In a recent decision, the Second Circuit upheld the HHS Office of the Inspector General (OIG)’s position that Pfizer’s proposed copay assistance program for its high-cost heart treatment would violate the Federal Anti-Kickback Statute (AKS).  Pfizer, Inc. v. U.S. Department of Health and Human Services et al., July 25, 2022.  In the course of explaining its decision, the Court interpreted several aspects of AKS, including:

• The meaning of “induce” (according to the Court, it is persuading someone to take an action, with or without “bad motives”);
• The meaning of “willfully” (it is voluntarily and intentionally violating a known legal duty);
• Whether corrupt intent is required for a violation (it isn’t);
• Whether “remuneration” is limited to kickbacks, bribes, and rebates (it isn’t); and
• Whether the Beneficiary Inducement Statute (BIS) is relevant to interpreting the AKS (essentially, no).

Background

Pfizer manufactures tafamidis, a breakthrough treatment for a rare, progressive heart condition known as transthyretin amyloid cardiomyopathy.  Pfizer set the price of tafamidis at $225,000 for each one-year course of treatment.  Under Medicare’s pricing formula, beneficiaries who take tafamidis are responsible for a copay of approximately $13,000 per year.  Recognizing that this out-of-pocket cost still represents a significant financial barrier for many patients, Pfizer proposed a Direct Copay Assistance Program for Medicare Part D beneficiaries using tafamidis.  On June 27, 2019, Pfizer sought an OIG advisory opinion to ensure that its proposal would not run afoul of federal law.

Under the proposed program, Pfizer would directly cover nearly all of a Medicare Part D beneficiary’s copay for tafamidis, subject to certain eligibility criteria, including financial need.  Eligible patients would be responsible for only $35 per month, and Pfizer would cover the rest of the approximately $13,000 annual copay.  The Medicare program would pay the remainder of the $225,000 annual cost.

Pfizer emphasized to OIG that it would not offer this copay assistance as part of any advertisement or solicitation for tafamidis.  In its request to OIG, Pfizer argued that “offering co-payment assistance to help eligible patients afford a clinically-appropriate medication, when such medication is the only approved medication for the disease and the principal reason that patients would not fill their prescription is the inability to pay their out-of-pocket costs, does not improperly induce the underlying prescribing decisions.”

OIG disagreed.  In September 2020, the Agency issued an unfavorable advisory opinion to Pfizer, concluding that the proposal was “highly suspect” under the AKS “because one purpose of the [proposed program]—perhaps the primary purpose—would be to induce Medicare beneficiaries to purchase [Pfizer’s] federally reimbursable Medications.”  OIG argued that copay assistance “induces” a beneficiary to purchase a medication when the assistance removes a financial barrier, even if the medication is one that the beneficiary needs and would have purchased if they had the financial means to do so:

“[W]here a Medicare beneficiary otherwise may be unwilling or unable to purchase the Medications due to his or her cost-sharing obligations, which are driven by the list price of the Medications, the [proposed program] would induce the beneficiary to purchase the Medications by removing the financial impediment, and the Medicare program would bear the costs for the Medications.”

Pfizer challenged the Agency’s interpretation as contrary to law under the Administrative Procedure Act (APA) in the Southern District of New York.  That court granted summary judgment to the government on the APA claim and rejected Pfizer’s narrower reading of the AKS, which would require an element of “corrupt” intent to impose AKS liability.  Pfizer appealed to the Second Circuit.

The Second Circuit’s Interpretation of the Anti-Kickback Statute

The AKS makes it a criminal felony to knowingly and willfully offer or pay any remuneration (including a kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to induce a person to, inter alia, purchase, or arrange for the purchase of, a drug reimbursed in whole or in part by a federal healthcare program, such as Medicare Part D.

In affirming the district court’s decision, the Second Circuit held that Pfizer’s proposed program “falls squarely within the AKS’s prohibitions” because it “is specifically designed to induce Medicare beneficiaries to purchase Pfizer’s tafamidis, a federally reimbursable drug.”  In line with the district court, the Second Circuit concluded that the plain meaning of the terms “remuneration” and “induce,” as used in the AKS, describe a payment that persuades another to take a certain course of action.  The Court expressly stated that that “the plain meaning of ‘remuneration’ is clearly broader than a kickback, bribe, or rebate,” referencing Congress’s 1977 statutory expansion of the AKS to cover “any remuneration” (emphasis added).

In relying on the plain meaning of the term “induce,” as the district court had done, the Second Circuit clarified the definition as:  to “entice or persuade another person to take a certain course of action” (internal brackets omitted).  Contrary to Pfizer’s contention that the term implies a corrupt intent, the Court found it to be “neutral with regard to intent—one can persuade another to take an action with good or bad motives.”

Similarly, the Court drew on the plain meaning of “willfully” to reject Pfizer’s argument that the term suggests “an element of corruption.”  The Court instead concluded that the term, as used in the AKS, is “more accurately understood as a voluntary, intentional violation of a known legal duty…the mens rea element goes no further” (internal quotations omitted).  Consistent with the district court, the Second Circuit likewise “found nothing in the text of the AKS” indicating that corrupt intent is a required element of an AKS violation.  On the contrary, referring to the statement in the statute itself that “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of this section,” the Court concluded that a person can “willfully violate the AKS as long as he knows that his conduct is illegal, even if he is not aware of the exact statutory provision that his conduct violates.”

Lastly, in rejecting Pfizer’s argument that the AKS should be read more narrowly than the BIS, the Second Circuit found “no reason to interpret the AKS by reference to the text of the BIS…[A]lthough the two statutes have similar subject matter, they prohibit different activities.” Further, “there is little utility in comparing the language of the BIS to that of the AKS.”

The Lesson of this Case

We have blogged before about the OIG’s longstanding view that drug manufacturer copay subsidies violate the AKS, and the Department of Justice has followed suit with a number of cases challenging manufacturer copay subsidies under the AKS and the Federal False Claims Act.  Most of these cases have settled out of court (see, for example, Actelion Pharmaceuticals, 2018; Astellas Pharma and Amgen, 2019; Gilead Sciences, 2020).  Lilly, on the other hand, sought vindication of its copay program in court, possibly because Lilly thought the facts of the case painted a picture that seemed to show anything but corrupt or bad intent.  After all, Lilly offered access to treatment for critically ill patients in financial need who would otherwise have to forego treatment or be saddled with a $13,000 per year copay.  The decision in this case is a stark reminder that, however serious the disease and however beneficial a copay assistance program might be to patient access to treatment, manufacturer copay programs that include government beneficiaries are at high risk under the AKS.

Join members of the Judiciary and leading pharmaceutical patent litigators from brand name and generic drug companies at the American Conference Institute’s 8th Annual Paragraph IV Disputes Master Symposium taking place September 21-22, 2022, in Chicago!

As the industry prepares to address the fallout of global pharmaceutical patent losses of billions of dollars and the impact of evolving law, regulation and policy impacting the Hatch-Waxman landscape, the time for this conference has never been more relevant.

Ryan Daniel, Chief Patent Counsel from Fresenius Kabi USA, and 2022 Co-Chair says, “We’re excited to participate in ACI’s 8th Annual Paragraph IV Master Symposium, here in Chicago and in person for the first time in three years. It’s a very welcome opportunity to connect and engage with colleagues and the judiciary regarding the evolving landscape of Hatch-Waxman law and the pharmaceutical industry.”

Linda Friedlieb, Division Counsel from AbbVie, also 2022 Co-Chair adds, “The PIV conference attracts broad participation from key in-house and outside counsel, as well as the Patent Office and judges. It’s an excellent opportunity to cross-pollinate ideas and strategies.”

Along with this year’s 2022 co-chairs, join U.S. District Court Judges from District of Delaware, District of New Jersey, Eastern District of Pennsylvania, government representatives from key agencies, in-house counsel and law firms.

Register today (here) and save 10% with the FDA Law Blog promo code: D10-999-FDALAWBLOG.

