Valeant Pharmaceuticals International, Inc. (NYSE/TSX: VRX) (“Valeant” or the “Company”) seeks to clarify statements made in a media report today. Pursuant to a recommendation from our Patient Access and Pricing Committee, Valeant announced in May 2016 that an enhanced discount and rebate program for Nitropress and Isuprel would be made available to all hospitals in the United States. Under the enhanced program, all hospitals are eligible for a rebate of at least 10%, with rebates totaling 20%, 30% or 40% based on volume purchased during a calendar quarter for hospitals that purchase large volumes of the relevant drug.
Hospitals receive these discounts primarily through their group purchasing organization (GPO), and Valeant has communicated to individual hospitals that we are working with GPOs to administer the program. As of today, Valeant has contracted with 13 of the 14 GPOs representing a diverse range of hospitals, health plans and long-term care facilities. Valeant is working diligently to finalize the remaining GPO. At that point, we expect over 90% hospital groups will be covered under the discount and rebate program.
Under the program, GPOs may provide hospital members with upfront discounts and/or volume based rebates after the end of the quarter in which the purchases were made. Hospital representatives who were quoted in press reports that they are “paying the same high price” are likely not taking end of quarter rebates into account.
Joseph Papa, Valeant CEO, stated “We have taken the concerns of the healthcare community very seriously and we are committed to working with hospital groups to ensure that purchasers of Nitropress and Isuprel have access to the enhanced discount and rebate program. We are pleased that we have successfully negotiated contracts with many of the purchasers to date and expect to have virtually all covered in the near future.”
Mr. Papa added: “Our customer service representatives are fielding calls from individual hospitals and are available to answer questions about the enhanced rebate program. We have also contacted hospital administrators who have said that their calls were not returned. At this time, Valeant Customer Service is unaware of any inbound inquiries by phone or email that have yet to receive a response. The company is available to provide additional support to any institution which feels it may not be receiving such discounts via our customer service hotline: 1-800-321-4576 or via email at: firstname.lastname@example.org.”
We are aware of the filing and have not been served yet. This T. Rowe Price complaint repeats allegations and claims as in the pending securities putative class action brought against Valeant by TIAA-CREF (as lead plaintiff). As with the original complaint, which was filed in October 2015, Valeant intends to defend itself and cannot comment further on ongoing litigation.
Valeant previously disclosed in October 2015 that the United States Attorney’s Office for the Southern District of New York commenced an investigation involving Valeant. We have been fully cooperating with the authorities throughout the investigation, and we are in frequent contact and continue to cooperate with the U.S. Attorney’s Office for the Southern District of New York. We do not comment on rumors about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation.
Valeant takes these matters seriously and intends to uphold the highest standards of ethical conduct as we move forward with our mission to improve people’s lives with our healthcare products.
J. Michael Pearson’s employment at Valeant Pharmaceuticals International, Inc. was terminated in May 2016 and as such, the Company no longer files stock transactions on behalf of Mr. Pearson. Recently, Mr. Pearson exercised certain options that were due to expire. Under the terms of his contract, Mr. Pearson is required to hold 1 million shares for 2 years following termination of employment and he continues to retain a significant ownership position in Valeant.
Valeant has cooperated with the full committee’s review from the beginning, including providing over 78,000 pages of documents, testifying before the committee on February 4th, and working with the committee to accommodate all of its requests. We look forward to continuing to cooperate with the committee, and will review Congressman Cummings’ letter.
As previously announced, Valeant asked the Autorité des marchés financiers, the company’s principal regulator in Canada, for a management cease trade order pending filing of the audited annual financial statements for the year ended December 31, 2015, the related management’s discussion and analysis, certificates of its CEO and CFO and its 2015 Form 10-K. The order issued today applies only to trading by the directors, CEO and CFO of Valeant. It does not apply to trading by other persons. The company is working diligently and intends to make the required filings on or before April 29, 2016.
Seconal sodium is indicated for short-term insomnia, epilepsy, and pre-operative anesthesia. If it is being prescribed for off-label uses, it is not something for which the product is manufactured or intended.
The price increase for the drug occurred shortly after Valeant acquired it, and months before California’s assisted suicide law passed. The suggestion that Valeant raised the price to take advantage of a law that had not yet passed, for a use for which the drug is not even indicated, defies common sense.
Valeant has sold only about 1000 units of Seconal since acquiring it in February, 2015. We do not actively promote the drug, and expect less than $3 million in total sales for it in 2016. We do not offer a patient assistance program for Seconal, which is intended only for short-term use. The coupon that has been posted online is not a Valeant coupon.
Valeant sets prices for drugs based on a number of factors, including the cost of the development or acquisition of a drug, the availability of substitutes or generics, and the benefits it offers versus alternative treatments that might be more costly. As we have said, going forward, while we will from time to time raise prices, we expect those price increases to be much more modest and within industry norms.
