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标 题: (ZZ) Is Mylan Labs (MYL) Stock a Bargain? (His answer is NO)
Is Mylan Labs (MYL) Stock a Bargain?
September 5, 2016
By Timothy Lutts
The ongoing saga of Mylan’s EpiPen has enough plot points to make a major
On one side are the innocent victims, who rely on the EpiPen to protect
themselves from anaphylaxis, typically from foods (particularly nuts) or
On the other side are Mylan Labs, the FDA, insurance companies, lobbyists
and legislators, who have created a situation where people in the U.S. are
being asked to pay more than $600 for a pair of EpiPens that each deliver
roughly $1 worth of adrenalin.
In the meantime, people in Europe enjoy a very competitive market where they
can choose from as many as eight alternative—and cheaper—products!
Yes, all these parties in the U.S. are “just doing their jobs” and many
are sincerely “trying to help.” But the net effect of their actions has
brought us to this place where a company with $10 billion in sales—and a
near-monopoly on a life-saving medical device—is paying its CEO, the
daughter of a U.S. Senator, $19 million a year—while regular people beg,
borrow and steal to afford the company’s product.
Something is wrong. Very wrong!
But before I get into the details, let me step back—as I like to do—and
look at the big picture, time-wise. In this case, this approach is
particularly relevant because Mylan Labs (MYL) was the first stock I ever
That was back in December 1984, when generic drugs were just gaining
traction and little Mylan Labs made six of the most widely prescribed
generic drugs: ampicillin, penicillin V.K., penicillin G., tetracycline,
erythromycin and furosemide.
The company’s sales that year were just $37 million, which shows you how
small the generic drug business was!
But the company was growing fast. My father, Carlton Lutts, had just
recommended the stock in Cabot Market Letter—since renamed Cabot Growth
Investor. And I liked the story of the little company that was beating the
big guys with cheaper generics.
The next year, Mylan received approval for seven more generic drugs: Aldomet
, Dalmane, Darvocet-N, Inderal, Motrin, Norpace and Valium. Business was hot!
But the following year, I sold all the stocks I owned to help build my first
house—which I still live in, though it’s grown substantially larger.
But what if I had kept some Mylan? How would that have worked out?
Well, if I had kept, say, $1,000 in the stock, it would have grown to $32,
846 today. That’s a compound annual return of 11.5%—good but not great.
More important, my fast-growing little stock stopped being a market-beater
in 1992. For all the company’s growth, MYL over the past 24 years has done
no better than the broad market.
Furthermore—and more relevant to the EpiPen discussion—the stock’s
biggest gains in that 24-year period came from 2009 through 2015, smack in
the middle of the period when Mylan raised the price of a two-pack of
EpiPens from $100 to more than $600!
The price hikes goosed revenues; the revenues goosed earnings; and the
earnings goosed the stock price.
The Power of Lobbyists
But it wasn’t just price hikes that greased the skids for Mylan. Thanks to
an army of paid lobbyists, Mylan was able to:
Get Sanofi's competing product recalled in November 2015.
Get Teva's generic device rejected by the FDA in March 2016, thanks in part
to a “citizens petition” that was filed by Mylan.
Get the FDA to broaden the indications for its EpiPen to include risk of
Get Congress to generate legislation making EpiPens available in public
places in the same way that defibrillators are.
Get the "School Access to Emergency Epinephrine Act" passed. The act not
only protects anyone from liability if they administer epinephrine to a
child in a school, it also provides financial incentives for schools that
didn’t already stock EpiPens to start stocking them.
Get people to increasingly ignore the fact that antihistamines and steroids
can often be used as substitutes for epinephrine, in the process
conditioning all of us to believe that the firm’s products are the only
real solution. In fact, the word EpiPen is fast becoming as generic as
previous brand names Kleenex, Scotch Tape and Velcro.
And acquire Abbott Labs of Ireland, thus lowering its tax rate from 35% to
Lastly, there’s the little matter of the Heather Bresch’s college degree.
When she became Chief Operating Officer of Mylan in 2007—having worked her
way up from clerk—her resume showed an Executive Masters of Business
Administration degree from West Virginia University. But when the press
investigated, the school said she hadn’t earned the degree, and in fact had
completed only 26 of the 48 credit-hours required. However, the school soon
created some credits for her out of thin air (her father was governor at
the time) and officially granted her the degree. But the subterfuge soon
came to light, and in 2008, the school’s President, provost and business
school dean all resigned.
Four years later, Bresch became CEO of Mylan. (Think about that for a minute
Now, everything Mylan has done at this point is perfectly legal—at least as
far as I can tell.
However, there’s no question that the firm has used its considerable
financial and political capital to influence public policy.
And while the shareholders of the company have clearly benefited, the costs
of the company’s success have been borne by all of us, who pay higher
prices for drugs because competitors are thwarted, pay higher prices for
insurance, and pay higher taxes because Mylan doesn’t pay its fare share.
And now Mylan has dipped into its bag of tricks once more to announce that
it will soon release a generic version of its own EpiPen, thus providing
some relief to consumers from its own price hikes. But skeptics—and their
numbers are growing rapidly—see this as simply one more crafty self-serving
move, first by calming the critical mob and second by getting a jump on
Teva, which may finally be allowed by the FDA to sell its generic
epinephrine injector next year.
So what do I recommend?
First, I think we need to rein in the influence of big business on politics.
The growing disenfranchisement of the American people is not healthy for a
purportedly democratic society. In fact, it’s a trend that could end badly.
Second, I think we need to pressure the FDA to loosen up a bit, to allow
more competition into the market. The perfect should not be the enemy of the
Third, I think we need tort reform, so that “fear of being sued” isn’t
the driving force behind every decision.
And fourth, I recommend that you sell any Mylan (MYL) stock that you have.
Yes, Mylan is already down 46% from its high, so technically it is oversold.
Short-term, a bounce would not be surprising.
And yes, the company is expected to grow earnings 18% next year and trades
at a price/earnings ratio of only 9, so by this simple measure, the stock
looks like a bargain.
But looking at the big picture, I can’t call MYL a bargain today. On the
contrary, I think the company has just finished an uncharacteristically
strong eight-year run when it pulled all the tricks it could out of the hat.
I think slowing growth is in the company’s future.
And I think the combination of that slowing growth with the tarnished public
perception of the company thanks to the EpiPen price-gouging will sour
growing numbers of investors on the stock as the months go by.
The main trend in MYL is still down and I think it will trend longer than
most people anticipate.
Thus, I recommend you put your hard-earned money somewhere else.
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