Creating markets & marketing strategies
October 15, 2016

Welcome to BioMarketing Insight's monthly newsletter.

Last month I covered "Five (5) Must-Dos That Create Success in the (Connected) Wearable Health Device Market."  If you missed last month's article, click here to read it. This month's newsletter will cover, The Real Story Behind the Price of the EpiPen.

Read on to learn more about this topic and other current news. The next newsletter will be published on November 15th.

We encourage you to share this newsletter with your colleagues by using the social media icons at the top, or by simply forwarding this newsletter or use the link at the bottom of this newsletter. Should you or your colleagues want to join my mailing list, click on the icon below or scan the QR code.

Please email me, Regina Au, if you have questions, comments or suggestions.
Table of ContentT2TableContent
Developing a Product? Commercializing a Product?
To Cloud Compute, or Not to Cloud Compute?
Tri-State Trek for ALS
The Real Story Behind the Price of the EpiPen
4) Goodwill from Mylan & Response to Public
Closing Thoughts
Previous Newsletters

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Developing a Product? T2Product
Commercializing a Product?

If you are developing a product and have not conducted the business due diligence to determine commercial viability or success, contact me for an appointment. For successful commercial adoption of your product or looking to grow your business, contact me for an appointment.

For more information on our services, click on the links below:

Save the Date: October 29th, 2016 anchor3 
CABA Workshop Series for Biomedical Innovators
I am pleased to announce that I will be leading a workshop entitled " Business Decisions Made in Product Development" at Northeastern University. The purpose of this workshop is to understand why incorporating the business aspects in concept or research and discovery will de-risk the product development process for a successful commercial product.

This is a four part series workshop starting October 22, 2016:
Workshop 1: Interface of FDA Regulatory Framework & Patent Law (10/22) 
Workshop 2: Business Decisions Made in Product Development (10/29) 
Workshop 3: How to Commercialize Technologies (11/12) 
Workshop 4: Regulatory Requirements and Processes in Drug Discovery, Development and Approval (11/19) 
For more information on these workshops, click here.  

To Cloud Compute, or Not to Cloud Compute?T2CloudCompute
I am pleased to announce that my article "To Cloud Compute, or Not to Cloud Compute?" on the Pros and Cons of using Cloud Computing and Storage has been published in  Innovations in Pharmaceutical Technology (IPT) Journal, July 2016, pages 32-35 © Samedan Ltd. To read an electronic version, click here.
14th Annual Tri - State Trek for T2ALS
amyotrophic lateral sclerosis (ALS)

The Tri-State Trek is a 3-day bike ride fund raising event for amyotrophic lateral sclerosis (ALS or Lou Gehrig's Disease) that took place June 24- 26, 2016.  This event entailed a a 270 mile bike ride through 3 states (MA, CT and NY), starting at Boston College and finishing in Greenwich, CT.  There were 454 participants, about half of them riders and the other half crew members there to support the riders. Click   here for my Tri-State Trek fundraising page.

This is my second year volunteering as a crew member. I am not an avid rider, so I decided to expand my support of this worthy cause and become a donor/fundraiser. I normally wouldn't post a fundraiser in this newsletter, but since we're all about life sciences here and I participated, I decided to go off-script and hope that you are not offended.
  If you believe in this cause and would like to donate (any amount is appreciated), please click on my fundraising page   here. This year's fundraiser goes until October 31st. I would like to thank you in advance for your donation. For more information on ALS, click here.

Many scientist from academic institutions and pharma/biotech companies such as Sanofi-Aventis, Biogen and ALSTDI (nonprofit company raising money for research), have been doing research for a long time (14th annual Tri-State Trek) to develop a treatment/cure for ALS (Lou Gehrig's Disease), but as of this date, there is no long term treatment for ALS. The only drug on the market, Rilutek®, increases the survival rate by only 2-3 months. This neuro-degenerative disease attacks certain cells in the brain and spinal cord needed to keep our muscles moving and affects mostly men. The average survival rate from the first symptom of ALS is 2 - 5 years.

The Real Story Behind the Price of the EpiPen Anchor4

Mylan has been in the hot seat for their pricing on EpiPen. Congress has made it a mission to put more pressure on the company when a number of senators from the Senate Finance Committee sent a letter to the Center for Medicare and Medicaid Services (CMS) Inspector General inquiring whether or not Mylan manipulated the Medicaid Drug Rebate Program ( MDRP) by classifying EpiPen as a generic drug, when it is in fact not.

