On December 11, 2018, the authors of this blog post attended the oral argument in Federal Trade Commission v. Shire ViroPharma, Inc., No. 18-1807 (3d Cir. filed Apr. 12, 2018).  We have previously blogged about the case here, here, and here. In a nutshell, Shire examines the FTC’s statutory authority to bring suit in federal court seeking injunctive and equitable relief where the alleged statutory violations at issue have long since ceased. Section 13(b) of the Federal Trade Commission Act (“FTC Act”) (15 U.S.C. § 53(b)) gives the FTC authority to file a case only when the FTC has reason to believe that a defendant “is violating” or “is about to violate” the FTC Act.

Although it is often hard to predict the outcome of an appeal after hearing the questions and comments of the three-judge court, in this case the Court’s questions and comments suggested that odds are leaning heavily against the FTC winning.  If the FTC does lose, the question will then be how severe an effect the Court’s ruling will have on other FTC enforcement cases. And this is not the only recent court case that poses significant litigation concerns for the FTC.  Two other recent court rulings suggest that courts are revisiting the FTC’s authority to seek equitable relief (including restitution and disgorgement) under the FTC Act § 13(b).  These rulings also may raise an issue that our firm opined on fifteen years ago, namely whether FDA has the authority to seek equitable remedies when it pursues injunctive relief in court.

What Will an FTC Loss in Shire Mean for FTC Act Enforcement?

The questions presented to the Third Circuit panel (Smith, J., McKee, J., and Fisher, J.) in Shire centered on what legal standard the FTC must meet in order to adequately allege reason to believe that a defendant “is violating, or is about to violate” the FTC Act under Section 13(b), and whether the FTC met its burden in this case. The judges’ questioning at oral argument strongly suggested that the answer to the latter question will be “no.” The answer to the former question is less clear.

The FTC’s primary argument in Shire is that the “about to violate” language must be analogized to the standard applied for injunctive relief under other statutes, which would only require the FTC to adequately plead that an alleged violation was reasonably likely to recur. The FTC cited the Third Circuit case of SEC v. Bonastia, 614 F.2d 908 (3d Cir. 1980) for the factors used to determine likelihood of recurrence – factors that do not include a temporal element. The panel appeared to reject the FTC’s proposed standard, with at least Judges Smith and McKee indicating their belief that some temporal consideration must be involved in a determination of whether someone is “about to violate” the law. Chief Judge Smith, in particular, emphasized that the plain language “about to” seems to reflect a degree of imminence.

The Third Circuit Court’s emphasis on the relatively extreme facts of the Shire case – a five-year delay between the alleged violative conduct and initiation of the FTC’s suit, and no allegations of future circumstances in which Shire could be expected to repeat the alleged misconduct – suggest that the court could simply hold that the FTC had failed to adequately plead even a reasonable likelihood of recurrence and leave the matter there. However, the FTC’s position that the “likelihood of recurrence” includes no explicit consideration of timing may make it difficult for the Court to rule under that standard without altering it to include a temporal factor.

Assuming that the Court does rule against the FTC with respect to the applicable legal standard under Section 13(b), of course the Commission may seek rehearing or rehearing en banc, and may ultimately seek Supreme Court review. Moreover, a loss in the Third Circuit would still permit the FTC to seek a different result in any state other than New Jersey, Pennsylvania, and Delaware (in those three states, the FTC will have to follow an adverse Third Circuit ruling unless and until it is overturned by the Supreme Court).

Still, an ultimate loss for the FTC on this issue, particularly if the Court’s reasoning is adopted by courts outside the Third Circuit, would likely result in a longer process to resolve many FTC Act violations. As Shire’s counsel pointed out at oral argument, the FTC clearly has authority to bring an administrative action for violations of the FTC Act without any statutorily imposed temporal limitation (See 15 U.S.C. § 45(b); 16 C.F.R. Part 3). However, the Commission cannot obtain consumer redress through an administrative proceeding. To obtain recompense for consumers in consumer protection cases, the FTC would have to bring and successfully complete an administrative case, overcome a court challenge to a final order, and then file and win a court case seeking equitable relief pursuant to 15 U.S.C. § 57b. Even that process is inapplicable in “competition” cases such as Shire, because 15 U.S.C. § 57b is focused on consumer protection cases. This means that, practically speaking, in a case of harm to consumers where the FTC cannot make a showing of “imminent” future violation, the FTC may well be unable to provide relief to affected consumers.

The delay associated with pursuing an administrative cease and desist order is one of the reasons that the FTC has filed hundreds if not thousands of cases where the FTC bypasses the administrative process and goes straight to court seeking an injunction.  In consumer protection cases, the FTC seeks relief such as restitution and disgorgement of profits in most such cases.  In many cases, the FTC also seeks and obtains “emergency” relief such as a total freeze of the defendants’ assets. All of this authority would be in jeopardy if the FTC cannot seek and obtain such relief at all, or only after a long administrative process and later court case.

Of course, even if the FTC loses this case, it can collaborate with other government agencies with consumer protection and antitrust authorities, including the U.S. Department of Justice and State Attorneys General. Such coordination takes additional time, as well as the balancing of agency investigative and enforcement resources. Additionally, the FTC would lose its independence to bring these actions without needing to go through another federal or state agency — the FTC has been fiercely fighting to obtain and retain independent litigating authority for almost fifty years.

Does Shire Affect the FTC’s (and FDA’s) Pursuit of Equitable Remedies?

In Shire, the FTC’s brief argued in the alternative that even if the FTC had not adequately alleged a likelihood of recurring violations, the FTC should nevertheless be permitted to go forward with its claim for restitution to consumers who presumably overpaid for one of Shire/ViroPharma’s drugs.  Shire’s brief countered that the FTC failed to adequately plead the statutory prerequisites to bring suit under Section 13(b), thus, the Commission had no right to alternatively seek monetary relief. Shire also noted the Supreme Court’s 2017 ruling in Kokesh v. SEC, 137 S. Ct. 1635, that cast doubt upon agencies’ authority to seek equitable remedies not expressly referenced by the applicable statute.

This week’s oral argument did not address the question of alternative equitable remedies.  Thus, it is quite possible that the Court will simply rule that the entire case must be dismissed because it was brought too late, without reaching the question of whether the FTC has the right under Section 13(b) to seek restitution and other equitable relief such as disgorgement of profits.

However, in many respects, the issue of the FTC’s right to obtain equitable remedies in a Section 13(b) suit is of greater importance to the FTC than the standard for determining whether the FTC has satisfactorily alleged that it has reason to believe that the defendant is about to violate the FTC Act.  That issue is largely a timing question, and the FTC usually brings suit much closer to the violative events than it did in Shire.  In contrast, if the courts definitively rule that the FTC has no authority to seek equitable relief in Section 13(b) cases, that result would severely damage most of the FTC’s consumer protection 13(b) cases, where the Commission typically seeks such remedies.

The question is one of statutory interpretation:  Does Section 13(b) authorize the FTC to seek all forms of equitable relief assuming the court has power to grant any relief at all?  The statute itself specifically authorizes a court to issue a temporary restraining order, a preliminary injunction, or a permanent injunction, but is silent on other forms of equitable relief.  Although the FTC has been successful in arguing to many courts that once a court has jurisdiction over a case seeking injunctive relief, that court has the authority to award equitable relief such as asset freezes, the payment of restitution, and/or the payment of disgorgement of profits, this previously established authority is now being reexamined by the courts.

