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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 : 4/10

vs
industry
vs
history
Cash-to-Debt 0.02
VRX's Cash-to-Debt is ranked lower than
98% of the 719 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.89 vs. VRX: 0.02 )
Ranked among companies with meaningful Cash-to-Debt only.
VRX' s Cash-to-Debt Range Over the Past 10 Years
Min: 0.02  Med: 0.17 Max: No Debt
Current: 0.02
Equity-to-Asset 0.07
VRX's Equity-to-Asset is ranked lower than
95% of the 660 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 0.62 vs. VRX: 0.07 )
Ranked among companies with meaningful Equity-to-Asset only.
VRX' s Equity-to-Asset Range Over the Past 10 Years
Min: 0.07  Med: 0.51 Max: 0.85
Current: 0.07
0.07
0.85
Piotroski F-Score: 4
Altman Z-Score: 0.14
Beneish M-Score: -3.07
WACC vs ROIC
5.88%
-1.24%
WACC
ROIC
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 : 7/10

vs
industry
vs
history
Operating Margin % -5.82
VRX's Operating Margin % is ranked lower than
77% of the 672 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 7.86 vs. VRX: -5.82 )
Ranked among companies with meaningful Operating Margin % only.
VRX' s Operating Margin % Range Over the Past 10 Years
Min: -9.32  Med: 13.49 Max: 24.38
Current: -5.82
-9.32
24.38
Net Margin % -24.92
VRX's Net Margin % is ranked lower than
82% of the 673 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 5.73 vs. VRX: -24.92 )
Ranked among companies with meaningful Net Margin % only.
VRX' s Net Margin % Range Over the Past 10 Years
Min: -24.92  Med: 1.89 Max: 26.4
Current: -24.92
-24.92
26.4
ROE % -49.37
VRX's ROE % is ranked lower than
87% of the 690 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 6.66 vs. VRX: -49.37 )
Ranked among companies with meaningful ROE % only.
VRX' s ROE % Range Over the Past 10 Years
Min: -52.21  Med: 0.33 Max: 17.72
Current: -49.37
-52.21
17.72
ROA % -5.08
VRX's ROA % is ranked lower than
76% of the 721 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 3.48 vs. VRX: -5.08 )
Ranked among companies with meaningful ROA % only.
VRX' s ROA % Range Over the Past 10 Years
Min: -5.13  Med: 0.3 Max: 13.02
Current: -5.08
-5.13
13.02
ROC (Joel Greenblatt) % -25.25
VRX's ROC (Joel Greenblatt) % is ranked lower than
77% of the 710 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 13.44 vs. VRX: -25.25 )
Ranked among companies with meaningful ROC (Joel Greenblatt) % only.
VRX' s ROC (Joel Greenblatt) % Range Over the Past 10 Years
Min: -69.94  Med: 64.52 Max: 144.06
Current: -25.25
-69.94
144.06
3-Year Revenue Growth Rate 24.80
VRX's 3-Year Revenue Growth Rate is ranked higher than
88% of the 600 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 6.00 vs. VRX: 24.80 )
Ranked among companies with meaningful 3-Year Revenue Growth Rate only.
VRX' s 3-Year Revenue Growth Rate Range Over the Past 10 Years
Min: -10.8  Med: 24.8 Max: 55.2
Current: 24.8
-10.8
55.2
3-Year EBITDA Growth Rate 19.30
VRX's 3-Year EBITDA Growth Rate is ranked higher than
67% of the 574 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 9.70 vs. VRX: 19.30 )
Ranked among companies with meaningful 3-Year EBITDA Growth Rate only.
VRX' s 3-Year EBITDA Growth Rate Range Over the Past 10 Years
Min: -35.7  Med: 14.5 Max: 113.3
Current: 19.3
-35.7
113.3
3-Year EPS without NRI Growth Rate 47.70
VRX's 3-Year EPS without NRI Growth Rate is ranked higher than
89% of the 541 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 7.50 vs. VRX: 47.70 )
Ranked among companies with meaningful 3-Year EPS without NRI Growth Rate only.
VRX' s 3-Year EPS without NRI Growth Rate Range Over the Past 10 Years
Min: -37.1  Med: 11.5 Max: 81
Current: 47.7
-37.1
81
GuruFocus has detected 1 Warning Sign with Valeant Pharmaceuticals International Inc $VRX.
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» VRX's 10-Y Financials

Financials (Next Earnings Date: 2017-06-15 Est.)


Revenue & Net Income
Cash & Debt
Operating Cash Flow & Free Cash Flow
Operating Cash Flow & Net Income

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Guru Trades

Q1 2016

VRX Guru Trades in Q1 2016

Arnold Schneider 66,000 sh (New)
David Tepper 945,000 sh (New)
Joel Greenblatt 15,088 sh (New)
Francis Chou 976,843 sh (New)
Signature Select Canadian Fund 153,900 sh (New)
Steven Cohen 3,574,900 sh (+19871.51%)
Chris Davis 7,240,337 sh (+91.34%)
Diamond Hill Capital 571,305 sh (+89.57%)
Bill Ackman 21,591,122 sh (+30.14%)
Private Capital 342,916 sh (+1.97%)
John Paulson 13,284,800 sh (+0.14%)
First Eagle Investment 11,970 sh (unchged)
Jeff Ubben 14,994,261 sh (unchged)
John Paulson 73,100 sh (unchged)
John Paulson 169,800 sh (unchged)
Steven Cohen 529,600 sh (unchged)
Jeremy Grantham Sold Out
Jana Partners Sold Out
Andreas Halvorsen Sold Out
Steve Mandel Sold Out
Lou Simpson 2,591,399 sh (-3.97%)
First Eagle Investment 1,495,332 sh (-8.83%)
Ruane Cunniff 30,308,449 sh (-14.32%)
Glenn Greenberg 2,034,281 sh (-67.46%)
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Q2 2016

