Will Novo Nordisk and Eli Lilly use their patents to block compounders for GLP-1 agonists?
Zachary Silbersher
It is not news that GLP-1 agonists sold by Novo Nordisk (semaglutide) and Eli Lilly (tirzepatide) are surging in demand and could become one of the influential drugs ever. That demand contributed to a shortage of the active ingredients in Lilly’s and Novo Nordisk’s drugs. During that time, drug compounders stepped into meet the supply the brands couldn’t provide. The FDA recently announced those drug shortages were over. The compounders sued the FDA, the brands intervened, and the cases are proceeding on an expedited basis. What’s the status of the cases? And, even if the drugs are returned to the shortage list, can Novo Nordisk and Lilly resort to their patents to maintain their GLP-1 monopolies?
Background on the compounder’s suit against FDA for tirzepatide.
Lilly’s tirzepatide drugs (Zepbound and Mounjaro) remain protected from competition by FDA-approved exclusivity. Yet, the surge in demand for the drugs led to a shortage. FDA regulations permit 503A compounders (essentially, local pharmacies) or 503 compounders (outsourcing compounding facilities that can sell directly to hospitals) to compound a drug that is otherwise covered by FDA-approved exclusivity if the drug is added to a shortage list. The policy essentially prevents patients from going without medication if brand manufacturers cannot meet demand, but the active ingredient can still be supplied.
In December 2024, the FDA confirmed a Delisting Action, which announced that tirzepatide had been removed from the drug shortage list. The compounders were provided a deadline a few months in the future after which they would have to stop compounding tirzepatide. A trade association of compounders, including the Outsourcing Facilities Association, promptly sued the FDA in Texas in early January. Eli Lilly moved to intervene. The compounders moved for a preliminary injunction against the FDA’s removal of tirzepatide from the drug shortage list. On March 5, the district court denied the compounders request for a preliminary injunction.
The district court’s denial of a PI.
The district court’s decision is fairly long and thoughtful. That speaks to whether it will be upheld on appeal. The FDA determined that the drug shortage for tirzepatide is over. To make that decision, it reviewed evidence supplied by both Lilly as well as other third-parties. In their lawsuit, the compounders are essentially asking the court to find that the FDA was wrong to decide that the tirzepatide shortage is over. The compounders want tirzepatide to be added back to the shortage list so that they can continue compounding the drug.
The court first determined whether the Delisting Action was an “adjudication” or “rulemaking.” The difference is not without a distinction. Had the Delisting Action been an exercise in rulemaking, then the FDA would have been required to comply with stringent notice-and-comment rulemaking before determining the shortage was over. Notice-and-comment rulemaking would likely take a matter of months rather than a matter of days. Having failed to do that would thereby render the Delisting Action a violation of the Administrative Procedures Act (“APA”).
Yet, the court classified the Delisting Action as adjudication rather than rulemaking. The court observed that the regulations are silent on whether the FDA’s decision to add or delete a drug from the shortage list should be deemed an adjudication or rulemaking. Worse, the question has never been raised in a prior dispute, and there is thus no guiding precedent. (This is important because, when this case does reach the Fifth Circuit on appeal, the court’s resolution of this issue will be afforded very little deference.).
The court found that the FDA was not promulgating a new policy or rule, but rather resolving a factual dispute specific to a particular drug. The FDA did not change or interpret what constitutes a drug “shortage.” Nor did it apply a new definition that would have future impact. Rather, it simply applied existing rules to determine whether the supply of tirzepatide was greater than its demand.
Indeed, the court emphasized that the FDA’s delisting decision in this instance was based upon confidential information that could not have been made public as part of notice-and-comment rulemaking. Moreover, the court pointed out that, if the decision to remove a drug from the shortage list was subject to notice-and-comment rulemaking, then so was the decision to the add the drug to the shortage list. In that case, the compounders never technically received appropriate approval to compound tirzepatide in the first instance.
The court also rejected the compounders argument that, whereas an adjudication typically affects a single party, the decision to remove tirzepatide from the shortage list affected an entire industry. The court pointed out that whenever the FDA approves an NDA for a new drug, it affects a whole host of parties—including brand competitors for the same ingredient and prospective generics.
The district court next decided that the FDA correctly determined that the shortage for tirzepatide was over. The standard applied by the court here is important. The court is not obliged to vet the FDA’s decision to determine if it was perfect. Rather, the court asks only whether the FDA’s shortage decision was reasonable—or not arbitrary and capricious. At the outset, this makes the compounders’ case much more difficult. It also hobbles their chances on appeal. In other words, even if the compounders can poke holes here and there in the FDA’s analysis for whether tirzepatide shortage still exists, that may not be enough to reverse the decision.
