Valeant Slumps as U.S. Prosecutors Issue Subpoenas on Prices

  • U.S. Attorneys in Massachusetts, Manhattan seek documents
  • Shares had rallied after Clinton, Sanders bypassed issue

Valeant Pharmaceuticals International Inc. shares dropped after U.S. prosecutors issued subpoenas seeking information on drug-pricing decisions, signaling fresh scrutiny just as beleaguered biotechnology investors saw signs that the cost debate may fade away.

The drugmaker recently received a subpoena from the U.S. Attorney’s Office in Massachusetts and another from the Manhattan U.S. Attorney’s Office seeking information on its patient assistance programs, drug distribution and pricing decisions, Laval, Quebec-based Valeant said in a statement on Wednesday night. Valeant shares fell 4.7 percent to $168.87 at the New York close.

The subpoenas are likely to refocus attention on high medicine prices, cutting short any relief from Tuesday’s Democratic presidential debate, when candidates largely bypassed the issue. Biotechnology stocks, which had been in a rout since Hillary Clinton said Sept. 21 that she would seek reforms in the drug industry, had briefly rallied on Wednesday. Much of the criticism in recent weeks has focused on a few companies like Valeant and Turing Pharmaceuticals AG.

Election Year

The price of Valeant’s $3.25 billion in 6.125 percent, 10-year bonds fell 1.6 percent to 94.75 cents on the dollar, the biggest drop in almost two weeks, according to data compiled by Bloomberg. They’ve fallen about 9 percent since Sept. 17.

“The price issue has been raised, and for better or worse it’s set the tone for the political rhetoric in election season, and as an investor it’s just hard, maybe impossible, to price that risk,” said Matthew Duch, a money manager at Bethesda, Maryland-based Calvert Investments, which oversees more than $13 billion in assets. “It’s something that isn’t going away, and it will get worse in the headlines before it gets better.”

Shares of Valeant yesterday rallied 6.5 percent, the biggest increase this month, after the issue of drug prices commanded less attention than anticipated at the Tuesday debate. Clinton and Bernie Sanders both said they would set themselves apart from the Obama administration by challenging drug companies, but neither expanded on their plans. The Nasdaq Biotechnology Index climbed 0.9 percent the next day.

“The issue was a no-show,” Asthika Goonewardene, an analyst at Bloomberg Intelligence, said in a research note on Wednesday, after the debate. “Absent new political proposals or price-gouging revelations, the sector may be past the worst of political ‘headline risks.’”

Valeant’s Defense

In a letter released Sept. 28, Democrats in the U.S. House of Representatives had asked to subpoena Valeant for documents relating to drug-price increases. The representatives highlighted Valeant’s heart drugs Nitropress and Isuprel, whose list prices increased by 212 percent and 525 percent the day that Valeant acquired the rights to sell them.

Valeant said in its Oct. 14 statement that it had responded to a letter from Senator Claire McCaskill, a Missouri Democrat, about Nitropress and Isuprel, explaining the history of the drugs and the reimbursement process in hospital procedures, as well as the rationale for its pricing decisions. The company also said it’s beginning an "outreach to hospitals where the impact of a price change was significantly greater than the average."

“It appears obvious to me that Valeant has been anything but responsive or transparent -- it refused to take any action until served with federal subpoenas, and is still refusing to provide answers to many of the questions I’ve asked,” McCaskill said Thursday in an e-mailed statement. “I look forward to continuing my investigation of drug pricing and plan to further explore Valeant’s inadequate response.”

Political Rhetoric

“The reality is, though, that something had to happen after the political rhetoric,” Sam Fazeli, an analyst at Bloomberg Intelligence, said Thursday. “Prosecutors couldn’t have just ignored it.”

Some of the information requested in the subpoenas was linked to services provided to Medicare and Medicaid, the company said. Valeant is reviewing the subpoenas and intends to cooperate with the investigations.

James Margolin, a spokesman for Manhattan U.S. Attorney Preet Bharara, said he couldn’t comment on the company’s statement. A representative of the U.S. Attorney’s Office in Boston didn’t respond to an e-mail after regular business hours Wednesday seeking comment on the subpoenas.

Limited Benefit

This month, Valeant responded to critics of its drug prices in a filing, saying that various researchers were inaccurate and that the company hadn’t benefited as much from drug-price increases as the reports had said.

Valeant believes it has operated in a “fully compliant manner,” Chief Executive Officer J. Michael Pearson said Wednesday in the statement.

In the letter to Senator McCaskill, Valeant said it had spent $544 million on patient assistance programs in 2014 and total expenditure for 2015 will be more than $630 million. Valeant’s price increases for the two drugs have had limited impact on average hospital costs, the letter said, adding that the average spend per hospital was about $281,000 for Isuprel and $44,000 for Nitropress, compared to the average hospital’s overall expenses of about $150 million a year.

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