FDA Proposed Rules Review, Part 3 of 4: WDD Licensing Standards & Approved Organizations Oversight

Written-by: Sumeet Singh, CEO

In this third part of the review of FDA’s proposed rules, we focus on the national standards FDA seeks to levy on Wholesale Drug Distributors (WDD), and the role Approved Organizations will play in their federal licensure.

The FDA proposed rules introduced in February 2022 have been long awaited by the industry since November 2013, when the DSCSA was first passed. The proposed rules seek to implement lessons learned and shore up deficiencies from the historic Prescription Drug Marketing Act of 1984, the original federal regulation of the drug supply chain.

Subpart C: National License Standards for WDDs

In general, most standards in the proposed rules are not surprising compared to state regulation and industry best practices. However, there are some interesting aspects that will affect how business is conducted.

The Expected

Most aspects of the Proposed Rules fall in line with typical State license requirements.

• Proposed § 205.20(b) will set the licensure term for wholesale distributors to 2 years.
• Proposed § 205.22 outlines numerous minimum requirements set forth in the proposed rules that must be met for a State or Federal licensing authority to issue a wholesale distributor license:
  • • Proposed § 205.22(a) outlines requirements applicable to the individual who submits the licensure application:
    • Criminal background checks for facility managers and designated representatives per Proposed § 205.25.
    • A satisfactory inspection per Proposed § 205.28
• Proposed § 205.22(c)(8) requires that a wholesale distributor inform FDA if it has received any citations for violating requirements for licensure or received any significant disciplinary actions within the past 7 years.
• Proposed § 205.22(e) requires that a wholesale distributor’s license be readily retrievable at the facility, and that the facility permit State and Federal inspectors, or others acting on behalf of the licensing authority, to inspect the license.
• Proposed § 205.25 primarily focuses on outlining qualifications (screened and trained for their positions) for key personnel who are responsible for operating the wholesale distributor’s facility to ensure they are appropriately qualified to carry out their duties and that the wholesale distributor meets the national standards.
• Proposed § 205.26 will establish standards for wholesale distributor storage and handling.
  • • Additionally, FDA provides a strong recommendation to establish, maintain, document and monitor a quality system that encompasses the organizational structure, account for potential vulnerabilities or threats to the systems, and clearly articulate the procedures and processes for all wholesale distribution activity.
    • Proposed § 205.26(b) outlines basic WDD facility requirements, including being of suitable size, configuration, design, have a quarantine area, have sufficient security to prevent theft or diversion, have appropriate equipment (e.g., refrigeration and air conditioning equipment)
    • Proposed § 205.26(b)(4) requires that a wholesale distributor must regularly conduct and document facility assessments.
    • Proposed § 205.26(c) outlines several requirements for maintaining written policies and procedures spanning vendor/customer/product authentication, facility and equipment maintenance, transportation, product handling, and crisis operations.
• Proposed § 205.27 outlines recordkeeping requirements on documentation relevant to the day-to-day operations of the company (e.g. security, storage, inventory), policies and procedures, and commercial documentation (e.g. invoices, purchase orders).
  • • Further, records must be securely stored, and any alterations made to records be signed and dated, while preserving the original information contained in the record.
    • Most records must be retained for at least 3 years, product quality/DSCSA for at least 6 years, per § 205.27(d).
• Proposed § 205.28 outlines aspects of the physical inspection a wholesale distributor must undergo before the licensing authority issues the initial license which will include the facility, processes, and records (off-site records must be produced within 2 days). Inspections must occur at least once every 3 years.
• Proposed § 205.29 outlines annual state license reporting requirements that originally went into effect on January 1, 2015. FDA will remove companies/licenses from the public database if the wholesale distributor’s license expires until the license is renewed or a new license issued. Additionally, a wholesale distributor must report to the FDA within 30 calendar days if it has gone out of business or voluntarily withdrawn a license. Proposed § 205.29(c)(4) and (d) will require distributors note all significant disciplinary actions that occurred during the preceding 12-month period at time of initial reporting, and report significant disciplinary actions within 30 calendar days if issued after reporting.
• Proposed § 205.30 outlines circumstances for a denial of a license application, suspension and revocation of a wholesale distributor license, and the rights a wholesaler has to fight such an occurrence.
• Proposed § 205.31 outlines the use of Approved Organizations (AOs) by the FDA, including procedural requirements (e.g. 90-day deadline for inspection completion, immediate reporting requirement to FDA if serious violation, etc.), and recordkeeping requirements.
• Proposed § 205.32 sets out general qualifications to obtain and keep approval for an AO including recordkeeping requirements, confidentiality requirements, and contractor requirements.
• Proposed § 205.33 covers the process that FDA will use to approve organizations, including the application process, training requirements, audit requirements, and the process for suspending or revoking an organization’s approval.

