In order for their outpatient drugs to be covered under Medicaid and Medicare Part B, drug manufacturers must enter into a National Drug Rebate Agreement (“Agreement”) with the Department of Health and Human Services. The Agreement requires the manufacturer to pay quarterly rebates to state Medicaid programs on units of the manufacturer’s drug that are dispensed to Medicaid beneficiaries during the quarter, and to submit monthly and quarterly reports containing certain pricing data that are used by CMS to calculate the unit rebate amount. Today, CMS issued a final revised Agreement to replace the current one, which dates back to the inception of the Medicaid Drug Rebate Program in January 1991 and has become largely outdated as a result of amendments to the Program since that time. The new revision brings the Agreement into alignment with 2010 Affordable Care Act amendments to the Medicaid rebate statute and CMS’ implementing final rule issued on February 1, 2016, and also contains additional changes incorporating CMS policies adopted over the years.

Manufacturers with existing Agreements will have until October 1, 2018 to sign the revised Agreement, otherwise their existing Agreement will be terminated.

The final NDRA contains only minor changes from a draft that CMS issued for comment on November 9, 2016, which we described in a previous post here. Among the changes from the draft are the following:

• Language has been added to the Manufacturer’s Responsibility section to make clear that required pricing data must be calculated and reported “for all covered outpatient drugs of all labeler codes of a manufacturer.” See § II(b). The preamble elaborates that manufacturers are required to report “all of their covered outpatient drugs to CMS, regardless of labeler code. Therefore, in an effort to prevent selective reporting of NDCs, manufacturers must ensure that all associated labeler codes . . . enter into a rebate agreement in order to comply with the terms of the NDRA.” (P. 43.)
• In the same section, a sentence has been added reflecting long-standing CMS policy that, although CMS ordinarily calculates the unit rebate amount (URA) based on reported pricing and communicates the URA to the states, that does not relieve the manufacturer of the responsibility for doing its own URA calculation.
• The draft version of Section II(f) addressed revisions to previously submitted prices, but only those revisions resulting in additional rebate payments. In response to comments, a sentence has been added to also address overpayment situations, providing that manufacturers should communicate with states about how to apply the credit due to the manufacturer.
• The final Agreement retains the definitions of “depot price,” “single-award contract,” and “single-award contract price,” which the draft Agreement had proposed to delete. These terms are used in statutory and regulatory provisions regarding best price, but are defined only in the MDRA.

Several of the definitions and other provisions of the Agreement refer to Form CMS‑367c, which lists the data fields contained in the monthly and quarterly electronic reports to the Medicaid Drug Rebate Program and defines each field. The current Form
CMS-367c is appended to the final Agreement.

Last year, the First Circuit reversed the dismissal of a False Claim Act (FCA) case brought against DePuy Orthopaedics, Inc., holding that the district court had wrongly dismissed the relators’ complaint for failing to plead with particularity under Federal Rule of Civil Procedure 9(b) (see post here). In February, DePuy, now known as Medical Device Business Services, petitioned the Supreme Court for review, arguing there is a growing circuit split on appropriate pleading standards in FCA cases.

By way of background, relators—two physicians who are also serving as experts in an ongoing products liability suit against DePuy—alleged that DePuy sold orthopedic products (namely, the Pinnacle metal-on-metal hip implant) to the government and that these products were used in procedures reimbursed by the government. Because the implants allegedly contained manufacturing defects, relators claimed DePuy caused third parties to submit false claims to the government.  The complaint contained a weak example of one claim, and primarily relied on a statistical analysis of the sales and use of the device, along with the percentage of procedures typically covered by government programs, to contend that it was virtually certain that government programs reimbursed many of the procedures in which a defective device was used.

The government declined to intervene, and the district court dismissed the claims under Rule 9(b), in part, for lack of particularity.

The First Circuit disagreed. While noting the general rule that a relator must “allege the essential particulars of at least some actual false claims that were in fact submitted to the government for payment,” the court stated that there is an exception for allegations that a defendant “induced a third party to file false claims”:

We apply a “more flexible” standard in actions of the latter, indirect type: where the defendant allegedly “induced third parties to file false claims with the government . . . a relator could satisfy Rule 9(b) by providing ‘factual or statistical evidence to strengthen the inference of fraud beyond possibility’ without necessarily providing details as to each false claim.” Such evidence must pair the details of the scheme with “reliable indicia that lead to a strong inference that claims were actually submitted.”

Slip Op. at 21-22 (internal citations omitted).

Because relators had alleged facts showing that it was “statistically certain” that DePuy caused third parties to submit false claims to the government, the First Circuit held that relators had met Rule 9(b)’s specificity standard. The court also noted that it “need not and [did] not” decide whether the one pleaded example was necessary to satisfy Rule 9(b), id. at 27 n.8, leaving open the door that relators could build an FCA case without alleging any specific example of a manufacturer inducing third parties to submit false claims to the government.

On petition for writ of certiorari to the Supreme Court, DePuy raises the following question: “Whether a False Claims Act relator can satisfy Federal Rule of Civil Procedure 9(b)’s particularity requirement without alleging details about any specific false claims.”  Pet. at i.

DePuy argues that the First Circuit’s “more flexible” pleading standard for indirect submission of false claims is inconsistent with the standard used by the Second, Fourth, Sixth, Eighth, and Eleventh Circuits. The company claims that the decision is evidence of a wide circuit split that even the government, in other cases, has said should be addressed by the Supreme Court.

DePuy also contends that this loose standard is inconsistent with the “overarching purpose” behind Rule 9(b), which is to “ensure that a defendant possesses sufficient information to respond to an allegation of fraud.” Id. at 28 (quoting United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008)).  And the low standard negates Rule 9(b)’s “critical role in filtering out opportunistic actions” by relators who lack sufficient information. Id. at 27.

Relators filed a brief opposing DePuy’s petition, arguing that there is no circuit split, and that the federal courts should be allowed to apply a case-specific approach. Multiple organizations, including Pharmaceutical Research and Manufacturers Association of America, Advanced Medical Technology Association, and the Chamber of Commerce, have filed amicus briefs in support of DePuy.  The government has not filed a brief.  The Supreme Court is expected to make a decision on whether to grant the petition in the coming weeks.

On March 12, 2018, the USDA announced its decision to withdraw the Organic Livestock and Poultry Practices (OLPP) final rule that was published on January 19, 2017.

As previously discussed, the OLPP was essentially an animal welfare rule, establishing minimum indoor and outdoor space requirements for chickens based on the type of production and the stage of life, and adding new provisions for livestock handling and transport for slaughter. The OLPP would have increased federal regulation of livestock and poultry for certified organic producers and handlers.

However, because the final rule was published shortly before the inauguration of President Trump and had an effective date of March 20, 2017, it was subject to a regulatory freeze to allow review by the new administration. USDA delayed the effective date of the rule several times, and on December 18, 2017 (as previously reported), issued a proposal to withdraw the OLPP rule. In its withdrawal proposal, USDA announced that it had concluded that the OLPP rule exceeded the Agency’s statutory authority under the Organic Food Production Act (OFPA). Moreover, USDA determined that the resulting changes to the existing organic regulations could have a negative effect on voluntary participation in the National Organic Program, leading to increased costs for both producers and consumers.

In response to its proposal to withdraw the OLPP rule, USDA received approximately 72,000 comments. Apparently, 63,000 of the comments (more than 56,000 of which were form letters) opposed the proposed withdrawal.  Approximately fifty comments supported withdrawal.  (According to USDA, the remaining comments were not clearly for or against).

In the preamble to its final rule withdrawing the OLPP rule, USDA discusses the basis for its determination that the OFPA does not authorize those regulations, and responds to the comments by the opponents of withdrawal. USDA reasons that the OFPA authorizes the Agency to develop regulations to ensure that livestock and poultry are organically produced but the statutory language related to animal care is focused on avoiding or minimizing organic animals’ ingestion of non-organic substances.  The OFPA cannot reasonably be interpreted as giving USDA carte blanche to develop animal welfare standards.  USDA also notes that the OLPP rulemaking did not identify a failure of the organic market under the currently operative regulations, so as to justify additional regulation.  Finally, USDA’s corrected cost benefit analysis demonstrates that the cost of the OLPP rule outweighs potential benefits.  Under these circumstances USDA declines to regulate, even though the organic industry appears to support such regulation by (as suggested by the number of comments opposing withdrawal).  The withdrawal of the OLPP rule is effective May 13, 2018.

