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GuruFocus Financial Strength Rank measures how strong a company’s financial situation is. It is based on these factors

1. The debt burden that the company has as measured by its Interest coverage (current year).
2. Debt to revenue ratio. The lower, the better
3. Altman Z-score.

A company ranks high with financial strength is likely to withstand any business slowdowns and recessions.

Financial Strength : 6/10

Cash to Debt 0.03
VRX's Cash to Debt is ranked lower than
98% of the 711 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.43 vs. VRX: 0.03 )
Ranked among companies with meaningful Cash to Debt only.
VRX' s 10-Year Cash to Debt Range
Min: -1.06  Med: 0.27 Max: No Debt
Current: 0.03
No Debt
Equity to Asset 0.13
VRX's Equity to Asset is ranked lower than
96% of the 578 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 0.64 vs. VRX: 0.13 )
Ranked among companies with meaningful Equity to Asset only.
VRX' s 10-Year Equity to Asset Range
Min: 0.13  Med: 0.52 Max: 0.85
Current: 0.13
Interest Coverage 2.10
VRX's Interest Coverage is ranked lower than
92% of the 472 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 106.79 vs. VRX: 2.10 )
Ranked among companies with meaningful Interest Coverage only.
VRX' s 10-Year Interest Coverage Range
Min: 0.12  Med: 7.28 Max: 121.91
Current: 2.1
F-Score: 5
Z-Score: 1.26
M-Score: -2.20
GuruFocus Profitability Rank ranks how profitable a company is and how likely the company’s business will stay that way. It is based on these factors:

1. Operating Margin
2. Trend of the Operating Margin (5-year average). The company with an uptrend profit margin has a higher rank.
••3. Consistency of the profitability
4. Piotroski F-Score
5. Predictability Rank•

The maximum rank is 10. A rank of 7 or higher means a higher profitability and may stay that way. A rank of 3 or lower indicates that the company has had trouble to make a profit.

Profitability Rank is not directly related to the Financial Strength Rank. But if a company is consistently profitable, its financial strength will be stronger.

Profitability & Growth : 8/10

Operating margin (%) 23.59
VRX's Operating margin (%) is ranked higher than
86% of the 669 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 7.99 vs. VRX: 23.59 )
Ranked among companies with meaningful Operating margin (%) only.
VRX' s 10-Year Operating margin (%) Range
Min: -9.32  Med: 22.34 Max: 45.51
Current: 23.59
Net-margin (%) 8.59
VRX's Net-margin (%) is ranked higher than
59% of the 671 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 5.97 vs. VRX: 8.59 )
Ranked among companies with meaningful Net-margin (%) only.
VRX' s 10-Year Net-margin (%) Range
Min: -47.86  Med: 19.07 Max: 42.72
Current: 8.59
ROE (%) 14.12
VRX's ROE (%) is ranked higher than
70% of the 700 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 6.54 vs. VRX: 14.12 )
Ranked among companies with meaningful ROE (%) only.
VRX' s 10-Year ROE (%) Range
Min: -59.67  Med: 13.31 Max: 88.04
Current: 14.12
ROA (%) 2.38
VRX's ROA (%) is ranked lower than
55% of the 719 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 3.56 vs. VRX: 2.38 )
Ranked among companies with meaningful ROA (%) only.
VRX' s 10-Year ROA (%) Range
Min: -18.92  Med: 7.69 Max: 47.05
Current: 2.38
ROC (Joel Greenblatt) (%) 45.01
VRX's ROC (Joel Greenblatt) (%) is ranked higher than
80% of the 716 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 14.01 vs. VRX: 45.01 )
Ranked among companies with meaningful ROC (Joel Greenblatt) (%) only.
VRX' s 10-Year ROC (Joel Greenblatt) (%) Range
Min: -69.93  Med: 90.59 Max: 161.84
Current: 45.01
Revenue Growth (3Y)(%) 53.40
VRX's Revenue Growth (3Y)(%) is ranked higher than
95% of the 572 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 6.10 vs. VRX: 53.40 )
Ranked among companies with meaningful Revenue Growth (3Y)(%) only.
VRX' s 10-Year Revenue Growth (3Y)(%) Range
Min: -10.8  Med: 15.80 Max: 82.1
Current: 53.4
EBITDA Growth (3Y)(%) 64.00
VRX's EBITDA Growth (3Y)(%) is ranked higher than
96% of the 510 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 7.20 vs. VRX: 64.00 )
Ranked among companies with meaningful EBITDA Growth (3Y)(%) only.
VRX' s 10-Year EBITDA Growth (3Y)(%) Range
Min: -35.7  Med: 16.60 Max: 113
Current: 64
EPS Growth (3Y)(%) 83.10
VRX's EPS Growth (3Y)(%) is ranked higher than
97% of the 472 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 5.40 vs. VRX: 83.10 )
Ranked among companies with meaningful EPS Growth (3Y)(%) only.
VRX' s 10-Year EPS Growth (3Y)(%) Range
Min: -37.1  Med: 11.10 Max: 100.6
Current: 83.1
» VRX's 10-Y Financials


