As we previously reported, FDA was petitioned to exempt allulose, a monosaccharide, from being included as a carbohydrate, sugar, and added sugar in the Nutrition Facts box, as well as recognize that the number of calories for this monosaccharide is less than the 4 calories per gram used for traditional sugars.  In response, FDA issued a draft guidance, which was finalized on  Oct. 16.  The final guidance informs manufacturers that the Agency plans to exercise enforcement discretion regarding the requirement to include allulose in the amount of total sugars and added sugars, and for the use of 0.4 calories per gram of allulose when calculating calories for purposes of nutrition labeling.  However, allulose must be included in the amount of total carbohydrates.

On the same day, FDA announced that it would be issuing a request for information regarding the nutrition labeling of “sugars” (i.e., mono- and di-saccharides) that are metabolized differently than “traditional sugars,” and thus do not provide the same amount of calories per gram (traditional sugars provide 4 cal/g), do not cause an increase in blood glucose and insulin upon consumption, and are not associated with tooth decay.  FDA has received requests from industry to treat these “non-traditional” sugars, such as allulose, D-tagatose and isomaltulose differently from “traditional sugars” for purposes of nutrition labeling.  As mentioned above, FDA has decided to exercise enforcement discretion for allulose, and a petition to do the same for D-tagatose is pending.

FDA asks for information about several topics, including:

1. General information about sugars that are metabolized differently than traditional sugars.
2. Should the non-traditional sugars be included in total sugars and added sugars for purposes of nutrition labeling and, if yes, how should the amount be corrected for the difference in metabolic effects?
3. Should FDA adjust the % Daily Value for “added sugars,” using the caloric value of the non-traditional sugar?
4. Should FDA allow inclusion of the non-traditional sugars in the Nutrition Facts box similar to sugar alcohols?

The answers to these questions could carry significant implications for nutrition labeling of foods that contain non-traditional sugars, and thereby affect the formulation of such foods.

Comments may be submitted until Dec. 18, 2020.

The medtech industry has significantly changed during the Trump administration’s last four years. FDA processes are streamlined, the medical device excise tax repealed, and the Senate is in the process of confirming a third Supreme Court nominee. The industry also rapidly responded to the unprecedented COVID-19 health crisis.

What changes are on the horizon for the medtech industry after the November 3rd election, whether with another Trump administration or a Biden administration?  On Wednesday, October 28th, 2020, from 2:00 – 3:00 p.m. ET, Hyman, Phelps & McNamara, P.C. Director Jeffrey K. Shapiro will present at a webinar, titled “The Potential Life Sciences Implications of the Election.”  Mr. Shapiro will cover the upcoming U.S. presidential election and its possible ramifications for the medical device industry.

You can register for this free webinar here.

Genetics and genomics are becoming crucial to clinical care. As the “precision medicine” revolution spreads, cancer treatment, rare disease diagnosis, and cardiac care increasingly utilize genomics. Unfortunately, law and policy lag behind science, and the law governing genomics remains unclear – which means the time is ripe for analysis and thoughtful recommendations.

On Wednesday, December 2, top experts from Harvard Medical School, Columbia University, Vanderbilt University, the University of Minnesota, and other leading genomics and regulatory institutions will convene online to tackle these issues. Hyman, Phelps & McNamara PC is co-hosting this conference on “LawSeq^SM: Facing the Legal Barriers to Genomic Research & Precision Medicine.” Join us to discuss pressing legal and policy issues in genomic research and clinical care; FDA regulation of genomic devices, software, and algorithms; and uses of genomic data. Speakers include Gail Javitt, JD, MPH, from Hyman Phelps; Mark Barnes, JD, LLM, from Ropes & Gray; Alberto Gutierrez, PhD, and Elizabeth Mansfield, PhD, both formerly at FDA; Wendy Chung, MD, PhD, from Columbia University; Barbara Bierer, MD, from Harvard Medical School; and Ellen Wright Clayton, MD, JD, from Vanderbilt University. An agenda and more information is available here. This free conference will offer general CLE credits for New York, California, Illinois, and Minnesota.

Register now to attend. The event is presented by the Consortium on Law and Values in Health, Environment & the Life Sciences at the University of Minnesota in collaboration with Ropes & Gray, LLP, Hyman, Phelps & McNamara PC, and Vanderbilt University Medical Center. This conference grows out of an NIH-funded grant on “LawSeq^SM: Building a Sound Legal Foundation for Translating Genomics into Clinical Application” based at the University of Minnesota and Vanderbilt University Medical Center, in collaboration with a Working Group of national experts. For more information on “LawSeq^SM,” visit here.

Back on August 20, 2020, the Drug Enforcement Administration (“DEA”) issued an Interim Final Rule (“IFR”) purporting to “clarify” certain provisions of the Agriculture Improvement Act of 2018 (“AIA”).  As we explained back when Congress passed the AIA in December 2018, the AIA upended the DEA’s regulation of hemp-derived products.  Historically, the DEA had interpreted the term “marihuana,” regulated as a schedule I drug under the Controlled Substances Act (“CSA”), to include hemp and hemp-derived products, but the AIA explicitly removed hemp from the “marihuana” CSA definition.  As a result, Congress implicitly transferred regulatory authority of hemp as defined in the AIA from DEA to the U.S. Department of Agriculture (“USDA”).  Further, the AIA added a definition of the term “hemp” to the CSA to make explicitly clear that DEA’s regulatory authority does not extend to hemp, which is now defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [“THC”] concentration of not more than 0.3 percent on a dry weight basis.”  Accordingly, any cannabis or cannabis-derived product that includes THC in a concentration above 0.3 percent on a dry weight basis, as well as THC itself, is not hemp and remains a schedule I controlled substances.  The intent of the AIA’s removal of hemp from DEA control was to facilitate the growth of emerging hemp industry.

But DEA apparently had other ideas.  In the IFR, DEA explained that the definition of hemp “does not automatically exempt any product derived from a hemp plant, regardless of the Δ9-THC content of the derivative,” and that “a cannabis derivative, extract, or product that exceeds the 0.3% Δ9-THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less Δ9-THC on a dry weight basis.”  This language has been interpreted to suggest that DEA believes that any hemp extract that exceeds the 0.3% limit—even if only as intermediate materials or byproducts during processing—are controlled substances subject to DEA regulation, effectively rendering hemp production where THC exceeds 0.3 percent subject to the CSA’s rigorous schedule I requirements.  Further, as set forth for the first time in the IFR, DEA excluded all synthetically-derived tetrahydrocannabinols from the hemp definition, noting that “[f]or synthetically derived tetrahydrocannabinols, the concentration of Δ9-THC is not a determining factor in whether the material is a controlled substance.” Thus, all synthetic forms of cannabis and its derivatives, regardless of the Δ9-THC content, are still subject to DEA control.

