[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

=======================================================================

                                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
                              ----------                              
               Priscilla Hanley, Majority Staff Director
                 Derron Parks, Minority Staff Director
                         
                         
                         C  O  N  T  E  N  T  S

                              ----------                              

                                                                   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

                              ----------                              


                       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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