[Senate Hearing 114-846]
[From the U.S. Government Publishing Office]
S. Hrg. 114-846
VALEANT PHARMACEUTICALS' BUSINESS
MODEL: THE REPERCUSSIONS FOR
PATIENTS AND THE HEALTH
CARE SYSTEM
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HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
APRIL 27, 2016
__________
Serial No. 114-24
Printed for the use of the Special Committee on Aging
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
48-176 PDF WASHINGTON : 2022
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SPECIAL COMMITTEE ON AGING
SUSAN M. COLLINS, Maine, Chairman
ORRIN G. HATCH, Utah CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois BILL NELSON, Florida
JEFF FLAKE, Arizona ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas JOE DONNELLY, Indiana
DAVID PERDUE, Georgia ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina TIM KAINE, Virginia
BEN SASSE, Nebraska
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Priscilla Hanley, Majority Staff Director
Derron Parks, Minority Staff Director
C O N T E N T S
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Page
Opening Statement of Senator Susan M. Collins, Chairman.......... 1
Opening Statement of Senator Claire McCaskill, Ranking Member.... 3
PANEL OF WITNESSES
PANEL I
Berna Heyman, Wilson Disease Patient, and Retired Associate Dean
of Libraries, College of William & Mary, Williamsburg, Virginia 6
Frederick K. Askari, M.D., Ph.D., Associate Professor, and
Director, Wilson Disease Center of Excellence, University of
Michigan Health System, Ann Arbor, Michigan.................... 8
Richard I. Fogel, M.D., F.A.C.C., F.H.R.S., Chief Clinical
Officer, St. Vincent, Indianapolis, Indiana.................... 10
PANEL II
J. Michael Pearson, Chief Executive Officer, Valeant
Pharmaceuticals International, Inc., Bridgewater, New Jersey... 19
Howard B. Schiller, Director, Former Chief Financial Officer, and
Former Interim Chief Executive Officer, Valeant Pharmaceuticals
International, Inc., Bridgewater, New Jersey................... 20
William A. Ackman, Founder and Chief Executive Officer, Director,
Pershing Square Capital Management, L.P., and Director, Valeant
Pharmaceuticals International, Inc., Bridgewater, New Jersey... 21
APPENDIX
Prepared Witness Statements
Berna Heyman, Wilson Disease Patient, and Retired Associate Dean
of Libraries, College of William & Mary, Williamsburg, Virginia 59
Frederick K. Askari, M.D., Ph.D., Associate Professor, and
Director, Wilson Disease Center of Excellence, University of
Michigan Health System, Ann Arbor, Michigan.................... 62
Richard I. Fogel, M.D., F.A.C.C., F.H.R.S., Chief Clinical
Officer, St. Vincent, Indianapolis, Indiana.................... 64
J. Michael Pearson, Chief Executive Officer, Valeant
Pharmaceuticals International, Inc., Bridgewater, New Jersey... 72
Howard B. Schiller, Director, Former Chief Financial Officer, and
Former Interim Chief Executive Officer, Valeant Pharmaceuticals
International, Inc., Bridgewater, New Jersey................... 78
William A. Ackman, Founder and Chief Executive Officer, Director,
Pershing Square Capital Management, L.P., and Director, Valeant
Pharmaceuticals International, Inc., Bridgewater, New Jersey... 79
VALEANT PHARMACEUTICALS' BUSINESS
MODEL: THE REPERCUSSIONS FOR
PATIENTS AND THE HEALTH
CARE SYSTEM
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WEDNESDAY, APRIL 27, 2016
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 3:30 p.m., Room
216, Hart Senate Office Building, Hon. Susan M. Collins,
Chairman of the Committee, presiding.
Present: Senators Collins, Corker, Cotton, Tillis,
McCaskill, Casey, Whitehouse, Gillibrand, Blumenthal, Donnelly,
Warren, and Kaine.
OPENING STATEMENT OF SENATOR
SUSAN M. COLLINS, CHAIRMAN
The Chairman. The hearing will come to order.
Good afternoon. This is the third hearing in our bipartisan
investigation into prescription drug pricing. Today we will
focus on Valeant Pharmaceuticals and four drugs it controls:
Syprine, Cuprimine, Nitropress, and Isuprel. These drugs had
been affordable and easy to obtain for decades, but after
Valeant acquired them, their prices went through the roof.
For example, Nitropress, used to treat dangerous cardiac
conditions and typically found on hospital crash carts, cost
about $215 per vial at the time of its acquisition by Valeant.
The very day the deal closed, Valeant hiked the price to about
$650 and later to $880--a 310-percent increase. The price
increases for the other three drugs were even worse: 720
percent for Isuprel, almost 3,200 percent for Syprine, and
nearly 6,000 percent for Cuprimine.
As we will hear from the witnesses on our first panel,
these enormous and unwarranted price hikes have had far-ranging
and severe impacts on patients, hospitals, and our health care
system.
Valeant is much larger and more established than either of
the companies once headed by Martin Shkreli that were the focus
of our last hearing. Like Turing and Retrophin, Valeant also
captured decades-old drugs and charged unjustified prices but
with far broader implications. In fact, it is telling that both
Valeant and Mr. Shkreli identified the same two drugs for price
manipulation.
In 2012, Mr. Shkreli negotiated a deal, which ultimately
fell through, to buy Cuprimine and Syprine from Valeant. Around
the same time, Valeant was analyzing just how high a price
increase it could impose on both of these drugs.
Valeant's monopoly model operates at the expense of real
people. Over the course of our investigation, individuals from
across the Nation have shared their stories with us. Just last
week, a mother called us about her son, a young man with a
disability who has been on Syprine for many years and now is on
week four and counting without medication, which we know can
have serious consequences for his health. Valeant's price hikes
have made life-saving medications inaccessible for some
patients who desperately need them.
Now, the company is quick to point to Valeant's Coverage
Plus Program it instituted, claiming that this program helps
``ensure patients have access to the medication they need.''
Testimonials, however, paint a very different picture. Many
people do not even qualify, and those who may be eligible face
a program that is inefficient, difficult to navigate, slow, and
often too late.
Behind the scenes, Valeant documents show that the program
was designed to benefit Valeant, the company, and to provide
patient assistance only as a last resort.
Valeant has also stated that its price hikes were driven by
the need to make ``a reasonable return'' and to ensure that its
``business is sustainable.'' Indeed, this is exactly the
standard line they gave to one of our witnesses, Berna Heyman,
when she wrote to CEO Michael Pearson to ask why Valeant had
increased the price of the medication she needs to control her
Wilson disease. Mrs. Heyman raised the right question. Valeant
spent nothing at all to develop the decades-old drug Mrs.
Heyman requires, and no change in the drug's formulation
explains the price hike. It costs Valeant just a penny or two
for every dollar it makes on these four medications.
Our investigation has revealed that Valeant has already
recovered the full cost of acquiring these four drugs, and the
cost of manufacturing them is dwarfed by the net revenue they
generate. It is also apparent that these medications make an
outsize contribution to the company's net income.
We can find nothing to explain these dramatic price
increases beyond Valeant's desire to take advantage of monopoly
drugs. Its price-gouging strategy appears to be based on
careful study of the FDA approval process. The company knows it
often takes years before genetic competitors can clear the
hurdles imposed by that process to enter the market and to
compete. During that period, Valeant exploits its de facto
monopoly.
To protect the American public, we must act to address
these market failures. Our hearing today and, indeed, our
investigation are intended to produce policy reforms, such as
the legislation I have introduced with the Ranking Member, to
fast-track the approval of certain generics, especially those
that could compete with decades-old drugs that are vulnerable
to abusive pricing as we have seen from Valeant and certain
other companies. That is our goal.
I look forward to the statement of our Ranking Member,
Senator McCaskill, who has been such a leader on this issue.
OPENING STATEMENT OF SENATOR
CLAIRE McCASKILL, RANKING MEMBER
Senator McCaskill. Thank you, Chairman Collins. I am glad
to be here today for the third of our series of hearings about
rising drug prices.
The first hearing that the Aging Committee held on this
topic examined the market forces that have allowed some
companies to raise prices for their products by hundreds or
thousands of percentage points.
At our second hearing in March, we examined how a new breed
of pharmaceutical companies have become very good at targeting
drugs whose prices can be manipulated without generic
competition, and they have a whole master plan for how they go
about doing so systematically.
We also examined how these companies are being run by
people who are not traditional pharmaceutical executives, such
as Martin Shkreli and Ron Tilles, and the investors are playing
an outsize role in these companies.
At the hearing today, we are here to look at Valeant
Pharmaceuticals. By all accounts, Valeant is the company that
perfected this model of strategic acquisitions and price hikes
that made it Wall Street's dream come true--for a while,
anyway, and it is not surprising that Valeant was such a Wall
Street darling. Valeant Pharmaceuticals maintains some of the
most visible relationships with hedge funds.
Since 2007, Valeant has had at least one and sometimes four
executives from hedge funds like ValueAct and Pershing Square
on its board of directors. In 2008, proving that they were not
pursuing a traditional pharmaceutical business model, Valeant
hired J. Michael Pearson as CEO. Mr. Pearson spent 23 years as
a consultant at McKinsey and had not previously worked for a
pharmaceutical company. Valeant's former CFO, Howard Schiller,
had a similar background. He spent 25 years as an investment
banker at Goldman Sachs, and together they ran Valeant with the
single-minded goal of pumping up its stock prices as much as
possible, which they did very successfully for quite some time.
At one point, the company was worth about $90 billion, more
than some of the best-known names in pharmaceuticals. It was
this sort of apparent free-for-all money grab that drew people
like Martin Shkreli into attempting to replicate Valeant's
success in exploiting market loopholes to make money hand over
fist.
We are going to hear a lot of talk today about how Valeant
cares about patients and R&D, but the documents do not bear
this out. Valeant and its shareholders may have changed their
tune in recent months, but make no mistake. This is the same
company that less than a year ago, Bill Ackman from Pershing
Square was publicly calling a ``special purpose acquisition
company,'' which is a shell company created for the purpose of
buying other companies. At the same time, he was emailing
Valeant's CEO after a quarterly earnings call to tell him that
he sounded ``too defensive'' on price increases.
Today we will hear from Mr. Ackman again, but instead of
hearing about how Valeant is a special purpose acquisition
company, we are going to hear about how productive Valeant is
in drug development and how much Valeant strategically invests
in R&D for the good of society.
I have some questions about that because the last time I
checked, Valeant spent about 3 percent of its revenue on R&D.
I think it is very telling that in the thousands of
documents the Committee has reviewed in this investigation,
there was little mention of what Valeant's business model of
buying companies and drugs, slashing R&D budgets, and raising
prices was doing to help the health care system, patients, or
families. Even Valeant's Patient Assistance Program appears to
be set up solely to increase Valeant's bottom line.
Furthermore, currently there are more questions than
answers regarding Valeant's relationship with Philidor, the
pharmacy that was managing a key patient assistance program for
Valeant. We have included several documents in the hearing
record that shed some light on Valeant's relationship with
Philidor, but they provide only a glimpse into the arrangement,
and I hope to continue our exploration of how Valeant and other
pharmaceutical companies use those so-called specialty pharmacy
relationships.
I know we are going to hear about the regrets, the regrets
from Mr. Pearson and Mr. Schiller, who made Valeant what it is
today, the regrets they have about Valeant's past behavior, and
there certainly have been repercussions. Valeant will be
getting a new CEO in a few weeks, but although Mr. Schiller is
no longer part of company management and Mr. Pearson will no
longer be at the helm of the company, Mr. Ackman and another
Pershing Square colleague remain on the board, and to date, the
price of Nitropress is still $880 per 2-milliliter vial, the
price of Isuprel is still $17,901 for ten 5-milliliter vials,
and the price of Cuprimine is still a whopping $26,188 for 100
pills.
In fact, yesterday a report was issued by Wells Fargo, and
I quote from that report--these price increases have not
stopped. Let me quote from their report that Wells Fargo Equity
Research issued yesterday: ``We remain convinced that price
increases have been and continue to be the key driver of
Valeant growth.'' We estimate even in Q1 2016, based on IMS and
Price Rx data, that the average price of Valeant's top 30
products is up 78 percent year over year just in the first
quarter.
As for turning over a new leaf, I remain skeptical. This
hearing is not about demonizing capitalists or destroying free
markets. These hearings are really grappling with the biggest
threat to our country: the debt. Our debt is being driven by
health care 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 health care sector to benefit
multimillionaires on the backs of patients, and ultimately
taxpayers, cannot continue to happen.
A greedy mentality of identifying companies that can be
acquired simply by where you can get away with raising prices
by the largest percentage possible has real public policy and
health care ramifications, and make no mistake. You can try to
dress up this business model with do-good sounding phrases, but
it is very simple. Purchase the companies that develop a drug
that has little to no competition, give them a healthy profit,
fire the scientists, and jack the prices up as high as you
possibly can get away with. It is using patients as hostages.
It is immoral. It hurts real people. It makes Americans very,
very angry.
In case you have not noticed, the real ramifications in our
political process going on right now could lead to instability
of our Government, our economy, and our standing in the world.
Pigs get fed, hogs get slaughtered. It is time to slaughter
some hogs.
I thank the witnesses for being here today, and I look
forward to hearing their testimony.
The Chairman. Thank you very much, Senator McCaskill.
Before I turn to our fist panel of witnesses, I would ask
unanimous consent that the exhibit binder be entered into the
record. I would lift it to show my colleagues, but it is too--
thank you, Senator Tillis. Is there objection?
[No response.] Hearing no objection, it will be entered
into the record.
We now turn to our first panel of witnesses. I want to
thank each of you for taking the time to be with us today, and
I will turn to Senator Kaine to introduce our first witness,
who is from his home State, the Commonwealth of Virginia.
Senator Kaine. Thanks, Madam Chair, and to the Chair and
Ranking Member for holding this important hearing.
I am very happy to introduce a Virginian, Mrs. Berna
Heyman, who has been described in some of the opening testimony
by our Chair and Ranking Member. Mrs. Heyman has lived in the
Commonwealth of Virginia for more than 40 years. Before
retirement, she was the associate dean of libraries at the
College of William & Mary, a fantastic institution. She
continues to be involved in her community by serving on the
board of directors of the Christopher Wren Association for
Lifelong learning, which is also at William & Mary, and several
other community organizations. Her husband, Joseph, who is a
retired research scientist at NASA, has also traveled here to
be with her today. Ms. Heyman contacted the Committee last
month to share her experience accessing the medication she
needed to treat her Wilson disease after Valeant purchased the
drug and dramatically increased the price, and we will hear her
story, but I want to thank Ms. Heyman for reaching out to us,
for sharing your story so that the American people can benefit
thereby.
Thank you, Madam Chair. That is my introduction, and
welcome, Ms. Heyman.
The Chairman. Thank you very much, and I, too, welcome the
witness.
Next we will hear from Dr. Frederick Askari, an associate
professor and the director of the Wilson disease Center of
Excellence at the University of Michigan Health System in Ann
Arbor, Michigan.
Finally, I would invite Senator Donnelly to introduce our
last witness on this panel who hails from his home State of
Indiana.
Senator Donnelly. Thank you, Madam Chair.
Thank you, Chairman Collins and Ranking Member McCaskill,
for inviting Dr. Richard Fogel to testify at today's hearing.
Dr. Fogel is the chief clinical officer of St. Vincent Health,
a 20-hospital system which includes St. Vincent Indy,
Evansville, the St. Vincent Heart Center, the largest and
highest rated heart program in the State. Previously, he was
the chief executive officer of the St. Vincent Medical Group.
Dr. Fogel earned his bachelor's and medical degrees from
Brown University. He completed his internal medicine residency
and cardiology fellowship at Boston University Medical Center.
He completed his 2-year electrophysiology fellowship at BU and
at St. Vincent's. Dr. Fogel continues with a busy clinical
practice also in cardiac electrophysiology. He is widely
published in journals, including the Journal of the American
Medical Association, the American College of Cardiology, and
Heart Rhythm, the journal of the Heart Rhythm Society.
He has been actively involved in the Heart Rhythm Society.
From 2008 to 2011, he served as chairman of the Health Policy
Committee and has been a member of the board of trustees since
2008. In 2014, he was elected the society's president. He is
currently the past president and chairman of the Governance
Committee.
Dr. Fogel, thank you so much for being here with us today.
The Chairman. Thank you very much, Senator Donnelly.
I am going to ask the witnesses to stand since, pursuant to
Committee Rules, all fact witnesses must be sworn in. Will you
please raise your right hand as I administer the oath? Do you
swear that the testimony you are about to give to the Committee
will be the truth, the whole truth, and nothing but the truth,
so help you God?
Ms. Heyman. I do.
Dr. Askari. I do.
Dr. Fogel. I do.
The Chairman. Thank you. Let the record reflect that all
the witnesses responded in the affirmative.
Mrs. Heyman, we will start with your testimony.