Importantly, DEA enacted the IFR without undertaking notice and comment as required under the Administrative Procedure Act (“APA”).  Specifically, the DEA framed the IFR as a clarification that “does no more than incorporate the statutory amendments into DEA’s regulations,” and a mere restatement of the AIA, subjecting it to the “good cause” exemption from rulemaking requirements under the APA.  The IFR explains that “DEA has no discretion with respect to these amendments,” particularly because the “statutory changes at issue have already been in effect since” passage of the AIA.

DEA’s position concerning synthetically derived CBD products with a THC content of less than 0.3 percent was an unwelcome “surprise” (putting it kindly) to several industry participants.  Notably, the IFR was the first time that DEA had publicly stated since the enactment of the AIA that synthetically derived tetrahydrocannabinols remain schedule I drugs.  Privately, in letters to industry, DEA had taken exactly the opposite position.  DEA expressly stated in 2019 letters to industry that, after a review of the AIA, it determined that synthetic cannabinols (CBD) containing less than 0.3% Δ9-THC met the definition of “hemp” and therefore were no longer scheduled drugs under the CSA.  DEA’s 2019 position concerning synthetics made sense for many reasons, including because the AIA’s definition applies to cannabis derivatives, “whether growing or not,” which can be interpreted to include synthetic cannabis.  And, CBD with less than 0.3 percent THC, whether plant-based or synthetic, has virtually the same chemical structure and psychoactive effect.

Regardless of whether DEA’s 2019 interpretation treating synthetics and plant-derived products the same, DEA’s August 2020 IFR makes no mention whatsoever of its “change in position,” but instead, ignoring its own previous interpretation and industry’s reliance interests, DEA remarkably insists that the IFR merely implements statutory changes that “have already been in effect since” December 2018.  Really?

The IFR has been the subject of over 3,000 comments, and, less than a month after publication, DEA was sued in the D.C. Circuit, and a subsequent lawsuit in the District Court followed last week.  The D.C. Circuit Petition for Review, filed by the Hemp Industries Association and RE Botanicals Inc., is a barebones petition alleging that DEA failed to comply with the procedures required by law in the CSA and APA, that the IFR exceeded DEA authority, and that the IFR is arbitrary and capricious due to its inconsistency with the AIA.  The District Court lawsuit, also brought by the Hemp Industries Association and RE Botanicals Inc., contains a detailed explanation of the hemp production process and argues that hemp intermediates or byproducts that may exceed 0.3% Δ9-THC during production but ultimately contain less than 0.3% Δ9-THC after completion of the manufacturing process, should not be schedule I drug products.  Though the IFR is not expressly clear that intermediates or byproducts will be regulated as schedule I drugs (requiring adherence to onerous schedule I regulatory requirements), it is clear that the hemp industry sees the disconcerting writing on the wall.  According to the plaintiffs, DEA’s interpretation subjecting the hemp production process when hemp intermediates or byproducts exceed 0.3% Δ9-THC during production would effectively subject almost all hemp to schedule I controls.  Based on this reading, the District Court complaint—relying on congressional intent and plain language of the statute—requests declaratory and injunctive relief and asks the Court to make a judicial determination that the definition of hemp includes intermediates or byproducts that exceed 0.3% Δ9-THC in midst of the production process and that those intermediates are not controlled substances, that DEA lacks any independent authority to regulate any aspect of hemp production, and that DEA is enjoined from enforcing the CSA as to intermediates.

Some of the comments on the IFR raise points related to the interpretation of “synthetically-derived tetrahydrocannabinols.”  Though the D.C. Circuit Petition for Review takes issue with the “good cause” exception absolving DEA from adhering to the APA’s notice and comment rulemaking requirements, the issue is not raised in the District Court lawsuit.  As a result, it would not be surprising if another industry participant also sued DEA in a district court over DEA’s application of the APA’s good cause exception as applied to synthetic CBD.

Based on some of the history provided in the District Court complaint, as well as the available comments, DEA’s exercise of statutory authority here is pretty expansive—and arguably well beyond that intended by Congress.  Congress transferred regulatory authority over hemp to USDA, which raises an argument that Congress intended that USDA – rather than DEA — interpret the statutory definition of hemp.  Further, with the growing importance of the hemp marketplace, it would not be surprising to see a slew of litigation challenging DEA’s authority to interpret the definition of hemp, the DEA’s actual interpretation of hemp, and the rulemaking process DEA used to interpret hemp.  After all (with apologies to the Bard), that which we call hemp — specifically synthetic – by any other name would not smell as sweet, at least according to DEA.

Although it is difficult to glean much positive during these COVID-times, particularly if you are (or could be) the subject of a government enforcement action, this post attempts to provide a possible silver lining.  As part of an effort to support economic recovery during this public health emergency, on May 19, 2020, President Trump issued Executive Order 13924 to set forth what he asserted were ten principles of fairness that federal agencies “shall consider” in administrative enforcement and adjudication actions.  The Office of Management and Budget recently expanded on these principles in a memorandum detailing “best practices” for federal agencies to follow in implementing rules under the Executive Order, and stating that it expects federal agencies to issue any final rules under the Executive Order by November 26, 2020, absent a waiver.   See M-20-31, Implementation of Section 6 of Executive Order 13924 (Aug. 31, 2020).  There is no doubt that the Executive Order and the OMB memorandum apply to all federal agencies, including FDA, FTC, DEA, CPSC, and USDA.   In this post, we will focus on one of those agencies, FDA.

So far, we have not seen any rulemaking from FDA that adopts these principles or best practices into FDA procedures.  Because the OMB deadline falls after the elections, it will be interesting whether FDA will follow these recommendations should there be a change in Administration.   But if FDA adopts these recommendations, it would go a long way to making FDA more transparent, fair, and accountable when opening and investigating conduct by FDA-regulated industry.

The Executive Order lists the following principles of fairness:

(a) The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.

(b) Administrative enforcement should be prompt and fair.

(c) Administrative adjudicators should be independent of enforcement staff.

(d) Consistent with any executive branch confidentiality interests, the Government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action.

(e) All rules of evidence and procedure should be public, clear, and effective.

(f) Penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law.

(g) Administrative enforcement should be free of improper Government coercion.

(h) Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond.

(i) Administrative enforcement should be free of unfair surprise.

(j) Agencies must be accountable for their administrative enforcement decisions.

While the principles themselves are straightforward, the OMB memorandum suggests certain “best practices” that are not consistent with some of FDA’s established practices.  For example, when negotiating the terms of a consent decree, the question of whether to include a sunset provision is often a hot topic for discussion, with FDA at times arguing against the inclusion of any expiration date, or proposing the same time period be used in all consent decrees without regard to the violation at issue or the public health impact.  The OMB memorandum recommends that agencies “adopt expiration dates and/or termination criteria for consent orders, consent decrees, and settlements that are proportionate to the violation of the law that is being remedied.  Decade(s)-long settlement terms that are disproportionate to the violation(s) of law should be strongly disfavored absent a clear and convincing need for time to implement a remedy . . . .”  OMB Memo, subsection (f).

