Investors, like Bill Ackman (Trades, Portfolio), have lost fortunes on a pharmaceutical company called Valeant (VRX, Financial). Now that some of the murkiness surrounding the company has begun to clear slightly, John Paulson (Trades, Portfolio) is hoping to make one, disclosing Monday that he has deepened his involvement.
Paulson increased his position in Valeant by 12.5% on June 14, according to GuruFocus data, buying 21,813,400 shares. That puts his stake at 6.27% of his reported long portfolio with 3.5% of the company’s shares.
The buy adds to Paulson’s existing Valeant stake, amassed since the first quarter of 2014, over the stock’s high-flying days when it pushed above $230. At the market’s close the day Paulson made his most recent purchase, the price was $12.46 a share. Since his announcement of the buy yesterday, the price has edged up 0.69%, with a 1.5% decline Tuesday, to $16.89. The investor has already lost around $2 billion on the bet.
Paulson said in the filing that he bought the shares on the belief they “were undervalued and represented an attractive investment opportunity,” and he may consider buying more.
Despite the market’s tepid reaction to his recent increase, Paulson’s appointment to Valeant’s board on June 19 inspired a 31.5% rally since.
Paulson jumped in to aid in Valeant’s transformation away from a serial acquirer of other drug companies to a developer of more of its own products.
"The strategic plan to transform Valeant smartly focuses on rebuilding the company's core franchises in ophthalmology, dermatology and gastroenterology while simultaneously using the proceeds from the sale of non-core assets and operating cash flow to de-lever the company," he said in the press release announcing his board membership. "I am fully supportive of the strategy and leadership team at Valeant."
Valeant’s stock crash in 2015 that forced it to change its business model sprang from politicians’ inquiries into its practice of acquiring drugs and inflating their prices, which led to federal subpoenas. Soon after, it came under fire for abnormal accounting practices, and a short seller report accused it of accounting fraud.
Paulson, leader of hedge fund Paulson & Co. Inc., pulled in $15 billion in 2007 by betting on the collapse of the mortgage market, but has struggled in recent years. According to The New York Times, Paulson’s Advantage fund was down 9.7% at the end of March and his Partners Enhanced fund declined 8%, following a 49% drop last year.
Joining Paulson as a Valeant investor is someone far away on the investing style spectrum, Francis Chou (Trades, Portfolio). Chou gravitates to troubled stocks that trade at cheap prices, having a stake in fallen cell phone king BlackBerry (BBRY, Financial). Valeant is his fourth-largest holding at almost 9% of his portfolio, after he increased it by 20% in the first quarter.
In his first quarter letter, Chou said of Valeant: “Valeant could return to trading at the normal multiples if its debt is significantly reduced and the impact and costs of litigations are determined. The company appears to have good cash flow characteristics, resulting from solid portfolio pipelines.”
Chou also said his initial price for Valeant was “on the high side” but that he believed the intrinsic value remained higher than his average cost – $42.64 per share.
