The War Over Cheaper Ozempic Won’t End Well for Some Investors
America’s insatiable demand for weight-loss medications is minting vast fortunes—and not just for the makers of GLP-1 drugs such as Ozempic. Shares of Hims & Hers Health, the telehealth provider better known for its trendy commercials for erectile-dysfunction medications, are up more than 150% this year.
The company said last month it would start offering compounded forms of the injections that use the same active ingredients as the popular drugs Ozempic and Wegovy. The stock soared before Hims & Hers sold even a single injection.
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For now, given the Food and Drug Administration’s rules allowing drugs to be compounded during shortages and the fact that most insurance policies don’t cover obesity medications, Hims & Hers is filling an important void. But over the longer term, there are questions hanging over its strategy given that those problems might no longer need solving in just a few years.
Hims & Hers’s pitch to consumers is pretty appealing. The price for compounded GLP-1 injections will start at $199 a month, a bargain compared with the $1,000 or more it can cost to get Novo Nordisk’s Wegovy or Eli Lilly’s Zepbound without insurance.
The pitch to investors is also, on the face of it, attractive. Over 100 million Americans have obesity. Not everyone is interested in taking the drugs, nor can everyone who is interested afford them. But even if just a portion get on the drugs, the market opportunity for Hims & Hers could be “comically large,” at something such as $30 billion annually, noted a recent Citi report. Michael Cherny, an analyst at Leerink Partners, says that in a bullish scenario, the company could make $260 million in incremental operating profit next year. But once supply is more abundant, the opportunity for compounders could shrink, argues Louise Chen, a pharma analyst at Cantor Fitzgerald.
In normal times, it usually takes many years after a branded drug comes to the market before cheaper generics are allowed to be sold. But given the unique supply constraints amid insatiable demand for obesity drugs, pharma companies are essentially facing competition from cheaper versions of their drugs way before their medications go off patent.
To be clear, compounded drugs aren’t like generics. They don’t have FDA approval, but can be made by pharmacies under certain circumstances, such as when there is a shortage. In practice, that means that a whole set of entities, from telehealth companies such as Ro and Hims & Hers, to FDA-registered pharmacy compounders to medical spas using questionable advertising tactics are profiting from the shortage.
Both Novo and Lilly have filed numerous lawsuits to try to stop the sale of compounded versions of their drugs. And while they have had success against spas and wellness centers selling counterfeit versions of their drugs, they have suffered legal losses against compounding pharmacies. In a statement to The Wall Street Journal, Lilly noted that only certain dosages of its drug are currently in shortage and that the company has invested more than $18 billion in new manufacturing facilities dedicated to producing its diabetes and obesity drugs. More broadly, Lilly and Novo have tried to highlight safety concerns around compounded medicines, often pointing out that the FDA itself says that compounded drugs pose a higher risk to patients than FDA-approved drugs.
Scott Brunner, chief executive of the Alliance for Pharmacy Compounding, says the hundreds of pharmacies he represents fulfill a crucial role in filling legitimate prescriptions and they shouldn’t be conflated with counterfeit online sellers and other scams.
In the case of Hims & Hers, it is forming a partnership with Florida-based BPI Labs, a manufacturer of generic and compounded injectable medications that is licensed with the FDA. Hims & Hers claims that even when drugs such as semaglutide (the active ingredient in Ozempic) are removed from the FDA shortage list, it could keep selling them. “Compounding has existed for decades and is not limited to medications subject to a shortage,” a company spokeswoman wrote. Certain sections of the Federal Food, Drug, and Cosmetic Act permit “the compounding of medications to address patients’ clinical needs irrespective of whether a particular drug is subject to a shortage,” she added. Brunner elaborates on how that could work in practice: A prescriber could add Vitamin B6 or Vitamin B12 to semaglutide to prevent nausea or they could request a formulation of the drug that is delivered under the tongue, which is different from the injectables marketed by the companies, he argues. “That’s not essentially a copy of an FDA-approved drug,” he says.
Certainly compounded versions have remained around for many medications even after acute shortages end. But once all GLP-1’s come off the FDA shortage list, the legal risks could be different for compounders making them on a large scale, says Josh Oyster, an attorney handling FDA regulatory issues at Ropes & Gray. If entities want to “comply with the FDA limitations, it’s going to limit the market share they’re going to have,” he said.
Given the novel nature of the Ozempic boom, Hims & Hers and others probably aren’t too sure how the situation will play out once supply is abundant. For now, they are all too happy to grab a piece of this market and ride the exuberance that is lifting their shares. Investors should beware.
Write to David Wainer at david.wainer@wsj.com