It feels like déjà vu. In 2011, FDA announced the establishment of a docket to evaluate its policies on communications and activities related to off-label uses of marketed products; late in 2014, FDA committed to issuing new guidance by the end of 2014 to address “unsolicited requests, distributing scientific and medical information on unapproved new uses, and manufacturer discussions regarding scientific information more generally,” which it did not.  Instead, two years after their self-imposed deadline, FDA convened a public meeting to solicit views on these same issues (discussed here).  The comment period for that hearing officially closed on January 9, 2017, and although FDA has published two draft guidance documents touching on communications consistent with the approved labeling or related to healthcare economic information (to be discussed in a separate blog post), FDA punted on the critical issue of off-label promotion.

On January 19, 2017, ten days after the comment period closed, FDA reopened the comment period for 90 days (until April 19, 2017).  According to FDA, commenters at the November 2016 hearing complained that “FDA had not sufficiently discussed the First Amendment in the notification of public hearing.”  82 Fed. Reg. 6367, 6368 (Jan. 19, 2017).  Note that the original Federal Register notice stated FDA solicited comments on “ongoing developments in science and technology, medicine, health care delivery, and constitutional law,” 81 Fed. Reg. 60299, 60300 (Sept. 1, 2016) (emphasis added), and anyone even superficially following these issues understands the First Amendment implications involved.  FDA announced that it had prepared a Memorandum to specifically address First Amendment considerations and FDA’s initial reaction to proposed approaches to addressing them, and asked for public comment on the Memo.

The 60-page document is substantively light, as there is much background and rehashing of FDA’s legal authority contained in earlier public statements and briefs. FDA spends considerable time articulating the public health interests affected by communications about unapproved uses. FDA touts its efforts to date as claiming “to strike a careful balance, supporting medical decision-making for patients in the absence of better options, but doing so without undermining the measures designed to incentivize the development and approval/clearance of medical products that would reduce the need to rely on unapproved use, in light of its risks.” FDA Memo, at 20.

In the Memo, FDA describes its view of case law addressing the First Amendment and FDA regulation of off-label communications. Consistent with earlier statements, FDA attempts to limit the Second Circuit ruling in United States v. Caronia by claiming it does not hold that speech cannot be used as evidence of intended use if the misbranding charge is based solely on truthful, non-misleading speech regarding the unapproved use of an approved product.  FDA relies on a footnote in a qui tam matter in which the Second Circuit opines about the potential use of promotional speech in an FDA enforcement action, without reference to the truthful or non-misleading nature of the speech.  FDA Memo at 22.  FDA also undermines the Caronia decision for not taking into account a study published last year that purportedly shows an association between unapproved uses and adverse drug events. Id. at 23-24.  It is ironic that FDA relies on a published study to support its position, yet puts significant restrictions on the distribution of similarly credentialed literature by industry.

The meat of the memo is FDA’s identification of alternative approaches to address off-label promotion, and the outright rejection of all of the approaches. They include:

1. Prohibiting altogether the use and/or prescribing of an approved/cleared medical product for an unapproved new use – thankfully FDA rejects this position as potentially injurious to the health care providers and patients that can benefit from determining the best treatment options for each patient.
2. Barring approval of generics and other affected products until all periods of exclusivity on the reference product have expired – FDA rejects this alternative because it is contrary to the goal of Congress to ensure consumers benefit from lower-priced versions of products.
3. Creating ceilings or caps on the number of prescriptions for an unapproved use – FDA rejects this approach because, among other things, it typically is unknown for what specific use a health care provider prescribes a product.
4. Limiting Medicare and Medicaid reimbursement to approved uses – FDA rejects this idea because it limits health care provider discretion, and like option #3, would be impossible to administer.
5. Prohibiting specific unapproved uses that are exceptionally concerning or developing tiers based on level of safety concerns with greater regulatory controls for the relatively higher risk products – FDA rejects this approach because it undermines the incentives to engage in premarket review and conduct the necessary research to demonstrate safety and effectiveness. Note, however, that FDA already employs a mechanism in certain circumstances: the REMS program.
6. Requiring firms to list all potential indications for a product in the initial premarket application – FDA rejects this idea because it is not possible to know all potential uses of a medical product from an initial study.
7. Allowing firms to actively promote an unapproved use as long as they disclose that the use in unapproved and include other appropriate warnings – FDA rejects this approach because “studies show there are limitations to disclosures in terms of the recipients’ perception and understanding.” Also, for devices, FDA is concerned that a firm would use the 510(k) pathway for one intended use, and market for different intended uses for which premarket approval is necessary.
8. Educating health care providers and patients to differentiate false and misleading promotion from truthful and non-misleading information – FDA claims this it is not feasible for the government to conduct a training program on the scale necessary. Yet FDA does have a coordinated campaign targeted on this very issue, the Bad Ad program: “FDA’s educational outreach program is designed to educate healthcare providers about the role they can play in helping the agency make sure that prescription drug advertising and promotion is truthful and not misleading.” Indeed, it is designed to “help healthcare providers recognize misleading prescription drug promotion,” and there is an entire course and case studies devoted to this program.
9. Reminding health care providers of potential malpractice liability – FDA rejects this approach as counter to the interest in allowing health care providers to determine the best treatment options for patients.
10. Taxing firms more heavily for sales of products for unapproved uses than for approved uses – FDA rejects this approach because it does not align with the government’s interest of allowing some off-label prescribing or use, and would be impractical to administer and enforce.
11. Permit promotion of unapproved uses listed in medical compendia – FDA rejects reliance on medical compendia because of publication bias and the potential for improper influence in compendia listings.
12. Limiting evidence that could be considered relevant to intended use to speech that the government can prove is false or misleading – FDA rejects this “legal until proven wrong” approach because it could undermine the current incentives to generate scientific evidence.

In essence, FDA has a myriad of reasons not to loosen or tighten restrictions about communications of unapproved uses. Although FDA may rely on these reasons to justify the paralysis the Agency has experienced for the last several years, business and innovation do not stand still.  We will continue to closely follow the comments submitted to this latest FDA notice, and FDA’s response.

Loyal readers know that we at the FDALawBlog have been closely following a significant Park Doctrine case wending its way through the courts, involving father and son Austin (“Jack”) and Peter DeCoster, former executives of Quality Egg, LLC. In an earlier blog posting, we stated that this case is likely the most important Park Doctrine case in more than forty years. On January 10, 2017 the DeCosters timely petitioned the Supreme Court for review of an Eighth Circuit decision upholding their three month prison sentences for misdemeanor violations of the FDC Act involving distribution of egg products.

The DeCosters’ case presents the significant question of whether a corporate executive can be sentenced to imprisonment based on a Park doctrine conviction. The Park doctrine, also known as the “Responsible Corporate Officer” (“RCO”) doctrine, refers to United States v. Park, 421 U.S. 658 (1975) (here), in which the Court held that the Federal Food, Drug, and Cosmetic Act (“FDC Act”), 21 U.S.C. § 331 imposes criminal liability on individuals whose corporate position affords them “the power to prevent or correct” violations of that section, even absent “knowledge of, or personal participation in” the violations. Park, 421 U.S. at 670, 676. Park expanded on an earlier Supreme Court decision upholding strict liability for a responsible corporate officer under a different statute in United States v. Dotterweich, 320 U.S. 277 (1943) (here).

Centrally at issue in the DeCosters’ case is whether their Park doctrine convictions represent “vicarious liability” (liability for the acts of others), or liability tied to their own “blameworthiness” for failure to prevent or remedy the FDC Act violation at issue. See United States v. DeCoster, 828 F. 3d 626, 633 (8th Cir. 2016) (here). Importantly, the DeCosters pleaded guilty as responsible corporate officers, but denied any knowledge of the FDC Act violations committed by Quality Egg, LLC. See id. at 631. They agreed to be sentenced based on facts the court found by a preponderance of the evidence. Id. At sentencing, the district court relied on evidence of the DeCosters negligence in carrying out their corporate roles in sentencing them to a three month imprisonment. Id.

The DeCosters argue in their Petition for a Writ of Certiorari (“Petition”), as they did before the Eighth Circuit, that their convictions as responsible corporate officers under the Park doctrine represents vicarious liability because they did not know of or participate in the violations at issue. As such, they further argue that federal precedent dictates that imprisonment would violate due process. See Petition, at 12-16.   In anticipation of the government’s likely response that – consistent with the Eighth Circuit ruling – the DeCosters’ own negligence in their roles as responsible corporate officers of Quality Egg, LLC subjects them to personal liability that is not “vicarious,” the DeCosters note that the Park doctrine liability to which they pleaded has not historically implicated negligence on the part of the responsible corporate officer. Rather, they assert that it is a strict liability standard based on the executive’s position of authority and the presumed ability to stop or prevent FDC Act violations. Id. at 17-18. They assert that imprisonment cannot follow from a strict liability offense under the due process clause. Id. at 18.

