Bill Ackman Leaves Valeant Pharm. After Facing $4 Billion Loss

By Parth Parikh,   
Money and Investing Writer

William “Bill” Ackman is the founder and CEO of Pershing Square Capital Management, one of the top hedge funds in the world. Known for his investing style, Ackman is considered one of the most notable contrarian investors, who are investors that trade stocks contrary to what the public thinks and believes.

His ideas and theories have either made him a lot of money, like when he shorted MBIA’s (NYSE: MBI) bonds shortly before the 2008 financial crisis, or lose a lot of money, like the situation with Valeant Pharmaceuticals (NYSE: VRX).

On March 13, Bill Ackman announced that Pershing Square would sell every one of their 27 million shares and options of Valeant to the investment bank Jeffries and he would step down from their board of directors immediately.

The news was long overdue and in the hedge fund market, time does, in fact, equal money. Ackman had purchased a large number of shares of Valeant Pharmaceuticals in 2015, hoping that his presence and authority would change the perception of the embattled company and he could help bring the firm back to prominence.

As time passed and Valeant became more engaged in controversies and scandals, the chances of making a profit on this bet seemed bleaker for Ackman. But Bill had other plans, and instead of cashing out of his position, he spoke publicly about his belief in Valeant and represented the firm when they were called to Capitol Hill in Washington, D.C. for a Congressional hearing on drug prices.

Ackman had even held a conference call with Valeant investors and news reporters about why he was still involved with the company and what lies in the future for Valeant.

Throughout the two-year span, he bought more shares of Valeant and took more board positions to put himself in the forefront and create the change that Valeant needed.

The change never came, and after two years of holding a company that could not see a bright future, Ackman sold the shares of Valeant at nearly $11.03 a share compared to the $197.43 share price of Valeant exactly two years ago. In total, Bill Ackman’s Pershing Square lost $4 billion in value and almost $7.7 million each trading day they held the company since 2015.

The problems with Valeant Pharmaceuticals stemmed from their drug pricing controversy, when they spiked prices on their various products by almost 66 percent, with some of their big name products like Nitropress, Isuprel and Glumetza facing a 500 percent spike. As a result of their actions, they were called to the nation’s capital to testify before the House Oversight Committee and received subpoenas from the US Attorney’s Office in Massachusetts and New York’s Southern District.

A few months later, the pharmaceutical company was hit with another scandal, when Citron Research claimed that Valeant had produced false numbers in their “sales” to Philidor Services, which is also owned by Valeant. The research shows that Valeant used Philidor to force customers to buy very expensive products and created improper revenue and sales forecasts in their financial statements.

In the larger picture of Pershing Square Capital Management, this $4 billion loss can be categorized as a mistake on Ackman’s part, and his retreat from the troubled pharmaceutical company speaks volumes to the magnitude of the issues facing the company.

A version of this article appeared in the Tuesday, April 4th, 2017 print edition.

Contact Parth at
parth.parikh@student.shu.edu

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