Those of you keeping up with the Orange Book know that FDA has been considering changes to patent listing requirements, many of which industry has been requesting for decades.  Now, Congress is trying to facilitate effective administration of the Orange Book.  On January 5, 2021, President Trump signed into the law the Orange Book Modernization Act, Pub. L. 116-290, which had been kicking around since March 2019.  Though the Act does revise the seminal Federal Food, Drug, and Cosmetic Act (FDC Act) drug provisions set forth in Section 505, there are few new concepts introduced.  Primarily, the Orange Book Modernization Act codifies existing FDA listing practices, most of which are described in 21 C.F.R. § 314.53.  Notwithstanding the lack of new policies, the Orange Book Modernization Act represents Congress’s interest and attention to Orange Book reform—something (as we mentioned in our June 2020 post) FDA essentially has been avoiding for the last 15 years.

In the House Report on the bill, written in May 2019, Congress explains its concerns over the patent listing process.  Despite patent listing regulations, Congress noted that “some branded drug manufacturers may choose not to submit every patent on a product to the FDA, and others are submitting patents potentially for the purpose of blocking generic competition.”  Further, stakeholders are concerned that “the patent information included in the Orange Book is not as accurate or up-to-date as it could be.”  To address such concerns, the Orange Book Modernization Act specifies the patent information that must be submitted and listed in the Orange Book, clarifies that canceled or invalid patents must be timely removed, directs FDA to solicit public comments on information listed in the Orange Book (which FDA already did) and issue a report to Congress, and instructs the Government Accountability Office (GAO) to study whether certain patents should be listed in the Orange Book at all.

The specific provisions of the Orange Book Modernization Act amend FDC Act § 505(b), (c), and (j).  The revisions to FDC Act § 505(b) are mainly administrative, revising the numbering and enumerating the elements that must be included in any 505(b)(1) submission.  It’s in this section that Congress codifies the limitations on patents listed in the Orange Book, stating that only drug substance, drug product, or method of use patents can be listed.  Of course, this has been FDA’s policy for years, but now it’s statutorily-mandated.  The most interesting revision to 505(b)(1) is the removal of sentence: “Upon approval of the application, the Secretary shall publish [patent] information submitted under the two preceding sentences.”  This sentence, albeit revised to conform with the amended statutory language, was originally included in the bill and is included in the 2019 House Report, but it does not appear in the final version.  While seemingly a minor blip, removal of this provision means that FDA no longer needs to publish patent information immediately on approval and can instead publish it 30 days after approval as set forth in 505(j)(7).  At first, this seems like an oversight, but because it was intentionally removed, it raises some questions about whether FDA will change its patent publishing practices.

The Act revises 505(c)(2) to conform to the changes in (b)(1), address timing for submission of patent information (again, codifying existing policy), and emphasizes that patent information not addressed in 505(b)(1) should not be submitted to the Agency.  The Act also revises 505(j)(7) to conform to the revisions in (b)(1), but, more importantly, adds authority for FDA to list exclusivities in the Orange Book (again, something FDA already does).  It also tries to better explain the requirements to delist patents that have been cancelled or invalidated by PTAB, requiring FDA to remove from the Orange Book such patent information, other than patents subject to challenges that may result in periods of 180-day exclusivity, within 14 days of notification.  However, the PTAB decisions on cancellation and invalidity remain limited to those decisions “from which no appeal has been taken or can be taken,” meaning that most IPR decisions still fall outside the scope of delisting requirements.

Finally, the Orange Book Modernization Act requires FDA to solicit comments on the types of information that should be included on or removed from the Orange Book and provide a summary to Congress of such comments and any responsive action.  The GAO also must investigate and commission a report on the listing of drug/device or device delivery system patents in the Orange Book, as well as the effects of such listing on market entry.  Congress required that the GAO Report include recommendations as to whether such device patent information should be included in the Orange Book and which patents should not be listed at all in order to reduce barriers to approval and market entry.  Presumably, these reports will be used to assess whether further revisions to the Orange Book listing process are necessary – and will perhaps provide long-awaited answers to the questions associated with listing device patents in the Orange Book.

Again, nothing in the Orange Book Modernization Act is revolutionary, but it does signal that FDA and Congress are on the same page with respect to the importance of maintaining accurate and up-to-date patent information, and that Congress is willing to fold PTAB/IPR decisions into Hatch-Waxman.  That could be important in the future if it becomes necessary to further incorporate PTAB/IPR decisions into Hatch-Waxman for purposes of 30-month stay termination or 180-day exclusivity forfeiture. In any case, the orderly administration of the Orange Book helps both innovators and generics attain certainty.  Further, that Congress passed this Act in the first place suggests that if FDA is not prepared to reform the Orange Book and industry listing practices, Congress may take the issue into its own hands.

That did not take long.  As we reported at the end of 2020, FDA announced in a notice the User Fees for OTC Monograph Drug Manufacturers and other fees.  Then on Jan. 6, 2021, HHS announced that the fees are off the table.

What happened?  Well, apparently, the notice about user fees for OTC monograph drug manufacturers took some parties by surprise.  Notably, distilleries and other parties, which, during the pandemic, had started to manufacture badly needed hand sanitizer (a monograph product), learned that their registration as OTC monograph drug manufacturers (a requirement to fall under FDA’s temporary policy) was associated with a significant price ticket that would negate at least some of the benefit (if any) of their (temporary?) move into drug manufacturing.  FDA’s temporary policy makes no mention of possible liability for user fees and many were unaware that these fees might apply to their activities under the policy.

Not long after the notice was published, just before the end of 2020, HHS issued a statement that the action by FDA had not been

cleared by HHS leadership, who only learned of it through media reports . . . HHS leadership convened an emergency meeting  . . . to discuss the matter and requested an immediate legal review. The HHS Office of the General Counsel (OGC) has reviewed the matter and determined that the manner in which the fees were announced and issued has the force and effect of a legislative rule. Only the HHS Secretary has the authority to issue legislative rules.

This is consistent with the HHS memo from September 2020, which stated that all departmental rules must be signed by the Secretary.

The Jan 6, 2021 Federal Register announcement states that HHS has “ordered FDA to cease collections activities related to the Over-the-Counter Monograph User Fee Program (‘OMUFA’) until, with the approval of the Secretary, the Department issues further direction concerning FDA’s administration of OMUFA which provides the public with notice and opportunity for comment.”  The latter is somewhat surprising as other user fee programs have not been treated as rules and the setting of annual fees has not been subject to notice and comment prior to going into effect.

Since the user fees are an essential component of the OTC monograph reform program, a new notice (with opportunity to comment this time) can be expected.  It seems that the monograph system’s long history of delay is not yet over.

It’s a burning question: when will we return to normal?  And although the answer is hugely subjective, this post focuses on the date the official emergency declaration for COVID-19 will terminate.  Despite the general sentiment that we want to be back to normal sooner rather than later, precedent reveals that the termination of an emergency declaration can take years.  Indeed, many public health crises that now seem historic, like Ebola or Zika, remain subject to a Public Health Emergency Declaration, with some extending over seven years.  This lengthy duration is not a bad thing, however, as the emergency status supports the continued distribution of medical products subject to an Emergency Use Authorization (EUA).

As background, in 2004, through the National Defense Authorization Act, Congress established a program to permit during times of emergency the sale of a drug, biologic, or medical device that lacks FDA approval, license, or clearance.  This program, codified in section 564 of the Federal Food, Drug, and Cosmetic Act, allows FDA to authorize the use of an unapproved drug, biologic or medical device when alternative therapies are not available.  The criteria for issuance of an EUA are lower than the standards FDA typically requires for product approval and, among things, only requires a showing that there is a “reasonable belief” that a product “may be effective.”   21 U.S.C. § 360bbb-3(c).

The Secretary of HHS published a statement in February 2020 declaring that there is a public health emergency involving the virus that causes COVID-19.  See 85 Fed. Reg. 7316 (Feb. 7, 2020).  This Declaration serves as the basis for hundreds of EUAs, including face masks and other personal protective equipment, ventilators, remdesivir, convalescent plasma, and most recently vaccines.

