The secret firm at the heart of Valeant's crisis has an alleged history of shady behavior with customers

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Michael Pearson

Reuters

Michael Pearson, Valeant CEO

Valeant is getting crushed under allegations of fraudulent accounting.

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At the center of the claims is the Canadian drugmaker's relationship with a mysterious company called Philidor RX services.

Philidor is a "specialty pharmacy," which sells Valeant's drugs directly to patients while handling insurance claims on the customers behalf.

But its salesforce has a history of aggressive and seemingly dishonest marketing, according to complaints filed with the Better Business Bureau and outlined on messages boards where people can track 1-800 numbers.

The practices, which were also explained to Business Insider by a former Philidor employee, include calling potential customers with plans to fill prescriptions that they never requested, and promising customers one co-payment amount before ultimately billing them at a higher rate.

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Valeant isn't the only drugmaker to use specialty pharmacies, but, as BMO Capital analysts wrote in a note this week, its relationship with Philidor "seems different."

Philidor's existence only came to light on Monday, when Valeant disclosed during its third quarter earnings call that it had a special relationship with Philidor. Valeant rolls Philidor's earnings into its own, has the option to buy the pharmacy, and is Philidor's only customer.

Specialty pharmacies account for about 10% of Valeant's sales, according to BMO, but there's no mention of Philidor in the company's annual report.

Investors have wiped $20 billion off Valeant's market value this week, after concerns about the relationship with Philidor were raised by short seller Andrew Left.

Philidor and Valeant have both said that Philidor is part of a "network" of other pharmacies connected to it, though we don't know much about them since specialty pharmacies like Philidor have been considered an industry advantage and secret.

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The basics

Business Insider spoke with a former Philidor employee who explained how the company works. This person asked to remain anonymous because of past and current relationships with Philidor employees.

Here's how Philidor helps Valeant sell its drugs:

When Valeant's drug-sales representatives visit a doctor's office they leave literature that promises that, through Philidor, a customer can get drugs for only the cost of a co-pay, whether or not it is covered by their insurance plan. Sometimes they promise completely free trials of drugs as well.

A lot of these drugs aren't life or death - they're anti-aging drugs like Retin-A or acne drugs like Ziana. But they can be expensive.

All the customer has to do get the drugs is call Philidor and the pharmacy will mail them to the customer's home. Philidor also says it will not charge a customer's insurance company. However, they do ask customers for their insurance information to verify that their insurance company is private and commercial.

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Philidor does not accept government insurance - Medicaid, Medicare or Tricare (which is for people in the military), according to the person.

Customer complaints

But customers have complained the Philidor does actually charge their insurance company for drugs after patients sign on.

Here's what one unhappy customer told the Better Business Bureau (emphasis ours):

Hello. My child had an appointment with a local dermatologist. While we were there we were referred to Philidor RX Services for filling two acne prescriptions. The dermatologist assured me that I would be charged only $25 and nothing more from our health insurance company. She also gave us a coupon to use for one of the prescriptions that would make it free. I called Philidor and gave them all of the information that was provided to me by the dermatologist. Philidor charged me $220 from my FSA account ($110 for each prescription). I contacted Philidor and spoke with a man who said his name was Mickey. Mickey told me that I needed to submit a statement from my insurance company showing that $220 was withdrawn from my FSA account. I did as requested and have sent the information via email to Philidor, Attn: Mickey, twice. I have received no response and no refund.

Another complaint is from a customer who was promised a certain rate and then told they owe more. The following has been edited for clarity, but you can find the full posting on the BBB's website (here):

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I received a free trial prescription from my doctor and called Philidor Rx to have it filled. I provided all of the information requested, including shipping, insurance, and the free trial data. The shipment was to arrive in 2-3 days... On the third day, Philidor called and said I owed them $35 for the prescription (my copay amount) and that they would need my credit card information. When I informed them of the free offer, they claimed to not have the data in their system. I waited to go on a trip for them to send me the medicine and not have to leave without it. Once I obtain my free trial, I will transfer the prescription to a reliable pharmacy. I did not, and now will not, provide them my credit card information as they seem less than reliable and provide zero assurance of protecting my data.

