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The California Department of Insurance reached a $1.875 million settlement with Valeant Pharmaceuticals, Inc. relating to its former relationship with Philidor Rx Services LLC and claims for reimbursement or payment for Valeant products submitted by Philidor to California insurers.

Valeant is a phamaceutical manufacturer headquartered in Canada, with its principal place of business in New Jersey.

According to the Settlement Agreement, the Commissioner alleged that the State of California has certain civil causes of action against Valeant related to and/or arising from Valeant’s relationship with Philidor Rx Services LLC including civil causes of action pursuant to the California Insurance Frauds Prevention Act, Cal. Ins. Code§ 1871, et seq. (“CIFPA”) concerning claims for reimbursement or payment for Valeant products submitted by Philidor in the State of California between January 2012 and December 2016 .

Valeant denied any and all allegations asserted by the State of California and denies that it has any liability.

Valeant’s former relationship with Philidor, which has been widely reported on, was terminated by Valeant in late 2015, following allegations that, among other things, Philidor submitted fraudulent claims for reimbursement to insurance companies. Since terminating its relationship with Philidor, Valeant has replaced many members of its senior management.

According to the story in Business Insider, Valeant had a sales plan dubbed the “Philidor strategy” to use the pharmacy and increase the volume of shipments for two of its drugs, Solodyn and Jublia. For Solodyn, an antibiotic to treat acne, the rebates and payments drove a recovery in flagging sales.

The strategy was detailed in an internal Valeant presentation obtained by Business Insider. Dated August 2015, two months before the relationship with Philidor was exposed by the Southern Investigative Reporting Foundation. The presentation shows that the pharmacy’s aggressive sales and marketing tactics all but completely supported growth in the two drugs – with Philidor moving $46 million of Jublia, a toenail fungus treatment, and $106 million of Solodyn in the first quarter of 2015.

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. While it worked, the cost was enormous – in Solodyn’s case eating up close to three quarters of any new sales. According to the document, “the Philidor strategy drove increases for both brands.”

Meanwhile, federal prosecutors started a criminal trial on May 3, 2018 against an ex-Valeant executive. A federal prosecutor told jurors in Manhattan that a former Valeant Pharmaceuticals International Inc executive and the former head of mail order pharmacy Philidor Rx Services defrauded Valeant through a multimillion-dollar kickback scheme.

Prosecutors allege that Valeant was the victim of a scheme between one of its senior directors, Gary Tanner, and Andrew Davenport, formerly chief executive officer of Philidor. The opening statements kicked off a trial that could shed light on the relationship between Valeant and the now-defunct Philidor, which drew concern from investors and regulators.