Ackman Loses $600 Million In Seconds As Valeant Plummets On Citron's "Enron Part Deux" Report

Tyler Durden's picture

With default risk soaring, and Ackman's dreams dissolving, Valeant Pharma is crashing again today (halted three times and down over 28%) following a report by Citron Research that claims to have a "smoking gun" on the company's activities, claiming Valeant is channel stuffing  using pharmacies related to Philidor to store inventory and record the transactions as sales.

  • *VALEANT MENTIONED CAUTIOUSLY BY CITRON
  • *VALEANT PRICE TARGET LOWERED TO $50 BY CITRON

The key section from the report:

It is apparent to Citron that Valeant has created a network of “pharmacies” as clones of Philidor. Why do these exist? Citron believes it is merely for the purpose of phantom sales or stuff the channel, and avoid scrutiny from the auditors.

And the punchline:

Is this Enron part Deux??

 

These similarities are too close to ignore. Does everyone remember during the Allergan takeover battle, when Allergan chose the words “house of cards” ? Look at the following similarities between statements by Valeant and those of Enron:

 

Citron has seen this movie before. In 2008, Arthrocare, a successful medical device company, was doing its dirty deeds through Discocare, an undisclosed captive "independent company". When Citron exposed the relationship, Arthrocare tried to make it all go away by announcing it was buying Discocare. At the time, virtually every investment banking house on the Street had a "buy" or "strong buy" on Arthrocare, and Goldman-Sachs had been engaged to "explore strategic alternatives". The entire thing began to unravel when Citron discovered -- and published -- that Arthrocare and Discocare -- ostensibly separate companies, had the same fax number.

 

The CEO of Arthrocare is now doing 20 years.

 

While it is impossible for Citron to state for certain at this point, this has the distinct aroma of product being jammed into a channel. It had to have started small, and now it's just too big. "We have an option to purchase Philidor" is simply ... trying to put the genie back in the bottle.

One wonders if any of the analysts covering the company, of which 18 with a Buy rating and just 1 Sell, could have seen this:

The result: carnage:

 

To 1 year lows...

 

Which has smashed Nasdaq Biotech Index below its uptrend....

 

Full Citron Report below...

Citron Report

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buzzsaw99's picture

all corporations are frauds in one way or another imo

NotApplicable's picture

Thanks to the global monetary system which destroys everything it touches. Honest people simply cannot compete.

pods's picture

That is one FUGLY chart.

pods

NoDebt's picture

I jsut read the whole report from Citron.  Looks like some damned good sleuthing to me.  If they're right (and it looks like they may be), Valeant is done.  If they were a bank, nobody would care.  But they're not- they're just a pharma company in a political climate turning ever colder towards that industry.

What I want to know moving forward:  Did Ackman instigate, participate or intentionally turn a blind eye to this behavior?  In other words, what did he know and when did he know it?  The highly questionable (some say illegal) way he acquired his stake in this company DEMANDS that question be asked.

Tom Servo's picture

If Valeant owned R&O, why did R&O bring a suit for improper invoicing?

 

Only piece that's confusing...

 

Other than that it looks like the plot of Boiler Room...

 

firstdivision's picture

Enron playbook is alive and well.  Business don't make any money.  They just play hid the liabilities while paying themselves and shareholders.  Those in the know get out as the sapeona is served.

PlayMoney's picture

The debt situation on VRX is HORRIBLE. Surprised Ackman would touch this thing. Will be a $100 stock in the not too distant future.

Insurrexion's picture

Where is the fucking smoking gun then?

BandGap's picture

Indeed, I love it when they withhold this shit.

Hmm, 600 million dollars. Wonder what a club member does when he gets the shaft like this? The collapse should start on the edges with the wealthy eating their own.

The Limerick King's picture

 

 

Is Valeant and Enron the same?

As Citron is making the claim

A biotech fraud

A pharma-facade

Our system of fraud is to blame!

