STATE OF OUTSOURCING FACILITY 

SECTOR AND POSSIBILITIES FOR THE 

FUTURE
 

Meghan Murphy, PhD
 

September 15, 2021
 

www.fda.gov 1
 

Background
 

•	 The outsourcing facility (OF) sector has been regulated under Section 

503B of the Act since 2013 

•	 While a few firms have been operating for several years, most of the 

sector is comprised of relatively young companies 

•	 As a young sector, outsourcing facilities face struggles with identity and 

regulatory compliance 

•	 Outsourcing facilities serve important patient needs and this necessitates 

forging a clear path forward 

www.fda.gov 2
A Simple Framework
 

OF Business Viability 

Patient Access Product Quality 

3
Sources of Information for this 

Presentation
 

•	 The Compounding Quality Center of Excellence 

Landscape Study 

–	 Analysis of data 

–	 Annual surveys of OFs 

–	 Deloitte’s conversations with OFs and other 

stakeholders 

•	 Listening sessions 

4
OF Business Viability
 

OF Business Viability 

Patient Access Product Quality
 

5
 

 

 

The Market
 

By the Numbers: Compounding OF Market 

Number of Registered 

OF Facilities 

(As of December 2019) 

76 

States with 

OFs 

23 

*Size of the 503B 

Market 

$2.3 - $4.6B 

**Compounding 

Market Growth 

(503A and 503B) 

2% - 4% 

*Methodology: CMS spending data indicate Medicare Part D spending on compounded drugs. Medicare Part D spending averages 30% of total prescription drug spending, which is the ratio applied to estimate total compounded drug 

spending. The GMI market report estimates 503B compounding holds a 52% market share. This is then applied to the total compounding market revenue to estimate the size of the 503B market; **Source: IBIS Report (2%), GMI Report (4%) 

www.fda.gov 6
 

90

Slowly Stabilizing, but Still in Flux
 

Historical OF Entry / Exit Trends* 

40 

19 

14 

9 

16 

8 

15 

7 

11 

3 2 

12 

7 

0 

3 

0 

3 

19 

6 

11 

3 

11 

2 

11 

2 

8 

3 

7 

4 2 

0 

40 

56 

51 54 

59 

64 

68 

73 73 74 

68 

77 

77 73 

74 

0 

10 

20 

30 

40 

50 

60 

70 

80 

Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 May-20 Sep-20 Jan-21 

Number of entries Number of exits Initial Registrants 

Number of OFs 

+ 82 entrants 

- 28 exits 

+ 46 entrants 

- 27 exits 

+ 28 entrants 

- 24 exits 

+10 entrants 

- 13 exits 

Reporting Period 

www.fda.gov 7
Reasons for OF Market Entry
 

• Good fit with business model 

• Shortage drugs 

• Meet customer demand/strategic partnerships
 

8
Why Do Outsourcing Facilities Exit the Market?
 

•	 Compliance issues 

•	 Difficulties in getting established 

•	 Outsourcing facility operations not the primary 

business model 

•	 Operating as 503A 

9
 

 

 

Top Business Challenges Identified by OFs 

•	 Costs of maintaining and operating facilities, testing drug products, 

acquiring equipment, etc. 

•	 Maintaining compliance with CGMP 

•	 Recruiting skilled staff 

•	 Keeping up with changing demand (either increases or inconsistencies) 

•	 Availability of API and drug inputs 

10
 

 

 

Top Business Challenges Identified by OFs 

•	 Costs of maintaining and operating facilities, testing drug products, 

acquiring equipment, etc. 

•	 Maintaining compliance with CGMP 

•	 Recruiting skilled staff 

•	 Keeping up with changing demand (either increases or inconsistencies) 

•	 Availability of API and drug inputs 

11
 

Challenges in Identifying/Acquiring 

API Supply
 •	 Because most OFs are not high-volume purchasers, many must depend
 upon brokers for API sourcing. 

•	 Brokers vary in quality practices and reputability. Some brokers lack 

transparency regarding sourcing of APIs, although this appears to be 

improving.
 

•	 Supply chain concerns due to high overseas production and difficulties in 

characterizing chain of custody. 

•	 Resource intensive to qualify suppliers, especially when multiple suppliers 

are needed. 

12
Challenges With API Suppliers
 High costs
 

Inconsistent supply
 

Lack of transparency
 

Slow delivery
 

Inconsistent quality
 

Other. Please specify: 

Inconsistent customer service 

Consistently low quality 

0 5 10 15 

Number of Occurrences 

13
Top Growth Opportunities Identified by OFs
 

• Competitive pricing 

• Increasing demand 

• Building and maintaining relationships with buyers 

• Responding to drug shortages 

• Using automation or technology 

14
Top Growth Opportunities Identified by OFs
 

• Competitive pricing 

• Increasing demand 

• Building and maintaining relationships with buyers 

• Responding to drug shortages 

• Using automation or technology 

15
Top Growth Opportunities Identified by OFs
 

• Competitive pricing 

• Increasing demand 

• Building and maintaining relationships with buyers 

• Responding to drug shortages 

• Using automation or technology 

16
 

Trends in OF Shortage Production
 

Drug Shortage Production in the OF Market | January 2017 – December 2020* 

2.7% 1.9% 

8.0% 

10.1% 

7.6% 

8.8% 

17.3% 

15.8% 

2.0% 

4.0% 

6.0% 

8.0% 

10.0% 

12.0% 

14.0% 

16.0% 

18.0% 

20.0% 

Percentage of Drug Shortage

Production 

0.0% 

Jan. - Jun. Jul. - Dec. Jan. - Jun. Jul. - Dec. Jan. - Jun. Jul. - Dec. Jan. - Jun. Jul. - Dec. 

