By JP Ellison –

Earlier this month, the U.S. Sentencing Commission (the “Commission”) issued a Notice of Proposed Amendments to the U.S. Sentencing Guidelines, which are used by federal courts to determine sentences for criminal violations.   

The Notice contains several proposals that may be of interest to blog readers.  This blog post focuses on the Commission’s proposal regarding the appropriate base level offense for a person who is convicted of  knowingly and intentionally adulterating a drug under a newly enacted provision of the FDC Act.  As you may recall from HPM’s earlier detailed analysis, section 716 of the Food and Drug Administration Safety and Innovation Act, Public Law 112-144 (July 9, 2012), added a new subsection to section 303(b) (21 U.S.C. § 333(b)) of the FDC Act which reads as follows:

(7) Notwithstanding subsection (a)(2), any person that knowingly and intentionally adulterates a drug such that the drug is adulterated  under subsection (a)(1), (b), (c), or (d) of section 501 and has a  reasonable probability of causing serious adverse health  consequences or death to humans or animals shall be imprisoned for not more than 20 years or fined not more than $1,000,000, or both.

Effectively, this means that the maximum criminal penalties associated with this conduct are much steeper than for violations of most other sections of the FDC Act.  By way of background, section 303 of the FDC Act lists the penalties for violations of section 301 of the FDC Act.  Section 303(a)(1)  imposes misdemeanor liability for section 301 violations, and section 303(a)(2) imposes felony liability for second convictions under section 301 and violations of section 301 done with the intent to defraud and mislead.  The statutory maximum prison term for misdemeanor liability under (a)(1) is one year in prison ,for felony liability under (a)(2), it is three years.  Section 303(b), generally sets forth the penalties for other violations of the FDC Act, most of which have a statutory maximum of ten years.  Thus, the twenty year statutory maximum for a term of imprisonment under section 303(b)(7) presumably reflects Congress’ view of the relative seriousness of this offense.

For most FDC Act violations, the base offense level is governed by § 2N2.1 or § 2B1.1, the latter applying to the more high profile FDC Act criminal cases in which fraud is proven.  Section 2N2.1 sets a base offense level of 6, which yields a recommended sentence of zero to six months in prison.  Section 2B1.1 also sets a base offense level of 6, but provides for significant increases, largely driven by the extent of the fraud, that could increase the offense adding many years to the recommended sentence.  

The Commission now proposes to set the base offense level for the new crime set forth by FDASIA. On one very simplistic level, the Commission is asking whether a person convicted of knowingly and intentionally adulterating a drug when that drug has a reasonable probability of causing serious adverse health consequences should, as the result of a base offense level, face approximately 1-2 years in jail, or 4-6 years.  Both base offense levels are well below the 20 year statutory maximum, but the Guidelines allow for adjustments and departures that can significantly increase the recommended sentence.

As explained in the Notice, the Commission has “present[ed] two options for addressing the offense under section 333(b)(7).  Option 1 establishes a new alternative base offense level of level 14 in § 2N2.1 for cases in which the defendant is convicted under section 333(b)(7).  Option 2 amends Appendix A (Statutory Index) to reference offenses under section 333(b)(7) to § 2N1.1 (Tampering or Attempting to Tamper Involving Risk of Death or Bodily Injury).”  Under §2N1.1 the base offense level is 25.  The recommended Guidelines Manual range for a base offense level of 14 is 15-21 months; for a base offense level of 25 it is 57-71 months.

The underlying new statutory provision, as well as the proposed Guidelines raise issues too numerous to discuss fully, but several issues merit brief mention.  First, as to applicability, most readers of the blog may conclude that they need not be concerned with section 303(b)(7) or the corresponding Guideline because they would never “knowingly and intentionally adulterate[] a drug.”  In that regard it is worth noting that typical criminal jury instructions on what constitutes knowing and intentional conduct often sweep more broadly than the common understanding of those terms.  See, for example, these model criminal jury instructions from the Third U.S. Circuit Court of Appeals.

Second, organizations should be mindful of section 303(b)(7), as its maximum fine may be relevant to charging and sentencing issues regarding them.  In most notable FDC Act criminal cases, the alternative fine provision of 18 U.S.C. §3571(d) has determined the amount of the fine imposed on organizations because the “twice the gross gain or twice the gross loss” measure has typically dwarfed the maximum fines under 303(a), and generally exceeded the organizational fines under section 3571(c)..  While neither 2N2.1 nor 2N1.1 is an applicable offense Guideline for the Organizational Guideline fine provisions, and thus the basic fine framework will not change regardless of which proposal the Commission adopts, the $1M maximum fine under 303(b)(7) may, in some instance, be the “greatest of” the potential bases for a fine.

Third, for both organizations and individuals, section 303(b)(7) would seem to offer the government a potentially powerful new charge that it could bring, and threaten to bring.  The cross-reference for determining adulteration under section 303(b)(7) is to 501(a)(1), (b), (c), or (d),and Warning Letters asserting violations of these provisions are numerous.  See, e.g., here, here, and here. 

Moreover, it is not hard to imagine the government taking an expansive view of the circumstances under which alleged adulteration “has a reasonable probability of causing serious adverse health consequences.”  Thus, at least in the first instance, the circumstances under which a section 303(b)(7)charge may be leveled would seem to be the subject of significant prosecutorial discretion, and prosecutors may seek to leverage the significantly increased penalties of this section to extract favorable pleas  These considerations would seem to argue against a base offense level that stacks the deck too heavily in the government’s favor.

The appropriate sentence in any case is intensively fact-specific, and the Guidelines Manual allows for adjustments and departures based on those facts.  That said, the Commission’s proposal seems to present the question of whether this new offense is more like a traditional FDC Act violation, or more like a consumer products tampering violation, which is almost certainly “knowing and intentional” in the lay sense of those words.  Regardless of one’s views, the comment period for the Notice remains open until March 19, 2013.  The Notice also states that the Commission plans to hold a public hearing.  

By Delia A. Stubbs –

Last Friday, January 25, 2012, after two days of discussion and deliberation, an FDA Advisory Committee voted 19 to 10 in favor of rescheduling combination hydrocodone from its current placement in Schedule III to Schedule II.

The decision was informed by presentations from various perspectives, including high ranking government officials from FDA and DEA, professional societies, practitioners, industry representatives, and family members who lost loved ones to prescription drug abuse.  What began as a conversation about abuse-ratios (FDA and DEA had competing views), soon developed into a conference about prescription drug abuse generally; the practical impact of rescheduling on prescribing practices, patient access, drug distribution, opioid abuse and misuse; and alternatives to rescheduling that  would equally or more effectively reduce hydrocodone misuse and abuse.

Industry representatives argued that up-scheduling hydrocodone would impose huge costs on pharmacies, distributors, and patients with no discernible reduction on abuse and diversion.  While some committee members gave little weight to these increased costs, they also shared a concern about the change’s overall effectiveness, noting the widespread abuse of opioids currently placed in Schedule II.  Patient representatives remarked that rescheduling would increase patient (and payer) costs and impede patient access because Schedule II controlled substances, versus Schedule III controlled substances, may not be refilled.  Thus, patients who currently see their physicians twice-a-year would be required to do so as often as once a month.  To avoid the need for monthly visits, they explained, prescribers may react by increasing prescription volume, which, in turn, raises the risks of abuse and diversion, by increasing the number of pills available inside the home.

Advocating for the change from Schedule III to II, DEA Deputy Assistant Administrator, Joseph Rannazzisi, argued that tightening security and control of combination hydrocodone products by pharmacies and distributors, and increasing DEA’s enforcement tools, would reduce abuse and diversion of combination hydrocodone.  See DEA Slides, here.  He argued that many individuals start abusing combination hydrocodone due to its ease of availability, build a tolerance, and consequently move on to stronger opioids such as oxycodone and heroin.  However, he recognized that, “I am not going to be able to provide you with clear evidence [that rescheduling will work to reduce prescription opioid abuse] because there is no clear evidence until the drug actually gets rescheduled.”  In response to patient access concerns, he asked, “Is it really that bad to have to see a patient every 3 months?,” and identified a rule DEA promulgated in 2008 that allows prescribers to issue up to three post-dated 30-day prescriptions for the same Schedule II substance at one time.  He recognized, however, that many prescribers do not avail themselves of the rule.

The Committee discussed other activities that might address misuse and diversion of hydrocodone, including interoperable Prescription Drug Monitoring Programs, drug disposal initiatives, provider and patient education, and Risk Evaluation and Mitigation Strategies (“REMS”).  One Committee member who voted in favor of rescheduling stated that placing hydrocodone combination products in Schedule II is the best way to educate providers on the drug’s abuse potential.

Overall, in recommending rescheduling, many Committee members were persuaded by evidence showing combination hydrocodone acts similar to other Schedule II controlled substances, such as morphine and oxycodone.  Sharon Walsh, Ph.D., from the Center on Drug and Alcohol Research, University of Kentucky, presented evidence from human studies showing no significant difference between combination hydrocodone and combination oxycodone drugs on pupil diameter and drug “likeability.”  See S. Walsh Slides, here.  When asked by committee members for her opinion as to whether there was a meaningful difference in those drugs’ abuse potential, she opined that the drugs’ abuse potential was indeed the same.  Many Committee members later referenced Ms. Walsh’s presentation when casting their vote in favor of rescheduling.

The Advisory Committee’s recommendation is not binding on FDA and there is no statutory time-limit on when FDA must respond to DEA’s request for a scheduling recommendation.  Because there is a pending petition before DEA to reschedule these drugs, when FDA provides its recommendation to DEA, DEA will then likely proceed with a notice and comment rulemaking proposing to reschedule the drug.  

Hyman, Phelps & McNamara, P.C. ("HP&M") will hold a complimentary webinar on Thursday, January 31, 2013, from 12:00 – 2:00 PM (Eastern) on the Second Circuit's recent and long-awaited decision in United States v. Caronia.  This webinar is not just another summary of the Second Circuit's decision. Nor is it merely high-level positing about the future of off-label promotion prosecutions, such as here and here. This webinar will provide practical tips to address the real-world implications to companies from this significant decision. The impacts go beyond just the pharmaceutical marketing industry – the marketing of devices, dietary supplements, and tobacco products likely will be affected.  Hear from experts who evaluate and advise FDA-regulated industries about relevant business considerations that are impacted by Caronia. Participants will gain an understanding of:

• The Caronia decision and other First Amendment court rulings involving FDA and what the government is likely to do as a result of the Caronia decision;
• Views from people familiar with how the FDA Centers (including CDER, CDRH, CFSAN, and CTP) will modify enforcement and other decisions as a result of Caronia;
• Strategies for promotional review committees to use; and
• Defenses to current and future off-label marketing and government reimbursement cases.

There will be 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 conference here.  Please contact Lisa Harrington at lharrington@hpm.com with any registration questions. 

By Jennifer D. Newberger –

On January 24, 2013, FDA finalized the Humanitarian Use Device (HUD) Designations guidance, issued in draft on December 13, 2011.  The guidance addresses HUD requests, a first step in obtaining approval of a Humanitarian Device Exemption (HDE).  A HUD is a “medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in fewer than 4,000 individuals in the United States per year.”  21 C.F.R. § 814.3(n).  An HDE application is similar to a PMA, but exempts the applicant from demonstrating a reasonable assurance of effectiveness.  The guidance discusses only obtaining a HUD designation, and does not discuss submission of an HDE to either CDRH or CBER.

The guidance discusses several issues important to a successful HUD request, including the following: 

Description of Disease or Condition.  The Office of Orphan Products Development (OOPD) is responsible for initially reviewing a HUD request.  Unlike a PMA approval or 510(k) clearance, a HUD designation is not for a particular indication, but rather a designation for a rare disease or condition generally.  Upon obtaining HDE approval, CDRH or CBER may limit the approval to certain indications.

When submitting a HUD request, the sponsor should carefully consider the particular disease or condition for which it is seeking HUD designation, namely, “specific aspects of the disease or condition relevant to the functionality of the device, as well as any information that assists in defining the patient population.”  Because HUD designation depends on the affected patient population, identifying the appropriate disease or condition is very important.  For example, the guidance discusses the difference between multiple myeloma, lytic lesions regardless of cause, or lytic lesions due to multiple myeloma.  The device for which the sponsor is seeking the HUD designation may actually be lytic lesions due to multiple myeloma, not multiple myeloma itself.  Sponsors should carefully characterize the disease when seeking a HUD designation.

Population Estimates.  HUD designations are for those diseases or conditions that affect no more than 4,000 individuals in the United States per year.  The method for estimating the affected population may vary depending on whether the device is intended for therapeutic or diagnostic purposes.  As described in the guidance, for therapeutic devices, “the population estimate is generally the number of new patients per year diagnosed with the relevant disease or condition and eligible for treatment with the device.”  For diagnostic devices, “the population estimate is generally the number of patients per year who would be subjected to diagnosis with the device, regardless of whether the test result is positive or negative.”  Thus, a therapeutic HUD is based on the number of new cases, whereas as a diagnostic HUD is based on the number of people who are expected to be tested.  Because of this difference, the guidance suggests that each applicant “identify in a HUD request whether the device is intended for therapeutic or diagnostic purposes.”

