Compounded Drug

Key facts

Traditional pharmacies

FD&C Act Section 503A; patient-specific prescriptions; mainly state-regulated

Outsourcing facilities

FD&C Act Section 503B; FDA-registered and subject to CGMP

Section 503B created by

Drug Quality and Security Act of 2013

FDA premarket review

None for safety, effectiveness or quality

Practice standards

USP General Chapters 795 (nonsterile) and 797 (sterile)

What is a compounded drug?

Compounding creates a medication tailored to a patient, for example a liquid version of a drug sold only as a tablet, a strength that is not commercially available, or a formulation without an ingredient the patient is allergic to.

Because compounded drugs skip FDA premarket review, the FDA does not verify their safety, effectiveness or quality before use. Oversight depends on which section of the Federal Food, Drug, and Cosmetic Act the compounder operates under.

Federal rules tightened after a 2012 fungal meningitis outbreak linked to contaminated injections from the New England Compounding Center, which led Congress to pass the Drug Quality and Security Act of 2013.

How compounding is regulated

Two federal frameworks apply, with different obligations:

• Section 503A: state-licensed pharmacies and physicians compound under patient-specific prescriptions, are overseen mainly by state boards of pharmacy, and are exempt from FDA approval and current good manufacturing practice (CGMP) requirements if they meet the section conditions.
• Section 503B: outsourcing facilities register with the FDA, follow CGMP, are inspected by the FDA on a risk-based schedule, report adverse events and product information, and may compound without patient-specific prescriptions.
• Copies of approved drugs: both sections restrict compounding products that are essentially copies of approved drugs, but a drug on the FDA drug shortage list can be compounded more broadly while the shortage lasts.
• Bulk drug substances: compounders may use bulk ingredients only if they meet criteria such as appearing on FDA lists or having an applicable USP monograph.

Why compounded drugs matter

Compounding can reshape demand and supply for approved drugs:

• Shortage dynamics: during the 2022 to 2025 shortages of semaglutide and tirzepatide, compounders sold large volumes of copies. After the FDA removed tirzepatide from the shortage list in late 2024 and semaglutide in early 2025, grace periods ended and copying was restricted again.
• Market sizing: compounded products are often missing from standard pricing benchmarks and brand sales data, so they can hide part of real demand.
• Hospital supply: hospitals rely on 503B outsourcing facilities for ready-to-use sterile products, so FDA inspection findings and recalls at those facilities affect hospital operations.
• Compliance and safety: FDA warning letters and adverse event reports tied to compounders are signals for payers, pharmacies and telehealth companies that source compounded products.