(Adds background on Valeant, details on industry; no immediate comment from Valeant)
By Diane Bartz
WASHINGTON, Nov 7 (Reuters) - Valeant Pharmaceuticals (NYSE:VRX) VRX.TO , which owns eye care products maker Bausch & Lomb, has agreed to sell Paragon Holdings to settle allegations that its acquisition of the smaller company was illegal under antitrust law, the Federal Trade Commission said on Monday.
The FTC said that Bausch & Lomb and Paragon together made more than 70 percent of three kinds of polymer discs used to make gas-permeable contact lenses. The sale will undo Valeant's May 2015 purchase of Paragon.
Laval, Quebec-based Valeant has seen its stock price plunge since mid-2015 amid criticism of its pricing and business practices and probes by U.S. regulators and Congress.
Many of its woes are focused on Valeant's ties to Philidor Rx Services, a now-shuttered pharmacy that helped boost sales, allegedly with phantom accounts. Valeant has said it would sell non-core assets to pay down debt.
Valeant entered the contact lens business in 2013 by buying Bausch and Lomb for $8.7 billion.
Among its various businesses, Bausch and Lomb is a major manufacturer of basic components, or "buttons," used to make a type of rigid gas permeable lens known as Ortho-K.
Valeant subsequently bought the much smaller Paragon for an undisclosed sum, without reporting it to securities regulators or antitrust authorities.
Bausch & Lomb and Paragon together dominated the market for three kinds of gas permeable polymer discs: Ortho-K buttons used to make lenses that reshape the cornea; large scleral lenses used to treat diseases and after surgery; and buttons for general vision correction.
Valeant informed laboratories that bought the buttons of two price increases late last year, according to several laboratories interviewed by Reuters at the time. Antitrust regulators often see big price rises as a signal of anti-competitive practices. Paragon business will be sold to a new company called Paragon Companies LLC, headed by Paragon's former president. Paragon will also own Pelican Products LLC, a contact lens packaging company that Valeant also purchased.
Valeant did not immediately respond to requests for comment. (Editing by Andrew Hay and Dan Grebler)