By Alan M. Kirschenbaum –

Yesterday, we reported on the Department of Defense’s final regulation implementing section 703 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA-2008).  The regulation establishes a framework for manufacturers to pay refunds to the government on NDA drugs dispensed to TriCare beneficiaries under the TriCare Retail Pharmacy ("TRRx") Program.  The TriCare Management Authority ("TMA") has issued additional information on the refund program in the form of a Dear Manufacturer Letter and an FAQ guidance.  Among other things, the new guidance states that the deadline for payment of refunds on TRRx utilization from January 28, 2008 (the effective date of NDAA-2008) through December 31, 2008 is May 26, 2009, unless a waiver or compromise is granted.

TMA has also posted on its website a draft of the standard refund pricing agreement between the manufacturer and TMA that is provided for under the final rule.  Under the agreement, a manufacturer agrees to provide refunds to TMA each quarter on covered drugs within 70 days after receiving retail utilization data.  The manufacturer must choose, for all of its covered drugs and for the duration of the agreement, (1) the method of calculating the refund (i.e., either non-FAMP minus FCP, or direct commercial price to the pharmacy minus FCP), and (2) whether to calculate the refund using units as reported in the utilization reports, or as converted to the package size of the 11-digit NDC number (rounding down extra units).  It appears that the all-or-nothing nature of the selections would preclude the flexibility to use the contract pharmacy price method for certain drugs and pharmacies (i.e., those covered by contracts) while using the non-FAMP method for non-contracted drugs and/or pharmacies.

For its part, TMA agrees to consider the manufacturer’s covered drugs for tier 2 status at the next scheduled P&T Committee review of the applicable drug class, and to ensure that the manufacturer’s tier 2 drugs are available without preauthorization.  The agreement also provides for a dispute resolution procedure and dispute codes, and permits a manufacturer to withhold payment of disputed units pending resolution of the dispute.  The FAQ states that the final version of the agreement will be mailed to manufacturers next week.  Utilization data for 1Q 2009 will be available on April 15.

By Michelle L. Butler & Alan M. Kirschenbaum –

On March 17, 2009, the Department of Defense (“DoD”) issued a final rule implementing section 703 of the National Defense Authorization Act for Fiscal Year 2008 (“NDAA-08”).  Section 703 of the NDAA-08 provides that, for any prescriptions filled on or after the date of enactment (January 28, 2008), the TriCare retail pharmacy network shall be treated as an element of the DOD such that drugs dispensed by the TriCare retail pharmacy program ("TRRx") to eligible covered beneficiaries are subject to 38 U.S.C. § 8126, which imposes Federal Ceiling Price ("FCP") limitations on drugs approved under NDAs.  Because DOD is a reimburser rather than a purchaser under TRRx, the regulation lays a framework for a system of manufacturer rebates, or “refunds”, to refund to DOD the difference between the cost of the drug to the government and the FCP. 

Retroactive liability for refunds:  Since the enactment of NDAA-08, DOD has taken the position that, although manufacturers may choose to delay the payment of refunds on drugs dispensed under TRRx since January 28, 2008, those refunds eventually must be paid.  The rule and its preamble lay to rest any hope that DOD would change its views on this issue.  Rejecting industry’s argument that the manufacturers’ obligation to pay refunds was contingent on publication of a final rule, the rule and preamble state unambiguously that prescriptions on or after January 28, 2008 are entitled to FCP pricing under 38 U.S.C. § 8126.  See 32 C.F.R. § 199.21(q)(1); 74 Fed. Reg. 11,279, 11,283-84.  The preamble makes clear that DoD does not view this start date as a retroactive application of a new rule; rather, “the legal landscape” changed prospectively as of the enactment of the statute and manufacturers were obligated to sell at statutory prices as of that date.  The rule does not provide procedures for retroactive repayment of refunds, nor specify a date when they are due.  Presumably, instructions will be forthcoming before the rule’s effective date of May 26, 2009.

“Voluntary” agreements:  Going forward, the regulation provides for voluntary written agreements by manufacturers to honor the FCPs for covered drugs provided through the TriCare retail pharmacy network.  See id. § 199.21(q)(2).  Only by entering into such an agreement will a manufacturer’s covered drugs be eligible for inclusion on the Uniform Formulary (though an agreement is not a guarantee of such inclusion) and be available without preauthorization.  See id. § 199.21(q)(2)(i).  Notably, a failure to enter into an agreement does not relieve a manufacturer of the obligation to pay refunds.  Therefore, there is nothing to gain by declining to enter into an agreement.

