Mylan Reaches $465 Million Settlement with Department of Justice

Under fire since August, Mylan Pharmaceuticals (NASDAQ:MYL) may have finally resolved some major questions around its EpiPen product—specifically, how it is classified under the Medicaid Rebate program. Mylan announced on October 7, 2016, that they will pay a $465 million settlement to the US federal government, clearing the company of any rebate liability going forward.
The inquiry stemmed from questions regarding the classification of the EpiPen Auto-Injector as a “non-innovator drug,” which made its Medicaid rebate formula a full ten percent lower. With the classification under question, Mylan could have been on the hook for millions.
Innovator drugs are defined as those with minimal competition. The rebate system was implemented in order to prevent price-gouging in these cases. But in the wake of Mylan’s pricing and executive salary scandals, the Centers for Medicare and Medicaid alleged that the pharmaceutical company purposefully misclassified the EpiPen in order to avoid paying higher rebates.

For its part, Mylan noted that the product was classified as a non-innovator drug before the company acquired it and admitted no wrongdoing as part of the settlement. It would seem the company decided $465 million was a small price to pay in order to resolve the matter quickly.
“This agreement is another important step in Mylan’s efforts to move forward and bring resolution to all EpiPen Auto-Injector related matters,” said CEO Heather Bresch. “Entering into this settlement is the right course of action at this time for the Company, its stakeholders and the Medicaid program.”
Investors seem to agree. Although they can expect to see an unplanned $465 million expenditure on Mylan’s next quarterly report, most seem to be taking the settlement as good news. Following the announcement, Mylan’s shares gained ten percent in after-hours trading.
Meanwhile, there has been no movement to lower product pricing or scale back Bresch’s salary.

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Securities Disclosure: I, Chelsea Pratt, hold no direct investment interest in any company mentioned in this article.