Will Manufacturers Be Able To Grandfather Products In Their DC And 3PL? Again

Grandfather clockThis week I am posting one of my favorite essays from last fall because at this moment, I am in the middle of moving my home and office from one side of the Chicago metro area to the other to be closer to our kids.  Also at this moment, the FDA is almost eight months late in publishing the grandfathering guidance that was mandated by the DSCSA.  Here it is again.

Regulations often make use of a concept known as “grandfathering” to soften a given deadline so that it is easier for companies to meet.  When allowed, grandfathering allows a company to continue doing something after a regulatory deadline that mandates a change, as long as one or more pre-conditions apply.  For example, Section 582(a)(5)(B) of the Drug Supply Chain Security Act (DSCSA) allows wholesale distributors, and repackagers to sell drugs that were already within the supply chain on January 1, 2015 without passing the necessary transaction data.  This makes sense because companies were not obligated to supply that data before that date and so some of the assertions required in the Transaction Statement would not be true (among other problems that grandfathering eliminates).  [Of course, the FDA subsequently delayed enforcement of all transaction document exchange for four months, but, theoretically, that did not affect this grandfathering provision (see “FDA Postpones Enforcement of DSCSA Transaction Data Exchange Until May 1”).]

Section 582(a)(5) of the DSCSA deals with Grandfathering Product.  Paragraph (A) under that section requires the FDA to publish final guidance less than two months from now explaining whether, and under what circumstances, they will exempt product that is already in the supply chain, and which does not have the DSCSA “Product Identifier” affixed to it after November 27, 2017 (see “The DSCSA Product Identifier On Drug Packages”).  Here is the actual wording:

“PRODUCT IDENTIFIER.—Not later than 2 years after the date of enactment of the Drug Supply Chain Security Act, the Secretary shall finalize guidance specifying whether and under what circumstances product that is not labeled with a product identifier and that is in the pharmaceutical distribution supply chain at the time of the effective date of the requirements of this section shall be exempted from the requirements of this section.”  DSCSA Section 582(a)(5)(A).

Does that cover drugs that are sitting in the distribution center of a pharma manufacturer or its Third-Party Logistics Provider (3PL) on that date?  If not, then that means drug manufacturers will need to make sure their warehouses and their 3PLs have sold off all of their non-serialized product prior to November 27, 2017, because that product would be non-compliant after that date.  That would make their date for converting their packaging lines even sooner than November 27, 2017.

If grandfathering does apply to manufacturers, that means those who know they are not going to be ready to apply the serial number on all of their drugs by November of 2017 could package extra product prior to the date, store it in their warehouses and not violate the law as they sell those drugs after the effective date.  How much extra time that would give to the manufacturer to finish converting their packaging lines (or their contract partner’s lines) would be dependent on how big their warehouse is (or how much space they can rent).  The limiting factor would be the expiration date of the drugs themselves.

The grandfather designation/exemption would follow those products all the way through the supply chain, allowing repackagers, wholesale distributors and dispensers to accept them, even after their dates of November 27, 2018, 2019 and 2020 respectively.


Whether that will work or not is dependent on what Congress meant by “…that is in the pharmaceutical distribution supply chain at the time of the effective date…”?  Is the manufacturer’s distribution center warehouse or that of their 3PL considered “in the pharmaceutical distribution supply chain”?  What event causes a product to pass into “the pharmaceutical distribution supply chain”?

Unfortunately the DSCSA does not define that term explicitly.  On the one hand, it is quite clear that the DSCSA agrees with industry convention that drug manufacturers are one of the sectors within the pharmaceutical supply chain.   This would seem toimply that packaged drugs sitting in the manufacturer’s DC or their 3PL’s warehouse on the effective date are “in the pharmaceutical distribution supply chain” and therefore do qualify for this grandfathering provision.

On the other hand, beginning no later than November 27, 2017, Section 582(b)(2)(A) requires manufacturers to…

“…affix or imprint a product identifier to each package and homogenous case of a product intended to be introduced in a transaction into commerce.”  DSCSA Section 582(b)(2)(A).

No mention of a grandfathering provision.  Drugs sitting in the manufacturer’s distribution center or their 3PL’s warehouse have not yet been introduced into commerce because they have not yet been the subject of a DSCSA “transaction” (see “EXEMPT TRANSACTIONS” in “Is Your Drug Exempt From The Federal Drug Supply Chain Security Act?”), but they could reasonably be considered “intended to be introduced in a transaction into commerce”.  Following that line of logic, these products would need to have the DSCSA product identifier on them on the effective date, and therefore do not qualify for the grandfathering provision.

If you followed all that, we have come to two different conclusions.  Which do you think is right?  Hopefully the forthcoming FDA guidance on Grandfathering will make it very clear whether not manufacturers will be able to take advantage of grandfathering.  Until then, a lot of people out there are wondering.