Bill Ackman revealed that Pershing Square Holdings received a request for cooperation from a Senate Committee conducting an investigation on the pricing of off-patent drugs.
In a letter and annual report to shareholders, Ackman said his firm will fully cooperate with the U.S. Senate Special Committee on Aging, which is seeking to have an understanding of the pharmaceutical industry and related regulatory and public policy concerns.
The Special Committee started an investigation due to the sudden and significant increase in drug prices last year. Some of the pharmaceutical companies under investigation and were asked to provide internal documents included Valeant Pharmaceuticals (NYSE:VRX) (TSE:VRX) and Turing Pharmaceuticals.
Valeant and Turing were also questioned by the House Committee on Oversight and Government Reform regarding drug pricing in February.
Ackman joins Valeant’s Board
Pershing Square is one of the largest shareholders of Valeant. Ackman joined the Board of Directors of the Canadian pharmaceutical company this week.
Ackman told Pershing Square’s shareholders, “Recent events have required us to take a more active role in the company, and our presence on the board will now give us influence over the selection of the new CEO, capital allocation, and strategy.”
Pershing Square owns 9% stake in Valeant including options. The net asset value (NAV) of Ackman’s firm declined 20.5% last year due to the poor performance of some of its investments particularly Valeant. Over the past 12 months, the stock price of Valeant dropped around 84% due to concerns regarding its drug pricing practices, government investigations, and lower earnings forecast for 2016.
“The decline in the market value of Valeant coupled with the underperformance of a number of our other investments since the summer has been compounded by the impact of the leverage from the bond issuance we completed in June of last year. Leverage amplifies both negative and positive returns. We have suffered the negative consequences of leverage as a result of the decline in the market value of the portfolio since August,” explained Ackman.
Pershing started to stabilize its investment in Valeant
Ackman also stated that his firm already started stabilizing its investment in Valeant, and considering the significant lessons to learn from the experience.
“One important lesson from the past is that while we normally use our active investment approach to create value in a new situation, it can also serve in a defensive role when a business we own encounters severe challenges.”
Pershing Square implemented a straightforward plan to protect its investment and stabilize Valeant by putting Ackman and its Vice Chairman Steve Fraidin in a position of influence in the company’s Board—giving them access to inside information.
“We have been given access to information and to management necessary for us to conduct due diligence and assist the company,” said Ackman.