Mylan essentially has a government granted monopoly.
In South Park: Bigger, Longer, and Uncut, offensive television characters Terrance and Phillip inspire moral indignation within a small Colorado town, sparking a movement of outraged parents who actively organize to censor the actors. Rather than focusing their energy on the individuals in question, the parents launch into an over-the-top campaign (complete with song and dance) targeting the entire country of Canada, where Terrance and Phillip live. Their crusade to “Blame Canada” drives the plotline to equally comedic and ridiculous lengths.
We have a similar short fuse in the United States. Though we don’t launch into full-scale invasions of our quiet northerly neighbors (at least, not yet), many Americans tend to miss the mark when attributing blame for our largest problems and woes. This propensity of impugning ideological strawmen usually places capitalism in the crosshairs of America’s most outraged.
On This Episode of “Blame Capitalism”: The EpiPen
One doesn’t have to look far from today’s headlines to see this pattern. The latest controversy: the price of the EpiPen – Mylan’s famous medical auto-injector that delivers an immediate and measured dose of epinephrine – recently skyrocketed 400%, causing an uproar amongst 3.6 million people who depend upon the prescribed product. For those who live in fear of anaphylactic shock, the cost of living quite literally went up.
What is usually left out in any anti-capitalist blather written in response to this controversy is an accurate depiction of how free markets actually work.
Riding the wave of mass outrage, the usual political suspects rise to the occasion.
“There’s no reason an EpiPen, which costs Mylan just a few dollars to make, should cost families more than $600,” tweets Bernie Sanders. (I’ll get to this claim later.)
“EpiPens can be the difference between life and death. There’s no justification for these price hikes,” tweets Hillary Clinton.
The latter comment entails an awe-inspiring amount of irony coming from an individual who charges approximately $200,000 per speech. Her talks most certainly don’t save lives.
But I digress.
The majority of criticisms over this affair have targeted Mylan – and for obvious reasons. Mylan’s CEO Heather Bresch experienced a 671 percent increase in total compensation during the same time frame of the EpiPen’s price hike.
The caricature of the greedy capitalist – pinching and twirling his handlebar mustache with one hand, holding a huge bag of money with dollar signs imprinted on it with the other – almost paints itself. This caricature is, however, greatly diminished based on the inconvenience of Bresch’s gender and complete lack of mustache. Also, her baseline salary is actually quite modest for a Big Pharma executive.
The Free Market That Wasn’t
After finishing off Mylan and Bresch at the gallows, many critics then turned their mob rage toward the philosophical tenets of capitalism.
“The current controversy over the price of the EpiPen, manufactured by Mylan, Inc., is quite instructive with respect to the nature of capitalism,” writes blogger Craig Calcaterra.
Oh, really?
Unfortunately federal regulators continue to buffer the padding that surrounds Mylan’s monopoly.
Halle Tecco, professor at the Business School of Colombia, labeled this controversy the “byproduct of free-market capitalism.”
Oh, is it?
What is usually left out in any anti-capitalist blather written in response to this controversy is an accurate depiction of how free markets actually work.
In what other markets can a business jack up its prices without alienating its customers and pushing them toward competitors? Answer: when that market has no other competitors. Emily Willingham of Forbes explained it aptly with a recent article titled, “Why Did Mylan Hike EpiPen Prices 400%? Because They Could.”
In early 2016, Sanofi, Mylan’s primary competitor, discontinued its line of Auvi-Q auto-injectors, similar to Mylan’s product. With Auvi-Q out the picture, Mylan gained 98 market share of epinephrine injectors.
But surely a new business will take advantage of this public relations debacle, enter the market, and offer a more affordable option, right?
From the time this bill was introduced to the date it was signed by Obama, Mylan’s stock was up nearly 20%.
Unfortunately – and as no surprise to libertarians and free market advocates – federal regulators continue to buffer the padding that surrounds Mylan’s monopoly. Shortly after the Auvi-Q recall, Teva Pharmaceutical Industries pitched a generic version of the EpiPen. However, the Food and Drug Administration (FDA) squashed their efforts, citing “major deficiencies” in their application. Teva plans to appeal the decision, but won’t be able to effectively move forward until 2017 at the earliest.
Teva isn’t alone in this struggle. Windgap Medical, a Boston startup, and Adamis, a small biotech firm based in San Diego, have both struggled to bypass FDA’s barriers of entry in the marketplace as well.
If you need further convincing that the FDA impedes the market, consider the following:
- The average time it takes for a drug to go from the lab to the medicine cabinet is 12 years
- Only 1 in 5,000 new drugs will make it through the FDA approval
- Based on the regulatory burden of creating new medicine, the average price tag for research and development for a new compound is $2.6 billion
So, no, Bernie – it isn’t always just a “few dollars” to produce a pharmaceutical product. The price tag of producing that “first pill” is often steep.
An Unironic “Thanks Obama”
Those companies who “paid to play” are providing a textbook example of crony capitalism, not free market capitalism.
Mylan’s monopoly was also bolstered by the White House. In 2013, President Obama signed into law the School Access to Emergency Epinephrine Act. The program incentivizes the school system to stockpile EpiPens by dangling the carrot of federal grant monies in front of financially beleaguered school districts. From the time this bill was introduced to the date it was signed by Obama, Mylan’s stock was up nearly 20%.
But this little piece of legislation pales in comparison to the benefit doled out by the Affordable Care Act. Following Obamacare’s codification, net spending on prescription drugs increased nearly 20%. Meanwhile, the pharmaceutical industry experienced a renaissance era of whirlwind profits: estimates of profits over the next decade range from $10 billion to $35 billion – a hefty door prize for the industry lobbyists who crafted the ACA legislation.
The EpiPen is not a microcosm; the cost of other prescription drugs are also on the rise. A House of Representatives report found that ten different drugs experienced even larger price hikes, starting as low as 420% and as high as 8,000%.
Those companies who “paid to play” are providing a textbook example of crony capitalism, not free market capitalism.
Considering the scope of government intervention in this specific marketplace, rather than blaming the free market for this controversy, a more appropriate response would be “what free market?” And now, lawmakers are ironically “demanding answers” from Mylan. If forced to speak in front of a Congressional panel and asked what inspired this price hike, Bresch and company should be encouraged to hold up a mirror to lawmakers’ faces.
This article was originally published on FEE.org. Read the original article.
