Valeant Pharmaceuticals International Inc. shares fell another 16% Thursday, extending their prior-session losses, after BMO downgraded the stock to market perform from outperform and said it cannot defend the company's specialty pharma structure. The move comes a day after short seller Citron Research issued a damning report on Valeant, alleging revenue-recognition improprieties tied to specialty pharma companies. BMO estimates that about 10% of Valeant's sales stem from such companies, which are also used by other big drug companies. But the structure of Valeant's network seems different, said BMO analysts Alex Arfaei and David Redfern. The company consolidates the financials of one pharma, Philidor, while other drug companies only work with "fully independent" companies. "Valeant's structure may not be illegal, but we find it aggressive and questionable," they said. "However, proof of a questionable business practice is not proof of financial wrong-doing." BMO said an analysis of Valeant's cash flows does not support the short seller's claims, but it cannot be ruled out either. "So we're left with their well-timed allegations, Valeant's "categorical" denials and audited financial statements that support, but not necessarily prove Valeant's position," they wrote. "Thus, there is residual uncertainty that may not be fully resolved unless there is an investigation." Valeant shares are down 43% this week, putting it on track for its worst-ever weekly performance, while the S&P 500 is up about 1%.
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