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

Canadian flag

1 Magnificent Canadian Stock Down 4 Percent to Buy and Hold Forever

Here's one magnificent Canadian stock long-term investors may want to add, despite the company being near its all-time high.

Read more »

four people hold happy emoji masks

Why Canadian Investors Should Consider Investing in U.S. Stocks

U.S. lender Oaktree Specialty Lending (NASDAQ:OCSL) has an even higher yield than Toronto-Dominion Bank (TSX:TD).

Read more »

consider the options
Dividend Stocks

Is TD Bank the Best Dividend Stock for You?

Toronto-Dominion Bank (TSX:TD) has a high dividend yield but is embroiled in a serious money-laundering scandal.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

How to Use Your TFSA to Earn $6,000 Per Year in Passive Income

Hint: You'll need this Hamilton covered call ETF, which yields over 10%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, June 21

Overnight weakness in metals prices could pressure TSX mining stocks at the open today.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.

TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Here are two TFSA stocks that have excellent capital gains potential as they are leaders in their respective industries.

Read more »

Growth from coins
Dividend Stocks

2 Dividend-Growth Stocks With TSX-Beating Potential That Deserve More Respect

Here are two of the best TSX dividend-growth stocks you can buy today and hold for the next decade.

Read more »

A stock price graph showing declines
Bank Stocks

TD Stock Has Fallen to a Low of $73: Is it Done Dropping?

TD (TSX:TD) is often viewed as a great long-term investment. But given its volatility in recent months, has TD stock…

Read more »