Valeant Was `Too Aggressive' in Pricing, CEO to Tell Senate

  • Investor Ackman, former CFO Schiller are also to testify
  • `There are going to be a lot of pointed questions:' analyst

Valeant Pharmaceuticals International Inc. was too aggressive in raising prices, outgoing Chief Executive Officer Mike Pearson will tell U.S. senators Wednesday afternoon at a committee hearing to examine the cost of prescription drugs.

“It was a mistake to pursue, and in hindsight I regret pursuing, transactions where a central premise was a planned increase in the prices of the medicines,” Pearson said in prepared testimony for a Senate Special Committee on Aging hearing. “The company was too aggressive –- and I, as its leader, was too aggressive –- in pursuing price increases on certain drugs.”

Pearson, center, in Washington on April 18.

Photographer: Drew Angerer/Bloomberg

The hearing promises a showdown between the company that has become a frequently-cited example of high U.S. drug prices and lawmakers who are heading into an election where the cost of care has become a major issue. The Senate hearing is the third in a series by the committee probing drug prices and the actions by drugmakers.

Along with Pearson, the panel will hear from former Chief Financial Officer Howard Schiller and Bill Ackman, whose Pershing Square Capital Management LP is one of Valeant’s biggest holders. Pershing has two seats on Valeant’s board, and Ackman has been among the company’s biggest defenders.

“They’re going to do the best mea culpa that they can and try to make the case that they’re going to be better corporate citizens, but let’s be realistic here, I think this isn’t just a case of ‘mea culpa’ and everyone gets on with it,” said David Amsellem, an analyst with Piper Jaffray & Co. “There are going to be a lot of pointed questions and it’s not going to look good.” Amsellem has an underweight rating on the stock.

Pearson is leaving the drugmaker after months of turmoil, which began with a controversy over the price increases of two cardiac drugs by 525 percent and 212 percent. Since its August peak, Valeant has lost more than 85 percent of its stock market value, failed to file its annual report, said it is being investigated by the U.S. Securities and Exchange Commission, and said that Schiller, who also sits on the board, had engaged in improper conduct that led to financial misstatements. On Monday, Valeant said Perrigo Co.’s former CEO Joseph Papa will take over as its CEO in early May.

Valeant shares were down 2.5 percent to $35.32 at 12:47 p.m. in New York.

Pearson’s Defense

At the same time, in his written testimony Pearson defended the company’s broader conduct and sought to downplay how important or widespread the price increases were.

“Price increases in a small segment of our company have overshadowed our activities,” he wrote, referring to about 1,800 products he said Valeant makes and sells -- including prescription drugs, over-the-counter treatments and other health products. The “narrow focus” on a few drugs whose price Valeant raised dramatically “has given Congress and the public a misimpression that our strategic focus revolved around acquiring older, off-patent drugs, which in fact was not the case,” he said.

Price Increases

The committee may question him on that point.

The company raised prices by at least 10 percent on more than 70 drugs and drug formulations from the end of 2015 through Jan. 15, 2016, according to data from DRX, a unit of Connecture Inc. that provides price comparison software to health plans. Pearson said the company sells about 200 prescription drugs in the U.S.

In addition, Valeant doubled the price of 13 of its drugs since December 2014, more than any other large pharmaceutical manufacturer, according to DRX. It has since pledged not to take such big price increases, but the effects of those price increases are still boosting revenue, said Wells Fargo analyst David Maris.

“We remain convinced that price increases have been and continue to be the key driver of Valeant’s growth,” Maris said in a research note issued Wednesday. In the first quarter, Maris said, the average price of Valeant’s top 30 products is up 78 percent from a year before. A Valeant spokeswoman didn’t immediately respond to a request for comment on Maris’s analysis.

Two Drugs

Lawmaker have frequently mentioned the two cardiovascular drugs, Isuprel and Nitropress, that Valeant acquired and soon after raised their prices by 525 percent and 212 percent, respectively. In the first quarter of 2015, Isuprel was the company’s top-selling drug with $72 million of sales, while Nitropress was fourth with $62 million.

Amsellem said that past inquiries focused mostly on those two products, and not the many others where Valeant raised prices. “The issue is not just a few drugs,” Amsellem said.

Pearson said the company is now offering rebates of up to 30 percent on drugs like Nitropress and Isuprel for hospitals that order high volumes of the drugs.

The committee’s hearing is scheduled to begin at 3:30 p.m. in Washington, and Pearson, Ackman and Schiller will be part of the second slate of witnesses.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE