Valeant VRX has been the talk of the financial markets these past few weeks. The stock is off over 50% since Citron Research's Andrew Left accused the company of "channel stuffing" and generating phony revenue by sending fake invoices to R&O Pharmacy, which Valeant allegedly part-owned. The drama all started after R&O filed a claim against Valeant in early September. R&O received a $69 million invoice from the pharmaceutical company, yet R&O said it had never done business with Valeant. R&O suspected Philidor (allegedly part-owned by Valeant), which it had sold an equity stake to -- of using its pharmacy identification number to fill prescriptions:
What Reitz hadn't known at the time he signed the sale agreement was that Philidor — and Valeant — were facing a hurdle in getting prescriptions filled in California, the largest market for medicines among the states. State Atty. Gen. Kamala Harris' staff had denied Philidor's request for a California pharmacy license, charging that the company had falsified information in its application."Do you think I would sell to someone that was denied a permit?" Reitz said. "You've got to be kidding me."
Though Valeant denied claims of channel stuffing at Philidor, it failed to disclose the specialty pharma's aggressive sales practices. A Wall Street Journal article appeared to deliver the smoking gun when it divulged a Philidor training manual detailing Philidor's aggressive sales tactics, including using other pharmacies' ID numbers:
A mail-order pharmacy used by Valeant Pharmaceuticals International Inc. had a simple message for staffers charged with getting health insurers to pay up: Don't take no for an answer. If a health insurer wouldn't work with Philidor Rx Services LLC, the pharmacy instructed staff to try again using the identification number of a partner pharmacy to secure payment. "We have a couple of different 'back door' approaches to receive payment from the insurance company," a Philidor training manual said.
Since, pharmacy benefit managers CVS CVS , Express Scripts ESRX and OptumRx have dropped Philidor from their pharmacy networks. It got so bad that Philidor reportedly ignored a cease-and-desist order to stop attempting to fill prescriptions from OptumRx UNH:
OptumRx, a leading U.S. pharmacy benefits manager, began to stop payments to a pharmacy closely-linked to Valeant Pharmaceuticals International more than a year ago after recognizing billing irregularities, former employees at the pharmacy and sources familiar with the matter told Reuters. Hatboro, Pennsylvania-based Philidor Rx Services persisted in efforts to secure reimbursement for Valeant drug sales even after receiving a cease-and-desist order from OptumRx, one of its largest revenue sources, in September 2014, two sources familiar with the matter said. OptumRx is owned by UnitedHealth Group (NYSE:UNH).
Valeant then attempted to distance itself from Philidor after having "lost confidence" in its ability to operate in a manner acceptable to Valeant and the doctors its serves. This came a mere week after getting its dander up over allegations made by Andrew Left. Valeant accused Left of "screaming 'fire!'" in a crowded theater, and threatened to have the SEC investigate him.
Kamala Harris Stands Tall
Lost in the tete-a-tete beween Valeant and Citron is [i] Valeant has never resolved R&O's original claim of fraud and [ii] the stellar job done by California Attorney General Kamala Harris. In my opinion, the best way to measure a person's integrity or job performance is how he/she performs when no one is looking. In rejecting Phildor's request for a pharmacy license, Harris stood tall for the American people when no one was watching. Now the financial markets and the entire healthcare industry are watching.
Valeant has an option to buy Philidor, which owns an equity stake in R&O. Due to Harris' rejection, Philidor (based in Pennsylvania) and Valeant were locked out of getting prescriptions filled in California -- "the largest market for medicines among the states." The LA Times article alluded that in acquiring a stake in R&O Pharmacy based in Camarillo, CA, Philidor and Valeant may have attempted to circumvent Harris. Whether [i] Philidor was fraudulent in "allegedly" filling prescriptions in states where it was not licensed and [ii] whether Valeant was complicit in such aggressive sales practices remains to be seen. Nonetheless, we await Kamala Harris' next move on the matter with bated breath.
Comments
Log in or sign up to join the conversation.