[Federal Register Volume 64, Number 232 (Friday, December 3, 1999)]
[Rules and Regulations]
[Pages 67720-67763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30954]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 203 and 205

[Docket Nos. 92N-0297 and 88N-0258]
RIN 0910-AA08


Prescription Drug Marketing Act of 1987; Prescription Drug 
Amendments of 1992; Policies, Requirements, and Administrative 
Procedures

AGENCY:  Food and Drug Administration, HHS.

ACTION:  Final rule.

-----------------------------------------------------------------------

SUMMARY:  The Food and Drug Administration (FDA) is issuing a final

[[Page 67721]]

rule to set forth procedures and requirements implementing the 
Prescription Drug Marketing Act of 1987 (PDMA), as modified by the 
Prescription Drug Amendments of 1992 (PDA) and the FDA Modernization 
Act of 1997 (the Modernization Act). The final rule sets forth 
requirements for the reimportation and wholesale distribution of 
prescription drugs; the sale, purchase, or trade of, or the offer to 
sell, purchase, or trade, prescription drugs that were purchased by 
hospitals or health care entities, or donated to charitable 
organizations; and the distribution of prescription drug samples. FDA 
is also amending certain sections of the regulations entitled 
``Guidelines for State Licensing of Wholesale Prescription Drug 
Distributors'' to make them consistent with this final regulation.
DATES:  Submit written comments on the collection of information 
provisions by February 1, 2000. This regulation is effective December 
4, 2000.

ADDRESSES:  Submit written comments on the collection of information to 
the Dockets Management Branch (HFA-305), Food and Drug Administration, 
5630 Fishers Lane, rm. 1061, Rockville, MD 20857. All comments should 
be identified with the docket number found in brackets in the heading 
of this document.

FOR FURTHER INFORMATION CONTACT: 
    For information on the PDMA and regulations: Lee D. Korb, Center 
for Drug Evaluation and Research (HFD-7), Food and Drug Administration, 
5600 Fishers Lane, Rockville, MD 20857, 301-594-2041, e-mail address 
via Internet: ``[email protected]''.
    For information on compliance with and enforcement of the 
regulations: Margaret M. O'Rourke, Center for Drug Evaluation and 
Research (HFD-330), Food and Drug Administration, 7500 Standish Pl., 
Rockville, MD 20855, 301-594-0101, e-mail address via Internet: 
``[email protected]''.
     For information on biologics: Steven F. Falter, Center for 
Biologics Evaluation and Research (HFM-17), Food and Drug 
Administration, 1401 Rockville Pike, Rockville, MD 20852, 301-827-6210, 
e-mail address via Internet: ``[email protected]''.
SUPPLEMENTARY INFORMATION:

I. Background

    PDMA (Public Law 100-293) was enacted on April 22, 1988, and was 
modified by the PDA (Public Law 102-353, 106 Stat. 941) on August 26, 
1992. PDMA, as modified by the PDA, amended sections 301, 303, 503, and 
801 of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C. 
331, 333, 353, 381) to establish restrictions and requirements relating 
to various aspects of human prescription drug marketing and 
distribution. Among other things, PDMA: (1) Banned the sale, purchase, 
or trade of (or offer to sell, purchase, or trade) drug samples and 
drug coupons; (2) restricted reimportation of prescription drugs to the 
manufacturer of the drug product or for emergency medical care; (3) 
established requirements for drug sample distribution and the storage 
and handling of drug samples; (4) required wholesale distributors of 
prescription drugs to be State licensed and required FDA to establish 
minimum requirements for State licensing schemes; (5) established 
requirements for wholesale distribution of prescription drugs by 
unauthorized distributors; (6) prohibited, with certain exceptions, the 
sale, purchase, or trade (or offer to sell, purchase, or trade) of 
prescription drugs that were purchased by hospitals or health care 
entities, or donated or supplied at a reduced price to charities; and 
(7) established criminal and civil penalties for PDMA violations.
    In the Federal Register of September 13, 1988 (53 FR 35325), FDA 
published a proposed rule containing minimum requirements for State 
licensing of wholesale drug distributors. The final rule on State 
licensing requirements (part 205 (21 CFR part 205)) was published in 
the Federal Register of September 14, 1990 (55 FR 38012) (hereinafter 
referred to as the State licensing guideline final rule). The State 
licensing regulations require that all wholesale distributors be State 
licensed, establish minimum qualifications for licensees, and set forth 
minimum requirements for the storage and handling of prescription drugs 
and for the establishment and maintenance of records of drug 
distribution by wholesale distributors.
    In the Federal Register of March 14, 1994 (59 FR 11842), FDA issued 
a proposed rule to set forth agency policies and requirements for those 
sections of PDMA not related to State licensing of wholesale 
distributors (hereinafter referred to as the March 1994 proposal). The 
March 1994 proposal contained provisions on prescription drug 
reimportation, wholesale distribution of prescription drugs by 
unauthorized distributors, the resale of prescription drugs by 
hospitals, health care entities, and charitable institutions, and 
distribution of prescription drug samples. The March 1994 proposal 
called for the submission of comments by May 30, 1994. At the request 
of certain individuals, the comment period was extended, by notice in 
the Federal Register of July 15, 1994 (59 FR 36107), to August 15, 
1994. After careful consideration of the comments, the agency has 
revised and finalized the March 1994 proposal. A discussion of 
significant issues, the comments received on the proposal, and the 
agency's responses to the comments follows.

II. Significant Issues and Revisions to the Proposal

A. Reimportation of Drugs Composed Wholly or Partly of Insulin

    On November 21, 1997, the Modernization Act (Public Law 105-115) 
was enacted. Section 125(a)(2)(D) of the Modernization Act amended 
section 801(d)(1) of the act to prohibit the reimportation of a drug 
composed wholly or partly of insulin, except by the manufacturer of the 
drug or for emergency care. In accordance with the revised statutory 
requirement, the agency has revised proposed Secs. 203.10 and 203.12 
(21 CFR 203.10 and 203.12) in the final rule to include insulin-
containing drugs.

B. Blood and Blood Components Intended for Transfusion

    In the State licensing guideline final rule, FDA excluded from the 
definition of ``wholesale distribution'' the sale, purchase, or trade 
of blood and blood components intended for transfusion (see 
Sec. 205.3(f)(8)). Thus, persons engaged in the distribution of blood 
or blood components intended for transfusion are not required to be 
State licensed wholesale prescription drug distributors or to comply 
with other part 205 requirements.
    Concurrent with the State licensing guideline final rule, FDA 
published a proposed rule entitled ``Applicability to Blood and Blood 
Components Intended for Transfusion; Guidelines for State Licensing of 
Wholesale Prescription Drug Distributors'' (55 FR 38027) (hereinafter 
referred to as the September 1990 proposal). In that proposal, FDA: (1) 
Tentatively concluded that PDMA does not apply to the distribution of 
blood and blood components intended for transfusion, (2) set forth its 
rationale for its tentative conclusion, and (3) solicited comments. The 
agency stated that, if comments persuaded FDA that PDMA should be 
interpreted as applying to the distribution of blood and blood 
components intended for transfusion, FDA would amend the State 
licensing guideline final rule.

[[Page 67722]]

 Comments received on the proposal supported the exclusion, however, 
and no action has been taken by the agency to amend part 205.
    FDA again tentatively concluded in the March 1994 proposal (59 FR 
11842 at 11844) that the restrictions in and the requirements of PDMA 
do not apply to the distribution of blood and blood components intended 
for transfusion. Proposed Secs. 203.1 and 203.3(v) (21 CFR 203.1 and 
203.3(v)) specified that blood and blood components intended for 
transfusion are outside the scope of PDMA, and do not constitute 
``prescription drugs'' for the purposes of part 203 (21 CFR part 203). 
In addition, proposed Sec. 203.22(g) specifically excluded the sale, 
purchase, or trade of, or offer to sell, purchase, or trade blood or 
blood components intended for transfusion from the sales restrictions 
in proposed Sec. 203.20. No comments opposing the proposed sections 
were received.
    Based on the rationale set forth in the September 1990 proposal, 
the agency has made a final determination that blood and blood 
components intended for transfusion should be excluded from all of the 
restrictions in and the requirements of PDMA. Accordingly, proposed 
Secs. 203.1, 203.3(v), and 203.22(g) are being finalized, and the 
September 1990 proposal (Docket No. 88N-0258)is not being adopted.
    As discussed in section III.B of this document in conjunction with 
comments received on the proposed rule, blood and blood components 
intended for transfusion include whole blood, red blood cells, plasma, 
fresh frozen plasma, cryoprecipitated AHF, and platelets. Blood 
derivatives such as Factor IX, Factor IX Complex, and immune globulin, 
as well as recombinant products regulated as biological products, are 
not blood or blood components intended for transfusion and, therefore, 
are subject to the requirements and restrictions of PDMA.

C. Medical Gases

    In the March 1994 proposal (59 FR 11842 at 11844), the agency 
clarified that oxygen, USP (United States Pharmacopeia), is a 
prescription drug subject to section 503(b) of the act and, therefore, 
within the scope of PDMA and the proposed regulations. Since the 
publication of the March 1994 proposal, questions have been raised 
about the applicability of PDMA to medical gases generally.
    FDA advises that all medical gases (i.e., oxygen, USP; nitrogen, NF 
(National Formulary); nitrous oxide, USP; carbon dioxide, USP; helium 
USP; and medical air, USP) are prescription drugs within the scope of 
PDMA and the State licensing guideline final rule. Therefore, under 
Sec. 205.4, all persons engaged in the wholesale distribution of 
medical gases must be State licensed. This includes all air separation 
plants and units, suppliers, welding firms, durable medical equipment 
suppliers, and home respiratory care companies that distribute medical 
gases, except for those entities that exclusively distribute medical 
gases to patients under a valid prescription (see Sec. 205.3(f)(6)). In 
addition, distributors of medical gases are subject to all other 
restrictions and requirements under PDMA and this final rule, including 
the requirement under Sec. 203.50 to provide a drug origin statement 
and the requirements for drug sample distribution. The agency notes, 
however, that because most distributors of medical gases qualify as 
manufacturers under Sec. 203.3(s), the requirement to provide a drug 
origin statement will generally not apply to such distributors. In 
addition, the agency is unaware of the practice of providing samples of 
medical gases to licensed practitioners. Therefore, the drug sample 
provisions of PDMA and this final rule should have no practical 
applicability to the medical gas industry.

D. Revision to Proposed 203.3(e)

    In proposed Sec. 203.3(e), the term ``bulk drug substance'' was 
defined to mean:
    Any drug or drug component furnished in other than finished 
dosage form that is intended to furnish pharmacological activity or 
other direct effect in the diagnosis, cure, mitigation, treatment, 
or prevention of disease, or to affect the structure or function of 
the body of humans.
In Sec. 207.3(a)(4) (21 CFR 207.3(a)(4), the term is defined to mean:
    Any substance that is represented for use in a drug and that, 
when used in the manufacturing, processing, or packaging of a drug, 
becomes an active ingredient or a finished dosage form of the drug, 
but the term does not include intermediates used in the synthesis of 
such substances.
Although the definitions are similar, the agency has decided that it is 
appropriate to use identical definitions of bulk drug substance 
throughout the regulations. Accordingly, the final rule adopts the 
definition of bulk drug substance used in Sec. 207.3(a)(4).

E. Revisions to Proposed Sec. 203.31(d)

    For drug samples delivered by representatives, PDMA provides that a 
manufacturer or distributor is required to conduct a complete and 
accurate inventory of all drug samples in the possession of 
representatives at least annually (21 U.S.C. 353(d)(3)(C)). FDA 
proposed in Sec. 203.31(d) to require that manufacturers and 
distributors conduct a ``complete and accurate drug sample inventory'' 
at least annually of all drug samples in the possession or control of 
each manufacturer's and distributor's representatives using ``generally 
accepted inventory practices.'' In addition, FDA proposed to require 
that the results of the inventory be ``recorded in an inventory record 
and reconciliation report.''
    Under proposed Sec. 203.31(d)(1), the inventory record would 
identify all drug samples by the proprietary or established name, 
dosage strength, and number of sample units in stock. Under proposed 
Sec. 203.31(d)(2), the reconciliation report would contain a report of 
the physical count of the most recently completed prior inventory, a 
record of each drug sample received since the most recently completed 
prior inventory, a record of each drug sample distributed since the 
most recently completed prior inventory, and an explanation for any 
significant loss. Under proposed Sec. 203.31(d)(3), the inventory would 
be conducted, and the inventory and reconciliation reports would be 
prepared by persons other than the representatives being inventoried or 
supervisors or managers in their department, division, or branch, or in 
their direct line of supervision or command.
    The agency has revised proposed Sec. 203.31(d) in the final rule to 
clarify certain requirements. The introductory paragraph of 
Sec. 203.31(d) has been revised to specify that a ``physical 
inventory'' of drug samples is required, rather than an inventory. The 
term ``physical inventory'' has been added to more clearly distinguish 
the inventory from the reconciliation process and to clarify that the 
required inventory consists of a physical count of stock on hand. The 
proposed requirement that the inventory be conducted ``using generally 
accepted inventory practices'' has been deleted in the final rule 
because the agency has determined that there are no generally 
recognized standards for conducting a physical count. The final rule 
has also been revised to clarify that the results of the physical count 
must be recorded in the inventory record, not in the inventory record 
and reconciliation report. The proposed requirements for the inventory 
record remain unchanged.
    In contrast to the relatively simple task of conducting a physical 
count, the reconciliation process involves comparing the latest 
inventory to the most recent prior inventory and taking into account 
drug samples acquired and distributed in the interim, to determine

[[Page 67723]]

whether sample diversion by a representative has occurred. As discussed 
by the agency in the March 1994 proposal, Congress' purpose in enacting 
the inventory requirement was to facilitate detection of diversion 
activity, and conducting a physical inventory without reconciling that 
inventory with the most recent prior inventory would not achieve this 
goal (59 FR 11842 at 11849). Thus, the introductory paragraph of 
proposed Sec. 203.31(d) has been revised in the final rule to clarify 
that, in addition to a physical inventory, manufacturers and 
distributors are required to reconcile the results of the physical 
inventory with the most recently completed prior physical inventory and 
to document this process in a reconciliation report.
    The agency has revised proposed Sec. 203.31(d)(2)(i) in the final 
rule to require that the reconciliation report include the inventory 
record for the most recently completed prior inventory. This is the 
same as the requirement in proposed Sec. 203.31(d)(2)(i) for a ``report 
of the physical count of the most recently completed prior inventory,'' 
but the terminology is clearer and consistent with the terminology used 
in Sec. 203.31(d)(1).
    Proposed Sec. 203.31(d)(2)(iii) has been revised in the final rule 
to clarify the types of transactions that the agency considers to be 
``distributions.'' This clarification is necessary because a 
representative's stock of drug samples may be affected by various types 
of dispositions other than distributions to health care practitioners 
or their designees, and it is necessary that the reconciliation report 
reflect these different types of dispositions so that an accurate 
assessment of potential drug diversion activity can be made. Section 
203.31(d)(2)(iv), which requires a record of drug sample thefts or 
significant losses reported by the representative since the most 
recently completed prior inventory, has been added for the same reason.
    Section 203.31(d)(2)(v), which requires a summary record of the 
information contained in Sec. 203.31(d)(2)(ii) through (d)(2)(iv), has 
been added in the final rule. The summary record will permit 
manufacturers and authorized distributors of record and the agency to 
quickly review the information that is necessary to conduct a 
reconciliation and thus will help to facilitate checking the accuracy 
of reconciliations.
    Finally, as discussed in section III.E of this document in 
conjunction with the comments, proposed Sec. 203.31(d)(3) has been 
substantially revised in the final rule to eliminate the proposed 
requirement that the inventory and reconciliation functions be 
conducted by persons other than the representative or supervisors or 
managers in the representative's department, division, or branch, or in 
the representative's direct line of supervision. Instead, manufacturers 
and authorized distributors are required to take appropriate internal 
control measures to guard against error and possible fraud in the 
conduct of the physical inventory and reconciliation, and in the 
preparation of the inventory record and reconciliation report.

F. Elimination of Sec. 203.31(f)

    Proposed Sec. 203.31(f) has been removed from the final rule. The 
proposed section contained the same requirement for a manufacturer or 
authorized distributor to notify FDA of any conviction of its 
representatives as proposed in Sec. 203.37(c) and finalized in the 
rulemaking.

G.Revisions to Proposed Sec. 203.34

    Proposed Sec. 203.34(b), (c), (d), and (g) have been revised and 
renumbered in the final rule as Sec. 203.34(b)(1) through (b)(4). 
Proposed Sec. 203.34(d) is being finalized as Sec. 203.34(b)(1) and has 
been revised to clarify that a manufacturer or authorized distributor 
must have written policies and procedures detailing its methodology for 
reconciling sample requests and receipts and for determining if 
patterns of nonresponse exist that may indicate sample diversion. In 
addition, written policies and procedures must detail how a 
manufacturer or authorized distributor will initiate investigations or 
otherwise respond when patterns of nonreturns of sample receipts are 
found. Proposed Sec. 203.34(c) is being finalized as Sec. 203.34(b)(2) 
and has been revised to cover the preparation of the reconciliation 
report as well as the conduct of the physical inventory. Proposed 
Sec. 203.34(b) is being finalized as Sec. 203.34(b)(3) and has been 
revised to require manufacturers and distributors to establish and 
adhere to written policies describing their administrative systems for 
conducting random and for-cause audits of sales representatives. The 
necessity for such audits is discussed in conjunction with comments on 
proposed Sec. 203.31(d).

H. Charitable Donations of Prescription Drug Samples

    In the preamble to the March 1994 proposal (59 FR 11842 at 11853), 
the agency addressed the practice whereby licensed practitioners donate 
prescription drug samples to charitable institutions such as free 
clinics, nursing homes, and other charitable health care entities for 
dispensing to patients or for further distribution to other domestic or 
overseas charities. The agency recognized the importance of this 
practice to the operations of such institutions and to the goal of 
providing adequate medical care to patients in need, but also expressed 
concern that the practice may make enforcement of the sample 
distribution provisions of PDMA difficult and provide an avenue for 
drug diversion. The agency tentatively concluded that charitable 
donations of drug samples is permissible under PDMA, provided that a 
system of controls is in place to provide accountability and oversight 
over such donations and to minimize the potential for drug diversion. 
The agency proposed a system of drug sample donation controls in 
Sec. 203.39.
    Although no comments were submitted concerning the provisions in 
Sec. 203.39, the agency has determined that some of the proposed 
requirements are burdensome and unnecessary to ensure accountability 
and oversight over donated drug samples. Accordingly, the agency has 
revised the proposed requirements as follows.
    Proposed Sec. 203.39(a)(1) and (a)(2), which required that 
charitable institutions that receive drug sample donations be licensed 
by the State, if required by State law, and enrolled with FDA, have 
been eliminated. Regarding the elimination of proposed 
Sec. 203.39(a)(1), the agency notes that charitable institutions are 
still required to comply with applicable State law in their operations. 
However, the agency believes that it is appropriate to defer licensure 
or other State requirements to the States. Proposed Sec. 203.39(b)(1), 
which required charitable institutions to provide documentation 
demonstrating that their agents are authorized to solicit or receive 
drug sample donations, and proposed Sec. 203.39(b)(2), which required 
charitable institutions to maintain a list of agents authorized to 
solicit or receive drug sample donations, have also been eliminated.
    Proposed Sec. 203.39(b)(8), which required the donor of a drug 
sample to prepare a donation record for drug samples delivered by mail 
or common carrier, has been eliminated. Under Sec. 203.39(e) of the 
final rule, the charitable institution to which a drug sample is 
donated must prepare a donation record for the sample regardless of the 
manner of delivery of the drug sample and must retain the record for at 
least 3 years. Proposed Sec. 203.39(b)(9) has been revised to require 
that the donation record contain

[[Page 67724]]

only the name, address, and telephone number of the donating licensed 
practitioner or charitable institution; the manufacturer, brand name, 
quantity, and lot or control number of the drug sample donated; and the 
date of the donation.
    Proposed Sec. 203.39(b)(11) has been revised to eliminate the 
proposed requirement that the inventory of donated drug samples in the 
possession of a charitable institution be conducted using independent 
inventory personnel. Proposed Sec. 203.39(b)(12), which required that a 
charitable institution provide written certification to the donating 
party that it is in compliance with part 203, has been eliminated in 
the final rule. Finally, proposed Sec. 203.39(c) has been eliminated, 
but its requirements have been incorporated into the introductory 
paragraph of Sec. 203.39 such that charitable institutions may donate 
donated drug samples to other charitable institutions as long as 
Sec. 203.39 is followed.

I. Charitable Donations of Prescription Drugs Generally

    Since the publication of the March 1994 proposal, the agency has 
received requests that raise questions about whether and how PDMA 
should be applied to charitable donations of prescription drugs 
generally, not just drug samples. Nonsample drug products may be 
donated to charitable institutions from many different sources, 
including manufacturers, wholesale distributors, retail pharmacies, for 
profit and nonprofit hospitals and health care entities, other 
charitable groups, and reverse distributors (i.e., wholesale 
distributors that handle returns). In addition, FDA is aware that drug 
salvagers may also be a source of donations.
    The donation of nonsample drug products to charitable institutions 
raises similar concerns about the quality of the drugs being donated 
and potential drug diversion as the donation of drug samples. Moreover, 
such donations constitute distribution of a prescription drug to other 
than a consumer or patient and therefore could be considered 
``wholesale distribution'' under section 503(e)(4)(B) of the act. 
Although the agency is not establishing controls for nonsample 
prescription drug donations at this time, the agency is carefully 
considering the relevant issues and may in the future propose an 
approach to drug donations that encompasses both prescription drug 
samples and nonsample prescription drug products.

J. Creation and Maintenance of Required Forms, Reports, Records, and 
Signatures

    Proposed Sec. 203.60 set forth standards for the creation and 
maintenance of sample request and receipt forms, reports, records, and 
other documents required under PDMA and part 203. Proposed 
Sec. 203.60(a) permitted any required document to be created either on 
paper or on electronic media. Proposed Sec. 203.60(b) permitted any 
required document created on paper to be maintained on paper or by 
photographic or electronic imaging, provided the security and 
authentication requirements in Sec. 203.60(d) were met. Proposed 
Sec. 203.60(c) permitted required documents created electronically to 
be stored using computer technologies, provided the requirements in 
Sec. 203.60(d) were met. Proposed Sec. 203.60(d) provided that required 
documents and signatures must be created, maintained, or transmitted in 
a form providing reasonable assurance of being: (1) Resistant to 
tampering, revision, modification, fraud, unauthorized use, or 
alteration; (2) preserved in accessible and retrievable fashion; and 
(3) visible or readily made visible for purposes of review by regulated 
industry and FDA.
    In addition to the requirements in proposed Sec. 203.60, proposed 
Sec. 203.61 permitted signatures on required forms, reports, and 
records to be made by means of a writing or marking instrument such as 
a pen or indelible pencil. The section also permitted signatures to be 
made by electronic stylus on an electronic pad or by other electronic 
medium, provided the security requirements in Sec. 203.61(b) were met.
    In the Federal Register of March 20, 1997 (62 FR 13430), the agency 
issued final regulations on electronic records and electronic 
signatures in part 11 (21 CFR part 11). Because of the issuance of 
those regulations and the applicability of part 11 to part 203 document 
and signature requirements, the March 1994 proposal has been 
substantially revised. Under part 11, electronic records, electronic 
signatures, and handwritten signatures executed to electronic records 
that meet the requirements of that part may be used to meet 
requirements to create and maintain records and signatures under the 
act and agency regulations, unless specifically excepted by future 
regulations. Therefore, sections of the March 1994 proposal setting 
forth requirements relating to creation and maintenance of electronic 
records, electronic signatures, and handwritten signatures, as those 
terms are defined in part 11, have been revised or eliminated in the 
final rule.
    Proposed Sec. 203.60(a) has been deleted and replaced in the final 
rule by revised Sec. 203.60(a)(1), (a)(2), and (a)(3). Revised 
Sec. 203.60(a)(1) states that electronic records, electronic 
signatures, and handwritten signatures executed to electronic records 
may be used in lieu of paper records and handwritten signatures 
executed on paper to meet any of the record and signature requirements 
of PDMA or part 203, provided that the requirements of part 11 are met. 
Although electronic signatures, electronic records, and handwritten 
signatures executed on electronic records would be permitted to meet 
PDMA and part 203 records and signature requirements under the 
provisions of part 11 without further rulemaking in part 203 (see, 
e.g., Sec. 11.1), this section has been included in the final rule for 
added clarity. The final rule also defines the terms electronic record, 
electronic signature, and handwritten signature in revised 
Sec. 203.3(k), (l), and (p), respectively, to have the same meaning 
that these terms have in Sec. 11.3(b)(6), (b)(7), and (b)(8).
    Revised Sec. 203.60(a)(2) permits combinations of paper records and 
electronic records, electronic records and handwritten signatures 
executed on paper, and paper records and electronic signatures or 
handwritten signatures executed to electronic records to be used to 
meet PDMA record and signature requirements, provided that the 
requirements of part 11 are met for the electronic component. In 
addition, a reasonably secure link must exist between the paper-based 
and electronic components to ensure that the combined records and 
signatures are trustworthy and reliable and the signer cannot readily 
repudiate the signed record as not genuine. A reasonably secure link 
could consist of a physical link between the electronic and paper-based 
records (i.e., where the paper-based record(s) and a computer disk 
containing the electronic record(s) are sealed together in a container 
and a chain of controlled custody for the sealed container is 
established) or a technology-based link. The agency is planning to 
issue in the future further guidance on technology-based links in 
conjunction with its implementation of part 11.
    Revised Sec. 203.60(a)(3) clarifies that the ``record and signature 
requirements'' to which Sec. 203.60(a)(1) and (a)(2) refer include drug 
sample request and receipt forms, reports, records, and any other types 
of documents and their associated

[[Page 67725]]

signatures required by PDMA or part 203.
    Because part 11 does not apply to the photographic imaging of paper 
records, proposed Sec. 203.60(b) has been retained in the final rule. 
The section has been revised, however, to clarify that electronic 
scanning of paper records into a computer creates an electronic record 
that is subject to the requirements of part 11. The security and 
authentication requirements in proposed Sec. 203.60(d) have been 
renumbered in the final rule as Sec. 203.60(c) and revised such that 
the requirements in the section apply only to documents and signatures 
that are created on paper and that are maintained by photographic 
imaging or transmitted electronically. Minor revisions have also been 
made to the security and authentication requirements in revised 
Sec. 203.60(d)(3).
    The requirements for maintenance of documents created by electronic 
means in proposed Sec. 203.60(c) and the signature requirements in 
proposed Sec. 203.61 have been superseded by part 11 requirements. 
Therefore, these sections have been deleted in their entirety in the 
final rule. Proposed Sec. 203.60(e) and (f) have been renumbered in the 
final rule as Sec. 203.60(d) and (e).

K. Implementation of the Final Rule

    The provisions in the final rule will become effective 1 year after 
the date of publication of the final rule in the Federal Register. The 
agency is providing this period to give industry sufficient time to 
implement systems for prescription drug sample distribution and 
wholesale distribution that are in compliance with the final rule.

III. Comments on the Proposed Rule

A. General Comments

    FDA received 56 comments on the March 1994 proposal from 
prescription drug manufacturers, industry organizations, professional 
associations and organizations, law enforcement agencies, and others. 
Although most of the comments addressed only specific provisions of the 
rule, a few commented generally on the proposed rule, and those 
comments were mixed. For example, one comment stated that it ``supports 
the controls on prescription drug samples sought through the passage of 
PDMA and feels that, in general, the proposed rule is a positive step 
in combating the market in diverted prescription drugs and ensuring 
consumers that drug products continue to remain safe and effective.'' 
Another comment, however, stated that ``finalization of the proposed 
rule will create unnecessary additional administrative burdens for 
companies and their sales representatives'' and ``would not improve 
significantly the industry's ability to track sample distribution and 
reduce the possibility of diversion of samples.''
    A large number of comments addressed the provisions of the proposed 
rule relating to sample distribution. In fact, comments were received 
on almost all of the sections of the proposed rule dealing with sample 
distribution. Most of these comments were critical of the manner in 
which the agency proposed to implement the sample distribution 
requirements contained in PDMA. In addition to comments on sample 
distribution, comments were received on sections of the proposed rule 
relating to reimportation of prescription drugs, resales of 
prescription drugs purchased by health care entities, recordkeeping and 
investigation requirements, and wholesale distribution.
    Specific issues raised by the comments and the agency's responses 
follow.

