As Valeant's Troubles Mount, Its Stock Price Takes Another Dive

Now, that's a lousy day in the market.

Valeant Pharmaceuticals, already under fire for its drug-pricing policies, was accused on Wednesday of creating phantom sales to falsely inflate revenues.

The allegations were made by Citron Research, a short-selling firm, in a report entitled, "Could this be the Pharmaceutical Enron?"

Short-sellers such as Citron make bets that a company's stock will fall and they benefit when the price goes down, so their opinions can often be viewed with skepticism.

Nevertheless, the report sent Valeant's stock, a favorite of hedge funds, plummeting by as much as 41 percent, eliminating as much as $20 billion from its market value. The stock is now down about 54 percent from its August high.

Multi-billionaire investor Bill Ackman of Pershing Square Capital Management was said to have lost as much as $2 billion on the stock, although with the price now so low, Ackman also told CNBC he is loading up on new shares.

Valeant, based in Quebec, is reportedly under investigation by federal prosecutors, who are seeking information about its pricing and distribution policies. The company has purchased the rights to sell two heart drugs, Nitopress and Isuprel, and raised their prices by 212 and 525 percent, respectively.

Such practices have been especially controversial lately after Turing Pharmaceuticals bought the right to sell Duraprim and then raised its price by 5,000 percent. After that huge increase was widely denounced as price-gouging, Turing agreed to lower the price.

Valeant's troubles mounted Wednesday after the release of Citron's report, which said the company used its relationship with specialty pharmaceutical companies such as Philidor to create phantom sales that made revenue look higher than it was.

Valeant issued a statement calling the report erroneous and denying any attempt to inflate revenue.

"There is no sales benefit from any inventory held at these specialty pharmacies," Valeant said, in the statement.

Earlier this week, the New York Times reported that Valeant and other drug companies were using mail-order specialty firms to circumvent efforts by insurance companies to switch patients to cheaper, generic versions of their drugs.