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Valeant to investigate ties with pharmacy

NEW YORK — Embattled Valeant Pharmaceuticals International said Monday that its accounting related to its relationship with a specialty pharmacy was legal and appropriate but added that its board was nonetheless forming a special committee to investigate the relationship.

Valeant executives also said the company’s lawyers had asked the Securities and Exchange Commission to investigate Citron Research, which they said made false statements intended to drive down Valeant’s stock price. Citron is a stock research firm that tends to short, or bet against stocks.

Valeant, based in Laval, Quebec, disclosed for the first time last week that it had acquired an option to buy the specialty pharmacy, Philidor Rx Services, which dispenses some of Valeant’s dermatology drugs. That alone was controversial because such pharmacies can be used to promote high-priced drugs, and Valeant was already being scrutinized by lawmakers, news media, and federal prosecutors for sharply raising drug prices.


Valeant’s stock dropped even more last Wednesday after Citron issued a report saying that Philidor was linked to a variety of other pharmacies. It also said, without offering real evidence, that those pharmacies might have been set up to allow Valeant to record phantom sales to the pharmacies to improve its financial results.

Valeant executives said in a conference call Monday morning that Valeant did not recognize revenue on products being distributed through Philidor and its affiliated pharmacies until the drugs went to the patients. That made it impossible, they said, to use the pharmacies to “stuff the channel,” meaning to sell products to Philidor to help Valeant’s quarterly results, even if the products then just sat on the shelf at Philidor.

“We stand by our accounting treatment of Philidor completely,” J. Michael Pearson, Valeant’s chief executive, said on a conference call Monday morning.

Still, even if the accounting was appropriate, questions continue to arise about the relationship with Philidor, which Valeant did not publicly disclose until last week, even though it had acquired an option to acquire Philidor at the end of 2014.


Pearson insisted in the call that Philidor mainly acted independently. But The Wall Street Journal, citing former Philidor employees, reported Monday that even before Valeant purchased the option, Valeant employees had been working at Philidor and using fake names when sending e-mails.

Pearson said that would be investigated by the board committee.

Specialty pharmacies, a booming part of the industry, typically mail drugs to patients. They are often used for complex drugs, such as those that require refrigeration and injection, and the pharmacies typically help patients learn how to use the drugs and deal with side effects.

But Valeant was using Philidor to dispense common pills and creams for ailments like acne and toenail fungus. Here, the idea apparently is to help sell Valeant’s products, which are much more expensive than some alternatives.