Boxed Merlot's picture

Hmm, 600 million dollars...

 

Not to worry, it's not like they're stacked in bennies on a pallet and buried in a foreign desert or something.  Strictly cyphrage.  Vaping drug wealth gives the Fed a rush.  

Bullish.

 

jmo.

 

By the way, why should a letter from hrc to a company carry any weight?  Did I miss something, or has she been appointed to another "official" position?  Isn't she currently nothing more than a private citizen?  Please, someone tell her to take a number and get back in line. 

Apocalicious's picture

No gun, just a lot of smoke...

Sudden Debt's picture

Citron means lemon and it seems to be squeezed dry :)

But to make a good gin & tonic, you can still use the skin and rasp it to small pieces :)

 

And every pharma company has a smoking gun. I have a friend who's a lead research in viral meds and she just quit her job because of moral issues.

You'll never see her take a pill when she's sick. Nor does she give any to her children and all her friend have been warned about a lot of medicins.

SALES SALES SALES! And profits always rank at the top of any company moral piramid. 

cjet500's picture

wow trade has been halted as of 10:28AM EST

Bangin7GramRocks's picture

ACK ACK! We come in peace.

firstdivision's picture

Biotech is done.  They had their moment, now its going to be a quick for a few and long for others drop to their death.  Also expect the FDA 6 year delay to review generics to get sudden funding soon to expedite the review process.  Those PE firms that bought these generics to raise prices and pray had better unload now cause there will be many barriars falling.

Calculus99's picture

The whole US health care industry seems to be one big fucking scam. 

If they're not scamming you on price they're scaming you with lies and smoke/mirrors. 

Arnold's picture

And to think it took Obamacare to blow it up.

(how did that hole in my foot get there?)

Sudden Debt's picture

Biotechs used to be the stocks nobody bought because of the risk.

People bought those to bet on patents that might or might not be cleared by the FDA.

It was just flooded with hot money when they started to buy up old and forbidden medicine and tweeked them so they could be sold again.

 

SuperRay's picture

Not just healthcare.  Didn't you know, as of 9/11/01 its now Scamerica!

xrxs's picture

Ackman may need to call in some favors from Oprah on this one

pods's picture

Now he knows how Obi Wan felt about Aldeeran.

pods

jakesdad's picture

I thought pharmor was the pharmecutical enron?

adr's picture

Come on, all the big companies do this. It is how all of them book sales. It is how channel stuffing works.

The main publicly traded entity is just a holding company. You then have a different corporation that buys all of the inventory. When the inventory is transferred it is booked as a sale with a portion of the total MSRP. When the product finally sells the rest of the revenue is booked. But since the bag holding corporation is listed under the same corporate umbrella, the original holding company books everything as revenue for their own books.

That is how you get a company that seemingly sells nothign to beat revenue forecasts and comps every single quarter.

Most Big Box stores are incorporated as a different entity from the parent headquarters. All enabled through easy issuance of corporate debt thanks to the Fed.

csmith's picture

Former Allergan CEO David Pyott could barely hide his contempt for VRX CEO Michael Pearson. He was the one who referred to VRX as a "house of cards". Maybe after VRX collapses Pyott can pick up the pieces on the cheap???

Dead Canary's picture

Goddamit, I don't care about corruption. I just want in on it!

cornflakesdisease's picture

Why do people give this guy their money to invest?  He stinks at what he does.

petroglyph's picture

Its not a bug, its a feature

PTR's picture

The fact that this (and that other company fold that was big a few weeks ago) are taking place and there hasn't big reverberations yet, to me that means that a) it doesn't trully matter or b) this is a REALLY big whale and it hasn't completely turned over yet b/c there's a LOT of turning to do before it goes SPLASH!

 

(I think it's B)

globalintelhub's picture

Any investors that got hit today are welcome to join the class action lawsuit https://steinmeyerlaw.com/valeant-pharmaceuticals-vrx/