Bloomberg: Valeant had planned to expand Philidor relationship before scandal hit

Valeant Pharmaceuticals ($VRX) disowned its Philidor specialty pharmacy fairly quickly after major questions arose about their relationship. But till those concerns went public, the Quebec-based drugmaker had intended to expand Philidor instead, Bloomberg reports.

Sources tell the news service that Valeant had intended to broaden Philidor's brief beyond dermatology meds, which had been the pharmacy's primary focus. The drugmaker intended to hand other lines of medications to Philidor for distribution, the sources said.

That expansion was planned as Philidor expanded its workforce by adding former Valeant employees. Valeant manager Gary Tanner, who headed up the company's Access Team, joined Philidor in September, Bloomberg says; part of his job at Philidor was to serve as liaison with Valeant. After Tanner's arrival, Philidor picked up another batch of Valeant workers who'd been let go, the news service reports. Those employees had been part of a group that worked with doctors to steer patients to Valeant products.

Valeant cut ties with Philidor last week after a number of allegations arose. The pharmacy allegedly changed patient scripts to make sure Valeant brands were dispensed rather than generics, for instance.

Valeant CEO J. Michael Pearson

"The newest allegations about activities at Philidor raise additional questions about the company's business practices," Valeant CEO J. Michael Pearson said Friday. "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."

Before mid-October, Valeant hadn't publicly disclosed its relationships with Philidor or any of Philidor's affiliate pharmacies. Valeant mentioned the specialty pharmacy--and an option to take ownership of it, purchased for $100 million--as part of its Q3 earnings release. Soon after, an investigative journalist dug into the Valeant-Philidor relationship, and their ties to a number of other pharmacies. But the issue didn't take center stage until short seller Citron Research published a scathing report, alleging that Valeant was using Philidor and its pharmacy relationships to gin up "phantom sales."

Valeant maintains that its accounting procedures have been appropriate, and it has set up a board committee to investigate Philidor and related allegations.

Distancing itself from Philidor may not be enough to get Valeant out of hot water, however. Its pricing policies, already under scrutiny amid a fierce debate about drug-price hikes, are set for more questions. Republican Sen. Susan Collins and her Democratic colleague Sen. Claire McCaskill have launched an investigation into drug pricing, with a particular focus on Valeant. Hearings are scheduled to begin Dec. 9, and they'll focus on big price increases on recently acquired off-patent meds and M&A deals that have led to dramatic price hikes.

Valeant notably raised prices on two cardiovascular meds after acquiring them, and the company has totted up price increases on more than 100 products over the past two years, many of them sizable. McCaskill has already demanded information on Valeant's price increases and recently took Pearson to task for failing to fully answer her questions. Meanwhile, House Democrats are calling for subpoenas for Valeant and Turing Pharmaceuticals, which gained notoriety for hiking the price of its newly acquired toxoplasmosis drug, Daraprim, to $750 per pill from $13.50.

- read the Bloomberg story
- get more on the Senate probe

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