Thursday, April 06, 2023

BusinessWeek Says "Why Cheaper Insulin Today Risks Higher Costs Later". We should want that!

On April 4, 2023, Bloomberg BusinessWeek magazine published an article entitled "Why Cheaper Insulin Today Risks Higher Costs Later" (see for the article). Unfortunately, Americans have grown much too accustomed to seeing prescription drug prices being artificially manipulated from behind-the-scenes by entities who rig the system to line their own pockets, hence today, we instinctively view higher prices in the future as a direct assault. 

Don't play that game!

If the U.S. prescription drug market was working properly, then patients might theoretically actually WANT it that way. The reason is because it means that insulin makers would be forced to innovate in order to make vastly better insulins (rather than merely incrementally better ones like those we've seen in recent years; such as Novolog/aspart to Faster Insulin Aspart, [a.k.a. Fiasp]), and we should want better insulins because every insulin analogue we have today all retain a nasty efficacy failure known as hypoglycemia. Instead, what if big insulin finally fixed that not-so-little problem? If they fixed the problem of hypoglycemia, then you might expect (and may be willing) to pay a little more for fixing that problem. We may finally potentially be headed in that direction. It's just that we've grown too accustomed to paying ridiculous prices for the same $#!tty old insulins.

If you ignore the hyperbolic Bloomberg BusinessWeek article title and actually READ the article, it is a bit of a warning that recent branded insulin price-cuts appear to be a threat to the nascent biosimilar insulin market. While I had a similar concern initially, the more I thought about the issue, the less persuaded I was that Lilly, Novo Nordisk or Sanofi's recently-announced insulin list price reductions (catch my coverage at for more) are likely to have much material impact on the insulin biosimilars market. 

For example, its not as if the massive, multi-billion dollar rebate dollars being paid as legally-exempted rebate kickbacks are going to Lilly, Novo Nordisk or Sanofi anyway, and the recent moves from Lilly, Novo Nordisk and Sanofi all pretty much leave the PBM rebate sharks out of their new insulin market price cuts, which is the way it should be. In fact, USC research (see for more) has shown that while insulin margins going to the manufacturers had been falling steadily over the years, the percentage of total insulin expenditures collected by PBM's had increased steadily over the same period (shifting away from pharma to PBM's while patient prices increased in either scenario). That's a market which was failing. Instead, the big insulin makers' most recent pricing moves simply bypass the PBM's, and instead slash prices for patients by using manufacturer coupons and insurance co-payment assistance, which effectively screws PBM's. I'm delighted to see that, and wish they'd done so much sooner.

A competitive threat of price-cuts from branded insulin-makers always existed for biosimilars makers, and those were factored into their business plans already. In every prescription drug market, once generics/biosimilars emerge, those new copies threaten the formerly lofty prices on virtually all prescription drugs. If the markets are not being artificially manipulated behind-the-scenes, we want that to be true. Here's why.

The real threat to biosimilars isn't Lilly, Novo Nordisk or Sanofi's recently-announced price-cuts, but the necessity for biosimilar insulin-makers to even compete in the PBM rebate nonsense. 

If big insulin opts out (as their recent pricing announcements announced their plans to do) of the PBM commercialization channel, then the PBM's lose. I'm OK with that. That's also why every single biosimilar insulin-maker is making the API ("Active Pharmaceutical Ingredient") of their insulins offshore in such places as Hyderabad India, Beijing and Yichang City (located in the Hubei province) China and/or Johor Malaysia. Yes, they could manufacture the insulin domestically in the U.S., but they aim to make the product as inexpensively as possible because they potentially anticipate the necessity of paying legally-exempted "rebate" kickbacks to PBM's to secure formulary placement, therefore having the fattest margins possible by making them offshore enables them to do rebating to PBM's, if necessary. 

What we don't want is for PBM's to force us to use cheaper (for the PBM) biosimilars, but then charge us exactly the same dollar amount they would have charged us for branded insulins, and keeping that price spread for themselves. That's exactly what one of the giant PBM's started doing back in 2021.