B. Definitions

    Blood component. Proposed Sec. 203.3(d) defined ``blood component'' 
as ``that part of a single-donor unit of blood separated by physical or 
mechanical means.''
    1. One comment requested clarification on whether various plasma 
products and derivatives, including antihemophilic factor, Factor IX, 
Factor IX Complex, and immune globulin IV, are considered blood 
components or drugs. The comment also asked for clarification of 
whether the agency makes a distinction between human and recombinant 
products in deciding whether to categorize a blood component 
preparation as a blood component or drug.
    The agency advises that blood components, as defined in 
Sec. 203.3(d) of the final rule, include red blood cells, plasma, fresh 
frozen plasma, cryoprecipitated AHF, and platelets. Antihemophilic 
Factor, Factor IX Complex, and immune globulin products are derivatives 
of blood, not blood components. Both blood components and blood 
derivatives are regulated as biologics under the authority of the 
Public Health Service Act (the PHS Act) and are also drugs under 
section 201(g)(1) of the act (21 U.S.C. 321(g)(1)). Products 
manufactured through recombinant technology that mimic blood 
derivatives or other biological products are also regulated as 
biologics under the PHS Act and are drugs under section 201(g)(1) of 
the act. These products, like blood derivatives, are not blood 
components.
    Distribute. Proposed Sec. 203.3(h) defined ``distribute'' to mean 
to sell, offer to sell, deliver, or offer to deliver a drug to a 
recipient, except that the term ``distribute'' does not include the 
providing of a drug sample to a patient by:
    (1) A practitioner licensed to prescribe such drug,
    (2) A health care professional acting at the direction and under 
the supervision of such a practitioner, or
    (3) The pharmacy of a hospital or of another health care entity 
that is acting at the direction of such a practitioner and that 
received such sample in accordance with the act and regulations.
    On its own initiative, the agency is revising proposed 
Sec. 203.3(h) in the final rule to specify that the term ``distribute'' 
does not include the delivery of drugs or offer to deliver drugs by a 
common carrier in the usual course of its business as a common carrier. 
This revision is necessary to permit common carriers that deliver drug 
samples, or perform duties incidental to delivery (i.e., delivery 
verification) for manufacturers or authorized distributors of record, 
to do so without being required to be authorized distributors of 
record.\1\ Such a requirement would be confusing and inconsistent with 
language in section 503(d) of the act, which distinguishes between 
sample distribution and delivery by mail or common carrier. However, 
comarketers, fulfillment houses, and other entities that perform some 
or all of the functions associated with sample distribution and 
promotion that would otherwise be performed by the drug manufacturer 
are not covered by this exception. Thus, entities that create and 
maintain required forms, reports, and records; have their own sales 
forces and representatives; solicit and fill requests for drug samples; 
or conduct other such activities are engaged in drug sample 
distribution and must be authorized distributors of record.
---------------------------------------------------------------------------

    \1\ Under the proposed rule, delivery of drug samples would 
constitute drug sample distribution. Under section 503(d) of the 
act, only a manufacturer or authorized distributor of record may 
distribute drug samples.
---------------------------------------------------------------------------

    Health care entity. Proposed Sec. 203.3(n) defined ``health care 
entity'' as ``any person that provides diagnostic, medical, surgical or 
dental treatment, or chronic or rehabilitative care, but does not 
include any retail pharmacy or any wholesale distributor. A person 
cannot simultaneously be a `health care entity'

[[Page 67726]]

and a retail pharmacy or wholesale distributor.''
    2. Several comments noted that, under the proposed definition of 
health care entity, full-service blood centers that currently function 
both as health care entities and distributors of blood plasma 
derivatives would not be permitted to continue to operate in both of 
these capacities. The comments expressed concern that the ability of 
community health care entities to obtain plasma derivatives would be 
detrimentally affected if community blood centers were prohibited from 
distributing them.
    One comment explained that plasma derivatives are unique 
prescription drugs that are largely distributed outside the typical 
drug distribution network. The comment stated that, historically, blood 
centers and hospital blood banks have provided plasma processing and 
distribution services for their local communities. Although the 
processing has become more complex and is now done largely by for-
profit manufacturers, blood centers, hospital blood banks, and 
transfusion services still act as final distributors of plasma 
derivatives. The comment said that this arrangement enables the health 
care providers who receive blood derivatives to use the ``expert 
consultative services'' of these entities.
    Several comments stated that the same reasons for excluding blood 
and blood components intended for transfusion from PDMA's sales 
restrictions are applicable to blood derivatives. The comments 
contended that there is no indication in the legislative history that 
the types of abuses that lead to the restrictions in section 503(c)(3) 
of the act are present with blood derivatives or that Congress intended 
the restrictions in section 503(c)(3) of the act to apply to blood 
derivatives.
    The comments suggested ways in which the proposed rule could be 
amended to allow blood centers to continue to function as wholesale 
distributors of plasma derivatives. Two comments suggested specifically 
excluding blood banks, transfusion services, and hospital blood banks 
from the prohibition against a health care entity simultaneously being 
a wholesale distributor. Another comment recommended that FDA eliminate 
entirely the prohibition against a health care entity simultaneously 
being a wholesale distributor with a clarification in the preamble to 
the final rule that health care entities engaging in ``sham'' 
operations to avoid resale prohibitions remain subject to enforcement 
of resale prohibitions, even if licensed as a wholesaler. One comment 
suggested expanding the definition of ``blood'' or ``blood components'' 
to include plasma derivatives.
    The agency declines to revise the definition of health care entity 
or otherwise revise the proposed rule to permit health care entities to 
engage in the wholesale distribution of blood derivatives or other 
prescription drug products. The statutory restrictions in section 
503(c)(3)(A) of the act prohibit the sale, purchase, or trade of, or 
offer to sell, purchase, or trade prescription drugs that are purchased 
by a public or private hospital or health care entity or donated or 
supplied at a reduced price to a charitable organization. Because blood 
derivatives are prescription drugs that are neither blood nor blood 
components, a hospital or health care entity that purchases these 
products from a manufacturer or distributor, or a charitable 
institution that receives these products through a donation or at a 
reduced price, may not sell or trade these products except as permitted 
under section 503(c)(3)(B) of the act and Sec. 203.22 of the agency's 
regulations.\2\
---------------------------------------------------------------------------

    \2\ For example, the proposed definition of health care entity 
would not prevent a hospital, health care entity, or charity from 
purchasing blood derivatives and administering them to patients 
under a valid prescription.
---------------------------------------------------------------------------

    The agency is unpersuaded by the comments that blood derivatives 
should, as a matter of public health policy, be grouped with blood and 
blood components intended for transfusion as products that Congress did 
not intend to cover under PDMA generally, or under section 503(c)(3)(A) 
of the act specifically. In the September 1990 proposal, the agency 
stated that if PDMA and, in particular, PDMA's restrictions on the 
resale of prescription drugs were considered applicable to blood and 
blood components intended for transfusion, the result would be to 
seriously impede the present blood distribution system and thereby 
substantially interfere with, and reduce, the nation's blood supply. 
Based largely on this ``untenable result,'' the agency stated its 
belief that Congress did not intend to subject blood and blood 
components to PDMA's provisions (55 FR 38027).
    The comments contend that, as with whole blood and blood components 
intended for transfusion, the supply of blood derivatives to the public 
would be impeded if blood banks were not permitted to distribute these 
products. However, unlike whole blood and blood components, blood 
derivatives are manufactured in large quantities by manufacturers that 
are independent of blood banks and blood centers, are packaged and 
stored similarly to other pharmaceuticals, and have relatively normal 
shelf lives. Moreover, blood derivatives need not be matched from a 
donor to a donee as do whole blood and blood components intended for 
transfusion. Thus, although in some instances blood derivatives are 
distributed by blood centers and hospital blood banks, they also are 
distributed by conventional drug wholesalers. There is no evidence 
before the agency at this time that a substantial percentage of the 
nation's supply of blood derivatives is currently distributed by blood 
centers, hospital blood banks, or transfusion services, or that the 
nation's supply of blood derivatives would be seriously impeded if 
these entities were prohibited from distributing these products.
    Moreover, the comments' assertion that blood derivatives, like 
blood and blood components, are not subject to the abuses Congress set 
out to remedy in PDMA is speculative and unsupported by facts. As 
discussed previously, blood derivatives are distributed through a 
normal wholesale distribution system, and they need not be matched to 
specific patients. Thus, the possibility of diversion of these products 
exists, and documented instances of diversion of these products have in 
fact occurred. The fact that blood derivatives were not specifically 
mentioned by Congress in the legislative history is in itself of little 
significance.
    FDA recognizes that, in addition to selling blood derivatives to 
community hospitals, blood centers have traditionally provided advice 
and guidance on how to use the derivatives. The final rule does not 
prohibit the provision of information by a health care entity to 
another health care entity, but rather prohibits the selling of 
prescription drug products, including blood derivatives, that are 
purchased by a hospital or health care entity. Thus, blood centers or 
other entities that have traditionally provided information to 
hospitals or other health care centers are not precluded from doing so 
under PDMA or the final rule.
    3. One comment stated that FDA's definition of health care entity 
is ``without factual or legal foundation.''
    Two comments stated that FDA's interpretation of section 503(c)(3) 
of the act as prohibiting a health care entity from simultaneously 
being a wholesale distributor is contrary to the plain language of the 
statute and to legislative intent, and places inappropriate 
restrictions on the legitimate operations of blood centers. These 
comments interpreted the last sentence in section

[[Page 67727]]

503(c)(3)(A) of the act, which states in part that ``[f]or purposes of 
this paragraph, the term `entity' does not include a wholesale 
distributor of drugs or a retail pharmacy licensed under State law,'' 
as creating an exemption to the sales restrictions in that section for 
health care entities that are State licensed as wholesale distributors. 
The comments stated that FDA's proposed definition of ``health care 
entity'' contradicts the clear wording of the statute. The comments 
also stated that the proposed definition is inconsistent with 
legislative intent to permit health care entities acting as legitimate 
wholesalers to engage in wholesale distribution of prescription drugs.
    The agency acknowledges that the first clause of the last sentence 
in section 503(c)(3) of the act could be read to make the restrictions 
in section 503(c)(3)(A) of the act inapplicable to hospitals or health 
care entities State licensed as wholesale distributors. However, the 
agency believes that the statutory language should be read to mean that 
health care entities subject to the restrictions in section 
503(c)(3)(A) of the act cannot simultaneously be wholesale distributors 
or retail pharmacies. As noted by the agency in the proposed rule (59 
FR 11842 at 11845), the former interpretation is inconsistent both with 
general rules of statutory construction and with legislative intent. If 
this interpretation were to be given effect, it would mean that a 
health care entity could circumvent the sales restrictions by obtaining 
a State wholesale distribution license. Such an interpretation would 
deprive the sales restrictions of any force or effect. Moreover, 
Congress expressly enumerated in section 503(c)(3)(B) of the act the 
circumstances under which drugs purchased by a health care entity may 
be sold. The agency believes that if Congress had intended to permit 
sales of prescription drugs purchased by health care entities that are 
State licensed wholesale distributors, it would have done so under 
section 503(c)(3)(B) of the act.
    Interpreting section 503(c)(3) of the act in the manner suggested 
by the comments would also be inconsistent with legislative intent as 
reflected in the congressional findings and legislative history. The 
statutory restrictions in section 503(c)(3)(A) of the act reflect the 
congressional finding in section 2(7) of PDMA that the resale of 
prescription drugs by health care entities at below wholesale prices 
had helped to fuel the diversion market and constituted an unfair form 
of competition to legitimate wholesalers and retailers paying 
prevailing market prices. These same concerns also were expressed by 
Congress in the legislative history. (See H. Rept. 100-76, pp. 12-13.) 
If health care entities were permitted to obtain State wholesale 
distributor licenses and engage in wholesale distribution of 
prescription drugs, as suggested by the comments, there would be no way 
of ensuring that the types of abuses that Congress sought to prevent in 
section 503(c)(3)(A) of the act would not occur. Neither the 
requirements applicable to wholesale distributors in section 503(e) of 
the act nor the State licensing guidelines in part 205 contain 
requirements to deter a health care entity from reselling prescription 
drugs, or require or authorize FDA to keep track of the circumstances 
under which prescription drugs are bought and sold by wholesale 
distributors. Thus, if health care entities were permitted to be State 
licensed wholesale distributors, they could purchase drugs for their 
own use and sell them on the secondary wholesale market with impunity 
and without the knowledge of the agency or Congress. The agency does 
not believe that Congress intended such a result.
    Licensed practitioner. Proposed Sec. 203.3(o) defined ``licensed 
practitioner'' as ``any person licensed by State law to prescribe 
drugs.''
    4. One comment recommended that ``or authorized'' be added after 
``licensed'' in the definition to allow nonphysician practitioners 
subject to State authorization schemes other than licensing to obtain 
drug samples.
    The agency has decided to follow the suggestion of the comment and 
revise the definition of ``licensed practitioner'' in the final rule to 
include practitioners authorized by State law to prescribe drugs. 
Congress stated in the legislative history (S. Rept. 100-303, p. 5) 
that ``Drug samples may only be distributed to practitioners licensed 
or authorized by State law to prescribe such drugs.'' Moreover, the use 
by Congress of the term ``licensed practitioner'' rather than 
``physician'' in section 503(d)(2)(A) of the act shows congressional 
intent to allow nonphysician practitioners to obtain drug samples. 
Because a significant number of these practitioners are subject to 
different State authorization schemes than licensing, the agency finds 
that a strict interpretation of the word ``license'' would be 
inconsistent with congressional intent.
    5. One comment stated that, in some States, advanced practical 
nurses are licensed to prescribe certain drugs, but are prohibited from 
obtaining samples of the same drugs. The comment asserted that, under 
the proposed definition of ``licensed practitioner,'' such nonphysician 
practitioners would be permitted to obtain samples.
    In developing the proposed definition of licensed practitioner, the 
agency was not aware that some States may permit practitioners to 
prescribe certain drugs, but prohibit them from obtaining samples of 
those drugs. Because the agency does not wish to interfere with States' 
authority to determine who may request and receive drug samples, the 
agency clarifies that a practitioner who is prohibited by State law 
from receiving samples of certain types of drugs is not permitted to do 
so under PDMA even though he or she is licensed or authorized to 
prescribe those drugs.
    Ongoing relationship. Proposed Sec. 203.3(r) defined ``ongoing 
relationship'' as an association that exists when a manufacturer and a 
distributor enter into a written agreement under which the distributor 
is authorized to sell the manufacturer's products for a period of time 
or for a number of shipments, at least one sale is made under that 
agreement, and the name of the authorized distributor of record is 
entered on the manufacturer's list of authorized distributors of 
record.
    6. One comment objected to a requirement for a written agreement 
between a manufacturer and a distributor. The comment stated that 
written agreements are not customary in the industry and that such a 
requirement would be burdensome because distributors distribute for 
large numbers of vendors. The comment recommended that, for the 
purposes of proving that an ongoing relationship exists, it should be 
sufficient to show that sales are made on a continuing basis and that 
the distributor's name appears on the manufacturer's list of authorized 
distributors.
    Another comment objected both to the requirement for a written 
agreement and to the requirement that a distributor be on the 
manufacturer's list of authorized distributors of record. The comment 
stated that neither of these requirements was previously required by 
the agency in compliance information provided to industry by the 
agency. The comment stated that both requirements would make it more 
difficult for distributors to become authorized distributors of record. 
In addition, the comment stated that the requirements would give 
prescription drug manufacturers the ability to deny authorized-
distributor-of-record status to distributors with whom they have 
engaged in ongoing business relationships. The comment stated that by 
giving drug manufacturers the power to decide to whom PDMA wholesale 
distribution requirements apply without oversight or review, FDA would 
be

[[Page 67728]]

delegating legislative power to the private sector in violation of 
separation of powers principles in the U.S. Constitution. The comment 
recommended that FDA adopt a definition of ongoing relationship that 
mirrors a definition set forth by the agency in a 1988 compliance 
letter.
    PDMA defines the term ``authorized distributors of record'' as 
those distributors with whom a manufacturer has established an ongoing 
relationship to distribute the manufacturer's products. PDMA does not, 
however, define what constitutes an ``ongoing relationship.'' In a 1988 
letter issued by FDA (see Letter from Daniel L. Michels, Director, 
Office of Compliance to Regulated Industry, Docket No. 88N-258L, August 
1, 1988), the agency made its first attempt to interpret the term in 
the context of PDMA. FDA stated that ``ongoing relationship'' may be 
interpreted to mean a continuing business relationship in which it is 
intended that the wholesale distributor engage in wholesale 
distribution of a manufacturer's prescription drug product or products. 
The agency stated that evidence of such intent could include, but would 
not be limited to, the existence of a written franchise, license, or 
other distribution agreement between the manufacturer and wholesale 
distributor and the existence of ongoing sales by the manufacturer to 
the distributor.
    The agency continues to believe that the term ``ongoing 
relationship'' in the context of wholesale distribution infers a 
continuing business relationship between a distributor and a 
manufacturer where the intent exists to engage in wholesale 
distribution. Furthermore, the agency has determined that, to 
facilitate compliance with and enforcement of the act, it is necessary 
to have a formalized way of establishing that an ongoing relationship 
exists. A written agreement in which the manufacturer authorizes the 
distributor to distribute some or all of its products for a period of 
time or for a number of shipments will provide a clear and verifiable 
expression of the parties' intent to engage in a continuing business 
relationship. The written agreement required by proposed Sec. 203.3(r) 
(revised as Sec. 203.3(u)) need not rise to the level of a contract or 
create legally enforceable obligations on the parties. Rather, the 
agreement need only state that the distributor is authorized to 
distribute a manufacturer's products for a period of time or for a 
number of shipments and, if the distributor is not authorized to 
distribute all of the manufacturer's products, identify those products 
to which the authorization extends.\3\ This latter requirement, 
although not included in the proposed rule, is consistent with the 
requirement in proposed Sec. 203.50(c)(1) for manufacturers to maintain 
a list of authorized distributors that specifies whether distributors 
are authorized to distribute the manufacturer's full product line or 
only particular products.
---------------------------------------------------------------------------

    \3\ The written agreement required under Sec. 203.3(u) to 
establish an ongoing relationship constitutes a ``required record'' 
under revised Sec. 203.60, and must be made available, upon request, 
to FDA or other Federal, State, or local regulatory or law 
enforcement officials for review and reproduction.
---------------------------------------------------------------------------

    Given the relative ease with which the agreement required by 
Sec. 20.3(u) can be created, the agency believes that it is highly 
unlikely that a manufacturer would refuse to enter into a written 
agreement with a distributor with whom it wishes to have a continuing 
business relationship. Moreover, it is clearly not the agency's intent 
in requiring a written agreement to confer additional discretion on 
manufacturers, but rather to implement the requirement in the act for 
an ongoing relationship in a manner in which it can be efficiently 
enforced. This is consistent with the agency's authority under section 
701(a) of the act (21 U.S.C. 371(a)) to issue regulations for the 
efficient enforcement of the act. Accordingly, the agency declines to 
revise the definition of ``ongoing relationship'' to eliminate the 
requirement for a written agreement.
    Finally, on its own initiative, the agency has revised the proposed 
definition of ``ongoing relationship'' in the final rule to eliminate 
the requirement that at least one sale be completed under the written 
agreement and that a distributor be entered on the manufacturer's list 
of authorized distributors of record. The proposed requirement for a 
completed sale under the written agreement is unnecessary and, as 
discussed below, inconsistent with the use of the definition in the 
context of sample distribution. The proposed requirement that a 
distributor be entered on the manufacturer's list of authorized 
distributors of record is unnecessary in light of the requirement, in 
section 503(e)(1)(B) of the act and revised Sec. 203.50(d) of the final 
rule, that manufacturers keep an updated list of authorized 
distributors of record at their corporate offices.
    7. Another comment stated that sample fulfillment houses, mailing 
services, comarketers, and similar entities clearly distribute samples 
within the meaning of ``distribute'' in proposed Sec. 203.3(h), but 
cannot satisfy the requirements for an ongoing relationship in proposed 
Sec. 203.3(r) necessary to be considered authorized distributors of 
record. The comment recommended that the proposed definition of ongoing 
relationship be revised to permit these entities to be authorized 
distributors of record.
    The comment raises a valid point. The proposed definition of 
ongoing relationship is inappropriate for sample distribution, and has 
been revised in the final rule to specify that an ongoing relationship 
exists when there is a written agreement between a manufacturer and 
distributor to distribute, rather than to sell, the manufacturer's 
products for a period of time or for a number of shipments.
    Prescription drug. Proposed Sec. 203.3(v) defined ``prescription 
drug'' as any drug required by Federal law to be dispensed only by a 
prescription, including finished dosage forms, bulk drug substances, 
and active ingredients subject to section 503(b) of the act.
    On its own initiative, the agency has removed ``active 
ingredients'' in the final rule. The term ``bulk drug substance,'' as 
defined under Sec. 203.3(e), is synonymous with ``active ingredient.''
    Wholesale distribution. Proposed Sec. 203.3(y) defined ``wholesale 
distribution'' as ``distribution of prescription drugs to persons other 
than a consumer or patient, but does not include: (1) Intracompany 
sales * * *.''
    8. One comment objected to the exemption of intracompany sales from 
wholesale distribution, stating that it ``totally gets away from the 
original intent of the PDMA.'' The comment said that this provision 
leaves a gap where diversion can occur between wholesalers and retail 
outlets owned by them.
    The agency disagrees with the comment. Intracompany sales were 
expressly excluded by Congress from the definition of wholesale 
distribution in section 503(e)(4)(B) of the act. In addition, both the 
House and Senate reports referred to the exclusion. (See H. Rept. 100-
76, S. Rept. 100-303.) The House report stated:
    [i]t is the express intent of the Committee that the scope of 
[this section] include distribution by chain drug warehouses, 
wholesale drug warehouses, and all sellers of prescription drugs in 
wholesale quantities to persons or firms other than the consumer or 
patient. With respect to section 503(e)(1), intracompany sales, 
i.e., the distribution between divisions and companies having the 
same ownership, are excluded.
(H. Rept. 100-76, p. 17.)
Thus, as expressed in the language of the act and the legislative 
history, Congress' intent was to exclude intracompany sales from the 
requirements for wholesale distribution in section 503(e) of the act. 
In addition,

[[Page 67729]]

the agency advises that Sec. 205.5 contemplates a licensing scheme for 
business entities with subsidiaries, affiliates, and more than one 
facility (see Sec. 205.5(b)), and provides that State licensing 
authorities require each wholesale distributor to supply information on 
all facilities used by the licensee for the storage, handling, and 
distribution of prescription drugs (see Sec. 205.5(a)(3)).

C. Reimportation

    Proposed Sec. 203.10 stated, in relevant part, that ``[n]o 
prescription drug that was manufactured in a State and exported from 
the United States may be reimported by anyone other than its 
manufacturer.''
    9. One comment requested that the proposed rule be revised to state 
that a prescription drug may be reimported by any of a manufacturer's 
subsidiary companies or contract manufacturers.
    For the reasons discussed in the preamble to the proposed rule (59 
FR 11842 at 11844), FDA is adopting the definition of manufacturer set 
forth in Sec. 201.1 (21 CFR 201.1) of the agency's regulations for the 
purposes of part 203. Accordingly, a manufacturer's subsidiary 
companies or contract manufacturers may reimport a prescription drug 
product only if they also qualify as a manufacturer of the drug product 
under Sec. 201.1.
    10. One comment recommended that language be added to the section 
to include drugs that are sold by a manufacturer for exportation, but 
never leave the United States. The comment stated that a large 
proportion of the ``export'' drugs that are diverted never actually 
leave the United States.
    Because the drugs referred to by the comment are not exported, they 
cannot be subject to the restriction on reimportation. However, the 
domestic distribution of such drugs is covered by PDMA and other 
applicable laws, which should help to reduce the potential for 
diversion.

D. Sales Restrictions

    Proposed Sec. 203.20 prohibited the sale, purchase, or trade of, or 
offer to sell, purchase, or trade, any prescription drug that was 
purchased by a public or private hospital or health care entity or 
donated or supplied at a reduced price to a charitable institution.
1. Section 203.22(e)
    Proposed Sec. 203.22(e) provided that Sec. 203.20 does not apply 
to: ``The sale, purchase, or trade of a drug, an offer to sell, 
purchase, or trade a drug, or the dispensing of a drug under a valid 
prescription.''
    11. A health care organization requested that FDA clarify whether, 
under this section, its nonprofit affiliates may provide prescription 
drugs obtained at a nominal cost to patients under a prescription, 
where the amount charged for the drug varies depending on the patient's 
ability to pay.
    Section 203.20 does not prohibit a health care entity from 
obtaining prescription drugs at reduced cost. Rather, it prohibits 
reselling those drugs except in specified ways. Section 203.22(e) 
allows the resale of drugs by a health care entity under a valid 
prescription. The amount of profit derived from such a sale, or the 
lack thereof, is not addressed by Sec. 203.22(e). Therefore, a health 
care entity may, subject to other applicable laws, resell prescription 
drugs to patients under a valid prescription at varying prices.
2. Section 203.22(f)
    Proposed Sec. 203.22(f) provided that Sec. 203.20 does not apply 
to:
    The sale, purchase, or trade of a drug or the offer to sell, 
purchase, or trade a drug by hospitals or health care entities owned 
or operated by Federal, State, or local governmental units to other 
hospitals or health care entities owned or operated by Federal, 
State, or local governmental units.
    12. One comment opposed this exclusion. The comment argued that 
government employees are just as apt to engage in drug diversion 
activities as are private sector employees. The comment stated that the 
potential for drug diversion is even greater in the public sector 
because Federal and State hospitals and health care entities often 
receive more favorable pricing terms than private hospitals. The 
comment also stated that the exclusion ``appears self serving'' and is 
not supported by the legislative record.
    FDA disagrees with this comment. As the agency explained in the 
preamble to the proposed rule (59 FR 11842 at 11847), any profits from 
legitimate sales of prescription drugs by government hospitals would 
accrue to government treasuries. Thus, no financial incentive exists 
for a government hospital or health care entity, or its representatives 
acting in an official capacity, to engage in diversion. Given the lack 
of financial incentive, the amount of profit that could be realized due 
to the prices at which government hospitals may receive prescription 
drugs is irrelevant. Moreover, although it is possible that individual 
employees may steal drugs or obtain them by other criminal methods and 
sell them, criminal conduct by individual employees was not intended by 
Congress to be addressed by the sales restrictions. Rather, it was the 
legal resale of drugs obtained by hospitals and health care entities, 
and the potential profit accruing to those entities from such sales, 
with which Congress was concerned in enacting the sales restrictions.
    Finally, the agency disagrees that the exclusion is not supported 
by the legislative record. As discussed previously and in the proposed 
rule (59 FR 11842 at 11846 and 11847), the prohibition against sales by 
hospitals or health care entities was prompted in part because of the 
temptation for such entities to sell for profit drugs acquired at below 
wholesale prices. Because no financial incentive exists for government 
hospitals to profit from sales to other government hospitals, it is 
unlikely that such sales would result in the kinds of abuses that PDMA 
sales restrictions were designed to prevent.
    In addition, Congress expressly created exclusions permitting, 
among other things, sales between hospitals or health care entities 
under common control and emergency sales by hospitals or health care 
entities to retail pharmacies to allow for the provision of health care 
to patients. (See H. Rept. 100-76, 13). As discussed in the preamble to 
the proposal (58 FR 11842 at 11846 and 11847), permitting prescription 
drug sales between government hospitals and health care entities will 
help such entities to provide health care services in response to 
various needs, including the provision of health care to people with 
low incomes and the distribution of vaccines. Thus, the exception is 
consistent both with Congress' general objectives in enacting the sales 
restrictions and with the rationale supporting other exemptions 
expressly created by Congress.
3. Sections 203.23 and 203.24
    Proposed Secs. 203.23 and 203.24 set forth exemptions to the sales 
prohibition contained in proposed Sec. 203.20. Proposed Sec. 203.23 
provided an exemption for the revocation of a sale and purchase 
transaction by a hospital, health care entity, or charitable 
institution because of a mistake in ordering or delivery and the 
reshipment of the prescription drug to a manufacturer or wholesale 
distributor for a credit or refund. The section required that the drug 
be shipped back to the manufacturer or distributor within 10 days and 
that the reshipment be made under proper conditions for storage, 
handling, and shipping. In addition, the section required that, if the 
drug is reshipped to a wholesale distributor, the hospital, health care 
entity, or charitable institution must provide written notice to the

[[Page 67730]]

manufacturer of the revocation and reshipment.
    Proposed Sec. 203.24 provided an exemption for the return of a 
prescription drug purchased by a hospital or health care entity, or 
acquired at a reduced price by or donated to a charitable institution, 
to the manufacturer or the wholesale distributor that sold, donated, or 
supplied the prescription drug. The section required that, if the drug 
is returned to a wholesale distributor, the hospital, health care 
entity, charitable institution, or distributor must notify the 
manufacturer that the drug has been returned. In addition, the 
hospital, health care entity, or charitable institution must prepare a 
credit memo for all returns. The returning entity must forward a copy 
of the memo to the manufacturer and retain a copy for its records. The 
section also required that returned drugs be kept under proper 
conditions for storage, handling, and shipping. Finally, the section 
required that the value of any credit, refund, or exchange not exceed 
the purchase price or, if a donation, the fair market price of the 
returned product.
    13. One comment said that it generally supported the agency's 
approach for allowing returns, but questioned the need for Sec. 203.23 
and recommended that it be deleted in the final rule. According to the 
comment, the agency's purpose for calling a return a revocation of 
acceptance and reshipment was to address concerns that sales provisions 
in the Uniform Commercial Code (UCC) could make a return a prohibited 
resale under PDMA. The comment stated that by ``expanding on this 
initial allowance of returned product and proposing Sec. 203.24, FDA 
has shown that it has overcome UCC concerns and will not view a return 
as a prohibited resale.''
    The agency agrees for the most part with the comment. Because 
proposed Secs. 203.23 and 203.24 permit transactions and impose 
notification and documentation requirements that are similar, and 
because the situations in which returns would be permitted under 
Sec. 203.23 would also be permitted by Sec. 203.24, the agency has 
decided to withdraw proposed Sec. 203.23 and redesignate proposed 
Sec. 203.24 as new Sec. 203.23 in the final rule. This will simplify 
the regulation and eliminate potential confusion about whether proposed 
Sec. 203.23 or Sec. 203.24 applies to a particular return. Under the 
revised regulation, all prescription drugs returned by a hospital, 
health care entity, or charitable institution to its supplier will be 
regarded as ``returns'' and will be subject to the same requirements 
for providing notice to the manufacturer, documenting the return, and 
maintaining proper storage, handling, and shipping conditions.
    On its own initiative, the agency has decided not to include in 
revised Sec. 203.23 the requirement in proposed Sec. 203.24(a) that a 
hospital, health care entity, charitable institution, or distributor 
notify the manufacturer that a prescription drug product has been 
returned when the return is made to a wholesale distributor. Under 
revised Sec.  203.23(a) and (b), the hospital, health care entity, or 
charitable institution is already required to fill out a credit memo 
documenting the return of a prescription drug and to forward a copy of 
that memo to the manufacturer. The agency believes that the receipt of 
the credit memo by the manufacturer should provide sufficient notice to 
it of the source of a return, and the additional notice that would have 
been required under proposed Sec. 203.24(a) is not necessary.
    14. One comment stated that the concerns addressed by the 
requirements for notification of the manufacturer and documentation of 
returns in the proposal is legitimate, but that health care entities 
should not be ``held responsible for helping to police the wholesale 
drug industry.'' The comment said that wholesalers should be required 
to develop mechanisms for documentation and recordkeeping that would 
achieve the desired goals of the regulation.
    The agency believes that the comment misconstrues the purpose of 
the notice and documentation requirements. As the agency explained in 
the proposal, the purpose of requiring that a credit memo be forwarded 
to the manufacturer is to help ensure that any chargebacks or reduced 
prices will be factored into a credit or refund provided by the 
manufacturer to prevent windfall profits from the transaction (59 FR 
11842 at 11847). There is a potential for such profits to be realized 
not only by wholesale distributors, but by hospitals, health care 
entities, and charities. Thus, the agency disagrees that the purpose of 
providing notice is limited to policing the wholesale drug industry. In 
addition, the agency believes that the returning hospital, health care 
entity, or charity is in the best position to provide the information 
required in the credit memo and, as the party that derives the benefit 
from any special pricing provided by the manufacturer, should be 
responsible for ensuring that returns are legitimate.
    15. Another comment stated that the resale restrictions were not 
intended by Congress to cover normal and legitimate returns of 
prescription drugs and that FDA is therefore not required or authorized 
by PDMA to place requirements on returns. The comment said that the 
provision of notice to a manufacturer when drugs are returned to a 
wholesale distributor would constitute an unreasonable administrative 
burden on manufacturers who do not provide a refund or credit in such 
circumstances.
    As discussed in the proposal (59 FR 11842 at 11847), proposed 
Secs. 203.23 and 203.24 were included to address the concern that, 
subsequent to a completed sale, a return for cash, credit, or other 
consideration could be viewed as a new and prohibited sales transaction 
under section 503(c)(3)(A) of the act. Although the agency agrees that 
Congress did not intend to prohibit legitimate returns of prescription 
drugs, there is a potential for abuses to occur with returns. The 
notice and documentation requirements in revised Sec. 203.23(a) and (b) 
are necessary to help ensure that the returning entity or entities do 
not profit unfairly by the return and that diversion of returned drugs 
does not occur. Both of these goals are consistent with Congress' 
intent in enacting the sales restrictions. (See sec. 2(7), PDMA, H. 
Rept. 100-76, pp. 12-13.)
    16. One comment stated that proposed Secs. 203.23 and 203.24 should 
be clarified so that prescription drugs that are returned to the 
manufacturer for destruction are exempt from the restrictions in 
Sec. 203.20, and thus need not adhere to the requirements in proposed 
Secs. 203.23 and 203.24.
    The agency declines to provide the clarification sought by the 
comment. Under Sec. 203.20, the sale, purchase, or trade of a 
prescription drug purchased by a hospital or health care entity, or 
donated or supplied at a reduced price to a charitable institution, is 
prohibited unless the sale, purchase, or trade is exempt from 
Sec. 203.20 under Sec. 203.22 or revised Sec. 203.23. When a 
prescription drug that is purchased by a hospital, health care entity, 
or charity is returned to the manufacturer for destruction and a credit 
or refund is given for the return, the return constitutes a sale that 
is prohibited by Sec. 203.20, unless the requirements of Sec. 203.23 
are met. Similarly, the agency will consider the provision of 
destruction services by a manufacturer or distributor at no or reduced 
cost to the returning entity, relative to the fair market value for 
such services, to constitute consideration supporting a sale. Thus, 
returns of prescription drugs for destruction must meet the 
requirements of Sec. 203.23, unless no credit or refund is given for 
the return and the returning entity pays

[[Page 67731]]

the fair market value for the drugs' destruction.
    The conclusion reached above is fully consistent with the policy 
underlying the requirements in Sec. 203.23. First, drugs that are 
returned for destruction have the same potential to be diverted as 
drugs that are returned for redistribution. The threat to the public 
health from diversion of such drugs could be particularly severe 
because they are presumably unsuitable for use. Therefore, it is 
essential that drugs returned for destruction be subject to 
documentation requirements that provide accountability over the return. 
Additionally, there may be situations in which a returned drug that is 
designated for destruction by a hospital, health care entity, or 
charity may be deemed suitable for sale by the distributor or 
manufacturer. For example, a drug returned because its outer packaging 
was damaged may, after examination or testing is conducted by the 
manufacturer as required by Sec. 205.50(e), prove to be fit for use. 
Thus, returned drugs must be maintained under proper conditions for 
storage, handling, and shipping, and written documentation reflecting 
the maintenance of proper conditions must be provided to help ensure 
that, if the returned drug is redistributed, it is safe and effective.
    17. One comment supported the requirements in proposed 
Secs. 203.23(b) and 203.24(e) (new Sec. 203.23(c)) relating to 
maintaining proper conditions for storage, handling, and shipping of 
returned drugs and providing documentation of such conditions. The 
comment said that wholesalers need the information to carry out their 
obligations for handling returns under Sec. 205.50(e). The comment 
recommended that documentation of proper return conditions should be 
specifically nondelegable.
    Section 203.23(c) requires that a drug returned to a manufacturer 
be stored and handled appropriately, according to its labeled storage 
requirements, both while it is in the possession of a hospital, health 
care entity, or charity, and during its return (i.e., during 
reshipment). Prior to reshipment, only the hospital, health care 
entity, or charity in physical possession of the drug knows and can 
document whether the drug has been stored and handled appropriately. 
However, because a common carrier or other third party may be used to 
reship the drug, this party may provide documentation that the drug was 
stored and handled properly during reshipment. Thus, if a returning 
hospital, health care entity, or charity uses a common carrier or other 
third party to reship drugs, the third party or carrier may create the 
required documentation, and provide the documentation to the 
manufacturer or distributor on delivery.
    The agency clarifies that, regardless of whether a common carrier 
is used to reship the drug, the returning hospital, health care entity, 
or charitable institution is responsible for complying with the 
requirements of Sec. 203.23. Thus, if proper conditions were not 
maintained during reshipment and/or if written documentation showing 
that proper conditions were maintained during reshipment was not 
provided to the manufacturer or wholesale distributor to which the 
drugs are returned, the requirements of Sec. 203.23 would not be met 
and the returning hospital, health care entity, or charitable 
institution would be in violation of Sec. 203.20 of FDA regulations and 
section 503(c)(3)(A) of the act.
    18. Proposed Sec. 203.24(d) required that the value of any credit 
or refund not exceed the purchase price or fair market price of the 
returned product. One comment stated that the provision would be 
burdensome on manufacturers that currently calculate credits or refunds 
based on the purchase price of the drug as of the date of return. The 
comment also stated that it would be virtually impossible, without the 
implementation of a costly, sophisticated system by the manufacturer, 
to attach a cost to a specific item when it is not known when the item 
was acquired. The comment recommended that the provision be revised to 
allow the value of the return to be based on the purchase price of the 
drug as of the date of the return.
    The agency's intent in proposing Sec. 203.24(d) was, as with the 
notice provisions, to prevent hospitals, health care entities, 
charities, or distributors from obtaining windfall profits from returns 
at the expense of manufacturers. Thus, as proposed, the provision would 
not make manufacturers responsible for ensuring that the amount of a 
credit, refund, or exchange given for a drug does not exceed the 
purchase price or, if a donation, the fair market value at the time the 
donation was made. Instead, the section would make the returning 
hospital, health care entity, or charitable institution responsible for 
ensuring that it did not accept a credit, refund, or exchange that 
exceeds the purchase price or fair market value at the time the drug 
was purchased or donated. Nevertheless, FDA recognizes that in order to 
comply with this provision, manufacturers would have to maintain 
records of the price paid for a drug at the time it was purchased. 
Because maintaining such records does not appear to constitute 
customary industry practice and would impose additional costs and 
burdens on manufacturers, the agency has revised Sec. 203.23 in the 
final rule to eliminate the requirement that the value of any credit or 
refund not exceed the purchase price or fair market price of the 
returned product.

