On July 8, 2019, U.S. District Court Judge Amit P. Mehta struck down a recently finalized Centers for Medicare & Medicaid Services (CMS) rulethat would have required drug pricing disclosures to be included in television advertisements for certain prescription drugs and biological products (the “Price Disclosure Rule”) (see our overview of the Rule here).  Judge Mehta’s decisioncame the day before the Price Disclosure Rule was set to take effect.

As we previously reported (here), three pharmaceutical companies (Merck, Eli Lily, and Amgen) and a trade association (the Association of National Advertisers) filed a lawsuit in June challenging the validity of the Price Disclosure Rule.  The companies argued that the Department of Health and Human Services (HHS) exceeded its authority in promulgating the Price Disclosure Rule, and that the Price Disclosure Rule is compelled speech that violates the First Amendment.  HHS had argued that two provisions of the Social Security Act (SSA) gave CMS authority to adopt the Price Disclosure Rule.

Though acknowledging that HHS may have a valid motive for issuing the Price Disclosure Rule, Judge Mehta found that HHS lacks the statutory authority to do so.  When the Price Disclosure Rule was issued, HHS acknowledged that the SSA did not expressly grant HHS the authority to “compel the disclosure of list prices to the public.”  As such, the Court analyzed whether Congress implicitly delegated such authority to HHS.  The Court looked to the language of the SSA and concluded that, although the SSA grants HHS general rulemaking authority related to the administration of the Medicare and Medicaid programs, that authority does not extend to regulating the marketing of prescription drugs, particularly because pharmaceutical manufacturers are “market actors that are not direct participants in the Medicare or Medicaid programs.”

The Court explained that HHS has never previously attempted to use the SSA to directly regulate the market for pharmaceuticals.  The Court recognized that Congress has previously legislated on the advertising of pharmaceutical products under the Federal Food, Drug, and Cosmetic Act (FDCA).  The Court also pointed to HHS’ “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs”, which stated that HHS may “[c]all on the FDA to evaluate the inclusion of list prices in direct-to-consumer advertising.”  The Court reasoned that “HHS at first believed that the FDA, presumably under the FDCA, would be the proper sub-agency through which to promulgate the [Price] Disclosure Rule, as opposed to CMS under the SSA.”  The Court ultimately determined that the Price Disclosure Rule was “far afield” of HHS’ rulemaking authority under the SSA.  As such, the Court concluded that HHS had exceeded its authority and the Price Disclosure Rule was deemed invalid and set aside.  Due to this disposition, the Court did not address the First Amendment argument.

We will continue to monitor this case and other efforts to address drug pricing.

While the federal government continues to debate the hot topic of drug prices, states continue to pass new laws designed to tackle drug pricing, price reporting, and discounting.  We’ve previously reported on the laws passed in California, Connecticut, Louisiana, Maryland, Nevada, New York, Oregon, Vermont (see here, here, and here).  We’ve also reported on the laws passed in Colorado, Florida, and Vermont to establish programs for importing drugs from Canada (see here and here).  To help our readers stay informed about state obligations, we’ve summarized below new laws in five states, all of which have been enacted during the past two months.

Colorado

HB 19-1131, which focuses on “Prescription Drug Cost Education,” was signed by Governor Jared Polis on May 16, 2019.  To address concerns that prescribers are unaware of drug costs, this new law requires drug manufacturers to provide information about drug prices and generic availability to prescribers.  More specifically, drug manufacturers (or their representatives) that share information about a product with prescribers must provide the prescribers with the drug’s wholesale acquisition cost (WAC) in writing.  Drug manufacturers (or their representatives) must also provide prescribers with the names of at least three generic prescription drugs from the same therapeutic class.  If three generic drugs are not available, the manufacturer or its representative must provide the names for as many as are available.  This law will take effect on August 2, 2019, unless a petition for referendum is filed.

Maine

Governor Janet Mills signed a package of four prescription drug related bills on June 24, 2019.

1. LD 1162 seeks to “further expand drug price transparency” by authorizing the collection of prescription drug price data from payors, providers, prescription drug manufacturers, wholesale drug distributors, and pharmacy benefit managers (PBMs). Previously, only payors and providers needed to report clinical, financial, and quality data.  In addition, beginning January 30, 2020, the new law requires drug manufacturers to provide notice to the state if (A) the WAC of a brand-name drug increased by more than 20% in the prior calendar year; (B) the WAC of a generic drug that costs more than $10 increased by more than 20% in the prior calendar year; or (C) a new drug was introduced with a WAC greater than the amount that would cause the drug to be considered a specialty drug under Medicare Part D (i.e., $670 per month).  Although the new law provides that information provided by a drug manufacturer, wholesale drug distributor, or PBM is confidential, this information will be used by the state to produce an annual report available on a publicly accessible website.  The report may not disclose information attributable to any particular manufacturer, distributor, or PBM, but will include trends in the cost of prescription drugs, analysis of manufacturer prices and price increases, the major components of prescription drug pricing along the supply chain, the impacts on insurance premiums and cost sharing, and other relevant information to provide greater consumer awareness of the factors contributing to the cost of prescription drugs.  The first report will be published on November 1, 2020.
2. LD 1272 seeks to “increase access to low-cost prescription drugs” by establishing a program to import prescription drugs from Canada. As with the three other states that have enacted similar laws (see here and here), Maine must obtain approval and certification for the proposed wholesale drug importation program from the U.S. Department of Health and Human Services.  The state’s request for approval and certification must be submitted no later than May 1, 2020.
3. LD 1499 establishes the new Maine Prescription Drug Affordability Board. The Board is tasked with (A) determining annual spending targets for prescription drugs purchased by public payors (e.g., health plans for state, county, or municipal government employees); (B) determining spending targets on prescription drugs that may cause affordability challenges to enrollees in a public payor health plan; and (C) determining which public payors are likely to exceed the spending targets.  The Board shall work with each public payor to determine methods for the public payor to meet the spending targets, including negotiating rebates for the prescription drugs that contribute most to excess spending, revising formularies, establishing a common prescription drug formulary for all public payors, purchasing prescription drugs in bulk or through a single purchasing agreement for use among public payors, and collaborating with other states and state prescription drug purchasing consortia.  The Board shall begin holding public meetings no later than March 1, 2020.  The Board’s first report, including its prescription drug spending targets and recommendations, is due by October 1, 2020.
4. LD 1504 seeks to protect consumers from unfair practices related to PBMs by replacing the current registration requirements for PBMs beginning on January 1, 2020. PBMs must obtain a license, which will be valid for three years.  Under the new rules, PBMs may not retain rebates paid by manufacturers and must pass those rebates along to the consumer or health plan.  In addition, a PBM may not require a patient to make “excess payments” at the point of sale for a covered prescription drug.  Excess payments include: (A) the applicable cost-sharing amount for the prescription drug; (B) the amount the patient would pay for the prescription drug if she purchased the prescription drug without using a health plan or any other source of prescription drug benefits or discounts; and (C) the total amount the pharmacy will be reimbursed for the prescription drug from the PBM or carrier, including the cost-sharing amount paid by a patient.

