FDA guidance permits exemptions from supply chain protection measures

Supply chain protection measures like “track and trace” help to protect against counterfeit drugs, but may also cause delays and bottlenecks during a public health emergency like COVID-19. The FDA has decided to temporarily exempt certain transactions in an effort to get treatments where they’re needed as quickly as possible.


By Aaron Badida, JD

Regulatory Background

The Drug Quality and Security Act (DQSA) was passed by Congress in 2013 to better protect consumers from counterfeit drugs. One of the major provisions of the law was the Drug Supply Chain and Security Act (DSCSA), designed to create a tracking and tracing system that allows drugs to be followed through the supply chain from manufacturer to dispenser.


Practically, DSCSA ensures security in two ways: By establishing verification requirements for participants and implementing an electronic tracing system that allows a product’s movement to be traced back to its point of origin.


To establish the verification requirements, the Act gives the FDA authority to regulate four types of supply chain participants: manufacturers or repackagers, wholesalers, third-party logistics provider (3PL) and dispensers (e.g., pharmacies).


Each of these entities must have a valid registration with the FDA (manufacturers or wholesalers) or be legally licensed under state law (wholesalers, 3PL and dispensers) to be considered an “authorized trading partner” and compliant with the provisions of DSCSA. When one trading partner receives a shipment, they are required to verify that the shipper is registered.


The Act also establishes an identification system for shipments of drugs at the “lot” level. It helps to ensure that diversion, interception or introduction of unapproved supply did not occur anywhere in the supply chain. Currently, lots shipped by manufacturers or repackagers are required to have a unique identifier that allows each member of the supply chain to verify that the shipment is correct and legitimate. The identification system was designed to be implemented in phases, beginning with lot levels of drugs. Eventually trading partners will be required to trace drugs at the unit (i.e., individual package) level.


When this law was passed, Congress recognized the time, cost and administrative burden associated with added layers of security and tracking products. While optimal for security, these requirements may not be ideal for emergencies. Accordingly, legislators included an exception to waive certain tracking and verification requirements during a public health emergency declared under section 319 of the Public Health Service Act.


Regulatory Context

Counterfeit drugs have been an ongoing concern for the FDA, particularly with the increased use of online pharmacies. From substandard drugs to harmful, falsely labeled substitutes, bad actors have taken advantage of supply chain vulnerabilities. While the rate of this occurrence remains low (the World Health Organization estimates only about 1% of drugs worldwide are counterfeit), the consequences of counterfeiting and substandard products can be severe.


Currently, DSCSA manages this through a tracking and tracing mechanism that scans serialized identifiers placed on pallets of a drug from a manufacturer. This information is scanned and each trading partner is verified at each additional stop in the supply chain from wholesaler to dispenser to patient. These steps help ensure that trading partners received the expected product from a legitimate partner. If an illegitimate product does enter the supply chain, it is also easier to determine where that product came from to better investigate the discrepancy.


Under current FDA guidance, the product tracing information can be shared in the form of anything from paper invoices to electronic data transfer. Many trading partners currently rely on Advance Shipping Notices for transmission of this information.


In public health emergencies, however, drugs need to move quickly through the supply chain. Identifying, tracking and logging can add unnecessary time and expense as the drug moves through an already complex and sometimes protracted system.


What’s New

On April 30, 2020, the FDA issued industry guidance announcing its enforcement discretion pursuant to the declaration of a public health emergency for COVID-19. Under this guidance, when a product is distributed for COVID-19 emergency medical reasons, it is exempt from the DSCSA definition of transaction and excluded from wholesale distribution classification.


Trading partners won’t be penalized for not complying with product identification and tracing requirements, while wholesale distribution definition exclusion means that trading partners won’t be penalized for not complying with verification requirements.


However, the definition of “emergency” medical reasons makes the scope of this discretion narrow. The FDA is only relaxing the DSCSA tracing and verification rules for products that are either:

  • issued an emergency use authorization (EUA) under section 564 of the FD&C Act (21 U.S.C. 360bbb-3) to combat COVID-19; or
  • approved by FDA to diagnose, cure, mitigate, treat, or prevent COVID-19.

Currently, the only therapeutics to have received an EUA for COVID-19 are hydroxychloroquine sulfate, chloroquine phosphate and—as of late Friday–remdesivir.


Additional supportive therapies, like propofol or drugs for pneumonia also fall under the scope of this definition, as do medical products that have inflated demand or supply disruption as a result of COVID-19.


The agency recognizes that some trading partners may be new or unregistered as a result of increased demand for medical products under COVID-19, and thus may not have the infrastructure needed to strictly comply with the supply chain security requirements.


“In this Guidance, we struck a balance between the urgent need to effectively distribute needed medicines in an emergency, and the ongoing need to protect the public from harmful products,” said CDER director Dr. Janet Woodcock on Twitter.


The FDA still expects that all trading partners will take appropriate action to be alert for suspect products. This guidance notes that it does not override state rules and that it does not apply to blood products and radioactive biologics, even for COVID-19 treatment.


What’s Next

COVID-19 conditions amplify the risks that DSCSA sought to address. Demand is high and shortages create opportunities for unregistered suppliers to fraudulently participate in the supply chain.


In addition, shortages may cause grey-market pharmacies to purchase products in shortage and re-sell them to unsuspecting purchasers. Those products may not be stored under ideal or proper conditions. DSCSA data is otherwise helpful in determining a chain of product custody and the likelihood of a product having been stored properly.


Accordingly, tracking, tracing and verifying COVID-19 products—whenever possible—may still be in the best interest of supply chain participants and trading partners to minimize any risk of accidental counterfeit or adulterated products.


If a manufacturer, repackager or wholesaler is operating a new facility and cannot currently abide by the DSCSA requirements, it should ensure that it does so only for products that are covered under the scope of the guidance. Manufacturers are best situated to ensure that some degree of tracing is integrated as the point of origin for many medical products, and dispensers should still be able to verify this.


Intermediaries, such as 3PLs and distributors may experience more difficulty in tracking, tracing and verifying due to COVID-19 complications. If a drug is suspect, ordinary protocols should be followed as much as possible, and the FDA should be notified.


Intermediaries may also run into a core problem: They would need to verify that a product is eligible to be exempted from the process—something that could take additional time and effort. The FDA’s guidance document does not contain a list describing which products its policy covers.


To contact the author of this analysis, email Aaron Badida.
To contact the editor of this analysis, email Alec Gaffney.


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