Updated Aug. 29, 2016:

The makers of the EpiPEN, under intense scrutiny for the increased price of its life-saving epinephrine auto-injector, announced Monday that it would release a generic version of the EpiPEN, which will cost about half of the branded version, now priced at $608 per two injectors.

It’s an unusual move considering that the company’s generic version will in effect be competing against its brand version, but observers say that it’s a smart business decision, not least because it helps drug maker Mylan quell the downward slide in stocks, but also because it potentially ends up paying less to middle men who have a stake in the list price of the branded version, putting Mylan in a better financial position.

The move sheds light on how and why drugmakers end up charging outrageous prices for drugs.  Former FDA Commissioner Dr. Scott Gottlieb described how a long line of intermediaries between the drug maker and the patient claim a stake in the listed price of a drug.

The reason why (the system) exists is because of a court ruling that said that if the drug makers provide a discount to any one entity in the channel — so if they provided a big discount to a PBM (Pharmacy Benefit Manager) or a health insurance company, and this is a 1990 court ruling, then they had to provide the same discount to the pharmacies, to everyone in the channel. So, therefore, they moved away from providing discounts and went to this rebate system, which is based on some measure of the total sales of drugs. They had to go to this convoluted system or else they would’ve been forced to provide the same discounts to everyone in the channel, because you would think, if you’re thinking in terms of economics, money today is worth more than money tomorrow, so if you’re an insurance company or a PBM, you’d rather get a discount than a rebate, and that’s probably the case but for the fact that then the drug company would have to provide it to everyone and then the rebates would be much lower.”

Gottlieb said, “The scheme will end when drug makers realize that the current selling model is no longer in their economic interest, and when all of the system’s players realize that they’re losing their compact with patients.”

But, he warned, efforts by policymakers to come up with a regulatory or legislative solution is unlikely to lead to a better outcome.

“The system will game around whatever regulatory rituals Congress divines.” 

Original article, Aug. 25, 2016:

The EpiPEN outrage has really taken the public consciousness by storm, with the massive increase — more than 600 percent — in the price of the epinephrine auto-injector. But the question of how its manufacturer, Mylan drug company, came to be public enemy #1 in the space of days is reverberating with little reflection on what circumstances triggered the soaring price hike.

The EpiPEN was considered affordable for the non-insured mainstream when it was first introduced in 2007 at $57 for a two-pack . It has gone up in price to more than $600 per two-pack in the last few months. At the same time, Mylan CEO Heather Bresch has seen her annual salary rise $16 million in the last nine years.

This caused presidential candidate Hillary Clinton to exclaim that the company should be investigated for price gouging.

The product is off-patent, meaning that a generic can make its way to the market, though one hasn’t. TPOH has already brought to light why such failures occur in the generic market, and former Assistant FDA Commissioner Peter Pitts repeated that in a recent discussion on Bloomberg regarding the failure to produce a generic alternative to the EpiPEN.

“When you bring high-quality generics into the marketplace, the prices plummet. So I think it’s opportunity for the FDA to start prioritizing these first-to-market generics.”

While Pitts says “the FDA ban bring competition into the marketplace,” in actuality, Washington has been skewering the free market for years, and this is just one of the unwelcome outcomes, though blame is widely placed at the door of Mylan.

In truth, Mylan spent millions lobbying Congress, which resulted in the 2013 School Access to Emergency Epinephrine Act, which made it law for public schools to stock the drug, which works as a fast-acting allergy inhibitor. EpiPEN, which can be life-saving in some circumstances, has little competition.

Mylan lobbied for its product to be put in all public schools. Congress passed the bill. Mylan raised its price — a typical supply-demand reaction after a typical Washington swat at open competition.

The schools bill was co-sponsored by Senator Amy Klobuchar, a Minnesota Democrat, who now wants to investigate Mylan.

Bresch argues Mylan spent hundreds of millions of dollars researching the drug and putting Mylan on the market — costs associated with the research itself,  compliance with Food and Drug Administration rules, and the propping up of the insurance industry as required by Congress’ Affordable Care Act. Reportedly, for every $608 spent on the EpiPen, Mylan gets $270 while the insurer gets $334. Who’s to blame for the price spike now?

As Kevin Williamson notes in a scathing National Review piece to ask who’s really at fault for this shake-up in simple supply-demand economics:

You know how many treatments for anaphylaxis have been produced by politicians over the course of human history? Zero. Congress’s sole contribution to the existence of a handy device that keeps your children from dying from bee stings is the fact that Mylan CEO Heather Bresch is the daughter of a Democratic senator, Joe Manchin of West Virginia.

Yes, Mylan raised the price of an EpiPen. You know who else raised the price on EpiPens? Bernie Sanders and Hillary Clinton, that’s who, and Joe Manchin, too. You thought Obamacare meant free goodies for you paid for by wicked rich people and evil corporations, right, Sunshine? Remember that medical-device tax? An EpiPen is a medical device. You think the politicians don’t have any self-interest there?

Thought experiment: Your child is dying. Who do you go to for help? Sanders? Clinton? Or one of the research scientists who made the EpiPen possible?

Bresch agrees that health care laws have put an additional burden on the consumer.

“The patient is paying twice,” Bresch told CNBC. “They’re paying full retail price at the counter, and they’re paying higher premiums on their insurance. It was never intended that a consumer, that the patients would be paying list price, never. The system wasn’t built for that.”

Ironically, Bresch says she wants to sit down with Congress and sort out the bad mojo over the price increase as well as determine how close Congress’ relationship to biotech should be. Her solution may just be another version of the problem.

“It’s a complicated system and to get in and understand it takes time, and you know, many people don’t have the time to take the time. Our Congress, our leaders in this country need to get around the table to fix this. … I think we need leadership in this country to make the tough changes.”