Sixteen years after the publication of the Guidance for the Content of Premarket Submissions for Software Contained in Medical Devices issued May 11, 2005, FDA issued a new draft guidance document on November 4, 2021 that describes the recommended documentation that a sponsor should include in their premarket submissions. To put the age of the existing guidance into perspective, it was published two years before the first iPhone was released. Over the past 16 years, there have been numerous advances in healthcare technology, particularly with respect to the use of software in and as a medical device. Please see our previous blog postings on various software regulatory developments (here, here, and here).

This new draft guidance document applies to “device software functions” that meet the definition of a device under section 201(h) of the Federal Food, Drug, and Cosmetic Act (FD&C 17 Act).

If you’re interested in software products that do not enjoy any of the 21st Century Cures exemptions and require premarket submissions, please continue to read this blog. Summaries of the impact of the 21st Century Cures Acts on software and the definition of a medical device are available here, here, here, and here.

The new draft guidance applies to both Software in a Medical Device (SiMD) which would be your traditional hardware with embedded software and Software as a Medical Device (SaMD). The scope of the new draft guidance is basically the same as the 2005 guidance which includes:

(1) firmware and other means for software-based control of medical devices, (2) stand-alone software applications, (3) software intended to be operated on general-purpose computing platforms, (4) dedicated hardware/software medical devices, and (5) accessories to medical devices when those accessories contain or are composed of software. It does not apply to software-related documentation that may be needed to evaluate post market software device issues (e.g., corrections and removals). Like the 2005 guidance, this new draft guidance applies to all types of premarket submissions, but now the Agency has specifically added De Novo Classification Requests and Biologics License Applications (BLA).

The most obvious update to the new draft guidance is the shift from three to two categories for determining what software documentation to include in a premarket submission. According to the 2005 software guidance document, FDA used Major, Moderate, or Minor Level of Concern to determine the recommended documentation for software. In the new draft guidance document, FDA introduced four risk-based factors to help determine the device’s documentation level—either Basic Documentation level or Enhanced Documentation level.

Basic Documentation is necessary for all device premarket submissions that include software functions. But if the device (i) is a constituent part of a combination product, (ii) is intended to test blood donations, or to determine donor and recipient compatibility, or a blood establishment computer software, (iii) is categorized as a Class III device, or (iv) presents a probable risk of death or serious injury upon failure, then such device software functions are categorized as Enhanced Documentation level. Note that, unlike the 2005 software guidance, the new guidance only references serious injury, which is an injury or illness that is life threatening, results in

permanent impairment of a body function or permanent damage to a body structure, or necessitates medical or surgical intervention to preclude permanent impairment of a body function or permanent damage to a body structure. Both the draft guidance and the 2005 guidance require the assessment of the risk to be evaluated prior to the implementation of risk control measures. Interesting to note, FDA specifically called out the use of the word “probable” versus purely hypothetical, when determining the risk of death or serious injury. However, “probable” risks also include the likelihood that the device could be compromised due to cybersecurity risks.

Below is an overview of the software documentation sponsors would need to provide for Basic and Enhanced levels:

The major difference between the two is that Basic Documentation Level does not need to submit the Software Design Specification. However, there are differences in the level of detail expected for some of the deliverables. For example, Software Development and Maintenance Practices allows a declaration of conformity to IEC 62304 to work for both categories.

However, if the sponsor does not provide a declaration of conformity, Basic level devices would only need to provide a summary of configuration management and maintenance activities while sponsors of devices in the Enhanced level would need to provide the summary as well as complete configuration management and maintenance plan documents.

For software testing as part of verification and validation, only a summary description of the testing activities at the unit, integration, and system levels is required for devices categorized as Basic level, but for sponsors of devices in the Enhanced level, they need to also provide unit and integration level test protocols and results. The Agency added details that clarify their expectations around test results, specifically that it would not only include the pass/fail determinations, but additionally include expected results and observed results.

Under the proposed framework, the amount and type of software documentation may increase or decrease for existing software devices when a sponsor files its next premarket submission.

“Minor” level of concern software devices, under the 2005 guidance, were defined as failures or latent design flaws that were unlikely to cause any injury to the patient or operator. If the draft guidance is finalized, the next time a sponsor submits for a formerly “Minor” level of concern software, it will need to provide documentation similar to what had been previously required of a “Moderate” level of concern device. “Moderate” level of concern was defined as failures, malfunctions or latent design flaws in the software that could directly or indirectly likely lead to minor injury to the patient or operator. (Refer to Table below).

Under the 2005 guidance, if a sponsor’s software was a “Moderate” level of concern device the required documentation would decrease under the draft guidance. The software device would now be categorized as Basic Documentation Level and the Software Design Specification would not need to be submitted.

Other significant changes include the FDA’s details around what is expected for System and Software Architecture and Risk Management. FDA has devoted an entire Appendix to providing sponsor’s examples of architecture charts. With respect to Risk Management, now in addition to submitting your Risk Analysis (previously referred to as a hazard analysis), sponsors also need to

submit their Risk Management Plan and Risk Management Report, which should address methods for collection of relevant production and post-production information. For those of you who thought Traceability Analysis went away, it did not. Traceability was simply included in the description of the Software Requirement Specification document.

FDA has also taken steps to update the guidance for Artificial Intelligence/Machine Learning software devices. This is a welcome change given that AI/ML software is becoming much more widely used in medical devices, as evidenced by the list of AI/ML-enabled medical devices recently published by FDA (here). For AI/ML software, specifically, the draft guidance indicates that the software description should include the populations or samples informed your model(s) and what steps were taken to identify and address potential biases and limitations of your model(s). Interestingly, the draft guidance does not reference other AI/ML-specific considerations, like, Predetermined Change Control Plan, which has been contemplated in FDA’s AI/ML action plan (see our prior post on the action plan here). We would encourage FDA to consider aligning the final guidance with the AI/ML action plan so the expectations for AI/ML software documentation is clear and comprehensive.

When final, this new document will replace the 2005 guidance document. Interested parties have until February 22, 2022 to comment on the new guidance at this link.

In England, over‑the‑counter (OTC) rapid antigen tests for COVID are widespread and available at low cost.  In America, these tests are scarce and relatively high‑priced.  Why is that?

Background

Rapid tests for COVID-19 are fast, inexpensive to manufacture, and a relatively easy method to detect the presence of an active SARS‑CoV‑2 infection.  The tests are similar to a pregnancy test in the sense that they display one or two lines to indicate a result after a few minutes.

The tests are very accurate in detecting individuals with a relatively high viral load (symptomatic or not).  They generally have a high Positive Predictive Value (PPV), which means that when users test positive, there is a high likelihood that they are infected.  A positive result, however, is treated as a screen.  A follow up laboratory‑run molecular diagnostic (RT‑PCR) test is considered the gold standard for actual diagnosis.

On the minus side, a rapid antigen test may miss an infected individual with a low viral load (e.g., early in an infection).  Therefore, if a test is negative, the test‑taker is a presumptive negative, meaning that there has not yet been a rule out of SARS‑CoV‑2.  That is just another way of saying, however, that the rapid antigen tests are best positioned as a screening tool.

By law, a rapid antigen test may only be marketed after FDA grants an Emergency Use Authorization (EUA).  We have worked with dozens of clients trying to obtain an EUA for prescription and OTC rapid antigen tests.  Unfortunately, in these cases, FDA has acted less like a gatekeeper and more like a brick wall.

