31 March 2023

Distribution of Medicinal Products: Legal Regulation in Russia

Anna Ivanova, Associate, BRACE Law Firm ©

March 31, 2023

Distribution is the process of moving products from the manufacturer to clients. A company may sell goods using its own resources or through intermediaries — firms or individual entrepreneurs. Distribution companies act as the intermediate link between the product manufacturer and the end consumer.

The distribution link has always played a crucial role in the development of the Russian pharmaceutical market and has dominated the supply chain. Its core competency is effective logistics. In addition to logistics services, distributor companies assume the manufacturer's financial risks associated with the sale of medicinal products [1].

Thus, distribution represents a complex set of interconnected functions implemented during the distribution of medicines among buyers. This article examines the key features of the distribution of medicinal products.

An analysis of pharmaceutical distribution compared to similar activities in other economic sectors highlights a specific feature of pharma intermediaries: it is not merely wholesale resale, but a collaborative effort with the manufacturer regarding pricing, management, and control, starting from the distributor's distribution center and ending with the placement of products on the shelf of a specific pharmacy [2].

According to Part 1 of Article 54 of Federal Law No. 61-FZ dated April 12, 2010, "On the Circulation of Medicinal Products" (hereinafter, the "Law on Circulation of Medicinal Products" or "Law No. 61-FZ"), the wholesale trade of medicinal products is carried out by manufacturers of medicinal products and wholesale organizations engaged in the trade of medicinal products in accordance with the rules of Good Distribution Practice (GDP) and Good Storage and Transportation Practice for Medicinal Products, approved by the relevant authorized federal executive bodies.

Currently, the Russian Federation lacks a specific legal act regulating the distribution of medicines. However, at the EAEU level, Decision of the Council of the Eurasian Economic Commission No. 80 dated November 3, 2016, approved the Rules of Good Distribution Practice within the Eurasian Economic Union (hereinafter, "EAEU GDP").

Compliance with EAEU GDP is a licensing requirement for pharmaceutical activities pursuant to Clause 4 of the Regulation on Licensing Pharmaceutical Activities, approved by Government Decree No. 547 dated March 31, 2022. Furthermore, according to the Methodological Guidelines for working with labeled medicinal products, market participants are prohibited from purchasing medicinal products from pharmacy organizations and distributors that do not hold a wholesale license. Consequently, medicines that do not comply with EAEU GDP cannot circulate in the pharmaceutical market of Russia and the EAEU.

Additionally, the Good Pharmacovigilance Practice Rules, approved by Decision of the Council of the Eurasian Economic Commission No. 87 dated November 3, 2016, identify a controlled distribution system as a risk minimization measure. This includes measures aimed at ensuring the tracking of all stages of medicinal product transportation to the destination and/or dispensing by pharmacies. Orders and shipments of a medicinal product by one or more identified distributors facilitate its tracking. For example, these measures may be considered to prevent the misuse and abuse of medicines.

Thus, EAEU GDP is the key document regulating the distribution of medicines.

Key Requirements of Good Distribution Practice (EAEU GDP)

According to Clause 4 of EAEU GDP, distribution is an activity related to the procurement (purchase, acquisition), storage, importation (import), exportation (export), sale (excluding sale to the public) without volume limitations, and transportation of medicinal products.

A distributor is a wholesale organization holding a permit to carry out distribution, including the storage and transportation of medicinal products, and engaged in distribution activities. Good Distribution Practice is part of the quality assurance system that guarantees the quality of medicinal products throughout all stages of the supply chain, including storage and transportation, from the manufacturer to entities engaged in production, wholesale, retail, or dispensing of medicinal products to the public, including medical organizations.

Distributors must establish and maintain a quality system that defines responsibilities, processes, and risk management principles regarding their activities.

Quality System in the Distribution of Medicinal Products

The quality management system includes the organizational structure, procedures, processes, and resources, as well as actions necessary to ensure the preservation of the quality and integrity of supplied medicinal products and to prevent their falsification during storage and/or transportation.