Companies have relied on these EUAs, some of which are tied to a specific product and others that provide an “umbrella” authorization for whole product categories, to build up infrastructure and distribution chains to bring these necessary products to market.  But there is uncertainty about how long these companies can rely on the EUA as its marketing authorization.  Under the statute, an EUA is effective until 1) the Secretary terminates the declaration or the company obtains approval for the product; or 2) FDA revokes or revises the EUA based on its determination that the circumstances supporting the EUA no longer exist.   See 21 U.S.C. § 360bbb-3(f)(1).  This post provides perspective on when the first criterion might occur.

Since 2005, there have been 11 declarations of a public health emergency under the FDC Act.  The chart below lists in chronological order the type of emergency and the date HHS issued its declaration.

Of the 11 public health emergencies since 2004, HHS has terminated only three: two for Anthrax and one for H1N1.  The other public health emergency declarations remain open, and products marketed under EUAs for these emergencies continue to be available to the public.

The bar chart below shows the duration of each recent public health emergency (the data were run back in November 2020).  In context, the short tenure of the COVID-19 emergency (just shy of a year) in comparison with Bird Flu (approaching 8 years), makes us reasonably confident that HHS will not terminate the COVID-19 declaration any time soon.  The pace in which vaccines and treatments have become available could change the calculus, of course.

And even if the Secretary decides to terminate the emergency declaration, the statute provides some comfort to companies selling products pursuant to an EUA that they will not be left in the lurch with huge inventories of unapproved product.  The Secretary must provide advance notice that a declaration will be terminated, and that period of advance notice must reasonably provide sufficient time for disposition of the product or relabeling, as needed.  21 U.S.C. § 360bbb-3(b)(3).  Thus, the program has built-in a safety mechanism for companies to manufacture and distribute unapproved products pursuant to EUAs without fear that the rug could be pulled out from underneath them.

More than four years ago the Drug Enforcement Administration (“DEA”) started down a path by issuing a policy statement asserting that the agency “fully supports expanding research into the potential medical utility of marijuana and its chemical constituents.”  Applications to Become Registered Under the Controlled Substances Act to Manufacture Marijuana to Supply Researchers in the United States, 81 Fed. Reg. 53,846 (Aug. 12, 2016).  DEA noted increasing public interest in determining whether marijuana or its chemical constituents might be potential treatments for certain medical conditions.  Id.  DEA concluded, based on discussions with the National Institute on Drug Abuse (“NIDA”) and the Food and Drug Administration (“FDA”), that the best way to satisfy researcher demand for a variety of marijuana strains and cannabinoid extracts was to increase the number of registered marijuana growers.  [For our post on DEA’s policy statement, see DEA Policy Expands the Number of Marijuana Cultivators for Research, Aug. 17, 2016].  So at that point the Agency seemed poised to execute on that policy.

Well, DEA has been on a long and winding road with more than a few hazards in the form of Congressional prodding and a Department of Justice (“DOJ”) review of the Controlled Substances Act (“CSA”) and regulations forcing revisions to DEA’s 2016 policy.  However, it appears Agency is finally in a position to make good on its policy of registering additional marijuana growers for research with the issuance of a final rule on cultivation of marijuana for research.  Controls to Enhance the Cultivation of Marihuana for Research in the United States, 85 Fed. Reg. 82,333 (Dec. 18, 2020) (“Controls”).

Given DEA’s status as an agency within DOJ, it seems extraordinary that DEA would have issued a policy statement on marijuana only to have DOJ then determine that the policy failed to comply with the U.S. obligations under the international treaties.  But that appears to be the case.  Specifically, as a result of DOJ’s review concluding that DEA’s 2016 policy statement was inadequate to comply with U.S. obligations under the Single Convention on Narcotic Drugs, 1961, as amended by the 1971 Protocol (“Single Convention”), the DEA’s final rule requires DEA to purchase, take possession and distribute cannabis to researchers.

We now wonder where this road will lead given the complexity of DEA’s multiple roles as a regulator, purchaser and distributor of marijuana.

Background

For almost 50 years, DEA has restricted marijuana production to a single registered manufacturer, the University of Mississippi under contract with NIDA, believing that fewer registrants decreased the likelihood of diversion.  DEA has noted a 149 percent increase of researchers registered to conduct research with marijuana, marijuana extracts, and marijuana derivatives from 237 in November 2014 to 589 in June 2020 and a 575 percent increase of the annual marijuana production quota since 2017, from 472 kilograms (1,041 pounds) to 3,200 kilograms (7,055 pounds).  Id. at 82,336; DEA, Press Release, DEA Proposes Process to Expand Marijuana Research in the United States (Mar. 20, 2020).  DEA has authority to register manufacturers of marijuana, a schedule I controlled substance, provided the registration is consistent with the 21 U.S.C. § 823(a) public interest factors and U.S. obligations under the Single Convention.  85 Fed. Reg. 82,334.  DEA received 256 comments in response to its March 23, 2020, notice of proposed rulemaking (“NPRM”).  Commenters weighed in on a wide range of issues including the application process and registration criteria, marijuana quality, purchase and sale controls and costs.  The final rule adopts the NPRM with minor modifications and becomes effective on January 19, 2021.  [For our post on the NPRM, see Open for Business: DEA’s Proposed Rule Would Make the Agency an Active Buyer and Seller of Marijuana, Mar. 26, 2020].

Application Process

Over the last four years, DEA has received 38 applications from potential manufacturers after it published the policy statement in August 2016.  These applicants believed that DEA had indicated it would start reviewing and making a determination of potential registrations at that time.  DEA has stated that it will not consider applications received after January 19, 2021, until it has granted or denied applications received prior to that date.  21 C.F.R. § 1318.05(c) (all regulations under 21 C.F.R. § 1318 will be effective Jan. 19, 2021).  We assume DEA is indicating it will review the applications in the order they were received.

Registration Criteria

The CSA states that DEA should register only the number of bulk marijuana manufacturers necessary “which can produce an adequate and uninterrupted supply … under adequately competitive conditions for legitimate medical, scientific, research, and industrial purposes.”  21 U.S.C. § 823(a)(1).  However, DEA’s interpretation of the law is not as limiting as it appears.   In fact, DEA/DOJ has stated that the CSA “requires the DEA to register an applicant who meets all the other statutory requirements, without regard to the adequacy of competition, if the Administrator determines that registering another manufacturer will not increase the difficulty of maintaining effective controls against diversion.”  See, Memorandum of the Antitrust Division of the United States Department of Justice as Amicus Curiae in Support of the Application of Johnson Matthey, Inc., found at https://www.justice.gov/atr/memorandum-antitrust-division-united-states-department-justice-amicus-curiae-support-application

Thus, it will be interesting to see how many entities the DEA decides to register and if the agency makes a determination that the number should be limited based on the ability to maintain effective controls against diversion.

So, how will DEA handle well-qualified applicants who have engaged in marijuana-related activities that were legal under state law but in violation of the federal CSA?  DEA explained that any applicant that has manufactured marijuana without a DEA registration has violated the CSA regardless of whether they violated laws of the state where they are located, noting “[s]uch activity is relevant to past experience in the manufacture of a schedule I controlled substance, past experience in preventing diversion of a controlled substance from other than DEA-authorized sources, and the promotion and protection of public health and safety.”  Controls at 82,335.  DEA further asserted that such prior conduct is relevant and “wholly appropriate to consider” along with all relevant factors on a case-by-case basis in determining whether to issue a registration to the applicant.  Id.

DEA has no choice but to consider the public interest factors of 21 U.S.C. § 823(a).  There are applicants who adhered patiently to the CSA and DEA’s past warnings.  They forewent potentially lucrative opportunities so DEA would consider their application favorably when it was ready to issue registrations to manufacture marijuana for research.  DEA’s August 2016 policy statement put applicants on notice when it stated that “illegal activity includes any activity in violation of the CSA (regardless of whether such activity is permissible under State law) as well as activity in violation of State or local law.”  Applications at 53,847.  But DEA’s policy statement did not close the door on those applicants because it also noted that while past illegal conduct does not “automatically disqualify an applicant, it may weigh heavily against granting the registration.”  Id.

