Valeant Pharmaceuticals’ Novel Business Approach Made It a Wall Street Darling — Then a Pariah

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A drug deal gone bad.

Toward the end of 2014, Russell Reitz, a genial Southern California pharmacist and serial entrepreneur, decided it was time to sell his latest business. Reitz, in his 60s, had, during his 30-year career, collected a doctorate, several patents, and a respectable fortune. He’d started his newest venture, R&O Pharmacy, a few years before with his friend and business partner Robert Osbakken, leasing space in a low-rise office park about an hour northwest of Los Angeles. But then Osbakken was diagnosed with cancer and grew too sick to work. Reitz didn’t want to go it alone.

He contacted a broker and solicited several bids. Interest was limited. R&O wasn’t a retail business but a specialized dispensary for gastroenterology patients. With tinted windows and modest signage, it wasn’t the sort of place you’d go to for cough medicine. The highest offer came from a man named John Carne, who represented Philidor Rx Services, a rapidly growing network of mail-order dispensaries. His bid was modest, just $350,000.

Reitz had sold his previous firm for millions, but with an ailing business partner, he couldn’t wait for other options. He learned that, despite national ambitions, Philidor had not yet received a license from the California State Board of Pharmacy. So he agreed to sell, but on the condition that before Reitz stepped down, the company would obtain its own pharmacy credentials. They couldn’t use Reitz’s. Carne agreed, and in December 2014, Reitz signed a contract. “They would take over the lease, and I was retained to manage the business on salary for another 18 months” while Philidor got its own license, Reitz told me when I visited R&O’s office in November.

What should have been a routine deal was, in hindsight, the first step in the biggest and most bizarre business scandal of the past year, one that would immolate a Wall Street darling, permanently tarnish an $8 billion mutual fund, and evaporate $50 billion in market value. More than that, it would expose the new tradecraft of the pharmaceutical industry, which increasingly relies on technically legal but ethically dubious business practices to squeeze out profits at the expense of patients, insurers, and the American economy. This past fall, 32-year-old “pharma bro” Martin Shkreli — he of the Wu-Tang album and perp-walk hoodie — became the face of an industry that put profits over public health. But while Shkreli could be written off as an anomaly, the players Reitz was dealing with were not so easily dismissed. These companies, following the peculiar profit-maximizing logic of a single McKinsey consultant, are the future of the pharmaceutical industry.

R&O sits in an anonymous office park in Camarillo, California, facing a blank expanse of asphalt surrounded by pine trees. When I first visited, I found the door locked with Reitz (pronounced Ritz, like the cracker) seated inside alone. Clean-shaven, wearing a modest plaid shirt, with his frameless reading glasses nested in his salt-and-pepper hair, he did not look like an agent of capital destruction. His manner was detached, and as he walked me through the sordid tale of identity theft, price-gouging, and controversial billing practices, only once did his voice rise from its baseline register of California mellow.

The signs that something was off started early: Following the sale to Philidor, R&O was immediately inundated with thousands of prescriptions from doctors using Philidor’s mail-order service. Philidor would send R&O bulk orders of branded pharmaceuticals, and Reitz would dispense these to patients. Payment later arrived at the pharmacy in the form of paper checks from health insurers, with each check covering hundreds of patients. Twice a week, Reitz packaged these checks into a bundle and mailed them to Philidor’s headquarters in Pennsylvania. The total value of each bundle was usually over a million dollars. 

Patient volume was just part of it — the prescriptions that Philidor was filling were also extraordinarily expensive. Reitz, who specialized in complex treatments, was used to filling pricey prescriptions, but he had never seen anything like this. Pharmaceutical companies sometimes tried to justify high prices by pointing to the cost of intellectual-property development, but many of the drugs Reitz was dispensing were branded “combination” pharmaceuticals, consisting of two generic medicines rolled into one. Take Solodyn, a prescription-strength acne cream. “Any compounding pharmacist could earn huge, and I mean huge, profits selling this at $130,” Reitz told me. “Just take two raw powders, dissolve, and mix.” Philidor was selling Solodyn for more than $500 per treatment cycle.  

