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The Daily Signal
Why
Pharmaceutical Companies Like Mylan Charge So Much for Drugs
Melissa Quinn
September 23, 2016
In the wake of news that pharmaceutical company Mylan quadrupled the
price of its popular EpiPen anti-allergy device over a few years,
lawmakers want to know why.
But rising drug prices for consumers isn’t a problem specific to Mylan
and its epinephrine auto-injector.
Rather, research shows that generic drugs as well as brand name drugs
have been going up in price.
According to some experts, it costs around $1 for the amount of
epinephrine, a drug that treats allergic reactions, used in an
auto-injector. But Mylan, which owns the EpiPen, increased the list
price for a pack of two auto-injectors to $608.
Parents noticed the price hike over the summer when they began stocking
up for the new school year. EpiPens have a shelf life of one year, so
many schools and families purchase new packages as they’re gearing up
for back to school.
But the price of the EpiPen has been increasing slowly since 2007, when
Mylan first purchased the auto-injection device.
That year, the list price for the EpiPen was $57. Two years later, it
was around $100.
Today, an EpiPen package boasts a list price of more than $600, a 500
percent increase over seven years.
“[Mylan is] essentially taking advantage of the fact that they have the
only product to provide this service, and they’re charging as much as
they can for that service,” Gerard Anderson, a professor at Johns
Hopkins Bloomberg School of Public Health, told The Daily Signal.
Though Mylan and its CEO, Heather Bresch, are the latest to bear the
brunt of criticism from the media and congressional investigators—the
House Oversight and Government Reform Committee held a hearing
Wednesday during which Bresch testified—it’s not only the price of the
EpiPen that has been rising.
The average price of insulin, the drug needed to treat diabetes,
increased 300 percent between 2002 and 2013, according to an August
report from the Journal of the American Medical Association.
The price of Isoproterenol, a drug that treats heart problems, was
2,500 percent higher in 2013 than in 2002. The price of Digoxin, used
for blood pressure, went up 637 percent in the same period.
The prices of 400 generic drugs rose more than 1,000 percent from 2008
to 2015, according to JAMA.
A 2014 report from Congress found the prices of seven generic drugs
increased over the span of one year, with increases ranging from a high
of 8,281 percent to a low of 420 percent.
Though brand name drugs account for just 10 percent of all prescription
drugs in the U.S., they make up roughly 72 percent of drugs sold, JAMA
found.
So with prescription medicines making up 17 percent of personal health
care services, what leads to increases in drug prices and what can be
done to lower prices?
‘Byzantine Model’
Experts agree there is little transparency in how pharmaceutical
companies price their products, and that was on display when Bresch
testified Wednesday before lawmakers on the rising cost of EpiPens.
“If I could sum up this hearing, it would be that the numbers don’t add
up,” Rep. Elijah Cummings, D-Md., the committee’s ranking member, told
Bresch. “It is extremely difficult to believe that you’re making only
$50 [per EpiPen] when you’ve just increased the price by more than
$100.”
Lawmakers questioned Bresch, daughter of Sen. Joe Manchin, D-W.V., on
just how much money Mylan was bringing in per EpiPen sold. They
struggled to understand the justification for raising the price of the
device by so much.
Mylan has pointed in the past to a long line of parties between the
drug company and the customer as the reason for raising its prices.
The middlemen in the drug supply chain, primarily pharmacy benefit
managers, help pharmaceutical companies sell their drugs, and in
return, receive rebates from the company.
Pharmacy benefit managers are organizations that serve as the
intermediary between consumers and drug companies, insurers, and
pharmacies.
To help pay for those rebates, the drug companies increase the list
prices of their products, Scott Gottlieb, a doctor and resident fellow
at the American Enterprise Institute, explained earlier this month.
“This byzantine model for selling drugs aids both parties—the
drugmakers who use the rebates to buy access on restrictive drug
formularies, and the pharmacy benefit managers that take a cut from
these rebates to improve their profit margins,” Gottlieb wrote in
Forbes.
Formularies are a list of drugs that can be prescribed by practitioners.
During the hearing, Bresch said her company makes about $275 off each
two-pack of EpiPens it sells, but only $50 in profit—about $10 more
than 2014, when the list price was $400.
In addition to the long line of middlemen receiving rebates from the
pharmaceutical companies, drugmakers point to the high cost of research
and development as a reason for boosting prices.
Cummings asked Bresch how much her company spent on research and
development last year for the EpiPen.
Bresch said that since 2007, when Mylan purchased the EpiPen, the
company had spent nearly $1 billion on research and development.
The company is working to extend the shelf life of the auto-injection
device from one year to two years, Bresch said, and Mylan is planning
to submit a request to the Federal Drug Administration in the coming
days with a new formulation.
