Evaluating Heather Bresch’s accountability to EpiPen consumers… and stockholders… is a matter of value(s).
The recent outrage directed at Mylan Pharmaceuticals over the exponential (more than 400%) price increase of its life-saving EpiPen brought to light a few questions to ponder.
- Is the responsibility of a company’s CEO to its consumers or its shareholders?
Mylan CEO Heather Bresch has attempted to redirect concerns about the price increases. She acknowledges she’s “running a for-profit business” and must recoup investments in EpiPen, then diverts attention to the complexities of healthcare, the insurance system, and how broken they are.
It’s an interesting paradigm that in order to build market share in an arena with little competition (Sanofi voluntarily recalled its epinephrine autoinjector due to miscalibration issues, and Teva Pharmaceutical failed to clear FDA approval) Mylan has invested so greatly, particularly focused on access and awareness. These investments included lobbying congress for regulation that would increase access (and market share) by allowing providers to prescribe epinephrine autoinjectors not only for those already diagnosed with anaphylactic allergies/reactions, but also those who might be “at risk;” grants to schools to provide “stock” supplies of autoinjectors available to any student who might need them; and “good Samaritan” laws extending protection to those who initiate treatment in-good-faith, using autoinjectors. Mylan also launched a very successful awareness campaign, partnering with Sarah Jessica Parker (but who recently severed ties due to the pricing debacle).
Just as Bresch explained Mylan’s inversion (to register the company in the Netherlands to reduce its tax rate) as a business decision (yet requested designation as a U.S. company to block a takeover by Teva), she describes price increases as justified (but while stating “no one’s more frustrated than me” about EpiPen price). Her remarks explain the cost of improvements (like EpiPen’s auto-retracting safety needles), as well as the time and resources “to get out there” and promote awareness surrounding life-saving treatments for anaphylaxis). Her frustration with our broken system is genuine, as she’s careful to point out the $608 retail price does not reflect the $274 net Mylan receives (more on that later); but it also serves to redirect and allocate attention to our healthcare system and all of Pharma.[See our article on The Most Expensive Drugs in the World.]
Justification is also made for compensation of Mylan executives. Ms. Bresch’s total compensation has increased dramatically (more than 670% by some estimations) during the same period EpiPen prices have increased. From her COO days making $2.5 Million, her compensation now exceeds $19 Million. From the Proxy Statement of the Annual Meeting of Shareholders dated June 2016, “ The Mylan Board also believes that the outstanding long-term growth of Mylan — including the exceptional 25.4% and 20.7% total shareholder return (“TSR”) over the past three and five years, respectively, each of which significantly exceeded the S&P 500 Index and S&P 500 Pharmaceutical Index results over those periods — is directly related to the effectiveness and the robustness of our compensation program, as well as the talents of Mylan’s global workforce and the extraordinary vision, commitment, and leadership of Mylan’s senior management team.”
Ms. Bresch has demonstrated great marketing success and proven performance in delivering value to the stakeholders of Mylan. What is her duty to consumers?
Healthcare is a complicated industry with market failure due to agency issues, outcomes not equivocal to utilization, misplaced incentives, and inefficiencies.
- What economic complexities contribute to the success or failure (and all the challenges that ensue) for companies, like Mylan, in the healthcare segment?
Whether it’s oil drilling, textiles, insurance, or healthcare, each segment has its own terrain that must be successfully navigated to reach the desired destination. Some journeys are treacherous and not for the faint-of-heart. What may appear to be a simple and direct route on the map can turn into a dirt path, a parking lot on the expressway, or a dead end.
In an interview, Ms. Bresch sought to explain that the $608 list price for EpiPen garners a $274 net for Mylan. She stressed her company’s “immediate action” to ensure everyone has an EpiPen, increases access by providing financial assistance. When pressed as to why Mylan wouldn’t simply roll back the price, she stated that doing so wouldn’t ensure everyone who needed it would receive it, so they chose to “go around the system” by providing rebates that are the equivalent of cash. This sounds ludicrous, but may not be completely off base.
Patients are often insured through employers. Employers contract with insurance companies and negotiate premiums and benefits. A part of those benefits involve coverage (or not) of prescription drugs. These can be an on-going and substantial cost to the insurance company. This is reflected in the premiums they charge employers to include this benefit and insure the companies’ employees. Employers pass this cost on to their employees in the form of higher copays/deductibles and out-of-pocket expense, or as more of the shared premium. In some cases, employers can negotiate better premiums based on healthier employees (fewer claims and/or participation in wellness initiatives). Likewise, insurers also look to pharmacy benefits managers (PBMs) to help them contain the cost of prescriptions. This can include negotiations between PBM’s and pharmacies as well as drug manufacturers for specific drugs. It’s what determines the formulary for a patient’s insurance plan… and his choices.[See article on Drug Dealers.]
When drug companies like Mylan negotiate specific fees (or percentages) for specific drugs/products, with certain insurances/companies… and PBMs or pharmacies… there are discounts and rebates. Year-to-year, Pharma sets pricing strategies to compensate accordingly. In 2013, Mylan’s volume and price indicated revenues should increase by 29%. However, due to these discounts/rebates, revenues increased only 15%. In 2015, pricing increases indicated revenues should increase 31% but yielded an increase of 0%. As Ms. Bresch discussed in her interview, the only people paying retail are those who come to a pharmacy as self-paying patients without insurance. So in essence, the “immediate action” (to provide increased access through financial aid) by “going around the system” (in the form of rebates equal to cash) is Mylan’s way of extending the same discounts/rebates given to PBMs, directly to patients as well.
Does this mean Heather Bresch is to be commended for her success running a for-profit business and her efforts to ensure everyone has an EpiPen? That brings us to one last question you can explore for yourself.
- Do you know the integrity of the companies in which you invest? What’s in YOUR 401? And who’s managing your funds/portfolio?
Many investors leave the details of their investments to the experts – their wealth managers, financial planners, and some very talented professionals who select and manage the stocks, bonds, and other securities comprising the funds in the 401k/403b they so diligently contribute to each pay period. But how many people really know who is managing their money, or understand how characteristics of a particular market segment pose challenges that will influence the risks and rewards of their investments? What values matter to YOU?
If you invest in the healthcare sector, we can provide valuable insights to inform your decisions.
IN SICKNESS & WEALTH