The quality system must be fully documented, and its effectiveness must be monitored and analyzed. The organization's management appoints a Responsible Person with the authority to ensure the implementation and maintenance of the quality system. The distributor must also implement a change management system based on quality risk management principles. The quality system must guarantee that:

Medicinal products are acquired, stored, transported, supplied, or exported in compliance with EAEU GDP requirements;
Management responsibilities are clearly defined;
Medicinal products are delivered to the proper recipients within the agreed timeframe;
Activities are documented during execution or immediately upon completion;
Deviations from established procedures are documented and investigated;
Necessary corrective and preventive actions (CAPA) are taken to eliminate deviations and prevent their recurrence in accordance with quality risk management principles.

It is important to note that the quality system includes the control and review of outsourced activities related to acquisition, storage, transportation, supply, or export. Outsourcing activities must account for potential quality risks and include:

Assessment of the contractor's suitability and competence, as well as verification of necessary permits;
Definition of responsibilities, interaction procedures, and information exchange regarding quality-related activities;
Monitoring and analysis of the contractor's performance, as well as identifying and implementing necessary improvement measures on a regular basis.

The results of the management review of the quality system must be documented in a timely manner and communicated to personnel.

Quality Risk Management is a systematic process for the assessment, control, communication, and review of risks to the quality of medicinal products. This process can be conducted both prospectively and retrospectively. The scope of quality risk management activities and the documentation of risk assessment results must be commensurate with the level of risk. Examples of risk management processes and tools are provided in the Good Manufacturing Practice Rules of the Eurasian Economic Union (EAEU GMP).

Personnel Requirements for the Distribution of Medicinal Products

The implementation of EAEU GDP requirements depends on the human factor. The distributor must have a sufficient number of qualified personnel. Each employee must know and understand EAEU GDP requirements relevant to their activities and understand their individual responsibility, which must be documented.

The distributor's management must appoint a Responsible Person who meets the qualification requirements established by the legislation of the EAEU member state and possesses the necessary qualifications (preferably a pharmaceutical education), experience, and knowledge in the field of good distribution. In specific cases, the Responsible Person may have a non-pharmaceutical education; for example, for the distribution of radiopharmaceuticals — an education in radiobiology, nuclear physics, or radiophysics; for the distribution of medical gases — a physical-technical profile. The educational profile of the Responsible Person must be established by the distributor's quality manual based on its product portfolio.

The authority of the Responsible Person to make decisions within their job duties must be defined in the job description. Key responsibilities include a broad range of duties:

Ensuring the implementation and maintenance of the quality management system;
Focusing on the management of authorized activities and ensuring the accuracy and quality of records;
Ensuring the implementation and maintenance of initial and continuous training programs for all personnel involved in the distribution process;
Coordinating and timely organizing the recall of medicinal products from circulation;
Ensuring effective handling of customer (recipient) complaints;
Approving suppliers and recipients;
Approving the outsourcing of activities that potentially impact compliance with Good Distribution Practice;
Ensuring self-inspections are conducted according to the established frequency and prepared program, and necessary corrective measures are taken;
Maintaining necessary records related to delegated duties;
Making decisions regarding returned, recalled, rejected, substandard, or falsified medicinal products;
Approving the return of medicinal products to saleable stock;
Ensuring compliance with any additional requirements established for specific products by the legislation of member states.

The distributor must have a sufficient number of qualified employees involved in distribution activities at all stages. Their number is determined by the volume of work performed and the requirements of EAEU member state legislation.

Training of Distributor's Employees

All employees involved in distribution activities must undergo training on issues related to Good Distribution Practice and possess the necessary qualifications before commencing their duties.

Specifically, initial and subsequent training corresponding to the employees' duties is required. The Responsible Person must maintain personnel competence in Good Distribution Practice through regular training.

Additionally, training must include aspects of product identification and prevention of falsified medicinal products entering the supply chain. Personnel working with products subject to stricter handling conditions must undergo special training. The distributor's organization must also establish appropriate procedures for occupational hygiene and personal hygiene of employees.