Cigna Express Scripts "Preferred" Biosim Semglee, But Charged Patients Practically the Same Price as Branded Lantus

Back in 2021, we ominously started to see just exactly how PBM financial gamesmanship on interchangeable biosimilar insulins was going to happen with the PBM's in control. It happened exactly as I just described it (see for more details on what was happening) when Express Scripts dumped Sanofi's Lantus in favor of Biocon's (commercialized by Viatris at the time) cheaper biosimilar Semglee. 

In theory, the use of a less costly biosimilar like Semglee should have saved everyone money, but what Express Scripts did instead was kept prices for Semglee nearly as high as they had previously charged patients for branded Lantus (hence patients realized little savings from the switch), and yet the patients were still forced to use Malaysian-made FDA-designated interchangeable glargine instead. That was all while Express Scripts made even more money. Luckily, FDA designated Semglee as "interchangeable" with branded Lantus, hence patients did not really suffer therapeutically because the product really does work pretty much the same (a miniscule number of patients experience issues related to the preservatives used in the copycat insulin, but they're a small minority), but their wallets assuredly WERE robbed. 

However, Sanofi's recently-announced list price cuts on branded (as well as its identical unbranded Winthrop Insulin Glargine Injection U-100) Lantus means that PBM financial gamesmanship (in the view of Express Scripts) could soon disappear, at least when it comes to insulin. The PBM's will be upset because their scam appears to be over and they'll no longer be able to collect billions in money they have not earned. The reason is because patients will soon be able to buy genuine Lantus for less money than Express Scripts' "preferred" biosimilar Semglee costs by simply using a Sanofi manufacturer coupon to buy it, and simply bypassing their own insurance (if necessary) to make the purchase, thereby saving themselves some major cash in the transaction. It's really not complicated: if Express Scripts wants patients to use Semglee, then Semglee needs to be a lot cheaper than actual Lantus, and voila: the problem is solved. Only Express Scripts loses in this scenario, and while Cigna (as owner of Express Scripts) might be upset, patients shouldn't really care. They were bankrolling that nonsense since 2021, and now they suddenly have options which save them a lot of cash.

That's something we should really want to see happen, because it forces PBM's like Express Scripts to play fair and honestly, or else they'll see their rebate-driven shell game broken. If they were being honest in the first place, then it likely wouldn't be a problem, but they were really behaving like scam artists who counted on no one being able to follow their sleights-of-hand.

2018 Sandoz Insulin Biosimilar Announcement Paved the Way for Others: Make Biosim Insulins Offshore

Back in December 2018, Sandoz announced (see the press release at for details) that it was partnering with China-based Gan & Lee to sell biosimilar insulins of the three bestselling insulin analogues. The company said it intended to commercialize biosimilars of glargine U-100 (innovator: Sanofi Lantus), aspart U-100 (innovator: Novo Nordisk Novolog) and lispro U-100 (innovator: Lilly Humalog). 

The reason Sandoz opted to collaborate with an offshore partner like Gan & Lee instead of making the insulins themselves (which it could have done) was disclosed as being because of Gan & Lee's "attractive cost of goods sold (COGS) structures". Sandoz also noted that Gan & Lee's laboratory featured multi-billion German-made equipment to meet substantial worldwide demand. The offshore partner was intended so the insulin margins would be sufficiently fat enough to pay multi-million dollar, legally-exempted rebate kickbacks to bribe U.S. PBM formulary managers to "prefer" the Sandoz/Gan & Lee insulins, and having a low-cost offshore manufacturer would presumably enable Sandoz to do just that. Parent company Novartis is currently in the process of formally spinning-off the Sandoz generics unit as a stand-alone company which is expected to be completed by the second half of 2023 (catch my coverage on that at for more). 

On February 23, 2023, Gan & Lee made headlines of its own as the first-ever Chinese insulin manufacturer to have a Biologics License Application (or BLA) officially accepted by the U.S. FDA (for biosimilar insulin glargine injection; see the press release at for more), although it will be formally commercialized by Sandoz under a brand-name of Sandoz' choosing once it is formally approved by FDA. No doubt, Sandoz guided Gan & Lee through each step along the way, and Sandoz will guide Gan & Lee through any questions FDA may raise along the way. We should expect similar moves for versions of both aspart and lispro to follow in the not-too-distant future, although I suspect Gan & Lee may have gained sufficient experience to be able to handle those matters pretty much on its own.