Revenue & Net Income
Cash & Debt
Oprt. Cash Flow & Free Cash Flow

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Guru Trades

Q3 2014

VRX Guru Trades in Q3 2014

Jana Partners 1,284,184 sh (New)
Paul Tudor Jones 6,826 sh (New)
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Lou Simpson 1,815,916 sh (+12.40%)
Chris Davis 3,529,237 sh (+11.91%)
Wallace Weitz 1,691,525 sh (+9.05%)
Steve Mandel 10,985,940 sh (+8.89%)
Glenn Greenberg 6,586,582 sh (+8.86%)
John Paulson 520,700 sh (+4.08%)
Ruane Cunniff 34,494,015 sh (+0.57%)
Steven Cohen 523,400 sh (unchged)
Jeff Ubben 18,923,877 sh (unchged)
Joel Greenblatt Sold Out
Private Capital 296,871 sh (-1.19%)
First Eagle Investment 1,010,802 sh (-1.33%)
Lee Ainslie 2,527,896 sh (-3.70%)
Andreas Halvorsen 9,967,690 sh (-15.75%)
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Jeremy Grantham 23,705 sh (-47.96%)
Louis Moore Bacon 30,544 sh (-76.03%)
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Q4 2014

VRX Guru Trades in Q4 2014

Joel Greenblatt 295,632 sh (New)
Jim Simons 38,989 sh (New)
Jeremy Grantham 1,042,191 sh (+4296.50%)
Paul Tudor Jones 100,000 sh (+1364.99%)
Jana Partners 4,307,534 sh (+235.43%)
First Eagle Investment 1,191,832 sh (+17.91%)
Jeff Ubben 19,383,877 sh (+2.43%)
Jeff Ubben 19,383,877 sh (+1.30%)
Ruane Cunniff 34,331,973 sh (unchged)
John Paulson 520,700 sh (unchged)
Ruane Cunniff 34,331,973 sh (-0.47%)
Chris Davis 3,508,163 sh (-0.60%)
Diamond Hill Capital 171,513 sh (-0.87%)
Lou Simpson 1,794,227 sh (-1.19%)
Private Capital 292,802 sh (-1.37%)
George Soros 606,587 sh (-3.22%)
Lee Ainslie 2,423,766 sh (-4.12%)
Glenn Greenberg 6,126,609 sh (-6.98%)
Andreas Halvorsen 9,077,007 sh (-8.94%)
Wallace Weitz 1,378,606 sh (-18.50%)
Steve Mandel 8,250,886 sh (-24.90%)
Louis Moore Bacon 14,286 sh (-53.23%)
Steven Cohen 132,300 sh (-87.48%)
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Q1 2015

VRX Guru Trades in Q1 2015

Bill Ackman 19,473,933 sh (New)
Jim Simons 475,837 sh (+1120.44%)
John Paulson 2,050,000 sh (+293.70%)
Louis Moore Bacon 30,063 sh (+110.44%)
Jeremy Grantham 1,155,927 sh (+10.91%)
Lou Simpson 1,898,540 sh (+5.81%)
Diamond Hill Capital 179,505 sh (+4.66%)
Private Capital 295,320 sh (+0.86%)
Jeff Ubben 19,383,877 sh (unchged)
First Eagle Investment 1,191,832 sh (unchged)
Bill Ackman 19,473,933 sh (unchged)
Steven Cohen Sold Out
George Soros Sold Out
Ruane Cunniff 34,089,378 sh (-0.71%)
Ruane Cunniff 34,083,713 sh (-0.72%)
Glenn Greenberg 5,877,016 sh (-4.07%)
Steve Mandel 5,569,460 sh (-32.50%)
Wallace Weitz 917,261 sh (-33.46%)
Chris Davis 1,877,040 sh (-46.50%)
Lee Ainslie 1,275,861 sh (-47.36%)
Andreas Halvorsen 4,058,343 sh (-55.29%)
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Joel Greenblatt 65,531 sh (-77.83%)
Paul Tudor Jones 1,256 sh (-98.74%)
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Q2 2015

