What Is The Potential Of CVS’s EpiPen Substitute?
Last week, CVS Health (NYSE:CVS) announced the launch of a cheaper generic alternative to Mylan’s EpiPen. The cheaper alternative low-cost epinephrine injector, manufactured by Impax Laboratories, is an approved generic for Adrenaclick and will be sold across all CVS locations at a price of $109.99 for a two-pack, against the price of $649.99 for EpiPen and $339.99 for the authorized generic for EpiPen. [1] The company will continue to sell EpiPen and its generic in all of its 9,694 stores. The low cost EpiPen alternative is expected to help millions of Americans who use the epinephrine injector to protect themselves from severe allergic reactions.
EpiPen Controversy
EpiPen is a life saving device that helps people in cases of severe allergic reactions. The ease of use of the product has led to a rise in its use and popularity. The only issue has been the relatively short shelf life of the product, as it needs to be replaced every year even if unused.
Last year, Mylan, the manufacturer of EpiPen, was embroiled in controversy as it continually raised the retail price of EpiPen from $103.50 for a pack of two in 2009 to $608.61 last year. The steady price increase drew the ire of insurance companies, with some discontinuing coverage of the product and its consumers. The controversy led to the company launching a “zero-pay” card which reduced co-pays for people with good insurance, but didn’t significantly help others. Additionally, the company discussed plans to launch its own generic version of the drug at a wholesale acquisition cost (WAC) of $300.
The steady rise in the price of EpiPen also helped the fortunes of Mylan, whose annual revenues increased from $6.8 billion in 2012 to $9.4 billion in 2015. For the quarter ending September, the company reported revenues of $3.1 billion, an increase of 13.4% over the same period last year. EpiPen contributed roughly 10% to the company’s top line but added 40% to its profits. Additionally, the company expects EpiPen to contribute 6% to its revenues in fiscal 2017. [2]. Per Reuters compiled analyst estimates, the company is expected to generate total sales of $12.7 billion, with close to $1 billion expected from EpiPen. All of this is expected to change with the availability of a cheaper alternative at CVS’ stores.
CVS Generic Launch
The cheaper EpiPen alternative could affect Mylan, but is unlikely to have a material impact for CVS. Even if all EpiPen sales went to CVS going forward, given the lower price point it would only add somewhere in the $200 million range to CVS’ revenues. This is not significant for a company with annual revenues in excess of $150 billion. Additionally, the impact of the latest offering at CVS on its bottom line will be difficult to measure since neither of the two companies, CVS and Impax Laboratory, have disclosed the pricing agreement between them.
With that said, the EpiPen alternative should help CVS generate some goodwill among consumers who have been facing issues with higher prices. At the same time, since CVS has not discontinued the sales of EpiPen and its authorized generic drug, the increased sales of Impax’s cheaper alternative could lead to lower revenue per prescription filled for the company, which has been consistently declining due to the increased sales of generics.
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Notes:
- CVS Health Offers Lowest Cash Price for Generic Epinephrine Auto-injector, CVS Newsroom, January 18 2017 [↩]
- Mylan Q3 Earnings Transcript, Seeking Alpha, November 9 2016 [↩]