EpiPen gets a new rival: Auvi-Q. Its pricing scheme will blow your mind

Competition for the EpiPen keeps mounting.

The talking auto-injector competitor to Mylan's billion-dollar allergy attack remedy, the Auvi-Q, will return to market Feb. 14, manufacturer Kaleo said Thursday. The price? A whopping $4,500 for two auto-injectors.

But not so fast, Kaleo said. It guarantees a cash price of $360 for two auto-injectors. Plus it will offer a program it calls Auvi-Q AffordAbility that guarantees U.S. patients with commercial insurance will have no out-of-pocket costs for the devices, plus free product for those who don't have insurance and have a household income of less than $100,000.

It's an example of the complicated economics that govern drug pricing.

"We wish we didn't have to do this, but the system is set up in a way that without this bold move, patients wouldn't get access and be able to afford Auvi-Q," Kaleo Chief Executive Spencer Williamson said in a telephone interview with CNBC Thursday. "We're confident the model provides access and affordability, and that it is a sustainable model."

No competing device, branded or generic, Williamson added, "will cost a commercially insured patient less out of pocket than Auvi-Q."

The list price is multiples higher than competitors, though, including the EpiPen. But Kaleo said it expected many insurers to cover the product.

"Fortunately many health-care plans out there see the benefit of having choice for patients," Williamson said. "The reason the list price is high is it's the only way we can make sure patients have access and can get it for $0."

When reached Thursday, multiple analysts of the pharmaceutical industry either expressed disbelief or laughed at the $4,500 list price for two Auvi-Q auto-injectors. One thought $4,500 must be a typo, that an extra zero had been added.

"This is where pharma is going, that's the thing," said Bernstein analyst Ronny Gal. "The trick right now is how to try to isolate the patient from the pain while being able to charge more and more."

Will enough insurers actually pay full price, or close enough to it, to offset what the company pledges to spend in patient assistance?

"Yes," Gal said. "The entire game is to charge an enormous amount of money to insurers and have those insurers cross-subsidize everybody else."

Williamson says nobody, even private insurance plans, will pay $4,500, because they'll get discounts and rebates. Gal estimates even with a 30 percent or 40 percent discount to insurers, Kaleo would be in the black.

"You're still getting $3,000 for a product that probably cost them under $100 to make," Gal said.

Mark Herzog, Kaleo's vice president of corporate affairs, declined to share whether Gal's estimate on manufacturing costs is correct, saying as a private company, Kaleo doesn't share confidential financial information.

"We've seen this pricing mechanism before," said Michael Rea, CEO of Rx Savings Solutions. "It's the same game with a new drug."

Auvi-Q's list price compares with a list price of $608 for two EpiPens, the price that sparked a firestorm that's plunged Mylan's stock more than 26 percent since August. EpiPen prescriptions leap during back-to-school season as parents stock their kids up for the year ahead, and the price — up 400 percent over a decade — hit many hard this year.

The Auvi-Q, before it was pulled at the end of 2015, was priced similarly to — and slightly higher than — the EpiPen on a list price basis, according to data from Evercore ISI.

But drug companies argue the list price doesn't accurately reflect revenue flowing to them; as Mylan Chief Executive Heather Bresch has told reporters and Congress since the pricing scandal erupted, many others in the health-care system, predominantly pharmacy benefits managers, benefit from higher list prices as well.

As a result of the public outcry, Mylan introduced an authorized generic version of the EpiPen — the same product but without the brand name on it — at half the price. It also increased its patient assistance as well.

The Auvi-Q device was pulled from the market in late 2015 by then-seller Sanofi (Euronext Paris: SAN-FR) because of the potential for delivery of an inaccurate dose of the lifesaving drug epinephrine. Williamson and Auvi-Q co-inventor Dr. Eric Edwards said Thursday they are confident in the quality of the devices they plan to bring back to market.

The Auvi-Q isn't the only competition Mylan's now facing for its biggest product. Last week, CVS (CVS) made a deal with Impax Laboratories (IPXL) to sell another epinephrine auto-injector, the Adrenaclick , for a cash price of $109.99 at its pharmacies.

Analysts argue this complex system of drug pricing demands more transparency.

"It's extremely confusing that you have this multi-thousand dollar list price and then you have a cash price that's so much lower," Wells Fargo analyst David Maris said by telephone Thursday. "It's an exceptionally confusing system that preys upon confusion, because with confusion comes bad decision-making."

"Here's the problem with this," Maris continued. "A lot of companies want to point to the idea that no one pays retail; it's like diamonds — 'Suckers pay retail' — Well, someone's paying something that they shouldn't be paying."

Correction: Mylan's stock has plunged more than 26 percent since August. An earlier version misstated the percentage and month.

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