Conducting marijuana activities compliant with state law that violated the CSA may constitute grounds for DEA to deny an applicant’s registration.  We further wonder if DEA, with all other factors being equal might look more favorably upon registering applicants who conducted state-authorized marijuana activities in violation of the CSA but did not violate the enforcement priorities of the Cole Memo than those who violated the Cole Memo?  [For further discussion of the Cole Memo, see Up in Smoke? Will the Feds Ramp Up Enforcement Action Against Budding State Marijuana Industry?, January 4, 2018; GAO Recommends Better Monitoring of Federal Marijuana Enforcement Priorities; DOJ and DEA Officials Report on Marijuana Enforcement, February 4, 2016].

DEA also assesses an applicant’s compliance with state law.  Applicants must hold a valid state license to manufacture marijuana or explain that a state license is not required.  Controls at 82,335. 

Responding to commenters’ concerns about marijuana quality, DEA replied that a significant factor for selecting applicants to register is their “ability to consistently produce and supply cannabis of a high quality and defined chemical composition.”  Id. at 82,337; 21 C.F.R. § 1318.05(b)(2).  DEA will also place emphasis on the extent the applicant can supply quantities and varieties of cannabis and its derivatives to satisfy the anticipated demand of researchers and other registrants as demonstrated through a bona fide supply agreement.  21 C.F.R. § 1318.05(b)(3)(i).

Registration Process

DEA explained the process for issuing marijuana manufacturer registrations.  After receiving an application, DEA sends a questionnaire to applicants for them to complete and return within 10 business days.  Controls at 82,334.  DEA determines whether to grant an application under the 21 U.S.C. § 823 public interest factors by evaluating information provided in the application and questionnaire.  DEA then publishes a notice of application in the Federal Register, and current bulk marijuana manufacturer registrants and applicants have 60 days to comment on or object to the application.  Id. at 82,334; 21 C.F.R. § 1301.33(a).  DEA investigators also conduct on-site pre-registration inspections and report on whether to grant a registration.  If DEA proposes to deny an application, it must serve the applicant with an order to show cause providing the factual and legal basis for denial and hold a hearing if the applicant requests one.  Controls at 82,335.

Annual renewal and new application fees for manufacturers of marijuana and schedule I substances is $3,699.  21 C.F.R. § 1301.13(e)(1)(i).

Manufacturing Process

In addition to requiring DEA to grant a registration to grow marijuana only if the registration is consistent with the public interest, the registration must also be consistent with U.S. obligations under the Single Convention.  Controls at 82,339; 21 U.S.C. § 823(a).  The Single Convention requires signatory countries that allow the cultivation of cannabis for lawful purposes, such as manufacturing for research, to:

1. Designate areas and plots of land where they will permit cannabis plant cultivation for producing cannabis or cannabis resin;
2. Ensure only licensed cultivators engage in cultivation;
3. Specify through licensing the extent of the land on which cultivation is permitted;
4. Require cultivators to deliver all their cannabis to the responsible agency, ensuring the agency purchases and takes physical possession of the crops as soon as possible, but not later than four months after the end of the harvest; and
5. “Have the exclusive right of importing, exporting, wholesale trading[,] and maintaining stocks [of cannabis and cannabis resin],” except the exclusive right need not extend to medicinal cannabis, cannabis preparation, or the stocks of cannabis and cannabis resin held by manufacturers of such medicinal cannabis and cannabis preparations. Single Convention, art. 28, 23.

DEA has historically performed, and will continue to perform, the first three functions under the CSA, and NIDA carried out functions three and four.  Applications at 53,847.  DEA’s 2016 policy statement opined that to register additional cultivators to be consistent with the Single Convention, the cultivators had to agree through written memorandum of agreement with DEA, to distribute marijuana only with prior, written approval from DEA.  Id. at 53,848.  As a result of DOJ’s review, to comply with the CSA and issue registrations consistent with the Single Convention, the agency revised the regulations for DEA “to directly perform” the fourth and fifth functions as well. Controls to Enhance the Cultivation of Marihuana for Research in the United States; Proposed Rule, 85 Fed. Reg. 16,294.  The revised regulations require DEA to:

1. Take possession of marijuana after harvest; and
2. Maintain the exclusive right to import, export, wholesale trade and maintain stocks of marijuana and its resin. Controls at 82,339.

DEA Taking Possession

Manufacturers authorized to grow cannabis must notify DEA in writing of their proposed date of harvest at least 15 days before the commencement of the harvest and deliver their entire cannabis crop to DEA.  21 C.F.R. §§ 1318.04(c), (a).  The 15 days provides DEA with adequate time to travel to the manufacturer to take possession of the cannabis.  Controls at 82,341.  DEA purchases and takes physical possession of the crops as soon as possible, but no later than four months after the end of the harvest.  21 C.F.R. § 1318.04(a).  DEA may accept delivery and maintain possession of the cannabis at the manufacturer’s registered location consistent with maintaining effective controls against diversion.  Id.  DEA will designate secure storage at the manufacturer’s registered location where it will maintain possession and control access to the cannabis.  Id.  If no suitable storage location exists at the manufacturer’s registered location, DEA will designate a location for the grower to deliver the cannabis again, as soon as possible but not later than four months after the end of the harvest.  Id.  Manufacturers cannot distribute cannabis to researchers without DEA.  We are curious to see whether DEA headquarters and individual field offices will have adequate resources to participate in purchasing and distributing the cannabis in a timely manner along with fulfilling their other responsibilities.

Manufacturers may distribute small quantities of cannabis to registered analytical labs for chemical analysis prior to DEA purchasing and taking physical possession.  Id. 1318.04(d).

DEA has the exclusive right to import, export, wholesale trade, and maintain cannabis stocks, but that right does not extend to medicinal cannabis or cannabis preparations.  Id. 1318.04(b).  Medicinal cannabis is a drug product made from the cannabis plant or derivatives, and can be legally marketed under the Food, Drug and Cosmetic Act, while a cannabis preparation is cannabis delivered to DEA and converted by a manufacturer into a mixture containing cannabis, cannabis resin or extract of cannabis.  Id. 1318.02(b) and (c).  DEA can exercise its exclusive right by authorizing registrants to conduct such activities.  Id. 1318.04(b).  DEA requires prior written notice of each cannabis import, export, or distribution specifying the quantity and the name, address, and registration number of the registered manufacturer or researcher recipient before authorization.  Id.  Registered manufacturers cannot import, export, or distribute cannabis without the express written authorization of DEA.  Id. 

Purchase/Administrative Fee

DEA purchases marijuana with funds from the Diversion Control Fee Account and adds an administrative cost per kilogram to the sales price to end users.  In setting the administration fee, DEA will annually determine the preceding fiscal year’s cost of operating the program to cultivate cannabis and divide the prior fiscal year’s cost by the number of kilograms of cannabis authorized to be manufactured in the current year’s quota to arrive at the administrative fee.  Id. 1318.06(a).  DEA adds the administrative fee per kilogram to the sales price of the cannabis purchased from DEA, and the administrative fee is paid to the Diversion Control Fee Account which by statute must recover the full costs of operating the diversion control program.  Id.  DEA will post updated administrative fees on its website by December 15th of the year preceding the year when the administrative fee will be collected.  Id. 1318.06(c).

