<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Reuters</span></p></div><p></p></div></div>How do you convince someone to pay $1000 for a drug when they buy an identical alternative for $100? Valeant Pharmaceuticals has one answer: <a href="http://www.businessinsider.com/leaked-valeant-documents-show-philidor-strategy-2016-11">pay fat rebates</a> to the people who decide whether or not your insurer covers the drug.</p><p>The drug in question here is Solodyn, an acne-treating antibiotic. Its sales had tumbled by 40% in the years after it went off patent in 2011. Then Valeant struck a deal with a specialty pharmacy called Philidor and started to turn things around. In early 2015, after Philidor was on board, Solodyn sales suddenly jumped 56%, according to internal documents obtained by Business Insider.</p><p>Philidor is by now a well-known name to Valeant's investors. Although Valeant had close ties to the company, and was counting on it to grow the volume of sales of some of its key drugs, its existence was known only to Valeant until last October. When it was exposed, Philidor's tactics and Valeant's growth at all costs business model came under fire, federal agencies began to investigate, and Valeant's once high-flying shares collapsed.</p><p>Rebates aren't uncommon in the drug industry, and Valeant's new leadership is more open about the role they play in driving sales than their predecessors, but as the company tries to put itself back together again, the question of how much profit it is sacrificing in order to maintain market share and move a high volume of drugs is in the spotlight. The company on Tuesday reported earnings that were well short of expectations, prompting one analyst to say "it appears Valeant's core business continues to deteriorate."</p><p>With Solodyn, sales of the drug have reported by Valeant have tumbled to $26 million in the third-quarter, from $66 million a year ago when Philidor was still in the picture. This, despite that fact that data from IMS Health and Bloomberg indicate total prescriptions are rising.</p><h2>How is this possible?</h2><p>Internal documents obtained by Business Insider show that, with Philidor at least, Valeant was <span>was giving away millions of dollars worth of Solodyn to drive sales volume.</span> </p><p>The documents, which refer to its business in the first-quarter of 2015, describe an approach called the "Philidor strategy" Its aim was to move a high volume of drugs by paying high rebates to the insurers and pharmacy benefit managers (PBMs) that decide whether to cover a drug that's been prescribed to a patient.</p><p>Pharmacy benefit managers <a href="http://www.businessinsider.com/prescription-drug-costs-explained-2016-10">are middlemen</a> who take a large cut of sales.<span style="background-color: #ffffff;"> PBMs are used across the pharmaceutical industry.</span> Ostensibly meant to keep drug costs down and help businesses and insurance plans wade through the many alternatives available to a patient, the PBMs wield a lot of power in terms of ensuring a drug company's access to covered customers.</p><p>Paying huge rebates to PBMs and insurance companies was a way to ensure that Solodyn would get covered, even when there were cheaper generic alternatives available. </p><p>According to the documents obtained by Business Insider, rebates to payers for Solodyn were as high as 80.7% when the drug was sold through Philidor, but they also varied widely - typically depending on a certain payers' size and market share.</p><p>By late 2015, t<span>hose rebates combined with Philidor's aggressive sales tactics turned Solodyn into Valeant's 7th best selling drug. Once Philidor was out of the picture - Valeant quickly broke off the relationship after the scandal over the pharmacy erupted - Solodyn now ra<span style="background-color: #ffffff;">nks  22nd among Valeant's top 30 products. </span></span></p><p><span>Valeant's director of investor relations, <span>Elif McDonald would not comment on the documents when reached Monday, pointing Business Insider to the company's external spokesmen at Sard Verbinnen. They have not responded to requests for comment on the documents.</span></span></p><h2>How to be useful</h2><p>Valeant's goal at Philidor was to sell as much product as possible, even at a loss. Losses often occurred when the pharmacy sent out medications that hadn't had their payments approved yet. That was marked as gross revenue. If the insurer ultimately rejected Philidor's claim, Valeant would just eat that cost, bringing down the company's net revenue.