Not surprising, the Organic Trade Association (OTA) “blasted” USDA’s withdrawal of the OLPP. As we reported in our earlier posts, OTA sued USDA over the Agency’s repeated delays of the effective date of the OLPP final rule.  That action remains pending.  Earlier this month, USDA filed its reply in support of the motion to dismiss.  Now that the OLPP rule has been withdrawn, OTA can be expected to amend its complaint to challenge the withdrawal.  We will continue to monitor this case.

Whether or not the OLPP rule withdrawal survives legal challenge, a significant number of consumers and retain businesses remain focused on animal welfare standards within the organic industry. USDA’s withdrawal of the OLPP final rule does not prevent organic producers from providing their animals with outdoor access or voluntarily adopting all or some of the standards that were included in the OLPP final rule, nor does it prevent customers from demanding that producers comport with such standards.  The proliferation of private certification labels regarding animal welfare appears likely.

On March 16, 2018, the Centers for Medicare and Medicaid Services (CMS) finalized a new National Coverage Determination (NCD) for Next Generation Sequencing (NGS) tests.  The granting of the new NCD resulted from the FDA – CMS Parallel Review of Foundation Medicine, Inc.’s FoundationOne CDx™ (F1CDx™) – a NGS-based multi-drug companion diagnostic test that received FDA approval in November 2017.

The new NCD applies to NGS-based diagnostic tests for advanced cancers. These tests are now considered reasonable and necessary and covered nationally when:

1. Performed in a CLIA-certified laboratory;
2. Ordered by a treating physician;
3. The patient has:
   • either recurrent, relapsed, refractory, metastatic, or advanced stages III or IV cancer; and
   • either not been previously tested using the same NGS test for the same primary diagnosis of cancer or repeat testing using the same NGS test only when a new primary cancer diagnosis is made by the treating physician; and
   • decided to seek further cancer treatment (e.g., therapeutic chemotherapy).
4. The diagnostic laboratory test using NGS has:
   • FDA approval or clearance as a companion in vitro diagnostic; and
   • an FDA approved or cleared indication for use in that patient’s cancer; and
   • results provided to the treating physician for management of the patient using a report template to specify treatment options.

The new NCD allows for national coverage of the F1CDx™ test as well as any other NGS-based companion diagnostic tests for cancer that are approved by FDA. The NCD Decision Summary notes that there are currently four specific FDA-approved companion diagnostic tests using NGS (the F1CDx™, the FoundationFocus™ CDxBRCA, the Oncomine™ Dx Target Test, and the Praxis™ Extended RAS Panel).  The NCD allows for coverage of FDA approved or cleared NGS-based companion diagnostic tests for cancer that are performed at any CLIA-certified laboratory, including academic medical centers and community hospitals.  The new NCD does not provide coverage for cancer screening tests or for complementary diagnostic tests.  Similarly, it does not provide coverage for NGS-testing for non-cancer conditions.

The requirement that the diagnostic test has FDA approval or clearance essentially precludes automatic national coverage of laboratory developed tests (LDTs) that utilize NGS. CMS stated that coverage determinations for other diagnostic laboratory tests that utilized NGS for cancer will be left to the local Medicare Administrative Contractors (MACs).  MACs that choose to cover LDTs and other diagnostic laboratory tests that utilize NGS for cancer must follow the other three criteria for coverage (e.g., CLIA-certified laboratory, physician ordered test; patient criteria).

This coverage determination demonstrates a distinct preference by CMS for FDA approved or cleared tests. Even though some of the public comments provided examples of LDTs that are as sensitive and specific as FDA-approved tests, in finalizing the new NCD, CMS explained that “FDA approval or clearance demonstrates analytical and clinical validity[.]”  While FDA has not taken recent action to increase its regulation of LDTs, this NCD may be viewed as a small push for LDT developers to seek approval or clearance from FDA in order to receive Medicare coverage.

Back in 2015, FDA stated its intention of initiating a voluntary quality metrics reporting program (a cornerstone of FDA’s framework for building quality into drug products) and, in July of that year, announced the publication of a draft Quality Metrics Guidance. We blogged about the draft guidance at that time (see prior posting here).

Then in November of 2016, FDA announced the publication of a revised version of this draft Quality Metrics Guidance, indicating its intention of making it mandatory rather than voluntary for the pharmaceutical industry. This revised draft differed in many other respects from the original draft (for details on the modifications please see our blog posting on the revised draft guidance here). In addition, the Notice of Availability (NOA) for the revised draft guidance stated that: “After evaluating the results of the voluntary phase of the quality metrics program in 2018, FDA intends to initiate notice and comment rulemaking under existing statutory authority to develop a mandatory quality metrics program.”

At the time, we speculated that the agency may have changed course from guidance to rulemaking, in part, because of FDA’s waning confidence in its legal authority for this program since the publication of the initial draft. In addition, we mused about the likelihood that the November 2016 publication had been put in motion prior to the election earlier that month of a President who is decidedly against increasing the regulatory burden on industry writ large (admittedly, not a position at odds with this author’s).

We also stated that, by engaging in rulemaking, the agency is likely reducing the probability that the quality metrics reporting program will be dismantled by the courts; however, this formal elevation of the program through the rulemaking process also likely increases the probability that it will be placed on the chopping block by the Trump administration.

Since the publication of the revised draft guidance, several industry organizations have voiced significant opposition to the guidance. For example, PhARMA, AAM (formerly GPhA) and ISPE, among others, submitted joint comments to the FDA docket, stating, in part that: “We believe that the burden of FDA metrics collection far outweighs the benefits, at least as currently proposed. As we have continued to learn in depth about what it would take to operationalize a metrics program of the kind proposed by FDA, we have concluded that such a program would require substantial resources, present significant operational challenges and complexities, and draw resources and management attention away from other programs that drive continual quality improvement. In our organizations’ individual comments, you will find details of the potential legal and practical issues raised by the agency’s proposal, and detailed suggestions for improvements.” [Emphasis added]

And what has FDA’s response been in the 16 months since publication of the revised draft guidance (i.e., since the Presidential election), and since the submission of comments from stakeholders? It is perhaps best described as silence, or at the most, crickets chirping.

For instance, in the NOA from November 2016, FDA stated: “FDA expects to encourage reporting establishments to submit quality metrics data reports where the data is segmented on a quarterly basis throughout a single calendar year. At present, FDA intends to open the electronic portal in January 2018 to receive voluntary submissions of data. FDA expects to publish a Federal Register notice providing instructions on the submission of voluntary reports and specifying the dates that we intend to open the portal, published no fewer than 30 days before the portal is opened…” [Emphasis added]

However, the FDA website devoted to Quality Metrics now has an update banner that states: “the portal is not opening in January 2018 for widespread, voluntary reporting. Stay tuned for additional updates.”

One has to wonder whether the administration, or more precisely, Commissioner Gottlieb, has either decided to end this nascent program, or to make it less burdensome and more palatable to industry. Either way, we are confident that industry is waiting with bated breath, as whatever doesn’t get finalized in this administration is likely to be finalized in a more burdensome way in the next (Democratic) administration.

As one of her final acts before leaving DOJ, Associate Attorney General Rachel Brand announced that DOJ would no longer permit its lawyers to use guidance documents issued by its “client” agencies as a basis for civil enforcement. The “Brand Memo” provides guidance about DOJ’s use of guidance, as we described here.

In a couple of coordinated speeches, DOJ officials reiterated and clarified this position. Deputy Associate Attorney General Stephen Cox, who worked closely with Rachel Brand, spoke at the Federal Bar Association Qui Tam Conference on February 28, 2018. Cox described federal agencies’ use of guidance in lieu of formal regulatory rulemaking required under the Administrative Procedure Act: “Rulemaking can be cumbersome and slow, of course, and sometimes agencies have used guidance as a short-cut to effectively make new rules when they should have undertaken notice-and-comment rulemaking instead.” He referenced a recommendation from the Administrative Conference of the United States (ACUS) to make clear that “the public may take a lawful approach different from the one set forth in” a guidance document. Per Cox, the Brand memo implements the ACUS recommendation: “The Brand Memo makes clear that we won’t be using noncompliance with a guidance document to prove a violation of the applicable statute or regulation. In other words, we won’t use our affirmative civil enforcement authority to effectively convert a nonbinding guidance document into a requirement that has the force or effect of law.”

