In August of last year, I posted some thoughts on how and why it was reckless of drugmaker Mylan N.V. (NASDAQ:MYL) to give in to greed and ignore the fact that pharmaceutical companies were being targeted left and right by … well, everyone. Most alarmingly for MYL stock owners at the time, though, was the fact that the U.S. Senate’s Judiciary Committee Chairman (Senator Chuck Grassley) was directly asking Mylan CEO Heather Bresch for an explanation of the steep, 400% price hike in Mylan’s EpiPen over the course of just a few years.
It was a proverbial no-win situation; the fact that such questions are being asked at all on a high-profile stage is damning enough in itself.
Not surprisingly, Mylan stock is down nearly 17% since that meeting, while most other stocks are up on the order of 10% for the same timeframe. Once regulators, government officials and investors got the cue to start taking a more scrutinizing look, they did. They found more red flags. As it turns out, MYL was also overcharging Medicare and Medicaid for that very same EpiPen.
The Federal Trade Commission as well as the New York Attorney General’s office both opened investigations of this and related matters.
MYL Stock: When It Rains, It Pours
The latest chapter in the saga? Rival Sanofi SA (ADR) (NYSE:SNY) believes that Mylan unfairly, and illegally, worked to keep its competing allergic-reaction treatment Auvi-Q from being added to the list of drugs it would help its customers purchase by covering some of its cost. Sanofi’s has filed an antitrust lawsuit claiming Mylan offered rebates to insurers and pharmaceutical benefits managers if they wouldn’t cover Auvi-Q. Although Auvi-Q is no longer owned by Sanofi, its former owner/licensee believes it would be driving hundreds of millions of dollars worth of sales had it been given a fair shot to build a following of users.
This is where the company’s past decisions can start to take a toll on MYL stock.
It has already lost in the court of public opinion, just by the virtue of questionable pricing and marketing practices, and a curiously costly pricing error with its government customers. It’s going into the courtroom to face off with Sanofi with a very bad hand because of a dinged-up reputation. It won’t be difficult for Sanofi’s lawyers to spin that history into a message clearly making Mylan look very guilty, even if it isn’t. As I said in August, “Mylan just positioned itself as another poster child of everything that’s wrong with the pharmaceutical industry. It wasn’t worth it.”
The lawsuit is the “not worth it” part.
And it’s not as if competitors aren’t aiming to capitalize on the situation while Mylan is on its heels. Sears Holdings Corp (NASDAQ:SHLD) Kmart — at least the ones with pharmacies — recently announced it would drastically lower its price on Adrenaclick, which s a generic epinephrine auto-injection pen. Consumers have welcomed the discounted version, even if only to make a point to Mylan … another “not worth it” effect.
Wednesday Is a Big Day for Mylan Stock Owners
Realistically speaking, any fiscal headwind of these developments would take a while to have an impact. Then again, with a couple of quarters since the Senate’s Judiciary Committee questioning and the Medicare/Medicaid overcharging gaffe now under its belt, it’s possible we will start seeing the financial fallout soon.
We’ll know for sure on Wednesday. That’s when the company is slated to tell current and prospective MYL shareholders how it did last quarter.
As of the latest look, analysts collectively expect the Mylan earnings report to consist of sales of $2.84 billion and 96 cents worth of per-share profits. Both numbers are well up from the year-ago comparisons of earnings of 76 cents per share of Mylan stock and revenue of $2.19 billion.
That growth isn’t going to be organic growth though. Mylan continues to launch new products. Sales of its flagship EpiPen in particular have been challenged simply because the company has been forced to become more accommodating, price-wise including the introduction of a generic version. The headwind is going to stiffen before it abates though.
Even more than the numbers, however, MYL investors may want to listen for the subtle clues of how the company intends to mitigate years of hyper-aggressive pricing and policies that are finally coming back to haunt the company. The market may need to read between the lines and fill in some blanks in that regard, but there’s little doubt the company is going to be paying the piper in 2017.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
