tag:blogger.com,1999:blog-27776854985971357452024-03-25T02:10:01.973-04:00Bored with the noiseTheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.comBlogger82125tag:blogger.com,1999:blog-2777685498597135745.post-10160594427941901132021-05-27T08:04:00.001-04:002021-05-27T10:13:12.656-04:00Minimal Manipulation: MiMedx and Section 361<p><span style="font-family: arial;">There is a funny thing about the Food and Drug Administration: they really want you to follow <a href="https://www.fda.gov/RegulatoryInformation/default.htm" target="_blank">their rules</a>. Considering that they are r<span face="Roboto, arial, sans-serif" style="background-color: white;">esponsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices, it's probably best for all of us when companies do follow their rules.</span></span></p><div><span style="font-family: arial;">As far as their current set of rules are concerned, next week, the FDA will significantly change their directives when it formally ends it's policy of enforcement discretion regarding human cell, tissue, and cellular and tissue-based products(HCT/Ps) compliance. </span></div><div><br /></div><h4 style="text-align: left;"><span style="font-family: arial;">The Federal Regulations</span></h4><div><span style="font-family: arial;"><a href="https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?CFRPart=1271" target="_blank">Part 1271</a> of Title 21 of the US Code of Federal Regulations is the rulebook by which the FDA regulates the use of HCT/P's and in July of 2020, the FDA released their <a href="https://www.fda.gov/media/109176/download" target="_blank">final industry guidance</a> document that formalizes the agency's view of how they interpret the rules in 21 CFR Part 1271.<br /><br />For HCT/P manufacturers to comply <span style="background-color: white; box-sizing: border-box;">with the rules they have to pay careful attention to Section <a href="https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1271.3">1271.3</a> which sets forth the necessary definitions that the agency and HCT/P manufacturers are relying on. There is a carve out in 1271 (<a href="https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1271.10">1271.10(a)</a>) regarding the regulation and pre-market approval for products that are referred to as 361 HCT/Ps. Broadly speaking, if your product meets the criteria as outlined in 1271.10(a) you've got yourself a</span><span style="background-color: white; box-sizing: border-box;"> Section <span style="box-sizing: border-box;">361 HCT/P. If you don't meet that criteria (and you don't fulfill some extremely narrow exceptions in <a href="https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1271.15">1271.15</a>) you don't qualify as a Section 361 HCT/P and you've got a heavily regulated approval process ahead of you under section 351. Section 361 i</span></span><span style="background-color: white; box-sizing: border-box;"><span style="box-sizing: border-box;">s important because it</span></span><span style="background-color: white; box-sizing: border-box;"> allows manufacturers of certain types of biologics to market their products without filing a Biologics License Application (<a href="https://www.fda.gov/BiologicsBloodVaccines/DevelopmentApprovalProcess/BiologicsLicenseApplicationsBLAProcess/default.htm">BLA</a>) and seeking express marketing approval from the FDA. If a manufacturer's product is appropriately qualified it literally saves years and millions upon millions of dollars. It is a very useful carve out that relies on the FDA's risk-based approach to the approval process.<br /></span><br />The previous policy of enforcement discretion had allowed for manufactures of HCT/Ps to continue marketing products while they worked to formalize the FDA's classification of their particular products as either a 361 HCT/P or to submit a BLA. Generally speaking to comply with the CFRs as a 361 HCT/P the product must be "minimally manipulated" and for "homologous use". </span></div><div><span style="font-family: arial;"><br /></span></div><div><span style="font-family: arial;">There are some narrow exceptions, but generally if your product does not meet these requirements then your product is not a 361 HCT/P and as of <u>June 1, 2021</u> illegal to sell without the approval and express marketing authorization of the FDA. I've highlighted the most important parts of the CFRs below:<br /><br /><span face="helvetica neue, helvetica, arial, sans-serif"><span style="background-color: white;">The really important parts of 1271.3 are below(highlight added):</span></span></span><br /><blockquote class="tr_bq" style="background-image: none; border-style: none; color: #23238e; font-family: "courier new", courier, monospace; height: auto; margin-bottom: 7.35938px; margin-top: 7.35938px; padding: 0px;"><span style="background-color: #f9f9f3;">The following definitions apply only to this part:</span><br /><span style="background-color: #f9f9f3;">(a) </span><i style="background-color: #f9f9f3;">Autologous use</i><span style="background-color: #f9f9f3;"> means the implantation, transplantation, infusion, or transfer of human cells or tissue back into the individual from whom the cells or tissue were recovered.</span><br /><span style="background-color: #f9f9f3;">(b) </span><i style="background-color: #f9f9f3;">Establishment</i><span style="background-color: #f9f9f3;"> means a place of business under one management, at one general physical location, that engages in the manufacture of human cells, tissues, and cellular and tissue-based products. "Establishment" includes:</span><br /><span style="background-color: #f9f9f3;">(1) Any individual, partnership, corporation, association, or other legal entity engaged in the manufacture of human cells, tissues, and cellular and tissue-based products; and</span><br /><span style="background-color: #f9f9f3;">(2) Facilities that engage in contract manufacturing services for a manufacturer of human cells, tissues, and cellular and tissue-based products.</span><br /><span style="background-color: yellow;">(c) <i>Homologous use</i> means the repair, reconstruction, replacement, or supplementation of a recipient's cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor.</span><br /><span style="background-color: #f9f9f3;">(d) </span><i style="background-color: #f9f9f3;">Human cells, tissues, or cellular or tissue-based products (HCT/Ps)</i><span style="background-color: #f9f9f3;"> means articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. Examples of HCT/Ps include, but are not limited to, bone, ligament, skin, dura mater, heart valve, cornea, hematopoietic stem/progenitor cells derived from peripheral and cord blood, manipulated autologous chondrocytes, epithelial cells on a synthetic matrix, and semen or other reproductive tissue.</span></blockquote><strong style="background-color: white; box-sizing: border-box; color: #333333; font-family: "helvetica neue", helvetica, arial, sans-serif;"><br /></strong><span face=""helvetica neue", helvetica, arial, sans-serif" style="background-color: white; box-sizing: border-box;">The really important parts of 1271.10 are below</span><span face=""helvetica neue", helvetica, arial, sans-serif">(highlight added)</span><span face=""helvetica neue", helvetica, arial, sans-serif" style="background-color: white; box-sizing: border-box;">:</span><br /><blockquote class="tr_bq" style="background-image: none; border-style: none; color: #23238e; font-family: "courier new", courier, monospace; height: auto; margin-bottom: 7.35938px; margin-top: 7.35938px; padding: 0px;"><span><span style="background-color: yellow;">(a) An HCT/P is regulated solely under section 361 of the PHS Act and the regulations in this part if it meets all of the following criteria:</span><br /><span style="background-color: yellow;">(1) The HCT/P is minimally manipulated;</span><br /><span style="background-color: yellow;">(2) The HCT/P is intended for homologous use only, as reflected by the labeling, advertising, or other indications of the manufacturer's objective intent;</span><br /><span style="background-color: yellow;">(3) The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article, except for water, crystalloids, or a sterilizing, preserving, or storage agent, provided that the addition of water, crystalloids, or the sterilizing, preserving, or storage agent does not raise new clinical safety concerns with respect to the HCT/P; and</span><br /><span style="background-color: yellow;">(4) Either:</span><br /><span style="background-color: yellow;">(i) The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function; or</span><br /><span style="background-color: yellow;">(ii) The HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function, and:</span><br /><span style="background-color: white;">(<i>a</i> ) Is for autologous use;<br />(<i>b</i> ) Is for allogeneic use in a first-degree or second-degree blood relative;</span></span><span style="background-color: white;"> or</span><br /><span style="background-color: #f9f9f3;">(</span><i style="background-color: #f9f9f3;">c</i><span style="background-color: #f9f9f3;"> ) Is for reproductive use.</span><br /><span style="background-color: #f9f9f3;">(b) If you are a domestic or foreign establishment that manufactures an HCT/P described in paragraph (a) of this section:</span><br /><span style="background-color: #f9f9f3;">(1) You must register with FDA;</span><br /><span style="background-color: #f9f9f3;">(2) You must submit to FDA a list of each HCT/P manufactured; and</span><br /><span style="background-color: #f9f9f3;">(3) You must comply with the other requirements contained in this part.</span></blockquote><strong style="background-color: white; box-sizing: border-box; color: #333333; font-family: "helvetica neue", helvetica, arial, sans-serif;"></strong><br /><span style="font-family: arial;"><br /></span></div><h4 style="text-align: left;"><span style="font-family: arial;">How Enforcement Discretion Expiration Could Negatively Impact MiMedx</span></h4><div><span style="font-family: arial;">That brings us to MiMedx(<a href="https://twitter.com/search?q=%24MDXG&src=recent_search_click" style="white-space: pre-wrap;" target="_blank">$MDXG</a>). As best as I can tell, it seems that starting next Tuesday, almost all of MiMedx's current products and their marketing could be deemed illegal until approved under a BLA. Despite their former CEO being sent to prison for fraud, MiMedx has put out some very questionable guidance in recent regulatory filings. </span></div><div><span style="font-family: arial;"><br /></span></div><div><span style="font-family: arial;">In their Q1 2021 <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/0001376339/000137633921000032/mdxg-20210331.htm" target="_blank">10-Q</a> (filed 4/28/21) the company seems to disclaim <span style="background-color: white; white-space: pre-wrap;">the potential effects of the enforcement discretion's expiration while implying that it's somehow limited to "micronized products and certain other products".</span></span></div><div><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6wOkfQxnSAi4FtxfFOX53yrCQhqbx28KzCVA4B-JDv1lWxLG-U4w7caAK1tfVnHjKOAd_rkJqHwr3LvAPdYB6SyU5LrbzK3Cw7NJu5r0Dyy4DkywRDU6eymrDahYaZilP10dk1L0ybHI/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="128" data-original-width="904" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6wOkfQxnSAi4FtxfFOX53yrCQhqbx28KzCVA4B-JDv1lWxLG-U4w7caAK1tfVnHjKOAd_rkJqHwr3LvAPdYB6SyU5LrbzK3Cw7NJu5r0Dyy4DkywRDU6eymrDahYaZilP10dk1L0ybHI/s16000/image.png" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: arial;"><br /></span></div><span data-offset-key="bbedr-0-0"><span style="font-family: arial;"><div style="white-space: pre-wrap;"><span data-offset-key="bbedr-0-0"><span data-text="true"><br /></span></span></div><div style="white-space: pre-wrap;"><span data-offset-key="bbedr-0-0"><span data-text="true"><div style="white-space: normal;">It's noteworthy that this 10-Q was filed after <span data-offset-key="bbedr-2-0" style="white-space: pre-wrap;">the Director of </span><span style="white-space: pre-wrap;"><span data-offset-key="bbedr-3-0"><span data-text="true"><a href="https://twitter.com/FDACBER" target="_blank">@FDACBER</a> Peter Marks, </span></span></span><span data-offset-key="bbedr-4-0" style="white-space: pre-wrap;"><span data-text="true">very <a href="https://www.fda.gov/news-events/fda-voices/advancing-development-safe-and-effective-regenerative-medicine-products">publicly reiterated</a> the FDA's decision to end HCT/P enforcement discretion; a statement which the company even </span></span>incorporated by reference in their 10-Q and Q1 2021 investor call.</div><div style="white-space: normal;"><span data-offset-key="bbedr-4-0" style="white-space: pre-wrap;"><span data-text="true"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPnvwMYApnRTnx2HVtPY6RIvdqsXRzQ4Vtdty1NMuUZqFIjgOmvTlln2-fWLjd50pKoYwdjM-BYB09AA_hmCKHzVfAl2ZgaVU922kWYS9VAZIhq7bF60qwQL3FP1Fv-v4KC-Tt00KqMEQ/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="86" data-original-width="726" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPnvwMYApnRTnx2HVtPY6RIvdqsXRzQ4Vtdty1NMuUZqFIjgOmvTlln2-fWLjd50pKoYwdjM-BYB09AA_hmCKHzVfAl2ZgaVU922kWYS9VAZIhq7bF60qwQL3FP1Fv-v4KC-Tt00KqMEQ/s16000/image.png" /></a></div></span></span></div></span></span></div><span style="white-space: pre-wrap;">In his remarks Dr. Marks firmly stated the agencies commitment to eliminating the illegal marketing of unapproved products.</span></span></span></div><div><span data-offset-key="bbedr-0-0"><span style="font-family: arial;"><span style="white-space: pre-wrap;"></span></span></span></div><blockquote><div><span data-offset-key="bbedr-0-0"><span style="font-family: arial;"><span style="white-space: pre-wrap;">"</span><span style="background-color: white; white-space: normal;">Despite all of the FDA’s efforts to engage industry, there continues to be broad marketing of these unapproved products for the treatment or cure of a wide range of diseases or medical conditions. Many of these unapproved products appear to be HCT/Ps that are regulated as drugs, devices and/or biological products subject to premarket approval requirements. The wide extent of the marketing of such unapproved products is evidenced by their inappropriate advertisement in various media and by the number of consumer complaints about them submitted to the FDA. </span></span></span></div><div><span style="background-color: white;"><span style="font-family: arial;">These regenerative medicine products are not without risk and are often marketed by clinics as being safe and effective for the treatment of a wide range of diseases or conditions, even though they haven’t been adequately studied in clinical trials. We’ve said previously and want to reiterate here – there is no room for manufacturers, clinics, or health care practitioners to place patients at risk through products that violate the law, including by not having an IND in effect or an approved biologics license. We will continue to take action regarding unlawfully marketed products. Our oversight of cellular and related products has included taking compliance actions, including numerous warning and untitled letters, and pursuing enforcement action for serious violations of the law.</span></span></div><div><span data-offset-key="bbedr-0-0" style="white-space: pre-wrap;"><span style="font-family: arial;"><span style="background-color: white;">Since December 2019, the agency has issued more than 350 letters to manufacturers, clinics, and health care providers, noting that it has come to our attention that they may be offering unapproved regenerative medicine products and reiterating the FDA’s compliance and enforcement policy.</span><span style="background-color: white; white-space: normal;">"</span></span></span></div></blockquote><div><span data-offset-key="bbedr-0-0"><span style="font-family: arial;"><span style="background-color: white; white-space: normal;"></span>
<span style="white-space: pre-wrap;">As a result of the enforcement period's expiration and lack of documentation demonstrating their compliance with Section 361, I believe that MiMedx is actually in much greater peril of enforcement action than either they perceive or are disclosing.
MiMedx has disclosed to investors that their micronized products do not meet the definitions of minimal manipulation based on FDA guidance and that they will cease marketing those products when enforcement discretion ends.
</span><div style="white-space: normal;"><span data-offset-key="bbedr-0-0" style="white-space: pre-wrap;"><span data-text="true"><blockquote>"we <span style="background-color: white; text-align: justify; white-space: normal;">have continued to market our micronized and particulate products during the period of enforcement discretion, but must cease to do so after May 31, 2021 until the FDA approves a Biologics License Application for a specific product and indication."</span></blockquote><div><br /></div></span></span></div><span style="white-space: pre-wrap;">This conclusion is supported by the FDA's final guidance which contains a relevant example regarding what is acceptable for minimal manipulation of structural tissues such as amniotic membrane. Based on this guidance I think any rational person would agree that processing the amniotic membrane to remove the chorion meets the definition of minimally manipulated but also that micronization disqualifies a product as minimally manipulated. </span></span></span></div><div><span style="font-family: arial;"><br /></span></div><div><div style="text-align: justify;"><span style="font-family: arial;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUHu5tpMg-tOmlVJrjTqnpSbM8oEufnqjXS4qAvmFX9FVYqzIuzPRHNqkGA_JGqlbLwYlImrvPc3RZt7P0kbr87DnvIWvida4Z8LzdiwhLsZVFrkVVLv7NhPVDqqcDRIT9H5_rvrnFKyU/" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="283" data-original-width="569" height="159" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUHu5tpMg-tOmlVJrjTqnpSbM8oEufnqjXS4qAvmFX9FVYqzIuzPRHNqkGA_JGqlbLwYlImrvPc3RZt7P0kbr87DnvIWvida4Z8LzdiwhLsZVFrkVVLv7NhPVDqqcDRIT9H5_rvrnFKyU/" width="320" /></a></div></span><div style="text-align: justify;"><span style="font-family: arial;"><br /></span></div><span style="font-family: arial;">The narrative that MiMedx seems to be pushing however is that other parts of their business are somehow immune from the enforcement discretion expiration. To comply with section 361 the product must be "minimally manipulated", and for "homologous use" and I do not agree with the proposition that their other products are "minimally manipulated" or for "homologous use". You may interpret FDA Example 10-2 (above) to indicate that MiMedx's sheet products are minimally manipulated, however MiMedx dHACM products are more extensively processed than the above example. The technical distinction(and the FDA loves technical distinctions) between the above example and other products in the market is that MiMedx dHACM products are actually sheets comprised of placental tissue wherein the <u><i>amnion and chorion have been separated from one another, cleaned and then laminated back together prior to dehydration</i></u>. The FDA may very well take the position that the separation and lamination steps do not meet the criteria for "minimal manipulation" and "combination". In 2013, the FDA had <a href="https://www.fda.gov/vaccines-blood-biologics/enforcement-actions-cber/surgical-biologics-untitled-letter" target="_blank">previously challenged</a> whether MiMedx's micronized products complied with section 361, taking the position that these products did not meet the "minimal manipulation" standard. Although it's certainly true that the FDA chose to focus on the micronized products, the agency's lack of action against the sheet products doesn't provide any cover for MiMedx either. In the FDA's untitled letter the agency expressly disclaimed the possibility the letter was "<span style="background-color: white; text-align: left;">intended to be an all-inclusive review of the products that your firm markets."</span> Although the FDA has not yet challenged MiMedx's other products, the FDA also has not provided any public guidance to indicate whether MiMedx's practices are acceptable within the context of 361 HCT/Ps nor has MiMedx publicly disclosed any designations they might have received from the <a href="https://www.fda.gov/vaccines-blood-biologics/tissue-tissue-products/tissue-reference-group">FDA's Tissue Reference Group</a>, which is particularly troubling. Despite having many years of opportunity to unequivocally determine whether their core products are compliant under 361, MiMedx has never disclosed any formal designation for their products issued by the TRG. In 2015, Parker Petit effectively acknowledged the lack of designation when he explained the company's basis for marketing their products as HCT/Ps:<br /><span style="background-color: white; text-align: start;"><blockquote>"Amniotic membrane has been used in numerous wound covering and wound healing applications for over 100 years. These applications have been highly publicized over a long period of time and have been repeatedly referenced by the FDA. These references form the basis for MiMedx's position on marketing, labeling and intended use."</blockquote></span>Why "form a basis" for marketing when you could definitively receive an opinion from the TRG? Perhaps the company was fearful that the TRG would determine that MiMedx products did not meet the standards under section 361 for any one of a number of reasons.</span></div><div style="text-align: justify;"><span style="font-family: arial;"><br /></span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span style="font-family: arial;"><br /></span></div><div style="text-align: justify;"><span style="font-family: arial;">Another troubling aspect of Parker's 2015 statement was that it came more than a year after the company denied in court that they never sought a determination from the TRG. <i>In re MiMedx Group, Inc. Securities</i> (13-cv-03074-TWT) the plaintiffs alleged that MiMedx had never sought a determination from the TRG to base their assertion that their processing technique constituted "minimal manipulation", which the company subsequently denied in September 2014.<br /><br /><img border="0" data-original-height="221" data-original-width="661" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqpUB6DCC6qODgbch40G3DXqSdv-NaPGi-Hbmvixv_PHKdK-adlEhWTUOkO8RXI_7kKOu49azR0uRY4rC1n0YnkzCL6H4FhbrvupTokvlzbwO8ZYHcfgVdjzXi2v1tCmSZeHdrXOX1OoE/s320/In-re-MiMedx-Group-Inc-Securities-Litigation-13-CV-03074-Consolidated-Amended-Class-Action-Complaint.png" width="320" /></span></div><div style="text-align: justify;"><span style="font-family: arial;"><br /></span></div><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><span style="color: black; font-family: arial;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqpUB6DCC6qODgbch40G3DXqSdv-NaPGi-Hbmvixv_PHKdK-adlEhWTUOkO8RXI_7kKOu49azR0uRY4rC1n0YnkzCL6H4FhbrvupTokvlzbwO8ZYHcfgVdjzXi2v1tCmSZeHdrXOX1OoE/s661/In-re-MiMedx-Group-Inc-Securities-Litigation-13-CV-03074-Consolidated-Amended-Class-Action-Complaint.png" style="margin-left: 1em; margin-right: 1em;"></a></span></div><span style="font-family: arial;"><br /></span></div><div style="text-align: justify;"><span style="font-family: arial;">Again this begs the question as to why MiMedx would ever have to "form a basis" for their products' marketing, labeling, intended use, or compliance under section 361? It's incredible that the company would deny such an allegation a year prior and subsequently make statements about their <i>opinion. </i>If they actually had a designation from the TRG, wouldn't it be in your shareholder's best interest to simply disclose your unequivocal designation by the TRG as 361 compliant? That's precisely what other companies have done. In their most recent 10-K filed February 24, 2021, Xtant Medical Holdings had this to say about some of their products:</span></div><div style="text-align: justify;"><span style="font-family: arial;"><span style="text-indent: 48px;"></span></span></div><blockquote><div style="text-align: justify;"><span style="text-indent: 48px;"><span style="font-family: arial;"><br /></span></span></div><div style="text-align: justify;"><span style="text-indent: 48px;"><span style="font-family: arial;">"Several of our products, including OsteoSponge and OsteoWrap, are regulated as HCT/Ps because they meet these four criteria. <b><u>The FDA’s Tissue Reference Group confirmed this in non-binding recommendations provided to us.</u></b>"[emphasis added]</span></span></div></blockquote><div style="text-align: justify;"><span style="font-family: arial;"><span style="text-indent: 48px;"></span><span style="background-color: white; text-align: left;">PolarityTE, on the other hand basically took a <a href="https://www.youtube.com/watch?v=Z7-TTWgiYL4">NWA</a> approach in <a href="https://www.sec.gov/Archives/edgar/data/0001076682/000149315221007159/form10-k.htm">their most recent 10-K</a>:</span></span></div><blockquote><div style="text-align: justify;"><span style="text-indent: 48px;"><span style="font-family: arial;">"Product manufacturers are not required to consult with the TRG or OCP and instead can market their products based on their own conclusion that the product meets the 361 HCT/P criteria. We have not consulted the TRG or sought a formal designation from the OCP, though we have had informal interactions with OCP."</span></span></div></blockquote><div style="text-align: justify;"><span style="text-indent: 48px;"><span style="font-family: arial;"></span></span></div><div style="text-align: justify;"><span style="font-family: arial;">To their credit at least PolarityTE made a reference to the TRG, but oddly enough, if you perform a <a href="https://www.sec.gov/edgar/search/#/q=%2522Request%2520for%2520Designation%2522%2520OR%2520%2522RFD%2522%2520OR%2520%2522Tissue%2520Reference%2520Group%2522%2520OR%2520%2522TRG%2522&dateRange=10y&ciks=0001376339&entityName=MIMEDX%2520GROUP%252C%2520INC.%2520(MDXG)%2520(CIK%25200001376339)" target="_blank">full text search of EDGAR</a>, you'll note that the search terms "Tissue Reference Group", "TRG", "Request for Designation", "RFD", "TRIP" and "Rapid Inquiry" simply do not appear in any <b>MiMedx</b> filing with the SEC over the past ten years despite the company's public reference to the TRG. Strange.<br /><br /></span><h4><span style="font-family: arial;">Homologous Use</span></h4></div><div style="text-align: justify;"><span style="font-family: arial;"><br /></span></div><div style="text-align: justify;"><span style="font-family: arial;">Even if one were to assume that MiMedx's products are compliant within the "minimal manipulation" and "combination" standards, are they really intended for homologous use? The answer isn't always crystal clear and it depends on the tissue's original functions in the body when compared to it's intended function in the recipient. In an effort to clarify whether products met these requirements the FDA also provided illustrative examples of what qualified as homologous use in the final guidance document(red box bad, green box good). </span></div><div style="text-align: justify;"><span style="font-family: arial;"><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both;"><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXyFc94c1lSbhCzy3ARCgFOaPzMU_tgdzUDtwxALg1maD5keUHS18x4SuyM_vlqMapyCVA5BRzt02u9xjl7wjKBscgy8svt2RfW1IF1JnhhIeYzRORZmnh3FhkB7xdmhvWQLwyh8i813k/" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="975" data-original-width="1512" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXyFc94c1lSbhCzy3ARCgFOaPzMU_tgdzUDtwxALg1maD5keUHS18x4SuyM_vlqMapyCVA5BRzt02u9xjl7wjKBscgy8svt2RfW1IF1JnhhIeYzRORZmnh3FhkB7xdmhvWQLwyh8i813k/w400-h258/Regulatory-Considerations-for-Human-Cells-Tissues-and-Cellular-and-Tissue-Based-Products-Minimal-Manipulation-and-Homologous-Use-Guidance-for-Industry-and-Food-and-Drug-Administration-Staff-+%25284%2529.png" width="400" /></a></div><br /></div></div>Again assuming MiMedx products meet the the "minimal manipulation" and "combination" guidance, I think it's fairly safe to interpret the FDA guidance such that EpiFix, AmnioFix, and EpiBurn would satisfy the homologous use guidelines provided that they are being applied <b><u>*only*</u></b> as a protective covering. In fact, the FDA's footnote to the above example seems to question the validity of MiMedx's entire business model and marketing strategy by specifically noting that:</span></div><div style="text-align: justify;"><blockquote><span style="font-family: arial;"><i>"</i><i>Reducing scarring, angiogenesis, and inflammation are potential clinical effects in the recipient but are not basic functions of amniotic membrane in the donor; therefore, they are not considered homologous uses of amniotic membrane."</i></span></blockquote></div><div style="text-align: justify;"><span style="font-family: arial;"><br />By MiMedx's own admission(<a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/0001376339/000137633921000011/mdxg-20201231.htm" target="_blank">10-K</a>) the<span style="background-color: white;"> "guidance documents confirmed that sheet forms of amniotic membrane generally are appropriately regulated as solely Section 361 HCT/Ps when intended for use as a <b><u><i>barrier or covering</i></u></b>"</span><span style="background-color: white;"> [emphasis added], despite subsequently detailing in their </span>most recent <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/0001376339/000137633921000032/mdxg-20210331.htm" target="_blank">10-Q</a> that:</span></div><blockquote style="text-align: justify;"><span style="font-family: arial;">"<span style="background-color: white;">Our EpiFix and EpiCord sheet product lines are promoted for external use, such as in </span><span style="background-color: white;"><b><u>advanced wound care</u></b> applications, while our AmnioFix, AmnioCord and AmnioFill products are positioned for <b><u>s</u></b><b><u>urgical applications, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstructions</u></b>."[emphasis added]</span></span></blockquote><div style="text-align: justify;"><span style="background-color: white;"><span style="font-family: arial;">The above description seems to fly directly in the face of what the FDA considers to be "homologous use."</span></span></div><div style="text-align: justify;"><span style="background-color: white;"><span style="font-family: arial;"><br />MiMedx also disclosed in their 2020 10-K that ~20% of their 2020 sales were products they either knew to be subject or believed that they could be subject to enforcement action(micronized products, EpiCord and AmnioCord). Strangely in the 2020 10-K the company seems to paint a target on the back of their umbilical cord derived products: </span></span></div><div style="text-align: justify;"><span style="background-color: white;"><span style="font-family: arial;"></span></span><blockquote><span style="font-family: arial;"><span style="background-color: white;">"</span><span style="background-color: white;">Also, the Company currently markets EpiCord and AmnioCord, tissue products derived from human umbilical cord, as providing a protective environment or as a barrier. The Company has become aware that the FDA may view the basic function of human umbilical cord as a conduit, based on warning letters to several companies marketing human umbilical cord derived products for a variety of uses, which raises the risk that the FDA will take the position that MiMedx’s marketing of human umbilical cord products may not be a homologous use. To our knowledge, the FDA has not indicated this publically or to MiMedx however, if FDA determines that EpiCord and AmnioCord do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval under Section 351 will be required."</span></span></blockquote><span style="font-family: arial;"><span style="background-color: white;"></span></span></div><div style="text-align: justify;"><br /></div><h4 style="text-align: justify;"><span style="text-align: left; white-space: pre-wrap;"><span style="font-family: arial;">Unnecessary</span></span><span style="font-family: arial;"><span style="text-align: left; white-space: pre-wrap;"> U</span></span><span style="text-align: left; white-space: pre-wrap;"><span style="font-family: arial;">ncertainty</span></span></h4><div style="text-align: justify;"><span style="font-family: arial;"><span style="text-align: left; white-space: pre-wrap;">I can only imagine how frustrating the uncertainty is for MiMedx shareholders, which is made all the more irksome by the fact MiMedx could have received detailed guidance from the FDA on the future regulatory status of all of their products. Even though the TRG has been around for 20+ years, as a part of the FDA's commitment to stakeholders, the FDA created and launched a <a href="https://www.fda.gov/vaccines-blood-biologics/trg-rapid-inquiry-program-trip" target="_blank">Tissue Reference Group Rapid Inquiry Program (TRIP)</a> that allowed manufactures of HCT/Ps </span><span style="text-align: left; white-space: pre-wrap;">like MiMedx </span><span style="text-align: left; white-space: pre-wrap;">to seek and receive a "</span><span style="background-color: white; text-align: left;">rapid, preliminary, informal, non-binding assessment from the FDA regarding how specific HCT/Ps are regulated". This program operated from June 2019 through <u>March 31, 2021</u>. In effect, MiMedx was able to submit product information to the FDA and receive enough feedback to know whether their products could be marketed after May 31, 2021 as a 361 HCT/P or whether they would need to file BLAs. No guesswork needed.</span></span></div><div style="text-align: justify;"><span style="background-color: white; text-align: left;"><span style="font-family: arial;"><br /></span></span></div><div style="text-align: justify;"><span style="font-family: arial;">It almost seems that MiMedx is attempting to be willfully ignorant of how the FDA will regulate their products despite the FDA providing ample opportunity to submit product specific inquiries to the TRIPs program. The TRIPs program was not overly complicated and facile enough that even a tiny, resource constrained competitor of MiMedx did just that. Earlier this year BioStem Technologies disclosed that they had received a TRIP response indicating <span style="background-color: white; text-align: start;">that their VENDAJE product did "<a href="https://www.biostemtechnologies.com/news/biostem-technologies-inc-receives-trip-trg-rapid-inquiry-program-response-for-vendaje-tm" target="_blank">meet the criteria in 21 CFR 1271.10(a) for regulation solely under Section 361 of the Public Health Service Act and 21 CFR 1271."</a> VENDAJE is an amniotic derived wound covering, which is <i>similar </i>to the MiMedx products, however it is comprised solely of the amnion layer, and not laminated dHACM, so we can't reliably conclude that VENDAJE's TRIP response provides safe harbor to MiMedx products. Furthermore the two companies' marketing materials are</span><span style="background-color: white; text-align: start;"> vastly different. VENDAJE marketing goes no further than stating it is intended as a protective covering for wounds. <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtial9TABjUzgr5w4wYMz-mvlrl8zga4Zu0rddKgnx5OkVRbede2aJFnF5jgdK2HspDTZ6_bUdtnMyXPxm-0-zLEtbjLzFbCOnvjpD5WHvaTi_Ik2Atnq1wu_vf_krQVcXhZ_S1nw2Hpw/" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="644" data-original-width="1455" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtial9TABjUzgr5w4wYMz-mvlrl8zga4Zu0rddKgnx5OkVRbede2aJFnF5jgdK2HspDTZ6_bUdtnMyXPxm-0-zLEtbjLzFbCOnvjpD5WHvaTi_Ik2Atnq1wu_vf_krQVcXhZ_S1nw2Hpw/w400-h178/vendaje.png" width="400" /></a></div><br /></span><br /><br />MiMedx's marketing materials however <span style="background-color: white;">are directed toward </span><span style="background-color: white;">advanced wound care applications, with "</span><span style="text-align: left;">semi-permeable protective barriers" that "supports the healing cascade and protects the wound bed to aid in the development of granulation tissue" or are directed toward surgical applications such as "tendon, bone or hardware coverage".</span></span></div><div style="text-align: justify;"><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJJoukURgxaXDyrh86ujwK04WDIdU4XhP0MA0isbvn0HoVbobsQX6DL3r-z_2fDA4y0ePtCUaLGyFjPL-pnkwsxxAwGEkB0RHOUYF04C5jAwKWNxCy0AWQkGDSwy97oGHci8il0OeLD6k/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="144" data-original-width="778" height="59" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJJoukURgxaXDyrh86ujwK04WDIdU4XhP0MA0isbvn0HoVbobsQX6DL3r-z_2fDA4y0ePtCUaLGyFjPL-pnkwsxxAwGEkB0RHOUYF04C5jAwKWNxCy0AWQkGDSwy97oGHci8il0OeLD6k/" width="320" /></span></a></div><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgob4XbVieBowIcqIwLK6QvjdMe409Hq1QlgMYfl9KRc13mRAP0fktYOQOouPvCLDpMFaM64fDDNbNpLLqOKdNOHJfLaZ_LPXQ3ciGu7DtYkVamIaL9lzw9iPfgrZ2Pfpt2B3FzfWrrBAk/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="323" data-original-width="672" height="154" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgob4XbVieBowIcqIwLK6QvjdMe409Hq1QlgMYfl9KRc13mRAP0fktYOQOouPvCLDpMFaM64fDDNbNpLLqOKdNOHJfLaZ_LPXQ3ciGu7DtYkVamIaL9lzw9iPfgrZ2Pfpt2B3FzfWrrBAk/" width="320" /></span></a></div><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp4xUzDgKvgz35jk_7qgiwBERiV81jkDeDv1Y5s9kd6GUz8hDi6lh9soebUM6hLmOOepsCmJDLtKkw5K59QR6MH50pL351ua2hCWGv15oULUBbGuP7hbttXnGsDrOk4xteRgUNG94ppDg/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="159" data-original-width="766" height="66" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp4xUzDgKvgz35jk_7qgiwBERiV81jkDeDv1Y5s9kd6GUz8hDi6lh9soebUM6hLmOOepsCmJDLtKkw5K59QR6MH50pL351ua2hCWGv15oULUBbGuP7hbttXnGsDrOk4xteRgUNG94ppDg/" width="320" /></span></a></div><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDsqhFOg-JPhsuktCjU2NEkiecWq7UbozYOUYrFL-6t7YWKpeUqbO65i8EfLdmHrBoQ8NEZT3iPg-bM8F340J9pUYNqoeY_9K3TrEcm_F9sEcc2gGygG5cvNLfn4rvuBZ1uw0fuqqCTeg/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="160" data-original-width="767" height="67" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDsqhFOg-JPhsuktCjU2NEkiecWq7UbozYOUYrFL-6t7YWKpeUqbO65i8EfLdmHrBoQ8NEZT3iPg-bM8F340J9pUYNqoeY_9K3TrEcm_F9sEcc2gGygG5cvNLfn4rvuBZ1uw0fuqqCTeg/" width="320" /></span></a></div><span style="font-family: arial;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPWG70q1M72tD69CzQ4q5Wms-QUQIa5ziC5dN3zxPlO54u1VWTU4deDRzgFc-Uf1Ps6h2EFDRGD_3rTXbuZwBkQ9C484YNnilmla4eAvMEVhJtG70-4ErXqskCjxZb33qvLHaQhvO5SDk/" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: arial;"><img alt="" data-original-height="153" data-original-width="746" height="66" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPWG70q1M72tD69CzQ4q5Wms-QUQIa5ziC5dN3zxPlO54u1VWTU4deDRzgFc-Uf1Ps6h2EFDRGD_3rTXbuZwBkQ9C484YNnilmla4eAvMEVhJtG70-4ErXqskCjxZb33qvLHaQhvO5SDk/" width="320" /></span></a></div><span style="font-family: arial;"><br /><br /><br />In addition to potential action by the FDA, the company's current marketing practices will also put them squarely at odds with the expectations they disclosed to investors in their most recent 10-K.<br /><span style="background-color: white;"><blockquote>"Under the Guidance, we expect that the FDA will continue to regulate our amniotic membrane sheet products (AmnioFix, EpiFix, EpiBurn and EpiXL) as Section 361 HCT/Ps so long <u><i>as the claims we make for them are consistent with the Section 361 framework</i></u>."[emphasis added]</blockquote><p><span style="background-color: transparent;">For the sake of their shareholders, I hope that MiMedx uses their annual meeting to clarify the precise TRG designation status for all of their products, whether they participated in the TRIPs program, as well as the significant changes to their sales and marketing activities which will likely be warranted starting June 1st when enforcement discretion ends. As responsible fiduciaries, if they haven't already done so, the company should <b><u>immediately take all steps necessary to submit</u></b></span><span style="background-color: transparent;"><b><u> multiple Requests for Designation to the TRG and disclose the outcome</u></b> of those requests so that the veil of uncertainty surrounding their products can be lifted for the sake of consumers and the company's shareholders.</span></p></span></span></div><div data-block="true" data-editor="8g9v0" data-offset-key="1p35j-0-0" style="color: #0f1419; font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif; font-size: 20px; white-space: pre-wrap;"></div></div>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-57085693711884079772018-08-24T13:15:00.000-04:002018-08-24T13:39:27.654-04:00Material Adverse Events<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; color: #222222; font-size: 12.8px;"></span></span><br />
