By Ricardo Carvajal –

FDA has issued a letter to the tobacco industry offering a reminder that, under the standard for cigarettes in FDCA section 907(a)(1)(A), a cigarette or any of its component parts may not contain “an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke.”  That prohibition on "characterizing flavors" takes effect on September 22, 2009, and any cigarette that violates the prohibition is adulterated and subject to seizure.  FDA has not explained what makes a flavor a "characterizing flavor."  However, those responsible for the violation may be subject to injunction, civil penalties, and criminal prosecution.  The letter states that FDA “intends to use the full range of enforcement tools within the Agency’s authority to ensure compliance with the new requirement.”

The standard for cigarettes applies to any tobacco product that meets the following definition:

(3) CIGARETTE.—The term “cigarette”—
(A) means a product that—
(i) is a tobacco product; and
(ii) meets the definition of the term “cigarette” in section 3(1) of the Federal Cigarette Labeling and Advertising Act [("FCLAA")]; and

(B) includes tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette or as roll-your-own tobacco.

Section 3(1) of the FCLAA defines a cigarette as “(A) any roll of tobacco wrapped in paper or in any substance not containing tobacco, and (B) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in subparagraph (A).”

The letter states that FDA will consider products that meet these criteria to be cigarettes, “even if they are not labeled as ‘cigarettes’ or are labeled as cigars or as some other product.”  This would seem to indicate that some manufacturers that have been reported to be revamping their flavored cigarette offerings to try to work around the prohibition may be in FDA's crosshairs.

By Kurt R. Karst –
 
At a September 10, 2009 Senate Judiciary Committee Executive Business Meeting, Senator Herb Kohl (D-WI) stated his plans to pursue a substitute amendment to S. 369, the Preserve Access to Affordable Generics Act, that would make significant changes to the proposed legislation.  (A webcast of the Executive Business Meeting is available here.  See minutes 46-49 for Sen. Kohl’s remarks.) 

Under the version of S. 369 Sen. Kohl introduced in February 2009, it would be unlawful for a person, in connection with the sale of a drug product, to be a party to any agreement resolving or settling a patent infringement claim in which a generic applicant receives anything of value, and for a generic applicant to agree not to research, develop, manufacture, market, or sell the generic product for any period.  Sen. Kohl’s substitute amendment would largely reverse course, permitting reverse payments between brand and generic companies if such companies can prove that the deals are “pro-competitive.”  The Federal Trade Commission (“FTC”) would reportedly have to challenge the deals and the burden would be on the companies to prove in court that the agreements are pro-competitive; however, it is unclear what evidence would be needed to prove pro-competitiveness.   In addition, we understand that Sen. Kohl’s substitute amendment would allow the FTC to levy fines of up to three times the revenue of the brand name drug in question if the agreement is found to be unlawful. 

Although the Senate Judiciary Committee was originally scheduled to vote on Sen. Kohl’s substitute amendment at the September 10th Executive Business Meeting, we understand that some Committee members requested an additional week to study the amendment, and that Sen. Orrin Hatch (R-UT) has written a letter to Sen. Kohl expressing his concerns about the proposal.  The Committee is scheduled to further consider – and likely vote on – the measure at its September 17th Executive Business Meeting.

If Sen. Kohl’s substitute amendment is passed, it will be at odds with the reverse payment provision added to the House Energy and Commerce Committee’s version of H.R. 3200, the America’s Affordable Health Choices Act, earlier this summer.  As we previously reported, in late July, the Committee passed by voice vote an amendment to H.R. 3200 sponsored by Rep. Bobby Rush (D-IL) that would prohibit reverse payment settlements between generic and brand-name drug companies.

By Ricardo Carvajal –

USDA’s Food Safety and Inspection Service (“FSIS”) has released a prepublication version of an Advanced Notice of Proposed Rulemaking (“ANPRM”) that seeks additional public input on the conditions under which FSIS should permit use of the claim “natural” in the labeling of meat and poultry products (FSIS has authority to review and approve labeling prior to marketing of such products).  FSIS previously signaled its intent to issue a proposed rule.  However, in response to a prior Federal Register notice and a public hearing that addressed the use of “natural” in labeling, USDA received over 12,000 comments that expressed a wide range of views.  In addition, FSIS  received several petitions requesting that FSIS adopt particular interpretations of “natural.”  The evident lack of any consensus on the meaning of “natural” has prompted FSIS to seek another round of comment.

In its ANPRM, FSIS asks for comment on numerous issues, including: whether FSIS should establish a definition of “natural” by regulation or maintain a more flexible definition by policy;  whether multi-functional ingredients (e.g., ingredients that may have both flavoring and antimicrobial effects) can properly be labeled as “natural;” whether the use of recently developed processing methods should be permitted for “natural” products; whether “enhancement” (i.e., addition of marinades/flavoring/tenderizing solutions) should be permitted in “natural” products; whether conditions under which animals are raised should be considered (the Agricultural Marketing Service currently permits use of the claim “naturally raised”); and whether there should be a single Federal definition of “natural” (currently FSIS and FDA maintain separate policies).  In addition, FSIS makes clear that it continues to consider the use of carbon monoxide in modified atmosphere packaging systems to be incompatible with a “natural” claim, and requests comment on that issue.

