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Valeant cutting ties with Philidor

Valeant Pharmaceuticals, which has come under scrutiny for its drug prices, has cut ties with Hatboro-based mail-order pharmacy Philidor RX Services L.L.C. following accusations that Philidor was a "phantom pharmacy" used solely to artificially boost sales.

Headquarters of Philidor in Hatboro, PA.
Headquarters of Philidor in Hatboro, PA.Read moreDavid Sell / Staff

Valeant Pharmaceuticals, which has come under scrutiny for its drug prices, has cut ties with Hatboro-based mail-order pharmacy Philidor RX Services L.L.C. following accusations that Philidor was a "phantom pharmacy" used solely to artificially boost sales.

Quebec-based Valeant said Friday that Philidor had informed the company that it would shut down as soon as possible.

The imminent end of Philidor comes just a day after the nation's two largest pharmacy benefit providers, CVS Health and Express Scripts, said they had ended all interactions with the company, citing its business practices. UnitedHealth Group conducted an audit of Philidor in late 2014 and began cutting ties with the company "in the interests of our customers."

U.S. Centers for Medicare and Medicaid Services health care providers documents list Andrew Davenport as the CEO of Philidor, with a phone number in Delaware, where the company is registered.

Twice on Friday, a man answering the phone at that number declined to confirm to an Inquirer reporter that he was Davenport. Asked the first time if the company was ceasing operations, the man said, "I cannot comment." During a second call, the man knew that an Inquirer reporter had visited a Philidor facility Friday morning and referred the reporter to the company's lawyer. Messages left for Philidor's attorney were not returned. Late Friday afternoon, a woman answering the phone number on the Philidor website told the reporter she was a company receptionist. Asked if she was told that the company was ceasing operations, she said, "I don't have any information about that."

Valeant Pharmaceuticals International Inc. is under fire for buying smaller drug developers and then increasing prices on the medicines developed by those companies. The company's profits have skyrocketed as it has slashed spending on research into new drugs.

Valeant had become a Wall Street favorite, and its shares hit an all-time high as recently as August, but it has been hammered relentlessly since coming under a national spotlight.

Share prices have plunged almost 60 percent in the last three months, wiping away billions in market capitalization. On Friday, Standard & Poor's Rating Services downgraded Valeant one notch to B-plus from BB-minus, and said its financial outlook was negative. "We believe reports of wrongdoing at Philidor weakens Valeant management's credibility, further harms the company's already tarnished reputation, and that these developments exacerbate potential legal, regulatory, and reputational headwinds for the company," the ratings agency wrote.

Federal prosecutors have subpoenaed documents tied to Valeant's drug pricing and other practices ahead of a presidential election, in which the soaring price of prescription medicines has become a top political issue.

Valeant chairman and CEO J. Michael Pearson said Friday that the latest allegations prompted a loss of confidence in Philidor's operations.

"We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility," Pearson said. "Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right."

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

Last week, the short seller researcher firm Citron accused Valeant of using Philidor to create a network of "phantom pharmacies" to steer pharmacy benefit managers toward Valeant's more expensive drugs instead of lower-priced alternatives.

Valeant announced this week that it was forming a special board committee to take a closer look at Philidor, including why the company was denied a permit last year to operate in California. The state's pharmacy board cited, among other reasons, false statements about Philidor's ownership and operations. A week prior, Valeant disclosed a $100 million investment in Philidor, with an option to buy the pharmacy.

On Friday, Valeant appointed former U.S. Deputy Attorney General Mark Filip to advise the committee looking into Philidor.

Anger over rising drug prices has only intensified in the latter half of this year. A poll released Wednesday by the nonpartisan Kaiser Family Foundation showed that 77 percent of those surveyed said the cost of prescription drugs was their primary health concern. For years, doctors and insurers have condemned the rising cost of prescription drugs.

This article contains information from Inquirer staff writer David Sell and the Associated Press.