E. Samples

1. Sample Distribution by Mail or Common Carrier
    Proposed Sec. 203.30(a)(2) required that the recipient of a drug 
sample distributed by mail or common carrier execute ``a written 
receipt, as set forth in paragraph (c) of this section, when the drug 
sample is delivered.'' Proposed Sec. 203.30(c) set forth the required 
contents of the receipt for samples distributed to licensed 
practitioners, and to designated pharmacies of health care entities. 
Proposed Sec. 203.30(c) provided:
    * * * The receipt is to be on a form designated by the 
manufacturer or distributor, and is required to contain the 
following:
    (1) If the drug sample is delivered to the licensed practitioner 
who requested it, the receipt is required to contain the name, 
address, professional title, and signature of the practitioner or 
the practitioner's designee who acknowledges delivery of the drug 
sample; the proprietary or established name and strength of the drug 
sample, the quantity, and the lot or control number of the drug 
sample delivered; and the date of the delivery.
     (2) If the drug sample is delivered to the pharmacy of a 
hospital or other health care entity at the request of a licensed 
practitioner, the receipt is required to contain the name and 
address of the requesting licensed practitioner, the name and 
address of the hospital or health care entity pharmacy designated to 
receive the drug sample; the name, address, professional title, and 
signature of the person acknowledging delivery of the drug sample; 
the proprietary or established name and strength of the drug sample, 
the quantity, and the lot or control number of the drug sample 
delivered; and the date of the delivery.
    19. Several comments stated that not all of the information 
required to appear on the sample receipt form under proposed 
Sec. 203.30(c) is necessary to confirm delivery of a sample. One 
comment stated that the act only requires information sufficient to 
verify that the sample received matches the sample requested and sent. 
Another comment asserted that FDA does not have the authority under 
PDMA to specify the content of the receipt, and that the only 
information required by PDMA is the signature of the licensed 
practitioner and any information

[[Page 67732]]

necessary to determine the identity of the sample and the recipients.
    The agency has determined that, with the exception of the proposed 
requirement for the lot or control number of the sample (discussed 
below in conjunction with comments on Secs. 203.30 and 203.31), the 
information requirements in proposed Sec. 203.30(c) are necessary to 
ensure that samples that are requested are received by the intended 
recipient and that patterns of nondelivery of drug samples can be 
identified. Both of these objectives are consistent with legislative 
intent. (See H. Rept. 100-76 at 15.) The agency therefore declines to 
eliminate or modify these requirements in the final rule.
    The information required under proposed Sec. 203.30(c) mirrors most 
of the information required to appear on the sample request form under 
proposed Sec. 203.30(b). This information is the minimum information 
necessary to identify the type and quantity of drug samples being 
requested and distributed, the requesting practitioner, and, if 
applicable, the designated hospital or health care entity to which the 
drug samples are to be delivered. The only information required by 
proposed Sec. 203.30 to appear on drug sample receipt forms that is not 
required to appear on request forms is the name, address, professional 
title, and signature of the person acknowledging delivery of the drug 
sample. This information is necessary to establish accountability for 
receipt of drug samples when samples are delivered to a practitioner's 
office and the requesting practitioner does not physically receive the 
drug sample and sign the sample receipt or when samples are delivered 
to a hospital or health care entity at the request of a practitioner.
    20. Several comments objected to the required information because 
electronic delivery verification systems currently used by delivery 
services and common carriers cannot accommodate the information. 
According to the comments, current electronic delivery verification 
systems are capable of recording some, but not all, of the required 
information. The comments stated that to capture all of the required 
information, a manufacturer or authorized distributor of record would 
have to use a paper system independent of common carriers' delivery 
verification, such as a business reply mail card. Several comments said 
that paper systems involve more administrative costs and would result 
in less compliance by practitioners than electronic delivery 
verification. One comment stated that, using business reply mail cards, 
it would take two to three followup letters to achieve compliance 
within the 90 to 95 percent range. Another comment said that data may 
be accessed faster and easier with electronic verification systems than 
with business reply mail cards, since the data are stored 
electronically rather than manually. Several comments recommended 
revising the proposed rule to bring it into conformity with the 
specific electronic delivery verification system used by the commenter. 
Other comments recommended that the proposed rule be revised to state 
that receipts used by common carriers as part of their normal course of 
business are sufficient.
    The agency recognizes that manufacturers and authorized 
distributors of record may not be able to comply fully with the sample 
receipt content requirements in proposed Sec. 203.30(c) using 
commercial carriers' electronic delivery acknowledgment systems. 
Electronic delivery acknowledgment systems do not appear to be designed 
to meet the specific informational requirements for sample receipts 
under Sec. 203.30(c) at the present time. Thus, the use of business 
reply mail cards or other types of paper systems capable of recording 
the required information may be necessary. These systems may not be as 
convenient for health care practitioners receiving samples to use as 
electronic delivery acknowledgment systems and will probably be more 
expensive for manufacturers and authorized distributors of record. 
However, these disadvantages are not in themselves sufficient reason to 
eliminate the informational requirements in proposed Sec. 203.30(c), 
where no satisfactory alternatives exist to ensure that congressional 
objectives for establishing controls on sample distribution are met.
    21. Two comments requested that FDA permit the use of combinations 
of electronic and paper media to create the required receipt form. 
Under the scenario presented by one of the comments, a receipt would be 
signed by the practitioner or his designee at the time of delivery, but 
it would not contain all of the required information. The information 
not contained on the receipt would be maintained on a separate 
electronic data base, which would be linked via a ``unique number'' to 
the receipt. The other comment requested that the agency permit a 
signature obtained through a carrier's normal delivery verification to 
be ``added'' later to an electronic record containing all of the 
required information.
    As discussed previously, the agency has revised proposed 
Sec. 203.60 to permit manufacturers and authorized distributors of 
record to create and maintain drug sample receipts and other records 
using combinations of paper-based and electronic media. Under 
Sec. 203.60(a)(2), combinations of paper records and electronic records 
may be used provided: (1) The requirements of part 11 are met for the 
electronic record, and (2) a reasonably secure link between the paper 
record and electronic record exists to ensure that the combined records 
are trustworthy and reliable and to ensure that the signer cannot 
readily repudiate the signed record as not genuine. Neither of the 
scenarios presented by the comments would ensure that a reasonably 
secure link exists between the paper-based and electronic records 
because the individual signing the receipt at the time of the sample 
delivery would not know the contents of the receipt and thus could not 
attest that the contents of the receipt are correct. Moreover, under 
these circumstances, the signer could readily repudiate the signed 
record as not genuine. Thus, neither of the scenarios would meet the 
requirements of Sec. 203.60(a)(2).
    22. One comment requested clarification of whether the proposed 
rule would supplant the March 2, 1993, guidance letter recommendations 
on delivery confirmation of drug samples by common carriers.
    Any policy stated in that document, including the policy on 
delivery verification, is superseded by the policies set forth in the 
final regulation.
2. Sample Distribution by a Representative or Detailer
    a.  Section 203.31(a)(1) and (a)(2). Proposed Sec. 203.31(a)(1) 
required that before a manufacturer or authorized distributor of record 
distributes a drug sample to a licensed practitioner, it must receive a 
signed, written request form from the licensed practitioner. Proposed 
Sec. 203.31(a)(2) required that the recipient sign a receipt form 
containing the information required under proposed Sec. 203.31(c) when 
the drug sample is delivered. Proposed Sec. 203.31(a)(3) required that 
the receipt be returned to the manufacturer or distributor.
    23. One comment requested that the proposed rule be revised to 
clarify that a single form may be used to satisfy the requirements of a 
request and receipt form.
    FDA set forth its policy on the use of one form to satisfy the 
request and receipt form requirements for samples delivered by a 
representative in the preamble to the proposed rule (58 FR 11842 at 
11849). The agency stated:

[[Page 67733]]

    A sample request and receipt need not be on separate forms if 
delivery is by a representative. A single form could be devised and 
used containing all of the required information, which could be 
fully completed and executed with a single signature, if the request 
and delivery are simultaneous, or executed in part with a signature 
for the request at the time of the request, and executed in part 
with a second signature acknowledging receipt at the time of the 
delivery.
The agency wishes to emphasize that, whether one form or separate forms 
are used, only a licensed practitioner may request a sample and sign 
the request form. A sample receipt, however, may be signed either by a 
licensed practitioner or that practitioner's designee.
    24. FDA received four comments that objected to any requirement for 
a receipt for representative-delivered samples. The comments stated 
that receipts for representative-delivered samples were not required by 
PDMA and that this requirement goes beyond the scope of the act. Two 
comments stated that most requests and deliveries take place on the 
same representative visit. One comment recommended that the rule be 
revised to cover only those situations where request and delivery of 
samples do not occur on the same visit. Another comment said that 
Congress required receipts for samples delivered by mail or common 
carrier, but not representatives because there are more opportunities 
for samples to be lost or diverted when the mail is used. The comment 
recommended that the manufacturer could use the information on the 
request form to do its own followups with licensed practitioners to see 
whether samples had been delivered.
    Although Congress did not expressly require a receipt for 
representative-delivered samples in the act, FDA has concluded that 
additional requirements, including receipts, are necessary to help 
ensure effective enforcement, increased accountability and oversight of 
sample distribution, and to provide adequate safeguards against drug 
sample diversion. All of these goals are consistent with and further 
the legislative intent in enacting PDMA. Although samples delivered by 
a representative to a licensed practitioner may be requested and 
delivered simultaneously, this is not always the case. For example, the 
delivery of samples by a representative to a hospital or health care 
entity pharmacy designated by a physician may not occur at the same 
time a request for such samples is made. When the request for and 
delivery of a sample by a representative do not occur simultaneously, 
the potential for sample diversion and corresponding need for a sample 
receipt are as great as when samples are delivered by mail or common 
carrier. When the request for and delivery of a sample do occur 
simultaneously, the sample request and receipt form may be merged into 
one form with a single signature (see discussion above).
    25. FDA received four comments related to the medium on which the 
required information for representative-delivered sample receipts may 
appear. Two comments assumed that proposed Sec. 203.31(a)(2) and (c) 
required receipts to be in paper form and objected to that requirement. 
Two comments asked for clarification on whether receipts do, in fact, 
have to be in paper form or may be electronically created. All four 
comments assumed that the proposed regulations required that a paper 
receipt be left with the licensed practitioner even when receipts are 
electronically created, and objected to this requirement. One comment 
stated that neither PDMA guidelines nor the proposed regulations 
require licensed practitioners to keep records of drug samples 
received, thus a written receipt would serve no purpose.
    It appears that the confusion over whether receipts must be written 
on paper came from the preamble discussion of proposed Sec. 203.31 (59 
FR 11842 at 11849). FDA stated that ``the agency has tentatively 
concluded that the requirement for a written receipt should extend to 
all drug sample deliveries, and that requirement is included in 
proposed Secs. 203.30 and 203.31.'' Moreover, the word ``written'' does 
appear in conjunction with receipts in Sec. 203.30, but not in 
Sec. 203.31. As discussed in section II.J of this document, request and 
receipt forms, reports, records, and other documents and signatures 
required by PDMA and part 203 may be created on paper or on electronic 
media, provided that records created on electronic media meet the 
requirements of revised Sec. 203.60 and part 11. In addition, although 
the final regulations require that a receipt be signed and returned to 
the manufacturer when a sample is received, they do not require that a 
receipt be left with the practitioner for his or her records or that 
practitioners maintain records of samples received.
    b.  Section 203.31(c)(2). Proposed Sec. 203.31(c)(2) stated that if 
the drug sample is received by the pharmacy of a hospital or other 
health care entity at the request of a licensed practitioner, the 
receipt is required to contain, among other things, the name and 
address of the hospital or health care entity pharmacy designated to 
receive the drug sample.
    26. One comment objected to the requirement that the name and 
address of the hospital or health care entity pharmacy designated to 
receive the drug sample appear on the receipt. The comment stated that 
this information is known by the requesting licensed practitioner.
    The purpose of the receipt requirement is not to provide 
information to the licensed practitioner that requests the drug sample, 
but to provide manufacturers and authorized distributors with 
documentation that samples that were requested were in fact properly 
delivered. When a licensed practitioner requests that a drug sample be 
delivered to a hospital or health care entity pharmacy, it is necessary 
for the name of the hospital or health care entity pharmacy to appear 
on the sample receipt so that the person receiving the sample at the 
pharmacy can verify, through his or her signature on the sample 
receipt, that the sample was delivered as requested.
    c. Section 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d) 
required that drug manufacturers and authorized distributors of record 
conduct an inventory, using generally accepted inventory practices, of 
drug samples in the possession or control of each of their 
representatives. The inventory must be conducted at least annually, and 
the results of the inventory are required to be recorded in an 
inventory record and reconciliation report. The contents of the 
inventory record and reconciliation report were set forth in proposed 
Sec. 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d)(1) required the 
identification of each drug sample in a representative's stock by the 
proprietary or established name and dosage strength, and the number of 
sample units. Proposed Sec. 203.31(d)(2) required:
    (i) A report of the physical count of the most recently 
completed prior inventory;
    (ii) A record of each drug sample shipment received since the 
most recently completed prior inventory, including the sender and 
date of the shipment, and the proprietary or established name, 
dosage strength, and number of sample units received;
    (iii) A record of drug sample distributions since the most 
recently completed inventory showing the name and address of each 
recipient of each sample unit shipped, the date of the shipment, and 
the proprietary or established name, dosage strength, lot or control 
number, and number of sample units shipped; and
    (iv) An explanation for any significant loss.
    As discussed in section II.E of this document, the agency has on 
its own initiative revised proposed Sec. 203.31(d) to more clearly 
distinguish between the

[[Page 67734]]

inventory and reconciliation functions and to clarify certain required 
elements of the reconciliation report.
    27. Two comments requested clarification of the meaning of the 
phrase ``generally accepted inventory practices.'' Both comments cited 
the statement in the preamble of the proposed rule (59 FR 11842 at 
11849) that ``it is FDA's preliminary view that such an inventory must 
go beyond a mere physical count, and that meaningful information and 
data can only be provided if the inventory is conducted utilizing 
generally accepted inventory practices * * *.'' The comments said that 
if generally accepted inventory practice refers to more than a physical 
count, FDA must clarify what is required.
    As discussed in section II.E of this document, the final rule has 
been revised to eliminate the use of the phrase ``generally accepted 
inventory practices'' in conjunction with the inventory requirement.
    28. Several comments objected to the requirements in proposed 
Sec. 203.31(d)(2)(ii) and (d)(2)(iii) because the required information 
duplicates information contained in sample request forms and corporate 
distribution records that are already on file. Two comments stated that 
the reconciliation report should contain a reconciliation of opening 
and closing inventories against sample allocations received and sample 
distributions, but not a statement of all individual allocations and 
distributions. Another comment questioned whether the inclusion of the 
information required under these sections in a single report is 
productive or merely an additional clerical burden.
    The first comment correctly points out that the information 
required to be contained in the reconciliation report under revised 
Sec. 203.31(d)(2)(ii) and (d)(2)(iii) will come from various sources, 
including drug sample request and receipt forms, distribution records 
required to be created and maintained under the current good 
manufacturing practice (CGMP) regulations (see, e.g., 21 CFR 211.196), 
and other records maintained by the representative or the firm. 
Nevertheless, the agency believes that the assimilation of information 
from these multiple records into a single report that concisely 
identifies and characterizes each type of transaction conducted with 
drug samples will aid industry in detecting discrepancies in inventory 
that may be indicative of drug sample diversion activity. In addition, 
it will permit FDA and other Federal and State government agencies 
responsible for enforcing PDMA to effectively oversee a company's 
conduct in performing its reconciliation and in initiating 
investigations of potential drug sample record falsifications and 
significant losses and thefts of drug samples under Sec. 203.37.
    29. One comment sought clarification on whether the reconciliation 
report may consist of several documents that, when taken together, 
contain all required information.
    The reconciliation report for an individual sales representative 
may consist of several paper documents and/or electronic records. 
However, all documents or records are to be collected and maintained as 
a single reconciliation ``report.''
    30. Another comment stated that ``PDMA does not require 
manufacturers to annually compile a report for each sales 
representative that summarizes in one place all aspects of each sample 
delivery in minute detail.''
    Although PDMA does not explicitly require the information under 
Sec. 203.31(d)(2), it does establish an extensive scheme for monitoring 
drug sample distributions by a representative that includes 
requirements for drug sample request forms, an annual inventory, and 
reporting of significant losses and known thefts of drug samples. As 
discussed previously, the agency believes that the requirements 
contained in Sec. 203.31(d)(2)(ii) and (d)(2)(iii), including the 
requirement for identifying individual transactions conducted with drug 
samples in revised Sec. 203.31(d)(2)(iii), are necessary to bring 
potential drug sample diversion activities to the attention of 
manufacturers and authorized distributors. This objective is consistent 
with legislative intent in PDMA.
    31. Two comments recommended that manufacturers should be permitted 
to use bar coding that represents the proprietary or established name 
and dosage strength on the inventory record and reconciliation report 
instead of actual words. One of the comments said that such coding is 
``easily translated'' into the required information.
    The agency advises that it does not object to the use of bar coding 
that represents required information in the inventory record or 
reconciliation report provided that the information in such a form can 
be used by the firm to conduct the reconciliation process and to detect 
discrepancies in inventory and potential drug diversion. In addition, 
the bar coding must be capable of being translated into words and the 
record or report must be capable of being produced in its entirety upon 
request by FDA or other Federal, State, or local law enforcement 
authorities.
    32. Two comments objected to the requirement in proposed 
Sec. 203.31(d)(2)(iii) to list the lot or control number in the 
reconciliation report. One of these comments stated that this 
requirement would not assist in diversion detection because the batches 
are so large that significant numbers of representatives in varying 
geographical areas will receive the same batch. The comment also stated 
that ``existing PDMA records'' make it possible to determine every 
physician called on by representatives who could have received the lot 
in question. The other comment stated that the requirement would ``have 
little or no effect in assuring a meaningful inventory,'' but would 
increase difficulty of conducting inventory and preparing the report.
    The requirement in proposed Sec. 203.31(d)(2)(iii) was intended to 
ensure that a manufacturer or authorized distributor maintains a record 
enabling it to track the distribution of sample units by lot or control 
number from a representative to a licensed practitioner. Although the 
agency agrees that such information would not necessarily enable 
manufacturers or distributors to pinpoint the representative 
responsible for distributing a sample unit that has been diverted, it 
would promote precision in tracking samples and facilitate the location 
of samples in the event of a recall or other public health emergency. 
Nevertheless, as discussed below, the agency has determined that 
manufacturers and authorized distributors of record should be free to 
choose the types of records used to track the distribution of drug 
sample lots to licensed practitioners. Therefore, the proposed 
requirement for inclusion of lot or control numbers in the 
reconciliation report has been eliminated in the final rule.
    d. Section 203.31(d)(3). Proposed Sec. 203.31(d)(3) stated: ``The 
inventory and reconciliation reports shall be conducted and prepared by 
persons other than the representatives being inventoried or superiors 
or managers in their department, division, or branch, or in their 
direct line of supervision or command.''
    33. Three comments stated that the proposed requirement represents 
a misinterpretation of PDMA and its legislative history regarding 
section 303(b)(4)(B)(ii) of the act. The comments stated that this 
section allows a manufacturer the option of performing an independent 
audit to protect itself from civil liability for the acts of its 
representatives, but that FDA has misconstrued the section to mean that

[[Page 67735]]

PDMA requires a yearly, independent audit of every representative.
    The comments apparently misunderstand the terms ``inventory'' and 
``audit.'' An inventory is an itemized list or catalog of goods or 
property, usually taken annually. An audit is a formal, periodic 
examination and checking of accounts or records to verify their 
correctness. (Webster's New World Dictionary, 2d College Ed.) The 
comments correctly assert that section 303(b)(4)(B)(ii) of the act does 
not require an annual audit of all representatives. However, proposed 
Sec. 203.31(d)(3) did not establish an audit requirement, but rather 
set forth requirements concerning which personnel are to conduct the 
inventory and reconciliation and prepare the inventory record and 
reconciliation report. The proposed requirement was therefore intended 
to implement the requirement in section 503(d)(3)(C) of the act for an 
annual inventory of drug samples in the possession of a representative, 
rather than section 303(b)(4)(B)(ii) of the act.
    34. Several comments said that the proposed requirement is too 
costly, and the ends can be achieved through more cost-effective means. 
Several comments stated that since inventory must be completed onsite, 
it would be too costly to require personnel other than supervisors or 
managers within the geographic area of the representative to perform 
it. On the other hand, the comments said, reconciliation can be 
performed at a central location, thus it is more susceptible to 
completion by independent personnel.
    Two comments distinguished inventory from reconciliation by stating 
that the former is relatively simple and can be performed by sales 
management, while the latter is more complex and should be done by a 
person independent of sales and marketing. In contrast, another comment 
recommended allowing representatives to perform the reconciliation, but 
not the inventory function.
    One comment recommended allowing anyone but the representative to 
perform the inventory or prepare the reconciliation report. Several 
comments recommended allowing a sales representative's direct 
supervisor or manager to perform the inventory function because that 
person is in the best position to assess the performance and 
cooperation of a representative and to initiate corrective actions. One 
comment recommended allowing anyone other than a representative or his 
direct supervisor to perform the inventory. Other comments recommended 
allowing a representative's district manager to perform the inventory 
function.
    The objective of the proposed requirement was to guard against 
errors and possible fraud in the conduct of the physical inventory and 
reconciliation, and in the preparation of the inventory record and 
reconciliation report, by the representative or other interested 
parties. Although the agency continues to believe that this is a 
legitimate and important objective, the agency agrees that it can be 
achieved through less burdensome means than by requiring the inventory 
and reconciliation to be conducted by persons other than the 
representatives, their superiors or managers, or others in their direct 
line of supervision or command. Accordingly, the agency has revised the 
proposed requirement to permit manufacturers and distributors to take 
``appropriate internal control measures'' to guard against error and 
possible fraud in the conduct of the physical inventory and 
reconciliation, and in the preparation of the inventory record and 
reconciliation report.
    Under the revised requirement, representatives and their 
supervisory personnel may conduct the inventory and reconciliation 
functions and prepare inventory records and reconciliation reports. 
However, the agency expects that appropriate internal control measures 
will be taken that include implementation of a security and audit 
system that is controlled by independent personnel, i.e., personnel 
other than the representatives, their superiors or managers, or others 
in their direct line of supervision or command. Under revised 
Sec. 203.34(b), such a security and audit system must follow a plan 
that ensures that random audits are conducted on representatives by 
personnel independent of the sales force. In addition, the plan must 
ensure that for-cause audits are initiated in response to reports, 
incidents, or findings identified by the firm as indicating possible 
drug sample diversion or falsification of sample distribution records. 
If necessary, the agency will issue additional guidance on audit plans 
and procedures under revised Sec. 203.34(b).
    e. Section 203.31(d)(4). Proposed Sec. 203.31(d)(4) stated: ``A 
manufacturer or authorized distributor of record shall carefully 
evaluate any apparent discrepancy or significant loss in its inventory 
and reconciliation, and shall fully investigate any such discrepancy or 
significant loss that cannot be justified.''
    35. Two comments stated that the word ``apparent'' should be 
changed to ``significant''. One comment stated that since manufacturers 
are permitted, under Sec. 203.37, to determine what constitutes a 
``significant loss,'' they should also be allowed to determine which 
discrepancies merit investigation. Another comment recommended revising 
``apparent discrepancy'' to read ``potentially significant 
discrepancy.''
    The agency is not requiring manufacturers and distributors to 
conduct an investigation every time there is an apparent discrepancy in 
a representative's inventory, but rather that they evaluate all 
apparent discrepancies. It is only when an apparent discrepancy cannot 
be justified that an investigation is required. Investigations under 
these circumstances are reasonable and consistent with the requirement 
in revised Sec. 203.37(a) to investigate when there is a reason to 
believe that any person has falsified drug sample records or is 
diverting drug samples. Accordingly, the agency declines to amend the 
requirement.
3. Issues Related to Sample Distribution by Mail or Common Carrier or 
by a Representative or Detailer
    a. Sections 203.30(a)(1) and 203.31(a)(1). Proposed 
Secs. 203.30(a)(1) and 203.31(a)(1) required that a licensed 
practitioner execute and submit a written request to the manufacturer 
or authorized distributor of record to obtain drug samples.
    36. One comment stated that a request form ``creates additional 
paperwork and expense without apparent benefit beyond that obtained by 
signing a receipt form at the time of delivery of the samples.''
    In sections 503(d)(2)(A)(i) and (d)(3)(A)(i) of the act, Congress 
specifically required that a drug sample be distributed only in 
response to a written request by a licensed practitioner to ensure 
accountability in the sample distribution process. Sections 203.30 and 
203.31 reflect those statutory provisions.
    37. Another comment sought clarification on whether the term 
``written request'' includes preprinted forms.
    Preprinted drug sample request forms are permissible. However, they 
must contain all information required by PDMA and the final 
regulations, and must be signed by a licensed practitioner.
    b. Sections 203.30(a)(3) and 203.31(a)(3). Proposed 
Sec. 203.30(a)(3) required that the recipient of a drug sample 
delivered by mail or common carrier return the receipt to the 
manufacturer or distributor from which the drug sample was received. 
Proposed

[[Page 67736]]

