Drug Compounding Bill to Clarify FDA’s Role, Introduce New Regulatory Limits

Congress has passed a new law clarifying the relationship between the U.S. Food and Drug Administration (FDA) and pharmacy compounding facilities.  The text of the bill as introduced in the Senate is available here and was passed by voice vote without substantive changes.

In the United States, federal regulation of drug production focuses primarily on manufacturers who are required to follow current Good Manufacturing Practice (cGMP) and generally they may only produce and sell prescription drugs that have been approved by the FDA.  However, pharmacies often produce drugs in response to an individual prescription through a process called compounding.  A pharmacy may be asked to compound a drug if a patient is allergic to a common ingredient or cannot take medicine in a specific form.  For example, if a patient is prescribed a drug that is only approved in pill form but the patient is unable to swallow pills, a pharmacy may compound an aqueous version of the drug even though that version is not approved.  FDA has long tolerated the practice of compounding for individual patients, even as it maintains that it has jurisdiction over compounded drugs.

Recently, larger compounding facilities have emerged that conduct a broad trade in compounded pharmaceuticals by shipping compounded drugs across the country.  In addition, some facilities compound drugs in bulk for use in hospitals, which have frequent requests for modifications from approved drugs.  The arrival of these larger compounding facilities has raised uncertainty about FDA’s regulatory authority.  In 2011, the New England Compounding Center, a large compounding facility, shipped tainted lots of compounded steroid injections across the country, leading to sixty four deaths and heightening the concern that compounding facilities had escaped proper regulation.   In addition, some manufacturers fear that rogue compounding facilities may be undercutting manufacturers that are regulated by cGMP and inspection regimes.  Congress is preparing to take action to clarify FDA’s role and the regulatory requirements for compounding facilities.

FDA’s Growing Regulation of Compounding Pharmacies

 Pharmacies have compounded drugs for individual patients since long before the advent of the FDA, but the passage of the Food Drug & Cosmetic Act (FDCA) of 1938 granted no specific exemption for compounded drugs.[1]  Minor protections for pharmacies were added to the FDCA over the course of the twentieth century,[2] but pharmacies were largely permitted to compound drugs because FDA voluntarily declined to enforce the FDCA against pharmacies.  Until the 1990s, FDA generally left regulation of compounding pharmacies to the states.

When FDA took the position in 1992 that only compounding in response to an individual prescription was lawful, Congress responded by adding specific protections for compounding pharmacies to the FDCA in the FDA Modernization Act of 1997 (FDAMA).  The provisions protecting compounding, found in Section 503A of the FDCA, exempted drugs compounded by a pharmacy from FDA premarket approval, cGMP requirements, and certain federal labeling requirements, but only if the drug is “compounded for an identified individual patient.”[3]

Section 503A also forbade any compounding pharmacy from advertising that it compounded “any particular drug or class or type of drug.”  This advertising prohibition was overruled as an unconstitutional infringement on commercial free speech by the U.S. Supreme Court.[4]  The appellate court had found that the advertising prohibition was not severable from the rest of Section 503A,[5] and the Supreme Court failed to address the issue.  FDA interpreted the ruling as invalidating the entirety of Section 503A and therefore issued guidance stating that it would resume enforcement of the FDCA against compounding pharmacies.  Furthermore, FDA stated that it would exempt small pharmacies compounding drugs for individual patients only in its sole discretion.  When a federal appellate court in Texas disagreed with FDA’s interpretation and held that the remainder of Section 503A remained in place, FDA took the unusual position that Section 503A’s provisions protecting compounding pharmacies were effective only in the states where the appellate court had jurisdiction (Louisiana, Mississippi, and Texas) and not in the rest of the country.

The legal landscape left broad confusion over the legality of pharmacy compounding.  Even federal courts could not agree on whether Section 503A’s protections for compounding pharmacies remained in place. Furthermore, even if Section 503A was still valid, it only protected pharmacies that compounded for individual patients.  The provision did nothing to protect outsourcing compounding facilities that made batches of drugs in bulk for hospitals.  Nor did it effectively distinguish between facilities that were genuinely meeting the needs of patients that required deviations from approved drugs and facilities that were exploiting the protections as a loophole to mass produce approved drugs without complying with manufacturing, premarket approval, and labeling regulations.

Congress felt new urgency to resolve the state of the law after the New England Compounding Center distributed lots of injectable steroids tainted with fungi causing meningitis in October 2012.  The tainted injectables caused the death of sixty four people.  In response, Congress began working on compromise legislation that would clarify FDA’s authority over compounding.

