license be readily retrievable at the facility, and that the facility
permit State or Federal inspectors, or others acting on behalf of the
licensing authority, to inspect the license (see proposed Sec.
205.22(e)).
4. The Federal Licensure Process
    Section 503(e) of the FD&C Act, as amended by DSCSA, requires FDA
to license wholesale distributors directly if the State in which it
engages in wholesale distribution has not established a licensing
requirement (section 503(e)(1) of the FD&C Act). Proposed Sec.  205.23
details the process that FDA will use when issuing licenses to
wholesale distributors. While this section is only applicable to
wholesale distributors obtaining a license from FDA, FDA suggests
States implement similar procedures to ensure that all wholesale
distributor licenses issued are consistent with the proposed regulation
pursuant to section 503(e)(1)(B) of the FD&C Act. FDA plans to make
information available to clarify who is the appropriate licensing
authority in the wholesale distributor's State. FDA believes this
streamlined process for application will allow for greater clarity and
harmonization across the industry.
    For wholesale distributor license applications submitted to FDA,
FDA proposes that the wholesale distributor submit the application
electronically, including the information outlined in proposed
Sec. Sec.  205.21 and 205.22, along with additional supporting
documentation (see proposed Sec.  205.23(a)(1)). The DSCSA authorizes
FDA's use of third-party organizations--AOs--to conduct inspections of
wholesale distributors required under section 583(c) of the FD&C Act.
If FDA has approved one or more AOs to inspect wholesale distributors,
the wholesale distributor should note the AO it prefers to conduct its
inspection on the application submitted to FDA (see proposed Sec.
205.23(a)(2)). If no AO has been approved, FDA will conduct the
inspection (see proposed Sec.  205.23(a)(3)). Furthermore, submission
of the application to FDA will not be considered complete until FDA
receives all pertinent information and fees (see proposed Sec.
205.23(a)(5)).
    While the DSCSA permits AOs to conduct inspections of wholesale
distributors applying for licensure, the responsibility of determining
whether a wholesale distributor meets all the applicable requirements
set forth in this proposed regulation remains with FDA (see proposed
Sec.  205.23(b)). To avoid

delays in the licensure process, FDA intends to work with wholesale
distributors to correct minor errors made on the application (e.g.,
missing written policies and procedures) and communicate with the
wholesale distributor about additional information the Agency may need
to process and review the application (see proposed Sec.  205.23(c)).
If the wholesale distributor meets the requirements outlined in this
proposed part and none of the prohibited factors listed in proposed
Sec.  205.30(a)(1) are present, FDA will approve the application and
send an approval letter and license certificate (see proposed Sec.
205.23(d)).
    FDA recognizes that a wholesale distributor may have concerns about
what happens to the status of its license if disciplinary sanctions are
taken against the approval status of the AO that conducted its
inspection when applying for licensure or if the organization is
otherwise no longer considered an approved AO. While FDA believes that
a wholesale distributor should not be penalized for the actions of the
AO, FDA must ensure that the AO's review and findings provide a
reliable basis for licensing decisions. As such, FDA is proposing that,
if the wholesale distributor is otherwise in good standing, a change in
the approval status of the AO that conducted the inspection of the
wholesale distributor will not automatically affect the licensure of a
licensed wholesale distributor (see proposed Sec.  205.23(e)). Rather,
in the event that an AO has disciplinary sanctions taken against it,
ends its business, or is otherwise no longer considered an approved AO,
the license of any wholesale distributor reviewed by that AO will be
subject to appropriate action in accordance with Sec.  205.30 and other
applicable statutes or regulations. FDA may verify the wholesale
distributor's compliance status and review the facts in that situation
to determine the potential effect, if any, on the licensure of
wholesale distributors inspected by that AO.
5. Changes to Information, Ownership, or Location of Licensed Wholesale
Distributors
    FDA recognizes that information about a business can change over
time. However, for the licensing authority to effectively carry out its
responsibilities, license information must remain current and changes
in information previously submitted must be reported to the licensing
authority. Currently, the reporting requirements for these types of
changes vary by State. FDA is proposing the establishment of specific
timeframes for reporting changes (see proposed Sec.  205.24) and
believes that standardizing the timeframes will help make reporting
business-related changes less burdensome for industry and licensing
authorities. FDA is proposing that the wholesale distributor submit
changes to certain information, such as the information submitted with
a surety bond or as part of an application for licensure, to the
licensing authority within 30 calendar days of the date the change
became effective (see proposed Sec.  205.24(a)). Significant changes,
such as changes in location or changes to the person engaged in
wholesale distribution, require the added scrutiny that comes with an
inspection or review of an application for a new license to ensure that
the entity will be able to continue to meet the standards for licensure
in its new location or under its new management. For this reason, FDA
is proposing that changes in location or changes to the person engaged
in wholesale distribution will require an inspection or new license
(see proposed Sec.  205.24(b) and (c)). FDA recognizes that the
ownership of a facility from which a wholesale distributor leases the
facility and conducts wholesale distribution may change without the
wholesale distribution operation changing in any meaningful way. If
that change does not impact the wholesale distribution operation, the
wholesale distributor will not need to apply for a new license. As
described in proposed Sec.  205.24(b)(1), the date the change of
location takes place is the date the new location begins receiving
prescription drugs.
6. Prohibited Persons and Qualifications for Key Personnel
    The FD&C Act, as amended by DSCSA, requires FDA to establish and
implement standards for the qualifications of wholesale distributors'
key personnel (section 583(b)(5) of the FD&C Act). As discussed above
and proposed at Sec.  205.3(g), FDA considers key personnel to include
individuals with responsibility for managing the operations of the
wholesale distributor, including any principal, owner, director,
officer of the wholesale distributor, facility manager or designated
representative, or other individuals who are authorized to enter into
areas where prescription drugs are held and are likely to handle those
prescription drugs as a part of their responsibilities within the
operation. FDA believes the qualifications for key personnel proposed
in Sec.  205.25 are necessary to ensure that all the individuals who
are responsible for operating the wholesale distributor's facility are
appropriately qualified to carry out their duties and that the
wholesale distributor meets the national standards.
    Proposed Sec.  205.25(a) lists conduct that prohibits a wholesale
distributor from obtaining licensure. Proposed Sec.  205.25(b)
establishes the basic standards for key personnel working within a
wholesale distribution facility. Key personnel must have the
appropriate education, background, training, and experience necessary
to carry out their assigned functions within the operation. No one
within the facility should carry out the responsibilities of key
personnel without the proper training and expertise.
    As a part of FDA's responsibility to establish and implement
standards for the qualifications of wholesale distributors' key
personnel, FDA is proposing that wholesale distributors and their key
personnel meet certain other qualifications. Licensure may be denied if
a wholesale distributor or any of their key personnel do not meet the
standards for qualification as outlined in proposed Sec.  205.25(c).
    Key personnel working for a wholesale distributor hold critical
positions of trust for protecting the security of the prescription drug
supply chain. FDA believes it would be a best practice for a firm to
require that all employees not engage in the illegal use of controlled
substances while serving in their capacity in the wholesale
distribution operation and request that all employees so state.
    FDA is proposing to require wholesale distributors to establish and
implement written policies and procedures to ensure that their key
personnel meet the qualifications contained in this proposed section
(see proposed Sec.  205.25(e)) and to maintain certain information
about their key personnel that demonstrates they are qualified to carry
out the duties assigned to them (see proposed Sec.  205.25(b)),
including having the proper education and training (see proposed Sec.
205.25(e)(3)). Proposed Sec.  205.25(f) also limits a facility manager
or designated representative to hold that position at one facility at a
time. This is to ensure that the facility manager or designated
representative is actively engaged in managing the daily operations of
the facility and that they remain aware of any non-compliance issues
that may arise.
    The FD&C Act, as amended by DSCSA, specifically requires licensure
standards to include mandatory background checks and fingerprinting of
wholesale distributor facility managers and their designated
representatives

(section 583(b)(4) of the FD&C Act). Entrusting individuals with the
responsibility of distributing prescription drugs prior to a criminal
background check may jeopardize the integrity of the drug supply chain
and leave the public exposed to unnecessary harm posed by the possible
introduction of drugs that are unsafe. FDA is proposing to codify at
Sec.  205.25(g) the requirement for facility managers and their
designated representatives to submit a full set of fingerprints to
conduct local and national criminal background checks. The background
check, when completed, must demonstrate that the facility manager or
designated representative has no history of criminal convictions
pursuant to proposed Sec.  205.25(a).
    FDA suggests, when a wholesale distributor staffs its operation, it
is a best practice that the individuals who work within their operation
and have access to prescription drugs not have a record of criminal
activity involving violations of the FD&C Act or other laws involving
prescription drugs. This best practice is recommended to help ensure
security within a wholesale distributor.
    When screening personnel who work in areas of a facility where
prescription drugs are held, including the facility manager or
designated representative, FDA recommends that a wholesale distributor
consider whether such personnel have (1) engaged in a pattern of
violating the requirements of section 583 of the FD&C Act that present
a threat of serious adverse health consequences or death to humans; (2)
been found to have committed or facilitated commission of any
prohibited acts under the FD&C Act or violated or facilitated any
violations of any of the regulations in this part or analogous
provisions of the State licensing authority, as applicable; (3) been
convicted of any violation Federal, State, or local laws relating to
drug samples, wholesale or retail drug distribution, distribution of
controlled substances, or 3PL services; or (4) been convicted of any
felony under Federal, State, or local laws involving or related to
prescription drugs. FDA believes that wholesale distributors should
consider an applicant's history of violations of the FD&C Act or other
laws involving prescription drugs when making staffing decisions.
7. Wholesale Distributor Storage and Handling of Prescription Drugs,
and Required Policies and Procedures
    The DSCSA charges FDA with creating national standards for the
storage and handling of prescription drugs by wholesale distributors,
including facility requirements (section 583(b)(1) of the FD&C Act). To
ensure confidence that the prescription drug delivered maintains its
quality and integrity throughout the distribution process, FDA believes
that wholesale distributors should establish and maintain quality
systems that encompass the organizational structure, account for
potential vulnerabilities or threats to the systems, and clearly
articulate the procedures and processes for all wholesale distribution
activity. A proper quality system should be fully documented, and the
effectiveness of the system should be continually monitored to ensure
the quality is maintained. This includes ensuring that facilities and
equipment are properly maintained for their purposes of storing and
distributing prescription drugs; that personnel are properly qualified,
screened, and trained for their positions; and that documentation is
comprehensive. Regular management review of all aspects of the quality
systems in place is important for maintaining these high standards. FDA
proposes Sec.  205.26, which establishes basic requirements that will
assist wholesale distributors in achieving these goals.
    Although the FD&C Act permits an entity to be more than one type of
trading partner so long as it complies with all the applicable
requirements (section 582(a)(1) of the FD&C Act), FDA believes that the
processes and functions of each type of entity need to be kept separate
for the licensing authority to ensure the entity is complying with all
the applicable requirements. Accordingly, FDA is proposing that any
wholesale distributor's facility that is also licensed or registered as
another trading partner and operating from the same address must have
separate systems and processes in place for their separate functions
(see proposed Sec.  205.26(a)).
    FDA believes that proper storage and handling of prescription drugs
inherently requires the establishment of standards that address
physical requirements for the facility space in which drugs are stored
and handled, along with standards that address the manner in which
drugs are to be securely stored and handled within the facility of a
wholesale distributor. In Sec.  205.26(b), FDA proposes the following
requirements with regard to standards placed on the wholesale
distributor's facility. FDA believes these facility requirements will
ensure that their establishments are appropriate for the distribution
(including storage) of prescription drugs.
    The facility must be of a suitable size, configuration, and design
to ensure proper storage, maintenance, and cleanliness (see proposed
Sec.  205.26(b)(1)(ii) through (iv)). The facility must also be
equipped with clearly defined areas that separate drugs that are unfit
for distribution, from those that are saleable to avoid potential
mistakes when distributing the prescription drugs (see proposed Sec.
205.26(b)(1)(vi)).
    The facility must be sufficiently secure to protect the
prescription drugs in the supply chain from possible theft or diversion
(see proposed Sec.  205.26(b)(2)). Facilities must protect against
unauthorized entry and ensure that the premises are well lit and not
vulnerable to intrusion (see proposed Sec.  205.26(b)(2)(i) through
(iii)). Entry and access to areas where prescription drugs are held
within the facility must be limited to those who have the appropriate
experience and training needed to conduct wholesale distribution (see
proposed Sec.  205.26(b)(2)(iv)). These basic security requirements
will help wholesale distributors protect and safeguard the prescription
drugs maintained in their facility.
    A wholesale distributor has the responsibility of ensuring that
prescription drugs are stored under proper conditions to maintain the
safety and effectiveness of the drugs it distributes. Accordingly, a
wholesale distributor's facility must maintain appropriate equipment
(e.g., refrigeration and air conditioning equipment) in good working
order to ensure that prescription drugs are properly stored in the
facility (see proposed Sec.  205.26(b)(3)). To this end, FDA is
proposing to require that a wholesale distributor establish written
procedures to ensure that its equipment is installed and maintained by
qualified individuals (see proposed Sec.  205.26(b)(3)(i)). Written
policies and procedures include those that are stored and maintained
electronically. Upon inspection, a wholesale distributor must
demonstrate and verify that its equipment is in working order and has
been periodically assessed in accordance with the wholesale
distributor's written procedures to ensure the equipment's continued
functionality (see proposed Sec.  205.26(b)(3)(i)), which is critical
in ensuring that those drugs retain their safety and effectiveness
throughout the supply chain.
    Additionally, a wholesale distributor must regularly conduct and
document facility assessments to make sure that drugs are properly
stored in accordance

