By Kurt R. Karst –      

Earlier this year, FDA’s Dallas District Office issued a Warning Letter to Sovereign Pharmaceuticals, LLC (“Sovereign”), a pharmaceutical contract manufacturing facility located in Fort Worth, Texas, containing a rather interesting – and quite perplexing – violation tagged under the heading “Unapproved and/or Misbranded Drug Products.”  Specifically, with respect to Sovereign’s Over-the-Counter (“OTC”) cough/cold drug products Certuss, Certuss-D, and Trexbrom, FDA’s Warning Letter states: 

Certuss, Certuss-D, and Trexbrom contain the active ingredient chlophedianol, which is an acceptable antitussive active ingredient.  However, chlophedianol cannot be combined with the particular active ingredients phenylephrine (in the case of Trexbrom) or guaifenesin (in the cases of Certuss and Certuss-D) because there is no way to write adequate directions for use that would meet the dosing direction and dosage limit requirements for each individual active ingredient (21 CFR 341.40).  For example, the monograph states phenylephrine and guaifenesin are to be dosed every 4 hours (21 CFR 341.80(d)(1) and 21 CFR 341.78(d), respectively) and chlophedianol is to be dosed every 6 to 8 hours (21 CFR 341.74 (d)(1)).  Therefore, if chlophedianol is used in combination with either phenylephrine or guaifenesin, there is no way to write directions for use with a dosing interval that works for each of these active ingredients. [(Emphasis added)]

FDA’s statements above that OTC drug products with active ingredient combinations that appear to be permitted under a monograph, but that contain conflicting dosing directions, cannot be lawfully marketed caught our attention because the Agency has said otherwise for decades.  Indeed, FDA’s OTC drug regulations require that when the time intervals for active ingredients conflict, the manufacturer should choose directions for the combination product that do not exceed any maximum dosage limits.  Specifically, FDA’s regulation at 21 C.F.R. § 341.85(d), titled “Labeling of permitted combinations of active ingredients,” and included in the Agency’s OTC drug monograph for cold, cough, allergy, bronchodilator, and antiasthmatic drug products, states:

When the time intervals or age limitations for administration of the individual ingredients differ, the directions for the combination product may not exceed any maximum dosage limits established for the individual ingredients in the applicable OTC drug monograph.

Similar statements appear in other OTC drug monographs at 21 C.F.R. § 333.160(d) (topical antimicrobial drug products), § 346.52(d) (anorectal drug products), § 347.60(d) (skin protectant drug products), § 349.79(d) ophthalmic drug products ), § 352.60(d) (sunscreen drug products), and § 358.760(d) (dandruff drug products).  

What each regulation says in essence is that when the directions for use of an OTC combination drug product results in a conflict in time intervals, the directions should be written to ensure that the maximum dosage limits established under the applicable monograph for the individual ingredients are not exceeded.

Furthermore, with respect to cough/cold drug products, such as those at issue in the Sovereign Warning Letter, FDA has discussed and elaborated on in preambles and policy statements OTC drug product combinations with conflicting directions.  For example, FDA has stated:

The agency has also identified conflicts in that portion of the directions that deal with the lower age limits of use for children’s dosages for some of the combinations identified in § 341.40.  For example, the directions for an OTC antihistamine advises that a doctor be consulted for use in children under 6 years of age, while OTC analgesic-antipyretic ingredients may be given to a child as young as 2 years of age without consulting a doctor.  The agency is concerned that when a combination product containing analgesic-antipyretic and cough-cold ingredients is labeled for use in children of a particular age group that each individual ingredient be generally recognized as safe for use in that particular age group.  Therefore, the agency is proposing that when there is a difference in the directions established for the individual ingredients in a combination drug product, e.g., when the time intervals or age limitations for administration of the individual ingredients differ, the directions for the combination product may not exceed any maximum dosage limits established for the individual ingredients in the applicable OTC drug monograph.  Thus, in the above example, the product can be labeled only for use in children 6 years of age and over. [(53 Fed. Reg. 30,522, 30,554 (Aug. 12, 1988))]

. . . and

The agency believes that an OTC drug product containing diphenhydramine citrate or diphenhydramine hydrochloride that is labeled both as an antitussive and an antihistamine should conform to the same labeling restrictions that apply to combination drug products containing a different antitussive and antihistamine ingredient.  In the tentative final monograph for OTC cough-cold combination drug products, the agency proposed that when there is a difference in the directions established for the individual ingredients in a combination drug product, e.g., when the time intervals or age limitations for administration of the individual ingredients differ, the directions for the combination product may not exceed any maximum dosage limits established for the individual ingredients in the applicable OTC drug monograph (53 FR 30522 at 30554).  Therefore, when diphenhydramine citrate or diphenhydramine hydrochloride is labeled for both antitussive and antihistamine use, the limiting factor for directions for use for both the dosage amount and dosing interval for OTC labeling is the antitussive dosage in Sec. 341.74(d)(1)(iv) and (d)(I)(v).  However, the limiting factor for directions for use for professional labeling is the antihistamine dosage in Sec. 341.90(j) and (k) (21 CFR 341.90(j) and (k), respectively.  As noted above, the Panel believed that the interests of consumers are best served by exposing the user of OTC drug products to the smallest number of ingredients possible at the lowest possible dosage consistent with a satisfactory level of effectiveness. [(60 Fed. Reg. at 10,286, 10,290 (Feb. 23,1995))]

. . . and

The antitussive directions are 5 to 10 mg every hour as needed, while the anesthetic/analgesic directions are 2 to 20 mg every 2 hours.  The agency’s policy is that when there is a difference in the directions established for the individual ingredients in a combination drug product, e.g., when the time intervals or age limitations for administration of the individual ingredients differ, the directions for a combination product may not exceed any maximum dosage limits established for the individual ingredients in the applicable OTC drug monograph (53 FR 30522 at 30554).  This policy also applies when an ingredient is being labeled for dual use in a single product.  Under this rationale, the every 2 hours directions for anesthetic/analgesic use would be controlling.  The problem arises, however, that amounts of menthol from 2 mg up to 5 mg are not monograph dosages for menthol for antitussive use.  Therefore, the agency has determined that appropriate directions for menthol when labeled for both uses in a product is 5 to 10 mg every 2 hours.  [(67 Fed. Reg. 78,158, 78,162 (Dec. 23, 2002))]

Given all of this history, why then would FDA tell Sovereign that there is no way to write adequate directions for use for the combination cough/cold OTC drug products it contract manufacturers that would meet the dosing direction and dosage limit requirements for each individual active ingredient under the monograph?  That’s the truly perplexing part of this story.  Perhaps FDA made the statements in error and has not yet acted to correct them.  If that’s the case, then the uncorrected Warning Letter sends the wrong – indeed, incorrect – message to the OTC drug industry.  Or perhaps there’s more to the story and something is brewing at FDA.  But if that were the case, then one might have expected to see more on the topic over the past 8 months.  So we’re left scratching our heads.

By Kurt R. Karst –    

If you wait around long enough, almost any scenario feasible under the FDC Act with respect to Hatch-Waxman exclusivity is bound to happen.  Nearly six years after the September 2007 enactment of the FDA Amendments Act (“FDAAA”), one company’s drug product has finally qualified for the election at FDC Act § 505(u), and the company elected for its drug product to be treated as a “new active ingredient” and was granted 5-year New Chemical Entity (“NCE”) exclusivity.  Specifically, we’re talking about FETZIMA (levomilnacipran) Extended-release Capsules, 20 mg, 40 mg, 80 mg and 120 mg, which FDA approved on July 25, 2013 under NDA No. 204168 for Major Depressive Disorder (“MDD”).  Levomilnacipran is a stereoisomer – an enantiomer – of the previously approved racemate, milnacipran HCl.  FDA approved milnacipran as SAVELLA Tablets, 12.5 mg, 25 mg, 50 mg, and 100 mg, under NDA No. 022256 on January 14, 2009.  SAVELLA is approved for the management of fibromyalgia.

