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8/31/2001

Secondary Wholesalers Oppose FDA Pedigree Regulation

Donna Young

Since the passage of the Prescription Drug Marketing Act (PDMA) of 1987—legislation designed to help stop counterfeit, adulterated, misbranded, and expired drugs from entering the wholesale drug marketplace—the vast majority of wholesale distributors have operated under a gray area in the law, an FDA official said.

Most PDMA provisions took effect in July 1988.

But a regulation that requires wholesalers other than "authorized distributors" to maintain and pass on a pedigree—a complete history that identifies each prior sale, purchase, and trade of a prescription drug product—has, for the second time, had its effective date postponed by the FDA.

The pedigree requirement is a deterrent to the introduction and retail sale of substandard, ineffective, and counterfeit drugs, according to FDA.

But several secondary wholesalers and two trade associations oppose the pedigree provision arguing that, if implemented, it would lead to a less competitive market.

Reason for opposition. Stephen Sims, a lobbyist for the Pharmaceutical Distributors Association (PDA), said if someone is determined to get counterfeit drugs into the system, no law could thwart the effort.

"The pedigree is overkill," Sims said. "Just because someone robs a bank, that isn’t reason to shut down the bank. You’ve got the tail wagging the dog here."

Sims said PDA is a group of secondary wholesalers that banded together to promote legislation to oppose the pedigree requirement.

The organization has helped initiate two bills, H.R. 68 and S. 1132, that will amend the federal Food, Drug, and Cosmetic Act to make the pedigree requirement unnecessary.

Representative Jo Ann Emerson (R-MO) introduced H.R. 68 to Congress on January 3. Senator Michael D. Crapo (R-IN) introduced the companion bill, S. 1132, to the Senate on June 28.

The Healthcare Distribution Management Association (HDMA), a national trade association that represents pharmaceutical and health care product distributors, supports the legislation.

HDMA President and CEO Ronald J. Streck, in a letter to Congress, said:

"HDMA believes that FDA’s initial interpretation of some of the wholesale distribution requirements, as issued and explained in their December 3, 1999 Prescription Drug Marketing Act (PDMA) final rule, took an overly burdensome approach and did so at great expense to portions of the health care distribution industry."

FDA’s rationale for regulation. Margaret M. O’Rourke, senior regulatory expert for FDA’s Center for Drug Evaluation and Research (CDER), said without the pedigree requirement, "It leaves a big black hole there because nobody knows for sure where the drugs have come from."

O’Rourke said because the law is "so gray," a drug’s sales history can easily be laundered.

Wholesalers have been operating under a 1988 FDA guidance letter until the final rules, published in December 1999, take effect.

States license wholesalers, but the pedigree requirement is a federal provision.

The pedigree regulation was originally scheduled to take effect in December 2000 but was changed by FDA to October 2001. FDA recently moved the date, again, to April 2002.

O’Rourke said FDA received letters and petitions opposing the pedigree requirement before and after the December 1999 publication of the final regulations.

In May 2000, the House Appropriations Committee requested that FDA thoroughly review the potential impact of PDMA’s pedigree provision on the secondary wholesale pharmaceutical industry and provide a report to Congress by January 2001.

The agency held hearings in October 2000 to give those in opposition, in addition to supporters, an opportunity to give testimony about the final rules.

FDA sent its report to Congress in June 2001.

According to the report, most wholesalers have been broadly interpreting the definition of an "authorized distributor" as a distributor that "conducts at least two transactions with the manufacturer within any two-year period."

But according to FDA, the 1988 guidance letter says that, to qualify as an authorized distributor, "a distributor must have an ongoing relationship with a manufacturer, that is, show evidence of two sales in a two-year period and have evidence of a written franchise, license, or other distribution agreement."

Levels of wholesale distribution. Under the law, authorized distributors—who FDA refers to as primary wholesalers, or distributors who buy most of their prescription drugs directly from manufacturers—are exempt from the pedigree requirement.

According to FDA’s report, there are five primary wholesale distributors: McKesson Corp. of San Francisco; Bergen Brunswig Drug Co. of Orange, California; Cardinal Health Inc. of Dublin, Ohio; AmeriSource Corp. of Valley Forge, Pennsylvania; and Bindley Western Drug Co., now a wholly owned subsidiary of Cardinal Health.

