Prescription drug pricing remains firmly in the national spotlight this week after Democratic presidential nominee Hillary Clinton and other healthcare reform advocates called out Mylan NV MYL for increasing the price of its popular EpiPen allergy medication by more than 400% over the past several years.
After a U.S. Senator whose daughter relies on EpiPens called on the Senate Judiciary Committee to investigate Mylan, Clinton took to social media to unveil her new plan to combat drug price hikes and demand that Mylan reduce the cost of EpiPens immediately.
In response, Mylan and CEO Heather Bresch unveiled a new plan Thursday that would help make EpiPens more affordable for some customers. The drugmaker will offer a savings card to patients who pay for the treatment out of pocket, and it will double the size of its patient assistance program (also read: Mylan Listens to Critics, Will Make EpiPen More Affordable).
Not Good Enough?
Despite this announcement, Bresch and the company received widespread criticism for what many consider to be a rather weak justification for the price hike in the first place. In an interview with CNBC, Bresch said “No one’s more frustrated than me” and placed the blame on a healthcare system that lacks transparency.
“This system needs to be fixed. No one knows what anything costs,” Bresch said.
Bresch argues that the $608 price tag for a two-pack of EpiPens, which has been cited by critics throughout the week, is a list price that results from the number of hands that the drug must touch before reaching the patient, and the company never intended for patients to be paying that list price.
According to Bresch, Mylan only nets $274 in sales for a pack of EpiPens, or $137 per pen. She would also note that Mylan’s costs include “manufacturing the product, distributing the product, enhancing the product, investing.”
Mylan’s new discount program wasn’t enough to convince Hillary Clinton, as campaign spokesperson Tyrone Gayle said that “Discounts for selected customers without lowering the overall price of EpiPens are insufficient, because the excessive price will likely be passed on through higher insurance premiums.”
Many were quick to agree with this criticism, citing the inefficiency of discount programs and questioning the legitimacy of Bresch’s explanation for the price hike. Nevertheless, as we look further at the growing trend of massive price increases in the prescription drug market, we find that Bresch’s answers becoming standard among industry executives.
Who’s to Blame?
As Bresch pointed out, pharmaceutical companies are faced with extremely high costs associated with the production and distribution of drugs. The research and development process for new medications is costly and can take several years. Drugmakers also assume a certain level of risk while working on new treatments that could fail tests and never see the light of day.
This was the primary justification used by pharma bad-boy Martin Shkreli after he received significant backlash from his own price hike scandal. Last year, Turing Pharmaceuticals and then-CEO Shkreli grabbed headlines after the company bought 62-year old toxoplasmosis drug known as Daraprim and immediately increased its price from $13.50 to $750 per pill.
When asked why such an extreme price increase was necessary, Shkeli claimed that the drug was not profitable at that price and pointed to the benefits patients could receive from a better-funded company.
“This is a disease where there hasn't been one pharmaceutical company focused on it for 70 years. We're now a company that is dedicated to the treatment and cure of toxoplasmosis. And with these new profits we can spend all of that upside on these patients who sorely need a new drug, in my opinion," he told CBS.
In a way, Shkreli has a point here, and it definitely extends to other older drugs. Price increases in older drugs can go towards funding the development of a newer, more effective version of the treatment, or they can come as a result of the supply chain drying up over time.
Other than the common research and development argument, drugmakers tend to take the other route that Mylan and Bresch also used; many executives will argue that list prices are less relevant because companies offer extensive discounts to insurers, hospitals, and under-covered patients.
As the Clinton campaign pointed out, these discounts are oftentimes paid for by other people in the chain and can result in higher premiums for everyone.
Bottom Line
With the number of U.S. politicians targeting drug companies, it’s pretty obvious that this issue has taken a political turn, and that does makes sense. At the end of the day, this is an inherently political issue and it challenges everyone’s fundamental beliefs about regulation and the free market.
What is clear to see, however, is that prescription drugs tend to cost more in the U.S. than in other developed nations. The reason for this depends on who you ask, but pharmaceutical executives have certainly fine-tuned their justifications for price hikes over recent years.