STATEMENT OF BERNA HEYMAN, WILSON
DISEASE PATIENT, AND RETIRED ASSOCIATE
DEAN OF LIBRARIES, COLLEGE OF
WILLIAM & MARY, WILLIAMSBURG, VIRGINIA
Ms. Heyman. Good afternoon, and thank you, Chairman
Collins, Ranking Member McCaskill, and distinguished members of
the Committee, for holding this hearing. My name is Berna
Heyman, and I am here today to share my personal experience as
a Wilson disease patient confronted with sudden and dramatic
increases in drug pricing, and also to speak for others with
devastating illnesses facing high drug price increases.
Having Wilson disease is like being stuck in a tunnel. This
genetic disease is bad enough with its many uncertainties,
risks of organ or cognitive failure, but the exit to the tunnel
is barricaded because of obscene drug costs. The cost increased
by a factor of more than 20 over the past 5 years. The drug is
essential. People can die without it. The drug company deserves
the right to make a profit, but it is unconscionable that one
company, Valeant, can hold Wilson disease patients hostage.
WD is treatable. With proper medication, progress of the
disease can be halted and a patient can live a normal life.
Treatment is aimed at removing excess copper and preventing
reaccumulation. Treatment for Wilson disease is lifelong.
I was undiagnosed for 60 years, making me one of the older
individuals to survive that long without medical intervention.
I was shocked when a radiologist informed me I had cirrhosis of
the liver. A DNA test confirmed that I had Wilson disease, and
I immediately began taking Syprine.
I was a librarian at the College of William & Mary and had
very good health and drug insurance. Upon retirement, I was
insured through Medicare, including Part D, along with
supplemental insurance.
Syprine has been around for more than 30 years. It is an
old drug. As I understand it, Valeant did not spend a cent on
research and development for this drug. Valeant purchased the
drug in 2010 and began increasing prices. My copay for Syprine
was under $700 per year until 2013. By 2014, my projected copay
exceeded $10,000 per year with my insurance paying over
$260,000 per year. That is untenable. Something has to be done.
My doctor and I applied for Valeant's Patient Assistance
Program, and I was denied financial assistance. I then wrote
Michael Pearson, the CEO of Valeant, asking why there was such
a dramatic price increase. Valeant Customer Service replied:
``the investments to develop and distribute novel medicines are
only viable if there is a reasonable return on the company's
investment.''
The president of the Wilson Disease Association and my
doctor communicated with Valeant representatives and were told
I did not qualify for aid because I was on Medicare. I also
applied to the Patient Access Network Foundation and was told
my income precluded support from their foundation.
My doctor and I then discussed switching to an alternative.
In October 2014, I switched to Galzin, a zinc salt. Galzin
works differently than Syprine. It inhibits the absorption of
copper rather than extracting it. Is this treatment sufficient
for me? We are still monitoring its effectiveness. Galzin costs
me about $480 per year. The only reason I changed was the cost,
even though none of the cost is covered by my insurance. My
health was stable with Syprine, and my doctor and I made the
change only under duress. Galzin is not the preferred treatment
for me.
A year after I stopped taking Syprine, a reporter from the
Financial Times interviewed me and then talked to Valeant about
my case. Later that day, a Valeant representative called
offering to help. He noted that while Valeant strives to help
everyone, there are limits because of the Government. He said
he might be able to work with me as an exception. I told him I
did not want to be an exception. I wanted everyone to have the
same opportunity. If the money for assistance comes from
insurance companies, ``we'' are still paying. If the money
comes from the Government, ``we'' ultimately pay the price.
Shifting who pays does not solve the problem.
Then a local florist called inquiring where to deliver
flowers. They told me Valeant sent the flowers with a note
saying it was a pleasure talking to me and to let them know if
they could be of assistance. I refused the flowers and asked
that the sender be informed of my refusal.
My doctor and I received letters stating I was enrolled in
the assistance program and receiving free Syprine--which was
not true. A message was also left on my phone asking if I still
needed help. All of this happened more than a year after I
stopped taking Syprine.
This is my story. I am fortunate, but I do not want others
to face these same challenges. I do not have answers, but as a
victim of this disease and the outrageously high cost of the
preferred drug to treat the disease, I do question how Valeant
can justify, financially and morally, how increasing the price
of Syprine can be done since it is an old drug, out of patent,
and has been reasonably priced until they began manufacturing
it.
Thank you for the opportunity to address the Committee
today and for the opportunity hopefully to contribute to some
action to stem this contemptible development in the pricing of
orphan drugs. I look forward to answering any questions you
might have.
The Chairman. Mrs. Heyman, thank you so much for your
eloquent and compelling testimony.
Dr. Askari.
STATEMENT OF FREDERICK K. ASKARI, M.D., PH.D.,
ASSOCIATE PROFESSOR, AND DIRECTOR,
WILSON DISEASE CENTER OF EXCELLENCE,
UNIVERSITY OF MICHIGAN HEALTH SYSTEM,
ANN ARBOR, MICHIGAN
Dr. Askari. Good afternoon, and thank you, Chairman
Collins, Ranking Member McCaskill, and distinguished members of
the Committee, for holding this hearing. My name is Dr. Fred
Askari, and I serve as director of the Wilson Disease Center of
Excellence at the University of Michigan. I directly treat over
400 Wilson disease patients and consult on dozens of other
cases.
Wilson disease is a rare genetic disorder of copper
processing that is fatal if not diagnosed and treated. Copper
is in the food we eat, and it is an essential trace element
necessary for life. In people with Wilson disease, due to a
genetic defect, copper accumulates to toxic levels. Copper
overwhelms the body, chiefly damaging the liver and brain.
Wilson disease is generally completely manageable with
proper treatment; however, it is a uniformly fatal disease if
left untreated. It can be a crippling disease if copper levels
are not well controlled or if the diagnosis is not made early
enough. Risks of going untreated vary and depend on the State
of disease control at the time, but toxicity can onset in as
few as several weeks after stopping treatment. Risks of not
treating Wilson disease or gaps in treatment include liver
failure, brain damage, and death.
While there is no known prevention or cure for Wilson
disease, there are treatment options, and people managing the
disease with medication are often able to live full, healthy,
and productive lives. The medications must be taken daily for
life. Treatment options utilize two types of action: chelating
agents that prompt the organs to release copper into the
bloodstream to be filtered by the kidneys and eliminated
through the urine; and zinc-based therapies which prevent the
body from absorbing the copper. The standard of care has called
for utilizing a chelating agent at least initially to remove
the excess copper, and when copper levels are stabilized,
patients move to a daily maintenance therapy either through
continuing on a chelating agent or switching to zinc.
Historically, the first line of treatment for Wilson
disease was penicillamine, known by the trade name Cuprimine.
This is a chelating agent that works by removing excess copper.
It has been used to treat Wilson disease since 1956. While
penicillamine continues to work for many, it is no longer the
default for every patient because approximately one-third of
patients experience adverse side effects from this drug. The
gold standard for initial treatment today is trientine, or
Syprine, which causes fewer side effects.
Once the patient has been stabilized with Syprine, some
patients can be switched to zinc treatment. The FDA-approved
zinc acetate is called Galzin and prevents the body from
absorbing copper. In some patients, Galzin causes extreme
stomach upset and gastrointestinal problems.
The persistently increasing price of Valeant's Wilson
disease drugs poses a problem for up to half my patients. One
patient was denied coverage and left off treatment completely
for several weeks. Another, a 17-year-old, lives in fear of
losing coverage when he turns 24, as his mother was forced to
take early retirement. Access to appropriate treatment is
especially a problem for seniors with Medicare.
I have worked with dozens of patients to obtain Syprine
through Valeant's Patient Assistance Program. It is time-
consuming and frustrating. My clinic has had to hire two full-
time employees just to deal with the red tape caused by the
price hikes, such as the paperwork for patient assistance
programs and associated insurance claims. Even when patients
are approved for patient assistance, they cannot be certain
they can stay in the program, and they have to reapply every
year.
While the process of applying for patient assistance
programs is difficult enough as it is, it is especially
difficult for some Wilson's disease patients. Some have
neurological conditions, which can make it even more difficult
for them to navigate the programs. Many patients who are able
to get the drug they need worry they may lose access in the
future and may hoard pills or skip doses trying to prevent
being caught without the drug at some time if there is a lapse
in coverage.
Finally, I am not here to cast blame on the entire drug
industry. Ethical pharmaceutical companies do support research,
which provides new and improved treatments for diseases.
Wilson's patients have many unmet needs with current
treatments. Based on an expectation of reasonable investment
returns, companies invest in developing these new treatments,
such as gene therapy, once-daily dosing regimens, and novel
therapies such as one being investigated, TM, which offers hope
for improved neurological outcomes. We are fortunate that there
are companies which safely manufacture, test, and distribute
medications for rare diseases. One should not confuse companies
which institute sudden and dramatic price increases on
longstanding critical drugs with those which are truly
developing new ones. There is an enormous human cost associated
with these practices. I urge Congress to work diligently to
arrive at policies that will protect patients while maintaining
incentive for new life-saving therapies.
I thank the Committee for investigating this important
issue and for the opportunity to share my concerns. I look
forward to answering your questions.
The Chairman. Thank you so much, Doctor, for your terrific
testimony as well.
Dr. Fogel.
STATEMENT OF RICHARD I. FOGEL,
M.D., F.A.C.C., F.H.R.S., CHIEF CLINICAL
OFFICER, ST. VINCENT, INDIANAPOLIS, INDIANA
Dr. Fogel. Senator Donnelly, thank you for the kind
introduction. Chairman Collins, Ranking Member McCaskill, and
members of the Committee, thank you for holding this hearing
today to explore recent hyperinflation in pharmaceutical
pricing.
As mentioned, I am a practicing cardiologist and
electrophysiologist and also the chief clinical officer for St.
Vincent, which is part of Ascension, the Nation's largest
nonprofit and Catholic health system, with 137 hospitals in 24
States and the District of Columbia. St. Vincent is one of
Indiana's largest employers, with 20 hospitals serving 57
counties.
As chief clinical officer for St. Vincent, I work hard to
focus our providers on achieving what has been called the
``Quadruple Aim'' of population health: to improve the health
of populations, reduce the cost of care, and enhance the
patient and provider experience. Rising drug prices are
contrary to the goals of the Quadruple Aim.
Let me say that as health care providers, we cannot provide
the quality care that our patients deserve without the
partnership of the pharmaceutical industry. We need to protect
intellectual property and reward innovation. We understand that
in certain circumstances the price of a drug may be at a
reasonable premium when that drug represents a true clinical
advancement or breakthrough in treatment. What I find
particularly troubling is when drugs that have been around for
decades are suddenly and steeply increased with no apparent
justification.
As a cardiologist who specializes in electrophysiology, I
have seen firsthand the impact of price increases in two drugs
in particular: Isuprel and Nitropress. When Valeant
Pharmaceuticals purchased these drugs in 2014, St. Vincent saw
the unit price of Isuprel increase from approximately $200 per
vial to approximately $1,265 per vial. We saw Nitropress
increase from about $200 per vial to about $730 per vial.
Combined, these two drugs alone resulted in a nearly $900,000
increase in expense to St. Vincent and a $12 million increase
in cost to Ascension in 1 year.
We have made substantial efforts to reduce our usage of
these drugs where it has been evidence-based and have been able
to achieve reductions, but for some uses, these two drugs are
preferred by many physicians and sometimes have no good
alternatives.
I would also like to note that this work carries cost. It
takes months to gather the data, create potential alternatives,
socialize, move through an approval process, and then
implement. We will not compromise patient safety and will not
recommend switching to an alternative unless the switch is
evidence-based and will not have an adverse impact on patients.
What is disheartening is that all this work can be wiped
out with a stroke of a pen by a pharmaceutical company with no
equivalent patient benefit. Steep price increases do not serve
patients, but they do serve the company's bottom line.
Pharmaceutical cost increases have a real and measurable
impact on the patient. Eventually, these increased drug costs
will contribute to higher insurance premiums and higher costs
for patients. More immediately, our decreased margins affect
our ability to provide other patient services.
For example, one program that I am most proud of is our
Rural and Urban Access to Health initiative, in which we send
health access workers to our communities to assist those who
are poor and vulnerable sign up for insurance and connect them
with other community resources.
We are also developing initiatives to fight the opioid
epidemic. However, increasing budgetary pressures from higher
drug costs impact the creation of these programs which serve
our most vulnerable.
Finally, it is important to note that many small community
and critical access hospitals operate on tight margins. In
recent years, we have seen more of these hospitals close
because the financing was simply unsustainable. While
pharmaceutical inflation is not the only factor in this burden,
it is a significant factor, and left unchecked, it will
contribute to the closing of more community hospitals.
We appreciate the Committee's attentiveness to the issue,
and we strongly support the market-based policy solutions
released by the Campaign for Sustainable Drug Pricing earlier
this week that include additional price transparency,
competition, and value. We would also urge your support for the
340B program.
At Ascension and at St. Vincent, we are dedicated to
providing spiritually centered, holistic care that sustains and
furthers both individual and community health.
Thank you for your time today. We look forward to working
with Congress to improve the health of our populations, reduce
the cost of care, and enhance the patient and provider
experience, and on a personal note, I would really like to
thank Mrs. Heyman for coming forward. As a physician, I know
how much guts and courage it takes to make your medical history
public, and you have done us a great service, so thank you.
The Chairman. Thank you, Dr. Fogel. You have summed it up
well.
Mrs. Heyman, in 2013, you applied for the Valeant Patient
Assistance Program and you were denied. Then in 2015, after you
talked to the media about your experience and about the
outrageous price increase, Valeant calls you and offers to
enroll you in the very same patient assistance program for
which you had earlier been denied, and they made an additional
offer of free medication.
Had anything significant changed with your income, your
insurance status, or other factors between 2013 when Valeant
turned you down and 2015 when Valeant contacted you after you
had talked to the media? If you could turn on your mic, please.
Thank you.
Ms. Heyman. There were no changes in my income, in my
insurance. The only change was that I had talked to the press.
The Chairman. Well, I think that that is, in fact, what
caused them to contact you.
Dr. Askari, it is my understanding that you either teat
Wilson's disease with a drug like Syprine or Cuprimine or
eventually in some cases, if the patient is appropriate for it,
you treat it through a liver transplant. I am curious which is
less expensive today, given these price increases: paying for a
liver transplant and a lifetime of organ rejection drugs, or
paying for a lifetime of Cuprimine or Syprine, the drugs that
have been around for decades and cost very little to
manufacture?
Dr. Askari. Well, first, I would like to say no one should
get a liver transplant if they do not need it. You know, it
would be very wasteful to give a transplant to someone when
there are other treatments for their disease, but the cost of a
transplant is generally estimated at about $100,000, and the
cost of the medications are about $40,000 a year; whereas,
Syprine's costs a month are $40,000, roughly, so we are talking
about a 12fold difference in drug prices between all the
antirejection meds and other medications and the one drug to
treat Wilson disease. Obviously, that is a striking number.
The Chairman. It is indeed, and the reason I ask the
question is to try to put it in context of just how expensive
these drugs have become.
I understand that you serve on the Wilson Disease
Association Medical Advisory Committee and that you have been
treating patients with Wilson disease for more than two
decades. Prior to Valeant's acquisition of Cuprimine and
Syprine, did you or any of your colleagues, to the best of your
knowledge, at the Wilson Disease Association ever encounter a
situation where patients were unable to acquire these drugs at
affordable prices?
Dr. Askari. Not in the United States. Merck was an ethical
drug company that provided this drug, and in large part I think
as a public service at a reasonable price, what seemed to me a
reasonable price at the time, about $120 a month, so we are
looking at quite a difference.
Obviously, you know, in the past the Wilson Association has
looked at Third World countries and wondered how we could get
access to these drugs, but we never thought it would be a
problem here in an affluent country like the United States.
The Chairman. Dr. Fogel, you mentioned the impact on
community hospitals and critical access hospitals, and I
surveyed some of the hospitals in my State and found that they
were having great difficulty in dealing with these price
increases for Nitropress and Isuprel, which they keep on their
hospital crash carts. Even a larger hospital in Maine like
Eastern Maine Medical Center has shown that its costs for
Isuprel, for example--or let me use Nitropress, in 2013, was
$11,250. That soared to $206,500 for the same amount of
Nitropress. For a smaller community hospital, the impact is
even greater.
Could you tell us a little bit more about the threat that
increases in decades-old drugs' prices poses for community
hospitals that may be operating on the edge to start with?
Dr. Fogel. Absolutely. Thank you, Chairman Collins, for the
question. Rural and community hospitals are so critical to take
care of a lot of our population, and these hospitals operate on
a very thin financial margin. I just read earlier this month
that 71 critical access hospitals closed within the last couple
of years. Seventy-one communities do not have hospitals
anymore. That is terrible.
