A TROU­BLING RX

A Camarillo phar­ma­cist is at the cen­ter of a scan­dal swirling around Cana­dian drug­maker Valeant Pharmaceuticals

Los Angeles Times - - BUSINESS - BY MELODY PETERSEN AND STU­ART PFEIFER

Be­fore the group of East Coast in­vestors ar­rived late last year, Camarillo phar­ma­cist Rus­sell Reitz had been pro­mot­ing his mod­est pre­scrip­tion-fill­ing busi­ness as “your lo­cal phar­macy.”

That abruptly changed when he agreed to sell his phar­macy, in a quiet sub­ur­ban of­fice park, to the group for $350,000. As he con­tin­ued as man­ager, Reitz be­gan find­ing his store’s name and his na­tional phar­macy li­cense num­ber on an avalanche of pre­scrip­tions na­tion­wide.

Then a tor­rent of in­sur­ers’ money started flow­ing to his small shop, R&O Phar­macy — on pace to equal $230 mil­lion a year, ac­cord­ing to in­voices.

Reitz now finds him­self at the cen­ter of the na­tional scan­dal en­velop­ing Valeant Pharmaceuticals In­ter­na­tional, the once high­fly­ing Wall Street dar­ling that in re­cent weeks had its stock price al­most cut in half. The Cana­dian com­pany said Oct. 14 that fed­eral in­ves­ti­ga­tors were prob­ing its op­er­a­tions, in­clud­ing how it prices and dis­trib­utes drugs.

In the last two months, Reitz has filed pa­pers in two Los An­ge­les court­houses lay­ing out de­tails of what he and his lawyer call “a mas­sive fraud.”

“I saw per­sonal risk to my fu­ture, so I had to take ac­tion,” the 64-year-old phar­ma­cist said in an in­ter­view last week at his of­fice.

Reitz had agreed to sell his phar­macy to a com­pany cre­ated by Phili­dor Rx Ser­vices, a mailorder phar­macy with close ties to Valeant.

Valeant be­came one of the hottest health­care stocks in re­cent years by buy­ing other firms’ medicines and then swiftly hik­ing their prices by as much as 500%.

Spe­cialty phar­ma­cies such as

Phili­dor are part of a lit­tle­known strat­egy by Valeant and other phar­ma­ceu­ti­cal com­pa­nies to sell high­priced drugs that in­sur­ers oth­er­wise wouldn’t pay for.

Many of Valeant’s ex­pen­sive brand-name medicines — in­clud­ing Jublia for toe­nail fun­gus and Solo­dyn for acne — are sim­i­lar to generic medicines avail­able for far less. When pa­tients fill those pre­scrip­tions at the phar­macy, in­sur­ers of­ten re­quire the drug­gist to switch to the generic — caus­ing Valeant to lose the sale.

To get around that block­ade, Valeant has been dis­tribut­ing coupons on the In­ter­net and to doc­tor’s of­fices across the coun­try that al­low pa­tients to lower or even avoid a co-pay — if they or­dered the drugs through Phili­dor.

Un­til Reitz’s court fil­ings, in­clud­ing a law­suit he filed Oct. 6 in U.S. Dis­trict Court in Los An­ge­les, few peo­ple knew about Valeant’s close ties to Phili­dor, even though the mail-or­der phar­macy was in­creas­ingly cru­cial to its bot­tom line.

Last week, un­der pres­sure from an­gry in­vestors, Valeant re­vealed more about Phili­dor, say­ing it had an ex­pand­ing “net­work of phar­ma­cies” across the na­tion.

An­other phar­macy in the Phili­dor net­work is West Wil­shire Phar­macy in Los An­ge­les. Wil­shire did not re­turn a call seek­ing com­ment.

The con­cern among in­vestors is that the gi­ant drug­maker’s fast-ris­ing sales growth is de­pen­dent on th­ese mail-or­der phar­ma­cies, which could be op­er­at­ing il­le­gally.

“We did do a lot of busi­ness, but it wasn’t be­ing done right,” Reitz said in the in­ter­view.

Wear­ing a bur­gundy Tshirt and jeans, Reitz seemed for­lorn as he sat at a wooden desk, a crisp white phar­macy coat hang­ing from the back of his chair. He said he did not un­der­stand Phili­dor’s in­ten­tions when he agreed to sell the com­pany his busi­ness.

Valeant said that Reitz’s law­suit “is with­out merit.”

“We op­er­ate our busi­ness based on the high­est stan­dards of ethics, and we are com­mit­ted to trans­parency,” J. Michael Pear­son, its chief ex­ec­u­tive, said in a con­fer­ence call with stock an­a­lysts last week.

In court pa­pers, Reitz de­tailed how he had dis­cov­ered that Phili­dor was us­ing his na­tional phar­macy iden­ti­fi­ca­tion num­ber on pre­scrip­tions be­ing filled at other phar­ma­cies — and even on some that were filled and billed be­fore he signed the agree­ment to sell R&O on Dec. 1.

He also found that, with­out his knowl­edge, a Phili­dor ex­ec­u­tive who had never vis­ited the Camarillo phar­macy was an­swer­ing ques­tions about the phar­macy’s billing prac­tices dur­ing an au­dit by an in­surer.

