May 14, 2018

Opportunity Equity Update for Week Ended 5/11/18

Valeant Climbs on Earnings While Intrexon Falls on Earnings

Last week, the Opportunity Equity strategy gained 3.06%, outperforming the S&P 500’s 2.49% rise (Exhibit 1). The strategy ended the week up 4.01% YTD, or 129 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/11/181

Time Period Opportunity Equity S&P 500
Last Week (5/4 -5/11) 3.06% 2.49%
MTD 5.44% 3.11%
QTD 6.65% 3.51%
YTD 4.01% 2.72%
Inception (annualized since 6/26/00) 7.25% 5.62%

Source: Bloomberg, Miller Value Partners

Valeant Pharmaceuticals International Inc. (VRX) crossed above the 100-day moving average after announcing first quarter results which beat expectations with revenue of $2B ahead of consensus of $1.95B along with adjusted EBITDA of $832M beating expectations for $728M. The company slightly raised its full year guidance to revenues of $8.15-8.35B from $8.10-8.30B and adjusted EBITDA of $3.15-3.30B from $3.05-3.2B. The company announced that it would be changing its name to Bausch Health. JPMorgan Chase & Co. Warrants (JPM/WS) crossed above the 50 and 100-day moving average. Mallinckrodt (MNK) crossed above the 50-day moving average after announcing first quarter earnings which beat while maintaining full year guidance. The company reported revenues of $573M beating expectations of $559M along with EPS of $1.31 vs. estimates of $1.08. Acthar revenue was down 10% YoY at $244M but management reiterated it expects Acthar to generate greater than $1B in sales in 2018. Endo Pharmaceuticals Holdings Inc. (ENDP) crossed above the 50-day moving average after releasing first quarter results which beat estimates. The company announced revenue of $701M (vs. consensus of $692M) and adjusted EBITDA of $334M (vs. consensus of $291M) while reiterating full year guidance. The company reported strong sterile injectable sales growth of 25% YoY ($216M) and announced the acquisition of Somerset Therapeutics, which will add 8 commercial products. Bank of America Corp. (BAC) crossed above the 50 and 100-day moving average.

Exhibit 2: Significant Contributors to Performance, 5/4/18 – 5/11/18

Name Type Return
 Valeant Pharmaceuticals International Inc. Equity 15.7%
 JPMorgan Chase & Co. – Warrants Derivative 8.4%
 Mallinckrodt Equity 24.2%
 Endo Pharmaceuticals Holding Inc. Equity 8.9%
 Bank of America Corp. Equity 5.5%

Source: Miller Value Partners

Intrexon Corp. (XON) fell below the 50, 100 and 200-day moving average after announcing first quarter results which fell behind expectations. The company announced revenue of $43.8M below expectations of $61M due to recently terminated exclusive channel collaborations with EPS coming in at -$0.33 behind consensus of -$0.18. United Continental Holdings (UAL) announced April traffic with revenue per seat mile up 5.1% and capacity up 6.1%. Celgene Corp. (CELG) was down over the week after announcing earnings which beat. Revenue came in at $3.54B ahead of expectations of $3.47B leading to EPS of $2.05 vs. $1.96 expected. Management updated full year guidance with total revenues of $14.8B from $14.4B-$14.8B and adjusted diluted EPS of $8.45 after accounting for the Juno dilution. Management guided for 1Q19 re-submission of ozanimod’s NDA after receiving the refusal-to-file letter from the FDA in February. Flexion Therapeutics (FLXN) was down over the week after announcing first quarter results which came in slightly below consensus. The company announced revenue of $2.2M below consensus of $2.5M. Approximately 1,480 of the company’s target accounts have used Zilretta and of those accounts approximately 40% have placed a reorder. The company remains comfortable with the consensus sales estimates of $28M in 2018 and $129M in 2019 for Zilretta.The prior week the Centers for Medicare and Medicaid Services (CMS) recommended Zilretta for a dedicated J code. MGIC Investment Corp. (MTG) reported monthly operating statistics for April with insurance in force coming in at $198.5B, up 7.7% YoY but slightly lower than expected with total default inventory down 10% YoY driven by lower new notices.

 Exhibit 3: Significant Detractors from Performance, 5/4/18 – 5/11/18

Name Type Return
 Intrexon Corp. Equity -16.2%
 United Continental Holdings Equity -2.1%
 Celgene Corp Equity -2.7%
 Flexion Therapeutics Equity -0.8%
 MGIC Investment Corp. Equity -1.3%

Source: Miller Value Partners


1The performance figures reflect the results of a representative account net of management fee 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.

©2018 Miller Value Partners, LLC

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