OMB also expects that federal agencies will “publish a rule of agency procedure governing civil administrative inspections,” in subsection (b) of the OMB memo.  This mandate simply reiterates a requirement from Executive Order 13892, which was issued a year ago:

Within 120 days of the date of this order, each agency that conducts civil administrative inspections shall publish a rule of agency procedure governing such inspections, if such a rule does not already exist. Once published, an agency must conduct inspections of regulated parties in compliance with the rule.

As it stands now, the principles governing FDA inspections are set forth in a hodgepodge of reference documents (e.g., Compliance Program Guidance Manual, Compliance Policy Guides, Regulatory Procedures Manual, Investigations Operations Manual, and Inspection Guides), none of which has been subject to rulemaking.

Another area that, if adopted, would be a sea-change from FDA’s current practice is the recommendation that federal agencies provide regulated industry with notice about the closure of an investigation:  “If a party has been informed by an agency that it is under investigation, the agency should inform the party when the investigation is closed and, when the agency has made no finding of violation, so state.”  This courtesy notification will obviate the current dilemma a target faces when in limbo, not knowing whether the government still is investigating but too nervous to “poke the bear” to ask directly.

There are several other “best practices” that would level the playing field for subjects of an investigation, like requiring the government to provide favorable evidence to the subject of an enforcement action, or to apply enforcement discretion if the regulated party attempted in good faith to comply with the law.   As noted, the November 26, 2020 deadline presents an interesting scenario for us to watch; it is extremely unlikely that in one month FDA can issue final rules that have not yet been proposed, and given the drastic changes that are recommended, we expect there is tremendous internal debate on making any proposals before the elections.  But if FDA does, in fact, issue new (or revised) procedures in accordance with these recommended best practices, there may be some lemonade squeezed from these COVID-lemons.

A determination of “intended use” is fundamental to the U.S. Food and Drug Administration’s (FDA) regulation of drugs and medical devices under the Federal Food, Drug, and Cosmetic Act (FDCA).  It is a primary basis for determining if an article is regulated by FDA, and if so, what regulatory requirements apply.

FDA has now proposed to amend the regulation “to provide direction and clarity to regulated industry and other stakeholders.”  85 FR  59,718, 59,718 (Sept. 23, 2020).  This proposal modifies a 2015 proposal to amend the regulation, which ultimately was not finalized.  The saga of the 2015 proposal and the events leading to this new one are set forth in the preamble to the new proposal.  We blogged on the prior proposal here and here.   Our own proposal for reforming the regulation is here.  In today’s post, we will provide some initial thoughts on the new proposed rule.

Current Regulation

In the “intended use” regulations, FDA defines the term and describes the evidentiary basis for determining the intended use of articles that are being marketed.  There is one regulation for devices and another for drugs, but they are in substance the same (21 C.F.R. §§ 201.128, 801.4).

For reference, the current regulation (device version) reads as follows:

The words intended uses or words of similar import . . . refer to the objective intent of the persons legally responsible for the labeling of devices   The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article.  This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives.  It may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised.  The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer.  If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he received the devices, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses.  But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.

Proposed Amendment

In FDA’s proposal, the agency would entirely delete the last sentence of the regulation:  “But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.”  This deletion was, in fact, the heart of FDA’s original proposal back in 2015.

The sentence to be deleted has always been problematic.  As we stated five years ago:

This ‘knowledge’ provision for many years has hung like the Sword of Damocles over the heads of manufacturers who have any knowledge of off‑label uses of their products.  The possibility was always present that FDA could deem such knowledge to create a new intended use.  If so, a manufacturer could find itself in trouble for failing to provide adequate directions for this imputed intended use.  FDA also could deem the intended use an unapproved use outside the scope of the existing clearance or approval, opening the manufacturer up to criminal and civil liability for past sales and the burden of developing a new marketing application to bring the imputed use on‑label.

This change is, therefore, a welcome one.  It would have been a good stopping point.  But FDA’s proposed amendment has two substantive additions to the intended use regulation as well.

Addition #1.  In the second sentence, FDA would add that objective intent can be inferred from “the design or composition” of the article.  The sentence currently states:  “The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article.”  The revised sentence would include the phrase shown in italics:  “The intent is determined by such persons’ expressions, the design or composition of the article, or may be shown by the circumstances surrounding the distribution of the article.”

This change is a significant departure from the historical focus of the intended use regulation on communications.  The regulation has never before expressly specified that the physical attributes of an article may underlie an intended use determination.  Significantly, the new language does not say that the design or composition will exclusively determine intended use.  Nor does it say that the design or composition overrides a firm’s labeling or advertising in determining intended use.  If the regulation were applied in that way, it could potentially be contrary to law.

For example, in Section 513(i)(1)(E) of the FDCA, FDA is required to limit the determination of intended use in premarket review to the proposed labeling.  If FDA believes based upon a device’s design that an off-label is possible and could cause harm, it may require certain cautionary labeling statements.  The agency may not require that the company obtain clearance or approval of the off‑label use.

Given the proposed new language, would FDA be authorized to infer solely from the design of the device once it is on the market that an off‑label use is intended?  It seems likely that this application of the proposed new language would contradict Section 513(i)(1)(E), at least in the absence of communications from the firm promoting the off‑label intended use.

At a minimum, the proposed rule should be amended to clarify that it does not override Section 513(i)(1)(E).  (Even if it is not amended, in a clash between the statute and the regulation, the former must prevail.)  More fundamentally, the proposed rule should be amended to clarify that, with respect to drugs/devices that have a clearance or approval, only post‑market alterations to the design or composition may be considering whether the company has created an unapproved new intended use.  If the design or composition has been cleared or approved after FDA’s premarket review, then the proposed rule should not authorize FDA to invoke the same design or composition as evidence of an unapproved new intended use.  The current proposed language improperly authorizes FDA to do so.

Addition #2.  FDA also proposes to add a proviso.  The regulation currently states:  “It [objective intent] may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised.”  The amendment would add:  “provided, however, that a firm would not be regarded as intending an unapproved new use for an approved or cleared device based solely on that firm’s knowledge that such device was being prescribed or used by health care providers for such use.”

A couple of comments on the proviso.

First, the proviso should be extended to devices that are 510(k)‑exempt.  There is no reason not to include them.

Second, this language moves the intended use regulation in the direction of recognizing the important distinction between (i) articles without any clearance or approval from FDA versus (ii) articles that have a clearance or approval from FDA but also may be put to additional unapproved uses in the practice of medicine.  Under the current regulation as now in effect, in both scenarios (i) and (ii), FDA may consider the offeror’s knowledge of the use to which the article in the determination of intended use.  In contrast, with the amended language, in scenario (ii), FDA could not rely “solely” on the seller’s knowledge of the off‑label use to determine intended use.

