CVS Health, Express Scripts drop specialty pharmacy distributor tied to Valeant

Shares in Valeant Pharmaceuticals fell as much as 10 percent Thursday after CVS Health and Express Scripts announced they would be cutting ties with specialty pharmacy distributor Philidor for not complying with the terms of its provider agreement. The move comes in the wake of recent allegations that Valeant uses pharmacies related to Philidor, which the company has an option to buy, to store inventory and record the transactions as sales in order to artificially inflate revenue. Earlier this week, Valeant said it would set up a committee to review its arrangement with Philidor, but that an analysis conducted so far indicates "compliance with applicable law."

CVS noted that the decision was made after several weeks of "monitoring and reviewing the results of recent audits of Philidor's practices," but did not provide further details. Meanwhile, Express Scripts said that in addition to terminating Philidor pharmacy from its network, it is also evaluating four other pharmacies that have similar relationships with Valeant. The company also indicated it was reviewing and evaluating "all similar captive pharmacy arrangements." Further, according to a person familiar with the situation, some Blue Cross and Blue Shield insurers are also looking into Valeant's specialty pharmacies. Valeant and Philidor both declined to comment on the matter.

Valeant recently disclosed that sales through Philidor comprised roughly 6 percent of its 2015 revenue, translating to about $455 million in sales for the Canadian drugmaker to date this year, compared with $111 million for most of 2014. Earlier this month, Valeant acknowledged that it had received two US subpoenas requesting information about its drug distribution and pricing practices, among other issues. Additionally, US lawmakers have also called for Valeant to be subpoenaed over price increases instituted for the heart drugs Isuprel (isoproterenol) and Nitropress (nitroprusside).

Meanwhile, a separate report suggested that Philidor instructed employees to file claims under different numbers to different insurers, if a claim was rejected, as a way of boosting payments. Several drugmakers, including Allergan, Endo International and Horizon Pharma, have issued statements clarifying their use of specialty pharmacies in an effort to distance themselves from the allegations against Valeant and Philidor, while another report claimed that drugmakers, including Horizon and Valeant, are increasingly using specialty pharmacies to maintain high prices for their products.

For related analysis, see ViewPoints: Valeant – credibility lost? See also The Q&A – Five key questions about drugmakers' use of specialty pharmacies.

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