3 Reasons Valeant Pharmaceuticals Intl Inc. Is in for a Rough Ride on Thursday

Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) is set to testify before Congress. It won’t be fun for the company.

| More on:
The Motley Fool

Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) interim CEO Howard Schiller is set to testify before a U.S. Congressional panel on Thursday, and he is in for a rough ride. We look at three reasons why below.

1. A focus on drug-price increases

On Tuesday Congressman Elijah Cummings released a memorandum containing excerpts from more than 75,000 pages of documents from Valeant. In this memorandum, Mr. Cummings draws a number of conclusions.

First of all, he concludes that Valeant purchased the Isuprel and Nitropress drugs with the specific intention of raising their prices.

This alone is not a revelation. But the memo also claims that Valeant had an extensive public relations strategy to distract from price increases, which included an effort to “minimize media coverage of the pricing increase.” Valeant also focused extensively on its patient-assistance programs, which had the potential to close distribution channels, allowing for even more price increases.

Making matters worse, congressmen don’t tend to be sympathetic when hated executives testify. So with these documents released, you shouldn’t expect any lawmakers to hold back.

2. In bad company

Accompanying Valeant will be Martin Shkreli, the former CEO of Turing Pharmaceuticals. For those of you who are unfamiliar with Mr. Shkreli and Turing, the company purchased the life-saving drug Daraprim and jacked up the price by more than 5,000%. In the aftermath Mr. Shkreli has been called “the most-hated CEO in America” and has become the poster child for the steep cost of drugs.

And unfortunately for Valeant, the company is often associated with Turing. For instance, PhRMA–the pharmaceutical industry’s chief advocacy group–recently compared the two companies and essentially threw them both under the bus.

If that wasn’t bad enough, Mr. Shkreli plans to refuse to answer any questions, citing his Fifth Amendment rights against self-incrimination. So that leaves Valeant all alone to answer every question.

3. A bipartisan issue

In the past we’ve seen such hearings turn into highly partisan affairs. But in recent polls, even the Republicans have shown outrage over drug-price increases and are demanding that Congress act.

So with election season coming up, lawmakers will want to show toughness in front of Mr. Schiller. To put it mildly, it could get ugly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned. Tom Gardner owns shares of Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals.

More on Investing

stock analysis
Investing

“GARP” Investing: 3 Can’t-Miss Stocks to Buy Now

goeasy (TSX:GSY) and other low-cost growth stocks could make your portfolio a market beater over the long run!

Read more »

calculate and analyze stock
Investing

My Take: The Best TSX Stock to Buy With $1,000 in March 2024

Here's why Restaurant Brands (TSX:QSR) remains a top TSX stock long-term investors should buy right now.

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

For growth and dividends this April, look to these two REITs that have quite the promising present as well as…

Read more »

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »