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Valeant's 'mistakes' raised profit, destroyed value, Ackman says
[WASHINGTON] After US$77 billion in lost market value, congressional hearings and corporate stumbles, Valeant Pharmaceuticals International Inc's CEO and its biggest hedge fund booster stood before a Senate committee, raised their right hands in truth, and said the drug company had gotten things wrong.
"We have made mistakes," Mike Pearson, Valeant's chief executive officer, said at the Special Committee on Aging's hearing on high drug prices. "Valeant was too aggressive. And I, as a leader, was too aggressive."
"While raising the prices of these drugs increased the profits of Valeant, it destroyed enormous shareholder value," said Bill Ackman, who sits on the company's board and whose Pershing Square Capital Management LP was one of its biggest holders.
The stock's plunge - down 87 per cent since its August peak - has cost Mr Ackman's fund billions, and cost Mr Pearson his job. In a half-empty hearing room in Washington Wednesday, it became apparent that it has also forced a major reassessment of Valeant's strategy of sharp price increases, often on older medicines the company acquired through deals.
"By all accounts, Valeant is the company that perfected the strategy of strategic acquisitions and price hikes that made it Wall Street's dream come true," said Senator Claire McCaskill of Missouri, the highest-ranking Democrat on the committee.
At the hearing, Ms McCaskill and her Republican counterpart, Senator Susan Collins of Maine, honed in on four drugs. Isuprel and Nitropress are heart treatments that Valeant acquired and then quickly raised their prices by 525 per cent and 212 per cent, respectively.
Two others, Syprine and Cuprimine, are used to treat a genetic disorder called Wilson's disease. Valeant raised Cuprimine's price for 100 capsules to US$26,189 from US$888, and Syprine's increased by more than 30-fold, Ms Collins said.
Asked if there was any drug that the company sold in the US that Valeant hadn't raised the price on after acquiring it through a deal, Mr Pearson said he couldn't name any.
Valeant's stock fell 3.6 per cent to US$34.92 at the close in New York. Valeant is also planning to shake up its board, replacing five directors, the Wall Street Journal reported Wednesday, citing people familiar with the matter.
One of those likely departing is Mason Morfit, president at ValueAct Capital Management LLC, a person familiar with the matter told Bloomberg. The person asked not to be identified because the matter is private. One of the seats will be taken by Joe Papa, former CEO of Perrigo Co, who will become CEO and chairman of Valeant, replacing Mr Pearson.
The drugmaker's tactics eventually brought the focus of health insurers and politicians who pushed back on covering products and hauled it up to Capitol Hill for hearings.
One patient, Berna Heyman, told the committee that she suffers from Wilson's disease and used to take Syprine. The disorder, sometimes fatal, causes copper to accumulate in the brain, liver and other organs. After Valeant acquired the drug, her co-payments for it went from less than US$700 a year to more than US$10,000.
She wrote to Valeant about the cost, she said, and the company told her it needed to charge that much to make investments in its drugs. After a story about her appeared in the Financial Times, she said the company telephoned and offered to help. She refused, she said, not wanting special treatment others didn't get. Then a florist called, saying that Valeant had sent her flowers.
"I refused the flowers and asked that the sender be informed of my refusal," Ms Heyman told the committee.
Mr Ackman said that after listening as Ms Heyman and two doctors described their difficulties because of Valeant's drug prices, he texted the chairman of the board to convene a meeting.
"My recommendation is going to be that we reduce the prices of those drugs," Mr Ackman told the lawmakers. He said the company needed to start using "socially responsible pricing." Senator Bob Casey, a Democrat from Pennsylvania, said promises were good, but not enough.
"Why should we believe you?" Mr Ackman said that the committee's oversight, which has come with a parallel investigation from the House of Representatives, had punished the drugmaker, along with any other company that investors suspected of using similar aggressive pricing.
"This committee has done a good job elevating the issue of pricing, and it's done a good job of taking about US$80 billion of market value off Valeant," Mr Ackman said. "That has not gone unnoticed just by Valeant, but by every other drug company in the country." Ms Collins said the committee's drug price hearings are likely now over, and it plans to issue a report on their findings.