Over the past several weeks, FDA Law Blog has closely followed issues concerning the United States Sentencing Commission’s proposed changes to the Sentencing Guidelines that are applicable to certain FDA criminal offenses. In our most recent post, we reported on a February 13, 2008 public briefing session during which representative from FDA and Hyman, Phelps & McNamara, P.C. (“HPM”) testified before the Commission on the proposal. 

In the March 2008 issue of Thompson Publishing Group’s FDA Enforcement Manual, HPM’s Douglas B. Farquhar provides additional information and analysis on the proposal.  In the article, titled “Heightened Chance of Prison Time for Executives?,” Mr. Farquhar discusses how the Commission’s proposal “would dramatically increase the chances that an individual being sentenced for an FDA violation would be sentenced to prison time.” According to Mr. Farquhar, FDA’s suggestion at the February 13, 2008 public briefing session that all adulterated and misbranded drugs and medical devices are worthless “would dramatically increase prison sentences imposed on individuals convicted of felony violations of federal law on the manufacture of drugs and devices.”

We will continue to update you on this important and interesting issue as we learn additional information.

Last week, FDA announced a consent decree of permanent injunction had been entered into with two food companies – Brownwood Acres Foods, Inc. and Cherry Capital Services, Inc. (doing business as Flavonoid Services) – and their top executives, prohibiting them from making unauthorized drug and health claims about their products.  The Consent Decree of Permanent Injunction, which was signed by Judge Paul Maloney on February 19th in the U.S. District Court for the Western District of Michigan, might signal FDA’s intent to police food claims more vigorously.  (A copy of the Complaint for Permanent Injunction is available here.)  Violations of the consent decree, which can be enforced by the court, may result in an order to stop manufacturing and distributing any product and a $1,000 per violation/per day penalty.

Although the companies make a variety of food and dietary supplement products, including juice concentrates, soft fruit gel capsules, fruit bars, dried fruits, liquid glucosamine, and salmon oil capsules, the complaint and injunction focus primarily on the companies’ claims made for fruits.  In the consent decree of permanent injunction, FDA alleges that the companies made unauthorized drug and health claims in violation of the Federal Food, Drug and Cosmetic Act (“FDC Act”), such as “wild blueberry compounds may inhibit cancer,” “[p]urple grape juice seems to have the same effect as red wine in reducing the risk of heart disease,” “[a] new study . . . found that drinking pomegranate juice can fight prostate cancer,” and “tart cherries . . . may help gout, arthritis, and inflammation sufferers.”  The companies have previously faced enforcement for their claims about similar products.  For example, in 2005, FDA sent Brownwood Acres a Warning Letter claiming that the company made unauthorized drug claims about the company’s cherry juice concentrate, blueberry juice concentrate, pomegranate concentrate, and cherry flex soft gel capsule products. 

The consent decree of permanent injunction, signed by both companies and their executives, was entered into in response to the companies’ continuing to make unauthorized drug and health claims, such as “Chemicals found in Cherries may help fight diabetes.”  The companies are permanently prohibited from delivering any product into interstate commerce unless and until FDA approves a drug marketing application (i.e., an NDA or ANDA), or there is an effective IND, or the product’s claims comport with an authorized health claim, or FDA issues a letter of enforcement discretion for a qualified health claim for a particular product, or until the companies remove all unauthorized drug and health claims from their websites, labels, labeling, and promotional material.  The companies have also agreed to hire an independent expert to review all claims and certify that they have removed the claims objected to by FDA. 

FDA’s Associate Commissioner for Regulatory Affairs, Margaret O’K. Glavin, states in the Agency’s announcement that the “FDA will not tolerate unsubstantiated health claims that may mislead consumers.  The FDA will pursue necessary legal action to make sure companies and their executives manufacture and distribute safe, truthfully labeled products to consumers.”  It remains to be seen whether this will be an isolated instance of FDA enforcing the FDC Act against food companies or whether this begins an increased effort by FDA to monitor the claims being made for foods.   

Advisory Opinion No. 08-04 (Free Trial Program)

Last week, the Office of Inspector General (“OIG”) of the Department of Health and Human Services posted an advisory opinion addressing a free drug trial program for hemophilia A patients (“Proposed Arrangement”).  This was the first opinion outside of the patient assistance program context in which the OIG has evaluated the status of a free drug program under the federal healthcare program antikickback statute.  As discussed below, the OIG concluded that, while the Proposed Arrangement could potentially generate prohibited remuneration under the antikickback statute, the OIG would not impose administrative sanctions on the requestor in connection with the Proposed Arrangement.

The opinion was requested by a manufacturer of a recombinant antihemophilic factor VIII product indicated for the control and prevention of hemorrhagic episodes and for surgical and short-term routine prophylaxis in patients with hemophilia A.  The product is reimbursed under Medicare Part B using the Average Sales Price (“ASP”) methodology.  According to the OIG, generally there are no barriers to switching between recombinant antihemophilic factor VIII products or from recombinant to plasma-derived products.

Under the Proposed Arrangement, patients would be given one complimentary trial supply of the medication, which would last from 1 to 10 weeks, depending on the patient’s weight, severity of illness, level of activity, and other factors.  A limited number of enrollment forms would be provided to hemophilia treatment centers and hemophilia/oncology practices.  Each patient would only be permitted to enroll in the program one time, and no patient currently on the requestor’s product would be eligible to participate in the program.  The prescribing physician would identify patients who would benefit from the product, fill out enrollment forms for such patients, and write prescriptions for the product for those patients.  The patient would then send the completed forms and the prescription to the administrator of the program (which is also a licensed pharmacy), which would fill the prescription and send the product directly to the patient.  The physicians would never take possession of the product and would not be compensated directly or indirectly for their participation in the program.  No third party payors (including federal healthcare programs such as Medicare) would be billed for product dispensed under the program.  According to the opinion, the requestor certified that the program would comply with the Prescription Drug Marketing Act of 1987 (“PDMA”).    

