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.
$VRX game over....Citron publishes smoking gun— Citron Research (@CitronResearch) October 21, 2015
- *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...