Is there anything new with regard to the DeCosters’ Petition? The answer is a resounding yes, largely found in the second question raised in the Petition. In that question, the DeCosters argue that the Park doctrine itself must be overturned by the Supreme Court. We cannot recall any case where a defendant has asked the Supreme Court to overturn its earlier rulings in Dotterweich and Park. The DeCosters acknowledge in their Petition that they did not ask the lower courts to question the legal validity of those Supreme Court decisions. Of course, those courts have no legal ability to overturn a Supreme Court decision. For both reasons, the lower courts did not discuss whether Dotterweich/Park should be overruled by the Supreme Court.

The DeCosters’ case presents a difficult question that the Supreme Court may well be inclined to address. Specifically, can the government tie the DeCoster’s Park doctrine jail sentences to a degree of negligence, thereby preserving the specter of prison sentences for future individual defendants under a Park theory? If the answer is no, will the government retain its ability to apply strict liability to individual corporate officers under the Park doctrine without jail being an available remedy?

Relying on the unique facts of the DeCosters’ case, the Eighth Circuit was inclined to let the government have its cake and eat it too. However, the present Petition puts this broader question of undeniable importance squarely before the Supreme Court, and numerous amici earlier weighed in in favor of the DeCosters. Will the government’s effort to expand the Park doctrine ultimately destroy it? Will the Park doctrine as we know it survive?

The government of course has an opportunity to oppose the DeCosters’ Petition. We will watch carefully for the government’s brief and report on that brief in a later posting. We also expect that there will be amici briefs filed on both sides of the Petition.

After a relatively slow first 11 months of 2016, FDA’s Office of Prescription Drug Promotion (“OPDP”) issued a flurry of letters in the span of 9 days in December, more than doubling the enforcement letters issued up to that point in the year. And the activity on the prescription product communications front keeps coming in 2017, with the following publications issued this week: Draft Guidance on Manufacturer Communications That Are Consistent With The FDA-Required Labeling – Q&A; Draft Guidance on Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities – Q&A; and an FDA Memo re Communications Regarding Unapproved Uses.

Despite an increase in enforcement activity in December, the type of activity, and the nature of the Draft Guidances issued thus far in 2017 pertaining to prescription product communications indicate a dramatic shift in OPDP’s approach from years past. After a string of First Amendment case losses by FDA, OPDP appears to be picking its battles carefully when it comes to enforcement letters, focusing on omission and minimization of risk (a cornerstone of FDA’s enforcement activity in this area) as well as pre-approval promotion.  Of note, FDA’s First Amendment case losses, to date, dealt with issues pertaining to information disseminated about FDA-approved or FDA-cleared prescription products; these cases did not address communications about investigational products for which there were no approvals/clearances.  Consistent with that, we have not seen enforcement letters that solely raise issues around efficacy claims for approved products.  Letters regarding statements about investigational products, however, are another story.

Of the 11 letters issued in 2016, 4 dealt with pre-approval promotion. Given that only 4 of the 70 letters issued by OPDP between 2012 and 2015 dealt with pre-approval promotion, this dramatic increase signals, to us, a sign of things to come in terms of OPDP’s future enforcement activities.

With regard to already marketed products, as mentioned above, there were no letters issued in 2016 dealing solely with efficacy claims. The few letters that addressed efficacy did so briefly, with a focus, primarily, on the communication of risk information (see our previous post here). The Draft Guidances issued this week reflect this approach – indicating flexibility in FDA’s traditional “substantial evidence” standard to substantiate certain product claims.  Stay tuned for our upcoming “deep dive” into these Draft Guidances.

On December 29, 2016, FDA issued final guidance reflecting its policy on Repackaging of Certain Human (Prescription) Drug Products by Pharmacies and Outsourcing Facilities, first issued in draft form in February of 2015, and blogged here.  FDA’s final guidance highlights certain sections because it includes information still subject to review (collection of information) by the Office of Management and Budget. FDA’s Federal Register Notice announcing the guidance seeks comments by February 17, 2017. FDA is still considering applicability of these policies to hospitals and healthcare systems, which it intends to address in yet another guidance document. FDA also issued a separate (revised draft) guidance document on repackaging of biological products, which will be the subject of a separate blog post.

Like the draft guidance, this guidance defines “repackaging:” The act of “taking a finished drug product from the container in which it was distributed by the original manufacturer and placing it into a different container without further manipulation of the drug.”  Repackaging also includes placing contents of multiple finished drug containers (e.g., vials) into one container, “as long as the container does not include other ingredients.”  FDA notes that “if the drug is manipulated in any other way, including if the drug is reconstituted, diluted, mixed, or combined with another ingredient,” then it is not considered repackaging.  The Agency states, for example, that if tablets are removed from a blister pack and placed in a different container, then that would be considered repackaging. However, if the blister packs are placed into a different container for later use (leaving the blister packs intact) then that would not be repackaging.

FDA’s guidance (like the earlier draft) describes generally the approval process for drugs, including FDA’s required review and approval of drug container closure systems. Repackaging may alter the characteristics of drug products in ways that FDA did not consider during the drug approval process, affecting stability, safety and efficacy. FDA notes that repackaged drugs are not subject FDCA’s exemptions in Sections 503A and 503B; thus FDA’s guidance describes when FDA will exercise enforcement discretion concerning stats-licensed pharmacies, federal facilities and outsourcing facilities that repackage drugs. Some highlights of the guidance include:

• The repackaged drug must be an approved product under FDCA Section 505 or an unapproved drug that appears on FDA’s drug shortage list (distributed during any period the drug is listed or 30 days after the shortage ends (which is a new guidance provision)).
• The drug must be repackaged by a state-licensed pharmacy, federal facility or outsourcing facility, and under the direct supervision of a pharmacist.
• If repackaged by a pharmacy or federal facility (but not an outsourcing facility), the drug must be pursuant to a prescription or order for an individually identified patient.  The final guidance does NOT include limits on repackaging in advance of receiving a prescription (which seemed like limits on “anticipatory repackaging”).
• Except for single-dose vials, the drug must be repackaged in a way that does not conflict with approved labeling. However, the guidance notes (unlike the draft) that the repackaging must be in accordance with the handling or storage instructions for the approved product so as to not conflict with approved labeling.
• The most significant changes between the draft and final guidance address beyond use dating (BUD) for repackaged products:
  • Sterile drug products repackaged by state-licensed pharmacies or federal facilities
    • If the repackaged product is an FDA-approved drug product with a specified in-use time, then the repackaged drug must be assigned a BUD that is established in accordance with the in-use time on the product or the expiration date on the product, whatever period is shorter.
    • If the repackaged product is an FDA-approved drug whose labeling does not specify an in-use time, or an unapproved product on FDA’s shortage list, considering the drug’s stated in-use time, the BUD is established in accordance with the revisions to USP<797> (published November 2015) or the expiration date on the drug being repackaged, whichever is shorter.
  • If the product is a sterile drug product repackaged by an outsourcing facility, the facility must establish a BUD in accordance with FDA’s guidance issued in July 2014.
  • If the drug is a non-sterile product repackaged by a state licensed pharmacy, federal facility, or outsourcing facility:
    • For an FDA-approved product with a specified in-use time, then the repackaged drug must be assigned a BUD that is established in accordance with the in-use time on the product, or the expiration date on the product, whatever period is shorter.
    • For an FDA-approved product without an in-use time or an unapproved product the BUD changes according to its formulation (non-aqueous, water containing oral formulations, or topical formulations (Guidance at 8).
• Also new (but as stated in other compounding guidance documents), if the product is repackaged in a pharmacy or federal facility, it must comply with USP<795> (non-sterile) or USP<797> (sterile) guidelines. If an outsourcing facility, it must comply with FDA’s cGMP requirements (other than the BUD guidelines, which must conform to the policy above),
• The drug to be repackaged may not appear on FDA’s list of drugs removed because they are unsafe or ineffective under 21 C.F.R §216.24.
• The drug may not be sold or transferred by an entity other than the entity that repackaged the drug (but does not include administration of a repackaged drug in a healthcare setting).
• The final guidance removes the requirement on page 9 of the draft guidance that the repackaged drug product must be accompanied by a copy of the prescribing information that accompanied the original drug product that was repackaged.
• Repackaged drugs may only be distributed in states in which the facility meets all applicable state requirements.
• Drugs repackaged by outsourcing facilities must include required information on their labels and meet other requirements of 503B, including adverse event reporting (pages 8-10).

Unlike the draft guidance, the final guidance addresses FDA’s establishment registration and listing requirements (i.e., for outsourcing facilities that engage in repackaging), and describes the exemption for pharmacies under Section 510(g) and 21 C.F.R. § 207.10. FDA does not intend to take action against those entities that do not qualify for the registration and listing exemptions (likely meaning pharmacies that also engage in compounding) for failure to register and list drugs that are repackaged in accordance with FDA’s repackaging guidance.

