EpiPen® Pricing – Evidence of a systemic problem with drug pricing in the USA

Compiled and written by Greenblum and Bernstein PLC

EpiPen® Pricing – Evidence of a systemic problem with drug pricing in the USA

Shruti S Costales

Of Counsel

Greenblum and Bernstein PLC

Introduction

Millions of Americans now suffer from severe food allergies. These allergy sufferers require epinephrine injectors for the emergency treatment of life-threatening allergic reactions (e.g. anaphylaxis). ¹

According to the Food Allergy Research & Education website, researchers estimate that up to 15 million Americans have food allergies. This potentially deadly disease affects one in every 13 children (under 18 years of age) in the USA. The economic cost of children’s food allergies is nearly $25 billion per year. According to a study released in 2013 by the Centers for Disease Control and Prevention, food allergies among children increased by approximately 50% between 1997 and 2011. ²

In 2007, drugmaker Mylan acquired a decades-old product, the EpiPen® auto-injector for food allergy and bee-sting emergencies from Merck KGaA. Mylan management initially thought of divesting the EpiPen®, which generated only $200 million in revenue. Then, Heather Bresch, now Mylan’s chief executive officer, used old-fashioned marketing in-part to boost sales among concerned parents of children with allergies. This approach has transformed EpiPen®, which delivers about $1 worth of the hormone epinephrine, into a $1 billion-a-year product. ³

The EpiPen® pricing problem

EpiPen® has gone from $100 for a two-pack in 2009 to $608 today. Because the EpiPen® is considered a life-saving drug by millions of Americans, they interpret these significant increases as the drug company profiteering off a person’s life-or-death need. This is similar to what happened at Turing Pharmaceuticals last year when the company increased the price of Daraprim® from roughly $15 to $750. ⁴

Mylan has asserted that middlemen and suppliers have forced the company to increase the prices on EpiPen® auto-injectors by hundreds of dollars, but according to industry insiders, the company pays no more than $30 per device. ⁵ According to a model provided to NBC News, assuming the cost of a two-pack of EpiPen® is $600, the insurer keeps $249, the pharmacy benefits manager (“PBM”) who negotiates between Mylan and the insurer keeps $40, the local pharmacist keeps $27, and the wholesaler keeps $10. In this model, Mylan gets $274 in the transaction from which it must pay for manufacturing, distribution, regulatory, patient assistance program, My EpiPen® Savings program, disease awareness initiatives, and product donations. ⁶

Mylan spokeswoman Nina Devlin said in a statement that the company does not control final retail prices for EpiPen® and offers coupons that eliminate co-pays for most patients. ⁷ Bresch has stated that the strategy to increase demand for EpiPen® auto-injectors is to get them stocked for emergency use in more schools and other public places. The so-called entity prescriptions allow for this. “We are continuing to open up new markets, new access with public entity legislation that would allow restaurants and hotels and really anywhere you are congregating, there should be access to an EpiPen®,” Bresch said at a conference on 17 September 2016. ⁸

In 2013, the School Access to Emergency Epinephrine Act was passed which encourages states to make emergency epinephrine injectors available in schools and trains school staff in their proper use. This law came about because of growing concern that many children experiencing anaphylactic reactions for the first time had not even been aware they had a food allergy. ⁹

Over the past seven years, Mylan has hired consultants who had worked with Medtronic to get defibrillators stocked in public places. Bresch, the daughter of Senator Joe Manchin (D-W.Va.), turned to Washington for help. Along with patient groups, Mylan pushed for federal legislation encouraging states to stock epinephrine devices in schools. In 2010, new federal guidelines required patients who had severe allergic reactions to be prescribed two epinephrine doses. Soon thereafter, Mylan stopped selling single pens in favor of twin-packs. At the time, 35% of prescriptions were for single EpiPen® auto-injectors. The US Food and Drug Administration (FDA) changed label rules in 2008 to allow the devices to be marketed to anyone at risk, rather than only those who had already had an anaphylactic reaction. “Those were both big events that we’ve started to capitalize on,” Bresch said in October 2011. ¹⁰

Mylan spent $35.2 million on EpiPen® TV ads in 2014, up from $4.8 million in 2011, according to researcher Nielsen. Mylan has disputed the ad spending figures but has declined to offer alternatives. In part, because of Mylan’s efforts, the number of patients using the EpiPen® has grown by 67% over the past seven years. Many children with allergies own multiple sets, for school and home. ¹¹

