Valeant Pharmaceuticals Intl Inc shares took a fall on Thursday. The firm’s stock took a heavy dive after Citron Research accused it of conducting irregular accounting practices. Following the accusations, shares fell as much as 40 percent before the drug maker firm offered a rebuttal. Valeant has denied the claims as “erroneous”. Some Wall Street analysts consider the fall in stock to be a great chance for investment.
In its defense, Valeant responded to the short seller’s allegations. The firm built its defense of its ties to individual pharmacies that failed to relieve traders’ fears. But shares showed some recovery after Valeant released its statement. Shares closed at $118.61 on Wednesday. This represented a 19 percent fall, a good heal from it’s initial 40. Thursday saw shares struggle a bit more, falling under $100 by mid-afternoon.
Valeant Stock Drowns over Allegations
The report by Citron Research said Valeant uses entities such as Philidor RX to boost sales. The drug maker is alleged to use the specialty pharmacy and others like it to stock inventory. But instead of recognizing the transactions as inventory storage, VRX books its dispatches to these facilities as sales.
“There’s no sales benefit from any inventory held at these specialty pharmacies,” VRX posted on Wednesday. Drug sales are only recorded when sold to patients, the firm assured. But Citron is unconvinced by the drug maker’s statement. The research firm accuses Valeant of using high sales figures to justify the massive price increases of its products.
Bearing this in mind, and despite the fact that the incident represented Valeant’s largest one-day share fall in 4 years, analysts still stand firmly behind the company’s stock. A large number of analysts still consider the drug firm to be a great investment. This week’s scandal gives investors a chance to get the stock at a discount, say analysts.
Wall Street Still Stands Behind VRX Stock
JP Morgan’s Chris Schott gave the drug maker Overweight rating but held back on a possible price target. “In our view, this limits the ability of Valeant to ‘stuff the channel’by shipping excess inventory to its specialty pharmacies as this would be not be recognized as revenues.”
Morgan Stanley holds similar views. The firm’s David Risinger says if allegations proof to be false, then “depressed VRX shares appear to present a buying opportunity.”
Bank of America Merril Lynch and Nomura both gave the drug firm a $290 price target. “We continue to like VRX’s diverse business mix, sticky and durable asset base, and low product concentration risk,” says Bank of America.
However, not everyone is on board with supporting VRX. Greg Fraser and Gregg Gilbert from Deutsche Bank gave Valeant a $204 target. The bank’s analysts says while their price target may present an upside if the drug maker executes, they “remain cautious on the stock”. The bank sited the volatility of the U.S.’s drug pricing, Valeant’s dispatch model, and related inquiries from the government.
The Bank on Montreal dropped its initial price target of $265 to $141. “The downside from here is no limited to the specialty pharmacy business,” says the bank’s Alex Arfaei. “It is dependent on the impact of the residual uncertainty on the rest of the business.”
Thursday afternoon saw VRX stock dwindle below the $100 mark. At this point, analysts’ confidence in Valeant appear questionable.