In fact, every publicly-held biosimilar insulin company I am aware of is using offshore API manufacturing (meaning: the labs and bioreactors are located abroad). Let's look at the first company to try and claim ownership of the U.S. insulin biosimilars market, specifically Viatris (which a number of years ago had a commercialization partnership with Biocon of India. It makes its insulin offshore in Malaysia). In fact, Biocon established its massive insulin factory in Johor, Malaysia (which is located very near the Singapore border). Last year, Viatris sold its share of their partnership directly to Biocon in order to reduce Viatris' debt load; although Biocon will retain access to key Viatris staff for several years in order to assist the company navigating any elements of the U.S. regulatory environment it might be unprepared to handle on its own.

Beyond Sandoz/Gan & Lee and Biocon, we also know of several other collaborations from public companies which have revealed plans in their SEC filings to sell insulin biosimilars. 

For example, Lannett Company, Inc. which is based in the Philadelphia area (specifically, in Trevose, Pennsylvania) has revealed plans to sell biosimilars of Lantus and Novolog which will be made in China. In Lannett's 10K filings with the SEC, the company disclosed the following info.:

"In 2016, the [Lannett] Company announced a strategic partnership with YiChang HEC ChangJiang Pharmaceutical Co., Ltd., an HEC Group company, to co-develop a biosimilar insulin glargine pharmaceutical product for the U.S. market. The product is currently in development, and a healthy human Pharmacokinetic/Pharmacodynamic modeling ('PK/PD') clinical trial was conducted in South Africa. The study met all of its primary endpoints. Subsequently, Lannett held a Biosimilar Biological Product Development Type II meeting with the FDA. The feedback was consistent with our expectations. The [Lannett] Company plans to manage the clinical and regulatory steps for FDA approval and will have the exclusive U.S. marketing rights to the product. Drug substance and drug product have been produced at a newly commissioned facility and we submitted an Investigational New Drug Application ('IND') on December 20, 2021. We anticipate filing the BLA for the biosimilar Insulin Glargine in early calendar 2023 and a potential launch in calendar year 2024. In February 2021, the [Lannett] Company expanded its strategic relationship with HEC and added a new co-development agreement for biosimilar Insulin Aspart, which is expected to potentially launch in calendar year 2025. In addition, we will market other generic products developed by HEC with several launches expected over the next few years.

More recently, in Lannett's 10K (the company's quarterly earnings release filed with the SEC) filings, the company further elaborated: "biosimilar Insulin Glargine and biosimilar Insulin Aspart for the treatment of diabetes both delivered in a device [meaning an insulin pen device], are widely-used medications that we believe represent a combined U.S. addressable market opportunity of approximately $16 billion in 2022, according to IQVIA although actual market sales will be less. Most of this value is related to the entire Insulin Glargine and Aspart markets."

The Lannett 10K filing added: "Additionally, we are focused on advancing our biosimilar Insulin Glargine and Insulin Aspart pipeline products. We filed our Investigational New Drug ('IND') application for Insulin Glargine in December 2021 to commence our pivotal clinical trial. This trial is ongoing and top-line results of the study are expected to be available at the end of calendar year 2022. We anticipate filing the BLA ('Biologics License Application') for the biosimilar Insulin Glargine in early calendar 2023 and a potential launch in calendar year 2024. The biosimilar Insulin Aspart pipeline product is expected to potentially launch in calendar year 2025. We believe leveraging our existing relationships to collaborate on new opportunities will enable us to further strengthen our pipeline."

While we don't know a tremendous amount about how Lannett intends to manage its partner HEC in the relationship, we do know that on November 7, 2022, Lannett issued a press release indicating it licensed an insulin pen injector device from Switzerland-based Ypsomed (see the press release at for details) to be used in connection with its biosimilar insulin glargine and biosimilar insulin aspart development programs. FYI, Lannett does not have a lispro biosimilar in development.

