The Federal Food and Drug Administration (“FDA”) recently published a draft guidance to assist industry and State and local governments in understanding how to categorize entities in the drug supply chain in accordance with the Drug Supply Chain Security Act (“DSCSA”). The DSCSA establishes product tracing, licensure, reporting, and other requirements for certain trading partners in the drug supply chain, including manufacturers, repackagers, wholesale distributors, dispensers, and third-party logistics providers or 3PLs.
Since November 2013, when the DSCSA became law, many clients have been concerned about whether and the extent to which the DSCSA applies to certain segments of the pharmaceutical supply chain industry. Other clients have been concerned about how to satisfy applicable DSCSA requirements for being considered an “authorized” trading partner, and whether some partners – such as solutions providers and logistics and administrative services contractors – should be considered a DSCSA trading partner at all.
The FDA’s draft guidance helps to address many of these concerns. Among other things, it clarifies the applicability of DSCSA requirements to entities that take part in the distribution of prescription drugs in the United States. It also explains when and whether such entities are engaged in activities that require licensure and annual reporting, as well as other requirements related to being an “authorized” trading partner in the drug supply chain, as defined by the DSCSA.
Manufacturers. DSCSA treats three distinct entities – 1) the applicant (NDA/BLA) holder, 2) any co-licensed partners, and 3) any affiliates – as a single “Manufacturer” “with respect to a [single] product” for purposes of DSCSA drug pedigree compliance and supply chain security tracking.
Responding to concern about whether the first two entities should register with FDA to be considered a DSCSA authorized trading partner, the draft guidance acknowledges that these entities may meet the DSCSA definition of “manufacturer” even though they do not engage in activities traditionally considered those of a manufacturer (e.g., preparation, propagation, compounding, or processing). The draft guidance then clarifies that these entities “would not be required to register” with FDA, so long as the entities met their obligations under the FD&C Act and the DSCSA.
As for manufacturer affiliates, the draft guidance states that mere business relationships are not sufficient to meet the definition of an “affiliate”; rather, the affiliate-manufacturer relationship must be more robust. Notably, the draft guidance cites to FDA’s 2001 final rule for foreign manufacturing registration standards, and thereby signals FDA’s intent to interpret the term “affiliate” in a DSCSA context in the same way it does to assess user fees. We had suspected this was the case but it is helpful to have FDA confirm it in the draft guidance. In the user-fee context, FDA relies on and defers to the affiliation standards of the Small Business Administration (“SBA”). According to the SBA, affiliation generally exists when one business controls or has the power to control another, or when a third party (or parties) controls or has the power to control both businesses. Control may arise through ownership, management, or other relationships or interactions between the parties. Aside from standard relationships such as stock ownership and common management, an affiliation relationship can also exist when two companies have identical (or substantially identical) business or economic interests. Even patterns of subcontracting, comingling of staff and/or facilities may evidence an identity of interest. Additionally, an affiliation relationship may be viewed to exist when there are contractual relationships or economic dependencies between two parties.
Repackagers. The DSCSA defines a “Repackager” as a person who owns or operates an establishment that repacks and relabels a product or package for further sale or distribution without further transaction. FDA’s draft guidance clarifies that dispensers, specifically pharmacy dispensers, which repackage product into unit-dose packages for administration to an individual patient, are not considered repackagers.
Wholesale distributors. The DSCSA defines a “Wholesale Distributor” as a person (other than a manufacturer, a manufacturer’s co-licensed partner, 3PL, or repackager) distributing a product to a person other than a consumer or patient. FDA emphasizes in the draft guidance that many entities formerly within the definitions of wholesale distribution and distributor under the Prescription Drug Marketing Act of 1987 “are now considered 3PLs”; several of which are discussed herein. The draft guidance notes that the definition of “wholesale distribution” excludes the distribution of a manufacturer’s own drug, and clarifies that manufacturers who distribute their own drugs are not required to meet licensure requirements for wholesale distributors. FDA also addresses “jobbers” (i.e., persons or entities that own or operate establishments engaging in small scale wholesale distribution, or sell product solely to retailers and institutions), and concludes that jobbers do, in fact, engage in wholesale distribution and are subject to the wholesale distributor requirements under DSCSA.
3PLs. The DSCSA defines a “third-party logistics provider” as an entity that provides or coordinates warehousing, or other logistics services of a product in interstate commerce on behalf of a manufacturer, wholesale distributor, or dispenser of a product, but does not take ownership of the product, nor have responsibility to direct the sale or disposition of the product. The draft guidance recognizes that the DSCSA defines 3PLs broadly, and explains whether six supply chain entities are considered “trading partners” under the DSCSA:
- Entities that warehouse but do not own or direct the sale or disposition of product;
- Solutions providers;
- Common carriers;
- Logistics or administrative services contractors; and
- Returns processors and reverse logistics providers.
For each type of entity, the draft guidance provides definitions and factors when considering whether the entity is a 3PL. Specifically, FDA clarifies that an entity that warehouses, but does not own or direct the sale or disposition of product is considered a 3PL, even if the facility where warehousing occurs is under common ownership or control with another trading partner. Conversely, according to the draft guidance, brokers are not generally considered 3PLs because they do not provide or coordinate warehousing, nor do they accept or transfer direct possession of product. Similarly, solutions providers are not typically considered 3PLs as they only provide hardware, software, and systems solutions to help achieve compliance with the DSCSA. FDA does not consider entities that only provide transportation services, such as common carriers, to be 3PLs because they do not take ownership or direct the sale of product. (But common carriers that warehouse product that lacks identified consignees or delivery destinations will be considered 3PLs under the DSCSA.) Logistics and administrative services contractors, which FDA considers to be entities that solely contract with other trading partners to provide labor, logistics, or administrative services in a trading partner’s facility, are not considered 3PLs. Lastly, the draft guidance confirms that returns processors and reverse logistics providers are considered 3PLs.
The draft guidance announces that FDA intends to regulate (as 3PLs) only entities that provide services that involve the acceptance or transfer of products “from that entity’s facility within the United States and its territories on behalf of a trading partner (i.e., manufacturer, repackager, WDD, or dispenser).” It also announces that “3PLs without a facility are not required to be licensed.”
Dispensers. FDA’s draft guidance provides brief guidance addressing dispensers. It states that although there are circumstances where a dispenser is not required to provide product tracing information, it is recommended that dispensers document sales and transfers in order to support an investigation of suspect or illegitimate product or recall.
Notably, the draft guidance includes a useful table summarizing activities undertaken by each category of trading partner and provides examples of entities that are not typically considered trading partners. We have recreated the chart below as reference.
Comments to the draft guidance are due to FDA on or before October 20, 2017, and can be submitted here.