Eli Lilly and Novo want to shake off Ozempic copycats. Are they ready to meet demand?
Summary
The makers of Ozempic and Zepbound are fighting to stop compounded copies of their drugs. But it’s unclear whether they can ramp up production enough.
Pharmaceutical companies are typically rewarded for their innovation with years of market exclusivity before cheaper generics enter the scene. But for diabetes and obesity drugs like Ozempic and Zepbound, known as GLP-1s, cheaper copycats emerged almost immediately.
This is due to a provision that permits drug compounders to produce copies during periods of shortage. For GLP-1s, supply constraints have persisted ever since Wegovy’s approval for obesity in 2021, giving rise to a booming market for compounders.
That window for mass drug compounding, however, could start to close if the FDA upholds its recent determination that tirzepatide, the active ingredient in Eli Lilly’s Zepbound and Mounjaro, is no longer in short supply. Although the FDA declared the shortage resolved a month ago, it is currently reassessing its decision after facing a lawsuit from a compounding trade group. An update is expected on Thursday. It is possible the FDA could reverse its decision or give compounders more time. The nomination of Robert F. Kennedy Jr.to serve as secretary of Health and Human Services, which has jurisdiction of the FDA, adds some uncertainty to what might happen under the Trump administration, given Kennedy’s skepticism of big pharma and GLP-1s in particular.
Nonetheless, the days of mass compounding appear to be waning. Notably, the FDA also has recently listed Novo Nordisk’s semaglutide—the active ingredient in Ozempic and Wegovy—as available on its website, though it hasn’t formally declared the shortage to be over.
If the FDA moves to restrict mass compounding, it could spell trouble for telehealth companies like Hims & Hers Health and Ro, while providing a boost in demand for Lilly and Novo.
Although Lilly Chief Executive David Ricks played down the impact of compounding on its sales on a recent earnings call, the potential upside could be significant. Conservative estimates indicate that hundreds of thousands of patients are currently turning to compounders for access to these medications. Many patients prefer to go this route because insurance coverage of GLP-1 drugs for obesity isn’t yet widespread and the compounded drugs are cheaper.
The bigger question is whether the manufacturers are equipped to meet heightened demand without falling back into shortages within a few months. Eli Lilly is planning to further fuel demand with new consumer-focused advertising in the coming weeks. UBS analyst Jo Walton captured the concern during Novo’s earnings call last month, noting that demand next year could surge as Novo and Lilly ramp up advertising while compounders potentially exit. “Should we be concerned that it’ll be only another three months before you’re back into telling us that you’re in short supply?" Walton said.
A spokeswoman for Eli Lilly said in an email that “all doses of Mounjaro and Zepbound have been available since August, and Lilly’s current and projected supply for both medicines exceed the current and projected national demand." She added that the “projections include our forecast for increased demand for genuine Lilly medicines."
Lilly’s spokeswoman points out that the company is broadening access and affordability by offering Zepbound single-dose vials through a self-pay option on the company’s website, LillyDirect. Novo points to the FDA website saying all doses of Ozempic and Wegovy are available, while noting that the company will continue to give priority to continuity of care for patients.
The sharp divergence between demand and supply of GLP-1s is nearly unprecedented in modern pharmaceutical history in terms of its scale and its persistence. “This is a phenomenon like nothing we’ve seen since the advent of birth control," says Scott Brunner, CEO of the Alliance for Pharmacy Compounding. “It’s even bigger than the HIV drugs in the 1990s or Viagra."
The compounders argue that their cheaper medications are safe and that they aren’t actually competing with Lilly and Novo, given what they say is a persisting supply problem. Compounders fill a critical role during shortages of crucial medicines or when specific formulations aren’t available through the normal channels. But some businesses working with compounders aren’t just filling in medical-supply gaps, they are stoking demand, too: Companies like Hims and Ro, famous for selling drugs for hair growth and erectile dysfunction, are now aggressively marketing GLP-1s.
Lilly and Novo are fighting to end compounding, publicly arguing it is about protecting patient health.
“Patients shouldn’t be exposed to risky, unapproved knockoff products, especially when safe and effective, FDA-approved tirzepatide medications are available," a Lilly spokeswoman said in an email. But, reading between the lines, it is also a business problem. The manufacturers are spending tens of billions of dollars to do the heavy lifting of building out this market, from expanding supply to securing insurance coverage to conducting expensive clinical trials. Meanwhile, bulk compounders are eating into their potential market share and risking a public-relations nightmare if a batch goes bad.
Lilly’s determination to prepare for a world without mass compounding may even explain why its GLP-1 sales underperformed last quarter, according to Will Sevush, a healthcare specialist at Jefferies. He speculates that Lilly might have decided to stockpile supply and hold off on consumer advertising to ensure they could adequately supply excess demand expected to be created once the FDA removes GLP-1s from the shortage list.
“I think what we’ve done is sort of move our set point of how much stock we want to have on hand before we go initiate demand-stimulating activities, which we had more or less paused for Mounjaro in the first half and never started for Zepbound," Lilly’s Ricks told analysts during the earnings call.
The FDA is clearly concerned, too, and it wants to curb mass compounding. But it can’t act without officially declaring the shortages over, something it is now trying to do with Lilly’s tirzepatide. The problem is that what constitutes an end to the shortage remains murky. In making its decision, the FDA relies on information provided by the manufacturers. In October, the FDA announced that Lilly had finally produced enough tirzepatide to meet soaring demand. But compounders have disputed whether the shortage is over, and the FDA’s own drug-shortage website acknowledges that even when a drug is technically available, patients may still face delays due to factors like supply-chain logistics and retailer practices.
It could be a matter of months, but Eli Lilly and Novo Nordisk may soon get what they want. They better be ready to handle it.
Write to David Wainer at david.wainer@wsj.com
