Health apps profiting from copycat weight-loss drugs on borrowed time

US health start-ups profiting from shortages of wildly popular anti-obesity drugs such as Wegovy are facing questions over the sustainability of their new revenue streams and bracing for clashes with the pioneers of the potentially $130bn-a-year market.

In the booming area of weight-loss medicine, telehealth companies such as Hims & Hers have cornered the market in cheaper alternatives to mainstream jabs, serving customers unable to get their hands on originals, including Eli Lilly’s Zepbound — or unwilling to pay the high price.

Hims & Hers, which sells a copycat version of a GLP-1 weight-loss treatment for $199 a month compared with the $1,349 list price of Novo Nordisk’s Wegovy on which it is based, benefited from a 70 per cent jump in its share price in the month after it started selling compounded weight- loss drugs in May.

But US laws stipulate such copycat drugs can only be manufactured in bulk when branded originals are officially designated as being in short supply, or to tweak medication for patients’ needs in small quantities, leaving start-ups facing the loss of a lucrative new revenue stream.

After launching a weight-loss drug based on semaglutide, the active ingredient in Wegovy, Hims added 155,000 users and projected its total weight-loss business, which includes non-GLP-1 drugs, would generate $100mn in revenue this year. The group is expected to generate as much as $1.4bn in sales this year. However the $3.2bn company’s recent share price gains have been largely wiped out in recent months, as investor concerns about the sustainability of its GLP-1 business have grown.

Eli Lilly has expressed optimism that shortages may end soon, and the US group and rival Novo Nordisk are investing heavily to boost supply. The exact timeline is uncertain, but last week, Indianapolis-based Eli Lilly launched a cut-price version of Zepbound in a vial, rather than its more costly injector pen.

The move was a bid to alleviate the supply constraints that have dogged its jabs, but also to outcompete cheaper, compounded versions popular with patients not covered by health insurance.

Compounded, or replica, versions of patented drugs contain the same basic ingredient as branded drugs but — unlike generics — do not have US Food and Drug Administration approval, and are generally designed to treat people with allergies to approved medicines, or alleviate supply shortages.

The weight-loss sector, which is projected by analysts to generate up to $130bn a year, has proven a fertile ground for compounding as pharma companies struggle with supply issues for their injector pens, which take longer to produce than vials.

Better known for selling hair loss and erectile dysfunction medicines, digital health apps — such as listed Hims, as well as Ro and Sesame, both of which are backed by venture capital fund General Catalyst — have been among the biggest beneficiaries. Most of the apps also sell branded weight loss drugs such as Wegovy.

Despite the sustainability of the compounded GLP-1 business coming into question, Hims’ co-founder Andrew Dudum told the Financial Times the company plans to keep on selling a compounded version of semaglutide after the shortage ends.

To do so, it will need to persuade regulators it is producing a tailored medicine, by adding other drugs, such as vitamins, or tweaking dosing amounts. Dudum said: “People believe that compounding cannibalises the market when the commercial drugs are available, but in reality, it’s much more of an additive solution for patients that need it.”

His competitors are more cautious, however. “When the shortage ends for semaglutide, I do not anticipate that we will continue offering it as an option on this platform,” said Michael Botta, Sesame’s co-founder. “This is a branded medication that [is] still under patent . . . the justification for continuing to offer that at scale outside of shortage is not strong.”

Under FDA rules, so-called 503B compounding pharmacies are allowed to mass produce patented drugs when there are shortages, while 503A pharmacies are allowed to create tailored versions based on individual prescriptions. Hims dispenses its anti-obesity drugs through an in-house 503A pharmacy but relies on 503B suppliers. It is nearing a deal to buy a 503B compounding pharmacy for $31mn.

An end to the supply shortage could threaten Hims’ supply chain, as 503B pharmacies pull back from producing the patented drugs. Belcher Pharmaceuticals-owned BPI Labs, which supplies Hims, said it was unlikely to be able to produce the raw ingredient outside of shortage conditions. “I can produce [semaglutide] if the shortage is there under [FDA regulations],” said Jugal Taneja, Belcher’s co-founder. “If it is not . . . we can’t.”

Meanwhile, a number of small operators are in the crosshairs of regulators, as well as Eli Lilly and Novo Nordisk. Compounded drugs run the gamut from near-identical GLP-1 medicines produced by properly inspected pharmacies to dangerous knock-offs falsely advertised as Wegovy or Zepbound, which can cause serious side effects.

Between them, the two large pharmaceutical companies have launched legal proceedings against at least 65 compounders, medical spas and wellness centres for promoting false claims about the safety of the products and infringing on their brands’ trademarks.

Eli Lilly last month also sent out a barrage of cease and desist letters to a group of health providers, including some digital health apps, demanding they stop producing compounded tirzepatide — the raw ingredient used in Zepbound — after its own doses were removed from an official shortage list, despite the active pharmaceutical ingredient still being classified as in shortage.

“Patient safety is our top priority and Lilly has been speaking up to help inform people about the dangers of unsafe knock-offs of its FDA-approved medicines,” said Patrik Jonsson, head of Eli Lilly’s cardiometabolic health division.

Scott Brunner, chief executive of the Alliance for Pharmacy Compounding, an industry body that includes Hims and Ro among its members, said Novo Nordisk and Eli Lilly had “conflated legitimate pharmacy compounding with counterfeit and illicit activity that endangers patients”. He added: “Novo and Lilly continue to lump those together as if they’re the same thing, and they absolutely most certainly are not.”

Hims has drawn up a legal strategy in case the big weight-loss drugmakers decide to pursue litigation, according to a person familiar with the matter. “It’s a proverbial guessing game on whether or not [Hims will] actually see a lawsuit,” said Michael Cherny, an analyst at Leerink Partners. But he added that “it’s a question that comes up in every single investor conversation”.

“The compounders are trying to push the envelope to where it might be considered a grey area,” said Michael Dowell, a healthcare lawyer who serves as a board director at the American Society for Pharmacy Law. He predicted that if companies were to continue selling GLP-1 drugs once the official shortage ends, “the FDA will go after you, and the companies like Eli Lilly and Novo Nordisk will go after you”.