FTC opens antitrust investigation of Mylan’s EpiPen dominance; isn’t it high time we live up to Churchill’s rejoinder?

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The News:

Mylan on Monday (January 30, 2017) acknowledged that the US Federal Trade Commission asked the company “months ago” to provide information about the allergy therapy EpiPen (epinephrine) as part of a preliminary investigation. The news comes after lawmakers asked the regulator to investigate whether Mylan violated antitrust regulation to protect EpiPen from generic competition.

Did @MylanNews make small changes to #EpiPen to shield the therapy from generic competition? Click To Tweet

According to FirstWord Pharma, Mylan spokeswoman Nina Devlin remarked,

“Any suggestion that Mylan took any inappropriate or unlawful actions to prevent generic competition is without merit.”

According to a person familiar with the matter, the investigation is focusing on whether Mylan made small changes to EpiPen to effectively shield the therapy from generic competition. The person added that the FTC is also examining whether the drugmaker entered into agreements to delay the launch of generic competitors.

“We note that the epinephrine auto-injector market is and always has been competitive, with multiple products competing on the market since we acquired EpiPen Auto-Injector,” countered Devlin, continuing, “further, Teva has had patent licenses to launch their proposed generic alternative to EpiPen Auto-Injector since June 2015, pending FDA approval, years prior to patent expiry.”

Mylan previously received scrutiny in the US regarding price increases on EpiPen over the last decade since the drug was acquired from Merck KGaA. Despite initially defending the company’s pricing decisions, Mylan CEO Heather Bresch later admitted that the drugmaker’s profits on the drug were higher than previously disclosed.

Meanwhile, Mylan agreed last year to pay $465 million to settle allegations that it misclassified EpiPen under Medicaid’s rebate program. The settlement came after the Department of Health and Human Services divulged that Mylan overcharged the US for the therapy for a number of years.

Steve’s Take:

I’ve been following the Mylan/EpiPen saga for a number of years now and this latest government move has finally flipped my negative view of the company. Not that I think Mylan inculpable, I’m just now of the same mind as those who believe the company has been cast in the role of “whipping boy” and/or “poster child” for a bigger problem here in the US. Much bigger.

You don’t see the US government interfering in the price of, for example, automobiles, restaurant meals, movie tickets, flowers or face lifts. So why pharma meds? For one obvious reason, namely, the government is by far the industry’s biggest customer.

We should be anything but surprised at the sky-high prices we now see for prescription drugs. Last fall, the public’s attention was focused on Mylan and its 400% EpiPen price increase since 2009, Fortune points out.

Yet EpiPens are hardly the only drugs that have sparked recent outrage due to price hikes. For instance, when Turing Pharmaceuticals increased the cost of Daraprim, a drug used by some cancer and AIDS patients, from $13.50 to $750 per tablet in 2015, it sparked not just shock, but anger, cnn.com points out.

Albuterol, an asthma medicine, has also skyrocketed in price in recent years, says The New York Times. And a House of Representatives report found in 2014 that 10 generic drugs experienced price increases just a year prior, ranging from a 420% hike to more than 8,000%.

What is surprising, then, is not that an EpiPen 2-Pak cost as much as $600, but rather that it took Mylan nearly a decade to raise its price that high.

We got to this place because our government offers drug companies monopolies through both patents and FDA marketing exclusivity–a statutory provision that grants a new drug protection from direct competition from generics for up to seven years.

Given that regulatory approval for production lines can take years, the FDA can also influence how many competitors exist in a drug class. In this environment, it’s absolutely no surprise that drug companies push prices as high as possible until there’s public outcry.

The current EpiPen soap opera is a good example of how monopoly pricing is possible in the pharmaceutical industry. Mylan has been perfectly positioned to quietly raise EpiPen prices, Fortune contends. It holds greater than 90% of the share of the US epinephrine injector market. Its four EpiPen patents do not expire until 2025.

And Mylan’s closest competitors are not even on the horizon. Sanofi SA’s Auvi-Q, for example, was recalled in October 2015. Another competitor, Teva Pharmaceuticals, recently unveiled a prototype generic that was delayed –possibly until 2017 – by the FDA due to concerns of “major deficiencies.” And Adrenaclick, a significantly cheaper alternative to EpiPens –currently being sold for $142 at Wal-Mart – is rarely recommended by major medical societies, being viewed in some circles as “inconvenient.”

Given this near-total lack of market competition, Mylan was able to bring in more than $1.3 billion in EpiPen sales in 2015 alone. And the salary of its CEO, Heather Bresch, jumped from $2.5 million in 2007 to nearly $19 million in 2015.

Consequently, Mylan is effectively in control of epinephrine injector sales nationwide.

While any one company having this level of marketplace power may be unseemly, many of us professional observers concede that Mylan is simply acting according to classical US economic rules of monopoly situations.

Scanning the wider horizon and writing in Pharmacy Times, Ashish Advani, PharmD, also points to Turing’s Daraprim and its immediate 5,000% price increase. Although it may be the most high-profile drug price hike, it is not an isolated case. In fact, this has happened hundreds of times annually for years, Advani, Clinical Assistant Professor at Mercer University, notes.

