A recent decision out of Pennsylvania caught our eye, not because it applied a new enforcement strategy by FDA, but to the contrary, because it relied on FDA’s “oldie but goodie” Inspection Warrant authority.  Not a search warrant, which is subject to the same “probable cause” standard as all criminal search warrants, but an administrative tool that is rooted in the inspection provisions of the FDC Act, 21 U.S.C. § 374(a).  FDA admits it rarely uses this authority: “FDA does not routinely request inspection warrants in order to conduct investigations or inspections of regulated industry. However, warrants have been used effectively to gather information that has been refused improperly.”

FDA’s Regulatory Procedures Manual requires the following criteria to seek an inspection warrant:

1. FDA is entitled by statute or regulation to inspect the facility and to have access to the information which has been refused; and
2. there is a compelling FDA need for that information, and
3. the firm/individuals have refused to allow inspection or access to information in spite of a clear demonstration or explanation of appropriate statutory authority.

In the reported decision, In the Matter of Administrative Establishment Inspection, No. 1:18-MC-546, 2019 U.S. Dist. LEXIS 65476 (M.D. Pa. Apr. 17, 2019), FDA tried five times to inspect Spa & Organic Essentials after a nationwide outbreak of salmonella was linked to kratom distributed by the company.  Kratom is a food, as defined by the FDC Act, and Spa & Organic Essentials is subject to regulation by FDA as a food manufacturer and distributor.  Despite evidence linking the company to the contaminated kratom, the company refused to cooperate with FDA inspectors.  Thus, FDA turned to this rarely used tool, described as an “Inspection Warrant” by FDA, but termed an “Administrative Search Warrant” by the court.  The court issued the warrant on September 27, 2018, and FDA executed the warrant on October 3, 2018.  Both parties filed motions related to the warrant: Spa & Organic Essentials sought to quash the warrant, and FDA sought to require Spa & Organic Essentials to make statements and provide passwords for computers seized by FDA.

The court denied both motions.  The court recognized the strong deference afforded to the magistrate judge’s determination of probable cause, and also reinforced the well-settled proposition that “probable cause” in the criminal law sense is not required for an administrative warrant.  Rather, probable cause may be based on either:

• A particularized showing that the manufacturing plant targeted for the search is the location of suspected . . . violations; or
• A showing that the industry in general poses certain hazards to workers coupled with a showing that the targeted facility was selected at random as part of a general plan to pursue and eliminate suspected industry-wide violations.

The court concluded there was “ample probable cause for the FDA to conduct this search.”  The court was persuaded by the evidence linking Spa & Organic Essentials as the potential source for the salmonella-tainted kratom, and the company’s refusal to cooperate with other investigative measures.

The court denied as premature FDA’s request to compel the company to speak with investigators on the ground that the warrant did not affirmatively require the company to engage in testimonial conduct, just the seizure of records.   Thus, the court instructed FDA to take steps to first compel production of the information. But how can FDA take those steps? As noted above, the administrative warrant is rooted in the FDC Act inspection provisions. There is nothing in those provisions that requires an inspected entity to “allow” FDA to interview the entity’s employees. Thus, short of obtaining a criminal search warrant or getting a criminal subpoena, there is simply no step that FDA can take to compel interviews of the inspected entity.

This case serves as good reminder to all FDA-regulated entities of the arsenal of tools FDA has to conduct its regulatory oversight.  However the case also is a reminder of a key limitation on FDA’s inspectional authority, namely the absence of any statutory authority to compel any company employee to speak about any topic during an FDA inspection. Thus, regulated industry must remember that allowing its employees to speak during an FDA inspection is a purely voluntary decision, and not one that FDA has any statutory authority to compel under the FDC Act.  We assume FDA will only use the Inspection Warrant in limited circumstances, as proscribed by the RPM, but companies should know that a decision to refuse an inspection may be short-lived.

The Department of Justice (“DOJ”) has been touting for years the common interest that government and industry share in promoting an ethical corporate culture.  This week, DOJ reinforced the importance of a robust, well-designed, and effective corporate compliance program in DOJ’s determination of whether to prosecute, impose monetary penalties, and require compliance obligations on a company accused of misconduct.

In an updated guidance document, DOJ expands on the types of questions prosecutors should be asking to evaluate a company’s compliance program.  The questions fall under three main categories:

• Is the corporation’s compliance program well designed?
• Is the program being applied earnestly and in good faith? In other words, is the program being implemented effectively?
• Does the corporation’s compliance program work in practice?

If the questions are answered positively, then DOJ may decline to prosecute the company, focus efforts on prosecuting individuals, or provide leniency in the fine or imposition of a monitor.

For the first question, DOJ evaluates the comprehensiveness of the program (i.e., whether there is a clear message from the top that misconduct is not permitted).  To do this, DOJ instructs its attorneys to review a company’s policies and procedures for assigning responsibility, training, and disciplining.  DOJ specifically highlights the diligence process associated with M&A activities.  Although it is our experience that companies already include compliance issues as part of its due diligence, this recent statement by DOJ heightens the priority companies should place on these issues pre- and post-closing.

For the implementation question, the key issues relate to the commitment by management to foster the culture of compliance.  DOJ wants to see commitment from not just the Board of Directors or Senior Executives at a company, but also wants to see that “middle management” is reinforcing these standards.   And to evaluate the last category of questions, whether the program actually works, DOJ looks at how misconduct is identified, and whether there is adequate analysis and remediation of the misconduct once uncovered.

