I'm Losing Money on Mylan, but I'm Not Selling

Mylan Inc. (MYL) is one of the world's biggest drugmakers, and it's also one of Fool contributor Todd Campbell's worst-performing stock picks. The company's EpiPen fiasco, and worries over investigations into generic-drug pricing, have sent shares falling, but the long-term potential for disrupting the market for biologics with biosimilars remains significant.

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes asks Todd to explain why he's sticking with Mylan, despite its current challenges.

Todd Campbell: My loser is Mylan. Mylan, you may know, over the course of last year, has been the subject of a lot of negative press, first for their EpiPen product, which got called out for egregious -- I think that's fair for me to say personally, what I feel were egregious price hikes for the product that we're a big driver of revenue growth for this one product, EpiPen. Then, some concerns over the course of the past year over some collusion among some of these generic-drug makers on pricing of certain products, which, obviously, has not been proven, but there's still some rumors and things going down that have weighed down the share price. I stepped in and bought Mylan in two blocks -- one block of it in July of 2015, and I added to it last fall. But I'm still down, even after lowering my average cost, 23% on that investment. It's really due to the negative publicity that we've seen over the course of the last year.

Kristine Harjes: Were you even thinking about EpiPen when you first bought into this company? It's primarily a generic-drug maker.

Campbell: No. EpiPen was not the reason I bought this stock. And that's one of the reasons I added to this position last fall. This is why you take the long-term approach. You say, what was my reason for buying it? My reason for buying it, Kristine, was biosimilars, which you and I have talked about ad nauseam at various points over the course of the last year and a half.

Harjes: They're kind of a big deal in healthcare.

Campbell: Right. Kristine, want to give a quick and dirty on what a biosimilar is?

Harjes: Sure. Biosimilars are basically generic versions of really complex biologic drugs. If you want more than that, shoot me an email. We've talked about them, as Todd so appropriately put it, ad nauseam on this show. But we also have a really good article on fool.com that explains everything you need to know about them. If you want that, you can email me, [email protected]. But if you're just looking for the basics, just think of it as a complicated generic drug.

Campbell: Yeah. And the market opportunity, theoretically, is huge, because you have $100 billion in branded-drug sales in biologics that are losing patent protection over the course of the next five years or so. So you have a gold rush going on among different drug makers including Mylan to develop these alternative options, to these top-selling biologics. Perhaps there is no company that has made as big a push R&D-wise into developing biosimilars as Mylan. They have 16 different biosimilars in their R&D pipeline, and they have a couple that are closing in on potential commercialization here in North America. When I went out and bought shares of this, it wasn't with the view that EpiPen is a significant one of their sellers and contributes a lot of their profitability. It was, how will the market look for biologic drugs in 10 years, 20 years, 30 years? And are we on the cusp of something like we saw on the 1990s, when small-molecule generic drugs first started to gain a toe hold, and now they account for 90% of all prescriptions written?

Harjes: Right. So the opportunity is still clearly there for biosimilars. It sounds to me like you're holding on to Mylan. Are you bullish on it going forward?

Campbell: I am. If I'm still long it -- and I added to it a year ago, after determining that if the EpiPen issue didn't really affect my thinking for getting into it, yeah, nothing has changed to make me think they're going to fail in biosimilars, or they won't be a major player. This is a global company. You have 600 million people living in the world right now over age 65. By 2030, you're going to have a billion people over 65. There's a lot of demand coming down the line for pharmaceuticals. And Mylan, both through generics and hopefully through biosimilars, is one of the largest by volume producers of medicine that gets prescribed. 

Harjes: Yeah. I think when you look at this company, it's a really good learning opportunity to see that when share prices dip for reasons outside of what your original thesis was, if that thesis remains intact, that could be a really good time to buy some more of them, if you're still confident in your thesis.