Most of the overpriced prescriptions R&O was filling were for simple dermatological conditions. In addition to Solodyn, there was Retin-A, another acne cream. There was Elidel, an eczema treatment. There was Jublia, a topical treatment for toenail fungus, with a list price of over $1,000 for an eight-milliliter bottle. It turned out that almost all of these drugs were being manufactured by the same company, a company that had, over the past few years, become one of Wall Street’s hottest stocks: Valeant Pharmaceuticals.

Valeant had a checkered history. The company was founded as ICN Pharmaceuticals in 1960 by a flamboyant Serbian entrepreneur named Milan Panic. Panic was known for the extravagant claims he made about the health benefits of his company’s drugs, for picking up sexual-harassment complaints, and for his brief stint as the first prime minister of post-socialist Yugoslavia. ICN was known for its continual underperformance. 

In 2002, ICN’s board of directors forced Panic out and the company was rebranded as Valeant. Valeant then lost money for five straight years. In 2007, the company’s chairman sought outside help from J. Michael Pearson, who ran the global pharmaceuticals wing of the ­McKinsey consulting group.

Pearson had no medical background, but in his 23 years at McKinsey, he had developed a reputation for blunt and brutally honest business advice. When it came to pharma, he had a radical philosophy. Historically, the typical pharmaceutical concern charged high prices for drugs while spending 20 percent of its budget on research and development, a model that had worked well. By the aughts, however, the returns from R&D had declined, so, Pearson advised, pharmaceutical companies should cut their research budgets accordingly and instead focus on acquiring proven drugs. The high prices, however, could stay. In fact, Pearson reasoned, they should be a lot higher.

Valeant’s directors loved this philosophy. They loved it so much they decided they wanted to hear it all the time. In 2008, they persuaded Pearson to become Valeant’s CEO and put his philosophy into practice. Pearson shut down most of Valeant’s lines of research and laid off most of its scientists. He also aggressively raised the prices of many of Valeant’s drugs, sometimes by three or four times. The company began turning impressive profits.

This unorthodox approach attracted the interest of the Sequoia Fund, an $8 billion mutual fund founded by a business-school classmate of Warren Buffett. Sequoia had outperformed the S&P 500 for more than four decades, although most of this success could be attributed to a single investment: its outsize position in Buffett’s Berkshire Hathaway, which had appreciated from $70 to $200,000 a share. But by 2010, opportunities for further growth seemed limited—Buffett himself had said as much. Early that year, fund managers started selling Berkshire to buy Valeant.

Their position grew after Pearson announced he was selling Valeant to Biovail, another pharma company Sequoia owned stock in. Based in Ontario, Biovail was also a historical loser — the Globe and Mail once called it “corporate Canada’s favorite punching bag” — and its drug portfolio was unimpressive. But it had one asset that interested Pearson: a shell company in Barbados that could shelter Valeant’s intellectual-property assets from the IRS.

From a legal perspective, it was Biovail that acquired Valeant. In all other ways, Pearson retained control. The new company kept the Valeant name, and although it was technically domiciled in Canada, the company’s operations were run out of offices near Pearson’s house in New Jersey. Known as an “inversion,” this scheme reduced the company’s effective U.S. tax rate to less than 5 percent. Valeant was the first publicly traded pharmaceutical company to ever pull it off.

Valeant began to grow explosively. By the end of 2010, the stock had appreciated by 78 percent. This in turn made it Sequoia’s largest holding, supplanting Berkshire Hathaway. Valeant’s low tax bill and scant R&D budget freed up large amounts of cash. Pearson used this money to acquire other firms, running the Valeant playbook: Buy a new company, stuff its patents and trademarks in a tax shelter, fire scientists, dispose of underperforming drugs, and dramatically jack up prices for the best sellers.

