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Chaffetz, Cummings Request Further Details on EpiPen Profits

Oct 3, 2016
Press Release

Chaffetz, Cummings Request Further Details on EpiPen Profits

Letter requests detailed financial information on sales, profits, costs, etc.

 

WASHINGTON, D.C. – Today, House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-UT) and Ranking Member Elijah Cummings (D-MD) announced that they sent a letter to Mylan CEO Heather Bresch requesting information related to the company’s EpiPen profit margins. The letter also outlines other documents Bresch agreed to provide the Committee during a September 21st hearing.

Key excerpts from the letter:

"This week… the Committee learned that your testimony omitted key tax assumptions that affect the company’s profit per pack. Specifically, neither your testimony, nor the documents Mylan produced to the Committee, clearly disclosed that the company’s profit claim was calculated after factoring in the statutory U.S. tax rate—37.5 percent. …

"Failing to disclose tax assumptions that formed the basis for the $100 profit per pack claim, despite opportunities to do so before and during the hearing, raises questions. During the hearing, Chairman Chaffetz noted that Mylan’s 'dumbed down financials' did not make sense without explanation. Ranking Member Cummings similarly stated, 'You know, your numbers don’t add up. … And it is extremely difficult to believe that you are making only $50 profit when you just increased the price by more than $100 per pen.’”

Full text of the letter can be viewed here, or below:

 

September 30, 2016

 

Ms. Heather Bresch

Chief Executive Officer

Mylan, Inc.

Robert J. Coury Global Center

1000 Mylan Boulevard

Canonsburg, PA 15317

 

Dear Ms. Bresch:

 

When you appeared before the Committee on September 21, 2016, at a hearing on Mylan’s price increases for the EpiPen, you repeatedly stated that Mylan makes $100 profit per every EpiPen two-pack that it sells.[1]  This week, however, the Committee learned that your testimony omitted key tax assumptions that affect the company’s profit per pack.  Specifically, neither your testimony, nor the documents Mylan produced to the Committee, clearly disclosed that the company’s profit claim was calculated after factoring in the statutory U.S. tax rate—37.5 percent.  The Washington Post reported:

 

Lawmakers were skeptical last week when Mylan chief executive Heather Bresch said that the company made only $100 in profit for a two-pack of EpiPens.  During a House hearing, Bresch repeatedly referred to a poster board showing how little of the $608 list price trickled back to the company.  The incredulity was warranted:  The profits Bresch told Congress about were calculated after factoring in the 37.5 percent U.S. tax rate, according to a filing with the Securities and Exchange Commission first reported by the Wall Street Journal.  That tax rate is more than five times the overall tax rate the company actually paid last year and much higher than its actual U.S. tax rate, which tax specialists have pegged at close to zero.  Before taxes, the EpiPen profit is actually $160 for a two-pack.[2]

 

Mylan claimed an estimated tax impact of $187 million for EpiPens in 2015.[3]  That estimate is nearly three times Mylan’s company-wide income tax provision that year—$67.7 million—as reported in its annual SEC filing.[4]  That figure reflected $93.6 million in non-U.S. taxes offset by a U.S. tax benefit of $25.9 million.[5] 

 

During your testimony, you frequently referred to a graphic, titled “EpiPen Auto-Injector Estimated Profitability,” which identified Rebates & Allowances, Cost of Goods Sold, and Direct EpiPen Auto-Injector Costs as factors that lowered the profitability of the EpiPen. 

 

The graphic made no mention of taxes or the tax assumptions used by Mylan to estimate the $100 profit number.  Neither did your written testimony.  The only time you mentioned taxes during the hearing was to disclose that Mylan’s company-wide effective tax rate is between 15 and 17 percent, as a result of Mylan’s decision to move its headquarters overseas.[6] 

 

Failing to disclose tax assumptions that formed the basis for the $100 profit per pack claim, despite opportunities to do so before and during the hearing, raises questions.  During the hearing, Chairman Chaffetz noted that Mylan’s “dumbed down financials” did not make sense without explanation.[7]  Ranking Member Cummings similarly stated, “You know, your numbers don’t add up. . . .  And it is extremely difficult to believe that you are making only $50 profit when you just increased the price by more than $100 per pen.”[8] 

 

In response to scrutiny after the hearing, Mylan clarified that the profit figure you presented to the Committee included taxes.[9]  In conjunction with Mylan’s SEC filing, a Mylan spokesperson stated that “the information provided to Congress has made clear that tax was part of the EpiPen Auto-Injector profitability analysis.”[10]  Mylan had not directly referenced the tax assumptions for its EpiPen profit estimates, neither in its September 15, 2016, letter to the Committee, nor in the documents that the company produced. 

 

To help us understand the manner by which Mylan prepared and provided information to the Committee and the pricing of the EpiPen, please respond to the following documents and information as soon as possible, but no later than October 7, 2016.

 

  1. All documents, including internal analyses or memoranda, that have been provided to, or prepared for, you or the Mylan Board of Directors, referring or relating to EpiPen sales, profits, costs, manufacturing, distribution, or any other subject that could impact the costs or profitability of the drug-device combination product.

 

  1. All documents referring or relating to your testimony to the Committee, including, but not limited to, any such documents that you relied on to prepare for the September 21, 2016 hearing. 

