Valeant Mulls Divesture of Neurology Business Following Criticism Over Pricing, Business Practices

October 20, 2015
By Alex Keown, BioSpace.com Breaking News Staff

LAVAL, Quebec – Facing scrutiny from U.S. lawmakers and two U.S. attorney’s offices, Valeant Pharmaceuticals International, Inc. may be looking to spin off its neurology business and additional drug businesses that are more dependent on price increases, Bloomberg reported this morning.

Bloomberg reported the possible new unit will make up about 10 percent of Valeant sales in 2016, but is expected to shrink. Valeant Chief Executive Officer Michael Pearson said a move divesting the company of those drugs is one that “makes sense” “given the current environment,” Bloomberg reported. If a neurology division is spun off, Evercore ISI analyst Umer Raffet told Bloomberg the new business would be worth more than $1 billion.

In its third quarter report released Monday, Valeant reported total revenue of $2.8 billion, a 36 percent increase over the previous year’s quarter.

Additionally, the company, which has a long history of growth through acquisition, said it may also focus less on acquiring older drugs through acquisition and then having to raise the cost. Valeant is under fire for a price increase of two recently-acquired cardiac drugs, Nitropress and Isuprel, after the company acquired Salix Pharmaceuticals, Ltd. . Valeant then increased the prices for those drugs by 212 percent and 525 percent, respectively. Valeant acquired the two drugs in April.

"Given the evolution of our product mix, coupled with the recent events, it is likely that we will pursue fewer, if any, transactions that are focused on mispriced products," the Dow Jones Business News reported Pearson as saying.

In addition to the two cardiac drugs, Valeant has also been criticized for quadrupling the price of the 55-year-old drug Cuprimine, used in the treatment of Wilson disease. A New York Times article excoriated Valeant for its practice of increasing the price of drugs following an acquisition. According to a Deutsche Bank report, Valeant increased prices on its brand-name drugs an average of 66 percent, about five times more than its other competitors, the Times said. Valeant, the article says, spends only about three percent of sales generated revenue on research and development, “which it views as risky and inefficient compared with buying existing drugs.” That amount was about $246 million in 2014.

That criticism is likely one reason that on Monday Valeant said it intends to implement an increase on research and development spending. Valeant said it plans on budgeting $400 to $500 million on R&D next year. The company said laboratory work has “contributed to successes in skin, contact lens and surgical areas, the Dow Jones Business News reported.

Despite the growth the company reported and possible changes, Valeant’s fell more than seven percent on Monday, trading at $163.83. Valeant’s stock has seen a steady slide since Aug. 5 when the company saw a high of $262.52 per share. Since that high, Valeant’s stock has lost approximately one-third of its value. In a September response to the stock’s free-fall, Pearson, who has overseen massive growth at Valeant, was forced to pen a letter to investors explaining company strategy surrounding the acquisition of drugs through acquisition.

Valeant isn’t the only pharmaceutical company to see a dip in prices related to questions about its practices. Most recently, and perhaps more notoriously, the market negatively reacted to criticism of New York-based Turing Pharmaceuticals’ 5,000 percent price increase for Daraprim, a treatment for toxoplasmosis the company acquired in August for $55 million. Following the revelation of the price increase, former U.S. Secretary of State and candidate for the Democratic presidential nomination Hillary Clinton, said if she were elected, she would seek to cap the prices for prescription drugs. Clinton’s comments caused numerous biotech stocks to fall an average of 2 percent. The Nasdaq Biotechnology Index dropped 4.4 percent and the SPDR S&P Biotech ETF dropped by 6 percent.