As we previously reported, FDA issued final rules updating the nutrition labeling regulations, 21 C.F.R. §§ 101.9 and 101.36, and the serving size regulation, 21 C.F.R. § 101.12, on May 27, 2016. Despite the rather extensive preamble, the final rules left many questions unanswered. FDA promised to address a number of issues in guidance. The timing of that guidance is crucial because the compliance date for the final rules is July 26, 2018 (smaller businesses with annual food sales of less than 10 million dollars have until July 26, 2019).

Early in August, 2016, FDA created a webpage with industry resources which provided some answers.  Then, on January 4, 2017, FDA announced the availability of two arguably overdue draft guidance documents: a draft guidance clarifying aspects of the final rule regarding nutrition labeling, and a draft guidance providing examples of food products that belong to product categories included in the tables of Reference Amounts Customarily Consumed (RACCs) used to determine serving size.

The draft guidance concerning nutrition labeling answers questions about the nutrition labeling rules and the compliance date. Topics addressed include:

• Compliance date: In August, 2016, FDA interpreted compliance date to mean that food products that are initially introduced into interstate commerce on or after that date would need to include the new version of the Nutrition Facts and Supplement Facts labels. Apparently, this statement resulted in more questions. So, FDA revised its thinking and, according to the draft guidance, will consider the date the food product is labeled for purposes of the compliance date. The location of a food in the distribution chain (e.g., is the product in the warehouse of the manufacturer or in the warehouse of the distributor) is not relevant. In the draft guidance, FDA also clarifies that the 10 million dollar annual sales limit need not be met for all three years prior to the date of the final rule (i.e., 2013, 2014, and 2015), but is met if the smallest sales volume from one of these previous three years is less than 10 million. The sales do, however, concern total food sales, i.e., domestic and international.
• Added sugars: Not surprisingly, since the requirement for listing added sugars is a new (and probably the most controversial) requirement, about 50% of the draft guidance covers questions and answers about the calculation and declaration of “added sugars.” Questions include scenarios for when a juice concentrate constitutes an added sugar, how to declare added sugars in fermented foods, how to determine added sugars when Maillard browning occurs, whether fruit powders and pastes are added sugars, and compliance criteria. FDA provides some helpful examples. The Federal Register Notice announcing the availability of the draft guidance also includes a request for comments to three specific questions regarding added sugars and fruit or vegetable juice concentrates.
• In the discussion, FDA acknowledges that sugars, whether added or naturally present, are biochemically equivalent. The added sugars, however, provide consumers a measure of “empty calories.”
• Rounding of the declaration of quantitative amounts of vitamins and minerals: The new requirement to declare the quantitative amounts (in addition to the percentage Daily Value) of vitamins and minerals (excluding sodium) in the Nutrition Facts box also generated some questions and uncertainties. In response to these questions, FDA prepared a table specifying the recommended rounding of the vitamins and minerals. In addition, the draft guidance discusses the basis for these recommendations.

The draft guidance regarding RACCs provides examples of food products that belong to each product category included in the tables of Reference Amounts Customarily Consumed (RACCs) that may be useful for industry in identifying the correct food category (and therefore the serving size) for a product. Although few may be surprised to see that all watermelon falls in the category of watermelon, the fact that bagel thins are not bagels (with a RACC of 110 g) but are bread (with a RACC of 55 g) may be less obvious. The guidance provides examples, not an all-inclusive list of all products on the market (see here).

The draft guidances are accessible on the industry resources webpage.  That page also includes a link to the draft guidance for Scientific Evaluation of the Evidence on the Beneficial Physiological Effects of Isolated or Synthetic Non-digestible Carbohydrates Submitted as a Citizen Petition (Comments due February 13, 2017).

Comments to the draft guidances are due March 6, 2017.

On Friday, January 13, 2017, FDA issued two revised interim policies on compounding with bulk substances for Section 503A compounders and Section 503B outsourcing facilities.  As you likely recall, FDA’s guidance on use of bulk substances in compounding has had a slow start, in part because of “over nominations” in early 2014 and general confusion in the nomination process (see our previous posts here and here).  And, once FDA created its original “bulks” lists of substances that may be used in compounding, those lists caused significant additional consternation because they included substances that plainly should not have been included. .

FDA’s latest iterations of its two sets of bulks lists include updates based on public comment and meetings of the Agency’s Pharmacy Compounding Advisory Committee, which has held several (quarterly) meetings to review whether bulk substances should be placed on one of FDA’s three bulks lists for Sections 503A and 503B (however, PCAC input is not statutorily required for Section 503B’s bulks lists). The lists are divided into the same three categories as previous lists (i.e., Category 1 (may be used in compounding based on sufficient support in a nomination, and no apparent safety risk); Category 2 (may not be used in compounding based on significant safety risk); and, Category 3 (substances nominated without adequate support, thus may not be used in compounding)). As an aside, FDA continues to assert in these guidances that USP/NF substances referenced in 503A and 503B only include substances that are the subject of a USP/NF “drug” monograph, and not a dietary substance monograph. Presumably, to the extent a compounder seeks to compound with a dietary substance as the active bulk ingredient in a compounded formulation (that is not a component of an approved drug product or otherwise on FDA’s list 1); it would need to nominate that substance per FDA’s interim policy.

Ultimately, FDA must promulgate final lists through notice and comment rulemaking pursuant to the applicable statutes. Because so many substances are at issue, FDA has adopted its interim policy approach, where it reviews and then nominates for comment the proposed substances at a pace of about ten at a time. On December 16, 2016, FDA published its first notice proposing six substances to the Section 503A bulks list, four to not be included on the bulks list, and setting forth criteria for evaluation of substances. [Here, comments due by March 16, 2017]

New Policy Concerning Re-Nominations, Mistaken Nominations, Withdrawal of Nominations

FDA’s latest iterations make one significant change – benefiting those who failed to nominate a particular substance, or who mistakenly nominated a substance which was inadvertently included on, for example, List 3 (substances nominated with insufficient support; thus may not be used in compounding).

Specifically, FDA had repeated several times that once FDA received nominations for the bulks lists (for the nomination period that ended back in 2014), interested parties could nominate additional substances (in a docket opened in October of 2015); but FDA would review those substances only after completion of the review process for the original nominated substances. Thus, any substances inadvertently omitted, or new substances necessary in compounding would, in effect, go to the bottom of the nominations stack. Given the number of already nominated substances, and pace of FDA’s review, any chance of review of new or overlooked substances at any point in the next several years seemed dim at best.

FDA now states that after a substance is nominated to the nominations docket for bulk substances (now deemed the “October docket”), FDA will determine whether the nomination is supported with sufficient information to allow FDA to evaluate it. After FDA makes that determination, the nominated substance will be placed in one of the three bulks categories and published on FDA’s website. FDA states it “generally expects to categorize bulk drug substances nominated to the October docket and to publish updated categories on its website on the first business day of each month.” FDA notes that until substances nominated for the “October docket” have been categorized, FDA’s interim policy does not apply to those substances.

In addition, FDA has created a solution for those substances that may not appear on an appropriate list. Those comments may be submitted to docket number FDA-2015-N-3534.  Further, if a commenter has new information on a previously nominated substance that was placed in Category 3, the substance can be re-nominated with the additional information.  A nominator may request withdrawal of any of its nominations. If the party nominating the substance was the sole nominator, FDA will update the categories described in this guidance to reflect the withdrawn nomination, and will provide notice to the public before removing any nominated substances from Category 1 or Category 2. However, FDA may continue to evaluate a substance at its discretion even if the nominator submits a comment requesting withdrawal of the nomination.

Shortage Medications: Section 503B

As a final note, for medications in shortage, FDA states that does not intend to take action against an outsourcing facility for compounding a drug product using a bulk drug substance that is not on the 503B bulks list if the drug compounded from the bulk drug substance: (i) appeared on FDA’s drug shortage list within 60 days of distribution and dispensing, and (ii) was to fill an order that the outsourcing facility received for the drug while it was on FDA’s drug shortage list. FDA’s Section 503A interim policy does to contain a similar provision for Section n503A facilities that may compound shortage medications.

After months of promises and postponements, FDA has finally published its long-awaited draft guidance on biological product interchangeability, Considerations in Demonstrating Interchangeability With a Reference Product, under the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).  While FDA had originally promised the guidance in 2016, FDA’s biosimilar user fee reauthorization commitment letter pushed its goal to December 31, 2017. Imagine our delight when we saw that FDA released the guidance so early in 2017!  (And just days after the U.S. Supreme Court granted certiorari in a case concerning two important provisions of the BPCIA – see our previous post here.)

FDA’s draft interchangeability guidance is incredibly important for biosimilar and reference product manufacturers alike. As of now, only four biosimilar products have been approved, and none of them are considered interchangeable. While these products are “highly similar” to their respective reference product counterparts, as shown by a “B” rating in the Purple Book, only interchangeable products (shown in the Purple Book with an “I” rating) can be substituted for the reference product by a pharmacist without the intervention of a health care provider. “Interchangeable” is obviously a coveted status for biosimilar manufacturers and a source of anxiety for reference product manufacturers. As such, the entire biologics industry has anxiously awaited this guidance.