The American Conference Institute is hosting their 39th FDA Boot Camp from September 14-15, 2022.  The conference will be held virtually.

Gain insight and training in core regulatory concepts for life sciences attorneys, business executives, and policy analysts.

The approval process, pre-approval concerns, product labeling, clinical trials, adverse events reports, patent concerns, and exclusivity – these are all critical aspects in the commercialization process for drugs and biologics that are governed by the FDA. It is important for attorneys who do not have regulatory practices and life sciences executives who deal with FDA-regulated products to have a familiarity with these concepts.

For this reason, ACI’s FDA Boot Camp returns for its 39th iteration – in a fully virtual format – with the continued intent of providing these individuals with an essential working knowledge of core FDA concepts, and real-world examples that will help them to excel in their everyday practices.

Conference Highlights Include:

Preeminent members of the nation’s Food and Drug bar will drill you in the essentials of FDA law and regulation and help you:

• COMPREHEND the structure of FDA and the roles of the three major agency centers: CDER, CBER, and CDHR
• MASTER the basics of the application and approval processes for drugs and biologics
• APPRECIATE the complexities of pharmaceutical IP and the regulatory balance between brand name and generic products
• GAIN a practical working knowledge of clinical trial process for pharmaceutical products
• RECOGNIZE the pivotal role of labeling in the drugs and biologics approval process
• DECIPHER the requirements for the advertising, marketing, and promotion of drugs and biologics
• UNDERSTAND the importance of cGMPs to the post-approval regulatory process

Register today (here) and save 10% with the FDA Law Blog promo code: D10-999-FDALAWBLOG.

Teva may be down, but it’s not out yet.  By now, the ongoing Teva v. GSK litigation— concerning induced infringement of patents covering the use of carvedilol in decreasing mortality caused by congestive heart failure in a patient—is well-worn territory (see our multiple posts on it here, here, here, and here).  Filed initially in 2014, the case has been through an unusual procedural history: Teva initially lost in the District Court of Delaware but the District Court overturned the jury verdict on a Judgment as a Matter of Law; the Court of Appeals for the Federal Circuit overturned the Judgment as a Matter of Law and reinstated the jury verdict; Teva petitioned for a rehearing, and, after a rehearing by the same panel, the Federal Circuit affirmed its earlier decision to overturn the Judgment as a Matter of Law.  Ultimately, the Federal Circuit panel rehearing decision was based on a “narrow, case-specific review” of evidence as to whether Teva sufficiently carved-out the protected use from its labeling (notwithstanding that the labeling carved out the use code GSK listed in the Orange Book) so that the remaining language did not encourage infringement of the patent.  Spoiler alert: The Federal Circuit rehearing panel determined that Teva failed to execute a “true section viii carve-out” and therefore its labeling is evidence of inducement.  The Federal Circuit declined to address whether the practice of skinny-labeling itself induces infringement but instead called for a fact-specific analysis of any allegedly infringement-inducing skinny-label.

On the heels of the Federal Circuit’s rehearing loss, Teva, unsurprisingly, has appealed the case to the Supreme Court.  Appeal of this decision is important because the Federal Circuit’s rehearing decision raises concerns as to the future of the carve-out due to the potential for induced infringement litigation—particularly because the Federal Circuit left no clues as to the standard for a “true section viii carve-out.”  To Teva, the question presented is simple: “If a generic drug’s FDA-approved label carves out all of the language that the brand manufacturer has identified [in its patent use code listed in the Orange Book] as covering its patented uses, can the generic manufacturer be held liable on a theory that its label still intentionally encourages infringement of those carved-out uses?”  Of course, GSK would frame it a little differently, questioning whether labeling language that doesn’t fully carve out the patented use should be protected from induced infringement liability.  Each has its own policy concerns based in the construct that governs the entirety of the Hatch Waxman compromise, which implemented the carve-out provisions: Access and affordability weighed against the reward for innovation.  Right now, however, Teva’s side of the story is front and center as Teva asks the Supreme Court to dive into the very important conflict of law.

Two fundamental takeaways underlie Teva’s Petition for Certiorari.  First, and emphasized heavily throughout the Petition, is the uncertainty that this decision creates in the generic industry.  The lack of predictability in the safe usage of the carve-out is a serious problem that could lead generic drug manufacturers to stop relying on the practice; after all, if you can’t tell whether a carve-out is a true carve-out (or you can’t do a true carve-out due to the listed use code), you’re launching at risk of induced infringement litigation.  Should generic drug manufacturers abandon the practice, method-of-use patents covering one indication would effectively extend coverage over a second, non-patent protected indication.  Such a scenario, if it happens, could delay generic entry for any and all indications thereby undercutting the government’s drug pricing initiatives and attempts at addressing tactics used to delay competition, which are issues that the government has raised over and over again.

The second point the Petition raises is that “[t]he carve-out statute cannot function if every carve-out leads to a jury trial.”  And that’s exactly the system that the Federal Circuit has set up here.  By availing brand sponsors of the “induced infringement” argument based only on a highly “fact-specific” inquiry, the Federal Circuit has set up a vague standard that fundamentally requires examination by a judge to assess the adequacy of a carve-out.  There are no guidelines upon which a generic manufacturer can assess a carve-out, and there’s little disincentive for a brand sponsor (with means to sue) to ask a court to weigh in even where a patented use may be completely carved-out.  Thus, brand manufacturers can roll the dice and see what the district courts, and eventually the appellate courts, have to say about any given carve-out.  While a brand sponsor may not always be successful, litigation is expensive—as are $235 million verdicts— and the threat alone may be enough to deter use of the carve-out for generic companies that lack the funding for protracted litigation

Notably, the Federal Circuit rehearing decision leaves room to exploit FDA’s reliance on the use code to dictate a permissible carve-out.  The rehearing decision emphasizes that use codes are not substitutes for the ANDA applicant’s review of the patent, and thus it is up to the generic sponsors to carve-out information in accordance with the patent.  While it is true that the use code is not intended to replace review of the patent, the problem here is that FDA only permits the carve-out of labeling information in accordance with the use code.  The Federal Circuit rehearing decision, if it stands, can be read to encourage brand sponsors to write narrow use codes; because the use code governs the information that FDA permits generic sponsors to carve out of the labeling, a narrow use code would require that information covered by the patent but not covered by the use code remain in the labeling, ultimately rendering the “true section viii carve-out” impossible.  Now, not only could a too-broad use code block carve-outs, a too-narrow use code would set-up an induced infringement suit—yet another  mechanism of “gaming” the system.  In turn, if the Federal Circuit’s rehearing decision stands, it points to the necessity for reform of the carve-out administration with a bigger role for FDA—or contribution by the PTO—to examine and assess use codes.  As the Petition says, the Federal Circuit rehearing decision essentially makes more work for FDA (or the PTO).

The skinny label may be a bad thing for brand companies, but it’s a system that Congress set up and codified, and neither of the Federal Circuit decisions really addressed the conflict of law.  It was decided as a patent case—and it is a patent case—but the problem here is the reverberation across the FDC Act, which does not seem to be a consideration for the majority.  Instead, both Federal Circuit majority opinions (initial and rehearing) ignore the conflict between patent law and the statutory section viii carve-out.  This is a serious problem because the Federal Circuit’s interpretation of the induced infringement statutory provisions is diametrically opposed to the language in the FDC Act; ultimately—and implicitly—the Federal Circuit has determined that patent law trumps the FDC Act without consideration of the impact on regulated industry.  And while the impact on industry should not necessarily be a factor in a court’s decision, the impact on the interpretation of existing and related statutory provisions should be.  Thus, the statutory conflict is a huge element of the case that should have been considered.  In other words, it’s not just a patent case—the patent laws must be looked at in the larger context of the entire U.S. Code.

It’s now up to the Supreme Court to address this major issue, and if the Supreme Court won’t do it, it’s up to Congress.  Otherwise, Teva and other generic manufacturers will really be knocked down—and the skinny label may never get back up again.

