Sunday, May 29, 2016

Random Quote from Kant

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Critique of Pure Reason.

"In the applications of the pure conceptions of the understanding to possible experience, the use of their synthesis is either mathematical or dynamical; for it is directed partly merely to the intuition, and partly to the existence of a phenomenon in general. But the conditions a priori of the intuitions are, in respect to a possible experience, absolutely necessarily; those of the existence of the objects of a possible empirical intuition are only in themselves contingent. Hence the principles of mathematical use are ... absolutely necessary; that is, they strike apodictically; whilst those of dynamic use will also carry with them the character of a necessity a priori, but only under the condition of the empirical thinking in an experience...."

I'm not sure I grasp this fully. The premise behind it is the old distinction between contingent and necessary truths. It is a contingent truth that Smith owns a Hewlett-Packard laptop. It is a necessary truth that the owner of a Hewlett-Packard laptop owns at least one laptop.

But Kant is making another distinction within the "necessary" component of that distinction. There are mathematical necessities and dynamical necessities. I'm not clear why this distinction is important to him.

2+2 is four is a mathematical necessity.

The above example, though, the proposition that the "owner of a Hewlett-Packard laptop owns at least one laptop" may qualify as a dynamic necessity. There is a "condition of the empirical thinking" at work here, t hat is, that the world contains laptops of different brands, that H-P is one of them, etc, Our statement "carries with it" necessity, but only after such empirical facts are understood.

At least I think that's what he's saying. Readers should feel free to correct me.

Saturday, May 28, 2016

Valeant Pharmaceuticals: Co-Purchasing and Injunctive Relief

Yesterday I discussed the history of Valeant Pharmaceuticals, and mentioned its unsuccessful effort to acquire Allergan.

Valeant never did acquire Allergan, but its effort made some fascinating law.

Some of the key questions arose from the fact that Valeant was acting in concert with a hedge fund manager, Pershing Square. So closely in concert, indeed, as to raise the question whether what was going on amounted to insider trading as SEC rules understand it? Pershing Square acquired a 9.7% stake in Allergan during the period of this collaboration, and it is was willing to vote those shares in favor of ousting the company directors that were resisting the takeover attempt.

Allergan responded with a lawsuit, asking that Pershing Square be enjoined from voting its shares giving the "likelihood" that this would be deemed to be insider trading.

Was there such a “likelihood” and would that have supported a preliminary injunction?

The U.S. District Court for the Central District of California court applied what is known as the Winter test for preliminary injunctions; named after a 2008 Supreme Court decision, Winter v. NRDC. The test involves four elements: a court will grant such an injunction if there is (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm to the movant; (3) a balance of equities in favor of the movant; and (4) the interest of the public.

After working through each of those elements, the court granted the injunction “in part,” and in a way that allows each party to claim victory.

The take-away from all of that for merger arbs was (as I wrote for AllAboutAlpha at the time) that a co-purchasing tactic "in the lead-up to a tender offer may well be suspect in the eyes of many federal judges, and ought to be initiated if at all, only with that caution in the front of one's mind."

The photo above, by the way, is of William Ackman, the chief executive of Pershing Square Capital Management.

Friday, May 27, 2016

Valeant Pharmaceuticals: Some Corporate History

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Yesterday, I wrote a few words about where Valeant stands now. I'd like to follow up today by taking a look back.

Valeant was a California company that merged with Canada's Biovail in 2010. The two companies were of about equal size, and some would say the resulting company had as much of Biovail's DNA in it as Valeant's, although of course calls itself by Dad's name.

And at that time, Biovail was known as a product development company, (with some pushing-the-envelope bookkeeping tricks, but let's be charitable and forget about that.) Unfortunately some of its key products, including the neurological medicine Wellbutrin, were suffering from tough competition. Pearson, in 2010, set the company on quite another course. He was more interested in acquiring other companies than developing products.

Let's skip ahead. Valeant spent much of 2014 trying to buy Allergan in 2014, which failed because Allergan found another suitor, and was acquired by Actavis for $66 billion in March of the following year.

Before that resolution, though, the disputes raised by Valeant's efforts to buy Allergan made some fascinating law. I hope to say something about the legal questions raised by those efforts in another post tomorrow.

But let's finish up the narrative. When one drug company acquires another, it also acquires the intellectual property of the target -- the right to sell the products the target company had been selling, and to set their price in the marketplace. This seems to have been Pearson's business plan. Buy up companies, acquire their product lines, jack up the prices thereof.

In 2015, Valeant found itself at the center of arguments over the pricing of pharmaceuticals, when Nitropress increased in price by 210% on the day that Valeant acquired the rights to sell it: more egregiously, Isuprel's price increased by 520%, also on a one-day basis.

A certain candidate for President (Secy Clinton) tweeted about this in September 2015, "Price gouging like this in the specialty drug market is outrageous. Tomorrow I''l lay out a plan to take it on."

We needn't concern ourselves with her plan. The important point of this post and yesterday's together is simply that Valeant may be forced to change course before she has a chance to sign her first executive order.

Thursday, May 26, 2016

Valeant Pharm: A Heavily Indebted Company

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Valeant Pharmaceuticals has taken some hits of late. At the end of March 14, a share of VRX at the NYSE would bring you $69.04. At the end of the following day, it was worth less than half of that, just $33.51. It has lost further ground since. What happened? Management had announced disappointing earnings figures, and  cautioned that its debt holders could categorize it as in default if it missed an April 30th filing deadline.

