Ruane Cunniff & Goldfarb Increase VRX Position
http://www.bloomberg.com/news/articles/2015-11-13…-
Ackman's hedge fund has also lost approximately 25% of its value, due to its large position in VRX.
Opinions?
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What's your question?
No question. I'm simply looking to spur discussion.
There are so a few big holders of the stock on this forum.
Ruane is betting the farm on the company. If they are wrong, it could be the end of them a la Berkowitz.
What is that as a % of their aum?
I just don't understand the logic behind Ackman and Ruane increasing their positions.
On one hand I agree that the fear element to VRX's drop is probably overblown and the Company isn't a zero.
On the other hand is seems like over the last few months the fundamentals of the Company have changed, as they are no longer pursuing an aggressive M&A strategy and instead are going to focus on R&D (and isn't the whole idea behind Valeant is to mitigate traditional R&D expense?) and organic growth. On top of that their ability to pay down their debt and massively leveraged capital structure are now in question.
I also don't understand how you underwrite organic growth for this Company given that they don't break out the operating results for their bolt ons. Even YoY top-line would help, but every year post acquisition the disclosure gets smaller and smaller. Even before this whole fiasco started I probably would have passed on VRX just because I haven't seen proof that their organic growth story holds up to scrutiny. I get the whole thing with Pearson being an "Outsider" but even so I don't think investors should totally buy his pitch without getting the source data. This was actually the subject of one of the earlier criticisms about VRX by AZValue before the whole legal fiasco that has never been addressed by the Company, Pershing or anyone else.
So my question is, why are so many big names even in this Company in the first place? Aside from Ackman and Ruane there are still a healthy sprinkling of Tiger Cubs with top 10 holdings. I know all of these guys are very research intensive, but with the amount of disclosure provided by the Company I don't see how they could have arrived at a concise flow through of all of the Company's bolt-ons.
Maybe someone could provide some color.
I honestly think that we are just reading into this too much. The correct answer is probably the most simple one; even the best are not immune to common mistakes. In this case, what we are seeing is a reckless disregard for risk management, as well as some herd-mentality.
If you have the resources, channel checking this type of stuff shouldn't be extremely difficult. Resources like IMS are fantastic in that you can see just how many prescriptions are being filled for any drug month by month, maybe even weekly. Pricing information shouldn't be hard to find given hundreds of thousands of people are prescribed these drugs. The real issue seems to be with how they've been able to increase their prescriptions. If what many are alleging is true (and it probably is), Philidor is over-prescribing Valeant branded meds and incentivizing patients to take them instead of generics and other alternatives, which I think is illegal. That obviously looks very bad for Philidor and, in relation, Valeant. Whether or not Valeant was aware of this is another question. I personally don't think they were given their reaction to all of this, but who knows. The extent of the Philidor fraud and whether it extends beyond the ~10% of revenue that Philidor is responsible for is the real issue. At the end of the day, Valeant has real products, with real demand and real cash flow. It's certainly not a $0. I'm assuming Ackman and these other guys think that this type of fraud is relatively contained and see the stock on sale for like ~60% off and think the market over-reacted. I've never invested in pharma companies, but I know a little bit about them and have paid attention to the VRX story. I could be completely off-base, but $75/share seems like a good deal or at least worthy of more research if I was a HF analyst.
Definitely worth more research. I'm a student so my resources are fairly limited and I put VRX into the "too hard" bin after a while. Didn't know about IMS, thanks.
These guys have made a name for themselves by making aggressive, contrarian and publicized plays on large companies. I see two lessons in that:
1) They are good at it, and tend to have an edge so what seems like excessive risk to an outsider may be in line with their expectations. 2) Because they are good at this, and have been successful, they are at risk for allowing their opinions to edge in as "facts".
I have no opinion on this, but I presume the option market is sexy as fuck for this and I may check it out tomorrow morning.
Option market is as expensive as F***
Im sure they have a lot of direct access to management and know the answers to these questions, heck the hedge funds were all colluding with the company in its M&A strategy
Ackman doubled his position in VRX to about 10%. 5% extra laden on two days ago was through options. three ways collar with Jan 2016 expiry. I don't think its a wise idea given the vol on VRX, which is probably higher than normalized and will come down.
interesting discussion. Have to see how it plays out
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