Requirements for Premises and Equipment

Premises must be designed or adapted to ensure compliance with required storage conditions. They must be secure, robust, and of sufficient capacity for the safe storage and handling of medicinal products. If the premises are not owned directly by the distributor, they may be used under a lease (sublease) agreement or other property or contractual right.

Medicinal products must be stored appropriately in dedicated and clearly designated areas, access to which is restricted to authorized personnel. Any system replacing physical separation of storage areas (e.g., a computerized system) must provide an equivalent level of security and be validated. Medicinal products regarding which a final decision on circulation has not been made or whose circulation has been suspended must be isolated.

Any falsified products, expired products, recalled products, as well as rejected products (rejected in the supply chain) must be immediately physically isolated and placed in a specifically designated area separated from other medicines.

Reception and dispatch areas must be protected from weather conditions, and there must be adequate separation of reception, dispatch, and storage areas. A security system must be in place to prevent unauthorized entry into any controlled access premises. Visitors must not be in the premises unaccompanied.

Storage premises and equipment must be clean and free from accumulated dust and debris. Cleaning programs, documented procedures, and records must be in place. Premises must be designed and equipped to prevent the entry of insects, rodents, or other animals. A preventive pest control program must be developed.

Restrooms, cloakrooms, showers, and toilets for employees must be appropriately separated from storage areas. The presence of food, beverages, tobacco products, as well as medicinal products for personal use in warehouse premises is prohibited. Additionally, appropriate equipment and procedural documents must be available. Environmental conditions that may require control include temperature, lighting, humidity, and cleanliness.

Initial temperature distribution studies (temperature mapping) must be performed in storage premises before use, under conditions reflecting operating parameters.

Temperature mapping must be repeated according to risk analysis results or in the event of significant changes to the premises layout or temperature control equipment.

A maintenance plan for equipment most critical to operations must be approved. Appropriate alarm systems must be used to promptly detect deviations from required storage conditions.

Repair, maintenance, verification, and calibration of equipment must be carried out in a manner that does not negatively impact the quality of medicinal products.

Before using a computerized system, it must be demonstrated through validation or verification that the system can produce desired results accurately, consistently, and reproducibly. A detailed written description of the computerized system (including diagrams where possible) must be available and kept up to date. Data entry or modification in the computerized system must be performed only by authorized employees.

Documentation Requirements

Proper documentation is an integral part of the quality system. Documentation includes written procedures, instructions, contracts, records, reports, test protocols, and other paper or electronic media on which data is recorded. Documentation must be easily accessible to distributor personnel and retrievable.

The processing of personal data of the distributor's employees, claimants, and any other individuals is carried out in accordance with the requirements of EAEU member state legislation. The text of documents must be unambiguous, preventing misinterpretation and errors. Procedures must be approved, signed, and dated by the Responsible Person.

Documentation must be retained for the period established by member state legislation, but not less than 5 years. Employee personal data must be destroyed or anonymized as soon as its storage is no longer required for medicinal product distribution purposes.

Each employee must have ready access to the documentation necessary to perform their duties. Special attention must be paid to the use of valid and approved procedures. Specifically, the document name and purpose must be clearly indicated. Version control must also be applied to procedures.

Records relating to all activities concerning received or supplied products must be maintained. Records must include the following information: date, name of medicinal products, quantity of acquired or supplied medicinal products, name and address of the supplier, recipient, or consignee (as applicable), and batch number.

Requirements for the Medicinal Product Distribution Process

All distributor actions must be performed in a manner that ensures the identity of medicinal products is not lost and requirements indicated on their packaging are met. The distributor must take necessary measures to minimize the risk of falsified medicinal products entering the supply chain.

The following medicinal products are subject to distribution:

Registered in accordance with EAEU member state legislation;
Registered in accordance with acts constituting Union law;
Unregistered and/or imported (exported) in accordance with EAEU member state legislation.

The distributor is required to obtain medicinal products only from organizations holding a permit for the manufacture or distribution of medicinal products issued by the authorized body. A distributor purchasing medicinal products from another distributor must verify that the supplier complies with EAEU GDP requirements and holds a license.

