‘The company is at risk of getting into a death spiral’: Bill Ackman’s emails reveal a wild relationship with Valeant

The US Senate has released 818 pages of Valeant-related information connected to the investigation into the pharmaceutical company’s business practices.

Along with a variety of emails and documents, the dump includes a number of messages between Valeant leadership, including former CEO Mike Pearson, and Bill Ackman, hedge fund billionaire and CEO of Pershing Square.

Ackman is a huge investor in the troubled pharmaceutical company and, based on the emails, in constant communication with management. Ackman joined the board on March 21.

After suffering a huge stock-price drop because of concerns over the company’s practice of hiking drug prices, the company faced accusations of shady accounting and possible fraud.

Valeant’s response, in Ackman’s eyes, was lacking.

“I don’t think you are handling this correctly and the company is at risk of getting into a death spiral as a result,” Ackman wrote in an email at 1:44 a.m. to Pearson and then CFO Howard Schiller on October 27, 2015.

In an email at 6:31 a.m. on the same day, Ackman was agitated about a New York Times story by Joe Nocera that compared Valeant to Enron (emphasis added):

As things stand, the torpedoes are in the water and the sharks are circling. They will kill the company. Valeant has become toxic.

Doctors will stop prescribing your products. You will lose complete access to the credit markets. Your credit line will suddenly become unavailable. Regulators around the world will start investigating and competing to find problems with every element of your business. And when you have 10 state troopers following you for hours they will give you tickets and probably arrest you regardless of your innocence.

You are getting very poor advice from your lawyers and your PR advisors. I am sure they advised you to have a scripted call and limit questions. The only people that need scripts and limited questions are crooks. Joe Nocera is right. You look like Enron.

An October meltdown

The emails were sent just a few days after the company’s relationship with Philidor was disclosed on October 19 by the company in its quarterly earnings call.

Two days later, on October 21, short seller Andrew Left of Citron Research called the firm the “pharmaceutical Enron” and sent the stock tanking.

On that day, Ackman emailed Valeant leadership to suggest a different tactic in handling Left’s report.

“If something like this happens again you should call the NYSE and have them halt the stock until you can respond to the critic with a press release,” wrote Ackman at 6:50 p.m.

ReutersMichael Pearson, Valeant’s CEO.

The company had responded with a statement the same day, but waited five days to fully respond to Left’s report in a conference call. Ackman appeared to be getting impatient with the delays.

“Every minute that you wait before sending out a press release, another shareholder capitulates on Valeant and does not come back,” wrote Ackman on October 22 at 1:44 p.m.

Pearson then responded to Ackman, assuring the Pershing Square CEO that the press release was coming. At 5:57 p.m., Ackman emailed Pearson again, saying simply: “Still don’t have it.”

As of October 25, Ackman appeared to believe that the issues with Valeant were mostly because of public-relations failings, but hoped that the presentation would clear those problems up.

“We are very comfortable with the company and the character and honesty of the team,” wrote Ackman in a long email making suggestions for the presentation at 9:56 p.m. on October 25. “I am sure the same is true for your other shareholders.”

Just two days later, Ackman sent the “death spiral” and “Enron” emails.

Ackman later clarified his comments, stating that he had confidence in Pearson as CEO on October 29. He said that it wasn’t Pearson’s management of the business that drew his ire, but rather his communication abilities. Ackman wrote at 3:54 p.m. (emphasis added):

I just want you to know that I am totally supportive of you as CEO of Valeant. I am only disappointed that you have not yet been willing to do an open line q&a with all of your shareholders, and as a result, certain important questions remain unanswered. I just want to make sure you don’t confuse my disagreement with you about a conference call with my confidence in you as CEO.

Just the beginning

Between the market open on October 19, when the company disclosed the Philidor relationship, and market close on October 27, after Ackman’s strongly worded emails, the stock fell from $169.80 a share to $109.54, a 35% drop.

Valeant’s stock would then go on to fall even further as the scandal played out. Since the Philidor disclosure, shares have tumbled a total of 89%, opening trading on Monday at $30.89 a share.

The company has had to delay and totally redo its financial reporting. Pearson has been removed as CEO. On April 27, 2016, Ackman, Schiller, and Pearson were called in front of the Senate to testify regarding Valeant’s business. The same committee released the documents on Friday.