VRX Guru Trades in Q2 2016

Jim Simons 111,889 sh (New)
Francis Chou 1,446,843 sh (+48.11%)
John Paulson 19,072,000 sh (+43.56%)
Steven Cohen 3,834,400 sh (+7.26%)
Chris Davis 7,304,762 sh (+0.89%)
Bill Ackman 21,591,122 sh (unchged)
Jeff Ubben 14,994,261 sh (unchged)
Steven Cohen 1,430,000 sh (unchged)
David Tepper Sold Out
Glenn Greenberg Sold Out
Arnold Schneider Sold Out
Joel Greenblatt Sold Out
Diamond Hill Capital 557,933 sh (-2.34%)
Lou Simpson 2,427,903 sh (-6.31%)
Private Capital 308,142 sh (-10.14%)
First Eagle Investment 380,900 sh (-74.53%)
Ruane Cunniff 446,442 sh (-98.53%)
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Q3 2016

VRX Guru Trades in Q3 2016

Jim Simons 432,489 sh (+286.53%)
Steven Cohen 4,621,300 sh (+20.52%)
Private Capital 347,368 sh (+12.73%)
Chris Davis 7,365,210 sh (+0.83%)
Francis Chou 1,446,843 sh (unchged)
First Eagle Investment 380,900 sh (unchged)
Steven Cohen 1,430,000 sh (unchged)
Bill Ackman 21,591,122 sh (unchged)
Jeff Ubben 14,994,261 sh (unchged)
Lou Simpson Sold Out
Signature Select Canadian Fund Sold Out
John Paulson 18,871,000 sh (-1.05%)
Diamond Hill Capital 346,336 sh (-37.93%)
Ruane Cunniff 275,963 sh (-38.19%)
» More
Q4 2016

VRX Guru Trades in Q4 2016

Jim Simons 2,913,089 sh (+573.56%)
First Eagle Investment 613,800 sh (+61.14%)
Private Capital 478,125 sh (+37.64%)
Francis Chou 1,960,843 sh (+35.53%)
John Paulson 19,384,500 sh (+2.72%)
Steven Cohen 1,320,000 sh (unchged)
George Soros 500,000 sh (unchged)
Jeff Ubben 14,994,261 sh (unchged)
Ruane Cunniff Sold Out
Steven Cohen Sold Out
Chris Davis 7,000,303 sh (-4.95%)
Bill Ackman 18,114,432 sh (-16.10%)
Diamond Hill Capital 34,500 sh (-90.04%)
» More
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Business Description

Industry: Drug Manufacturers » Drug Manufacturers - Specialty & Generic    NAICS: 325412    SIC: 3741
Compare:NAS:NBIX, NYSE:PTHN, OTCPK:STDAF, NYSE:CTLT, NAS:MDCO, NAS:OPK, NYSE:TARO, OTCPK:IZQVF, NAS:AKRX, NYSE:MNK, NAS:IRWD, NAS:HZNP, NAS:ENDP, NAS:PCRX, OTCPK:HYPMY, NAS:RDUS, NAS:SUPN, OTCPK:HKMPF, OTCPK:KSPHF, NAS:EGRX » details
Traded in other countries:VRX.Canada, BVF.Germany, VRX N.Mexico, VRX.Switzerland, 0QYW.UK,
Valeant Pharmaceuticals International Inc is a specialty pharmaceutical and medical device company that develops, manufactures, and markets a range of generic and branded generic pharmaceuticals, over-the-counter products and medical devices.

Valeant Pharmaceuticals is a global specialty pharmaceutical firm with a focus on branded products for the dermatology, gastrointestinal, and ophthalmology markets. The firm also has a branded generics business that operates primarily in Latin America, Eastern Europe, and Asia.

Guru Investment Theses on Valeant Pharmaceuticals International Inc

Francis Chou Comments on Valeant - Mar 24, 2017

At the current price, Valeant (NYSE:VRX) stock is not a mouth-watering bargain at less than 3 times earnings or less than 2 times free cash flow because it carries around $30 billion of debt, but it is still relatively cheap. If Valeant can reduce its debt by as much as $8 billion as stated by management, through a combination of organic earnings and the sale of non-core assets, it will remove the feeling that the company is standing on the edge of a precipice.

A large debt means that any small misstep or missed guidance could result in bankruptcy. If the company’s debt is reduced, it will then be valued based on the free cash flow generated from operations. In addition, Valeant is also undergoing criminal investigations over its ties with Philidor. However, we believe the impact of these litigations is likely to be rather limited given that it pertains to only 5% of its revenue. Although, we do emphasize that it is difficult to accurately predict the outcome or impact of any lawsuit.

In conclusion:

  • Valeant could return to trading at the normal multiples if its debt is significantly reduced and the impact and costs of litigations are determined.

  • The company appears to have good cash flow characteristics, resulting from solid portfolio pipelines.

  • While we believe Valeant is cheap, the undervaluation is not as deep as it first appears. One must look at return on a fully capitalized basis to get the full picture. Based on the information we now have, the initial price we paid was on the high side but we believe that the intrinsic value is higher than the average cost we have paid for Valeant.

From Francis Chou (Trades, Portfolio)'s Opportunity Fund fourth quarter 2016 shareholder letter.

