Over the past few weeks, the high price of the EpiPen — an autoinjector that helps keep airways open during severe allergy attacks — has provoked outrage among lawmakers, advocacy groups, and the American public.
Mylan, the pharmaceutical company that purchased the technology in 2007 and has since steadily increased the list price for a two-pack of EpiPens from $100 to $600, is now scrambling to find workarounds to appease its critics.
On Monday, Mylan announced that the company will launch a generic version of the EpiPen with a list price of $300 — half as expensive as the brand-name version currently on the market.
“We understand the deep frustration and concerns associated with the cost of EpiPen to the patient, and have always shared the public’s desire to ensure that this important product be accessible to anyone who needs it,” Mylan CEO Heather Bresch said in a statement announcing the new generic option. “Generic drugs have a long, proven track record of delivering significant savings to both patients and the overall health care system.”
Mylan’s gesture to generic drugs raises an important question, especially in the face of the wider context of the U.S. health care system and the exorbitant cost of many medications — are generic drugs really the solution to skyrocketing prices? The answer is: Well, kind of. Like a a spotty relationship, it’s complicated.
How do generic drugs work?
The idea behind generic drugs is your typical free-market capitalism: Competition provides a form of price regulation and keeps companies from charging extortionate prices.
Pharmaceutical companies invest large amounts of money in developing new medications, and in return, they are granted patents over their discoveries for a certain number of years during which they can set the price for the drug. The resulting profit is drug companies’ incentive to continue with valuable research and development.
After a period of time, however, those patents expire, and rival companies can bring to market so-called “generic” drugs as competition. These companies don’t have to pay for research and development, and typically forgo the expensive marketing campaigns that sustain branded drugs, thus enabling them to sell their medication more cheaply.
In fact, the EpiPen itself is a branded, patented delivery system for a generic drug: the hormone epinephrine.
Generic drugs must still be approved by the FDA — which requires that they have the same active ingredient, strength, dosage form, and route of administration as the branded version. The one thing that can differ is the inactive ingredients, though any difference here shouldn’t change how well the drug works. Generic and branded versions of the same drug must be equally effective to be approved.
Broadly speaking, generics are an excellent, less expensive option for many patients. According to the FDA, 8 in 10 prescriptions are filled with generic drugs, and in 2010, the use of FDA-approved generics saved $158 billion — about $3 billion per week.
“We are concerned that Mylan has not faced much competition for its product.”
In the case of the EpiPen, much of the criticism in the past few weeks has zeroed in the lack of competition that Mylan enjoys. A similar, competing device (that was similarly expensive) was pulled from the market last year, and the FDA recently rejected a bid by the company Teva (which also tried to stage a hostile takeover of Mylan last year) to make a generic version.
There is one cheaper alternative to an EpiPen, the Adrenaclick auto-injector, but there’s little demand. The EpiPen has become so synonymous for this type of device that, among doctors, prescribing an EpiPen is like telling someone to get a Kleenex instead of a tissue. And if a doctor writes a prescription for an EpiPen, a pharmacist can’t substitute an Adrenaclick due to FDA regulations. Even then, Adrenaclick’s maker doesn’t have the capacity to meet high demand for the drug.
“We are concerned that Mylan has not faced much competition for its product,” wrote a bipartisan group of senators in an open letter to the FDA last week. “Given the importance of this topic, it is imperative to understand the FDA’s role with respect to EpiPens and its approval of generic equivalents that could help to increase competition and lower prices if introduced.”
Mylan, however, is now offering to become its own competition — which isn’t exactly how it’s supposed to work.
Is Mylan fixing the issue with its pricing?
In a press release, Mylan CEO Heather Bresch called the release of a generic version of the EpiPen an “extraordinary commercial response.”
But the company’s harshest critics are likely to remain unsatisfied with Mylan’s move, which puts the company in the odd position of competing against itself for control over this corner of the market.
“The weirdness of a generic drug company offering a generic version of its own branded but off-patent product is a signal that something is wrong,” wrote Robert Weissman, the president of consumer advocacy group Public Citizen, in a press release. “Mylan knows its $600/set of EpiPens is unsustainable, but aims to continue ripping off some segment of the marketplace — both consumers who do not trust or know about the generic, and perhaps some insurers and payers constrained from buying a generic.”
“The weirdness of a generic drug company offering a generic version of its own branded but off-patent product is a signal that something is wrong.”
A generic version of the EpiPen may indeed reduce the price for some consumers, as well as alleviate some of the burden on insurers and the health care system. However, the announcement is likely to come as cold comfort for many parents, coming on the heels of back-to-school season when they’ve already purchased their EpiPens for the year.
And, as Weissman notes, some patients may continue to unnecessarily pay for the branded version — particularly in states that don’t allow pharmacists to substitute generic versions of prescribed brand-name drugs.
