FDA oversight of drug manufacturing and compounding: A comparison

Introduction

As the popularity of semaglutide, tirzepatide, and other GLP-1 drugs for weight loss has soared, it is casting a spotlight on the differences in regulatory oversight between commercially manufactured, FDA-approved products and compounded versions of those same products. In compounding, a pharmacist or doctor combines, mixes, or alters drug ingredients to create a medication tailored to the needs of an individual patient.

Compounding is an old practice, predating modern drug manufacturing, and typically is a niche in the production of medicine. But its role has widened, in part because strains on manufacturing capacity for GLP-1 drugs have led to federally recognized shortages that permit compounding of these drugs to flourish. Recent estimates suggest that millions of patients are using compounded GLP-1s. 

To protect consumers against drugs that are unsafe or do not work, FDA evaluates the safety and efficacy of new drug products and ensures that generic versions of these drugs are therapeutically equivalent, with the same safety and efficacy as the brands they mimic. Similarly, when manufacturers make modifications to FDA-approved drugs, they have to demonstrate to FDA that the new products are safe and effective. The FDA is also responsible for ensuring that drugs are manufactured to maintain their quality, safety, and efficacy throughout the product’s lifespan. To do this, the agency carries out pre-approval assessments, post-market safety assessments, and post-approval inspections. Compounded drugs, though legal, fall outside that federal consumer protection framework. 

In this article, we describe the differences in regulatory authorities and oversight for FDA-approved and compounded drugs, including the types of pharmacies that compound drugs and under what circumstances. We also describe the many ways that FDA oversight of approved drug manufacturers does not apply to compounders. We focus on FDA authorities, not enforcement, but we do identify where FDA has indicated using enforcement discretion, namely that it will not take enforcement action against companies for violations of specific legal requirements.

Brief history of pharmacy compounding regulations

Traditional compounding predates commercial drug manufacturing. Such compounding was the cornerstone of pharmacy for centuries—think of the pharmacist combining substances using a mortar and pestle.

Although FDA has jurisdiction over all prescription drugs sold in the United States, for decades, FDA considered compounding within the practice of pharmacy and typically deferred to the states for oversight because states license and regulate pharmacies. But, starting in the 1990s, FDA grew concerned that pharmacy compounding began to exceed the scope of traditional compounding that was focused on creating customized formulations for patients who cannot be treated with an FDA-approved medication. For example, a pharmacist may compound a dye-free form for a patient who has an allergy to a certain dye, or an oral liquid form for patients who have difficulty swallowing the FDA-approved tablet or capsule. In some cases, compounding began to resemble large-scale commercial manufacturing, with the distribution of thousands of doses of exact or near-exact copies of FDA-approved products. Several contamination outbreaks from such compounding operations resulted in patient harm, including death.

In response to this blurring of lines between traditional compounding and commercial manufacturing, Congress passed a law in 1997 that established boundaries for compounding by community and hospital pharmacies and by physician offices. The portion of the law governing FDA’s oversight of compounding by pharmacies is commonly referred to as “503A” after the numerical section of the Federal Food, Drug & Cosmetic Act (FD&C Act) in which the provisions are codified. Section 503A exempted traditional pharmacy compounders from certain provisions of the FD&C Act that apply to manufacturers of FDA-approved drugs. The conditions laid out in the statute concern which products can and cannot be compounded, who may compound, and the methods required for safely compounding, among other restrictions (see Table 1 below for a list of the key conditions). All the conditions must be met for the product to be legally sold.

However, the implementation of the 1997 law was stalled after a provision related to advertising and promoting compounded drugs was challenged and, in 2002, held unconstitutional under the First Amendment by the Supreme Court. Continued legal challenges over whether the unconstitutional provision could be separated from the rest of 503A or whether all of 503A was invalid appeared to have had a chilling effect on FDA’s overall enforcement of the law.

In the decade that followed, reliance on and demand for compounded medications grew, especially in the hospital sector, where there was a need for presentations that were not commercially available, such as medications in prefilled syringes. Not only did the volume of compounding increase but there was also a shift in the setting where it occurred. Under the 1997 law, compounding had to adhere to standards set by the U.S. Pharmacopeia (USP), an independent, nonprofit organization that sets public standards for medicines, dietary supplements, and foods. In 2004, USP published enforceable compounding standards for both nonsterile (USP Chapter 795) and sterile (USP Chapter 797) compounded medication. It was difficult for some in-house hospital pharmacies to comply with USP 797, so many hospitals began outsourcing the compounding of sterile products to external providers.

