Legal uncertainties in the DSCSA

The Drug Supply Chain Security Act creates uncertainty about which trading partners have responsibility for product verification


The US Food and Drug Administration (FDA) faces a challenging schedule for implementing the Drug Supply Chain Security Act (DSCSA), enacted on Nov 27, 2013. The DSCSA revamps the requirements for securing prescription drugs throughout the supply chain, and mandates that an interoperable electronic system for tracing prescription drugs to the package level be put into effect in phases over 10 years. Among the DSCSA’s requirements are new verification obligations imposed on manufacturers, distributors and pharmacies regarding “suspect” and “illegitimate products,” designed to identify and eliminate counterfeit and diverted prescription drugs from the supply chain. By Jan 1, 2015, all parties in the supply chain must have systems in place to comply with these verification requirements. How FDA interprets the interlocking and sometimes ambiguous obligations that the DSCSA imposes may have a significant impact on the contractual obligations among trading partners and on the relationship among parties in the supply chain.

Draft guidance
On June 11, 2014, FDA announced the availability of a draft guidance entitled “Drug Supply Chain Security Act Implementation: Identification of Suspect Product and Notification.” This guidance is the first of many FDA is required to issue under the statutory mandates included in the DSCSA.

The draft guidance provides practical suggestions for how trading partners may identify suspect products, such as to be skeptical of prices that are “too good to be true,” and to closely examine the package and transport container for signs that the product has been compromised. The document also recommends that trading partners “discuss with each other any observations, questions, or concerns they have related to the status of a drug as a suspect product to aid them in determining whether the drug should be considered a suspect product,” and that trading partners “contact regulatory authorities, law enforcement, or other available resources to aid in that determination . . . .” (see draft guidance p. 6) The draft guidance does not clarify which party has the final word, however, nor resolves certain other ambiguities about the interlocking responsibilities of the parties involved. These ambiguities include:
  • Suspect product – The DSCSA obligates manufacturers, wholesale distributors, dispensers, and repackagers, upon determining that a product in their possession or control is a suspect product or upon receiving notice that the Secretary has made such a determination, to quarantine the product and investigate, “in coordination with trading partners, as applicable,” to determine whether the product is an illegitimate product.” The statute does not impose a corresponding duty on trading partners to coordinate regarding suspect product not within their possession or control. Nor does the statute dictate what happens when trading partners disagree. FDA’s draft guidance does not address that ambiguity.
  • Product at high risk of illegitimacy – The DSCSA also imposes an additional duty on manufacturers, not imposed on other parties, to notify FDA and certain trading partners if they determine—or are notified by FDA or a trading partner—that there is a “high risk” that one of the manufacturer’s products is illegitimate. The statute does not provide a comprehensive definition of what products are at such “high risk,” but makes clear that the manufacturer’s duty applies to product not within the manufacturer’s possession or control, and to product “purported” to be manufactured by the manufacturer. Therefore, a manufacturer necessarily must rely on trading partners to cooperate in determining if the product is at high risk of being illegitimate, as well as for the initial notice about the product.
    Yet, the statute does not explicitly impose corresponding duties on the manufacturer’s trading partners. Nor does it clarify what criteria the trading partners are to apply (except for listing scenarios that could increase the risk of a suspect product entering the supply chain), or whether manufacturers are bound by a trading partner’s determination or may make its own determination. FDA’s draft guidance does not resolve these ambiguities.
  • Illegitimate product – Unlike for the prior two categories, the DSCSA does impose an explicit duty on manufacturers, wholesale distributors, dispensers, and repackagers to “take reasonable and appropriate steps to assist a trading partner to disposition an illegitimate product” not in its own possession or control. The statute also requires each trading partner, upon determining that a product in its own possession or control is an illegitimate product, to “notify the Secretary and all immediate trading partners” that the party has reason to believe they may have received “such illegitimate product” of such determination not later than 24 hours after making such determination.
    The statute is ambiguous about whether “such illegitimate product” means only the particular package or unit of the product, or more broadly includes other units within the same shipment, the same lot, or even the same product category as the illegitimate product. FDA’s recent draft guidance does not resolve or even address such ambiguity.
Will FDA resolve the ambiguities in time?
The agency requests comments by Aug 11, 2014. Whether the final guidance will address these ambiguities and will be issued before the Jan 1, 2015 implementation date—let alone in time for affected companies to put systems in place necessary to comply with these and other DSCSA obligations—remains to be seen.

As of July 30, FDA had received only two comments on the draft guidance and had not posted either. Absent timely FDA interpretation, parties subject to the DSCSA’s verification requirements will need to resolve these issues and other ambiguities regarding their mutual obligations themselves. Prudence suggests that the parties review their internal policies and the contractual obligations governing their relationships, and engage in explicit conversations among themselves to try to resolve these ambiguities to the extent possible. Otherwise, the gaps left open may create situations in which counterfeited or diverted products are not adequately investigated and disposed of because parties may assume another party is taking responsibility for investigating and handling the product.

Mike Druckman photoABOUT THE AUTHOR
Mike Druckman (mike.druckman@hoganlovells.com) is a partner at Hogan Lovells who counsels life sciences companies and organizations on FDA law and regulation. He formerly worked for seven years in FDA’s Office of Chief Counsel, first as Associate Chief Counsel for Enforcement and then as Associate Chief Counsel for Biologics.