Henry Schein 2014 Annual Report Download - page 24

10
Governmental Regulations
Operating, Security and Licensure Standards
Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we
are subject to various local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Among the United States federal laws applicable to us are the
Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, and Section 361 of the Public
Health Service Act. We are also subject to comparable foreign regulations.
The Federal Food, Drug, and Cosmetic Act (“FDC Act”) generally regulates the introduction, manufacture,
advertising, labeling, packaging, storage, handling, reporting, marketing and distribution of, and record keeping for,
pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such
activities within the state. Section 361 of the Public Health Service Act, which provides authority to prevent the
spread of communicable diseases, serves as the legal basis for the United States Food and Drug Administration’ s
(“FDA”) regulation of human cells, tissues and cellular and tissue-based products, also known as HCT/P products.
The FDC Act, as amended by the Drug Quality and Security Act of 2013, establishes certain requirements with
respect to the pharmaceutical supply chain, including with respect to product tracing, the licensure and operations
of prescription drug wholesale distributors and third party logistics providers (“3PLs”), and the pre-emption of state
law. At the federal level, pursuant to the FDC Act, the FDA has generally required wholesalers to provide a drug
pedigree for each wholesale distribution of a prescription drug, which is the record that tracks the chain of
ownership of a prescription drug as it is distributed through the United States pharmaceutical supply chain. Over
the last several years, many states have also implemented or proposed their own prescription drug pedigree laws
and regulations which were intended to protect the integrity of the pharmaceutical supply chain. This created a
patchwork of state licensing and drug pedigree (i.e., track and trace) requirements.
The Drug Quality and Security Act of 2013 brings about significant changes with respect to pharmaceutical
supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug Supply Chain
Security Act (“DSCSA”), will be phased in over 10 years, and is intended to build a national electronic,
interoperable system to identify and trace certain prescription drugs as they are distributed in the United States.
The law began to take effect in January 2015, and on that date specific product tracing requirements for
manufacturers, wholesalers, repackagers and dispensers (e.g., pharmacies) of prescription drugs took effect,
although the FDA, in a Final Guidance issued on December 23, 2014, stated that in order to minimize possible
disruptions in the distribution of prescription drugs in the United States, it would not take action for noncompliance
with these track and trace requirements prior to May 1, 2015. These new product tracing requirements replace the
former FDA drug pedigree requirements and pre-empt state requirements that are inconsistent with, more stringent
than, or in addition to, the DSCSA requirements. Also in January 2015, the DSCSA required manufacturers and
wholesale distributors to have systems in place by which they can identify whether a product in their possession or
control is a “suspect” or “illegitimate” product, and handle it accordingly.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug
wholesalers and 3PLs, and includes the creation of national wholesaler and 3PL licenses in cases where states do
not license such entities. The DSCSA requires that wholesalers and 3PLs distribute drugs in accordance with
certain standards regarding the recordkeeping, storage and handling of prescription drugs. Wholesalers and 3PLs
are also required to submit annual reports to the FDA beginning on January 1, 2015, which include information
regarding each state where the wholesaler or 3PL is licensed, the name and address of each facility and contact
information. According to FDA guidance, states are pre-empted from imposing any licensing requirements that are
inconsistent with, less stringent than, directly related to, or covered by the standards established by federal law in
this area. Current state licensing requirements will likely remain in effect until the FDA issues new regulations as
directed by the DSCSA. In addition, the FDA is required to issue guidance and hold public meetings regarding the
implementation of the DSCSA’ s track and trace requirements over the course of the next few years. The FDA has
begun this process, including by holding a public workshop in May 2014 and issuing various guidance documents,
including regarding suspect products, product tracing requirements, annual reporting to the FDA and the effect of
the law’ s pre-emption provisions. We are in the process of analyzing the impact of the DSCSA on our business.