Notably, these same questions are those that drug and device companies routinely ask in the context of evaluating complaints about the company’s products.  The Quality System Regulation requires medical device companies to establish procedures to implement corrective and preventive action.  See 21 C.F.R. § 820.100.  These procedures must include an investigation of the cause of the issue, actions to correct and prevent recurrence of the issue, validation to ensure the actions are effective, and management oversight and review.  Similar requirements are imposed on drug manufacturers as part of complaint handling and adverse event reporting.  See, e.g., 21 C.F.R. §§ 211.198, 314.80.  Thus, a framework for addressing compliance issues should be very familiar to pharma and device companies.

Ironically, DOJ issued this guidance in the shadow of another DOJ policy that prohibits its lawyers from basing enforcement on violations of requirements set forth in guidance documents.  Nevertheless, this 18-page guidance document is worth close review by compliance officers.

Last week FDA issued a final guidance, Unique Device Identification: Convenience Kits, which clarifies FDA’s interpretation of a convenience kit for purposes of UDI labeling requirements.  We previously blogged on the draft version here.   As our readers know, the unique device identification system regulations require that the label and device package of a device must bear a UDI, unless an exception or alternative applies.  One such exception is for devices packaged within the immediate container of a convenience kit if the label of the convenience kit bears a UDI.  21 C.F.R. § 801.30(a)(11).

Unchanged from the draft guidance is FDA’s definition of a convenience kit: A convenience kit is “two or more different medical devices packaged together for the convenience of the user” (21 CFR 801.3).  FDA interprets this to mean a device that contains two or more different medical devices packaged together and intended to remain packaged together and not to be replaced, substituted, repackaged, sterilized, or otherwise processed or modified before being used by an end user.  FDA clarifies that “packaged together” means packed (e.g., wrapped or sealed) in a single container that is not intended to be unwrapped or unsealed before it is used by an end user.  Notably, the guidance does not apply to kits that contain devices co-packaged with drugs.

Kits that meet the definition of a “convenience kit” must include a UDI on the kit label and the individual devices within the kit are exempt from the requirement to bear a UDI.  21 C.F.R. § 801.30(a)(11).  Medical devices that are a part of kits that do not meet this definition must be individually labeled in accordance with applicable UDI requirements.

The final guidance includes additional examples and clarifications:

• First aid kits

Like the draft, the final guidance concludes that a first aid kit meets the definition of a convenience kit because the bandages, scissors, etc., are sealed in a single package and are not unpackaged until they are used by the end user.  Those components would not need to be individually labeled with a UDI, as long as a UDI is affixed to the immediate container of the kit.  The final guidance adds that end users may wish to replenish components of the first aid kit, rather than purchasing a new one as supplies run out.  In that case, the individual devices used to replenish or augment the first aid kit must bear a UDI because they were not part of the original convenience kit.

• Non-sterile orthopedic device set

This example is largely the same, with only stylistic differences from the draft.  As before, a collection of orthopedic implants and reusable instruments that are all supplied as non-sterile would not meet the definition of a convenience kit for UDI purposes.  Each of these devices is removed from its packaging and placed into a sterilization tray for cleaning and sterilization at some point prior to use.  Potentially unused components, which may be used later, will not remain packaged with the other components prior to use.  Therefore, each device in the set must comply with all applicable UDI labeling, data submission, and direct mark requirements.

• Single use disposable medical procedure kit

This example is also largely unchanged.  A sterile procedure kit consisting of various instruments, guide wires, graft passers, etc. would meet the definition of a convenience kit because the components all remain packaged together up until the point in time when the surgeon opens the tray for use on the patient.  The final guidance adds that this example is distinguishable from Example 2, in which the devices are intended to be sterilized prior to use and intended to be reassembled and restocked between uses.

• Sterile kit containing both single-use and reusable medical devices packaged together

This is a new example in the final guidance.  In this example, FDA describes a suture kit which contains single-use sutures and reusable stainless steel instruments, including forceps, needle holders, and scissors.  The kit is supplied sterile, but after the initial procedure in which the single use device (suture) is consumed, the labeler intends that the instruments may be reused on different patients, which requires reprocessing before each subsequent use.  FDA would consider this a convenience kit because the individual devices within the device are packaged together for the convenience of the user and not intended to be replaced, substituted, repackaged, sterilized, or otherwise processed or modified before the devices are used by an end user.  FDA notes, however, that because some devices in the kit are intended to be reprocessed and reused, those devices would be subject to direct mark requirements under 21 C.F.R. § 801.45.

• Different devices packaged together for the convenience of the user but the collection of devices is not itself a device

This is also a new example in the final guidance.  In this example, a labeler manufactures fluid-filled teething rings in a variety of shapes.  The labeler packages one teething ring of each shape together as a fixed quantity to create an item for retail with a higher profit margin and/or to allow each end user to select and use a particular model of teething ring according to preference.  This is not considered a convenience kit for UDI purposes because the devices packaged together are not collectively a device.

A few key points regarding this final guidance:

These additional examples help to clarify some of the takeaways we previously reported.  For example, the draft guidance implied that if any devices in a kit required sterilization prior to use, it could not be considered a convenience kit.  Based on the fourth example in the final guidance, however, there is a noteworthy exemption from this general rule.  If the product is initially provided as sterile, but requires sterilization after its first use, FDA would consider this a convenience kit.

We also note, as we did in our previous post, that the intent of the labeler informs the determination of whether a kit is a convenience kit for UDI purposes.  How the product is used has no bearing on the analysis.

