Tuesday, December 1, 2015

Philidor 2.0 business model

In my list of Valeant-associated pharmacies I included one called Forsta LLC.

The company Forsta, LLC was established in Delaware on 25 June 2015.

The above does not tell you who the owner is or was.

However Forsta LLC only recently applied for a pharmacy license in Arizona. The owner of Forsta - a Gary Tanner - and the proposed pharmacist in charge - a Jacob Power - turned up in front of the local pharmacy board and the proceedings were video taped. You can see the original here. They make their brief appearance about an hour into the first sitting. The date was 18 November.

I would love to say I found this but I did not. An anonymous poster on Cafe Pharma found it. However the extract - repeated below - is a gem:

The Arizona hearing also makes clear who owns Forsta as per this document.

Gary Tanner is one of the more interesting people in this whole Philidor/Valeant mess. He was - according to several articles and a few conversations - the Valeant employee who effectively ran Philidor day-to-day. Various Congress members want to interview him

Valeant's second quarter presentation made a thing about the key executives they had retained from acquisitions. Gary Tanner was mentioned by name

Tanner was clearly a Valeant employee when Forsta LLC was formed. Mike Pearson boasted about having retained him. 

And now he is opening a pharmacy with ex Philidor people selling branded dermatology products (just like Philidor) without compounding in a very strange business set-up in Arizona.

This looks like Philidor Mark 2.

But Tanner is - as far as I can tell - no longer a Valeant employee.

So I have a single question for management. 

Is this yet another specialty pharmacy - outsourced - through which you intend to run your business just like you ran it at Philidor?



Anonymous said...

A guy can start a business after his job is toast. Give me a break John. This is just Tanner trying to make a life for himself after Philidor.

Anonymous said...

If it is Philidor 2.0, that would be bullish VRX. They are allowed to operate with a specialty Pharma. They have stated they are looking for a replacement channel. Nothing is wrong with this.

James said...

Do you really think Valeant would be dumb enough to do the same thing twice with all eyes on them? With regulators, congress, the media, shareholders, and a board investigation, do you really believe so or are you just trying to spin a web here? Also, i know you believe it's going to zero but can you atleast provide some math on that instead of just " see you at zero"? Without providing any real factual basis your credibility is starting to go way down in my eyes.

WannaBeValueInvestor said...

I think Valeant will continue to run their business in a very aggressive manner. They are just going to replace Philador with another pharmacy. They don't care what anyone thinks about alternative fulfillment centers and specialty pharmacies. Mike Pearson doesn't give two shits about healthcare costs. He cares about profits. Period. Acne cream for $1000. Sure. Don't underestimate his willingness to run an aggressive business.

You don't have to agree with his tactics, but you have to admit he is taking full advantage of the system.

Cheryl Frances said...

ahh, could you add after the words "ex-philidor employee"..Jacob Power PIC, in PA zip 19040

Anonymous said...

CPA License Check:


Anonymous said...

Getting pretty pathetic John. Unbelievable that you actually run people's money

Anonymous said...

I'm beginning to laugh at you. You're connecting dots that don't even matter, and continue to not value the stock! What kind of joke are you as an analyst?

Anonymous said...

Excerpt from Medicis Q2'12 earnings call regarding the origins and purpose of the Alternative fulfillment program:
Analyst: Unidentified Participant, - Analyst
Question – Unidentified Participant: We do. Again, we are really speaking of reportable scripts, which is to say those that are captured in the IMS data because they are adjudicated and processed at that community pharmacies, so yes we do. I spoke earlier of the fact that it has been important for physicians to accommodate themselves and patients to a different paradigm. To take you back a little bit, before we introduced the alternate fulfillment program, we had a Medisafe card, which basically gave all comers a prescription for Solodyn and Ziana at the pharmacy at the same co-payment. And on those prescriptions, we lost a lot of money when the prescriptions were not covered adequately by the patient's prescription drug benefit under their health insurance program. So we have taken those unprofitable prescriptions, moved them to a place where they are far less unprofitable."

This indicates that even if IMS prescriptions increase, they may not be profitable. It also raises a very important issue: where are the executives that initially came up with this process, Jason Hanson and Vince Ippolio. They both left in Spring 2014, it seems to be a coincidence that this is when Philidor was taking flight. Neither of the executives have been tied to Philidor but they may have the answer with regard to how involved VRX was and what the original plans were.

GlobalTrader said...