By way of background, a molecule may exist in two “mirror image” forms.  The two forms of such molecules are called “enantiomers.”  A “racemate” is a mixture of two enantiomers in equal amounts.   For some drugs, one enantiomer may have markedly different pharmacological effects than the other.  (For more on stereoisomers, see FDA’s 1992 policy statement, Development of New Stereoisomeric Drugs.)  In promulgating rules implenenting the Hatch-Waxman Amendments, FDA had initially taken the position that the Agency would not grant NCE exclusivity for an enantiomer when the racemate had previously been approved.  See 59 Fed. Reg. 50,338, 50,359 (Oct. 3, 1994).  In January 1997, FDA announced in a Federal Register notice that the Agency was reconsidering that position and requested comments.  Years went by, however, and FDA remained mum on where things stood with the potential reconsideration.

When FDA did not act, Congress in the 2007 FDAAA passed a change in the law, reauthorized in the 2012 FDA Safety and Innovation Act, that permits sponsors of enantiomers to elect to claim “new active ingredient” status and be awarded 5-year NCE exclusivity when new indications are developed for the enantiomers.  Specifically, Congress amended the statute to add FDC Act § 505(u), titled “Certain Drugs Containing Single Enantiomers.”  There are several limitations that come with such an election.  The enantiomer drug cannot rely on studies of the racemate, and approval must be based on full reports of new clinical investigations.  In addition, the sponsor agrees not to seek, for 10 years, approval of the enantiomer for a use in a “therapeutic category” for which the racemate is approved, or for a use for which any other enantiomer of the racemate is approved.  For purposes of determining the “therapeutic category” of a drug, the statute references a list developed by the United States Pharmacopeia and as in effect on September 27, 2007.  A copy of that list is available here.  (Although subsequent versions of the list provide more granularity in terms of therapeutic categories, and could, therefore, lead to a greater likelihood of exclusivity-qualifying enantiomers, the list, unless amended by FDA by regulation, is static under the statute.)  Finally, the labeling of the enantiomer drug for which “new active ingredient” status is elected must “include a statement that the non-racemic drug is not approved, and has not been shown to be safe and effective, for any condition of use of the racemic drug.”

When FDA posted on its website in July the approval letter and labeling for FETZIMA, we had an inkling that the approval might be precedent setting with respect to NCE exclusivity.  After all, the labeling includes the following in the “Indications and Usage” section:

FETZIMA, a serotonin and norepinephrine reuptake inhibitor (SNRI) is indicated for the treatment of major depressive disorder (MDD).  The efficacy of FETZIMA was established in three 8-week, randomized, double-blind, placebo-controlled studies in adult patients with a diagnosis of MDD [see Clinical Studies (14)].

Limitation of Use: FETZIMA is not approved for the management of fibromyalgia.  The efficacy and safety of FETZIMA for the management of fibromyalgia have not been established.

Now that the Orange Book has been updated with the latest Cumulative Supplement, our suspicion has been confirmed: 5-year NCE exclusivity was granted.  (The July Orange Book Cumulative Supplement took a little longer than usual to get posted this month because of some glitches in new software that is being used by FDA.)  The exclusivity is identified as “NCE*”, which is defined in an Orange Book addendum to mean: “NEW CHEMICAL ENTITY (AN ENANTIOMER OF PREVIOUSLY APPROVED RACEMIC MIXTURE. SEE SECTION 505(U) OF THE FEDERAL FOOD AND DRUG COSMETIC ACT).” 

How long it might be until FDC Act § 505(u) gets used again remains to be seen.  As noted above, the static nature of the therapeutic category list may be an obstacle.  Sponsor interest is another factor.  A 2012 report from the Government Accountability Office says that FDA has received very few inquiries regarding FDC Act § 505(u) (see our previous post here).

By John A. Gilbert –

Earlier this week, Eisai, Inc. (“Eisai”) filed a Petition for A Writ of Mandamus in the U.S. Court of Appeals for the District of Columbia Circuit to force the Drug Enforcement Administration (“DEA”) to issue a Notice of Proposed Rulemaking (“NPRM”) to schedule FYCOMPA (perampanel) under the Controlled Substances Act (“CSA”).  FDA approved FYCOMPA for marketing on October 22, 2012.  However, as is usually the case when FDA approves a New Chemical Entity (“NCE”) that has an abuse potential, the Company “agreed” not to market the drug until DEA completes the drug scheduling process.  As we previously reported, the delay will potentially adversely affect Eisai’s five-year exclusivity period if FDA maintains that the clock began ticking at the time the drug was approved.  Already, almost a year has passed, yet Eisai cannot market its approved drug product because DEA has not completed the scheduling process.  And, more importantly, patients are denied access to FYCOMPA unless they are participating in a clinical trial.

Unfortunately, as noted in Eisai’s court filing, such delays in scheduling are not unprecedented and, more recently, appear to be increasing.  One cause is the statutory requirement for drug approval versus drug scheduling.  In the latter case, while Congress in enacting the Controlled Substances Act (“CSA”) intended for both the Department of Health and Human Services (“HHS”) and FDA to have a say in how drugs are scheduled, they determined that DEA should be the final authority on scheduling drugs with an abuse potential.  So, while the CSA provides that HHS must provide a scientific and medical analysis (the so-called  “eight-factor” analysis)  to DEA in regard to abuse potential of an NCE, HHS’s recommendation on scheduling is just that: a recommendation.  DEA must still conduct its own analysis, determine in what schedule the drug should be classified and conduct the required notice and comment rulemaking to schedule the drug.

In this case it appears that HHS transmitted its findings and recommendations to DEA on January 28, 2013.  Thus, even acknowledging that DEA must conduct its own review, a seven month delay without even publication of the proposed rule seems extraordinary and puzzling.  This is especially true given that HHS’s medical and scientific findings on the drug are binding on DEA, by law, so DEA’s review is generally related only to data on actual or potential abuse.  In addition, there is no information in the documents filed in the D.C. Circuit  that there exists any significant controversy in regard to FYCOMPA (e.g., whether it has any abuse potential or some unique concern about widespread abuse, that would delay publication of the proposed rule).   

To the extent that DEA’s current delay – as well as the prior examples of other drug scheduling delays cited in Eisai’s Petition – are a function in the inherent slowness of the administrative process, there are steps that federal agencies should take to ensure that the scheduling process does not delay the marketing of important medicines.  First, FDA and DEA should communicate about the potential for approval, and timeline for approval,  of an NCE that will likely be scheduled as a controlled substance.  In the past, FDA, DEA and other concerned federal agencies routinely conducted interagency meetings related to issues affecting each agency, including drug scheduling and pending approvals.  This may still be the case, but it seems more should be done to expedite the scheduling process especially given an imminent drug approval.  Second, where appropriate, DEA should publish the NPRM immediately upon receipt of the eight factor analysis from HHS.  This appears to have been the practice in the past.  DEA would still need to finalize its review and consider any comments received before issuing a final scheduling action, but early publication of the proposed rule would potentially shorten the review time.  For its part, HHS should consider submission of the eight-factor analysis to DEA as soon as practicable and before issuing the final approval of the drug.  Again, this may have been done at times in the past.  The one concern with DEA publishing the NPRM before approval would be the potential that the drug ultimately would not get approved and, by law, drugs must have a “currently accepted medical use” to be placed in any schedule other than schedule I.  The issue of what constitutes a “currently accepted medical use” is the topic for another day.  However, DEA could make the appropriate adjustments in the Final Rule should this occur.

In conclusion, HHS and DEA need to ensure a timelier drug scheduling process that does not unnecessarily hinder the marketing of important new medicines.  Otherwise, given DEA’s apparent failure to act on a timely basis , Congress should consider whether HHS should be given scheduling authority in the limited cases involving the initial scheduling of approved NCEs.  The Controlled Substance Staff within FDA have sufficient expertise to make such decisions.  In this way the approval of the drug could be completed simultaneous to its scheduling.  DEA would still retain the authority to reschedule the drug if necessary based on post-marketing abuse trends.  This process would ensure that drug scheduling of NCEs does not adversely affect exclusivity, or more importantly, delay patient care.

By Ricardo Carvajal –

In poring over FDA’s recently issued proposed rule on Accreditation of Third Party Auditors (see our prior post here), one thing that caught our eye is FDA’s discussion of FSMA’s notification requirement for auditors.  That requirement is embedded in new § 808(c)(4) of the FDC Act.  Consistent with that statutory provision, proposed 21 CFR 1.652(c) states in relevant part:

An accredited auditor/certification body must immediately notify FDA electronically, in English, when any of its audit agents or the accredited auditor/certification body itself, discovers any condition, found during a regulatory or consultative audit of an eligible entity, which could cause or contribute to a serious risk to the public health. 