FDA’s interpretation and application of the Best Pharmaceuticals for Children Act (“BPCA”), which provides for a 6-month add-on period of pediatric exclusivity has piqued our interest more than once over the years, leading to several posts (see, e.g., here, here, and here).  We now have another interpretation to add to the collection . . . .

By way of background, FDC Act § 505A provides an additional 6 months of patent and non-patent exclusivity to pharmaceutical manufacturers that conduct acceptable pediatric studies of new and currently-marketed drug products identified by FDA in a Written Request for which pediatric information would be beneficial.  Pediatric exclusivity extends all other types of Orange Book-listed patent and non-patent marketing exclusivity (e.g., 5-year, 3-year, and 7-year orphan drug exclusivity) an application holder may have under the FDC Act, provided that at the time pediatric exclusivity is granted there is not less than nine months of term remaining.

An important aspect of pediatric exclusivity is that it provides additional marketing exclusivity not just for the pediatric indications or formulations, but for all protected indications and formulations of that sponsor’s drug.  Thus, pediatric exclusivity attaches to the patent and non-patent marketing exclusivity for any of the sponsor’s approved drug products (including certain combination products) that contain the active moiety for which pediatric exclusivity was granted, and not to a specific drug product.  See National Pharmaceutical Alliance v. Henney, 47 F. Supp. 2d 37 (D.D.C. 1999).

In particular, FDC Act 505A(c), titled “Market Exclusivity For Already-Marketed Drugs,” states:

(1) IN GENERAL.—Except as provided in paragraph (2), if the Secretary determines that information relating to the use of an approved drug in the pediatric population may produce health benefits in that population and makes a written request to the holder of an approved application under section 505(b)(1) for pediatric studies (which shall include a timeframe for completing such studies), the holder agrees to the request, such studies are completed using appropriate formulations for each age group for which the study is requested within any such timeframe, and the reports thereof are submitted and accepted in accordance with subsection (d)(4)—

(A)(i)(I) the period referred to in subsection (c)(3)(E)(ii) of section 505, and in subsection (j)(5)(F)(ii) of such section, is deemed to be five years and six months rather than five years, and the references in subsections (c)(3)(E)(ii) and (j)(5)(F)(ii) of such section to four years, to forty-eight months, and to seven and one-half years are deemed to be four and one-half years, fifty-four months, and eight years, respectively. . . .

The exception referred to above (i.e., “Except as provided in paragraph (2)”) states:

(2) EXCEPTION.—The Secretary shall not extend the period referred to in paragraph (1)(A) or (1)(B) if the determination made under subsection (d)(4) is made later than 9 months prior to the expiration of such period.

The exception provision was added to the statute in September 2007 with the passage of the FDA Amendments Act (“FDAAA”).  Specifically, Title V of FDAAA reauthorized and amended the 2002 BPCA (Pub. L. No. 107-109, 115 Stat. 1408) to add the 9-month exception and remove (with some exceptions included in a FDAAA transition provision) former FDC Act § 505A(e), which permitted FDA to delay the acceptance or approval of an ANDA (or a 505(b)(2) NDA) by up to 90 days if an NDA sponsor submitted study results in response to a Written Request immediately prior to the expiration of any applicable period of patent or non-patent market exclusivity.  Former FDC Act § 505A(e) allowed sponsors to obtain a period of de facto pediatric exclusivity while FDA reviewed study results even if the Agency ultimately determined that the studies did not meet the terms of the Written Request.

FDA’s implementation of the exception provision at FDC Act § 505A(c)(2) (and its sister provision at FDC Act § 505A(b)(2)) has been relalatively free from controversy.  But a recent set of circumstances has raised some eyebrows.  In what appears to us to be a case of first impression, FDA granted a period of pediatric exclusivity shortly before the so-called “NCE-1” (New Chemical Entity) ANDA Paragraph IV submission date for a drug, resulting in a new NCE-1 submission date 6 months later.

The drug at issue is CORLANOR (ivabradine), 5 mg and 7.5 mg, Tablets, which FDA approved on April 15, 2015 under NDA 206143 and granted a period of 5-year NCE exclusivity that initially expired on April 15, 2020.  FDA issued the NDA holder a Written Request for pediatric studies in April 2015 (see here), and it appears, based on a very recent update to the Orange Book, that the NDA holder fairly responded to the Written Request and that the Agency granted pediatric exclusivity shorly before April 15, 2019.  That resulted in an extension to the NCE exclusivity period (identified in the Orange Book as “NCE *PED”) until October 15, 2020.

But should the exception at FDC Act § 505A(c)(2) also apply to the period that is the April 15, 2019 NCE-1 Paragraph IV submission date?  According to FDA, the answer is “No,” even though there was less than 9 months of term remaining in the NCE-1 period as of the date FDA granted pediatric exclusivity.

So what gives?  Well, it turns out that FDA does not consider the NCE-1 date to be a “period” under the statute, but rather a “reference.”

Let’s turn back to the language of the statute.  It says that if pediatric exclusivity is granted, then, for a drug product with 5-year NCE exclusivity, “the period referred to in subsection (c)(3)(E)(ii) of section 505, and in subsection (j)(5)(F)(ii) of such section, is deemed to be five years and six months rather than five years, and the references in subsections (c)(3)(E)(ii) and (j)(5)(F)(ii) of such section to four years, to forty-eight months, and to seven and one-half years are deemed to be four and one-half years, fifty-four months, and eight years, respectively. . . .”  The exception provision says that FDA “shall not extend the period referred to in paragraph (1)(A) or (1)(B) if the determination made under subsection (d)(4) is made later than 9 months prior to the expiration of such period.”

