Eli Lilly CEO Threatens to ‘Easily Disintermediate’ PBMs
Comments from CEO David Ricks intensify pressure on pharmacy benefit managers like CVS and Cigna, who already face mounting regulatory scrutiny over drug pricing.
The pharmacy benefit management industry is facing a renewed threat, this time from one of its largest partners. Eli Lilly CEO David Ricks issued a stark warning to the healthcare middlemen, stating the drugmaker could "disintermediate them easily," a comment that challenges the fundamental business model of giants like CVS Health's Caremark and Cigna's Express Scripts.
Speaking at the STAT News Summit, Ricks accused Pharmacy Benefit Managers (PBMs) of creating a "terrible incentive" structure that fueled the inflation of drug prices, particularly for insulin. He detailed how the list price for Lilly's insulin ballooned to $275 over a decade, while the net price the company received remained near $40. The widening gap, he argued, was captured by intermediaries in a system of rebates he described as "rent taking."
"After 10 years, you had this huge bubble… and who was paying? The person who walked in the pharmacy with no insurance," Ricks stated, calling the situation "outrageous." He noted that when Lilly attempted to launch a lower-priced generic version of its insulin, it was met with resistance from PBMs and pharmacies concerned that the move was "a threat to our model," according to a report from Benzinga.
Those frustrations have already translated into action. Eli Lilly's launch of LillyDirect, a direct-to-consumer platform, allows patients to acquire certain medicines like its popular weight-loss drug Zepbound straight from the manufacturer, bypassing the traditional insurance and PBM pathway. "We cannot be beholden to this," Ricks said of the current system.
Ricks' comments amplify the immense pressure already weighing on the PBM sector, which is facing a pincer movement from both manufacturers and regulators. The industry is under intense scrutiny in Washington, with the Federal Trade Commission recently suing major PBMs over allegedly anticompetitive practices that inflated prescription drug costs. At the same time, numerous states are advancing legislation aimed at increasing transparency and curbing PBM profits.
The market has been wary of these headwinds. Shares of major players with significant PBM operations have reflected investor concern. CVS Health (NYSE: CVS), with a market capitalization of nearly $98 billion, and The Cigna Group (NYSE: CI), valued at around $69 billion, have seen their business models questioned by analysts and lawmakers alike.
In response to the shifting landscape, some PBMs are beginning to evolve their strategies. Cigna's Express Scripts recently announced it was rolling out a new model based on net drug prices, moving away from the complex rebate system at the heart of the industry's controversy. This move is seen by analysts as an attempt to get ahead of regulatory action and demonstrate value in a system under fire.
Still, the direct challenge from a pharmaceutical powerhouse like Eli Lilly marks a significant escalation. As drugmakers increasingly explore direct-to-consumer channels and regulators close in, the future of the PBM industry's role as the central negotiator in the drug supply chain appears more uncertain than ever.