Executive Vice President at Founder Shield.


Justin Kozak, Founder Shield

The buzz around GLP-1 agonists like Ozempic and Wegovy is undeniable, fueled by social media virality and impressive clinical results. This has driven a staggering surge in prescriptions, with some reports indicating growth of over 5,000% since 2018 in the United States.

In response to this immense demand, coupled with high costs and accessibility issues, compounded alternatives have emerged as a seemingly pragmatic solution. However, these compounded GLP-1s are creating a significant, often underestimated, legal, reputational, and financial minefield for startups and the broader life sciences industry. I'll explain why this "gold rush" is fraught with peril, from a risk management and insurance perspective.

The allure of compounded alternatives: A closer look at the "gold rush"

The intense demand for GLP-1 agonists stems from their proven efficacy in managing type 2 diabetes and, increasingly, in facilitating significant weight loss. However, patients often face substantial hurdles in accessing brand-name versions due to their high cost and persistent supply shortages.

This gap in the market has created a "gold rush" for compounding pharmacies and new startups. These entities have stepped in, offering seemingly cheaper

 and more readily available compounded alternatives to fill the void. Compounding, by definition, involves customizing medications to meet individual patient needs, such as altering dosage forms or removing allergens.

However, in the context of GLP-1s, this often means creating versions of FDA-approved drugs when those drugs are either unavailable or prohibitively expensive, raising critical questions about their regulatory oversight, safety, and effectiveness.

The elephant in the room: The critical absence of FDA approval

The fundamental issue with compounded GLP-1s lies in their sidestepping of the rigorous FDA approval process. To attain FDA clearance, a pharmaceutical product must undergo an exhaustive developmental and review journey. This encompasses extensive clinical trials designed to substantiate both safety and efficacy, alongside strict adherence to elevated manufacturing standards and comprehensive quality control protocols. This lengthy and capital-intensive process is precisely what assures the reliability and integrity of approved medications.

So, why aren't compounded GLP-1s approved? Simply put, they bypass this standard FDA pathway. They aren't tested as a complete product by the FDA for their safety or how well they work. This isn't just a minor detail; it has some pretty significant consequences. There's a severe lack of oversight, meaning no federal guarantee on the purity, potency, or consistency of ingredients. Plus, their efficacy is unverified—there are no clinical trials backing the effectiveness of these specific compounded formulations.

This all leads to an increased risk of adverse events, like contamination, incorrect dosages, or unexpected side effects, simply because production can vary wildly. And let's not forget the legal gray areas these operations inhabit, as current regulations aren't set up for the mass production and widespread distribution of these types of compounded drugs.

Compounded GLP-1 alternatives lack FDA approval, leaving patients and companies exposed to risks like contamination, dosage errors, and unverified efficacy.

Legal and financial liabilities are high, with potential lawsuits for product defects, false advertising, and regulatory enforcement actions, while insurers are increasingly limiting or excluding coverage.

Reputational and operational risks are significant, as safety incidents can quickly damage brand trust and investor confidence, highlighting the need for transparency, quality control, and robust risk management.

Navigating the legal and reputational minefield for startups

Navigating the burgeoning market for compounded GLP-1 alternatives presents a complex and perilous landscape for startups, laden with significant legal and reputational risks.

The most substantial legal threat stems from product liability claims. Should a patient experience harm attributed to a compounded GLP-1 product, the startup faces direct liability.The critical absence of FDA approval for these specific formulations considerably simplifies the plaintiff's burden in demonstrating negligence or a product defect.

Furthermore, any marketing assertions that compounded versions are "identical" or "equivalent" to FDA-approved drugs open the door to false advertising and misrepresentation lawsuits, alleging deceptive practices.

Companies operating in this space are also subject to intensified regulatory enforcement actions from bodies such as the FDA and state pharmacy boards, potentially leading to cease-and-desist orders, substantial financial penalties, injunctions, and in severe cases, criminal investigations.

Moreover, original manufacturers are increasingly pursuing unfair competition lawsuits, citing patent infringement or other unfair business practices against entities offering compounded alternatives.

Beyond legal repercussions, the potential for reputational damage is immense. Any patient safety incident, particularly if it garners widespread media attention, can irrevocably tarnish a company's brand overnight.

Operating outside established regulatory frameworks inherently erodes public trust and consumer confidence. A compromised reputation can also severely impact a startup's ability to attract crucial investment and talent, hindering growth and innovation. Ultimately, negative press surrounding compounded GLP-1s can cast an unfavorable shadow across the entire life sciences sector, inadvertently affecting even legitimate businesses.

The insurance industry's shifting landscape: What non-approval means for coverage

The insurance industry is significantly recalibrating its approach to non-FDA approved compounded GLP-1s. Insurers, acutely aware of regulatory and liability risks, are increasingly hesitant or outright refusing to underwrite policies for companies in this sector.

Existing policies often feature explicit exclusions for non-FDA approved products or harm from off-label use. For the few willing to offer coverage,

 premiums are substantially elevated with higher deductibles.