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;">You might suppose that MiMedx, the Marietta, Georgia-based
regenerative tissue developer squarely in the crosshairs of everyone from the
<a href="https://www.bloomberg.com/news/articles/2018-02-26/u-s-is-said-to-probe-mimedx-s-federal-contracts-accounting">Department of Justice</a>, the <a href="https://mimedx.gcs-web.com/news-releases/news-release-details/mimedx-comments-matters-related-former-va-employees">Department of Veteran's Affairs</a>, the <a href="https://www.prnewswire.com/news-releases/mimedx-provides-information-on-its-interaction-with-the-sec-300523565.html">Securities and Exchange Commission</a>, <a href="https://www.wsj.com/articles/insurer-stops-reimbursing-for-some-mimedx-products-1534263292">health insurers</a>, and <a href="https://medcitynews.com/2018/01/mimedx-ceo-vs-marc-cohodes-jpm18/">short-sellers</a> couldn’t possibly have anymore
controversy surface.<o:p></o:p></span></span></div>
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;">Think again.</span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_KCC5WU3Cm0vY3YUatA9ozkiB84kdNx6tqbTMKoesrdqIhl63MVcdQ28Tcdb_ys5lBbqzxKXCh411sePLs9uCeT03rjZ9Z1qW7j2-U6TAbjW_87HNSD8DMwUNSwIDwAtp3A9M_xcxuPY/s1600/Vic+V+Shah+pdf.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_KCC5WU3Cm0vY3YUatA9ozkiB84kdNx6tqbTMKoesrdqIhl63MVcdQ28Tcdb_ys5lBbqzxKXCh411sePLs9uCeT03rjZ9Z1qW7j2-U6TAbjW_87HNSD8DMwUNSwIDwAtp3A9M_xcxuPY/s320/Vic+V+Shah+pdf.png" width="251" /></a><span style="font-family: "verdana" , sans-serif;"><span style="background: white;">Recently a civil </span><span class="Hyperlink0"><a href="https://www.scribd.com/document/386898362/GV18011634-00-VWPvsHASHEMI"><span style="background: white;">lawsuit</span></a></span><span style="background: white;"> was initiated in Fairfax County, Virginia
that suggests that MiMedx isn’t leveling with both consumers and a key
regulator over the safety of their flagship products. </span><span style="background: white;"><o:p></o:p></span></span></div>
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<span style="background: white; font-family: "verdana" , sans-serif;">The complaint is pretty straightforward: </span><span lang="FR" style="background: white; font-family: "verdana" , sans-serif;">a patient </span><span style="background: white; font-family: "verdana" , sans-serif;">named Victoria Wen-Platt claims her routine surgery for
carpal tunnel syndrome was marred because of a severe reaction to the </span><span lang="FR" style="background: white; font-family: "verdana" , sans-serif;">EpiFix her surgeon </span><span style="background: white; font-family: "verdana" , sans-serif;">used to minimize scar tissue. </span><span style="background-color: white; font-family: "verdana" , sans-serif;">What is not so straightforward, however, is why the Food and Drug
Administration has no record of this adverse event and others.</span><br />
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">In response to a Freedom of Information Act request, the FDA performed
an exhaustive search of adverse events potentially caused by MiMedx products
spanning over a seven year period that ended in February 2018. As it turns
out, while the FDA does have records of </span><span class="Hyperlink0"><a href="https://www.scribd.com/document/386444770/MEDWATCH-Responsive-Records-Medwatch-MDXG-20118"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">adverse events related to
EpiFix and AmnioFix</span></a></span><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">, MiMedx self-reported
those events to the FDA and determined they were unrelated to their products.</span></span></span></div>
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;">One particularly disturbing report indicates that MiMedx knowingly
processed tissue that cultured positive for coagulase negative </span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span lang="IT" style="background: white;">Staphylococcus </span><span style="background: white;">and </span><span lang="IT" style="background: white;">Staphylococcus
saccharolyticus.</span><span style="background: white;"> </span><span style="background-color: white;">Coagulase-negative staphylococci (CoNS) are part of the normal bacteria typically found on human skin and are often contaminants of clinical specimens. Usually CoNS aren't particularly virulent, although</span><span style="background-color: white;"> their prevalence</span><span style="background-color: white;"> </span><span style="background-color: white;">has contributed the CoNS becoming agents of more clinically significant infections. Although CoNS rarely cause sepsis, they are one of the most common nosocomial infections and are often resistant to multiple classes of antibiotics.</span><span style="background-color: white;"> The report MiMedx submitted to the FDA details that a patient who received 50mg of AmnioFix injectable and an EpiFix graft on his right foot in July of 2017 later had his toe amputated.</span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrqpoC2f2-Szj9D3z7oO8o0qbmVrHmsBKjFaCwbpJxVl7BR02S9vl35u0DNqRzwlBdvC2iRB1yQxndFb5oFnaKW5x9qFpRUBdssBWSI4Sm6vKwyBH661RjjymHh8EnJPeGF9NCFvYKCTc/s1600/MEDWATCH_Responsive+Records+Medwatch_MDXG_20118.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: "verdana" , sans-serif;"><img border="0" data-original-height="197" data-original-width="1065" height="113" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrqpoC2f2-Szj9D3z7oO8o0qbmVrHmsBKjFaCwbpJxVl7BR02S9vl35u0DNqRzwlBdvC2iRB1yQxndFb5oFnaKW5x9qFpRUBdssBWSI4Sm6vKwyBH661RjjymHh8EnJPeGF9NCFvYKCTc/s640/MEDWATCH_Responsive+Records+Medwatch_MDXG_20118.bmp" width="640" /></span></a></div>
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<span style="font-family: "verdana" , sans-serif;">MiMedx’s report indicated that:</span></div>
<blockquote class="tr_bq" style="line-height: 11.0pt;">
<span style="font-family: "verdana" , sans-serif; text-align: center;">“Hospital culture was positive for Staphylococcus aureus (gram positive cocci). This is a different species than the MiMex pre-processing [(b)(4) redacted] for the grafts which indicated Coagulase Negative Staphylococcus (for donor [(b)(6) redacted] and Staphylococcus saccharolyticus (for donor [(b)(6) redacted]. As the species are different, there is no correlation between the growth on the incoming tissue and that on the wound culture at the hospital. Because of the investigation (above and in B.6) and asence of findigs, and the fact that the tissues in question were terminally sterilized, we have determind that it is highly improbably that the adverse reaction was caused by the tissue. However, as the event did involve and infection which necessitated medical intervention (antibiotic treatment and toe amputation), Mimedx has determined that, in the abundance of caution, the event will be reported to the FDA under 21 CFR 1271."</span></blockquote>
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<span style="font-family: "verdana" , sans-serif;"><o:p></o:p></span></div>
<span style="font-family: "verdana" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white;">Although the patient's infection was determined to be caused by Staphylococcus aureus, I'm surprised that MiMedx's quality control systems would allow this tissue to be processed to begin with. MiMedx notes that the tissues in question were </span></span>terminally sterilized, however in the FDA's current risk-based approach to biopharmaceutical quality it seems unnecessarily reckless to allow harvested tissues that culture positive for known pathogens to move through MiMedx's manufacturing processes and ultimately on to distribution. The report further indicates that a total of 56 grafts were distributed from the same lots, however the report does not indicate that these tissues were actually utilized.</span><br />
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<span style="font-family: "verdana" , sans-serif;"><span style="background: white;">MiMedx</span><span style="background: white;"> and</span><span style="background: white;"> I can disagree what constitutes "quality by design",
nonetheless the severe reaction that Mrs. Wen-Platt encountered is clearly not
listed in the MEDWATCH reports which the FDA provided in response to the FOIA
request. One simple and plausible explanation is that the reaction
occurred outside of the responsive period that the FDA was asked to query. Or that
the reaction was reported to the company after the FDA closed out the
FOIA request. Another is that the company was never aware that a recipient of
one of its products had such a severe reaction.</span><span style="background: white;"><o:p></o:p></span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="background: white;">I believe that the reaction was reported to the
company and the company did not report the event to the </span><span lang="DE" style="background: white;">FDA.</span></b><span style="background: white;"><o:p></o:p></span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span lang="DE" style="background: white;"></span></span></div>
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;">Wen-Platt's severe reaction occurred in January of 2017, within
the responsive time frame of the FOIA request. Additionally, I’ve been told by a
source familiar with the matter that MiMedx was indeed notified of
the adverse event within six months of its occurrence. The adverse event was
initially reported to a Regional Sales Director and then quickly elevated to at
least one member of MiMedx's senior management team, Dr. David Mason, the Vice
President of Medical Affairs for Clinical Practice. </span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; font-family: "verdana" , sans-serif;"></span></span><br />
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<span style="font-family: "verdana" , sans-serif;"><span style="background: white;">Although the patient's name would have been redacted in the
documents provided by the FDA, there is simply no record that comes close to matching
her reaction. More troubling still is that as referenced above the person familiar with the
matter indicated <span class="Hyperlink0"><u>there are more adverse events</u></span> related
to MiMedx products which have not yet been publicly disclosed. </span><span style="background: white;"><o:p></o:p></span></span><br />
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<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;">In a <a href="https://mimedx.gcs-web.com/news-releases/news-release-details/mimedx-announces-statistically-significant-results-new">press release</a> touting the efficacy of EpiFix in treating diabetic foot ulcers, MiMedx referred to a study first disclosed at the Symposium on Advanced Wound Care in April and <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/iwj.12976">published August 22nd</a> in the International Wound Journal by William Tettelbach, who is now MiMedx's Associate Chief Medical Officer. Although the publication attempts to support the efficacy of EpiFix in treating diabetic foot ulcers, there are some troubling omissions from the report. One of the study's principal investigators was Dr. Dolores Farrer. Dr. Farrer completed enrollment of patients at the William Jennings Bryan Dorn Veterans Affairs Medical Center by January 27, 2017. </span></span><span style="background-color: white; font-family: "verdana" , sans-serif;"> </span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjglcZPAKhJ54F-ejU7-U7DZl4d_Wfr72wucfxuQTjnqWn2sXH_Wm8D7uTJhWrT02SVKxgNr8NTyn31TosGTMjFxPzLqlnvU13CQ4G6GQAoBnfLYOsi4WR-dtHzytPlVbfVXwvKQOrAQMg/s1600/Archive+History+for+NCT01693133+%25281%2529.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="148" data-original-width="1161" height="80" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjglcZPAKhJ54F-ejU7-U7DZl4d_Wfr72wucfxuQTjnqWn2sXH_Wm8D7uTJhWrT02SVKxgNr8NTyn31TosGTMjFxPzLqlnvU13CQ4G6GQAoBnfLYOsi4WR-dtHzytPlVbfVXwvKQOrAQMg/s640/Archive+History+for+NCT01693133+%25281%2529.png" width="640" /></a></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;"><span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;">Dr. Farrer, who was also listed as a member of MiMedx's VLU Study Group, was <a href="https://www.justice.gov/usao-sc/pr/federal-grand-jury-indictments-70">indicted</a> in May of 2018 by the </span></span><span style="font-family: "verdana" , sans-serif;">U.S. Attorney’s Office of the </span>District of South Carolina for Conspiracy and Bribery with respect to her financial interest in MiMedx while a physician at the Dorn VA. Although Dr. Tettelbach revised his paper almost 2 months after Farrer's indictment, Dr. Farrer's involvement in the study is not disclosed anywhere in Tettelbach's publication. </span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF_BQDxVIhMHMIYV8jlp85shawbCChIoXmmHq6fJ3JYrTLE-KK8hI9GoQENrRy6RI2WzwbKTbSWhsB5vrtdHmjyeyPQUVTyqXdgMVidQc3NtA5mKmUqDp07Ha5ZbtW9a24cJ08wcnh9TE/s1600/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25282%2529.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="264" data-original-width="384" height="137" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF_BQDxVIhMHMIYV8jlp85shawbCChIoXmmHq6fJ3JYrTLE-KK8hI9GoQENrRy6RI2WzwbKTbSWhsB5vrtdHmjyeyPQUVTyqXdgMVidQc3NtA5mKmUqDp07Ha5ZbtW9a24cJ08wcnh9TE/s200/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25282%2529.png" width="200" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj02-1h7V00mVTsVZZ8UVNZacY_g11GlaIxaH7EW1gVasvDRioIJHFChgMh2u8qWCXjuRSFbd_U4WphHBh4_b04RmyJnnEpH7c4jpqJ6r8E3c6idEFUDCu36ijAwyhYm7A67igyFG6ddUs/s1600/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25285%2529.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="199" data-original-width="401" height="98" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj02-1h7V00mVTsVZZ8UVNZacY_g11GlaIxaH7EW1gVasvDRioIJHFChgMh2u8qWCXjuRSFbd_U4WphHBh4_b04RmyJnnEpH7c4jpqJ6r8E3c6idEFUDCu36ijAwyhYm7A67igyFG6ddUs/s200/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25285%2529.png" width="200" /></a></div>
<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;"><br /></span></span>
<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;">Tettelbach's publication neither details how many patients were randomized at the Dorn VA, nor the number of patients that were treated at the Dorn VA.</span></span><br />
<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;"><br /></span></span>
<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;">The study authors do disclose however that out of 126 patients randomized in the clinical trial, three experienced adverse events that were considered to be possibly related to the product.</span></span><br />
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<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyPUAqh694lIdE7-UVisIPgYkXZLaVf80g0fvRaoQ-W3nzozErMlERfzRHQwjJCb70BcUj25UXC3yH9CO9-FeLSu5xwrWjxgJjWTMvLILVHZLegOmjcBHSjmuNV54rx9vxtTrF_shoBmU/s1600/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25284%2529.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="88" data-original-width="385" height="73" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyPUAqh694lIdE7-UVisIPgYkXZLaVf80g0fvRaoQ-W3nzozErMlERfzRHQwjJCb70BcUj25UXC3yH9CO9-FeLSu5xwrWjxgJjWTMvLILVHZLegOmjcBHSjmuNV54rx9vxtTrF_shoBmU/s320/A+confirmatory+study+on+the+efficacy+of+dehydrated+human+amnion+chorion+membrane+dHACM+allograft+in+the+management+of+diabetic+foot+ulcers++A+prospective++multicentre++randomised++controlled+study+of+110+patien+%25284%2529.png" width="320" /></a></span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="background-color: white;">Similarly to Mrs. Wen-Platt's reaction, these adverse events are also conspicuously absent from the MEDWATCH reports provided by the FDA, despite <a href="https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/Tissue/UCM434834.pdf">federal requirements</a> to report such adverse events. </span></span><br />
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<br />
<span style="background: white;"><span style="font-family: "verdana" , sans-serif;">I often wonder why the FDA hasn't yet launched an enforcement action against
MiMedx. <span class="None">If you read the FDA's January 2016 <a href="https://www.scribd.com/document/386905234/FACTS-11552451-PAC41B800-EIR">Establishment Inspection Record for MiMedx</a>, or the FDA's </span><span class="Hyperlink1"><a href="https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/ComplianceActivities/Enforcement/UntitledLetters/UCM616479.pdf">untitled letter they sent to the Mid America
Stem Cell Institute in July</a></span> of this year, it's a bit shocking
to see that the agency has not recently sent a similar letter to MiMedx, particularly since MiMedx has been on the FDA's radar since <a href="https://www.fda.gov/biologicsbloodvaccines/guidancecomplianceregulatoryinformation/complianceactivities/enforcement/untitledletters/ucm367184.htm">August of 2013</a>. </span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjs5S_ZpXZzIgQsgoC-TP1HwUsl5qgEbbSZlG1Plb2H7eu9too90OhGS0y6dRtlFZaKxe5cc4hzunesZjNQfFibDCUz-Csg0CBRnOXH5EpRmpCC_Dbe4spxwl-iADYj8uTMAIDZuvvYvWU/s1600/MiMedx+++Innovations+in+Regenerative+Medicine+and+Therapeutic+Biologics.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img alt="" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjs5S_ZpXZzIgQsgoC-TP1HwUsl5qgEbbSZlG1Plb2H7eu9too90OhGS0y6dRtlFZaKxe5cc4hzunesZjNQfFibDCUz-Csg0CBRnOXH5EpRmpCC_Dbe4spxwl-iADYj8uTMAIDZuvvYvWU/s320/MiMedx+++Innovations+in+Regenerative+Medicine+and+Therapeutic+Biologics.png" title="" width="305" /></a><span style="background: white;"><span style="font-family: "verdana" , sans-serif;"><br /></span></span></div>
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<span style="background: white;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;"><span style="font-family: "verdana" , sans-serif;">The following screenshot was taken from MiMedx's
website today. MiMedx is claiming that they have distributed more than
1,000,000 allografts to date with "zero reported adverse reactions
attributed to our products." Although there have been a lot of changes in
MiMedx recently, whether or not you think MiMedx's current woes are solely
related to actions taken by former leadership, MiMedx is *currently* making
materially false statements with respect to their products' safety and use.</span></span></span></div>
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<span style="background: white;"><span style="font-family: "verdana" , sans-serif;"><br /></span></span></div>
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<span style="background: white;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;"><span style="font-family: "verdana" , sans-serif;">It's possible that the FDA will take action
against MiMedx. It's also possible that the FDA will let MiMedx run out the
remaining 28 months* of their enforcement discretion based a lack of safety
concerns and also based on the company's Investigational New Drug Applications that
will support their planned Biologic
License Applications.</span></span></span></div>
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<span style="font-family: "verdana" , sans-serif; font-size: x-small;"><span style="background: white;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;"><i>*(The final <a href="https://www.fda.gov/downloads/biologicsbloodvaccines/guidancecomplianceregulatoryinformation/guidances/cellularandgenetherapy/ucm585403.pdf">guidance issued by the FDA in December of 2017</a> for </i></span></span><i>Human Cells, Tissues, and Cellular
and Tissue-Based Products </i><i style="background-color: white;">noted that the agency would "exercise enforcement discretion under limited conditions with respect to
the investigational new drug (IND) application and premarket approval (biologics license
application (BLA)) requirements, for certain HCT/Ps" for a 36 month period.)</i></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span class="None">Setting aside the <a href="https://www.wsj.com/articles/highflying-medical-firm-a-help-to-wounded-veterans-falls-to-earth-1532362069?mod=searchresults&page=1&pos=3&mod=article_inline">allegations of </a></span><a href="https://www.wsj.com/articles/highflying-medical-firm-a-help-to-wounded-veterans-falls-to-earth-1532362069?mod=searchresults&page=1&pos=3&mod=article_inline"><span class="None"><span lang="FR">fraud</span></span><span class="None"><span lang="FR"> </span></span></a><span class="None"><a href="https://www.wsj.com/articles/highflying-medical-firm-a-help-to-wounded-veterans-falls-to-earth-1532362069?mod=searchresults&page=1&pos=3&mod=article_inline">and kickbacks</a>, to say nothing of the <a href="https://www.reuters.com/article/us-mimedx-group/mimedx-to-restate-financial-statements-replaces-cfo-idUSKCN1J31AP">absence of six years of reliable financials</a>
for this publicly traded company, i</span>f MiMedx was counting on the FDA's enforcement discretion it's
quite possible that discretion will evaporate in light of these previously
unreported safety concerns.<span class="None"><o:p></o:p></span></span></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; font-family: "verdana" , sans-serif;"><br /></span></span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; font-family: "verdana" , sans-serif;">(<u><i>Note</i>:</u> I emailed both Dr. Mason and Dr. Tettelbach seeking their comment, but had not received a response from either at the time of publication) </span></span>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-31079790509042717652016-05-09T13:45:00.001-04:002016-05-09T13:45:47.965-04:00Special Committee on Aging Frontruns Valeant Q1 Earnings ReleaseEntangled within the <a href="https://senaging.box.com/s/0853lykekrlogev4uuwma6md7hdb97z0" target="_blank">epic data dump</a> the Senate Committee on Aging gave the world there is some troubling guidance provided by Valeant's CFO, Rob Rosiello. In response to the interrogatories posed by the committee regarding the pricing of a handful of Valeant drugs, Mr. Rosiello (response starts on pg 17) was required to disclose the ratio of revenues that each of those drugs represented in relation to company wide numbers. To set the baseline for those ratios, Mr. Rosiello provided the following table (pg. 21) of his response that details financial information for the company:<br />
<br />
<ul>
<li>i. Net Product Sales</li>
<li>j. COGS</li>
<li>k. Gross Margin</li>
<li>l. Net Income</li>
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There are a couple of very interesting aspects of this disclosure.<br />
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<ol>
<li>It allows you to look back to see how previously disclosed margins, COGS and revenues compare, pre- vs. post- restatement (fun times)</li>
<li>More interestingly, <i><b>it gives you a direct line of sight on what Q1 2016 will look like</b></i>.</li>
</ol>
<div>
Valeant just<a href="http://ir.valeant.com/news-releases/2016/05-09-2016-130725267" target="_blank"> reaffirmed guidance</a> today at $1.30-$1.55 EPS with revenue estimates of $2.3-$2.4B.</div>
<div>
We know from Rosiello's sworn testimony provided in his response to the interrogatories that Valeant had <b>$1260.95M</b> in net product sales through February. To meet today's guidance, Valeant will have to net <b>$1039.05M in sales in March</b> (a 50.7% increase m/m versus February and a 81.9% increase m/m versus January), translating to approximately ~$260M in Net Income.</div>
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<div>
If Valeant doesn't manage to squeeze two month of revenues into March (which was perhaps the most tumultuous month in their entire history), they'll miss their own numbers they reaffirmed today. </div>
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Supposedly, we'll find out by June 10th.</div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-86665459645264366812016-03-21T18:19:00.000-04:002016-03-22T12:04:08.005-04:00Valeant Updates Schiller's Website Profile<div style="background-color: white; border: 0px; font-stretch: inherit; line-height: 21px; margin-bottom: 1em; margin-top: 1em; padding: 0px; vertical-align: baseline;">
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<span style="font-family: "arial" , "helvetica" , sans-serif;">First off, click on the image below to read the screen grab from Valeant's updated website.</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-QUg7S2FNvOhyphenhyphenbCqloJew8BuSBbrI5dZ2YKhyphenhyphenQIKBNy4VtIBbY-oJa9C9LQXluBiKL_CIjvo5xnhZU_WXXpL7reX_sd1Iy5TuA32OgkglMFJ6-J4F23C1uX9XOUPvhRuxicOadO1fWDQ/s1600/Schiller_BoD_update.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="456" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-QUg7S2FNvOhyphenhyphenbCqloJew8BuSBbrI5dZ2YKhyphenhyphenQIKBNy4VtIBbY-oJa9C9LQXluBiKL_CIjvo5xnhZU_WXXpL7reX_sd1Iy5TuA32OgkglMFJ6-J4F23C1uX9XOUPvhRuxicOadO1fWDQ/s640/Schiller_BoD_update.png" width="640" /></a><span style="font-family: "arial" , "helvetica" , sans-serif; margin-left: 1em; margin-right: 1em;"></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #444444;">Despite the <a href="http://ir.valeant.com/news-releases/2016/03-21-2016-125936508" target="_blank">Board's protestations and public accusations</a>, u</span><span style="color: #444444;">nder </span>section 14.10 of
<a href="http://www.valeant.com/Portals/25/PDF/Valeant%20Articles%20(EDGAR).pdf" style="color: black;" target="_blank">Valeant's Articles</a>, Schiller can only be removed if he's no longer <b style="color: black;">qualified as a director</b>. According to the <a href="http://www.bclaws.ca/civix/document/LOC/complete/statreg/--%20B%20--/Business%20Corporations%20Act%20[SBC%202002]%20c.%2057/00_Act/02057_07.xml#section124" style="color: black;" target="_blank">Business Corporations Act of British Columbia</a>, Schiller is undoubtedly <b style="color: black;">still qualified</b>. Furthermore it would require a Special Resolution to <i style="color: black;">remove him</i> if he continues in his refusal to offer his resignation; such a special resolution would require a two thirds vote of Valeant shareholders. Although the updated website profile is a <b><span style="color: red;">TOTAL SPOOF</span></b>, based on the above facts of law regarding whether Schiller is still qualified, <span style="color: black;">I expect things may remain pretty tense in Valeant's Board Room for a while to come, particularly as they are accusing him of things<a href="https://www.morningstar.com/news/pr-news-wire/PRNews_20160321LA51753/winston-strawn-llp-press-statement-of-howard-schiller-former-cfo-and-former-interim-ceo-of-valeant-pharmaceuticals-international-inc.html" target="_blank"> he clearly disagrees with</a>.</span></span></div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-22910433299671134502016-03-02T20:24:00.000-05:002016-03-02T20:24:16.111-05:00Valeant's Humpday: SEC Subpoena, Arizona Targets Company and Jorn Resigns<h2>
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<span style="font-family: Arial, Helvetica, sans-serif;">If this week wasn't bad enough for Valeant, Deb Jorn, the Executive Vice President and Company Group Chairman </span><a href="http://www.prnewswire.com/news-releases/valeant-pharmaceuticals-announces-management-change-300230063.html" style="font-family: Arial, Helvetica, sans-serif;" target="_blank">resigned today</a><span style="font-family: Arial, Helvetica, sans-serif;"> from the company. Ms. Jorn was responsible for all major US product launches as well as the Dermatology and GI therapeutic areas. These two areas were Valeant's </span><i style="font-family: Arial, Helvetica, sans-serif;">most important,</i><span style="font-family: Arial, Helvetica, sans-serif;"> representing </span><b style="font-family: Arial, Helvetica, sans-serif;">HALF</b><span style="font-family: Arial, Helvetica, sans-serif;"> of Valeant's forecasted 2016 US revenues. Moreover, Ms. Jorn was also responsible for the huge push of Dermatology products through the captive pharmacy channel they'd established with Philidor and it's subsidiaries.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Philidor is basically in a world of shit, which could be why Ms. Jorn resigned. We know from an action taken by the California Board of Pharmacy that Philidor, Valeant's captive specialty pharmacy, was <a href="http://www.pharmacy.ca.gov/enforcement/accusations/si145246.pdf" target="_blank">denied a license to operate</a> in the state of California. This led Philidor to attempt to purchase <a href="http://www2.dca.ca.gov/pls/wllpub/WLLQRYNA$LCEV2.QueryView?P_LICENSE_NUMBER=29145&P_LTE_ID=775" target="_blank">R & O pharmacy</a> through a series of shadow transactions, which could allow Philidor to operate in California, or at least that was the plan. Those well versed in the story are aware that <a href="https://www.propublica.org/article/pharmacies-valeant-affiliates-not-disclosed-california-license-denial" target="_blank">this deal completely fell apart</a> after Russel Reitz, the owner and pharmacist operating R & O Pharmacy accused Valeant, Philidor and others of committing fraud in Federal court. We also know <a href="https://www.scribd.com/doc/286701045/Isolani-v-R-O-GJK-declaration" target="_blank">from other court records </a>that Philidor, through R&O, pushed thousands of prescriptions for Valeant products out to over 30 separate states.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Leading into Jorn's resignation, this past Monday Valeant's situation became even more tenuous when it <a href="http://www.valeantnow.com/valeant-statement-on-sec-investigation/" target="_blank">disclosed it had been subpoenaed</a> by the SEC. In yet another laughably ridiculous PR effort, this past Tuesday Valeant is attempting (<a href="http://www.bloomberg.com/news/articles/2016-03-01/valeant-ceo-calls-sell-side-analysts-saying-he-needs-time" target="_blank">through private calls with sell side analysts</a>) to spin this SEC investigation by claiming that this is somehow related to Citron Research's report on the company. The <a href="https://www.xifaxan.com/" target="_blank">guts</a> of this claim is completely incredible in that Valeant was SUBPOENAED. It very well may be that it was started because they complained about Citron, but you don't <i>subpoena </i>Valeant for information they would willingly provide about a short seller. It's amateurish drivel that got pushed out to the market through what could be Reg FD violations. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Worse still for Valeant adn Ms. Jorn, the concerns surrounding Philidor persist like toenail fungus or IBS. </span><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"> <b>Sources have confirmed that the State of Arizona is targeting Valeant and its affiliates</b>. In what I consider to be a model of transparency, you can actually watch the full Arizona Board of Pharmacy Meetings via Arizona's </span><a href="https://livestream.com/accounts/5391090" style="color: #1155cc; font-family: Arial, Helvetica, sans-serif;" target="_blank">open meeting process.</a><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"> Additionally you can review the full agenda for each meeting at the Board's </span><a href="https://pharmacy.az.gov/event-created" style="color: #1155cc; font-family: Arial, Helvetica, sans-serif;" target="_blank">event portal</a><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">This transparency allows you to see that back on November 18th, shortly after Valeant detailed it's relationship with Philidor, the Arizona Board reviewed an August pharmacy application by Forsta LLC.</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4M4SaWQJIvM_e6QIBikcbQG4vr_Vz3CjwRNEfz6I6SGOhXN4M1AOYI7PlcXKCk32oytnhnJG-7oLF68KXNhHJo1VC2XTezGCyG6ahzeDryJGEkAw5eQPLmuyPqRci-zduAgMSd_hhA34/s1600/forsta_app.png" style="color: #1155cc; margin-left: 1em; margin-right: 1em;" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" class="CToWUd" height="27" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4M4SaWQJIvM_e6QIBikcbQG4vr_Vz3CjwRNEfz6I6SGOhXN4M1AOYI7PlcXKCk32oytnhnJG-7oLF68KXNhHJo1VC2XTezGCyG6ahzeDryJGEkAw5eQPLmuyPqRci-zduAgMSd_hhA34/s400/forsta_app.png" width="400" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Forsta was formed by none other than Philidor's Gary Tanner(aka Valeant's Gary Tanner), and it's pharmacist in charge was none other than Philidor's Jake Power. As evidenced <a href="https://pharmacy.az.gov/sites/default/files/2015-11-18%20minutes.pdf" style="color: #1155cc;" target="_blank">by the minutes</a>, the Board discussed Forsta's application at the meeting, as well as Valeant's relationship with Philidor. It should be noted that Forsta was one of four resident wholesaler applicants and one of 6 resident pharmacy applicants at the November meeting. Flash forward to the <a href="https://pharmacy.az.gov/sites/default/files/2016-01-27%20agenda.pdf" style="color: #1155cc;" target="_blank">January 27-28, 2016 meeting</a>, and you see that Forsta LLC was on the agenda yet again. Although Forsta's peers from the previous meeting all received approval for license, Forsta was held back with a provisional approval(rendering Forsta non-operational). According to sources familiar with the matter, Forsta was asked to attend the meeting specifically because of it's ties with Philidor and Valeant and the Board wanted very much to explore these connections. Forsta cancelled their appearance right before the meeting and did not attend.