Eli Lilly’s GLP-1 Litigation: Issues Related to Corporate Practice of Medicine and FDA Regulations

In a groundbreaking development for the digital health world, Eli Lilly, one of the world’s largest pharmaceutical companies, has filed lawsuits against a growing number of telehealth companies over the sale of compounded drugs Mounjaro and Zepbound, two popular GLP-1 medications. Nawa Lodin, Associate, Wilson Sonsini Goodrich & Rosati, and Lauren Petrin, Associate, Wiley Rein, discuss the background of compounding and when it is allowed under FDA regulations; the legal and regulatory issues at play in Eli Lilly’s lawsuits, including issues related to the corporate practice of medicine and FDA regulations; and key compliance considerations. 

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Transcript

SPEAKER_00: 0:00

This episode of AHLA Speaking of Health Law is brought to you by AHLA members and donors like you. For more information, visit AmericanHealthLaw.org.

SPEAKER_02: 0:16

Hello, everyone. My name is Nala Loden. I'm a member of Wilson Sonsini's digital health team, and I'm excited to discuss what would be a groundbreaking lawsuit in the digital health world. Eli Lilly, one of the largest pharma companies, has filed lawsuits against a growing number of telehealth companies. At the heart of these disputes are the sale of compounded drugs, Manjaro and Zephound, which are household names at this point for GLP-1 medications and weight loss. I'm going to be discussing some of the healthcare regulatory issues and the corporate practice of medicine in these lawsuits, but I will turn it over to my colleague, Lauren Petran, who will be discussing some of the FDA issues.

SPEAKER_01: 1:03

Thank you so much, Noah. So my name is Lauren Petran. I'm an associate with the FDA practice at Wiley Rhine. I am gonna be kind of covering some of the background of what compounding is and just some of the different FDA issues that are at the heart of this litigation. So yeah, I will go ahead and jump right in for us. I wanted to first start by talking a little bit about what compounding is and when it's allowed. under FDA regulations, just to provide some background for this case. So compounding is a practice where a licensed pharmacist or physician combines mixes or alters ingredients of a drug product to create a medication that's tailored to the specific need of a patient. So compounding is often used when a patient may be allergic to an ingredient in an FDA approved medication and a pharmacist or physician can produce a version of that medication without the allergen in the product. Compounding can also be used to make liquid versions of medications if a patient is unable to take a medication in pill form. However, pharmacists can only compound drug products in a state licensed pharmacy or federal facility. Because of this, pharmacists and physicians are exempt from certain federal requirements in order to compound drug products for these specific purposes. Namely, these pharmacists can combine or mix ingredients of a drug product without having to abide by current good manufacturing practices or labeling restrictions, and they won't need to gain prior FDA approval before creating the product, which are all things that a prescription drug manufacturer would have to do when manufacturing drug products. So pharmacists and physicians can't just compound any drug that they want. All of these drugs have to be compounded pursuant to a valid patient-specific prescription. So, you know, similarly, FDA allows larger scale facilities called outsourcing facilities to compound drugs as well. These facilities do have to follow current good manufacturing practices and they're also inspected by FDA. The outsourcing facilities can distribute compounded drugs, either pursuant to a patient specific prescription or in response to an order from a healthcare provider, such as a hospital. So compounded drugs are not like generic drugs where similar to prescription drugs, the product goes through an FDA approval process where a manufacturer has to show that a drug meets all of the same safety and efficacy standards as a prescription drug. Compounded drugs are not FDA approved and FDA does not review these drugs for the evaluation of safety, efficacy, or quality performance. So really compounded products are meant to be used in cases where there is a specific patient need for the product that can only be achieved through compounding. In order to ensure compounding is restricted to this purpose, the Food, Drug, and Cosmetic Act also restricts the use of compounding for products that are not made in regular inordinate amounts of any drug product that are essentially copies of a commercially available drug product. And the term essentially a copy of a commercially available drug product does not include a drug product in which there's a change made for an individual patient. So really limiting and narrowing the purpose of compounding just for patient specific purposes so that they're not just creating a bunch of prescription drugs that are already on the market for compounding purposes. This restriction makes sure that these compounders, like I said, aren't distributing identical copies of prescription drugs that are required to adhere to the stricter manufacturing processes that prescription drugs have to go through in order to be FDA approved for patient access and commercialization on the market. So there's one very important exception to this restriction, and that is when a drug is placed on FDA's drug shortage list. The drug shortages can usually occur for a lot of different reasons, including manufacturing quality problems, delays or discontinuations of certain medications that may have been on the market before. So in the context of compounding, When a drug is put on FDA's drug shortage list, FDA no longer considers the product to be commercially available. So compounders are then allowed to compound drugs that are essentially copies of approved drugs for those purposes, but they still have to be pursuant to a valid prescription. So the public policy rationale behind this is that if there's a drug that's in shortage, patients and healthcare practitioners still need access to those medications. So they'd rather take on some of those risks of having the drug compounded rather than not having a drug that patients may need at all on the market.

