Mylan calculated profitability using 37.5% tax it doesn’t pay

Mylan is being met with yet more derision after a profitability analysis released by the company to the Securities and Exchange Commission (SEC) revealed that its profits are calculated after factoring in a U.S. tax rate that is much higher than the actual rate—which the Washington Post reports is nearly nothing.

When Mylan CEO Heather Bresch appeared before the House Committee on Oversight and Government Reform to address the pen’s price increases, she claimed that the company receives about $100 of profit from each sale of the $608 EpiPen® 2-Pak (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily September 22, 2016). The SEC’s profitability analysis revealed that Mylan includes a 37.5-percent tax rate when calculating its net product profitability.

According to the Washington Post, Mylan relocated its headquarters to the Netherlands, which reduced its tax rate. In 2015, the company’s overall tax rate was 7 percent in 2015, but an independent tax expert reported that the U.S. tax rate is actually close to zero. Mylan argued that standard profitability analyses include tax for the jurisdiction reviewed. Representative Elijah Cummings (D-Md) expressed Congress’s skepticism over the numbers provided, and noted that Mylan has until Friday, September 30, 2016, to give Congress files that will allow the government to determine the company’s actual profits.

Mylan CEO highlights EpiPen® access improvement efforts before House committee

Mylan CEO Heather Bresch attempted to deflect the conversation away from the EpiPen® price hike before the House Committee on Oversight and Government Reform by emphasizing Mylan’s efforts to improve access to the device. Dr. Douglas Throckmorton, Deputy Director for Regulatory Programs for the FDA’s Center for Drug Evaluation and Research, also testified about the FDA’s efforts to support the development of new auto-injector products to compete with the EpiPen.

Price hike

When Mylan first purchased the EpiPen from Merck in 2007, the list price for the device was about $57. Today, a 2-Pak is listed at $608. These numbers gained national attention, resulting in outcry from consumers, government scrutiny, and falling stock prices. In response, Mylan doubled eligibility for the patient assistance program allowing consumers to use a savings card when purchasing the EpiPen. Consumers and the press found this action insufficient, especially considering that those without insurance and patients enrolled in federal health care programs are not eligible to use the savings card (see Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016).

Testimony

Throckmorton noted that four epinephrine auto-injectors have been granted FDA approval, but only two are on the market. Amedra’s brand name Adrenaclick® is not currently marketed, but the company is marketing its own generic version. Its Twinject® product was discontinued. Kaleo purchased Auvi-Q® from Sanofi after it was recalled and has not yet returned the product to market. According to Throckmorton’s testimony, the FDA is willing to provide one-on-one guidance for products like an auto-injector that combines drug and device components and is working to assist manufacturers in bringing generic drugs to market.

Bresch believes that the issue of access to the EpiPen is equally critical as the pricing aspect. She testified that in 2007, fewer than one million out of the 43 million consumers at risk for anaphylaxis had access to an auto-injector. Since then, about 80 percent more patients have been reached and 85 percent who obtain the EpiPen pay less than $100 for the 2-Pak. Mylan has also provided 700,000 free EpiPens to schools.

Turning to price, she clarified that Mylan does not receive $600 in profits per 2-Pak sold. Although the wholesale acquisition cost (WAC) is $608, Mylan receives $274 after rebates and fees. After subtracting cost of goods and costs, Mylan’s profit is about $100 per 2-Pak. Bresch outlined four steps Mylan has taken to combat the pricing issue:

  • announcing a generic EpiPen to be priced at $300;
  • providing a direct ship option for the generic;
  • increasing the savings card program benefit to $300, from $100; and
  • doubling the income eligibility limit for receiving free pens.

Medicare Part D costs

The Kaiser Family Foundation (KFF) found that between 2007 and 2014, Part D spending on EpiPens increased by 1151 percent. Although the total number of EpiPen users grew from about 80,000 to 211,500 during that time frame (164 percent growth), the average total spending per prescription went from $71 to $344 (383 percent increase). Part D spent $7 million on EpiPens in 2007 and almost $88 million in 2014.

Out-of-pocket spending increased dramatically as well, even though Part D covers some of enrollees’ drug costs. The increase in users and price resulted in a jump in out-of-pocket spending from $1.6 million to $8.5 million. The report noted that the price of the EpiPen has increased by 74 percent since 2014, but Part D spending information for this time period is not yet available.

