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Why Valeant's (VRX) Shares Plummeted in Monday Trading

The health care market is still reeling from Democratic presidential candidate Hillary Clinton's tweet on "price gouging" on Sep 21. Valeant Pharmaceuticals International, Inc.VRX seems to be one of the hardest hit stocks. The company saw its shares plummet 16.5% yesterday. Overall, Valeant's shares are down 27.3% since Sep 21 (counting an insignificant gain on Sep 23), amid strong criticism about drug price increases.

The Pricing Debate Continues: Valeant Hit Hard

Democratic members of the House of Representatives Committee on Oversight and Government Reform requested their Chairman to issue a subpoena to compel Valeant to provide documents relating to the massive price hike for two drugs.

We remind investors that in Feb 2015, Valeant acquired the right to seven drugs including Amytal Sodium, Iprivask, Isuprel, Nitropress, Opium Tincture, Pepcid tablets and Seconal® Sodium from Marathon Pharmaceuticals. Subsequently, Valeant increased the prices of Nitropress (congestive heart failure and hypertensive episodes) and Isuprel (heart block and abnormal heart rhythm) by 212% (to $805.61) and 525% (to $1,346.62), respectively.

The letter sent by the House of Representatives stated that such a price hike is adversely affecting hospitals and other providers by exceeding their budget significantly.

According to the letter, Valeant justified the price rise as a step toward optimizing the value of the drugs and in turn, shareholder value. The members of the House, however, alleged that the company is following a similar business model as Turing Pharmaceuticals, which recently acquired Daraprim (approved for various indications including the treatment of toxoplasmosis, acute malaria and chemoprophylaxis of malaria due to susceptible strains of plasmodia) and increased its price from $13.50 to $750 per pill overnight. The House emphasized the need to make companies accountable for their action when they purchase the rights to old, neglected drugs and increase their prices significantly to turn them into high-priced specialty drugs.

The letter also notified that earlier this month, Valeant refused to provide the relevant documents at the request of a Ranking Member of the House stating that the documents were highly proprietary and confidential.

The House requested its Chairman to invite Michael Pearson, CEO of Valeant, to testify at a hearing scheduled for next week along with CEO of Turing Pharmaceuticals, Martin Shkreli.

Valeant's Attempt to Explain the Business Model

Valeant sent a letter to its employees stating that the company is well positioned for strong organic growth, irrespective of price increases. The company explained that its focus continues to remain on upgrading the quality of its portfolio through the development of high-quality products and acquisitions. In 2016, Valeant expects double-digit organic growth. It also expects a number of product approvals Veseno, Relistor Oral and brodalumab, going forward.

Valeant carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthy care sector are AcelRx Pharmaceuticals, Inc. ACRX , Corcept Therapeutics Inc. CORT and Lannett Company, Inc. LCI . All these stocks carry a Zacks Rank #1 (Strong Buy).

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VALEANT PHARMA (VRX): Free Stock Analysis Report

ACELRX PHARMACT (ACRX): Free Stock Analysis Report

CORCEPT THERAPT (CORT): Free Stock Analysis Report

LANNETT INC (LCI): 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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