SPEAKER_02: 6:37

Are there any rules, Lauren, about prescribing compounded drugs for off-label usage where you can compound them pursuant to prescription?

SPEAKER_01: 6:46

So they, because they, they're, they're only being used in this case for the, for the patient specific prescription, they should only be using it based on whichever prescription that they have been, that's been received by the pharmacy. So unless a physician is prescribing it for an off-label use, it should only be used in the case of whatever the physician has decided based on the interaction. with the patient in that case. Yeah. But this kind of takes us to the GLP-1 issues that are at the heart of this litigation. So in 2020, 22 in December, Trizepatide, which is the active ingredient in both of Eli Lilly's products at Bound and Manjaro, was placed on the FDA drug shortage list. The shortage was due to this huge increase in demand for these drug products during that time, and it remained on the drug shortage list for two years, and then was most recently taken off the shortage list in December of 2024. At this time, FDA announced that it would allow pharmacies and outsourcing facilities to transition away from filling patient prescriptions for trisepatide during this set time frame so that patient care wasn't disrupted. And that gave state licensed facilities access until February 18th to cease distributing and dispensing trisepatide and outsourcing facilities had until March 19th. So now, you know, this litigation was teed up right after those cutoffs ended and the litigation was filed in April. So Nala, I'm going to hand it over to you to kind of talk about some of the more health regulatory issues that came up in this litigation and just kind of set the scene for us with some of the big issues in this case.

SPEAKER_02: 8:45

Thank you, Lauren. And correct me if I'm wrong, I don't think it's a novel thing for large pharma companies to sue over compounding issues or even pharmacies to counter sue. But what really struck me with The litigation here is that not only is Eli Lilly making the FDA claims that you discussed, but also this idea of these telemedicine companies are also violating the corporate practice of medicine doctrine. So a quick overview of the corporate practice of medicine or CPOM is that it's a legal doctrine that's adopted in most states in the United States, which essentially prohibits corporations from practicing medicine or employing licensed healthcare providers from providing licensed services. And the purpose really is to protect patient care, ensuring that medical decisions are made only by those with a valid license in the state. It prevents sort of private equity or any sort of corporate interest in controlling or interfering with clinical judgment. So the kind of practice points here are that only a licensed professional can own a professional corporation and only licensed services can be provided through the professional corporation. And so in a couple of these lawsuits that Eli Lilly filed, they claim that these telemedicine companies are violating California's CPOM laws, which was fascinating. So some of the things they say is the lay entity. So in the corporate practice of medicine, there's the professional entity that's owned by the licensed professional. And then there's another entity that's known as the management services organization. there's an agreement between the two. And the claim that Eli Lilly is making is that the MSO or the management services organization is actually the one that's making the clinical decisions about the care that the patients were receiving. So for example, in one of them, they said in the span of five months, there were eight changes of the compounding pharmacy that the telehealth provider was using to compound the GLP-1 drugs. And the reason was essentially to reduce the bottom line. It was not based on patient care. It was not based on the licensed professionals. decision on what is the best type of compounding drug to use. It was just like, let's keep switching between these pharmacies to get the cheapest option. And those decisions were really made by the MSO rather than the PC. Another claim that the lawsuit makes is that the PC shareholder, the owner of the PC was not even actually licensed to as a physician. So that seems like such a basic point, but it is really the crux of the MSOPC arrangement, ensuring that the shareholder is licensed in the states where they're providing medical services. And then another really interesting take was, I think there was some allegation that there was kind of a Reddit conversation with complaints about the dosage of GLP-1s that they were receiving. And there were responses from either sales folks or lay entity people from the telehealth company responding on Reddit on how you can either increase or decrease your dosage or just essentially change what your prescription should be. And as we're discussing here, again, those decisions pursuant to the corporate practice and medicine doctrine can only be made by licensed professionals and licensed healthcare providers. So there are a lot of really interesting allegations in these few lawsuits. Another thing that makes this particularly interesting is that obviously telehealth companies operate in ideally all 50 states. That's obviously their goal. But Eli Lilly decided to file these lawsuits in California, which has some of the strictest CPOM rules and kind of the most movement in terms of CPOM rules. So for example, California, like many other states, has enacted a healthcare transaction notification rule, which would require certain healthcare entities to notify the state if they're entering into any sort of transaction, a sale or merger, change of control. And right now there's a bill to include MSOs and then under notification, there was a bill last year that passed legislation, wasn't signed into law, but the state has actively expressed concern with the way the MSO PC model is structured. So I think Eli Lilly very strategically knew that if we go to a court in California, which is particularly strict and sensitive to the patient position and the healthcare provider position on these issues, we're more likely to get you know, a positive outcome here. So I found that strategic decision not to be shocking, but, you know, made a lot of sense. So Lauren, maybe you want to take it away with some of the specific FDA allegations that were in this lawsuit as well.

