Semaglutide (known for its brand names Ozempic (for diabetes) and Wegovy (for weight loss). It was approved by the FDA in 2017. Since then, in 2018, the U.S. prescription rose from about 6.1 billion in 2018 to 6.7 billion in 2022 due to its clinical effectiveness and its weight loss side effects. However, as demand continues to outstrip supply and costs remain high, many patients and providers are turning to composite GLP‑1 (glucagon-like peptide-1) alternatives. Capture? These versions are not approved by the FDA. This means there is no formal review of safety, effectiveness, or consistent administration, which is the gap in the real risk to patients and the companies behind them.
The legal and reputation room for startups
For startups looking to move quickly and fill the GLP ‑1 power gap, compounding seems to be a smart solution. However, serious consequences have taken place outside the FDA approval process. Without regulatory oversight, there is no independent inspection of what is being produced or how it is being made. This opens the door to inconsistent doses, contaminated or ineffective formulas and places the entire legal and reputation burden on the startup.
- Product Liability: If the patient experiences side effects, incorrect doses, or contamination, it should be blamed on the startup without a regulatory buffer to rely on.
- Regulatory actions: The FDA is actively watching this space and has issued warning letters and stop orders to companies that market unapproved GLP ‑1 compounds.
- National Review: Medical and pharmacy boards in several states are increasing oversight, increasing opportunities for licensing reviews, fines or legal challenges.
Severe reputational damage
A negative event required to lose public trust. Contaminated batches or drug administration errors may quickly tend toward media rebound, social anger and investor hesitation. For early stage biotech companies, these moments are not just bad press – they can threaten the entire business. Startups in this space face unique loopholes, including leading D&O claims. Without the FDA-approved shield, even the most promising brands can find themselves on the shaky ground.
FDA Not Approved: Understanding Liability Exposure
When the startup market recombined Semaglutide without FDA approval, they essentially gave up on the regulatory safety net brought by official verification. This option comes with weight. As of April 30, 2025, the FDA has recorded more than 520 adverse events reports, related to compound Semaglutides, and another 480 involved compound Tirzepatides. Most of these stem from the usual suspects: dose errors, contamination or labeling issues – things that are properly supervised to prevent.
responsibility
- Product Liability: Startups may be responsible for defects in design, manufacturing problems or fail to provide appropriate warnings even if they do not intend to harm them.
- Professional malfeasance: Clinic risk legal action to prescribe these compound drugs if the patient is harmed due to incorrect doses or quality issues.
- Directors and Senior Management (D&O): The leadership team is not immune. Founders and board members may face personal liability for decisions related to the production or marketing of unauthorized drugs.
- Business interruptions and recalls: Financial and operational losses can be substantial if the FDA recalls or ceases operations.
- “Unknown unknown number:” Without clinical trials, there is no reliable data on long-term impact. This makes it difficult to predict or defend against risks.
How insurance companies respond to GLP-1 boom
Image: A startup jumps into the GLP ‑1 boom, offering a compound Semaglutide for $350 a month. It is affordable, agile, and answers real patient needs. But things change once the FDA deletes the official shortage name. A stop letter arrived and suddenly their insurance underwriters backed off – raising premiums, requiring stricter documentation, and exclusion of anything related to compound drugs.
This situation reflects what happened in all respects. Insurers are tightening their underwriting letters as risks grow in unapproved GLP ‑1. Many liability and professional policies now exclude insurance for compound or non-FDA-approved products, keeping startups on the right business when protection is most needed.
Underwriting is getting harder
Insurance companies are paying attention to the peak in claims – malfeasance spending for compound pharmacies appears at an average of nearly $438,000, much higher than other pharmacies types. In response, underwriters are delving into operational details, raising premiums, and in some cases, companies that refuse coverage with unauthorized GLP-1 are completely rejected.
Challenges to ensure coverage
Many traditional product liability or professional liability policies now have an exclusion for products that are not approved by the FDA, and compound Semaglutide usually falls completely into that gap. Additionally, prescription GLP-1 prescription physicians may see their professional liability coverage or limited coverage, involving clinics at risk of steep licensing and board action.
A smarter path
For start-ups, coverage is not out of reach – but getting there requires work:
- Establish strong quality control protocols including third-party laboratory testing and clear documentation, even without FDA authorization.
- Work with legal and regulatory experts to maintain complex rules and state commission expectations.
- Show underwriters your seriousness by following manufacturing, security and compliance best practices; you can improve your chances of ensuring meaningful coverage.
Bottom line: Insurance companies no longer sit on the sidelines. They are redrawing the risk map. Startups in the composite space of GLP ‑1 need to think about more than just the product – they need to think about risk strategies and insurance from day one.
Protect innovation through strategy and structure
The demand for GLP-1 drugs is changing the game and changing it quickly. With the global anti-obesity drug market expected to reach $95 billion by 2030, it is no surprise that compound Semaglutide is gaining cheaper, easier access to options. But, despite this, this route presents real risks: regulatory uncertainty, legal risks and significant insurance barriers.
For biotech startups, long-term success will depend on speed or market opportunities. From the outset, it will require intentional investment in quality, compliance and risk management. This means building smarter systems, working closely with legal and insurance partners, and setting higher standards – whether the FDA needs it or not.
Photo: Erhui1979, Getty Images
Justin Kozak is executive vice president of Founder Shield, a technology-enabled commercial insurance brokerage firm. He leads life science practice, with Hub International, PBC and now founder Shield with over 10 years of risk management experience. He began his career with a bachelor’s degree in history from the University of Delaware, and his keen understanding of the past informed his intuition in the insurance industry. It’s no surprise that Justin specializes in custom insurance plans for emerging markets without historical data. He likes to spend time with young families and cannot get enough Phillies.
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