Pershing Square Annual Presentation: Valeant (VRX) Mistakes And More [Slides]

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Pershing Square Capital Management 2015 annual presentation. – Lots of interesting stats and info etc. in here also make sure to check out  As Ackman Goes On & Off Best Hedge Fund List, Is He Looking More Global Macro?

Pershing Square Holdings, Ltd. Performance

Cumulative Net Returns Since Inception of Strategy (January 1, 2004)

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Performance in Up & Down Markets

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2015 Winners and Losers (gross returns)

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Long and Short Attribution (Gross Returns)

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Pershing Square – Bond Offering

PSH Bond Offering Summary

PSH issued $1B 7-year senior unsecured notes on June 26, 2015

  • Maturity: 07/15/2022
  • Coupon: 5.500%
  • Payable semi-annually on January 15 and July 15
  • Ratings: BBB (negative outlook) / BBB+ (S&P / Fitch)
  • Over 90 investors participated in the offering
  • No NAV maintenance covenants

“Permanent” Capital

“Permanent” capital(1) represents nearly half of our assets

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Current Portfolio Update

Principal Mistakes We Made in 2015

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A year when many lessons were learned, 2015 was also an important reminder that stocks can trade at any price in the short term…

Other Factors Also Contributed to Poor Results

Despite our missteps, we believe our portfolio holdings today trade at a substantial discount to intrinsic value partially because of certain unique market dislocations

Concerns regarding oil prices and China’s economy have significantly impacted the market prices of many of our investments, despite their limited exposure to these risks

Pershing Square “followers” are liquidating funds creating intense selling pressure on our investments with strong “follower” ownership

Huge capital inflows into index funds have created support for indexed constituent company valuations

  • Most of our long positions (representing 54% of our portfolio) are not components of major market indices

While We Wait for the Weighing Machine…

Over the long term, we believe that the market prices and intrinsic values of our investments will converge

  • Permanency of our capital base will allow us to weather this volatility
  • Our influence on our portfolio companies should allow us to continue to enhance the value of our investments

In the near term, new investment opportunities abound

  • Recent market conditions have created new opportunities
  • Many high quality businesses with catalysts to increase value are currently at or nearing attractive valuations

We are unlikely to make wholesale changes in the short term to the current portfolio as we find our current investments attractive. That said, we would be surprised if we did not add at least one major new investment in the next few months.

Pershing Square – Valeant Pharmaceuticals International (VRX)

  • Multinational pharmaceutical and medical device company
  • >$12bn 2016 estimated sales
  • ~21,000 employees
  • Market leadership in dermatology, gastroenterology, ophthalmology, and consumer health products
  • In 2008, new management implemented an unconventional business model that has historically created large amount of shareholder value
  • Innovative marketing, management, and R&D strategies designed to avoid waste and maximize return on capital
  • Acquisitions of assets in attractive categories
  • Valeant is adapting its model in response to recent criticism
  • Pershing Square’s history with Valeant
  • Pershing Square partners with Valeant in 2014 to acquire Allergan
  • On February 9, 2015, Pershing Square purchases first shares of Valeant at a price of $161

Valeant’s major franchises are underappreciated:

Pershing Square Capital Management

Bausch & Lomb: ~30% of sales

  • Durable product portfolio
  • 11% organic growth in 2014, ~6% growth through Q3 2015
  • Growth drivers include favorable secular trends and strong product portfolio:
  • Increased prevalence of eye disease supports growth of surgical, drug, and consumer markets
  • Capacity expansion to accommodate strong demand for contact lens products
  • ~25% of sales are made in emerging markets
  • Late stage pipeline includes Vesneo, a potential $1bn new glaucoma drug
  • Traded at an average of 20x Forward EPS as a public company

Gastrointestinal (Salix): ~20% of sales

  • Strong collection of products treating patients with diseases such as:
  • Hepatic Encephalopathy, Ulcerative Colitis, Opioid Induced Constipation
  • Xifaxan has nearly $1bn of annualized sales and recent volume growth of 25%+ Y/Y3
  • October Y/Y volume growth of other significant products: Apriso +8%, Uceris +30%, Relistor +33%4
  • Pipeline: Likely approval of Relistor Oral in 2016

Valeant’s major franchises and Walgreen’s partnership are underappreciated:

Pershing Square Capital Management

US Dermatology: ~15% of sales

  • Largest portfolio of non-biologic medical dermatology products in the United States
  • Prescribers often strongly prefer branded alternative to generics
  • Retained ~80% of volume following Philidor disruption
  • ~30% of Q3 2015 sales from four recently launched products
  • Drug Pipeline: Seven Phase III or FDA Submitted, Eight Pre-Phase III Products

Emerging Markets Branded Generics: ~10% of sales

  • Durable portfolio of branded generic products in growing markets
  • Opportunity to grow existing drugs and launch new products

Walgreen’s Partnership:

  • Will support growth of Rx Dermatology, Ophthalmology, and Off-Patent portfolio
  • Benefits to patients and physicians: Convenient access, financial and administrative support, cash pay option
  • Benefits to payors: $600mm of price cuts, transparency, no mail order

See full slides below.

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