with their labeling (see proposed Sec.  205.26(b)(4)).
    FDA expects that, as a crucial part of the creation of a quality
system, wholesale distributors will establish, maintain, and follow
written policies and procedures regarding the safeguarding of the
prescription drugs within their control. Proposed Sec.  205.26(c)
outlines several requirements for maintaining written policies and
procedures to ensure that the requirements are carried out properly and
consistently. Wholesale distributors are not limited to establishing
written policies and procedures for the stated functions in proposed
Sec.  205.26(c), as a wholesale distributor may wish to establish
written policies and procedures pertaining to other aspects of
wholesale distribution and staffing of their facilities. The purpose of
requiring written policies and procedures is to assist staff and
management at a wholesale distribution facility to determine the
processes required to ensure safe storage and distribution of
prescription drugs.
    Proposed Sec.  205.26(c) includes the requirement that wholesale
distributors establish and follow written policies and procedures to
ensure that a wholesale distributor: (1) Only does business with other
authorized trading partners (see proposed Sec.  205.26(c)(1)); (2)
properly maintains equipment in good working order as outlined in
proposed Sec.  205.26(b)(3) (see proposed Sec.  205.26(c)(2)); (3)
transports prescription drugs in a manner designed to avoid breakage
and exposure (see proposed Sec.  205.26(c)(3)); (4) inspects shipping
containers for suspect or illegitimate products, as well as other
quality issues that may render the prescription drug unfit for
distribution (see proposed Sec.  205.26(c)(4)); (5) stores and handles
the prescription drugs they warehouse and distribute in accordance with
the prescription drug's labeling (see proposed Sec.  205.26(c)(5)); (6)
properly retains, returns, or destroys drugs removed from the supply
chain depending on the proper disposition of the prescription drug (see
proposed Sec.  205.26(c)(6)); and (7) is prepared to protect against
reasonably foreseeable crises that could affect security or operations
at the facility (see proposed Sec.  205.26(c)(7)).
8. Recordkeeping
    Proper recordkeeping is essential to the timely identification,
recording, and reporting of issues arising within the supply chain.
Section 583(b)(2) of the FD&C Act requires FDA to create national
standards for establishing and maintaining records pertaining to the
distribution of prescription drugs. FDA is proposing in Sec.  205.27(a)
that these records include documentation pertaining to the security,
storage, handling, inventory, shipping, sale, purchase, trade,
delivery, and receipt of prescription drugs, as well as policies,
procedures, instructions, contracts, data, inspection reports, and any
other documentation related to compliance with this part, such as
invoices, purchase orders, packing slips, and shipping records. These
records could be stored and maintained electronically. These records
maintenance requirements will allow for greater confidence in the
information preserved at the facility and potentially disseminated to
other trading partners.
    The maintenance, availability, and accuracy of the records made
available for inspection under section 583(b)(6) of the FD&C Act are
critical to ensure that wholesale distributors are acting in compliance
with this proposed regulation and that the records can be relied upon
to identify any potential risk to the public health. As such, FDA is
proposing to require that all records be securely stored, and that any
alterations made to records be signed and dated, while preserving the
original information contained in the record (see proposed Sec.
205.27(b)). This is intended to ensure that all records related to the
distribution of prescription drugs provide transparency and accurately
reflect the activities of the wholesale distributor. FDA also believes
that reliability of the records is contingent on having processes and
procedures in place that restrict access to and protect the integrity
of the data. To this end, FDA is proposing to require in Sec.
205.27(c) that wholesale distributors implement written policies and
procedures to protect the integrity of their records.
    Under proposed Sec.  205.27(d), all records would be retained for a
period of 3 years, except records related to suspect and illegitimate
products, prescription drug quality complaints, and destroyed,
returned, and recalled prescription drugs, which would need to be
retained for a period of 6 years. Such record retention is necessary to
ensure compliance and consistent enforcement of the various record
keeping requirements of sections 582, 583, and 584 of the FD&C Act.
9. Inspections
    Section 583(b)(6) of the FD&C Act directs FDA to establish national
standards for a mandatory physical inspection of any facility used in
wholesale distribution within a reasonable time frame from the initial
application (section 583(b)(6) of the FD&C Act). FDA believes that it
is imperative for the mandatory physical inspection to take place prior
to issuing an initial license to a wholesale distributor to ensure that
only those wholesale distributors who have the ability to properly
store, handle, and distribute prescription drugs in accordance with the
national standards are licensed. Accordingly, in proposed Sec.
205.28(a), wholesale distributors are required to undergo a physical
inspection before the licensing authority issues the initial license.
As used in subpart C, licensing authority means the State licensing
authority or FDA. To satisfy the inspection requirement, section 583(c)
of the FD&C Act permits the licensing authority to conduct the
inspection or accept an inspection by the State in which the facility
is located or by a third-party accreditation or inspection service
approved by the licensing authority in accordance with these standards.
FDA has codified this provision at proposed Sec.  205.28(a)(1) and (2).
Additionally, FDA believes that section 583(c) can be applied to State
licensure of non-resident wholesale distributors to ship into a State
and proposes that a State into which a drug is distributed may use the
same methods to satisfy the inspection requirement for non-resident
wholesale distributors (see proposed Sec.  205.28(a)(1)(iii)). FDA
believes that requiring a satisfactory inspection prior to licensure
will ensure that only wholesale distributors with appropriate
facilities and equipment for storing and distributing prescription
drugs are granted a license to participate in the supply chain.
    FDA is proposing to require that the physical inspection of
wholesale distributor facilities include the facility itself, processes
related to all wholesale distribution activities, and paper and
electronically stored records; that wholesale distributors permit
inspections at reasonable times; and that the licensing authority
conduct its inspection in a reasonable manner (see proposed Sec.
205.28(b) and (c)). FDA believes that authentication of records during
an inspection is important to maintain confidence in documentation
preserved by the wholesale distributor, which may contain information
about nonsaleable prescription drugs or be disseminated to other
trading partners.
    FDA proposes that a wholesale distributor be required to make
records available during inspections, including records that are held
offsite in the normal course of business. The failure of a wholesale
distributor to produce

records in a timely manner during an inspection can significantly
affect the licensing authority's ability to complete the inspection.
Therefore, FDA is proposing that a wholesale distributor be required to
provide offsite records within 2 business days of a request for such
records by a State or Federal official, or sooner if necessitated by
the duration of the inspection (see proposed Sec.  205.28(b)). FDA also
proposes the requirement that a wholesale distributor cooperate with
the State or Federal licensing authority, or the AO conducting the
inspection, at reasonable times, within reasonable limits, and in a
reasonable manner to achieve the objective of the inspection (see
proposed Sec.  205.28(c)).
    Finally, FDA believes routine inspections are an essential tool to
ensure that wholesale distributors continue to comply with the national
standards after obtaining their initial wholesale distributor license
and move to renew that license. Accordingly, FDA is proposing to
require that wholesale distributors undergo routine inspections at
least once every 3 years (see proposed Sec.  205.28(d)). In developing
the inspection timeframes, FDA sought to balance the risk to the supply
chain with FDA's and State licensing authorities' resource constraints.
These routine inspections allow FDA or the licensing authority to
ensure that wholesale distributors maintain the levels of quality
storage and maintenance of prescription drugs at their facilities
expected by FDA to safeguard the supply chain.
10. Annual and Other Reporting to FDA
    Under DSCSA, wholesale distributors must report certain information
to FDA as part of the requirement to be considered an authorized
trading partner (sections 581(2)(B) and 503(e)(2)(A) of the FD&C Act).
The annual reporting requirements for wholesale distributors went into
effect on January 1, 2015, and FDA has published draft industry
guidance that communicates draft Agency expectations for annual
reporting while these regulations are being developed (79 FR 73083,
December 9, 2014, and 82 FR 3004, January 10, 2017). Proposed Sec.
205.29 clarifies the statutorily prescribed annual reporting
requirements.
    The DSCSA requires that any wholesale distributor who owns or
operates an establishment that engages in wholesale distribution report
to FDA on an annual basis: (1) The State in which the wholesale
distributor is licensed; (2) the identification number of its wholesale
distributor's license; (3) the name, address, and contact information
for the wholesale distributor; (4) all trade names under which the
licensed wholesale distributor conducts business; and (5) any
significant disciplinary actions taken against the wholesale
distributor (section 503(e)(2)(A) of the FD&C Act).
    FDA is proposing to require that wholesale distributors use an
electronic reporting system provided by FDA (see proposed Sec.
205.29(a)). This electronic system will increase efficiency by
providing uniformity in report content and format, making the
information easier to process for regularly updating the public
database (section 503(e)(2)(B) of the FD&C Act). In addition, FDA
believes having the license status of wholesale distributors in one
publicly available database would be helpful for FDA, trading partners,
and other stakeholders in determining whether wholesale distributors
are authorized, as defined in section 581(2)(B) of the FD&C Act.
Reporting information for each wholesale distributor in FDA's
electronic system during the reporting period is integral to FDA's
ability to provide oversight, as wholesale distributors are prohibited
from distributing product without a license.
    FDA proposes that the annual reporting schedule will require all
wholesale distributors to report each calendar year between January 1st
and March 31st, although an entity may update information at any time
(see proposed Sec.  205.29(b)). For example, if a wholesale distributor
chooses to update a license on December 15, 2019, that wholesale
distributor will still have to report during the January 1, 2020,
through March 31, 2020, annual reporting period.
    The specific information that wholesale distributors must
electronically report to FDA is set forth in proposed Sec.  205.29(c).
The DSCSA requires licensed entities to report to FDA each State by
which they are licensed and each license number (section
503(e)(2)(A)(i)(I) of the FD&C Act). FDA is proposing that the
wholesale distributor also submit the expiration date of its State
licenses (see proposed Sec.  205.29(c)). The submission of the
wholesale distributor's license expiration date is paramount to FDA's
ability to establish and maintain a public database identifying each
authorized wholesale distributor as required by section 503(e)(2)(B) of
the FD&C Act. If a wholesale distributor's license expires, it is no
longer an authorized trading partner, and FDA will remove it from the
public database until the license is renewed or a new license issued.
Similarly, FDA is proposing that a wholesale distributor be required to
report to FDA within 30 calendar days that it has gone out of business
or voluntarily withdrawn a wholesale distributor's license from a State
(see proposed Sec.  205.30(e)). Again, FDA believes that requiring a
wholesale distributor to report this information about the status of
its license is essential for FDA to comply with the requirements under
section 503(e)(2)(B) of the FD&C Act and to ensure that the database is
accurate and helpful for the States and trading partners.
    The DSCSA also requires that wholesale distributors report the
name, address, and contact information for each facility at which, and
all the trade names under which, the wholesale distributor conducts
business (section 503(e)(2)(A)(i)(II) of the FD&C Act). In implementing
this requirement, FDA is proposing to require the wholesale distributor
to provide the company name that is identical to the official company
name appearing on the license, along with the full business address
that is associated with the State or Federal license (see proposed
Sec.  205.29(c)(2)).
    Additionally, FDA is requesting that wholesale distributors submit
a UFI that corresponds with the facility name and facility address. The
UFI for a wholesale distributor's facility is useful to FDA in
identifying and confirming certain business information. A wholesale
distributor should obtain a separate UFI for each physical address it
reports. FDA has published guidance on annual reporting that can assist
wholesale distributors if they require additional information regarding
the UFI reporting recommendation.
    In addition, FDA believes the wholesale distributor's contact
information should include someone familiar with the daily operations
of the wholesale distributor's facility and who has the authority to
act on inquiries to ensure efficient processing of inquiries and
minimize the impact inquiries may have on the facility's daily
operations. Therefore, wholesale distributors must submit the contact
information of the facility manager or designated representative,
including that individual's name, telephone number, and email address,
with its annual reporting requirements pursuant to section
503(e)(2)(A)(i)(II) of the FD&C Act.
    DSCSA requires a wholesale distributor to report to FDA any
significant disciplinary action taken by a State or Federal government
against the wholesale distributor (section 503(e)(2) of FD&C Act). A
significant disciplinary action is defined in the