Thus, according to FDA, there are “periods” and “references” (or referenced periods?) under the statute that must be treated differently because the exception provision mentions only “the period.”  Thus, according to FDA, if pediatric exclusivity is granted immediately before the NCE-1 date, which is more than 9 month before the expiration of NCE exclusivity, then pediatric exclusivity will apply to the NCE-1 date (by operation of it applying to the NCE expiration date), and prevent ANDA Paragraph IV submission for an additional six months.  Any company that submits an ANDA beforehand will receive a rejection letter.

In 2016, the Animal League Defense Fund (ALDF) sued Hormel Foods Corporation, alleging that the company’s use of the terms “natural” and “no preservatives added” in advertising for its Natural Choice products violated the D.C. Consumer Protection Procedures Act.  Plaintiff alleged that the these claims materially misled consumers into believing that Hormel’s products are made from animals that are humanely raised and not “factory farmed” and that they do not contain preservatives or nitrates or nitrites that are not from natural sources.  The advertising claims were identical to the claims on the product labels.

Hormel moved for summary judgment claiming that the ALDF did not have standing to bring the case and that, in any event, the claim was preempted by federal law.

Like the Federal Food, Drug and Cosmetic Act (FDC Act), the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) prohibit the sale of meat and poultry products that are labeled in a false or misleading manner.   The FMIA and PPIA specifically preempt state labeling law and delegate the regulation of meat and poultry products to the USDA.  See 21 U.S.C. §§ 467e & 678 (“Marking, labeling, packaging, or ingredient requirements . . . in addition to, or different than, those made under this chapter may not be imposed by any State.”)  USDA has interpreted the laws as requiring that FSIS review and approve the labels.  Although some labels may be approved generically, labels with certain claims, including natural claims, must be reviewed and approved by USDA.  The USDA reviewed and approved Hormel’s use of the claims “natural” and “no preservatives added.”

The FMIA and PPIA do not regulate advertising and FSIS does not review and approve advertising claims.  ALDF argued that the advertising claims therefore were not preempted.  However, the court held that as long as manufacturer’s labels are approved by the USDA, the manufacturer can use those same claims in advertising.  State law challenges to those advertising claims are preempted.  Any other interpretation would result in confusion.  If USDA determines that a “producer can accurately use a term in a label . . . the producer should be able to use the same term in its advertising.”  Since USDA had made an affirmative decision that the claims of “natural” and “no preservatives added” were not misleading as applied to Hormel’s meat products a challenge to these claims used in advertising was preempted.  Challenges to advertising claims that are different in material ways from claims on approved labels would not be preempted.

FDA’s nutrition labeling rules have defined most nutrients based on chemical structure.  However, in light of evidence on allulose, FDA may need to reconsider that focus.

Allulose is a monosaccharide, and the nutrition labeling regulation defines sugars as mono- and disaccharides.  Thus, under the regulations, allulose counts as a sugar.  However, as explained in three citizen petitions and in comments to FDA’s nutrition labeling regulation, allulose is a special type of monosaccharide.  Apparently, although allulose is a monosaccharide, it does not behave like one. Allulose does not have the metabolic properties of other mono-(and di-)saccharides, such as glucose and sucrose,  it contributes less than 0.4 kcal/gram (vs. 4 kcal/gram for sucrose), and does not raise blood sugar levels like other sugars.  Moreover, allulose is not cariogenic (i.e., it does not contribute to tooth decay).

On April 10, 2015, Tate & Lyle Ingredients America LLC (Tate & Lyle) submitted a Citizen Petition requesting that FDA amend the nutrition labeling regulation to exempt allulose from being included as a carbohydrate, sugar and added sugar in the nutrition facts box.  Tate & Lyle claimed that inclusion of allulose as carbohydrates and (added) sugar in the Nutrition Facts box would lead to confusion for consumers, especially consumers that monitor blood glucose levels such as consumers with diabetes.  Although the Petition had been submitted before FDA issued the revised nutrition labeling regulation, FDA did not decide on a possible exemption of allulose.  Instead, it concluded that allulose, as a monosaccharide, would need to be included in the amount of the declaration of “Total Carbohydrate,” “Total Sugars,” and “Added Sugars.”  The final rule also did not address the caloric value for allulose.

Subsequently, FDA received two additional Citizen Petitions, one by Tate & Lyle and one by Food Lawyers, requesting that FDA adjust the caloric value for allulose.

Based on of the Citizen Petitions and the scientific evidence, FDA recognizes that it may need to reconsider its focus on chemical structure in determining whether allulose is a sugar.  While it is pondering its best course of action, FDA has issued draft guidance announcing that FDA intends to exercise enforcement discretion to allow manufacturers to exclude allulose from total and added sugars declarations and to use 0.4 calories per gram of allulose when calculating the calories from allulose in a serving of a product.

Comments to the draft guidance must be submitted by June 17, 2019.

In the press release announcing the draft guidance, FDA mentioned that we can expect additional guidance regarding the new nutrition labeling requirements, including a guidance for added sugars labeling on packages and containers of honey, maple syrup and certain cranberry products.  With the mandatory compliance date of Jan. 1, 2020 looming, this is welcome news.

As expected, Donald Trump has signed the Medicaid Services Investment and Accountability Act of 2019 (H.R. 1839), which, among other things, amends the Medicaid Drug Rebate statute to impose penalties for misclassifying innovator drugs as non-innovator drugs to reduce rebates.  We previously posted on this law when it passed the Congress on April 2 (see our previous post here).  The law is effective as of April 18, the date of enactment.

