Eli Lilly is cutting insulin prices, and this time it’s for real.

Months after a Twitter account posing as the drugmaker went viral with a tweet stating, “insulin is free now,” the company on Wednesday unveiled a new pricing program. While Lilly’s insulin won’t be free, the company will cap a diabetes patient’s monthly out-of-pocket cost at $35, a price level in line with the cap for Medicare beneficiaries that went into place in January under the Inflation Reduction Act. President Biden used part of his State of the Union address to call on drugmakers to expand that cap to more people.

Lilly’s $35 price cap is automatic for people who have health insurance and obtain their insulin from a retail pharmacy. The Indianapolis-based pharmaceutical giant said that those who are uninsured can benefit from the new price cap by enrolling in a Lilly “insulin value program” that makes all of the company’s insulins available for $35 a month.

Under Lilly’s plan, the price of its non-branded insulin, Lispro, will be slashed to $25 a vial, effective May 1. The company says that’s less than the 1999 price of a vial of its fast-acting mealtime insulin, Humalog. Humalog is Lilly’s top prescribed insulin product, accounting for $2 billion in revenue last year, more than half of those sales coming from the U.S. Lilly said the prices of Humalog and Humulin will be cut by 70% starting in the fourth quarter of this year.

In addition, Lilly said it would launch Rezvoglar, a biosimilar that is interchangeable with Lantus, a long-acting insulin marketed by Sanofi. Rezvoglar will cost $92 for a five pack of the product in injectable pens, reflecting a 78% discount to the Sanofi product. This price is effective on April 1.

In addition to political pressure, Lilly faces looming competition. A year ago Civica Rx announced plans to manufacture and sell insulin at a price of no more than $30 per vial. The nonprofit pharmaceutical company aims to make versions of Humalog, Lantus, and Novo Nordisk’s Novolog. But those products first need to secure FDA approval and the company is still working on its manufacturing facility in Virginia. Civica Rx has said it expects its first products could reach the market in early 2024.

Meanwhile, California has budgeted $100 million for the development and manufacturing of low-cost biosimilar insulins. The Golden State has also taken legal steps against the industry. In January, the Office of the Attorney General sued Lily, Novo Nordisk, and Sanofi along with three pharmacy benefit managers, alleging that all of them conspired to keep insulin prices artificially high. Commenting at the time, a Lilly spokesperson pointed to the availability of Lispro, whose price Lilly slashed last year to 70% below Humalog’s price.

Lilly can afford to make the price cuts without feeling too much financial pain, according to Morningstar analyst Damien Conover. In a research note sent Wednesday, Conover said that even though insulins account for more than 15% of Lilly’s total sales, Morningstar believes the price reduction will not materially hit the company’s cash flows due to the pricing structure of insulin. He added that the price cut is likely due to increased political pressure and an insurance system that has created “a disproportionately high spread” between the list price, which is what some patients pay if they lack insurance or have high deductible plans, and the net price that Lilly receives from health insurers.

Unclear are the rebate levels, which insulin manufacturers like Lilly pay to pharmacy benefit managers for placement on drug formularies. Morningstar estimates that these rebates represent close to 80% of insulin list prices, and the firm thinks most of the Lilly price cut will end up reducing the rebates. That means it’s the insurance companies that will take the hit. The new plan is about more than insulin. Lilly’s pricing strategy takes into account the company’s pipeline of new products, Conover contends.

“Addressing the pricing concerns around insulin should help Lilly maintain pricing power with new innovative drugs, the core pillar of the firm’s wide moat,” he wrote. “As long as older medicines (like insulin) face major price declines following an exclusivity period, we believe new drugs should maintain strong pricing power.”

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