Why Did Mylan (MYL) Stock Surge Today?

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Shares of much-maligned drugmaker Mylan NV MYL climbed on Thursday after the U.S. Justice Department announced that it officially reached a settlement with the company regarding its EpiPen lawsuit.

The U.S. Justice Department announced that Mylan will have to pay $465 million in settlement fees to Medicaid programs in all 50 states to end the nearly year-long lawsuit that accused the pharmaceutical company of knowingly misclassifying its EpiPen product as a generic in order to avoid Medicaid rebate payments.

According to the lawsuit, Mylan knowingly bypassed the Medicaid Drug Rebate Program, which was put in place to prevent drug makers from price gouging brand name, single source drugs. The law forces pharmaceutical companies that have complete control over a drug to pay much higher rebate prices. Generic drugs that come from more than one manufacturer pay much lower rebate fees.

The lawsuit states that Mylan simply classified its EpiPen product, which injects epinephrine to help treat emergency allergic reactions, as a generic when there weren't FDA-approved drugs equivalent to EpiPen.

The real kicker is that the lawsuit contended that Mylan upped the price of its EpiPen product by roughly 400% from 2010 to 2016, charging as much as $600 for the treatment.

Mylan previously confirmed that the company had reached a settlement with the Justice Department nearly 10 months ago, but the U.S. Attorney's Office in Massachusetts did not make it official until Thursday.

"Mylan misclassified its brand name drug, EpiPen, to profit at the expense of the Medicaid program," U.S. Attorney William D. Weinreb said in a statement. "We will continue to root out fraud and abuse to protect the integrity of Medicaid and ensure a level playing field for pharmaceutical companies."

The pharmaceutical company was also forced into a five-year corporate integrity agreement that will see Mylan under much heavier scrutiny. However, the EpiPen maker did not confess any wrongdoing as part of the settlement.

"As we said when we announced the settlement last year, bringing closure to this matter is the right course of action for Mylan and our stakeholders to allow us to move forward," Mylan CEO Heather Bresch said in a statement. "Over the course of the last year, we have taken significant steps to enhance access to epinephrine auto-injectors, including bringing a solution to the fast-changing healthcare landscape in the U.S. by launching an authorized generic version at less than half the wholesale acquisition cost of the brand and meaningfully expanding our patient access programs."

Members of both parties of Congress have said that the $465-million settlement is far too low and lenient.

Shares of Mylan rose as much as 2% on Thursday morning but the stock still sits only slightly above its 52-week low at $30.95 a share. Mylan is currently a Zacks Rank #5 (Strong Sell), but it seems that at least some investors and the company are relieved to have this lawsuit officially behind them.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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