With having the exclusive right to wholesale trade in cannabis that it purchases from manufacturers, DEA will buy cannabis from manufacturers, sell cannabis to researchers and manufacturers, and establish prices for purchases and sales.  The new regulations summarize how DEA will set prices:

1. Bulk cannabis growers negotiate directly with researchers and manufacturers to determine a sale price. Upon entering into a contract and prior to the exchange of cannabis, the parties pay an administrative fee to DEA based on the quantity of kilograms involved.  1318.06(b)(1).
2. DEA sells cannabis to the buyer at the negotiated sale price plus the assessed administrative fee. The buyer pays the negotiated purchase price and administrative fee to DEA prior to the cannabis purchase by DEA.  DEA holds funds equal to the purchase price in escrow until delivery of the cannabis by the manufacturer to DEA.   1318.06(b)(2).
3. After receiving the purchase price and administrative fee from the buyer, DEA purchases the cannabis from the manufacturer on behalf of the buyer at the negotiated sale price. DEA has no obligation to purchase the cannabis and may order the manufacturer to destroy the cannabis if the buyer fails to pay the purchase price and the administrative fee if the manufacturer cannot find an alternative buyer within four months of harvest.  1318.06(b)(3).
4. When the manufacturer is the same entity as the buyer, or a related or subsidiary entity, the entity may establish a nominal cannabis purchase price. DEA purchases the entity’s cannabis at that price and sells the cannabis back to the entity, or a related or subsidiary entity, at the same price plus an administrative fee.  1318.06(b)(4).

DEA Liability

A number of commenters expressed concern that the regulations exclude DEA from liability for damage that may occur while cannabis is in DEA’s possession, and that there is nothing to ensure the quality of marijuana while in DEA’s possession.  Controls at 82,337–38.  The commenters note that there is no remedy for damage or loss of cannabis that occurs while in DEA’s possession.  Id. at 82,338.  The buyer’s sole remedy for defective cannabis is against the grower.  21 C.F.R. § 1318.07.  DEA reasoned that risk of loss or damage of cannabis in DEA’s possession will be low because the agency does not anticipate retaining possession for long periods of time and transfer from seller to buyer will be quick in most instances.  Controls at  82,338.  DEA also expects to maintain possession of the cannabis largely in secure locations designated at manufacturers’ registered locations.  Id.

Conclusion

DEA’s eventual registration of additional marijuana manufacturers took a long and winding road.  The new regulations have led to opening the door to increase needed quantities and varieties of cannabis for legitimate medical and scientific research.  When that door opens, and how wide, remains to be seen.  DEA is taking on a large role in the new cannabis program.  We have concerns about how DEA’s insertion into the manufacturer-to-researcher equation by buying, taking possession, and distributing marijuana will play out.  DEA has often been an impediment in the loosening of cannabis restrictions even for registering additional marijuana manufacturers for research.  With the new year, perhaps DEA will assume a new role: cannabis research facilitator.

On December 30, 2020, District Court Judge Kenneth M. Karas of the Southern District of New York issued a nationwide preliminary injunction preventing the Most Favored Nation (MFN) rule from applying to Regeneron’s drug EYLEA (aflibercept).  This is the third federal court ruling preventing implementation of the MFN rule.

Our previous post summarizing the MFN rule can be found here; our summary of the District of Maryland’s temporary restraining order and the Northern District of California’s preliminary injunction can be found here.  The two earlier decisions applied to all of the products currently listed in the MFN as well as any others that would have been added under the rule.

In holding that a nationwide preliminary injunction is appropriate, the court analyzed Regeneron’s likelihood of success, likelihood of irreparable injury, the balance of hardships and the public interest.  The court specifically held that Regeneron would be financially and reputationally harmed if the MFN rule took effect because the company would lose business to other competitors’ drugs.  Moreover, similar to the prior federal courts’ opinions, Judge Karas held that Regeneron was likely to succeed on the merits because the government failed to comply with, and did not have good cause to ignore, the Administrative Procedure Act’s notice and comment requirement.  Finally, the public interest and balance of hardships favored Regeneron.  Specifically, implementation of the MFN rule may require Regeneron to cut its research and development budget, which could limit access to medication in the future.  The court also noted that failure to follow the notice and comment rules dilutes the public interest because it prevents proposed rules from being “tested via exposure to diverse public comment.”

After a temporary restraining order and two preliminary injunctions, it is highly unlikely that the MFN rule will survive as an interim final rule.  Therefore, the burden of whether, and how, to proceed with the MFN rule will fall to the new Biden administration and their appointees.

Judge Karas’ full opinion can be found here.

Welcome to the final 2020 edition of Hyman, Phelps & McNamara, P.C.’s monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.  Happy New Year, everyone.

Food & Beverage

• Make Every Bite Count: USDA and HHS just released the Dietary Guidelines for Americans, 2020-2025, rejecting an external scientific advisory committee’s recommendations (discussed in Karin’s July blog post) that men should cut back on alcohol and that all individuals should further limit their intake of added sugars.
• Eat Your Fruits & Veggies: The UN has declared 2021 the International Year of Fruits and Vegetables, recognizing the “urgent need to raise awareness of the nutritional and health benefits of fruit and vegetable consumption and to advocate for healthy diets through increased sustainable production and consumption of fruits and vegetables.”
• Losing Patience With Undeclared Allergens?: FDA sent a pointed warning letter to Whole Foods, indicating in a press release, “As part of the FDA’s ongoing efforts to address undeclared allergens as the leading cause of food recalls, we have analyzed patterns of recalls, and this letter is part of that work along with other work to improve industry’s compliance with allergen labeling requirements and reduce undeclared allergen-related food recalls.”
• Not Quite 100%: The 7^th Circuit revived a suit alleging that cheese misleads consumers by claiming to be “100% Grated Parmesan Cheese,” ruling that consumers aren’t obligated to scrutinize labels to ferret out ambiguities the way attorneys would in a courtroom. “How reasonable consumers actually understand” an ambiguous product name “is a question of fact that cannot be resolved on the pleadings.”
• More on Corporate Social Responsibility: With the Supreme Court pondering arguments made in the cocoa and Alien Tort Statute cases, note that Senate Democrats are focusing on CBP’s enforcement strategy to ensure that imports of palm oil made with forced and child labor do not enter the United States.
• Genomic Alteration: FDA had approved an intentional genomic alteration in animals for food uses or therapeutic uses, but not both – until this month, when FDA announced just such an approval of an alteration in a line of domestic pigs.  See Ricardo’s post here.  Just two weeks later, USDA published an Advanced Notice of Proposed Rulemaking and request for comments on a new regulatory framework under which “USDA would in most instances provide end-to-end regulatory oversight from pre-market reviews through post-market food safety monitoring for animals modified or developed using genetic engineering intended for use as human food.”  Comments are due by February 26, 2021.
• Some Clarity on FUAs: FDA’s Center for Veterinary Medicine finalized guidance intended to help companies submit information for effective and efficient pre-submission consultations and preparation of an Food Use Authorization request.
• Just a Little Bit Longer: FDA has extended the comment period for Draft Guidance on Voluntary Disclosure of Sesame until February 25, 2021, and extended the comment period for the Food Traceability Propose Rule until February 22, 2021.
• Salt by any other name…: FDA issued guidance on their intent to exercise enforcement discretion for declaration of the name “potassium salt” in the ingredient statement on food labels as an alternative to the common or usual name “potassium chloride.” As we reported in 2019, in draft guidance, FDA had indicated that it did not think the name potassium salt was appropriate.
• Gottlieb on Cherry Pies: “Thanks to the hard work of my FDA team in 2018, the Federal government will no longer be regulating the contents of frozen cherry pie,” Gottlieb tweeted earlier in December. “The American people are free add extra fruit, sugar, and make the crust especially thick.” He did not claim credit for FDA’s proposal to do away with the standard of identity for French dressing.
• Red, Red Wine: TTB amended their regulations  by adding some new standards of fill for wine and distilled spirits.
• FSIS Will Prohibit the Use of “Uncured” and “No Nitrate or Nitrite Added” on Processed Products that Contain Nitrite/Nitrate from “Natural” Sources: In response to a Petition by CSPC (which we discussed here), FSIS has announced that it intends to conduct rulemaking to propose to prohibit the statements, “No Nitrate or Nitrite Added” and “Uncured,” on products that have been processed using any source of nitrates or nitrites. Rather than requiring disclosure statements about the use of nitrate or nitrites on labels of meat and poultry products, FSIS intends to propose new definitions for “Cured” and “Uncured.” A proposed rule, tentatively scheduled for May 2021, will provide details.

Supplements

• Distribution of SARMs leads to forfeiture: DOJ announced a guilty plea by the owner of a sport supplement company that distributed purported dietary supplements that contained Selective Androgen Receptor Modulators (SARMs) – “synthetic chemicals designed to mimic the effects of testosterone and other anabolic steroids.” In addition to pleading guilty to a felony charge, the owner agreed to forfeit $3.5 million in proceeds from sale of the products.