A New Bill to Clarify and Limit FDA’s Role

After months of strenuous negotiations, Congress announced bipartisan legislation on September 25 to address compounding facilities.  The bill, titled the Drug Quality and Security Act, passed the House of Representatives one day after its introduction.  Following the October 1 government shutdown, the Senate passed the Act without substantive amendment on November 18.

The Act establishes the validity of the pre-existing Section 503A, protecting pharmacies that compound for individual patients in response to a valid prescription.  By removing the offending prohibition against advertising, the bill reaffirms the remaining provisions and eliminates the confusion of the split among federal courts.  The bill also introduces a severability clause for both Section 503A and the proposed new section 503B, meaning that if any part of the law is later invalidated by a court, the rest of the law will stand.  Essentially, these clauses prevent a repeat of the confusion following the Supreme Court’s 2002 ruling by stating that each provision is independent of the others and will remain in effect even if another provision is found unconstitutional.

The bill also expands the exemptions to cover compounding facilities that elect to register as “outsourcing facilities.”  The choice to register is entirely voluntary, but those facilities that register will be exempt from some labeling, premarket approval, and tracking regulations.  Those facilities that do not register remain subject to FDA’s full authority under the FDCA and could potentially be required to comply with labeling restrictions and premarket approval under the New Drug Application (NDA) or Abbreviated New Drug Application schemes if they exceed the limitations in Section 503A for pharmacies that compound for identified individual patients.

Under the proposed new Section 503B, an outsourcing facility “is not required to be a licensed pharmacy” and is not required to “obtain prescriptions for identified individual patients.”  The new language thus expands exemptions to facilities that compound frequently used drugs in large batches for hospitals.

However, it is important to note that the exemptions for outsourcing pharmacies in proposed Section 503B are more limited than the exemptions for traditional compounding pharmacies in Section 503A.  Both facilities would be exempt from the new drug application process, and both facilities would be exempt from providing “adequate directions for use” in labeling.  Both outsourcing facilities and pharmacies compounding for individuals would also be exempt from new tracking requirements for manufacturers, wholesalers, repackagers, and dispensers that are introduced elsewhere in the same bill.  However, outsourcing facilities would still be required to follow cGMP, while pharmacies compounding for individuals would not.  In addition, outsourcing facilities would be subject to broader FDA inspections than pharmacies filling individual prescriptions.

In addition, facilities may only register as outsourcing facilities if they comply with eleven requirements.  These eleven requirements are designed to ensure that the facilities are not manufacturing approved drugs or their equivalents and are not compromising the safety of patients.  The eleven proposed requirements are briefly explained below:

1. Essentially a Copy – The compounded drug cannot be “essentially a copy of one or more approved drugs,” whether prescription or Over-the-Counter (OTC), or essentially a copy of an OTC drug that is generally regarded as safe because it is compliant with an OTC monograph, unless the compounded drug is identical to a drug listed as being in shortage.[6]  The prohibition extends to a drug made from a bulk drug substance that is also a component in an approved drug or in an OTC drug compliant with a monograph, unless it meets an exception for an individual patient.  The prohibition on copies also extends to drugs that incorporate the active ingredient of an approved drug or OTC drug into a compounded drug, whether individually or in combination with other active ingredients.
2. Bulk Drug Substance – The facility must not compound from a bulk drug substance (that is, a substance that becomes an active ingredient or finished dosage form) unless FDA identifies the bulk drug substance, on a list published in the Federal Register after public notice and comment, as one for which there is a clinical need, or the drug made from the substance is listed as being in shortage.[7]
3. Ingredient Standards – All ingredients must comply with the standards of the US Pharmacopeia or National Formulary monograph, or other compendium recognized by FDA.[8]
4. Not Withdrawn – The compounded drug cannot have ever been withdrawn from the market because it was found unsafe or not effective.[9]
5. Demonstrable Difficulties – The facility must not produce drugs that FDA has identified as presenting “demonstrable difficulties for compounding.”  FDA will publish a list of such drugs, after a period of public notice and comment, which it considers to be unsafe unless produced in a fully regulated facility.  FDA must develop the list of drugs presenting demonstrable difficulties in coordination with an advisory committee made up of pharmacists, physicians, representatives from the National Association of Boards of Pharmacy, and patient advocates.  FDA will also be required to update the list at least once every four years.[10]
6. Assuring Safe Use – If the facility compounds from a drug or bulk substance subject to Risk Evaluation and Mitigation Strategies (REMS), then the facility must follow the same REMS for the compounded drug.  REMS require some post-manufacturing action to ensure patient safety.  Often these are the inclusion of a specific medication guide or communication plan to ensure safe use.[11]  A full list of REMS required by FDA is available here.
7. Wholesale Prohibition – Any drugs compounded by the facility cannot be sold or transferred by any other entity.  However, another entity may administer the drug to a patient or dispense the drug pursuant to a prescription.  This provision acts as a prohibition on outsourcing facilities acting as wholesalers of drugs.[12]
8. Registration and Reporting – The facility must register annually with FDA and twice  year must submit reports containing specified information on drugs compounded during the prior six-month period.[13]
9. Fees – The facility must pay an annual registration fee.  The base fee is $15,000 per year, and it is increased each year for inflation.  Businesses with global annual sales less than $1 million pay only 1/3 of the fee, but all other facilities have their fee increased by an adjustment factor to make up the difference.  In addition, a facility must pay a $15,000 fee, adjusted for inflation, each time it requires reinspection after failing an FDA inspection.  If a facility fails to pay any of these fees on time, FDA will treat all drugs compounded in the facility as misbranded.[14]
10. Labeling – The label of any compounded drug must clearly state that it is a compounded drug, identify the outsourcing facility that produced the drug, identify the lot and batch number, and provide necessary directions and safety information.[15]
11. Compliance for Every Drug – The facility must be in compliance with these requirements for all drugs compounded at the facility.  If the facility fails to comply with these requirements for any drug at the facility, all drugs produced at the facility are deemed misbranded and are subject to penalties by FDA.[16]

