Valeant Calms Employee Concerns of 20% Stock Drop As Congress Threatens Subpoena Over Drug Pricing

Valeant Calms Employee Concerns of 20% Stock Drop As Congress Threatens Subpoena Over Drug Pricing
September 29, 2015
By Mark Terry, Breaking News Staff

Mike Pearson, chief executive officer of Laval, Quebec-based Valeant Pharmaceuticals International, Inc. , recently sent a letter to employees explaining the company’s strategy in light of a recent stock drop.

The letter is, in part, an attempt to calm employee concerns over a recent 20 percent drop in stock prices, although it likely has more to do with a debate in the U.S. Congress over whether to subpoena the company regarding some of its drug pricing. A major component of Valeant’s business strategy is growth through acquisition. Known as a “serial acquirer,” the company has bought well over 100 companies since 2008, with about eight of those deals in 2015 alone.

Valeant recently acquired rights to two cardiac drugs, Nitropress and Isuprel, when it acquired Salix Pharmaceuticals, Ltd. , and then increased the prices for those drugs by 212 percent and 525 percent, respectively. This occurred in April, well before the public outcry over Turing Pharmaceuticals AG, which recently acquired the rights to the parasite drug Daraprim, and jacked up the price by 5,000 percent.

In addition to Democratic presidential candidate Hillary Clinton’s release of a drug industry protections plan that would affect pricing, Democratic presidential candidate and Vermont Senator Bernie Sanders and Representative Elijah Cummings of Maryland requested that Valeant release business data related to the price increases. Valeant refused, saying that the information was “highly proprietary and confidential.”

Rep. Cummings, a ranking member of the House Committee on Oversight and Government Reform, and other members of the House then sent a letter to the committee’s Republic chairman, Rep. Jason Chaffetz, requesting a subpoena to Valeant for the data.

The letter states, in part, “We believe it is critical to hold drug companies to account when they engage in ‘a business strategy of buying old neglected drugs and turning them into high-priced ‘specialty drugs’.” For these reasons, in addition to the subpoena, we also request that the Committee invite the CEO of Valeant to testify before the Committee next week along with Mr. Shkreli since both appear to be engaging in the same business model of acquiring potentially life-savings drugs to maximize their own corporate profits.”

Valeant , which has been on a fairly steady increase for the last year, plunged dramatically in the last two weeks. Shares traded on Sept. 17, 2015 for $241.01. They are currently trading for $164.55. On Oct. 13, 2014, shares traded for $164.25, rose to $198.75 on Feb. 23, 2015, and hit an annual high of $262.52 on Aug. 5.

Pearson’s letter to employees addresses two major concerns, the company’s business model and strategy, and concerns around the company’s exposure to U.S. government drug price reimbursement. He indicates quickly that both concerns are not related to the price drop, indicating that the company has very strong organic growth without price increases. “As we have stated many times, Valeant’s core operating principles include a focus on volume growth and a concentration on private and cash pay markets that avoid government reimbursement in the U.S. and around the world,” Pearson writes. “We have consistently pursued profitable growth through diversification, strong execution and financial discipline while minimizing exposure to governmental policy changes and volatility. Our strategy is quite different from traditional pharmaceutical companies in this regard, and is still not always well understood.”

It is not clear if Rep. Chaffetz will issue a subpoena to Valeant. He declined to sign the initial letter to Valeant. The company did send a letter on Sept. 3 indicating that the two drugs were “significantly underpriced” and that Valeant had patient-assistance programs that can assist patients in acquiring the drugs if they can’t afford them.

In a recent research note, Sumesh Sood, analyst with Height Securities, said that he doubts the Republican-led Congress will pass a law that would affect drug prices directly. “We continue to believe the government’s role will be limited.”

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