Shares in Valeant fall up to 39 percent after report questions link to specialty pharmacies

Shares in Valeant Pharmaceuticals plunged as much as 39 percent Wednesday after a report from online investment newsletter Citron Research questioned the relationship of the drugmaker with specialty pharmacies. Specifically, Citron alleged that Valeant is using pharmacies related to Philidor, which the company has an option to purchase, to store inventory and record the transactions as sales in an effort to artificially inflate revenue.

In the report, Citron noted that specialty company R&O Pharmacy recently made a filing in a California District Court regarding an improper payment of $69 million demanded by Valeant. As part of its quarterly earnings report, Valeant alleged that R&O was withholding significant amounts received from payers as a specialty pharmacy in the drugmaker's network. However, the Citron report claims that R&O appears to be a subsidiary of Philidor, adding that the companies share the same management and Privacy Officer contact phone number.

Citron further alleged that Valeant and Philidor have created an entire network of "phantom" pharmacies that share the same Privacy Officer contact phone number. Citron suggested that the pharmacies exist for the sole purpose of phantom sales or averting the scrutiny of auditors.

Moreover, in addition to price hikes implemented for the cardiovascular drugs Isuprel (isoproterenol) and Nitropress (nitroprusside) shortly after their acquisition by Valeant in February, Citron noted that Valeant has raised the prices of a number of products over the last few years. In September, Democratic members of the House Committee on Oversight and Government Reform asked the committee chairman to subpoena Valeant concerning price increases for Isuprel and Nitropress, while US lawmakers previously requested that Valeant provide information to explain the decision to enact the price increases.

Last week, Valeant acknowledged that it received two US subpoenas seeking information on its assistance programmes, drug distribution and pricing decisions.

In response to Citron's allegations, Valeant said Wednesday that the report was "erroneous," stating that it only books sales when products are dispensed to patients. The drugmaker also noted that inventory at Philidor pharmacies is included in its consolidated inventory balances, and that there is no sales benefit from holding inventory at specialty pharmacies.

For related analysis on Valeant, see ViewPoints: Valeant prescribes a change in M&A focus but investors unimpressed. See also ViewPoints: Down but not out – Investors decide threat to Valeant may be overblown.

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