Given this lenient standard, the court found the FDA’s determination that the shortage was over was not unreasonable. In particular, Lilly submitted evidence showing four ways it had increased the supply of tirzepatide. It purportedly spent $23 billion to increase its manufacturing capacity, it has increased its existing stock of semi-finished syringes and it recently won approval of single-use vials that will allow Lilly to supply more of the drug. Lilly also provided general production data showing that it purportedly has the capacity to meet existing demand.
The court dispensed with the compounders’ attempt to show the FDA botched its analysis on whether a shortage for tirzepatide persists. The compounders argued, for instance, that the FDA focused on a cumulative time period rather than on specific monthly snapshots. Much of the court’s analysis is redacted, and therefore, it is difficult to parse exactly what the compounders argued was deficient in the FDA’s analysis. But the short of it is that, even if the compounders would have done the analysis differently, the court viewed the FDA’s approach to be not ununreasonable.
The compounders’ more damning allegation is that the FDA blindly relied upon Lilly’s statement that the shortage was over, while waiving away countervailing evidence. In theory, if this allegation held water, it could be the type of reason for why a court would deem the FDA’s decision to be arbitrary and capricious. This will therefore be an argument to watch on appeal.
Yet, the court found that the FDA did not blindly take Lilly at its word. The compounders argued that the FDA overlooked shipping delays for the drug as well as thousands of reports from patients that they cannot obtain tirzepatide. The court, however, found that the FDA did consider this evidence, but the FDA nevertheless did not consider it outweighed Lilly’s evidence.
Part of the problem for the compounders is that their countervailing evidence for why a shortage of tirzepatide persists does not seem to be airtight. The patient surveys lacked some critical data, such as when the surveys were completed, whether they reflected a pharmacy’s stock or their doctor’s refusal to prescribe the drug, whether pharmacy stock was diminished for reasons other than a national shortage (such as storage limitations), or whether data from a specific retailer’s website was representative of a national shortage.
The compounders also complained that the FDA ignored the prevalence of compounding for tirzepatide as evidence of the purported shortage. The FDA, however, did apparently consider this evidence, but also concluded that each compounded use would not necessarily translate one-for-one to a sale for Lilly due to price considerations and off-label use. At the end of the day, the FDA appears to have determined that, even taking into account the prevalence of compounding, Lilly’s data demonstrated that it can now fill the hole in demand after compounding terminates.
Finally, the court pushed aside the doom and gloom each party argued would purportedly result if the court ruled against them. The compounders argued that, if the Delisting Action is upheld, patients will be deprived important medicine. Meanwhile, the FDA argued that, if the Delisting Action is reversed, patients will continue to be exposed to unregulated and potentially dangerous compounded formulations.
The court acknowledged both interests are valid, but neither necessarily weighs for or against reversing the Delisting Action. Congress enacted a scheme that prohibited compounding FDA-approved drugs unless there was a drug shortage. Given that clear statutory scheme, the court refused to reconsider what was in the best interest of the public at this stage if the FDA did not abuse its discretion in determining a shortage for tirzepatide had lapsed. This is important because, it will be difficult for the compounders to argue on appeal that the court’s decision runs directly contrary to the public interest.
What happens next?
The court’s decision denied the compounders request for a preliminary injunction. Had the court granted that, the FDA’s Delisting Action would have been reversed, and the compounders could have continued selling. But a decision on a preliminary injunction is not the end of the case. Technically, the compounders are permitted to continue to press their case for a full injunction, they just can’t continue selling while the case proceeds.
In the meantime, the compounders moved for an interlocutory appeal. Over the course of a lawsuit, the court will issue several interim decisions, not just one final decision at the end of the suit. Technically, none of those interim decisions can be appealed until the lawsuit is finished and judgment entered. In some cases, however, parties may move for an interlocutory appeal, which essentially allows them to appeal an interim decision rendered before the lawsuit is completed.
Both the compounders and the FDA agreed to stay the district court case pending the interlocutory appeal filed by the compounders. Interestingly, the court denied that request. The court instead ordered the parties to file summary judgment briefs. The parties’ complained that the summary judgment briefing is largely going to mirror the arguments already presented and decided by the court’s preliminary injunction decision. There was previously a concern that the full administrative record from the FDA would not be available during the preliminary injunction briefing, but that record ended up becoming available before briefing closed. Therefore, the parties have argued that the preliminary injunction decision was decided upon a full record.
