You perhaps have noticed Valeant Pharmaceuticals in headlines recently. First, the company made news for hiking the prices of life-saving drugs, in some cases quadrupling the prices. Then, the company’s relationship with an affiliated mail-order pharmacy came under scrutiny, prompting comparisons to Enron. Most recently, Valeant’s interim CEO testified before Congress about its pricing practices. (The notorious Martin Shkreli, former CEO of Turing Pharmaceuticals, refused to answer questions during this hearing. Turing is privately held and not eligible for investment by the Domini Funds.)
At Domini Social Investments, our investment standards led us to designate Valeant ineligible for investment a year ago. Before reports of price hikes and shady subsidiaries hit the headlines, we were concerned about the company’s culture and business model – acquiring companies and slashing spending on research & development and on taxes. Valeant spends about 3% of its revenue on R&D, compared to 15% for typical pharmaceutical companies. And by taking advantage of the company’s Canadian mailing address, Valeant (and any companies it acquires) pay only 5% in corporate income tax, instead of the much higher US rate. This ethos of cost-cutting and profit above all else also led the company to delay FDA-required studies on drugs the company was marketing.
For now, the company’s culture is costing its investors dearly. Thankfully, we are not among them. And while we cannot predict what its stock price will do in the future, the Domini Funds will continue to avoid Valeant as long as its values – social as well as economic – are not in line with our own.