The bill grants FDA the authority to inspect outsourcing facilities to ensure compliance with these requirements.  The schedule and frequency of inspections will be set according to an assessment of the safety risks of each facility, based on factors listed in the bill.[17]

The bill’s reporting provisions for facilities that choose to register as outsourcing facilities require them to submit to FDA a list of drugs compounded in the facility every six months, including:

1. the active ingredient,
2. the source of such active ingredient,
3. the National Drug Code number of the source drug or bulk active ingredient, if available,
4. the strength of the active ingredient per unit, the dosage form and route of administration,
5. the package description,
6. the number of individual units produced, and
7. the National Drug Code number of the final product, if assigned.[18]

These reports are exempt from inspection, unless FDA finds that confidentiality would be inconsistent with the protection of the public health.  In addition to the semi-annual reporting requirement, the bill requires outsourcing facilities to submit adverse event reports to FDA when a serious, unexpected adverse event occurs from the use of a drug compounded at the outsourcing facility.  The content and format requirements for those adverse event reports are set forth at 21 C.F.R. 310.305, but FDA may amend those requirements through guidance.

 FDA Partnering with State Boards of Pharmacy

The bill also requires FDA to increase its partnership with state boards of pharmacy.  If enacted, the bill will require the Secretary to receive notices from state boards of pharmacy when they take action against a pharmacy for violation of state pharmacy regulations.  FDA will notify state boards of pharmacy when it determines that a compounding facility has violated the FDCA or when it receives a report of state action.

Implications for Industry

If passed, the bill would legitimize outsourcing facility operations by giving their operations color of law and by bringing them under FDA’s regulatory framework.  Outsourcing facilities would no longer be subject to the criticism that they were outside the bounds of the FDCA.  Once outsourcing facilities no longer operate under an uncertain regulatory environment, they have the potential to grow very large.  The bill imposes no geographic limit on the distribution of drug products compounded in outsourcing facilities.  Additionally, outsourcing facilities are permitted to supply to multiple clients, meaning a single outsourcing facility could potentially supply clients all over the country.  However, outsourcing facilities are required to be located in one geographic location or address.

Despite the broad latitude for distribution, outsourcing facilities are not likely to replace drug manufacturers.  Outsourcing facilities are prohibited from compounding any drug that is “essentially a copy” of an approved drug, and they are prevented from making drugs from the active ingredient of an approved drug whether alone or in combination with other active ingredients unless the drug is for an identified individual patient.  Therefore, outsourcing facilities will be unable to engage in large scale copying or minimal modification of approved drugs.  In addition, outsourcing facilities can only compound from bulk drug substance that has been approved by FDA, so a developer may not use an outsourcing facility to produce a new molecular entity as an end-run around the new drug application (NDA) process.

One remaining area of regulatory uncertainty concerns FDA’s inspection and enforcement authority over the laboratories that independently certify the safety of compounded drugs.  FDA has recently cited several independent testing labs for improper safety, sterility, or testing mechanisms, but its authority to conduct these inspections and issue sanctions remains ambiguous.[19]  No provision in the currently proposed bill addresses FDA’s authority over these independent certification laboratories.  Hogan Lovells will continue to monitor developments in this area of regulation for impacts on the compounding and pharmaceutical industries.

The author thanks James Allred for his assistance