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Exclusive: Beyond Valeant, U.S. payers scrutinize other drugmaker ties to pharmacies

LOS ANGELES Express Scripts Holding Co, the largest U.S. pharmacy benefit manager, is reviewing pharmacy programs run by AbbVie Inc and Teva Pharmaceuticals Industries Ltd after finding questionable practices at Valeant Pharmaceuticals International Inc’s partner pharmacy, Philidor Rx Services.

Express Scripts and other big managers of prescription medicine benefits for health plans said on Thursday they would no longer work with Philidor as concerns mount that Philidor was improperly directing drugs made by Valeant to patients.

Valeant, which has headquarters in Quebec, has since said it was cutting ties with Pennsylvania-based Philidor, and that the pharmacy was suspending operations.

A handful of other drugmakers operate their own pharmacies and ship drugs directly to patients. Many of the rest employ independent specialty pharmacies that can haggle with insurers and link patients to programs under which drugmakers cover their out-of-pocket costs.

Such tactics can allow drugmakers to work around reimbursement restrictions from Express Scripts and other insurers, which are directing patients to cheaper generic versions of widely-used medicines to save costs.

Health insurers, faced with sharply rising drug costs, are increasing their oversight of prescription drug pricing, which has also become a key issue in the 2016 presidential election.

“We are reviewing and evaluating all similar captive pharmacy arrangements that we know of and will work to identify others,” said Brian Henry, a spokesman for Express Scripts. He defined a captive pharmacy as one that derives the vast majority of prescription volume from one manufacturer or one product.

AbbVie said its wholly owned Pharmacy Solutions business aims to help patients and doctors verify insurance coverage in certain instances for drugs such as its widely-used rheumatoid arthritis treatment Humira. The company said the program accounts for less than 0.2 percent of its U.S. sales.

“We believe that Pharmacy Solutions does provide a level of service. We don’t see any change at this time,” said AbbVie spokesman Greg Miley.

Teva’s Shared Solutions program helps multiple sclerosis patients access its Copaxone treatment, which has recently begun to face competition from generics. The company said in a statement that approximately 0.5 percent of its sales flow through the company’s pharmacy.

Both AbbVie and Teva did not respond to requests for further comment.

CVS Health, the second-largest pharmacy benefit manager, also said it is continuing to investigate other pharmacies to uncover inappropriate billing and dispensing activities.

Erik Gordon, a professor at the University of Michigan’s Ross School of Business, noted that independent specialty pharmacies provide an important service by dispensing expensive and complex products that require special handling, such as cancer treatments.

That is different from examples like Philidor, he said.

“Captive specialty pharmacies often are a vehicle for drug company parents to push their own products, especially products that are off patent and face cheaper competitors,” Gordon said.

Shares of Valeant have lost more than half their value since mid-September as the company came under fire on several fronts, such as evidence of extreme price hikes for several of its drugs and allegations that it used Philidor to inflate revenue and circumvent insurer controls on high-cost prescriptions. Valeant has denied the accusations.

Valeant said sales of its drugs through Philidor, including acne medicines and a treatment for toenail fungus, accounted for about 7 percent of its total third quarter revenue.

(Reporting by Deena Beasley; Editing by Michele Gershberg, Chizu Nomiyama and Mary Milliken)

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Boeing likely to match Airbus on single-aisle output: source

SEATTLE Boeing Co (BA.N) is likely to broadly match European rival Airbus SA (AIR.PA) in notching up production of single-aisle aircraft to 60 a month, but the timing of Boeing’s move remains uncertain, according to a person familiar with the situation.

Airbus said on Friday it would lift monthly output of its top-selling A320 to 60 in mid-2019, a 20 percent jump over its prior target of 50, and a move seen pressuring Boeing to match with its competing 737 jetliner.

Boeing is talking with suppliers about how soon they could keep up with 60 a month for the 737, the source said, having already determined the higher rate is feasible.