proposed regulation, in relevant part, as any action by a State or
Federal licensing authority that limits or prevents a wholesale
distributor from distributing or facilitating the distribution of
prescription drugs (see proposed Sec.  205.3(l)). FDA proposes that
wholesale distributors report during the reporting period to FDA all
significant disciplinary actions that occurred during the preceding 12-
month period (see proposed Sec.  205.29(d)(1)). After the reporting
period, FDA proposes that within 30 calendar days after a significant
disciplinary action is imposed or taken by a State or Federal
government, wholesale distributors report the type of disciplinary
action, the date the action was taken, and the State where the
disciplinary action occurred, as well as submit any documents
associated with the disciplinary action, including a final ruling by
the relevant State or Federal agency or board or a consent decree (see
proposed Sec.  205.29(c)(4) and (d)). While wholesale distributors do
not ordinarily have to report DEA registration numbers or State
controlled substances licenses to FDA for annual reporting purposes,
FDA suggests that such information be provided as part of its report
under section 503(e)(2)(A)(ii) of the FD&C Act when there is a
significant disciplinary action issued by the DEA or the State
controlled substances licensing authority that would limit the ability
of the wholesale distributor to distribute controlled drug substances.
In such a situation, information about the DEA registration or State
controlled substance license should be reported since the disciplinary
action is reported under that specific license or registration.
11. Licensure Denial, Suspension, Reinstatement and Revocation--Notice
and Opportunity To Request a Hearing
    The standards for licensure denial are set forth in proposed Sec.
205.30. Proposed Sec.  205.30(a)(1) lists 10 circumstances under which
a licensing authority will be required to deny a wholesale
distributor's request for licensure or licensure renewal. FDA believes
that these reasons requiring denial will ensure wholesale distributors
focus on good storage practices outlined by FDA and are necessary to
protect the integrity of the products in the pharmaceutical
distribution supply chain. Wholesale distributors should seek to ensure
that these reasons outlined in proposed Sec.  205.30(a)(1) are
addressed when the wholesale distributor files for licensure to avoid
denial or delays of their application.
    Proposed Sec.  205.30(a)(2) through (5) details the process
afforded to wholesale distributors whose applications for licensure
have been denied. FDA is proposing to give applicants the opportunity
to provide additional information for reconsideration of the denial. If
the licensing authority denies a wholesale distributor's request for
licensure after reconsideration, the wholesale distributor will receive
a notice of opportunity to request for hearing under existing FDA
hearing procedure. FDA requests comment regarding the reconsideration
and appeal process outlined in this regulation for wholesale
distributors whose applications for licensure have been denied.
    The proposed standards for suspending a wholesale distributor's
license are set forth in Sec.  205.30(b) and (c). A suspended wholesale
distributor must cease all receipt and distribution of prescription
drugs until their license is re-instated. The proposed standards for
suspension are based on the severity of risk posed to the public
health. For example, under proposed Sec.  205.30(b), a wholesale
distributor's license may be suspended only after the wholesale
distributor receives a notice of opportunity for hearing. If the
licensing authority has a reasonable belief that the wholesale
distributor is not in compliance with licensure requirements and such
noncompliance threatens the quality of the product or threatens public
safety, the licensing authority is required to notify the wholesale
distributor in writing of the intent to suspend its license. A
wholesale distributor will have 30 days upon the date of the notice of
intent to suspend a license to provide additional information to the
licensing authority so it may reconsider its decision to suspend the
wholesale distributor license. If reconsideration is not sought, or if
reconsideration is denied, the licensing authority will inform the
wholesale distributor in writing of its formal intent to proceed with
license suspension. The notice will contain a statement informing the
wholesale distributor that it has an opportunity to request a hearing
on the question of whether there are sufficient grounds for suspension.
The wholesale distributor will have 10 days after the date of the
notice to inform the licensing authority of its intent to request a
hearing; otherwise the opportunity for a hearing will be waived and the
license suspended. FDA requests comment regarding this reconsideration
and appeal process.
    Proposed Sec.  205.30(c) allows for suspension prior to notice and
opportunity for a hearing and for suspension to be effective
immediately if the wholesale distributor's noncompliance poses an
imminent threat to public safety. For example, if a wholesale
distributor is distributing illegitimate product, and once made aware,
does not take corrective actions to protect the public from the threat
of these products, its license could be suspended immediately. Another
example would be a scenario where the conditions under which drugs are
held cause the product to be illegitimate and the wholesale distributor
refuses to correct the conditions or continues to ship these
illegitimate products. Under the proposed regulation, if the licensing
authority proceeds with suspension in such a situation, the licensing
authority will inform the wholesale distributor in writing that its
license is suspended. The notice will also contain a statement
informing the wholesale distributor that it may request a hearing and
that hearing, if granted, will be afforded within 10 days of the
receipt of the wholesale distributor's request for hearing. The
wholesale distributor has 10 days from the date on the notice of
suspension to request a hearing; otherwise its opportunity for a
hearing will be waived. FDA believes that this limits the amount of
time a wholesale distributor's license would be suspended while
providing a reasonable amount of time both for the wholesale
distributor to review a notice of suspension and collect the necessary
information to demonstrate that its license should not be suspended,
and for FDA to consider the hearing request, and to schedule and
prepare for a hearing, if the hearing request is granted. FDA believes
immediate suspension of a wholesale distributor's license is crucial in
cases where continued operation of the wholesale distributor presents
an imminent threat to public safety and the pharmaceutical supply
chain.
    Under proposed Sec.  205.30(d), a wholesale distributor's suspended
license may be reinstated if the wholesale distributor can demonstrate
to the licensing authority that it is in compliance with this proposed
regulation.
    Under the proposed rule the process outlined at Sec.  10.75 is the
default for appeals related to a denied application for a wholesale
distributor license, and the hearing process outlined at 21 CFR part 16
is the default for appeals related to a suspended or revoked wholesale
distributor license. However, the wholesale distributor may request any
of the procedures contained in 21 CFR parts 10 through 16. FDA believes
that

this proposed approach is consistent with current practice and suggests
that States develop comparable processes.
    The standards for revoking a wholesale distributor license are set
forth in proposed Sec.  205.30(e). The licensing authority will revoke
a license if it finds that a wholesale distributor whose license has
been suspended is unable or refuses to comply with the licensing
requirements. The requirements governing the revocation of a wholesale
distributor license are set forth in proposed Sec.  205.30(e)(2)
through (4) and mirror the process outlined in Sec.  205.30(b)(2)
through (7), with one exception: When the licensing authority informs
the wholesale distributor of its intent to revoke a license, the
wholesale distributor is given no opportunity for reconsideration since
it already had an opportunity to rectify deficiencies while its license
was suspended.
    In addition, where a wholesale distributor fails to timely renew
its application, the license will be considered expired and the
wholesale distributor will need to submit an application for new
licensure if it seeks to resume wholesale distribution activities,
because the licensing authority may be unable to confirm that the
wholesale distributor continues to meet all necessary licensure
requirements (see proposed Sec.  205.30(f)). If a wholesale
distributor's license expires, it must cease receipt and distribution
of prescription drugs until their license has been re-instated.
    FDA is also proposing that the licensing authority will terminate a
wholesale distributor's license upon request from the wholesale
distributor when the request includes a notice of the wholesale
distributor's intent to discontinue its activities and a waiver of an
opportunity for a hearing. The wholesale distributor will be required
to apply for a new license should it decide to resume wholesale
distribution activities (see proposed Sec.  205.30(g)).

F. Approved Organizations for Wholesale Distributors

1. Approval of Outside Organizations and Utilization of Such
Organizations in the Licensure Process
    The FD&C Act, as amended by DSCSA, allows the Federal or State
licensing authority to accept inspections of wholesale distributors
conducted by third-party accreditation or inspection services they have
approved to be part of the licensure process (section 583(c) of FD&C
Act). Subpart D of the proposed rules defines the scope of work these
approved organizations (AOs) would be tasked with performing, as well
as the standards an AO must meet to become approved by FDA.
Additionally, this subpart will explain the circumstances in which an
inspection conducted by an AO may be used, what activities the AOs have
the authority to conduct and are expected to conduct, and the
qualifications that each third-party organization must possess to
become approved by FDA. FDA suggests that States that choose to rely on
AOs to conduct inspections have in place the same or similar
qualifications and processes for approved organizations to conduct
those inspections and for decisions affecting the approval status of
those organizations.
    FDA proposes that an AO must complete an inspection no more than 90
days after receiving notice from the licensing authority to conduct an
inspection (see proposed Sec.  205.31(b)). FDA believes this allows AOs
sufficient time to perform the work with which they are tasked while
also ensuring that the wholesale distributor's activities are not
significantly delayed or otherwise impacted due to delays in the
inspection process. Upon completion of the inspection, the AO would
then provide FDA with a report based on the inspection within 7 days
(see proposed Sec.  205.31(b)(2) and (3)), with copy of the report to
the wholesale distributor facility (see proposed Sec.  205.31(b)(3)).
Using the report submitted by the AO, FDA makes the final determination
as to whether a wholesale distributor facility should be issued a
license.
    It is important that FDA be able to verify an AO's continued
compliance with the requirements of the proposed regulation. Therefore,
to become an AO and keep its approval, FDA is proposing to require that
an AO maintain certain records for a period of at least 5 years and
make these records readily available to FDA upon request (see proposed
Sec.  205.31(c)). In addition, to ensure public safety, FDA is
proposing to require that AOs report certain observations at wholesale
distributor facilities to FDA immediately (see proposed Sec.
205.31(c)(4)). The general qualifications for approval are set out in
proposed Sec.  205.32.
    To become and remain approved, FDA is proposing to require that an
organization, and those employed by the organization, abide by certain
guidelines intended to secure against conflicts of interest, promote
professional business practices, and protect non-public information
(see proposed Sec.  205.32(a)).
    FDA is proposing to allow AOs to hire outside contractors to
conduct inspections. Under FDA's proposed regulation, AOs who decide to
use outside contractors must ensure that they effectively carry out the
inspection in a manner consistent with this proposed regulation to
protect public health, conform to conflict of interest provisions, and
properly protect all non-public information (see proposed Sec.
205.32(b)). For an AO to maintain approval, FDA proposes to require
that the AO ensure contractors abide by all applicable confidentiality
agreements, the AO has policies and procedures in place to ensure the
contractors abide by these proposed standards, and the contractors have
the necessary training and expertise to carry out inspections of
wholesale distributor facilities (see proposed Sec.  205.32(b)(1)).
    Before a contractor hired by an AO may perform an inspection of a
wholesale distributor, the wholesale distributor must have entered into
an agreement with the AO giving the AO permission to share with
contractors the wholesale distributor's confidential commercial
information (see proposed Sec.  205.32(b)(2)). If such consent is not
provided by the wholesale distributor, the AO will perform the
inspection itself, without the use of contractors. FDA believes that
this approach is reasonable given that it is the AO's decision to work
with contractors and, under this proposed regulation, the ultimate
responsibility for the inspection and the protection of the wholesale
distributor's information rests with the AO.
    In addition, FDA proposes that AOs must submit to FDA a list of the
contractors used by the organization and must certify that such
contractors comply with the applicable regulations (see proposed Sec.
205.32(b)(3)). Finally, to ensure that the standards set forth in this
subpart are followed, FDA proposes to require that the AOs remain
responsible for all the work performed by outside contractors (see
proposed Sec.  205.32(b)).
    FDA proposes that to maintain their approved status, AOs must
prohibit contractors from subcontracting their inspection duties (see
proposed Sec.  205.32(b)(1)(ii)). Limiting the ability of contactors to
further delegate their responsibility ensures that FDA will have
accurate information about who is conducting inspections, that those
responsible for the inspections have the necessary qualifications, and
that their conduct is governed by this proposed regulation.
    The proposed process that FDA will use to approve organizations,
including the application process, as well as the process for
suspending or revoking an organization's approval, are set forth in
proposed Sec.  205.33. FDA is proposing that organizations seeking
approval by

