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Mysterious pharmacy at center of Valeant controversy will close

Valeant Pharmaceuticals global shares took a beating, falling more than 30 per cent, after a stock-commentary site run by a short seller accused the company of an Enron-like strategy of recording fake sales by using phony customers. While Wall Street generally believed Valeant’s later explanation that Philidor is a real pharmacy that it does not own, and that it only books revenue when a drug is actually dispensed, Valeant said it was appointing an ad hoc committee to investigate Philidor and weigh the future of the relationship.

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On Friday morning, Valeant said it will sever “all ties” with Philidor. Over the last few weeks, the company had been monitoring and reviewing the results of recent audits of Philidor’s practices. Previously, a spokesman said it “is the patient’s advocate in seeking to ensure that they receive the medication that was prescribed by their doctor at the lowest possible cost to them”. “While this has been a very damaging moment for the company… we think the Valeant business is quite robust.” he said.

Mr. Pearson emphasized that Valeant’s priority is “operating honestly and ethically”. The next month, U.S. Democratic politicians singled out Valeant for hiking drug prices on consumers, and a federal subpoena followed.

On Friday, one of Valeant’s largest shareholders William Ackman, who heads the hedge fund Pershing Square Capital Management, also held an investor call where he vigorously defended the company. The controversy originated from the company’s accounting arrangements with Philidor. But an investigation into Valeant’s drug-pricing policies and investor questions about its business practices are punishing its stock price, which is down more than 60% from its August high of 347 Canadian dollars ($265) a share.

In the third quarter, Philidor represented 6.8% of Valeant’s total revenue.

The CVS announcement came after mutual fund manager Ruane, Cunniff & Goldfarb Inc., sent a letter to its own investors about the Valeant saga.

Valeant in the beginning of this week said that if it cut ties with Philidor, its growth might slow down.

“Valeant has informed Philidor that to the extent that managed care plans will no longer reimburse prescriptions in process, Valeant will fill them at the company’s expense”, the Laval-based company said. They may be connected through Philidor and West Wilshire Pharmacy in Los Angeles, but regardless of how they are linked, Valeant claims that R&O owes them $68 million for drugs it provided.

While Ackman predicted Valeant’s shares would rebound and rise to unseen levels – $448 by 2018 – Citron tweeted that Valeant shares stand better odds of going to zero than Herbalife, while also saying it would dish more dirt on Valeant on Monday.

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Valeant’s stock recovered throughout the week than sank on the CVS and Express Scripts news.

The battle between Andrew 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