Over the next four years, Valeant stock went up 1,000 percent. The company made more than 30 acquisitions and, following its 2013 purchase of the contact-lens manufacturer Bausch & Lomb, moved into medical devices as well. The pace of life in Valeant’s C-suite was blistering, and the company was always closing a deal—at the end of 2014, it completed an acquisition at 8 p.m. on New Year’s Eve.

By the start of 2015, Sequoia’s investment in Valeant represented 20 percent of its assets. This concentrated holding was an issue for the board members of Ruane, Cuniff & Goldfarb, the company that ran the Sequoia Fund. In particular, Sharon Osberg, Warren Buffett’s friend and bridge partner, worried about Valeant’s business practices and its expensive valuation. Osberg spoke to Buffett daily, and she shared these concerns with the Berkshire boss. Soon, Charlie Munger, Buffett’s business partner, was offering his unsolicited opinion on Valeant. At a March 2015 shareholder meeting in Omaha, Munger said he was “holding his nose” and opined that debt-fueled acquisitions were not a sustainable strategy for growth. He later added that he found Valeant’s pricing “deeply immoral.”

When Sequoia hosted its own annual meeting in May, the fund’s manager Robert Goldfarb defended the fund’s investment against Munger’s assessment. While Sequoia had some reservations about how the company accounted for its acquisitions, Goldfarb said, it had complete faith in Pearson. Above all, he could be relied upon for complete disclosure. He’d built his entire reputation on blunt, straight talk.

Munger’s comments exposed a rift in the value-investing community, but didn’t affect Valeant’s stock. It continued to rise, hitting an all-time high on August 5 of $263 per share, 15 times what Sequoia had originally paid for it. A week later, a Bloomberg News article observed that, owing almost entirely to this one investment, Sequoia had outperformed both the S&P 500 and 99 percent of all other American mutual funds. Berkshire Hathaway, meanwhile, had lagged. Sequoia had sold it at just the right time.

By the end of February 2015, it was clear to Reitz that something was wrong. Tiny R&O Pharmacy had now filled nearly $20 million worth of prescriptions in just a few months. Even with the large number of new patients, and the markups as high as 500 percent, he couldn’t account for all that growth. The numbers didn’t add up.

In March, Reitz received an audit from one of his pharmacy benefit managers. A uniquely American invention, benefit managers work with the health insurer to control costs. The audit showed that, in addition to the business Reitz oversaw personally, R&O was filling thousands of prescriptions all over the country. These prescriptions had been filled with Reitz’s name and pharmacist-identification number, but they were dispensed to patients that Reitz had never heard of. Many were for medications that R&O didn’t carry, and a few were even backdated to before R&O had been sold.

When Reitz called Philidor to object, the Philidor representative told him not to worry, as the company’s lawyers had signed off on this practice. Reitz rarely raised his voice, but now he found himself yelling into the phone, demanding to see a signed legal document authorizing the use of his credentials. “Send me the documents!” he said loudly. The Philidor rep promised the company would.

According to Reitz, it never did. Instead, it continued using his name to fill scripts all over the country. It also pressured Reitz to sign off on the audit, which it needed to get paid. He refused. Signing off on the payer audit meant Reitz would be retroactively approving the dispensation of the drugs. “I was fearing both civil and criminal liability,” he told me. “I could lose my pharma license.” Eventually, Philidor stopped pestering him about it. Instead, it got another Philidor employee to sign the audit.

Meanwhile, patients were complaining about Philidor’s business practices. To begin with, the co-payments on some of these drugs were absurd: $100 for an eight-milliliter bottle of toenail-fungus remover? Worse yet, Philidor was enlisting patients in an unadvertised “auto-refill” subscription program that automatically delivered more toenail-fungus remover and charged them ongoing co-pays to do it. Getting unsubscribed from this program was, according to patient complaints, almost impossible.

As summer began, Reitz’s employees began to sense the stress that their boss was under. One of them, on his own initiative, began researching Philidor. He soon found something that Reitz had missed. In 2013, before Reitz had ever heard of it, Philidor had filed an application with the California state pharmacy board. But the company’s corporate officers had provided the wrong details, and its application had been denied. The main purpose of the R&O purchase, it now seemed, was to get Reitz’s credentials. It was using Reitz as a front.

