10/30/2015 08:03 EDT | Updated 10/30/2016 05:12 EDT

Valeant Cuts Ties With Philidor, Accused Of Being A 'Phantom Pharmacy' For Faking Sales

NEW YORK -- Valeant Pharmaceuticals has cut ties with Philidor following accusations that it was a "phantom pharmacy'' used solely to artificially boost sales.

Valeant said Friday that the mail-order pharmacy has informed the company that it will shut down.

The end of Philidor comes just hours after the nation's two largest pharmacy benefit providers, CVS Health and Express Scripts, said that they had ended all interactions with the mail-order pharmacy, citing questions over its business practices.

Valeant Chairman and CEO J. Michael Pearson said the latest allegations prompted a loss of confidence in Philidor's operations.

"We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility,'' Pearson said. "Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right.''

Valeant Pharmaceuticals International Inc. has come under intense scrutiny for its own business model in which it buys drug developers, then hikes prices on medicines belonging to the company that it just acquired while it slashes spending on research into new drugs. Federal prosecutors have subpoenaed documents tied to its drug pricing and other policies.

Last week, short seller researcher firm Citron accused Valeant of using Philidor to create a network of "phantom pharmacies'' to steer pharmacy benefit managers toward Valeant's more expensive drugs, instead of lower-priced alternatives.

Valeant this week said that it was forming special board committee to examine issues surrounding Philidor, including why the company was denied a permit last year to operate in California. The state's pharmacy board cited, among other reasons, false statements about Philidor's ownership and operations. A week prior, Valeant disclosed a $100 million investment in Philidor, with an option to buy the pharmacy.

During the third quarter, Philidor contributed 6.8 per cent of Valeant's overall revenue.