Mylan and the EpiPen Mess

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.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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