PhotoIn the middle of last year, healthcare professionals, policymakers, and lawmakers began raising a stink about skyrocketing drug prices.

They focused attention on pharmaceutical companies that jacked up the prices of drugs – not new cutting edge medicines that cost millions to develop – but for older prescription drugs that had been around for years.

Former hedge fund manager Martin Shkreli, who founded a drug company called Turing Pharmaceutical, was the target of most of the wrath for his brazen and unapologetic defense of his business model – buying older drugs from competitors and dramatically raising the price – in his case as much as 5000%.

Valeant Pharmaceuticals

But Shkreli was hardly alone. Valeant Pharmaceuticals, a larger and more established drug company, also came under scrutiny and criticism. It too had profited by rapidly raising the price of an old drug, in this case the antidepressant Wellbutrin XL.

As Bloomberg News recently recounted, Valeant raised the price of the 30-year old drug 11 times over a two year period. As it did, it's stock price soared, hitting an intraday high of $263.81 a share on August 6.

That's when building outrage exploded into the headlines and Congress was compelled to take a look at drug prices. In December, a Senate committee held hearings on the issue of drug costs as lawmakers took turns expressing indignation.

“My biggest challenge today is to not lose my temper—the facts underlying this hearing are so egregious it’s hard not to get emotional about it,” said Sen. Claire McCaskill (D-MO). “It’s imperative that we find out if our system is being taken advantage of by companies or individuals that seek deep profits while contributing little or nothing to advances in medical treatment.”

No action so far

But so far, Congress has taken no action. However, that doesn't mean punishment hasn't been handed out.

In the case of Valeant, the company has been rocked by admissions of “wrongdoing” that prompted the board this week to dismiss two top executives. Wall Street has responded by treating Valeant stock like a pinata. From its August high, the value of the stock plunged this week to around $26 a share Monday.

While many traders expect the company's stock to recover a bit after Valeant announced some reforms, most agree it faces difficult challenges. Ritholtz Wealth Management CEO Josh Brown, appearing on CNBC, expressed strong skepticism that the company can recover its once lofty stock price.

“The people who are saying things like 'taking steps in the right direction' are people who had buy recommendations on this stock 200 points higher," Brown said. “You're going to see toosh-covering going on over the next three months like you cannot imagine.”


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