I have been a Valeant Pharmaceuticals (VRX – Analyst Report) stock investor on and off for over two years. But it wasn’t because I understood their business model very well.

Instead, I put my faith in several large investors who were buying millions of shares every quarter. I trusted their research and due diligence about the company’s growth, believing they trusted the strong sales and profit numbers the company was reporting every quarter.
 
Valeant also had a powerful business strategy that they believed in: the M&A “roll-up” machine. This strategy is as old as business itself whereby management aggressively uses debt to buy other companies and make them more profitable, whether through cost-cutting or raising prices.
 
Bill Ackman of Pershing Square Capital Management was such a believer in this strategy, he joined forces with Valeant CEO Mike Pearson to pursue potential takeover targets like Allergan (AGN – Analyst Report). 
 
Ackman bought 19.4 million shares of VRX in the first quarter of 2015 and has held on to every single one of them through the end of Q3 on September 30. In the video that accompanies this article, I go over in detail the big funds who owned VRX in 2015, and how much of it, and what happened next.
 
The Waterfall of VRX Shares
 
When Congress started to question the “price-gouging” practices of some pharmaceutical “roll-up” machines, Valeant quickly earned part of the spotlight. And when the subpoenas started flying in late September, VRX shares were quickly on their way from $230 to $160 in a week.
 
This means that many of the big fund managers I followed, like Jeffery Uben of ValueAct, Steve Mandel of Lone Pine Capital, and Andreas Halvorsen of Viking Global Investors, were beginning to give up some serious profits in a stock they had held for some time.
 
One fund in particular, owned nearly 10% of the company with their nearly 34 million shares. Ruane, Cunniff, and Goldfarb Inc. is better known by one of their funds that hold the Valeant shares, Sequoia.