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Although the meeting agenda has not yet been made public, sources indicate the Board has asked both Forsta and Philidor to appear at the upcoming March meeting, although it is unclear whether either plans to attend. As a suggestion, I'd like to recommend that both companies just send Gary Tanner and Jake Power. Maybe Deb now that she's unencumbered. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">In addition to probing the interconnections of Valeant, Philidor and Forsta,the Board has also taken issue with Philidor's call centers. Despite Philidor's public claims about winding down their business, sources familiar with the matter indicate that the Board believes the Philidor call centers in Phoenix and Tempe are operating in violation of state laws. The Board has also been presented with evidence demonstrating that Philidor has been attempting to hire pharmacists and technicians in Arizona. This is a curious discovery particularly because Philidor filed a <a href="https://www.azjobconnection.gov/ada/mn_warn_dsp.cfm?id=225&callingfile=mn_warn_dsp.cfm&hash=8E5890E602C721633FFC2E0BEEEEEA6C" style="color: #1155cc;" target="_blank">WARN notice in Arizona</a>, on January 5th, 2016 indicating they were providing a 60 day notice period that they planned to eliminate 264 jobs in Arizona as well as a WARN notice for <a href="http://www.dli.pa.gov/Individuals/Workforce-Development/warn/notices/Pages/December-2015.aspx#.Vtc2e_krKM8" style="color: #1155cc;" target="_blank">262 employees in Pennsylvania</a> on November 23rd. Stranger still is that AFTER their public claims of winding down operations, Philidor applied for another license in Arizona on December 15th; that application is currently listed by Arizona as in process. </span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3ciDKk9lXXSq5rFmpbxdSH6oK1W5aUtFT_4j_AOjr48mJ0OOgiId0QpEWg5McYHbt65Ni_MTzWIIJgQsPjjHFT9PhQsg3XWtTbgvgG4HMtltALdiB6K4U7FtPQO3xVypVFhsq9jQWlPY/s1600/philidor_2016.png" style="color: #1155cc; margin-left: 1em; margin-right: 1em;" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" class="CToWUd" height="78" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3ciDKk9lXXSq5rFmpbxdSH6oK1W5aUtFT_4j_AOjr48mJ0OOgiId0QpEWg5McYHbt65Ni_MTzWIIJgQsPjjHFT9PhQsg3XWtTbgvgG4HMtltALdiB6K4U7FtPQO3xVypVFhsq9jQWlPY/s400/philidor_2016.png" width="400" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The issues faced by these companies in Arizona shouldn't be underestimated given the prestige and level of national engagement of Arizona's Board of Pharmacy members. During his time as Executive Director of the Arizona Board, Hal wand, who is currently currently the <a href="https://www.nabp.net/news/hal-wand-mba-rph-elected-nabp-president-elect-at-association-s-111th-annual-meeting" target="_blank">NABP President-elect</a>, overlapped with his friend and recent Arizona Board President Dennis McAllister. Mr. McAllister, is a current member and the former President overseeing the above referenced proceedings that reviewed Philidor and Forsta. Mr. McAllister also sits on the National Association of Boards of Pharmacy's<a href="http://www.nabp.net/news/nabp-appoints-dennis-mcallister-to-acpe-board" style="color: #1155cc;" target="_blank"> ACPE Board</a>. In addition to his role at the Arizona Board of Pharmacy, Mr. McAllister is also the Senior Director of Express Scripts's Pharmacy Regulatory Affairs group where he directly oversees Express Scripts' relationship with <i><u>18 separate state Pharmacy Boards</u></i>. Yes, the same Express Scripts that was hoodwinked by Philidor/R&O and yes the same Express Scripts <a href="http://www.bloomberg.com/news/articles/2016-01-29/express-scripts-blocks-valeant-diabetes-drug-in-cost-fight" style="color: #1155cc;" target="_blank">blocking access to overpriced Glumetza</a>. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">To a certain extent you may be thinking, <i>"Ahh...it's Arizona, so what! Why do I care and why would the Arizona Board care so much about Valeant, Philidor and Forsta?"</i> Well, it wouldn't just be the AZ board, but the Feds may get involved as well. You'll remember from the Isolani lawsuit documents that R&O, which was not licensed in Arizona, shipped prescriptions to Blue Cross and Humana patients <a href="http://theskeptic21.blogspot.com/2015/10/valeants-quantum-entanglement-issue.html" target="_blank">in Arizona</a>. While this was going on, Philidor (who was located in Arizona, but not licensed in California) was controlling outbound shipments to Arizona from R&O(who was located in California but not licensed in Arizona). Because the parties <i style="background-color: transparent;">had not yet closed the purchase agreement for R&O</i> the effect was that one unlicensed non-resident pharmacy forced another unlicensed non-resident pharmacy to illegally ship prescriptions via mail, across state lines, when they could have simply filled those prescriptions from their own authorized jurisdictions. Smart right? <i>(insert Valeant business model joke)</i></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">You can readily observe from their meetings that due process is a cornerstone of the Arizona Board of Pharmacy's review and enforcement processes. Although the matters are still under the Board's review, in the absence of meaningful records production or participation in the due process extended to them, an industry expert indicated that it is highly unlikely that either Philidor or Forsta's applications will receive final approval. Beyond the denial of the respective applications, the principals of those companies could also face disciplinary action in Arizona, and other jurisdictions, further <a href="http://theskeptic21.blogspot.com/2015/10/valeants-quantum-entanglement-issue.html" target="_blank">entangling Valeant</a> in their ongoing self-destruction. </span></div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-80314056182128822882016-03-01T14:41:00.000-05:002016-03-01T14:45:33.582-05:00Major Flaw in Valeant Ad Hoc Committee's Statements<span style="font-family: "arial" , "helvetica" , sans-serif;"></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Late on February 22nd, 2015 after four months of work, Valeant <a href="http://ir.valeant.com/news-releases/2016/02-23-2016-031141315">released a statement</a> about their Ad Hoc Committee's review of Philidor and related accounting. As of today, Valeant has yet to file an 8-K with respect to that statement, but they may be <a href="http://www.bloomberg.com/news/articles/2016-02-29/valeant-ceo-pearson-said-to-speak-with-analysts-later-monday">distracted by other priorities</a></span><span style="font-family: "arial" , "helvetica" , sans-serif;">, such as their <a href="http://www.wsj.com/articles/valeant-under-investigation-by-sec-1456779650">recently disclosed SEC subpoena</a>. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">There is a major problem with the <a href="http://www.prnewswire.com/news-releases/valeant-ad-hoc-committee-has-made-substantial-progress-in-its-review-of-philidor-and-related-accounting-matters-300224251.html" target="_blank">statement they put out</a> on February 22nd and reiterated in <a href="https://www.sec.gov/Archives/edgar/data/885590/000134100416001184/form12b_25.htm">their NT 10-K</a> filed yesterday. Before we get to the major problem with the statement, lets explore some other background issues from a year ago.</span><br />
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">On February 20th, 2015 Valeant shares closed at $173.26</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">On February 22nd, 2015 Valeant reported earnings (GAAP of $1.56, and CASH EPS of $2.58; when the street was expecting between $2.45-$2.55)</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">On February 23rd, 2015, the next trading day, Valeant closed at $198.75 on close to 20M shares traded; that is a 14.7% move (or close to $9B in market cap)</span></li>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Bringing it back to today, if you assume that Valeant's recent restatement (which they continue to waffle on per the NT 10-K) is limited to the $58M and that such a restatement is appropriate (which are both BIG assumptions) if they had reduced GAAP EPS by $.10 in Q4 2014 it would have caused Valeant to <i><b>miss</b></i> Q4 Cash EPS estimates. Kind of makes you wonder how they would've traded on February 23rd, but one could only speculate.</span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Valeant practically begs us to speculate when it comes to their relationship with Philidor. Tantalizingly, Valeant informed us that they "<span style="background-color: white; line-height: 21.7778px;"><b><u>identified certain sales to Philidor during 2014, prior to Valeant's entry into an option to acquire Philidor, that should have been recognized when product was dispensed to patients rather than on delivery to Philidor</u></b>." (<i>emphasis added) </i></span></span><span style="background-color: white; font-family: "arial" , "helvetica" , sans-serif; line-height: 21.7778px;">This statement supports the entire basis of their restatement. Here is the really outrageous aspect of their claim.</span><br />
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<span style="color: #404040; font-family: "helvetica neue" , "helvetica" , "arial" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 21.7778px;">In making this statement, Valeant seems to have conveniently forgotten their <a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">October 26, 2015 investor presentation</a>. In slide 48 of that presentation they very clearly outline that before their Purchase Option Agreement (executed in December of 2014) that sales were recognized upon transfer to Philidor.</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 21.7778px;">In fact Valeant is quite adamant about how they account for Philidor sales and very explicitly instruct us that before the Purchase Option Agreement <u>"all sales to Philidor accounted for as Valeant does with any third party"</u> and <u>"sales recognized upon transfer of inventory to Philidor"</u>. They even boastfully</span><span style="line-height: 21.7778px;"> point us to the fact that consolidating the VIE </span><i style="line-height: 21.7778px;">delays revenue </i><span style="line-height: 21.7778px;">and that there is </span><i style="line-height: 21.7778px;">"</i><b style="line-height: 21.7778px;">no way to stuff the channel". </b></span><br />
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<span style="line-height: 21.7778px;">This all begs the question: if the restated revenues were <i><b>before</b></i> the option agreement, why would those sales ever need to be recognized when sold to the patient? </span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 21.7778px;">It's nonsensical. The only reason the sales to Philidor would ever need </span><span style="line-height: 21.7778px;">to be recognized upon sale to a patient would be if Philidor was a VIE prior to the option agreement. </span><span style="line-height: 21.7778px;">Valeant says so much in the October 26 presentation(<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">see slide 51</a>), but also claim that they weren't the primary beneficiary of the VIE so consolidation was not appropriate.</span></span><br />
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<span style="line-height: 21.7778px;">To put this all another way, the only way that $58M in net revenues which occurred prior to the option agreement would have to now be restated is if <b>Valeant became the primary beneficiary (i.e., controlling interest) prior to the option agreement</b>. </span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 21.7778px;"><span style="line-height: 21.7778px;">For that to be true, it would mean that Valeant (at the very minimum) would have had to have <i>invested</i> in Philidor prior to the option agreement as well as be the primary beneficiary(see ASC 810-10-20). But yet again that can't be true either because Valeant specifically tells us that "Valeant did not invest or lend any money to the Philidor scaleup." </span>Despite Valeant's protestations otherwise they would have had to either obtained "</span><span style="line-height: 21.7778px;">the power to direct the activities that most significantly impact the VIE’s economic performance" or obtained "the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE." <b>YIKES! </b></span></span><br />
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<span style="color: #404040; font-family: "helvetica neue" , "helvetica" , "arial" , sans-serif;"><span style="line-height: 21.7778px;">And in yet another wrinkle for Valeant, in that same </span></span><span style="line-height: 21.7778px;">October 26th, 2015 presentation Valeant stated that as of the December 2014 option agreement, Philidor only had $111M in net sales YTD. So, based on the disclosed $58M restatement, Valeant must now also admit that over half of Philidor's 2014 net sales were flowing into Valeant, because they were the primary beneficiary/controlling interest.</span></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">All of this must be very off putting for their newly minted partner, Walgreens, especially since a major Presidential candidate is vowing to go after Valeant(see video below). For the detail oriented, Walgreens and Valeant inked their 20 year distribution agreement on December 14th. If Valeant failed to disclose the SEC Subpoena and investigation to Walgreens, it could be grounds for termination of that distribution partnership. Hypothetically, if your 2016 guidance was based on that new distribution agreement, and if the agreement were terminated, it would be a much better reason than a $58M restatement to pull 2016 guidance.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 21.7778px;"><br /></span><span style="line-height: 21.7778px;">Nonetheless, based on the restatement, it seems that Valeant may have been purposely accelerating revenue (so they wouldn't miss) and that they did so by stuffing a channel that they claimed they didn't control (although they did or they wouldn't have to restate) and were trying to fully control. Oh, yeah, they also did all this without disclosing it to their shareholders and then when they did disclose, it seems they may have meant to say something different from what they actually said. <a href="http://www.valeantnow.com/statement-regarding-the-relative-impact-of-price-and-volume-on-growth/">It wouldn't be the first time.</a></span></span></div>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com2tag:blogger.com,1999:blog-2777685498597135745.post-90174517421768998402016-02-26T11:00:00.002-05:002016-02-26T17:01:51.351-05:00When Words Matter: FTC Sends Proposal to Herbalife, Pershing Somehow Involved in On-going Enforcement Action<div style="display: block; font-stretch: normal; margin: 12px auto 6px;">
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: red; font-family: "arial" , "helvetica" , sans-serif;"><b>UPDATED: </b></span><b>Pershing Square Capital Management denies having received a Wells notice.***</b></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">I've said before that the <a href="https://twitter.com/TheSkeptic21/status/613816074585395200" target="_blank">SEC has defiled Ackman's short thesis</a>. I've also said that the <a href="http://theskeptic21.blogspot.com/2015/05/bostick-v-ackman-213-cv-02488-bro-sh.html" target="_blank">Bostick case was crushing Ackman's thesis</a>; more recently I noted that the Bostick case actually<a href="http://theskeptic21.blogspot.com/2015/05/a-confidence-maim-how-bostick-case-just.html" target="_blank"> eviscerated Ackman's thesis</a>. You can easily go back and revisit the judge's opinion on Bostick. To do that though, you'll either have to query court records or look to documents I uploaded to <a href="https://www.scribd.com/user/231506067/theskeptic21" target="_blank">SCRIBD </a>because you won't find these records on Pershing's anti-Herbalife website (although it's been 10 months since the ruling). Conveniently Pershing Square Capital has failed to upload the Bostick ruling or the Awad ruling to the Herbalife case law section of the site's "resource library". Even if you search the site for the word "bostick" you'll get "no results found". That's all a bit of back story though and isn't really the matter at hand, because the FTC and the SEC may have just picked up shovels and started helping Bill Ackman scoop dirt on the casket of Pershing Square. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">In <a href="https://www.sec.gov/Archives/edgar/data/1180262/000156459016013384/hlf-10k_20151231.htm" style="font-weight: normal;" target="_blank">Herbalife's 10-K filed</a> yesterday, the company (which first disclosed a CID it received from the FTC two years ago), made a pretty significant change to the language of the "NOTES TO CONSOLIDATED FINANCIAL STATEMENT" section. After having stuck to the same disclosure for<b> two years,</b> the company decided to modify their disclosure language with respect to the FTC, possibly indicating that resolution of the matter is near. In the 10-K Herbalife stated: </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">"The Company is currently in discussions with the FTC regarding a potential resolution of these matters. The possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action."*</span></blockquote>
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<i>*For ease of comparison there is an embedded blackline of the section below (10-K vs. Q3) </i></span><br />
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<span style="font-family: "arial" , "helvetica" , sans-serif;">This modification follows closely on the heels of a Wall Street Journal article that reported the <a href="http://www.wsj.com/articles/probes-of-ackman-and-herbalife-fizzle-1454111460" target="_blank">DOJ probes of Ackman and Herbalife had both fizzled</a>. It's only one tiny word, but it's noteworthy that Herbalife has also removed the "recently" qualifier from the DOJ's information request they previously disclosed, further supporting the Wall Street Journal's report that the DOJ matter is done.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Make of it what you will, but I have to believe resolution is imminent.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The trouble for Ackman however may extend far beyond his fund's performance and his Herbalife short moving against him. A series of FOIA requests over a period of several months present a troubling fact pattern. It cannot be determined at this time specifically what Pershing Square's involvement is in any on-going enforcement action, although the SEC is actively exempting from release numerous records regarding Pershing Square.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">An informative series of inquiries sought numerous records from the SEC including: </span>(1) any matter under inquiry summary regarding Pershing Square; (2) any case closing recommendations regarding Pershing Square; (3) any investigation recommendations regarding Pershing Square; (4) any investigation reports regarding Pershing Square;(5) any investigation opening reports regarding Pershing Square; (6) any investigation closing reports regarding Pershing Square; (7) any orders of formal investigation regarding Pershing Square; (8) any Wells notices sent to Pershing Square; (9) any subpoenas sent to Pershing Square; (10) any correspondence between third parties and the commission related to the investigation of Pershing Square; and (11) any correspondence between Pershing Square and the Commission related to the investigation of Pershing Square.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-style: normal; font-weight: normal;">The SEC declined to provide any of those records and exempted them under 7(a)** in their response. After the matter was appealed, the SEC's Office of the General Counsel also confirmed that the requested records were appropriately exempted under 7(a) citing ongoing enforcement proceedings. What is extremely informative with respect to these exemptions and the General Counsel's appeal response is that it </span><i><b>confirmed there was an ongoing enforcement action</b></i><span style="font-style: normal; font-weight: normal;"> and also confirmed that </span><span style="font-weight: normal;">such records existed</span><span style="font-style: normal; font-weight: normal;">. In the appeal response the SEC specifically noted that it had "confirmed with staff that releasing the withheld information could reasonably be expected to interfere with on-going enforcement proceedings." Further, o</span>fficials at the SEC, who were aware of the specific FOIAs in question stated that a 7(a) exemption would not be applied to a record that did not exist.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; color: #222222; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">**</span><i><span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 12.8px;">Exemption 7(A) authorizes the withholding of "records or information compiled for law enforcement </span></span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">purposes, but only to the extent that production of such law enforcement records or information...could </span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">reasonably be expected to interfere with enforcement proceedings." 5 U.S.e. § 5 52(b )(7)(A), 17 C.F .R. </span></i><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">§ 200.80(b )(7)(i).</span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">In an effort to further delineate what PSCM's involvement in any ongoing enforcement investigation could have been in regards to, or whether Pershing had been served with a Wells notice, I also queried whether or not Herbalife or</span><span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 12.8px;"> its </span></span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">agents/representatives had received a Wells Notice during the same period</span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">. I</span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 12.8px;">n an ironic twist of fate for Pershing Square, the SEC had "no information responsive to my request".</span></span></div>
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<span style="color: #222222; font-family: "arial" , "helvetica" , sans-serif; font-size: 12.8px;">The fact pattern is pretty simple to understand. In separate requests, I queried the SEC for any Wells Notice sent to Herbalife or Pershing Square. The SEC had no responsive records for Herbalife, but are withholding Pershing Square records under 7(a) exemptions, which authorizes the withholding of records compiled for law enforcement purposes which would interfere with enforcement activities.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It should be carefully pointed out that Pershing Square denies receiving any Wells notices, and that any FOIA </span><span style="background-color: white; color: #222222;">response I've received thus far, does not however specify what the SEC was investigating, nor does it indicate that Pershing Square or related parties were not able to successfully resolve the matter without additional action or further inquiry by the SEC. As note</span></span></div>
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<b><span style="font-family: "arial" , "helvetica" , sans-serif;">***a previous version of this article was published with a different title and without an on the record comment from Pershing Square Capital Management. Pershing Square has subsequently provided an on the record statement denying that they have received a Wells Notice.</span></b></div>
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<a href="https://www.scribd.com/doc/300661415/Pershing-Square-Capital-Response-from-SEC-GC" style="text-decoration: underline;" title="View Pershing Square Capital Response from SEC GC on Scribd"><span style="font-family: "arial" , "helvetica" , sans-serif;">Pershing Square Capital Response from SEC GC</span></a></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><iframe class="scribd_iframe_embed" data-aspect-ratio="undefined" data-auto-height="false" frameborder="0" height="600" id="doc_17124" scrolling="no" src="https://www.scribd.com/embeds/300661415/content?start_page=1&view_mode=scroll&show_recommendations=true" width="100%"></iframe>
</span><br />
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<a href="https://www.scribd.com/doc/300662584/SEC-Herbalife-Response" style="text-decoration: underline;" title="View SEC Herbalife Response on Scribd"><span style="font-family: "arial" , "helvetica" , sans-serif;">SEC Herbalife Response</span></a></div>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><iframe class="scribd_iframe_embed" data-aspect-ratio="undefined" data-auto-height="false" frameborder="0" height="600" id="doc_23897" scrolling="no" src="https://www.scribd.com/embeds/300662584/content?start_page=1&view_mode=scroll&show_recommendations=true" width="100%"></iframe></span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com10tag:blogger.com,1999:blog-2777685498597135745.post-1108656436408036422016-02-22T19:57:00.001-05:002016-02-22T19:57:15.986-05:00Statement Regarding the Relative Impact of Restating Earnings<article class="main" style="box-sizing: inherit; margin: 0px;"><h2 style="box-sizing: inherit; font-stretch: normal; font-weight: normal; line-height: 32px; margin: 0px; text-rendering: optimizeLegibility;">
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<span style="font-family: Arial, Helvetica, sans-serif;">February 22, 2016</span></div>
<div style="box-sizing: inherit; font-stretch: normal; line-height: 20px; margin-bottom: 20px; margin-top: 20px;">
<span style="font-family: Arial, Helvetica, sans-serif;">Recent questions have been raised regarding statements made during Valeant’s Third Quarter Investor Presentation, on October 26, 2015, addressing the relative impact of Philidor on Valean'ts growth. Here are the facts:</span></div>
<ol>
<li style="box-sizing: inherit; margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">On the Investor call, the company provided directional <b>overview of the key elements of the Philidor Program</b> (See Slide #7 of the <span style="line-height: 20px;">Investor Presentation, dated October 26, 2015</span>) “Key Elements of the Philidor Program"</span></li>
<li style="box-sizing: inherit; margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 19.0909px;">On the Investor call, in response to our general fear of being singled out and accurately portrayed for what we are, we drew your attention to other Dermatology companies that use Specialty Pharmacies. In particular we first listed our arch enemy, Allergan, because we fucking hate them. </span><span style="line-height: 19.0909px;">(See Slide #8 of the<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf"> </a></span><span style="line-height: 20px;"><a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">Investor Presentation, dated October 26, 2015</a>; for a compendium of how much we fucking hate Allergan, please see </span><span style="line-height: 19.0909px;"><a href="https://www.scribd.com/doc/239427246/Allergan-Sept-9-2014-Trascript">Case 8:14-cv-01214</a>). We then attempted to portray the channel as a champion of consumer benevolence by providing a selective list of dermatology products we runnelled through Philidor, with little out of pocket expense to those that signed up. We also attempted to introduce additional opacity by stating that in Q3 2015 Philidor represented 6.8% of total Valeant revenue, or about 7% of our hypothetical EBITA.(<span style="line-height: 19.0909px;">See Slides #9 & #10 respectively of the<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf"> </a></span><span style="line-height: 20px;"><a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">Investor Presentation, dated October 26, 2015</a></span>)</span></span></li>
<li style="box-sizing: inherit; margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 19.0909px;">In the Investor presentation we used old-fashioned tricks like dropping "net" from "net revenue" when we switched back and forth from referring to Q3 revenue vs. YTD "net revenue". We've found it's always been in our best interest to use three card monty as a earnings template.</span><span style="line-height: 19.0909px;">(</span><span style="line-height: 19.0909px;">See Slide #11 of the<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf"> </a></span><span style="line-height: 20px;"><a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">Investor Presentation, dated October 26, 2015</a></span><span style="line-height: 19.0909px;">)</span><span style="line-height: 19.0909px;">. In response to this slide, and many, many others somebody asked Michael J. Pearson a question, but he can't remember who, because he may have been wasted and "pretty upset, maybe even pissed", so we can't really be sure. It's totally cool though because Mr. Pearson didn't even really need to respond because we actually had a slide in the presentation that Rob Rosiello and Tanya Carro guided everyone through (<span style="line-height: 19.0909px;">See Slides #47-54 in the<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf"> </a></span><span style="line-height: 20px;"><a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">Investor Presentation, dated October 26, 2015</a></span><span style="line-height: 19.0909px;">). In those slides we noted that "</span></span><b>Valeant consolidates financials with Philidor and the Philidor
network, ensuring that revenue recognition and financial
statement presentation is appropriate</b>", "<b>Third party revenue is not recognized when products are
shipped to Philidor and its network (these shipments are
recorded as intercompany sales, which are eliminated in
Valeant’s consolidation process)</b>", that "<b>Valeant recognizes revenue only when products are
dispensed to patients and records this at net realized price</b>" and that "<b>Consolidating financials of Philidor delays revenue recognition relative
to third party transactions</b>"</span></li>
<li style="box-sizing: inherit; margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Subsequently, today after we numb-nuttingly divulged we <a href="https://twitter.com/TheSkeptic21/status/701859530968326146">were going to try and report <i>something</i> on Leap Day</a>, an <a href="http://www.wsj.com/articles/valeant-likelytorestate-earnings-in-wake-of-internal-review-1456178834">article was published</a> by <a href="https://twitter.com/lizrhoffman">Liz Hoffman</a> of the Wall Street Journal that described that our Board ("Finance and Transactions Committee, Audit and Risk Committee and Full
Board reviewed the transaction", <span style="line-height: 19.0909px;">See Slides #51 in the<a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf"> </a></span><span style="line-height: 20px;"><a href="http://ir.valeant.com/~/media/Files/V/Valeant-IR/reports-and-presentations/10-26-15-investor-presentation.pdf">Investor Presentation, dated October 26, 2015</a>)</span> reviewed and signed off on the Philidor relationship, but was now likely going to restate earnings.</span></li>
</ol>
<div style="box-sizing: inherit; font-stretch: normal; line-height: 20px; margin-bottom: 20px; margin-top: 20px;">
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant disclosed the actual price of Howard Schiller's stock disposition today after the company lost approximately 11% of it's market cap (See SEC filing #<a href="https://www.sec.gov/Archives/edgar/data/885590/000088559016000087/xslF345X03/primary_doc.xml"> 0000885590-16-000087</a>) We realize its a non sequitur, to distract from the fact we inaccurately accelerated prior earnings , but it is a fact and Howard seemed to do OK with Congress a couple weeks ago, so we'll try anything at this point.</span></div>
<div style="box-sizing: inherit; font-stretch: normal; margin-bottom: 20px; margin-top: 20px;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 20px;">(And to remove ANY doubt, this is of course a parody and is in no way an actual statement being posted by Valeant).</span></span></div>
</article>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-74069936951251144542016-02-05T15:09:00.001-05:002016-02-05T15:09:29.022-05:00Pearls before swine, cast not your ADC...<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Friends of Cancer Research maintains a <a href="http://www.focr.org/breakthrough-therapies">nice list</a> of all Breakthrough Designation Approvals granted by the FDA (which maintains it's <a href="http://www.fda.gov/RegulatoryInformation/Legislation/SignificantAmendmentstotheFDCAct/FDASIA/ucm341027.htm">own public database</a> through December 31, 2015). Out of over 300 applications received the FDA has only granted <a href="http://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/NDAandBLAApprovalReports/UCM481542.pdf">38 Breakthrough Approvals</a> to therapeutic agents (if you exclude two CBER approvals for two meningococcal vaccines).</span></span><b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span></b><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span></b>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The hurdles for Breakthrough Designation are somewhat high as it requires <i>substantial</i> improvement in a <i>clinically significant</i> endpoint over available therapies. The big difference between Breakthrough and Fast Track, is that developers can obtain FT with <i>preclinical data. </i>Likewise when you compared BT with Accelerated, developers can hop on the accelerated path by demonstrating a benefit on a surrogate endpoint that is likely to predict clinical benefit. It doesn't guarantee success, but Breakthrough is rarefied air.</span></span><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span></b>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">And entering the Breakthrough club today among giants like Genentech, GSK, Pfizer, Merck, Lilly, Amgen, Novartis, BMS, J&J, and Gilead is tiny<a href="http://www.immunomedics.com/"> Immunomedics Inc.</a>, who just received Breakthrough approval for IMMU-132. And when I say tiny, I mean teensy. Immunomedics entire market cap (~$200M, after ripping 24% today) is just about equal to Imbruvica's 2014 SG&A net expense. </span></span><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span></b>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">I</span></span><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">MMU-132 (aka <span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">sacituzumab govitecan) is an antibody drug conjugate that targets TROP2 to deliver SN-38 (which is the highly potent, active metabolite of <a href="http://www.pfizer.com/products/product-detail/camptosar">irinotecan</a>). Inotuzumab Ozogamicin (an ALL therapy under joint development by Pfizer and UCB) is the only other ADC to have received Breakthrough Designation (which it received last October).</span></span></span><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;"></span></span></span><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;"><br /></span></span></span></b>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">So why is IMMU-132 so important? Well in an aggressive cancer such as TNBC, IMMU-132, <b>as a <a href="https://clinicaltrials.gov/ct2/show/NCT01631552?term=Immu-132&rank=2">single agent therapy</a>,</b> demonstrated a <a href="http://www.immunomedics.com/pdfs/news/2015/pr12102015.pdf">significant clinical benefit</a> in a highly pretreated patient population (median of five therapies [range 2-12], including taxanes). According to a release put out by <a href="http://www.aacr.org/Newsroom/Pages/News-Release-Detail.aspx?ItemID=791#.VrT2ZrIrKUm">AACR</a>, in which they interviewed Aditya Bardia, MD, MPH of Harvard Medical School, Bardia stated:</span></span></span><b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;"><br /></span></span></span></b><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span></b><br />