You know, there used to be a hospital named St. Vincent--
now, it was not affiliate with my St. Vincent, but there used
to be a hospital called St. Vincent in downtown Manhattan. It
was the place where the first responders from 9/11 went. That
hospital is closed now. Hospitals close, and when price
increase on drugs unnecessarily, it puts tremendous burden and
pressure on the hospital finances, and left unchecked, if this
rate of inflation continues, we are going to see more hospitals
close, and that is just terrible.
The Chairman. Thank you for your testimony.
Senator McCaskill?
Senator McCaskill. Thank you.
Dr. Fogel, Valeant has said that they have turned over a
new leaf, that they have had a conversion on the road to
Damascus. They have claimed they are now offering up 30-percent
discounts to hospitals, both large and small. This is after
they have increased prices by over 500 percent on some of these
drugs.
The Committee, Chairman Collins and I, received a letter
from Johns Hopkins Hospital about two Valeant drugs, Nitropress
and Isuprel, that the Chairman was just referring to. Let me
read very quickly a couple of sentences from that letter. ``To
date, the Johns Hopkins Hospital has neither received discounts
nor the offer of discounts from Valeant for the inpatient use
of these drugs. After spiking more than 1,000 percent in 2
years, the price of both drugs has remained at their peak for
the last 6 months.''
I decided to check in with some Missouri hospitals about
whether they have been offered these elusive and alleged
discounts by Valeant. I asked urban hospitals and rural
hospitals. I asked large hospitals and small hospitals, and I
want to put on the record how many of them reported to me and
my staff that they had received discounts from Valeant. That
would be zero.
Let me ask you, Dr. Fogel, has your hospital or the
Missouri-based Ascension Health System that you are part of
received any discount from Valeant for Isuprel or Nitropress?
Dr. Fogel. I would like to clarify that I do not negotiate
directly with the drug companies, but I asked the question to
those who do, and we have not received nor have we been offered
any discounts on Nitropress or Isuprel.
Senator McCaskill. Thank you, Madam Chairman. I have no
more questions for this panel. I want to thank you, though,
Mrs. Heyman, for coming forward and talking about what you
encountered, and I think what is important for all of us to
remember is how many thousands of people you represent across a
wide variety of drugs where patients are caught in a financial
sector/Wall Street maneuvering that is putting you in such a
difficult position. Thank you for coming and making this
problem real for us, and I hope for all of our colleagues, so
we are more motivated to see what we can do to stop this
activity in its tracks.
The Chairman. Thank you, Senator.
Senator Tillis?
Senator Tillis. Thank you, Madam Chair and Ranking Member.
You all have done a great job on similar hearings, and I look
forward to the next panel, but not in a good way.
Dr. Fogel, I had a question for you. It is similar to a
question I asked a hospital administrator from North Carolina
when we were dealing with Turing, who I think is an example of
the worst kind of pharmaceutical company out there, but can you
talk a little bit about the other cost if this drug is not
available? You have got the cost to the patient, but if this
drug is not available, the other costs related to caring for
the patient who actually pays for that?
Dr. Fogel. It is really important that we take great care
of patients, and we are going to use the drug if it is the
right drug to use, but we like to develop alternatives,
particularly with these increased costs in Isuprel and
Nitropress, but there is a cost to that. There is a cost
because it takes a lot of time and energy and resources to
explore the different alternatives, to look for the evidence to
say are these alternatives equivalent, because we are not going
to sacrifice patient safety; and then if we determine they are,
to implement them broadly across our system.
It is so interesting that the costs that we spend for
Nitropress and Isuprel is now, despite a reduced utilization of
these drugs, still higher than it was before the 2014 price
increases, so the cost is not only the cost, but the cost goes
far beyond that in the development of these alternatives and
the socialization of these alternatives.
Senator Tillis. Thank you.
Dr. Askari, I believe you mentioned that a lapse in
treatment or gaps in treatment can lead to various
complications, and you mentioned liver failure, brain damage,
and other life-threatening health outcomes. It may vary, I
assume, from patient to patient, but what is the typical
timeframe before lack of access to this drug could start
causing those complications?
Dr. Askari. Well, I think, you know, it depends on how well
the copper is controlled when the drug is withdrawn and how
much damage has already been done to the brain and the liver
before it is withdrawn, so if someone is in the initial phase
of treatment, a 2-or 3-day lapse might even be a critical
juncture for that individual.
Senator Tillis, Whatever you have to do to intervene to
stabilize the patient are additional costs that either
insurance companies, taxpayers, or the individual are paying.
Dr. Askari. Right, and let me be clear: Death is one of the
possible outcomes of withhold treatment. I mean, we are not
just talking about costs here. We are talking about human lives
that are being lost if they do not get access to the drugs.
Senator Tillis. Another question that I had actually I
think for you, Dr. Askari, relates to the nature of rare
diseases, that, you know, some people may think that rare
diseases only affect a very small population. Can you enlighten
this group a little bit more about the nature of not only
Wilson's but the impact on are diseases and the population as a
whole?
Dr. Askari. Yes. I also sit on the board for NORD, a rare
disorders organization, and basically one in nine Americans
have a rare disease, so in aggregate, they are very common, so
even though we have these isolated incidences of a disease
affecting a few thousand or a few hundred or even 100,000
people, the definition of a rare disorder based on FDA criteria
is less than 200,000 patients in the country makes it a rare
disorder, but one in nine Americans have a rare disorder, so in
aggregate, they are very common, and, you know, this is a major
issue that I think all people with rare disorders are
interested in.
Senator Tillis. You could see where a firm that may want to
target a population, the rare disease population would be a
good one if there happens to be a relatively low-cost drug that
is an adequate treatment, they can get to a base that may not
have a broad constituency or network to help them defend
against the practices, so that just makes this practice, I
think, even more despicable than it already is.
Dr. Askari. It is a vulnerable patient population.
Senator Tillis. Well, thank you for that.
Ms. Heyman, I just wanted to thank you for coming forward
and helped shed light on this practice.
Dr. Askari, I also wanted to mention--you said something
that I meant to mention when I first asked you a question. We
need to be very careful when we have these hearings to
distinguish between what are unethical practices and the
Turings of the world--we are here to talk about Valeant and
hear their case today--but that there are numbers and numbers
of ethical drug companies that their research is saving lives
and that we do not want to sweep this entire industry into the
same category of some of the bad actors that the Chair and the
Ranking Member have rightfully brought before this Committee,
so I particularly appreciate your insights into that during
your testimony, and I thank you all three for being here.
Thank you, Madam Chair.
Dr. Askari. Thank you.
The Chairman. Thank you very much, Senator Tillis.
Senator Donnelly?
Senator Donnelly. Thank you, Madam Chair. Dr. Fogel, thank
you. We are very proud of you, and I want to thank the whole
panel.
Dr. Fogel, you talked a little bit about their efforts to
work together or not work together with you. Now, when you look
at Ascension, correct me if I am wrong, but is Ascension the
largest Catholic health system in the country?
Dr. Fogel. I think it is the largest Catholic health system
in the world.
Senator Donnelly. You are the largest Catholic health
system in the world, and Valeant said they have created a
volume-based rebate program to address the concerns of
hospitals, that any hospital not able to access this program
should contact the company directly, and as far as you know, as
of today, had absolutely no success in being part of that.
Dr. Fogel. I spoke to the people who would be part of that.
Senator Donnelly. Yes.
Dr. Fogel. They had conversations, and then they said that
the emails went unanswered and the phone calls went unanswered,
and they were left with no discounts and no rebates.
Senator Donnelly. To the largest Catholic health system in
the entire world.
Dr. Fogel. Yes.
Senator Donnelly. It was not big enough, apparently.
Dr. Fogel. It was not big enough, apparently, yes.
Senator Donnelly. Mrs. Heyman, am I correct in my
understanding that you still suffer from more pain and numbness
than you experienced when you were able to afford Syprine?
Ms. Heyman. There are differences in how I feel and
elements of my condition since I stopped taking Syprine. Some
specifics are I had no cramps--I used to have cramps in my
legs, bad cramps. When I started taking Syprine, they
disappeared and I did not have them for 10 years. Once I went
off of Syprine, I have gotten those cramps back again.
I have also begun having problems with indigestion and have
had to start taking Prilosec, which I never had to take before
while I was on Syprine.
Senator Donnelly. You never would have changed if it was
not for the extraordinary price increase, would you?
Ms. Heyman. That is correct. I would not have changed.
Senator Donnelly. That is all I have for this panel. Thank
you, Madam Chair.
The Chairman. Thank you very much, Senator Donnelly.
Senator Kaine?
Senator Kaine. Thank you.
Ms. Heyman, I have some other questions for you. I just
want to followup on some elements of your testimony and, again,
very glad you are here.
You wrote a letter about these price increases, and then
the response you got from Valeant was basically to say that the
increases were just because of the needs for research?
Ms. Heyman. Correct.
Senator Kaine. It looks like you might have it right there.
Ms. Heyman. I do.
Senator Kaine. If you would just read the relevant portion
of it, that would be great.
Ms. Heyman. Yes. It was that, ``We have implemented rate
increases in Syprine at several stages over the past 6 months
in order to bring the total cost of this drug in line with
market rates of other orphan drugs. While there are many
challenges associated with developing treatments for rare
conditions such as Wilson disease, the investments we make to
develop and distribute novel medicines are only viable if there
is reasonable return on the company's investment and if our
business is sustainable.''
Senator Kaine. Okay, so there are sort of two reasons
there. We want to bring it in connection with the prices for
other orphan drugs could be completely unrelated to conditions.
The orphan drugs are the ones where we kind of get into this
patient as hostage model, so apparently this is kind of a
profit center that folks are focusing on now.
When you read that letter, what was your reaction?
Ms. Heyman. Great anger, distress, outrage. I felt that the
concept of health care was forgetting about the person, that I
am an individual, I am a human, and it is not taking into
account my needs as a human being but, rather, looking at a
profit margin.
Senator Kaine. Later, after the--well, you reached out
through your physician to try to get assistance from Valeant
for, you know, various assistance programs, and they told you
that they could not do anything, and they said kind of there
are Government rules against it? That was kind of vague?
Ms. Heyman. Yes. That was basically--I was having a
telephone conversation, and I kept notes of what was said, and
that was what was said.
Senator Kaine. Then after you talked to reporters, suddenly
there was assistance, so whatever those Government rules were
apparently were not such an obstacle after all?
Ms. Heyman. No, I guess that those were the exceptions.
Senator Kaine. You were told that, you know, this was about
research costs, and we know there was no research, and then you
were told you could not get assistance because of Government
rules, and that turned out not to be true as well.
The last thing I want to ask you is this: If you do not
mind, what was it like to have that conversation with the
doctor where you made the decision, you know, I do not know
what the consequence is going to be as somebody suffering from
Wilson disease, but we have just got to say we have got to go
off the medicine? Just tell us what that discussion was like.
Ms. Heyman. It was actually a horrifying concept, that I
had been very stable and leading a very good life, and I felt
that I was taking a chance, but I did not feel that I had an
option other than to take that chance.
Senator Kaine. Well, I am so glad that you are here to tell
this story.
Ms. Heyman. Thank you.
Senator Kaine. It is going to help us. Thanks.
The Chairman. Thank you very much, Senator Kaine.
Senator Casey?
Senator Casey. Thank you, Madam Chair. I want to thank the
panel.
I wanted to focus my question or maybe two questions on Ms.
Heyman, and I know you are the subject of a lot of questions. I
hope you do not mind each of us asking you a number of
questions. I want to start by citing part of your testimony. I
am reading from I guess it is page 3, the last page of your
testimony. You say, and I quote, ``I do question how Valeant
can justify, financially and morally, increasing the price of
Syprine since it is an old drug, out of patent, and had been
reasonably priced until they began manufacturing it.'' A very
good question to ask, and I think we are all asking that and
similar questions, and I appreciate you bringing that to our
attention.
I wanted to ask you, I know that you have been active in
the Wilson Disease Association, and we may have had an answer
to this, but I am not sure that we did. Are you aware of any
efforts that have been undertaken by either Valeant or its
affiliates to reach out to the Wilson Disease Association to
provide any kind of patient support in the form of
informational sessions regarding the disease or its patient
assistance program, aside from forwarding a number for patients
to call? Are you aware of any kind of outreach like that?
Ms. Heyman. I am aware that there were discussions between
the president of the Wilson Disease Association and Valeant,
and as a matter of fact, I had planned to take some actions and
contact my Senators and Representatives and was told that they
were making some progress with discussions with Valeant and to
perhaps hold off on any other actions I might take. Other than
that, I really could not speak.
Senator Casey. They were asking you to refrain from
contacting Members of Congress?
Ms. Heyman. This was not Valeant. Discussions had been
going on between Valeant and the Wilson Disease Association,
and the Wilson Disease Association people and doctors suggested
that I hold off and see what would happen.
Senator Casey. One of the challenges with the kind of
egregious behavior here is encapsulating it in a manner that is
understandable, because so much of what we are questioning
today and asking ourselves about and asking the witnesses is so
outrageous it is hard to describe to people, but is there
anything else you would want to tell us about your experience
that you hope we would benefit from in the course of pursuing
either the questions in this hearing or otherwise in terms of
policy?
Ms. Heyman. I am very proud to see this inaction and the
fact that the Senate Committee has agreed to look at this
issue, and I think that it is doing something for so many of
us, and I would just add my appreciation for your listening.
Senator Casey. Thank you very much.
The Chairman. I want to thank this excellent panel of
witnesses. You have really put a human face on this problem.
Mrs. Heyman, I particularly want to thank you for coming
forward and sharing your story. You are speaking for so many
other people in the same situation.
Dr. Askari and Dr. Fogel, you also have greatly increased
our understanding of the implications and consequences of these
egregious and unjustified price hikes, so thank you very much
for your time as well.
This panel is now dismissed, and we will move to the next
panel. Thank you.
The witnesses will be seated, and the hearing will resume
order, please.
First today we will hear testimony from J. Michael Pearson,
the chief executive of Valeant.
Next we will hear from Howard Schiller, director, former
chief financial officer, and former interim chief executive
officer of Valeant.
Finally, we will hear from William Ackman, the founder and
chief executive officer of Pershing Square Capital Management,
L.P.
I would ask the witnesses to stand so that I may administer
the oath. Do you swear that the testimony you are about to give
will be the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. Pearson. I do.
Mr. Schiller. I do.
Mr. Ackman. I do.
The Chairman. Thank you. You may be seated, and let the
record reflect that all witnesses answered in the affirmative.
Mr. Pearson, we will begin with your testimony.
STATEMENT OF J. MICHAEL PEARSON, CHIEF
EXECUTIVE OFFICER, VALEANT PHARMACEUTICALS
INTERNATIONAL, INC., BRIDGEWATER, NEW JERSEY
Mr. Pearson. Chairman Collins, Senator McCaskill, and
members of the Committee, thank you for the opportunity to
appear today. I have served as Valeant's CEO since 2008. With
the company's announcement of a new CEO this week, I will be
leaving the company soon.
Over this time, Valeant has grown quickly and
substantially. We are now a global pharmaceutical company with
about 22,000 employees and approximately $12 billion in
revenue. In the United States, we are a leading dermatology,
gastrointestinal, ophthalmology, and consumer health care
counterparty with brands like Bausch & Lomb, Retin-A, and
CeraVe. Valeant makes and markets approximately 1,800 products,
including more than 200 prescription drug products in the
United States.
Price increases in a small segment of our company have
overshadowed our activities in these broader areas, and I
recognize that we, therefore, need to work to regain the
confidence of Congress, the public, doctors, and patients.
As we grew rapidly, we made many decisions of which I am
proud, such as launching new drugs, investing in R&D, and
manufacturing here in the United States, but we have also made
mistakes, including those that bring me here today.
In particular, Valeant was too aggressive and I as its
leader was also too aggressive in increasing the prices of some
of our drugs in our large portfolio of products. In hindsight,
I regret pursuing transactions where the central premise was
based on an increase in price, for example, our acquisition of
Nitropress and Isuprel from Marathon.
We understand Congress' and the public's concerns about
drug prices, and we have sought to respond.
First, we did create a volume-based price rebate program
for Nitropress and Isuprel through two leading hospital group
purchasing organizations, making the discounts widely available
to hospitals across the United States.
Second, for prescriptions at retail pharmacies, we
announced a new program with Walgreens that will provide
substantial savings for patients. We will provide an average
10-percent list price reduction for a majority of our branded
dermatology, ophthalmology, and women's health products, and up
to a 95-percent reduction on certain branded products for which
there is a generic alternative.
We also have longstanding patient assistance programs,
including our programs for drugs that treat Wilson's disease.
The programs include capped copays for commercially insured
patients and up to zero copays for patients below certain
income levels. These programs are designed to ensure that out-
of-pocket expenses do not prevent eligible patients from
receiving the medicines that their doctors have prescribed.
Valeant expects to spend more than $1 billion on patient
assistance programs in the U.S. in 2016.
Moreover, Valeant makes significant and thoughtful
investments in R&D. Our U.S. pharmaceutical R&D spending was
about 8 percent of our U.S. brand pharmaceutical revenue last
year, and we estimate that the total U.S. R&D spending will be
about $400 million in 2016. We have 43 R&D facilities and
approximately 1,000 R&D employees worldwide.