Interesting Aspects

• Although Proposed § 205.21 is expected, per precedent set by the PDMA and the state laws that comply to the PDMA. It will require that the applicant provide the surety bond or other equivalent means of security acceptable to the State as part of the wholesale distributor’s application for a license.
  • • However, Proposed § 205.21(b)(3) will nix the requirement for non-resident surety bonds. Specifically, this will action the DSCSA requirements that if a wholesale distributor can prove it has the necessary bond for the State where the facility is located (e.g., by providing a copy of the existing security bond agreement), the requirement for an additional surety bond in the State into which the wholesale distributor plans to distribute is waived. The wholesale distributor will have to provide a 30-day notice for switching and will require that the bond is effective for 1 year after the license expires. At $1,000 to $2,000 per bond, and wholesale distributors with fully-licensed facilities having to obtain upwards of 8 bonds, this will impact the compliance department financials.
• Another interesting aspect of the Proposed Rule is that FDA suggests states implement similar procedures to ensure that all wholesale distributor licenses issued are consistent with the proposed regulation. A full discussion on preemption will be included within Part 4 of the 4-part series!
• Proposed § 205.23 details the process that FDA will use when issuing licenses to wholesale distributors.
• Wholesale distributors will have a choice on which approved AO it uses to conduct its inspection per proposed § 205.23(a)(2); and, if no AO has been approved, the FDA will conduct the inspection as the FDA is ultimately responsible of determining whether a wholesale distributor meets all the applicable requirements.
• Proposed § 205.24(a) will standardize the timeframes for minor reporting requirements of changes to information (officers, designated representatives, surety bond, etc.) of wholesale distributors to 30 calendar days of the date the change became effective.
• Proposed § 205.24(b) and (c) will require wholesale distributors to adhere to major reporting requirements for information changes (changes in location or changes to the person engaged in wholesale distribution) within 30 calendar days of the date on which the change became effective.
  • • Additionally, per Proposed § 205.24(b)(1), the date the change of location takes place is the date the new location begins receiving prescription drugs.
• Proposed § 205.25(a)(1) prohibits a wholesale distributor from obtaining a license if the wholesale distributor is convicted of violating applicable federal law, or if there are two or more state disciplinary citations that pose a threat of serious adverse health consequences.
• Proposed § 205.25(f) limits a facility manager or designated representative to hold that position at one facility at a time.
• Proposed § 205.25(g) designates mandatory background checks and fingerprinting of wholesale distributor facility managers and their designated representatives, and, further, suggests a best practice that warehouse personnel not have a record of criminal activity involving violations of the FD&C Act or other laws involving prescription drugs.
• The FDA also implements certain protections for WDDs in Proposed § 205.30 by ensuring that if an AO has disciplinary sanctions taken against it, ends its business, or is otherwise no longer considered an approved AO, the license of the wholesale distributor will remain valid, although FDA may verify the wholesale distributor’s compliance status and review the facts in that situation to determine the potential effect, if any, on the licensure of wholesale distributors inspected by that AO.
• Proposed § 205.3(g), FDA will establish standards for the qualifications of wholesale distributors’ key personnel, including owners, managers, officers, facility manager/designated representative, and even warehouse personnel.
• Proposed § 205.26(a) will require that any wholesale distributor’s facility also licensed or registered as another trading partner and operating from the same address (e.g. co-located WDD and 3PL) must have separate systems and processes in place for their separate functions
• Proposed § 205.28(a) allows for a third-party accreditation or inspection service approved by the licensing authority may perform the physical inspection.
• As it pertains to Proposed § 205.29, FDA suggests that DEA registrations and/or state-controlled substance license numbers be reported to the FDA if there is a significant disciplinary action issued by the DEA or the State controlled substances licensing authority that would limit the ability of the wholesale distributor to distribute controlled drug substances. In such a situation, information about the DEA registration or State controlled substance license should be reported since the disciplinary action is reported under that specific license or registration.

Deviations From State Regulation & Industry Best Practices

• An aspect of the proposed rule that will create significant negative impact, and deviates from current industry best practices, is that the FDA has proposed requiring states to cancel a wholesale distributor license in the event that a wholesale distributor fails to timely renew its application. This is encompassed within Proposed § 205.30(f). If the license expires and is cancelled, the distributor must cease receipt and distribution of prescription drugs, apply for new licensure, and wait until their license has been re-instated before resuming wholesale distribution activities.
• FDA outlines that a state may rely on AOs to conduct inspections and suggests that states put in place the same or similar qualifications and processes for approved organizations to conduct those inspections and for decisions affecting the approval status of those organizations. This is significant because the outsourcing of such a key aspect of applicant due diligence fundamentally erodes the autonomy and reach the state regulatory authority.

Proposed Rule Table of Contents

PART 205: National Standards for Third-Party Logistics Providers and Prescription Drug Wholesale Distributors

• Subpart C–Wholesale Distributors Licensure Standards
  • • 205.20 Requirement that prescription drug wholesale distributors be licensed.
    • 205.21 Surety bond requirement.
    • 205.22 General application requirements for licensure.
    • 205.23 Federal licensure process.
    • 205.24 Changes to information, operation, location, or ownership of a wholesale distributor.
    • 205.25 Prohibited persons and qualifications for key personnel.
    • 205.26 National standards for the storage and handling of prescription drugs for wholesale distribution.
    • 205.27 Standards for the establishment and maintenance of records of the distribution of prescription drugs.
    • 205.28 Inspections.
    • 205.29 Requirements for initial and annual reporting to the Food and Drug Administration.
    • 205.30 Licensure denial, suspension, reinstatement, revocation, and voluntary termination– notice and opportunity to request a hearing.
• Subpart D–Approved Organizations for Wholesale Distributors
  • • 205.31 Use of approved third-party organizations.
    • 205.32 General qualifications of approved organizations.
    • 205.33 Process and procedures for approval by the Food and Drug Administration.

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