Valeant Pharmaceuticals has been crushed by investors after short-selling research firm Citron called it the "pharmaceutical Enron."

The stock fell 39% before Valeant called Citron's claims "erroneous." That stopped the bleeding, but the stock still fell 19% to close the day at around $118 per share. Just two months ago, the stock was trading above $250.

Citron alleged Valeant improperly benefited from a business relationship with Philidor, a pharmacy that distributes drugs for specialty pharmacies. Citron says Valeant filed fake invoices with Philidor to make its revenue appear greater than it is. Valeant is Philidor's only customer, Citron points out.

In a release Wednesday, Valeant said that Philidor is a legitimate distribution network through which Valeant sells some of its products.

Sort of like how a soda company might deliver syrup to an in-house bottler but not recognize this as revenue until the finished product is sold a customer, Valeant says it doesn't recognize in-network sales by Philidor network pharmacies until they are sold to an end user.

Valeant shares getting smacked this week. Google Finance

Here's the full release from Valeant:

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today responded to recent accusations made regarding its financial reporting and operations.

Philidor Rx Services is a pharmacy licensed in Pennsylvania and also provides back-end services, including call center, claims adjudication, IT and logistics support, as well as compliance/HIPPA regulation guidance, to other pharmacies, including R&O Pharmacy. This includes a common call center phone number serviced by Philidor for the Philidor network pharmacies.

All shipments to Philidor and other pharmacies in the Philidor pharmacy network, including R&O, are not recorded in Valeant's consolidated net revenue. Sales are recorded only when the product is dispensed to the patient. All sales to Philidor and Philidor network pharmacies are accounted for as intercompany sales and are eliminated in consolidation. They are not included in the consolidated financial results that Valeant reports externally.

Any inventory at pharmacies in the Philidor pharmacy network are included in Valeant's consolidated inventory balances — there is no sales benefit from any inventory held at these specialty pharmacies and inventory held at the Philidor network pharmacies is reflected in Valeant's reported inventory levels.

The $69 million at wholesaler acquisition cost of products shipped by Valeant to R&O were not recorded as revenue to Valeant when shipped to R&O. When R&O dispensed those products Valeant recognized the net realized amount due from patients and payors (approximately $25 million) and reduced the associated inventory from Valeant's balance sheet. In this case, we estimate the net amount of revenue for the $69 million at WAC would be approximately $25 million.

The timing of our revenue recognition by selling through the Philidor pharmacy network is actually delayed when compared to selling through the traditional wholesaler channel.