Wednesday, December 28, 2016

Did Mike Tyson ring a bell?

They say nobody rings a bell at the top. But this is pretty good...

It's Mike Tyson promoting online trading platform Trade12.

What can you say? I wouldn't like to step anywhere near a ring with Iron Mike - but I would love him as a counter-party.


Trade12 is a bit of a black box. It is - and I am not exaggerating, owned and operated by an Estonian subsidiary of a Marshall Island company and regulated by a private company in Vanuatu.

And according to its literature it does not solicit and accept clients from USA and France.


Which brings me back to Iron Mike Tyson.

He is - I gather - a US citizen.

Either he trades with Trade12 (which would be illegal) or Trade12 is not "the strong choice of a champion".

I suspect the latter - in which case my fantasy of trading against Mike Tyson is - well - just a fantasy.


Friday, December 16, 2016

UCB: Lower standards in Belgium

The last two posts on this blog detail how - for all practical purposes - UCB (the large Belgian pharmaceutical company) has lost the patent to one of its main drugs (Vimpat) and not told the market. See here and here

EBIT is likely to fall 30-40 percent eventually. The company might dain one day to fill shareholders in on the details. The numbers are really not pretty but without proper company disclosure it is impossible to make an accurate estimate. 

For almost two weeks I have expected the UCB to make a statement. But they have kept silent failing to disclose key information to the market.

The patent's death certificate was only sent by the United States Patent and Trademark office last Monday and there are different time-zones and languages to deal with. So I drafted the blog-posts gently, expecting a confirming press release along with accurate statement of prognosis from the company.

The patents death certificate is however almost certainly final. This is a clear statement of fact by the Patent Office against the patent. Appeals against patents are almost always on matters of law - and courts are reluctant to overturn fact-finders. All previous actions against this patent have been on law. A finding of fact against UCB is devastating. 

This is not ordinary course of business patent litigation. In the ordinary course of business UCB has wound up in patent disputes with other companies (eg Mylan, Argentum). And those disputes have been where the assumption is that UCB has a valid patent.

This time it is in dispute with the US Government. And the US Government is stating there is no valid patent. 

Ask other European companies how disputes with the US Government pan out.

Moreover the burden of proof has changed. UCB now has to get its patent approved under de-novo standards when the Patent Office has already rejected the patent. 

Of course none of this seems to warrant any statement from UCB.

Lower standards

I am going to be blunt. Withholding a piece of information this significant from the market in the US would result in a fairly nasty SEC inquiry complete with subpoenas to determine who knew what and when. I have made relatively few investments in Belgium so I can't tell whether the Belgian regulatory standards are lower or the standards are just lower at UCB.

But standards are very low here.

In the US if a single insider has sold whilst in possession of this information (which was unreleased to the market) they could expect close investigation by Preet Bharara. I don't know what standards apply in Belgium.

As stated in previous postsI found the IR officers we met of very high integrity. But this has to extend higher than this. I think it has to rise to the level of Jean-Christophe Tellier - the well regarded CEO.

The Jean-Christophe Tellier was described in the press release announcing his appointment as playing "a key role in driving the growth of UCB’s three core medicines, Cimzia®, Vimpat® and Neupro®."

Presumably he knows that his strategy surrounding those drugs is dead. Presumably he is part of withholding that information from the market.

In the US his days as CEO would be numbered.

I can only presume that standards are lower in Belgium. But if UCB claims to have high standards Mr Tellier should be fired.


Monday, December 12, 2016

UCB's lack of candour

This is a follow up to last Friday's post about UCB - the large Belgian pharmaceuticals company. It probably helps if you read that post first.

In Friday's post I outlined the state of play regarding UCB's important Vimpat patent. Disputes about that patent have been background for the stock for some time. When I went to visit UCB in Belgium (1 December 2015) the IR officers 
were straightforward about this. Third party patent challenges were the bear story on the stock

But UCB has since then touted victories in their patent disputes and regularly touted extensions of the Vimpat franchise.

