The Mylan Epipen pricing scandal broke in the summer of 2016. For months, the pricing scandal at the company dominated public discourse on the need for proper corporate governance, business ethics and transparency in society. A renewed focus was directed on corporate accountability more so the checks and balances systems within corporate boards that make sure management remains accountable and that it operates in the interest of stakeholders. The crisis also drew attention to the potential impact of public corporations on the public and shareholders. It also challenged the company to defend its ethical and corporate governance principles in the eyes of its consumers.
Mylan N.V is a pharmaceutical company incorporated in the Netherlands. The company has an elaborate governance structure. By conducting its operations from Canonsburg Pennsylvania where it has its corporate headquarters, the company has direct oversight by an independent board that is based in the UK. The board holds its official meetings in the UK. Directors sitting on the board are annually elected by shareholders and are charged with formulating the organization’s corporate charter. The charter governs various aspects of the company such as finance, compensation, science and technology and audit (Greene, 2017) . Just like other companies in this field, Mylan has a clear business code and rules of ethical conduct that govern every person in the company from employees to top executives. The code aims at addressing key areas such as integrity and accuracy of data records and books, corruption and fraud, global trade compliance, quality and safety, public disclosure, antitrust and pricing issues as well as family business arrangements and conflicts of interest. The ethical code for top employees such as the chief executive officer and chief financier officer explicitly states that they shall engage in ethical and honest conduct, comply with government laws and regulations and promote full, timely and accurate disclosure of documents and reports filed to the Securities and Exchange Commission (SEC) (Morton & Boller, 2017).
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Mylan N.V in 2007 acquired Merck KgaA and with it the right to market EpiPen. EpiPen is a lifesaving drug for anaphylactic reactions that are typically caused by seafood, nuts and insect bites. About 3.6 million Americans use the drug annually. In 2009, EpiPen pieces increased steadily, and by 2013, the price of a two pack-autoinjectors had risen from $103.50 in 2009 to a whopping $264.50. By 2015, the price of the same drug autoinjectors had risen by 75% to $461. A year later in 2016, that price had risen to $698.61. In general, the company had raised the price of EpiPen by roughly 500% in seven years (Morton & Boller, 2017) .
Coinciding with these increases in price was an elaborate marketing strategy of EpiPen by the company leading to significant improvements in its market size. By 2016, the company had cemented its dominance in the market. This expansion strategy started with widespread campaigns meant to raise awareness about the perils of anaphylactic reactions. The company marketed itself largely on TV and employed other modern marketing approaches. In 2016, the company launched a website and produced several storybooks meant for families with severe allergies after signing a deal with Walt Disney Parks and Resorts. Mylan also embarked on a lobbying campaign and successfully had the FDA broaden the labeling of the drug such that it could be administered to those at risk of anaphylactic reaction in addition to persons who suffered anaphylaxis in the past. Between 2010 and 2014, the company added its team of lobbyists in over 30 states to pressure lawmakers to have epinephrine provided in public schools (Carroll, 2016) .
The Center for Public Integrity notes that the rate at which Mylan employed lobbyists was more than any other American company (Carroll, 2016) . Mylan’s efforts bore fruits as increasingly states made it a requirement for public schools to offer epinephrine injections. Nebraska led the way in adopting this requirement in 2006, and by 2012, nine more states had adopted similar policies. Highly publicized deaths that were attributed to anaphylaxis such as that of Amarria Johnson, a 7-year-old at Chesterfield country school in 2012, added to the pressure on other states to follow suit. In fact, in 2013, President Obama signed into federal law a proposal to have states that require epinephrine to be offered in schools offered a financial incentive. Concurrently, Mylan tried to increase the amount of EpiPens schools bought by creating an ‘Epipen4Schools’ program. Schools that enrolled in this program got discounted prices and were simultaneously made to sign agreements that explicitly stated that they would not purchase products competitive to EpiPen for the next one year. In effect, Mylan cemented its consumer base and gained a near monopoly status in an otherwise lucrative area. By early 2016, the company’s market share had grown to about 95%, and its EpiPen sales rose from $207 Million annually to over a billion (Greene, 2017) .
The price hikes to $608 for a two pack of autoinjectors triggered widespread public criticism in the summer of 2016. American families were struggling to purchase the treatment and had grown wary and constant hikes in prices. Lawmakers in congressional committees demanded an explanation for the rapid increases in prices and in September 2016, Congressional Committee on Oversight and Government Reform held a hearing. During the hearing, the company’s CEO Heather Bresch was unable to account for the company’s revenues and its patient assistance policy though she maintained that the company employed proper business practices and rejected the assertion that price increases were meant to rise Mylan’s profits. She submitted that the price hikes were occasioned by intensified research and increased development costs as well as the company’s school program. The company also claimed that half of its wholesale prices went to middlemen such as pharmacy managers and insurance companies and that the American healthcare system was partly to blame for the costs (Carroll, 2016) .
