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Where Does Business Strategy And Humanity Balance In Pharma?

Do pharmaceutical companies give more than they take?

26Aug

The US pharmaceutical industry is facing turbulence, with Mylan Pharmaceuticals, a producer of life-saving autoinjector EpiPen faced scrutiny over significant price hikes of their product. The scandal was taken at a national level, involving the public and politicians, including presidential candidate Hillary Clinton.

From a reasonable price of $94 for a two-pack of injectable epinephrine (EpiPen), the price has gone up to shocking $600, in just 9 years. Mylan Pharmaceuticals is the second largest generic and speciality pharmaceuticals company in the world and EpiPens play a critical role in saving lives of those experiencing life-threatening allergic reactions.

The company earlier had set a precedent over price hikes in 2012, when Mylan agreed to pay $147 million to settle accusations for raising the price of their widely prescribed drugs by 3000%, according to the New York Times. This time, Mylan CEO, Heather Bersch was to answer what had caused a price hike for EpiPen. In her interview with CNBC, Ms Bresch said that: 'No one is more frustrated than me.' She argued that the device’s current price has nothing to do with Mylan, but with a health-care system in general, which often requires patients to pay not just insurance premiums, but also a full retail price for out-of-pocket medications.

The story, however, was taken further and has caught the attention of Hillary Clinton who tweeted: ‘EpiPens can be the difference between life and death. There is no justification for these price hikes.’ After Mrs Clinton's statement, shares of Mylan in the stock market dropped 5% and also dragged the NASDAQ Biotechnology ETF (IBB) down by 3%. Shares in the biotechnology sector were affected after Mrs Clinton added that she is going to tackle price gouging in the drug market.

The story comes as a bitter reminder, that aside from EpiPen price hikes, the drug market is still far from being patient-orientated. In 2015, unofficially labelled as 'the most hated man in the world', Martin Shkreli, the founder and a former CEO of Turing Pharmaceuticals, faced a widespread criticism after his firm obtained the manufacturing licence for the antiparasitic drug Daraprim, and later raised its price by 5,556%. Daraprim is on the World Health Organization's List of Essential Medicines and is an important component in treatment of HIV-positive patients. The drug price went up from $13.50 per pill to $750, putting Shkreli under multiple investigations to examine his fraud activity.

Ironically, after Mylan and its CEO started to be heavily criticized, Shkreli was among the defenders of the company's selling approach. In his interview with CBS News, he stated: 'I think important medicine should be expensive because they're valuable,' and later supported his view on social media, comparing net margins of Altria Group (tobacco company) - 20.6% and Mylan's - 8.97%, suggesting that a tobacco company shouldn't earn more than a pharmaceutical one.

Indeed, unlike tobacco, Mylan's EpiPen is of much greater importance. The value of an EpiPen doesn't lie in the epinephrine supply, but in the auto-injection device that automatically delivers the correct dose of the drug instantly. In cases with severe allergic reactions, timing is critical, and Mylan provides the ultimate solution that consequently creates high demand.

Looking at Mylan's position from a business point of view, the company rightly won its position in the market. Sanofi Pasteur tried to sell Auvi-Q devices but was later found to be providing improper doses of the drug. There was also Adamis, offering prefilled syringes, but they were proven to be harder to use than EpiPens, and the US Food and Drug Administration (FDA) required them to provide more data before launching the product. Each time, when Mylan's EpiPens beat competitors, the company raised prices.

Due to the sensitive nature of the industry and tough regulations for product approval, it's incredibly hard for new entries to survive in the market, meaning there is a little competition. Mylan can hardly be blamed for enjoying an increasing demand and raising prices, if we were talking only about business strategy. However, there is also a big ethical question: How much does one's health cost and is it up to pharmaceutical companies to set the price? 

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