Bill Ackman and Valeant execs just got through one of the most brutal Senate hearings we’ve ever seen

Testimony valeant swear in

Valeant Pharmaceuticals’ outgoing CEO Mike Pearson, the company’s former interim CEO Howard Schiller, and board member and hedge fund billionaire Bill Ackman, all just testified before the US Senate.

They were answering questions about the company’s practice of buying drugs and jacking up their prices.

Not surprisingly, they walked into a very aggressive room.

Ranking member Clare McCaskill of the Senate Ageing Committee was direct from the off. In her opening statement she said:

“In case you haven’t noticed, that has real ramifications in our political process and could lead to an instability of our government, our economy, and our standing in the world. Pigs get fed, hogs get slaughtered. It’s time to slaughter some hogs. I thank the witnesses for being here today, and I look forward to hearing their testimony.”

Here are the highlights:

  • Outgoing Valeant CEO Mike Pearson was questioned about Valeant’s R&D spending, its patient assistance program and its drug pricing policy.
  • He was also asked about a Wells Fargo note which said Valeant had raised prices on 16 of its products in the past year.
  • Bill Ackman said he was focused on saving Valeant from bankruptcy.
  • He was also questioned about his investments in Herbalife and Fannie and Freddie.
  • “Can you find me one drug that Valeant didn’t raise the price on,” McCaskill asked.
  • Neither Ackman nor Pearson could find one.

Here is how it went down:


“I’ve got a list of 20 drugs that you guys have raised over 200% in a matter of years,” said McCaskill.

She had gotten that list from the House of Representatives, which is also investigating Valeant for the same issue. She considers that matter an issue of national debt because healthcare costs drive the debt so high.

“I don’t think you guys understand that you can’t do this just because” it’s legal, she said.

McCaskill pointed out that Valeant’s top 30 drugs increased in price by 70% from this time last year.

“It couldn’t have been because of R&D because you don’t spend that much,” she said.

“We have not raised prices at all this year in terms of the neurology and other products,” Pearson said. He also said that it reduced prices for dermatology drugs.

This runs counter to a report from Wells Fargo released Wednesday morning that showed that the company raised prices for 16 drugs. Pearson said the report was likely innaccurate though he hadn’t seen it.

Pearson also went back to discussing how much Valeant spends on patient assistance programs — programs that people in a previous panel said didn’t really help anyone. The committee members didn’t let him get away with that either, pointing out that these programs allow Valeant to maintain price and that Valeant has a “captive audience.”

Senator Joe Donnelly pointed out that even the largest Catholic hospital system in the world couldn’t use Valeant’s “volume based” assistance program.

“It’s a human right not to be treated this way,” said Donnelly.

Another Senator called Valeant’s response to a patient on why it increased the price of a Wilson Disease drug “a red herring.”

Valeant responded to the patient with a letter saying that “the investment to develop and distribute novel medicines” would not be worth it unless the company could increase prices for a bigger return on investment.

This letter came up over and over in the hearing.

Valeant purchased the drug, the Senator pointed out, and spent no money developing it.

He later said: “Did you just now realise” that this was a life and death situation for some patients?

Pearson said he did not.

Mike Pearson senate


Hedge fund billionaire Bill Ackman, who has been a big Valeant shareholder for over a year, opened with this gem: “As a shareholder of Valeant I recognise my investment was an… endorsement of Valeant’s strategy.”

Then he went on to talk about the changes he’s trying to make to the company since he got on the board and admitted that price increases broke a “social contract” with Valeant’s customers.

There was a lot of stuff that was in Ackman’s written testimony that wasn’t actually said. Like this:

We believe that a drug company can do as much or more for innovation in pharma by acquiring other drug companies and licensing drugs than by developing drugs internally. Much of Valeant’s product portfolio has been built through acquisition where Valeant was the high bidder for smaller innovative companies and their products. As a result of these acquisitions, the selling company shareholders earned an attractive and in some cases spectacular return on their investment from the nearly $40 billion that Valeant has invested in acquisitions. We expect that a high percentage of the after-tax capital received by these selling shareholders is likely to have already been reinvested in other early-stage and innovative drug companies so the cycle of drug development can continue.

You can imagine why that would not have gone over well. After one line of questioning Ackman said he texted Valeant’s board chairman to schedule a call tomorrow to discuss lowering prices for two heart drugs.

Bill Ackman senate

McCaskill nailed Ackman for not knowing about Valeant’s price increases, naming drugs, hikes and a letter a patient sent to Ackman. “Yeah, it’s horrible. It’s wrong,” he said.

“One of the things with due diligence in this industry is that it’s really hard to find out prices for drugs,” Ackman said after stuttering a bit.

We should note that some of these price increases are documented by researcher IMG.

“Can you find me one drug that Valeant didn’t raise the price on,” McCaskill asked.

Neither Ackman nor Pearson could find one.

Another Senator asked Ackman if he thought his public and private pension investors want him to invest in this kind of business model.

“Certainly not,” he responded. Then he went on to say that what attracted him to the company was the segments of the company, like consumer brands, that weren’t overpriced.

Of course, there had to be an attack on hedge funds too.

“It’s shocking the way hedge funds try to change public policy in order to benefit them,” said Senator Bob Corker of Tennessee. He pointed to a potential Puerto Rico bail out as a policy hedge funds are trying to shape. He also brought up Ackman’s aggressive attack against Herbalife, his famous short.

He asked where else Ackman has tried to shape public policy.

“Herbalife is the only one… I can think of,” Ackman said.

“Really?” Corker asked, bringing up Fannie Mae and Freddie Mac. Then they talked about Fannie Mae and Freddie Mac as if the rest of us weren’t even there to talk about Valeant.

Senator Bob Casey pointed out that Ackman said that drug pricing was a “serious issue.”

Case continued: “Can you point to anything you point to anything in your testimony here that points to social responsibility?”

Ackman went back to his written testimony, which lacked the specifics Casey wanted.

“The first thing I’ve been doing is trying to make sure this company doesn’t go bankrupt,” said Ackman, adding that the company expected to file its annual report by Friday and was replacing the CEO.

Casey was still not satisfied. “I’ve heard of no policy… in regards to pricing that says ‘It shall be the policy of this company to not do this.'”

Ackman said he would “have that in weeks. Watch what we can do.”

Elizabeth Warren

Elizabeth Warren is not a fan of Wall Street’s financial engineering. So, shocking no one, she came in aggressive.

“You double the price [of a drug] even if you get a waiver to the customer, you make a lot of money,” Warren said.

She pointed out that the drug industry spent $7 billion on patient assistance programs in order to maintain high prices and line their pockets.

“What is the return on investment to Valeant on the money you’re currently putting into the patient assistance programs?”

Pearson said he didn’t know.

“Don’t tell me you’ve never done the analysis… By doing this you… keep the patient on the more expensive drug and then you… recoup whatever from the insurance company. What I’m saying is that this must be a profitable… for you… You’re making more money… You haven’t done that analysis?”

Pearson said no.

Warren asked why these programs can’t be used on government insurance and answered her own question — it’s illegal. She said that government agencies know that the patient assistance programs are just a way for drug companies to maintain price, and demanded immediate action.


Former Valeant interim CEO and CFO, Howard Schiller kept his opening statement light. He has already been in the hot seat since he filled in for Pearson at a hearing earlier this year. He was barely asked any questions during the hearing.

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