WSJ : Valeant Under Criminal Investigation Over Philidor

(RTTNews) - Federal prosecutors are investigating whether Valeant Pharmaceuticals International Inc.(VRX, VRX.TO) defrauded insurers by hiding its ties to a mail-order pharmacy that boosted sales of its drugs, the Wall Street Journal reported citing people familiar with the matter.

The lawyers, in the U.S. attorney's office in Manhattan, are pursuing an unusual legal theory, previously unreported, that Valeant and a closely linked mail-order-pharmacy, Philidor Rx Services LLC, allegedly defrauded insurers by hiding their close relationship, the report said.

The probe is expected to be the most serious Valeant currently faces, and could lead to criminal charges against former Philidor executives and Valeant as a company, one of the people said. The investigation could conclude as soon as this year, the Journal said, adding that the timetable could also slip.

Prosecutors are reportedly investigating whether Philidor, now defunct, made false statements to insurers about its ties to Valeant. Philidor helped patients get insurance coverage for higher-priced Valeant drugs, such as for toenail fungus or acne treatment, instead of cheaper alternatives. At issue is whether insurers thought Philidor was neutral rather than in the service of Valeant, the person said.

The government lawyers are also examining some of Philidor's business practices, including rebates and other compensation provided by the pharmacy to customers who used Valeant products, as well as Philidor's efforts to seek reimbursement from insurers.

Valeant, of Canada, has previously said in public filings that U.S. Attorney offices, including in Manhattan, have requested information from it on a wide range of subjects including "patient assistance programs…its former relationship with Philidor and other pharmacies" and "the Company's pricing, marketing and distribution of its products."

Valeant for a long time successfully pursued a business model focused not on discovering drugs but on selling products it acquired from others, often at significant price increases.