As explained in the draft guidance, FDA requires interchangeable biologics to be biosimilar to the reference product in addition to other criteria. An interchangeable product is expected to produce the same clinical result as the reference product in any given patient. Also, if the product is administered more than once to an individual, the sponsor must demonstrate that the safety and efficacy risks of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using only the reference product. FDA expects clinical data to demonstrate this in all of the reference product’s licensed conditions of use.

As with generic versions of small molecule drugs, the data and information to support an interchangeable biosimilar application will vary based on the nature of the proposed product. To that end, FDA reiterates the Agency’s “totality of the evidence” and “reduction of residual uncertainty” approaches first expressed by the Agency in the biosimilars world in the context of demonstrating biosimilarity (see our previous post here).  The potential interchangeable product will first need to provide all of the information necessary to demonstrate biosimilarity (i.e., analyses of critical quality attributes and mechanisms of action for each condition of use for which the reference product is licensed; PK and biodistribution of the product in different patient patients; and differences in toxicities in each condition of use and patient population). These data likely will also suffice to support a showing that the proposed interchangeable product can be expected to produce the same clinical result as the reference product in any given patient. However, other elements of interchangeability will require additional testing.

FDA anticipates that interchangeable applications will include data from a switching study or studies in one or more appropriate conditions of use. The guidance outlines considerations for the design of these studies and stipulates that only the U.S. version of the reference product should be used in these studies. If the product is not designed to be administered more than once, a sponsor should provide justification for the omission of a switching study in the interchangeable application.

Importantly, the guidance notes that postmarketing data collected from products first licensed and marketed as a biosimilar, without corresponding data from an appropriate switching study, is not sufficient to demonstrate interchangeability. While postmarketing data may be helpful to determine what data is necessary to support interchangeability, the data itself are not enough. This means that even already-approved biosimilar products may be able to obtain interchangeable status if sponsors provide switching study data.  In addition, the draft guidance notes that while a non-U.S.-licensed comparator may be used for purposes of demonstrating biosimilarity, for switching studies intended to demonstrate interchangeability “using a non-U.S.-licensed comparator product generally would not be appropriate” for various reasons.

Finally, the draft guidance emphasizes that the presentation and design attributes of the proposed interchangeable product should be the same as the reference product in an effort to simplify substitution. This reasoning applies to container closure systems and delivery devices, as well.

The guidance rates to be a handy tool for sponsors, but FDA encourages sponsors to consult FDA early and often rather than relying on the guidance alone. And remember, this is just FDA’s first attempt at outlining interchangeability requirements, so there is likely room for other approaches.

Just before the holidays, the First Circuit gave the defense bar a gift by applying a stringent standard to reject a fraud-on-FDA claim under the federal False Claims Act (FCA). This case effectively serves as the death knell for the fraudulent inducement theory in the First Circuit, and the rationale should apply to all courts without limitation.

The relator was Jeffrey D’Agostino, a former sales representative of one of the two defendants: ev3 and Micro Therapeutics, Inc.  ev3 manufactured Onyx, an artificial liquid embolic, and ev3’s subsidiary, Micro Therapeutics, Inc, manufactured Axium, another embolic product. When FDA approved Onyx for the treatment of brain arteriovenous malformations, FDA restricted the use in the labeling to physicians with specific training.  Nevertheless, according to D’Agostino, the company marketed Onyx for off-label uses, provided off-label product training to physicians, and sold the device to physicians who had little or no training.  D’Agostino claimed that the defendants, when seeking approval to market Onyx, “disclaimed” marketing the device for other uses, “overstated” the training they would provide to physicians, and “omitted” important safety information about the product.  Opinion at 12.

Plaintiffs have tried to bring private fraud-on-FDA claims against device manufacturers in the past under state law, but courts routinely rejected these attempts under the preemption doctrine. See Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001) (here).  So D’Agostino and his counsel tried a different tack: D’Agostino alleged that the defendant’s fraudulent representations to FDA during the approval process “could have” influenced FDA’s approval decision, and that, under the implied certification theory, led to false claims being submitted to the government.  Opinion at 12-13.

The court strongly rejected D’Agostino’s theory.

First, the court held that D’Agostino’s allegation that fraudulent representations “could have” influenced FDA to approve Onyx was not an adequate pleading of a causal link between the representations to FDA and the claims reimbursed by CMS. According to the court:

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, CMS would still have paid the claims.  In this respect, D’Agostino’s fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id. at 13.  Merely saying that a fraudulent statement “could have” caused FDA to grant approval was not enough.

The court further held that D’Agostino’s allegations could not meet the FCA’s materiality standard as articulated in the Supreme Court’s recent ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (here).  The fact that CMS continued to reimburse for Onyx in the years after D’Agostino had raised his allegations, in the court’s view, “cast[] serious doubt on the materiality of the fraudulent representations that D’Agostino allege[d].”  D’Agostino Opinion at 14.

But the second, and arguably more significant, reason that the court rejected D’Agostino’s theory was that, in the six years after D’Agostino had raised his allegations, there was no evidence that FDA had taken any form of post-approval enforcement or action, such as demanding a recall or relabeling of the product, temporarily suspending approval, or withdrawing approval. “The FDA’s failure actually to withdraw its approval of Onyx in the face of D’Agostino’s allegations precludes D’Agostino from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” Id. at 16. In the absence of such official agency action by FDA, the court held that it was impossible to determine that FDA would not have approved the Onyx device without the alleged fraudulent representations.

To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so. The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies’ judgments about whether to rescind regulatory rulings.

Id.

Now defendants faced with a fraudulent inducement allegation can breathe easier knowing that relators cannot sufficiently plead an FCA claim under this theory unless FDA has in fact taken official action against the manufacturer upon learning of the alleged fraud. Also, the First Circuit joins other courts interpreting the Supreme Court’s decision in Escobar to reject the “materiality” element of the FCA when CMS continues to reimburse for the use of a product.  Win-win.

Last January, when FDA issued the Agency’s Calendar Year 2016 Guidance Agenda, we were pretty stoked to seek guidance was planned on various ANDA and Hatch-Waxman issues, including “Three-Year Exclusivity Determinations for Drug Products;” “Submission of ANDAs for Certain Highly Purified Synthetic Peptide Drug Products;” and “Determining Whether to Submit an Application Under 505(b)(2) or 505(j).” But we were especially excited about a guidance tentatively titled “180 Day Exclusivity: Guidance for Industry.”  After all, it’s not very often that we see FDA issue guidance on that topic.  In fact, we’re not aware of any guidance document issued by FDA on the topic since the December 2003 enactment of the Medicare Modernization Act (“MMA”).  Instead, FDA has issued numerous citizen petition decisions, 180-day exclusivity forfeiture letter decisions, and precedent-setting approval decisions.  And then there are all of the court decisions over the past decade.  (While we’re on the topic of FDA guidance documents, earlier this week, FDA issued the Calendar Year 2017 Guidance Agenda for the Center for Drug Evaluation and Research.)

So we waited, and then we waited some more . . . but nothing was released by FDA. Of course, we had lots to keep us busy in the interim.  In particular, there was FDA’s October 6, 2016 publication of a Final Rule implementing portions of the MMA (see our previous post here, as well as a recent webinar we presented on the rule – here and here).  The final rule largely deals with the non-180-day exclusivity provisions of the MMA, though it does include some discussion about 180-day exclusivity (e.g., commercial marketing to trigger exclusivity).

Finally, and with little fanfare, FDA released earlier this week a draft guidance titled “180-Day Exclusivity: Questions and Answers.” The draft guidance, which is also identified on FDA’s Calendar Year 2017 Guidance Agenda, is one of many guidance documents FDA has issued in a recent pre-Trump Administration blitz of guidance documents.  While the draft guidance on 180-day exclusivity itself does not reveal anything revolutionary, the guidance provides a one-stop shop reference on post-MMA 180-day exclusivity insofar as it consolidates court cases and documents released in litigation, letter decisions, citizen petition responses, and other correspondences to provide answers to commonly asked questions about 180-day exclusivity.  It’s a must-read guidance document for anyone involved in Hatch-Waxman issues, and a guidance that we appreciate FDA publishing.

Although the guidance document mentions pre-MMA 180-day exclusivity, FDA doesn’t rehash history. That being said, folks should keep in mind that, like a bad penny, pre-MMA 180-day exclusivity can – and does – continue to show up, and could theoretically do so in perpetuity (see our previous post here).  We were recently reminded of that fact when FDA approved ANDA 206726 for Methylphenidate Hydrochloride Extended-Release Tablets, 18 mg, 27 mg, 36 mg, and 54 mg.

FDA’s guidance document on 180-day exclusivity addresses a wide range of questions and concerns that arise when 180-day exclusivity is contemplated. As with all FDA guidance documents, FDA details the applicable statutory scheme and the legal authority for 180-day exclusivity.  FDA also details the approval pathway for ANDAs, including patent certifications, patent infringement actions, tentative approval, and conditions under which 180-day exclusivity may be forfeited.  The guidance then transitions to a Question and Answer format and divides the document into several topics of note to ANDA applicants:

• First applicant status;
• The relationship of 180-day exclusivity to patents;
• The trigger for and the scope of 180-day exclusivity;
• Relinquishment and waiver of 180-day exclusivity;
• Forfeiture of 180-day exclusivity; and
• Procedural questions.

