Valeant Pharmaceuticals VRX

Citron’s Last Word On Valeant Pharmaceuticals Intl (VRX)

Valeant PharmaceuticalsWe are Not Dialing Back Our Warning on Valeant … We are Dialing Back the Focus on Citron to Investigate and Report the Vast Spectrum of Claims Now Piling Up Against Valeant.

For over 14 years, Citron Research has been uncovering stock fraud and unique angles to stories that have gone either unnoticed or misunderstood by either Wall Street or the main street media. During that time, our work has preceded and predicted regulatory enforcement in over 50 instances, more than any other publication we know.

Just four weeks ago, Citron released research criticizing the drastic price hikes of pharmaceutical products by Valeant and commenting on the unsustainability of their business model. At the time we put out a price target of $130. Citron’s story was overshadowed on that day by the letter requesting Valeant be subpoena’d by Senator Bernie Sanders. Only 5 days later, on October 2, Citron released another piece of research discussing the myth of Valeant’s organic growth. That day out research was overshadowed by the biggest one day stock market reversal in the last four years.

Just two weeks ago, nobody in the investment community had ever heard of Philidor.

Then the bomb hit.

10 days ago, we uncovered the court document and the online privacy statements that decisively connected Valeant, Philidor, Isolani and R&O (plus West Wilshire and Orbit Pharmacies) in a web of purposeful and intentional corporate non-disclosure.


The court document stated that Valeant was either the perpetrator of a victim of a “massive fraud”. Post that filing, nearly 30 days had gone by with zero response from Valeant. To Citron, this was legitimately Enron-esque: The creation of a network of undisclosed entities in order to alter financial results, purposefully kept out of sight, and outside the scope of disclosure to the investing public. Purposely, Citron placed the price target on Valeant at $50 – unlike Enron which we all know went to 0. Citron Research stands by our Enron analogy, as we now see that Valeant has engaged in manipulation of the insurance reimbursement system, and very possibly the law, to alter their financial results.

**For those of you expecting a “kill shot”, you can stop reading here.

While Citron has been at the nexus of information on this story, we will not be releasing new allegations against Valeant in this piece, as we believe that it is not our responsibility to be the judge, jury, and executioner of the company’s deeds. Yes, we have reviewed numerous data points strongly suggesting that Valeant’s operation is far “dirtier” than just Philidor, we are passing all new information on to the mainstream media investigative reports, whose legal teams are far deeper than those at Citron.

In the meantime for those of you who want a voyeur experience of what is actually going on right now at Valeant, we suggest you peruse the Cafe Pharma message boards. (Of course, they are mostly anonymous, so be your own best judge of the authenticity of each post.)

NOTE: Neither Citron nor anyone associated with Citron has ever posted on any of these message boards.

In order to complete a previous claim, Citron will attempt to answer the question, was Philidor just perpetrating Insurance Fraud or also Fraudulent Billing?

As we said before, if we had subpoena power we could prove everything, but we don’t. And to think that Valeant would create a network of shadowy pharmacies, yet not stuff channels, either through un-ordered prescription refills if not accounting shenanigans … well it just doesn’t align with the “win at all costs attitude” of the company culture.

Citron has visited R&O Pharmacy personally. The court docs provided plenty of basis to question how a “neighborhood pharmacy” of this size might reasonably have received, processed, and shipped $69.8 million in prescriptions in a few months. We’ll see what the audits show.

Have the auditors ever been into West Wilshire Pharmacy? Does this look like your neighborhood pharmacy? Or Valeant’s secret strategic channel that’s just too good to disclose to investors?

Valeant is Uninvestible for the Foreseeable Future

Citron Research believes that Valeant will trade at much lower levels than its current price and that the stock is toxic until many issues are flushed out.

Goldman Sachs apparently agrees, commenting this morning that it is unsure how much of a risk the Philidor situation will pose to Valeant’s overall business.

“We expect a much longer road than we previously thought for the dust to settle and for VRX to be able to regain enough investor confidence to attract a sufficient amount of new money into the stock.” — Goldman Sachs research note, November 2, 2015

Citron notes Goldman’s new target, $122, is significantly lower than it was just four weeks ago.

Here is a list of some but not all of the immediate concerns facing Valeant and its shareholders:

1) Valeant’s civil and criminal culpability for the actions of the “Philidor Network”, stretching back to its creation. These include but are not limited to: insurance fraud, mail fraud, accounting fraud, and HIPAA violations, perjury by company employees in state regulatory filings, and potential civil and criminal RICO overhangs.

2) The harsh financial consequences of prescriptions improperly reimbursed through the now cancelled PBM’s contracts, [reference Article 7 in this link] which all explicitly specify consequences, including audits, with retroactive refunds plus fines for each wrongly reimbursed prescription, retroactively applicable for at least three years.

3) Loss of at least half, and possibly all, of Valeant’s Dermatology drug channel. We know only what the company discloses about the loss of the Philidor channel. But what will the sales teams do now? Will they even stay? PBM’s are now all alerted, and will be fine-tooth-combing every Valeant derma prescription for years. This reputational damage is not so easily undone.

Valeant Pharmaceuticals VRX

Chart via S&P CapIQ

See full PDF below.



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