Orphan Subset of a Non-Rare Disease or Condition.  “Orphan subset” describes “the subset of individuals with a non-rare disease or condition on whom use of a device is appropriate, where use of the device on the remaining individuals with that disease or condition would be inappropriate given some intrinsic feature of the device.”  Of note, “an orphan subset does not simply mean any medically recognizable or clinically distinguishable subset of persons with a non-rare disease or condition.”  (Emphasis in original.)  Rather, device characteristics must preclude use in the remaining individuals with the non-rare disease or conditions.  This is similar in concept to "orphan subsets" for orphan drug designation purposes (see here). The guidance gives several examples of when an orphan subset may be appropriate.  For example, the adverse event profile may help determine the existence of an orphan subset by showing that the device should not be used on patients who have not failed drug therapy.  The orphan subset would therefore be those patients who have previously failed drug therapy. 

For those relatively few sponsors who seek HUD designations, perhaps this guidance will help lead to more successful submissions.  Even if it helps clarify certain issues, however, it is unlikely that the guidance will go to the more fundamental issues that have limited use of the program.

By Ricardo Carvajal –

Pharmacists Planning Service, Inc. ("PPSI"), a California-based “nonprofit public health, consumer, pharmacy education organization,” submitted a citizen petition asking FDA to make St. John’s Wort ("SJW") available only behind the counter.  Specifically, the petition asks FDA “to remove sales of [SJW] from Herbal Dietary Supplement to behind the pharmacy counter status to Pharmacists-Only Class of Drugs with Mandatory Consultation, Patient History Review, Identification and Registration.”  The petition cites no specific authority for the requested action.

The petition contends that SJW can cause a number of adverse effects and “has the potential for many drug interactions with at least one… having caused a patient’s death.”  For additional support, the petition points to bans and restrictions of SJW in certain foreign countries.  PPSI has previously filed petitions with FDA, including a petition to remove pseudoephedrine from the market which FDA denied (see here). Comments on the SJW petition can be submitted here. 

By Karla L. Palmer –

On January 22, 2013, the United States Court of Appeals for the District of Columbia Circuit dismissed a petition for review filed by several interest groups and individuals who petitioned DEA to initiate the federal rescheduling of marijuana.  The case stems back to a 2002 Citizens Petition filed by the Coalition to Research Cannabis wherein the Coalition and ultimately others requested DEA to initiate proceedings to reschedule marijuana from the most restrictive Schedule I classification (i.e, no accepted medical use) to a Schedule III, IV or V drug.  DEA denied the petition nine years later on July 8, 2011. See Denial of Petition to Initiate Proceedings to Reschedule Marijuana, 76. Fed. Reg. 40,552 (July 8, 2011).  Despite less restrictive marijuana laws in several states pending or since the filing of the petition, DEA specifically found that there is still no “currently accepted medical use for marijuana in the United States,” and that the “limited existing clinical evidence is not adequate to warrant rescheduling of marijuana” under the Controlled Substances Act.

Petitioners claimed on appeal that DEA arbitrarily and capriciously ignored in its rescheduling review numerous peer-reviewed scientific studies that demonstrated that marijuana is indeed effective in treating many different medical conditions.  DEA argued that the appeal should be dismissed because, procedurally, Petitioners lacked standing to bring the appeal and, substantively, DEA’s denial of the petition was based on sound agency reasoning that the Court should not disturb. Concerning the merits of the case, the Court noted that the narrow question before it was not whether marijuana had “some” medical benefit, but simply whether DEA’s decision declining to initiate rescheduling proceedings was arbitrary and capricious.

In reviewing the Agency’s reasons for denying the Citizens Petition, the Court noted that the DEA engaged in the requisite assessment under the Controlled Substances Act (CSA) of each of the five statutory elements necessary to determine whether there is a “currently accepted medical use” for the drug in question:  (1) The drug’s chemistry must be known and reproducible; (2) there must be adequate safety studies; (3) there must be adequate and well-controlled studies proving efficacy; (4) the drug must be accepted by qualified experts; and (5) the scientific evidence must be widely available.  The Court also noted that in reaching a rescheduling decision, DEA must request (and did in fact receive) from the Department of Health and Human Services (“HHS”) a scientific and medical evaluation and a recommendation concerning the appropriate scheduling for the drug, which recommendations are binding on DEA inasmuch as they rest on science and medical determinations.  The Court noted that HHS concluded in its 2006 scientific and medical evaluation that marijuana lacked any currently accepted medical use in the United States.  Thus, DEA found that the limited existing clinical evidence was not adequate to warrant rescheduling.  Reviewing DEA’s decision, the Court only had to consider one of the five statutory elements: “the existence of ‘adequate and well-controlled studies proving efficacy,’ (and there were none) to resolve Petitioner’s claim.”

After what the Court found was an “exhaustive examination,” and despite Petitioner’s claims that it cited more than 200 peer reviewed studies demonstrating marijuana’s efficacy, and disregarding the voluminous peer-reviewed studies, DEA determined there was no evidence of adequate, well-controlled studies demonstrating marijuana’s safety and effectiveness” as a medicine, and there was no consensus among experts on these issues.  In addition, the Court noted that the enactment of state laws permitting use of marijuana for medical purposes did not amount to scientific evidence supporting its medical use.

The Court concluded, at bottom, that the dispute turned on the Agency’s interpretation of its own regulations, which construction the Court determined was “eminently reasonable;” thus the Court was obligated to defer to the Agency’s interpretation of “adequate and well controlled studies.”  The Court found nothing in the record that could “move us to conclude that the Agency failed to prove by substantial evidence that such studies confirming marijuana’s medical efficacy do not exist.”

Hyman, Phelps & McNamara, P.C. is participating in the Food and Drug Law Institute's Food Week 2013 being held February 5 – 8 in Washington, D.C. This program provides an opportunity for food law, regulation and policy stakeholders to gather practical guidance on cutting-edge issues and hear first-hand from government officials and industry experts on the latest legal and regulatory developments. Food Week is a collection of four advanced one-day conferences, as well as FDLI's "Introduction to Food Law and Regulation" course. You can attend one, two, three or all four conferences.
 
HP&M’s Ricardo Carvajal is speaking during the event; therefore, we were able to secure a discount code for FDA Law Blog readers. To receive a 15% discount off registration, use the following promotional code: FOODWEEK13

By Carmelina G. Allis –

The FDA has issued a final rule on the current good manufacturing practice (CGMP) requirements applicable to combination products.  78 Fed. Reg. 4307 (Jan. 22, 2013).  This rule finalizes a proposed rule issued on September 23, 2009.  The new rule, which appears in a newly added section to Title 21, 21 C.F.R. Part 4, sets forth the CGMP requirements that apply when drugs, devices, and biological products are combined to create combination products.  This new rule also applies to manufacturers of “single-entity” and “co-packaged” combination products.  The scope of “manufacturing” activities that fall within the scope of Part 4 include, but are not limited to, repackaging, holding, storage, testing, and designing combination products.

The new regulations are based upon the premise that constituent parts of a combination product retain their regulatory status after they are combined.  In other words, the manufacturing requirements that apply to each of the constituent parts continue to apply when the parts are combined into the combination product. 