“That’s where the discussion is,” said the source, who was not authorized to speak publicly about the talks. Boeing declined to comment.

Boeing and Airbus are leapfrogging each others’ plans to lift output of single-aisle planes as they work through backlogs that stretch out eight to 10 years. Rising production gives suppliers more work and shortens the time airlines have to wait for new aircraft.

The move also “could stoke concerns over narrow-body oversupply, especially if Boeing matches,” RBC analyst Robert Stallard said in a note.

Last week, Boeing Chief Executive Dennis Muilenburg told analysts that the company sees scope to lift rates beyond the current 52-a-month target.

“However, we remain steadfast in our financial discipline as we assess the market demand for further production rate changes,” he cautioned, referring to determining return on investment of any production shift.

Both plane makers produce 42 single-aisles a month now. Boeing has said it plans to hit 52 a month in 2018.

In June, engine makers voiced concern about the ability of suppliers to keep up with rising output. But those worries have eased in recent months, and regulators appear poised to certify the engines and as airworthy this year, two sources said.

Airbus builds A320s in France, Germany and China, and recently opened a factory in Mobile, Alabama, that is due to deliver its first plane to JetBlue Airways Corp (JBLU.O) in the first quarter of 2016.

Boeing has retooled its 737 plant in Renton, Washington, to create a third assembly line; each is capable of producing 21 planes a month, giving Boeing potential to go to 62 a month.

(Reporting by Alwyn Scott; Editing by Alan Crosby)

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ECB to say how much Greek banks need to survive

FRANKFURT The European Central Bank is expected to say on Saturday that Greek’s battered banks need up to 14 billion euros ($15.4 billion) in fresh capital in order to survive.

It comes after years of economic decline in Greece – bailed out three times by international lenders – that has forced some 42 billion euros to be set aside against bad loans.

Although the banks are currently been kept afloat by access to money through the euro zone monetary system, there is a rush to get recapitalization completed.

If it is not done by the end of the year, new European Union rules mean large depositors such as companies may have to take a hit in their accounts.

The announcement, to be made at 0930 GMT, follows a series of stress tests on the banks to see how they are faring after the long-running dispute over reforms demanded of Greece for international support.

The four main banks concerned are National Bank of Greece (NBGr.AT), Piraeus (BOPr.AT), Alpha Bank (ACBr.AT) and Eurobank(EURBr.AT) .

This bailout stand-off between leftist Prime Minister Alexis Tsipras and his country’s international backers – the International Monetary Fund and European Union – almost saw Greece tumble out of the euro zone.

It led to the freezing of central bank funding for Greece’s banks and forced controls on cash withdrawals. Although the latter helped stem a further hemorrhaging of savings, it squeezed the economy, making it harder for borrowers to repay loans.

Of a new 86-billion-euro bailout of Greece, 25 billion euros is earmarked as a backstop for banks.

The fact that the capital hole is smaller that this may encourage investors and limit the amount of cash that Athens has to spend in a bailout that tangles the state further in the ownership of the four big groups.


To reach their conclusion, the ECB’s supervisors are set to count into their calculation roughly 12 billion euros of future tax rebates that the Greek government could pay its banks.

The assessment looked at how many loans would go unpaid if the country’s economy performs as expected up until 2017 – the so-called ‘baseline’. It will also simulate a ‘stress’ scenario, where the economy dips further.

Under the baseline scenario, the stress test will show a capital gap of about 4.5 billion euros for the four banks, one banking source has told Reuters. Adding the ‘adverse’ or stress scenario, the gap could be as high as roughly 14 billion euros.

Greek bankers hope that private investors will buy shares in the lenders. But Greece’s future and that of its banks remains uncertain, despite the latest checks.

A fall of more than two thirds in the banks’ stock prices this year has served as a reminder of the risks.

Greece on Friday put forward a bank recapitalization bill that outlines how new funds will be pumped into the banks.

