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Prices of Expensive Diabetes Medicines and Weight-loss Drugs Are Drastically Higher Than Production Costs

April 29, 2024
by Isabella Backman

Pharmaceutical manufacturers could sell diabetes medicines for a small fraction of their current market prices and still significantly profit, a new investigative analysis finds.

The study, published in JAMA Network Open, measured the costs of production for a range of diabetes medicines approved by the U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA). High insulin prices force as many as a quarter of the Americans who are living with diabetes and use insulin to ration their supply.

The cost of production is not the only factor in setting a fair price, but it is an important one.

Melissa Barber, PhD

But the researchers found that biosimilar manufacturers could profitably sell insulin for 97% less than current U.S. market prices. And supplies of GLP-1 agonist drugs like semaglutide (Ozempic and Wegovy) for which Americans shell out as much as $1,000 per month, could cost as little as under a dollar to produce.

“We wanted to give policymakers perspective on what costs of diabetes drugs could be if we were serious about scaling up access to treatment globally,” says Melissa Barber, PhD, postdoctoral fellow at Yale School of Medicine and the study’s first author. She conducted the work in partnership with Doctors Without Borders, a humanitarian organization that provides medical care around the world.

Costs of producing diabetes medicines are drastically lower than market prices

First, the team calculated the costs of production of diabetes medicines by adding up the costs of all of the components and processes that go into drug manufacturing. The most important one is the cost of the active pharmaceutical ingredient — which is the ingredient that provides the therapeutic effect. The team also considered the costs of the non-active ingredients, drug formulation, device costs, biosimilar development costs, and amortized capital costs.

Then, the researchers calculated cost-based estimated prices, which include the cost of production, a profit margin, and taxes on profits. They used two algorithms—competitive and conservative. The competitive algorithm added a 10% profit, while the conservative formula factored in a 50% profit margin.

The calculated cost-based estimated biosimilar prices for insulin were between $61 and $111 per year. In comparison, the current annual market price of insulin ranges between $98 and $1,300 across 13 countries of different incomes. Furthermore, the cost-based estimated biosimilar prices of GLP-1 agonist drugs were between $0.75 and $72.49 per month. In the U.S., the drug has a monthly price tag of $968.52.

The team found that the lowest market prices for diabetes medicines were in China, France, the Philippines, and South Africa. The drug costs are significantly higher in the United States than in any other country.

Limited competition drives high drug prices

Pharmaceutical manufacturers are often reluctant to disclose the costs of drug production, leaving health systems trying to negotiate reasonable prices in the dark. Furthermore, over 90% of the global insulin market is in the hands of three companies—Eli Lilly, Sanofi, and Novo Nordisk. This limited competition is a major factor contributing to the unaffordable cost of insulin and other diabetes medicines, the authors argue.

“The ‘Big 3’ have succeeded in extending monopolies on insulins far beyond the statutory 20-year patent term,” Barber says. “Prices for many drugs decrease by 90% or more upon patent expiry. This hasn’t been the case for insulin – prices remain as high as 100 times the cost of production, and in many cases prices are higher today than they were when patents were still active.”

The study offers a window into a future in which a more robust competitive market might bring market prices below excessive levels while still allowing manufacturers to reasonably profit.

“The cost of production is not the only factor in setting a fair price, but it is an important one,” says Barber. “We also need data on R&D investments, which for many of the drugs in our study were undertaken by both the public and private sectors. Insulin was discovered in a university lab. The scientists refused to be named on the patent, remarking that ‘insulin belongs to the world.’ More than a century later we still have a long way to go.”

Submitted by Robert Forman on April 30, 2024