On November 27, 2013, President Obama signed the Drug Quality and Security Act (DQSA) into law. Title I of the Act establishes national standards for compounding pharmacies designed to fill regulatory gaps that contributed to the 2012 meningitis outbreak. Title II—arguably the more important of the two titles—creates uniform systems and federal standards to improve the security of the drug supply chain and reduce the impact of the burdensome patchwork of state pedigree laws regulating drug distribution. FaegreBD Consulting is counsel to the Pharmaceutical Distribution Security Alliance, a diverse coalition of supply chain stakeholders instrumental in the development and passage of the DQSA.

Title II of the DQSA aims to enhance the security of the pharmaceutical supply chain by establishing a national system for serializing pharmaceutical products and setting national licensing standards for wholesale distributors and third-party logistics providers (3PLs). The new system applies throughout the supply chain and covers prescription drug manufacturers, primary and secondary wholesale distributors, repackagers, 3PLs, and dispensers, such as pharmacies and hospitals.  Subject to certain exceptions, beginning January 1, 2015 (July 1, 2015 for dispensers) each sale or transfer of a prescription drug must be accompanied by detailed information about the drug, the parties to the transaction, and prior transactions. Additionally, manufacturers must serialize prescription drugs using a national system no later than November 27, 2017. Each of these activities will significantly enhance the ability to trace pharmaceutical products through the supply chain, identify counterfeit and other unfit products, and carry out prompt and comprehensive product recalls. This system will allow drugs to be tracked and traced by production lot for the first 10 years, and after that time, system enhancements will allow each individual product package to be tracked and traced through the supply chain.

Title II also establishes a new licensure regime for wholesale distributors and 3PLs. Wholesale distributors and 3PLs will continue to be licensed by the states, but state licensure programs will be required to use the federal licensing standards established in the DQSA. Federal licenses will be issued in states that do not adopt the federal standards. In addition, the DQSA expands the FDA’s enforcement authority and implements stiffer penalties for wholesale distributors and 3PLs that abuse or fail to comply with this system.

Most significantly for industry, the DQSA’s federal traceability and licensure provisions preempt state regulation in those spaces. By establishing a single, uniform national system for traceability and licensure, the DQSA will enhance the security and predictability of the pharmaceutical supply chain by closing gaps in state regulation while also easing the burdens on industry that result from complying with 50 inconsistent state regulatory schemes.

The DQSA tasks the FDA with implementation of the Act over the coming years through guidances, standards, and regulations. These activities will significantly shape the operation of the new traceability system, and industry engagement in this implementation process will be critical to the development of a functional, efficient, and secure system.