Let's address the MDRP issue. The Medicaid Rebate Program requires all pharmaceutical companies to give rebates back to the government. Depending on whether the drug is classified as a generic or a name brand, the rebate for generic is 13% versus name brand of 23.1% .

In the 4th quarter of 1997, before Mylan bought EpiPen in 2007, the EpiPen was classified as a generic.   According to this source, in 2009, Mylan paid a $124 million fine for misclassifying its drugs and under-paying rebates but never stated specifically it was the EpiPen since Mylan has about 20 other products.  It is the responsibility of the manufacturer to maintain accurate information. Fast forward to 2016, Mylan has not been fined for erroneous reporting but have now been questioned due to the EpiPen pricing debacle.

Nina Devlin, a Mylan spokeswoman according to Yahoo finance, said in an e-mail that EpiPen's classification as non-innovator, or generic, "is consistent with longstanding written guidance from the federal government." EpiPen was classified as a non-innovator drug before Mylan acquired the product, she said.

"Mylan simply continued to classify the product the same way it had been classified before Mylan acquired the product," Devlin said in her e-mail.

In regards to the EpiPen pricing, there has been a lot of misinformation portraying Mylan as the bad wolf overcharging customers. When people have large out of pocket expenses, they don't want to hear the reasons or rationale behind it. All they want to know is why they have to pay outrageous prices and that someone is to blame. It's human nature.

Here's an overview on how the system works and let's break it down:
1) Retail price achor5
The $608/2-pack for EpiPen is not the price the Mylan charges nor receives. If you are familiar with the supply chain process, Mylan is at the beginning of the supply chain and then it goes through four (4) middlemen, who put their charges on top of what Mylan charges to equal the retail price of $608. Since the majority of the people have insurance, almost no one pays the retail price until now.

Why? Insurance companies aren't willing to pay for medications or professional services and are passing the cost on to the individuals or employers, who are then passing more and more cost on to the employees through higher premiums, deductibles, co-pays and co-insurances, including not covering a number of medications. This is the reason most drug coverage plans have 3 tiers: Tier 1 is for generics, Tier 2 is for brand names that are on formulary and Tier 3 is for brand names not on formulary but must have a doctor's letter explaining why this drug is medically necessary to be covered.

There is no guarantee that the drug will be approved and in many cases requests have been denied and the patient has to pay full retail price for the drug, which is generally expensive compared to the low co-pays that most people are used to. If a patient is fortunate to get it covered, it's a Tier 3 coverage, and the copay can be up to $120 per month depending on the plan. This is how insurance companies try to make patients switch to the generic or use an alternative brand name that is on their formulary.

If the patient has a high deductible, the patient will have to meet the deductible before insurance will cover the drug with a co-pay. When a patient has to pay a Tier 3 copay or retail price, if they have to meet their deductible first, people will blame the drug company for high prices. Today, it's the insurance companies that control who has access to drugs and how much people will pay.

In order for a drug to be on formulary or Tier 2, the insurance companies will negotiate the price which is basically a discount. If the drug company doesn't agree, then the drug is not covered or under special circumstances, it's a Tier 3 coverage. But even if the drug is on formulary, the patient depending on the plan, may have to meet the deductible first before it is covered.

The MDRP does the same type of negotiation but in the form of a rebate. Therefore, the $608/2-pack that everyone is quoting is not what the drug company is charging.
2) Economics of the EpiPen: Supply Chain anchor6
There are four (4) middlemen:
1) Pharmacy Benefit Manger
2) Insurance companies
3) Wholesalers
4) Pharmacy Retailers
These middlemen are involved in getting the drug from the manufacturer to the patient. Each adds on a fee, call it handling and shipping and insurance processing fee, but they need to be paid. According to Mylan's CEO, Health Bresch, the total fee from the middlemen for EpiPen is 55% of the $608 suggested retail price.  
Brian Sullivan from CNBC interviewed Heather Bresch regarding the high price of EpiPen and was pretty harsh.  Heather broke down the numbers: Mylan receives $274/2-pack net sales (45%) plus the 4 middlemen adds on $334/2-pack (55%) totaling the retail price of $608/2-pack, see table below. But if one were to check online prices at various pharmacies, the prices are even more and varies from store to store.

