What: Another day, another plummet by Valeant Pharmaceuticals (NYSE:BHC). Shares were down as much as 20% today, although they've rebounded some this afternoon.
Yesterday, Citron Research published a report claiming that Valeant Pharmaceuticals might be using a series of specialty pharmacies to make "phantom sales."
Valeant countered, arguing that it doesn't book the sales until the drug is shipped to the patient, so sales to the pharmacies -- which Valeant leaves as inventory on its financial books -- couldn't be "phantom sales" because they aren't considered sales in financial terms.
So what: There doesn't seem to be any new news today that would support a further decline, but the controversy over Valeant Pharmaceuticals' use of an exclusive specialty pharmacy and the structure of the deals isn't going away anytime soon.
We already knew that Valeant has an option to buy its specialty pharma, Philidor Rx Services. And yesterday we learned that Philidor, in turn, has the right to buy its affiliated pharmacies. There's nothing inherently wrong with that, but it kind of sounds like the potential for a ponzi scheme. Even though there's absolutely no evidence of any wrongdoing, investors tend to be cautious when their investments are on the line.
Andrew Left, executive editor of Citron Research, the firm that started the controversy, was on Bloomberg TV today, keeping his report in the news even if he has no proof that Valeant Pharmaceuticals did anything wrong. "It's also not my job to actually prove it," Left said.
Meanwhile, BMO Capital Markets analyst Alex Arfaei was on CNBC talking about his downgrade of Valeant. Again, there was nothing new, but keeping the controversy alive leads to people hitting the sell button.
Now what: This won't be the last of the controversy. We'll probably seem more downgrades by analysts. Whether they'll make the stock fall further is anyone's guess. At some price, the potential rewards make it worth the risk you're taking in owning Valeant Pharmaceuticals. However, figuring out that price, given all the unknowns, is difficult.