There are many potential applications of the Brand Memo in the FDA context, given FDA’s prolific guidance document library. As an illustration, FDA regulation requires the submission of a new 510(k) under certain circumstances, and FDA guidance walks through the analysis FDA recommends to determine whether a new 510(k) is required. Many companies prepare a Letter to File to evidence its decision not to file a new 510(k), but this is not a requirement by statute or regulation. Per DOJ policy, “if there’s a guidance document that expands upon that regulatory requirement – by suggesting that there are additional requirements or prohibitions that go beyond what the regulation actually says – then we’re not going to use noncompliance with those supposed ‘requirements’ to show that a party violated the regulation.” Thus, a company’s failure to document its decisionmaking cannot be used to solely support a civil enforcement action against a company for failing to submit a new 510(k).

These thoughts were reinforced by Ethan Davis, the soon-to-be former Deputy Assistant Attorney General for the Consumer Protection Branch (CPB), who is leaving DOJ to clerk for Supreme Court Justice Neil Gorsuch. Because CPB specifically counts FDA as its client, Davis’ remarks in his speech are specifically relevant to FDA Law Blog readers. He described the basic tenet that “[i] n our system, law is made by statute, and regulations are made by notice and comment rulemaking. Neither should be made by guidance documents.” And Davis renewed the commitment by DOJ CPB to “create an enforcement environment premised on the rule of law, so that you as regulated entities do not feel subjected to arbitrary and unpredictable enforcement actions.”

Only time will tell whether these DOJ principles are followed in future enforcement actions, but it behooves companies to remind DOJ of these stated principles if prosecution appears not grounded in law and only in guidance.

On March 13, 2018, Oregon became the latest state to enact a law focused on transparency in drug pricing (see our roundup of other recent state laws). The Prescription Drug Price Transparency Act, H.B. 4005, places new reporting requirements on drug manufacturers related to price increases and patient assistance programs. Insurers are also required to report certain information about prescription drugs use and costs to the Department of Consumer and Business Services.

Manufacturer Reports

Under Oregon’s new law, manufacturers must report certain information for each prescription drug that has a price of $100 or more for a one-month supply or for a course of treatment lasting less than one month, and that had a net increase of 10% or more in the price over the course of the previous calendar year. Price is defined as the wholesale acquisition cost. By July 1, 2019, and by March 15 of every year thereafter, manufacturers must report extensive pricing and cost information for each such drug, including:

• Net increase, expressed as a percentage, in the price of the drug over the course of the previous calendar year;
• Factors that contributed to the price increase;
• Research and development costs associated with the prescription drug that were paid using public funds;
• Direct costs incurred by the manufacturer to (1) manufacture the prescription drug, (2) market the prescription drug, (3) distribute the prescription drug, and (4) for ongoing safety and effectiveness research associated with the prescription drug;
• Total sales revenue for the prescription drug during the previous calendar year;
• Manufacturer’s profit attributable to the prescription drug during the previous calendar year;
• The introductory price of the prescription drug when it was approved for marketing by FDA and the net yearly increase, by calendar year, in the price of the prescription drug during the previous five years.

The manufacturer must also provide the following information about each patient assistance program (including coupons and other copay assistance) offered by the manufacturer to consumers in Oregon for each prescription drug:

• Number of consumers who participated in the program;
• Total value of the coupons, discounts, copayment assistance or other reduction in costs provided to Oregon consumers who participated in the program;
• For each drug, the number of refills that qualify for the program;
• The period of time that the program is available to each customer.

Oregon’s new law also includes price transparency reporting requirements for new prescription drugs. Beginning on March 15, 2019, if a manufacturer introduces a new drug for sale in the U.S. at a price that exceeds the threshold for specialty drugs set in the Medicare Part D program ($670 in 2018), within 30 days of introducing the new drug for sale, the manufacturer must report:

• A description of the marketing used in the introduction of the new prescription drug;
• The methodology used to establish the price of the new prescription drug;
• Whether the FDA granted the new prescription drug a breakthrough therapy designation or a priority review;
• The date and price of acquisition if the new prescription drug was not developed by the manufacturer;
• The manufacturer’s estimate of the average number of patients who will be prescribed the new prescription drug each month; and
• The research and development costs associated with the new prescription drug that were paid using public funds.

Manufacturers who do not comply with the new law may be subject to civil penalties of up to $10,000 per day of violation. The Department of Consumer and Business Services may establish fees to be paid by manufacturers to cover the costs of this law.

The new law includes an element of public shaming. The Oregon Department of Consumer and Business Services will post a list of the prescription drugs that have net increases of more than 10% on its website. In addition, the information provided by the manufacturers will be posted on the same website. Trade secrets protected under Oregon’s public records law may not be posted on the website, if “the public interest does not require disclosure of the information.” There is no further elaboration concerning circumstances in which the public interest may justify posting of trade secret information. The Department is also going to develop a process for consumers to notify the state about an increase in the price of a prescription drug.

Insurer Reports

Oregon is not only seeking pricing information from manufacturers. Under the new law, insurers must report:

• The 25 most frequently prescribed drugs;
• The 25 most costly drugs as a portion of total annual spending;
• The 25 drugs that have caused the greatest increase in total plan spending from one year to the next; and
• The impact of the costs of prescription drugs on premium rates.

Conclusion

As we have previously reported, in the absence of federal action, a growing number of states are seeking to limit drug costs through legislation. Some states have focused on marketing prohibitions and/or limitations on payments to practitioners (for example, see our post on New Jersey’s new limits). Other states, like Oregon, have focused on drug prices, with some states enacting requirements for reporting or outright restrictions on price increases on certain drugs (for example, Maryland and Vermont).

Many of the new state drug price reporting laws are facing legal challenges that argue these laws are unconstitutional (see our coverage of the challenges to laws in Maryland, Nevada, and California). Due to the amount of information that manufacturers are required to report under the new Oregon law, and the fact that this information will be made available to the public, we anticipate that similar legal challenges may be raised before the new Oregon law goes into effect. We will continue to monitor this law and similar developments in other states.

The saga continues in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017), a False Claims Act case alleging that Gilead concealed information from FDA regarding the contamination of certain drugs, leading to false claims being paid by the government. We have been closely following this case because of the implications it could have on the materiality analysis applied in FCA cases post-Escobar. (See prior posts here and here.)

Although the Campie’s case was twice dismissed by the district court, the Ninth Circuit Court of Appeals overturned the dismissal, concluding that whether allegations are material for purposes of an FCA claim raised matters of proof that could not be resolved prior to discovery. Late last year, Gilead filed a petition for a writ of certiorari requesting the U.S. Supreme Court rule on the following question: Whether an FCA allegation fails when the Government continued to approve and pay for products after learning of alleged regulatory infractions and the pleadings offer no basis for overcoming the strong inference of immateriality that arises from the Government’s response. For a discussion of this Writ, see our prior post here.

On March 5, 2018, Respondents filed a response outlining three primary arguments against granting certiorari in this case. First, Respondents argue that Gilead misrepresents the holding of the Ninth Circuit as overly restrictive. Contrary to Petitioner’s characterization, Respondent’s assert that the holding “properly followed Escobar’s holistic approach to materiality.” Respondents rely on the Ninth Circuit’s conclusion that the contested issues, including materiality, “are matters of proof, not legal grounds to dismiss relators’ complaint,” and claim the complaint satisfies the pleading requirements of Rule 12(b)(6). Note, however, that the Ninth Circuit specifically reserved a ruling on whether the relators’ complaint would satisfy the heightened pleading standards under Rule 9(b), a basis that other courts have used to dismiss FCA cases.

It also is significant that Respondents make affirmative use of DOJ’s recently issued Granston memo, discussed here, to support its position that this case does not undermine FDA’s regulatory authority. Respondents suggest that the government’s ability to dismiss FCA cases, and its failure to do so here, means that its suit advances the government’s interest. As Granston noted, however, “a decision not to intervene in a particular case may be based on factors other than merit, particularly in light of the government’s limited resources.”

Respondents also argue that there is no circuit split, and that even if there was, this case is a “poor vehicle” to clarify the materiality standard because it is not clear that the government actually had knowledge of the fraudulent conduct at the time it made the payments. Respondents contend that dismissing the case at this juncture is premature given that Gilead will have another chance to contest materiality at the summary judgment stage.

Per the Rules of the Supreme Court, Gilead can file a reply within 14 days of the Brief in Opposition, which would be no later than March 19, 2018.

