Last week, the U.S. Food and Drug Administration (FDA) took a significant step towards increased regulation of 503A human drug compounding pharmacies, which may cascade into additional state regulation. 503A compounding pharmacies are state-licensed pharmacies that provide drugs to clinicians according to a patient-specific prescription. Contrast 503A pharmacies that dispense drugs according to a patient-specific prescription with 503B pharmacies (also known as "outsourcing facilities") that can distribute compounded drugs not intended for an identified individual patient, such as for office stock. 503B pharmacies are not impacted by the recent FDA announcement.

Compounded drugs can serve an important medical need for patients who cannot be treated with an FDA-approved medication, such as a patient who has an allergy and needs a drug to be made without a certain dye, or an elderly patient or a child who cannot swallow a tablet or capsule and needs a medicine in a liquid dosage form. At the same time, the FDA has taken the position that without appropriate oversight, compounding can undermine the agency's drug approval process and potentially expose patients to unsafe or ineffective treatments. Striking the right balance with respect to compounding regulation is complicated and, therefore, the FDA and Congress envision a federal-state partnership to conduct such oversight. Last week's announcement of a standard memorandum of understanding (MOU) between the FDA and the states advances their goal of more regulation, stating:

"These partnerships between states that enter into the MOU and the FDA will further our combined efforts to protect the public health by, among other things, state regulators' commitment to investigate complaints about adverse drug experiences and product quality issues involving drugs compounded at pharmacies within their state and distributed outside their state. State regulators will also have an efficient information sharing channel to advise the FDA when they receive reports of serious adverse drug experiences or serious product quality issues related to compounded drugs, such as contamination. This is expected to facilitate early collaboration on issues that have the potential to affect patients in multiple states."

The federal-state partnership is not new; rather, it was legislated by Congress years ago. The 2013 Drug Quality and Security Act amended the Federal Food, Drug, and Cosmetic Act to create federal drug compounding guardrails that the FDA administers. In addition to the patient-specific prescription requirement mentioned above, the compounding pharmacy must be registered with the FDA and not distribute compounded drug interstate beyond certain limits, among several other regulatory criteria. Such limits have been the subject of years of consideration and is directly impacted by the standard MOU.

In states that do not enter into the MOU with the FDA, resident compounding pharmacies may not distribute interstate more than five percent of the total prescription orders dispensed by such pharmacy. As there was no standard MOU prior to last week, this provision had not been enforced by the FDA. This meant that the quantity of compounded drugs that a 503A pharmacy distributed interstate was generally not federally-regulated. This recent announcement will change that—the FDA is providing a 365-day period for states to decide whether to sign the MOU before the FDA intends to begin enforcing the five percent limit against 503A pharmacies in states that do not sign.

503A pharmacies residing in states that enter into the MOU with the FDA will be subject to a very different limit on the quantity of compounded drugs that can be distributed interstate. Developed in consultation with the National Association of Boards of Pharmacy, the MOU states that if the number of prescription orders for compounded drug products that the pharmacy distributes interstate during any calendar year is greater than 50 percent, it would be considered an "inordinate amount" and triggers an information identification and reporting obligations by the state once the threshold is reached. Such information includes:

• The total number of prescription orders for sterile compounded human drugs distributed interstate;
• The names of states in which the pharmacy is licensed;
• The names of states into which the pharmacy distributed compounded human drug products; and
• Whether the state inspected for and found during its most recent inspection that the pharmacy distributed compounded human drug products without valid prescription orders for individually identified patients.

Notably, the 50 percent threshold does not function as a limit on the distribution of compounded human drug products interstate, but, instead, as a threshold for triggering information gathering about pharmacy distribution of compounded drugs by the state agency and provision to the FDA. The information gathered will be considered by the FDA for the purpose of helping to inform its risk-based inspection priorities. In addition to monitoring and reporting on which 503A pharmacies within its borders distribute inordinate amounts of compounded drugs interstate, states will also be responsible for investigating complaints of adverse drug experiences and product quality issues under the MOU.

Given that FDA regulation is expected to increase for 503A pharmacies regardless of whether their state enters into the MOU, it is no surprise that pharmacies have already alleged that the FDA exceeded its authority and sued the agency.

For more information on human or animal drug compounding, please contact David M. Hoffmeister, or any group member of Wilson Sonsini's FDA Regulatory, Healthcare, and Consumer Products practice.