By Carl O'Donnell
(Reuters) - Valeant Pharmaceuticals is reaching out to potential buyers for its speciality contact lens manufacturing division, Paragon Vision Sciences, amid scrutiny from the Federal Trade Commission, according to two people familiar with the matter.
A sale of Paragon, which Valeant's Bausch & Lomb unit purchased earlier this year for an undisclosed sum, would deal a blow to the speciality pharmaceutical company's attempt to consolidate the market for gas permeable contact lenses, a type of rigid lens popular among people with keratoconus, a thinning disorder of the cornea, among other eye diseases.
The FTC has been investigating Valeant for potentially cornering a portion of the lens market.
It is unclear whether the process will result in a sale and the identity of the potential buyers is unknown. A spokesperson for Valeant said the company does not comment on market rumours or speculation and noted that Valeant is cooperating fully with the FTC.
The FTC probe is one of several government reviews of Valeant's business, which is also under scrutiny from lawmakers over steep price increases on its pharmaceutical products and from investors over its recently-disclosed ties to a speciality pharmacy that accounted for a significant portion of its overall sales.
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Shares of Valeant have dropped more than 60 percent since it came under criticism for drug price hikes in September. The stock has regained ground more recently as the company sought to reassure investors it will put to rest questions about its practices.
As Reuters previously reported, Valeant has been using market power obtained through the purchase of Paragon to raise prices for the raw materials used in contact lens manufacturing, known as buttons, in some cases by more than 100 percent.
At the same time, Valeant had made attempts to buy up a significant portion of the laboratories that create finished lenses, which would position the company as the dominant player in the gas permeable lens space. Finished lens laboratories rely on buttons produced by Valeant as manufacturing inputs.
In selling Paragon, Valeant would also lose its complete monopoly on a certain kind of gas permeable lens, known as an Ortho-K lens, which is worn overnight and treats myopia. Reuters previously reported that Valeant's control of the Ortho-K market was the primary focus of the FTC investigation.
If Paragon were an independent company, it would control about half the market for Ortho-K lenses, according to two people familiar with the matter.
Alongside the sale process, Valeant is taking another, less dramatic approach to placate the FTC by separating the operations of Paragon Vision Sciences from Valeant's other speciality contact lens manufacturer, Boston Products, according to people familiar with the matter and communications with laboratories reviewed by Reuters.
The documents show that Valeant has been requesting that laboratories begin dealing with Paragon and Boston Products separately for billing purposes, reversing a previous attempt to consolidate the two companies into a single entity.
Some of the laboratories had already responded to the price hikes by shifting their business to some of Valeant's competitors in the lens manufacturing space, such as Contamac.
According to one of the sources familiar with the matter, who requested to remain anonymous, splitting Paragon from Boston Products could help at least one of them rebuild lost relationships with the laboratories by shifting the blame for price hikes to the other. Valeant has already partially retracted its price increases.
"The only way for them to (recover sales) would be to blame the other for being the culprit of the flawed strategy," the source said.
(Reporting by Carl O'Donnell; Editing by Michele Gershberg, Bernard Orr)