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Why does Congress want to Subpoena Valeant Pharmaceutical's CEO?

Valeant Pharmaceutical's ( VRX ) CEO Michael Pearson is being pursued by democrats in congress. The legislative members have been comparing the CEO to Martin Shkreli, a man who leads Turing Pharmaceuticals. Apparently, leading a drug company isn't the only thing these two have in common.

Martin Shkreli is a former hedge-fund manager, who claims to be a capitalist at heart. He is now the leader of a pharmaceutical corporation, and his company bought the rights to an old drug used to prevent infections. In no time, the drug's price went from $13.88 to $750. That's a price hike of more than 5000%. He has been at the forefront of the debate about how out of control price gouging is in the pharmaceutical industry.

18 democratic members of congress want to issue subpoenas to Martin Shkreli and Michael Pearson so that they testify about the reasoning behind the steep price increases. Earlier this year, Pearson's company bought the rights to two heart drugs, Nitropress and Isoprel. As soon as they acquired the right to sell them, they hiked up the prices of both of the drugs by 212% and 525% respectively.

Since the news has broke out about Congress seeking Pearson, Valeant shares fell by as much as 25%. However, they have started to recover, and are now down 13% since the incident. It's worth noting that Valeant engages in less R&D for developing new drugs than similarly large pharmaceutical companies. It derives a large amount of its growth and revenues from drugs it has acquired from other companies.

Valeant stock is a Zacks Rank #3 (Hold). It may be best to hold off from buying shares of the company now, as it doesn't hold a buy rank. There is sure to be some volatility in the company's stock over the next few trading sessions.

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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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