Sec. 203.31(a)(3) required that the receipt for samples distributed by 
means other than mail or common carrier be returned to the manufacturer 
or distributor.
    38. Two comments requested clarification on whether, if a licensed 
practitioner fails to return a receipt, he or she is barred from 
receiving further samples from a manufacturer. Both comments argued 
that the intent of Congress in enacting PDMA was to detect patterns of 
nonreturns of receipts. The comments recommended that licensed 
practitioners should not be barred for isolated failures to return 
receipts, but rather, where a pattern of nonreturns exists, 
manufacturers should be required to investigate to see if the samples 
actually arrived.
    The question of whether a licensed practitioner should be barred 
from receiving further drug samples for failing to return drug sample 
receipts was not addressed in the proposed rule, and was not addressed 
directly by Congress. In the legislative history of PDMA (see H. Rept. 
100-76, p. 15), Congress stated: ``Whether the distributions are made 
by carrier return receipt or business reply cards, manufacturers or 
distributors would not be expected to equate each and every delivery 
and receipt; however, an adequate monitoring system would necessarily 
need to detect instances where non-return patterns exist.'' Thus, there 
is evidence that Congress was not primarily concerned with isolated 
failures to return drug sample receipts, but with patterns of 
nonreturns. Moreover, the overall structure of PDMA is not intended to 
penalize practitioners or prevent them from receiving samples, but 
rather to ensure that samples are properly distributed to licensed 
practitioners. Therefore, the agency believes that Congress did not 
intend for licensed practitioners to be barred from receiving samples 
for isolated failures to return sample receipts or for isolated 
instances where receipts are not received for reasons beyond the 
practitioner's control. However, upon detecting a pattern of nonreturns 
by a practitioner, a manufacturer or authorized distributor should not 
distribute further samples until the matter is thoroughly investigated. 
Such an investigation may, depending on the circumstances, be required 
under Sec. 203.37, since a pattern of nonreturns may indicate that a 
representative is falsifying drug sample requests, that other drug 
diversion activity is occurring, or that a significant loss or theft of 
drug samples has occurred.
    c. Sections 203.30(b)(1)(ii) and 203.31(b)(1)(ii). Proposed 
Sec. 203.30(b)(1) and (b)(1)(ii) stated: ``A written request for a drug 
sample to be delivered by mail or common carrier to a licensed 
practitioner is required to contain the following: * * * The 
practitioner's State license number or Drug Enforcement Administration 
identification number.'' Proposed Sec. 203.31(b)(1) and (b)(1)(ii) set 
out the same requirement for requests for drug samples delivered by 
means other than mail or common carrier.
    39. FDA received 15 comments on these requirements. Many of the 
comments supported the overall goal of these sections, i.e., to ensure 
that persons requesting drug samples are licensed practitioners. 
However, several comments stated that State license numbers are not 
always assigned to practitioners who are otherwise authorized by State 
law to prescribe drugs. The comments requested clarification as to what 
verification is appropriate for practitioners subject to different 
authorization mechanisms than physicians.
    As was discussed in response to the comments on the definition of 
licensed practitioner, the agency has determined that practitioners 
authorized by State law to prescribe drugs may request and receive drug 
samples. Practitioners who are authorized by a State to prescribe drugs 
and have no State license number may use any number assigned to them by 
the State that represents that they are authorized to prescribe drugs. 
The agency is not aware of any State that does not assign some type of 
number to practitioners that it authorizes to prescribe drugs. However, 
if such a case arises, the agency will consider how to provide 
verification at that time.
    40. Several comments cited potential problems with the use of DEA 
numbers for verification. Several comments said that not all licensed 
practitioners, but only those who prescribe controlled substances, are 
issued Drug Enforcement Administration (DEA) numbers. Other comments 
stated that, although DEA numbers can be accessed through a central 
data base, this practice is discouraged by DEA unless a controlled 
substance is involved. One comment stated that DEA numbers are often 
improperly accessed and illegally used to divert drugs and recommended 
that only State license numbers be used.
    The agency has consulted with the DEA on the appropriate use of DEA 
numbers for identification purposes. DEA policy is that registration 
numbers assigned by DEA to licensed practitioners are to be used only 
to obtain scheduled drug products, not for general identification 
purposes. Accordingly, the agency has modified the requirement in the 
final rule to specify that State license or authorization numbers are 
to be used on sample request forms generally, and DEA numbers are to be 
used only when a sample of a scheduled drug product is requested.
    41. Several comments asked for clarification on whether a 
manufacturer or authorized distributor would be required under this 
section to verify the State licensing or DEA number on the request 
form. One comment stated that the provision of a State license or DEA 
number, without verification, would not confirm that a practitioner is 
in fact licensed. Other comments opposed a requirement that the 
manufacturer or authorized distributor verify the State licensing or 
DEA number. One comment recommended that the presence of the number on 
a sample request form be deemed acceptable on its face. Two comments 
recommended that instead of requiring the manufacturer to verify 
whether the requesting person is a licensed practitioner, the person 
requesting samples could be required to attest to being a licensed 
practitioner on the sample request form, i.e., with the inclusion of a 
preprinted line next to where his or her signature would go. Three 
comments recommended that an internal number established by the 
manufacturer after checking a requesting practitioner's credentials be 
considered acceptable.
    FDA has determined that verification by a manufacturer or 
authorized distributor of the State license or authorization number, or 
the DEA number as appropriate, is necessary and has codified the 
requirement in Secs. 203.30(a)(2) and 203.31(a)(2) of the final rule. 
The agency does not believe that allowing a manufacturer to deem 
acceptable the number on a request form without verifying its 
authenticity would offer any assurance that a person requesting samples 
is in fact licensed or authorized to prescribe drugs. Similarly, an 
attesting signature on a request form offers little more assurance that 
a person is in fact licensed or authorized than an unverified license 
or authorization number. The agency does believe there is merit in the 
suggestion that, once a practitioner's number is verified by a 
manufacturer or distributor with a State licensing board or the DEA, an 
internal number or other tracking system may be devised such that the 
number does not have to be reverified every time a sample is requested 
by the same practitioner. However, any list of verified State license 
or authorization numbers maintained by an authorized

[[Page 67737]]

distributor or manufacturer must be updated at least annually to 
reflect changes in license or DEA status.
    42. Several comments stated that it would be difficult for 
manufacturers to verify State license numbers because there is no 
national data base that contains all State licensing numbers, State 
licensing boards do not possess mechanisms to provide wide-scale 
verification services, and methods of verification vary from State to 
State.
    As discussed in section IV.B of this document, the agency believes 
that cost-efficient systems for verifying State licensing numbers will 
be made available to manufacturers and authorized distributors of 
record in the near future. Until that time, State licensing boards do 
possess sufficient mechanisms to provide verification that individuals 
are licensed by them. The agency recognizes that there may be some 
difficulty associated with verifying State license or authorization 
numbers. However, State licensing numbers are the only reliable way of 
proving that a practitioner is actually licensed by a State to 
prescribe drugs.
    43. One comment recommended that FDA require States to adopt 
uniform methods of assigning licensing numbers.
    The power to set prescribing requirements and methods is one that 
has traditionally been vested in the States. The agency does not wish 
to interfere with this power by requiring that States adopt uniform 
methods of assigning State licensing numbers.
    44. Several comments recommended that FDA add the American Medical 
Association's Medical Education (ME) number to the list of permissible 
verification numbers. The comments stated that the advantages of this 
number are that it is centrally accessible, it is not subject to change 
as State license numbers may be, and it includes at least some 
nonphysician practitioners. Two comments also recommended that use of 
the Association of Physician's Assistants file number be permissible.
    The agency has concluded that where a practitioner has a State 
license number, that number must be used for verification purposes. As 
discussed above, nonphysician practitioners who are licensed, or who 
are not licensed but are authorized by State law to prescribe drugs, 
may use any number assigned to them by the State that represents that 
they are authorized to prescribe drugs. The agency does not believe 
that other types of identification, including numbers assigned to 
health professionals in connection with membership in professional 
associations, are reliable means of proving that a practitioner is 
licensed or authorized to prescribe drugs.
    d. Sections 203.30(b)(1)(iii) and 203.31(b)(1)(iii). Proposed 
Secs. 203.30(b)(1)(iii) and 203.31(b)(1)(iii) required that the 
proprietary or established name and strength of the drug sample 
requested appear on the sample request form.
    45. Two comments requested that the proposed sections be revised to 
allow bar coding on the request form that represents the name and 
strength of the drug sample. Both comments indicated that the bar 
coding would be translated into words on the form so that the doctor 
would know what he or she was requesting.
    The agency has no objections to allowing bar coding representing 
information on preprinted sample request forms where that information 
is also translated into words on the form. However, the bar coding must 
not cover up or otherwise detract from the ability of practitioners to 
read the words on the form.
    e. Sections 203.30(b)(1)(v) and 203.31(b)(1)(v). Proposed 
Secs. 203.30(b)(1) and 203.31(b)(1) set forth the requirements for 
contents of written request forms for delivery of samples by mail or 
common carrier and by representative, respectively. Proposed 
Secs. 203.30(b)(1)(v) and 203.31(b)(1)(v), which are identical, 
required that the request form contain ``the name of the manufacturer 
and the authorized distributor of record, if the drug sample is 
requested from an authorized distributor of record.''
    46. FDA received four comments on these sections. One comment 
objected to the requirement in Sec. 203.31(b)(1)(v) that the names both 
of the manufacturer and of the distributor be included on the request 
form. The comment stated that this requirement is redundant since the 
manufacturer and authorized distributor of record are responsible for 
knowing each other, and if a diverted sample is found, the manufacturer 
will be able to trace the sample to the authorized distributor. Three 
comments objected to the requirement in both Secs. 203.30(b)(1)(v) and 
203.31(b)(1)(v). These comments stated that requiring the names both of 
the manufacturer and of the authorized distributor of record causes 
additional recordkeeping burdens, serves no useful purpose, and is 
contrary to the explicit language of section 503(d)(3)(A) of the act.
    A distributor may distribute drug samples under section 503 of the 
act only if it is an authorized distributor of record for the 
manufacturer of the drug. Thus, the ability of a distributor to 
distribute samples is directly related to its relationship with the 
manufacturer. The agency believes that it is reasonable to require that 
a sample request form for an authorized distributor of record include 
the name of the manufacturer that authorizes the distributor to 
distribute samples. The requirement will help ensure that the parties 
involved in and responsible for sample distribution can be readily 
identified by FDA and other government agencies. This purpose is 
consistent with legislative intent to ensure that distributors of drug 
samples are authorized distributors of record, and the agency therefore 
adopts the requirement in the final rule.
    f. Sections 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2). 
Proposed Secs. 203.30(c) and 203.31(c) set forth the requirement that 
drug sample receipts contain, among other things, the lot or control 
number of the drug sample delivered.
    47. FDA received several comments that objected to the sample lot 
or control number requirements and recommended that they be eliminated. 
Two of these comments objected to the requirement for representative 
delivered samples only, while the remaining comments objected to the 
requirement for both samples delivered by mail or common carrier and by 
representative. Several comments argued that, under existing CGMP 
requirements, the requirement is not necessary because distribution of 
sample lots is tracked by the manufacturer to the representative, who 
keeps a record of the practitioners visited and the samples that are 
distributed. Two comments stated that recording lot numbers on sample 
receipts is an inefficient way of tracking sample lots to the 
practitioner level, and that the method of tracking should be left to 
manufacturers as long as they can provide accurate and timely lot 
specific records. Other comments argued that lots should only have to 
be tracked down to the representative level.
    The agency believes that the tracking of sample distributions by 
lot to the level of the licensed practitioner is essential both to 
maintaining accountability and oversight over sample distribution and 
to facilitating recalls and, therefore, declines to eliminate the 
proposed requirements on the ground that samples need only be tracked 
to the representative level. The agency agrees, however, that recording 
lot numbers on drug sample receipts and other drug sample distribution 
records required under part 203 may not be the most efficient method of 
tracking sample lots and that manufacturers and authorized distributors 
should be free to use other types of records to accomplish

[[Page 67738]]

this purpose. Accordingly, the agency has eliminated the requirement to 
include lot or control numbers on drug sample receipts in revised 
Secs. 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2) and on 
reconciliation reports in revised Sec. 203.31(d)(2)(iii). Moreover, the 
requirement under proposed Sec. 203.38(b) to include lot or control 
numbers on all drug sample distribution records has been substantially 
revised. Under revised Sec. 203.38(b), manufacturers and authorized 
distributors of record are required to maintain drug sample 
distribution records containing lot or control numbers that are 
sufficient to permit tracking of drug sample units to the point of the 
licensed practitioner. Sample distribution records containing lot or 
control numbers must be maintained by manufacturers or authorized 
distributors whether the samples are distributed by the mail or through 
representatives.
4. Drug Sample Forms
    Proposed Sec. 203.33 stated:
    A sample request or receipt form may be delivered by mail, 
common carrier, or private courier or may be transmitted 
photographically or electronically (i.e., by telephoto, wirephoto, 
radiophoto, facsimile transmission (FAX), xerography, or electronic 
data transfer) or by any other system, provided that the method for 
transmission meets the security requirements set forth in 
Sec. 203.60(d).
    Due to the publication of part 11, which supersedes portions of 
proposed Sec. 203.60, the security requirements that apply to paper 
documents transmitted photographically, electronically, or by any other 
system have been modified and appear under Sec. 203.60(c) in the final 
rule. Section 203.33 has been revised to refer to this section.
5. Policies and Procedures
    Proposed Sec. 203.34 stated:
    Each manufacturer or authorized distributor of record that 
distributes drug samples shall establish, maintain, and adhere to 
written policies and procedures describing its administrative 
systems for the following:
    (a) Distributing drug samples by mail or common carrier, 
including methodology for reconciliation of requests and receipts;
    (b) Distributing drug samples by means other than mail or common 
carrier including the methodology for their independent sample 
distribution security and audit system;
    (c) Conducting its inventory of drug samples under 
Sec. 203.31(d), including an inventory schedule;
    (d) Auditing and detecting falsified or incomplete drug sample 
records;
    (e) Identifying any significant loss of drug samples and 
notifying FDA of the loss;
    (f) Monitoring any loss or theft of drug samples; and
    (g) Storing drug samples by representatives.
    As discussed in section II.G of this document, the requirements in 
proposed Sec. 203.34 have been renumbered and revised in the final 
rule. Comments on the proposal are addressed in light of the revisions.
    48. One comment stated that PDMA only requires manufacturers to 
develop adequate audit and security systems to detect and investigate 
losses and thefts, not to create and adhere to extensive written 
policies documenting all aspects of the drug sampling process. The 
comment stated that a manufacturer should not be subject to liability 
for failing to have a written corporate-wide policy on the subject 
matter covered by the proposed rule.
    The agency believes that the creation of internal policies by a 
manufacturer or authorized distributor of record to achieve the 
statutory objectives is important to the attainment of those 
objectives. PDMA sets forth requirements that manufacturers and 
authorized distributors of record report significant losses and thefts 
of samples, that manufacturers' and authorized distributors' 
representatives be inventoried at least annually, and that drug samples 
be subject to proper storage conditions. In addition, PDMA's 
legislative history indicates that Congress intended that manufacturers 
and authorized distributors have audit and security systems in place to 
detect losses and thefts, as well as falsified or incomplete drug 
sample records. (H. Rept. 100-76, p. 20, S. Rept. 100-202, p. 9.) 
Accordingly, the agency believes that it is authorized to implement 
specific requirements regarding procedures and systems to accomplish 
these legislative objectives. However, the agency believes that 
industry should have the flexibility to develop its own procedures and 
systems, as long as such procedures and systems are documented and 
followed.
    49. One comment stated that, under PDMA, a manufacturer is already 
liable for failing to identify and report losses, thefts, or 
falsification of records, whether it has written policies or not. Thus, 
according to the comment, written procedures are not necessary to 
ensure that significant losses of samples are detected.
    Section 301(t) of the act subjects manufacturers and authorized 
distributors to civil and criminal penalties for failure to report 
significant losses and thefts as required under section 503(d)(3)(D) of 
the act. While the agency recognizes that this provision provides 
incentive for a manufacturer or authorized distributor to identify and 
investigate potential cases of diversion, it does not ensure that 
effective written procedures and administrative systems are in place to 
do so.
    50. Another comment requested that the requirement in proposed 
Sec. 203.34(c) for an inventory schedule be flexible so that a 
procedure committing to conduct a field force inventory at least yearly 
would be sufficient.
    Administrative procedures adopted by manufacturers and authorized 
distributors of record must be adequate to ensure compliance with PDMA 
and agency requirements. With respect to the requirement in revised 
Sec. 203.34(b)(2) for written policies and procedures describing 
administrative systems for conducting the annual physical inventory, 
the administrative procedures must ensure that all representatives are 
inventoried at least once a year in accordance with the requirements of 
Sec. 203.31(d) and section 503(d)(3)(C) of the act.
6. Use of Third Parties
    a. Section 203.36(a). Proposed Sec. 203.36(a) stated:
    Any manufacturer or authorized distributor of record that uses a 
fulfillment house, shipping or mailing service, or other third 
party, or engages in a comarketing agreement with another 
manufacturer or distributor to distribute drug samples or to meet 
any of the requirements of PDMA, PDA, or this part, remains 
responsible for creating and maintaining all requests, receipts, 
forms, reports, and records required under PDMA, PDA, and this part.
    51. One comment supported the section as written. Several comments 
requested clarification on whether the manufacturer or authorized 
distributor must itself create and maintain forms and records or ensure 
proper compliance by the third party. Several comments objected to the 
former interpretation on the ground that it would require so much 
involvement by the manufacturer or authorized distributor in the day-
to-day operations of the third party that it would effectively preclude 
companies from using third parties.
    The agency clarifies that a manufacturer or authorized distributor 
of record that uses a third party to distribute drug samples or meet 
any requirements of PDMA or the final rule may have the third party 
create and maintain required requests, receipts, forms, reports, and 
records. For example, a shipping company that delivers samples would be 
permitted to use its own delivery verification receipts and to maintain 
those receipts for the manufacturer or authorized distributor. However, 
the manufacturer or authorized distributor is responsible

[[Page 67739]]

for ensuring that the third party complies with all requirements under 
PDMA and the final rule. In the previous example, if all of the 
information required in Sec. 203.30 is not contained on the shipping 
company's receipt, the manufacturer or authorized distributor is 
responsible for compliance, and thus liable for noncompliance, with 
Sec. 203.30.
    Additionally, the agency is aware that some drug manufacturers 
contract with an ``outside'' promotional sales force rather than 
maintaining an ``in-house'' one. These representatives, known in the 
industry as ``contract representatives,'' qualify as third parties 
under this section. Since contract representatives may be paid 
according to the number of samples distributed, firms using their 
services should be particularly vigilant concerning the possibilities 
for sample diversion and sample request and receipt form falsification.
    52. One comment requested clarification as to whether, if a 
manufacturer enters into a comarketing agreement with another 
manufacturer for the distribution of samples by its representatives, 
the comarketer would thereby become an authorized distributor of record 
and would thus be responsible for creating and maintaining its own 
reports, forms, and records. Another comment contended that comarketers 
could qualify as manufacturers or authorized distributors of record and 
recommended that the final rule be revised to make comarketers who are 
themselves manufacturers or authorized distributors responsible as such 
for compliance with PDMA.
    As the agency explained under the comments on the definition of 
``ongoing relationship,'' a comarketer, sample fulfillment house, or 
other entity that performs sample distribution functions other than 
delivery or functions that are incidental to delivery is engaged in 
``distribution'' of drug samples and must, under section 503(d) of the 
act, be an authorized distributor of record. Authorized distributors of 
record are responsible for complying with all requirements for sample 
distribution under PDMA and the final rule, including creating and 
maintaining all required requests, receipts, forms, reports, and 
records. Thus, if a manufacturer or authorized distributor contracts 
with a third party which itself becomes an authorized distributor of 
record, the manufacturer or authorized distributor and the third party 
are both responsible for compliance with PDMA requirements.
    b. Section 203.36(b). Proposed Sec. 203.36(b) stated that a 
manufacturer or authorized distributor of record that contracts with a 
third party to maintain some or all of its records shall produce 
required documents within 48 hours of a request by an authorized 
representative.
    53. Several comments stated that 48 hours is not enough time to 
produce required documents. Three comments recommended that the section 
be revised to allow 5 working days for production of records. One 
comment stated that a manufacturer should be excused from penalty when 
requested information in the storage of a third party is not produced 
within 48 hours by reason of ``unanticipated events beyond the 
reasonable control of either the drug manufacturer or the contractor 
(i.e., a force majeure defense).'' The comment stated that, at a 
minimum, the section should be amended to provide 48 business hours to 
comply.
    In response to the comments, the agency has revised proposed 
Sec. 203.36(b) to require the production of records maintained by a 
third party within 2 business days of a request, rather than 48 hours. 
The agency believes that this period should be sufficient given the 
fact that most records are maintained electronically and can be quickly 
and easily retrieved and transmitted to the location where they are 
requested.
7. Investigation and Notification Requirements
    a. Section 203.37(a)(1) and (a)(2). Proposed Sec. 203.37(a)(1) 
stated:
    A manufacturer or authorized distributor of record that has 
reason to believe that any person has falsified drug sample 
requests, receipts, or records shall conduct a full and complete 
investigation, and shall notify FDA, by telephone or in writing, 
within 5 working days of becoming aware of a falsification and 
within 5 working days of the completion of an investigation.
    Proposed Sec. 203.37(a)(2) stated: ``A manufacturer or authorized 
distributor of record shall provide FDA with a complete written report, 
including the reason for and the results of the investigation, not 
later than 30 days after the date of the initial notification.''
    The agency, on its own initiative, has reformatted proposed 
Sec. 203.37(a)(1) and (a)(2) into Sec. 203.37(a)(1), with three 
subsections. The agency believes that the new format is clearer and 
easier to understand.
    54. FDA received 10 comments on these sections addressing the 
following issues: (1) The circumstances under which a manufacturer or 
authorized distributor should be required to investigate, (2) the time 
period to complete investigation, (3) when and under what circumstances 
a manufacturer should be required to give notice to FDA, and (4) the 
form of the notice and reporting requirements.
    Two comments addressed the level of suspicion of falsification that 
is necessary to trigger the investigation requirement. One comment said 
that the ``reason to believe'' language that appears in 
Sec. 203.37(a)(1) creates a standard that is ``vague and difficult to 
interpret.'' Another comment stated that ``reason to believe needs to 
be defined so that a manufacturer will not be second guessed.'' Another 
comment stated that the proposed rule does not define what constitutes 
``falsification,'' and that variances in a representative's reported 
numbers do not usually give rise to a ``reason to believe'' that a 
falsification has occurred, requiring investigation and notice, but 
rather that a representative has poor work habits. The comment stated 
that requiring investigation of every variance would be 
``unrealistic.''
    Instances of potential falsifications are most likely to come to 
the attention of manufacturers or authorized distributors through 
discrepancies that are uncovered during the required annual inventory 
and reconciliation. However, it is possible that other events or 
occurrences, some foreseeable and some not, may bring potential 
falsifications to the attention of a manufacturer or distributor. The 
agency has determined that the reason to believe standard, while not 
capable of precise definition, is flexible enough to cover the 
multiplicity of situations in which potential falsification is brought 
to light. Moreover, the standard is one that can be applied by 
manufacturers and authorized distributors using common sense and good 
judgment. While the agency does not expect manufacturers and authorized 
distributors to investigate every slight discrepancy, the agency would 
require investigation under this standard where a pattern of 
discrepancies exists or where other reliable information indicates that 
records have been falsified.
    55. Another comment said that the circumstance that triggers the 
investigation requirement should be diversion, not falsification. That 
comment also stated that the investigation requirement should apply 
only to a manufacturer's or authorized distributor's employees' 
misconduct, not to any person.
    The drug sample recordkeeping requirements were instituted to help 
ensure that drug diversion schemes could be detected. The agency 
believes that patterns of falsification of drug sample requests, 
receipts, or records,

[[Page 67740]]

while not conclusive, are highly probative that drug sample diversion 
is taking place. Thus, the agency declines to follow the recommendation 
that knowledge of diversion precede investigation.
    The agency recognizes, however, that circumstances other than 
record falsification may be indicative that drug sample diversion is 
occurring. Accordingly, the agency has revised proposed Sec. 203.37(a) 
to require notification, investigation, and reporting where a 
manufacturer or authorized distributor of record has reason to believe 
that any person is diverting prescription drug samples.
    Finally, the agency believes that the manufacturer or authorized 
distributor of record is in the best position to detect potential 
diversion not only by its own employees, but by other persons, such as 
contract representatives. Accordingly, the agency has determined that 
manufacturers and authorized distributors must investigate when they 
have reason to believe that any person has falsified drug sample 
records or has diverted drug samples.
    56. Two comments stated that PDMA statutory requirements did not 
make falsification of drug sample records reportable to FDA.
    Although PDMA did not expressly make falsification of drug sample 
records reportable to FDA, the agency has determined that such notice 
is necessary and furthers the legislative intent in PDMA. Persons who 
falsify drug sample requests, receipts, or records may be criminally 
prosecuted under sections 301 and 303 of the act, and under Title 18 of 
the United States Code. Because FDA is responsible for enforcing PDMA, 
it is necessary that the agency have all pertinent information 
regarding such potentially criminal conduct. Moreover, Congress did 
explicitly make significant losses and known thefts reportable to FDA, 
presumably because such losses and thefts indicate possible sample 
diversion activity. (See S. Rept. 100-303, p. 6, H. Rept. 100-76, p. 
16.) As discussed previously, the agency believes that falsifications 
of drug sample records are highly probative that drug diversion is 
taking place. Thus, the agency has determined that it is consistent 
with congressional intent that the agency be made aware of such 
falsifications, as well as other activity that is indicative of drug 
sample diversion, to enable FDA to monitor compliance with PDMA.
    57. One comment noted that statements made in the preamble to the 
proposal (59 FR 11842 at 11851) conflicted with proposed 
Sec. 203.37(a)(1). The comment stated that the proposal's preamble 
indicated that notice would be required to be provided to FDA when an 
investigation is initiated. However, proposed Sec. 203.37(a)(1) does 
not require notice until ``within 5 working days of becoming aware of a 
falsification.'' According to the comment, the notice discussed in the 
preamble may precede the notice required under the proposed regulation.
    The agency acknowledges that the notice discussed in the preamble 
of the proposal (59 FR 11842 at 11851) is different than the notice 
that would be required under the proposed regulation. The agency has 
revised proposed Sec. 203.37(a)(1) and (a)(2) to require that a 
manufacturer or authorized distributor of record that has reason to 
believe that any person has falsified drug sample requests, receipts, 
or records, or is diverting drug samples must notify FDA within 5 
working days, immediately initiate an investigation, and submit a 
written report to FDA within 30 days after the date of the initial 
notification. Thus, the requirement in proposed Sec. 203.37(a)(1) that 
a manufacturer or distributor notify FDA within 5 working days of 
becoming aware of a falsification and within 5 working days of the 
completion of an investigation has been eliminated. The agency believes 
that the provision of a single notice to FDA near the time when an 
investigation is initiated is sufficient.
    58. One comment said that firms should be required to provide 
notice to FDA only in ``situations where substantial evidence of 
apparent attempts to conceal diversion of samples exists.'' Another 
comment stated that notice should not be required until a ``strong 
probability'' of falsification is indicated by an investigation. 
Several comments stated that, except for a final written report 
submitted at the completion of an investigation revealing that 
falsification has in fact occurred, no notice should be required. One 
of these comments stated that it would be ``improper and unfair'' to 
implicate employees in falsification before all of the facts are known 
and an informed judgment can be made with respect to responsibility. 
One comment recommended that a written report should be made available, 
but not automatically submitted, to FDA.
    The agency believes that the manufacturer or authorized 
distributor, through its own investigation, is in the best position to 
determine whether falsification has occurred. However, for enforcement 
purposes, it is necessary that FDA be notified when there is reason to 
believe that there has been a falsification to ensure that an 
investigation is actually undertaken. Moreover, the provision of notice 
to FDA at the initiation of an investigation will establish a point 
from which to judge whether the investigation is completed in a timely 
manner. Thus, the agency disagrees with the recommendation that notice 
should not be provided to FDA until an investigation is completed and a 
strong probability of records falsification exists or until records 
falsification is confirmed. In addition, submission of a final written 
report to FDA stating the reasons for and the results of an 
investigation is necessary, even where falsification has not been 
found, to permit FDA to determine whether the circumstances were 
adequately investigated and explained.
    59. One comment stated that reports of some complex cases could 
require more than 30 days to complete and requested that the proposed 
rule be revised to allow for 30 days, except in ``unusual 
circumstances.'' Another comment recommended allowing completion of the 
investigation within a ``reasonable time,'' while another recommended 
that there should be no time restriction for the submission of a final 
report.
    The final rule as revised gives manufacturers 30 days to complete 
an investigation of possible falsification and to submit a written 
report. The agency believes that this amount of time is more than 
adequate in all but the most complex cases. In such cases, a 
preliminary report may be submitted describing the investigative 
measures taken, a summary of the findings of the investigation up to 
that time, the nature of the ongoing investigation, and the reasons the 
investigation was not completed within the required time.
    b. Section 203.37(b)(1) and (b)(2). Proposed Sec. 203.37(b)(1) 
stated:
    A manufacturer or authorized distributor of record that 
distributes drug samples or a charitable institution that receives 
donated drug samples from a licensed practitioner shall notify FDA, 
by telephone or in writing, within 5 working days of becoming aware 
of any significant loss or known theft of drug samples and within 5 
working days of the completion of an investigation into a report of 
a significant loss or known theft.
    Proposed Sec. 203.37(b)(2) stated: ``A manufacturer or authorized 
distributor of record shall provide FDA with a complete written report 
not later than 30 days after the date of the initial notification.''
    On its own initiative, the agency has reformatted and revised these 
sections into a single section, Sec. 203.37(b)(1), with three 
subsections. The revised section eliminates the requirement in proposed 
Sec. 203.37(b)(1) for notice to be given to

[[Page 67741]]

the agency within 5 days of the completion of an investigation of 
significant loss or known theft, but otherwise retains and clarifies 
the requirements in proposed Sec. 203.37(b)(1) and (b)(2).
    60. Two comments recommended revision of proposed Sec. 203.37(b)(1) 
to extend the time a manufacturer or authorized distributor has to 
notify FDA after becoming aware of a significant loss or theft, with no 
notification required if subsequent investigation reveals no loss or 
theft. One of the comments said that it would not be possible to 
differentiate insignificant accounting mistakes and actual losses 
within 5 days of learning of an inventory discrepancy and that the 
requirement would cause too many false alarms.
    Unlike falsifications of drug sample records, the agency requires 
notice of significant losses and known thefts only when a manufacturer 
or authorized distributor ``becomes aware'' of such losses or thefts. 
Thus, the level of certainty under which notice and investigation are 
required is higher for losses and thefts than it is for falsifications. 
Consequently, a manufacturer or authorized distributor should have 
already differentiated insignificant accounting mistakes and actual 
losses before notice is given to FDA. Thus, the agency believes that 5 
working days from the time that a manufacturer or authorized 
distributor becomes aware of losses or thefts is sufficient to provide 
notice to FDA of losses or thefts.
    61. Two comments recommended allowing 45 days after becoming aware 
of significant losses during shipment before notice is required, 
because such apparent losses of drug samples often show up during that 
time period.
    The agency declines to follow the recommendation of the comments. 
Potential significant losses that occur during shipping must be 
investigated and reported like other significant losses. When samples 
thought to be lost or stolen during shipping are later found, a 
followup report should be made to the agency describing the 
circumstances of the recovery and the quantity of samples that were 
recovered.
    62. In the preamble to the proposed rule (59 FR 11842 at 11851), 
the agency stated: ``The reporting of any significant loss of drug 
samples is critical to the success of diversion control. * * * FDA 
intends this requirement to mean that the agency is to be advised of 
actual, physical losses, but not insignificant accounting mistakes.'' 
FDA stated that it was aware of the difficulty of establishing a 
threshold for significant loss and solicited comment on how to 
distinguish between significant losses and minor accounting or 
inventory errors. The agency did not propose to establish a tolerance 
level for sample losses below which no report is required, and stated 
that each manufacturer or distributor is required to establish its own 
threshold for determining when inventory not accounted for is 
significant.
    One comment stated that losses may occur in several ways, including 
losses of shipments in transit, loss by representatives, and 
unexplained inventory discrepancies. The comment stated that, for 
shipping losses, it may be appropriate for companies to set a dollar 
amount above which a single loss is considered significant. This amount 
would vary by company and would be dependent on the size of the 
company, number of representatives, and size and value of its total 
inventory. The comment stated that shipping losses should also be 
viewed cumulatively over a ``fixed, rolling period of time'' to 
determine if there is a pattern of losses that might indicate 
diversion. Regarding unexplained inventory shortages, the comment 
stated that each company should be required to establish its own 
threshold for determining when inventory not accounted for is 
significant. Inventory discrepancies that can be shown to be caused by 
math or accounting errors or mistakes that can be reconciled should not 
be reported. The comment stated that there are three significant loss 
scenarios that may indicate possible diversion: (1) A single loss that 
exceeds a company's predefined threshold; (2) the number of loss events 
over a fixed, rolling period exceeds the company's threshold; or (3) 
the volume of losses over a fixed, rolling period exceeds the company's 
threshold.
    One comment stated that loss of a certain quantity of one drug 
sample with a high potential for diversion may be significant, while 
the loss of the same quantity of another sample with a low potential 
for diversion may not be significant. Therefore, the comment asserted, 
no universally applicable threshold can be established and a case-by-
case analysis must be employed.
    One comment requested that FDA clarify that not all physical losses 
are significant.
    The agency agrees with the first comment that different methods for 
determining whether a loss is significant may be used depending on the 
type of loss involved. For single loss events (i.e., ``physical'' 
losses) including losses by representatives (except for losses reported 
as thefts, which must all be reported and investigated) and losses of 
drug samples in transit, establishing a predefined threshold based on a 
set dollar amount or other criteria, such as a fixed number of sample 
units, may be appropriate. The size of the manufacturer or authorized 
distributor of record, the number of representatives, and size and 
value of a firm's total inventory, as well as a firm's past experience 
with sample losses, are relevant factors in determining the level of 
the threshold. However, the agency also agrees with the second comment 
that firms should remain responsive to the individual circumstances 
surrounding a single loss event, such as the loss of a drug with a 
particularly high potential for diversion, to determine whether a loss 
is significant even though the size of the loss does not meet the 
firm's predefined threshold.
    Regarding potentially significant losses that are revealed through 
unexplained inventory shortages, the agency stated in the preamble to 
the proposed rule that it does not seek to receive reports concerning 
minor mathematical errors that are caught and corrected in the normal 
course of business. The agency stated that firms are required to 
establish their own threshold for distinguishing between insignificant 
accounting mistakes and significant losses in inventory shortages based 
on the firm's past experience in sample distribution and inventory and 
the level of accuracy of its internal audit and security system. The 
agency also stated that some manufacturers or distributors might be 
able to set a ``historically validated statistical baseline'' for 
minimal amounts of inventory shrinkage caused by routine accounting 
errors, mistakes, or losses, and a statistical baseline for the 
frequency of occurrences (59 FR 11842 at 11851). The views expressed by 
the second comment regarding discerning significant losses from 
inventory shortages thus appear to be consistent with those previously 
set forth by the agency.
    63. One comment supported permitting manufacturers and distributors 
to establish their own thresholds for determining when inventory not 
accounted for is significant, but said that it was concerned about 
being second-guessed by the agency in determining what constitutes a 
significant loss. The comment recommended that FDA clarify within 
proposed Sec. 203.37 that it would not challenge a manufacturer for 
following its own definition of significant loss.
    The agency declines to revise the proposal to state that it will 
not