Unrealistic Performance Standard

A significant obstacle to approval of these tests is the performance standard that FDA applies.  As context, a rapid antigen test is uniformly evaluated by comparing the results to the RT‑PCR gold standard.  For OTC intended use, until very recently, FDA had been requiring 90% positive percent agreement (PPA) in detecting positive cases between the rapid antigen tests and RT‑PCR.

This threshold is unreasonable given the differences in the technology.  A rapid antigen test analyzes the sample as‑is, while the RT‑PCR can amplify the sample many times to create a detectable signal.  In the case of a person who is positive but with a low viral load, the RT‑PCR analytical instrument may detect it, while the rapid antigen test may be called incorrectly simply due to an incorrect visual reading by a lay user.  Despite this significant difference in technological characteristics and human factor impact, FDA’s 90% agreement requirement has effectively required rapid antigen tests to perform as though they were RT‑PCR tests, even for specimens with a low viral load.

FDA’s unreasonable requirement has excluded perfectly good rapid antigen tests from the American market.  These tests could have been a valuable screening tool for COVID during the past year or so.  True, these tests will never provide the same diagnostic quality results as RT‑PCR, nor will they perform as well in patients with a low viral load.  All things being equal, we would only need RT‑PCR tests.

But all things are not equal.  For one thing, there is limited laboratory capacity to test specimens.  This capacity limitation does not apply to OTC lateral flow antigen tests, which can be manufactured in the hundreds of millions per month at a much lower cost than RT‑PCR tests.  Additionally, the RT‑PCR tests generally require that a specimen be collected and mailed to a laboratory, creating at least a 2‑day turnaround.  They are not rapid.  In short, the low-cost OTC rapid antigen tests are not a replacement for RT‑PCR tests, but they provide a testing option better suited for mass screening.

On November 9, 2021, FDA lowered the threshold from 90% to 80% positive percent agreement for OTC rapid antigen tests.  Both of these thresholds appear to be arbitrary.  FDA has never publicly explained how it chose either threshold.

It would be sensible, given the inherent technological characteristics of rapid antigen tests, to avoid an overly high (and arbitrary) PPA threshold that many candidate tests will struggle to meet.  Sometimes, the ability to hit the threshold depends randomly on how many low viral load subjects enroll in a study.  That is not a real measure of the test performance, but rather, the luck of the draw.

An alternative would be to significantly lower the PPA threshold to a level that most rapid antigen tests, if they are performing correctly, can meet.  For instance, consider the blood tests that detect the antibodies produced by SARS‑CoV‑2 infection.  FDA only requires a PPA of 70% (when compared to RT‑PCR) for devices that detect IgM antibodies produced by a SARS-CoV-2 infection.  Why not apply this same threshold to rapid antigen tests?

Another alternative might be to allow a calculation of PPA limited to specimens exceeding a set minimum viral load.  That would exclude the low viral load specimens that all rapid antigen tests struggle with.  It also would help standardize the performance evaluation among the different tests by focusing on the viral load range that all of these tests should be able to handle well.

Or, perhaps FDA could eliminate the PPA threshold but require disclosure of a test’s performance in lay language on the outer box.  FDA has taken a similar approach to other devices like OTC blood glucose meters.

Any number of alternatives would be worth considering to escape the unsatisfactory status quo.  But what FDA must first do is to stop demanding near‑diagnostic quality results from OTC rapid antigen tests.  They need to be reviewed in a manner that is appropriate in light of their inherent technological characteristics and intended screening use.  Then, the other players in the healthcare system may determine whether the tool is right for this pandemic and how best to deploy it.

These players include the federal and state public health authorities, the healthcare profession, third party payors, and patients.  They all have a role to play, but right now they all are sitting on the sidelines because FDA has not let the OTC rapid antigen tests out of the locker room.

Not A Priority

FDA’s flawed review approach is compounded by its failure to make the review of these tests a priority.  To the contrary, FDA has strangled these tests with red tape and delays.

For example:

• The EUAs for prescription and OTC rapid antigen tests can sit for months before FDA even assigns a reviewer. By its (in)action, FDA has strongly signaled that OTC rapid antigen tests are not a priority.
• FDA requires companies to select RT‑PCR comparators for their clinical studies but refuses to publicly designate which ones are acceptable. We have had more than one client spend considerable time and money conducting a clinical study, only to be told that the comparator is not acceptable.
• FDA recommends that the choice of comparator be discussed as part of a confidential pre‑EUA (PEUA) submission. Unfortunately, this option has been proven to be impractical.  Once submitted, PEUAs are reviewed in an unpredictable timeframe spanning anywhere from two months to never.  On average, our experience with PEUAs is closer to 6 months from submission to feedback.
• During the EUA review process, FDA sets deadlines for responding to deficiencies that are impossible to meet. They can be as short as 24 to 48 hours.  Sometimes, FDA will issue a deficiency letter and, on the same day, close the file.  The sponsor must gather the requested information and cycle through with a brand new EUA filing.

When all is said and done, FDA’s review system does not efficiently process EUA submissions for OTC rapid antigen tests.  There is no sign that FDA understands what it has done wrong or that the agency is taking steps to fix it.

The Biden Administration announced almost a month ago that it hopes to streamline the review process.  Apparently, the National Institutes of Health (NIH) will spend $70 million on a new program to accelerate test-makers through FDA’s process. It was reported as follows:

HHS said in a statement that as part of the new program, government health experts will conduct studies on over-the-counter tests and work with the companies ‘to compile proper data, work towards the right benchmarks for performance and support other needs that will help ensure they are providing the best submissions possible for FDA’s regulatory review.

This statement is another way of saying that FDA has not been doing its job properly.  So now taxpayers will pony up $70 million for NIH to help companies navigate FDA’s flawed process.  It would be better if FDA were to fix the process itself.

This announcement also looks like it may be regulatory vaporware.  We have not seen any evidence of a stood‑up program.  FDA has not responded to our request for details and none have been publicized.  All we have so far is an announcement.

Needed Reforms

FDA should urgently initiate a rapid reboot of its current review of OTC rapid antigen tests.  The following quick reforms would go a long way:

• Publish a list of acceptable RT‑PCR comparators (with the option to discuss other comparators in a PEUA). That would significantly facilitate clinical study design.
• Significantly lower or eliminate the PPA requirement (or modify it to exclude low viral load subjects). Consider requiring disclosure of performance data in lay language on the outer box.
• Remove deadlines for sponsors to respond to deficiencies. It costs FDA nothing to put an EUA file on inactive status rather than requiring a brand-new filing.

If these reforms (and others) were carried through, FDA would be in a better position to ensure that sponsors wishing to offer high quality OTC rapid antigen tests for COVID can readily do so.  Whether the other players in the American healthcare system would choose to use these tests is not guaranteed, but at least the option would be available.

There’s a lot of things packed (and that need to be unpacked to understand) into the latest version (as amended) of H.R. 5376, the 2100-plus page bill better known as the “Build Back Better Act.”  The bill has gone through the House Committee on Rules and will likely be debated soon on the floor of the House of Representatives.

One of the new programs included in the H.R. 5376 that has garnered the greatest amount of attention (at least in the food and drug law world) is TITLE XIII, Subtitle J (Drug Pricing), Part 1 (Lowering Prices Through Fair Drug Price Negotiation), Section 139001 (Providing for Lower Prices for Certain High-Priced Single Source Drugs).  That section of the bill – along with the other accompanying sections and parts of the bill – would amend Title XI of the Social Security Act to create a new part – Part E – requiring the HHS Secretary to establish a “Fair Price Negotiation Program” intended to lower prices for certain high-priced single-source drugs and biological products.

Specifically, proposed Section 1191 (in Title XI of the Social Security Act) provides:

SEC. 1191. ESTABLISHMENT OF PROGRAM.

