This commentary originally appeared in the Washington Examiner on September 15, 2016.
Hidden amidst all the sanctimonious verbal attacks and political over-promises to save people from Big Pharma's greedy clutches is a simple but painful truth, confirmed by the Epipen debacle. Though Washington decries Mylan's monopoly power and price gouging, it is Washington that created and protects Mylan's monopoly.
Epinephrine (Epi) is our naturally occurring "Fight or Flight" hormone, intended to protect us in high stress situations. One of its manifold effects is to open the airways so more air can get in and out. This allows us to run away from an enemy (flight) or win a conflict we can't avoid (fight.) In patients with asthma and in those with allergies that suddenly close down the air tubes, called anaphylaxis, the immediate administration of Epi can be the difference between life and death.
Meridian Medical Technologies introduced the first autoinjectors of Epi for public use in 1997. Mylan acquired the patent for EpiPen in 2007, becoming the sole seller and marketer of this life-saving medication. In 2007, a two-pack of EpiPen autoinjectors was priced at less than $100. Today, Mylan charges $600, and gets it … or people must do without.
Epinephrine as a synthetic medication has been around since 1904. Therefore, it should be available in generic forms and subject to competitive market forces. It is Mylan's specific autoinjector technology, originally developed by the military, which they can sell exclusively because it is under patent protection. Mylan does not have a monopoly on the sale of the medicine epinephrine (adrenaline). Rather, they have a monopoly on the EpiPen autoinjection device, which is mechanically different from the various other autoinjectors available to the public such as for insulin.
Over the same period that Mylan increased the price of EpiPen 500 percent (2007-2016), the annual compensation of Mylan CEO, Heather Bresch, rose 670 percent.
Such increases in price and CEO paychecks meet anyone's definition of price gouging and exorbitant compensation. Isn't Mylan effectively holding asthmatics and people with allergies hostage to their corporate greed? One would think this is illegal. However, this extortion is perfectly legal.
Mylan has a government-created and government-protected monopoly, one that is maintained by "the federal government's own regulatory scheme," a scheme that actually encouraged "a billion-dollar market [to be] cornered by one supplier."
Adamis, Sanofi, and Teva are three pharmaceutical companies that want to compete with Mylan. They are prevented from entering the market by the federal government, specifically the FDA, which has repeatedly denied them approval to sell.
Another barrier to entry of market competitors is the fact that "the FDA maintains no clear and consistent principles for generic drug-delivery devices like auto injectors or asthma inhalers." How can anyone comply with the rules if there are no rules and the rules that do exist keep changing?
The government has another way of protecting Mylan's monopoly: cost. The average price for a company to get FDA approval is $2.56 billion (in 2013 dollars.) This cost of acquiring regulatory approval is, of course, reflected in the prices we must pay for drugs.
Federal patent laws add another barrier to potential competitors. Companies like Mylan can protect their monopoly position through extending nearly expired patents with very minor changes to existing products.
The Obama administration mandated that public schools must purchase EpiPens. With Mylan already having more than 90 percent market share for Epi, Washington actively facilitates Mylan's market dominance and control.
Like any good monopoly, Mylan can use its market control to gouge the public. This is not the fault of the free market—it is the fault of a federally controlled, "non-free" market.
If there were a free market, competitors would "keep Mylan honest." In a free market, Mylan could not simply dictate the price of a two-pack of EpiPen at $600 because market competition would create a bidding war that would drop the price closer to the cost of producing each one, which is certainly less than $20. This competition would create a situation where no one would buy Mylan's product at $600 if they could an effective alternative for, say, $25.
Condemnations of Mylan by Washington politicos are self-serving. The politicians want to distract the public from the government's complicity, through the FDA, in Mylan's price gouging.
Ironically, protection of commercial monopolies is actually not Washington's primary purpose. Nonetheless, monopoly is a predictable (and repeatedly predicted) consequence of the feds' real strategic goal: control. Most federal laws and executive orders, with their subsequent "necessary" rules and regulations, expand federal control and extend federal reach.
There are numerous examples of Washington's disdain for the free market in the Beltway's quest for control. Obamacare is a paradigm. As a result of Obama's namesake law, Washington mandates (controls) insurance benefits; dictates (controls) payment schedules; and even tells us (controls) what we must spend our money on: government-approved health insurance.
Hypocrisy is thick on the ground. Washington's authoritarianism gives Mylan a monopoly. Mylan uses its control of the market to gouge the public. What does the architect of Obamacare, Dr. Ezekiel Emmanuel, recommend to protect us from pharmaceutical monopolies and their market control? Tighter control of the market in the form of government monopoly, called price controls!
Every good psychiatrist will tell you the first steps to cure are recognizing that there is a problem and accepting that you have it. If Americans want to regain the liberties penned by our Founding Fathers, we must start by recognizing why we lost them: A progressive federal drive to concentrate power in the hands of Washington, D.C.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.