The Weight-Loss Drug Market Is Heading for a Reckoning This Week

This week marks a pivotal moment for the weight-loss drug industry, as the Food and Drug Administration (FDA) is expected to announce whether Eli Lilly’s obesity drug, Zepbound, can meet U.S. demand. The decision, set to be revealed on Thursday, could have far-reaching implications for both Lilly and its competitor, Novo Nordisk, as well as for the burgeoning market of telehealth companies and compounding pharmacies that have emerged to offer legal knockoffs of Zepbound and Novo’s Wegovy.

The Implications of the FDA’s Decision

If the FDA concludes that Zepbound is not in shortage, both Lilly and Novo can breathe a sigh of relief. This outcome would likely stifle the growth of copycat products in the market, thereby steering patients towards purchasing the more expensive branded drugs. Conversely, if the FDA determines that Zepbound is, indeed, in short supply—or if it once again delays its final word—investors will need to confront the reality that cheaper alternatives could meaningfully affect the financial performance of both Novo and Lilly. Recent trends show that shares for both companies have declined amid Wall Street’s concerns regarding potential overestimations of demand for their branded GLP-1 weight-loss drugs. Over the past three months, Lilly shares have fallen by 15%, while Novo’s American depositary receipts have dropped by 22%.

Market Dynamics and the Rise of Alternatives

At first glance, the formula seemed straightforward: high rates of obesity coupled with an effective pharmaceutical solution should translate to impressive sales figures. However, the complexities surrounding the market have quickly become evident. One of the most significant challenges facing Lilly and Novo is the rise of compounding pharmacies, which are allowed to produce their versions of branded medications when the FDA recognizes shortages of those drugs. This rare legal allowance has opened the door for an influx of compounded GLP-1 medications, as recent shortages of Zepbound and Wegovy have prompted what looks like a gold rush for compounding pharmacies.

The number of telehealth services selling compounded GLP-1 drugs has surged in the last year. Established companies like Hims & Hers and Ro are now accompanied by numerous newcomers entering the market almost weekly. These platforms offer patients compounded semaglutide (a version of Wegovy) and compounded tirzepatide (Zepbound’s equivalent) at attractive discounts compared to the list prices of the branded drugs. Notably, insurance coverage is typically not available for these compounded versions, making the cost a crucial factor for many consumers.

Regulatory and Strategic Maneuvers by Lilly and Novo

In response to these market dynamics, both Lilly and Novo have initiated legal and regulatory measures against the burgeoning compounding sector. However, indications suggest that these pharmaceutical giants are also adapting to coexist with their lower-priced competitors. Recently, Lilly announced a partnership with Ro to sell a branded version of Zepbound through the telehealth platform. Under this agreement, Ro will prescribe Zepbound, which Lilly will supply via its own mail-order service, LillyDirect.

Despite being unable to process insurance claims, this strategic move allows Lilly to maintain a footing in the rapidly evolving online marketplace while directly competing against compounders. The prices for these lower-dose and higher-dose versions through Ro are $399 and $549 monthly, respectively, both of which are lower than the standard retail prices for Zepbound.

Approaching a Crucial FDA Decision

The anticipated FDA announcement is particularly significant; it comes more than two months after the agency initially removed tirzepatide from its shortage list. Following this, a compounding industry group filed a lawsuit, compelling the FDA to reconsider its ruling. Recently, the FDA revealed that it required additional time for evaluation, promising to deliver a status update on both Zepbound and its availability by December 19.

Should the FDA fail to provide a decisive outcome this Thursday, the resolution may rest with the next administration. This potential lapse could be favorable for the compounding sector, especially considering President-elect Donald Trump’s pick for FDA leadership, Dr. Marty Makary, is associated with a telehealth company that sells compounded versions of Wegovy.

Conclusion

The outcome of the FDA’s impending decision may not only determine the trajectory for Eli Lilly and Novo Nordisk but could also redefine the competitive landscape of the weight-loss drug market. As the industry grapples with challenges posed by compounding pharmacies and evolving consumer preferences, both patients and investors will be watching closely for developments in this rapidly changing market.