Mylan N.V. (MYL) had bought EpiPen in 2007, when the device sold for about $57 each and had $200 million in annual sales. The company hiked the price to $300 each and provided Mylan with $1.2 billion in profits in 2015.
Since then, Mylan has released a generic EpiPen at about half the cost of the brand-name version. The company also continues to make and market the original product.
Mylan isn’t the only company to take advantage of Americans who need their over-priced meds to survive …
Remember about a year ago when Turing Pharmaceuticals made the front pages? Its CEO, Martin Shkreli, had been a hedge fund manager. He hit the news when Turing bought the drug Daraprim and quickly jacked up the price to $750 a tablet from $13.55. That’s a 5,000% increase.
Shkreli appeared at a congressional hearing on prescription drug pricing in the U.S. Afterward he tweeted that he was doing what a CEO should do: make maximum profit for shareholders.
And he only regretted not raising the price even more.
How do Mylan, Turing, and others get away with charging whatever they want for life-saving drugs?
Easy answer: the U.S. Food and Drug Administration (FDA)
You see, after a drug makes it through the approval process, the FDA virtually guarantees years of high monopoly prices. That’s thanks to the plethora of regulatory barriers that inhibit competition.
And scores of companies have clearly used those barriers to fatten their coffers.
However, such shenanigans may be coming to an end. That’s thanks to the …
21st Century Cures Act
It costs about $1 billion to bring a new drug to market, which severely stifles competition. If that expense were cut, then competition would increase. And it would be nearly impossible for companies to charge Americans thousands of dollars per month for the meds they desperately need.
The 21st Century Cures Act seeks to do exactly that. Its mission is twofold: to improve the federal regulatory structure of the FDA’s approval process … and speed up the development of new drugs.
That means generics could come on the market faster … and push down the amount you spend each month on prescription drugs.
The $6.3 billion measure also provides new research grant funding. This includes funding for many diseases and conditions from Alzheimer’s disease to opioid addiction and Vice President Joe Biden’s “moonshot” to cure cancer.
The House and Senate overwhelmingly passed the Bill. And President Obama signed it into law last month.
But this legislation wasn’t without critics …
Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) were among the most vocal. They said the bill’s changes to drug-approval processes gave too many concessions to pharmaceutical companies.
And Public Citizen, a progressive activist group that opposed the bill, called it …
“ … sorely disappointing that Congress gave Big Pharma and the medical device industry an early Christmas present that comes at the expense of patient safety by undermining requirements for ensuring safe and effective medications and medical devices.”
Neither Obama nor Congress offered a way to pay for all of this. That leaves President-elect Trump and the 115th Congress to bicker over that detail.
How You Can Profit
Streamlining the approval process and bringing meds to market faster could be a boon for Big Pharma. So it’s understandable why more than 1,300 lobbyists, most of them working for pharmaceutical companies, had pushed for passage.
And their work paid off.
Besides the prospect of lower prices for meds you might need, the legislation will allow companies to use “data summaries” to support the approval of certain drugs, rather than full clinical trial data. Less data could translate into more meds coming to the market faster.
And higher volume means higher profits.
The Cures Act will also allow drug companies to promote off-label uses to insurance companies, allowing them to expand their markets.
Medical device companies could see a surge in business, too.
According to the Advanced Medical Technology Association, which represents 300 medical device companies, the Act allows a quicker path for breakthrough medical technologies for patients with life-threatening or irreversibly debilitating diseases or conditions, and limited alternatives.
The group’s president, Scott Whitaker, said
“Passage of this important legislation is a milestone in improving the innovation ecosystem for medical technology and ensuring the availability of new lifesaving, life-enhancing devices and diagnostics for patients.”
Companies in the generic pharmaceutical sector should benefit handsomely from the Cures Act. Two top players are Gilead Sciences Inc. (GILD) and, yes, Mylan.
|GILD and MYL have fallen about 25% apiece over the past year.|
They both took a beating last year but might be worth considering for your portfolio here in the new year.
Yet if you are somewhat risk-averse and ETFs are more to your liking than stocks, then you may want to instead give the SPDR S&P Biotech ETF (NYSE:XBI) a look.
XBI seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index. It’s only down about 11% over the past year, compared to the beating that certain individual stocks in this space have taken.
Top holdings include Ionis Pharmaceuticals (IONS), Tesaro Inc. (TSRO), Incyte Corp. (INCY)and Exelixis Inc. (EXEL), which develop drug therapies for cancer, rheumatoid arthritis, cystic fibrosis and a wide range of other health issues.
What’s unique about XBI is that the 85 stocks within this ETF are equal-weighted. In other words, no matter what size they are — from small biotechs to bigger players — they are equally represented within the fund.
This gives you exposure to potentially huge moves from the little guys, without the huge risks of just owning one or two stocks and hoping for big hits and no misses.
Yes, XBI is trading a bit lower than where it was last year at this time. But if you’re out to profit from what the lame ducks in Washington just passed, XBI could deliver longer term. Now if we could only say the same about the 115th Congress that just reported for duty!
SPDR S&P Biotech (ETF) (NYSE:XBI) was unchanged in premarket trading Friday. Year-to-date, XBI has gained 5.54%, versus a 1.28% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Uncommon Wisdom Daily.