By Cassandra A. Soltis –

Regrow your hair.  Cure cancer.  Obtain a photographic memory.  These are just some of the claims that Kevin Trudeau, infomercial marketer extraordinaire, has made for various products over the years.  The Federal Trade Commission (“FTC”) is all-too-familiar with Mr. Trudeau and his promotional tactics: since 1998, Trudeau has entered into several Orders with the Agency that collectively made him: promise he would not misrepresent the benefits of any product without competent and reliable evidence; submit infomercials to the FTC before they are televised; and stop marketing Coral Calcium as a cure for cancer or from advertising any products in infomercials, except to promote his publications, provided he did not refer to any other product he was marketing.     

His troubles with the FTC resurfaced in 2007, when he began promoting his book The Weight Loss Cure “They” Don’t Want You To Know About.  The FTC brought civil contempt proceedings against Mr. Trudeau, arguing that he had violated a 2004 Consent Order’s command that he not misrepresent the content of his book.  FTC v. Trudeau, No. 08-4249, 2009 U.S. App. LEXIS 19318, at *11 (7th Cir. Aug. 27, 2009).  Trudeau countered that he was merely quoting what he wrote in the book.  However, the district court disagreed, finding that Trudeau could not cherry-pick certain phrases which “did not accurately portray the book’s overall content.”  Id. at *12.  The court found Trudeau in contempt of court, required that he pay $37.6 million, and banned him for three years from appearing in infomercials.  

Trudeau appealed to the court of appeals.  On August 27, 2009, the United States Court of Appeals for the 7th Circuit agreed with the district court’s contempt finding, stating that Trudeau “clearly misrepresented [his] book’s content.”  Id. at *3.

However, the Court of Appeals rejected the district court’s monetary sanction because the district court’s order did not indicate “how the court arrived at the figure it did, whether the award will be used to reimburse consumers, and what happens if there’s money left over after all reimbursements are paid.”  Id. at *38. 

In addition, the Court ruled that the district court had erred in the manner in which it had imposed sanctions.  It found that although the case was labeled as civil contempt, the district court had actually imposed a remedy that appeared to be a criminal contempt sanction, without providing certain constitutional safeguards that apply in criminal cases. 

The Court also found the infomercial ban to be improper because the ban was to last for three years, regardless of what Trudeau did in the future.  Id. at *63-65.   

If history is any indication, the courts have not seen the last of Kevin Trudeau.

FDA Law Blog and Hyman, Phelps & McNamara, P.C. wish to congratulate Olsson Frank Weeda Terman Bode Matz PC on celebrating their 30th Anniversary as a food and drug law firm.  Let us say, you’ve aged extremely well!  We wish you much success over the next 30 years.

By Kurt R. Karst –      

Since the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), Hatch-Waxman scholars have wondered how FDA might answer the following question: “What is the effect of a forfeiture of 180-day exclusivity eligibility due to the failure of a first applicant to obtain tentative ANDA approval pursuant to FDC Act § 505(j)(5)(D)(i)(IV) when at least one other first applicant remains eligible for 180-day exclusivity?”  FDA’s September 9, 2009 approval of ANDAs for generic versions of STARLIX (nateglinide) Tablets provides the answer to that question. 

FDC Act § 505(j)(5)(D)(i)(IV), as added by the MMA, states the 180-day exclusivity eligibility is forfeited if “[t]he first applicant fails to obtain tentative approval of the application within 30 months after the date on which the application is filed, unless the failure is caused by a change in or a review of the requirements for approval of the application imposed after the date on which the application is filed” (emphasis added).  The term “first applicant” is defined at FDC Act § 505(j)(5)(B)(iv)(II)(bb) to mean “an applicant that, on the first day on which a substantially complete application containing a [Paragraph IV Certification] is submitted for approval of a drug, submits a substantially complete application that contains and lawfully maintains a [Paragraph IV Certification] for the drug.”  These and other provisions of FDC Act § 505(j), as amended by the MMA, concerning the scope and effect of 180-day exclusivity effectively create three categories of ANDA applicants relevant to a forfeiture under FDC Act § 505(j)(5)(D)(i)(IV):

(1)  “Eligible first applicants” (i.e., those first applicants who have not forfeited 180-day exclusivity eligibility under FDC Act § 505(j)(5)(D)(i));

(2)  “Ineligible first applicants” (i.e., those first applicants who have forfeited 180-day exclusivity eligibility under FDC Act § 505(j)(5)(D)(i)(IV), but nevertheless remain first applicants because their ANDAs continue to “lawfully maintain” a Paragraph IV Certification); and

(3)  “Subsequent applicants” (i.e., those applicants whose ANDAs contain a Paragraph IV Certification but who are not first applicants, and therefore are subject to an eligible first applicant’s 180-day exclusivity).

