Valeant hits back at short-seller, stands by accounting

Valeant Pharmaceuticals hit back Monday at a short-seller who accused the Canadian company of inflating sales figures, saying it has asked the US securities regulators to investigate while defending its business tactics.

A special committee led by board member Bob Ingram will also review the company's ties to pharmacy Philidor and allegations of wrongdoing.

But despite the new denials, Valeant shares sank again in morning trading.

The allegations made by Citron Research in a scathing report last week, Valeant chief executive Michael Pearson told an investor teleconference, were "false attacks and misleading statements by short-sellers looking to profit from harming our side."

Citron, a longtime critic of Valeant, had accused the company of creating a network of mail-order pharmacies to "stuff the channel" -- a deceptive business practice of inflating sales figures by sending retailers in its distribution channel more product than they are able to sell.

It said Valeant was using two firms it purportedly controlled -- Philidor RX and R&O Pharmacy.

Pearson said the claims by Citron's Andrew Left are "completely untrue."

Left's motivation, he said, "is the same as someone who runs into a crowd in a theater to falsely yell fire," Pearson said. "He wanted people to run."

Valeant, he added, has asked the US Securities and Exchange Commission to investigate Citron's reporting, which sent Valeant's share price tumbling. Its value fell by one-third in five days, to US$113.75 at midday (1600 GMT) Monday.

Officials said Valeant had nurtured Philidor in its infancy when it sold only two Valeant acne drugs by mail order. Last year when Philidor sought to add suppliers that would have cut into Valeant sales, Valeant signed a deal that effectively gave its drugs priority over competitors.

The arrangement -- which includes an option to buy Philidor -- accounted for 6.8 percent of Valeant's net revenues in the third quarter. Philidor also sells cheaper generic drugs but the bulk of its sales are Valeant products.

The deal also gave Valeant limited oversight over Philidor.

Valeant officials noted that other pharmaceutical companies including Allergan, Galderma, and Novartis use specialty pharmacies to sell their wares.

In the meantime, Philidor expanded into new markets by acquiring pharmacies and partnering with others.

Its partnership with R&O allowed Philidor to sell drugs in California where its permit application had been denied by the pharmacy board.

Litigation between Valeant and R&O, according to Valeant director Robert Alexander, is at its core "a collection action."

Valeant, he explained, cut off R&O after receiving only partial payment for approximately 75 shipments to R&O through Philidor between January and August of this year.

Last month R&O major shareholder Isolani filed a lawsuit against R&O, which in turn filed against Valeant insisting it owes no arrears. Valeant, said Alexander, will counter-sue.