Key Take-Aways From FDA Guidance Document: Prohibition on Wholesaling Under Section 503B
The FDA released a new preliminary guidance regarding the Prohibition on Wholesaling under Section 503B of the Federal Food, Drug, and Cosmetic Act. The document aims to clarify that pharmacies licensed at the state level are permitted to dispense compounded drugs purchased from 503B outsourcing facilities. It provides specific examples of activities that are prohibited and those that are not. The Outsourcing Facility Association has consistently advocated for the issuance of such guidance by the FDA.
Scott Brunner from the Alliance for Pharmacy Compounding expressed appreciation for this clarification, stating, "It's a positive development that should help establish what seems to be the agency's preferred approach for addressing prolonged drug shortages. These are situations where 503Bs have both the economic incentive to cover the costs of drug production and the time to increase production capacity."
He further noted, "This guidance aligns with a point we raised with the FDA earlier this year when the agency permitted 503Bs to prepare ibuprofen suspension, addressing a shortage, and sell it to 503As for patient-specific dispensing. This practice resembled wholesaling, leading to limited adoption by 503As. With the issuance of this draft guidance, the FDA explicitly endorses the B-to-A model."
What the Guidance Says in Q and A Format:
Who can sell or transfer 503B compounded Drug Products?
According to Section 503B of the FD&C Act, a compounded drug should only be sold or transferred by the outsourcing facility that made it. However, there are exceptions. The term "sold or transferred" includes instances where another entity moves the drug, whether or not money is exchanged.
What are some exceptions to the prohibition of 503B drug wholesaling?
The FDA clarifies that certain situations, like using a common carrier for safe delivery or involving a third-party logistics provider for warehousing, may not be considered a violation.
The document specifies that the FDA doesn't typically apply this rule in cases such as moving drugs to regulatory entities, returns processors, waste disposal companies, under recall, or to/from contract testing laboratories for testing. Also, intracompany transfers during shipment to an outsourcing facility's customer are generally not considered a violation. The focus is on ensuring the integrity of the drug approval process and the drug supply chain, with exceptions made for transfers that are necessary for public health reasons.
Who Cannot Sell or Transfer 503B Compounded Drug Products?
An entity other than the facility that made it.
The FDA defines this as any entity (other than the 503B) that sells or transfers the drug, even if it doesn't have a physical location.
Examples include:
outsourcing facilities that didn't make the drug being sold
wholesale distributors
repackers
relabelers
marketing firms
website owners
operators
pharmacies (including mail order ones)
and clinics (including virtual clinics).
Does administering or dispensing a 503B compounded drug count as wholesaling?
No. Section 503B(a)(8) of the FD&C Act says that the rule against wholesaling drugs doesn't apply to administering a drug in a healthcare setting or dispensing a drug with a prescription. An outsourcing facility is within its right to directly distribute their drug to a healthcare facility (like a hospital or clinic) where the drug is given to a patient, or to a licensed pharmacy or federal facility where the drug is dispensed based on a prescription.
What are some real-life examples of wholesaling prohibition Violations?
A 503B distributes its compounded drug to a wholesale distributor that then sells or transfers it.
An outsourcing facility (A) compounds a drug and transfers the drug to outsourcing facility (B) for subsequent distribution (without obtaining a prescription) to customers. Outsourcing facilities (A) and (B) are owned by different entities and registered with FDA as separate outsourcing facilities.
A 503B distributes its compounded drug to a manufacturer (e.g., a repacker or relabeler) that sells or transfers it.
A 503B distributes its compounded drug to a repacker or relabeler (regardless of whether the repacker or relabeler actually repacks or relabels the drug) that sells or transfers the drug to another entity (e.g., a pharmacy, health clinic, or physician’s office), which then dispenses the drug pursuant to a prescription.
A third party (e.g., a marketing firm or 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 that prescribe the drug and bundling the cost of those services with the cost for obtaining the drug.
What are some situations that don’t violate the wholesaling prohibition?
Warehousing: An outsourcing facility moves 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.
Administration: A 503B distributes a drug it compounded (without obtaining a patient-specific prescription) to a health care professional who administers it in a health care setting (e.g., in a hospital or the physician’s office).
In-Office Administration: An outsourcing facility distributes its compound (without obtaining a patient-specific prescription) to a hospital or health system, health clinic, or physician’s office, and it is administered within that hospital or health system, health clinic, or physician’s office.
Office Stock for Dispensing: A 503B distributes its drug (without obtaining a patient-specific prescription) to a hospital or health system, health clinic, or physician’s office where it is used as office stock to dispense to patients pursuant to prescriptions.
Pharmacy Dispensing: An outsourcing facility distributes a drug it compounded to a state-licensed pharmacy, federal facility, or licensed physician, which subsequently dispenses the drug pursuant to a prescription.
GPOs: An outsourcing facility distributes a drug it compounded to an entity that provides healthcare services (e.g., a hospital or health system, health clinic, or physician’s office) for administration in that health care setting based on pricing agreements the outsourcing facility negotiated with a third party (e.g., group purchasing organization (GPO)) acting on behalf of the healthcare services entity. In this example, the GPO only works on behalf of hospital and health systems, health clinics, and physicians’ offices seeking multiple products produced by outsourcing facilities to facilitate business transactions by finding products based on availability and competitive pricing. The GPO does not own drugs, ship drugs, warehouse drugs, handle drugs, or hold drugs. The GPO does not sell or dispose of drugs. The GPO does not purchase, or decide to purchase, drugs. GPO members independently decide when and how much (if any) drugs to purchase from the outsourcing facility with which the GPO has an agreement.
Patient Dispensing: An outsourcing facility dispenses its compounded drugs in accordance with section 503(b)(1) of the FD&C Act to patients of a third party (e.g., a health clinic) after receiving patient-specific prescriptions for the patients from the third party and its affiliated medical providers. The third party does not receive any type of compensation and does not sell or transfer the drugs compounded by the outsourcing facility.
What Could This Mean For the 503B Industry?
Historically, since the inception of the industry, many outsourcing facilities shied away from selling to community pharmacies and from dispensing their drugs directly to patients per prescription. This new guidance (along with the new USP 797 updates and heightened regulatory scrutiny on 503A compounding pharmacies) could eventually support a transformation in the marketplace, where 503Bs become the dominant supplier of compounded drugs.
Does Your Facility Produce Quality Preparations?
If you’re ready to bring quality to the center of your compounding operations, consultants at Restore Health Consulting LLC can help you start a 503B outsourcing facility or 503A compounding pharmacy that promotes patient safety and regulatory compliance.