SPEAKER_01: 14:31

Yeah. So, you know, I felt like the some of the biggest allegations and complaints in the filings were split into two. So the CPOM allegations and then all of these, you false and deceptive business practices that were filed under the Lanham Act and different state deceptive consumer complaint issues. So a lot of the different FDA issues kind of fall into the false advertising side. And similar to, you know, the way all of these telehealth complaints have been filed, there's a lot of, they all have different specific allegations, but some of them share a lot of common themes. So one of them is that The complaints allege that these telehealth companies were advertising their compounded products as more effective than the FDA approved triseptide products. And, you know, we know from these complaints that Eli Lilly is alleging that the telehealth companies were including different additives in their compounded products that were not initially included in the FDA approved drug product. And And, you know, there haven't been any studies that have been conducted that include these additives with the compounded products. So Eli Lilly is alleging that these claims are therefore false because there's no actual clinical studies out there that have supported these claims that they're making. They're also making allegations in these complaints that the telehealth companies were advertising their compounded products. that to treat unapproved indications for the drug and to treat pediatric patient population. So we kind of discussed this a little bit before, you know, under the compounding regulations, the compounder shouldn't be deciding or adding any kind of unapproved indications on to the products that they're dispensing because they're being issued pursuant to a patient specific prescription. So generally prescription drugs are not supposed to be advertised to to state or imply that a drug can treat a condition that it's not been approved for. So that's one of the big issues that UI Lilly takes with a lot of the advertising that these telehealth companies were allegedly engaging in. They also note that some of the telehealth companies were advertising these products to pediatric patients, so patients that are under the age of 18 when the FDA approved versions were only approved for patient populations 18 plus. So another one of the issues that came up in multiple complaints against these telehealth companies were that the products were marketed as personalized or tailored to specific patients, which as we discussed with our overview of different compounding and kind of the purpose behind compounding is that it is tailored to certain specific patients and to their needs, but what Eli Lilly is alleging in these complaints is that these telehealth companies telehealth companies were just mass producing these different formulations of their FDA approved product to giving them to patients without having any kind of specific patient issue that needed them to be prescribed this medication. And they were all receiving the same drugs. So there was no tailoring or personalization involved. And finally, the complaints alleged that many of the outsourcing facilities that were being used by the telehealth companies had either been shut down or had been issued warning letters for significant and repeated violations of FDA compounding laws. which generally were about violations of different current good manufacturing practices. So yeah, I think there were a lot of overarching themes in all of the complaints. And as you said, there may be more to come. So we'll be keeping an eye on this litigation for different healthcare and FDA regulatory issues that come up. But are there any kind of practical takeaways or recommendations that you see from a CPOM perspective that different clients and individuals in the health marketplace can be looking for?