<blockquote class="tr_bq">
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; display: inline ! important; float: none; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 30px; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">"Patients treated with other agents used to treat heavily pretreated metastatic TNBC have a median progression-free survival [PFS] of three to four months in general, while in our phase II clinical trial, patients on IMMU-132 had an interim median PFS of seven months. The response rate to standard agents is usually 10 to 20 percent, while the response rate with IMMU-132 was approximately 30 percent. If you include patients with stable disease, the clinical disease control rate, which is complete response [CR] + partial response [PR] + stable disease, was about 75 percent. Two patients had a CR to treatment, something which is rarely seen in patients with heavily pretreated metastatic TNBC.”</span></span></span></b></blockquote>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">And better yet, not only did IMMU-132 produce an interim overall response rate of 31% (by RECIST 1.1) and extend PFS, IMMU-132 did it with minimal adverse events (diarrhea and neutropenia).</span></span></span><br />
<br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">Adding to their success in TNBC, Immunomedics has observed similar results in NSCLC, SCLC and UC (although these studies had fewer patients). It's also worth noting that about one year ago Immunomedics received Fast Track Designation for IMMU-132 in TNBC (January 2015), and in May of last year they also received Fast Track Designation for NSCLC. Based on the promising results so far in NSCLC, Immunomedics will likely follow their TNBC success with a Breakthrough Designation in 2016 for IMMU-132 in NSCLC as well.</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;"><br /></span></span></span>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">After 35 years in business, maybe its time teeny-weenie Immunomedics finally gets some love from their brethren. Even if they don't, I love it when the little guy manages to break in and grab a seat at the table. Come to think of it, seat at the trough may be more accurate of late. Knowing how interested they've been in ADC technology (especially safe drugs that work), I scratch my head wondering why the big boys haven't yet snapped up tiny little Immunomedics and its non-toxic ADC.</span></span></span><br />
<br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="background-color: white; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 24px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px;">Perhaps they're worried they'll trample them...</span></span></span><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span></b><br />
<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span></b>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-8512601824533044712016-02-03T14:00:00.002-05:002016-02-03T14:32:50.221-05:00Valeant's 80 20 Rule<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br class="Apple-interchange-newline" />According to records received by the House of Representatives<span class="Apple-converted-space"> </span><a href="http://democrats.oversight.house.gov/sites/democrats.oversight.house.gov/files/documents/Memo%20on%20Valeant%20Documents0.pdf">Committee on Oversight and Government Reform</a>, on May 21, 2015, Howard Schiller (then Chief Financial Officer & currently Interim Chief Executive Officer) sent an email to Mike Pearson (then Chief Executive Officer and current Chief Convalescent Officer) about "price volume".</span></span></span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjY_xQ0wME3QfRahCKbhOPU-pdoMHuuJ-3BRg8_4y1Z4CepXWK3mMSJxDlW3Ln4kwEhEe6bZDh3VYxh-ehSPEW5jzHbjkoBXJJK1KDzHkglXo390feZ4-z6Uhp7Ay6Vy7WzbEOtT1PBO0U/s1600/schiller_marathon.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="44" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjY_xQ0wME3QfRahCKbhOPU-pdoMHuuJ-3BRg8_4y1Z4CepXWK3mMSJxDlW3Ln4kwEhEe6bZDh3VYxh-ehSPEW5jzHbjkoBXJJK1KDzHkglXo390feZ4-z6Uhp7Ay6Vy7WzbEOtT1PBO0U/s320/schiller_marathon.png" width="320" /></a></div>
</div>
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"></span></span></div>
<div style="background-color: white; margin-bottom: 0pt; margin-top: 12pt;">
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">In the email Mr. Schiller wrote:</span></span></span></span></div>
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">“Last night, one of the investors asked about price vs volume for Q1. Excluding marathon, price represented about 60% of our growth. If you include marathon, price represents about 80%.”</span></span></span></span></div>
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span></span></span></span></div>
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Then on September 28, 2015 (a scant four months later) Mike Pearson sent an email to <a href="https://www.sec.gov/Archives/edgar/data/885590/000119312515329827/d30841dex991.htm">EVERYBODY</a> except
Schiller (who by then had left Valeant and was settling in to his new
job as Chief Not My Fucking Problem Anymore Officer at a private firm
known only as "Nunya"). In that email Mr. Pearson wrote:</span></span></span></div>
<blockquote style="margin-bottom: 0pt; margin-top: 12pt;">
<div style="margin: 0px;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"After
talking with a number of investors and observing the concerns and
assertions in the media, I thought it would be helpful to give you my
perspective on the two main issues worrying investors:</span></span></span></div>
</blockquote>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">1)</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Concern that our business model and strategy is dependent upon large price increases in our U.S. pharmaceutical business,</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">2)</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Concern around our exposure to U.S. government drug price reimbursement. I can assure you that this bear thesis is incorrect on both accounts."</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white;">Then on October 19th, 2015 Valeant took it one step further when Mike Pearson guided Q3 Earnings call participants through a series of three key slides outlining Valeant's purported price and volume contributions to "organic growth" on a quarterly and YTD basis.</span><span style="font-family: "arial" , "helvetica" , sans-serif;"></span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Looping back to Schiller's Q1 email, when you look at Valeant's earnings for that period which the company released three weeks before Schiller's email, Valeant reported a 16% YoY% increase in revenues from $1.89B to $2.19B. Luckily for us, Valeant also broke out geographic performance in Q1. Although they don't fully detail the U.S., they breakout topline for U.S. by segment and then report topline for ex-U.S. including Europe/Middle East($212M), Asia($125M), Latin America ($89M) and ROW Developed ($361M) totaling $787M in the quarter. They also provide respective growth rates for these areas. When you back out the baseline for each segment you see that total revs attributable to those same regions in Q1 2014 would have been $761M, which means in aggregate ex-U.S. grew 3.4%, or a total of $26M(queue the FX trolls).</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">If everything except the U.S. grew a total of $26M, the remaining $305M in growth came solely from the U.S. According to Howard's<span class="Apple-converted-space"> </span><i>internal guidance</i>, $61M of that growth came from volume whereas the<span class="Apple-converted-space"> </span><b>remaining $244M of that growth came from price action</b>. </span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Using the information provided in slide 23 of their Q3 earnings(above), U.S. Branded Rx volume grew 15% YoY in Q1 of 2015, but net realized price per script increased 22.3%, ultimately increasing their US branded net by 41%.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Worse yet, Q1 2015 was Valeant's first quarter with Isuprel, Nitropress and Provenge ($72M, $62M & $30M respectively), which means Valeant's<b><i><span class="Apple-converted-space"> </span>*real*</i></b><span class="Apple-converted-space"> </span>growth was a measly $80M, or 3.7% of quarterly revenues. And what did it take to eek out the kind of growth you'd expect from ConEd?</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Well, it took a $100M undisclosed option to purchase a shadow distribution channel through which they sucked $153M in quarterly revenues. Had it not been for Philidor, Valeant would have been looking at 9% growth (assuming they still took price), and had it not been for both price action and captive distribution, they would have been faced with a $66M decline in revenues (-3.4%). </span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">This brings us to two very serious implications about the Valeant Philidor relationship with respect to Valeant's future:</span></span></span></div>
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<li><span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Valeant consolidated
Philidor so the revenue recognized by way of 3rd party sales (i.e., to
customers) was a significant driver of revenue growth at Valeant</span></span></li>
<li><span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Valeant
limited a significant portion of U.S. distribution to Philidor, and
simultaneously increased drug price as well as PAP support, which is why
they were able to increase net realized price per script by 41%. </span></span></li>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Take away Philidor and you're left with negative growth. Take away Philidor and you're left with lower net realized price per prescription.</span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">And bringing it all back full circle, to answer Mike Pearson's email (<a href="http://www.businessinsider.com/bill-ackman-email-to-valeants-pearson-2015-11">subject line "You" of course</a>) in light of Howard's disclosure that 80% of Valeant's growth is derived by price, you're damned right your business model and strategy is dependent upon large price increases in the U.S. pharmaceuticals business. </span>So why then, when asked during the Q1 conference call by Goldman's Gary Nachman: </span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white; line-height: 26px;">"...if you could just quantify a little bit how much was price versus volume that contributed to growth in 1Q and what do you factor in your full-year guidance, price versus volume?"</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Would Mike Pearson answer:</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"In terms of price volume, actually volume was greater than price in terms of our growth outside the United States. It’s all volume. In fact, we have negative price outside the U.S. with FX. And in the U.S., it’s shifting more to volume than price. And we expect that to continue with our large brands.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">A lot of our prices is, for most of our products, are negotiated with managed care. And there’s only a limited amount of price that we can take to [indistinguishable] of our consumer business is very little,... WalMart doesn't like price increases. If you look at our contact lens business, we’re not discounting contact lens. We’re keeping the prices the same."</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">More uncomfortably for Pearson though, is that in that quarter's 10-Q the company states:</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 16px; text-align: justify; text-indent: 32px;">"The growth in the Developed Markets was driven primarily by price, as significant volume increases in dermatology and eye health were offset by volume declines for certain neurology & other/generic products and for the Japan market."</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The company continues:</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"</span><span style="line-height: 16px; text-align: justify;">the incremental product sales revenue of </span><span style="line-height: 16px; text-align: justify;">$208 million</span><span style="line-height: 16px; text-align: justify;"> (which includes a negative foreign currency exchange impact of $3 million), in the aggregate, from all 2014 and 2015 acquisitions, primarily from (i) the 2014 acquisition of PreCision Dermatology, Inc. ("PreCision") (<b><u>mainly driven by Clindagel® product sales)</u></b><span class="Apple-converted-space"> </span>and (ii) the 2015 acquisitions of certain assets of Marathon (<b><u>mainly driven by Isuprel® and Nitropress® product sales</u></b>) and assets of Dendreon (Provenge® product sales)." (empahsis added)</span></span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Oddly, sales of Clindagel declined in Q1 from $7M to $5M(so that is just a red herring), but we already know they jacked hospitals with absurd price increases in Isuprel and Nitropress.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It's completely absurd to think a company could publicly represent that price is 12%, 24%, or 15% of their "organic growth", but<span class="Apple-converted-space"> </span><i>internally<span class="Apple-converted-space"> </span></i>declare that price represents 80% of their growth. EIGHTY PERCENT! Layer on top of that that the 80% also includes Philidor and retail reimbursements through captive 3rd party sales.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It's hardly a newsflash, but Mike Pearson, Howard Schiller and the rest of the Valeant gang all have a significant credibility problem. Either they don't understand where their revenues are coming from, or they don't want us to understand where their revenues are coming from. And if Howard actually replied to<span class="Apple-converted-space"> </span><a href="https://www.sec.gov/Archives/edgar/data/885590/000119312515104528/0001193125-15-104528-index.htm">that Q1 investor</a> with any forthright description of price vs. volume, Valeant may also have a Reg-FD issue to deal with as well. I doubt it's Pershing though, because according to Ackman's perspective, Pershing believes the exact opposite of Howard Schiller, so good luck with that.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It's like the old joke about the guy that loses a dollar on every sale, but he makes up for it in volume. The key difference is that Pearson and Schiller appear to simply be making it up, period. Bagholders get your spoons ready. I hope that<span class="Apple-converted-space"> </span><a href="https://oversight.house.gov/hearing/developments-in-the-prescription-drug-market-oversight/">this Thursday<span class="Apple-converted-space"> </span></a>will provide the candid insight into Valeant's business that<span class="Apple-converted-space"> </span><i>all<span class="Apple-converted-space"> </span></i>of its' investors deserve.</span></span></span></div>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Neither Valeant, nor Mr. Schiller have responded to requests for comment at this time.</span></span></div>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-68826841349108451592015-11-18T08:15:00.002-05:002015-11-18T08:15:48.948-05:00Bill Ackman: DOJ's Inside Spoon<span style="text-indent: 4%;"><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Calendars being calendars, they reliably determine for us year after year that January, February and March are in fact all after the preceding November (or <a href="https://twitter.com/Movember">Movember</a> for interns). </span></span></span><br />
<span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="text-indent: 4%;">In their <a href="https://www.sec.gov/Archives/edgar/data/1180262/000119312515172113/d887446d10q.htm"> 1st quarter 10-Q</a> (covering January-March, again for the interns) Herbalife disclosed that "</span><span style="text-indent: 4%;">The Department of Justice recently sought information from the Company, certain of its Members and others regarding allegations being made about the business practices of the Company and its Members." That sentence got everybody in a hot frothy lather. Even yesterday when it was first announced that the DOJ and FTC were having a presser about dietary supplements, Herbalife, Vitamin Shoppe and GNC all crapped the bed to varying degrees (GNC being the<a href="http://www.tmz.com/2015/09/03/joey-chestnut-date-fails-podcast-craps-bed/"> Joey Chestnut</a> of the three and down as much as -25%). After the <a href="http://www.justice.gov/opa/pr/justice-department-and-federal-partners-announce-enforcement-actions-dietary-supplement-cases">full DOJ announcement </a>and the market realization that neither Herbalife, GNC nor Vitamin Shoppe were the target of the enforcement actions all three recovered, although GNC still closed down -6.4%.</span></span></span><br />
<span style="text-indent: 4%;"><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span>
<span style="text-indent: 4%;"><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">So if yesterday wasn't about Herbalife <i>et al</i>, what was it about?</span></span></span><br />
<span style="text-indent: 4%;"><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></span>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">It was about enforcement actions against a bevy of dietary supplement manufacturers and marketers. Sadly for Bill Ackman Herbalife was not one of those manufacturers. The people that were on that list sound like they did some pretty bad stuff; a lot worse than sweetening <a href="http://www.bloombergview.com/articles/2015-11-12/coke-cookies-and-universal-banks">caffeinated soft drinks</a>. The complaints released yesterday allege all sorts of unsavory things, like importing synthetic ingredients from China under fake CofA's for geranium flower powder and then labeling your products as containing natural plant extracts. Even worse, some of these firms didn't bother to determine if some of their new synthetic ingredients were even safe in humans. USP Labs seems to be the most egregious of the bunch, and the only entity being charged criminally. In fact the FDA sent USP Labs a <a href="http://www.fda.gov/iceci/enforcementactions/warningletters/2012/ucm302167.htm">warning letter</a> in April of 2012 warning that 1,3- dimethylamylamine HCl , which is one of the ingredients in its Oxy Elite Pro and Jack3D products, was a new dietary supplement which they were selling illegally. The FDA also sent USP Labs <a href="http://www.fda.gov/iceci/enforcementactions/warningletters/2013/ucm371203.htm">a similar warning letter</a> in October of 2013 for another ingredient, aegeline(which <a href="http://www.alibaba.com/countrysearch/CN/aegeline.html">you can buy on Alibaba</a> although you probably don't want to). Terribly, 14 of 20 case reports submitted to the FDA by the Hawaii Department of Health indicated that USP Labs' products were the sole commonality across 14 cases of severe hepatotoxicity. People were really sick, and not in the <a href="http://blogs.wsj.com/health/2010/04/21/mercury-levels-in-tuna-sushi-vary-is-jeremy-piven-vindicated/">Jeremy Piven/spicy tuna</a> sort of way.</span></span><br />
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">As part of yesterday's joint task force announcement the FTC also put a helpful, but LONG,<a href="http://www.consumer.ftc.gov/articles/0538-dietary-supplement-ads-infographic"> infographic to help consumers</a> steer clear of dubious products. </span></span><br />
<blockquote class="twitter-tweet" lang="en">
<div dir="ltr" lang="en">
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Learn more about dietary <a href="https://twitter.com/hashtag/supplements?src=hash">#supplements</a>, in our new consumer infographic: <a href="https://t.co/oEF7L4S3cW">https://t.co/oEF7L4S3cW</a> <a href="https://t.co/izdbZ4QAUL">pic.twitter.com/izdbZ4QAUL</a></span></span></div>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">— FTC (@FTC) <a href="https://twitter.com/FTC/status/666720597565640704">November 17, 2015</a></span></span></blockquote>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">
<script async="" charset="utf-8" src="//platform.twitter.com/widgets.js"></script>That infographic had four key warnings against which USP Labs perfectly illustrates:</span></span><br />
<br />
<ul>
<li><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Dietary supplements are not evaluated by the FDA for safety and effectiveness</span></span></li>
<li><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Supplements are not meant to prevent, treat or cure diseases</span></span></li>
<li><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"Natural" doesn't doesn't always mean safe</span></span></li>
<li><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Supplements could have hidden ingredients.</span></span></li>
</ul>
<div>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The problem with synthetic active ingredients being hidden in "natural" products is so bad that the FDA has actually set up a laboratory dedicated to detecting synthetic additives in "natural" products. Bought "herbal viagra" recently? Chances are, it actually has Chinese bootleg viagra (like actual <span style="line-height: 18px;">sildenafil citrate) sprinkled in, so when you take your "all natural" </span><span style="line-height: 18px;">Horny Goat Weed, and suddenly get the urge to be the outside spoon, it's probably due to a modern Chinese manufacturer and not ancient Chinese folklore.</span></span></span></div>
<br />
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">All told, yesterday's enforcement actions brought one criminal case and eight civil complaints from both the DOJ and the FTC. The <a href="http://www.justice.gov/opa/pr/justice-department-and-federal-partners-announce-enforcement-actions-dietary-supplement-cases">DOJ's press release</a> pointed out that the action was the product of a "nationwide sweep" that "pursued civil and criminal cases against more than 100 makers and marketers of dietary supplements." The DOJ also specifically noted that:</span></span><br />
<blockquote class="tr_bq">
<span style="background-color: white; line-height: 18.2px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"During the period of the sweep, 117 individuals and entities were pursued through criminal and civil enforcement actions. Of these, 89 were the subject of cases filed since November 2014."</span></span></blockquote>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The release continues:</span></span><br />
<blockquote class="tr_bq">
<span style="background-color: white; line-height: 18.2px;"><span style="font-family: "arial" , "helvetica" , sans-serif;">"The actions discussed today resulted from a <b><u>year-long effort, beginning in November 2014, to focus enforcement resources</u></b> in an area of the dietary supplement market that is causing increasing concern among health officials nationwide. In each case, the department or one of its federal partners allege the sale of supplements that contain ingredients other than those listed on the product label or the sale of products that make health or disease treatment claims that are unsupported by adequate scientific evidence." [emphasis added]</span></span></blockquote>
<span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">So all in, we know:</span></span><br />
<ol>
<li><span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">that Herbalife was contacted by the DOJ sometime after November 2014 </span></span></li>
<li><span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Calendars instruct us that Q1 2015 is after November 2014(again for your interns)</span></span></li>
<li><span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">the DOJ investigation spooled up in November of 2014</span></span></li>
<li><span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">today's DOJ/FTC actions are the culmination of over a year of effort investigating over 100 entities</span></span></li>
<li><span style="background-color: white; text-indent: 4%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Herbalife was not on yesterday's list.</span></span></li>
</ol>
<span style="background-color: white; font-family: "arial" , "helvetica" , sans-serif; text-indent: 4%;">If you go to all the trouble to set up a multi-agency task force between the DOJ, FTC & FDA(and also folded in USPIS, IRS, DoD and USADA) and you spent more than a year investigating "makers and marketers of dietary supplements" and host a presser highlighting the accomplishments of your enforcement investigations you'd probably want your actions to capture as many of your investigative targets as possible right?</span><br />
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Simply put, you don't culminate a multi-agency year long investigation of 117 different entities
with a "sweep" action that doesn't capture every single viable target you're
pursuing. "Sweeps" usually don't work like that or they'd probably call them something else.</span></span><br />
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;">And if the DOJ/FTC broom has passed you over, perhaps its an indication that any investigations or potential enforcement proceedings against you have been abandoned. Perhaps yesterday's DOJ action is the vindication that Herbalife has been waiting for and the federal investigative records of Herbalife have now been closed.</span></span><br />
<span style="background-color: white;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="background-color: white;">I wonder if Bill Ackman likes to be the inside spoon.</span></span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-67841460807012940972015-11-01T07:56:00.000-05:002015-11-01T08:48:50.541-05:00Valeant Needs More Cowbell<span style="font-family: Arial, Helvetica, sans-serif;">As the Blue Oyster Cult of financial journalists, short sellers, and investigators (including <a href="http://www.citronresearch.com/">Andrew Left</a>, <a href="http://sirf-online.org/">Roddy Boyd</a>, <a href="http://brontecapital.blogspot.com/2015/10/comments-on-blockbuster-valeant.html">John Hempton</a>, <a href="http://topics.wsj.com/person/R/jonathan_d-rockoff/7814">Jonathan Rockoff</a>, <a href="http://www.propublica.org/site/author/charles_ornstein">Charles Ornstein</a>, <a href="https://twitter.com/CarolineYLChen">Caroline Chen</a>...) fervently ascend through their literary scales of Don't Fear the Reaper, despite Wall Street's fatigue, the <a href="https://www.youtube.com/watch?v=fyV2cPLuFuA">Bruce Dickinson</a> in me can't help but want more cowbell. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">After reading through more transcripts, analysis, powerpoints, investor calls and letters than I could ever want, I found that I still had a fever....and the only prescription was more cowbell.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Turns out, that additional analysis of accounts receivable data generated by Philidor has uncovered an odd subset of prescriptions which apparently were never meant to be filled.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">As is to be expected of Valeant, it's not straightforward so let's keep it as simple and rhythmic as possible.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">On June 23rd, Philidor claims that prescription 40031052 was dispensed and shipped. Philidor's records also show that they are due $973.21 from the the PBM/Processor Caremark.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDG4vCofaBngVpSSdYqEbCinM4pqdCPp9vUGqf4f-in2D2yAlnCQnhf_19OnrgQLKsELWpHNJocP5BnxAV8beHGFlodn8rsMrjh50qt68Yl_wLhgLyCovN1oJ7AVKrqn7tCaxO5-owc8A/s1600/crk_script_RO_ex1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="78" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDG4vCofaBngVpSSdYqEbCinM4pqdCPp9vUGqf4f-in2D2yAlnCQnhf_19OnrgQLKsELWpHNJocP5BnxAV8beHGFlodn8rsMrjh50qt68Yl_wLhgLyCovN1oJ7AVKrqn7tCaxO5-owc8A/s640/crk_script_RO_ex1.png" width="640" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">What is quite odd about this particular receivable is the shipping history associated with this prescription. Instead of originating at R&O on June 23rd, it actually originates in Hammond, Indiana on June 29th, before making its way to R&O in Camarillo, California, where it was received on July 2nd and signed for by "Al." This is troubling for many reasons. At first I thought perhaps it was a return, but that can't be the case, because it's a credit on the receivables. It would also stand to reason that if it were a return, the same exact script number would be referenced with a reimbursement due to Caremark, but this is the only reference to prescription 40031052.</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDzxlqxVANsG0PBmW6jlxffkKmX-gHV-GghuvLU1WuOFyvgBO_ai1btER9B9mAJw70pXOWmRAgt_-SWyJLos70WqzjXCEDhz5B-9iO1JoOxoD-Y7KyqvS0WgXYObUYtcKp1gdoIYq9MDM/s1600/ex1_tracking.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="167" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDzxlqxVANsG0PBmW6jlxffkKmX-gHV-GghuvLU1WuOFyvgBO_ai1btER9B9mAJw70pXOWmRAgt_-SWyJLos70WqzjXCEDhz5B-9iO1JoOxoD-Y7KyqvS0WgXYObUYtcKp1gdoIYq9MDM/s400/ex1_tracking.png" width="400" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">In an even stranger twist there are prescriptions which appear to be billed to payors, but were never shipped into or out of R&O. It's like the Wonka factory for price gouged drugs. As seen here, prescription 40045409 claims to have been filled on July 6th, and shipped on July 7th, with the payor on the hook for $1017.30.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">When you refer to the shipping history for that particular prescription though, you can see it wasn't even scheduled to be picked up until July 9th at 7:46pm, and the scheduled pickup was from Oak Park, IL, <i>destined </i>for Camarillo, California. It never got there though. You can see from its shipping history that it wasn't even scanned in by UPS.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">More troubling still for Philidor and Valeant is that these two simple examples are not the only examples uncovered in their accounts receivables. These are just two little plunks of the stick on the cowbell.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Using other pharmacy's provider numbers seems bad enough, but billing for prescriptions which were never filled seems like outright insurance fraud, which would be in addition to whatever insurance fruad they were already perpetrating.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Plunk, plunk, plunk, plunk, plunk, plunk, plunk...</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #222222; line-height: 16.12px;">All our times have come.....</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">For those curious, the origins of these phantom shipments I've uncovered thus far are:</span></div>
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<td height="17" style="height: 12.75pt; width: 198pt;" width="264"><span style="font-family: Arial, Helvetica, sans-serif;">CHICAGO</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MARYSVILLE</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MOKENA</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MT PROSPECT</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">DENVER</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">HINSDALE</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">OAK PARK</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SIMI VALLEY</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SANTA MONICA</span></td>
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<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">EDWARDSVILLE</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">ENCINITAS</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">ADDISON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">BREMERTON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">HENDERSON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SAN FRANCISCO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">LAKE MARY</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SANTA ANA</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NORTH RIVERSIDE</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">LA PORTE</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">WEST DUNDEE</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">PALM BAY</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">EVANSTON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">LOS ANGELES</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">TUSCOLA</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SAN RAMON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MOUNTAIN VIEW</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SAN RAFAEL</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">PHILADELPHIA</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">CALABASAS</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SAN DIEGO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">WASHINGTON</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NEW ALBANY</span></td>
</tr>
</tbody></table>
</td></tr>
</tbody></table>
<br />
<iframe allowfullscreen="" frameborder="0" height="288" mozallowfullscreen="" scrolling="no" src="http://www.hulu.com/embed.html?eid=dngrswdbdzm8gyarzmj3qg&et=338&st=1" webkitallowfullscreen="" width="512"></iframe>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com4tag:blogger.com,1999:blog-2777685498597135745.post-17325514739295793492015-10-27T01:02:00.000-04:002015-10-27T10:48:07.278-04:00Valeant's Quantum Entanglement Issue<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Recently we learned that <a href="http://phys.org/news/2015-10-physicists-quantum-spookiness-schrodinger-cat.html" target="_blank">quantum entanglement</a> is real. Despite <a href="http://ir.valeant.com/files/doc_presentations/2015/10-26-15-Investor-presentation-Final4.pdf" target="_blank">their protestations</a>, it is apparent that Valeant's actions at a distance still maintained a spooky financial and operation control over Philidor, and thus R&O.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Aside from the <a href="http://www.bloombergview.com/articles/2015-10-26/valeant-s-pharmacy-relationships-were-complicated" target="_blank">profound philosophical ramifications</a> of considering whether financial control constitutes control, and whether a zero dollar option constitutes a fully consummated transaction there are some peculiarities in Valeant's statements on their call today. An embarrassment of riches. Before I cover the accounting issues in upcoming posts (particularly with respect to shareholder's equity) let's just focus on the easy stuff for now.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant received a question(apparently from an investor) asking:</span></div>
<blockquote class="tr_bq" style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Did Philidor commit wrongdoing by shipping
products to California residents without a California license? </span></blockquote>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant's answer:</span></div>
<blockquote class="tr_bq" style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">We understand that: </span><br />
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Philidor did not dispense products to patients in California </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Philidor only dispenses products to patients in states where
Philidor has a non-resident license, and that does not
include California </span></li>
</ul>
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Philidor has agreements with affiliated pharmacies that
have California licenses and those pharmacies have
dispensed products to patients in California</span></li>
</ul>
</blockquote>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Aside from the fact they <a href="http://www.biadvisors.com/" target="_blank">didn't actually answer the question</a> I suppose it depends upon what the meaning of the word 'is' is.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">I teased everybody last week that the Valeant/Philidor was much bigger than just access to California. </span></div>
<blockquote class="twitter-tweet" lang="en">
<div dir="ltr" lang="en">
<span style="font-family: Arial, Helvetica, sans-serif;">R&O / Philodor is NOT just about access to California.