Additionally, underwriting demands are now far more stringent, requiring exhaustive due diligence on manufacturing, quality control, and patient consent. Even with a policy in place, claims related to compounded GLP-1s are highly susceptible to disputes, as insurers may contend non-compliance with policy terms or regulatory standards, potentially leaving companies exposed.

Mitigating risks: essential advice for companies in the GLP-1 ecosystem

Mitigating the inherent risks within the GLP-1 ecosystem requires proactive and stringent measures from all stakeholders.

For companies involved in compounding/distribution

For those operating directly in the compounding and distribution of GLP-1 alternatives, a heightened level of vigilance and operational excellence is non-negotiable, including:

Extreme due diligence on partners is paramount; thoroughly vet compounding pharmacies to ensure adherence to the highest quality and safety standards, exceeding minimum requirements.

Maintain unwavering transparency with patients, unequivocally communicating the non-FDA approved status of compounded medications and all associated risks, securing explicit informed consent.

Implement and meticulously document robust quality control and assurance processes internally.

Engage expert legal and regulatory counsel specialized in pharmaceutical regulation and product liability to navigate this complex landscape effectively.

Collaborate with a specialized insurance brokerage possessing deep expertise in the life sciences sector and access to specialty carriers willing to underwrite these unique risks.

The broader life sciences industry must monitor the regulatory environment closely, staying abreast of evolving FDA guidance and state-level regulations pertaining to compounding. It is crucial to protect brand integrity by being acutely aware of the potential for reputational contagion stemming from incidents involving compounded alternatives. Ultimately, advocate for clarity in regulatory frameworks to safeguard patient safety and ensure fair competition across the market.

Conclusion: Prioritizing prudence in the GLP-1 era

While the GLP-1 "gold rush" offers undeniable opportunities, the inherent risks associated with compounded alternatives are substantial and cannot be overlooked. FDA approval is not merely a bureaucratic hurdle; it is a critical safeguard for patient safety and a company's long-term viability. Companies operating in or around the GLP-1 market, particularly those considering compounded alternatives, must prioritize robust risk management, seek expert guidance, and fully comprehend their liability exposure. Prudence, rather than solely profit, must guide their strategic decisions.

Justin Kozak is the Life Sciences Practice Lead and Executive VP at Founder Shield.

1. Ozempic’s Rise in Popularity & Weight-Loss Alternatives. Health Prem. 

https://www.healthprem.com/articles/ozempic-and-weight-loss-alternatives#:~:text=Since%20going%20viral%20on%20social,sought%20after%20in%20the%20UK

2. Saraceno N. How Recent Executive Orders Impact the Drug Pricing Landscape. 

https://www.pharmaceuticalcommerce.com/view/how-recent-executive-orders-impact-drug-pricing-landscape

3. Development & Approval Process | Drugs. US Food & Drug Administration. 

https://www.fda.gov/drugs/development-approval-process-drugs

4. Kozak J. Navigating Evolving Risks in the Biotech Industry. Founder Shield. September 20, 2024. 

https://foundershield.com/blog/biotech-industry-risks/

5. Bailey D. Insurance Companies Scrambling to Support Need for GLP-1 Drugs. InsuranceNewsNet. May 21, 2025. 

https://insurancenewsnet.com/innarticle/insurance-companies-scrambling-to-support-need-for-glp-1-drugs

Articles

Why startups and life sciences companies should approach this booming sector with extreme caution.

The GLP-1 Gold Rush: Why Compounded Alternatives Are a Risky Bet

The pharmaceutical industry has witnessed a resurgence of mergers and acquisitions (M&As) as companies seek to gain a competitive edge, accelerate innovation, and drive growth. By consolidating resources, expanding market reach, and acquiring valuable intellectual property, pharmaceutical organizations are reshaping the industry landscape. However, these deals come with significant risks that must be carefully managed to ensure long-term success.

M&As are making a significant comeback in the life sciences. Companies are leveraging M&A strategies to strengthen their market positions, diversify pipelines, and access innovative technologies. This trend in dealmaking reflects the growing need for efficiency and competitive advantage.

Pipeline diversification remains a key driver of M&A activity, allowing companies to broaden their product offerings and mitigate risks tied to single-drug portfolios. Additionally, acquisitions often accelerate time-to-market for ground-breaking treatments by bypassing lengthy R&D phases. Another motivating factor is cost synergies, achieved through shared resources and economies of scale, which reduce operational expenses. Accessing emerging platforms, particularly in biotech and AI-driven drug discovery, also pushes companies toward strategic deals.

Recent notable deals underscore this resurgence. For example, Pfizer’s acquisition of Seagen in 2023

 highlighted its focus on advancing cancer therapies. Similarly, Amgen’s purchase of Horizon Therapeutics in the same year

 aimed to expand its presence in rare diseases, aligning with a long-term growth strategy. Each deal exemplifies the industry’s commitment to combining strengths and adapting to market demands.

The strategic rationale for these transactions is clear: companies are seeking to maintain relevance in a rapidly evolving landscape. Whether by enhancing product pipelines, reducing costs, or securing cutting-edge technologies, M&A activity is shaping the future of pharma. This resurgence signals an exciting phase of innovation, collaboration, and growth for the industry.

