EpiPen, a five-inch-long injector that delivers an anti-allergy drug, has become the lightning rod for accusations of corporate greed and price-gouging, and the target of a large social media outpouring by parents of its school-going users. Mylan, the Dutch-American maker of EpiPens, has earned that opprobrium for increasing prices by more than 450% over the past decade to more than $600 for each dual-pack, with most of that increase coming in the last two years.

 

Epipen Mylan Inc MYL
Photo by gregfriese

The public ire against Mylan has gained political overtones in the Presidential election campaigns and an assured berth in a future Congressional probe, while an online petition to lawmakers has thus far collected more than 127,000 signatures.

Greed seems to be the main driver for Mylan extracting higher prices for its near-monopoly device, and the newly expanded insurance coverage for prescription drugs created the enabling market opportunity, says Mark Pauly, Wharton professor of health care management, and business economics and public policy. The longer-term solution lies in competition and a regulatory process that more quickly allows for it, he added. EpiPens contributed more than $1 billion to Mylan’s global revenues of $9.45 billion in 2015.

But in the interim, a serious problem is unfolding with the next school season around the corner, notes Andrea Apter, chief and program director of the Section of Allergy & Immunology at Penn’s Perelman School of Medicine, and professor of medicine at the Hospital of the University of Pennsylvania. Low-income families with children that need EpiPens to stave off life-threatening allergies would find it difficult to afford it, she said. Mylan on Thursday announced a coupon program and other measures to make the drug more affordable, but that won’t suffice, she adds.

Pauly and Apter discussed the fallout of the EpiPen controversy and ways to prevent their recurrence on the [email protected] show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

“Unless there has been an outbreak of greed, you wonder … why didn’t they raise the price 10 years ago?”–Mark Pauly

Outbreak of Greed?

EpiPen prices were about $57 each in 2007 when Mylan bought the brand from Merck, notes a report in Forbes. “Unless there has been an outbreak of greed, you wonder … why didn’t they raise the price 10 years ago?” asks Pauly. “Maybe we should send a thank-you note for holding the line on prices for all those years.”

Pauly says external factors may have contributed to the price increases. For instance, the requirement that schools and emergency medical settings stock EpiPens, and increased prescription-drug coverage under the Affordable Care Act, provided the market opportunity, he added. “So when there is an increase in demand, the response [of firms] is to raise prices.” Apter adds that the technology behind EpiPens did not warrant the price increase: “EpiPens have been around for a long time, and nothing is new about them.”

Pauly notes that the 450% increase over a 10-year period is much above the industry average. Overall, drug prices have been increasing at “quite modest rates.” In fact, in some years such as in 2013 and 2012, they actually went down in real terms, mostly because of drugs going generic. “Overall, drug prices in the U.S. are not out of control, but … you can almost always find some drug company that has jacked up prices by an enormous amount.”

Pauly adds that drug companies periodically review their product portfolio to see if they could find some that are underpriced and where they do not expect much price resistance. “It seems to be what drug companies are doing. Rather than trying to discover new medicines, they are trying to do what economists euphemistically call ‘maximize shareholder value’ but what ordinary people call greed.”

Apter sees school children who might have allergy attacks as the unwitting victims of the EpiPen price increase. She notes that school systems that are already struggling with stressed finances try to cope with such price increases by asking parents to bring in their EpiPens. “So the burden also falls on the patients, [and] it’s very hard on patients in an emergency situation.” EpiPen’s expiry dates of a year to 18 months from purchase also increase the burden on patients.

Low-income families that need the EpiPens have few options, says Apter. One option is for patients to use syringes to self-inject vials of epinephrine, the drug that is injected, but that is difficult for those with anaphylaxis (a life-threatening allergic reaction), she notes. Also, a generic equivalent of EpiPen now costs nearly the same, she said. Pauly added that generic firms sometimes adopt strategies of pricing their product “just under the brand-name product.”

“Rather than trying to discover new medicines, they are trying to do what economists euphemistically call ‘maximize shareholder value’ but what ordinary people call greed.”–Mark Pauly

Who eventually foots the bill for the pricier EpiPens? Pauly said although there has been an increase in the number of Americans with high-deductible insurance, most of don’t have high-deductible insurance. “So most of the increased cost of the medicine is not borne by John Q. Public but is borne by the stock holders of insurance companies,” he explains. “Insurance companies are taking it on the chin in terms of the price that they are being asked to pay.”

Short-term Solutions

Mylan’s immediate remedies, announced on Thursday, include co-pay assistance for users up to $300 that would reduce patient cost by 50% off the list price for EpiPen, and a doubling of the eligibility for patient assistance. Mylan CEO Heather Bresch offers no explanation for the price increases, but pointed to “the significant burden on patients from continued, rising insurance premiums and being forced increasingly to pay the full list price for medicines at the pharmacy counter.”

Pauly describes those measures as “a short-term, cosmetic solution,” adding that coupons are a common tool companies make available for low-income people. Clarity is needed on the details of how the program would work, such as convenience of access to the device and how people might prove their low-income status and eligibility. “This doesn’t sound like a long-term solution.”

Pauly and Apter agree that public scrutiny of pharmaceutical companies increasing drug prices is heightened after the recent controversies. Valeant Pharmaceuticals and Turing Pharmaceuticals have faced Congressional probes in the past year for increasing prices of life-saving drugs. Turing, formerly led by the now infamous Martin Shkreli as CEO, had raised prices of its AIDS drug Daraprim by some 5,000% to $750 a pill. Those controversies have made pharmaceutical price-gouging a hot-button issue in the current presidential election campaign. “If you want to be embarrassed testifying before Congress, this is the way to guarantee that it will happen to you,” Pauly says.

“The burden also falls on the patients, [and] it’s very hard on patients in an emergency situation.”–Andrea Apter

Why Competition Failed

Pauly notes that market competition, which usually steps in to fill a price vacuum created by a market leader, did not seem to work in EpiPen’s case. One firm did bring a competing

1, 2  - View Full Page