In the case of generic STARLIX, we understand that there were multiple first applicants, but that FDA determined that some (but not all) first applicants forfeited 180-day exclusivity eligibility under FDC Act § 505(j)(5)(D)(i)(IV).  This scenario necessarily led FDA to consider several questions, including:

(1) Can an ineligible first applicant obtain approval for its ANDA before commencement and/or expiration of a 180-day exclusivity period triggered by commercial marketing by an eligible first applicant?; and  

(2) If an ineligible first applicant obtains approval and begins marketing of the drug, does that marketing start the 180-day exclusivity period for all eligible first applicants?

FDA’s decision to approve ANDAs for first applicants who forfeited 180-day exclusivity eligibility under FDC Act § 505(j)(5)(D)(i)(IV) by failing to obtain timely tentative ANDA approval affirmatively answers the first question.  And as a result of FDA recognizing that an ineligible first applicant that “lawfully maintains” a Paragraph IV Certification to an Orange Book-listed patent is nevertheless a first applicant, and by operation of FDC Act § 505(j)(5)(B)(iv)(I), which states, in relevant part, that “the first commercial marketing of the drug . . . by any first applicant” (emphasis added) triggers 180-day exclusivity, FDA also answered the second question in the affirmative.

Although FDA has in the past published letters explaining the Agency’s post-MMA 180-day exclusivity decisions, FDA has not yet done so in this case.  FDA could, as the Agency has done in other cases concerning 180-day exclusivity forfeiture under FDC Act § 505(j)(5)(D)(i)(IV), let its approval decisions stand as its explanation and policy. 

UPDATE:

• On September 11, 2009, FDA issued a Letter Decision concerning its determination of 180-day exclusivity for Nateglinide Tablets.

On September 10, 2009, Hyman, Phelps & McNamara’s John R. Fleder and William T. Koustas will speak at a Thompson Interactive audioconference on FDA’s use of criminal search warrants.  The audioconference, titled “Unannounced FDA Raids: Be Ready Before They Appear at Your Door,” will cover the following issues:

• When will the FDA use a search warrant rather than a Form 482?  Can an investigator enter your facility if she doesn’t have a 482 or a search warrant?
• The administrative inspection warrant vs. a criminal search warrant – does one have more power than the other?  How should you prepare for each?
• Can you prevent an investigator from entering, or block them from access to areas not covered by a warrant?  Can you ask for outside counsel to be present without obstructing justice?
• What can you ask investigators?  How should you respond to their questions?  Can you follow them throughout the search?
• How should you manage agent access to other employees?
• Where should documents be filed and stored before a raid to prevent agents from viewing privileged information they don’t have a legal right to see?
• Expect the unexpected – preparing for and managing other raid issues like media attention and employee fears.

Additional information on the audioconference, including registration information, is available here.

For the past couple of years the American Bar Association (“ABA”) has published a list of the top 100 legal “blawgs” in the blogosphere – The ABA Blawg 100!  The ABA is currently soliciting nominations for its 3rd annual list.  Although FDA Law Blog was left off the 2nd annual list, we are determined to make the cut this year.  But we need the help of our loyal blog readers to do that.  There is a lot of competition out there for this coveted honor.  So, please please visit the ABA’s “Blawg 100 Amici” website and nominate FDA Law Blog!  Thank you!  (It will only take a couple of minutes.)

By Ricardo Carvajal –

FDA previously announced that the Reportable Food Registry that the agency is required to establish by section 417 of the Federal Food, Drug, and Cosmetic Act ("FD&C Act") would become operational on September 8, 2009, and that responsible parties would be expected to comply with the reporting obligations imposed under section 417 on that date.  However, the agency has just updated its guidance document on the Registry to make clear that, while responsible parties must comply with their reporting obligations as of September 8, “FDA intends to consider exercising enforcement discretion for a period of 90 days, until December 8, 2009, in circumstances where FDA determines that a responsible party has made a reasonable effort to comply with the requirements of section 417 of the FD&C Act and has otherwise acted to protect public health.”  This is a welcome announcement, given the relative complexity of the reporting obligations under section 417, and the many questions that have already arisen about FDA's implementation of the Registry.

The Food and Drug Law Institute is sponsoring a webinar on the Registry on September 10.  For registration and other information, see here.