Then, there is also Amphastar Pharmaceuticals, Inc., which is based in Rancho Cucamonga, CA (located in San Bernardino County in the Los Angeles area). 

Some people might recall that Amphastar made headlines within the diabetes community back in 2020  (see the company press release about that at for details) as the first-ever generic glucagon emergency kit to receive FDA approval and be commercialized (in fact, Amphastar never acknowledged that another generic glucagon product from Fresenius Kabi was approved around the same time. Note: both are for old-school, mix-and-inject glucagon rescue kits). Amphastar has an affiliate (it says it is "vertically integrated" with Amphastar, but under Chinese law, Amphastar cannot own a Chinese subsidiary because that is illegal, hence it likely has a contract for an exclusive supplier relationship with Amphastar Nanjing Pharmaceuticals (ANP) located in Jiangsu China where the insulin APIs will be manufactured, and then ship them to a domestic "fill & finish" facility. Curiously, Amphastar has biosimilars of glargine (U-100 and U-300), aspart U-100 as well as two old-school rDNA biosynthetic human insulins. Initially, I thought it would be for Regular and the second human insulin was going to be isophane/NPH, but now I suspect that it may instead be the overpriced U-500 market for Regular insulin, specifically targeting insulin users with severe insulin resistant Type 2 diabetes, and that could offer it a great business opportunity since Lilly sells Humulin R U-500 at such ridiculous prices right now because it's the only company even selling the product today.

Not to be overlooked is Civica, Inc. (via the company's CivicaScript operating unit) which plans to follow a similar path of selling copies of Lantus, Novolog and Humalog, and relying on an offshore insulin API manufacturer, although Civica itself is a nonprofit drug company which will operate on a cost-plus basis which is unique in the insulin market. But, the company's March 3, 2022 press release (see the press release at for more detail) stated unequivocally: 

"Civica has entered into co-development and commercial agreement with GeneSys Biologics for these three insulin biosimilars [glargine, lispro and aspart]. Civica will use drug substance produced in partnership with GeneSys and will have exclusive rights in the U.S. to market and sell these insulins at costs that are substantially lower than what is currently available in the U.S.". 

Also, much like Lannett Company, Inc., on January 31, 2023, Civica announced a licensing agreement with Ypsomed as the manufacturer and supplier of the insulin dosing injector pens to be used for Civica's insulin biosimilars (see the press release at for details). While Civica made headlines recently as the entity which will supply the State of California's affordable insulin (see HERE), from the beginning, Civica forecast that the company anticipated supplying up to 30% of the U.S. insulin market's need, and that its real goal was to transform the insulin market which was failing because of PBM financial gamesmanship.

While there's a lot of detail pertaining to all of these biosimilar insulin developments, the underlying facts are the same with all of them: the biosimilar companies which have disclosed intention to sell biosimilar insulins in the U.S. have offshore API manufacturers, and the reason mirrors what Sandoz told investors back in 2018: because of the "attractive cost of goods sold (COGS) structures", and that is partially necessitated by the PBM rebate kickback problem. But, making the product offshore essentially solves the problem of production costs.

As the Bloomberg BusinessWeek article acknowledges with a quote from Leemore Dafny, a professor at Harvard Business School, Pharmacy Benefit Managers [PBM's] collect payments from drug companies in exchange for listing certain medications as the preferred choice for patients, but she notes those rebates are smaller on lower-priced medicines (and that includes biosimilars).

So, where does that leave insulin biosimilars destined for the U.S. market?

Well, the entire biosimilar insulin business strategy is predicated on making the API for insulin offshore so their margins are as fat as possible. That would theoretically enable them to play the PBM rebate game, if necessary. Initially, PBM's saw biosimilar insulins as a financial benefit to themselves. But soon, Civica will be changing the dynamic because it has said it refuses to play the PBM rebate game, and instead, it will pass the savings of making insulin API's in India (which would ordinarily go to PBM's as legally-exempted rebate kickbacks) and go to patients in the form of lower, transparent prices instead.