The OIG’s analysis discussed then discounted two potential antikickback concerns.  First, the opinion concluded that the Proposed Arrangement did not provide any direct or indirect monetary or economic remuneration to the physicians.  This is because the product would be dispensed directly to the patient, which would preclude unscrupulous physicians from reselling or billing for a sample, and, in addition, that the physicians would be required to sign a statement acknowledging that the product is complimentary and cannot be resold or billed to any third party payors.

Second, the opinion concluded that the risk of a one-time trial supply of the product inducing patients to self-refer to the product was low.  This was based on four considerations: 

(1) the Proposed Arrangement involved no cost to federal healthcare programs;

(2) the risk of steering patients to the product by starting them on the product was low because patients who choose to continue to use the product would still be responsible for significant cost-sharing amounts after the one-time free trial was completed, and there would be no clinical barriers to switching to another product after using the free product;

(3) the Proposed Arrangement was unlikely to result in overutilization of the product; and

(4) the Proposed Arrangement included additional safeguards, such as compliance with the PDMA, distribution of the product directly to patients, distribution of a limited number of enrollment forms each year to each physician, and the fact that physicians and the program administrator would be required to sign statements acknowledging that the product is complimentary and that it may not be resold or billed to any third party payors.

Although this opinion provides some comfort to drug manufacturers who conduct free trial voucher or sampling programs, the OIG was careful to distinguish the Proposed Arrangement from “problematic” programs that offer free goods to “seed” the marketplace, and also to caution that “we might have reached a different conclusion on different facts or with a non-PDMA compliant sampling program.” 

Advisory Opinion No. 08-05 (Disease State Questionnaire Kiosks)

In addition to the Free Trial Program Advisory Opinion, late last week the OIG issued an advisory opinion regarding electronic kiosks located in physician offices that offer patients free disease state screening questionnaires (“Proposed Arrangement”). A determination on the Proposed Arrangement was requested by a manufacturer of pharmaceuticals for a number of diseases and conditions, including four “Disease States.”

Under the Proposed Arrangement, electronic kiosks that offer interactive questionnaires about the four Disease States would be placed in the waiting rooms of certain physicians.  The questionnaires would consist of several questions on each of the four Disease States that the patients would be able to answer using a keyboard.  Once the patient completed the questionnaire, the patient could generate a printout that would contain the screening questions and the patient’s responses, and choose to share the printout with his or her physician.  Neither the interactive questionnaires nor the kiosk itself would mention any drug names. Participating physicians would neither pay nor receive payment from the manufacturer for hosting the kiosks.

The OIG analysis discusses two possible kickback scenarios: (1) a potential kickback from the manufacturer to the patient to induce them to self-refer to the manufacturer’s drugs; and (2) a potential kickback from the manufacturer to the participating physicians to induce them to prescribe the manufacturer’s drugs.  The opinion first concludes that the questionnaires would not offer patients incentives for using the kiosks, such as coupons or offers of free items.  Accordingly, the Proposed Arrangement would not provide anything of value and therefore would not implicate the anti-kickback statute.  Second, the opinion concludes that the Proposed Arrangement would not generate prohibited remuneration under the anti-kickback statute for the participating physicians.  The participating physicians would not receive payment for the space rental or utilities fees or other compensation in connection with the Proposed Arrangement.  In addition, the opinion concludes that the kiosks would not enhance the attractiveness of the participating physicians’ offices to prospective patients such that they would likely select a participating physician based on whether they offered the kiosks.  The opinion notes that the kiosks “amount to little more than high-tech interactive brochures.” 

By Michelle L. Butler & Noelle C. Sitthikul

In March 2004, California consumers filed a class action lawsuit against several grocery stores alleging that the stores violated California state law by failing to disclose the presence of the color additives astaxanthin and canthaxanthin in farmed salmon.  The plaintiffs alleged that the lack of the required disclosure of these color additives caused consumers to believe that the salmon was wild salmon.  (Without the color additives, the flesh of farm-raised salmon typically appears grayish.) 

In the trial court, defendants successfully argued that plaintiffs’ action was preempted by Section 310 of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) (21. U.S.C. § 337(a)), which states that “proceedings for the enforcement, or to restrain violations, of the [FDC Act] shall be in the name of the United States,” thus excluding private enforcement.  According to the trial court, although the action was for a violation of state law, allowing plaintiffs to proceed would conflict with the congressional intent to preclude private enforcement of the FDC Act.  The Court of Appeal affirmed the trial court’s decision.  On February 11, 2008, however, the Supreme Court of California reversed the Court of Appeal’s decision and remanded the matter to that court for further proceedings. 

Plaintiffs’ action for deceptive marketing of salmon was predicated on a California Health & Safety Code §§ 110765, 110740.  This state law is effectively the same as the FDC Act provision at 21 U.S.C. § 343(a) and (k), which prohibit the misbranding of any food.  Moreover, the FDC Act, at 21 U.S.C. § 343-1(a)(3), expressly authorizes states to establish their own requirements for disclosing use of color additives provided these requirements are “identical,” i.e., effectively the same, as the FDC Act requirement. 

