Valeant 'Witch Hunt' Going Too Far for Brave Warrior's Greenberg

Former OMB Director Stockman on Valeant Scandal
  • Firm is fifth biggest hedge-fund holder, based on June data
  • Joins Ackman in coming to defense of specialty drugmaker

The drubbing in Valeant Pharmaceuticals International Inc. is the result of a short seller’s false claims going unchallenged in the press, according to a hedge-fund manager with one of the largest stakes in the company.

Glenn Greenberg, who oversees more than $3 billion at Brave Warrior Advisors LLC, said he’d add to his stake in the drugmaker today if it wasn’t already so big.

As the fifth biggest hedge-fund owner of Valeant, those shares now account for about 21 percent of Greenberg’s fund, data compiled by Bloomberg show. The value of that stake has tumbled $650 million since August.

The media has “conducted a witch hunt,” the 68-year-old investor said in a telephone interview. “You don’t assume innocence, you assume guilt, sticking darts in the accused, in someone that breaks social norms, and this is a way of driving them out.”

Brave Warrior's Big Valeant Stake, as of June 30
Brave Warrior's Big Valeant Stake, as of June 30

Greenberg, whose fund started buying Laval, Quebec-based Valeant more than four years ago at prices that are about a quarter of its level now, joins a growing list of high-profile investors who have come to the company’s defense.

William Ackman, the founder of Pershing Square Capital management, held a four-hour conference call on Friday in which he blamed the stock’s plunge in part on bad public relations.

Greenberg, who has about four decades of investment experience, focused on allegations made last week by short seller Andrew Left of Citron Research. The firm accused the company of inflating sales using specialty pharmacies such as Philidor RX Services.

Unintended Consequences

Shares of Valeant, which terminated its relationship with Philidor, have declined 33 percent since Left publicized his claims on Oct. 21. In a telephone interview with Bloomberg Wednesday, he said the market reaction speaks for itself.

“If the company is that weak that I can bring it down then it shouldn’t have been that high,” Left said. “A short can’t bring a company down. If the information you put out isn’t true, I don’t care who’s on the other side, it’s not going to come down.”

Echoing a point raised in Ackman’s conference call, Greenberg said Valeant executives such as Michael Pearson, its chief executive officer, are paying a price for a focus on keeping costs low and boosting profits.

“Mike Pearson believes in a lean shop and in getting results,” he said. “He believes in doing things rationally and efficiently. He thought, why do I need public relations or government relations -- I’m going to do stuff that’s smart, legal, and I want resources on generating earnings, not the usual horse sh*t that most of pharma does.”

Valeant’s tumble has spurred billions of dollars in losses for hedge funds that before August had ridden the shares to some of the biggest gains of the North American bull market. Thirty-two counted it among their top 10 holdings at the end of the second quarter, according to an Aug. 19 report by Goldman Sachs Group Inc.

Paper Losses

Valeant’s biggest shareholder, a New York-based investment firm Ruane Cunniff & Goldfarb Inc., defended its investment in a letter to shareholders last week.

Valeant was at $99 a share on pre-market trading on Wednesday. As recently as Aug. 5 it was trading above $260. While steps such as hiring a former deputy U.S. attorney general to advise a committee investigating its business practices will help, Greenberg said the damage to Valeant’s reputation has already been done and repairing it will be a slow process.

Brave Warrior owned about 5.7 million shares at the end of June, which accounted for as much as 37 percent of his fund at the time, data compiled by Bloomberg show. That’s a higher proportion of assets than either Ruane Cunniff or Pershing Square.

“It can never go back in the bottle,” he said. “No matter what happens here it will take a lot of time. The company will have to show if they did something wrong, they’re cleaning it up and taking responsibility, showing that the business model does not depend on Philidor, and they can arrange other pharmacy distribution relationships. Time will have to go by.”

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