Hedge funds on Tuesday lost an estimated $5.3 billion on drugmaker Valeant Pharmaceuticals' stock meltdown, with billionaire investors William Ackman and Jeffrey Ubben taking the brunt of the hit - losing more than $700 million each, according to data from research firm Symmetric.IO.

Shares of Valeant, one of the industry's most widely-owned stocks, tumbled more than 50 percent on Tuesday to about $33 after saying it risked defaulting on its $30 billion debt.

The company's stock has dropped from a high of $263.70 in August as it faced growing scrutiny, including federal probes, over its drug pricing and distribution practices.

Ackman's $12 billion Pershing Square Capital Management and Ubben's $14 billion ValueAct Holdings, which invest for large clients including state pension funds, are two of Valeant's largest investors with directors on its board.

While their estimated losses are among the largest, the fallout could be more severe for some smaller managers who made more concentrated bets on the Canadian drug company, investors, managers and analysts said.

"For smaller funds, and not that we wish this on anyone, this has the potential to be an event that puts them out of business," said Daryl Jones, director of research at Hedgeye Risk Management.

Ackman's fund, Valeant's third largest investor with 16.5 million shares, lost an estimated $776 million on Tuesday while Ubben's fund, Valeant's fourth largest shareholder with 14.9 million shares, lost roughly $701 million. The estimates are based on share counts from the end of December.

At least five smaller hedge funds had tied up 20 percent or more of their capital with the company as of the end of December, according to Symmetric.IO, betting that it could turn its fortunes around.

Brave Warrior Advisors has one quarter of its roughly $3 billion invested with Valeant and lost an estimated $292 million on Tuesday, if its position remained unchanged from the end of December.

At Brahman Capital, which also has more than one quarter of its money invested in Valeant, the losses are estimated at $379.5 million on Tuesday alone, if the fund still owns the 8.1 million shares it reported at the end of December.