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Bill Ackman Comments on Valeant Pharmaceuticals International - Dec 09, 2016

Since our last update in August, Valeant (NYSE:VRX) has bolstered its management ranks, improved dermatology average selling prices (ASPs), stabilized its salesforces, and experienced acceleration in Salix script trends. Despite these positive developments, financial results continue to be challenged as certain unexpected events impacted Valeant in Q3 and weakness in Valeant’s U.S. Diversified Products segment continues to weigh on near- to medium-term earnings.

Valeant reported quarterly revenue of $2.48 billion, Adjusted EBITDA of $1.16 billion and Adjusted EPS of $1.55. This represented sequential improvement of 2%, 7% and 11%, respectively, as the business continues to stabilize following the disruption of recent quarters.

Beginning this quarter, management provided disclosure under the new financial reporting structure. The business is now aligned across three verticals: (1) Bausch + Lomb / International (“Durable”), (2) Branded Rx (“Growth”), and (3) U.S. Diversified Products (“Cash Generating”). This new disclosure is consistent with Valeant’s commitment to greater transparency. Over time, Valeant has indicated that a substantial mix-shift will take place in its business as Bausch + Lomb / International and Branded Rx target mid-single digit revenue growth (high-single digit operating income growth) while Valeant’s U.S. Diversified Products segment declines. As this mix-shift happens over time, a greater percentage of Valeant’s profits will come from higher quality, higher growth and more valuable businesses.

In conjunction with announcing Q3 results, management updated 2016 guidance, reducing full year estimates. Full year Adjusted EBITDA and EPS are now projected to be $4.25 billion to $4.35 billion (down from $4.8 billion - $4.95 billion) and $5.30 to $5.50, respectively (down from $6.60 to $7.00). Implicit in updated guidance is a sequential decline in Q4 versus Q3. Management addressed some of the key factors on the earnings call contributing to this dynamic, some of which are permanent headwinds while others are temporary.

Valeant management provided initial perspectives on 2017 results on the earnings call including an expectation for Bausch + Lomb / International and Branded Rx to achieve mid-single-digit revenue growth and high-single-digit operating profit growth. Management anticipates that this growth will be more than offset by the decline in U.S. Diversified Products (specifically the neurology and generics business) as a result of patent expirations and generic competition. Management announced the planned implementation of a zero-based-budgeting initiative, expected to save $75 to $100 million in 2017 and a goal to improve gross profit by $150 to $250 million by 2020 through supply chain rationalization.

Management reiterated its commitment to achieve more than $5 billion of debt reduction over the next 18 months from a combination of cash generation and asset divestitures. We believe that asset sales are an important catalyst for value creation and stock price appreciation at Valeant. Valeant has identified approximately $8 billion of assets that are non-core which it has begun to market for sale.

From Bill Ackman (Trades, Portfolio)'s Pershing Square third-quarter shareholder letter.

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Bill Ackman Comments on Valeant - Aug 29, 2016

At the time of our last financial report in March, Steve Fraidin and I had just joined the board of Valeant (NYSE:VRX) in an attempt to stabilize and enhance our investment in the company. Since we joined the board, the company has hired Joe Papa, an extremely capable and talented CEO, the substantial majority of the board has been replaced, the company has returned to filing its fmancial reports in a timely fashion, its bank debt has been successfully modified to substantially reduce the risk of covenant default, a highly credible and experienced CFO, Paul Herendeen, and General Counsel, Christina Ackermann, have joined the company, a new strategy and new fmancial reporting structure have been announced, and approximately $8 billion of assets are being evaluated for potential disposition.

As a result of the above developments, we believe that Valeant has been successfully stabilized and is on the path to recovery. While we still expect the occasional negative press article about the company due to the ongoing government investigations and civil litigation, continued business progress should begin to focus investors and the public's attention on the company's high quality brands and products and its mission to improve patients' lives. With improved business performance, cash generation and leverage reduction, we expect Valeant's stock price to increase substantially from current levels.

Valeant reported Adjusted EBITDA of $1.09 billion in the quarter and Adjusted EPS of $1.40. This represented sequential improvement vs. Q1 as the business continues to stabilize following the disruption from the events of the fall / winter of 2015.

Management reaffirmed full year 2016 guidance of $4.80 to $4.95 billion of Adjusted EBITDA and Adjusted EPS of $6.60 to $7.00. On the earnings call, management discussed some of the key factors which are likely to accelerate growth through the end of the year including: increased profitability in dermatology, an acceleration in script growth at Salix (principally Xifaxan), emerging markets growth, the launch of Relistor Oral and traditional seasonality in the business.

Management announced specific actions the company has taken in recent weeks to return the dermatology business to profitable growth, including progress in improving the Walgreens distribution arrangement (beginning August 5, 2016), the launch of a coupon program for independent pharmacies (June 27th), a new prior authorization program administered by CoverMyMeds (August 4, 2016) and enhanced pharmacist training and education. Each of these initiatives should help improve the profitability of the dermatology franchise which has been challenged in recent quarters. On the earnings call, management discussed a plan to reduce the cost structure in-line with the current revenue base driven by consolidation of duplicative functions, vendor rationalization and other efficiencies.

The company introduced a new financial reporting structure which will be rolled out later this year. The business will now be aligned across three verticals: (1) Bausch + Lomb / International ("Durable Growth"), (2) Branded Rx ("Growth") and (3) U.S. Diversified Products ("Cash Generating"). This new disclosure provides a more logical and informative description of Valeant's different businesses, which when coupled with greater disclosure, provides investors with a more complete understanding of Valeant's growth trajectory, business durability and quality. Because Valeant's higher quality growth businesses — which represent 80% of revenue — are expected to grow rapidly, while the company's lower quality businesses — which currently represent 20% of revenues — are declining, over time Valeant's overall growth rate and business quality and cash flow durability should improve. This should lead investors to pay a higher valuation for the company over time.