Mylan only gets $137/pen and then one has to subtract manufacturing cost, distribution, R&D cost for enhancements, and education (sales and marketing) cost in building awareness regarding anaphylactic allergies.   Subtract all these costs and the company is not making a lot of money on the EpiPen contrary to what everyone believes.
3) Cost of EpiPen anchor7
Politicians have argued that the high cost of the EpiPen is outrageous, and everyone focuses only on the cost of the drug epinephrine, which is inexpensive. No one mentioned the cost of the injector and how much it costs to manufacture the product or the R&D cost to improve the product.

What makes Mylan's auto-injection device so special is the ease that it automatically administers the correct dose (too much or too little can harm the patient) without delay.   The instructions are right on the side, and even if you don't read them, it's pretty easy to figure out. The cheaper method is to draw the drug out with a syringe from the vial and then administer the drug in the correct spot usually by a trained person, which takes more time when seconds count in a life and death situation.

The device is technically difficult to develop as demonstrated when Sanofi's Auvi-Q device was taken off the market because the device could give potentially improper dosage.  Teva tried to bring out a generic EpiPen, but the FDA had concerns about the product. But the only focus of these two points was that Mylan had no competition and raised the price.
The second point that people are unaware of is that epinephrine is inherently unstable. Research shows that it will degrade pretty quickly over time and it's recommended that EpiPen be replaced every year.  Just as a patient has to replace the EpiPen after a year, Mylan can't sell the product if the date of sale is too close to the expiration date. Which means they have to discard it equating to lost revenue.
4) Goodwill from Mylan & Response to Public anchor8
Between 1% and 2% of the population can develop an anaphylaxis reaction, where the airways you need to breathe swell and close, the EpiPen counter acts it.  It's a problem especially in children, when you don't know who may have an anaphylaxis reaction until it happens or a child who has a peanut allergy may not have an EpiPen available.
Mylan has tried to build awareness with the schools across the country and have donated 700,000 free EpiPens to the schools called the EpiPen4Schools® program. Brian Sullivan didn't seem impressed by this, nor was this interview highly publicized. Where do people think the money came from for the 700,000 EpiPens Mylan donated? No one thanked Mylan for it or even acknowledged it. Yet Mylan is being portrayed as a company just out to make money.
Mylan implemented a cost-savings program in response to public outcry in order for patients to get access to the product at a reasonable cost. The program is a discount card up to $300, the patient only pays $300 for a 2 pack EpiPen ($150 per pen) and the discount applies up to six (6) EpiPen 2-packs. 
Mylan also came out with a generic EpiPen 2-pack with a list price of $300. Mylan intends to initiate a direct ship program in conjunction with the launch of the generic at the $300 generic list price. 

Closing ThoughtsT2ClosingThoughts

This pricing issue has been the topic of discussion for everyone, especially after the pricing scandal with Turig Pharmaceutical (this was pure greed) and questionable pricing models with Valeant Pharmaceuticals. Mylan got the brunt of it because this incident just added fuel to the fire for politicians to take action since this is an election year.
Someone needs to be blamed and the pharmaceutical industry is an easy target. Having the drug company lower their price isn't going to make the drug cheaper when there is no control over the middlemen's cost which accounted for 55% in the retail price of EpiPen and patients need to meet higher deductible, co-pays and premiums by insurance companies.  
The healthcare system was originally set up so that those who were employed had insurance coverage such that the patient only paid small co-pays. No one was expected to ever pay retail price unless you didn't have insurance which as that time, majority of the people had insurance. But even for those who didn't have insurance, drug companies had special programs for patients to get access to the drug or had sales representatives give samples to doctors, who would then give the samples to patients who couldn't afford the drug. But congress thought samples influenced physicians prescribing habits for more costly medications and now most companies don't give samples to doctors.
Today, there are more people unemployed, self-employed, and start-ups which is why Obamacare (Health Insurance Exchange) was created to offer "affordable insurance," for everyone in terms of premiums. The government subsidized the Exchange for one year and the state is suppose to subsidize it thereafter. Some states are refusing to subsidized the exchange and the insurance companies are pushing back. In 2016, Blue Cross Blue Shield increased premiums up to 51% in some states .  In addition, insurance companies are still increasing deductibles, co-pays and co-insurances and decreasing the number of drugs being covered.
The healthcare system is broken in terms of the whole pricing system (supply chain) including Medicaid and the reimbursement system by insurance companies, who are passing more and more the cost on to the patients.   I haven't heard anyone complaining about the insurance companies the way they do about the drug companies.
Want to know how to navigate through this mine field in getting your product to market successfully? Email me or call be at 781-935-1462 for an appointment.