The guidance addresses both basic questions and more nuanced questions. Notably, in spite of judicial objection (see our paper on FDA’s Broken System), FDA adheres to the Agency’s position outlined in Hi-Tech Pharmacal Co., Inc., v. United States Food and Drug Administration and AstraZeneca Pharmaceuticals LP v. Burwell, that FDA will make decisions about eligibility for 180-day exclusivity when an ANDA is ready for approval.

As always, FDA intends that the guidance will “enhance transparency” and facilitate the development, approval, and marketing of generic drugs. FDA will update the guidance with additional questions and answers as appropriate. After all, there are still a lot of unanswered questions pending – see, e.g., here – and there will certainly be more to come.

Given FDA’s decision to issue draft guidance on 180-day exclusivity, we’re unlikely to see a proposed rule any time soon to implement the 180-day exclusivity forfeiture provisions of the MMA. But if the new draft guidance doesn’t whet your appetite for 180-day exclusivity, and you still need to “geek out” on the topic, then you can give Erika Lietzan’s recent paper on “The Law of 180-Day Exclusivity” a read. Or, for fun, match up the FDA interpretation discussed in the draft guidance with the appropriate letter decision or citizen petition decision.

As the door was closing on 2016, FDA squeezed through three guidance documents on drug compounding: (1) Final guidance on Section 503A prescription requirement here; (2) Final guidance on electronic drug product reporting for outsourcing facilities here, and (3) Draft guidance on compounding of radiopharmaceuticals here. This blog post focuses on FDA’s final guidance addressing the prescription requirement under Section 503A (guidance document available here; see our coverage of the draft guidance here).

As a reminder, Section 503A of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) describes the conditions under which drug products compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a licensed physician, are exempt from certain requirements of the FD&C Act (i.e., new drug, adequate directions for use, and FDA’s current good manufacturing practices (“cGMP”)). A condition to qualify for Section503A’s exemptions is that the drug product must be compounded for an identified individual patient based on the receipt of a valid prescription order or a notation for the patient or in limited quantities before receipt of a valid prescription order for an identified individual patient.  The final guidance issued on December 30, 2016 addresses the prescription requirement in Section 503A, including FDA’s policies regarding compounding after the receipt of a prescription for an identified individual patient, compounding before the receipt of such a prescription (referred to as “anticipatory compounding”), and compounding for office use (referred to as “office stock”).  The final guidance contains at least three noteworthy changes from FDA’s earlier draft:

1.    Documentation of the “Valid Prescription Order” Requirement for Purposes of Section 503A

In the draft guidance, FDA proposed that, to be a valid prescription order for a compounded drug product, the prescription order needed to state clearly that it is for a compounded drug and necessary for the treatment of the identified individual patient.  If the prescription did not contain this information, then the draft guidance recommended that the pharmacist consult with the prescriber to determine whether the patient needs a compounded drug, and that the compounder must make the appropriate notation on the prescription order or other appropriate documentation that the compounded preparation is necessary (including suggested language for the notification).  The final guidance no longer states that pharmacists should contact a prescriber for clarification concerning the individual patient who will receive the drug, and that the compounder document the same.

To the extent compounders believe FDA has softened its position concerning the necessity of documentation in the final guidance, however, please note the final guidance states that FDA intends to describe its policies regarding the documentation requirement in a future policy document (Guidance at 8 n.10).

The final guidance maintains the complementary requirement that, for a notation in a health record (i.e., patient chart) in an office or hospital setting to serve as the basis for compounding under Section 503A, this type of information should be recorded in the patient chart.

Importantly, the guidance recognizes (using an ophthalmologist as an example) that some drugs – for safety or emergency reasons – require immediate administration in a physician’s office. For example, if a patient presents with a fungal eye infection, “timely administration of a compounded antifungal medication may be critical to preventing vision loss.  In such a case, the ophthalmologist may need to inject the patient with a compounded drug product immediately, rather than writing a prescription and waiting for the drug product to be compounded and shipped to the prescriber.”  (Guidance at 3; 3 n.3).  Although FDA recognizes the importance of the availability of compounded medications for office use in exigent situations and as a matter of patient safety, FDA’s policy remains (at page 10-11) that these medications are only available from outsourcing facilities.  Otherwise, for compounding pursuant Section 503A, FDA requires a prescription for an individually identified patient.

2.    Clarification of “Interim” Compliance Policy for the “Limited Quantity” Condition

The final guidance clarifies that FDA’s draft guidance for considering whether a compounder has exceeded the “limited quantity” (i.e., 30-day supply) condition for anticipatory compounding in Section 503A(a)(2) is an interim policy.

Furthermore, FDA’s interim policy now explicitly contemplates that a drug compounded before receipt of a valid prescription might be distributed to any identified individual patient for the particular compounded drug.   The limited quantities policy also may not alter the beyond use dating on the product.  (Guidance at 9 n. 13).

Finally, the final guidance includes an illustrative example of anticipatory compounding that is consistent with the interim compliance policy, where compounders are allowed to adjust the number of units of a compounded product produced based on real-time changes in the historically highest number of valid patient-specific prescriptions (e.g., for the most recent 30-day period, even if not a calendar month).  FDA provides as an example that a compounder may consider a rolling 30-day period in a given year to determine the quantity it may compound in advance of receiving prescriptions. (Guidance at 9-10, 9 n. 16).

3.    Removing Recordkeeping Requirements to Demonstrate Compliance

To the (at least temporary) relief of prescribers and pharmacies, FDA’s final guidance dispenses with the draft’s section addressing onerous recordkeeping, including additional tracking and maintaining the documentation of compounding necessity, clarification of prescriptions, and quantities dispensed. The draft’s terms required pharmacists and physicians seeking to compound drugs under section 503A to maintain records to demonstrate compliance with the prescription requirement (e.g., valid prescription orders) and to document the basis for any anticipatory compounding (e.g., calculations performed to determine the limited quantities of drug products compounded before receipt of a valid prescription order).

On January 5, 2017, the U.S. Department of Health and Human Services (“HHS”) Health Resources and Services Administration (“HRSA”) issued a Final Rule implementing the 340B Drug Pricing Program Ceiling Price policy and Civil Monetary Penalty (“CMP”) standards, including the knowledge requirement related to overcharging 340B Covered Entities. The Final Rule becomes effective on March 6, 2017, but HRSA stated that it does not intend to enforce the regulation until April 1, 2017, when the following quarter begins.

Section 340B of the Public Health Services Act (“the Act”; codified at 42 U.S.C. § 256b) requires pharmaceutical manufacturers who participate in the Medicaid Drug Rebate Program (“MDRP”) to enter into a Pharmaceutical Pricing Agreement (“PPA”) with HHS, under which the manufacturer agrees to sell Covered Outpatient Drugs to statutorily designated Covered Entities at a price not exceeding a statutory “ceiling price.”

340B Ceiling Price and the Penny Pricing Policy

Section 7102 of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), (“ACA”) required HHS to develop a system to enable HHS to verify the accuracy of ceiling prices calculated and reported by manufacturers pursuant to the Act. HHS was required to develop and publish “precisely defined standards and methodology for the calculation of ceiling prices.” 42 U.S.C. § 256b(d)(1)(B)(i)(I).

The 340B ceiling price is calculated based on drug pricing data already reported by manufacturers to the Centers for Medicare and Medicaid Services (“CMS”) under the MDRP. The basic formula for the 340B ceiling price is to take the Average Manufacturer Price (“AMP”), defined under the MDRP as the average price wholesalers pay manufacturers for drugs that are sold to retail pharmacies, as reported quarterly to CMS, and subtract the Unit Rebate Amount (“URA”). The URA is the sum of the basic plus additional rebate. The basic rebate is calculated using a statutorily defined rebate percentage: 23.1 % of AMP for single source or multiple source innovator drugs, 17% of the AMP for clotting factors and drugs for exclusively pediatric indications, and 13% of the AMP for noninnovator drugs. An additional rebate may be due if the quarterly AMP increases at a rate greater than inflation, as measured by the Consumer Price Index—Urban. The URA can equal but not exceed 100% of the AMP for a period. Thus, for purposes of the 340B ceiling price calculation, AMP minus URA could equal zero, thereby resulting in a 340B ceiling price of $0. HRSA recognized that a ceiling price of $0 would be inconsistent with the Act and result in operational challenges. Therefore, HRSA finalized an exception that would set the ceiling price to $0.01 when the formula would result in a ceiling price of $0 — the “Penny Pricing Policy.”