By Michelle L. Butler –

On September 1, 2009, the Health Resources and Services Administration (“HRSA”) issued a Final Notice regarding qualified children’s hospitals and the 340B Drug Pricing Program.  See 74 Fed. Reg. 45,206 (Sept. 1, 2009).  Section 340B of the Public Health Service Act (“PHS Act”) lists the types of entities (i.e., Covered Entities) to which manufacturers of covered outpatient drugs are required to extend 340B Ceiling Prices.  See 42 U.S.C. § 256b(a)(4).  Children’s hospitals are not on this list.  Section 6004 of the Deficit Reduction Act of 2005 (the “DRA”) amended the statutory provisions related to the Medicaid Drug Rebate Program to include certain qualified children’s hospitals as Covered Entities for purposes of the Medicaid Drug Rebate Program.  See 42 U.S.C. § 1396r-8(a)(5)(B).  There was no similar change to section 340B of the PHS Act to include children’s hospitals on that list of Covered Entities.  In July 2007, HRSA published in the Federal Register proposed guidelines for children’s hospitals and requested comments on those proposed guidelines.  In the September 1, 2009 Federal Register Notice, HRSA addresses the comments and issues its guidance.

HRSA has determined that despite the fact that qualified children’s hospitals were not listed in the section 340B list of Covered Entities, such hospitals are Covered Entities by virtue of their inclusion in the definition of Covered Entities in the Medicaid Drug Rebate statute.  74 Fed. Reg. at 45,206-07, 45,209.  Accordingly, manufacturers are required to extend 340B Pricing to children’s hospitals that the meet the statutory qualifications.  HRSA has also determined that the terms of the Pharmaceutical Pricing Agreements between manufacturers and the Secretary of the Department of Health and Human Services are broad enough to include qualified children’s hospitals.

The final guidelines describe the process for admission of children’s hospitals into the 340B Drug Pricing Program.  74 Fed. Reg. at 45,209-11.  Prior to entry into the 340B Drug Pricing Program, a children’s hospital will need to provide certifications of compliance with a number of requirements, including the requirement that it will not participate in a group purchasing organization as of the effective date of its entry into the program.  Once a qualified children’s hospital has satisfied the enrollment criteria, HRSA, acting through the Office of Pharmaceutical Affairs (“OPA”), will list any such qualified children’s hospitals on the 340B Drug Pricing Program Database in its standard quarterly updates. 

The final guidelines also state that section 6004 of the DRA authorized entry of qualified children’s hospitals into the 340B Drug Pricing Program as of the effective date of the DRA, which was February 8, 2006.  According to the guidelines, therefore, qualified children’s hospitals are eligible for 340B Drug Pricing back to February 8, 2006, once they are admitted to the 340B Program and listed on the 340B Drug Pricing Program Database.  However, a children’s hospital will be eligible for retroactive discounts only to the extent that it has satisfied all requirements for participation in the 340B Drug Pricing Program back to the date discounts are requested.  The guidelines specify that children’s hospitals may request retroactive discounts directly from pharmaceutical manufacturers when the following requirements are satisfied:

1. The children’s hospital is listed on the 340B Covered Entity Database as eligible to purchase under 340B within one year of publication of this notice;
2. The children’s hospital sent a request in writing to each manufacturer of the drug(s) for which retroactive discounts are sought within 30 days of the children’s hospital having been listed as eligible to purchase under 340B on the Covered Entity Database;
3. The covered outpatient drugs must have been purchased on or after February 8, 2006;
4. The covered outpatient drugs must not have generated Medicaid rebates (the children’s hospital must have appropriate documentation to demonstrate this);
5. The covered outpatient drugs must not have been sold or transferred to a person who was not a patient of the children’s hospital; and
6. The covered outpatient drugs must have been purchased on or after the date on which the children’s hospital satisfied all requirements for participation in the 340B Program as outlined in [the guidance].

74 Fed. Reg. at 45,211.

By Kurt R. Karst –      

On Tuesday, September 8, 2009 (just shy of the 25th anniversary of the September 24, 1984 enactment of the Drug Price Competition and Patent Term Restoration Act – i.e., the “Hatch-Waxman Act”), the U.S. Court of Appeals for the Federal Circuit is scheduled to hear oral argument in two cases – Ortho-McNeil Pharma v. Lupin Pharma, Case No. 2009-1362, and PhotoCure ASA v. Kappos, Case No. 2009-1393 – that, once decided, should solidify as to when a patent covering a drug product is eligible for a Patent Term Extension (“PTE”) under 35 U.S.C. § 156.  We previously posted on these cases here, here, here, and here.

