Distribution tactics and the imbalance of insurance premium by Valeant Pharma

Valeant Pharmaceuticals is a Canadian multinational pharmaceutical company that might have somehow been responsible for the extremely high prices on medicines in the U.S. market and have possibly manipulated the insurance system (and thus increased the cost of the insurance premium for all).

Distribution tactics and the imbalance of insurance premium by Valeant Pharma 1Distribution tactics and the imbalance of insurance premium by Valeant Pharma 1

Some Valeant Pharmaceuticals Drugs with Rising Prices:
These drugs were developed by firms acquired by Valeant, and their prices were raised immediately after acquisition. Although taken by many patients in the U.S., they no longer have patent protections in effect.

This drug treats Wilson’s disease, a common genetic disorder related to copper metabolism. The disease can cause severe liver and nerve damage. “The worldwide prevalence of Wilson’s disease is estimated to be one in 30,000 individuals.” According to a news report by the New York Times, the Valeant “more than quadrupled” the price of Cuprimine.

This medicine is used to treat Type 2 Diabetes by controlling patients’ blood glucose levels. An abnormally high blood glucose level will harm organs and nerves, and the symptoms get worse over time. (American Diabetes Association) Valeant raised the price of Glumetza by “about 800 percent” after its acquisition of Salix Pharmaceuticals.

A medicine used to treat asthma and heart diseases, including bradycardia and other arrhythmia. Valeant acquired this heart drug and quickly boosted the price by more than 500%. (Pollack)

Also called a “Sodium Nitroprusside Injection”. Usually used in the treatment of high blood pressure, Nitropress is taken by injections. “The principal pharmacological action of sodium nitroprusside is relaxation of vascular smooth muscle and consequent dilatation of peripheral arteries and veins.” Valeant increased its Nitropress price by over 200% right after its acquisition.

Unrelenting increases drove up the cost of hospital stays, insurance premiums, out-of-pocket expenses and health-care costs overall.

The game changer
Valeant’s (VRX) controversies started with Philidor, a specialty pharmacy company that was accused of altering doctors’ prescriptions so it could sell more of Valeant’s costly drugs. Generally, a pharmacist is required to sell the generic version of a drug unless the prescription indicates to “dispense as written.”
The Wall Street Journal reports Philidor used “aggressive tactics to get insurance companies to pay reimbursements for Valeant’s often high-price drugs.” Philidor was found to be altering prescriptions with intent to fill more prescriptions with Valeant-branded medicines. (Durden) Valeant may have been conspiring with Philidor against insurers, so Valeant could get insurance companies to pay for its expensive drugs.
Key to Philidor’s approach was virtually giving away millions of dollars’ worth of drugs and making sure that insurers and middlemen who approve insurance payments were getting fat rebates for securing payment for the drugs.

Loss of Insurance companies led to
increase in the premium costs.

Valeant’s success does not derive from Research and Development. Instead, its business model is to acquire extant drug companies and enrich itself by raising the prices of their current products. In other words, the company is engaging in rent-seeking behavior which results in reduced economic efficiency and poor allocation of resources.

Key players involved, include:
Valeant Pharmaceuticals
A multinational company, which develops, manufactures, and promotes a wide range of pharmaceutical products “in the areas of dermatology, gastrointestinal disorders, eye health, neurology and branded generics.”

Salix Pharmaceuticals
Based in North Carolina, Salix is a well-recognized gastrointestinal drug developer with a big portfolio of healthcare products, as well as some future game-changers in their development pipeline.

Philidor Rx Services
A Pennsylvania private company providing “pharmacy dispensing services, insurance reimbursement support, and exceptional customer service to patients and physicians nationwide”. (LinkedIn Company Page) “Philidor dispenses Valeant medications before adjudication of the reimbursement may be finalized. Patients get their medicines more quickly and Valeant takes the risk for non-reimbursement.” Philidor had licenses to operate in 46 states (residential and non-residential), with one of the four exceptions being California. But Philidor had agreements with local pharmacies in California and relied on them to dispense the medicines. (Valeant)

R&O Pharmacy
As introduced in Valeant’s presentation to investors, this is a California-based specialty pharmacy in Valeant’s network. Valeant claimed R&O sold “a substantial amount of Valeant product” and requested a $69,861,343.08 payment from R&O.

Citron Research
A private research firm, led by Andrew Left. This company aims to attack public firms with the shaky financial performance or questionable business models.

Some investors, including stockholders and creditors, had long-held positions at Valeant Pharmaceuticals. Many demanded better financial performance and higher growth from the company. Hedge funds play important roles at Valeant. Bill Ackman, a famous activist investor managing a hedge fund called Pershing Square Capital Management, is one of the major shareholders of Valeant. Mr. Ackman has been an essential supporter of Valeant. His fund had a total share of 6.29% as of June 2016. Other large shareholders include Valueact Capital Management (4.37%) and Paulson & Company (3.87%), as of March 2016. (Morningstar)

People buying Valeant products, mainly patients in need of certain medications. Consumers want reliable and affordable supplies of medicine from pharmaceutical companies like Valeant.

Insurance Companies
Insurance companies in the United States offer health insurance covering most of the costs of prescribed medication, usually with a co-payment billed to patients.

Regulatory bodies require companies under their supervision to follow the laws, thus generating social benefits.

References: 1234