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Valeant (VRX) Severs Ties With Controversial Specialty Pharmacy Philidor, Which Plans to Shutter its Doors

10/30/2015 5:50:44 AM

October 30, 2015
By Alex Keown, Breaking News Staff

LAVAL, Quebec – Claiming it has lost confidence in the controversial Philidor RX Services, Inc. (VRX) announced this morning that it was severing ties with the specialty pharmacy company that has been the subject of scrutiny over its accounting practices. Additionally, Valeant said its Philidor will be shutting down operations as soon as possible. In a statement released this morning, J. Michael Pearson, Valeant’s chairman and chief executive officer, said the latest “allegations about activities at Philidor raise additional questions about the company's business practices.”

"We have lost confidence in Philidor's ability to continue to operate in a manner that is acceptable to Valeant and the patients and doctors we serve,” Pearson said in a statement.

Pearson said patients, doctors and Valeant’s business partners have been disturbed by “reports of improper behavior at Philidor, just as we have been.”

Responding to concerns over the alleged accounting scandal, CVS announced it was dropping Philidor from the network used by CVS' Caremark pharmacy benefit unit, USA Today reported this morning.

"We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility. Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right,” Pearson said.

Last week in a release, Citron Research decried Valeant for its “unsavory business practices of massive price raises on pharmaceuticals acquired in a rapid succession of acquisitions, while slashing research and development.” Additionally, the Citron report criticized Valeant’s relationship with Pennsylvania-based Philidor Rx Services, a specialty pharmacy acquired by Valeant last year. Philidor engages in the “prescriptions made easy” practice. Under this practice, a pharmaceutical company encourages physicians to submit prescriptions for the high-priced medication to a mail-order pharmaceutical company associated with the parent pharmaceutical company. That pharmacy sends the medication to the patient and then directly deals with the insurance company. Some who are critical of the “prescriptions made easy” practice prevents patients and insurance companies from switching to cheaper alternative prescriptions and serves to pad the bottom lines of companies such as Valeant.

Pearson said Philidor accounted for 6.8 percent of Valeant’s revenue during the third-quarter.
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Pearson said Valeant will develop a plan to ensure patients have access to the drugs that Philidor provided. Valeant has informed Philidor that to the extent that managed care plans will no longer reimburse prescriptions in process, Valeant will fill them at the company's expense. Additionally, Pearson said Valeant will explore relationships with other pharmacies to ensure patients have access to the drugs they need.

Earlier this week Valeant said it was standing behind Philidor, but was taking the step to form an ad hoc committee to review allegations of the business practices after a Citron Research report harshly criticized its alleged accounting practices and dubbed Valeant as the “pharmaceutical Enron.”

The company claimed in a statement on its website that Philidor is a legitimate distribution network for Valeant and any sales are “accounted for as intercompany sales and are eliminated in consolidation.” Pearson said Citron wanted to release a negative report in order to frighten investors and drive down stock value so he could make money by short selling. However, Valeant took the additional step of adding Deputy Attorney General of the United States Mark Filip to advise the ad hoc committee regarding its relationship with Philidor.

Since Citron released its report last week, Valeant’s stock has dropped about 13 percent of its value. But, Valeant’s stock has lost more than 50 percent of its value in the past few months, falling from a high of $259.98 per share to a low of $106.72 per share. The stock was down an additional 4 percent at closing on Thursday.

Under Pearson’s leadership, Valeant has seen massive growth, although there has been some criticism of its practices. Recently company stock dropped 20 percent, prompting Pearson to pen a note to employees explaining company strategy.

In addition to criticism of the relationship with Philidor, Valeant is also facing scrutiny from U.S. lawmakers and two U.S. attorney’s offices over pricing of drugs acquired through acquisitions. Valeant is under fire for a price increase of two recently-acquired cardiac drugs, Nitropress and Isuprel, after the company acquired Salix Pharmaceuticals, Ltd. (SLXP). Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.

In addition to the two cardiac drugs, Valeant has also been criticized for quadrupling the price of the 55-year-old drug Cuprimine, used in the treatment of Wilson disease. A New York Times article excoriated Valeant for its practice of increasing the price of drugs following an acquisition. According to a Deutsche Bank (DB) report, Valeant increased prices on its brand-name drugs an average of 66 percent, about five times more than its other competitors, the Times said. Valeant, the article says, spends only about three percent of sales generated revenue on research and development, “which it views as risky and inefficient compared with buying existing drugs.” That amount was about $246 million in 2014.

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