Valeant’s top shareholder defends stake in the company

By Michael Flaherty and Vidya L Nathan

(Reuters) – Valeant Pharmaceuticals International Inc’s largest shareholder defended its investment in the embattled drug-maker, saying allegations against the company are false and that there is no legal case preventing ties to a specialty pharmacy.

Fund manager Ruane, Cunniff Goldfarb Inc, which has a history is entwined with legendary investor Warren Buffett, owns a 9.93 percent stake in Valeant as of June 30, Thomson Reuters data show. The data also show that the Valeant stake comprises one-third of Ruane, Cunniff Goldfarb’s overall holdings – a much higher than normal exposure to a single stock.

After coming under pressure this summer, Valeant’s stock plunged after short-seller Citron Research said last week that the company was using its drug distributor, specialty pharmacy Philidor, to inflate revenue numbers.

Ruane, Cunniff Goldfarb, which manages the Sequoia Fund, published a letter about its Valeant stake to the fund’s own investors, dated Oct. 28, onto its website.

In a defense of Valeant’s strategy and actions, President Robert Goldfarb and Executive Vice President David Poppe said their firm believes Valeant operates within the law and that there was no legal reason why the Canadian drugmaker cannot advise, control or own Philidor.

The company has denied the allegations and asked the U.S. Securities and Exchange Commission to investigate Citron’s “false” claims.

In their letter, Goldfarb and Poppe suggested that the drug company move more quickly to pay down its giant debt load. Valeant’s long-term debt stood at $30.18 billion as of Sept. 30.

“Because of its large indebtedness and need to tap the capital markets to make acquisitions, Valeant in particular needs the confidence of the credit market to execute its business model,” said the letter.

“This has caused an extraordinary level of pain,” Goldfarb and Poppe said in the letter, referring to the 50 percent drop in Valeant’s shares.

“We would stress the importance of taking a more systemic approach to managing business practices with an eye on the company’s long-term corporate reputation,” the letter said.

The Sequoia Fund was recommended by Warren Buffett when it first opened, as both Richard Cunniff and William Ruane were friends of his since they all studied under Benjamin Graham at Columbia University, according to media reports.

Other investors – including activists Pershing Square and ValueAct – share high exposure to Valeant.

Brahman Capital, Hound Partners, SQ Advisors and Tesuji Partners have between 12 percent to 18 percent exposure to the stock, Thomson Reuters data show.

(Editing by Savio D’Souza and Cynthia Osterman)

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