Some market observers have asked us recently whether the damning Citron report has been responsible for Lannett's (NYSE:LCI) poor stock price performance in recent months.  We would argue that it has not for several reasons.

Firstly, despite our best efforts to highlight the unwarranted correlation between LCI and the disaster that is Valeant Pharmaceuticals (NYSE: VRX), since July 2016, there is still a baffling 83% daily correlation between their stock prices (see table below).  This is down from over 90% prior to our research publication.  To be honest, we were hoping for more than an approximately 7% improvement.

Just as importantly, both LCI and VRX remain highly correlated with the healthcare sector ETF (NYSE: XLV).  This speaks to the negative sentiment towards the sector, first, in anticipation of Clinton Presidency, and then, subsequently, in response to the price control tweets from President Trump.  

We would also point to the fact that the LCI stock price reaction pre and post the Citron report publication date was not statistically, nor economically, significant.  It is probably not worth reciting all the reasons why the Citron analysis, particularly the price fixing "analysis", was largely discounted by the equity markets (others have published insightful critiques that we cannot improve upon).

All of which means that we would re-iterate our view that there is inherent, intrinsic value in LCI.  It might take some time for the market to work its way through the new President's drug pricing policies before we realize the premium between intrinsic value and the current LCI stock price. If you want to review the bullish case for LCI it can be accessed at Seeking Alpha or on our website presentations page.