Canaccord's comments on Citron reportFriday October 23, 2015 ... Canaccord Genuity Life Sciences Analyst Neil Maruoka doesnt buy Citron Researchs report which implied that Valeant has been artificially inflating its revenue through its relationship with specialty pharmacies including Philidor and R&O. It turns out that Pershing Squares, Bill Ackman, doesnt buy the argument either: The billionaire, famed for his brash bets, swept up 2.1 million additional shares as the companys shares plunged as much as 40%. The purchase means Ackmans Pershing Square is now the companys second-largest shareholder, leapfrogging asset manager T.Rowe Price. Maruoka says that while, in form, Valeant does not own Philidor, because it does have the option to purchase that company, in substance, Valeant does own it and therefore consolidates Philidors financials as a Variable Interest Entity (VIE). He believes it is here that the question arises whether Valeant is inflating revenue when shipping product to the specialty pharmacy. Based on its disclosures, Valeant has clearly indicated that it only books revenue when the product is dispensed to the patient. Further, any inventory held at the specialty pharmacy level is held on Valeants books (and not recorded as revenue until sold to a third party. As such, even prior to these accusations, Maruoka believes that Valeant has confirmed it accounts for its relationships properly. Another tenet of Citrons argument is that Valeant has an improperly disclosed relationship with R&O, which in actuality is a subsidiary or related company to Philidor. The Citron report goes on to question why Valeant would demand a $69 million (~$25 million on a net basis) payment from R&O when, apparently, Valeant owns both Philidor and R&O (in substance). This does not even seem to contradict Valeants own disclosures. From the Q3 presentation, Valeant indicated that it consolidates any of its products still held by R&O in its own inventory, which leads Marouka to believe it is also being accounted for as a VIE. He says that, yes, by consolidating as a VIE, Valeant is confirming that it is a primary beneficiary of this entity for its own products.