If it was developed in 1996, the patent protection would have expired by now. If the cost of production was "steady", then the question is why is a competitor not jumping in to make and sell something that would earn them a huge profit margin?

Do you doubt it was developed in 1996? Do you have evidence that the cost of production has significantly risen?

Otherwise, you seem to be repeating the old economics joke:

"The young economist looks down and sees a $20 bill on the street and says, “Hey, look a twenty-dollar bill!”

    Without even looking, his older and wiser colleague replies, “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”"

When there is a claim that there exists an arbitrage opportunity worth billions of dollars, I would consider it common sense to consider why has no one claimed the arbitrage opportunity yet.

The world has many very smart people spending many hours working very hard to find these opportunities, so the likelihood of it just sitting there like a $20 bill on the street, and not being picked up, seems quite small.

I do not know the answer myself, so I am interested in finding out. reddicky posted this:

https://www.hopkinsmedicine.org/news/media/releases/why_peop...

which sort of answers it:

>Biotech insulin is now the standard in the U.S., the authors say. Patents on the first synthetic insulin expired in 2014, but these newer forms are harder to copy, so the unpatented versions will go through a lengthy Food and Drug Administration approval process and cost more to make. When these insulins come on the market, they may cost just 20 to 40 percent less than the patented versions, Riggs and Greene write.

So it looks like there is some expensive expertise involved and investment into R&D that needs to be done.

Yes there is expertise and capital costs involved, which make it not an arbitrage play. It is more like a cartel, which seems to explain what is going on here, with the 3 insulin producing companies all fixing their prices together (at least in the US)

In theory there is 'nothing' stopping another company from coming along, even a group of Biohackers may try to do something - I wonder if that's been done... :)

The reason no one will pick it up is because there are massive capital investments to get something like that up and running, and the existing manufacturers can just drop their price to compete with you as soon as you get up and running. Now you have to recoup your capital costs in a saturated market, and your competitors can probably make insulin cheaper than you due to pre-existing economies of scale.

I would imagine that even other companies already in the pharma space would be interested. They don't want to play the race to the bottom game with billions of dollars in upfront costs. If anything, it's probably more profitable to make a new form of insulin that you get to patent. Which is how we end up where we are.

Although... I needed to buy a vial of the newest fast insulin in Spain last year without an insurance. One vial was 28 euros, which is much less than people in US have to pay.

The insulin in question is Lyumjev from Eli Lilly.

This is an incredibly stupid comment. Net price in Humalog has decreased since 2014 [0]. The PBMs jack up the list price so they can get their fat rebates.

[0] = https://www.cnbc.com/2019/03/25/eli-lilly-discloses-pricing-....

You are correct. It’s a rebate game. Net price of insulin has been going down.

https://1.bp.blogspot.com/-ZfBANMMU5dQ/XzFtNw93ZCI/AAAAAAAAq...

Eli Lilly's profit margin is double digit, usually around 20%. Managed care organizations (insurance companies), which own the PBMs, have profit margins of ~5% or less.

That is a nonsense talking point from the industry. They use passthrough revenue to distort their profit margin. Express scripts is closer to 15% and CVS is closer to 10%.

See https://www.fiercehealthcare.com/payer/facing-criticism-pbms....

CVS net profit margin is in the 2% to 3% range:

https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro...

Cigna purchased Express Scripts in Mar 2018, and has profit margins of 3% to 5% over the last couple years.

https://www.macrotrends.net/stocks/charts/CI/cigna/profit-ma...

If these PBMs are making lots of profits, then they are simply subsidizing losses elsewhere in the MCO. The total costs paid for insurance premium plus out of pocket costs by the end user in the US would not be affected.

You are not addressing my main point which is that these MCO's distort their "net margin" stat using accounting tricks. And yes PBM's are INCREDIBLY profitable. Express scripts made 4.5 billion in net income in 2017. They have never produced a drug that has saved a life.

PBMs are important but they should not be able to put a gun to these pharma companies heads because they control the formulary.

CVS net margin includes their retail business. You can't compare AWS's margin to Walmart's e-commerce margin.

I am not addressing it, because I do not see any further evidence of distortion of an MCO's net profit margin other than what this article claims. Nor would it matter to me unless some MCO executives are smuggling cash out of the country or something.

As a customer, it does not affect me.

In the healthcare business, the flow of money is:

Individual -> MCO (insurance company) -> healthcare providers and drug manufacturers

What does it matter to the individual what portion of an MCO is earning what profit if the net profit margin of the whole MCO is 5% or less? They are obviously not left with a lot of money, their employees are not known to be lavishly compensated.

That doesn't seem too strange when you consider that those two types of companies have different operating models. A drug company is in the business of taking relatively cheap goods and converting them to very expensive goods, in other words adding a lot of value. A insurance company/PBM is mostly in the business of skimming a percentage off transactions.

It is not strange, but it also contradicts claims about managed care organizations earning tons of money. It is not a business you go into to get super rich.

LMFAO. Express Scripts (the biggest PBM) was bought for 67 billion! They have never saved a patient life but are bigger than most pharma companies.

That sounds irrelevant to my point that MCOs do not make a lot of profit.