Profiting off Near Fatalities: Mylan Inc.’s EpiPen Price-Gouge

Samuel L. Hoops, KLJ Staff Editor[1]

The large majority of allergies are relatively innocuous and treatable with over-the-counter medications. However, for some, myself included, allergies to certain foods cause intense reactions and can develop in to anaphylaxis, an acute systemic allergic reaction causing the airwaves to constrict to the point of suffocation depending on the degree of one’s allergy.[2] The cornerstone of anaphylaxis treatment is epinephrine, otherwise known as adrenalin, injected intramuscularly in the vastus lateralis muscle, i.e., the outside of one’s thigh.[3] Although I have cited to scholarly medical journals and relatable news articles in developing this piece, my doing so is nothing more than adherence to the principles of the Bluebook, a uniform citation criterion used by legal students and scholars.[4] For I have personally experienced anaphylaxis—my throat squeezing shut to the point of blacking out, my mother shouting in the background, and finally, my lifeline arrives. I hear the click of the EpiPen, then feel the sharp jab in to my upper thigh, and instantly, I am brought back to consciousness. For myself, and many others, this small, plastic device is the difference between life and death. This is meant to be a pity-party by no means, but in actuality, a wake-up call to the unethical and inhumane pricing treatment of EpiPens by its current retailer—Mylan Inc.

The use of adrenalin, a naturally occurring hormone and neurotransmitter, in emergency treatment was first developed by the military in the 1970s.[5] The device known so fondly as the EpiPen was first approved by the FDA in 1987.[6] Although originally manufactured by Meridian Medical Technologies, the auto-injector technology changed hands numerous times, ultimately coming to rest with Mylan in 2007.[7] Prior to Mylan’s acquisition of the EpiPen, the preceding owner-company netted approximately $200 million per annum off the product, which sold in pharmacies for roughly $90.[8] Since 2007, the price of EpiPens has skyrocketed 574% to an unheard of $608, netting Mylan just north of $1.1 billion per annum.[9] In a barrage of news articles following the acknowledgment of said premium, it was revealed that EpiPens can be manufactured at a price no greater than $20-$30.[10] For those in need of this life-saving device, out-of-pocket spending has increased 123.6% throughout the period of 2007-2014, exacerbated by the fact that EpiPens and the like expire after just a year requiring an annual expenditure.[11]

The question then asked by many is how has the price of this low-cost device reached such tremendous levels. The answer lies within the lesser-known world of pharmaceutical intermediaries, known as pharmacy benefit managers (“PBMs”). PBMs act as “middle-men,” negotiating prices with drug manufacturers on behalf of health care plans.[12] These “middle-men,” namely Express Scripts, CVS Health, and OptumRx, control nearly 80% of the PBM market, accounting for approximately $200 billion per annum in revenue, affecting over 180 million insured people.[13] The way PBMs operate is this: PBMs place certain “preferred” brand drugs into formulary tiers giving them priority because said brand drugs are offered at a lower co-payment to the patients, making them the obvious choice for purchase.[14] The way that drug companies, Mylan included, ensure that their products receive the “preferred” status is by offering rebates to the PBMs in the form of the “spread,” i.e., the difference in the list price set by drug companies and the actual price paid by PBMs.[15] Therefore, the higher a company sets the list price, the bigger the rebate that the PBM will receive and the more favorable the status given to a product.[16] Drug companies must then compete with one another by being the company that sets the price the highest for their product. Now although it may seem that the proverbial “bad guy” in this price-gouging scheme implicates just the PBMs, companies such as Mylan have benefitted immensely, as evidenced by Mylan’s borderline monopoly (90% market share) over the auto-injector industry.[17]

Up until the Summer of 2016, when public outcries regarding the soaring prices of EpiPens were acknowledged, very few knew of the rebate system employed by drug companies. The reasoning behind this absence of knowledge derives from the drug companies and PBMs accounting of these transactions: rebates are not disclosed as they are considered “trade secrets.”[18] However, our democratic system of government boosted by State Representatives’ desire for re-election has given a voice to those constituents inundated with the requirement of carrying an EpiPen. In September of 2016, the House of Representatives Committee on Oversight and Government Reform hosted Mylan CEO, Heather Bresch.[19] When Bresch was questioned regarding the gradual uptick in EpiPen prices, she testified that drug companies, namely Mylan, were in fact “victims” of the rebate scheme.[20] An almost laughable assertion given, as previously noted, Mylan’s near 90% control over the auto-injector industry, directly attributable to its capability to “out-bid” competitors in the offering of spread-based rebates.[21]

