Federal Court Deals Blow to FDA’s Compounding MOU

Quarles & Brady LLP

Quarles & Brady LLP

On September 21, 2021, D.C. District Court Judge Christopher Cooper gave an initial victory to the seven compounding pharmacies (“the pharmacies”) challenging Food and Drug Administration’s (“FDA”) final standard Memorandum of Understanding Addressing Certain Distributions of Compounded Human Drug Products (“MOU”) by remanding the MOU to FDA to “either certify that it will not have a significant economic effect on small businesses or prepare a regulatory flexibility analysis.” The case, Wellness Pharmacy Inc. et al. v. Becerra et al. 1:20CV03082, was brought by the compounding pharmacies on October 27, 2020, after FDA published notice of the Final Standard MOU in the Federal Register. The compounding pharmacies argued that FDA: (1) violated Section 503A by not developing the MOU through regulations; (2) violated the Regulatory Flexibility Act by failing to conduct an analysis of the MOU’s impact on small pharmacies; and (3) exceeded its statutory authority by defining “distribution” in the MOU to include instances of dispensing compounded drugs pursuant to a prescription. The pharmacies had also alleged that FDA had issued the MOU without notice and comment but abandoned this argument after conceding that FDA considered over 30,000 comments.

In his ruling, Judge Cooper dismissed FDA’s claims that any harm the pharmacies may incur as a result of the MOU is speculative, and thus the pharmacies did not have standing. He instead ruled that the pharmacies had been able to establish the likelihood that some states would sign the MOU and would then “pass on its information-gathering burdens to them.” Specifically, in order to meet the MOU’s data-sharing requirements, state boards of pharmacy are likely to pass “the assessment, compilation, reporting, and error-correction obligations” on to the pharmacies (to support this argument, the pharmacies were able to point to statements by officials with their state Boards of Pharmacy indicating that compliance costs and obligations would be transferred to the individual pharmacies). Judge Cooper also agreed with the pharmacies’ contention that, due to the likelihood of some states not signing the MOU, pharmacies in those states would suffer as a result of the restrictions placed on their business imposed by Section 503A’s 5-percent limit on out-of-state dispensing. Although the 5-percent limit on distribution comes from legislation passed by Congress, it was FDA that interpreted the requirement to apply to any instance in which the “pharmacy or physician has sent (or caused to be sent) a compounded drug product out of the state in which the drug was compounded.” See Memorandum of Understanding Addressing Certain Distributions of Compounded Human Drug Products, Appendix A. Thus, the judge concluded that regardless of where the pharmacy is located, MOU state or non-MOU state, compounding pharmacies would experience economic injury.

Having ruled that the pharmacies had standing to challenge the MOU (as well as finding that the matter was ripe for review), Judge Cooper next addressed the pharmacies’ complaints. Interestingly, Judge Cooper focused his ruling solely on whether FDA violated the Regulatory Flexibility Act. FDA argued that this rule, which requires an agency issuing a final rule to either conduct an analysis of the rule’s impact on small businesses or to certify that there will be no impact for those small businesses that are subject to the regulation, did not apply to the MOU because it is an interpretative rule, not a legislative rule. Judge Cooper determined that the rule “fell on the legislative side of the line” because FDA, having “defin[ed] key statutory terms in Section 503A that have binding legal consequences, evinced its intent to speak with the force of law in the MOU.” Having found that the MOU is subject to the Regulatory Flexibility Act’s procedural requirements, Judge Cooper declined to rule on the pharmacies’ arguments that the FDA violated Section 503A by not developing the MOU through regulations and exceeded its statutory authority in the manner in which it defined “distribution”.

FDA had initially set October 27, 2021, as the date on which it would begin to enforce the statutory 5-percent limit on out of state distribution of compounded human drug products for pharmacies in states that were not signatories to the MOU. However, in response to feedback from numerous stakeholders, FDA announced on August 9, 2021, that it was extending the deadline to October 27, 2022, to provide state governments and Boards of Pharmacy additional time to evaluate the final standard MOU and modify laws and regulations as necessary. With the court having declined to address two of the key issues brought by the pharmacies in their complaint, it seems unlikely that this case will come to any sort of a final resolution before that time.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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