Eli Lilly and Company. “Principal Office and Laboratories, Indianapolis, U.S.A.” Ink on paper, from the Hand Book of Pharmacy and Therapeutics, 1919. Via Wikimedia Commons.
In 1921, researchers at the University of Toronto discovered how to produce insulin, making it possible to save the lives of Type 1 diabetics. After a year of testing, they had successfully treated a ward of children dying from this autoimmune disease that destroys insulin-producing cells in the pancreas. Now, the researchers were seeking production partners.
In Indianapolis, J.K. Lilly of Eli Lilly Company was pondering ways to secure exclusive manufacturing rights for the U.S. and Latin America.
“What are the objects to be attained in this enterprise?” Lilly asked an employee in a letter dated January 3, 1923.1 “At the risk of being considered to a degree selfish,” he wrote, “I give to you an idea which I am profoundly convinced is correct, and that is that our Toronto friends would, in the long run, secure best results by licensing but one maker in each of the principal countries of the world.” Note the use of “principal” here, indicative of his casual paternalism towards Latin America.2
It only took seven neat points of reasoning, outlined in the letter, to launch an empire. One hundred years later, Eli Lilly controls nearly one quarter of the global insulin market, and is one of three companies which, in combination, control 92% of that market.3 But how does one create an oligopoly to stand the test of time?
“First. One maker would be the only purchaser of the raw material . . . Two or more makers would be forced to bid for the supplies.” This, he wrote, “prevails in the matter of [animal] gland products,” which were used to produce insulin at the time.
“Second.” A greater scale of production means lower cost of production. “This is so trite that no elaboration is necessary.” In the century since his writing, production prices have indeed remained low—but prices for patients have skyrocketed.4
“Third. Economy in testing.” As insulin batches required testing to ensure their efficacy, “[m]ore than one group would be an unnecessary charge against costs.”
“Fourth. Selling this product in competition with others would require large expenditures in advertising and selling. Rivalry would be rife and expensive . . . It is often said that competition is the life of trade. I maintain that in this product, competition is the death of low costs and low prices.”
“Fifth. One maker without competition could
Produce at lower cost
Test at lower cost
Sell at lowest price”
They could, but they haven’t. In the past two decades alone, insulin prices have increased 700%, forcing patients to pay an average of $5,705 per year in 2016, even as vials of insulin cost mere dollars to produce.5
“Sixth. With one manufacturer in each country,” (read: each principal country), “it could very properly be given the name Insulin” rather than other brand names.
“Seventh. The Toronto Group would find it much easier to control one manufacturer.”
In the end, Eli Lilly and its two peers, the only ones granted manufacturing rights, ended up with control. It turns out you can make an oligopoly to stand the test of time—especially if you build it around a life-saving treatment like insulin.
- Correspondence from J.K. Lilly to G.H.A. Clowes, 3 January 1923, Box 12, Eli Lilly Folder, University of Toronto Board of Governors Collection 1923-1973, University of Toronto Archives.
- Indenture between the Governors of the University of Toronto and the Eli Lilly Company, 30 May 1922, MS. COLL. 269 (Collip), Box 37, Folder 5, Collip (James Bertram) Papers 1898-1976, University of Toronto Archives.
- Ryan Knox, “Insulin insulated: barriers to competition and affordability in the United States insulin market,” Journal of Law and the Biosciences (9 Oct 2020).
- Dzintars Gotham, Melissa J Barber, and Andrew Hill, “Production costs and potential prices for biosimilars of human insulin and insulin analogues,” BMJ Global Health (2018).
- Emily Hanson, “The Economic Burdens of Life: Trade Secrecy and the Insulin Pricing Crisis in the United States,” Journal of Intellectual Property Law 27, no. 1 (2019): 252; Jean Fuglesten Biniek and William Johnson, “Spending on Individuals with Type 1 Diabetes and the Role of Rapidly Increasing Insulin Prices,” Health Care Cost Institute (January 2019): 2; Dzintars Gotham, Melissa J Barber, and Andrew Hill, “Production costs and potential prices for biosimilars of human insulin and insulin analogues,” BMJ Global Health (2018).
