Pershing Square Defends Valeant's Progress, Can't Defend Its Stock Performance

Bill Ackman's Pershing Square released an annual update presentation for investors and the public. One of Ackman's most notable holdings is Valeant Pharmaceuticals Intl Inc VRX, the troubled pharmaceutical company that was plagued with controversies and concerns over its debt levels.

Ackman sits on the board of directors of Valeant, but that hasn't helped the stock's decline as it's lower by more than 85 percent over the past year and down 93 percent from the fund's average cost through January 20, 2017.

The hedge fund acknowledged in its report it has generated "substantial negative returns" dating back to the third quarter of 2015 driven mostly by its Valeant investment which represents approximately 3 percent of the fund's capital. Since then, the fund began generated positive returns.

The fund's net returns by quarter was:

• Q2, 2015: 0 percent.
• Q3, 2015: negative 15 percent.
• Q4, 2015: negative 9 percent.
• Q1, 2016: negative 26 percent.
• Q2, 2016: positive 6 percent.
• Q3, 2016: positive 3 percent.
• Q4, 2016: positive 7 percent.

Defending Valeant's Progress

The fund is naturally hard pressed to defend the massive losses in Valeant, but it remains optimistic and highlighted several positive developments throughout 2016, including:

• A refreshed board of directors.
• A leadership team built around a new CEO Joe Papa.
• A transaction which generated more than $2 billion in up-front proceeds and potential future milestone payments.
• Continued R&D investments.

"Strong operational execution and new product launches coupled with deleveraging should drive equity returns from current levels," the report argued.