Fitch: EpiPen Illustrates Pharma's Pricing Power Peril

NEW YORK & CHICAGO--()--The risk of public pushback to pharmaceutical pricing has grown sharply as more and more direct healthcare costs are shifted from payors to patients, according to Fitch Ratings. The recent media and political attention focused on Mylan's EpiPen price increases, and the company's swift responses Thursday and Monday, underscores these evolving dynamics at play among payors, patients and drugmakers.

While it seems in recent years that pharmacy benefit managers (PBMs) and health insurers have become more vigilant and aggressive in moderating the growth of drug pricing, patients are becoming increasingly sensitive to pharmaceutical pricing as health insurance plans more frequently expose patients to more direct costs. This is most often accomplished through higher deductibles and co-pays. In its 2015 Employer Health Benefits Survey, the Kaiser Family Foundation found that annual, out-of-pocket costs rose by nearly 230% from 2006-2015 for employer-sponsored plans.

Consequently, the risk of pushback from consumers in the public sphere, instead of being only from payors and PBMs during private negotiations, has grown, as well as the risk of associated reputational damage.

Mylan's response on Thursday to expand patient assistance programs addresses the issue of uninsured and underinsured patients bearing a higher proportion of EpiPen's rising price. However, following continued public scrutiny, Mylan announced Monday that it would launch a generic version of EpiPen at a list price of $300 per two-pack, approximately 50% that of the branded product. Mylan's CEO shared recently that the company's "net sales [are] $274" for a two-pack of EpiPen.

Fitch believes Mylan's actions will help support EpiPen sales volumes for the remainder of the 2016 back-to-school selling season, assisting patients who may otherwise choose not to refill their prescriptions while not materially affecting the product's overall profitability. However, the damage to the firm's reputation and to its stock price caused by the negative publicity, albeit muted as it pertains to the company's overall credit quality, may linger for some time.

Presidential election seasons often elevate the tone of the drug pricing debate. Mylan, a manufacturer of predominantly generic pharmaceutical products, more often finds itself on the opposite side of such a debate. The market for generic drugs in the U.S., which comprises nearly 90% of all prescription volume, is highly competitive due the presence of several suppliers of the same product, resulting in significantly lower prices than branded equivalents.

EpiPen, being a branded product and therefore not subject to direct competition, allowed Mylan to raise the price of EpiPen to more than $600 in 2016 from less than $100 (for a two-pack) in 2007. Since last year's back-to-school season, which traditionally represents the peak of EpiPen sales, a new product called Auvi-Q was recalled and the FDA rejected an application submitted by generic drugmaker Teva Pharmaceuticals for a generic version of EpiPen. In response, over the same time period, Mylan raised EpiPen prices twice, each time by 15%.

Notably, despite regular price increases in 2015, Mylan's EpiPen sales were relatively flat, owing to a stronger negotiating position on the part of PBMs and payors due to competition from Auvi-Q and the prospects at the time of a generic alternative from Teva.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Jacob Bostwick, CPA
Director
Corporate Finance, Healthcare
+1 312 368-3169
Fitch Ratings
70 West Madison Street
Chicago, IL
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212 908-9123
33 Whitehall Street
New York, NY 10004
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Jacob Bostwick, CPA
Director
Corporate Finance, Healthcare
+1 312 368-3169
Fitch Ratings
70 West Madison Street
Chicago, IL
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212 908-9123
33 Whitehall Street
New York, NY 10004
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com