But the Mylan chief executive couldn’t provide a specific breakdown on
the costs of research and development last year, which congressional
investigators asked for.
“I feel like you are not giving me the answers,” Cummings told Bresch.
“In fairness to us, you knew what this hearing was about. You knew what
our concerns are.”
A lack of transparency surrounding research and development costs is a
cause of concern for experts who advocate lowering drug prices.
“The drug companies clearly need to do research and development,”
Rodney Whitlock, a policy adviser for the Campaign for Sustainable Rx
Pricing, told The Daily Signal. “That’s how they stay afloat and that’s
how they make the new drugs, and those produce good outcomes for
patients.”
But Whitlock said because pharmaceutical companies aren’t up front with
the costs of research and development, it makes their narrative
“logical” but not “reasonably verifiable.”
Instead, Whitlock said, a better question for drug companies is the
role market analysts and investors play in the higher prices for
medicines.
“I know there are people out there who believe they can raise the drug
prices, but it’s also are they under pressure by market analysts who
care about their earnings reports and say they should?” he said. “I
think that’s a fair thing to ask.”
The Campaign for Sustainable Rx Pricing is a coalition of
organizations—including corporations, insurance companies, and trade
groups—working to lower drug prices.
The campaign calls for increased transparency—including disclosing
“true” research and development costs—and competition among possible
solutions.
Anderson, the professor at Johns Hopkins Bloomberg School of Public
Health, said more transparency for research and development costs
wouldn’t hurt, but isn’t likely to help.
“The simple answer is it’s a very good public relations argument for
[drugmakers], but they don’t really price on the basis of how much
they’ve invested in research and development,” Anderson told The Daily
Signal, adding:
The reason why it can’t hurt is because more information is better, but
it can’t help because since they’re not pricing on the basis of
R&D, knowing how much they’ve invested doesn’t give very much
information.
Getting Away With It
While some of the blame is put on companies such as Mylan for rising
prices for medicines, experts and lawmakers agree the Food and Drug
Administration plays a part.
The FDA, they say, has allowed Mylan to have a monopoly.
“When we see price increases, [drugmakers] can get away with it because
if I’m selling a product that has a monopoly or no real competitors,
I’m going to charge as much as I can,” Anderson said. “They’re looking
at what price increases they can get away with.”
Although epinephrine is an old drug, Mylan holds a patent for its
auto-injector. Several competitors have attempted to enter the market,
but they haven’t been able to get off the ground.
Teva Pharmaceuticals said it would introduce a competitor to the
EpiPen, but the FDA did not approve the product.
France-based Sanofi started selling Auvi-Q, another competitor, but the
pharmaceutical company recalled the product last year after reported
dosage problems.
An alternative to the EpiPen already on the market, Adrenaclick, can
cost as low as $140 after a discount, according to the website GoodRx.
Adrenaclick, though, isn’t always covered by insurance companies,
according to Modern Healthcare, and EpiPen has more than 90 percent of
the market share, making it more difficult for a competitor to break
through.
The authors of the August JAMA report said the most effective way to
reduce drug prices is by allowing generics to enter the market.
However, the approval process for generic drugs has been hampered by
the FDA, experts say.
In an article for The Wall Street Journal in August, Gottlieb pointed
to the agency’s 2009 decision to force generic pharmaceutical companies
to make their production lines less complicated and alter their
manufacturing plants.
Gottlieb said the changes caused many of these plants to close, which
drove up prices.
Additionally, he said, it’s expensive for a company to file an FDA
application to make a generic drug, costing as much as $15 million.
The process for FDA approval is lengthy, too. Gottlieb said generic
drugs launched in 2015 took roughly four years before receiving FDA
approval.
“New regulations have, in many cases, made it no longer economically
viable for more than one generic firm to enter the market,” he wrote.
Currently, the FDA has a backlog of applications awaiting approval.
Dr. Doug Throckmorton, deputy director of the Center for Drug
Evaluation and Research at the FDA, told lawmakers on the oversight
committee that the agency had reduced the backlog. He said he couldn’t
provide information about how many auto-injection products were in the
queue waiting for FDA approval.
Throckmorton did say his agency is working to “streamline and improve
its review and approval of generic drug applications.”
“We take our role seriously,” he said.
‘Just Lowering the Price’
In the wake of the backlash Mylan received after hiking the price of
the EpiPen, the company announced last month it would be developing its
own generic.
The price, the company said, would be $300 for a pack of two. It also
said it would offer a $300 savings coupon to patients buying EpiPens
who have insurance.
But some experts aren’t buying Mylan’s efforts to lower the price.
“At some point in time, you’re saying, ‘What’s wrong with lowering the
price of the drugs?’” Whitlock, of the Campaign for Sustainable Rx
Pricing, said. “Instead of going through all the work, how about just
lowering the price of the drug?”
Read this and other articles at The Daily Signal
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