"Do you really think Valeant would be dumb enough to do the same thing twice with all eyes on them? With regulators, congress, the media, shareholders, and a board investigation, do you really believe so or are you just trying to spin a web here? Also, i know you believe it's going to zero but can you atleast provide some math on that instead of just " see you at zero"? Without providing any real factual basis your credibility is starting to go way down in my eyes."

Hempton thesis these days is whatever justifies a $0 target, ignoring any bullish factor. its really sad to watch

Anonymous said...

Your hatred for Ackman will be your downfall. Give into the dark side John. Be long Valeant.

Kris Tuttle said...

The whole thing is a bit beyond my ken and when I missed being short when the story broke I haven't dug in. But reading this makes me think that this kind of "virtual pharmacy" must be very good business. This guys knows more about it than most (or anybody.)

If you can get a license and a pharmacist and set something up to fill expensive scripts at high margins it seems like a license to print money.

C M Croston said...

Looks to me likes, after today's run, $VRX has just a little farther to get to Zeero.Investors day on the 16th. Might make for a long tight squeeze, perhaps?

Anonymous said...

I'm following closely but don't have any financial interest in this. (But I think Hempton is right.)

One question for longs, looking at VRX business model which is simply buying drugs using debt and then raising their prices and aggressively marketing them - Why didn't the previous owners of these drugs just do the same thing? What prevented them from doing it? (I know the answer.)

AmericanCynic said...

It's a license to be thoroughly scrutinized or attract massive competition and thus margin collapse

Anonymous said...

Unless there's something radically new on the Philador front that moves the needle, this is feeling played out. I'm not sure you get much return on the time invested at this point. Stock is up 20% in the few days since these last few "revealing" posts - so market no longer cares about the details.

tragic longVRX said...

Nice to see a question this time rather than another unsubstantiated claim or insinuation. I'm also interested to hear the Valeant management's response to this question. It would be good if they could put out a statement confirming that any activities by Philidor people after Valeant cut ties on 30 Oct are nothing to do with Valeant. (Garry Tanner was a Philidor employee at the time ties were cut.)

Anonymous said...

whats your point? Gary Tanner can do what he wants and if Valeant wants to do business through an independent specialty pharmacy or any independent retail pharmacy it is within the law. It is also within the law for Valeant to operate its own pharmacies provided they are accredited.

What's your issue?

I'm for open patient access and having patients get the drugs their physicians prescribe.

Only 25-30% of covered insurance lives are controlled by PBM's so the other 70-75% of the population gets access to all of the expensive drugs they want through their physicians

Also, covered lives increase around 2-5% a year so drug manufacturers have to raise prices to cover this issue. Its like pirated software, the incremental profit on increased volume is so high that you can afford to give some product away that is not covered by insurance to maintain market share.

Valeant is a smart company. Why would you throw away margin to wholesalers when you can ship direct to specialty pharmacies and large accounts?

I wish more companies were as innovative as Valeant.

Anonymous said...

@ Anonymous December 2, 2015 at 3:54 PM

Businesses do well when their customers do well. The VRX business model seems designed to screw the customer. That is a great way to drive customers away into other solutions.

It was a good ride for a few years, but what you are seeing now is a customer revolt. The Republicans recently sent a letter to the HHS head urging him to allow imports of off patent drugs currently distributed by non-developers. Current law allows this when the HHS head approves. VRX would lose at least $500MM of margin per year on just the most eggregiously price gouged drums if this happens. But why stop there?

WellRed said...

What I find so amazing about the whole conversation about Valeant is that even with the insane mark-ups that they apply to the drugs they acquire, they still don't make any money over and above the price they pay for the drugs.

"Cash earnings" is a joke that management has peddled and analysts for some reason have eaten up.

They overpay dramatically for their acquisitions: profits from the business barely outpace interest on debt + goodwill writedowns. "But goodwill is a non-cash item". Yeah, so they generate cash about in line with the amount that they overpay for the accumulation of businesses. Hardly justifies the purchase price. The only way they can continue to expand cash flow is by overpaying for more businesses.

After the Allergan bid the hypergrowth that perpetuated this disaster is officially over and it was only a matter of time. The recent Philidor mess means that when it comes time to refi it's going to be an ugly negotiation.

Hempton's right, ends at zero.

But in my opinion Philidor and the rest is a bit of a sideshow that distracts from what has always been a very ugly fundamental business.

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