Why Ackman’s Exit May Not Be the End of Valeant’s Stock Plunge

March 14, 2017, 4:48 PM UTC

Add Bill Ackman to the long list of investors who want nothing to do with the struggling drug maker Valeant Pharmaceuticals.

Shares of Valeant (VRX) dropped 12% in midday trading Tuesday, the day after billionaire investor Bill Ackman announced that he has sold his investment in the company and will step down from its board of directors once its election process is complete.

Ackman’s exit from Valeant is the latest of a series of blows to a company that has suffered a stunning decline in what seems like no time at all. Less than two years ago, Valeant appeared to be on top of the world. The company reached its all-time highest close at $262.52 in early August 2015 as investors became mesmerized by Valeant’s aggressive moves to acquire rivals and subsequently increase the prices of the newly acquired drugs. But within weeks of the high, things started to unravel and Valeant’s stock started a tumble that just doesn’t seem to have any signs of reversal. Shares now sit at $10.64 in midday trading, down more than 95% from their peak just a year and a half ago.

Valeant’s first bit of trouble came in August 2015 when Senator Bernie Sanders and Congressman Elijah Cummings requested information on why the company had raised the prices of two commonly used heart drugs. That inquiry opened Pandora’s box, and a month later Congress began calling for a subpoena of the company’s records, which kicked off the stock’s slide into the abyss.

(More from Fortune: Bill Ackman and Michael Pearson: The Bromance at the Heart of One of Wall Street’s Biggest Blow Ups)

As more digging by investigators revealed a host of additional price gouging instances, things somehow got even worse for Valeant. In October 2015, stories began to leak out that the company was booking fraudulent revenue and other dishonest practices relating to its dealings with Philidor, a specialty pharmacy company controlled by Valeant.

Valeant denied any wrongdoing and cut ties with Philidor, but investors had had enough. Shares plummeted for the second time in a month, and by the middle of March of last year, they had lost 90% of their value from just seven months prior.

Since then, fears about Valeant’s ability to remain solvent have taken firm hold and driven the company’s stock even lower. Thanks to its aggressive method of acquisitions, the company has a massive $30 billion debt burden to contend with. Valeant is now trying to refinance its debt, which seems to have spooked investors even more.

For his part, Ackman is taking a huge loss on his Valeant bet. His company, Pershing Square Capital Management, sold all of its 27.2 million shares and options on Valeant for between $11.10 and $11.40 each, a colossal markdown from just two years ago when the company purchased stock at an average price of $196, according to a 2016 Pershing Square letter to shareholders. Pershing Square will eat around $4 billion in losses.

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