FDA adds voice to EpiPen saga

Recent news about the price spike of EpiPen, manufactured by Mylan NL, has caused heightened concern among lawmakers and the general public. In a letter to Mylan in late August 2016, Sen. Chuck Grassley (R-Iowa) asked a series of questions about the pricing, including what analyses were conducted in determining the price, Mylan’s advertising budget for EpiPen in the first half of 2016 as well as 2015, an explanation of the features the company said have improved the product and its value, whether the company offers patient assistance programs, and whether the company has school assistance programs for providing the drug and if so, how many schools have used the programs. In addition, on September 21, 2016, the House Committee on Oversight and Government Reform will hold a bipartisan hearing with officials from Mylan to ask CEO Heather Bresch about the price spikes.

Mylan, which acquired the product in 2007, recently raised the list price for a pair of EpiPen auto-injectors to $600. The price has been rising from a cost of about $100 in 2008. In addition, the EpiPen product has patents listed through 2025 that could delay generic competition.

In the FDA Voice, the agency’s official blog, Janet Woodcock, Director of the FDA’s Center for Drug Evaluation and Research, noted that the EpiPen product has patents listed through 2025 that could delay generic competition. As a result, questions are raised as to what role the FDA can take in the EpiPen saga. Woodcock went on to stress that while the FDA does not regulate drug prices – it can ensure that safe and effective generic versions of a drug can be approved for the market. The FDA has already approved four epinephrine auto-injectors to treat anaphylaxis in an emergency, with two currently marketed. The EpiPen notoriety is because it does not have any FDA-rated therapeutic equivalents at the time.

The FDA does not regulate drug prices – prices are set by the drug makers or distributors. It’s our job to ensure medications, including emergency medications, are safe and effective. We also recognize when we approve new drugs, including generic versions of a drug, it may improve competition in the marketplace. The good news is that the FDA has already approved four epinephrine auto-injectors to treat anaphylaxis in an emergency, and two are currently marketed. The EpiPen does not have any FDA-rated therapeutic equivalents. But like EpiPen, these alternative products are approved by the FDA as safe and effective for treating anaphylaxis. As always, patients should check with their doctor on whether a particular treatment is appropriate and available.

According to Woodcock, the FDA is doing all it can to encourage manufacturers to develop new auto-injectors for epinephrine that can be administered easily and safely by anyone. She highlighted the “roadmap” issued by the FDA via a draft guidance in June 2013 to help manufacturers get the auto-injectors to market faster. Earlier this year, the FDA provided industry with a draft guidance on how to determine if patients can effectively use the new devices.

Not only did the FDA take actions to encourage auto-injector development, the agency touted that it speeds along the process by prioritizing and expediting reviews of applications for first generics.

Class action complaint filed as St. Jude’s Medical responds to cybersecurity allegations

Following a report by Muddy Waters Capital LLC stating that St. Jude’s Medical (SJM) pacemakers, implantable cardioverter defibrillators (ICDs), cardiac resynchronization therapy (CRT) devices, and other implantable cardiac devices should be recalled due to the risk of cyberattack, attorneys for a patient with such a device filed a class-action complaint in the Central District of California alleging that the patient would not have undergone surgery to be implanted with the device if he had been aware of the “severe security vulnerabilities” alleged in the report. SJM responded to the Muddy Waters report in a press release, stating that the claims were misleading and unfounded.

Cyberattacks against devices

Muddy Waters claimed it has seen demonstrations of two types of cyberattacks against SJM implantable cardiac devices: (1) a “crash” attack causing the device to malfunction, for example, by pacing at a potentially dangerous rate, and (2) a battery drain attack that could be potentially harmful to device dependent users. Muddy Waters stated that it finds these vulnerabilities to be more worrying than other medical device hacks publicly discussed in the past, as they take less skill and can be directed randomly at any device within a roughly 50-foot radius.

SJM criticizes basis of report

In response, SJM said that the report’s claims of remote battery depletion are misleading, as the wireless communication of the devices is limited to approximately seven feet. “This brings into question the entire testing methodology that has been used as the basis for the [report.]” Additionally, a large-scale cyberattack like one described by Muddy Waters would require “hundreds of hours of continuous and sustained ‘pings’ within the [seven-foot] distance,” according to SJM. SJM also highlighted inconsistencies in the simulated attacks posed by Muddy Waters, noting one particular screen shot purportedly showing an impaired system when it actually shows a device that is functioning normally.

Complaint

In the California-based class action complaint, a patient with an implantable cardiac device alleges that he would not have had the device implanted if he had known about the vulnerabilities involved. The complaint lists 30 different devices that allegedly have serious security flaws, creating hundreds and thousands of claims from other patients against SJM for fraud and negligence.