Like the managers of the Sequoia Fund, Bill Ackman tended to buy concentrated stakes in just a few companies and hold his positions for many years. And, like Sequoia, he had, as the director of Pershing Square Capital Management, a large amount of capital under his control — about $20 billion. Unlike Sequoia, Ackman didn’t always look for good managers. Sometimes he looked for bad ones.

Ackman was an “activist” investor. That meant he invested in companies that were destroying shareholder value through dumb decisions. When he found one, he bought a large stake in it and forced it to change course. This confrontational approach, combined with his good looks, had made him an investment-media icon. And his successful investments with Pershing, combined with the fees he charged investors, made him one of the wealthiest people on Earth. 

Ackman had been watching Valeant’s rise and believed Pearson was on to something. In February 2014, the two began cooperating, buying shares of Allergan, the maker of Botox. Allergan’s core product was sound — injecting poison into the faces of celebrities was good business — but it had spent the last decade redistributing the Botox money into an expensive research-and-development campaign that had failed to deliver. It was exactly the sort of thing Pearson had warned about back at McKinsey.

Ackman believed that Allergan would be worth more if the company scaled down its research program and focused on selling Botox. He wanted Valeant to make a bid for Allergan. Pearson, in the midst of his acquistion spree, agreed.

The two men announced their campaign during a flashy public presentation on April 22, 2014. Ackman addressed the media with a practiced gloss. Pearson was less polished as he laid out the usual Valeant strategy: If he was put in charge of Allergan, he would fire most of its scientists, raise the company’s drug prices, and move its intellectual property to Valeant’s offshore tax shelters. As he spoke, Ackman looked on, enchanted. Ackman is a contrarian, so perhaps it was Pearson’s lack of adorability that made Ackman love him.

The plan to buy Allergan failed. The company’s management objected to the proposed R&D cuts and sold itself instead, also in an inversion, to the Irish firm Actavis. Still, Ackman turned a neat profit from the play. At the beginning of 2015, he bought a stake in Valeant directly, promoting the virtues of Pearson to whoever would listen.

In 2015, Forbes added Pearson to its list of billionaires. Annual reports listed his salary as just $1.75 million a year, but he was granted enormous bonuses in the form of stock compensation. In essence, he was paid like a hedge-fund manager. In 2014, Pearson took out a $100 million loan from Goldman Sachs, using his stock holdings as collateral. He then donated $30 million to his alma mater, Duke. His string of successes brought accolades from the business press, but Pearson remained a cipher. What subculture of the business world did he really belong to? McKinsey — cultish, corporate, and brutally honest? Hedge funds — contrarian, arrogant, and overpaid? Or Graham and Doddsville bargain hunters — wonky, self-deprecating, and deliberately out of fashion? It was difficult to tell.

In February, Valeant completed its largest acquisition to date, purchasing the gastrointestinal specialty firm Salix Pharmaceuticals for $11 billion after a fierce bidding war. Of the six contenders for the stock, all had either already performed tax inversions or had plans to do so. Ackman praised the deal, noting the tax efficiencies.

In May, following Munger’s negative comments, Ackman joined Sequoia in defending Pearson. Valeant was facing increasing public criticism for its price-gouging and tax avoidance, but it wasn’t Pearson’s job to make people happy. Nor was it his job to pay his fair share in taxes or to cure cancer. It wasn’t even his job to keep patients healthy. His job was to make the stock go up. He had done so. Ackman compared him to Warren Buffett.

Other hedge-fund managers began crowding into Valeant, pushing prices to new heights. An analysis of shareholder filings by the research company Novus revealed that by the end of June, 96 different hedge-fund managers owned stakes in Valeant, including John Paulson and George Soros. Street traders had a term for this kind of stock: a “hedge-fund hotel.”

