- Area: Business
- Program: Economics
- Type of Writing: Essay (Analytical, Interpretive)
- Course Level: 2000
- English Speaking Nativeness: Native
- Paper ID: B.E.E.2.N.5
Economics of the Epipen Issue
Can you imagine what it might feel like to be forced to debate over whether to spend your last few dollars on rent or buying a prescription for your kid that could be life or death? Many poor families and holders of high deductible health insurance plans have been forced to make this decision. Currently there are estimates up to 15 million people who are unfortunate enough to suffer with a food allergy (Miller). Of these, there are 1 in 13 children that are at risk from the life-threatening anaphylaxis (Miller). The Epipen is an epinephrine injection device, manufactured by Pfizer and marketed by the Mylan company, which is used to carry the drug epinephrine for injection into the body with precise dosages at a moment’s notice. Despite the Epipen costing less than $100 in 2007, it has now been driven to over $600 for a mandated two pack in recent years (Johnson). But how has that been allowed by government agencies and the public? With the inelastic tendency of a life or death drug, Mylan having near control over the entire market, and considering regulation we can answer this question as well as discuss possible solutions.
The Cost of Inelasticity
How much of your money would you spend to stay alive? Like many others, the value one would place on their own life far exceeds what they have in their own bank. Besides, if one is no longer living then money can no longer give them utility. The price-elasticity of demand is defined by Roger LeRoy Miller in Economic Today the Micro View as “The responsiveness of the quantity demanded of a commodity to changes in its price” (Miller). With there being virtually no responsiveness to demand with changes in price of a non-substitutable lifesaving good, the Epipen is a good example of a near perfectly inelastic good. Due to the lack of substitutes and Mylan owning 90 percent of the market for epinephrine injection devices (Mole), Mylan is able to raise its prices without much change in demand.
Mylan’s Monopolistic Power Over the Epipen
Mylan hasn’t always been the only seller of an epinephrine auto-injector. Auvi-Q, a epinephrine auto-injector marketed by a company called Sanofi, was taken off the market in 2015 due to its failure to deliver the correct dosages (Johnson). In 2009 and 2011 respectively, two other companies, Teva and Sandoz attempted to get approval from the Abbreviated New Drug Application process for a direct generic, but both were unsuccessful at getting passed the Food and Drug Administration (FDA) (Carrier). The only company to compete against Mylan today is a company called Impax. Imapax, who acquired rights in March 2015, markets an epinephrine auto-injector called Adrenaclick. However, because Impax has a deficiency in their automated process and don’t adequately meet customer demand, they only hold a small percentage of the market share for the product (Carrier).
According to Roger LeRoy Miller, a Monopolist is defined as “The single supplier of a good or service for which there is no close substitute.” (Miller). Despite Mylan possessing monopolistic power, why isn’t their more competition entering the market to combat these high prices that Mylan is demanding? The key for a monopolist to remain in power is that there must exist barriers to enter a market. The reason why Mylan is able to keep its power is because of these barriers to entry. One of Mylan’s barriers to entry has to do with economies of scale. In 2013, “Congress passed the School Access to Emergency Epinephrine Act. Under this law, the Secretary of Health and Human Services [was] authorized to give preferential funding to states with schools that maintain an emergency supply of epinephrine for students” (Carrier). As a result, Mylan lobbied legislature to establish Epipen as a necessity within public schools (Carrier). The preferential funding that the schools received from the Secretary of Health and Human Services to use for the Epipen gave Mylan an advantage that competitors didn’t have. Another barrier of entry that protects Mylan from competition is its patent that will last through 2025 (Keshavan). This patent allows Mylan to exclude others from making or selling like products.
There are two different kinds of government industry regulations. The first is social regulations which apply to all firms and are used to create “a better quality of life through improved products, a less polluted environment, and better working conditions” (Miller). The second kind of regulations are called economic regulations. Economic regulations are “aimed at controlling prices in industries considered to be natural monopolies” as well as “to influence the characteristics of products or processes of firms in a variety of industries without inherently monopolistic features” (Miller). Despite the good aim of social and economic regulations, both have allowed for Mylan to expand its monopolistic power to what it is today.