On April 16, the Food Safety & Inspection Service (FSIS) of USDA announced the publication of a proposed rule amending the labeling regulations for net content statements on meat and poultry.  FSIS proposes to remove the requirement for dual declaration of net weight and net content on packages that contain at least one pound or one pint, but less than four pounds or one gallon.

FSIS is proposing this action after receiving a petition submitted by a small meat processor in response to USDA’s request for ideas to better serve its customers.  As described in the preamble to the proposed rule, the requirement for dual declaration has created confusion for industry.  Under the proposed rule, establishments that produce meat and poultry products in packages containing at least 1 lb. or one pint and less than 4 lb. or 1 gal. will be allowed to express the weight or contents in one unit of measurement on the product label instead of using both measures — e.g., “Net Wt. 24 oz.” or “Net Wt. 1.5 lb.” rather than “Net Wt. 24 oz. (1.5 lb.).  Establishments would be allowed to use their current labels until they run out or may elect to use them indefinitely.

FDA regulations for net content statement include a similar requirement.  It will be interesting to see if someone petitions FDA to also amend its regulation.

Comments to the proposal must be submitted by June 17, 2019.

Last week FDA issued a final regulation regarding consumer antiseptic rubs.  In 2016, FDA had proposed that 28 active ingredients, including triclosan, are not eligible for evaluation under the FDA’s OTC Drug Review for use in consumer antiseptic rubs.   FDA requested but did not receive more data on those ingredients.  Three other active ingredients, ethyl alcohol, benzalkonium chloride, and isopropyl alcohol remain under consideration.  In the proposed rule (described here), FDA indicated that it needed more information to ensure that the ingredients are safe and effective; according to FDA, developing science and increased frequency of use have resulted in concerns about absorption and systemic exposure to the ingredients included in topical drug products, such as the consumer antiseptic rubs.  Thus, FDA has requested additional data, including so called MUsT information.  In the final rule, FDA reaffirms the need for these data on the three active ingredients that remain under consideration.  Similar data are needed for the health care antiseptics.  To the extent that there is overlap of studies needed for certain ingredients, the industry need not repeat the studies.  For example, data generated from a MUsT study sufficient to support a healthcare antiseptic indication will also be sufficient to support a consumer antiseptic indication, because the maximal usage across consumer settings is lower than the maximal usage in a healthcare setting.

The rule declaring the 28 ingredients ineligible for use in consumer antiseptic rubs is effective April 12, 2020.  Since only a small percentage of the consumer antiseptic rubs currently marketed in the United States contain any of the 28 active ingredients that have been determined ineligible, the impact of this final rule will be relatively minor.

In its press release, FDA mentions that this final rule completes its series of rulemakings  for OTC antiseptics to determine whether they are safe and effective.  Presumably the Agency referred to the series of rulemakings required under the consent decree with NRDC.  However, as readers of this blog know, FDA is not yet done.  The Agency deferred decisions on certain active ingredients for consumer antiseptic washes (benzalkonium chloride, benzethonium chloride, and chloroxylenol), health care antiseptics (benzalkonium chloride, benzethonium chloride, chloroxylenol, ethyl alcohol, isopropyl alcohol and povidone iodine), and, now, the consumer antiseptic rubs (ethyl alcohol, benzalkonium chloride and isopropyl alcohol).  FDA has not set a specific deadline for final action on these ingredients but instead will address their status “either after completion and analysis of ongoing studies to address the safety and effectiveness data gaps . . . or at a later date, if these studies are not completed.”  The deferral letters for each ingredient set forth initial deadlines for submission of a plan to address the outstanding data gaps.  Moreover, because FDA has not concluded that an active ingredient is GRAS/GRAE for any of the categories of the antiseptic drug products, the Agency has not yet addressed labeling and finished product efficacy testing.  Thus, once the safety studies have been done, assuming FDA finds at least one ingredient in a category GRAS/GRAE, further rulemaking will be needed.  In addition, rulemaking for the first aid antiseptics is not yet complete and in December 2018, FDA took only the first step on the path to a monograph for antiseptics for food handlers.  The timing of the remaining rulemaking is not subject to the consent decree.

As it previewed back in December, the government formally filed its motion to dismiss the high-profile False Claims Act case against Gilead Sciences, Inc.  This case has had a long history, beginning in 2010 when the Relators filed their original complaint.  After investigation, in 2013, the government declined to intervene in the action but did not at that time move to dismiss the case.  (This decision pre-dated the 2018 Granston memo, which directed  the Department of Justice (“DOJ”) to affirmatively seek dismissal in certain circumstances.)

The government likely rues its decision not to seek dismissal back in 2013, given that DOJ has been engaged in multiple rounds of briefing to dismiss the case in the ensuing six years.  Although the stated reason for aggressively seeking dismissal is “to avoid the additional expenditure of government resources on a case that it fully investigated and decided not to pursue,” the unstated concern appears to be to avoid an adverse ruling about the standard for “materiality” applied to False Claims Act cases.  The “materiality” issue has begged for more clarity since the 2016 ruling in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), which requires a plaintiff to allege that a misrepresentation by the defendant was “material to the government’s payment decision.”

The factors the government considers in deciding to dismiss a matter, as outlined in the recent motion to dismiss brief, are instructive to the factors the government should be using in deciding whether to decline to intervene in the first place.  For example, in Gilead, the government claims:

In addition to preserving scarce resources, dismissal is also appropriate to prevent Relators from undermining the considered decisions of FDA and CMS about how to address the conduct at issue here.  .  .  .  In this case, FDA exercised continuing regulatory oversight of Gilead’s manufacturing processes, including multiple on-site inspections of Gilead’s facilities both before and after Relators filed their complaint.  FDA took the actions that it deemed appropriate.  Relators’ case now asks a jury to find that different action was nevertheless required.

