market folly

Bill Ackman's Pershing Square has filed an amended 13D with the SEC regarding its position in Valeant Pharmaceuticals (VRX).  Per the filing, Pershing now owns 9.9% of the company with exposure to 34.11 million shares.

This is up from his previous exposure of 19.4 million at the end of the third quarter.  Ackman bought VRX common stock on October 1st at $178.38 and again on October 21st at $108.13.

He was also active in the options market and this is where the bulk of the increased exposure comes from.  He bought January 2017 $95 calls, sold January '17 $165 calls and also sold January '17 $60 puts.  He also bought and sold at other strike prices and you can view all the transactions here.  Prior to these purchases, Ackman's cost basis on VRX was somewhere around $190.

Shares of VRX have fallen from a high of $260 in August down to as low as $69 recently, before rebounding to $86 currently. 

The company first came under attack as Hillary Clinton and various Democrats publicly voiced concern over pharmaceutical pricing practices.  Secondly, investigative journalists and short sellers questioned the company's relationship with specialty pharmacies, in particular one called Philidor.

VRX has been the definition of a hedge fund hotel for many quarters now.  Another interesting facet here is just how many of these funds held/hold such highly concentrated positions.  Managers such as Sequoia Fund, ValueAct Capital, Pershing Square, Hound Partners and many others have allocated huge chunks of their portfolio to VRX.  While many of these funds' large positions were due to share price appreciation, Ackman's was mainly built via buying earlier this year.

For more on Pershing Square, head to Bill Ackman's comments at the Berkshire Hathaway 50th Anniversary Symposium.