Preview Issue #4 - Mylan Capitulates, M&A Activity Heats Up and the Negative Political Backdrop

INO Health & Biotech Stock Guide

Preview Issue #3 - October 13th, 2016


Mylan has been a whipping post as of late over its aggressive pricing increases regarding its EpiPen which uses an auto-injection of epinephrine to treat severe allergic reactions in primarily school age children. As a result, Mylan has ostensibly capitulated in the face of public and governmental scrutiny regarding its EpiPen pricing with implementing plans to offer a generic version and a $465 million settlement with the U.S. department of Justice to appease the public and improve its company image. The relentless congressional grilling on Capitol Hill and public backlash against Mylan and its CEO looks to have spurred the company into offering a generic and cheaper version of its EpiPen as well as providing more EpiPen via its access programs. However, congressional leaders continue to criticize Mylan over its alleged misrepresentation of profits and under paying Medicare in rebates. Congressional leaders stated that Mylan was dishonest when it incorrectly applied a statutory U.S. tax rate on its EpiPen revenue. The company is technically based ex-U.S. and thus pays a lower tax rate. Furthermore, the company has been accused of misclassifying the EpiPen to game the Medicaid Drug Rebate Program. Mylan has been reportedly paying a 13% rebate that is reserved for generics while the brand name EpiPen should be at a minimum of a 21% rebate rate. Congressional leaders have vowed to recoup the difference over the past five years Medicaid has spent on EpiPens (total Medicaid spending from 2011 through 2015 was reported to be $960 million for the EpiPen). To this end, Mylan just settled a $465 million lawsuit regarding this egregious misclassification under the Medicaid Drug Rebate Program. This negative publicity along with continuous political attacks has been a major overhang impacting biotech stocks. This public and contentious battle with government officials and the general public doesn’t bode well for the entire healthcare cohort. With ongoing presidential debates and political posturing still occurring, this will likely continue to be a source of volatility. Buying opportunities may present themselves throughout the sector due to extraneous political rhetoric regarding the drug pricing debate and the entire drug supply chain dynamics.


Merger and acquisition activity within the biotech/pharma space has heated up as of late with Pfizer’s (NYSE:PFE) acquisition of Medivation (NYSE:MDVN) for $14 billion, Allergan’s acquisition of Tobira for $1.7 billion and J&J’s acquisition of Abbott’s Medical Optics unit for $4.3 billion. The entire healthcare cohort and more specifically biotech stocks have experienced major sell-offs from late 2015. The ETF that serves as a proxy for the biotech cohort, iShares Nasdaq Biotechnology Index (NASDAQ:IBB) has fallen from just over $400 per share in late 2015 to a low of $240 per share earlier this year. As the cohort remains suppressed, many prospective buyout candidates become more financially appealing to the acquirer due to beaten down valuations in concert with the maturity of pipelines coming into play. As this acquisition activity heats up, be on the lookout for stocks that have been rumored as takeover targets to heat up and possibly taking the IBB along for the ride.


American Association for the Study of Liver Diseases (AASLD) is holding its annual scientific meeting from November 11th through November 15th. AASLD will hold its Liver Meeting in Boston, MA this year where ~10,000 industry leading hepatologists and hepatology health professionals domestically and abroad will arrive to present the latest liver diseases research, discuss treatment outcomes and collaborate with colleagues within the hepatology space. As findings are presented at world-renowned conferences like the AASLD, company stocks tend to move on the revelation of data from clinical findings especially surrounding efficacy and safety. These stock swoons are more pronounced in small and mid-cap stocks upon presenting their clinical findings.

The drug pricing debate continues to be at the forefront of politicians’ attacks towards pharma companies while the same fight is being waged in the court of public opinion. As candidates threaten drug companies with containing the costs of drugs, these actions will continue to negatively impact healthcare and biotech stocks in particular. Specifically, in California’s upcoming general election, Proposition 61 takes aim at the drug pricing debate by enacting pricing standards. This initiative will prohibit state agencies from buying any prescription drug from a drug manufacturer at any price over the lowest price paid by the Veterans Affairs, except as may be required by federal law. As the political cycle winds down many of these headwinds will be removed and will likely allow the healthcare cohort to move higher as seen in the price action of IBB over the past couple of months as the political climate matures.


Medication (NASDAQ:MDVN)

ABOUT THE EDITOR - Noah Kiedrowski

I am biotechnology professional with a diverse scientific background and detailed knowledge in many therapeutic areas such as monoclonal antibodies, immunotherapies and antivirals. I have a personal interest in finance, investing, trading and global markets. My analysis is focused on stocks and exchange traded funds (ETFs) while exploring niche opportunities such as derivative trading via options. This newsletter is intended to provide investors with the latest developments and trends regarding the overall healthcare sector with a biotechnology emphasis. I'll be highlighting sector trends, merger and acquisition activity, noteworthy current events, political developments and drug approvals. My focus will be centered on well-established mid-cap and large-cap companies as well as utilizing appropriate ETFs as proxies for sector trends. This is a bi-monthly newsletter service that reflects my own opinions and analyses. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. I am not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates my analyses. I encourage all investors to conduct their own research and due diligence prior to investing.


This bi-monthly newsletter service reflects the opinions and analyses of INO Contributor, Noah Kiedrowski. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates his own analyses. All traders and investors should conduct their own research and due diligence prior to investing.