On March 5, 2018, GAO released to the public a report titled “Food Safety and Nutrition: FDA Can Build on Existing Efforts to Measure Progress and Implement Key Activities.” The report confirms that FDA’s Food and Veterinary Medicine (FVM) Program has been primarily preoccupied with implementation of the Food Safety Modernization Act (FSMA) and other food safety activities. In the period between January 2011 (when FSMA was enacted) and September 2017, FDA published “33 key proposed or final regulations” – 21 of which related only to food safety – and “111 key draft or final guidance documents” – 82 of which related only to food safety. (A list of the regulations and guidance documents is included in Appendix I). The numbers for staffing and expenditures are considerably more lopsided, with approximately 98% of FTEs and expenditures dedicated to food safety-related activities.

The GAO report gives FDA credit for setting goals for food safety and nutrition related activities via the FVM Program Strategic Plan, but notes that the Agency “cannot fully assess progress” because performance measures have not been developed for all of the FVM Program’s strategic objectives. In addition, GAO notes that the Strategic Plan as yet lacks an implementation plan that would lay out “specific actions, priorities, and milestones” to execute the identified strategies. GAO also notes that it is not clear and FDA does not document how the Agency determines whether it will issue a regulation or guidance. Consequently, FDA cannot ensure consistency and transparency in this determination.

Based on its findings, GAO recommends that FDA: (1) “develop performance measures with associated targets and time frames for all eight of its food safety- and nutrition-related objectives”; (2) “complete a plan that includes specific actions, priorities, and milestones for implementing the FVM Program’s strategic plan”; and (3) “uniformly document the bases for their decisions for issuing either regulations or guidance related to food safety and nutrition.”

In its comments on the report, FDA concurred with GAO’s recommendations. On the day the report was issued, Commissioner Gottlieb issued a statement announcing FDA’s commitment to modernize and streamline its food and nutrition programs, and summarizing some of the Agency’s recent safety and nutrition related activities. Dr. Gottlieb also stated that he will soon “provide more details on a nutrition strategy to reduce preventable death and disease through better nutrition.” It remains to be seen what form that strategy will take, and whether the Agency will shift more of its resources toward nutrition-related activities, given the work that remains to be done on FSMA implementation.

As stated in our post last week, on February 28, 2018, Commissioner Gottlieb announced FDA’s release of a draft guidance document addressing certain requirements under the 2013 Drug Supply Chain Security Act (DSCSA) concerning standardization of data and documentation practices for product tracing. The purpose of the draft is to help trading partners “understand” data elements that they should include as part of product tracing information, and details when partners are permitted to omit certain data that otherwise would be required. The draft guidance also recommends documentation practices that trading partners can use to satisfy product tracing requirements set forth in the DSCSA, FDCA Section 582. FDA notes that “product tracing requirements” mean the exchange of product tracing information between trading partners, including transaction information, transaction history and the transaction statement (TH/TI/TS). The guidance also intends to help trading partners in “standardizing” the information captured, maintained and provided to subsequent purchasers or those that request it.  What is a tad interesting about the draft guidance is its timing: Trading partners have been providing TH/TI/TS pursuant to the DSCSA for quite a while now, as required by the statute. The draft guidance helpfully walks through elements of TH/TI/TS for those entities that are required to provide such information under FDCA Section 582 (i.e., manufacturers, wholesaler distributors, repackagers, and dispensers). Each is addressed below:

Manufacturers: To the extent that there are business relationships that involve multiple manufacturers (application holder, co-licensed partner, affiliates) those entities should document by written agreement which of those entities will be carrying out the activities required by manufacturers under Section 582(b) (manufacturer requirements).

Dispensers: The draft describes various recommendations for dispensers including when there are “dispenser to dispenser sales to meet a specific need.” In that case, dispensers are not required to provide tracing information if the product is sold from one dispenser to another dispenser to “fulfil a specific patient need” (i.e., a sale from one pharmacy to another for dispensing to an individually identified patient). Such sales do need to be appropriately documented in the event there is an investigation concerning a recall, or notification of a suspect or illegitimate product. Licensed health care practitioners that may prescribe or administer medications under state law, or those under their supervision, are exempted from product tracing requirements, as described in the guidance. (Draft Guidance at 5). FDA also provides that dispensers may enter into third party agreements so that tracing information may be maintained by that third party. Notwithstanding use of third party agreements for the maintenance of product tracing information, such agreements do not relieve dispensers from their statutory obligations under 582 (i.e., among others, notification and reporting requirements).

The rest of the Draft Guidance addresses the Agency’s thoughts on standardization of product tracing data. Although the elements of what should be included are generally set forth in the DSCSA (and are being exchanged between trading partners), the Draft Guidance walks through in more detail (than FDA’s initial guidance issued in November 2014 [here]) what information should be included in TI/TH/TS.

Standardizing the Transaction Information (TI)

The DSCSA sets forth ten elements that should be included in TI. The Draft Guidance provides detail on these elements, and describes when certain detail may be omitted. Some but not all additional details on data elements include:

• Proprietary or established name of the product. The name should not be truncated, unless space limitations make it necessary to do so. FDA also provides instructions on products with multiple APIs, and names or abbreviations that the Institute for Safe Medications Practices (ISMP) has identified as being misinterpreted on prone to medication errors.
• Strength and dosage form. This information should remain consistent from one trading partner to the next in each transaction involving the product. FDA details the unit of measure, symbols and abbreviations that should be used.
• National drug code.  FDA advises that manufactures and repackagers that are creating the first TI for the product that they are introducing into commerce should use their respective NDC number. Subsequent partners should use the same NDC and the same configuration that is on the TI received from the product’s previous owner. Repackagers “should provide the NDC number that they have assigned to the repackaged product.”
• Container size. This should reflect the configuration of the “individual saleable unit, and not a larger shipping size of a “box, case, or tote.”
• Number of containers. FDA says that this should be the quantity of individual saleable units of a product of the same lot number that is included in a transaction.
• Lot number. The manufacturer should use the lot number it assigns to identify a batch or portion thereof that has “uniform character and quality within specified limits.”   If a repackager assigns a new lot number, it should use that number in the TI it provides to subsequent trading partners. If more than one lot number is used, then each should be reflected in the TI provided to the subsequent purchaser.
• Date of transaction. FDA considers this to be the date on which ownership of the product involved in the transaction transferred between trading partners. It may be a contract date or a shipment date, depending on the transaction.
• Date of shipment if more than 24 hours after date of transaction. The date should reflect the date shipped.
• Business name and address of the person from whom ownership is being transferred. FDA “recommends using the address of the facility from which the product is being shipped as the business address of the trading partner that is transferring ownership of the product,” although it states that this is a business decision between partners. If product is shipped from a third party logistics provider facility, the partner should still use the address of the entity from which ownership is being transferred.
• Business name and address of the person to whom ownership is being transferred. FDA’s recommendation concerning use of the appropriate business name and address is the same for the receiver of the product as it is for the sender (above). Use the address of the facility to whom the product is being shipped.

Standardizing the Transaction History (TH)

FDA’s guidance document also sets forth the Agency’s recommendations for standardization of the product’s transaction history as it passes between trading partners. The transaction history should be a compilation “of the transaction information for each prior transaction involving that product.” FDA outlines the two ways in which trading partners may provide TH, how it should be organized, and what does and does not need to be included in that TH. (Draft Guidance at 11).

Standardizing the Transaction Statement (TS)  

FDA’s Draft Guidance sets forth the statutory definition of “transaction statement” and all of its requisite elements indicating compliance with the DSCSA. In addition, the Draft Guidance discusses the “direct purchase statement” that may be included with certain products. If a distributor purchases a product directly from the manufacturer, exclusive distributor of the manufacturer, or a repackager that purchased directly from the manufacturer, then the direct purchase statement must be included. The Draft Guidance sets forth at page 13 the statement that FDA recommends that such partners use.   FDA notes that this will help partners understand why TH may not include certain transaction information back to the manufacturer.  FDA is also recommending the passing of such statements when a wholesaler purchases the product from another wholesaler that directly purchased the product from a manufacturer or repackager. (Draft Guidance at 13).

Documentation Practices

Finally, the Draft discusses various documentation practices for subsequent transactions where the statute permits certain transactions to omit certain elements of TH/TI/TS. These transactions include direct purchases by a wholesaler, drop shipments to a dispenser, and transactions involving grandfathered products. Those entities that participate in such transactions should focus on FDA’s draft detailed recommendations for documentation involving such transactions at pages 14-18 of the Draft Guidance.

Got questions or comments? Please submit them to Docket No. FDA-2018-D-0688, by May 1, 2018.

