MONTREAL -- Valeant Pharmaceuticals shares plunged Monday on news that the Canadian company is in the crosshairs of U.S. legislators as a result of steep price hikes on two heart drugs its sells.
Valeant's (TSX:VRX) shares closed down more than 16 per cent at $222.81 in trading on the Toronto Stock Exchange. More than $40 billion has been shaved off the company's market capitalization since its shares peaked in August before the issue first surfaced.
The latest drop came after Democrats on the House committee on oversight and government reform sent a letter to the committee's Republican chairman seeking a subpoena that would force the company to turn over documents tied to the U.S. price hikes.
They also wanted executives of the Quebec-based company to be invited to testify next week.
A subpoena has not yet been issued, the Democrats said.
Prescription drug prices in the United States have come under increasing scrutiny from patients and politicians, including Democratic presidential candidate Hillary Clinton.
In their letter, the committee's 18 Democrats asked that Valeant be compelled to turn over documents they say the company is withholding relating to "massive" price increases.
They claim Valeant increased the price of congestive heart failure treatment Nitropress and another heart drug, Isuprel, by 212 and 525 per cent respectively on the day it purchased the rights to these drugs from Marathon Pharmaceuticals.
The Democrats say Valeant is using the same business model as hedge fund manger Martin Shkreli, whose company increased the price of a medication called Daraprim to $750 from $13.50 after buying the company that owned the rights.
"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-price specialty drugs, " the committee letter said.
Valeant didn't respond to requests for comment.
In a letter to Democrats, the company's vice-president of investor relations said the information was "highly proprietary and confidential."
Chief executive Michael Pearson told employees in a letter Monday that Valeant's business model doesn't rely on large price increases and that political pressure won't harm the company.
"Valeant is well-positioned for strong organic growth, even assuming little to no price increases," he wrote in a letter, adding that products like these two in question have historically seen price increases.
"We purchased these two assets earlier this year and we thought the best long-term commercial strategy was to reprice these brands."
Valeant analyst Vicki Bryan of Gimme Credit said the company is coming under fire for downplaying the importance of pricing in its growth strategy.
"If Valeant is ultimately forced to reduce its excessive pricing we suspect the house of cards artificially fuelling its profits could collapse, leaving it also far less capable of servicing the massive mountain of debt it layered on to fund its spending spree," she wrote in a report.
