NEW YORK (TheStreet) -- Valeant Pharmaceuticals (VRX) stock is plummeting by 31.52% to $100.49 in midday trading on Wednesday, after Citron Research released a report accusing the company of creating a network of "phantom" pharmacies to falsify sales and avoid auditor scrutiny.
Pharmaceutical companies have determined a way to vastly overcharge patients for combinations of generic drugs that would cost much less when sold separately, the New York Timesreported on Monday.
The manufacturers avoid insurers' and pharmacists' recommendations of generic drugs by imploring doctors to submit prescriptions directly to a mail-order pharmacy connected to the drug maker, the Times alleged.
Valeant and a specialty pharmacy called Philidor Rx Services have such a relationship, the Times reported, and Citron Research reiterated this in a report this morning.
The relationship came under scrutiny following Valeant's earnings report on Monday, in which the company announced it had purchased an option to acquire Philidor in late 2014.
Valeant is using "a network of phantom captive pharmacies" connected to Philidor, with the same management and phone numbers, to create false sales and avoid auditor scrutiny, Citron alleged in its report.
Valeant has released a statement responding to the allegations, noting that Philidor provides back-end services to and shares a call center with the "phantom" pharmacies such as R&O Pharmacy that Citron referenced. Shipments to pharmacies in Philidor's network are not recorded in the company's revenue, and inventory at these pharmacies is not included in consolidated inventory balance, according to the statement.
Valeant is a specialty pharmaceutical and medical device company based in Laval, Canada.
Separately, TheStreet Ratings team rates VALEANT PHARMACEUTICALS INTL as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate VALEANT PHARMACEUTICALS INTL (VRX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 35.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- VALEANT PHARMACEUTICALS INTL has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VALEANT PHARMACEUTICALS INTL turned its bottom line around by earning $2.67 versus -$2.62 in the prior year. This year, the market expects an improvement in earnings ($11.66 versus $2.67).
- Compared to its closing price of one year ago, VRX's share price has jumped by 36.28%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 82.0% when compared to the same quarter one year ago, falling from $275.40 million to $49.50 million.
- You can view the full analysis from the report here: VRX