As Reitz pressed ex­ec­u­tives at Phili­dor’s head­quar­ters in Hat­boro, Pa., for an­swers about the ques­tion­able prac­tices, his emails be­came in­creas­ingly des­per­ate.

“Time is of the essence,” Reitz wrote to Andy Daven­port, Phili­dor’s chief ex­ec­u­tive, on July 20. “You must pro­vide me with sub­stan­tive re­sponses im­me­di­ately, as my li­cense and pro­fes­sional rep­u­ta­tion are at stake.”

What Reitz hadn’t known at the time he signed the sale agree­ment was that Phili­dor — and Valeant — were fac­ing a hur­dle in get­ting pre­scrip­tions filled in Cal­i­for­nia, the largest mar­ket for medicines among the states.

State Atty. Gen. Ka­mala Har­ris’ staff had de­nied Phili­dor’s re­quest for a Cal­i­for­nia phar­macy li­cense, charg­ing that the com­pany had fal­si­fied in­for­ma­tion in its ap­pli­ca­tion.

“Do you think I would sell to some­one that was de­nied a per­mit?” Reitz said. “You’ve got to be kid­ding me.”

Reitz said he be­lieves that Phili­dor had tar­geted his phar­macy be­cause it needed ac­cess to his li­censes, which he has in Cal­i­for­nia and 33 other states, as well as to the con­tracts he had ne­go­ti­ated with in­sur­ers.

On July 21, Daven­port and three other Phili­dor ex­ec­u­tives ar­rived unan­nounced in Camarillo, talk­ing to Reitz for just 15 min­utes be­fore rush­ing off. Reitz said the ex­ec­u­tives an­swered none of his key ques­tions.

The next day Reitz’s lawyer sent a let­ter to Phili­dor.

“Your con­tin­ued si­lence in­di­cates to us that Mr. Reitz’ sus­pi­cions are well­founded,” he wrote. “You ap­pear to be en­gag­ing in a wide­spread fraud.”

By then Reitz had stopped send­ing Phili­dor the mil­lions of dol­lars in checks that he was re­ceiv­ing from in­sur­ers for pre­scrip­tion ship­ments. His lawyer ex­plained that Reitz had to pro­tect him­self from “mas­sive po­ten­tial” liability.

On Sept. 4, the drug gi­ant Valeant sent a let­ter to Reitz — de­mand­ing $69 mil­lion that it said the small-town phar­ma­cist owed.

Un­til then, the phar­ma­ceu­ti­cal com­pany had not cor­re­sponded with Reitz. Phili­dor ex­ec­u­tives had told him only that they “had a re­la­tion­ship” with Valeant to dis­pense its branded prod­ucts, Reitz said.

A few days later, Reitz sued Valeant, ask­ing the court to rule that he had no duty to the drug com­pany and owed it no money.

Valeant’s shares plunged 38% on Oct. 21 when An­drew Left, a short-seller at Citron Re­search in Bev­erly Hills, re­leased a re­port ac­cus­ing the drug com­pany of us­ing the phar­ma­cies in an En­ron-like scheme of in­flat­ing prof­its.

Early last week, Valeant ex­ec­u­tives in­sisted that Phili­dor op­er­ated as an in­de­pen­dent com­pany. But they also re­vealed that in De­cem­ber, Valeant had paid $100 mil­lion to Phili­dor for an op­tion to buy it.

Valeant ex­ec­u­tives said that pre­scrip­tions filled by Phili­dor and its net­work of phar­ma­cies amounted to 6% of the com­pany’s net rev­enue this year.

Yet on Thurs­day, Valeant’s stock fell again when the na­tion’s three largest drug-ben­e­fits man­agers — CVS Health Corp., Ex­press Scripts Hold­ing Co. and Unit­edHealth Group Inc.’s Op­tumRx — said they were re­mov­ing Phili­dor from their phar­macy net­works.

On Fri­day, Pear­son, Valeant’s chief ex­ec­u­tive, tried to dis­tance his com­pany from Phili­dor. He an­nounced that Valeant was sev­er­ing all ties to the mailorder phar­macy. Phili­dor was shut­ting down op­er­a­tions, he said.

“We un­der­stand that pa­tients, doc­tors and busi­ness part­ners have been dis­turbed by the re­ports of im­proper be­hav­ior at Phili­dor,” Pear­son said, “just as we have been.”

Valeant’s stock closed Fri­day at $93.81, down $17.69, or an ad­di­tional 16%.

Reitz de­clined to say whether he had spo­ken to law en­force­ment or reg­u­la­tory of­fi­cials.

“A lot more is go­ing to be com­ing out,” he said.

Richard Drew Associated Press

VALEANT PHAR­MA­CEU­TI­CALS, once a highf ly­ing Wall Street dar­ling, in re­cent weeks had its stock price al­most halved. Above, New York Stock Ex­change Gov. Richard Barry, right, and spe­cial­ist Michael Ca­cace at the post han­dling Valeant.

Al Seib Los An­ge­les Times

THE FOR­MER OWNER of R&O Phar­macy in Ca­mar­illo sold it to a mail-or­der phar­macy with close ties to Valeant.

Ryan Remiorz Associated Press

VALEANT has said fed­eral of­fi­cials are prob­ing its op­er­a­tions. Above, the firm’s Mon­treal head­quar­ters.

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