Recent release: Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that it will conduct a fact-based presentation to refute recent misleading assertions made by Allergan, Inc. (NYSE: AGN) and others, as well as answer additional investor questions, on June 17, 2014.

As stated: the presentation Valeant is making is "fact-based". The alternative is unthinkable.

However I want to ensure that prior to the presentation my readers know that you must physically check "facts" that Valeant and their management state. Let me demonstrate with a single seemingly irrefutable example:

Here is Mike Pearson, the CEO of Valeant talking about his strategy in the context of the (not-consummated) merger with Cephalon.


Michael Pearson, chairman and CEO of Valeant... by tvnportal

I have started the video at 4 minutes and 3 seconds. Mr Pearson is answering a question about their acquisition spree.

Interviewer: Now Mr Pearson, you have been on a little bit of a spending spree lately. I understand that you have made something like twenty acquisitions in the past three years and now we hear that Standard and Poors is putting you on a little bit of a watch because of your debt situation why do you think this is the right strategy for your company.

Mike Pearson: Well it has been the strategy ever since I got there. It is not a change in strategy. Its what we have been doing. We have successfully raised debt historically and we believe that we will be able to pay down the debt quite rapidly if we are able to consummate this transaction. We have done that in the past. When we merged with Biovail our debt actually went up and we brought it down quite quickly since that time and we plan to do the same with this. 

Now this is not a forward looking statement. And for an acquisitive finance-driven CEO its a number that he should not get wrong. Level of debt is a deterministic and audited number. A "fact based" number - or dare I say it - a "reality based" number.

Anyway the Biovail merger closed on the 27 September 2010 with the legacy Valeant shareholders being paid a special dividend.

Here - courtesy of Capital IQ - is the net debt (in millions of USD) for Valeant every quarter from June 2010 onwards. The June 2010 debt is the debt in legacy Biovail (which was later renamed Valeant).
 

Now Valeant bid for Cephalon in 2011 when this video was filmed.

In that period there is a single quarter when the net debt fell - and that was by less than 6 million dollars. Gross debt (ie before cash and short term investments) fell in that quarter by more but only at the cost of running down the cash balance. The falls are marked in red (one occurs after the period in question and is the result of selling shares for cash). [The other period in which debt fell it fell because of selling additional shares for cash which was used for the Bausch + Lomb acquisition.]

On the face of it - using the numbers above, the statement that they bought debt down quite quickly after the Biovail merger looks like a porky. But there is an alternative hypothesis - which is that Valeant management have a different view to me on what it means to bring debt down quite quickly. They might mean debt to net assets (but even that is problematic in a company with losses). They might mean debt to cash flow (except that has risen too though not quite as monotonically.)

So for the "fact based" presentation I ask only one thing of Valeant management. The "facts" need to be verifiable - in such a way when I have a different interpretation than you I can see the difference.

John