Big Pharma Has a New Vision for Selling Drugs. It’s Going to the Mattresses.
Amid pressure from the White House, U.S. drug companies are experimenting with direct-to-consumer sales models that cut out the middlemen.
Big Pharma has a new solution to high U.S. drug costs: Make like a mattress company and sell shots and pills straight to the consumer.
It’s a strategy that companies such as Hims & Hers Health and Ro have pursued for years, mostly to sell inexpensive, generic medicines. But newer, patent-protected prescription drugs from pharmaceutical companies still navigate a complex—and expensive—path from factory to consumer, with multiple intermediaries, from pharmacy-benefit managers and health insurers to drug distributors and retail pharmacies.
Top drug executives are now thinking about a new approach. Amid pressure from the White House to cut U.S. drug prices, some drug companies are experimenting with direct-to-consumer distribution models that cut out the middlemen, offering lower upfront prices to patients who are willing to pay themselves.
Eli Lilly and Novo Nordisk are already selling their obesity injections straight to consumers, at prices well below list price, though still above what insured patients would pay at the pharmacy counter.
“We think it’s a fantastic way to go ahead,” Pfizer CEO Albert Bourla told investors this month.
However, it’s a more mixed picture for patients and the healthcare system at large. And it isn’t clear that the direct-to-consumer approach can assuage the White House’s calls to lower drug prices.
President Donald Trump has signaled interest, most recently in letters he sent in July to more than a dozen top drug executives, threatening them with unspecified sanctions if they failed to lower drug prices. Among his demands was that companies sell drugs directly to consumers at low prices.
For the White House, though, direct-to-consumer-sales aren’t the main event in the administration’s ongoing push to reduce U.S. drug prices.
“We want an actual convergence between the prices paid in the U.S. and abroad,” a White House official tells Barron’s. “If direct-to-consumer sales can be a pathway to achieving that, that’s great. This is more something we want to put forth to say, we’re happy to work with the manufacturers on. It’s not the solution in itself.”
That gap between pharmaceutical companies’ bubbly enthusiasm for direct-to-consumer sales and the White House’s lukewarm attitude toward the idea is just one complicating factor. Selling eyeglasses or sneakers straight to consumers, as popularized by Warby Parker and Allbirds, is far less complicated than going direct with branded prescription drugs, where safety, precise dosage levels, and affordability are major issues.
Direct-to-consumer branded drugs turned up on the market last year after Lilly and Novo began facing unexpected competition from telehealth companies selling knockoff versions of Zepbound and Wegovy, their weight-loss drugs.
A wrinkle in the laws regulating pharmaceuticals in the U.S. allowed compounding pharmacies to make legal knockoffs of Zepbound and Wegovy as long as Novo and Lilly couldn’t keep up with demand, and the number of telehealth websites selling the drugs online exploded early last year.
The idea of going direct to U.S. consumers has long faced an almost insurmountable challenge: Most patients pay relatively little at the pharmacy counter. A report this year by the IQVIA Institute found that 93% of all prescriptions have an out-of-pocket cost of less than $20.
But weight-loss drugs changed the equation. Medicare won’t pay for Zepbound or Wegovy as a weight-loss treatment, and most commercial plans put strict limits on the medicines. Patients paying for the drugs themselves at the pharmacy usually pay the list price, more than $16,000 a year for Novo’s Wegovy, or $13,000 a year for Lilly’s Zepbound.
That means hat the roughly $3,600 a year that telehealth pharmacies were charging for knockoff Wegovy was a relatively good deal that generated significant demand from U.S. consumers. To compete, Lilly and Novo each launched their own cash-pay options online, selling their respective weight-loss medicines for around $6,000 a year.
Today, it appears to be working well, at least for Lilly. More than a third of new Zepbound prescriptions are filled through the company’s direct-to-consumer channel, Lilly recently said.
For Lilly and Novo, cutting out intermediaries in the drug chain, particularly the powerful pharmacy-benefit managers, was likely an ancillary benefit of selling the weight-loss drugs directly to patients. But when the strategy worked, it must have looked—from the executive suites of the rest of the drugmakers—like a perfect opportunity to strike a blow against the PBMs.
The question is whether direct-to-consumer sales in the U.S. system will work for anything other than obesity drugs.