Our approach to R&D speaks for itself. Over the past 5
years, our R&D productivity is 7 times higher than the average
of the 15 pharmaceutical companies with the most new drug
approvals. In the last 3 years, the FDA has approved 6 new drug
applications and issued 13 device approvals to Valeant. Among
these are a number of drugs that Valeant advanced from the pre-
clinical stage to final FDA approval, for example, Jublia and
Onexton. Our U.S. R&D pipeline contains more than 200 active
programs, more than 100 of which we consider significant. We
have more than 20 active Phase II or Phase III studies spanning
ophthalmology, dermatology, and gastroenterology. Our late-
stage products include a treatment of moderate to severe plaque
psoriasis and a topical treatment for glaucoma. These
innovations directly contradict the narrative advanced by those
who have sought to minimize our commitment to R&D.
Finally, I want to address one of my personal regrets. My
public comments left the misimpression that shareholder
interests were my only focus as CEO of Valeant. That is
absolutely not the case, and it is not fair to the 22,000
Valeant employees who work every day to develop and make
available important medicines for patients, nor to the doctors
and patients that we serve. I am grateful for this opportunity
to seek to correct this misimpression before my tenure as
Valeant's CEO comes to an end in the near future.
Thank you again for the opportunity to testify today. I
would be happy to answer your questions.
The Chairman. Mr. Schiller.
STATEMENT OF HOWARD B. SCHILLER, DIRECTOR,
FORMER CHIEF FINANCIAL OFFICER, AND
FORMER INTERIM CHIEF EXECUTIVE OFFICER,
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.,
BRIDGEWATER, NEW JERSEY
Mr. Schiller. Chairman Collins, Ranking Member
McCaskill, and members of the Special Committee on Aging,
thank you for calling me to testify, and I am happy to be here
today.
I joined Valeant in late 2011 as its chief financial
officer. I stepped down from that position after June 2015,
while remaining on the board of directors. I served as
Valeant's interim chief executive officer for approximately 2
months at the beginning of 2016, as Mike Pearson was on medical
leave. I am not currently a member of the management team but
remain on the board today.
As you are aware, in February, I testified concerning drug
price increases before the House Oversight and Government
Reform Committee. Also, on April 6, I was deposed on similar
issues by members of the staff of this Committee. I spent a
full day with the staff, and I hope I was able to provide
information that will be useful to the Committee.
I have previously had the opportunity to be heard, I will
spare this Committee a lengthy opening statement. I appreciate
the chance to be here today, and I am happy to answer any
questions the Committee may have for me.
The Chairman. Mr. Ackman.
STATEMENT OF WILLIAM A. ACKMAN, FOUNDER
AND CHIEF EXECUTIVE OFFICER, DIRECTOR,
PERSHING SQUARE CAPITAL MANAGEMENT, L.P.,
AND DIRECTOR, VALEANT PHARMACEUTICALS
INTERNATIONAL, INC., BRIDGEWATER, NEW JERSEY
Mr. Ackman. Chairman Collins, Ranking Member McCaskill,
distinguished members of the Committee, thank you for the
opportunity to testify and to address your questions today.
I am the CEO of Pershing Square Capital Management, an
investment firm I founded in 2003. Pershing Square manages
several private investment funds and a publicly traded fund.
Our investors include public and private pension plans,
university endowments, foundations, and individuals.
Pershing Square is a highly concentrated investor. We
typically own stakes in 10 to 12 companies which are often
well-known North American companies. We are a long-term
investor with a target holding period of about 4 to 6 years.
We often implement an active investment strategy in which
we work to improve companies that have underperformed their
potential. We do so by becoming a large shareholder, sharing
our ideas, sometimes obtaining board representation, and
assisting the company in making management, governance, and
operational changes. While not every active investment we have
implemented has been successful, the vast majority of companies
in which we have played an active role have dramatically
improved during our period of ownership and continue to do so
years after we have exited.
We believe that thoughtful and engaged investors are good
for public companies, for the capital markets, and for the
economy more broadly.
Pershing Square has been a Valeant shareholder since
February 2015, a little more than 1 year ago, when we purchased
a 5.6-percent stake in the company. Initially, we were a
passive investor in Valeant. Beginning this fall, we began to
take a more proactive role with the company, and most recently,
about a month ago, we became actively engaged in assisting the
company when I and a colleague were invited to join the board.
I first met the Valeant management team in early 2014 when
Pershing Square formed a joint venture with Valeant to pursue a
merger between Valeant and Allergan. After acquiring a stake in
Allergan in April of that year, Valeant and Pershing Square
proposed a merger, and a takeover battle ensued. At that time
we were not a shareholder in Valeant.
In the course of our joint efforts pursuing the Allergan
merger, Pershing Square worked closely with Valeant. When the
merger did not occur, in February 2015, we became a Valeant
shareholder. We believed and still believe that Valeant is a
good company. We were attracted to its highly diversified
product portfolio, its leading positions in ophthalmology and
dermatology, strong management team, its low-cost and
disciplined operating model, and its competitive advantage in
acquiring other pharmaceutical products and companies.
We also liked Valeant's highly productive research and
development companies which focused on later-stage, higher-
probability drug development and the acquisition and licensing
of new drugs and products. We found Valeant's approach to drug
development, acquisitions, and licensing attractive because
most large pharmaceutical companies have in recent years been
unsuccessful in cost-effectively developing new drugs.
Most innovation in pharma in recent years has come from
startups, biotechnology companies, nonprofit research labs, and
university research programs. Once Pershing Square became a
Valeant shareholder, we had much less interaction with
management than we did when we were jointly pursuing the
Allergan transaction. We did not expect to play an active role
in our Valeant investment.
Then, in the fall of 2015, as a result of press reports and
substantial negative public scrutiny regarding the pricing of
two heart-related drugs as well as Valeant's investment in
Philidor, a specialty pharmacy also under scrutiny, the
company's stock price began to decline precipitously and
continued to decline over the months that followed. Valeant has
lost more than 85 percent of its value since August.
As a large shareholder of Valeant, I recognize that our
investment was an implicit endorsement of Valeant's strategy,
including aspects of their strategy about which we do not
approve, namely, the rapid and large increases in the prices of
certain drugs.
In order to protect our investment and the interests of our
investors, we recently elected to take a much more active role
at Valeant. On March 8, Steve Fraidin, the vice chairman of
Pershing Square, joined the board of directors. On March 21st,
about a month ago, I also joined the board in order to help
stabilize the company, assist in a management transition, and
play a more active role in the formulation of the company's
strategy.
As a member of the CEO search committee of the board, I
worked with the board to recruit new management over the last
few weeks. This Monday, Valeant announced that Joe Papa,
previously the chairman and CEO of Perrigo, will become
Valeant's chairman and CEO. Joe has a 35-year superb track
record in the industry, a reputation for forthrightness and
integrity, and substantial expertise in all aspects of the
pharmaceutical industry. I and the rest of the board are
looking forward to working with him to make Valeant a leader in
the industry and the communities it serves.
It is clear in retrospect that even as an initially passive
investor in the company, we should have focused more attention
on drug pricing issues at Valeant. Pharmaceutical companies
play a critical role in our health care system, providing life-
saving medications to patients like Ms. Heyman. The large price
increases that are the subject of today's hearing affected
patients, damaged Valeant's reputation, contributed to health
care inflation, and called into question the company's
commitment to the patient its serves. I take seriously the
responsibilities that come with my role as a new member of the
Valeant board, and I am committed to ensuring that Valeant
implements best practices with respect to drug pricing and
maintaining the company's social contract with the patients and
doctors it serves.
Thank you for having me today. I would be delighted to
answer your questions.
The Chairman. Thank you. We will now have 7-minute rounds
of questions.
Mr. Pearson, you have testified today that you regret
pursuing transactions where a central premise was a planned
increase in the prices of the medicines.
Mr. Schiller, in your deposition you said that you wished
you had opposed the decision to hike the prices so quickly and
all at once. You have stated that you thought the price hike
was too aggressive and that Valeant made mistakes.
Mr. Ackman, in your written testimony, you called the
criticism of Valeant's pricing appropriate and worthy of
inquiry, and stated your commitment to ensuring that this
approach is never repeated.
Mr. Pearson and Mr. Ackman, in light of your regret that
you have expressed, what specific actions are you taking? Are
you going to lower the excessive prices of these four drugs and
others that you have acquired where the price has been hiked so
that they become more affordable? Mr. Pearson, I will start
with you.
Mr. Pearson. Thank you for the question. Yes, we have been
too aggressive on price increases, and that is why we took the
step of offering the discounts on Isuprel and Nitropress. We
have not raised prices at all this year in terms of the
neurology and other business that we have where these products
exist. Also, our most important divisions, which are our
dermatology and Bausch & Lomb, we have actually reduced drug--
we are reducing drug prices through Walgreens. These are
consumer products, so people pick those up at retailers.
We do have a fair amount of investments that we have made
commitments to: manufacturing jobs in Rochester where we are
investing over $500 million of capital, and along with it a
whole bunch of jobs that we are creating in St. Louis. We have
expansions in Greenville, South Carolina, so we have made
commitments to people, capital. We have $400 million we are
spending on R&D. We have important psoriasis products, so we
have to make the tradeoffs and the balance between investments
in R&D and manufacturing, which are not making money today, as
we consider further price decreases, but----
The Chairman. I am talking about the four drugs that we
have particularly focused on today. Is there any plan to reduce
the prices of those drugs?
Mr. Pearson. Two of the four we have reduced prices through
our discount programs. We have not----
The Chairman. Available to hospitals, are you talking
about?
Mr. Pearson. Yes, ma'am.
The Chairman. I have got to tell you, we have yet to find
any hospital that has received those discounts, so I would
appreciate for the record your providing me with a list of
hospitals. There is none that I can find in Maine. There are
none in Missouri. Johns Hopkins says no. Cleveland Clinic says
no. Ascension says no for all of its--so I would ask that we be
provided with that.
Mr. Pearson. We would be happy to. My understanding from
our lawyers is the Committee has the contracts, but we will
provide them, and we will provide them again.
The Chairman. Mr. Ackman, you are going to continue on the
board. You are a major investor. What specifically would you
recommend for policy changes so that we can stop this kind of
abusive behavior in the future?
Mr. Ackman. Sure. Well, just to be specific, I texted our
board chair while I was listening to the hearing and suggested
we have a board call tomorrow to discuss the drugs that are the
subject of today's hearing, and my recommendation is going to
be we reduce the prices of those drugs, and with respect to
Isuprel and Nitropress, I think we can make it easy by just
giving a 30-percent blanket price reduction, and that way we do
not have to individually negotiate deals with hospitals. That
would be my recommendation.
The Chairman. Thank you.
I would like to put up Exhibit 1 because, Mr. Pearson, you
mentioned financial information and that you have some units
that are not doing so well, and this is information that was
provided by Valeant's new CFO, and I believe we have passed out
the exhibit to you.
If you look at Row H, it shows Valeant's net profits on
Cuprimine, exclusive of tax and other interest expenses. The
fact is that Valeant made very impressive returns on Cuprimine:
$25 million in the fourth quarter of 2015 and $7.5 million in
February alone. In comparison, during the same period, Valeant
paid very little for the Cuprimine it sold. If you look at Row
F, you will see it spent only $180,000 in the fourth quarter of
2015 and $20,000 in the month of February.
It does not appear that the cost of manufacturing went up,
and, indeed, when we have checked with the manufacturer, that
is not a factor.
Turning again to Exhibit 1, in February, Valeant paid just
$40,000 for the Isuprel it sold, and it made more than $17
million in net income on that one drug alone.
How do you justify that pricing?
Mr. Pearson. Your figures are correct from a gross margin
standpoint. Thank you for providing the information.
When we set prices, we look at costs of substitutes, costs
of alternatives. We look at the supply demand. I agree that the
price increases were too aggressive, but in terms of the
analysis done by the company, it is looking to make sure that
there are alternatives.
We also invest heavily in patient assistance programs. I
was quite upset to hear--I listened to the first panel. I was
quite upset to hear that Mrs. Heyman had the experience that
she had. I think that--I hope that is an isolated experience.
We track and monitor all customer inquiries, and we provided
all those documents to your staff, and I think we have a pretty
good track record in terms of the patient assistance program.
We are planning to spend over $1 billion of our total revenues
of $12 billion on patient assistance this year.
The Chairman. Well, I can tell you from the Committee's
work that your Patient Assistance Program does not have a good
track record and is viewed as being very difficult to navigate
and as a means of keeping your customers so that they do not go
off their medicine so that you can still get the payments
primarily from commercial insurers, which dwarf the amount that
you are giving in customer assistance.
I would also make the point, before yielding to the Ranking
Member, that you are dealing with a captive audience here.
These patients do not have alternatives. These hospitals, the
gold standard for the conditions treated by Nitropress and
Isuprel, the gold standard are those two drugs. The gold
standards for Wilson disease are those two drugs. That is just
the whole point. That is why they are monopoly drugs. It is not
like there are easy substitutions.
Senator McCaskill?
Senator McCaskill. Thank you.
According to your SEC filings, Mr. Pearson, beginning in
the first quarter of 2013 through the third quarter of 2015,
you State in your filings that your revenue--changes in revenue
have been driven primarily by price, not by growth. In fact, in
only one quarter between 2013 and 2015 did you report that
growth was driven by volume, so price increases has, in fact,
been the entree for your business, correct?
Mr. Pearson. Yes, pricing has driven more growth than
volume, although that is changing over time.
Senator McCaskill. Well, in the first quarter of 2016---
you, Mr. Ackman, own at least 10 percent of this company.
Mr. Ackman. A little bit less, 9 percent, but yes.
Senator McCaskill. A little bit less. Your first quarter
2016 on IMS and Price Rx data, the average price in the first
quarter--keep in mind the yearly inflation is 0.9. According to
Wells Fargo securities report issued yesterday based on IMS and
Price Rx data, the average price of your top 30 products is up
78 percent over last year. Now, you cannot attribute that to
R&D because you do not spend that much on R&D. You spend like 3
percent, right?
Mr. Ackman. We spend 8 percent of our pharmaceutical
revenue on R&D.
Senator McCaskill. Whoa, whoa, whoa. Mr. Schiller, didn't
you agree in the hearing in the House that it was actually 3
percent? Do I need to pull that testimony out?
Mr. Schiller. My recollection was I said it is 3 percent of
total revenue.
Senator McCaskill. Right.
Mr. Schiller. My recollection is that it is--if you looked
at just U.S. pharmaceutical revenue, it would be in the 8
percent--I do not know the precise number, but it would----
Senator McCaskill. Three percent of revenue based on the
testimony that your CFO gave in the House, so you understand
that I think it is misleading to act as if this is a problem
with four drugs. This is the business model.
Mr. Ackman, Exhibit 81 is an email you received in January
2015 from a man by the name of Drew Katz, and you said in your
email to Mr. Pearson about Mr. Katz that he was a very
politically connected and influential person.
Mr. Ackman. Yes.
Senator McCaskill. You said that he had Wilson's disease.
Mr. Ackman. Yes.
Senator McCaskill. He had contacted you----
Mr. Ackman. Yes.
Senator McCaskill [continuing]. about the incredible
problem and the fact that death could result if people could
not get this drug.
Mr. Ackman. Absolutely.
Senator McCaskill. Also the incredible increase in price.
Mr. Ackman. Yes.
Senator McCaskill. You called Mr. Pearson.
Mr. Ackman. I sent him an email.
Senator McCaskill. Okay, and you said, ``We can chat
tomorrow''--and Mr. Pearson said, ``We can chat tomorrow.'' We
do not have email traffic about your chat, but it is my
understanding from you talking to the Committee that he assured
you or Mr. Schiller assured you that anybody who needed help
could get it.
Mr. Ackman. That is correct. It was Mr. Schiller.
Senator McCaskill. Now, you know personally this is going
on in January, before you put approximately $4 billion in this
company. Did you followup to see what they had done about the
price of this drug?
Mr. Ackman. No. I took him at his word.
Senator McCaskill. Did you know, as you had already put
over $3 billion in the company, that they did another giant
price increase on this drug?
Mr. Ackman. I did not.
Senator McCaskill. After you were one of the top five
investors in the company?
Mr. Ackman. That is correct.
Senator McCaskill. With the kind of due diligence that you
have to do when you are investing $3 billion of your investors'
money?
Mr. Ackman. I was not aware of it.
Senator McCaskill. In July 2015, after you were one of the
five biggest shareholders, they increased the price--now, hold
on. Do you know what they increased the price to, from what to
what?
Mr. Ackman. I do not.
Senator McCaskill. As you sit there today?
Mr. Ackman. I do not know exactly, no.
Senator McCaskill. As a member of the board? They increased
it from $6,500 in July 2015 to $26,000 and change.
Mr. Ackman. Yes, it is horrible. It is wrong.