FDA must electronically submit to FDA an application demonstrating the
organization's ability to assess compliance with all wholesale
distributor requirements detailed in proposed part 205 (see proposed
Sec.  205.33(a) and (b)), and employees must complete the necessary
training as directed by FDA (see proposed Sec.  205.33(c)). To verify
information contained in the application and ensure compliance with the
proposed regulation, FDA proposes that, before an AO may conduct its
first inspection, a newly approved organization must be audited by FDA
(see proposed Sec.  205.33(d)). A new approval will be valid for 5
years (see proposed Sec.  205.33(e)).
    If an organization's request for approval is denied, the
organization may submit a request for reconsideration under Sec.  10.75
(see proposed Sec.  205.33(f)). In addition, FDA proposes that an AO
may have its approval suspended if it does not maintain the standards
outlined in this section (see proposed Sec.  205.33(g)). A suspended AO
must cease all inspections of wholesale distributors. A suspended AO
must notify any wholesale distributors with a pending inspection to be
performed by the AO of the AO's suspension within 7 calendar days (see
proposed Sec.  205.33(g)(5). While most suspensions will happen only
after notice and opportunity to request a hearing, under the proposed
regulations, FDA reserves the ability to suspend approval prior to a
hearing if there is a reasonable probability that the organization's
noncompliance will cause imminent and serious adverse health
consequences or death to humans (see proposed Sec.  205.33(h)).
    Furthermore, FDA proposes that a suspended approval can be
reinstated if the issue is resolved within 1 year from the date of
suspension (see proposed Sec.  205.33(i)), though it may be revoked if
the organization fails to rectify the situation that resulted in the
suspension (see proposed Sec.  205.33(j)). FDA believes that 1 year
provides the AO enough time to remedy most situations. An AO's approval
may also be reinstated on a conditional basis. If the AO is
conditionally reinstated, they will enter a three-year probationary
period, during which if any material deficiencies arise, their approval
will be subject to immediate revocation (see proposed Sec.
205.33(i)(2)).
    FDA also proposes to permit an AO to voluntarily withdraw its
approval or otherwise cease operations as an AO under this part, but it
must inform FDA of any facilities with pending inspections (see
proposed Sec.  205.33(l)). To further ensure that pending inspections
are not overlooked, under FDA's proposed regulation, an AO whose
approval has been suspended or revoked has the responsibility to report
this information to those wholesale distributors that have pending
inspections (see proposed Sec.  205.33(m)); this will stop the clock on
the 90-day licensure review while the wholesale distributor applies for
inspection from another AO or FDA. Also, to ensure wholesale
distributors continue to comply with the provisions of this part, and
to ensure that AOs remain able to assess compliance with the wholesale
distributor requirements, an AO must inform FDA of any changes to
information that was submitted as part of its application for approval
(see proposed Sec.  205.33(n)(1)). Since the approval of an
organization is nontransferable, changes in ownership require an AO to
submit a new application to FDA (see proposed Sec.  205.33(n)(2)).
Finally, as an additional assurance that an AO continues to comply with
the provisions of this part, FDA proposes to require that AOs remain
subject to periodic audits by FDA (see proposed Sec.  205.33(o)).

VI. Proposed Effective/Compliance Dates

    Section 584 of the FD&C Act states that the national licensing
standards for 3PLs established by regulation take effect 1 year after
the date such final regulation is published (section 584(d)(1) and (3)
of the FD&C Act), and that national licensing standards for wholesale
distributors established by regulation take effect 2 years after the
date such final regulation is published (section 583(a) and (e)(3) of
the FD&C Act). For several reasons, FDA does not intend to enforce the
3PL requirements until 2 years after the final regulation is published.
    FDA recognizes that 1 year may be insufficient time for States to
implement 3PL licensure programs, should they decide to implement such
programs, and for 3PLs to apply for licensure under these programs.
Setting up a state licensure program may require additional time. This
is especially true in States that will require State legislative action
to implement a licensure program, with some State legislatures only
meeting biennially.
    As the DSCSA states that the national standards for prescription
drug wholesale distributors established by regulation pursuant to
section 583 of the FD&C Act will take effect 2 years after the date
such final regulation is published (section 583(a) and (e) of the FD&C
Act), the national standards for licensing wholesale distributors in
subpart C will be effective 2 years after the date the final rule is
published.
    Although the DSCSA states that the national licensing standards for
3PLs established by regulation pursuant to section 584 of the FD&C Act
will take effect one year after the date such final regulation is
published (section 584(d)(1) and (3) of the FD&C Act), as noted, FDA
does not intend to enforce requirements with respect to the national
standards for licensure of 3PLs until 2 years after the regulation is
finalized, in order to provide States with the opportunity to establish
or modify their licensure programs in accordance with the new standards
and time for 3PLs to apply and obtain a new license. For 1 year after
the effective date of the final regulation, FDA also does not intend to
enforce the requirements of section 582(b)(3), (c)(3), (d)(3), and
(e)(3) of the FD&C Act with respect to a manufacturer, wholesale
distributor, dispenser, or repackager who has as a trading partner a
3PL that is not licensed, unless the 3PL is not licensed because the
Secretary or a state licensing body has made a finding that the 3PL
does not utilize good handling and distribution practices and the
Secretary has published notice thereof.

VII. Preliminary Economic Analysis of Impacts

    We have examined the impacts of the proposed rule under Executive
Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5
U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4). Executive Orders 12866 and 13563 direct us 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). We
believe that this proposed rule is a significant regulatory action as
defined by Executive Order 12866.
    The Regulatory Flexibility Act requires us to analyze regulatory
options that would minimize any significant impact of a rule on small
entities. Because the proposed rule could impose significant, although
uncertain, new economic burdens on small entities, we find that the
proposed rule will have a significant economic impact on a substantial
number of small entities.
    The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires
us to prepare a written statement, which includes an assessment of
anticipated costs and benefits, before proposing

``any rule that includes any Federal mandate that may result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100,000,000 or more (adjusted annually
for inflation) in any one year.'' The current threshold after
adjustment for inflation is $158 million, using the most current (2020)
Implicit Price Deflator for the Gross Domestic Product. This proposed
rule would not result in an expenditure in any year that meets or
exceeds this amount.
    In this rulemaking, we propose new national standards for the
licensing of prescription drug wholesale distributors and third-party
logistics providers as directed under the Drug Supply Chain Security
Act, Title II of the Drug Quality and Security Act. If finalized, the
rule would also establish a Federal licensing system for wholesale drug
distributors and third-party logistics providers to use in the absence
of a state licensure program that is consistent with the proposed
national standards.
    This rulemaking is being published in conjunction with the proposed
rule entitled ``Certain Requirements Regarding Prescription Drug
Marketing'' (or part 203), published elsewhere in this issue of the
Federal Register. We include the benefits and costs of part 203 in this
economic analysis and, unless otherwise specified, references to the
``proposed rule'' in this analysis encompass both proposed rules.
    We summarize the benefits and costs of the proposed rule in table
1. The standards for prescription drug wholesale distribution in the
proposed rule would result in benefits to consumers and benefits to
distributors from reducing the diversion of prescription drugs. Other
monetized benefits include cost savings from reducing the frequency and
quantity of licensure applications and cost savings from reducing state
licensing standards in some states. We estimate that the annualized
benefits over 10 years would range from $1.25 million to $31.50 million
at a 7 percent discount rate, with a primary estimate of $10.66
million. We estimate that the annualized benefits would range from
$1.26 million to $32.18 million at a 3 percent discount rate, with a
primary estimate of $10.89 million.
    We also expect that the proposed rule, if finalized, would impose
costs on wholesale drug distributors, third-party logistics providers,
states, approved organizations, and the Food and Drug Administration
(FDA). Costs to wholesale drug distributors and third-party logistics
providers include costs of learning about the rule, reporting to FDA,
undergoing routine inspections, writing and revising standard operating
procedures, and conducting background checks. Wholesale-drug
distributors would also incur costs to furnish surety bonds to their
state licensing authority to obtain or renew their licenses.
    Costs to states include the time spent reading and understanding
the rule, passing or revising the laws and regulations governing their
licensure programs, and inspecting WDD and 3PL facilities. Approved
organizations would incur legal, application, and training costs, as
well as costs to inspect WDD and 3PL facilities. FDA costs include the
costs to establish and operate a reporting database and a licensure
program for wholesale drug distributors and third-party logistics
providers and the costs to establish and operate an approval program
for approved organizations.
    We estimate that the annualized costs over 10 years would range
from $13.21 million to $20.63 million at a 7 percent discount rate,
with a primary estimate of $16.92 million. We estimate that the
annualized costs over 10 years at a 3 percent discount rate would range
from $12.83 million to $20.10 million, with a primary estimate of
$16.47 million.

                                  Table 1--Summary of Benefits, Costs, and Distributional Effects of the Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Units
                                                                           ------------------------------------
               Category                   Primary       Low        High                               Period                      Notes
                                         estimate    estimate    estimate      Year      Discount     covered
                                                                              dollars    rate (%)     (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
    Annualized Monetized ($ millions/       $10.66       $1.25      $31.50        2020           7          10  There is a high degree of uncertainty in
     year).                                  10.89        1.26       32.18        2020           3          10   the magnitude of benefits.
    Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
    Annualized Monetized ($ millions/        16.92       13.21       20.63        2020           7          10
     year).                                  16.47       12.83       20.10        2020           3          10
    Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transfers:
    Federal Annualized Monetized ($           0.12        0.09        0.14        2020           7          10
     millions/year).                          0.11        0.08        0.14        2020           3          10
                                       -----------------------------------------------------------------------------------------------------------------
                                        From: States
                                        To: Firms
                                       -----------------------------------------------------------------------------------------------------------------
    Other Annualized Monetized ($       ..........  ..........  ..........  ..........  ..........  ..........
     millions/year).
                                       -----------------------------------------------------------------------------------------------------------------
                                        From:
                                        To:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Effects:
    State, Local, or Tribal Government: Annualized net costs to states over 10 years ranging from $0.62 million to $1.44 million at a 7 percent discount
     and from $0.58 million to $1.38 million at a 3 percent discount rate..
    Small Business: Quantified effects of more than 1 percent of average annual revenues for small 3PL firms. Unquantified effects are uncertain........
    Wages: No estimated effect..........................................................................................................................
    Growth: No estimated effect.........................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We have developed a comprehensive Preliminary Economic Analysis of
Impacts (PRIA) that assesses the impacts of the proposed rule. The full
preliminary analysis of economic impacts is available in the docket for
this proposed rule (Ref 18) and at https://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm.

VIII. Analysis of Environmental Impacts

    FDA has carefully considered the potential environmental effects of
this action and has concluded, under 21 CFR 25.30(h), that this action
is of a type that does not individually or cumulatively have a
significant effect on the human environment.

