What spurred Lilly, Novo and Sanofi to slash insulin prices? Expert gives her take

Not one, not two, but three of the industry's top diabetes players last month slashed prices on their competing insulins. After Eli Lilly's cut, the strategy was quickly followed by Novo Nordisk and Sanofi, drawing praise from lawmakers and advocacy groups alike. So, what was behind the sudden change?

The price cuts can be explained by a mix of factors, Leemore Dafny, Ph.D., wrote in a new analysis for The New England Journal of Medicine. For one, the market is awaiting the entry of certain manufacturers that “don’t benefit from high prices," Dafny said. Moreover, government regulations are making it “costlier” for insulin manufacturers to keep charging their prior prices. Another important element? Public shaming.

“Shaming,” Dafny writes, “undermines both employee morale, which means higher labor retention costs, and the ability to convey commitment to bettering the lives of people with metabolic disorders, which could affect sales of newer products, such as Lilly’s Mounjaro (tirzepatide) and Novo Nordisk’s Wegovy and Ozempic (semaglutide).”

Further, the applause Lilly garnered with its initial decision rendered the shaming of “holdouts” Novo Nordisk and Sanofi “effective with startling speed,” she added.

Dafny is a professor of business administration at Harvard Business School. She also serves on the faculties of the John F. Kennedy School of Government and Harvard's program in health policy.

Back in early March, Lilly kicked off the cost-cutting parade when it announced it would slash the price of its most prescribed insulins by 70% and expand its Insulin Value Program to cap patient out-of-pocket costs at $35 per month. The Indianapolis-based drugmaker also launched Rezvoglar, its biosimilar to Sanofi’s popular insulin Lantus.

Several weeks and one chiding from Sen. Bernie Sanders, I-Vermont, later, Novo Nordisk and Sanofi fell in line. Novo said it would reduce the list price of its NovoLog insulin by 75% and slice the cost of Novolin and Levemir by 65% starting in January 2024. Sanofi, for its part, said it would slash the price of its most popular insulin, Lantus, by 78%, and cap out-of-pocket costs at $35 per month for all patients with commercial insurance—again starting Jan. 1, 2024.

This wasn’t Sanofi’s first cost-cutting initiative, either. Back in June, the company said it would reduce the cost of its insulin products from $99 to $35 per month for uninsured residents of the U.S. as a preemptive strike to the Insulin Act. That bill was eventually blocked by Senate Republicans, but the Biden administration’s Inflation Reduction Act (IRA) ultimately capped monthly insulin costs at $35 for seniors on Medicare Part D.

To hear Dafny tell it, the prior insulin pricing ecosystem—which had been standing strong for decades in the U.S.—benefited manufacturers, pharma middlemen, payers and employers “that received rebates and higher contributions from insured patients paying a portion of insulin’s list price in the form of coinsurance or deductibles.”

However, a sea change started to take effect in the summer of 2021 when the FDA approved the first interchangeable insulin product in Viatris and Biocon’s Semglee. Still, Viatris' decision to launch branded and unbranded versions of the biosimilar meant pharmacy benefit managers could exclude the cheaper option in favor of garnering more in rebates.

The next shock to the system came in March 2022 when nonprofit drugmaker Civica telegraphed plans to sell its own interchangeable biosimilar insulin starting in 2024. The company says it plans to sell its products at a maximum price of $30 per vial and $55 per box of five pens, along with a pledge not to pay rebates to intermediaries.

The final nail in the coffin for insulin makers appears to be the IRA pricing provision that capped costs for Medicare Part D enrollees at $35 per month, Dafny said.

As for why Lilly chose to act when it did, public shaming in the form of congressional hearings, reports and “choice quotes from politicians and activists” likely provides one explanation, according to Dafny. Another factor is lawsuits and the threat of lawsuits, including a June policy statement from the Federal Trade Commission that spotlighted concerns over corporate practices fueling high and rising insulin costs.

What's more, these pricing moves will likely benefit manufacturers in the long run, Dafny said. She cited one analysis predicting Novo’s new price cuts would allow it to sidestep some $350 million in additional rebates in 2024 and increase earnings by $210 million. Similarly, Lilly’s cuts are expected to save the company $430 million in additional rebates and boost earnings by $85 million.

As for why newer drugs like Mounjaro, Ozempic and Wegovy weren’t included in the pricing purge, the rebate burden “won’t be as large” for those drugs, and “price increases haven’t accumulated for as long,” Dafny said.

The insulin-specific move doesn’t bode well for the high prices of other drugs, either.

“Given the constellation of factors required to bring down insulin prices, it’s clear that high prices for other brand-name drugs are likely to persist in the absence of massive efforts on multiple fronts,” Dafny said.