Valeant shares plunge on short-seller scrutiny of pharmacy revenue

Wed Oct 21, 2015 5:34pm EDT
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By Caroline Humer

NEW YORK (Reuters) - Valeant Pharmaceuticals International Inc's stock plunged as much as 40 percent on Wednesday after an influential short-seller accused the company of using specialty pharmacies to inflate its revenue, an allegation that the drugmaker denied.

Citron Research, a short-selling firm run by Andrew Left, alleged that Valeant's previously undisclosed ties to specialty pharmacies, including Philidor and R&O Pharmacy Inc, helped the company create "phantom sales" of its products or push more product through distribution channels than sales would warrant.

“Citron believes the whole thing is a fraud to create invoices to deceive the auditors and book revenue,” the research note said.

In response, Valeant said it does not record sales of drugs that are stocked as inventory at such pharmacies in its consolidated financial reports and said sales are recorded only when the product is dispensed to the patient.

"We categorically deny the allegations made in the Citron report," a Valeant spokesperson said.

"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. Valeant ... properly accounts for sales to, and inventory at, Philidor and Philidor's network pharmacies."

Nevertheless, the Citron report accelerated investor concerns over drug pricing and sales practices in the pharmaceutical industry which have come under scrutiny in Congress and from U.S. presidential candidates.

Valeant is viewed as the most aggressive drugmaker in raising prices on their medications to boost sales, a strategy that has made it a darling among investors including billionaire hedge fund manager Bill Ackman. Last week, Valeant disclosed that such practices are under investigation by federal prosecutors in New York and Massachusetts.   Continued...

The company logo of Valeant Pharmaceuticals International Inc is seen at its headquarters in Laval, Quebec in a May 19, 2015 file photo. REUTERS/Christinne Muschi/Files