According to the preamble of the Final Rule, many commenters “strongly objected” to HRSA’s Penny Pricing Policy. 82 Fed. Reg. 1216. Pharmaceutical manufacturers argued that HRSA’s rulemaking was arbitrary and capricious, that it would fail to cover the cost of goods and would result in an unlawful taking by the government, and that it would potentially result in drug shortages, diversion, stockpiling, and harm to patients. HRSA countered that the Penny Pricing Policy “reflects a balance between the equities of different stakeholders and establishes a standard pricing method in the market.” 82 Fed. Reg. 1215. HRSA explained that any alternative pricing methodology would result in a price that exceeds the statutory ceiling price formula, adding that the Penny Pricing Policy would impact manufacturers infrequently, as only approximately 1% of 340B drugs sold in the first quarter of 2016 had a calculated ceiling price of zero.

HRSA finalized regulations implementing its Penny Pricing Policy as originally proposed, creating an exception for 340B drugs with a calculated ceiling price of zero by imputing a ceiling price of $0.01 for such products.

340B Ceiling Price—New 340B Drugs

When new drugs enter the market, there are insufficient data available to calculate the AMP, and thereby, the 340B ceiling price. Therefore, HRSA finalized regulations that would set an estimated 340B ceiling price at wholesale acquisition cost (“WAC”) minus the rebate percentage appropriate for the drug category (i.e., single source/innovator multiple source, noninnovator). Once a manufacturer is able to calculate the AMP for a product—no later than four quarters after the drug is made available for sale in the U.S.—then manufacturers will be required to calculate the 340B price based on AMP. Importantly, if the difference between the estimated 340B ceiling price based on WAC and the actual 340B ceiling price based on AMP results in an overcharge to Covered Entities, then the manufacturer must offer a refund of the overcharged amount, or face potential liability under the CMP for charging a Covered Entity a price for a 340B drug that exceeds its ceiling price (see below). The Final Rule states that manufacturers must offer to refund or credit the difference within 120 days after the overcharge occurred.

Unlike previous HRSA guidance on new drug ceiling prices, the Final Rule requires manufacturers to affirmatively contact Covered Entities to offer repayment. However, manufacturers and Covered Entities may pursue “mutually agreed-upon alternative refund arrangements,” such as netting, crediting, or forgiving de minimus or insignificant overcharges. 82 Fed. Reg. 1218, 1220.

Manufacturer Civil Monetary Penalties

The Act provides that CMPs may be imposed upon a manufacturer operating under a PPA who knowingly and intentionally charges a Covered Entity a price for a 340B drug that exceeds the ceiling price. Authority to impose CMPs under the statute has been delegated to the HHS Office of Inspector General (“OIG”). The CMP is up to $5,000 per “instance” of overcharging. An instance of overcharging is defined as any order for a 340B drug at the National Drug Code (“NDC”) level (regardless of the number of units sold in the order), and cannot be offset by manufacturer discounts on other NDCs or discounts on the same NDC made on other transactions, orders, or purchases. Instances of overcharging can be associated with the initial purchase of a 340B drug or upon ceiling price recalculations due to MDRP drug pricing restatements when the manufacturer does not issue a refund or credit for the overcharge. The CMP applies to manufacturers regardless of whether the instance of overcharging occurs on purchases directly from the manufacturer or fulfilled through a wholesale distributor. In the preamble to the Final Rule, HRSA stated that charging a Covered Entity a price for a 340B drug that is higher than the ceiling price is not an overcharge if the Covered Entity does not identify the purchase as 340B-eligible at the time the purchase is made. Furthermore, Covered Entities are not permitted to reclassify a purchase as 340B eligible after such purchase has been made.

In the Proposed Rule, HRSA sought comments on how to define the “knowing and intentional” element of the CMP. In the Final Rule, HRSA declined to provide a bright line definition of this standard, but the preamble does provide examples of circumstances associated with overcharging a Covered Entity that would not be considered a knowing and intentional overcharge. These non-exhaustive examples included:

• “The manufacturer made an isolated inadvertent, unintentional, or unrecognized error in calculating the 340B ceiling price;

• “The manufacturer sells a new covered outpatient drug during the period the manufacturer is estimating a price based on this final rule, as long as the manufacturer offers refunds of any overcharges to covered entities within 120 days of determining an overcharge occurred during the estimation period;

• “When a covered entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase; or

• “When a covered entity chooses to order non-340B priced drugs and the order is not due to a manufacturer’s refusal to sell or make drugs available at the 340B price.”  82 Fed. Reg. 1221.

The future of this Final Rule is somewhat uncertain. If the provisions of the ACA authorizing HHS to establish regulations implementing CMPs and to develop standards for calculating ceiling prices are repealed by the new Congress, the specific statutory authority for the promulgation of the Final Rule will disappear. In that event, it is questionable whether the Final Rule would survive a challenge to HRSA’s rulemaking authority. See our previous post about PhRMA’s successful challenge to a previous HRSA rule implementing a 340B provision.

Congress also could disapprove or reject the Final Rule regardless of any action taken on the ACA. On November 17, 2016, the House passed the Midnight Rules Relief Act of 2016, H.R. 5982, 114th Cong. (2016), which would amend the Congressional Review Act to allow Congress, by joint resolution, to reject a group of regulations submitted by federal agencies for congressional review within the last 60 days of a legislative session of Congress during the final year of a President’s term. Currently, Congress must reject each regulation on a case-by-case basis. This bill has been referred to a Senate committee.

We will be closely monitoring the impact of the ACA repeal initiative and the Midnight Rules Relief Act on the 340B Program and other government discount programs, and will be posting updates on this blog.

As part of its end of year rush to issue guidance documents, FDA issued a final guidance document, Medical Device Accessories: Describing Accessories and Classification Pathway for New Accessory Types, on December 30, 2016. The title page of a guidance document rarely has anything to comment on, but in this case it is at least worth noting that FDA changed the title from “Defining Accessories” to “Describing Accessories.” Given that there is little more description in the final than there was in the draft guidance, on which we posted here, the purpose of this change is not clear.

The final guidance references the recently enacted Cures Act, which modified section 513(b) of the Federal Food, Drug & Cosmetic Act to require FDA to classify an accessory “based on the intended use of the accessory, notwithstanding the classification of any other device with which such accessory is intended to be used.” This statutory provision is consistent with the position FDA took in the draft and final guidances, in which FDA stated that if an accessory has a different risk profile than the parent, then it should be classified differently.

The final guidance, unlike the draft, includes a brief discussion of software products that meet the definition of an accessory, including those that meet the definition of “Software as a Medical Device (SaMD).” Although not specifically mentioned in the draft guidance, it was assumed that software meeting the definition of a medical device would have been included in the scope of the guidance. The final guidance clarifies that SaMD that meets the definition of a device and uses data from a medical device “does not automatically become an accessory for purposes of this guidance.” The example provided is a stand-alone software program that is intended to analyze radiological images or analyzes specific data parameters generated by a device. The guidance states that the software would be considered a SaMD “but would not be considered to support, supplement, and/or augment the performance of the device that generated the data, and therefore, would not be an accessory.” Although analyzing data from a device would not result in the software being deemed an accessory, the guidance states that software that may be used in combination with other devices may be considered an accessory. This apparent differentiation between the two different uses of the software is not entirely clear, nor is it clear why in one role the software would be deemed an accessory and in the other it would not—or what difference it would make from a regulatory classification perspective whether the software was deemed an accessory or an independent medical device.

The final guidance also includes a few more definitions than did the draft guidance. The draft defined only an accessory and a parent device, whereas the final also includes definitions for component and finished device. Additionally, the definition of an accessory has been modified to be defined as a “finished device” rather than just a “device,” though the extent to which the addition of “finished” may be helpful in distinguishing between a component and an accessory is not evident. It has long been accepted that an accessory is a finished device, subject to applicable regulatory requirements, whereas components are excluded from such regulation. Therefore, adding the word “finished” to the definition of “accessory” does not significantly alter industry’s historical understanding of an accessory versus a component, nor does it necessarily help distinguish between the two.

The examples of accessories provided in the guidance are largely unchanged from the draft, with one notable exception. The draft guidance included as an example of an accessory a rechargeable AED battery, which, as we noted in our prior blog post, seemed to push the limits as to what could reasonably be considered an accessory. The battery example is now absent from the final guidance, and the final guidance states: “non-device-specific off-the-shelf replacement parts (e.g., batteries, USB cables, computer mouse, etc.) may be used with a medical device, but FDA does not intend to consider these products to be accessories or medical devices.”

The focus on use of the de novo classification process remains, although the final guidance fails to provide any additional information regarding the suitability of that process for the vast majority of device accessories. As noted in the blog post regarding the draft guidance, the final guidance is not likely to alter the way in which most device accessories will come to market.

