Eli Lilly weight loss drug site may not upend industry

Eli Lilly is shaking up the pharmaceutical industry with a new website offering telehealth prescriptions and direct home delivery of certain drugs, including its red-hot weight loss treatment Zepbound, to expand patient access. 

The company’s direct-to-consumer push announced Thursday, the first of its kind for a big drugmaker, won’t necessarily upend the pharmaceutical industry and the prescription drug supply chain alone, according to some analysts.

But other drugmakers could follow suit with their own direct-to-consumer models, according to some analysts. That could add more pressure on what many critics call a complex system for distributing, pricing and prescribing drugs in the U.S. — a structure they say has led to higher prices and fewer choices for patients.

“There’s always a possibility for disruption. I think you should never rule out any sort of disruption,” BMO Capital Markets analyst Evan Seigerman told CNBC. “I don’t think that is necessarily happening tomorrow, but I think that you should never assume that things can’t change.”

Lilly’s new platform comes as other companies move to disrupt the drug system in some way, in part as they face more political pressure to cut consumer costs and increase pricing transparency.

Those actions come as lawmakers target drug supply chain middlemen in new legislation and as the Biden administration takes its own steps to rein in prices of medications, such as by giving Medicare the power to negotiate down drug prices for the first time in its six-decade history.

Eli Lilly said its new effort — dubbed LillyDirect — aims to increase access to medicines for chronic diseases, including the highly popular weight loss drugs. 

Those treatments, which have soared in demand over the last year as they help patients shed unwanted pounds, are plagued by supply constraints and concerns about potentially harmful knockoffs. Patients also face long waitlists to meet with obesity medicine specialists who can prescribe the drugs to them, a problem Eli Lilly hopes to address, according to Seigerman.

Eli Lilly’s Zepbound won Food and Drug Administration approval just two months ago, but some analysts say it could garner more than $1 billion in sales in its first year on the market.

Some experts view that transparent pricing as a shot across the bow to PBMs, the largest of which are owned by CVS, UnitedHealth Group and Cigna.

Drugmakers have long complained that they give PBMs steep drug discounts in exchange for higher placement on a formulary — an insurance plan’s list of preferred medications — only for those middlemen to not pass along savings to patients. 

But Eli Lilly’s savings-card program and new site won’t cut PBMs out of the equation.

“If you still use your health insurance to get these drugs through [Eli Lilly’s] website, it’s still going to get processed by a PBM,” Jeff Jonas, a Gabelli Funds portfolio manager, told CNBC.

Patients who get drugs such as Zepbound from Eli Lilly’s site can choose to pay with cash to avoid PBMs altogether. But Bernstein analysts said in a Thursday note that they expect the “vast majority” of potential weight loss drug users to get medications through insurance. 

But Chen said it may be more difficult for a drugmaker to pursue a direct-to-consumer model with smaller, more specialized drugs, such as treatments for complex, chronic, or rare medical conditions. For example, some drugs require specialized training for administration, such as injecting or infusing a therapy into a patient’s vein through an IV. 

Drugmakers that do adopt a direct-to-consumer approach could add even more pressure on the nation’s traditional drug supply chain after other companies moved to simplify the system in recent months.

That includes CVS Health, which announced plans to overhaul its business model for pricing prescription drugs in December, adopting a model similar to billionaire Mark Cuban’s direct-to-consumer pharmacy, Cost Plus Drugs. Health-care giant Cigna also announced in November that its PBM will offer a pricing model similar to Cuban’s venture.

Cost Plus Drugs aims to drive down the price of medicines broadly by selling them at a set 15% markup over their cost, plus pharmacy fees.

That company is already shaking up the broader health-care industry: CVS suffered a blow over the summer when a major California health insurer, Blue Shield of California, announced it will no longer use the company as its PBM and instead will partner with several other businesses, including Cuban’s firm and Amazon Pharmacy.