Maryland

After having its drug price gouging prohibition struck down by federal courts as unconstitutional (see our coverage here), Maryland enacted HB 768 on May 25, 2019.  This law creates a new Prescription Drug Affordability Board to protect state residents from the high costs of prescription drugs.  The Board will work with a new Prescription Drug Stakeholder Council consisting of 26 members from various groups, including generic and brand-name drug manufacturers, insurance carriers, PBMs, advocacy organizations, labor unions, and healthcare providers (e.g., pharmacists, physicians, nurses, dentists, and hospitals).  The Board plans to enter into Memoranda of Understanding with states that require reporting on the cost of prescription drugs in order to “aid in the collection of transparency data for prescription drug products.”

The new Board is tasked with identifying drugs that may create affordability challenges, including: brand name drugs or biologics that have a WAC of $30,000 or more per year or course of treatment at launch; brand name drugs or biologics that have a WAC increase of $3,000 or more in any 12-month period, or course of treatment if less than 12 months; biosimilar drugs that have a WAC that is not at least 15% lower than the reference brand biologic at launch; generic drugs that have a WAC of $100 or more for a supply lasting 30-days or fewer, or for one unit of the drug; and generic drugs whose WAC increased by 200% or more during the immediately preceding 12-month period.  After identifying these drugs, the Board will determine whether to conduct a cost review of the drugs.  If publicly available information is not available for the cost review, the Board may request information from the manufacturer, PBMs, health insurance carriers and managed care organizations.  Information and data obtained by the Board that is not publicly available is considered confidential and proprietary information.  If the Board determines that spending on a drug leads to an affordability challenge, the Board may set an upper payment limit for that drug.  The Board’s first reports are due by December 31, 2020.

Texas

HB 2536 was signed by Governor Greg Abbott on June 14, 2019.  It will become effective on September 1, 2019, but the affected drug manufacturers, PBMs, and health benefit plans are not required to submit reports before January 1, 2020.

Under this new law, drug manufacturers are required to disclose when a drug’s WAC increases 15% or more compared to the previous year or 40% or more over the past three calendar years.  The new law applies to drugs with a WAC of at least $100 for a 30-day supply.  Manufacturers must report, among other things, the aggregate, company-level research and development costs for the most recent year for which final audit data is available, and a statement regarding the factor(s) that caused the increase in WAC and an explanation of the role of each factor’s impact on cost.  The information submitted to the Texas Health and Human Services Commission (HHSC) shall be made public.

HB 2536 also contains annual reporting requirements for PBMs and health benefit plans.

Washington

HB 1224 was signed by Governor Jay Inslee on May 9, 2019.  This new law requires drug manufacturers to report and provide justification for certain launch prices and price increases.  Beginning October 1, 2019, for each covered drug, manufacturers must report, among other things:

• A description of the specific financial and nonfinancial factors used to make the decision to set or increase the WAC. For a WAC increase, the manufacturer must provide the amount of the increase and an explanation of how these factors explain the increase.
• Itemized cost for production and sales, including manufacturing costs, annual marketing and advertising costs, total research and development costs, total costs of clinical trials, and total cost for acquisition of the drug;
• Total financial assistance given through assistance programs, rebates, and coupons;
• A schedule of WAC increases for the past 5 years, if applicable.

Covered drugs include (A) a new prescription drug that will be introduced to the market at a WAC of $10,000 or more for a course of treatment lasting less than one month or a 30-day supply, whichever is longer; or (B) a prescription drug that is currently on the market, has a WAC of more than $100 for a course of treatment lasting less than one month or a 30-day supply, and the WAC increased at least 20% over the prior calendar year, or 50% over the prior three calendar years.  Reports must be submitted 60-days in advance of a price increase or within 30-days after release of a new covered drug to the market.  The law specifies that information submitted by manufacturers is not subject to public disclosure.

Drug manufacturers are also required to submit written notice within 60-days after receiving FDA approval for a new drug application or biologics license application.  The state may request additional information from the manufacturer if it expects the drug to have a significant impact on state expenditures.

Finally, beginning October 1, 2019, a manufacturer of a covered drug must notify the state of a price increase in writing at least 60-days prior to the planned effective date of the increase.  The notice must include the date of the increase, the current WAC, the dollar amount of the future increase in WAC, and a statement regarding whether a change or improvement in the drug necessitates the price increase.  The state will provide recommendations on how manufacturers should provide advance notice of price increases by December 1, 2020.

HB 1224 also contains reporting requirements for health carriers and PBMs.

We can expect further new federal and state laws addressing drug pricing, and we will continue to report on these new laws.

On June 27, Medtronic announced that it was recalling certain MiniMed insulin pumps due to “potential security vulnerabilities.”  On the same day, FDA issued a Safety Communication and the Department of Homeland Security issued a Cybersecurity Infrastructure Security Advisory about the same issue.

