Not just VRX, take a look at all pharma stocks- NVS, GSK, SNY, AZN, ABT, TEVA, SHPG, MYL...
Why? because of health insurance companies - look at their stock price. They went through the roof. Simply, they reject or provide less amount in medical claims. But, this discourages small players to spend R&D for next blockbuster drug since there is no market for it.
Guess what is going to happen? existing pharma will do extremely well as they control the market until medicare increases CMS rate for them to increase profit which then small guys restart their R&D.
It is a double-sword strategy for medicare to pull down CMS rate - it helps insurance companies while it impacts consumers to have better treatments.
their 2014 EPS decreased from $2.67 to $2.58 (full diluted). while their 2015 EPS increased from $0.20 to $0.27 (full diluted).
Valeant Pharmaceuticals' ($VRX) skin drug Targretin, used by lymphoma patients. Valeant bought the drug in 2013 and promptly raised the price. For CMS, the drug's unit cost rose by 123% last year, to $145.65, and Medicare spent almost $89,000 per user on the drug. Overall, CMS shelled out $73.5 million, more than double its 2013 spending, with an increase in patients of just 12%.
Dollarwise, CMS laid out $1.725 billion for Lantus last year, a $400 million increase year-over-year despite a 6% decline in patient count. CMS spent another $2.02 billion for Lantus Solostar, an increase of almost $700 million, or about 50% year-over-year. Solostar's patient growth amounted to 13%.
this can be a M&A deal all together. by reducing non-core assets, the company can be acquired as the whole package without antitrust issue.
price? higher than what Ackman paid $100+ per share.
speculative buy here or long stock + covered call play
it's a macro play - ag industry has been impacted by chinese economic growth but the discount is already in (as a matter of fact, china is still growing!)
buy stock and sell covered call while collecting dividend - easily ROI can be 15%+
with new CEO, the stock will be trading at $80-$120. It's a no-brainer.
applying comparable PEx/EBITDAx, VRX should be at $80-$120 very soon.
LendingClub is going to increase interest rate which was the only reason for creditworthy borrowers to join. When LC increases the rate to 10%+ even for prime borrowers, there is no difference from credit cards.
Credit cards have flexible payment plans, all those reward points and free stuffs. LC, on the other hand, fixed payment with no flexibility, closed end loan, i.e. no available credit to reuse.
Soon, LC will be giving up personal loan but just focusing on business loan which it will be making much less in spread. only solution for LC is to tap into collateral loans not credit, and build up a better collection department to minimize loan losses for lenders. Otherwise, lenders will walk away very quickly.
this quarter will be worse so get rid of union workers and start hiring people on street!!!
no more debt issue with creditors (already agreed to extend)
new CEO will be announced soon
no more risk for rating agencies
another pop of 30% with announcement
Valeant is not selling but they can always spin off like ABT and ABBV.
and don't forget about Salix Pharm which other mega pharma tried to acquire in the past.
Wonder why lenders agreed? Look at VRX in cash flow perspective. It is generating $5B for this year and $4B in last year. Who wouldn't want to lend money to VRX?
Plus, VRX owns Salix which is worth more than VRX market cap right now. What happens if VRX decides to issue stock dividend to spin off Salix? 5x pop is very likely from here.
Just a thought - if VRX increased debt for operating growth, it would be a problem, but all their debts were linked to past acquisitions so valuation of those subsidiaries are easily calculated. Also, if VRX can show the synergy (which they obviously planned out during M&A), it's no brainer.
1- Glybera by UniQure (QURE)
2- Soliris by Alexion (ALXN)
3- Naglazyme by BioMarin (BMRN)
5- Elaprase by Shire
and Congress want to speak to Valeant. By the way, same thing happened to GILD in 2014 when they put $1,000 price tag on drug which was much less than these 5 drugs going for $1M.
Guess what happened to GILD in March 2014? The stock dropped from $80 to $68. Then, it went up $110.
Same thing is going to happen obviously.
By the way, people are keep forgetting about the fact that Valeant owns:
- Bausch & Lomb
- Salix Pharmaceuticals
- and many more
Ackman must be persuading the board to consider stock dividend to spin off both Bausch & Lomb and Salix Pharma - guess what value would be? at least 15x from current valuation, the perfect reason why hedge funds were accumulating VRX shares in last quarter. Wonder why implied vol on options are 500% on calls.
Pershing Square (aka Bill Ackman): 30,711,122 shares
Ruane Cunniff & Goldfarb (aka Sequoia): 35,375,610 shares
Price T Rowe: 21,853,814 shares
Paulson & Co: 13,265,900 shares
Brahman Capital: 8,117,753 shares
They are now controlling 30% of company and with Ackman as a board of directors, they know how to increase shareholders' value.
Perhaps, Icahn may be joining soon?
If we are in a high interest/inflation market, it would have been tough to deal with creditors since they can reinvest into other companies but given the fact that we are at a historical low interest market, it's a seller's market.
Especially, when VRX is trading at 2x EBITDA, interest coverage ratio is perfect for any creditor to lend.
Now, Ackman is on board with VRX, soon a management from Sequoia will join as well.
Then, PE deal which they bring in a team of hedge funds to take over the company.
Example? Remember Burger King? When their earning dropped by 50% due to competition/cost,
Ackman/3G Capital bought it out at a huge premium. Then, they did restructuring and relisted the company in 2 years at much higher valuation which then they bought out Tim Horton.
There are two possible options here:
1) hedge funds take it private by buying out
2) another major pharma put a bid to buy them out as VRX owns Salix Pharm which is a major piece of puzzle that other competitors tried to buy in the past
Pershing Square and Sequoia are the top 2 major shareholders at VRX.
Valeant generated $5B in cash last year and projected to generate $6B this year or $20/share.
Debt? $30B - why? Valeant acquired a major GI player (Salix Pharm) for $16B.
Why then it shows much smaller net income? $3B (or $10/share) in non-cash expense due to amortization on past acquisition.
Who is the major shareholder? Ruane, Cunniff & Goldfarb Inc (AKA Sequoia Fund) known for a long term investment firm with one of best track record.
For simple calculation and at current stock price at $35/share, every $1 investment is generating $0.57 per year or 57%. Quite a bargain? Look at 2018 call options. Someone bought 2,500 contracts at $80 and $110.