How much of that option premium will Pearson ever see again?
Photograph by Christinne Muschi — Reuters
By Laura Lorenzetti
September 28, 2015

Democratic leaders in Congress are asking Valeant Pharmaceuticals for clear answers as to why it significantly raised prices on two critical heart drugs, and that pressure from lawmakers has fueled a rout in drugmaker shares.

Valeant (VRX) acquired two commonly used heart drugs, Isuprel and Nitropress, earlier this year and proceeded to raise prices on the medicines by 525% and 212%, respectively. The increase prompted an investigation by Democrats Sen. Bernie Sanders of Vermont and Rep. Elijah Cummings of Maryland in August, which has now expanded to the 18 Democrats on the House Committee on Oversight and Government Reform Monday.

The lawmakers sent a letter to the committee’s Republican chairman asking him to issue a subpoena forcing Valeant CEO J. Michael Pearson to testify before the committee regarding “massive price increases.” Valeant has refrained from providing this information to date, which it says is “highly proprietary and confidential.”

“We believe it is critical to hold drug companies to account when they engage in ‘a business strategy of buying old neglected drugs and turning them into high-priced’ ‘specialty’ drugs,” the Democrats wrote.

Shares of Valeant tumbled 16.5% on Monday, while the overall Nasdaq Biotech Index continued its downward slide by another 6%. The biotech index entered bear market territory by the end of last week, falling 13% by Friday’s close after Democratic presidential hopeful Hillary Clinton laid out her proposal Tuesday for fighting climbing drug costs and “profiteering” by pharmaceutical companies.

The mounting pressure from lawmakers has many investors worried that the drug industry will have to account for hefty price hikes for new and older medicines, which could affect the prices pharmaceutical companies can get for their drugs, eventually hurting drugmakers’ bottom lines.

Out-of-control drug prices took over headlines last week when Turing Pharmaceuticals came under pressure for raising the price of its treatment Daraprim by over 5,000% after it acquired the drug in August. Turing CEO Martin Shkreli has already been called to testify before the House oversight committee next week.

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