A US Senate hearing on Valeant Pharmaceuticals is underway, and just based on the prepared statements we’ve reviewed, we can tell it’s going to be a roller coaster.
Valeant CEO Michael Pearson, former interim CEO Howard Schiller and hedge fund billionaire Bill Ackman are all set to testify about the company’s drug-pricing practices in front of the US Senate Special Committee for Aging. The Senate has been investigating the company for jacking up drug prices since December.
Their prepared statements, along with that of ranking member Sen. Claire McCaskill (D-Missouri), are all out.
Mostly, they’re cringeworthy.
McCaskill is about to let these guys have it. Here’s a snippet of her testimony (emphasis added):
This hearing is not to demonize capitalists or destroy free markets. These hearings are really grappling with the biggest threat to our country…our debt. Which is being driven by healthcare costs. The notion that we can sit idly by while smart people on Wall Street can do ledger entries to create another layer of profit in the healthcare sector to benefit multimillionaires on the backs of patients and ultimately taxpayers can’t continue to happen. A patients as hostages mentality of identifying companies that can be acquired simply by where you can get away with raising prices by the largest percentage has real public policy ramifications. And make no mistake, you can try to dress up this business model with do good sounding phrases but it is simple…give the companies that develop a drug that has little to no competition a healthy profit, fire the scientists, and jack up the prices as high as you think you can get away with. It’s using patients as hostages. It’s immoral. It hurts real people. It makes Americans very, very angry. In case you haven’t noticed, that has real ramifications in our political process and could lead to an instability of our government, our economy, and our standing in the world. Pigs get fed, hogs get slaughtered. It’s time to slaughter some hogs. I thank the witnesses for being here today, and I look forward to hearing their testimony.
That’s what Ackman, who is one of Valeant’s biggest investors, is walking into. And he’s about to say the following – which seems like a mistake, but OK:
We believe that a drug company can do as much or more for innovation in pharma by acquiring other drug companies and licensing drugs than by developing drugs internally. Much of Valeant’s product portfolio has been built through acquisition where Valeant was the high bidder for smaller innovative companies and their products. As a result of these acquisitions, the selling company shareholders earned an attractive and in some cases spectacular return on their investment from the nearly $40 billion that Valeant has invested in acquisitions. We expect that a high percentage of the after-tax capital received by these selling shareholders is likely to have already been reinvested in other early-stage and innovative drug companies so the cycle of drug development can continue.
Pearson’s statement sounds more contrite. He admits that the “company was too aggressive – and I, as its leader, was too aggressive – in pursuing price increases on certain drugs.” He calls his strategy a mistake, but still makes the mistake of justifying price increases for drugs for a rare condition called Wilson’s disease by saying that very few people need the drugs and that they have Valeant-sponsored patient-assistance programs to help them.
That will be awkward.
Partly because McCaskill mentions the patient-assistance programs in her statement, and quite unfavorably – someone has to pay those costs, even if it’s not the patient – and partly because a Wilson-disease patient will testify during the first half of the hearing.
Schiller kept his short. He was in the hot seat in January so he didn’t have much to say – and possibly knows better than to say too much.
Valeant’s stock price started cratering in October, when government outrage over its pricing practices combined with accusations of malfeasance from a short seller turned Wall Street against a company it once embraced with a fervor. Since then, the stock has fallen almost 70%.
And speaking of Wall Street, Sen. Elizabeth Warren (D-Massachusetts) sits on the Aging Committee, so she’ll be asking questions, and we know how much she loves Wall Street.