During his hedge fund’s quarterly conference call, Pershing Square CEO Bill Ackman dropped a big hint about what’s next for his largest position, Valeant Pharmaceuticals.
“Fairly… soon Valeant will have identified a new specialty pharmacy to handle” the business that once belonged to Philidor Pharmacy, Ackman said.
We may find out more about that as early as Tuesday morning when Valeant holds its own conference call, he hinted.
Valeant’s relationship with Philidor, a specialty pharmacy that distributed Valeant drugs and collected money from insurance companies, is part of the reason why its share price collapsed by over 50% over the last month.
It’s not that working with a specialty pharmacy is unheard of in the world of big pharmaceutical companies. It’s just that Valeant’s relationship with Philidor was very, very close.
“In the case of Philidor, Valeant consolidates their financials and seems to have a controlling financial interest, while other companies say their affiliated specialty pharmacies are ‘fully independent.’ Valeant’s structure may not be illegal, but we find it aggressive and questionable,” said one analyst at BMO.
It also doesn’t help that until Valeant’s third quarter earnings call on October 19, investors had never heard of Philidor, or the fact that Valeant had purchased the option to buy Philidor.
The option required no additional cash in the event that Valeant decided to exercise it.
The “helpful” pharmacy
Valeant brought Philidor to light, in part, because nasty stories about Philidor’s business practices were starting to bubble up. The Southern Investigative Reporting Foundation uncovered a lawsuit between Philidor and another pharmacy called R&O that told a very troubling story — one in which Philidor executives purchased stakes in California pharmacies in order to gain access to a market from which they were denied by regulators.
According to the lawsuit, Philidor also used the credentials from pharmacies it purchased to push claims through insurance companies for too-expensive Valeant products that insurance providers would normally have rejected.
Valeant maintains that it had nothing to do with the way Philidor was run, though reports indicate that the two companies were close enough to share employees — employees who used different names at each company. Valeant severed ties with Philidor last month.
On Monday’s call, Ackman said that he doubted that allegations against Philidor would rise “to the level of materiality.”
Either way, it’s not hard to see why Philidor is a burning building that Valeant is racing out of.
On the call Ackman seemed to lament the loss of Philidor, which he said was “helpful” to Valeant’s business, and intimated that Valeant’s next partner would be an existing specialty pharmacy that also carries drugs from other companies.
Who knows if this new partner will be as “helpful” as Philidor was.
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