Did This Guy Just Caused Valeant’s Recent $20 Billion Loss in Market Capitalization?

It appears that with proper research (in-depth) one can avoid large $ losses. However, what if you are up against the ‘darling’ of big hedge funds (value investors in fact)?

Highlights:

Source: The Wall Street Journal

Andrew Left (Citron Research). Source: The Wall Street Journal

Andrew Left, editor-in-chief of Citron Research published the article on October 21, 2015 entitled, “Valeant — Could this be the Pharmaceutical Enron?

Minutes later, Valeant Pharmaceuticals (ticker: VRX) stock price dropped from $148.66 further breaking the $100 territory, marked its lowest price of $88.50 and had settled at $118.61 at closing–wiping out between $10 to $30 Billion USD in market capitalization.

Interestingly, few early reports had already been circulating months before Mr. Left published his ‘Smoking Gun‘ report. This may have served early warning signs, only Mr. Left had been ‘at the right time‘ to have pulled the trigger amid already hot topic about pharma companies raising drug prices to ‘astronomical’ levels.

This (drug price increases) was the issue that was raised after Turing Pharmaceuticals CEO Martin Shkreli raised the price of the drug Daraprim to $750 a tablet from $13.50-that was published by the New York Times on September 20, 2015 entitled, “Drug Goes From $13.50 a Tablet to $750, Overnight.”

Martin Shkreli, CEO of Turing Pharmaceuticals. Source: Google Image

Martin Shkreli, CEO of Turing Pharmaceuticals. Source: Google Image

I will not post early articles that was months before, but would post an earlier by a couple days by the Southern Investigative Reporting Foundation entitled, “The King’s Gambit: Valeant’s Big Secret” that was published on October 19, 2015.

Valeant’s stock did not very much budge that day, but still (I think) people had began recognizing that the ‘specialty pharmacies’ and possible shenanigans that’s happening in Valeant may be true.

I wish not to go into details of the allegations made against Valeant (try typing that word in Google and you’ll see what I mean), but I want to emphasize the importance of discussing how these brilliant people defined stock investing through proper due diligence.

You may click on the titles above by the corresponding authors and see for yourself how they’d dissected Valeant. Excellent reports.

Interestingly, Berkshire Hathaway had made early comments too about Valeant.

Charlie Munger had said this about Valeant in Daily Journal (DJCO) 2015 (late March, 2015) meeting, “Valeant (VRX) is like ITT and Harold Geneen come back to life, only the guy is worse this time.”

Charlie Munger is Warren Buffett’s most trusted friend (in my opinion). Buffett usually states in his annual report every so often the words “Charlie and I.” Charlie Munger is 91 years old, and the current Vice-Chairman of the Berkshire Hathaway.

Charlie Munger. Source: Google image

Charlie Munger. Source: Google image

To further understand what Mr. Munger means, click on this link.

Okay, so who are the big value investor hedge fund that had bought Valeant shares in the previous years?

So far from what I’ve researched:
Sequoia Capital (headed by Robert Goldfarb and David Poppe): ~$8.7 Billion USD

Pershing Square Capital Management (Bill Ackman): $14.5 Billion USD

ValueAct Capital (Jeffrey Ubben): $18.9 Billion USD

SQ Advisors (Lou Simpson): $3 Billion USD

-The Breakdown-
Sequoia has ~28.7% of its capital invested in Valeant as of 6/30/2015

Pershing Square has ~30% of its capital invested with Valeant.

ValueAct Capital has ~17% exposed to Valeant

SQ advisors has ~12% exposed

Some notes:

Bill Ackman further purchased 2 million more Valeant shares on the same day even after losing over $1.9 Billion USD. (October 21, 2015)

Sequoia had its two Valeant board directors resigned (October 29, 2015)

Bill Ackman defended his Valeant position Friday in a four-hour investor presentation/call. Click this link for his full slide presentation. (http://www.businessinsider.com/bill-ackman-valeant-slide-deck-2015-10)

Mr. Left had been questioned/interviewed in different business news media concerning this, Some even (I think) became personal. But I still think he really made a good service to the retail investors with his efforts.

Videos

1

Business News Network Interview of Andrew Left

BNN interview link (http://www.bnn.ca/Video/player.aspx?vid=732841)

1

Bloomberg Interview of Andrew Left

Bloomberg interview link (http://www.bloomberg.com/news/videos/2015-10-22/inside-valeant-s-unknowns-and-company-statement)

Summary

So, do I think Valeant is an undervalued stock? Plain answer is No. Given its outstanding acquisition history and providing essential drugs in preventing death (medical condition) to patients. I still think the shenanigans that had been brought up by these few credible people provide a red flag sign.

A couple more notes before we get done in the ongoing unraveling of Valeant’s business practices:

Andrew Left just delivered his or Citron’s Last Word on Valeant yesterday (November 2, 2015).

Finally, the Wall Street Journal just published an article today regarding Charlie Munger’s thoughts about Valeant:

“It’s just a company that was too aggressive in ignoring moral considerations in the way it did business.

References

Sited as link included above

A quote to go by:

“It takes 20 years to build a reputation and five minutes to ruin it.” Warren Buffett

-End-

Happy Investing

Mark Y.

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