Still, a smaller contingent of investors was taking Munger’s side. There were a number of reasons to be suspicious about Valeant. The spate of acquisitions and the use of offshore holding companies had made the company’s corporate structure extraordinarily complex. The company had shut down its Barbados office and moved its intellectual property to shell companies in Luxembourg and Ireland, but the majority of its revenue came from the United States, where its profit margins were three times higher than anywhere else — an invitation for scrutiny from the IRS. Additionally, Valeant had taken on a large amount of debt. Most of this debt came cheaply, but at the beginning of 2015, the company was paying a billion dollars a year in interest payments. Then, in April 2015, Howard Schiller, the CFO who had organized the financing on these deals, unexpectedly quit his post.

There was something else odd about Valeant. The drugs it was acquiring weren’t exactly blockbusters. Valeant preferred “durable” products, meaning the drugs it was acquiring were already off-patent or would be shortly. For the most dedicated Valeant bears, this was the big question: How, exactly, in the face of increasing generic competition, was the company managing to charge the exorbitant prices that it did?

In July, Reitz took a drastic step. He stopped sending Philidor its checks. Instead, he confiscated them and hid them in a secure place. (He wouldn’t tell me where, although he did say “They’re not underneath my mattress.” His lawyer would later reveal that some of the checks had been cashed in an R&O bank account.) Hundreds of patient complaints, a dozen exasperated letters, and a heated phone call with a corporate representative had not gotten the company’s attention. This did.

Philidor began to send Reitz emails, demanding he remit its money. Reitz demanded that Philidor stop using his credentials and explain why it hadn’t told him about its rejected pharmacy application. Locked in a standoff, the exchange escalated. “I have been asked several times now to sign off on payer audits that reflect these types of transactions,” Reitz wrote. “I am not aware of any authority that would permit these types of practices.”

At the end of August, Reitz closed the doors on R&O and let his employees go. Philidor was still using his credentials, and he couldn’t bear the risk any longer. By now he had amassed more than $20 million in payments. This was Philidor’s money, theoretically, but the checks were made out to R&O. Until Philidor transferred R&O’s pharmacy license out of his name, he was keeping them. He received numerous phone calls from Philidor representatives, as well as a tense visit to his office, demanding that he turn the checks over. With each refusal, he was transferred further up the corporate ladder. Soon, he was talking to Andrew Davenport, Philidor’s CEO. Reitz said no to him too.

Finally, in September, Davenport referred him to the man who seemed to be in charge: Robert Chai-Onn, the chief legal counsel of Valeant. In early September, Chai-Onn mailed a pointed letter to Reitz, demanding he turn over the money he was hoarding. “Dear Mr. Reitz,” Chai-Onn wrote, “It has come to our attention that R&O Pharmacy has outstanding invoices to Valeant Pharmaceuticals reflecting gross invoiced amounts due of $69,861,343.08. Valeant is contacting you so that you may take the requisite steps to ensure immediate payment.”

This was an extraordinary development. Reitz had long suspected there was some kind of relationship between Valeant and Philidor. Now he had concrete proof. The letter from Chai-Onn indicated that Valeant, the pharmaceutical industry’s answer to Berkshire Hathaway, was overseeing Philidor, a shady mail-order pharmacy inappropriately filling prescriptions for its drugs. And Chai-Onn, a member of Valeant’s C-suite, was acting as a collection agent for the whole scheme. Chai-Onn’s letter made clear that the checks Reitz had been bundling and sending to Pennsylvania, once cashed, were showing up as revenue in Valeant’s quarterly reports to investors. In Reitz’s view, his identity had been stolen, and Wall Street’s pharmaceutical darling was using it to turn a profit.

On October 6, 2015, Reitz sued Valeant. There were two possible options, his lawyer wrote in his initial complaint. First, Valeant was engaged in a massive conspiracy to defraud. Second, Valeant itself was being defrauded. The lawyer wasn’t sure which. Exhibit A in the complaint was Chai-Onn’s letter. Valeant filed a counterclaim against Reitz, portraying him as a rogue agent who took delivery of millions of dollars of product without paying for it. A spokesperson from the company denied all claims of fraud.

