The FDA Announces Delays in DSCSA Compliance Requirements and Issues Final Version of Compounding Drug Memorandum of Understanding

In October, the Food and Drug Administration (FDA) released guidance documents affecting wholesale distributors, state boards of pharmacy and compounding pharmacies. First, FDA issued a Compliance Policy (the 2020 Compliance Policy) delaying the enforcement of certain requirements of the Drug Supply Chain Security Act (the DSCSA) for three more years. See 85 Fed. Reg. 67550. Second, FDA published the final version of the long-awaited memorandum of understanding (MOU), requiring state boards of pharmacies that sign the MOU to conduct investigations and perform oversight of their compounding pharmacies. See 85 Fed. Reg. 68074. The 2020 Compliance Policy affords industry partners more time to attain compliance with certain verification requirements, which will be welcomed by the industry. On the other hand, the MOU imposes stringent requirements that are already receiving pushback in federal court. This alert details the two guidance documents, highlighting how industry partners should respond to the announcements.

FDA Extends Deadline to Comply with DSCSA Requirements

The DSCSA added Section 582 to the Food Drug and Cosmetic Act (FDCA), establishing product tracing, product identifier, authorized trading partner, and verification requirements for manufacturers, wholesale distributors, repackagers, and dispensers to facilitate the tracing of a product through the pharmaceutical distribution supply chain. Failure to comply with these requirements would permit FDA to take enforcement actions authorized by the FDCA.

In a 2019 Compliance Policy statement (the 2019 Compliance Policy) FDA announced that it would delay enforcement of certain requirements until November 27, 2020, recognizing that a delay was necessary to ensure that the pharmaceutical distribution supply chain was not disrupted. As this deadline approached, FDA became aware that many affected entities would not be able to comply with certain requirements and issued the 2020 Compliance Policy to delay enforcement for an additional three years until November 27, 2023. The 2020 Compliance Policy delays enforcement of a few specific provisions of Section 582:

1. Verification of Saleable Return Product. Section 582(c)(4)(D) requires wholesale distributors to have systems in place that will enable them to verify the product identifier, including the standardized numerical identifier, on each sealed homogeneous case of saleable returned product, or, if such product is not in a sealed homogeneous case, on each package of saleable returned product. Without this verification, a saleable returned product may not be further distributed. FDA will also not take action against a wholesaler that provides transaction statements to purchasers of such product even though the wholesaler does not have systems and processes in place to comply with saleable return verification requirements.

1. Verification of Product Identifiers When Investigating Suspect or Illegitimate Product. Section 582(d)(4)(A)(ii)(II) requires dispensers to verify “the product identifier, including the standardized numerical identifier, of at least 3 packages or 10% of such suspect product, whichever is greater, or all packages, if there are fewer than three, corresponds with the product identifier for such product [in the dispenser’s possession or control].” Section 582(d)(4)(B)(iii) requires dispensers to verify product identifiers of potential illegitimate product that is the subject of a notification from FDA or a trading partner.

These enforcement delays apply only to these provisions and do not apply to Section 582 as a whole. Note that the requirements for dispensers to only engage in transactions involving products with product identifiers (unless grandfathered) and to verify lot number of suspect products starting on November 27, 2020 were not included in this enforcement delay and will become effective in a few weeks. Because of this, wholesalers and distributors should not slow down their efforts to comply. Affected entities should continue to work diligently to draft policies and procedures and to develop verification systems that ensure compliance with current, soon to be active, and future requirements. Given the length of this delay, it is unlikely FDA would be willing to extend compliance any further.

MOU Addressing Distributions of Compounded Human Drug Products

On October 27, 2020, FDA issued the final version of the long-discussed MOU (found at 85 Fed. Reg. 68074) detailing the responsibilities of a state board of pharmacy (the state BOP or collectively, the state BOPs) that chooses to sign the MOU. Note that this MOU only applies to state BOP oversight of pharmacies and compounding regulated under section 503A of the FDCA, and not 503B outsourcing facilities or veterinary compounding.

