Eli Lilly's Legal Battles and the Future of Big Pharma's Profitability

Eli Lilly and Company (NYSE: LLY) has found itself at the center of a legal and regulatory storm in 2025, as its aggressive lawsuits against telehealth companies and compounding pharmacies highlight the growing tensions between Big Pharma and alternative healthcare models. These legal actions, while framed as necessary to protect patient safety and intellectual property, raise critical questions about the long-term sustainability of Lilly's business model—and the broader pharmaceutical industry's approach to innovation, competition, and public trust.

The Legal Front: A Strategic Defense or a Public Relations Risk?

In April 2025, Lilly filed lawsuits against four telehealth companies—Fella Health, Willow Health, Henry Meds, and Mochi Health—alleging that they sold compounded versions of its GLP-1 drugs, including tirzepatide (the active ingredient in Mounjaro and Zepbound), without FDA approval. These compounded drugs, marketed as “personalized” alternatives, were accused of being mass-produced and untested, undermining the credibility of Lilly's FDA-approved products. The lawsuits also alleged violations of California's corporate practice of medicine (CPOM) laws, accusing Mochi Health and Fella Health of allowing unlicensed personnel to influence prescription decisions.

While these suits aim to protect Lilly's market dominance, they risk alienating stakeholders who view compounded drugs as a lifeline for patients unable to afford brand-name medications. The lawsuits also expose a paradox: Lilly's aggressive legal tactics, while defending its intellectual property, may inadvertently reinforce perceptions of Big Pharma as more focused on profit than patient access. This tension is not lost on investors. In the last quarter of 2025, Lilly's stock fell 13%, partly due to concerns over legal costs and reputational damage.

Regulatory Uncertainty and the Compounding Industry

The lawsuits are part of a broader industry trend. Other pharmaceutical giants, including Novo Nordisk, have also targeted compounding pharmacies, signaling a shift in how Big Pharma defends its market share. If Lilly prevails, it could set a precedent limiting the ability of compounding pharmacies to produce drugs that closely resemble FDA-approved medications. This would likely reduce competition but could also restrict patient access to lower-cost alternatives, sparking regulatory pushback from agencies like the FDA or Congress.

The FDA's recent actions add complexity. In December 2024, the agency ended the tirzepatide shortage, effectively banning further compounding of the drug. Yet, Lilly's lawsuits against Strive Pharmacy and Empower Pharmacy—accusing them of continuing to sell compounded tirzepatide—highlight the agency's limited enforcement power. This regulatory gray area leaves room for legal ambiguity, which could delay rulings and prolong uncertainty for investors.

Ethical Pressures and Investor Sentiment

Beyond legal risks, Lilly faces ethical scrutiny. Critics argue that its lawsuits prioritize profit over patient needs, particularly as GLP-1 drugs remain in high demand for weight loss and diabetes management. While Lilly emphasizes patient safety, the perception of overreach could erode trust in its brand—a critical asset in an industry where reputation drives market share.

Investors must also weigh the financial implications. Despite strong Q2 2025 results (revenue up 38% to $15.56 billion), the stock trades at $640.86, a discount to the analyst consensus price target of $948. This gap reflects lingering concerns about legal liabilities and the potential for regulatory crackdowns. If courts side with telehealth companies or compounding pharmacies, Lilly could face not only financial penalties but also a loss of market exclusivity for its blockbuster drugs.

The Bigger Picture: Big Pharma's Evolving Landscape

Lilly's legal battles are emblematic of a larger shift in the pharmaceutical industry. As telehealth and compounding pharmacies gain traction, traditional pharma companies are forced to adapt—or face declining relevance. This transition is not without risks. For instance, the Richards v. Eli Lilly & Co. case in the Seventh Circuit, which raised the bar for class-action certification, underscores the growing legal complexity for pharmaceutical firms. While this decision may reduce the number of lawsuits, it also highlights the sector's vulnerability to litigation.

For investors, the key question is whether Lilly's legal strategy will pay off in the long run. A successful defense of its intellectual property could secure decades of revenue from tirzepatide and other GLP-1 drugs. However, if the lawsuits are seen as an overreach, they could accelerate regulatory reforms that limit Big Pharma's pricing power or force companies to share more of their profits with alternative healthcare providers.

Investment Advice: Balancing Risk and Reward

Lilly remains a cornerstone of the healthcare sector, with a robust pipeline (including Alzheimer's drug Donanemab and gene-editing ventures) and strong financials. However, investors should not ignore the risks. The lawsuits, while defensible from a legal standpoint, could strain relationships with regulators, patients, and even allies in the medical community.

For those considering exposure to Lilly, a cautious approach is warranted. Diversifying across the healthcare sector—into companies less reliant on patent-protected drugs or those investing in affordable alternatives—could mitigate risks. Additionally, monitoring regulatory developments (such as FDA guidance on compounded drugs) and legal rulings in the Northern District of California will be critical for assessing Lilly's long-term prospects.

In the end, Eli Lilly's legal and reputational challenges are a microcosm of the broader debate over the role of Big Pharma in modern healthcare. While the company's financial strength is undeniable, its ability to navigate these pressures will determine whether it remains a leader—or becomes a cautionary tale for an industry at a crossroads.