EpiPen Pricing Custom Case Solution & Analysis

Evidence Brief: EpiPen Pricing Analysis

1. Financial Metrics

• The list price for a two-pack of EpiPen increased from 103.50 dollars in 2009 to 608.61 dollars in 2016, representing a 488 percent increase (Exhibit 1).
• Mylan revenue from the EpiPen product line grew from approximately 200 million dollars in 2007 to over 1 billion dollars by 2015 (Paragraph 4).
• Profit margins for the device were estimated at 55 percent after accounting for rebates and discounts (Exhibit 3).
• Spending on marketing and awareness campaigns increased by 70 percent between 2011 and 2014 to drive school-based demand (Paragraph 8).

2. Operational Facts

• Mylan acquired the rights to EpiPen from Merck KGaA in 2007 (Paragraph 2).
• The product maintains a 90 percent market share in the epinephrine auto-injector category (Paragraph 12).
• The delivery mechanism is protected by patents that prevent competitors from easily replicating the one-handed use design (Paragraph 15).
• Manufacturing is outsourced to a single primary facility, creating a concentrated supply chain (Paragraph 18).

3. Stakeholder Positions

• Heather Bresch, CEO of Mylan: Maintains that the price reflects the value of the life-saving technology and the costs of the healthcare system (Paragraph 22).
• US Congress: Members of the House Oversight Committee have initiated investigations into price gouging (Paragraph 25).
• Pharmacy Benefit Managers (PBMs): Claim high list prices are necessary to provide the rebates required by insurers (Paragraph 28).
• Patient Advocacy Groups: Express outrage over high out-of-pocket costs for families with high-deductible health plans (Paragraph 30).

4. Information Gaps

• The exact cost of goods sold (COGS) for the plastic components and the epinephrine dose is not disclosed.
• Specific rebate percentages paid to individual PBMs are treated as proprietary trade secrets.
• The internal research and development spend specifically allocated to the 2009-2016 period is unclear.

Strategic Analysis

1. Core Strategic Question

• How can Mylan preserve its dominant market position and profitability while mitigating a catastrophic loss of its social license to operate?
• How should the firm respond to the collision between aggressive value-based pricing and the public perception of healthcare as a fundamental right?

2. Structural Analysis

The competitive environment is defined by high barriers to entry due to the delivery device patents. While epinephrine is a generic drug, the auto-injector is a proprietary technology. Buyer power has shifted; historically, insurers paid the bulk of the cost, but the rise of high-deductible plans has exposed consumers directly to the list price. This exposure transformed a business-to-business pricing strategy into a public relations crisis. Rivalry is low due to the 2015 recall of Sanofi Auvi-Q, leaving Mylan with a functional monopoly.

3. Strategic Options

4. Preliminary Recommendation

Mylan must launch an authorized generic immediately. This allows the firm to maintain the high-list-price branded product for the PBM-driven commercial market while providing a lower-cost alternative for patients with high deductibles. This dual-brand strategy preserves the margin structure where possible while providing a political shield against accusations of price gouging.

Operations and Implementation Plan

1. Critical Path

• Month 1: Finalize regulatory labeling for the authorized generic to ensure identicality to the branded version.
• Month 1: Notify wholesalers and retail pharmacy chains of the new National Drug Code (NDC).
• Month 2: Bifurcate the supply chain to manage two distinct stock-keeping units (SKUs) from the same manufacturing line.
• Month 3: Launch a national communication campaign targeting pharmacists to ensure they understand the generic is substitutable.

2. Key Constraints

• PBM Contracts: Existing agreements often mandate specific rebates for the branded product; introducing a generic may trigger penalty clauses.
• Inventory Management: Pharmacies may be reluctant to carry two versions of a product that has a limited shelf life, leading to potential waste.

3. Risk-Adjusted Implementation Strategy

The transition will focus on the 300 dollar generic as the primary vehicle for all high-deductible patient interactions. To mitigate execution risk, Mylan will utilize its existing subsidiary, Matrix, to distribute the generic. This creates a functional separation between the branded and generic sales teams. Contingency plans include a 24-hour hotline for pharmacists to resolve insurance rejection codes at the point of sale, preventing patient abandonment during the first 90 days of the launch.

Executive Review and BLUF

1. BLUF

Mylan must execute a dual-brand strategy by launching an authorized generic at 300 dollars within 30 days. The current pricing model is politically unsustainable and threatens the long-term regulatory environment for the entire pharmaceutical industry. By offering a lower-cost alternative under a different label, the firm can satisfy public demand for affordability while protecting the rebate structures that ensure formulary access with major insurers. Failure to act will result in Congressional price caps or an accelerated FDA approval for Teva generic version. Speed is the priority to neutralize the current media cycle. VERDICT: APPROVED FOR LEADERSHIP REVIEW.

2. Dangerous Assumption

The analysis assumes that PBMs will allow the generic to be placed on formularies without demanding the same high rebates they receive for the branded version. If PBMs refuse to list the generic because it offers lower rebate dollars, the strategy will fail to reach the intended patients, leaving the pricing crisis unresolved.

3. Unaddressed Risks

• Political Retaliation: The 300 dollar price point may still be viewed as arbitrary and excessive by Congress, leading to a broader investigation into Mylan tax inversion history.
• Supply Chain Fragility: Relying on a single manufacturing site for both the branded and generic versions increases the impact of any quality control failure or production halt.

4. Unconsidered Alternative

The team did not evaluate a transition to a subscription-based model for state Medicaid programs. By offering unlimited access to EpiPens for a fixed annual fee, Mylan could secure state-wide exclusivity and remove the per-unit price friction that currently drives negative headlines.