In general, the new regulations in Part 4 require that:

• drug CGMPs in 21 C.F.R. Parts 210 and 211 apply to a combination product that includes a drug constituent part;
• device CGMPs (Quality System Regulation or QSR) in Part 820 apply to a combination product that includes a device constituent part; and
• biological product CGMPs in Parts 600 through 680 apply if the combination product includes a biological product constituent part.

For “single-entity” or “co-packaged” combination products, the manufacturer can follow one of two requirements:

1. it may comply with the requirements applicable to each constituent part, or
2. it may choose to comply with the manufacturing requirements applicable to one constituent part, but must implement certain provisions set forth in the newly added section 4.4(b) applicable to the other constituent part.  For example, a manufacturer of a “co-packaged” drug-device combination product may choose to fully implement both the drug CGMPs and device QSR requirements.  Alternatively, the manufacturer may choose to comply with the drug CGMPs, but would be required by the new regulations to also comply with specific QSR requirements, such as, for example, the requirements in 21 C.F.R. § 820.20 regarding management responsibility, § 820.30 regarding design controls, and § 820.200 on servicing.  Given the burden that would entail having to comply with all the requirements applicable to each constituent part, the second choice seems more appealing.

Regarding “convenience kits,” although the new regulations in Part 4 do not address or define “convenience kits,” FDA specifically discussed those products in the preamble to the final rule.  In the preamble, FDA defined “convenience kits” as “kits that solely include products that are: (1) also legally marketed independently and (2) included in the kit as already packaged for independent marketing and with the same labeling as for independent marketing.”  78 Fed. Reg. at 4310-11.  FDA explains that no additional CGMP requirements generally would apply to the products in a convenience kit other than those applicable to the assembly, packaging, labeling, or sterilization of the kit.  However, the agency clarified that the new requirements under Part 4 would apply to the kit if any of the products included in the kit are “repackaged, relabeled or otherwise modified for purposes of their inclusion in the kit.”  Id.  In that case, the kit would no longer be deemed a “convenience kit” and the CGMP requirements under the new rule for combination products would apply.

The newly added Part 4 says it does not change or alter the definitions or jurisdictional requirements applicable to combination products as set forth in 21 C.F.R. Part 3.

Manufacturers of combination products have six months to comply with the new rule, which will become effective on July 22, 2013.

Hyman, Phelps & McNamara, P.C. will hold a complimentary webinar on Thursday, January 31, 2013, from 12:00 – 2:00 PM (Eastern) on the Second Circuit's recent and long-awaited decision in United States v. Caronia.  This webinar is not just another summary of the Second Circuit's decision. Nor is it merely high-level positing about the future of off-label promotion prosecutions, such as here and here. This webinar will provide practical tips to address the real-world implications to companies from this significant decision. The impacts go beyond just the pharmaceutical marketing industry – the marketing of devices, dietary supplements, and tobacco products likely will be affected.  Hear from experts who evaluate and advise FDA-regulated industries about relevant business considerations that are impacted by Caronia. Participants will gain an understanding of:

• The Caronia decision and other First Amendment court rulings involving FDA and what the government is likely to do as a result of the Caronia decision;
• Views from people familiar with how the FDA Centers (including CDER, CDRH, CFSAN, and CTP) will modify enforcement and other decisions as a result of Caronia;
• Strategies for promotional review committees to use; and
• Defenses to current and future off-label marketing and government reimbursement cases.

There will be 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 conference here.  Please contact Lisa Harrington at lharrington@hpm.com with any registration questions. 

By Kurt R. Karst –      

Last week, Actelion Pharmaceuticals Ltd. and Actelion Clinical Research, Inc. (collectively “Actelion”) filed what might be the company’s last motion in its preemptive lawsuit filed last September in the U.S. District Court for the District of New Jersey seeking declaratory relief that Actelion is under no affirmative duty or obligation to supply prospective ANDA applicants – in this case Apotex Corp. (“Apotex”), Roxane Laboratories, Inc. (“Roxane”), and intervenor-defendant/counterplaintiff Actavis Elizabeth LLC (“Actavis”) – with its brand name drug products for purposes of bioequivalence testing and ANDA submission.  Actelion’s Motion for Judgment on the Pleadings and to Dismiss Counterclaims says that the pleadings in the case demonstrate that there are no material facts in dispute, and that the facts doom the generic defendants’/counterplaintiffs’ antitrust counterclaims, and clearly support Actelion’s right to declaratory relief. 

As we previously reported (here and here), Actelion filed the lawsuit after Roxane and Apotex threatened to sue the company and notify the Federal Trade Commission (“FTC”) because of Actelion’s decision to refuse to provide sample of TRACLEER (bosentan) Tablets for generic drug submission purposes.  TRACLEER is approved with a Risk Evaluation and Mitigation Strategies (“REMS”) program with Elements To Assure Safe Use (“ETASU”) because of the potential of the drug to cause serious side effects.  The ETASU REMS limits distribution of the drug through pharmacies, practitioners, and health care settings that are specially certified and that are “bound by contract to follow a strict protocol to monitor and protect patient health,” acording to Actelion.  Roxane, in the company’s Counterclaim Complaint, added a second drug to the mix: Actelion’s ZAVESCA (miglustat) Capsules, which is not subject to an ETASU REMS, but rather, is subject to a “restricted distribution” program adopted and implemented by Actelion.  Actavis later joined the case.

Actelion has maintained all along that it is the company’s “right to choose with whom it does business.”  And this “fundamental right of a business to choose for itself with whom to deal and to whom to supply its products” is at the heart of the case.  This theme plays out on each page of Actelion’s latest brief.

Citing ample Supreme Court precedent, Actelion argues that:

The antitrust laws, upon which the generic competitors base their claims, do not obligate Actelion to sell its products (even samples) to firms with which it chooses not to deal or to assist potential rivals in entering the marketplace.  As the Supreme Court explained in Verizon Communications, Inc. v. Law Offices a/Curtis V. Trinko, LLP, the antitrust laws do not give rivals “carte blanche to insist that a[n alleged] monopolist alter its way of doing business whenever some other approach might yield greater competition.”  540 U.S. 398, 415-16 (2004).

This principle applies with particular force here, where there is no history of dealing between the parties, the drug products at issue are patented, there are other paths to the marketplace available to the potential generic competitors, and the drugs pose significant health and safety risks requiring distribution restrictions as a condition of FDA approval.

