Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Sometimes you just want a clean slate. 

After several groups called for a board shakeup at Mylan NV, leading proxy adviser Institutional Shareholder Services Inc. has done them one better by taking the unusual step of advocating a full Etch-a-Sketch: removing the company's entire incumbent board. 

These directors will be hard to unseat; ISS thinks it would take two-thirds of shareholder votes to do it. Mylan has called the advice "simply irrational" and disputed the ISS report before it was even released. But enough resonates in this outburst of shareholder criticism that the board needs to consider a strategy other than combativeness. 

No Going Back
Mylan's shares have plunged since 2015 due to an EpiPen pricing controversy and generic struggles
Source: Bloomberg

Mylan's biggest issue is EpiPen. The company has hiked the price of the injectable allergy medicine 17 times since acquiring it in 2007, from about $100 to more than $600 for two pens. That brought a lot of unwanted attention as drug pricing became a national issue in the 2016 election. 

The company has also allegedly overcharged Medicaid for EpiPen for years, agreeing to a $465 million settlement with the U.S. government over the issue last year. But that settlement is still being negotiated, and a report from the Department of Health and Human Services posted last month by Senator Charles Grassley suggests the overcharging may have been more significant than originally thought. 

Mylan is releasing a cheaper version of the medicine, and competitors are set to take market share over the next few years. All of this will deal a large blow to Mylan's sales numbers, though the damage to its reputation has arguably been larger.

The company's board oversaw this pricing strategy and underestimated its risks, according to ISS. And it has been less than consistently contrite about the controversy. Mylan has repeatedly tried to deflect blame for its pricing, pointing to what it calls a broken health-care system. At a board meeting in 2014, Mylan Chairman Robert Coury reportedly went on an impressively profane rant about the company's critics.  

Under Pressure
Despite the nearly $10 billion purchase of Meda last year, Mylan's revenue growth is struggling
Source: Bloomberg
Mylan began reporting by geography starting in Q4 2016; the former "Specialty" segment is now reported as part of North America.

Speaking of Coury, ISS estimates his 2016 pay at more than $97 million, and it is not thrilled about that, either. That figure is ahead of Bloomberg's estimate of awarded pay for all but five executives for companies that file compensation data with the SEC, though it's worth noting that Bloomberg puts Coury's awarded pay at $40 million. 

Even the lower number is enough to make Coury the 25th-best-paid executive in Bloomberg's database, which does not seem justified by recent performance. ISS is critical of CEO Heather Bresch's pay, as well. 

Mylan's shares are down 47 percent from their 2015 heights. Coury led a fight against an acquisition by Teva Pharmaceutical Industries Ltd. that year, at one point penning a 3,000-plus-word letter critical of the Israeli generics giant. That deal could have been worth more than $40 billion, roughly double Mylan's current market cap. The board was justifiably skeptical of the stock component of the deal -- Teva's shares have plunged in the past two years. But the vast majority of the $40 billion Teva went on to pay for Allergan PLC's generic business was in cash. 

And Mylan shareholders are downright lucky the company's aggressive attempt to buy Perrigo for $26 billion -- in part motivated by Teva's pursuit -- didn't work out. Perrigo's business has struggled since the deal fell apart, its CEO has stepped down, and the company is currently worth less than half of what Mylan was set to pay. If that deal had gone through, Mylan would be saddled with a troubled business and substantially more debt.

The prospects for a Mylan turnaround aren't especially rosy. The largest part of its sales come from generic drugs, prices of which have been eroding in the U.S. for more than a year. That looks set to continue as the FDA's new commissioner focuses specifically on pricing and increasing competition. One of Mylan's most anticipated generic launches, a copy of GlaxoSmithKline PLC's Advair expected to hit the market this year, is now delayed until 2018. And though the purchase of Swedish drugmaker Meda AB in 2016 helped Mylan diversify, any positive news there may be overwhelmed by problems in the U.S., which anchors the company's most profitable segment.  

North America is Mylan's biggest source of revenue, and is far more profitable than its operations elsewhere in the world.

Mylan's board is likely to keep its seats in spite of mounting criticism. But a surefire way of putting them in further danger is responding to criticism with a fight rather than a sincere effort at reform. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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