As argued here, FDA should be much more constrained in applying the intended use regulation in scenario (ii) (where an article has at least one cleared or approved use) versus scenario (i) (where an article has not been cleared or approved for any use).  This proviso is a small step toward at least acknowledging the distinction.  That is the silver lining.

At the same time, unfortunately, FDA’s proposed proviso is limited by “solely.”  This word implies that knowledge of off‑label use could be an element in determining intended use in scenario (ii).  That implication undermines the proposed deletion of the “knowledge” sentence and seemingly brings it back into play.  It also creates obvious lack of clarity and open‑endedness about the role of knowledge of off-label use in this determination.  This potential for greater uncertainty is quite ironic considering the amendment is touted as a “clarification” of the intended use regulation.  The word “solely” should be struck from the proposal.

Preamble

The preamble to the proposed rule (85 FR 59,718) has a summary of how FDA and the courts have historically determined intended use.  Id. at 59,721‑724.  It also has a number of examples of how FDA would apply the rule with the proposed amendments.  Id. at 59,724-726.  Finally, FDA argues that the regulation, both currently and once the proposed revisions are implemented, is consistent with the First Amendment.  Id. at 59722.

There is little in the preamble that breaks new ground.  It is an interesting question whether the courts should give deference to FDA’s legal arguments and examples of how the regulation might be applied, simply because they have now been incorporated into the preamble.  Typically, a preamble is entitled to weight or deference from a court in explaining or interpreting ambiguous language in a regulation.  But this regulation is not so much ambiguous as vague and open‑ended.  It gives some notice of how FDA may evaluate statutory intended use, but it mainly notifies firms that almost any evidence may be used.

As FDA seems to acknowledge (id. at 59,723), the agency must still justify its position in any specific case.  In this context, a legal justification or an example of how the regulation might be applied does not gain persuasiveness or authority just because it was anticipated in the preamble.  The chief value of the preamble is in providing guidance to firms that seek as a practical matter to avoid FDA enforcement action.  This guidance does not appear to resolve significant ambiguities in the regulation.  Therefore, although the preamble is grossly self‑serving, it potentially may not have a great impact in specific cases.

Summary

On the whole, FDA’s proposed rule would do more to clarify intended use if the agency simply deleted the knowledge sentence.  That would resolve a long‑standing contradiction between the regulation and the statutory scheme.  The proposed add‑ons do not, on net, do not appear to add value and actually are likely to sow more confusion than they reap.  FDA’s stubborn insistence on retaining maximum leeway in intended use continues unabated, even at the expense of greater clarity and certainty for industry.

Hyman, Phelps & McNamara, P.C. is pleased to announce that Dara Katcher Levy and Serra Schlanger will present at the Food and Drug Law Institute’s virtual Advertising and Promotion for Medical Products Conference on October 28–30, 2020.  This conference will analyze the latest commercial issues related to advertising and promotion of human and animal drugs, medical devices, and biologics.  Dara will moderate a session on Pre-Approval Communications with Payors, focusing on the practical aspects of pre-approval interactions with payors, AMCP Format 4.1, and how companies have adapted their pre-approval communications with payors pursuant to FDA’s 2018 final guidance.  Serra will speak about the Rise of Docfluencers and Nursefluencers, focusing on FTC transparency considerations for sponsored content, FDA rules and enforcement related to physician spokespeople, and the risks of engaging health influencers.

We can offer our readers a discount of 15% off the registration using code AP15.  We look forward to seeing you at this virtual conference.

2020 was supposed to be a year remembered for the 40th anniversary of the publication of the Orange Book—a celebration of one aspect of the Hatch-Waxman Amendments—but it could turn out that 2020 is remembered as the year in which the Hatch-Waxman Amendments took a significant blow to the face.  Specifically, when ANDA (and 505(b)(2)) “skinny labeling” (i.e., labeling carve-outs) was struck down and the generic drug industry faltered.

Carve-outs (or skinny-labeling), in which a generic sponsor uses a “section viii” statement to remove from proposed product labeling any indications or other language covered by a method-of-use patent listed in the Orange Book for a given Reference Listed Drug (RLD), have been pretty routine since the Hatch-Waxman Amendments were enacted in 1984.  Permitted by Congress under Section 505(j)(2)(A)(viii), a section viii statement inherently acknowledges that a given patent is listed in the Orange Book but declares that the patent does not cover a condition of use for which an ANDA applicant is seeking approval.  Although the RLD and generic drug are listed in the Orange Book as A-rated, they are only rated as substitutable insofar as they are labeled the same.  As FDA once stated in the Orange Book Preface: “Therapeutic equivalence determinations are not made for unapproved, off-label uses.”

RLD sponsors, understandably, tend to dislike so-called carve-outs, as they allow generic competitors to access the market without addressing listed patents.  As a result, RLD sponsors often petition to preclude carve-outs on the grounds that a carve out would affect the safety and efficacy of the product for the remaining indications in the labeling.  Typically, FDA rejects these petitions, and the practice is now a staple to facilitate generic competition.  But, even though Congress and FDA accept the practice as commonplace, the Federal Circuit just threw a major wrench in the system.

In a 2-1 decision, the Federal Circuit recently held in GSK v. Teva that skinny-labeling can constitute induced infringement, rendering any generic sponsors who relied on a section viii statement for a method of use patent vulnerable to patent litigation.  As the RLD holder, GSK had listed several patents in the Orange Book for carvedilol (Coreg), initially approved for use in the treatment of hypertension, and subsequently for the treatment of congestive heart failure and left ventricular dysfunction following a myocardial infarction.  GSK listed the ‘069 method of use patent, which was reissued and relisted as the ‘000 patent in November 2003, covering the combination of carvedilol and an angiotensin-converting enzyme (“ACE”) inhibitor, diuretic, and/or digoxin with the use code “decreasing mortality caused by congestive heart failure.”  Teva submitted its ANDA in 2002 with a Paragraph IV certification for the ‘069 patent, and, at some point after the ‘069 patent was reissued as the ‘000 patent, submitted a section viii statement for it, effectively converting its ‘069 Paragraph IV certification to a carve-out.  Teva received tentative approval in June 2003, and launched upon expiration of a different patent in 2007 with an AB rating.  Teva subsequently revised its labeling to include the indication for treatment of heart failure, as required by FDA to ensure that its label was identical to the GSK RLD.

In 2014, GSK sued for induced infringement of the reissued ‘000 patent.  At trial, Teva argued that it had carved-out the treatment of congestive heart failure with a section viii statement, and therefore could not have infringed the ‘000 patent.  The jury sided with GSK, finding that Teva caused physicians to prescribe generic carvedilol for the carved-out indication and therefore willfully induced infringement.  In a rare move, the district court granted Teva’s motion for Judgement as a Matter of Law (“JMOL”) and overturned the jury verdict because GSK did not prove that Teva’s actions caused physicians to infringe.  GSK appealed.