(a) In General.—The Secretary shall establish a Fair Price Negotiation Program (in this part referred to as the “program”).  Under the program, with respect to each price applicability period, the Secretary shall—

(1) publish a list of selected drugs in accordance with section 1192;

(2) enter into agreements with manufacturers of selected drugs with respect to such period, in accordance with section 1193;

(3) negotiate and, if applicable, renegotiate maximum fair prices for such selected drugs, in accordance with section 1194; and

(4) carry out the administrative duties described in section 1196.

The provisions in Section 139001 of H.R. 5376 that would implement the “Program” get pretty complicated from there.  Fortunately, MedPac put together a short summary of the “Program” that runs through the process for the identification of  “negotiation-eligible drugs” from among “qualifying single source drugs,” the selection of drugs for negotiation (i.e., “selected drugs”), and more.  (Another summary of the drug price negotiation provisions is available here.)  Here are the important points from the MedPac summary:

Sec. 139001 lays out a process by which the Secretary would:

• Identify “negotiation-eligible drugs” from among qualifying single-source drugs that are among the top 50 with the highest Part D spending, the top 50 with the highest Part B spending, and insulins. Qualifying single-source drugs are those that were approved at least 7 years ago (for drugs) or licensed 11 years ago (for biologics) for which no generic or biosimilar product has been approved/licensed and marketed. There are exceptions for certain orphan drugs and for certain drugs manufactured by small biotech companies.

• Select a limited number for negotiation (“selected drugs”) and enter into agreements with their manufacturers to negotiate a “maximum fair price.” In 2025, the Secretary would select no more than 10, 15 in 2026, 15 in 2027, and 20 in 2028 and subsequent years. The Secretary is to take into account factors such as whether the manufacturer has recouped its R&D and the comparative effectiveness of alternative therapies.

• The negotiation process would take place between March and November in the year two years prior to which the maximum fair price would be applicable. The Secretary may not negotiate a price higher than a ceiling that is a 25% to 60% discount (depending on the length of time the drug has been approved without generic or biosimilar competition) off the average price paid to the manufacturer by wholesalers and others for drugs distributed to nonfederal purchasers (non-federal AMP. . .). There would also be a renegotiation process beginning in 2027 for selected drugs for which factors that the Secretary considered had changed.

• The maximum fair price shall not apply before at least 9 years have passed since first approval (for drugs) or at least 13 years since first license (for biologics).

While this blogger does not have any particular comments on whether or not the idea of government drug price negotiation is good or bad, the way it has been structured in H.R. 5376 appears to have been without regard to the generic drug an biosimilar biological product industries.  That is, it was apparently conceived and drafted without regard to the Hatch-Waxman Amendments and the Biologics Price Competition and Innovation Act (“BPCIA”).  How so?  Well, as one commentator noted: “Companies considering launching a generic or biosimilar product may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their costs.”

Let’s put a little more detail on that . . . .

Under H.R. 5376, the HHS Secretary may negotiate a price that is at least a 60% discount off the average price paid to brand-name drug and biological product manufacturers by wholesalers and others.  And the maximum fair price shall not apply before at least 9 years after a brand-name drug is approved, and before at least 13 years after a biological reference product is licensed.

Given how Hatch-Waxman and the BPCIA operate, with periods of marketing exclusivity, 30-month stays related to Paragraph IV certifications (Hatch-Waxman only), patent infringement litigation, and patent settlement agreements, it’s not uncommon for a company that has invested millions or tens of millions of dollars into developing a drug (particularly a “complex generic”), or perhaps $100 million or more to develop a biosimilar biological product, to finally obtain approval and market the drug product well after 9 years after the brand-name NDA drug is approved, and well after 13 years after a BLA reference product is licensed.  But at the point, the generic drug/biosimilar market is destroyed under the price negotiation provisions of H.R. 5376 because the price of the brand-name drug/biologic may have been cut by at least 60%.  And at that minimum price point alone, “a generic or biosimilar [manufacturer] may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their [development] costs.”

That’s a difficult pill to swallow.

It means less – or no – generic/biosimilar competition.  After all, given the uncertainty around what drugs and biologics the government could decide are subject to price negotiation, when they might be approved or licensed relative to the price negotiation triggers, and whether any negotiated price in effect at the time a generic drug/biosimilar is approved and marketed will allow a company to – at the very least – recoup costs, why would a company even entertain getting into (or even continuing on with) the generic drug and biosimilars business??

Whatever the short-term benefits may be by establishing the Medicare drug price negotiation system proposed under H.R. 5376, Congress ignores the Hatch-Waxman Amendments and the BPCIA at its own peril (and perhaps at the peril of the public health), as the long-term consequences of H.R. 5376 may be the dismantling and drying up of a robust generic drug and biosimilars industry.  (Heck, nobody ever thought the Colorado River would dry up either.)  So, in 10, 15, or 20 years from now we may be in need of a new type of Build Back Better Act.

While most of the Congressional focus on drug pricing has centered on the reconciliation bill currently being hammered out in the House and Senate, the Infrastructure Investment and Jobs Act (the “Act”), which was signed by President Biden yesterday, contains two provisions relating to drug payment and discounting.  First, section 90006 imposes a moratorium on HHS’s implementation of an HHS OIG final rule, published on November 30, 2020, which amends the Federal health care program antikickback statute safe harbors as they apply to drug rebates paid to Medicare Part D plans and Medicaid Managed Care plans (or their PBMs).  As we’ve previously reported, the effect of the safe harbor amendments would be to protect such rebates only if they were passed through by the plan sponsor or PBM to the dispensing pharmacy, which would be a major change from the typical practice today.  The effective date of the amendments had already been delayed until January 1, 2023 pursuant to court orders in a lawsuit brought by the PBM industry association.  The Act now extends that delay until January 1, 2026.

In addition, section 90004 of the Act requires manufactures of drugs sold in single-dose containers to pay refunds to Medicare for discarded Part B drugs.  Medicare Part B reimburses providers for quantities of drugs packaged in single-use containers that are left over after administration and discarded.  Congressional proponents of this provision argued that manufacturers have been deliberately overfilling single-use drug containers to permit their customers to obtain greater reimbursement, and have profited from the resulting increase in utilization of the drug.  The new refund requirement applies to drugs that are (1) separately paid under Medicare Part B; (2) single source drugs (i.e., having no A-rated therapeutic equivalents) or biologics (including biosimilars); and (3) sold in single-dose containers or packages.  Manufacturers covered by this provision will have to pay refunds for discarded amounts beginning 18 months after the drug is first covered under Part B, but no earlier than January 1, 2023.  CMS will send the manufacturer a quarterly report showing the number of units (if any) that were discarded during the quarter, based on claims using the JW modifier, which CMS has established to identify discarded units.  The CMS report will also show the total amount due for the quarter, which will be the number of discarded units multiplied by 90% of the allowed charge per unit.  That percentage may be reduced by regulation for drugs with “unique circumstances” (an undefined term).  Excluded from the refund requirement are drugs that are not separately payable, radiopharmaceuticals, imaging agents, and drugs that require filtration prior to administration where drug is discarded after the filtration process.

Hyman, Phelps & McNamara, P.C. (“HP&M”) is pleased to announce that Lisa M. Baumhardt, MS, MJ, MT(ASCP), RAC, FRAPS, has joined the firm as a Senior Medical Device Regulation Expert, and that Sophia Gaulkin has joined the firm as an Associate.