Substituting “DOJ” for “Relators” in the above excerpt arguably should lead to the same result: that DOJ should not substitute its judgment when the affected agencies, FDA and CMS, have considered and taken actions they deemed appropriate.  Taking it one step further, these same factors support a finding that the company’s conduct was not material to the government’s payment decision, which in and of itself supports dismissal.  And these factors could extend outside the FCA world to require dismissal in all instances in which DOJ attempts to base a follow-on action using the same facts known to and addressed by the agency.

It will be interesting to see how the government distinguishes this case from others in which it has “already spent resources extensively investigating Relators’ claims, reviewing the merits of the case as presented by Relators, and monitoring the case after declination.”  If this is the standard, almost every FCA matter the government declines and that the Relator continues to advance should result in an affirmative motion to dismiss no later than the close of discovery.

The 2019 Maryland Legislative Session closed on April 8th with an exciting development related to laboratory testing.  As we previously reported (see here), Maryland law currently prohibits directly or indirectly advertising or soliciting for medical laboratories.  Two bills were introduced earlier this year to address this state-specific constraint.  On the last day of the Legislative Session, the Maryland General Assembly unanimously passed SB495, which creates certain exceptions to the advertising prohibition.

SB495 allows advertising or soliciting business for two categories of laboratory tests:

• Tests used for screening, diagnosing, managing, or treating a physical or mental condition or disease; and
• Ancestry testing and DNA testing used for detecting and reporting genetic evidence of parental lineage and genetic ethnicity.

The exception only applies to laboratory tests that are ordered by a physician and performed by a CLIA-certified laboratory.  In addition, the company advertising the tests must be a HIPAA covered entity or a business associate of a HIPAA covered entity.  The advertisements may not make claims about the reliability and validity of the test that are inconsistent with CLIA and must disclose that the tests may or may not be covered by health insurance.

SB495 does not allow all laboratory tests to be advertised in Maryland.  In addition to the restrictions outlined above, SB495 specifically states that germline genetic or genomic tests used for the analysis, diagnosis, or prediction of human diseases may not directly or indirectly advertise or solicit business.

SB495 will allow the State to take legal action to restrict the marketing of a laboratory test if the test poses a threat to public health or is not in compliance with the exception requirements.

It is expected that Governor Hogan will sign SB495 next month and that the changes will go into effect on October 1, 2019.

We have long posted about the government’s threats to hold individuals liable for actions taken on behalf of their companies, for example here, but these actions remain rare and typically are reserved for egregious, repeated, and intentional criminality.  A recent indictment against two former executives, however, may signal the government is making good on its threat even when the conduct (at first glance) involves mundane recordkeeping or reporting obligations.

The U.S. Consumer Product Safety Commission (CPSC) has long had the authority to bring criminal charges for knowing or willful violations of the Consumer Product Safety Act (CPSA).  Indeed, the government has used this power to charge parties for things like repeated importation of banned consumer products into the United States.  But the CPSC has never used its criminal authority to charge individuals for failing to report information to CPSC about potentially defective products.  Until recently.

On March 28, the government filed an indictment against Simon Chu, the Chief Administrative Officer, and Charley Loh, the Chief Executive Officer, of “unindicted co-conspirator” companies that sold dehumidifiers to US consumers.   According to the indictment, as early as September 2012, Chu, Loh, and their companies received multiple reports that their Chinese dehumidifiers were defective, dangerous, and could catch fire.  The defendants then conducted testing that confirmed that these dehumidifiers could pose safety issues.

Section 15(b) of the CPSA requires manufacturers, importers, and distributors (and their individual directors, officers, and agents) to report “immediately” to the CPSC information that reasonably supports the conclusion that a consumer product contains a defect that could create a substantial product hazard or creates an unreasonable risk of serious injury or death.  The defendants allegedly knew of the reporting obligations under the CPSC, but not only failed to report the incidents to the CPSC as required, but made affirmative representations to the CPSC that the humidifiers were not defective and hazardous.  In addition, Chu and Loh continued to sell these products for at least six months, and provided retailers with false certifications that the products met safety standards.

Even though the government touts this case as the “First-Ever Criminal Prosecution for Failure to Report” under the CPSA, the allegations describe much broader criminality of lies and cover-ups.  Indeed, although the manufacturer companies are unnamed in the indictment, it appears they are the same companies that agreed to settle with the CPSC a few years ago for the same conduct.  The $15.4 million paid by Gree Electric Appliances Inc., of Zhuhai, China; Hong Kong Gree Electric Appliances Sales Co. Ltd., of Hong Kong; and Gree USA Sales Ltd., of City of Industry, Calif., was the highest civil penalty ever imposed under the CPSA.   As part of the settlement, these companies agreed to “implement and maintain a compliance program designed to ensure compliance with the CPSA and regulations enforced by the Commission with respect to any consumer product manufactured, imported, distributed, or sold by Gree,” which included a variety of compliance provisions related to reporting.

So perhaps this case is not as ground-breaking as advertised given the full story.  Nevertheless, it serves as a useful reminder to company executives that the risk of criminal exposure is real.

