Legal tangle in California may shed light on specialty pharmacies

Sun Oct 25, 2015 7:20pm EDT
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By David Ingram

NEW YORK (Reuters) - As Valeant Pharmaceuticals prepares to defend its drug sales practices to Wall Street on Monday, new details are emerging about the tangled relationships - and litigation - among Valeant’s specialty pharmacy partners.

The court cases, which have drawn media attention in recent days, are expected to be addressed during Monday morning's investor call, a person familiar with the matter said.  Valeant lost more than 30 percent of its market value this past week as the company disclosed details of its relationship to a Pennsylvania-based pharmacy called Philidor Rx Services.  

Specialty pharmacies are designed to 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 drugmaker of using Philidor to create "phantom sales" of its products or push more product through distribution channels than sales would warrant, an allegation that Valeant has denied outright.  

Although the two companies are separate legal entities, Valeant said last week that it holds a right to purchase Philidor, which in turn said that it holds the right to acquire control of other affiliated pharmacies.  

Philidor has not addressed questions of its sales practices. It said last week that it works with a network of pharmacies and provides them with call center functions, help with insurance claims, technical support and “certain management services.”  

 One of those affiliates is R&O Pharmacy based in California, which 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 Oct. 6, after receiving a demand letter from Valeant for more than $69 million, money that R&O said it didn’t owe. R&O said in court documents that it informed Valeant after receiving the payment 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.      Continued...

The sign of Valeant Pharmaceuticals International Inc is seen at its headquarters in Laval, Quebec May 19, 2015.   REUTERS/Christinne Muschi