Both cases concern the proper interpretation of 35 U.S.C. § 156(a)(5)(A), which states that the term of a patent claiming a drug shall be extended from the original expiration date of the patent if, among other things, “the permission for the commercial marketing or use of the product . . . is the first permitted commercial marketing or use of the product under the provision of law under which such regulatory review period occurred” (emphasis added).  In recent PTE determinations, the U.S. Patent and Trademark Office (“PTO”) has heavily relied on decisions by the U.S. Court of Appeals for the Federal Circuit in Fisons v. Quigg, 8 U.S.P.Q.2d 1491 (D.D.C.1988), aff’d 876 F.2d 99 U.S.P.Q.2d 1869 (Fed.Cir.1989), and Pfizer Inc. v. Dr. Reddy’s Labs., 359 F.3d 1361 (Fed. Cir. 2004) (“Pfizer II”) to support the Office’s interpretation of the term “product” in 35 U.S.C. § 156(a)(5)(A) to mean “active moiety” (i.e., the molecule in a drug product responsible for pharmacological action, regardless of whether the active moiety is formulated as a salt, ester, or other non-covalent derivative) rather than “active ingredient” (i.e., the active ingredient physically found in the drug product, which would include any salt, ester, or other non-covalent derivative of the active ingredient physically found in the drug product).  In contrast, the Federal Circuit’s 1990 decision in Glaxo Operations UK Ltd. v. Quigg, 894 F.2d 392, 13 USPQ2d 1628 (Fed. Cir. 1990) (“Glaxo II”), construed the term “product” in 35 U.S.C. § 156(a)(5)(A) to mean “active ingredient.”

The Lupin case is an appeal of the U.S. District Court for the District of New Jersey’s recent ruling that the PTE granted by the PTO with respect to U.S. Patent No. 5,053,407 (“the ‘407 patent”) covering Ortho McNeil-Janssen Pharmaceutical, Inc.’s (“Ortho’s”) LEVAQUIN (levofloxacin) is valid.  Levofloxacin is an enantiomer in the previously approved Ortho racemate drug product FLOXIN (ofloxacin).  Lupin Pharmaceutical, Inc. (“Lupin”) challenged the ‘407 patent PTE in the context of ANDA Paragraph IV Certification patent infringement litigation on the grounds that the PTE is invalid because FDA previously approved levofloxacin when the Agency approved ofloxacin.  Although the PTO was not a party to the district court litigation, the Office submitted an amicus brief in support of Ortho in the Federal Circuit appeal, arguing that ‘407 patent PTE grant was valid and consistent with the Office’s active moiety interpretation of 35 U.S.C. § 156(a)(5)(A).  Copies of the briefs submitted in the Lupin case are provided below:  

• Brief of Defendant-Appellants Lupin Pharmaceuticals, Inc. and Lupin Ltd.
• Brief of Plaintiffs-Appellees Ortho-McNeil Pharmaceutical, Inc., OrthoMcNeil, Inc., and Daiichi Sankyo Co., Ltd.
• Reply Brief of Defendants-Appellants Lupin Pharmaceuticals, Inc. and Lupin Ltd.
• Brief for the United States as Amicus Curiae in Support of the Appellees

The PhotoCure case stems from the PTO’s denial of a PTE for U.S. Patent No. 6,034,267 (“the ‘267 patent”) covering the drug product METVIXIA (methyl aminoevulinate hydrochloride).  Applying the active moiety interpretation of the law, the PTO determined in May 2008 that METVIXIA does not represent the first permitted commercial marketing or use of the product because of FDA’s previous approval of an NDA for Dusa Pharmaceuticals Inc.’s LEVULAN KERASTICK (aminolevulinic acid HCl) Topical Solution, which contains the active moiety aminolevulinic acid (“ALA”).  Thus, according to the PTO, METVIXIA did not represent the first permitted commercial marketing or use of ALA and the ‘267 patent was ineligible for a PTE.  PhotoCure filed a lawsuit in the U.S. District Court for the Eastern District of Virginia challenging the PTO’s decision.
 
Earlier this year, the court ruled in PhotoCure’s favor.  In reaching its decision that the PTO’s decision to deny a PTE was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” under the Administrative Procedure Act, the court explained that it must determine whether it is required to follow the Federal Circuit’s ruling in Glaxo II or Pfizer II.  The court stated that “[i]mportantly, Pfizer II postdated Glaxo II and was a panel decision that the Federal Circuit declined to hear en banc.  ‘[The Federal Curcuit] has adopted the rule that prior decisions of a panel of the court are binding precedent on subsequent panels unless and until overturned in banc.  Where there is a direct conflict, the precedential decision is the first’” (internal citation omitted).   As a result, the court applied the “active ingredient” interpretation adopted in Glaxo II and determined that “the ‘267 patent covering Metvixia satisfies § 156(a)(5)(A), and that the USPTO’s decision to apply the active moiety interpretation and deny PhotoCute a [PTE] under this provision was contrary to the plain meaning of the statute and thus not in accordance with the law.”  The PTO appealed the decision to the Federal Circuit.

The PTO argues in its Federal Circuit briefs that Pfizer II is controlling, and that even if Pfizer II is not controlling, the PTO persuasively interpreted active ingredient to mean active moiety and correctly denied a PTE for the ‘267 patent.  Copies of the briefs submitted in the PhotoCure case are provided below: 

• Brief for Defendant-Appellant
• Brief for Plaintiff-Appellee PhotoCure ASA
• Reply Brief for Defendant-Appellant

As we have previously noted, the Federal Circuit’s decisions in the Lupin and PhotoCure cases, if they affirm the “active ingredient” interpretation adopted in Glaxo II, could have significant implications on previous and pending PTO PTE decisions.  We will update you as these cases move forward.

