portals/25/PDF/11192015_rebuttal.pdf
Updated rebbutal of this quack post. +10% again tomorrow. SUNE fades more. Rolls Royce the final straw. find out in 6 months?
Keep your spirits up John. It is only your clients money John. SUNE, VRX, Rolls Royce. HLF next to blow up.
YOU JINXED IT!
The market has reacted very favorably to the channel stuffing in Slovenia. Probably they should stuff it some more.
Well let's look at the facts:
1. Valeant created an entity, Philidor, that defrauded insurance companies.
2. The company doesn't have a good track record in the ethics department.
3. On the last Valeant call when they asked Pearson if there was systemic fraud at Valeant, he didn't answer the question. Why not just respond "no".
4. Free Cash Flow hasn't been very good the last several years.
5. The 3rd and 4th largest markets are Poland and Russia. Can you name ANY other US companies where that is the case? Latest 10-q "slower accounts receivable collections in Russia"
6. Several other people in Cafe Pharma gave the same allegations. Is it true? I think it is.
If you were the CEO, what would you do first? Stuff the channel in Eastern Europe or insurance fraud in the US?
Smoking gun?
Looks pretty inconclusive to me...
John, scraping the barrel like this makes you look more desperate than Valeant.
I don't necessarily agree that the article is as conclusive as your blog seems to suggest (perhaps unintentionally - your blogs are usually really tightly drafted). However, the vitriol you (seem to constantly) get from those who aren't on your side of the trade tells me that you must be doing something really right.
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