</p><p>In the presentation, the company refers to these losses as "Alternative Fill" (AF) subsidies. They were the problem Valeant was trying to solve in the presentation Business Insider looked at titled 'Solodyn and Jublia Economic Analysis and Facetbase'. It's dated August 9th, 2015, two months before Valeant started to crash.</p><p><span>"Lower margins were primarily due to AF (Alternative Fill) subsides - 'free goods' that are fulling reimbursed by VRX - which accounted for 32% of Solodyn and 14% of Jublia gross sales in Q1 2015," the presentation says.</span></p><p>Profit margins aside, in terms of driving volume Philidor was a huge success, and that is most apparent in its impact on Solodyn sales. Before it started selling Solodyn, sales of the drug were on a steady decline. In 2011 the drug had $789 million in sales, according to Symphony Health Solutions. By 2014, right before the Philidor acquisition, that number had dropped down to $480 million thanks to pricing pressure from generic competition.</p><p>In 2015, Valeant sold $506 million worth of Solodyn, and the company had Philidor to thank for that. </p><p>In Q1 2015 "gross sales" of Solodyn shot up 56% from the same time a year before, the documents say. The bulk of those sales - $106 million - came from Philidor. But back out all the payments that Valeant had to make to generate those sales, and the figure falls from $172.5 million to $41.7 million, the documents show. <br /><br />That's before factoring in other costs, like the manufacturing of the drug or expenses related to running the business. </p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Thomson Reuters</span></p><p class="caption">Former Valeant CEO Michael Pearson, who presided over the Philidor strategy.</p></div><p></p></div></div></p><h2>Fattening the margins</h2><p>So Valeant was trying to figure out was <em>how</em> to get insurers to pay for more prescriptions in order to fatten Philidor's margins. The payers are referred to as MHCs in the document.</p><p>"There is room within the current MHC contracting to increase profitability/ "pull through" the full value of current contracts," it said. </p><p>Pull-throughs are incentives to get more people on a certain drug vs. a cheaper version, say, a generic. </p><p>The company realized it made the most money from drugs that were covered by insurers that didn't have strong <a href="https://www.caremark.com/portal/asset/trustmark_pa.pdf">prior authorization (PA)</a> restrictions. PAs require doctors to get a payer's permission before prescribing a drug.</p><p>So the idea was to make sure Solodyn and Jublia had the easiest status with as many payers as possible. To entice them to do so, Valeant simply hiked up the rebates "to incent payers to adopt less stringent PAs," said the presentation.</p><p>It also recommended investing "in failed PAs to obtain covered TRxs [total prescriptions] in return, based on share of these failed PAs that get approved."</p><p>Valeant also wanted to make better use of plans that had implemented step therapy for Solodyn. Step therapy is when your healthcare plan requires you to try a cheaper form of a drug you were prescribed to see if that works before you buy the more expensive prescription.</p><p>The average market share for Solodyn on plans that required step therapy or prior authorization was 6%. In contrast, Valeant had 14% of the market share in plans where Solodyn was on the formulary - the list of drugs a payer has agreed to cover - and 17% of the market share among plans where Solodyn was preferred. </p><p>Valeant's strategy on the step therapy side was to work on removing it from plans with low market share, and try to reduce rebates/change its status with "outliers" - payers that got high rebates from the company but where Solodyn had a lower market share.  </p><p>Said plainly, Valeant was trying to figure out how much it had to pay in rebates to get MHCs to overlook how uneconomical and impractical Solodyn might be.</p><h2>What your pharmacy benefit manager won't tell you</h2><p>The terms of PBM contracts are variable and secret. The more lives a PBM covers, the more leverage it tends to have in negotiating steeper rebates, which is why some PBMs may walk away with a rebate twice as big as their competitors.