The BBB rates Philidor an F, mostly because it doesn't respond to customer complaints.

Call center complaints

People who aren't even Philidor customers also complain about the company because of its telemarketing services

The complaints below are all connected to Philidor's phone number (some of these have been edited for clarity):

This guy said that he was from Philidor and must get more information from me before he could send me my prescription drugs. I told him No! He told me that President Obama was going to make sure that I couldn't get my prescription if I didn't give him my information! I hung up.

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Got a voicemail from "Elise" from the same pharmacy hoax. Said they needed more info before they could fill my prescription. I haven't even been to the doctor. I could hear in the background that it was a call center, not a pharmacy! Ugh. I will report this number.

Got a call from Alec at Philidor pharmacy last night at 5:09pm for my husband. They said they have his prescription ready and need more info before they can ship it and to call an 855 phone number back. The background sounded like a call center. Our insurance plan doesn't work this way, I wasn't home to get the call, and I won't call back. Obvious scam... be careful.

Philidor isn't licensed to operate in California because its application to register there was denied because the company made "false statements of fact." But according to a report by ProPublica, it bought a stake in a Los Angeles pharmacy called Wilshire Pharmacy in order to do business there.

People in California have complained of getting calls from Philidor's telemarketing number too. In a response to a posting to identify unknown callers, one person left this note.

This is a robocall from Philidor RX pharmacy of Arizona. It has been denied a license to operate in California and is violating the law by calling persons in California.

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This isn't to say that no one is happy with Philidor. Some customers said they were pleased that Philidor was able to get them the drugs they need fast and at a lower rate than insurance companies would.

Phillidor's response

Business Insider reached out to Philidor to seek comment on the customer complaints and the former employee's description of the company's strategy.

In an emailed statement, Gretchen Wisehart, general counsel for Phillidor, said: "Customer service is a core tenet of Philidor Rx Services. Our company exists to serve customers by providing the medication they need for their health and quality of life. Our ability to do that well is the key to our success.

"We take seriously any expression of dissatisfaction. However, the percentage of dissatisfied customers is minuscule when compared to the number of customers who are pleased to receive their medication efficiently and conveniently."

Valeant did not respond to Business Insider's requests for commentin time for publication. Valeant has denied any accounting wrongdoing.

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Who are these people?

Philidor's existence was a secret until Monday and little is known about the company. Its website only offers a phone number to call for its services, and a link to job listings at the company - mostly call center and customer service jobs in Pennsylvania and Arizona.

The company's CEO, Andrew Davenport spent most of his career designing graphics for pharmaceutical companies, according to the former Philidor employee. All new company employees are told his story.

Through his industry connections, he came to form Philidor with a small staff sometime before 2013. That's when Philidor applied for its license in California.

California's department of consumer affairs, in explaining its denial of the license, cited a number of cases of Davenport's dishonesty, including about Philidor's shareholders.

Respondent made a false statement of fact with the intent to benefit Respondent, in that Matthew Davenport certified under penalty of perjury in section "E" of the "Parent Corporation or Limited Liability Company Ownership Information" application form that there were no entities with 10% or more ownership interest in Respondent. In fact, at that time, there was one (1) individual and one (I) corporate entity with more than 10% ownership interest in Respondent.

Only on Wednesday did Valeant admit that Philidor has a call center in Pennsylvania that services Philidor and its "network pharmacies."

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But we don't really know exactly what's in that network. Only one other company has been identified as being in that network. It's called R&O Pharmacy, and it was highlighted by Citron Research.

As proof of its allegation that Valeant is engaging in accounting fraud, Citron provided a court document filed by R&O. R&O claimed that Valeant sent it an invoice for $69 million, but that it had never received product or sold product for Valeant.

Complicating matters, Philidor itself has an option to purchase R&O, a fact also disclosed only on Wednesday night.

Valeant has said the allegations against it are untrue, and it plans to hold a conference call on Monday to rebut them. But for now, investors aren't taking their chances.

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