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Valeant played a key role in building, operating Philidor RX

By Carl O'Donnell

NEW YORK, Nov 12 (Reuters) - A small cadre of employees at Valeant Pharmaceuticals International were deeply involved in directing the daily operations of a specialty pharmacy that has drawn scrutiny for its billing practices, according to four former employees at the pharmacy and company documents reviewed by Reuters.

The Valeant employees worked with the founders of the pharmacy, Philidor Rx Services, to set up the business in 2013 and expand its operations, three of the former employees said. The Valeant employees then remained closely involved in details of running the pharmacy.

At different points in the company's evolution, their roles included interviewing job applicants and involvement with billing. And the most senior of the Valeant employees, Gary Tanner, traveled frequently between Philidor's offices in Pennsylvania and Arizona and Valeant's U.S. headquarters in New Jersey, three of the former employees said.

Valeant first disclosed its ties to Philidor late last month, and concerns over the pharmacy's tactics to get insurers to pay for Valeant medications have helped push the drugmaker's shares more than 50 percent lower.

The new accounts of former Philidor employees and two emails provided by one of them raise questions about the degree to which Valeant was aware of the specialty pharmacy's methods.

For example, two Valeant employees were copied on a November 2014 email with an attachment explaining how Philidor employees could bill the highest amount an insurance company was willing to pay by resubmitting rejected claims at different price points. The email, reviewed by Reuters, was sent to Tanner and a colleague, Bijal Patel, who both used pseudonyms for their communications within Philidor, the former employees said.

Two of the former employees said they were sometimes told by their supervisors, also Philidor employees, to change prescriptions from doctors to allow the pharmacy to dispense a Valeant drug instead of a cheaper generic version.

Altering a physician's script to bill a payer for a more expensive drug could fall afoul of some federal and state laws designed to curtail insurance fraud and could also violate regulations established by state boards of pharmacy, according to Nicole Hughes Waid, an attorney at FisherBroyles LLP.

Reuters also reported last week that employees responsible for billing insurers were told to resubmit claims rejected by a major U.S. pharmacy benefits manager by using the billing identification numbers of other pharmacies. That practice might violate state pharmacy laws if it were not clear which pharmacy was actually dispensing the drug.

In a statement, Philidor said its employees "behaved ethically and in keeping with the highest business standards" and that it is deeply disappointed that its ties to Valeant have come to an end.

Valeant said that it would not address specific questions about Philidor's practices while it conducts an internal review of the two companies' ties. In October, Valeant told investors it had not invested or lent money to Philidor and said it did not "own or control" the pharmacy, though it did pay $100 million for an option to purchase it.

The former Philidor employees identified Gary Tanner as a key figure in the pharmacy's operations. Tanner joined Valeant in 2012, when the drugmaker bought his employer, Medicis Pharmaceutical Corp, a maker of dermatology products, including acne medications Solodyn and Ziana.

CNBC reported this week that a Valeant spokeswoman had confirmed that Tanner was "Valeant's liaison with Philidor" and that he was supervised by Laizer Kornwasser, a top Valeant executive who reported to Chief Executive Michael Pearson. Reuters could not independently confirm that report or determine whether Kornwasser, who left Valeant in July, had any role in Philidor's operations. Kornwasser could not be reached for comment.

Valeant has said its interest in working closely with a specialty pharmacy to make its drugs available to patients was based on a pilot program run by Medicis before it was acquired.

Tanner and several other Medicis employees retained by Valeant, including Bijal Patel and Alison Pritchet, had been responsible for building relationships with specialty pharmacies for Medicis prior to its purchase. After Valeant took over, all three collaborated with Andy Davenport, who headed a marketing firm that did work for Medicis, to establish Philidor. Davenport is currently Philidor's CEO.

Tanner, Patel, Davenport and Pritchet did not respond to requests for comment.

Tanner had authority "over all the people who worked at Valeant first and then came over to Philidor," said one Philidor former employee. Tanner worked much of the time out of Philidor's Phoenix-area office, though he frequently visited Valeant's offices in Bridgewater, New Jersey, the former Philidor employees said.

In September, Philidor began requiring employees to sign confidentiality agreements empowering the pharmacy to sue workers who divulged information about its activities, according to a copy of the agreement reviewed by Reuters.

Valeant provided details of its relationship with Philidor after influential short-seller Citron Research on Oct. 21 accused the drugmaker of using Philidor to inflate revenue from its medicines by stockpiling drugs at the pharmacy.

Valeant denied the allegation and said it was unaware of any illegal activity at Philidor. On Oct. 26, Valeant told investors that a committee of its directors would review the interaction between the two companies. That review is still pending.

A few days after its investor call, Valeant said it was severing ties with the specialty pharmacy, saying it had "lost confidence" in Philidor after questions about its business practices.

At least three major insurers have cut off their business dealings with Philidor, one of them citing violations of their contract with the pharmacy.

Separately, state prosecutors in New York and Massachusetts are investigating Valeant over its drug pricing and programs that provide financial assistance to help patients cover out-of-pocket expenses for their medications.

The U.S. Department of Justice has subpoenaed the company regarding payments and agreements by its Bausch & Lomb division with healthcare providers, while the Federal Trade Commission is looking into whether it illegally cornered the market for certain contact lens components.

(Reporting by Carl O'Donnell; Editing by Michele Gershberg and Sue Horton)