From the University of Chicago's Booth School of Business' ProMarket blog, Nov. 9:
Quadir, known for betting against Valeant in 2015, will discuss short selling, exposing corporate fraud and thriving in a sometimes-reviled industry lacking diversity in a conversation with Luigi Zingales.
...MOREIn the summer of 2015, Valeant Pharmaceuticals—a name now synonymous with corporate greed—was still the darling of Wall Street. At one point a small and struggling pharmaceutical company, Valeant had managed to propel itself into a $90 billion market cap by doing away with the traditional pharma business model, which typically involves heavy R&D spending. Instead, the company went on an acquisition spree, purchasing dozens of smaller drug manufacturers and then drastically hiking the prices of their existing drugs.
For a while, this strategy paid off for Valeant. Its stock rose by more than 4000 percent between 2008 and 2015, peaking at $262. Prominent investors, among them Pershing Square’s Bill Ackman, bet billions of dollars on the company and championed its CEO, J. Michael Pearson, with some even comparing him to Warren Buffett. Other companies began emulating Valeant’s strategy of acquiring smaller rivals, slashing R&D spending and subsequently ordering exorbitant price increases. Martin Shkreli’s Turing Pharmaceuticals is the most notorious example, but far from the only one.
Fahmi Quadir, then a 25-year old equity analyst at the New York hedge fund Krensavage Asset Management, didn’t buy the hype. Quadir, who in college majored in mathematics and biology, recognized the unsustainable nature of Valeant’s business model and, in June 2015, pushed her employers to short the stock. While Valeant’s stock peaked that August, by October it was in free fall: Valeant’s price-gouging tactics had caught the attention of politicians and the press (Hillary Clinton famously railed against Valeant’s prices hikes during her presidential campaign, promising to “go after” the company if elected), with Congress and the SEC launching investigations into its drug pricing strategy and its ties to a mail-order pharmacy called Philidor. The attention also brought increased scrutiny to Valeant’s shoddy accounting, ultimately leading to criminal investigations and convictions. The stock has fallen by more than 90 precent since then and Ackman, having lost more than $4 billion on his Valeant bet, ended up calling his involvement a “huge mistake.” Earlier this year, the beleaguered company attempted a rebranding by changing its name to Bausch Health Companies, but it is still mostly known as the “Enron of pharma.” ...
