Today’s Managing Health Care Costs Number is $5.4 million
Gretchen Morgenstern’s weekend “Fair Game” column is posted on the NYT website today – it reviews the implications of Mylan’s price increases for EpiPen on executive compensation.
Mylan put in place a special stock grant in 2014 which will be worth over $13 million to its CEO if the company meets its earnings and stock price goals – and could be worth far more. EpiPen’s price increases have been critical to achieving higher earnings and share price.
A company spokesman denied that EpiPen could have a big impact on the stock grant:
Mylan has a large and diverse business, with more than 2,700 products sold in 165 countries and 600 products sold in the U.S. alone. The targets set forth in the one-time special program were not and are not practically achievable based on pricing of any single product.
Not true. EpiPen represents $1 billion in revenue (of total $9.5 in revenue). Given that epinephrine costs only a few pennies and all the technology in the injectors is from the 1980s – virtually all EpiPen sales represent gross margin. The drug needs little marketing – so margin contribution for each unit sold is the vast majority of sales revenue. Mylan’s net income was $1.46b (2015), $1.34B (2014), and 1.16B(2013) – so EpiPen profits made up a healthy portion of this.
It’s interesting to note that Mylan’s share priceand EpiPen price increases track very closely. (Mylan is down about 9% in the last month – which does not show up well on the graph above).
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US pharmaceutical companies raise prices because they can -and raising prices absent competition is the best way to raise income, share price, and executive compensation. Barring government price setting, common in the developed world but anathema here, we will need more competition -and government action to spur such competition.
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