Valeant seems determined to make the government angry

Valeant Pharmaceuticals has announced that it will increase prices for much of its drug product line, contrary to what company executives told legislators in Congressional hearings earlier this year.

From the release: These planned wholesale acquisition price changes, effective October 14, range from 2% to 9%. The changes are aligned with the Committee’s commitment that the average annual price increase for Valeant’s prescription pharmaceutical products will be set at no greater than single digits and below the 5- year weighted average of the increases within the branded biopharmaceutical industry.

The company’s 2016 pricing actions across its US branded Rx portfolio, represent an increase of less than 2% within the calendar 2016 year. On a forward looking annualized basis, 2016 price actions are in line with 2016 Consumer Price Index of 2.3%.

In 2016, net pricing of Valeant’s Dermatology and Ophthalmology products, after taking into account the impact of rebates and other adjustments, will have decreased by greater than 10% on average. There will be no pricing adjustments this year on Dermatology and Ophthalmology products.

Back in April, Valeant executives told Congress they would lower prices after the company came under intense scrutiny for dramatically increasing the prices of drugs. It is also under investigation by state and federal agencies for alleged fraud having to do with its now-defunct secret pharmacy, Philidor, among other alleged transgressions.

The way this press release is written, Valeant sounds like it’s doing the American people a solid. However, as Wells Fargo analyst David Maris notes:

While the company seems to us to be trying to position this as some sort of modest increase, we note that these price increases come on top of excessive price increases taken in previous years.

We do not think a company that raises price on a product by 50% one year and then commits to mid single digits the following year is somehow not relying on a price driven strategy. Comparing its forward looking price increases against a backdrop of a 5 year average of biopharmaceutical companies does not make sense to us, as it fails to include the large price increases Valeant took previously.

And justifying price increases relative to others taking price increases does not seem justifiable to us either, as it does not provide a basis other than other non-relevant non-competitors are raising prices. We believe the price increases are a result of a sobering look at disappointing prescription trends and a desire to show growth in 2017. We believe consensus for 2017 remains too high.

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