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Valeant's outgoing boss 'regrets' raising drug prices | Valeant's outgoing boss 'regrets' raising drug prices |
(about 17 hours later) | |
"I was too aggressive." | "I was too aggressive." |
That was the message of Valeant's outgoing chief executive Michael Pearson on Wednesday as he testified to a Senate committee about the company's pricing strategy. | That was the message of Valeant's outgoing chief executive Michael Pearson on Wednesday as he testified to a Senate committee about the company's pricing strategy. |
The Senate Ageing Committee is investigating the industry-wide practice of buying existing prescription drug brands and ratcheting up prices. | The Senate Ageing Committee is investigating the industry-wide practice of buying existing prescription drug brands and ratcheting up prices. |
It has caused outrage and provoked criticism from presidential candidates. | It has caused outrage and provoked criticism from presidential candidates. |
The former boss of drugs firm Turing - Martin Shkreli - became the poster-child for the problem when Turing raised the price of one drug by 5,000%. | The former boss of drugs firm Turing - Martin Shkreli - became the poster-child for the problem when Turing raised the price of one drug by 5,000%. |
But, Valeant has increased the price of many more of its medicines. | But, Valeant has increased the price of many more of its medicines. |
Mr Shkreli sniggered through his own appearance before the committee earlier this year and refused to answer questions. | Mr Shkreli sniggered through his own appearance before the committee earlier this year and refused to answer questions. |
'Regret' | 'Regret' |
Mr Pearson was more conciliatory in his remarks, acknowledging that Valeant's strategy of buying older medicines and raising their price rather developing new drugs had gone too far. | Mr Pearson was more conciliatory in his remarks, acknowledging that Valeant's strategy of buying older medicines and raising their price rather developing new drugs had gone too far. |
"In hindsight I regret pursuing, transactions where a central premise was a planned increase in the prices of the medicines," he said. | "In hindsight I regret pursuing, transactions where a central premise was a planned increase in the prices of the medicines," he said. |
But Mr Pearson can soon begin to put that regret behind him. On Monday, Valeant's board announced it had concluded its month-long search for his replacement. Joseph Papa, the ex-head of pharmacy company Perrigo will take over as chief executive in May. | But Mr Pearson can soon begin to put that regret behind him. On Monday, Valeant's board announced it had concluded its month-long search for his replacement. Joseph Papa, the ex-head of pharmacy company Perrigo will take over as chief executive in May. |
Mr Papa won't be the only new member of Valeant's leadership. Activist investor Bill Ackman, an outspoken supporter of Valeant and its pricing methods, joined the company's board in March. | Mr Papa won't be the only new member of Valeant's leadership. Activist investor Bill Ackman, an outspoken supporter of Valeant and its pricing methods, joined the company's board in March. |
Until recently he was also a loyal partner to Mr Pearson. | Until recently he was also a loyal partner to Mr Pearson. |
After all that has happened - the threat of a default, several failed attempts to buy Botox-maker Allergan, a scandal involving "phantom" pharmacies, federal investigations, and an 80% drop in the company's share price in one year -that relationship has crumbled. | After all that has happened - the threat of a default, several failed attempts to buy Botox-maker Allergan, a scandal involving "phantom" pharmacies, federal investigations, and an 80% drop in the company's share price in one year -that relationship has crumbled. |
And nearly all those problems link back to the way Valeant and its long-time boss pursued profits through aggressive price hikes. | And nearly all those problems link back to the way Valeant and its long-time boss pursued profits through aggressive price hikes. |
Rises defended | Rises defended |
In 2010 Mr Pearson was named chief executive of Valeant after a merger with Canada's Biovail. | In 2010 Mr Pearson was named chief executive of Valeant after a merger with Canada's Biovail. |
Under his stewardship Valeant positioned itself as a new type of drugs company, focused on growth through acquisitions and exploiting the eccentricities of the US pharmaceuticals industry to boost profits. | Under his stewardship Valeant positioned itself as a new type of drugs company, focused on growth through acquisitions and exploiting the eccentricities of the US pharmaceuticals industry to boost profits. |
It raised the price of a lifesaving heart drug, Nitropress, by 525% in 2015 and a migraine treatment, DHE 45, by 356% over the course of a year. | It raised the price of a lifesaving heart drug, Nitropress, by 525% in 2015 and a migraine treatment, DHE 45, by 356% over the course of a year. |
The industry has defended this practice saying that, without raising prices, it would be unable to invest in new treatments. | The industry has defended this practice saying that, without raising prices, it would be unable to invest in new treatments. |
It is Valeant's wholehearted embrace of price increases rather than research and development that has raised questions about whether its leaders really had a long-term plan keep the company profitable. | It is Valeant's wholehearted embrace of price increases rather than research and development that has raised questions about whether its leaders really had a long-term plan keep the company profitable. |
"Valeant's actions were an order of magnitude more extreme than its peers," says David Amsellem, senior research analyst at Piper Jaffray. | "Valeant's actions were an order of magnitude more extreme than its peers," says David Amsellem, senior research analyst at Piper Jaffray. |
