An age-old battle in pharmaceuticals could further rattle Eli Lilly stock and its potential $100 billion market in weight-loss drugs. The showdown centers on compounders, companies allowed to create knockoffs of drugs to offset shortages.
The battle took a turn in October when the Food and Drug Administration removed tirzepatide from its drugs shortage list, stoking fury and panic among doctors, patients and compounding pharmacies. The removal means compounders can no longer make their versions of tirzepatide — sold as an obesity medication called Zepbound and in diabetes treatment as Mounjaro.
But then the FDA reversed course after a group representing compounders, the Outsourcing Facilities Association, filed a lawsuit. They say tirzepatide remains in short supply. Compounders can continue to make tirzepatide while the agency further analyzes the potential shortage.
Lilly contends it has enough manufacturing to keep up with sky-high demand for its diabetes and weight-loss drugs. Novo Nordisk, which makes rival meds Wegovy and Ozempic, argues it's dangerous for compounders to knock off its branded drugs.
But compounders disagree.
In two months during the third quarter, nearly 80,000 people have struggled to find the branded versions of these drugs, according to Hims & Hers Health, which compounds semaglutide. Semaglutide is the active ingredient behind Wegovy and Ozempic.
"I don't think anyone anticipated the demand that these drugs brought forth when they were FDA approved," Jayne Hornung, chief clinical officer of health care technology company MMIT, told Investor's Business Daily.
Eli Lilly Stock: Facing Off With Compounders
By making copycat versions of branded drugs with FDA approval, compounding pharmacies are eyeing a fast-growing market that has grappled with shortages.
Semaglutide hit the FDA's drugs shortage list in March 2022. The FDA determined Lilly's tirzepatide was in shortage in December 2022, shortly after Mounjaro won approval in May that year. Later, the weight-loss drug Zepbound gained approval in November 2023.
Lilly and Novo have invested heavily to expand their manufacturing capacity to keep pace with the incredible demand for their drugs. Last June, Novo announced a $4.1 billion investment to grow its manufacturing footprint in the U.S. That followed its $16.5 billion plan to acquire Catalent in February. Lilly put up $9 billion in May to boost production of tirzepatide and other medicines in Indiana.
"Our current manufacturing investment of over $20 billion in the past four years is the most significant in our history, and will allow us to continue increasing capacity to safely bring these medicines to people who need them," a Lilly spokesperson said in an email to IBD.
But both companies have struggled recently. Eli Lilly stock tumbled more than 6% on Oct. 30 after sales of Mounjaro and Zepbound missed third-quarter expectations. The duo generated a combined $4.37 billion in sales, but lagged calls for $5.49 billion, according to FactSet. Novo tightened its outlook after Wegovy beat projections at $2.53 billion, but $4.36 billion in Ozempic sales missed.
Meanwhile, Hims & Hers — an online pharmacy that compounds semaglutide — topped sales views, noting the "robust" trajectory in weight-loss drugs.
Weight-Loss Drugs In Shortage — Or Not?
It's unclear how the FDA determined tirzepatide is no longer in shortage, MMIT's Hornung said.
But the decision left patients scrambling to figure out their next move, said Matthew Montes de Oca, chief clinical officer for Strive Pharmacy, a specialty compounding pharmacy.
Strive makes copies of both semaglutide and tirzepatide. The company had been focused mainly on anti-aging and longevity meds. But in the early days of the shortages, Strive stepped in when doctors said they couldn't find semaglutide or tirzepatide at retail pharmacies operated by Walgreens Boots Alliance or CVS Health.
As of the end of October, Strive had filled more than 800,000 prescriptions this year across all its drugs. Montes said that number likely includes repeat prescriptions. In other words, it's hard to tell how many individual patients Strive is serving.
So when the FDA said tirzepatide was no longer in shortage, the calls starting pouring in, he said.
"Patients were freaking out," he said in an interview with IBD. "They had nowhere to go. They started calling their local pharmacies and they couldn't get the medication either. Neither could we. We've even tried to sign up with other wholesaler distributors to see if they had it and unfortunately it was the same thing."
Margie Perez, senior customer success sales associate at Olympia Pharmaceuticals, says she was taken aback by the FDA decision. Olympia compounds GLP-1 drugs. Perez is using the company's tirzepatide product. She started treatment with the compounded drug, rather than looking for the branded version from Eli Lilly.
"I was a little shocked, as it felt very sudden," she said in an email to IBD. "Working at a company that compounds it, the convenience was really appreciated."
Eli Lilly Stock Vs. Bespoke Meds
There are reasons beyond the shortage that patients might elect to get their weight-loss drugs through a compounding pharmacy, Strive's de Oca says.
Compounded medicines can be made in big batches or individualized to the patient. The latter allows patients to slowly increase the dosage to avoid side effects. Weight-loss drugs that interact with the GLP-1 hormone — like semaglutide and tirzepatide — are usually tied to gastrointestinal side effects.