The need for increased federal oversight of large-scale compounding became more urgent in 2012 after 753 patients in 20 states were diagnosed with fungal meningitis from injections of what was supposed to be a sterile, preservative-free corticosteroid. The products that caused the outbreak were compounded and distributed by the New England Compounding Center (NECC) in conditions that did not ensure sterility and were then shipped in mass quantities across state lines, putting thousands of patients at risk. Ultimately, over 100 patients died as a result of receiving the contaminated product, and the owner, supervisory pharmacist, and other employees were convicted of criminal activity and sentenced to prison.

In the wake of the NECC outbreak, FDA officials testified before Congress that more oversight was needed for both traditional pharmacy compounding and a new category of “non-traditional” compounding facilities that engage in the following high-risk practices:

• compounding sterile drugs,
• compounding large quantities of drugs,
• compounding drugs in advance of receiving prescriptions, and
• shipping drugs across state lines.

These activities are considered high-risk because they could expose many patients to potential drug quality problems. Sterile injectables are of particular concern because there is a higher risk of microbial contamination and adverse events if proper precautions are not taken when compounding sterile products. Bacterial, fungal, and viral contaminants also grow over time, so sterility assurance methods used in production matter, leading to significantly shorter “beyond use dates” for compounded sterile products to prevent growth of these potential contaminants while they are on shelves awaiting administration.

In response to the NECC outbreak, Congress passed the Compounding Quality Act (CQA) of 2013, which removed the offending advertising and promotion provisions of section 503A related to traditional pharmacy compounding and added a new section, 503B, creating a new category of compounders called outsourcing facilities.

Section 503B operates similarly to section 503A in that it lists certain conditions which, if met, permit facilities that register with FDA as outsourcing facilities to produce drugs that are exempt from certain provisions of the FD&C Act.

FDA oversight of compounding and commercial manufacturing of FDA-approved drugs

Table 1 describes the key differences in FDA’s authorities and FDA’s interpretation thereof as they relate to manufacturers of FDA-approved drugs, traditional compounding by community and hospital pharmacies (section 503A), and outsourcing facilities (section 503B). We follow the table with a discussion of some of the critical differences between the three entities.

What products can be compounded

As we discussed at the beginning of this article, FDA is tasked with overseeing the safety and efficacy of prescription drug products. This requires a commercial drug manufacturer to obtain FDA approval of the product before it markets the drug by demonstrating the drug is safe and effective for its intended use. Prior to approval, manufacturers making generic versions of approved brands must demonstrate that the generic versions are bioequivalent to the brand. Manufacturers modifying existing drugs must establish the safety and efficacy of the changes relative to the FDA-approved drug they are modifying. FDA establishes through inspections that the methods used in, and the facilities and controls used for, the manufacture, processing, packing, or holding of the drug are adequate to ensure and preserve its identity, strength, quality, and purity.

In contrast, compounded drugs are exempt from the premarket review process, provided certain conditions in section 503A or 503B are met. As Table 1 shows, several of those conditions relate to restrictions on when compounding may take place and for what types of products.

One such restriction is that under section 503A, a pharmacist/physician may only compound a product pursuant to a patient-specific prescription that indicates that a compounded product is “clinically necessary.” In particular, the prescriber must include a notation on the prescription that the compounded product is needed as compared to the approved version (e.g., compound without dye, patient allergy). In general, the pharmacist/physician may compound only after receiving that patient-specific prescription or in anticipation of receiving a prescription for an individual patient based on a history of the pharmacist compounding the drug and in the context of an established relationship between the compounder and that patient or the prescriber. Anticipatory compounding is supposed to be done in limited quantities, which FDA has defined generally to mean a 30-day supply of the drug.

In addition, sections 503A and 503B restrict the types of products that may be compounded.

First, both pharmacies (503A) and outsourcing facilities (503B) are prohibited from compounding products that appear on two lists: the “difficult to compound” list and the “withdrawn or removed” list. The “difficult to compound” list includes products that, as the name suggests, are difficult to compound as finished drugs (e.g., modified or extended-release drugs) and, therefore, cannot be safely made by a pharmacy or outsourcing facility.

Second, both pharmacies and outsourcing facilities are generally prohibited from compounding “essentially a copy” of commercially available or FDA-approved drugs. The rationale is that compounders should not be able to bypass the FDA approval process by making copies of approved products.

FDA has issued guidance further describing “essentially a copy” under both 503A and 503B. Under 503B, a drug is not essentially a copy if there is a change that produces a “clinical difference” for the patient, again, made by the provider and documented on the prescription. Under 503A, a drug is not essentially a copy if there is a change made by the provider and documented on the prescription that would make a “significant difference” for the particular patient (e.g., the compounded drug does not have dye because the patient is allergic, but is otherwise identical to the commercially available drug). 503A pharmacies may also compound “essentially a copy” of a commercially available drug if it is not done “regularly or in inordinate amounts.” FDA has interpreted this term to allow compounding copies on an emergency or ad-hoc basis, generally no more than four prescriptions per calendar month.