Supplier assessment and approval activities must be performed by the distributor prior to purchasing medicines and must be documented and periodically reviewed.

When signing contracts with new suppliers, the organization must conduct due diligence on the supplier to confirm their competence.

Particular attention must be paid to the following factors:

Supplier reputation and/or reliability;
Offers to supply medicinal products most susceptible to falsification;
Offers to supply large batches of medicinal products typically available only in limited quantities;
Pricing offers that do not correspond to market rates.

The distributor must ensure that medicinal products are supplied only to organizations holding a permit (license).

Initial and subsequent periodic assessments of compliance with these requirements include the following actions:

Obtaining copies of relevant permits (licenses);
Verifying the authenticity of information in documents published on government websites;
Requesting documents confirming the recipient's qualifications or right to conduct activities related to the circulation of medicinal products in the EAEU market.

The main objectives of reception operations are:

Verifying the compliance of received medicinal products with shipping documentation;
Verifying receipt of medicinal products from an approved supplier;
Verifying the absence of visible damage that may have occurred during transportation.

Medicinal products must be stored separately from other products capable of affecting them and must be protected from the harmful effects of light, temperature, humidity, and other external factors.

Transport packaging containing medicinal products must be cleaned if necessary before placing medicinal products into storage.

Warehouse operations must ensure required storage conditions and security measures.

Distribution (shipping) must be organized so that medicinal products with shorter shelf lives are shipped first (FEFO – First Expired, First Out). Medicines intended for destruction must be labeled, stored separately in a special restricted-access room or area, and handled in accordance with written procedures.

The supply of medicines must be accompanied by documents (invoice, bill of lading, international consignment note, invoice, air waybill, etc.). Accompanying documents must indicate the following information: date, name of the medicinal product, batch (lot) number, quantity supplied, dosage form, dosage, name and address of the supplier, name and address of the consignee (wholesale warehouse address if different from the legal entity's address), and transportation and storage conditions.

Complaints, Returns, Suspected Falsification, and Recalls

All complaints, returns, suspicions of falsification, and recalls of medicinal products from circulation must be documented and analyzed.

Complaints must be registered with the following information: date of receipt, name of the organization or full name of the claimant, contact details (phone and fax number (if available), email, address), name of the medicinal product, dosage form, dosage, batch and/or lot number, volume, reason for the complaint, etc.

It is necessary to distinguish between (a) complaints regarding the quality of medicinal products and (b) complaints regarding compliance with distribution requirements and conditions. If a complaint relates to the quality of medicines or involves suspected substandard (falsified) medicinal products, the manufacturer and/or Marketing Authorization Holder must be notified immediately. Complaints regarding distribution compliance must be investigated to establish the source (subject) or cause of the complaint.

A specific person must be appointed to handle complaints. Based on the investigation and analysis, appropriate measures, including corrective and preventive actions, must be taken regarding complaints if necessary.

Operations with returned medicines must be carried out in accordance with documented procedures based on risk assessment, taking into account the specifics of the medicinal products.

Medicines previously shipped may only be returned to saleable stock if all the following conditions are met:

The integrity of the secondary (consumer) packaging is intact, there are no signs of damage or labeling not provided by the manufacturer, the shelf life has not expired, and the product has not been recalled;
The recipient has provided documents confirming compliance with special storage and transportation conditions;
The medicinal products have been examined and assessed by a competent person appointed to perform these actions;
The distributor has evidence that the medicinal products were supplied to this recipient (according to attached copies of relevant accompanying documents): the batch and/or lot number matches that in the documents, and there are no grounds to believe the medicinal products are falsified.

Medicinal products requiring special temperature storage conditions may be returned to saleable stock only if there is documentary evidence that they were stored and transported under proper conditions at all times.

The distributor must immediately inform Roszdravnadzor and the Marketing Authorization Holder of any detected falsified product or suspicion of falsification. Falsified medicinal products discovered in the supply chain must be immediately physically isolated and stored separately from other products in a specifically designated restricted-access room or area.