It's much bigger and I'm about to prove it to you....
<a href="https://twitter.com/search?q=%24VRX&src=ctag">$VRX</a></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">— The Skeptic (@TheSkeptic21) <a href="https://twitter.com/TheSkeptic21/status/657718109801959424">October 24, 2015</a></span></blockquote>
<script async="" charset="utf-8" src="//platform.twitter.com/widgets.js"></script>
<br />
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Despite Valeants assurances otherwise, R&O really is about access to California...just as much as it isn't.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant told us on their conference call that they have a no cost option for the next ten years to acquire Philidor, which owns R&O. To any normal person that isn't from Laval or Hatsboro that would mean they own Philidor, which owns R&O. <i>Ergo</i> any prescription sent by R&O would mean that it was actually sent by Philidor, which would actually mean it was sent by Valeant. </span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant's statement is particularly peculiar when you consider previously unreported data that shows California is the number one recipient of prescriptions fulfilled by R&O under the Philidor regime. Ah-hah! So it is about access to California.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Worse yet for Valeant, out of the 21,000+ prescriptions I've been able to analyze so far, R&O shipped to at least 33 states under the Philidor/Valeant regime. Oh, so...it's a lot about California, but not entirely? </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Valeant carefully minced their words to avoid the pitfall of Philidor's false statements made in connection with their rejected California Pharmacy license, but if you look at the data you'll immediately see that it was about access to California, and 32 other states.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">As far as I can currently tell, out of the 33 states that R&O shipped to, about 2/3's had active Pharmacy licenses for <i>both</i> R&O and Philidor; <b>the remaining 33% were split between R&O's license, Philidor's license or neither being licensed. </b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">(I have been unable to verify WA & MN)</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Sidestepping the channel stuffing allegations, that presents a very simple conundrum for Valeant management, and thus Philidor managment and thus R&O management, which is how could you make the claim that a pharmacy you own(really, but not really) legally ship prescriptions to states which your pharmacy is not licensed? It also calls into question management's statements regarding Philidor's ability to ship in California.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">Perhaps in some wormhole of FASB accounting standards or ancient bibliographic tomes on American corporate structures one could make an argument that you own a controlling financial interest, but don't actually own the underlying company, however in the real world if you and 6 of your closest friends on The Board say Philidor doesn't ship to states it doesn't have a license, Philidor better not ship to those states, and neither should any of it's consolidated subs. The only thing worse would be if neither had a license, which of course there are few instances of that too.</span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;">After analyzing over 21,000 individual prescription records (at an average cost of over $800/prescription) for less than three months of Valeant products moved through R&O, it is apparent that Mike Pearson's statement was correct that Valeant does not have operational control over R&O, so cut him some slack guys! I mean, obvs, if he had known about all these illegal shipments of drugs out of R&O while under the control of Phildor/Valeant, he wouldn't have made all those certified statements to the contrary, right???</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<i style="font-family: Arial, Helvetica, sans-serif;"><br /></i>
<i style="font-family: Arial, Helvetica, sans-serif;">If you're curious, the states analyzed are listed below and all 21000 prescriptions available at <a href="https://drive.google.com/file/d/0Bza24URuxdtSLUp3bmk3MHdOdGc/view?usp=sharing" target="_blank">the following link</a>.</i></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: white;">
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 1093px;">
<colgroup><col style="mso-width-alt: 4790; mso-width-source: userset; width: 98pt;" width="131"></col>
<col style="mso-width-alt: 8228; mso-width-source: userset; width: 169pt;" width="225"></col>
<col style="mso-width-alt: 4790; mso-width-source: userset; width: 98pt;" width="131"></col>
<col style="mso-width-alt: 10276; mso-width-source: userset; width: 211pt;" width="281"></col>
<col style="mso-width-alt: 6326; mso-width-source: userset; width: 130pt;" width="173"></col>
<col style="mso-width-alt: 5558; mso-width-source: userset; width: 114pt;" width="152"></col>
</colgroup><tbody>
<tr height="17" style="height: 12.75pt;">
<td class="xl66" height="17" style="height: 12.75pt; width: 98pt;" width="131"><span style="font-family: Arial, Helvetica, sans-serif;">Ship To
State</span></td>
<td class="xl66" style="width: 169pt;" width="225"><span style="font-family: Arial, Helvetica, sans-serif;">NUMBER OF R&O SHIPMENTS</span></td>
<td class="xl67" style="width: 98pt;" width="131"><span style="font-family: Arial, Helvetica, sans-serif;">Percent of R&O</span></td>
<td class="xl66" style="width: 211pt;" width="281"><span style="font-family: Arial, Helvetica, sans-serif;">R&O LICENSED?</span></td>
<td class="xl66" style="width: 130pt;" width="173"><span style="font-family: Arial, Helvetica, sans-serif;">PHILIDOR LICENSED?</span></td>
<td class="xl66" style="width: 114pt;" width="152"><span style="font-family: Arial, Helvetica, sans-serif;">JOINT APPROVAL</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">CA</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">7678</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">35.32%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">IL</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">6091</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">28.02%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">CO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">1303</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">5.99%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">UT</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">908</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">4.18%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NV</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">876</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">4.03%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">WA</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">856</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">3.94%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">FL</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">711</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">3.27%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MS</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">522</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">2.40%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">ID</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">518</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">2.38%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">PA</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">506</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">2.33%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">OH</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">338</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">1.55%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NY</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">187</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.86%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">OK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">155</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.71%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">SD</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">141</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.65%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">IA</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">135</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.62%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">RI</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">117</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.54%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">TX</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">114</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.52%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">IN</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">111</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.51%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MI</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">97</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.45%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">68</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.31%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">WI</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">60</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.28%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MN</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">57</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.26%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">UK</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">KS</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">43</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.20%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">WY</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">42</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.19%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">CT</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">28</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.13%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">ACTIVE 09/01/2015* (SHIPMENTS PRIOR)</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">SORT OF</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">MA</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">24</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.11%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NEITHER</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NJ</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">16</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.07%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">VT</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">14</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.06%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">AZ</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">13</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.06%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">DE</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">5</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.02%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">AK</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">1</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.00%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">NO</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">DC</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">1</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.00%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td>
</tr>
<tr height="17" style="height: 12.75pt;">
<td class="xl65" height="17" style="height: 12.75pt;"><span style="font-family: Arial, Helvetica, sans-serif;">NH</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">1</span></td>
<td class="xl68"><span style="font-family: Arial, Helvetica, sans-serif;">0.00%</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">YES</span></td>
<td class="xl65"><span style="font-family: Arial, Helvetica, sans-serif;">Dual Approval</span></td></tr>
</tbody></table>
</div>
<div>
***Correction: a previous version of this table incorrectly reported some of the states R&O did not have a license</div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-82921242977560641842015-10-19T07:09:00.000-04:002015-10-19T07:09:48.841-04:00Carnackman<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7MSzKbmlcAMDXp1lDU5mfyFRZs6lOCXKM1cs5vLBim_tRYmaPdUtQKIIdh2Bsvyxk4FXgbYX5Sje_YM5tjoQgAlZKlB9_mEnUUWtCZki5OOHqB4HSr2I1r0T24dKzZKbGsFfMEf5yS1Q/s1600/Carnackman.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="284" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7MSzKbmlcAMDXp1lDU5mfyFRZs6lOCXKM1cs5vLBim_tRYmaPdUtQKIIdh2Bsvyxk4FXgbYX5Sje_YM5tjoQgAlZKlB9_mEnUUWtCZki5OOHqB4HSr2I1r0T24dKzZKbGsFfMEf5yS1Q/s320/Carnackman.jpg" width="320" /></span></a><span style="font-family: Arial, Helvetica, sans-serif;"><u>Whitney Tilson</u>: I hold in my hand the envelopes. As a child of four can plainly see, these envelopes have been hermetically sealed. They've been kept in a #2 mayonnaise jar on Funk and Wagnalls' back porch since noon today. No one knows the contents of these envelopes, but you Carnackman, in your borderline divine and mystical way, will ascertain the answers having never before seen the questions.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><u><b>Carnackman</b>:</u> "Wells notice.<span style="background-color: white; line-height: 29.8667px;">"</span></span><br />
<span style="background-color: white; line-height: 29.8667px;"><span style="font-family: Arial, Helvetica, sans-serif;">[Carnackman's face goes grey. He lays the unopened envelope on the desk.]</span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><b><u>Carnackman</u></b>: "Did I mention I had really good stuff on Herbalife I can't talk about?"</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Ben Walsh published a story last Friday about some <a href="http://www.huffingtonpost.com/entry/herbalife-stock-trade_56182362e4b0082030a2a723" target="_blank">suspiciously timed trades</a> that just so happened to occur on the eve of the NY Post (I know right?) publishing a negative article about Herbalife CEO Michael Johnson. The article was titled <a href="http://nypost.com/2015/06/25/video-reveals-herbalife-boss-saw-pyramiding-signs-early-on/" target="_blank"><span style="background: rgb(255, 255, 255); border-color: initial; border-style: initial; line-height: 24px;">Video reveals Herbalife boss saw ‘pyramiding’ signs early on</span><span style="background-color: white; line-height: 24px;">.</span></a> and attempted to paint the CEO in a criminal light.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">About a month ago, Roger Parloff published a well-researched article in Fortune titled <a href="http://fortune.com/2015/09/09/the-siege-of-herbalife/" target="_blank">The Siege of Herbalife. </a> In his article Parloff discusses that video. Parloff's take seems to indicate that 2005 video was a record of Johnson actively reshaping the way Herbalife would recruit distributors and members. He chastised certain lead generation systems and embraced changes that were designed to reduce the turnover in distributors actively pursuing their involvement as a "business opportunity." Johnson wanted new distributors to be permitted to achieve level five more slowly and organically. “In the old days, distributors would say, ‘Go build that downline as soon as possible’ … That works for very few people … That’s a lottery ticket. So the best way to build this business … is to build it through retail and retention, and recruiting will come Johnson explained at the retreat.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Parloff also discusses a report by the former director of the FTC's Bureau of Economics, Dr. Joseph Farrell. For you kids keeping score at home, that would the Director of the Bureau of Economics, to whom Dr. Peter Vander Nat would have reported to until May of 2012. In his 67 page report the former director found that there was "genuine consumer demand" and "no evident dependence on unsustainable growth." He summarized that purchasing patterns were consistent with the purchasing you'd see when distributors were fulfilling consumer orders and not gunning for bonus qualifications.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">In Walsh's report on Friday, it's also revealed that yet another journalist has seen that 2005 videothe NY Post made out as a criminal recording and Walsh characterizes that video in the same light that Parloff did. </span><br />
<blockquote class="tr_bq">
<span style="background-color: white; line-height: 24px;"><span style="font-family: Arial, Helvetica, sans-serif;">"In the 2005 video, after Johnson acknowledges the potential for pyramiding, he outlines changes that the company has since enacted to reduce the turnover and financial burden borne by its lowest-level distributors."</span></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">One of these stories is not like the other.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">No matter, the people whose opinion really matters have seen both the video as well as the Farrell report. Although it is unclear how long they have been in receipt of the video and Farrell report, the SEC does have these key pieces of data.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">The options trade itself could be a complete coincidence, but there is a disturbing fact pattern regarding Pershing Square and what it knows before it should.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">In the same month as the reported options trade, as well as the Post's skewed report on the Herbalife retreat video, there was a separately fascinating and somewhat bizarre sideshow. A Pennsylvania Senate candidate named Everett Stern claimed he met with Pershing Square. Not only did he claim he met with Pershing, he claimed that Bill Ackman himself stated on a preliminary phone call to Mr. Stern</span><br />
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; line-height: 21px;">“I am interested in us giving you the </span><span style="background-color: white; line-height: 21px;">research we have on Herbalife and then you repackaging it and then filing a Whistleblower </span><span style="background-color: white; line-height: 21px;">Claim with the SEC to trigger a Federal Investigation into Herbalife.”</span></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Two days after that alleged call, Mr. Stern met with David Klafter and others at Pershing Square's offices. Mr. Stern claims that Mr. Klafter offered to pay Mr. Stern by allowing him to mimic Pershing's short position in Herbalife. Being that I was not in the meeting, I have no idea whether or not Mr. Stern's claims are true. Classic he said he said.</span><br />
<span style="background-color: white; line-height: 21px;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; line-height: 21px;">I will point out here that if you read <a href="https://tacticalrabbit.com/ackman-stock-manipulation/" target="_blank">Mr. Stern's report,</a> there are some embarrassing errors I wouldn't expect to see from a "premium intelligence service" so it does bring to question the veracity of his claims. Apparently he felt strongly enough about the meeting and his accusations that he wrote a letter to Mary Jo White at the SEC. I've verified through multiple independent sources that Mr. Stern did in fact meet with Pershing Square on the day he claims, but beyond that I have no idea what was said between parties. </span><span style="background-color: white;">A separate source which has worked for Pershing Square, and has also been in contact with other firms contracted by Pershing Square, stated that their firm had never been offered any soft dollar payments and had no knowledge of any soft dollar payments being offered by Pershing Square as a form of compensation.</span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">In light of HuffPo's article, Mr. Stern's accusation is still a troubling one. Although I doubt Pershing Square put on the trade that Mr. Walsh outlined in his article, it's discomforting knowing that the very same month Pershing hosted a meeting with Mr. Stern during which Mr. Stern claims he was offered payment by a soft dollar mechanism which would be directly tied to the release of information known only to Pershing Square and Mr. Stern's team, there is a large derivatives trade suspiciously close to the release of the NY Post article. It begs the question whether Pershing Square knew about the NY Post's article and whether or not Pershing Square disseminated that information to someone else.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">When asked whether Pershing Square knew about the 2005 video in advance of the Post article, and if Pershing Square knew about Celarier's story in advance of its publication, or if Pershing Square had seen the video since then<span style="background-color: white;"> Carnackman ebulliently responded: "</span><span style="background-color: white; line-height: 29.8667px;">May your favorite daughter be featured in NFL Films' Sack of the Week." Actually, I just made that up because Pershing Square still has not responded to last week's inquiry.</span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7MSzKbmlcAMDXp1lDU5mfyFRZs6lOCXKM1cs5vLBim_tRYmaPdUtQKIIdh2Bsvyxk4FXgbYX5Sje_YM5tjoQgAlZKlB9_mEnUUWtCZki5OOHqB4HSr2I1r0T24dKzZKbGsFfMEf5yS1Q/s1600/Carnackman.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-39488337100079640182015-10-12T23:10:00.002-04:002015-10-12T23:10:41.443-04:00Find the Body, Find the Weapon, Find the Motive<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://brontecapital.blogspot.com/2015/10/pershing-square-modifies-their.html" target="_blank">John Hempton</a> and I have blogged extensively on the Ackman/Herbalife cage match, and <a href="http://theskeptic21.blogspot.com.au/2015/10/eight-days-weekpershing-square-calls.html" target="_blank">based on my work,</a> John recently wrote an excellent article on the changes that Pershing Square made to their NAV reporting. Oddly they made two back to back changes to their NAV reporting disclosure and have reportedly sent representatives to speak with some very ruffled investors about the matter.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://brontecapital.blogspot.com/2015/10/pershing-square-modifies-their.html" target="_blank">Hempton concluded</a>:</span></div>
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<span style="background-color: #ccdee8; color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 22.4px;">"For the moment though Pershing Square thinks it is okay to - without prior notice - report on an eight day week. Sure they did it so they could modestly hide the fantastic performance on 30 September. But the motivation is not the issue here.</span><br />
<span style="background-color: #ccdee8; color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 22.4px;">Having an eight day week opens Bill Ackman up for allegations of deception - allegations that Bill should neutralise immediately by reporting the interim data point as originally planned."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">It's clear that not reporting the -$800M AUM on Tuesday (the dead body), was achieved by modifying the NAV reporting schedule and guidance (the weapon), but the motive that Pershing has offered really doesn't make all that much sense, at least not on it's surface because there was no logical motive, other than saving face.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Pershing claimed that back-to-back NAV reports could help detect changes in their portfolio and that people could <a href="http://blogs.reuters.com/alison-frankel/2014/12/18/allergan-shareholders-sue-pershing-valeant-for-insider-trading/" target="_blank">front run or disadvantage them</a>. I think Pershing's claim is REALLY a stretch. Literally, I was able to predict within 0.1% what their numbers were going to be the <u>night before</u> they were scheduled to release their NAV, so portraying that back-to-back NAV the following day was somehow disadvantageous really does not fit with their defense.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Ackman's Pershing Square with -12.5% YTD performance, having lost $3.75B since JUL 31 (-18.7%)
<a href="https://twitter.com/search?q=%24APD&src=ctag">$APD</a> <a href="https://twitter.com/search?q=%24CP&src=ctag">$CP</a> <a href="https://twitter.com/search?q=%24HHC&src=ctag">$HHC</a> <a href="https://twitter.com/search?q=%24PAH&src=ctag">$PAH</a> <a href="https://twitter.com/search?q=%24QSR&src=ctag">$QSR</a> <a href="https://twitter.com/search?q=%24VRX&src=ctag">$VRX</a> <a href="https://twitter.com/search?q=%24ZTS&src=ctag">$ZTS</a> <a href="https://twitter.com/search?q=%24MDLZ&src=ctag">$MDLZ</a> <a href="https://twitter.com/search?q=%24HLF&src=ctag">$HLF</a></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">— The Skeptic (@TheSkeptic21) <a href="https://twitter.com/TheSkeptic21/status/649319771327082496">September 30, 2015</a></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Back-to-back NAV reports alone <i>could </i>help you determine that a change has been made, but it wouldn't allow you to detect <b><u>WHICH </u></b>change was made. For instance, we can also predict based on last Tuesday's weekly NAV's Pershing released that a change has occurred.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">FWIW, if <a href="https://twitter.com/search?q=%24PSH&src=ctag">$PSH</a> isn't at -10.1% YTD tomorrow, there was some major restructuring.
