Mylan rises after signing EpiPen settlement with DOJ
Mylan (MYL) shares are rallying after the drugmaker agreed to a $465M settlement over charges that it overcharged the government for its EpiPen products. In conjunction with the settlement, Mylan cut its guidance for the year. SETTLEMENT DETAILS: Mylan announced on Friday that it had reached a $465M settlement with the Department of Justice and other government agencies over questions on whether the company had overcharged Medicaid for the treatment by improperly classifying it as a generic drug. Mylan has been under intense scrutiny for raising the price of EpiPen to more than $600 for a pack of two from about $100 since it acquired the allergy treatment in 2007. In a statement, Mylan said the settlement did not imply any admission of wrongdoing. It also said the settlement had not been finalized, and that it expected to enter into a corporate integrity agreement with the Office of the Inspector General for the Department of Health and Human Services. "This agreement is another important step in Mylan's efforts to move forward and bring resolution to all EpiPen Auto-Injector related matters" CEO Heather Bresch stated, adding that the agreement is "in addition to the significant steps Mylan has taken in relation to EpiPen Auto-Injector over the past several weeks, including the unprecedented, pending launch of a generic version of EpiPen Auto-Injector and expansion of our patient access programs for this product." LOWERED GUIDANCE: As a result of the previously announced changes in EpiPen Auto-Injector access programs and the upcoming launch of the generic to EpiPen Auto-Injector, Mylan on Friday cut its fiscal 2016 adjusted earnings per share view to $4.70-$4.90 from $4.85-$5.15, below analysts' estimates at the time of $4.95. Mylan will take a pre-tax charge of approximately $465M in the third quarter as a result of the DOJ settlement. Looking ahead, Mylan backed its adjusted EPS target for fiscal 2018 of "at least" $6.00. ANALYSTS MOSTLY 'POSITIVE' ON SETTLEMENT, GUIDANCE: JPMorgan analyst Chris Schott said in a note to clients that he views the DOJ settlement and the updated 2016 guidance as a "positive." He said that the news "removes litigation overhang at a reasonable cost" and highlights the diversification of the base business and inexpensive valuation of the stock. Raymond James analyst Elliot Wilber agreed, and upgraded Mylan to Strong Buy from Market Perform, explaining that the DOJ settlement eliminates a significant overhang on shares enabling the focus to be on Mylan's fundamentals. Wilber now sees favorable risk/reward scenarios even in a more tempered earnings growth environment. UBS analyst Marc Goodman said he remains constructive on Mylan despite the controversy surrounding its corporate governance. Goodman, who reiterated a Buy rating but lowered his price target to $60 from $66 on Mylan shares, said the company's updated guidance was better than feared. WELLS' MARIS MORE CAUTIOUS: However, Wells Fargo analyst David Maris said questions remain after the settlement and updated 2016 guidance. Maris disagreed with investors that think the settlement puts the EpiPen pricing issue largely behind the company, and contended that the DOJ deal only addresses the Centers for Medicare and Medicaid Services portion of the issue, and does nothing to answer the original issue of EpiPen pricing and consumers. Maris keeps a Market Perform rating on Mylan shares. PRICE ACTION: Mylan is up over 8% to $38.92 in morning trading, though shares are still down over 32% year-to-date.