UCB has made many press releases detailing just how important the Vimpat franchise is to them. 
  • When the CEO (Jean-Christophe Tellier) was appointed the press release stated: "Jean-Christophe Tellier joined the company in 2011 and was instrumental in establishing the company’s current strategy; he has played a key role in driving the growth of UCB’s three core medicines, Cimzia®, Vimpat® and Neupro®."
  • UCB has been active in touting Vimpat both in the EU and the US as a monotherapy for epilepsy. (See here and here.)
  • UCB has been extremely active extending labels for Vimpat in Japan. (See here for an example.)

Indeed extensions of the Vimpat franchise have been important in UCB's growth strategy.

So it was deeply surprising to us when UCB neglected to tell the market that US Patent Office had reviewed the patent (an ex-parte review) and had decided to withdraw the patent entirely. [You can find the letter that the Patent Office sent here.]

This is an unusual move. Since the ex parte examination system was introduced (35 years ago) about 13,500 ex parte requests for examination has been made just over a thousand of them have had all claims rejected. You can find statistics here. Rejected here is a term of art. A claim is "objected" for all sorts of formal reasons like the claims not being properly grouped. A "rejection" is a determination that the claim is not patentable - and is appellable to the Patent Trial and Appeal Board (a court) and then to the court system. 

This is altogether a different type of threat to UCB. Past patent disputes have been with other companies wanting to release a generic - and thus far UCB has either had the case thrown out or got a significant delay. These are standard commercial disputes with commercial parties. And in every one of these disputes the court has worked on the assumption that UCB has a valid patent and the question is whether the other party is infringing on this patent. 

This dispute is with the US Government. The US Government has reviewed past decisions and decided that Vimpat is simply non-patentable. That is the US Government has determined that UCB does not own a valid patent. Sure UCB has two months to try and convince a (well informed) patent examiner otherwise - but their chances of this are low. The patent examiner will be experienced in this area and it is not as if the bureaucrat was uninformed that this was a controversial and important case.

After the two months has elapsed UCB could appeal to the 
Patent Trial and Appeal Board. However the standard here is the de-novo patent standard. The situation is as if Vimpat had its original patent comprehensively rejected and it has to appeal to a court against the scientist/reviewers at the Patent Office. The courts are usually pretty deferential to the examiners at the Patent Office on the basis that they have the disinterested expertise to assess patents. 

In this case Johnny Railey was the examiner and he is amongst the most experienced biotech patent examiners in the US. You can find his linked in CV here. You can find a very extensive list of patents in which he was the examiner here

Appeals of this kind almost always fail. As Johnny Railey is amongst the most experienced patent examiners the chance of an appeal succeeding is even lower.

For practical purposes the Vimpat patent is almost certainly dead - and UCB's much ballyhooed growth strategy will die with it.

I am surprised at the lack of a management press release.

Disputes with the US Government

UCB has press released interim victories in District Court against commercial claimants on the Vimpat patent.

Their IR officers have been willing to give up-to-date reports of the (mostly) favourable commercial disputes they have.

But there is not a word here that their (new) dispute is with the US Government and the default position from here (statistically likely to be upheld) is that they will lose their patent in its entirety.

Not disclosing a business-critical dispute with the US Government is strange.

Whatever: shareholders should ask themselves how other European companies have prevailed in dispute with the US Government.


Friday, December 9, 2016

UCB's Vimpat patent

UCB is a Belgium-based biopharmaceutical and specialty chemical company that specialises in two therapeutic areas: diseases of the central nervous system and immunology. The main central nervous system speciality is epilepsy and the main drug in this area is Vimpat. (UCB revenue mostly comes from four drugs of which Vimpat is one.)

We went to visit UCB once, a cold and wet wintery day where we got modestly lost in Belgium.

The investor relations people were straightforward. We were new to the story and our notes state clearly that generic challenges to the Vimpat patent were the main bear story for the stock. Our notes also talk about Keppra - another epilepsy drug. When it went off patent revenues dropped substantially. Keppra was an famous "patent cliff" drug.