Risks associated with M&As in small pharma companies

M&As in smaller-sized organizations can drive growth and innovation, but they also carry significant risks. Addressing these challenges requires careful planning and strategic execution to ensure success post-merger.

Navigating the complex regulatory landscape is one of the biggest challenges in M&As for small pharma. Each merger involves aligning with different regulatory frameworks, which can delay deal completion or increase costs. Post-merger, ensuring ongoing compliance is equally daunting, especially as regulations evolve across global markets. Failing to address these issues can lead to costly penalties or loss of market access.

. Combining two distinct organizations often brings cultural and operational conflicts. Merging diverse workforces and integrating different IT systems can cause disruptions, leading to inefficiencies and delays. Without proper planning, these challenges may result in productivity losses, potentially derailing the intended benefits of the merger.

. Economic downturns and geopolitical events can significantly impact the value of M&A deals. Fluctuating valuations may lead to higher deal premiums, making transactions riskier for small companies. Furthermore, unexpected market shifts post-merger can compromise the financial stability of the combined entity.

. Shareholder dilution is a common concern in M&A transactions. When deals involve issuing new shares or acquiring debt, existing shareholders may experience reduced ownership percentages, which can impact long-term value and investor confidence.

. The practical aspects of combining supply chains and manufacturing processes also pose challenges. Supply chain disruptions, quality control issues, and operational bottlenecks are potential risks that can delay product delivery and harm brand reputation. These problems are particularly pronounced in those industries with strict compliance standards, such as the pharma sector.

M&As in small pharma companies can unlock growth and innovation, but only if the associated risks are carefully managed. Addressing regulatory, integration, market, and operational challenges with proactive strategies ensures that these transactions deliver their intended value. For small pharma, success lies in preparation, adaptability, and a keen understanding of the unique challenges inherent in the industry.

Mitigating risks and ensuring a smooth exit

M&As can be transformative for companies, offering growth and market expansion opportunities. However, to ensure a successful and smooth exit, careful planning and post-acquisition risk management are essential.

 Addressing key factors in strategic planning, due diligence, integration, risk management, financial planning, and legal considerations can significantly improve outcomes.

A successful M&A begins with a well-defined strategy that aligns with the company’s long-term objectives. This involves identifying potential acquisition targets that offer strategic value, such as complementary products or market presence. Assessing the strategic fit ensures that the merger strengthens the company’s position while minimizing the risk of misalignment.

Due diligence is crucial to uncovering hidden risks and liabilities. This process involves analyzing the target company’s financial health, intellectual property, and regulatory compliance.

For example, reviewing contracts and patents helps identify potential legal issues, while evaluating operational practices ensures compatibility with the acquiring company. Thorough due diligence lays the groundwork for a seamless transition and avoids surprises post-merger.

Integration challenges often derail the benefits of an M&A deal. A comprehensive integration plan can mitigate this risk by addressing key operational and cultural differences. Clear communication channels should be established to foster collaboration and align teams across both organizations. Leveraging technology, such as unified IT systems, can streamline processes, improve efficiency, and reduce disruptions during the transition.

Identifying and managing risks early in the M&A process is critical. Companies should develop contingency plans for potential disruptions, such as supply chain interruptions or regulatory hurdles. Implementing robust risk management frameworks allows for agile responses to unforeseen challenges, ensuring stability throughout the integration process.

Adequate financing is essential to cover acquisition costs and post-merger integration expenses. Life sciences companies must evaluate the financial impact of the deal on cash flow and the balance sheet, ensuring sustainability. This analysis helps prevent over-leverage, which can strain resources and jeopardize long-term success.

Navigating complex legal and tax implications requires experienced advisors. Ensuring compliance with relevant regulations and addressing potential tax liabilities are critical to avoiding penalties or delays. Proper legal guidance ensures a smoother transaction and safeguards against unforeseen complications.

Mitigating risks in M&A transactions demands strategic planning, detailed due diligence, and proactive integration and risk management.

By aligning financial, legal, and operational frameworks, companies can ensure a smooth exit and maximize the value of their merger. A well-executed approach not only reduces risks but also sets the stage for long-term success.

Justin Kozak is the Executive Vice President at Founder Shield, a tech-enabled commercial insurance brokerage. He leads the life sciences practice, having 10+ years of experience in risk management with Hub International, PBC, and now Founder Shield.

1. Pfizer Completes Acquisition of Seagen. Pfizer press release. December 14, 2023. 

https://www.pfizer.com/news/press-release/press-release-detail/pfizer-completes-acquisition-seagen

2. Amgen Completes Acquisition of Horizon Therapeutics Plc. Amgen press release. October 6, 2023. 

https://www.amgen.com/newsroom/press-releases/2023/10/amgen-completes-acquisition-of-horizon-therapeutics-plc

3. Hamory, W. Post-Acquisition Insurance & M&A Risk Management Guide. Founder Shield. September 22, 2024. 

https://foundershield.com/blog/post-acquisition/

4. Saraceno, N. Consequences of Non-Compliance. 

https://www.pharmaceuticalcommerce.com/view/consequences-non-compliance

What factors should be considered—and how can both parties benefit long-term?
