Valeant Pharmaceuticals Intl Inc (VRX): Hedge Fund Giants Still Believe

Valeant Pharmaceuticals (VRX)

Valeant Pharmaceuticals Intl Inc  shares were the subject of a quick and staggering plummet over the last year. The company had been trading at over $250 in August 2015 and is now seen struggling to keep its mid-twenties share value afloat. Share crashes of this sort are rare in the market and Valeant evidently caught much of Wall Street off guard. However, while many might have turned their backs on the pharmaceutical giant, a report reveals that a number of formidable investors continue to stake a lot in Valeant.

The stock’s all-time high was damaged by troubles that still persist a year later. Today, analysts continue to cite the drug maker’s financials, public image and reduced influence among its biggest challenges. Hedge fund giants still hold large stakes in Valeant though, leaving reason to trust that the firm may still make a rebound.

Valeant Pharmaceuticals (VRX)
Photo: Ryan Remiorz/The Canadian Press via AP, File

A recent report by Whalewisdom offers a look at the biggest backers of Valeant Pharmaceuticals. The site closely follows the 13F, 13G EDGAR, and Schedule 13D filings made by hedge funds. It is a reputable conveyor of trends in the investment sector as well, and offers insight into where fund managers tend to stake their interests.

Whalewisdom’s aggregated report shows more than 330 funds that filed 13Fs during Q2 hold VRX shares. Collectively, 219.9 million of the company’s shares were held by leading hedge fund entities by the end of the second quarter. The stock is even ranked as top 10-holding by 21 of them

Valeant’s big-time backers

June’s aggregate is 49 million shares lower than the first quarter, which boasted a count of 286.9 million. Some of the most reputable fund managers have not wavered from Valeant though, with a few of them significantly raising their stock of VRX shares too.

The Motely Fool cites that just over 70 million aggregated VRX shares are owned by four specific money managers.

Jeffery Ubben of ValueAct Holdings has 14,994,261 VRX shares. The fund’s investment in Valeant shares ranks just beneath that of Fidelity Asset Management, which holds 15.5 million. At the top end, Pershing Square Capital Management has 21,591,122 VRX shares in stock. Paulson and Co. owns nearly 19.1 million and recently upped its purchase in the second quarter by acquiring over 5.7 million more.

Valeant holds promise

The drug maker is expected to do away with its non-core assets. This should contribute a lot towards reviving the company’s business model, Sean Williams assures. Valeant claims this move should pull in a return of around $2 billion. That would account for nearly 20 percent of its sales forecast for 2016. Several more disposals should rake in a further $8 billion in the foreseeable future. The claim drug company itself relayed this at its Q2 earnings call.

Asset disposal promises to go a long way towards shedding Valeant Pharmaceutical’s $30.7 billion debt as well.

VRX money problems

Sean Williams of the Motley Fool recognizes the cash owed by Valeant as a huge deterrence from the company. The drug entity’s debt stood around $30 billion at its Q2 eanrings call. It funded numerous ventures and acquisitions through borrowings over the years. Included in these activities is the adoption of approved drugs, business takeovers and a few pipeline purchases. A lot of these moves were set against the drug maker’s large line of credit.

Those who lent money to Valeant were happy to do so while the firm’s value was on the rise. Now the company’s reduced stock, which is in part due to lenders noticing its stockpiling debt, makes growth an extremely tricky task. This is made worse by the fact that the pharmaceutical giant’s reach is mainly expanded through mergers and acquisitions. Beyond all this, the company can’t shake off poor profit projections, which can have an even larger downward pull on stock.

A new face inspires confidence in VRX

Other than its financing assurances, Valeant does look to be on the verge of a turnaround from a basic standpoint. The new CEO, Joseph Papa, invokes a lot of much-needed confidence among investors and the public. Papa lead Perrigo — a leading over-the-counter drug retailer — for 10 years before coming to manage Valeant. The move alone pushed Perrigo’s sales up 200 percent. The new CEO’s profitable track record suggests some great business ventures are in store for the major, pharmaceutical entity

An upward change in the course of VRX stock is more likely with a new face at the lead. Under Papa, Valeant stands to shed much of its debt and the PR damages seen under its former chief exec.

Weakened market authority

Another one of Valeant’s woes is its diminishing influence over the drug market. The entity’s pricing power, in particular, was hurt a great deal when it came clean about misappropriating the prices of two acquired drugs.

Former chief exec J. Michael Pearson reported that a mistake was made in calculating the selling prices of Isuprel and Nitropress. The two cardiovascular remedies were bought in February last year and underwent price increases of 212 and 525 percent respectively. No chemical amendments or changes in production could be found to back the increases.

Industry regulators now keep a watchful eye over Valeant Pharmaceuticals Intl Inc and its prices. Lax drug pricing is a valuable commodity in the pharmaceutical space. It lets drug makers easily cover development losses and the steepened costs of other drugs. This can be seen with many branded treatments and Valeant is lessened without its former pricing luxuries.

Valeant’s poor public image

Appearance counts a lot for any company and Valeant Pharmaceuticals doesn’t look too good in the eyes of public at the moment. The firm’s scandals have done very little to win over investment while a number of investigations would suggest that the company holds a few dishonest tendencies.

A large, drug retailer, Philidor Rx Services, made a lot noise over Valeant’s disclosure of accounting figures last year. Philidor highlighted the drug maker’s inaccurate revenues account and forced the company to go over its figures once again. This resulted in a late annual 2015 filing, with the same effect on this year’s Q1 financials.

Another investigation was recently reported earlier this month, citing a close relationship with Philidor Rx Services. The U.S. attorney’s office for the Southern District of New York is interested in finding out whether insurers were made aware of the tight ties held between the two companies.

As a distributor, Philidor is expected to act a neutral party. However, the noticed bond between Valeant Pharmaceuticals and Philidor has cast doubts over the distributor’s impartiality. Currently, Philidor is suspected of favoring Valeant Pharmaceuticals Intl Inc drugs over other, cheaper therapies. The distributor is reported to be complying with the authorities in order to resolve the matter.

Will VRX rise again?

Some large investors still anticipate a turnaround from the company despite its looming setbacks. The consensus is that it would take a great effort in order to achieve this, but it is not unlikely either. Increased investment will only be achieved through more trustworthy business model, debt-shedding and better asset management.

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