Democratic Staff’s memorandum to Democratic Members of the Committee on the documents obtained by committee from Valeant Pharmaceuticals.

To: Democratic Members of the Committee
Fr: Democratic Staff
Re: Documents Obtained by Committee from Valeant Pharmaceuticals

As part of its investigation into the skyrocketing prices of certain prescription drugs, the Committee has obtained more than 75,000 pages of documents from Valeant Pharmaceuticals International, Inc. In February 2015, Valeant purchased Isuprel and Nitropress, which treat abnormal heart rhythms, congestive heart failure, and hypertensive episodes, for $350 million, and increased their prices by 525% and 212% overnight. The documents obtained by the Committee include emails to and from Valeant executives, including CEO Michael Pearson, internal and external company projections and analyses on revenues and profits, and various public relations strategy documents.

The documents indicate that Mr. Pearson purchased Isuprel and Nitropress in order to dramatically increase their prices and drive up his company’s revenues and profits. Valeant’s actions followed nearly identical actions by its predecessor, Marathon Pharmaceuticals, which bought the same two drugs in 2013, and increased the prices by 384% and 486%. Marathon’s actions resulted in significant public criticism and congressional attention, including at a hearing before the Senate Subcommittee on Primary Health on November 20, 2014, directly before Valeant purchased the drugs.

The documents obtained by the Committee demonstrate that Valeant identified goals for revenues first, and then set drug prices to reach those goals. Valeant employed this strategy for both Isuprel and Nitropress, generating gross revenues of more than $547 million and profits of approximately $351 million in 2015 alone. In contrast, Valeant’s research and development expenses for Isuprel and Nitropress were “nominal.”

The documents also demonstrate that Valeant employed a public relations strategy used by other drug companies to distract public attention away from its price increases to focus instead on patient assistance programs, particularly with respect to several Valeant drugs that treat small patient populations. In fact, the documents indicate that Valeant used its patient assistance programs to justify raising prices and to generate increased revenues by driving patients into closed distribution systems.

Although Valeant officials anticipated that both drugs would eventually face competition from generic manufacturers, the documents obtained by the Committee show that they sought to exploit this temporary monopoly by increasing prices dramatically to extremely high levels very quickly.

Information obtained by the Committee shows that Mr. Pearson utilized this strategy with many more drugs than Isuprel and Nitropress. From 2014 to 2015, Valeant increased the prices of more than 20 additional “U.S. Prescription Products” by more than 200%. Valeant raised the prices of several of these products multiple times from 2014 to 2015, in some cases by as much as 800%.

This memorandum provides excerpts from the documents obtained by the Committee in order to help Members prepare for Thursday’s hearing on this topic.

Valeant’s Purchase Of Isuprel And Nitropress And Massive Price Increases

The documents obtained by the Committee demonstrate that Mr. Pearson purchased Isuprel and Nitropress with the purpose of increasing their prices in order to generate massive revenues for his company. The documents indicate that Valeant believed it could repeatedly increase prices without negative repercussions since these drugs are administered by hospitals, which are less sensitive to price increases than individual consumers. The documents also show that Valeant developed a strategy of raising prices to meet revenue goals that it applied across a wide range of pharmaceutical products.

  • On December 3, 2014, Andrew Davis, Valeant’s Senior Vice President for Business Development, emailed Laizer Kornwasser, a former Valeant Executive Vice President, and others at Valeant about purchasing Isuprel and Nitropress from Marathon. He wrote: “FYI, potential ‘Other’ opportunity company is marathon, value is largely derived from 2 hospital products they bought from Hospira which have no IP [intellectual property protections].” Steven Sembler, the General Manager of Neurology, responded: “In looking at the information, we would have to do this for the two products that make up VAST majority of revenue. This would also have to be a price play (if we determine there is upside to take price) as we don’t have a sales team calling on hospitals (ie no direct promotion).”
  • On December 29, 2014, an analyst with an outside consulting firm sent an email to Mr. Pearson with a presentation on Isuprel and Nitropress. He wrote: “In a nutshell, most of the products reviewed (Marathon, Covis, and VRX) are not on the radar and have material pricing potential.” The attachment stated: “Smaller/older products (e.g. Isuprel and Nitropress) are not reviewed on formulary … Products have been in the system for so long that reviews are practically rubber stamped.” It added: “However, some P&T [pharmaceutical and therapeutic] committee members have noticed a spike in older product pricing (and supply issues). Select manufacturers have pick [sic] up these types of old products and raised prices dramatically Manufacturers have used product shortages to drastically increase price post-resolution P&T committee starting to look into use of drugs that exceed certain pricing threshold (e. g., increase of2x, price/dose $200, total cost >$20k).”
  • A presentation dated January 16, 2015, from an outside consulting firm entitled “Nitropress and Isuprel Pricing Flexibility Review” stated, with respect to Nitropress: “With roughly 1 year of data showing essentially static volume performance after a substantial price increase (350%), MME [Medical Marketing Economics] believes pricing flexibility may still exist for the product up to the perceptual price point of $1,000 per vial.” The presentation concluded: “With current WAC [Wholesale Acquisition Cost] pricing at $214 per vial, Nitropress is likely to still have flexibility by multiple orders of magnitude.” Regarding Isuprel, the presentation stated: “Similar to Nitropress, one year of market data does not indicate negative consequence, following a substantial price increase (350%). MME believes the price for one vial of Isuprel may be adjusted to $700″
Valeant VRX new CEO
Chart via S&P Capital IQ

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Valeant has responded with the following statement

  • Before Valeant purchased Nitropress and Isuprel, it commissioned outside consultants to review the drugs’ pricing. Those consultants concluded that, given the significant reimbursements hospitals received under bundled rates for procedures, the prices of both drugs did not reflect their true value to hospitals and patients.We try to set our prices at the appropriate levels, but we also listen to the market. In this case, we’ve heard from hospitals, as well as from Congress, that we set the price for these two drugs too high, and we’ve responded by offering volume-based discounts of up to 30% for each of them.We are also making overall changes to how we run our business. Under our recent partnership with Walgreens we will be offering 10% price reductions on some of our most popular drugs and up to 95% reductions for a large number of our branded drugs for which there is a generic alternative. Going forward, we expect our growth to be driven more by volume than by price.

    When we set the price of any one drug, we do it in the overall context of our portfolio of approximately 1,800 products, including more than 200 prescription drugs in the United States, and the need to fund our robust companywide research and development programs, our expanding U.S. manufacturing base, and our patient assistance programs. In 2016, we expect to invest approximately $400 million on R&D, $484 million in expanding manufacturing in Rochester, NY, and $1 billion in our patient assistance programs that seek to ensure that out-of-pocket expenses do not prevent eligible patients from receiving medicines they need.