Mylan Pharmaceuticals, the company behind the flagship anti-allergy device EpiPen, has been drawing heavy fire from lawmakers and consumers as the drug's serious price gouging and astronomic increases of executives' pay get uncovered.
It all started back in 2007 when Mylan (NASDAQ: Mylan [MYL]) bought the EpiPen patent and turned a previously inexpensive decades-old emergency allergy drug, into a pricey must-have. Since 2007, the EpiPen price went up from $56.64 to $317.82 per piece, demonstrating a price increase of over 460%. Interestingly, the salaries of Mylan's CEO Heather Bresch as well as some other managers have dramatically increased over the exact same period. NBC News has reported Bresch's compensation growing by 670% in the past 8 years: from $2.453,456 in 2007 to $18,931,068 in 2015.
But let's go back to EpiPen as a product for a second. Again, EpiPen is not Mylan's revolutionary breakthrough on the health market and it has been in use already for decades prior to Mylan's acquisition. EpiPen is an auto-injection device that delivers a dose of a hormone epinephrine used to treat severe allergic reactions, especially in kids. However, epinephrine is far from being an expensive drug: the dose of the medicine delivered to a patient via the device is worth about $1. Yet EpiPen has managed to turn Mylan from a mediocre pharmaceutical player into a multibillion company all thanks to the company's marketing that targets parents and their kids with severe allergies.
According to Bloomberg, EpiPen's revenues account for around 40% of total Mylan's operating profits. Mylan has maintained a strong monopoly on the market of auto-injection anti-allergy devices in the U.S., and has been consistently increasing the drug's prices over the past couple of years. The company made the first major price change in 2009 when EpiPen's price hiked by 19%. After that, it was growing by 10% every year until 2013 while in the last 3 years up Mylan was increasing EpiPen's price by whopping 15% twice per year. Today, the patients can buy a two-pack of EpiPens, as they are sold in two pieces, for over $600.
This has caused a major resonance in the U.S. this week as millions of Americans are dependent on the drug due to having life-threatening allergies. As EpiPen has no alternatives on the market, a lot of people have resorted to self-injections of epinephrine with syringes and purchasing EpiPens outside of the U.S as the product's price has become unaffordable for many.
Together with the growing EpiPen's price, Mylan's stock value has more than tripled going from $13.29 per share in 2007 up to the middle $47s this year. However, this week everything changed.
Following the news about Heather Busch increasing her own salary to the astronomic amounts, several senators including Iowa's Chuck Grassley, Richard Blumenthal of Connecticut and Minnesota's Amy Klobuchar have questioned the price formation of EpiPen and sent a letter to the Federal Trade Commision demanding the drug's probing and investigations.
"The FTC should investigate whether Mylan Pharmaceuticals engaged in activity, such as using incentives or exclusionary contracts with insurers, distributors, or pharmacies, to deny an alternative product access to the market," wrote Amy Klobuchar.
Likewise, Hillary Clinton chimed in the debate by issuing a statement where she called the EpiPen's prices "outrageous" and asked for immediate action.
"I believe that our pharmaceutical and biotech industries can be an incredible source of American innovation, giving us revolutionary treatments for debilitating diseases. But it's wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them," Clinton said.
Clinton's statement didn't go unnoticed in the stock market: the iShares Nasdaq Biotechnology ETF (NASDAQ: iShares Nasdaq Biotechnology Index Fund [IBB]) was down more than 3% while Mylan's stocks fell more than 5% reaching the day's low at $42,78. The S&P 500 (INDEX: US500) closed the day yesterday with 0,5% down, reported MarketWatch.
This is not the first time Hillary Clinton takes a central role in a pricing debate within the healthcare industry. Last September, she commented on the 5,000% price raise of a drug called Daraprim, prescribed for life-threatening parasitic infections. Back then, she mentioned working on a plan aimed at putting an end to abuses on the health market, what lead to the market reaction similar to this week's.