FDA’s Safety Communication states that “FDA has become aware that an unauthorized person (someone other than a patient, caregiver, or health care provider) could potentially wirelessly connect to a nearby MiniMed insulin pump with cybersecurity vulnerabilities.”  FDA explains that the potential risk of a hacking attempt is that the hacker “could change the pump’s settings to either over-deliver insulin to a patient, leading to low blood sugar (hypoglycemia), or stop insulin delivery, leading to high blood sugar and diabetic ketoacidosis.”  FDA notes that it is not aware of any actual hacking incidents.

FDA has been increasingly focused on cybersecurity.  In recent years, FDA has released guidance on premarket cybersecurity considerations (see our past blog posts here, here, and here) and postmarket cybersecurity considerations (see our past blog posts here and here).  The Safety Communication from FDA about MiniMed is also not the first of its kind.  FDA has issued at least six other Safety Communications since 2015 about specific medical device cybersecurity issues, including issues related to other Medtronic devices, listed on its webpage on cybersecurity.

Though Medtronic’s recent recall, as described in its Security Bulletin, was due to “work performed by external researchers” that identified the potential cybersecurity vulnerability, it is possible that FDA will identify these types of vulnerabilities more often in both the premarket and postmarket context.  As we have reported in past blog posts (here and here), we are aware of FDA requesting additional information about device cybersecurity while reviewing pending premarket submissions.

If we start to see more cybersecurity-related recalls, particularly as wireless and cloud-based medical device software becomes more common, we may see more attention from FDA to cybersecurity issues in the postmarket context, including through inspectional observations.

Today’s blog post illustrates how a company’s problems can escalate rapidly from an administrative warning letter to the full weight of the criminal system.  The unfortunate subject is ACell, a manufacturer of medical devices derived from porcine urinary bladder material.  ACell received a Warning Letter in 2013 related to the Quality System and Medical Device Reporting for its MatriStem® Surgical Matrix Thick device.  Little did it know, that same year, a whistleblower filed a qui tam action alleging, among other things, off-label promotion of another one of its devices, MicroMatrix Powder Wound Dressing.  A second whistleblower filed a case in 2016 making similar allegations.  The government lawyers investigating the whistleblowers’ allegations coordinated with criminal prosecutors, culminating in ACell agreeing to pay $15 million, plead guilty to a misdemeanor charge, implement extensive compliance activities, and be subject to a five year Corporate Integrity Agreement.

The criminal plea was based on the company’s failure to report to FDA its decision to remove its MicroMatrix Powder Wound Dressing from the marketplace, a reporting requirement under 21 C.F.R. Part 806.  In 2012, ACell learned that approximately 30,000 units of its MicroMatrix powder were contaminated with endotoxin levels that posed a risk to health.  ACell removed the affected devices but concealed the reason for the removal from health care providers and did not submit an 806 Report to FDA.  On June 11, 2019, the U.S. Attorney’s Office for the District of Maryland announced that it had charged ACell with a criminal misdemeanor, imposed a fine of $3 million, and required the company to enact extensive compliance reforms.

A few notable points about the criminal portion of this case.

• No individuals are named in the plea. The failure to include an officer of ACell seems inconsistent with DOJ’s mantra about holding individuals accountable.
• The Statement of Facts accompanying the criminal plea, which the parties agreed the government could prove beyond a reasonable doubt at trial, extends to activities well beyond the single 806 reporting violation, and paints a picture of a much more culpable defendant than the single misdemeanor count reveals.
• Despite the five year statute of limitations contained in the Federal Food, Drug and Cosmetic Act, the criminal plea related to conduct that occurred seven years ago, when the reporting obligation was triggered in 2012.
• The Compliance Program contains many of the typical elements in a Corporate Integrity Agreement, but extends to include monitoring for potential violations of FDA reporting obligations.

Each of these points is worth closer examination, and perhaps even its own blog post, but for now, medical device companies simply need to recognize the potential ramifications of the government’s  enforcement of the 806 reporting obligations.

The civil settlement turned on entirely different conduct: the company’s marketing of the MicroMatrix product.  According to the settlement agreement, FDA cleared MicroMatrix only for the management of topical wounds, but ACell marketed MicroMatrix for non-topical or internal uses.  The government alleged that “ACell’s promotion was false and misleading because, at the direction of management, ACell sales representatives stated to physicians that the use of powder non-topically and internally was safe and effective, when the sales representatives knew that no such clinical data existed.”  The government also alleged the company provided incorrect coding recommendations for reimbursement of its devices and provided prescribers with “improper inducements” to encourage use of its devices.  The civil settlement requires ACell to pay $12 million over five years, which includes an initial payment of $500,000, and quarterly payments in amounts ranging from $475,000 to $675,000 (plus interest).  The qui tamrelator will receive $2,366,004 of the settlement.

We have seen the number of straight “off-label” prosecutions diminish as the government has struggled with First Amendment considerations for distributing truthful, non-misleading information.  This case, however, turned on the “false and misleading” nature of the promotion because no clinical data existed.  Thus, industry should not get too confident that off-label promotion investigations are by-gone relics, and as always, should focus on ensuring there is proper substantiation for all product claims, whether on- or off-label.

Last week, Global Genes, a global rare disease patient advocacy organization, announced the 2019 RARE Champion of Hope Awardees, which included Hyman, Phelps & McNamara, P.C.’s very own, James Valentine.  This is a great honor, bestowed upon “true champions for rare disease”, “people who inspire us all through innovation, research, compassion and a relentless spirit to affect positive change.”  It is no surprise to me, someone who works with James on a daily basis, that he would be selected for such an honor.

James has been a relentless advocate for rare disease patients from the day he started his career, as a patient liaison at FDA, over 11 years ago.  At FDA, James worked across the Agency’s three medical product centers to help incorporate the patient voice into regulatory decision-making.  He helped administer the FDA Patient Representative Program, facilitated stakeholder consultations during the reauthorization of PDUFA and MDUFA, helped launch the Patient-Focused Drug Development (PFDD) program, and developed the FDA Patient Network.