The Federal Circuit reviewed the JMOL de novo, evaluating whether “the record is critically deficient of the minimum quantum of evidence to sustain the verdict” (citations omitted).  Looking at the JMOL standard, the Federal Circuit assessed whether the jury’s findings are supported by substantial evidence and whether the jury’s verdict can be supported by its findings.   In no uncertain terms, the Federal Circuit held that the “criteria of induced infringement are met” based on the “ample record evidence of promotional materials, press releases, product catalogs, the FDA labels, and testimony of witnesses from both sides.”  Mainly, the evidence consisted of materials in which Teva had noted that its product was a “generic of Coreg” and “AB rated” without any reference to specific indications.  Notably, the Court implied that the labeling alone may have been enough, as “[p]recedent has recognized that the content of the product label is evidence of inducement to infringe.”  Given that there was substantial evidence to support the jury’s verdict of inducement to infringe the ‘000 patent, the Federal Circuit overturned the JMOL, reinstated the $235 million damages award, and remanded the matter to back to the district court.  The opinion was sure to stress that its decision was not based on policy but purely on applicable patent law.

Federal Circuit Chief Judge Prost vehemently dissented.  Focusing on the “critical balance” of patent rights with public access to innovation, she noted that the Majority decision “undermines this balance,” particularly since Congress specifically provided for the skinny label pathway.  The dissent astutely points out that the Federal Circuit’s holding “nullifies Congress’s statutory provision for skinny labels,” slowing the introduction of low-cost generics.  The dissent stresses that Teva did everything right here, following all statutory and regulatory requirements, never expressly marketing for the carved-out indication, and omitting the indication from its labeling until the method of use patent expired.  With no legally sufficient evidence to support inducement or to support that doctors prescribed generic carvedilol based on any action taken by Teva, the dissent would uphold the JMOL.  To do otherwise, the dissent writes, “undermines Congress’s design for efficient generic drug approval.”

This case highlights the delicate balance that Congress tried to walk between intellectual property rights and facilitating generic drug access when passing the Hatch-Waxman Amendments, and how that balance can be upset by a single court decision.  The evergreening/patent thicket problem just became even bigger for the generic drug industry, as innovators of a product with multiple indications, like cancer drugs that are approved for individual types of cancers, can now—absent a reversal of the panel decision—use a successive method-of-use patent to legally keep all competition off the market indefinitely.

There are also questions of fairness here, as well as reliance interests for generic drug companies.  As Chief Judge Prost pointed out in her dissent, Teva followed the law to a T but is nonetheless on the hook for $235 million.  And generic companies have been doing this for years; are they now all liable for induced infringement?  For industry, the uncertainty leaves a wide open question of whether taking advantage of the skinny label process is advisable.

Given the huge implications here for the generic industry, Teva is sure to appeal this case, either en banc or to the Supreme Court.  But it may be years before we have any certainty.  Neither FDA nor Congress has said anything about this decision yet, but we would be surprised if FDA did not chime in on the issue in some form.  After all, it significantly upsets the Hatch-Waxman balance FDA has strived to achieve and mischaracterizes FDA’s long held position on therapeutic equivalence determinations.

FDA published a constituent update and Federal Register notice asking for comment on a number of questions pertaining to labeling of “foods comprised of or containing cultured seafood cells.” The notice discusses the basis for FDA’s jurisdiction over such products, as well as misbranding provisions that FDA considers relevant.  The notice then poses a number of questions, including:

• Should the name or statement of identity of foods comprised of or containing cultured seafood cells inform consumers about how the animal cells were produced?
• What terms should be in the name or statement of identity of a food comprised of or containing cultured seafood cells to convey the nature or source of the food to consumers?
• Should names for conventionally produced seafood products established by common usage, statute, or regulation be included in the names or statements of identity of food derived from cultured seafood cells?
• When comparing conventionally produced seafood to foods comprised of or containing cultured seafood cells, what attributes (such as nutrition, taste, texture, or aroma) vary between the foods and should FDA consider to be material to consumers’ purchasing and consumption decisions?

Doubtless, these questions will prompt the submission of comments and information from both industry and consumer advocacy organizations.

As noted in the Federal Register notice (and as we discussed in a prior blog posting), FDA and USDA previously reached an agreement on oversight of food derived from cells of USDA-amenable species (e.g., cattle, swine, and chickens). Subsequently, GAO issued a report recommending in part that FDA and USDA take measures to more formally and broadly communicate their understanding that FDA will oversee cell-derived seafood products – other than catfish. Those relatively new to food regulation might not be aware that Congress transferred jurisdiction over catfish from FDA to USDA through provisions in the 2008 and 2014 Farm Bills. We recounted that saga here.

The deadline for submission of comments is March 8, 2021. Comments can be submitted here.

Welcome to the inaugural edition of Hyman, Phelps & McNamara, P.C.’s monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.  (Yes, we know that beverages and dietary supplements are “food” within the meaning of the FFDCA, but our international readers might not be aware of that nuance in U.S. law – so please just roll with the title.)

Food & Beverage

• FSMA Traceability: The FDA has proposed a new rule for FSMA traceability as part of the New Era of Smarter Food Safety initiative. Our initial analysis is forthcoming.
• Pesticides: FDA issued its annual Pesticide Residue Monitoring Program Report for FY 2018. The Pesticide Residue Monitoring Program is administered by the FDA to ensure that FDA-regulated foods in U.S. commerce comply with the pesticide tolerances, or maximum residue levels, set by the U.S. Environmental Protection Agency (EPA).
• Strengthening Organic Enforcement: USDA has proposed a rule intended to strengthen organic control systems, improve farm to market traceability, and provide robust enforcement of the USDA organic regulations. Comment period closes at 11:59 pm Eastern on October 5, 2020.
• Domestic Hemp Production Program: USDA’s AMS is providing an additional thirty (30) days for public comments on the interim final rule that established the Program. The comment period will be open from September 8, 2020 to October 8, 2020.
• Nutrition Facts Label: On September 18, 2020, FDA announced additional flexibility for manufacturers with less than $10 million in annual food sales who need to comply with updated Nutrition and Supplement Facts label requirements by January 1, 2021. Although the compliance date will remain in place, FDA announced they will not focus on enforcement actions during 2021 for these smaller food manufacturers.
• Sometimes Denigration is OK: But it has to be truthful, accurate, and narrowly drawn – a fine needle to thread. In a challenge brought by Clif Bar & Company, NAD concluded in part that Kind, LLC’s depiction of two bars in a commercial had a reasonable basis and was not “falsely denigrating.”
• Enforcement: DOJ announced “the largest-ever criminal penalty following a conviction in a food safety case” – a cool $17.25 million levied against Blue Bell Creameries. See our summary here.
• Bioengineered Animals: FDA posted a helpful webinar for product developers to help them understand the agency’s expectations for data submitted in support of a new animal drug application. (In the U.S., animals that have undergone intentional genomic alteration are subject to regulation as new animal drugs, even if they are only intended for food use.)