VRX Guru Trades in Q2 2015

Kyle Bass 10,198 sh (New)
Ken Fisher 1,828 sh (New)
Steven Cohen 42,900 sh (New)
George Soros 9,254 sh (New)
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Andreas Halvorsen 4,616,738 sh (+13.76%)
Private Capital 302,715 sh (+2.50%)
Bill Ackman 19,473,933 sh (unchged)
Glenn Greenberg 2,500 sh (unchged)
Louis Moore Bacon Sold Out
Paul Tudor Jones Sold Out
Ruane Cunniff 33,884,050 sh (-0.60%)
Glenn Greenberg 5,701,010 sh (-2.99%)
Steve Mandel 5,310,143 sh (-4.66%)
Chris Davis 1,762,238 sh (-6.12%)
Joel Greenblatt 61,178 sh (-6.64%)
Lou Simpson 1,728,265 sh (-8.97%)
First Eagle Investment 1,055,332 sh (-11.45%)
Jana Partners 1,342,723 sh (-14.56%)
Wallace Weitz 716,730 sh (-21.86%)
Jeff Ubben 14,994,261 sh (-22.65%)
Diamond Hill Capital 130,617 sh (-27.23%)
Lee Ainslie 756,609 sh (-40.70%)
Jim Simons 107,789 sh (-77.35%)
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Guru Investment Theses on Valeant Pharmaceuticals International Inc

Bill Ackman Comments on Valeant - Sep 11, 2015

Valeant (NYSE:VRX)

On April 1, 2015, Valeant closed the acquisition of Salix, the largest acquisition in its history. Valeant has rapidly integrated Salix. Highlights of the integration include the realization of $500 million of cost synergies, the restructuring of Salix’s sales force, and an important FDA approval. Salix’s financial results since the acquisition have substantially exceeded budget.

Valeant’s second quarter organic revenue growth was 19%, marking the fourth consecutive quarter of greater than 15% organic growth. This quarter’s results benefited from the successful launch of several new products, including a portfolio of dermatology products largely developed by Valeant scientists. The company has materially increased full year sales and earnings guidance.

On its quarterly conference call, management presented a detailed review of its capital allocation track record representing $40 billion of investments in more than 140 transactions. The results are impressive. Management has generated an estimated 37% unlevered, after-tax annual rate of return on these transactions. We believe that Valeant will continue to be able to make attractive acquisitions in light of the extraordinarily large, fragmented and inefficient pharmaceutical industry.

On August 20, 2015, Valeant announced the acquisition of Sprout Pharmaceuticals, a company which earlier last week received approval for a female sexual dysfunction drug. We believe that Sprout reflects the opportunistic nature of Valeant’s business development program. Sprout’s Addyi drug offers the potential for billions of dollars of future sales in treating a condition for which there are limited alternative medical treatments. Valeant structured the transaction in a manner which moderates its downside risk in the event that sales are below projections, while allowing the company to benefit materially if the drug is a blockbuster. As part of the transaction, Valeant hired the Sprout management team including its superb CEO Cindy Whitehead.

Certain Pershing Square employees including myself were pre-FDA approval investors in Sprout and provided strong references to Sprout management on the quality and character of the Valeant management team, which were helpful to Sprout as the outcome for Sprout shareholders and its employees is heavily dependent on how the company and the drug is managed going forward. We discuss Pershing Square’s personal trading policies in detail below.

On July 1, 2015, Valeant hired a new Chief Financial Officer, Rob Rosiello. Rob comes to Valeant following a long career at McKinsey, where he led the firm’s M&A advisory practice. Former CFO Howard Schiller leaves Valeant’s executive team after nearly four years of service. Howard will remain with Valeant as a member of its board of directors and a major shareholder.

Despite a substantial increase from our purchase price earlier this year, we believe that Valeant shares remain undervalued. We believe that the stock price does not reflect the quality of Valeant’s franchises and future cash flows, and the business development, capital allocation and operating abilities of its management team.

From Pershing Square's semi-annual 2015 report.

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Sequoia Fund Comments on Valeant Pt. II - Aug 28, 2015

David Poppe:

I do not think we actually know the weighted average P/E on GAAP earnings. For companies like Valeant, I am not sure it would be a relevant number anyway. On the rest of it we will bring Rory up and put him on the spot.