Ms. Baumhardt provides counsel to medical device, in vitro diagnostic, and combination product manufacturers on a wide range of pre- and post-marketing regulatory topics.  In the pre-market area, Ms. Baumhardt develops regulatory strategies, prepares pre-submissions and regulatory market authorization submissions, drafts regulatory policies and procedures, and reviews advertising and promotional materials.  In the post-market area, Ms. Baumhardt advises clients on complaint handling, MDRs, Quality System Regulation compliance and enforcement matters.

Prior to joining the Firm, Ms. Baumhardt was the Regulatory Affairs/Quality Assurance Executive for medical devices at IBM, where she worked on new and novel artificial intelligence/machine learning technologies.  She has also held positions in regulatory affairs, clinical affairs, quality assurance, and compliance at Mallinckrodt Pharmaceuticals, GE Healthcare, and Abbott Laboratories.

Ms. Baumhardt earned a Master’s in Jurisprudence from Loyola University Chicago School of Law, a Master’s in Healthcare Technology Management from the Medical College of Wisconsin and Marquette University and a Bachelor of Science in Medical Technology.

Ms. Gaulkin assists clients across a range of pre- and post-marketing regulatory matters relating to dietary supplements, food products, drugs, medical devices, cosmetics, pet products, and consumer products.  She advises clients on compliance issues, including packaging, labeling and claim substantiation, state licensure requirements, e-commerce platforms, and drug pricing reporting.  She also assists with transactional due diligence, internal investigations, and supplier subcontracts and negotiations.  In addition, Ms. Gaulkin has published on a range of emerging issues related to food and drug regulation, from color additives and flavors in oral drug products to master protocols in the era of COVID-19, FTC- and USDA-regulated labeling claims, and the edible insect industry.

Before joining HP&M, Ms. Gaulkin practiced FDA law at an AmLaw 100 firm. She earned her J.D. from the University of Pennsylvania Law School and her B.A., magna cum laude, from Hamilton College.

It may be just a coincidence that DOJ released its latest policy pronouncement at the same time as the final “Daniel Craig as James Bond” movie.  But like James Bond, companies in the crosshairs of a government investigation have No Time to Die, as they answer to shareholders and fight for corporate survival.  In an October 28, 2021 Memorandum issued by Deputy Attorney General Lisa Monaco, DOJ announced that it is reverting to and reinforcing the Individual Accountability Policy originally announced in the Yates memo, which we discussed here.  That policy permits prosecutors to award cooperation credit to companies only if they provide DOJ with all relevant facts relating to the individuals responsible for the misconduct:

To receive any consideration for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, and provide to the Department all nonprivileged information relating to that misconduct. To receive such consideration, companies cannot limit disclosure to those individuals believed to be only substantially involved in the criminal conduct. This requirement includes individuals inside and outside of the company.

Note that last sentence: individuals inside and outside of the company.  Corporate counsel previously may have taken the position that there is no control over individuals outside of the company, so there could not be any disclosure related to those individuals, but DOJ Does. Not. Care.

The new policy also requires prosecutors to consider all past misconduct, not just violations that relate to the instant offense:

[W]hen making determinations about criminal charges and resolutions for a corporate target, prosecutors are directed to consider all misconduct by the corporation discovered during any prior domestic or foreign criminal, civil, or regulatory enforcement actions against it, including any such actions against the target company’s parent, divisions, affiliates, subsidiaries, and other entities within the corporate family.

Again, companies take note: DOJ is expanding its prior position to consider foreign enforcement actions (even if standards and laws are different in those jurisdictions), violations of “regulatory rules” (which in the FDA space are commonplace), and misconduct of affiliated companies (which in this day, with multi-structured corporate entities, could require consideration within wholly unrelated industries).  This new calculus likely will impact future settlement discussions as the implication of a settlement by one corporate entity could present DOJ with a License to Kill one of its sister entities.

DOJ intends to revise the relevant sections of the Justice Manual relating to Principles of Federal Prosecution of Business Organizations.

Just 30 pages from the end of the 2,124 page Consolidated Appropriations Act of 2021, you will find the COVID-19 Consumer Protection Act.  For the duration of the COVID-19 public health emergency, this Act signed into law on December 27, 2020 makes it unlawful under Section 5 of the Federal Trade Commission Act for any person, partnership, or corporation to engage in a deceptive act or practice in or affecting commerce associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID–19 or a government benefit related to COVID–19. The Act provides that such a violation shall be treated as a violation of a rule defining an unfair or deceptive act or practice prescribed under Sec. 18(a)(1)(B) of the FTC Act.  As we have discussed previously, the AMG Capital decision removed the FTC’s authority to collect monetary relief under Section 13(b), but the FTC can still do so under Section 18 of the FTC Act, which addresses violations of rules defining an unfair or deceptive act or practice. When Congress passed the COVID-19 Consumer Protection Act, it provided means for relief under this section.

And the Federal Trade Commission (FTC) and Department of Justice (DOJ) are using the authority granted them. The latest action under the law was just filed, seeking civil penalties from the marketers of Xlear, a nasal spray the complaint alleges has been deceptively advertised to offer “up to four hours” of protection from COVID-19 and as “part of a layered defense to prevent getting COVID-19.”  FTC and DOJ allege that Xlear doesn’t have the proper substantiation to back up their claims that the nasal spray – made from purified water, xylitol, saline and grapefruit seed extract – protects from COVID-19, despite two studies the company cites to support their claims.  In the complaint, the FTC and DOJ are asking for – among other things – refunds for consumers, civil penalties, and a permanent injunction to prevent future violations.  Unfortunately for Xlear, this is not the first time the FTC has taken notice of the company, as it sent a warning letter to them in July 2020 telling them to stop their unsubstantiated claims.  They didn’t stop.

This is also not the first time the FTC and DOJ has used the authority of the COVID-19 Consumer Protection Act.  That dubious honor goes to a chiropractor and his company Quickwork LLC which deceptively marketed products containing Vitamin D and zinc as scientifically proven to treat or prevent COVID-19. Among other things, the company baselessly claimed that “COVID-19 Patients who get enough vitamin D are 52% less likely to die.”  The FTC filed a complaint in that case in April 2021. And, like Xlear, Quickwork LLC also received a warning letter telling them to stop their unsubstantiated COVID-19 claims. They didn’t stop.

Enforcement of the COVID-19 Consumer Protection Act isn’t limited to supplement-type products and health claims, but extends to other deceptive activities related to COVID-19.  For example, the FTC filed a complaint on June 30, 2021 against a marketer of PPE for falsely advertising an ability to quickly deliver N95 facemasks to consumers. The company on multiple occasions failed to deliver any PPE at all, failed to deliver PPE in a timely manner, failed to issue any refunds, and at times even delivered cloth masks despite promising delivery of N95 masks. The complaint seeks civil penalties under the COVID-19 Consumer Protection Act, among other things.

These cases provide some cautionary insights:

• The FTC (and DOJ) have been and continue to be very serious about prosecuting claims that a product can prevent, treat, or cure human disease without competent and reliable scientific evidence, including, when appropriate, well-controlled clinical studies substantiating that the claims are true.
• This goes doubly for COVID-19 related claims.
• As the PPE case shows, the authority under the COVID-19 Consumer Protection Act isn’t limited to health claims, but goes generally to deceptive acts or practices in connection to COVID-19.
• The FTC and DOJ will seek monetary penalties – including both refunds for consumers as well as civil penalties.
• If the FTC tells you to stop making unsubstantiated claims, stop. Ignore the FTC’s warning letters at your own peril.

