UPDATE 4-CVS, Express Scripts drop Valeant's Philidor; stock dives

(Adds CVS, Express Scripts dropping Philidor, share drop)
By Michael Flaherty and Caroline Humer
Oct 29 (Reuters) - Shares of Valeant Pharmaceuticals (N:VRX) Inc.
fell further on Thursday after CVS Health Corp (N:CVS) and Express
Scripts dropped Philidor Rx from their networks in a sign the
fall-out from the drugmaker's connection with the specialty
pharmacy is spreading.
Philidor Rx, the speciality pharmacy used by Valeant, is at
the center of accusations lodged by a short-seller last week
that Valeant inflated revenues - allegations that sent Valeant
shares into a tailspin.
The stock recovered some of its losses, and was trading
higher through most of Thursday until CVS, late in the trading
session, 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.
Valeant's New York traded shares fell 4.7 percent to $111.50
at the close. The stock was trading as high as $260 per share in
August.
Express Scripts, later on Thursday, said it too was ending
its ties to Philidor.
The CVS announcement came after mutual fund manager Ruane,
Cunniff & Goldfarb Inc., sent a letter to its own investors
about the Valeant saga. The Sequioa 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 reputation.
"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
Sequioa Fund resigned over the weekend, the Wall Street Journal
reported on Thursday, citing the board's chairman. Reuters could
not immediately reach the chairman, Roger Lowenstein.
After coming under pressure this summer, Valeant's stock
plunged after short-seller Citron Research said last week that
the company was using its drug distributor, Philidor, to inflate
revenue numbers. urn:newsml:reuters.com:*:nL1N12L1JW