On 21 September 2016, the House Oversight Committee held a 4½ hour-long hearing where Bresch attempted to explain Mylan’s rationale for raising the wholesale price of the EpiPen® over the past nine years from less than $100 for a package of two doses to more than $600. At the end of this hearing, “To be frank with you, you might as well have taken the Fifth, too, with the kind of information we got today,” Rep. Elijah Cummings (D-Md.) told Bresch. “It’s like a shell game. It seems like we can never figure out where the ball is…I don’t know what your lawyers are telling you, but I don’t think you’ve been frank with us…If I could sum up this hearing: The numbers just don’t add up.” ¹²

As of this writing (October 2016), the list price for a two-pack of EpiPen® is $608. So far, competitors have not been able to break Mylan’s market grip on epinephrine auto-injectors.

A question that should be asked when considering Mylan’s market monopoly is why the EpiPen® is protected by patents since it has been on the market since the 1980s. The active ingredient, epinephrine is a hormone made by the body and also known as adrenaline. Adrenaline was first isolated more than 100 years ago. But EpiPen® is protected by patents on the device, ¹³ particularly the safety cap on the needle. The patents are held by Meridian Medical Technologies, which is now part of Pfizer. ¹⁴

It may be assumed that Mylan might be paying licensing fee(s) to Pfizer and any other companies involved in research and development of the device. This amount might generally multiply the price that Mylan pays Pfizer’s wholly owned subsidiary Meridian Medical Technologies, which manufactures the epinephrine auto-injector between two and five times. ¹⁵

Mylan maintains a 95% market share for epinephrine injector devices because a generic epinephrine injector has not yet been approved by the FDA and no other significant epinephrine injector competing product currently exists in the market. ¹⁶

The FDA had Sanofi remove Auvi-Q® (a competitor of the EpiPen®) from the market as of 30 October 2015 due to potential inaccurate dosage delivery. ¹⁷

The methodology used to price drugs in the USA is unclear. What is made public is the list price of a drug. Employer health plans and insurance companies get better deals, negotiated by giant pharmacy benefit managers such as Express Scripts and CVS. Only uninsured individuals with no coupons or rebates pay the list price of a drug. On CNBC, Bresch said that two EpiPen® auto-injectors went for $275 after rebates, not the list price of more than $600. ¹⁸

The system is problematic because it forces drug companies to accept list price increases in order to keep up with the rebates they pay PBMs. It is a given that disclosing list prices will lead to tougher negotiations and maybe lower prices. Therefore, drug companies do not have any incentive to disclose the price list. Drug companies should be required to disclose the price list for increased transparency. ¹⁹

Oversight and regulation

As Mylan has increased the level of financial assistance available to many consumers, increased attention on the company has raised questions about whether it was paying the nation’s Medicaid system—which covers primarily economically disadvantaged Americans—the correct rebates for EpiPen® auto-injectors. ²⁰

Under the rebate program, sellers of generic drugs pay 13% of their sales through Medicaid back to Medicaid, which in turn splits that money with the federal and state governments that jointly run it. Sellers of brand-name drugs have to pay a rebate rate of 23.1%. Rebates for brand-name drugs are even higher than this rate. Sometimes, rebates are increased even more if their sellers have raised the prices beyond the rate of inflation. An analysis has found that if Mylan was paying the brand-name rebates, last year it would have rebated Medicaid nearly all the money it made in sales through Medicaid because of the inflation-adjustment enhancement. ²¹

The head of the Medicaid and Medicare systems has said that Mylan was repeatedly told that it had misclassified the lifesaving EpiPen® as a generic, as opposed to a brand-name device for the purposes of a Medicaid drug rebate program. Such misclassification led to Mylan underpaying the Federal Government, according to Andy Slavitt, acting administration of the federal Centers for Medicare and Medicaid Services (CMS). Mylan for weeks had claimed that it was paying the correct rebates, citing guidance previously issued for EpiPen® auto-injectors by CMS. ²²

But shortly after CMS’ chief Slavitt came out publicly and said the company had been told otherwise, Mylan reached a surprised settlement on 7 October 2016 with the Department of Justice (DOJ), without admitting any wrongdoing. ²³ As part of that deal, the company agreed to pay the higher rate for brand-name drugs starting next 1 April. But neither Mylan nor the DOJ has disclosed what rebate rate it will pay. ²⁴