Since joining HP&M 5 years ago, James brought his advocacy skills to private practice, representing over two dozen rare disease patient advocacy groups, assisting them in engaging with drug developers and regulators.  He’s been central to the transition of the PFDD program to externally-led meetings, having helped plan and moderated the majority of these, and is also working on novel methodologies for capturing patient experience data.  He has helped ensure thousands of patients have a seat at the table with decision-makers. And his patient advocacy work is only the beginning.  James has also been critical in advising orphan drug and gene therapy sponsors in development and approval issues, having helped secure FDA approval for several new molecular entities in this relatively short period of time.

In fact, the Global Genes announcement came just one day before James moderated the Global Rare Disease Town Hall at the DIA Annual Meeting.  As pictured, James led a discussion with FDA’s Dr. Peter Stein (Director, Office of New Drugs & Acting Associate Director for Rare Disease, OND, CDER), Dr. Janet Maynard (Director, Office of Orphan Products Development), and Dr. Ilan Irony (Deputy Director, Division of Clinical Evaluation and Pharmacology/Toxicology, OTAT, CBER), as well as EMA’s Dr. Agnès Saint-Raymond (Head of International Affairs, Head of Portfolio Board).  The panel discussed important topics in the regulation of products for rare diseases, including new targeted technologies, the utility of expedited programs, patient engagement and collaboration, new Agency organizational proposals, and more.

James will be accepting his award at the 8Th Annual RARE Patient Advocacy Summit on Friday, September 20th.  The Summit is the world’s largest education event for rare disease patients and advocates.

As we discussed previously, FDA’s 2016 final regulation updating nutrition labeling requirements included a requirement to declare added sugars.  This requirement created quite a stir among several segments of the industry.  Among others, the honey and maple syrup manufacturers pushed back on the requirement to include, on single-ingredient packages for these products, a statement (in the nutrition facts box), “includes x g sugars;” the inclusion of this statement was expected to confuse consumers into thinking the honey or maple syrup were adulterated by the addition of sugar.

In March 2018, FDA issued a draft guidance allowing a disclaimer explaining the statement.  However, FDA’s proposed solution was not well received by industry.  In June, FDA announced that FDA was working with stakeholders to devise a (more) sensible solution.  Subsequently, on Sept. 6, 2018, then-Commissioner Gottlieb announced that FDA was drafting the “final guidance, which [FDA] anticipate[s] issuing by early next year.”  Then in December 2018, the President signed the Farm Bill including a provision prohibiting FDA from requiring a statement “includes x g sugar” on single ingredient packages or containers of pure honey, maple syrup and other single ingredient sugars and syrups.  Last week, about six months after the Farm Bill was enacted, FDA issued final guidance advising industry what, according to FDA, this means for the nutrition facts box for these products.

Consistent with the Farm Bill, the single-ingredient products are not required to declare the number of grams of added sugars in a serving of the product on the Nutrition Facts box but must still include the percent Daily Value (DV) for added sugars. In other words, FDA believes that it can require declaration of %DV for an undeclared nutrient.  FDA further states that it intends to exercise enforcement discretion for the use of the “†” symbol immediately following the %DV declaration, which leads to a footnote inside the Nutrition Facts label which explains the amount of added sugars that one serving of the product contributes to the diet as well as the contribution of one serving of the product toward the percent DV for added sugars or a similar non-misleading statement.  The inclusion of the footnote is not mandatory.  The guidance as well as a fact sheet include an example.

The honey and maple industries were not the only ones objecting to FDA’s final rule.  The cranberry industry also raised objections .  Cranberry juice naturally contains little sugar but is so tart that making it palatable for the consumer demands the addition of sugar (or another sweetener).  The added sugars must be declared as added sugars.  A juice, such as grape juice, that is naturally sweet, need not be sweetened to be palatable.  As a result, consumers comparing the nutrition information of a cranberry juice and grape juice, may avoid cranberry juice; even though the total sugar content of the two juices is similar, the amount of added sugar in cranberry juice is significantly higher than the amount of added sugar in grape juice (which will be 0 g).

Consistent with the draft guidance, FDA maintains its position that cranberry beverage products and certain dried cranberry products must declare added sugars in grams as well as the %DV for added sugars.  However, FDA will exercise enforcement discretion by allowing the use of a symbol immediately following the %DV for added sugars.  This symbol will link to a statement outside the Nutrition Facts label explaining that sugars are added to improve the palatability of naturally tart cranberries.  FDA provides examples of several possible statements none of which appear to address the total sugar content of the cranberry product vs. the naturally sweeter product.

In the Federal Register notice, FDA notes that it may consider the same type of enforcement discretion discussed with respect to certain cranberry products for other naturally tart fruits for which the amount of total sugars per serving is at a level that does not exceed the amount of total sugars in a comparable product with no added sugars.  Acai berry juice products do not fall in that category.

Overall, FDA is giving manufacturers of single ingredient packages/containers of pure honey, maple syrup, other pure sugars and syrups, and certain cranberry products enforcement discretion until July 1, 2021 to comply with the new nutrition labeling requirements, i.e., approximately two years after publication of the final guidance.  This will give these manufacturers additional time to make label changes consistent with the final regulations, the Farm Bill and FDA’s guidance.

We knew it would be back.

It was never dead, though perhaps forgotten by some (never us), but OTC Monograph Reform is back in the public eye again.  Lawmakers appear to be taking to heart CDER Director Janet Woodcock’s remarks last week in which she urged the adoption of reforms to the monograph system.  On June 24, 2019, a bipartisan group of lawmakers introduced H.R. 3443 to enact the Over-the-Counter Monograph Safety, Innovation, and Reform Act of 2019, and it was referred to the House Committee on Energy and Commerce.  The text of the bill can be found here.

