A scandal developed in late August 2016, when rising costs of EpiPens (portable auto-injectors that dispense shots of epinephrine for treating allergy attacks) led consumers and politicians to protest. The CEO of Mylan
This unfortunate timing coincided with the back-to-school shopping season.
In the days that followed, Bresch was often compared to Martin Shkreli, then-CEO of Turing Pharmaceuticals. In 2015, Shkreli was involved in a similar drug-pricing scandal, in which he raised the price of Daraprim (a drug used to treat toxoplasmosis--a common affliction for HIV patients) by over 5,000 percent. Tablets that once cost under $14 now cost over $700. As was the case with Mylan, this move was followed by public outrage, and Shkreli gained the moniker, "most hated man in America."
Now, too, consumers and politicians are rallying against Mylan's raised costs. After the public outcry, and a rule instituted by the federal government, Mylan has settled. It now plans to help patients with the out-of-pocket costs and expand the number of uninsured patients who can access free EpiPens. Mylan also promises to initiate a generic version of the EpiPen, listed at a lower price-point.
Overall, it looks like consumers have had some successes, given that the primary issue stemming from higher cost is greater inaccessibility for consumers.
Politicians like Elijah Cummings, Democratic Representative for Maryland, has been strongly opposed to Mylan's price increases. He is opposed to those features of Mylan's plan to maintain its new price, while offering selective discounts to compensate for those who can no longer afford EpiPens, according to an article in The New York Times.
In response, Mylan has blamed the insurance companies that have placed a "higher burden on patients for out-of-pocket costs." According to Mylan, rising insurance premiums mean that people are being asked to pay more money for insurance. Because more people are unable to afford insurance, more drugs must now be paid for out-of-pocket. Mylan claims that the company itself only receives $274 per EpiPen sale, despite the $608 list price, with the difference going to "pharmacy benefit managers, insurers, wholesalers, and retail pharmacies."
When asked for her side of the story, Heather Bresch blames the other companies involved in the product-to-patient chain of supply. According to Bresch, the heightened price of the EpiPen is primarily due to what she termed the "broken" state of the United States healthcare system, and insurance companies.
Nevertheless, according to some commentators, "providing financial assistance only to those who need it reduces a pharmaceutical manufacturer's revenue much less than cutting prices across the board." By this explanation, Mylan's stalwart choice to pursue the latter approach is a maneuver towards raising company revenue. Assisting with patients' co-pay is also a good way to increase business revenue. This way, EpiPen users as a whole will increase. Attached to them are a greater percentage of insurance companies, who will pay the drug company.
Mylan has a monopoly on EpiPen. For years it has been labeling it as a generic drug. This has led state Medicaid programs to overpay for the drug by a sum of "tens of millions of dollars" according to one New York Times article.
When drugs are labeled as generic instead of brand name, companies are allowed to give smaller discounts to states. This means that companies ultimately reap profit from the states, on account of the classification. This internal controversy came to light recently after Mylan's EpiPen pricing scandal.
The source of the controversy is historical. Decades ago, EpiPen was uncontroversially classified as a generic by virtue of its primary ingredient, epinephrine. Epinephrine is a "cheap generic" drug. The caveat: while epinephrine is widely available, only Mylan has the patents for the EpiPen's trademark auto-injector. Despite their clear monopoly on all potentially similar products, Mylan maintains that the EpiPen is a "non-innovator" product.
As of early September, shares in Mylan have been falling.
One final fold in the scandal: information has recently surfaced on how Mylan executives stand to profit from price increases in the EpiPen. This is correlated to the discovery of a one-time stock grant made in 2014, that will pay off by December 2018 if the company's earnings and stock price meet the goals stated. In light of this, the price increases act as another step towards Mylan's ultimate goal of meeting those goals.
Further company suspicions have emerged upon further investigation. Investigators discovered that Mylan uses "fantasy figures when calculating its top executives' incentive pay packages." Mylan has also been found to reject generally accepted accounting principles when calculating its books. By its own rules, Mylan shares jump from the $1.70 earned per share in 2015, to $4.30. In response, Mylan claimed that the impending 2018 windfall would align with shareholder interests. Mylan also claimed that the discrepancy between share prices is meant to supply additional, useful information to its investors.
Meanwhile, Mylan's CEO and affiliated company members enjoyed another, more immediate windfall after Mylan acquired "certain businesses of Abbott Laboratories" in 2014, and proceeded to incorporate in overseas locations. This deal allowed executives to "exercise all their unvested stock awards." For Heather Bresch, this number amounted to $32 million in 2015. Mylan also paid the income taxes associated with the accelerated stock awards, on behalf of its executives. This excused Heather Bresch from paying the $5.8 million she owed. The bottom line: While Mylan executives profit, Mylan's stakeholders are harmed.
In response, New York City comptroller and overseer Scott M. Stringer criticized Mylan's company practices when communicating to Douglas Leech, the chairman of nominating and governance committee for Mylan. Stringer has had a history of voting the city funds' shares against Mylan directors in the past. In the first week of September, Stringer requested that Mylan install an "independent board chairman to provide oversight."
This controversy has raised concerns from some politicians (including Democratic Senator Amy Klobuchar of Minnesota) that other companies are also profiting from similar drug misclassifications. Klobuchar was pleased with Mylan's decision to settle, in light of a new federal rule "requiring all companies with drugs that have been approved under what the Food and Drug Administration calls a new drug application to either reclassify them as brand-name drugs or seek a waiver." In early October, Mylan agreed to classify the EpiPen as a branded drug, starting April 2017. This involves a $465 million charge to pay for the settlement, as well as lowering their earnings guidance per share (from between $4.81 and $5.15 to between $4.70 and $4.90), according to a New York Times article.
