Thursday, August 25, 2016

How Payers Contributed to the EpiPen Pricing Controversy

Ronny Gal, Ph.D., a senior analyst at the investment bank Sanford C. Bernstein & Co., just published a great client note on the Mylan EpiPen pricing brouhaha. Ronny graciously agreed to let me share his viewpoints below.

As a contrast to the mainstream media coverage, Ronny offers a grounded, industry-informed perspective. As he notes, payers responded to Mylan’s price actions by shifting costs to consumers. It’s a useful lesson on how drug prices to consumers are really determined.


In case you missed the news, Mylan has increased the price of its EpiPen 17 times since launch. A two-pack has gone from less than $100 in 2007 to more than $600 today.

Here’s a typical story on the controversy, from The USA Today: Massive price increases on EpiPens raise alarm. The media and many politicians piled on Mylan. Hillary Clinton called the price hikes “outrageous, and just the latest example of a company taking advantage of its consumers.”

In response, Mylan announced a new patient assistance program, but the damage is done.

RONNY’S $0.02

Here are excerpts from Ronny’s client note “Mylan: The Epipen Brouhaha - Our 2c, Not Much Mylan Can Do; Hold Through the Noise.
What's happened? Our short rendition

The past year has been a very good year for Epipen. First, Teva received a CRL for their generic Epipen, and noted that the earliest timeframe expected for launch could be mid-2017 (more on this below). Then, in October, Epipen's main competitor Auvi-Q was pulled off the market. The product had ~10% market share, which Mylan quickly captured (current share is ~94%).

With competitors out of the market, Mylan was in a position to price up Epipen, which they did – by 15% in November and by another 15% in May. We estimate that Epipen experienced a 27% YoY net price increase in 2Q YoY.

The payors got mad and raised the pain level on patients – raising copays and toughening medical policies (this is important, Mylan does not determine price to consumers, payors do). As Epipen is broadly purchased ahead of the new school year, the pain became acute for many families over the past month. There were lots of posts on mother's networks, the media caught wind of the story and now we have multiple politicians jumping on the bandwagon.

What can Mylan actually do?

We received multiple questions from investors about Mylan rolling back price increases. The problem is that this would not necessarily help consumers much. (i) The price charged to consumers is set by payors. Thus, to reduce consumer prices, Mylan would have to renegotiate increases, discounts and rebates to the payors; this will take some time and we suspect payors are not too unhappy seeing Mylan swinging in the wind a bit. Further, they will demand some steep discounts to help Mylan off the hook; (ii) Mylan can increase consumer helps and discounts, and almost certainly will. However, the elaborate patient assistance programs set for biologics costing $10K+/year are prohibitively expensive for a product costing $500-$600/year. (iii) Remember that at the end of the day this is primarily a seasonal pressure. Mylan needs to provide some pressure relief for the next couple of months to carry through the back to school season, afterwards – the pressure will naturally come down.

Is there any real damage from the media attention?

The answer here is yes. First, because we suspect FDA will be under pressure to enable more competitive market. Teva is expected to resubmit its Epipen ANDA by YE16. The review of this file may be accelerated and questions of 'what is close enough' may be viewed differently. Impax may find the help with resubmission of its capacity expansion plan etc. Second, to the extent an alternative (say a 505b2) does appear in the marketplace, payors now have the coverage to shift patients to the new product.

Investment Conclusion

To be fair to Mylan, their pricing action has been aggressive, but we do not see it as different from the action by ABBV on Humira or Sanofi on Lantus (both in the past two years). Further, the other two drugs are much bigger and their impact on the health care budget much more meaningful. That said, payors decided to make an example of Mylan – you run with the bulls, don’t complain if you get the horns.
Another counterpoint comes from The Wall Street Journal, which cheekily notes: Sorry, Hillary. The feds are to blame for Mylan’s EpiPen monopoly.

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