SPEAKER_02: 19:02

Definitely. I think, you know, CPOM is a little bit of my specialty. I work on it day to day, both from a counseling perspective and from an M&A perspective. And from the counseling side, obviously, I emphasize the importance of complying with CPOM in the state and making sure that we have formed everything compliantly and we have all the correct paperwork and the money's flowing the way it should be flowing. But obviously, from a due diligence perspective, I do see time and time again where CPOM is just like this theoretical you know, doctrine that exists in some states. And yeah, we'll have an MSOPC, but we'll not actually be following or complying with the management services agreement that the target company may have written, but they may not actually be doing the things that they have written there. So I think some of the practical takeaways here are that are you actually following what you have? First, do you have all the written ancillary agreements that are necessary to comply with CPOM? And two, are you actually following what you have written in your management services agreement? And have the management services agreements been reviewed? Because again, CPOM is a state by state issue. Has it been reviewed by a state by state perspective? So in one of the complaints, as we discussed, one of the telehealth companies allegedly swapped compounding pharmacies and the actual formula of the compounding over eight times in the span of five months, but that decision was made by the MSO. there could be a very good reason for doing so, but the reason needs to be clinical. And there are some states where there is very explicitly under CPOM rules there that any sort of purchase of medical device or drugs have to be made by the PC or by the physician owner. So if I were counseling these telehealth companies, I would, yeah, of course there's going to always be some sort of bottom line issue, but the decision needs to be made together with the licensed medical professionals so that, you know, they, are in the loop, they're making the best decision based on patient care. And I would also recommend that any sort of changes to formula or to the compounding pharmacy is communicated to patients. And if a healthcare provider is aware of those changes based on their ethics and their license, they're more likely than a corporation who hasn't had the medical training to know that we need to articulate this and make this clear to our patients. Obviously, again, with complying with CPOM, I would advise my clients that any sort of communications regarding medical decision-making or like questions about adjustments to medications, that should always be answered by medical professionals. So I think it's really great and exciting and modern for these telehealth companies to be responding to questions on Reddit or TikTok. I think that's where healthcare should be. We should be where the patients are and it's frankly, on those platforms, but you should do so compliantly. Your social media person can respond and say, please reach out to this email or to this person, because the question you're asking is, you know, it's a medical question and it depends on your diagnoses and your healthcare. So it should not be the MSO social media person responding saying, this is how you can increase or decrease your dosage. And, you know, there's a lot of other practical ways where where we can ensure that the PC has autonomy over patient care, but there just wasn't enough information in these complaints to see if they exist. It would include, you know, sort of regular meetings with your clinical team, reviewing written policies and procedures about how, you know, marketing or salespeople can communicate with either patients or providers and just kind of making it, again, this all goes back to the heart of CPOM, which is the Management Services Agreement, making sure that's very clearly outlined on which entity can do what, who's permitted under state law to do this, and there are specific nuances. So there are some states that may allow the MSO to purchase medical equipment versus other states wouldn't. So of course, my practical recommendation is to loop in healthcare counsel, but those are a few examples that I think digital health companies should think about and following this litigation, which I think Eli Lilly sued a couple. I don't think that's going to end because if you just Google right now, there's dozens of companies that are still offering compounded GLP-1. So there really is not an end in sight right now. And I think... this litigation is so important for digital health because one, it's really establishing a playbook for any third party that wants to sue a telehealth company for violating CPOM laws. It also establishes precedent for damages and awards. So again, a big part of my job is counseling digital health clients on risk. And a lot of time we're kind of, they'll say, hey, what is the penalty or the fine if I don't comply? Because I'm willing to take that hit so that I can get rolling on my amazing idea and show proof of concept while I wait for the regs to catch up to what I'm doing, now there is going to potentially be some precedent for the damages and the awards here. And then obviously, this really triggers increased oversight from the state, the AG, the medical board, which we already know in California is super, super active. So to close this off, Lauren, any other practical points you would advise your clients on from an FDA perspective after going in the weeds on this issue?

SPEAKER_01: 25:12

Yeah, definitely. And you made some amazing points. I definitely think we'll be seeing more of this in the future and companies should really be paying attention to what's going on in this litigation, just like you said, because this is kind of a playbook for some of the higher risk activities and practices that people are competing with in this space. So, you know, on that note, I would say definitely making sure that any telehealth companies that are using outsourced should be making sure that these facilities are registered with FDA's outsourcing facilities, that there's contractual liability protection for you in any agreements that you have with these pharmacies and outsourcing facilities in case there are any kind of violations in their compounding practices. And just really making sure that you're evaluating all of the claims that are being put out on your social media and through any kind of promotion that you're doing for your website about these products and making sure that they conform to FDA regulations and any kind of claims that have already been approved for the drug product. So making sure, you know, you're not running afoul of any advertising and promotion issues. Yeah, but... Yeah, this has been great. And I really appreciate all of your insight into the CPOM issues. Thank you, Lauren.

SPEAKER_02: 26:44

And I obviously, when people, when I mentioned that I'm a healthcare lawyer, they will ask me FDA questions and I'm like, oh, they're so distinct. I need an expert. So I'm so glad you were able to join. And thank you to all our listeners who joined us here. And Lauren and I will certainly be following this and hopefully we'll have a follow-up podcast once there's some resolution in the coming months. So thank you everyone. Yeah. Thank you guys.

SPEAKER_00: 27:17

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