In the US, a fierce competition is underway for the “magic drug for weight loss” simeglutide. The participants in this war include not only$Novo-Nordisk A/S (NVO.US)$There are also large pharmaceutical companies that directly produce diet pills, as well as many compound drug companies that sell simeglutide as non-diet drugs.

Since GLP-1 drugs are in short supply, and most insurances do not cover obesity treatments, compound drugs have become an important alternative and drive the stock prices of the companies behind them soar.

with$Hims & Hers Health (HIMS.US)$For example, this telemedicine company, which is mainly known for selling erectile dysfunction drugs, recently announced that it will begin providing compound injections with the same active ingredients as Ozempic and Wegovy. This news immediately triggered enthusiastic reactions from investors. The company's stock price has risen by more than 153% this year.

However, some analysts believe that since compound drugs may face regulatory pressure and lawsuits, once the supply of diet pills increases, it will squeeze the living space of complex drugs, and this seemingly prosperous market may pose potential risks to compound drug investors.

Compound drugs ignite GLP diet drug market war

The rise of compound drugs is a key factor in this weight loss drug war.

Since GLP-1 drugs are in short supply, and most insurance does not cover obesity treatments, combination drugs have become an important alternative.

Combined GLP-1 injections offered by Hims & Hers Health start at $199 per month. In contrast, without insurance, Wegovy or Zepbound can cost as much as $1,000 or more per month.

This price advantage makes compound drugs extremely attractive in the short term.

According to a recent report by Citi, even if only some people use these drugs, Hims & Hers's market opportunities could be “ridiculously large,” reaching around $30 billion a year.

Michael Cherny, an analyst at Leerink Partners, said that under optimistic circumstances, Hims & Hers's operating profit may increase by US$260 million next year.

Legal and regulatory risks are huge

However, the future of compound medicines is uncertain.

In the US, compound drugs are usually allowed to be produced when there is a shortage of drugs, but they are not officially approved by the US Food and Drug Administration (FDA). Once diet pills for obesity are in sufficient supply, manufacturers of compound medicines may face legal risks.

Scott Brunner, CEO of the American compound industry advocacy organization Alliance for Pharmacy Compounding, believes that compound drug manufacturers play a key role in fulfilling legal prescriptions and should not be confused with illegal sellers.

Companies such as Hims & Hers claim they can continue to sell compound medicines even when certain drugs are removed from the FDA shortage list. Citing certain provisions of the Federal Food, Drug, and Cosmetic Act, they believe that as long as some adjustments are made to drug formulations, they can continue to be produced and sold.

However, legal experts warn that once GLP-1 drugs are in sufficient supply, the legal risks of mass production of compound drugs may increase. Josh Oyster of Ropes & Gray law firm said that if the company were to strictly comply with FDA regulations, its market share could be limited.

Louise Chen, pharmaceutical industry analyst at Cantor Fitzgerald, cautioned that once the supply of diet pills becomes more adequate, opportunities for compound drug manufacturers may shrink.

Furthermore, if diet pills are covered by medical insurance, it may be difficult to sustain the popularity of the compound drug market.

Big pharma fights back

Facing the challenges of compound medicine,$Novo-Nordisk A/S (NVO.US)$und$Eli Lilly and Co (LLY.US)$Big pharmaceutical companies didn't sit idly by and watch. They have filed multiple lawsuits in an attempt to stop the sale of compound medicine. Although it won against some agencies that illegally sell counterfeit drugs, it faced setbacks in the battle with regular compound pharmacies.

These companies are also actively expanding production capacity.

Eli Lilly said it has invested more than $18 billion to build new production facilities dedicated to the production of medicines for diabetes and obesity.

At the same time, they also emphasized the possible safety hazards of compound drugs, pointing out that the FDA believes that compound drugs pose a higher risk to patients than officially approved drugs.

Editor/Somer