<a href="https://twitter.com/search?q=%24APD&src=ctag">$APD</a> <a href="https://twitter.com/search?q=%24CP&src=ctag">$CP</a> <a href="https://twitter.com/search?q=%24HHC&src=ctag">$HHC</a> <a href="https://twitter.com/search?q=%24PAH&src=ctag">$PAH</a> <a href="https://twitter.com/search?q=%24QSR&src=ctag">$QSR</a> <a href="https://twitter.com/search?q=%24VRX&src=ctag">$VRX</a> <a href="https://twitter.com/search?q=%24ZTS&src=ctag">$ZTS</a> <a href="https://twitter.com/search?q=%24MDLZ&src=ctag">$MDLZ</a> <a href="https://twitter.com/search?q=%24HLF&src=ctag">$HLF</a> <a href="https://twitter.com/search?q=%24PSH&src=ctag">$PSH</a></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">— The Skeptic (@TheSkeptic21) <a href="https://twitter.com/TheSkeptic21/status/651526112888160257">October 6, 2015</a></span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://twitter.com/search?q=%24PSH&src=ctag">$PSH</a>'s -11.2% YTD performance indicates they sold/bought back something. ~$165M Δ
<a href="https://twitter.com/search?q=%24APD&src=ctag">$APD</a> <a href="https://twitter.com/search?q=%24CP&src=ctag">$CP</a> <a href="https://twitter.com/search?q=%24HHC&src=ctag">$HHC</a> <a href="https://twitter.com/search?q=%24PAH&src=ctag">$PAH</a> <a href="https://twitter.com/search?q=%24QSR&src=ctag">$QSR</a> <a href="https://twitter.com/search?q=%24VRX&src=ctag">$VRX</a> <a href="https://twitter.com/search?q=%24ZTS&src=ctag">$ZTS</a> <a href="https://twitter.com/search?q=%24MDLZ&src=ctag">$MDLZ</a> <a href="https://twitter.com/search?q=%24HLF&src=ctag">$HLF</a> <a href="https://twitter.com/search?q=%24PSH&src=ctag">$PSH</a></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">— The Skeptic (@TheSkeptic21) <a href="https://twitter.com/TheSkeptic21/status/651892123424411648">October 7, 2015</a></span></blockquote>
<script async="" charset="utf-8" src="//platform.twitter.com/widgets.js"></script><span style="font-family: Arial, Helvetica, sans-serif;">Whoopdie-doo. We know there's a change but it's not that informative. We don't know what they sold, what they bought or what they bought back. There was a sharp increase in Herbalife the days that Valeant was down, and it would be tempting to infer that Pershing partially covered their Herbalife short, but as one investor said, "Bill Ackman is not in the business of buying back Herbalife". I agree that it doesn't appear that on a August to September basis Pershing did not reduce their exposure to Herbalife; if anything they partially increased it, but the supporting data is inconclusive. The only other data we get is what the firm's L/S exposure is with a partial breakdown by market cap. That's not super helpful even though you can detect a significant reduction in the firms long large cap exposure while simultaneously increasing their long midcap exposure. Interesting, because you know what their LC holdings and MC holdings are. Although this 6% change could be an indication that they sold something down while building another position it's a data vacuum so it's hard to make any conclusions.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">A couple other curious things occurred in September compared to August that may help us determine Pershing's motive for the NAV sliming.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Pershing eliminated the "undisclosed position" entry from their report.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhyphenhyphen6Ic15RnWHe95GSF3mGhEIv7dCKtqVX8anUyxiFlFexKU6suSpWOnKYOPKwj5PYGrb9lSDwi9ZiE0j6CJKUZYaqy_S6y-4dyKLiT0HpAtBU30Z0RpkwQj6wFdQHtmIkLkIlckOM05CA/s1600/August_2015_sector.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="112" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhyphenhyphen6Ic15RnWHe95GSF3mGhEIv7dCKtqVX8anUyxiFlFexKU6suSpWOnKYOPKwj5PYGrb9lSDwi9ZiE0j6CJKUZYaqy_S6y-4dyKLiT0HpAtBU30Z0RpkwQj6wFdQHtmIkLkIlckOM05CA/s320/August_2015_sector.png" width="320" /></span></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCTq30v3VxMZTiGXBn_lScu7x7rPQE4d_a4PbtUCdjL7HxNOmPnHxrYvEhyphenhyphenSuSR7I8yuLxDSSnKjXv50lLSYzyy055XWa4M_kuXAdOzmzbmWYc0g5-LLjZTv7_tRSpRtjX8npafFUg1vw/s1600/September_2015_sector.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="107" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCTq30v3VxMZTiGXBn_lScu7x7rPQE4d_a4PbtUCdjL7HxNOmPnHxrYvEhyphenhyphenSuSR7I8yuLxDSSnKjXv50lLSYzyy055XWa4M_kuXAdOzmzbmWYc0g5-LLjZTv7_tRSpRtjX8npafFUg1vw/s320/September_2015_sector.png" width="320" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">They also injected some new language in their footnotes. (Blackline changes below)</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1Jm90J1X2hqm9qmXj65bW41qSBuy8tBBoOyGnKZMNBt_JwYzURNLDLlSRatPx3l-QYpdEm1BAtUBmA-ZNyPo-kpu7JbGCTYjUjpG8Fnk4R_xcs6bTJUkQiX2x0u7x-nUq84LIfwaN9VA/s1600/august_septmebr_blackline.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="208" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1Jm90J1X2hqm9qmXj65bW41qSBuy8tBBoOyGnKZMNBt_JwYzURNLDLlSRatPx3l-QYpdEm1BAtUBmA-ZNyPo-kpu7JbGCTYjUjpG8Fnk4R_xcs6bTJUkQiX2x0u7x-nUq84LIfwaN9VA/s400/august_septmebr_blackline.png" width="400" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I'll let you parse the minor changes but there seems to be a long addition at the end there. Taken in aggregate with the disappearance of the "undisclosed position" sector, as well as the fact they've maintained 12 positions it could indicate a few potential changes</span></div>
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<li><span style="font-family: Arial, Helvetica, sans-serif;">they've sold down positions and missed some of the rally in the ensuing weeks or</span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">they've sold down <u>a</u> position in connection with building a new one (this would require the new position didn't perform as well as the previous or their performance would have been better) or</span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">similarly to their move with Actavis (prior to Allergan closing) maybe they decided to hedge their enormous risk by buying derivatives to offset the downside risk in Valeant, and thus not enjoy some of the snapback in Valeant's shares (also by their rules this would not create a 13th position, nor would it create a new reportable short position, keeping both number of positions and sector reporting the same).</span></li>
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<span style="font-family: Arial, Helvetica, sans-serif;">If it isn't some new hedge and they decided to build a new position, there isn't much to be said at this point. We only know the net delta on performance is ~$165M and by their own disclosure guidelines (if they honor them) it would need to be 5% of AUM or more to be disclosed, so we can determine that if it is in fact a new position that they are so sensitive about, that the acquisition can't represent more than an $825M investment as of last Tuesday because they hadn't declared it. We could also determine that if it was a new position it would have to be down at least 20% over that interim week to drag down performance by over 100bps. Unless we see a new 13-D, or other disclosure from Pershing, it's hard to say which one it is, although I'm leaning toward a Valeant hedge, just because it sounds more fun.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">There is a separate but related story that also helps highlight why Pershing may have been so sensitive about reporting the NAVs the way they did. Hypothetically if they disclosed that they hedged Valeant(or any other company in their portfolio), this somewhat undercuts their projected confidence in the company and if word gets around that Valeant's biggest champion is losing confidence, it could put serious pressure on the stock and thus serious pressure on Pershing's holdings, and thus serious pressure on PSH shares, during a period of serious pressure that already exists. Pershing Management has about 3% of the PSH vehicle and is subject to a 10 year lockup, so P&L fluctuations aside, it's not like they could <i><b>realize </b></i>any gains by tinkering with the NAV values, right? Actually wrong. According to Pershing's own financial reporting, management actually is able to sell/redeem shares:</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"Mr. Ackman and other members of the
management team and officers of the Investment
Manager have each agreed with the Company to a
lock-up of ten years commencing from October 1,
2014, of their aggregate Management Shares, less
amounts (i) attributable to any sales required to
pay taxes on income generated by the Company;
(ii) required to be sold due to regulatory
constraints, including, without limitation, sales
required due to ownership limits; or (iii) attributable
to sales following separation of employment from
the Investment Manager. Under the terms of the
lock-up arrangement, shares subject to lock up
may from time to time be transferred to affiliates,
provided that the transferee agrees to be subject to
the remaining lock-up period." </span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">Interestingly, Pershing Management was issued 199,127 additional PSH shares in August, which disappeared again in September. This is yet another anomalous synchrony that overlaps with their NAV reporting change. It's anomalous because from October 2014 through July 2015, the number of PSH shares held by management stood completely flat from month to month at 8,500,796 shares. At the end of July, Pershing was crushing it and was just shy of $20B AUM, so it makes sense why in August the number of management shares increased to 8,699,923 although at the end of September, when it modified NAV reporting, it had decreased back down to 8,500,796. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">199,127 shares doesn't seem like a lot until you look at PSH's trading over the period. During the month of September, PSH averaged 211,754 shares traded a day. The reduction by management, if they'd sold to the market, equates to 4.5% of all volume for the entire month of September. It's not like Management reduced their count by selling on the open market, but open market perspective is nice when you consider that the shares management redeemed, directly derive their value from the NAV's of the public vehicle. I think it is a reasonable conclusion to surmise anyone planning to redeem at the end of the month could be motivated to do what they could to protect the net value of that redemption, even though the total value of that redemption was only $4.9M. Talk about managing to the share price.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I asked Pershing Square to confirm the following:</span></div>
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<li><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif;">that management was issued an additional 199,127 shares in PSH in August, which was redeemed by Pershing management in September</span></li>
<li><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif;">that Pershing sold down a holding while building a new Allergan-like stake</span></li>
<li><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif;">that Pershing took a large derivatives position in Valeant to hedge downside risk</span></li>
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<span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif;">Pershing Square Capital Management declined to comment for all three.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Any of these risky moves could be motivation for the reporting changes, but with one quarter to make up 11.2%, just to get back to zero, Ackman and Pershing Square Capital Management seem to be gunning for even more risk. As one investor put it to me, 'Ackman may have become the worst risk manager around. Here you are with tens of billions in assets, collecting hundreds of millions of fees annually on a highly concentrated portfolio, which is risky enough on it's own, and significantly negative for the year, with regulatory scrutiny all over you, but you still risk all of that by hiding your NAV to support a $5M management redemption...it's appalling.'</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Whether Pershing was actively manipulating the PSH price with NAV report modifications to support management's own redemptions remains to be seen, but as that same investor expressed to me, 'it demonstrates extremely poor judgement, or taste or both.' </span></div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-11680835542286956022015-10-06T12:31:00.001-04:002015-10-06T12:32:02.389-04:00Pershing Square Involved in On-Going Enforcement Proceedings <span style="font-family: Arial, Helvetica, sans-serif;">A series of FOIA requests have confirmed that Pershing Square is involved in "on-going enforcement proceedings". These FOIA requests specifically sought investigatory records regarding Pershing Square from 2013 through the Summer of 2015. The initial FOIA responses from the SEC cited SEC 7(a) exemptions to the information sought. I feel like <a href="http://www.probesreporter.com/" target="_blank">ProbesReporter </a>and I have <a href="http://theskeptic21.blogspot.com/2015/09/is-bill-ackmans-pershing-square-target.html" target="_blank">beaten this issue to death already</a>, but 7(a) exemptions specifically exempt from disclosure information that could interfere with either prospective or on-going proceedings. This means that in many circumstances, 7(a) could be invoked even if there is no "on-going" actions because it <i>could </i>interfere with a <i>future</i> action. Based upon the invocation of the initially cited 7(a) exemptions to the requested investigatory records, the FOIA decisions were then appealed to the SEC's Office of the General Counsel.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">The SEC's OGC confirmed by letter that the FOIA official that initially exempted the responsive documents had correctly made this determination for each request. The SEC's Associate General Counsel noted in their reply:</span><br />
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<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">"I have determined that the FOIA Officer correctly asserted Exemption 7(A). There is a</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">two-step test to determine whether information is protected under Exemption 7(A), whether: (1) a law enforcement proceeding is pending or prospective, and (2) release of information about it could reasonably be expected to cause some articulable harm.' <b>We have confirmed with staff that releasing the withheld information could reasonably be expected to interfere with <u>on-going enforcement proceedings</u>.</b>" (emphasis added)</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">What was not included in the inital responses, but were confirmed in the OGC's letter is the addition that this relates to an <b>on-going</b> enforcement proceeding, <i>not prospective. </i>It should be noted that the requests were agnostic with respect to other related companies and did not request investigatory records that were related to Herbalife, Valeant, Allergan, <a href="http://brontecapital.blogspot.com/2015/10/pershing-square-modifies-their.html" target="_blank">Pershing Square Holdings</a>, Target, JC Penney, etc. ad nauseam...</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">The requested records were described as: (1) any matter under inquiry summary regarding Pershing</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Square; (2) any case closing recommendations regarding Pershing Square; (3) any investigation</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">recommendations regarding Pershing Square; (4) any investigation reports regarding Pershing Square; (5) any investigation opening reports regarding Pershing Square; (6) any investigation closing reports regarding Pershing Square; (7) any orders of formal investigation regarding Pershing Square; (8) any wells notices sent to Pershing Square; (9) any subpoenas sent to Pershing Square; (10) any correspondence between third parties and the commission related to the investigation of Pershing Square; and (11) any correspondence between Pershing Square and the Commission related to the investigation of Pershing Square.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">What is also VERY interesting with respect to the requested records is that not a single requested item generated a "no responsive records" reply. When questioned about this, the SEC further confirmed that if in fact there were no responsive records that the 7(a) exemption would not have applied and thus could not have been invoked.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">So, go down the list; this means that there <b>are </b>responsive records which involve Pershing Square for each one of these eleven types of records requested. It could very well be that many of these records exist without Pershing Square's knowledge, so you couldn't really count on them to disclose something that may not have been disclosed to them. I mean, it's not like there's a Weekly/Monthly investigatory disclosure report, but even if there was, <a href="http://finance.yahoo.com/news/bill-ackman-just-gave-critics-183000784.html" target="_blank">I hope they'd honor it more than they're NAV reporting guidelines</a>. In Pershing's disclosure defense, I'll pre-emptively point out that it'd be doubtful they'd be informed regarding the SEC's internal investigation recommendations, however, we could conclude that Pershing likely knows about the Wells Notices or subpoenas sent to Pershing Square, and correspondence from Pershing Square to the SEC that exist.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">It should be noted that the SEC is not stating that Pershing Square has or has not done anything wrong, they are merely acknowledging the existence of such records and on-going proceedings that the release of these records could interfere with. The question that arises from the SEC's response is to what extent Pershing Square knows about the above referenced records and just how deeply Pershing Square is "involved". We won't know until the SEC either stops exempting such records, or they or the DOJ take action. It could be nothing or it could be everything.</span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-5236001479803223342015-10-02T15:38:00.001-04:002015-10-02T16:02:41.030-04:00Can You Believe These FUCKING GUYS?????<div style="margin-bottom: 1.5em;">
<div style="background-color: #fefefe; line-height: 24px;">
<span style="background-color: white; line-height: 23px;"><span style="font-family: Arial, Helvetica, sans-serif;">Pershing Square put out a <a href="http://www.businesswire.com/news/home/20151002005502/en/#.Vg6m7MtViko" target="_blank">hasty press release this morning</a> that hit the wire today at 10:39 am EST, 54 minutes before the AEX closed. Pershing also released a copy of that press release on it's <a href="http://assets.pershingsquareholdings.com/2015/10/Pershing-Square-Holdings-Ltd.-Changes-its-NAV-Reporting-Policies.pdf" target="_blank">own website at 10:58 am</a>, 37 minutes before the AEX closed. </span></span></div>
<div style="background-color: #fefefe; line-height: 24px;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<span style="background-color: white; line-height: 23px;"><span style="font-family: Arial, Helvetica, sans-serif;">The purpose of the release was to notify the public of their change in NAV reporting policies. They quickly scribbled in a sentence to their <i>new </i>policy, AFTER they had already released their NAV numbers under the auspices of the old policy. The new sentence says:</span></span><br />
<blockquote class="tr_bq" style="background-color: #fefefe; line-height: 24px;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; line-height: 23px;">"In the event that month-end falls on a </span><span class="aBn" data-term="goog_66805348" style="background-color: white; box-sizing: border-box; line-height: 23px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">Wednesday</span></span><span style="background-color: white; line-height: 23px;">, the Company will report the month-end NAV </span><span class="aBn" data-term="goog_66805349" style="background-color: white; box-sizing: border-box; line-height: 23px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">on Thursday</span></span><span style="background-color: white; line-height: 23px;">, and not report the weekly</span><span class="aBn" data-term="goog_66805350" style="background-color: white; box-sizing: border-box; line-height: 23px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">Tuesday</span></span><span style="background-color: white; line-height: 23px;"> NAV. In the event that </span><span class="aBn" data-term="goog_66805351" style="background-color: white; box-sizing: border-box; line-height: 23px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">Wednesday</span></span><span style="background-color: white; line-height: 23px;"> or </span><span class="aBn" data-term="goog_66805352" style="background-color: white; box-sizing: border-box; line-height: 23px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">Thursday</span></span><span style="background-color: white; line-height: 23px;"> is not a business day, any such month-end NAV will be posted the next business day following that </span><span class="aBn" data-term="goog_66805353" style="background-color: white; box-sizing: border-box; line-height: 23px; margin-bottom: 0px;" tabindex="0"><span class="aQJ" style="box-sizing: border-box; margin-bottom: 0px;">Thursday</span></span><span style="background-color: white; line-height: 23px;">."</span></span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">In fact, I have a copy of their original NAV release and you can see for yourself the above sentence is conspicuously absent from last night's report disclosure pictured below.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSNQ8MncTOiepxN4KSZBwcnyLtbAJf8FDsUclhc_4EMAyRwdOyqQ0Q0xlBdkPI3MF_WfpR6AMuJXmT-FfM3SVTl7XCUYbtGpd1foK0-uP6QsSVbGWJueKDepygD1IQ-DC8uXQM_-x0aHQ/s1600/nav_disclosure_OCT1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="106" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSNQ8MncTOiepxN4KSZBwcnyLtbAJf8FDsUclhc_4EMAyRwdOyqQ0Q0xlBdkPI3MF_WfpR6AMuJXmT-FfM3SVTl7XCUYbtGpd1foK0-uP6QsSVbGWJueKDepygD1IQ-DC8uXQM_-x0aHQ/s400/nav_disclosure_OCT1.png" width="400" /></span></a></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="background-color: #fefefe; line-height: 24px; margin-bottom: 1.5em;">
<span style="font-family: Arial, Helvetica, sans-serif;">Pershing continues in today's press release:</span><br />
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">"It has come to our attention that certain investors have used our periodic reporting to attempt to determine changes to the portfolio in advance of PSH’s requirement to disclose these changes publicly by comparing their NAV estimates with PSH’s periodically reported results. <b><u>The ability to determine changes in the portfolio is greater during periods of increased volatility in PSH’s holdings and when PSH’s weekly and monthly performance are reported during the same week, particularly when the NAV reports occur on sequential days.</u></b></span></blockquote>
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">Until the change in policy, when a month end occurred during a week other than on a Tuesday, investors would receive two NAV performance reports for that week <b><u>increasing the risk of detection of changes in the portfolio which could be used to front run or otherwise disadvantage PSH.</u></b>"</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Ummmm.... NO.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Seriously, WTF are you talking about guys??? First of all, the claim that increased volatility allows one to determine portfolio changes is bullshit. Pershing's desire to maintain large highly concentrated positions is what allows someone to detect changes in their portfolio. The volatility has nothing to do with it except circumstances in which a hugely concentrated position, (i.e. Valeant) is super volatile.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Looking back to the three instances that the monthly came after the weekly report and within the same week there was very little volatility in their NAV. April saw a decrease of $.07 during a two day interval, December 2014 (another dreaded Tuesday/Wednesday combo) saw a $.10 decline, and October 2014 saw a $.31 increase over a three day period. </span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">What I think Pershing is really trying to say with this press release is that if the shit ever hits the fan on Tuesday again, all bets are off...and P.S. we probably got so freaked we modified our positions to satisfy margin requirments, so heads up everybody. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Also, PSH trades 6 hours ahead of the underlying equities held in the US by Pershing Square Capital. How could anyone <b>front run</b> or disadvantage Pershing based on PSH's NAV's??? PSH doesn't set it's own trading price, the NAV or the price of it's underlying assets, the market does. Furthermore PSH trades based on a discount applied the underlying NAV/share, so it is <i>reactive </i>to Pershing Square's holdings, it is not determinant. Even if we invented an extreme scenario in which PSH traded 9 hours behind the NYSE, does Pershing truly believe that people are going to run out and buy or short more of the assets held by PSH because the <b><u>blinded NAV numbers</u></b> released during NYSE trading hours show a +20% increase, particularly when you can see in real time what those assets are trading at??? If you observed a +20% NAV increase from one period to the next without seeing the corresponding increase in the underlying holdings, you'd immediately know that you have absolutely NO IDEA what the new position responsible for that +20% increase is because it would have to be new. Throw a dart maybe? It's a completely nonsensical circular argument they are trying to stroke everybody with.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">If anything, Pershing's policy change frontruns and disadvantages holders of PSH by not accurately reporting the value underlying the vehicle as promised because they made this change <u>retrospectively</u>. Had they reported as they should have with the notification that NEXT week/month the policy was going to change it wouldn't be an issue. I think it's more likely that the Pershing Square press release and NAV reporting changes is reactive to a huge drop in NAV on Tuesday that Pershing Square would have embarrassingly reported on Thursday, which would have caused a precipitous decline in PSH's price today, had they not attempted to sweep it under the rug. Sure, PSH would have recovered on Monday because they would have issued the monthly numbers tonight, with the slighly improved results.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">Adding to this obfuscation, is the manner in which Pershing handled the change. They put out numbers with improper disclosure, and allowed buyers/sellers/borrowers in their market for 7 hours 41 minutes before retrospectively correcting their sleight with a nonsensical explanation less than an hour before the AEX market closed. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Well done you fucking guys! Well done.</span></div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-28042032067906406322015-10-02T09:46:00.000-04:002015-10-02T12:28:32.491-04:00Eight Days a Week:Pershing Square Calls Mulligan, Manipulates NAV Report<span style="font-family: Arial, Helvetica, sans-serif;">It seems that Bill Ackman and Pershing Square have learned some accounting tricks from their frenemies at Valeant. <a href="https://twitter.com/WallStCynic" target="_blank">WallStCynic</a>, <a href="https://twitter.com/John_Hempton" target="_blank">John Hempton</a> & <a href="https://twitter.com/AZ_Value" target="_blank">AZ Value</a> have done excellent work on the subject, and much of this work focuses on a <i><a href="http://azvalue.blogspot.com/2015/08/valeant-detailed-look-inside-dangerous.html" target="_blank">troubling pattern of opacity</a> </i>in Valeant's numbers as well as <a href="http://theskeptic21.blogspot.com/2014/11/carters-corrective-disclosures.html" target="_blank">inadequate disclosure</a><i>. </i>Based on yesterday's performance report released by Pershing Square Capital Management's publicly traded investment vehicle, I am left wondering just how opaque <a href="http://www.bloomberg.com/quote/PSH:NA" target="_blank">PSH:AM's </a>disclosures are.</span><br />
<div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;">By their own guidelines, Pershing Square reports both on <a href="https://www.pershingsquareholdings.com/company-reports/weekly-navs/" target="_blank">their own website</a>, as well as through very <a href="http://www.businesswire.com/news/home/20151001006996/en/Pershing-Square-Holdings-Ltd.-Releases-Monthly-Net#.Vg37f8tViko" target="_blank">public press releases</a>, </span></div>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_4rnVzC3DEC7HJrGSG9LiEhKZWk7sKQ9C4BgEfVQ8fFjMN3JPB-VKCNTj7fSlSJChJfHSD_KwJYRFkaNy-SlOzU-NC3ubPb_IpS30Wj-D51qWYi1ZOzKfzj2A_5rZC6JNBxrDQ8sAx-k/s1600/PSH_NAV.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="58" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_4rnVzC3DEC7HJrGSG9LiEhKZWk7sKQ9C4BgEfVQ8fFjMN3JPB-VKCNTj7fSlSJChJfHSD_KwJYRFkaNy-SlOzU-NC3ubPb_IpS30Wj-D51qWYi1ZOzKfzj2A_5rZC6JNBxrDQ8sAx-k/s320/PSH_NAV.png" width="320" /></span></a></div>
<blockquote class="tr_bq">
<span style="background-color: #fefefe; font-family: Arial, Helvetica, sans-serif; line-height: 24px;">"<b><u>Weekly net asset value</u></b> (“NAV”) is calculated as of the close of business on each <b><u>Tuesday</u></b> and posted on the following Thursday. In the event that Tuesday is not a business day, the Company will calculate the close-of-business NAV as of the business day immediately preceding that Tuesday. In the event that Wednesday or Thursday is not a business day, any such weekly NAV will be posted the next business day following that Thursday. <b><u>End-of-month NAV</u></b> is calculated as of the close of business on the <b><u>last day of the month and will be posted within two business days thereafter.</u></b>" (emphasis added)</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmWPsnNylePKq4eQId4R6-NmH3C2SEjXv32oSYBLmnHVTIKROQFyf6SkABwBzGrRIfA6OCUqWfwGTTeeU5-rkw9AjSWjiJVquYi3lcvnRzHqBwWZ-Sma1K3tKJ-hsUEjREZPGQh0oWUe8/s1600/PSH_8_days_week.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="84" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmWPsnNylePKq4eQId4R6-NmH3C2SEjXv32oSYBLmnHVTIKROQFyf6SkABwBzGrRIfA6OCUqWfwGTTeeU5-rkw9AjSWjiJVquYi3lcvnRzHqBwWZ-Sma1K3tKJ-hsUEjREZPGQh0oWUe8/s320/PSH_8_days_week.png" width="320" /></span></a><span style="font-family: Arial, Helvetica, sans-serif;">Unfortunately, Pershing Square chose this week to completely ignore their own public guidelines and representations to their investors by releasing weekly numbers that aren't based on T<u>UESDAY, September 29th's</u> close of business, but on <u>WEDNESDAY September 30th's </u>close of business. Down to almost $15B on Tuesday, Bill probably <i>wishes </i>that Tuesday was "not a business day", but I can assure you it was. You can look back at the history of Pershing Square's reporting and see for yourself that their choice of recognizing an 8 day week is anomalous (to say the least). Let's not mince words here: <b>the difference between accurately reporting weekly NAV based on Tuesday's close versus Wednesday's close was ~$1B in value which equates to ~6% of the total fund value.</b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Novel idea really: manipulate public markets and the regulatory regime overseeing those markets whilst simultaneously manipulating the value of the publicly traded vehicle that partially derives it's value from those manipulations.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">We're all human. I've lied to my parents, I've called in sick and gone to the museum, I've even cheated on a drug test (many many years ago, and P.S. I still failed, so the lesson is don't do drugs, or at least don't lie about doing drugs). That's to say that I understand the <u><i>motivation </i></u>behind fluffing your numbers, but I don't understand the <b>legality</b>. You want to pre-announce monthly numbers???...sure go ahead, I've got no problem with that provided they are accurate. Choosing to report a +$1B swing in your favor by ignoring your own reporting guidelines should not be legal though(if it already isn't). Pershing Square has strayed away from two reporting principles they've distributed to the public markets since October of last year:</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<br />
<ol>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Weekly NAV/performance is calculated based on Tuesday's close, and released on Thursday</span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">Monthly NAV/performance is calculated based on EOM close and released within 2 days.</span></li>
</ol>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;">It's bad enough for Pershing to publicly conflate Tuesday NAV with Wednesday NAV, but by choosing to bring forward the monthly number's release date to Thursday while simultaneously conflating weekly NAV's makes it appear that there could be a coordinated attempt to misinform the investing public about the value underlying the PSH vehicle as well as the investment fund for which PSH is a surrogate of. I don't know anybody that would savor informing investors that they lost 16% instead of 12%, but isn't accurate disclosure supposed to be about accurately disclosing risks and values?</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">From Ackman's own August Management report, Pershing Square clearly has their eye on the relationships between NAV, trading price of PSH and *ahem* <i>transparency</i>.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">"The Board monitors the trading activity of the Company’s shares on a regular basis. The Company
publishes its NAV per share weekly on its website together with monthly performance reports and
transparency reports disclosing certain information with respect to the Company’s underlying positions,
which are predominantly in large cap listed companies. The Board and the Investment Manager believe
that this transparency should help the Company’s shares trade (over the long term) at or above NAV."</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">There are couple of curious factoids that don't really mean anything other than they are convenient mental anchors for me:</span><br />
<br />
<ul>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the public vehicle that is being manipulated has a larger market cap than the public company he's trying to destroy.</span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the size of the manipulation is about the size of the firm's much publicized Herbalife short</span></li>
</ul>
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">But, what's $1B between friends, and regulators, right? </span></div>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="font-family: Arial, Helvetica, sans-serif;">Maybe what Pershing Square has done is actually legal, but probably only on the eighth day of the week.</span></div>
TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-90820916701932652542015-09-21T13:06:00.000-04:002015-09-21T13:06:44.002-04:00Is Bill Ackman's Pershing Square the Target of an SEC/DOJ Investigation Because of Herbalife?<div>
<div>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Let me start by saying that this all started with my desire to update an earlier post. New information convinced me that my previous assumptions weren't all correct, although ultimately my conclusion remains unchanged; albeit for different reasons now. You can view my original post (which remains unchanged) <a href="http://theskeptic21.blogspot.com/2015/08/drats-foiaed-again-sec-likely-closes.html" target="_blank">at this link</a>. Spoiler alert: it turned out that #2 was the correct answer and indeed there was an ongoing investigation, <i>just maybe not of Herbalife.</i></span></div>
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Who then you say? Well, it's not entirely clear although a string of recent FOIA's to the SEC may help uncover some of the truth.</span><br />
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">On September 8th, Probes Reporter released a report </span><span style="font-family: Arial, Helvetica, sans-serif;">on Herbalife in which they concluded that there is an ongoing SEC investigation *of Herbalife* and that the investigation "</span><span style="font-family: Arial, Helvetica, sans-serif;">somehow involves its conduct, transactions, and/or </span><span style="font-family: Arial, Helvetica, sans-serif;">disclosures." B</span><span style="font-family: Arial, Helvetica, sans-serif;">ased on Mr. Gavin's report, and his experience, this very well may be the case, but what Mr. Gavin's analysis failed to address is with respect to the scope and/or actual target of the investigation. I corresponded with Probes Reporter about this issue and although they were very helpful, we failed to reach an agreement on our conclusions. If you aren't already, I highly recommend <a href="http://probesreporter.com/" target="_blank">you sign up for their service</a>; lots of good stuff in there.</span></span></div>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Anyhow l</span><span style="font-family: Arial, Helvetica, sans-serif;">ooking first at Mr. Gavin's initial FOIA request he asked for the following information:</span></span></div>
