The Compounders the FDA RemovedNarrow moat
Eli Lilly (LLY) — moat facet
Compounders sold copies of Lilly's own molecule at scale within two years; the defence was the FDA, not anything Lilly built.
During the shortages that accompanied the incretin launch, compounding pharmacies began producing versions of tirzepatide and semaglutide at a fraction of the branded price. This was legal under provisions permitting compounding of drugs in shortage, and it created something Lilly had never faced: a competitor selling its own molecule, at scale, without having paid for the research.
The resolution came from Washington. As shortages resolved, the legal basis narrowed, and in April 2026 the FDA proposed permanently excluding semaglutide, tirzepatide and liraglutide from the 503B Bulks List — the ingredients large-scale compounding facilities may legally use1. The safety record supported it: by May 2026 there were 990 adverse event reports associated with compounded semaglutide and more than 730 with compounded tirzepatide.
Two things are worth taking from this. The first is how quickly a patent-protected franchise can be undercut when a regulatory exception opens: compounders reached meaningful volume within about two years. The second is that Lilly's defence was regulatory and legal rather than commercial — the moat here is the patent system and the FDA, not anything Lilly built.
Watch for shortages returning as the trigger. The compounding exception exists for supply failures, so the surest way for this competitor to reappear is for Lilly's own capacity to fall behind demand again.
The FDA's April 2026 proposal to permanently exclude semaglutide, tirzepatide and liraglutide from the 503B Bulks List effectively closes the channel that let compounders sell copies of Lilly's molecule. Widening — with the caveat that the exception exists for shortages, so Lilly's own manufacturing performance is what keeps the door shut.
Safety reports are the FDA's stated reason for moving to exclude the drugs from compounding. A shortage would reopen the door regardless, so watch supply as well as the rule.
Source: Pharmacy Times, FDA compounding exclusion ↗- ReportedThe FDA proposed permanently excluding semaglutide, tirzepatide and liraglutide from the 503B Bulks List; 990 adverse event reports were associated with compounded semaglutide and 730+ with tirzepatide.FDA compounding policy reporting — on April 30, 2026 the FDA proposed permanently excluding semaglutide, tirzepatide and liraglutide from the 503B Bulks List, the ingredients large-scale compounding facilities may legally use; by May 31, 2026 there were 990 adverse event reports associated with compounded semaglutide and more than 730 associated with compounded tirzepatide — 2026 · publ. 2026 · source ↗