Valeant Pharmaceuticals worldwide shares took a beating, falling more than 30 per cent, after a stock-commentary site run by a short seller accused the company of an Enron-like strategy of recording fake sales by using phony customers.
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Valeant and a specialty pharmacy called Philidor Rx Services have such a relationship, the Times reported, and Citron Research reiterated this in a report this morning.
The Citron Research report, titled “Valeant: Could this be the Pharmaceutical Enron?” hit shares hard shortly after 10 a.m. EDT (1400 GMT).
Valeant was not immediately available to comment.
The Citron report published Wednesday names several pharmacies, including R&O Pharmacy, that share a phone number with Philidor and have similar text on their websites.
“All shipments to Philidor and other pharmacies in the Philidor pharmacy network, including R&O, are not recorded in Valeant’s consolidated net revenue”.
“Hedge fund managers with great track records have stood by their conviction that Valeant is a great company despite a growing list of questions about its business model, its pricing policies, its pile of debt and the determination of potential acquisition targets to stay out of Valeant’s clutches”, said Erik Gordon, a professor at the University of Michigan’s law and business schools.
Other products in its portfolio have increased in price in percentage terms just as much – if not more – this year.
Valeant has yet to respond to the Citron Research report, but safe to say this is going to be a very ugly meltdown. Congress has started to investigate how it and other companies buy and then ramp up the price of drugs.
The purchase boosted Ackman’s Valeant stake to 21,473,933 shares, or roughly 6.3% of the company’s outstanding shares.
Asked about that, Citron founder Andrew Left said: “I believe their disclosures are false and misleading with an attempt to manipulate the market-we have that in common”.
Billionaire investor William Ackman’s hedge fund Pershing Square Capital Management has lost roughly $820 million on Wednesday as Valeant Pharmaceutical International’s share price tumbled. Standard & Poor’s also said it is sticking by its ratings on Valeant, saying speculation about potential fraud was unfounded.
Equities have struggled this week to extend a rally that has added more than $4 trillion to the value of global stocks since the end of September.
The United States has no price controls on medicines even though such curbs are common in Europe, but specialty pharmaceutical firms, which typically focus on expensive drugs used to treat chronic or life-threatening conditions, are particularly prone to public backlash.
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A spokesman for the British Columbia Securities Commission declined to comment on whether the provincial securities regulator is probing either the company or Citron. Philidor, of Hatboro, Pa., said it doesn’t “currently have a direct equity ownership in R&O” but but has a contract to provide various services to the pharmacy and a “contractual right” to buy it. A man who identified himself as the owner of R&O said Philidor was “not at all” the owner of his pharmacy.
