WASHINGTON (AP) — Lawmakers accused Valeant Pharmaceuticals of gouging patients to reward Wall Street investors during a hearing Wednesday scrutinizing the embattled drugmaker's pricing tactics.
The blistering criticisms from Senate Republicans and Democrats came as Valeant's outgoing CEO expressed regrets for the most egregious price increases and a billionaire hedge fund investor defended the company's business model.
Valeant's stock price surged for years, fueled by a strategy of gobbling up smaller companies and raising prices on niche drugs — bypassing the huge research and development investments typical of the drug industry. The company seemed to offer a cheaper, more reliable business model that made it a favorite with investors.
But the company's approach has drawn scrutiny from federal prosecutors, Congress and its own investors.
Throughout the hearing, members of the Senate Committee on Aging laid into the Canadian drugmaker's strategy of acquiring companies, slashing spending and jacking up prices.
"Valeant's monopoly model operates at the expense of real people," said Sen. Susan Collins, R-Maine, in her opening statement.
Berna Heyman, a patient with a rare genetic disorder called Wilson's Disease, testified that the co-pay on her medication increased from $700 per year to more than $10,000. The 30-year-old drug, Syprine, was acquired by Valeant in 2010 and has seen its price increase more than 3,000 percent. After her story appeared in the press Valeant offered free medication and tried to deliver flowers.
"I refused the flowers," Heyman said.
Ranking Democrat Claire McCaskill, D-Missouri, said executives with ties to Wall Street have driven the adoption of Valeant's price-hiking tactics, including former hedge fund manager Martin Shkreli who became the poster-child for the issue last year.
"It's using patients as hostages, it's immoral," McCaskill said. "It hurts real people and it makes Americans very, very angry."
The committee issued subpoenas to compel the appearance of Valeant's outgoing CEO, J. Michael Pearson and its former chief financial officer, Howard Schiller.
Lawmakers saved some of their harshest words for hedge fund manager William Ackman, who attempted to explain why Valeant's "low-cost and disciplined" business model made it a smart investment.
Ackman, whose fund Pershing Square Capital controls $12 billion, said Valeant can do "more for innovation in pharma by acquiring other drug companies" than by developing its own drugs.
But McCaskill charged that Valeant's business model relies on large price increases.
"Can you find me one drug that Valeant didn't raise the price on after you acquired it?" she asked.
Ackman said he could not.
"Not in the United States," Pearson replied.
With only days remaining in his tenure as CEO, Pearson expressed regrets for the company's largest price hikes, specifically increases of 300 percent and over 700 percent on two life-saving heart drugs.
Collins laid bare the eye-popping profits Valeant collected on one of those drugs, Isoprell. According to documents distributed at the hearing, Valeant spent just $40,000 on manufacturing the medicine in one recent month, while reaping $17 million in profit from it in the last quarter.
"Valeant was too aggressive and I, as its leader, was too aggressive," Pearson told lawmakers. "I regret pursuing transactions where a central premise was a planned increase in the prices of the medicines."
Ackman agreed that mistakes had been made. He said he would immediately use his position on Valeant's board to recommend a 30 percent price cut for Isoprell and the second heart drug, Nitropress.
"A lot is going to change," he told lawmakers. Lawmakers pointed out that those cuts would still dwarf the price increases on the drugs since their acquisition by Valeant.
Ackman took credit for the recent decision to replace Pearson with Joseph Papa, CEO of generic drugmaker Perrigo Co. Ackman said Papa could formally take charge at Valeant as soon as Monday.
In recent months, Valeant has been swamped by a host of problems including three ongoing federal probes of its accounting and pricing practices, massive debt and the threat of default on agreements with creditors and bondholders.
The intense scrutiny of the Laval, Quebec-based company has triggered repeated sell-offs of Valeant shares, which have lost nearly 90 percent of their value since peaking last August.