Supplements

• CRN’s Board voted unanimously to reaffirm that participation in the Supplement OWL is a requirement of association membership for companies that market eligible finished products.
• Pharmaceutical ingredients found in cognitive enhancement supplements: Merits of the study aside, one possible consequence is increased scrutiny of the quality of products marketed in this category. Hat tip to CRN.

Some Things We Are Monitoring:

• 2020-2025 Dietary Guidelines: Expected by year end.
• A Petition from the Harvard Law School’s Animal Law and Policy Clinic (discussed in our FDALawBlog) regarding the naming of cell-based or cultured meat and poultry products requesting that the FSIS establish a labeling approach for cell-based meat and poultry that “does not overly restrict speech and that respects the First Amendment.”
• Supreme Court oral arguments on December 1 on the application of the Alien Tort Statute to ethical sourcing claims in Nestlé Doe I and Cargill v. Doe I.
• Lawsuits challenging FDA’s GRAS notice regulation and the agency’s oversight of bioengineered animals, and one challenging USDA’s BE labeling rule – all of which grind on, and on, and on…
• OEHHA’s proposed rulemaking to provide an exception for some exposures to listed chemicals in cooked or heat-processed foods – comments are due by October 21.

Upcoming Events:

• FDLI Annual Conference: Exploring Advanced Topics in Food & Drug Law, October 6-8, 2020, where HPM’s Karin Moore will lead a lunchtime table discussion about Corporate Social Responsibility claims.
• CRN Day of Science and Annual Conference, October 13-16, where HPM’s Ricardo Carvajal will participate in a panel discussion on what the industry really needs from FDA.
• Consumer Brands Association Fall Food Labeling Workshop, October 19-23, 2020
• FDA public meeting on ‘‘CBD and Other Cannabinoids: Sex and Gender Differences in Use and Responses.” November 19, 2020

On September 24, 2020, the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA) announced a Final Rule and an FDA Guidance for the importation of certain prescription drugs. (See our coverage of the proposed rule and draft guidance here.) The Final Rule and FDA Guidance set forth the details of the two separate pathways introduced in the July 2019 Safe Importation Action Plan (see our summary here) and satisfy the rulemaking directive in President Trump’s July 2020 Executive Order on Drug Importation (see our coverage of the Executive Orders here). The following day, the Centers for Medicare & Medicaid Services (CMS) issued Release No. 114 (CMS Release), containing guidance on manufacturer obligations under the Medicaid Drug Rebate Program (MDRP) with respect to multi-market approved (MMA) products created under the pathway provided in the FDA Guidance.

The Final Rule

The Final Rule implements Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act), 21 U.S.C. § 384, to allow for the importation of certain prescription drugs from Canada. Under the Final Rule, states (including the District of Columbia and U.S. territories), Indian Tribes, and, in certain circumstances, pharmacists or wholesale distributors (SIP Sponsors), may develop a Section 804 Importation Program (SIP) that must be authorized by FDA. The SIP Sponsors must specify which prescription drugs will be included in the SIP. Certain categories of prescriptions drugs are excluded by statute from inclusion in the SIPs, including controlled substances, biological products, infused drugs, intravenously injected drugs, drugs inhaled during surgery, intrathecally or intraocularly injected drugs, and drugs subject to Risk Evaluation and Management Strategies (REMS). Drugs that are going to be imported must be approved by the Health Products and Food Branch of Health Canada, and, other than the labeling, meet the conditions in an FDA-approved new drug application (NDA) or abbreviated new drug application (ANDA). This does not mean that a SIP Sponsor or Importer (described below) must obtain FDA approval of an NDA or ANDA for the imported drug, but that the product is currently marketed in the U.S. under an NDA or ANDA, and the imported version of the drug meets the conditions of that NDA or ANDA. In order to ascertain that such conditions are met, the manufacturer must provide the Importer with an attestation that the imported drug meets the conditions of the NDA or ANDA (regardless whether the manufacturer approves of the importation). In addition, the Importer or manufacturer must arrange for the imported drug to be tested by a U.S. laboratory for compliance with established specifications and standards.

Before imported drugs may be sold in the United States, they must undergo testing as described above, and be relabeled for sale in the United States. Each SIP Sponsor must identify the FDA-registered repackager or relabeler in the United States that will relabel the imported products with the required U.S. labeling, including the following required labeling statement: “[This drug was/These drugs were] imported from Canada without the authorization of [Name of Applicant] under the [Name of SIP Sponsor] Section 804 Importation Program.”

To protect the drug supply chain, SIP Sponsors must identify a Canadian Foreign Seller that will purchase the prescription drug directly from its manufacturer and a U.S. Importer that will buy the drug directly from the Foreign Seller. The Foreign Seller must be licensed by Health Canada as drug wholesalers and registered with FDA as a Foreign Seller; the Importer must be a wholesale distributor or pharmacist licensed to operate in the United States. Both the Foreign Seller and the Importer will be subject to the supply chain security requirements set forth in the FDC Act and Final Rule. Initially, each SIP will include one SIP Sponsor, one Foreign Seller, and one Importer. However, if the SIP Sponsor can demonstrate that it has consistently imported eligible prescription drugs in accordance with Section 804 and the Final Rule, the SIP Sponsor may submit a supplemental proposal to FDA to add additional Foreign Sellers or Importers to the SIP. Each SIP is envisioned to be limited to an initial two-year period, but may be reauthorized by FDA if the SIP satisfies the statutory requirements that the program (1) pose no additional risk to public health and safety and (2) result in a significant reduction in the cost of drugs to the American consumer.

As we’ve noted in our previous posts, FDC Act § 804 was enacted in 2003, and until now, no administration has made the statutorily required certification that an importation program will pose no additional risk to the public’s health and safety and will result in a significant reduction in the cost of covered products to the American consumer. Concurrent with the issuance of the Final Rule, HHS for the first time made the required certification to Congress. However, the Final Rule places the burden of demonstrating consumer savings on the SIP Sponsors; each SIP Sponsor is required to provide FDA with data and information about its SIP, including the SIP’s cost savings to the American consumer. At this time, six states (Vermont, Florida, Colorado, Maine, New Mexico, and New Hampshire) have passed laws that allow for the development of drug importation programs.

