Valeant Fires Back at Critics, Supported by Investor Bill Ackman
October 7, 2015
By Alex Keown, BioSpace.com Breaking News Staff
CHICAGO – In an Oct. 5 filing with the U.S. Securities and Exchange Commission, Valeant Pharmaceuticals International, Inc. fired back at critics over its decisions to grow its pipeline through acquisitions and increase the cost of some newly acquired drugs.
In the filing, Valeant said it is not as dependent on the price increases as some reports have suggested. The company also said its financial figures and forecasts are supportable by data, something its critics have questioned. In its filing, Valeant challenges claims made Citron Research, AZ Value Investing and Veritas Investment Research.
Citron Research, one of the investment companies critical of Valeant, called that company’s business model “broken” and that price increases for newly acquired drugs were initiated to “cover a bad quarter.” In its Oct. 2 report, Citron said if Valeant had not dramatically increased the price of two cardiac drugs, Nitropress and Isuprel, by 212 percent and 525 percent respectively, the company would have missed its first quarter targets by more than 9 percent. The two drugs came into Valeant’s pipeline after the company acquired Salix Pharmaceuticals, Ltd. earlier this year.
In a report, Veritas claimed Valeant would have missed quarterly projections earlier this year by as much as 13 percent had it not increase prices on some of its newly acquired drugs. One drug the Veritas report points to is the anti-fungal drug Jublia, which saw a 20 percent increase in price. However, Valeant said that while the price was increased, the company has only seen a two percent increase in the average selling price. Valeant said the Veritas report on pricing does not take into account “any rebates/fees to: patients, managed care, government, wholesaler, group purchasing organizations, and customers.”
A blog posting by AZ Value is critical of some of Valeant’s financial claims as it relates to company acquisitions, most specifically Sanitas, going so far as to call some of Valeant’s claims as a lie. In its SEC filing, Valeant refutes the blog poster’s claim and offers its own numbers supporting its initial claim.
In addition to Valeant’s proactive filing, some of the company’s investors have also stepped up to defend Valeant. The company’s third-largest financial backer, Pershing Square Capital Management, which is helmed by Bill Ackman, defended Valeant. In a Bloomberg Business report, Ackman said drug companies use their profits for research and development as well as mergers and acquisitions, to reward investors and produce more innovative products.
A column in Forbes also argued that acquiring existing research is also costly and in one lump sum is similar to financing research.
“…spending $36 billion on buying drugs that have been developed is economically similar to spending $36 billion on developing drugs. For who ends up with the money? The people who have developed the drugs? Therefore it’s the same thing, isn’t it,” the Forbes piece said.
Drugmakers argue that the price increases are not directly felt by the majority of consumers due to the price negotiations of insurance companies. Michael Pearson, Valeant’s chief executive officer, said standard practices are to increase the price of drugs as it nears the end of its patent protection and faces the cost of generic competition, the New York Times reported.
Under Pearson’s leadership, Valeant has seen massive growth, although there has been some criticism of its practices. Recently, company stock dropped 20 percent, prompting Pearson to pen a note to employees explaining company strategy.
Valeant’s Pearson, as well as Martin Shkreli’s Turing Pharmaceuticals’ chief Martin Shkreli have both been mentioned as possible subjects of a Congressional investigation of pharmaceutical pricing. In August, Turing acquired a drug used to treat toxoplasmosis and increased the price 5,000 percent, which prompted former U.S. Secretary of State Hillary Clinton, a candidate for the Democratic presidential nomination, to call for price caps on medications. Others have picked up the call, including U.S. Sen. Bernie Sanders of Vermont, who is also seeking the Democratic nomination for president, and U.S. Rep. Elijah Cummings, a Maryland Democrat, to call for an investigation. Sanders and Cummings requested Pearson and Valeant to release business data related to the price increases, but the company refused, saying the information was “highly proprietary and confidential.”
Over the past month, Valeant’s stock has steadily declined, falling from a high of $233.80 per share on Sept. 8 to a low of $157.82 on Oct. 6. The stock is currently trading at $165.08 per share as of this writing.