Drug distribution: New regulations in the Pharmaceutical Law
For many years, drug distribution has been a strictly regulated business. Entities participating in the trade are licensed, the direction of permitted sales is strictly defined, and the market is subject to control by the Pharmaceutical Inspectorate. Nevertheless, the phenomenon of the “reverse drug distribution chain” still exists. Does the “anti-export” amendment of the Pharmaceutical Law have a chance of eliminating irregularities without paralysing legal trade?
What is the reverse drug distribution chain?
The reverse drug distribution chain is the practice of sourcing medicines from the retail market in Poland to resell them abroad at a price many times higher than the domestic price. Such trade causes shortages on the retail market and non-availability of medicines in Poland, and thus it has been banned. This applies primarily to reimbursable medicines, including vaccines.
Since medicines are a special type of consumer product, they may be traded in Poland, as in other EU countries, only under strictly defined rules. As stated in the preamble to Directive 2001/83/EC: “It is necessary to exercise control over the entire chain of distribution of medicinal products, from their manufacture or import into the Community through to supply to the public, so as to guarantee that such products are stored, transported and handled in suitable conditions. … Any person involved in the wholesale distribution of medicinal products should be in possession of a special authorization.”
In Poland, control over the trade exists on two levels: the trade is licensed, and the permitted direction of trade is specified.
Licensing of the trade requires that only authorised entities appear in the distribution chain. In principle, this may be a wholesale distribution licence (WDL) applicable to pharmaceutical wholesalers or a retail distribution licence (RDL) applicable to pharmacies.
The permitted direction of distribution means that trade in a medicine can only take place in one direction: from the responsible entity (or its representative) to the wholesaler and from the wholesaler to the pharmacy, and then to the pharmacy client (in Poland, essentially to the patient). Therefore, medicines intended for trade by an entity responsible for the Polish market cannot, as a rule, leave this market, and products that have left one link in the trade (e.g. a warehouse) cannot, as a rule, return to it.
Another amendment of the Pharmaceutical Law
There were already mechanisms in place in the Pharmaceutical Law to combat illegal drug exports. The Ministry of Health creates lists of drugs at risk of a shortage. The intention to export such medicines outside the territory of Poland or to sell them to an entity operating outside of the territory of Poland must be reported to the Chief Pharmaceutical Inspector, who has a right to object. Reporting obligations for activities related to trade in medicines have been increased (the ZSMOPL system). Nevertheless, the existing regulations were found to be insufficient. This was the reason for adoption of the Act of 26 April 2019 Amending the Pharmaceutical Law and Other Acts, which for the most part came into force on 6 June 2019. In this context, the question arises how to conduct trade in medicines in accordance with the law so as not to interfere with business and operational objectives, and at the same time, minimise the risk of losing one’s existing licence, paying a high fine, or suffering criminal liability.
Who can sell medicine to whom?
The recent amendment introduced a clear ban on supplying medicines by pharmaceutical wholesalers from entities other than those expressly referred to in Art. 78 of the Pharmaceutical Law. In practice, this means a clear ban on obtaining medicines from pharmacies.
Thus, a pharmaceutical wholesaler is obliged to source medicinal products only from:
- The responsible party
- A trader holding a licence to manufacture or import medicinal products, or
- A company conducting wholesale trade, after prior verification of the validity of the relevant authorisation.
Retail trade in medicines is usually carried out by full-service pharmacies and limited-service pharmacies. Apart from these types of pharmacies, retail trade in medicinal products issued without a doctor’s prescription, with the exception of veterinary medicinal products, is allowed at:
- Herbal medicine stores
- Specialist shops for medical supplies, and
- Stores available to the general public.
According to the controversial wording of Art. 86a(1) added by the amendment, under the rules specified in the Pharmaceutical Law and the Act on Reimbursement for Medicines, Foodstuffs for Particular Nutritional Uses and Medical Devices of 12 May 2011, a pharmacy open to the public or a limited-service pharmacy may sell a medicinal product only to:
- A patient, for the purpose of supplying the population directly, including to the patient free of charge, exclusively for the purposes of his treatment, or
- A medical entity, in order to supply the entity carrying out the medical activity, on the basis of need.
