Last shot at EpiPen profits ends in Mylan monopoly

PHOTOGRAPHER: The New York Times

EpiPens used for training school staff members in Ashburn, Va., Aug. 31, 2012.

In 2012, the company behind the EpiPen settled a lawsuit by agreeing to allow a generic competitor into the market in 2015, potentially cutting into a big part of its business.

The company, Mylan, had already been steadily increasing the price of EpiPen, an injector containing a drug that can save people from life-threatening allergy attacks. After the settlement, it started to raise the price even faster.

Now, as Mylan faces growing public furor over its pricing of EpiPen, the company’s history of pricing the product highlights a common tactic in the drug industry: sharply raising prices in the years just before a generic competitor reaches the market, as a sort of final attempt to milk big profits from the brand-name drug.

Whether the looming generic competition was a motive for the price increases is not entirely clear, because Mylan has declined to answer questions about its thinking. But while the company was once taking two 10 percent price increases a year, it has made two 15 percent increases annually starting in 2014, when the generic competition seemed imminent.

Overall, the list price for a pack of two EpiPens is now over $600, up from a little more than $100 in 2007, the year Mylan acquired the product. Most of that increase — a rise to $609 from $265 — has come in the last three years.

What has further fueled the increases is that the expected generic, from Teva, was unexpectedly rejected by the Food and Drug Administration. And a nongeneric alternative, Sanofi’s Auvi-Q, was pulled from the market last year because of dosing problems.

So rather than a last grasp for profits, Mylan has a near monopoly now, allowing it to continue the price increases for at least another year.

Mylan, while not commenting on why it has repeatedly increased the price, says that most EpiPen users are insured and that the company offers a coupon that can reduce or cover the patient’s copayments.

Such copayment assistance is part of the standard playbook for companies selling expensive drugs: The goal is to spare the consumer, who might create a political uproar, and yet still get paid by the insurance company or government health program.

However, some consumers, such as those with high deductibles, are having to pay nearly full price. And complaints about those costs have led to loud criticism from politicians. On Wednesday, senators demanded information on the company’s pricing decisions, and Hillary Clinton, the Democratic presidential nominee, called the price increases “just the latest troubling example of a company taking advantage of its consumers.”

Express Scripts, the nation’s largest pharmacy benefits manager, said that copayments for an EpiPen pack for its commercially insured members had remained fairly stable in the last 18 months, averaging $73.50 in July compared with $73.03 in January 2015.

In the same 18-month period, the average price paid by insurers rose by about half, to $635 from $421. Those costs are often moved from the insurer to the consumer eventually, in the form of higher insurance premiums.

The cost for insurers rose after Mylan gained more leverage in pricing negotiations when Sanofi’s product was withdrawn and Teva’s generic failed to win approval.

“What we’re seeing from Mylan now is indicative of how many pharma companies negotiate during a momentary monopoly — they price as high as they can for as long as they can,” David Whitrap, a spokesman for Express Scripts, said in an email.

Early in 2015, when Auvi-Q was on the market and the Teva generic was expected, the insurers and pharmacy benefit managers were able to negotiate big discounts and rebates from the list price. It appears that Mylan received less money per prescription in 2015 than in 2014, despite the big increases in list price.

Mylan recorded virtually no increase in revenue from EpiPen in 2015, even though the list price of the product rose more than 30 percent and the number of prescriptions also increased. In a regulatory filing the company cited “lower pricing” for EpiPen. Mylan does not disclose sales of EpiPen other than to say they exceed $1 billion.

In other years, though, sales of EpiPen rose by larger amounts and Mylan seemed to have retained about half the extra revenue that would be expected from its list price increases and prescription growth, according to Umer Raffat, an analyst at Evercore ISI. Even in 2015, he said, the rebates were kept by insurers and pharmacy benefit managers, and were not seen in lower prices paid by consumers.

“Someone definitely got that,” Raffat said of the rebates. “Who is that? It wasn’t passed on to customers.”

One reason drug companies can raise prices sharply before generic competition arrives is that insurers and pharmaceutical benefit managers are willing to tolerate such increases if they know that lower prices from a generic are on the way.

One weapon the payers use in bargaining is to threaten to switch patients to a less expensive drug. But knowing a generic EpiPen was coming, an insurer might have been reluctant to switch patients from EpiPen to Sanofi’s Auvi-Q (when it was still on the market), because once patients got used to Auvi-Q, it would have been harder to switch them to the even cheaper generic EpiPen once it reached the market.

SSR, a pharmaceutical stock research firm, looked at 14 popular drugs — like Lipitor for cholesterol and Diovan for heart failure — that have lost patent protection.

The list prices for those drugs increased by an average of 35 percent in the two years before they lost exclusivity, compared with an average increase of 22 percent for brand-name drugs as a whole.

In some cases, increases are even higher. Last year, Valeant Pharmaceuticals acquired a diabetes drug called Glumetza and immediately raised the price 500 percent. J. Michael Pearson, the chief executive at the time, explained this to securities analysts by pointing to the looming patent expiration.

“Often, price increases are taken at the end” of a product’s patent life, he said. “So that was just consistent with what most companies do.”

One question that remains is why EpiPen is protected by patents since it has been on the market since the 1980s. The active ingredient, epinephrine — a hormone made by the body and also known as adrenaline — was first isolated more than 100 years ago.

But EpiPen is protected by patents on the device, particularly the safety cap on the needle. The patents are held by Meridian Medical Technologies, which is now part of Pfizer. One such patent, which was asserted in litigation trying to block Teva’s entry into the market, expires in 2025.

It is not clear why the FDA did not approve Teva’s product. Teva has said that the agency found “certain major deficiencies” and that its product will not reach the market until next year at the earliest.

Reed Abelson contributed reporting.