In conjunction with the new reorganization, Valeant announced promotions of current executives and the hiring of three new executives: Christina Ackermann (EVP, General Counsel), Scott Hirsch (SVP, Business Strategy and Communications) and Sam Eldessouky (SVP, Corporate Controller and Chief Accounting Officer). On August 22, 2016, Valeant announced that Paul Herendeen, previously the CFO of Zoetis, would become CFO of the company. We think Paul is a superb choice in light of his long-term track record as a public company CFO in the specialty pharmaceutical industry, including his experience in turnarounds, highly leveraged situations, and his recent tenure at Zoetis where he led a substantial cost reduction initiative. We were very impressed with the work Paul did at Zoetis and are delighted to be working with him at Valeant.

Management reiterated its expectation to substantially reduce leverage in the coming months. The company expects to reduce debt by more than $5 billion over the next 18 months funded primarily by cash flow and to a lesser extent by asset sales. Management announced that it had identified non-core assets which represent a transaction value of —$8 billion or 11 times EBITDA (based on comparable assets sales and/or unsolicited indications of interest) which are being evaluated for divestment. Valeant owns a large collection of highly marketable assets which, due to the highly acquisitive and well-capitalized nature of the pharma sector, should be able to achieve attractive transaction values in our view.

Lastly, management noted that while the company is projected to be in compliance with its financial maintenance covenants under the bank debt through 2016 at current guidance, the "cushion is not as large" as management would like it to be. As a result, the company has negotiated a favorable modification of its bank credit facilities to reduce EBITDA maintenance covenants and permit a greater amount of asset sales.

From Bill Ackman (Trades, Portfolio)'s mid-year 2016 letter.

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Bill Ackman Comments on Valeant - May 11, 2016

We have made material progress at Valeant (NYSE:VRX) since our last communication. Shortly after Steve Fraidin and I joined the board in March, the company launched a search process for a new CEO. On May 2nd, Joe Papa, formerly the Chairman and CEO of Perrigo (NYSE: PRGO), joined Valeant as its Chairman and CEO. We believe that Joe is an ideal choice for Valeant as he has extensive senior leadership experience in all aspects of the pharmaceutical industry, a strong reputation for integrity, and an excellent track record at Perrigo as reflected by the company’s 24% compounded annual return to shareholders during his tenure. Joe is passionate about the opportunity for value creation at Valeant, and we are excited to have him on board.



Valeant filed its 10-K as expected on April 29th, eliminating any potential default under its existing credit agreements. Other than the previously reported $58 million revenue restatement from Q4 2014, there were no other restatements required in the company’s audited statements. As this was likely one of the most carefully audited financial statements ever, this should serve to comfort investors as to the integrity of the company’s financial statements.

Valeant will have a largely new board slate for the upcoming annual meeting in June. Two of the company’s legacy directors will remain on the board – Bob Power and Bob Ingram, the company’s former Chairman. Over the past six weeks, the current board led by Bob Ingram has worked very effectively despite difficult circumstances. We are extremely appreciative of the board’s hard work and commitment to the company, and for the two Bobs’ willingness to continue to serve going forward.

The new board of Valeant will be comprised of CEO Joe Papa, Bob Ingram and Bob Power, the four directors who joined in March – Tom Ross, Fred Eshelman, Steve Fraidin and myself – Rob Hale, a representative of ValueAct, and three new directors who will join at the annual meeting. The new board will have ample shareholder representation, substantial executive level pharmaceutical industry expertise, and accounting expertise, as well as a practicing dermatologist.

There is much work to do at Valeant, which, among other issues, includes restoring the dermatology business to growth while working out transition issues with its new Walgreens distribution arrangement, accelerating the growth of Salix, Valeant’s gastrointestinal business, and reducing the company’s debt through free cash flow generation and the potential sale of non-core assets. We believe that Valeant has some of the best and most durable assets in the pharmaceutical industry, which do not require aggressive pricing in order to generate growth and substantial free cash flow. It will take time for Valeant to regain its stakeholders’ trust. We believe that this will occur over time as the company delivers several new quarters of results and continues to fulfill its commitments to shareholders, patients, doctors, and the community at large. Over time under Joe’s leadership, we expect the market to rerate Valeant to a substantially higher valuation reflective of its underlying business.

From Bill Ackman (Trades, Portfolio)'s first quarter shareholder letter.

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Wallace Weitz Comments on Valeant Pharmaceuticals - Apr 22, 2016

Valeant Pharmaceuticals (NYSE:VRX) is a multi-national, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range of brand name, generic and over-the-counter products in over 100 countries. We closed our position in Valeant toward the end of October last year. The stock came under heavy selling pressure as a result of increased political scrutiny around drug pricing and possible wrongdoing at one of its “alternative fulfillment” pharmacy partners. Our decision to sell was ultimately based on a combination of important questions we had difficulty answering regarding potential long-term reputational damage to Valeant’s business, the likelihood of difficult payer negotiations, future business model uncertainty and financial leverage. While our investment in Valeant ended on a disappointing note, it was a healthy multi-year contributor to Fund performance.

From Wallace Weitz (Trades, Portfolio)'s Weitz Value Fund 1st quarter 2016 commentary.

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Sequoia Fund Comments on Valeant Pharmaceuticals - Mar 01, 2016

Sequoia turned in its second straight year of poor results in 2015.Teasing out the source of our underperformance doesn’t take much work. We began the year with a 20% weighting in Valeant Pharmaceuticals (NYSE:VRX). Valeant rose by more than 80% through the summer, driving very strong gains for the Fund. But the price collapsed in the fall amid revelations and allegations about the company’s business practices. Ultimately, Valeant declined 29% for the year and by more than 70% from its 52-week high to its low. We bought more shares in October, and we calculate that Valeant contributed -6.3% to Sequoia’s return of -7.3% for the year.