Senator McCaskill. Well, wouldn't you have done due
diligence on this as you were deciding to invest more and
more--you kept investing.
Mr. Ackman. Actually, we did not add more to our investment
at that point in time, but----
Senator McCaskill. Well, you did in November.
Mr. Ackman. I think one of the issues with due diligence in
this industry is it is very hard to find out the prices for
drugs because a lot of drugs are individually negotiated
contracts with payers.
Senator McCaskill. Well, but don't you understand that if
you have gotten this note from somebody who is suffering from
this disease how easy it would have been to followup with the
Wilson Center?
Mr. Ackman. I regret that we did not do more due diligence
on pricing at Valeant, I mean, for sure.
Senator McCaskill. Okay. Let us move on to the price
increase on Isuprel and Nitropress. When you acquired your
stake in Valeant on March 17th, were you aware of the price
increases they had taken on those drugs?
Mr. Ackman. I was not.
Senator McCaskill. If you would turn to Exhibit 45, I
wanted to also ask you about Mr. Jordan Rubin. If you were
offended by the price model that we are talking about with this
company, this is an email from Jordan Rubin about him reaching
out and lobbying Congress about the drug pricing debate, and he
says he is very sympathetic to your side of the story. This is
going to, in fact, Mr. Pearson, this email, but you are copied,
Mr. Ackman. Do you see the email I am referring to?
Mr. Ackman. Yes, I do.
Senator McCaskill. He says he met with the staff of a
member of the House Ways and Means Committee. He met with him
Friday, and he is very sympathetic to your side of the story.
He is very pro-business and wants an adult conversation. ``I
explained the economic and social logic of your business
plan.'' Could you explain the social logic here?
Mr. Ackman. I think I know what he is referring to. It is
not about raising the price of Cuprimine. What it is about is I
think there is a--I think the conventional wisdom is that drug
companies who spend more of their money as a percentage of
revenue on R&D, the better, and that there is---you know,
Valeant's model of kind of higher-return R&D spending and then
acquiring drugs at a later stage of development, licensing
drugs, acquiring other products is somehow not contributing to,
you know, the State of drug development, and I share my
colleague's view and perhaps the person you spoke to's view
that you can create as much value acquiring, you know, small,
fast-growing companies that develop drugs than you can by
developing them yourselves.
Senator McCaskill. Doesn't that require price increases?
Mr. Ackman. No.
Senator McCaskill. Wait a minute. You are telling me you
are going to go buy a company that is selling a drug for Price
X----
Mr. Ackman. Right.
Senator McCaskill [continuing]. and you are going to give
them a price for their company and, therefore, that drug.
Mr. Ackman. Correct.
Senator McCaskill. That is going to be a profit for them.
Mr. Ackman. Very much so, yes.
Senator McCaskill. Yes, and then you are going to take that
drug and charge the same price after you have put your capital
and provided them with a profit? Don't you have to raise the
price?
Mr. Ackman. No, I think----
Senator McCaskill. Can you find me one drug that Valeant
did not raise the price on?
Mr. Ackman. I do not know offhand the price--I do not have
the price list.
Senator McCaskill. Mr. Pearson, one drug that you did not
raise the price on after you acquired it?
Mr. Pearson. Not in the United States.
Senator McCaskill. Mr. Schiller, are you aware of any drug
that you bought or acquired that you did not raise the price
on?
Mr. Schiller. My recollection is when we bought Salix, we
did not raise the price on Xifaxan.
Senator McCaskill. Okay, and we will check that.
I think the point I am trying to make is it is hard to feel
good about the social value of not investing in R&D if we are
adding another layer of profit by buying companies and then
jacking up prices. That is not social good. That is social bad.
I will save my questions for the next round.
The Chairman. Senator Tillis.
Senator Tillis. Thank you, Madam Chair. Gentlemen, thank
you for being here.
Mr. Ackman, is my back-of-the-napkin math right that the
market cap in August 2015 was about $90 billion and now it is
about $12 billion?
Mr. Ackman. That is correct.
Senator Tillis. How many employees does Valeant have in
total?
Mr. Ackman. 22,000.
Senator Tillis. How many of those are in divisions outside
of the drug division, say the Bausch & Lomb, et cetera?
Mr. Ackman. I would not know.
Senator Tillis. Mr. Pearson?
Mr. Pearson. Bausch--we do not--in many countries people do
more than one thing, but the majority of our employees are
probably in the Bausch & Lomb division, in the dermatology
division, and in our emerging markets.
Senator Tillis. It is amazing to me when you think about
it. What would you estimate, since the price increase, your
profits have been derived, the profits that have been derived
from the drugs that we are talking about today, the profit?
Mr. Pearson. I do not have precise numbers, but I would
estimate, you know, 10 to 15 percent.
Senator Tillis. Give me a number. What is the number on
that, dollar-wise, over the period of time that you have gone
through the drug price increases? The point I am making is it
is probably a lot less than the destruction of your market cap
over the last 9 months. Is that fair to say?
Mr. Pearson. Absolutely.
Senator Tillis. Is it also fair to say if you do not get
this right that you have really very little path to get your
market cap back up in the near term?
Mr. Pearson. I agree. Addressing this issue will help a
great deal in terms of----
Senator Tillis. To Mr. Ackman's point, having a board
meeting to discuss getting right on this, something that I am
not clear on, and maybe we could get after the Committee, is
when you talk about a 30-percent reduction in the prices, it is
hard for me to know whether or not that is a significant number
based on where you started, so it would be very helpful if we
could get a kind of chart or illustration saying where you are
when you bought drug, where you were before this became an
issue, and how the discounts actually factor into that. That
will just give me numbers that I can kind of normalize rather
than get tied up in 1 percent or another here.
Mr. Pearson, in your written testimony, you mention that
when you all I guess were working with Marathon and considering
Nitropress and Isuprel, something you said was probably a
mistake, it sounded like Marathon was kind of leading you down
a path or at least presenting you with data that led to the
conclusion in your due diligence that you would be raising
prices because the generics were on the horizon and there is
some trend in the industry to jack up the prices before they
actually get the competition, so in doing that, as you are
completing your due diligence and you are trying to size up the
business case for making the acquisition, did you all go
through the modeling on what you thought you could actually--
the prices you could raise and use that as a basis for your
final decision to acquire the two drugs?
Mr. Pearson. That was an important input. We hired the same
consulting firm that they had used, Marathon had used earlier,
a hospital-based consulting firm. Hospital is not a segment
that we had participated much in before, and that analysis was
one important input.
Senator Tillis. You had already--and the prices that you
ultimately raised, were they roughly what modeled in the
acquisition? More or less?
Mr. Pearson. The prices that we ultimately raised were
higher than what were in the model, and that was because we
subsequently got information that the generics were coming
earlier than we had originally thought.
Senator Tillis. What time horizon is that?
Mr. Pearson. That was in the February timeframe.
Senator Tillis. Mr. Ackman--am I saying that right, or is
it ``Ache-man''?
Mr. Ackman. Ackman.
Senator Tillis. Mr. Ackman, you and a colleague of yours
from your firm joined the board earlier this year. What is
going to be different this time next year if you have any
influence over it? What support from the board do you think you
will have?
Mr. Ackman. A lot is going to change. We have a new CEO
starting probably Monday. A lot of the board is going to turn
over, so we are going to have a new board for the most part. A
number of the new directors have a tremendous amount of
pharmaceutical industry experience, and pricing will be top of
mind.
To your point on the decline in market cap, you know, I
think right now companies where price has been a meaningful
driver of profits, their market caps have declined very
substantially, and that will motivate CEOs not just in this
company but throughout the pharmaceutical sector to focus on
more socially responsible pricing plans.
Senator Tillis. Mr. Ackman, as you get with the board, and,
Mr. Pearson, again get that information so that we can really
get normalized numbers about current price----
Mr. Pearson. Sure.
Senator Tillis [continuing]. targeted discount price. It is
curious to me, some of the prices where you are probably doing
strategic sourcing with Walgreens or whatever, it is
interesting that you are discounting--some drugs may or may not
be discounted unless Walgreens is using leverage to get better
sourcing volumes, but that almost seems like it is creating
less currency for you to go back and do what some of us would
think are the right thing on the drugs in question,
particularly for the rare diseases.
Mr. Ackman, what I would be very interested in, after we
get a normalized chart, kind of a schedule of discounts that
may be planned for the particular drugs in question, it would
be very interesting to see what the current--what the
trajectory will be over time to reduce those drug costs--or
take a position that you will not for whatever reason, but I
think it would be helpful for the drugs in question.
The reason I started my question about the number of
employees and things like this, this is a big employer. A lot
of people's jobs are on the line, and quite honestly, the
leadership made a huge mistake to put some of those jobs at
risk. Nothing could be, I think, more positive for the future
of Valeant than to get right on these issues because today,
because of where we are--and these business practices that only
represent a portion of your business make you look more like
Turing and less like some of the other companies that you would
consider your peers.
Mr. Ackman. Totally agree.
Senator Tillis. We are going to be watching this very
closely, and I think if we can particularly get to the
medications where--it is very difficult to understand why you
would do it. I realize you are in a business. I want you to
make a profit. I want you to employ people, but I also want you
to get right on this issue, and I look forward to your
continued involvement with the Committee, and I thank the Chair
for holding this important hearing, and I thank you for being
here.
The Chairman. Senator Kaine has gone. Senator Casey? I am
sorry. Senator Donnelly came back. Senator Donnelly.
Senator Donnelly. Mr. Ackman, you indicated that you are
going to recommend a 30-percent price decrease.
Mr. Ackman. No, what I said was----
Senator Donnelly. I do not want to misquote you.
Mr. Ackman. What I heard from the presentation from Dr.
Fogel is that his hospital was not getting the discounts that
it is my understanding Valeant had offered, so rather than make
them something you have to apply for, my recommendation to the
board is that we just take the discount and everyone get the
benefit of the discount.
Senator Donnelly. Well, let me ask you this: Isuprel was
$2,183 for ten 5-milliliter vials. It is now $17,901. That is
in about a year and a half time. Why would you not recommend to
the board that--you know, over a 30-percent increase for 1
year, I would think that is a pretty good return rate. Why
don't you charge $3,000 for that?
Mr. Ackman. Look, it is something we will discuss tomorrow.
Senator Donnelly. You will discuss dropping the price of
Isuprel to $3,000? That is over a 30-percent increase in the
original price.
Mr. Ackman. We will absolutely discuss it.
Senator Donnelly. Okay. Nitropress went from $214 to $880
for one 2-milliliter vial. A 30-percent increase, again, a
pretty good shot, would be about 300 bucks. Will you talk about
that as well at the board?
Mr. Ackman. For sure.
Senator Donnelly. Let me ask you this: You have public and
private pension funds that invest in you and put their
confidence in you. Do you think that this is the kind of
business model they want you to pursue? Obviously, they want to
have returns so their investors can retire with dignity. Do you
think they want it to be done on this type of basis?
Mr. Ackman. Certainly not, but I think it is important--
this is--you know, pricing actions here with respect to the
drugs we mentioned and this segment of Valeant's business are
not all of Valeant's business, and what attracted us to Valeant
was not what is called the neuro and other division but,
rather, the Bausch & Lomb franchise, the company's branded
generics portfolio, their Salix acquisition. I mean, there is a
lot of--you know, a lot of good drugs made by this company
where the prices are competitive and reasonable. There are a
lot of consumer products made by this company where the
products are high-quality products and they are priced at
sensible prices.
I think, you know, the point made earlier, you know, a
relatively small percentage of Valeant's business, 10, 15
percent of the revenues of the company have taken down the
company, so that is something we need to fix, and it is going
to be a very high priority of our new CEO.
Senator Donnelly. The other thing I wanted to mention to
you is that those pension funds that invest with you, whether
they are public funds or private funds, it comes out of the
paychecks of individuals who work really, really hard every
single week and who are the same ones who have to take this
medicine.
Mr. Ackman. Sure.
Senator Donnelly. Mrs. Heyman is in much tougher physical
condition because she cannot afford it anymore, so in effect,
your actions--or the actions of this company are affecting the
very people who provide you with the funds to do the investing.
Mr. Ackman. For sure.
Senator Donnelly. Mr. Schiller, I want to ask you about the
manufacturing costs. A ten 5-milliliter vial of Isuprel,
$17,901. You are the CFO, and I do not know if you have this
information. What is the cost to manufacture ten 5-milliliter
vials of Isuprel?
Mr. Schiller. Currently, I am not the chief financial
officer, so I do not have that data.
Senator Donnelly. Okay. Do you know what it was when you
were there?
Mr. Schiller. It would have been very small. The margins
would have been somewhere in the 90's. I do not know where, but
it would have been--the margins would have been quite high.
Senator Donnelly. When you say somewhere small, was it less
than $1,000 for that $17,000 worth of vials?
Mr. Schiller. I would be guessing, but it would be less
than--I would guess significantly less than 10 percent of the
selling price.
Senator Donnelly. Okay. Mr. Pearson, can you get us those
exact manufacturing costs for Nitropress, Isuprel, Cuprimine,
and Syprine?
Mr. Pearson. Yes, I can.
Senator Donnelly. This goes to my next question. Dr. Fogel,
who is from St. Vincent's in my home State of Indiana, a place
we have a great love for, a great affection for, has done
amazing things for the people of our State, and they are part
of Ascension Health System, the largest Catholic health system
in the world, and they did not qualify for your volume-based
prescription program. How is that possible?
Mr. Pearson. They are a great institution, and they
certainly qualified. I do not know what happened. It sounds
like, when I heard the testimony, that someone in our
organization did not get back to them, which is unacceptable,
so I will followup tomorrow and----
Senator Donnelly. Okay, because as we sit here today--and I
am not saying this because I am Catholic, but the largest--with
a name like Donnelly, of course I am, but the largest Catholic-
based health system in the world, as of today, does not qualify
for your volume-based prescription program, and I am not
mentioning it because of the faith, but it tells you huge
organizations still cannot get in.
Mr. Pearson. Well, I appreciate the opportunity to come
here today so that I learned about this. We will followup. I
can assure you that many, many of these large systems are
getting the discounts, but I will followup specifically with
Ascension tomorrow.
Senator Donnelly. I wanted to ask you, in your deposition
you mentioned that on multiple occasions the first question you
ask is about patient access. If that is the first question that
was asked, how did you come up with this pricing structure?
Mr. Pearson. Well, the mistake we made or one of the
mistakes we made--we obviously made a number of mistakes, but--
and I think Senator McCaskill raised the exact right point,
that if you make an acquisition of some older products, in a
way the only rationale for making that acquisition is to raise
prices to earn a return, which you correctly pointed out, so
the mistake was making the acquisition in the first place
because if generics were going to come in in a year, which we
expect they will later this year, that is--so it was as mistake
to pursue that type of deployment of capital, but once you made
that decision, the consequence was a need to raise the price of
the products, and that is why we focused on these patient
access programs to make sure patients would not be hurt. That
is what we tried to do.
Senator Donnelly. I will just say this last thing. All of
us and all of our families focus on human rights. It is a human
right not to be treated this way, to not be where Mrs. Heyman
is, in a situation where she suffers every day now where she
did not before because of what has been done with this, so we
would encourage better decisions as we move forward.
Thank you.
The Chairman. Senator Corker.
Senator Corker. Thank you, Madam Chairman. I have not
attended a lot of Aging Committee meetings, and I appreciate
the opportunity. I am going to digress a little bit, but I will
be very brief.
I have never met Mr. Ackman before, and I appreciate the
opportunity to talk with him a little bit. I have been
fascinated since I have been here with the role that hedge
funds play in trying to shape public policy. Actually, it has
been pretty shocking to me to see the lengths that some hedge
funds will go to try to shape public policy in a manner that
might reap huge benefits.
I was on the way up this week, and catching a flight out of
Chattanooga, and I had a bunch of county mayors talking to me,
and they said, you know, ``Corker, what is this about Congress
bailing out Puerto Rico?'' I said, ``Whoa, whoa.'' I am not
taking a position on the issue itself, but I said, you know,
look, there is no taxpayer money planned for Puerto Rico. A
bunch of hedge funds have bought Puerto Rican debt in the last
year and a half, and they want to make sure that they keep in a
priority position and are able to make as much off this as
possible. That is what is happening here. There is no
discussion that I am aware of of taxpayers being involved in
bailing out Puerto Rico.
I knew Mr. Ackman was going to be here, and, again, I
appreciate the opportunity to talk with you. I had read some
comments you had made about Herbalife, and basically what you
had said is you would take your bet against the company to the
end of the Earth, and I guess it has been well documented, the
case you made to do that, and what you did to try to influence
even public officials, which, again, is perfectly legal.
I just wondered if you might share with us some of the
investments whereby you have made investments in various
companies and then have tried to influence public officials, if
you will, to make sure that you had a good outcome.
Mr. Ackman. Herbalife is the only one.
Senator Corker. That is the only one.
Mr. Ackman. The only one I can think of, yes.
