Health care update (GLP-1s)
Recent/upcoming developments… Late last week, the FDA issued a Declaratory Order determining that the semaglutide drug shortage has been resolved and announcing that the drug (the active ingredient in Ozempic, Rybelsus, and Wegovy) would be removed from the agency’s 506e shortage list. Just days later, the Outsourcing Facilities Association (OFA) – which represents the compounding pharmacy industry – filed a lawsuit challenging the FDA’s decision making. This is now the second lawsuit OFA has filed arguing the FDA erred in removing a GLP-1 product from the shortage list (the first lawsuit, which remains ongoing, concerns tirzepatide, the active ingredient in Mounjaro and Zepbound).
* The FDA adds drugs to the 506e shortage list when overall market demand is not being met by manufacturers. The FDA shortage list is based on production and utilization data received from manufacturers daily, is national and not local, and does not always reflect real-time point-of-care shortage status. A drug receives a “resolved status” when the FDA’s Drug Shortages Staff (DSS) determines that the market is covered, based on information from all manufacturers. The market is considered covered when supply is available from at least one manufacturer to cover total market demand. The four leading GLP-1s (tirzepatide, semaglutide, dulaglutide, and liraglutide) have been on the list since 2022.
* Under the FDA Act, a compounded drug cannot be “essentially a copy of an approved drug,” unless it meets an exemption. Those exemptions include the compounding of a drug (1) for an individual patient who requires a special formulation or (2) on the FDA’s shortage list. Under the first exemption, compounding pharmacies can make/sell GLP-1s on a very targeted basis to patients needing a special formulation. It is the shortage exemption, however, which has allowed compounders to sell GLP-1s across the market without concern for formulation. With the removal of semaglutide from the shortage list, compounding pharmacies (503A) must halt all broad-based sales of the drug by 4/22/25, and outsourcing facilities (503B) have 90 days to dispense any orders they have already received (by 5/22/25) and must stop taking new orders.
* As previously noted, last October the FDA removed tirzepatide from the shortage list, prompting a separate lawsuit from the OFA. Following a pause in that decision and reevaluation of the removal of tirzepatide from the shortage list, the FDA reaffirmed its decision in December. Briefing in that case was completed this week and we expect a ruling in the case in the next ~month.
Our outlook… With the removal of semaglutide from the shortage list, the practical effect is that compounders will lose considerable prescribing volume as compared to the prior ~three years. Branded drugmakers will thereby capture some of that volume as patients seek to continue treatment (though price considerations and middling adherence dynamics will likely cause some attrition from the market). With respect to the OFA’s various legal challenges, we continue to believe the FDA (and the branded drugmakers supporting the agency’s decision) is in a legally advantageous position and is likely to prevail. Even in a post-Chevron world where courts are more reluctant to defer to agency-level decision-making, the laws governing the shortage list clearly grant the FDA the authority to decide whether drugs are in a shortage and to update the 506e list accordingly. And though the OFA lawsuits reflect on separate products, an adverse ruling regarding the tirzepatide challenge would likely spell trouble for the semaglutide challenge.
* At a fundamental level, this is not a case concerning statutory interpretation. The FDA Act is clear in how it defines a drug shortage and the authority that is vested in the FDA in deciding whether a shortage has been resolved. Moreover, we believe industry’s assertion that the lengthy notice-and-comment process is required before a drug can be removed from the shortage list is unsupported by both precedent and the FDA Act itself (in fact, this is the first time a plaintiff has sought to challenge the FDA’s process for maintaining its shortage list).
* Ultimately, this latest case – as well as the ongoing tirzepatide case – turns on the factual (rather than statutory) question of whether a drug shortage has ended. On that question, industry has pointed to FDA statements indicating that “intermittent localized supply disruptions” may occur as tirzepatide and semaglutide moves from manufacturers to local pharmacies as evidence that a shortage still exists. However, we find this argument dubious under the FDA Act, as a shortage is statutorily defined as something entirely separate from shipment or other delays.
Watch for these developments… To the degree the compounding industry loses the tirzepatide case (which will be decided long before this latest case concerning semaglutide), we are watching for whether it initiates an appeal to the Fifth Circuit Court of Appeals. Known for being ideologically conservative and willing to push-back on what it perceives to be government overreach, the Fifth Circuit has been forward-leaning in questioning the decisions of the federal government (in healthcare and other contexts). While speculative, it is possible the Fifth Circuit could be more open to the argument that the FDA is overstepping its authority or is making an arbitrary decision (i.e., the agency is deciding whether a shortage has ended based on industry-supplied data rather than its own fact-finding; the agency is making a major decision without first seeking public comment).