For this blogger, paging through and poring over FDA exclusivity determinations is about as much fun as sitting down with a hot cup of coffee and reading the Sunday newspaper. We recently came across an interesting FDA decision on 180-day exclusivity for generic LIALDA (mesalamine) Delayed-release Tablets, 1.2 g, approved under NDA 022000, that we thought was worth sharing. It concerns the familiar failure to obtain-timely tentative (or final) approval forfeiture provision at FDC Act § 505(j)(5)(D)(i)(IV), which states that eligibility for 180-day exclusivity is forfeited if:

The first applicant fails to obtain tentative approval of the application within 30 months after the date on which the application is filed, unless the failure is caused by a change in or a review of the requirements for approval of the application imposed after the date on which the application is filed.

The 2007 FDA Amendments Act clarified FDC Act § 505(j)(5)(D)(i)(IV), such that if “approval of the [ANDA] was delayed because of a [citizen] petition, the 30-month period under such subsection is deemed to be extended by a period of time equal to the period beginning on the date on which the Secretary received the petition and ending on the date of final agency action on the petition (inclusive of such beginning and ending dates) . . . .” (FDC Act § 505(q)(1)(G)).

According to FDA’s Paragraph IV Certifications List, the first ANDA for a generic version of LIALDA containing a Paragraph IV certification was submitted to FDA on December 16, 2009. That submission was made by Zydus Pharmaceuticals (USA), Inc. (“Zydus”) under ANDA 091640 and made the company a “first applicant” eligible for a period of 180-day exclusivity. Thirty months after that ANDA submission was June 16, 2012, but several more years went by without an FDA approval action on the ANDA. Finally, on June 5, 2017, FDA approved Zydus ANDA 091640 after the company responsed to a December 2016 Complete Response Letter. As to 180-day exclusivity, FDA’s approval letter says that the Agency decided to “punt” on whether or not exclusivity would be available to Zydus:

With respect to 180-day generic drug exclusivity, we note that Zydus was the first ANDA applicant for Mesalamine Delayed-Release Tablets USP, 1.2 g, to submit a substantially complete ANDA with a paragraph IV certification. Therefore, with this approval, Zydus may be eligible for 180 days of generic drug exclusivity for Mesalamine Delayed-Release Tablets USP, 1.2 g. This exclusivity, which is provided for under 505(j)(5)(B)(iv) of the FD&C Act, would begin to run from the date of the commercial marketing identified in section 505(j)(5)(B)(iv). The Agency notes that Zydus failed to obtain tentative approval of this ANDA within 30 months after the date of which the ANDA was filed. See section 505(j)(5)(D)(i)(IV) of the FD&C Act (forfeiture of exclusivity for failure to obtain tentative approval). The Agency is not, however, making a formal determination at this time of Zydus’s eligibility for 180-day generic drug exclusivity. It will do so only if a subsequent paragraph IV applicant becomes eligible for full approval (a) within 180 days after Zydus begins commercial marketing of Mesalamine Delayed-Release Tablets USP, 1.2 g, or (b) at any time prior to the expiration of the ‘720 patent if Zydus has not begun commercial marketing. Please submit correspondence to this ANDA informing the Agency of the date commercial marketing begins.

But just a few months later, apparently FDA was put into a position of having to resolve whether or not Zydus forfeited eligibility for 180-day exclusivity (presumably because a subsequent Paragraph IV applicant became eligible for full approval). Upon review of the Zydus ANDA file, FDA resolved this exclusivity punt in favor of Zydus. And, in doing so, FDA confirmed that it is when the Agency communicates to a particular ANDA applicant a prior determination on bioequivalence standards that counts (here, from a Citizen Petition Response), and not necessarily when an issue is decided by the Agency, for purposes of the failure to obtain timely tentative (final) approval forfeiture provision.

As initially submitted, Zydus ANDA 091640 contained, among other things, the results of a clinical endpoint bioequivalence study. But just 8 months after the submission of ANDA 091640, FDA changed course. In an August 20, 2010 Citizen Petition Response (Docket Nos. FDA-2010-P-0111 and FDA-2008-P-0507) concerning mesalamine extended-release products, FDA ruled that:

in light of new data from PK and comparative clinical endpoint studies in modified-release mesalamine products, as well as recent developments in regulatory science concerning the analysis of PK data, the Agency . . . no longer recommends comparative clinical endpoint studies to show bioequivalence for these products. Rather, . . . applicants should show bioequivalence to certain NDAs for mesalamine extended-release products (Asacol and Pentasa) through a combination of PK studies and in vitro dissolution testing.

According to an October 25, 2017 FDA Exclusivity Determination for Zydus ANDA 091640, this change in bioequivalence standard was not communicated to Zydus until a couple of years later:

In its February 23, 2012 bioequivalence review for ANDA 091640, FDA determined that the principles described in the Citizen Petition Response should apply to generic versions of Lialda as well and that Zydus must conduct comparative PK studies (under both fasting and fed conditions) and in vitro dissolution studies to demonstrate bioequivalence instead of the in vivo studies Zydus had previously conducted. This change in bioequivalence requirements for approval, which required Zydus to plan and conduct additional studies, was first communicated to Zydus as Bioequivalence Comments on March 13, 2012, three months before the forfeiture date of June 16, 2012 for ANDA 091640. Zydus later received a Complete Response Letter for this ANDA on March 13, 2013, which included the same bloequivalence deficiencies communicated in the Agency’s March 13, 2012 Bioequivalence Comments.

Zydus promptly responded to the March 2013 Complete Response Letter in October 2013, and, as noted above, eventually obtained ANDA approval in June 2017. But it was Zydus’ active pursuit to address the bioequivalence deficiencies communicated by FDA in March 2012 (and based on an August 2010 Citizen Petition Response) that saved the company from forfeiting eligibility for 180-day exclusivity. According to FDA:

On October 23, 2013, Zydus responded to the Agency’s March 13, 2013 Complete Response Letter, which included information to address the bioequivalence deficiencies communicated in the Agency’s March 13, 2012 Bioequivalence Comments and March 13, 2013 Complete Response Letter for ANDA 091640. A review of this information shows that Zydus’s application was not ready for approval at the forfeiture date due, in part, to the fact that while Zydus’s application was pending there was a change in the bioequivalence studies expected for approval. At the time of the forfeiture date of June 16, 2012, Zydus was actively addressing the bioequivalence deficiencies described above and communicated to Zydus in the March 13, 2012 Bioequivalence Comments, and Zydus had not yet demonstrated bioequivalence under the new methodology as of the June 16, 2012 forfeiture date. . . .

Based on these facts, we conclude that Zydus failed to obtain tentative approval within 30 months and this failure was caused by a change in the requirements for approval. As described above, Zydus was actively addressing the change at the forfeiture date. We conclude that Zydus’s efforts to comply with the new bioequivalence methodology for modified-release mesalamine products, which methodology was revised while Zydus’s application was pending, was a cause of its failure to obtain tentative approval by the June 16, 2012 forfeiture date.

We’ve said it before, and we’ll say it again: timing is everything when it comes to Hatch-Waxman. That’s certainly true in the case of Zydus ANDA 091640, where a Citizen Petition Response issued shortly after ANDA submission that changed bioequivalence standards was not determinative of 180-day exclusivity forfeiture, but rather when FDA communicated the substance of that petition decision to a particular ANDA applicant requesting new bioequivalence data and information.

On February 28, 2018, Commissioner Gottlieb announced FDA’s release of two draft guidance documents addressing certain requirements under the 2013 Drug Supply Chain Security Act (DSCSA), concerning standardization of data and documentation practices for product tracing (here), and definitions of suspect and illegitimate products (here).  In announcing the release of the two draft documents, however, Commissioner Gottlieb also stated that FDA intends to release later this year regulations revisiting FDA’s interpretation of the express preemption provisions in the DSCSA for state licensure and product tracing.  The Commissioner noted that, in 2014, FDA interpreted DSCSA’s preemption provision to mean that “states are not preempted from doing their own licensing of wholesale distributors and third party logistic providers so long as the state regulations did not contradict or fall below the minimum standards established by federal law.”  Thus, states could still impose requirements more restrictive than the “federal scheme.”  Based on comments received concerning the scope of federal preemption, the continued patchwork of state laws that would ensue, and the fact that “Congress wanted the federal system to provide both a floor and a ceiling when it came to the issue of preemption,” FDA is taking another (welcomed) look at its earlier guidance.  In what is surely a positive change for industry and one that will lead to more consistency and less confusion, FDA plans to release later this year new regulations that will apply to “all state and federal licenses issued to wholesale distributors and 3PLs.”