We sometimes use the term “act of Congress” when referring to something that is difficult or requires large effort to achieve.  But, as nothing else has worked, a real act of Congress may be required to compel the Drug Enforcement Administration (“DEA”) to issue marijuana manufacturer registrations for research.  To that end, Representative Matt Gaetz (R.-FL) introduced H.R. 601, the Medical Cannabis Research Act of 2019.

In August 2016 DEA expressed its full support to expand research “into the potential medical utility of marijuana and its chemical constituents” (see our previous post here).   Acknowledging increased interest in research with cannabinoids including cannabidiol (“CBD”), and based upon discussions with the National Institutes of Drug Abuse and the Food and Drug Administration (“FDA”), DEA “concluded that the best way to satisfy the current researcher demand for a variety of strains of marijuana and cannabinoid extracts is to increase the number of federally-authorized marijuana growers.” Id.   DEA announced that it would consider additional applications for registration to grow and cultivate marijuana for research.

DEA has received twenty-six applications for registration to manufacturer marijuana in the two and a half years since the agency began accepting them.  To date, the DEA has not published a Federal Register final rule granting any such registrations.  It is worth noting that DEA has continued to grant importer registrations for marijuana.  See, e.g., Importer of Controlled Substances Application: Sanyal Biotechnology LLC, 83 Fed. Reg. 12,407 (Mar. 21, 2018); Importer of Controlled Substances Registration, 83 Fed. Reg. 27,632 (June 13, 2018).

During this same period, FDA approved Epidiolex, an oral CBD solution for the treatment of certain seizures.  Subsequently, DEA scheduled Epidiolex and other FDA-approved drugs containing CBD derived from cannabis with no more than 0.1 percent tetrahydrocannabinols (“THC”) in Schedule V of the Controlled Substances Act (“CSA”) (see our previous post here).  It appears that neither FDA nor DEA believed there was any abuse potential of CBD with less than .01 percent THC, however, DEA scheduled this CBD formulation to comport with the import and export provisions of the Single Convention on Narcotic Drugs, 1961.  CBD is still controlled under the relevant international drug control treaties.

Then in December, Congress enacted the Farm Bill, removing “hemp” from the CSA definition of “marijuana” and excluding THC contained in “hemp” from scheduling under the CSA.  7 U.S.C. § 1639o; 21 U.S.C. § 802(16).  “Hemp” is defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

It is also worth noting that in December, DEA doubled the adjusted 2019 aggregate production quotas for marijuana from 2018 to 1,140,216 grams or 2,500 pounds.  At that time DEA noted that it “continues to review applications” for bulk manufacturer registrations “necessary to produce an adequate and uninterrupted supply” of marijuana.

Congressional efforts to prod then-Attorney General Sessions and DEA to issue the registrations were unsuccessful.  Letters from federal lawmakers dated July 25, 2018 and August 31, 2018 had no effect.

Finally, in January, Representative Gaetz introduced the bipartisan Medical Cannabis Research Act of 2019, a revision of a bill with the same goals introduced in the last Congress and which would amend 21 U.S.C. § 823.  The current bill, which would require the Attorney General to continue assessing the required adequate, uninterrupted cannabis supply for legitimate research annually.  Medical Cannabis Research Act of 2019, H.R. 601, 115th Cong. (2019).  Unlike the 2018 bill, the current bill would require the Attorney General through DEA to issue registrations to at least three applicants to manufacture cannabis for legitimate research purposes within a year, and to register at least four applicants in subsequent years.  (The 2018 bill would have required at least two and three applicants, respectively, in initial and subsequent years).  Registered manufacturers would be limited to supplying cannabis to DEA-registered Schedule I researchers for “use in preclinical research or in a clinical investigation pursuant to an investigational new drug exemption” under section 505(i) of the Food, Drug and Cosmetic Act.  In addition, registered manufacturers must:

1. “[H]ave established and begun operating a process to store and handle” Schedule I substances to include required security;
2. Be able to provide at least ten unique plant cultivars and “scale up” production to produce cannabis to supply forecasted demand;
3. Be able to test for and isolate at least twelve cannabinoids for “producing specific products for specific studies by compounding pharmacists or others, labeling, and chemical consistency;”
4. Be licensed by the state where they conduct operations; and
5. Provide a written explanation of how its manufacture of cannabis “would augment the nation’s supply of cannabis for legitimate research purposes.”

The 2018 bill required that manufacturer personnel have no convictions for a felony or drug-related misdemeanor but the current bill prohibits personnel from having a conviction only “for a violent felony.”

The Medical Cannabis Research Act of 2019 if enacted as written will not change the legal status of marijuana nor affect CSA provisions regulating cannabis manufacturers for other than research purposes, including commercial drug product development by the private sector.

Requiring DEA to grant a certain number of registrations is problematic in that it appears contrary to the CSA wherein DEA is only required to grant a registration if the applicant is qualified.  While we would assume that a number of the current applicants should be able to meet the CSA requirements, this is not a given.  In lieu of requiring DEA to issue a certain number of marijuana manufacturer registrations each year, the bill would require DEA to grant or deny the registrations, or request additional information, within one year of receiving an application.

Congressman Gaetz stated: “[c]urrently, all federally-approved studies of medical cannabis get their product from one source, and it is extremely subpar . . .  [it] is weak and often moldy . . . federally grown cannabis is scarce; there is not enough product.”

It is time that DEA and DOJ make good on their announcement to issue additional registrations for marijuana manufacturers.  Manufacturer compliance with CSA recordkeeping and security requirements minimize risk of diversion.  It is unfortunate that it may require an act of Congress to facilitate legitimate medical research with cannabis, but American patients and the public are worthy.

