From around 2014 through 2016, Valeant seemingly had a crisis story per week, ranging from insider trading to channel stuffing
From around 2014 through 2016, Canadian drug company Valeant Pharmaceuticals International seemingly had a crisis story per week, ranging from insider trading to channel stuffing. Now, Pershing Square, a hedge fund run by activist investor William Ackman, and Valeant, decided to settle an insider trading lawsuit with Allergan and pay $290 million.
In 2014, Ackman acquired a multi-billion-dollar stake, about 10 percent, in Allergan. Being an activist, part of his goal was to force Allergan into being bought by Valeant. Valeant was dubbed a serial-acquirer, having made well over 108 acquisitions between 2008 and 2014.
Almost immediately there were accusations of insider trading. Particularly when, a month after buying the stake, Valeant and Pershing announced their joint bid and the stock climbed 15 percent, which gave Pershing about $1 billion in gains overnight. Allergan responded with a lawsuit and the U.S. Securities and Exchange Commission (SEC) jumped in to investigate possible insider trading.
Valeant and Ackman were persistent, making several more unwelcomed bids for Allergan. Forbes wrote, “However, Allergan’s CEO at the time, David Pyott, was not interested in a deal with Valeant, which he characterized as a house of cards fueled by drug price increases and shoddy accounting.”
In order to fend off Valeant and Pershing, Allergan made a deal with Actavis. This also created a big profit for Pershing Square, which, according to Forbes, “gain 37 percent net of fees, generating a windfall of about $1 billion for Ackman.”
Pershing Square sold off much of its stake in Allergan and invested over $3 billion into Valeant, according to Forbes, “proclaiming its CEO J. Michael Pearson as a Warren Buffett of pharmaceuticals. Ultimately, Pearson was anything but.
In the subsequent years, it would be discovered that Pyott’s ‘house of cards’ claims were just the tip of the iceberg. In the fall of 2015, investigative reporter Roddy Boyd of the Southern Investigative Reporting Foundation uncovered the engine of Valeant’s heady growth, a specialty pharmaceutical channel called Philidor that pushed the company’s drugs on insurers and benefits managers. (Philidor’s leaders have since been charged criminally.)
Pearson is gone, and Joe Papa has taken over Valeant, attempting to rid it of the scandals and its $30 billion in debt. Both Pershing and Valeant have worked hard to get the insider trading lawsuit dismissed, and were scheduled for a jury trial in 2018, but just prior to the New Year they instead decided to pay the penalty. To the bitter end, Ackman claimed there was no merit to the insider trading accusations.
Valeant agreed to pay $96.25 million and Pershing Square will pay about $193.75 million.
Forbes noted, “For Pershing Square investors, including Ackman, the settlement will be costly. The hedge fund with over $9 billion in assets will see its performance dip by a further 1.32 percent as funds are used to pay down the $193.75 million claim. That likely means Pershing Square will close the year down over 3 percent, cementing a third straight year of dramatic underperformance in a raging bull market.”