The risk to Vimpat has been reflected in the press too. Fierce Pharma - an industry rag - reports that August 15 this year was the best day for UCB in years as a Delaware District Court had rejected challenges to the Vimpat patent. Notwithstanding this, Fierce Pharma noted that the patent still faced challenges. To quote:

UCB isn’t totally out of the woods, though. In late May, New York-based generics maker Argentum Pharmaceuticals won an inter partes review of Vimpat’s patent protection by the U.S. Patent & Trademark Office (PTO)’s Patent Trial & Appeal Board (PTAB). And that decision may not be handed down until next May. 
Still, court’s decision is a “long-awaited sentiment boost” for UCB, whose shares had fallen by about 17% so far this year, Citigroup analysts wrote in a Monday note seen by Bloomberg. Despite the lingering risk of patent invalidation, they wrote, “we expect market confidence to improve.”

As noted Argentum Pharmaceuticals won an inter-parties review of Vimpat's patent. Argentum's press release however noted an even more aggressive request. To quote:
Argentum also filed an ex parte reexamination request against this same patent that raises additional grounds of unpatentability than those in the IPR.  A decision by the PTO on Argentum's reexamination request is due no later than July 29, 2016.
This is mentioned as afterthought in the press release because it is a really aggressive claim. Argentum asked the Patent Office itself to review the patent it previously granted and presumably throw out the original patent.

Given the afterthought nature of that request I suspect even Argentum will be surprised that the ex-parte review rejected all thirteen claims of the Vimpat patent.

In other words the Patent Office has thrown out the patent.

This is all in a letter dated 5 December 2016 (that is just a few days ago). You can find that letter here. And according to that letter UCB has only two months to dispute the total rejection of the patent by the patent office.

This rejection will of course be followed by Argentum and Mylan (and probably other companies) commencing distribution of a generic for Vimpat. Mylan were behind the above-mentioned court challenge.


It is - given the significance of this to the business - perhaps a little unusual that UCB has made no press release.


Is this the beginning of a new, more aggressive patent office?

The political pressure in the US to do something to reduce drug prices is large. In the past election this was one area of near universal agreement.

I am wondering whether we are going to see this sort of action by the Patent Office more widely.

If the trend is more widespread it could be bad news for pharma investors generally.


Thursday, December 8, 2016

In praise of Donald Trump's conflicts of interest

There is an obsession in the liberal press about Donald Trump's opaque personal finances and the repeated appearance that he has a conflict of interest.

I am obsessed too. But I want him to have more conflicts.

I want a Trump Tower paying royalties to the Donald in every country that matters, indeed in most cities. I want them in countries that do not matter. Frankly I would love them all over China, India and Pakistan.

If the Donald leaves office safely with 100 billion dollar net worth it would be just fine with me.


You see if the Donald has economic interests in some country he will not wind up on any ill-advised military adventures there. Indeed he would tend to prefer open economic relations, as much as anything so he can get his cash out.

Trump corruption is wonderful then because it preserves the open and (relatively) peaceful world I like.

So please Donald - more conflicts of interest - big international conflicts of interest. I want them yuuuge.

Make me happy.


Flotek: some new research

Flotek should be familiar to readers of this blog.

In plain english Flotek makes a chemical mix which makes sand-water mixes slippery so you can get more sand into fractures when you fracture an oil and gas reservoir. Their chemical mix is a surfactant.

There are many suppliers of surfactants. The product is a commodity.

However Flotek sell their product as somehow special. The claim: their surfactant is a "complex nano-fluid", but it is really a mix of d-limonene (the oil from orange peel) and isopropyl alcohol.


This blog once showed that data Flotek provided for pitching their complex nano-fluid was either (a) made up or (b) did not support the idea that their fluid was particularly effective.

We were right. Flotek put out a press release effectively admitting all of our allegations.

In other words their key claims were BS.

