Innovating Around Pharma Price Hikes
For years, companies have been taking advantage of the complexities in healthcare by increasing prices to compensate for drops in demand on their older drugs.
In most industries, when a manufacturer hikes prices year over year, eventually the market finds a way to innovate in order to price that manufacturer out. As we have seen, this is generally not the case in healthcare because of the complexities of payment structures and the fact that most consumers do not directly bear the cost of care.
In fact, one Wall Street Journal study found that,
“Across 30 top-selling drugs sold by pharmacies, U.S. revenue growth has far outpaced demand in the past five years […] Revenue growth averaged 61%, three times the increase in prescriptions.”
As high deductible plans become more prevalent, however, consumers are starting to notice, resulting in uproars against firms that have price-hiking policies.
Most recently, Mylan has been receiving negative press for increasing the price of its life-saving EpiPen, which now costs $608 (before rebates) for a pack of two. As many companies before Mylan have done, executives defend the price by saying they net “just $274 [of the $608 list price] per EpiPen 2-Pak, after rebates to pharmacy benefits managers and cuts taken by others in the chain, such as distributors and pharmacies.”
Typically, companies will also justify these price hikes by saying they fuel further research and development that ultimately improves patient care. Unfortunately, that cannot be said about the EpiPen, which has a number of design flaws that have not been rectified and lead to over 15,000 unintentional injections a year, according to one study.
While it is easy to get upset about these price increases, the market has started to react faster to correct these issues. When Martin Shkreli hiked the price of Daraprim from $13.50 to $750, Imprimis, a San Diego-based compounder, offered a generic version for just $1.
This trend seems to be continuing with EpiPen. Not only has Mylan released a generic version of its own drug for half the price of the branded version, but there are also generics in the pipeline from competitors such as Teva and Sanofi.
What is far more interesting than the commercial response to these price-hikes, is the response from patients and caregivers. In King County, Washington, first responders are now carrying, “Epi Kits that cost less than $20 per kit.”
Beyond the low cost of the kits themselves, which include “two vials of epinephrine, syringes, alcohol wipes, a quality assurance card, security tape and a just-in-time training card, which reinforces EMTs’ classroom instruction,” the refill costs for these packs are also extremely low at under $6. The overall result of this new program is savings of over $150,000.
Unexpectedly, this public innovation can give a playbook for potential entrepreneurs and investors to look for opportunities to enter the market using similar product combinations and increase competition at a fairly competitive — yet profitable — price point.
If King County can create kits for less than $20, then surely an entrepreneur can design an improved delivery system for epinephrine that not only costs less than $608 but also has far less design flaws than Mylan’s EpiPen.
Perhaps the moral of the story, at least with regards to the controversy around EpiPens, is that pricing regulation may not be the only solution to rising costs. In some cases, rising costs could foster collaboration as a means of pushing clinical innovation.
If first responders in King County could efficiently educate their peers nationwide about Epi Kits, then the swift market response would potentially force Mylan to reduce prices at a much faster rate than still-pricey generics from Mylan’s competitors.