Cannabis

• Operation CBDeceit: The FTC cracked down on six sellers of CBD-containing products for making a wide range of deceptive and scientifically unsupported claims about their ability to treat serious health conditions.
• Imminent Enforcement: Enforcement for THC-related Proposition 65 warnings began January 3, 2021. Make sure that THC-containing products (including those derived from hemp) that are sold in California have appropriate labeling to comply with Proposition 65 labeling mandates.
• The Muddy Waters of Cannabis: For the first time, a chamber of the U.S. Congress, the House of Representatives, voted to decriminalize cannabis by removing it from the Controlled Substances Act.  See a blog post by our colleague Larry Houck here.

In the New Year’s Eve edition of the Federal Register, CMS published a final rule to implement statutory amendments to the Medicaid Rebate Program statute, and to add CMS’s own policy proposals to encourage value based purchasing arrangements and discourage patient copay assistance.  The variety of topics covered in this rule include:

• Best price changes and other and other measures to encourage value based arrangements in Medicaid
• New regulations to implement the alternative rebate for line extensions, including definitions of “new formulation” and “oral dosage form”
• A new, difficult hurdle for claiming the best price exceptions for manufacturer coupon and other patient savings programs
• Clarification of the average manufacturer price (AMP) and best price treatment of rebates to Medicaid Managed Care plans that are not pursuant to a CMS-approved supplemental rebate program.
• Implementation of statutory amendments to exclude sales of authorized generics from the brand AMP, redefine single source and innovator source drugs to remove references to “original NDAs”; and redefine multiple source drugs to include OTC drugs that are covered outpatient drugs.

Hyman, Phelps & McNamara, P.C. has prepared a memo summarizing this wide-ranging final rule (available here).

At long last, and with just two days remaining in 2020, HHS and USDA released the 2020-2025 Dietary Guidelines for Americans (Guidelines).  For those who work in and around the food industry, the Guidelines are a big deal (I could quote Joe Biden here, but I won’t). The report is also a big deal for those outside the food industry, though they may not know it.  The Guidelines form the basis of federal nutrition policy and programs, which touch at least one in four Americans every month. These programs include the National School Lunch Program, Supplemental Nutrition Assistance Program (SNAP) (formerly “Food Stamps”), Special Nutritional Program for Women, Infants and Children (WIC), as well as feeding programs for the elderly.  The Guidelines also direct FDA regulations for food, including the labeling, such as health claims and the Nutrition Facts Panel.

Of particular note – and the source of criticism by some in the public interest space – the Guidelines rejected some of the July 2020 recommendations of the Dietary Guidelines Advisory Committee (DGAC), tasked with providing USDA and HHS with a scientific review of specific topics and supporting scientific questions on nutrition and health (discussed in our blog post here).  Specifically, the DGAC recommended lowering the limit for added sugars from 10% to 6% of the daily calories and limiting daily consumption of alcoholic beverages for men from two drinks per day to one. Neither of these recommendations were adopted in the Guidelines. The new Guidelines continue to advise people to eat a diet of primarily fruits, vegetables, whole grains, lean meat and poultry, low-fat dairy, seafood, nuts and vegetable oils. They specifically suggest limiting added sugar and alcohol, along with saturated fats and sodium, and staying within recommended calorie limits.

Here are some highlights of the 2020-2025 Guidelines:

• The Guidelines are structured around four basic recommendations:
  • Follow a healthy dietary pattern at every life stage;
  • Customize and enjoy nutrient-dense food and beverage choices to reflect personal preferences, cultural traditions, and budgetary considerations;
  • Focus on meeting food group needs with nutrient-dense foods and beverages, and stay within calorie limits; and
  • Limit foods and beverages higher in added sugars, saturated fat, and sodium, and limit alcoholic beverages.
• The Guidelines acknowledge that a small amount of added sugars, saturated fat, or sodium can be added to nutrient-dense foods and beverages to help meet food group recommendations, but foods and beverages high in these components should be limited.  The recommended limits are:
  • Added sugars—Less than 10 percent of calories per day starting at age 2.  For the first time, the Guidelines recommend that those younger than 2 avoid foods and beverages with added sugars.
  • Saturated fat—Less than 10 percent of calories per day starting at age 2.
  • Sodium—Less than 2,300 milligrams per day—and even less for children younger than age 14.
  • Alcoholic beverages—Consistent with the prior version of the Guidelines, adults of legal drinking age can choose not to drink, or to drink in moderation by limiting intake to 2 drinks or less in a day for men and 1 drink or less in a day for women, when alcohol is consumed. Drinking less is better for health than drinking more. There are some adults who should not drink alcohol, such as women who are pregnant.

Two district courts recently dealt what may become fatal blows to the Trump administration’s Most Favored Nation (MFN) rule for Medicare Part B drug payment. As noted in our summary (available here), the MFN rule was published as an interim final rule with comment period rather than a proposed rule, leaving it vulnerable to an Administrative Procedure Act (APA) challenge. Multiple organizations, including the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Innovation Organization (BIO), filed lawsuits challenging the controversial drug price reduction initiative that was scheduled to take effect on January 1, 2021.

On December 23, Judge Catherine Blake of the District Court for the District of Maryland granted a nationwide temporary restraining order in the suit brought by the Association of Community Cancer Centers, the National Infusion Center Association, the Global Colon Cancer Association, and PhRMA. Ass’n of Cmty. Cancer Ctrs. v. Azar, No. 20-cv-3531, 2020 U.S. Dist. LEXIS 241732 (D. Md. Dec. 23, 2020). Judge Blake found that the MFN rule was promulgated without adequate notice and comment procedures and that the government’s rationale for dispensing with such procedures was insufficient under the APA.

On December 28, Judge Vince Chhabria of the District Court for the Northern District of California largely adopted Judge Blake’s reasoning and granted a nationwide preliminary injunction in the suit brought by the California Life Sciences Association, Biocom California, and BIO. Cal. Life Scis. Ass’n v. CMS, No. 20-cv-08603, 2020 U.S. Dist. LEXIS 242991 (N.D. Cal. Dec 28, 2020). Judge Chhabria held that the California plaintiffs were “virtually certain” to prevail on their APA claim because the agency did not publish a notice of proposed rulemaking.

The government’s assertions that the COVID-19 pandemic’s recent surge was increasing the financial burden on Medicare beneficiaries failed to convince either court that a good cause exception to the APA should apply. The courts also found that the $5 billion reduction in Medicare Part B reimbursements in the first year alone, as estimated by the government, would drastically reduce revenues for providers and could qualify as irreparable harm. Finally, both courts found that the balance of equities and public interest favored granting the TRO and preliminary injunction, especially because of the MFN rule’s predicted disruption on provider businesses and patient treatments.

As a result of these court decisions, the MFN rule will not go into effect on January 1, 2021. It remains to be seen whether the Trump administration will attempt to salvage the MFN rule in its waning days or whether the incoming Biden administration will pick up the reins and seek to begin notice and comment rulemaking for this controversial initiative. As of our writing, the court in Maryland has directed the parties to submit a proposed schedule for further proceedings.  The government has the option to file an interlocutory appeal but has not done so yet. As always, we will continue to monitor and report on federal and state efforts to address drug prices.

As we previously reported, in March, as part of the CARES Act, OTC monograph reform was signed into law.  This law amended the FDC Act to include, among other things, an OTC monograph drug user fee program, under which FDA is authorized to assess and collect facility fees from manufacturers of OTC monograph drugs.

On Monday the 28th of December, FDA announced its scheduled Federal Register notice setting the user fees for manufacturers and contract manufacturers of OTC monograph drugs.  Based on information about manufacturing facilities registered by Dec. 31, 2019, FDA has set the user fees as follows:

• Manufacturer facility fee: $14,060
• Contract manufacturer facility fee $9,373

The fees are effective as of October 1, 2020, when the Continuing Appropriations Act, 2021, Division A of Pub. L. 116-159 was enacted.  (Section 123 of this Act provided an appropriation for the user fees).