GSK makes its case to the Supreme Court—presumably asking the Court to reject Teva’s Petition for Certiorari—on September 12, 2022.

Happy Birthday Laboratory Developed Tests (LDTs).

Thirty years ago today, FDA announced that it had the authority to regulate you.  Not yet understanding how important you’d become, you entered the regulatory world without a name – the Agency simply referred to you as “home brew” products.  It has been a long, strange trip ever since.

There was no fanfare for this momentous “birth.”  If anything, the announcement was remarkably inconspicuous: a seemingly throwaway sentence in a draft compliance policy guide for research use only and investigational use only products.  U.S. Food and Drug Administration, Compliance Policy Guide, Commercialization of Unapproved In Vitro Diagnostic Devices Labeled for Research and Investigation (Aug. 3, 1992) (“It has come to the attention of FDA that laboratories have been manufacturing, “home brew” products, either from products already on the market, or from components, and utilizing these unapproved products for diagnostic purposes. These products are subject to the same regulatory requirements as any unapproved medical device”).  These two sentences turned out to be the opening salvo in a thirty-year battle – and counting – over how LDTs should be regulated.

Of course, FDA’s August 3, 1992 statement that it could regulate LDTs came long after laboratories began offering diagnostic tests.  It came 16 years after Congress passed the Medical Device Amendments of 1976, without saying a word about FDA authority over laboratory testing.  And it came four years after the comprehensive federal legislation governing laboratories, again without mentioning FDA or referring to such tests as devices.

FDA’s claim of authority over LDTs (née “home brews”) prompted a citizen petition disputing FDA’s position.  That was the first of many challenges to FDA’s assertion that it could regulate LDTs at all, let alone through guidance documents.  FDA denied the petition six years after it was submitted.  See FDA Response to Citizen Petition from Jeffrey N. Gibbs, Hyman, Phelps & McNamara, Docket No. 92P-0405 (Aug. 12, 1998) (available here).

Since then, the battle has waxed and waned.  At times, FDA was on the verge of issuing formal guidance, only to retreat.  See our prior posts here and here.  Other times, the issue was quiescent.  Yet thirty years after FDA’s pronouncement that it could regulate LDTs, the Agency’s core position hasn’t changed: it has the legal authority to regulate LDTs.  At the same time, FDA’s basic operational stance hasn’t changed much either.

In the LDT’s “toddler years,” when issuing its analyte specific reagent rule in 1997, FDA stated that it would generally exercise enforcement discretion over LDTS.  Like any good worn down parent of a wild toddler, the Agency perhaps realized it had more than it could handle when it came to its dear, sweet LDTs.  That is still FDA’s core position, albeit with nuances, e.g., FDA reserving the right to regulate tests developed in one lab and licensed to another (see here) and declaring that “direct-to-consumer” tests do not qualify as LDTs (see here).

What has changed since 1992 is the role that LDTs play in the health care system.  As with any “child” they’ve matured and developed as they’ve grown into adulthood.  Tests created by labs were important in 1992, but they play a far more vital role in medicine today.  Nobody knows how many LDTs exist today, but it is clear that many of the most novel, innovative tests are LDTs.  That growth has, unsurprisingly, led to different views about regulation of LDTs.  Advocates of greater regulation point to the proliferation of clinically significant tests as evidence supporting the need for more oversight.  Opponents view the same facts in precisely the opposite way: it is critical that government regulation not stifle this innovation.

As we began to prepare this blog, we thought it might be both birthday card and death notice for LDTs.  Over the years there have been multiple attempts by Congress to pass legislation that would give FDA explicit power to regulate LDTs.  Leib, J. R. (2021). Proposed Federal Legislation on the Oversight of Diagnostics. J. Gibbs & A. Mullen.  Diagnostics at a Crossroads: Navigating IVD Regulation in a Changing Environment. Food & Drug Law Institute.  These efforts have faltered and failed.

More recently, the VALID Act has been wending its way through Congress.  See here.  This comprehensive bill would create a single category of In Vitro Clinical Tests (IVCTs), that would subsume both distributed assays (traditional in vitro diagnostic devices) and LDTs.  (If VALID were enacted, lab tests would have gone from unnamed, to home brews, to LDTs, to IVCTs in roughly 30 years, raising the question of whether an LDT, by any other name, would be as sweet).  For much of the year, it appeared that VALID would pass, and the term LDT would eventually become the answer to an obscure trivia question about obsolete regulatory acronyms.  More recently, the momentum for VALID appears to have stalled, and its fate hangs very much in the balance.

Meanwhile, the controversy remains as vigorous as ever. Proponents continue to urge passage.  See AdvaMed Welcomes Senate Committee Passage of MDUFA V Legislation (June 15, 2022).  On the other side, Sen. Rand Paul (R-Ky) wrote an op ed yesterday promoting his VITAL Act which presents significantly less regulatory burden for lab tests, citing the need for LDTs to address new diseases, such as monkey pox.  Rand Paul, The CDC royally messed up COVID testing and is now botching monkeypox testing, The Washington Examiner (Aug. 2, 2022) (here).  Of course, enactment of VALID will raise a whole host of new issues.  As Stephen Sondheim put it, “Just more questions.  Different kind.”

Whatever the regulatory future holds for tests run in labs, and regardless of their name, there is no doubt that tests developed and run in labs will continue to play an essential role in the U.S. health care system.  Laboratories, paraphrasing the Boss, will continue to say, “Baby, we were born to run – and develop – tests.”  And to paraphrase the Boss again: It remains to be seen whether LDTs soon be sighing that “glory days have passed me by,” or will “LDTs” play an even more pivotal role.

At least one public interest group and several members of Congress remain frustrated with the Biden Administration’s failure to take action to legalize cannabis.  Within the last month, the Cannabis Regulators of Color Coalition (“CRCC”) and handful of Democratic Senators have separately reached out to Biden Administration officials, including Attorney General Merrick Garland, requesting action to mitigate or eliminate federal prohibition on the use of cannabis.

As a reminder, cannabis remains a schedule I substance under the federal Controlled Substances Act (“CSA”), which by definition means it does not have an accepted medical use in treatment in the United States and thus cannot be legally sold or marketed for any purpose.  21 U.S.C. § 812(b)(1).  In contrast, as noted by both the public interest groups and members of Congress, 37 states have legalized cannabis for medical use, and almost 20 states and the District of Columbia have legalized cannabis for adult recreational use.

Cannabis Regulators of Color Request

The CRCC is an organization of cannabis regulators from jurisdictions where cannabis use is legal.  The Current and former CRCC officials submitted a letter on July 5th to the President, Vice President and Attorney General, opining on the necessity of restoring guidance embodied in the now infamous 2013 “Cole Memo,” and an earlier 2009  “Ogden Memo,” by providing clarity restricting the United States Department of Justice (“DOJ”) from “interfering with state-legal cannabis activity” in states that have legalized cannabis activity and have adopted “strong and effective regulatory and enforcement systems.”  Letter from Cannabis Regulators of Color Coalition to President Biden et al., 3 (July 5, 2022) [hereinafter CRCC Letter].

The “Cole Memo” was a memorandum from General James M. Cole providing guidance to U.S. Attorneys in August 2013 advising that DOJ would not take enforcement action against marijuana-related businesses operating in compliance with state law unless the businesses implicated one of eight specified enforcement priorities.  James M. Cole, Deputy Attorney General, Memorandum for All United States Attorneys (Aug. 29, 2013).  The guidance rested on the expectation that states that legalized marijuana would implement strong and effective regulatory systems to control cultivation, distribution, sale and possession.  However, in January 2018,  then-Attorney General Jeff Sessions rescinded the Cole and Ogden Memos.

