Biotech and Pharma

Valeant strikes distribution deal with Walgreens

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Embattled drugmaker Valeant Pharmaceuticals has struck a deal to distribute some of its medicines at a discount through Walgreens pharmacies, six weeks after cutting ties with a specialty pharmacy accused of questionable business practices.

Valeant will cut prices by 10 percent for branded dermatology and ophthalmology products distributed by Walgreens retail pharmacies and plans to extend the model to independent retail pharmacies, the companies said Tuesday. The deal, which spans 20 years and more than 8,000 U.S. Walgreens pharmacies, starts in the first quarter and initially will cover medicines including the toenail fungus drug Jublia, acne products Solodyn and Retin-A Micro and eye drop Alrex. It will also cover Valeant's over-the-counter products.

The drugmaker, which has come under fire for raising the prices of old medicines, also said it agreed with Walgreens to distribute more than 30 branded products at "generic prices," reducing prices from 5 to 95 percent. Those reductions, specifically for drugs that have generic competition, are expected to take effect in the second half of next year, while the 10 percent cuts will be implemented over the next six to nine months, Valeant and Walgreens said.

A woman on an escalator in a Walgreens store in New York.
Scott Mlyn | CNBC

"We have listened to what the marketplace is saying and we've taken positive steps to respond," Valeant Chief Executive J. Michael Pearson said in a statement. "Our goal is to create a system that allows prescription medications to be dispensed and insurance claims adjudicated in an efficient manner while allowing physicians to focus their efforts on what matters most: patient care."

Valeant stock has sunk almost 60 percent in the last three months, first as the company's pricing practices faced federal investigations, and then as a short-seller and others exposed significant questions about business practices at the Philidor specialty pharmacy, which handled about 7 percent of Valeant revenue.

Valeant said Oct. 30 it would terminate its relationship with Philidor, citing allegations about its business. Allegations have included tampering with prescriptions to boost reimbursement for Valeant products, as reported by Bloomberg News, and Valeant staffers working at Philidor under fake names, as reported by The Wall Street Journal.

Analysts and investors also questioned the relationship structure, in which Valeant was Philidor's primary source of business and owned an option to acquire it. When Valeant cut ties with Philidor, it said Philidor would cease operating.

On Oct. 21, short seller Citron Research issued a report comparing Valeant to Enron, suggesting it was using Philidor and other specialty pharmacies to commit accounting fraud. Valeant said it believed its accounting of Philidor was appropriate, but appointed a committee of some of its directors to review allegations about its relationship with the specialty pharmacy.

At the end of October, pharmacy benefits managers CVS Health, Express Scripts, and UnitedHealth's OptumRx said they would stop working with Philidor.

Valeant is also the target of multiple federal investigations into its drug pricing practices. The company said Oct. 14 that it had responded to a letter from Sen. Claire McCaskill, D-Mo., and that it had received subpoenas from the U.S. Attorney's offices in Massachusetts and New York concerning its patient assistance programs and pricing decisions, among other things.

One of the services Philidor provided for Valeant was administration of copay assistance, a way for Valeant to pay patients' out-of-pocket costs when insurers set an amount often designed to deter patients from using certain drugs. The company said its agreement with Walgreens will include reduced or zero copays for patients with commercial insurance. Patients with government insurance aren't eligible due to federal regulations.

Walgreen President Alex Gourlay said in the joint statement with Valeant that the agreement "advances our commitment to creating a patient-led pharmacy experience," and that it "creates a new direct distribution model that we believe will help increase efficiency."

The companies said the model is designed to reduce health-care costs for both individual patients and the overall health-care system; Valeant estimated the price decreases will lead to as much as $600 million in annual savings to the health-care system.

Valeant didn't specify how the deal would affect its revenue prospects. The company is set to hold an investor day Wednesday and provide new forecasts.

Walgreens said it hired consulting firm Leavitt Partners, led by former Health and Human Services Secretary and former Utah Gov. Michael Leavitt, to ensure its direct distribution model is "delivering value."