</p><p>The lack of transparency has its pros and cons. On the one hand, having these contracts under wraps keeps drug manufacturers from knowing what its competitor is getting as a rebate. If it did, the companies could argue that they shouldn't have to pay a bigger rebate than the other. Back in 2004, <a href="https://www.ftc.gov/news-events/press-releases/2004/09/ftc-staff-california-bill-may-raise-prices-pharmaceuticals">the Federal Trade Commission</a> argued against PBM contract transparency, saying it would make it harder for there to be competition that would drive down prices. </p><p>On the other hand, without a clear picture of the rebates, the public's understanding of why the price of prescription drugs' continue to climb is limited to just the price we see at the pharmacy counter, or data based on the list price (which no one actually pays). Without it, we don't know how big a cut every part of the supply chain is getting. </p><p>The Valeant documents Business Insider saw break down the rebates on Solodyn in Q2 2015:</p><ul><li>Caremark Performance took a <strong>70%</strong> rebate on Solodyn, and a <strong>36%</strong> rebate on Jublia.</li><li>Express Scripts National Preferred took a <strong>39.4%</strong> rebate for Solodyn, and a <strong>29.4%</strong> rebate for Jublia.</li><li>United Healthcare Advantage took an<strong> 80.7%</strong> rebate for Solodyn and <strong>no</strong> rebate for Jublia.</li><li>Anthem Blue Cross in California took a <strong>39.4%</strong> rebate for Solodyn and a <strong>29.4%</strong> rebate for Jublia.</li><li>Optum Rx 3 Tier traditional took a<strong> 62.5%</strong> Solodyn and <strong>no</strong> rebate for Jublia.</li><li>Humana Rx4 Traditional took a <strong>66.4%</strong> rebate on Solodyn and <strong>no</strong> rebate for Jublia.</li><li>Aetna Premier Commercial took a <strong>45%</strong> rebate on Solodyn and <strong>no</strong> rebate for Jublia.</li></ul><p>It's clear that Valeant felt like it had to work a little bit harder to entice payers into paying for Solodyn than Jublia, and it's not hard to understand why.</p><p>There's tons of cheaper Solodyn competition on the market. When we asked Andrew Miller, the Vice President of Operations at Detroit-based PBM MRx why he doesn't have Solodyn on his formulary he sent us the data below.</p><p>"Solodyn is a once daily, extended release, form of minocycline. The therapeutic alternative would be the generic minocycline immediate release twice daily. Solodyn contains the same therapeutic ingredient in a different dosage form, offering no superior therapy. Below is the average AWP [Average Wholesale Price] pricing":</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>MeridianRx</span></p></div><p></p></div></div></p><h2>Never duplicated</h2><p>After Philidor closed, Valeant acted quickly to try to create another channel for many of its products, including Jublia and Solodyn, through a deal with Walgreen's. In an interview with CNBC last December, former CEO Michael Pearson said the agreement, which would include a co-pay program and steep discounts for branded drugs, was primarily <a href="http://www.cnbc.com/2015/12/15/first-on-cnbc-cnbc-transcript-valeant-chairman-ceo-j-michael-pearson-speaks-with-cnbcs-meg-tirrell-on-squawk-box-today.html">meant to drive sales volume.</a></p><p><span>Pearson also said that the Walgreen's deal would remove some middlemen in the business. It's not clear what he meant by that. The documents we reviewed show that Philidor spent very little on wholesalers or any other middlemen compared to what it paid in rebates to the gatekeepers between their drugs and the plans that paid for them.</span></p><p><span>What is clear is that paying off the gatekeepers is still very important to the success of the Walgreen's deal. Valeant said so in its 2015 annual report.<span style="background-color: #ffffff;"> And the company reiterated that sentiment in its third-quarter call Tuesday, by saying it would give MHCs higher rebates. Chief financial officer Paul Herendeen noted that higher rebates as the reason why net prices were down in the company's gastrointestinal, dermatology, and diversified products business. </span></span></p><p><span>This isn't illegal, but it does mean that there are incentives in the system that help companies maintain a $1,000 price tag on a drug with much cheaper alternatives. Usually we don't get such a close look at how those work.<br /></span></p><p><em>If you know more about PBM contracts with drug companies like Valeant, please contact us at llopez@businessinsider.com or lramsey@businessinsider.com.</em></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/ryan-blair-rock-bottom-rock-star-business-skills-learned-from-being-in-a-gang-2016-10">These are the business skills you learn from being in a gang</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="xheXFzNjE6YraVZXLbXP1KkC2qrP4JKw" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