FDA introduced electronic copies (eCopies) of 510(k)s in 2013 (see our prior blogs here and here) as a way to reduce the need for submission of paper copies of 510(k)s to the Agency.  An eCopy is an electronic copy of the 510(k) that is comprised of files created by the sponsor, with the exception of several FDA forms, and is submitted to the Agency by saving to a CD, DVD or flash drive and mailing or otherwise physically delivering the media to FDA.  The biggest drawback of an eCopy, in our opinion, is the need for physical delivery to the Agency, versus being able to electronically deliver the files.

In September 2018, FDA took its first step towards electronic 510(k) submissions with its Quality in 510(k) Review Program Pilot, which we blogged about here.  This pilot program, which utilized FDA’s eSubmitter electronic submission template, ended in May 2021.  As that program was underway, FDA developed another pilot program for electronic 510(k)s using the electronic submission template and resource (eSTAR).  Both of these electronic templates were free to use and offered:  automatic construction and auto-filling content; content and structure that is complementary to CDRH internal review templates; integration with FDA databases and guidance documents; and automatic verification.  While eSubmitter is a proprietary application that requires training, eSTAR uses Adobe Acrobat Pro.  eSTAR also offers some additional technical improvements, such as the ability to add comments to the PDF.

Section 207 of the FDA Reauthorization Act of 2017 (FDARA) (Pub. L. 115-521 ) amended Section 745(A)(b) for the Federal Food, Drug, and Cosmetic Act (FD&C Act) to include that after publication of a final guidance, pre-submissions and 510(k)s “shall be submitted solely in such electronic format as specified by the Secretary in such guidance.” FD&C Act Section 745(A)(b)(3)(A).  On September 29, 2021, FDA took another step towards electronic submissions with release of the draft guidance, Electronic Submission Template for Medical Device 510(k) Submissions (Draft Guidance).  The Draft Guidance provides FDA’s interpretation of the statutory requirement for submission in electronic format.  It defines an electronic submission, or eSubmission, as a “submission package produced by an electronic submission template that contains the data of a ‘complete’ submission.” Draft Guidance at 8.  One might be surprised, as we were, that an electronic submission does not entail electronic transmission of the 510(k) files to the Agency.

The guidance explains that, when final, 510(k)s would need to be provided as an electronic submission prepared with the current eSTAR template.  It does not appear that any changes to the eSTAR template are proposed at this time.  The Draft Guidance provides an outline of the eSTAR structure, but does not include important details, such as which content of the 510(k) will be structured data, meaning data and content that are captured in the fields, dropdown boxes, checkboxes, etc., within the eSTAR template, and which content will be unstructured data that will be submitted as attachments to the electronic submission.  In our development of 510(k)s, sections such as the Device Description and Substantial Equivalence Discussion, are prepared over multiple iterations of revisions with a cross-functional team.  The ability to track changes and provide and respond to comments is an important part of this process.  These sections can also be quite lengthy, especially for complex devices and systems, and often incorporate many figures and tables which can be difficult to format outside of traditional word processing applications.  We hope that the final guidance and template will ensure the ability to easily attach documents outside of the template to minimize impact to development workflows.  The eSTAR outline in the Draft Guidance includes references to topical guidance documents for each section, but it is also not clear if the template will use the structured forms to ensure content from these guidance documents is addressed, or if it provides only a reference to be used by applicants to prepare unstructured content containing recommendations from these guidance documents.

The Draft Guidance indicates that “the electronic [510(k)] submission must still be saved to a form of electronic storage media and mailed to FDA.” Id. at 13.  Thus, the 510(k) created with the eSTAR template is not actually submitted electronically to the Agency.  We’re disappointed that this much needed aspect of a truly electronic submission is still missing.  So, while we wait for the 510(k) process to catch up with current technology, keep your computers with CD/DVD burners well maintained for now and your blank media stocked.  We hope you don’t need to copy over “Road Jamz 2005,” as John Oliver worried about in his episode of Last Week Tonight that addressed this important issue as it related to submission of Emergency Use Authorizations early in the COVID-19 pandemic.

On September 30, we blogged about the ongoing dispute and litigation around the use of contract pharmacies under the 340B Drug Discount Program (click here).  We reported that HRSA was proceeding with enforcement actions against drug manufacturers that have declined to sell to 340B covered entities that use multiple contract pharmacies to dispense 340B drugs to their patients, despite the pendency of several lawsuits challenging such enforcement.

Last week, the U.S. District Court for the Southern District of Indiana decided several substantive motions in Eli Lilly & Co. v. HHS, No. 1:21-cv-00081-SEB-MJD (S.D. Ind. Oct. 29, 2021), one of the lawsuits challenging HRSA’s enforcement actions. A key issue before the court was whether, despite the relevant statute’s silence on the issue, Congress intended to allow the use of contract pharmacies.  The court found that it was clear that the statute required manufacturers to honor their contractual obligation to charge covered entities no more than the 340B ceiling price. Lilly’s refusal to honor the price for covered entities’ purchases, based solely on the delivery location or dispensing mechanism, directly conflicted with this statutory requirement because it prevented covered entities from accessing 340B pricing and would force them to purchase those drugs at higher prices. In the court’s view, Congress’ broad language did not leave room for manufacturers to unilaterally control the availability of their 340B prices to a particular delivery location of their choosing. The court also disagreed with Lilly that the 340B program had expanded beyond Congress’ intent because, even at the time of the statute’s enactment in 1992, Congress was aware that reliance on outside pharmacies by covered entities was a common business practice.

Although HRSA prevailed on the substantive, statutory argument, the agency did not fare as well on procedural grounds. Judge Barker ruled that HRSA’s December 30, 2020 Advisory Opinion was arbitrary and capricious because it was legally flawed in assuming that the statute required drug companies to offer the discounted prices to covered entities regardless of the drug distribution model. As discussed above, the judge found that the statute was silent on the issue. Further, although HRSA’s May 17, 2021 enforcement letter did not require notice and comment and was not contrary to law, it was arbitrary and capricious for HRSA’s failure to acknowledge, much less explain, its change in position regarding its authority to enforce potential violations of the 340B statute connected to contract pharmacy arrangements.

According to the court, HRSA consistently represented before December 2020 that its 1996 and 2010 guidance documents were non-binding and that the agency had limited authority to issue enforceable regulations regarding contract pharmacy arrangements. For example, throughout 2020, the agency continued to inform covered entities that, although “HRSA continues to strongly encourage manufacturers to sell 340B priced drugs to covered entities directly and through contract pharmacy arrangements,” it lacked “comprehensive regulatory authority” to “issue enforceable regulations to ensure clarity in program requirements . . . .” With its December 2020 Advisory Opinion and May 2021 enforcement letters, HRSA dramatically changed course by asserting its authority to compel manufacturers to provide the 340B price to covered entities that use multiple contract pharmacies.  According to the court, when an agency adopts a position that is radically different from its previous views, the Administrative Procedure Act requires the agency to show that there are good reasons for the new policy. HRSA failed to even acknowledge any change in its position with regard to drug manufacturers’ dealings with covered entities through contract pharmacy arrangements.

The Court’s order provides both sides with reasons to claim success.  Drug companies can claim vindication that HRSA’s threats of enforcement are arbitrary and capricious. Unless HHS appeals the decision and it is reversed, the companies do not have the immediate threat of large refunds and fines anymore. On the other hand, HRSA and covered entities can find comfort that the court’s statutory analysis has opened the door for HRSA to allow covered entities to contract with multiple pharmacies, albeit through the proper procedures.