The facility fee applies to manufacturers of finished monograph products, not to those manufacturers who produce only an active pharmaceutical ingredient.  In addition, a facility fee will not be assessed for an OTC monograph drug facility which, prior to December 31, 2019, had ceased all activities related to OTC monograph drugs and updated its registration to reflect this. Other exemptions include facilities that are involved in the production of clinical research supplies; testing; or the placement of outer packaging on packages containing multiple products, for such purposes as creating multipacks, when all monograph drug products included are already in a final packaged form before placement in the outer overpackaging.

As we reported previously, the new law also provides for fees for OTC monograph order requests (OMORs).  Fees for OMORs are set at $500,000 for a Tier 1 and at $100,000 for a Tier 2 OMOR.  No fee will be assessed if the OMOR seeks to make certain safety changes with respect to an OTC monograph drug.  As FDA notes, OMOR fees are not included in the OMUFA target revenue calculation.

Parties subject to the fees must complete an OTC Monograph User Fee Cover Sheet cover sheet.  The facility fees are due 45 days after the date of publication of the Federal Register notice, which is scheduled to be published on Dec. 29, 2020.

Buried in the 2,124-page Consolidated Appropriations Act, 2021 (the Act), which was signed by Donald Trump yesterday, was a brief provision requiring the reporting of average sales price (ASP) by manufacturers that do not have a Medicaid Drug Rebate Agreement.  ASP is used by CMS to set the payment rate for drugs and biologicals that are separately reimbursed under Medicare Part B.  Part B covers drugs that patients typically do not administer themselves but are instead administered in physicians’ offices and hospital outpatient departments.  Currently, only manufacturers that have entered into a Medicaid Drug Rebate Agreement with HHS are required to calculate and report ASP.  See 42 U.S.C. § 1396r-8(b)(3)(A)(iii).  Because not every manufacturer of drugs covered under Part B has such an Agreement, there are no ASPs reported for some Part B drugs.  In those cases, the Part B payment rate is based on published wholesaler acquisition cost (WAC) or average wholesale price (AWP), or sometimes the invoice price, which result in payment rates generally higher than a payment rate based on ASP would be.

Under Section 401 of the Act, a manufacturer of drugs or biologicals separately payable under Medicare Part B that does not have a Medicaid Drug Rebate Agreement will be required to report ASP, WAC, and sales made at a nominal price.  This reporting requirement goes into effect for calendar quarters beginning January 1, 2022.  The information is to be reported in a time and manner to be specified by CMS.  At some point prior to the effective date, we would expect to see the current electronic ASP reporting procedures extended to include this new category of manufacturers.  Audit and enforcement provisions currently applicable to ASP reporters will apply to the new category of ASP reporters.  HHS will be authorized to audit reporting manufacturers and survey wholesalers and manufacturers to verify reported information. Failure to report ASP for these drugs or biologicals may result in civil money penalties in the same manner as the failure to report ASP by manufacturers with Medicaid Drug Rebate Agreements.

FDA had approved an intentional genomic alteration in animals for food uses or therapeutic uses, but not both – until last week. With some fanfare, FDA announced just such an approval of an alteration in a line of domestic pigs. The pigs are referred to as GalSafe because the alteration eliminates alpha-gal sugar (AGS) on the surface of their cells. Exposure to AGS can trigger severe allergic reactions in humans that are exposed to it in various ways, including inhalation, external contact, consumption, implantation, or injection. Because pigs can serve as a source of both food products and a variety of therapeutic products, such products can pose a hazard to AGS-allergic individuals. The alteration in GalSafe pigs neatly solves that problem by knocking out the gene that that codes for the enzyme that results in the production of AGS.

The development of allergy to AGS is an interesting story of its own, which the curious can delve into through this CDC web page, or for a deeper dive, this podcast. One key aspect of the story is the link between development of allergy to AGS and bites of the Lone Star tick, which has been the focus of years of research summarized here. Another key aspect is that AGS is present in the cells of and tissues of not just pigs, but also other nonprimate mammals. Thus, AGS-allergic individuals are potentially at risk from exposure to any product of mammalian origin. Because GalSafe technology can be applied in other mammals, it holds the promise of greatly expanding food and therapeutic options for AGS-allergic individuals.

Apropos for the name of the great blues musician, Muddy Waters, the various federal, state and international classifications of cannabis and cannabis-derived substances is a complex scheme in search of the right rhythm.  Cannabis and cannabis-derived substances are controlled within different schedules under the federal Controlled Substances Act (“CSA”), while some are not controlled at all.  With cannabis now legal in 36 states and territories for medical purposes, and in 15 states for adult recreational use, control of cannabis substances is all over the map.  As with Muddy Waters, cannabis scheduling is far from clear.

Two recent developments may further muddy the waters in regard to the “legality” of cannabis and cannabis-derived substances.  First, on December 2, 2020, the UN Commission on Narcotic Drugs (“CND”) voted to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs.  Under the international treaty, drugs in Schedule IV are a subset of drugs classified in Schedule I.  The additional classification provides more restrictions on use and research involving such drugs.  Thus, while cannabis remains a Schedule I drug under the 1961 Convention, its removal from Schedule IV will open the door for research and potential consideration for approval for medical use by the UN CND.

Second, December 4, 2020 may prove to be an important watershed in the history of how the United States treats cannabis because, for the first time, a chamber of the U.S. Congress, the House of Representatives, voted to decriminalize cannabis by removing it from the CSA.  The Marijuana Opportunity Reinvestment and Expungement Act of 2019, (the “MORE Act”), H.R. 3884, passed 228-164, largely along party lines.  The MORE Act will assuredly not pass the Republican-dominated Senate in the unlikely event it is even introduced.

The MORE Act, if enacted, would institute a number of changes but none more monumental than removing marijuana and THC, the primary psychoactive substance in marijuana, from federal control.  With so many states having legalized cannabis for medical and recreational purposes, the MORE Act, even if not enacted by this Congress, portends what is likely on the horizon for cannabis.

The MORE Act would remove marijuana and THC not just from Schedule I of the CSA, but from the CSA altogether.  One needs a detailed, ever-changing scorecard to keep up with how cannabis and cannabis products are scheduled under the CSA, but unless and until cannabis is removed entirely from control, manufacturers, distributors, retailers, and others must be cognizant of how cannabis and cannabis-derived products are scheduled (controlled) and comply with federal (and state) control requirements.

There are five schedules (classifications) under the CSA based on each drug’s potential for abuse relative to their accepted medical uses.  Manufacturers, distributors, and others who prescribe or handle controlled substances must obtain a Drug Enforcement Administration (“DEA”) registration and a drug’s scheduling triggers specific quota, recordkeeping, reporting, and security requirements.  Schedule I drugs are the most stringently controlled while Schedule V the least.  Criteria and current cannabis scheduling follows:

Schedule I Criteria:

• High potential for abuse;
• No currently accepted medical use in treatment in the U.S.; and
• Lacks accepted safety for use under medical supervision.  21 U.S.C. § 812(b)(1).

Cannabis Substances in Schedule I:

• Marijuana and parts of the Cannabis sativa L. plant within the CSA definition “marihuana.”
  • Includes all parts of the plant whether growing or not; the seeds; the resin extracted from any part of the plant, and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin;
  • Excludes hemp and mature stalks, fiber from the stalks, oil or cake from the seeds, any other compound, manufacture, salt, derivative, mixture, or preparation of mature stalks (except the resin therefrom), fiber, oil, or cake or sterilized seeds incapable of germination). DEA Drug Code 7360; 21 U.S.C. §§ 802(16), 812(c)(10).
• Marijuana Extract. DEA Drug Code 7350; 21 C.F.R. § 1308.11(d)(58).
• THC not in hemp.
  • Includes natural delta-8-THC, delta-9-THC and synthetic equivalents including trace quantities in synthetic CBD. DEA Drug Code 7370; 21 U.S.C. § 812(c)(17); 21 C.F.R. § 1308.11(d)(31)(i).