The California Supreme Court concluded that preventing plaintiffs to bring a private action for violating a state law when the FDC Act authorizes such a state law would constitute an intrusion into state sovereignty.  It ruled that nothing in the text or history of 21 U.S.C. § 343-1 indicates that Congress intended to limit a state in providing legal remedies for the violation of state laws authorized by such section.  Moreover, the Court concluded that the prohibition at 21 U.S.C. § 337(a) of private actions applies only to actions for a violation of the FDC Act.  The Court acknowledged that allowing the present action under a state law identical to the FDC Act might result in actions that FDA would not have taken.  Nevertheless, the Court noted that Congress clearly had considered such potential conflict and concluded that such a potential inconsistency was insufficient reason to preempt a private action for violation of state law. 

By Riëtte van Laack

In an 8-to-1 decision, the U.S. Supreme Court held earlier this week that preemption principles and the 1976 Medical Device Amendments (“MDA”) bar common law claims on the basis of safety or effectiveness of devices approved by FDA under a Premarket Approval Application (“PMA”).  The case, Riegel v. Medtronic, is a decisive victory for device manufacturers.  In the Supreme Court’s 1996 decision in Medtronic, Inc. v. Lohr, the Court ruled that certain state tort claims involving medical devices cleared under the premarket notification (i.e., 510(k)) process are not preempted.  The Riegel case provides a definitive decision preempting state tort law claims for PMA-approved devices. 

The plaintiffs in the case, Charles and Donna Riegel, brought suit in the U.S. District Court for the Northern District of New York after Charles Riegel was injured in heart surgery.  During the surgery, his doctor inserted a Medtronic Evergreen Balloon Catheter into his coronary artery but inflated it beyond its rated burst pressure.  The catheter burst, causing Mr. Riegel to develop a blocked heart and require coronary bypass surgery.  The Riegels alleged that the catheter was designed, labeled, and manufactured in a manner that violated New York common law, and that these defects caused Mr. Riegel’s injury and suffering. 

Both the district court and the U.S. Court of Appeals for the Second Circuit ruled in favor of Medtronic.  The Second Circuit, which joined a number of circuits that have addressed this issue, reasoned in its 2006 opinion that because devices approved through the PMA process are subject to the standards set forth in their approved applications, such devices are subject to “a requirement applicable to the device under [the FDC Act],” and that the claims for strict liability, breach of warranty, and negligent design, testing, inspection, distribution, labeling, marketing, and sale would (if successful) impose state “requirements” that differed from, or added to, the PMA-approved standards for the device.

The MDA provides federal oversight for devices and amended the FDC Act to add § 521 (21 U.S.C. §360k(a)), which states, in relevant part: 

[N]o State or political subdivision of a State may establish or continue in effect with respect to a device intended for human use any requirement –

(1) which is different from, or in addition to, any requirement applicable under this Act to the device, and

(2) which relates to the safety or effectiveness of the device or to any other matter included in a requirement applicable to the device under this Act.

In granting review in this case, the Supreme Court was asked to address the following question:

Whether the express preemption provision of the Medical Device Amendments to the Food, Drug, and Cosmetic Act, 21 U.S.C. §360k(a), preempts state-law claims seeking damages for injuries caused by medical devices that received premarket approval from the Food and Drug Administration.

Justice Scalia, writing for the majority, stated that the Court would adhere to a view that “requirements” under the MDA include common-law causes of action for negligence.  Justice Scalia explained that state tort law is a method of controlling conduct and “[s]tate tort law that requires a manufacturer’s catheters to be safer, but hence less effective, than the model the FDA has approved disrupts the federal scheme no less than state regulatory law to the same effect.”  However, Justice Scalia stated that FDC Act § 521 does not prevent damages based on claims that a device manufacturer violated FDA regulations, as these “parallel” cases “add to federal requirements.” 

The opinion includes interesting dictum (on page 13) with respect to the effect that FDA’s current view supporting preemption is entitled only to little deference because of the different position FDA has previously taken.  Justice Scalia states in response to Justice Ginsburg’s dissent that:

In the case before us, the FDA has supported the position taken by our opinion with regard to the meaning of the statute. We have found it unnecessary to rely upon that agency view because we think the statute itself speaks clearly to the point at issue. If, however, we had found the statute ambiguous and had accorded the agency’s current position deference, the dissent is correct . . . that – inasmuch as mere Skidmore deference would seemingly be at issue – the degree of deference might be reduced by the fact that the agency’s earlier position was different. . . .  But of course the agency’s earlier position . . . is even more compromised, indeed deprived of all claim to deference, by the fact that it is no longer the agency’s position.

Justice Ginsburg, the lone voice of dissent, argued that “Congress. . .did not intend [FDC Act § 521] to effect a radical curtailment of state common-law suits seeking compensation for injuries caused by defectively designed or labeled medical devices.”  Justice Ginsberg admonished the majority’s decision as contrary to the “MDA’s central purpose: to protect consumer safety.”

Sen. Edward Kennedy (D-MA), who sponsored the MDA, spoke out against the decision, stating “Congress never intended that FDA approval would give blanket immunity to manufacturers from liability for injuries caused by faulty devices.”  Rep. Henry Waxman (D-CA) also expressed disappointment with the decision, vowing that Congress will “pass legislation as quickly as possible to fix this nonsensical situation.”

Additional information on this case, including briefs and analysis, is available from SCOTUSBlog. 