The preamble clarifies that, if there is currently in effect a Uniform Formulary Voluntary Agreement for Retail Refunds (“UF-VARR”) for a drug at a price above the FCP, “that agreement fails to achieve the statutory requirement [and] DoD anticipates canceling it.”  74 Fed. Reg. at 11,287.  The preamble also clarifies that if a drug was previously placed on Tier 3, and a manufacturer signs an agreement to honor FCPs, the drug will then be eligible for reclassification to Tier 2 at the next review by the P&T Committee of the drug class involved.  Id.  The regulation provides that the requirement for a written agreement can be waived by the Director of the TriCare Management Activity (“TMA”) if it is necessary to ensure that at least one drug in a drug class is included on the Uniform Formulary.  See 32 C.F.R. § 199.21(q)(2)(iv).  Such a waiver does not waive the statutory requirement that prescriptions be subject to FCPs; it only waives the exclusion from the Uniform Formulary of drugs not covered by a written agreement.  See id.

Refund Procedures:  The regulation does not set forth procedures to implement the refunds, but requires DOD to establish such procedures.  See id. § 199.21(q)(3)(i).  The regulation provides that the refund procedures must, “to the extent practicable, incorporate common industry practices for implementing pricing agreements between manufacturers and large pharmacy benefit plans sponsors.”  32 C.F.R. § 199.21(q)(3)(ii).  DOD explains in the preamble that it believes the UF-VARR process has been successful and plans to use it as a basis for the refund procedures.  74 Fed. Reg. at 11,289.  The regulation mandates that manufacturers have at least 70 days from the date of their receipt of utilization data to pay the refund.  See id.  Manufacturers will have two options for calculating the amount of the refund:  (1) the difference between the current annual FCP and the non-Federal average manufacturer price (“non-FAMP”) from which it was derived, or (2) the difference between the FCP and “direct commercial contract sales price[] specifically attributable to the reported TriCare paid pharmaceuticals[] determined for each applicable NDC listing” and the FCP.  Id.  DoD will defer to and not change any VA determinations of FCPs or non-FAMPs, including deferring to VA determinations with regard to penny pricing.  74 Fed. Reg. at 11,289. 

Waiver and Compromise:  The regulation states that the refunds due are treated as erroneous payments under 32 C.F.R. § 199.11 pertaining to “overpayments recovery.”  See 32 C.F.R. § 199.21(q)(3)(iii).  Although DOD rejected many of the manufactures’ arguments why payment of retroactive refunds would be unfair or unworkable, “DoD agrees that there may be merit to some concerns that in particular circumstances concerning stale utilization data, prior incentive pricing agreements between DoD and drug manufacturers, and other situations, there may be a reasonable basis to waive or compromises a refund for prescriptions filled between January 28, 2008 and the effective date of the final rule.”  74 Fed. Reg. at 11,285.  Accordingly, a manufacturer is permitted to request such a waiver or compromise of a refund amount due.  See id. § 199.21(q)(3)(iii)(A).  While the provision for waiver or compromise is available at any time, DoD states that it “intends that it especially be available to address and resolve in a reasonable way issues arising from the period between the date of enactment of the statute and the effective date of the regulation.”  74 Fed. Reg. at 11,285.  DOD provides an illustration of a compromise whereby a manufacturer is required to pay refunds only retroactive to a specified date between January 28, 2008 and the effective date of the regulation, but there is little guidance on the kinds of grounds that would justify a waiver or compromise.
 
While any request for waiver or compromise is pending, a manufacturer’s written agreement to honor FCPs will be deemed to exclude the matter that is the subject of the request.  See 32 C.F.R. § 199.21(q)(3)(iii)(B).  This is so that the agreement will be considered sufficient for purposes of satisfying the precondition for Uniform Formulary placement and for purposes of remedies for noncompliance.  In addition, in the case of disputes by the manufacturer regarding the accuracy of utilization data, a refund obligation will be deferred pending good faith efforts to resolve the dispute.  See id. § 199.21(q)(3)(iv).

Penalties:  In the event that a manufacturer fails to make or honor an agreement, the regulation authorizes the Director of the TMA to “take any other action authorized by law.”  32 C.F.R. § 199.21(q)(4).  As pointed out by a commenter, a manufacturer’s failure to comply with section 703 of the NDAA-08 arguably also constitutes a violation of the FCP requirement of 38 U.S.C. § 8126, thereby subjecting a manufacturer to loss of federal payment under Medicaid and a ban on selling drugs to the government.  DoD states that, while it agrees with this position, the law is not settled and the question is outside the regulatory authority of the DoD.  See 74 Fed. Reg. at 11,289. 

Faced with strong objections from industry, DOD has offered in this rule a veneer of a voluntary agreement rewarded by potential formulary benefits, provisions for waiver or compromise of refunds due, and a comforting statement that “voluntary action consistent with the law is far preferable to reliance on enforcement action.  74 Fed. Reg. at 11,281-82.  On the other hand, DOD has taken a hard line on the payment of retroactive refunds, and “expressly does not waive the right to pursue any action authorized by law,” which would include the penalties identified above.  The rule as a whole is an attempt by DOD to offer a carrot while carrying a big stick.