[[Page 67742]]

challenge a manufacturer for following its own definition of 
significant loss. However, the agency advises that a firm can best 
ensure that no enforcement action will be taken against it for 
violation of Sec. 203.37(b) where it establishes a system for reporting 
and investigating significant losses that is consistent with the 
guidance provided in this notice and in the proposed rule. 
Additionally, where a manufacturer or distributor is unsure about 
whether a loss is significant, it should report and investigate the 
loss as if it were significant.
    64. One comment stated that FDA should not give manufacturers or 
distributors any discretion to define what constitutes significant 
loss, but rather should define it for them.
    As explained previously and in the proposal (59 FR 11842 at 11851), 
the threshold level of what constitutes a significant loss will 
necessarily vary depending on such factors as the size of a company and 
the value of its total inventory, the accuracy of a manufacturer's or 
distributor's system for tracking sample distribution, and the 
circumstances surrounding the loss. Thus, the agency declines to codify 
a definition of significant loss.
    65. One comment expressed concern that virtually all losses would 
have to be reported under the significant loss standard as described by 
the agency in the proposal and recommended that significant loss be 
defined as a percentage of total sales or supplies.
    The agency believes that it has provided sufficient guidance in the 
proposed rule and in this notice about how to distinguish between 
routine losses and significant losses that need to be reported and 
investigated. Thus, the agency disagrees that all or virtually all 
losses will have to be reported and investigated and declines to set a 
threshold based on percentage of total sales or supplies above which a 
loss will be considered significant.
    c. Section 203.37(d). Proposed Sec. 203.37(d) stated: ``* * * A 
manufacturer or authorized distributor of record that distributes drug 
samples shall inform FDA in writing within 30 days of selecting the 
individual responsible for responding to a request for information 
about drug samples of that individual's name, business address, and 
telephone number.''
    66. One comment sought clarification on whether the information 
required by this section is ``for a regulatory agency and PDMA 
information or information for a potential customer-doctor or 
patient.''
    FDA clarifies that the information required by this section is to 
facilitate requests for drug sample information by FDA and Federal, 
State, and local regulatory and law enforcement officials.
8. Sample Lot or Control Numbers; Labeling of Sample Units
    a. Section 203.38(a). Proposed Sec. 203.38(a) stated: ``The 
manufacturer or authorized distributor of record of a drug sample shall 
include in the labeling of the drug sample and the label of the sample 
unit an identifying lot or control number that will permit the tracking 
of the distribution of each drug sample unit.''
    67. Two comments stated that the statement ``identifying lot or 
control number that will permit the tracking of the distribution of 
each drug sample unit'' could be interpreted to mean that each drug 
sample unit would require its own identifying number. The comments 
requested that the agency clarify that tracking is required only of 
lots, not of sample units.
    FDA clarifies that the section is intended to require only the 
tracking of sample units by the lot from which they came, and does not 
require that each sample unit receive its own identifying number.
    68. Several comments requested clarification on whether the lot or 
control number is required to appear only on the external packaging of 
sample units or on all labeling as defined in 21 CFR part 201, 
including inserts and circulars. Several comments objected to the 
latter interpretation on the grounds that such a requirement would be 
costly and would not aid in the prevention of drug diversion. One 
comment, for example, stated that package inserts would probably be 
discarded by individuals engaged in diversion. Several comments stated 
that inserts are currently not lot-specific and that customizing 
inserts to lots would be extremely expensive. One comment stated that 
requiring lot numbers on package inserts would not benefit recall 
procedures.
    The section as proposed would require lot or control numbers to 
appear both on sample unit labels and on other drug sample labeling. 
Inserts and circulars are labeling as defined in section 201(m) of the 
act. However, the agency agrees with the comments that requiring lot or 
control numbers to appear on package inserts, circulars, or similar 
labeling is not necessary. The section has been revised to require that 
the lot or control number appear only on the label of the sample unit 
itself, and on the outside container or packaging of the sample unit, 
if any, in accordance with section 201(k) of the act.
    b. Section 203.38(c). Proposed Sec. 203.38(c) stated, in relevant 
part, that ``each sample unit shall bear a label that clearly denotes 
its status as a drug sample, e.g., `sample,' `not for sale,' 
`professional courtesy package.'''
    In the preamble to the proposed rule (59 FR 11842 at 11855), the 
agency identified ``starter packs'' as prescription drug products 
distributed without charge by manufacturers or distributors to 
pharmacists with the intent that pharmacists place the drugs in stock 
and sell them at retail. The agency stated that starter packs are 
intended for sale and therefore do not meet the statutory definition of 
a drug sample. Since the publication of the proposed regulations, the 
agency has become aware of the use of the terms ``starter,'' ``starter 
samples,'' and ``patient starter pack'' to refer to drug sample units. 
Because the agency does not consider starter packs (as described 
previously) to be drug samples, the use of the term ``starter'' on drug 
sample labeling is inappropriate and should not be used.
    69. One comment stated that the proposed requirement goes beyond 
the intent of Congress in PDMA and that it would not deter diversion 
because the contents may be removed from the drug package.
    Designating a sample unit as a sample is the only way to 
distinguish drug products manufactured for sale from drug samples. 
Because Congress prohibited the sale, purchase, or trade of drug 
samples, or the distribution of samples in a manner that is 
inconsistent with section 503 of the act, the requirement clearly is 
consistent with and furthers legislative intent. Although the 
requirement does not provide a foolproof method of preventing 
diversion, the requirement will help deter sample diversion by denying 
diverters a market-ready product.
    70. One comment recommended, as an alternative to isolating a 
manufacturing run of labels, that manufacturers be permitted to use 
adhesive stickers that could be placed on the outside containers of 
sample units otherwise labeled for retail.
    The agency will not object to the use of stickers provided that a 
sticker is applied to both the label of the sample unit and the outside 
container or packaging of the sample unit, if any, in accordance with 
Sec. 203.38(a). However, to avoid giving diverters a market-ready 
product, any stickers should be difficult to remove and their removal 
should be evident. The agency recommends more

[[Page 67743]]

durable methods of identifying a sample product, such as overprinting.
    71. Several comments opposed the requirement in proposed 
Sec. 203.38(c) on the grounds that it would entail too much expense.
    It is the agency's experience that the packaging of sample units 
currently used by the majority of manufacturers already identifies the 
units as samples through the use of terminology such as ``not for 
sale'' or ``professional use only.'' Such wording meets the intent of 
this section. Moreover, as discussed under the previous comment, 
manufacturers may place an adhesive sticker on the label of a retail 
unit and on the outside container or package of the unit, if any, 
designating the retail unit as a sample. Therefore, the agency is 
unconvinced that this requirement would impose a financial hardship on 
the majority of manufacturers.
    72. One comment objected to the proposed rule as it relates to the 
distribution of radiopharmaceutical samples. The comment stated that 
prohibiting manufacturers from supplying radiopharmaceutical samples in 
retail packages would be unduly burdensome because of the small numbers 
of such samples that are distributed. The comment recommended that 
radiopharmaceuticals be exempt from the requirement.
    As discussed previously, manufacturers may place an adhesive 
sticker on the label of a retail unit and on the outside container or 
package of the unit, if any, designating it as a sample. The agency 
believes that this is sufficient to address the concerns raised by the 
comment and declines to create the requested exemption.
    73. One comment stated that the increased costs associated with the 
labeling requirement would affect the ability of manufacturers to 
provide drugs free of charge to indigent patients.
    As discussed in the proposal (59 FR 11842 at 11855), there are some 
circumstances in which prescription drugs that are provided free of 
charge will not be considered samples under section 503(c)(1) of the 
act and Sec. 203.3(i). The example given was of prescription drugs 
provided at no charge to licensed practitioners for the treatment of 
indigent patients where the main object is to ensure that patients in 
need of prescription drugs have access to them (whatever their 
financial circumstances) and not to promote the drugs. According to 
information available to the agency, these manufacturer-sponsored 
indigent patient programs generally include appropriate controls, 
documentation, and verification of the distribution and use of these 
products. Therefore, such drugs would ordinarily not be required to be 
labeled in accordance with Sec. 203.38(c). Moreover, even where drugs 
are distributed for a promotional purpose and Sec. 203.38(c) applies, 
the agency does not believe, for the reasons discussed in response to 
comment 71, that the labeling requirement will impose a financial 
burden large enough to affect the ability of manufacturers to provide 
drugs free of charge to indigent patients.
    74. One comment requested a 3-month grace period after the 
effective date of the regulations in which nonlabeled sample units 
already in the possession of manufacturers could be used.
    As discussed in section II.K of this document, the agency has 
determined that the provisions in the final rule will not become 
effective until 1 year after the date of publication of the final rule 
in the Federal Register. Thus, the agency believes that manufacturers 
and authorized distributors will have ample time from the publication 
of the final rule to its effective date to come into compliance.
    75. One comment recommended that the proposed regulation be 
rewritten to require that a drug sample label include the terms 
``sample'' or ``professional sample'' and to allow, in addition to 
these terms, such terms as ``not for sale'' or ``professional courtesy 
package.''
    The wording used in proposed Sec. 203.38(c) was intended to be 
illustrative only. Any words that clearly designate a sample unit as a 
sample may be used. As discussed previously, the term ``starter'' does 
not designate a sample unit as a sample, and should not be used.
9. Retail Pharmacies and Drug Samples
    In the preamble to the proposal (59 FR 11842 at 11853), the agency 
explained that by limiting the distribution of samples to licensed 
practitioners and to hospitals or health care entity pharmacies at the 
request of a licensed practitioner, but not to retail pharmacies, 
Congress clearly expressed its intent to not allow the distribution of 
samples to retail pharmacies. Under proposed Sec. 203.40, the presence 
in a retail pharmacy of any drug sample would have been considered 
evidence that the drug sample was obtained by the retail pharmacy in 
violation of section 503(c)(1) of the act.
    76. One comment opposed proposed Sec. 203.40, stating that ``there 
is no statutory or evidentiary basis for creating this presumption.'' 
The comment also stated that FDA, as a Federal agency, lacks the 
authority to shift the burden of proof in an enforcement proceeding.
    The agency has decided to withdraw proposed Sec. 203.40 from the 
final rule. However, the agency continues to interpret the act to 
prohibit the distribution of drug samples by a manufacturer or 
distributor to a retail pharmacy and the receipt of a drug sample by a 
retail pharmacy from any person. Moreover, the agency believes that the 
presence of drug samples in a retail pharmacy is probative that samples 
are being sold, purchased, traded, or distributed in violation of the 
act. Therefore, the agency may investigate the presence of drug samples 
in a retail pharmacy to determine if other violations warranting 
enforcement action exist.
    77. Three comments objected to the prohibition on the distribution 
of drug samples to or the receipt of drug samples by retail pharmacies. 
Two comments stated that the prohibition would prevent pharmacists from 
providing drug counseling to patients. One comment stated that 
counseling is important because physicians are not accustomed to 
counseling patients to whom they give drugs. Another comment asserted 
that pharmacist-patient counseling improves compliance with drug 
therapy and reduces overall health care costs. Two comments stated that 
retail pharmacies should be allowed to store and dispense samples at 
the direction of a physician because pharmacies are designed for drug 
storage and physicians' offices are not.
    The agency recognizes that proper storage and handling of 
prescription drugs and adequate counseling in connection with 
prescription drug use are important concerns. However, the agency 
believes that both of these goals can and must be accomplished within 
the system of sample distribution established by Congress in PDMA. As 
discussed previously, under this system, drug samples may not be 
distributed to retail pharmacies and retail pharmacies may not receive 
such samples.
    78. One comment objected to the fact that physicians are not 
permitted to give samples to or to request that samples be sent to a 
retail pharmacy, although they are expressly permitted to request that 
samples be sent to hospital or health care entity pharmacies. The 
comment argued that, except in two States, all pharmacists receive the 
same type of license regardless of practice setting. The comment also 
stated that all pharmacists, regardless of practice setting, 
independently dispense drugs to patients in accordance with a written 
prescription. The comment

[[Page 67744]]

recommended either that all types of pharmacies should be permitted to 
receive samples at the direction of a licensed practitioner or none 
should be permitted.
    The agency declines to follow the recommendation of the comment. 
PDMA expressly provided that hospital or health care entity pharmacies 
may provide drug samples to patients at the direction of a licensed 
practitioner. Moreover, PDMA provided that manufacturers and authorized 
distributors of record may distribute drug samples to hospital or 
health care entity pharmacies at the request of a licensed 
practitioner. Thus, Congress clearly expressed its intent to allow 
hospital or health care entity pharmacies to receive and dispense drug 
samples. No such intent is evident with respect to retail pharmacies.
    79. One comment stated that not permitting retail pharmacies to 
store and to dispense samples at the direction of a physician is 
inconsistent with agency policy, as expressed in the preamble to the 
proposal, allowing distribution of prescription drugs through retail 
pharmacies to indigent patients.
    The proposal (59 FR 11842 at 11855) did not address dispensing 
prescription drugs to indigent patients through retail pharmacies. It 
discussed the circumstances whereby manufacturers make arrangements to 
provide prescription drugs to licensed practitioners to prescribe and 
dispense at no cost or at reduced cost to indigent patients of those 
practitioners. As previously stated, such drugs will ordinarily not be 
considered samples. Therefore, a licensed practitioner may direct such 
drugs to be distributed to and dispensed by a retail pharmacy.
10. Permissible Uses of Drug Samples by Licensed Practitioners
    In the preamble to the proposal (59 FR 11842 at 11852), the agency 
described the permissible uses of drug samples by licensed 
practitioners by stating:
    FDA advises that PDMA and this proposed rule would permit a 
licensed practitioner to: (1) Dispense the drug sample as set forth 
in section 503(d)(1) of the act; (2) donate the drug sample to a 
charitable institution as provided for in proposed Sec. 203.39; (3) 
return the drug sample to the manufacturer or distributor; or (4) 
destroy the drug sample.
    80. One comment requested that the proposed rule be revised to 
permit a licensed practitioner to give drug samples to a requesting 
manufacturer for stability testing and other quality testing. The 
comment stated that a manufacturer should be allowed to request and 
retrieve both its own samples and the samples of other manufacturers 
for this purpose. According to the comment, allowing manufacturers to 
retrieve samples for testing would further the purposes of PDMA 
legislation by ensuring that drug samples in the possession of licensed 
practitioners are safe and effective. The comment stated that, under 
the proposed rule, there are no regulatory controls on the handling and 
storage of drugs in the possession of licensed practitioners. The 
comment stated that by obtaining and analyzing drug samples that have 
been stored in practitioners' offices under actual conditions of use, 
manufacturers will be able to improve packaging design to ensure the 
stability of drug samples. The comment also stated that allowing 
manufacturers to obtain and analyze samples ``raises minimal, if not 
nonexistent, risk of samples being diverted into secondary commerce.''
    As stated in the proposal, the agency's policy is to permit 
licensed practitioners to return drug samples to the manufacturer or 
distributor from which they were obtained. Although the agency had 
originally only considered the scenario in which the licensed 
practitioner would initiate such returns, the agency clarifies that a 
request by a manufacturer to a practitioner for return of its own 
samples for stability testing or other analysis would be permissible.
    The agency does not believe, however, that it is permissible under 
PDMA for licensed practitioners to distribute drug samples to 
manufacturers or authorized distributors who did not supply them. The 
agency believes that such distribution would serve no legitimate 
purpose and would unnecessarily increase the risk of sample diversion. 
The agency is not persuaded that manufacturers would expend the time 
and resources necessary to perform stability and quality testing on 
other manufacturers' samples. Moreover, even if such testing were 
performed, it is unlikely that the results of such testing would be 
shared with the manufacturer of the sample. Thus, the sample quality 
would not be improved by allowing manufacturers to retrieve other 
manufacturers' samples. Finally, the agency believes that a risk of 
diversion does exist with such distribution and that the risk is not 
offset by any appreciable health benefit.
11. Drug Sample Status of Free Distributions
    In the preamble to the proposed rule (59 FR 11842 at 11855), the 
agency stated that because starter packs are intended to be sold, they 
are not samples and thus the sample distribution requirements do not 
apply to them. The agency cautioned, however, that because starter 
packs provide opportunities for diversion similar to those presented by 
drug samples, manufacturers and distributors should establish and 
maintain accounting, audit, and security systems for starter packs to 
guard against diversion.
    81. One comment supported the agency's position on starter packs, 
stating: ``We applaud the FDA for clearing up misunderstandings about 
the difference between samples and starter packs.'' Another comment 
agreed with the agency's position, but stated that the cautionary 
language used by the agency in connection with starter packs implicitly 
regulates them as samples. The comment recommended that the proposed 
regulations be revised to include a definition of starter pack 
indicating that it is not a sample and to allow manufacturers to decide 
how to monitor the distribution of starter packs.
    As noted previously, the agency has concluded that starter packs do 
not meet the statutory definition of a drug sample and thus are not 
subject to PDMA requirements for sample distribution. This 
determination is consistent with the definition of ``drug sample'' in 
the act and final regulations and need not be codified. The agency also 
clarifies that manufacturers are not required to follow the agency's 
recommendations for monitoring the distribution of starter packs. 
However, because of the potential for diversion of these products, the 
agency continues to recommend that their distribution be monitored in a 
manner designed to prevent and detect diversion.
    82. One comment sought clarification of whether specific 
distributions of prescription drugs to indigent patients through retail 
pharmacies would constitute a sample or nonsample transaction. In the 
scenario presented by the comment, the patient would present a 
prescription and a ``prescription drug card'' to the retail pharmacist, 
who would fill the prescription from a stock bottle and be reimbursed 
for the cost of the drug and patient counseling services through a 
``pharmacy benefits company.'' The comment stated that the manufacturer 
would have a contract with the pharmacy benefits company to handle all 
transactions for a drug under the manufacturer's indigent drug program.
    The agency advises that the prescription drug dispensed in the 
scenario presented by the comment would not be considered a sample for 
purposes of PDMA because the drug product comes from the stock of the

[[Page 67745]]

retail pharmacy and is intended to be sold.
    83. One comment requested that the agency recognize that drugs 
distributed to a physician for use by the physician's family are not 
samples. According to the comment, such drugs should not be considered 
samples because they are not intended to promote the drug.
    The agency believes that distributions of free prescription drugs 
to a physician for use by his family do constitute samples because they 
are intended to promote the marketing of a drug. A licensed 
practitioner is clearly benefitted by the provision of free drugs for 
personal or family use. The agency believes that the benefit conferred 
on a practitioner in this manner by a manufacturer or authorized 
distributor is clearly intended to influence the physician's 
decisionmaking process about what drugs to prescribe for patients in 
the future and is therefore intended to promote the sale of the drug.
12. Bid and Commercial Samples
    In the preamble to the proposal (59 FR 11842 at 11856), the agency 
discussed ``bid'' and ``commercial'' samples. The agency stated that 
these include specimens of bulk drug ingredients, precursor specimens, 
or finished dosage forms that are distributed to a manufacturer in 
limited quantities for testing and evaluation purposes. As noted by the 
agency, specimens of bulk drug ingredients may be used by manufacturers 
to determine whether the bulk drug is compatible with the 
manufacturer's production equipment or suitable for use in formulating 
drug products. Finished dosage forms may be used by repackers to 
determine if they are suitable for use with various packaging materials 
and equipment. Citing the definition of drug sample in section 
503(c)(1) of the act and proposed Sec. 203.3(i), the agency stated 
that, because of the statutory language and the threat of diversion, 
persons who distribute bid or commercial samples should follow the 
requirements for sample distribution set forth in the act and the 
proposal.
    84. One comment asked if the agency intended for manufacturers 
providing materials for stability trials or for validation studies to 
follow sample distribution requirements. The comment also sought 
guidance on which distributions of prescription drugs would be covered 
by the terms ``bid'' and ``commercial'' samples.
    The agency clarifies that the terms ``bid'' and ``commercial'' 
samples, as used by the agency in the proposal and in the final rule, 
refer to distributions of bulk drug substances or finished dosage forms 
by a manufacturer or distributor to a manufacturer at no cost for 
testing and evaluation purposes. Such distributions would include free 
distributions of bulk drug substances to conduct stability, validation, 
or characterization studies, or for other purposes related to testing 
and evaluation of the bulk drug substance. Such distributions would 
also include the free distribution of a limited quantity of a finished 
dosage form to a repackager for testing with the repackager's packaging 
equipment. As discussed in comment 85, the agency has determined that 
distributions of bid and commercial samples are not subject to 
requirements for sample distribution under PDMA or the final rule.
    85. Several comments objected to subjecting bid and commercial 
samples to the same requirements as prescription drug samples on the 
grounds that bid and commercial samples are not intended to promote the 
sale of a drug and thus are not drug samples. Two comments stated that 
adhering to drug sample distribution requirements for bid and 
commercial samples would be burdensome to small companies and drug 
manufacturers such as repackers that do not have licensed practitioners 
on their staff. One of these comments stated that the burden would not 
be offset by any appreciable public health benefit. Several comments 
stated that the likelihood of diversion of commercial or bid samples is 
extremely small. Another comment stated that the potential for 
diversion of bid and commercial samples asserted by the agency is 
unsupported in either the congressional or administrative record. 
Several comments recommended applying existing recordkeeping 
requirements for prescription drugs to bid and commercial samples.
    Although bid and commercial samples arguably meet the literal 
definition of a drug sample under section 503(c)(1) of the act, the 
agency believes that application of the statutory requirements for drug 
sample distribution to such drugs would be inconsistent with 
congressional intent. In PDMA's legislative history, Congress stated 
that ``pharmaceutical manufacturers and distributors have a long-
established practice of providing samples of their prescription drugs 
to physicians and other practitioners licensed to prescribe such drugs 
who, in turn, provide them to their patients. The ostensible purpose is 
to acquaint the practitioner with the therapeutic value of the 
medication and thus encourage the written prescription of the drug.'' 
(See H. Rept. 100-76 at p. 12.) Because bid and commercial samples are 
not provided to practitioners or their patients, the agency believes 
that Congress did not intend the drug sample provisions of PDMA to 
apply to them. Therefore, the agency is no longer recommending that the 
sample distribution requirements in PDMA and the final rule be followed 
for bid and commercial samples. However, because the potential for 
diversion exists, the agency recommends that manufacturers and 
distributors monitor their bid and commercial sample distribution to 
prevent and detect diversion.

F. Application of PDMA to Bulk Pharmaceutical Chemicals

    In the preamble to the proposal (59 FR 11842 at 11843), the agency 
concluded that bulk drug substances that are subject to section 503(b) 
of the act (i.e., prescription) are covered under PDMA.
    86. One comment objected to the application of any portion of PDMA, 
including the sample distribution requirements and wholesale 
distribution requirements, to bulk pharmaceutical chemicals (BPC's). 
The comment argued that PDMA was intended by Congress to apply to 
finished dosage forms only and that the proposed regulations cannot be 
practically applied to BPC's. The comment stated that the legislative 
history of PDMA indicates that Congress was concerned with the effects 
of diversion on consumers and that, since BPC's are not sold to 
consumers, Congress did not intend for the act to apply to them. The 
comment also stated that BPC's were not mentioned by Congress in either 
PDMA or its legislative history and the absence of legislative 
reference to BPC's indicates that Congress did not even consider 
including BPC's under PDMA. The comment argued that this reasoning is 
consistent with the agency's decision to exclude blood and blood 
components from wholesale distribution requirements in PDMA.
    The comment also said that the proposed regulations dealing with 
wholesale distribution and drug samples cannot be practically applied 
to BPC's. The comment stated, for example, that the proposed sample 
regulations would not allow a BPC manufacturer to furnish a finished 
dosage form manufacturer with BPC samples because a manufacturer is 
prohibited from distributing drug samples to anyone other than a 
licensed practitioner or a hospital or health care entity pharmacy 
designated by a licensed practitioner. The comment said that BPC 
manufacturers could not comply with wholesale licensing requirements in 
part 205 because BPC's

[[Page 67746]]

are distributed in an entirely different way than other prescription 
drugs. The comment recommended that if BPC's are to be included under 
PDMA, the proposed regulations should be revised to ``include 
regulations specific to and appropriate to BPC's that address the 
problems of diversion and counterfeiting.''
    The preamble to the proposed regulations (59 FR 11843) discussed 
the applicability of PDMA not to BPC's, but to bulk drug substances 
(BDS's). As discussed in section II of this document, the definition of 
bulk drug substance used in the final rule includes only those 
substances that become active ingredients when used in the 
manufacturing, processing, or packaging of a drug. It is the agency's 
understanding that the term BPC, as used in the comment, includes 
substances that do not become active ingredients when used in the 
manufacturing, processing, or packaging of a drug (i.e., substances 
that are not pharmacologically active, do not furnish direct effect in 
the diagnosis, cure, mitigation, treatment, or prevention of disease, 
and do not affect the structure or any function of the body of humans) 
and thus are not bulk drug substances.
    The statutory language of PDMA makes it applicable to all drugs (as 
defined under section 201(g)(1) of the act) that are subject to section 
503(b)(1) of the act. Although components of finished drug products 
that are not bulk drug substances may meet the statutory definition of 
a drug under section 201(g)(1)(D) of the act, such materials are not 
prescription drugs as described under section 503(b)(1) of the act. 
Accordingly, non-BDS components of finished drug products are not 
subject to PDMA requirements (e.g., drug sample or wholesale drug 
distribution). In addition, as discussed under the preceding comment, 
the drug sample distribution requirements of PDMA do not apply to 
specimens of BDS's provided to finished dosage form manufacturers for 
testing and evaluation purposes.
    The agency disagrees, however, that PDMA was not intended by 
Congress to apply to prescription BDS's or that the distribution of 
prescription BDS's is so different than that of finished dosage forms 
that the wholesale distribution requirements of PDMA cannot be 
practically applied to BDS's. As noted previously, the statutory 
language of PDMA makes it applicable to all drugs subject to section 
503(b)(1) of the act. A BDS that is intended to furnish pharmacological 
activity or other direct effect when it becomes a finished dosage form 
that is a prescription drug necessarily falls within the scope of 
section 503(b)(1) of the act. Thus, on its face PDMA applies to 
prescription BDS's. Although Congress did not specifically refer to 
BDS's in the legislative history of PDMA, it also did not specifically 
refer to finished dosage forms or otherwise indicate that the scope of 
PDMA is limited to finished dosage forms. Moreover, the agency 
disagrees with the assertion that because prescription BDS's are not 
sold to consumers Congress did not intend for PDMA to apply to them. 
Prescription BDS's are used as components of prescription drug products 
that are sold to consumers, and clearly any practices that adversely 
impact upon the quality of prescription BDS's could ultimately harm 
consumers. Thus, the agency believes that PDMA was intended by Congress 
to apply to prescription BDS's.
    The agency also believes that the wholesale distribution provisions 
of PDMA should and must be applied to prescription BDS's. Prescription 
BDS's are distributed from the manufacturer of the BDS to the 
manufacturer or compounder of the finished dosage form of the drug. 
That process of distribution may be direct or, as is generally the case 
for prescription BDS's manufactured by a foreign manufacturer, through 
one or more brokers/wholesalers. This system of distribution meets the 
definition of wholesale distribution under section 503(e)(4)(B) of the 
act. Moreover, because this system of distribution may involve several 
transfers of the bulk drug substance through numerous parties and 
facilities over varying periods of time, similar concerns exist with 
BDS's as with finished dosage forms regarding the personnel and 
facilities through which BDS's are distributed and the manner in which 
they are stored and handled. Accordingly, manufacturers and 
distributors of prescription BDS's that engage in wholesale 
distribution of these substances are required, under section 
503(e)(2)(A) of the act and part 205, to be State licensed wholesale 
distributors and to meet other requirements for wholesale distribution 
of prescription drugs under PDMA and the agency's regulations.
    Thus, for prescription BDS's imported into the United States, 
including BDS's intended for pharmacy compounding, the person 
responsible for the importation of such BDS is engaged in the wholesale 
distribution of a prescription drug and must be State licensed in the 
State into which the prescription BDS is imported and from which 
distribution of such BDS occurs. In addition, any agent or wholesaler 
that subsequently distributes the BDS in interstate commerce must be 
licensed by the State from which the distribution occurs. For 
domestically manufactured prescription BDS's, the BDS manufacturer must 
be licensed by the State where its facilities are located. Agents that 
subsequently distribute the prescription BDS must be licensed by the 
State from which the distribution of the BDS occurs.
    In addition, any agent or distributor that is not an authorized 
distributor of record must provide a statement of origin before 
distributing the BDS. Thus, except for those prescription BDS 
distributors that have a written agreement with the BDS manufacturer to 
distribute the manufacturer's products for a period of time or for a 
number of shipments, prescription BDS distributors must provide a 
statement of origin showing all prior sales and purchases of the 
prescription BDS being distributed and the names and addresses of the 
parties to such transactions. Under Sec. 203.50(c) of the final rule, a 
manufacturer that subjects a prescription BDS to any additional 
manufacturing processes to produce a different drug is not required to 
provide to a purchaser a drug origin statement.