At its peak price,Valeant constituted more than 30% of the Fund’s assets. We’ve been criticized for allowing the holding to grow so large, but our feeling before the crisis erupted was that Valeant was executing well on its business model. Earnings were growing rapidly and we believed the company was making intelligent acquisitions that were creating shareholder value.Valeant was taking outsized price increases on a portion of its drug portfolio, but the entire branded pharmaceutical industry routinely has taken substantial annual price increases on drugs for more than a decade.





As you are no doubt aware,Valeant was rocked in the fall by the closure of an affiliated specialty pharmacy, Philidor, after health care payers said they would not reimburse Philidor for claims it submitted. It has been further buffeted by subpoenas from Congress over its pricing strategies and by regulatory and law enforcement scrutiny over practices at Philidor. A committee of Valeant’s board of directors is investigating the relationship with Philidor.Valeant recently said it would restate prior earnings as it improperly accounted for sales to Philidor in late 2014.



As these inquiries continue andValeant remains a subject of intense scrutiny, the share price is very unstable. For the stock to regain credibility with long-term investors, Valeant will need to generate strong earnings and cash flow this year, make progress in paying down some of its debt, demonstrate that it can launch new drugs from its own development pipeline and avoid provoking health care payers and the government. The company has committed to doing all of these things and we are confident interim CEO Howard Schiller and interim board chairman Robert Ingram are focused on the right metrics. Before CEO J. Michael Pearson went out on an extended medical leave, he also seemed committed to this path.



In the end, Valeant’s ability to grow earnings over a period of years will determine the stock price. A few months ago, the consensus cash earnings estimate from Wall Street analysts for Valeant in 2016 was about $16 per share. Today, estimates are closer to $13.50. This represents material deterioration, but still good growth over 2015 results. And with strong performance from its gastrointestinal drug Xifaxan and a slate of new product releases in 2016, Valeant has the potential to grow earnings for several years driven more by organic volume increases than price hikes.



As the largest shareholder of Valeant, our own credibility as investors has been damaged by this saga. We’ve seen higher-than-normal redemptions in the Fund, had two of our five independent directors resign in October and been sued by two Sequoia shareholders over our concentration in Valeant. We do not believe the lawsuit has merit and intend to defend ourselves vigorously in court.



From Sequoia Fund's 4th quarter 2015 shareholder letter.



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Bill Ackman Comments on Valeant - Jan 27, 2016

When we purchased Valeant at an average price of $196, we bought the company at a modest discount to intrinsic value as represented by the company’s existing portfolio of products and businesses, but at a very substantial discount to fair value in light of its acquisition track record, the large number of potential targets, and its competitive advantages which include its low-cost operating model and favorable tax structure. When the stock price rose this summer to the mid-$200s per share, we did not sell as we believed it was probable the company would likely complete additional transactions that would meaningfully increase intrinsic value. In retrospect, this was a very costly mistake.

Our failure to sell stock wasn’t entirely an unforced error as we found ourselves largely restricted from trading during this period. During the summer, we were made aware of a large potential transaction that Valeant was working on, and as a result, we were restricted from trading at a time when it would have been prudent to take some money off the table. In retrospect, in light of Valeant (NYSE:VRX)’s leverage and the regulatory and political sensitivity of its underlying business, we should have avoided becoming restricted to preserve trading flexibility, or alternatively, we should have made a smaller initial investment in the company.

From Bill Ackman (Trades, Portfolio)'s Pershing Square Annual Investor Letter 2015.

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Wallace Weitz Comments on Valeant Pharmaceuticals - Jan 22, 2016

Valeant Pharmaceuticals (NYSE:VRX) is a multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range of brand name, generic, branded generic and over-the-counter (OTC) products in over 100 countries. We closed the firm’s position in Valeant toward the end of October. The stock came under heavy selling pressure in September as a result of increased political scrutiny regarding the increasing cost of prescription drugs. We believed pricing risks were (and are) real and growing but navigable. Our base-case business value estimate assumed (and had always assumed) minimal contribution from future price increases. In October, however, questions arose about the possibility of wrongdoing and questionable disclosure regarding Philidor, an “alternative fulfillment” pharmacy Valeant used to distribute portions of its dermatology medications. Our decision to sell was ultimately based on a combination of difficult to answer questions, Valeant’s potential long-term reputational impact, future business model uncertainty, and financial leverage. We also had competing uses for capital in healthcare with more attractive risk-reward profiles. While our investment in Valeant ended on a disappointing note, it was a healthy multi-year contributor to performance.

From Wallace Weitz (Trades, Portfolio)'s fourth quarter 2015 Value Fund commentary.

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Bill Ackman Comments on Valeant - Dec 16, 2015

Valeant (NYSE:VRX)

Valeant’s stock price declined significantly in the quarter as a result of statements by politicians regarding drug price increases, subpoenas from regulators, attacks by short sellers, and the termination of Valeant’s relationship with Philidor, a specialty pharmacy distribution channel used for dermatology products. On October 30, 2015, we held an investor conference call to answer the many questions we received about our investment in Valeant.

Approximately six weeks ago, Valeant’s board formed an ad hoc committee to investigate the recent allegations made against Philidor, including claims that Valeant management was involved in the alleged wrongdoing at Philidor. The committee has hired former U.S. Deputy Attorney General and Kirkland & Ellis partner Mark Filip to lead the investigation.