As you are probably aware, yesterday we announced fourth-quarter preliminary unaudited financial results on a call with investors and analysts. Clearly, there was an extreme market reaction to our financial update and our stock price realized a dramatic fall. I know that has caused many of you to worry about the health and future of this company. I want to assure you that our business is strong and I believe we are headed in the right direction.
First, I’d like to address an area that some have expressed concern over: whether the company is on the verge of bankruptcy. I can assure you we are not. The fears you might have read about in the press are tied to the delay in filing our 10-K financial report, which has deadlines that can trigger default of certain loans and bonds. This is a matter we are taking very seriously. We are working to extend the deadlines in our loan agreements, and I am confident we will be able to do so.
On the business side, all of the controversy over the past several months has clearly had an impact. The transition from Philidor hurt our results in the fourth quarter, and we are seeing other challenges in some of our businesses.
Our overall business continues to grow, but given the continued external pressure from managed care, the pricing environment and a slower-than-expected start to 2016, we are forecasting lower growth for some of our businesses, including U.S. dermatology – where we have transitioned from Philidor to Walgreens, gastrointestinal and women’s health, as well as certain geographic regions, such as Western Europe.
We continue to be encouraged by the strong growth in contact lenses, oral health, oncology, generics and some of our emerging markets. These are all great businesses that are delivering on their plans and generating cash. We’re also confident about our ability to get some of our businesses that have gotten off to slow starts in 2016 back on track, including prescription ophthalmology, Solta and Obagi.
Additionally, the Walgreens program is off to a terrific start. Within two months of launch, approximately 30 percent of our dermatology scripts are flowing through Walgreens – approximately twice the volume from when we started. More importantly, well over 90% of the physicians who were using Philidor are now using Walgreens and many new doctors are using the channel as well. We continue to fine tune the program and the next phase of the program, brand-for-generics, is on track for launch this summer.
Restoring the public’s confidence will take time and I want to apologize directly to each of you for the distractions this intense scrutiny is causing you. I know you want to wake up happy to come to work every day, and over the past few months, that has been difficult. Please know that I am working as hard as I can to turn things around, and I believe we will. I truly believe we have the right fundamentals in place: a great set of products and brands; loyal physicians, patients and customers, and most of all, you – our employees worldwide who are doing everything you can to provide important medicines to our patients and the doctors who depend on them. It is because of you that I’m confident we can get past this period of uncertainty, restore our reputation and make you all feel proud once again to work at Valeant.
Thank you for all of your hard work. If there is anything you think we can be doing better, please don’t hesitate to let me know.
Statement of Robert Kelner, Partner at Covington & Burling representing Valeant Pharmaceuticals:
We are surprised and puzzled by the committee’s statement given that we have produced more than 78,000 pages of documents. As is standard procedure for any company responding to a congressional investigation and engaged in litigation, we have declined to produce documents covered by the attorney-client privilege, and we are preparing a log for the committee detailing what documents are being withheld under that privilege. We have cooperated with the committee’s review from the beginning and look forward to providing them with that log, pursuant to their request.
After being made aware of this patient’s story in January, we reached out to her to see if we could provide any assistance with the cost of the medicine, as we do for many patients through our patient assistance programs. She informed us that her insurance provider covers the drug, so it is not a significant out-of-pocket expenditure for her.
D.H.E. 45 is an injectable treatment for migraines that is primarily administered in the hospital setting.
The product was acquired in 2005, and a generic version of D.H.E. 45 has been available since 2003. Due to that competition, Valeant’s share of the overall market for D.H.E. 45 has declined significantly. In fact, we now have less than 1% percent of the market for this drug.
We expect 2016 net revenues of approximately $1 million for D.H.E. 45, or approximately 200 units sold.
Whenever the sales volume of a drug declines, manufacturers must consider pricing adjustments to keep production of the drug viable. Patients are able to choose generic versions of the drug, however, at significantly lower prices.
The chart below shows monthly unit sales of D.H.E. 45 by each of the three manufacturers. The generic version of D.H.E. 45 (manufactured by Perrigo) is widely available and outsells the branded product by more than 250 to 1.
In addition, we must purchase minimum sized batches from our contract manufacturer that far exceed what we sell (1,000 units versus 200 units).
When we make decisions about the pricing of any one drug, we do so in the overall context of our portfolio of over 1,600 products, including more than 200 prescription drugs in the United States, and the need to fund our robust 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 and $1 billion in our patient assistance programs that seek to ensure that out-of-pocket expenses do no prevent eligible patients from receiving medicines they need.
In addition to D.H.E. 45, Valeant also sells both the brand and an authorized generic for Migranal (dihydroergotamine mesylate, USP), a nasal spray used to treat an active migraine headache with or without aura. D.H.E. 45 and Migranal are different formulations with different mechanisms for delivery and although they do have the same active ingredient, the products are not used interchangeably and are manufactured for Valeant by different suppliers.