The EpiPen Edition
Today, we run into the business ethics of pricing. What’s fair and what’s not?
Robber Baron or Public Benefactor – You Decide.
We open with a discussion of what an EpiPen is and what it is for, along with a few facts about how Mylan, the owning company, wound up with a monopoly. We then talk about how much the price has increased, how “frustrated” the CEO is and how much money she makes and how much her decisions affected the price. We talk about who she is and how she took her American company, “Dutch,” to avoid taxes while using the power of the government on her behalf. We conclude with two articles about the lack of morality about all this and I have included a petition/letter drive site – if you want Congress to be upset about this little piece of business ethics.
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Are Mylan Executives Vultures?
Even Martin Shkreli, who became the poster boy for jacking up drug prices, called Mylan executives “vultures” for the price hike.
I have two daughters with nut allergies myself, and I can tell you that going without an EpiPen is simply not an option for them. But instead of asking the government to come in and provide more help, the solution to this problem is simply to demand that the government start doing a lot less.
It’s important to understand exactly what people are paying for when they buy the EpiPen. The cost of the life-saving epinephrine drug itself is minimal. Epinephrine has been around for more than 100 years and is easy to produce. The real costs come in connection to the EpiPen’s auto-injector which delivers the drug to people who need it in a much easier fashion than a traditional needle and syringe. Mylan’s patent on that auto-injector is the key to everything. And it’s the government’s protection of that patent that lies at the root of the price hikes that are leaving a lot of families struggling to meet the costs.
The EpiPen sold for $100 in 2008. In the eight years since, the price has more than quintupled, as this chart shows. About 43 million people are at risk from anaphylaxis, or the severe, life-threatening allergic reaction that EpiPen’s injection of epinephrine is designed to counteract.
“This outrageous increase in the price of EpiPens is occurring at the same time that Mylan … is exploiting a monopoly market advantage that has fallen into its lap,” Sen. Amy Klobuchar, D-Minn., said last weekend.
Klobuchar, whose own daughter uses an EpiPen, noted that Mylan has seen one competitor, Sanofi’s Auvi-Q, exit the market last year due to a recall, and Teva’s generic version failed to receive regulatory approval.
Is no one more frustrated than she?
“No one’s more frustrated than me,” Bresch said. “My frustration is, the list price is $608. There is a system. I laid out that there are four or five hands that the product touches, and companies that it goes through before it ever gets to that patient at the counter. Everyone should be frustrated. I’m hoping that this is an inflection point for this country.”
A little under 19 million dollars in compensation makes frustration worthwhile?
The executive of the pharmaceutical company that hiked the prices of two dozen drugs, including EpiPen, received a 671% pay increase over the past nine years.
Heather Bresch, chief executive officer of Mylan, came under public scrutiny this week after reports that since acquiring rights to EpiPen in 2007, the company had implemented a series of gradual price increases inflating the price of the drug from $56.64 to $317.82, a 461% increase in cost . During that same time, Bresch went from being Mylan’s chief operating officer to president to chief executive and saw her pay rise $2,453,456 to $18,931,068, a 671% increase.
When Mylan first acquired Merck KGaA in 2007, Bresch oversaw the integration of its 400 products. Among those products was EpiPen, which is used to quickly deliver a proper dose of epinephrine to those suffering from anaphylaxis. Anaphylaxis is when an allergic reaction causes one’s airways to swell and close. In a 2015 interview with Fortune, Bresch described EpiPen as “my baby”. Under her management, EpiPen went from bringing in $200m a year in sales to becoming Mylan’s first billion-dollar product.
The CEO is the daughter of a U.S. senator. She reincorporated her U.S.-based drug company in the Netherlands, which cut its tax liability.
She also retroactively was awarded an MBA from West Virginia University while her dad was governor of that state despite not having enough academic credits. At the time, the university’s president was both a former lobbyist for her drug company and a high school classmate of hers.
And Bresch has also overseen her company’s increase in the price of EpiPens from $100 in 2008, to more than $600 for some customers today. During that time, her compensation has risen nearly 700 percent
When Bresch took over as CEO in 2012, Mylan’s stock was trading at almost $22 per share. The shares are up 101 percent under her leadership. Revenue has risen 38.5 percent since she took over, to $9.47 billion at the end of 2015.
Bresch made a significant move a couple of years ago to help the company’s profits by guiding it through a corporate inversion. That meant the company withdrew its United States corporation and re-incorporated in the Netherlands, even while its physical plant, all its employees and executives, stayed in West Virginia. That saved the company paying its corporate tax rate of somewhere between 16 and 23 percent, even while it still takes full advantage of its location in the United States and all the infrastructure the country puts around it so it can flourish.
Mylan even sought the protection of the Federal Trade Commission when it was trying to fend off a hostile takeover from Teva, the same Israeli company that was trying to compete with it in the EpiPen market.
There is so much wrong with this that it’s hard to know where to begin. Mylan is certainly not the only company taking advantage of loopholes like tax inversions. But the fact that it is doing so at the crushing expense of people who need its lifesaving product to avoid easily preventable death is an outrage.
Robert Klitzman – What’s the ethics?
If you want to participate in the letter writing campaign to Congress on this issue, clink on this link!
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