Mylan CEO Heather Bresch tried to perform damage control during her testimony before a House committee last week, voicing regret for what many view as unconscionable price hikes on the popular EpiPen epinephrine auto-injector used to combat dangerous allergic reactions.
The company has caused an uproar among lawmakers, consumers and health care policy makers after driving up the list price of the two-pack nearly six-fold since 2007, from $100 to $600. Throughout her testimony to the House Oversight and Investigation Committee, Bresch insisted that Mylan had actually reaped modest profits for the drug dispenser after deducting the costs of health care industry middlemen, research and marketing. She repeatedly blamed the health care system – not Mylan – and said her company cleared only $50 per pen in profit, or $100 per two-pack.
But Mylan admitted on Monday that the EpiPen’s pre-tax profits were actually 60 percent higher than it told Congress, according to The Wall Street Journal. Mylan had added a 37.5 percent U.S. tax rate into the mix while computing its profits. Without that tax-related reduction, the profits on the EpiPen two-pack would be about $160 per pack – much higher than the $100 figure Bresch gave to committee members last week.
The company sells an estimated 4.1 million EpiPen two-packs in this country annually, worth nearly $1 billion in revenues.
On Monday, Mylan provided new analysis on the profitability of the EpiPen in the U.S. to incensed committee members and the Securities and Exchange Commission, clarifying among other things that the profitability numbers were computed after taxes. For consumers struggling to cover the soaring costs of EpiPen – even after Mylan recently announced some major savings – the company’s explanation might sound like mumbo-jumbo.
Mylan claimed that the inclusion of taxes was standard for a product-line profitability analysis like the one that lawmakers requested. "Tax is typically included in a standard profitability analysis and the information provided to Congress has made clear that tax was part of the EpiPen Auto-Injector profitability analysis,” the company said in a statement. “In fact, Mylan has provided Congress with a detailed analysis of EpiPen Auto-Injector profitability."
"It also is important to note that use of a statutory tax rate for the jurisdiction being analyzed (in this instance, the U.S.) is standard,” the company added. “Just as we did not use a blended global tax rate, we also did not allocate corporate expenses associated with running the business, which would have further reduced its profitability. We believe it is most appropriate, and conservative, to focus entirely on EpiPen Auto-Injector specific costs and associated taxes."
House members and staff who had been widely dissatisfied last week with Mylan’s responses to their requests for detailed information aren’t likely to be satisfied with the latest batch of data and likely will press Bresch for a better explanation for why they were misled about her company’s profitability last week.
Ryan Baum, an analyst with SSR Health, a health-care investment research firm, told The Wall Street Journal that the 37.5 percent tax rate Mylan applied to EpiPen is unrealistic because the company didn’t pay nearly that much tax on its product. He said that Mylan had a low 7.4 percent overall tax rate last year and a “negative effective tax rate” in the United States where the EpiPen was sold.
Whether Mylan engaged in outright deception last week or lawmakers and staff didn’t fully comprehend what they were being told remains to be seen. But given the drug industry’s sorry reputation for integrity in pricing drugs and looking out for consumers, Mylan can expect further harsh oversight by members of the House and Senate who are waging a crusade against runaway drug costs.