Question 2: (40 points)

Read the case below and complete an analysis of the macro-environment using the PESTEL framework (identify all segments of the macro-economic environment and identify trends from the article associated with each segment). If no information is provided regarding a specific segment, indicate this with no information.

Also, identify whether the trends are favorable or unfavorable for Mylan (20 points).

Mylan Reacts to EpiPen Backlash

Drugmaker says it will assist more patients in covering cost of allergy treatment

A backlash over Mylans pricing tactics is shedding light on its grasp of the market. On Thursday, after politicians, physicians and lawmakers criticized the price of EpiPen, Mylan offered to provide more financial help to patients, saying it would cover their insurance out-of-pocket costs up to $300, from $100 previously. It also said it would expand the number of low-income patients eligible to receive company subsidies. But the company didnt roll back EpiPens high list price.

Since acquiring the rights to sell EpiPen in late 2007, Mylan has increased the list price of a pack of two to $608.61, raising its list price nearly 550% over eight years. The two most recent price increases, last November and this May, came after Sanofi SAs competing Auvi-Q was recalled, according to Truven Health Analytics. During the same period, personal incomes in the US has barely kept pace with inflation, increasing about 2-3% annually.

It seems like there is not much we can do simply because we dont have optionsits Mylan, says Roo Ciambriello, a writer in New Haven, Conn., who has three daughters, two of which have severe food allergies. She runs a website, Scratch or Sniff, in which parents have been exploring what to do to control the costs and help less-fortunate families struggling to afford the products. This is becoming a bigger burden for parents as the number of children with serious allergies has increased.

With Auvi-Q off the market, Im a consumer without choices, and we have to live with the choices made by pharmaceutical companies, Ms. Ciambriello says. Because EpiPens generally expire after a year, Ms. Ciambriello says she must buy eight packs of EpiPens so they are handy at home, school and to carry, purchases which she says can cost her family thousands of dollars under her high-deductible health plan.

She contacted both her senators and the state attorney generals office to complain. People will let their EpiPens expire and not replace them because theyre so expensive, so theyll go without them and play Russian Roulette that they can keep their kids safe. Thats dangerous. Accidents happen. Weve used ours three times. With the passing of the Affordable Care Act, many Americans generally expect all forms of health care to be accessible and affordable to everyone. They also expect the most advanced and convenient healthcare products and services in the world.

The EpiPen delivers a shot of epinephrine, a synthetic version of adrenaline, for which the patent expired long ago. Mylans special ingredient is the patented hand-held delivery device that allows users to easily inject themselves in an emergency.

Making such sterile injectables is expensive because of the need to keep out contaminants at every step, adding another hurdle for any rival. The upfront costs on that are pretty high, says David Lebo, a Temple University professor specializing in pharmaceutical manufacturing.

A few competitors have tried but so far have failed at challenging EpiPen. Auvi-Q was prescribed 353,600 times last year, according to IMS Health, before Sanofi was forced to recall the product because of dosing problems. It is still off the market. There were over 1.5 million prescriptions for EpiPens.

Teva Pharmaceutical Industries Ltd. has sought to sell a generic version. But Mylan has said that Tevas version endangers patients trained to use the EpiPen, because Tevas isnt an exact copy. In February, the Food and Drug Administration rejected Tevas application for approval, the company said, without specifying the reasons.

Rivals havent always competed with EpiPen by undercutting their price. For a time last year before it was recalled, Auvi-Q listed for roughly the same price as EpiPen, according to Truvens wholesale acquisition cost records.

Impax Laboratories Inc. raised the price of another rival, called Adrenaclick, to about the same level a week before Auvi-Qs recall in late October 2015. Impax can only manufacture so much product because plant workers assemble the components by hand, says Mark Donohue, a company spokesman. The company is investing in automating the manufacturing of Adrenaclick, he says, but it will take a few years. Current capacity limits sales to about 150,000 prescriptions per year.

Sanofi is a French pharmaceutical company, while Teva is headquartered in Isreal. Mylan is headquartered in the Netherlands. Impax is the only competitor that is based in the U.S. The market for epinephrine devices is international and pricing varies by country. Pricing in the U.S. is typically 30-50% higher than other countries with national healthcare plans.

The markets pricing power speaks to Mylans successful brand building. The company effectively stoked demand for the emergency allergy treatments after acquiring EpiPen rights in late 2007. Mylan launched a marketing campaign that raised awareness of the dangers posed by peanut and other allergies, along with the need to be prepared for severe reactions. The efforts increased demand for emergency treatments, especially among parents whose children have allergies.

With the help of patient groups, the company also lobbied governments to encourage the ready supply of EpiPens in schools and other public places, much like defibrillators.