United State’s three largest pharmacy benefit providers said on Thursday that they are breaking their ties with a pharmacy affiliated with Valeant Pharmaceuticals after a review of the pharmacy’s business practices. Valeant CEO and chairman J. Michael Pearson, said in a press release that the company lost confidence in Philidor’s ability to operate in an acceptable manner for its customers.
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“We know the allegations have also led them to question Valeant and our integrity”, he added. “Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right”. The next month, U.S. Democratic politicians singled out Valeant for hiking drug prices on consumers, and a federal subpoena followed.
On Monday, when the committee was announced, Philidor issued a statement saying it welcomed the creation of the committee and it was “proud of the company we have built and value our working relationship with Valeant”.
Valeant’s stock closed Friday at $93.81, down $17.69, or an additional 16%.
During the third quarter, Philidor contributed 6.8 percent of Valeant’s overall revenue.
To get around that blockade, Valeant has been distributing coupons on the Internet and to doctor’s offices across the country that allow patients to lower or even avoid a co-pay – if they ordered the drugs through Philidor. It is fun to rail against corporate malfeasance – Jesse Eisinger says, “Pershing Sq’s Valeant ($VRX) call is a clear explanation of how corporate white collar enforcement is toothless” – but obviously most corporations survive most scandals because the benefits of their business outweigh the harm from the scandals.
“The guy eats nails for breakfast”, one investor said of Ackman, who previous year was among the hedge fund industry’s top performing portfolio managers.
The brouhaha started with a report from Citron Research, a short-selling firm that actively bets against stocks and publishes negative research on companies. Former Philidor employees told Bloomberg that the company’s intent was to fill more prescriptions with Valeant medications instead of generics.
Ackman said that Valeant might be more careful moving forward with practices that, while legal, raise hackles in the public, citing what he called the New York Times rule. Valeant stock immediately fell 3 percent on the announcement. Apparently, despite all the arguments Valeant is now making in its own defense, the unethical participation of Philidor in its business is rather clear.
On commodity markets, oil was up 53 cents at US$46.59 a barrel, while natural gas advanced six cents to US$2.32 per mmBtu. For years, doctors and insurers have condemned the rising cost of prescription drugs. Philidor, whose sole client is Valeant, will be shutting down operations imminently. Among the 10 high-flyers in the S&P 500 whose bull-market share trajectories are most similar to the Laval, Quebec-based drug company, 62% of ratings are buys, compared with 50% for the index.
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The Toronto stock market finished its last trading day of the month with a major loss amid a widespread decline in the gold and financial sectors and a further plunge in the stock price of trouble-plagued Valeant Pharmaceuticals global.