Concerning the new draft guidance documents, FDA’s definitional guidance on suspect and illegitimate products intends to clarify what “suspect” and “illegitimate” products are in order to help the industry meet notification requirements if they identify such products in their possession. (FDA released draft guidance on such notification requirements back in December 2016.)  FDA also clarifies interpretations of the terms “counterfeit,” “diverted,” “fraudulent transaction,” and “unfit for distribution” to aid trading partners in determining whether a product is suspect and/or counterfeit. Note that “unfit for distribution” would include drugs that are considered adulterated under FDCA Section 501 or conditions rendered nonsalable because certain conditions (including return, recall, damage or expiry) “cast doubt on the drug’s safety, identity, strength, quality, or purity.”

The second recently released draft guidance document addresses standardization of data and documentation practice for product tracing. The guidance document intends to help trading partners understand data elements that should be included in product tracing information, and details when partners are permitted to omit certain data that otherwise would be required.  Because that lengthy guidance document deserves its own blog post, stay tuned, one will be forthcoming in later this week.

Early each morning, when most folks are still sleeping (or perhaps just getting up to have their first cup of coffee and read the newspaper), this blogger is usually already in the office poring over FDA-related news, citizen petitions, and new legislation to update the FDA Law Blog trackers (here, here, and here) and to rev up the @FDALawBlog Twitter feed. One day last week, as we were looking at new legislation, one bill in particular caught our attention.  The bill carried the following title: “A bill to amend the Federal Food, Drug, and Cosmetic Act to ensure that valid generic drugs may enter the market.”

Hmmm . . . . What could that mean? Perhaps a bill to implement the Trump Administration’s recent budget proposal that we think would cheapen 180-day exclusivity (see our previous post here)?  Or maybe something entirely different?  We went on a mission to find out.  And when we finally did obtain a copy of the bill several hours later and took a look through the text, we were struck with a case of déjà vu.

The bill, S. 2476, is called the “Expanding Access to Low Cost Generic Drugs Act” and was introduced by Senator Tina Smith (D-MN) on February 28, 2018.  Although S. 2476 is styled as the “Expanding Access to Low Cost Generic Drugs Act,” it’s really just a new name for nearly identical bills introduced in 2011 (S. 1882) and 2015 (S. 131) as the “Fair And Immediate Release of Generic Drugs Act, or the “FAIR GENERxICS Act” (and even before that in another form in 2009 as S. 1315, the “Drug Price Competition Act of 2009” – see our previous post here).  As we noted back in 2011 when the “FAIR Generics Act” was introduced by Senators Jeff Bingaman (D-NM), David Vitter (R-LA), Sherrod Brown (D-OH), and Jeff Merkley (D-OR), the bill is pretty complex, but essentially concerns parked 180-day exclusivity.  According to a summary of the bill made at that time:

The legislation would prevent “parked exclusivities” from delaying full, fair, and early generic competition by:

• Granting the right to share exclusivity to any generic filer who wins a patent challenge in the district court or is not sued for patent infringement by the brand company.
• Maximizing the incentive for all generic challengers to fight to bring products to market at the earliest possible time by holding generic settlers to the deferred entry date agreed to in their settlements.
• Creating more clarity regarding litigation risk for pioneer drug companies and generic companies by requiring pioneer companies to make a litigation decision within the 45 day window provided for in the Hatch-Waxman Act.

The same summary applies to S. 2476, the current version of the “FAIR Generics Act.” But let’s take a closer look at the current bill.  Here’s how it would amend the FDC Act’s 180-day exclusivity provisions, and other portions of the FDC Act and the patent laws (additions in bold red typeface and deletions in bold strikethrough typeface).

FDC Act § 505(j)(5)(B)(iv) (AMENDED)

(iv) 180-DAY EXCLUSIVITY PERIOD.—

(I) EFFECTIVENESS OF APPLICATION.—Subject to subparagraph (D), if the application contains a certification described in paragraph (2)(A)(vii)(IV) and is for a drug for which a first applicant has submitted an application containing such a certification, the application shall be made effective on the date that is 180 days after the date of the first commercial marketing of the drug (including the commercial marketing of the listed drug) by any first applicant.

(II) DEFINITIONS.—In this paragraph:

(aa) 180-DAY EXCLUSIVITY PERIOD.—The term “180-day exclusivity period” means the 180-day period ending on the day before the date on which an application submitted by an applicant other than a first applicant could become effective under this clause.

(bb) FIRST APPLICANT.—As used in this subsection, the term “first applicant” means an applicant that, on the first day on which a substantially complete application containing a certification described in paragraph (2)(A)(vii)(IV) is submitted for approval of a drug, submits a substantially complete application that contains and lawfully maintains a certification described in paragraph (2)(A)(vii)(IV) for the drug.

(cc) (bb) SUBSTANTIALLY COMPLETE APPLICATION.—As used in this subsection, the term “substantially complete application” means an application under this subsection that on its face is sufficiently complete to permit a substantive review and contains all the information required by paragraph (2)(A).

(dd) (cc) TENTATIVE APPROVAL.—

(AA) IN GENERAL.—The term “tentative approval” means notification to an applicant by the Secretary that an application under this subsection meets the requirements of paragraph (2)(A), but cannot receive effective approval because the application does not meet the requirements of this subparagraph, there is a period of exclusivity for the listed drug under subparagraph (F) or section 505A, or there is a 7-year period of exclusivity for the listed drug under section 527.

(BB) LIMITATION.—A drug that is granted tentative approval by the Secretary is not an approved drug and shall not have an effective approval until the Secretary issues an approval after any necessary additional review of the application.

FDC Act § 505(j)(5)(B)(v) (NEW)

(v) FIRST APPLICANT DEFINED.—As used in this subsection, the term “first applicant” means an applicant—

(I)(aa) that, on the first day on which a substantially complete application containing a certification described in paragraph (2)(A)(vii)(IV) is submitted for approval of a drug, submits a substantially complete application that contains and lawfully maintains a certification described in paragraph (2)(A)(vii)(IV) for the drug; and

(bb) that has not entered into a disqualifying agreement described under clause (vii)(II); or

(II)(aa) for the drug that is not described in subclause (I) and that, with respect to the applicant and drug, each requirement described in clause (vi) is satisfied; and

(bb) that has not entered into a disqualifying agreement described under clause (vii)(II).

FDC Act § 505(j)(5)(B)(vi) (NEW)

(vi) REQUIREMENT.—The requirements described in this clause are the following:

(I) The applicant described in clause (v)(II) submitted and lawfully maintains a certification described in paragraph (2)(A)(vii)(IV) or a statement described in paragraph (2)(A)(viii) for each unexpired patent for which a first applicant described in clause (v)(I) had submitted a certification described in paragraph (2)(A)(vii)(IV) on the first day on which a substantially complete application containing such a certification was submitted.

(II) With regard to each such unexpired patent for which the applicant described in clause (v)(II) submitted a certification described in paragraph (2)(A)(vii)(IV), no action for patent infringement was brought against such applicant within the 45-day period specified in clause (iii); or if an action was brought within such time period, such an action was withdrawn or dismissed by a court (including a district court) without a decision that the patent was valid and infringed; or if an action was brought within such time period and was not withdrawn or so dismissed, such applicant has obtained the decision of a court (including a district court) that the patent is invalid or not infringed (including any substantive determination that there is no cause of action for patent infringement or invalidity, and including a settlement order or consent decree signed and entered by the court stating that the patent is invalid or not infringed).

(III) If an applicant described in clause (v)(I) has begun commercial marketing of such drug, the applicant described in clause (v)(II) does not begin commercial marketing of such drug until the date that is 30 days after the date on which the applicant described in clause (v)(I) began such commercial marketing.

FDC Act § 505(j)(5)(B)(vii) (NEW)

(vii) AGREEMENT BY FIRST APPLICANT TO DEFER COMMERCIAL MARKETING; LIMITATION ON ACCELERATION OF DEFERRED COMMERCIAL MARKETING DATE.—

(I) AGREEMENT TO DEFER APPROVAL OR COMMERCIAL MARKETING DATE.—An agreement described in this subclause is an agreement between a first applicant and the holder of the application for the listed drug or an owner of one or more of the patents as to which any applicant submitted a certification qualifying such applicant for the 180-day exclusivity period whereby that applicant agrees, directly or indirectly, (aa) not to seek an approval of its application that is made effective on the earliest possible date under this subparagraph, subparagraph (F) of this paragraph, section 505A, or section 527, (bb) not to begin the commercial marketing of its drug on the earliest possible date after receiving an approval of its application that is made effective under this subparagraph, subparagraph (F) of this paragraph, section 505A, or section 527, or (cc) to both items (aa) and (bb).