When we first saw the language of the notification requirement in the statute, it seemed to us likely to lead to over-reporting of potential food safety problems because, under the terms of the statute, failure to notify could result in the withdrawal of an auditor’s accreditation.  Now the proposed rule has published and it appears that FDA is leaning toward a broad interpretation of the notification standard.  Such an interpretation could make it even more likely that auditors may err on the side of over-reporting.  In the preamble to the proposed rule, FDA states:

We note that section 808 of the FD&C Act does not define “serious risk to the public health,” nor does it give examples of “condition[s] that could cause or contribute to a serious risk to the public health.” The statutory description of notifiable conditions–as ones that “could” cause or contribute to a serious risk to public health–suggests to us that the scope of this provision is broad.

FDA goes on to request comment on whether the notification standard should encompass risks that would result in a Class I recall classification (i.e., reasonable probability that the use of or exposure to a violative product will cause serious adverse health consequences or death) and risks that would result in a Class II recall classification (i.e., use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote). 

Query whether FDA’s tentative view of the notification standard could act as a disincentive to participation in the third-party auditing program.  Under current law, industry is required to notify FDA of a potential food safety issue (through the Reportable Food Registry) only under circumstances that dovetail with the Class I recall standard; notification under lesser circumstances, such as those associated with Class II recalls, is voluntary.  If auditors are required to notify FDA of potential food safety issues associated with Class II recalls, manufacturers may well want to factor that loss of discretion into deciding whether to participate in the third-party auditing program. 

By Riëtte van Laack –

In March 2013, the nearly three-year battle between POM Wonderful and the FTC that was fought at the FTC moved to the United States Court of Appeals for the D.C. Circuit (see our previous posts here and here).  Following several extensions for filing its opening brief, on August 14, 2013, POM Wonderful LLC Roll Global, and the owners, Mr. and Mrs. Resnick filed a brief in the D.C. Circuit.  On the same date, Matthew Tupper (President of POM) filed his brief.  Because each brief adopted by reference portions of the other brief, we will refer to the parties submitting the two briefs collectively as “POM.”.  

POM argues that the Order bans constitutionally protected speech.  It asserts that its advertising claims are based on the best science available and are an “important part of a larger ongoing public discussion about the health benefits of antioxidants.”  POM asserts that its speech is protected because POM’s advertising, at worst, constitutes potentially misleading, rather than actually misleading, speech.  POM states that its ads did not claim that it had uncontroversial evidence; in fact, “every mention of science in the ads [was] heavily qualified.” POM alleges that the FTC presumed that the advertising claims did actually mislead the consumers but “the First Amendment does not permit the government to presume that protected speech is misleading” and shift to the “speaker” the burden to prove that the speaker’s speech is not misleading. 

POM further argues that if the Court were to decide that POM did violate the FTC Act, the FTC’s requirement of two RCTs for all health claims would be inappropriately broad fencing in, where far less intrusive remedies are available.  POM relies on Pearson v. Shalala and its progeny for the proposition that the FTC may not opt for suppression or total prohibition of potentially misleading speech where an alternative non-misleading presentation, possibly disclaimers, may be available.

POM also argues that the order violates the Administrative Procedure Act ("APA")  because the FTC has introduced a new standard, i.e., a requirement for two RCTs for a disease claim without proper procedures.  POM claims that the more flexible traditional substantiation standard has been, and should remain, whether there is competent and reliable scientific evidence, not two RCTs.  POM claims that the RCT standard departs from “years of the [FTC’s] own precedent” and will impose new costs on any advertiser advancing this type of claims.  POM asserts that the FTC’s change in standard requires notice and comment rulemaking to avoid violating the APA.

Mr. Tupper argued that he lacked sufficient control over POM’s conduct to be held responsible under the FTC’s order.

The FTC’s brief is due on October 17, 2013.  The court has not scheduled a date for oral argument.

By Kurt R. Karst –      

Late last week, the Federal Trade Commission (“FTC”) announced that it had filed a motion asking the U.S. District Court for the District of New Jersey to accept an amicus brief in In re Effexor XR Antitrust Litigation concerning the application of the U.S. Supreme Court’s June 2013 decision in Federal Trade Commission v. Actavis, Inc., __ U.S. __, 133 S. Ct. 2223 (June 17, 2013), which dealt with drug patent settlement agreements (aka “reverse payment agreements” or “pay-for-delay agreements”) and the appropriate antitrust analysis to apply to them (see our previous post here), to drug patent settlement agreements containing a “No-AG” (i.e., no authorized generic) commitment.  This is the second time the FTC has asked the district court to accept an amicus brief in the case.  In the first go-round, the court (Judge Joel A. Pisano) denied the FTC’s motion for leave to file its amicus brief.

As we previously reported, In re Effexor XR Antitrust Litigation is private antitrust litigation concerning Wyeth Pharmaceuticals Inc.’s (“Wyeth’s”) anti-depressant drug EFFEXOR XR (venlafaxine HCl) Extended-release Tablets.  In a December 2011 Complaint, several direct purchasers allege that Wyeth, acting alone and/or in concert with first generic applicant Teva Pharmaceuticals USA, Inc. (“Teva”) violated Section 2 of the Sherman Act by delaying EFFEXOR XR generic competition. According to the Complaint:

Wyeth’s scheme included (i) fraudulently procuring three patents for extended release formulations of venlafaxine hydrochloride, (ii) wrongfully listing those patents in the FDA Orange Book as covering Effexor XR, (iii) engaging in serial sham litigation to block and delay multiple generic companies, (iv) entering into a horizontal market allocation and price-fixing agreement with generic manufacturer Teva, and (v) negotiating settlements with subsequent generic applicants to preserve and protect its monopoly and market-division agreement with first-filer Teva.

In particular, the direct purchasers note that as part of the settlement agreement “Wyeth gave Teva an exclusive license to sell a generic version of (instant release) Effexor before the original compound patent for venlafaxine expired.  Wyeth would both forgo marketing its own authorized generic during that period and allow Wyeth’s generic Effexor to come to market early” (emphasis in original).  This sort of arrangement has been referred to as a “No-AG” agreement.

The FTC, which said in a 2013 report that nearly one-half of brand-generic settlement agreements filed in Fiscal Year 2012 contain a No-AG commitment (see here), first asked the New Jersey District Court to file an amicus brief in the case in August 2012.  In denying the FTC’s motion, Judge Pisano found that “the FTC has not expressed an interest that is not represented competently in this case,” and that “the extent to which the FTC is partial to a particular outcome weighs against granting the agency’s motion.” 

Now, with the Supreme Court’s Actavis decision under its belt, the FTC apparently feels emboldened to ask the court a second time to chime in on the case.  (The case is now pending before Judge Peter G. Sheridan.)  According to the FTC’s motion, the district court should exercise its discretion to accept the FTC’s amicus brief for several reasons, including that the treatment of No-AG commitments has important and serious long-term public policy implications for all consumers.  The FTC is also critical of recent supplemental briefs filed in the case by Wyeth and Teva (here and here) (direct purchaser supplemental brief here).  For example, says the FTC:

Wyeth relies on mischaracterizations of the FTC’s arguments before the Supreme Court in Actavis to support its contentions about the meaning of “reverse payments.”  Further, Teva dedicated an entire page of one of its briefs on an erroneous claim that “the [FTC] determined that the exclusive generic licensing of a single manufacturer did not constitute a ‘payment’ to the generic challenger for the purpose of delaying entry.”  The plaintiffs in this case were not involved in the FTC’s decision-making in either of these instances, and they cannot competently represent what the FTC decided.

In its proposed amicus brief, the FTC contends that the antitrust allegations in the case concerning the No-AG agreement “raise the same type of antitrust concern that the Supreme Court identified in Actavis.”  Moreover, says the FTC, “accepting the defendants’ claim of immunity whenever patentees use vehicles other than cash to share the profits from an agreement to avoid competition elevates form over substance, and it would allow drug companies to easily circumvent the ruling in Actavis, at great cost to consumers.”

