Last week, Mylan’s (MYL - Analyst Report) CEO Heather Bresch testified before lawmakers and elected government officials regarding a recent price increase on its lifesaving product that treats severe allergic reactions. The product is none other than the EpiPen, and since there are no direct competitors in the market, Mylan has had full discretion over how much it charges for the injection pen. A pair of pens went for about $100 in 2008, and since then, the price has ballooned to $600.
What exacerbates the problem is the fact that many pens expire after a year, so people with severe allergy problems are forced to pay for new pens every year (although insurance plans can help in making the drug affordable). With this, it is not too surprising to see why Congress is so concerned over Mylan’s price-gouging practices.
Today, it has been revealed that the company’s CEO underestimated the amount of profit which the company makes per two-pen pack. Mrs. Bresch stated that Mylan makes roughly $100 in profit, but that number applies the 37.5% statutory tax rate, a percentage which Mylan didn’t actually pay. Mylan’s overall effective tax rate was 4.2% and 7.4% in 2014 and 2015 respectively.
The committee that Heather testified in front of did not believe in Mylan’s reported profitability from EpiPens last week, and they were right to have doubts. Without including the statutory tax rate, Mylan’s profit on two-packs comes out to about $160. This is 60% more profit than the figure that Mylan gave to congress. Mylan is a Zacks Rank #3 (Hold) and its stock fell by about 2% today.
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