A class action lawsuit was filed recently against Valeant Pharmaceuticals International Inc., accusing the drug company and several executives of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act. A scheme to block the company’s drugs from competition through a “secret network of captive pharmacies,” was alleged in the complaint.
The suit – filed by AirConditioning and Refrigeration Industry Health and Welfare Trust Fund, along with Fire and Police Health Care Fund, San Antonio – claims that Valeant used the network to stifle competition and fraudulently inflate the prices of the company’s products. Citron Research, a stock commentary website, previously accused Valeant of counting inventory shipments to specialty pharmacies as revenue.
Citron made an interesting analogy, saying that Valeant is a “pharmaceutical Enron,” cooking its books through dispensers including Philidor Rx Services LLC, which is also named as a Defendant. The suit alleges that Valeant used fraudulent practices to improperly inflate the reimbursements for drugs paid for by third-party payors, including the Plaintiffs in the instant case. The suit alleges:
Through their fraudulent scheme, defendants obtained hundreds of millions of dollars in ill-gotten profits at the expense of the TPP class, whose members paid inflated prices for Valeant drugs that in many cases should never have been dispensed. Indeed, in 2015 alone, Valeant channeled nearly $500 million worth of its drugs through Philidor, its central pharmacy hub.
Valeant has been accused of creating phantom sales through a shadowy network of specialty pharmacies. The drugmaker has denied those accusations. Valeant cut ties to Philidor in October amid reports that the specialty pharmacy had altered prescriptions and manipulated prices to boost sales of drugs sold by Valeant, Philidor’s exclusive customer.
An internal review determined that Valeant had inadequate internal controls over financial reporting. The review found that the “tone at the top of the organization and the performance-based environment,” set high targets that served as key performance expectations.
The Citron report sparked a stock plunge, which was exacerbated by the unveiling of a U.S. Securities and Exchange Commission (SEC) investigation into the Philidor affair. Valeant, and another drugmaker, Turing Pharmaceuticals, have come under fire in recent months over dramatic hikes in drug prices.
Valeant has been the focus of investigations by Congress, the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Plaintiffs say Defendants violated the RICO Act by issuing fraudulent statements in thousands of communications to third-party payors. It seeks to represent TPPs who paid claims or incurred costs in connection with Valeant prescriptions from Jan. 2, 2013, through Nov. 9, 2015. The instant case is in the U.S. District Court for the District of New Jersey.
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