By Josh Nathan-Kazis
The monthslong battle over the future of the weight-loss drug industry is headed for a climax this week, when the Food and Drug Administration is slated to reveal whether Eli Lilly's supply of its obesity drug Zepbound can meet U.S. demand.
The decision, set to be announced Thursday, will have major implications both for Lilly and its competitor Novo Nordisk -- and for the sprawling industry of telehealth companies and compounding pharmacies that have sprouted up over the past year to sell legal copycat versions of Zepbound and of Novo's Wegovy.
If the FDA says Zepbound is out of shortage, Lilly and Novo can breathe easier, with some assurance that the copycat market will eventually dry up, and that patients will be forced to pay for the higher-priced branded drugs.
But if the FDA says Zepbound is in shortage -- or if it once again puts off making a final decision -- investors might need to reckon with the possibility that the cheap copycat versions of Zepbound and Wegovy could have a real financial impact on Novo and Lilly.
Shares of Lilly and Novo have slid in recent months as Wall Street has wobbled on whether demand for the branded GLP-1 weight loss drugs might be overstated. Lilly shares are down 15% over the past three months, while Novo's American depositary receipt is down 22%.
Enormous peak sales estimates for the Lilly and Novo weight-loss drugs had boosted the market values of the two companies into the stratosphere. But as the rollout of the medicine proceeds, the complexities are becoming increasingly apparent. Wall Street's simple bet on the treatments -- that high obesity rates plus a highly effective obesity drug will equal sky-high sales -- is no longer quite looking so simple.
Chief among those complexities is the challenge posed by the compounders. Federal law allows compounding pharmacies to make their own version of a branded medicine when the FDA determines the branded version to be in shortage. It's an important safety valve when essential medicines hit supply-chain snags, but the shortages of Zepbound and Wegovy have allowed the compounders to play in one of the hottest branded pharmaceutical markets in history.
The number of telehealth sites selling compounded GLP-1 drugs has exploded over the past year, in what's begun to look like a gold rush. In addition to established players like Hims & Hers and Ro, new sites appear to be popping up on a near-weekly basis. The sites sell compounded semaglutide, their version of Wegovy, and compounded tirzepatide, their version of Zepbound, at steep discounts to the drugs' list prices. Patients generally cannot use insurance for the compounded drugs.
Both Lilly and Novo have taken some legal and regulatory steps against the compounding market, but they also appear to be preparing to live with the copycat competitors. Earlier this week, Lilly announced a deal to sell a version of Zepbound through Ro's platform. Ro will prescribe single-dose vials of Zepbound that Lilly will fill through its own mail-order pharmacy, LillyDirect. The prescriptions can't be paid for by insurance.
The lower-dose version of the Zepbound vials costs $399 a month and the higher-dose version costs $549 a month, which is less than the list price of the normal packages of Zepbound sold through retail pharmacies. Lilly's deal with Ro appears to be an effort to get a toehold in the online marketplace where it can compete directly with the compounders. However, it also looks like an admission that the threat from the compounders might be here to stay.
The Thursday deadline for the FDA comes more than two months after the FDA first took tirzepatide -- the generic name for Zepbound and the diabetes medicine Mounjaro -- off its shortage list. A compounding industry group quickly filed a lawsuit to challenge the decision, and the FDA backed off, saying it would re-evaluate its decision. In November, the FDA told the federal judge overseeing the case that it needed more time to reconsider whether itrzepatide is in shortage, and said it would update the court again on Dec. 19.
Though the FDA's final decision is still pending, compounded tirzepatide does already seem to be less readily available than it was before the agency first removed the branded drug from the shortage list in October. A number of telehealth sites that once sold compounded tirzepatide -- including Eden, Alan, and others -- no longer offer it. Other telehealth sites, including one called Hello Alpha, do still list compounded tirzepatide as available.
If the FDA does not make a final decision on Thursday, it could be up to the next administration. That might be a good sign for the compounders: President-elect Donald Trump's pick to lead the FDA, Dr. Marty Makary, is chief medical officer at Sesame, a telehealth company that sells a compounded version of Wegovy.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 16, 2024 02:00 ET (07:00 GMT)
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