Shares of Mylan (MYL), an embattled branded and generic drug developer perhaps best-known for its allergic reaction injectable medication EpiPen, fell 7% in March, according to data from S&P Global Market Intelligence. Worries continue to mount for Mylan, with four factors weighing on its shares last month.
First and foremost, Mylan is dealing with recalls of its EpiPen both outside and within the United States. It was reported on March 22 that 81,000 EpiPens outside the U.S. were being recalled for being ineffective, and the number of recalls has since swelled. This isn't good news for a company whose image has been tarnished lately by its pricing practices on EpiPen, and it's possible these recalls could wind up affecting its top and bottom lines.
Secondly, but sticking with the EpiPen theme, there are still a number of questions surrounding the higher Medicaid rebates Mylan is expected to pay the program for EpiPen. Mylan agreed to a $465 million fine for inappropriately charging Medicaid for the drug back in October, and there are rumors swirling that this settlement could move higher if Mylan doesn't comply by fixing its pricing with Medicaid and increasing its reimbursements to the program. As you'll see, most problems lead back to EpiPen at the moment for Mylan.
Third, in late March, Mylan announced that the Food and Drug Administration had rejected its application to market a generic version of GlaxoSmithKline's (GSK 2.20%) blockbuster asthma and COPD inhalable drug, Advair. GlaxoSmithKline's Advair lost patent protection more than six years ago, but only within the past couple of years did the FDA lay out a course for generic drug producers to follow in order to get a generic version of the drug approved. Meanwhile, Glaxo still enjoys blockbuster sales of Advair as generic versions of the drug have yet to hit the market.
Finally, and as the icing on the cake, Wall Street uncovered via a Securities and Exchange Commission filing that Abbott Laboratories (ABT 3.05%) sold 44 million shares of Mylan stock at $41.60, reducing its remaining position in the company to 25.75 million shares, or about 4.8% of its outstanding shares. Considering all the issues Mylan has had recently, the fact that Abbott substantially pared its large holding in the company is a bit worrisome.
This is a really tough call. On one hand, Mylan is exceptionally inexpensive at its current price. According to Wall Street's estimates the company could be bringing in well over $6 in annual EPS by 2019, yet it's valued at less than $39 a share.
What's more, Mylan's dual focus on branded and generic therapies gives it multiple avenues to succeed. It can count on branded therapies like EpiPen, to provide juicy margins, while leaning on its growing generic drug portfolio for sheer volume. Given how expensive prescription medicines are becoming, I'd surmise that generic drugs are going to play an increasingly important role in the decade to come, which should play right into Mylan's hands.
On the other hand, Mylan's issues aren't going to disappear overnight. Mylan's pricing practices on EpiPen are under intense scrutiny, and there's no telling where the end of the road lies. Considering that the company generates a good chunk of its profits from its branded therapies (ahem, EpiPen), this could be a big gray cloud that overhangs Mylan and its bottom line for many quarters to come.
I'm inclined to believe that Mylan is a good value here, but I would also shy away from expecting a quick rebound. Mylan is an intriguing company to consider adding as a small position, and building upon as we get more clarity, assuming the news leads toward a positive resolution.