Valeant will hold an in-person, half-day investor meeting tomorrow, Wednesday, December 16th, to provide updated financial guidance for 2016, review the company’s strategy, and answer investor questions. We believe that this is an important step for Valeant to restore investor confidence.

On November 23rd, we filed a 13D reflecting our increased stake in Valeant. Before we increased our position, we did substantial due diligence by re-underwriting our investment in the company. In particular, we reviewed all of the short sellers’ allegations, the potential political and regulatory risks, the impact of the shutdown of Philidor, and the company’s capital structure, debt covenants, and overall financial risk. We updated our financial model in light of recent business developments in order to better assess free cash flows, how quickly the company would be able to reduce leverage, the probability of financial distress, and to determine a conservative estimate of Valeant’s intrinsic value.

Ultimately, we concluded that the risk of bankruptcy or financial distress was de minimis in light of (1) the highly cash-flow-generative nature of the business, (2) the minimal debt maturities over the next several years, (3) the nature of Valeant’s financial covenants, and the highly diversified (both by therapeutic area and geography) product portfolio. Because Valeant owns a highly diversified, divisible, and desirable portfolio of products that can be sold product -by-product and/or division-by-division in an industry with many well-capitalized buyers, it could deleverage at an even more rapid rate if it chose to do so. Once we determined that the risk of financial default was extremely small and the stock was trading at an enormous discount to intrinsic value, we considered various approaches to increasing our investment.

Generally, we purchase stocks outright to get exposure to a particular investment. In this case, we took advantage of the high volatility of Valeant stock, its extremely low share price, and the high degree of market uncertainty in choosing to build a position that offered us a compelling reward for the potential risk. Rather than purchase common stock outright, we increased our investment through a contemporaneous series of over-the-counter option transactions. The bulk of the increase in our investment in Valeant was created through the sale of European-style put options struck at a $60 stock price, the purchase of American-style call options at a $95 stock price, and the sale of European -style call options at $165 stock price, all of which expire in January 2017. This derivative position gives us the upside of the stock from $95 per share up to $165 per share until January 2017. The net purchase price of the options was $6.75.

In summary, if the stock rises to $ 165 or more by January 2017, we will make more than 10 times our net investment over this period. Our downside is equal to the net purchase price of each option plus the decline in the stock price, if any, below $60 per share as of January 2017. By selling European-style put options, the shares cannot be put to us until January of 2017. By then, we estimate that Valeant’s stock price will be substantially in excess of $60 per share, potentially several multiples of this price.

The upside of our derivative investment is approximately equal to that of owning the stock outright at $95 per share with 30% less downside, i.e., if the stock were to go zero, we would lose approximately $67 per share, (the put strike price plus the net option premium). By selling two options for every option that we have purchased, we have also minimized the effective cost of this investment and limited the impact of rapid time value decay which is characteristic of an outright option purchase on a highly volatile stock. In a worse-case scenario, which we believe is extremely unlikely to occur, we risked approximately 4% of additional capital on this investment while increasing our notional exposure to Valeant by about 6% of the portfolio.

We added to our investment because we believe that Valeant shares are enormously undervalued. While we expect a degree of disruption to Valeant’s dermatology business, we believe that the fundamentals of Valeant’s overall business remain strong. Just this morning, Valeant announced a 20-year agreement with Walgreens Boots Alliance, Inc., the largest pharmacy chain in the U.S. with more than 8,000 units, which will “more than replace” Valeant’s Philidor specialty pharmacy distribution. We believe that this agreement will go a long way to addressing concerns about the disruption to Valeant’s dermatology business by expanding convenient and affordable access to Valeant products, and will help restore credibility by the company partnering with the largest and best-managed pharmacy chain. The agreement provides for discounted pricing for Valeant’s dermatology and ophthalmology products reducing costs for the health care system.

Valeant’s stock price is currently impacted by the high degree of uncertainty created by the shutdown of Philidor and the corresponding investigation of allegations, recent political scrutiny of the pharmaceutical industry, negative press coverage of Valeant, and technical trading factors. These technical factors include: (1) the large amount of tax-loss selling which will likely continue until year end, (2) redemption-related sales from funds whose performance was affected by the decline in Valeant’s stock price, (3) “window dressing” where investment managers who held Valeant stock sell it before year-end so they do not need to show their investors the actual losses they incurred holding the position, and (4) the inherent complexity of the company that requires substantial due diligence before new investors establish their investment.

Because of the controversy around Valeant, many portfolio managers have been unwilling to retain an investment in the company as client scrutiny and headline risk became intolerable. In light of the above technical factors, we believe that most new investors would prefer to wait to establish an investment in Valeant until after the upcoming analyst day and when year-end technical factors abate.

There are a number of relatively short-term catalysts that we believe may lift the overhang on Valeant shares. We expect that this morning’s announcement will reduce if not eliminate concerns about disruptions in the distribution of Valeant’s dermatology products. We expect that additional uncertainty will begin to dissipate at tomorrow’s analyst day when the company will announce its revenues and earnings guidance for 2016 and answer questions from existing and prospective investors. In addition, we expect the results of the Philidor investigation to be announced sometime in the first quarter of next year. The company will likely file its 10-K in February with the results of Price Waterhouse’s year-end audit. This should comfort investors who have concerns about Valeant’s accounting.

While we expect a messy fourth quarter due to the shutdown of Philidor and investigative costs, the company should be able to post “clean” quarters beginning in the second quarter of next year. With the passage of time, the reduction in uncertainty, increased transparency, the reporting of operating results which we anticipate to be strong, along with the deleveraging of the balance sheet, we expect Valeant stock to rise substantially.

From Bill Ackman (Trades, Portfolio)'s Pershing Square Holdings third quarter 2015 letter to shareholders.