<blockquote>
<ul>
<li><span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">copies of </span><span style="font-family: Arial, Helvetica, sans-serif;">the following records of any investigation(s) that directly pertain to the conduct, disclosures, and/or </span><span style="font-family: Arial, Helvetica, sans-serif;">transactions of the registrant Herbalife Ltd (cik #:0001180262) since 13-Jul-2013.</span></span></li>
<li><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Correspondence sent to and/or received by the registrant;</span></li>
<li><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Correspondence sent to and/or received by third parties on behalf of the registrant;</span></li>
<li><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Wells Notices;</span></li>
<li><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Subpoenas;</span></li>
<li><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Orders of Formal Investigation as well as any supplemental orders; and,</span></li>
<li><span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Opening and Closing Reports, including "Case Closing Recommendation", "Matter Under Inquiry </span><span style="font-family: Arial, Helvetica, sans-serif;">Summary", "Investigation Summary", and/or similar documents and/or reports,</span></span></li>
</ul>
</blockquote>
<div>
</div>
<div>
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Ultimately Mr. Gavin appealed the initial response he received which stated that after having conducted a thorough search they "did not locate or identify any information </span><span style="font-family: Arial, Helvetica, sans-serif;">responsive to your request." His appeal generated another response from the Office of the SEC General Counsel which stated: </span></span></div>
<blockquote>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">"We have confirmed with staff that releasing the withheld information could reasonably be expected to interfere with <b><u>on-going</u> </b>enforcement proceedings." (emphasis added)</span></blockquote>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">That is a very important point as the 7(a) exemption utilized by the SEC could also be used for <i>prospective</i> investigations, however the SEC clearly indicated there is an on-going enforcement proceeding. Mr. Gavin includes the SEC response letters in his report and I urge you to <a href="https://drive.google.com/file/d/0B8FMzR9uXbImYWZaaHVqX0stbnc/view" target="_blank">read it for yourself</a>.</span></div>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Ultimately where Mr. Gavin and I disagree is not on his content but conclusion. Mr. Gavin concludes that: </span></div>
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<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">"We </span><span style="font-family: Arial, Helvetica, sans-serif;">interpret this appeal response to mean Herbalife </span><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>remains involved</i></b> in an SEC investigation that </span><span style="font-family: Arial, Helvetica, sans-serif;">somehow involves its conduct, transactions, and/or </span><span style="font-family: Arial, Helvetica, sans-serif;">disclosures." (emphasis added)</span></span></blockquote>
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Mr. Gavin and his team also conclude that the <i><u>target </u></i>of the investigation is in fact Herbalife. Based on previous reports in the <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAAahUKEwi0g9rSzYPIAhWCqh4KHfJyBKs&url=http%3A%2F%2Fwww.nytimes.com%2F2015%2F06%2F03%2Fbusiness%2Fdealbook%2Fherbalife-steps-up-lobbying-to-counter-ackmans-attacks.html" target="_blank">New York Times</a> and the <a href="http://www.courant.com/news/connecticut/hc-herbalife-federal-stock-investigation-connecticut-william-ackerman-0317-20150317-story.html" target="_blank">Hartford Courant</a> regarding Pershing Square Capital being targeted by SEC and DOJ investigations, Mr. Gavin fails to account for the possibility that the information he sought could have also been exempted under 7(a) provisions by the Office of the General Counsel, because releasing those records could have interfered with ongoing enforcement proceedings against another party, such as Pershing Square, for their trading activity in Herbalife securities. </span><br />
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br />Adding to this possibility is John Hempton's recent post that directly quotes a response he received from the SEC after requesting "<a href="http://brontecapital.blogspot.com/2015/09/foia-request-to-sec-about-pershing.html" target="_blank">any documents responsive to the claims that the SEC has investigated market manipulation in Herbalife stock by or on behalf of Pershing Square – the hedge fund run by Bill Ackman.</a>" Similarly to a separate FOIA request seeking the <u>three letters sent by Herbalife</u> to the SEC alleging manipulation of their securities(see Roger Parloff's Fortune article, "<a href="http://fortune.com/2015/09/09/the-siege-of-herbalife/" target="_blank">The Siege of Herbalife</a>") the responsive documents sought by Mr. Hempton were also were exempted under 7(a). It would be more understandable that the documents Hempton sought could be exempted under 7(a) but how could these three letters sent by Herbalife interfere with an on-going investigation, unless that investigation dealt with manipulation? That is to say, releasing "reasonably segregable" information from letters Herbalife sent about manipulation could have no effect whatsoever on an investigation of Herbalife for alleged pyramiding; the matter under inquiry must deal with an investigation of manipulation or we probably would have observed <a href="http://www.sec.gov/foia/nfoia.htm" target="_blank">other exemptions</a> in the response. It seems much more likely, particularly based on the NY Times article citing DOJ subpoenas about the short campaign against Herbalife that Pershing Square is a target of an ongoing investigation. It's important to note though that it is entirely possible the agency investigated Pershing Square and found no wrongdoing, but an investigation of others is still ongoing. This scenario would also lead to 7(a) exemptions from the agency.</span><br />
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;"><br />Although Probes Reporter and I disagreed on this possibility, I didn't have to rely solely on Probes Reporter's many years of expertise; I was able to separately verify directly with the SEC that these types of cross exemptions occur. The SEC confirmed that it is entirely possible they closed its inquiry into Herbalife, but Mr. Gavin's requested investigation records would still have been exempted under 7(a) due to a separate,<i> but related</i> investigation of Pershing Square for their campaign against the company. Although the SEC did not confirm in any way that Pershing Square was being actively targeted by an investigation or that Herbalife was not, they did indicate unequivocally that in a situation such as Herbalife vs. Pershing Square, many such records would likely be cross exempted under 7(a). The SEC representative also offered that the Commission may actually not have <i>any</i> investigation but that they could be utilizing a coordinated 7(a) exemption in this scenario because of an ongoing investigation by another agency, <i>such as the DOJ</i><i>. Hmmm...interesting.</i></span><br />
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">After speaking with the SEC I see four very real possibilities on the table:</span></span><br />
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<li style="margin-left: 15px;"><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Neither Herbalife or Pershing Square are the target of an investigation, but releasing documents about them could interfere with enforcement proceedings against another party.</span></li>
<li style="margin-left: 15px;"><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Mr. Gavin is dead on and Herbalife is the sole target of the enforcement proceedings.</span></li>
<li style="margin-left: 15px;"><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Herbalife and Pershing Square are both targets of enforcement proceedings.</span></li>
<li style="margin-left: 15px;"><span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">The Herbalife documents Mr. Gavin requested are only *involved* in the enforcement proceedings but the <u>actual target</u> of the SEC (and/or DOJ) is another entity such as Pershing Square or a Pershing Square affiliate.</span></li>
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">Normally there would be a fifth possibility in that nobody is being investigated at all and the agency would <i>prospectively</i> exempt records that could be included in an investigation but we know from the SEC's OGC, that the proceedings are "ongoing", so strike that one off the list.</span></div>
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">But who are we kidding, it's highly unlikely anybody is investigating Pershing right? It's not like the SEC didn't already have BOXES filled with almost 50,000 pages of investigative documents by August, 2014 or anything. Oh wait, they do.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9tYqSqZhZrnZMvlnF0kAufqrWUAAjbJA4M9O5swmqKaBdKWHgVSAvNogactQqbGEYIKaVu2d8CVz02FBh6kSTVffMjs-KyIB3XySjq6LmuhaoQblVPRuxsIvQfkHPxKNuxWxrPdy1yP8/s1600/SEC_ACKMAN_BOXES+%25281%2529.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="background-color: white; color: black; font-family: Arial, Helvetica, sans-serif;"><img border="0" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9tYqSqZhZrnZMvlnF0kAufqrWUAAjbJA4M9O5swmqKaBdKWHgVSAvNogactQqbGEYIKaVu2d8CVz02FBh6kSTVffMjs-KyIB3XySjq6LmuhaoQblVPRuxsIvQfkHPxKNuxWxrPdy1yP8/s320/SEC_ACKMAN_BOXES+%25281%2529.png" width="320" /></span></a></div>
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<span style="background-color: white; font-family: Arial, Helvetica, sans-serif;">The FOIA that turned that up was limited to August 2014, and includes MBIA, CDSs of JC Penney, Longs Drug Stores and Target, although both Valeant/Allergan and Herbalife are conspicuously absent from the list of investigative documents; this seems to indicate that whatever on-going enforcement proceeding involving Herbalife that is causing all the current exemptions was officially opened after last August. <i>(I was a bit surprised to see that per the response from the agency, neither the JCP or Target matters were <u>closed</u> as of August 2014, although they may be closed now.)</i> Wow, even though there are only 87 consumer complaints against "Herbalife Pershing Square and William Ackman" the agency had a hefty Ackman/Pershing collection including 11 boxes, ~45,500 pages, 7 transcripts, 5 CD/DVDs, 1 file folder and a 1 redweld. That's nearly as comprehensive as Ackman's Sohn presentation.</span><br />
<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This brings us back to the original question, who is the target of the investigation kicking up all these FOIA exemptions? Well, if Herbalife indicated as early as February 2013 that the SEC had opened an inquiry into them, but there was no report of Herbalife being a component of the SEC's investigations into Pershing Square in August of 2014, it leads me to conclude that the current enforcement proceeding <i>involving </i>Herbalife was opened <i>after </i>August 2014, and although it <i>involves Herbalife </i>it is <b><i>focused </i></b>on the activities of Pershing Square's alleged manipulation of Herbalife securities. This possibility would coincide very well with the DOJ's activities, as well as all of the recently reported FOIA exemptions. It could also possibly explain why the SEC missed any "documents related to any SEC Investigations of the subject company"(Herbalife), back in July.</span></span></div>
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<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;">And based upon Pershing Square's <i>ongoing</i> trading </span><span style="font-family: Arial, Helvetica, sans-serif;">activity</span><span style="font-family: Arial, Helvetica, sans-serif;"> in Herbalife</span><span style="font-family: Arial, Helvetica, sans-serif;">(</span><i style="font-family: Arial, Helvetica, sans-serif;">restructuring</i><span style="font-family: Arial, Helvetica, sans-serif;"> for the more semantically inclined) through 2014 and 2015, I could see why the DOJ and the SEC may be so interested in his very public campaign against the company.</span></span></div>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-82624470678034648662015-08-03T09:39:00.000-04:002015-09-21T13:05:53.142-04:00Drats! FOIA'ed Again: SEC Likely Closes Herbalife Inquiry<div style="color: #292f33; font-family: Arial, sans-serif; font-size: 13px; line-height: 20px;">
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: red;">UPDATED STORY</span> <b><a href="http://theskeptic21.blogspot.com/2015/09/is-bill-ackmans-pershing-square-target.html" target="_blank">HERE</a></b></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">Extracting information from FOIA requests can be tough. Just ask <a href="http://probesreporter.com/" target="_blank">John Gavin</a> or <a href="http://www.nytimes.com/2015/07/20/business/a-wizard-at-prying-government-secrets-from-the-government.html" target="_blank">Jason Leopold</a>. They've both been leveraging the power of these requests to crack open interesting stories. I've used FOIA requests to get some very interesting documents myself, although not nearly to the extent of Gavin or Leopold. Sometimes you come across interesting situations where FOIA responses contradict one another in such a way that it helps you draw some conclusions. The case of Herbalife is one of those.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">In February, ProbesReporter.com reported that information from the SEC indicated that <a href="http://probesreporter.com/news/herbalife-new-data-suggests-sec-investigating-lack-updates-leave-investors-dark" target="_blank">Herbalife was the target of an investigation</a>. Mr. </span><span style="font-family: Arial, Helvetica, sans-serif;">Gavin submitted multiple information requests, at late as December 16th, 2014. In his December request to the SEC, Gavin asked for certain investigative records concerning Herbalife that the Commission had obtained or generated since December 5th, 2012. Gavin's request for these two years of information was denied in full citing exemptions under 7(A). That effectively means that the SEC had responsive documents that were generated or obtained during that two year window which could reasonably be expected to interfere with or harm enforcement proceedings. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">A separate FOIA request was submitted to the SEC on July 2nd, 2015 requesting "documents related to any SEC Investigations of the subject company" (the subject company was "<span style="background-color: white;">Herbalife, LTD.") and their CIK was also provided. The date range of that request was July 1-2014 through June 30, 2015. Unlike Mr. Gavin's request, the<b> SEC had no responsive documents</b> related to the July 2015 FOIA. A</span><span style="background-color: white;">n appeal was submitted indicating the SEC's potential error and was supplemented with</span><span style="background-color: white;"> Herbalife's own disclosures that an inquiry was disclosed in the company's 2014 10-K. In that 10-K the company stated the following:</span></span><br />
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<blockquote class="tr_bq">
<span style="background-color: white; text-indent: 30.6666660308838px;"><span style="font-family: Arial, Helvetica, sans-serif;">Since late 2012, a short seller has made and continues to make allegations regarding the Company and its network marketing program. The Company believes these allegations are without merit and is vigorously defending itself against such claims, including proactively reaching out to regulatory agencies and governmental authorities. Because of these allegations, the Company has received and may receive additional regulatory and governmental inquiries. For example, the Company has previously disclosed inquiries from the FTC, SEC and other governmental authorities. If the Company believes any governmental or regulatory inquiry or investigation is or becomes material it will be disclosed individually. Consistent with its policies, the Company has cooperated and will continue to fully cooperate with any governmental or regulatory inquiries or investigations.</span></span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">Based on that appeal the SEC conducted additional searches yet there were <b>still no responsive records</b>. If there was an investigation, there should be responsive documents which were exempted, but that is not the case.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">So why the disparity between the tale of two FOIA's? There are three distinct possibilities:</span></div>
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<ol>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the SEC made an error in their February 2015 response and there was never an open investigation </span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the SEC made an error in their July 2015 response and an investigation is still open</span></li>
<li><span style="font-family: Arial, Helvetica, sans-serif;">the SEC made no errors in either the February 2015 response or their July 2015 response and there is still no open investigation</span></li>
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<span style="font-family: Arial, Helvetica, sans-serif;">Because the submissions requested slightly different information from slightly different periods I think it is more likely that the SEC made no errors and that although there <i>was </i>an open investigation there is currently no open investigation.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Under 7(A) the SEC can exempt records if there is a pending or prospective enforcement proceeding. It is entirely possible that as of February 12th (when the SEC responded to ProbesReporter) a <b>prospective </b>matter was still open, <i>but that no records had been <u>obtained or generated</u> after July 1st 2014</i>(which is when the scope of the second FOIA request begins)<i>.</i> Within the hinterlands of July 1, 2014-December 16th 2014 during which the scope of the two FOIA's overlap, both FOIA's would have had to have responsive records that are exempted under 7(A) to reasonably assume a prospective investigation was on the books at the close of business on December 16th. I specifically use </span><b style="font-family: Arial, Helvetica, sans-serif;">prospective </b><span style="font-family: Arial, Helvetica, sans-serif;">because if it was a </span><b style="font-family: Arial, Helvetica, sans-serif;">pending </b><span style="font-family: Arial, Helvetica, sans-serif;">matter, I think the second FOIA would have also generated exempted records as well.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Additionally with respect to the second FOIA, if there were "d</span><span style="font-family: Arial, Helvetica, sans-serif;">ocuments related to any SEC Investigations" they would have to be before July 1st, 2014, OR not at all related to an investigation for the SEC to respond as they did. Had there been documents related to any SEC investigation from July 2014-July 2015, the SEC would have sent a 7(A) exemption letter. Instead they twice affirmed they had no responsive documents.</span><br />
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<a href="https://www.scribd.com/doc/273168248/FOIA-Response-1-July-Herbalife-Ltd" style="text-decoration: underline;" title="View FOIA Response 1 July (Herbalife Ltd.) on Scribd">FOIA Response 1 July (Herbalife Ltd.)</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></div>
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<a href="https://www.scribd.com/doc/273168247/FOIA-Response-2-July-Herbalife-Ltd" style="text-decoration: underline;" title="View FOIA Response 2 July (Herbalife Ltd.) on Scribd">FOIA Response 2 July (Herbalife Ltd.)</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></div>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-73233125268823279212015-06-04T17:44:00.000-04:002015-06-10T14:00:42.903-04:00Resolution of FTC Query Will Be Pivotal Moment for Herbalife (Ramey priority note on FTC)<div style="background-color: white; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #222222;">Today sell side analyst Tim Ramey of <a href="http://www.pvtl.com/equity-research/" target="_blank">Pivotal Research</a> put out a priority note on Herbalife. </span><span style="color: #222222;">Immediately after reading it I remarked that I thought it was</span><span style="color: #222222;"> so well written, articulate and reasonable in its tenor that I was tempted to post it on the web so I decided to do just that. Presented without commentary or editing is Mr. Ramey's note below. And *of course* "</span><strong style="color: #222222;">PLEASE CONTACT PIVOTAL RESEARCH FOR ADDITIONAL INFORMATION, INCLUDING RISKS AND DISCLOSURES".</strong></span></div>
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<strong><span style="font-family: Arial, Helvetica, sans-serif;">~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~</span></strong></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 17.6000003814697px; text-align: start;">PRIORITY: HLF - thoughts on timing and direction of the FTC investigation... REIT BUY; $80 PT</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><strong>BOTTOM LINE: I’ve been wrestling with the idea of writing this note for a good long while</strong>. In some ways, it seems a fool’s errand to “make a call” on the timing and outcome of the FTC investigation. We don’t really know, so take these thoughts with that caveat, but we do think a very clear roadmap has been laid out. The benefits of sharing our thoughts probably outweigh the obvious risk of being wrong, at least as to the timing. We see very little risk at to being wrong on the outcome, but a timing call is surely more risky.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><strong>We thing the FTC investigation is close to being resolved. </strong> Put a gun to my head and make me pick dates, I think it will probably be a “this summer” event. Here are the thoughts that go into that point of view:</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">First and foremost, we believe that the fact that HLF received a CID in March 2014 rather than a move to close HLF and preserve assets means that the FTC knows what we believe – HLF is not an illegal pyramid scheme. The FTC has had HLF on their radar for decades and it would be naïve to believe that the FTC doesn’t have a great working knowledge of HLF, its compensation plan and its structure. Normally, the FTC will open a case and use the CID (or injunctive relief, for that matter) based on volume of complaints – it is a complaint-driven agency. The HLF CID was different. We believe it was politically motivated – Senator Markey asked the FTC to investigate and so it was done. Ultimately, we believe that this has prejudiced FTC staff against the HLF investigation. The FTC has scarce resources and in some ways a politically-motivated investigation is a distraction from the FTC mission. But a letter from a Senator is hard to ignore, thus we are where we are.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><strong>Once the FTC has opened an investigation, there will be a resolution and there will be a closing letter from the FTC</strong> – this is not like an SEC investigation, where we might not ever know if the matter closes. So it is a safe bet to say that a FTC determination is ultimately forthcoming. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><strong>The mission of the FTC is to protect consumers from abusive behavior</strong> <strong>by corporations</strong>. Certainly operating a pyramid scheme would be abusive behavior, but we have taken that outcome off the table because of our extensive work and close examination of the Herbalife business model; similar investigations undertaken by numerous others, have dismissed “pyramid scheme” as well. The body of research done on HLF by ourselves and many of the large long holders is truly unprecedented. This is perhaps the best body of research ever done on a single issuer. So we operate, and have always operated on the view that “pyramid scheme” is a tiny risk for HLF – and if it was a real risk, the FTC would have not proceeded with the CID route but would have used injunctive relief to close Herbalife, preserve its assets, and stop the ongoing harm that a pyramid scheme would do to millions of consumers.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><strong>However, the mission of the FTC is protection of consumers, and harm to consumers can take many forms</strong>. Certainly the product claims that HLF and its distributors make regarding weight loss is of interest to the FTC. The income claims that Herbalife and its distributors makes are also of high interest. Excessive or unsubstantiated claims with regard to weight loss or income opportunities are likely to be the two key areas of interest for the FTC. We have also written about our discomfort with “lead-generation.” Herbalife discontinued lead-generation as a business method in June 2013. Lead generation is legal – a practice used by real estate agents, stockbrokers and others. However, in the few egregious cases of harm to consumers with regard to Herbalife – the narrative is almost never about harms caused by Herbalife and its products – lead generation led to consumer losses because a third-party lead generator sold thousands of dollars of “qualified leads” to aspiring distributors. When those leads prove worthless or at best, of little value, the consumer is harmed. Herbalife didn’t create the harm, but it can be argued that they allowed the harm to occur, at least until June 2013. Thus we see the three areas of exposure for HLF as 1) lead generation; 2) excessive income claims; 3) excessive product claims.</span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><strong>It does not take much effort to find examples of all three types of consumer harm with regard to HLF</strong>. A simple search of YouTube will do the trick – you will find distributors making excessive product and income claims if you look for them. But again, the FTC is in a numbers game. The standard will never be that there can be zero instances of bad behavior – bad behavior exists in every large organization. The question for the FTC is did Herbalife’s compliance efforts act to aggressively detect and deter bad behavior, or perhaps did they enable it? </span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;">With regard to the Herbalife of today, we hold the point of view that its compliance function is absolutely best-in-class and could not reasonably be criticized. The company is extremely vigilant with excellent training, systems and surveillance to prevent, detect, and deter bad behavior. The Herbalife of today has many robust consumer protections in place. First-order limits, the 100% return policy and the affirmative declarations that a new member must make are strong consumer protections. The compliance function, headed by Pamela Jones Harbour, a former FTC Commissioner, is truly best in class. So when the FTC looks at today’s Herbalife, we see virtually nothing that should or could be changed. </span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><strong>The question for the FTC is, has it always been that way?</strong> A reasonable person would have to acknowledge that it has not. We cited the discontinuation of lead-generation in June 2013; but before that date, it is arguable that consumers were harmed by third-party lead generators and Herbalife was not vigilant in detecting and deterring this behavior. Herbalife closed independent distributors websites in September 2014, requiring that distributors use the <a href="http://www.goherbalife.com/" style="color: #1155cc;" target="_blank">www.goherbalife.com</a> platform to host their sites. Since this change, we can say with particular certainty that Herbalife is preventing abusive income and product claims from being made on the web. But it is clear that this was not always the case.</span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><strong>We have always argued that the FTC investigation would have two principle outcomes of interest to Herbalife shareholders</strong>. First, it will be a thorough vetting of the MLM model and to the extent that the FTC finds that the Herbalife of today is operating a fair, reasonable and vigilant MLM, it will be a huge value creator for HLF shareholders. Herbalife is a growth company with enormous opportunities to grow for decades to come in 91 markets around the world. But the taint of MLM, the risk that the model was not sound, is the principle reason why HLF is not priced like a growth stock. We see the resolution of the FTC investigation enabling the Herbalife of <span class="aBn" data-term="goog_857991567" style="border-bottom-color: rgb(204, 204, 204); border-bottom-style: dashed; border-bottom-width: 1px; position: relative; top: -2px; z-index: 0;" tabindex="0"><span class="aQJ" style="position: relative; top: 2px; z-index: -1;">tomorrow</span></span> to trade like a growth stock, unlocking value in an unprecedented way. </span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;">A reasonable investor, examining the growth trends of Herbalife, even in light of the current negative impacts to growth of F/X and the compensation plan changes, would likely result in HLF shares trading at 20x EPS or more in our view. The MLM taint is the single factor that holds the stock back. If the resolution of the FTC matter clears that taint – once and for all – these shares will go much higher, we believe. We believe $100+ is a reasonable medium-term target, hence our risk-adjusted price target of $80.</span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><strong>The second outcome of the FTC investigation is that Herbalife will most likely be held responsible for something that harmed consumers</strong>. We have argued that there will be a price to be paid for sins of the past – lead generation, excessive income claims and excessive product claims. Once the FTC investigation opened, it was a near-certainty that there would be a finding that Herbalife was not always as vigilant and as effective as it is today at detecting and deterring bad behavior. So there will be some price to pay, likely a fine for its failure to supervise properly its distributors. It would be unreasonable to think that the FTC would get into this investigation and not extract some pound of flesh. In our view, there will be a fine, perhaps ranging from $10 to $50 million that Herbalife will be forced to pay to acknowledge that it was not always as good as it is today. The size of the fine will be subjective and a matter of negotiation, we believe. It must be considered that the Herbalife of today is likely not at all problematic. We believe the FTC will “give them credit” for the proactive steps they have taken to protect consumers. Taking these two impacts together, one positive, one negative, one can see why Herbalife “welcomed the FTC investigation.” Net-net, the day the FTC decision comes down is likely to be a very happy day for those who own the stock.</span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><strong>So when will it be?</strong> Herbalife has offered, we believe, unprecedented cooperation with the FTC. Herbalife has tremendous visibility into its distributors purchasing behavior with its Oracle business platform. Any Herbalife executive can drill-down and analyze the purchase behavior, timing and motivations of any distributor. We don’t know it for a fact, but we assume Herbalife has given the FTC access to this system to enable their analysis. Nearly 15 months have gone by now and we believe that Herbalife has given the FTC all of the tools and documents it will need to make its analysis. </span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;">Clearly the body language and confidence of senior management has supported our view that the process is well underway and if not complete, close to its completion. The recent aggressive actions by the company to wage battle with their infamous adversary bespeaks confidence as well. </span></div>
<div style="background-color: white; color: #222222; text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;">Arguably, Herbalife’s largest shareholder, Carl Icahn, who holds five of 13 board seats has been frozen with the knowledge that its board members would have gained from this FTC process. If the information flow was negative, nothing would stop Mr. Icahn from having his directors resign and, after a time, selling his stock. But no such resignations have occurred and it seem far more likely that positive news at the board level has prevented Mr. Icahn from buying more shares, but induced him to see this process through to its resolution. </span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><strong style="background-color: white; color: #222222; text-align: justify;">So, knowing that I might be later embarrassed by the prediction</strong><span style="background-color: white; color: #222222; text-align: justify;">, and with no particular knowledge that my analysis of the timing is correct, we humbly offer the view that “this summer” will give us closure on the FTC process.</span></span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-534869342095656702015-05-14T20:20:00.002-04:002015-05-14T20:20:46.331-04:00A Confidence Maim: How the Bostick Case Just Eviscerated Ackman's Short Today in a sweeping summary, J<a href="https://www.scribd.com/doc/265368054/Bostick-v-Herbalife-Settlement-Approval-CV-13-2488-BRO-SHx" target="_blank">udge O'Connell granted final approval</a> for the class action settlement. The class covered over 1.5 million former distributors over a period of almost six years. In addition to judgment of approximately $17.5M, O'Connell outlined her approval in a 60 page document.<br />
<br />
Prior to approval of the agreement Judge O'Connell had to weigh whether or not the class could be certified under Rule 23. Under Rule 23(a), the party seeking certification must establish all four of the
following: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of
representation.<br />
<br />
Additionally, under Rule 23(b)(3), class certification is appropriate where (1) common questions
“predominate over any questions affecting only individual members,” and (2) class
resolution is “superior to other available methods for the fair and efficient adjudication of
the controversy.”<br />
<br />
Lastly, under Rule 23(e), a district court may not finally approve a class settlement unless
the court determines that the “proposed settlement is fundamentally fair, adequate, and
reasonable.”<br />
<br />
Needless to say, if she approved the settlement you don't have to guess that she found the settlement fully agreed with the provisions of Rule 23 outlined above. I suggest you read the settlement order yourself (linked above and embedded at bottom), but my top line summary is as follows:<br />
<br />
<ol>
<li>Plaintiffs satisfied requirements for certification under Rule 23</li>
<ul>
<li>the proposed class met the four threshold requirements for certification under Rule 23(a) and sufficient common questions predominated, which warranted class treatment as it ensure that class action settlement was the superior method of adjudication under Rule 23(b)</li>
<li>After considering papers filed, as well as arguments advanced at the final fairness hearing the the Court also found the settlement comported with Rule 23(e)</li>
<li>settlement was fair, adequate and reasonable</li>
</ul>
<li>With regard to the allegations that Herbalife violated California Penal Code section 327 (endless chain, pyramid scheme), the Court determined that the Nielsen survey estimating that approximately 73% of its members and distributors joined Herbalife primarily for self-consumption purposes "<u>seriously undermines Plaintiffs' endless chain scheme claim, as it suggests most members did not join “for the chance to receive compensation”for recruiting new members.</u>" The Court also went on that "<u>based on this survey evidence, a reasonable fact finder could conclude Herbalife does not operate as an illegal pyramid scheme.</u>" (emphasis added)</li>
