[Ip-health] Reuters: Valeant subpoenaed by U.S. prosecutors; shares drop

Thiru Balasubramaniam thiru at keionline.org
Fri Oct 16 01:15:33 PDT 2015


US | Thu Oct 15, 2015 7:20pm EDT

Valeant subpoenaed by U.S. prosecutors; shares drop


Valeant Pharmaceuticals International Inc (VRX.TO) (VRX.N), already under
fire over steep price hikes for two heart drugs, said it had been
subpoenaed by U.S. prosecutors seeking details on its patient assistance
programs, drug pricing and distribution practices.

U.S.-listed shares of Valeant, which said it would cooperate with the
investigations, closed down 4.7 percent at $168.87.

The Canadian company, which was rapped by Democratic lawmakers in late
September over those price increases, said late Wednesday it was reviewing
subpoenas from the U.S. Attorneys' Offices for the District of
Massachusetts and the Southern District of New York.

Valeant tripled the price of its drug Isuprel and raised the price six-fold
for another heart drug, Nitropress, after buying them in February. While
the magnitude of the price hikes has put Valeant in the political
crosshairs, raising drug prices is not illegal in the United States.

The company said it had hired a consultant to review the drugs' pricing and
reimbursement. The consultant found "considerable room to increase the
price of both drugs," Chief Executive Michael Pearson said in a letter on
Wednesday in response to concerns expressed by U.S. Senator Claire
McCaskill. He added that Valeant has made substantial investments in
manufacturing in the United States.

McCaskill, the top-ranking Democrat on the Senate's Permanent Subcommittee
on Investigations, said on Thursday that Pearson's letter failed to answer
her questions and that she would press on with her investigation of drug

Pearson has built Valeant into one of the world's largest drugmakers
through numerous acquisitions. His business model has featured price hikes
on medicines, while slashing research spending of acquired companies.


"Many companies charge high prices for drugs, but not many duplicate the
Valeant business model," said Erik Gordon, a professor at University of
Michigan's Ross School of Business.

Gordon noted that drugmakers' patient assistant programs, a main aspect of
the subpoenas, help patients cover co-pays for their medicines, but can
sometimes be deemed improper inducement to drive up sales.

Shares of many drugmakers have slumped since Democratic presidential
hopeful Hillary Clinton last month proposed ways to prevent industry

Clinton's comments followed reports that Turing Pharmaceuticals had hiked
the price of a 62-year-old drug it had acquired by more than 5,000 percent,
to $750 a tablet.

The same medicine, to treat a parasitic infection, is sold in Britain by
GlaxoSmithKline (GSK.L) for 43 pence (66 cents) a pill.

The United States has no price controls on medicines, though such curbs are
common in Europe.

Piper Jaffray analyst Richard Purkiss does not see the Valeant subpoenas as
a precursor to a larger industry investigation because of the significant
investment in high-risk research made by most large drugmakers and biotechs.

"There is an unwritten social contract where you can have a degree of
pricing power, but only if you engage in substantial funding of research as
a percentage of your sales. Companies that extract high prices without
spending on R&D are in a different space," Purkiss said.

Guggenheim analyst Louise Chen said she believed the federal prosecutors'
inquiries are politically motivated, and that a financial settlement within
two to three years would be a likely outcome.

"Typically, companies agree to a fine and admit no guilt," she said.

Valeant officials declined to comment beyond the content of the company's

Officials at both prosecutors' offices declined to comment.

Officials with PhRMA, the largest U.S. trade group for pharmaceutical
companies, said it could not comment as Valeant was not a member of the

(Additional reporting by Ismail Shakil, Ankur Banerjee and Natalie Grover
in Bengaluru and Daniel Wiessner in New York; Editing by Bernadette Baum
and Richard Chang)

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