Included in the flurry of guidance documents recently issued by the FDA concerning human drug compounding is a long-awaited document of great importance to mail-order pharmacy compounders and entities that rely on interstate distribution of prescription compounded drugs—a Draft Memorandum of Understanding (MOU) between the FDA and each of the 50 states. As previously discussed, this MOU has been the subject of controversy since section 503A of the FFDCA was first enacted in 1997 and this controversy again took center stage following enactment of the DQSA in 2013.

The controversy arises from a key provision of Section 503A of the FFDCA that limits the amount of compounded prescriptions a pharmacy is permitted to ship across state lines. Specifically, unless the pharmacy is located in a state that has entered into an MOU with the FDA, Section 503A of the FFDCA prohibits a pharmacy from dispensing or distributing more than five percent of the pharmacy’s total prescription orders to patients outside of the state in which the pharmacy is located. This is often referred to as the “5% Rule.” More specifically, Section 503A states that drugs compounded by a traditional compounding pharmacy only qualify for exemptions from adequate directions for use, new drug application requirements/approval and cGMP requirements if, among other things, one of the following conditions is met:

• The drugs are compounded in a state that has entered into an MOU with the FDA that addresses the distribution of “inordinate amounts” of compounded drug products interstate and provides for appropriate investigation by a state agency of complaints relating to compounded drug products distributed outside such state; or
• If the drugs are compounded in a state that has not entered into an MOU, the drugs are compounded in quantities that do not exceed five percent of the total prescription drug orders dispensed or distributed by the pharmacy or physician.

As originally enacted, Section 503A required the FDA to consult with the National Association of Boards of Pharmacy (NABP) to develop a standard MOU for use by the states in lieu of 50 separate MOUs. In January 1999, the FDA, in consultation with the NABP, published a draft MOU in the Federal Register (1999 MOU) that generated over 6,000 comments. However, shortly after publication of the 1999 MOU, the constitutionality of Section 503A was called into question and the FDA never finalized the 1999 MOU.

The DQSA settled the constitutional uncertainty that had delayed finalization of the 1999 MOU, and in Draft Guidance issued pursuant to the DQSA’s modification to Section 503A, the FDA indicated that the FDA intended to publish a new draft of the MOU. Interestingly, the FDA also addressed the MOU and the 5% Rule at the Inter-Governmental Working Meeting on Pharmacy Compounding, during which Dr. Jane Axelrad, Associate Director for Policy at the FDA’s Center for Drug Evaluation and Research and a key player in compounding pharmacy regulation, prepared a presentation specifically addressing the topic and issues that had been left unsettled in 1999, such as how the FDA should define “inordinate amounts” in the MOU and whether the restrictions on interstate distribution should account for contiguous states. This meeting was with representatives from various state boards of pharmacy and the NABP. The recently released Draft MOU has provided some clarity on some of these issues while remaining silent on others.

Under the Draft MOU, a pharmacist, pharmacy or physician distributes an “inordinate amount” of compounded human drug products interstate if the number of units of compounded human drug products distributed interstate during any calendar month is equal to or greater than 30 percent or more of its total number of compounded and non-compounded drug products—up from the 20 percent ratio included in the 1999 MOU. The 30 percent amount does not include prescriptions dispensed to a patient or his agent who then carries the compounded drug across state lines. Noticeably absent here is any accommodation for the distribution of compounded human drugs among contiguous states. Additionally, a note under the definition of the term “distribution” in the appendix of the Draft MOU states that the MOU “will not alter” Section 503A requirements that a compounder obtain a prescription for an individually identified patient in order to qualify for exemptions under the FFDCA. This provision seems somewhat at odds with Section 503A provisions allowing drug compounding in limited quantities before the receipt of a valid prescription in certain circumstances.

The Draft MOU provides that a state agency will conduct an “appropriate investigation” of complaints concerning compounded drugs distributed interstate and spells out six requirements for a state to investigate complaints about compounded drugs that were distributed across state lines:

1. The “appropriate agencies” of the state will investigate complaints received relating to human drug products compounded by a pharmacist, pharmacy or physician located within the state and distributed outside the state. The Draft MOU allows for the pharmacy board or “other appropriate state agency” and the state medical licensing board or other state agency to cooperate in investigating complaints involving overlapping jurisdiction.
2. Complaints to be investigated will include reports received by the state concerning adverse drug experiences or product quality issues that, if left uncorrected, could lead to potential public health risks or safety concerns.
3. Any investigation conducted by the state must include (1) determining whether there is a public health risk or safety concern associated with the compounded product, and (2) confirming that any risk or safety concern is sufficiently kept in check so as to eliminate any ongoing risk to the public.
4. If the state’s investigation of the complaint concludes the complaint is valid, the state will take “appropriate action” to ensure that the relevant person or entity that compounded the drug at issue “determines the root cause of the problem … and undertakes sufficient corrective action” to eliminate any public health risk, including the risk of future complaints. The Draft MOU does not provide additional detail or guidance as to what constitutes “appropriate action” or “sufficient corrective action.”
5. The state will notify the FDA within 72 hours of receiving any such complaint that involves a public health risk or immediate safety concern. The notification must include the state’s initial assessment of the complaint’s validity and a description of any actions the state has taken or plans to take to address the complaint.
6. The state will maintain records of the complaint, the investigation and any response or action taken. The state must maintain records for at least three years.

The Draft MOU also requires the state to take certain actions in connection with the distribution of inordinate amounts of compounded drugs:

• The state agrees to review compounding records during inspections to determine whether the compounder is distributing inordinate amounts of compounded drugs interstate.
• The state will notify the FDA within seven days of identifying a compounder that has distributed inordinate amounts of compounded drugs interstate.
• The state “will take action” regarding any compounder that distributes an inordinate amount interstate. Such action can include a warning letter, enforcement action, suspension, revocation of a license or any other action consistent with state law. The Draft MOU also empowers the FDA to take action.

The Draft MOU mandates that when a state submits information to the FDA concerning complaints or distribution of inordinate amounts of compounded drugs, certain minimum information be included:

• The complainant’s name and contact information, in the case of a complaint;
• The name and address of the pharmacist/pharmacy/physician that is the subject of the complaint or distribution of inordinate amounts;
• A description of the complaint, or of the evidence indicating that the compounder distributed inordinate amounts, including a description of any compounded drug that is the subject of the complaint or distribution;
• The state’s initial assessment of the validity of the complaint; and
• A description and the date of any actions the state has taken to address the complaint or the distribution of inordinate amounts of compounded drugs.

The Draft MOU also provides that the state and the FDA may need to execute additional agreements or to commission certain officials before the FDA can share information that is protected from public disclosure. Such agreement or commissioning terms would govern sharing certain kinds of information:

• Confidential commercial information that would be protected from public disclosure under Exemption 4 of the Freedom of Information Act (FOIA);
• Personal privacy information that would be protected from disclosure under Exemption 6 or 7(C) of FOIA; or
• Information that is otherwise protected from public disclosure from other federal statutes and regulations.

The Draft MOU provides that the state and the FDA recognize that each retains its statutory and regulatory authority. It also specifies that it does not restrict either the state or the FDA (or any other federal agency) from taking appropriate enforcement action to ensure compliance with applicable statutes and regulations. Under the terms of the Draft MOU, it will continue until terminated by either party and the FDA can terminate if the state does not adhere to the MOU.