Aside from the Third Circuit in Shire, other courts have recently looked at the FTC Act and questioned the FTC’s authority to seek and obtain equitable relief not expressly referenced by Section 13(b). FTC v. Hornbeam Special Situations, an October 2018 decision in the Northern District of Georgia, is a similar case we have blogged about.  More recent is the December 3, 2018 Ninth Circuit ruling in FTC v. AMG Capital Mgmt., LLC.  There, the court ruled in favor of the FTC’s pursuit of equitable remedies: The court conceded that defendant’s argument regarding the FTC’s lack of statutory authority “has some force but it is foreclosed by our precedent.”  However, one Ninth Circuit judge (O’Scannlain) also filed a concurring opinion arguing that the Ninth Circuit’s earlier rulings authorizing the FTC to obtain equitable remedies under Section 13(b), while binding, were “no longer tenable.”  Judge O’Scannlain’s opinion suggested that the Ninth Circuit should hear the case en banc to reconsider its precedent on the issue.  He specifically noted that a separate provision of the FTC Act (15 U.S.C. § 57b), applicable in different circumstances, expressly authorizes alternative equitable relief in certain consumer protection cases, while Section 13(b) is tellingly silent on those remedies. Although the ultimate disposition of the AMG Capital case is not yet clear, Judge O’Scannlain’s concurring opinion should give the FTC reason to worry.

In light of the developing case law, FDA may also need to be more circumspect in seeking equitable relief when it (through the Department of Justice) files an injunction action under 21 U.S.C. § 332.  That provision authorizes courts to “restrain violations” of the Federal Food, Drug, and Cosmetic Act, but is silent on the court awarding equitable relief as part of the injunction.  The issue of FDA’s authority to seek restitution or disgorgement in a Section 332 action was hotly debated fifteen years ago, when our firm argued in a law review article that FDA lacks this authority.  See Jeffrey N. Gibbs and John R. Fleder, Can FDA Seek Restitution or Disgorgement?, 58(2) Food & Drug L.J. 129 (2003).  FDA disagreed, and in several subsequent court rulings FDA’s position was adopted.  See United States v. Kaminski, 501 F.3d 655, 670 (6th Cir. 2007); United States v. Rx Depot, Inc., 438 F.3d 1052, 1063 (10th Cir. 2006); United States v. Lane Labs-USA, Inc., 427 F.3d 219, 236 (3d Cir. 2005).  FDA has also successfully received such equitable relief via consent decrees.  See, e.g., FDA: Michigan Heart-Lung Bypass Machine Manufacturer (disgorgement of $35 million, E.D. Mich. 2011, link); Bristol-Myers Squibb to Pay More than $515 Million to Resolve Allegations of Illegal Drug Marketing and Pricing (disgorgement of over $25 million, D. Mass. 2007, link). Nevertheless, FDA’s authority to obtain equitable remedies in an injunction suit may now be in as much in jeopardy as the authority of the FTC.

We will continue to monitor this area of developing case law, and keep readers informed.

Duodenoscopes are flexible, lighted tubes that are threaded through the body into the top of the small intestine (duodenum) and allow doctors to see potential problems in the pancreas and bile ducts. Because duodenoscopes are reusable devices, they must be reprocessed (cleaned) after each use to ensure that tissue or fluid from one patient is not transferred when used on a subsequent patient.

For several years, FDA has been concerned about the reprocessing of duodenoscopes. In 2015, FDA required all manufacturers who make and sell duodenoscopes in the United States to conduct postmarket studies to allow FDA to better understand how duodenoscopes are reprocessed in real-world settings; in March of this year, FDA issued Warning Letters to all U.S. duodenoscope manufacturers for failing to meet their postmarket surveillance study requirements; and just this week, FDA provided interim results of the reprocessing studies and its recommendations.

Despite all this scrutiny, or maybe because it was already on the government’s radar, one of the manufacturers, Olympus Medical Systems Corporation, and its former quality manager were targeted for their failure to file reports related to known adverse events associated with its duodenoscopes. FDA requires medical device manufacturers to submit Medical Device Reports (MDRs) under 21 C.F.R. Part 803 for an event when they “become aware of that reasonably suggests that one of their marketed devices”:

(i) May have caused or contributed to a death or serious injury, or

(ii) Has malfunctioned and that the device or a similar device marketed by the manufacturer [or importer] would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.

A failure to submit an MDR renders a medical device “misbranded,” and the FDC Act prohibits the introduction of a misbranded medical device into interstate commerce.

On December 10, 2018, Olympus agreed to plead guilty to three misdemeanor counts of introducing misbranded duodenoscopes into interstate commerce. The plea agreement contains a stipulation of facts describing Olympus’ receipt of information requiring submission of an initial or supplemental MDR, and requires the company to distribute to its U.S. customers a notice about the plea agreement. The company also is required to undertake certain compliance measures specific to MDR processes, akin to those contained in FDA civil consent decrees:

• Retain an independent MDR expert to inspect and review the company’s policies and procedures;
• Have the MDR expert conduct periodic reviews of the company’s continued compliance with MDR requirements;
• Report to FDA and DOJ periodically for 3 years; and
• Require the President and Board of Directors to periodically review MDR compliance measures and provide certifications to FDA and DOJ regarding those reviews.

The global settlement was authorized by DOJ’s Assistant Attorney General Joseph Hunt, which permitted the lead prosecutor from the U.S. Attorney’s Office in New Jersey to bind “the United States Attorney’s Offices for each of the other 93 judicial districts of the United States,” a provision that assures the company that another aggressive prosecutor will not bring follow-on charges against the company.

Hisao Yabe, the former Division Manager for the Quality Assurance and Environment Division, agreed to plead guilty to one count for the same conduct. He stipulated that he was aware of the obligation to file and supplement MDRs, and that he failed to make such submissions even when required. Interestingly, the stipulation notes that he considered whether to submit a supplemental MDR in 2013, but did not file it until 2015. In reviewing the underlying Information, it appears Yabe was in the process of evaluating whether the information it received in 2013 required reporting (e.g., whether the methodology and conclusions of the information were appropriate), and agreed that if a supplemental MDR was required, the company should file it. It is unclear, however, why the company waited until 2015 and what ultimately motivated the filing decision at that time. One can only speculate that the coincident timing of FDA scrutiny resulted in the MDR filing, which three years later, now forms the basis for the criminal charge.

In addition to the mandatory compliance measures, the company agreed to pay an $80 million criminal fine (which was 2.5 times the profit earned from the duodenoscopes sold during the time period), and a $5 million forfeiture. Yabe faces up to a year in prison and a $100,000 fine; he will be sentenced in March 2019.

On Friday, the Yale Law School Media Freedom and Information Access law clinic filed a complaint against FDA, HHS, and NIH alleging violations of the Administrative Procedure Act based on Section 801 of the FDA Amendment Act (FDAAA), which requires results reporting of clinical trials to the defendant agencies. Filed on behalf of a journalism professor and reporter, Charles Seife, and a physician, the President of the Center for Science in the Public Interest, and former FDA official, Peter Lurie, the suit alleges that defendants acted arbitrarily and capriciously in their interpretation of FDAAA 801 to apply only to trials completed after January 18, 2017 and in their application of FDAAA 801 by failing to issue statutorily-required notices of noncompliance and post them on ClinicalTrials.gov.