Rory Priday:

Valeant (NYSE:VRX) does spend on R&D. I think the company is going to spend, adding Salix and the legacy Valeant businesses, about $300 million. We met with Mike a few weeks ago and he was telling us how with $300 million, you can get an awful lot done. Mike can get a lot done with very little. Jublia is a good example. Jublia is a toenail fungus drug that Valeant just launched last year. It spent $30 − $40 million developing that drug over the last few years, and it is probably going to do more than $300 million in sales this year.

Valeant has a number of other compounds in the pipeline, especially on the dermatology side. It bought Dow Pharmaceuticals early on in Mike’s reign at the company — he paid $285 million. Valeant has gotten Acanya out of it, which was a $70 − $80 million drug, and it is getting Jublia now. Valeant has six or seven drugs that it expects to launch over the next eighteen months. One of them, Vesneo, for glaucoma, management thinks could generate as much as $1 billion in sales globally. I think Mike said the company is going to spend less than $100 million on that program, in total. With an R&D budget of $300 million, Valeant can do quite a bit in terms of building its pipeline.

In terms of the pharmaceuticals and Valeant’s exposure to patents, one of the things the company has tried to do is go into areas where the company has durable products. Valeant has a lot of branded generic drugs overseas, which are off patent drugs. Valeant has contact lens solutions and OTC pharmaceuticals. It has CeraVe, which is a moisturizer. And Valeant has a lot of drugs that are not going off patent. The key in the pharma game is always, once you have the distribution, once you have a sales force in the ophthalmology space or in the dermatology space, how do you source innovation? You can do that through R&D or you can do that through buying things. Mike is making a big bet that it is cheaper sometimes to buy things, to source that innovation when you have the distribution. So it seems like that model is working. The business is growing right now pretty nicely.

David Poppe:

Mike Pearson believed that he could build a large and successful pharmaceutical company without taking the risk of expensive R&D that most large, successful pharma and biotech companies had taken. He would instead do it by focusing on specialties that did not require these risks through lean R&D, zero-based budgeting, minimal taxation, and high returns from the get-go on numerous acquisitions. He would target companies of all sizes in product and geographic areas in which big companies did not compete and in which there was minimal reimbursement risk. By avoiding all of those other risks, he would be able to take some risk by leveraging his balance sheet to generate very rapid growth and high returns on total capital and spectacularly high returns on shareholders’ equity.



On page three of the prospectus, there is a bar chart showing the performance. We all know that Valeant has a big effect on the total bottom line. But if you start with 2012 when the return was about 16% and the next year 35%, last year 8%, this year it is about 12% — if you backed out Valeant, what would those percentages be for the other 80% of the investments in the Sequoia Fund?

David Poppe:

Valeant has outperformed the S&P 500 by a substantial margin over the last three years. If you backed Valeant out, the other 80% would have underperformed the S&P, but that includes a substantial cash position at all times. The stock portfolio performed roughly in line with the S&P.


So on a percentage basis, what would let’s say last year’s 8% be without Valeant?

David Poppe:

About 4%.


Let’s say the current bottom line is about 12%, right?

David Poppe:

Valeant came into the year at 20% of the portfolio and it is up 56% year to date. So that is over eleven points of return for the total portfolio.

Sequoia is up about 12% so the rest of the portfolio generated less than one point of return and the market has generated about 3.


So you are saying that without Valeant, instead of its being 12%, it would be less than 1%?

David Poppe:

When a 20% position goes up over 50% that works out to a lot of performance, yes.


If you skip last year and you go to the wonderful year of 2013 when the result was 35%, what would that have been without Valeant, about?

David Poppe:

Valeant was up almost 100% that year. It started the year at about 12% of assets. If Valeant went up 100% in 2013 and it was 12% of the portfolio that was twelve points of performance. We were up 35 that year and began with about 14% in cash. So, the rest of the stocks, about 74% of the portfolio, were up around 31% in aggregate and generated 23 points of return.



I have two quick questions. I might have missed the first one, but I was wondering what you thought of Valeant going forward, if you thought it was going to perform similarly well from now to next year. The other question I had that you might have answered earlier is based on kind of an expertise thing. I noticed that given your asset allocations mostly in equities that you are probably very correlated to the S&P, and I was wondering if you had ever thought about investing in other asset classes, going into FX, commodities or anything to maybe reduce that, or not?