Valeant used one simple strategy to get insurers to pay for a $1000 drug with $100 alternatives

<p>A big change has recently come to Uber: tips for drivers.</p><p>After a legal settlement in April over certain labor practices,Uber drivers now have the freedom to solicit tips from passengers. (While the company has never strictly prohibited tipping, the company has now made it clear that tips are OK).</p><p>Of course, there's no way to tip a driver from within the Uber app. So tip jars and signs are starting to pop up in Uber rides. In some case, they can be pretty creative:</p><p><div></div></p><p>The Gothamist reported that the Independent Drivers Guild, an <a href="https://drivingguild.org/">association of NYC Uber drivers</a>, which Uber agreed to acknowledge as legitimate in May, is pushing to make tipping an option in-app.</p><p>If Twitter is any indication though, some riders still don't realize that gratuities are not included in the price of their Uber.</p><p><div></div></p><p>And many seem confused by the tipping jars now surfacing on their rides.</p><p><div></div></p><p><div></div></p><p><div></div></p><p><div></div></p><p>Others have simply ridiculed or seem upset by the notion of tipping their Uber driver.</p><p><div></div></p><p><div></div></p><p>Worrisomely, if enough customers find the tip jars or signs soliticting gratuity too intrusive, they could give their drivers lower ratings. For drivers, that's especially cause for concern. If their rating <a href="http://www.businessinsider.com/leaked-charts-show-how-ubers-driver-rating-system-works-2015-2">dips to 4.6 or lower</a>, they may be singled out for additional training or be removed from the platform entirely.</p><p><div></div></p><p><div></div></p><p>Some riders even offer that they would rather have the option to tip in-app, calling the makeshift tip jars awkward.</p><p><div></div></p><p><div></div></p><p>For a company that prides itslef on offering an experience that's "hassle-free", Uber's separate cash tipping system is not ideal.</p><p><div></div></p><p>For now, riders and drivers who would rather give and receive tips in-app can turn to Uber's competitor, Lyft.</p><p><div></div></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/smartphone-addiction-brain-science-2016-6">There's a scientific reason we're addicted to checking our phones</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="8xdGNvMjE6dwGnz6ucI9uXnFMMqNocLw" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

Uber drivers are getting creative in asking for tips, and passengers don't know how to respond

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Reuters</span></p><p class="caption">Joe Papa, CEO of Valeant</p></div><p></p></div></div>When Valeant Pharmaceuticals' secret relationship with a pharmacy that sold its drugs directly to consumers was exposed last year, the company first tried to downplay its importance.</p><p>It hadn't told investors about the pharmacy, called Philidor, which Valeant had an option to acquire and which accounted for at least 5% of sales. When the existence of the pharmacy and accusations that it was using fraudulent tactics to push Valeant's drugs came to light, the company was quick to break off the relationship.</p><p>We're starting to understand how much that must have hurt. You see, Valeant had big plans for Philidor.</p><p>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.</p><p>The strategy is detailed in an internal Valeant presentation obtained by Business Insider. Dated August 2015, two months before the <a href="http://sirf-online.org/2015/10/19/hidden-in-plain-sight-valeants-big-crazy-sort-of-secret-story/">relationship with Philidor was exposed</a>, 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.</p><p>Valeant representative Elif McDonald would not comment on this story. The company's representatives at Sard Verbinnen, Chris Kittredge and Jared Levy, also did not respond to Business Insider's requests for comment.</p><p>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.</p><p>According to the document, "the Philidor strategy drove increases for both brands."</p><p>Its effect was most dramatic with Solodyn, a drug whose sales had been declining for years. In 2011, the drug did $789 million in sales, according to Symphony Health Solutions. By 2014, after generic competition appeared, the number dropped to $480 million.