Last week, Apotex Inc. submitted an interesting Petition for Stay of Action to FDA requesting that the Agency recognize the company’s remaining 180-day exclusivity for its generic version of Sanofi-Synthelabo’s PLAVIX (clopidogrel bisulfate) by staying the effective date of final approval of other ANDAs (and in particular Dr. Reddy’s Laboratories, Inc.’s ANDA #76-273 approved on January 14, 2008) containing a paragraph IV patent certification with respect to U.S. patent #4,847,265 (“the ‘265 patent”).  The ‘265 patent is listed in the Orange Book with other patent and non-patent market exclusivities as covering PLAVIX.  Specifically, Apotex requests that FDA stay the effective date of final approval of competitor applications until the earlier of either: (1) 156 days after the August 31, 2006 permanent injunction issued by the U.S. District Court for the Southern District of New York barring Apotex from marketing clopidogrel bisulfate is lifted; or (2) the expiration of the ‘265 patent on November 17, 2011.  Apotex also requests that FDA, at a minimum, stay the effectiveness of final approvals of competitor ANDAs until the injunction is lifted, provided the U.S. Court of Appeals for the Federal Circuit finds the ‘265 patent invalid.  Any other decision, contends Apotex, “will result in the anomaly that Apotex, the first to file a paragraph IV certification challenging the validity or enforceability of the ‘265 patent . . . may be the last to market.” 

Apotex submitted ANDA #76-274 to FDA in 2001, prior to the enactment of the Medicare Modernization Act (“MMA”).  The application contained a paragraph IV certification to the ‘265 patent that made Apotex eligible for 180-day exclusivity.  Such exclusivity (in a pre-MMA case like this) is triggered by either the first commercial marketing of the drug approved under ANDA #76-274, or a court of appeals decision that the ‘265 patent is invalid, not infringed, or unenforceable.  In March 2002, Sanofi sued Apotex for infringement of the ‘265 patent in the U.S. District Court for the Southern District of New York, thereby triggering a 30-month stay of approval of ANDA #76-274.  FDA approved ANDA #76-274 on January 20, 2006, after the 30-month stay expired in May 2005 without a relevant court decision.  Almost six months later, on August 8, 2006, Apotex began commercially marketing its generic clopidogrel bisulfate drug product at-risk of an adverse court decision, thereby triggering the company’s 180-day exclusivity.  Sanofi quickly sought a permanent injunction barring Apotex from further marketing the drug product, and on August 31, 2006, the district court granted the injunction pending the outcome of the case.  Meanwhile, Apotex’s 180-day exclusivity was ticking away, notwithstanding that marketing of the generic drug was enjoined 24 days after such exclusivity was triggered. 

Apotex appealed the decision to the U.S. Court of Appeals for the Federal Circuit, where the case is pending.  Oral arguments in the case are scheduled for March 3, 2008.  If the Federal Circuit issues a mandate requiring the district court to lift the injunction, then Apotex could resume marketing the drug product approved under ANDA #76-274.  The timing of a decision by the Federal Circuit is unclear, as the issuance of the mandate could be delayed if Apotex is initially successful in the Federal Circuit, but Sanofi then timely requests a rehearing and/or a rehearing en banc. 

The Federal Circuit’s decision will also affect generic clopidogrel bisulfate patent infringement litigation between Sanofi and generic applicants Teva Pharmaceuticals, Cobalt Pharmaceuticals, and Dr. Reddy’s.  In the Teva and Cobalt cases, which are also before the Federal Circuit and concern later-filed ANDAs with paragraph IV certifications to the ‘265 patent, decisions on the permanent injunctions have been stayed pending the outcome of Apotex’s appeal.  In the case involving Dr. Reddy’s, in which a permanent injunction was not entered, Sanofi and Dr. Reddy’s entered into an agreement permitting Dr. Reddy’s to, among other things, import clopidogrel bisulfate into the U.S. for sale if Apotex obtains a favorable result in the Federal Circuit. 

During the pendency of the ‘265 patent litigation, Apotex’s 180-day exclusivity would have naturally expired on February 4, 2007.  Nevertheless, Apotex argues in the company’s Petition for Stay of Action that the language, intent, and policy goals of the Hatch-Waxman Act would be frustrated if FDA does not recognize the remaining 156 days of that exclusivity period (provided, of course, that Apotex is ultimately successful in the company’s pending patent infringement litigation).  “The wording of the [FDC Act] makes clear that later-filed applications cannot be approved until at least 180 days after the first filer has begun commercial marketing – it does not, however, require FDA woodenly to approve such applications on the 181st day after such marketing begins,” states the petition (emphasis in original).  Apotex contends that:

Certainly, nothing in the language of the statute prohibits a first filer who risks coming to market prior to an operative court decision and who successfully overturns an improvidently granted injunction from enjoying the full benefit of the 180-days of exclusivity granted by Congress.  Rather, the “not earlier than” language [in FDC Act § 505(j)(5)(B)(iv) (2002)] gives FDA discretion to delay the effective date of approval of ANDAs submitted by subsequent filers to ensure that the first filer who has undertaken the risk of opening up the market for a particular drug product to generic competition can reap the full benefit of Congress’s 180-days of marketing exclusivity.

Moreover, Apotex argues that FDA’s decision to recognize the remaining 156 days of generic exclusivity “would best effectuate Congress’s intent and policy animating the Hatch-Waxman Amendments in general and the exclusivity provision in particular” by encouraging generic companies to continue to challenge questionable Orange Book-listed patents and by preserving the meaningfulness of 180-day exclusivity. 

Whether FDA will ultimately recognize any remaining 180-day exclusivity is uncertain.  Apotex requests that FDA respond to the petition no later than March 15, 2008.