The Drug Enforcement Administration (“DEA”) published a final rule on December 30th revising its import and export regulations governing controlled substances, listed chemicals and tableting and encapsulating machines. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System (ITDS); Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 96,992 (Dec. 30, 2016) (hereinafter “Final Rule”).   The final rule implements recent amendments to the Controlled Substances Import and Export Act (“CSIEA”) for controlled substance reexports among members of the European Economic Area (“EEA”) as provided by the Improving Regulatory Transparency for New Medical Therapies Act. The final rule also revises reporting requirements for the unusual or excessive loss or disappearance of listed chemicals and for domestic transactions involving listed chemicals and tableting/encapsulating machines. DEA is also mandating electronic filing and reporting related to import/export permit applications, declarations and certain other import/export and domestic notifications and reports electronically through the DEA Diversion Control Division secure network application. The mandate represents DEA’s latest move from a paper-based system of applications, reports and communications to an electronic one.

In summary, while the electronic reporting and other technical amendments provide some benefits, in our view the Agency missed the opportunity to remove certain obstacles which have hindered re-exports of controlled substances since 2005. For example, DEA implemented certain required regulations based on the amendments to the CSIEA, but DEA rejected a comment to remove the 180-day re-export requirement on all exports. While the CSIEA amendments required that DEA eliminate this limit for exports to the EEA, the Agency could have eliminated this unreasonable restriction in all cases. Requiring product to be re-exported within an arbitrary 180 day time period has been a significant obstacle to many exporters where processing and distribution reasonably takes longer. Also, DEA rejected a request to limit re-export reporting where ownership is maintained by the U.S. exporter. In cases where the product has been transferred to other entities, complying with DEA reporting requirements within the 30 day limit is difficult and does not further U.S. interests.

While the final rule is effective on January 30, 2017, the industry has until June 28, 2017 to implement most of the requirements. We summarize the final rule’s most significant revisions below

1.    The Final Rule Requires Electronic Submission of Import/Export Permits, Declarations and Certain Reports

The CSIEA and regulations promulgated by DEA require importers and exporters of controlled substances to apply for permits, submit declarations and/or file certain reports. As noted in DEA’s Notice of Proposed Rulemaking, Executive Order 13659 of February 19, 2014 directs DEA and other federal agencies to have the capabilities, agreements and requirements in place to allow electronic filing through the International Trade Data System (“ITDS”) and other data systems required for imported and exported goods. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System; Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 63,576 (Sept. 15, 2016). The final rule mandates submission of all applications and filings electronically through the DEA Office of Diversion Control secure network application to integrate required import and export procedures through the ITDS as directed by Executive Order 13659.

DEA clarified that permits expire no later than 180 calendar days after issue rather than the less exacting “six months.” DEA has also clarified how importers and exporters may amend or cancel permits. Declarations must continue to be filed at least 15 calendar days before the anticipated date of release by a customs officer at the port of entry or port of export, and while declarations did not previously expire, they now expire no later 180 calendar days after issue. As with import/export permits, the final rule also clarifies how to amend or cancel import/export declarations.

2.    DEA Clarifies that Drop Shipments of Imports are Prohibited

There has been confusion within the industry as to whether imports of controlled substances could be drop shipped directly to customers. In many cases drop shipments are more efficient and reduces handling and the potential for diversion. Also, there have been cases where local DEA offices have been aware of such activity without objection further confusing whether such actions were permitted. However, in the final rule, DEA has clarified that the final destination of an import must be the registered location of the importer before being transferred to another location of the importer or delivered to a customer, thus prohibiting drop shipments.

3.    DEA Narrowly Interpreted its Obligations to Promulgate Regulations on the CSIEA Amendments

Not all controlled substance reexports are created equal. The Improving Regulatory Transparency for New Medical Therapies Act (“2015 Act”), amended the CSIEA to allow additional reexportation of certain controlled substances among members of the EEA. The final rule implements additional reexportation to EEA countries under the 2015 Act. The CSIEA had provided that schedule I or II controlled substances and narcotic drugs in schedule III or IV could be exported from the U.S. for subsequent reexport from the recipient country to a second country, but allowed no further reexports. The 2015 Act removed certain restrictions on reexporting if every subsequent recipient country is a member of the EEA. The final rule implements the following changes:

• Allows unlimited reexports among EEA countries;
• Eliminates the 180 day period to complete reexport from the first country to the second country and subsequent countries;
• Does not require bulk substances to undergo further manufacturing within the first EEA country if the substance is reexported within the EEA;
• Does not require the exporter to provide product and consignee information beyond the first country prior to export from the U.S.; and
• Establishes a new DEA Form 161R-EEA for reporting reexports among EEA members through the DEA Diversion Control Division secure network application.

Of note, one commenter requested that the reexport provisions should apply to EEA member countries as of November 25, 2015, noting that the United Kingdom was a member of the European Union at that time. DEA replied that the 2015 Act is devoid of language stating that the EEA includes all members as of November 2015 so for the EEA provisions to apply, a country must be a member at the time the export leaves the U.S.

Moreover, as discussed above, DEA refused to remove reexport restrictions outside of the EEA because the 2015 Act did not require it to do so. We continue to not see a distinction between EEA members and other signatories to the international treaties and disagree with DEA that the 180 day limit serves a useful anti-diversion or public policy function. 

4.    The Final Rule Provides Several Technical Amendments Regarding Listed Chemicals

The final rule requires regulated persons who import or export a listed chemical that meets or exceeds a threshold quantity to submit a declaration to DEA via a DEA Form 486/486A through the DEA Diversion Control Division secure network application also no later than 15 calendar days before the date of release by a customs officer at the port of entry or export. DEA requires notification at least three business days before the date of release by a customs officer at the port of entry for those entities with regular customer and regular importer status. Consistent with the controlled substance import/export permits, declarations expire in 180 calendar days. And as with controlled substance imports, the final destination of List I chemical imports must be the registered importer’s registered location. Brokers and traders must also electronically file notifications for international transactions involving listed chemicals that meet or exceed the thresholds not later than 15 calendar days before the transaction is to occur.

The final rule also mandates electronic submission of required monthly reports of domestic transactions involving ephedrine, pseudoephedrine, phenylpropanolamine, and gamma-hydroxybutyric acid (including drug products containing these chemicals/controlled substances) through the U.S. Postal Service or any private or commercial carrier required to be filed pursuant to 21 U.S.C. 830(b)(3). DEA is implementing a new DEA Form 453 to be completed and submitted through the DEA Diversion Control Division secure network application.

The final rule requires regulated persons to report orally, not in writing, any proposed regulated transaction with a person whose description or other identifying characteristic was provided by DEA, and DEA must approve the transaction. Regulated persons must orally report any regulated transaction involving an extraordinary quantity of a listed chemical, an uncommon method of payment or delivery, or any other circumstance the regulated person believes may indicate the chemical will be used in violation of the law at the earliest practicable opportunity to the DEA Field Division Office where they are located.

5.    DEA Created a New Reporting Requirement for Unusual or Excessive Losses or Disappearances of Listed Chemicals.

The final rule also requires regulated persons to report any unusual or excessive loss or disappearance of listed chemicals orally to DEA “at the earliest practicable opportunity”. The regulations create a new form, a DEA Form 107, that must be electronically submitted through the DEA Diversion secure network application within 15 calendar days after becoming aware of the circumstances. Importers are responsible for reporting listed chemical losses after a shipment is released by the customs officer at the port entry, and exporters must report losses until a shipment has released at the port of export.

The final rule establishes guidelines for determining whether a listed chemical loss or disappearance is unusual or excessive and thus reportable. The guidelines for determining whether a listed chemical loss is unusual or excessive include:

• The actual quantity of the listed chemical;
• The specific listed chemical involved;
• Whether the loss or disappearance can be associated with access by specific individuals, or can be attributed to unique activities involving the listed chemical;
• A pattern of losses or disappearances over a specific time period, whether the losses or disappearances appear to be random, and the result of efforts taken to resolve the losses; and
• If known, whether the listed chemical is a likely candidate for diversion and local trends and other indicators of the diversion potential.

DEA notes that “[t]his language,” meaning the unusual or excessive loss factors, “is similar to the current regulatory language relating to theft and loss of controlled substances in § 1301.74(c).” Final Rule at 97,007. We do not agree. First, it is unclear whether all thefts of listed chemicals must be reported or whether a theft only needs to be reported if it is “unusual” or “excessive.” Second, it is very ambiguous as to what would constitute an “unusual” loss or disappearance. Third, we do not believe the criteria established here equates to the requirement for controlled substances. For example, “Significant” (controlled substance losses) is not necessarily “excessive” (chemical losses). Fourth, how listed chemicals must be reported is also more ambiguous than what is required for controlled substances. While registrants must report controlled substance losses in writing within one business day of discovery and follow-up with a DEA-106, regulated persons must first report chemical losses orally “at the earliest practicable opportunity” followed 15 calendar days later by a DEA-Form 107 filed electronically.

6.    DEA Standardizes Transactions Involving Tableting and Encapsulating Machines

The final rule standardizes electronic reporting for regulated transactions involving tableting machines and encapsulating machines, including domestic, import, and export transactions, through use of a new DEA Form 452 through the DEA Diversion Control Division secure network application.