On October 5, 2021, California signed SB 343 “Truth in Labeling for Recyclable Materials” into law, amending the state’s law relating to environmental advertising. The result is a California law that is significantly more narrow than the  Federal Trade Commission Guides for the Use of Environmental Marketing Claims (“Green Guides”), In addition to significantly narrowing the categories and types of items that may be labeled as recyclable, the new law includes significant substantiation and record-keeping requirements for companies.

Until the law was enacted, California law allowed a recyclable claim, and required those claims to be substantiated by competent and reliable evidence. Any Company making such claims needed to keep records supporting the validity of those representations, including evidence that the claims conformed with the Green Guides.

SB 343 adds additional requirements; it requires that California’s Department of Resources Recycling and Recovery (CalRecycle) update regulations that require disposal facilities to provide information on recycling data.  Based on these data, CalRecycle must conduct and publish a report of material types and forms that are collected by solid waste facilities.  The results of that study (which must be updated every five years) will determine if a product or packaging is considered recyclable; only if the product or packaging is collected for recycling by programs in jurisdictions that collectively encompass at least 60% of the population of the state will it be considered “recyclable.”  Furthermore, under the new law, the use of the chasing arrow symbol itself will be a misleading environmental marketing claim in advertising or on a product label unless the product meets the standard of “recyclable.”

Under SB 343, a product or packaging is not recyclable in California if:

1. It includes components, inks, dyes, adhesives, or labels that prevent its recyclability;
2. It contains intentionally added chemicals identified pursuant to regulations implementing section 42370.2(g)(4) of the California Public Resources Code; or
3. It is made from plastic or fiber containing PFAS that have been intentionally added with a functional or technical effect or that measure above 100 parts per million total organic fluorine.

Notwithstanding the above, a product or packaging is recyclable if:

1. The product or packaging has a demonstrated recycling rate in California of at least 75% (note this is a different metric from the 60% population target above);
2. The product or packaging is not collected pursuant to a curbside program, but the non-curbside collection program recovers a certain portion of the product or packaging and it has sufficient commercial value; or
3. The product or packaging is part of, and in compliance with, a program established on or after January 1, 2022, governing the recyclability of that product or packaging and the director of CalRecycle determines that it will not increase contamination of curbside recycling or deceive consumers.

Finally, SB 343 provides that resin identification code numbers (e.g., #1 PETE, #2 HDPE), cannot be placed inside a chasing arrows symbol unless the rigid plastic bottle or container meets the new statewide recyclability criteria discussed above. There are exemptions, though, including for consumer goods that display a chasing arrow symbol or instruct consumers to recycle a product as directed by the California Beverage Container Recycling and Litter Reduction Act or any other federal or California law.

For companies selling products in California, it is not enough to simply follow the FTC Green Guides. Instead, companies must be aware of the specific nuances and requirements in California and developments in other states.  The FTC intends to begin an update of its Green Guides in 2022, and with growing conflicts at the state level like this new California law, we anticipate seeing some significant revisions with this update.

Having a hand in the FDA approval of important new prescription drugs is one of the things that makes our work at HPM so gratifying.  FDA approval is a significant hurdle to overcome, occurring only after scrupulous review of data collected over many years confirm to the satisfaction of seasoned FDA personnel that a drug is safe and effective.  In some instances, however, this is only the first hurdle to make innovative products available to patients.  The imposition of insurance-related hurdles beyond FDA approval, such as time-consuming prior authorizations or costly co-payments, can impede access to critical health care, such as contraceptives.

In 2010, the Patient Protection and Affordable Care Act (ACA) established a mandate requiring coverage for women’s preventive services including contraceptives.  Specifically, the ACA added a section to the Public Health Service Act to require all group health plans and all issuers of group or individual health insurance coverage (other than grandfathered plans, a rapidly shrinking category) to cover without cost-sharing women’s preventive services “provided for in comprehensive guidelines supported by the Health Resources and Services Administration” (HRSA).  42 U.S.C. § 300gg-13(a)(4).  HRSA’s current comprehensive guidelines “recommend[] that adolescent and adult women have access to the full range of female-controlled contraceptives to prevent unintended pregnancy and improve birth outcomes.”  HRSA, Women’s Preventive Services Guidelines, Contraception (emphasis added).  According to the guidelines, “[t]he full range of contraceptive methods for women currently identified by the [FDA] include[s]” 18 methods of contraception “and additional methods identified by the FDA.”  Id.  The 18 methods of contraception listed in the guidelines are derived from a Birth Control Guide (Guide) that the FDA developed in the late 1990s to provide education around relative rates of efficacy across types of contraceptives.  The Guide, which provides consumers with “high-level information about different birth control options,” is “not meant to be a complete list of all available birth control options.”  More importantly, it was never intended to be used as a basis for determining health insurance coverage or reimbursement as it is not fit for that purpose.

While the Guide has 18 categories, some of those categories are so broad that they can encompass contraceptives that are very different from one another.  Moreover, as noted, the Guide was designed to highlight the differences in efficacy of various contraceptive methods but does not address the many other considerations that are taken into account by a woman and her provider when determining the best contraceptive to meet family planning needs.  Other considerations might include the specific hormones in the product, the levels of hormones, the side effect profile, ease of use, and the ability to comply with the labeled regimen.  As to the last point, compliance with a contraceptive method is critical to achieving the desired efficacy.

The federal agencies responsible for enforcing the contraceptive coverage requirement of the ACA (the Departments of Labor, Health and Human Services, and Treasury, collectively, the Departments) have issued regulations and guidance that have served to permit plans to limit the coverage they provide for contraception, despite HRSA’s recommendation that the full range of approved contraceptive methods be covered.  As a result of inconsistent implementation of the ACA coverage requirements, the Departments issued guidance that plans and issuers must cover “without cost sharing at least one form of contraception in each of the methods (currently 18) that the FDA has identified for women in its current Birth Control Guide.”  In addition, the Department guidance states that plans and issuers must cover at no cost any FDA-approved form of contraception if recommended by an individual’s prescriber based on a determination of medical necessity (i.e., the plan or issuer must defer to the determination of the prescriber) and that for any reasonable medical management techniques utilized within a specified method of contraception, “plans and issuers must have an easily accessible, transparent, and sufficiently expedient exceptions process that is not unduly burdensome on the individual or provider.”  However, as recently described in a report issued by the National Women’s Law Center, this guidance is often not followed. When plans and issuers fail to cover the full range of contraceptives within each of the Guide’s categories or fail to defer to a prescriber’s determination of medical necessity, the form of contraception that a woman has found to be best for her (and therefore most likely to be effective) may not be covered without cost-sharing, forcing her to make the choice between effective contraception and the contraceptive that her insurance will pay for, in contravention of the ACA.

In that vein, a recent letter from congressional leaders to the Biden Administration responded to reports of coverage denials and extensive medical management requirements by health plans limiting access to contraceptives and asked the Administration to “ensure that the progress made by the [ACA] to provide individuals with coverage for the full range of [FDA] approved contraceptives continues to be protected and enforced.” The letter requested the Departments’ assistance in ensuring access “to the full range of FDA-approved contraceptives as required by law.”

The Guide, which was never intended to serve as a basis for reimbursement policy, serves an important purpose – educating women on the potential efficacy of various methods – and it should continue to be utilized for that purpose.  However, based on the many factors that come into the decision-making process for each individual regarding their contraceptive, the Guide should not be utilized to limit choice.  For a woman to receive access to the contraceptive option that is best for her, the ACA must be implemented as intended.  Plans and issuers should be required to cover all FDA-approved contraceptive methods without a therapeutic equivalent without cost sharing – not just one or two per category in a list that was never intended by the FDA to be used for this purpose.  This would implement the ACA as intended, and FDA approval of contraceptives would coincide with access for women.

