MONTREAL -- Valeant Pharmaceutical shares hit their lowest level in more than a year Wednesday following a report accusing the company of creating a network of "phantom" pharmacies to deceive auditors and book revenue -- an allegation it firmly denied.

At one point, the Quebec-based company saw its shares plummet 39 per cent to $116.19, before closing at $154.21 -- down $36.64 -- on the Toronto Stock Exchange. The TSX also briefly halted trading in the company's stock before it later resumed.

The sell-off occurred after a report by Citron Research, a short seller's research firm that examines fraudulent and over-hyped stocks. It alleges Valeant created a network of pharmacies to distribute its products and avoid the scrutiny of auditors, musing whether the company was a "pharmaceutical Enron."

The Citron Research report followed reports by the New York Times and the Southern Investigative Reporting Foundation that looked at Philidor and R&O Pharmacy, two U.S. specialty pharmaceutical companies Valeant works with.

Valeant (TSX:VRX) said the Citron report allegations were erroneous.

"Citron's false and misleading statements about Valeant appear to be an attempt to manipulate the market in an effort to drive down Valeant's stock price," said a company spokeswoman.

"We are confident in our full compliance with all applicable accounting rules, regulations and laws."

The company said less than five per cent of its U.S. inventory is held by specialty pharmacies.

During its quarterly conference call on Monday, chairman and CEO Michael Pearson said the company hasn't talked about its work with firms like Philidor in the past because it was a competitive advantage it didn't want to disclose to competitors.

Like many drug companies in the U.S., more of Valeant's revenues are coming from products dispensed through specialty pharma firms, he said.

Analyst Neil Maruoka of Canaccord Genuity said he doesn't buy that Valeant is artificially inflating revenues through the specialty firms including Philidor in which it has an option to purchase.

"Just describing loose associations doesn't mean something nefarious is going on," he wrote in a report.

Maruoka said he doesn't believe the company would knowingly inflate revenue but says it faces "a credibility issue" because of drug pricing and its business strategy of low investment in research and development.

"Given the ongoing attacks on Valeant, we believe that few investors would be willing to step in front of this stock," he said.

Valeant has been under a considerable degree of political and legal scrutiny in the United States over hefty price increases for two heart drugs and its patient assistance program. A week ago, the company said that U.S. Attorney's offices in Massachusetts and New York had court orders for it to produce documents.

The drug maker is one of Canada's top companies and accounts for about four per cent of the S&P/TSX composite index. However, its market capitalization has plunged 60 per cent since its peak in August.

Meanwhile, New York's Rosen Law Firm, which specializes in investor rights, said it is preparing a class-action lawsuit to recover losses suffered by Valeant investors.