(II) AGREEMENT THAT DISQUALIFIES APPLICANT FROM FIRST APPLICANT STATUS.—An agreement described in this subclause is an agreement between an applicant and the holder of the application for the listed drug or an owner of one or more of the patents as to which any applicant submitted a certification qualifying such applicant for the 180-day exclusivity period whereby that applicant agrees, directly or indirectly, not to seek an approval of its application or not to begin the commercial marketing of its drug until a date that is after the expiration of the 180-day exclusivity period awarded to another applicant with respect to such drug (without regard to whether such 180-day exclusivity period is awarded before or after the date of the agreement).

FDC Act § 505(j)(5)(B)(viii) (NEW)

(viii) LIMITATION ON ACCELERATION.—If an agreement described in clause (vii)(I) includes more than 1 possible date when an applicant may seek an approval of its application or begin the commercial marketing of its drug—

(I) the applicant may seek an approval of its application or begin such commercial marketing on the date that is the earlier of—

(aa) the latest date set forth in the agreement on which that applicant can receive an approval that is made effective under this subparagraph, subparagraph (F) of this paragraph, section 505A, or section 527, or begin the commercial marketing of such drug, without regard to any other provision of such agreement pursuant to which the commercial marketing could begin on an earlier date; or

(bb) 180 days after another first applicant begins commercial marketing of such drug; and

(II) the latest date set forth in the agreement on which that applicant can receive an approval that is made effective under this subparagraph, subparagraph (F) of this paragraph, section 505A, or section 527, or begin the commercial marketing of such drug, without regard to any other provision of such agreement pursuant to which commercial marketing could begin on an earlier date, shall be the date used to determine whether an applicant is disqualified from first applicant status pursuant to clause (vii)(II).

FDC Act § 505(j)(5)(B)(ix) (REDESIGNATED)

(v) (ix) 180-DAY EXCLUSIVITY PERIOD FOR COMPETITIVE GENERIC THERAPIES.—

FDC Act § 505(j)(5)(D)(i)(IV) (AMENDED)

(IV) FAILURE TO OBTAIN TENTATIVE APPROVAL.— The first applicant The first applicant, as defined in subparagraph (B)(v)(I), fails to obtain tentative approval of the application within 30 months after the date on which the application is filed, unless the failure is caused by a change in or a review of the requirements for approval of the application imposed after the date on which the application is filed.

FDC Act § 505(j)(14) (NEW)

(14)(A) The holder of an abbreviated application under this subsection shall submit to the Secretary a notification that includes—

(i)(I) the text of any agreement entered into by such holder described under paragraph (5)(B)(vii)(I); or

(II) if such an agreement has not been reduced to text, a written detailed description of such agreement that is sufficient to disclose all the terms and conditions of the agreement; and

(ii) the text, or a written detailed description in the event of an agreement that has not been reduced to text, of any other agreements that are contingent upon, provide a contingent condition for, or are otherwise related to an agreement described in clause (i).

(B) The notification described under subparagraph (A) shall be submitted not later than 10 business days after execution of the agreement described in subparagraph (A)(i). Such notification is in addition to any notification required under section 1112 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

(C) Any information or documentary material filed with the Secretary pursuant to this paragraph shall be exempt from disclosure under section 552 of title 5, United States Code, and no such information or documentary material may be made public, except as may be relevant to any administrative or judicial action or proceeding. Nothing in this paragraph is intended to prevent disclosure to either body of the Congress or to any duly authorized committee or subcommittee of the Congress.

FDC Act § 301(e) (AMENDED) (Prohibited Acts)

(e) The refusal to permit access to or copying of any record as required by section 412, 414, 417(j), 416, 504, 564, 703, 704(a), 760, or 761; or the failure to establish or maintain any record, or make any report, required under section 412, 414(b), 417, 416, 504, 505 (i) or (k) 505 (i), (j)(14), or (k), 512(a)(4)(C), 512 (j), (l) or (m), 572(i), 515(f), 519, 564, 760, 761, 909, or 920 or the refusal to permit access to or verification or copying of any such required record; or the violation of any recordkeeping requirement under section 204 of the FDA Food Safety Modernization Act (except when such violation is committed by a farm).

35 U.S.S. § 271(e)(7) (NEW)

(7) The exclusive remedy under this section for an infringement of a patent for which the Secretary of Health and Human Services has published information pursuant to subsection (b)(1) or (c)(2) of section 505 of the Federal Food, Drug, and Cosmetic Act shall be an action brought under this subsection within the 45-day period described in subsection (j)(5)(B)(iii) or (c)(3)(C) of section 505 of the Federal Food, Drug, and Cosmetic Act.

 We’re still in the process of sorting out how all of these new and amended provisions would operate. And not all of them seem to make complete sense (e.g., How can an agreement described in the proposed text control when an applicant may seek an approval of its ANDA? Isn’t that really an FDA decision?)  In any case, whether renewed interest in changes to the statutory 180-day exclusivity provision, as a result of the Trump Administration’s recent budget proposal, will lead to passage of the “Expanding Access to Low Cost Generic Drugs Act” or another bill remains to be seen.

On March 1, 2018, FDA announced the release of several guidance documents: final guidance on Scientific Evaluation of the Evidence on the Beneficial Physiological Effects of Isolated or Synthetic Non-digestible Carbohydrates Submitted as Citizen Petition; final guidance on Reference Amounts Customarily Consumed: List of Products for Each Product Category Product Category; a small entity compliance guide on the new regulations regarding serving sizes; Questions and Answers for Industry on Dietary Fiber; and a Draft Guidance on Declaration of Added Sugars on Honey, Maple Syrup, and Certain Cranberry Products. The dietary fiber guidance and the added sugar in honey maple syrup and cranberry products guidance raise new issues.

Dietary Fiber Guidance

As we previously reported, in May 2016, FDA published a final rule amending the nutrition labeling regulations. Among other things, FDA redefined dietary fiber as non-digestible soluble and insoluble carbohydrates (with three or more monomeric units) and lignin that are intrinsic and intact in plants, and isolated or synthetic non-digestible carbohydrates (with three or more monomeric units)(hereinafter “added NDCs”) that FDA determines to have a physiological effect that is beneficial to human health.  In November 2016, FDA issued a draft guidance describing FDA’s criteria in evaluating the evidence that an added NDC has a beneficial physiological effect. Using the approach described in the draft guidance, FDA determined that the available evidence for 26 added NDCs was insufficient to meet the standard. Therefore, these added NDCs did not qualify as dietary fiber for purposes of nutrition labeling.

As described in the final guidance, FDA has reconsidered some of its criteria and approaches used in the evaluation of evidence for added NDCs.  Appendix A to the final guidance discusses the main changes in FDA’s position.  Specifically:

• FDA will consider clinical studies conducted in diseased populations.
• In the draft guidance, FDA had taken the position that since foods are intended for the general U.S. population, it would not consider results from studies on individuals with a specific disease. However, as explained in the final guidance, FDA has decided that it will consider evidence from studies on individuals with a disease under certain circumstance, namely when “extrapolating to individuals who do not have the disease is scientifically appropriate.” For example, FDA would consider studies on constipated individuals when evaluating the effect of an added NDC on laxation.
• FDA also has reconsidered its position on evaluating whether a combination of two NDCs has a beneficial physiological effect. If a combination of isolated NDCs will be used as an ingredient, there are two options. Either the citizen petition provides data on a specific (fixed) combination of the added NDCs, or it provides evidence regarding the beneficial physiological effect of each individual NDC included in the combination.
• The final guidance also includes additional examples of physiological endpoints that FDA may consider, e.g. satiety and fecal output/fecal weight as measured on the basis of grams/day as a measure of laxation. However, FDA maintains its position that fermentation and changes in microbiota in the large intestine are not valid physiological endpoints.
• FDA will consider studies in which there is a statistically significant difference in baseline values between groups, provided that the statistical analysis includes adjustments for these differences or otherwise corrects for these differences.
• The final guidance provides more information about how FDA will weigh the strength of the evidence.
• In its request for data on added NDCs, FDA provided for a process to submit unpublished data. Although FDA maintains that it will consider unpublished data in its determination of whether the added NDC is a dietary fiber, it does encourage submission of publicly available data. Amending the regulation to include an additional added NDC that meets the definition of dietary fiber requires notice and comment rulemaking. This is a public process. Thus, data critical for the evaluation of the evidence of a beneficial physiological effect will need to be available to the public.

