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For decades, pharmaceutical companies have claimed that the skyrocketing price of insulin and other drugs is the direct result of innovation.
Earlier this year, the US House of Representatives began an investigation to determine just how much of pharmaceutical profits are spent on research and development. Their Drug Pricing Investigation report, which was released in July, tells a much different story than the one Big Pharma has been trying to sell us for years.
Buybacks and Dividends
According to the report, eight of the top 14 pharmaceutical companies in the world spend more on buybacks and dividends for their investors than they do on research and development (R&D).
One of those eight companies, Novo Nordisk, spent more than twice as much on buybacks and dividends than they did on R&D every year between 2016 and 2020.
Overall, the 14 companies examined spent an average of 10% more on buybacks and dividends than they did on R&D. The US-based companies, which includes Eli Lilly, were the worst offenders, spending an average of 24% more on buybacks and dividends than on R&D.
Executive compensation packages made up another huge portion of the spending habits of the 14 companies evaluated in the investigation.
Altogether, these compensation packages totaled over $3.2 billion, with an average annual increase of 14% between 2016 and 2020. Most of these companies increased their executive compensation while also raising the prices of drugs that millions of Americans rely on.
Of the three insulin producers evaluated in the report, Eli Lilly paid out the most in executive compensation packages over the five-year period, with the other two companies trailing not far behind.
- Eli Lilly - $234,000,000
- Novo Nordisk - $129,000,000
- Sanofi - $63,000,000
In some cases, the investigation found that bonuses paid out to executives were the direct result of price increases on brand-name drugs. Had these increases not been made, the companies would not have reached the profit goals necessary for the executives to obtain their bonus targets.
Research and Development
While all companies did invest a significant amount into research and development, the investigation found that much of this investment was used to suppress generic and biosimilar competition. This is in stark contrast to the claim that most expenditures made by pharmaceutical companies are used to foster innovation.
Securing extra patents and pursuing lawsuits are just some of the ways these companies spend their R&D money in order to continue their monopoly over certain types of drugs. In fact, more money is spent on patenting older products than on innovative products currently in development.
What Does This Tell Us?
The US House of Representatives Drug Pricing Investigation makes clear that insulin prices are not skyrocketing due to innovation. And, in fact, investing in new products accounts for a very small percentage of the overall expenditures made by these companies.
Most of the profits these companies see go straight into buybacks and dividends. The rest is used to suppress competition within the market and pay astronomical compensation packages to reward executives for needlessly driving up the prices of life-saving drugs.
Patents are important for innovation. They act as a safeguard for inventors to help assure they receive adequate compensation for their work before competition enters the market. This time period varies by product but can last up to 20 years.
But patents can also be used to repress innovation and create monopolies.
One of the most striking examples of this can be found in the insulin market. Here, big companies engage in a process called patent evergreening that allows them to safeguard their insulins for well over the maximum time period covered by any one patent.
According to an I-MAK investigational report, patent evergreening is a leading cause of today’s insulin pricing crises.
“Today, drugmakers are filing dozens or even hundreds of patents, resulting in nearly double the length of protection, blocking competition and keeping cheaper versions of medicines off the market. This abusive practice, known as ‘evergreening’, or what drugmakers market as incremental innovation and improvements, sits at the heart of the drug price crisis in the United States.”
By making tiny changes to their insulin products, these big companies can apply for new patents to extend the protection period for their product indefinitely.
In the insulin world, Lantus is one of the biggest offenders of patent evergreening. The product has been on the market since 2000 but is currently protected for 37 years thanks to new patents.
Sanofi, the company that owns Lantus, has filed for over 70 patents on the drug since 2000. Of those, the US government has granted 49—ensuring that Sanofi will have the undisputed power to set the price of this life-saving drug until at least 2037.
Considering that the price of Lantus jumped an astonishing 114% between 2012 and 2018, we can’t even imagine what it will cost by the time the patents run out. Assuming they ever do.
Effective August 13, 2021 BiologX share price has changed from $4.10 per share to $4.15 per share. Please note that Regulation A permits us to increase our share price by up to 20% without amending our filing with the SEC.