At the time Flotek claimed they had a software sales tool (that ran on an iPad) called FracMax which was critical to demonstrating their fluid effective - but we could not find a working copy of FracMax and could not find anyone who had ever seen one.

This was problematic. Flotek told the market that FracMax was their main selling tool.

Whatever FracMax has disappeared from Flotek's literature.

So their main selling tool was also BS.


All this should have been the death-knell for the stock. But it wasn't. Sure the stock is lower but not much (given the decline in oil and gas volumes) and somehow people still believe the "complex nano-fluid" story. I have never met a serious Flotek owner - so the stock price remains a mystery to me.


Today FourWorld Capital Management (an outfit I had never heard of) put out an updated and more thorough analysis of Flotek.

Its darn good - so go read it.

Why this stock trades above pennies I do not understand.

It will trade at pennies one day. I remain short.

John Hempton

Wednesday, November 30, 2016

Valeant, Salix, sales force and asset sales

Valeant put out a press release today about expansion of sales force for their Salix business:
Valeant Announces The Initiation Of A Primary Care Sales Force For Xifaxan® And Relistor®
LAVAL, Quebec, Nov. 29, 2016 /PRNewswire/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX and TSX: VRX) ("Valeant") today announced that it has initiated a significant sales force expansion to focus on potential primary care physician (PCP) prescribers of Xifaxan for irritable bowel syndrome with diarrhea (IBS-D) and Relistor for opioid induced constipation (OIC.)  With the launch of the expanded sales force effort over the coming weeks, the company expects to reach a significant majority of likely Xifaxan and Oral Relistor primary care prescribers.  The costs of this program were considered in previously announced guidance for the full year 2016.
"Our goal in building a primary care sales force is to maximize opportunities for Xifaxan and Relistor to help our products reach full potential. Xifaxan and Relistor are integral to our gastrointestinal franchise which remains a core asset for future growth potential in the hands of Valeant," said Joseph C. Papa, chairman and chief executive officer. "With approximately 70% of IBS-D patients initially presenting with symptoms to a primary care physician, our dedicated PCP sales force will be better able to reach the patients in need of IBS-D treatment and in doing so will further advance our mission to improve people's lives with our healthcare products."
There are several implications.

First the stories that say Valeant is selling Salix are almost certainly false. These stories are responsible for the stock rising 30 percent recently.

Secondly it puts the acid to the idea that Mike Pearson (Valeant's former CEO) was good at cutting costs. As this story makes clear Salix had a Primary Care Sales Force when Valeant acquired it. However they were debating whether to keep it. (Obviously they gutted it and are now being forced to reinstate it.)

This happened all over Valeant. Lots of businesses are melting ice cubes where the sales force has been neutered or where drugs have had prices pushed up to levels that create umbrellas under which competitors will flourish.

Finally they can't sell Salix for anything like what they paid for it (and that was the single most obvious sale candidate). Other sale candidates will have bigger separation problems.

Debt outstanding is roughly cumulative acquisition cost. This won't wind down nicely.

Indeed bankruptcy looms. Late next year probably.

Long shareholders, by now you ought to be feeling sick. But let me offer a solution: opiates. Just drug yourself out so you don't feel the pain.

And if you get opiate-induced constipation Salix/Valeant can help you out. That is what Relistor is for.

And now a Primary Care Salesman will visit your doctor and explain the benefits. Mr Papa (Valeant's CEO) is making sure that happens.

Sure Valeant will charge your insurance company plenty for the drug. But it is for a good cause.


Tuesday, November 29, 2016

On the freight train - how do you value Adidas?

I own a position in Adidas - the German athletic shoe and fashion company.

Given how well it has performed the position is nowhere near big enough.

I wish all my longs had performed this well.

But it poses a fairly typical investment problem for which I have no real answers.



I will give you a very stylised history of how we got here.

Herzogenaurach in Germany is a funny (and small) town quite close to Nuremberg - and a couple of hours drive north of Munich.