The effectiveness of recall actions must be evaluated regularly (at least once a year). It must be possible to initiate recall actions for medicinal products as quickly as possible at any time.

Outsourced Activities and Self-Inspections

Any activity covered by EAEU GDP that is outsourced must be properly defined, agreed upon, and controlled to avoid misunderstandings that could compromise the integrity of medicines. A written contract must be concluded between the distributor-customer and the contractor, clearly defining the duties of each party.

The customer must verify the contractor's competence to fulfill contract obligations and ensure the contractor complies with Good Distribution Practice requirements through appropriate contract terms and audits. The customer provides the contractor with all information necessary to perform the outsourced activity.

The contractor must have necessary premises and equipment, documented procedures, knowledge and experience, and qualified personnel to properly perform the work (services) under the contract. The contractor must not perform any actions that could lead to a loss of quality of the customer's medicinal products.

The contractor must report any information related to the quality of the customer's medicinal products in accordance with the contract terms.

Self-inspections must be conducted to monitor the implementation of and compliance with EAEU GDP requirements, as well as to develop necessary corrective measures. The distributor must implement a self-inspection program covering all aspects of Good Distribution Practice, member state legislation requirements, guidelines, and procedures within a specific period. Self-inspections may be divided into several separate audits covering specific aspects of the organization's activities.

Self-inspection results must be documented. Reports must contain all information obtained during the inspection. If deficiencies or deviations are identified, their cause must be determined, and corrective and preventive actions must be developed, documented, and their execution monitored.

Transportation of Pharmaceutical Products During Distribution

A distributor supplying medicinal products is required to transport them under conditions ensuring their safety and integrity, protection from environmental factors, compliance with the necessary temperature regime (storage conditions), and protection from falsification.

Required storage conditions for medicinal products must be maintained throughout the entire transportation time in accordance with the manufacturer's instructions or information on the packaging.

In the event of deviations, such as temperature excursions or damage to medicinal products during transportation, information must be communicated to the sender and recipient. A procedure defining actions in the event of deviations and the investigation of such facts must be developed and documented.

Vehicles and equipment used for transporting medicinal products must be kept clean and subjected to cleaning as necessary. Written procedures for the maintenance and operation of vehicles and equipment must also be developed. Medicinal products must be delivered to the address indicated in the delivery documents and handed over directly to the recipient's premises; they must not be left in any other premises.

Specialized personnel acting under documented procedures must be appointed to organize emergency deliveries outside of business hours. Responsibility for compliance with transportation conditions lies with the distributor.

Furthermore, medicines must be transported in transport packaging that does not negatively impact their quality and provides reliable protection against external influences, including preventing contamination. The selection of transport packaging must be based on storage and transportation requirements. Information on transport packaging must ensure the possibility of identifying the contents and their origin.

When transporting medicines requiring special handling, the distributor must ensure a safe transportation mode protected from unauthorized access.

To ensure required transportation conditions for thermolabile medicinal products, special equipment or means (isothermal packaging, containers) and vehicles ensuring maintenance of the required temperature regime must be used.

Upon recipient request, data confirming compliance with the temperature regime during storage and transportation of thermolabile medicinal products must be provided. Cooling elements (ice packs) in isothermal containers must be placed so there is no direct contact with the medicinal products.

Thus, EAEU GDP describes requirements for distribution activities in considerable detail. It should also be noted that Roszdravnadzor, in its Order No. 1043 dated April 27, 2021, established that EAEU GDP is included in the list of legal acts and their specific parts (provisions) containing mandatory requirements, compliance with which is assessed during control measures within separate types of state control (supervision). Therefore, this document is an integral part of the legal acts regulating the actions of medicine distributors in the Russian market.

Key Problems Associated with Pharmaceuticals Distribution in Russia

In addition to the control over quality and distribution procedures by Roszdravnadzor, distributors are also actively monitored by FAS Russia. This is especially true if large pharmaceutical companies are recognized as economic entities holding a dominant position.

