Valeant Falls on Report of Criminal Probe Into Philidor Ties

  • Drugmaker says it’s cooperating with U.S. Attorney’s office
  • Prosecutors investigating whether Valeant defrauded insurers

Valeant Falls on Report of Criminal Probe

Valeant Pharmaceuticals International Inc. fell the most in more than a month following a report that it’s the target of a criminal probe by federal prosecutors, who are investigating whether the drugmaker defrauded insurers by hiding its ties to a mail-order pharmacy.

The prosecutors are pursuing an unusual legal theory that Valeant and the now-defunct pharmacy, Philidor Rx Services LLC, allegedly defrauded insurers by concealing their close relationship, the Wall Street Journal reported Wednesday, citing unidentified people familiar with the matter.

Just a day after earnings results and an annual forecast affirmation that brought relief for some of investors’ worries, the report rekindled concerns that the company might breach terms on its debt of more than $30 billion. Valeant said it’s cooperating with the probe, led by the U.S. Attorney’s Office for the Southern District of New York. It didn’t confirm details on the nature of the investigation.

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Valeant had disclosed in filings that it’s the subject of several investigations, including the U.S. Attorney’s offices in New York.

The shares dropped 9 percent to $24.89 at 10:44 a.m. in New York, the biggest drop since June 24. They have declined 90 percent since their record high a year ago. Valeant’s most actively traded bond, $3.25 billion of 6.125 percent notes that mature in 2025, slipped half a cent on the dollar to trade at 87.25 cents and yield 8.21 percent at 10:14 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“We have been fully cooperating with the authorities throughout the investigation, and we are in frequent contact and continue to cooperate with the U.S. Attorney’s Office,” Valeant said in a statement. “Valeant takes these matters seriously and intends to uphold the highest standards of ethical conduct.”

Valeant announced Tuesday that it’s seeking additional flexibility with its creditors, and the news could hurt those efforts, according to Irina Koffler, an analyst with Mizuho Securities USA.

“The downward spiral may continue,” Koffler wrote Thursday in a note to clients. “It is likely that Valeant could be rapidly exposed to over $1 billion in treble damages.”

Prosecutors are looking into whether Philidor made false statements to insurers about its ties to Valeant, the Journal reported. Philidor, a now-defunct specialty pharmacy, filled prescriptions for Valeant dermatology drugs such as toenail fungus treatment Jublia. Prosecutors are investigating whether insurers thought Philidor was neutral rather than in the service of Valeant, the Journal reported.

Nicholas Biase, a spokesman for the U.S. Attorney’s Office in Manhattan, declined to comment.

Altering Codes

Valeant came under scrutiny last year over issues including its business practices, particularly its relationship with Philidor, which was helping boost drug sales. The drugmaker severed its ties with Philidor in October, following reports about tactics the mail-order pharmacy allegedly used to gain more insurance reimbursements for Valeant medicines. They included submitting claims using other pharmacies’ identification numbers and altering codes on some doctors’ prescriptions.

Specialty pharmacies are common in the drug industry, where they fill prescriptions typically for complex drugs, such as those that require cold storage. Valeant’s relationship with Philidor was closer than usual. Valeant had paid $100 million for an option to buy Philidor for nothing any time in the next 10 years, and consolidated Philidor’s financials into its own.

Valeant has disclosed in filings that it’s also being investigated by the U.S. Securities and Exchange Commission and the U.S. Attorney’s offices in Massachusetts, among others. In October, the company said the Manhattan U.S. Attorney’s office was seeking information on its patient assistance programs, drug distribution and pricing decisions.

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