Once upon a time two brothers started a sports shoe company (and it was successful). The brothers split up and one brother started another sports shoe company.

Those companies are Adidas and Puma. And for a long time they considered each other the enemy.

Then along came Nike and especially the Michael Jordan partnership and basketball shoes - and exposed Herzo for what it was - an out-of-touch German backwater.

Bluntly the fashion path in shoes was from (mostly African American) street wear, to middle-class white street wear to China (where the affluent to a surprising extent mimicked American fashion). And basketball shoes were the path to cool.

Sure there were some people I knew who went to Wharton who thought Puma was some kind of Euro-elite cool - but frankly the Germans just missed out.

I went to Herzo to visit these companies because they were super-cheap (and for no other reason).

How did I measure cheap?
These stocks were just cheap against revenue really. Nike - by far the leader - has a market cap of $85 billion down from well over $100 billion.

It has a bit of net cash (reflecting how insanely profitable it is) and about 33 billion of revenue. The price is about 2.5 times sales - but when I went to visit Herzo Nike was trading over three times sales.

By contrast Puma (which is essentially in the same business) has a market cap of €3.5 billion and sales of about the same. It is roughly 1 times sales. When I went to visit Puma was trading at about 0.6 times sales.

Relative to sales Nike had something more than five times the valuation of Puma. This gap has now closed a lot.

But then again Nike was (and remains) insanely profitable and Puma just wasn't.

Adidas was somewhere in the middle of these valuations.

If Adidas or Puma could sell shoes at something like Nike's effective margin then the German companies would go up. A lot. An insane lot. Like 5 baggers were on offer.

But then Adidas and Puma had just missed the boat. And whilst they had decent positions in European fashion (driven by strong positions in what Australians and Americans call "soccer") they had meaningless positions in America and weak positions in China.

Now fashion is not an area I have any expertise. This is obvious if you see how I dress.

So I was not likely a buyer. Just kicking the tyres.

The Puma shop in Beijing

But I still wanted to kick the tyres. After all cheap is fun - and I am a value investor. So I did make a point of walking around Puma and Adidas shops in various locations, and even counting customers vs. say local Nike shops.

Most the shops however are like shops on "Fifth Avenue". They are meant as much as anything to be brand advertising rather than to make a profit in their own right. So this is still only marginally useful research.

That said I went to the Puma flagship shop in Beijing - and - with a translator - interviewed the staff. I wrote out the impressions in an email to Michael Lämmermann, Puma's CFO - but mostly because I had his email somewhere in the system. Here is that email:

I have just come back from a work trip to China. 
I wanted to leave you impressions of the Puma Shops in Beijing and Shenzhen which I spent some time looking at. 
Beijing is a disaster area - very badly run by surly staff. 
This is a fitness company and the staff were fat. Not obese - just pudgy - but they did not look like they used the products and they did not present an image that would sell the product. 
We asked them (in Chinese) how they were employed - and it was from a local staff pool. They were Beijing locals (more expensive) but that was the end of it. 
This is a country where it is legal to ask women to send in photos with their job applications and to just choose the prettiest one.  
Whatever - fat staff in a sporting good shop is a really bad image - and you need to fix it.
Fat and rude staff is just unforgiveable. 
Shenzhen (Dongman district) was better. The kid behind the counter (only one of them - shop was small) looked the part - and was wearing your shoes and looked young and fit. 
He was also helpful to our (very fluent) Chinese speakers in the group.
However he was wearing non-Puma track clothes. Just saying. 
For the record - I have not been convinced enough to buy your shares - but they look cheap. 
This was just observation.
I did not get a reply.

And I have never touched Puma stock.


Enter Kasper Rorsted at Adidas

Adidas got an activist shareholder - one with a longer-than-average time horizon. This was Groupe Bruxelles Lambert - the holding company of Albert Frere and the late Paul Desmarais. I have watched GBL for some time.

GBL are soft-cooperative activists in the Northern European sense. They tend to get what they want cooperatively and slowly - often very slowly.