The CRCC request comes in response to the less than clear guidance from  Attorney General Garland in testimony before Congress in April 2022, who, when asked whether he intended to reinstate the Cole guidance during a Senate subcommittee hearing, replied that the position taken and expressed during his confirmation had not changed.  Merrick Garland, Testimony Before the Senate Subcommittee on Appropriations, (01:06:35) (Apr. 26, 2022).  AG Garland stated during his confirmation that he did not “think it the best use of the Department’s limited resources to pursue prosecutions of those who are complying with the laws in states that have legalized and are effectively regulating marijuana.”  Merrick Garland, Responses to Questions for the Record to Judge Merrick Garland, Nominee to be United States Attorney General, 24.

The CRCC asserts that DOJ should “prioritize enforcement against federal offenses that pose a clear and legitimate threat to the public safety, health, equity, or the environment” and enforcement efforts “must not disproportionately target people of color.”  CRCC Letter, 3.  CRCC also requests such guidance should explicitly protect patients using cannabis for medical treatment.  The CRCC also states that clarifying that DOJ will refrain from prosecuting cannabis stakeholders whose activities are legal under state law and do not implicate a federal enforcement priority would provide needed assurance for individuals and companies who have heavily invested in the cannabis industry.  Such clarification is required so long as cannabis remains a federally-controlled schedule I controlled substance and not is similarly controlled or non-controlled under state law.   

Democratic Senators’ Request

An unrelated letter from six Democratic Senators, written a day after the CRCC letter and , presses the Administration to federally decontrol cannabis.  The July 6th letter, signed by Senators Elizabeth Warren, Cory Booker, Bernie Sanders, Edward Markey, Kirsten Gillibrand and Ron Wyden, follows an October 6, 2021, letter to the Attorney General from Warren and Booker and was written after receiving an “extraordinarily disappointing” DOJ response on April 13th “noting the Department of Health and Human Services’ (HHS) determination that ‘cannabis has not been proven in scientific studies to be a safe and effective treatment for any disease or condition’” as the reason DOJ has not begun the descheduling process.  Letter to President Joseph Biden, et al. from Senator Elizabeth Warren, et al., 1 (July 6, 2022).

The group of Democratic Senators argue that DOJ and the Drug Enforcement Administration (“DEA”) can begin descheduling and act independently of HHS’ determination.  The letter reiterates the point made in Warren’s and Booker’s October 2021 letter that the CSA authorizes the Attorney General to initiate rescheduling or descheduling proceedings separately or at the request of the HHS or any interested party.  Essentially, the Democratic Senators are advocating that DOJ should move forward with a rescheduling or descheduling regardless of whether HHS recommends such action or, more critically in this case, whether HHS determines that cannabis has a legitimate medical use for treatment in the United States.  The latter presents an interesting conundrum where DOJ would likely be disagreeing with the current medical and scientific findings of HHS.  It is worth noting that the CSA provides that HHS medical and scientific findings on drugs are controlling.

The Senators boldly assert that “it is obvious that cannabis has widely accepted medical benefits, affirmed by medical and scientific communities” in the U.S. and around the world, including treatment of chronic pain, seizure disorders, cancer, multiple sclerosis and others.  Id. at 2.  They further note that the tetrahydrocannabinol-alpha (“THC”) and cannabidiol (“CBD”) of cannabis “make it an excellent alternative to highly addictive opiates for pain relief.”  Id.  The letter states that there have also been economic, racial justice, public safety and health benefits where cannabis has been legalized.

The Senators remind the Administration of the President’s campaign commitment to decriminalize cannabis and expunge prior non-violent cannabis convictions but most importantly, that then-Candidate Biden “also acknowledged the importance of removing cannabis from its current classification under the CSA as a Schedule I substance.”  Id. at 3.

Lastly, the Senators observe that they had asked the President in November 2021 to pardon all individuals convicted of non-violent cannabis offenses, and while not receiving response, commend his pardon and commutation of nine people convicted of non-violent cannabis offenses.

The Senators conclude that “[t]he Administration’s failure to coordinate a timely review of its cannabis policy is harming thousands of Americans, slowing research, and depriving Americans of their ability to use marijuana for medical or other purposes.”  Id. at 4.  They ask the Administration to act swiftly “to rectify this decade long injustice harming individuals, especially Black and Brown communities.”  Id.

In a related action, Senator Booker introduced, with several Senators who signed the July 6th letter sponsoring, the Cannabis Administration and Opportunity Act (S. 4591) on July 21st.  this appears to be a bill directed at decriminalization of cannabis.  We will weigh in on the bill when its text is publicly available.

Finally, we note, that the CSA also provides that Congress has the authority to reschedule or decontrol any drug or substance through the legislative process.  With a majority of the states having passed some cannabis legislation, we wonder about the potential for Congress to amend the CSA to take such action.

On July 19, 2022, CDRH announced to users of its Customer Collaborations Portal (CCP) that it is now accepting premarket submissions electronically.  This came quickly after an announcement was made earlier in the summer that this functionality would soon be enabled for existing users of the CCP (see our prior post here).  As previously noted, this is very exciting news for the device industry, which up to this point has had to continue to ship electronic media to CDRH each time a submission is filed.

One of the key questions we had in our last post was what could be submitted electronically. This was again unclear in CDRH’s most recent announcement so we reached out to the Agency find out more.  CDRH responded that “any CDRH-led premarket submission type can be uploaded including for submissions under review such as responses to RTAs or additional information requests.”  This is very exciting.  As previously noted, the CCP’s functionality for tracking of submissions is, currently, limited to Traditional 510(k)s.  Allowing for the electronic submission of a wide variety of premarket submissions will give CDRH and users greater experience during this evaluation period.

While we’ve not filed any electronic submissions through the CCP yet, based on a first look at the site, it appears it will be a simple upload process.  We are excited to see if it is as simple as it looks, and we will keep readers informed of our experience, if noteworthy.

A couple of weeks ago, Senator Durbin and Representative DeLauro introduced the Food Safety Administration Act.  The legislation would create the Food Safety Administration (FSA), a food safety agency that would incorporate FDA’s food safety and veterinary medicine centers and the Office of Regulatory Affairs’ food operations. According to a fact sheet related to the bill, the new agency would be under the Department of Health and Human Services (HHS).  The new agency would not include the Food Safety Inspection Service of USDA (FSIS) or other federal agencies involved in regulating food.  The FSA is intended to bring “focused leadership and more accountability, [and] a unified structure.”  In addition, according to the fact sheet, “a full-time senior leader will strengthen oversight of the food supply and enhance the industry’s ability to operate effectively.”

For decades, lawmakers, including Mr. Durbin and Ms. DeLauro,  have introduced legislation to establish a single food agency. Proponents of such legislation have argued that having numerous federal agencies regulate foods is inefficient, and that it would be best to have a single food agency.  The latest bill does not address these inefficiencies and seems more feasible (merging of the numerous federal agencies, including FSIS and FDA, likely would be a logistical nightmare).  Nevertheless, it is not clear that there is any appetite for this type of legislation in the current Congress.

In its second Orange Book Guidance in as many days, FDA is addressing all of your burning questions about the Orange Book—and boy are we excited at the Agency’s efforts to make the Orange Book accessible for everyone!  The Guidance is a Frequently Asked Questions guidance that digs a little deeper into the Orange Book than it has in the past.  Like all Guidance documents, it starts out with background, explaining that the Orange Book is FDA’s list of drug products approved under the Federal Food, Drug, and Cosmetic Act and contains patent and exclusivity information related to such products.  For newer users, FDA explains that the Orange Book has four parts:

• Prescription Drug List – a list of all approved marketed prescription drug products and their Therapeutic Equivalence Codes (TE Codes) (Part I of the Active Section of the Orange Book);
• The OTC Drug Product List – a list of marketed OTC drug products approved in NDAs or ANDAs (Part II of the Active Section of the Orange Book);
• Drug Products with Approval under FDCA § 505 Administered by CBER – a list of CBER-regulated drug products approved under NDAs (but NOT the same as the Purple Book, which is FDA’s database of licensed biological products); and
• The Discontinued Drug Product List – a cumulative list of approved drugs that have never been marketed, have been discontinued, or have been withdrawn for reasons other than safety or effectiveness.