The big insulin manufacturers' latest list price cuts appear to be completely bypassing PBM's, which means those entities are going to feel some financial pain as a result of the changes. The PBM's deserve it; they've been screwing everyone (employer health plan sponsors, patients and independent pharmacies alike) on insulin. For years, they've been collecting 75% to 80% of the artificially-inflated manufacturer gross sale prices as rebates paid to them in order to exclude rival insulin products and keeping the rebates, or giving them to their insurance company owners to sell more insurance policies. Either way, they are taking money which manufacturers intend to go towards patient price reductions, and have been misdirecting towards themselves instead. 

To be sure, PBM's face growing scrutiny over their business practices. For example, last June, the FTC unanimously voted on a bipartisan basis to formally study PBM business practices. 

FTC voted unanimously on a bipartisan basis to initiate a 6(b) study of the PBM industry practices (see the news release at for more detail). Ahead of the conclusion of that study, FTC also formally issued a new policy statement (see for the statement).

The new policy statement put both drug companies and prescription drug middlemen on notice by stating that paying rebates and fees in order to exclude competitors offering lower-cost drug alternatives can violate competition and consumer protection laws and that it intends to ramp up enforcement against any illegal commercial bribes and rebate schemes that block patients' access to competing lower-cost drugs. The enforcement could come upon conclusion of the 6(b) study on PBM's.

The FTC's enforcement policy statement outlined what is said are the legal authorities that may apply when dominant drug companies pay rebates and fees to middlemen to foreclose competition from less expensive generic and biosimilar alternatives, including:

  • Exclusionary rebates that foreclose competition from lower-cost medicines may constitute unreasonable agreements in restraint of trade under Section 1 of the Sherman Act; unlawful monopolization under Section 2 of the Sherman Act; or exclusive dealing under Section 3 of the Clayton Act.
  • Inducing prescription drug middlemen [such as PBM's] to place higher-priced drugs on formularies instead of lower-cost alternatives in a manner that shifts costs to payers and patients may violate the prohibition against unfair methods of competition or unfair acts or practices under Section 5 of the FTC Act.
  • Paying or accepting rebates or fees in exchange for excluding lower cost drugs may constitute commercial bribery under Section 2(c) of the Robinson-Patman Act, which prohibits compensating an intermediary to act against the interests of the party it represents in the transaction.

Of course, we could ultimately see the U.S. Department of Justice's Antitrust Division sue the vertically-integrated (with commercial healthcare insurance companies) PBM's, and it could potentially result in divestitures of PBM's from commercial healthcare insurance companies (mainly United Healthcare's Optum, Cigna's Express Scripts, and in a role-reversal of sorts CVS Health's Aetna unit might be forced to sell or spin-off its PBM Caremark or its Aetna insurance company).

While insulin has been a particularly acute example, we don't need to look further to see that Dexcom is paying PBM's for "formulary exclusions" of rival CGM products, in particular Abbott's Freestyle Libre, which is excluded from United Healthcare Group's OptumRx formulary, as well as CVS Health/Aetna/Caremark's formularies, which would appear to be impacted by the same business practices (see my coverage at for more). But what happens if FTC sues, and formulary exclusions of less costly products disappear? Then PBM's could still price "preferred" brands of products less than non-preferred products. But generics and biosimilars could potentially remain even cheaper, hence price would be the primary decision factor for most patients. But that will cost PBM's money, which arguably was stolen from patients in the first place.

But the question remains: will Lilly's, Novo Nordisk's and Sanofi's recent list price-cuts be a death blow to biosimilar-makers? 

In my assessment, that seems highly unlikely. 

To be sure, it does make it more challenging to stay competitive, but remember: they're already making the insulin offshore in India, China or Malaysia, so they will have the margins to compete on price. Several of them, including Amphastar/ANP and Lannett/HEC sell what they refer to as "white label" products (also referred to as private label products) sold under the brand-names of their retail partners. That means, we could potentially see a Walgreens Insulin Aspart, or a Rite Aid Insulin Glargine in the not-too-distant future. Those retailers won't sell them if they're more costly than branded insulins, so the biosimilar-manufacturers will need to be mindful of what prices they set. And, make no mistake: it's possible that not every biosimilar insulin maker will succeed. But we'll see when they hit the market in 2024 and 2025.