GBL agitated for and got a new CEO at Adidas - a Dane named Kasper Rorsted.

We knew him. And I have thought him pretty darn good for a long time. He was the longtime CEO of Henkel (a Munich based industrial glue and consumer goods conglomerate). Henkel was the second biggest stock at the foundation of Bronte Capital - and we have held it continuously. [Regrettably I sold too much on the way up.]

Kasper might not walk on water. But he is still in the top league of CEOs. 

So we bought Adidas stock purely on the speculation. After all Kasper had experience in American consumer goods, was a generally good guy and the stock was cheap enough on a price to sales basis that the upside was large.

And the stock has gone up.

In all honesty I do not begin to understand what Kasper has done that has made this company better - but it sure shows in the numbers.

Here is an extract from the last quarterly presentation - you can find the link here:

This is a little hard to see - so I encourage you to download the original. But note really nice sales growth in all jurisdictions and sales growth above 20 percent in both the USA and China. 

There is clearly a fashion element here. Adidas has a deal with Kanye re shoes. I am so out of popular culture I needed to educate myself as to who Kanye was. (No I am not joking.) 

But it can't just be Kanye (as the new Michael Jordan no less) because Reebok shoes (also owned by Adidas) are having similar sales volume growth. 

Whatever - Adidas is now growing explosively. 

Take your 20 percent volume growth and stick into a valuation spreadsheet and see what you come up with. This sort of net present value worksheet is like Hubble telescope. Tweak the directions of various variables even a tiny bit and you wind up in a different galaxy. 

So we can't value it. We have no idea.

But we own the stock. The position is still not enormous (the original holding was a suck-it-and-see speculation on the new CEO) but the position is getting bigger and bigger because the stock is doing well.

I don't want to get off the train. At least until I see something negative. So I am looking for negative. Comments wanted.

Sports rights - the new and increased negative

A re-energized Adidas is the best thing ever if you are high profile sports player looking for a shoe-deal. 

There are now two rich companies wanting to put shoes on your feet and logos on your body. And that means bidding wars.

The insane war for the four big brands of Spanish football (Barcelona, Real Madrid, Ronaldo, Messi) is getting just bizarrely expensive

This is great for people with innate ball skills (which is most certainly not me). It is bad for both Adidas and Nike shareholders. I watch in horror.

But apart from that I can't (yet) see the negatives. But then I have no fashion sense (at all) so I might be the last person to see.


Friday, November 18, 2016

Valeant and Philidor after the criminal charges

On 15 October 2015 I posted a brief post which was (I believe) the first public reference to Philidor, the now notorious speciality pharmacy business at Valeant.

I had known about Philidor since February and had told many people including Roddy Boyd and Andrew Left but I did not understand in any comprehensive way how Philidor worked and why Valeant had gone to such lengths to hide it. Jim Chanos (entirely separately) had I believe also found Philidor.

On 19 October 2015 Roddy Boyd published the seminal journalist article explaining much of the mystery. Roddy's article was the main piece in the undoing of Valeant's stock. I am still amazed how much of the story Roddy worked out. This was one great piece of journalism.

Today one Valeant executive and the Phildor CEO have been charged in a fraud and kickback scheme. That is more than a year later.

It is however worth revisiting Valeant's first major Philidor disclosure.

On 26 October 2015 Valeant had its first conference call to explain Philidor. This conference call dumped almost the entire board into this mess. Board members were at this call and it was made plain that they understood how Philidor worked. Moreover Board members toured Philidor before Valeant agreed to buy an option to purchase Philidor.

Given that criminal charges have now been laid those board members should now be considering their position.

You can find a full transcript of that call here, but I just quote a pertinent part.

