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Valeant under more pressure to provide details, witnesses about pricing activities

Valeant Pharmaceuticals (TSX:VRX) is facing more pressure from a high ranking U.S. politician who says the company has obstructed a congressional investigation into drug pricing activities by failing to disclose information as requested.

In a letter to Valeant CEO Michael Pearson released early Wednesday, Representative Elijah Cummings says he wants previously requested interviews with company executives, as well as documents, by Jan. 8, 2016.

"Your refusal to provide any documents or witnesses is obstructing this congressional investigation and preventing a full understanding of your company's suspect actions," the letter states.

Cummings is the top Democrat on a House of Representatives committee that will be holding a hearing in the new year on increasing prices for medication.

He has been seeking documents about Valeant's drastic price increases for two life-saving heart medications for four months. More recently, he's requested interviews with several Valeant executives about the company not disclosing its relationship with a specialty mail-order pharmacy, Philidor.

The letter requests eight additional sets of documents by Jan. 8, all of them related to Valeant's dealings with Philidor.

Its release was timed to Valeant's Investor Day on Wednesday, when it is to discuss with analysts and investors its business operations, research programs and other information about the company.

A Valeant statement, issued two hours before the 8 a.m. meeting, said it's lowering estimates for revenue and adjusted earnings for the fourth quarter and full year ending Dec. 31.

Its revenue estimate for the quarter is now between US$2.7 billion and US$2.8 billion, down from US$3.25 billion and $3.45 billion. Its adjusted earnings estimate has been lowered to between US$2.55 and US$2.65 per share, from between US$4 and US$4.20 per share.

The new full-year guidance for 2015is between US$10.4 billion and US$10.5 billion with between US$10.23 and US$10.33 per share of adjusted earnings.

Valeant's press release didn't specify the reason for the reduced expectations.

On Tueday, it announced plans to deliver up to US$600 million in annual savings to the U.S. health-care system starting next year after agreeing to cut the prices of several of its drugs as part of distribution agreements with the large Walgreens retail chain. It will drop wholesale prices for branded prescription-based skin and eye-care products by 10 per cent.

Walgreens will also distribute more than 30 of Valeant's branded products at comparable generic prices, starting in the second half of 2016. The average price decrease is expected to be more than 50 per cent, with reduced prices ranging between five and 95 per cent.

The price cuts don't apply in Canada where Valeant doesn't have similar distribution agreements with pharmacy retailers such as Shopper's Drug Mart, Jean Coutu or the Rexall Group.

The new distribution agreement with Walgreens — a chain with more than 8,000 retail outlets — follows Valeant's decision in October to sever ties with mail-order pharmacy Philidor Rx Services. That relationship came to light as a result of a court battle between Valeant and another mail-order pharmacy.

Cummings wrote that Valeant appears to have violated U.S. securities law by withholding from shareholders and regulatory agencies information about its relationship with Philidor until Oct. 19.

Valeant has been accused of using Philidor to create a network of "phantom pharmacies" to steer pharmacy benefit managers toward Valeant's more expensive drugs, rather than cheaper alternatives.

Among additional allegations reported in the press, Cummings' letter notes, Valeant allegedly had its executives help run Philidor's billing and other operations, had the right to appoint employees to Philidor and access its books, records and facilities, and has a "joint steering committee, composed of members from Valeant and Philidor."

In October, Valeant cut ties with Philidor, saying it had lost confidence in the company.

The Laval-based company first drew scrutiny from regulators and politicians for its strategy of buying smaller drug developers, hiking drug prices and then slashing spending on research on new drugs. For example, Valeant bought the life-saving heart drugs Nitropress and Isuprel in February, then tripled the price of one and raised the other sixfold.

— With files from The Associated Press and The Canadian Press.

The Canadian Press

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