Mylan had an interesting marketing strategy for its treatment for severe allergies (the EpiPen), a device-with-a-drug that the company purchased in 2007 from Dey Laboratories. Here’s how it went. For purposes of Medicaid billing, if the device-with-a-drug was classified as generic, Milan was required to offer the government a 13% discount. If, however, the device-with-a-drug was a brand-name drug, Mylan had to offer the government a 23% discount. So, for purposes of Medicaid sales, EpiPen was generic. However, for everyone else, EpiPen was a brand-name drug. Over a six-year period after MyLan’s acquisition, the price went from $100 to $600, that’s 400%, which lands us near Martin Shkreli and Turing territory.
During a Senate investigation into drug-price increases, EpiPen popped up because of the price increase. Actually, the prices popped up in a survey by the National association of Medicaid Directors on EpiPen price increases. Then Political Pro figured out the “having it both ways” strategy.
Here’s the real story. The drug in the EpiPen, epinephrine, has been a cheap generic for some time. However, Mylan, through Dey, held the exclusive right to sell the drug in its patented auto-injector. So, while the drug was generic, the drug in the EpiPen was not. One understands the classification dilemma. What one does not understand is why the two options? One leans toward the price structure as the explanation.
The Amoral Technician Approach
When companies make these decisions, they are in a legalistic mindset. A lawyer could support a sort of “Who knows?” theory and go right long with the dual price structure. Now, try explaining that to a public that just plays by the rules and a sense of fairness in interpreting and applying those rules.
But, beyond legal and ethical difficulties, let’s look at costs. The EpiPen pricing and discount issues emerged in 2016. Mylan settled the over-billing charges with the federal government for $465 million. Just last week Mylan, without admitting or denying the allegations, settled SEC charges that related to its failure to disclose to investors the possible loss that could come from the classification debate. That was another $30 million. Mylan did nor share the possible losses before settling in October 2016.
Additional Background, the Mylan Culture, and Ms. Bresch and Her Family
Some history on Mylan is helpful:
In 2014, the board of directors approved a compensation plan that would require 16% growth in annual earnings growth. That goal was a challenge because Mylan, at that time, was operating with a product buffet that was 90% generic.
At the time, the dual classification was uncovered EpiPen was generating 10% of Mylan’s revenue and 20% of its profits.
Mylan moved to new headquarters outside Pittsburgh to a building that was partially owned by the board’s leading outside director and chairman of its compensation committee. That director transferred his interest in the building to his partner before Mylan made the purchase.
Mylan paid a writing consultant to work with a clinical doctor on supporting Mylan’s plan to reduce co-pays and deductibles as the means for dealing with high drug prices.
Heather Bresch, the CEO of Mylan, is the daughter of Joe and Gayle Manchin, as in former governor (current senator) and First Lady of West Virginia. Gayle Manchin was director of the National Association of State Boards of Education in 2012 and headed up an initiative to require school to purchase medical devices for life-threatening allergic reactions. The White House gave funding preference to the EpiPen and 11 states passed laws requiring auto-injector epinephrine devices in the school. Mylan had the only such device, and the FDA had denied Teva approval for its similar device. Teva received approval in 2018 — Mylan has a competitor now.
The Barometer has followed Ms. Bresch since she was made COO of Mylan. Here is an excerpt from the Barometer’s text in the 8th edition of her text, “Business Ethics: Cases and Selected Readings.”
When Ms. Bresch was named to the position of COO, the press release indicated that she had received her MBA from West Virginia University. A reporter for the Pittsburgh Post-Gazette discovered when he called to verify Ms. Bresch’s credentials that she had completed only 22 credit hours of the 48 credit hours required for the MBA degree. Provost Gerald E. Lang and business school dean, R. Stephen Sears had awarded Ms. Bresch the degree retroactively. An investigation revealed that Ms. Bresch and others (the original total was 70) may have been given their degrees despite not having completed the necessary courses.
University president Mike Garrison would not denounce the award of the degrees and, because of student protests during graduation (“Garrison Must Resign” written on their hats), was forced to resign. In 2008, a special panel reviewed the University’s degrees and conducted an audit. The panel concluded that some degrees should have been awarded and that others were not justifiably awarded. Ms. Bresch’s degree was one the panel concluded was not awarded properly
Ms. Bresch claimed there was disparity in treatment between her case and that of the other students/graduates (?). Shortly after the MBA controversy, Ms. Bresch was promoted to Mylan’s CEO slot.