Seana Carson Valeant Pharmaceuticals International, Inc. - Chief Compliance Officer 
Thank, Tanya. Good morning. I'm Seana Carson and I am Valeant's Chief Compliance Officer. At this point I will share with you some information regarding the diligence conducted by Valeant prior to entering into its option agreement with Philidor, as well as details regarding Valeant's oversight and rights. 
All agreements between Valeant and Philidor have been reviewed or drafted by legal counsel. Our legal, compliance, regulatory and business diligence was conducted in connection with the purchase option and distribution services agreement with the assistance of our external advisors. This included multiple site visits. 
Furthermore, Valeant negotiated representations, warranties, indemnities and ongoing covenants for its protection. The diligence conducted covered legal, regulatory, and compliance matters, including but not limited to corporate structure, pharmacy licensing, federal healthcare program requirements, privacy, pharmacy practices, and IT security. Last year the majority of Valeant Board, including the entire Audit and Risk Committee, went to tour the Philidor facility in Pennsylvania in person, ahead of completing the transaction. 
Turning to Valeant's rights under its options, as mentioned, Philidor operates independently from Valeant. Valeant has contractual rights to inspect Philidor's books, records and facilities. Further, Philidor must give Valeant prompt notice of any events that result in a material breach of its covenants or could reasonably expect to result in a breach of its representations and warranties. 
Valeant also has the right to appoint employees to Philidor, including a head compliance officer and an in-house lawyer. The option agreement also provides for a joint steering committee, composed of members from Valeant and Philidor, the purpose of which includes the exchange, assessment, and discussion of matters relating to compliance of Philidor with applicable laws, material contractual obligations, and Philidor's internal policies and processes. 
We maintain regular contact between business and functional leads. Pursuant to our rights in the option agreement, Philidor, with input from Valeant, hired both an in-house lawyer and a head of compliance with relevant experience. As mentioned, Philidor is included in Valeant's SOX 404 internal control testing and internal audit program for 2015. In addition, on October 2, a big four accounting firm with asked to prepare plans for an internal audit of Philidor. The scope was intended to include an assessment of operation and data systems, quality and regulatory practices, adjudication and reimbursement practices, contractual compliance, government pricing, as well as prescription level testing and sampling. 
Because of the nature and volume of inquiries related to Philidor after our October 19 earnings call the audit has been delayed to revise scope accordingly. Additionally, we understand that Philidor and its network pharmacies have complied with several hundred desk audits from payers and have participated in more than two dozen live audits involving major pharmacy benefit managers.


The boss of Philidor, Andrew Davenport, is one of two people charged today. Here is a video of him being interviewed by a State Senator about Philidor. I wonder whether he was this evasive when the Valeant board went to visit him.


I am not going to list the board members who went on tours of Philidor. It is up to other people to ask them questions.

I remain short some Valeant.


PS: For completeness here is a video of Gary Tanner applying for a pharmacy license along with Philidor's old pharmacist in charge. It is pretty clear from the description that this was also to serve the same dermatology market as Philidor.

Monday, November 14, 2016

You might not like the TPP. You are going to like the alternative less.

The Trans-Pacific Partnership - the mega-trade treaty - is dead.

I am not going to opine on the merits of various provisions in that trade treaty. (There were several I did not like...)

However lets take the thirty year helicopter view.

Thirty years of an aggressive trade and investment treaty (like the TPP) results in your economy becoming intertwined with your partners' economies.

And with the TPP there is a dominant party - the United States.

Your economy becoming intertwined with a dominant economy has a name: hegemony.

The TPP would have eventually meant sustained US hegemony.


But that is dead.

The TPP did not die in a vacuum. A bunch of countries north of Australia want to have guaranteed open access to big markets and they will wind up signing a trade treaty. This time they will sign with the economy that will honour their commitments: China.

And in thirty years time there will for the countries of Australia's north be a hegemony: a Chinese hegemony.


At the moment the Chinese border is ten hours flying time north of Australia.

Look forward thirty years and we have a border of Chinese hegemony at Indonesia.

I would prefer a democracy having hegemony. I think most of my readers would too. But we have that choice no longer.


PS. This thought is not original. The US Defence Secretary stated that the TPP is as important as another aircraft carrier. He is not wrong.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, 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.