Valeant Pharmaceuticals said it is terminating all ties with Philidor due to allegations relating to the specialty pharmacy distributor's business practices.
"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.
Earlier this week, Valeant said it would set up an ad hoc committee to look into the allegations related to the company's association with Philidor.
Influential short-seller Citron Research had accused the drugmaker of using Philidor to create "phantom sales" of its products or push more product through distribution channels than sales would warrant, an allegation that Valeant has denied outright.
Valeant said it intends develop a plan to ensure patients' access to drugs is minimally disrupted.
Valeant's link to Philidor and its option to buy the company came under scrutiny after a New York Times report said Valeant and other drugmakers were using specialty drug distributors to circumvent barriers to raising prices.
On Thursday, CVS said it cut Philidor from its network for "noncompliance with the terms of its provider agreement."
Express Scripts, the largest pharmacy benefit manager, confirmed it is also in the process of dropping Philidor from its network. It also said it would look into its relationship with other Valeant-linked pharmacies.
Read MoreValeant CEO asks SEC to investigate Citron
Valeant shares closed about 5 percent lower Thursday and lost another 10 percent in after-hours trading.
Valeant has defended its accounting and practices since the Citron Research note was released last week. The company said earlier this week it would set up a committee to review its relationship with Philidor.
Valeant did not immediately respond to a request to comment.
Shares of Valeant were 4 percent lower in premarket trading Friday. (Get the latest quote here.)
—CNBC contributed to this report.