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
See full slides below.
