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Mylan (MYL) Stock Falls on Restructuring Plans, Layoffs

Zacks Equity Research

In an 8-K filing, generic drug maker Mylan N.V. MYL revealed restructuring programs in certain locations in an attempt to streamline its operations globally as it focuses on the integration of acquired businesses. The company expects to cut less than 10% of its global workforce, marking the first step in a series of actions.

The company is currently straightening out the details of the cost-saving and restructuring initiatives, and will divulge more information once these plans are finalized. We note that Mylan’s global workforce comprised nearly 35,000 employees as of Dec 31, 2015. This implies that the layoff could affect up to 3,500 people.

Note that Mylan has been on an acquisition spree since 2015. In Feb 2015, it acquired Abbott Laboratories’ ABT non-U.S. developed markets’ specialty and branded generics business. This June, it took over the non-sterile, topicals-focused business of privately held Renaissance Acquisition Holdings, followed by the Aug 2016 buyout of Swedish drug manufacturer Meda.

Pricing & Related Issues Persist

Mylan’s shares lost 3.8% on the restructuring announcement. The company has in fact lost a substantial 26.2% since Aug 2016, ever since it started facing criticism for the massive price hike of its lifesaving allergy treatment, EpiPen. The pricing controversy even led to a congressional hearing and drew immense flak from former U.S. presidential candidate Hillary Clinton.

Since then, Mylan has been struggling to turn the tide through initiatives like changes in the EpiPen access programs, which included raising the savings card program from $100 to $300; doubling the eligibility of the patient assistance program; and working on the upcoming launch of a generic version of EpiPen.

However, all of these steps have more or less failed to mitigate the situation effectively.

In fact, right after the pricing issue, Mylan made it to the headlines for wrongly classifying EpiPen as a generic product in the Medicaid Drug Rebate Program. The misclassification implied that Mylan has been vastly underpaying rebates to Medicaid for the drug for a long time than it would have if the drug was classified as a branded one.

As a result, in Oct 2016, Mylan agreed to pay $465 million to the U.S. Department of Justice (DoJ) and other government agencies in an effort to settle the disputes regarding the misclassification of EpiPen. In the third quarter of 2016, the company even booked a $465 million charge related to the settlement, which led to weaker-than-expected quarterly results.

In addition, even though the company stated on its third-quarter 2016 earnings call that it was working on finalizing the deal, the DoJ is yet to confirm if it has reached a settlement with the company.

Mylan’s shares will be under pressure in the foreseeable future with lawmakers continuing to question the company’s pricing policy and concerns related to the ongoing investigations.

Despite these challenges, shares of the company have outperformed the Zacks categorized Medical-Generic Drugs industry, albeit marginally. The industry has witnessed a decline of 26.5% since August.

The industry has been under pressure as the DoJ could investigate quite a few generic drug manufacturing companies like Mylan and Endo International plc ENDP over price collusion. In fact, Mylan revealed through a 10-Q filing of its receipt of subpoenas from the DoJ in Sep 2016, seeking additional information related to the marketing, pricing and sale of its four generic products.

Trump’s Victory – Boon or Curse?

The post-election rally in the biotech and pharma sectors came to an abrupt halt when President-elect Donald Trump clarified that his intentions were misinterpreted and that he actually plans to target excessive drug price hikes. Winner of Time’s “Person of the Year” title, in an interview with Time, Trump stated, “I’m going to bring down drug prices. I don’t like what has happened with drug prices.”

During his campaigns, Trump was not as vocal as Clinton about drug price hikes. As a result, upon the declaration of results, shares of the biotech sector climbed 9%.

Note that the drug pricing issue has been weighing on the healthcare sector since last year when Clinton’s Sep 2015 “price gouging tweet" led to huge sell-off in the pharma and biotech stocks.

Given the intense public, political and media focus on branded drug prices, in addition to the ongoing investigations into generic drug pricing, the healthcare sector will probably remain under pressure going ahead.

Mylan currently carries a Zacks Rank #5 (Strong Sell).

MYLAN NV Price and Consensus


MYLAN NV Price and Consensus | MYLAN NV Quote

A Key Pick

Sucampo Pharmaceuticals, Inc. SCMP is a better-ranked stock in the health care sector, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sucampo’s earnings estimates increased from $1.03 to $1.22 for 2016 and from $1.30 to $1.58 for 2017 over the last 60 days. The company posted a positive surprise in all of the four trailing quarters with an average beat of 35.55%.

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