The company’s response to the charges leveled against it was to promise to introduce a financial assistance scheme meant to lower the cost for those who are underinsured or uninsured and also lower the cost for those with private insurance by 300 dollars. However, the savings scheme the company has introduced does not apply to patients under Medicaid. Other critics’ point out that such measures are merely public relations moves that neither address the cause of the problem nor act as substitutes to price reductions (Greene, 2017) .
The troubles bedeviling the company did not end with the congressional hearing. Towards the end of 2016, it emerged that Mylan had misclassified EpiPen as a generic drug supposedly to avoid higher rebates that are typically paid by drug companies when they sell brand name goods to state Medicaid programs. Given the company’s market share and the fact it owns EpiPen patents set to expire in 2025, this was a clear act of misclassification. Justice Department took legal action against Mylan, and in October, the matter was resolved with the company paying $465 in the settlement. Also, in September 2016, New York launched investigations into the company for alleged violations of antitrust laws. New York attorney announced the investigation was due to Epipen4schools programs which violated antitrust laws. The company faced legal charges for the sale of illegal contracts that compelled schools to buy EpiPen’s from a single company in the market (Morton & Boller, 2017) .
These are not the only charges leveled against the company. In 1998, it was charged by the FTC with conspiracy to monopolize the market, restraints on trade and monopolization. In January of the same year, the company raised the price of Clorazepate to $377.00 from $11.36. In March of the same year, the company increased Lorazepam price to $190.00 for 500 tablets from $7.30. In 2009, the Justice Department charged the company with falsifying claims to the state Medicaid programs with the case being settled for $124million in October the same year (Carroll, 2016) . The striking aspect about all these cases of illegal and ethical misconduct is that they mirror the EpiPen case. The company has therefore a history of repeating the same offenses. In fact, there are enormously good reasons to think that the testimony presented by Mylan’s CEO before the congressional committee was disingenuous and misleading and therefore constituted yet another ethical breach of its own codes and those of the public.
Mylan’s advocacy and advertising efforts were intended to raise sales despite having the effects of raising public consciousness to the risks of anaphylaxis. The ethics of making schools sign contracts that preclude them from buying drugs from competitors are controversial and the legality of the action can be challenged as happened in New York (Morton & Boller, 2017) . It underscores the fact that Mylan concern was not with school going children getting treatment but expanding their consumer base. The advertising by the company also surpassed ethical limits by willingly misleading customers. One of its ads suggested that victims of anaphylaxis could eat anything so long as they had EpiPen in hand. This overstated the drug’s efficacy and led to complaints being presented to the FDA (Singer, 2010) . If indeed the pharmaceutical company had any genuine and altruistic concern for its customers, then it can only be termed as a secondary objective.
The claims by Mylan’s CEO that the company hikes prices by over 500% in seven years due to high research and development costs seems highly inadequate. Some have suggested that the price hikes can be reasonably accounted for up to 2013. As the house committee noted, while it claimed to have spent over $1 billion in lobbying, advertising, research and development, no convincing financial data was offered to substantiate the claims (Greene, 2017) . Also, the claim by the CEO that the company had saved the federal government more than $180 Billion was not borne out by any facts. Subsequent analysis of the profit made from each EpiPen was 60% higher than the CEO purported in the hearing. While Bresch was right to point out that the American health system had led to cost increases thanks to its complexity and opacity, it is unlikely that the system could have resulted in such dramatic increases. In brief, the explanations given by Epipen do not withstand scrutiny, and its clear motivations were to increase profits and market dominance through unethical and exploitative anti-competition deals and in utter disregard for the welfare of its consumers (Greene, 2017) .
Given the history of the company in engaging in such malpractices, it should be fined more heavily to dissuade it from repeating such acts. One of the ways of doing this is through forced compensation to consumers who have suffered the brunt of its exploitative and unethical price hikes. The American market remains free of price controls in sensitive areas like pharmaceuticals. These controls should be imposed especially given their effectiveness in other parts of the world such as the UK. This can be undertaken through indirect measures such as limiting the amounts of profits that organizations in the pharmaceutical sector make and based on the therapeutic importance of drugs. The mere fact that Mylan’s behavior took place unfettered for seven years suggests the need for more effective regulation.
References
Carroll, A. (2016). The EpiPen, a Case Study in Health System Dysfunction. The New York Times .
Greene, J. (2017). EpiPen Controversy Reveals Complexity Behind Drug Price Tags. Annals of Emergency Medicine, 69 (1), 16-19.
Morton, F., & Boller, L. (2017). Enabling Competition in Pharmaceutical Markets. The Brookings Institution .
Singer, A. (2010). Accidental Digital Self-Injection of Epinephrine: Debunking the Myth. Annals of Emergency Medicine , 275-277.