As readers of this blog may recall, FDA has been exploring OTC Monograph Reform and its associated user fees for several years, formally beginning with a public meeting on the subject in June of 2016, which we blogged about here.  Remarkable in its bipartisan appeal and support, legislation emerged that seemed destined for passage.  However, it stalled over differences in the House and Senate bills on the proposed length of time for marketing exclusivity afforded for certain innovations.  That issue was resolved, but it wasn’t the right time for this legislation.  Due, at least in part, to complications caused by the federal government shut down, it was still not (yet) to be at the end of 2018.  Earlier this year, monograph reform was included in H.R. 269 (the Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2019) which was passed by the House.  Senate leadership concluded a separate bill was not necessary because the provisions had been agreed to by both chambers and it placed the bill on the Senate Legislative Calendar under General Orders where it remains.

The newly introduced H.R. 3443 contains the same language as the monograph section of the Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2019 introduced as H.R. 269.  Among other things, it:

• changes the rulemaking process currently used to establish and modify monographs to what is hoped to be a more efficient order process
• addresses the status of products currently marketed under tentative final monographs
• allows for innovation beyond the constraints of the current system
• provides for marketing exclusivity for certain innovations
• provides FDA with more tools in the event of an emerging safety issue
• provides for user fees which will come with timeline goals for FDA actions.

There’s much more to the OTC Monograph Reform, and we will cover the details as it gets closer to becoming law.  The new bill may be added to drug pricing legislation under consideration. We will continue to follow and report on its progress.

In a 6-3 decision, the U.S. Supreme Court reversed and remanded the lower courts’ decision to publicly disclose commercial information that previously had been submitted to the government.  Given that FDA-regulated entities often submit to FDA commercial or financial information that those entities regard as privileged or confidential, this decision is notable because it upends FDA’s interpretation and application of Exemption 4 of the Freedom of Information Act (FOIA).  Exemption 4 permits the government to withhold from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. 552(b)(4).

In this case, a South Dakota newspaper (Argus Leader) filed a FOIA request with the U.S. Department of Agriculture (USDA) for data related to the national food-stamp program (called SNAP).  The newspaper asked for annual redemption data from each of the stores, and USDA invoked FOIA Exemption 4 in declining to disclose the data.  The lower court applied the generally accepted “substantial competitive harm” test to determine whether the commercial information is “confidential.”  That test, first adopted by the D.C. Circuit in 1974 in National Parks & Conservation Association v. Morton, provides that Exemption 4 prevents disclosure of information required to be submitted to the government only if disclosure is likely “(1) to impair the Government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.”   Although the court agreed that “revealing store-level SNAP data could work some competitive harm, the court could not say that disclosure would rise to the level of causing ‘substantial competitive harm,’ and thus ordered disclosure.”

Although USDA declined to appeal, the Food Marketing Institute (FMI) (a grocery retailers’ trade association) appealed the decision to the Eighth Circuit, which rejected FMI’s argument to discard the National Parks “substantial competitive harm” test and affirmed.  FMI then appealed to the Supreme Court.

Justice Gorsuch, in the Supreme Court opinion, noted that the statute does not define the term “confidential,” and thus focused on the term’s “ordinary, contemporary, common meaning” when Congress enacted FOIA.  The Court noted that contemporary dictionary definitions of “confidential” established that at least one condition has to be met for information to qualify as “confidential” – namely, the information “must be at customarily kept private, or at least closely held, by the person imparting it.”  An additional condition might also have to be met – namely, the party receiving the information must provide “some assurance that it will remain secret.”  The Court declined to resolve that question because both conditions were met in the instant case.  The grocery stores clearly treated the SNAP data as private, and USDA had provided the stores with an assurance that the agency would treat the information as such.  The Court firmly rejected the application of the “substantial competitive harm” requirement set forth in National Parks, characterizing the approach taken in that decision as “a relic from a ‘bygone era of statutory construction,’” and other courts’ subsequent application of this standard as a “casual disregard of the rules of statutory interpretation.”

Thus, the Court greatly expanded the ability of the government to withhold information from the public:

At least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is “confidential” within the meaning of Exemption 4.

(Emphasis ours.)  In an accompanying opinion concurring in part and dissenting in part, Justice Breyer maintained that the Court’s reading of Exemption 4 is at odds with the “whole point” of FOIA: “to give the public access to information it cannot otherwise obtain.” Otherwise FOIA would be unnecessary, because Google searches could suffice to obtain information that is already publicly available.  He warned that the Court’s reading will “deprive the public of information for reasons no better than convenience, skittishness, or bureaucratic inertia.”

The importance of this decision to FDA-regulated entities cannot be overstated.  Now, an FDA-regulated company that is required to submit commercial or financial information to FDA only needs to show its efforts to keep the information private, and the assurances from FDA that it would treat the information as such (and, as noted above, even the latter criterion might not apply).  There is no requirement for showing any harm from the disclosure of that information, whether substantial or negligible.  Although FDA regulation largely tracks the broad definition of confidential commercial or financial information (“valuable data or information which is used in one’s business and is of a type customarily held in strict confidence or regarded as privileged and not disclosed to any member of the public by the person to whom it belongs”), 21 C.F.R. § 20.61, FDA may need to scrub the reference to “competitive harm” in discussing its assessment of whether to provide notice to the submitter of commercial or financial information about a request for that information.

Further, the Court’s decision points toward adoption of a single standard for determining whether information qualifies as confidential, thereby eradicating the esoteric distinction between information that is required to be submitted (which was governed by the “substantial competitive harm” standard elucidated in National Parks) and information that is voluntarily submitted (which was governed by the less demanding standard elucidated in Critical Mass Energy Project v. NRC, i.e., “information qualifies as confidential ‘if it is of a kind that would customarily not be released to the public by the person from whom it was obtained’”).  While declining to articulate that single standard, the Court noted that it could not “discern a persuasive reason to afford the same statutory term to two such radically different constructions.”

FDA recently announced new changes it is making to the Medical Device Reporting (MDR) program as part of its ongoing efforts to increase transparency on device performance, and detection of device-related safety concerns. FDA is formally discontinuing the Alternative Summary Reporting (ASR) Program, which permitted certain device manufacturers to file quarterly reports rather than individual reports.  All data submitted under the program are available on the MDR Data Files web page.