(Additional reporting by George Georgiopoulis and Lefteris Papadimas, Editing by Jeremy Gaunt and Mark John)

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Chevron slashes jobs and spending to weather low oil prices

Chevron Corp (CVX.N) is slashing 10 percent of its workforce and sharply paring back its budget, with Chief Executive Officer John Watson giving a downbeat view on Friday of an industry beleaguered by low oil prices.

A more than 55 percent decline in crude oil CLc1 since last year has rippled through the global energy industry, forcing producers and their suppliers to make tough decisions.

For Chevron, that means cutting its budget by 25 percent next year by spending less in Australia, Angola and the U.S. Gulf of Mexico, where the No. 2 U.S. oil company has major growth projects.

“We need to be more efficient at what we do,” Watson said on a conference call with analysts and investors. While he said prices should rise eventually, he is “sober about the current realities of lower prices” for the next few years.

The news came as Chevron also reported a sharp drop in third-quarter earnings that still beat Wall Street’s expectations due to cost cuts and strong refining margins.

The company’s pain was all the more stark given that larger rival Exxon Mobil Corp (XOM.N) not only posted stronger-than-expected results on Friday but also had not announced any massive layoffs.

Chevron plans to spend $25 billion to $28 billion next year and expects to further slash spending in 2017 and 2018, an acknowledgment that it does not expect oil prices to rebound soon.

The San Ramon, California-based company also said it would lay off 6,000 to 7,000 workers.

Under pressure from Wall Street, Watson committed to keeping Chevron’s dividend, now at $1.07 a share.

“Our first priority is to maintain the dividend and grow it as a pattern of earnings and cash flow permit,” he said.


The company is spending more than $20 billion on five new projects it hopes will boost production 20 percent by 2017.

Two of them, the Gorgon and Wheatstone liquefied natural gas facilities in Australia, should open next year, Watson said. Such a step would help reduce construction costs and alleviate concern on Wall Street, where analysts have grown anxious about overspending.

“We’re going to see disproportionately strong growth through 2017, frankly into 2018,” Watson said.

Yet he said Chevron would “pace” the timeline for the other large LNG projects, in western Canada and Angola.

In the Gulf of Mexico, the Big Foot deepwater oil project is now not expected to produce any oil at least through 2017, Watson said. Big Foot, which was slated to be online this year, had a major setback last summer with the sinking of at least nine giant tendons, designed to connect the platform to the sea floor.


Chevron reported net income of $2.04 billion, or $1.09 per share, compared with $5.59 billion, or $2.95 per share, a year earlier. Analysts on average were expecting 76 cents per share, according to Thomson Reuters I/B/E/S.

Production fell 1 percent to 2.5 million barrels of oil equivalent per day.

Profit at the downstream unit, which is smaller than the oil-producing part of the company and which makes gasoline, lubricant and other refined products, jumped 49 percent. Refiners tend to be more profitable when oil prices are low.

Chevron cut operating and administrative expenses by 7 percent during the quarter, but it was not enough to fully offset the price drop.

Shares of Chevron were up 1.9 percent at $91.54 in afternoon trading.

(Reporting by Ernest Scheyder; Editing by Terry Wade, Phil Berlowitz and Lisa Von Ahn)

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Stocks slip but post best month in four years

U.S. stock indexes finished with their strongest monthly performances in four years on Friday, even as they dipped for the day amid a mixed bag of earnings reports.

For October, all three major indexes posted their biggest percentage increases since October 2011, with the SP 500 rising 8.3 percent, led by energy and materials, while a measure of volatility fell.

On Friday, CVS Health (CVS.N) fell 4.8 percent to $98.78 after a disappointing profit forecast for 2016.

The SP 500 energy index .SPNY was the best performing sector, rising 0.7 percent. Exxon (XOM.N) rose 0.6 percent and Chevron (CVX.N) 1.1 percent after better-than-expected results.

Investors will be looking at data over the next several weeks, including next Friday’s employment report, for clues about the economy’s health. The Fed signaled on Wednesday a rate hike in December was still possible.

