Dive Brief:
- On Friday, the ongoing saga of Valeant Pharmaceuticals and its relationship with specialty pharma Philidor Rx took a decisive turn as the drug giant announced that it would be severing ties with the mail-order pharmacy. Philidor, whose sole client is Valeant, will be shutting down operations imminently.
- Valeant has been under intense scrutiny over its relationship with Philidor after a series of reports questioned whether everything was on the up-and-up between the two entities. The firestorm began last week after a short-seller run research group alleged that Valeant was controlling a series of shell pharmacies to conjure up sales that never really occurred. Valeant vigorously denied those claims and set up a review committee to audit its relationship with Philidor—but questions persisted as the Wall Street Journal and other outlets reported that Philidor used aggressive "back door" tactics to encourage the sale of Valeant drugs over cheaper alternatives.
- The drug maker's decision comes in the wake of the three largest U.S. pharmacy benefits managers' announcements on Thursday that they would be booting Philidor from their networks. Express Scripts, CVS Health, and UnitedHealth Group's OptumRx said they would all stop doing business with the pharmacy on concerns over its business practices. Valeant plans to come up with a contingency for patients whose current prescription-filling would be disrupted by the benefits managers' decisions.
Dive Insight:
Once the PBMs had made up their minds to axe Philidor, the writing was on the wall for Valeant. If you need a primer on this whole complicated affair, read our initial guide here and our writeup of Valeant's defense from earlier this week here.
"The newest allegations about activities at Philidor raise additional questions about the company’s business practices," said Valeant CEO J. Michael Pearson in a statement. "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."
The "newest allegations" that Pearson is referring to includes shoddy (alleged) tactics by Philidor such as using other pharmacies' ID numbers when faced with payers that don't want to work with Philidor. Several Valeant employees reportedly were also placed at Philidor to assist with structure and operations, and these workers used alternate email accounts for Philidor using fictional characters like "Peter Parker" rather than their real names.
It's the norm for insurers to have various policies in place, such as generic substitution, in order to save money. Philidor insurance-claims processors were reportedly trained to overcome those policies through different tactics, such as tinkering with a drug's price and lowering a price until a payer's system accepted the claim—and then raising it again to the highest threshold at which the insurer would pay. In addition, processors were instructed to use different identification numbers, representing the partner pharmacies, in the event that a health insurer would not work with Philidor.
It appears that Valeant's Philidor review board will continue to do its work, including scrutinizing the email issue. Federal officials are already looking into Valeant's pricing, distribution, and patient assistance practices.
Valeant shares, which had regained some footing after the company's Monday morning conference call defending its actions, slid 6% in Friday morning trading after already falling Thursday on benefits managers' decisions to stop doing business with Philidor.
On a conference call on Friday, activist investor and Valeant bull Bill Ackman insisted that the company was being unfairly maligned at that, at the end of the day, the case would take a long time to investigate and may simply end with a fine that does little damage to the company.