FAS Russia explains that the process of working with counterparties, as well as commercial terms including supply volumes, product assortment, prices, payment terms, and discount and bonus conditions, must be detailed in the relevant document (commercial policy) of the economic entity holding a dominant position.

FAS Russia allows justified differentiation of terms for working with counterparties by an economic entity holding a dominant position, provided such terms are economically justified, for example:

For larger purchase volumes in physical terms, the price per unit may be lower than for smaller batches;
For prepayment settlements, the price may be lower than when commercial credit is provided;
For purchases from stock or of illiquid goods, the price may be reduced.

FAS Russia does not recommend including a requirement for detailed purchase forecasts of medicinal products intended for the counterparty's participation in government procurement with a breakdown by planned delivery regions in the terms of work with a counterparty.

Firstly, the counterparty cannot possess information on tender results prior to their conduct. Secondly, such information may be used to coordinate supplies for tenders and prevent the simultaneous participation of several specific counterparties in the same tender. FAS Russia proceeds from the premise that economic entities generally plan their activities independently based on information about past and forecasted volumes of government customer needs for medicinal products and tenders conducted during the calendar year (including using information on the number of patients receiving medication).

At the same time, FAS Russia does not exclude systematic verification by an economic entity holding a dominant position of counterparties for compliance with commercial policy terms. The existence and observance of detailed terms of work with counterparties significantly reduce antitrust risks [3].

It is also important to note that the distribution link has always played a vital role in the development of the Russian pharmaceutical market and has dominated the supply chain. Today, the situation has changed somewhat, partly due to state price regulation of Vital and Essential Drugs (VED List) [4]. Amid economic instability, distributors were the first to feel financial pressure. Additionally, in 2020, businesses worldwide faced supply problems: logistics chains were disrupted due to COVID restrictions. Pharmaceutical manufacturers, among others, tightened cooperation terms with distributors. Specifically, they increased the number of prepayment contracts or reduced payment deferral periods. Echoes of this period are effectively present today. Furthermore, due to the introduction of the "Third is Odd" mechanism by Government Decree No. 1289 dated November 30, 2015, which excludes bids from foreign manufacturers when bids are submitted by two Russian medicine manufacturers, a number of manufacturers were forced to localize production in Russia, including with the help of national distributors [5].

Analyzing the relevant requirements for medicine distribution in Russia, distributors are recommended to pay special attention to internal quality audits and the GDP training system. Effectively, a violation of GDP requirements constitutes a gross violation of licensing requirements by the distributor. Under Part 4 of Article 14.1 of the Code of Administrative Offenses of the Russian Federation (carrying out entrepreneurial activity with a gross violation of requirements and conditions provided by a special permit (license)), such a violation entails the imposition of an administrative fine:

On persons carrying out entrepreneurial activity without forming a legal entity: from 4,000 to 8,000 rubles or administrative suspension of activity for up to 90 days;
On officials: from 5,000 to 10,000 rubles;
On legal entities: from 100,000 to 200,000 rubles or administrative suspension of activity for up to 90 days.

This article has examined the main features of the legal regulation of medicinal product distribution. At each distribution stage, various issues may arise related to the legal regulation of storage, transportation, supplies, quality assurance, etc., which must be resolved based on EAEU GDP requirements and internal corporate standards and agreements adopted on their basis.

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References

[1] Logistics from a Pharma Distributor: Analyzing Benefits, Dispelling Myths. O. Kuplensky // "Pharmaceutical Bulletin". January 23, 2020.

[2] Pharma Group website.

[3] FAS Russia Recommendations on the development and application of commercial policies by economic entities holding a dominant position in medicinal product and medical device markets. Approved by the Presidium of FAS Russia on June 17, 2015.

[4] Pharmaceutical distributors as participants in the information flow in the pharmaceutical market. M.M. Nersesyan, S.A. Mikhailova // "Modern Problems of Science and Education". 2015. No. 2 (Part 2).

[5] Features of pharmaceutical product distribution in Russia. A.Y. Rodionova // Journal of Economy and Business, No. 4-2 (74). 2021. P. 113.