By Douglas B. Farquhar –

Pharmaceutical manufacturer Pfizer has agreed to the largest drug marketing settlement yet – $2.3 billion (yes, that is “billion” with a “b”) to resolve claims originally brought by six whistleblowers that the firm illegally marketed four drugs – according to a U.S. Department of Justice announcement.  While the practices underlying the claims have become fairly standard grist for the government penalty mill, the penalties and fines in these cases are anything but standard: the $1.2 billion criminal fine against Pfizer subsidiary Pharmacia & Upjohn, Inc. is claimed by people who should know (the U.S. Department of Justice) to be the largest fine ever levied against a U.S. company, and the six whistleblowers will receive a total of $102 million (one of the whistleblowers will receive more than $51.5 million).
 
First, on the criminal side, Pharmacia agreed to plead guilty to a felony violation of Federal Food, Drug, and Cosmetic Act for misbranding Bextra (valdecoxib), an anti-inflammatory drug, that the company will agree was marketed for uses that FDA specifically declined to approve due to safety considerations.  In addition to the fine of $1.195 billion the company has agreed to pay, the company will forfeit $105 million as part of the criminal settlement.  This settlement is so large that the forfeiture would have made headlines standing on its own, but is merely an afterthought given the size of the fine and the civil settlement.
 
Second, on the civil side, Pfizer has agreed to pay $1 billion in civil settlements of cases which were brought under the federal False Claims Act (“FCA”) by whistleblowers (called “qui tam relators” under the Act) who seek recovery of reimbursements under federal programs, including Medicare, Medicaid, and health benefits provided  to military personnel, federal employees, and their families.  About $330 million of that amount will go to state governments to reimburse them for Medicaid reimbursements.  The FCA set up a system to reward the whistleblowers if they initiate successful claims that the government investigates.
 
According to government documents publicizing the settlement:

• Bextra was marketed for acute pain and surgical pain, although only approved for certain types of arthritis and menstrual cramps, and for higher dosages than approved.

• Geodon (ziprasidone) was marketed for depression, mood disorder, dementia, and other indications when approved only for schizophrenics and acute episodes experienced by patients suffering from bipolar disorder.

• Zyvox (linezolid) was promoted for infections caused by MRSA (methicilllin-resistant Staphylococcus aureus) while only approved by FDA for other types of infections and certain types of pneumonia.

• Lyrica (pregabalin) was promoted for chronic pain, neouropathic pain, perioperative pain, and migraines, when it was approved only for fibromyalgia and certain other conditions.

Generally, a company signing a settlement agreement under these circumstances does not admit liability for the acts alleged by the whistleblowers or the federal government.  But the marketing acts that allegedly resulted in the false claims for federal reimbursement included the following:

• The marketing team positioned Bextra for uses other than the approved uses, created and tested sales materials promoting those uses.

• The sales force marketed Bextra for unapproved uses, including drafting and distributing physician standing orders and hospital pain “pathways” that called for unapproved uses of Bextra.

• Pfizer and Pharmacia used “so-called” Advisory Boards, consultant meetings, and other forms of remuneration to promote Bextra for unapproved uses (Advisory Boards have been a particularly frequent target for federal government investigations).

• The sales force created sham requests from physicians for off-label information (the requests are supposed to originate from physicians without prompting from sales representatives).

• Distribution of drug samples for unapproved uses.

• Sponsoring supposedly independent CME (continuing medical education programs) that were not independent.

• Initiating, funding, and occasionally drafting articles for medical publications about unapproved uses of Bextra.

Allegations relating to kickbacks also covered several other drugs for which Pfizer has now bought peace with federal and state governments in the civil settlement. 

Pfizer was also required to sign a five-year Corporate Integrity Agreement (“CIA”) with the Office of Inspector General of the United States Department of Health and Human Services.  The Pfizer CIA is available here.  CIAs are discussed generally here.

The Relators, at least some of whom were Pfizer employees, provide further evidence that marketing pharmaceuticals is a tricky business.  In the old days, one needed to worry about competitors, and possibly FDA.  These days, even one's own employees may be the source of liability to a company, particularly when the incentives to sue are as big as in a case like this.  $51 million means one doesn't have to tote a sales rep's bag ever again.   

The settlement documents are available here.

By Kurt R. Karst –      

In a recent opinion, Judge Richard E. L. Strauss of the Superior Court of California, County of San Diego, granted motions for summary judgment ruling that Bayer AG and several generic drug manufacturers, including Barr Pharmaceuticals Inc.,  The Rugby Group, Inc., and Hoechst Marion Roussel, Inc. (“HMR”), did not violate the state’s antitrust law – the Cartwright Act, California’s analogue to Section 1 of the federal Sherman Act – when Bayer settled patent infringement litigation with respect to generic versions of its antibiotic drug CIPRO (cirprofloxacin).  The decision follows in the footsteps of an October 2008 decision by the U.S. Court of Appeals for the Federal Circuit also concerning CIPRO reverse payments. 

