Bill Ackman’s slides from his investor conference call on Valeant.

Valeant Pharmaceuticals International (VRX)

  • Multinational specialty pharmaceutical company
  • Leader in dermatology, ophthalmology, branded generics, and gastroenterology
  • Significant presence in both developed and emerging markets
  • Market cap of ~$40bn and TEV of ~$68bn
  • Approximately 40 manufacturing plants worldwide
  • ~18,000 employees(1)

Valeant: Context on the Company

  • In February 2008, when Mike Pearson was named CEO, Valeant was a small, struggling company
  • Pearson changed Valeant’s strategy to incorporate:
    • A durable, diverse portfolio of products in specialties where doctors are decision makers, with limited government reimbursement
    • Decentralized, efficient, nimble organizational structure
    • Return-driven capital allocation framework (M&A, high ROI R&D, buybacks)
    • Rapid growth
    • Diverse portfolio of products
    • Numerous drivers of value creation
    • Numerous acquisitions
      • Purchased distressed assets, inherited multiple Corporate Integrity Agreements
    • Utilized leverage
  • Valeant’s business and strategy are complicated to understand; GAAP accounting is an inadequate measure of an acquisitive company
    • Investor base has historically consisted of sophisticated, long-term investors (Ruane Cunniff & Goldfarb, T Rowe Price, ValueAct, Lone Pine, Brave Warrior, Brahman Capital, etc.)
  • Valeant’s complexity necessitates:
    • Strong, high-integrity management
    • High level of transparency
  • Anything less than complete transparency leaves Valeant susceptible to attack
  • Valeant’s implicit compact with shareholders: in exchange for high returns, investors accept complexity so long as there is transparency
  • Valeant has underinvested in public relations, government relations, and investor relations. This has been a very costly mistake

Valeant: Recent Events

A. Price Increaces

  • Volume is primary growth driver for ~90% of Valeant’s business
  • Media reports are focused on gross prices; net realized prices to manufacturer are much lower
  • Drugs improve health outcomes and can reduce overall cost of healthcare; returns on investment critical to drug innovation

B. VRX’s Perceived “Strategy Shift”

  • VRX’s strategy is multi-faceted, focused on creating shareholder value, adapts with opportunities:
    • M&A: No more “price increase” deals (only 4 of ~150 historical acquisitions)
    • R&D: Increasing modestly to pursue attractive late-stage development opportunities

Valeant VRX Bill Ackman Pershing Square

See full slides below.