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By Ransdell Pierson and Bill Berkrot
Oct 15 (Reuters) - Valeant Pharmaceuticals International Inc, already under fire over steep price hikes for two heart drugs, said it had been subpoenaed by U.S. prosecutors seeking details on its patient assistance programs, drug pricing and distribution practices.
U.S.-listed shares of Valeant, which said it would cooperate with the investigations, slumped 6.7 percent to $165.33 in afternoon trading on Thursday.
The Canadian company, which was rapped by Democratic lawmakers in late September over those price increases, said late Wednesday it was reviewing subpoenas from the offices of attorneys for the District of Massachusetts and the Southern District of New York.
Valeant tripled the price of its drug Isuprel and raised the price six-fold for another heart drug, Nitropress, after buying them in February. While the magnitude of the price hikes has put Valeant in the political crosshairs, raising drug prices is not illegal in the United States.
The company said it had hired a consultant to review the drugs' pricing and reimbursement. The consultant found that "there was considerable room to increase the price of both drugs," Chief Executive Michael Pearson said in a letter on Wednesday in response to concerns expressed by Democratic Senator Claire McCaskill.
Pearson has built Valeant into one of the world's largest drugmakers through numerous acquisitions. His business model has featured price hikes on medicines, while slashing research spending of acquired companies.
"Many companies charge high prices for drugs, but not many duplicate the Valeant business model," said Erik Gordon, a professor at University of Michigan's Ross school of business.
In the letter to McCaskill, Pearson said Valeant has made substantial investments in manufacturing in the United States.
Shares of many drugmakers have slumped since Democratic presidential hopeful Hillary Clinton last month proposed ways to prevent industry "profiteering."
Clinton's comments followed reports that startup drugmaker Turing Pharmaceuticals had hiked the price of a 62-year-old drug it had acquired by more than 5,000 percent to $750 a tablet.
The same medicine, used to treat a parasitic infection, is sold in Britain by GlaxoSmithKline for 43 pence (66 cents) a pill.
The United States has no price controls on medicines, though such curbs are common in Europe.
Piper Jaffray analyst Richard Purkiss does not see the Valeant subpoenas as a precursor to a larger industry investigation because of the significant investment in high-risk research made by most large drugmakers and biotechs.
"There is an unwritten social contract where you can have a degree of pricing power, but only if you engage in substantial funding of research as a percentage of your sales. Companies that extract high prices without spending on R&D are in a different space," Purkiss said.
Gordon said drugmakers' patient assistance programs, which are aimed at helping patients pay for their medicines, can sometimes be deemed improper inducement to drive up sales.
Guggenheim analyst Louise Chen said she believed the federal prosecutors' inquiries to be politically motivated, with a financial settlement within two to three years as a likely outcome.
"Typically, companies agree to a fine and admit no guilt," she said.
Valeant officials declined to comment beyond the content of the company's statement.
Officials at both prosecutors' offices declined to comment.
Officials with PhRMA, the nation's largest trade group for pharmaceutical companies, said it could not comment as Valeant was not a member of the organization. (Additional reporting by Ismail Shakil, Ankur Banerjee and Natalie Grover in Bengaluru and Daniel Wiessner in New York; Editing by Bernadette Baum)