"If they're forced to go back to a pen (with the branded version), they won't be able to maintain those custom doses they can achieve with the compounded products," de Oca said.
Further, compounded drugs are generally less expensive than their branded counterparts. Compounders buy their ingredients in bulk and run testing to ensure the products are up to par. But unlike Eli Lilly and Novo Nordisk, the companies aren't trying to recoup the costs to develop the weight-loss drugs.
Olympia's Perez says the lower price point "was a big help."
"I think that greatly helps with patient accessibility," she said.
Compounders Could Take A Hit
Joshua Fritzler, director of sales and finance for Olympia, says the compounding company wants to make semaglutide and tirzepatide affordable for patients. The duo account for roughly 30% of the compounding pharmacy's sales. But some compounders have shifted their business strategy to focus almost entirely on weight-loss drugs.
"I'm sure a lot will go away or have to pivot," he told IBD. "Financially, we're going to be OK. Our company is concerned with patient care. That's where this will impact the industry."
This is where Strive sits.
"GLP-1s have expanded Strive's footprint pretty large during this time period," Strive's de Oca said. "It's a decent amount of business for us so (removing tirzepatide from the shortage list) would be a hit."
It's important to note, insurance companies aren't required to cover the costs of weight-loss drugs.
Zepbound goes for about $1,060 a month before insurance kicks in. Wegovy costs $1,349 monthly.
Lilly has done some work to offer lower-cost versions of its popular weight-loss drug. In August, the company announced it would sell vials of tirzepatide for $399 to $549 per month, depending on the dosage. Patients must use a syringe, which aligns with compounded products. Eli Lilly stock inched up a fraction that day.
Copycat Weight-Loss Drugs
It's unclear what evidence Lilly provided to the FDA to prove tirzepatide is no longer in shortage.
"We have worked cooperatively with FDA to ensure it has the information it needs to assess the availability of our medicines," Lilly's spokesperson said.
But MMIT's Hornung says "it's in Lilly's best interest" from a revenue perspective to say it can fulfill the demand for tirzepatide.
Now, the FDA is reinvestigating whether tirzepatide is in shortage, or not.
Both companies have argued against the use of compounded versions of their drugs.
In June, Eli Lilly warned "non-Lilly tirzepatide can put people at risk." The warning included unsafe versions of Mounjaro, Zepbound or tirzepatide from "illegal online pharmacies."
"Although compounding is permitted in limited circumstances for individual patient needs, people should understand that compounded drugs are never FDA-approved," the company said. "FDA has expressly stated 'compounded drugs pose a higher risk to patients than FDA-approved drugs,' and that the 'unnecessary use of compounded drugs exposes patients to potentially serious health risks.' "
Olympia's Fritzler and Strive's de Oca, on the other hand, say compounders have to follow stringent rules to sell compounded versions of brand-name drugs. It takes Strive seven months to compound a batch of these weight-loss drugs, thanks to the strenuous testing process, de Oca said.
"Prior to this, there was still a stigma around us that we might be making stuff in our garage next to the lawn mower," he said.
Novo Asks FDA To Ban Knockoffs
Novo Nordisk, meanwhile, called out 619 adverse events linked to compounded copies of semaglutide. That led to 144 hospitalizations and 12 deaths, according to the FDA's Adverse Event Reporting System.
That could represent just a small portion of problematic semaglutide knockoffs, a Novo Nordisk spokesperson said in an email to IBD. Compounders don't have to report side effects to the FDA.
Recently, Novo asked the FDA to ban compounding pharmacies from making copies of its diabetes and weight-loss drugs. The FDA has yet to make a final decision. The company notes that all versions of Ozempic and Wegovy are now listed as "available" on the FDA's drugs shortage list.
The tirzepatide shortage is now listed as "resolved." But the FDA noted that doesn't mean Lilly's drugs will be readily available at every pharmacy.
Novo Nordisk's spokesperson echoed the same sentiment.
"It's important to note that availability doesn't always mean immediate accessibility at every pharmacy," the spokesperson said. "Patients may experience variability at specific locations, regardless of whether a drug is in shortage."
Eli Lilly Stock Under Pressure
Removing tirzepatide from the FDA's drugs shortage list means some compounding pharmacies will have to stop producing knockoffs immediately. Others will have 60 days to ramp down their efforts.
That's a short window for patients to find alternatives, says MMIT's Hornung.
"There's a large impact in this FDA decision that I don't think the FDA really thought about," she said.
The FDA didn't return a request from IBD for comment.
Meanwhile, Eli Lilly stock remains under pressure following its third-quarter miss.
Shares have a middle-of-the-road Composite Rating of 73, according to IBD Digital. That puts the stock narrowly below the top quarter of all stocks when it comes to fundamental and technical measures. Novo shares have a lower CR of 55.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
