MONTREAL -- Valeant Pharmaceuticals, already in the crosshairs of U.S. politicians, is now under scrutiny by U.S. federal prosecutors in two states who are seeking information on its drug pricing, distribution and patient assistance program.
Canada's largest drugmaker said late Wednesday that it had recently received subpoenas from the U.S. Attorney's offices in Massachusetts and New York.
Valeant chairman and CEO Michael Pearson said the company is reviewing the court orders and will co-operate with the inquiries.
"All of us at Valeant firmly believe in maintaining strong regulatory and financial controls and believe we have operated our business in a fully compliant manner," he said in a news release.
The Quebec-based company said most of the materials requested by the subpoenas relate to the company's patient assistance programs, including financial support provided for patients and pricing decisions.
Valeant's (TSX:VRX) shares fell 12 per cent in early trading Thursday but recovered somewhat by late afternoon with losses of about six per cent on Toronto and New York stock exchanges. They are down 38 per cent since peaking in August.
The drugmaker is one of Canada's top companies by market capitalization and accounts for about 4.23 per cent of the S&P/TSX composite index.
The U.S. Congress became interested in Valeant following its purchase of the heart drugs Nitropress and Isuprel and subsequently increasing the price for both -- more than double in one case and more than triple in another. The drugs are administered in hospitals as part of a larger treatment protocol.
Responding to a letter from Senator Claire McCaskill, Pearson said the higher list price for its two drugs won't affect patients and will have a "limited impact" on hospital costs because reimbursements from the patient insurance providers or a federal health program won't change.
"Because these drugs are hospital administered and generally are not purchased directly, increasing the cost of the drugs to hospitals should not reduce patient access," he wrote.
The company said its overall US$4.9 billion in revenues in the first half of the year included US$126 million from Nitropress and US$121 million from Isuprel.
Valeant said heavy discounts and price caps reduce the impact of high gross prices. For example, it earned just US$317,588 in net revenues from the sale of Isuprel to the Department of Veterans Affairs as of Sept. 30 even though gross sales were US$10.9 million.
Over the past year, average net price of its products increased 13 per cent compared to volume increases of 20 per cent.
Furthermore, he said the price hikes have stimulated other companies to work on lower-priced alternatives that could be approved by regulators in the next 12 to 24 months.
Analyst Douglas Miehm of RBC Capital Markets said the justice department's intervention in response to last month's subpoena request from U.S. Congress Democrats was negative for Valeant.
"The focus on patient access programs could be the most troublesome as price increases are allowed but providing financial assistance to patients in government programs is not allowed," he wrote in a report.
Valeant said it spent US$544 million on patient assistance programs last year and expects to spend more than US$630 million this year and more than US$1 billion in 2016 in the U.S.
Alex Arfaei of BMO Capital Markets said he doubts critics will be satisfied with Valeant's responses given the current political climate in the U.S. election cycle.
"Once the political storm subsides, we expect business as usual with less aggressive price increases," he wrote in a research note.
