Losses Mount as Valeant Flounders

Following several months of extreme volatility and low investor confidence, pharmaceutical giant Valeant’s share price experienced yet another major drop last week. The share price loss has severely hit not only the pharmaceutical company itself, but also the investors and hedge funds that have put money into the firm in the past several months.

The share price decline, the latest in a long series of losses, began on March 15th, when shares of Valeant closed at $33.51, down from a previous day’s close $69.04 on March 14th. Share prices have dropped only slightly since, closing March 23rd at $33.43 and bottoming out at a low of $26.98 on March 18th. The massive decrease in share value, however, has pushed investor confidence ever lower, even though the company was already known to be struggling. At its height in August of last year, shares of Valeant traded for $262.52 per share, nearly eight times their current market value.

Share price and investor confidence did rally briefly following an announcement that Bill Ackman, CEO of the hedge fund Pershing Square Capital Management, had purchased a significant share of Valeant. In the ensuing months, however, Ackman’s attempts to push Valeant into profitability, which have included going so far as to arrange for himself to take a seat on the board of the pharmaceutical company, have done little to give investors reason to believe that the company is a good long-term investment. Indeed, Mr. Ackman’s own hedge fund, largely due to the poor performance of its large stake in Valeant, has lost roughly 25 percent of its value to date in 2016.

Pershing Square is not the only investment fund to have suffered because of Valeant’s failures. In fact, Robert Goldfarb, CEO of mutual fund Sequoia and one of the most well-known investment managers in the finance industry, has stepped down from his role and into retirement over the losses associated with Valeant. Sequoia has fared better than Pershing Square, losing only 10.9 percent of its value in 2016 so far. The losses, however, have been enough to cause the fund to perform worse than 98 percent of all other mutual funds.

In an attempt to convince investors not to cut their losses, Valeant has announced that it will replace current CEO Michael Pearson, though his replacement has yet to be named. In the interim, Mr. Ackman is expected to guide the company as best he can through his influence with the board of directors. However, hopes for rallying the share price and investor confidence after last week’s crash are currently low.