</p><p>Then in the first quarter of 2015, sales of Solodyn shot up 56% from the same time a year before, according to these documents. (For Jublia, that number was 188%.) The bulk of those sales - $106 million - came from Philidor, the presentation shows. Sales through other retail pharmacies fell to $66 million, nearly half what they were a year before.</p><p>Valeant needed that help. Former CEO Michael Pearson was obsessed with constant sales growth, and shareholders were rewarding the company for achieving it. Pearson achieved this mostly with a string of acquisitions that added new products, but after going more than $30 billion into debt, that strategy was unsustainable.</p><h2>Worth it?</h2><p>Until October 2015, when short-seller Andrew Left of Citron Research wrote a report <a href="http://www.citronresearch.com/wp-content/uploads/2015/10/Valeant-Philador-and-RandO-final-a.pdf">accusing the company of accounting malfeasance</a>, Valeant had not told shareholders anything about Philidor, even though it was folding Philidor's accounting into Valeant's own books. <a href="http://www.wsj.com/articles/valeants-ties-to-pharmacy-scrutinized-1445817449">The Wall Street Journal later uncovered</a> that Valeant employees worked at Philidor under pseudonyms.</p><p>After questions about Philidor's sales tactics arose, investors abandoned the former Wall Street darling stock in droves. Valeant's share price plunged around 90% from its 2015 high.</p><p><div class="KonaFilter image-container display-table click-to-enlarge"><div><div class="image on-image"><a title_source="Business Insider" title_caption="Three years in the life of Valeant." class="zoomin" href="https://static-ssl.businessinsider.com/image/5820cf6a691e882a4e8b470f-960/screen shot 2016-11-07 at 2.00.10 pm.png"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span></a><p class="source"><span><a href="http://markets.businessinsider.com/chart/Valeant_Pharmaceuticals_International">Business Insider</a></span></p><p class="caption">Three years in the life of Valeant.</p></div><p></p></div></div></p><p>That was just the monetary cost. Now the federal government is conducting a criminal investigation into alleged fraud at Philidor. Pearson and Valeant's former CFO, Howard Schiller, are also being investigated criminally for their alleged involvement with Philidor, <a href="https://www.bloomberg.com/news/articles/2016-10-31/valeant-ex-ceo-ex-cfo-said-to-be-a-focus-of-u-s-criminal-probe">Bloomberg News</a> reported last week.</p><p>While Valeant has said that Philidor was "less profitable than traditional channels," the "Philidor strategy" shows that Valeant was subsidizing enormous amounts of sales through the pharmacy, and the presentation includes a lengthy discussion of steps it could take to cut down on the freebies.</p><p>"Solodyn and Jublia sales grew 56% and 188% overall, but most of Solodyn's growth was subsidized (free) through Philidor," the presentation said.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>AP Images/Manuel Balce Ceneta</span></p><p class="caption">Valeant's outgoing CEO, Michael Pearson, left, and former CFO Howard Schiller are sworn in  before the Senate Special Committee on Aging.</p></div><p></p></div></div></p><h2>An alternative-fill style</h2><p>Philidor ended up giving away millions of dollars worth of Solodyn and Jublia because healthcare payers - insurance companies and pharmacy benefit managers - wouldn't pay for them. That could be because the drugs were too expensive to be on their plans, or because Philidor was sending too much medication out over a given period of time.</p><p>When that happened, Valeant would eat that cost. The company referred to those losses as "alternative fills," and in the presentation refers to them as a form of subsidy to support sales.</p><p>The company wanted to lower the number of alternative fills - the number of drugs it would send that weren't being paid for. This was a problem for Valeant, and Umer Raffat of Evercore ISI noticed something wonky was going on with Jublia. Raffat asked Pearson about it on Valeant's first-quarter conference call in April of that year.</p><p>"Mike, my last question - Jublia is up 87% quarter-on-quarter on [total prescriptions]. I think the sales were up about 20%-ish. So just wanted to understand trends there," he said.</p><p>Pearson responded by blaming this problem on growing pains. The company had acquired and launched Jublia from Salix in 2014, and he said there too much inventory hanging around but that the company would take care of this problem in no time.