Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Pharma firms fight generic versions of their leading products with tooth, nail and endless lawsuits. 

But after a week of intense scrutiny of its price hikes for the emergency allergy medication EpiPen, Mylan announced Monday it will launch a much cheaper generic version of its own drug.  

Self-genericization (copyright Max Nisen) is unlikely to be the new hot thing in the industry. But Mylan's extreme move is a reminder that drug-pricing "headline risk" -- often derided by the industry as mere political noise with an election-day expiration date -- can get fierce enough to provoke real, business-changing decisions. Pharma's current playbook -- which seems to consist largely of pointing the finger at what it describes as a few bad actors, while continuing to quietly hike prices -- is just not going to cut it. 

Allergic Reaction
Mylan shares are down more than 10 percent as a result of EpiPen price scrutiny.
Source: Bloomberg

This isn't Mylan's first effort to head off criticism. The company last week pledged more support for under-insured and less-wealthy patients. But such programs tend to be something less than selfless, and promising more wan't going to cut it for Mylan.

Its new, more-aggressive action may help stave off criticism. But the storm might not have passed entirely. The $300 it will charge for two generic pens is a lot less than the $600 it's charging for branded pens. But it's still a lot more than the $100 per pen the drug's former owners (and Mylan!) used to charge. 

Mylan has been able to keep its price so high because competitors have repeatedly stumbled in bringing alternatives to market. It's telling the company is making an authorized generic, instead of just cutting the high price tag for its branded pen. A cheaper generic will give the company control over the market for longer and makes entering the market less attractive for its competitors. 

The financial impact on Mylan is difficult to parse. Its specialty products unit, driven by EpiPen, was 16.2 percent of its revenue last quarter. But the unit provides a bigger proportion of Mylan's profit. It's unclear how many people the company will be able to steer to the more-expensive EpiPen instead of the cheaper new alternative, but its revenue and profit growth is likely to take a hit. 

EpiPen-Dependent
EpiPen, part of Mylan's specialty business, has become increasingly important to the company's revenue and profit
Source: Bloomberg

This should be a wake-up call for the rest of the industry. Price increases that went unremarked-upon in the past are now ripe for the microscope. Mylan's hikes had escaped some of the outrage that greeted massive, one-time price hikes by companies such as Valeant and Turing because they had been smaller, slower and steadier. But the aggregate change sure hasn't been pretty.

Slowly, Surely
The price of an EpiPen has climbed and climbed over the past four years.
Source: Bloomberg

Mylan's price-raising model is one many big pharma companies follow, particularly as products near the end of their patent lives. Now drug-pricing critics and legislators have another strategy to attack. They are likely to continue to increase the aperture and effectiveness of their efforts.  

As the list of companies criticized for price hikes grows, it gets harder for drugmakers to keep blaming a few bad actors. And Mylan just proved that promising to help patients or turning the blame on payers is no escape, either. The industry is slowly running out of ways to avoid pricing pressure.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net