To solve the insulin price bubble, Eli Lilly launched its own low-list-price biosimilar. However, insurers and PBMs initially refused to cover it because its low price and small rebate threatened their lucrative business model.
Related Insights
The weight-loss drug market is a duopoly, not a monopoly, because companies cannot patent the underlying biological mechanism (mimicking GLP-1). Instead, Novo Nordisk and Eli Lilly patented distinct molecules that achieve a similar outcome, allowing both to compete directly.
The direct-to-consumer channel exploded for Eli Lilly with Zepbound. The drug was a perfect fit because the diagnosis is simple, efficacy is easily measured by the patient, and it allows motivated self-pay customers to bypass insurance friction.
To fix the R&D funding imbalance, the CEO proposes a 'one fair price' system. A drug would have one US price with no rebates, and a price in other developed nations would be indexed to their GDP per capita.
In explosive markets like GLP-1 drugs, significant price drops and margin compression (e.g., from 80% to 60%) don't necessarily harm profits. The sheer volume of new customers can completely offset lower per-unit profitability, leading to far greater overall earnings.
To commercialize curative 'one-and-done' genetic medicines, Eli Lilly is considering a subscription-like model. The procedure could be free upfront, with patients or insurers paying an ongoing fee only as long as it works.
The long-held belief that solving obesity would create immense wealth is now validated by Eli Lilly's $1T market cap, driven by its GLP-1 weight-loss drugs. This marks a significant shift, as the trillion-dollar club was previously dominated by tech and oil companies.
A centrist solution to high drug prices involves combining ideas from both political aisles. Oliver Libby suggests allowing Medicare to negotiate prices (a left-leaning idea) while also extending patent life for drug companies (a right-leaning idea), thus lowering costs without killing the incentive for innovation.
The large gap between insulin's list and net price was driven by Pharmacy Benefit Managers (PBMs). Their business model, which takes a percentage of the rebate, incentivized pharma to raise list prices to offer bigger discounts.
A key part of Eli Lilly's R&D strategy is tackling large-scale health problems that currently have no treatments and therefore represent a 'zero-dollar market.' This blue-ocean strategy contrasts with competitors who focus on areas with established payment pathways.
Unlike labor-dependent services that get more expensive, prescription drugs offer a unique societal ROI because they eventually go generic and become cheaper. This deflationary aspect is a powerful, underappreciated argument for investing in drug development, as successful medicines provide compounding value to society over time.