G. Application of PDMA to Radiopharmaceuticals

    87. One comment requested that distributions of 
radiopharmaceuticals be exempt from the definition of wholesale 
distribution in proposed Sec. 203.3(y) and part 205 such that State 
licensing and drug origin statement requirements would be inapplicable 
to these drugs. The comment made the following points about 
radiopharmaceuticals: (1) Radiopharmaceuticals differ from other 
prescription drugs in that their radioactive component causes them to 
lose clinical effectiveness within a few days of manufacture; (2) 
radiopharmaceuticals are prepared in small quantities, shipped 
overnight, and used the same day they are received; (3) neither 
manufacturers nor retailers can have inventory of these drugs for 
longer than a couple of days; (4) the unique properties of 
radiopharmaceuticals make many of the storage, handling, and 
accountability considerations of part 205 inapplicable; (5) regulation 
by FDA would be inappropriate and was not intended by Congress because 
it would duplicate existing regulations by several Federal, State, and 
local agencies; (6) existing regulations cover how radiopharmaceuticals 
are manufactured, packaged, labeled, stored, shipped, used, and 
controlled; and (7) radiopharmacies are licensed under State retail 
pharmacy laws that impose

[[Page 67747]]

requirements relating to facilities, security, storage, and 
recordkeeping.
    The agency declines to adopt the exclusions recommended by the 
comment. The term radioactive drugs, as defined under 21 CFR 310.3(n), 
encompasses both radioactive and nonradioactive drug products. 
Radioactive drugs include drug products derived from by-product 
materials from nuclear reactors (i.e., radionuclide generators), 
cyclotron-produced products (i.e., Ga-67 Citrate, Tl-201 Chloride, and 
In-111 Oxide), and positron emission tomography products (e.g., 
Rubidium-82 and fludeoxyglucose). Nonradioactive reagent kits are also 
radioactive drugs and are compounded with radioactive substances by 
radiopharmacies or hospitals to make the final drug product.
    As the comment points out, most radioactive drugs have a limited 
shelf-life which requires that they be distributed in a different 
manner than many prescription drugs. In addition, certain Federal and 
various State requirements for shipping, storage, handling, and 
recordkeeping apply to radioactive drugs. However, as discussed 
previously in conjunction with medical gases and the comments on bulk 
drugs, PDMA applies to all prescription drugs. Therefore, unless there 
is a clear indication in PDMA or its legislative history that Congress 
did not intend for PDMA to apply to a specific class of drugs, the 
agency does not believe that it is appropriate to exempt the class from 
PDMA requirements and restrictions. Except for the factors mentioned 
above, there is no indication in PDMA or its legislative history that 
Congress intended that radioactive drugs be treated differently than 
other types of prescription drug products. The agency does not believe 
that these factors, by themselves, indicate a clear congressional 
intent to exempt radioactive drugs from PDMA or to exclude radioactive 
drugs from specific PDMA requirements.

H. Wholesale Distribution

1. Section 203.50(a) and (a)(6)
    Proposed Sec. 203.50(a) and (a)(6) stated:
    * * * Before the completion of any wholesale distribution by a 
wholesale distributor of a prescription drug for which the seller is 
not an authorized distributor of record to another wholesale 
distributor or retail pharmacy, the seller shall provide to the 
purchaser a statement identifying each prior sale, purchase, or 
trade of such drug. This identifying statement shall include: * * * 
The business name and address of all parties to each prior 
transaction involving the drug, starting with the manufacturer * * 
*.
    88. One comment objected to Sec. 203.50(a) and (a)(6) because it 
would require an unauthorized distributor to provide information about 
all prior sales, purchases, or trades of the drug, starting with the 
manufacturer, even in cases where the seller from whom the distributor 
received the drug was an authorized distributor of record and did not 
provide any pedigree for the drug. The comment stated that ``the 
proposed regulation would make it impossible, as a practical matter, 
for authorized distributors to sell into the [prescription] specialty 
market without providing a pedigree,'' which was not intended by 
Congress. The comment recommended revising the proposed rule to require 
that the drug origin statement (i.e., the ``pedigree'') only go back to 
the last authorized distributor of record.
    The agency declines to revise the proposal in the manner suggested 
by the comment. Section 503(e)(1)(A) of the act requires that, prior to 
completion of a wholesale distribution of a prescription drug by a 
person who is not the manufacturer or an authorized distributor of the 
drug, a statement must be provided to the recipient identifying each 
prior sale, purchase, or trade of the drug, including the date of the 
transaction and the names and addresses of all parties to the 
transaction. There is no indication in PDMA that Congress intended that 
the statement include only those sales, purchases, or trades since the 
drug was last handled by an authorized distributor. Thus, an 
unauthorized distributor is required to provide a full drug origin 
statement in accordance with PDMA and the final rule whether or not it 
has purchased a prescription drug from an authorized distributor of 
record. Although the agency encourages authorized distributors to 
provide a drug origin statement to unauthorized distributors, they are 
not required to do so under PDMA or the final rule.
    89. In the preamble to the proposal (59 FR 11842 at 11856 and 
11857), the agency discussed at length its views on the use of coding 
that represents required information on the drug origin statement. The 
agency stated that, since the enactment of PDMA, FDA's position has 
been that the use of coded statements on the drug origin statement that 
make information unintelligible to purchasers without the intervention 
of a third party to decipher the code (e.g., ``this shipment of drugs 
came from unauthorized distributor RS47GS2273'') does not provide 
purchasers with the information that Congress intended that they 
receive. Moreover, the PDA, which amended section 503(e)(1) of the act 
to require, among other things, that the drug pedigree contain the 
``names and addresses of all parties to the transaction,'' made clear 
that product source codes may not be used on the drug pedigree as a 
substitute for required information.
    One comment supported the agency's position on the use of coding. 
The comment stated that the practice of using codes places a large 
burden on distributors and recommended that the agency go a step 
further and revise the proposed regulations to prohibit the use of 
product source codes on drug origin statements.
    The agency believes that its position against the use of product 
source codes as a substitute for the name and address of buyers or 
sellers in drug origin statements was adequately addressed in the 
preamble to the proposal and restated here. Accordingly, the agency 
declines to codify a prohibition on the use of such codes in the final 
regulation.
2. Section 203.50(b)
    The agency has added Sec. 203.50(b) to clarify that the drug origin 
statement is subject to the revised record retention requirements of 
Sec. 203.60(d) and must be retained by all wholesale distributors 
involved in the distribution of the drug product, whether authorized or 
unauthorized, for 3 years. The agency is providing this clarification 
in response to numerous inquiries that it has received since the 
proposed rule was published.
3. Section 203.50(c)
    Proposed Sec. 203.50(c) stated: ``Each manufacturer shall maintain 
at the corporate offices a current written list of all authorized 
distributors of record.'' Proposed Sec. 203.50(c)(3) stated: ``Each 
manufacturer shall make its list of authorized distributors of record 
available on request to the public for inspection or copying. A 
manufacturer may impose reasonable copying charges for such requests 
from members of the public.''
    90. One comment recommended that the list of distributors could be 
maintained at any company site and could be made available via 
electronic media or within 24 hours to other sites.
    The rule does not require company records to be kept at every 
company site. As long as a company can produce the required information 
for review and copying by FDA or other Federal, State, or local law 
enforcement agencies at the site where they are requested within 2 
business days, the company may maintain its records at a central 
location.

[[Page 67748]]

    91. Several comments objected to the proposed requirement that 
manufacturers must make their list of authorized distributors of record 
available to the public. The comments stated that this information is 
proprietary in nature and should be kept confidential. One comment 
stated that FDA has acknowledged that this information was considered 
proprietary in the past.
    Other comments stated that providing such information is unduly 
burdensome on manufacturers. One comment recommended adding a 
``reasonable hours of inspection and reasonable copying charges'' 
provision to the section. Another comment recommended revising the 
section to require only that industry respond to individual inquiries 
about whether a specific wholesaler is an authorized distributor of 
record.
    The requirement that manufacturers maintain a current list of 
authorized distributors of record appears at section 503(e)(1)(B) of 
the act. In the legislative history, Congress stated that this list 
must be made available for public inspection. (See S. Rept. 100-303, p. 
7.) Thus, the agency believes that denying public access to lists of 
authorized distributors maintained by manufacturers would contradict 
Congress' clearly expressed intent.
    In addition, the agency disagrees that a manufacturer's list of 
authorized distributors constitutes proprietary or confidential 
information. No provision of PDMA or the act designates such 
information as proprietary, and the agency is unaware of other laws or 
regulations that designate such information as proprietary. Moreover, 
the agency has not previously stated that this information is 
proprietary. In fact, in a 1988 letter to regulated industry (see 
Letter from Daniel L. Michels, Director, Office of Compliance to 
Regulated Industry, Docket No. 88N-258L, August 1, 1988), the agency 
specifically requested that manufacturers make lists of authorized 
distributors available at reasonable charge to any requesting person.
    Finally, the final rule permits manufacturers to impose reasonable 
copying charges for requests. Such charges could include clerical time 
used to create copies, copying costs, and mailing costs, if the 
requested copies are mailed. Therefore, except for costs associated 
with creating, updating, and maintaining the authorized distributors 
lists themselves (a cost that has been evaluated separately by the 
agency in the ``Paperwork Reduction Act of 1995'' section under 
Sec. 203.50(d)), the cost to comply with revised Sec. 203.50(d)(3) 
should be reimbursed.
4. Sales to Licensed Practitioners by Retail Pharmacies
    In the preamble to the proposal (59 FR 11842 at 11858), the agency 
stated:
    FDA believes that permitting the sale of small quantities of 
prescription drugs by retail pharmacies to licensed practitioners 
for office use without the requirement of a State wholesale 
distributor's license satisfies a legitimate need and is consistent 
with the intent of the statute. Accordingly, the agency has included 
language in proposed Sec. 203.3(y) that would exclude the sale of 
minimal quantities of drugs by retail pharmacies to licensed 
practitioners for office use from the definition of ``wholesale 
distribution.''
    In this context, sales of prescription drugs by a retail 
pharmacy to licensed practitioners for office use will be considered 
to be minimal if the total annual dollar volume of prescription 
drugs sold to licensed practitioners does not exceed 5 percent of 
the dollar volume of that retail pharmacy's annual prescription drug 
sales.
    92. One comment supported the agency's decision to exclude minimal 
sales of prescription drugs by retail pharmacies from the definition of 
wholesale distribution and recommended that the 5 percent threshold be 
codified in the final regulation under Sec. 203.3(y)(11).
    The agency believes that its position on what constitutes a minimal 
amount of prescription drugs for the purposes of revised 
Sec. 203.3(cc)(10) was adequately explained in the preamble to the 
proposal and need not be codified.
    93. Another comment recommended that the 5 percent threshold be 
increased to 20 percent and should be based on annual, not monthly or 
weekly, sales of a retail pharmacy. According to the comment, the 5 
percent threshold would disadvantage small, independent pharmacies 
because a large percentage of their sales is derived from supplying 
local practitioners with prescription drugs. The comment also said that 
the 5 percent threshold could be reached easily by a pharmacy that 
supplies expensive drugs, such as chemotherapy medications, to 
practitioners.
    The distribution of prescription drugs to practitioners for office 
use constitutes wholesale distribution under section 503(e) of the act 
and proposed Sec. 203.3(y) (i.e., distribution to other than a consumer 
or patient). The agency excluded the sale of minimal quantities of 
drugs by retail pharmacies to licensed practitioners for office use 
from the definition of wholesale distribution to meet the needs of 
licensed practitioners who may not purchase enough prescription drugs 
to go through a wholesale distributor and thus may not otherwise be 
able to easily obtain drugs for office use. Thus, the exemption was not 
created to confer a special benefit on retail pharmacies, but to meet 
the legitimate needs of licensed practitioners. The agency believes 
that the 20 percent threshold recommended by the comment is 
inconsistent with the purpose of the exemption and declines to follow 
the recommendation. The agency notes that a retail pharmacy is not 
precluded from making more than 5 percent of its annual sales to 
licensed practitioners. It must, however, obtain a State wholesale 
distributor license to do so.

I. Request and Receipt Forms, Reports, and Records

1. Section 203.60(e)(1)
    Proposed Sec. 203.60(e)(1) stated: ``Any person required to create 
or maintain reports, lists, or other records under PDMA, PDA, or this 
part shall retain them for at least 3 years after the date of their 
creation.''
    94. One comment objected to the proposed requirement in 
Sec. 203.60(e)(1), stating that it conflicts with the 2-year retention 
period requirement under Sec. 205.50(f)(2). The comment said that 
changing the record retention time in the manner proposed would 
``require 44 states that adopted FDA's 2-year standard to enact 
legislative and/or regulatory changes in order to have licensing 
programs that meet the minimum federal requirements.'' The comment also 
said that changing to a 3-year record retention period would serve no 
apparent public health purpose, citing the agency's rationale behind 
the 2-year requirement in the preamble to the final rule on State 
wholesale licensing guidelines. The comment recommended that the 
proposed section should be revised to require record retention for 2 
years for all records kept by prescription drug wholesalers under PDMA.
    Section 205.50(f)(1) requires that inventories and records of 
transactions regarding the receipt and distribution or other 
disposition of prescription drugs be created and maintained. Section 
205.50(f)(2) requires that such records be ``made available'' to 
authorized Federal, State, or local law enforcement agencies for a 
period of 2 years following the disposition of the drugs to which the 
record relates. Because the requirement under proposed 
Sec. 203.60(e)(1) that records be retained for 3 years after the 
creation of the record would apply to records required by 
Sec. 205.50(f)(1), the requirements could potentially be conflicting. 
This result

[[Page 67749]]

was not anticipated by FDA at the time the proposed rule was issued.
    The agency agrees with the comment that it is appropriate to 
establish one record retention period for all wholesale distribution 
records required to be created and maintained under PDMA and parts 203 
and 205. The agency has determined that because the shelf life of the 
majority of prescription drug products is longer than the 2-year period 
specified in Sec. 205.50(f)(2), that period is insufficient to 
facilitate recalls by manufacturers and to enable the agency to respond 
to public health emergencies related to prescription drug distribution. 
Moreover, certain records required to be created and maintained under 
part 203, such as drug origin statements and written authorization 
agreements between manufacturers and distributors, are not linked to 
the disposition of a particular drug product or drug products. 
Therefore, the agency has decided to adopt the record-retention period 
specified in proposed Sec. 203.60(e)(1) (renumbered Sec. 203.60(d)), 
which is 3 years from the time of creation of a record, for all 
wholesale distribution records required under PDMA, including those 
wholesale distribution records required under Sec. 205.50(f)(1). 
Section 205.50(f)(2) has been amended to incorporate the 3-year 
requirement.
2. Section 203.60(e)(2)
    Proposed Sec. 203.60(e)(2) stated: ``Any person required to create 
or maintain reports, or records relating to the distribution of drug 
samples shall retain them for at least 3 years after the date of their 
creation or 3 years after the date of expiration of a drug sample for 
which the record is being kept, whichever is later.''
    95. Several comments contended that the additional burdens that 
would result from record retention requirements over 3 years outweigh 
the possible benefits. One comment stated that the proposed section 
would require drug sample records to be kept a minimum of 6 years. Two 
comments stated that it could require record retention for 8 years. One 
comment stated that ``if a practitioner signs a receipt for two 
different drug samples with different expiration dates, a manufacturer 
has to go through line by line to see if a record has to be kept.'' A 
similar comment stated that the proposed section would require either 
implementation of a complicated and expensive process for retaining 
records to make maximum effective use of storage space or storage of 
all records for the same length of time, taking into account the drug 
with the longest shelf life plus 3 years.
    Two comments stated that section 503(d)(2)(C) and (d)(3)(C) of the 
act specifically require that records for drug samples be maintained 
for 3 years and that FDA has no authority to require retention for a 
longer period.
    Several comments recommended that the proposed section be revised 
to require a maximum record retention period of 3 years. One comment 
recommended revising the section to require retention for the greater 
of 3 years from the time of creation or 1 year after the date of 
expiration. Another comment recommended allowing manufacturers and 
distributors to decide how to meet PDMA requirements, while still being 
accountable to provide a complete distribution history.
    The agency agrees that the burdens associated with the record-
retention requirement in proposed Sec. 203.60(e)(2) may outweigh its 
benefits. Although the use of the expiration date as a reference point 
would ensure that the record is kept for the full shelf life of the 
drug sample, drug sample distribution records may refer to different 
types of drugs from varying lots that have different expiration dates. 
Thus, as noted by the comments, requiring a record retention period 
based on expiration dating would necessitate maintaining different 
distribution records for different periods of time or maintaining all 
records for a period that is based on the drug or drugs with the 
longest shelf life. The agency believes that retention of records 
relating to drug samples for 3 years from the time of their creation is 
sufficient to effectuate recalls and to maintain accountability over 
sample distribution. Accordingly, the agency has eliminated proposed 
Sec. 203.60(e)(2) in the final rule. Under revised Sec. 203.60(d), all 
records under PDMA and part 203, including records relating to the 
distribution of drug samples, must be retained for 3 years from the 
date of their creation.
3. Section 203.60(e)(3)
    On its own initiative, the agency is deleting proposed 
Sec. 203.60(e)(3) in the final rule. The proposed requirement would 
have required manufacturers and authorized distributors of record to 
maintain records of drug sample distribution identifying the drugs 
distributed, the recipients of the distributions, and all drug samples 
destroyed or returned to the manufacturer for 3 years. The agency 
believes that the final rule, as revised, contains adequate 
recordkeeping provisions to ensure accountability over drug sample 
distribution.
4. Section 203.60(f)
    Proposed Sec. 203.60(f) stated that any person required to create 
or maintain request and receipt forms, reports, lists, or other records 
under PDMA, PDA, or part 203 shall make them available upon request, in 
a form that permits copying or other means of duplication, to FDA or 
other Federal, State, or local regulatory and law enforcement officials 
for review and reproduction.
    On its own initiative, the agency has revised proposed 
Sec. 203.60(f) (renumbered Sec. 203.60(e)) to specify that the records 
must be made available within 2 business days of a request. The agency 
believes that this constitutes a reasonable period of time to obtain 
records kept off-site and is consistent with other PDMA record 
production requirements.

J. Penalties and Rewards

    In the preamble to the proposed rule (59 FR 11842 at 11860), the 
agency stated that ``most violations of the act are punishable as 
misdemeanors.'' The agency later stated that ``most PDMA violations are 
felonies punishable by a prison term of not more than 10 years, a fine 
of not more than $250,000, or both * * *.''
    96. One comment stated that the two statements made by the agency 
are conflicting and should be reconciled.
    The agency clarifies that the first statement (``most violations of 
the act are punishable as misdemeanors'') refers to the entire act (see 
sections 303(a)(1) and (a)(2) of the act), not the PDMA provisions. As 
stated in the preamble to the proposed rule (59 FR 11842 at 11860), 
most PDMA violations, except for the distribution of a drug sample in 
violation of section 503(d) of the act and the failure to comply with 
the drug origin statement requirement in section 503(e)(1)(A) of the 
act, are felonies.

K. Amendments to 21 CFR Part 205

    In the proposal, the agency proposed an amendment to the 
introductory paragraph of Sec. 205.50(c) that would require that 
prescription drugs be stored by wholesale distributors at appropriate 
temperatures and under appropriate conditions in accordance with the 
labeling requirements of the drugs or with the requirements of USP 
XXII. The agency also proposed an amendment to Sec. 205.50(c)(1) that 
would require that, if no storage requirements are established for a 
prescription drug, the drug must be held at ``controlled room 
temperature'' as defined in USP XXII. Current Sec. 205.50(c)(1) states 
that, if no storage requirements are established for a prescription 
drug, the drug ``may'' be

[[Page 67750]]

held at controlled room temperature as defined in an official 
compendium.
    97. One comment objected to the proposed changes to Sec. 205.50(c) 
on the grounds that FDA incorrectly characterized the changes as 
``technical changes'' in the preamble and has given inadequate notice 
and opportunity to comment on the changes under section 553 of the 
Administrative Procedures Act (APA). The comment stated that 
incorporation by reference of USP standards in Sec. 205.50(c) and 
requiring adherence to USP standards for controlled room temperature in 
Sec. 205.50(c)(1) would significantly increase the burdens on industry 
in complying with Sec. 205.50. According to the comment, such 
``substantive'' changes cannot be made unless FDA fully informs 
interested parties about the elements of the new standard, including 
any new compliance obligations, and provides an opportunity for comment 
on the impact of the changes. The comment recommended that ``FDA 
initiate rulemaking proceedings that will adequately apprise interested 
parties of the issues involved'' and forbear from enforcing the 
proposed changes until the completion of the rulemaking.
    The agency agrees that the proposed amendments to Sec. 205.50(c) 
amount to more than ``technical changes'' and that they should be the 
subject of a separate proposal with a more detailed explanation of the 
associated issues and impacts. Accordingly, the agency has decided to 
withdraw its proposal of these amendments. Should the agency decide to 
repropose the amendments in the future, it will do so in a manner that 
provides sufficient notice and opportunity for comment.

L. Analysis of Impacts in the Proposed Rule

    In the section entitled ``Analysis of Impacts'' in the preamble to 
the proposal (59 FR 11842 at 11860 and 11861), the agency provided its 
assessment of the impacts of the proposed rule under Executive Order 
12866 and the Regulatory Flexibility Act (Public Law 96-354). The 
agency stated that the proposed rule is consistent with the principles 
set out in the Executive Order and is not a significant regulatory 
action as defined by the Executive Order. The agency explained that 
most of the requirements in the proposed rule have already been 
implemented by the regulated industry in response to PDMA's enactment, 
FDA's guidance, and industry trade associations' recommendations. The 
agency determined that the regulatory costs of the proposal are due to 
increased paperwork requirements. The costs were calculated by 
multiplying the estimated time necessary to complete the paperwork for 
each section of the proposal by a standard hourly wage rate. In 
addition, based on its finding that many of the requirements in the 
proposed rule have been implemented by regulated industry, including 
small entities, the agency certified that the proposed rule would not 
have a significant economic impact on a substantial number of small 
entities.
    98. One comment stated that ``FDA's assessment of all costs and 
benefits of available regulatory alternatives and selected regulatory 
approaches does not prove that the proposed rule maximizes net 
benefits.'' The comment stated that the proposed rule will have a 
``significant negative effect on the industry, health care costs, the 
environment, and State licensing agencies.'' This impact, the comment 
stated, is not outweighed by benefits in controlling, preventing, or 
detecting diversion, or by adding significantly to the safety of the 
consumer. Another comment stated that the proposed rule would add 
significant costs, including new systems costs, without corresponding 
benefits.
    The agency believes that the final rule is consistent with the 
principles set forth under Executive Order 12866. The benefits of the 
final rule, including the public health and safety benefits, have been 
discussed extensively in the proposal and in this notice. The estimated 
costs to industry of the final regulation, which are due primarily to 
additional paperwork costs, are set forth in section IV.B of this 
document and have been substantially revised from the estimates 
provided in the proposal. The agency has attempted to accurately 
represent the benefits and costs of the final regulation, has carefully 
analyzed them, and believes that the regulatory approaches chosen for 
the final rule maximize net benefits.
    99. One comment stated that the agency's financial impact estimates 
are ``much too low.'' According to the comment, FDA has not considered 
costs associated with the proposed requirements, including travel and 
personnel expenses in conjunction with inventorying sales 
representatives and conducting investigations, increased paperwork in 
conjunction with comarketing agreements, and administrative and other 
costs in conjunction with longer record maintenance periods and 
tracking of bid and commercial samples.
    As discussed in section IV.C of this document, the agency has 
significantly increased its estimates of the reporting and 
recordkeeping burdens associated with the final rule under the 
Paperwork Reduction Act of 1995. In addition, the agency has revised 
the analysis of impacts section in the final rule to include estimates 
of nonpaperwork costs of the final rule, such as storage costs 
associated with retaining records.
    100. Two comments disagreed with FDA's assertion that most of the 
proposed requirements have been implemented by the industry in response 
to PDMA's enactment, FDA's guidance, and industry trade associations' 
recommendations. One of the comments stated that the proposed rule 
contains items which are a ``significant departure'' from currently 
understood requirements. The comment cited the following specific 
proposed requirements and recommendations: The requirement under 
proposed Sec. 203.60(e)(2) for retention of drug sample records for 3 
years past the expiration date of the drug sample; the requirement 
under proposed Sec. 203.37(b) for reporting possible falsifications of 
drug sample records; the requirement under proposed Sec. 203.38(c) for 
labeling of sample units; the requirements under proposed Secs. 203.30 
and 203.31 for drug sample receipts; and the agency's recommendation in 
the proposal that bid or commercial samples be tracked using PDMA 
sample controls.
    As discussed previously, many of the proposed requirements and 
recommendations cited by the comment have been deleted or substantially 
modified in the final rule in response to other comments or on the 
agency's initiative. Nevertheless, FDA acknowledges that some of the 
proposed requirements may not have been implemented by industry at the 
time the proposal was published and that too much reliance may have 
been placed by the agency on prior industry implementation in the 
``Analysis of Impacts'' section of the proposal. The agency has 
significantly revised its analysis of impacts for the final rule.

 M. Estimated Annual Reporting and Recordkeeping Burden

    101. Several comments stated that the estimated burdens set forth 
under the ``Paperwork Reduction Act of 1980'' section of the proposed 
rule (59 FR 11842 at 11861) were too low. One comment stated that FDA 
grossly underestimated the annual reporting and recordkeeping burden 
and that both industry and FDA will be burdened more than anticipated 
by implementation of many of the regulations. Another comment stated 
that ``the agency's predicted time estimates to comply with the rule 
are so

[[Page 67751]]

unrealistic as to be arbitrary and capricious.''
    One comment cited specific examples of estimates that it considered 
to be too low. The comment stated that the agency's estimate of 30 
minutes to comply with the recordkeeping requirements under proposed 
Sec. 203.31(d) ``grossly understates the time and expense to comply.'' 
The comment stated that the estimate of 30 seconds to comply with 
Secs. 203.30(c) and 203.31(c) takes into account only the time 
necessary to sign a sample receipt, but not the time necessary for a 
representative to fill out the receipt with the required information or 
the time that a representative will have to wait for a practitioner or 
his or her designee to sign the receipt. The comment stated that the 
agency's estimate of 30 and 60 minutes to meet the recordkeeping 
requirements under proposed Sec. 203.37(a) and (b), respectively, may 
accurately reflect the time necessary to write up the report, but not 
to initiate and complete a thorough investigation. According to the 
comment, the estimate of 24 hours to prepare policies and procedures 
under proposed Sec. 203.34 underestimates the time it will take for a 
company to research its activities, prepare and revise draft guidance 
documents, type the material, and obtain management approval. The 
comment stated that the agency neglected to provide an estimate for the 
time it will take to comply with proposed Sec. 203.60. Finally, the 
comment stated that FDA has ignored the burden the proposal will place 
on the agency.
    Based upon the comments, the agency has significantly modified and 
increased its estimate of the reporting and recordkeeping burdens 
associated with the final rule under the section of this notice 
entitled ``Paperwork Reduction Act of 1995.'' Regarding the absence of 
a burden estimate for proposed Sec. 203.60, the agency advises that it 
has included an estimate of the costs associated with the record 
retention requirement in revised Sec. 203.60 in section IV.B of this 
document. Finally, the agency expects its administrative costs 
associated with oversight of the final rule to be minimal. As discussed 
below, the public has 60 days from the publication of the final rule to 
comment on the accuracy of FDA's revised burden estimates, and the 
agency encourages interested parties to do so.

IV. Analysis of Impacts

    FDA has examined the impacts of the final rule under Executive 
Order 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the 
Unfunded Mandates Reform Act (Public Law 104-4). Executive Order 12866 
directs agencies to assess all costs and benefits of available 
regulatory alternatives and, when regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity). The Regulatory 
Flexibility Act requires an analysis of regulatory options that would 
minimize any significant economic impact of a rule on small entities 
unless an agency certifies that a rule will not have a significant 
economic impact on a substantial number of small entities. The Unfunded 
Mandates Reform Act requires that agencies prepare an assessment of 
anticipated costs and benefits before proposing any rule that may 
result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million (adjusted 
annually for inflation) in any 1 year. The agency believes that this 
final rule is consistent with the regulatory philosophy and principles 
identified in the Executive Order, Regulatory Flexibility Act, and 
Unfunded Mandates Reform Act.

A. Regulatory Benefits

    Through this regulation, the agency is establishing procedures and 
requirements implementing PDMA. As discussed extensively above and in 
the preamble of the proposed rule, the requirements in the final rule 
will, consistent with Congress' intent in enacting PDMA, help to 
prevent the sale of subpotent, adulterated, counterfeit, or misbranded 
prescription drugs and drug samples to the American public. For 
example, the final rule establishes procedural and recordkeeping 
requirements for drug sample distribution that will help to prevent the 
diversion and sale of drug samples. The final rule also establishes 
wholesale distribution requirements that will permit the distribution 
chain of prescription drugs to be traced, and will make unauthorized 
wholesale distributors more accountable. In sum, the final rule 
establishes controls over the distribution of prescription drugs and 
drug samples that will help to ensure that drugs are safe and effective 
not only when they leave manufacturers, but when they reach consumers.