In re Effexor XR Antitrust Litigation is not the first case in which No-AG arrangements have been challenged – or in which the FTC has sought to lend its voice.  Just days after Judge Pisano denied the FTC’s motion for leave to file its amicus brief in the EFFEXOR case, the FTC asked the New Jersey District Court to file a similar amicus brief in In re Lamictal Direct Purchaser Antitrust Litigation.  As we previously reported, in that case, filed in early 2012, direct purchasers of certain anti-epileptic drug products containing the active ingredient lamotrigine and marketed by GlaxoSmithKline (“GSK”) as LAMICTAL say that GSK and Teva “delayed generic competition in the markets for Lamictal Tablets and Lamictal Chewables . . . and improperly manipulated the Hatch-Waxman Act to impede, rather than promote, generic competition as intended by the statute.”  Specifically, the direct purchasers allege that GSK and Teva violated Sections 1 and 2 of the Sherman Act when they entered into an agreement providing, among other thing, that GSK would not market an AG of Lamictal Tablets and Lamictal Chewables, and that such agreement was well beyond the exclusionary scope of a now-expired patent listed in the Orange Book for GSK’s lamotrigine drug products and constitutes a naked market allocation agreement.

In contrast to Judge Pisano, Senior District Judge William H. Walls granted the FTC’s motion to file an amicus brief in the case.  But in an unpublished December 2012 decision Judge Walls granted GSK’s and Teva’s Motions to Dismiss the case on the basis that a drug patent settlement agreement based on negotiated entry dates is not subject to antitrust scrutiny.  Specifically, because no monetary payment was alleged by plaintiffs, Judge Walls ruled that plaintiffs failed to state a cognizable antitrust claim (see our previous post here). 

In late July, the direct purchaser plaintiffs asked Judge Walls to reconsider his dismissal of the case.  The plaintiffs contend in their motion that, “consistent with Actavis, this Court’s analysis should include an examination of all of the circumstances surrounding Defendants’ settlement agreement, including, inter alia, the anticompetitive consequences of GSK’s agreement not to market an authorized generic and the specific amount of financial benefit this agreement conferred on Teva.”  Also, within a day of the FTC asking to file an amicus brief in In re Effexor XR Antitrust Litigation, the direct purchaser plaintiffs in In re Lamictal Direct Purchaser Antitrust Litigation cited the FTC’s proposed amicus brief in a letter to the court as supplemental authority on the issue of whether a No-AG agreement constitutes a reverse payment in the wake of Actavis.  In opposition briefs filed earlier this week (here and here), both GSK and Teva contend that Actavis reaffirms the discrict court’s prior decision that the only patent settlement agreements subject to antitrust scrutiny are those that are alleged to include a monetary payment from the brand manufacturer to the generic.

By Jennifer D. Newberger –

An increasing number of devices employ radio frequency wireless technology.  This trend is likely to continue.  These devices present some new technological issues.  To respond to these new issues, FDA has just released a draft guidance titled, “Radio Frequency Wireless Technology in Medical Devices.”  The purpose of the guidance is to “assist industry and FDA staff in identifying and appropriately addressing specific considerations related to the incorporation and integration of radio frequency ("RF") wireless technology in medical devices.”  The guidance states that there are certain RF considerations that can affect the safe and effective use of medical devices, namely, selection of wireless technology, quality of service, coexistence, security, and electromagnetic compatibility ("EMC").  The guidance describes the various issues for a manufacturer to consider with respect to design, testing, and use of wireless medical devices, and information to include a premarket submission for devices that incorporate RF wireless technology.

Design, testing, and use of wireless medical devices. With respect to the design, testing, and use of wireless medical devices, the guidance suggests that manufacturers “consider the ability of their devices to function properly in the intended use environments where other RF wireless technologies will likely be located.”  FDA states that it will be important for the manufacturer to assure the “correct, timely, and secure transmission of medical data and information” for the safe and effective use of both wired and wireless devices, though, given the expanding use of wireless devices, the majority of the guidance discusses issues unique to those products.

The guidance makes clear that it will be important for a manufacturer to conduct a risk analysis that includes testing to show that the device can operate safely and effectively in the intended environment; the wireless network selected is appropriated for the intended use of the device; data integrity will be protected; and steps have been taken to minimize the likelihood of interference with other devices.  Additionally, the guidance provides suggestions for information to include in the instructions for use to help ensure that the user can safely and effectively operate the device.

Information to include in a premarket submission.  The guidance states that FDA would like to see certain “information specific to the wireless technology and functions.”  This includes a description of the technology and functions, the intended use environment, a description of how the device design assures timely, reliable, accurate, and secure data and wireless information transfer, and a discussion of whether other wireless products can make a wireless connection to the device, and, if so, what design features have been incorporated to protect the subject device from such interference.  Additionally, a pre-market submission would need to include information about verification and validation of the device, such as information about the wireless quality of service appropriate for the device, any risks and potential performance issues associated with wireless coexistence, and any testing performed, including protocols and results.  The submission should also include information addressing the security of wireless signals and data and EMC of the wireless technology.  Finally, the submission should include labeling that includes risk mitigation measures that address RF wireless issues and precautions users should take.

Given FDA’s recent statements expressing concern about the safety of devices with wireless, Internet- and network-connected features (see our previous post here), companies with RF wireless devices should carefully review and consider the issues set forth in this guidance.

 By Wes Siegner –

In response to a history of FDA illegal restriction of the marketing of dietary supplements in the 1980s and early 1990s, Congress amended the Federal Food, Drug, and Cosmetic Act (“FDC Act”), passing by unanimous consent the Dietary Supplement Health and Education Act of 1994 (“DSHEA”).  In simple terms, DSHEA clarified that FDA does not have premarket approval authority over dietary supplements or the dietary ingredients in such products, put the onus for the safety of such products on industry, and established a new dietary ingredient (“NDI”) notification process in section 413 of the FDC Act, 21 U.S.C. § 350b, for certain ingredients that had not been marketed in the United States prior to 1994 to provide notice to FDA of the basis for safety of new ingredients. 

In July 2011, FDA published a controversial draft guidance that attempted to return the industry to pre-DSHEA restrictions by narrowly interpreting the NDI notification provision of the FDC Act.  This firm and many others filed comments critical of the guidance and pointing out that FDA was once again exceeding its legal authority (see here and here).

The guidance has effectively been rejected, though not officially withdrawn, causing further speculation as to what the law requires.  FDA for its part has claimed that too few companies are filing prior to marketing, implying that companies are violating the NDI notification requirements.  Some industry consultants have suggested that the answer to when an NDI notification is needed, and whether the filing of an NDI notification opens the door to “me too” ingredients, will remain unclear until FDA’s draft guidance is revised and reissued (see here).  However, guidance documents are not legally binding on either industry or FDA, and given the distance between FDA and industry on even the basics of the NDI notification process, there is considerable uncertainty as to when – if ever – any guidance will be finalized.
 
So where to look for answers?  The answer is the statutory provision in question, 21 U.S.C. § 350b.  Our prior comments on FDA’s draft NDI guidance, referenced herein, analyze the statutory provision in detail.  However, here are the basic principles:

• No notification is required for any dietary ingredient marketed in the United States before the date of passage of DSHEA, October 15, 1994.   These are commonly referred to as “old” or “grandfathered” ingredients.  One challenge to industry is the lack of any authoritative list of such ingredients.
• No notification is required if the dietary ingredient is “present in the food supply” anywhere in the world.  Therefore, the FDC Act does not require notification if the ingredient is present in food, including dietary supplements, in the United States or any other country either because the ingredient is added to food or because it is a natural constituent of food.
• “Me too” ingredients are generally not required to file an additional NDI notification if the ingredient has already been notified.  The focus of the notification provision is on the ingredient, not the process by which it is made or the amount in the dietary supplement, issues on which the provision is silent.  Therefore, an herbal extract from the same plant and with the same constituents as a notified extract is not subject to the NDI notification process for two reasons:  1) the notification requirement for the ingredient has been satisfied by the prior filing; and 2) the ingredient is now in food, since by law dietary supplements are also “food,” and is therefore “present in the food supply.”

DSHEA granted much greater marketing freedom to industry, and curtailed FDA’s illegal efforts to block market access.  However, even for ingredients that do not require notification, the FDC Act still requires manufacturers to assure the safety of their products by appropriate means – by consulting with food safety experts, compiling supporting data, or conducting necessary studies – and the penalties for ignoring this safety requirement are severe, including criminal prosecution. 

