Vinod Ahooja and Sharon Osberg, two of the five independent directors of Sequoia Fund resigned amid the controversy surrounding Valeant Pharmaceuticals.

Sequoia Fund is the largest shareholder of Valeant Pharmaceuticals, which is currently facing serious allegations from Citron Research regarding its transaction with pharmacies such as Philidor RX Services. Valeant was accused of using the pharmacies to create fraudulent sales and inflate its growth rate.

Concerns about Sequoia Fund’s large position in Valeant

According to the Wall Street Journal, Sequoia Fund Chairman Roger Lowenstein confirmed the resignation of Ahooja and Osberg over the weekend. Lowenstein did not provide details regarding the reasons for the departures of the two independent directors.

One person familiar with the situation said the two independent directors raised their concern regarding the large stake of the Fund in Valeant in recent months.

Sequoia Fund invested almost 30% of its portfolio in Valeant. Ruane, Cunniff & Goldfarb, the manager of the Fund, reported owning 33.9 million shares or approximately 10% of the Canadian specialty pharmaceutical and medical device company. Data from Morningstar showed that Sequoia Fund has $7.5 billion assets under management (AUM).

Valeant lost more than 35% of its stock value over the past five days. The stock is trading $110 per share, down by more than 6% at the time of this writing around 3:39 in the afternoon in New York.

 Sequoia Fund manager says Valeant’s stock decline “hurts”

Today, Sequoia Fund’s manager, Ruane, Cunniff & Goldfarb released a letter to shareholders indicating that its investment in Valeant “caused an extraordinary level of pain.”

The Fund manager noted that Valeant’s market capitalization fell more than 50% over the past few months, and its situation was worsened by the allegations against it. Ruane, Cunniff & Goldfarb said, “As an academic case study, Valeant would be fascinating. As a real life experience, it hurts.”

The Fund manager explained that it has a large position in the Valeant because of its belief that it is an “aggressively-managed business that may push boundaries but operates within the law.

Ruane, Cunniff & Goldfarb emphasized that Valeant’s management tends to address any ethical concerns forthrightly when they arise. The Fund manager also stated that Valeant Chairman and CEO Michael Pearson is “honest and extremely driven” and “does everything legally permissible” to boost the company’s earnings.

“We would stress the importance of taking a more systemic approach to managing business practices with an eye on the company’s long-term corporate reputation. We believe the company will learn from the current crisis, the importance of reputation and transparency to all stakeholders, especially the shareholders,” according to Ruane, Cunniff & Goldfarb.

Meanwhile, Dow Jones reported that CVS Health terminated Philidor from its Caremark PBM Network. CVS made the decision based on its recent audits of Philidor and noncompliance with its provider agreement.