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First Eagle Comments on Valeant Pharmaceuticals - Nov 02, 2015

While the political spotlight and market pullback have adversely affected all of our health care holdings, we believe it is important to share with you our views on Valeant Pharmaceuticals International (NYSE:VRX). Valeant has been the subject of numerous articles/ rumors over the last month regarding its business practices. What initially began as an investigation into the aggressive manner in which Valeant had raised prices on two drugs that it had acquired in early 2015 has grown into a full-scale firestorm of controversy over its entire business model. Two US District Attorneys have issued subpoenas requesting information on Valeant’s pricing as well as its patient assistance programs. As we write today on October 21, the company is now under suspicion over the utilization of a network of specialty pharmacies that it uses to distribute and fulfill a portion of the demand for its products.

We continue to remain focused on the facts: that Valeant has been quite successful pursuing an acquisition program, growing adjusted free cash flow from $182 million in 2008 to over $2.1 billion over the last twelve months. We acknowledge Valeant has accumulated significant debt as part of its acquisition strategy and while manageable, its balance sheet has left it vulnerable to short sellers. In our view, the debt is fully manageable and debt-to-EBITDA may decline.

With regard to Valeant’s business practices, we have studied the issues at play. In our dealings with the company over the last eight years, we have been consistently impressed with the thoroughness and diligence of the management team.

We clearly recognize that political pressures have grown on the pharmaceutical industry, yet we believe Valeant management is fully cognizant of this new reality, and should adapt its strategy swiftly and appropriately. In our view, much of the rhetoric is based on misinformation or misunderstanding and this noise should eventually diminish. We believe the current stock price is trading at a significant discount to the value that underlying business fundamentals should warrant.

Our core investment philosophy that has served us well over the years is predicated on an ability to look through short term uncer-tainty, and to focus on the intrinsic value of a business over the longer term. From a broader perspective, the portfolio valuation looks attractive to us. Although the recent weeks and months have been volatile and painful, our experience has taught us to remain true to our philosophy and discipline through all market conditions.



From the First Eagle Fund of America Q3 commentary.



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Wallace Weitz Comments on Valeant Pharmaceuticals International - Oct 27, 2015

Valeant Pharmaceuticals International (NYSE:VRX) – Following a strong calendar second quarter, Valeant shares came under pressure during September as a high-profile presidential hopeful and portions of the popular press called drug industry pricing practices into question. While stocks across the pharmaceutical industry have given back recent gains, Valeant has been hit particularly hard after being mentioned alongside a couple of unscrupulous actors. While Valeant has significantly raised the list prices of several of the drugs it has recently acquired, large price increases have not been the primary driver of the company’s earnings growth. Perhaps more importantly, neither we nor the company believe they are necessary to fuel the company’s future growth. After significantly trimming our position during the third quarter, we began selectively adding to the position in October for the first time in several years below $170/share.



From Wallace Weitz (Trades, Portfolio)'s 3Q 2015 commentary.

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Wallace Weitz Comments on Valeant Pharmaceuticals - Oct 27, 2015

Valeant Pharmaceuticals International (NYSE:VRX) is a multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range of brand name, generic, branded generic and over-the-counter (OTC) products in over 100 countries. Despite a significant pullback in Valeant’s stock during September, its shares remain among our top contributors through the first nine months of calendar year 2015. We took advantage of this strength over the course of the spring and summer to pare back Valeant’s position size at levels that approached and briefly reached our base case estimate of intrinsic value. While drug price regulation has dominated headlines over the past several weeks, the likelihood of “price controls” becoming a legislative reality appears low at present. The multi-year outlook for Valeant’s core business remains attractive.



From Wallace Weitz (Trades, Portfolio)'s 3Q 2015 commentary.

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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.



...



Question:



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.



Question:



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



David Poppe:



About 4%.



Question:



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.



Question:



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.



Question:



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.



...



Question:



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

Question:



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





...





Question:



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.



Question:



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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Ratios

