Industry – 3, FDA – 0: Will the Agency Finally Throw in the Towel?

In a March 13, 2020 opinion, the United States Court of Appeals for the District of Columbia Circuit handed Eagle Pharmaceuticals, Inc. (Eagle) a significant win in FDA’s appeal from a District Court order requiring FDA to grant Orphan Drug Exclusivity to Eagle’s Bendeka (bendamustine) drug product.  The legal issue at the heart of this case has been the subject of posts several times before (here, here, here, and here), but bears repeating.

FDA’s Orphan Drug Regulations

FDA’s orphan drug regulations define a “clinically superior” drug as “a drug . . . shown to provide a significant therapeutic advantage over and above that provided by an approved orphan drug (that is otherwise the same drug)” in one of three ways:

(1) greater effectiveness as assessed by effect on a clinically meaningful endpoint in adequate and well controlled trials;

(2) greater safety in a substantial portion of the target population; or

(3) demonstration that the drug makes a major contribution to patient care.

21 C.F.R. § 316.3(b)(3).  FDA has explained in its response granting in part and denying in part a citizen petition (Docket No. FDA-2011-P-0213) that the standard for obtaining designation as a clinically superior drug is different from the standard for obtaining exclusivity:

Though the sponsor of a subsequent orphan drug must set forth a plausible hypothesis of clinical superiority over the previously approved drug at the designation stage, such a sponsor faces a higher standard at the time of approval. At approval, the sponsor of a drug which was designated on the basis of a plausible hypothesis of clinical superiority must demonstrate that its drug is clinically superior to the previously approved drug.

This heightened standard for demonstrating clinical superiority to obtain orphan drug exclusivity is the subject of the dispute in the Eagle case.

Depomed Files First Challenge to FDA’s Clinical Superiority Standard

Notably, Eagle was not the first company to question FDA’s clinical superiority standard.  In September of 2012, Depomed filed a lawsuit against FDA (see our previous post here) seeking Orphan Drug Exclusivity for its drug, Gralise (gabapentin).  Depomed prevailed and, instead of appealing the district court decision, FDA published in the December 23, 2014 Federal Register a “clarification of policy” notice in which the Agency addressed the effects of the Depomed court decision (see our previous post here).  In that notice, FDA set forth its position that the Depomed decision was limited to the specific drug at issue in that case.  FDA reiterated its intent continue applying its clinical superiority regulatory standard in evaluating orphan drug exclusivity.

Eagle Files Second Challenge to FDA’s Clinical Superiority Standard

Unsurprisingly, after the publication of this notice by FDA, the same issue arose with respect to another drug, Eagle’s Bendeka (bendamustine HCL).  After the parties filed their respective cross motions, two other drug manufacturers with pending applications for generic versions of Bendeka, Apotex, Inc. and Fresenius Kabi USA, LLC intervened as defendants.  As in Depomed, the district court ruled in favor of the company, granting Eagle’s motion for summary judgment and denying FDA’s cross-motion.  Applying Chevron step one, the district court concluded that the Orphan Drug Act “unambiguously require[d] the FDA to afford Bendeka the benefit of orphan-drug exclusivity.”  Eagle Pharms., Inc. v. Azar, 16-790, 16 (D.D.C. 2018).  As a result, no Chevron deference was due FDA’s interpretation.  FDA and the Intervenors appealed.

FDA Appeals District Court Ruling in Favor of Eagle

Judge Henderson, Judge Rao and Judge Williams considered the appeal.  Judge Henderson and Rao ruled in favor of Eagle, with Judge Williams dissenting.  The opinion, written by Judge Henderson, closely tracked the arguments and legal conclusions set forth in Depomed:

The district court in Depomed said it well when it described this provision as “employ[ing] the familiar and readily diagrammable formula, ‘if x and y, then z’”—if designation and approval, then exclusivity.  66 F. Supp. 3d at 230.  Under the plain language of this provision, the FDA is barred from approving another application for “such drug” for the same disease for seven years once it approves an orphan drug for marketing.

Eagle Pharms., Inc. v. Azar, 18-5207, 15 (D.C. Cir. 2020).

As the court explained, by withdrawing its appeal following Depomed, FDA opted “instead to nonacquiesce to the decision in future cases.”  Id. at 9.  The majority went on to analyze the text, structure or purpose, and legislative history of the exclusivity provision, finding nothing to support the benefit is limited to only the drug manufacturer.  First, with respect to the text, the majority presumed the legislature says in a statute what it means.  Repeating the often-cited analogy describing the orphan drug exclusivity questions as one of, if x and y, then z; the majority concluded the statutory text leaves no room for FDA to place additional requirements on exclusivity.