By Etan Yeshua –

Earlier this week, FDA provided new insight into its interpretation of the definition and regulation of medical foods — a legal category established by the Orphan Drug Act of 1988, incorporated into the Federal Food, Drug, and Cosmetic Act in 1990, and seemingly narrowed in scope by subsequent FDA regulations.  The category – which exempts certain “medically necessary” foods from regulations that govern health claims, nutrient content claims, and other labeling requirements – was the subject of FDA’s 2007 Guidance for Industry: Frequently Asked Questions About Medical Foods.  That document described the statutory and regulatory definitions of “medical food” and discussed general labeling requirements and exemptions.  On Tuesday, FDA updated the 2007 guidance document with specific examples of diseases or conditions for which a medical food may or may not (in FDA’s view) be marketed, as well as certain labeling statements that would render a medical food misbranded. 

Briefly, the statutory hallmarks of a medical food are that it must be formulated for oral or enteral use under physician supervision “for the special dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.”  Orphan Drug Act, 21 U.S.C. § 360ee(b)(3).  By FDA’s regulation, a medical food must be “specially formulated” (rather than naturally occurring), and the patient’s distinctive nutritional requirements must be impossible to meet “by the modification of the normal diet alone.”  21 C.F.R. § 101.9(j)(8).

Tuesday’s draft guidance document distinguishes between conditions – such as certain inborn errors of metabolism, or IEMs – that FDA considers to be appropriate for medical foods, and others – such as diabetes, pregnancy, and classic nutrient deficiency diseases, like scurvy – that FDA does not.  Although the agency acknowledged that diabetes and pregnancy are associated with certain nutritional requirements (i.e., controlling carbohydrate consumption and increasing fiber intake for diabetics, and special nutrient recommendations for pregnant women), a product intended to address those requirements (and, therefore, those conditions) should not be marketed as a medical food.  According to FDA, diabetics can achieve proper carbohydrate and fiber levels, and pregnant women can meet their special nutrient requirements, through “modification of the normal diet alone.”  Conversely, FDA asserts, certain IEMs – such as those that “require significant restriction of particular amino acids and/or total protein… or significant modification of fatty acids/total fats” – can only be managed by “modifying the normal diet” in a way that deprives patients of “adequate levels of essential nutrients.”  To achieve adequate levels of these essential nutrients in patients with these types of IEMs, a “medical food is required in addition to a specific dietary modification.”

FDA also opined on the use of certain labeling statements that, in the agency’s opinion, would render a medical food misbranded.  First, FDA said that “labeling of medical foods should not include National Drug Code (NDC) numbers.”  Because the NDC number –  a “unique, three-segment number… which is a universal product identifier for human drugs” –  is intended “for uniquely identifying drugs,” the “presence of an NDC number on a product that is not a drug may be a false or misleading representation that misbrands the product.” 

Second, FDA said that the “labeling of medical foods may not bear the symbol ‘Rx only.’”  FDA previously said (in connection with dietary supplement labeling) that “the use of the word ‘prescription’ or its abbreviation ‘Rx’… should not automatically be interpreted as a disease claim,” 65 Fed. Reg. 1000, 1022 (Jan. 6, 2000).  However, Tuesday’s medical food Draft Guidance interpreted the statute’s prohibition on using  the “Rx only” term on non-prescription drugs to apply not only to drugs, but to non-drug products as well.  The 1997 statute that required “Rx only” to appear on all prescription drugs, FDA argues, sought to replace the previously-required caution statement – “Caution: Federal law prohibits dispensing without prescription” – with the “Rx only” symbol.  Therefore, the “Rx only” symbol is meant to “communicate the same message to consumers that the longer caution statement communicated,” and could thus mislead consumers by suggesting that the medical food bearing the symbol is prohibited by federal law from being dispensed without a prescription.  Nevertheless, because medical foods are statutorily defined as intended for use under physician supervision, FDA said that it would not object to statements that convey this message to consumers (e.g., “must be used under the supervision of a physician”).

The updated Draft Guidance also reiterates that medical foods are not considered to be, or regulated as, drugs; that they must comply with cGMPs for foods, allergen labeling requirements, certain registration requirements, and FDA’s compliance program guidance manual; that any ingredient included in a medical food must be Generally Recognized as Safe, a prior sanctioned substance, an approved food additive, or a color additive; and that a medical food must be a “specially formulated and processed product,” as opposed to a conventional food (e.g., fruits, vegetables, fats, sugars, etc.) that – in its natural state – happens to provide high (or low) amounts of a required nutrient.

Comments to the Draft Guidance must be submitted by October 11, 2013.

By Ricardo Carvajal –

Fred Kummerow, a Professor Emeritus at University of Illinois, sued FDA for failing to respond to his citizen petition (Docket No. FDA-2009-P-0382) asking the agency to ban partially hydrogenated oils containing artificial trans fat.  The citizen petition was submitted in August 2009, and the complaint contends that FDA has neither issued a substantive response nor taken the actions requested by the petition, in violation of the Administrative Procedure Act ("APA").

The complaint contends that there is no safe level of artificial trans fat, and that such fat causes a number of diseases and damages vital organs.  The complaint further contends that “there is a clear difference between natural trans fat, which appears in dairy products and some meats from ruminant animals in the form of vaccenic acid, and artificial trans fat, which appears in partially hydrogenated oils.”  The former purportedly has no adverse health effects and therefore need not be regulated, while the latter is associated with adverse health effects and therefore should be banned as a poisonous or deleterious substance.

In addition to asking that the court declare FDA in violation of the APA, the complaint asks the court to compel FDA “to recognize partially hydrogenated oils as unsafe and ban their use in food by a Court-ordered deadline.” 

By Anne K. Walsh –

Refusing to give up his fight to overturn his felony conviction, the former CEO of InterMune Inc., Dr. Scott Harkonen, recently filed a petition asking the U.S. Supreme Court to review his case.  Harkonen asserts that the government violated his constitutional rights by prosecuting him for public statements he made to investors regarding a clinical trial of the drug Actimmune.  Without asserting outright that his statements were true and not misleading, which would receive unquestionable First Amendment protection, he argues in his petition that his conclusions were debatable, and therefore should not be the basis of a criminal conviction.

Four years ago, a jury convicted Harkonen of wire fraud.  Harkonen was sentenced to three years of probation, 6 months home detention, community service, and a $20,000 fine.  Although his sentence has been served, he remains excluded for a minimum period of five years from federal health care programs based on the felony conviction.  It is unknown whether he will apply for reinstatement once his period of exclusion expires, but if his conviction is overturned, the exclusion automatically would be lifted.  In March of this year, Harkonen lost on his appeal to the Ninth Circuit (reported here), and again on his request for a rehearing en banc. 

He now argues that the Ninth Circuit ruling creates a circuit split regarding First Amendment protection in cases involving scientific interpretation.  According to Harkonen, precedent in the Second, Sixth, and Eighth Circuits exists that prohibits fraud prosecutions if there is a “difference of opinion” between experts.  Harkonen claims that the conclusion in his press release (that the drug demonstrated survival benefit in patients) was based on accurate clinical trial data, and that, since there may be disagreement on the accuracy of that conclusion, that debate precludes a fraud conviction.  In such instances, Harkonen states, the Second, Sixth, and Eighth Circuits would have overturned his conviction.

Harkonen also claims that his conviction has created an “immediate, irreparable, and indefinite” chilling effect for all pharmaceutical companies that routinely must issue public statements regarding the latest clinical studies.  According to Harkonen, the government makes similarly debatable conclusions or “overstatements” in its press releases, and he claims these types of statements are inevitable given the exercise of judgment necessary to analyze data.  Therefore, Harkonen asks the Court to answer this “question of exceptional importance”: whether the government can convict scientists for inferences drawn from accurate data.

The government has 30 days to submit its opposition to Harkonen’s brief. 