The final rule makes oral reporting of domestic transactions in tableting and encapsulating machines mandatory and requires electronic filing of the written report. Regulated persons must orally report domestic regulated transactions of a tableting machine or an encapsulating machine when an order is placed rather than at the earliest practicable opportunity after the regulated person becomes aware of the circumstances. Written DEA Form 452 must be filed within 15 calendar days after the order has been shipped by the seller.

DEA requires submission of Form 452 through the DEA Diversion Control Division secure network application 15 calendar days before the anticipated date of arrival at the port of entry or port of export. An importer or exporter cannot initiate a transaction involving a tableting machine or encapsulating machine until DEA has issued a transaction identification number. DEA also requires import shipments of tableting machines or encapsulating machines that have been denied release by customs to be reported to DEA through the DEA Diversion Control Division secure network application within five business days of denial.

To complete our initial summaries (see here, here, and here) of the 21st Century Cures Act (Act), we want to highlight the three health care provisions included in Title IV – Delivery and Title V – Savings that we think are of most relevance to our readers.

Sec. 4010. Medicare pharmaceutical and technology ombudsman.

Section 4010 creates a new pharmaceutical and technology ombudsman within the Centers for Medicare & Medicaid Services (CMS). This will provide an avenue for drug and device manufacturers to communicate with CMS about coverage, coding, and payment issues under Medicare Parts A, B, and D. The new ombudsman must be in place no later than 12 months after the date of enactment of the Act.

Sec. 5004. Reducing overpayments of infusion drugs.

Section 5004 addresses findings from an OIG report that determined Medicare has overpaid for certain drugs and underpaid for others by applying a new pricing methodology to better reflect actual transaction prices. The payment amount for Part B infusion drugs furnished through durable medical equipment will be set to Average Sales Price (ASP) plus 6% beginning on January 1, 2017. These drugs were previously paid based on 95% of the Average Wholesale Price (AWP) in effect on October 1, 2003.

Sec. 5012. Medicare coverage of home infusion therapy.

Section 5012 updates the payment policy for home infusion therapy by implementing a single payment for items and services furnished by a qualified home infusion therapy supplier. The single payment unit is for each infusion drug administration calendar day in the patient’s home. In addition, this section requires the Secretary to designate organizations to accredit suppliers furnishing home infusion therapy by January 1, 2021. This section applies to items and services furnished on or after January 1, 2021.

We would also like to remind our readers that Hyman, Phelps & McNamara, P.C. (“HP&M”) will hold complimentary webinars on Thursday, January 12, 2017 from 12:00-1:30 PM (Eastern) and Wednesday, January 18, 2017 from 12:00-1:30 PM (Eastern).

During the January 12 webinar, Frank Sasinowski, David Clissold, and James Valentine, with Michelle Butler moderating, will focus on the pharmaceutical and biologics provisions. Jeff Shapiro and Allyson Mullen will focus on the device and combination products provisions during the January 18 webinar. See our previous announcement for more details.

Both webinars will provide a question and answer period and attendees will have an opportunity to submit questions during the webinar. Responses to any questions that are not addressed will be available on the HP&M firm website after the webinar.

You can register for the first webinar here and the second webinar here

Please contact Lisa Harrington at lharrington@hpm.com with any registration questions.

If you have questions or need more information about the health care provisions in the Act, please contact:

• Michelle L. Butler, mbutler@hpm.com, 202-737-7551
• Alan M. Kirschenbaum, akirschenbaum@hpm.com, 202-737-4283
• Jeffrey N. Wasserstein, jwasserstein@hpm.com, 202-737-9627
• David C, Gibbons, dgibbons@hpm.com, 202-737-4286
• Serra J. Schlanger, sschlanger@hpm.com, 202-737-4593

Last week, FDA finalized the guidance document, “Postmarket Management of Cybersecurity in Medical Devices.” We previously blogged on the draft guidance released in early 2016 (here). The final guidance is similar to the draft issued in early 2016. There are, however, several noteworthy and significant edits.

In our view, the most significant of these edits is that FDA has changed nearly all references to “essential clinical performance” to “patient harm.” This change appears to shift the way in which FDA plans to evaluate cybersecurity risk—from essential clinical performance to the potential for patient harm. Specifically, FDA modified the purpose of the guidance to read, “this guidance recommends how to assess whether the risk of patient harm is sufficiently controlled or uncontrolled. This assessment is based on an evaluation of the likelihood of exploit, the impact of exploitation on the device’s safety and essential performance, and the severity of patient harm if exploited.” As exemplified by this quote, patient harm is now a key element of the final guidance.

The draft guidance dedicated several sections to defining and discussing essential clinical performance. It stated:

essential clinical performance means performance that is necessary to achieve freedom from unacceptable clinical risk, as defined by the manufacturer. Compromise of the essential clinical performance can produce a hazardous situation that results in harm and/or may require intervention to prevent harm.

Thus, while the shift from essential clinical performance to patient harm is significant for purpose of the guidance, it may ultimately be simpler for manufacturers to apply. Essential clinical performance incorporated the concept of harm, but also used more amorphous concepts such as acceptable and unacceptable clinical risk. These elements may have been difficult for manufacturers to determine on a case-by-case basis. Patient harm appears to be more straightforward and in line with standards that the device industry is already used to, including for example, reporting corrections and removals under 21 C.F.R. Part 806, which is required when the action is undertaken to reduce a risk to health.

A few additional important changes include:

• FDA added a new definition section discussing patient harm. The term “patient harm” was not used at all in the draft guidance. Thus, it was essential for FDA to provide additional clarity regarding this term. The final guidance defines patient harm “as physical injury or damage to the health of patients, including death. Risks to health posed by the device may result in patient harm.”

• FDA added a new Section IX to detail what it means to actively participate in an Information Sharing Analysis Organization (ISAO). ISAOs are public-private partnerships that, according to the guidance, “gather and analyze critical infrastructure information in order to better understand cybersecurity problems and interdependencies, communicate or disclose critical infrastructure information to help prevent, detect, mitigate, or recover from the effects of cyber threats, or voluntarily disseminate critical infrastructure information to its members or others involved in the detection and response to cybersecurity issues.” Both the draft and final guidances state, “the Agency considers voluntary participation in an ISAO a critical component of a medical device manufacturer’s comprehensive proactive approach to management of postmarket cybersecurity threats and vulnerabilities and a significant step towards assuring the ongoing safety and effectiveness of marketed medical devices.”

• FDA expanded the scope to expressly include mobile medical applications (MMAs). MMAs could have been inferred from the original scope which included all devices.

• Both the draft and final state that software changes made to strengthen cybersecurity are not typically subject to Part 806 recall reporting requirements so long as they meet certain criteria. One such criteria in the draft guidance required implementing device changes and compensating controls within 30 days of becoming aware of the cybersecurity vulnerability. The final guidance modified this requirement to be that as soon as possible, but no later than 30 days after becoming aware of the cybersecurity vulnerability, a manufacturer must “communicate with . . . customers and user community regarding the vulnerability, identify interim compensating controls, and develop a remediation plan to bring the residual risk to an acceptable level.” The final guidance adds several other requirements regarding this process and timing.

• The final guidance adds that upgrades to increase confidentiality protection (i.e., cybersecurity) are also not generally subject to Part 806 reporting.

• Both the draft and final guidances indicate that routine cybersecurity updates and patches will not generally require premarket review. The final guidance adds, however, that cybersecurity routine updates and patches could change other functionality of the device, and therefore must be assessed to determine whether premarket review is required.

• One of the recommendations in the draft and final guidance for remediating a cybersecurity threat is to “identify and implement compensating controls to adequately mitigate the cybersecurity vulnerability risk.” The final guidance notes that manufacturers should consider the knowledge and expertise necessary to properly implement the recommended control.

• The final guidance adds a new section titled “Examples of Vulnerabilities Associated with Controlled Risk and their Management.” In this section FDA provides four examples of instances in which a device manufacturer becomes aware of a cybersecurity vulnerability after a device has been commercialized. The examples describe the manufacturer’s evaluation as to whether the risk of patient harm is controlled or uncontrolled and the manufacturer’s response. In all three examples, the risk of patient harm is controlled, and consequently, the resulting routine update or patch to address the cybersecurity vulnerability does not need to be reported to FDA. While these examples are helpful, there are no corresponding examples of when the risk is uncontrolled and reporting under Part 806 would be required.

• In assessing uncontrolled risk, the final guidance states that “manufacturers should consider the exploitability of the vulnerability and the severity of patient harm if exploited.”

This list of some of the most significant changes in the final guidance highlights a key point we made in our post on the draft guidance: this guidance imposes significant new requirements on manufacturers of devices with potential cybersecurity vulnerabilities. For legacy products, manufacturers may need to consider cybersecurity vulnerability for the first time in its product’s life cycle. This can be a daunting task. However, like the draft guidance, the final guidance provides no additional information as to how FDA plans to enforce the recommendations set out in this guidance. Thus, only time will tell how (or if) FDA will choose to enforce the need for cybersecurity in medical devices in the postmarket setting.