Although there are perhaps two exceptions to the rule that a unilateral refusal to deal by an alleged monopolist does not give rise to antitrust liability (i.e., the “right to choose with whom to do business”) – (1) where a refusal to do business is contrary to a prior course of dealing, or (2) where a refusal relates to an “essential facility” – neither exception applies in this case, argues Actelion.  First, Actelion has never supplied the generic defendants with TRACLEER or ZAVESCA, both of which are protected by patents, and therefore, has no prior course of dealing with them.  Second, even if the “essential facilities doctrine” has some validity, because, as as Actelion points out, Trinko placed in doubt the viability of the doctrine as an independent exception to the refusal to deal rule, it is inapplicable here:

The doctrine arose in cases in which the defendant controlled access to some infrastructure or input that was necessary to compete in a different market with a different service or product.  Where the doctrine has been applied, it has been to prevent a firm with monopoly power from extending that power “from one stage of production to another, and from one market into another.”

The circumstances here are altogether different.  There is no claim that Actelion controls access to a different market or that Actelion is attempting to extend market power “from one market into another.”  Rather, the generic rivals here claim that they require Actelion’s products for the sole purpose of developing replicas to compete with Actelion in the very same markets in which the Actelion products themselves compete. [(Internal citations omitted; emphasis in original)]

Moreover, says Actelion, there are alternatives to the ANDA approval route that companies can use:

For example, the potential generic competitors here can develop drug products with the exact same formulation as Tracleer and, subject to intellectual property rights, file an NDA for FDA approval.  Alternatively, depending on the formulations, they could also take advantage of an FDA shortcut-an application under Section 505(b)(2) of the [FDC  Act] that would allow them to make use ofthe FDA’s previous finding of safety and efficacy.  In addition, they could design a new formulation, using bosentan or another active ingredient, and file an NDA for that product. [(Internal citations omitted)]

Having dealt with the question of whether there is a general duty for the company to supply product to a potential generic competitor, Actelion moves on to note that Congress has twice rejected – first in consideration of the 2007 FDA Amendments Act and again in 2012 during consideration of the FDA Safety and Innovation Act – legislation to require or permit a brand-name drug manufacturer subject to an ETASU REMS to sell its product to competitors.  “In both instances, Congress made a deliberate judgment not to change the law by creating a duty to deal” (emphasis in original), says Actelion, and that deliberate judgment “demonstrates that there is no special exception to the general right to choose with whom to deal merely because a drug product is subject to restricted distribution in a REMS.” (See our previous post here.) 

Each of the generic defendants argued in its respective Counterclaim Complaint that its ability to satisfy FDA-required restrictions on on the distribution and use of TRACLEER and ZAVESCA means that Actelion should sell them product sample for ANDA submission purposes.  But the question is not whether Action should provide biostudy sample, says Actelion, but whether the company must do so:

Although Actelion’s ability to sell samples of Tracleer and Zavesca to the generics is constrained by the FDA-required distribution restrictions, Actelion’s right to choose not to do business with potential rivals exists independently of those restrictions.  Consequently, even if the generics could comply with such restrictions – or if they did not exist – Actelion is still under no legal duty to sell them samples. . . . 

Actelion is also under no conceivable obligation to take on faith the generics’ assertions that they can comply with the FDA-required restrictions and to sell to them on that basis.  Nor is Actelion under any legal obligation to engage in the substantial effort that would be required to confirm the generics’ ability to comply.  Similarly, Actelion should not be required to take on the burden of monitoring their continued compliance, as would be necessary to avoid the substantial risks to Actelion from generic non-compliance.  Consequently, the generics’ allegations that they would be able to comply with the applicable distribution restrictions does not alter the conclusion that, as a matter of law, Actelion is under no duty to deal with them.

No matter how the New Jersey District Court rules in this case, it seems to be destined for an appeal.  The stakes on both the brand and generic sides are high.     

By Jeffrey N. Wasserstein –

On January 17, 2013, the Office for Civil Rights of the U.S. Department of Health and Human Services announced the issuance of its much anticipated (and long-awaited) final rule (in prepublication form) relating to the modification to the HIPAA Privacy, Security and Enforcement Rules under the HITECH Act (see our prior posts here and here).  While there is a great deal of interesting material in the Final Rule if, like me, you are a health privacy geek, this blogpost will focus on just two provisions that will be of interest to our loyal readers – paid marketing communications and compound research authorizations.

Marketing Communications

First, a little background.  Prior to the HITECH Act, pharmaceutical companies could pay pharmacies to communicate with their patients for the purpose of either reminding patients to refill their prescription (“refill reminders”), or to recommend switching to alternative therapies (“switch communications”).  Such communications were considered “health care operations” and therefore did not require a written authorization from the patient.  The HITECH Act changed the definition of “health care operations” such that paid switch communications were no longer considered “health care operations” and thus required an authorization.  As we noted, the HITECH Act did not directly address whether paid switch communications might remain treatment communications which do not require an authorization, as per the FAQ referenced in our prior blogpost.  This omission created confusion – it appeared that Congress left open an exception so big as to render the prohibition on paid switch communications a nullity.

According to the proposed rule, HHS determined that that was exactly what Congress did, and HHS in the proposed rule separated out paid communications that were for treatment purposes from those that were for health care operations purposes, essentially drawing a line in the sand between those that were based on an individual and those that were population based, requiring an authorization only for the latter.  We noted at the time that this seemed a little confusing.

Apparently, we weren’t the only ones confused.  Many of the public comments submitted objected to the regulatory scheme in the proposed rule, noting that covered entities were likely to violate the rule inadvertently by incorrectly deeming a communication to be a treatment communication (and thus permitted) when it was really for health care operations purposes, and thus not permitted absent an authorization.

HHS agreed and dramatically revised the proposed rule.  The final rule now requires patient authorization before using protected health information for all paid communications that recommend a product or service to the patient, regardless of whether the purpose is treatment or health care operations.  (This being a regulation, of course “all” doesn’t really mean “all” but we’ll get to the exceptions in a minute.)  HHS did away with their proposal that would have permitted certain paid treatment communications provided that (1) the covered entity’s Notice of Privacy Practices included a statement informing patients that the health care provider may send the paid switch communications and the individual has the right to opt out of receiving such communication, and (2) that the communication itself disclosed the financial payment and the ability to opt out.  Rather, all such communications will now require prospective authorization.

Now, the exceptions:  Refill reminders, adherence communications, and other communications about a drug or biologic that is currently prescribed for the individual do not require authorization, provided that the payment received by the covered entity is “reasonably related to the covered entity’s cost of making the communication.”  What does “reasonably related” mean?  Basically, it means the covered entity cannot profit from the communication.  If the covered entity receives a financial incentive beyond their cost, they must obtain the patient’s authorization. 

HHS also clarified that communications about a drug or biologic currently prescribed includes communications about generic equivalents.  They also clarified that for self-administered drugs or biologics, communications about the entire drug delivery system, such as an insulin pump are considered communications about the drug itself. 

HHS also left untouched the exception for face-to-face communications, and clarified that that included handing printed materials to a patient during a face-to-face interaction.  HHS noted that telephone calls, or materials sent via mail or email do not constitute face-to-face communications.

