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Under fire

by Bibiana Campos Seijo
May 2, 2016 | A version of this story appeared in Volume 94, Issue 18

In the past two weeks, a couple of well-known firms in the pharma and biotech industry have been under fire from politicians, regulators, and the media.

Valeant Pharmaceutical Industries faced scrutiny from the Senate Special Committee on Aging around its drug pricing policy, R&D spending, and patient assistance program. In a hearing that took place last Wednesday, outgoing Chief Executive Officer J. Michael Pearson faced tough questioning over Valeant’s modus operandi, which involves low R&D spending combined with aggressive acquisitions followed by price hikes.

The committee is looking into price increases imposed by Valeant, which is also under investigation by the House of Representatives for the same issue, and other firms. Ranking Member Claire McCaskill (D-Mo.) was leading the charge against Valeant’s controversial pricing policies, and her opening statement was strongly worded: “Pigs get fed; hogs get slaughtered. It’s time to slaughter some hogs.” The website Business Insider called it “one of the most brutal Senate hearings we have ever seen.”

The panel noted that, in the past year alone, 16 of Valeant’s drugs had seen price increases, including heart medications Isuprel and Nitropress. Both brands were acquired by Valeant in 2015 and saw their prices increase by 525% and 212%, respectively.

Valeant admitted to a drug pricing policy supported by the questionable rationale that the company acquires other smaller, innovative firms and their products; the selling companies earn a healthy return on their investment; and the expectation is that a large proportion of this capital is likely reinvested in other smaller, innovative firms and so “the cycle of drug development” continues.

Not surprisingly, Pearson confessed that Valeant’s pricing strategy was a mistake and that the company has learned painful lessons over the past year. Price increases have overshadowed the company’s broader work and its stock has fallen 85% since last August.

Meanwhile, embattled lab testing firm Theranos came back under fire. When I first wrote about Theranos (C&EN, Nov. 2, 2015, page 3) I was shocked about the company’s $9 billion valuation. Then I wrote about the company’s technology and deficiencies in its lab being under investigation by FDA and federal regulators (C&EN, Feb. 1, page 3).Theranos has not—so far—been able to address some of these deficiencies and a recent report by the Centers for Medicare & Medicaid Services stated that “the laboratory’s allegation of compliance is not credible and the evidence of correction is not acceptable.”

It is unknown if Theranos will survive this round of federal scrutiny. Should Theranos fail to meet regulatory requirements, the company’s CEO, Elizabeth Holmes, once hailed as “the next Steve Jobs,” and president, Sunny Balwani, could be barred from running labs for the next two years. It is worth adding that Theranos is also under investigation by the Securities & Exchange Commission, which polices whether disclosures made to investors are accurate.

So what’s next for both firms? Valeant leaders need to repair the damage and recuperate some of the firm’s credibility. They have promised swift changes to the expensive drug tags, announced a new CEO—drug industry veteran Joseph Papa—and indicated that there will be changes in the composition of Valeant’s board of directors.

At Theranos, there are a number of things that are at least out of the ordinary about it and need fixing: for instance, the composition of its board, which lacks individuals with scientific backgrounds, and the dearth of data and scientific literature around its technology. Even more puzzling is that for Theranos’s Arizona operations, where it fulfills lab testing assignments for the supermarket chain Walgreens, it does not (for the most part) use its own technology, opting instead for traditional lab instruments purchased from other companies.

It looks like no hogs will be slaughtered today, but Theranos is not out of the abattoir just yet.

Views expressed on this page are those of the author and not necessarily those of ACS.


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