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37 States St., Apt. 12 San Francisco, CA 94114 October 6, 2015  Mark Lebwohl, MD, FAAD, President Tim Berger, MD, FAAD, Vice President Members of the Board of Directors American Academy of Dermatology 930 E. Woodfield Road Schaumburg, IL 60173  Dear Dr. Lebwohl, Dr. Berger, and Members of the Board of Directors:  I am writing to express my concerns about the AAD's relationship with Valeant Pharmaceuticals International, a pharmaceutical company that was the subject of a New York Times article on October 4, 2015.1   The article describes Valeant's approach to drug pricing as an "extreme example of practices that have been around in the pharmaceutical industry for years." Valeant’s business practices, according to the article, represent a “concerted strategy” focused on raising the prices of the company’s drugs, enriching shareholders and executives at the expense, medically and financially, of patients are dependent on those drugs. Meanwhile, according to the article, the company invests little in research and development of new drugs — 3% compared with the 15‐20% typically invested by other pharmaceutical companies — preferring instead to acquire other companies, take over their drug pipelines, and (in many cases) lay off many of their workers. Other news reports have presented similar concerns about the company.2  Valeant is listed as a substantial contributor to the AAD on the AAD website, having given the AAD at least $100,000 (Ruby level).3   According to AAD's Principles of Corporate Relationships: "Corporate donors and sponsors must represent a product or service that is compatible with the Academy’s mission, its policies and its values."4  On the basis of the information emerging about Valeant, the company's business practices, which are markedly different from most pharmaceutical companies, do not appear to be compatible with the AAD's values5, in particular the following:  

Patients first: Compassion, caring and listening are at the heart of delivering the highest‐quality dermatologic care. We are working to ensure members' ability to facilitate access to dermatologic care and deliver the highest quality of care. 

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Social responsibility: A dedication to the greater good. Community leadership, volunteerism and stewardship are hallmarks of our ability to contribute to public health. 

Because Valeant’s values so clearly clash with those of our organization, I believe, as an AAD 

member, that AAD should immediately and publicly sever its relationship with Valeant. Doing 

so would send a strong message to AAD members, our sister professional organizations, our 

patients, and the public that our organization indeed prioritizes patients and socially 

responsible practices over bottom lines.  

 

I look forward to your response at your earliest convenience. 

 

Sincerely, 

 

Kenneth A. Katz, MD, MSc, MSCE, FAAD 

Enc: New York Times and Wall Street Journal articles 

1 http://nyti.ms/1jHh3Fl. Full text of article attached. 2 http://www.wsj.com/articles/valeant‐has‐more‐to‐fear‐than‐congress‐1443468931. Full text of article attached. 3 https://www.aad.org/support‐aad/corporate‐partners/current‐corporate‐partners.  4 https://www.aad.org/Forms/Policies/Uploads/GP/BGP%20‐%20AAD%20Principles%20of%20Corporate%20Relationships%20Policy.pdf.  5 https://www.aad.org/about‐aad/vision‐mission‐and‐values.  

                                                            

Valeant Has More to Fear Than Congress The controversy over high-price drugs is just one concern for Valeant

Pharmaceuticals

ENLARGE

Valeant Pharmaceuticals offices in Canada PHOTO: RYAN REMIORZ/ASSOCIATED PRESS By CHARLEY GRANT

Sept. 28, 2015 3:35 p.m. ET 1 COMMENTS

A thunderclap from congressional Democrats sent Valeant Pharmaceuticals International shares

into a tailspin Monday. But the stock’s troubles go beyond political risk.

In the latest chapter of the controversy over high-price drugs, Democrats from the House

Oversight Committee called for a subpoena for documents allegedly withheld by Valeant

concerning the rationale for price increases for certain drugs. The stock fell by about 16%

Monday afternoon and is now down nearly 40% from the record reached in August.

The Democrats’ request came hours after Valeant chief J. Michael Pearson sent a letter to

employees to reassure them about the small role drug-price increases play in its corporate

strategy. “Valeant is well-positioned for strong organic growth, even assuming little to no price

increases,” he wrote. ENLARGE

That growth will now be put to the test. Valeant has long pursued a model of serial acquisitions.

The parade of deals—11 in the past year for a total consideration of $16.5 billion, including debt,

according to FactSet—has helped the stock rise by more than 500% over the last five years.

But the deal binge has left its balance sheet bloated. As of June 30, Valeant had $30 billion in

long-term debt versus $6.6 billion in equity. Net debt was $10.4 billion two years earlier against

equity of $5.7 billion. Advertisement

Valeant has said it aims to reduce its “leverage ratio” to four times by the end of 2016.

Unfortunately, the company declines to elaborate how it calculates this ratio or where it stands

today.

So using cash to pursue future deals won’t be easy. And with shares in a free fall, neither will

using stock. In that case, Valeant will have to come up with a new modus operandi.

Write to Charley Grant at charles.grant@wsj.com

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