Entering into the MOU places significant responsibilities on state BOPs. By signing the MOU, the state BOPs agree to:

• Investigate complaints of adverse drug experiences and product quality issues relating to compounded product distributed outside the state;
• Take action to ensure that the relevant pharmacy investigates the root cause of a substantiated complaint;
• Maintain and retain for three years records of the complaints it receives regarding adverse drug experiences or product quality issues, and any response to or action taken as a result of a complaint;
• Notify FDA as soon as possible (within 5 days) after receiving a complaint involving a serious adverse drug experience or serious product quality issue relating to a human drug product compounded at a pharmacy and distributed outside the state;
• Share with FDA, as permitted by state law, the results of the investigation of a complaint after the state BOP that it concludes involved a serious adverse drug experience or serious product quality issue; and
• Notify the appropriate regulator of physicians within the state of complaints of which the state BOP receives that involve an adverse drug experience or product quality issue relating to human drug products compounded by a physician and distributed outside the state.

So why would a state BOP do this? If a state BOP doesn't sign the MOU, FDA will cap the amount a pharmacy in that state can compound and send out of state at 5% of the pharmacy's total dispensed orders of compounded product, calculated annually. If a state BOP enters into the MOU, distribution of compounded product by pharmacies increases to 50% of the orders sent out of the facility (an increase from the 30% proposed by the 2015 draft). FDA notes in the preamble that the 50% threshold "does not function as a limit on the distribution of compounded human drug products interstate, but, instead, is a threshold for triggering information gathering" by FDA and state BOPs for the "purpose of helping to inform its risk-based inspection priorities." Pharmacies identified as exceeding the 50% threshold would likely be subject to increased FDA scrutiny.

The MOU imposes additional responsibilities on state BOPs related to pharmacies that exceed the percentage above, or, distribute “an inordinate amount of compounded human products interstate.” These additional responsibilities include:

• Annually identifying pharmacies that distribute inordinate amounts;
• Identifying, for such pharmacies, the total number of prescription orders for sterile compound human drug products distributed interstate, the states where the pharmacy is licensed, the states where such products were distributed, and whether the most recent inspection compounded human drugs were distributed without valid prescription orders;
• Identifying and providing certain information to FDA when such a pharmacy is identified; and
• Notifying the appropriate state agency if the state BOP becomes aware of a physician who is distributing any amount of compounded human drug products interstate.

State BOPs have until October 13, 2021, to decide whether to sign the MOU. Because the composition of state BOPs is constantly changing nationwide, it is unclear whether state BOPs supporting prior versions will now agree to sign the MOU as the Boards that discussed the prior versions of the MOU have likely had turnover in Board members. State BOPs may also be required to draft bills to modify laws or promulgate regulations to empower them to sign the MOU and implement the requirements above which could cause delays in this process, and perhaps require FDA to extend this deadline. State BOPs may also be loath to agree given the number of unfunded regulatory requirements imposed by the MOU (e.g., creating a tracking system, inspecting certain pharmacies, and reporting to FDA). The National Association of Boards of Pharmacy’s (NABP) involvement in the MOU’s development may lead to more buy-in from state BOPs, but, again, this is unclear. The vast difference between the 50% threshold and the 5% threshold may push the state BOPs to agree even with reservations or despite pushback by state pharmacies that likely do not want any limitations.

The NABP’s involvement in the MOU’s development certainly did not stop challenges and objections to the proposed version. During the comment period for the current draft MOU, 154 compounding pharmacies from across the country disagreed with the MOU for three reasons:

1. FDA lacked the authority to define “dispensing” to include patient-specific dispensing;
2. FDA failed to provide guidance as to what will happen to compounding pharmacies once they are deemed to have distributed inordinate amounts of compounded medication interstate; and,
3. The MOU’s requirement that state BOPs investigate complaints, information gather, and conduct oversight activities violates the Tenth Amendment and the anti-commandeering doctrine.

Almost immediately following its issuance, pharmacies challenged the MOU in federal court, arguing FDA (1) did not properly implement FDCA § 503A; (2) issued a substantive rule (i.e., the MOU) without notice and comment; and (3) lacked the statutory authority to define “distribution of compounded human drug products interstate” and “inordinate amounts” to include interstate dispensing of compounded human drug products. Wellness Pharmacy, Inc. v. Azar, No. 20-03082 (D. D.C. filed Oct. 27, 2020). The pharmacies asked the court to set aside the final rule in its entirety or to set aside the portions of the MOU where the FDA defines “distribution of compounded human drug products interstate” and “inordinate amounts” to include interstate dispensing of compounded human drug products.

Quarles & Brady LLP will be watching these cases and state adoption of the MOUs and will continue to provide updates. If you have any questions regarding these announcements, please contact your Quarles & Brady attorney or:

• Susan B. Trujillo: (602) 229-5318 / susan.trujillo@quarles.com
• Theodore M. Sullivan: (202) 372-9533 / theodore.sullivan@quarles.com