B. Regulatory Costs

    FDA estimates that the incremental costs that will result from the 
issuance of this rule will amount to about $43 million annually. 
Moreover, industry will continue to incur an estimated $39 million in 
annual costs for those activities initiated shortly after PDMA was 
enacted into law by Congress 10 years ago. Thus, the total cost of PDMA 
and this implementing rule is approximately $82 million. Almost all of 
the costs are associated with sample distribution, and most are related 
to paperwork requirements.
1. Cost of Sample Distribution Requirements
    a. Paperwork costs. The paperwork section of this preamble shows 
the hourly reporting and recordkeeping burden estimates for all of the 
sample distribution requirements, including the following: Request and 
receipt forms, license verification, inventory of representatives, 
notification of FDA and investigation of losses and falsified 
information, representative lists and sample storage sites, 
representative conviction reports, written policies, assignment of 
individuals responsible for sample information, donation records, and 
inventory records and reconciliation reports. These costs will be 
shared by those manufacturers, distributors, and charities subject to 
the above requirements. These individuals should already possess the 
necessary professional skills to comply with these paperwork 
requirements. To determine the paperwork costs for the sample 
distribution requirements, FDA assumed that sales representatives would 
complete the majority of the request and receipt forms. In the case of 
sample distribution by mail or common carrier, the agency assumed that 
an administrator in the practitioner's office would complete the 
request and receipt forms. Also, the agency believes that an individual 
in the office would be authorized to sign the receipt forms for the 
practitioner. Using 1995 hourly earnings of approximately $24\4\ 
(including 40 percent for benefits) for sales representatives and 
executive, administrative, and managerial positions, the estimated 
total annual paperwork costs for the sample distribution requirements 
are $79 million. Approximately $36 million of these costs have been 
incurred annually since PDMA's enactment. The remaining $43 million are 
sample paperwork costs that will go into effect as a result of this 
regulation. These additional costs include: $22.6 million for receipt 
recordkeeping, $2.6 million for license verification, $2.1 million for 
establishing written policies and

[[Page 67752]]

procedures for sample distribution, and $15.6 million for the lot or 
control number requirements.
---------------------------------------------------------------------------

    \4\ Employment and Earnings, U.S. Department of Labor, Bureau of 
Labor Statistics, January 1996, pp. 205 and 206.
---------------------------------------------------------------------------

    b. Other request and receipt form costs. Sample request and receipt 
forms are required under PDMA for samples delivered by mail or common 
carrier. Under the final rule, FDA is also requiring receipt forms to 
be used when samples are delivered by representatives. To minimize 
printing and storage costs, FDA believes companies will primarily use 
one combination request and receipt form for samples delivered by 
representatives and separate request and receipt forms for mail 
delivery. Therefore, a total of three forms will be used, one of which 
will be new with this rule. The agency estimates that the development 
and approval of each form may take approximately 2 hours of an 
administrator's time. Taking into consideration the 2,208 manufacturers 
and distributors who distribute samples (691 manufacturers of 
pharmaceutical preparations\5\ plus 25 percent of the 6,069 
establishments of wholesale distributors of drugs, drug properties, and 
druggists' sundries\6\), the total one-time cost of developing these 
forms is approximately $318,000 (2 hours x 3 forms x 2,208 x $24). Of 
this amount, the one-time cost of developing the additional form 
attributable to this regulation is approximately $106,000 (2 hours x 1 
form x 2,208 x $24).
---------------------------------------------------------------------------

    \5\ ``Drugs Industry Series,'' 1992 Census of Manufacturers, 
U.S. Department of Commerce, Economics and Statistics 
Administration, Bureau of the Census, Table 4, pp. 28C to 12.
    \6\ ``United States,'' 1992 Census of Wholesale Trade, U.S. 
Department of Commerce, Economics and Statistics Administration, 
Bureau of the Census, Table 1, pp. US to 11.
---------------------------------------------------------------------------

    Manufacturers and distributors also incur annual printing costs 
associated with the distribution of these forms. After evaluating 
several printing estimates, the agency selected $0.025 per page as a 
reasonable printing cost. Based on the paperwork estimates of 
approximately 32.5 million request and receipt forms for delivery by 
representatives\7\ and 750,000 receipt forms for mail-delivery (20 
percent of 309,807 offices and clinics of doctors of medicine and 
dentists\8\ x 12 per year), the agency estimates that manufacturers and 
distributors incur printing costs of approximately $831,00 annually 
((32.5 million + 750,000) x 0.025). FDA does not include any printing 
costs for mail-requests, assuming that a paper exchange already 
occurred in the marketplace for this purpose. In addition, the agency 
believes that, in most cases, manufacturers and distributors will 
combine the receipt and request forms when samples are delivered by a 
representative. Therefore, none of the above printing costs are new to 
this regulation.
---------------------------------------------------------------------------

    \7\ Data from IMS, 1996, as presented to FDA on May 27, 1997. 
Data included an estimated 18.1 million office calls, 8.1 million 
service calls, and 6.3 million hospital calls made in 1996.
    \8\ ``Establishment and Firm Size,'' 1992 Census of Service 
Industries, U.S. Department of Commerce, Economics and Statistics 
Administration, Bureau of the Census, Tables 1a and 1b, pp. 1 to 38 
and pp. 1 to 51.
---------------------------------------------------------------------------

    c. Other license verification costs. The final rule will require 
manufacturers and authorized distributors of record to verify with the 
State that the practitioner to whom samples are distributed is licensed 
or authorized by law to prescribe the drug product. To evaluate the 
cost of compliance with this requirement, the agency spoke with a 
representative of the Board of Physician Quality Assurance in Maryland. 
FDA found that it costs approximately $500 to purchase a list of all 
active practitioners with a license in the State of Maryland. Due to 
the high cumulative cost for each manufacturer to purchase a list from 
every State (or from as many States as their distribution reaches), 
provide it to their distributors, and update it on a regular basis, it 
is likely that market forces will establish a more efficient process. 
For example, a third party could easily purchase the information and 
sell it to manufacturers. Considering the costs for third parties to 
purchase, manipulate, and disseminate this information, the agency 
believes that $500 to $1,000 would be a reasonable price range for 
charges by third parties to manufacturers for nationwide data. For the 
purpose of this analysis, FDA assumes that each of the 691 
manufacturers\9\ would pay an average of $750 each year, yielding total 
annual costs of approximately $518,000 to meet the license verification 
requirement. The agency does not calculate any costs for manufacturers 
to disseminate this information, but instead assumes that the license 
numbers would be added to the list of physicians that is currently 
provided to sales representatives on a yearly basis.
---------------------------------------------------------------------------

    \9\ ``Drugs Industry Series,'' Table 4, pp. 28C to 12.
---------------------------------------------------------------------------

    d. Other sample distribution requirements. The other requirements 
of the rule entailed negligible costs, were already part of industry 
practice, or were attributable to the overall cost of doing business. 
For example, FDA assumes all charities that receive samples have a 
licensed practitioner on staff and that the cost of examining drug 
sample packaging is negligible. The final rule also permits the 
inventory of samples held by sales representatives to be conducted by 
the representatives themselves. Therefore, no travel expenses will be 
incurred for this purpose. The agency also assumes that most 
manufacturers and distributors and their representatives are currently 
following proper storage and handling requirements to prevent the 
distribution of adulterated samples. In addition, the agency believes 
that it is already part of company policy for manufacturers and 
distributors to investigate significant losses and known thefts of 
samples and common practice to label sample units so they may be 
tracked in recall situations.
2. Nonsample-Related Costs
    To determine the costs associated with the nonsample-related 
requirements, the agency multiplied the $24 hourly rate\10\ for sales 
representatives and executive, administrative, and managerial positions 
by the burden hours estimated under the paperwork section of this 
preamble. These annual paperwork costs are grouped into the following 
categories: Reimportation, sales restrictions, and wholesale 
distribution. To calculate reimportation costs, the agency used the 
salary data for executive and managerial positions. As few requests for 
emergency reimportation are expected, the annual paperwork costs for 
all reimporters to fill out the emergency reimportation application 
total only $144. The annual cost of the credit memo and storage 
documentation required under ``Sales Restrictions'' is shared by 
hospitals, healthcare entities, and charities, and is estimated at $1.3 
million. Wholesale distribution requirements, including the drug origin 
statement and distributor list, are estimated to impose recordkeeping 
costs of $258,000 per year on manufacturers and distributors. All of 
the previous costs were initiated by the enactment of PDMA and will not 
be significantly affected by the issuance of this rule.
---------------------------------------------------------------------------

    \10\ Employment and Earnings, pp. 205 and 206.
---------------------------------------------------------------------------

3. Storage Costs for Sample and Nonsample-Related Requirements
    The final rule requires that manufacturers and/or distributors 
retain records for at least 3 years, including the following documents: 
Drug return memos, request and receipt forms, drug sample inventory 
records and reconciliation reports, representative lists, and drug 
origin statements. In 1995, the average expected annual rent for space 
in commercial buildings equaled $9.43 per square foot.\11\ For

[[Page 67753]]

each of the first 3 years, the agency estimates that an additional 5 
square feet of storage space per affected manufacturer and distributor 
will be needed to accommodate the record retention requirements. After 
the third year, each subsequent year's records can replace the most 
previous year's, indicating that no more than 15 square feet of storage 
space will be necessary. FDA estimates that up to approximately 2,500 
manufacturers and distributors will be affected; therefore, average 
annual storage costs will amount to approximately $118,000 in year 1, 
$236,000 in year 2, and $354,000 in each year thereafter. Though 
retention of drug return memos is also required of hospitals and 
charities, the agency believes these costs are negligible. Some of 
these storage requirements were initiated by PDMA, but other storage 
requirements have been added by this regulation. The agency did not 
separate these storage costs for the purpose of this analysis.
---------------------------------------------------------------------------

    \11\ Dodge, F. W., Dodge Construction Potentials, McGraw-Hill, 
Inc., 1996.
---------------------------------------------------------------------------

C. Small Business Analysis

    The agency has analyzed this rule in accordance with the Regulatory 
Flexibility Act to determine its effect on small entities.
1. Need for and Objectives of the Rule
    As stated previously, PDMA was enacted by Congress to prevent the 
sale of subpotent, adulterated, counterfeit, or misbranded drugs. 
Through this regulation, the agency is establishing the procedures and 
requirements to implement PDMA. The final rule facilitates the goals of 
PDMA by establishing procedural and recordkeeping requirements for drug 
sample distribution that will help to prevent the diversion and sale of 
drug samples. In addition, the final rule establishes wholesale 
distribution requirements that will permit the distribution chain of 
prescription drugs to be traced, and will make unauthorized wholesale 
distributors more accountable.
2. Description and Estimate of the Number of Small Entities
    According to the Small Business Administration (SBA), distributors 
of drugs, drug proprietaries, and druggists' sundries with 100 or fewer 
employees or manufacturers of pharmaceutical preparations with 750 or 
fewer employees are considered small entities. The U.S. Census does not 
disclose data on the number of drug manufacturing firms by employment 
size, but between 92 percent and 96 percent of drug manufacturing 
establishments, or approximately 650 establishments, are small under 
this definition.\12\ Although the number of firms that are small would 
be less than the number of establishments mentioned above, FDA still 
concludes that the majority of pharmaceutical preparation manufacturing 
firms are small entities. In addition, the agency found that 94 percent 
of the distribution firms, or approximately 4,000 firms, are small.\13\ 
However, as stated previously, the agency believes that the majority of 
these do not distribute samples, and thus will not be affected by the 
rule. According to SBA's definition, general medical and surgical 
hospitals, and the offices and clinics of dentists and doctors of 
medicine that are either not-for-profit or have $5 million or less in 
revenue are also considered small. Using this definition, FDA 
determined that approximately 96 percent of the hospitals (or 
approximately 4,000 hospitals)\14\ and 99 percent of the offices and 
clinics (or approximately 268,000 offices and clinics)\15\ are small. 
In addition, due to their nonprofit status, the agency assumes that the 
3,112 charities expected to be affected by this rule (based on a 
portion of not-for-profit hospitals,\16\ doctors' offices, and 
clinics\17\) would be considered small by SBA. As noted in the 
paperwork section of this regulation, FDA believes that approximately 
12 importers will be affected by this rule, and assumes that the 
majority of them are small.
---------------------------------------------------------------------------

    \12\ ``Drugs Industry Series,'' Table 4, pp. 28C to 12.
    \13\ ``Establishment and Firm Size,'' 1992 Census of Wholesale 
Trade, U.S. Department of Commerce, Economics and Statistics 
Administration, Bureau of the Census, Table 7, pp. 1 to 186.
    \14\ ``Establishment and Firm Size,'' 1992 Census of Service 
Industries, Table a and 4b, pp. 1 to 174 and pp. 1 to 184.
    \15\ ``Establishment and Firm Size,'' 1992 Census of Service 
Industries, Table 4a and 4b, pp. 1 to 171 and pp. 1 to 183.
    \16\ The Statistical Abstract of the United States, U.S. 
Department of Commerce, Bureau of the Census, 1996, No. 187, p. 127.
    \17\ ``Establishment and Firm Size,'' 1992 Census of Service 
Industries, Table 1b, pp. 1 to 51.
---------------------------------------------------------------------------

    The agency notes that the great majority of the costs of this rule 
will be incurred by the manufacturers and distributors that distribute 
drug samples. The costs will not be evenly distributed, but directly 
related to the size of each company's sales force. According to Census 
data, less than 10 percent of the manufacturing companies in the 
pharmaceutical preparations industry have 90 percent of the industry's 
sales.\18\ Likewise, approximately 1 percent of the firms distributing 
drugs, drug proprietaries, and druggists' sundries have 74 percent of 
the industry's sales.\19\ Consequently, the largest firms will incur 
the majority of the drug sample-related costs of this regulation, and 
the smallest firms will incur relatively few of these costs. While some 
small reimporters will be affected by the reimportation restriction, 
this impact will be moderated because most also import non-U.S. drugs 
or other products. The cost impact on charities will be minimal.
---------------------------------------------------------------------------

    \18\ ``Concentration Ratios in Manufacturing,'' 1992 Census of 
Manufacturers, U.S. Department of Commerce, Economics and Statistics 
Administration, Bureau of the Census, Table 3.
    \19\ ``Establishment and Firm Size,'' 1992 Census of Wholesale 
Trade, Tables 7 and 8, pp. 1 to 186 and pp. 1 to 218.
---------------------------------------------------------------------------

3. Estimate of the Recordkeeping Burden
    The majority of the costs of this regulation are derived from the 
paperwork requirements. The manufacturers, distributors, and charities 
involved in the sample distribution process are required to comply with 
the recordkeeping requirements specified earlier in this analysis. 
These individuals should already possess the necessary skills to 
establish written policies and procedures, complete forms and 
applications, and prepare the required documentation. The paperwork 
specified by this rule does not require any special professional 
training or skills to complete and would be of a type already being 
handled by regulatory affairs professionals who are employed by drug 
manufacturers and distributors.
4. Analysis of Alternatives
    FDA could have implemented the rule as proposed, but instead, the 
agency took several steps to minimize the economic impact on small 
entities. Specifically, the agency reduced or eliminated several of the 
requirements under the proposed rule. Examples of this can be found 
under the requirements for sample inventory, lot or control numbers, 
sample unit identification, and sample record retention. Under the 
proposal, the inventory of drug samples held by sales representatives 
would be conducted by an executive other than the representative or the 
immediate supervisor. Comments emphasized the costliness of this 
requirement, indicating it was time consuming and entailed travel 
expenses to regional sales offices. In response to these comments, the 
final rule allows sales representatives and their supervisory personnel 
to conduct the inventory and reconciliation functions. Also, in 
response to comments on the proposal, FDA reduced the administrative 
burden

[[Page 67754]]

associated with the donation of prescription drug samples to charity. 
Furthermore, FDA found it unnecessarily burdensome to require that lot 
or control numbers appear on drug sample records, receipts, and 
reconciliation reports, as proposed. Therefore, the final rule adds 
flexibility by allowing the recording of lot or control numbers on 
other types of records. Also, in response to comments, the agency is 
allowing the use of adhesive stickers on retail units to designate a 
sample unit as a sample. The final rule reduces the drug sample record 
retention period, which was proposed as 3 years from the sample 
expiration date. The agency decided that retention of drug sample 
records for 3 years from the date of their creation is sufficient for 
recall facilitation and proper accountability over sample distribution.
    The agency considered minimizing the impact of this rule by not 
requiring manufacturers and authorized distributors to verify with the 
State that the practitioner to whom samples are distributed is licensed 
or authorized by law to prescribe the drug product. However, under the 
final rule, this license verification requirement was added in response 
to comments. The cost of this requirement is estimated at approximately 
$3.2 million per year. The agency determined that this requirement is 
the only reliable way of proving that the practitioner requesting 
samples is actually licensed by a State to prescribe drugs. The agency 
does not believe that allowing a manufacturer to deem acceptable a 
license or authorization number on a request form without verifying its 
authenticity would offer any such assurance.
    The agency considered eliminating the receipt requirement for 
representative-delivered samples. This would reduce the cost of the 
final regulation by approximately $22.6 million per year. However, 
although Congress did not expressly require a receipt for 
representative-delivered samples, FDA concluded that this requirement 
is necessary to help ensure effective enforcement, increased 
accountability and oversight of sample distribution, and to provide 
adequate safeguards against drug sample diversion.
5. Response to Comments
    Several of the comments indicated that the initial economic 
analysis understated the impact of the proposed rule. FDA reevaluated 
and significantly increased the paperwork estimates to more accurately 
reflect industry's implementation of this final regulation. For 
example, the agency increased the estimated time for a manufacturer to 
conduct an annual inventory and complete a reconciliation report from 
30 minutes to 40 hours per manufacturer. The agency also increased the 
amount of time estimated to generate a sample receipt from 1 minute to 
3 and 5 minutes for distribution by mail and representative 
respectively, and the estimated time to investigate possible 
significant loss or theft of samples from 1 hour to 24 hours. In 
addition, the agency identified and estimated the burden associated 
with requirements other than recordkeeping that were not quantified 
under the proposed rule. For example, FDA allotted 2 hours for the 
development of each of the sample request and receipt forms. The annual 
printing costs associated with these forms have also been assessed. 
Storage costs have been added as necessitated by the paperwork 
requirements of this regulation.

D. Conclusion

    FDA calculated both the incremental costs of this final rule and 
the costs initially imposed upon the enactment of PDMA, and determined 
that there are one-time costs of $318,000 for developing forms, and 
total annual costs of approximately $82 million. Approximately $39 
million of these annual costs have been incurred by industry since the 
enactment of PDMA by Congress in 1988. An estimated additional $43 
million per year will result from the new requirements in this 
regulation. This rule is not a significant regulatory action as defined 
by the Executive Order, and is therefore not subject to review under 
the Executive Order. This rule does not impose any mandates on State, 
local, or tribal governments, nor is it a significant regulatory action 
under the Unfunded Mandates Reform Act. Finally, the agency has 
analyzed this rule in accordance with the Regulatory Flexibility Act 
and provided each of the elements required for a final regulatory 
flexibility analysis.

V. Executive Order 13132: Federalism

    FDA has analyzed this final rule in accordance with Executive Order 
13132: Federalism. Executive Order 13132 requires Federal agencies to 
carefully examine actions to determine if they contain policies that 
have federalism implications or that preempt State law. As defined in 
the Order, ``policies that have federalism implications'' refers to 
regulations, legislative comments or proposed legislation, and other 
policy statements or actions that have substantial direct effects on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government.
    FDA is publishing this final rule to set forth agency policies and 
requirements and provide administrative procedures, information, and 
guidance for those sections of PDMA that are not related to State 
licensing of wholesale prescription drug distributors. Because 
enforcement of these sections of PDMA is a Federal responsibility, 
there should be little, if any, impact from this rule on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. In addition, this regulation does not preempt State law.
    Accordingly, FDA has determined that this final rule does not 
contain policies that have federalism implications or that preempt 
State law.

VI. Paperwork Reduction Act of 1995

    This final rule contains information collection provisions that are 
subject to review by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The title, 
description, and respondent description of the information collection 
provisions are shown below with an estimate of the annual reporting and 
recordkeeping burden. Included in the estimate is the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing each 
collection of information.
    Title: Prescription Drug Marketing Act of 1987; Policies, 
Requirements, and Administrative Procedures.
    Description: The final rule provides for the collection of 
information from establishments engaged in the reimportation and 
wholesale distribution of prescription drugs; the sale, purchase, or 
trade of (or offer to sell, purchase, or trade) prescription drugs by 
hospitals, health care entities, and charitable institutions; the 
distribution of prescription drug samples; and the wholesale 
distribution of prescription drugs.
    Description of Respondents: Businesses, hospitals, health care 
entities, charitable institutions, and other for-profit and not-for-
profit organizations; small businesses or organizations.
    Although the March 1994 proposal provided a 60-day comment period 
under the Paperwork Reduction Act of 1980, and this final rule responds 
to the comments received, FDA is providing

[[Page 67755]]

an additional opportunity for public comment under the Paperwork 
Reduction Act of 1995, which became effective after the expiration of 
the comment period and applies to this final rule. Therefore, FDA now 
invites comments on: (1) Whether the proposed collection of information 
is necessary for the proper performance of FDA's functions, including 
whether the information will have practical utility; (2) the accuracy 
of FDA's estimate of the burden of the proposed collection of 
information, including the validity of the methodology and assumptions 
used; (3) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (4) ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques, when appropriate, and other forms of 
information technology. Individuals and organizations may submit 
comments on the information collection provisions of this final rule by 
February 1, 2000. Comments should be directed to the Dockets Management 
Branch (address above).
    At the close of the 60-day comment period, FDA will review the 
comments received, revise the information collection provisions as 
necessary, and submit these provisions to OMB for review. FDA will 
publish a notice in the Federal Register when the information 
collection provisions are submitted to OMB, and an opportunity for 
public comment to OMB will be provided at that time. Prior to the 
effective date of this final rule, FDA will publish a notice in the 
Federal Register of OMB's decision to approve, modify, or disapprove 
the information collection provisions. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.

                                 Table 1.--Estimated Annual Reporting Burden\1\
----------------------------------------------------------------------------------------------------------------
                                          Annual
   21 CFR Section         No. of       Frequency per      Total Annual         Hours per         Total Hours
                        Respondents      Response           Responses          Response
----------------------------------------------------------------------------------------------------------------
203.11                     12               1                  12                  .5                 6
203.30(a)(1) and (b)   61,961              12             743,532                  .06           44,612
203.30(a)(3),          61,961              12             743,532                  .06           44,612
 (a)(4), and (c)
203.31(a)(1) and (b)  232,355             135          31,367,925                  .04        1,254,717
203.31(a)(3),         232,355             135          31,367,925                  .03          941,038
 (a)(4), and (c)
203.37(a)                  25               1                  25                 6.00              150
203.37(b)                 200               1                 200                 6.00            1,200
203.37(c)                  50               1                  50                 1.00               50
203.37(d)               2,208               1               2,208                  .08              177
203.38(a)               2,208               1               2,208                 3.00            6,624
203.39(g)               3,221               1               3,221                 2.00            6,442
203.50(a)                 125             100              12,500                  .08            1,000
Total Hours                                                                                   2,300,628
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.


                               Table 2.--Estimated Annual Recordkeeping Burden\1\
----------------------------------------------------------------------------------------------------------------
                                          Annual
   21 CFR Section         No. of       Frequency per  Total Annual Records     Hours per         Total Hours
                       Recordkeepers   Recordkeeping                         Recordkeeper
----------------------------------------------------------------------------------------------------------------
203.23(a) and (b)      31,676               5             158,380                  .25           39,595
203.23(c)              31,676               5             158,380                  .08           12,670
203.30(a)(2) and        2,208             100             220,800                  .50          110,400
 203.31(a)(2)
203.31(d)(1) and        2,208               1               2,208                40.00           88,320
 (d)(2)
203.31(d)(4)              442               1                 442                24.00           10,608
203.31(e)               2,208               1               2,208                 1.00            2,208
203.34                  2,208               1               2,208                40.00           88,320
203.37(a)                  25               1                  25                18.00              450
203.37(b)                 200               1                 200                18.00            3,600
203.38(b)               2,208          14,543          32,111,457                  .02          642,229
203.39(d)                  65               1                  65                 1.00               65
203.39(e)               3,221               1               3,221                  .50            1,610
203.39(f)               3,221               1               3,221                 8.00           25,768
203.39(g)               3,221               1               3,221                 8.00           25,768
203.50(a)                 125             100              12,500                  .17            2,125
203.50(b)                 125             100              12,500                  .50            6,250
203.50(d)                 691               1                 691                 2.00            1,382
Total Hours                                                                                   1,061,368
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.

    Section 203.38(c) is exempt from recordkeeping requirements because 
the information it requires to be placed on drug sample labeling is 
provided by the agency.

VII. Environmental Impact

    The agency has determined under 21 CFR 25.30(h) that this action is 
of a class of actions that do not individually or cumulatively have a 
significant effect on the human environment. Therefore, neither an 
environmental assessment nor an environmental impact statement is 
required.

[[Page 67756]]

List of Subjects

21 CFR Part 203

    Drugs, Labeling, Manufacturing, Prescription drugs, Reporting and 
recordkeeping requirements, Warehouses.

21 CFR Part 205

    Intergovernmental relations, Prescription drugs, Reporting and 
recordkeeping requirements, Security measures, Warehouses.
    Therefore, under the Federal Food, Drug, and Cosmetic Act and under 
authority delegated to the Commissioner of Food and Drugs, 21 CFR 
chapter I is amended as follows:
    1. Part 203 is added to read as follows:

 PART 203--PRESCRIPTION DRUG MARKETING

 Subpart A--General Provisions

Sec.
203.1  Scope.
203.2  Purpose.
203.3  Definitions.

 Subpart B--Reimportation

203.10  Restrictions on reimportation.
203.11  Applications for reimportation to provide emergency medical 
care.
203.12  An appeal from an adverse decision by the district office.

Subpart C--Sales Restrictions

203.20  Sales restrictions.
203.22  Exclusions.
203.23  Returns.

 Subpart D--Samples

203.30  Sample distribution by mail or common carrier.
203.31  Sample distribution by means other than mail or common 
carrier (direct delivery by a representative or detailer).
203.32  Drug sample storage and handling requirements.
203.33  Drug sample forms.
203.34  Policies and procedures; administrative systems.
203.35  Standing requests.
203.36  Fulfillment houses, shipping and mailing services, 
comarketing agreements, and third-party recordkeeping.
203.37  Investigation and notification requirements.
203.38  Sample lot or control numbers; labeling of sample units.
203.39  Donation of drug samples to charitable institutions.

Subpart E--Wholesale Distribution

203.50  Requirements for wholesale distribution of prescription 
drugs.

Subpart F--Request and Receipt Forms, Reports, and Records

203.60  Request and receipt forms, reports, and records.

Subpart G--Rewards

203.70  Application for a reward.
     Authority:  21 U.S.C. 331, 333, 351, 352, 353, 360, 371, 374, 
381.

Subpart A--General Provisions


Sec. 203.1   Scope.

    This part sets forth procedures and requirements pertaining to the 
reimportation and wholesale distribution of prescription drugs, 
including both bulk drug substances and finished dosage forms; the 
sale, purchase, or trade of (or the offer to sell, purchase, or trade) 
prescription drugs, including bulk drug substances, that were purchased 
by hospitals or health care entities, or donated to charitable 
organizations; and the distribution of prescription drug samples. Blood 
and blood components intended for transfusion are excluded from the 
restrictions in and the requirements of the Prescription Drug Marketing 
Act of 1987 and the Prescription Drug Amendments of 1992.


Sec. 203.2   Purpose.

    The purpose of this part is to implement the Prescription Drug 
Marketing Act of 1987 and the Prescription Drug Amendments of 1992, 
except for those sections relating to State licensing of wholesale 
distributors (see part 205 of this chapter), to protect the public 
health, and to protect the public against drug diversion by 
establishing procedures, requirements, and minimum standards for the 
distribution of prescription drugs and prescription drug samples.


Sec. 203.3   Definitions.

    (a) The act means the Federal Food, Drug, and Cosmetic Act, as 
amended (21 U.S.C. 301 et seq.).
    (b) Authorized distributor of record means a distributor with whom 
a manufacturer has established an ongoing relationship to distribute 
such manufacturer's products.
    (c) Blood means whole blood collected from a single donor and 
processed either for transfusion or further manufacturing.
    (d) Blood component means that part of a single-donor unit of blood 
separated by physical or mechanical means.
    (e) Bulk drug substance means any substance that is represented for 
use in a drug and that, when used in the manufacturing, processing, or 
packaging of a drug, becomes an active ingredient or a finished dosage 
form of the drug, but the term does not include intermediates used in 
the synthesis of such substances.
    (f) Charitable institution or charitable organization means a 
nonprofit hospital, health care entity, organization, institution, 
foundation, association, or corporation that has been granted an 
exemption under section 501(c)(3) of the Internal Revenue Code of 1954, 
as amended.
    (g)  Common control means the power to direct or cause the 
direction of the management and policies of a person or an 
organization, whether by ownership of stock, voting rights, by 
contract, or otherwise.
    (h)  Distribute means to sell, offer to sell, deliver, or offer to 
deliver a drug to a recipient, except that the term ``distribute'' does 
not include:
    (1) Delivering or offering to deliver a drug by a common carrier in 
the usual course of business as a common carrier; or
    (2) Providing of a drug sample to a patient by:
    (i) A practitioner licensed to prescribe such drug;
    (ii) A health care professional acting at the direction and under 
the supervision of such a practitioner; or
    (iii) The pharmacy of a hospital or of another health care entity 
that is acting at the direction of such a practitioner and that 
received such sample in accordance with the act and regulations.
    (i)  Drug sample means a unit of a prescription drug that is not 
intended to be sold and is intended to promote the sale of the drug.
    (j) Drug coupon means a form that may be redeemed, at no cost or at 
reduced cost, for a drug that is prescribed in accordance with section 
503(b) of the act.
    (k) Electronic record means any combination of text, graphics, 
data, audio, pictorial, or other information representation in digital 
form that is created, modified, maintained, archived, retrieved, or 
distributed by a computer system.
    (l) Electronic signature means any computer data compilation of any 
symbol or series of symbols executed, adopted, or authorized by an 
individual to be the legally binding equivalent of the individual's 
handwritten signature.
    (m) Emergency medical reasons include, but are not limited to, 
transfers of a prescription drug between health care entities or from a 
health care entity to a retail pharmacy to alleviate a temporary 
shortage of a prescription

[[Page 67757]]

drug arising from delays in or interruption of regular distribution 
schedules; sales to nearby emergency medical services, i.e., ambulance 
companies and fire fighting organizations in the same State or same 
marketing or service area, or nearby licensed practitioners, of drugs 
for use in the treatment of acutely ill or injured persons; provision 
of minimal emergency supplies of drugs to nearby nursing homes for use 
in emergencies or during hours of the day when necessary drugs cannot 
be obtained; and transfers of prescription drugs by a retail pharmacy 
to another retail pharmacy to alleviate a temporary shortage; but do 
not include regular and systematic sales to licensed practitioners of 
prescription drugs that will be used for routine office procedures.
    (n) FDA means the U.S. Food and Drug Administration.
    (o)  Group purchasing organization means any entity established, 
maintained, and operated for the purchase of prescription drugs for 
distribution exclusively to its members with such membership consisting 
solely of hospitals and health care entities bound by written contract 
with the entity.
    (p)  Handwritten signature means the scripted name or legal mark of 
an individual handwritten by that individual and executed or adopted 
with the present intention to authenticate a writing in a permanent 
form. The act of signing with a writing or marking instrument such as a 
pen or stylus is preserved. The scripted name or legal mark, while 
conventionally applied to paper, may also be applied to other devices 
that capture the name or mark.
    (q) Health care entity  means any person that provides diagnostic, 
medical, surgical, or dental treatment, or chronic or rehabilitative 
care, but does not include any retail pharmacy or any wholesale 
distributor. A person cannot simultaneously be a ``health care entity'' 
and a retail pharmacy or wholesale distributor.
    (r) Licensed practitioner means any person licensed or authorized 
by State law to prescribe drugs.
    (s) Manufacturer means any person who is a manufacturer as defined 
by Sec. 201.1 of this chapter.
    (t)  Nonprofit affiliate means any not-for-profit organization that 
is either associated with or a subsidiary of a charitable organization 
as defined in section 501(c)(3) of the Internal Revenue Code of 1954.
    (u) Ongoing relationship means an association that exists when a 
manufacturer and a distributor enter into a written agreement under 
which the distributor is authorized to distribute the manufacturer's 
products for a period of time or for a number of shipments. If the 
distributor is not authorized to distribute a manufacturer's entire 
product line, the agreement must identify the specific drug products 
that the distributor is authorized to distribute.
    (v)  PDA means the Prescription Drug Amendments of 1992.
    (w) PDMA means the Prescription Drug Marketing Act of 1987.
    (x) Person includes any individual, partnership, corporation, or 
association.
    (y) Prescription drug means any drug (including any biological 
product, except for blood and blood components intended for transfusion 
or biological products that are also medical devices) required by 
Federal law (including Federal regulation) to be dispensed only by a 
prescription, including finished dosage forms and bulk drug substances 
subject to section 503(b) of the act.
    (z)  Representative means an employee or agent of a drug 
manufacturer or distributor who promotes the sale of prescription drugs 
to licensed practitioners and who may solicit or receive written 
requests for the delivery of drug samples. A detailer is a 
representative.
    (aa) Sample unit means a packet, card, blister pack, bottle, 
container, or other single package comprised of one or more dosage 
units of a prescription drug sample, intended by the manufacturer or 
distributor to be provided by a licensed practitioner to a patient in 
an unbroken or unopened condition.
    (bb) Unauthorized distributor means a distributor who does not have 
an ongoing relationship with a manufacturer to sell or distribute its 
products.
    (cc)  Wholesale distribution means distribution of prescription 
drugs to persons other than a consumer or patient, but does not 
include:
    (1) Intracompany sales;
    (2) The purchase or other acquisition by a hospital or other health 
care entity that is a member of a group purchasing organization of a 
drug for its own use from the group purchasing organization or from 
other hospitals or health care entities that are members of such 
organizations;
    (3) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug by a charitable organization to a nonprofit 
affiliate of the organization to the extent otherwise permitted by law;
    (4) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug among hospitals or other health care entities 
that are under common control;
    (5) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug for emergency medical reasons;
    (6) The sale, purchase, or trade of a drug, an offer to sell, 
purchase, or trade a drug, or the dispensing of a drug under a 
prescription executed in accordance with section 503(b) of the act;
    (7) The distribution of drug samples by manufacturers' and 
authorized distributors' representatives;
    (8) The sale, purchase, or trade of blood or blood components 
intended for transfusion;
    (9) Drug returns, when conducted by a hospital, health care entity, 
or charitable institution in accordance with Sec. 203.23; or
    (10) The sale of minimal quantities of drugs by retail pharmacies 
to licensed practitioners for office use.
    (dd)  Wholesale distributor means any person engaged in wholesale 
distribution of prescription drugs, including, but not limited to, 
manufacturers; repackers; own-label distributors; private-label 
distributors; jobbers; brokers; warehouses, including manufacturers' 
and distributors' warehouses, chain drug warehouses, and wholesale drug 
warehouses; independent wholesale drug traders; and retail pharmacies 
that conduct wholesale distributions.

