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Billionaire Battleground: Valeant Pharmaceuticals Shares Are in Wall Street's Crosshairs

By Todd Campbell - May 24, 2016 at 4:20PM

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An epic tug-of-war broke out between billionaire bulls and bears last quarter.

Image source:, via Flickr.

While following blindly in the footsteps of billionaires is risky, it's always interesting to see what stocks they're buying and selling, especially when it involves a battleground stock like Valeant Pharmaceuticals (NYSE: VRX). Last quarter, nine billionaires tracked by The Motley Fool bought 6.9 million shares of Valeant Pharmaceuticals, while four billionaires sold 13.7 million shares. With big money engaging in a tug-of-war on this stock, should you spin the wheel and risk owning Valeant in your portfolio?

First, some background

Valeant's strategy of acquiring drugs, shifting the distribution of those drugs to specialty pharmacies, and increasing drug prices to maximize sales and profit led to its annual sales increasing from about $1 billion in 2010 to more than $10 billion today.

VRX Revenue (TTM) Chart

VRX Revenue (TTM) data by YCharts.

However, its acquire-reprice-relaunch approach came under significant fire last year when reports surfaced that it acquired the heart drugs Nitropress and Isuprel from Marathon Pharmaceuticals in early 2015, only to increase their cost by 237% and 530%, respectively.

Scrutiny of Valeant tied to that revelation led to a review of its accounting practices, the shuttering of its specialty pharmacy relationship, a more comprehensive review of its drug price strategy, and a call for management to testify before Congress. The fallout also caused prescription volume to drop, forcing management to cut its sales and earnings outlook for 2016.

Additionally, the seemingly endless stretch of bad news made some Valeant creditors antsy. The company's acquisitions weren't cheap, and financing those deals resulted in long-term liabilities in excess of $30 billion exiting December.

Facing the prospect of slowing sales, some creditors used the fact that Valeant's accounting review was delaying the filing of its audited financials with the SEC as a reason to cry foul. Doing so increased pressure on management to wrap up its accounting review and get its books current with the regulator to avoid a default and possible cash crunch.

Fortunately, management recently wrapped up its accounting review and sent along its audited 2015 financial reports to the SEC. However, the company is still finalizing its first-quarter financials, and questions still remain regarding whether or not the company will need to sell key products to pay down debt.

Bill Ackman is Valeant's most active bull. Image source:, via Flickr.

Billionaire buyers and sellers

Despite the company's struggles, nine major Wall Street money managers warmed up to Valeant Pharmaceuticals shares in the first quarter.

The biggest of Valeant's bulls was Bill Ackman, the outspoken Valeant shareholder who appeared before Congress with ex-CEO Michael Pearson to answer questions about the company's pricing strategy earlier this year.

In the first quarter, Ackman added 5 million shares to his position, increasing his bet on Valeant to 21.6 million shares. That buy solidifies Ackman's Pershing Square as Valeant's second-biggest investor.

In addition to Ackman, two other well-heeled buyers of Valeant were multi-billionaires David Tepper and D.E. Shaw. Tepper's $10.4 billion net worth makes him a Wall Street titan, and his Appaloosa Management, which owns 48 different stocks worth $5.2 billion exiting March, gobbled up 945,000 shares of Valeant last quarter. D.E. Shaw, a legendary quantitatively driven hedge fund manager with a net worth north of $4 billion, acquired 467,125 shares, too.

On the other side of the battlefield were four sellers, including Viking Global Investors, a fund run by Andreas Halvorsen. Viking Global sold its entire 7.8 million share stake in Valeant in Q1. Halvorsen, who is worth over $2 billion, was the biggest seller of Valeant last quarter, but billionaire Stephen Mandel's Lone Pine Capital also sold its 5.8 million share position in the company.

Reestablishing trust

Wall Street hates uncertainty and given the lack of insight into when Valeant can get back on a growth track, it's not surprising that more money managers sold Valeant stock than bought it last quarter.

Image source:

Reversing that trend depends a great deal on the ability of Valeant's revamped management team to reestablish trust with investors. Ackman joined the company's board of directors in March and a new CEO replaced Pearson last month.

If Ackman can help Valeant's C-suite assuage investor concerns, then it can begin focusing more on opportunities ahead than the company's troubled past. However, restoring confidence will take time (and a few quarters of over-delivering on investor expectations!).

In the meantime, the bull and bear battle is likely to continue, and that means more volatility. If so, then most Main Street investors might be better off sitting on the sidelines until the company's future becomes clear.

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