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Valeant shares plummet on claims of inflated revenues

California lawsuit raises questions about relationship with Philidor Rx
Valeant

Valeant has been hit by claims that it is using specialty pharmacies to artificially inflate its revenues, although it disputes the allegations.

The media attention took its toll on Valeant's share price, which closed down almost 20% after falling as much as 39% during the course of the trading day.

The Southern Investigative Reporting Foundation (SIRF) published an article raising questions about the relationship between the Canadian pharma company and a specialty pharmacy group called Philidor Rx, highlighted in a California lawsuit.

The allegations filed by R&O Pharmacy revolve around what is described as an "improper payment" of $69m requested by Valeant for "invoiced amounts", even though it had no record of having any deals with the pharma company.

The suit - which is seeking relief from the payment demand - alleges that R&O did however have a business relationship with Philidor. Complicating the picture, Valeant revealed this week it has an option to buy the specialty pharmacy - even though it is its only customer.

Picking up and running with the story, investment newsletter Citron Research published an article on the business relationship between Valeant and Philidor, claiming the firms have created a network of "phantom captive pharmacies" to "deceive the auditors and book revenue."

For its part, Valeant insists that Citron's allegations are erroneous, saying in a statement that it does not records shipments to Philidor and "pharmacies in the Philidor network" as revenue until products are dispensed to the patient.

Valeant's share price has already been hit hard in recent weeks as it has been drawn into the price-gouging scandal currently playing out in the US pharma industry, and is currently facing a congressional investigation.

The company also revealed last week that it has been subpoenaed by the Attorney's Office for the Southern District of New York. Most of the materials requested by the subpoenas relate to its patient assistance programmes, but there were also requests relating to financial support provided to patients, distribution of the company's products, information provided to the Centers for Medicare and Medicaid Services and certain pricing decisions.

On its third-quarter results call, Valeant chief executive Michael Pearson said the company was considering spinning out the business unit that sells Isuprel and Nitropress and shifting its strategy away from growth by acquisition and price increases to one with a greater emphasis on investing in R&D.

Article by
Phil Taylor

22nd October 2015

From: Sales

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