Mylan boosted EpiPen’s price amid bonus target for execs
As Mylan (MYL) was jacking up the price of EpiPens over the past two years, the drugmaker was also planning to boost something else: its top executives’ pay.
In 2014, Mylan adopted a one-time incentive plan for about 100 top executives that promised to reward them if the company could reach adjusted per-share earnings of $6 by 2018. At the time, the bonuses were worth $82 million to its five top executives alone, according to The Wall Street Journal.
Since the plan was adopted, Mylan has doubled the list price of the EpiPen, a life-saving allergy treatment whose rapid price increases and current $608 price tag has stirred outrage among parents, lawmakers and health-care advocates.
Although companies frequently establish one-time bonus programs to ostensibly align executives’ interests with those of its shareholders, pharmaceutical companies may face ethical questions that don’t necessarily impact other industries. Drugmakers and their investors may enjoy higher profits after they hike prices on their products, but the flip side can be financial pain, illness, and even death if patients and their families are unable to pay for a life-saving medication as a result of those price increases.
It’s “amazing how much consumers can be forced to cough up when such pay agreements occur in an industry where there’s inadequate competition,” wrote Robert Reich, the former secretary of labor, in a Facebook post on Thursday about Mylan’s one-time bonus plan.
In an email to CBS MoneyWatch, Mylan said the incentive plan wasn’t tied to any specific product.
“The targets set forth in the one-time special program were not and are not practically achievable based on pricing of any single product,” the company said. “In fact, Mylan’s business has performed well across all business segments, with our generics business -- which saved the U.S. health care system hundreds of millions of dollars last year -- nearly doubling since 2008.”
Still, the EpiPen has significantly contributed to Mylan’s revenue and bottom line. When Mylan bought the allergy medication from Merck in 2007, it contributed about $200 million in sales. After years of price hikes, revenue has surged to about $1 billion annually. Margins have jumped from about 9 percent in 2008 to about 55 percent in 2014, Bloomberg News reported, citing researcher ABR|Healthco.
Mylan’s adjusted per-share earnings, the yardstick by which the executives will reap their bonuses, have increased since the plan was enacted. In 2013, adjusted EPS was $2.89. By 2015, the most recent period for full-year results, the company earned $4.30, or a jump of 49 percent.
While common, one-time bonuses also haven’t been controversy-free.
Take enterprise software maker Computer Associates. A decade ago, it was involved in a corporate scandal when its top executives were linked with a contract backdating scandal. The executives, not coincidentally, were in line for $670 million in bonuses if its shares remained above a certain price.
In 2014, Mylan said in a regulatory filing the one-time bonus was geared to delivering “return on executive leadership.” It said the plan would provide an incentive for executives to remain with the company through 2018. One group that wasn’t mentioned: customers or patients.
For the most part, executives aren’t likely to resort to accounting shenanigans to achieve their bonus goals. Yet such structures in the pharmaceutical industry raise ethical questions, especially when lives may be risked in return for executive bonuses.