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Valeant Plummets Amid Enron-Like Allegations

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What's going on?

Valeant, a speciality drugs company, was likened to a “pharmaceutical Enron” and its stock sold off almost 20%.

What does this mean?

A company called Citron published a report claiming that Valeant’s close relationship with some pharmacies is masking accounting “fraud” at Valeant. Valeant issued a strenuous denial, calling the claims “false and misleading.” It should be noted that Citron’s Founder disclosed to CNBC that he has a short position in Valeant shares, meaning that he profited significantly from today’s sharp share price decline. But this isn’t the only sign of trouble for Valeant. Its business model – which has often involved buying the rights to “under-priced” drugs and then quickly raising their prices - is under threat from possible new laws. Its stock was already down more than 40% since its peak in July, even before this news.

Why should I care?

  1. The bigger picture: Lots of big-name hedge funds own Valeant stock. That’s one reason why this stock gets so much press. One of the world’s biggest hedge funds, Pershing Square, said that it bought a lot of stock during today’s sell off - which might have helped the stock to rally from -40% to finish down “only” 20%.
  2. Personally: Similar type companies also sold off – worsening a real rough patch for “biotech” companies. Biotech had been one of the biggest positive driving forces of the NASDAQ in particular earlier this year - which means it helped to drive the stock market on the whole higher (most probably including your portfolio). The former darling child has now turned into a troublemaker.
Originally posted as part of the Finimize daily email.

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