Bob Goldfarb:

I would disagree with your statement that our equities are closely correlated to the S&P. They are not. That lack of correlation accounts for much of the significant variance in performance, in both directions, between Sequoia and the S&P over 45 years. The firm has invested in bonds twice since it was founded. But given the results from this week’s auctions, maybe we should have invested in art. We did not. And we do not have any plans to diversify on that score. With regard to Valeant, we are not any good at predicting short term movements in the stock; so we are not going to hazard a guess. But I would say that it is definitely ... it is a virtual certainty that we will have significantly lower returns from Valeant in the next five years than we had in the first five.

From Ruane, Cunniff & Goldfarb Investor Day 2015 Transcript Part II - Sequoia Fund.

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Sequoia Fund Comments on Valeant Pharmaceuticals - Aug 27, 2015


Howard Schiller has resigned as the chief financial officer at Valeant Pharmaceuticals (NYSE:VRX) after four years. The Financial Times joked that he may be exhausted from ‘‘all this fiddling.’’ With Valeant’s lofty stock price likely bringing its percentage of our fund’s assets to upwards of 20% and with the company’s accelerated growth likely to be impacted by the specter of rising interest rates, have you been reevaluating our position?

Rory Priday:

He has done quite a bit of fiddling. The market cap since Howard Schiller joined Valeant went from less than $15 billion to over $70 billion today. But I think some people get burned out at the company just because of the number of deals that they do and the number of products that they manage. Some people refer to their time at Valeant as a tour of duty. It was a little concerning for us that he left, but he is going to be on the board hopefully for a long time. He told us that he would be there as long as investors wanted to have him. So I do not think he is going anywhere.1

David Poppe:

The fact that Howard is staying on the board is a pretty strong sign that there are no disagreements or unhappiness. Not so long ago, he was telling us that Valeant closed a deal at eight o’clock at night on New Year’s Eve. It is a very intense pace. Sometimes you make a lot of money and that pace is too much. I think it is more about that than it is about anything else.2



If I could ask about Valeant as well.... Being students of the family of Berkshire, can you discuss your views and perhaps comment on what Mr. Munger insinuated about Valeant recently?

Bob Goldfarb:

After reading about Mr. Munger’s comments, Rory looked for all the books on Harold Geneen that he could find. I think he is the man to answer your question. Rory?

Rory Priday:

We were not at the Daily Journal meeting, where Mr. Munger made the remark comparing Valeant and ITT. So we do not know exactly what he said. But it was something to the effect that Valeant was like ITT, except that Mike Pearson was worse than Harold Geneen, who became CEO of ITT in 1959. ITT was one of a number of serial acquirers that were active particularly in 1960s. Geneen bought a raft of companies — some of the names you will recognize today like Sheraton and Avis. Bob can provide more context than I can because he is pretty familiar with the company as well. But Geneen bought a lot of disparate businesses in different industries. I recall from the books I read that ITT’s sales went from $700 million to $17 billion over eighteen years and the earnings went from $29 million to $550 million. But ITT also issued a lot of equity and was prone to issue equity in order to buy these companies. By the time Geneen stepped down from the CEO’s spot, ITT’s share count had increased tenfold.

One of the big differences is that Valeant is focused on the healthcare sector. Last year, 57% of sales came from pharmaceuticals. The company is not really going outside the healthcare space, and it is not going far outside pharmaceuticals. There are plenty of pharma companies that operate in different therapeutic areas, and the main ones for Valeant today are dermatology, ophthalmology, and gastroenterology. Another difference is that Mike does not like to issue equity. Even though the Bausch & Lomb and Salix acquisitions required him to issue some equity, the share count has not really moved that much.

If you adjust for the dividend that Valeant paid out before the Biovail merger, earnings per share have gone from 81 cents to probably close to $27 this year. Next year’s EPS will be close to $38 a share. So the earnings will have gone up over 45 times in seven years.

Bob Goldfarb:

My guess, when I saw the comments, was that Charlie might have been targeting Valeant’s accounting. If I were going to question the accounting, the principal issue I would have would be with the accounting for the restructuring charges after Valeant makes a large acquisition. The company and the analysts who follow it add back these restructuring charges to derive the company’s cash earnings. What we do is add back the restructuring charges to the purchase price; so that if Valeant buys a company for $9 billion and there are $500 million of after-tax restructuring charges, the company effectively paid $9.5 billion rather than the $9 billion that it announced initially.