We previously posted about what the Agricultural Improvement Act of 2018 (commonly referred to as the Farm Bill) did, and did not, do with respect to “hemp” and CBD products derived from hemp.  In that post, we noted that the Farm Bill did not preempt state laws that were more stringent. Our prior post did not discuss the Farm Bill’s interstate commerce provisions, which recently have become the focus of litigation.

Under section 10114, “Interstate Commerce,” there are two provisions–

• Subsection (a) states as a “RULE OF CONSTRUCTION” that “[n]othing in this title or an amendment made by this title prohibits the interstate commerce of hemp (as defined in section 297A of the Agricultural Marketing Act of1946 (as added by section 10113)) or hemp products.”
• Subsection (b), titled “TRANSPORTATION OF HEMP AND HEMP PRODUCTS” provides that “[n]o State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable.”

The meaning of “in accordance with” played a major role in a recent decision denying a request for emergency relief in connection with what seems to have been “hemp,” under the Farm Bill.  Briefly, in Big Sky Scientific LLC v. Idaho State Police, the Idaho state police seized nearly 13,000 pounds of what appears to be hemp.  They did so because hemp is a controlled substance under Idaho law.  The hemp (or according to Idaho “contraband”) was produced in Oregon and was in route to Colorado.  Idaho took the position that the Farm Bill’s section 10114(b) protection against a state prohibiting transport of hemp did not apply because subtitle G contains provisions setting forth how the Secretary of USDA can “approve” or disapprove” a state or tribal “plan,” or establish his own “plan.”  Idaho argued that until such a plan is approved or established, no hemp can be produced “in accordance with subtitle G.”  At the emergency motion stage, the court agreed finding:

[T]he cargo that was seized on January 24, 2019 was not hemp that has been “produced in accordance with subtitle G.” It could not have been produced in accordance with subtitle G because Oregon does not have a federally approved plan and the Secretary of the United States Department of Agriculture has yet to establish its own plan as Subtitle G requires be done. This is undisputed. It matters not whether the cargo might meet the requirements of subtitle G if such a plan (or something similar) had existed when the crop was grown and harvested, or whether the implementation of the production plan by the Department of Agriculture was delayed somehow because of the recent shutdown of certain operations of the federal government. There simply is no such plan in place and therefore the cargo, whether described as hemp or marijuana, could not have been produced in accordance with subtitle G and therefore could not be subject to the protection of interstate commerce as provided by the 2018 Farm Bill.

The Court made clear that this was not a final determination on the merits and the litigation is proceeding.   We’ll continue to monitor this litigation and other developments.  In the meantime, anyone distributing hemp or CBD products derived from it would do well to check their distribution routes against the varying state laws.

In a press release issued on April 3rd, FDA reiterated its warning to stem cell clinics (and implicitly to other HCT/P facilities that are benefiting from enforcement discretion), asserting that the agency has stepped up oversight over such facilities, and will be ramping up even more after the 36 months of enforcement discretion end in November 2020:

Over the past year, we have sent 45 manufacturers and health care providers regulatory correspondence, including warning letters, and we have two court cases pending. We’re committed to taking appropriate steps to address those that jeopardize the health of the people we are sworn to protect.

Today, we’re continuing these efforts. The agency issued a warning letter to Cord for Life, Inc., located in Altamonte Springs, Florida, for manufacturing unapproved umbilical cord blood products in violation of current good manufacturing practice (CGMP) requirements, including failing to validate processes to prevent bacterial contamination, raising potential significant safety concerns that put patients at risk. In addition, we issued 20 letters today to separate manufacturers and health care providers across the country who may be offering unapproved stem cell products, reiterating the FDA’s compliance and enforcement policy.

We’ve previously spoken about this issue here and here.

In addition, the agency expressed frustration that some in the stem cell industry continue to assert that autologous stem cell procedures (i.e., procedures that take cells or tissue from a person’s body and re-administer them to the same person, usually after some manipulation, and for a different intended use) are not subject to FDA regulation.

There’s a false premise being asserted by some in the field that a product derived from a person’s own body and then manipulated and reinserted for another use different from the one it played in its original location is not subject to FDA regulation just because it originated from the person it was given back to. But stem cell products can create unique and serious risks depending on how they’re manipulated once they’re taken from the body and how they are used once they’re reinserted in the body.

Interestingly, while the agency had issued a similar press release in December 2018 emphasizing that they were “discouraged” by the overall lack of manufacturers wanting to interact with the agency during the 36 months of enforcement discretion, in the current press release FDA states that the industry has made “modest progress” in coming into compliance, though much more work needs to be done.

Finally, as enforcement discretion comes to an end, in addition to the stick of possible regulatory and enforcement action, the agency also held out the carrot of possible relief for firms that undertake well-designed investigational studies with the intent of collecting information to more clearly identify the safety and benefits of their products.

As we come up on the end of this period during which the FDA intends to exercise enforcement discretion, we may take additional steps to delineate an efficient development path for promising products that pose lower risk to patients and that are being developed by sponsors who’ve engaged the regulatory process in a responsible manner by filing INDs.  These would be cases where the sponsors have undertaken or are in the process of undertaking well-designed investigational studies with the intent of collecting information to more clearly identify the safety and benefits of their products… In addition, during the next year, the agency will explore whether there are additional ways that it can assist legitimate developers of stem cell products to come into compliance with its regulations. [Emphasis added]

What might these additional steps to delineate an efficient development path be?

In what ways might the agency assist legitimate developers to come into compliance?

We have some thoughts.  Stay tuned…