Research Authorizations

As we noted in our prior blogpost, HHS proposed to permit compound research authorizations; that is, an authorization permitting a covered entity to use protected health information for more than one purpose, if both (or all) purposes relate to the same research project.  Thus, a single authorization could be used for a clinical study as well as for specimen collection for a central repository.  Currently, compound authorizations are prohibited, which increases the burden on clinical trial sites when obtaining consent and authorization from subjects for the research project.  HHS also requested comment on whether (and how) an authorization could be used to permit future unspecified research studies using the subject’s protected health information, thus simplifying the ability of sponsors and institutions to use collected information and data in future studies.

HHS finalized the first proposal and will now permit compound authorizations provided the authorization clearly delineates which aspects are conditioned authorizations (such that a patient cannot participate in a clinical study without signing the authorization) from those aspects that are unconditioned (e.g., allowing tissue samples to reside in a sample repository or central database).  HHS also modified its prior interpretation of authorizations for research studies such that an authorization need no longer be “study specific” provided that the authorization adequately describes such purposes so that it would be reasonable for the subject to expect that his PHI could be used or disclosed for future research.  This is excellent news for industry, research institutions, and IRBs. 

Take a deep breath and hang in there, we’re almost done.  The rule goes into effect on March 26, 2013, and covered entities and business associates must comply with applicable requirements by September 23, 2013.  Given that the marketing communications represents a sea-change, this gives industry time to review and revise any arrangements they have with covered entities for marketing communications in order to come into compliance.

By Kurt R. Karst –      

Late last year, FDA submitted to Congress the Agency’s latest report on FDC Act § 505(q) citizen petitions.  The report, titled “Fourth Annual Report on Delays in Approvals of Applications Related to Citizen Petitions and Petitions For Stay of Agency Action for Fiscal Year 2011,” is required by FDC Act § 505(q)(3).  We previously reported (here, here, and here) on the other reports FDA submitted to Congress required by FDC Act § 505(q) and the FDA Amendments Act (“FDAAA”), Pub. L. No. 110-85 (2007).  The latest report provides updated numbers required by the law, and although it reiterates some of the trends and concerns expressed in the Third Annual Report, the Fourth Annual Report also focuses on the use of Agency resources to respond to 505(q) petitions.

By way of background, FDC Act § 505(q) was added to the law by FDAAA and is intended to prevent the citizen petition process from being used to delay approval of pending ANDAs and 505(b)(2) applications.  The law was amended by § 301 of Pub. L. No. 110-316 (2008), and again by § 1135 of the FDA Safety and Innovation Act (“FDASIA”), Pub. L. No. 112-144 (2012).  The changes made by FDASIA (see our FDASIA summary here) are not directly relevant to the latest FDA report, which covers the period of October 1, 2010 to September 30, 2011.  Under the version of FDC Act § 505(q) in effect for the Fourth Annual Report, the statute says that FDA shall not delay approval of a pending ANDA or 505(b)(2) application as a result of a citizen petition submitted to the Agency pursuant to 21 C.F.R. § 10.30 (citizen petition) or § 10.35 (petition for stay of action), unless FDA “determines, upon reviewing the petition, that a delay is necessary to protect the public health.”  Under FDC Act § 505(q), which FDA has interpreted to apply only to certain petitions submitted to the Agency after September 27, 2007, “[FDA] shall take final agency action on a petition not later than 180 days after the date on which the petition is submitted.”  FDA may not extend the 180-day period “for any reason,” including consent of the petitioner, and may summarily deny a petition submitted with the primary purpose of delaying ANDA or 505(b)(2) application approval.  FDA has never summarily denied a 505(q) petition, but was recently asked to do so (Docket No. FDA-2012-P-1028).  (Among other things, FDASIA changed the 180-day period to 150 days, and makes the law applicable to citizen petitions concerning biosimilar applications submitted to FDA pursuant to PHS Act § 351(k).)

FDC Act § 505(q)(3) requires that each annual report to Congress specify: “(A) the number of applications that were approved during the preceding 12-month period; (B) the number of such applications whose effective dates were delayed by petitions referred to in paragraph (1) during such period; (C) the number of days by which such applications were so delayed; and (D) the number of such petitions that were submitted during such period.”  FDA says in its Fourth Annual Report that:

During the FY 2011 reporting period, the agency approved 43 applications submitted under section 505(b)(2) and 458 ANDAs.  No 505(b)(2) approvals were delayed because of the filing of a 505(q) petition in this reporting period.  One ANDA approval was delayed by 78 days because of pending 505(q) petitions.

FDA’s decision to delay the approval of one pending ANDA by 78 days – only the fifth ANDA delayed due to a 505(q) citizen petition (no 505(b)(2) applications have been delayed) – was based on the same Agency concern expressed in the Third Annual Report for delaying the approval of an ANDA: “that if [FDA] approved the ANDA before resolving the issues raised in the petitions and later concluded that one or more of the arguments against approval were meritorious, then the presence on the market of drug products that did not meet the requirements for approval could negatively affect public health.”  Those concerns were adequately addressed when FDA completed its analysis of the issues raised in the petition.  FDA approved the ANDA on the same dat the Agency responded to the petition.  FDA also notes that the 78-day delay did not affect the marketing of the generic drug, because the ANDA sponsor was enjoined in Hatch-Waxman patent infringement litigation from marketing the drug product for several years. 

Moving on to issues concerning petition review and FDA’s observations, the Fourth Annual Report provides some consolidated numbers from FYs 2008-2011.  According to FDA, the Agency has received a total of 92 petitions subject to FDC Act § 505(q), and the annual number of petitions has remained relatively steady, with the exception of FY 2009:

FDA has timely responded to all but two of the 505(q) petitions within the 180-day statutory timeframe.  Over the years, FDA Law Blog has vigilantly followed 505(q) petitions with our FDC Act § 505(q) Citizen Petition Tracker.  We recently modified the tracker (and are continuing to do so) to include non-505(q) petitions and renamed it the “FDA Citizen Petition Tracker.” 

FDA’s Fourth Annual Report also identifies petitioning trends, some of which were flagged in previous annual reports:

• In many instances the statutory deadline for responding to a 505(q) petition occurs before any related ANDAs or 505(b)(2) applications are ready for approval.  Accordingly, a relatively small percentage of applications are delayed by these petitions.
• Over the 4-year period during which FDA has been reviewing 505(q) petitions, approximately 5% of the petitions resulted in a delay in approving an ANDA. 
• FDA continues to receive 505(q) petitions from ANDA and 505(b)(2) applicants, and not solely from innovator companies.
• FDA has received serial 505(q) petitions, frequently from the same petitioner, about the same specific drug or class of drugs, sometimes requiring several separate responses about different aspects of the same product.  In addition, petitioners are raising their arguments serially, rather than asserting all available arguments in the first petition filed.  In the FY 2011 reporting period, for example, the agency received its fourth 505(q) petition relating to the approval of ANDAs for topical ophthalmic products and a third 505(q) petition related to Doryx (doxycycline).  The various submissions raised different scientific issues, requiring serial review of different arguments, rather than one comprehensive review of all pertinent arguments.  The agency responded to all of these petitions within the statutory deadline.  Responding to such serial petitions requires the use of substantial FDA resources, on a repeated basis, over a protracted period of time.