vs
industry
vs
history
Forward PE Ratio 2.57
VRX's Forward PE Ratio is ranked higher than
99% of the 89 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 15.46 vs. VRX: 2.57 )
Ranked among companies with meaningful Forward PE Ratio only.
N/A
PB Ratio 1.19
VRX's PB Ratio is ranked higher than
83% of the 761 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.93 vs. VRX: 1.19 )
Ranked among companies with meaningful PB Ratio only.
VRX' s PB Ratio Range Over the Past 10 Years
Min: 1.03  Med: 2.71 Max: 14.44
Current: 1.19
1.03
14.44
PS Ratio 0.40
VRX's PS Ratio is ranked higher than
94% of the 727 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.85 vs. VRX: 0.40 )
Ranked among companies with meaningful PS Ratio only.
VRX' s PS Ratio Range Over the Past 10 Years
Min: 0.4  Med: 3.71 Max: 10.5
Current: 0.4
0.4
10.5
Price-to-Free-Cash-Flow 2.11
VRX's Price-to-Free-Cash-Flow is ranked higher than
98% of the 228 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 24.42 vs. VRX: 2.11 )
Ranked among companies with meaningful Price-to-Free-Cash-Flow only.
VRX' s Price-to-Free-Cash-Flow Range Over the Past 10 Years
Min: 2.1  Med: 13.36 Max: 445.84
Current: 2.11
2.1
445.84
Price-to-Operating-Cash-Flow 1.83
VRX's Price-to-Operating-Cash-Flow is ranked higher than
97% of the 290 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 17.18 vs. VRX: 1.83 )
Ranked among companies with meaningful Price-to-Operating-Cash-Flow only.
VRX' s Price-to-Operating-Cash-Flow Range Over the Past 10 Years
Min: 1.82  Med: 10.88 Max: 47.76
Current: 1.83
1.82
47.76
EV-to-EBIT -60.67
VRX's EV-to-EBIT is ranked lower than
99.99% of the 545 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 20.11 vs. VRX: -60.67 )
Ranked among companies with meaningful EV-to-EBIT only.
VRX' s EV-to-EBIT Range Over the Past 10 Years
Min: -1211.6  Med: 12.1 Max: 379.5
Current: -60.67
-1211.6
379.5
EV-to-EBITDA 16.01
VRX's EV-to-EBITDA is ranked higher than
54% of the 573 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 16.30 vs. VRX: 16.01 )
Ranked among companies with meaningful EV-to-EBITDA only.
VRX' s EV-to-EBITDA Range Over the Past 10 Years
Min: -31  Med: 15.6 Max: 106.8
Current: 16.01
-31
106.8
Current Ratio 1.41
VRX's Current Ratio is ranked lower than
76% of the 614 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.31 vs. VRX: 1.41 )
Ranked among companies with meaningful Current Ratio only.
VRX' s Current Ratio Range Over the Past 10 Years
Min: 0.91  Med: 1.56 Max: 6.13
Current: 1.41
0.91
6.13
Quick Ratio 1.11
VRX's Quick Ratio is ranked lower than
72% of the 613 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 1.73 vs. VRX: 1.11 )
Ranked among companies with meaningful Quick Ratio only.
VRX' s Quick Ratio Range Over the Past 10 Years
Min: 0.78  Med: 1.22 Max: 5.66
Current: 1.11
0.78
5.66
Days Inventory 176.86
VRX's Days Inventory is ranked lower than
76% of the 626 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 115.23 vs. VRX: 176.86 )
Ranked among companies with meaningful Days Inventory only.
VRX' s Days Inventory Range Over the Past 10 Years
Min: 115.84  Med: 140.69 Max: 176.86
Current: 176.86
115.84
176.86
Days Sales Outstanding 96.40
VRX's Days Sales Outstanding is ranked lower than
64% of the 571 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 77.23 vs. VRX: 96.40 )
Ranked among companies with meaningful Days Sales Outstanding only.
VRX' s Days Sales Outstanding Range Over the Past 10 Years
Min: 43.41  Med: 82.81 Max: 106.05
Current: 96.4
43.41
106.05
Days Payable 45.97
VRX's Days Payable is ranked lower than
74% of the 522 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 73.13 vs. VRX: 45.97 )
Ranked among companies with meaningful Days Payable only.
VRX' s Days Payable Range Over the Past 10 Years
Min: 45.29  Med: 79.15 Max: 120.5
Current: 45.97
45.29
120.5

Buy Back

vs
industry
vs
history
3-Year Average Share Buyback Ratio -1.40
VRX's 3-Year Average Share Buyback Ratio is ranked higher than
66% of the 441 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: -4.00 vs. VRX: -1.40 )
Ranked among companies with meaningful 3-Year Average Share Buyback Ratio only.
VRX' s 3-Year Average Share Buyback Ratio Range Over the Past 10 Years
Min: -24.6  Med: -3 Max: 14
Current: -1.4
-24.6
14

Valuation & Return

vs
industry
vs
history
Price-to-Intrinsic-Value-Projected-FCF 0.20
VRX's Price-to-Intrinsic-Value-Projected-FCF is ranked higher than
98% of the 314 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.37 vs. VRX: 0.20 )
Ranked among companies with meaningful Price-to-Intrinsic-Value-Projected-FCF only.
VRX' s Price-to-Intrinsic-Value-Projected-FCF Range Over the Past 10 Years
Min: 0.2  Med: 1.39 Max: 8.81
Current: 0.2
0.2
8.81
Price-to-Median-PS-Value 0.11
VRX's Price-to-Median-PS-Value is ranked higher than
99% of the 664 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 1.20 vs. VRX: 0.11 )
Ranked among companies with meaningful Price-to-Median-PS-Value only.
VRX' s Price-to-Median-PS-Value Range Over the Past 10 Years
Min: 0.1  Med: 1.26 Max: 5.06
Current: 0.11
0.1
5.06
Earnings Yield (Greenblatt) % -1.65
VRX's Earnings Yield (Greenblatt) % is ranked lower than
70% of the 788 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 2.86 vs. VRX: -1.65 )
Ranked among companies with meaningful Earnings Yield (Greenblatt) % only.
VRX' s Earnings Yield (Greenblatt) % Range Over the Past 10 Years
Min: -1.65  Med: 2.6 Max: 22.8
Current: -1.65
-1.65
22.8
Forward Rate of Return (Yacktman) % 75.76
VRX's Forward Rate of Return (Yacktman) % is ranked higher than
97% of the 364 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 10.76 vs. VRX: 75.76 )
Ranked among companies with meaningful Forward Rate of Return (Yacktman) % only.
VRX' s Forward Rate of Return (Yacktman) % Range Over the Past 10 Years
Min: 2.5  Med: 18.9 Max: 86.7
Current: 75.76
2.5
86.7

More Statistics

Revenue (TTM) (Mil) $9,674
EPS (TTM) $ -6.92
Beta-1.01
Short Percentage of Float13.36%
52-Week Range $10.35 - 38.50
Shares Outstanding (Mil)248.78

Analyst Estimate

Dec17 Dec18 Dec19
Revenue (Mil $) 8,805 8,946 9,202
EPS ($) 3.96 4.73 5.84
EPS without NRI ($) 3.96 4.73 5.84
EPS Growth Rate
(Future 3Y To 5Y Estimate)
N/A
Dividends per Share ($)
» More Articles for VRX

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