The American Intellectual Property Law Association (“AIPLA”) has appointed Hyman, Phelps & McNamara, P.C. attorney Kurt R. Karst as Chair of the organization’s Hatch-Waxman Subcommittee of the Special Committee on the FDA.  “I am honored to have been nominated for this position, and look forward to raising AIPLA’s voice on myriad Hatch-Waxman issues” said Karst.  AIPLA’s Special Committee on the FDA is currently monitoring several issues, including Paragraph IV litigation and follow-on biologics.  Earlier this year, AIPLA sent a letter to FDA raising intellectual property issues about implementation of § 4 of the QI Program Supplemental Funding Act of 2008, which concerns old antibiotics.  Please contact Special Committee on the FDA Chair Myra H. McCormack (mmccorm1@corus.jnj.com), Vice-Chair Freddie K. Park (freddiep99@yahoo.com), or Kurt R. Karst (kkarst@hpm.com) if you are interested in becoming a member of the Special Committee on the FDA and the Hatch-Waxman Subcommittee.

By Riëtte van Laack & Ricardo Carvajal –      

In a reversal of a U.S. Court of Federal Claims decision, the U.S. Court of Appeals for the Federal Circuit held in Rose Acre Farms, Inc. v. United States that an egg producer did not suffer a taking that requires compensation under the Fifth Amendment as the result of losses incurred under U.S. Department of Agriculture (“USDA”) regulations restricting interstate sale and transportation of poultry and eggs contaminated with Salmonella enteritidis (“SE”) .  (The Fifth Amendment to the U.S. Constitution prohibits the taking of private property for public use without just compensation.) 

Rose Acre Farms, Inc. dates back to 1992 when egg producer Rose Acre filed an action against the USDA claiming that the Department’s regulations that restrict eggs sales and layer chickens that test positive for SE effect a compensable “Taking”  under the Fifth Amendment to the United States Constitution. 

By way of background, the USDA, in its effort to stem the increase in SE outbreaks associated with consumption of table eggs (i.e., raw eggs sold in their shells), issued regulations that restrict the interstate sale of eggs and poultry from SE contaminated layer houses.  Under the regulations, if an outbreak of SE disease in humans is traced to a certain house and the USDA determines that SE is present in the environment, then the eggs of this house may not be sold as table eggs; rather, they have to be diverted to breaker facilities where they are pasteurized.  Breaker eggs (i.e., egg products that have been pasteurized) fetch a lower price. 

In the early 90s, three of Rose Acre’s farms were linked to SE outbreaks.  As a result, for 25 months, Rose Acre was required to sell part of its eggs as breaker eggs instead of as table eggs.   A trial court ruled that Rose Acre was entitled to compensation under the Fifth Amendment Takings Clause, and concluded that Rose Acre was entitled to $9 million.

The Federal Circuit, in reversing the U.S. Court of Federal Claims decision, applied the three-prong test in Penn Central Co. v. New York City, 438 U.S. 104 (1978) to conclude that, on balance, a taking did not occur.  First, the court concluded that Rose Acre’s economic impact was not severe (a 10% loss of the value of eggs diverted to the breaker egg market).  Second, the court concluded that although promulgation of the USDA’s regulation interfered with Rose Acre’s reasonable investment-backed expectations, this factor was not dispositive of the outcome.  Third, the court concluded that the character of the government’s actions “strongly favored” the government because the USDA’s regulation is a public health and safety measure.  In sum, the court concluded that “the law of regulatory takings does not generally compensate property owners when a regulation’s economic impact is slight and temporary but the potential for physical harm to the public is significant.”

By Kurt R. Karst –      

Late yesterday, Rep. Anna Eshoo (D-CA), along with Reps. Jay Inslee (D-WA), and Joe Barton (R- TX), announced the introduction of the Pathway for Biosimilars Act (H.R. 1548).  (A copy of the bill should be available soon).  The introduction of the Pathway for Biosimilars Act follows Rep. Henry Waxman’s (D-CA) introduction of the Promoting Innovation and Access to Life-Saving Medicine Act last week.  We reported on the introduction of the Waxman bill here. 

The new Pathway for Biosimilars Act is reportedly very similar to a bill with the same name introduced by Reps. Eshoo and Barton in the 110th Congress (H.R. 5629).  Our post on the introduction of that bill is available here.  Rep. Inslee has apparently decided not to introduce separate legislation, as he did with the introduction of the Patient Protection and Innovative Biologic Medicines Act in the 110th Congress (H.R. 1956).