Next, in analyzing the structure and purpose of the Orphan Drug Act, the majority explained FDA’s argument as saying a literal interpretation of the Federal Food, Drug, and Cosmetic Act (FDCA) § 360cc(a)’s text would lead to such absurd results that we should consider evidence beyond it.  The majority responded that, as judges, it is not their “role . . . to ‘correct’ the text so that it better serves the statute’s purpose, for it is the function of the political branches not only to define the goals but also to choose the means for reaching them.”  Id. at 19.

The majority also addressed the repeated argument regarding self-evergreening, or serial exclusivity, where either the same manufacturer or several manufacturers obtain multiple periods of sequential exclusivity for the same drug to treat the same disease.  In response to this assertion, the majority concluded that such a problem does not result purely from a literal reading of the statute, but from the way FDA has decided to regulate designation and the scope of exclusivity.  As a result, to the extent serial exclusivity is a problem, it is within FDA’s power to manage.

Lastly, the majority asserted that statutory interpretation does not require a review of the legislative history when the statutory text is clear, which is the case with FDCA § 360cc(a).

The majority briefly addressed the arguments from the Intervenor Appellants, which are two companies with generic versions of Eagle’s drug currently being excluded from the market.  The intervenors argued that the district court’s decision should have been controlled by the 2017 amendment to FDCA § 360cc(a), which requires a showing of clinical superiority to obtain exclusivity.  The majority noted this argument was raised for the first time on appeal, and is therefore, waived.  In a footnote, however, the majority described this argument as “dubious at best.”  The majority asserted that the district court order requires that FDA give Eagle what Eagle was entitled to at the time its application for Bendeka was approved—prior to the enactment of the 2017 amendments.

Judge Williams’ Dissent responded that the text, structure, and purpose of FDCA § 360cc(a) show that Congress intended the exclusivity period afforded by that provision to be limited to the first manufacturer to secure designation and approval of its orphan drug.  FDA’s additional clinical superiority requirement, therefore, merely flows from the statute.  Indeed, Judge Williams characterized the majority’s interpretation as running counter to the best reading of the congressional language and upsetting the basic economic bargain Congress carefully constructed.

In explaining FDA’s regulations implementing the orphan drug exclusivity statute, the dissent asserted that such regulations incentivize firms to continue innovating for the benefit of patients even after a particular active moiety has been approved for use in an orphan drug.  He then proceeded to question the majority’s interpretation of the “if x and y, then z” analogy.

My view is that Congress meant to imply that this if-then statement—if designation and approval, then exclusivity—would cease to apply to that “same drug” at “the expiration of seven years.” This is a natural reading of an if-then statement, no different from myriad other everyday uses. “If you paint my house, I will pay you $1,000” would in the usual context imply an offer for a single painting and a single reward of $1,000—not as many house paintings and as many thousands of dollars as an industrious painter might want to exchange.

Eagle Pharms., Inc. v. Azar, 18-5207, 52 (D.C. Cir. 2020).  According to Judge Williams, the drafters of FDCA § 360cc(a) failed to expressly close the infinite loop.  He then criticized the majority for basing their analysis on how the statute might look if the drafters had.  Judge William asserted that, because congress could have drafted the statute in a number of ways to close this loop, there was clear ambiguity.  Judge Williams described the majority’s analysis as reducing the role of judges “to nothing more than executing Congress’s script like a computer . . . unguided by contextual common sense.”  Instead, Judge Williams asserted that judges must “calculate[e] the probably meaning of the congressional language based on the information before [them].”  Id.  at 55-56.

Parting Thoughts

It is unclear why FDA insists on holding so tightly to an interpretation that continues to be refuted by the judiciary.  This is especially questionable given that the language of the statute was amended in 2017, after FDA’s decisions on Depomed’s Gralise (gabapentin) and Eagle’s Bendeka.  The 2017 amendment added a clinical superiority requirement to FDA’s determination of orphan drug exclusivity.  Yet the Agency continues to seek validation of its prior actions, to no avail.

It remains to be seen whether FDA will file a writ of certiorari in the Supreme Court.  Notably, the result in Eagle has implications for a third case challenging the clinical superiority standard, United Therapeutics v. FDA, which has been stayed pending this ruling (and in which litigation Hyman, Phelps & McNamara, P.C. represents United Therapeutics).  Days after the decision in Eagle, the judge in United Therapeutics requested the parties file a joint status report indicating whether there is any objection to granting summary judgment in plaintiff’s favor based on the recent holding in Eagle.  On March 26, 2020, the parties in United Therapeutics filed a Joint Notice to the court, requesting “the Court continue to stay further proceedings until the time for rehearing in Eagle has expired, or until the D.C. Circuit has disposed of any petition for rehearing, whichever is later.”  Joint Status Report, United Therapeutics Corp. v. United States Department of Health and Human Services et al., 1:17-cv-01577 (D.D.C. Mar. 26, 2020).  The parties agreed to update the court by April 30, 2020 with their views on summary judgment, if no petition for rehearing has been filed in Eagle.  Id.  We will keep our readers apprised of any updates as they happen.