Photographer: Daniel Acker/Bloomberg

Mylan’s Stock Jumps After $465 Million EpiPen Settlement

  • Shares rise as much as 13%, rebound from three-year low
  • Company also gets inquiry from SEC asking about Medicaid

Mylan NV climbed as much as 13 percent after the drugmaker agreed to pay the U.S. government $465 million in a swift settlement over how it charged Medicaid for its allergy shot EpiPen.

The stock was up 10 percent to $39.47 at 9:42 a.m. in New York, rebounding from a three-year-low at the close Friday.

The accord offers a reprieve to investors concerned that the penalty could have been significantly larger, while resolving part of the controversy over Mylan’s price increases on EpiPen. The fallout from the higher prices, which enraged patients and prompted probes from Congress, had cut Mylan’s stock price by a quarter since August.

The agreement with the Justice Department and other agencies resolves “all potential rebate liability claims by federal and state governments,” Mylan said in a statement Friday. As part of the settlement, there was no admission of wrongdoing by Mylan or its employees. Mylan said it will “continue to work with the government to finalize the settlement,” suggesting that some aspect of the agreement could change.

The U.S. Centers for Medicare and Medicaid Services, or CMS, said in a letter this week that Mylan had misclassified EpiPen under the Medicaid health program for the poor. EpiPen had been classified as a generic drug, while the government has said it was a brand-name product and that Mylan should have given states and the U.S. bigger rebates.

SEC Probe

Mylan also on Friday said that it had received an inquiry from the U.S. Securities and Exchange Commission about the Medicaid rebates. The company, which is run from Canonsburg, Pennsylvania, and has its legal address in the Netherlands, said it plans to cooperate.

“This agreement is another important step in Mylan’s efforts to move forward and bring resolution to all EpiPen Auto-Injector related matters,” Chief Executive Officer Heather Bresch said in the statement.

Nina Devlin, a Mylan spokeswoman, declined to comment beyond the statement. Nicole Navas, a Justice Department spokeswoman, declined to comment.

Disclosure Demands

Senator Charles Grassley, an Iowa Republican who has demanded documents from the company and called for an investigation, said the details needed to be made public, including when the Justice Department inquiry started and what CMS was doing to make sure similar issues didn’t happen again.

“This substantiates my concern that Mylan was overcharging the people of Iowa and elsewhere,” Grassley said in a statement Friday. “It’s unclear whether this settlement is fair or in proportion to the amount Mylan overcharged the taxpayers. It’s also unclear how much money is going back to the states.”

Mylan acquired rights to sell the shot in 2007, and has since then raised the price of EpiPen by about sixfold, making it a backbone of the drugmaker’s sales. The shots now retail for about $600 per two-pack. In August, lawmakers began writing to Mylan demanding to know why the cost had gone up so much. As those inquiries intensified, members of Congress demanded internal documents from the company, and Bresch had to testify at a hearing by the House Committee on Oversight and Government Reform. Those probes are ongoing.

Mylan will take a $465 million charge in the third quarter, the company said. It cut its full-year earnings forecast to $4.70 to $4.90 a share, down from the $4.85 to $5.15 it confirmed in August.

Good News

Ronny Gal, an analyst at Sanford C. Bernstein & Co., said the settlement was a “positive development” for Mylan and removed much of the risk that had been hanging over the company. He rates the shares “outperform” and said the company’s 2018 target of earnings per share of $6 looks “ambitious but not impossible.”

Medicaid gets favorable pricing on drugs, with manufacturers giving the program a bigger rebate on brand-name drugs than they do on generics. According to CMS, EpiPen had been classified as a generic for years, giving a 13 percent rebate, when it should have been classified as a brand drug, giving 23.1 percent. Brand drug makers also aren’t allowed to pass on price increases to the program.

Under the terms of the deal, the device will be considered a brand-name drug, starting April 1, Mylan said. It will also enter into a corporate integrity agreement with the Department of Health and Human Services that lays out requirements for the company’s future conduct. Companies typically agree to corporate integrity agreements in order to maintain their ability to get payments from Medicaid, Medicare and other government programs.

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