Buffett Calls Valeant Pharmaceuticals Enormously Flawed; Shares Tank

Valeant Pharmaceuticals

Warren Buffett criticized the business model of Valeant Pharmaceuticals International (NYSE:VRX) (TSE:VRX) “enormously flawed” during the annual meeting of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

The stock price of Valeant declined more than 4% to $31.99 per share at the time of this writing around 2:02 in the afternoon in New York on Monday.

Buffett said the Senate hearing regarding drug prices, which was attended by Valeant’s outgoing CEO Michael Pearson, was “not a pretty picture” for the Canadian pharmaceutical company.

During the Senate hearing last week, Pearson admitted that Valeant made mistakes and he was too aggressive as CEO of the company.

In an interview with CNBC’s Squawk Box, Buffett said, “I don’t think you’d want your son to grow up and run a company in the manner that Valeant was run,”

Munger calls Valeant behavior “evil”

On the other hand, Buffett’s partner, Charles Munger offered harsher criticism against Valeant. Munger has been a long-time critic of the pharmaceutical company.

“Valeant of course is a sewer, and those who created it deserve all the opprobrium that they got,” he said during Berkshire’s annual meeting.

Munger once again criticized the pharmaceutical company during an interview on CNBC. According to him, Valeant’s behavior was “evil” and “demented.”

Last year, Munger said, “I am holding my nose” on Valeant’s strategy of acquiring other companies. He said the pharmaceutical company’s strategy of acquiring rights to treatments and raising prices was “similar to the worst abuses in for-profit education.”

Ackman defends Valeant

In an interview with CNBC, Bill Ackman, the CEO of Pershing Square Capital Management and Board member of Valeant responded to the criticisms of the two legendary investors.

Ackman said Munger was “wrong to indict the entire company.”  He emphasized that the pharmaceutical company “makes a lot of very good products.” He added, “You don’t call a company a sewer because a company made a mistake.”

Furthermore, Ackman said the company’s Board made a lot of changes over the past few weeks including hiring a new CEO Joe Papa, who starts working today. He aims to create a “meaningful” turnaround for Valeant.

The pharmaceutical company submitted its long-delayed annual report on Friday, and prevented a default on its $30 billion debt.