The problems with the American healthcare system are complex and far-reaching. The same can be said about the issues that have driven up the cost of insulin to the point that 1 in 4 people living with diabetes are forced to ration the drug.
One of the best articles for explaining the high cost of insulin was published by Mayo Clinic Proceedings in 2019.
According to this article, there are six reasons insulin prices have risen by over 1000% in the last 20 years.
1. The customer base for insulin is a vulnerable population willing to pay any amount for this life-saving drug. This fact, combined with the complications that arise from other reasons listed here, most especially a lack of market competition, has led to greed that survives even as these vulnerable people die.
2. There is a virtual monopoly in the insulin market that has existed for decades. According to the article: Insulin pricing in the United States is the consequence of the exact opposite of a free market: extended monopoly on a lifesaving product in which prices can be increased at will, taking advantage of regulatory and legal restrictions on market entry and importation. Currently, there are only three companies authorized to sell insulin in the United States.
3. Patent abuse and evergreening. Every change, no matter how slight or inconsequential, that is made to an insulin formula results in patent extensions. Add to this the fact that analog insulins can be covered by multiple patents (Lantus currently has 70) and you end up with a drug that cannot be easily replicated and sold for less.
4. Barriers to biosimilar market entry. While this has improved in recent years thanks to congressional intervention and FDA support, getting biosimilar insulin to market has always been very difficult. The overuse of patents, frivolous lawsuits by large corporations, and difficulties obtaining coverage are the main reasons biosimilar drugs have historically not been pursued.
5. PBMs and middlemen with considerable control over market prices. Pharmacy benefit managers are responsible for taking drugs and marketing them to wholesalers and pharmacies. These middlemen use their substantial power over the market and the conflicting interests of their many customers to drive up their cut of the profits. This results in huge increases in insulin prices over very short periods of time.
6. The lobbying power of pharmaceutical companies. The Big Three spend huge amounts of money on lobbying and advertising each year in order to thwart any attempts by the government to implement real solutions to the problems outlined above. Most recently, these companies have taken to creating “authorized generics” of their own products as a cheap PR move. Unfortunately, these more affordable products are intentionally not being widely distributed and make up a very small percentage of the insulin purchased each month.
There is a new term floating around in the world of insulin production: authorized generic. If you read our article on biosimilars, then you already know there is no such thing as a generic when it comes to biologic pharmaceuticals like insulin.
So that begs the question, what on earth is an authorized generic insulin?
The answer is definitely not what you would expect.
There are currently three insulins available in the United States that have been deemed authorized generics by the FDA, according to HealthLine.
The first is insulin lispro, which is made by Eli Lilly as a lower priced version of Humalog. The problem? Insulin lispro IS Humalog. The two products are identical aside from the label and name.
The other two authorized generics are made by Novo Nordisk. Insulin aspart is the authorized generic of their top-seller, NovoLog. And insulin aspart mix is the generic of their 70/30 mix. Both products are identical to the insulins they were made to be the generic of.
So what is an authorized generic insulin? The exact same thing as the brand name but with a different label, different name, and (slightly) lower price tag.
This answer only creates a lot more questions. For one, if it is possible to make the same insulin using the same method and sell it for a lower price, why not just lower the price of the brand name insulin? And, more to the point, why would companies make a low-priced version of their top selling insulin?
The answer: because congress is demanding insulin prices be reduced. By responding to those demands by offering affordable insulin options, the big insulin companies can appease congress and avoid them taking more extreme measures such as passing price cap bills.
But, in truth, authorized generics are not an answer to anything. They are nothing more than a PR stunt.
The distribution and supply of these affordable insulins are controlled 100% by the companies that make them. And those companies have a vested interest in not letting their generics out-compete their identical, more expensive products.
Analysis of prescription availability found that only 8% of Humalog prescriptions filled in 2019 were filled with generic insulin lispro and that the generic was not widely available or advertised in pharmacies across the country.
Meanwhile, the price of brand name insulins continues to rise and profits for the Big Three insulin makers continue to break records.
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