Humalog’s list price may have gone up, but Lilly says it got paid less per sale in 2018 versus 2014

As scrutiny into insulin pricing in the United States intensifies, Lilly is laying out the groundwork for its defense ahead of a third Congressional hearing on soaring drug prices next month in which the middlemen — pharmacy benefit managers — will do their utmost to exonerate themselves in the role they play in prescription drug pricing.

Drug pricing is a contentious issue that has provoked widespread furor and elicited bipartisan support. While patients and lawmakers decry outrageous prices, drugmakers and PBMs are pointing fingers at each other: The drugmakers say list prices are rising to combat the bigger rebates/discounts the all-powerful middlemen negotiate, while PBMs argue that ultimately the power to set list prices lies with the drugmakers. The losers are the final end-users — the patients whose out-of-pocket costs are closely intertwined with list prices.

The first drug pricing hearing held in January focused on the skyrocketing price of insulin, with parents testifying that their children had died after unsuccessfully rationing their insulin. Such anecdotal reports of diabetics rationing and forgoing insulin have become commonplace. The United States is home to more than 30 million diabetics, and the average price of insulin nearly tripled between 2002 and 2013, according to American Diabetes Association (ADA) estimates.

On Sunday, the US drugmaker — one of the trio of big global insulin makers: Sanofi and Novo Nordisk that serves the United States — issued a report breaking down what it gets paid, on average, versus the list price of its insulin treatments.

Between 2014 and 2018, the list price for Humalog — Lilly’s most popular insulin — increased 51.9% while the average amount that Lilly received — the net price — declined by 8.1%, as the company increases (and in some cases is forced to hike) the magnitude of rebates and discounts it offers.

Source: Lilly

Lilly’s disclosure can be viewed as a step toward transparency, as much as it is a dig at the role of PBMs and other middlemen in insulin pricing — given it has become increasingly clear that the bigger rebates are not trickling down to the patient. The complicated drug supply chain has confounded lawmakers and researchers alike. In a recent analysis conducted by an ADA working group — which held discussions with more than 20 stakeholders in the insulin supply chain — it is unclear precisely how the dollars flow and how much each intermediary profits.

Lilly’s report comes after the drugmaker pledged to launch a half-price generic of Humalog — which generated nearly $3 billion in 2018 sales — earlier this month. Express Scripts $ESRX — a large PBM— came out in support of the move. “We often have asked drug companies to simply lower their prices. Instead, drug companies have elected to increase prices and increase rebates. This is the option drug makers have chosen for themselves and for the marketplace,” the company earlier said in a statement. “We are in discussions with Eli Lilly about Humalog authorized alternative, and if the net cost is lowest for plans, we will add it to our Flex Formulary.”

Although insulin was discovered in 1921, advances in genetic engineering catapulted human insulin formulations to patients with diabetes in the 1980s. Rapid-acting and long-acting human insulin analogs were introduced in the 1990s, and since then other upgrades have been introduced, however the patents for many formulations in current clinical use have expired.

Conventional economic theory asserts new products entering the market will spark pricing competition and render legacy products obsolete, but in the US pharmaceutical market prices of older drugs are often adjusted to reflect the higher prices of novel therapies being introduced. This phenomenon, called “shadow pricing,” offers monumental incentives for both the drugmakers and payers in a “coordinated monopoly,” while patients (both insured and uninsured) often bear the burden of these costs, a recently published study in Nature suggests.

The prices of Lantus (Sanofi) and Levemir (Novo) have risen in lockstep with each other on 13 occasions since 2009. In fact, the prices registered an increase of 30% within one year alone. When the more popular Lantus initiates the price increase, Levemir often follows suit within a span of days. In the fast-acting insulin market, dominated by Eli Lilly’s Humalog and Novo Nordisk’s Novolog, we see that prices for the two moved in lockstep in 17 instances for a decade, for a final price three times higher. In fact, a vial of Humalog that cost just $21 when it was released in 1996 today costs $275…Ironically, although the industry uses shadow pricing as a tactic to counter anticipated losses in revenue associated with a drug falling off the ‘patent cliff’, this practice could ultimately backfire if it ends up bankrupting US healthcare economics.

This staggering, and somewhat inexplicable, jump in legacy insulin products has garnered the attention of lawmakers. Last month, Senators Chuck Grassley and Ron Wyden sent letters to leading insulin manufacturers: Lilly, Novo Nordisk and Sanofi seeking information regarding recent price increases of up to 500% or more for insulin. Meanwhile, outgoing FDA commissioner Scott Gottlieb has underscored the significance of carving out a biosimilar pathway and nurturing biosimilar competition for insulin to subdue high prices.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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