How To Build a Better EpiPen—or Something Totally Different That's Much Better
Drug company Mylan is able to charge monopoly prices due to government regulation, not free-market forces.
In 2015, about 3.5 million people were prescribed an EpiPen, an injection device with a pre-measured dose of epinephrine used to treat potentially fatal allergic reactions. Controversy over the fast-rising costs of the device has been used to indict the American health-care system as a playground for corporate greed. Over the past five years or so, the list price of a two-pack of EpiPends has increased about 400 percent, to $600. (Of course, what any customer might pay out-of-pocket is dependent on many factors such as insurance company, income level, and more.)
Well, there's no question that the maker of the EpiPen, Mylan, is in business to make money. The CEO of the company, which is the largest maker of generic drugs in the country, says, "I am a for-profit business. I am not hiding from that." It's actually kind of great to hear a CEO unapologetically say so. But as Scott Shackford recently noted at Reason.com, the main problem is that Mylan has been granted a de facto monopoly over the market for epinephrine injectors. That isn't because it built a better mousetrap but because the Food & Drug Administration (FDA) has shot down virtually every alternative device for one reason or another.
As I write in a new Daily Beast column,
Mylan's path to monopoly pricing in EpiPens has everything to do with politics and nothing to with laissez-faire economics. The approval process isn't just long and expensive, it also opens things up to politics.
That's one of the reasons why Mylan, which bought the rights to EpiPen in 2007, spent more than $2 million lobbying Washington in 2015. The company's PAC has spent about $80,000 so far in the 2016 election cycle. Maybe it's just coincidence, but Mylan, one of the largest generic drug companies on the planet, faces little competition from other companies that want to make devices similar to the EpiPen.
As the pseudonymous doctor Scott Alexander documents at Slate Star Codex, the amount of epinephrine in an EpiPen's pre-measured dose costs about 10 cents a shot. But every time a new company tries to bring a rival product to market, the Food and Drug Administration (FDA) finds a reason to just say no. Sandoz, Teva Pharmaceuticals, Sanofi, and Adamis have all tried and failed. That seems more than a little fishy given the relative simplicity of the basic drug and delivery system involved. We're not talking brain surgery here—we're talking about a pre-loaded, single-use syringe.
Let's be clear: The basic protocols that the FDA uses to approve drugs and devices are outdated and make new products far more limited and far more expensive than they need to be. Indeed, as medical researchers push forward into an era of hyper-personalized "molecular medicine" that is based on individual genomic differences among patients, the FDA insists on clinical trials that are based on average experiences. Some drugs work for some patients but not others, notes researcher Peter Huber of the Manhattan Institute. It costs somewhere between $1 billion and $5.8 billion and between 10 years and 15 years to bring new drugs to market (where maybe 20 percent become blockbusters). Yet for politicians on both sides of the aisle, the fix to the EpiPen is to threaten price controls. Here's an excerpt from a letter released by Hillary Clinton, in which she avers that the EpiPen price hike is
just the latest troubling example of a company taking advantage of its consumers. I believe that our pharmaceutical and biotech industries can be an incredible source of American innovation, giving us revolutionary treatments for debilitating diseases. But it's wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.
"That's why I've put forward a plan to address exorbitant drug price hikes like these. As part of my plan, I've made clear that pharmaceutical manufacturers should be required to explain significant price increases, and prove that any additional costs are linked to additional patient benefits and better value. Since there is no apparent justification in this case, I am calling on Mylan to immediately reduce the price of EpiPens.
Now that Mylan has announced plans to release a generic version of the EpiPen, Clinton and others (such as Iowa Republican Sen. Chuck Grassley, who sent Mylan a letter of his own) can claim a short-term win. But Mylan isn't taking advantage of customers. It is simply working a political system to its own advantages. And Clinton's solution to that is to give even more power to political players.
But as Reason's science correspondent, Ronald Bailey, has long argued, it makes much more sense to open up the approval process and empower patient choice if you want more and better treatments. Why not, for instance, have multiple approval agencies whose reputation and market power will be directly related to the accuracy of its ratings (Underwriters Laboratories provides one prototype)? Or allow terminal patients to more easily circumvent strictures on drugs that have not passed into the FDA's final approval stage? This is in fact already happening, with state after state passing "right to try" legislation that hopes to do just that.
Price controls don't work—just ask Venezuela. They result in less innovation, chronic shortages, and ultimately fewer products. Medical innovation obeys the same basic economic laws as every other commercial process.
No system of checks and balances is perfect but there's simply no way to make drugs cheaper without speeding up and lowering the cost of developing them. And there's no question that delaying approvals and squelching competition has costs too—ones that range far beyond a $600 EpiPen….
The plain fact is that the real problem with costs and innovations in the medical world isn't that companies are run by "greedy" bastards such as Mylan's Bresch ("I am a for-profit business," she told the Times. "I am not hiding from that.").
It's that powerful and well-connected companies can use politics to rig markets and that it takes too damn long and costs too much money to develop new drugs and services to us all. That's something politicians, not capitalism, are responsible for and only politicians can—and should fix.