There are also three appendices (products listed by names and applicants and uniform terms) and two addenda (both related to patents and exclusivity).

The Guidance moves quickly into the Questions and Answers section, which is broken into four parts: Content and Format; Petitioned ANDAs; Active and Discontinued Listings; and—a crowd favorite—Patent Listings.  The Content and Format section is a bit of Orange Book 101; it addresses the basics of the Orange Book, including which applications are not in the Orange Book, how to access Orange Book Data Files, and updates of the Orange Book.

Though only one question long, the Petitioned ANDAs section packs a lot into a single paragraph.  The question essentially asks how Petitioned ANDAs—ANDAs for which FDA has granted permission to change from the reference listed drug (RLD) in route of administration, dosage form, or strength (and a few other changes)—are listed in the Orange Book.  FDA explains that the RLD, which is the drug on which the ANDA relies for FDA’s findings of safety and efficacy, is the drug that is referenced in the ANDA even though it is not pharmaceutically equivalent to the Petitioned ANDA.  And because Petitioned ANDAs are not pharmaceutically equivalent to their RLDs, they will not be assigned a TE Code (see our post about the TE Code guidance for more information about TE Codes).  Any ANDAs that have the same petitioned differences as the Petitioned ANDA will be assigned a TE Code to reflect whether the Petitioned ANDAs are equivalent to—and substitutable for—each other.

The third section, “Movement of Drug Products Between the Active and Discontinued Sections of the Orange Book,” tackles an often-confusing distinction between discontinued drug products and withdrawn.  It clarifies that a withdrawn drug product listed in the Discontinued Section does not necessarily indicate withdrawal of approval of that application; a drug product may just be withdrawn from sale, which means that the sponsor has decided to stop marketing for any reason.  Drugs withdrawn from sale for any reason other than safety or effectiveness, will be moved to the Discontinued Section of the Orange Book.  Drug products subject to a routine, temporary interruption of sale, however, are not considered withdrawn from sale or moved to the Discontinued Section.  Drugs withdrawn from sale may be moved back from the Discontinued Section to the Active Section of the Orange Book by filing the appropriate supplement.

Finally, the Patent Listing section of the Orange Book addresses some of the major issues FDA wrestled with in adopting the 2016 rules implementing the Medicare Modernization Act of 2003.  The Guidance explains that NDA holders must submit on a Form FDA 3542 within 30 days of approval of the NDA or 30 days of issuance of a patent issued after approval of the NDA information for each patent for which a claim of infringement could reasonably be asserted if another party were to reference the drug.  This patent information is then published in the Orange Book.  The Guidance also explains that Method of Use patents, which are filed with a “use code” explaining what part of the labeling the patent actually covers, are subject to the same listing requirements as other patents except that the patent is also timely filed if it is submitted on a Form FDA 3542 within 30 days of approval of a corresponding change to the drug product labeling, a change to the patent construction, or a use code change in response to a patent listing dispute.  NDA holders may also submit a reissued patent to the Orange Book but only after the original patent is withdrawn and surrendered.

The Guidance also explains how patents are withdrawn from the Orange Book.  When a patent no longer meets the statutory requirements for listing or is invalidated or canceled by a court, the NDA holder must contact FDA by submitting a letter to the NDA file to request that patent be withdrawn from the Orange Book.  The patent will be removed unless the patent is the subject of a Paragraph IV certification for which a first applicant may be eligible for 180-days of exclusivity.  A patent for which an applicant remains eligible for 180-day exclusivity will be removed after the exclusivity has been extinguished or relinquished.  Patents may also be removed from the Orange Book as a result of a patent listing dispute.

Like the TE Code Guidance, this new Orange Book guidance is helpful to Orange Book newbies.  While nothing in it is new, it—especially when read with the TE Code guidance—makes sense of FDA’s quite complicated approach to drug listing.  The two guidances should be required reading for FDA lawyers diving into the Hatch-Waxman space and IP lawyers diving into the intersection of patents and FDA law.

The Orange Book’s Therapeutic Equivalence Codes (TE Codes) play a critical role in our drug distribution and payment system.  All states have “automatic substitution” laws that require prescriptions to be filled using a generic where available (unless otherwise ordered by the physician), and those substitutions are based on the TE Codes that FDA assigns to ANDAs, and where appropriate, 505(b)(2) NDAs.  Details explaining the assignment and meaning of the TE Codes are published in the Preface of the hard copy (or now, the online PDF copy) of the Orange Book.  But even after studying that Preface, interpreting TE Codes can be challenging.  Have no fear though—FDA is here to help!

In recently published guidance document, titled “Evaluation of Therapeutic Equivalence,” FDA explains the evaluation and assignment of TE Codes for therapeutically equivalent products.  TE Codes, FDA explains, are assigned for multisource prescription products based on pharmaceutical equivalence, bioequivalence, and product safety and efficacy profile for the conditions of use specified in the labeling.  FDA goes through each of the relevant terms and the therapeutic equivalence requirements.  Ultimately, FDA explains, the therapeutic equivalence evaluations tell the public that FDA believes those products rated as therapeutically equivalent “can be substituted with the full expectation that the substituted product will produce the same clinical effect and safety profile as the prescribed product when administered to patients under the conditions specified in the labeling.”  Evaluation of therapeutic equivalence is product-specific.

The Guidance explains that only certain drug products are evaluated for therapeutic equivalence.  Specifically, stand-alone NDAs—those submitted in 505(b)(1) NDAs and approved under 505(c) of the FDC Act—are not assigned TE Codes.  Instead, they are typically designated as Reference Listed Drugs (RLDs) upon which other applicants can rely for approval.  But 505(b)(2) NDAs, also approved under 505(c) but rely on studies not conducted by or for the applicant for which the applicant has no right of reference, may be evaluated for a TE Code; usually this is done upon request in a Citizen Petition.  Traditional ANDAs (as opposed to a Petitioned ANDA submitted pursuant to a Suitability Petition) are automatically assigned a TE Code at approval since they must be therapeutically equivalent to secure that approval.

TE Codes are assigned using a multi-letter system with the first letter representing the therapeutic equivalence determination and the second (and sometimes third) the dosage form or additional information.  If the first letter of the TE code is an “A,” the products are therapeutically equivalent; if the first letter is a “B,” there are bioequivalence questions that are unresolved.  A traditional ANDA typically has an A-rating while a 505(b)(2) NDA or a Petitioned ANDA may have either.  FDA may and does revise the TE Code if appropriate.

The back half of the Guidance takes the now familiar Question and Answer approach, addressing both simple and more complex questions about TE Codes.   In response to questions about ANDA TE Codes, FDA explains that an ANDA will be assigned a TE Code upon approval, but certain ANDAs, such as discontinued or withdrawn ANDAs, ANDAs that become single-source, or Petitioned ANDAs, will not have a TE Code.  A 505(b)(2) may not have a TE Code if there are no therapeutically equivalent products in the Orange Book or because the application holder has not requested a therapeutic equivalence evaluation in a Citizen Petition.  Additionally, tentatively approved products or repackaged products do not receive TE Codes either.

The Questions and Answers portion also addresses specific situations that may arise.  For example, the Guidance explains that products that require reconstitution, dilution, or other manipulation are considered a different dosage form than the same drug product in a ready-to-use solution and therefore are not pharmaceutically equivalent—and accordingly not therapeutically equivalent—products.  Drug products in different packaging may be therapeutically equivalent, but it depends on whether the packaging has an effect on the clinical or safety profile of the product.  And skinny-labeled drugs can be therapeutically equivalent to their RLDs even if certain conditions of use or carved-out from the labeling.  ANDAs with different inactive ingredients than their RLDs are also therapeutically equivalent, but 505(b)(2) NDAs with such differences may not be because those differences may influence the bioequivalence, route of administration, dosage form, or labeled indications of the drug products.

