Valeant Pharmaceuticals International (VRX.TO) is to sever all ties with pharmacy business Philidor Rx Services in the wake of criticism over the relationship between the two closely associated companies.
Valeant also said Philidor had informed it that it would shut down operations as soon as possible.
Valeant and Philidor, which has helped to drive sales for the Canadian drugmaker, have come under fire after influential short-seller Citron Research said Philidor was being used to create “phantom accounts” and inflate Valeant’s revenue. Valeant has denied any wrongdoing.
The drugmaker’s move on Friday comes a day after the three top U.S. drug benefit managers, who administer prescription medicine supplies for health plans, said they had stopped working with the pharmacy.
“We have lost confidence in Philidor’s ability to continue to operate in a manner that is acceptable to Valeant,” Chief Executive Michael Pearson said in a statement.
Valeant said this week that it would set up an ad hoc committee to look into the allegations related to the company’s association with Philidor. It announced on Friday that former U.S. Deputy Attorney General Mark Filip had been appointed to advise the committee.
“We understand that patients, doctors and business partners have been disturbed by the reports of improper behavior at Philidor, just as we have been,” Pearson said.
“We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility. Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right.”
Philidor accounted for 6.8 percent of Valeant’s total revenue in the third quarter and the drugmaker said it intended to develop a plan to ensure minimal disruption to patients’ access to drugs.
Express Scripts (ESRX.O), CVS Health (CVS.N) and UnitedHealth’s (UNH.N) OptumRx all said on Thursday that they would stop using drugs dispensed by Philidor due to concerns about its business conduct.
Shares in Valeant fell heavily in after-hours trading on that news, reflecting worries about Valeant’s future sales growth.
Valeant shares have lost more than half their value since September as the company has come under attack on several fronts. U.S. prosecutors are also investigating the company over drug pricing, a hot issue in the U.S. presidential campaign.
Pearson told investors this week that if Valeant decided to cut links to Philidor it “would slow our growth but not dramatically”.
Mizuho Securities analyst Irina Koffler said Valeant had taken “a dramatic, albeit unsurprising” decision in ditching Philidor and the company would now need to provide updated financial guidance to stabilize the stock.
Valeant was until recently one of the most popular healthcare stocks among investors, with its model of rapid acquisition-driven growth. Its abrupt slide from market darling to a company under fire has weighed heavily on ValueAct Partners and Pershing Square, two well known U.S. activist funds.