Star CNBC commentator Jim Cramer said Valeant Pharmaceuticals International Inc.’s stock meltdown was one of the most frightening experiences of his professional investing career.
The drugmaker’s stock plunged as much as 40 percent, or $60 from its $150 price, Wednesday after Citron Research alleged fraud and compared Valeant to Enron.
Valeant shares recovered some ground after the company’s statement, and closed at $118.61 in New York. That still represented a 19 percent drop, the company’s biggest one-day decline since 2011. Valeant’s market capitalization decline on Wednesday was $9.62 billion,
Reuters reported.
"It was one of the scariest declines I have seen in my 35 years of investing,"
Cramer said.
Valeant said stock-commentary site Citron’s allegation that it recorded fake sales to phony customers was “erroneous,” and defended its relationship with specialty pharmacies.
Citron said Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. “Is this Enron part deux?” the report said. “These similarities are too close to ignore.”
“There is no sales benefit from any inventory held at these specialty pharmacies,” Valeant said in a statement Wednesday afternoon. The company said that sales are recorded only when drugs are sent to patients.
Citron, founded by Andrew Left, has been a dogged critic of Valeant’s business model, denouncing its reliance on acquiring drugmakers and then jacking up the prices of their products, which have been on the market for years,
Bloomberg reported.
Overall, Valeant's top five investors could have lost a combined $2.76 billion on Wednesday based on their holdings as of June 30, Reuters reported.
Valeant has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. It’s taken a heavy toll on Valeant shares, which were up 83 percent for the year in August and have fallen 55 percent since that high point, Bloomberg reported.
But Cramer says Valeant stock’s recent roller-coaster ride is indicative of a wider trend sweeping the markets.
The "Mad Money" host attributes all of this to the fickle market’s short attention span, because what is hot one day is not the next.
"It is fascinating to watch this formula play out because it is so ephemeral. In other words, it makes sense, but only for a few days before the market loses interest and moves on to something else," he said.
This stock rotation has suddenly taken the groups that were most loathed and made them most loved.
Cramer considers this market “a bear on the hunt.” Any group can get mauled at any time; it just depends on the day, CNBC reported.
(Newsmax wire services contributed to this report.)