Schedule II Criteria:

• High potential for abuse;
• Currently accepted medical use in treatment in the U.S. or a currently accepted medical use with severe restrictions; and
• Abuse may lead to severe psychological or physical dependence.  21 U.S.C. § 812(b)(2).

Cannabis Substances in Schedule II:

• FDA-approved synthetic dronabinol (delta-9-THC) in an oral solution (Syndros). DEA Drug Code 7365; 21 C.F.R. §1308.12(f)(2).

Schedule III Criteria:

• Potential for abuse less than drugs in Schedule I and II;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to moderate or low physical dependence or high psychological dependence. 21 U.S.C. § 812(b)(3).

Cannabis Substances in Schedule III

• FDA-approved synthetic dronabinol (delta-9-THC) in an oral solution in sesame oil encapsulated in soft gelatin capsules (Marinol). Drug Code 7369; 21 C.F.R. § 1308.13(g)(1).

Schedule IV Criteria:

• Low potential for abuse relative to drugs in Schedule III;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to limited physical dependence or psychological dependence relative to drugs in Schedule III. 21 U.S.C. § 812(b)(4).

Cannabis Substances in Schedule IV

None.

Schedule V Criteria:

• Low potential for abuse relative to drugs in Schedule IV;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to limited physical dependence or psychological dependence relative to drugs in Schedule IV. 21 U.S.C. § 812(b)(5).

Cannabis Substances in Schedule IV

None.

Not Scheduled, Not Controlled:

• Hemp.
  • Includes the Cannabis sativa L. plant and any part of the plant, including seeds and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9-THC concentration of not more than 0.3% on a dry weight basis. 7 U.S.C. § 1639o(1); 21 U.S.C. § 802(16)(B), 812(c)(10); 21 C.F.R. § 1308.11 (d)(31)(ii).
• THC in hemp. 21 U.S.C. § 812(c)(17); 21 C.F.R. § 1308.11(d)(31)(ii).
• CBD and products derived from parts of the Cannabis sativa L. plant excluded from the CSA definition of “marihuana.” 21 U.S.C. § 802(16)(B).
• FDA-approved CBD-derived from cannabis with no more than 0.1% THC (Epidiolex).
  21 C.F.R. § 1308.15(f) (removed 2020).

The MORE Act’s removal of cannabis from Schedule I and the CSA would transfer cannabis and cannabis-derived substances from among the most stringently controlled substances in the same class as heroin, LSD, and peyote with strict quota, recordkeeping/reporting, and security requirements to no controls nor requirements.  It would remove DEA authority over legitimate handlers of cannabis, such as researchers and analytical laboratories.  Unless their language is clear and narrowly tailored, the MORE Act and similar statutes would raise a number of questions.  For example, the statute should clarify whether descheduling applies only to Cannabis sativa L. plant-derived material or also to synthetic material.  The Agriculture Improvement Act (“Farm Bill”) removed cannabis defined as “hemp” with a delta-9-THC concentration of not more than 0.3% on a dry weight basis, but what about delta-8-THC?

Decontrolling cannabis altogether under the CSA would end conflicts between federal law and states that have loosened cannabis restrictions.  But decontrolling cannabis at the federal level would initiate new conflicts between would-be looser federal laws and more restrictive states that have not decontrolled cannabis.  We note that the controlled substance statutes of a number of states automatically follow the federal lead on scheduling, rescheduling, and descheduling so unless those states take other action, they would also decontrol cannabis.

Many pro-cannabis advocates are justifiably frustrated with DEA’s snail pace on its addressing cannabis issues.  The agency has yet to move on issuing registrations to manufacture cannabis for research to any of the 37 applicants, some of whom submitted applications and began investing in operations and secure facilities over four years ago.

So, if you manufacture, distribute, sell, or otherwise handle cannabis and cannabis products, you must understand how they are scheduled and controlled, and comply accordingly.  Lawmakers and regulators have the opportunity assess and address how the U.S. moves forward with handling cannabis.  In decontrolling or rescheduling cannabis, draft the legislation or regulations clearly to say exactly what you intend them to achieve.  Unlike Muddy Waters, cannabis scheduling and control should be clear, relative to its abuse potential and legitimate medical and scientific uses.

Biosimilars have been around for a bit over 10 years now, and there has been tremendous progress in licensing new biosimilar products.  But there is no question that there are still significant holes that FDA must address to further facilitate biosimilar development under section 351(k) of the PHS Act.  Many of these questions relate to interchangeable products, as FDA and industry have had very limited experience with interchangeable biosimilars.  As of December 2020, FDA has approved 28 biosimilars, but not one has been approved as “interchangeable” for its reference product.  For this reason, FDA explicitly included “providing additional clarity” to product developers on interchangeability as an objective of the Biosimilar Action Plan announced in 2018.

In one recent attempt to provide such clarity, FDA published a new draft guidance entitled Biosimilarity and Interchangeability:  Additional Draft Q&As on Biosimilar Development and the BPCI Act.  This guidance is not a stand-alone guidance, but, when finalized, it will be added to the final guidance document Questions and Answers on Biosimilar Development and the BPCI Act.  Like FDA’s previous biosimilar guidance documents, the intent of this Q&A guidance is to “enhance transparency and facilitate the development and approval of biosimilar and interchangeable products” and “provide clarity for developers who want to demonstrate that their proposed biological product meets the statutory interchangeability standard under the Public Health Service Act.”  FDA Press Release, FDA Releases a Draft Q&A Guidance for Industry on Biosimilar and Interchangeable Product Development and the BPCI Act (Nov. 19, 2020).  To that end, this guidance provides further draft responses to frequently asked questions about biosimilars and interchangeability.

Specifically, the guidance addresses some procedural elements related to the submission of an interchangeable biosimilar application.  Because the BLA (sometimes called an “aBLA”) submission for a biosimilar and for an interchangeable are the same, industry has asked FDA for clarification on distinguishing interchangeable applications from biosimilars.  The guidance explains that a BLA for an interchangeable product must include an affirmative statement that the application seeks licensure for an interchangeable biosimilar; without that statement, FDA will evaluate the submission as a biosimilar application.  And if the applicant applies for interchangeable status but fails to meet that standard, FDA will bifurcate the application for administrative purposes.  In that circumstance, FDA could license the product as a biosimilar while separately reviewing and providing a Complete Response Letter outlining deficiencies for interchangeability.  FDA notes that the administrative “split” is the default in such circumstances, but the applicant can request that FDA only license the product if determined to be interchangeable.

FDA also provides guidance for sponsors of existing 351(a) or “deemed” BLAs that would like to be considered biosimilar to other approved biologics.  In such a case, FDA requires that the sponsor submit a new BLA under 351(k) containing data demonstrating that its product is biosimilar or interchangeable to the reference product.  Importantly, there is no need to revoke the original BLA, as a product may be on the market as both a stand-alone biologic and a biosimilar.

Finally, the guidance tackles biosimilar and interchangeable biosimilar labeling.  FDA explains that neither biosimilar nor interchangeable biosimilar labeling should include descriptions of the data used to demonstrate biosimilarity or interchangeability.  Because the biosimilarity studies are not safety and effectiveness studies, they do not facilitate understanding of a product’s safety and effectiveness and therefore do not belong in the product labeling.  FDA reiterates here that certain differences in labeling between interchangeable biosimilars and their reference products may be appropriate and highlights that an interchangeable product may be licensed for fewer than all of the reference product’s licensed conditions of use.  Notably, FDA expressly recommends that sponsors, whenever possible, seek approval for all conditions of use (which is probably good advice—at least for now—considering the Federal Circuit’s recent decision on induced infringement for carve-outs in the small molecule context).  Further, FDA recommends that sponsors of approved interchangeable biosimilars include the following labeling statement regarding interchangeability:

An interchangeable product (IP) is a biological product that is approved based on data demonstrating that it is highly similar to an FDA-approved reference product (RP) and that there are no clinically meaningful differences between the products; it can be expected to produce the same clinical result as the RP in any given patient; and if administered more than once to a patient, the risk in terms of safety or diminished efficacy from alternating or switching between use of the RP and IP is not greater than that from the RP without such alternation or switch. Interchangeability of [INTERCHANGEABLE BIOSIMILAR’S PROPRIETARY NAME] has been demonstrated for the condition(s) of use, strength(s), dosage form(s), and route(s) of administration described in its Full Prescribing Information.