If you deduct the restructuring charges associated with significant acquisitions from a given year’s earnings, I do not think that is accurate accounting even though it does conform to GAAP. When we look at a company’s reported earnings in a given year, we are always searching for a sense of what the true earning power of that company is relative to the stock price. If you deduct the large restructuring charges in a given year, you are not going to get an accurate number for the earning power. Heinz — Berkshire acquired 50% of the company — is an example. Jonny, Heinz had very low earnings last year, right, because of the restructuring charges?

Jon Brandt:

Yes, it did.

Bob Goldfarb:

That was GAAP accounting. Heinz’s earning power is clearly very substantial but it was masked in the accounting by that huge restructuring charge. So when we looked at Berkshire in the year Heinz was acquired, we just added back those restructuring charges to get a better idea of what Heinz was earning, half of which Berkshire3 was earning as well.


I guess it is no surprise that most of the questions are about Valeant. So I will add one more. A few weeks ago in the papers it was reported that Valeant raised the price on a particular drug by 400% − 500%, within a very short period of time after purchasing the rights to that drug from another company. I was troubled by reading that. I am curious to hear your reaction.

Rory Priday:

I understand why reaction to that could be negative. Obviously, Sequoia and our clients that own Valeant are benefiting from those price increases. But in general, the capitalistic approach to pricing is to charge what the market will bear. Valeant believes that when it buys a drug and it is underpriced, it should charge a price that will maximize the company’s long term cash earnings. Some people maybe feel differently about healthcare. It is obviously a more sensitive topic.

Bob Goldfarb:

Embedded in the asking price for Marathon — which is the company that sold these drugs to Valeant — embedded in the sale price was a significant increase in the price of those drugs. In fact, Rory, what had Marathon’s management been advised to do with its prices?

Rory Priday:

We were told that Marathon had hired a consulting firm that advised it to take huge price increases. So Valeant was following the advice of the consulting firm, not that Mike would shy away from taking a price increase if he saw an opportunity. We are not really sure why the company decided to sell these drugs, but I think part of the reason was that management was looking at selling another asset. So Marathon needed to get this deal done. That is the one that David mentioned earlier when Valeant was working at 8:00 p.m. on New Year’s Eve.

Bob Goldfarb:

A point that the article missed, and I am not faulting the Wall Street Journal, is that either those prices or the volumes at those elevated prices are going to be very short-lived because both of those drugs are subject to genericization and Valeant management expects that they will be genericized within a couple of years. So Valeant had to recoup its investment and more within that short window of time in order to achieve the returns that management was expecting.

From Ruane, Cunniff & Goldfarb Investor Day 2015 Transcript Part I.

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Diamond Hill Capital Comments on Valeant Pharmaceuticals International Inc - Jul 25, 2014

We initiated a position in Valeant Pharmaceuticals International, Inc., (VRX) a specialty pharmaceutical company that is a leader in eye care and dermatology. Unlike most in the pharmaceutical space, Valeant has a very lean cost structure and a much more targeted focus for internal research and development. Instead, the company has been very successful in acquiring proven products. Management is among the best in the business, making every decision through the lens of shareholder value creation.

From Diamond Hill Capital (Trades, Portfolio)'s Select Fund Second Quarter 2014 Commentary.

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Sequoia Fund's Discussion of Valeant Pharmaceuticals - Mar 07, 2014

Our largest holding, Valeant, had an outstanding year. Full year numbers have not been reported yet, but we believe that cash earnings per share should exceed $6, well ahead of last year’s result. The big news of the year was the acquisition of Bausch & Lomb for nearly $9 billion in August. The deal should be highly accretive and, together with modest organic growth in its other operations, enable cash earnings per share to increase significantly in 2014. The integration of Bausch & Lomb appears on track with cost synergies, originally estimated by management at around $800 million, now expected to be over $850 million.

Cash earnings per share have probably more than tripled over the last four years. While we do not expect this growth trajectory to continue at such a rapid pace in the future, we do believe the company can continue to produce positive organic growth supplemented by ongoing acquisitions that will enable Valeant to grow cash earnings per share at an above-average rate.

We like Valeant’s approach to the pharmaceutical business. It has acquired a diverse stable of branded, generic and OTC drugs and, more recently, medical devices including dermal fillers and contact lenses. Many of its products are steady sellers in specialty categories like dermatology and ophthalmology. In our view, Valeant is essentially a value investor in health care products.

