Valeant Pharmaceuticals International Inc (VRX) Cuts Ties With Philidor After Specialty Pharmacy Practices Questioned

UPDATE: 9:36 EDT

Valeant shares were trading at $104 early in the day Friday, 6.5 percent down from Thursday's close. Hedge fund manager Bill Ackman, manager of Pershing Square Holdings, gave a conference call Friday morning defending Valeant's business from the torrent of criticism that has mounted in past weeks, though he said that the pharmaceutical giant may have underinvested in public and government relations.

Original story:

Valeant Pharmaceuticals International Inc. said Friday that it would end its relationship with Philidor RX, the specialty pharmacy whose murky business ties and questionable practices have invited a wave of scrutiny. Philidor, in turn, will halt operations as soon as possible.

The surprise announcement comes nearly two weeks after Valeant first disclosed its relationship with Philidor, which had been the subject of several investigative reports. The pharmacy served as Valeant's virtually exclusive specialty pharmacy, processing prescriptions for Valeant drugs and convincing insurers to pay for them instead of cheaper generic alternatives.

Valeant executives told investors Monday that Valeant had paid $100 million in late 2014 for an option to buy Philidor at no cost, an arrangement that chief executive Michael Pearson described as "unusual" but added, "I think it is legal." Philidor represented nearly 7 percent of Valeant's revenue in the third quarter.

In news reports over the last week, former Philidor employees have described how the company goes to extraordinary lengths to cajole insurers into purchasing higher-cost options. In some cases, training materials instructed Philidor employees to use the credentials of other pharmacies to submit orders that insurers had previously rejected. One of those pharmacies, California-based R&O, has sued Valeant over a disputed invoice and claims of fraud.

Since allegations began dribbling out Oct. 19, Valeant stock has fallen 37 percent. A short seller's explosive report accelerated the bleeding last week.

Despite efforts to reassure investors, Valeant experienced more turmoil this week. On Thursday, retail pharmacy chain CVS said its Caremark prescription management division would stop doing business with Philidor, citing a breach of contract. Express Scripts and OptumRx followed suit.

"We understand that patients, doctors and business partners have been disturbed by the reports of improper behavior at Philidor, just as we have been," Pearson said in a statement. "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."

Shares of Valeant, which is also facing multiple investigations over antitrust violations and drug pricing arrangements, were down more than 6 percent in premarket trading.