By Kurt R. Karst –      

Five-year New Chemical Entity (“NCE”) exclusivity issues are hot – really HOT – these days!  Not only are there three Citizen Petitions pending at FDA requesting that the Agency interpret the FDC Act to grant 5-year exclusivity for a fixed-dose combination drug product containing both a never-before-approved active moiety (i.e., an NCE or new molecular entity) and a previously approved active moiety (see our previous posts here and here, and a recent Novartis comment here), but just recently, Representative Jason Chaffetz (R-UT) introduced H.R. 2985, the Combination Drug Development Incentive Act of 2013.   That bill, which is reportedly backed by POZEN Inc., would amend the FDC Act’s exclusivity provisions to allow for 5-year exclusivity for new drug combinations, regardless of whether or not such a combination contains an NCE (see our previous post here).  Now there’s a new issue that Eisai Inc. (“Eisai”) has raised in a Citizen Petition (Docket No. FDA-2013-P-0884): Did FDA erroneously trigger 5-year NCE exclusivity for BELVIQ (lorcaserin HCl) Tablets (NDA No. 022529) and FYCOMPA (perampanel) Tablets (NDA No. 202834) before the drugs were scheduled by the Drug Enforcement Administration (“DEA”) under the Controlled Substances Act (“CSA”), and thus, before commercial marketing could occur?

FDA approved BELVIQ on June 27, 2012 as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adult patients with a certain initial body mass index, and awarded a period of NCE exclusivity that is shown in the Orange Book as expiring on June 27, 2017.  A few months later, on October 22, 2012, FDA approved FYCOMPA for the treatment of partial-onset seizures with or without secondarily generalized seizures in patients with epilepsy aged 12 years and older, and awarded a period of NCE exclusivity that is shown in the Orange Book as expiring on October 22, 2017. 

Both lorcaserin HCl and perampanel, the active ingredients in BELVIQ and FYCOMPA, respectively, are controlled substances that require scheduling by the DEA under the CSA.  The approval letters for both drug products make it clear that neither drug product can be commercially marketed until DEA schduling of each drug product is complete and labeling is amended to include the appropriate CSA scheduling logo.  Specifically, the approval letters state, under a heading titled “CONTROLLED SUBSTANCE SCHEDULING”:

The final scheduling of this product under the [CSA] is currently proceeding, but not yet complete as of the date of this letter.  We remind you that . . . you agreed not to market this drug until the [DEA] has made a final scheduling decision.  We further note that, when the scheduling is finalized, you will need to make appropriate revisions to the package insert, the patient package insert and the carton and immediate-container labels through supplementation of your NDA.  This would include the statements detailing the scheduling of [BELVIQ or FYCOMPA] in the labeling, as required under 21 CFR 201.57(a)(2) and (c)(10)(i).

This prohibition is grounded in Form FDA 356h, which must accompany regulatory submissions to marketing applications, and that includes a certification that states, in relevant part: “If this application applies to a drug product that FDA has proposed for scheduling under the [CSA], I agree not to market the product until the [DEA] makes a final scheduling decision.”

DEA did not made a decision on the scheduling of lorcaserin until May 8, 2013, when it published a final rule, effective on June 7, 2013, placing the drug into Schedule V.  The DEA has not yet published even a proposed rule with respect to the scheduling of perampane, although, according to Eisai, DEA has had a scheduling recommendation from the U.S. Department of Health and Human Services since late January 2013. 

It is unclear why there is such a delay between drug approval and scheduling.  Eisai notes in the petition that, “[i]n the past, new controlled substances had been scheduled shortly after the time FDA sent a letter approving the drugs as safe and effective,” but that for unexplained reasons “the lag between scheduling and NDA approval has grown longer and longer,” such that “drugs are now often determined by FDA to be safe and effective long before they are scheduled and able to be marketed.”

Whatever the reasons might be for the delays in DEA scheduling, thereby allowing the marketing of BELVIQ and FYCOMPA, NCE exclusivity for both products has been ticking away, according to the Orange Book.  But that’s not only unfair, says Eisai in its petition, but it is legally incorrect.  According to Eisai, NCE exclusivity should begin to run on the date a company can legally market its drug product, and expire 5 years thereafter. 

FDA’s regulations at 21 C.F.R. § 314.108 implementing the FDC Act’s NCE exclusivity provisions at FDC Act §§ 505(j)(5)(F)(ii) (concerning ANDAs) and 505(c)(3)(E)(ii) (concerning 505(b)(2) applications) define the term “date of approval” to mean, in relevant part: “the date on the letter from FDA stating that the [NDA] is approved, whether or not final printed labeling or other materials must yet be submitted as long as approval of such labeling or materials is not expressly required” (emphasis added).  Thus, says Eisai, “the regulation is written to ensure that the effective approval date for purposes of exclusivity is tied to the date that the drug can actually be commercially marketed” (emphasis in original).  And “effective ‘approval’ occurs when the approved drug can be marketed in interstate commerce” (emphasis in original).  This makes sense, says Eisai, and appears to have been the position FDA took in the preamble to the Agency’s 1989 proposed rule implementing the Hatch-Waxman Amendments when FDA commented that “[a] requirement in the approval letter for submission (but not for approval) of final printed labeling or other material that may delay the actual initiation of marketing of the product is not relevant to a determination of the date of approval, so long as the product could be legally marketed.”

Based on this reading of the FDC Act and FDA’s regulations, Eisai asks FDA to conclude that the start date of NCE exclusivity for BELVIQ and FYCOMPA is triggered only when FDA-approved labeling incorporating the final DEA CSA schduling permits commercial marketing of the drug products.  Thus, if a Changes Being Effected (“CBE”) supplement is used, “the day the CBE supplement is submitted with the necessary label changes is the day the sponsor can commercially market the product, and accordingly, should be the date for triggering the NCE exclusivity period.”  Alternatively, says Eisai, “FDA could determine that the date for triggering the NCE exclusivity period is the date the DEA scheduling order becomes effective as this is the date when a CBE supplement could be submitted to permit the sponsor to commercially market the product” (emphasis in oroginal).  This latter determination may be preferable, because it “provides a consistent point for triggering the NCE exclusivity period regardless of when a sponsor decides to take the necessary steps to incorporate the final CSA scheduling into the labeling.”  In either case, the NCE exclusivity for BELVIQ would have been triggered on June 7, 2013, and NCE exclusivity for FYCOMPA would not yet be triggered.

Those of us immersed in Hatch-Waxman might be thinking: “But wasn’t there a court decision a couple of decades ago dealing with the ‘does the date of the NDA approval letter trigger exclusivity issue,’ and doesn’t that decision decide the issue here?”  Yes, there was such a decision; in fact, a pair of decisions, one of which involved scheduling under the CSA of a controlled substance: Norwich Eaton Pharmaceuticals, Inc. v. Bowen, 808 F.2d 486 (6th Cir. 1987) and Mead Johnson Pharmaceutical Group v. Bowen, 838 F.2d 1332 (D.C. Cir. 1988).  We won’t get into the details of each case here, but Eisai says the decisions in both cases are distinguishable from the BELVIQ and FYCOMPA situations, because further action by FDA was not required before the companies could market their drug products in Norwich and Mead.  That is, in those cases, the companies were there own barrier to marketing, and not FDA, as with the marketing of BELVIQ and FYCOMPA.

Eisai goes on to discuss how FDA’s treatment of BELVIQ and FYCOMPA differently than other NCEs is arbitrary and capricious, because other companies will enjoy a full five years of NCE exclusivity for their products, and that it undercuts the intent of the Hatch-Waxman Amendments.  This is also, says Eisai, a problem that can be easily corrected without notice-and-comment rulemaking, and that must be substantively addressed by FDA within the next 5 months (or earlier). 

Interestingly, Eisai makes good use of statements made by FDA in the Agency’s Motion for Stay Pending Appeal filed last May in the PLAN B case concerning exclusivity:

Just this year, FDA publicly advocated against shortening the congressionally-mandated exclusivity period because it would “cause irreparable harm to the regulatory process by undermining the benefits to the public and to FDA of the marketing exclusivity that the [FDC Act] affords to drug sponsors.”  FDA further stated, “such exclusivity provides a critical incentive for drug development that advances FDA’s goal of protecting and promoting public health” and depriving a company, such as Eisai, of its entitled exclusivity period “would stifle rather than encourage innovation, to the detriment of the public.”  Yet, contrary to those assertions, FDA would deprive Eisai of its full statutory five-year exclusivity periods in these instances.