Back in 2015, Advani says Pfizer alone raised its drug prices 133 times, and the majority of these increases were greater than 10%. A noteworthy case is pregabalin (Lyrica). Despite being a best-selling brand-name drug, Lyrica’s price tag was boosted 9.4% twice that year.

During times of a drug-innovation drought, raising prices on existing medications is a time-tested maneuver. Pharmaceutical companies will defend such actions by pointing out that most profits are directed towards research.

For every 5,000 drugs that enter pre-clinical testing, 5 progress to human testing, and only 1 gets approved, Advani notes. Therefore, the odds of a new drug actually making it to the market are just 1 in 5000. Point taken.

From 2011 to 2015, the agency significantly ratcheted up its pace of drug approvals, green lighting an average of more than 36 new drugs annually over that five-year period, according to Fortune. And the most recent year that the FDA approved less than 20 new treatments was all the way back in 2007, an era that’s widely considered “a nadir of successful biopharma drug development.”

“In the name of incentivizing such research, we have become the antithesis of a free market,” Advani continues.

Most drug prices are at least twice as high in the United States as anywhere else in the world for 3 reasons:

  1. The FDA cannot look at pricing when it approves a drug;
  2. the FDA cannot regulate a drug’s price following approval;
  3. and third-party drug imports are outlawed.

Not coincidentally, pharmaceutical lobbyists spend more than any other special interest group.
As economists William Baumol and Alan Blinder note in Microeconomics: Principles and Policy,

“A monopolist is a price maker that can, if so inclined, raise the product price….If a monopoly firm does earn a positive profit, it may be able to continue doing so in the long run because there will be no entry that competes the profits away.”

Mylan’s CEO Heather Bresch embraced that notion when she said,

“I am running a business. I am a for-profit business. I am not hiding from that.”

Fortune notes that unlike other developed countries, the US grants monopolies to pharmaceutical companies and then allows them to freely set their own prices. Since the US does not have any federally imposed drug regulations, a price hike – while shocking–is nevertheless legal. Manufacturers can raise their prices while patents, marketing exclusivity, and the lengthy and expensive FDA drug approval process keep competition at bay.

Companies like Mylan, which have effective monopolies, ultimately have little incentive to curb prices. Understandably, management has to operate within the corporate framework of furthering its shareholders’ economic interests, while obeying applicable law. That’s the way we operate here in the US, after all. Until the press gets a hold of a “story.”

Mylan’s attempts at damage control– such as a cheaper generics and increased financial assistance to poorer patients – will not solve the fundamental problem of monopolistic drug pricing. Other short-term potential solutions deserve consideration.

First, US pharmaceutical companies should increase their spending on research and development (R&D), or perhaps be federally required to do so. Many drug manufacturers currently justify their high drug costs by claiming that their research is extremely expensive. Yet nine out of 10 big pharmaceutical companies in the US currently spend more on marketing than research, says the Washington Post.

The most egregious spender, Johnson & Johnson, spent $17.5 billion on sales and marketing in 2013, while only $8.2 billion went to R&D. Companies therefore have ample funds that could be re-directed into creating cheaper drugs, rather than simply selling their existing ones.

Another suggested approach is simply to increase funding for the FDA. Despite complaints about its drug-approval process, the FDA is still a necessary cog in the pharma industry research and manufacturing wheel. As of now, the oversight process is lengthy to say the least, primarily because the FDA is underfunded, which results in a backlog unexamined applications.

Therefore, to achieve higher efficiency it must have the necessary resources the resources. With the funds needed to speed up its approval process, the FDA could facilitate getting new drugs to market faster, thereby reducing Mylan-style monopolies.

Bottom line:

Unless substantive changes are instituted, the Mylan case won’t be the last example of a drug manufacturer using its monopoly power to hike up prices to eye-popping levels. Why would it? There’s simply no mechanism in place that would thwart that.

Steve's Take: Changes must be made to our drug monopoly system to stop eye-popping price hikes Click To Tweet

I’ll close by citing Ezekiel Emanuel, Vice Provost for Global Initiatives and Chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania. He writes in Fortune,

“Until we can reach an agreement to have drug sales benefit, rather than harm, consumers, we may continue to live up to Winston Churchill’s famous quote: ‘You can always count on Americans to do the right thing –after they’ve tried everything else.’”

Yes, we’ve dug ourselves into a sizeable Churchill-esque hole out of which it won’t be easy (and/or popular) to climb. That’s of our own doing. But at least most of us are cognizant that something need be done and soon. Our foremost learned and wise thinkers such as Dr. Emanuel relentlessly point out that as the world leader in developing new medicines, we can also find a way to overcome the inherent, contradictory clashes in a quasi laissez–faire economic system.

All sides of this thorny, self-inflicted conundrum will need to meet somewhere in a common, constructive middle ground; in a manner that typified American problem-solving and governance until recently.

What say we join together and prove Sir Winston Churchill right.