Investors in major insulin manufacturers like Eli Lilly (LLY), Novo Nordisk (NVO), and Sanofi (SNY) should be aware of significant political and regulatory risks. Recent state and federal actions to cap insulin prices have directly pressured these companies to slash their prices, a trend that could expand to other essential medicines. This directly threatens the long-term pricing power and profitability of these pharmaceutical giants. Monitor legislative trends closely, as new price controls could further erode future earnings. The sentiment towards the pricing power of these companies is currently bearish, representing a key risk for long-term holders.
• The podcast featured a detailed discussion on the high cost of insulin and the political action taken to address it. A Texas state representative described his personal experience being diagnosed with type 1 diabetes and facing a $684 bill for a 30-day supply of insulin.
• He explained that he discovered "three companies that were controlling the entire insulin market and they were basically setting their prices together and they were price gouging people." While not named in the podcast, the dominant insulin manufacturers are Eli Lilly (LLY), Novo Nordisk (NVO), and Sanofi (SNY).
• The representative successfully passed a bill in Texas to cap insulin co-pays at $25 per prescription. He noted this state-level action, along with the Biden administration's move to cap insulin at $35 for Medicare recipients, created significant pressure on these companies.
• The outcome of this political pressure was that the major insulin companies began "slashing their prices" over the last few years. The sentiment towards the pricing power of these companies is bearish, highlighting a major risk.
• Political & Regulatory Risk: This discussion is a clear case study of the political and regulatory risks facing the pharmaceutical industry. Investors in major drug manufacturers like LLY, NVO, and SNY should consider that pricing power for essential medicines can be significantly curtailed by legislative action.
• Impact on Profitability: Government-mandated price caps and the resulting public pressure can directly impact a company's revenue and profit margins. The era of unchecked price increases on certain drugs appears to be facing significant headwinds, which is a key risk factor for long-term investors in this sector.
• Monitor Legislative Trends: Investors should monitor legislative trends at both the state and federal levels, as actions in one state can inspire similar laws across the country and at the national level, creating a domino effect that impacts industry-wide profitability.
• Walgreens was mentioned specifically as the pharmacy where the guest went to pick up his first 30-day supply of insulin, which cost $684.
• The context of the story was not a critique of Walgreens' business model but rather an illustration of the prohibitively high cost of the drug itself, which is set by the manufacturers.
• Supply Chain Position: The mention of Walgreens highlights the position of pharmacies within the complex and often criticized US healthcare pricing system. While they are not the primary price setters for drugs, they are the public-facing point of sale.
• Indirect Impact of Regulation: While the insulin price caps directly target manufacturers, there can be downstream effects on pharmacies like Walgreens. Changes in the pricing of high-volume drugs can potentially affect overall pharmacy revenue and margin dynamics. This is a secondary, but relevant, consideration for investors in pharmacy retail chains.
By @theprofgpod
NYU Professor, best-selling author, business leader and serial entrepreneur Scott Galloway cuts through the biggest stories in ...