U.S. prosecutors have opened a criminal investigation into Valeant Pharmaceuticals International Inc <VRX.N> over whether it hid from insurers its relationship with a specialty pharmacy that helped boost its drug sales, the Wall Street Journal reported on Wednesday.
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Lawyers at the U.S. Attorney's Manhattan office are trying to gauge whether concealing those ties may have amounted to defrauding insurers, the Journal report said, citing people familiar with the matter.
A source familiar with the matter told Reuters later on Wednesday that investigators have been looking into what disclosures Valeant and the pharmacy, Philidor Rx Services, made to insurance companies about their relationship.
U.S.-listed shares of Valeant, which is headquartered in Canada, slid 12.5 percent to $23.90 in extended trading. The troubled company has seen its market value fall by some 90 percent in the last year as its drug pricing and other business practices prompted investigations by multiple U.S. government agencies and by Congress.
It first came under scrutiny from New York prosecutors last October over its drug pricing and distribution. Media also reported at the time that it used Philidor to overcome insurer rejections to reimbursing its medications, with Philidor resubmitting claims to insurers until they were approved.
Valeant said in a statement on Wednesday that it was continuing to cooperate with the U.S. Attorney's Office in New York regarding the investigation that was disclosed last October. The company did not provide further details on the subject of the probe.
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"Valeant takes these matters seriously and intends to uphold the highest standards of ethical conduct as we move forward with our mission to improve people's lives with our healthcare products," the company said.
The investigation by U.S. prosecutors could lead to criminal charges against former Philidor executives and Valeant as a company, the Journal report said, citing one person familiar with the matter.
Officials at the U.S. Attorney's Office in Manhattan and representatives for Philidor, which closed its operations, were not immediately available for comment on the Journal report.
The October revelation of Valeant's ties to Philidor took investors by surprise. Following media reports of a relationship between the two, the drugmaker disclosed at the time that Philidor accounted for nearly 6 percent of its revenue and that it had an option to acquire the pharmacy, an unusual relationship in the pharmaceutical industry.
Reuters and other media outlets reported on how Philidor helped secure insurer reimbursement for Valeant drugs. In some circumstances, the pharmacy would resubmit claims using the billing identification numbers of other affiliated pharmacies until an insurer approved payment, according to former employees.
A small group of Valeant employees were deeply involved in directing Philidor's daily operations, raising questions about how much the drugmaker's executives knew of its practices, Reuters reported at the time.
At least one payer, the pharmacy benefits manager OptumRx owned by UnitedHealth, became aware of what appeared to be irregular billing practices and sought to shut out Philidor from its network. After Valeant's ties to Philidor became public, other payers cut off the pharmacy and it subsequently closed.
Valeant has taken a series of steps to restore investor trust, including cutting off ties with Philidor last October, conducting an internal review of that relationship, replacing Chief Executive Michael Pearson, overhauling its board of directors and appointing new leaders to run its main businesses.
Billionaire investor William Ackman, whose Pershing Square Capital Management is Valeant's largest shareholder, has taken a board seat to influence efforts to clean up the business. New management, led by CEO Joseph Papa, has sought to move beyond the questions over its Philidor ties. Ackman declined to comment.
Valeant is also under investigation by the U.S. Securities and Exchange and U.S. prosecutors in Massachusetts.
(Additional reporting by Anya George Tharakan in Bengaluru; Writing by Michele Gershberg; Editing by Leslie Adler and Edwina Gibbs)