Ackman talks (and talks) up Valeant, but investors don't listen
Bill Ackman's lengthy defense of Valeant Pharmaceuticals International (VRX) on Friday included a bathroom break and talk of ordering out for lunch. What the billionaire hedge fund manager's appeals on behalf of the embattled drug company didn't include was any relief for Valeant's stock, which continued a downward spiral.
"I've got a lot of hungry people looking at me," Ackman, chief executive of Pershing Square Capital Management, said in concluding a four-hour long call in which he made the case for his wager on Valeant. The pharmaceutical firm has lost roughly half of its market value in just over two weeks.
Saying bad things happen to good companies, Ackman argued that other companies have made missteps while continuing to generate lucrative returns for investors. He also cited the example of a young Warren Buffett's 1963 investment of about $20 million in American Express (AXP) after its stock tanked more than 40 percent amid the company's connection to a scam involving vegetable oil.
"We expect more negative press and lots of scrutiny from regulators. In the meantime we think the business will perform very well -- the point here is life will go on for Valeant," Ackman said. "We think people are going to continue to buy Bausch & Lomb contact lenses. Investors have forgotten about the rest of Valeant's business."
Worth $60 billion before its Oct. 14 disclosure of a probe by federal prosecutors into issues including how it prices its drugs, Valeant's value is currently hovering just above $32 billion. Much of that plunge occurred after Citron Research, an investment firm led by short-seller Andrew Left, accused Valeant of fraud, saying it used a little-known specialty pharmacy, Philidor RX Services to inflate its revenue.
Four days after blasting Citron's attacks as false and misleading, Valeant on Friday said it will sever its relationship with Philidor, which informed Valeant it is closing. Late Thursday, both CVS Health (CVS) and Express Scripts (ESRX) said they were axing Philidor from their pharmacy networks after reviews of its practices.
While Ackman predicted Valeant's shares would rebound and rise to unseen levels -- $448 by 2018 -- Citron tweeted that Valeant shares stand better odds of going to zero than Herbalife, while also saying it would dish more dirt on Valeant on Monday.
Herbalife (HLF) also took a jab at Ackman, who has shorted its stock and accused the nutritional supplement seller of being a Ponzi scheme in which investors are paid returns from new capital from new investors, not from being a profitable venture.
"I hope Bill Ackman has done more research on Valeant than he did on Herbalife," a spokesman for the company said in a statement.
On Friday, at least, if investors were taking sides in the back-and-forth, they seemed to side with Herbalife, its shares rising 4.5 percent to $56.04. Valeant shares, meantime, finished the session down nearly 16 percent at $93.77.