Senator Corker. That is interesting. Let me just ask
another question then, so you have not been involved at all in
trying to shape public opinion regarding Fannie and Freddie? I
know you have been meeting with numbers of legislators and----
Mr. Ackman. I have not been meeting with members of
legislators about Fannie and Freddie. I have certainly
attempted to shape public policy by putting out a public
presentation, but I have not met with any Members of Congress
or the Senate about Fannie or Freddie at all. Herbalife is the
only time in our 12-year history that we have lobbied Congress,
and what I mean by that, I met with a number of Members of the
Congress and the Senate. I think Herbalife is causing enormous
harm. I wish you would hold a hearing on it. This is a company
that is taking, you know, pretty much the entire savings of
mostly Latino members of our society, many of them
undocumented, and, therefore, not in a position to defend
themselves, and you know, this is an SEC-registered company. It
trades on the New York Stock Exchange. It is causing enormous
harm, and you know, fortunately, the FTC has launched a formal
investigation; the SEC has launched a formal investigation. You
know, the people who have been harmed unfortunately are still
waiting for the Government to finish their work. We understand
that the FTC is close to----
Senator Corker. If I could, that is good, and I have got 7
minutes, but I appreciate that, and maybe the Chairman of the
Committee would have a Committee meeting on that.
Mr. Ackman. I would be happy to come.
Senator Corker. That would be good.
On November 13, 2015, a Fortune article mentioned that
under recap and release of Fannie and Freddie, your company,
which I understand invested about $400 million after the
Government had taken over these entities--I think this was
around 2013--that you had invested about $400 million in these
companies--I think it was 388, to be accurate--that over a 5-
year period, if you could cause Congress or the administration
to--or if they just were recapped and released, that you would
make somewhere between $7 and $8 billion off that investment.
Is that accurate?
Mr. Ackman. I think what we said is, you know, the
taxpayers own 80 percent of Fannie and Freddie; 20 percent is
held by the public. Our view is that preserving the 30-year
prepayable fixed-rate mortgage is critical for the country,
critical for the housing market, and that it is not going to
continue unless Fannie and Freddie continue to exist.
Senator Corker. Your investment, which was the question--I
know you are getting into a philosophical discussion about the
company, but the $400 million you invested, if you could just
cause them to go back and do business the way that they were in
the beginning, would yield you about $8 billion. Is that
correct?
Mr. Ackman. I mean, I think if Fannie and Freddie--if the
Government did not sweep away all the profits and they were
allowed to retain capital and continue in the business that
they were formed to do, our investment would appreciate, and
the taxpayers would have another $300 or $400 billion that
could be used for good purposes.
Senator Corker. Just again to be specific, your company
would make about $8 billion. I mean, these are in your own
projections. Is that correct?
Mr. Ackman. I hope it happens. I mean, we made the
investment hoping to make a profit. I think our interests are
aligned with what is good for the country, and I am happy to--I
appreciate the opportunity to speak to you about it.
Senator Corker. I am glad to talk with you, and hopefully
we will talk about it another time.
Mr. Ackman. Then I will come see you.
Senator Corker. Yes. I noticed also, though, in your public
statements that you made a statement, so you have a company
that if it can go back to the status quo--by the way you bought
this stock after the sweep, the dividend sweep was put in
place, so you knew all the conditions as they exist today, but
you invested $400 million hoping some that they would be
recapped and released, and so I was instrumental in passing a
piece of legislation called ``Jumpstart.'' Other members voted
for it, but I noticed in your statements to the public--and
maybe on a conference call--you mentioned that you thought
people misunderstood what Jumpstart did. I was wondering if you
might explain to me what you mean.
Mr. Ackman. Well, look, I am of the view that Fannie and
Freddie are here to stay, and that there would be no housing
market without Fannie and Freddie, and that we did buy stock
after the Government stepped in an expropriated 100 percent of
the profits from these two institutions forever, and I believe
that in this country the Government cannot take private
property without just compensation. I am not looking for
compensation. I just want--you know, the Government stepped in
and bailed out Fannie and Freddie, like they did with AIG and
with Citigroup and other banks, and it was an expensive
bailout, but----
Senator Corker. $188 billion.
Mr. Ackman. Fannie and Freddie have returned $260 billion
to the taxpayer, and----
Senator Corker. Not a dime of that would have been earned
without taxpayers standing behind them. Let me just say this.
Let me explain to you what I think Jumpstart meant. Jumpstart
said that these companies were not going to be recapped and
released unless Congress said so for the next 2 years. It is my
hope to extend that beyond, and that our job here is to ensure
that we do not return to the same model of private gains and
public losses where taxpayers lost $188 billion. This is a very
unusual set-up. I think if you were wearing a different hat you
would agree that it is most unusual to have a company like this
with taxpayer backing that, when things go well, taxpayers do
well; when they do not, private citizens pick up the tab, the
public picks up the tab.
What I would like to explain to you is what it meant was
that over the next couple of years, Congress is going to try to
reform these entities so that that arrangement does not exist
anymore. I am committed to that. I think many members up here
are committed to that, and what that means, I hope, is that we
are not going to just return--I know numbers of hedge funds
have made investments in this entity. Numbers of them are
betting against Congress' ability to reform these, and I would
love to talk to you about this, but I am just saying I think
what Jumpstart meant was that Congress plans to reform these
entities to change this arrangement so that we do not have a
scenario like we have right now where--look, I am all for
people making money, but doing so in a system that is not
favorable to taxpayers is not a good way to do it.
Mr. Ackman. Again, I feel bad about distracting the hearing
from the topic at hand, but we share your same goal. We believe
that we can--we have a solution to the problem that benefits
the taxpayers, does not socialize the risk of the two
institutions, and I will come see you, and I appreciate your
offering me that opportunity.
Senator Corker. Very good.
Mr. Ackman. Thank you.
The Chairman. Senator Kaine.
Senator Kaine. Thank you, Madam Chair.
I have a couple of questions for you, Mr. Pearson, and one
is going to involve an exhibit that has been earlier admitted
into the record that I am having brought to you. It is Exhibit
6.
When I talked to Ms. Heyman, I asked her questions about
the letter that she wrote to Valeant and the response that the
company sent back to her when she asked about the price
increases in Syprine, and this Exhibit 6 is the response letter
of the company's, and I just am trying to understand sort of
the business model here.
She wanted to know why Syprine had increased, and if you
look at the second paragraph of the letter, it basically is two
sentences: ``While there are many challenges associated with
developing treatments for rare conditions such as Wilson's
disease, the investments we make to develop and distribute
novel medicines are only viable if there is a reasonable return
on the company's investment and if our business is sustainable.
We have implemented rate increases for Syprine in several
stages over the past 6 months in order to bring the total cost
of this drug in line with market rates of other orphan drugs.''
Two sentences, and I want to look at each of them.
The first statement about the challenges associated with
developing treatments for rare conditions such as Wilson's
disease, I am correct that Valeant did not develop Syprine,
correct?
Mr. Pearson. That is correct. We purchased it as part of
our Aton acquisition in 2010.
Senator Kaine. Okay, and then, in addition, I think in your
interrogatories you were asked the question whether Valeant
spent any money on R&D on Syprine between 2013 and March 2016,
and the company responded no to that question, correct?
Mr. Pearson. That is correct. Except for fees that you have
to pay every year to keep drugs on markets, it would have been
no spend.
Senator Kaine. Okay, and there was no change in, you know,
the particular medication or the formulation of it during those
years?
Mr. Pearson. That is correct.
Senator Kaine. The first sentence of this letter, the
challenges associated with developing treatments and the
investments we make to develop novel medicines, that is really
completely a red herring with respect to Syprine. You did not
develop it, and you were not doing R&D to change it during that
time.
Mr. Pearson. We use the money that we earn on products
where we do not have expertise from an R&D standpoint; we
funnel that money into R&D and manufacturing in other areas.
Unlike most pharmaceutical companies, we do not pay dividends
or buy back many shares, so all of our money gets recirculated.
It does not get--you know, most pharma companies would give a
dividend to shareholders. We take all our money, but we are
investing it in ophthalmology, dermatology, GI, where we do
have expertise.
Senator Kaine. In this case, the drug that you guys did not
develop and you were not doing any R&D on, the dramatic
increases in price were all going to fund other company
operations either with respect to return on the investors or
other materials you were doing?
Mr. Pearson. Yes, sir.
Senator Kaine. The second sentence here I am interested in
as well: ``We have implemented rate increases for Syprine in
several stages over the past 6 months in order to bring the
total cost of this drug in line with market rates of other
orphan drugs.'' I want to understand what that means.
First, how do you describe the term ``orphan drug''?
Mr. Pearson. Well, I think the technical term is diseases
whether it is 200,000 patients in the United States or less,
but we do have some drugs that treat smaller patient
populations that actually--like Cuprimine, which were
discovered even before the orphan designation was made, so it
would be small--it would be drugs with small patient
populations.
Senator Kaine. What does it mean that your pricing strategy
and the increases in Syprine were designed in order to bring
the total cost of this drug in line with market rates of other
orphan drugs? What were the other orphan drugs that were being
referenced here?
Mr. Pearson. I do not know precisely. I did not write this
letter or do this--you know, send it, but I do know that we
certainly look at orphan drugs in the same category, and there
are some alternatives, and I know that one was priced a lot
higher than our drugs were.
Senator Kaine. And that a drug for Wilson's?
Mr. Pearson. Yes, sir. I think it is--I will get you the
name. I cannot remember it. It is sold by a company called
``Meta'' in the United States.
Senator Kaine. We will submit that question for the record,
and I would like you to respond to it.
Mr. Pearson. Yes.
Senator Kaine. As you look at this sentence now, you did
not write the letter, but you were involved in the pricing
strategies, as you have testified. How is it relevant, and
especially with, you know, patients here, how is it relevant
what the drug costs are for other drugs in terms of what you
charge the patient for this particular drug that you did not
develop and you spent no money to advance through R&D?
Mr. Pearson. A very fair question. When we look at
dermatology products, ophthalmology products--I think our
dermatology, the average price that we get for dermatology
prescriptions is $200-something, and ophthalmology, it is
closer to $100. We look at what competitor products are priced
at because it is in the end a free market system, and we need
to take into account sort of what is the--if you buy a Ford or
you buy a Chevy, there is competition.
Senator Kaine. In your thinking about this free market
system you are describing, is it a factor of relevance at all
that the absence of a drug, a dermatological drug, might cause,
you know, a minor concern and the absence of Syprine could lead
to liver failure or a liver transplant or even death? Is that a
factor?
Mr. Pearson. It is, and that is why we have invested over
$1 billion in patient assistance programs. Again, I was very
disappointed to hear about Mrs. Heyman's experience, and we
will be following up again. We did offer--I do know we did
offer her free medicine for life.
Senator Kaine. After the Financial Times article?
Mr. Pearson. It was after the Financial Times article,
but----
Senator Kaine. Do you understand--you know, we are using
phrase ``orphan drugs.'' Do you understand when we talk about
this as basically a ``patient as hostage'' model, do you
understand why we have come to look at it that way?
Mr. Pearson. I certainly have learned more today, and I do
understand the description that you are giving now.
Senator Kaine. When did that realization strike you that
you were basically making a drug that some people needed to
stay alive and that they did not have a lot of other options
and that these dramatic price increases might, you know, lead
people to have to go into a doctor's office and decide in some
instances that they had to give up a medicine that they were
relying on to keep them alive? Is that something that you
learned today at this hearing?
Mr. Pearson. No, and that is why we have invested for many
years, since I joined the company, heavily in patient
assistance programs, so we could followup patient by patient,
and we do track every patient that calls and make sure that is
run to the ground, I read the reports, and I was disappointed
to hear today that there are a number of patients that are not
getting the medications at affordable prices, and we will
followup on that, but that is why we have invested, you know,
over $1 billion this year in patient assistance programs. It is
for that very reason.
Senator Kaine. Let me just ask one other question, if I
may, Madam Chair. Financial Times, October 8, 2015, ``Valeant's
business model faces tough questions.'' You are quoted. ``In an
interview with the Financial Times on Tuesday, Mr. Pearson
conceded that Valeant's business model was not fully understood
by all investors but insisted the company had `nothing to be
ashamed of.'"
Would that still be your testimony today?
Mr. Pearson. No. In my written testimony and in my oral
comments, I think we have been too aggressive--too aggressive
on pricing. To Mr. Ackman's point, it is not a big segment of
our business, but it is still our business, and again, one of
my big regrets is we have a lot of employees that are doing
great work in the consumer division, in the Bausch & Lomb
division, and in the dermatology business where we provide low-
cost medications and OTC products, create a lot of jobs, bring
a lot of innovation to the market, have a lot of volume growth,
and I think what I was referring to is a small segment of the
business where we clearly have made some mistakes, and I take
responsibility for those mistakes. It is overshadowing all the
great work being done in sort of the other 90 percent of the
business.
Senator Kaine. Thank you. I do not have any other
questions, Madam Chair.
The Chairman. Thank you.
Senator Casey?
Senator Casey. Thank you, Madam Chair.
Mr. Pearson, I will start with you. Isn't it true that,
despite the price increases that we are talking about today for
products such as Syprine, isn't it true that you said in your
deposition you emphasized maintaining patient access as
Valeant's top priority? Isn't that true?
Mr. Pearson. It is one of our high priorities, yes.
Senator Casey. Yet despite that statement, that statement
today and that statement in the deposition, and your company's
so-called patient assistance program, Valeant Coverage Plus, we
have the testimony of Ms. Heyman which I think clearly
indicates that--and I am quoting from the bottom of page 1 and
the top of page 2 of her statement today, that ``My copay for
Syprine was under $700 per year until 2013. By 2014, my
projected copay exceeded $10,000 per year with my insurance
paying over $260,000.''
Do you dispute that?
Mr. Pearson. No, I do not. Mrs. Heyman, as I understand it,
is covered by Government insurance, and we are not allowed to
give copay assistance to people that are covered by Government
insurance, and that is why we offered her the product for free
for life, which we are allowed to do.
Senator Casey. You do not dispute that the copay increased
by----
Mr. Pearson. I totally believe her.
Senator Casey. Also in your deposition, it is Exhibit 14,
page 39, so-called talking points. I do not know if you recall
this or if you have it in front of you. You may be able to
refer to it there. In the talking points----
Mr. Pearson. Is this page 39?
Senator Casey. Page 39.
Mr. Pearson. Okay, 39. Thank you.
Senator Casey. Top of the page is ``Draft Patient Talking
Points.'' That is the document, and I am going to the fourth
bullet, starting with the word ``importantly.'' Do you see
that?
Mr. Pearson. Yes, I do.
Senator Casey. Okay, and under that fourth bullet that
starts with the word ``importantly,'' there are two subparts,
and you say in this--the talking points say, ``We expect that a
majority of the price increase will be absorbed by your health
care provider and there will be no significant increase in your
copay.'' That was in your deposition.
Mr. Pearson. In my deposition I was asked about this
document. I made it clear I had never seen this document except
for preparing for testimony through counsel. This was a program
that apparently was being considered down in the organization.
It was never approved. We never implemented this program.
Senator Casey. You never saw it before your deposition?
That was your testimony?
Mr. Pearson. Except for seeing it from the lawyers a couple
days in advance in preparation, I had not seen this document.
Senator Casey. Okay. Well, someone in the organization was
indicating that there would be no significant increase in the
copay, and obviously, that was transmitted to patients as a
talking point.
Yet in Ms. Heyman's case, out-of-pocket costs went, as I
said, from $700 per year to over $10,000, and she was denied
any patient assistance multiple times, so I guess here is the
basic question, and that is why I set forth a long predicate.
It took three denials, one news article, and a whole year for
her to receive a response. Is that correct?
Mr. Pearson. I think that was her testimony, and I have no
reason to doubt it.
Senator Casey. Explain to this Committee why that would
take that long. Why would it take all of those events and
interventions and, frankly, outrages before she would get a
response to that fundamental question?
Mr. Pearson. Senator, I agree with you it should not have,
and that was--obviously, it was poor execution, and clearly, we
need to improve the execution on some of these programs.
Senator Casey. In the remaining time I have, I will turn to
Mr. Ackman. Mr. Ackman, you said in your testimony today, and I
am quoting from the bottom of page 4, ``Valeant has been
appropriately criticized for substantially raising the prices
of certain off-patent prescription drugs suddenly and without
apparent justification. These issues are worthy of inquiry.''
Then you go on to say you are committed to ensuring they will
never be repeated.
Mr. Ackman. Yes.
Senator Casey. Then in the next paragraph you talk about,
``Getting drug pricing right is a serious issue . . .''
When we read those words, ``worthy of inquiry,'' ``serious
issue,'' it in no way conveys the gravity of this, in my
judgment, and I think that is probably the judgment of most
objective observers, so you say you are on the board. You say
you are trying to get this right. Why should we believe you?