Source: Sequoia Fund's 2013 Annual Report - Management's Discussion of Fund Performance

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P/E(ttm) 86.30
VRX's P/E(ttm) is ranked lower than
85% of the 497 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 30.10 vs. VRX: 86.30 )
Ranked among companies with meaningful P/E(ttm) only.
VRX' s 10-Year P/E(ttm) Range
Min: 5.91  Med: 16.54 Max: 660.81
Current: 86.3
Forward P/E 10.53
VRX's Forward P/E is ranked higher than
89% of the 249 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 23.04 vs. VRX: 10.53 )
Ranked among companies with meaningful Forward P/E only.
PE(NRI) 86.50
VRX's PE(NRI) is ranked lower than
85% of the 478 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 30.00 vs. VRX: 86.50 )
Ranked among companies with meaningful PE(NRI) only.
VRX' s 10-Year PE(NRI) Range
Min: 5.9  Med: 16.26 Max: 631.44
Current: 86.5
P/B 10.32
VRX's P/B is ranked lower than
88% of the 665 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 3.12 vs. VRX: 10.32 )
Ranked among companies with meaningful P/B only.
VRX' s 10-Year P/B Range
Min: 1.03  Med: 2.79 Max: 14.44
Current: 10.32
P/S 7.45
VRX's P/S is ranked lower than
76% of the 695 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 3.19 vs. VRX: 7.45 )
Ranked among companies with meaningful P/S only.
VRX' s 10-Year P/S Range
Min: 1.61  Med: 4.00 Max: 10.42
Current: 7.45
PFCF 36.81
VRX's PFCF is ranked lower than
52% of the 266 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 36.27 vs. VRX: 36.81 )
Ranked among companies with meaningful PFCF only.
VRX' s 10-Year PFCF Range
Min: 2.67  Med: 11.54 Max: 281.44
Current: 36.81
POCF 29.88
VRX's POCF is ranked lower than
53% of the 400 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 27.18 vs. VRX: 29.88 )
Ranked among companies with meaningful POCF only.
VRX' s 10-Year POCF Range
Min: 4.05  Med: 10.34 Max: 48.31
Current: 29.88
EV-to-EBIT 45.16
VRX's EV-to-EBIT is ranked lower than
77% of the 515 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 21.53 vs. VRX: 45.16 )
Ranked among companies with meaningful EV-to-EBIT only.
VRX' s 10-Year EV-to-EBIT Range
Min: -5860.4  Med: 13.70 Max: 2452.2
Current: 45.16
PEG 1.55
VRX's PEG is ranked higher than
61% of the 270 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.39 vs. VRX: 1.55 )
Ranked among companies with meaningful PEG only.
VRX' s 10-Year PEG Range
Min: 0.76  Med: 1.73 Max: 249.36
Current: 1.55
Shiller P/E 316.45
VRX's Shiller P/E is ranked lower than
96% of the 142 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 48.86 vs. VRX: 316.45 )
Ranked among companies with meaningful Shiller P/E only.
VRX' s 10-Year Shiller P/E Range
Min: 8.9  Med: 42.00 Max: 441.21
Current: 316.45
Current Ratio 1.48
VRX's Current Ratio is ranked lower than
71% of the 621 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.31 vs. VRX: 1.48 )
Ranked among companies with meaningful Current Ratio only.
VRX' s 10-Year Current Ratio Range
Min: 0.72  Med: 1.63 Max: 9.68
Current: 1.48
Quick Ratio 1.19
VRX's Quick Ratio is ranked lower than
68% of the 621 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 1.69 vs. VRX: 1.19 )
Ranked among companies with meaningful Quick Ratio only.
VRX' s 10-Year Quick Ratio Range
Min: 0.59  Med: 1.25 Max: 9.3
Current: 1.19
Days Inventory 150.70
VRX's Days Inventory is ranked lower than
68% of the 635 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 112.83 vs. VRX: 150.70 )
Ranked among companies with meaningful Days Inventory only.
VRX' s 10-Year Days Inventory Range
Min: 89.43  Med: 145.94 Max: 333.87
Current: 150.7
Days Sales Outstanding 96.96
VRX's Days Sales Outstanding is ranked lower than
66% of the 600 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 72.11 vs. VRX: 96.96 )
Ranked among companies with meaningful Days Sales Outstanding only.
VRX' s 10-Year Days Sales Outstanding Range
Min: 43.41  Med: 80.09 Max: 146.62
Current: 96.96