IX. Paperwork Reduction Act of 1995

    This proposed 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. 3501-3521). A
description of these provisions is given in the Description section of
this document with an estimate of the annual reporting, recordkeeping,
and third-party disclosure 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.
    FDA invites comments on these topics: (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.
    Title: Requirements to Obtain a License to Distribute Drugs, Annual
Reporting and Recordkeeping for Procedures, for Third-Party Logistics
Providers and Prescription Drug Wholesale Distributors to Obtain a
License to Distribute Drugs; 21 CFR part 205; OMB Control Number 0910-
0251--Reinstatement
    Description: The proposed rule would establish standards, terms,
and conditions for the licensing of 3PLs and prescription drug
wholesale distributors by State or Federal licensing authorities,
including process for the revocation, reissuance, and renewal of such
licenses. Sections 584 and 583 of the FD&C Act (21 U.S.C. 360eee-3,
360eee-2)) as added by the DSCSA (Title II of Pub. L. 113-54) requires
FDA to issue regulations on national standards for the licensing of
3PLs and wholesale distributors. Accordingly, FDA is proposing
requirements for licensing of wholesale distributors and third-party
logistics providers. The proposed rule outlines these requirements,
including information collection provisions, that 3PLs and wholesale
distributors must meet to obtain a license. The licensing authority is
the State, from which the 3PLs distribute drug or the State from which
wholesale distributors distribute drug. However, if a State does not
establish the licensure programs for 3PLs or wholesale distributors
consistent with these regulations, FDA will issue the licenses to 3PLs
or wholesale distributors in that State. In addition, States may
require that a 3PL or a wholesale distributor obtain a license to ship
drugs into that State. The FD&C Act does not require that States issue
these types of licenses. However, if a State chooses to implement such
a licensure requirement, the State must ensure that it is consistent
with these regulations, and any wholesale distributor or 3PL wishing to
ship products into that State must have a license.
    Proposed part 205, subpart A, would set forth the national
licensing standards for State and Federal licenses issued to 3PLs
pursuant to section 584 of the FD&C Act (21 U.S.C. 360eee-3). Proposed
part 205, subpart C, would set forth the national licensing standards
for State and Federal licenses issued to wholesale distributors
pursuant to sections 503(e) and 583 of the FD&C Act (21 U.S.C. 353(e)
and 21 U.S.C. 360eee-2)) and replaces the existing regulations in
proposed part 205 that outlined guidelines for State licensing of
wholesale distributors that were developed under the Prescription Drug
Marketing Act of 1987 (Pub. L. 100-293).
    In addition, the FD&C Act, as amended by DSCSA, allows FDA to
approve ``third party accreditation'' entities to evaluate the
qualifications of 3PLs for licensure or inspect wholesale distributors
facilities on behalf of FDA. These organizations are referred to in
this proposed rule as approved organizations or ``AOs.'' The
application to become an AO is the same whether the AO will be
evaluating the qualifications of 3PLs for licensure, inspecting
wholesale distributors facilities, or both. Subparts B and D of the
proposed rule outline the qualifications for AOs to perform licensure
reviews/inspections for 3PL facilities and inspections of wholesale
distributors respectively.
    Description of Respondents: Respondents to the information
collection are third-party logistics providers and wholesale
distributors in any State and any entity engaging in wholesale
distribution of prescription drugs in any State. We are proposing that
these respondents submit applications for licensure and maintain
records of procedures and documents pertaining to licensure review,
inspections, policies, and training.
    The DSCSA establishes 3PLs as members of the drug supply chain,
which are distinct from wholesale drug distributors, and specifically
precludes States from regulating 3PLs as wholesale distributors
(section 585(b)(2) of the FD&C Act (21 U.S.C. 360eee-4(b)(2)). FDA is
required by section 584 of the FD&C Act (21 U.S.C. 360eee-3) to
establish national standards for the licensure of 3PLs and is proposing
those standards in part 205, subpart A. When the proposed rule is
finalized, we will require that each facility of an entity that meets
the definition of a 3PL in section 581(22) of the FD&C Act (21 U.S.C.
360eee(22)) be licensed by the State or FDA in accordance with the
standards articulated in proposed part 205, subpart A.
    Proposed part 205, subpart C, of the proposed rule, Sec. Sec.
205.20 through 205.30, establishes the national standards for the
licensure of wholesale drug distributors. When the proposed rule is
finalized, we will require that each wholesale distributor be licensed
by the State or FDA in accordance with the standards in proposed part
205, subpart C.
    Proposed part 205, subpart B (Sec. Sec.  205.17 through 205.19),
and subpart D (Sec. Sec.  205.31 through 205.33), of the proposed rule
describe the content requirements, application process, and reporting
schedules to become an approved organization to conduct licensure
review/inspections for 3PL facilities or conduct inspections of
wholesale distributors. Although the work differs among licensure
review and inspection for 3PLs and wholesale distributors, FDA believes
that the same entities will apply to conduct licensure reviews and
inspection of both types of entities. In addition, the submission of an
application to become an AO is the same in subparts B and D. Because of
this, we are combining the discussions of AOs for 3PLs and wholesale
distributors, and the resulting burden estimates.
    The national licensure standards FDA is proposing are intended to
help ensure that the supply chain remains secure and that those
finished prescription drug products subject to the DSCSA moving through
the supply chain are properly stored, handled, and transported. These
measures are

intended to help protect U.S. consumers from drugs that may be
counterfeit, stolen, contaminated, or otherwise harmful. The required
information collection to comply with the proposed rule is necessary
for the States or FDA to assess the ability of 3PLs or wholesale
distributors to properly maintain drug quality and security while the
drug products are under their possession or control.
    We estimate the burden of the information collection as follows:

                                 Table 3--Estimated Annual Reporting Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Average burden
    Proposed 21 CFR part 205         Number of     responses per   Total annual    per response     Total hours
      section; IC activity          respondents     respondent       responses      (in hours)
----------------------------------------------------------------------------------------------------------------
Subpart A (3PLs):
    Sec.  Sec.   205.5 and                   459               1             459               2             918
     205.6; application and
     process requirements.......
    Sec.   205.7; changes to                   6               1               6               1               6
     licensure..................
    Sec.   205.8; expiry and                 149               1             149               1             149
     renewal of licensure.......
    Sec.   205.9; denials,                    35               1              35               1              35
     suspensions,
     reinstatements, revocations
    Sec.   205.11; personnel                 459               1             459              .5             230
     list.......................
    Sec.   205.15; annual                    459               1             459             .25             115
     reports....................
Subpart B (Approved
 Organizations for 3PLs):
    Sec.   205.17; licensure                   6              15              90               5             450
     review and inspection
     reports of 3PL facilities..
    Sec.   205.19; applications,               3               1               3               2               6
     denials, revocations,
     suspensions, renewals,
     reinstatements for AO
     status.....................
Subpart C (WDD Standards):
    Sec.  Sec.   205.22 and                1,951               1           1,951               2           3,902
     205.23; application and
     process requirements for
     licensure..................
    Sec.   205.24; changes to                 39               1              39               1              39
     WDD information............
    Sec.   205.26; confirmation               25               1              25              .5              13
     of theft or loss of Rx drug
    Sec.  Sec.   205.29 and                   38               1              38               1              38
     205.30; denials,
     suspensions,
     reinstatements, revisions,
     and terminations--requests
     for hearing................
    Sec.   205.29(a)--WDD annual           1,951               1           1,951               1           1,951
     reports....................
Subpart D (Approved
 Organizations for WDDs):
    Sec.  Sec.   205.32 and                    6              31             186               5             930
     205.33; documentation of
     qualifications and
     disclosures to FDA.........
                                 -------------------------------------------------------------------------------
        Total...................  ..............  ..............           5,890  ..............  ..............
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with the information collection.

                               Table 4--Estimated Annual Recordkeeping Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Average burden
    Proposed 21 CFR part 205         Number of     responses per   Total annual    per response     Total hours
      section; IC activity          respondents     respondent       responses      (in hours)
----------------------------------------------------------------------------------------------------------------
Subpart A (3PLs):
    205.4; general requirements              459               1             459              .5             230
     (retrievable records)......
    205.12; written procedures..             459               1             459              21           9,639
    205.13; record and document              459               1             459               1             459
     maintenance................
    205.14; list of trading                  459               1             459               2             918
     partners...................
Subpart B (Approved
 Organizations for 3PLs):
    205.17; licensure review and               6              15              90               2             180
     inspection records.........
    205.19; written procedures,                6               1               6               3              18
     policies, training records.
Subpart C (WDD Standards):
    205.21; surety bond.........           1,951               1           1,951               1           1,951
    205.25; personnel records...           1,951               1           1,951               1           1,951
    205.26; facility records....           1,951               1           1,951               1           1,951
    205.28; inspection records..           1,951               1           1,951               1           1,951
Subpart D (Approved
 Organizations for WDDs):
    205.31; records                            6               1               6               1               6
     demonstrating qualification
     status.....................
                                 -------------------------------------------------------------------------------
        Total...................  ..............  ..............           9,742  ..............          19,254
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with the information collection.

Reporting Burden

    Among the reporting requirements found in proposed part 205 are
content and format provisions pertaining to issuance, changes, expiry,
renewal, and annual reports for 3PLs, as well as WDDs, as reflected
above in table 3. The proposed regulations also prescribe procedural
steps and reporting schedules for submitting information regarding
licensure, changes to

licensure, reinstatement, and annual reporting, including requisite
reporting timeframes. Consistent with our PRIA, we estimate that 459
3PL facilities and 1,951 WDDs will become subject to the reporting
requirements described in proposed part 205, where we ascribe specific
burden associated with the provisions found in table 3. Because we
currently lack specific submission data regarding the proposed
reporting requirements, we rely on our experience with similar
information collection as the primary basis for our estimates. However,
we invite specific comment from potential respondents regarding burden
estimates we ascribe to the reporting elements found in the proposed
regulations, along with a discussion of the basis for their
computation.

Recordkeeping Burden

    As set forth in the proposed regulations, 3PLs and WDDs must
maintain records documenting procedures, management practice, policies,
training, and personnel, among others. Under proposed Sec.  205.4, all
records are subject to FDA inspection and must be made available upon
request in the format prescribed by the proposed regulations.
Additional specific recordkeeping practice elements are also enumerated
in the proposed regulations. Consistent with our PRIA, we estimate that
459 3PLs and 1,951 WDDs will become subject to these requirements, if
the proposed rule is finalized. These provisions are reflected above in
table 4, along with an estimated number of annual records and
recordkeeping hours we attribute to the corresponding activity. As with
the proposed reporting requirements, we currently lack specific data
regarding recordkeeping associated with the proposed regulations. We
invite specific comment from potential respondents regarding burden
estimates we ascribe to the recordkeeping activities, along with a
discussion of the basis for their computation.
    To ensure that comments on information collection are received, OMB
recommends that written comments be submitted through reginfo.gov (see
ADDRESSES). All comments should be identified with the title of the
information collection.
    In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3407(d)), we have submitted the information collection provisions of
this proposed rule to OMB for review. These information collection
requirements will not be effective until FDA publishes a final rule,
OMB approves the information collection requirements, and the rule goes
into effect. FDA will announce OMB approval of these requirements in
the Federal Register.

X. Federalism

    We have analyzed this proposed rule in accordance with the
principles set forth in Executive Order 13132, ``Federalism'' (64 FR
43255, August 10, 1999). This Executive order sets forth principles and
criteria that agencies must adhere to in formulating and implementing
policies that have federalism implications, defined in section 1(a) of
the order as including regulations 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.'' Section 4(a)
of the Executive order requires agencies to ``construe . . . a Federal
statute to preempt State law only where the statute contains an express
preemption provision or there is some other clear evidence that the
Congress intended preemption of State law, or where the exercise of
State authority conflicts with the exercise of Federal authority under
the Federal statute.'' The DSCSA added to the FD&C Act an express
preemption provision under section 585, which addresses state licensure
of WDDs and 3PLs in section 585(b)(1).

A. Scope of Preemption

    FDA interprets section 585(b)(1) of the FD&C Act as preempting
States and localities from establishing or continuing requirements for
3PL or WDD licensure that are different from the standards and
requirements applicable under sections 584 and amended 503(e) of the
FD&C Act. In other words, States and local governments may not
establish or continue licensure requirements for 3PLs or WDDs unless
those State requirements are the same as Federal requirements;
different requirements are preempted.
    As noted above, a draft guidance issued in October 2014 (Ref. 4)
proposed a different preemption interpretation under which States and
localities could impose requirements on 3PL and WDD licensure that were
different from Federal requirements so long as those requirements did
not fall below the minimum Federal standards. Several stakeholders
commented that the agency's interpretation of section 585(b)(1) was too
narrow. Instead, they argued Congress intended to preempt all state
licensure laws not identical to Federal licensure standards, i.e., that
Congress wanted the Federal system to provide both a ``floor'' and a
``ceiling'' when it came to the issue of preemption.
    FDA has reconsidered its earlier proposed interpretation and
determined that its current interpretation--that the Federal
requirements will establish both a ``floor'' and a ``ceiling''--is more
consistent with the language of the statute, Congressional purpose, and
policy considerations. Section 585(b)(1) provides for the preemption of
any state requirements that are, among other things, ``inconsistent
with'' or ``covered by'' Federal requirements--which suggests both a
floor and a ceiling. Furthermore, the fundamental purpose of the DSCSA
provisions was to strengthen the security and integrity of the drug
supply chain through uniform national requirements (Refs 2, 3, 18),
including with respect to licensure (see e.g., section 583(b)). In
contrast, under the interpretation proposed in our October 2014 draft
guidance, 3PLs and WDDs could be required to comply with a patchwork of
State and local licensure requirements, which would undermine the goal
of national uniformity and could create barriers to the statute's
implementation and administrability. That approach would not create the
intended uniformity in national policy because States and localities
would not be preempted from establishing unique or disparate
requirements.
    Accordingly, FDA is withdrawing, as of the date of publication of
this proposed rule, that portion of the October 2014 draft guidance
addressing preemption with respect to WDD/3PL licensure.