The FDA Guidance

Unlike SIPs, which arrange for eligible drugs to be imported whether or not the manufacturer approves of such importation, the FDA Guidance provides an importation pathway that may be used at the option of manufacturers. The FDA Guidance explains that “FDA has become aware that some drug manufacturers may be interested in offering certain of their drugs at lower costs and that obtaining additional National Drug Codes (NDCs) for these drugs may help them to address certain challenges in the private market.” The challenges FDA refers to are most likely contracts with payors and GPOs that lock in drug prices and/or price reductions for the currently available NDCs during the term of the contract. The FDA Guidance outlines the process for drug manufacturers to obtain NDCs for FDA-approved products originally intended to be marketed and sold in a foreign country (not limited to Canada) that are imported to the United States. A “multi-market approved product” (MMA product) can be (1) an FDA-approved prescription drug, (2) an FDA-licensed biological product, including an FDA-approved NDA that was deemed to be an FDA-approved Biologics License Application (BLA) but not a blood or blood component or an allogeneic cellular or tissue-based product, or (3) a combination product approved in an NDA or BLA. In the United States, the MMA product has to be authorized for marketing by the manufacturer, be the subject of a supplement to an approved NDA or BLA, and meet certain quality and labeling requirements.

The MMA product, including its labeling, must be the same as the FDA-approved drug or FDA-licensed biological product, except that the prescribing information, container label, and package label must state, “Imported following the procedures recommended in FDA Guidance: see [current link to the FDA Guidance],” The FDA Guidance recommends that a manufacturer obtain a new labeler code for its MMA products to avoid confusion with the FDA-approved drug or FDA-licensed biological product. The FDA Guidance includes other recommendations to help distinguish an MMA product and minimize potential product confusion, such as adding easily visible contrast stripes to the MMA product container and issuing Dear Healthcare Provider Letters with information about the MMA product. A manufacturer that wishes to import an MMA product must complete the registration and listing process for each MMA product. A manufacturer of an MMA product must also comply with the FDC Act drug supply security requirements for product identification, tracing, and verification.

Although the Notice of Availability for the draft guidance had asked for comments related to expanding this pathway to generic drug manufacturers, the final FDA Guidance is limited to brand products. The biggest change from the draft guidance to the final FDA Guidance is the inclusion of FDA-licensed biological products, including deemed biological products such as insulin, in the MMA product category. This may be significant because, as noted above, biological products may not be imported from Canada under the SIPs.

The CMS Release

The CMS Release addresses the eligibility of MMA products to receive payment under the MDRP and determines that such products meet the definition of a “covered outpatient drug.” According to CMS, an MMA product satisfies the statutory definition of a covered outpatient drug because it is a prescribed drug that is approved under FDC Act § 505 or licensed under the Public Health Service Act § 351. The manufacturer must enter into a Medicaid drug rebate agreement with HHS that includes the new labeler code and NDCs for the MMA products to ensure payment by Medicaid. The manufacturer would also need to comply with the statutory and regulatory requirements for participation in the MDRP with respect to the MMA products.

With regard to calculation of average manufacturer price (AMP) and best price, CMS views a manufacturer authorizing the sale of an MMA product in the United States under the FDA Guidance as similar to the manufacturer marketing an authorized generic product, with the non-MMA product being equivalent to the brand product and the MMA product being equivalent to an authorized generic marketed under the manufacturer’s approved NDA. Accordingly, CMS refers manufacturers to the its rules and recently proposed updates on authorized generic for guidance on the calculation of average manufacturer price (AMP) and best price. See Medicaid Program Proposed Rule, 85 Fed. Reg. 37286 (June 19, 2020); see also 42 C.F.R. § 447.506; CMS Releases 111 and 112. (See our coverage of the proposed rule here.) The CMS Release does not address calculation of AMP and best price for biological MMA products, to which the authorized generic provisions do not apply.

With regard to AMP, a manufacturer should treat the FDA-approved MMA product as a separate product that it has authorized to be sold under its NDA and submit a separate AMP for the MMA product based on the sales of that MMA product only. The manufacturer would submit a separate AMP for the non-MMA product based on the sales of that product only, not taking into account any sales of the MMA product. The MMA and non-MMA products would likely have different labeler codes and NDCs (as recommended in the FDA Guidance) , but the base date AMP for the MMA product would be the same as that for the non-MAA product because both are marketed under the same NDA. As the proposed Medicaid rule is finalized, CMS may issue additional guidance on AMP calculations for MMA products.

A manufacturer’s best price should reflect the lowest price available to any entity sold under a manufacturer’s NDA. CMS again analogized to the authorized generic product scenario in which the statutory definition of best price expressly provides that, in the case of an authorized generic, the best price shall be inclusive of the lowest price for such authorized drug available from the manufacturer during the rebate period to best price eligible entities. See 42 U.S.C. § 1396r-8(c)(1)(C) and 42 C.F.R. §§ 447.505, 447.506. Accordingly, the best price for either the MMA product or the non-MMA product sets the best price for both products.

The CMS Release does not address the treatment of drugs imported from Canada under SIPs. However, such drugs most likely would not be considered covered outpatient drugs because, unlike MMA drugs, drugs imported under a SIP do not meet the definitional requirement of being approved under an NDA or ANDA.

On Sept. 23, 2020, a coalition of public health and consumer advocacy groups submitted a Citizen Petition to FDA, requesting that FDA start considering the cumulative health effects of substances added to food as (according to Petitioners) is required by the Federal Food, Drug, and Cosmetic Act (FDC Act) and FDA’s own regulations. Several of the coalition members  have previously challenged FDA’s approach to safety of food ingredients (the Environmental Defense Fund has challenged FDA’s GRAS regulations, and the American Academy of Pediatrics issued a policy statement in 2018 suggesting that FDA should consider cumulative and synergistic effects of food additives in the context of other chemical exposures that may affect the same biological receptor or mechanism).

Petitioners allege that FDA and the US food industry have failed their statutorily mandated responsibility to consider the cumulative effect of food ingredients.  Allegedly, this failure has resulted in Americans, in particular children, being exposed to health risks.  In fact, Petitioners suggest that it may have contributed to dramatic increases in a variety of chronic diseases such as obesity, diabetes, and kidney disease.

Petitioners claim that under the Federal Food, Drug, and Cosmetic Act (FDC Act), FDA must review the cumulative effect of substances added to foods “taking into account any chemically- or pharmacologically-related substances in the diet;” although FDA has incorporated that requirement into the regulatory definition of “safety” for the various categories of food ingredients, i.e., food additives, color additives, GRAS substances, and food contact substances, as well as for animal drugs, it allegedly has not enforced that requirement.

Petitioners claim that they reviewed all GRAS notices for human food ingredients since 1997 and identified only one notification, in which the notifying company considered the purported cumulative effect requirement.  Moreover, they note, FDA guidance for industry does not address how food manufacturers are to evaluate cumulative effects.  Instead, the cumulative effect seems to be equated to or confused with “cumulative exposure” or “cumulative intake” of the single substance rather than with cumulative effects of related substances in the diet.

Petitioners suggest that FDA use a regulation related to drugs, 21 C.F.R. § 201.57, which defined pharmacological class for drugs and biologics as model.  Petitioners also request that FDA define diet as not being limited to food and beverages but specifically include dietary supplements and tap water.