The California case, In re: Cipro Cases I & II, JCCP Proceeding Nos. 4154 & 4220, was initiated in late 2000, and is a proceeding of nine coordinated cases brought by indirect CIPRO purchasers (i.e., individuals and not-for-profit entities): McGaughey v. Bayer Corporation (Super. Ct. San Diego County, No. GIC752290); Relles v. Bayer Corporation (Super. Ct. L.A. County, No. BC239083); Samole v. Bayer AG (Super. Ct. S.F. City and County, No. 316349); Garber v. Bayer AG (Super. Ct. S.F. City and County, No. 316518); Lee v. Bayer AG (Super. Ct. S.F. City and County, No. 316670); Patane v. Bayer AG (Super. Ct. S.F. City and County, No. 318457); Moore v. Bayer Corporation (Super. Ct. Sonoma County, No. SCZ228356); Moore v. Bayer Corporation (Super. Ct. Sonoma County, No. 228384); Senior Action Network v. Bayer AG (Super. Ct. S.F. City and County, No. 400750). 

The consolidated complaint alleged three causes of action: (1) per se violation of the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.); (2) unfair competition in violation of the Unfair Competition Act (Bus. & Prof. Code, § 17200 et seq.); and (3) the common law tort of monopolization.  The allegations stem from the 1997 settlement of Hatch-Waxman patent infringement litigation concerning an Orange Book-listed patent covering CIPRO.  Under the terms of those agreements, the validity of the CIPRO patent was acknowledged, and Barr, HMR, and Rugby agreed to refrain from selling or marketing a generic CIPRO in exchange for a lump sum of $49.1 million and quarterly payments to Barr and HMR that have totalled several hundred million dollars.  Essentially, the plaintiffs alleged that in the absence of the CIPRO agreements, a generic version of the drug would have been available no later than January 1997, and that the purpose of the agreements was to allocate to Bayer the entire ciprofloxacin market for at least six years, to restrain market competition, and to grant Bayer an unlawful monopoly with the concomitant ability to charge supra-competitive prices.

Noting that “the Cartwright Act is patterned after the federal Sherman Act and both have their roots in the common law, [that] federal cases interpreting the Sherman Act are applicable in construing the Cartwright Act,” and that “there is no California authority evaluating whether a Hatch Waxman reverse payment settlement agreement violates state antitrust law (Cartwright Act or otherwise),” Judge Strauss determined that the court must turn “to federal decisions concerning the Sherman Act as persuasive authority to guide its decision.”  And on this point, Judge Strauss wrote that “Federal case law is not only instructive in this regard, it is dispositive.”  Relying heavily on the Federal Circuit’s 2008 decision in In Re Ciprofloxacin Hydrochloride Antitrust Litigation (“Cipro III”), Judge Strauss stated:

The federal court cases dealing generally with Hatch Waxman settlements, and specifically with this agreement, have uniformly held that settlements within the scope of the patent do not violate antitrust laws. . . .  In Cipro III, the Federal Circuit affirmed the district court's holding that there was no antitrust violation because the settlement agreement fell within the “exclusionary zone” of the patent.  The Federal Circuit Court found that because patents are presumed valid and provide the patentee with the right to exclude others (infringers) from the market, the challenged anticompetitive effects of the agreement at issue here were directly attributable to the patent, and therefore, no antitrust remedy was available. . . .  The Court finds the result should be no different under the Cartwright Act, as we are dealing with the exact same settlement agreement, involving the same type of Plaintiffs (indirect purchasers), and the same theories of liability.

Accordingly, the court granted defendants’ motions for summary judgment finding that the agreements do not violate the Cartwright Act, because “as a matter of law, Plaintiffs cannot establish the agreement unreasonably restrains trade because no triable issue of material fact exists that there are no anticompetitive effects on competition beyond the exclusionary scope of the patent itself.”  Judge Strauss’ finding precluded Plaintiffs’ Unfair Competition Act and common law monopoly claims because they are based on the same factual allegations that supported the Cartwright Act claim.

The Federal Trade Commission (“FTC”), along with the Department of Justice’s Antitrust Division, have opposed reverse payment agreements.  The FTC has has filed complaints (here and here) in the U.S. District Court for the Central District of California and the U.S. District Court for the Eastern District of Pennsylvania opposing reverse payment arrangements concerning generic ANDROGEL (testosterone gel) and PROVIGIL (modafinil), respectively.  Cephalon, the maker of PROVIGIL, filed a motion to dismiss the FTC’s complaint just a few days ago. 

Several drug retailers, including Rite Aid, Eckerd, CVS, Walgreen, Kroger, and Safeway have also decided to take action with respect to the generic ANDROGEL and PROVIGIL reverse payment arrangements by filing their own complaints (see, e.g., here and here) in the U.S. District Court for the Eastern District of Pennsylvania.  Similar complaints have been filed in other courts.