“The market is being held a little bit hostage,” said Jeff Buetow, chief investment officer at Innealta Capital in Austin. “It would be nice to have some clarity once and for all of what monetary policy is going to do over the foreseeable future.”

The Dow Jones industrial average .DJI fell 92.26 points, or 0.52 percent, to 17,663.54, the SP 500 .SPX lost 10.05 points, or 0.48 percent, to 2,079.36 and the Nasdaq Composite .IXIC dropped 20.53 points, or 0.4 percent, to 5,053.75.

For the month, the Dow gained 8.5 percent, while the Nasdaq rose 9.4 percent.

In a signal of a return to calm in markets, the CBOE volatility index .VIX fell 38.5 percent in October – its largest monthly percentage decline on record. “We’re not likely to see another month like this anytime soon,” said Marshall Gause, chief executive of Geneva Fund Partners in Denver. “This month was a rebound off the lows.”

For the week, the Dow inched up 0.1 percent, the SP increased 0.2 percent, and the Nasdaq rose 0.4 percent. The SP posted its fifth straight week of gains, its longest such streak this year.

The SP healthcare sector index .SPXHC rose 3.1 percent for the week, the best weekly gain since March, spurred by strong pharmaceutical earnings.

Shares of drugmaker AbbVie (ABBV.N) jumped 10.1 percent Friday to $59.55, the biggest positive driver for the SP 500 index, after better-than-expected profit and a strong long-term outlook.

Consumer staples .SPLRCS slipped 1.1 percent. U.S. consumer spending barely rose in September and the University of Michigan’s index on consumer sentiment came in below expectations.

The SP financial sector index .SPSY fell 1.4 percent, with Genworth Financial (GNW.N) tumbling 10.3 percent to $4.68 after results.

U.S.-listed shares of Valeant Pharmaceuticals (VRX.N) dropped 15.9 percent to $93.77, its lowest since July 2013, after cutting all ties with specialty pharmacy Philidor.

LinkedIn (LNKD.N) shot up 11 percent to $240.87 while Expedia (EXPE.O) jumped 7.3 percent to $136.30 after results beat estimates.

NYSE advancing issues outnumbered declining ones 1,647 to 1,404, for a 1.17-to-1 ratio; on the Nasdaq, 1,638 issues fell and 1,161 advanced, for a 1.41-to-1 ratio favoring decliners.

The SP 500 posted 18 new 52-week highs and 4 lows; the Nasdaq recorded 49 new highs and 78 lows.

About 7.4 billion shares changed hands on U.S. exchanges, above the 7.1 billion average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Caroline Valetkevitch and Rodrigo Campos in New York and Abhiram Nandakumar in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski)

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Valeant says Philidor pharmacy shutting down as it cuts ties

Valeant Pharmaceuticals International Inc (VRX.N)(VRX.TO), seeking to allay investor concerns about its business practices, said Friday it is cutting ties with a specialty pharmacy called Philidor Rx Services accused of helping it inflate revenue.

The news failed to stem Valeant’s sliding share price, which lost another 12 percent on Friday even after Bill Ackman, whose hedge fund owns a 6.3 percent stake in Valeant, told investors the shares were “tremendously undervalued.”

Valeant said it would bolster its internal investigation into the matter by adding to the team an outside lawyer who once worked in the U.S. Department of Justice.

The drugmaker’s move comes amid growing pressure from investors after Valeant disclosed two weeks ago that it was under investigation by the U.S. government over its patients’ assistance program and drug pricing and distribution.

Influential short-seller Citron Research was one of the first critics to call the company out on Philidor in an Oct. 20 report, saying Valeant was using the pharmacy set-up to inflate revenue. Valeant has denied any wrongdoing.

Citron tweeted Friday that Valeant shares have a better chance of going to zero than Herbalife Ltd (HLF.N).

