Enrique Conterno Senior Vice President and President, Lilly Diabetes President, Lilly USA 317.277.5297 e.conterno[atilly.com Eli Lilly and Company September 6, 2017 Lilly Corporate Center Indianapolis, Indiana 46285 USA. The Honorable Amy Klobuchar United States Senator 302 Hart Senate Of?ce Building Washington, DC. 20510 Dear Senator Klobuchar, We appreciate the opportunity to address your concerns regarding the price of insulin. Headquartered in Indianapolis since its founding in 1876, Eli Lilly and Company (?Lilly?) has been manufacturing and developing innovative insulin products for the last 90+ years. How we price our medicines is not a decision we take or without considering how it will affect patients? access to medicines. While the current health care system largely ensures affordable access to insulin for diabetes patients, we recognize that the system does not work for every patient. This is an issue that we take very seriously and, as discussed below, we are working hard on finding ways to reduce costs for those patients. In addition to this written response and accompanying materials, Lilly welcomes the opportunity to discuss these issues in greater depth and address any additional questions you may have. 1. Insurance Bene?t Design Drives Patient Out-of-Pocket Costs As an initial matter, any discussion of drug pricing requires a clarification of terms because the ?price? or ?cost? of a medication may represent different concepts to different participants in the health care system. Manufacturers like Lilly typically set a medication?s ?list price,? which is the amount that the manufacturer charges to its wholesaler customers, subject to certain discounts that the wholesaler may earn.l The wholesalers then re?sell the medication to pharmacies at a price that those parties separately negotiate. The pharmacies, in turn, dispense the medication to patients and in most cases are paid a price that is negotiated or set by the patient?s insurer or by a pharmacy benefit manager retained by the insurer. Importantly, manufacturers typically provide rebates and/or fees to insurers or their PBMs that reduce both the cost of the medication to those entities and the price that is ultimately realized by the manufacturer (which is sometimes referred to as a ?net price"). The out?of?pocket costs that are incurred by patients, meanwhile, vary significantly depending on numerous factors, most notably their insurance bene?t design. Because of the discounts, rebates, and fees that Lilly provides to all purchasers and insurers (or their PBMs) which have increased on average from 28 percent to 50 percent over the past ?ve years the increases in list prices do not re?ect increases in the net prices that Lilly ultimately receives. For example, while Lilly has increased the list price for Humalog? Lilly?s most commonly used insulin product during the past several years, the average net price has remained relatively stable during that same period. 1 Lilly refers to its list price as the ?Wholesale Acquisition Cost." Page 2 The discounts, rebates, and fees that have kept the net price stable are the result of both market dynamics and statutory requirements. In the U.S. private sector, commercial insurers and PBMs acting on their behalf have used their size, market position, and control over drug forrnularies to negotiate signi?cant rebates from pharmaceutical manufacturers. Lilly and other manufacturers compete for formulary placement not only on the basis of product attributes such as greater ef?cacy, fewer side effects, or greater patient ease of use, but also by providing rebates. In the U.S. public sector, manufacturers are legally required to provide rebates, which can be substantial, to the federal government and state governments for medications that are covered by Medicaid. Manufacturers also provide rebates to private entities in certain types of health care facilities (known as 340B covered entities), where qualifying patients receive their medication at little or no cost. Because of the substantial rebates that Lilly provides to insurers, out-of-pocket insulin costs have remained relatively constant in recent years for the vast majority of patients in the U.S. Thus, the pharmaceutical pricing system works reasonably well for people with certain types of insurance coverage, such as commercial plans with manageable deductibles and co- pays, Medicare, and Medicaid. However, approximately 10 percent of patients either have no insurance or high deductible health plans and may therefore incur greater out-of- pocket costs for their medicines. For example, if a patient has an HDHP particularly one that does not exclude preventive medicines from the deductible the patient may have to pay the full retail price