Medicines may also be transferred free of charge to the same entities to which the medicine can be sold and to nursing homes (to enable and organise assistance), as well as to public authorities (in situations of a state of emergency, martial law or natural disaster).
It should be noted that free transfer requires the consent of the competent province pharmaceutical inspector. The consent for free transfer should be applied for 7 days before the transfer, and the inspector may refuse the consent if he finds that there is a suspicion that the medicinal product will be used for a purpose other than the declared purpose.
Elements under the scrutiny of the Pharmaceutical Inspectorate
Many situations may give rise to doubts of the Pharmaceutical Inspectorate. At this stage, it is difficult to clearly define which elements the authorities will be particularly sensitive to. Nevertheless, companies should pay particular attention to the following practical situations.
- Example 1. Warehouse transfers
A company runs both a pharmaceutical warehouse and a pharmacy. So far, it has made warehouse transfers from the pharmacy to the warehouse, which consisted in transferring ownership of the product. After the amendment came into force, such an activity became prohibited. The term “sourcing” is broad, and the circle of entities from which a wholesaler can source its products has been strictly defined and does not include pharmacies.
- Example 2. Separate transfer of title and possession of medicines
A manufacturer in the EU sells a medicine to a responsible entity in Poland. The entity sells the medicine to pharmaceutical wholesalers in the territory of Poland. The title to the products is transferred from the responsible entity to the wholesaler and the ownership directly from the manufacturer in the EU to the wholesaler. The product is sold from the wholesaler to pharmacies. The separation between the process of transferring ownership of the product and its possession has been questioned as a model potentially leading to a virtual sale of medicine. However, if the permitted direction of product transfer and its physical trade is maintained and the products do not leave Poland, there are no grounds for effective challenging even complicated distribution models on the grounds of the amendment.
However, companies should be vigilant when changing the distribution structure of a medicine (e.g. in the case of transfer of a portfolio of products between pharmaceutical companies), as the model that operates on other EU markets may require changes to adjust the distribution model to regulatory requirements on the Polish market.
- Example 3. Problematic buyer at a pharmacy
A nursing home wants to buy medicines for its residents from a pharmacy. The purchase of medicines from pharmacies by nursing homes for the benefit of their patients is provided for in the Social Care Act, according to which such homes enable and organise assistance to residents with respect to the use of health services. But it turns out that a nursing home is outside of the circle of entities entitled to purchase medicines at a pharmacy for a fee. The pharmacy may provide them only free of charge, with the prior consent of the pharmaceutical inspector.
There is no option of free acquisition in the case of orphanages, schools or companies. These entities are outside of the permitted circle of medicine purchasers at pharmacies, which are patients and entities performing medicinal activities. Therefore, it seems necessary for the Ministry of Health and the Ministry of Finance (the amendment originated from the Ministry of Justice) to issue an appropriate interpretation in this area, as well as to introduce changes in the newly adopted provisions.
Similar concerns may arise if someone wants to buy a larger volume of one medicine. Unfortunately, the burden of determining in a specific case whether a given quantity serves the needs of a specific patient’s treatment or whether the demand is adequate to the needs of the entity performing the medicinal activity is shifted to the pharmacists.
To comply with the rules for trading in drugs, pharmacies and pharmaceutical wholesalers must comply with all legally required acts of diligence and document them appropriately. This diligence covers not only fundamental issues such as checking the release of a series of products, expiry dates and storage conditions, but also regular checks on the scope of their authorisations and the authorisations of trading partners (whether the authorisations are still valid and the intended transaction falls within the scope of the authorisation). It is a pity that the amendment does not regulate the issue of internal procedures for verifying the status of purchasers and the quantity of products purchased, as well as the training of employees in the practical application of such procedures.
The amendment poses challenges not only to companies operating on the pharmaceutical market, but also to the Pharmaceutical Inspectorate. The new regulations will require appropriate interpretation. Let us hope that it does not lose sight of the goal of the amendment, which is to combat illegal exports of scarce medicines, and not to impose severe punishment for any possible deviations from the new regulatory requirements, especially if they do not cause a real risk of illegal exports of products.
Joanna Krakowiak, Life Science and Regulatory practice, M&A and Corporate practice, Wardyński & Partners