Valeant Plummets After Democrats Seek Subpoena on Drug Price Hikes

  • Company has same business model as Turing, lawmakers say
  • CEO Pearson tells employees government pressure won't hurt

Valeant Pharmaceuticals International Inc. shares fell the most in four years after Democrats in the U.S. House asked to subpoena the company for documents relating to drug price increases, the latest move by politicians seeking to curb price hikes on drugs.

“We believe it is critical to hold drug companies to account" when they buy old drugs and raise their prices, 18 Democratic representatives wrote in a letter to Jason Chaffetz, the chairman of the House’s committee on oversight and government reform. They highlighted Valeant’s heart drugs Nitropress and Isuprel, whose prices increased by 212 percent and 525 percent the day that Valeant acquired the rights to sell them, the Democrats said.

Valeant’s shares have fallen for three straight days after Democratic presidential candidate Hillary Clinton said last week that she would reform the drug industry to protect consumers from price hikes. Clinton was responding to media reports on Turing Pharmaceuticals AG Chief Executive Officer Martin Shkreli, a former hedge fund manager who raised the price of a decades-old antibiotic 50-fold, to $750 a pill from $13.50 a pill, after acquiring it. Shkreli said last week he’ll lower the price of the drug though he still considers it a bargain.

Clinton outlined a plan that included a mandate on research and development spending, a proposal which could hurt companies like Valeant that rely on acquisitions to build a pipeline of drug candidates. Last year, Valeant spent $246 million on R&D, far less than companies of similar size, according to data compiled by Bloomberg.

“Valeant is using precisely the same business model as Martin Shkreli," the Democrats said in their letter to Chaffetz Monday. “Both appear to be engaging in the same business model of acquiring potentially life-saving drugs to maximize their own corporate profits."

Valeant shares fell 17 percent to close at $166.50 in New York. Shares of Endo International Plc, Mallinckrodt Plc, Horizon Pharma Plc, and Concordia Healthcare Corp. all fell more than 10 percent.

Valeant has increased the prices of newly acquired drugs through its acquisition of Salix Pharmaceuticals Ltd. as well. According to UBS research, Valeant more than doubled the price of a number of its drugs this year, tripling the price of cholesterol drug Fenoglide and kidney transplant drug Azasan and quadrupling the price of reflux drug Metozolv. Valeant pushed through those price increases on April 1, the day the company announced it had completed the Salix acquisition, UBS said.

CEO’s Letter

Laurie Little, a spokeswoman for Valeant, declined to comment on the Democrats’ letter, and the company didn’t immediately respond to comment on UBS’s figures. Mike Pearson, Valeant’s CEO, told employees Monday that the drug company’s business model doesn’t rely on large price increases and that increased pressure from politicians to curb government reimbursements won’t hurt the company.

“Valeant is well positioned for strong organic growth, even assuming little to no price increases," Pearson said in a letter to employees on Monday before the Democrats made their letter public. Reimbursements from U.S. government programs represent 15 percent of Valeant’s revenue, “lower than any other major pharmaceutical company," he said.

It’s unlikely that the Republican-led Congress will approve a law to increase government intervention in drug prices, Height Securities analyst Sumesh Sood said in a research note.

"We continue to believe the government’s role will be limited," he said.

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