Nearly 100 years ago, a hormone called adrenaline proved to have life-saving properties when administered to victims of severe allergic reactions. The EpiPen, so prominent in the news lately, delivers about $1 worth of the hormone through an easily administered auto-injector. The story of how the price skyrocketed six-fold evinces both the genius and the folly of the American healthcare system.
Christopher HopkinsThe device that became the Epi- Pen was invented in 1974 as a means for U.S. soldiers to quickly treat symptoms of poison gas on the battlefield. In 1987, the device was approved for delivery of epinephrine (the trade name for adrenaline) to treat anaphylaxis. The manufacturer was acquired by Pfizer, which sold the marketing rights to Merck. In 2007, Mylan Pharmaceuticals purchased the marketing rights to the product. At that time, a single-dose injector sold for around $50.
Mylan embarked upon a brilliant strategy: to stimulate additional demand by encouraging the stockpiling of EpiPen devices in public venues. It was a masterstroke of promotion that also saved lives, as the company relentlessly raised awareness of the risk of severe allergic reactions in children. Ultimately, Congress passed a bill in 2013 encouraging schools to keep emergency supplies of the injectors on hand. This was a classic case study in marketing that enriched shareholders as well as Mylan’s executives as sales spiked from $200 million in 2007 to $1.1 billion last year.
Thanks to the byzantine and mysterious mechanism of rebates, discounts and revenue sharing with pharmacy benefit managers and insurance companies, virtually no one paid the full retail price. This began to change as high-deductible health care plans gained market share. And while the trend was already under way, Obamacare accelerated the rush to high-copay plans. This means many more patients are now confronted with the full $300 bill for an EpiPen until their deductible is satisfied. While never anticipated by Mylan, the significant cost shift toward patients has now created a major public relations nightmare for the company. Many of the same politicians who mandated EpiPen distribution in the schools now rail against the resultant price hikes.
One might reasonably inquire as to why a century-old drug in a 30-year-old package has not been replaced with generics. Recall Ronald Reagan’s prophetic quip about the most terrifying words in English: “I’m from the Government and I’m here to help you.”