It was hard to miss the story of Mylan’s pricing of the EpiPen as it played across the business news cycle for a couple of weeks in late August and early September 2016. Now that the dust has settled a bit, we will offer some perspective and ideas about how this might be used in a principles of marketing class.
The pricing of pharmaceutical drugs has unique challenges including long product development cycles (with most ending in failure), patent protection, sometimes life-saving qualities, and frequently paid for by insurance (for more, see the What’s New? box in Essentials of Marketing 15th edition, chapter 17).
Focusing on maximizing profits, companies can make a lot of money charging a high price for a drug that is on patent (or in this case has no adequate substitutes) and saves lives (that tends to reduce price sensitivity). On the other hand, high prices can bring in new competitors, or in this case attracts negative publicity and possibly increased regulation.
We have pulled together a few articles that you might read to understand this topic better. A Bloomberg Businessweek article, “The EpiPen Drama Shows What’s Wrong With How Drugs Are Priced” (September 1, 2016) provides a good overview of the issues and history. Among other things, it notes that when Mylan acquired marketing rights for EpiPen in 2007, a pair of the auto-injectors cost around $100. They now cost over $600. That is a big margin on a product estimated to cost about $20-30 each to produce. Most of the cost is for the auto-injection system as epinephrine “drug” that is delivered costs less than a dollar.
Another interesting teaching element of this case is how the profits are distributed along the long channel of distribution for the drug: Mylan gets $274, while “…your insurer keeps $249. The pharmacy benefits manager that negotiates between Mylan and your insurer gets $40. Your local pharmacist keeps $27. The wholesaler gets $10.” (NBC News, September 6, 2016). This raises questions about the efficiency and value provided by this channel of distribution. This suggests an opportunity to discuss EpiPen when you cover Place.
There is also an opportunity to explore some of Mylan’s promotion and targeting practices for EpiPen (see Bloomberg Businessweek, “How Marketing Turned the EpiPen Into a Billion-Dollar Business,” September 23, 2015). The company aggressively built the EpiPen brand name, started selling the delivery devices only in two-packs, and sought to have them stocked in schools and public places (including every room in Disney World hotels). With expiration dates, most of those EpiPens will go unused — and have to be replaced. What are the ethics here? And why do they cost less than $100 in Canada? The certainly raise issues that could be used when discussing Product as well as segmentation and targeting.
This case primarily deals with ethics and marketing strategy. It covers more than pricing — as profits from successful drugs are used to fund R&D for new drugs. Yet when some families have to decide between buying EpiPens and a month’s worth of groceries, important questions are raised. These are questions our students should wrestle with. We think that the case provides an opportunity to discuss a range of marketing issues in your class.