As it does for all draft guidance documents, FDA encourages industry to submit comments on this guidance.  Comments are due by January 19, 2021.  Once final, these questions and responses will be incorporated into existing final guidance on biosimilars and interchangeability.

In October, the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA) published a Final Rule that permits the importation of prescription drug products from Canada (the “Final Rule”). The Final Rule became effective on November 30, but the potential for Canadian drug importation faces significant challenges. First, on November 23, 2020, Pharmaceutical Research and Manufacturers of America (PhRMA), Partnership for Safe Medicines (PSM), and Council for Affordable Health Coverage (CAHC) filed a lawsuit challenging the Final Rule. Then, a few days later, Canada passed an interim order banning the export of certain drugs from Canada.

The Final Rule

As discussed in our prior post, the Final Rule implements Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act), 21 U.S.C. § 384, to allow states and other entities (Sponsors) to develop a Section 804 Importation Program (SIP) to import certain prescription drugs from Canada into the United States. Drugs imported under a SIP must be approved by Health Canada and meet the conditions in an FDA-approved new drug application (NDA) or abbreviated new drug application (ANDA) – meaning that the drug must be currently marketed in the United States under an NDA or ANDA, and the manufacturer must attest that the imported version of the drug meets the conditions of that NDA or ANDA. Before they can be sold in the United States, imported drugs must undergo testing and be relabeled for sale in the United States. The Final Rule includes other requirements to protect the drug supply chain, such as requiring that SIP Sponsors partner with a Health Canada licensed Foreign Seller who must also register with the FDA; limiting product Importers to licensed pharmacists or wholesale distributors; and controlling the number of Sponsors, Foreign Sellers, and Importers for each SIP. The Final Rule also requires SIP Sponsors to provide FDA with data and information about the SIP, including the SIP’s cost savings to American consumers.

As set forth in the FDC Act, Section 804 becomes effective only if the Secretary of HHS certifies to Congress that the importation plan will (A) pose no additional risk to the public’s health and safety, and (B) result in a significant reduction in the cost of covered products to the American consumer. Concurrent with the issuance of the Final Rule, HHS Secretary Alex Azar certified that the importation program described in the Final Rule would meet both of the statutory requirements. As we have previously noted, Section 804 was enacted in 2003, yet this is the first time that the Secretary of HHS has made such a certification.

The Lawsuit

On November 23, 2020, PhRMA, PSM, and CAHC (collectively, “the Plaintiffs”) filed a lawsuit in the U.S. District Court in the District of Columbia challenging the Final Rule and Secretary Azar’s Certification. The lawsuit seeks a finding that the Final Rule is unlawful and asks the Court to set aside and permanently enjoin implementation of the Final Rule and the Certification made by Secretary Azar.

According to the Plaintiffs, for nearly two decades the government has insisted that importation under Section 804 could not adequately address the statutory requirements for drug safety or cost savings. HHS successfully defended this position in court twice and, even under the current administration, made multiple statements against Section 804 importation – some of which were raised as concerns in the Final Rule. As such, the Plaintiffs allege that the government’s failure to explain its shift in policy renders the Final Rule arbitrary and capricious.

The Plaintiffs allege that the Final Rule fails to satisfy the statutory requirements of ensuring drug safety and cost savings. According to the Plaintiffs, the Final Rule will open the United States’ “closed” system of drug distribution, increasing the likelihood that patients in the United States receive unapproved, misbranded, and adulterated drugs. The Plaintiffs suggest that the labeling of SIP-imported drugs could mislead and confuse consumers and increase medication errors because of the similarity between the labels of the FDA-approved and SIP-imported products. In addition, the lack of FDA scrutiny over relabeling and repackaging could allow adulteration, and FDA would not be able to ensure that products are not illegitimate or counterfeit. The Plaintiffs also allege that the Final Rule undermines important safety protections in the FDC Act, and inappropriately places the responsibility for ensuring the safety of SIP-imported drugs on the Sponsors and other entities that have little expertise and resources to ensure that all aspects of drug safety are satisfied. The Plaintiffs assert that the alternative safeguards set forth in the Final Rule (e.g., the requirement to test SIP-imported drugs) do not ensure safety because FDA will not be able to verify that the methods, facilities, and controls used for the manufacture, processing, packing, and labeling of the drugs are in conformance with FDA requirements.

The Plaintiffs also allege that the Final Rule fails to address the statutory cost savings requirement by conditioning it on future events, and delegating responsibility for demonstrating cost savings to the SIP Sponsors. The Final Rule explicitly acknowledges the government’s current inability to estimate potential cost savings due to a lack of information about the likely size and scope of the SIPs, the specific prescription drugs that may be imported, and the degree to which the imported drugs will be less expensive than drugs currently available in the United States. Since the demonstration of cost savings is required under the FDC Act, the Final Rule envisions that FDA will “find that a particular SIP proposal meets the certification requirements based on the information received as part of the proposal.” 85 Fed. Reg. at 62,112. According to the Plaintiffs, Section 804 does not contemplate or permit this SIP-by-SIP determination. In addition, the Plaintiffs argue that there is no indication that the Final Rule will reduce drug costs or yield substantial savings to American consumers. The Plaintiffs posit that any difference between the cost of comparable U.S. and Canadian drugs will be negated by the costs of the Foreign Sellers and Importers, including the costs of the relabeling and testing required under the Final Rule.

The Plaintiffs also allege that the Final Rule is contrary to intellectual property laws, violates the First Amendment, and raises serious questions under the Takings Clause. These allegations are related to the Final Rule’s requirement that manufacturers help facilitate importation or risk criminal liability. For example, the Final Rule requires manufacturers to either test SIP-imported products for free or turn over trade secrets and other confidential information so that Importers can test and authenticate the drugs. The Final Rule also requires manufacturers to provide Importers with authorization for the use, at no cost, of the approved labeling for the prescription drug, which could include trademarked names and logos. Since the Final Rule does not allow manufacturers to charge for the costs of conducting the required testing or the provision of trade secrets and confidential information, the Plaintiffs allege that this would amount to an uncompensated taking in violation of the Fifth Amendment.

The Canadian Interim Order

Before the Final Rule was published, Canada voiced its opposition to the importation proposal, predicting that importation would increase pressure on the Canadian drug supply, exacerbate drug shortages, and limit access to needed medicines in Canada. In direct response to the Final Rule, on November 27, the Canadian Minister of Health signed an Interim Order Respecting Drug Shortages (Safeguarding the Drug Supply). This Order prohibits licensed Canadian establishments (e.g., wholesalers and distributors) from distributing drugs for consumption or use outside of Canada, unless the licensee has reasonable grounds to believe that the distribution will not cause or exacerbate a drug shortage. Canadian licensees are required to create and retain detailed records with the information used to determine that distribution is not prohibited (i.e., will not cause or exacerbate a drug shortage) and must provide this information to the Minister of Health upon request. The Order applies to all drugs that are eligible for importation to the United States under the Final Rule as well as biologics and controlled substances, which are not eligible for importation by SIPs.

Our Thoughts

Drug prices and the desire to provide savings to American patients and consumers will likely continue to be an important issue as the Administration changes. While the Final Rule purports to set forth a possible solution by allowing for importation of drugs from Canada, it seems unlikely that this will be a viable solution. The Canadian Interim Order will effectively prevent the Foreign Sellers that SIP Sponsors partner with from exporting drugs to the United States, raising substantial questions about how SIP Sponsors will satisfy the requirements set forth in the Final Rule. In addition, the Plaintiffs’ lawsuit raises significant questions about the appropriateness of the Final Rule and the validity of the Certification that underlies the Final Rule. In the face of this legal challenge, it remains to be seen whether the new Administration will support the Final Rule and Certification. We will continue to monitor and report on developments related to drug importation plans and other efforts to lower drug prices in the United States.