Summary
- Known Facts: New business plan includes more R&D, small price hikes and less M&A. Hence the story has changed.
- By focusing on what we know and EV/Sales, we can avoid discussion on GAAP vs. non-GAAP figures and get to a valuation.
- Back of the envelop puts VRX enterprise value and hence equity value much below the current stock price.
The drama continues on Valeant (NYSE:VRX) as longs and shorts point fingers and throw out accusations. So let’s take a pause and look at some of the facts that we do know for sure. Going forward we know that VRX will:
- Increase R&D by 50% to $400-500m.
- Keep price hikes small (“I think we assume no more than 10% realized price for any of our products.”).
- Reduce M&A (“Given the evolution of our product mix coupled with the recent events, it is likely that we will pursue fewer, if any, transactions that are focused on these price products.”)
To read the entire article go to: Back of The Envelope Valuation of Valeant
