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Earlier this month the US Food and Drug Administration removed a top weight-loss drug from its shortage list, threatening the business of GLP-1 drug compounders and some telehealth providers. A lawsuit over how the agency came to its conclusion followed — and the FDA is now reconsidering.
Compounders and online providers know that at some point, the GLP-1 compounding business will end, but they don't expect it to be anytime soon in light of the demand they continue to see.
When the FDA announced Eli Lilly's (LLY) active ingredient for diabetes drug Mounjaro and weight-loss drug Zepbound, tirzepatide, would be taken off the list on Oct. 2 after nearly two years, it began a countdown of 60 days for some compounding pharmacies to stop producing the drugs — others would have to halt immediately. Eli Lilly had first notified the agency its shortage was resolved in August, and the FDA underwent its own process to validate and declare the issue resolved.
The trade group representing some impacted pharmacies (also known as 503Bs), the Outsourcing Facilities Association, then filed a suit alleging the FDA was depriving patients of access to the drug amid ongoing shortages.
The FDA said as much in its own announcement: "Even when a medication is available, patients may not always be able to immediately fill their prescription at a particular pharmacy."
The move wasn't sudden, but the backlash has been significant because compounders and online platforms are reaping the benefit of a strained market. The result has been an unprecedented reconsideration of the move, by the FDA, which has reset the clock.
Since the lawsuit was filed, both the compounders and telehealth providers have more wiggle room. The FDA sent a letter last week stating that while the decision is in a reevaluation period, it will not enforce the timeline — and, once it has made a decision, there will be an additional two weeks without the FDA taking any action against compounders. That's in the event the decision is to keep tirzepatide off the shortage list.
"As part of litigation, the decision to remove tirzepatide from the FDA drug shortage list has been remanded to the agency for reevaluation. FDA sent a letter on October 17, 2024, in response to a question regarding the agency’s intended approach to the compounding of tirzepatide drug products during the reevaluation period," FDA said on its website this week.
Novo Nordisk's (NVO) active ingredient, semaglutide, found in diabetes drug Ozempic and weight loss drug Wegovy, is still on the shortage list for some doses, giving compounders an opportunity to produce a version of the drug.
This is why investors are concerned about how telehealth platforms like Hims & Hers (HIMS) will manage their weight-loss patient population moving forward.
"The real issue for the stock is the IP (intellectual property) concerns around the GLP-1s. Clearly these compounding pharmacies have been very opportunistic in taking advantage of the FDA shortage list, but the debate is how long will the party last?" wrote Jefferies analyst Glen Santangelo about Hims in a note to clients this month.
Telehealth company Sesame, which offers access to compounded GLP-1s through its doctors, believes the shortage won't be ending anytime soon. Co-founder Michael Botta told Yahoo Finance in an interview that he believes it's a smart near-term strategy — to continue to offer the compounded version while semaglutide is still in shortage.
"I have no reason to believe that semaglutide will be off shortage anytime this year, and very likely no time next year either. So I do think this is here to stay for the near-term and the medium term," Botta said.
Michael Walker, president and co-founder of Strive Pharmacy, which compounds GLP-1s, said that's the million-dollar question — literally.
The company has the active ingredient in powder form, which is mixed into vials to create the weight-loss drug that is sold in bulk and costs millions. When Lilly's drug was taken off the list, it created a potential massive loss to his business.
Meanwhile, the mixed and finished product is kept ready for customers — about a week's worth of product at all times on average, Walker said.
He and others have contended that since the FDA relies on the brand manufacturer to determine when it is meeting supply, it provides an incomplete picture.
"One problem with that is it's biased information that they're getting from these drug manufacturers saying, 'We can fulfill the need now.' Where us compounders on the ground level, [are seeing that] we can't fulfill any demand," Walker told Yahoo Finance.
One key question that remains unanswered is exactly how big the compounding market is. Novo has estimated at least 20% of the total market, but there are no official numbers. The total market is estimated to reach more than $100 billion by 2030. Eli Lilly and Novo Nordisk have reported nearly $18 billion in revenues from GLP-1s through June combined.
"And so to assume that they'll be able to keep up on demand, if it was taken off drug shortage ... I feel like that demand is so high that to be able to fill that is going to take a lot of production capabilities that, I believe, neither Eli Lilly or Novo Nordisk have those capabilities right now," Walker said.
Walker's belief is held by others as well, which is why the compounding and telehealth communities have pushed back against the FDA and remains unfazed by the threat of the shortage ending in the near future.
Telehealth platforms Sesame, Ro, and Hims & Hers, for example, are continuing to advertise. In fact, Ro CEO Zach Reitano told Yahoo Finance that the entire weight-loss business (Ro offers both branded and compounded versions) is a key growth area for the company.
"It would [be] intellectually dishonest to say our entering what is arguably the largest healthcare category ever didn't also massively accelerate the business further. But it wasn't as if it was a lifeline, it was a ... jetpack," Reitano said, adding that the company still offers sexual health, fertility, hair, and skin care.
Sesame, which previously partnered with Costco (COST) to offer telehealth services to members, announced recently it is the first company to offer compounded GLP-1s in all 50 states, adding California, Alabama, Louisiana, and Mississippi this month.
Botta said when Mississippi decided earlier this year to approve access to compounded GLP-1s, patients in the state "were looking to do something more reputable than going to the local medspa, where God knows what the supply of compounded medication is coming from," Botta said.
The concerns of quality have been long-standing, as some medical spas and clinics have opted to mix salts, B12, and other ingredients not authorized by the FDA into the compounded formula.
Novo Nordisk recently provided a study looking at compounded versions of its drug, which have caused 10 deaths and 542 hospitalizations or adverse reactions between October 2018 and June 2024.
The study was used to urge the FDA to take its drug off the shortage list, as patients are exposed to synthetic versions of the drug that can cause unintended consequences compared to the biological product Novo uses for its approved version. (The FDA does not approve copycats when there is a shortage, but it has advised against improper use of compounded versions.)
Botta claimed that Sesame vetted the compounding pharmacy it contracted with before offering it through its telehealth platform.
"We're typically relatively agnostic as to where patients are receiving a prescription medication from," he said, but if a trusted compounded source is an option and patients want it, "we're happy to point people in that direction."
The FDA is currently in the middle of reevaluating the decision to take tirzepatide off the shortage list and has proposed a status update to the district judge on Nov. 21. This is the first time the FDA's removal of a drug from the shortage list has been challenged.
Eli Lilly has not commented on the lawsuit, but it is likely to be discussed at an upcoming earnings call on Oct 30.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee on most social media platforms @AnjKhem.
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