By Kurt R. Karst    

In December 2007, we reported on what was a then yet-to-be-released FDA draft guidance on Good Reprint Practices (“GRPs”) and Rep. Henry Waxman’s (D-CA) November 30, 2007 letter to FDA strongly urging the Agency to refrain from disseminating the draft guidance and requesting certain information related to the draft guidance.  On December 21, 2007, FDA responded to Rep. Waxman by providing some of the requested information and refusing to provide other information reflecting ongoing Agency deliberations.  Rep. Waxman penned another letter to FDA in January 2008 criticizing the Agency for not providing much of the requested information.  For now, it appears that FDA is moving forward with the draft guidance.  Last Friday, FDA announced the availability of the draft GRP guidance.  FDA will publish a notice in the Federal Register later this week formally announcing the availability of the GRP draft guidance.  Once finalized, the draft GRP guidance will effectively “replace” FDA’s regulations at 21 C.F.R. Part 99, which expired in September 2006 with the sunsetting of Section 401 of the 1997 FDA Modernization Act.  (We note that many companies did not utilize Part 99 in disseminating reprints, so there wasn’t much to replace.)

As we reported in December, and contrary to the treatment of the subject in the mainstream media, the general principles articulated in the draft guidance are consistent with FDA’s prior approach and are not a radical departure from Agency practice, or, for the most part, current industry practice.  In fact, although Rep. Waxman is concerned that the guidance would “open the door to abusive marketing practices that will jeopardize safety,” the draft guidance provides more restrictive requirements on how the reprint must be disseminated and clarifies the types of documents that FDA considers acceptable for dissemination.  The guidance states that letters to the editors, abstracts, Phase 1 study reports, and reference publications that contain little or no substantive discussion of the relevant investigation or data are not consistent with GRPs.  (As we reported in December, there has been debate among practitioners as to whether these types of documents were appropriate to disseminate.)  In addition, some new requirements include: distributed scientific or medical information should be accompanied by a comprehensive bibliography of publications discussing adequate and well-controlled clinical studies, be distributed separately from information that is promotional in nature, and be in the form of an unabridged reprint, copy of an article, or reference publication that is free of highlighting, markings, and manufacturer summaries. 

Although industry critics are concerned about potential abuse by manufacturers, industry proponents point to FDA’s own statement that the “public health can be served when health care professionals receive truthful and non-misleading scientific and medical information” as support for their position that reprints are beneficial.  In fact, while many companies’ marketing practices will be unaffected by the draft GRP guidance, more aggressive companies may find their marketing practices reigned in.  As Hyman, Phelps & McNamara, P.C.’s Jeffrey Wasserstein (and FDA Law Blog co-author) stated in the Saturday edition of The Wall Street Journal, “There’s tremendous variation in company practices . . . .  [The draft GRP guidelines will] probably restrict the more aggressive companies.”

Considering the early start on the debate surrounding the draft GRP guidance, we anticipate escalating debate in the comings months.  As we noted in December 2007, there is a constitutional dimension to this issue, since the Washington Legal Foundation ("WLF") line of cases made clear that dissemination of reprints was constitutionally protected free speech.  It remains an open question as to whether industry or free speech advocates, such as WLF, will choose to challenge FDA’s guidance on First Amendment grounds, or whether industry will learn to live with this as a reasonable compromise. 

On February 7, 2008, the U.S. Department of Justice announced that Merck & Company, Inc. (“Merck”) agreed to pay more than $650 million to settle allegations that the company failed to pay proper rebates to Medicaid and paid illegal remuneration to health care providers to induce prescriptions for the company’s products.  The allegations arose out of lawsuits brought by a former Merck employee and a Louisiana physician under the Federal False Claims Act ("FCA") and state false claims laws.  The FCA allows for private individuals to file a qui tam or whistleblower suit on behalf of the government.  Many state false claims laws have similar whistleblower provisions.  As part of the settlement agreement, one of the whistleblowers will receive approximately $68 million.  The other whistleblower will receive $24 million of the Federal government’s settlement and an undisclosed share of the states’ proceeds.

In the first lawsuit, with respect to which Merck agreed to pay $399 million plus interest, H. Dean Steinke, a former Merck district sales manager, alleged in civil actions filed in Pennsylvania and Nevada that Merck instituted programs throughout the country designed to induce physicians to prescribe the company’s products over those of competitors in violation of federal and state anti-kickback laws and “best price” requirements under the Medicaid Rebate Statute.  Merck’s alleged fraudulent and illegal practices included paying physicians for unnecessary preceptorships and tutorials for Meck sales representatives; paying physicians to participate in bogus “clinical experience” studies and focus groups; paying speaker fees; offering free gifts to physicians who attended promotional programs; and offering unrestricted grants for computer systems and other benefits to physicians who supported Merck products. 

Merck also allegedly offered deep discounts to hospitals for ZOCOR and VIOXX but only if they met certain performance levels by using these drugs over competing products.  Merck excluded these discounts from its determination of Medicaid Rebate best price under a statutory exception for “nominal prices” – i.e, prices that are less than 10 percent of the company’s weighted average price to wholesalers and retailers – thereby avoiding substantial Medicaid Rebates.  However, the government contended that these pricing schemes did not qualify for the nominal price exclusion, presumably because they were linked to market share performance. 