"There are a lot of older drugs with some degree of price inelasticity that doesn't mean you should take triple-digit price increases on these products," he says. | |
Allergan and Ackman | Allergan and Ackman |
Supporting this approach for the last two years was hedge fund manager Bill Ackman. | Supporting this approach for the last two years was hedge fund manager Bill Ackman. |
In 2014, Mr Ackman and Mr Pearson announced a partnership to pursue Valeant's purchase of Irish Botox maker, Allergan. | In 2014, Mr Ackman and Mr Pearson announced a partnership to pursue Valeant's purchase of Irish Botox maker, Allergan. |
Mr Ackman, who owned stock in Allergan, praised Mr Pearson's ability to keep costs down and expand profit. | Mr Ackman, who owned stock in Allergan, praised Mr Pearson's ability to keep costs down and expand profit. |
The slick-talking, extrovert investor made a significant contrast to the soft-spoken, cost cutting chief executive. But their partnership remained strong, even after Allergan rejected Valeant's offer, and Mr Ackman was accused of insider trading for making a deal with Valeant while owning Allergan shares. | The slick-talking, extrovert investor made a significant contrast to the soft-spoken, cost cutting chief executive. But their partnership remained strong, even after Allergan rejected Valeant's offer, and Mr Ackman was accused of insider trading for making a deal with Valeant while owning Allergan shares. |
The friendship seemed all the more astounding given Mr Ackman's propensity for fighting with the management and boards of companies he invests in. | The friendship seemed all the more astounding given Mr Ackman's propensity for fighting with the management and boards of companies he invests in. |
'Phantom' pharmacies | 'Phantom' pharmacies |
The first severe blow to Mr Pearson's leadership came in October 2015 when Valeant's ties to mail-order pharmacy Philidor were uncovered. | The first severe blow to Mr Pearson's leadership came in October 2015 when Valeant's ties to mail-order pharmacy Philidor were uncovered. |
Valeant was accused of using Philidor to boost the price of medicine by falsifying sales. | Valeant was accused of using Philidor to boost the price of medicine by falsifying sales. |
Mr Pearson admitted that Valeant had an option to buy Philidor and that it included the pharmacy's financial records in its own. | Mr Pearson admitted that Valeant had an option to buy Philidor and that it included the pharmacy's financial records in its own. |
The relationship raised suspicion from regulators and investors about the truthfulness of Valeant's accounting practices. This concern remained even after Valeant cut ties with Philidor. | The relationship raised suspicion from regulators and investors about the truthfulness of Valeant's accounting practices. This concern remained even after Valeant cut ties with Philidor. |
Leave of absence | Leave of absence |
In December Mr Pearson was hospitalised with severe pneumonia and forced to take medical leave. | In December Mr Pearson was hospitalised with severe pneumonia and forced to take medical leave. |
In his absence chief financial officer Howard Schiller stepped in. | In his absence chief financial officer Howard Schiller stepped in. |
Mr Schiller defended Valeant's price increasing practice before Congress, in February saying: "Higher prices draw generic competitors into the market, which in turn tends to put significant downward pressure on prices." | Mr Schiller defended Valeant's price increasing practice before Congress, in February saying: "Higher prices draw generic competitors into the market, which in turn tends to put significant downward pressure on prices." |
But that defence of Valeant's signature strategy was undermined when Valeant admitted it was the subject of "several ongoing investigations" by regulators and cut its corporate earnings projections. | But that defence of Valeant's signature strategy was undermined when Valeant admitted it was the subject of "several ongoing investigations" by regulators and cut its corporate earnings projections. |
The news sent Valeant shares tumbling 51% in a single day, just two weeks after Mr Pearson returned to work. | The news sent Valeant shares tumbling 51% in a single day, just two weeks after Mr Pearson returned to work. |
At the end of March, Valeant asked for an extension to file its annual financial report while it worked to improve its internal accounting system. | At the end of March, Valeant asked for an extension to file its annual financial report while it worked to improve its internal accounting system. |
Without the extension - secured a few weeks later - Valeant would have risked defaulting on $30bn of debt. | Without the extension - secured a few weeks later - Valeant would have risked defaulting on $30bn of debt. |
By that time Valeant's board had announced it was searching for Mr Pearson's replacement and one-time partner Bill Ackman was on Valeant's board. | By that time Valeant's board had announced it was searching for Mr Pearson's replacement and one-time partner Bill Ackman was on Valeant's board. |
Senator Susan Collins and Senator Claire McCaskill, leaders of the Senate Aging Committee, called Mr Pearson's testimony "central" to understanding the impact of sky-rocketing drug prices. | Senator Susan Collins and Senator Claire McCaskill, leaders of the Senate Aging Committee, called Mr Pearson's testimony "central" to understanding the impact of sky-rocketing drug prices. |
How Valeant pursues profits in the wake of these scandals is not yet clear. But that will no longer be Mr Pearson's problem. | How Valeant pursues profits in the wake of these scandals is not yet clear. But that will no longer be Mr Pearson's problem. |
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