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Valeant (VRX) in Focus on Intensifying Government Probe

Valeant Pharmaceuticals International, Inc.VRX has hit a rough patch ever since concerns arose about the irrational increase in drug prices by U.S. pharma/biotech companies. Following the Democratic presidential candidate Hillary Clinton's tweet on "price gouging" on Sep 21, the company saw its shares slide sharply.

Valeant has adopted a strategy of acquiring other companies, which possess a promising portfolio or may provide a pass for entry into a lucrative market. The company's business model allows for the minimization of its research and development expenses while maximizing both growth rate and profitability.

However, the company was caught up in the debate on "price gouging" in the pharmaceutical industry when it increased prices of two heart disease drugs, Nitropress and Isuprel, by 212% and 525% respectively. We remind investors that Valeant acquired the rights to seven drugs from Marathon Pharmaceuticals in Feb 2015 including these two drugs.

Government Investigation Heats Up

The Democratic members of the House of Representatives Committee on Oversight and Government Reform want the company to testify to the reason behind the abrupt price increases. On Oct 14, 2015, Valeant announced that it received subpoenas from the U.S. Attorney's Office for the District of Massachusetts and the U.S. Attorney's Office for the Southern District of New York, under which the company has been asked to provide documents related to its patient assistance programs, financial support for patients, drug distribution, and information shared with the Centers for Medicare and Medicaid Services, apart from its pricing decisions.

Valeant has responded to a letter from Senator Claire McCaskill, addressing the history of Nitropress and Isuprel, the reimbursement process for hospital procedures involving both drugs and patient access programs. The company has also explained the reasons underlying Valeant's pricing decisions in his response to the Senator's letter.

While Valeant emphasized that it is committed to assisting eligible patients in need of its products and agreed to comply with the requirements of the investigation, the company is already under fire for drug price hiking. The company's shares declined 4.8% on news of the subpoenas. We believe that Valeant has an uphill task ahead amid criticism of sky-rocketing prices for prescription drugs.

Meanwhile, Valeant acquired Synergetics USA, Inc. for $6.50 per share in cash. Synergetics stockholders are also eligible to receive additional cash payments of up to $1.00 per share upon the achievement of specified sales milestones following the closing of the transaction (expected in the fourth quarter of 2015).

Valeant carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are UCB S.A. UCBJF , Lannett Company, Inc. LCI and Anacor Pharmaceuticals, Inc. ANAC . While UCB and Lannett carry a Zacks Rank #1 (Strong Buy), Anacor holds a Zacks Rank #2 (Buy).

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UCB SA (UCBJF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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