There is one critical exception to the prohibition on compounding essentially a copy—if the drug appears on FDA’s drug shortage list. For 503Bs, the statute explicitly allows compounding copies of an approved drug if the approved drug is listed on FDA’s drug shortage list. For drugs in shortage, FDA policy does not allow 503B outsourcing facilities to fill new orders when the drug shortage status is listed as “resolved” on the FDA drug shortage list, but they can continue to fill existing orders for up to 60 days after the shortage is listed as resolved. For 503A, the statute prohibits compounding essentially a copy of a “commercially available drug.” FDA has stated in guidance that a drug is not “commercially available” if it is no longer on the market or if the drug appears on FDA’s drug shortage list.

For FDA-approved products, whether a manufacturer can make a drug in shortage depends on whether it has approval to make the drug and its CGMP compliance. FDA’s Drug Shortage Staff encourage existing, CGMP-compliant manufacturers to expand production, although FDA cannot compel them to do so. In some cases, approved manufacturers may have CGMP problems, and FDA may use regulatory discretion to allow the product to ship, often after additional testing or with additional precautions that address the potential problem. If approved manufacturers are unable to fulfill demand, FDA may expedite review of applications that are pending approval. Further, FDA may also allow the distribution of an imported, unapproved version of the drug.

Distribution of FDA-approved and compounded products

Supply chains between those making drug products and the patients that use them differ substantially between approved and compounded products. Although manufacturers of FDA-approved drugs can sell directly to patients, approved products are most often sold through wholesalers to pharmacies and hospitals, which in turn provide the products to patients. 503B compounders have relatively limited supply chains—they sell directly to hospitals and physician offices because the law prohibits wholesaling of 503B products. 503A pharmacy supply chains are the shortest—the product is made for and provided directly to a patient within a relatively quick time frame. However, FDA issued a draft guidance that would allow for lengthening of the 503A supply chains by allowing 503B outsourcing facilities to sell products to 503A pharmacies.

Regardless of the length of the supply chain, it can easily cross state lines. There is no interstate commerce limit on distribution of FDA-approved products or products compounded by 503B registered outsourcing facilities, provided those facilities comply with relevant FDA requirements. However, for 503A compounding, the law limits interstate distribution to 5% of “total prescription orders dispensed or distributed by such a pharmacy” unless the State signed a memorandum of understanding (MOU) with the FDA. This MOU would address interstate distribution of “inordinate amounts” of compounded drugs and the process by which FDA or the State will investigate product complaints. Such an MOU would also define what constitutes “inordinate amounts” of shipping interstate.

A proposed standardized MOU FDA issued in October 2020 has been the subject of litigation. As a result, the proposed standardized MOU was withdrawn, and no individual MOUs between FDA and states have been signed. FDA is currently not enforcing the 5% limit as it prepares a regulation related to the MOU required by a federal court ruling.

Production from bulk ingredients

Compounders may compound using an FDA-approved drug as a starting point or make drugs starting from the active and inactive ingredients. The primary ingredient that produces the therapeutic effect is the active pharmaceutical ingredient (API), also known as “bulk drug” in compounding. As seen in Table 1, there are multiple routes to compound using bulk substance, but most relevant is that 503A compounding may use bulk drug substances that are components of FDA-approved drug products.

In contrast, 503B compounding may only use bulk drug for drug products that appear on FDA’s drug shortages list at the time of compounding, distribution, and dispensing, or that are on FDA’s list of bulk drug substances for which there is a clinical need. Currently, the 503B bulks list includes only five bulk products, but FDA is continuing to evaluate and add products on a rolling basis. FDA has stated that it will use enforcement discretion and allow compounding with certain bulk drugs while it is evaluating the appropriateness of proposed bulks to be added to the list.

To ensure the quality of the bulk drug, sections 503A and 503B require the bulk drug manufacturer to have a valid certificate of analysis (COA), which contains specific test results about the substance, and be manufactured in a facility that is registered with FDA. Registration means the manufacturer provided FDA with basic information about the facility where the bulk substance is made. That facility is subject to inspection by FDA, but it does not mean that FDA has inspected production of that substance or verified the COA.

Manufacturing standards

Manufacturers of approved drugs (brands and generics) must follow Current Good Manufacturing Practices (CGMP)—a set of global regulatory standards for ensuring the identity, strength, quality, and purity of drugs. The requirements cover a broad range of controls over how, where, and in what way drugs are manufactured and meet their quality standards. This includes establishing strong quality management systems, ensuring quality raw materials, having written operating procedures, identifying and investigating product quality problems, and maintaining reliable testing laboratories.

