Now that we’ve gone over the pharmacology of the GLP-1 agonists, let’s get back to the economics.

Last time, we asked - how will the economy handle a $12,000/year drug that everyone wants?

Now we have an answer: the compounding loophole.

Compounding pharmacies are pharmacies that make some drugs on site. Don’t imagine fancy chemistry labs; imagine something more like them putting powder into capsules. They can get you unusual doses (for example, if you’re a hyper-responder and need a pill smaller than the smallest standard version) or unusual formulations (for example, if you have digestive problems and want a usually-solid medication as a liquid, or vice versa.)

Compounding pharmacies aren’t supposed to compete with Big Pharma. They’re usually just some storefront where one guy with a PharmD degree pours powders into things. Big Pharma has the patents and heavily-FDA-regulated factories. It would be unfair to let compounding pharmacies ignore the patents and regulations everyone else has to follow. So they’re usually under lots of restrictions.

But the law says that compounding pharmacies are allowed to step in and compete with Big Pharma during a shortage. And guess which drugs are in constant shortage because every obese person in the country has wanted them for the past year?

So enterprising startups have hit upon the business model of connecting would-be patients to friendly doctors and compounding pharmacies. From the customer perspective, this looks like filling in a form on a website and getting cheap GLP-1 agonist drugs in the mail the next day.

How do the compounding pharmacies get it?

They say it’s through the same factories that make the official version for Big Pharma. If I understand the situation, nameless Chinese factories¹ make the chemical itself, and Novo Nordisk (the pharmaceutical company that owns the official patent) does some fancy encapsulation work at their own plants. But they have a permanent capacity problem because of logistical and regulatory issues, so the nameless Chinese factories sell the extra to the compounding pharmacies on the side.

How much does is cost?

HenryMeds is $297/month, Eden is $296, Mochi is $254 - compared to the $1,300/month you’d pay for the official product. This isn’t covered by insurance, so it’s still not affordable for lots of people. But it’s more affordable than the $1,300/month version. Also, there’s not a shortage of it.

Why doesn’t it cost even less?

This is still a mystery to me. The compounding pharmacies are circumventing the patent, so they don’t need to pay back investment. And there’s a lot of competition between various compounders and telemedicine startups - even 23andMe is getting in on the deal now! And some Harvard doctors recently published a paper saying that the unit cost to the manufacturer is only about $5/month.

Maybe the bottleneck is FDA-approved factories, or high-capacity compounding pharmacies. Or maybe Harvard doctors with no skin in the game are assuming too many things away, and $250 is the best we’ll get for now.

Is the compounded version as safe as the regular version?

The chemicals coming from the same factories is a good start, but might there be problems with the last few steps done at the pharmacy? The usual suspects have written countless articles warning that compounded semaglutide might not be safe; the really ambitious ones have mentioned that adverse events have even been reported to the FDA. But this article gives away the game:

From August 8, 2021 to March 31, 2024, [the FDA] received more than 20,000 adverse events reports for FDA-approved semaglutide. Comparatively, there were 210 adverse events reported on compounded semaglutide products.

This doesn’t mean that the FDA-approved version is 100x more dangerous than the compounded version - you’d need to know how many prescriptions were filled, and whether one type of patient is more likely to report than the other. It just means you can ignore all the people saying “How can you trust compounding pharmacies when there are ADVERSE EVENTS associated with them?!?!”

The other safety concern is the salt form. FDA-approved semaglutide is the free base² (ie the semaglutide molecule not attached to anything). Some suppliers sell the salt version (ie semaglutide attached to an ion like sodium). The FDA has issued warnings saying that the salt version isn’t approved, that any supplier caught using the salt will be shut down, and that you should avoid compounding pharmacies because you can never be sure they’re not offering the dreaded salt form. The commentary I’ve read from chemists is that none of this matters because the salt form dissolves into the free base as soon as it’s in water (which it always is before you inject it), although other people point out that maybe there could still be some theoretical concerns about shelf life and stability. Still, the FDA is legally allowed to shut down anyone offering the salt, and all the compounding pharmacies have switched to the free base.

I’m less convinced by any of this than I am by the existence of several big online communities of compounded GLP-1 drug users (eg r/compoundedsemaglutide) who overall seem pretty happy and don’t report any unusual side effects.

So this is good, right?

I’m pretty encouraged by it. Not only does it provide GLP-1 drugs for a quarter of the price, but also people were really worried that diabetics wouldn’t be able to get their diabetes drugs because dieters would grab them off the shelf first. But now there’s more than enough GLP-1 agonists for everybody. This dramatically demonstrates how drug shortages are mostly regulatory problems (Adderall users, take note!)

What about paying back the patent-holders?

That is the one disadvantage.

The good news for them is that insurances mostly don’t cover these compounding pharmacies. So the people who really medically need the drugs will get them via insurance, and insurance will pay full price to the patent-holders. The compounding pharmacies will just pick off the people who only want them for cosmetic reasons, or who have bad insurance - most of whom wouldn’t have been able to get them through the normal system anyway.

Don’t get me wrong, this does probably take a big chunk out of Novo Nordisk’s profits. But Novo Nordisk’s stock price currently looks like this:

…and they’re now the most valuable company in Europe. So they can probably eat the loss.

What happens when the shortage ends?

Compounding pharmacies are only allowed to do this because of a law that suspends some drug regulations during a “shortage”, ie when the drug is on the FDA’s drug shortage list.

At some point, Novo Nordisk will build enough factories to meet capacity and there won’t be a shortage anymore. What then? Will the fun be over? Will GLP-1 agonists go back to costing $1,200/month again? Will most of the current users have to stop the drug and regain the lost weight? This would make tens of thousands of people really mad. I don’t know if the FDA has the guts to offend that many people. Their style is more to crush drugs before they ever come out, before anyone knows what they’re missing.

During COVID, the DEA said that telemedicine was allowed to be cheap and convenient so patients could get care during lockdown. After the pandemic died down, they tried making it hard and expensive again, but so many patients protested that they backed off. The uproar we’ll get if the FDA tries to make GLP-1 drugs expensive again will make that one look like a tempest in a teapot.

But Big Pharma will be even angrier if they don’t. And besides, they can’t keep the drug on their shortage list if everyone knows there’s no shortage. I really don’t know what will happen, and I don’t envy whichever FDA official is in charge of setting a policy on this.

I did see one proposed solution somewhere or other (sorry if it’s yours and I’m not crediting you). Compound pharmacies are always allowed to make compounded medications for specific patients who have a “medically necessity” for a non-FDA-approved product. So in theory, you could try something like:

• Tell the patient to say that Ozempic causes them nausea.

• Tell your friendly on-staff doctor to prescribe a compounded Ozempic + Zofran (anti-nausea drug) pill, and to say that it’s “medically necessary”. This is balderdash - the patient could always just take the two pills separately - but everyone is reluctant to challenge doctors about what’s really “medically necessary” or not.

• Compound this pill.

• Sell it to the patient

• Somehow industrialize this system to serve tens of thousands of patients, all of whom coincidentally have this same side effect for which the combination pill is “medically necessary”

This is obviously cheating. But if the FDA were desperate enough, it might let them get away with it.