After 23 years, de novo classification review finally has an implementing regulation!

The other major review processes have had their regulations in place for many decades.  The Medical Device Amendments of 1976 created the initial premarket application (PMA) review and 510(k) substantial equivalence review processes.  Only a year later, in 1977, FDA promulgated regulations governing 510(k) reviews (21 C.F.R. Part 807, Subpart E).  In 1986, FDA followed up with the PMA regulations (21 C.F.R. Part 814).

In 1997, the de novo classification process was added to the Federal Food, Drug, and Cosmetic Act (FDCA) by the Food and Drug Administration Modernization Act of 1997.  The de novo process was later amended by the Food and Drug Administration Safety and Innovation Act and the 21st Century Cures Act.  Yet, all this time, this process lacked implementing regulations governing the process and the criteria for approval.  The regulatory uncertainty has ill‑befitted a very important pathway to market for novel medical devices.

The rule became final on October 5, 2021 via publication in the Federal Register.  The new rule will be codified in 21 C.F.R. Part 860.  It was published approximately three years after the December 7, 2018 release of the proposed rule (see blog post on the proposed rule here).  The de novo rule is structurally similar to the 510(k) regulations (21 C.F.R. Part 807, Subpart E) and the PMA regulations (21 C.F.R. Part 814), and consistent with existing guidance documents on de novo request content and review:

• De Novo Classification Process (Evaluation of Automatic Class III Designation)
• FDA and Industry Actions on De Novo Classification Requests: Effect on FDA Review Clock and Goals
• Acceptance Review for De Novo Classification Requests

As discussed in detail in our post on the proposed rule, there are certain features of the de novo regulations that will increase the burden on de novo requesters, and may exceed FDA’s statutory authority.

The final rule is largely unchanged from the proposed rule.  Perhaps the most controversial provision in the de novo rule is the inspectional authority FDA grants itself:  “[the Agency] may inspect relevant facilities to help determine” (1) that both nonclinical and clinical data were collected in a manner that ensures the data accurately represents device benefits and risks, and (2) that implementation of the Quality System Regulation (QSR), along with general and special controls, provide adequate assurance of safety and effectiveness.

In our post on the proposed rule, we pointed out that with certain 510(k)s and generally all PMAs, the FDCA affirmatively grants pre‑approval inspection authority.  Specifically, for 510(k)s, QSR inspections are prohibited unless FDA finds that “there is a substantial likelihood that the failure to comply with such regulations will potentially present a serious risk to human health.”  FDCA § 513(f)(5).  In the PMA context, the statute permits FDA to withhold approval if manufacturing facilities do not conform to QSR requirements.  Id. § 515(d)(2)(C).  In contrast, the FDCA is silent regarding pre-classification inspections for de novo requests.  Some commenters, including AdvaMed, noted this apparent lack of inspectional statutory authority when it comes to de novo classification.

In the preamble, FDA insists that the inspectional authority claimed in the final rule is narrowly drawn and will not be much used.  FDA says inspections may be necessary if a device has “critical and/or novel manufacturing processes that may impact the safety and effectiveness of the device.”  86 Fed. Reg. 54,826, 54,832 (Oct. 5, 2021).  FDA clarifies that, unlike pre-approval inspections conducted during a PMA review, the purpose of an inspection of a manufacturing facility for a de novo review is “not for the purpose of reviewing for compliance with the QSR.”  Id.  Rather, it is to “determine whether the proposed special controls are sufficient to reasonably assure safety and effectiveness or if additional controls are needed under section 513(f)(2)” of the FDCA.  Id.  FDA forecasts that the circumstances where an inspection is necessary “should arise with a small percentage of De Novo requests.”  Id.

As to nonclinical and clinical testing facilities, FDA asserts authority to inspect comes from section 513(a)(1)(C), which defines Class III devices and subjects them to premarket approval under section 515.  FDA states that such inspections are necessary in order to “ensure[] the data accurately represents the risks and benefits of the device.”  Id.

It remains to be seen whether FDA will be successful in justifying the new inspectional authority.  As discussed in our blog post on the proposed rule, the statutory provision that authorizes classification proceedings (FDCA § 513) does not authorize manufacturing inspections, except for a limited exception in the 510(k) context.  Since a de novo review is at bottom the promulgation of a new classification regulation under authority of § 513, it seems a stretch to say that it authorizes FDA to undertake inspections in connection with such classification proceedings.  As to the testing facility inspections, without more explanation than was provided in the preamble, it is not clear how section 513(a)(1)(C) provides authority.

On the timing of de novo reviews, both the proposed and final rule state that FDA will grant or deny a de novo classification request within 120 days after receipt, with the exception of a pause in FDA’s review clock for up to 180 days while a requester responds to deficiencies identified by FDA.  The 120-day deadline is already in the statute, so FDA had no choice but to adopt this deadline in the final rule.

Of course, despite the statutory deadline, pursuant to the MDUFA IV commitment letter, FDA currently has a goal to review 70% of de novo requests received in FY 2022 within 150 days.  The final rule theoretically shaves the current review timeline down by 30 days, and it applies to all de novo requests (not just 70% of requests).

It will be interesting to see if and how FDA will be able to meet the new, shorter timeline.  It is possible that this shortened timeline will motivate FDA to be selective in its decisions to conduct pre‑classification inspections.  Alternatively, perhaps FDA will simply fail to meet the timeline or will continue to make to agreements with Congress that override both the statutory and regulatory timeline.

The final rule requires, among other things, that the requestor submit a copy of representative advertisements for the device.  FDA disagreed with a comment that advertisements are outside the scope of a Class I and Class II device review, stating that “such information is necessary to determine the device’s intended use and its safety and effectiveness for the purposes of classification.”  86 Fed. Reg. at 54,839.  FDA does not have authority over the advertising of Class I and II devices (which was given to the Federal Trade Commission), so the Agency justifies this request based on its authority to consider intended use when determining safety and effectiveness.  21 C.F.R. § 860.7(b)(2).

The final rule becomes operative on January 3, 2022.  As FDA begins to implement these provisions, we will be particularly interested in seeing how frequently FDA chooses to conduct pre‑classification inspections and whether they keep such inspections within the narrow scope described in the preamble.

On October 12, 2021, FDA authorized the marketing of R.J. Reynolds (RJR) Vapor Company’s Vuse Solo electronic nicotine delivery system (ENDS) device and accompanying tobacco-flavored e-liquid pods, specifically, Vuse Solo Power Unit, Vuse Replacement Cartridge Original 4.8% G1, and Vuse Replacement Cartridge Original 4.8% G2. This marks the first e-cigarette ever to be authorized by the FDA through the Premarket Tobacco Product Application (PMTA) pathway.  In a press release announcing the orders, Mitch Zeller, J.D., director of the FDA’s Center for Tobacco Products stated that the RJR data “demonstrates its tobacco-flavored products could benefit addicted adult smokers who switch to these products – either completely or with a significant reduction in cigarette consumption – by reducing their exposure to harmful chemicals.”

As we have previously discussed, under the PMTA pathway, manufacturers must demonstrate that, among other things, marketing of the new tobacco product would be appropriate for the protection of the public health. According to the FDA press release, the Vuse e-cigarette products were found to meet this standard:

because, among several key considerations, the agency determined that study participants who used only the authorized products were exposed to fewer harmful and potentially harmful constituents (HPHCs) from aerosols compared to users of combusted cigarettes. . . .  Additionally, the FDA considered the risks and benefits to the population as a whole, including users and non-users of tobacco products, and importantly, youth. This included review of available data on the likelihood of use of the product by young people.  For these products, the FDA determined that the potential benefit to smokers who switch completely or significantly reduce their cigarette use, would outweigh the risk to youth, provided the applicant follows post-marketing requirements aimed at reducing youth exposure and access to the products.