Will those statements come back to haunt FDA in court if the Agency denies Eisai’s petition, or otherwise refuses to update the Orange Book with revised NCE exclusivity expiration dates?  We’ll see.

By John R. Fleder –

For many years, FDA has taken the public position that nongovernmental entities cannot enforce the Federal Food, Drug, and Cosmetic Act.  That position has not deterred lawsuits against businesses under statutes other than the FDCA, arguing that the defendants’ conduct violated the FDCA.  Examples include class action and individual product liability cases, suits filed under the federal Lanham Act (relating to alleged false advertising), and alleged securities law violations involving companies that publicly indicate their compliance with the FDCA.

The federal False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”), is a commonly used statute these days.  Alleged whistleblowers seek to recover money on behalf of the United States, and of course, themselves in situations where the alleged whistleblower (relator) believes that companies and others have caused the federal government to pay out money based on “false claims” that were submitted by the defendant or someone else.

We have seen numerous relators file creative lawsuits under the FCA claiming that companies regulated by FDA violated the FCA because those companies sold products that: (1) violated the FDCA in some respect; and (2) the federal government reimbursed someone for the costs of those products.  For instance, relators have claimed that companies have illegally marketed products off-label, have engaged in manufacturing practices that violated FDA’s cGMP requirements, have sold unapproved products, have conducted clinical trials that were not cleared by FDA, and have failed to report to FDA adverse events associated with a product (see, e.g., here and here).  One relator unsuccessfully tried to argue that a defendant’s alleged failure to comply with an FDA Consent Decree provided authority for that relator to obtain a recovery under the FCA.  There have undoubtedly been other cases where relators have pushed other FDCA-related theories pursuant to the FCA.

The government has declined to take over the prosecution of many, but certainly not all, of these FDA/FDCA cases.  One example of a case where the federal government intervened was the GlaxoSmithKline case, which involved alleged cGMP violations (see our previous post here).

Now, the United States has staked out a position on these cases.  In United States ex rel. Ge v. Takeda Pharmaceutical Co., the Department of Justice filed a brief on August 5, 2013, in the U.S. Court of Appeals for the First Circuit, Case No. 13-1089.  Takeda was alleged to have violated the FCA by failing to report adverse events associated with its drugs.  The district court dismissed the case because he concluded that relator had failed to plead his case with sufficient particularity.  The court also indicated that FDA’s regulatory scheme barred this FCA action because FDA had a regulatory mechanism whereby the public can petition FDA to take action against violators of the FDCA, and that mechanism precluded an FCA suit.  Even though the United States’ brief did not take a position on whether the dismissal was appropriate with regard to whether the complaint was pleaded properly, the government did weigh in on whether the court’s reliance on FDA’s regulatory scheme was correct.  The government’s brief to the Court of Appeals asserts that the court below erred in relying on FDA’s Citizen Petition procedures as an “alternative administrative mechanism” that bars FCA actions.

The brief also argues that failure to report adverse events to FDA can theoretically form the basis for FCA liability.  The brief states that pharmaceutical companies must report adverse events associated with their drugs to FDA.  It states that the government can seek to withdraw approval of the drug or bring civil or criminal proceedings against the allegedly offending company.  The government indicates that FDA approval is relevant to whether the government can reimburse for drugs under some government programs.

So far, so good for the relator.  But then the worm turns.

The relator claimed that all of the claims for reimbursement submitted with regard to Takeda’s drugs were “false” because Takeda had not properly filed adverse events reports.  The district court rejected that theory.  On appeal, the government concludes that the circumstances where a failure to report an adverse event could form the basis for FCA liability are “rare.”  Indeed, the government states that simply “alleging that a company failed to comply with FDA’s adverse event reporting requirements is insufficient to state an FCA claim.”  The government further argues that compliance with the FDCA’s adverse event reporting requirements “is not, in itself, a material precondition of payment under Medicare or Medicaid.”  In the government’s view, only when it is determined that the unreported adverse events “are so serious that the FDA would have withdrawn a drug’s approval for all indications had these events been properly reported” would the failure to report be material to the government’s payment decisions and thus trigger a potential FCA action.  Withdrawal of approval because of unreported adverse events is pretty rare.  It is so rare, in fact, that we cannot recall an instance in which it has happened.

The standard suggested by the government in its brief, if adopted by the courts, should foreclose many if not most of the FCA cases that are based on alleged FDCA violations involving adverse drug events, alleged cGMP violations and many other “routine” alleged FDCA violations.  The brief may not deter relators from filing cases, but it should be a valuable tool for defendants to present to courts around the country to combat such suits.

By James R. Phelps –

The Federal Register on July 10th published certain recommendations of the Administrative Conference of the United States, including one that independent regulatory agencies should prepare cost-benefit analyses for proposed and final regulations.  This was very timely, coming just as I was slogging my way through the Office of Management and Budget’s (“OMB’s”) 2013 draft report to Congress relating to the cost-benefits of government regulations.  (The authors of the OMB report seemed to extend an effort to make their document comprehensible to a layman.  The academic literature on the subject of cost-benefits is not an easy read; it justifies the description of economics as “The Dismal Science.”)

I was drawn to the adventure of cost-benefit analysis by a report from RAPS, introduced under the headline “Federal Agency Says FDA's Benefits Far Outweigh its Costs.”  RAPS Regulatory Focus said this about the OMB draft report:

The draft report was published in response to the Regulatory Right-to-Know Act of 2001, which requires OMB to prepare a cost-benefit report on the costs of federal regulations for the Congress. The influential report can be a strong case for agency officials to argue for additional funding, but can also provide a harsh spotlight on agencies that fail to promulgate well-tailored regulations. 

OMB’s draft report noted that in 2012, FDA released a total of eight regulations which cost an estimated $800 million to $1.2 billion. While that may seem high given the cumulative nature of many regulations, OMB said the benefits afforded by those eight regulations exceeded the costs dramatically, with low-range estimates of $2.1 billion in societal benefits and a high range estimate of $21.9 billion—more than 2600% more than the lowest estimate, and 75% more than the most conservative estimate.

Learning that FDA hit the societal benefit jackpot was very exciting, and raised questions.  From where did these numbers come?  What are “societal benefits” and how do they get measured?  Reading the OMB report seemed the best way to get answers to these questions and so I entered the world of government economists.

The report is required by the Regulatory Right-to-Know Act of 2001, Pub. L. No. 106-554, and by several Executive Orders.  To develop the report, which is the sixteenth of its kind, OMB used information provided by other agencies, such as FDA, that analyzed costs and benefits of major regulations that they issued.

So the legislative and executive branches of government have tasked the agencies to justify the cost-effectiveness of their own regulations.  The bureaucracies have responded, “monetizing” information to show that their regulations are, for the most part, a terrific investment, showering billions upon billions of dollars of “societal benefits” upon the public.

“Monetization,” in the context that it is used by OMB and the agencies contributing to the report, means giving monetary valuation to things such as life and health, in the context of the benefits that regulations purport to protect or create.   

The OMB report has this to say about monetizing health-related regulations (page 16):

Agencies often design health and safety regulation to reduce risks to life, and valuation of the resulting benefits can be an important part of the analysis.  What is sometimes called the ‘value of a statistical life’ (VSL) is best understood not as the ‘valuation of life’ but as a valuation of statistical mortality risks.  For example, the average person in a population of 50,000 may value a reduction in mortality risk of 1/50,000 at $150.  The value of reducing the risk of 1 statistical (as opposed to known or identified) fatality in this population would be $7.5 million, representing the aggregation of the willingness to pay values held by everyone in the population. 

The final number achieved by use of the VSL is the “dollar” amount of what the economists have called the “benefit.” In the RAPS report and elsewhere, the “benefit” is called the “societal benefit.”
 
Economists have generated a large body of literature about the use of VSL in cost-benefit analyses. VSL calculations are expressed with the powerful authority of numbers, though the methods of arriving at VSLs use assumptions and judgments that do not guarantee precision.  The OMB report (page 16) recognizes the unsettled character of VSL calculations stressing that “the technical literature has not converged on uniform figures (for VSL). . . .”

Building on an extensive and growing literature, OMB Circular A-4 provides background and discussion of the theory and practice of calculating VSL.  It concludes that a substantial majority of the studies of VSL indicate a value (in 2001 dollars) that varies ‘from roughly $1 million to $10 million per statistical life.’ 