The petitions concerning DORYX were noted in a lawsuit that Mylan Pharmaceuticals Inc. filed in the U.S. District Court for the Eastern District of Pennsylvania alleging that Warner Chilcott and Mayne violated Sections 1 and 2 of the Sherman Act by engaged in so-called “product hopping” with respect to DORYX (see our previous post here). 

As opposed to previous annual reports in which FDA seems to have been more tentative in its critique of FDC Act § 505(q), the Agency, it its Fourth Annual Report, seems to take a slightly more definitive position and expresses greater frustration with how responding to 505(q) petitions interferes with other Agency work.  (As we previously reported, one recent analysis has concluded that FDC Act § 505(q) has been unsuccessful.)  The following paragraph concludes the Fourth Annual Report, and is simialar to language from the Third Annual Report with the exception of the highlighted text:

FDA will continue to gain additional experience and monitor trend data in the FY 2012 reporting period to assist Congress in determining whether section 505(q) is accomplishing the stated goals of the legislation.  Based on the petitions that FDA has seen to date, however, the agency is concerned that section 505(q) may not be discouraging the submission of petitions that do not raise valid scientific issues and are intended primarily to delay the approval of competitive drug products.  Though many 505(q) petitions do not necessarily raise issues that are important to the public health, the statute requires FDA to prioritize these petitions above other matters, such as safety petitions, that do raise important public health concerns.  FDA also believes that innovator companies may be implementing strategies to file serial 505(q) petitions and petitions for reconsideration in an effort to delay approval of ANDAs or 505(b)(2) applications for competing drugs.  FDA remains concerned about the resources required to respond to 505(q) petitions within the statutory deadline at the expense of completing the other work of the agency. [(Emphasis added)]

With the 30-day haircut to the 180-day response timeframe made by FDASIA and the expanded scope of petitions subject to FDC Act § 505(q), FDA’s frustration may only increase.  As we previously noted, in late 2012, FDA was faced with a 505(q) petition “perfect storm” as the result of the convergence of pre- and post-FDASIA response deadlines in which 13 505(q) petition responses were due between November 14 and December 15, 2012.  FDA appears to have weathered that storm pretty well.  FDA is now facing an “opioid spring” of sorts in which responses to several petitions (among other things) relating to opioid abuse are due. 

On December 3, 2012, the United States Court of Appeals for the Second Circuit overturned the criminal conviction of Alfred Caronia.  The court ruled that the government could not prosecute pharmaceutical representatives such as Mr. Caronia for speech promoting the lawful, off-label use of an FDA-approved drug.

The government had the right to ask the judges who issued this ruling to change it.  In addition, the government could have asked the entire Second Circuit (not just the judges who issued the ruling) to reverse the panel’s decision.  However, the deadline for the government to seek such review passed this week without the government seeking that review.

The government has one further opportunity to overturn this ruling.  It can seek Supreme Court review of the Second Circuit’s decision.  If the government wants to have the Supreme Court review the decision, the government must either seek that review by March 4th or ask for an extension of time to seek that review.

Our earlier postings on this case can be found here and here.

By Kurt R. Karst –

Although FDA has yet to accept an application for a biosimilar version of a biological product licensed under the Public Health Service Act (“PHS Act”) pursuant to the provisions of the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) – let alone consider whether a biosimilar product is also interchangeable with the reference product – the groundwork is already being laid in various states for the consideration and passage of legislation governing the substitution of interchangeable biosimilar biological products.  In some respects, the battle is a continuation of what happened way back in the 1970s when state antisubstitution laws were changed to drug product selection (or substitution) laws permitting (or directing) pharmacists to substitute therapeutically equivalent generic drug products for their brand-name counterparts.  After many of the state drug substitution laws were put in place, FDA prepared the Orange Book to assist state health agencies in administering those laws with respect to generic drug substitution.  (Here’s a copy of the first edition of the Orange Book from 1980.)

State legislation concerning the substitution of an interchangeable biosimilar biological product for the brand-name reference product counterpart has already started cropping up, and 2013 may be the year when legislation takes off and is enacted.  For example, in 2012, House Bill 5581 (here and here) was introduced in the Illinois General Assembly to amend the state Pharmacy Practice Act to permit interchangeable biosimilar product substitution provided certain conditions are met by both the prescribing physician and pharmacy.  Among other things, House Bill 5581 would permit a pharmacy to substitute a prescription biosimilar product for a prescribed product only if:

(1) the biosimilar product has been determined by the FDA to be interchangeable with the prescribed product for the specified indicated use;
(2) the prescribing physician does not designate in writing on the prescription that substitution is prohibited;
(3) the patient (or patient’s authorized representative) provides written consent for the substitution; 
(4) the pharmacist notifies the prescriber in writing within 24 hours after the substitution; and
(5) the pharmacy and the prescribing physician retain a written record of the biosimilar substitution for a period of no less than 5 years. 

House Bill 5581 did not gain much traction in the Illinois General Assembly last year and may be reintroduced this year; however, efforts to create a biosimilar substitution law in Virginia are moving along.  House Bill 1422 (see here and here) was recently introduced and would amend Virginia law such that:

A.  A pharmacist may dispense a biosimilar that has been licensed by the [FDA] as interchangeable with the prescribed product unless (i) the prescriber indicates such substitute is not authorized by specifying on the prescription “brand medically necessary” or (ii) the patient insists on the dispensing of the prescribed biological product. In the case of an oral prescription, the prescriber’s oral dispensing instructions regarding dispensing of an interchangeable biosimilar shall be followed.  No pharmacist shall dispense a biosimilar in place of a prescribed biological product unless the biosimilar has been licensed as interchangeable with the prescribed biological product by the [FDA] for the specific use.

B.  When a pharmacist dispenses an interchangeable biosimilar in the place of a prescribed biological product, the pharmacist or his designee shall inform the patient prior to dispensing the interchangeable biosimilar and shall provide electronic, written, or telephonic notification of the substitution to the prescriber or his staff within five business days of dispensing the interchangeable biosimilar or as set forth in a collaborative agreement as defined in § 54.1-3300.  Such notification shall be documented on the record of dispensing. The pharmacist or his designee shall also indicate, unless otherwise directed by the prescriber, on both the record of dispensing and the prescription label, the brand name or, in the case of an interchangeable biosimilar, the product name and the name of the manufacturer or distributor of the interchangeable biosimilar. Whenever a pharmacist substitutes an interchangeable biosimilar pursuant to a prescription written for a brand-name product, the pharmacist or his designee shall label the drug with the name of the interchangeable biosimilar followed by the words “Substituted for” and the name of the biological product for which the prescription was written.  Records of substitutions of interchangeable biosimilars shall be maintained by the pharmacist and the prescriber for a period of not less than two years from the date of dispensing.