Mr. Ackman. I think actions speak louder than words. I
would say I joined the board of Valeant on March 21st, and in a
month we have made a lot of changes at the company. We have
replaced Mr. Pearson with another executive who has got a
tremendous track record. We are making a lot of changes to the
board of directors. We understand the issue and the problem,
and when I talk about getting drug prices right, you know, it
may seem that the best thing for society is just to reduce the
prices of all drugs, but the reason why in this country we have
the most innovative drug companies in the world is that people
can make a profit and they are highly incentivized to innovate
and come up with new drugs, so I am not in favor of price
controls, but I am certainly not in favor of abusive--taking
advantage of a short-term monopoly to extract massive price
increases. That is totally wrong.
Senator Casey. Look, my point here is I have got your
testimony. It is five pages long. It is single-spaced. There is
a lot of information in here, and I am glad we have it, but you
made reference in your oral testimony here earlier in reference
to one of the questions and one of your responses about social
responsibility. Can you point to anything in this testimony you
submitted today, this written testimony, that speaks to social
responsibility so that this, as your quote is saying, ``never
happens again'' and this is a ``serious issue''? Is there
anything in here that you intend to do or the board intends to
do or the company intends to do to ensure that there is a
social responsibility to this improvement plan, or whatever you
want to call it, that the company is undertaking?
Mr. Ackman. I wrote it, and I read this statement into the
record. I raised my hand to say I believe it to be true to the
best of my knowledge. I----
Senator Casey. Is there any reference in there----
Mr. Ackman. Yes.
Senator Casey [continuing]. reference in there to any
social responsibility?
Mr. Ackman. Yes. I say the following: ``I take seriously
the responsibilities that come with my role as a new member of
Valeant's board, and I am committed to ensuring that Valeant
implements best practices with respect to drug pricing and
maintaining the company's social contract with the patients and
doctors it serves.''
Senator Casey. Okay, and what has the company done to
fulfill that commitment that you made in your testimony?
Mr. Ackman. We have replaced the CEO--well, the first
thing, I wanted to make sure the company did not go bankrupt.
Okay? That is the first thing I have been doing in the last 4
weeks. We had to get a waiver from our banks. We are working on
getting a 10-K filed, and we expect that will be filed by
Friday. Stick with me for 1 second, if I can, please, and we
are bringing in a CEO that has got a great track record,
frankly, in reducing health care costs. Perrigo is known for
bring down health care costs. They are known for making
alternative Wal-Mart branded solutions over the counter and
otherwise and generics, so I think we have identified--you
know, I am not an operating executive of Valeant. I will not
be. I will be a member, I will be one of 10 or 11 members of
the board, but I think this Committee has done an excellent job
elevating the issue of pricing, and it has done a good job
taking about $80 billion off the market cap of Valeant, and I
think that has not gone unnoticed, not just by Valeant but
every other drug company in the country, and I think the impact
of that will be that people will be very sensible before they
think about jacking up the price of a drug----
Senator Casey. I understand that.
Mr. Ackman [continuing]. to extract a monopoly profit.
Senator Casey. Replacing the CEO and making these broad
categorical statements does not change the fact that you still
have no policy to make sure that prices are never increased
this way.
Mr. Ackman. I also said at the beginning of my----
Senator Casey. I have not heard anything about any kind of
social responsibility or any kind of business ethics, but set
that aside for a moment. Just tell us--or I hope the company
will prove to us that in very short order--this should not take
more than weeks----
Mr. Ackman. I agree.
Senator Casey [continuing]. to put into place a new policy
as regards to pricing, not grand promises, not moving around
the chairs in the board room, but a real policy that says it
shall be the policy of this company to not do the following,
and this is the set of rules we are going to live by.
Mr. Ackman. You will have that in weeks, and hopefully--if
not sooner. Our new CEO----
Senator Casey. Do you plan to put----
The Chairman. Senator Casey----
Senator Casey [continuing]. the leadership of the company
through any kind of business ethics?
Mr. Ackman. We have a new CEO. He is going to start, I
believe, on Monday. He is going to show up at the company
tomorrow and start meeting executives, and this is the highest
priority for the company, and as a member of the board, you
know--watch. Watch what we can do.
Senator Casey. You need business----
The Chairman. Senator Casey----
Senator Casey [continuing]. ethics and a code of conduct
and a very specific policy on pricing.
Mr. Ackman. I agree.
The Chairman. Senator Casey, you are way over your time.
Senator Casey. Thank you, Madam Chair.
The Chairman. Even though you are pursuing an excellent
line of questioning, I want to make sure our other members get
an opportunity.
Senator McCaskill. It is rare that we see Bob that worked
up.
The Chairman. Senator Blumenthal.
Senator Blumenthal. Thank you very, very much, Madam
Chairwoman, and I agree that Senator Casey was pursuing an
excellent line of questioning. I want to continue it because I
think that codes of ethics and standards of conduct are a good
line of improvement to pursue, and I welcome your determination
to do it, and I accept your commitment, Mr. Ackman, that you
will, in fact, implement changes in the way that your company
does business.
For me, the real question is: How do we prevent other
companies from going haywire, from the profit motive, from
going out of control, and, frankly, corporate greed from
eclipsing social responsibility? That is perhaps a very stark
way of describing what happened here, and I say it because all
of you have acknowledged that what happened here should not
have happened. Am I correct?
Mr. Ackman. Yes, I think I have an answer to the question.
Senator Blumenthal. You have answered that question?
Mr. Ackman. No, just to--you know, I think this has been a
very effective Committee in a relatively short period of time,
and I think, you know, the point I made before, while raising
the prices of these drugs increased the profits of Valeant, it
destroyed enormous shareholder value, and I think that is--you
know, if you look in the stock market today, drug companies
that have done similar things--and, by the way, Valeant is an
example. Unfortunately, there are many others, and there are
companies, frankly, that have more of their business model is
about raising price. The stock prices of those companies have
declined dramatically, and you know, that incentive will
incentivize the managements of those companies, who are largely
compensated based on how their stock prices do, to adopt more
ethical pricing practices, so I think it is--I think you have,
you know, begun to accomplish that mission.
Senator Blumenthal. It destroyed shareholder value. It also
gravely damaged individual lives, as we have heard today, and
it impacted health care for countless other patients, and this
phenomenon of skyrocketing pharmaceutical drug prices is
impacting the quality of health care in our country, and just
to give you one example, these skyrocketing prices increases
for Isuprel and Nitropress have forced Yale New Haven
Hospital's pharmacy department to consider cutting other drug
expenditures to make up for the cost increases since these two
drugs are the gold standards for treatment, and there are no
really acceptable or at least preferable alternatives, and for
2016, Yale New Haven Hospital estimates it will spend nearly
$2.5 million on these two drugs, which could be spent on health
care for other individuals, so the ripple effect is widespread.
My question really is: What should the Government agencies
have done here? How did they fail? The idea that the
pharmaceutical drug industry is a free market clearly is a
fiction. There are regulatory agencies that, in fact, impose
regulations here, and rules and standards, that should have
prevented this kind of egregious or extreme misconduct, and if
it is not within their purview legally right now, it should be,
and so that for me is the challenge for this Committee, to make
sure there are oversight mechanisms and standards and rules
that would preventively act against what happened here.
I want to ask about two drugs that I do not think you
have--the two other drugs that I do not think you have
mentioned would be reduced in price, Cuprimine and Syprine. Do
you intend to reduce those prices as well? I know you committed
that you would have a board meeting tomorrow and you would
recommend to the board that Nitropress and Isuprel be reduced
in price. Will you commit to the other two?
Mr. Ackman. That will be my recommendation.
Senator Blumenthal. Mr. Pearson, maybe from your
perspective, what could or should have been done by Government
agencies to prevent, in effect, your very excessive price
increases here?
Mr. Pearson. I do not have any great suggestions for
Government agencies. I do believe the markets do work. I do
believe that the dramatic decline in the value of Valeant will
make it--people are going to give a lot of thought to any kind
of significant price increases. The asset values of companies
that have older drugs will go down, and it will not cost as
much to buy them and, therefore, there will be less--so I do
think the market forces will work and the capital markets
will--and I agree that this Committee has played a huge role in
that.
Senator Blumenthal. Mr. Ackman, do you have any
suggestions?
Mr. Ackman. Yes. I think part of the problem is--and,
again, I am not blaming any individuals, but the approval
process for generic drugs is too prolonged a process and it is
too expensive, and the impact of that is when you have got
relatively small drugs, where there is not enough revenues to
justify a generic alternative, particularly in light of the
duration of the FDA process and the expense, you do not see the
competition come in and bring down the price, if we could
streamline the process.
I think the other impact is there has been a lot of
consolidation in the generics business, and I think the
consolidation is driven by the same factors. You know, if it is
incredibly expensive to get through the FDA to get generics
approved, it forces companies to consolidate to get scale so
that they can be competitive. I think if we could bring down
the time and the cost, and if we could--you know, look, if I
was not doing what I am doing now, I think this is a very good
time to launch a generic company because of the consolidation
in the sector, and I do think there is an opportunity, but you
need a lot of capital to start a business to compete against
the big generic companies, but I think that would create the
market competitive forces to address the problem.
Senator Blumenthal. Well, I would just suggest monopolistic
or predatory pricing taking advantage of a monopoly is against
the law, and maybe more active antitrust enforcement in this
area would be appropriate.
Mr. Ackman. Yes.
Senator Blumenthal. Thank you, Madam Chairwoman.
The Chairman. Thank you.
Senator Warren?
Senator Warren. Thank you, Madam Chair, and thank you for
holding this hearing.
Mr. Pearson, I understand you have talked a lot today about
the patient assistance programs that Valeant instituted to help
patients cover the cost of their drugs after the company jacked
up the prices. Now, we can debate how well those programs work,
but I think the discussion raises an even more important
question about patient assistance programs and the copay
coupons that are offered, not just here but across the
pharmaceutical industry, and I would just like to dig into this
a little bit.
For commercially insured patients, those with insurance
that does not come from the Government, or patients without
drug coverage, your primary form of patient assistance is to
reduce what patients pay out of pocket. Is that right?
Mr. Pearson. That is correct.
Senator Warren. Good, so patients do not pay the portion of
the insurance bill that would ordinarily come to them. Is that
right?
Mr. Pearson. That is correct.
Senator Warren. Okay, but copays and coinsurance are
usually either a set fee, like $25, or a set percentage of the
drug price, like 10 percent or 20 percent of the total cost. Is
that right?
Mr. Pearson. That is correct.
Senator Warren. Okay, so if the copay is covered by the
company through a patient assistance program, who pays the
remaining cost of the product?
Mr. Pearson. For commercially covered patients, it falls
into two categories: one, if we have an agreement with an
insurance company, where we are offering big discounts to them
as well, they would pick up the rest.
Senator Warren. If you happen to have an agreement like
that with an insurance company.
Mr. Pearson. Correct.
Senator Warren. If you do not?
Mr. Pearson. If they do not, then the company in that case
would pick up----
Senator Warren. Okay, so the insurance company pays for----
Mr. Pearson. No, no, no. If we do not have an agreement
with the company, the odds are they do not cover the drug, and
then we would----
Senator Warren. Wait a minute. Are you telling me that--
because I want to understand the math in how this works. A drug
used to cost $1,000, and you doubled the price of the drug to
$2,000, and let us just say the individual's copay on that is
now $200. You give the individual a waiver so that the
individual, the patient, is not paying the $200. Are you
telling me the insurance company is not paying $1,800?
Mr. Pearson. I am saying there are two cases. There is a
case of an insurance company that covers the drug. In most
cases, we are also paying them a discount, and they----
Senator Warren. They are going to pay $1,800.
Mr. Pearson. They will pay the rest.
Senator Warren. As long as it is a covered drug, they are
going to pay the $1,800.
Mr. Pearson. Usually less than that, in our case, since we
would be giving them discounts, but, yes, they would pay the
difference.
Senator Warren. They are going to pay the difference, so
when you----
Mr. Pearson. There are others--there are insurance
companies that are not covering that drug, of which we have
many, in which case if you offer that program, then the company
ends up paying.
Senator Warren. Well, so because what is interesting to me
about this is it means, if I am following the math right on
this, you double the price even if you manage to give a waiver
to the customer, you are still making a lot more money on this,
and part of the way I figured this out is there is a Bloomberg
report out that says that the pharmaceutical industry spent
about $7 billion on copay assistance in 2015, and that was up
from $1 billion in 2010. That all sounds pretty good until you
get to the rest of the math.
According to multiple analyses, these programs actually
benefit drug companies when alternatives may be available and
shifting the costs of expensive drugs to consumers and to the
insurance companies, so we all pay higher premiums in order to
cover if the insurance company is still paying for it, and the
drug companies are still picking up the money and putting it in
their pockets.
Here is the question I want to ask you: What is the return
to Valeant on the money that you are currently putting into the
patient assistance program? What is your return on investment
on that?
Mr. Pearson. I do not know. In fact, for patient assistance
programs, we do not look at it as an investment with a return.
Senator Warren. Do not tell me you do not look at it as an
investment, because if it costs you money to double the price
of a drug and then offer a patient assistance program, you
would not be doing it. You are not in this business--I think we
have heard multiple times today you are not in this business to
lose money, so are you telling me you have never done the
analysis of how it is that by offering patient assistance you
keep the patient and the doctor on a much more expensive drug,
they have no reason to move away from that drug, and you are
able to recoup--instead of in my example, the original $1,000,
you are able to recoup $1,800, or whatever arrangement you have
with the insurance company.
The point I am trying to get to is this is obviously a
profitable undertaking for your business, and I just want to
know what your return on investment is on that.
Mr. Pearson. Senator, I have never seen a return on
investment on overall patient assistance programs, and----
Senator Warren. Well, you know, there have been ROI
analyses by independent groups that suggest that the return is
somewhere between 4:1 and 6:1; that is, for every dollar
invested in patient assistance, you are making more money
because people stay on the more expensive drugs, and you just
recoup it from the insurance company, and then everyone else
pays for it. You have not done that analysis?
Mr. Pearson. I have not done that analysis?
Senator Warren. Well, let me ask you a question in a
different direction then. Why don't you use these copay
reduction programs for Federal Government insurance programs
like Medicare Part D or Medicaid?
Mr. Pearson. My understanding is we are not allowed to.
Senator Warren. Yes, because it is illegal, and that is
exactly the problem here. These programs are illegal because
Medicare and Medicaid understand that the programs are scams to
hide the true cost of the products from the consumers and drive
up the cost for all of the taxpayers.
Right now, patient assistance programs and copay programs
are the only available lifeline for some patients, but they are
not a real solution. We cannot simply stand by and pretend that
shuffling around the high cost of these products is enough.
Congress should be doing more to address these high drug
prices, and we need to be doing it now.
Thank you, Madam Chair.
The Chairman. Thank you very much, Senator Warren.
We are going to do one final round of questions, 7 minutes
each.
Senator McCaskill. I will try.
The Chairman. I know.
Senator McCaskill. She is worried because she sees all----
The Chairman. Mr. Pearson, we have heard a lot of talk
today about business ethics, and I went on Valeant's website
because I was curious to see whether there was any statement
there, and the current mission statement of Valeant states that
the following values are essentially to realizing the company's
mission, and first up is a section entitled ``Ethics.'' I am
going to read what the statement says on your website: ``Our
most important objective is to serve our stakeholders,
including the patients and consumers who use our products and
the physicians who prescribe or recommend them.''
How was jacking up the price of Cuprimine by 6,000 percent,
Syprine by 3,200 percent, Isuprel by 720 percent, and
Nitropress by 310 percent in any way consistent with the values
that are expressed in your mission statement where you say it
is your most important objective is to serve patients like Mrs.
Heyman?
Mr. Pearson. I wish I could invite you or I wish you would
be able to spend a week with me in terms of what I do. I spend
most of my time with physicians hearing about the unmet medical
needs they have and the difficulty they have prescribing the
drugs that they think are best for patients. I spend a huge
amount of time with employees. When Howard was my colleague, we
spent time going around the world talking about ethics, talking
about the patients, talking about--so that is how we spend our
time.
I agree that the price increases were too aggressive. I
regret that we took those price increases, but if you spent
time with people--if you spent time with me or Howard or other
people at our company, I think you would see most of our time
is spent exactly on that first mission.
The Chairman. I am sure that you have many, many dedicated,
hardworking employees, but it just seems to me that the pricing
of these life-saving drugs is just so egregious that it is not
consistent with your own ethical standards as put out in your
mission statement, where you say that your most important
objective is to serve patients, consumers, and physicians.
Mr. Pearson. Well, most of our prices of most of our
products--I was mentioning dermatology, somewhere in the $200
range a month; ophthalmology, $100 range. We were in Egypt
where I think their average price is 80 cents, so Valeant is--
again, these price increases which you have identified
correctly, they have created a halo over our company where most
of our activities and most of our employees, the 22,000
employees--and I think it is over 7,000 or 8,000 in the United
States--come to work every day worried about developing safe
and effective products for the patients and the consumers.
