Valeant Pharmaceuticals (VRX) Tanks Further as Analyst Downgrades Stock

Recently, Valeant has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. Citron Research said Wednesday that Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. In after hours, the stock further dropped $1.61 or 1.36%. It also cuts costs, including on research.

Doubts about the sustainability of the approach, long harbored by hedge funds that made and lost bets against the company, came into the open after Valeant sought to make its biggest deal yet a year ago with a hostile offer for Botox maker Allergan.

"Given the ongoing attacks on Valeant, we believe that few investors would be willing to step in front of this stock", he said. Enron "sold" products and services to companies it secretly owned, in order to make it look like it was doing business when it wasn't.

Valeant critic Vicki Bryan of Gimme Credit said the company's disclosure about its ties and potential ownership in mail-order pharmacies like Philidor shed light on US investigations into its drug distribution, patient assistance program and aggressive pricing strategies.

The company on Monday said it would change its approach, spending more on R&D and focusing more on reducing its debt than on dealmaking. Adding to the negative tone, Yahoo shares fell 5.2 percent to $31.12, a day after the Internet company's quarterly earnings and profit missed expectations.

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. The pharmacies also handle many aspects of reimbursements to insurers. "Obviously people think they're onto something here", said John Schroer, a health care portfolio manager at Allianz Global Investors.

Meanwhile, Valeant has called Citron's allegations as "erroneous", saying it contains "false and misleading statements" that appear meant to "manipulate the market" and cut down its stock price, CNN Money reported. According to the New York Times, Valeant explained this week it has an option to buy Philidor.

Valeant's share price has already been hit hard in recent weeks as it has been drawn into the price-gouging scandal now playing out in the United States pharma industry, and is now facing a congressional investigation.

"It is apparent to Citron that Valeant has created a network of "pharmacies" as clones of Philidor", the report charged. But with Valeant Pharmaceuticals' accounting practice, that can never happen because sales matches demand exactly with a slight delay in booking sales until the pharmacy tells them the product is sold.

Quebec's Financial Markets Authority (AMF) is concerned about the publication of a controversial report describing the business practices of pharmaceutical giant Valeant. JPMorgan Chase & Co. reduced their price objective on shares of Valeant Pharmaceuticals Intl from $275.00 to $265.00 and set an "overweight" rating for the company in a research note on Tuesday.