FDA also issued 10 marketing denial orders (MDOs) for flavored ENDS products submitted under the Vuse Solo brand by RJR.  FDA stated that the agency is still evaluating the company’s application for menthol-flavored products under the Vuse Solo brand.

FDA Provides Update on Pending PMTAs

FDA faced a crush of PMTA submissions in August–September 2020, largely for ENDS products.  To understand why that crush occurred, recall that for the “deemed” tobacco products that are subject to FDA regulation under the 2016 deeming rule, including ENDS products, FDA established certain “compliance periods.” The original deadline for submission of PMTAs for products subject to the deeming rule such as ENDS products was August 8, 2018.  The PMTA submission deadline was extended several times by FDA, and the agency ultimately decided that for combustible products such as cigars, pipe tobacco, and hookah tobacco, the submission deadline would be August 8, 2021, while for non-combustible products such as e-cigarettes and other ENDS products, the submission deadline would be August 8, 2022.

After the last FDA extension of time, several public health organizations including the American Academy of Pediatrics sued FDA to force shorter deadlines.  In July 2019, the court shortened the deadlines for submission of premarket review applications for the “deemed” tobacco products from August 8, 2022 (for non-combustible products) to May 11, 2020 (see our post here).  The order also provided that a product subject to a timely submitted PMTA could remain on the market for up to one year from the date of application while FDA considered the application.  In April 2020, the court extended the submission deadline for non-combustible products to September 9, 2020 due to the effects of the COVID-19 pandemic.  FDA reported that it received thousands of submissions representing more than 6.5 million products, mostly ENDS products, by the deadline of Sept. 9, 2020.

In the October 12, 2021 press release, FDA reported that it had “taken action” on over 98% of the applications submitted by that deadline.  This includes issuing MDOs for more than one million flavored ENDS products.  It should be noted that RJR submitted its Vuse Solo PMTAs on October 10, 2019, about 10 months before the PMTA submission crush, and it still took FDA two full years to review the Vuse Solo PMTAs.  FDA said that would “continue to issue decisions on applications, as appropriate, and is committed to working to transition the current marketplace to one in which all ENDS products available for sale have demonstrated that marketing of the product is ‘appropriate for the protection of the public health.’”

Last fall, when AMG Capital Management, LLC v. FTC was pending before the Supreme Court, former Federal Trade Commission (FTC) Commissioner Rohit Chopra (now Director of the Consumer Financial Protection Bureau) and Samuel Levine (recently appointed Director of the FTC’s Bureau of Consumer Protection) coauthored an article proposing resurrecting the FTC Act’s penalty offense authority. Rohit Chopra & Samuel A.A. Levine, The Case for Resurrecting the FTC Act’s Penalty Offense Authority, U. Pa. L. Rev. (forthcoming). If you haven’t heard of the Penalty Offense Authority found in Section 5 of the FTC Act, 15 U.S.C. § 45(m)(1)(B), you aren’t alone – it was added to the FTC Act in 1975, and it was apparently highly successful for some time, but then largely abandoned during the 1980s when the FTC’s leadership saw markets as “self-correcting” and sought to rid itself of the “national nanny” moniker.  Chopra and Levine urged:

Using this authority, the Commission can substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms. This would dramatically improve the FTC’s effectiveness relative to our current approach, which relies almost entirely on another authority, Section 13(b). Section 13(b) does not allow the Commission to seek penalties against wrongdoers, and it is now under threat in the Supreme Court. Chopra & Levine, supra.

Under this authority, the FTC can send companies a “Notice of Penalty Offenses,” also referred to as a “Section 205 Synopsis.”  These Notices list certain types of conduct that the FTC has determined, in prior administrative orders, violate the FTC Act.  Once a company receives the Notice, it then “knows” about the conduct the FTC prohibits and if the company subsequently engages in the prohibited conduct, it can be subject to civil penalties of up to $43,792 per violation.

As we reported here, the U.S. Supreme Court in AMG Capital Management, LLC v. FTC, No. 19-508 (Apr. 22, 2021), unanimously held that Section 13(b) of the FTC Act does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.  In response, the FTC has done what Chopra and Levine urged, and “resurrected” its Penalty Offense Authority.

The Commission’s first such Notices under the resurrection went out on October 6, 2021 to 70 for-profit educational institutions.  And in what seems to be an effort to send Notices to every entity who might arguably be covered by a prior order, the FTC sent Notices to more than 700 companies on October 13, 2021, including many consumer product, pharmaceutical, and food manufacturers, focused on the misleading use of endorsements and testimonials.  The FTC’s Penalty Offenses Concerning Endorsements website lists the cases the FTC relied on, which date between 1941 – 1984, and includes a sample Notice and letter and a list of recipients.

While the application of this authority seems fairly cut and dried, the FTC has only used this authority once in the last decade.  There may be reasons for that including the necessity of proving that the defendant committed the same conduct and did so with actual knowledge that the conduct was unfair or deceptive.  Any litigation in this area could be complex and protracted – defendants can challenge the FTC’s original determination of unfairness or deception, and the standard for actual knowledge is high (and has been recently litigated at the Supreme Court in the ERISA context in Intel Corporation Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020)).

The FTC assures the companies – and the public – “the fact that a company is on the list is NOT an indication that it has done anything wrong,” and that the Notices are not based on a review of a company’s advertising.  FTC, List of October 2021 Recipients of the FTC’s Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials (last updated Oct. 15, 2021).  However, there is no indication from the FTC about the determination of who should receive a Notice.

What does this shift to the Penalty Offense Authority portend?  The first thing is that the FTC is clearly signaling more aggressive enforcement.  This shouldn’t come as a big surprise if you have been following the FTC, its new Chairman, Lina Khan, and its actions in the past nine months.  The second more surprising thing is that the votes of the Commission to authorize sending these Notices was 5-0: the Commission is unanimous in its support of the use of these Notices.  It will be interesting to see if the votes to seek civil penalties are similarly unanimous and whether the increased enforcement crosses party lines as well.  And finally, the FTC is giving companies the warning up front.  There will not be any second chances or cease and desist orders as in the past – if you violate the law after being warned, the FTC is likely to seek civil penalties.

The FDA announced last week that it intends to withdraw its guidance documents issued in March 2020 outlining temporary policies regarding the manufacture of hand sanitizers. Effective December 31, 2021, companies manufacturing hand sanitizers and alcohol for use in hand sanitizer under the temporary policies must cease production of these products. Hand sanitizers manufactured before or on December 31, 2021, and produced under the temporary policies by can no longer be sold or distributed by manufacturers after March 31, 2022.  Those who wish to continue to manufacture hand sanitizer after December 31, 2021 must comply with the tentative final monograph for over-the-counter topical antiseptics and other applicable requirements, including the FDA’s Current Good Manufacturing Practice requirements.

As you may remember, at the outset of the pandemic, there was a shortage of hand sanitizer, and many different types of companies, like distilleries and breweries, sought to step into the breach and manufacture hand sanitizer.  Because of this, the FDA issued a Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19), and policies for the manufacture of alcohol to be used in hand sanitizer.  The FDA is now withdrawing these policies because consumers and health care professionals are no longer experiencing difficulties finding hand sanitizer products, and these temporary policies are no longer needed to help meet demand.

The FDA has posted a helpful Q & A to assist those who have been manufacturing under the temporary policies.