As we explained when the final rule implementing FDAAA 801 was published in October 2016, FDAAA 801 requires the submission and posting of registration and results information of applicable clinical trials, including both approved, licensed or cleared products and unapproved, unlicensed, or uncleared products. If the product has not been approved, licensed or cleared at the time of a trial completion, basic results information must be reported within 30 days of approval. The final rule added a de facto exemption for clinical trials of unapproved products with a primary completion date before the rule’s effective date; as such, products with a primary completion date prior to January 18, 2017 were exempted from the reporting requirement. The rule also required the agency defendants to maintain a registry and results data bank, which they did via the ClinicalTrials.gov website, along with public notices of violations of these reporting requirements.

Plaintiffs raise the argument that the de facto reporting exemption for studies with a primary completion date prior to January 18, 2017 exceeds the statutory authority set forth in FDAAA 801. Without basic results information, Plaintiffs argue that their efforts to characterize the integrity of clinical trial enterprise and complete research into evidence development and dissemination are harmed by this arbitrary and capricious interpretation.

Additionally, plaintiffs allege that the agency defendants have failed to comply with their congressionally-mandated obligation to issue and publicly post notices of FDAAA violations. Despite public knowledge of widespread noncompliance with the statute, defendants have not issued a single public notice of noncompliance on ClincialTrials.gov, as required by statute. Nor have defendants implemented a public search function for notices of noncompliance on ClincialTrials.gov, as required by statute. Plaintiffs allege that this failure to comply with the FDAAA 801 requirements “constitutes agency action unlawfully withheld and/or unreasonably delayed, in violation of 5 U.S.C. § 709(a).” Plaintiffs cite, amongst other studies, AllTrials data stating that that only 60.8% of applicable clinical trials with completion dates on or after the FDAAA Final Rule effective date, January 18, 2017, have publicly reported results on ClinicalTrials.gov.

Plaintiffs request that the U.S. District Court for the Southern District of New York (SDNY) strike down portions of the final rule exempting studies with primary completion dates prior to January 18, 2017 from mandatory reporting obligations. Further, Plaintiffs ask that SDNY compel defendants to issue noncompliance notices and provide them in an easily-searchable database on ClinicalTrials.gov.

To the best of our knowledge, this is the first litigation arising from FDAAA 801. It’s an interesting tactic, reminiscent of suits brought under FOIA to require agencies and officials to enforce the law (i.e., the FOIA project, EPIC). Because of the strong statutory language with respect to notice of violations in 42 U.S.C. § 282(j)(5)(E)(i)–(ii), plaintiffs do have a persuasive argument that, in this instance, Congress explicitly intended to curtail agency enforcement discretion, and perhaps it will survive a motion to dismiss. But given the extent of Chevron deference and an agency’s discretion to enforce, there is a good possibility that this case will be dismissed.

Nevertheless, the case highlights the lack of transparency in the federal government. While this action is obviously limited to only the three relevant agencies, the overarching issues surrounding transparency seem to be par for the course across all of government right now. FDAAA was clearly passed to provide transparency for the purposes of research integrity, scientific progress, and prevent duplication of unsafe and unsuccessful trials.

Yet here we are, 11 years later, plaintiffs still need to sue to get access to information statutorily-mandated clinical trial information disclosed to the public.

On Dec. 6, FDA announced that it is formally seeking data, comments and information related to the assessment of safety and effectiveness of food handler antiseptic drug products (rubs and washes) for over-the-counter (OTC) use. Although this is a positive development, judging from the questions FDA poses, it is only the first step in what likely will be a long journey.

As detailed in the Federal Register notice, the road to this notice has been long. Since 1994, industry repeatedly has called for regulation of antiseptics for food handlers as a separate category of antiseptics under the monograph.

As readers of this blog know, antiseptic washes and rubs for use by consumers and in health care have been subject to review, and monographs for these products have been finalized. On every occasion, industry has submitted comments requesting that FDA treat food handler products separately. FDA recognizes that a separate category for this type of product is warranted. However, the Agency seems uncertain about a significant number of issues. In the notice, FDA discusses several issues for consideration, including:

• The broad spectrum of uses. Food handling occurs in commercial settings from farm to table, including where food is grown, harvested, manufactured, packed, held, transported, prepared, served and consumed.
• The variety of conditions. Not all food handler conditions are the same and they pose different challenges to effectiveness. For example, in some situations, hands are heavily soiled with organic matter such as grease and dirt.
• The length of contact time. The Model Food Code, which addresses the safety at retail and food service establishments, specifies that a cleaning regime should last at least 20 sec. using a cleaning compound in a hand washing sink. In contrast, in vivo testing for health care antiseptics requires 30 sec. contact.
• Causes of food borne illnesses include viruses and parasites. In fact, according to the CDC, only 51 percent of foodborne disease outbreaks are ascribed to bacteria. This raises the question whether food handler antiseptics should be tested for effectiveness against viruses and possibly parasites as well. FDA has resisted allowing viral claims for other OTC antiseptics.
• The potential risk of indirect exposure to antiseptics by consumers due to transfer from the hands from food handlers to food raises questions also.

FDA has established a docket to obtain data, information and comments related to the assessment of the safety and effectiveness of food handler antiseptics. Questions range from determination of eligibility, current conditions of use, and safety and effectiveness criteria and evaluation.

Particularly, the eligibility of active ingredients for the OTC Drug Review may become a hurdle. A product is eligible for the OTC Drug Review if its conditions of use existed in the OTC drug marketplace on or before May 11, 1972, or if drug products with the same conditions of use have been marketed for a material time and extent such that they meet the requirements for eligibility under FDA’s time and extent application (TEA) regulation. FDA indicates that it anticipates that few if any products are eligible based on marketing before May 11, 1972. Thus, evidence of marketing for a material time and extent will be needed. Because no call for data or information about food handler antiseptics then on the market was issued in the 1970s at the inception of the OTC drug review, it may be nearly impossible to identify what products are eligible. Perhaps OTC monograph review will allow FDA and the industry to sidestep this thorny issue.

Comments must be submitted by Feb. 5, 2019.

Hard to believe that just two years ago, ev3, Inc. scored a resounding victory after the First Circuit affirmed the dismissal of a qui tam action against it (we reported it here). This week, DOJ announced that the same company has agreed to a criminal plea on what, at first blush, appears to be the same basic set of facts. The plea includes a misdemeanor count for violation of the Federal Food, Drug, and Cosmetic Act (FDC Act), and payment of $11.9 million in criminal penalties along with a $6 million forfeiture.

The original action involved a qui tam whistleblower who alleged the company was liable under the False Claims Act for misrepresentations it made to FDA when seeking approval of the Onyx liquid embolization device. The government declined to intervene in the case, but the relator pressed his arguments through four amendments to his complaint.