A week later, the bond rater Moody's downgraded Valeant, on the grounds that its cash stockpile was inadequate to its overall indebtedness.

Meanwhile, as the departure of J. Michael Pearson, the long-time CEO, approached, shareholders naturally got nervous. They were nervous, that is, because always creates a case of the nerves in someone, often in many people. They weren't nervous as a recognition of Pearson's great leadership. Indeed, he had run up a heck of a lot of debt on acquisitions, some of which at least were of dubious value to the company.

Joseph Papa, formerly of Perrigo, formally replaced Pearson on Monday, May 2.

On May 16, Bloomberg reported that one renowned hedge fund, Jana Partners, well regarded partly as a consequence of its campaigns to change policies at ConAgra Foods and Computer Sciences Corp., had sold its (considerable) holdings in Valeant in the first quarter.

Some commenters were by this time predicting that Valeant's stock was headed to zero. It hasn't gotten any lower than $23.55 though.

Just yesterday, Reuters reported on several letters the SEC has sent Valeant expressing concern about its non-GAAP accounting. For those not in these weeds, GAAP stands for "generally accepted accounting practices." Non-GAAP practices, then, are the not-so-accepted ones.  On the day this became public knowledge, oddly, the stock price went up. At the end of trading Wednesday it was at $27.13.

How much trouble is it in? Or, looking at the glass half full: Could it get back to the $70 neighborhood?

Sunday, May 22, 2016

Reviewing the Obama administration

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It has 8 months left to run, but here are some retrospective thoughts on almost-the-whole of it.

1. Gitmo's infamous detention camp remains open. This wouldn't necessarily stick in one's craw except that Obama issued an executive order as early as January 22, 2009, with the confetti from the inaugural parties still incompletely cleared away, that said it would be closed within one year.

2. Another one that goes back a ways. Obama early on pressed for a cash-for-clunkers bill, which he signed on June 26th of that first year, supposedly to revive the auto industry. It was a cheap gimmick that had no good effect at all.

3.  The whole rebellion in Libya thing was horrendously mismanaged.   Absurdly, the administration seems to have thought it was exercising what it called "smart power" in this connection., Nothing smart about it.  Ended with the need to use a random video as a cover for whatever the heck actually happened in Benghazi.

4. Waffling on things like the Keystone pipeline extension, and eventually coming down against. Independence from the crude oil we've been importing from the most war-torn parts of the world is a vital national security necessity, to which the administration periodically pays service of the lips. But when something useful might be done in that line, then waffle and back away. 

5. Related: Obama's public defenses of the sanctions-ending deal with Iran have been lame and have tended to throw the deal into disrepute. The deal is perfectly sensible, but one wishes for a President who was willing to say, "we're doing this to bring Iranian oil back into the world markets in the full light of day, to worsen the competitive position of the Saudis and help undermine the coherence of OPEC."   Obama wasn't and isn't willing to say things that would tick off the Saud family.

There are positive things one might say about Obama's administration too, though. Heck, I hinted broadly at one of them in that fifth comment above, though I wrapped it in a criticism.

Basically the positive things one might say come down to the suspicion things would have been worse under McCain or Romney.

Saturday, May 21, 2016

Who was Rudolph Virchow?

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A name from my childhood, when for a period I was fascinated by the history of microbiology.

Virchow was born in 1821 and lived until 1902. He was involved in anthropology, politics, etc. but is best known for his contributions to medical research.

Virchow is considered the father of modern pathology. He applied cell theory, already then much discussed, to explain the effects of infection on organs and tissues of the human body.

The basic insight was that the causes of disease are to be found not at the tissue level, but at the cellular level. This led him to especially groundbreaking work in the area of cancer, where he was the first to hypothesize that cancerous cells were originally normal healthy cells, not invaders.

He also made great strides regarding thromboembolism, setting out the hypothesis that pulmonary thrombi are carried from the veins of the leg by the flow of blood, then doing the experiments that proved this point.

Unfortunately, where there is light there is shadow. Virchow moved medicine forward in some respects, but he impeded its progress in others. He rejected the theory that bacteria cause disease, and opposed Ignaz Semmelweiss' advocacy of antisepsis.

Friday, May 20, 2016


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Most talk of "priorities" is nonsense.

Whenever someone chooses to work on, advocate, or contribute money to A, there will it seems always be someone who says, "but what about B?"

Since there are always a variety of good causes, there will always be a host of possible Bs.

If you contributed to A, then A must be your priority then, right?

Well, no, not necessarily. You could make that true by definition, but the definition will end up being rigged and arbitrary. By any useful definition, prioritizing A over B means valuing A more than B, and it simply is NOT the case that by acting to advance A today I prove that I value A more than B.

I use the algebraic language precisely because the particular range of applications is so broad.

Ask yourself: if I am feeding my cat at this moment, does it follow I value my cat more than my dog? or my child? No: each of the latter two may be well feed and content, the cat may be unfed for this day and meowing angrily about it. The distinction isn't one of valuing, or of "prioritizing" in any non-question-begging sense. The question is only one of what had to be the immediate object of my activity.

Likewise: if a writer is working on one project rather than another right now, does the A have a higher priority? Well ... no. Not unless that's just a confusing way of saying it has a deadline tomorrow, whereas the other project has a deadline further off!

So be careful about such wording, okay troupers?