When Mylan NV's chief executive testified before a congressional committee last week about steep price increases on its lifesaving EpiPen drug, House members badgered her to provide more evidence for the company's claim that its profit was $ 100 for a two-pack of the injectors, despite a $ 608 list price.
The committee members left unsatisfied. Now it appears they were right to seek clarity.
In response to questions from The Wall Street Journal, Mylan now says the $ 100 figure presented by CEO Heather Bresch included something the company didn't clearly convey to Congress—taxes. The company substantially reduced its calculation of EpiPen profit by applying the statutory U.S. tax rate of 37.5%.
Without the tax-related reduction, Mylan's profit on the EpiPen two-pack would be closer to $ 160, or 60% higher than the figure the company gave Congress. The company sells about 4.1 million EpiPen two-packs in the U.S., analysts said.
Mylan said it provided the House Government Oversight Committee early Monday morning more detailed figures on its EpiPen profit, clarifying that the numbers were after taxes. The company called the inclusion of taxes standard for a product-line profitability analysis like the one asked for by Congress.
The company's updated information to Congress, also included in a regulatory filing Monday, said the estimated 2016 profit for the two-pack was in fact $ 104—or $ 52 per pen—rather than the $ 100 Ms. Bresch told Congress last week. That would make the pretax profit $ 166 for the two-pack.
Mylan's explanation left some analysts scratching their heads.
The 37.5% tax rate Mylan applied to EpiPen "has nothing to do with reality," said Ryan Baum, an analyst with SSR Health LLC, a health-care investment-research firm in Stamford, Conn., because the company didn't pay that much tax on the product. Mylan had a low 7.4% overall tax rate last year, he said, and a negative effective tax rate in the U.S. where the EpiPens were sold.
"That implies this notional [$ 100] profit figure also has nothing to do with reality," Mr. Baum said. He added that Mylan executives have the discretion to present financial figures any way they want, but "good behavior would be to document your figures in a more transparent manner."
Mylan said applying an overall effective tax rate wouldn't be correct because that figure takes into account other countries' rates and companywide tax strategies. The company also said any lack of clarity wasn't intentional.
The company called the inclusion of a statutory tax rate for the product—in this case the U.S.—"standard." In a statement Monday, Mylan said: "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."
Ronny Gal, an analyst at Sanford C. Bernstein, said Mylan "in a way" is correct to apply a statutory U.S. tax rate. "If EpiPen was its own company, it would be taxed at 37.5%. It's just that it's being taxed at a much lower rate because of the tax-avoidance schemes that they and many other companies use."
During the hearing, Rep. Jason Chaffetz (R-Utah), the committee chairman, chastised Mylan's CEO for providing "dumbed down" financials, saying they "do not make sense without the definitions in here. It just feels like you're not being candid and honest with Congress."
Mylan, which was incorporated in the Netherlands last year for tax purposes but is managed from Canonsburg, Pa., has for weeks been under fire over repeated price increases on EpiPen. The penlike injector delivers an emergency shot of epinephrine to counter severe allergic reactions. The drug has little competition in the U.S. market.
Mylan acquired rights to EpiPen in 2007 and has raised list prices 550% since then to the recent $ 608 level, according to Truven Health Analytics. The price increases have been sharply criticized by some parents, who often buy several packs of the injectors annually for their school-age children because the drug expires after 12 to 18 months. With rising copays and deductibles, the out-of-pocket EpiPen cost has skyrocketed for some families.
Mylan's new filing shows EpiPen's U.S. operating profits increased substantially after it bought the product—from $ 71 million in 2008 to an estimated $ 671 million this year, or a ninefold increase. The number of EpiPens sold rose far more slowly, from 4.3 million in 2008 to an estimated 8.0 million in 2016, or 4 million two-packs, the filing said.
During the hearing, Ms. Bresch said Mylan "never intended" for patient costs on the EpiPen to increase so much. She said the company has responded by introducing an identical generic version, priced at $ 300 for a two-pack. She said the company has also ramped up its copay assistance plans and loosened eligibility for free prescriptions.
She said Mylan's average revenue per EpiPen has risen 8% annually since 2014, a much slower rate than the list-price increases would indicate, saying the difference was eaten up by middlemen in an "opaque" prescription-drug pricing system.
Ms. Bresch came to the hearing armed with a poster that showed how various costs along the way resulted in a $ 100 profit for a product with a $ 608 list price, known as "wholesale acquisition cost."
Much of the difference came in the form of "rebates and allowances."
Mylan's average revenue per two-pack was actually $ 274, the poster said. Subtracting manufacturing cost and $ 105 in "direct EpiPen related" costs resulted in the $ 100 profit, or $ 50 per pen.
The poster didn't say anything about tax costs. Mylan's CEO similarly didn't mention the tax calculation in her testimony, even when Rep. Chaffetz, the committee chairman, zeroed in on the $ 105 direct-cost figure and asked directly "what is in that number?"
Ms. Bresch cited sales, marketing and disease awareness costs, and testified that Mylan's profit calculation included "no company allocation or anything like that."
The $ 50-per-pen profit figure was greeted with incredulity by other committee members. Rep. Stephen Lynch (D.-Mass.) said "you're still only making $ 50. I just can't understand that. The numbers don't work, based on the documents you've given us."
Rep. Buddy Carter (R-Ga.), a pharmacist, called Ms. Bresch's explanation of EpiPen's pricing a "shell game." He reminded Ms. Bresch she was under oath and asked her: "Is that the truth, $ 50 per pen?"
"Yes," Ms. Bresch replied. "Our profit is approximately $ 50 per pen."
Corrections & Amplifications:
Mylan's profit estimate to Congress last week included a tax-related reduction. If presented without the tax reduction, Mylan's profit estimate would have been 60% higher for an EpiPen two-pack. A previous headline on this story didn't reflect that the company provided Congress a profit estimate that included a tax calculation.
Write to Mark Maremont at mark.maremont@wsj.com
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