 

  1. All documents and communications referring or relating to Mylan’s tax rate, including, but not limited to, those referring or relating to the profitability of the EpiPen.

 

  1. Documents sufficient to show Mylan’s actual U.S. tax rate, U.S. taxable income, and the amount of U.S. income tax Mylan paid to the Internal Revenue Service, for each year since 2007. 

 

  1. A list of Mylan’s profits and expenses relating directly to the sale of EpiPens for each year from 2007 through 2015, including, but not limited to:

 

  1. profit (including operating and net);
  2. sales;
  3. cost of goods sold;
  4. operating cost;
  5. rebates (including commercial, Medicare Part D, and Medicaid rebates);
  6. discounts;
  7. allowances;
  8. coupons;
  9. patient co-pay;
  10. charge backs;
  11. direct selling expenses;
  12. medical affairs;
  13. marketing;
  14. research and development;
  15. Patient Assistance Programs;
  16. EpiPens4Schools program;
  17. taxes; and
  18. any other expenses or costs.

 

  1. All agreements, contracts, and communications to or from manufacturers, suppliers, distributors, wholesalers, insurers, pharmacy benefit managers, retail pharmacies, and any other partners in the distribution channel for EpiPens, referring or relating to EpiPens.

 

  1. Documents and communications referring or relating to the difference in price between EpiPens sold in the Netherlands and EpiPens sold in the United States.

 

  1. Documents sufficient to define the terms “rebate,” “allowances,” and “direct EpiPen Auto-Injector Costs” that appeared in the “EpiPen Auto-Injector Estimated Profitability” chart you displayed during the hearing.

 

  1. Documents and communications referring or relating to whether “rebate” and “allowances” (as used in the aforementioned chart) include rebates or discounts provided by Mylan to any state or federal entity under any healthcare program including Medicaid, Medicare, and the Department of Veterans Affairs.

 

  1. Documents sufficient to show whether Mylan accounts for research and development both as an operating cost and as an expense subtracted from profits on a company-wide basis.

 

  1. Documents sufficient to show Mylan’s annual charitable contribution deductions for tax years 2007 to 2015.

 

  1. All Profit and Loss statements prepared for Mylan for the last five years.

 

  1. Documents and communications referring or relating to whether Mylan has, or intends to extend, any existing patents or FDA market exclusivity, or file any new patents, for the extended shelf-life formulation of the EpiPen as you described during the hearing.

 

  1. Documents and communications referring or relating to whether the authorized generic version of the EpiPen will be covered by the My EpiPen Savings Card or Mylan’s Patient Assistance Program.

 

  1. Documents and communications referring or relating to all rebates, discounts, and any other payments Mylan expects to provide to pharmacy benefit managers, insurers, manufacturers, distributors, wholesalers, suppliers, retail pharmacies, or any other partners in the distribution channel in connection with the authorized generic EpiPen.

 

  1. All documents referring or relating to Mylan’s projected annual gross and net sales revenue and profits, from sales of the authorized generic.

 

  1. Documents and communications referring or relating to Mylan’s estimate that the net price to Mylan per 2-pack of EpiPens will be $200 after the authorized generic is launched (as the aforementioned chart stated).

 

  1. Documents sufficient to identify all Mylan employees who have worked with the Centers for Medicare & Medicaid Services (CMS) regarding the classification of the EpiPen as a generic drug under the Medicaid Drug Rebate Program, and all CMS employees who have worked with Mylan regarding the classification of the EpiPen under the Medicaid Drug Rebate Program.

 

When producing documents to the Committee, please deliver production sets to the Majority Staff in Room 2157 of the Rayburn House Office Building and the Minority Staff in Room 2471 of the Rayburn House Office Building.  The Committee prefers, if possible, to receive all documents in electronic format.  An attachment to this letter provides additional information about responding to the Committee’s request.    

 

 

The Committee on Oversight and Government Reform is the principal oversight committee of the House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.  Please contact Natalie Turner or Sarah Vance of the Majority Staff or Alexandra Golden with the Minority Staff at (202) 225-5074 with any questions about this request.  Thank you for your prompt attention to this matter

 

[1] Reviewing the Rising Price of EpiPens: Hearing before the H. Comm. on Oversight & Gov’t Reform, 114th Cong. (Sept. 21, 2016), available at https://oversight.house.gov/hearing/reviewing-rising-price-epipens-2/.

[2] Carolyn Y. Johnson, Mylan’s Profits are 60 Percent More Than It Told Congress, Wash. Post, Sept. 26, 2016. 

[4] Id.

[5] Id.

[6] Id.

[7] Reviewing the Rising Price of EpiPens: Hearing before the H. Comm. on Oversight & Gov’t Reform, 114th Cong. (Sept. 21, 2016), available at https://oversight.house.gov/hearing/reviewing-rising-price-epipens-2/.

[8] Id.

[9] Mark Maremont, Mylan’s EpiPen Pretax Profits 60% Percent Higher Than Number Told to Congress, Wall St. J., Sept. 26, 2016.

[10] Carolyn Y. Johnson, Mylan’s Profits are 60 Percent More Than It Told Congress, Wash. Post, Sept. 26, 2016.

114th Congress