charged by a pharmacy. Lilly is identifying and implementing near-term and long-term solutions to reduce the out-of-pocket costs that diabetes patients may incur for modern insulin products. Earlier this year, Lilly announced its participation in Blink Health and Inside Rx, access programs that allow people who pay full retail price for insulin to save 40 percent at the pharmacy.2 In addition, over the past three years, Lilly has donated more than $378 million in diabetes medicines to the Lilly Cares Foundation, Inc., a separate, non-pro?t organization that helps qualifying people obtain access to medicines from Lilly?s core therapeutic areas at no cost. Regarding long-term solutions related to benefit design, Lilly recently worked with Milliman, an independent actuarial consulting ?rm, to identify and evaluate various approaches to reduce out-of-pocket costs for diabetes patients in commercial health plans. Based on Milliman?s analysis,3 Lilly has advocated for health plans to exempt insulin products from deductible requirements to relieve some of the additional ?nancial burden for diabetes patients. Exempting insulin products from the deductible or removing cost-sharing are not novel ideas and have already been embraced by some U.S. insurance plans. II. The Business Model: Investing in Discovery and Innovation The pharmaceutical market is very competitive, and competition drives prices to similar levels. However, Lilly makes all of its pricing decisions independently, and we do not discuss . 2 ?Lilly Announces Program to Provide Insulin at Discounted Prices,? Eli Lilly and Company press release, December 13, 2016, on the Eli Lilly and Company website, accessed August 17, 2017. 3 The executive summary is attached as Attachment A. Page 3 such decisions with competitors. As noted above, recent increases in the list price for Lilly?s insulin products do not correspond to parallel increases in the net price received by Lilly. In recent years, Lilly has maintained a relatively constant return on its insulin products, which in turn has enabled Lilly to continue to invest in the discovery of innovative, life-saving medicines. In 2016 alone, Lilly spent more than $5 billion on research and development, accounting for almost 25 percent of total revenues. We recently introduced new treatments for psoriasis and cancer, and we continue to advance promising new treatments in multiple therapeutic areas, including diabetes, oncology, immunology, Alzheimer?s disease, and chronic pain. Any one, or all, of these treatments still in development could fail during clinical trials. Indeed, risk and uncertainty are inherent to drug discovery. A recent and heartbreaking example of the risk that our company undertakes can be seen in solanezumab, a potential treatment for Alzheimer?s disease that did not succeed in its last stage of clinical testing. Had it succeeded, solanezumab would have been the ?rst disease-modifying drug to treat Alzheimer?s. Nevertheless, Lilly remains committed to Alzheimer?s research, and our portfolio includes other potential approaches, including a BACE inhibitor in clinical trials. Discovering, developing and manufacturing innovative medicines, including Lilly?s modern insulin products, is scienti?cally and technically precise, dif?cult, and capital?intensive, requiring billions of dollars in long-term investments and years of research. Lilly has invested approximately $1.1 billion in the past ?ve years to expand our US. diabetes manufacturing operations. In early 2017, Lilly announced an $85 million expansion of our US. Trulicity? device assembly facilities, and dedicated our $140 million insulin cartridge production plant in Indianapolis. We are currently investing in technology advances that can make insulin treatment more effective, such as the bionic pancreas and a Bluetooth? enabled insulin pen. Throughout our history, Lilly has been a leader in developing new medicines that make a real difference for patients, and we remain focused on changing patient expectations for some of the world?s most debilitating diseases. Thank you for sharing your concerns and the opportunity to engage with you directly on this important issue. Guided by our mission to make life better, we will continue to demonstrate integrity and transparency, and a commitment to corporate responsibility, in all aspects of our business. We look forward to continuing this dialogue with you. In responding to your letter, Lilly has used its best efforts to be as accurate and responsive as possible based on our understanding of the terms used in your letter. The representations herein are based on current information and belief. Sincerely, Enrique Conterno Senior Vice President and President, Lilly Diabetes President, Lilly USA