Ackman, Paulson Funds Hit by Scathing Short-Seller Report on Valeant

Shares of Valeant plunged to new 52-week lows of $88.50 on Wednesday after Citron Research said that it has published a "smoking gun" report detailing why the company is the "pharmaceutical Enron".

Citron said Valeant is using pharmacies related to Philidor to store inventory and record the transactions as sales. - Reuters pic, October 22, 2015.USA stocks fell on Wednesday as a sharp drop in Valeant Pharmaceuticals hit the healthcare space, while the energy sector dropped along with oil prices.

Analysts who follow Valeant were cautious in their comments about the content of the report of Citron Research.

Shares of Valeant took quite the beating yesterday after Citron Research accused the company of an Enron-like accounting strategy. The company said it purchased an option to buy Philidor late past year.

Mounting political opposition to rising drug prices combined with sliding shares, often used as currency to pay for acquisitions, are now casting doubt on whether specialty pharmaceutical firms such as Valeant can deliver promised brisk earnings growth.

Valeant said the Citron report allegations were erroneous. Chief Executive Michael Pearson said the company is mulling the sale of its neurological drug business, which has relied on price hikes to be profitable, according to The Wall Street Journal. Adding to the negative tone, Yahoo shares fell 5.2 per cent to $31.12, a day after the Internet company's quarterly earnings and profit missed expectations.

Meanwhile, Toronto law firm Koskie Minsky LLP and New York investor rights specialist Rosen Law Firm said they are each preparing potential class-action lawsuits to recover losses suffered by Valeant investors over alleged misrepresentations by the company.

Despite the disclosures by the company, investors have grown only more confused by the details of tangled relationships between Valeant, Philidor and what Valeant calls "pharmacies in the Philidor pharmacy network".

That position was a huge victor in the first half of 2015, but started to falter in recent weeks, and was pummeled after the report from Citron.

"We believe innovation should not be judged by how much you spend, but by the new products that a company is able to bring to market, and our goal has been to bring multiple, high-quality, innovative products to the market year after year", Valeant spokeswoman Laurie Little said.

Equities have struggled this week to extend a rally that has added more than $4 trillion to the value of global stocks since the end of September. The use of specialty pharmacies has led Citron and others to question whether sales figures were inflated.

The statement by Philidor, a Pennsylvania-based Valeant unit, said the subsidiary provides administrative services to a network of pharmacies, including R&O.

At its peak closing price of $262.52 in early August, its stock had climbed more than 1,000% over five years.

For more background on how Valeant differs from other pharmaceutical companies, check out the coverage of our sister publication Advisor. That is one of several company practices under investigation by federal prosecutors in New York and Massachusetts.

Fran McGill, a spokesman for Pershing Square, declined to comment Wednesday.