According to engineer Roland Krevitt and metallurgist Bod Wallace, the price to manufacture epinephrine auto-injectors, such as the Epipen double pack, only costs around $8.02 (Seipel). What keeps competitors away from entering the market isn’t the price of manufacturing, but rather the burden that social regulations put on competitors. The FDA, who are responsible for regulating the safety of pharmaceutical products, have made it near impossible for other firms to join the market who not only have to find a way to by-pass Mylan’s patent laws, but also have to get through stringent safety regulations and pharmaceutical substitute issues (Newman). The problem with the FDA is that they only regulate safety as opposed to assisting the economy.
One solution to combat Mylan’s hiked prices, as well as to solve future drastic increases in drug prices, would be to work on amending the FDA. If the FDA had a more economic objective, they could work more toward things like expediting approval of generic drugs that would impose competition on monopolistic price increases (Herper). Another suggestion that Mylan turns their head to is in the direction of the health insurance industry. Obamacare has caused more people to purchase high-deductible insurance plans due to an increase in monthly premiums. “About 24% of workers in employer-sponsored plans were enrolled in a high-deductible plan linked to a health savings account in 2015, compared with 20% in 2014 and just 4% in 2006” (Cleveland). Even though tackling the issue of high deductible insurance plans won’t lower the cost of the Epipen, it would provide a temporary solution by allowing the public access to the auto-injector without having to pay staggering out of pocket costs.
Carrier, Michael A., and Carl J. Minniti III. “The Untold EpiPen Story: How Mylan Hiked Prices by Blocking Rivals” Cornell Law Review, 21 Sept. 2016: n.p. Web. 28 Apr. 2017 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2841445/>.
Cleveland, Margot. “Guess What’s Really Behind The EpiPen Price Spike” The Federalist, 2 Sept. 2016: n.p. Web. 28 Apr. 2017. <http://thefederalist.com/2016/09/02/guess-whats-really-behind-epipen-price-spike/>.
“Facts and Statistics” Food Allergy Research & Education, Inc., n.p. Web. 28 Apr. 2017. <https://www.foodallergy.org/facts-and-stats/>.
Herper, Matthew. “Mad About Epipen? Here Are Some Ideas To Actually Fix America’s Drug Pricing Mess” Forbes, 26 Aug. 2016: n.p. Web. 28 Apr. 2017. <https://www.forbes.com/sites/matthewherper/2016/08/26/mad-about-epipen-here-are-some-ideas-to-actually-fix-americas-drug-pricing-mess/#68e4e4582e38/>.
Johnson, Carolyn Y., and Catherine Ho. “How Mylan, the maker of EpiPen, became a virtual monopoly” The Washington Post, 25 Aug. 2016: n.p. Web. 28 Apr. 2017. <https://www.washingtonpost.com/business/economy/2016/08/25/7f83728a-6aee-11e6-ba32-5a4bf5aad4fa_story.html?utm_term=.878382bdc8f8/>.
Keshavan, Meghana. “5 reasons why no one has built a better EpiPen” Stat, 9 Sept. 2016: n.p. Web. 28 Apr. 2017. <https://www.statnews.com/2016/09/09/epipen-lack-of-innovation/>.
Miller, Roger LeRoy. Economics Today: The Micro View. 18th ed., Pearson, 2015.
Mole, Beth. “EpiPen maker CEO to seething lawmakers: We’re doing the world a favor” Ars Technica, 22 Sept. 2016: n.p. Web. 28 Apr. 2017. <https://arstechnica.com/science/2016/09/epipen-maker-ceo-to-seething-lawmakers-were-doing-the-world-a-favor/>.
Newman, Jonathan. “The Lack of EpiPen Competitors is the FDA’s Fault” Mises Wire, 24 Aug. 2016: n.p. Web. 28 Apr. 2017. <https://mises.org/blog/lack-epipen-competitors-fdas-fault/>.
Seipel, Tracy. “EpiPen outrage: Silicon Valley engineers figure real cost to make lifesaving auto-injector two-pack — about $8” The Mercury News, 1 Oct. 2016: n.p. Web. 28 Apr. 2017.<http://www.mercurynews.com/2016/10/01/epipen-outrage-silicon-valley-engineers-figure-true-cost-to-make-lifesaving-auto-injector-about-10/>.