According to one press release about H.R. 1548, “[t]he legislation’s formula would offer all new biological drugs a base period of 12 years of data protection with the right to obtain an additional two years once a further indication for use of the product is approved by the FDA.”  We also understand that a period of 6-month pediatric exclusivity would be available.  Additional reactions to the Eshoo/Barton/Inslee bill are available here (BIO), and here (GPhA).

UPDATE:

• A copy of H.R. 1548 – the Pathway for Biosimilars Act – is available here.

By Kurt R. Karst –      

FDA has issued its highly anticipated decision concerning whether the QI Program Supplemental Funding Act of 2008 (“QI Act”) imposes a 30-month stay of approval of an ANDA referencing an old antibiotic drug product if that ANDA contains a Paragraph IV certification to a patent that was listed in the Orange Book in accordance with § 4(b)(1) of the QI Act.  FDA received four citizen petitions arguing that a 30-month stay should apply – see our previous posts here, here, here, and here.  FDA denied all four citizen petitions in a 20-page response and determined that:

under the QI Act, no 30-month stay of approval will apply to an ANDA referencing an old antibiotic based on the grounds that the ANDA contains a paragraph IV certification to a later-listed patent and the NDA holder or patent owner has sued the ANDA applicant for patent infringement as a result of notice of the paragraph IV certification.  We note that, under current law, a 30-month stay will apply to an ANDA referencing an old antibiotic if that ANDA contains a paragraph IV certification to a patent submitted to the Agency before the ANDA was submitted, and the NDA holder or patent owner sues the ANDA applicant for patent infringement as a result of notice of the paragraph IV certification.

The four citizen petitions raised three general grounds as to why a 30-month stay should apply: (1) the plain language of the QI Act requires application of the 30-month stay provisions of the original Hatch-Waxman Amendments, rather than the version of the statute amended by the Medicare Modernization Act (“MMA”), which limits 30-month stays such that a generic applicant with a pending ANDA that amends its application to add a Paragraph IV certification to a later-listed patent is not subject to a 30-month stay in connection with that certification; (2) the patents at issue should be treated as having been submitted to FDA with the original NDA, thus providing for 30-month stay availability; and (3) the patents at issue should be treated as having been filed in the original ANDA, instead of in an amendment, thus providing for 30-month stay availability.  FDA’s petition response analyzed and dismissed all three bases.

With respect to the applicability of the original Hatch-Waxman Amendments, FDA determined that Congress “did not require FDA to turn back the clock to 1984,” and that such an “outcome is inconsistent with the purpose of the QI Act.”  FDA further explained that:

Upon consideration of the reference in the QI Act to the original 1984 Act in light of additional statutory text, legislative history, and other regulatory considerations, it is apparent that neither this bare statutory reference, nor other statutory considerations require the Agency to apply the original 1984 Act to the ANDAs referencing petitioners’ old antibiotics.  Congress’s reference to the 1984 Act did not impose a 30-month stay of applicants who had already submitted ANDAs when the QI Act was enacted, nor did it create a class of old antibiotic applications that will be subject to long-term differential treatment . . . .  Rather, the reference to “Drug Price Competition and Patent Term Restoration Act of 1984” was a means to identify, as a general matter, the statutory provisions that would apply for the first time to old antibiotics (i.e., those provisions that comprise the generic drug approval program first enacted in 1984).  The term “Drug Price Competition and Patent Term Restoration Act of 1984” is merely a more formal shorthand than the more common reference to “the Hatch-Waxman Amendments.”

FDA similarly dismissed the remaining two bases raised in the petitions.  First, after explaining that “FDA does not interpret the MMA exclusivity provisions to grant 180-day exclusivity only when an ANDA contains a paragraph IV certification to a listed patent on the date the ANDA is originally submitted to FDA,” FDA stated that:

[b]y rendering all applicants with pending ANDAs that timely submit paragraph IV certifications to a listed patent for an old antibiotic “first applicants,” the QI Act effectively treats the applicants’ amendments containing paragraph IV certifications as having been submitted on the first day on which any ANDA applicant submitted a substantially complete application that contains a paragraph IV certification to a patent for the listed drug.  The QI Act does not, however, recalculate the date on which the ANDAs were submitted to FDA.

Second, with respect to the argument that the patents at issue should be treated as having been submitted to FDA with the original NDA, FDA stated that:

This is a tortured reading of a statutory provision that is more reasonably read to mean that patent information of the type required to be filed under 505(b)(1) and (c)(2) is to be submitted to FDA by the identified date. . . .  There is no need to adopt the strained reading proposed by petitioners to give the reference to sections 505(b)(1) and (c)(2) meaning; they already have a reasonable and well established regulatory meaning.

