Shares of Mylan (MYL) - Get Report lost 4.75% on Tuesday after two U.S. Senators wrote to the company asking about price increases. While most analysts would agree the "price gouging accusations" will not likely affect earnings in the near term, this situation could cause big issues for both Mylan and the entire industry down the road.
Democratic presidential candidate Hillary Clinton also tweeted about the price increase, sending the stock down further.
Mylan's EpiPen product used to counteract allergic reactions is the key product lawmakers and consumers are targeting, but evidence shows that Mylan has systematically increased prices across the board over the last few years. What makes the EpiPen issue so juicy as an example of corporate greed is that Mylan essentially has a monopoly on the market for items of this nature.
The story gets even more interesting when you consider the whole story behind the EpiPen. Most American's let alone investors who follow the markets have heard politicians this political season call out different pharmaceutical companies for price gouging. But in most of those cases in the past, the companies being called out have been small, specialty biotechnology companies that had developed a specific drug for a very specific ailment -- think Valeant Pharmaceuticals (VRX) .
While some of the specialty companies have a point when they say they need to charge really high prices in order to regain the money spent on research and development, Mylan doesn't have that excuse with the EpiPen. Mylan purchased the product in 2007 and has only raised the price of the medication ever since. While one could argue that Mylan needs to recoup the investment it made in purchasing the product, it's probably no argument that Mylan has made all that money back, and sum since 2007.
In 2008 the EpiPen sold for around $100, now it is selling for over $600. While Mylan claims 80% of patents with commercial insurance and used a savings code paid $0 for the product, the fact remains that the price increases are huge and seem unwarranted.
So what should investors expect and do? Well, at this point, nothing. If you already own the stock, hold on, as things may get bumpy in the short term. Taking a longer view at the stock is different. While the press is not good for the company, earnings shouldn't be affected by this anytime over the next few quarters. But, with the elections around the corner and new leadership both in the White House and Congress, political agendas regarding pharma companies price gouging may change.
With that being said, while Mylan and Valeant may be the poster children for the cause to crack down on price gouging, if the U.S. government takes any action, it will likely be against the whole industry, not just one or two companies. If there is an industry wide change, that will take a lot of time to actually hammer out the details and go into effect, and we are talking years here.
So, investors shouldn't panic sell, the stock will likely rebound in the coming weeks when the bad press dies down.
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This article is commentary by an independent contributor. At the time of publication, the author held stock in Mylan.