Documents released by a Senate committee on Friday provide an inside look at the roles and reactions of some top players in the Valeant Pharmaceuticals International Inc. accounting and pricing scandal as it spooled out over the last year.
Valeant found itself in trouble over its practice of buying drugs and then significantly increasing their prices, as well as its relationship with mail-order pharmacy Philidor, which caused it to improperly account for a deal in key financial disclosures.
Read: What to expect from Valeant earnings
Here are highlights from emails exchanged by activist investor Bill Ackman with Valeant’s senior management as the crisis played out.
‘Creating real value’
After Warren Buffett’s no. 2 Charlie Munger said last year that Valeant
was “like ITT and Harold Geneen come back to life, only the guy is worse this time,” Ackman took his complaints to Buffett.
”Charlie’s words carry a lot of weight so his statement is unfortunate if Charlie is wrong on the facts which I believe to be the case,” Ackman wrote.
“We have gotten to know Valeant and [then-CEO Michael] Pearson well over the last year and believe that the company is creating real value while helping to restructure part of an industry that has not been a good steward of shareholder capital or productive in generating products to contribute to the health of humanity,” Ackman said.
After getting Munger’s email address, Ackman wrote to him the very next day.
“While short-term performance is not evidence of long-term value creation, I believe that if you were to study the facts you would conclude that Valeant has created real long-term economic value while simultaneously becoming one of the most productive (in new drug development) large pharmaceutical companies in the world,” Ackman wrote.
‘The price increase question’
In a July 2015 email to Pearson fawning over Valeant’s business model, Ackman wrote he had only one criticism after the earnings call: “You sounded a little defensive on the price increase question.”
He also recommended updating investors about research and development on the call, saying “it helps pre-empt criticism about VRX lack of investment.”
‘Halt the stock’
After an Oct. 21 report from short seller Citron accusing Valeant of accounting improprieties caused the company’s stock to tumble 40%, Ackman advised Pearson, Little and Valeant’s general counsel, Robert Chai-Onn that, “If something like this happens again you should call the NYSE and have them halt the stock until you can respond to the critic with a press release.”
As the Philidor controversy emerged in late October and Valeant prepared to address the crisis, Ackman emailed two pages of notes on what Valeant should discuss, including many strong hints that management should apologize.
Read more: Ackman’s testimony suggests he’s in charge at Valeant
Ackman’s tone in emails quickly changed after a New York Times op-ed compared Valeant to Enron.
“When Mike said that you were running out of time on the call, he was right in that the company is running out of time to save itself,” Ackman wrote.
See: Valeant uses rare accounting maneuver for acquisitions that cushions income
“Valeant has become toxic… We are on the brink of a catastrophe…You have previously made the mistake of waiting while Rome was burning. There is now a conflagration… We are on the brink of a tragedy,” Ackman said.
In another late October email, Ackman warned Pearson, “I don’t think you are handling this correctly and the company is at risk of getting into a death spiral as a result.”
‘Good fundamental news’
Hungry for positive Valeant coverage by late March 2016, Ackman wrote to Pearson and other senior management about a new media strategy.
“We need to put out more press releases with good fundamental news,” Ackman wrote in a March email. “This could be two or three releases with AARP going today… Lets sync up about other good fundamental news.”
A government staffer ‘very sympathetic to your side of the story’
Analyst for Pershing Square Jordan Rubin put Pearson in touch with House of Representatives staffer Nick Uehleck in December 2015, writing that Uehleck would be “very sympathetic to your side of the story (off the record).”
“He is very pro-business and wants to [have] an adult conversation about the issues. I explained the economic and social logic of your business plan and he got it immediately,” Rubin wrote.
‘An opportunity for positive press that was missed’
In March 2016, Ackman said in an email that he “strongly” encouraged Pearson to pass press releases by Stephen Fraidin, vice chairman of Pershing Square Capital Management and a recent addition to Valeant’s board of directors, before issuing them.
With one such press release, Ackman wrote, “While we are happy with the outcome, it was an opportunity for positive press that was missed. The timing was wrong, and the confidential nature of the settlement continues to give fodder to the company’s critics about transparency.”
“I will help on the other side by minimizing if not eliminating any public statements I make about Valeant,” Ackman wrote.
‘Make sure he is not speaking with the media’
In a mid-March 2016 email apparently prompted by a request for comment from the Financial Times, Ackman wrote that the outlet had heard about disagreements on Valeant’s board about its reset expectations as well as about board members not wanting Fraidin on the board.
“We of course are not commenting,” Ackman wrote. “Number one: one or more directors/employees is clearly leaking to the FT and other media.”
“Without being in anyway accusatory, Mason please check with Jeff Ubben” — the chief executive officer of ValueAct Capital, who has long backed Valeant — “to make sure he is not speaking with the media,” Ackman wrote. “This is very very damaging to the company.”
After the WSJ’s Monica Langley profiled Ackman and his Valeant troubles, Ackman wrote in an email that he did his “best to shape the WSJ article in a way that would be good for Valeant and I didn’t love the outcome.”
“With respect to John Hempton” — who runs a hedge fund in Australia and has criticized Valeant — Ackman wrote, “He happens to be long Herbalife and certifiably crazy.”
Hempton posted the email on his blog on Saturday.
“I just want to put this up for posterity,” Hempton wrote. “But I wish to assure Bill that on both stocks I am research driven and quite sane.”
View more information: https://www.marketwatch.com/story/we-are-on-the-brink-of-a-catastrophe-9-highlights-from-bill-ackmans-valeant-emails-2016-05-09