Short seller Citron backs off Valeant claims

(Reuters) — Influential short-selling firm Citron Research did not publish new allegations against Valeant Pharmaceuticals (NYSE:VRX, TSE:VRX) yesterday, as many investors had anticipated, giving the beleaguered shares of the Canadian drugmaker a boost.

Citron had promised in an Oct. 30 tweet to “update” the story yesterday, following its scathing report last month alleging accounting improprieties in a network of specialty pharmacies, including Philidor Rx, that Valeant used to distribute its drugs.

“Valeant’s operation is far ‘dirtier’ than just Philidor,” Citron said in yesterday’s report, but did not make any further allegations, saying instead that “our work is done here.”

“We are passing all new information on to the mainstream media investigative reports, whose legal teams are far deeper than those at Citron,” the report said.

Shares of Valeant jumped in early New York trading, and were up 8% by mid-afternoon, at $101.24; the stock closed yesterday at $100.47 per share, up 7.1%. Valeant shares have fallen from a peak of $260 in August. Citron’s initial Oct. 21 report had sent the stock down as much as 40% in 1 session, and last week’s tweet pared another 10% off Valeant shares.

Citron initially tweeted that it was going to release another explosive report on the embattled drug giant during a 4-hour conference call by billionaire investor William Ackman Oct. 30, in which he defended his position in Valeant.

Citron is overseen by Andrew Left, who is among a small group of short-sellers who publish free reports on firms they claim are overvalued or engaged in fraud.

During a CNBC interview yesterday, Left said his decision not to make further allegations stemmed from a desire to move investor focus to Valeant from Citron.

He declined to provide details of his financial position in Valeant and laughed at suggestions that he had made $150 million on Valeant options. He said that he had not closed out his Valeant positions, and predicted more details would come out.

In yesterday’s note, he said Valeant was looking at insurance fraud, accounting fraud, mail fraud, health information privacy violations and perjury, among other issues.

“We do not know the whole nature of what we are going to see in Valeant,” Left said.

In his October report, he likened Valeant to energy giant Enron, which collapsed after an accounting scandal, and focused on information that Valeant had never disclosed to investors about its use of Philidor and other related pharmacies.

Valeant has denied the fraud allegations and said last week that it would contact the U.S. Securities & Exchange Commission about investigating Citron. Left told CNBC yesterday he was not contacted by the SEC over the weekend.

Valeant spokeswoman Laurie Little said in an emailed statement yesterday that “Citron admits in its latest report that it has no substantiation for further allegations against Valeant.”

“Given that its last report was filled with demonstrably false statements about our business, we are not surprised, even as Citron continues to mislead investors in an attempt to profit by driving down our stock,” the statement added.

Last week, Valeant said it had severed ties with Philidor after losing confidence in the division’s operating practices. The announcement came after the two largest U.S. pharmacy benefit managers said they were excluding Philidor from their pharmacy network.

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