Valeant Was Canada's Largest Company 3 Months Ago. Now It's Being Called The Next Enron

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It looks like we could soon be adding another to the growing list of great Canadian corporate flame-outs.

There was Nortel, which crashed when investors realized it had never made a profit and probably never would.

There was BlackBerry, which fiddled while the iPhone burned up the sales charts.

And now there is Laval, Quebec-based Valeant Pharmaceuticals. Just three months ago, it was Canada’s largest company by market value, thanks to a big run-up in health care stocks in the earlier part of the year.

Today the company is under siege, its shares are down 60 per cent from their peak, and Wall Street pundits are even speculating it could face criminal charges.

Trading in Valeant shares was briefly halted on the TSX after share prices fell by as much as 29 per cent Wednesday. Investors bailed on the company after Citron Research put out a note titled “Valeant: Could this be the Pharmaceutical Enron?

The note accused Valeant of running a scheme similar to the one energy firm Enron famously ran in the 1990s. Enron “sold” products and services to companies it secretly owned, in order to make it look like it was doing business when it wasn’t.

Citron notes that Valeant recently sued a company it had never done business with — R&O Pharmacy of California. But R&O does business with Philidor, a speciality pharmacy. According to the New York Times, Valeant explained this week it has an option to buy Philidor. And Valeant has apparently already consolidated Philidor’s earnings into its own earnings.

“Why would Valeant, a major big cap pharma ... be secretly maneuvering to buy a little known pharmacy with a dubious ownership structure?” Citron asked in its note. “Why was this entity NEVER disclosed in any prior company disclosure?”

Citron alleges that R&O and Philidor are in fact the same company.

“Citron believes the whole thing is a fraud to create invoices to deceive the auditors and book revenue,” the client note stated.

The allegation has obviously not been proven. Valeant was not responding to media requests for comment as of mid-day Wednesday.

The New York Times reports that specialty pharmacies like Philidor, which Valeant evidently owns, are used by pharma companies to make high drug prices more palatable.

“Doctors are urged ... to submit prescriptions directly to a mail-order specialty pharmacy affiliated with the drug company. The pharmacy mails the drug to the patient and deals with the insurance companies, relieving the doctor of the reimbursement hassle that might otherwise discourage them from prescribing such an expensive drug.”

Valeant last week said it is under investigation by the U.S. government over its pricing, distribution and patient assistance programs.

“It is not clear if the probes are related in any way to Valeant’s relationship with Philidor,” the Times reported.

What is clear is that yet another Canadian corporate high-flyer is at risk of crashing and burning. It’s a story that is becoming all too familiar with Canada's most prominent multinationals.

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