The ASR data is available only in compressed files containing data for one year.  Starting in 2017, the ASR Program also required manufacturers to submit a “companion” medical device report for visibility through the Manufacturer and User Facility Device Experience (MAUDE) database so the most recent files are searchable.  For the years 1999 to 2016, the data are available, but not easy to navigate.

Files from CDRH’s Device Experience Network (DEN) also are available on the MDR Data Files page.  These include files from the database that pre-dates the MAUDE database.  Like the ASR data, DEN data are available in compressed, downloadable files containing data by year, but the DEN files also can be searched by product description, product code, manufacturer and report type.

FDA also provided an update on its plans to make the MAUDE database more user friendly and for active surveillance using the National Evaluation System for health Technology (NEST).  While improving the user interface for MAUDE will be helpful, the MDR system is a passive system and has limitations in its use for identifying emerging signals to improve patient safety.  Therefore, FDA claims it is moving to an active surveillance system, leveraging Unique Device Identifiers (UDI) and NEST.  Both the MAUDE updates and NEST received funding for development in FY2019 so we look forward to seeing progress in the near future.

The authors of this blog are busy, and we are actively seeking attorneys interested in working at the nation’s largest boutique food and drug regulatory law firm (and ideally writing for the FDA Law Blog).  We have at least two openings:

• The first position is for a junior to mid-level associate. A demonstrated interest in food and drug law and regulation is preferred; strong research and writing skills are required.
• The second position is specific to our drug development team. The attorney will assist our clients secure FDA approval for new drugs by leveraging our legal expertise of the approval standards in the FDC Act and implementing regulations to overcome potential regulatory or scientific impediments. The position affords the opportunity to participate in product development strategy at the initiation stage and to navigate the drug through the FDA regulatory process. Strong verbal and writing skills are required, as well as a detailed understanding of FDA and the regulatory process.

Compensation is competitive and commensurate with experience. HPM is an equal opportunity employer.  Please send your curriculum vitae, transcript, and a writing sample to Anne K. Walsh (awalsh@hpm.com). Candidates must be members of the DC Bar or eligible to waive in.

FDA published a Consumer Update acknowledging the ubiquitous presence of CBD products in the marketplace, and providing the agency’s current perspective on questions regarding the regulatory status, safety, and quality of such products.  The Consumer Update follows closely on the heels of a recent statement issued jointly by FDA’s Principal Deputy Commissioner and Principal Associate Commissioner for Policy.  That statement emphasizes the agency’s commitment to “sound, science-based policy on CBD,” and thereby suggests that FDA should not be expected to make significant policy decisions until it has the data and other information needed to answer to its satisfaction the scientific issues identified by the agency thus far (e.g., “How much CBD is safe to consume in a day? How does it vary depending on what form it’s taken? Are there drug interactions that need to be monitored? What are the impacts to special populations, like children, the elderly, and pregnant or lactating women? What are the risks of long-term exposure?”)

Consistent with FDA’s past statements on cannabis and CBD, these more recent statements reiterate FDA’s intent to act against CBD products marketed with medical claims, be they labeled as dietary supplements, pet treats, or cosmetics.  The agency regards such products as unapproved drugs that present a risk to consumers’ health and safety.  The agency can also be expected to take action against products found to be contaminated with microbiological or chemical substances that pose a hazard to health.

With respect to CBD products that do not make medical claims and that are manufactured to a high standard of quality, the agency’s intentions are less clear.  FDA is aware of “products on the market that add CBD to a food or label CBD as a dietary supplement.”  The agency maintains that “it is currently illegal [under federal law] to market CBD this way.”  Nonetheless, at present, FDA does not appear to be directly challenging the marketing of such products.  In the interim, consumer education is a tool FDA can deploy at will to help consumers help themselves.  As stated in the closing paragraph of the Consumer Update:  “As we learn more, our goal is to update you with the information you need to make smart choices about CBD products.”  Stay tuned.

The pharmaceutical industry has filed a lawsuit challenging a recently finalized rule from the Centers for Medicare & Medicaid Services (CMS) which requires drug pricing disclosures in television advertisements for certain prescription drugs and biological products (the Final Rule).  In an effort to block the rule from going into effect on July 9, 2019, Merck, Eli Lilly, Amgen, and the Association of National Advertisers, Inc., filed a lawsuit on June 14, 2019 in the D.C. District Court seeking a declaratory judgment that the Final Rule is invalid under the First Amendment and the Administrative Procedure Act.

The Final Rule

By way of background, the Final Rule requires that any advertisement on TV for most prescription drugs or biological products for which reimbursement is available under Medicare or Medicaid must include the following statement:

The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert price]. If you have health insurance that covers drugs, your cost may be different.

The “list price” to be inserted is the Wholesale Acquisition Cost, or WAC, which is defined as the manufacturer’s published list price for the most recent month available, not including discounts or rebates.  For a more detailed overview of the Final Rule, see our previous post here.

The Lawsuit

The Complaint argues that the required disclosure, rather than achieving increased drug pricing transparency, will instead lead to consumer confusion and may discourage patients from seeking valuable information regarding treatment options.  This is because the WAC price differs significantly from the actual out-of-pocket expense incurred by patients, which can vary based on insurance coverage, deductibles, and copay requirements.  According to the Complaint, HHS is willing to “discourage patients from using beneficial medications,” as a means to reduce Medicare and Medicaid expenditures on pharmaceutical products.

The promulgation of this Final Rule, plaintiffs argue, exceeds HHS’s statutory authority and violates their First Amendment rights.  Specifically, plaintiffs note that HHS originally looked to the Food and Drug Administration to adopt a price disclosure requirement under the Federal Food, Drug, and Cosmetic Act (FDCA).  When it became clear the FDCA does not authorize price disclosure mandates, HHS invoked its rule-making powers under the Social Security Act.  Plaintiffs argue that Congress never intended for HHS to have the authority to regulate drug pricing disclosures and, in doing so, HHS is attempting to “sidestep the limitations of the statute that actually governs this specific area.”  Complaint at 26.