B. Effective Date of Preemption

    Section 585(b)(1) provides that it is effective ``[b]eginning on
the date of enactment of the Drug Supply Chain Security Act [November
27, 2013].'' However, that provision applies only to state requirements
that are inconsistent with the national standards and requirements
applicable under sections 584 and 503(e) of the FD&C Act. Those
national standards will be established by this regulation, once
finalized and effective. Thus, by its very terms, section 585(b)(1) has
no current application. Accordingly, State and local licensure
requirements will be preempted only once this regulation, when
finalized, takes effect; until such time, current State and local
licensing of WDDs and 3PLs may continue.
    We believe that this result is dictated by the terms of the
statute. However, even if the statute were considered ambiguous, this
interpretation is consistent with the statutory framework and purposes.
Other provisions added

by the DSCSA recognized state licensure of WDDs and 3PLs before the
effective date of this regulation. For example, DSCSA requires both
WDDs and 3PLs to report their state licensure, beginning January 1,
2015, for WDDs and November 27, 2014, for 3PLs (see sections
503(e)(2)(A) and section 584(b)). Because these reporting requirements
apply during the period between DSCSA's enactment and the effective
date of Federal licensing standards, they suggest that Congress
intended to preserve the status quo in terms of permitting state
licensure during this interim period. Indeed, if state licensing were
viewed as preempted during this interim period, there could be no valid
state licensure for 3PLs and WDDs to report, rendering this reporting
provision meaningless. In addition, section 582(a)(6) expressly
recognizes state WDD licensure during the period between DSCSA's
enactment and the effective date of Federal licensure regulations, and
section 582(a)(7) similarly deems 3PLs to be ``licensed'' during this
time, including by acknowledging and accommodating state licensure of
3PLs.
    Further, the WDD licensure rules take effect two years after
publication of the final rule, per section 583(e)(3), and the 3PL rules
take effect one year after publication of the final rule, per section
584(d)(3)(C). Thus, despite the reference to DSCSA's enactment date in
section 585(b)(1), the statute also expressly provides that the Federal
licensure standards will not be effective until several years after
DSCSA's enactment.
    The interpretation is also supported by reading the provisions of a
statute as an integrated whole, consistent with its fundamental
purpose. As noted, the purpose is to strengthen the security and
integrity of the drug supply chain through uniform national
requirements, including with respect to licensure. This purpose would
be frustrated if the statute were implemented in a manner that could
lead to supply chain disruption, due to licensing uncertainties, while
the national licensure standards are pending. Thus, Congress included
in the DSCSA provisions which recognize state licensure of WDDs and
3PLs prior to the effective date of Federal licensing standards. If
preemption under section 585(b)(1) were construed to preempt states
from continuing to license WDDs and 3PLs even before Federal standards
are in place, there could be confusion whether these supply chain
entities have valid licensure, to the detriment of supply chain
operations. Accordingly, we believe that read as a whole, the statute
can be reasonably interpreted as providing for preemption to apply only
upon the effective date of this regulation, once finalized.

XI. Consultation and Coordination With Indian Tribal Governments

    We have analyzed this proposed rule in accordance with the
principles set forth in Executive Order 13175. We have tentatively
determined that the rule does not contain policies that would have a
substantial direct effect on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian Tribes. The Agency solicits comments from tribal
officials on any potential impact on Indian Tribes from this proposed
action.

XII. References

    The following references marked with an asterisk (*) are on display
at the Dockets Management Staff (see ADDRESSES) and are available for
viewing by interested persons between 9 a.m. and 4 p.m., Monday through
Friday; they also are available electronically at https://www.regulations.gov. References without asterisks are not on public
display at https://www.regulations.gov because they have copyright
restriction. Some may be available at the website address, if listed.
References without asterisks are available for viewing only at the
Dockets Management Staff. FDA has verified the website addresses, as of
the date this document publishes in the Federal Register, but websites
are subject to change over time.

    * 1. 159 Cong. Rec. S8028 (2013) (Statement of Senator Barbara
Mikulski); available at: https://www.congress.gov/113/crec/2013/11/14/CREC-2013-11-14-pt1-PgS8027-6.pdf.
    * 2. 159 Cong. Rec. H5964 (2013) (Statement of Representative
James Matheson); available at: https://www.congress.gov/113/crec/2013/09/28/CREC-2013-09-28-pt1-PgH5946-2.pdf.
    * 3. 159 Cong. Rec. H5962 (2013) (Statement of Representative
Robert Latta); available at: https://www.congress.gov/113/crec/2013/09/28/CREC-2013-09-28-pt1-PgH5946-2.pdf.
    * 4. FDA, Guidance for Industry: ``Draft Guidance for Industry
on The Effect of Section 585 of the FD&C Act on Drug Product Tracing
and Wholesale Drug Distributor and Third-Party Logistics Provider
Licensing Standards and Requirements: Questions and Answers''
October 2014, (available at https://www.fda.gov/media/89954/download), accessed December 14, 2021.
    * 5. Ducca, A., Healthcare Distribution Management Association,
Public comment letter Document ID: FDA-2014-D-1411-0012, submitted
on December 24, 2014, to Docket No. FDA-2014-D-1411 pertaining to
the ``Draft Guidance for Industry on The Effect of Section 585 of
the FD&C Act on Drug Product Tracing and Wholesale Drug Distributor
and Third-Party Logistics Provider Licensing Standards and
Requirements: Questions and Answers; Availability,'' October 8, 2014
(available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0012), accessed December 14, 2021.
    * 6. Ventimiglia, V., Pharmaceutical Distribution Security
Alliance, Public comment letter Document ID: FDA-2014-D-1411-0007,
submitted on December 24, 2014, to Docket No. FDA-2014-D-1411
pertaining to the ``Draft Guidance for Industry on The Effect of
Section 585 of the FD&C Act on Drug Product Tracing and Wholesale
Drug Distributor and Third-Party Logistics Provider Licensing
Standards and Requirements: Questions and Answers; Availability,''
October 8, 2014 (available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0007), accessed December 14, 2021.
    * 7. Rouse O'Neill, L., Health Industry Distributors Alliance,
Public comment letter Document ID: FDA-2014-D-1411-0013, submitted
on December 24, 2014, to Docket No. FDA-2014-D-1411 pertaining to
the ``Draft Guidance for Industry on The Effect of Section 585 of
the FD&C Act on Drug Product Tracing and Wholesale Drug Distributor
and Third-Party Logistics Provider Licensing Standards and
Requirements: Questions and Answers; Availability,'' October 8, 2014
(available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0013), accessed December 14, 2021.
    8. Gallenagh, E.A, L.F. Hirsch, and K.L. Palmer, ``Title II--
Licensure of Wholesale Distributors and 3PLs,'' presented at Food
and Drug Law Institute's Drug Quality Security Act Conference,
November 15, 2017 (available at https://www.fdli.org/wp-content/uploads/2017/11/DQSA-Hrisch-B.pdf), accessed December 14, 2021.
    9. National Association of Boards of Pharmacy, ``Wholesale Drug
Distribution: Protecting the Integrity of the Nation's Prescription
Drug Supply,'' August 2013 (available at https://nabp.pharmacy/wp-content/uploads/2016/07/wholesale-drug-distribution-protecting-the-integrity-of-the-nations-prescription-drug-supply.pdf), accessed
December 14, 2021.
    10. United States Department of Justice, ``Three California Men
and Minnesota Corporation Indicted in Nationwide Prescription Drug
Diversion Scheme,'' May 2015 (available at https://www.justice.gov/opa/pr/three-california-men-and-minnesota-corporation-indicted-nationwide-prescription-drug), accessed December 14, 2021.
    * 11. United States Department of Justice, ``Two Plead Guilty In
Prescription Drug Diversion Scheme,'' May 2014 (available at https://www.justice.gov/usao-mdtn/pr/two-plead-guilty-prescription-drug-diversion-scheme), accessed December 14, 2021.
    12. National Association of Boards of Pharmacy, ``Model State
Pharmacy Act and Model Rules of the National Association of Boards
of Pharmacy'' (available at https://

nabp.pharmacy/publications-reports/resource-documents/model-
pharmacy-act-rules/), accessed December 14, 2021.
    13. Healthcare Distributors Alliance, ``HDA Model Licensure
Standards for Third-Party Logistics Providers for FDA
Consideration,'' February 2015 (available at https://www.hda.org/~/
media/pdfs/government-affairs/2015-02-10-traceability-resource-3pl-
licensure-model.ashx), accessed December 14, 2021.
    * 14. World Health Organization, ``Annex 5: WHO good
distribution practices for pharmaceutical products,'' 2010
(available at https://www.who.int/medicines/areas/quality_safety/quality_assurance/GoodDistributionPracticesTRS957Annex5.pdf)),
accessed December 14, 2021.
    15. National Association of Boards of Pharmacy and the
Pharmaceutical Inspection Convention and Pharmaceutical Inspection
Co-operation Scheme (jointly referred to as PIC/S) (available at
https://www.picscheme.org/), accessed December 14, 2021.
    * 16. U.S. Food and Drug Administration, ``Prescription Drug
Marketing Act, Report to Congress,'' June 2001 (available at https://wayback.archive-it.org/7993/20170405002846/https://www.fda.gov/RegulatoryInformation/LawsEnforcedbyFDA/SignificantAmendmentstotheFDCAct/PrescriptionDrugMarketingActof1987/ucm203148.htm), accessed December 14, 2021.
    17. National Association of Boards of Pharmacy, ``Prescription
Medication Distribution--The Five Percent Rule for Resale
(Resolution 109-2-13),'' June 2013 (available at https://nabp.pharmacy/news/news-releases/prescription-medication-distribution-the-five-percent-rule-for-resale-resolution-109-2-13/),
accessed December 14, 2021.
    18. FDA, ``National Standards for the Licensure of Wholesale
Drug Distributors and Third-Party Logistics Providers; Preliminary
Regulatory Impacts Analysis,'' (available at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm).

List of Subjects

21 CFR Part 10

    Administrative practice and procedure, News media.

21 CFR Parts 12 and 16

    Administrative practice and procedure.

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, we propose
that 21 CFR parts 10, 12, 16, and 205 be amended as follows:

PART 10--ADMINISTRATIVE PRACTICES AND PROCEDURES

0
1. The authority citation for part 10 continues to read as follows:

    Authority: 5 U.S.C. 551-558, 701-706; 15 U.S.C. 1451-1461; 21
U.S.C. 141-149, 321-397, 467f, 679, 821, 1034; 28 U.S.C. 2112; 42
U.S.C. 201, 262, 263b, 264.

0
2. In Sec.  10.50, add paragraph (c)(21) to read as follows:

Sec.  10.50  Promulgation of regulations and orders after an
opportunity for a formal evidentiary public hearing.

* * * * *
    (c) * * *
    (21) Sections 503(e), 583, and 584 on denial, suspension, or
revocation of third-party logistics provider licenses or wholesale
distributor licenses.

PART 12--FORMAL EVIDENTIARY PUBLIC HEARING

0
3. The authority citation for part 12 continues to read as follows:

    Authority: 21 U.S.C. 141-149, 321-393, 467f, 679, 821, 1034; 42
U.S.C. 201, 262, 263b-263n, 264; 15 U.S.C. 1451-1461; 5 U.S.C. 551-
558, 701-721; 28 U.S.C. 2112.

