Valeant's Plunge Leads Canada Stocks Lower Amid Price Scrutiny

  • Citron Research slashes price target for drugmaker to $50
  • Valeant shares plunge as much as 39%, most in over 20 years

Canadian stocks slid the most in three weeks as Valeant Pharmaceuticals International Inc. lost a fifth of its market value after Citron Research published a report examining the drugmaker’s pricing practices.

Citron said Laval, Quebec-based Valeant is using pharmacies related to specialty pharmacy Philidor to store inventory and record the transactions as sales. Citron, a short-seller, also lowered its U.S. target price for the stock to $50.

Valeant plunged 19 percent, the most since August 2011, to $154.21. At one point the stock was down 39 percent, its worst intraday performance since 1993. Smaller peer Concordia Healthcare Corp. sank 14 percent to a May 2014 low.

Short-seller accuses drugmaker of recording fake sales

In a response, the drugmaker said Citron’s allegations were “erroneous” and that sales were recorded only when drugs are sent to patients. Pershing Square Capital Management’s Bill Ackman, one of Valeant’s top backers, said in an e-mail he bought 2 million shares of Valeant and hasn’t sold any of his position in the stock.

The Standard & Poor’s/TSX Composite Index fell 137.73 points, or 1 percent, to 13,704.19 at 4 p.m. in Toronto, the biggest drop since Sept. 28. The benchmark gauge dropped 0.9 percent in about 10 minutes after the Valeant news broke shortly after 10 a.m. The S&P/TSX has risen 3 percent in October as it tries to recover from the worst quarter since 2011.

“They’re buying businesses, stripping out R&D and they have an expensive stock to do that with. When it works, it works,” said Som Seif, chief executive of Purpose Investments Inc., on the phone from Toronto. His firm manages about C$1.4 billion. “The problem is if you look at the underlying business they’ve done a really bad job of executing on organic growth of the businesses they buy.”

A darling of hedge fund investors including Ackman, one of the company’s largest shareholders, Valeant has been an 800-pound gorilla in the S&P/TSX, accounting for about a fifth of the benchmark equity gauge’s advance in the past five years through May.

Valeant, briefly the largest stock in the S&P/TSX by market capitalization this year, along with Concordia had been the two best performers among Canadian equities after pursuing aggressive acquisition strategies in the first half of 2015.

Valeant has since plummeted 55 percent from an Aug. 5 all-time high, amid increasing scrutiny from U.S. lawmakers over the industry’s pricing models for prescription drugs. Valeant has been the subject of subpoenas from attorneys’ offices in Manhattan and Massachusetts seeking additional information.

The declines in Canadian equities come a day after the S&P/TSX rallied as Justin Trudeau’s Liberal Party swept to power with a surprise majority in the nation’s latest federal election. Earlier today, the Bank of Canada cut its forecast for the country’s economic growth next year due to falling energy investment.

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