For more coverage on this week’s price hike scandal, check out this week’s episode of the Zacks Friday Finish Line podcast. The drama involving Hillary Clinton and Mylan was the first segment this week:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Here's How Drug Companies Justify Massive Price Hikes
Prescription drug pricing remains firmly in the national spotlight this week after Democratic presidential nominee Hillary Clinton and other healthcare reform advocates called out Mylan NV MYL for increasing the price of its popular EpiPen allergy medication by more than 400% over the past several years.
After a U.S. Senator whose daughter relies on EpiPens called on the Senate Judiciary Committee to investigate Mylan, Clinton took to social media to unveil her new plan to combat drug price hikes and demand that Mylan reduce the cost of EpiPens immediately.
In response, Mylan and CEO Heather Bresch unveiled a new plan Thursday that would help make EpiPens more affordable for some customers. The drugmaker will offer a savings card to patients who pay for the treatment out of pocket, and it will double the size of its patient assistance program (also read: Mylan Listens to Critics, Will Make EpiPen More Affordable).
Not Good Enough?
Despite this announcement, Bresch and the company received widespread criticism for what many consider to be a rather weak justification for the price hike in the first place. In an interview with CNBC, Bresch said “No one’s more frustrated than me” and placed the blame on a healthcare system that lacks transparency.
“This system needs to be fixed. No one knows what anything costs,” Bresch said.
Bresch argues that the $608 price tag for a two-pack of EpiPens, which has been cited by critics throughout the week, is a list price that results from the number of hands that the drug must touch before reaching the patient, and the company never intended for patients to be paying that list price.
According to Bresch, Mylan only nets $274 in sales for a pack of EpiPens, or $137 per pen. She would also note that Mylan’s costs include “manufacturing the product, distributing the product, enhancing the product, investing.”
Mylan’s new discount program wasn’t enough to convince Hillary Clinton, as campaign spokesperson Tyrone Gayle said that “Discounts for selected customers without lowering the overall price of EpiPens are insufficient, because the excessive price will likely be passed on through higher insurance premiums.”
Many were quick to agree with this criticism, citing the inefficiency of discount programs and questioning the legitimacy of Bresch’s explanation for the price hike. Nevertheless, as we look further at the growing trend of massive price increases in the prescription drug market, we find that Bresch’s answers becoming standard among industry executives.
Who’s to Blame?
As Bresch pointed out, pharmaceutical companies are faced with extremely high costs associated with the production and distribution of drugs. The research and development process for new medications is costly and can take several years. Drugmakers also assume a certain level of risk while working on new treatments that could fail tests and never see the light of day.
This was the primary justification used by pharma bad-boy Martin Shkreli after he received significant backlash from his own price hike scandal. Last year, Turing Pharmaceuticals and then-CEO Shkreli grabbed headlines after the company bought 62-year old toxoplasmosis drug known as Daraprim and immediately increased its price from $13.50 to $750 per pill.
When asked why such an extreme price increase was necessary, Shkeli claimed that the drug was not profitable at that price and pointed to the benefits patients could receive from a better-funded company.
“This is a disease where there hasn't been one pharmaceutical company focused on it for 70 years. We're now a company that is dedicated to the treatment and cure of toxoplasmosis. And with these new profits we can spend all of that upside on these patients who sorely need a new drug, in my opinion," he told CBS.
In a way, Shkreli has a point here, and it definitely extends to other older drugs. Price increases in older drugs can go towards funding the development of a newer, more effective version of the treatment, or they can come as a result of the supply chain drying up over time.
Other than the common research and development argument, drugmakers tend to take the other route that Mylan and Bresch also used; many executives will argue that list prices are less relevant because companies offer extensive discounts to insurers, hospitals, and under-covered patients.
As the Clinton campaign pointed out, these discounts are oftentimes paid for by other people in the chain and can result in higher premiums for everyone.
Bottom Line
With the number of U.S. politicians targeting drug companies, it’s pretty obvious that this issue has taken a political turn, and that does makes sense. At the end of the day, this is an inherently political issue and it challenges everyone’s fundamental beliefs about regulation and the free market.
What is clear to see, however, is that prescription drugs tend to cost more in the U.S. than in other developed nations. The reason for this depends on who you ask, but pharmaceutical executives have certainly fine-tuned their justifications for price hikes over recent years.
For more coverage on this week’s price hike scandal, check out this week’s episode of the Zacks Friday Finish Line podcast. The drama involving Hillary Clinton and Mylan was the first segment this week:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>