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April 11, 2016 at 08:20 PM
What goes up must come down. And when stocks in the high risk biotechnology sector fall, they often do so spectacularly, dragging down everything within close proximity.
Such is the case with Valeant Pharmaceuticals International (VRX). The $9.8 billion Quebec-based company is a former biotech hotshot, whose stock price has crashed almost 90% over the past eight months alone. By comparison, the Nasdaq Biotech Index (IBB) has fallen around 25% over that same time frame.
Valeant’s fall from grace has stung some of Wall Street’s best known portfolio managers and funds.
Bob Goldfarb, the CEO and co-manager of the once revered Sequoia Fund (SEQUX) stepped down from his post last week. Sequoia held 12,803,392 shares of Valeant or 19.31% of its assets at the end of last year, making it one of Valeant’s largest shareholders among mutual fund companies, according to Morningstar.
The fact that such a well-regarded company like Sequoia could get snake bitten by an errant stock selection like Valeant has caused shockwaves throughout the industry.
Sequoia was once recommended by Warren Buffett and outperformed the U.S. stock market for over four decades. Despite its historical pedigree, the $5.5 billion fund has been clobbered with a 30% loss over the past eight months and was downgraded by Morningstar.
Other mutual funds with large ownership stakes in Valeant like the First Eagle Fund of America Y (FEAFX), T. Rowe Price Health Sciences (PRHSX) and Davis NY Venture (NYVTX) have been hurt too.
Valeant is being assaulted from a seemingly endless parade of regulators, politicians, and jittery markets.
The company is currently facing an SEC probe. It’s also been accused by U.S. lawmakers for price-gouging its specialty drugs and it has reduced its 2016 revenue forecast by 12%. Furthermore, the company warned that a delay in its annual report filing could trigger the risk of a debt default.
