Counterfeit weight loss drug market grows

Quick quiz: what was the best performing obesity drug over the past 12 months? The obvious answer would be Novo Nordisk or Eli Lilly. But that would be wrong.

While the two companies, which dominate the class of GLP-1 weight-loss treatments, have done well, Hims & Hers Health, a telehealth company that has begun selling compounded versions — or imitations — of those drugs, has fared even better. Shares of the San Francisco-based startup are up more than 120% since August of last year. By comparison, Eli Lilly has gained 67% and Novo has gained 44%.

It’s true that Hims, which started out selling erectile dysfunction and hair loss drugs, is a much smaller company, with a market value of less than $3.5 billion. Its shares were also starting from a low base. Eli Lilly is worth $876 billion, while Novo is worth more than DKr3 trillion ($443 billion).

Still, the sharp rise in Hims’ stock price highlights how explosive demand, coupled with shortages of drugs like Wegovy, Ozempic, Zepbound and other GLP-1s, has created a huge business opportunity for manufacturers and sellers of compounded drugs.

Compounded drugs are not generics; they are copies. They are made with the same active ingredient as brand-name drugs, but by a specialty pharmacy rather than a pharmaceutical company. These drugs do not have approval from the Food and Drug Administration (FDA). As rival digital health startup Ro explains in a disclaimer on its website, “they do not require review for safety, efficacy or manufacturing.”

However, these drugs can be manufactured when there is a shortage, as is the case with GLP-1 weight loss drugs, which work by mimicking a hormone produced in the gut to suppress appetite and regulate blood sugar.

Founded in 2017, Hims went public just four years later through a SPAC deal. The company has yet to turn a profit, posting a net loss of $23.5 million on revenue of $872 million last year. The company’s shares have spent most of 2021 through 2023 trading below their initial price of $10.

But the stock surged after Hims announced in May that it would begin selling a version of Wegovy. This month, the company followed up with news that it was buying a compounding pharmacy to secure supply. Investors reacted positively, given that demand for GLP-1 drugs appears insatiable. Hims’ version, which starts at just $199 a month, is substantially cheaper than the $1,000 or more that consumers pay for the brand-name version.

This is a controversial area, with safety and efficacy being the main concerns. Both Novo and Lilly have filed multiple lawsuits to try to block the sale of compounded versions of their drugs. Then there is the question of what will happen when the shortage of brand-name drugs eases. Investors who have driven up the stock price this year could end up with a loss.

Via Financial Times