Monday, June 19, 2023

What happens when Rx price bubbles (such as on insulin) burst?

In the first half of 2023, Americans witnessed evidence of a rather fundamental shift in the manner pharma had traditionally opted to commercialize selected prescription drugs. Specifically, in March 2023, Lilly, Novo Nordisk and Sanofi each announced they planned to slash list prices for insulin. To do so, they would disintermediate PBMs from the transaction and "opt out" of the PBM commercialization channel (for patent-expired insulin analogues, anyway).

The decision wasn't really all that difficult; for years branded insulin-makers had been complaining that PBMs and other drug distribution system entities had been gobbling up an ever-larger share of their revenues, while at the same time, patient complaints grew louder and more frequent that they were not realizing any of the benefits of all that behind-the-scenes discounting. Something was broken. In March 2020, Sanofi headlined a section of the Wall Street Journal when it complained that its realized "net" prices on Lantus had been falling steadily, and then academic researchers at University of Southern California proved it wasn't just Sanofi who was experiencing that, rather all of them were experiencing the exact same problem with middlemen grabbing over half of all the revenues.

Yet the biggest vertically-integrated (with commercial healthcare insurance companies, specifically United Healthcare's OptumRx, CVS/Caremark/Aetna and Cigna's Express Scripts) PBMs actually threatened Lilly, Novo Nordisk and Sanofi that if they opted out of PBM sales for insulin that they would punish the drug companies by excluding their other drug categories from their formularies, so the initial plan was to simply sell less costly unbranded "authorized generic" versions of their insulins as lower price/no rebate versions, along with the usual branded high price/high rebate versions sold via PBMs. As I have said on several occasions previously, the pharmaceutical and biologics industry has a weird, unhealthy co-dependency on the PBM sales channel for prescription drugs. They took the PBM formulary exclusion threats seriously. Until they didn't any more, and realized it was bull$#!t all along.

But two years after introducing unbranded versions of prandial insulin analogues (which, in 2019 were promised to be "half-price" [see also HERE] but savvy patients pretty quickly discovered that they could actually buy them for about 75% less money using a readily-available GoodRx coupon or a coupon from one of its rivals), and a funny thing happened: with zero marketing investment, Lilly revealed to investors that nearly one-third of domestic Humalog sales were the cheaper unbranded version, while Novo Nordisk essentially acknowledged in its 2022 annual report that more than 1 million Americans had been using its unbranded version of Novolog. In other words, the insulins sold themselves, they didn't need PBMs to do anything to sell the product at all. In fact, the same holds true for many therapeutic classes of drugs, only not all of them (conditions made-up by the drug industry such as "dry eye disease" most likely WILL need some help to stimulate demand).

No therapeutic class of drug embodies the recent paradigm shift better than insulin (a century-old drug whose prices had been artificially-inflated by a convoluted scheme of rebates and contractual price discounting paid to drug distribution system entities, although often patients never enjoyed the benefit of those massive discounts).

Perhaps no one described the weird situation better than Dr. Robert Popovian et al, who described the situation this way (see for more): 

"The previous list prices offered for insulin were bloated by all manners of rebates, discounts, and fees necessary for the byzantine rebate contracting model promoted by the pharmacy benefit managers (PBM) and state Medicaid programs." 

Dr. Popovian works on behalf of the Global Healthy Living Foundation which actually has several podcasts. He is also a pharmacist, economist and a professor of pharmaceutical economics at the University of Southern California. 

The podcast I'm referring you to today is a brand new episode of the podcast they refer to as "Healthcare Matters" and my followers may recall (and may want to listen to Dr. Popovian's prior podcast) at In the previous podcast, Dr. Popovian referred to a "A Failed Promise of Generic Medication Pricing" but the failed promise was not limited to generic drugs. In fact, the situation was even worse for branded prescriptions like insulin). But insulin wasn't the only drug class that don't really need any marketing assistance from PBMs. Another class of Type 2 diabetes drugs by J&J's Janssen pharmaceutical business unit is doing something similar.

In fact, Dr. Popovian talks a lot about insulin as well as another class of drugs which I covered HERE.

I recommend listening to the most recent Health Care Matters podcast below, or by visiting

Even Pembroke Consulting's Adam J. Fein has begun to acknowledge that a few therapeutic classes of drugs don't really require any marketing assistance, the drugs really sell themselves, although he stops short of saying that the gross-to-net bubble has necessarily burst yet (see HERE for his take) given previous year's sales figures.

His post revealed "Lilly disclosed that from 2016 to 2022, the list price of its brand-name Humalog insulin grew by only $7 (+3%), while its 'net' prices had declined by $21 (-34%). Consequently, each vial [of Humalog] had a 'net' price of $40, but generated [a stunning] $235 in rebates and discounts" for PBMs and the insurance companies who own them. It's no mystery why they wanted out of the PBM channel for that particular drug category.

I get it. As I've before said, pharma's has a weird co-dependency on PBMs which will take a while to break. But if we see it happen on insulin and other therapeutic classes, then it may prove pharma doesn't necessarily need PBMs after all except for conditions made-up by pharma. In other words, it is PBMs who need pharma, not the other way around. 

I think what we will also start to see is more and more of drug companies and medical device companies will grow steadily more comfortable with and willing to sell their products via entities like Mark Cuban Cost Plus Drug Company. It may take a while because of weird contract provisions PBMs write into their contracts which they can sue pharma over, but we will eventually see it. Or pharma may just use their weight to bully the PBMs. Either way, patients will benefit.

However, as I wrote in my previous post, I do not believe we're not yet finished seeing insulin price deflation. Admittedly, from branded insulin, that's kind of over. Diabetic Investor David Kliff is not shy about the idea that it's not outside the realm of possibility that Lilly, Novo Nordisk and/or Sanofi could decide to exit the insulin business by selling or spinning the businesses off and focusing solely on the lucrative and rapidly-growing GLP-1 inhibitor class of drugs approved for Type 2 diabetes and increasingly as weight-loss drugs for obesity without Type 2 diabetes. However, my contention is that the margin pressure on insulin is not a recent development. They were shifting focus to GLP-1's long before that happened. Nevertheless, a host of insulin biosimilars have not yet hit the market, but we'll see them in 2024. Only the business dynamics have changed. As I note in my previous post, there's no reason why biosimilars couldn't be priced at say a cost of $15/vial. Now, I want to see it also happen with devices like test strips, CGM sensors and the like. We are starting to see it with CGMs like Dexcom (see and select "I don't have CGM coverage"). Or patients can buy Roche testing supplies at Mark Cuban Cost Plus Drug Company but simply stated there are too many middlemen who view patients with diabetes as their tickets to fortune.

All of this raises a very legitimate question: what's the value of even having a pharmacy benefit as part of healthcare insurance if you can buy the services the pharmacy benefit supposedly supplies for less money elsewhere? Why not just lower the insurance premiums and cut insurance out of pharmacy benefits? It is potentially an interesting business idea.

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