</p><p>"In terms of Jublia, in our prepared remarks, I think we mentioned that the difference between the growth in scripts and the growth in revenues is basically what's out there in the channel and inventory," Pearson said.</p><p>"So those have all been reduced. And our sales, especially into specialty pharmacy, specialty pharmacies, we have our inventory levels very, very low. So well below two weeks. So I think going forward, what you'll see is which is the important thing, is the growth in script trends and the growth in Jublia revenues will match dollar to dollar from Q2 going forward."</p><p>But it didn't. That's what the presentation discusses - how to lower the number of AFs by getting insurers and pharmacy benefit managers to pay for more product, and get doctors to prescribe it so that insurers would cover it.</p><h2>Taking the hit</h2><p>These subsidies, which Valeant describes as "free goods that are fully reimbursed," accounted for 32% of Solodyn gross sales and 14% of Jublia gross sales in the first quarter. Industry experts Business Insider consulted consider that to be high.</p><p>And apparently so did Valeant.</p><p>The company wanted to fatten those margins by getting drugs paid for even when it had so-called prior authorizations. That's when when doctors are required to get approval from insurers and/or pharmacy benefit managers ahead of time to prescribe a specific drug. Prior authorizations made it harder for Valeant to sell its expensive drugs, and the company was well aware of that.</p><p>"To be successful through Philidor, products need to be covered (without strong PA); however, the current managed care and PA execution strategy has not consistently delivered this," the presentation said.</p><p>The company thought of a couple of ways to fix this problem. The most important way was to straight-up pay a bigger rebate to payers - the insurers and the pharmacy benefit managers - for relaxing the prior authorizations for Jublia and Solodyn, and getting them to cover the drug.</p><p>Under a slide titled "Opportunities to optimize [Managed Healthcare Companies] strategy based on analysis on both Solodyn and Jublia," the Valeant presentation reads: "Based on the wide difference in value of covered and non-covered Rx through Philidor, it is imperative to tightly coordinate MHC and Philidor strategy."</p><p>For every 10% increase in "covered lives" taking the drugs, margins would improve by 11%, according to Valeant's calculations. In other words, for every 10% of prescriptions that insurers pay for, our margins improve by 11%.</p><p>That's why Valeant said that it needed to "invest in failed PAs to obtain covered [total prescriptions] in return, based on the share of these failed PAs that get approved."</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span><a href="https://www.youtube.com/watch?v=y5Ybz4Tkflk">YouTube</a></span></p></div><p></p></div></div></p><p>And the reality was that Valeant was already paying them a pretty penny. Some were getting reimbursed up to 80% of the cost of Solodyn, and 36% of the cost of Jublia.</p><p>Jublia paid out fewer rebates because it's a drug that still has exclusivity. All told, 7.5% of Jublia gross sales went to payers and/or their middlemen in the first quarter of 2015, the documents show.</p><p>Solodyn was another story. It's an acne drug with tons of cheaper competitors, so Valeant had to really sweeten the pot to get payers to accept it. As such, according to the documents, 46% of Solodyn gross sales went to payers and the middlemen that manage formularies - the list of drugs that your insurer will pay for - and that still wasn't enough to convince payers to shell out for Solodyn all the time.</p><p>Valeant's solution to this problem was to just pay these people even fatter rebates to get them to drop prior authorizations. Or, in its own words, it was willing to "explore tiering of rebates proportional to PA strength to incent payers to adopt less stringent PAs."</p><p>A bunch of the slides in the presentation were about how to ensure that sales were directed at friendly payers, how to ensure payers stayed friendly, and how to make "outliers" - payers who were not processing payment for the drugs - come into the fold.</p><p>We should also note that Valeant also saw the sheer volume of drugs it was moving through Philidor as a marketing tool to make doctors aware of the pharmacy's existence. Then, ideally, it would encourage payers to cover the drugs for their patients.</p><p>"One rationale for subsidizing scripts is to attract prescribers who have more covered than uncovered patients, however ~$13M of [alternative fill] subsidized scrips for prescribers that have a poor patient mix and a low likelihood of profitability," the documents read.