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Business/Finance See other Business/Finance Articles Title: Hedge Fund Darling Valeant Massacred, Sparking Bio-Bloodbath! Hedge Fund Darling Valeant Massacred, Sparking Bio-Bloodbath! Mike Larson | Wednesday, October 21, 2015 at 4:23 pm It was a bio-bloodbath today, one sparked by an all-out massacre at hedge fund darling Valeant Pharmaceuticals International (VRX). The biotechnology firm was already under political pressure due to its strategy of buying up competitors, then dramatically hiking prices for the drugs those firms sold. Federal and state prosecutors recently subpoenaed the company, looking for information on its drug distribution and pricing strategies. Then today, Valeant shares plunged a whopping $28.13, or 19%, after a leading short-selling research firm questioned the firm’s sales practices. Specifically, Citron Research zeroed in on a relationship Valeant allegedly has with a specialty pharmacy. Another shock to the biotech sector. It said Valeant improperly boosted its own sales by dumping too much inventory on a company called Philidor RX Services. Citron also noted that the websites of several other pharmacies bear a striking similarity to Philidor’s, something it said could imply that Valeant has been stuffing inventory elsewhere. Citron even went so far as to ask: “Is this Enron part deux?” That caused Valeant’s shares to plunge so far, they were ultimately halted. The company then responded to the Citron allegations with a statement explaining its relationships with specialty pharmacies. But a huge amount of damage had already been done — both to Valeant and its fellow biotechnology stocks. The iShares Nasdaq Biotechnology ETF (IBB) finished down 0.5% on the day, extending its losses from the July peak to 24%. I haven’t dug deeply enough into Valeant to judge whether Citron is on to something or not. But that’s not the main issue for the broader markets — or investors like you (assuming you don’t own VRX). The issue is that the markets were already fragile heading into today. Several sectors and individual stocks have been badly lagging the broad averages during this post-September bounce. The last thing nervous investors need is a potential accounting scandal at a large, widely held stock like Valeant. Take the highly visible hedge fund manager Bill Ackman, who appears on CNBC and in the print press all the time. He owned a whopping 19.47 million Valeant shares as of the end of June. That was 5.7% of the company. Another investment advisory firm called Ruanne, Cunniff & Goldfarb, which runs the $8.1 billion Sequoia Fund, owned 33.88 million shares. That was 9.9% of the float. There’s no telling exactly how much financial pain they’re suffering. But if they still hold the same number of shares now that they owned as of June 30, they would’ve lost more than $2.5 BILLION TODAY. Wow! “Markets were already fragile heading into today.” Are they going to face margin calls? Are other hedge funds in the same boat? Will the broader pain in the biotech sector drag down the Nasdaq, which is chock full of these kinds of names? Lastly, doesn’t it make more sense to follow this strategy: Avoid higher-risk dreck-like VRX … stick with the handful of companies out there that have decent fundamentals and attractive characteristics … and hedge against broad market risk by using inverse ETFs or holding elevated cash levels? Share your thoughts at the Money and Markets website. Poster Comment: It looks as if Biotechnology is taking it on the chin big time. Pity Bill Ackman and the others who were screwed with their high-end positions in the company. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: BTP Holdings (#0)
Valeant CEO = Howard Schiller. Citron's a Jue name too.
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