Will Mylan’s EpiPen Episode Help Curb Pharmaceutical Price Gouging?

EpiPen

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Wharton's Mark Pauly and Penn Medicine's Andrea Apter discuss the EpiPen price controversy.

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 users and their parents. Mylan, the Dutch-American maker of EpiPens, has spurred the criticism 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.

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. [Editor’s note: On August 29, Mylan announced it would make a generic version of the drug available at half the current price in the coming weeks.]

Pauly and Apter discussed the fallout of the EpiPen controversy and ways to prevent its recurrence on the Knowledge@Wharton 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

An 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 adds. “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. “Rather than trying to discover new medicines, [drug companies] 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 dispensed with EpiPens, 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 says. Pauly adds 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 says although there has been an increase in the number of Americans with high-deductible insurance, most don’t have that type of plan. “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 has offered 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 customers. Clarity is needed on the details of how the program would work, he adds 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 product, but had some quality problems and the FDA withdrew permission, without naming the firm. One potential generic alternative from Teva was unexpectedly rejected by the FDA, and another non-generic alternative, Sanofi’s Auvi-Q, was pulled from the market last year because of dosing problems, according to a New York Times report.

“The problem is the regulatory apparatus prevents firms from jumping in quickly with a duplicate of EpiPen,” says Pauly. However, he predicted that a competitor will surface soon, adding that he is willing to bet that Teva is planning to bring a rival to EpiPen within the next year. “What companies often do when they found themselves with a monopoly but it’s going to go away, they wring the last few drops out of it, so they raise prices until the competitor comes in and then they match those prices. So this shouldn’t be a permanent state of affairs — a somewhat reassuring punch line — although at the moment it causes a lot of problems.”

“There is plenty of blame to go around,” Pauly adds. “The demand that could not really respond to price was created by some government rules. The solution is to bring competition. That will happen in a short period of time because there is no genius involved in this, but probably the complexities of the regulatory process have contributed to this situation.”

Apter wants to see the regulatory process strengthened “so that this doesn’t happen again.” As part of that healing process, Pauly expected more drug companies to be brought before Congress over time, and noted that Hillary Clinton’s campaign wants to redesign how insurers deal with drug coverage.

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Will Mylan’s EpiPen Episode Help Curb Pharmaceutical Price Gouging?. Knowledge@Wharton (2016, August 26). Retrieved from http://knowledge.wharton.upenn.edu/article/why-competition-failed-to-regulate-the-cost-of-epipen/

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