Costco Falls Amid Allegations Of Kickbacks Related To Prescription Drugs

Shares of Costco Wholesale Corporation COST were trading lower Wednesday and the oversized decline versus the broader indices is being attributed by some traders to a concerning report out of Canada.

What Happened

Canada's state broadcaster, CBC, this week posted a trailer for its Fifth Estate investigative platform titled "Prescription Drugs: The Costco Kickbacks." The video description discusses secret audio tapes and an interview with an industry whistleblower that reveals a "shady practice" taking place across the entire prescription drug space, including at Costco.

"A Fifth Estate investigation shows how Costco pressed one generic drug company for illegal payments to stock their products -- undermining government attempts to protect consumers," the description said.

Why It's Important

The Fifth Estate report isn't necessarily anything new as Costco has been investigated in the past over similar allegations. A CBC article dated Dec. 2, 2016, said the wholesaler giant was being investigated for violations of the Ontario Drug Benefits Act. This provision doesn't allow operators pharmacies to accept rebates for stocking drugs.

Moreover, Costco pharmacy directors were fined $20,000 after admitting they solicited more than $1.2 million in unlawful payments, the Toronto Star reported in early January.

What's Next

The extent of claims coming from The Fifth Estate aren't known. The full episode will air Friday, March 16. It's also unclear what relation, if any, exists between allegations of wrongdoing in Canada has in Costco's U.S. business.

Costco's stock was trading around $184.68 at time of publication, down 1.5 percent on the day.

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Image credit: Tony Webster from Minneapolis, Minnesota, United States - Costco Wholesale Store, CC BY-SA 2.0, via Wikimedia Commons