Secondary wholesale distributors, or unauthorized distributors, buy prescription drug products primarily from other wholesale distributors rather than directly from manufacturers, according to FDA, and seldom offer a full line of pharmaceutical products. Wholesalers in this secondary market often specialize in purchasing and selling selected discounted drug products.

According to FDA, there are three prominent secondary wholesalers: Supreme Distributors Co. of Boca Raton, Florida; Victory Wholesale Grocers Co. of Springboro, Ohio; and Quality King Distributors of New York.

Primary wholesalers sometimes purchase prescription drug products from secondary wholesalers, and secondary wholesalers sometimes purchase drug products directly from a manufacturer.

Because Congress made authorized distributors exempt from the pedigree requirement, most primary wholesalers do not maintain or pass on pedigrees, according to FDA.

Importance of a pedigree. Under the law, secondary wholesalers cannot legally resell a prescription drug product without a pedigree.

Last October, secondary wholesalers testified to FDA that a significant portion of their business would be eliminated by implementation of the final regulations because primary wholesalers are not willing to provide pedigrees to secondary wholesalers and manufacturers do not provide written agreements to secondary wholesalers, according to FDA’s report.

The requirement for a written agreement between a manufacturer and an authorized distributor is restrictive and could prohibit many secondary distributors from qualifying as authorized distributors of record, FDA said in its report. But, the agency said, a consequence of changing the requirement could reduce the extent to which pedigrees are currently maintained and passed on during the distribution process.

A large volume of prescription drugs moves through the supply chain without pedigrees, or with incomplete pedigrees, because they have passed through an authorized distributor at least once before reaching their retail destination, according to FDA.

As a result, an unscrupulous wholesale distributor seeking to introduce a counterfeit or diverted drug product into the marketplace may do so by selling it to an unknowing primary wholesaler who may or may not know the true origin of the product and is not required to maintain or pass on a pedigree when the product is resold, according to FDA.

When a primary wholesaler buys drug products from a secondary wholesaler and then resells them to another wholesaler, it creates a "laundering point where the slate is wiped clean," said CDER’s O’Rourke.

One of the five primary wholesalers, Bergen Brunswig, and several secondary wholesalers recently initiated recalls for vials of counterfeit somatropin that were distributed in several states, according to June 2001 FDA enforcement reports.

The PDMA provision that exempts authorized distributors from maintaining and passing on a pedigree undermines the purpose of the pedigree by allowing for potential gaps in the distribution history, according to FDA.

In its report, FDA recommended that "Congress may want to consider whether the benefits of requiring authorized distributors to maintain and pass on pedigrees to deter the introduction of counterfeit or diverted drugs outweigh the costs to the primary and secondary distributors of maintaining and passing along such pedigrees."

FDA said it does not have the authority to require authorized distributors to maintain and pass on a pedigree.

"Congress must make that change," O’Rourke said.

In support of the status quo. Sims, PDA’s lobbyist, said wholesalers should be allowed to operate the way they have for the past 13 years by using sales records and providing a written statement to the buyer that the drug products came from an authorized distributor.

"We have the record keeping in place and the system in place," he said. "There is a paper trail already in place. The system we have now works without the pedigree."

Sims said if counterfeit drugs are introduced into the market, law enforcement officials can trace the drugs through wholesaler sales records to find the counterfeiters.

FDA said the agency’s 1988 guidance letter stated that the pedigree could start with the manufacturer or the authorized distributor of record.

The agency argued in its report that FDA’s understanding, at the time, was that the authorized distributor of record would be the distributor to whom the manufacturer first sold the drugs, not just any authorized distributor who happened to purchase the drugs somewhere along the distribution chain.

But Sims said, "If you buy drugs from a company, you are an authorized distributor."

Since FDA issued the 1988 guidance letter, secondary wholesalers have interpreted the letter to mean that sales records need only go back to the most recent authorized distributor who handled the drug, FDA said.

But, the agency said, the language in the current regulation is based on the law and specifies that the pedigree must start with the manufacturer.

"The big wholesalers have huge volumes to keep track of," Sims said. "It would cost too much for them to pass on a pedigree because of the turnover in their inventory."

And, Sims said, if Congress requires all wholesalers, including primary wholesalers, to adhere to the pedigree requirement, it would "shift market power" to the manufacturers.

"It will make the market less competitive," Sims said. "The FDA is the best when it comes to scientific questions. But in terms of how the real world works, they don’t understand."