Andrew Left, the man behind the report that sent shares of Canadian pharmaceutical company Valeant into a free-fall this week, just wrapped up a big interview on Bloomberg TV.
His advice to investors: Don’t listen to me. Do your own homework.
“You should never short a stock because I say so. Look at the message. Don’t look at the messenger. At the end of the day, look at what Valeant is doing. What is the sustainability of their business model? That’s what you have to ask yourself,” Left said.
Valeant’s share price took a big hit. The stock was last down 18% on Thursday at about $US99.96. It has fallen more than 42% since the market open on Monday.
Much of Citron’s report focuses on Valeant’s relationship with Philidor, a specialty pharmacy that distributes prescription drugs for Valeant. Wall Street had not heard of Philidor until about three days ago.
Valeant is the only supplier to Philidor, and it also has an option to buy the company. Citron accuses Valeant of using Philidor, and an unknown number of specialty pharmacies like it, to generate fake invoices so that it can book revenue for sales that never happened.
In a statement, Valeant denied Citron’s allegations.
“We categorically deny the allegations made in the Citron Report. Citron’s false and misleading statements about Valeant appear to be an attempt to manipulate the market in an effort to drive down Valeant’s stock price. As disclosed in our third quarter earnings presentation and further today, Valeant has a contractual relationship with Philidor and properly accounts for sales to, and inventory at, Philidor and Philidor’s network pharmacies. We are confident in our full compliance with all applicable accounting rules, regulations and laws.”
Since the report came out, a number of Wall Street analysts have weighed in on the matter. The reaction has been mixed. Some see the share-price collapse as a buying opportunity, while others think it’s best to wait it out. Others just don’t know.
Left said that he’s “more confused today” about the actual ownership structure and the chain of command. He also called the company’s response “amateurish.”
“Obviously, it’s not me. Look at what the market is telling you. That’s Wall Street saying, ‘Hey, we don’t trust your answer.'”
Left has a short position in the company. He declined to comment when Bloomberg TV asked him specifics about the size of it and if he’s made any changes to his position.
He also made it clear that he’s just the messenger. It’s up to the rest of the market participants to do their own research.
“It’s also not my job to prove it. Based upon the available public information that’s out there, when I can show shared ownership of something — I can show an invoice going one to the next — that’s what we call a lot of smoke. If you don’t say there’s a fire, smoke keeps increasing on a daily basis. Once everyone saw the responses from the sell-side, the company, Philidor, Wall Street has decided this smoke is actually fire,” Left said.
‘Could this be the pharmaceutical Enron?’
Another striking part of Left’s report is that it draws comparisons to Enron that are “too close to ignore.”
Specifically, Left believes that, like Enron, the company may be using shadowy entities. In Enron’s case, they were used to hide losses.
“Is Valeant using shadowy entities to book revenue?” Left said on Bloomberg TV.
He also pointed out that there appear to be similarities in the responses from Valeant’s management and the responses that Enron’s management used when it’s business model was questioned.
Left believes that Valeant appears to be doing something illegal.
‘This is not personal’
Left said that for some time Valeant has been an “over-discussed” stock.
Valeant has also been a darling amongst the hedge funds. It ranked No. 10 on Goldman Sachs’ stocks that “matter most” to hedge funds list for the second quarter. According to Goldman, 32 funds had the stock as one of their top-10 stock holdings.
Activist investor Bill Ackman, the founder of $US19 billion Pershing Square Capital Management, is the largest hedge fund shareholder and the third-largest shareholder overall. He’s lost more than $US1 billion on paper on the position.
During Wednesday’s decline, Ackman said that he bought 2 million more shares, bringing his total stake to 21.47 million shares.
Left told Bloomberg TV that his short is “not personal” and it’s definitely not about Ackman.
“I’m not going against Bill Ackman. He runs a hedge fund…You act like…I’m not talking about his children. I’m talking about a company he owns. I think he made a mistake…” Left said.
He added that if he were Ackman though, he would have picked up tha phone and asked the CEO for answers immediately.
“As a short seller, if you start making things personal you’re going to go broke real fast. I want to see the truth come out. Once the truth comes out I’ll let the market dictate what’s going to happen,” Left told Bloomberg TV.
When asked about some of his own transgressions in the past (he includes them on his website bio), Left pointed out that he’s been publishing short selling research for 14 years and that his track record speaks for itself.
“[If] you don’t like what I have to say, I don’t care. Read what I write and judge the information.”
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