Coverage: Valeant cuts ties with mail-order pharmacy

Trouble for Canadian pharmaceutical company Valeant continues to grow, with the company announcing it will cut ties with Philidor Rx Services immediately.

Philidor is believed to have helped Valeant pad its pockets by aggressively preventing patients from having access to lower-cost alternatives.

Lisa Beilfuss of The Wall Street Journal had the day’s latest development:

Valeant Pharmaceuticals International Inc. on Friday said it is severing all ties with mail-order pharmacy Philidor Rx Services, LLC, which will shut down operations as soon as possible.

Valeant’s relationship with Philidor has come under close scrutiny, partly because of the aggressive tactics Philidor has used to ensure that pharmacy-benefit managers—essentially middlemen in the drug-distribution process—pay for Valeant drugs, rather than lower-cost alternatives that are preferred by insurers.

“The newest allegations about activities at Philidor raise additional questions about the company’s business practices,” said J. Michael Pearson, Valeant’s chairman and chief executive. “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.”

Valeant said it intends to develop a plan to ensure patients’ access to drugs is minimally disrupted. It added that it 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.

David Jolly and Andrew Pollack of The New York Times explained some of Valeant’s recent troubles:

The move came after the three largest American drug benefit managers, Express Scripts, CVS Health and OptumRx, said on Thursday that they would stop paying for drugs dispensed by Philidor, which is based in Hatboro, Pa.

Questions had been raised about Valeant’s practice of encouraging doctors to have prescriptions filled by Philidor, rather than by independent pharmacies, making it harder for pharmacists and insurers to substitute a less-expensive drug.

Valeant acknowledged last week that it had bought an option to acquire Philidor, which dispenses some of Valeant’s dermatology drugs, contributing 6.8 percent of Valeant’s third-quarter revenue.

Critics on Wall Street, led by Citron Research, have argued that Philidor and related units could have been used by Valeant to inflate its sales and drive up its stock price. The issue has raised questions about Valeant’s accounting practices, because the company disclosed its Philidor ties only after an investigative reporter learned of the arrangement, even though Valeant bought the option to acquire the pharmacy last year.

Under J. Michael Pearson, its chief executive, Valeant rose from obscurity just a few years ago to become a major force in the drug industry. Mr. Pearson has dispensed with the industry’s traditional research and development model, focusing instead on buying existing drugs and aggressively increasing the prices. In one case, it acquired a diabetes drug called Glumetza in its takeover of Salix Pharmaceuticals this year, and raised the price of the pills about 800 percent.

That strategy has put Valeant under intense scrutiny, and it is now facing federal investigations and sharp criticism in Congress and from presidential candidates including Hillary Rodham Clinton.

Robert Langreth and Esmé E Deprez of Bloomberg detailed how Valeant’s connections with small pharmacies worked:

Isolani’s principal flew “unannounced from Pennsylvania” with Philidor CEO Davenport and two other Philidor officials, according to a letter that Reitz’s lawyer, Kaufman, wrote to Rice on July 22. The visitors refused to address Reitz’s inquiries, wrote Kaufman, who added that they “appear to be engaging in a widespread fraud” against Reitz, the pharmacy and California, among others.

Philidor employees continued to use Reitz’s ID numbers to bill for prescriptions dispensed through Philidor, Kaufman alleged in a letter the next month. To protect himself, Reitz would retain “any and all funds” in the pharmacy’s possession, Kaufman wrote.

It wasn’t pocket change. Valeant’s general counsel, in a September 4 letter to Reitz, said R&O owed Valeant in connection with gross invoices of $69.9 million. He threatened to take “any and all actions” to ensure payment.

Valeant didn’t sue. It was Isolani that filed a complaint against Reitz and the pharmacy, early the next week, alleging he was confiscating checks. Reitz had also failed to complete a form that Isolani needed for California to approve the sale, Isolani alleged. Reitz said, in the interview, that he is still the pharmacy’s full owner; Valeant said this week that Isolani owns a 10% stake in R&O.

Isolani said Reitz and the pharmacy owed it at least $15 million in insurance-company reimbursements, according to the state court complaint.

That suit didn’t refer to Valeant. But this month, R&O brought the company into the picture as the only defendant in its federal court lawsuit. R&O said it hadn’t received a single invoice or demand for payment from Valeant until September. It asked for a declaration that it owed Valeant no money while it sought to “get to the bottom” of the company’s role.