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Citron bearish on McKesson, shares down

September 27, 2019

Drug wholesaler McKesson (MCK -2.3%) is down on modestly higher volume in apparent response to a bearish report from Citron Research that projects 40% downside risk due to its potential financial exposure related to its role in the opioid epidemic. Key points:

It supplied 5.7M opioid painkillers (oxycodone and hydrocodone) over a two-year period to a pharmacy located in a 400-resident town in West Virginia. The pharmacy, Sav-Rite No. 1, was the company’s third-largest purchaser of the two pain pills in the state between 2006 and 2107.

McKesson’s due diligence consisted of one document written in 2007 by the owner stating that the pharmacy sells “only legitimate prescriptions.”

In 2007, McKesson shipped an average of 9,650 hydrocodone pills a day to the pharmacy, 36x the threshold amount set by the Lifestyle Drug Monitoring Program.

There was a lack of due diligence related to its top customer in the state, Family Discount Pharmacy in Mount Gay-Shamrock, which purchased 5.9M opioid pills between 2006 and 2014, including more than 3.8M in 2006 and 2007 alone. The company eventually terminated the pharmacy as a customer for “compliance reasons.”

Citron based its financial exposure on Johnson & Johnson’s $572M settlement in Oklahoma, projecting (albeit with great uncertainty) potential exposure of $101B to settle all claims in the U.S.

Related tickers: AmerisourceBergen (ABC -0.4%), Cardinal Health (CAH)

https://seekingalpha.com/news/3502366-citron-bearish-mckesson-shares-2-percent

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