In probably the most informative part of this Guidance for those of us already familiar with the Orange Book Preface and the 1980s Federal Register Notices establishing the Orange Book, FDA addresses therapeutic equivalence for drug-device combination products.  Because a device is not required to be identical to the RLD for an ANDA to be approved, the concept of therapeutic equivalence may be a little trickier.  In this guidance, FDA makes clear that it assesses combination product ANDAs just like any other ANDA.  Like other ANDAs, a generic combination product must produce the same clinical effect and safety profile as the RLD under the conditions specified in the labeling to be considered therapeutically equivalent.  However, a proposed combination product and its RLD do not “need to be identical in all respects.”  An identical device design may not be feasible, and an ANDA can be approved with a different user interface than the RLD.  That said, FDA requires an analysis and scientific justification of the differences in device design and labeling for ANDA approval, which will be evaluated on a case-by-case basis to ensure that the differences do not affect substitution.  Once the combination product ANDA is approved, it should be approved and assigned an “A” TE Code like any other ANDA.

In short, the Guidance isn’t groundbreaking and may be redundant for experienced Orange Book reviewers.  That said, it is incredibly helpful to those of us that may be learning how to use the Orange Book because, as much as it is a critical tool in follow-on product development, the Orange Book can be a bit challenging to use.  TE Codes are complicated and this Guidance goes a long way to making the Orange Book more approachable.  No one can complain about having all the information one might need to understand the TE Code in one place.  Kudos to FDA!

Drug pricing has been a hot button issue in the U.S. for decades, and patent protections have been cited as a source of “gamesmanship” allowing brand companies to keep drug prices high.  Yet, as long as FDA and FTC have been trying to address anticompetitive behavior, the U.S. Patent and Trademark Office (PTO) has been relatively absent from these discussions.  Really, FDA and the PTO only interact in the context of patent term extensions, in which the PTO relies on FDA to determine the dates of the applicable regulatory review periods.  But President Biden wants that to change.

In the July 2021 Executive Order on Promoting Competition in the American Economy, the White House noted that patent laws “have been misused to inhibit or delay—for years or even decades—competition from generic drugs and biosimilars, denying Americans access to lower-cost drugs.”  To that end, the Executive Order directs FDA to “write a letter” to the PTO “enumerating and describing any relevant concerns” in order to “to help ensure that the patent system, while incentivizing innovation, does not also unjustifiably delay generic drug and biosimilar competition beyond that reasonably contemplated by applicable law.”  In September 2021, FDA did just that.

On September 10, 2021, then-Acting Commissioner of FDA, Janet Woodcock, sent a letter to the PTO emphasizing FDA’s commitment to fostering innovation and competition and working to address abuses of the system that serve as impediments to these goals.  FDA recognizes the critical role of patents but laments certain patenting practices in the pharmaceutical industry that are used to forestall access to lower cost medicines.  Specifically, Commissioner Woodcock’s letter cites patent thickets, patent evergreening, and product-hopping as major issues used to inappropriately impede competition:

• Patent thickets, or “continuation” patent applications, allow filers to obtain follow-on patents resulting in multiple patents on different aspects of the same product. While the term of the patent is not extended, multiple patents increase litigation burden.
• Patent evergreening, in which sponsors patent post-approval or secondary changes to previously-approved just as earlier patents are expiring, extends patent protections beyond the intended patent life.
• Product-hopping occurs when sponsors submit a new application for a modified drug product, protected by new patents, and effectively switches the market to the new product before generic competition is set to come to market. This forces the market to adopt the new product in place of the old, obviating the newly-approved generic.

These issues are at the heart of FDA’s concerns about the abuse of the patent system to thwart generic entry.  But because FDA has no authority to address any of them, it must rely on the PTO.  To that end, the September 2021 letter, at the direction of the Executive Order, FDA outlines FDA’s suggestions and questions for the PTO.  FDA suggests that it could provide training for PTO examiners to help determine whether particular documents constitute prior art to a claimed invention.  FDA also suggests that FDA and PTO could hold joint Patent Term Extension training.  In information-gathering mode (though, my snarky brain likes to think its passive aggressiveness), FDA asks for the PTO’s perspective on the possible misuse of the patent system and “whether it is considering means of limiting such practices.”  Finally, FDA asks how the Patent Trial and Appeal Board (PTAB), including Post Grant Review and Inter Partes Review, can have any impact on Orange Book-listed or biological product patents.

In July 2022, PTO responded to FDA’s letter.  In this response—which, frankly, reads like your typical response to an FDA Form 483—the PTO commits to initiatives to protect against patenting of incremental and obvious changes to drugs, providing additional time and resources for examiners, and collaboration with FDA to develop new policies.  Consequently, PTO is “prioritizing” various initiatives to strengthen the patent system for both the pharmaceutical industry and other technologies.  The PTO plans to:

• Enhance collaboration with other agencies, including the development of formal mechanisms to do so. Specifically, the PTO proposes to explore joint PTO-FDA collection of stakeholder input; to provide training to examiners in collaboration with FDA; to coordinate with other agencies to ensure consistency in industry representations to each agency; to collaborate with FDA on America Invents Acts proceedings; to collaborate with FDA to improve the Patent Term Extension process; and to work to understand the overlap between agencies with respect to regulatory policy.
• Improve procedures for obtaining a patent by providing more examining time; providing more training and resources; enhancing communication between patent examiners and the PTAB, which hears patent challenges; “considering” enhancement of information disclosure and scrutiny for continuation applications; revisiting certain double patenting practices; revising procedures for third-party input during prosecution; comparing the U.S. patenting system to that of other countries’; and providing technical input on proposed legislation.
• Improve the PTAB challenge practice by potentially applying additional scrutiny and allowing third-party input.
• Improve public participation.

The letter also states that the PTO will “consider and evaluate new proposals for incentivizing and protecting the investment essential for bringing life-saving and life-altering drugs to market while minimizing any unnecessary delay . . . .”

All in all, the letters don’t really provide much in the way of substance.  Essentially, they commit to better collaboration, enhanced training, and improving processes, but there’s little in the way of concrete plans.

But the real question here is why it took this long for PTO to get involved in the conversation.  As FDA notes, the misuse of the patent process is a significant issue, and it’s one that has been discussed in the industry for more than a decade.  But FDA can’t deal with that alone, and the PTO has been largely silent until now.  Indeed, it’s a bit late for the PTO to be trying to “understand” how FDA’s and the PTO’s authorities and responsibilities overlap; and references to “exploring the policies surrounding the use of ‘skinny labels,’” use codes, and REMS seem pretty dated more than four years after the first GSK decision brought skinny labeling front and center, almost 13 years since the Caraco decision ordering correction of a patent use code, and 15 years since Celgene’s Citizen Petition objecting to sharing its patented REMS program with competitors.  Conversations about these issues have been ongoing for years yet this seems like the first time the PTO has taken any real interest.

It’s not entirely clear why it has taken an Executive Order to get the PTO’s attention, but we’re here now.  We wait with baited breath to see if this exchange of letters is merely lip-service for the sake of the Executive Order or reflects a real commitment to collaboration.

Last month, the People for Ethical Treatment of Animals (PETA) submitted a petition to the Food Safety and Inspection Service of the U.S. Department of Agriculture (FSIS) requesting that FSIS initiate rulemaking to remove animal raising claims from the label approval process because, according to PETA, FSIS has no authority to approve animal raising claims and FSIS is not authorized to regulate on-farm animal raising conditions or activities.

So, what is going on?  The issue relates to FSIS premarket review and approval of labels for meat and poultry.  FSIS has interpreted the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) as requiring premarket label approval.  It bases this interpretation on the provisions in the FMIA and PPIA that USDA must maintain an inspection program to assure that meat and poultry products distributed to consumer are safe, wholesome, not adulterated, and properly marketed, labeled, and packaged, and that the label and labeling is not false or misleading.  For decades, FSIS has maintained that without approved labels, meat and poultry products may not be sold, offered for sale, or otherwise distributed in commerce.  Because labels are approved by FSIS, they cannot be challenged by private parties.