Since the revelation and widespread acknowledgment of Mylan’s price-gouging scheme, several lawsuits have been initiated against the company. The most notable being a class action suit initiated in Tacoma, Washington by three EpiPen purchasers who are alleging fifty-five consumer protection law violations in addition to violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act[22], a federal law historically used to combat organized crime.[23] Additionally, just three weeks after the above-mentioned class action was initiated, a competing auto-injector retailer, Sanofi-Aventis U.S. LLC, filed suit against Mylan alleging violations of United States antitrust laws.[24] Although these actions have been filed and the price-gouging scheme has been exposed, prices for EpiPens remain exorbitant. As such, we wait patiently on the diligence of the court system to bring justice for all EpiPen carriers.

[1] M.B.A. expected May 2018; J.D. expected May 2019.
[2] F. Estelle R. Simons, First-aid treatment of anaphylaxis to food: Focus on epinephrine, 113 Journal of Allergy and Clinical Immunology 837, 837-38 (2004).
[3] Id. at 837.
[4] The Bluebook: A Uniform System of Citation R. 15.8 (c)(v), at 156 (Columbia Law Review Ass’n et al. eds., 20th ed. 2015).
[5] Lydia Ramsey, The strange history of the EpiPen, the device developed by the military that turned into a billion-dollar business, Business Insider (Aug. 27, 2016), http://www.businessinsider.com/the-history-of-the-epipen-and-epinephrine-2016-8/#epinephrine-another-name-for-the-hormone-adrenaline-is-something-our-bodies-produce-naturally-it-increases-blood-flow-to-the-muscles-during-fight-or-flight-responses-1.
[6] FDA Approved Epinephrine Auto-Injectors, Food and Drug Admin., https://www.fda.gov/downloads/drugs/informationondrugs/ucm520800.pdf (last visited Sept. 2, 2017).
[7] Ramsey, supra note 5.
[8] Id.
[9] Id.
[10] Martha C. White, It’s Jaw-Dropping How Little It Costs to Make an EpiPen, Money (Sept. 7, 2016), http://time.com/money/4481786/how-much-epipen-costs-to-make/.
[11] See Kao-Ping Chua & Rena M. Conti, Research Letter, JAMA INTERNAL MEDICINE (Mar. 27, 2017).
[12] Devon Herrick, Who is Responsible for Rising Drug Costs?, 205 National Center for Policy Analysis 1, 1-3 (2017) (describing the role of Pharmacy Benefit Managers within the pharmaceutical supply chain).
[13] Christy A. Rentmeester, Rebates and Spreads: Pharmacy Benefit Management Practices and Corporate Citizenship, 33 Journal of Health, Politics and Law, No. 5, 943, 947 (2008).
[14] Id.
[15] Id. at 948-49.
[16] Id.
[17] Mannching Sherry Ku, Recent trends in specialty pharma business model, 23 Journal of Food and Drug Analysis 595, 597 (2015).
[18] Rentmeester, supra note 13, at 951.
[19] Hearing Before the H. Comm. on Oversight & Gov’t Reform, 114th Cong. (Sept. 21, 2016) (testimony of Mylan CEO Heather Bresch), available at https://oversight.house.gov/wp-content/uploads/2016/09/2016-09-21- Mylan-CEO-Bresch-Testimony.pdf.
[20] Id.
[21] Ku, supra note 17.
[22] 18 U.S.C. § 1961 (2017).
[23] Complaint at 38-93, Rainey v. Mylan Specialty, L.P., No. 17-cv-05244 (W.D. Wash. filed Apr. 3, 2017).
[24] Complaint at 1-7, Sanofi-Aventis U.S. LLC v. Mylan Inc., No. 3:17-cv-02763-FLW-TJB (D. N.J. filed Apr. 24, 2017).

*Featured image by Intropin, licensed under CC BY 3.0