Products compounded under 503B must also be produced in conformance with CGMP requirements to qualify for the exemption from premarket approval and labeling with adequate directions for use. FDA is in the process of developing specific CGMP requirements for 503B outsourcing facilities. FDA has issued draft guidance describing certain differences from the required CGMPs for manufacturers for 503B outsourcing facilities to follow until the 503B specific requirements are set and when they will not take action for failure to comply with the current full CGMP requirements. For example, when sterile compounding has lower risks, such as smaller volumes produced or automated processes are used, certain requirements may not apply.

Products compounded under 503A are exempt from CGMPs if they comply with all the conditions under 503A. One of the conditions is that compounders may not compound under “insanitary conditions” and should follow USP compounding standards established in USP chapters 797 and 795. The USP standards were developed specifically for pharmacy compounding and account for the differences in the scope of production. The USP standards include specifications for beyond-use dates, which are shorter than expiration dates for FDA-approved products and beyond-use dates for 503B compounded products because they are produced in smaller amounts and not under CGMPs. State Boards of Pharmacy have been incorporating USP 797 standards into their regulations as the standard for compliance for pharmacy licensees.

Inspections of marketed products

There are three types of inspections that FDA performs for approved drugs: 1) application-based, 2) surveillance, and 3) for-cause. Not all of them, however, are used for 503A and 503B facilities.

Application-based inspections are performed when FDA is evaluating an application for a new drug or generic drug application. During the inspection, FDA investigators assess the processes and capability of the facility to consistently produce the product and the accuracy and completeness of submitted data. These pre-approval inspections cover the finished product and API used in that product. A product will not be approved unless information about the manufacturing facility is acceptable. FDA might forgo a pre-approval inspection if it has information about the facility and processes from other sources.

Products produced at 503A and 503B facilities are not subject to pre-approval inspections.

Surveillance inspections are conducted to assess compliance with manufacturing processes and quality of the products on the market, including whether the manufacturer or 503B outsourcing facility is complying with CGMP standards. Manufacturers of commercial products, both finished drug and API, and 503B outsourcing facilities, are subject to surveillance inspections on a risk-based schedule. If FDA finds CGMP violations, it will issue a report listing those violations. FDA then posts most drug and 503B facility reports on its website.

FDA typically defers to state officials for inspectional oversight of 503A state-licensed pharmacies. However, if a potential safety or quality problem is reported or FDA is otherwise aware of a potential problem, FDA may conduct a for-cause inspection, with or without the involvement of state investigators.

Unlike drug-application and surveillance inspections, all facilities—whether 503A, 503B, FDA-approved finished drug, or any other stage of manufacture—can be inspected for-cause following a product complaint, adverse event reports, or other problems. Product complaints or adverse events may be reported by patients, healthcare providers, public health officials, or manufacturers through various reporting channels. Manufacturers of FDA-approved products and 503B outsourcing facilities are required to report certain serious adverse events to FDA. However, 503A compounders are not required to report adverse events to FDA, creating a void in important safety information.

If a surveillance or for-cause inspection uncovers noncompliance with the law, FDA has several tools to protect and prevent poor quality and problem products from the public, including recommending recalls, issuing warning letters and/or import alerts to block import of products, and initiating court actions to stop production at the facility.

Where are we heading next?

The rapid growth of GLP-1 compounding highlights the differences in FDA’s oversight of different types of legally marketed prescription drugs. Unlike generics, compounded products do not have to show that they have the same efficacy and safety profile as the brands they mimic. Unlike product modifications of FDA-approved drugs, compounders do not need to show that their products continue to be safe and effective. On the post-market safety oversight, FDA also faces an asymmetry, with limited insight into 503A channels, leaving it to state boards of pharmacy to oversee the rapid growth of compounding sterile injectable products.

As GLP-1 shortages resolve and the drugs are taken off the FDA drug shortage list, the landscape may shift depending on where FDA settles on some unresolved policy issues and the extent to which FDA will prioritize enforcement of 503A and 503B provisions. These policy decisions include but are not limited to, compounding essentially copies, anticipatory compounding, 503B outsourcing facilities selling to 503A pharmacies, finalizing the MOU and what constitutes inordinate amounts, and API sourcing.

With so much money at stake for approved commercial manufacturers of GLP-1s and compounding pharmacies, many of these policy and enforcement questions may play out in courts. They are also likely to get the attention of Congress—whether because of lobbying efforts of both sides, funding needs from FDA, or post-marketing safety concerns.