Valeant Pharmaceuticals stock (NYSE: VRX) is up 5% today (Friday) to $178.49 as the pharmaceutical stock continues its week of extreme volatility. But even with today's gain, VRX stock has dropped 24% in the last month.
The recent volatility stems from news the Canadian-based drug company is being investigated by federal prosecutors over its drug pricing policies.
On Thursday, Valeant Pharmaceuticals stock tumbled 6.9% to $165.06 shortly after the open because of the news.
U.S. attorney offices in Manhattan and Massachusetts have issued subpoenas to the company related to its patient assistance programs. Valeant, like most other pharmaceutical companies, offers financial assistance to offset the cost of the treatments for patients who are unable to afford its drugs.
Under federal law, companies are not permitted to provide assistance to patients insured by Medicare or other government insurance programs because it's considered an illegal kickback. Instead, Valeant Pharmaceuticals and other companies give funding to private foundations that independently help Medicare patients.
Valeant CEO Michael Pearson has said the company has complied with all regulations and is committed to assisting eligible patients.
Pharmaceutical stocks like VRX have come under fire in recent weeks for the way the companies price their prescription drugs. And it all started with one little-known company...
Valeant Pharmaceuticals Stock Tanks After Pricing Outrage
Martin Shkreli, the 32-year-old CEO of startup Turing Pharmaceuticals, made recent headlines and sparked outrage after he hiked the price of a drug by more than 5,000%.
Turing acquired Daraprim, a 62-year-old drug used by AIDS and cancer patients, and raised the price from $13.50 to $750 per pill. The move prompted widespread outrage and ignited a debate about pharmaceutical industry practices.
That turned the spotlight on all pharmaceutical companies...
Now Valeant is being asked to explain its decision to raise the prices for two cardiac care drugs it acquired in February.
You see, Valeant boosted the price of Nitropress and Isuprel by 525% and 212%, respectively. That helped lead to Valeant Pharmaceuticals stock's drop...
After Valeant's purchase of the drugs, the list price of a 1 milliliter vial of Isuprel, a treatment for abnormal heart rhythms, spiked to $1,346.62 from $215.46, according to Truven Health Analytics. A 2 milliliter vial of Nitropress, which combats dangerously high blood pressure and acute heart failure, jumped from $257.80 to $805.61.
Valeant said it is working to help hospitals whose budgets have been unduly impacted by the Nitropress and Isuprel price increases. However, hospitals spend just $325,000 on average for the two drugs out of $150 million in typical yearly expenses.
Wednesday, a Sector & Sovereign Research report said that Valeant's reliance on raising the prices of the drugs it sells in the United States was "extreme." The report said the average price of the company's prescription drugs had grown 48% annually 2007. The volume of drugs it sold, meanwhile, declined by 18% a year, resulting in a net gain in U.S. prescription drug sales of 32% a year.
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Over the last year, the report said the situation "even more dramatic," with pricing gains of 93% offsetting volume declines of 39% to yield net sales growth of 55%.
Money Morning Global Credit Strategist Michael E. Lewitt says Valeant is the "poster child for putting profits before principles." Lewitt explains that Valeant has become one of the world's fastest growing pharmaceutical companies by taking advantage of "every conceivable legal and tax loophole available."
And according to Lewitt, Valeant Pharmaceuticals stock represents everything that's wrong with the markets. And poor corporate ethics aren't the only reason Valeant Pharmaceuticals stock is in trouble...
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