Mysterious pharmacy at center of Valeant controversy will close

Valeant, which said it is ending all ties with Philidor, has referred to the firm as a specialty pharmacy.

Evidently others were doing the same, as pharmacy-benefit managers CVS Health (NYSE:CVS) and Express Scripts (NASDAQ:ESRX) both said late Thursday that they’re cutting ties with Philidor. Additionally, the major pharmacy benefit managers, including CVS and Express Scripts, have made a decision to cut Philidor from their network, which should significantly pressure the approximate 7% of Valeant’s sales and EBITDA distributed through specialty pharmacies, including Philidor.

“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 Friday.

The battle between Left, a short seller who runs the stock commentary site Citron Research, and Ackman, a prominent activist investor, has captivated Wall Street for over a week as Valeant has struggled to restore investor confidence.

Philidor also announced that it hired former U.S. Deputy Attorney General Mark Filip to advise the ad hoc board committee appointed to examine Valeant’s relationship with Philidor. We had urged this as the only rational action for Valeant, and were surprised when Valeant instead spent 90 slides detailing the legality of the relationship with Philidor and Philidor’s actions. On Friday, Standard & Poor’s Rating Services downgraded Valeant one notch to B-plus from BB-minus, and said its financial outlook was negative.

The announcement came after Citron Research, an influential short-seller, accused Valeant of creating a network of mail-order pharmacies to “stuff the channel” – a deceptive business practice involving inflating sales figures by sending retailers in its distribution channel more products than they are able to sell.

AbbVie said its wholly owned Pharmacy Solutions business aims to help patients and doctors verify insurance coverage in certain instances for drugs such as its widely-used rheumatoid arthritis treatment Humira.

Valeant has refuted the accusations and asked the US Securities and Exchange Commission to investigate Citron.

Valeant stock closed at the lowest level in more than two years, indicating that investors aren’t exactly mollified.

In the third quarter, Philidor represented 6.8% of Valeant’s total revenue. It’s also evaluating four other pharmacies that work with Valeant.

The company said it plans to fill any prescription lapses at its own expense to ensure patients’ access to drugs as Philidor shuts down.

Shares of Atlanta-based Aaron’s sank 26 percent to $24.67 on Friday, the worst decline since at least November 1992.

The pharmaceutical industry has a long history of companies, he said, including big-name multinationals that have thrived after paying large fines for repeated and serious violations. Ackman has been a booster of the stock before the most recent questions about Philidor. But they also revealed that in December, Valeant had paid $100 million to Philidor for an option to buy it.

Valeant shares fell 9.1 percent yesterday and remained off during investor Bill Ackman’s conference call, trading at $101.31.