Utilizing Foreign CMOs and The Hidden Federal and State Regulatory Requirements

Contract manufacturing refers to the outsourcing of some or all manufacturing activities, such as processing, packaging, labeling, testing, or assembly, to a third party that performs these operations on behalf of a product owner.

In the pharmaceutical and medical device sectors, contract manufacturing organizations (CMOs) play a central role in enabling companies to scale production while managing cost, capacity, and regulatory complexity.

Companies outsource to CMOs to reduce capital expenditures, access specialized technical and regulatory expertise, and increase operational flexibility.

Considerations for Using a US-based CMO or a Foreign CMO

U.S.-based CMOs often offer proximity to regulators and established quality systems, while non‑U.S. CMOs may provide cost advantages and expanded capacity.

However, foreign manufacturing introduces additional regulatory and corporate‑law considerations that must be evaluated independently.

Foreign CMOs do not escape U.S. regulatory obligations simply by operating abroad. Both federal and state requirements apply to any manufacturer producing drugs or devices for the U.S. market.

Federal Regulatory Considerations

A frequent source of confusion is the distinction between FDA establishment registration and state authority to do business.

FDA establishment registration and listing requirements apply to both domestic and foreign manufacturers of drugs and devices that manufacture products for the U.S. market.

For example, medical device contract manufacturers, including contract packagers and sterilizers, must register with the FDA, list devices, and pay annual establishment fees under 21 CFR Part 807, regardless of whether they are located in the United States or abroad.

For drugs, the FDA considers both the product owner and the contract facility to be manufacturers when they perform CGMP activities. Each party is independently responsible for compliance with applicable current good manufacturing practice (CGMP) requirements under 21 CFR Parts 210and 211, even when responsibilities are described in a quality agreement.

State Regulatory Considerations

In addition to potential FDA requirements for producing drugs or medical devices that will be shipped and distributed throughout the US, there are state regulatory requirements as well.

CMOs may be required to submit a foreign qualification if they are “doing business” in a state where they are not formed.

For example, Pennsylvania requires foreign corporations and LLCs to register with the Department of State before transacting business in the Commonwealth. An obligation that exists independently of FDA registration status.

State laws and regulatory requirements vary regarding licensure, and it’s strongly recommended that you research the obligations that a foreign CMO is responsible for.

Wholesale Drug Distributor Licensing: Many states require any entity, including foreign manufacturers, that ships prescription drugs into the state to obtain a wholesale drug distributor license. States like Florida, California, and New York have historically had robust licensing regimes in this area.

Third-Party Logistics (3PL) Licensing: Some states separately license 3PLs and require out-of-state or foreign facilities shipping into the state to register.

Drug Manufacturer Licensing: Several states require a manufacturer's license for any facility producing drugs destined for that state, regardless of where the facility is located. California (via the California Department of Public Health) and New York, for example.

Medical Device Considerations: State-level licensing for device manufacturers is less uniform than for drugs, but some states do have registration or licensing requirements that could apply.

Shipping a product into a state can itself constitute "doing business" there, triggering licensing or registration obligations.

Compliance Pitfalls and Common Misconceptions

One persistent misconception is that regulatory responsibility can be shifted entirely through a commercial or quality agreement.

FDA guidance is explicit: quality agreements cannot delegate statutory CGMP responsibilities. Each party remains responsible for the manufacturing activities it performs, and product owners retain responsibility for final product disposition and for preventing the introduction of adulterated or misbranded drugs into interstate commerce.

Another common misunderstanding is that foreign CMOs operate under reduced regulatory scrutiny.

In practice, the FDA has expanded its overseas inspection footprint and continues to increase foreign inspection capacity, particularly in Asia‑Pacific regions that supply a growing share of drugs and devices to the U.S. market.

Public Resources for Further Learning

Stakeholders seeking authoritative guidance should rely on publicly available government and agency resources, including:

• FDA – Contract Manufacturing Arrangements for Drugs: Quality Agreements (Guidance for Industry)
• FDA – Medical Device Establishment Registration and Listing (21 CFR Part 807)    
• State-Level Departments of State for foreign qualification requirements (e.g., Pennsylvania Department of State)
• FDA and GAO reports addressing foreign inspections and global manufacturing oversight

What This Means for Your Business

The use of foreign contract manufacturers offers real strategic advantages, but those advantages come with a compliance burden that cannot be overlooked or delegated away. Whether a CMO is located domestically or abroad, the regulatory framework governing drugs and medical devices follows the product, not the geography of the facility producing it.

Companies that engage foreign CMOs must approach the relationship with a clear-eyed understanding of who owns each compliance obligation. FDA registration, CGMP adherence, and state-level licensing requirements are not formalities that a well-drafted quality agreement can reassign. They are independent, parallel duties that attach to each party performing a regulated activity.

As FDA oversight of foreign facilities continues to expand, the assumption that offshore manufacturing reduces regulatory exposure is not only incorrect, it is a liability. Product owners and their foreign partners alike must invest in robust quality systems, clear contractual frameworks, and ongoing regulatory monitoring to ensure that products entering the U.S. supply chain meet the same standards expected of any domestic manufacturer.

Done right, foreign contract manufacturing can be a powerful tool. Done without proper due diligence, it becomes a significant source of legal, regulatory, and reputational risk.

References:

1. FDA, Contract Manufacturing Arrangements for Drugs: Quality Agreements – Guidance for Industry
2. FDA, Who Must Register, List, and Pay the Fee – Medical Devices (21 CFR Part 807)
3. Pennsylvania Department of State, Foreign Associations (Corporations, Partnerships, and LLCs)
4. FDA Law Blog, FDA Looks East—Here’s What Industry Needs to Know