Valeant Settles One Legal Headache But Still Faces Congressional, DOJ Probes

Valeant Pharmaceuticals International Inc. has one less problem now that it has settled litigation with R&O Pharmacy, which sparked questions about Valeant's relationship with the specialty pharmacy Philidor Rx Services.

But on March 10, a day after Valeant announced the settlement, the House Committee on Oversight & Government Reform sent Valeant CEO J. Michael Pearson a letter demanding that the company provide information about documents it is withholding pertaining to Nitropress (nitroprusside) and Isuprel (isoproterenol).

Committee Chairman Jason Chaffetz, R-Utah, and Ranking Member Elijah Cummings, D-Md., wrote that in response to the committee's request for documents about Valeant's decision to dramatically increase the prices of the two heart medications, Valeant's counsel told the committee that it had handed over all nonprivileged documents. The committee then requested the total number of documents withheld and the reasons for withholding them.

Chaffetz and Cummings said they have not received a response to this request. They asked Valeant to provide a detailed privilege log with a description of each document withheld; the total number of pages of each document withheld; and the reasons each document was withheld.

Valeant attorney Robert Kelner, a partner at Covington & Burling, posted a statement on Valeant's website responding to the letter.

"We are surprised and puzzled by the committee's statement given that we have produced more than 78,000 pages of documents," Kelner said. "As is standard procedure for any company responding to a congressional investigation and engaged in litigation, we have declined to produce documents covered by the attorney-client privilege, and we are preparing a log for the committee detailing what documents are being withheld under that privilege."

Suit Slams Valeant's 'Alter Egos'

The Oversight Committee questioned Valeant interim CEO Howard Schiller at a Feb. 4 hearing about the prices for Nitropress and Isuprel, which jumped by 212% and 525%, respectively. Schiller said the company takes a number of factors into account when pricing a drug, including clinical value, alternative therapies and patient access (Also see "At Drug Pricing Hearing, Innovator Companies Mainly Escape Congressional Wrath" - Pink Sheet, 4 Feb, 2016.).

However, Schiller acknowledged that in a number of cases Valeant had been "too aggressive" in its pricing and had "made mistakes." He told the committee that future increases will be within industry norms and "much more modest than the ones that drew your legitimate concerns."

While Valeant has been sharply criticized for its price hikes it has also faced questions about its relationship with Philidor, which was disclosed in R&O Pharmacy's complaint.

R&O filed suit against Valeant in October seeking a court order that it had not breached any agreements with Valeant and did not owe the company any money. The California pharmacy said that it had received a letter from Valeant's general counsel claiming it owed Valeant $69m but that it had never received an invoice from Valeant.

Valeant filed a counterclaim stating that the amount R&O owed was $19.3m. It said that R&O did not collect the full $69m in co-payments and reimbursement checks as the pharmacy had been authorized to utilize Valeant's co-payment assistance programs for dispensing medications.

In a court filing, R&O stated that in December 2014, Philidor attempted to purchase R&O through a shell company it created named Isolani LLC. It said Isolani is not only the alter ego of Philidor, but that Philidor is the alter ego of Valeant. Valeant later ended its relationship with Philidor (Also see "Well-Rehearsed Valeant Call Unlikely To Stop Deeper Probes" - Pink Sheet, 26 Oct, 2015.).

Valeant said in a March 9 press release that it had reached a confidential settlement agreement with R&O that resolves all claims between them. Valeant said the terms of the settlement are confidential but noted that the resolution includes a payment by R&O to Valeant.

The case had been scheduled to go to a jury trial in the U.S. District Court for the Central District of California on Nov. 15.

Government Is Scrutinizing Patient Assistance Programs

Valeant remains the target of congressional and government investigations. The recent request from the House Oversight Committee follows several other letters from the committee.

On Dec. 15, the committee requested documents relating to Valeant's relationship with Philidor. The committee noted that Valeant had entered into a services agreement with Philidor to dispense Valeant products in January 2013 but did not disclose the relationship until Oct. 19, 2015, when it disclosed in an investor call that it had entered into an option to acquire Philidor in 2014, at which time it had begun consolidating Philidor's financials with its own filings.

Valeant reported in its Oct. 26, 2015 quarterly filing with the Securities and Exchange Commission that on or about Oct. 14 it received subpoenas from the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York requesting documents related to the company's patient assistance programs and the financial support it provides patients.

The subpoenas also requested documents about distribution of the company's products, information provided to the Centers for Medicare and Medicaid Services, and pricing decisions.