As we previously reported, legislation is pending in Congress that would effectively outlaw reverse payment agreements by making it unlawful for any person from being a party to any agreement resolving or settling a patent infringement claim in which an ANDA applicant receives anything of value, and the ANDA applicant agrees not to research, develop, manufacture, market or sell the generic drug that is the subject of a patent infringement claim.  Congress is expected to further consider the legislation when it reconvenes later this month.

By David B. Clissold & Ricardo Carvajal –

Five tobacco manufacturers including R.J. Reynolds Tobacco Company, Lorillard Tobacco Company, and Commonwealth Brands, Inc. (the second, third, and fourth  largest tobacco manufacturers in the U.S., respectively), and a retailer of tobacco products have sued FDA in a Kentucky district court, alleging that certain provisions of the Family Smoking Prevention and Tobacco Control Act (Tobacco Act) violate their First Amendment right to engage in commercial speech, among other constitutional violations.  (A copy of the complaint is available here.)  Plaintiffs ask the court to enjoin FDA from enforcing the challenged provisions of the Tobacco Act. 

Plaintiffs allege that the Tobacco Act essentially eliminates the few remaining avenues for communication with their adult customers, thereby hampering plaintiffs’ ability to increase market share by convincing customers to switch from competing brands to plaintiffs’ brands (in the case of manufacturers) and hampering their ability to use tobacco advertising to generate sales of tobacco and other products (in the case of retailers).  The provisions of the Tobacco Act that plaintiffs contend are “most egregious” include:

• a prohibition on the use of color and images in advertising (via reissuance of FDA’s 1996 final rule restricting advertising for cigarettes and smokeless tobacco);
• mandated warnings that displace plaintiffs’ communications on packaging;
• restrictions on truthful communications regarding modified risk tobacco products;
• restrictions (if not a ban) on outdoor advertising for cigarettes and smokeless tobacco;
• a prohibition on the sponsorship of certain events in connection with the brand name of any cigarette or smokeless tobacco;
• a prohibition on the distribution of free samples of cigarettes, and restrictions on the distribution of free samples of smokeless tobacco; and
• a prohibition on the marketing of tobacco products in combination with other FDA-regulated products.

Plaintiffs contend that these restrictions are not warranted by a compelling governmental interest, that they do not directly advance the government’s interest,  and that they are more extensive than is necessary.  The challenged provisions thus fail to pass constitutional muster under the test for government regulation of commercial speech that was announced by the Supreme Court in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980).

The filing of this suit was predicted during Congressional deliberations on H.R. 1256 (which subsequently became the Tobacco Act).  Given the stakes for both sides, the case is almost certain to end up before the Supreme Court.  That will be a familiar arena for Lorillard and R.J. Reynolds.  They were two of the plaintiffs involved in the last Supreme Court case that examined the government regulation of commercial speech regarding tobacco products.  In Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001), the Supreme Court held that advertising restrictions on cigarettes imposed by the state of Massachusetts were unconstitutional.

By JP Ellison & Ricardo Carvajal –

A Massachusetts district court has ordered marketers of calcium and herbal  supplements touted as effective in preventing, treating, or curing diseases such as cancer, heart disease, and diabetes to pay $70 million in consumer redress.  The court’s order dated August 13, 2009 did not come until more than 6 years after the date of the last sales of the products, but in this case, justice delayed does not seem to have led to justice denied, at least not from the perspectives of the FTC or consumer purchasers of the products.

The case, against several corporations and individuals associated with those corporations, alleged false representations about the safety and efficacy of two dietary supplements and related violations of law.  The court granted FTC’s motion for summary judgment last year on six of eight counts. The court found that the defendants had made various claims without any substantiation, and thus had engaged in deceptive advertising in violation of the FTC Act.  Thus, the liability of the defendants had largely been resolved by the court.  The issue that the court resolved earlier this month was the nature and amount of equitable relief to grant.  The court’s two orders, covering different corporate and individual defendants, order restitution in an amount designed to fully deprive the defendants of any funds derived from the sale of these supplements.

In addition to the monetary relief, the court’s orders include injunctive provisions that prevent the defendants from making the same type of representations at issue in this case in connection with other products.  Furthermore, the court’s order contains compliance reporting and monitoring provisions.  Finally, the orders contain “fencing in provisions” that go beyond granting relief with respect to the products at issue in the case and are designed to prevent the defendants from engaging in similar conduct in the future.

The court’s order does not seem likely to be the last word on consumer redress, however.  At several points in the decision, the court suggests that the defendants have not been completely transparent about their finances.  This appears to be, at least in part, a basis for the court rejecting an argument that ability to pay should be considered in ordering restitution.  In addition, the court order permits discovery in aid of the judgment, suggesting that neither FTC nor the court is satisfied that there is a clear picture of the defendants’ finances.