0
4. In Sec.  12.21, revise paragraphs (a) introductory text and (a)(2)
to read as follows:

Sec.  12.21  Initiation of a hearing involving the issuance, amendment,
or revocation of an order.

    (a) A proceeding under section 503(e); 505(d) or (e); 512(d), (e),
(m)(3) or (4); 515(g)(1); 583; or 584 of the Federal Food, Drug, and
Cosmetic Act, or section 351(a) of the Public Health Service Act, may
be initiated--
* * * * *
    (2) By a petition in the form specified elsewhere in this chapter,
e.g., Sec.  205.9 for licenses for third-party logistics providers,
Sec.  205.30 for licenses for wholesale distributors, Sec.  314.50 for
new drug applications, Sec.  514.1 for new animal drug applications,
Sec.  514.2 for applications for animal feeds, or Sec.  601.3 for
licenses for biologic products; or
* * * * *

PART 16--REGULATORY HEARING BEFORE THE FOOD AND DRUG ADMINISTRATION

0
5. The authority citation for part 16 continues to read as follows:

    Authority:  15 U.S.C. 1451-1461; 21 U.S.C. 141-149, 321-394,
467f, 679, 821, 1034; 28 U.S.C. 2112; 42 U.S.C. 201-262, 263b, 364.

0
6. In Sec.  16.1:
0
a. Designate the 16 undesignated paragraphs immediately following
paragraph (b)(1) as paragraphs (b)(1)(i) through (xvi).
0
b. In paragraph (b)(2):
0
i. Remove ``Sec. Sec.  '' and ``Sec.  '' everywhere they appear and add
``Sections'' and ``Section'' in their places, respectively;
0
ii. Designate the first 14 undesignated paragraphs immediately
following paragraph (b)(2) as paragraphs (b)(2)(i) through (xiv);
0
iii. Add paragraphs (b)(2)(xv) and (xvi); and
0
iv. Designate the last 23 undesignated paragraphs as paragraphs
(b)(2)(xvii) through (xxxix).
    The additions read as follows:

Sec.  16.1  Scope.

* * * * *
    (b) * * *
    (2) * * *
    (xv) Section 205.19, relating to revocation or suspension of
approval for an approved organization to conduct licensure reviews for
third-party logistics provider applicants.
    (xvi) Section 205.33, relating to revocation or suspension of
approval for an approved organization to conduct inspections of
wholesale distributors.
* * * * *
0
7. Revise part 205 to read as follows:

PART 205--NATIONAL STANDARDS FOR THIRD-PARTY LOGISTICS PROVIDERS
AND PRESCRIPTION DRUG WHOLESALE DISTRIBUTORS

Sec.
205.1 Scope.
205.2 Purpose.
205.3 Definitions.
Subpart A--Third-Party Logistics Providers Licensure Standards
205.4 Requirement that third-party logistics providers be licensed.
205.5 General application requirements for licensure.
205.6 Federal licensure process.
205.7 Changes to information, location, or ownership of a licensed
3PL.
205.8 Expiry and renewal.
205.9 Licensure denial, suspension, reinstatement, revocation, and
voluntary termination: notice and opportunity to request a hearing.
205.10 Good storage practices for 3PL facilities.
205.11 Personnel requirements necessary for good storage practices.
205.12 Required written policies and procedures.
205.13 Recordkeeping and document maintenance.
205.14 3PLs must provide upon request a list of trading partners.
205.15 Requirements for initial and annual reporting to the Food and
Drug Administration.
205.16 Inspections.
Subpart B--Approved Organizations for 3PLS
205.17 Use of approved third-party organizations.

205.18 General qualifications of approved organizations.
205.19 Process and procedures for approval by the Food and Drug
Administration.
Subpart C--Wholesale Distributors Licensure Standards
205.20 Requirement that prescription drug wholesale distributors be
licensed.
205.21 Surety bond requirement.
205.22 General application requirements for licensure.
205.23 Federal licensure process.
205.24 Changes to information, operation, location, or ownership of
a wholesale distributor.
205.25 Prohibited persons and qualifications for key personnel.
205.26 National standards for the storage and handling of
prescription drugs for wholesale distribution.
205.27 Standards for the establishment and maintenance of records of
the distribution of prescription drugs.
205.28 Inspections.
205.29 Requirements for initial and annual reporting to the Food and
Drug Administration.
205.30 Licensure denial, suspension, reinstatement, revocation, and
voluntary termination--notice and opportunity to request a hearing.
Subpart D--Approved Organizations for Wholesale Distributors
205.31 Use of approved third-party organizations.
205.32 General qualifications of approved organizations.
205.33 Process and procedures for approval by the Food and Drug
Administration.

    Authority: 21 U.S.C. 351, 352, 353, 360eee-2, 360eee-3, 360eee-
4, 371, 374.

Sec.  205.1  Scope.

    (a) This part applies to the licensure of third-party logistics
providers (3PLs) in any State and to any entity engaging in wholesale
distribution of prescription drugs in any State. The standards
established under subpart A of this part will apply to all State and
Federal licenses described under sections 503(e)(5) and 584 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 353(e)(5) and 360eee-
3). The standards established under subpart C of this part will apply
to all State and Federal licenses described under sections 503(e)(1)
and 583 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
353(e)(1) and 360eee-2).
    (b) A facility or entity that conducts 3PL activities must obtain a
3PL license for each facility as described in this part and is not
required to obtain a license as a wholesale distributor unless it is
also conducting wholesale distribution activities, in which case, the
entity or facility must obtain both a 3PL license as described in
subpart A of this part and a wholesale distributor license as described
in subpart C of this part. Unless otherwise noted, the term ``3PL'' or
``third-party logistics provider'' in this part applies to both the
entity and the individual facilities requiring a license.
    (c) Subpart B of this part applies to any third-party organization
seeking to obtain or maintain approval by the Food and Drug
Administration (FDA or the Agency) to evaluate the qualifications of
3PLs for licensure. Subpart D of this part applies to any third-party
organization seeking to obtain or maintain approval by the Food and
Drug Administration to conduct inspections of wholesale distributors.

Sec.  205.2  Purpose.

    The purpose of this part is to establish standards, terms, and
conditions for the licensing of 3PLs and prescription drug wholesale
distributors by State or Federal licensing authorities, including a
process for the revocation, reissuance, and renewal of such licenses.
This part also establishes the process and standards the Food and Drug
Administration will use to approve third-party organizations to
evaluate the qualifications of 3PLs for licensure and conduct
inspections of wholesale distributor facilities.

Sec.  205.3  Definitions.

    The definitions and interpretations of terms contained in section
581 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360eee)
apply to those terms when used in this part. The following terms are
also defined for purposes of this part:
    (a) 3PL activities means the provision or coordination of
warehousing, or other logistics services of a product in interstate
commerce on behalf of a manufacturer, wholesale distributor, or
dispenser of a product, while not taking ownership of the product, nor
having the responsibility to direct the sale or disposition of the
product.
    (b) Change of entity ownership means:
    (1) Partnership. In the case of a partnership, the removal,
addition, or substitution of a partner.
    (2) Unincorporated sole proprietorship. In the case of an
unincorporated sole proprietorship, the transfer of title and property
to another party.
    (3) Corporation. In the case of a corporation, the merger of the
licensed corporation into another corporation or the consolidation of
two or more corporations, resulting in the creation of a new
corporation. Transfer of corporate stock or the merger of another
corporation into the licensed corporation does not constitute change of
entity ownership.
    (4) Limited liability company (LLC). In the case of an LLC, the
merger of the licensed LLC into another LLC or the consolidation of two
or more LLCs, resulting in the creation of a new LLC. Transfer of
company stock or the merger of another LLC into the licensed LLC does
not constitute change of ownership.
    (c) Co-licensed partner means one of two or more entities that have
entered a written agreement for the right to engage in the marketing of
a prescription drug.
    (d) Designated representative means an individual who is designated
as the representative of the facility manager and is responsible for
managing the daily operations of the wholesale distributor or 3PL
facility.
    (e) Entity or entities means a business organization, such as a
corporation, company, association, firm, partnership, society, sole
proprietorship, or joint stock company.
    (f) Facility means an establishment, warehouse, structure, or
structures under common ownership at one general, permanent, physical
location used for distribution, including storage and handling, of
prescription drugs.
    (g) Key personnel means any individual who has responsibility for
managing the operations of the wholesale distributor, including any
principal, owner, director, officer of the wholesale distributor,
facility manager, or designated representative, or other individuals
who are authorized to enter areas where prescription drugs are held and
are likely to handle those prescription drugs as a part their
responsibilities within the operation.
    (h) Minimal quantities means the total annual dollar volume of
prescription drugs sold by a retail pharmacy to licensed practitioners
for office use does not exceed 5 percent of the total dollar volume of
that retail pharmacy's annual prescription drug sales.
    (i) Other logistics services include services provided by entities
that accept or transfer direct possession of products from that
entity's facility within the United States and its territories on
behalf of a trading partner (e.g., manufacturer, wholesale distributor,
dispenser) but that do not take ownership of the product nor have the
responsibility to direct a product's sale or disposition. ``Other
logistics services'' also means services undertaken with respect to a
product for a repackager acting on behalf of a manufacturer, wholesale
distributor, or dispenser.
    (j) Other than a consumer or patient means the person receiving the
drug is not:

    (1) The individual identified as the recipient of the prescription
drug;
    (2) A dispenser fulfilling a specific patient need as defined in
section 581(19) of the Federal Food, Drug, and Cosmetic Act; or
    (3) The clinical investigator, as defined in Sec.  312.3(b) of this
chapter.
    (k) Product means a prescription drug in a finished dosage form for
administration to a patient without substantial further manufacturing
(e.g., capsules, tablets, lyophilized products before reconstitution).
    (l) Significant disciplinary action means any action by a State or
Federal licensing authority that limits or prevents a 3PL from
conducting 3PL activities related to the distribution of prescription
drugs, or limits or prevents a wholesale distributor from distributing,
as that term is defined in section 581(5) of the Federal Food, Drug and
Cosmetic Act, or facilitating the distribution of prescription drugs.
This includes the revocation or suspension of a 3PL or wholesale
distributor license, or of a registration with the Drug Enforcement
Administration.
    (m) Unfit for distribution means a prescription drug that has been
identified as a drug whose sale would violate the Federal Food, Drug,
and Cosmetic Act. This includes prescription drugs identified as
suspect or illegitimate pursuant to section 582(c) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 360eee-1(c)); adulterated pursuant to
section 501 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
351), including drugs rendered nonsaleable because conditions such as
return, recall, damage, or expiry cast doubt on the drug's safety,
identity, strength, quality, or purity; or misbranded pursuant to
section 502 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
352).
    (n) Wholesale distribution means the distribution of a drug subject
to section 503(b) of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 353(b)) to a person other than a consumer or patient, or receipt
of a drug subject to section 503(b) of the Federal Food, Drug, and
Cosmetic Act by a person other than the consumer or patient, but does
not include:
    (1) Intracompany distribution of any drug between members of an
affiliate or within a manufacturer;
    (2) The distribution of a drug or an offer to distribute a drug
among hospitals or other health care entities that are under common
control;
    (3) The distribution of a drug or an offer to distribute a drug for
emergency medical reasons, including a public health emergency
declaration pursuant to section 319 of the Public Health Service Act
(42 U.S.C. 247d), except that, for purposes of this paragraph (n)(3), a
drug shortage not caused by a public health emergency will not
constitute an emergency medical reason;
    (4) The dispensing of a drug pursuant to a prescription executed in
accordance with section 503(b) of the Federal Food, Drug, and Cosmetic
Act;
    (5) The distribution of minimal quantities of a drug by a licensed
retail pharmacy to a licensed practitioner for office use;
    (6) The distribution of a drug or an offer to distribute a drug by
a charitable organization to a nonprofit affiliate of the organization
to the extent otherwise permitted by law;
    (7) The purchase or other acquisition by a dispenser, hospital, or
other health care entity of a drug for use by such dispenser, hospital,
or other health care entity;
    (8) The distribution of a drug by the manufacturer of such drug;
    (9) The receipt or transfer of a drug by an authorized 3PL,
provided that such 3PL does not take ownership of the drug;
    (10) A common carrier that transports a drug, provided that the
common carrier does not take ownership of the drug;
    (11) The distribution of a drug, or an offer to distribute a drug
by an authorized repackager that has taken ownership or possession of
the drug and repacks it in accordance with section 582(e) of the
Federal Food, Drug, and Cosmetic Act;
    (12) Saleable drug returns when conducted by a dispenser;
    (13) The distribution of a collection of finished medical devices,
which may include a product or biological product, assembled in kit
form strictly for the convenience of the purchaser or user (referred to
in paragraphs (n)(13)(i) through (iv) of this section as a medical
convenience kit) if:
    (i) The medical convenience kit is assembled in an establishment
that is registered with the Food and Drug Administration as a device
manufacturer in accordance with section 510(b)(2) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 360(b)(2));
    (ii) The medical convenience kit does not contain a controlled
substance that appears in a schedule contained in the Controlled
Substances Act;
    (iii) In the case of a medical convenience kit that includes a
product, the person that manufactures the kit:
    (A) Purchased such product directly from the pharmaceutical
manufacturer or from a wholesale distributor that purchased the product
directly from the pharmaceutical manufacturer; and
    (B) Did not alter the product's primary container or label as
purchased from the manufacturer or wholesale distributor;
    (iv) In the case of a medical convenience kit that includes a
product, the product is:
    (A) An intravenous solution intended for the replenishment of
fluids and electrolytes;
    (B) A product intended to maintain the equilibrium of water and
minerals in the body;
    (C) A product intended for irrigation or reconstitution;
    (D) An anesthetic;
    (E) An anticoagulant;
    (F) A vasopressor; or
    (G) A sympathomimetic;
    (14) The distribution of an intravenous drug that, by its
formulation, is intended for the replenishment of fluids and
electrolytes (such as sodium, chloride, and potassium) or calories
(such as dextrose and amino acids);
    (15) The distribution of an intravenous drug used to maintain the
equilibrium of water and minerals in the body (such as dialysis
solutions);
    (16) The distribution of a drug that is intended for irrigation, or
sterile water, whether intended for such purposes or for injection;
    (17) The distribution of medical gas, as defined in section 575 of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360ddd);
    (18) Facilitating the distribution of a product by providing solely
administrative services, including processing of orders and payments;
or
    (19) The transfer of a product by a hospital or other health care
entity, or by a wholesale distributor or manufacturer operating at the
direction of the hospital or other health care entity, to a repackager
as described in section 581(16)(B) of the Federal Food, Drug, and
Cosmetic Act and registered under section 510 of the Federal Food,
Drug, and Cosmetic Act for the purpose of repackaging the drug for use
by that hospital or other health care entity, and other health care
entities that are under common control, if ownership of the drug
remains with the hospital or other health care entity at all times.