With respect to the First Amendment, plaintiffs point to the “heavy burden” the government must bear in justifying compelled speech in the commercial arena by showing that the regulation “directly and materially advances a substantial government interest that could not be served just as well by means that do not regulate speech to the same degree.”  Id.at 28.  HHS cannot meet this burden, plaintiffs argue, because the Final Rule, in fact, frustrates a substantial government interest by essentially misleading consumers about their out-of-pocket costs.  Id.at 28-29.

Also on June 14, 2019, plaintiffs filed a Motion for Stay Pending Judicial Review, seeking to stay the effective date of the rule pending the resolution of the lawsuit challenging its validity, as well as a Motion to Expedite judicial review.  The Court approved an expedited briefing schedule and set the matter for hearing on July 2, 2019 at 2:00pm.  In the briefing schedule, the Court indicated its intent to issue a decision by July 8, 2019, one day prior to the effective date of the Final Rule.

We will continue to report on the updates and outcomes of this lawsuit.

The government lost a significant battle in its aggressive prosecutions of individuals involved in the New England Compounding Center (NECC) disaster, in which the vilified, and now-defunct, NECC “compounded” contaminated batches of drugs that led to a multitude of deaths and injuries.  Gregory Conigliaro, a co-owner of NECC, and Sharon Carter, the Director of Operations, were convicted by unanimous jury verdict for conspiring to defraud the United States, also known as a Kleinconspiracy.  The core allegation was that the defendants were engaged in a concerted effort to hold out NECC as a “more or less conventional pharmacy” when in actuality NECC was operating as a drug manufacturer.  The distinction carried significant regulatory impact because, at that time, FDA only regulated drug manufacturers, while traditional pharmacy compounders were regulated by the state boards of pharmacy.

Both pre-, during, and post-trial, defendants argued that there was no discernible federal law defining any clear distinction between a compounding pharmacy and a drug manufacturer, and thus that it was a “legal impossibility” for defendants to have defrauded FDA.  “Legal impossibility” applies when the actions of a defendant, even if carried out as desired, would not constitute a crime (e.g., smoking marijuana in Massachusetts in the mistaken belief that the recreational use of marijuana was illegal in the state).  On June 7, 2019, in response to the defendants’ Rule 29 motions for acquittal, U.S. District Judge Richard G. Stearns agreed and acquitted these defendants.  The court recognized that the “legal impossibility” defense had not proved effective in any precedential case, but reasoned that the facts, coupled with basic principles of lenity and due process, required its application in this case.

The court was convinced by arguments that the government failed to meet its burden of proof on a required element of the Klein conspiracy, namely that FDA was in fact exercising regulatory authority over compounders.  The court recounted the history of FDA’s authority to regulate compounding activities, noting that Congress created a “regulatory lacuna” because it failed to provide clarity on the dividing line between drug compounding and manufacturing, causing confusion among state and federal regulators as to who was responsible. And the court relied heavily on FDA’s own statements to Congress and its recognition that compounding pharmacies fulfilled a public health need for supplying hospitals with drugs otherwise unavailable to them.  Ultimately, the court was unwilling to impose criminal liability on such a “shaky foundation.”

To date, thirteen employees have pled guilty or been convicted of various charges, including mail fraud and RICO violations.  We expect to see the other individuals previously convicted for participating in the Klein conspiracy to raise these same arguments in whatever legal mechanisms remain available to them.  The U.S. Attorney in Massachusetts, Andrew Lelling, has stated that his office is considering whether to appeal Judge Stearns’ ruling.

The Paragraph IV certification list on FDA’s website is a very useful tool for generic drug manufacturers in evaluating the potential for 180 day exclusivity for any given product. The list generally describes drug products for which one or more substantially complete ANDA containing a paragraph IV certification has been submitted to FDA.  As a generic sponsor, the list helps sponsors assess whether they are a first-filer, or whether they may be blocked by a first-filer after approval. It also tells you whether a first-filer has already been established, which helps determine whether it is worth investing resources to submit a Paragraph IV certification.

Up until June 18, 2019, the Paragraph IV certification list contained limited information. Specifically, the list included only the name of the drug product, dosage form, strength(s), reference listed drug (RLD)/new drug application (NDA) number, and the date on which the first substantially complete ANDA(s) (or amendment or supplement to one) was submitted to the Agency that contained a paragraph IV certification to at least one patent listed for the RLD in the Orange Book.  But, as an element of the Drug Competition Action Plan, FDA updated this listtoday in an effort to “provide greater clarity to ANDA applicants regarding the earliest date when they may be able to obtain final approval.”  To this end, FDA now plans to include the following information for individual drug products on the Paragraph IV certification list:

• Active Ingredient Name
• Dosage Form
• Strength
• RLD Name and NDA Number
• Date of First Substantially Complete ANDA Containing PIV Submission
• Number of Potential First Applicant ANDAs Submitted
• 180-Day Decision Status (whether FDA has made a decision regarding eligibility for 180-day exclusivity for a drug product)
• 180-Day Decision Posting Date (the month and year that FDA updated the PIV Certification List to reflect the corresponding 180-day decision status)
• Date of First Approval of “First Applicant” ANDA(the first date on which a first applicant’s ANDA received final approval)
• Date of First Commercial Marketing; and
• Expiration Date of Last Qualifying Patent(if there are multiple applications submitted on the first day, the patents that have at least one PIV certification amongst all the submissions will be posted)

As of now, FDA intends to update the retrospectively “as practicable,” but this is a pretty big undertaking.  In general, the information added here represents a pretty significant overhaul to the Paragraph IV certifications page.

The data points added to the Paragraph IV list are intended to provide information to enable generic sponsors to make better decisions.  FDA explains that

With the update today, this new data may allow generic applicants to make more informed business decisions about which of their specific generic drug applications have a higher likelihood of being approved sooner. This data may also provide more public transparency into instances in which the FDA approves an ANDA with exclusivity, but the generic product is not marketed for an extended time which among other reasons may signal “gaming” tactics in the generic market.

