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Bronte Capital
Bronte Capital

Valeant Pharmaceuticals part XI: Less luscious lips

August 13, 2014 | About:

I find it increasingly difficult to work out Valeant's revenue numbers and their implications. Simple maths keeps bringing out astounding factoids. Again I am harping back to the sale of the Facial Injectables/Aesthetics franchise to Galderma. Again I am quoting Michael Pearson (the CEO) on the conference call:

On the aesthetics side, we recently sold certain facial injectable products to Galderma for approximately $1.4 billion, for a gain of over $300 million. We are pleased to report that under Valeant's ownership, we accelerated the sales performance of the Medicis aesthetics assets through Q1 of this year compared to the performance under previous Medicis ownership. In April, we announced our offer for Allergan and publicly stated that we would be divesting these aesthetics products.
As expected, the aesthetics business deteriorated in Q2. The physicians were confused as to what products we wanted them to buy: our legacy Medicis products or our soon-to-have Allergan products. The uncertain status of our MVP Program also created concern for the doctors. Our reps and management were focused on pleasing their new owners and holding back sales until they worked for the new company, and our competitors were discounting heavily and is proportionately trying to take a temporary share to demonstrate weakness in our business.
As a result, our sales dropped approximately 40% in Q2. Fortunately, these assets are now safely in Galderma's hands, and we can now focus on the rest of our business.

Okay, so what we are being told is that the Facial Injectables business had sales growth all the way through Q1 of 2014 - and presumably was also doing pretty well in the second quarter until Valeant announced that they were buying Allergan.

Then presumably they fell off further when they announced that they were selling the unit to Nestle/Galderma.

There is only one problem here: dates.

The (unsolicited) offer for Allergan almost a quarter of the way through the quarter. The deal selling the fillers business was announced two thirds of the way through the quarter.

If you assume the drop happened over these announcements the actual drop had to be enormous - well over fifty percent.

I see two possibilities.

(a) the procedures didn't happen, or

(b) the procedures happened but using some other company's fillers.

And for (a) to be true the doctors had to forgo the income and throughout America and Canada - women will have more wrinkles and less luscious lips because they suddenly stopped using Restylane, Perlane and Emervel injectable cosmetic treatments - and all because of the machinations in Corporate America.

And for (b) to be true doctors need to know and care who is the provider of the injectables they use. This seems unlikely because the websites (typical example linked) are labelled Medicis not Valeant and have been for some time.

Valeant states that the competitors discounted during the quarter. However the main competitor is Juvederm owned by Allergan - and they reported revenue growth driven by unit volume. There is no indication of discounting.

Oh the amazing power of the deal.


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