Listen to pharmaceutical company executives this summer, and it sounded as if they were about to start dropping their entire portfolio of approved medicines onto direct-to-consumer websites. Bristol Myers Squibb and Pfizer said in July they would sell their blood thinner Eliquis directly to consumers at “more than 40%” off the list price. And virtually every drug CEO said something on their latest earnings calls about selling drugs straight to patients.
GSK’s chief commercial officer told investors that the company “has an open mind” about direct-to-consumer offerings, and was looking at products like its inhaler Trelegy and its urinary-tract-infection antibiotic Blujepa as options. Roche’s CEO also said he was looking into it, and Bristol CEO Chris Boerner, on a July investor call, said the company would “continue to look within our own portfolio” for drugs to offer directly to consumers.
No CEO sounded more enthusiastic than Pfizer’s Bourla, who said he had talked to other CEOs about direct-to-consumer offerings “They are all ready to roll up their sleeves and execute something like that,” he said.
Their enthusiasm, however, has been met with skepticism. One big question: Are patients actually getting a good deal?
“I think there is a very generalized assumption of, like, oh, this will save the consumer money,” says Mark Miller, executive vice president of healthcare at Arnold Ventures. “But depending on the structure of the market around a specific drug and how much competition there is, it could be just that the manufacturer takes the revenue that used to be taken by the middleman.”
Pfizer and Bristol have set a cash price for Eliquis of $346 a month. That’s still more than the $231 a month Medicare will pay starting next year under the new price negotiation program, which the government sees as a fair price for the drug.
A spokesperson for the BMS-Pfizer Alliance said that the Medicare price “does not reflect the substantial clinical and economic value of this essential medicine.”
Expanding direct-to-consumer pricing, meanwhile, only helps patients with cash to pay. “The whole point of having health insurance, or having prescription drug insurance, is that we all pay a small amount, and when patients are sick or need medicines, we all agree that we’re going to cover the cost of those medicines,” says Dr. Benjamin Rome, a primary care doctor and health policy researcher at Brigham and Women’s Hospital. “This model totally gets around that and says if you’re sick and need expensive medicines, that’s going to be on you.”
That may not be a big problem for a drug prescribed to treat something cosmetic. But for a serious condition, it’s a different story. “The reality is that this is just not a sustainable solution,” says Rome.
Perhaps most important, the White House doesn’t seem likely to accept direct-to-consumer sales as a way to fix high drug prices. In his executive order this spring on a plan to peg U.S. drug prices to the so-called most- favored-nation prices paid in peer countries, President Donald Trump ordered federal agencies to set up direct-to-consumer programs.
What that order actually meant led to significant speculation. The White House official told Barron’s that the mention of direct-to-consumer models in the executive order was a sign of the administration’s flexibility in achieving lower drug costs.
“We acknowledge that the path forward to most-favored-nation [pricing] is not going to look the same for every drug class in every market,” the White House official tells Barron’s. “What we wanted to indicate in the executive order was that we were open to working with them to create pathways, depending on the specific challenges of those drugs.”
The spokesperson said direct-to-consumer is “potentially one of those pathways for the highly rebated, high volume drugs.”
Any shake-up to the drug industry in the coming years could still be limited, especially when it comes to the companies that manage the existing supply chain.
“The reality is that if an individual needs a drug, for the vast, vast, vast majority of people in the United States, there’s a very efficient process to get the drug from prescribed into your body,” says Michael Cherny, an analyst at Leerink Partners, who covers drug distributors and other healthcare services companies.
Meanwhile, even current direct-to-consumer offerings take advantage of the existing infrastructure. Novo’s online pharmacy, called NovoCare, uses Humana’s CenterWell to dispense doses of Wegovy; drug distributor Cencora says it’s a “fulfillment partner” for NovoCare.
“The supply chain as we know it in terms of the physical logistics capabilities is incredibly efficient,” Cherny says.
For obesity drugs, at least, the direct-to-consumer wave may just be beginning. In early August, Lilly announced results of a trial of a new weight loss pill, called orforglipron, that appeared to work a bit worse than Wegovy, and significantly worse than Zepbound. Lilly shares fell steeply on the news.
The disappointing data on orforglipron hurt Lilly’s image as the reigning king of the obesity trade. But the emerging orforglipron profile may actually strengthen the case for its role in the direct-to-consumer market.
Patients who need to lose a lot of weight will choose injections of Zepbound or Wegovy, but patients looking to lose a few pounds may be more interested in a pill they can buy online.
For now, Zepbound is the only discounted offering at LillyDirect. It’s unlikely to stop there.
