Washington, DC (Dec. 16, 2015)—In advance of an upcoming hearing before the House Committee on Oversight and Government Reform, Ranking Member Elijah E. Cummings sent a letter to J. Michael Pearson, CEO of Valeant Pharmaceuticals, demanding documents and interviews that the company has so far refused to provide voluntarily. Cummings also requested a host of additional documents regarding the company's compliance with federal securities laws.
"The Chairman of the Oversight Committee, Rep. Jason Chaffetz, has announced that we will be holding a hearing early next year to examine increasing drug prices. Your refusal to provide any documents or witnesses is obstructing this congressional investigation and preventing a full understanding of your company's suspect actions. Your failure to provide any legitimate justification for this obstruction raises additional, serious concerns about your company's lack of transparency with your own shareholders, with regulating agencies, and with Congress," Cummings wrote. "I request that you comply voluntarily with this request so that a subpoena will not be necessary."
Cummings sent his first letter to Pearson in August requesting documents about Valeant's decision to dramatically increase the prices of two heart medications, Isuprel and Nitropress, by 525% and 212%, after acquiring them in February.
Cummings sent his second letter in November requesting interviews with Valeant executives who allegedly helped run a "phantom captive pharmacy" known as Philidor Rx Services and received guidance on re-submitting rejected insurance claims to obtain higher reimbursement amounts. These Valeant executives reportedly used fake identities with Philidor employees to hide their connections to Valeant.
In his most recent letter, Cummings now seeks additional documents regarding Valeant's failure to disclose its relationship with Philidor until October 19, 2015.
Specifically, Valeant announced that it established an ad hoc committee of the Board of Directors to "review allegations related to the company's business relationship with Philidor," because "issues have been raised publicly about Philidor's business practices, and it is appropriate that they be fully reviewed." Cummings requested a copy of this review.
Cummings also questioned an assertion by Valeant that Philidor operates "independently" from Pearson's company. "This claim is highly dubious," Cummings wrote, "given Valeant's own admissions that it 'has the right to appoint employees to Philidor including a head compliance officer and an in-house lawyer,' has 'rights to access Philidor's books, records and facilities,' and has a 'joint steering committee, composed of members from Valeant and Philidor.'"
In addition, Cummings questioned Valeant's compliance with securities laws that require the disclosure of "material" information, noting that Valeant "has given a number of evolving explanations for its failure to disclose this information to your shareholders and the public."
For example, on October 19, Valeant claimed that it withheld information about its relationship with Philidor because it was "proprietary" and a "competitive advantage." Yet, Cummings pointed out that "it appears that Valeant's own actions may have caused the public revelation of its relationship with Philidor," citing a letter Valeant sent demanding payment of $70 million in outstanding invoices to a pharmacy engaged in a dispute with a Philidor-related entity.
Then, during a second investor call on October 26, Valeant offered another reason for withholding information about its relationship with Philidor, claiming that it was not "material" because, for example, sales to Philidor were below Valeant's "10% threshold" for sales revenue. Cummings noted that courts have held that materiality "cannot be reduced to a bright-line rule," and they have "consistently rejected a formulaic approach to assessing the materiality of an alleged misrepresentation."
"It is difficult to believe that a reasonable investor would not consider the facts outlined above 'material'," Cummings concluded.
Cummings requested that Pearson produce all of the documents by January 8, 2016, in order to prepare for the Oversight Committee's upcoming hearing.
Click here for the full letter.