Health and Science

Congress turns up heat on Valeant over pricing, Philidor

Valeant, Walgreens strike distribution deal

A Congressional committee ratcheting up the pressure on two embattled pharmaceutical companies is planning to hold a public hearing on rocketing drug prices in coming weeks — possibly with the heads of Valeant Pharmaceuticals and Turing Pharmaceuticals in the hot seat, it was revealed Wednesday.

And a leading member of that committee, wielding the threat of a possible subpoena, also wants Valeant to hand over its internal review of its since-severed relationship with the controversial specialty pharmacy Philidor Rx Services, as well as other documents he says the company has refused to disclose so far.

Read MoreValeant Pharmaceuticals cuts revenue, profit forecasts

Questions about its relationship with Philidor, as well as Valeant's aggressive drug-pricing strategy, contributed to a stunning fall in Valeant's stock price this fall.

Valeant, which has denied suggestions from a short-seller that it used Philidor and other specialty pharmacies to commit accounting fraud, is also under investigation by two federal prosecutors' offices, in Massachusetts and New York, in connection with its patient-assistance programs and pricing decisions.

Michael Pearson, chief executive officer, Valeant Pharmaceuticals International Inc.
Kevin Van Paassen | Bloomberg | Getty Images

Rep. Jason Chaffetz, the Utah Republican who chairs the House Oversight and Government Reform Committee, has agreed to hold a hearing on rising drug prices, soon, a Democratic committee staff member told CNBC.

The committee's Democratic minority plans to invite Valeant CEO J. Michael Pearson to testify at that hearing, the staffer said.

Disclosure of that planned invite comes as Valeant hosts an investor day on Wednesday, and a day after it announced a deal with Walgreens to distribute some of the company's drugs at a discount. Pearson told CNBC's "Squawk Box" Tuesday that the deal with Walgreens "more than replaces" Valeant's revenue from Phildor, with which it cut ties with after questions were raised about their relationship.

The Republican majority plans to invite Martin Shkreli, the CEO of Turing, to testify at the oversight committee's hearing, the Democratic staffer said.

Shkreli became the poster child for spiraling drug prices earlier this year when Turing raised the price of its drug Daraprim to $750 per pill from $13.50. Daraprim's primary customers include patients with HIV and pregnant women suffering from toxoplasmosis, a parasitic infection.

Martin Shkreli
Paul Taggart | Bloomberg | Getty Images

In a scathing letter to Pearson dated Wednesday, Rep. Elijah Cummings of Maryland, the ranking Democratic member of the committee, noted that earlier this year he had written asking Valeant to produce documents related to "your company's decision to dramatically increase the prices of two heart medications, Isuprel and Nitropress, by 525% and 212%, immediately after acquiring them in February."

"I also wrote to you last month requesting interviews with several Valeant officials about your decision by the company not to disclose its relationship with a specialty pharmacy known as Philidor," Cummings wrote.

"To date, you have provided none of the requested documents or interviews. Instead, you hired a crisis management firm and retained a law firm in Washington, D.C., that specializes in defending large banks and pharmaceutical companies before Congress."

A woman on an escalator in a Walgreens store in New York.
Valeant strikes distribution deal with Walgreens

Cummings continued, saying that Valeant's refusal to produce the documents or officials "is obstructing this congressional investigation" into drug price hikes, "and preventing a full understanding of your company's suspect action."

"Your failure to provide any legitimate justification for this obstruction raises additional, serious concerns about your company's lack of transparency with your own shareholders, with regulating agencies, and with Congress," wrote Cummings.

He asked that in preparation for the upcoming hearing that Pearson provide the requested documents and interview with officials, as well as additional documents, by Jan. 8.

"I request that you comply voluntarily with this request so that a subpoena will not be necessary," he wrote.

Behind the tricky balance of drug price and supply

Cummings told Pearson that among the new documents he wants to see is the report of an "ad hoc board committee" of Valeant that was tasked with reviewing allegations into the company's business relationship with Philidor.

The congressman noted that Valeant ordered that review amid media reports alleging that Valeant executives helped run Philidor's operations, and that those execs had used fake identities in communications with Philidor workers to hide their connections to Valeant.

Press reports also had suggested that "Valeant employees received guidance about how to resubmit rejected insurance claims to obtain higher reimbursement amounts," Cummings wrote.

Cummings said that Valeant's claim in an Oct. 26 investor call that Philidor operates independently of Valeant "is highly dubious ... given Valeant's own admissions that it 'has the right to appoint employees to Philidor including a head compliance officer and an in-house lawyer,' " and also had rights to Philidor's books, records and facilities.

Valeant also an option to buy Philidor for $100 million, which it acquired in 2014. Phildor's financials were consolidated into Valeant's own financial filings, Cummings noted.

FDA approves 3D printed pill.
Express Scripts, Imprimis to offer $1 Daraprim alternative

Pearson, during his "Squawk Box" appearance on Tuesday, in reference to questions about the propriety of Philidor's business practices, said, "I'll say it again, there's been no proof that these allegations are true."

"I was unaware of any of the allegations going on," Pearson said.

Pearson also drew a distinction between Valeant and Turing.

"To compare us to Turing is ridiculous," Pearson said, noting that Turing is a single-product company but Valeant employs 22,000 people around the world with thousands of products.

"The last three months have been pretty busy, but I've spent a fair amount of time down in Washington, and we are getting to know and talking to a number of people and sort of explaining our company," he said. "And people have been receptive in terms of understanding the difference between a single-product company that increased price versus a broad portfolio or products."

"And if you look across the pharmaceutical industry, and you actually look at the data, all these large companies have taken significant price increases as well."