(Add comments by analyst and expert, updates share price)
By Ransdell Pierson and Bill Berkrot
Oct 15 (Reuters) - Valeant Pharmaceuticals (N:VRX) International
Inc, already under fire over steep price hikes for two heart
drugs, said it had been subpoenaed by U.S. prosecutors seeking
details on its patient assistance programs, drug pricing and
distribution practices.
U.S.-listed shares of Valeant VRX.N , which said it would
cooperate with the investigations, slumped 6.7 percent to
$165.33 in afternoon trading on Thursday.
The Canadian company, which was rapped by Democratic
lawmakers in late September over those price increases, said
late Wednesday it was reviewing subpoenas from the offices of
attorneys for the District of Massachusetts and the Southern
District of New York. urn:newsml:reuters.com:*:nL1N11Y1PZ
Valeant tripled the price of its drug Isuprel and raised the
price six-fold for another heart drug, Nitropress, after buying
them in February. While the magnitude of the price hikes has put
Valeant in the political crosshairs, raising drug prices is not
illegal in the United States.
The company said it had hired a consultant to review the
drugs' pricing and reimbursement. The consultant found that
"there was considerable room to increase the price of both
drugs," Chief Executive Michael Pearson (L:PSON) said in a letter on
Wednesday in response to concerns expressed by Democratic
Senator Claire McCaskill.
Pearson has built Valeant into one of the world's largest
drugmakers through numerous acquisitions. His business model has
featured price hikes on medicines, while slashing research
spending of acquired companies.
'PROFITEERING'
"Many companies charge high prices for drugs, but not many
duplicate the Valeant business model," said Erik Gordon, a
professor at University of Michigan's Ross school of business.
In the letter to McCaskill, Pearson said Valeant has made
substantial investments in manufacturing in the United States.
Shares of many drugmakers have slumped since Democratic
presidential hopeful Hillary Clinton last month proposed ways to
prevent industry "profiteering." urn:newsml:reuters.com:*:nL1N11S0EH
Clinton's comments followed reports that startup drugmaker
Turing Pharmaceuticals had hiked the price of a 62-year-old drug
it had acquired by more than 5,000 percent to $750 a tablet.
The same medicine, used to treat a parasitic infection, is
sold in Britain by GlaxoSmithKline GSK.L for 43 pence (66
cents) a pill.
The United States has no price controls on medicines, though
such curbs are common in Europe.
Piper Jaffray analyst Richard Purkiss does not see the
Valeant subpoenas as a precursor to a larger industry
investigation because of the significant investment in high-risk
research made by most large drugmakers and biotechs.
"There is an unwritten social contract where you can have a
degree of pricing power, but only if you engage in substantial
funding of research as a percentage of your sales. Companies
that extract high prices without spending on R&D are in a
different space," Purkiss said.
Gordon said drugmakers' patient assistance programs, which
are aimed at helping patients pay for their medicines, can
sometimes be deemed improper inducement to drive up sales.
Guggenheim analyst Louise Chen said she believed the federal
prosecutors' inquiries to be politically motivated, with a
financial settlement within two to three years as a likely
outcome.
"Typically, companies agree to a fine and admit no guilt,"
she said.
Valeant officials declined to comment beyond the content of
the company's statement.
Officials at both prosecutors' offices declined to comment.
Officials with PhRMA, the nation's largest trade group for
pharmaceutical companies, said it could not comment as Valeant
was not a member of the organization.