Mylan Agrees to $465 Million EpiPen Settlement with US; But the Matter is Far From Over

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Mylan NV (Amsterdam) will pay the US government $465 million in a swift settlement over how the drugmaker charged Medicaid for its allergy shot EpiPen, according to Bloomberg News.

Mylan to pay the US government $465 million over how much they charged #Medicaid for its #EpiPen Click To Tweet

The settlement will resolve part of the controversy over Mylan’s price increases on EpiPen, which enraged patients, prompted probes from Congress and cut a quarter of the value of Mylan’s stock since August.

The shares closed the week down 6% at $35.94. 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 US Centers for Medicare and Medicaid Services, or CMS, said in a letter last 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 US bigger rebates.

Mylan also on Friday said that it had received an inquiry from the US Securities and Exchange Commission about the Medicaid rebates. The company, which is run from Canonsburg, PA, 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,” CEO Heather Bresch said in the statement.

Spokeswomen for both Mylan and the Justice Department declined to comment.

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 EpiPen in 2007, and has since then raised the price of EpiPen by about sixfold, making it the 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.

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.”

Steve’s Take: In a clear attempt to put the matter behind it, embattled EpiPen maker Mylan has agreed to a $465 million settlement with the US Department of Justice (DOJ) and other agencies, based on the company’s classification of its epinephrine autoinjector for Medicaid rebate purposes.

According to CNBC, Mylan not only has agreed to this settlement while admitting no wrongdoing but also has decreased its earnings forecast range from $4.85-$5.15 to $4.70-4.90 per share. Still, the company’s shares closed the week down 6%.

MarketWatch has described the Medicaid classification issues as “wonky but serious,” and it appears to have been quite serious for Mylan. The  Centers for Medicare and Medicaid Services (CMS) and three U.S. senators have claimed that Mylan overcharged taxpayers and the government by millions.

The company reportedly did so by classifying their autoinjector as a generic drug, which implies that it has multiple competitors, rather than as a branded product with limited to no competition. Under the former definition, a company has to pay only a 13% Medicaid rebate back to the government, but in the latter case, that amount jumps to 23.1%.

CMS director Andy Slavitt wrote in a letter to legislators that his agency “on multiple occasions provided guidance to the industry and Mylan on the proper classification of drugs and has expressly told Mylan that the product is incorrectly classified.”

The timeline on when CMS informed Mylan of this incorrect classification is not entirely clear, according to Forbes. In an earlier response to the growing uproar over the “wonky but serious” issue, Mylan said in a statement that the company had retained the product’s generic classification at the time it acquired the EpiPen in 2007. According to Slavitt’s letter, the CMS changed the EpiPen’s status to generic in 1997.

The upshot of the generic classification is that with that 10% decrease in rebates to the government, taxpayers ended up covering those costs, which were always growing, in tandem with Mylan executive salaries, says Forbes.

According to CNBC, Medicaid spent about $66.4 million on EpiPens in 2011. That amount was up to $365 million last year. Medicare’s prescription drug program, Medicare Part D, spent $20 million on the autoinjectors in 2011 and a whopping $121.7 million in 2015.

With these numbers and the growing notoriety surrounding Mylan’s rapid-fire and steep price hikes for the pens, US Senators Charles Grassley (R-IA), Richard Blumenthal (D-CT), and Amy Klobuchar (D-MN) sent a letter to the DOJ in September asking the agency to investigate the company’s classification of its autoinjector.

It wasn’t the first scrutiny Mylan received from elected officials, with CEO Bresch having already faced the music in her testimony to the House Oversight and Government Reform Committee, Forbes points out. And this settlement is not the first fiscally related “mea culpa” moment for the company, which had to circle back after Bresch’s appearance and correct underreporting of EpiPen profits.

In their letter, the senators noted that Mylan has had the generic classification for the EpiPen since 2007, the year it acquired the device, but that the EpiPen doesn’t fit the description of generics in the relevant statutes. The senators also argued that Mylan itself sought to push any “therapeutic equivalents” out of the market:

The Medicaid Drug Rebate Program imposes a higher rebate on innovator drugs because innovator drugs are generally protected by patents.

Shortly after Mylan began marketing the EpiPen, it sued Israel’s Teva Pharmaceuticals for patent infringement, leading to a settlement that kept Teva out of the EpiPen market until late 2015. During this timeframe, Mylan increased its prices dramatically, including a rise from $265 to $609 in the last three years.

Then, in 2015, Mylan filed a citizen’s petition with the Food and Drug Administration asking the agency not to grant “therapeutic equivalence” status to Teva’s competitor product. The exclusion of therapeutic equivalents is key, says Forbes.

Grassley, a Republican, and colleague senators noted:

Pharmaceutical companies are responsible for determining whether their products are innovator or NIMS (generic) drugs. Companies can reap huge profits, at the expense of the states and taxpayers, by misclassifying innovator drugs as NIMS drugs. In the past, the Department has secured settlements against drug companies under the False Claims Act for such practices including against Mylan Pharmaceuticals.

The False Claims Act appears to be what’s in play in this settlement agreement, says Forbes. Mylan, in an earlier statement, pointed to the generic classification of the EpiPen in existence since 1997. But the senators in their letter to the DOJ note that since that time, the company’s product “has been protected by at least one additional patent,” suggesting that this factor along with others precludes classifying EpiPen as a generic.

Grassley and colleagues closed with:

The American people have been rightly outraged as Mylan engaged in substantial price increases that resulted in billions of dollars paid by U.S. consumers. They deserve to know whether the company also violated the False Claims Act and diverted millions of dollars from U.S. taxpayers.

As far as I can see, Mylan’s just-announced settlement with the DOJ is only the opening chapter of putting the entire EpiPen debacle behind it. Mylan’s separate fracas with Congress is far from over, as is the individual culpability of its top management.

Steve's Take: A hint of political 'gotcha' is being meted out to Ms. Bresch Click To Tweet

Yes, CEO Bresch’s father, Sen. Joe Manchin, is a Democrat. And yes, Sen. Grassley is a Republican. Although republicans are historically pro business, and that would certainly include the pharmaceutical industry, I can’t help but feel a hint of “gotcha” being meted out to Ms. Bresch, et al.

Why? Don’t forget that under Bresch’s reign as CEO, a big US pharmaceutical company moved its legal (and tax) domicile to the Netherlands–not something that curried favor with the US government.

Meanwhile, Ms. Bresch’s own compensation rose from $2.5 million in 2007 to $18.9 million in 2015. I don’t know exactly what Sen. Grassly takes home each year for the job he does, but I doubt it’s in Ms. Bresch’s bracket. Stay tuned.