It sometimes happens that a patient needs a non-commercially-available form of a drug, a different dosage or a specific ingredient added or removed depending on the patient’s needs. Compounding pharmacies are allowed to produce these drugs without FDA approval. Moreover, since the production is small-scale and bespoke the compounded drugs are basically immune from any patent infringement claims. The FDA, however, also has an oddly sensible rule that says when a drug is in shortage they will allow it be compounded, even when the compounded version is identical to the commercial version.
The shortage rule was meant to cover rare drugs but when demand for the GLP-1 drugs like Ozempic and Zepbound skyrocketed, the FDA declared a shortage and big compounders jumped into the market offering these drugs at greatly reduced prices. Moreover, the compounders advertised heavily and made it very easy to get a “prescription.” Thus, the GLP-1 compounders radically changed the usual story where the patient asks the compounder to produce a small amount of a bespoke drug. Instead the compounders were selling drugs to millions of patients.
Thus, as a result of the shortage rule, the shortage led to increased supply! The shortage has now ended, however, which means you can expect to see many fewer Hims and Hers ads.
Scott Alexander makes an interesting point in regard to this whole episode:
I think the past two years have been a fun experiment in semi-free-market medicine. I don’t mean the patent violations – it’s no surprise that you can sell drugs cheap if you violate the patent – I mean everything else. For the past three years, ~2 million people have taken complex peptides provided direct-to-consumer by a less-regulated supply chain, with barely a fig leaf of medical oversight, and it went great. There were no more side effects than any other medication. People who wanted to lose weight lost weight. And patients had a more convenient time than if they’d had to wait for the official supply chain to meet demand, get a real doctor, spend thousands of dollars on doctors’ visits, apply for insurance coverage, and go to a pharmacy every few weeks to pick up their next prescription. Now pharma companies have noticed and are working on patent-compliant versions of the same idea. Hopefully there will be more creative business models like this one in the future.
The GLP-1 drugs are complex peptides and the compounding pharmacies weren’t perfect. Nevertheless, I agree with Scott that, as with the off-label market, the experiment in relaxed FDA regulation was impressive and it does provide a window onto what a world with less FDA regulation would look like.
Hat tip: Jonathan Meer.
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