And indeed this information can be very useful.  For example, knowing that a product already has a first-filer will help sponsors determine whether it is worth commencing a patent challenge for a given product. Additionally, knowing that FDA has made an exclusivity determination already – and the date of that first-filer’s ANDA submission – is helpful to knowing where your application stands in the pack.  As FDA explains, from this information alone, one can deduce that (1) FDA approved at least one first applicant’s ANDA and considered that first applicant’s drug product eligible for 180-day exclusivity at the time of approval (“eligible”); (2) FDA approved a first applicant but did not make a determination regarding eligibility for exclusivity at the time of approval (“deferred”); (3) FDA tentatively approved a subsequent applicant solely on the basis of a first applicant’s eligibility for 180-day exclusivity at a time that none of the grounds for forfeiture were found to apply (“non-forfeiture”); or (4) FDA determined that 180-day exclusivity has been extinguished, for example, if all first applicants have forfeited or voluntary relinquished eligibility for 180-day exclusivity (“extinguished”).  Of course, not all 180-day exclusivity determinations will be included in the Paragraph IV certification list because of FDA’s practice to make certain forfeiture decisions in the context of specific ANDAs that are otherwise eligible for approval.  So don’t expect any early forfeiture decisions here.  But it is helpful nonetheless to know if a competitor with first-filer status is the subject of an exclusivity determination.

Additionally, the first commercial marketing date is helpful for subsequent applicants to know when they will be permitted to launch.  Because 180-day exclusivity is triggered at commercial launch, which is typically not the same day as approval, there may be a question about the exact date that exclusivity ends.  This information in the Paragraph IV certification list addresses that issue. (Of note, though, these products can be identified by a “Patent Challenge” (PC) code in the Exclusivity Data section of the Orange Book.)  Further, the addition of patent expiration dates may be helpful in knowing whether 180-day exclusivity will continue to be an issue for later filers.  This is because, upon expiration of the patent with a Paragraph IV certification results in 180-day exclusivity forfeiture.  But because it’s not always possible to know which patents have been the subject of a Paragraph IV certification, including this information in the Paragraph IV list will help other potential applicants know when the potential for any 180-day exclusivity to run has expired.

While this information may not be groundbreaking, as much of it can be deduced for individual products if you know what you’re looking for, having it all in one place is and easily accessible is very helpful for sponsors.  And it’s always a good thing when an agency not exactly known for transparency takes the initiative to make a complicated process easier on industry.

On June 5, 2019, the Animal Plant Health Inspection Service of the USDA (APHIS) announced the availability of a proposed rule titled “Movement of Certain Genetically Engineered Organisms.”  The proposed rule was published on June 6, 2019.  On June 7, the 449 pages long draft environmental impact statement of the proposed rule also was made available.

Among other things, APHIS oversees the importation, interstate movement and environmental release of genetically engineered organisms to ensure they do not pose a plant pest risk.  The current regulations have been in place since 1987.  They require that APHIS consider a new genetically engineered (GE) plant as regulated until APHIS determines that the plant does not fall under the agency’s authority or does not pose a plant pest risk.  Industry has long complained that the rules are outdated and an impediment to innovation in the sector.  Moreover, for more than a decade the USDA Office of Inspector General, National Research Council and others have made recommendations and suggestions how to modernize and increase efficiency of APHIS regulation of GE plants. As described in the preamble to the proposed rule, since 2004, APHIS has considered options to modernize the regulations.  The proposal marks the first significant change in three decades.

The proposed amendment is intended to promote process efficiency by allowing APHIS to focus its resources on oversight of GE organisms that in fact have potential plant pest risks and reduce its oversight of GE organisms that are unlikely to pose such risks.  According to APHIS, it addresses and implements and is consistent with various recommendations by OIG.  Under the proposed rule several categories of GE plants are exempt from permitting requirements and the notification procedure has been removed.  Some major changes include:

• Exemption for certain categories of GE plants from the regulations because they could (also) be produced through traditional breeding techniques; APHIS claims that this exemption is justified because such GE plants are unlikely to pose new plant pest risks.
• Change of the basis for APHIS regulatory review from one in which GE plants are regulated based on the use of plant pests in their development, to one in which APHIS reviews the GE plants themselves for plant pest risks. Regulated status will be based on regulatory status reviews rather than on a petition process. (The regulatory status review applies only to GE plants not to GE plant pests or other GE non-plant organisms).
• Focuses APHIS oversight on those GE organisms that are found to be likely to pose plant pest risks, as determined by science-based risks assessments.
• Exemption for GE plants with plant-trait-mechanism of action combinations that APHIS has previously evaluated (under a regulatory status review) and found to be unlikely to pose a plant pest risk. APHIS proposes to publish the results of all completed regulatory status reviews on its website.
• APHIS will continue to regulate GE organisms that are, in and of themselves, plant pests, as well as other GE non-plant organisms that pose plant pest risks. Such organisms would require permits for movement. (APHIS requests public comments as to the option of applying regulatory status review to these products also).
• Elimination of the notification procedure and requirement for a permit for the interstate movement, importation, or environmental release for GE organisms for which APHIS was unable to reach a finding of unlikely to pose a plant pest risk.
• Provides an option for biotech developers to do a “self-determination” about whether new traits qualify for an exemption. APHIS would then give those developers a chance to request a confirmation letter from APHIS of the plant’s exempt status.  According to the Agency, “these confirmation letters . . . would provide a clear and succinct statement about the regulatory applicability of the GE plants and the nexus to plant health.”
• The current rule includes details about timing/timeframes for APHIS reviews/responses/actions. The proposed rule no longer includes this type of provision, providing APHIS with greater flexibility.

Developers who are found to be commercializing crops that are found not to be exempt from the APHIS rules may be ordered to destroy their plants or pay penalties.

Comments to the proposal may be submitted by August 5, 2019.