The Chairman. I want to better understand why your company
felt it was necessary to take such substantial price increases
on Isuprel and Nitropress. Valeant built a model---and I have
seen the model--to project whether the acquisition would meet
certain metrics of profitability, and then that model is used
as a major tool in determining whether or not to complete the
transaction, in this case to buy the two drugs.
Mr. Schiller, it is my understanding that the model found
that the transaction would be viable financially for Valeant at
a 60-percent increase. That is what was reflected in the deal
model. Is that correct?
Mr. Schiller. I do not recall the specifics in the matrix
that I was shown in my deposition, but it was certainly lower
than the ultimate price increase that was taken.
The Chairman. Well, that is according to the deposition
from Mr. Andrew Davis, and would you have any reason to doubt
his sworn testimony?
Mr. Schiller. I would not.
The Chairman. Valeant could have been profitable with
acquiring these two drugs and raising the price by 60 percent.
That is still a substantial price increase, but it is far
different from the price increase that ultimately was taken.
Could you explain why the price was so much higher than the
60 percent that was recommended in the model? Yes, Mr.
Schiller.
Mr. Schiller. There was a meeting that a number of us
attended--Mr. Pearson, myself, Andrew Davis you mentioned in
the business unit. They reviewed the findings of the consulting
firm. They made a recommendation which was lower than that
price, and Mr. Pearson made a decision to go with the higher
price increase.
The Chairman. Mr. Ackman, I want to turn to your suggestion
that you are going to make to the board that there be a 30-
percent reduction in the price of the drugs we have been
discussing, because I want to put that in context now that we
have had the opportunity to do the math.
The fact is, at least by my math, a 30-percent reduction in
Cuprimine's price would still leave Valeant with about a 4,000-
percent increase compared to when the company bought the
product, and just to give you an idea here, the 2010 rate was
$445 per 100 pills, and patients with Wilson disease would go
through about 100 pills in a month, so that is why I am using
it as the metric--445. The price now is $26,188. If you reduce
that by 30 percent, it is only down to $18,331. You can
probably do that in your head.
Mr. Ackman. Actually, let me be clear. That was not my
testimony. What I said was we have a board meeting tomorrow to
talk about pricing of these products generally. The point I
made about the 30 percent, what I heard from the panel was that
the 30 percent that had been offered to certain hospitals
clearly was not getting through if the hospital systems were
not seeing that price benefit, so I said why don't we just--
instead of individually negotiating these discounts, why not
just make the 30-percent price decrease on Nitropress and
Isuprel across the board? That was my suggestion, but here is
what I think we should do. Tomorrow we are going to talk about
pricing generally. We have a new CEO starting on Monday. You
can expect from us within weeks, and hopefully sooner, a
response to where we are going to price these drugs, and it
will be meaningfully lower than where they are priced now.
Again, I am one member of the board, but----
The Chairman. Right.
Mr. Ackman [continuing]. my expectation is the board will--
I am sure the board is watching the hearing, and I think the
board will support me, and I think this is the right thing to
do.
The Chairman. Even if I use Nitropress and Isuprel as the
example instead of the two Wilson disease drugs, a 30-percent
decrease----
Mr. Ackman. I totally get it.
The Chairman. Okay.
Mr. Ackman. We are going to come up with an appropriate
price based on an appropriate rationale. Thank you.
The Chairman. Senator McCaskill.
Senator McCaskill. Mr. Ackman, first I want to give you a
chance to correct the record. I think you said to Senator
Corker that you had never tried to influence anything on
Capitol Hill other than issues surrounding Herbalife?
Mr. Ackman. Lobbying Capitol Hill. I do not have a
recollection of doing it for anything other than Herbalife.
Senator McCaskill. Well, your company does, though.
Mr. Ackman. Not that I am aware of.
Senator McCaskill. Well, in Exhibit No. 45, this is a note
from Jordan Rubin that he sent to a staffer in the House Ways
and Means Committee, and he says the following: ``Thank you for
taking time in a busy day to talk about drug pricing. My firm
is the second largest shareholder of Valeant. It is clear they
have not done a good job telling their story on the Hill. I
think they would be surprised to learn that you are open-minded
to appreciating their side of argument.''
I got to tell you, Mr. Ackman, if it walks like a duck and
talks like a duck, it is lobbying.
Mr. Ackman. Sure. I think----
Senator McCaskill. That is lobbying, and this is a member
of your firm.
Mr. Ackman. I think what I am referring to--he was taken to
Washington--there is a Wall Street--or a Washington research
firm--I think it might be called ``Washington Research''--that
organized a trip for a bunch of investors to come meet with and
hear from Members of Congress on the issue of drug pricing. He
attended that meeting. I did not think of this as a lobbying
trip.
In the case of Herbalife, we have hired lobbyists----
Senator McCaskill. Hired people.
Mr. Ackman. Yes, exactly.
Senator McCaskill. Okay. Well, that is lobbying, just----
Mr. Ackman. No, no, I would say for sure his statement here
is lobbying.
Senator McCaskill. Okay.
Mr. Ackman. This was--he had one meeting with a group of
other people in Washington, and I do not think of that as what
I described on Herbalife.
Senator McCaskill. Okay. I just wanted to make sure that
clearly if you are--what did you say, second? Second largest
shareholder in Valeant and you want to talk about drug pricing
in Congress, lobbying.
You stated and Mr. Pearson stated that it was really only--
these price increases were only so really large in neuro and
other in terms of categories?
Mr. Ackman. That is where the majority of our higher
pricing took place.
Senator McCaskill. You know the model is present in every
division. We have got--in the diabetes division, we have got a
drug up 800 percent. Carac Cream in the derm segment is up 403
percent. Targretin, a cancer drug, is up 633 percent, so I
think, Mr. Pearson, honestly, to give the impression that these
were isolated incredibly large price increases is just
misleading. Wouldn't you agree with that, Mr. Ackman?
Mr. Ackman. I do not know the specifics on these other
drugs, and, I mean, I would really defer to Mike on this issue.
Senator McCaskill. Well----
Mr. Pearson. I was not trying to be misleading. In the
cases of the examples you just gave, those are drugs that have
recently gone generic, and when drugs go generic, it is
standard in the industry--maybe it should not be, but it is--
that price increases are taken because there are generic
alternatives, and I think all the drugs you just mentioned, if
I have it correct, all have generic--you know, low-cost
generics are available, and low-cost generics have the majority
of the share.
Senator McCaskill. I have got a list of 20 drugs that you
gave the House that have gone up more than 200 percent in just
a couple of years, and let us talk about the drug you
mentioned, Mr. Schiller. When I asked is there any drug that
you have not raised the price after you have acquired it, the
drug you mentioned, you raised the price of it 9 percent just
in the last quarter.
Mr. Schiller. It was my--I thought you asked the question
after acquisition. That was, I believe, 9 months or so after
acquisition, so I stand corrected.
Senator McCaskill. Well, you know, in some of the documents
you gave us, you did not include the two cardiac drugs because
you said, well, you increased it the day you received it. This
is semantics to people who are struggling to figure out why
their health insurance premiums are Nation stabilizing and why
hospitals are charging more and more. This notion--I remember
at the hearing when I first brought this up--and keep in mind,
this question was first asked about pricing in Congress last
summer when I asked the question of you, Mr. Schiller, and you
were quick to point out, well, these were hospitals that were
being charged this, as if we are not paying for it. Health care
is the largest part of our Government debt and continues as far
as the eye can see. This is a big deal to our country, and I do
not think, you know, that you guys understand that you cannot
do this because you can get away it. It is going to stop one
way or the other.
You know, I love free markets, but to call this a free
market, Mr. Pearson, you are identifying drugs where there was
not a free market, where there was a monopoly. Look at Wilson's
disease. You took both of them--not one but both. All that is
left is the drug that Ms. Heyman is stuck with now.
After all the press, Mr. Ackman, after all the subpoenas,
after all the controversy around Philidor, which I have not
gotten to yet, by my count--I know you talk about Herbalife,
but we have got subpoenas from the Justice Department; we have
got an SEC investigation; we have got an FTC investigation. We
have got allegations of fraud right out there from Philidor,
and all of the information about price increases is a problem.
Sixteen of your drugs, their prices were raised in the last 3
months, in January, February, and March.
I mean, how can you guys say--how can you stand here now
and apologize--which I think it is great. I am a little
cynical. It feels like there was as public relations firm
involved somewhere because you sat for a deposition for 9 hours
and never used the words ``apology'' or ``regret.'' Taking you
at your face value that you do feel badly, how do you justify--
and almost every single one of those drugs had huge price
increases last year, and you continued the model to increase
them again in the first quarter of 2016.
Mr. Pearson. is that a question----
Senator McCaskill. Kind of.
Mr. Pearson [continuing]. for me?
Senator McCaskill. I want to give you a chance to respond.
Mr. Pearson. Sure. Well, honestly I was in the hospital
during that period of time.
Senator McCaskill. I realize that. This is probably better
directed toward Mr. Schiller, and we are glad you are feeling
better. I have had health struggles too. I know you were very
ill, and we are glad you are feeling better.
Mr. Pearson. We have not taken any other price increases
ever since this Committee started its work that I am aware of.
We have reduced prices in dermatology and ophthalmology. We
have reduced the--so we have taken seriously, you know, the
requests and the inquiries from this Committee, and we have
dramatically taken a much, much more conservative approach to
pricing, and I think that we are the lowest in the industry now
over that time period in terms of pricing, so we certainly have
listened.
Senator McCaskill. Well, we are in trouble if you are---
over the last year, with everything that has gone on in the
company, if you are 78 percent over last year in the top 30
selling drugs, if you are an industry leader in this area, we
are going to have to have a lot more hearings with a lot more
drug companies.
Mr. Pearson. Well, ma'am, I will have to--I read that
report this morning. I did not read it last night. We have not
published our first quarter results yet. IMS only tracks
certain--it tracks drugs. It does not track our other products.
Many of our other products are not drugs, so, again, I will
have to take a look at that report, but I hope--I suspect there
are some errors in that report.
Senator McCaskill. Well, if there are errors in the report
by Wells Fargo, you certainly have a chance to correct the
record.
Finally, although I have got a lot more, but I am going to
stop. Going back, Mr. Ackman, you seem very sincere today that
you want to change things at this company, but you were very
involved in this company, and you have been for a long time.
Mr. Ackman. We were very involved, not as a Valeant
shareholder but as a partner with Valeant, in attempting to
acquire another pharmaceutical company.
Senator McCaskill. You were very involved after you
started--when you did your SEC filing in March, you were
sending emails back and forth in July giving them PR advice,
approving press releases.
Mr. Ackman. No. Actually, really beginning in the fall.
Senator McCaskill. Okay.
Mr. Ackman. As I mentioned in my testimony, we did get--we
were very concerned about what was going on and, frankly, how
the company was handling and responding to issues that were
raised in the media or not responding to issues that were
raised in the media, and I was urging the company to be more
transparent.
Senator McCaskill. Well, you were defending the company to
Charlie Munger and to Warren Buffett right after you acquired
your bigger share----
Mr. Ackman. No, no.
Senator McCaskill. Yes.
Mr. Ackman. To be clear----
Senator McCaskill. In April 2015, you were defending the
company to both of them.
Mr. Ackman. Well, Charlie Munger said Valeant was immoral,
and I made the point----
Senator McCaskill. Well, he technically said it ``is like
ITT and Harold Geneen have come back to life, only the guy is
worse this time.'' That is what he technically said.
Mr. Ackman. Okay.
Senator McCaskill. I am not aware----
Mr. Ackman. By the way, I am a very vocal--let us put it
this way: I am not a passive investor generally. For me----
Senator McCaskill. Great. That is what I wanted you to say.
Mr. Ackman. Okay, so my point here is Valeant we viewed as
a largely passive investment. We did not think the company was
broken. Most of the companies we invest in---frankly, Valeant
today is a much more traditional Pershing Square investment.
The stock has collapsed, the shareholders have lost confidence.
We come in. We join the board, make changes in management. We
make changes to strategy. We fix the business. That is what we
do for a living. We made the mistake of making a passive
investment in Valeant. You know, we developed confidence in the
team and in the strategy. We clearly did not focus enough on
this pricing issue. It was a small part of the business when we
took a look at the company.
Senator McCaskill. Well, it has been their business model
from day one, and it is very hard for somebody with your
sophistication on Wall Street and your track record on Wall
Street--you understand it is a little hard for me to swallow
that you were not aware that their model was primarily one of
price increases. Let me just finish up, because we could go on
and on.
Mr. Ackman. Sure.
Senator McCaskill. In July, not in the fall----
Mr. Ackman. Right.
Senator McCaskill [continuing]. after the quarterly
earnings call----
Mr. Ackman. Yes.
Senator McCaskill [continuing]. you sent an email--this is
Exhibit No. 59. You sent an email to the CEO, and you were
giving him your advice on how the call had gone. You said, you
know, ``Great quarter, great call. I cannot think of a business
over the course of my career that has delivered such a strong
operating performance and participated in such a large market
and lots of''--you congratulate him on transparency, which
seems ironic right now.
Mr. Ackman. Yes, sure.
Senator McCaskill. Here is the only comment you had on the
call, and I will just leave the hearing with this: ``My only
comment on the call is you sounded a little defensive on the
price increase question.'' Shouldn't he have been defensive,
Mr. Ackman?
Mr. Ackman. Well, certainly, if--the question was not about
Isuprel and Nitropress and Cuprimine, and I have to go back and
read the conference call transcript to see what he was being
defensive about, but you know, clearly there were things I did
not understand about the business, and this was a failure of
due diligence on my part for sure.
Senator McCaskill. I thank all of you for being here today,
and we are glad, Mr. Pearson, you are feeling better.
Mr. Pearson. Thank you.
Mr. Ackman. Thank you very much.
The Chairman. Thank you, Senator McCaskill.
In closing this hearing, I want to begin by thanking our
staff, which has worked very long hours and gone through very
complex documents and has worked very hard on this
investigation.
I also want to note a point that has troubled me which
might help to explain why Valeant pursued this strategy.
Since last fall, Valeant has been saying that the business
unit that houses all four of these drugs is ``not core to its
business or strategy'' and is ``getting smaller and smaller as
a share of net revenue.''
The data that we have looked at demonstrates that the net
revenues from the four drugs we have been examining is rising,
not falling, and, indeed, their contribution to Valeant's net
income rose to a significant 23.3 percent in the month of
February. These price spikes, thus, appear to be very much the
core of the company's business strategy, and that is what is
troubling to me.
The second point that I want to make is I believe this does
represent a market failure, and it represents a failure of the
processes that we have in the Federal Government at the FDA to
try to incentivize lower-priced generics to come to market to
compete with monopoly drugs, and that is why the Ranking Member
and I have collaborated on legislation to change this, but this
is not a free market in any sense of the word. The Government
is a major payer at both the Federal and the State level.
Pharmaceutical companies receive protection under our patent
laws for 10 to 17 years so that they have exclusive rights to
reward them for developing new drugs.
It is, thus, troubling when we see companies--and Valeant
may be the largest of those that we have reviewed, but it is
not the only one--exploiting the system, locating monopoly
drugs that are the gold standard for treatment of very serious
conditions, and then exploiting the system to raise the cost of
these drugs to unconscionable levels, despite the fact that
these companies have not invested one dime in developing these
drugs, which in every case that we looked at, the drugs are
decades old. Nor have manufacturing costs increased. Nor has
there been a change in the formulation of the drug that would
cause there to be a price increase.
That is all very, very troubling, and this kind of price
manipulation and abusive pricing has real consequences. It has
consequences for patients like Mrs. Heyman who cannot take the
drug of her choice that worked the best for her, that she would
switch back to in a minute if the price were not so high. It
has consequences for doctors who are treating individuals who
need these drugs and, as one of our witnesses explained today,
has had to hire two new employees to do nothing but help
navigate the terrain to help patients secure these drugs.
It has consequences for our hospitals at a time when they
are trying to lower health care costs, and they cannot control
the costs of these drugs that they desperately need to treat
their patients, and that is why this issue concerns us so much,
that is why we have begun this investigation, and that is why
we are determined to come up with solutions, legislative
recommendations, policy changes, to solve this problem, and I
know this has not been a pleasant experience for this panel
today, but I hope that you will take your expressions of regret
for what has been done to the pricing of these four drugs and
the harm that it has caused and give us the benefit of your
experience to help us prevent this from happening again.
Again, I do want to thank all of our witnesses who are here
today. We are determined to come up with solutions. This is not
just an investigation to expose the problem. It is an
investigation to help us get to solutions.
Senator McCaskill. I just wanted to put into the record the
Wells Fargo report and PowerPoint presentation on Valeant that
I referred to through the testimony.
The Chairman. Thank you. It will be put into the record.
The Chairman. I would note that Committee members have
until Friday, May 6th, to submit questions to the record, so
you may be receiving some additional questions at that time.
At this point this hearing is adjourned.
[Whereupon, at 6:30 p.m., the Committee was adjourned.]
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APPENDIX
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Prepared Witness Statements
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