RITA MCGRATH
Secretive Pricing, Poorly Served Patients and Unintended Consequences Will Insulin Go The Way Of Hearing Aids?
In my 2019 book Seeing Around Corners, I used the case of the hearing aid industry as an example of how a whole sector could become subject to a major inflection point. The way in which hearing aids were regulated created massive unintended negative consequences. Because providing them was essentially a
monopoly, they were too expensive for many people (and not covered by health insurance). Providers were restricted to a just a few, and at the time only six manufacturers produced them, with high margins and markups. Only one in five patients who could benefit from one were able to buy one.
Where might we see similar dynamics play out in other markets? (I/II) What was the recipe that eventually led to the over-the-counter regulations on hearing aids? A large, underserved population that was barred from a desperately needed solution. Sufficient
people in that self-same population so that most ordinary people had personal experience with the costs of a poor solution
(“Dad, you really need a hearing aid!”). Technology that was no longer patented, in which the investment in innovation had long ago been repaid. Gatekeepers with little incentive to give up their chokehold role in distribution. An increasing lack of support from stakeholders for the status quo, meaning a bipartisan solution was pretty straightforward to iron out. And very sad stories about what happens to people afflicted with the condition.
Where might we see similar dynamics play out in other markets? (II/II) Which brings us to the question of whether there are other markets with these conditions that might also be ripe for a regulatory change which would increase access, affordability and competitiveness in the sector. One which is gaining increasing attention is the market for insulin, particularly in the United States.
Diabetes care – a new battleground for incumbents?
As defined by the Center for Disease Control, “Diabetes is caused by the body’s inability to create or effectively use its own insulin, which is produced by islet cells found in the pancreas. Insulin helps regulate blood sugar (glucose) levels – providing energy to body cells and tissues.” Without insulin, cells can’t function, basically. As one provider explains,
Diabetes care – a new battleground for incumbents? There are two main types of diabetes: type 1 and type 2. Both types of diabetes are chronic diseases that affect the way your body regulates blood sugar, or glucose. Glucose is the fuel that feeds your body’s cells, but to enter your cells it needs a key. Insulin is that key.
Type 1
Type 2
People with type 1 diabetes don’t produce insulin. You can think of it as not having a key
People with type 2 diabetes don’t respond to insulin as well as they should and later in the disease often don’t make enough insulin. You can think of it as having a broken key.
Diabetes is on a growth trajectory in much of the developed world. In the United States alone, the Center For Disease Control (CDC) reports that 34.2 million people, or 10.5% of the total population, suffer from the disease. It affects people from all social, economic and ethnic backgrounds. By comparison, about 30 percent of the United States populationsuffers from hearing loss, so diabetes is not quite as prevalent, but 34 million people is still an awful lot of people.
Sir Edward Albert Sharpey-Schafer (1850 –1935), a British physiologist, first conjectured that a substance he called “insuline” must exist and play a role in the disease known as diabetes mellitus in the 1880’s. Some years later, in the early 1920’s, Frederick Banting and Charles Best, working under the directorship of John McLeod at the University of Toronto, with the assistance of James Collip, figured out how to extract and purify insulin in 1921 On January 23rd, 1923 Banting, Best, and Collip were awarded the American patents for insulin. They sold the patent to the University of Toronto for $1 each. Banting notably said: “Insulin does not belong to me, it belongs to the world.”
How profitable is insulin production, anyway? To give you a sense, let’s drop in on a study published in the open-source journal BMJ Health. To quote: “the study estimated the cost of production for a vial of human insulin is between $2.28 and $3.42, while the production cost for a vial of most analog insulins is between $3.69 and $6.16.” The price charged? Depending on who you ask and where you are, it varies, but the answer is a lot more than that. This chart from a 2018 Rand Corporation study is indicative: Indeed, a recent (2020) paper looking into the matter found that the three dominant companies producing insulin derived “vast profits” from their sales
An Inflection Point?
It looks as though an inflection point for the current insulin business model may be underway. On July 28, the FDA approved an interchangeable biosimilar drug, Semglee. More importantly, a fourth company, Viatrus, will begin to compete in the U.S. insulin market. While the competitive effects are still going to be subject to negotiations among policymakers, PBM’s and the original manufacturers, the presence of potential competition is likely to at least moderate the most aggressive pricing maneuvers.
An even more substantial inflection point may be new developments that make insulin unnecessary for patients with Type 2 diabetes, who constitute 90% of the market. In 2019, the FDA approved oral tablets for the treatment of Type 2 diabetes.
What can we conclude? As I’ve often said, when an organization has hostages, not customers, the seeds for an inflection point exist. Let the right mix of
customer dissatisfaction, stakeholder alienation and shifts in concepts of how an organization can legitimately operate emerge and a formerly attractive business model can reach its expiration date. Watch this space. Next up, potentially, PBM’s.
New skills for the new year? While we’re on the subject of customers and strategic inflection points, you might be interested in investing in your own skill development. I’ve created two on-line, self-paced courses, one on discovery driven planning and one on creating customer insights that are up and running right now. They’re designed to deliver content you can use right away, with videos, explainers, downloadable materials and other goodies. Check them out at this link.
https://thoughtsparks.substack.com/