According to the relator, during the approval process for Onyx, ev3 agreed to a very narrow indication for Onyx, and also represented that it would provide significant training to physicians on the proper on-label use of Onyx. Indeed, the approved product labeling restricted its use to “physicians with neurointerventional training and a thorough knowledge of the pathology to be treated, angiographic techniques, and super-selective embolization.” ev3 allegedly also concealed safety issues with the Onyx product from FDA. The relator argued that if FDA had known ev3 had no intention to restrict its marketing to the on-label indication, or adequately train physicians, and if FDA had known about safety issues with the Onyx product, it would not have approved the product (i.e., that the company had fraudulently induced FDA to approve the drug).

The First Circuit rejected the relator’s theory using strong language: “The FDA’s failure actually to withdraw its approval of Onyx in the face of D’Agostino’s allegations precludes D’Agostino from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” In the absence of such official agency action by FDA, the court held that it was impossible to determine that FDA would not have approved the Onyx device without the alleged fraudulent representations. The court also concluded that the relator could not demonstrate materiality where CMS had continued to reimburse for Onyx, stating that “[t]he fact that CMS has not denied reimbursement for Onyx in the wake of D’Agostino’s allegations casts serious doubt on the materiality.”

The December 4 criminal plea, however, demonstrates that the government did take serious issue with ev3’s marketing of its Onyx product, although not necessarily because it evinced the alleged fraud posited by the relator in his FCA claim. The criminal information does not explicitly discuss the company’s communications with FDA during the approval process for the device, but does refer to post-marketing statements by FDA that made clear the company needed additional data to support an expanded indication for Onyx – statements that the company apparently disregarded. Thus, the pleading seems to describe a straightforward off-label promotion violation rather than any “fraudulent inducement” of FDA approval in the first instance.

In sum, while the relator may have “lost,” the government still won. This case showcases the power of the government based on the plethora of statutes at its disposal. It is likely the government saw the flaws in the qui tam case early on (thus choosing to decline the matter) but sought to prosecute the company’s activity and chose the more straightforward FDC Act violation as its tool. Defendants can still appreciate the strong language in the First Circuit opinion, but that may be of little solace to ev3 considering the ultimate end of its story.

While riding out the end of this term, the Government Accountability Office (GAO) delivered to our lame duck Congress some light reading on orphan drug designations and marketing. In a report titled “FDA Could Improve Designation Review Consistency; Rare Disease Drug Development Challenges Continue,” the GAO examined the orphan drug designation process, including the increase in demand for orphan drug designations and FDA’s review of orphan drug designation requests. Arising in response to a congressional request on orphan designations and marketing approvals, the report examines:

• The actions FDA has taken to address the growing demand for orphan designations;
• The extent to which FDA has used consistent criteria and complete information to review applications for orphan designation, and the characteristics of drugs seeking orphan designation;
• The orphan drugs FDA has approved for marketing; and
• The steps FDA has taken to address challenges in rare disease drug development.

The GAO reviewed FDA documents, data, and review templates for orphan drug designation requests from October to December 2017 and interviewed agency officials and stakeholders.

The GAO investigation and Report come on the heels of FDA’s June 2017 Orphan Drug Modernization Plan designed to eliminate the designation application backlog. As part of the plan, FDA introduced collaboration between different review divisions, reduced other regulatory and discretionary burdens on Office of Orphan Products Development (OOPD) (like FOIA requests), and developed the standard designation template to facilitate consistent and efficient review of new designation applications.

The major focus of the GAO Report seems to be the OOPD review templates. The report explains that OOPD reviewers record information from orphan drug designation requests in a five-section review template, which is then used to assess the request. The GAO noted that of the 148 review templates assessed, at least 102 were missing information. FDA officials explained that the background information in the review template provides context for making designation determinations, but there are no instructions provided to reviewers for using this information in evaluating the applications. Further, the GAO report indicated that OOPD did not independently verify data to ensure accuracy and completeness in designation requests.

While the GAO Report seems fairly critical of the OOPD review process, the Report offered only one recommendation: FDA should improve the consistency of the information inputted into its review templates. (Those of you who have had the pleasure of reviewing FDA’s Summary Basis of Approval in any depth know that a lack of consistency in FDA review templates is not limited to OOPD.) While the recommendation focuses specifically on the templates for some reason, the Report points out some big holes in FDA’s orphan drug designation review process in its entirety. A lack of instructions combined with a lack of data verification implies that OOPD is not doing a thorough review of these designation requests.

The report also noted that concerns with the adequacy of a manufacturer’s scientific rationale was the most common reason that orphan designation was not granted. Concerns include that the manufacturer did not provide sufficient or adequate data to support the scientific rationale, or that the manufacturer did not provide data from the strongest available model for testing the drug. Some other interesting facts from the report: FDA’s orphan drug marketing approvals increased from 2008 to 2017, focused primarily on therapeutic areas of oncology and hematology, and took approximately 9 months for agency review.

FDA approved 77 orphan drugs for marketing in 2017. But as the number of orphan designation and marketing approvals has grown, questions about potential challenges in drug development have arisen. The GAO Report cites as the biggest barriers to rare disease drug development the need for more basic scientific research and difficult recruiting small populations for clinical trials. And while the report explained that OOPD has some grant programs that may help manufacturers, it provided no recommendations or analyses for FDA on this issue.

However, HP&M’s James E. Valentine and Frank J. Sasinowski previously co-authored a proposal for an FDA Rare Disease Center of Excellence that would help overcome these barriers and others in orphan drug development and review (see previous coverage here).

Last week, DOJ announced that it had concluded a year-long review of its individual accountability policy and that it had made changes to reflect a more efficient and practical position in its investigations of companies. As you may recall, in 2015, then-Deputy Attorney General Sally Yates issued a memorandum (“Yates memo”) directing DOJ prosecutors to pursue culpable individuals in all civil and criminal investigations involving corporate misconduct.  We reported here on the initial issuance of the policy and clarifying statements. The latest changes, described by DAG Rod Rosenstein, reform DOJ policy to provide more potential for companies to earn cooperation credit and to resolve cases more quickly.  FDA-regulated companies should welcome these developments, although some additional clarity still is necessary.

For criminal cases, the revised DOJ policy takes into account the problem companies face when it is difficult, if not impossible, to identify every individual who was “substantially involved in or responsible for” the criminal conduct regardless of relative culpability, like in cases in which there was corporate-wide direction that was routinely followed.  DOJ recognizes that the former policy was not practical and potentially could result in a waste of limited government resources.  Thus, DOJ policy now makes clear that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial or not likely to be prosecuted.  DOJ encourages companies to engage in dialogue with the government, and puts the burden on the company seeking cooperation credit to explain any restrictions it faces from providing full information.

In civil matters, in which the primary goal is to recover money to the government fisc, DOJ policy is even more flexible and returns more discretion to the civil attorneys to resolve matters without having to pursue individual liability. As Rosenstein explained, “[DOJ] civil litigators simply cannot take the time to pursue civil cases against every individual employee who may be liable for misconduct, and we cannot afford to delay corporate resolutions because a bureaucratic rule suggests that companies need to continue investigating until they identify all involved employees and reach an agreement with the government about their roles.”  Thus, the revised policy permits DOJ civil attorneys to award gradations of cooperation credit rather than have to select between a binary choice of no credit or full credit. The policy also permits civil attorneys to consider an individual’s ability-to-pay in deciding whether to pursue a civil case, which makes sense to conserve investigative (and judicial resources) in cases that are unlikely to yield any monetary recovery.