Given that this case is going to be decided ultimately by the appellate court—because whoever loses will almost certainly appeal—both the compounders, the FDA and Lilly presumably wish to get to the Fifth Circuit sooner rather than later.
That said, the court is reluctant to act too precipitously. It scheduled a hearing for March 27 to determine whether it will be prudent to enter final judgment in the action so that the case can be fully resolved on appeal. If the court still refuses to enter final judgment, that will likely be a setback for the compounders, particularly if it convinces the Fifth Circuit not to entertain the interlocutory appeal. While there is typically one party to every lawsuit that wants the delay as much as possible, here, all parties involved appear to want resolution as soon as possible.
What about Novo Nordisk?
Meanwhile, on February 21, 2025, the FDA announced that a similar shortage no longer existed for a GLP-1 agonists sold by Novo Nordisk, including Ozempic and Wegovy (semaglutide). The compounders brought a similar suit against the FDA challenging its delisting of semaglutide from the shortage list. Novo Nordisk intervened. The compounders claim that the FDA’s decision regarding semaglutide suffers from unique deficiencies that were not present for tirzepatide. Yet, much of the briefing is redacted, and exactly what those unique deficiencies are is not public. Barring anything uniquely different, the Novo Nordisk case is before the same Judge, and is likely to go the way of the tirzepatide lawsuit.
Can Novo Nordisk or Lilly use patents to stop compounding?
Novo Nordisk and Lilly have already sought different ways of shutting down compounding. They have filed scores of lawsuits, with mixed success, against individual clinics, medspas and compounders that allege either trademark infringement or unfair competition. Yet, no patent lawsuits have been filed.
That is not due to a lack of patents. Both Novo Nordisk and Lilly already have a tranche of patents that can be marshalled against compounders. I previously wrote about Novo Nordisk’s patents for its semaglutide drugs. Novo Nordisk’s formulation patents, such as U.S. Patent 10,888,605, are directed to liquid formulations for semaglutide that could be the basis for a patent suit against 503B compounders (and likely 503A compounders as well.) Similarly, while Lilly has fewer patents covering Zepbound, it has patents that appear to cover liquid formulations, such as U.S. Patent No. 11,357,820, that could be asserted against compounders.
The primary reason no patent suits have been filed is likely because the FDA’s regulations that permit compounders to sell drugs on a shortage list make no exception for patented drugs. Nor are there any patent laws that address this gap. Indeed, it would be contrary to the FDA’s policy of permitting compounding of shortage drugs if brand manufacturers, unable to meet the public’s demand for medications, could nevertheless shut down compounders from supplying patient needs through recourse to patent lawsuits.
All that said, there does not appear to be any iron-clad legal basis immunizing the compounders from patent suits. The FDA has indicated that it will not view compounded drugs on a shortage list to be “essentially a copy” of an FDA-approved drug. That suggests that the FDA will not take enforcement action against pharmacies that are compounding shortage drugs. Yet, the FDA lacks authority to immunize compounders from liability for patent infringement, which is regulated by a separate agency.
Compounders do not typically face allegations of patent infringement from brand pharmaceutical manufacturers, such as Novo Nordisk or Lilly. There are likely a few reasons for this. First, the FDA permits compounding of drugs on a shortage list, but most drugs are on shortage lists are typically those that are already generic and often already off-patent. Second, 503A compounders typically serve small, local communities, and suing them for patent infringement is not only cumbersome, but not likely worth the time. The same may be true for 503B compounders, even though they sell to hospitals. Moreover, compounders—both 503A and 503B—are typically must smaller and less-resourced than BigPharma. Many likely choose to stop compounding upon receipt of a cease-and-desist letter from a law firm threatening years of expensive litigation and potentially crippling damages.
This time, however, things are clearly different. The GLP-1 agonists currently sold by Novo Nordisk and Lilly are still very much covered by a tranche of unexpired patents. There are no generics on the market, and there won’t be for some time. Further, the surve in demand for these drugs is enormous, which supposedly contributed to the drug shortages in the first place. That means, there is a lot of money to be made by the compounders, and a lot of money to be lost by the brand manufacturers.
So far, Lilly appears to be winning its battle with the compounders at the FDA. If the semaglutide suit shakes out the same, Novo Nordisk is also likely to be able to return to monopolizing the market without competition from compounders. Yet, if the Fifth Circuit appeal of Lilly’s case gets reversed, which is probably less than likely than not, it will be worth watching whether the brands take recourse to their patents to recapture their monopolies.