Citron Research: Don't Bother Senator Sanders, Here's What A Subpoena On Valeant Would Expose

  • Shares of Valeant Pharmaceuticals Intl Inc VRX were trading lower by more than 3 percent Friday morning.
  • Shares of Valeant have come under pressure over concerns of price gouging and a plea for a subpoena by Bernie Sanders to see all communication regarding price hikes.
  • Citron Research commented in a report on Friday that Valeant's business model is "broken" and will "fall under its own weight."
  • The 2016 presidential debate is picking up momentum on a very interesting topic for investors: drug pricing.

    Presidential candidate Bernie Sanders has called on Valeant to open its communications regarding price hikes and the reasons behind them. The senator from Vermont has also called for a subpoena of the company.

    Valeant's Business Model Is 'Broken'

    In a report published Friday, Citron Research
    commented on the issue, noting that Valeant's business model is "broken" and will "fall under its own weight." The investment research firm also added that no subpoena may be needed as they have already "done the work."

    Related Link: Citron Says "The Real Problem With Drug Pricing In America Is Forged In A Single Word: Valeant"

    Citron pointed out that Valeant raised the prices on two key heart drugs, Isuprel and Nitropress, by 525 percent and 212 percent, respectively, the same day (February 10, 2015) that the company acquired the drugs from Marathon. The report further noted that as of the first quarter 2015, these drugs "miraculously" leapfrogged all of its thousands of other products.

    Isuprel was Valeant's single largest drug in the first quarter with $72 million in sales, while Nitropress held the number three spot with $62 million in sales.

    'Too Dangerous To Own'

    Citron went on to calculate the math:

    "There were 89 days in 1Q15. Valeant owned Isuprel and Nitropress for 49 of the 89 days of the quarter and the prices of the drugs were 525 percent higher and 212 percent higher during this 49 day period than during the first 40 days of the quarter prior to VRX buying them. The calcs show this February 10, 2015 price increase on just these two drugs netted Valeant an additional $86.95 million revenue that flowed straight to its bottom line -- and that was only during the last 49 days of the quarter. This $86.9M represented 8.5 percent of Q1 2015 adjusted EBIT and 10.5 percent of Valeant's cash EPS metric."

    Citron concluded:

    "So there's your answer, Senator Sanders, in black and white. The extreme price hikes on these two drugs were the only reason Valeant beat the Street on Q1 2015 estimates, avoiding a 9+ percent earnings miss. This is what you will see if you ever get ahold of the emails between the CEO and CFO."

    Bottom line, Cintron argued that Valeant's stock is "too dangerous to own" and has set a short-term price target of $125 per share.

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