In a separate suit filed by Louisiana physician William St. John LaCorte, and with respect to which Merck agreed to pay $250 million plus interest, Merck was similarly alleged to have provided deep discounts on its PEPCID products to hospitals and other healthcare institutions in return for commitments to switch patients from competing products.  As with ZOCOR and VIOXX, Merck allegedly failed to include the PEPCID discounts in Medicaid Rebate best price, and the government considered the nominal price exception inapplicable. 

As part of the resolution of the cases, Merck and the Office of Inspector General (“OIG”) of the Department of Health and Human Services entered into a Corporate Integrity Agreement for five years.  Among other things, the Corporate Integrity Agreement requires Merck and an Independent Review Organization to conduct annual reviews of the company’s Medicaid Rebate policies and procedures, and requires an IRO to conduct reviews of the company’s promotion and product services activities, such as promotional programs, speaker programs, consultancies, and grants. 

By Noelle C. Sitthikul

The debate over biogenerics legislation has intensified with the anticipated introduction of legislation to create a “generic biologics” approval pathway and that would grant innovators (i.e., reference product sponsors) and certain generic sponsors market exclusivity.  The draft legislation obtained by FDA Law Blog is titled the “Pathway for Biosimilars Act,” and will reportedly be introduced by Representative Anna Eshoo (D-CA) in the near future. 

The draft Eshoo bill would amend PHS Act § 351 to add subsection (k) (“Licensure of Biological Products as Biosimilar”) to permit the submission of an application for licensure of a biogeneric that includes, among other things, information demonstrating that the biogeneric is biosimilar to a reference product based on analytical studies, animal studies, and a clinical study or studies (such as an immunogenicity assessment and pharmacokinetics or pharmacodynamics) sufficient to demonstrate the safety and efficacy of the biosimilar product.  Analytical and animal studies may be waived by the Department of Health and Human Services Secretary (“Secretary”) if such studies are determined to be unnecessary.  The Secretary may waive immunogenicity studies if there is a final guidance document “advising that it is feasible in the current state of scientific knowledge to make determinations on immunogenicity with respect to products in the product class to which the biological product belongs,” and that explains “the data that will be required to support such a determination.” 

Importantly, the Secretary may not accept a biogeneric application until a proceeding has been initiated for the issuance of a guidance document for the product class in which the biogeneric falls, and the Secretary may not approve a biogeneric application until that proceeding is completed.  Product class-specific guidance documents must include criteria for determining biosimilarity, interchangeability, and immunogenicity (if available).  In addition, companies may not submit a biogeneric application until the later of the commencement of guidance document proceedings (product class-specific) or the date that is 4 years after initial licensing of the reference product (not including the date of a supplement approval or of a subsequent application for a new indication, route of administration, dosage form, or strength of the previously licensed reference product).  A person may petition the Secretary to commence guidance document proceedings for a reference product licensed more than 7 years prior to the date of enactment of the “Pathway for Biosimilars Act.”  The sponsor of the first biogeneric determined to be interchangeable may receive a 24-month period of market exclusivity from the later of either the first commercial marketing of its biogeneric, or, “with respect to a product marketed before the date the product is determined to be interchangeable, the date that the product is determined to be interchangeable.” 

The quid pro quo for innovator companies is a period of 12-year exclusivity after initial licensure that may be increased to 14.5 years.  Specifically, if during the 8-year period following licensure of the reference product, the Secretary approves a supplement for a new indication that would be a “significant improvement” compared to marketed products, then a biogeneric application may not be made effective until 14 years after initial licensure of the reference product.  The 12-year or 14-year exclusivity periods may be extended by 6 months if “at any time following licensure of the reference product, the holder of the approved application for the reference product files a supplemental application to support use in pediatric age groups (including neonates) containing reports of new clinical investigations (other than bioavailability studies) essential to the approval of the application that were conducted or sponsored by the holder.” 

In addition, reference product sponsors, as well as interested third parties (such as universities), that own a patent on the reference product may sue a biogeneric applicant for patent infringement.  Under certain circumstances, such litigation could delay the approval of the biogeneric product.  The draft bill also places certain limitations on the availability of declaratory judgment actions for biogeneric applicants, and amends the user fee law to require biogeneric applicants to pay the same user fees required to be paid by reference product sponsors. 

In other biogenerics news, FDA Law Blog learned that the regulatory authorities north of the border in Canada recently released a draft guidance document outlining the regulatory review process that Health Canada will use for a biologic that is similar to an approved innovator biologic. In Canada these product are referred to as “Subsequent Entry Biologics.”

By Kurt R. Karst    

Our fellow bloggers over at The Volokh Conspiracy recently posted an interesting story concerning a congressional investigation into Merck/Schering-Plough’s cholesterol absorption inhibitor VYTORIN (ezetimibe; simvastatin).  We previously reported on, among other things, a group of letters sent by the U.S. House of Representatives Energy and Commerce Committee Oversight and Investigations Subcommittee and the U.S. Senate Finance Committee to myriad public and private parties in January 2008 concerning Merck/Schering-Plough’s ENHANCE (Ezetimibe and Simvastatin in Hypercholesterolemia Enhances Atherosclerosis Regression) study of VYTORIN versus ZOCOR (simvastatin) alone in reversing the atherosclerotic thickening of the carotid artery in patients with high cholesterol.  Those letters raised a concern that Merck/Schering-Plough officials might have delayed the results of the ENHANCE study so as not to affect VYTORIN’s market share. 