Subpart B--Reimportation


Sec. 203.10   Restrictions on reimportation.

    No prescription drug or drug composed wholly or partly of insulin 
that was manufactured in a State and exported from the United States 
may be reimported by anyone other than its manufacturer, except that 
FDA may grant permission to a person other than the manufacturer to 
reimport a prescription drug or insulin-containing drug if it 
determines that such reimportation is required for emergency medical 
care.


Sec. 203.11   Applications for reimportation to provide emergency 
medical care.

    (a) Applications for reimportation for emergency medical care shall 
be submitted to the director of the FDA District Office in the district 
where reimportation is sought (addresses found in Sec. 5.115 of this 
chapter).
    (b) Applications for reimportation to provide emergency medical 
care shall be reviewed and approved or disapproved by each district 
office.

[[Page 67758]]

Sec. 203.12   An appeal from an adverse decision by the district 
office.

    An appeal from an adverse decision by the district office involving 
insulin-containing drugs or prescription human drugs, other than 
biological products, may be made to the Office of Compliance (HFD-300), 
Center for Drug Evaluation and Research, Food and Drug Administration, 
7520 Standish Pl., Rockville, MD 20855. An appeal from an adverse 
decision by the district office involving prescription human biological 
products may be made to the Office of Compliance and Biologics Quality 
(HFM-600), Center for Biologics Evaluation and Research, Food and Drug 
Administration, 1401 Rockville Pike, Rockville, MD 20852.

Subpart C--Sales Restrictions


Sec. 203.20   Sales restrictions.

    Except as provided in Sec. 203.22 or Sec. 203.23, no person may 
sell, purchase, or trade, or offer to sell, purchase, or trade any 
prescription drug that was:
    (a) Purchased by a public or private hospital or other health care 
entity; or
    (b) Donated or supplied at a reduced price to a charitable 
organization.


Sec. 203.22   Exclusions.

    Section 203.20 does not apply to:
    (a) The purchase or other acquisition of a drug for its own use by 
a hospital or other health care entity that is a member of a group 
purchasing organization from the group purchasing organization or from 
other hospitals or health care entities that are members of the 
organization.
    (b) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug by a charitable organization to a nonprofit 
affiliate of the organization to the extent otherwise permitted by law.
    (c) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug among hospitals or other health care entities 
that are under common control.
    (d) The sale, purchase, or trade of a drug or an offer to sell, 
purchase, or trade a drug for emergency medical reasons.
    (e) The sale, purchase, or trade of a drug, an offer to sell, 
purchase, or trade a drug, or the dispensing of a drug under a valid 
prescription.
    (f) The sale, purchase, or trade of a drug or the offer to sell, 
purchase, or trade a drug by hospitals or health care entities owned or 
operated by Federal, State, or local governmental units to other 
hospitals or health care entities owned or operated by Federal, State, 
or local governmental units.
    (g) The sale, purchase, or trade of, or the offer to sell, 
purchase, or trade blood or blood components intended for transfusion.


Sec. 203.23   Returns.

    The return of a prescription drug purchased by a hospital or health 
care entity or acquired at a reduced price by or donated to a 
charitable institution is exempt from the prohibitions in Sec. 203.20, 
provided that:
    (a) The hospital, health care entity, or charitable institution 
documents the return by filling out a credit memo specifying:
    (1) The name and address of the hospital, health care entity, or 
charitable institution;
    (2) The name and address of the manufacturer or wholesale 
distributor from which it was acquired;
    (3) The product name and lot or control number;
    (4) The quantity returned; and
    (5) The date of the return.
    (b) The hospital, health care entity, or charitable institution 
forwards a copy of each credit memo to the manufacturer and retains a 
copy of each credit memo for its records;
    (c) Any drugs returned to a manufacturer or wholesale distributor 
are kept under proper conditions for storage, handling, and shipping, 
and written documentation showing that proper conditions were 
maintained is provided to the manufacturer or wholesale distributor to 
which the drugs are returned.

Subpart D--Samples


Sec. 203.30   Sample distribution by mail or common carrier.

    (a)  Requirements for drug sample distribution by mail or common 
carrier. A manufacturer or authorized distributor of record may 
distribute a drug sample to a practitioner licensed to prescribe the 
drug that is to be sampled or, at the written request of a licensed 
practitioner, to the pharmacy of a hospital or other health care 
entity, by mail or common carrier, provided that:
    (1) The licensed practitioner executes and submits a written 
request to the manufacturer or authorized distributor of record, as set 
forth in paragraph (b) of this section, before the delivery of the drug 
sample;
    (2) The manufacturer or authorized distributor of record verifies 
with the appropriate State authority that the practitioner requesting 
the drug sample is licensed or authorized under State law to prescribe 
the drug product;
    (3) The recipient executes a written receipt, as set forth in 
paragraph (c) of this section, when the drug sample is delivered; and
    (4) The receipt is returned to the manufacturer or distributor from 
which the drug sample was received.
    (b)  Contents of the written request form for delivery of samples 
by mail or common carrier.
    (1) A written request for a drug sample to be delivered by mail or 
common carrier to a licensed practitioner is required to contain the 
following:
    (i) The name, address, professional title, and signature of the 
practitioner making the request;
    (ii) The practitioner's State license or authorization number or, 
where a scheduled drug product is requested, the practitioner's Drug 
Enforcement Administration number.
    (iii) The proprietary or established name and the strength of the 
drug sample requested;
    (iv) The quantity requested;
    (v) The name of the manufacturer and the authorized distributor of 
record, if the drug sample is requested from an authorized distributor 
of record; and
    (vi) The date of the request.
    (2) A written request for a drug sample to be delivered by mail or 
common carrier to the pharmacy of a hospital or other health care 
entity is required to contain, in addition to all of the information in 
paragraph (b)(l) of this section, the name and address of the pharmacy 
of the hospital or other health care entity to which the drug sample is 
to be delivered.
    (c)  Contents of the receipt to be completed upon delivery of a 
drug sample. The receipt is to be on a form designated by the 
manufacturer or distributor, and is required to contain the following:
    (1) If the drug sample is delivered to the licensed practitioner 
who requested it, the receipt is required to contain the name, address, 
professional title, and signature of the practitioner or the 
practitioner's designee who acknowledges delivery of the drug sample; 
the proprietary or established name and strength of the drug sample and 
the quantity of the drug sample delivered; and the date of the 
delivery.
    (2) If the drug sample is delivered to the pharmacy of a hospital 
or other health care entity at the request of a licensed practitioner, 
the receipt is required to contain the name and address of the 
requesting licensed practitioner; the name and address of the hospital 
or health care entity pharmacy designated to receive the drug sample; 
the name, address, professional title, and signature of the person 
acknowledging delivery of the drug

[[Page 67759]]

sample; the proprietary or established name and strength of the drug 
sample; the quantity of the drug sample delivered; and the date of the 
delivery.


Sec. 203.31   Sample distribution by means other than mail or common 
carrier (direct delivery by a representative or detailer).

    (a)  Requirements for drug sample distribution by means other than 
mail or common carrier. A manufacturer or authorized distributor of 
record may distribute by means other than mail or common carrier, by a 
representative or detailer, a drug sample to a practitioner licensed to 
prescribe the drug to be sampled or, at the written request of such a 
licensed practitioner, to the pharmacy of a hospital or other health 
care entity, provided that:
    (1) The manufacturer or authorized distributor of record receives 
from the licensed practitioner a written request signed by the licensed 
practitioner before the delivery of the drug sample;
    (2) The manufacturer or authorized distributor of record verifies 
with the appropriate State authority that the practitioner requesting 
the drug sample is licensed or authorized under State law to prescribe 
the drug product;
    (3) A receipt is signed by the recipient, as set forth in paragraph 
(c) of this section, when the drug sample is delivered;
    (4) The receipt is returned to the manufacturer or distributor; and
    (5) The requirements of paragraphs (d) through (e) of this section 
are met.
    (b)  Contents of the written request forms for delivery of samples 
by a representative. (1) A written request for delivery of a drug 
sample by a representative to a licensed practitioner is required to 
contain the following:
    (i) The name, address, professional title, and signature of the 
practitioner making the request;
    (ii) The practitioner's State license or authorization number, or, 
where a scheduled drug product is requested, the practitioner's Drug 
Enforcement Administration number;
    (iii) The proprietary or established name and the strength of the 
drug sample requested;
    (iv) The quantity requested;
    (v) The name of the manufacturer and the authorized distributor of 
record, if the drug sample is requested from an authorized distributor 
of record; and
    (vi) The date of the request.
    (2) A written request for delivery of a drug sample by a 
representative to the pharmacy of a hospital or other health care 
entity is required to contain, in addition to all of the information in 
paragraph (b) of this section, the name and address of the pharmacy of 
the hospital or other health care entity to which the drug sample is to 
be delivered.
    (c)  Contents of the receipt to be completed upon delivery of a 
drug sample. The receipt is to be on a form designated by the 
manufacturer or distributor, and is required to contain the following:
    (1) If the drug sample is received at the address of the licensed 
practitioner who requested it, the receipt is required to contain the 
name, address, professional title, and signature of the practitioner or 
the practitioner's designee who acknowledges delivery of the drug 
sample; the proprietary or established name and strength of the drug 
sample; the quantity of the drug sample delivered; and the date of the 
delivery.
    (2) If the drug sample is received by the pharmacy of a hospital or 
other health care entity at the request of a licensed practitioner, the 
receipt is required to contain the name and address of the requesting 
licensed practitioner; the name and address of the hospital or health 
care entity pharmacy designated to receive the drug sample; the name, 
address, professional title, and signature of the person acknowledging 
delivery of the drug sample; the proprietary or established name and 
strength of the drug sample; the quantity of the drug sample delivered; 
and the date of the delivery.
    (d)  Inventory and reconciliation of drug samples of manufacturers' 
and distributors' representatives. Each drug manufacturer or authorized 
distributor of record that distributes drug samples by means of 
representatives shall conduct, at least annually, a complete and 
accurate physical inventory of all drug samples. All drug samples in 
the possession or control of each manufacturer's and distributor's 
representatives are required to be inventoried and the results of the 
inventory are required to be recorded in an inventory record, as 
specified in paragraph (d)(1) of this section. In addition, 
manufacturers and distributors shall reconcile the results of the 
physical inventory with the most recently completed prior physical 
inventory and create a report documenting the reconciliation process, 
as specified in paragraph (d)(2) of this section.
     (1) The inventory record is required to identify all drug samples 
in a representative's stock by the proprietary or established name, 
dosage strength, and number of units.
    (2) The reconciliation report is required to include:
    (i) The inventory record for the most recently completed prior 
inventory;
    (ii) A record of each drug sample shipment received since the most 
recently completed prior inventory, including the sender and date of 
the shipment, and the proprietary or established name, dosage strength, 
and number of sample units received;
    (iii) A record of drug sample distributions since the most recently 
completed inventory showing the name and address of each recipient of 
each sample unit shipped, the date of the shipment, and the proprietary 
or established name, dosage strength, and number of sample units 
shipped. For the purposes of this paragraph and paragraph (d)(2)(v) of 
this section, ``distributions'' includes distributions to health care 
practitioners or designated hospital or health care entity pharmacies, 
transfers or exchanges with other firm representatives, returns to the 
manufacturer or authorized distributor, destruction of drug samples by 
a sales representative, and other types of drug sample dispositions. 
The specific type of distribution must be specified in the record;
    (iv) A record of drug sample thefts or significant losses reported 
by the representative since the most recently completed prior 
inventory, including the approximate date of the occurrence and the 
proprietary or established name, dosage strength, and number of sample 
units stolen or lost; and
    (v) A record summarizing the information required by paragraphs 
(d)(2)(ii) through (d)(2)(iv) of this section. The record must show, 
for each type of sample unit (i.e., sample units having the same 
established or proprietary name and dosage strength), the total number 
of sample units received, distributed, lost, or stolen since the most 
recently completed prior inventory. For example, a typical entry in 
this record may read ``50 units risperidone (1 mg) returned to 
manufacturer'' or simply ``Risperidone (1 mg)/50/returned to 
manufacturer.''
    (3) Each drug manufacturer or authorized distributor of record 
shall take appropriate internal control measures to guard against error 
and possible fraud in the conduct of the physical inventory and 
reconciliation, and in the preparation of the inventory record and 
reconciliation report.
    (4) A manufacturer or authorized distributor of record shall 
carefully evaluate any apparent discrepancy or significant loss 
revealed through the inventory and reconciliation process and shall 
fully investigate any such discrepancy or significant loss that cannot 
be justified.

[[Page 67760]]

    (e) Lists of manufacturers' and distributors' representatives. Each 
drug manufacturer or authorized distributor of record who distributes 
drug samples by means of representatives shall maintain a list of the 
names and addresses of its representatives who distribute drug samples 
and of the sites where drug samples are stored.


Sec. 203.32   Drug sample storage and handling requirements.

    (a) Storage and handling conditions. Manufacturers, authorized 
distributors of record, and their representatives shall store and 
handle all drug samples under conditions that will maintain their 
stability, integrity, and effectiveness and ensure that the drug 
samples are free of contamination, deterioration, and adulteration.
    (b)  Compliance with compendial and labeling requirements. 
Manufacturers, authorized distributors of record, and their 
representatives can generally comply with this section by following the 
compendial and labeling requirements for storage and handling of a 
particular prescription drug in handling samples of that drug.


Sec. 203.33   Drug sample forms.

    A sample request or receipt form may be delivered by mail, common 
carrier, or private courier or may be transmitted photographically or 
electronically (i.e., by telephoto, wirephoto, radiophoto, facsimile 
transmission (FAX), xerography, or electronic data transfer) or by any 
other system, provided that the method for transmission meets the 
security requirements set forth in Sec. 203.60(c).


Sec. 203.34   Policies and procedures; administrative systems.

    Each manufacturer or authorized distributor of record that 
distributes drug samples shall establish, maintain, and adhere to 
written policies and procedures describing its administrative systems 
for the following:
    (a) Distributing drug samples by mail or common carrier, including 
methodology for reconciliation of requests and receipts;
    (b) Distributing drug samples by means other than mail or common 
carrier including the methodology for:
    (1) Reconciling requests and receipts, identifying patterns of 
nonresponse, and the manufacturer's or distributor's response when such 
patterns are found;
    (2) Conducting the annual physical inventory and preparation of the 
reconciliation report;
    (3) Implementing a sample distribution security and audit system, 
including conducting random and for-cause audits of sales 
representatives by personnel independent of the sales force; and
    (4) Storage of drug samples by representatives;
    (c) Identifying any significant loss of drug samples and notifying 
FDA of the loss; and
    (d) Monitoring any loss or theft of drug samples.


Sec. 203.35   Standing requests.

    Manufacturers or authorized distributors of record shall not 
distribute drug samples on the basis of open-ended or standing 
requests, but shall require separate written requests for each drug 
sample or group of samples. An arrangement by which a licensed 
practitioner requests in writing that a specified number of drug 
samples be delivered over a period of not more than 6 months, with the 
actual delivery dates for parts of the order to be set by subsequent 
oral communication or electronic transmission, is not considered to be 
a standing request.


Sec. 203.36   Fulfillment houses, shipping and mailing services, 
comarketing agreements, and third-party recordkeeping.

    (a)  Responsibility for creating and maintaining forms, reports, 
and records. Any manufacturer or authorized distributor of record that 
uses a fulfillment house, shipping or mailing service, or other third 
party, or engages in a comarketing agreement with another manufacturer 
or distributor to distribute drug samples or to meet any of the 
requirements of PDMA, PDA, or this part, remains responsible for 
creating and maintaining all requests, receipts, forms, reports, and 
records required under PDMA, PDA, and this part.
    (b) Responsibility for producing requested forms, reports, or 
records. A manufacturer or authorized distributor of record that 
contracts with a third party to maintain some or all of its records 
shall produce requested forms, reports, records, or other required 
documents within 2 business days of a request by an authorized 
representative of FDA or another Federal, State, or local regulatory or 
law enforcement official.


Sec. 203.37   Investigation and notification requirements.

    (a)  Investigation of falsification of drug sample records. A 
manufacturer or authorized distributor of record that has reason to 
believe that any person has falsified drug sample requests, receipts, 
or records, or is diverting drug samples, shall:
    (1) Notify FDA, by telephone or in writing, within 5 working days;
    (2) Immediately initiate an investigation; and
    (3) Provide FDA with a complete written report, including the 
reason for and the results of the investigation, not later than 30 days 
after the date of the initial notification in paragraph (a)(1) of this 
section.
    (b)  Significant loss or known theft of drug samples. A 
manufacturer or authorized distributor of record that distributes drug 
samples or a charitable institution that receives donated drug samples 
from a licensed practitioner shall:
    (1) Notify FDA, by telephone or in writing, within 5 working days 
of becoming aware of a significant loss or known theft;
    (2) Immediately initiate an investigation into the significant loss 
or known theft; and
    (3) Provide FDA with a complete written report, including the 
reason for and the results of the investigation, not later than 30 days 
after the date of the initial notification in paragraph (b)(1) of this 
section.
    (c)  Conviction of a representative.
    (1) A manufacturer or authorized distributor of record that 
distributes drug samples shall notify FDA, by telephone or in writing, 
within 30 days of becoming aware of the conviction of one or more of 
its representatives for a violation of section 503(c)(1) of the act or 
any State law involving the sale, purchase, or trade of a drug sample 
or the offer to sell, purchase, or trade a drug sample.
    (2) A manufacturer or authorized distributor of record shall 
provide FDA with a complete written report not later than 30 days after 
the date of the initial notification.
    (d)  Selection of individual responsible for drug sample 
information. A manufacturer or authorized distributor of record that 
distributes drug samples shall inform FDA in writing within 30 days of 
selecting the individual responsible for responding to a request for 
information about drug samples of that individual's name, business 
address, and telephone number.
    (e)  Whom to notify at FDA. Notifications and reports concerning 
prescription human drugs shall be made to the Division of Prescription 
Drug Compliance and Surveillance (HFD-330), Office of Compliance, 
Center for Drug Evaluation and Research, Food and Drug Administration, 
7520 Standish Pl., Rockville, MD 20855. Notifications and reports 
concerning prescription human biological products shall be made to the 
Division of Inspections and Surveillance (HFM-650), Office of 
Compliance, Center for Biologics

[[Page 67761]]

Evaluation and Research, Food and Drug Administration, 1401 Rockville 
Pike, Rockville, MD 20852.


Sec. 203.38   Sample lot or control numbers; labeling of sample units.

    (a)  Lot or control number required on drug sample labeling and 
sample unit label. The manufacturer or authorized distributor of record 
of a drug sample shall include on the label of the sample unit and on 
the outside container or packaging of the sample unit, if any, an 
identifying lot or control number that will permit the tracking of the 
distribution of each drug sample unit.
    (b)  Records containing lot or control numbers required for all 
drug samples distributed. A manufacturer or authorized distributor of 
record shall maintain for all samples distributed records of drug 
sample distribution containing lot or control numbers that are 
sufficient to permit the tracking of sample units to the point of the 
licensed practitioner.
    (c)  Labels of sample units. Each sample unit shall bear a label 
that clearly denotes its status as a drug sample, e.g., ``sample,'' 
``not for sale,'' ``professional courtesy package.''
    (1) A drug that is labeled as a drug sample is deemed to be a drug 
sample within the meaning of the act.
    (2) A drug product dosage unit that bears an imprint identifying 
the dosage form as a drug sample is deemed to be a drug sample within 
the meaning of the act.
    (3) Notwithstanding paragraphs (c)(1) and (c)(2) of this section, 
any article that is a drug sample as defined in section 503(c)(1) of 
the act and Sec. 203.3(i) that fails to bear the label required in this 
paragraph (c) is a drug sample.


Sec. 203.39   Donation of drug samples to charitable institutions.

     A charitable institution may receive a drug sample donated by a 
licensed practitioner or another charitable institution for dispensing 
to a patient of the charitable institution, or donate a drug sample to 
another charitable institution for dispensing to its patients, provided 
that the following requirements are met:
     (a) A drug sample donated by a licensed practitioner or donating 
charitable institution shall be received by a charitable institution in 
its original, unopened packaging with its labeling intact.
    (b) Delivery of a donated drug sample to a recipient charitable 
institution shall be completed by mail or common carrier, collection by 
an authorized agent or employee of the recipient charitable 
institution, or personal delivery by a licensed practitioner or an 
agent or employee of the donating charitable institution. Donated drug 
samples shall be placed by the donor in a sealed carton for delivery to 
or collection by the recipient charitable institution.
    (c) A donated drug sample shall not be dispensed to a patient or be 
distributed to another charitable institution until it has been 
examined by a licensed practitioner or registered pharmacist at the 
recipient charitable institution to confirm that the donation record 
accurately describes the drug sample delivered and that no drug sample 
is adulterated or misbranded for any reason, including, but not limited 
to, the following:
    (1) The drug sample is out of date;
    (2) The labeling has become mutilated, obscured, or detached from 
the drug sample packaging;
    (3) The drug sample shows evidence of having been stored or shipped 
under conditions that might adversely affect its stability, integrity, 
or effectiveness;
    (4) The drug sample is for a prescription drug product that has 
been recalled or is no longer marketed; or
    (5) The drug sample is otherwise possibly contaminated, 
deteriorated, or adulterated.
    (d) The recipient charitable institution shall dispose of any drug 
sample found to be unsuitable by destroying it or by returning it to 
the manufacturer. The charitable institution shall maintain complete 
records of the disposition of all destroyed or returned drug samples.
    (e) The recipient charitable institution shall prepare at the time 
of collection or delivery of a drug sample a complete and accurate 
donation record, a copy of which shall be retained by the recipient 
charitable institution for at least 3 years, containing the following 
information:
    (1) The name, address, and telephone number of the licensed 
practitioner (or donating charitable institution);
    (2) The manufacturer, brand name, quantity, and lot or control 
number of the drug sample donated; and
    (3) The date of the donation.
    (f) Each recipient charitable institution shall maintain complete 
and accurate records of donation, receipt, inspection, inventory, 
dispensing, redistribution, destruction, and returns sufficient for 
complete accountability and auditing of drug sample stocks.
    (g) Each recipient charitable institution shall conduct, at least 
annually, an inventory of prescription drug sample stocks and shall 
prepare a report reconciling the results of each inventory with the 
most recent prior inventory. Drug sample inventory discrepancies and 
reconciliation problems shall be investigated by the charitable 
institution and reported to FDA.
    (h) A recipient charitable institution shall store drug samples 
under conditions that will maintain the sample's stability, integrity, 
and effectiveness, and will ensure that the drug samples will be free 
of contamination, deterioration, and adulteration.
    (i) A charitable institution shall notify FDA within 5 working days 
of becoming aware of a significant loss or known theft of prescription 
drug samples.

Subpart E--Wholesale Distribution


Sec. 203.50   Requirements for wholesale distribution of prescription 
drugs.

    (a)  Identifying statement for sales by unauthorized distributors. 
Before the completion of any wholesale distribution by a wholesale 
distributor of a prescription drug for which the seller is not an 
authorized distributor of record to another wholesale distributor or 
retail pharmacy, the seller shall provide to the purchaser a statement 
identifying each prior sale, purchase, or trade of such drug. This 
identifying statement shall include:
    (1) The proprietary and established name of the drug;
    (2) Dosage;
    (3) Container size;
    (4) Number of containers;
    (5) The drug's lot or control number(s);
    (6) The business name and address of all parties to each prior 
transaction involving the drug, starting with the manufacturer; and
    (7) The date of each previous transaction.
    (b) The drug origin statement is subject to the record retention 
requirements of Sec. 203.60 and must be retained by all wholesale 
distributors involved in the distribution of the drug product, whether 
authorized or unauthorized, for 3 years.
    (c) Identifying statement not required when additional 
manufacturing processes are completed. A manufacturer that subjects a 
drug to any additional manufacturing processes to produce a different 
drug is not required to provide to a purchaser a statement identifying 
the previous sales of the component drug or drugs.
    (d) List of authorized distributors of record. Each manufacturer 
shall maintain at the corporate offices a current written list of all 
authorized distributors of record.
    (1) Each manufacturer's list of authorized distributors of record 
shall specify whether each distributor listed

[[Page 67762]]

thereon is authorized to distribute the manufacturer's full product 
line or only particular, specified products.
    (2) Each manufacturer shall update its list of authorized 
distributors of record on a continuing basis.
    (3) Each manufacturer shall make its list of authorized 
distributors of record available on request to the public for 
inspection or copying. A manufacturer may impose reasonable copying 
charges for such requests from members of the public.

Subpart F--Request and Receipt Forms, Reports, and Records


Sec. 203.60   Request and receipt forms, reports, and records.

    (a)  Use of electronic records, electronic signatures, and 
handwritten signatures executed to electronic records.
    (1) Provided the requirements of part 11 of this chapter are met, 
electronic records, electronic signatures, and handwritten signatures 
executed to electronic records may be used as an alternative to paper 
records and handwritten signatures executed on paper to meet any of the 
record and signature requirements of PDMA, PDA, or this part.
    (2) Combinations of paper records and electronic records, 
electronic records and handwritten signatures executed on paper, or 
paper records and electronic signatures or handwritten signatures 
executed to electronic records, may be used to meet any of the record 
and signature requirements of PDMA, PDA, or this part, provided that:
    (i) The requirements of part 11 of this chapter are met for the 
electronic records, electronic signatures, or handwritten signatures 
executed to electronic records; and
    (ii) A reasonably secure link between the paper-based and 
electronic components exists such that the combined records and 
signatures are trustworthy and reliable, and to ensure that the signer 
cannot readily repudiate the signed records as not genuine.
    (3) For the purposes of this paragraph (a), the phrase ``record and 
signature requirements of PDMA, PDA, or this part'' includes drug 
sample request and receipt forms, reports, records, and other 
documents, and their associated signatures required by PDMA, PDA, and 
this part.
    (b) Maintenance of request and receipt forms, reports, records, and 
other documents created on paper. Request and receipt forms, reports, 
records, and other documents created on paper may be maintained on 
paper or by photographic imaging (i.e., photocopies or microfiche), 
provided that the security and authentication requirements described in 
paragraph (c) of this section are followed. Where a required document 
is created on paper and electronically scanned into a computer, the 
resulting record is an electronic record that must meet the 
requirements of part 11 of this chapter.
    (c) Security and authentication requirements for request and 
receipt forms, reports, records, and other documents created on paper. 
A request or receipt form, report, record, or other document, and any 
signature appearing thereon, that is created on paper and that is 
maintained by photographic imaging, or transmitted electronically 
(i.e., by facsimile) shall be maintained or transmitted in a form that 
provides reasonable assurance of being:
    (1) Resistant to tampering, revision, modification, fraud, 
unauthorized use, or alteration;
    (2) Preserved in accessible and retrievable fashion; and
    (3) Available to permit copying for purposes of review, analysis, 
verification, authentication, and reproduction by the person who 
executed the form or created the record, by the manufacturer or 
distributor, and by authorized personnel of FDA and other regulatory 
and law enforcement agencies.
    (d) Retention of request and receipt forms, reports, lists, 
records, and other documents. Any person required to create or maintain 
reports, lists, or other records under PDMA, PDA, or this part, 
including records relating to the distribution of drug samples, shall 
retain them for at least 3 years after the date of their creation.
    (e) Availability of request and receipt forms, reports, lists, and 
records. Any person required to create or maintain request and receipt 
forms, reports, lists, or other records under PDMA, PDA, or this part 
shall make them available, upon request, in a form that permits copying 
or other means of duplication, to FDA or other Federal, State, or local 
regulatory and law enforcement officials for review and reproduction. 
The records shall be made available within 2 business days of a 
request.

Subpart G--Rewards


Sec. 203.70   Application for a reward.

    (a) Reward for providing information leading to the institution of 
a criminal proceeding against, and conviction of, a person for the 
sale, purchase, or trade of a drug sample. A person who provides 
information leading to the institution of a criminal proceeding 
against, and conviction of, a person for the sale, purchase, or trade 
of a drug sample, or the offer to sell, purchase, or trade a drug 
sample, in violation of section 503(c)(1) of the act, is entitled to 
one-half the criminal fine imposed and collected for such violation, 
but not more than $125,000.
    (b)  Procedure for making application for a reward for providing 
information leading to the institution of a criminal proceeding 
against, and conviction of, a person for the sale, purchase, or trade 
of a drug sample. A person who provides information leading to the 
institution of a criminal proceeding against, and conviction of, a 
person for the sale, purchase, or trade of a drug sample, or the offer 
to sell, purchase, or trade a drug sample, in violation of section 
503(c)(1) of the act, may apply for a reward by making written 
application to:
     (1) Director, Office of Compliance (HFD-300), Center for Drug 
Evaluation and Research, Food and Drug Administration, 7500 Standish 
Pl., Rockville, MD 20855; or
    (2) Director, Office of Compliance and Biologics Quality (HFM-600), 
Center for Biologics Evaluation and Research, Food and Drug 
Administration, 1401 Rockville Pike, Rockville, MD 20852, as 
appropriate.

PART 205--GUIDELINES FOR STATE LICENSING OF WHOLESALE PRESCRIPTION 
DRUG DISTRIBUTORS

    2. The authority citation for 21 CFR part 205 continues to read as 
follows:

    Authority:  21 U.S.C. 351, 352, 353, 371, 374.

    3. Section 205.3 is amended by adding paragraphs (f)(9), (f)(10), 
and (h) to read as follows:


Sec. 205.3   Definitions.

* * * * *
    (f) * * *
    (9) Drug returns, when conducted by a hospital, health care entity, 
or charitable institution in accordance with Sec. 203.23 of this 
chapter; or
    (10) The sale of minimal quantities of drugs by retail pharmacies 
to licensed practitioners for office use.
* * * * *
    (h) Health care entity means any person that provides diagnostic, 
medical, surgical, or dental treatment, or chronic or rehabilitative 
care, but does not include any retail pharmacy or any wholesale 
distributor. A person cannot simultaneously be a ``health care entity'' 
and a retail pharmacy or wholesale distributor.
    4. Section 205.50 is amended by revising paragraph (f)(2) to read 
as follows:

[[Page 67763]]

Sec. 205.50   Minimum requirements for the storage and handling of 
prescription drugs and for the establishment and maintenance of 
prescription drug distribution records.

* * * * *
    (f) * * *
    (2) Inventories and records shall be made available for inspection 
and photocopying by authorized Federal, State, or local law enforcement 
agency officials for a period of 3 years after the date of their 
creation.

    Dated: August 3, 1999.
Margaret M. Dotzel,
Acting Associate Commissioner for Policy.
[FR Doc. 99-30954 Filed 11-30-99; 12:38 pm]
BILLING CODE 4160-01-F