Citron said: “$VRX has a better chance of going to 0 than $HLF EVER will. Citron to update full story on Monday. Dirtier than anyone has reported!!”

Valeant disclosed this week that it had paid $100 million for an option to buy Philidor. Bloomberg on Thursday detailed wrongdoing in its processing of medical claims, building on earlier reports about business practices.

Later Thursday, three top U.S. drug benefit managers, who administer prescription medicine benefits for health plans, said they would no longer work with the pharmacy. Express Scripts (ESRX.O), CVS Health (CVS.N) and OptumRx, part of UnitedHealth Group Inc (UNH.N), said they made the decision after conducting audits of the pharmacy.

Philidor will be shutting down operations as soon as possible, Valeant said.

Bill Ackman, whose Pershing Square Capital Management has a 6.3 percent stake in Valeant, told investors on Friday that “life will go on” for the company as it continues to sell high-demand products like Bausch Lomb contact lenses.

“We think the Valeant business is quite robust,” Ackman said on a widely attended conference call. He said shares are undervalued.

The hedge fund swept up 2.1 million additional Valeant shares last week as the stock plummeted, making Pershing Square the company’s second-largest shareholder, leapfrogging asset manager T. Rowe Price.

Valeant shares fell 12.4 percent Friday to $97.61, their lowest in about two years and well below their Aug. 5 high of $263.70. They have given up almost half their value since the company disclosed the Philidor pharmacy distributed drugs making up 6-percent of Valeant revenue this year.

Bloomberg reported on Thursday that Philidor has altered doctors’ orders to wring more payment out of insurers, according to former employees and an internal document, which details how to proceed with a prescription for certain Valeant drugs after they have been rejected.


Valeant first disclosed less than two weeks ago that it was using a pharmacy called Philidor, which works with a network of pharmacies including one called RO Pharmacy that is also involved in lawsuits with Valeant over nonpayment and other issues.

“We have lost confidence in Philidor’s ability to continue to operate in a manner that is acceptable to Valeant,” Valeant Chief Executive Michael Pearson said in a statement. “Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right.”

Valeant said that former U.S. Deputy Attorney General Mark Filip had been appointed to advise a committee that it formed earlier this week to look into the allegations related to the company’s association with Philidor. Filip works for Kirkland Ellis.

Philidor accounted for 6.8 percent of Valeant’s total revenue in the third quarter and 5.9 percent so far this year. The drugmaker said it intended to develop a plan to ensure minimal disruption to patients’ access to drugs.

Valeant shares have lost more than half their value since September as the company has come under attack on several fronts. U.S. prosecutors are also investigating the company over drug pricing, a hot issue in the U.S. presidential campaign.

Valeant was until recently one of the most popular healthcare stocks among investors, with its model of rapid acquisition-driven growth. Its abrupt slide from market darling to a company under fire has weighed heavily on ValueAct Partners and Pershing Square, two well known U.S. activist funds.

(Additional reporting by Ben Hirschler in London and Shivam Srivastava in Bengaluru; Editing by David Goodman and Nick Zieminski)

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FINRA says CEO Richard Ketchum to retire in 2016

The Financial Industry Regulatory Authority (FINRA), Wall Street’s industry-funded watchdog, said on Friday that Chairman and Chief Executive Richard Ketchum will retire in 2016.

FINRA did not name a replacement for Ketchum, 64, who has led the regulatory body since March 2009, when its former chief, Mary Schapiro, left to head the U.S. Securities and Exchange Commission. However, Ketchum expects FINRA’s board to select a successor by next summer, he said in an interview.

Under Ketchum, FINRA brought in stricter penalties against securities brokerages and individual brokers who commit fraud.

After criticism that FINRA’s penalties were too often financially insignificant for wrongdoers, FINRA increased the amounts of its fines by indexing them to the Consumer Price Index (CPI).

Ketchum will stay in charge until a date set by FINRA’s board. He will leave feeling upbeat about the regulator’s beefed up use of technology to monitor Wall Street and find problem brokers, he said.

