Large Valeant shareholder gives up stake amid mounting losses

Billy Bambrough
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Drug firm Valeant once made up 30 per cent of Sequoia Fund’s portfolio
Drug firm Valeant once made up 30 per cent of Sequoia Fund’s portfolio (Source: Getty)

An investor letter has revealed that one of Valeant Pharmaceuticals largest shareholders has ditched its stake in the firm over the last quarter.

Mutual fund Sequoia told investors (the letter can be read here) it no longer owned any shares of Valeant, the controversial pharma firm that has grown quickly in recent years through acquisitions and drug price hikes.

At one time Valeant made up 30 per cent of Sequoia's portfolio, but intense scrutiny of Valeant's business practices as well as delays to its corporate accounts has ramped up pressure on Sequoia to cut its loses.

Read more: Pharma consolidation continues with two new massive deals

The letter, signed by the Sequoia Fund Investment Committee, read:

Our new leadership elected to sell our position in Valeant Pharmaceuticals, exiting completely by mid-June. Valeant was our largest position to start the year and its 80 per cent decline through 30 June badly penalised our results.

For the first half, Sequoia generated a negative 13.2 per cent return verses a positive 3.8 per cent return for the S&P 500 Index. Absent Valeant, the rest of the Fund’s portfolio generated a positive return of 2.3 per cent for the first half.

Longtime chief executive officer and co-manager of Sequoia, Robert Goldfarb, retired at the end of March 2016.

David Poppe, who co-managed the $5.6bn (£4.2bn) fund with Goldfarb, became the lead manager and replaced him as the company’s chief exec.

Read more: Last year the former the Valeant CEO said he felt good about 2016

The fund also disclosed a series of new bets made during the second quarter.

It bought shares in Mexican fast food chain Chipotle, asset manager Charles Schwab, US retail bank and mortgage lender Wells Fargo, and used-car retailer CarMax.

The letter continued:

This was a very active quarter, at least by our standards. Sequoia exited several positions in addition to Valeant and we added four new stocks.

This does not represent a departure from our longstanding philosophy of concentrating on a focused portfolio of businesses we have researched intensively and intend to hold for years.

Our team believes in that approach. In fact, we held 38 stocks in Sequoia at the start of the year, including a number of tiny positions that could never be meaningful contributors to returns. We held 29 stocks in the Fund at mid-year.

Sequoia's top ten holdings as off the end of June are:

Last month the new chief executive of Valeant said he’s open to flogging more of the company’s assets to try and clear its mounting debt pile.

Joe Papa, who replaced Mike Pearson as chief executive of the embattled Canadian pharmaceuticals company in May, has said the company would assess offers for any of its assets.

Read more: CMA fines pharma companies including GSK £45m

Earlier Valeant had said it would be open to offers for any assets excluding its core dermatology, consumer products, Bausch + Lomb eyecare and Salix gastrointestinal drug businesses.

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