FDA’s petition response also addresses some general arguments that it would be unfair not to apply a 30-month stay.  FDA commented that “[w]hether petitioners consider the legislative choice made in the QI Act regarding 30-month stays as ‘fair’ to their interests is irrelevant.  FDA is implementing the statute based on its interpretation of the plain language, and on the basis of its experience with the complex generic drug approval program as described over the years in the Hatch-Waxman Amendments.”  FDA then goes on to note:

In [the 1997 FDA Modernization Act], Congress expressly enumerated the statutory benefits that would not apply to old antibiotic drugs (section 12S(d)(2)).  And in the QI Act, Congress appears to have made 3- and 5-year exclusivity available only to certain applications for old antibiotics when the application was submitted to FDA after enactment of the QI Act; any NDA for an old antibiotic submitted before the QI Act appears to be ineligible for the exclusivity protections.  Each legislative action reflects particular public policy judgments regarding the appropriate balance of incentives and protections needed to encourage development of antibiotic drugs and the prompt approval of generic drug products.

FDA’s comments might shed some light on the Agency’s possible position on other issues concerning QI Act implementation raised in a letter submitted to FDA earlier this year by the American Intellectual Property Law Association. 

There has been a lot of speculation as to whether or not one or more of the companies on whose behalf the QI Act citizen petitions were submitted will sue FDA in the wake of the Agency’s decision.  Given the storied history of Hatch-Waxman litigation, it would not be surprising if such a lawsuit is filed shortly.  Your loyal and intepid bloggers will continue to update you about this issue.
 

By Riëtte van Laack –

In 2004, the State of California sued three tuna companies, Tri-Union Seafoods, LLC, Del Monte Corporation, and Bumble Bee Seafoods, LLC, for violation of California’s Proposition 65 because they failed to provide the required clear and reasonable warning that their canned tuna products contain methylmercury, a chemical listed by the State of California as a reproductive toxin and carcinogen.

Defendants argued that no warning was required under Proposition 65 because: (1) in this situation, federal law preempts Proposition 65; (2) the level of methylmercury is below the threshold at which a warning statement is required; and (3) almost all the methylmercury in canned tuna is “naturally occurring” and therefore no warning statement is required.  The trial court agreed and found for the defendants.

The Court of Appeal only reached to the lower court’s conclusion that methylmercury is “naturally occurring” in tuna.  Under Proposition 65, a substance is naturally occurring if it a “natural constituent of a food” or “is present in the food solely as a result of absorption or accumulation of the chemical . . . present in the environment in which the food is raised, or grown, or obtained . . . .”  Such substances are exempt from requirements under Proposition 65.  The defendant bears the burden of proof to show with a preponderance of the evidence that the chemical is naturally occurring.

After a detailed analysis, the Court of Appeal affirmed the lower court’s finding that based on currently available evidence methylmercury is naturally occurring.  The Court pointed out, however, that its decision does not mean that tuna companies are immune to future Proposition 65 claims.  The Court stressed that its decision is based on the present state of research and that “‘scientific conclusions are subject to perpetual revisions.’”  Moreover, the Court noted that California might amend its Proposition 65 regulations such that methylmercury is no longer exempt from the warning requirements.

The Court also emphasized that it did not consider whether the trial court’s other grounds for the judgment in favor of the defendants were valid.  Consequently, the Court’s decision is conclusive only as to the single determination that methylmercury in tuna is naturally occurring for purposes of Proposition 65.

Hyman, Phelps & McNamara, P.C. (“HP&M”) has issued a detailed analysis of the Supreme Court’s recent ruling in Wyeth v. Levine.  A copy of the analysis, written by James P. Ellison and Carrie S. Martin, is available here.  In Wyeth, the Court ruled that, based on the facts of that case, the Federal Food, Drug, and Cosmetic Act does not preempt state law.  Although the immediate effect was to let stand the state law tort judgment against Wyeth, the effects of the case are almost certainly not going to be so limited.  In fact, as discussed in HP&M’s analysis, Wyeth is likely to remain an important Supreme Court preemption case for the drug industry for the foreseeable future. 

In addition to issuing an analysis of the Wyeth opinion, on March 24, 2009, HP&M's John R. Fleder and Kurt R. Karst will be speaking at a webinar sponsored by FDA News about the implications of Wyeth.  Information about the webinar is available here.

By Ricardo Carvajal–      

In an address highlighting the need to tackle problems with the nation’s food safety system, President Obama today announced the appointments of Dr. Margaret Hamburg as the new FDA Commissioner and Dr. Joshua Sharfstein as Principal Deputy Commissioner with primary responsibility for drugs and biologics.  Dr. Hamburg currently serves as Senior Scientist with the Nuclear Threat Initiative (NTI). She previously served as Vice President for the Biological Program at NTI, Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services, Commissioner of Health for the City of New York, and Assistant Director of the Institute of Allergy & Infectious Diseases at the National Institutes of Health.  Dr. Sharfstein is Commissioner of Health for the City of Baltimore.  Previously, he served as a health policy advisor on the Government Reform Committee of the U.S. House of Representatives.

