State Registration Enforcement

July 20, 2023

Are You Licensed To Sell In These States?

Most U.S. states require manufacturers to register and gain a state-issued license to sell or manufacture products within state boundaries. In fact, the following states require a license to sell non-OTC Class II medical devices: AL, AK, AZ, AR*, CA, CT, DE, DC, ID, IA, KS^, LA, MD, MI, MS*, MO+, MT, NV, NH, NJ, NY, ND, OH+, OR, PA, RI+, SC, TN, TX# UT, VT+ VA, and WI# (* if direct-to-patient; ^ distributor only; + only if drug-containing; # only if manufactured in-state). Likewise, virtually all states require a license to sell prescription drugs.

Driving Factors for Enforcement

Patient safety drives these requirements. State legislatures want to ensure state authorities know what prescription drugs and medical devices are sold and/or manufactured within their respective states. Many states also charge fees for licensing and registration, making licensure requirements a way for states to raise revenue.

While drug and device makers are accustomed to obtaining various permits and licenses, many overlook these important requirements. Penalties for distributing and/or manufacturing products without a license include fines and suspension of commerce, which can have a severe impact.

Active States

We once worked on a complex case involving the New York State Board of Pharmacy and its rules. Our client's business in New York was in jeopardy of being shut down due to a license issue. A shipping freeze of product in and out of the state would have resulted in patients and providers being denied access to important therapies. Not to mention millions of dollars in lost revenue.

After many meetings with the state, involving lots of lawyers, and even pulling in the FDA Office of Regulatory Affairs into the matter to clarify a regulatory question, an eleventh-hour settlement was reached. Thankfully, our client avoided fines and a shipping stoppage. In hindsight, ensuring proper licensure would have avoided extensive consternation, time spent in meetings with state regulators, and attorney's fees, not to mention saving face.

Several other states have historically been active in enforcing such requirements, including Texas, California, Vermont, and Nevada, among others.

Business Impact

Ensuring licenses are up-to-date is also important when entering a contract with a customer. Sellers are commonly asked to make representations and warranties about compliance with state requirements.

Questions about licenses also come up in due diligence activities, e.g., when a company is being sold to a buyer or with underwriters, e.g., in the event of an initial public offering of stock.

Special Sales and Marketing Laws

As we discussed in a previous article, several states, and even a few municipalities, also have special requirements that apply to sales and marketing activities. Some even require reporting of payments made to providers, and/or licensure of salespeople. Thankfully, several state attorneys general have reasoned that payments reported under the Federal Physician Payments Sunshine Act (Open Payments) do not need to be reported again to state and local authorities, depending on the facts.

Conclusion

In an industry with a seemingly never-ending checklist of obligations, companies should take heed of these important requirements to ensure they are not overlooked. Doing so allows products to be shipped in and out of states without delay or penalty, helps ensure contracting terms are met, and reduces risk of non-compliance, e.g., when being evaluated by regulators or by purchasers and/or underwriters during due diligence.

If you have questions about registration and licensing requirements, the team at Gardner Law can help.