Protecting Your Biotech: Understanding the Risks of Compounded GLP-1s

Semaglutide — better known by its brand names Ozempic (for diabetes) and Wegovy (for weight loss) — received FDA approval in 2017. Since then, U.S. prescriptions have surged from roughly 6.1 billion in 2018 to over 6.7 billion in 2022, thanks to its clinical effectiveness and its weight loss side effect. But as demand continues to outpace supply and costs remain high, many patients and providers are turning to compounded GLP‑1 (glucagon-like peptide-1) alternatives. The catch? These versions aren’t FDA-approved. That means no formal review for safety, efficacy, or consistent dosing — a gap that introduces real risk for patients and the companies behind them.

A  legal and reputational minefield for startups

For startups looking to move fast and fill the GLP‑1 supply gap, compounding can seem like a smart workaround. But stepping outside the FDA approval process comes with serious consequences. Without regulatory oversight, there’s no independent check on what’s being produced or how it’s made. That opens the door to inconsistent dosages, contamination, or ineffective formulations and puts the full legal and reputational burden on the startup.

• Product liability: If patients experience side effects, incorrect dosages, or contamination, the startup is to blame, with no regulatory buffer to lean on.
• Regulatory action: The FDA is actively watching this space and has already issued warning letters and cease-and-desist orders to companies marketing unapproved GLP‑1 compounds. 
• State scrutiny: Medical and pharmacy boards in several states are ramping up oversight, increasing the chances of license reviews, fines, or legal challenges.

Severe reputational damage

One adverse event is all it takes to lose public trust. A contaminated batch or dosing error can quickly spiral into media backlash, social outrage, and investor hesitation. For early-stage biotech companies, these moments aren’t just bad press — they can threaten the entire business. Startups in this space face unique vulnerabilities, including leadership exposure to D&O claims. Without the shield of FDA approval, even the most promising brand can find itself on shaky ground.

FDA non‑approval: understanding liability exposure

When startups market compounded semaglutide without FDA approval, they’re essentially giving up the regulatory safety net that comes with official validation. That choice carries weight. As of April 30, 2025, the FDA has logged over 520 adverse event reports tied to compounded semaglutide and another 480 involving compounded tirzepatide. Most of these stem from the usual suspects: dosage errors, contamination, or labeling issues — things that proper oversight is designed to prevent.

The liability at stake

1. Product liability: Startups could be held responsible for defects in design, manufacturing issues, or failing to provide proper warnings — even if they didn’t intend harm.
2. Professional malpractice: Clinics prescribing these compounded drugs risk legal action if patients suffer harm from incorrect dosages or quality issues.
3. Directors & officers (D&O): Leadership teams aren’t immune. Founders and board members could face personal liability for decisions tied to the production or marketing of unapproved drugs.
4. Business interruption & recalls: If the FDA steps in with a recall or halts operations, the financial and operational toll can be significant.
5. The “unknown unknowns:” Without clinical trials, there’s no reliable data on long-term effects. This makes it much harder to predict risk or defend against it.

How insurers are responding to the GLP-1 boom

Picture this: a startup jumps into the GLP‑1 boom, offering compounded semaglutide for $350 a month. It’s affordable, agile, and answers a real patient need. But once the FDA removes the official shortage designation, things shift. A cease-and-desist letter arrives, and suddenly their insurance underwriters are pulling back — raising premiums, demanding stricter documentation, and carving out exclusions for anything tied to compounded meds.

This scenario reflects what’s happening across the board. As the risks around unapproved GLP‑1s grow, insurers are tightening their underwriting playbook. Many liability and professional policies now exclude coverage for compounded or non-FDA-approved products, leaving startups exposed right when they need protection the most.

Underwriting is getting tougher

Insurers are paying attention to the spike in claims — malpractice payouts for compounding pharmacies now average nearly $438,000, far higher than other pharmacy types. In response, underwriters are digging deeper into operational details, raising premiums, and in some cases, refusing coverage altogether for companies tied to unapproved GLP‑1s.

Challenges in securing coverage

Many traditional product liability or professional liability policies now carry exclusions for non-FDA-approved products, and compounded semaglutide often falls squarely into that gap. Additionally, doctors prescribing compounded GLP‑1s may see their professional liability coverage revoked or restricted, and clinics involved face steep licensing and board action risks.

A smarter path forward

For startups, coverage isn’t out of reach — but it takes work to get there:

• Build strong quality control protocols, including third-party lab testing and clear documentation, even without an FDA mandate.
• Work with legal and regulatory experts to stay on top of compounding rules and state board expectations.
• Show underwriters you’re serious by following best practices in manufacturing, safety, and compliance; you improve your chances of securing meaningful coverage.

Bottom line: insurers aren’t sitting on the sidelines anymore. They’re redrawing the risk map. Startups in the GLP‑1 compounding space need to think bigger than just the product — they need to factor in risk strategy and insurance from day one.

Protecting innovation with strategy and structure

The demand for GLP‑1 medications is changing the game — and changing it fast. With the global market for anti-obesity drugs projected to hit $95 billion by 2030, it’s no surprise that compounded semaglutide is gaining traction as a cheaper, more accessible option. But for all its appeal, this route comes with real risks: regulatory uncertainty, legal exposure, and major insurance hurdles.

For biotech startups, long-term success will depend on more than speed or market opportunity. It will require a deliberate investment in quality, compliance, and risk management from the start. That means building smarter systems, working closely with legal and insurance partners, and setting a higher bar — whether or not the FDA requires it.

Photo: erhui1979, Getty Images

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