Will patients pay more for insulin in the long-run? 

Well, it's clear they likely will NOT pay more for insulin analogues whose patents have already expired. 

One of the benefits of patent expirations is that new competitors (biosimilars) emerge. But big insulin is likely to opt to invest in newer, superior insulins. Among those are likely to be glucose-responsive insulin, which I recently blogged about (catch my post at for my coverage of that). 

Many patients rightfully still believe that a superior product which mitigates a terrible efficacy failure (hypoglycemia) that what we suffer from today might actually merit a higher price. But the PBM kickback matter is something that remains fundamentally dysfunctional. It is also possible that for patients with Type 1 diabetes who are more likely to suffer from impaired hypoglycemia awareness and suffer from hypoglycemia induced autonomic failure, the insurance companies may be inclined to agree that such a product could be worth a higher price, although insurers still play stupid games with coverage, so we may need regulators and lawmakers alike to step in to fix those market failures. But, in general, better products can (and likely should) command higher prices, which is how competitive (non-manipulated by PBM's) markets are supposed to work. 

Has big insulin given up on the multibillion dollar legally-exempted rebate kickbacks? 

We don't really know for sure. They certainly aren't doing it for older, patent-expired products but they are currently investing in new insulins which could be vastly better, though none are ready for commercialization and I'm betting they won't be for a decade at least. But, they along with biosimilar-makers could deploy a dual NDC strategy. Specifically, a high-price/high-rebate branded product aimed at the PBM segment, and an identical, low-price/low-rebate unbranded product aimed at the patient market. Lilly is doing so on its bestselling prandial analogue Humalog, Sanofi is doing so on its bestselling basal analogue Lantus, while Novo Nordisk is doing so on its newest basal analogue Tresiba as well as its patent-expired prandial analogue Novolog.

As I shared Adam J. Fein's "Drug Channels" post a bit earlier, he pretty much described the situation in a November 2021 Drug Channels blog post (see for the post):

"The Food & Drug Administration (FDA) recently approved the first interchangeable biosimilar insulin product: the insulin glargine-yfgn injection from Viatris." 

However, he added:

"Alas, I'm sad to report that the warped incentives baked into the U.S. drug channel will limit the impact of this impressive breakthrough. Viatris is being forced to launch both a high-priced and a low-priced version of the biosimilar. However, only the high-list/high-rebate, branded version will be available on Express Scripts' largest commercial formulary. Express Scripts will block both the branded reference product and the lower-priced, unbranded—but also interchangeable—version."

He further added:

"The unbranded insulin glargine, which also is interchangeable with Lantus, will have a WAC that's 65% lower than that of the reference product."

In other words, Viatris (which on November 29, 2022 sold its half of its biosimilars business completely to Biocon Biologics Ltd.) sells two identical versions of the same product, with an unbranded version being the vastly less costly version. I suspect all of the other biosimilars companies except perhaps Civica (which intends to sell its insulin on a cost-plus basis) will deploy the same strategy, although Lannett and Amphastar may also opt to sell less costly unbranded versions which they will put retailers like Walgreens and Rite Aid's names on the insulin packaging or they could pursue a dual branded/unbranded strategy.

The main unanswered questions right now are just how much lower will their unbranded versions be? 

We do know that given Civica's intent to sell the biosimilars for prices of no more than $35/vial or $55/box of 5 prefilled insulin pens puts new pressure and essentially takes PBMs' ability to sell for much higher prices away, hence those prices are really the effective ceiling; there's not much room to charge much higher prices in my view, since patients may opt to buy the real thing, or Civica's biosimilars. The other biosimilars will have to play along. PBM's could ultimately match those prices or even beat them on their "preferred insulins", but the unanswered question is whether the biosimilars-makers will be able to go any lower? They will be enabled to compete with lower prices, which is why they're making insulin offshore. The only difference is that PBM's won't be able to arbitrage much higher prices as they have been able to in recent years.

1 comment:

TheScream said...

Excellent article... thank you for the eye-opener!