It is widely believed that Dr. Sharfstein was not selected for the top spot to in order to avoid opposition from  the pharmaceutical industry and possible confirmation problems stemming from that opposition.  Ironically, Dr. Sharfstein, in his more narrow role will not be distracted by the non-drug aspects of the agency, and will have even more time to focus his attention on pharmaceutical issues.

The President also announced the formation of a Food Safety Working Group to be comprised of cabinet secretaries and senior officials that will offer recommendations on updating food safety laws, help improve coordination within government, and ensure that existing and new laws are enforced.  The Working Group is expected to work on a fast track.  Finally, the President pledged to invest a billion dollars to strengthen the nation's food safety system, in part by modernizing labs and hiring additional food inspectors.  The full text of the address is available here.

By Bryon F. Powell –

On March 11, 2009, the Massachusetts Department of Public Health ("DPH") Public Health Council unanimously approved a final rule on Pharmaceutical and Medical Device Manufacturer Conduct.  This vote came just seven months after Massachusetts’ Governor Deval Patrick signed into law Senate Bill 2863, which required DPH to establish a pharmaceutical and medical device marketing code of conduct, and imposes compliance and reporting requirements on pharmaceutical and medical device companies that employ a person to sell or market prescription drugs or medical devices in Massachusetts.  We reported on the enactment of the statute (here) and the December 2008 proposed regulation (here).

The final regulation, which will go into effect on July 1, 2009, largely mirrors the proposed rule.  However, there are some notable changes in the final rule, which we discuss below.

• Payments:  The restrictions on payments to health care practitioners remain the same.  However, in response to industry comments, the list of activities explicitly permitted has been expanded to include the provision of medical device demonstration and evaluation units, charitable donations not tied to purchases, and, importantly, reasonable compensation for all bona fide services.  The proposed rule explicitly permitted reasonable compensation only for bona fide services in connection with research.  On the other hand, the definition of “bona fide services” has been revised to exclude situations where the retention of a health care practitioner is “unduly influenced” by sales personnel.

• CME:  The CME provisions of the rule have been narrowed by deleting a proposed provision permitting subsidies for health care professionals-in-training to attend educational conferences.  In a nod to the Massachusetts hospitality industry and the Boston Convention Center, the rule specifically permits the use of hotels, convention centers, and other special event venues for CME and other professional conferences.

• Prescriber Data:  Restrictions on the use of prescriber data have been refined.  Before using prescriber data for marketing purposes, a manufacturer must now give health care practitioners the opportunity to request that their prescriber data be withheld from company sales representatives and not be used for marketing purposes.  However, the rule now specifies that manufacturers are not prohibited from using prescriber data to provide safety and risk information to providers, to conduct research, to comply with FDA mandated risk management plans, or to track adverse events.

• Reporting:  In response to consumer group comments, the definition of “sales and marketing activities” subject to annual reporting now includes any research project that is “designed or sponsored by the marketing department . . . or has marketing, product promotion, or advertising as its purpose.”  However, reportable sales and marketing activities do not include “clinical trials and genuine research, particularly where the primary purpose is to generate new data in support of an application filed with the FDA,” or clinical trials registered with ClinicalTrials.gov.  Other new exclusions from reportable “sales and marketing activities” are drug samples, demonstration units of devices, in-kind items used for charity care, and contractual price concessions.  The final rule includes a clarification requested by industry that the $50 threshold for reporting fees, payments, subsidies, or other economic benefits is calculated on an individual transaction basis rather than aggregated.

• Enforcement:  The $5,000 penalty provision has been revised to add an intent element:  violations must be “knowing and willful.”  The final rule also adds that the Attorney General, the relevant District Attorney, or DPH may enforce the regulation and adds provisions for a notice and informal hearing procedure and judicial review.

The rule will go into effect on July 1, 2009, by which time companies will need to have adopted the state code of conduct, submit required administrative information, and pay the $2,000 fee.  The initial disclosure report covering the period from July 1, 2009 through December 31, 2009 is due July 1, 2010.

Redlined Final Rule noting changes from the Proposed Rule

Massachusetts’ Executive Office of Health and Human Services Pharmaceutical and Medical Devices Conduct Questions/Answers

Memorandum summarizing the proposed rule, public testimony and comments, and responses to the testimony and comments

By James P. Ellison –

Despite the Supreme Court’s 2008 ruling in Riegel v. Medtronic, in which the Court found express preemption for devices subject to premarket approval based on express statutory language, the judge in Minnesota overseeing multi-district device litigation granted the plaintiffs’ motion to amend their complaint to comply with the Court’s recent ruling in Wyeth v. Levine.  The judge’s order is significant because just two months ago this same judge granted a motion to dismiss the claims in those device cases based on preemption.

