The D.C. District Court Slaps Down on Procedural Grounds FDA’s 20-year Effort to Implement its Memorandum of Understanding to Address Interstate Shipments of Compounded Drug Products

October 1, 2021By Karla L. Palmer

The tale of “David versus Goliath” is never a dull skirmish.  This time, “David” consists of a cast of seven compounding pharmacies and their amicus curiae supporters.  And the “David” cast of characters has successfully challenged FDA’s promulgation of its final Memorandum of Understanding (“MOU”) intended to “address” shipments of compounded medications interstate.  See Federal Food, Drug, and Cosmetic Act (“FDCA”) Section 503A(b)(2).

The U.S. District Court’s opening sentence of its Memorandum Opinion captures the historical essence of compounding:

Evoking Victorian apothecary scales and porcelain mortars and pestles, compounded drugs are formulated by pharmacists to create medicines tailored for individual patients.

Plaintiffs challenge FDA’s attempt—through promulgation of the MOU—to redefine compounding and the distribution of compounded formulations interstate in a manner that violates the procedural requirements of the Regulatory Flexibility Act (“RFA”).  See 5 U.S.C. § 603-604.  Remanding the MOU to FDA to engage in that required RFA analysis, or certify why it is not necessary, the Court deferred ruling on Plaintiffs’ substantive claims concerning whether the MOU—in particular its redefinition of the terms “distribute,” “dispense” and “inordinate amounts” and “shall issue regulations” clause—violates FDCA Section 503A.  The District Court spent 30 pages of its 38 page opinion detailing exactly why the Court has standing to adjudicate the aggrieved Plaintiffs’ claims, which standing arguments were briefed in excruciating detail by the government.

The matter involves a “decades old skirmish” dating back to the late 1990s, (and previously blogged about here and here) when Congress passed the Food and Drug Administration Modernization Act (“FDAMA”), which created Section 503A.  Section 503A’s language requires FDA to promulgate a MOU to “address” the “distribution” of “inordinate amounts” of compounded drugs interstate and that it “shall issue regulations” to do so.  Pharmacies located in states that choose to not sign the non-negotiable MOU are limited to an interstate distribution limit of 5% of their compounded formulations.  In signatory states, compounding pharmacies are subject to a 50% “threshold” and certain reporting requirements.  To date, two states have signed the MOU.  Notably, FDA recently extended the time period for states to sign the MOU until October 2022, at which time FDA would commence enforcement of its provisions.

FDA’s MOU drafts were the subject of various iterations over the past two decades, evoking comments from thousands of interested parties.  FDA finally settled on a “final” MOU a year ago, and a coalition of compounding pharmacies immediately filed suit.

The Plaintiffs’ complaint alleges both substantive and procedural violations in FDA’s development of the MOU.  Plaintiffs  claim that, because the MOU is a legislative rule, its promulgation violated the RFA due to FDA’s failure to analyze the economic impact of the regulation on pharmacies.  Plaintiffs also plead a substantive violation—that FDA exceeded its statutory authority under Section 503A in defining several key statutory terms.

The Court stated, “by defining key statutory terms in Section 503A that have binding legal consequences, FDA has evinced its intent to speak with the force of law in the MOU.” Mem. Op. at 32.  Furthermore, FDA’s “ultimate decision has significant binding legal consequences for plaintiffs and pharmacies across the country, and it signals a substantive change in the current legal regime governing interstate compounding.” Mem. Op. at 37.

Determining that the MOU is indeed a legislative rule, the Court ruled in favor of the pharmacies on the procedural issue, but deferred on the critical substantive issue: in essence, whether the MOU improperly defines “inordinate amounts,” conflates the acts of “dispensing” and “distribution,” and violates the “shall issue regulations” requirement in Section 503A.

Given Plaintiffs’ successful procedural challenge, the Court has remanded the matter back to FDA.  The Court ordered the Agency either to prepare the required regulatory analysis or certify that the MOU “rule” will not have a “significant impact on a substantial number of small entities.”  Mem. Op. at 37 (citing the RFA, 5 U.S.C. § 605(b)).  This blogger is interested in that analysis, especially because all of the Plaintiffs submitted declarations concerning the economic impact of the rule.  The Court will request a progress report from FDA in 60 days.  Does this take FDA back to the MOU drawing board, for the fourth time in 21 years?  And, after the Agency complies with the Court-ordered RFA requirement, will the Court then turn to the substantive merits addressing the significant remaining definitional issues raised by Plaintiffs?  Stay tuned.