CHARLIE MUNGER: Valeant's pricing strategy is 'deeply immoral'

Warren Buffett’s right hand man Charlie Munger is not a fan of controversial pharmaceutical company Valeant.

According to a report from Bloomberg News, Munger called Valeant’s core strategy of buying smaller pharmacies and then raising prices of their existing drugs, “deeply immoral.”

Bloomberg added that Munger, speaking on Saturday, said the company’s practices are, “similar to the worst abuses in for-profit education.”

Back in March, Forbes reported that at the annual meeting for the Daily Journal, a small publishing company Munger for which Munger serves as chairman, Munger said, “Valeant is like ITT and Harold Geneen come back to life, only the guy is worse this time.”

Writing in Fortune last week, Josh Brown outlined just how damning that comparison is, as Geneen is seen as the poster child for the accounting trickery that defined the conglomerate craze of the 1960s and 1970s. The basic strategy was to rapidly acquire companies to cover up losses of its already-owned companies, thereby making the whole enterprise look profitable when it fact it very much was not.

Now, Munger’s latest comments on the matter aren’t a huge expansion on what he’d previously said about Valeant, and we’d note that Munger and Berkshire Hathaway — Munger is the vice chairman of Berkshire — haven’t, to this point, been involved in Valeant and so Munger is just riffing on a thing he’s thinking about (or rather, being asked about).

But Munger’s comments haven’t gone unacknowledged, as back in May, hedge fund Ruane, Cunniff & Goldfarb, which runs the $US7.5 billion
Sequoia Fund, Valeant’s largest shareholder that last held 33.88 million shares according to filings from the SEC, was asked about Munger’s comments at its investor day.

Sequoia’s Bob Goldfarb said in May, “My guess, when I saw the comments, was that Charlie might have been targeting Valeant’s accounting,” adding that Sequoia added back restructuring charges incurred by Valeant to the purchase price when the company and other analysts add back the charges to derive cash earnings. (For interested parties, a full read of the transcript from Ruane, Cunniff & Goldfarb’s investor is well worth the time.)

Sequoia Fund, in a recent letter to investors, said, “This has caused an extraordinary level of pain, made worse because the most serious allegation leveled against Valeant — that it set up specialty pharmacies as a way to create fraudulent sales and inflate its reported growth rate — is false. As an academic case study, Valeant would be fascinating. As a real life experience, it hurts.”

As for the latest actual news on Valeant, short-selling firm Citron Research was scheduled to release its latest findings on Monday, about two weeks after the firm’s report on Valeant comparing it to Enron sent the stock into a tailspin.

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