Even before Reitz’s lawsuit, Valeant was encountering problems. In September, news broke that Martin Shkreli, the CEO of the newly formed Turing Pharmaceuticals, had acquired the rights to a little-used toxoplasmosis drug named Daraprim and was raising its price from $13.50 to $750 a pill. The headlines caused an uproar. In response, Hillary Clinton’s campaign tweeted: “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on.”

The tweet spooked Valeant investors. Shkreli had no connection to the company, but he was copying their business model. Then, in early October, the New York Times profiled a retired Michigan carpenter whose co-pay had quintupled after Valeant jacked up the price of his liver drug. The next week, Valeant announced it had received subpoenas from U.S. Attorneys in Massachusetts and New York related to a probe of its pricing practices.

Then the bomb went off. Roddy Boyd, a journalist with the Southern Investigative Reporting Foundation, found the court filing containing Chai-Onn’s letter to Reitz. On October 19, he published a long account of Philidor and Valeant’s dealings with the pharmacist. The story was picked up by a short seller named Andrew Left, who runs a one-man firm called Citron Research. (Its corporate logo is a lemon.) Left — probably misreading both Boyd’s story and Reitz’s email — claimed in his newsletter that Valeant was engaged in sales fraud to book false revenue and compared the company to Enron. “PHANTOM ACCOUNTS,” he wrote.

Valeant’s stock plummeted. The Sequoia Fund’s profits were wiped out for the year. So were Ackman’s. On October 26, the company organized an emergency investor conference call, during which Pearson attempted to allay investor concerns. The revenues from Philidor were real, he said, though the company was not a subsidiary of Valeant. Nevertheless, he conceded, Valeant was Philidor’s only customer. And Valeant had paid the company $100 million for an option to acquire it. The terms of this deal meant that Philidor’s sales were rolled into Valeant’s accounting, and therefore Valeant reported its consolidated earnings to the SEC as if the two were one.

This confusing explanation was not the kind of straight talk Valeant investors were accustomed to. So did Reitz work for Valeant or Philidor? Pearson seemed to be saying that legally, Philidor was Reitz’s employer, but that financially, Valeant was. After the conference call concluded, the stock continued to fall.

Why did Valeant need Philidor, anyway? Why not sell its drugs directly through retail pharmacists? The answer was that without Philidor, patients would never pay for Valeant’s overpriced drugs. Insurers and independent pharmacists both understood that Valeant was price-gouging and encouraged patients to accept generic alternatives. Philidor provided a distribution channel that avoided the helpful pharmacist. Patients were prescribed Valeant drugs at the doctor’s office, then offered coupons to cover their co-pay if they routed their prescriptions through Philidor. They never set foot in a pharmacy at all.

After a patient was prescribed a Valeant drug, an astronomical receivable was sent to the patient’s insurer. Sometimes it would pay it. More often it wouldn’t. If it did, Philidor would cash the check, then kick the profits upstairs to Valeant. If it didn’t, a protracted negotiation began, as Philidor representatives submitted various bids to try to figure out how much the insurer was willing to pay, which in most cases was likely a lot less than the listed price but still high enough to turn a healthy profit.

On October 30, Valeant announced it was cutting all ties with Philidor and that the impact on earnings would be significant. By the first week of November, Valeant was down 70 percent from its peak. Sequoia experienced large investor outflows, and two of its directors resigned, including Osberg, Buffett’s bridge partner. Ackman’s fund went sharply negative.

Nevertheless, Sequoia stuck with its investment. In a letter to investors, Sequoia’s manager Goldfarb praised Pearson and contended that — Philidor notwithstanding — he remained a valuable dispenser of much-needed straight talk. After lamely defending the research pipeline of a company that had fired nearly all its scientists, he came to a remarkable conclusion: “One lesson of recent events is that sometimes doing everything legally permissible to maximize earnings does not create shareholder value.”

