Viking Global, the $30 billion plus hedge fund led by Andreas Halvorsen, bought more Valeant Pharmaceuticals stock in the fourth quarter even after it dragged down the fund’s performance.
Viking Global Equities had a strong 2015 overall, finishing up 8.3% for the year, according to the fund’s fourth quarter letter dated January 14. The average hedge fund finished 2015 down 3.49%, according to HFR.
In the letter, Halvorsen noted that the fund’s “biggest loser” in 2015 was Valeant.
Viking, which has owned Valeant since 2010, saw its portfolio’s performance dragged down 1.6% in the fourth quarter because of the Canadian pharma company’s decline.
Valeant, which has been a popular stock amongst hedge funds, has fallen more than 31% since October 21, when Citron Research, the short-selling firm run by Andrew Left, published a report suggesting Valeant was operating an Enron-like fraud. The report focused on the company’s relationship with Philidor, a specialty pharmacy that distributed prescription drugs for Valeant. Citron accused the company of using Philidor to book phantom sales.
Valeant has denied any wrongdoing, and said Philidor would close.
Halvorsen said that he’s a buyer of Valeant. From the letter:
“We added to the Valeant position during the first two months of the quarter as we found the valuation attractive, even with the operational disruption and loss of revenue caused by the shutdown of the Philidor sales channel. Furthermore, our analysis indicated that less than a third of Valeant’s revenue growth in 2014-2015 resulted from aggressive price increases on drugs; underlying volumes grew high single-digits during this period, comparing favourably to its specialty pharmacy peer group. We expected investors to refocus on the company’s business fundamentals and the stock to rebound once Valeant responded to the allegations, but we underestimated the time it would take for the company to resolve these issues. Despite this setback, we are encouraged by the steps the company has taken to address the situation and have remained invested in the company. Valeant severed its ties with Philidor and initiated an internal audit into the relationship; signed a new long-term distribution deal with Walgreens; and lowered prices for certain drugs, producing anticipated annual savings of up to $600 million for the healthcare system. We continue to believe that Valeant’s core product portfolio and its emerging drug pipeline will generate attractive organic growth for the foreseeable future, even in the absence of additional acquisitions or drug price increases. Key drivers of future volume growth likely will include the Bausch & Lomb contact lens franchise, the Salix gastroenterology business and Valeant’s internally developed dermatology pipeline. We continue to monitor the recent hospitalisation of CEO Michael Pearson and believe Howard Schiller is a capable interim leader in Pearson’s absence.”
It’s unclear how large Viking’s stake in Valeant is at the point. The fund last held more than 4.99 million shares of Valeant as of the third quarter ended September 30, regulatory data shows.
Hedge funds’ fourth quarter long equity holdings won’t be revealed until mid-February when 13-F filings begin to come out.
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