Lawsuits shed light on speciality pharmacies
by David Ingram,
2015-10-27 05:46:49.0
AS VALEANT Pharmaceuticals prepared to defend its drug sales practices to Wall Street on Monday, new details emerged about the tangled relationships — and litigation — among Valeant’s speciality pharmacy partners.
The court cases, which have drawn media attention in recent days, were expected to be addressed during Monday morning’s investor call, a person familiar with the matter said. Valeant lost more than 30% of its market value in the past week as the company disclosed details of its relationship to Pennsylvania-based pharmacy, Philidor Rx Services.
Speciality pharmacies handle medicines that require complex storage or administration, often for serious conditions such as cancer or rheumatoid arthritis. Valeant has used Philidor to dispense a range of its medications, including conventional treatments for acne and toenail fungus.
Influential short-seller Citron Research accused the drug maker of using Philidor to create "phantom sales" of its products or push more product through distribution channels than sales would warrant, an allegation Valeant has denied.
Although the two companies are separate legal entities, Valeant said last week it held a right to purchase Philidor, which in turn said it held the right to acquire control of other affiliated pharmacies.
Philidor has not addressed questions of its sales practices.
It said last week it worked with a network of pharmacies and provided them with call centre functions, help with insurance claims, technical support and "certain management services". One of those affiliates, California-based R&O Pharmacy, has been in a heated dispute with Valeant, Philidor and a related holding company for more than three months.
R&O sued Valeant in federal court in California on October 6, after receiving a demand letter from Valeant for more than $69m, money R&O said it did not owe. R&O said in court documents it had informed Valeant after receiving the demand that either Valeant was conspiring to perpetrate a fraud on R&O, or both companies were the victims of fraud by a third party.
In July, R&O owner Russell Reitz demanded Philidor end certain practices he said were illegal, including use of R&O’s pharmacy-identification numbers to bill health insurers, according to court documents.
The correspondence culminated in a separate lawsuit in California state court brought against R&O by a Delaware holding company, Isolani.
The suit, filed on September 8, states that Isolani had bought a stake in R&O and an agreement to acquire full ownership, and that R&O subsequently breached a management services agreement entered into at the same time.
The suit alleged R&O was unlawfully withholding more than $15m in payments it had received from health insurers and others that belonged to Isolani. R&O alleges that Isolani is a front for Philidor.
Lawyers for Isolani, a lawyer for R&O, multiple officials at Philidor and Valeant spokespeople did not respond to requests for comment.
The state lawsuit brought by Isolani and the federal lawsuit brought by R&O are at early stages, and there have been no rulings in either case.
Shares of Valeant rebounded somewhat on Friday after four days of steep losses. Shares closed up 5.7% for the day at $116.16 in trading in New York, still far short of the nearly $170 per share at which it began the week.
Reuters
Valeant Pharmaceuticals. Picture: REUTERS/BRENDAN MCDERMID
AS VALEANT Pharmaceuticals prepared to defend its drug sales practices to Wall Street on Monday, new details emerged about the tangled relationships — and litigation — among Valeant’s speciality pharmacy partners.
The court cases, which have drawn media attention in recent days, were expected to be addressed during Monday morning’s investor call, a person familiar with the matter said. Valeant lost more than 30% of its market value in the past week as the company disclosed details of its relationship to Pennsylvania-based pharmacy, Philidor Rx Services.
Speciality pharmacies handle medicines that require complex storage or administration, often for serious conditions such as cancer or rheumatoid arthritis. Valeant has used Philidor to dispense a range of its medications, including conventional treatments for acne and toenail fungus.
Influential short-seller Citron Research accused the drug maker of using Philidor to create "phantom sales" of its products or push more product through distribution channels than sales would warrant, an allegation Valeant has denied.
Although the two companies are separate legal entities, Valeant said last week it held a right to purchase Philidor, which in turn said it held the right to acquire control of other affiliated pharmacies.
Philidor has not addressed questions of its sales practices.
It said last week it worked with a network of pharmacies and provided them with call centre functions, help with insurance claims, technical support and "certain management services". One of those affiliates, California-based R&O Pharmacy, has been in a heated dispute with Valeant, Philidor and a related holding company for more than three months.
R&O sued Valeant in federal court in California on October 6, after receiving a demand letter from Valeant for more than $69m, money R&O said it did not owe. R&O said in court documents it had informed Valeant after receiving the demand that either Valeant was conspiring to perpetrate a fraud on R&O, or both companies were the victims of fraud by a third party.
In July, R&O owner Russell Reitz demanded Philidor end certain practices he said were illegal, including use of R&O’s pharmacy-identification numbers to bill health insurers, according to court documents.
The correspondence culminated in a separate lawsuit in California state court brought against R&O by a Delaware holding company, Isolani.
The suit, filed on September 8, states that Isolani had bought a stake in R&O and an agreement to acquire full ownership, and that R&O subsequently breached a management services agreement entered into at the same time.
The suit alleged R&O was unlawfully withholding more than $15m in payments it had received from health insurers and others that belonged to Isolani. R&O alleges that Isolani is a front for Philidor.
Lawyers for Isolani, a lawyer for R&O, multiple officials at Philidor and Valeant spokespeople did not respond to requests for comment.
The state lawsuit brought by Isolani and the federal lawsuit brought by R&O are at early stages, and there have been no rulings in either case.
Shares of Valeant rebounded somewhat on Friday after four days of steep losses. Shares closed up 5.7% for the day at $116.16 in trading in New York, still far short of the nearly $170 per share at which it began the week.
Reuters
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