The Justice Manual (“JM”), formerly known as the U.S. Attorney’s Manual, reflects these changes in sections related to civil and criminal investigations.  Although the JM contains examples of circumstances in which cooperation credit can be awarded despite full information about individual culpability, it remains to be seen how these changes are implemented by the various AUSAs throughout the country.  Overall, the revised policy leans toward facilitating corporate resolutions more quickly and efficiently, which is a goal both sides of an investigation typically can share.

On November 30, CMS published in the Federal Register a proposed rule on Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses. This proposal is the latest in a series of CMS actions to implement the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, which was issued in May of this year. The Proposed Rule addresses five subjects:

1. Providing Plan Flexibility to Manage Protected Classes
2. Medicare Advantage and Step Therapy for Part B Drugs
3. Pharmacy Price Concessions to Drug Prices at the Point of Sale
4. Prohibition Against Gag Clauses in Pharmacy Contracts
5. E-Prescribing and the Part D Prescription Drug Program

We discuss the first three of these subjects below, because these are the provisions that relate most closely to drug cost reduction. CMS is accepting public comments on the Proposed Rule until January 25, 2019.

Providing Plan Flexibility to Manage Protected Classes

Current Part D policy requires that Part D plan sponsors include on their formularies, with limited exceptions, all drugs in six categories or classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for treatment of transplant rejection, antiretrovirals, and antineoplastics. Theses six categories are commonly referred to as “protected” therapeutic classes. While Part D plan sponsors may use utilization management tools like prior authorization and step therapy for other Part D drugs, they have limited authority to use these tools for drugs in the protected classes and may not exclude such drugs from their formularies. The Proposed Rule would not change the six protected classes, but would provide Part D plans with greater leverage to negotiate discounts for drugs in protected therapeutic classes.

The Proposed Rule would create three exceptions that would allow Part D sponsors to impose formulary actions on drugs in protected classes. First, sponsors would be able to impose prior authorization and step therapy requirements to ensure clinically appropriate use, promote utilization of preferred formulary alternatives, confirm that the intended use is for a protected class indication, or a combination of these three purposes. The prior authorization and step therapy procedures would have to be reviewed and approved by CMS.

Second, a Part D sponsor could exclude from a formulary a new formulation of a single source protected class drug or biological that has the same active ingredient or moiety as the original version and that does not provide a unique route of administration – even if the original drug is withdrawn from the market. The preamble explains that this is intended to discourage manufacturers from introducing a more expensive formulation of a protected class drug while discontinuing the original version. Unfortunately, the proposed rule does not define a new formulation, a term whose meaning is not self-evident. For example, does a new formulation include a new strength? What about new formulations that further an important public policy objective, such as abuse deterrent formulations of opioids – are they to be equally discouraged? Readers familiar with the Medicaid Drug Rebate Program (MDRP) will recall that CMS proposed then later withdrew a convoluted definition of this term under the MDRP, and has not attempted to define it since.

Third, CMS proposes, beginning on or after January 1, 2020, to permit Part D sponsors to exclude from a formulary a protected class single source drug or biological if its WAC has increased, compared to a defined baseline month and year, at a rate greater than the rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI‑U). If one NDC for any strength, dosage form, or route of administration of a drug exceeded the price increase limit, all NDCs assigned to the drug could be excluded. Part D sponsors would be responsible for monitoring WAC increases and deciding whether to adopt such an exclusion policy, which would have to be approved by CMS. CMS notes that Part D sponsors would not be required to exclude such drugs from their formularies, but instead could use the threat of exclusion to negotiate rebates for formulary placement.

Step Therapy for Part B Drugs Covered Under Medicare Advantage Plans

The Proposed Rule also would permit Medicare Advantage plans to apply step therapy as a utilization management tool for Part B drugs. This proposal is consistent with an August 2018 memo that rescinded a 2012 prohibition on imposing mandatory step therapy for access to Part B drugs. See Prior Authorization and Step Therapy for Part B Drugs in Medicare Advantage (August 2018). Under the Proposed Rule, Medicare Advantage plans would be required to disclose that Part B drugs may be subject to step therapy requirements in the plan’s Annual Notice of Change and Evidence of Coverage documents. Step therapy would not apply to preferred providers organization plans (PPOs) because PPOs are required to reimburse or cover benefits provided out of network and are prohibited from using prior authorization or preferred items restrictions in connection with out of network coverage. 42 U.S.C. § 1395w–22(e)(3)(iv)(II).

Pharmacy Price Concessions in the “Negotiated Price”

Under Part D the negotiated price is the price that a Part D plan negotiates with a pharmacy as the amount the pharmacy will receive, in total, for a Part D drug, and it is also the pharmacy’s price to the enrollee, upon which the enrollee’s co-insurance is based. The negotiated price is net of price concessions from network pharmacies, except for contingent price concessions that cannot “reasonably be determined” at the point-of-sale. 42 C.F.R. 423.100. Because most pharmacy price concessions cannot be determined at the point of sale, negotiated prices typically do not reflect any performance-based pharmacy price concessions that would otherwise lower the amount a sponsor, and the enrollee, ultimately pays for a drug. CMS is considering eliminating this exception for contingent pharmacy price concessions as soon as 2020 and revising the definition of “negotiated price” to mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan. In other words, the greatest possible pharmacy price concession would be assumed in the negotiated price, so that the enrollee’s co-insurance would be reduced. Any difference between the negotiated price and the amount the pharmacy was ultimately paid would be captured in “direct and indirect remuneration” (DIR) reporting at the end of the plan year.

This proposal is reminiscent of CMS’ November 2017 request for comments on a proposal to require Part D sponsors, through a future rulemaking, to include in negotiated prices a specified percentage of manufacturer rebates as a point-of-sale rebate. See 82 Fed. Reg. 56336, 56421 (Nov. 28, 2017). Apparently, CMS does not consider that concept to be ripe for a rulemaking, because the new proposed rule makes no mention of it.

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This Proposed Rule is the latest in a series of CMS actions under the Trump Administration intended to reduce drug costs under Medicare. Though this Proposed Rule and the November 2017 request for comments on point-of-sale rebates involved Part D, most of the initiatives have addressed drug costs under Medicare Part B, including:

• A November 2017 final rule reducing the Part B payment to hospital outpatient departments for separately payable drugs purchased under the 340B Drug Discount Program from ASP plus 6% to ASP minus 22.5%.
• A July 2018 request for information on a proposal to establish a competitive acquisition program for Part B drugs, which would incorporate formulary tools, indication-based pricing, outcomes based agreements, and other cost-reduction features
• An October 2018 proposed rule requiring direct-to-consumer TV ads for drugs covered under Medicare or Medicaid to contain WAC pricing information (see our blog post here)
• An October 2018 advance notice of proposed rulemaking on using an international pricing index as a benchmark for Part B drug payment (see our post here)
• Two November 2018 final rules (hospital outpatient prospective payment system and physician fee schedule) reducing the Part B drug payment rate for drugs for which no ASP data are available from ASP + 6% to ASP + 3%.

Although these Medicare initiatives began before the HHS Blueprint was issued in May, they have clearly been accelerating since the Blueprint. We will be following these CMS initiatives in this blog.

