Pharma shares shear Paulson's hedge funds deeply


Drugs aren’t helping John Paulson much these days. As shares of pharma companies shrink in response to a host of issues, his hedge fund continues to eat losses on companies like Valeant, which fell about 20% today on bad earnings. But the fund also has large positions in Shire, Mylan, Allergan and Teva, and their shares are down, down, down and down, respectively.  

Add it all up, or subtract it in this case, and it amounts to big losses, the Wall Street Journal reports. In fact, WSJ says that six of Paulson’s 10 biggest positions are in pharma stocks at a time when healthcare is off more than any other sector represented in the S&P 500, down 6.1% for the year after a big fall last Thursday. The result is that the firm now manages about $12 billion, off from $38 billion in 2011, the newspaper said.

Things aren’t much better in biotech, Adam Feuerstein’s The Street reports, with the Nasdaq Biotechnology Index falling nearly 3% as part of Thursday’s slide and nearly touching a low seen in June.

Paulson is hurting because the industry is hurting, with the pain looking to bleed into next year as a new administration takes over and the backlash against rising drug prices looks to have legs, regardless of which party is in control. Just today top members of the Senate Judiciary Committee from both parties called on the Federal Trade Commission to probe Mylan and its EpiPen for potential “anticompetitive practices.”

Mylan makes up the second biggest investment by Paulson’s funds, WSJ says. Its biggest position is in Dublin-based Shire, which at $864 million represents 9.1% of the portfolio as of June 30, WSJ reports, citing FactSet Research Systems. Shares of Shire ($SHPG) are off about 15% so far this year. Then there are stakes in Mylan ($MYLN), shares of which are down about 35%, Allergan ($AGN), off 40%, and Teva ($TEVA), also off about 40% this year.

As for Valeant, Paulson’s funds held about 5.5% of Valeant’s shares outstanding at the end of June, after adding 5.8 million shares this year to reach a total of 19 million. At one time last year that was a great play, with Valeant’s shares up over $262. But that was then. Since, a string of investigations and executive exits has crushed its share price. It dropped about 20% today to about $15.50 after reporting a loss and slashing guidance.

Paulson is not the only big-name investor eating significant losses on Valeant, of course. Bill Ackman’s Pershing Square Capital Management is still Valeant’s largest shareholder. While Paulson didn’t comment to the WSJ, Ackman has given his investors a big mea culpa for its investments in Valeant. The activist investor confessed to CNBC’s “Squawk Box” in August that he had gone off the reservation with Valeant, which he said had turned into “one very big mistake.”