Valeant is sued over Philidor ties, alleged racketeering

August 29, 2016 2:19 PM EDT

A sign for the headquarters of Valeant Pharmaceuticals International Inc is seen in Laval, Quebec June 14, 2016. REUTERS/Christinne Muschi/File Photo


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By Jonathan Stempel

Valeant Pharmaceuticals International Inc (NYSE: VRX)(NYSE: VRX) was sued on Monday by buyers of its drugs, who accused the Canadian company of racketeering by forcing them to pay exorbitant prices.

The proposed class-action complaint was filed in the U.S. District Court in Manhattan on behalf of unionized New York City police detectives and hotel workers, regarding Valeant's ties to the now defunct specialty pharmacy Philidor RX Services LLC.

The plaintiffs accused Valeant of violating the U.S. Racketeer Influenced and Corrupt Organizations Act, and seeks compensatory and triple damages for U.S. health plans and others that bought its drugs from January 2013 to October 2015.

Valeant did not immediately respond to requests for comment.

U.S. prosecutors are probing whether Valeant defrauded insurers by shrouding its ties to Philidor, the Wall Street Journal reported on Aug. 10, citing people familiar with the matter.

Investigators are looking at the companies' disclosures to insurers, a person familiar with the matter has told Reuters.

According to Monday's complaint, Valeant steered patients and doctors away from generic equivalents and toward its branded drugs through a network of pharmacies linked to Philidor.

By hiding its ties to Philidor, the complaint said, Valeant created artificial demand that let it drive up prices, including by more than 800 percent for diabetes drug Glumetza.

If the Laval, Quebec-based company had not done this, the plaintiffs "would have denied claims submitted by pharmacies in the Valeant Enterprise and insisted on the substitution of generic equivalents," the complaint said.

Plaintiffs include the Detectives Endowment Association of the City of New York, which represents 17,500 active and retired detectives, and the New York Hotel Trades Council & Hotel Association of New York City Inc Health Benefits Fund, which serves active and retired hotel workers.

Other defendants include former Philidor Chief Executive Officer Andrew Davenport and his brother Matthew, which the complaint said held himself out as CEO in documents filed with the California State Board of Pharmacy. Neither could be reached immediately for comment.

In afternoon trading, Valeant shares were down nearly 2 percent at C$39.38 in Toronto, and down 2 percent at $30.23 in New York.

The case is New York Hotel Trades Council & Hotel Association of New York City Inc Health Benefits Fund et al v. Valeant Pharmaceuticals International Inc et al, U.S. District Court, Southern District of New York, No. 16-06779.



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