(OMB says the literature on VSL valuation now puts it, in 2010 dollars, in the range of $1.2 million to $12.2 million.)  Government agencies do their own VSL calculations, and the numbers used by the many agencies vary.  According to OMB, FDA consistently used VSL values of $5.0 and $6.5 million in several of its rulemakings.  Other agencies use different numbers; for example, according to the OMB, the DOT uses $9.1 million in 2012 dollars; OSHA has used a VSL of $8.7 million, and EPA has used a calculation that arrives at a VSL of $8.9 million. 

Much to their credit the OMB authors highlight the limitations of the information used in their report (page 8), saying: “[w]hile the estimates in this draft Report provide valuable information about the effects of regulations, they should not be taken to be either precise or complete.”  (Emphasis added)

In addition to the VSL calculations, the authors provide other significant details to justify their cautionary statement.  For example: They are aggregating analytic results that are not comparable.  Quantification of costs and benefits is not always possible.  The distributional effects of regulations are not well analyzed. 

Further, the report notes that the benefits analyzed by the agencies are prospective.  An assumption built into this quantification process is that a given regulation will achieve those things for which it has been put in place; these are the “societal benefits” referred to in the RAPS piece. 

The OMB recognizes that costs and benefits of regulations cannot be truly known until the regulation has been implemented and tested by time.  A regulation might not achieve the result desired by the government agency, and there can be unexpected and negative effects that occur when a regulation is implemented.  The information derived from actual experience is of course not in the calculation of benefits provided by the agencies.  (On page 9 of the report, OMB strongly recommends that retrospective analyses of effects of regulations should be done.)

Further, the VSL used to compute the “benefit” is said to be based on the average amount of money that people have said they would spend to have a certain effect.  But those people did not write the regulations and most probably never saw them, so we cannot know if they would spend the money to take the specific actions required by the regulations.  They might oppose the methods prescribed in a regulation. 

Notwithstanding all the foregoing, the OMB soldiers on, reporting page after page of billions and billions of dollars of “benefits.”  On page 63, the report offers a summary of “total net benefits” of major rules through the 4th fiscal year of the administrations of Presidents Clinton, Bush, and Obama.  Clinton eked out $30 billion and Bush $60 billion; Obama eclipsed them, providing $159.2 billion “benefits.” 

The RAPS report understandably reads the OMB document like a financial report, because that’s the way it looks, presenting “benefits” as a dollar return on a dollar investment.  FDA’s eight regulations are seen as a bargain because of the magnificent return of “benefit” money.  Never mind that the regulations incur real money expenses, and in these reports reap the harvest of a currency that couldn’t be used to play Monopoly.     

Looking at the OMB “total net benefits” comparison cited above, or the RAPS report, one might conclude that we need more and more regulations, because they will increase our “benefits.”  Can the successor to Mr. Obama provide more than his $159.2 billion in “societal benefits?”  To accomplish that, more regulations will need to be devised and promulgated.

The estimates presented in the OMB document, though not “precise or complete,” convey that nearly every agency’s regulations provide a huge return in “societal benefits” (page 13 of the report).  And in only a few relatively minor instances is the cost of a regulation possibly more that the minimal calculated benefit.  In every instance the span between the low “benefit” estimate and the high is quite large; for FDA, the low figure — $2.1 million – is .098 of the high figure — $21.9 million. 

The huge numbers, the “dollars” generated in monetization calculations are of course very impressive.  The RAPS report notes that they are used to secure appropriations from Congress, and readers of that report might admire the “dollars” accrued by FDA.  The Congress and the American people like to see the agencies operating in the black; seeing a huge profit, even if it’s dollars of “societal benefits,” will be considered very good news.

The Administrative Conference wants the independent agencies to join the other government agencies to produce the cost-benefit information.  It says, at 78 Fed. Reg. 41,355, that these cost-benefit analyses can “. . . help ensure that decisionmakers fully contemplate the risks and rewards of any proposed regulatory strategy.”  Further, they will help to “. . . ensure that the public and Congress understand why regulatory decisions are made.”  One wonders if this is so.

What do those “dollar” numbers mean?  They are carefully presented as only estimates, and even so with extensive qualifications affecting their reliability.  The enormous range of variances between the low and high estimates of “benefit dollars” as presented by virtually all the agencies makes the numbers more like guesses than estimates.  What useful insight about why regulatory decisions are made do these inconclusive numbers provide?

Not only are the “dollars” questionable.  Describing the effects of regulations, any government regulations, as “benefits,” is grounded in the dubious assumption that all government rules have benign effects. Rules issued by the government prescribe and proscribe conduct, and what is a benefit for one may be very hurtful to the interests of others.  For example, regulations that shut down businesses might not be universally considered to be a benefit.  Some regulations have been shown to be wrong-headed, certainly not benefits.   

One prominent critic, cited in both the OMB report and the announcement of the Administrative Conference, challenges the validity of monetizing in cost-benefit analyses.  See Heinzerling & Ackerman, Pricing the Priceless, Cost-Benefit Analysis of Environmental Protection, 150 U. Pa. L. Rev. 1553 (2001). The process, however, is embedded in the federal government’s agencies and likely to be a continuing feature in government policy planning.

Considering and judging the relative merits of regulations is a needed but complicated process, deserving of attention from as many disciplines that can be employed to make it work properly.  How does monetization, with its authoritative reports of “benefit” dollars that cannot be spent or saved, and its benefits that may not be so beneficial, fit into this process?  I submit that monetization is an impediment to clear thinking about the merits of regulations. 

By Riëtte van Laack –

The Organic Foods Production Act requires that the U.S. Department of Agriculture (“USDA”) establish national standards for the production and handling of organic products to assure that agricultural products marketed as organic meet consistent uniform standards.  USDA established the National Organic Program (“NOP”) to develop, implement and administer the national standards.  Among others, NOP developed standards for organic certification of dairy herds including the origin of livestock requirements describing how conventional cattle can be transitioned to organic dairy cattle and the access to pasture rule.  The most recent USDA Office of the Inspector General (“OIG”) audit report focuses on organic milk operations’ implementation of the access to pasture rule.  The access to pasture rules became effective June 17, 2010, and was to be fully implemented by June 17, 2011.  Thus, at the time of the audit, the industry had barely two years of experience with this rule.

OIG’s audit included interview of NOP personnel in Washington DC, 25 organic milking operations in California, Minnesota, New York, Pennsylvania, and Wisconsin and 6 of the top certifying agents in each of these states.  The selection of the states and certifying agents was partially based on the number of certified organic milk operations in these States and partially the result of an effort to reduce costs.  Nevertheless, OIG believes that the sample provides a reasonable basis for its conclusions.

Although overall OIG found that the NOP has implemented the access to pasture rule successfully, it identified several issues that need to be addressed.

Among others, OIG concluded that certifying agents’ oversight of compliance with NOP regulation leaves room for improvement.  Apparently, both the certifying agents and the certified organic operations do not always interpret the rules correctly.  Furthermore, because of lack of clarity by NOP, when the certifying agents did identify a non-compliance, they did not take consistent enforcement actions.

OIG also identified inconsistency in certifying agents’ interpretation of conditions under which operations can transition non-organic dairy cows into organic production.  Apparently, some agents allow producers to add non-organic cows to their existing herds three months before calving, whereas others do not allow this practice.  Since this practice has a significant economic advantage, this apparent discrepancy between certifying agents could lead to dairy producers shopping for certifying agents.

OIG also identified a need for better oversight of organic feed brokers.  Currently, organic feed brokers are exempt from certification.  As a result, there is no guarantee that organic feed is not commingled with non-organic feed or contaminated.  This causes uncertainty about the “organic integrity” of the system.

NOP agreed to all OIG’s recommendations.  Based on its response, NOP plans to issue various documents in the next year, including:

• A proposed rule related to origin of livestock in March 2014;
• A final guidance concerning certification for handling unpackaged products which will address the issue of organic feed brokers;
• An updated Enforcement Instruction with a penalty matrix for certifying agents to properly classify noncompliance issues and associated enforcement actions identified during inspection by December 2013; and
• An updated Records and Recordkeeping Instruction to clarify recording keeping requirements related to access to pasture rule by December 2013.