Valeant sets up panel to look into specialty pharmacy association

During the first session, Valeant disclosed for the first time its association with specialty pharma companies Philidor and R&O Pharmacy that were subject of reports by the New York Times and the Southern Investigative Reporting Foundation.

Responding to recent accusations made regarding its financial reporting and operations, Valeant Pharmaceuticals worldwide last week said that Philidor Rx Services is a pharmacy licensed in Pennsylvania and also provides back-end services, including call center, claims adjudication, IT and logistics support, as well as compliance/HIPPA regulation guidance, to other pharmacies, including R&O Pharmacy.

Valeant shares fell as much as 40% at their worst level on Wednesday after Citron, a short selling firm, issued a scathing report, alleging that Valeant was shipping product to R&O and then falsely claiming the revenue.

Valeant strongly denied the allegations, but it also acknowledged that it has an option to buy Philidor, a revelation that only made investors more nervous. This includes a common call center phone number serviced by Philidor for the Philidor network pharmacies. That would imply financial ownership of Philidor and an organizational connection with a distribution channel that had not been, until Monday, ever mentioned in Valeant’s financial statements or filings with the Canadian or USA securities regulators.

What is the relation between Valeant and Philidor, is now a question being asked by many. Philidor did not accept this to be true.

“I am pleased to welcome Mason back to the Valeant Board of Directors”, said J. Michael Pearson, chairman and chief executive officer of Valeant.

“Is this Enron part deux?” the report said.

Hedge fund manager John Paulson’s firm, Paulson & Co., owned 9 million Valeant shares as of June 30, translating into a decline from the peak of $1.3 billion. Valeant will supply documents and information to investigators, it said. The demand suggests R&O is a separate, third-party, non-affiliated company. (VRX, VRX.TO) announced that its Audit and Risk Committee and the full Board of Directors have reviewed the company’s accounting for its Philidor arrangement and have confirmed the appropriateness of the company’s related revenue recognition and accounting treatment.