Valeant shares plunge on ‘phantom’ claims
Fraud allegations haunt drugmaker, startle investors
Shares of Valeant Pharmaceuticals International nose-dived Wednesday following a negative research report that raised questions about the Canada-based drugmaker’s relationship with a specialty pharmacy.
The stock at one point plunged below $90 per share, a more than 30% intraday drop.
The sell-off followed charges in the report by short-seller Citron Research that Valeant might have created “phantom accounts” as part of a purported “fraud to create invoices to deceive the auditors and book revenue.”
Valeant shares ultimately closed down nearly 19.2% at $118.61.
Valeant issued a response that attempted to rebut the research report by calling it “false and misleading.” The company said the allegations “appear to be an attempt to manipulate the market in an effort to drive down Valeant’s stock price.”
The high-stakes financial debate focuses on Valeant’s links to Pennsylvania-based pharmacy Philidor RX Services. Valeant said Philidor also provides claims adjudication and other support to pharmacies, including R&O Pharmacy in Camarillo, Calif.
Valeant on Monday disclosed that it had bought Philidor, a company it uses to distribute some of its medications. Valeant also said it had consolidated Philidor’s financial results into its own publicly disclosed filings.
Questioning the relationship between the firms, Citron Research cited a Monday report by the Southern Investigative Re- porting Foundation that said Valeant was Philidor’s only client. Why would a major pharmaceutical firm acquire a small company “to which you are the only customer?” the Citron report asked.
The report also said Philidor shares management with R&O Pharmacy.
R&O on Oct. 6 filed a federal court complaint arguing it had received an improper Valeant payment demand in September for $69 million.
The court complaint denied that R&O owed Valeant “any amount of money” and said the Canada drugmaker “has failed to provide a single shred of evidence to support its claims.”
Despite R&O’s disavowal of any connection with Valeant, the Citron Research report said the pharmacy and Philidor “are the same company.”
“The two companies have the same patient privacy disclosure, in fact formatted identically, on both companies’ websites,” the report said.
“It is apparent to Citron that Valeant has created a network of ‘pharmacies’ as clones of Philidor,” the Citron Research report said. “Why do these exist? Citron believes it is merely for the purpose of phantom sales or (to) avoid scrutiny from the auditors.”
Valeant, however, responded that Philidor’s back-end support of other pharmacies, including R&O, “includes a common call center phone number.”
“All shipments to Philidor and other pharmacies in the Philidor pharmacy network, including R&O, are not recorded in Valeant’s consolidated net revenue,” Valeant said. “All sales to Philidor and Philidor network pharmacies are accounted for as intercompany sales and are eliminated in consolidation.”
Valeant also appeared to indicate the $69 million payment request it sent to R&O involved product costs that “were not recorded as revenue to Valeant” when the shipment took place.
It was unclear whether the explanations would calm investors.
“The recent allegations by the Southern Investigative Reporting Foundation and Citron Research of Valeant’s potentially questionable relationships with their specialty pharmacies puts not only their business model but their reported revenues into question,” Maxim Jacobs, a health care analyst at Edison Investment Research, wrote Wednesday.
“It is apparent to Citron that Valeant has created a network of ‘pharmacies’ as clones of Philidor.”
Citron Research report