Valeant (NYSE: VRX) Stock Price Drops 9% as "Pharma's Enron" Fails to Calm Investors

The Valeant Pharmaceuticals Intl. Inc. (NYSE: VRX) stock price dropped another 9% to $106.03 Monday morning. The drop happened as "pharma's Enron" tried to calm investors with an analyst conference that defended the firm's business and dealings.

VRX stock price The Valeant stock price is now down more than 56% since early August.

Ahead of the call, Valeant issued a news release saying its accounting policies are appropriate and legal. Valeant also said it's forming an ad hoc committee to look into allegations that surfaced last week attacking its business relationships.

Those relationships surfaced last Wednesday in a scathing report from Citron Research.

Citron's report alleged Valeant engaged in a series of sham transactions to inflate its drug sales. It was titled, "Could this be the Pharmaceutical Enron?"

Citron, a well-known short seller, alleged Valeant used phony invoices to fuel revenue via its relationship with Philidor RX. Philidor is a specialty pharmacy that appears to have Valeant as its sole customer.

The New York Times reported Valeant uses Philidor to skirt insurance reimbursement rules. Valeant fervently denied the allegations. However, Valeant acknowledged it has an option to buy Philidor. That was a new disclosure that made investors even more anxious.

Valeant CEO Michael Pearson's comments today didn't do much to assuage investors' concerns. Pearson said Valeant has the option to purchase Philidor for $0 after spending $100 million for the right. He noted that arrangement is probably unusual, but added, "I think it is legal."

Without question, legal woes are mounting for Valeant, and the VRX stock price will continue to suffer...

Valeant's Questionable Structure Weighs on VRX Stock Price

Valeant makes a wide range of drugs. It's grown quickly by buying other pharmaceutical companies and then hiking prices on their drugs, sometimes by enormous amounts.

And that practice has recently come under scrutiny by federal prosecutors. For example, Valeant recently purchased the rights to sell two heart drugs, Nitopress and Isuprel, and raised their prices by 212% and 525%, respectively.

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The Citron report, the federal investigation, and the ensuing media frenzy all helped send the VRX stock price plunging nearly 40% intraday last Wednesday.

Before this drop, the Valeant stock price had surged more than a 1,000% over the last five years before peaking at $262.52 in August. Now, shares trade near $115 each.

Money Morning Global Credit Strategist Michael Lewitt saw the Valeant stock drop coming and said it was a "deeply troubled company" back on Oct. 4.
"This predatory business model has enriched management and a bunch of hedge funds but has left everyone else with whom the company has come into contact severely damaged," Lewitt said.

Valeant has shattered investors' confidence and the Valeant stock price has been walloped. Yet according to Lewitt, the VRX stock price still has further to fall...

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