(Adds after hours stock move, CVS, Express details, Valeant's
Philidor revenue, Bloomberg Philidor story, Valeant comment)
By Michael Flaherty and Caroline Humer
Oct 29 (Reuters) - Valeant Pharmaceuticals (N:VRX) Inc. sustained
hits on several fronts on Thursday after CVS Health Corp (N:CVS) and
Express Scripts dropped Philidor from their networks in a sign
the fallout from the drugmaker's connection with the specialty
pharmacy is spreading.
The moves by the nation's two largest pharmacy benefit
managers whacked Valeant shares before the market close, and
pushed them 10 percent lower to $99 after hours.
After coming under pressure this summer, Valeant's stock
plunged last week after short-seller Citron Research said that
the company was using its drug distributor, Philidor Rx, to
inflate revenue numbers. urn:newsml:reuters.com:*:nL1N12L1JW
About a dozen Valeant officials held a conference call on
Monday to address the accusations, which helped ease pressure on
the company's stock. Valeant said it properly accounts for sales
through its pharmacy partners and only books revenue once one of
its medicines reaches a patient.
Valeant's stock recovered throughout the week than sank on
the CVS and Express Scripts news. CVS, late on Thursday, said
its Caremark program was dropping Philidor. CVS took the step
following an audit of Philidor, citing "noncompliance" with its
provider agreement, the company said.
Shortly after the market close, Express Scripts said it too
was ending its ties to Philidor.
CVS did not explain the "noncompliance" further when
contacted by Reuters. Bloomberg on Thursday said Philidor has
altered doctors' orders to wring more payment out of insurers,
according to former employees and an internal document, which
details how to proceed with a prescription for certain Valeant
drugs after they have been rejected.
"Valeant's drugs are provided to patients through many
channels, including traditional retail pharmacies, specialty
pharmacies, and directly from health care providers," said
Valeant Spokeswoman Laurie Little in an emailed statement.
Philidor declined to comment on Thursday.
CVS and Express Scripts Holdings manage most of the
prescriptions filled under health plans run by the nation's
largest insurers. Express Scripts manages prescription benefits
for 85 million people.
The move by CVS and Express Scripts will have a direct
impact on Valeant, though Philidor accounts for a small portion
of the Canadian company's revenues.
In Valeant's detailed presentation on Monday that spelled
out its dealings with Philidor, the company said that the
pharmacy accounted for about 5.9 percent of its total sales so
far this year.
The stock was trading as high as $260 per share in August.
The next month, U.S. Democratic politicians singled out Valeant
for hiking drug prices on consumers, and a federal subpoena
followed. With the stock under pressure, the Citron report last
Wednesday sent it into a tailspin.
TOP SHAREHOLDER SPEAKS
The CVS announcement came after mutual fund manager Ruane,
Cunniff & Goldfarb Inc., sent a letter to its own investors
about the Valeant saga. The Sequoia Fund, which the mutual fund
manages, owns 9.93 percent of Valeant and is the company's
largest shareholder.
While the letter is largely a defense of Valeant's
practices, it says that the company needs to move faster with
paying down its debt. It also points out that Valeant's
aggressive business practices have "pushed boundaries," and that
the company needs to better manage its image.
"We would stress the importance of taking a more systemic
approach to managing business practices with an eye on the
company's long-term corporate reputation," said the letter dated
Oct. 28 and signed by Ruane, Cunniff & Goldfarb President Robert
Goldfarb and Executive Vice President David Poppe.
Separately, two of the five independent directors of the
Sequoia Fund resigned over the weekend, the Wall Street Journal
reported on Thursday, citing the board's chairman. A person who
answered the phone at Ruane, Cunniff & Goldfarb said the
chairman, Roger Lowenstein, could not be reached.
ACTIVISTS HIT
Valeant's abrupt slide from a hedge fund darling to a drug
company under fire has weighed heavily on two of the best known
U.S. activist funds: ValueAct Partners and Pershing Square.
ValueAct has been an investor in Valeant since 2006, and
played a significant role in instituting the company's strategy
and its current CEO, Michael Pearson (L:PSON). Pearson took over in 2008
and built Valeant into a more than $40 billion company with over
100 transactions. ValueAct, with $19 billion under management,
now has two directors on the company's board, and was the fourth
largest shareholder as of June 30.
William Ackman's Pershing Square, Valeant's third-largest
shareholder, has scheduled a call on Friday at 9 am EDT to
address the drug company's issues. Pershing owned 5.7 percent of
Valeant as of June 30, and faced a paper loss of more than $800
million at one point last week.