Epipen Case Study

It is estimated that there are currently 43 million Americans at risk of anaphylaxis, a life-threatening allergic reaction (“Mylan’s Commitment,” 2016). The majority of these people are in constant possession of an EpiPen, an auto-injector containing epinephrine used to reverse anaphylaxis (“Anaphylaxis,” 2016). However, in recent years the price of the EpiPen has increased substantially; a two-pack currently costs $609 (Pollack, 2016). Because Mylan commands around 85 percent of the epinephrine auto-injector market, almost all of those at risk have been affected (Herrick, 2016: 2). Concerns about drug price increases, like the EpiPen’s, have caused confusion in many people. Mylan has been criticized directly for EpiPen’s price increase; some people argue that it was done solely for the financial benefits of the executives without any consideration for those at risk. However, this is not the case, as there is evidence that both rationalizes EpiPen’s price increase and proves Mylan’s concern for society. This paper intends to justify high pharmaceutical prices for a number of reasons: they give companies a chance to recoup substantial capital costs, they stimulate much needed research and development within the pharmaceutical industry, and they provide companies with the means to invest in programs that benefit society directly. Furthermore, this paper will explain how Mylan’s earnings from the EpiPen have reflected these points, mainly through innovation from research and development and the implementation of public assistant programs. 2. Background Product pricing within the pharmaceutical industry is different than that in other industries. This is mainly because of large research and development expenditures, long production processes, and high regulatory costs and barriers within the industry (Winegarden, 2014). On average, developing a successful drug costs a pharmaceutical company about $5.5 billion and takes around 10 to 15 years to complete (Winegarden, 2014: 17). This large capital cost needs to be recouped by the company through the drug’s earnings over its lifetime, which is made possible through regulatory exclusivity and government-issued patents (Kesselheim et al., 2016). During this time, the company needs to price their product to reflect all of their costs, both fixed and variable. Fixed costs, which account for the majority of a company’s costs, include research and development costs of not just successful drugs, but also of those that have failed. Variable costs, which include manufacturing costs, distributing costs, investing costs, and so on, also need to be taken into consideration. There are certain factors, that will be explained later in the paper, that have driven up the costs of private funding on research and development over the past few years. …show more content…
In turn, pharmaceutical prices have also increased, as seen with the price of the EpiPen. Furthermore, a study done by the Congressional Budget Office emphasizes the lack of the output of new drugs in recent years, which highlights the need for an increase in further research and development (“Research and Development,” 2006). This being said, society’s need for new, innovative pharmaceuticals is only possible through further research and development, which requires sufficient funding from pharmaceutical companies that is attained through drug sales. 3. Literature Reviews A. “Research and Development in the Pharmaceutical Industry”, 2006 According to the Congressional Budget Office (CBO), total spending on health-related research and development has tripled since 1990, in real terms (“Research and Development,” 2006: 35). The study gives three reasons, in the private sector, …show more content…
Today, Mylan offers more than 1,400 products internationally, making it “one of the largest generics and specialty pharmaceutical companies in the world” (“Company,” 2016). Mylan’s website emphasizes on increasing global manufacturing, innovation, and generic utilization (“Company,” 2016). Over the years, they have expanded globally through the acquisition of a number of businesses, including the acquisition of Merck KGaA in 2007, in which Mylan attained the rights to EpiPen (“Company,” 2016). More recently, in August 2016, Mylan acquired Meda, which cost about $7.2 billion (Drozdiak, 2016). In addition to expansion, they are constantly working on the improvement of existing products, as shown with multiple generations of EpiPen, as well as the development of new and generic products. This being said as Mylan has grown as a company, so have their costs. From the first quarter of 2006 to the first quarter of 2016, their research and development costs alone have increased from $19.9 million to $253.6 million (“Mylan Research,”