The most recent letter in this deepening controversy brings the online community into the fray.  Specifically, on February 11, 2008, the U.S. House of Representatives Energy and Commerce Committee Oversight and Investigations Subcommittee sent a letter to the operators of the website Cafepharma.com (a self-proclaimed “site for drug reps by drug reps”) requesting information on anonymous postings on the website about the ENHANCE study results.  The anonymous postings were made as early as March 13, 2007, which is about 9 months before Merck/Schering-Plough publicly released the trial results earlier this year.  “[H]ave a buddy at [Schering Plough Research Institute].  He says that the study is a bust,” reads one such anonymous posting.  “Heard it crashed and burned,” reads another posting.  According to the congressional letter sent to Cafepharma.com: “These Web site postings are obviously troubling and raise further questions as to whether anyone within Merck or Schering-Plough knew the results of the ENHANCE trial prior to [their release].”  

The letter requests that Cafepharma.com provide the Oversight and Investigations Subcommittee (within 2 weeks of the date of the letter) “all records relating to any posting on Cafepharma.com related to the ENHANCE study, including but not limited to, names, addresses, phone numbers, and e-mail and internet protocol addresses of anyone creating such a post.”  According to the The Volokh Conspiracy, Cafepharma.com’s response was short: “[W]e do not collect any user information with anonymous posts (including IP addresses).  Therefore, we do not believe we will have any information to provide regarding these posts.”

The Oversight and Investigations Subcommittee also sent a similar letter to Merck/Schering-Plough.  That letter requests written explanations as to when Merck/Schering-Plough officials first learned of the Cafepharma.com postings and what the companies plan (or have done) to investigate the sources of the posts.  It also requests all records related to the Cafepharma.com postings.

In two other letters unrelated to the Cafepharma.com postings, the Oversight and Investigations Subcommittee also requests detailed information from FDA and Merck/Schering-Plough on, among other things, the ENHANCE study protocol.  Not to be outdone by the U.S. House, the U.S. Senate Finance Committee also sent a letter to Schering-Plough CEO Fred Hassan requesting information related to the ENHANCE study.  The letter follows up on the Finance Committee’s January 2008 letter on the same topic.

By Kurt R. Karst

Yesterday, we reported that two Hyman, Phelps & McNamara, P.C. attorneys appeared on February 13, 2008, before the United States Sentencing Commission (“Commission”) regarding possible changes to the Sentencing Guidelines (“Guidelines”) that are applicable to certain FDA criminal offenses.  That same day, three FDA officials testified at the same Sentencing Commission public briefing.  Their testimony is available here (William McConagha), here (Robert Perlstein, M.D.), and here (Special Agent Alex Davis).  

In its testimony, FDA asked the Commission to alter the Guidelines by declaring that for criminal offenses involving any FDA-regulated product where “loss” is relevant to the sentence to be imposed, loss will be determined by calculating the full amount paid (by consumers and others) for the adulterated or misbranded product, without any deduction or subtraction for the value of the product.  Thus, FDA is in effect stating that for sentencing purposes where “loss” is an issue, the misbranded or adulterated products involved have a value of zero.

This suggestion, if adopted, raises many questions and concerns.  First, creative lawyers in the context of civil litigation may try to employ FDA’s proposed finding to seek a monetary recovery based on that calculation.  Second, the change would almost certainly dramatically increase sentences to be imposed in cases where “loss” is at issue (which is in at least all felony cases).  Third, if adopted, it may make it very difficult for companies and individuals to work our guilty pleas with the Government because the Guidelines will warrant a sentence that the defense will find intolerable.

FDA’s position is breathtaking in its scope.  An FDA-regulated product is deemed misbranded for instance if the product was manufactured at a registered facility, but the particular product was not properly listed, or the labeling is false or misleading.  Many FDA-regulated products are deemed adulterated if, for instance, they have been manufactured outside the very general “current good manufacturing practices” requirements. 

Every day, many manufacturers distribute products that are not in full compliance with all of the FDC Act’s mandates (and thus those products are technically adulterated and misbranded).  This routinely occurs with FDA’s knowledge.  To say that all misbranded and adulterated products are worthless, raises serious legal and policy issues that the Commission should fully explore before adopting FDA’s suggestion.  That was exactly the course suggested by Hyman, Phelps & McNamara, P.C. at the February 13th Commission briefing, when this suggestion was first made public.  The affected industry – all FDA-regulated manufacturers and marketers – should urgently comment on the impropriety of the approach put forth by FDA.  Comments should be sent to the Commission and are due by March 28, 2008.

We previously reported on the United States Sentencing Commission’s (“Commission”) proposed changes to its Sentencing Guidelines (“Guidelines”) that would likely greatly enhance the criminal penalties applied to some criminal violations of the FDC Act, including those added by the Prescription Drug Marketing Act of 1987 (“PDMA”).  On February 13, 2008, the Commission announced that a public briefing session will be held on February 13, 2008 from 9:30 AM to 11:30 AM to discuss the proposed Guideline changes.

Hyman, Phelps & McNamara, P.C. attorneys John R. Fleder and John A. Gilbert were selected to participate on the panel testifying before the Commission regarding the proposed Guideline changes concerning FDC Act and PDMA violations.  Both attorneys testified on February 13, 2008 with respect to § 2N2.1 of the proposed amended guidelines, which is titled “Violations of Statutes and Regulations Dealing With Any Food, Drug, Biological Product, Device, Cosmetic, or Agricultural Product.”  According to the Commission’s proposal issued in the Federal Register:

[T]he proposed amendment [to § 2N2.1] adds a specific offense characteristic at § 2N2.1 that applies if the defendant committed any part of the instant offense after sustaining a conviction of an offense under 21 U.S.C. § 331.  Because PDMA offenses at 21 U.S.C. §§ 353 and 381 are incorporated into the FDCA at 21 U.S.C. § 331 the proposed specific offense characteristic also is applicable to a second or subsequent violation of the PDMA. The proposed amendment also amends the commentary to § 2N2.1 to include substantial risk of bodily harm or death as a basis for an upward departure. In addition, there is an issue for comment regarding violations of the FDCA and PDMA.

