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. “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.
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. 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.
“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.”