Sen. Elizabeth Warren (D-Mass.) is upset regarding the $465 million settlement Mylan agreed to pay to settle claims the drug giant shortchanged the federal government in rebates to Medicaid for EpiPen® auto-injectors. ²⁵ Warren assailed the DOJ on 21 October 2016, accusing it of negotiating a “shamefully weak” and “shockingly soft” settlement, if details revealed by Mylan about the deal are true. “If the terms of the settlement announced by Mylan are accurate, the American public has a right to know why and how DOJ reached a settlement that failed to hold this corporate criminal responsible,” Warren wrote Attorney General Loretta Lynch. ²⁶

Warren told Lynch that her department’s “limp response to Mylan’s deliberate fraud raises serious questions about how exactly you plan to police other companies if you approve settlements that show that crime does pay.” Warren said the deal announced on 7 October, among other things, may have “rewarded” Mylan by allowing the company to keep $65 million that it made by “defrauding Medicare and Medicaid,” the two huge government-run health-coverage programs. ²⁷

The $65 million represents the difference between the $465 million settlement will cost Mylan and the $530 million that Warren’s staff calculated Mylan underpaid in Medicaid rebates. “If these details are correct,” Warren said of the terms disclosed by Mylan, “they reveal the settlement to be shockingly weak, with no criminal penalty and no deterrent value to prevent drug companies from engaging in abusive schemes to defraud Medicaid and rip off taxpayers.” ²⁸

“To summarize, if terms of the agreement announced by Mylan are correct, Mylan wrongly classified EpiPen as a generic to maximize its Medicaid revenue, and did not change this classification despite being expressly told by CMS that it was wrong,” Warren wrote:

The Justice Department has rewarded Mylan by imposing a fine that is about $65 million less than the amount Mylan made by defrauding Medicare and Medicaid. In addition, you permitted Mylan to avoid admission of wrongdoing, collected no additional penalties under the False Claims Act, and blocked other actions against the company that would have required greater accountability. ²⁹

Mylan has declined to comment on Warren’s letter. The company has previously said that it was working with the Justice Department to finalize the settlement. The DOJ has not responded to a request for comment. The settlement does not resolve all rebate-related issues for Mylan. The company has disclosed that it is being investigated by the Securities and Exchange Commission in connection with the rebates. ³¹

There are also questions about whether the DOJ’s settlement with Mylan would preclude individual states from pursuing their own rebate-related legal actions against the company. Some attorneys ³² have argued that the DOJ “does not have the authority to settle states’ individual drug rebate claims against Mylan, which means any potential ‘global’ settlement with the states raises a variety of issues.” Those issues include that “Medicaid Drug Rebate settlement terms for each individual state will have to be agreed to by each individual participating state’s Attorney General and in many states, also by the State Medicaid Agency,” the lawyers wrote. ³³

Future of EpiPen® pricing

The price growth of pharmaceuticals (i.e. the prices after the rebates from PBMs) appears to be decreasing, perhaps because insurers and PBMs are gaining more leverage. This leverage typically comes in the form of insurers refusing to pay for particular drugs, thereby limiting patient choice. According to some, this is the cost of savings. ³⁴

Medicare, which is the US program for providing insurance to the elderly, could theoretically be in a position to bring its considerable clout to negotiating drug prices and influencing what drug companies can charge. However, Medicare is not included in pricing negotiations. Giving Medicare negotiating power will be politically difficult. ³⁵

A last-ditch solution could be to simply pass laws capping pharmaceutical prices, but this comes with huge risks. When we pay more for drugs, we get more innovation. As cancer drugs, for instance, have soared in price, drug companies have invested more and more money in cancer, resulting in dramatically improved gene-based and immunotherapy medicines. ³⁶

The Food and Drug Administration does not consider the prices of drugs in its approval decisions, only whether they are safe and effective. However, perhaps FDA could consider expediting the review of generic drugs that would compete with a medicine that has seen its price increase dramatically. ³⁷

The biggest threat to EpiPen® could come from Teva Pharmaceutical Industries. It settled a patent lawsuit in 2012 allowing it to market a generic version of EpiPen® as early as this year, if it wins FDA approval. Mylan does not seem too worried. Bresch noted: “You would not see the traditional market loss because of just the brand equity with EpiPen.” ³⁸

Conclusion

EpiPen® delivers the active ingredient epinephrine (also known as the hormone adrenaline), which was first isolated more than 100 years ago. A two-pack of EpiPen® injectors costs $608 today compared with $100 in 2009. This appears to indicate a systemic problem with drug pricing in the USA. Millions of Americans with severe food or drug allergies—including millions of children facing life-threatening anaphylaxis—should not be effectively excluded from access to this life-saving drug.