Pharmaceutical Firm Valeant Accused of RICO

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Michael Pearson, the former CEO of Valeant Pharmeceuticals International, Inc., may not be the only casualty in the recent investigations into the firm’s aggressive price increases on its most popular drugs.
A new class action lawsuit filed on 29 August alleges that Valeant Pharmaceuticals International, Inc. is guilty of RICO (Racketeer Influenced and Corrupt Organizations) Act violations.

The plaintiffs who filed the suit, a group managing employee benefits for New York hotel workers and a New York Police Department employee labor union, are asking that the affected class include anyone in the state of New York who purchased Valeant products, a potentially huge pool.

The suit alleges that Valeant corporate officers colluded with mail-order prescription firm Philidor Rx Services to prevent patients and healthcare providers from accessing generic substitutes for their products. The lawsuit also argues that Valeant an Philidor Rx Services intentionally overcharged patients and instituted sharp price increases on their biggest sellers. In one example, the plaintiffs claim that Valeant arbitrarily raised the price of Glumetza, a popular diabetes medication, by 800%.

The plaintiffs argue that RICO charges, which are usually deployed against organized crime syndicates, are suitable in this case on the grounds that mail, phone, and wire systems were employed in the alleged collusion between the two firms.

The RICO allegations are new, but the accusation that Valeant and Philidor, which has recently closed its doors, acted in collusion comes as no surprise to industry insiders. As early as October of 2015, investigations into the relationship between the two firms indicated that Philidor frequently made substitutions that benefited its partner company Valeant when fulfilling patient orders.

The investigation alleged that the relationship between the two firms was that of parent and subsidiary, with Valeant retaining complete control over Philidor’s prescription fulfillment practices. Valeant admitted at that time that the firm had obtained the legal right to buy Philidor.

In May of 2016, a Senate inquiry into Valeant pricing practices uncovered evidence that CEO Pearson spearheaded a program of sharp price increases on newly-acquired drugs such as Nitropress, which Valeant marked up by 300% after acquiring it in early 2015. The firm agreed after the Senate investigation to halt the aggressive program of price increases, which led investors to question the company’s financial solvency given its debt load of over $30 billion.

The new class action suit filed on Monday will only add to Valeant’s financial woes. The company’s stock price saw a downturn immediately after the suit was announced.