While it is not clear that the judge overseeing these cases believes that Wyeth affects Riegel and device preemption, the order provides tangible evidence that even if none of the pending bills (here and here) to undo device preemption (which seem to have been motivated by Wyeth) become law, Wyeth may nevertheless have implications for device litigation.

By Kurt R. Karst –      

Earlier this week, FDA announced that the Agency will reverse course and grant Amyotrophic Lateral Sclerosis (“ALS”) patients “compassionate use” access to IPLEX (mecasermin rinfabate [rDNA origin] injection).  FDC Act § 561, which was added to the statute in 1997 by the FDA Modernization Act, identifies the criteria for determining whether an individual patient should have access to an investigational drug for treatment use – that is, a single-patient IND.  FDA approved IPLEX in December 2005 for the treatment of growth failure in children with severe primary IGF-1 deficiency or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone; however, Insmed Inc., which holds the IPLEX NDA, discontinued marketing the drug as the result of a patent infringement settlement. 

FDA’s decision to grant ALS patients access to IPLEX comes on the heels of a series of letters issued in January 2009 in which the Agency claimed that there was insufficient evidence of the safety and efficacy of IPLEX in treating ALS patients.  The Washington Legal Foundation (“WLF”) announced earlier this month that it had appealed (here and here) those decisions, and “pledged to pursue relief in the courts if its appeals are denied.” 

According to FDA’s announcement, “[a]s FDA continued to receive requests for access to Iplex after the initial denials of the single-patient INDs, we continued to evaluate the data and pursued several actions in parallel,” and “the data were useful in that no serious, immediate drug-related toxicities were apparent.”  Under an agreement between FDA and Insmed, access to IPLEX for investigational use in ALS patients will occur in two ways under INDs: 

1. Single-patient INDs requesting “compassionate use” of Iplex for treatment of named patients with ALS, received and date-stamped by FDA’s document room by close of business on March 6, 2009, will be allowed to proceed, and Insmed has agreed to supply Iplex to those patients; and

2. The remaining supply of Iplex, which is very limited, will be used by Insmed to conduct a clinical trial under an IND in which other patients with ALS who are interested in receiving Iplex treatment will be randomly assigned to receive drug through a lottery system.

According to a WLF press release, “[a]lthough FDA did not explain how it would conduct its lottery for ALS patients who have not yet filed Treatment INDs, the system appears to be designed to ensure that FDA can obtain meaningful data regarding Iplex’s safety and effectiveness.”

By Kurt R. Karst –      

Earlier today, Representative Henry Waxman (D-CA) (along with Representatives Nathan Deal (R-GA), Frank Pallone (D-NJ), and Jo Ann Emerson (R-MO)) announced the introduction of H.R. 1427, the Promoting Innovation and Access to Life-Saving Medicine Act, which authorizes FDA to approve abbreviated applications for so-called “biosimilar” and “biogeneric” biological products.  According to the bill, “biosimilar” products are comparable to the innovator product and “biogenerics” are therapeutically interchangeable with the innovator.  Rep. Waxman introduced another bill in the 110th Congress with a similar name (H.R. 1038 – the Access to Life-Saving Medicine Act); however, that version did not provide for any period of market exclusivity for innovator products – only a period of 180-day exclusivity for the first interchangeable biological product. 

Under the new version of the bill, which adds “Promoting Innovation” to its title, an original product with a novel molecular structure would be entitled to 5 years of market exclusivity, and a modification of a previously approved product would be entitled to 3 years of market exclusivity.  This exclusivity scheme is similar to the current regime for drug products approved under the FDC Act and created by the Hatch-Waxman Amendments – a model that Boston University Economics Professor Laurence J. Kotlikoff suggested be used in a 2008 paper.  The 5- and 3-year periods under the Waxman bill could be extended by up to 1 year if the applicant establishes that the product can be used for a new disease indication or conducts pediatric studies.  However, market exclusivity would be reduced by 3 months for a “blockbuster” product (i.e., combined U.S. annual gross sales exceeding $1 billion). 

The bill would also provide for a period of first biogeneric exclusivity.  Specifically, the first biogeneric applicant to demonstrate interchangeability with a reference product would receive a period of 180-day market exclusivity during which FDA could not approve another generic interchangeable product, as well as an authorized generic version of the innovator’s product (termed as a “rebranded interchangeable biological product” in the bill).  Under the bill, a product found to be interchangeable could be safely substituted for the original product (if such substitution is permitted by state law). 

As with several other follow-on biologic bills introduced in the 110th Congress, Rep. Waxman’s bill would establish a complex patent resolution procedure.  Under the new bill, patent disputes can be resolved before a biosimilar product is approved.  In addition, the bill would create penalties for failure to litigate patents in a timely fashion. 

