The Customers Who Decide Whether Anyone Can BuyThin moat
Eli Lilly (LLY) — moat facet
A drug can be approved, manufactured, prescribed and wanted, and still not dispensed — that decision belongs to a counterparty that buys nothing.
The most important customers Lilly has are not in its customer disclosure. Pharmacy benefit managers, health plans and managed care organisations decide which drugs a plan covers and on what terms, and Lilly's own filing observes that these organisations have consolidated into fewer, larger entities, enhancing their market power.
The mechanism is the formulary. Plans and their benefit managers maintain lists specifying which drugs are covered and at what patient cost, and they control costs by negotiating discounts or rebates in exchange for inclusion and placement1. A manufacturer that declines to rebate enough receives unfavourable placement — prior authorisation requirements, outright exclusion, or non-preferred status that raises the patient's out-of-pocket cost until demand falls away.
So a drug can be approved by the FDA, manufactured at scale, prescribed by a physician and wanted by a patient, and still not be dispensed. That is a remarkable amount of power to sit with a counterparty that buys nothing, and it is the single biggest constraint on the pricing power the moat pages describe. It is also why realised prices fall while list prices rise.
Watch realised price per prescription rather than list price. The gap between them is what the intermediaries extract, and it has widened for years. Lilly reported a double-digit decline in realised price even as volumes surged — that number, not the label price, is what the company actually receives.
Lilly's own filing notes that health plans, benefit managers and wholesalers have consolidated into fewer, larger entities with enhanced market power. The incretin category makes the pressure worse rather than better: chronic medicines for very large populations are exactly what payers cannot absorb at branded prices, which is what produces coverage restrictions.
Benefit managers decide formulary placement, and Zepbound kept growing through exclusions and cash-pay price cuts. Growth that collapses after a large formulary change would show who holds the power.
Source: Eli Lilly Q2 2026 results ↗- ReportedHealth plans, PBMs and wholesalers have consolidated into fewer, larger entities with enhanced market power, and control costs by negotiating rebates in exchange for formulary inclusion, with unfavourable placement causing prior authorisations, exclusions or higher out-of-pocket cost.Eli Lilly Form 10-K, FY2025 — in 2025, 2024 and 2023 three US wholesale distributors, McKesson Corporation, Cencora, Inc. and Cardinal Health, Inc., each accounted for a significant percentage of consolidated revenue, and no other customer accounted for more than 10 percent in any of these years; wholesale distributors account for a substantial portion of trade receivables with collateral generally not required; health plans, managed care organizations, pharmacy benefit managers, wholesalers and pharmacies have consolidated into fewer, larger entities, enhancing their market power, and maintain formularies specifying coverage and reimbursement, controlling costs by negotiating discounts or rebates in exchange for formulary inclusion and placement, with unfavorable placement leading to reduced usage through prior authorizations, exclusions or higher consumer out-of-pocket cost; LillyDirect is a direct-to-patient digital platform through which sales represented a growing portion of the business in 2025 — FY2025 (ended December 31, 2025) · publ. February 12, 2026 · source ↗