Subpart A--Third-Party Logistics Providers Licensure Standards

Sec.  205.4  Requirement that third-party logistics providers be
licensed.

    (a) No 3PL may conduct 3PL activities unless each facility of the
3PL is licensed:
    (1) By the State from which the 3PL conducts 3PL activities; or

    (2) If the State from which the 3PL conducts 3PL activities has not
established a licensure requirement in accordance with the standards
set forth in this part, by the Food and Drug Administration; and
    (3) If the product is distributed interstate, by the State into
which the 3PL distributes the product if such licensure is required by
that State, and the 3PL is not licensed by the Food and Drug
Administration under Sec.  205.6.
    (b) Each facility owned, leased, or rented by a 3PL must have a
separate license.
    (c) Licenses are facility- and owner-specific and are not
transferable.
    (d) The 3PL must maintain its license at the licensed facility in a
readily retrievable manner and must permit inspection of the license by
any official, agent, or employee of the licensing authority or of any
Federal, State, or local agency engaged in enforcement of laws relating
to the distribution of prescription drugs.

Sec.  205.5  General application requirements for licensure.

    (a) Applicant requirements. An individual who submits an
application on behalf of a 3PL for a license issued pursuant to this
subpart must:
    (1) Be 18 years of age or older;
    (2) Submit an affidavit that such individual's ownership or
management of or employment by the 3PL would not preclude the 3PL from
receiving or maintaining a license under Sec.  205.11(f);
    (3) Submit all application information required in the form
required by the licensing authority; and
    (4) Pay any licensing fees that are required by the licensing
authority pursuant to section 584(c) of the Federal Food, Drug, and
Cosmetic Act.
    (b) General requirements for licensure application. The State or
Federal licensing authority will require the following information from
each 3PL facility as part of the initial application for the license
described in Sec.  205.4 and as part of any renewal of such license:
    (1) The name and title of the individual who submits the
application for licensure on behalf of the 3PL;
    (2) The name of the 3PL as it should appear on the license, full
business address of the facility, and telephone number;
    (3) All trade or business names used by the 3PL, including prior
trade or business names, within the past 7 years;
    (4) Name, email address, and telephone number of the 3PL's facility
manager or designated representative;
    (5) The type of ownership or operation of the business entity, such
as a partnership, corporation, limited liability company, or sole
proprietorship;
    (6) The name of any owners or operators of the 3PL, including:
    (i) If a sole proprietorship, the full name of the sole proprietor
and the name of the business entity;
    (ii) If a partnership, the name of each partner and the name of the
partnership;
    (iii) If a corporation, the corporate names, the names of any
subsidiaries and affiliates, the name and title of each corporate
officer and director, and the State of incorporation; and
    (iv) If a limited liability company, the name of the limited
liability company, including any subsidiaries and affiliates, the name
of each member, and the State in which the limited liability company
was organized; and
    (7) Whether the 3PL facility manager or designated representative
has ever been convicted of a felony relating to prescription drug
distribution, including a conviction under section 301(i) or (k) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 331(i) or (k)) or 18
U.S.C. 1365, relating to product tampering, together with details
concerning any such events.
    (c) General requirements for renewal applications. On the renewal
application provided by the State or Federal licensing authority, the
3PL must:
    (1) Certify that the 3PL has continued to meet all the standards
and complied with the requirements in this subpart since the previous
license was issued; and
    (2) Inform the applicable licensing authority of any changes to
information previously submitted pursuant to paragraph (b) of this
section or Sec.  205.6(a)(2) for which a notification was not already
submitted to the licensing authority under Sec.  205.7.

Sec.  205.6  Federal licensure process.

    (a) Procedures for filing an FDA application for a 3PL license. (1)
Each 3PL facility must electronically submit an application to the Food
and Drug Administration for a license to conduct 3PL activities in a
State if the State does not have a 3PL licensure program consistent
with the standards set forth in this section. The application must
include the information specified in Sec.  205.5, along with supporting
documentation that demonstrates the applicant's storage practices are
sufficient to ensure the continued safety, identity, strength, quality,
and purity of the products in the facility.
    (2) If one or more organizations have been approved by the Food and
Drug Administration to conduct a review of a 3PL's qualifications for
licensure pursuant to Sec.  205.17, the 3PL will indicate in its
application to the Food and Drug Administration which approved
organization (AO) it prefers to conduct its licensure review. If there
is no organization approved by the Food and Drug Administration to
conduct licensure review, the Food and Drug Administration will conduct
the review, as described in Sec.  205.17(b). Licensure review must
consist of:
    (i) Review of all documents submitted in support of the application
for 3PL licensure; and
    (ii) Inspection of the facility, as directed by the licensing
authority pursuant to Sec.  205.16(a) or (b).
    (3) The applicant, or the applicant's agent or other authorized
official, must sign the application.
    (4) An application for a 3PL license will not be considered as
filed until the Food and Drug Administration has received all pertinent
information and fees.
    (b) Determination that licensing requirements have been met. The
Food and Drug Administration, not an AO, will determine whether the 3PL
meets all the applicable requirements set forth in this part.
    (c) Notification of easily correctable deficiencies. The Food and
Drug Administration will make every reasonable effort to promptly
communicate to applicants easily correctable deficiencies found in an
application when those deficiencies are discovered, particularly
deficiencies concerning storage, handling, distribution, or
recordkeeping issues. The Food and Drug Administration will also
promptly inform applicants of its need for more data or information or
for changes in the application needed to facilitate the Agency's
review.
    (d) Issuance of 3PL license by FDA. Approval of a 3PL license
application or issuance of a 3PL license constitutes a determination by
the Food and Drug Administration that, based upon the information
provided and reviewed, the 3PL meets the applicable requirements to be
licensed under section 584 of the Federal Food, Drug, and Cosmetic Act.
The Food and Drug Administration will approve an application and send
the applicant an approval letter and license certificate if none of the
reasons in Sec.  205.9(a)(1) for refusing to approve the application
applies. Applicable requirements for the maintenance of 3PL facilities
to conduct 3PL activities will include but not be limited to the good
storage practices set forth under Sec.  205.10. A license is effective
on the date of issuance of the license certificate.

    (e) Validity of 3PL license. Licenses issued to 3PL facilities will
remain valid until the date of expiration, unless suspended or revoked.

Sec.  205.7  Changes to information, location, or ownership of a
licensed 3PL.

    (a) Any change to any information required in this subpart,
including changes to any information required pursuant to Sec. Sec.
205.5, 205.6, 205.11, and 205.15, must be submitted electronically to
the licensing authority within 30 calendar days after such change is
effective, except where otherwise provided in this subpart.
    (b) Any change in the location of a facility at which 3PL
activities are conducted will require a new license and inspection of
the new facility prior to its beginning operations.
    (1) The application for a new license required by Sec.  205.5 must
be submitted no later than 90 calendar days prior to beginning
operations at the new location.
    (2) On the date the change of location takes place, the license for
the original facility is void.
    (c) Any change in the entity engaged in 3PL activities in a
facility will require a new license prior to beginning operations.
    (1) The application for a new license required by Sec.  205.5 must
be submitted no later than 30 calendar days prior to the change in
ownership.
    (2) A new inspection of the facility may also be required at the
licensing authority's discretion.
    (3) A 3PL can continue to operate under the original license for 30
calendar days after the change of ownership occurs or until the license
application of the new owner is approved, whichever is sooner.

Sec.  205.8  Expiry and renewal.

    Any license issued or renewed pursuant to Sec.  205.5 or Sec.
205.6 will expire 3 years after the date issued. A 3PL renewal
application will not be accepted more than 90 calendar days before the
date of expiration. A 3PL will not be penalized for administrative
delay on the part of the licensing authority in issuing a new license.
A license will be considered valid during the period of the
administrative delay if the 3PL timely submitted the renewal
application.

Sec.  205.9  Licensure denial, suspension, reinstatement, revocation,
and voluntary termination: notice and opportunity to request a hearing.

    (a) Denial of application for licensure. (1) The licensing
authority will refuse to approve or renew a 3PL license application for
any of the following reasons:
    (i) The facilities and controls used for the receipt, security,
storage, inventory, shipment, or distribution of the product are
inadequate to facilitate safe operations pursuant to Sec.  205.10(b).
    (ii) The methods or procedures to be used in the receipt, security,
storage, inventory, shipment, or distribution of the product do not
comply with the requirements for good storage practices in Sec.
205.10.
    (iii) The personnel employed by the applicant do not meet the
requirements necessary for good storage practices in Sec.  205.11.
    (iv) There is insufficient information in the written policies and
procedures required in Sec.  205.12 to determine whether the methods or
procedures to be used in the receipt, security, storage, inventory,
shipment, or distribution of the product comply with the requirements
for good storage practices in Sec.  205.10, or to determine whether the
facilities and controls to be used in the receipt, security, storage,
inventory, shipment, or distribution of the product facilitate safe
operations.
    (v) The methods or procedures to be used in the receipt, storage,
handling, or distribution of the product do not comply with the
requirements for adequate recordkeeping in Sec.  205.10 or Sec.
205.13.
    (vi) The application contains an untrue statement of material fact.
    (vii) The applicant does not permit a properly authorized officer
or employee of FDA, a State licensing authority, or an organization
approved by the Food and Drug Administration pursuant to Sec.  205.17
an adequate opportunity to inspect the facilities, controls, and any
records relevant to the application.
    (viii) For renewal applications, failure to report to the licensing
authority any pertinent change of information required in Sec.  205.5
or Sec.  205.7.
    (ix) For renewal applications, failure to comply with any of the
requirements for annual reporting in Sec.  205.15.
    (2) If a 3PL's application fails to demonstrate that the 3PL meets
the requirements for licensure set forth in this part, the licensing
authority will provide written notice to the applicant that its license
application may be denied, setting forth the grounds for the denial and
an opportunity to demonstrate that the 3PL meets the requirements for
licensure.