The Intellectual Investor: Opportunity Equity Weekly Updates

August 14, 2017

Opportunity Equity Update for Week Ended 8/11/17

Flexion Moves up as Investors Anticipate Zilretta’s PDUFA date While ENDP Declines on Mesh Liability Increase

Last week, Opportunity Equity  strategy declined -3.76%, underperforming the S&P 500’s -1.37% decline (Exhibit 1). The strategy ended the week up 16.53% YTD, or 613 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/11/171

Time Period Opportunity Equity S&P 500
Last Week (8/4 – 8/11) -3.76% -1.37%
MTD -3.93% -1.06%
QTD -3.40% 0.97%
YTD 16.53% 10.40%
Inception (annualized since 12/30/99) 6.75% 4.96%

Source: Bloomberg, Miller Value Partners

Flexion Therapeutics (FLXN) reported a Q2 loss of -$0.91 compared to consensus of -$0.82 due to higher SG&A expenses related to the anticipated launch of Zilretta in the fourth quarter. Zilretta’s PDUFA (Prescription Drug User Fee Act) date is set for October 6th. There was minimal news on the other top contributors.

Exhibit 2: Significant Contributors to Performance, 8/4/17 – 8/11/17

Name Type Return
Quotient Technology Inc. Equity 6.4%
Apple Inc. C100 1/18 Derivative 3.5%
Endurance International Group Holdings Equity 2.0%
Genworth Financial Inc. Equity 1.8%
Flexion Therapeutics Equity 2.8%

Source: Miller Value Partners

All top detractors had earnings releases last week. Endo Pharmaceuticals Holdings Inc. (ENDP) declined over the week after announcing Q2 results which beat consensus with adjusted EPS of $0.93 versus consensus of $0.73 due to improved gross margins and lower operating expenses. The company announced that they had reached a mesh liability settlement to resolve virtually all known US mesh product liability claims resulting in their mesh product liability accrual increasing by $775M to be paid over 2018 and 2019. Platform Specialty Products Corp. (PAH) announced Q2 results which slightly beat consensus with adjusted EBITDA of $205M and consensus of $202M. The company’s Performance Solutions segment beat on the topline but disappointed on EBITDA due to increased expenses while the Agricultural Solutions segment did slightly worse on revenue due to cold weather but beat on EBTIDA. The company raised full year EBITDA guidance to $810-830M from $800-830M. Wayfair Inc. (W) reported Q2 results that beat estimates with revenue of $1.12B compared to consensus of $1.06B and adjusted EBITDA of -$2.2M versus consensus of -$21.1M. The company disappointed on 3Q guidance with revenues of $1.17B and EBITDA of -$21.6M compared to consensus expectations of $1.15B and -$14.8M, respectively. Valeant Pharmaceuticals International Inc. (VRX) reported Q2 results which beat consensus on revenue and adjusted EBITDA due to their two largest business lines (Bausch + Lomb and Salix) growing 8% on a combined basis (revenue of $2.23B vs. $2.21B and adjusted EBITDA of $951M vs. $903M). Intrexon Corp. (XON) announced Q2 results which missed on the topline but beat on the bottom line. Revenue came in at $54M compared to consensus of $57M but non-GAAP EPS came in at -$0.16 compared to consensus of -$0.22. The company continues to anticipate the commercial launch of the Arctic Apple in the US in the fall of 2017 and the AquaBounty Salmon is now available in Canadian markets.

Exhibit 3: Significant Detractors from Performance, 8/4/17 – 8/11/17

Name Type Return
Endo Pharmaceuticals Holdings Inc. Equity -19.1%
Platform Specialty Products Corp. Equity -10.7%
Wayfair Inc. Equity -13.3%
Valeant Pharmaceuticals International Inc. Equity -8.2%
Intrexon Inc. Equity -9.2%


1The performance figures reflect the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued.

©2017 Miller Value Partners

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