2017 2017 2018 2018 2019 2019 2020 2020 

Product Reporting Period 

17
 

 

 

 

Shortage Production Varies Across 

Firms
 

0.0% 

20.0% 

40.0% 

60.0% 

80.0% 

100.0% 

120.0% 

0 10 20 30 40 50 60 

Outsourcing Facilities 

Percentage of each OFs Production Volume that are Drug Shortage Products 

33% of OFs do not produce any drug shortage products 

of OFs have 20% or more of 

their production volume 

encompassing shortage drugs 

25% 

18
Top Growth Opportunities Identified by OFs
 

• Competitive pricing 

• Increasing demand 

• Building and maintaining relationships with buyers 

• Responding to drug shortages 

• Using automation or technology 

19
Automation Technology
 

•	 Approximately 60% of OFs claim to utilize 

automation technologies(based on survey data) 

•	 Most technologies center around filling and 

packaging/labeling 

•	 Firms not utilizing automation technology cite 

cost and lack of scale 

20
 

Impact of Regulation
 

•	 All regulated industries are impacted by regulation—financially and otherwise. 

•	 As a newly regulated industry, there is greater policy flux than with established 

industries as FDA continues to develop new policies. 

•	 OFs are a young industry with mostly smaller companies. Firms can be more 

heavily influenced by policy changes due to being smaller in size. 

•	 While public health and patient safety are always our foremost priorities, FDA is 

also mindful of the interplay between policy development and OF sector 

operations. 

•	 OFs also cite that the differing regulatory models among states continue to be a 

challenge. 

21
Product Quality
 

OF Business Viability 

Patient Access Product Quality 

22
 

Quality—Motivating Factors
 

•	 In general, OFs are motivated to include quality practices/quality culture 

within their firms 

•	 In addition to patient safety, OFs cite standardization, reliability, and 

customer satisfaction as motivators 

•	 OFs also cite that purchasers tend to place more value on OFs that have 

more robust quality practices 

•	 Risks of reputational harm and regulatory consequences also cited as 

motivators 

23
Quality—Challenges
 

•	 Broad variability among OFs regarding quality 

practices and level of implementation 

•	 Based on survey, 60% of OFs referenced utilization of 

SOPs to deal with quality failures, and 33% indicated 

use of a quality unit 

24
 

Compliance Challenges
 

•	 Compliance is an ongoing challenge, especially within the realm of CGMP 

•	 Some OFs express a lack of clarity in reference to FDA expectations 

regarding 483 and Warning Letter responses 

•	 OFs indicate FDA delays in timeliness of inspection closeouts, responses to 

submissions (e.g., 483 responses, Warning Letter responses) 

•	 Some OFs indicate difficulties with understanding areas of FDA policy 

25
 

A Glimmer of Improvement
 

Inspection Classification Breakdown by Year 

100%
 

90%
 

80%
 

70%
 

60%
 

50%
 

40%
 

30%
 

20%
 

10%
 

0% 

2014-2015 2016-2018 2019-2020 

61% 

27% 

12% 

53% 

35% 

6% 

6% 

50% 

44% 

6% 

OAI VAI NAI #N/A n= 135 inspections* Percentage of Inspection Classification 

26
Patient Access
 

OF Business Viability 

Patient Access Product Quality 

27
7.3%

70 

Who are the Customers?
 

Hospital(s) / Physician Office(s) Clinic(s) Health System(s) / Other Nursing home(s) 

Medical Center(s) Integrated Delivery 

Network(s) 

0 

10 

20 

30 

40 

50 

60 

Number of Occurrences 

28
Hospital Systems
 

•	 Large batch, standardized products (especially true for 

larger hospitals/hospital systems) 

•	 Products that are beyond the compounding/production 

capabilities of in-house pharmacies 

•	 Longer beyond use dates for products compared to inhouse or 503A pharmacy 

29
Physician’s Offices/Clinics
 

•	 Smaller portfolio of specialized products 

•	 Office stock 

•	 Niche products for specialized use (ophthalmology, 

dermatology) 

30
Are GPOs Involved?
 

•	 Up to 45% of OFs (per survey) work with GPOs 

•	 Typically true of larger OFs 

•	 Hospitals and health systems utilize GPOs to assist in 

vetting OFs 

31
Potential Product-Specific Areas of 

Demand Per Hospitals and Providers
 

• Shortage drugs 

• Ready to use formulations 

• Small-batch, niche products 

32
 

Key Takeaways
 

•	 OFs are young but growing and while there are difficulties, there 

are viable areas for business growth. 

•	 Quality/compliance continues to be a pain point, but is showing 

signs of slight improvement and firms are motivated to improve 

quality. 

•	 There is demand for OF products from diverse areas, most of which 

should be viable in the long-term. OFs indicate demand is growing. 
The Future Involves All Stakeholders
 

Outsourcing Facilities 

Medical Industry 

Facilities Organizations 

Physician Offices OF Business Viability Pharmacy Organizations 

Patient Access Product Quality 

API 

GPOs Suppliers 

Hospitals FDA 

State 

Systems
 

Health 

Regulators 

34
How Do We Get to the 

Center?
 

OF Business Viability 

Patient Access Product Quality 

35
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