Hyman, Phelps & McNamara, P.C. is pleased to announce that Anne Walsh will again participate in the Food and Drug Law Institute’s (“FDLI”) Enforcement, Litigation and Compliance Conference this year.  The conference will be held in Washington, DC on December 12-13, 2018.  As a member of the Conference Planning Committee, Ms. Walsh helped set the topics and propose speakers for this year’s conference, and FDLI is excited that keynote speakers will include Scott Gottlieb, FDA Commissioner; James Burnham, DOJ Deputy Assistant Attorney General, Consumer Protection Branch; Stacy Cline Amin, FDA Chief Counsel; and Elizabeth Dickinson, FDA Senior Deputy Chief Counsel and former FDA Chief Counsel.

This conference is attended by experienced professionals in the fields of regulatory, legal, public relations, marketing and management who work in the pharmaceutical, medical device, diagnostic, biologics and veterinary medicine industries. The conference is also beneficial for consultants in the areas of advertising, public relations, law and marketing communications.

FDA Law Blog readers can receive a 15% discount off the conference registration price. To receive the discount, use the following promotional code: Enforcement15.  For more information and to register, click here.

In light of recent criticism of FDA’s oversight of medical devices, it is curious why FDA did not release a report touting the success of its enforcement activities with the same fanfare as its report on its plan to modernize the 510(k) program, which we reported on here. The Medical Device Enforcement and Quality Report (Report), available here, claims FDA’s increased inspections have led to improved compliance by industry. The Report provides five conclusions:

1. The FDA has increased its oversight through additional device inspections.
2. The FDA has taken a targeted, risk-based enforcement approach to address specific device areas of concern.
3. The FDA’s focus on violative products and adverse event reporting during inspections has led to an increase in voluntary recalls and adverse event reporting.
4. Most firms have corrected violations on follow-up inspection.
5. The FDA has taken steps to promote device quality, not just compliance with regulations.

In the first section of the Report, FDA notes that since 2007 there has been a “46% increase in the annual number of device inspections” (from ~2000 inspections in 2007 to 2952 in 2017) and a “243% increase in the annual number of foreign device inspections” during the same time period. Report at 2. FDA also gives itself credit for implementing the Medical Device Single Audit Program (MDSAP), which permits FDA to accept regulatory audits by other jurisdictions. It is unclear how this increased number of inspections corresponds to the total number of registered medical device facilities (i.e., whether FDA is inspecting a greater percentage of registered medical device facilities now than in 2007).

The second section of the Report describes how FDA uses a targeted, risk-based enforcement approach to address issues that FDA identifies through reported malfunctions, industry compliance trends and public health concerns. The report provides three case studies as examples of success stories: infusion pumps, automated external defibrillators (AEDs) and radiation therapy devices. Each case study identifies the numbers of inspections conducted, facilities inspected, and warning letters issued, and highlights improvements in reductions of recalls and adverse events as a result of these actions.

Next, the Report notes that FDA has focused on reporting of recalls as required in 21 C.F.R. Part 806 and reporting of adverse events as required in 21 C.F.R. Part 803 during inspections. FDA concludes that firms are more likely to report recalls and adverse events after receiving inspectional findings. This seems to be an obvious result. The open question remains whether the public is better served by compliance with reporting obligations.

Similarly, the fourth section reports that firms tend to have corrected violations on follow-up inspections. FDA notes that through their increased number of inspections and focus on higher risk device types, “the annual number of Official Action Indicated inspections has increased 59%” and that the number of Warning Letters also increased between 2008 and 2012. Id. at 7. Interestingly, despite seeing positive outcomes from their increased scrutiny, the report indicates that more recently there has been a decrease in the number of Warning Letters issued as FDA is taking a more interactive approach with violative firms. Indeed, FDA issued just 32 Warning Letters to device companies in FY2018; compared to 213 letters issued at the peak in FY2012.

The final section provides an overview of the Case for Quality initiative launched in 2011 to elevate industry’s focus from “baseline regulatory compliance to sustained practices that advance medical device quality and safety to achieve better patient outcomes.” Id. at 8. According to FDA, reports coming out of the pilot program, specifically related to use of a voluntary quality maturity appraisal model, suggest positive outcomes.

Overall, the Report’s message is that enforcement actions are robust and effective. It is unclear whether FDA intends to update this report annually, using other case studies to support effectiveness of its efforts. Firms should continue to be diligent in ensuring compliance and inspection readiness and may also benefit by looking beyond regulatory compliance to further promote device quality.

On November 6, we reported that the Health Resources and Services Administration of the Department of Health and Human Services (HHS) had proposed to move up the effective date of its 340B program ceiling price and civil monetary penalties regulation from July 1 to January 1, 2019. After reviewing comments on the proposal, many of which were critical of the acceleration, HHS has stuck to its guns, finalizing the January 1 date today.

HHS has subjected manufacturers to regulatory whiplash. After delaying the effective date of this January 5, 2017 rule five times over the past two years for vague reasons, the department is suddenly in a rush to make it effective – possibly prompted by a lawsuit brought by hospitals and hospital associations. January 1 is only 33 days away. Some manufacturers asked for a delay of two quarters because the abrupt acceleration of the effective date makes it difficult for companies – especially smaller ones – to upgrade their operational systems in time for January 1 compliance. Others commented that HRSA itself is not ready – the agency has not yet operationalized its on-line reporting system so that manufacturers will be able to report 340B ceiling prices, as required by the regulation, by January 1. To the first point, HHS responded that the two-year period since the rule was finalized has given stakeholders sufficient time to adjust their systems. To the second, HHS notes that it “plans to release the 340B ceiling pricing reporting system shortly and HHS will communicate further information through its website.”

On November 7, the FDA announced that it is seeking approval for a web-based pilot survey about allergens in cosmetics, including fragrances, hair products, makeup, nail products and skin care products.  The federal register notice was published on Nov. 8, 2018.

The survey is part of FDA’s efforts to learn more about allergens in cosmetics. Although FDA receives information about adverse reactions to cosmetics via the voluntary reporting to Center for Food Safety and Applied Nutrition (CFSAN) Adverse Events Reporting System (CAERS), the Agency believes these reports are an underestimate of the incidence of allergic and other reactions to cosmetics. The objective of the proposed survey is to collect information needed for a more current understanding of the prevalence of adverse reactions to cosmetics, consumer awareness of the problem, and actions (if any) consumers take to avoid allergens, e.g., purchasing hypoallergenic cosmetics, avoidance of cosmetics containing fragrances.  The survey is a pilot scheduled to cover 1000 adult consumers.  The proposed survey is available in the docket.  FDA requests feedback on four topics:

1. whether the proposed collection of information is necessary for the proper performance of FDA’s functions, including whether the information will have practical utility;
2. the accuracy of FDA’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
3. ways to enhance the quality, utility, and clarity of the information to be collected;
4. ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Comments must be submitted by Jan. 7, 2019.

On November 5, 2018, FDA issued its latest UDI policy “Unique Device Identification: Policy Regarding Compliance Dates for Class I and Unclassified Devices and Certain Devices Requiring Direct Marking,” deferring enforcement of direct marking deadlines. The new guidance, effective immediately, supersedes the guidance issued in January, previously discussed here.  The guidance document is largely unchanged, other than with respect to direct marking deadlines, as noted below.

