Valeant stocks plunge, trading halted
The share price of Valeant Pharmaceuticals International Inc. dropped as much as 40 per cent Wednesday and trading was halted twice after controversial U. S. short- seller Citron Research published a report questioning whether the Laval, Que.- based company could be the “Pharmaceutical Enron.”
The report lowered its target for Valeant to $ 50 US from more than $ 200 US, saying that it had a “smoking gun” of undisclosed relationships with specialty pharmaceutical companies.
“Citron Research has delivered the proof that something really stinks at Valeant and it goes beyond their egregious price hikes,” the report said.
Valeant responded saying that the accusations are “erroneous.”
Citron alleges that Valeant is using pharmacies related to Philidor to store inventory and is recording the transactions as sales. Valeant shares recovered some ground after the company issued its statement, and closed at $ 118.61 US in New York. That still represented a 19 per cent drop, the company’s biggest one- day decline since 2011.
Shares were halted Wednesday morning after the first plunge and again at about 1: 30 p. m. when Valeant responded to the allegations. In its statement, Valeant called the short seller’s report “erroneous” and defended its relationship with specialty pharmacies that distribute its drugs.
Valeant said that all shipments to Philidor and other pharmacies in the Philidor pharmacy network, including R& O, are not recorded in Valeant’s consolidated net revenue. Instead, sales are recorded only when the product is dispensed to the patient, which is why all sales to Philidor and Philidor network pharmacies are accounted for as inter- company sales and not included in the consolidated financial results that Valeant reports externally.
“The timing of our revenue recognition by selling through the Philidor pharmacy network is actually delayed when compared to selling through the traditional wholesaler channel,” the statement said.
Mizuho Securities USA analyst Irina Koffler said that while she is unable to comment on the validity of these accusations, it’s also not clear if there is risk of more negative attention down the line, regardless of the company’s financial performance.
“Sentiment is sentiment and it doesn’t matter what the valuation is at this point today. It really didn’t matter, it just spiralled out,” Koffler said.
“My outlook is cautious on the name and I wouldn’t tell a new person to buy this stock right now, at this level, even if it may be inexpensive relative to the group.”
Wednesday’s news prompted a tweet from Martin Shkreli defending Valeant. Shkreli is the 32- yearold chief executive of Turing Pharmaceuticals, who sparked a global outcry last month when his company raised the price of treatment for a parasitic infection by more than 4,000 per cent.
Citron, run by short seller Andrew Left, has published several reports criticizing Valeant’s business model.
The short seller said it appears “that Valeant/ Philidor have created an entire network of phantom captive pharmacies” to create fake sales of drugs or to avoid scrutiny from auditors.
The Citron report names several pharmacies, including R& O Pharmacy, that share a phone number with Philidor and have similar text on their websites.
When the Financial Post called the number in the Citron report, it was not in service.
Valeant says that Philidor Rx Services is a pharmacy licensed in Pennsylvania that also provides back- end services — including a call centre — to other pharmacies, including R& O Pharmacy.