Price Gouging
Mylan pharmaceuticals, originally Milan, was founded in 1961 as a distributor of drugs. In 1973, they went public on the over-the-counter market. Where they truly made their mark was the sale of generic drugs, brand name drugs that are no longer protected by patents, which accounts for 80 percent of total revenues. In late 1975, the board of directors "discovered" that the company was on an unruly path, as they were facing "imminent bankruptcy". Their inventories were overstated by $2 million, they owed over $400,000 in back taxes, 320 of their production workers were on strike, and the companies net worth sat at a negative $900,000.
New management in 1976 came with sweeping change, and an emphasis on the production of generic drugs. By 1977 the company was profitable and the following year, their stock began trading on NASDAQ. In 1984, they released their first pharmaceutical product that was developed, manufactured, and marketed by Mylan, called Maxdize. The company would go on to acquire 5 different pharmaceutical companies before 1990, which caused their stock price to increase 173% and gave them five worldwide and seven domestic patents for trans-dermal drug delivery technology.
In the late 1990's, Mylan came under litigation for allegations that they had increased prices by 3000% (yes, 3000%) after signing deals with their suppliers that eliminated their competition for the products. Mylan insisted that they did nothing wrong, however ended up paying $147 million, which caused their 2001 revenues to drop 76%. Throughout the early 2000's, they faced numerous other lawsuits which were mostly produced by brand-name drug companies in an attempt to delay losing the rights for their proprietary drugs. Their acquisition heavy strategy continued to the present day, which led them to go global, and compete with the largest pharmaceutical companies in the world.
Their most recent crisis came when it was discovered that they were price gouging EpiPen’s, an auto-injection system that provides a dose of epinephrine to ward off anaphylactic shock that can occur during an allergic reaction. After acquiring the product in 2007, the price increased over 500% in around a decade, which all came out of the pockets of the customers. Can you imagine living in fear of having an allergic reaction because you couldn't afford the medication you've been purchasing your entire life?
New management in 1976 came with sweeping change, and an emphasis on the production of generic drugs. By 1977 the company was profitable and the following year, their stock began trading on NASDAQ. In 1984, they released their first pharmaceutical product that was developed, manufactured, and marketed by Mylan, called Maxdize. The company would go on to acquire 5 different pharmaceutical companies before 1990, which caused their stock price to increase 173% and gave them five worldwide and seven domestic patents for trans-dermal drug delivery technology.
In the late 1990's, Mylan came under litigation for allegations that they had increased prices by 3000% (yes, 3000%) after signing deals with their suppliers that eliminated their competition for the products. Mylan insisted that they did nothing wrong, however ended up paying $147 million, which caused their 2001 revenues to drop 76%. Throughout the early 2000's, they faced numerous other lawsuits which were mostly produced by brand-name drug companies in an attempt to delay losing the rights for their proprietary drugs. Their acquisition heavy strategy continued to the present day, which led them to go global, and compete with the largest pharmaceutical companies in the world.
Their most recent crisis came when it was discovered that they were price gouging EpiPen’s, an auto-injection system that provides a dose of epinephrine to ward off anaphylactic shock that can occur during an allergic reaction. After acquiring the product in 2007, the price increased over 500% in around a decade, which all came out of the pockets of the customers. Can you imagine living in fear of having an allergic reaction because you couldn't afford the medication you've been purchasing your entire life?
Mylan’s CEO, Heather Bresch, initially blamed Obamacare and
the rise of high-deductible health insurance plans for the price increases. She
would later insist that price increases were in response to improvements made
on the product, citing that the original EpiPen was confusing for patients and
caused accidental sticks. The “improved” version was more ergonomic and less
likely to cause injury. This is questionable considering the cheap price for epinephrine, and the simplicity of the device used to administer it. A statement made by Bresch herself on the matter can be viewed here:
https://www.forbes.com/video/5231036466001/#512f699f1c75
Here she personally accepts blame for the price increases, yet fails to provide a concrete plan or even idea of how Mylan will reduce these prices while still satisfying shareholders, paying off debts, and staying profitable. Also, she fails to address the fact that her actions were unethical, and she instead transitions to the fact that Mylan saw and "under-treated population" when they acquired EpiPen. The rhetoric she used attempted to gain sympathy for Mylan in the fact that they had a genuine mission for the EpiPen product, when in reality they were exploiting that very same population for profit. Price gouging is by no means unprecedented in the pharmaceutical industry. The power that pharmaceutical companies hold is easily exploited, and people like Martin Shkreli are seen going to trial for blatant price hikes. This issue gained significant attention recently from the public when Hillary Clinton made it a focal point of her campaign for United States President. This is evident in the immediate and sustained negative impact on the Mylan's stock prices once their unethical behavior was exposed, as shown in the graph below.
https://www.forbes.com/video/5231036466001/#512f699f1c75
Here she personally accepts blame for the price increases, yet fails to provide a concrete plan or even idea of how Mylan will reduce these prices while still satisfying shareholders, paying off debts, and staying profitable. Also, she fails to address the fact that her actions were unethical, and she instead transitions to the fact that Mylan saw and "under-treated population" when they acquired EpiPen. The rhetoric she used attempted to gain sympathy for Mylan in the fact that they had a genuine mission for the EpiPen product, when in reality they were exploiting that very same population for profit. Price gouging is by no means unprecedented in the pharmaceutical industry. The power that pharmaceutical companies hold is easily exploited, and people like Martin Shkreli are seen going to trial for blatant price hikes. This issue gained significant attention recently from the public when Hillary Clinton made it a focal point of her campaign for United States President. This is evident in the immediate and sustained negative impact on the Mylan's stock prices once their unethical behavior was exposed, as shown in the graph below.