Despite the best intentions, and unsurprisingly for industry, the implementation of FDA’s UDI system has been exceedingly complex. As a result, FDA is prioritizing its enforcement of various deadlines.  Specifically, FDA does not intend to enforce UDI direct mark requirements for Class III, life-saving or life sustaining, and Class II non-sterile devices that were manufactured and labeled prior to the UDI compliance deadline and remain in inventory, as long as the UDI can be derived from other information on the device.  This can be through a catalog number, lot number, serial number, or something similar.  FDA expects this information to be documented in the Global UDI Database (GUDID), which will be updated to include new fields to capture this information.

Although the direct mark compliance deadline for Class I and unclassified devices is September 24, 2020, FDA likewise does not intend to enforce UDI direct mark requirements for those devices until September 24, 2022. Moreover, as with the higher classification devices, FDA will not enforce UDI direct mark requirements for devices that are manufactured and labeled prior to the compliance deadline and remain in inventory, where the UDI can be derived from other information on the device.

With this enforcement policy, FDA has acknowledged that some devices can remain in inventory for relatively extensive periods of time, and has adjusted its enforcement expectations accordingly. The new guidance is effective immediately.  Although FDA will accept comments through electronic submission at www.regulations.gov, there is no official comment period, and FDA is not required to address them.

Back in October, FDA announced that it submitted a proposal to the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH) for the development of common global standards for generic drugs. This proposal is yet another strategy in Commissioner Gottlieb’s Drug Competition Action Plan, which seeks to address competition and accessibility of medicines in the generic drug industry.

It is not exactly groundbreaking that ICH guidelines may address generic drugs in the near future, as ICH has been inviting generic representatives to its ICH Steering Committee Meetings and Expert Working Groups since at least 2000. And the Office of Generic Drugs developed programs for working with the ICH in 2016. Nonetheless, the initiative is exciting and representative of Dr. Gottlieb’s clear commitment to the plight of drug accessibility.

The intent of the ICH proposal is to encourage and enable generic drug developers to seek approval in multiple markets. In his October 2018 announcement on FDA’s blog, Dr. Gottlieb explained the pitfalls in the current regulatory environment:

Currently, manufacturing specifications may differ between countries, and different types of tests may be required to support the approval of a generic drug in different countries. For example, right now a specific drug may need to be tested under different dissolution methods and acceptance criteria to satisfy both the FDA and the European Medicines Agency’s (EMA) regulatory requirements.

Competing regulatory schemes make it more complex and more expensive for generic developers to submit multiple applications across different jurisdictions. As such, generic developers with limited resources may seek approval in only a limited number of countries, which can limit competition, increase prices, and increase the risk of shortages.

FDA’s proposal suggests that ICH develop a series of guidelines on standards for demonstrating equivalence, like bioequivalence, for both non-complex and complex dosage forms and drug products. This might include a harmonized bioequivalence study design and bridging studies, and it may even include the development of a common reference standard for generic drug development.  The proposal itself has not yet been made public.

Dr. Gottlieb expects that the harmonization of scientific and technical standards with respect to generic drugs will bring countless benefits, including:

• The streamlining of development across markets;
• Better consistency in global quality of generic drugs;
• Better effectiveness and reduced cost of regulatory oversight through information sharing across markets; and
• The development of competition by attracting additional developers, which would presumably lower the fixed costs of generic drug development and expand patient access by increasing the number of market entrants.

FDA believes that easing the barriers to global entry for generic firms can support the economic stability of generic markets and encourage investment, which promote competition for American consumers. This competition, in theory, should lead to lower drug prices.

But it’s not clear that the plan will result in more competition or lower prices in the U.S.  While, as noted, more competition should theoretically lead to lower prices, drug pricing in the U.S. is far from transparent or logical.  Further, it is unlikely that a nascent market participant in the U.S. will dive straight into patent or exclusivity challenges, so any additional market entrants are more likely to be superfluous follow-on generics, which may not have much of an effect on drug pricing.  Then again, if the new potential entrants primarily target drugs on FDA’s List of Off-Patent, Off-Exclusivity drugs (which I like to call FDA’s generic drug hit list), increased foreign competition would likely have at least some impact on pricing. But it’s not inherent that increased competition from abroad will have any effect on pricing in the U.S.

Further, the ICH guidelines themselves must be developed before we can hypothesize on the potential impact of such a program. ICH guidelines are typically the result of extensive negotiations to create technical standards and build consensus among members. With countries of all sizes and development statuses, any ICH guideline adopted may be more stringent that a given member’s current regulatory scheme.  And because it’s unlikely that FDA, the European Commission, or Health Canada are going to relax any of their regional requirements for safety and efficacy, the generic standards adopted are likely to be more stringent than some countries’ current standards.

As such, questions abound about this proposal that really can’t be answered yet. Could an ICH guideline have the opposite effect and make it more expensive for drugs to come to market in some countries?  And if so, will it be in exchange for safer and more effective products?  Will other countries’ regulatory bodies appreciate the trade-off?  Importantly, will generic companies operating based in countries with less stringent safety and efficacy requirements invest the time and money needed to meet a potentially more stringent standard?  And are there enough generic developers out there that eschew the U.S. but can still meet its regulatory standards that there will be a noticeable effect on U.S. generic markets?  If not, the major benefits of this harmonization seem to be for manufacturers already operating in a more stringent regulatory environment.

FDA’s proposal raises a lot of interesting questions and a team of economists at FDA has likely run all these numbers, but it seems that the benefit of this plan for U.S. consumers really depends on the details of the proposal.

The 510(k) pathway was first established in the Medical Device Amendments of 1976, and amended in the Safe Medical Devices Act of 1990. Since that time, the statutory language creating this pathway has remained largely unchanged. Yet, the program has morphed from one in which sponsors submitted a short set for materials showing that a proposed and predicate device were similar in terms of design and intended use through labeling and, sometimes, minimal testing, to a program in which sponsors often submit a thousand pages (or more) of data, testing results, and information to establish substantial equivalence. This has all resulted from changes in FDA’s expectations and requirements for these types of submissions. FDA highlighted these changes in its performance report (here).

On November 26, 2018, FDA Commissioner Dr. Scott Gottlieb and Dr. Jeffrey Shuren, Director of the Center for Devices and Radiological Health, announced that FDA is planning to “modernize” the 510(k) process. A Statement from FDA Commissioner Scott Gottlieb, M.D. and Jeff Shuren, M.D., Director of the Center for Devices and Radiological Health, on transformative new steps to modernize FDA’s 510(k) program to advance the review of the safety and effectiveness of medical devices (Statement) focuses primarily on ensuring that new devices cleared through the 510(k) process meet evolving standards of safety and effectiveness. Key points are summarized below.

Eliminating Use of Old Predicates

According to the Statement, approximately 20% of 510(k)s are cleared based on comparison to a predicate that is more than ten years old. The Statement says that this figure is problematic because it is a sign that “some devices may not be continually improving, which is the hallmark of health technologies.” The Agency appears to believe that new devices should be compared to the benefits and risks of more modern technology. To this end, as indicated in the Statement, FDA will promote use of newer predicates. To anyone that has filed a 510(k) recently, this attitude comes as no surprise. FDA prefers newer predicates. Even if an older predicate is selected by an applicant, the testing and data requirements are typically based on more recent 510(k) clearances, and FDA will often ask for more data than contained in the predicate device 510(k).

