Citron Research backtracks on promise of bombshell report on Valeant

MONTREAL – Citron Research, the U.S. short-selling firm that set Valeant Pharmaceuticals in its sights, backtracked on its promise to release a bombshell report Monday against the embattled Quebec-based drugmaker.

The company tweeted Friday that it would update a previously issued report on Valeant with information “dirtier than anyone has reported.”

But its six-page report doesn’t live up to that billing on the advice of lawyers, Citron said.

“For those of you expecting a ‘kill shot,’ you can stop reading here,” Citron said, adding that it won’t be making new allegations against Valeant. “Our work is done here.”

“We believe it is not our responsibility to be the judge, jury and executioner of the company’s deeds.”

The short-seller alleged nearly two weeks ago that Valeant (TSX:VRX) set up a network of “phantom pharmacies” to fool auditors — allegations that Valeant CEO Michael Pearson said are “completely untrue.”

Andrew Left, executive editor with Citron, has said he stands by the allegations in that report.

Meanwhile, Citron said Monday that the reputational damage to Valeant won’t be easily undone and that the Quebec-based company’s shares will be toxic until many issues are flushed out through additional scrutiny involving auditors and earnings restatements.

It also expects an end to Valeant’s acquisition and price-boosting strategies and some unfavourable tax rulings from U.S. and Canadian authorities.

Valeant said the fact that Citron’s latest report contained no further allegations was not unexpected.

“Given that its last report was filled with demonstrably false statements about our business, we are not surprised, even as Citron continues to mislead investors in an attempt to profit by driving down our stock,” spokeswoman Laurie Little said.

Valeant has said it asked the Securities and Exchange Commission to investigate Citron, adding that its lawyers have met with the U.S. securities regulator.

Citron didn’t respond to Valeant’s characterization of its motives, but Left told CNBC Monday that he had not been contacted over the weekend by the SEC.

Citron is not the only one criticizing Canada’s largest drug company, whose shares have a taken a beating in the past couple of months, especially since questions surfaced about Valeant’s partnership with Pennsylvania-based Philidor Rx Services to distribute its drugs. Valeant has since severed its relationship with Philidor, a mail-order company that accounted for 6.8 per cent of Valeant’s revenues in the last quarter.

Berkshire Hathaway vice-chairman Charlie Munger described Valeant’s practice of acquiring rights to treatments and boosting prices as legal but “deeply immoral.”

In an interview with Bloomberg, the respected value investor and veteran business partner of Warren Buffett said Valeant’s strategy isn’t sustainable.

Little responded that Valeant operates on the “highest standard of ethics” and complies with all accounting rules, regulations and laws.

She said the prices set by drug companies, including Valeant, reflect the value of the products and hospital reimbursement rates. Valeant also has programs to help patients who can’t afford higher prices to ensure they get the medications they need, she added.

Valeant’s shares bounced back Monday with their largest daily increase in more than a month, up more than eight per cent to $131.88 on the Toronto Stock Exchange.

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