Valuation & Return

Price/Projected FCF 4.11
VRX's Price/Projected FCF is ranked lower than
72% of the 326 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.15 vs. VRX: 4.11 )
Ranked among companies with meaningful Price/Projected FCF only.
VRX' s 10-Year Price/Projected FCF Range
Min: 0.33  Med: 2.08 Max: 11.22
Current: 4.11
Price/Median PS Value 1.86
VRX's Price/Median PS Value is ranked lower than
75% of the 616 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 1.20 vs. VRX: 1.86 )
Ranked among companies with meaningful Price/Median PS Value only.
VRX' s 10-Year Price/Median PS Value Range
Min: 0.5  Med: 1.55 Max: 5.41
Current: 1.86
Price/Peter Lynch Fair Value 3.46
VRX's Price/Peter Lynch Fair Value is ranked lower than
82% of the 164 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 1.53 vs. VRX: 3.46 )
Ranked among companies with meaningful Price/Peter Lynch Fair Value only.
VRX' s 10-Year Price/Peter Lynch Fair Value Range
Min: 0.67  Med: 2.55 Max: 61.66
Current: 3.46
Earnings Yield (Greenblatt) (%) 2.20
VRX's Earnings Yield (Greenblatt) (%) is ranked lower than
54% of the 743 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.75 vs. VRX: 2.20 )
Ranked among companies with meaningful Earnings Yield (Greenblatt) (%) only.
VRX' s 10-Year Earnings Yield (Greenblatt) (%) Range
Min: 0.1  Med: 6.10 Max: 20.6
Current: 2.2
Forward Rate of Return (Yacktman) (%) 84.96
VRX's Forward Rate of Return (Yacktman) (%) is ranked higher than
98% of the 328 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 6.65 vs. VRX: 84.96 )
Ranked among companies with meaningful Forward Rate of Return (Yacktman) (%) only.
VRX' s 10-Year Forward Rate of Return (Yacktman) (%) Range
Min: 2.5  Med: 16.60 Max: 85.2
Current: 84.96

Analyst Estimate

Dec15 Dec16 Dec17 Dec18
EPS($) 15.97 22.81 25.78 29.55
EPS without NRI($) 15.97 22.81 25.78 29.55

Business Description

Industry: Drug Manufacturers » Drug Manufacturers - Specialty & Generic
Compare:TKPYY, TEVA, AGN, FRX, MRX » details
Traded in other countries:VRX.Canada, BVF.Germany, VRX N.Mexico, VRX.Switzerland, 0QYW.UK,
Valeant Pharmaceuticals International Inc was formed under the Business Corporations Act (Ontario) on February 18, 2000, as a result of the amalgamation of TXM Corporation and Biovail Corporation International. Biovail was continued under the Canada Business Corporations Act effective June 29, 2005. In connection with the acquisition of Valeant Pharmaceuticals International (Valeant) in September 2010, Biovail was renamed Valeant Pharmaceuticals International, Inc. It is a multinational, specialty pharmaceutical and medical device company that develops, manufactures, and markets a range of branded, generic and branded generic pharmaceuticals, over-the-counter products OTC, and medical devices such as contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices, which are marketed directly or indirectly in over 100 countries. The Company operates in two segments; Developed Markets and Emerging Markets. In the Developed Markets segment, it focuses its efforts in the eye health, dermatology, and neurology therapeutic classes. The Developed Markets segment consists of four reporting units based on geography, namely; U.S., Canada and Australia, Western Europe, and Japan. In the Emerging Markets segment, it focuses on branded generics, OTC products, and medical devices. The Emerging Markets segment consists of three reporting units based on geography, namely; Central & Eastern Europe, Middle East and North Africa, Latin America, and Asia & South Africa. Its principal pharmaceutical products are; Wellbutrin XL, Xenazine, Zovirax Cream, Zovirax, Lotemax, Arestin and Prolensa. Its principal OTC products are; PreserVision, ReNu Multiplus, Ocuvite, Artelac, and CeraVe. The Company relies on a combination of contractual provisions, confidentiality policies and procedures and patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of its technology and business. Its top four geographic markets are; the U.S. and Puerto Rico, Canada, Poland and Russia. The Company competes with specialty and other pharmaceutical companies, medical device companies, biotechnology companies, OTC companies and generic manufacturers, in the U.S., Canada, the EU and in other countries in which it market its products. The principal raw materials, including active pharmaceutical ingredient, used by the Company "or its third party manufacturers" for its various products are purchased in the open market or are otherwise available from several sources. The Company is subject to extensive U.S. federal and state health care marketing and fraud and abuse regulations, such as the federal False Claims Act, federal and provincial marketing regulation in Canada and similar regulations in foreign countries in which it may conduct its business.
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