Gotham City Research, a bearish fund that analyzes company accounts in search of irregularities, has questioned the figures of the pharmaceutical company Grifols. The report published by the firm this Tuesday has caused Grifols shares to plummet by up to 50% at the opening of the Ibex 35. At the pre-opening of the stock market the company had dropped 14% and at around 2:30 p.m. it was trading with a drop of 30%, with a value per share of about ten euros. The document presented by the fund is devastating for Catalan society, which it accuses of manipulating its accounts and hiding part of its debt, accusations completely rejected by the group in a note sent to the CNMV.

The regulator told ‘Activos’ this Tuesday, from the Prensa Ibérica group, that it is analyzing the Gotham City Research report on Grifols and that it is studying what the pharmaceutical company also says and “collecting the data that is accurate”. For his part, Carlos Body, the Minister of Economy, has indicated that at this moment “we must exercise” caution and wait for the instructions of the CNMV.

The Gotham City Research fund is the same investment firm that brought down Gowex ten years ago and uncovered the financial scandal for which businessman Jenaro García ended up facing justice for fraud. García’s company offered Wi-Fi services and was valued at 2,000 million euros, but after Gotham’s complaint that the company’s revenues were inflated and that much of its data reported to the market was false, Gowex ended up acknowledging that the results it had published did not represent a true image of its accounts. It ended up in liquidation.

Now the fund points to Grifols, which is transferring investors a leverage of six times its ebitda (the profits before taxes and amortization) and which amounts to 9,540 million euros, in reality it has a debt that would be between 10 and 13 times. The Gotham City Research document indicates that both Grifols and Scranton, the holding company finance of the family that owns the pharmaceutical company, which owns 8.4% of the pharmaceutical company, are misleading investors about their financial statements. “If the estimate we are making about Grifols’ debt is correct, the company faces significantly higher financing costs than what it has transferred to the market. We believe that it should not be invested in these shares and their real value is close to zero” , the report states forcefully.

The bearish fund considers that Grifols has hidden its debt by consolidating the purchase of two companies, BLP Plasma and Haema, in its financial statements. “These two companies are very important for Grifols, since they represent approximately 40% of the profits from non-controlled interests”, says the report. Additionally, Grifols granted Scranton a $95 million loan in 2018, a transaction linked to the purchase of BPL Plasma and Haema. “However, this loan does not appear in Grifols’ documents and only appears in Scranton’s documents,” the document explains.

The Gotham study also casts doubt on the pharmaceutical company’s corporate governance and the independence of the current CEO., Thomas Glanzmann. The Grifols family entrusted the management of the company to Glanzmann last May and the Grifols brothers left the front line of the company, although they assumed very relevant positions within the group’s organizational chart. With this move, the management of the company was left in the hands of an external person, a step that the Grifols family already took with the appointment of an external person, Steven F. Mayer, as president, last September 2022.

Reorganization of the group and sale of its Chinese subsidiary

The company has focused in recent months on its organic business increasing its income, focusing on the price of plasma and the plant it has begun to build in Canada. After two quarters closing with accumulated red numbers (56 million in losses in the first half) due to the impact of the restructuring plan it presented, estimated at 140 million euros and with the forecast of 2,300 layoffs, the vast majority in the US, The group earned three million euros between January and September thanks to a new increase in income, of 11.7%. In the third quarter alone, the profit was 60 million.

In presenting its third quarter results, the company highlighted that the period between July and September was marked by “significant revenue growth, an acceleration of profitability and the reaffirmation of its deleveraging commitment.” The company’s debt is one of the points that most concern investors. With the pandemic, Grifols’ activity was reduced and its costs continued to be very high. The debt has practically not decreased since then and the company has always transferred leverage in 2022 to around 6.7 times the gross operating result (ebitda)., compared to 8.6 times a year ago. In presenting results, the group reiterated its commitment that “deleveraging remains a priority.” For the Catalan giant of blood products, the results reaffirm its commitment to debt relief, one of the main problems it faces and which has accumulated a liability of 9,540 million.

The pharmaceutical company has also made divestments this year and has sold 20% of its shares in the Chinese company Shanghai Raas for 1,630 million euros to the technology group Haier. Grifols maintains a 6.58% stake in the company, so it will be able to continue holding a position on the board of directors.. The company assured when it carried out the operation that the funds from this sale will be dedicated to reducing its debt.