Source: Retrophin

What: After reporting third quarter financial results that disappointed investors and reports that it could come under scrutiny regarding its drug pricing practices, shares in Retrophin (NASDAQ:RTRX) slumped by 17% today.

So what: Retrophin's former founder and CEO Martin Shkreli has been on the hot seat for buying a 60-year old drug and then significantly hiking its price tag at his new firm, Turing Pharmaceuticals. Although Shkreli was ousted by Retrophin late last year over "securities irregularities", Retrophin's business model still relies heavily on the buying and rebranding of medicine that has been developed by others.

Retrophin's drugs include Thiola, which treats an ultra rare condition in which patients continuously suffer from kidney stones and was acquired last year, and Cholbam, which treats bile disorders caused by enzyme defects and was acquired earlier this year. Retrophin also markets Chenodal, a gallstone medication, and across all three of these medications, the company generated total sales of $28 million in the third quarter, up from $8.3 million last year.

That's a big bump up in sales, but before investors get too excited about the increase they should know that one big reason why Retrophin's sales have taken off is that the company reportedly increased the price on Thiola from $1 per tablet to $30 per tablet after acquiring it -- a practice that has drawn the ire of doctors, patients, media, and now a Senate committee.

Investors should also know that acquisitions have led to Retrophin's SG&A costs climbing to $22.3 million in Q3 from $17.4 million a year ago and that its quarterly R&D costs have increased to $14.1 million from $12.6 million last year. As a result, after adjusting for acquisitions and one-time items, Retrophin's non-GAAP operating income was just $3.7 million in the third quarter.

Now what:  Retrophin alleges that Shkreli inappropriately used Retrophin's shares and cash to repay former investors in his hedge fund. Shkreli denies those allegations as preposterous, so it's unlikely that the two parties will come to terms anytime soon.

Additionally, Retrophin appears to have another battle on its hands in the form of a bipartisan Senate committee that has sent letters to both Retrophin and Shkrelli's current venture, Turing Pharmaceuticals, as well as two other companies requesting documents regarding their pricing decisions.

Because it's unclear to me what the fall-out could be for Retrophin and its investors if that committee doesn't like what Retrophin has to say for itself, investors might be better served focusing their investing dollars elsewhere, at least until the Senate investigation wraps up. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.