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Valeant Could Face Subpeona But Here’s Why You Should Buy It Anyway

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You can add millions of angry (and poorer) investors to the list of people who really dislike Martin Shkreli at the moment. The former hedge fund manager and current CEO of Turing Pharmaceuticals kicked off a global firestorm after he jacked the price of Daraprim up to $750 per pill from $13.50, after recently purchasing the rights to the drug from Impax Laboratories Inc. (NASDAQ:IPXL)’s CorePharma. The resulting outrage prompted Hillary Clinton to vow to reform the drug industry and put a stop to price gouging, which has resulted in the biotech sector getting pummeled over the past few trading sessions.

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The controversy has hit Valeant Pharmaceuticals Intl Inc (NYSE:VRX) particularly hard. Valeant had already lost about 20% of its value last week, prompting the Canadian drug company’s CEO Mike Pearson to issue a letter to his employees this morning, ensuring them that the recent bearish concerns dogging Valeant are unfounded. He stated that Valeant is not dependent on large price increases of drugs for its survival, just as it isn’t overly exposed to U.S government reimbursement products, which could also be reformed. To the latter point, he claimed Valeant has less exposure to said reimbursements than any other major pharmaceutical company.

The letter has not swayed investors, as Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has crumbled by another 15% today after it was revealed that it may be subpeonaed by the House of Representatives to turn over documentation related to some of its past drug price hikes. While the Daraprim case has galvanized the public, Valeant was already under scrutiny for its own price hikes. Pearson had been sent a letter on August 14 by members of the House’s Committee on Oversight and Government Reform, and the Subcommittee on Primary Health and Retirement Security, informing him that an investigation was under way. It was requested that he turn over information related to the price hikes Valeant had instituted on Isuprel and Nitropress immediately after acquiring the heart medications from Marathon Pharmaceuticals. Valeant reportedly raised the price of the two drugs by 525% and 212% respectively.

With Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares having fallen by 32% since September 18, it appears the market may be acting overly reactionary, which could make for a great buying opportunity. As Warren Buffett has said, “be fearful when others are greedy and greedy when others are fearful”. This is certainly a case where that sentiment applies strongly.

Professional investors like Warren Buffett spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 118% and beaten the market by more than 60 percentage points since the end of August 2012 (see the details).

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