Typically, a company might offer a discounted version of its own product to undercut outside competition from similar drugs treating the same illness. But in the case of EpiPens, Mylan isn’t facing outside pressure from competition — the pressure is instead coming from extreme public outrage. And by becoming its own competition, the company still controls both segments of the market. There’s no way to predict what might happen to the prices a year from now, when the intense public scrutiny moves on to a new target.
The move may also stave off competition from outside companies trying to develop a generic version of the drug — potentially only furthering Mylan’s near-monopoly.
Will more generic drugs solve the issue of rising drug prices?
The ballooning cost of medication is hardly a problem confined to EpiPens. Over the past few years, drug prices in the U.S. have soared.
According to data from the International Federation of Health Plans, people in the United States consistently pay more for medication than anywhere else in the world. The most recent report, from 2013, shows that the cancer treatment Gleevec, for example, cost $6,214 per month in the U.S. — but the same drug went for $2,697 in England, $1,141 in Canada, and $919 in New Zealand. Nexium, which treats acid reflux, rang in at $215 in the U.S., compared to $42 in England and just $23 in the Netherlands.
And spending on prescription drugs is expected to continue rising about 7.3 percent per year through 2018.
One issue that contributes to these rising prices is the fact that pharmaceutical companies set their pricing in an incredibly opaque way, particularly if they hold the patent to the drug.
In the case of EpiPens, for example, Mylan insists that price increases were necessary to pay for slight improvements to the technology and for their massive “awareness” campaign about the dangers of severe allergies. When pressed, however, the company won’t specify exactly what has improved about the EpiPen, which seems largely unchanged. The overnight increase of the drug Daraprim by “pharma-bro” Martin Shkreli is another famous example of drug companies’ extreme latitude to price their own products.
However, the pharmaceutical system — and healthy competition from generics — is supposed to hold down the price of drugs to prevent costs from ballooning too far from reality. That’s where generics come in.
The availability of cheaper generic options, in theory, ensures that people will always have the option for an affordable drug when they really need it. This also, in theory, keeps overall costs down: One of the key ways that Obamacare aims to reduce health care costs is by encouraging people to use cheaper generic drugs over the more expensive branded versions.
But even generic drugs are getting more and more expensive. In 2014, Sen. Bernie Sanders (I-VT) and Rep. Elijah Cummings (D-MD) sounded the alarm about the dramatic increase in prices for generic drugs — some of which had risen by more than 1,000 percent.
What’s behind the rising cost of generic drugs? There’s no one right answer.
One issue here in the United States is the temptation for companies to develop “me-too” drugs — which are similar, but not the same, like ibuprofen and aspirin — instead of pursuing generic competition.
In Europe, those drugs are classed together and assigned a “reference price” by insurers. Even if they have slightly different delivery mechanisms or different active ingredients, if they still have the same therapeutic effect, they are classed together. But here in the U.S., there aren’t any regulations on pricing for similar drugs — meaning that companies will focus on developing a different drug that treats the same underlying issue in a different way that they can patent and sell at a brand-name price point.
Some of these innovations are indeed useful, but they can also forestall the development of more affordable generics, and — as they also require research, developing, and marketing — they are still often expensive. As a pertinent example, the EpiPen’s recalled competition, the Auvi-Q, used a different, branded delivery system and was still priced at hundreds of dollars.
Other reasons behind the soaring prices are more insidious. Pharmaceutical companies can angle for broad patents that shut out competition, or use “pay-for-delay” schemes (which the Federal Trade Commission litigates when they’re discovered), in which they pay other companies not to develop generic alternatives.
Plus, in recent years, pharmaceutical companies just keep getting bigger and bigger: by gobbling up sections of businesses, and in some cases by merging entire conglomerates — as with the merger between titans Pfizer and Allergan last year — companies are taking over bigger market shares.
Most of these issues boil down to a common thread: there isn’t a healthy enough generic market here in the United States. Less competition among generics means that their cost increases, and they then provide less of an anchor for branded drug costs. This lack of competition could come from the combination of any number of factors: FDA barriers, lack of incentive for drug companies, lack of regulations, pharmaceutical mergers.
In this light, Mylan’s decision to sell their own generic, while a welcome move in the short term, could lead to a larger problem. If other companies take Mylan’s route, the pool of pharmaceutical companies making a drug only shrinks, and the competition offered by the generic system fails to work.
Generic drugs are certainly an important piece of the puzzle for controlling rising drug costs. But they’re only one piece, and they too depend on a robust market.
And, there’s no indication that, if things remain as they are, drug costs are going to go down any time soon. The outrage over the EpiPen is a microcosm of how these high drug costs effect Americans: As more and more insurance plans incorporate higher out-of-pocket limits, many essential medications become too expensive for people to afford. Even when drugs are covered by insurance, the high costs get passed on through insurance premiums, the healthcare system, and federal insurance programs to the government, and then back to the taxpayers: One way or another, the bill trickles down.