Ketchum, who has been outspoken about his belief that Wall Street firms and brokers should put clients’ interests ahead of their own, oversaw an expansion of FINRA’s free BrokerCheck system, where investors can research brokers’ credentials and disciplinary histories.

Brokers have argued against some of the changes, such as disciplinary infractions that are permanently visible to the public even when a broker leaves the profession.

Ketchum had also promoted FINRA as a possible self-regulatory organization for registered investment advisers, who are overseen by the SEC, but are examined far less frequently than brokers.

He formally backed off from the controversial idea in 2013, but continued to discuss the need for heightened oversight of investment advisers.

In May, Ketchum took aim at a U.S. Labor Department’s plan to reduce conflicts with brokers who offer retirement account advice and said the SEC was best positioned to design such a standard.

Ketchum has also been credited with notching up FINRA’s technology surveillance by hiring Steven Randich as chief information officer in March 2013.

Ketchum had worked with the SEC for 14 years until 1991, when he moved to the National Association of Securities Dealers, or NASD Inc. NASD and major portions of NYSE Regulation consolidated in 2007 to become FINRA.

Ties between the SEC and FINRA were strengthened with the hiring of long-term SEC lawyer Robert Colby as FINRA’s chief legal officer and the appointment of Stephen Luparello as head of markets and trading.

(Reporting by Rachel Chitra in Bengaluru and Suzanne Barlyn in New York; Editing by Ted Kerr, Savio D’Souza and Richard Chang)

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United Airlines halts airport outsourcing until 2017

United Airlines on Friday promised it would not outsource more jobs in baggage handling or customer service at least until 2017, aiming to reduce uncertainty for workers after announcing about 1,150 job cuts in February, according to an internal memo seen by Reuters.

The decision resulted from employee feedback on how to improve the airline, solicited in September when Oscar Munoz became chief executive of United Continental Holdings Inc (UAL.N), according to the note from Jon Roitman, United’s senior vice president for airport operations.

The moratorium is not indefinite because “it’s impossible to know what the airline environment will be in three-five years,” the note said. It lasts until December 2016, when the contracts of those work groups can formally be amended.

It was not immediately clear how many jobs, if any, United had intended to outsource before issuing the moratorium.

(Reporting By Jeffrey Dastin in New York)

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Boeing says reviewing U.S. briefing on bomber contract loss

WASHINGTON Boeing Co (BA.N) said it was briefed on Friday by the U.S. Air Force about its selection of Northrop Grumman Corp (NOC.N) to build a next-generation long-range strike bomber and will decide whether to protest the contract award “in the coming days.”

Boeing, which had teamed up with Lockheed Martin Corp (LMT.N), told its staff in a memo on Tuesday that it would “rigorously deliberate” whether to fight the tender outcome, with a decision likely within two weeks.

Boeing spokesman Todd Blecher said the Air Force briefing with the Boeing-Lockheed team had been completed, but declined to provide any details on what the companies were told, or who participated.

“We will spend the coming days reviewing what we were told about how the competition was scored. After that, we’ll be in position to decide on our next steps,” he said.

The U.S. Air Force declined comment.

Under federal law, companies have 10 days after an agency debrief to file with the U.S. Government Accountability Office, an arm of Congress that rules on federal contract protests. The GAO then has 100 days to evaluate the case.

The Air Force on Tuesday selected Northrop, maker of the stealthy B-2 bomber, to develop and build the new bomber, a deal analysts value at up to $80 billion.

Boeing and Lockheed immediately said they wanted answers on how the competition was scored with regard to price and risk.

Air Force officials have declined to comment publicly about how the two bids compared. They said only that Northrop’s bomber represented the “best value for the nation” and would cost $511 million per plane, on average, in 2010 dollars, well below the program’s cost cap of $550 million per plane.

(Reporting by Andrea Shalal; Editing by Alan Crosby)

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