FDA Announces Draft Guidance on Outsourcing Facility Sales

The U.S. Food and Drug Administration (FDA) issued a draft guidance document yesterday, June 27, that describes FDA’s current thinking on the prohibition of wholesaling human drugs by a 503B outsourcing facility under the Food, Drugs, and Cosmetics Act (FDCA).

The document, titled “Prohibition on Wholesaling Under Section 503B of the Federal Food, Drug, and Cosmetic Act,” if finalized, would better define what is and isn’t considered an impermissible transfer of compounded human drugs under the FDCA.

Background

As it stands, 503B outsourcing facilities are exempt from certain FDCA requirements (e.g., drug application and approval processes, labeling, directions for use, and drug supply chain security requirements). However, to qualify for the exemption, the compounded human drug must not be “sold or transferred by an entity other than the outsourcing facility that compounded such drug.” The provision does not, however, prohibit “administration of a drug in a health care setting or dispensing a drug pursuant to a prescription executed in accordance with section 503(b)(1).”

According to the draft guidance document, “[the] statutory prohibition on wholesaling in section 503B(a)(8) of the [FDCA] helps to ensure that compounding is based on individual patients’ needs, which, in turn, reduces the overall risk of patient harm and helps to preserve the integrity of the U.S. drug approval process.”

Key Provisions

The draft guidance clarifies several key aspects of FDA’s thinking on the prohibition of wholesaling by an outsourcing facility. It makes clear FDA’s concern with “transferring” product is based on the integrity of the drug approval process and drug supply chain. Thus, this draft guidance signals FDA’s intent not to apply the transfer prohibition when the product is being transferred to common carriers, third-party logistics providers (3PLs), regulatory entities, returns processors, waste disposal companies, or contract testing labs for testing purposes, or to transfers due to a recall or intracompany transfer during shipment to an outsourcing facility’s customer.

More importantly, FDA clarified that outsourcing facilities may sell to hospitals, physician’s offices, pharmacies, and other authorized recipients who may then administer or dispense the product. FDA reasoned that the sale or transfer takes place as part of administering or dispensing the drug and therefore is included in the exception to the prohibition on wholesaling.

It is important to note that this new draft guidance only applies to human drug compounding. FDA has recently indicated that it will be providing separate guidance on veterinary compounding at 503B outsourcing facilities.

Looking Ahead

Even though FDA has indicated its thoughts here, there still may be state provisions that bar an outsourcing facility from selling a product to a pharmacy for dispensing. For example, the Nevada state legislature recently passed a bill, SB 161, allowing pharmacies to purchase product from outsourcing facilities. Had Nevada not passed this bill, this activity would have been prohibited in Nevada despite the FDA guidance discussed here.  For this reason, outsourcing facilities and pharmacies should carefully review their state provisions to ensure they can proceed.  

Quarles will be closely monitoring any developments to this FDA guidance document, the forthcoming guidance on veterinary compounding, and any other state legislative or regulatory action that may develop in response to these measures. For more information on any of these topics, please contact your local Quarles attorney, or:

• Susan Trujillo: (602) 229-5318 / susan.trujillo@quarles.com
• Ted Sullivan: (202) 372-9533 / ted.sullivan@quarles.com
• Ben Lockwood: (414) 277-5661 / ben.lockwood@quarles.com