Over time, FSIS has issued regulations specifying that certain labels are subject to so-called generic label approval.  Specifically, under 9 C.F.R. § 412.2, labels that include “all applicable mandatory labeling features [consistent with] Federal Regulations [and] [l]abels that bear claims and statements that are defined in FSIS’s regulations or the Food Standards and Labeling Policy Book (except for natural and negative claims),and . . . comply with those regulations are “deemed to be generically approved . . . without being submitted for evaluation and approval.”  On the other hand, labels that bear so-called “special statements and claims” must be submitted to and approved by FSIS’s Labeling Program and Delivery Staff before they can be used on meat or poultry products.

The list of special statements and claims, in FSIS regulation 9 CFR 412.1(e),  includes so called “animal raising claims.” FSIS requires substantiation to support this type of claims.  In 2019, it published a guidance document that describes the evidence needed to substantiate animal raising claims. These include documentation describing the manner in which the animals are raised, a written description explaining the controls for ensuring the claim is valid, a description of product tracing and segregation (including for non-conforming product), and a copy of any applicable third-party certificates. FSIS does not visit or inspect farms to verify the documentation provided by the applicant.

In its petition, PETA argues that FSIS exceeds its authority by approving animal raising claims because the FMIA and the PPIA do not authorize FSIS to regulate on-farm animal raising/practice activities.  Consequently, FSIS is unable to verify the validity of these claims.  PETA also argues that animal raising claims such as “humanely raise” and “free to roam” are “amorphous and have a high potential for creating consumer confusion” and “can be, and are, used on products that do not exceed industry standards, despite companies’ attempts to portray them as more ‘humane’ or otherwise adhering to superior animal-welfare standards compared to other products on the market.” As a result, consumers may be misled into paying a premium for products with animal raising claims whereas such products are not different from other products in the market. The petition includes four examples that, according to PETA, illustrate that many of the animal raising claims approved by FSIS are not truthful and/or misleading.

PETA “urges FSIS to amend its regulations to no longer allow for the approval of animal raising claims on product labels.”  As mentioned above, FSIS interprets the FMIA and PPIA as mandating that FSIS review (and approve) labels.  Consequently, it appears that, if FSIS were to amend the regulation as requested, animal raising claims on meat and poultry products essentially would be prohibited.

Last November, we blogged about a provision of the Infrastructure Investment and Jobs Act that requires new rebates for discarded amounts of drugs that are covered under Medicare Part B, and that are packaged in a single-dose container or single-use package.  An example of such a drug is a single-use vial of an injectable cancer drug that is dosed based upon weight, and therefore might not be entirely used for a lighter weight patient.  Currently, a health care provider identifies any discarded quantity from such a vial in the claim using a JW modifier, and Medicare Part B pays for both the utilized and the discarded amount.  Under the new law, Part B will continue to pay for discarded amounts from single-dose containers, but the manufacturer must pay a rebate (called a “refund”) to Medicare for discarded amounts above a specified threshold.

On July 8, as part of its annual physician fee schedule update for 2023, CMS issued a proposed regulation to implement the new refund.  Under the regulation, manufacturers would pay refunds on a “refundable single-dose container or single-use drug,” defined as a drug (1) that is a single source drug or biological (including a biosimilar); (2) that is paid for under Medicare Part B; and (3) that is furnished in a single-dose container or single-use package.  The preamble adds that, to meet this definition, all NDCs of the drug assigned to the drug’s billing and payment code must be single-dose containers or single-use packages.  Excluded are radiopharmaceuticals, imaging agents, and drugs whose administration requires filtration and discarding of the unused portion prior to administration.  No refunds would be due for discarded amounts that are not separately payable — for example, drugs that are packaged under the hospital outpatient or ambulatory surgical center prospective payment systems.  The discarded amounts would be identified in a claim as a separate line item with the JW modifier, as they currently are, but a new JZ modifier would be required for drugs in single-dose containers when there is no discarded amount.

Tracking the statute, the proposed rule provides that the refund amount for a refundable drug each quarter would be the amount by which the Part B payment amount for the total discarded units in the quarter (based on date of service) exceeds 10% of the total allowed charges for the drug during the quarter.  Both the discarded units and the total allowed charges would be included in a quarter based on the date of service.  The following example is provided in the preamble:  If Part B paid a total of $1.5 million for 15,000 units of a refundable drug during a quarter, and paid $200,000 for 2,000 discarded units, the refund for the quarter would be $50,000 ($200,000 minus 10% of $1.5 million).  In other words, up to 10% of the Part B payment amount for a single-dose container drug during a quarter may be discarded with no refund, but any discarded amount greater than that is subject to refund.

Refunds will be payable for single-dose container drugs beginning on January 1, 2023.  The manufacturer responsible for paying the refunds will be the company whose NDC is on the label.  No later than October 1 of each year, manufacturers of refundable drugs will receive a utilization report from CMS containing refund claims for the four quarters ending with the first quarter of that year, and payment of undisputed refunds will be due on December 31.  Of necessity, the October 1, 2023 report will contain only claims for 1Q 2023.  Each report will also contain late-received (lagged) claims for the period covered by the previous year’s report.  For example, the October 1, 2025 report will contain claims for 2Q 2024 through 1Q 2025, plus lagged claims from 2Q 2023 through 1Q 2024.  Lagged claims will no longer be subject to refund after the second subsequent annual report.

The statute contains an 18-month grace period during which no refunds are payable for single-dose container drugs approved by FDA on or after November 15, 2021.  CMS has chosen to measure this grace period from the first full quarter following the first date of sale, as reported in the manufacturer’s average sales price reports, through the following five quarters.  The grace period would be available only for the first NDC marketed under a billing code; additional NDCs subsequently marketed under the same billing code (for example, a new vial size) would not be eligible for the grace period.

The proposed regulation establishes a dispute resolution procedure, and codifies the statutory penalty for failure to pay refunds, which is 125% of the amount the manufacturer was required to pay.

Although the scope of drugs subject to the new refunds is narrow, the refunds represent a significant departure from previous federal programs establishing rebates or discounts on drugs purchased or reimbursed by the government.  Those programs, comprising the Medicaid Drug Rebate Program, the 340B drug discount program, the Veterans Affairs drug discount program, the TRICARE retail refund program, and the Medicare Part D Coverage Gap Discount Program, are all implemented through agreements between the manufacturer and the government.  Though foregoing such an agreement may have adverse financial consequences for a manufacturer, the agreements are nevertheless voluntary.  When most of these programs were established in the early 1990s, the voluntary agreement approach was viewed as a way to prevent the programs being perceived and challenged as direct price controls.  The new discarded drug refunds are unique in being mandatory, with a civil penalty for non-compliance.  Medicare Part B and Part D inflation rebates currently being considered by Congress would similarly be mandatory.  It is safe to conclude that Congress’ sensitivity about imposing mandatory drug price reductions is a thing of the past.

The Build Back Better Act—the food and drug law implications of which we discussed last year—has popped up again in Congress, and it is just as dense as ever.  With 190 pages dedicated to prescription drug pricing reform, the program is ambitious…and complicated.

As we explained last year, the Act proposes to amend Title XI of the Social Security Act to require that HHS establish a “Drug Price Negotiation Program” to “negotiate and, if applicable, renegotiate maximum fair prices” for certain single-source drugs and biological products.  While some of the terminology has changed, the new iteration is pretty similar to the last version shopped around the hill: HHS will select certain drugs that will be subject to negotiations for purposes of reducing drug prices for products with limited competition, theoretically increasing access to these products.

