Valeant's U.S.-traded shares closed the day down more than 10 percent, at less than $11 a share and a level not seen since May 2009 during the financial crisis.
Sources told CNBC on Monday that Ackman sold his 27.2 million shares in Valeant at around $11 each. Ackman's Pershing Square Capital Management had purchased the stock at an average cost of $196 a share in 2015, according to the hedge fund's 2016 letter.
Ackman then told CNBC that he sold his stake because it wouldn't "move the needle for Pershing Square, even if the stock doubled from here."
The activist investor's decision to sell his stake in Valeant was a stark reversal, and it sparked jitters among investors.
Ackman doubled his bets on Valeant in the past — refusing to get out while other investors ran for the hills — on the grounds that the pharmaceutical company's management could turn the business around.
However, the stock has dropped 60 percent in the last half a year after the Justice Department, the Securities and Exchange Commission, three state agencies and two congressional committees launched investigations on reported price gouging in 2015.
Ackman should have "set limits" as he's touted the stock over the past few years, David Maris, a Wells Fargo senior analyst, said Tuesday on CNBC's "Fast Money Halftime Report."
"There has to be restraint, but there also has to be responsibility," said Maris, a bear on Valeant since he initiated coverage in February 2016. Now that someone who was "so close" to the company — Ackman was — is walking away, that's probably not a good sign, Maris said.
Shares of Valeant have been on a sharp decline since hitting an all-time high of $263.81 a share in August 2015. The stock closed Tuesday at $10.89.
— CNBC's David Faber and Scott Wapner contributed to this report.