Investors continued to hammer Valeant. One of the sellers was CEO Mike Pearson himself. The loan he’d taken from Goldman Sachs to donate money to Duke had been collateralized with his holdings in Valeant stock, and, as the stock’s value plummeted, that collateral dwindled. On November 6, Goldman sold these escrow shares to pay off the loan’s remaining balance. Pearson commented on the forced sale with characteristic lack of affect: “It was not my desire that shares be sold now.” 

Three days later, in a conference call with Pershing investors, Ackman defended his position in the stock. He, too, was sticking with Valeant. When an investor raised concerns about Valeant’s sizable debts, Ackman conceded that Valeant was the most highly leveraged stock he’d ever owned. 

That debt can be added to a growing list of Valeant’s woes: There’s the possible criminal probe into its relationship with Philidor; price-gouging subpoenas from the U.S. Attorney’s offices in two states; a civil insider-trading lawsuit brought by former Allergan shareholders over its involvement with the failed Ackman deal; an antitrust probe into its control over certain portions of the contact-lens market; the unplanned demise of a critical distribution network; and the unwanted attentions of presidential candidates searching for a villain.

Then, on Christmas, Pearson was hospitalized with a severe case of pneumonia. Four days later, Valeant announced that Pearson would be taking a medical leave of absence. In the interim, the company would be run by a management triumvirate that would in turn be monitored by a second triumvirate, drawn from the company’s board. Following the announcement of this confusing structure, the stock fell once again. On January 6, the company revised the structure, naming former CFO Howard Schiller interim CEO.

Still, on Wall Street there’s always a bull case. Having reached the end of its acquisition spree, the company now manufactures over 1,000 different product lines. Its two most prominent investors have stuck with it — in fact, during the recent downturn, Ackman nearly doubled his position. In late December, the company struck a deal with Walgreens to replace the lost Philidor sales channel. Valeant stock closed the year fluctuating near $100 a share — down almost two-thirds from its peak, but still up more than five times since Pearson assumed control.

In a larger sense, though, the fate of Valeant may not matter. Pearson’s strategies — tax inversions, decreased R&D, and shameless profiteering — are no longer the berserk ideas of some left-field consultant but standard practice for the entire industry. Ironically, one of the most trenchant critics of this development is former Biovail CFO Brian Crombie, the man who oversaw the original tax shelter in Barbados. “The logical extension of what’s happened is that there should be no American pharmaceutical companies and no R&D,” Crombie told me. “But they should do all their sales in America.”

On November 23, Pfizer, America’s largest pharmaceutical firm, announced its intention to merge with Allergan, the manufacturer of Botox that Valeant had sought to acquire. The deal was a clone of Valeant’s “acquisition” by Biovail. This time, Allergan, now based in Ireland and offering an attractive tax shelter for on-patent drugs, will “acquire” the much larger Pfizer, with the resulting company keeping the Pfizer name and management structure. The new Pfizer will be able to extract massive profits from the American health-care system while paying almost nothing in return. From an economic perspective, the inverted modern pharmaceutical company is a rational wealth-maximizing actor, but in medical terms it is something else: a parasite.

At the end of my visit to R&O last November, Reitz followed me out of the pharmacy. It was three in the afternoon on a Monday, but he was already closing up shop. The Philidor scandal had left R&O irremediably tainted, and the pharmacy benefit managers had terminated their relationships with the company. Reitz was continuing to dispense a few prescriptions left over from summer, sometimes delivering them by hand, but the business was effectively doomed.

Still, Reitz wasn’t a victim. He was too canny for that. Most targets of identity theft go to the police. Reitz instead withheld his employer’s unlicensed profits and cashed them in his own accounts. Ultimately, this led to the demise of Philidor and the dissolution of Reitz’s contract, but it also put him at significant legal risk.

If Reitz had failed in his due diligence on Philidor, it, too, had failed in researching him. Beneath the serene disposition was a stubborn man, whose intransigence and practical shrewdness had exposed Valeant’s business practices and torched two Wall Street legends. “They tried to bulldoze me,” Reitz said. “Why they kept me around, I don’t know.”

*This article appears in the January 11, 2016 issue of New York Magazine.