Well everyone this week everyone was up in a big roar about the generic drug company Mylan increasing the price for their flagship drug EpiPen. The company is alleged to have "gouged" customers as it increased the price of the drug (a pack of 2-EpiPens) from $94 in 2007 to $608 in 2016 (a 550% increase). Even the liberal Los Angeles Times believes that there should be more competition for generic forms in this space. EpiPen is an autoinjector pen that is used when people having allergic reactions. A reaction can occur from a bee sting, food, allergy, insect bite, etc. It is important to note that you need a prescription to obtain EpiPen (regulation numero uno). Full disclosure my father actually had to take an EpiPen when he had an allergic reaction to a prescription drug he was taking. It is worth noting that if patients who have an allergic reaction could possibly die/life altering complications if they don't take the EpiPen. The one issue with the EpiPen is that it only has a shelf life of 12-18 months. After this period of time the medication no longer works.
Politicians like Presidential nominee Hillary Clinton labeled the price hikes as "outrageous, and just the latest example of a company taking advantage of consumers". Of course charging hundreds of thousands of speaking fees is not outrageous. Most likely there will be congressional hearings over the price increase of the drug. Mylan CEO Heather Bresch explained told the New York Times that "I am running a business. I am a for-profit company. I am not hiding from that".
As I wrote in this blog post it takes considerable time/money to bring a drug from development to the market (roughly $2.5 billion and 10-20 years from the research stage to being available for patients). After a drug is approved and has been on the market for a number of years generic drug companies can come in and make the drug and try to sell it at a cheaper cost to consumers. The rules for generics can be quite complicated as seen here (generics have to have the same chemistry, manufacturing, labeling, inspections, and bio equivalence just like FDA approved drugs have). All the steps for a drug to be approved as a generic drug can be found here. The drug companies have to go through a whole new process with generic drugs with the FDA even though the drug was already approved! The FDA has a backlog of 3,000 generic drug applications as recent as 2014. Perhaps one of those backlogs could be a competitor to EpiPen in the future. The time to approve a generic drug can take up to 89 months. Remember the 89 months is after a drug company spent 10-20 years researching and developing a drug.
Sales of EpiPen have increased in the past decade from $200 million to $1 billion which is creating shareholder value when you have a a pen that literally can save lives-is $600 a lot if it can save your life?. In 2014 the company hit $1 billion in sales with EpiPen. The media will perhaps cite the fact that Mylan brought in $9.4 billion in revenue (the media is economically illiterate and doesn't understand the difference between revenue and profit).
In 2015 Mylan made a net income (the money the firm has after all the bills are paid) of $847 million. So when you divide $847 million by $9.4 billion means that for every $1 of sales Mylan was only making 9 cents. Another way of looking at it is saying that if there are 365 days in the year Mylan only made money 37 days out of the entire year! Mylan only receives $247 of the $608 list price it charges. The remainder goes to insurers, pharmacy benefit managers, wholesalers, and retail pharmacists (middle men). The company recently said that it would offer up to a $300 coupon. The company also said it would give free EpiPens to uninsured patients if their incomes were below 400% of the poverty level. One idea might be to cut out the middle man and sell it directly to the consumer. Well this won't happen given EpiPen requires a prescription from a doctor (another barrier to entry).
In 2014 Mylan reached $1 billion in revenue for EpiPen. Around this time the cost for EpiPen was $380. Now considering Mylan only receives 48% of this (pays rest to insurers, wholesalers, etc) you could estimate that Mylan sold roughly 5.4 million EpiPen packs in 2014 (this looks close if we look at the quarterly sale data here). CEO Heather Bresch earned $25 million in 2014 (although most of this compensation is in the form of stock securities which can't be accessed for many years but still counted as compensation). Now if the CEO was paid $0 it would only in a price reduction of EpiPen by $5!
With all this however there is good news. There is actually an alternative to the EpiPen called Adrenaclick which sells currently for about $142 (a 77% discount from what EpiPen is selling for). What is even more interesting is no one has talked about this. Some other no brainers would be to not to require a prescription for EpiPen which would allow the company to sell directly to consumers. Also the FDA needs to speed up the approval process for generics of the drug which will create more competition. Generic drug maker Teva tried to get their drug that was similar to EpiPen approved however the FDA didn't approve it citing deficiencies. Although the drug could be out as early as 2017. In addition to this Adamis Pharmaceuticals is working on a possible alternative too which could be 40% less than the price of the EpiPen. Also add in Windgap who is trying to get a EiPen alternative approved too (a product called Abiliject). Windgap hopes to have the drug out by 2018. Although, my hunch is the FDA will tell these companies they have deficiencies of one kind or the other and need more data and studied to be conducted.
What is quite clear is that the FDA continues to harm consumers by not being quick enough to approve new drugs, forcing companies to spend decades and billions of dollars to bring a drug to market and then the public/politicians get upset when the companies raise their prices. If we allowed true free markets more people would have access to EpiPens at a cheaper price which is a win-win for everyone (except politicians because they would have less power).
In 2015 Mylan made a net income (the money the firm has after all the bills are paid) of $847 million. So when you divide $847 million by $9.4 billion means that for every $1 of sales Mylan was only making 9 cents. Another way of looking at it is saying that if there are 365 days in the year Mylan only made money 37 days out of the entire year! Mylan only receives $247 of the $608 list price it charges. The remainder goes to insurers, pharmacy benefit managers, wholesalers, and retail pharmacists (middle men). The company recently said that it would offer up to a $300 coupon. The company also said it would give free EpiPens to uninsured patients if their incomes were below 400% of the poverty level. One idea might be to cut out the middle man and sell it directly to the consumer. Well this won't happen given EpiPen requires a prescription from a doctor (another barrier to entry).
In 2014 Mylan reached $1 billion in revenue for EpiPen. Around this time the cost for EpiPen was $380. Now considering Mylan only receives 48% of this (pays rest to insurers, wholesalers, etc) you could estimate that Mylan sold roughly 5.4 million EpiPen packs in 2014 (this looks close if we look at the quarterly sale data here). CEO Heather Bresch earned $25 million in 2014 (although most of this compensation is in the form of stock securities which can't be accessed for many years but still counted as compensation). Now if the CEO was paid $0 it would only in a price reduction of EpiPen by $5!
With all this however there is good news. There is actually an alternative to the EpiPen called Adrenaclick which sells currently for about $142 (a 77% discount from what EpiPen is selling for). What is even more interesting is no one has talked about this. Some other no brainers would be to not to require a prescription for EpiPen which would allow the company to sell directly to consumers. Also the FDA needs to speed up the approval process for generics of the drug which will create more competition. Generic drug maker Teva tried to get their drug that was similar to EpiPen approved however the FDA didn't approve it citing deficiencies. Although the drug could be out as early as 2017. In addition to this Adamis Pharmaceuticals is working on a possible alternative too which could be 40% less than the price of the EpiPen. Also add in Windgap who is trying to get a EiPen alternative approved too (a product called Abiliject). Windgap hopes to have the drug out by 2018. Although, my hunch is the FDA will tell these companies they have deficiencies of one kind or the other and need more data and studied to be conducted.
What is quite clear is that the FDA continues to harm consumers by not being quick enough to approve new drugs, forcing companies to spend decades and billions of dollars to bring a drug to market and then the public/politicians get upset when the companies raise their prices. If we allowed true free markets more people would have access to EpiPens at a cheaper price which is a win-win for everyone (except politicians because they would have less power).