The last iteration of the Build Back Better Act neglected to consider the impact on the generic and biosimilar industries.  Indeed, a major complaint we highlighted last year is that the discounts negotiated for the relevant selected products—at least 60% off of the average price—could undercut generic and biosimilar manufacturer’s development programs, ultimately disincentivizing investment in generic and biosimilar development for single-source products.  The new version makes an attempt to address that problem.

In the Build Back Better Act Redux, Congress has added a section that would delay the addition of certain biological products—and only biological products—to the negotiation list for up to two years if there is a “high likelihood” of biosimilar competition.  If a drug that has been approved for 12 years—but less than 16 years—is selected for the Drug Price Negotiation Program, a biosimilar manufacturer can request a one-year moratorium on negotiations for that product so that the biosimilar manufacturer has time to secure licensure and begin marketing of the biosimilar version.  If that biosimilar has not been licensed or marketed within 1 year, the product may be eligible for a second year of delay if there remains a high likelihood of licensure and a significant amount of progress toward both licensure and marketing has been made since the receipt of initial request.  If the biosimilar has not been licensed and marketed within the approved delay period (either 1 or 2 years depending on likelihood of licensure), the manufacturer of the biological product must pay a rebate to the government for the lost savings due to the delay.  Each product is limited to two years of delay.

As a threshold matter, the 2-year delay provision does not solve the core problem for biosimilars manufacturers: the lack of predictability that Build Back Better injects into biosimilar development.  Indeed, it is very difficult to predict whether and when a particular reference product will be negotiated, the specific terms for that negotiation – which are all subject to Secretarial discretion – and how that will map to a biosimilars development program.  Importantly, investment decisions about whether to develop a biosimilar – which can take 8-10 years on average – are made years in advance, and years before any of the relevant milestones in the bill.  Without any predictability or clarity, biosimilar manufacturers will be less likely to take on the risk of developing these critical medicines, and patients will ultimately have less options.

Moreover, there are some significant limitations to the application of this delay provision that appear to make it difficult to utilize.  First, the “delay” option is available only to biosimilar manufacturers who submit a request regarding a so-called “extended monopoly drug,” meaning a reference product that has been on the market between 12 and 16 years; products that have been on the market for longer than 16 years are not eligible for such a delay (unless the product transitions from 15 to 16 years during the delay period).  This period is seemingly arbitrary given that biosimilars have only existed since 2010, and it’s entirely possible that the development of a biosimilar version of a reference product approved 16 years ago could take longer than a product that was approved 8 years ago.  Given that patent life can also extend beyond 16 years on the biosimilar side, several products may never be eligible for delay.  Indeed, a number of biosimilars already on the marketed launched much closer to year 20 after BLA approval.  Given the number and length of the patents that frequently surround biologics, it is unlikely that the biosimilar manufacturer will have addressed all of them – or even some fraction of them –when the manufacturer would be required to make the request for delay under the statute.  Even a biosimilar manufacturer in the midst of invalidating patents in a patent litigation may not be able to make a request given the unpredictability of court deadlines.

Additionally, the definition of “high likelihood” limits eligibility to biological products for which a biosimilar application has been accepted and for which the biosimilar applicant has provided “clear and convincing evidence” that the biosimilar will be marketed within the applicable time period.  That “clear and convincing evidence” requires, amongst other things, submission of proposed manufacturing schedules, SEC disclosures, and patent settlement agreements.  Thus, there’s a significant burden on biosimilar manufacturers to prove that licensure likely will be granted that year and that marketing will follow soon after—that’s a tough showing to make.  Moreover, the clear and convincing evidence standard is known to be a high standard that is difficult to satisfy.

A biosimilar that has been approved for more than a year and not marketed is also ineligible for the 2-year delay option.  That removes biosimilars that, by definition, should meet the “high likelihood of biosimilar competition” criteria given that they have received a full approval.  Those biosimilars—particularly those who were approved before BBB and had no idea that an approval would start a clock for them—may be reasonably waiting for a number of different circumstances, yet cannot take advantage of the 2-year delay window

Finally, the option to request a delay is limited to certain biosimilar manufacturers.  Specifically, any biosimilar manufacturer that has been the subject of prior enforcement proceedings are not eligible.  The program is not available to:

• Biosimilar manufacturers currently subject to integrity agreements with HHS;
• Biosimilar manufacturers that have been subject to exclusion or civil monetary penalty within the last 5 years;
• Biosimilar manufacturers subject to cease and desist or injunction through the FTC; or
• Biosimilar manufacturers that have entered into any agreement with the reference product manufacturer that requires or incentivizes the manufacturer to submit a request for delay.

On the final condition, it’s not clear what “incentivizes . . . the manufacturer to submit a request” even means.  Patent settlements, by their nature, incentivize competition by providing a date certain for entry before patent expiration.  A “high likelihood” of competition will trigger the 2-year delay, so it’s not clear what the provision is targeting and whether it could be applied in a very overbroad manner.  It’s clear that Congress has heard the complaints about the impact of the Build Back Better Act on biosimilar competition, but it’s not clear that this “delay” provision fixes much.  The barrier to obtaining a delay is both high and subjective, and, in the grand scheme of drug development and approval, a year or two may not be enough time to allow for approval even if the application has been submitted—especially if inspections are necessary and time-consuming patent litigation is ongoing.  And while this provision seeks to help the biosimilar market, it does nothing for small molecules where costs can be just as prohibitively high.  This is particularly true for so-called “complex generics,” which require a significant investment and that can languish for years in the FDA approval process.

As we said back in November, the Build Back Better Act may have a serious effect on the generic drug and biosimilars markets.  The new provisions do not appear to change that conclusion.

Last month, FDA announced two important steps towards accepting electronic 510(k) submissions.  The first relates to the Customer Collaborations Portal (or CCP).  As discussed in our prior post on the CCP (here), the CCP is currently a submission tracker providing details of completed and upcoming dates.  At this time, the CCP is only available for Traditional 510(k)s, but FDA has said that it plans to expand the CCP to all submission types in the future.

On June 30, individuals with access to the CCP (i.e., 510(k) correspondents for Traditional 510(k)s since the CCP was originated) received an email from CDRH announcing that “Soon, FDA will let you send new CDRH-led premarket submissions online through our Customer Collaboration Portal (CCP) instead of shipping them as physical media.”  This is welcome news for those of us that have been holding on to CDs and thumb drives to continue to send in submissions.  According to the announcement, the CCP will accept both eSTAR and eCopy submission formats.​  As discussed in an earlier post (here), CDRH piloted the eSTAR electronic submission template last year.  While the tool is useful for ensuring the proper electronic formatting for a 510(k) submission, the output still needed to be downloaded and sent to FDA.

The email also states that the ability to submit completely electronically will first be offered to individuals with CCP accounts so that CDRH can assess the platform’s performance.  Once the initial assessment is complete, CDRH notes that it expects the ability to submit through the CCP will be offered to all premarket applicants.  The announcement does not indicate whether the CCP will allow for submission of all 510(k) types or just Traditional 510(k)s (i.e., the only submission type currently trackable via the CCP).

The announcement concludes by stating that individuals need not do anything to participate because we are already using the CCP, and another communication will come once we are able to begin sending submissions electronically.  Being able to submit completely electronically would be a huge benefit in terms of efficiency and timing for applicants.

The second announcement was made earlier in June through the Federal Register (here), when CBER announced that it would pilot the eSTAR electronic submission template for 510(k)s for biologic products regulated as medical devices. As noted above, the eSTAR electronic submission template was previously piloted in CDRH.  The pilot appears to have gone well now that eSTAR formatted submissions will be accepted through the CCP.  It is a positive next step for eSTAR to be proceeding to CBER 510(k)s.  The pilot will be available to applicants planning to submit Traditional, Special, or Abbreviated 510(k)s.  Interested applicants should contact CBER, at the email in the Federal Register notice.

These two announcements are positive next steps towards standardized electronic submission of 510(k)s for all medical device types.  We look forward to FDA expanding both programs.