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Biotech ETFs in Focus After Mylan's EpiPen Controversy

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It seems, from what Mylan NV did on August 25, that finally the move against the “price gouging” by pharmaceutical companies won the battle to some extent. This is because Mylan NV indicated that it will reduce the cost of its EpiPen emergency allergy medication by about 50% amid heightened political pressure that was building up on the drug’s steep price.

In particular, the drug company said that it would offer a $300 "savings card" discount to patients purchasing a two-pack of EpiPens, which actually have a retail price of around $600.

Why Mylan Offers Discounts?

The move came after the company faced intense scrutiny over the pricing of its popular allergy medication. The Democratic presidential candidate Hillary Clinton especially attacked Mylan for the “exorbitant” price hike on EpiPen.

As per Clinton, “a shot of epinephrine can literally be the difference between life and death” and “over the last several years, Mylan Pharmaceuticals has increased the price of EpiPens by more than 400%. They're now charging up to $600 for a two-EpiPen set that must be replaced every 12–18 months. This both increases out-of-pocket costs for families and first responders, and contributes to higher premiums for all Americans and their employers (read: ETFs to Watch If Hillary Clinton Wins the Presidency).

Clinton has been vocal against drug price gouging since last September. Her tweet at that time had come on the heels of a 5,455% price hike (in about two months) of a drug called Daraprim, used to treat malaria and toxoplasmosis. This gigantic leap in pricing action was taken by a privately held biotech company Turing Pharmaceuticals (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).

Apart from Clinton, two senior U.S. senators were investigating EpiPen’s price rises and demanded explanation from the drug maker for this hike. Various media, experts and patients were also into the move against the “out of control” price increases of EpiPens.

How Important EpiPen is for Mylan?

Mylan bought the auto-injectors in 2007, when the life-saving drug generated $200 million in revenues annually. From there, EpiPen’s revenues reached over $1 billion in annual sales and make up about 40% of Mylan total sales. While sales volume does matter, price hikes played an important role in this staggering revenue.

How Mylan Move is Being Viewed Now?

Even after a 50% discount, the step is viewed as “a PR fix more than a real remedy” by some. Though Clinton sees Mylan’s effort positively, she also believes that “discounts for selected customers without lowering the overall price of EpiPens are insufficient.” This is particularly true since Mylan has not altered the list price. This seems just a small act to stop the storm raging on Mylan. Notably, this discount will not hold good for people without insurance or for those with government insurance programs.

How Did Biotech ETFs React?

Mylan shares lost about 12.4% in the last tumultuous five days (as of August 25, 2016), when protests against EpiPen’s price hikes were intense. On Thursday, MYL shares were down about 0.7%.

Most of the biotech ETFs were in the red on Thursday. Biotech ETFs that have sizable weight in Mylan were hammered. VanEck Vectors Generic Drugs ETF GNRX puts 7.04% weight in Mylan and lost about 3.2% on August 25 (read: Generic ETF in Focus as Biotech Lose Charm).

iShares Nasdaq Biotechnology IBB – which has 3.84% exposure to Mylan —shed about 1.2% on the day. Another biotech ETF SPDR S&P Biotech ETF XBI was down about 1.1%.

The price gouging issue has been throttling the biotech space for long. We believe that this blazing issue will be a talking point over the coming days especially given the looming election and will continue to put biotech ETFs in focus (read: Trump or Clinton: These ETFs to Face Same Fate).

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