</p><h2>Big deal drugs</h2><p><div class="KonaFilter image-container display-table float_right click-to-enlarge"><div><div class="image on-image"><a title_source="Valeant" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/581a48f6b28a6436008b6663-960/screen shot 2016-11-02 at 4.12.58 pm.png"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span></a><p class="source"><span>Valeant</span></p></div><p></p></div></div>By the time these documents were created in late 2015, Jublia had become Valeant's second-biggest drug in terms of revenue generation. It was its top dermatology drug. (Solodyn came in second in dermatology and seventh overall.)</p><p>And according to a memo Pearson sent a month before Philidor was discovered, the company intended for the explosive growth of the two drugs to continue.</p><p>"Dermatology, Ophthalmology RX and Dentistry Rx 2016 revenue is expected to represent approximately 20% of revenue and, across these businesses, our teams have delivered over 30% script growth year to date," <a href="http://www.businessinsider.com/mike-pearson-letter-to-valeant-employees-2015-9">it said</a>. "We expect continued double-digit growth for the foreseeable future given the strength of our brands (e.g., Jublia, Prolensa, Retin-A Micro franchise, Solodyn)."</p><p>That's why after Philidor was put out to pasture, Wells Fargo analyst David Maris wrote to his clients he thought that Philidor played a huge hand in the growth of these products. However, because Philidor's accounting wasn't broken out, we couldn't know. We should note that the Jublia revenue he cites for Q1 2015 is close, but does not exactly match the number in the documents viewed by Business Insider.</p><p>From Maris (emphasis ours):</p><p style="padding-left: 30px;">"According to Valeant, Jublia revenue increased to $106 million in Q3 2015 from $62 million in Q1 2015, making it <strong>the company's second-largest revenue generator in Q3 2015. We believe that a substantial portion of Jublia's growth was fueled by Philidor</strong> and anticipate a significant negative impact to Jublia from the termination of Philidor and shift to Walgreens. While Jublia has patent protection into 2030, its exclusivity ends in 2019, and we believe competitors may be keen on introducing a less expensive version of the drug."</p><p>In its latest earnings report, in August, Valeant blamed a decline in product sales, in part on "lower volumes in dermatology (mainly attributable to Jublia, Solodyn and Ziana)." It now distributes those drugs through a deal with Walgreens - a deal that took some time to get off the ground.</p><p>In the second quarter of 2016, <a href="http://www.businessinsider.com/valeant-pharmaceuticals-q2-product-revenues-2016-8">Jublia ranked 16th</a> among Valeant's top brands, while Solodyn ranked 29th.</p><h2>Organic growth</h2><p>The reason Wall Street loved Valeant - why it loved its CEO Michael Pearson - is that he delivered consistent top-line growth quarter after quarter. He called it "organic growth," and when that siren song combined with the accounting synergies of his serial acquisition strategy, Pearson was able to seduce some of the smartest investors in the game.</p><p>Valeant's stock soared on this story. In the summer of 2015, it peaked at around $257 a share, despite the protests of short-sellers who accused the company of using aggressive accounting to hide losses.</p><p>What these documents show us is that growing sales volume at any cost was also very much a part of Valeant's business strategy. It wasn't just the price hikes that made Valeant so hated in Washington.</p><p>Regardless of where it came from, this "growth" was intended to drive Valeant's share price, and that share price was making Pearson and his investors very rich. In fact, in 2015, Pearson agreed to forgo a salary and receive compensation only in the form of cash and stock tied to performance.</p><p>While the stock was riding high, this was all very well and all very Wall Street and all very capitalist indeed.</p><p>Until it wasn't.</p><p><em>Business Insider's Lydia Ramsey also contributed to this report.</em></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/buy-rent-financial-suicide-james-altucher-2016-10">JAMES ALTUCHER: This is why owning a home is financial suicide</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="0yNjBzeDo1bPwt1rmBJ8yS7MxZE2di07" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

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