<li>The Court also found that the Plaintiffs' claims that Herbalife violated UCL(unfair competition law) and FAL(false advertising law) was accompanied by "significant evidentiary risks". Judge O'Connell noted that when Herablife introduced changes to its marketing materials and SAGC in February 2013, that showed most people earned no income by joining Herbalife, the number of members and distributors <i>increased. </i>She continued that "this evidence would support Herbalife’s argument that the alleged misrepresentations and omissions in the earlier Statements of Average Gross Compensation were not material and did not impact members or distributors’ decisions to join Herbalife." Judge O'Connell also noted that the claims that Herbalife somehow violated UCL/FAL because it charged 7% packaging and handling (which could have exceeded the actual packaging and handling cost), was an uncertain liability theory because <b>evidence obtained in discovery*</b> "suggested that some distributors successfully resold Herbalife products at the full suggested retail price, including all costs of shipping and handling, such that these distributors suffered no loss from the alleged misrepresentations"...and..."that Herbalife members and distributors have no real interest in whether Herbalife in fact profited from packaging and handling or freight fees, so long as the the company clearly disclosed the fact and amount of the fees." <i><b>*</b>(perhaps the evidence obtained in discovery is the white whale of 70/30 sales records Captain Ackman has been chasing)</i></li>
<li>With regard to the 18 objectors represented by Douglas Brooks and the <i>amici </i>filed by TINA and NCL, the Court pretty much shut down all of objections by noting that:</li>
<ul>
<li>their objections on packaging and handling were misguided because claimants could have recouped the allegedly misleading P&H charges through the claims process"</li>
<li>the objectors overestimate the potential liability under an endless chain scheme, because they rely on two unreliable surveys(one is industry wide across all direct sellers, and the other was limited to forty eight Herbalife supervisors, and thus likely to have invested for business purposes).</li>
<li>the objectors contention that the settlement unfairly deprives class members of compensation is "speculative and does not accord with a plain reading of the "Settlement Agreement."</li>
<li>the objectors contention that the 13 corporate reforms in the settlement were inadequate was "far from certain" and that "a fair and reasonable settlement agreement need not require Herbalife to entirely upend its business model"</li>
<li>the objectors contention that the settlement lacked an enforcement mechanism to monitor compliance was inadequate and unpersuasive because the the settlement agreement vests the Court with continuing jurisdiction to enforce it's terms and Plaintiffs' counsel will oversee the reforms.</li>
<li>the objectors attack on the substance of the proposed reforms was unwarranted, illogical and "internally inconsistent" and the Court "finds them to be fair and reasonable" as the reforms "go to the core of Plaintiffs’ endless chain scheme claim and help ensure that current members do not take advantage of other members or new recruits."</li>
<li>the objectors, although they disagree with the class counsel's ultimate evaluation of the strength of the Plaintiffs' case, "they do not appear to attack class counsel’s knowledge of the facts and legal issues presented. This factor thus strongly favors final approval." </li>
<li>the objectors argument that the class notification process was faulty lacked merit because the class notice fully detailed the terms and potential settlement available, as well as notifies claimants of the actual value of their claims through the claims administrator. Furthermore the Court noted that because the notification process reached 92.91% of the class in both English and Spanish, the process was sufficient and comported with due process and Rule 23.</li>
</ul>
<li>Although the NCL and TINA <i>amici </i>as well as the Brooks objectors averred otherwise, the Court concluded that the bifurcation of class members by Business Opportunity ($750 or more) receiving <i>pro rata </i>remuneration and the flat rate awards of $20 ($750 or less) did not unfairly favor claimants that purchased greater value of products because the Nielsen survey data demonstrated that a majority of those that purchased less than $750 a year were likely members to obtain product discounts or for self consumption and thus suffered no loss.</li>
<li>The Court received no objections from "state of federal entities in connection with these proceedings." Although the lack of objection is not necessarily an endorsement by any Federal or State authorities, you'd have to imagine that if they thought the settlement was unfair that they certainly would have objected to it.</li>
<li>The fact there were very few objectors or opt outs, demonstrated that the class response "both in numbers and rationale" favored the settlement agreement.</li>
<li>The scope of the settlement agreement's release was not too broad.</li>
<li>The low response rate (7,457 claims, or less than 1% of the class) did not demonstrate the notification process was a failure because "the adequacy of notice is measure by whether notice reached class members and gave them an opportunity to participate, not by actual participation 231 F.R.D. 221, 236 (S.D. W. Va. 2005)". Perhaps most importantly, not just for the case but with respect to the entire short argument against Herbalife, Judge O'Connell draws attention to the fact that the <b>"facts and circumstances of this case reasonably suggest a low response rate. As has been discussed throughout this Order, survey evidence suggests that most Herbalife members and distributors joined to obtain a product discount. These members are unlikely to have unopened and unused Herbalife products they wish to return for a refund, as they are most likely to have purchased the products for personal consumption. Further, these individuals are unlikely to have suffered any financial losses on a failed business opportunity, as their reason for joining the company was not to generate income or pursue an entrepreneurial enterprise." (</b>emphasis added)</li>
</ol>
<div>
Another <i>really interesting </i>tidbit culled from the 60 page ruling was with respect to the concept of consequential damages. Much of the figures the Ackman camp have thrown around cite support costs associated with running their business. Although the largest claim in the Bostick settlement was ~$98,000, Ackman has often paraded former distributors that cited loss figures well above $100,000. Setting aside the consequential damage Ackman will likely endure as a result of his Herbalife short, Judge O'Connell scrutinizes the consequential damages figures often cited against Herbalife. Although the Bostick settlement in and of itself can be viewed as a huge win for the company, a potentially much bigger win is gleaned from Judge O'Connell's approval order where she notes:</div>
<blockquote class="tr_bq">
"The Court is not aware of any binding authority discussing whether the statute permits the recovery of consequential damages. Assuming Plaintiffs prevailed on their endless chain scheme claim, the Court would have to consider whether they are entitled to consequential damages under section 1689.2."</blockquote>
Effectively what O'Connell said in her order was that although Herbalife does not appear to be a pyramid scheme, that hypothetically even if Herbalife were determined to be pyramidal in substance, she doesn't believe the endless chain law has authority to award consequential damages. In light of the fact that Judge O'Connell resoundingly favored the settlement agreement with her final approval, and that her approval eliminates potential claims (for both purchases, and consequential damages) from more than 1.5 million former distributor members spanning almost six years, I can't possibly imagine how Ackman (or Tilson, or Richards etc. ad nauseam)will spin this as a win for his short position, although I'm almost certain he'll cry, I mean try. He did ignore the <a href="http://theskeptic21.blogspot.com/2013/12/dhr-rotzaks-aesthetically-pleasing-load.html" target="_blank">Belgium ruling</a> after all. Hey, maybe we'll get lucky and Tilson will send everyone an email about it!<br />
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<a href="https://www.scribd.com/doc/265368054/Bostick-v-Herbalife-Settlement-Approval-CV-13-2488-BRO-SHx" style="text-decoration: underline;" title="View Bostick v. Herbalife, Settlement Approval CV 13-2488 BRO (SHx) on Scribd">Bostick v. Herbalife, Settlement Approval CV 13-2488 BRO (SHx)</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></div>
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<br />TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-11954838792390210512015-05-13T11:29:00.000-04:002015-05-13T14:42:58.533-04:00Bostick v. Ackman: 2:13-cv-02488-BRO-SH<span style="font-family: Arial, Helvetica, sans-serif;">I previously wrote how there <a href="http://theskeptic21.blogspot.com/2015/04/a-twin-pilot-and-irs-agent-walk-into.html" target="_blank">was a very low number of claims</a> against Herbalife in the Bostick class action case.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">After objections to the settlement were filed in March by a group of 18 persons (the majority of which were organized by a local LULAC chapter in Chicago) who were represented by the three time Herbalife class-action attorney Douglas Brooks, Herbalife agreed to extend the claim filing deadline through the end of April.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">Part of the rationale for granting the extension was expressed in class counsel's previous declarations in which Bostick's attorneys commented that if the <i>pro</i> <i>rata</i> award for former members was raised from 50% reimbursement to 75% reimbursement the net claims for business opportunity members would increase to between approximately $7,218,539-$7,299,619; given that the value of claims fell far below the net settlement fund, there was room for increasing the pro rata awards up to 75% instead of diverting the leftover funds to the <i>cy pres</i> component of the settlement agreement.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">This past Monday the final hearing on the tentatively approved settlement was held in California. During the hearing Judge O'Connell granted TINA's motion for leave to file their amicus curae, and will thus take their brief into consideration while forming her final opinion, however O'Connell refused to entertain LULAC's claims regarding undocumented worker. Of particular note, documents presented in court showed that as Douglass Brook predicted, by extending the claim filing period, the total business opportunity claims increased, although not nearly as drastically as Brooks would have had you believe. The claims increased to $7,396,407 and the number of total claims increased to 7457 claims filed. Effectively, even by raising the <i>pro rata</i> award to 75% and extending the claim filing deadline by almost three months, the total claims filed were only increased by a total of 219 claims(+3%) which were filed for an average claim of $812. There were no additional claims above $10,000, five additional claims for $5,000-$10,000, twenty six additional claims for $1,000-5000 and 188 claims for <span style="background-color: white; line-height: 18px; white-space: nowrap;">≤ $1,000.</span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">It's also notable that although the settlement fund provided up to $2.5 million specifically for product returns, a grand total of $938,280.75 was claimed in product returns(even though they only needed to provide an estimate price and didn't have to actually return products). The extension provided by Herbalife increased the product return payout by a net increase of $35,968.83(~4%) even with the claim filing extension to the end of April.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">The numbers don't quite add up though. Although treble-deft Douglass Brooks started representing the settlement objectors in February and despite the vociferous protestations of LULAC starting well before February, the claim extension through April still only produced a tiny increase in additional claims.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">I suppose that at the very least we can now retire Brook's previous theories as to why the settlement should be denied approval. Brooks claimed that better communication (beyond the 93% already reached in the class in both English & Spanish) and stronger community outreach (via someone like his declarant Contreras) as well as adequate and proper legal representation (by someone like, oh I don't know, say Douglass Brooks maybe?) would have resulted in a drastically different outcome with respect to the settlement claims. 219 additional claims doesn't seem to be a ringing endorsement for those theories. Maybe all those trips to N.Y. and D.C. proved to be too much of a distraction for Contreras and Brooks.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">If Herbalife members/distributors were as disenfranchised and defrauded by Herbalife as Ackman and others would have you believe, why would a class in which we know <i>at least </i>1.4M people were properly notified, still produce less than $1M in product refund requests and 7,457 total claims after an extended filing period? The simplest answer is the one Ackman refuses to recognize.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">We've watched Ackman's thesis morph over the years from pyramid scheme, to inventory loading, to currency headwind, to scraping, and member retention issues. For all the political pressure and fanfare Ackman has attempted to reign down upon Herbalife, you need look no further than the class action suit to discover 1.5 million human reasons why the case is playing out more like Bostick v. Ackman. In my opinion, even if O'Connell does not approve the settlement in its current embodiment, the evidence and documentation presented in the Bostick case by the <a href="http://www.kccllc.com/class-action/what-we-do" target="_blank">third party claims administrator KCC</a> has almost single handedly destroyed Ackman's entire short thesis on Herbalife.</span><br />
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<a href="https://www.scribd.com/doc/265222245/Bostick-Supplemental-KCC-Declaration-11MAY2015" style="text-decoration: underline;" title="View Bostick Supplemental KCC Declaration 11MAY2015 on Scribd">Bostick Supplemental KCC Declaration 11MAY2015</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com0tag:blogger.com,1999:blog-2777685498597135745.post-65586257193557931042015-05-01T15:33:00.002-04:002015-05-01T16:12:56.355-04:00MNNPI, Material Non-Non-Public Information<div class="MsoNormal" style="background-color: white;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 14.6666660308838px;">Christine Richards published a somewhat bizarre series of claims in <a href="http://seekingalpha.com/article/3127346-herbalifes-top-distributors-hold-warehouses-full-of-product-in-mexico-why" target="_blank">Seeking alpha</a> this morning under the title "</span></span><span style="background-color: transparent; font-size: 14.6666660308838px;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Herbalife's Top Distributors Hold Warehouses Full Of Product In Mexico - Why?</b>"</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;">Christine Richards claimed that sell side analysts Tim Ramey (Pivotal Research) and Meredith Adler (Barclay's) have been recipients of selectively disseminated material non-public information. She claims, among other things that </span></span></div>
<blockquote class="tr_bq">
<ul style="background-color: white; border: 0px; color: #333333; font-size: 16px; line-height: 22px; margin: 20px 0px; outline: 0px; padding: 0px 0px 0px 10px; vertical-align: baseline;">
<li style="border: 0px; font-weight: inherit; line-height: 27px; list-style-type: disc; margin: 0px 0px 12px; outline: 0px; padding: 0px; vertical-align: baseline;"><i><span style="font-family: Arial, Helvetica, sans-serif;">"The existence of field sales and the company’s plans to crack down on them have been inadequately and selectively disclosed to investors."</span></i></li>
</ul>
</blockquote>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;">She then attempts to bolster some of her other claims about inventory loading with the aid of the captioned image below, which shows Humberto Jaimes addressing a group of people with a large cluster of boxes behind him. MY GOD! This isn't just a garage full of Herbalife, it's virtually the cave of the Forty Thieves. Behold the Herbalife treasures! The audience appears to be in imminent danger of hundreds of boxes of inventory collapsing on top of them. </span></span></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><img src="http://static.cdn-seekingalpha.com/uploads/2015/5/1/saupload_hlf.png" height="180" hspace="6" style="border: 0px; display: inline; margin-left: auto; margin-right: auto; max-width: 640px; outline: 0px; overflow: visible; padding: 0px;" vspace="6" width="320" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; color: #333333; font-size: xx-small; line-height: 26px; margin: 0px; outline: 0px; overflow: visible; padding: 0px; text-align: start; vertical-align: baseline; word-wrap: break-word;"><span style="font-family: Arial, Helvetica, sans-serif;">"Herbalife Chairman's Club member Humberto Jaimes lectures at his training center in Tecamac, Mexico, which is filled with enormous volumes of Herbalife products"-caption and image from Seeking Alpha.</span></span></td></tr>
</tbody></table>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 14.6666660308838px;">Unsurprisingly its another sleight of hand from someone that's been described as "Ackman's personal biographer". Yes, there are boxes, but Tecamac is not filled with an enormous volume of Herbalife products. Richards likely wants you to believe that because that would make the optics of her channel stuffing arguments seem more valid and real, but if you dig just a little bit deeper, you find her characterization is entirely inaccurate. What Humberto is standing in front of is actually box after box of Oster blenders(probably for making Herbalife shakes) and water heaters(probably for aloe tea). I have no idea whether or not he is selling these or giving these away, but either way it would seem to indicate pretty significant demand for Herbalife products in the Tecamac region. In other pictures taken in the same training center in mid-November of 2014, you can actually the blenders much more easily, as well as the very conspicuous lack of 'enormous volumes' of Herbalife products. You can look out among the crowd to see for yourself it's more a vast warehouse which is full of people. Either they are all sitting on boxes of inventory or Richards is wrong again.</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEissyToLOdxgz3q5ZX3DzKfn8Df2B4VdwwDc8F0Cx_9Vphj7i5fny6LwjKFVF-6ltJyFm3hNNwVw62cq_LC8B_0LUWAuwS54YeXefaageyzNjOQVr3ojQda3xaYOY18ziK4kKPwz3n4Zrw/s1600/oster_tecamac.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEissyToLOdxgz3q5ZX3DzKfn8Df2B4VdwwDc8F0Cx_9Vphj7i5fny6LwjKFVF-6ltJyFm3hNNwVw62cq_LC8B_0LUWAuwS54YeXefaageyzNjOQVr3ojQda3xaYOY18ziK4kKPwz3n4Zrw/s1600/oster_tecamac.jpg" height="240" width="320" /></span></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhY3seuqwH0etJB7Ftg62FT9WNy0bpH9PIAmG9nieLRbFKohRnK1tsmh5qvKL9xs1WPvY_Kozjd9TZ56cay-FLMruHlkar0QDn0TyI4zNlrCweT2xpbqbOS8u9AIZi6o0eOm0e3ElmghY/s1600/gira_tecamac_exercise_2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhY3seuqwH0etJB7Ftg62FT9WNy0bpH9PIAmG9nieLRbFKohRnK1tsmh5qvKL9xs1WPvY_Kozjd9TZ56cay-FLMruHlkar0QDn0TyI4zNlrCweT2xpbqbOS8u9AIZi6o0eOm0e3ElmghY/s1600/gira_tecamac_exercise_2.jpg" height="240" width="320" /></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 14.6666660308838px;">You can also easily pull Google satellite images for yourself to dispel any concerns that maybe this is just the front of some vast warehouse network hidden behind all those people. If you're lazy, you can just look at the ones I've included below to see that this training center seems to be no more than a training center full of people and not some vast underground network of illicitly stuffed inventory. In the street view its also easy to see the training center is a large building with ample parking, but doesn't seem to have warehousing capabilities.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 14.6666660308838px;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhDm1Tp5lBdtmM1GSeUpJtG7RANkl-HFCOImRXpnGF_eIoVFwRHv5tVei1w7ZV7QT39sb8MFdwdRBMKDwhiTdj7NZiYI-fEw8LHcgoEDQayVBqvbtbbFQCL2hBwJ0gKP11SIzUtD7Q_cc/s1600/ElCAT_sat.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhDm1Tp5lBdtmM1GSeUpJtG7RANkl-HFCOImRXpnGF_eIoVFwRHv5tVei1w7ZV7QT39sb8MFdwdRBMKDwhiTdj7NZiYI-fEw8LHcgoEDQayVBqvbtbbFQCL2hBwJ0gKP11SIzUtD7Q_cc/s1600/ElCAT_sat.png" height="320" width="313" /></a></span></div>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span>
<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;">And just for kicks, I threw in a video showing the kinds of nefarious goings on that typically occur in El CAT.</span></span></div>
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<script>(function(d, s, id) { var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) return; js = d.createElement(s); js.id = id; js.src = "//connect.facebook.net/en_US/sdk.js#xfbml=1&version=v2.3"; fjs.parentNode.insertBefore(js, fjs);}(document, 'script', 'facebook-jssdk'));</script></div>
<div class="fb-video" data-allowfullscreen="true" data-href="/centrodeapoyo.tecamac/videos/vb.100005179903104/316835995165728/?type=1" style="font-size: 12.8000001907349px;">
<div class="fb-xfbml-parse-ignore">
<blockquote cite="/centrodeapoyo.tecamac/videos/316835995165728/">
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://www.blogger.com/centrodeapoyo.tecamac/videos/316835995165728/"></a></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Esta increible tecamac</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Posted by <a href="https://www.facebook.com/centrodeapoyo.tecamac">Centro De Apoyo Tecamac</a> on Thursday, September 11, 2014</span></blockquote>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<div style="font-size: 12.8000001907349px;">
<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;">But what about Ms. Adler and Mr. Ramey you say? Well, turns out they did in fact have a heads up, as did about 600,000 other people in late October of 2014, when Herbalife announced its Sales and Marketing Plan enhancements, which the company <a href="http://www.sec.gov/Archives/edgar/data/1180262/000115752314004304/a50975574ex99_1.htm" target="_blank">also selectively discussed in it's November 3rd, 2014 earnings release and SEC filings.</a></span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5ua0wKh275n65o8JcMYLRNijrLXDfUvpg2Ofpl6et8zZwmKZXbAObetRIdtL7mrkOk877y_sE2byhdVvRqC4hq9R5yiOn921nYm6L3qqF8jlH1PB_b0zI62TJsZQTDmxd7_ThehIk-zk/s1600/Sales_Marketing_Plan_Enhancements.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5ua0wKh275n65o8JcMYLRNijrLXDfUvpg2Ofpl6et8zZwmKZXbAObetRIdtL7mrkOk877y_sE2byhdVvRqC4hq9R5yiOn921nYm6L3qqF8jlH1PB_b0zI62TJsZQTDmxd7_ThehIk-zk/s1600/Sales_Marketing_Plan_Enhancements.png" height="320" width="232" /></a></div>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
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<span style="font-size: 11pt;"><span style="font-family: Arial, Helvetica, sans-serif;">It's somewhat comical to think that Ackman and his troupe have literally spent millions and millions in their short campaign against Herbalife, but have worse intelligence than any ordinary Herbalife member gets with their $60.00 IBP purchase. </span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11pt;">"May the best analyst win."</span></div>
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TheSkeptic21http://www.blogger.com/profile/09270770101971142349noreply@blogger.com1tag:blogger.com,1999:blog-2777685498597135745.post-56577085141461680382015-04-15T09:58:00.000-04:002015-04-15T13:10:34.909-04:00A Twin, a Pilot and an IRS Agent Walk Into an Herbalife Nutrition Club<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">I think I now understand
why Bill Ackman would claim Herbalife executives are hiring criminal defense
attorneys; he's probably nervous, very, very nervous. According to Herbalife, the claim
is not only false, but could be part of an effort to "<a href="http://ir.herbalife.com/releasedetail.cfm?ReleaseID=906322">drive down the stock price in an effort to enrich
himself and his investors in advance of options expiring on Friday.</a>" It's also pretty laughable
commentary coming from a guy that just hired a<a href="http://dealbook.nytimes.com/2015/02/06/ex-u-s-prosecutor-dabbs-joins-ackmans-pershing-square/?_r=0"> former DOJ unit chief</a> as senior counsel at Pershing Square.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">So why would Ackman be
nervous? That's simple, his thesis is falling apart and he has BILLIONS on the
line as the Feds circle the wagons around him. There are lots of people that
think Bill Ackman is dead on with his thesis, but based on court filings this
week in California, I think his thesis is just dead.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">According to documents
filed April 13th by <b><u>PLAINTIFFS </u></b>in the Bostick class action suit against
Herbalife, out of 1,533,339 class members a grand total 7,238 class members
have submitted claim forms. That is 0.4% of the entire class filed
claims. <a href="http://www.funny2.com/odds.htm">You've got better odds of being an identical
twin, or being on a plane with a drunken pilot, being audited by the IRS or
getting your identity stolen,</a> than you do of being a claimant in the Bostick case.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">There are so few
claimants in fact, that plaintiffs filed a motion to increase the <i>pro
rata</i> awards from 50% to 75%. Forget for a moment that the
Ackman/Celarier-associated group of 18 out of Chicago objected to the
settlement, or that the </span><span style="font-family: Arial, Helvetica, sans-serif;">Ackman-associated</span><span style="font-family: Arial, Helvetica, sans-serif;"> NCL, led by Sall</span><span style="font-family: Arial, Helvetica, sans-serif;">y Greenberg filed a motion
for leave to file an </span><i style="font-family: Arial, Helvetica, sans-serif;">amicus</i><span style="font-family: Arial, Helvetica, sans-serif;">, and simply focus on the facts generated in the
settlement proceedings.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br />
In the filing the plaintiffs state that as of<o:p></o:p></span></div>
<blockquote class="tr_bq" style="margin-bottom: 5pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">"April 6, 2015 the aggregate amount of Pro
Rata and Flat Rate awards due under the Settlement Agreement is $5,738,761.49.
Of this amount, $76,520.00 is attributable to Flat Rate awards and
$5,662,241.49 to Pro Rata awards." </span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">That means that a grand
total of 3826 people(or 665 in any one year) filed for a flat rate award. Let's
put that in perspective. In 2013 there were a total of 525,251 active members
in the United States. Out of that half a million people, there were 4667 people
that earned between $10001 and >$250,000 in 2013. In fact, out of all the
complaints Ackman has lobbed at Herbalife, and even with all <a href="http://www.herbalife.com/Content/en-US/pdf/business-opportunity/statement-of-average-gross-compensation-usen.pdf" target="_blank">the warnings</a> the company has provided participants that
the odds of success as a distributor member are against you, you actually would
have had a better chance at becoming a President's team member and earning
$100,000 or more in 2013, than you were to seek a flat rate payment claim as a
dissatisfied member in the Bostick case (704 earned >$100,000 vs. 665
Bostick claimants for the same period).<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I'm sure there are
plenty of shorts that would argue the flat rate claimants were less motivated
to file because the payment was limited to $20. OK, so entertaining that rather
unconvincing argument, let's look at the remaining 3412 claimants that filed
for a <i>pro rata</i> awards instead (those who purchased more than
$750 of products). Surely they'd be more motivated to seek compensation during
the class period right? I mean, they've got more at stake financially, so of
course they'd seek claims (or so I'd think). Reality doesn't agree with that
argument though. There were actually fewer persons that filed for <i>pro
rata</i> award (3826 vs. 3412) and the average claim for the <i>pro
rata </i>recipients is only $1659.51.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br />
So again, I'm left to wonder, out of millions of Americans that participated in
Herbalife over the class period, and spent a significant amount of money on
products ($750 or more) how is it that only 3412 people have filed a claim for
purchases over $750? How could this be? I thought Bill said the whole business
model was predicated on Herbalife convincing millions of people to build their
downline and load inventory with thousands of dollars of purchases? I though
Brent Wilkes said Herbalife preys on the poor disenfranchised Latinos he claims
to represent. Remarkably, although Mr. Wilkes claims to have their best
interest at heart, plaintiffs lawyers (again, these are the lawyers fighting
against Herbalife in the Bostick case) stated in their declaration:<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<blockquote class="tr_bq" style="margin-bottom: 5pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">"4. Notably, days after the Settlement was
announced, the NYPost</span><span style="font-family: Arial, Helvetica, sans-serif;">
predicted that some critics, including Hispanic activists, hope to stop
the $15</span><span style="font-family: Arial, Helvetica, sans-serif;">
million settlement reached Friday in a class-action lawsuit by several</span><span style="font-family: Arial, Helvetica, sans-serif;">
distributors. “We plan to object to the settlement because it won’t begin
to</span><span style="font-family: Arial, Helvetica, sans-serif;">
pay for the true damages that Herbalife has caused this class,” said</span><span style="font-family: Arial, Helvetica, sans-serif;">
Brent Wilkes, executive director of the League of United Latin</span><span style="font-family: Arial, Helvetica, sans-serif;">
American Citizens. </span><span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://nypost.com/2014/11/02/herbalife-plot-thickens-with-third-quarterreport/">http://nypost.com/2014/11/02/herbalife-plot-thickens-with-third-quarterreport/</a></span><span style="font-family: Arial, Helvetica, sans-serif;"> </span><span style="font-family: Arial, Helvetica, sans-serif;">5. Prior to any settlement and before the Court
ruled on Herbalife’s</span><span style="font-family: Arial, Helvetica, sans-serif;">
Motion to Dismiss, in July of 2013, I reached out to Mr. Wilkes, the national</span><span style="font-family: Arial, Helvetica, sans-serif;">
executive director of the Washington-based League of United Latin American</span><span style="font-family: Arial, Helvetica, sans-serif;">
Citizens, or LULAC to introduce myself as counsel for Dana Bostick because
Mr. Wilkes had publically criticized Herbalife. See</span><span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://articles.latimes.com/2013/jul/19/business/la-fi-herbalife-latino-20130719">http://articles.latimes.com/2013/jul/19/business/la-fi-herbalife-latino-20130719</a>. I</span><span style="font-family: Arial, Helvetica, sans-serif;">
left a message with Mr. Wilkes’ office to contact me because I thought that Mr.</span><span style="font-family: Arial, Helvetica, sans-serif;">
Wilkes might have information that would assist the class in the prosecution of
this action. Neither Mr. Wilkes nor anyone from his office returned my
phone call. The New York Times later revealed that LULAC had accepted a
$10,000 contribution from the Pershing Square hedge fund that has taken a
purported $1,000,000,000.00 short position against Herbalife’s stock in
2013. <a href="http://www.nytimes.com/2014/03/10/business/staking-1-billion-that-herbalife-willfail-then-ackman-lobbying-to-bring-it-down.html">http://www.nytimes.com/2014/03/10/business/staking-1-billion-that-herbalife-willfail-then-ackman-lobbying-to-bring-it-down.html</a>"</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">The Dracht declaration
continues to describe that despite being contacted by two additional law firms in the
Chicago area prior to the announcement of the settlement (and as early as September of 2014) that he never heard anything again from those lawyers "or from any
representative of the Chicago area LULAC." Well that's
just plumb confusing. Of course it makes perfect sense then that a group of 18 people drummed up by LULAC and affiliated with no less than two law firms prior to the settlement announcement would be so inadequately informed (or completely uninformed) of their class action rights for many months after the settlement announcement, in spite of Plaintiff's lawyers appealing directly to the National Executive Director of LULAC and in spite of LULAC's direct involvement and in spite of the much publicized <a href="http://lulac.org/events/town_hall_targeted_fraud/" target="_blank">LULAC/NCL/Ackman hootenanny</a> IN CHICAGO a full MONTH before their claim window closed and a full two months before their objection window closed. Great question for Mr. Brooks and Mr. Wilkes is how many of these 18 objectors were present at the the January 12th event organized by Julie Contreras and attended by Sally Greenberg, Brent Wilkes and Bill Ackman? Furthermore, why wasn't counsel for the class action group invited to be at that Chicago-centric meeting where they could have reinformed, the previously reinformed, reinformed, notified & uniformed future objectors?</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">In fairness the</span><span style="font-family: Arial, Helvetica, sans-serif;">re were a total of 21
objectors to the settlement, <i>only </i>18 of which were part of the Chicago group,
represented by Brooks. Of the other 3, 2 objected on the grounds of late
notification and later withdrew their objections, and the other 1 objected on
the grounds that Herbalife was being unfairly treated(no I'm not being facetious). Getting back to the
Brooks group though, 5 objected on the grounds that they'd not been timely notified
and 10 objected because they received the notice, but did not understand they
could both object to the settlement and file a claim. I find those to be
particularly odd objections especially after you consider that multiple lawyers
in Chicago contacted Dracht specifically in connection with what ultimately
turned out to be the Chicago 18, and that this state of confusion was limited
only to the Chicago 18 and no other persons.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">There is a lot of other
fun facts contained in those filings, but suffice it to say that you don't have
to take Bill Ackman's word for it that millions of Americans have been
defrauded by a company, when all you need to do is see for yourself that out of
millions of members involved in Herbalife, a scant handful actually
sought a monetary claim. Don't take my word for
it either, just read the plaintiff's filings for yourself below*.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">*If you want to go deeper, the second Scribd document is a single combined 267 page file including the motion to increase pro rata award, aswell as the declarations and exhibits of counsel for class plaintiffs, declaration and exhibit of claims administrator as well as opposition to amicus.</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;">Correction: A previous version of this post stated in error that Douglass Brooks filed an amicus.
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<span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://www.scribd.com/doc/261856959/Bostick-motion-for-increase-in-pro-rata-award" style="text-decoration: underline;" title="View Bostick motion for increase in pro rata award on Scribd">Bostick motion for increase in pro rata award</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><a href="https://www.scribd.com/doc/261905158/Consolidated-Bostick-13APR2015-Plaintiff-Motions" style="text-decoration: underline;" title="View Consolidated Bostick 13APR2015 Plaintiff Motions on Scribd">Consolidated Bostick 13APR2015 Plaintiff Motions</a> by <a href="https://www.scribd.com/theskeptic21" style="text-decoration: underline;" title="View theskeptic21's profile on Scribd">theskeptic21</a></span></div>
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