Only three things are guaranteed in life: death, taxes and Citron Research having Wall Street’s ear.
Citron, the research firm led by famed short-seller Andrew Left, sent out a tweet on Monday afternoon about specialty pharmaceutical company Mallinckrodt PLC (MNK), alleging that it faces bigger downside risks than Valeant Pharmaceuticals Intl Inc (VRX) at current levels.
Valeant’s stock is down more than 40% since Oct. 21, the day Citron published a scathing report calling Valeant the “pharmaceutical Enron” and alleging that it used a network of specialty pharmacies to generate phantom revenues.
It’s unclear exactly what sort of misbehavior Citron thinks MNK is guilty of, but Citron’s allegations alone were enough to send the stock plunging. At its intraday lows, MNK stock was off more than 25%.
140 Characters of Doom
It’s remarkable that fewer than 140 characters on Twitter (TWTR), if they originate from the right account, can move the markets so significantly. Here’s the tweet that doomed MNK stock on Monday:
— Citron Research (@CitronResearch) November 9, 2015
MNK stock was halted three separate times in afternoon trading after the tweet sparked a flurry of high-volume trades.
Bloomberg notes that Mallinckrodt has made clear that (unlike VRX) MNK doesn’t own any specialty pharmacies. That’s significant because Citron alleged Valeant was using its murky relationship with Philidor RX to artificially boost revenue.
But Citron’s tweet earlier this afternoon, saying that MNK was a “worse offender” offender of the reimbursement system, could instead simply refer to Mallinckrodt’s practice of acquiring the rights to drugs, jacking those prices up, and reaping the benefits.
Such practices have fallen under wide scrutiny from the government and regulators, particularly after Democratic presidential candidate Hillary Clinton raised the issue and made it one of her talking points in a recent debate.
It’s unclear when the “more to follow” that Citron promises regarding MNK and its offenses will be publicized.
One glaring example that MNK could catch attract increased scrutiny for is last year’s acquisition of the rights to H.P. Acthar Gel (obtained via its purchase of Questcor), a drug whose price Questcor increased from $40 per vial to $28,000 per vial, according to The New York Times.
As for Citron and its influence, today’s dramatic moves confirm that the firm still has plenty to go around. Social media is rapidly becoming an influential way to disseminate and spread information — enough that monitoring false tweets made to manipulate markets are now on the Security and Exchange Commission’s radar.
We’ll have to see if the MNK charges stick, but with Valeant’s mess still not fully worked out, there’s certainly a risk for current Mallinckrodt investors.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.