Feds Open Investigation into Valeant's Contact Lens and Drug Practices

The Federal Trade Commission is investigating whether Valeant Pharmaceuticals International has gained a monopoly on the market for one of the main components of rigid contact lenses. Last month, House Democrats filed for a subpoena for documents that would explain why the company dramatically increased the price of two drugs.

Nancy Crotti

Healthcare conglomerate Valeant Pharmaceuticals, which made headlines last year for its failed hostile takeover attempt of Allergan, is seeing its stock price skid more than 56% since August, when it hit a five-year high of $262.52, according to a Wall Street Journal timeline. It is now trading at around $110 per share.

Part of the reason for the sudden drop are separate federal investigations into the company's drug pricing practices and its aggressive business dealings after taking charge of Bausch + Lomb in 2013.

The company's business model since roughly 2008 has been to acquire pharmaceutical rivals and medical device companies with healthy revenue--often with highly successful products--and then jack up the prices of the products while laying off the R&D staff of the companies it acquires. Instead of fueling growth through new product development, the company largely has sought to orchestrate hostile takeovers of dozens of companies, accumulating $30 billion of debt in the process, according to the New York Times. 

Last month, the company's dealings attracted the attention of Democrats on the House oversight committee after the firm bought the rights to two heart drugs and increased their prices by 525% and 212%, respectively according to The Wall Street Journal.

The company was recently compared to Enron in a recent New York Times op-ed piece.

In a Securities and Exchange Commission filing this week, the Canadian pharmaceutical maker said the FTC had opened a "non-public investigation" into its recent acquisition of Paragon Holdings I, Inc., which makes the lenses.

Neither Valeant nor the FTC would provide details of the investigation, according to a report by ProPublica.  

"The Company is reviewing the (FTC) letter and the information request and intends to cooperate with the investigation," Valeant said in the SEC filing.

The filing also revealed that that Valeant had received subpoenas on or about October 14 from the U.S. Attorney's offices for the District of Massachusetts and the Southern District of New York. These subpoenas demand information about the company's patient assistance programs, and financial support for patients, and product distribution.

"The Company is reviewing the subpoenas and intends to cooperate with the investigations," Valeant said in the filing.

Valeant has grown dramatically in recent years through acquisitions, including that of Paragon in May 2015 and Bausch & Lomb in 2013. The two companies were head-on competitors in the sale of materials to make gas-permeable, hard contact lenses, according to ProPublica.

Wearers of the lenses include people over 40 who are both near-and far-sighted, those with abnormal eye curvatures, people who have dry eyes or have had eye surgery, and veterans who suffered eye injuries from improvised explosive devices in the wars in Iraq and Afghanistan, the news site explained.

An industry trade group, the Contact Lens Manufacturers Association, estimated that roughly 10 percent of the contact lens market wears rigid lenses. By acquiring Paragon, Valeant gained control of 85 to 90% of the supply chain for the lenses, the group told ProPublica.

Manufacturers told the news site that Valeant has "doubled the cost of some materials, eliminated volume discounts, dropped out of the main contact lens manufacturers trade group, approached several labs about buying them out and sent letters telling others that it would cut off some of their supplies at the end of the year" since it acquired Paragon.

In addition to Paragon's other troubles, Bausch & Lomb received a subpoena from the U.S. Department of Justice "regarding payments and agreements between B&L and medical professionals" related to its Crystalens intraocular lens implant and its Victus femtosecond laser platform for cataract surgery, the company said in its 10-Q filing.

"The government has indicated that the subpoena was issued in connection with its criminal investigation into possible violations of Federal health care laws," the filing continued. "B&L is cooperating with the government's investigation."

What else might be in store for Valeant? The Justice Department appears to be getting more aggressive when it comes to policing the healthcare technology industry, even going as far as to seek indictments against some company executives. Stay tuned.

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