Short selling firm Citron Research on Wednesday published a report alleging a secret relationship between Valeant, a subsidiary called Philidor and a customer of Philidor’s called R&O.
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Citron said that lawsuit is evidence that Valeant is creating invoices “to deceive the auditors and book revenue”.
In its note, Citron cited an alleged court filing made by a regional chemist called R&O Pharmacy against a demand for payment from Valeant worth US$69mln.
“Citron’s false and misleading statements about Valeant appear to be an attempt to manipulate the market in an effort to drive down Valeant’s stock price”, said a company spokeswoman. It said Philidor’s pharmacy network includes R&O, and Valeant only records sales involving that network when a product is dispensed to a patient.
Bank of Montreal analyst Alex Arfaei on Thursday downgraded his rating for the company slightly from “outperform” to “market perform” and gave it a target price of $141, not much above where it now is.
Pershing Square did not have an immediate comment but business television station CNBC reported Ackman added to his stake on Wednesday.
VRX shares have been under significant pressure, most recently following allegations related to its specialty pharmacy distribution model. Congress has started to investigate how it and other companies buy and then ramp up the price of drugs. US stocks ended slightly lower, weighed down by a fall in health-care shares and a 14th consecutive drop in quarterly revenue from worldwide Business Machines. The company must collect from the specialty pharmacy after products are sold.
Investors were apoplectic, sending Valeant’s stock into its worst spiral since at least 1994. Specifically, the company commented that approximately 50 percent of jublia sales, 30 percent of Solodyn sales, and 10 to 20 percent of the remainder of its dermatology division are distributed through specialty pharmacies.
Analyst Neil Maruoka of Canaccord Genuity said he doesn’t buy that Valeant is artificially inflating revenues through the specialty firms including Philidor in which it has an option to purchase. The reason for the R&O correspondence is the money owed to Valeant on sold products that have gone unpaid which raises the question of mishandled revenue or a question of company liquidity.
“Regardless of the accuracy of allegations, we don’t see a quick end to unquantifiable headline risk”, Susquehanna analyst Andrew Finkelstein said in a note.
Over all, Valeant’s top five investors could have lost a combined $2.76-billion on Wednesday based on their holdings as of June 30.
Hedge funds owned an estimated 22% of the company’s stock as of June, according to Goldman Sachs.
The Wednesday selloff cut Valeant’s market capitalization by about $9.6 billion to $40 billion after being valued as high as $90 billion in early August.
After the bell, shares of eBay rose 8.4% to US$26.25 following its results, while shares of Community Health Systems dropped 15.3% to US$34.35 after a disappointing outlook. It even mentions that Valeant CEO Mike Pearson and Jeff Skilling both being McKinsey alums is “too much of an eerie coincidence” so that’s all pretty fun since it actually delivers supporting evidence for Enron-like behavior. “The only difference is I can prove my points”.
Investor concerns over accounting practices at Valeant Pharmaceuticals worldwide Inc have put a spotlight on the little-known and fast-growing specialty pharmacy industry.
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Valeant, based in Canada for tax reasons, tried to acquire competitor Allergan in a hostile takeover in 2014 but failed, drawing investor scrutiny.
