WarrenBuffett pulled no punches in his evaluation of Valeant PharmaceuticalsInternational Inc., calling the troubled company "enormously flawed"and comparing its tactics to those of a chain letter.
TheBerkshire HathawayInc. chairman, president and CEO said April 30 that several peoplehad urged him to invest in the pharmaceutical giant during its meteoric rise,but he disagreed with the way that Valeant operated and viewed it as a risky bet.The company has since come under federal investigation and faced heavycriticism for its practice of purchasing smaller companies and then jacking upthe prices on the prescriptions drugs that they sell.
"Thereare certain things in business and securities markets that we have seen overand over that frequently come to a bad end but frequently look extremely good[first]," Buffett said during Berkshire's annual shareholders meeting."There were patterns at Valeant that, I think certainly if you go andwatch those Senate hearings, you'll decide that there were patterns that reallyshould've been picked up on."
Helater compared Valeant's questionable business model to chain letters, which hesaid are designed to fool people.
ViceChairman Charles Munger, who had previously called Valeant's business model"highly immoral," took an even harsher view of the company during theannual meeting.
"Valeant,of course, was a sewer," he said. "Those who created it deserve allthe opprobrium that they got."
Oneof the investors hardest hit by Valeant's struggles was Sequoia Fund Inc.,whose former independent director Sharon Osberg is a close friend of Buffett's.Buffett also contributed to the mutual fund's creation, he said, when hedirected his early investors to New York-based RuaneCunniff then created Sequoia Fund.
"Idon't know a mutual fund in the United States that has a better record,"Buffett said, arguing that Sequoia Fund's Valeant bet was the result of asingle investment manager. "The manager took an unusually large positionin Valeant and, despite the objection of some people on the board, not onlymaintained that position but actually increased it after a fair amount of doubthad been expressed by the board about the advisability of doing that."
Thatmanager has since been fired, Buffett said.
"Sequoiahas reconstituted as a reputable investment fund," Munger said. "Wethink the whole thing is fixed."