The Compounding Pharmacy Loophole Threatens Safety And Innovation

The new class of GLP-1 medicines exemplifies both the potential of pharmaceutical innovation and the risks to future advancements from ill-considered government policies. The incredible benefits from GLP-1’s are clear – they significantly improve our health and well-being. Risks arise because current federal policies enable activities that jeopardize patient safety and undermine innovators’ ability to cover their large, private capital costs.

Branded as Mounjaro and Ozempic, GLP-1s are helping patients whose type 2 diabetes has otherwise been poorly managed. Research demonstrates that diabetes annually imposes $412.9 billion in total economic costs that include over $300 billion in direct medical costs. These same medicines, branded as Wegovy or Zepbound, have meaningfully helped reduce America’s obesity crisis. Obesity is similarly costly, with an estimated combined economic burden of over $425 billion annually.

The potential benefits from these medicines are even larger. There are promising indications that GLP-1s may help patients living with cardiovascular disease, chronic kidney disease, and neurodegenerative diseases such as Alzheimer’s and Parkinson’s. If only some of these links are confirmed, these medicines have the potential to be among the most important pharmaceutical discoveries in generations.

Continued progress is not inevitable. It will only occur if the innovative companies have an opportunity to recover the cost of capital required to develop these new medicines. These costs are not just the billions spent on R&D. They include the large risks of failure and the exceptionally lengthy amount of time that is required to bring these drugs to market. This includes the years it takes to demonstrate the safety and efficacy of these medicines in clinical FDA trials. Estimates put the costs at $2.9 billion per successful drug, including post-marketing costs. It takes about 12 years to get approval from the FDA and only one in 10 actually makes it to the consumer.

Historically, the U.S. has fostered an environment that is conducive to cutting-edge pharmaceutical innovation. And Americans have benefited greatly from becoming the world’s medicine chest. U.S. drug R&D accounts for 55% of the total global activity. These efforts have helped create more than 4 million well-paying jobs and generates $1.4 trillion in annual economic activity.

Beyond the economic benefits, U.S. patients are also benefiting from having access to significantly more innovative medicines than anywhere else in the world. About two-thirds of all new drugs developed in the last decade originated in the U.S. American patients have access to 74% of all new drugs, which is 22 percentage points higher than patients’ access in Germany, which is the country with the next highest access rates. Brits only had access to 43 percent and Canadians, a mere 28 percent. As demonstrated by the GLP-1s, greater access to safe and efficacious drugs means improved patient health outcomes, including longer lives, shorter hospital stays, and lower costs.

Recent actions by the federal government are undermining the foundations that are driving these benefits for U.S. patients. Many of the threats are visible, such as the Administration’s proposed drug tariffs and most favored nation (MFN) drug pricing policies (which are simply price controls by another name).

Others, such as the misuse of compounding pharmacies, pharmacies that provide patients with customized medications, while less obvious, are, nonetheless, damaging. The misuse of compounding pharmacies undermines innovators’ opportunity (and it is only an opportunity) to cover their estimated $2.9 billion in capital costs, which puts continued innovation in jeopardy.

The misuse of compounded pharmacies has arisen because patients’ demand for GLP-1s far outstripped the supply of these medicines beginning in 2022. Consequently, the FDA declared a drug shortage that lasted until February 2025. During the shortage, compounded pharmacies were permitted to widely provide GLP-1 medications.

This authority lapsed with the declared end of the shortage this year. Now, with the shortage over, as the Food and Drug Administration notes, “compounded drugs should only be used in patients whose medical needs cannot be met by an FDA-approved drug.”

From an innovation perspective, this narrow exemption makes sense. It creates the necessary flexibility for patients with unique needs but protects the innovative ecosystem necessary for incentivizing continued medical advancements.

The limited exemption is also important for ensuring patient safety. As the FDA also notes when discussing compounded drugs,

unnecessary use of compounded drugs may expose patients to potentially serious health risks. For example, poor compounding practices can result in serious drug quality problems, such as contamination of a drug that contains too much or too little active ingredient. This can lead to serious patient injury and death.”

Despite these concerns, and the declared end to the shortage, GLP-1s are still commonly being sourced from compounding pharmacies. Unsurprising, safety concerns have arisen. Due to these safety risks, thirty-eight State Attorneys General signed a February 2025 letter to the FDA that expressed their concern

that counterfeit GLP-1 drugs have infiltrated the U.S. supply chain from China, Turkey, India, and other foreign sources. These counterfeits can contain contaminants, other unknown drugs, or dangerously high amounts of active ingredient(s). Scammers have also repackaged injectable insulin and falsely sold it as Ozempic. Injecting these fake medications can lead to serious side effects for consumers, sometimes necessitating hospitalization.

GLP-1s exemplify innovative medicines’ transformative benefits when the policy environment supports innovation. Allowing compounding pharmacies to circumvent the intellectual property of innovative companies and sell potentially unsafe or less effective versions of these drugs jeopardizes patients’ safety and disincentivizes continued innovation in the pharmaceutical industry. It is essential, consequently, to prevent the inappropriate sales of compounded medicines and promote innovation.