The news: Eli Lilly said it won’t partner with telehealth companies that sell compounded weight loss drugs. It referred to compounding as “breaking the law” in a statement to Yahoo Finance. For context, Lilly and rival Novo Nordisk recently let a range of telehealth providers sell their name-brand GLP-1s at a discount to people without insurance coverage.

Lilly’s CFO Lucas Montarce said at a healthcare conference this week that its agreements prohibit telehealth providers from prescribing compounded forms of both Lilly’s tirzepatide and Novo’s semaglutide when the branded versions are available, per Bloomberg.

Why it matters: Lilly’s contractual demand could create an inflection point for Hims & Hers if it wants to partner with the drugmaker.

• Hims still prescribes personalized versions of GLP-1s, which is allowed by the FDA even when drug shortages end as long as it’s not an exact copy.
• Hims has a tie-up with Novo to offer discounted Wegovy, and said last month it was hoping to strike a similar deal with Lilly.
• Hims earlier this year projected revenues from its weight loss business to nearly triple YoY. That may not be achievable if it can’t reach an agreement with Lilly.

Yes, but: We’ll note that Lilly may not be enforcing its requirement of telehealth partners to stop selling compounding GLP-1s. Internet sleuths recently uncovered that Ro, Noom, and LifeMD—three telehealth companies that have tie-ups with Lilly—are still telling patients that the lower-priced compounded weight loss drugs are available on their respective platforms. It’s unclear whether Lilly is aware of this.

Our take: For now, we’ll assume that Lilly’s stipulation is legit, and that it’s giving companies a window to sunset their compounded drug offerings. That not only puts pressure on Hims to make a tough decision, but also signals that Lilly is in a better position than Novo in the weight loss drug market to play hardball with industry partners. Hims may have no choice but to oblige with Lilly’s terms, while Novo is likely regretting that it didn’t consider its own clause for telehealth associates since semaglutide is much more commonly compounded than tirzepatide.

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