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This case goes further than a price gouging case for say, an
entertainment product might. Pharmaceutical companies are manufacturing products the people must have in order to live, which would lead one to believe they would be very invested in ensuring stakeholder satisfaction. Some of the stakeholders in this situation include;
Most importantly, the consumer, who relies on the product for comfort in their everyday life, and without them they are prone to serious side effects. Having to pay $500 or $600 for each EpiPen unit could become a burden that hangs over their head and stagnates their finances for the rest of their life. Another stakeholder to consider is smaller pharmaceutical companies, who have sincere intentions to bring people medication, but are absorbed or eliminated because of companies like Mylan who establish monopolies on products. Fault for this could lie partly on the US healthcare system and its hierarchy, however at the end of the day it is the companies responsibility to ensure they conduct business ethically. Perhaps the most misled of the stakeholder groups is the shareholders of Mylan, because they saw continuous growth and a great stock to invest in, but surely they were unaware that profits were skyrocketing without any noticeable difference in the number of prescribers. These are only a few of the stakeholders effected, but it is safe to say that the only group benefiting from any of this were the top executives of Mylan. CEO Heather Bresch’s pay increased from 2.5 million to 18 million dollars, an increase of 700% since acquisition of EpiPen and that was only for her. The overall payoff for all executives totaled $300 million.
Sources:
Most importantly, the consumer, who relies on the product for comfort in their everyday life, and without them they are prone to serious side effects. Having to pay $500 or $600 for each EpiPen unit could become a burden that hangs over their head and stagnates their finances for the rest of their life. Another stakeholder to consider is smaller pharmaceutical companies, who have sincere intentions to bring people medication, but are absorbed or eliminated because of companies like Mylan who establish monopolies on products. Fault for this could lie partly on the US healthcare system and its hierarchy, however at the end of the day it is the companies responsibility to ensure they conduct business ethically. Perhaps the most misled of the stakeholder groups is the shareholders of Mylan, because they saw continuous growth and a great stock to invest in, but surely they were unaware that profits were skyrocketing without any noticeable difference in the number of prescribers. These are only a few of the stakeholders effected, but it is safe to say that the only group benefiting from any of this were the top executives of Mylan. CEO Heather Bresch’s pay increased from 2.5 million to 18 million dollars, an increase of 700% since acquisition of EpiPen and that was only for her. The overall payoff for all executives totaled $300 million.
Sources:
Graphic/Video Sources:
The price percentage increase over the years is really crazy to think about. However, I did find it impressive how the company continued to fall and get back up due to their acquisition heavy strategy. I liked how you gave background information of other troubles the company went through before you mentioned the current issue. The graphs and statistics were very interesting to look at as well. Personally, I think Heather Bresch accepted the blame because she could not have come up with any excuses. It did not seem sincere and the fact that she did not provide a plan or an idea of how they will reduce their prices, like you mentioned, seems to support the idea that they’re intentions aren’t as innocent as they say.
ReplyDeleteMylan has shown since their inception that they are able to rebound from adversity, and adapt to a wide variety of different products. This is because of their history of fast, low cost production. They absolutely had no way to come up with an excuse. Even Bresch's main justification for the price increase, research and development for the product over 8 years costing $1 billion, doesn't add up. The price for EpiPen, as you mentioned, increased substantially each year while the cost of research and development remained fixed. They profited $1 billion dollars in the year before the scandal broke alone, which would have covered the expense for the entire 8 year period.
DeleteIt is quite impressive to see how Mylan has fallen back into hot water, even after the new management entered the company. With pharmaceuticals in the United States, a high price is paid to cater to emergencies, which is terrifying to think about. Your incorporation of graphs and statistics really put a spotlight onto the industry, which we don't usually question because our lives depend on them. Just like in my case of the Oxfam scandal, pharmaceuticals also posses this "halo effect", where not a lot of people would call them out on their shady operations.
ReplyDeleteIs Mylan the primary producer of "EpiPen"? You've mentioned competitors, but do they come close as Mylan, especially after this scandal broke out? Even if there is a cheaper alternative, would people purchase those, or be more hesitant because EpiPen has a more established image within the market?
I agree that Mylan was able to fly under the radar for as long as they did due to the "halo effect", but also due to the disconnection between them and their patients because of the amount middlemen involved in the process. When I referred to competitors, that was in the beginning of their company when they were producing generics versions of brand name drugs that other companies had been producing, basically undercutting them and stealing their profits. Once Mylan came into possession of EpiPen, they basically had a monopoly on the product which is what allowed them to continually increase the price.
DeleteAs I read this, I get more and more infuriated with Heather Bresch. As the CEO of Mylan, you would imagine that she would be slightly more caring about the well-being of the consumers because they are the people who buy them.
ReplyDeleteIt's really sad how she doesn't give much effort to really apologize despite not having a concrete plan to do anything about the situation. I heard that many people went to different countries simply to get refills on their EpiPens because it was cheaper to pay for the flights and the medicine rather than buying it in the United States.
I had a hard time remaining impartial to Heather Bresch throughout my research for the same exact reason, she shows hardly any compassion for a patient population that literally depends on her for their lives. I didn't hear anything about people going out of the country to purchase EpiPens, but just looking at the numbers, if you are a patient that experiences allergic reactions regularly it doesn't surprise me that it would be cheaper to purchase the medicine that way.
Delete