Earlier this week, the Committee on Health, Welfare and Institutions of the Virginia House of Delegates favorably reported the bill by a 6-2 vote.  House Bill 1422 has garnered the support of several organizations, including the Biotechnology Industry Organization, the Colon Cancer Alliance, the Global Healthy Living Foundation, the Kidney Cancer Association, and the Alliance for Safe Biologic Medicines (“ASBM”).  Also in the works is a bill from Pennsylvania State Senator Patricia Vance.  According to a recent memo from Senator Vance, she plans to introduce a bill in the near future to amend Pennsylvania’s Generic Equivalent Drug Law regarding biosimilar products, such that “[s]ubstitution will only be permitted if certain minimal thresholds are met including a decision by the [FDA] that the prescribed product and the biosimilar product are interchangeable.”

ASBM, which is a self-described organization “composed of diverse healthcare groups and individuals – from patients to physicians, innovative medical biotechnology companies and others who are working together to ensure patient safety” with respect to biosimilars, has been particularly vocal about both biosimilar substitution and naming issues (see our previous post here).  The organization has devised its own “principles on interchangeability,” under which:

(1) Physicians have the authority to specify “do not substitute” for biological products and that specification overrides any policy – e.g. by payers or state law – that would have substitution be the standard or default practice;

(2) Physicians and pharmacists should work collaboratively to ensure that the treating physician is aware of the exact biologic – by manufacturer – given to a patient in order to facilitate patient care and accurate attribution of any adverse events that may occurs; and

(3) The timing of the notification process must not impose an undue burden on the pharmacist and need not be in advance of a substitution being made but must be timely enough to facilitate accurate record keeping and attribution of adverse events by the physician.

Similar principles have been set out by other groups, such as the American Academy of Dermatology (see here).

On the other side of the debate – both with respect to biosimilar substitution and naming issues – are groups such as the American Pharmacists Association, the National Association of Chain Drug Stores, and the National Community Pharmacists Association.  In a letter sent to FDA last year, these groups support automatic substitution of interchangeable biosimilar biological products and take the position that “if the FDA deems interchangeability between products, pharmacists should be able to automatically substitute biosimilar interchangeable products as it is currently regulated under the PHS Act.”  As the letter points out, PHS Act § 351(i)(3) provides that “interchangeable products may be substituted for the reference product without the intervention of the prescribing healthcare provider.” 

By Kurt R. Karst –      

The Federal Trade Commission (“FTC”) has announced the release of its annual summary of agreements (a.k.a. “drug patent settlement agreements,” “reverse payment agreements” or “pay-for-delay agreements”) filed with the Commission during the last fiscal year (Fiscal Year 2012): “Agreements Filed with the Federal Trade Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.”  According to the FTC Staff Report, FY 2012 saw 140 final patent settlement agreements filed with the Commission, which is a decrease from the FY 2011 high of 156 agreements.  Forty (40) of the 140 agreements reportedly “contained a payment to a generic manufacturer and also restricted the generic’s ability to market its product,” thereby making them “potential pay-for-delay deals.”  In addition, 43 of the agreements reportedly involved ANDA sponsors eligible for 180-day exclusivity.  Below is a table from the FTC Staff Report showing how the FY 2012 figures stack up against the numbers from previous years.  (Our post on the FY 2011 report is here.)

Almost one half (19) of the agreements tagged by the FTC as “potential pay-for-delay deals” reportedly involved a so-called “No-AG,” or no Authorized Generic, agreement under which a brand-name drug company agrees not to launch an authorized generic to compete with a generic version of the product approved under an ANDA.  As we previously reported, in December 2012, the U.S. District Court for the District of New Jersey ruled in a case concerning LAMICTAL (lamotrigine) that “No-AG” agreements are not “reverse payments” subject to antitrust scrutiny.  Another case also before the U.S. District Court for the District of New Jersey, but involving EFFEXOR XR (venlafaxine HCl) Extended-release Tablets, has been stayed.

We’re always curious to see the FTC’s breakdown of the numbers each year, and particularly this year with the U.S. Supreme Court slated to hear Federal Trade Commission v. Watson Pharmaceuticals, Inc. (Docket No. 12-416), a drug patent settlement agreement case involving ANDROGEL (testosterone gel) (see our previous post here).  The case stems from a Complaint filed by the FTC alleging that Solvay and certain generic drug companies violated various federal antitrust laws when they agreed to dismiss patent infringement litigation in exchange for a profit-sharing arrangement and provided the generic competitors would not launch their generic versions of ANDROGEL until 2015.  The U.S. District Court for the Northern District of Georgia found that the settlements are not an unreasonable restraint of trade under applicable law and that the FTC failed to state an antitrust claim.  In affirming the district court decision, the U.S. Court of Appeals for the Eleventh Circuit held that, “absent sham [patent] litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” 

The U.S. Supreme Court has not yet decided whether or not to grant certiorari in Merck & Co., Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket Nos. 12-245) and Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket No. 12-265) concerning K-DUR (potassium chloride).  The K-DUR cases are on appeal after the U.S. Court of Appeals for the Third Circuit rejected in July 2012 in In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012), the so-called “scope of the patent test” when considering whether drug patent settlement agreements involving cash payments and early entry dates violate the antitrust laws, and instead applied a “quick look rule of reason” analysis.  Under that analysis, “the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.”

Although there has been quite a bit of activity in the courts as of late concerning drug patent settlement agreements, Congress has been relatively quiet after years of mulling (and ultimately not passing) multiple proposals to restrict (or effectively ban) such settlement agreements (see our FDA Legislation Tracker).  Perhaps the FTC Staff Report will bring out a new legislative proposal or cause some member of Congress to brush the dust off of an old proposal.  Or maybe Congress is sitting tight waiting to see how the U.S. Supreme Court tackles the issue.     

Updates:

• The Generic Pharmaceutical Association (“GPhA”) issued a press release responding to the FTC Staff Report, saying that “[t]he FTC is wrong on the facts, wrong on the public policy and wrong on the law. If successful, the FTC position would dramatically undermine the law of the land and cost patients and consumers billions of dollars every year.”  Instead, as in previous responses to FTC Staff Reports on drug patent settlement agreements, GPhA points to two analyses – one from the Royal Bank of Canada and another from Jonathan Orszag, former Director of the Office of Policy and Strategic Planning and member of President Clinton’s National Economic Council – to support the proposition that patent settlement agreements are pro-competitive and increase opportunities for consumer savings.
• Senators Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) issued a press release saying that they plan to renew efforts to end drug patent settlement agreements.  Both Senators cosponsored the Preserve Access to Affordable Generics Act introdiced in the 112th Congress.