Under the Waxman bill, FDA would have full scientific discretion to determine what studies – including clinical studies – are necessary to establish that a biosimilar product is as safe and effective as the original product, and that a biogeneric is interchangeable with the original product. 

Rep. Waxman’s bill is the first follow-on biologics bill introduced in the 111th Congress.  It seems likely that other bills will follow, including perhaps a new bill from Reps. Anna Eshoo (D-CA) and Joe Barton (R-TX), who, as we previously reported, introduced the Pathway for Biosimilars Act last year.  That bill provided for a substantially longer period of innovator market exclusivity. 

By James P. Ellison –

The relationship between the federal government and qui tam relators is defined in part by statute and case law, but that law does not fully capture the often complex and varying relationship between qui tam relators and the government on whose behalf they bring suit. 

Relationship on the Rocks:  The March 6, 2009 announcement from the U.S. Attorney’s Office for the Southern District of New York that, the day before, it had achieved  closure on a settlement it had reached with a defendant in the fall of 2007 showed that  sometimes the government relator relationship can be a rocky one.

According to the release, the government had agreed to terms with Weill Medical College of Cornell University over a year ago, but the relator who initiated the lawsuit objected to the settlement, and challenged it in court.  That challenge was denied by Judge William H. Pauley on March 5, 2009, allowing the settlement to move forward.  Under the terms of the settlement Weill Medical College will pay $2.6M to settle civil fraud charges arising out of federal grant applications.  The government alleged that the principal investigator for those grants failed to disclose the full extent of her research activities (which according to the government exceeded 100% of her available time). 

Indeed, the government can even dismiss a qui tam case over the objection of a Relator.  In Hoyte v. American National Red Cross, the Department of Justice successfully moved to dismiss a qui tam case, over the strenuous objection of the Relator.  On March 4, 2008, the D.C. Circuit ruled that the Justice Department has virtually unfettered discretion to dismiss a qui tam action, even if the government has not intervened in the case.  (Hyman, Phelps & McNamara, P.C. represented the defendant in the case.)

Lending a Helping Hand: The February 25, 2009 announcement out of Main Justice announcing the unsealing of suit against Forest Laboratories for alleged off-label promotions and ant-kickback violations shows how the government can help.

Not only did the government intervene in two existing qui tam lawsuits, but it filed its own Complaint in Intervention.  We have previously noted (here and here) that a number of courts have imposed stricter pleading requirements on relators who bring off-label cases.

Frequently, the relator (often a former sales employee) does not have access to claims data (which would be in the possession of the physician or other practitioner who submitted the claim for reimbursement to a federal healthcare program).  In contrast, the government has that information, and apparently can put it into easy to read charts, thus making challenges to the specificity of fraud allegations considerably more difficult. 

Too Early toTell: Lastly, while the February 19, 2009 press release out of the U.S. Attorney’s Office for the Northern District of California announcing the government's intervention in another off-label case is seemingly a statistically bad sign for defendants, Scios Inc. and Johnson & Johnson (according to 2008 statistics, 98.5% of the money recovered last year was in cases in which the U.S. intervened), it is not clear what this means for the government relator relationship.  The press release notes that: “The qui tam or whistleblower actions contain additional allegations.  However, the United States is only intervening with regard to allegations that Scios marketed the drug Natrecor for serial infusions in outpatient setting.”  On one hand, the relators may be pleased that they have the government’s help on those particular allegations.  On the other hand, if – down the road – the the government seeks to settle the case without giving value to the relator-only allegations, things could get complicated.

By Ricardo Carvajal –      

The USDA Animal and Plant Health Inspection Service (“APHIS”) plans to hold public meetings in the Washington D.C. area in April to address issues raised by its proposal to revise its regulations on the importation, interstate movement, and environmental release of genetically engineered organisms.  In a previous Federal Register notice (74 Fed. Reg. 2907), APHIS requested comment on the following four issues:

(1) Scope of the regulation and which [Genetically Engineered (“GE”)]  organisms should be regulated;
(2) Incorporation into APHIS regulations of the Plant Protection Act’s noxious weed authority;
(3) Elimination of notification procedure and revision of the permit procedure;
(4) Environmental release permit categories and regulation of GE crops that produce pharmaceutical and industrial compounds.

These four issues will be included in the agenda for the April public meetings.  The dates of those meetings have yet to be announced.  However, APHIS has announced a scoping session scheduled for March 13 to consider recommendations for additional issues to include in the agenda for the April public meetings.  According to a prepublication copy of the Federal Register notice announcing the scoping session, APHIS will also welcome recommendations for what meeting format to use so as to “best ensure agenda issues will be frankly and fully explored.”  In addition, APHIS is extending the comment period for the proposed rule until 60 days after the April meetings (the current comment period would have closed on March 17).  Transcripts of the scoping session and the public meetings will be part of the administrative record for the proposed rule.