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On June 27 the Food and Drug Administration (FDA) published&nbsp;<a href="https://urldefense.com/v3/__https:/www.fda.gov/media/169838/download__;!!FRfqb9lMRA!x4nj0F7NWQReOFzWXarZb6ipMbUIUUdL-H9rLte2dGpd9r87cBT16PiXJdtqMzJ0RpPWVsvzWCWQvBlMP6p2rQ$">Prohibition on Wholesaling Under Section 503B of the Federal Food, Drug, and Cosmetic Act; Draft Guidance for Industry</a>. In this draft guidance, the FDA provides examples of activities prohibited by the wholesaling provision and&nbsp;<strong>not</strong>&nbsp;prohibited by the wholesaling provision.

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Congress created “outsourcing facilities” in Section 503B of the Drug Quality and Security Act of 2013, which was designed to protect the safety of compounded medications after deadly contamination at the New England Compounding Center (NECC). Previously, large compounders like the NECC were not subject to federal regulation. But for more than a decade, Section 503B outsourcing facilities have been required by law to register with the FDA, undergo periodic risk-based inspections and meet the same robust manufacturing safety and quality standards as traditional prescription drug manufacturers.

Outsourcing facilities work to tailor prescription drugs to patients’ unique medical needs in a variety of ways – for example, producing a drug without an allergen that it might typically contain or making it in a different dosage or form. When a drug is listed on the FDA’s drug shortage list, Section 503B outsourcing facilities are statutorily permitted to compound from bulk drug substances, also known as active pharmaceutical ingredients or APIs. Therefore, outsourcing facilities are a&nbsp;<a href="https://aspe.hhs.gov/">tool</a>&nbsp;to address drug shortages.

Section 503B prohibits outsourcing facilities from wholesaling their products as one mechanism to preserve the integrity of the drug approval process.

One of the conditions that must be met for a drug compounded by an outsourcing facility to qualify for the exemptions in [S]ection 503B of the [Federal Food, Drug, and Cosmetic] Act is that the drug “will not be sold or transferred by an entity other than the outsourcing facility that compounded such drug.”However, this provision “does not prohibit administration of a drug in a health care setting or dispensing a drug pursuant to a prescription executed in accordance with [S]ection 503(b)(1).”

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Until today, the FDA has never clarified its interpretation of the second clause in the prohibition on wholesaling: “does not prohibit administration of a drug in a health care setting or dispensing a drug pursuant to a prescription executed in accordance with [S]ection 503(b)(1).”

As expected, the FDA confirms that an outsourcing facility may not distribute a drug it compounded to a wholesale distributor, manufacturer, repacker or relabeler that sells or otherwise transfers the compounded drug. Additionally, the FDA explains that an outsourcing facility runs afoul of the prohibition on wholesaling when a third party (e.g., a marketing firm or an operator of a website that is not a pharmacy) sells a drug compounded by an outsourcing facility, even though the third party does not take physical possession of the drug, by providing services (e.g., training, billing, advertising) to physicians who prescribe the drug and bundling the cost of those services with the cost of obtaining the drug. &nbsp;

Outsourcing facilities, however, may engage in several activities that are not prohibited by the wholesaling prohibition. For example, according to the FDA’s guidance, the following activities are not subject to the wholesale prohibition:

Move a drug it compounded to another location (e.g., a warehouse) that is part of the same outsourcing facility (i.e., at the same address or geographic location) for subsequent distribution.

Distribute a drug it compounded (without obtaining a patient-specific prescription) to a healthcare professional, hospital or health system that administers it in a healthcare setting (e.g., in a hospital or a physician’s office).

Distribute a drug it compounded (without obtaining a patient-specific prescription) to a healthcare professional, hospital or health system that dispenses that drug to a patient pursuant to a prescription.

Distribute a drug it compounded to a state-licensed pharmacy, federal facility or licensed physician that subsequently dispenses the drug pursuant to a prescription.

Distribute a drug it compounded to an entity that provides healthcare services (e.g., a hospital or health system, a health clinic or a physician’s office) for administration in that healthcare setting based on pricing agreements the outsourcing facility negotiated with a third party (e.g., a group purchasing organization acting on behalf of the healthcare services entity).

The FDA’s guidance has been anticipated by industry for years. This guidance will clarify to state regulators what are federally permissible activities. Recently, the governor of Nevada signed&nbsp;<a href="https://www.leg.state.nv.us/App/NELIS/REL/82nd2023/Bill/9870/Overview">SB 161</a>&nbsp;into law, adopting the principles laid out in the FDA’s guidance.

Outsourcing facilities, hospitals, health systems, prescribers and state-licensed pharmacies should take note of the opportunities presented in this guidance, as the supply chain for quality compounded drugs and mitigation efforts for drug shortages are being shaped by this consequential policy. FDA will accept stakeholder comment for 60 days.

FDA Clarifies Prohibition on Wholesaling Under Section 503B of the Federal Food, Drug, and Cosmetic Act