Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Pop quiz: what is the best-performing obesity drug play over the past 12 months? The obvious answer would be Novo Nordisk or Eli Lilly. But that would be wrong.
The two companies, which dominate the class of GLP-1 weight-loss treatments, have done well. But Hims & Hers Health, a telehealth company that started selling compounded — or copycat — versions of these drugs, has done even better. Shares in the San Francisco-based start-up are up more than 120 per cent since last August. Eli Lilly has gained 67 per cent and Novo 44 per cent.
True, Hims, which got its start selling erectile dysfunction and hair-loss medications, is a much smaller company, with a market value of under $3.5bn. The shares were also coming off a low base. Eli Lilly is worth $876bn while Novo is a more than DKr3tn ($443bn) company.
Still, Hims’ sharp share price rally underscores how explosive demand, coupled with a supply shortage of Wegovy, Ozempic, Zepbound and other GLP-1 drugs, has created a massive business opportunity for compounded drugmakers and sellers.
Compounded drugs are not generics. They are copies. They are made with the same basic ingredient as branded drugs but by a specialised pharmacy, not a drug company. They do not have Food and Drug Administration approval. Nor, as rival digital health start-up Ro explains in a disclaimer on its website, “do they require safety, effectiveness, or manufacturing review”.
However, they are allowed to be made when there is a shortage. That is the case with GLP-1 weight-loss drugs, which work by mimicking a hormone produced in the gut to suppress a person’s appetite and regulate blood sugar.
Founded in 2017, Hims went public just four years later via a Spac deal. The company has yet to make a profit. It reported a net loss of $23.5mn on revenues of $872mn last year. The stock spent most of 2021 through 2023 trading below its $10 initial price.
But the shares shot up after it said in May it would start selling a version of Wegovy. It followed that up this month with news that it was buying a compounded pharmacy to help lock up supply. Investors lapped it up. The demand for GLP-1 drugs appears insatiable. Hims’ version, starting at just $199 a month, is substantially cheaper than the $1,000 or more out of pocket for the branded version.
This is a controversial area, with safety and effectiveness the main concerns. Both Novo and Lilly have filed numerous lawsuits to try to stop the sale of compounded versions of their drugs. Then there is the question of what happens once the branded drug shortage eases. Investors who have bid up the stock this year could be left holding the bag.
Read the full article here