Petitioners summarize their requests as follows:

• Update of FDA’s rules by defining key terms so they remove any ambiguity and removing outdated references;
• Issuance of guidance to industry to explain the steps those conducting safety determinations should take to follow the law; and
• Revision of FDA’s forms for notices and petitions to more clearly require the necessary information

The Third Circuit handed down a precedential decision this week in the case of Federal Trade Commission v. AbbVie Inc., et al., No. 18-2621 (3d Cir. Sept. 30, 2020), ruling that the District Court for the Eastern District of Pennsylvania erred in requiring AbbVie and Besins to disgorge $448 million in the FTC’s case involving reverse payments under the Hatch-Waxman Act, and outright rejecting the FTC’s authority to seek disgorgement under 13(b) of the FTC Act.  This precise issue of 13(b) disgorgement is being heard by the Supreme Court this term in  FTC v. Credit Bureau Center and AMG Capital Management v. FTC.  The Third Circuit decision is consistent with the Seventh Circuit’s decision in Credit Bureau Center, 937 F.3d 764, 775 (7th Cir. 2019), and two judges on the Ninth Circuit in AMG Capital Management, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scannlain, J., concurring).  See our previous posts here and here for more information about the cases at the Supreme Court.

As a brief aside, while this blog post focuses on the disgorgement aspect of this 99-page decision, many of our readers will be interested in the Court’s analyses of the FTC’s reverse payment theory and sham litigation under Noerr-Pennington.

And now back to disgorgement.  The Third Circuit analyzed the text of Section 13(b) and found it lacking: “Section 13(b) authorizes a court to ‘enjoin’ antitrust violations. It says nothing about disgorgement, which is a form of restitution, not injunctive relief.” (internal citations omitted).  The Court also looks at the statute contextually, indicating that Section 13(b) applies to antitrust violations that are believed to be imminent or ongoing. If there nothing imminent or ongoing, there is nothing to enjoin, and the FTC cannot sue under Section 13(b). Disgorgement, on the other hand, is intended to deprive a wrongdoer of past gains, which is not the focus of 13(b).  The court reasoned that “[i]f Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation.”

As we noted in our post discussing the Supreme Court’s June 2020 decision in Liu v. Securities and Exchange Commission, the Securities Exchange Act, 15 U.S.C. § 78u(d)(5), includes explicit language giving courts the power to grant “any equitable relief” for securities violations, and the Supreme Court threw the SEC a lifeline and vacated and remanded that case for consideration whether disgorgement fell under the principles of equitable relief.  Unfortunately, Section 13(b) of the FTC Act does not include such specific language, nor does the Food, Drug, and Cosmetic Act.  The FDA simply relies on the vague statement that courts can “restrain violations” of the FDC Act to support its demand for disgorgement and/or restitution:  “The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301 . . . .”   21 U.S.C. § 332(a).

As we eagerly await a date for oral arguments in the FTC cases, consider whether the decisions out of the 3rd and 7th Circuits (and two judges on the 9th Circuit) reflect a more current view of Section 13(b) than the years of decisions holding that courts may order disgorgement under Section 13(b). A similar consideration would apply to the FDC Act.  As the 3rd Circuit pointed out in its decision, quoting the 7th Circuit, “until recently, ‘[n]o circuit ha[d] examined whether reading a restitution remedy into section 13(b) comports with the FTCA’s text and structure.’”  And the Supreme Court will be examining just that issue shortly.  Stay tuned.

Two federal courts, in unrelated cases, separately rejected plaintiffs’ attempts to force FDA to authorize the use of hydroxychloroquine to treat or prevent COVID-19.  Hydroxychloroquine, a drug that has been used for over 60 years, has been touted by President Trump as an effective treatment or preventative measure against COVID-19.  In March 2020, FDA issued a narrow Emergency Use Authorization (EUA) for hydroxychloroquine, that allowed hospitalized patients diagnosed as having COVID-19 to obtain the drug from the Strategic National Stockpile if no clinical trial was available for them.  Just three months later, in June 2020, FDA revoked the EUA after it “determined that [hydroxychloroquine is] unlikely to be effective in treating COVID-19.”  FDA also stated that the “ongoing serious cardiac adverse events and other serious side effects” changed the risk-benefit basis for the EUA.  Neither the EUA, nor its revocation, affect physicians’ ability to prescribe commercially available hydroxychloroquine using their medical judgment.

In the Michigan case, the Association of American Physicians & Surgeons (“AAPS”) sued on behalf of its physician members who sought to prescribe the drug to their patients but claimed FDA “impeded the ability of President Trump to make [the drug] available to the public.”  AAPS claimed it had standing to sue in its own right, to sue on behalf of its members, and to sue on behalf of patients of its members.  AAPS alleged that it was injured because it had to cancel one of its conferences due to state mandates prohibiting large public gatherings; that doctors were injured because they were limited in their ability to prescribe hydroxychloroquine due to fear of retaliation by state medical boards; and that patients were injured because they were unable to receive prescriptions of hydroxychloroquine from AAPS member physicians.  Because these alleged injuries lacked causal connection to FDA’s actions, the court rejected all of plaintiff’s theories for standing and dismissed the case.

The Kansas case, brought by pro se plaintiff Peter Mario Goico, more colorfully alleged that FDA was effectively holding him and his elderly father hostage by not authorizing the “prophylaxis [sic]” use of hydroxychloroquine.  Goico claimed FDA was depriving his father and him of their First Amendment rights because they were unable to attend religious services and a political protest due to their susceptibility to COVID-19.  In denying plaintiff’s second emergency motion for TRO, the court found that plaintiff “having to take the kinds of safety precautions that many Americans have been taking for months to avoid or minimize the risk of exposure to COVID-19” is not sufficient to justify the high threshold for a TRO.   FDA’s response to plaintiff’s motion for a preliminary injunction is due on October 20, 2020.

Although both plaintiffs took issue with FDA for their inability to access hydroxychloroquine, neither appears to have a response to FDA’s position that doctors are free to prescribe the commercially available drug off-label as they see fit.  Perhaps the risk-benefit analysis FDA conducted in revoking the EUA is persuasive, but FDA generally declines to impede the practice of medicine, as it recently reaffirmed:  “FDA generally does not seek to interfere with the exercise of the professional judgment of health care providers in prescribing or using, for unapproved uses for individual patients, most legally marketed medical products.”  FDA, Proposed Rule: Regulations re “Intended Use,” fn. 3.

Hyman, Phelps & McNamara, P.C. is pleased to announce that Serra Schlanger will present at this year’s Drug Pricing Transparency Congress, a virtual conference, on November 16–17, 2020.  This conference gathers stakeholders to examine the evolving landscape of state drug price reporting and transparency efforts.  Serra will speak about the state laws that require price disclosures to be made directly to health care providers, as well as join a panel of experts to discuss recent developments and practical tips for compliance with the various state requirements.

As a sponsor of the event, we can offer our readers a special discount off the registration.  The discount code is DPC200.  We look forward to seeing you at this virtual conference.