The Statement indicates that FDA will make public on its website those cleared devices that demonstrated substantial equivalence to older predicates (i.e., predicates that are more than 10 years old). A few comments: First, it is unclear if this list will only include recently cleared devices with “old” predicates or if FDA will annotate the entire 510(k) database. It is also unclear how multiple predicates will be handled (i.e., if a device has three predicates and only one is older than 10 years). It is also not obvious how this information will help stakeholders. To the extent the implication is that a 510(k)-cleared device with an “old” predicate should be given less weight, that implication may be unfounded.

Second, while this annotation may help highlight the age of the predicate(s), the information is already effectively available in the current database through the 510(k) summaries, which list the predicates and links to their clearance information. Submitters today are aware of FDA’s preference for more recent predicates, and tend to balance FDA’s predilection against the value of an older predicate. An older predicate is often the most appropriate predicate device due to a design or intended use consideration. And some devices do not evolve that quickly (e.g., condoms). If the data and testing requirements satisfy today’s high standards of substantial equivalence, it is hard to see why use of an older predicate would be problematic or why a 510(k) clearance should be singled out by receiving the FDA equivalent of a Roger Maris asterisk. These issues tend to get sorted out quite well in the current review process.

Third, use of newer predicates, according to FDA, will “give patients and their doctors a choice among older and newer versions of a type of device, promote greater competition to adopt modern features that improve safety and performance, and help make sure that newer devices reflect more modern technology and standards that can improve patient care and outcomes.” It sounds as though FDA is suggesting that sponsors who obtain clearance using a newer predicate could have some sort of competitive advantage over a device cleared based on an older predicate. FDA, traditionally, does not permit comparative claims unless there is direct, head-to-head data showing that one device clinically performs better than another. Perhaps, FDA plans to loosen this standard to allow additional comparative claims based solely on the age of a chosen predicate, but it seems a stretch to uniformly equate newer predicates with better performance.

 “Sunsetting” Older Predicates

To further its goal of eliminating use of older predicates, FDA states that it will begin to “sunset” certain older 510(k)s. It is unclear what this means, how it would work, or if FDA even has statutory authority to do so. By way of example, FDA notes that it has worked to eliminate use of certain predicates that have raised safety concerns. FDA highlights its up‑classification of certain devices to require PMAs rather than 510(k)s. Sunsetting, in theory, however, seems fundamentally different and potentially more far reaching than simply eliminating unsafe predicates.

The announcement states that FDA has made 1,758 510(k)s ineligible for use as a predicate. The vast majority of these were due to up‑classification. It is not stated how many device types are embedded in this number. It seems unlikely that FDA has up‑classified 1,758 device types. Rather, it seems probable that this figure represents the number of individual devices affected by a smaller number of up‑classification decisions.

FDA highlights an announcement made last week that its National Evaluation System for health Technology (NEST) has obtained additional funding and is beginning certain projects (here). The announcement underscores areas of women’s health that FDA will focus on through registries for breast implants, industry-wide communications regarding vaginal rejuvenation devices, and holding a public meeting regarding gynecologic surgical mesh. These tools all appear to be ones that FDA can take under its current statutory authority to ensure safe and effective devices reach patients. Sunsetting “old” 510(k)s may require congressional action to amend the statute. The FDC Act defines predicate devices, and the age of the predicate is not a statutory criterion. FDA says it will “consult” with Congress, but consultation may be insufficient. We are reminded of the proposed rule on rescinding 510(k)s issued circa 2000, with equally uncertain statutory authority. It was never finalized.

While sunsetting predicates clearly implicates devices requiring 510(k) clearance, it is also possible that this process could affect 510(k)-exempt devices. As we have discussed in earlier posts (here and here), 510(k) clearances, both before and after 510(k) exemption, help to set the bounds of a 510(k) exemption for a particular device type. If FDA makes sweeping changes to “sunset” old 510(k)s, it could alter the bounds of 510(k) exemptions set by the now “sunsetted” 510(k)s. That is one of the many “nuts and bolts” concerns that would have to be addressed in any proposal.

Alternative “Safety and Performance Based” 510(k) Pathway

According to the Statement, FDA also plans to create an alternative 510(k) pathway that allows sponsors to establish substantial equivalence by demonstrating that a device meets safety and performance criteria for the device type. FDA states that this new pathway would evaluate a device based on “a contemporary baseline” rather than outdated standards. FDA’s vision is described in this paragraph:

We believe this approach is the future of the 510(k) program. Rather than looking to the past as a baseline for safety and effectiveness – and rely on predicate devices that are sometimes decades old as our point of comparison – our premarket review would be based on a contemporary baseline that looks to the future and a baseline that can be updated as technologies advance. Sometimes, by relying on old predicates, it can actually make it more difficult for more advanced technology to reach patients since it’s harder for an innovative product to bridge to an outdated technology reflected in a decades-old predicate.

While the Statement touts this approach as new, it sounds a lot like the current Abbreviated 510(k) pathway, which allows submitters to rely primarily on conformity to consensus standards. The Abbreviated 510(k) pathway works well for some device types, but it would be exceedingly time and labor intensive for FDA to adopt this quasi-standards approach for most device types, and then to keep the standards updated to ensure that they continue to remain “contemporary.” Or, it may be that FDA is contemplating that more of these devices will need to go through the De Novo route for lack of a “modern” predicate, or a submission that is called a 510(k) but is no longer tethered to a predicate device. The details of this pathway are unclear.

Standards are most useful for device types that do not evolve quickly, which are the same device types where older predicates retain value. For device types that evolve quickly, it is easy for standards to fall into obsolescence unless a great deal of time and resources are focused on updating them. It is these device types where newer predicates tend to be cited anyway, because they will be closest to the newest iterations of the technology. In short, the Statement fails to recognize that the 510(k) process already provides a technological baseline that updates in a self‑executing way. We wrote about that process in detail here.

Therefore, it is difficult to see how this new pathway will do much more than the modestly successful Abbreviated 510(k) pathway. We note also that FDA was given authority to develop performance standards for device types in 1976 and it was so little used that in 1990 Congress gave FDA added authority to impose “special controls” short of performance standards. We are not aware of any performance standards ever being formally issued.

The Statement suggests that this new pathway would be beneficial for companies, because such a 510(k) clearance could help support coverage decisions by “more readily demonstrat[ing] to payors that their products perform better than other devices on the market.” It is left unstated how the link between 510(k) clearance and payor reimbursement decisions would work. The clearance process itself is not intended to rank devices, but rather to establish substantial equivalence. It seems a stretch to suggest that the 510(k) clearance process itself could meaningfully be deployed to shape third-party payor reimbursement decisions. Furthermore, companies may be better off addressing reimbursement issues directly, and not as an ancillary aspect of the 510(k) process. We would suggest that FDA address the 510(k) program without considering the reimbursement ramifications.

The announcement concludes by stating that based on the changes to the 510(k) process more devices will ultimately use the De Novo process. This is easy to see – by eliminating older predicates there will be fewer devices on which companies can claim substantial equivalence. FDA adds that it will be issuing a proposed rule to clarify “procedures and requirements for submissions of De Novo requests.” FDA has had this proposed rule on its agenda for quite some time (see here), but there have been no details. We look forward to seeing FDA’s proposal to clarify the De Novo process, as well as other details relating to the Statement.