Both Mr. Fleder and Mr. Gilbert take the position in their testimony (available here and here) that § 2N2.1 appears to be working as intended and that there is insufficient evidence for the case that the § 2N2.1 Guideline needs to be revised at this time.

The latest issue of FDLI Update features an article by Hyman, Phelps & McNamara, P.C.’s Diane B. McColl and Susan J. Matthees.  The article, titled “Nutrition Labeling: A Look at FDA’s Proposed Requirements,” provides an overview of FDA’s November 2, 2007 Advance Notice of Proposed Rulemaking (“ANPR”) to revise nutrition labeling requirements for foods and dietary supplements.  We previously reported on the ANPR in December 2007.  Earlier this year, FDA issued a Federal Register notice extending the deadline for comments until April 30, 2008. 

The latest FDLI Update article by Hyman, Phelps & McNamara, P.C.’s Gwen M. McKee and John R. Fleder discusses the enforcement provisions of the Food and Drug Administration Amendments Act of 2007 (“FDAAA”).  While the enforcement provisions of FDAAA have frequently been ignored in public discussions about the new law, they are important for anyone working in the area to be aware of – particularly those entities affected by the new clinical trial database requirements, risk evaluation and mitigation strategies, or direct-to-consumer advertisements.

Those interested in a broader discussion of the new law can still access the previous, comprehensive analysis issued by Hyman, Phelps & McNamara, P.C.

On February 4, 2008, FDA announced that the Bush Administration is requesting nearly $2.4 billion ($1.77 billion in budget authority and $628 million in user fees) for the Agency as part of the Fiscal Year 2009 budget.  Of particular interest in the proposed FY2009 budget are several proposals related to follow-on biologics, new user fees, and resurrecting the Direct-To-Consumer (“DTC”) television ad user fee program created by the FDA Amendments Act (“FDAAA”).

Follow-On Biologics

The coming year will likely see a significant push to pass legislation creating follow-on biologics (also referred to as “generic biologics”).  According to the budget proposal:

For FY 2009, the Administration will seek new statutory authority to allow FDA to approve abbreviated applications for certain biologic products licensed under the Public Health Service Act (PHS Act). . . .  The legislative proposal will include necessary provisions to ensure the safety and effectiveness of these biologic products for patients. The proposal will include a predictable and public guidance process for licensing follow-on protein products under the PHS Act. The proposal will prescribe the type of data required for FDA to review applications for follow-on protein products and will require labeling for the safety concerns related to the interchangeability of these products. In addition, the proposal will include adequate intellectual property protections to preserve continued robust research into new and innovative life-saving medications. The Budget proposes a new authority for FDA to approve follow-on protein products through a new regulatory pathway that protects patient safety, promotes innovation, and includes a financing structure to cover the costs of this activity through user fees.

In 2007, the U.S. Senate Health, Education, Labor, and Pensions Committee voted on legislation approving amendments to the Public Health Service Act to add § 351(k) to provide for an approval pathway for “biosimilar” and “interchangeable” biologics that rely, in part, on FDA’s previous licensure of an innovator’s product.  At the time, it was thought that such legislation might be included in the U.S. Senate’s version of FDAAA.  Support for the bill fell apart, however, due to differences of opinion over the length of exclusivity for innovator products.  (See FDA Law blog post here).  In addition, the Bush Administration objected to including follow-on biologic provisions in FDAAA. 

We understand that the Biotechnology Industry Organization (“BIO”) is vigorously lobbying Congress on draft legislation.  Information on BIO’s position is available here.

New User Fees

President Bush’s FY2008 budget request included a proposal with draft performance goals to create a generic drug user fee program.  The FY2009 request includes a similar proposal, but without draft performance goals.  The program, which the Administration will formally introduce in draft legislation later this year, includes estimated FY2009 spending of $16.6 million.

The Bush Administration’s FY2009 budget proposal also includes new user fee programs for activities that are currently funded through discretionary appropriations, including:

• Animal generic drug user fees with phased-in performance goals to expedite the approval of Abbreviated New Animal Drug Applications.  Sponsors of innovator drug products currently pay user fees under the Animal Drug User Fee Act;

• Reinspection user fees to require FDA-inspected establishments to pay the full costs of reinspections and follow-up work when the establishment fails to meet current Good Manufacturing Practices and other FDA requirements; and

• Food and animal feed export certification user fees.  FDA recommended the creation of these fees as part of the Agency’s November 2007 Food Protection Plan.

DTC TV Ad User Fee Program

FDA’s FY2009 budget proposal states that the Bush Administration plans to resurrect the DTC television ad user fee program added to the Prescription Drug User Fee Act (“PDUFA”) by FDAAA.  We previously reported that the new user fee program would not launch due to inadequate congressional funding, notwithstanding significant industry interest in the program.  As a result, FDA did not send out invoices, and the 120-day trigger in FDAAA for collecting adequate funding from industry participants was not met.   Nevertheless, “[t]he budget for FY 2009 contains user fees to support the review of direct to consumer television advertisements, as authorized by PDUFA.  The Administration will work with Congress to modify the 120-day requirement in FDAAA to ensure that FDA can operate the DTC-TV program in FY 2009.”

By Kurt R. Karst