Question

Mylan Headquarters, Canonsburg, Pennsylvania

It’s 2012 and Mylan, the company behind the EpiPen Auto-Injector, is in the middle of a lawsuit. To settle, they agree to allow a generic competitor into the market in 2015, knowing this will cut into a big part of their business when the time comes. EpiPen is an epinephrine auto-injector used to treat emergency allergy reactions. EpiPen has been on the market since the 1980s but remains under patent because of the device, particularly the safety cap for the needle, not the active ingredient, epinephrine. Epinephrine is a hormone made by the body known as adrenaline and was first isolated more than 100 years ago. In the years leading up the 2012, Mylan had already been increasing the prices of EpiPen steadily. In 2007, the cost was around $100 for an EpiPen twopack; by 2011, $165. After the settlement, Mylan used a common practice in big pharmaceutical companies of sharply increasing the price of a medication in the years before a generic becomes available. It is a final attempt to make big profits off the brand-name drug before losing business to the generic. Drug manufacturers justify the high prices saying they cover the cost of years of research and development that went into creating the drug originally. Now it’s 2016, and Mylan is charging around $600 for an EpiPen two-pack. However, Teva, the expected generic, was rejected by the Food and Drug Administration, and Auvi-Q, EpiPen’s nongeneric competition, was pulled from the marked due to dosing problems. EpiPen now has a monopoly on the market for this lifesaving drug, and people are outraged by the price. With no alternatives available, customers and politicians alike are demanding answers and change. Senator Chuck Grassley (R-Iowa) wrote in a letter to Mylan CEO Heather Bresch, “I am concerned that the substantial price increase could limit access to a much needed medication.” Democratic presidential nominee, Hillary Clinton’s campaign spokesman Tyrone Gayle called for price cuts saying, “Since there is no apparent justification for the price increase, Mylan should immediately lower the overall price of EpiPens.” People suffering from life-threatening allergies won’t be the only ones affected by the price increase. Public schools and government institutions are among EpiPen customers because the medication is used for emergency treatment of allergic reactions. Bresch said she is as frustrated by the price increase as customers, saying “everyone should be frustrated.” She said the price reflects a system where intermediaries such as wholesalers, retailers, and pharmacies all add to the ultimate list price of the medication. The system also requires customers to pay insurance premiums and out-of-pocket costs for prescriptions medications. “The patient is paying twice,” Bresch said. “They’re paying full retail price at the counter, and they’re paying higher premiums on their insurance. It was never intended that a consumer, that the patients would be paying list price, never. The system wasn’t built for that.” In response to backlash from the high prices, Mylan announced plans to expand its co-pay assistance programs, double eligibility for its patient assistance program to 400% of the federal poverty level, continue to offer the EpiPen4Schools program, and open pathways so patients can order EpiPen directly from the company, thereby reducing the cost. EpiPen4Schools was launched in 2012 and has provided more than 700,000 free EpiPens to more than 65,000 schools nationwide. Representative Elijah Cummings (D-Maryland) was not impressed by Mylan’s announcement. “Offering a meager discount only after widespread bipartisan criticism is exactly the same tactic used by drug companies across the industry to distract from their exorbitant price increases,” Cummings said. “Nobody is buying this PR move anymore. Mylan should not offer after-the-fact discounts only for a select few — it should reverse its massive price increases across the board immediately.” After continued criticism, Bresch reiterated that price is only part of the problem. “All involved must also take steps to help meaningfully address the U.S. health care crisis,” she said, “and we are committed to do our part to drive change in collaboration with policymakers, payors, patients, and health care professionals.”

1. Customers are no longer quietly tolerating increases to the price of their medications as they await lower-cost and generic solutions. As additional Mylan products begin to face competition from generics, solutions will have to be found to make up for loss of future revenue. Is raising medication prices the model to use in the future? What other solutions are available?

2. The company will have to adapt to survive as more competitors enter the market. What benefits would there be to a change in organizational structure or process? Should departmentalization be considered for Mylan? If so, what type of departmentalization?

3. As problems arise and solutions are pondered, who has the authority to make the ultimate decision? What is the best chain of command when big pronouncements have to be made? If you were CEO at Mylan, what would you do?

Answer 1

Reading and patience and play vital role when you are answering a scenario based quetion. This is beautiful question and touches a pratical problem and above all gives you an opportunity to think like a Business Owner(CEO).

Background: Company is in the year 2012 and facing a law suit. Theyare the manufacturer of a patent product "EpiPen Auto-Injector" - used to treat emergency allergy reactions. Un-usually they have agreed to introduce a competitior in 2015 - clearly means their profilt will be divided. Price valuation journey of the product in 2007 is $ 100 in 2011 is $165 & in 2016 is $600. The prices have sharply increased and drug manufacturers justify the high prices saying they cover the cost of years of research and development that went into creating the drug originally and profit margin of intermediaries. People are un-happy with the price increase. The company has double-pay progrogramme and option for customers to buy straight from compny - dodging intermediaries. (Important: EpiPen4Schools was launched in 2012 and has provided more than 700,000 free EpiPens to more than 65,000 schools nationwide).

Answers

Ans.1 The company could capitalize the cost involved in th market research incurred in the past. This can be treared as a deferred revenue expenditure and appropriate it in the taxation cycle. This will help in reducing unit Price of the product. The margin of intermediaries should be critically evaluated and should be coupled with government intervention. There could be offers of discounts on bulk buying (econimies to scale) which will help buyers. The folloing suggested options may help.

Ans.2 WIth more competitors in market the emphasis would be to have prices in line with compititors price. This is, but obvious, there prices will be lower and as a result Maylan will have to recude the price as market is becoming a competitive market from monopoly. Change in OU or introduction of departmentalisation will help in cost control where organisation is divided into small separtments. That way the units will be better supervised & control and affecting the unite price.

Ans.3 Ultimately, Business Owner has to authority to make the lfinal decision. Top down Chain of Command  is the best in this situation. As CEO I would implement ABC - Activity Based Accounting. Every actitivy value generation should be noted and reviewed by finance department. The sum consolidation of every stage of acvitiy should amount to the final price. And it should bring some reduction in the price - for which law suit is filled and may finally lead to it settlement.