It remains to be seen to what extent FDA’s changes in its position regarding inclusion and exclusion criteria for the evaluation of evidence will affect its assessment of the data for the 26 added NDCs in 2016.As readers of this blog know, several Petitions regarding added NDCs have been submitted. The timing of FDA’s responses to these Petitions remains uncertain. In the updated Questions and Answers regarding Dietary Fiber, FDA states that it remains committed to completing the review process in the “near future.” Although the publication of the final guidance and the reconsiderations regarding key issues are a step forward, much uncertainty remains. Among other things, clarification as to what constitutes an added NDC vs. what is an intrinsic and intact NDC is needed.

Declaration of Added Sugars on Honey, Maple Syrup, and Certain Cranberry Products; Added Sugars with A Twist 

FDA’s draft guidance on declaration of added sugars on honey and maple syrup and cranberry products is – for lack of a better word – interesting.

As readers of this blog may recall, a major issue in the amendment to the nutrition labeling regulations was the inclusion of the new requirement to declare added sugars. The final rule defines “added sugars,” in part, as “sugars that are either added during the processing of foods, or are packaged as such.” (Emphasis added).  As a result, the term includes single ingredient products such as honey and syrups; e.g. a jar of honey and a bottle of maple syrup would need to declare added sugars in the nutrition facts panel.  FDA got a large number of comments by the honey and maple syrup industries about this requirement.  Specifically, the comments raised concerns that declaring added sugars on single ingredient honey and maple syrup products would suggest to consumers that the pure products contain added table sugar because added sugars are listed in the Nutrition Facts panel. Both of these product categories have a history of economic adulteration with cheaper sweeteners, and according to the comments, the declaration of added sugars might lead consumers to believe sweeteners are added.

FDA’s draft guidance provides a possible solution to this issue. FDA proposes to exercise enforcement discretion for products that use a “†” symbol immediately following the added sugars percent Daily Value in the Nutrition Facts panel. The “†” symbol may direct consumers to a truthful and non-misleading statement on the package outside the Nutrition Facts panel.  In that statement, manufacturers may explain that no sugar was added to the pure honey or pure maple syrup.  In short, the Nutrition Facts panel will state that the product contains added sugars but a statement outside the Nutrition Facts panel will state that these are not added sugars, but are naturally occurring.

The added sugar labeling requirement also puts certain cranberry products in a bad light. The cranberry industry submitted comments to FDA explaining that the added sugars declaration would be detrimental to the cranberry industry by implying that cranberry products are less nutritious than competing products that have similar amounts of total sugars and nutrients.  Cranberries naturally contain little sugar and are extremely tart, so sugars usually are added for palatability.  Other fruits that naturally contain more sugar and are palatable without additional sugar would not need to declare added sugars.  For example, sweetened dried cranberries contain 29 grams of total sugars including 25 grams of added sugars per serving while raisins contain 29 grams of total sugars with zero added sugars per serving.

As with the honey and maple syrup products, FDA proposes to exercise enforcement discretion when such products use a “†” symbol immediately following the added sugars percent Daily Value in the Nutrition Facts panel. The “†” symbol may direct consumers to a truthful and non-misleading statement outside the Nutrition Facts panel explaining that addition of sugar to the cranberry product is meant to increase the palatability of the naturally tart fruit and that the amount of total sugars per serving is at a level that does not exceed the amount of total sugars in a comparable product with no added sugars.

Although these solutions might be palatable to some stakeholders, FDA’s proposed approach seems to undercut the basis for the requirement to declare added sugars. Undoubtedly consumer education will be crucial to explain that in some products added sugars are not a concern, whereas in other products these same added sugars are a concern.

To ensure consideration, comments to the draft guidance must be submitted by May 1, 2018.

While likely not FDA’s intent, the net effect of FDA’s requirements surrounding importation of active pharmaceutical ingredients is driving manufacturing of investigational finished drug products outside the United States. In its most egregious implementation, FDA’s current interpretation sets up a Catch-22 in which a batch of investigational API cannot be imported for manufacture of finished drug product without an IND, but an IND cannot be obtained without analyses and stability data on that drug product.  As a result, investigational API and drug product, from a practical perspective, must be made entirely within or entirely outside the US. Because API manufacturing is largely done outside the U.S., FDA’s requirements have the effect of encouraging sponsors to manufacture outside the U.S. to the detriment of pharmaceutical developers, U.S. contract manufacturers and patients.

An active pharmaceutical ingredient (API), or bulk drug substance, is “any substance that is intended for incorporation into a finished drug product and is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body,” but does not include intermediates used in the synthesis of the API. 21 C.F.R. § 207.1. Because API is intended to diagnose, cure, mitigate, treat, or prevent disease, or to affect the structure or function of the body according to this regulation, it meets the definition of a drug under the Federal Food, Drug, and Cosmetic Act (FD&C Act). See 21 U.S.C. § 321(p). Generally, API undergoes further manufacturing into a drug product, or finished dosage form, that contains the API and excipients (see, e.g., 21 C.F.R. § 210.3(b)(4) for a definition of drug product). Recent estimates from FDA indicate that approximately 80 percent of APIs used in the U.S. drug supply are manufactured in more than 150 countries. United States Government Accountability Office, Drug Safety: FDA Has Improved Its Foreign Drug Inspection Program, but Needs to Assess the Effectiveness and Staffing of Its Foreign Offices, at 1 (Dec. 2016).

Like all FDA-regulated products, API is subject to examination when it is imported or offered for import into the United States and must meet applicable statutory and regulatory requirements. FDA has the authority, under the FD&C Act, to refuse admission to any drug that “appears” to be misbranded or in violation of the requirements for new drugs, such as the need for an approved marketing application. 21 U.S.C § 381(a)(3). In general, the FD&C Act requires that any drug must have labeling that provides adequate directions for use or be subject to a regulatory exemption from this requirement. Id. § 352(f). API, because it is not yet a finished drug product, is unavoidably misbranded within the meaning of the FD&C Act as its labeling cannot bear such adequate directions for use. Therefore, any API imported into the United States must be subject to a regulatory exemption from the labeling requirements, such as existence of an active IND, and comply with all regulatory exemption requirements.

To see this in operation, one can examine the impact of regulatory exemption requirements at certain points in the drug development cycle. Early in the drug development cycle, manufacturers may utilize a single lot of API to conduct preclinical testing, manufacture drug product for analytical and stability testing and for use in initial clinical trials. Certain preclinical testing, as well as the manufacture and testing of drug product must be completed prior to filing an investigational new drug application (IND) to initiate human testing of a drug. See 21 C.F.R. § 312.23(a)(7). Initial U.S. clinical trials, on the other hand, can only occur after an IND is opened and in effect. Before the IND is opened and in effect, the importing pharmaceutical company can bring the API into the country for laboratory research so long as it complies with an exemption for API not intended for clinical use. The importer must provide information on this intended use to FDA at the time of import.

A separate import shipment that complies with a different exemption must be made in order to lawfully manufacture clinical trial material from the API. Under this exemption, the API must be labeled with the statement “Caution: For manufacturing, processing, or repacking in the preparation of a new drug limited by Federal law to investigational use.” In addition, the API must be used only in the manufacture of such new drug limited to investigational use as provided under the IND regulations. 21 C.F.R. § 201.122(b). The importer must provide information on this intended use to FDA at the time of import and, if the clinical trial is to be conducted under an IND, the IND number must be provided.

The practical effect is that pharmaceutical firms who wish to import API from outside the U.S. but manufacture drug product in the U.S. must undertake at least two separate imports prior to initiation of clinical trials. Even then, however, there are more hurdles. Because imported API for clinical drug product can enter the U.S. no earlier than the day the IND becomes effective (no sooner than 30 days after submission of the IND), drug product for use in clinical trials can not be available for use on day 30, when the clinical trial would otherwise be able to begin enrolling subjects. Instead, the clinical trial cannot begin until that API is manufactured into drug product and subjected to sufficient testing for release. Thus, the use of imported API to manufacture clinical trial material in the United States will result in a delay to beginning the clinical trial—a delay imposed by FDA’s overly rigid interpretation of its regulations. On the other hand, the manufacturer could produce clinical trial material outside the U.S. in time to import it into the U.S. and ship it to investigators on day 30, without delaying the start of clinical trials.

Once all necessary clinical and nonclinical studies have been completed to support an NDA, the manufacturer will want to begin producing finished drug product—the final dosage form in finished packaging “suitable for distribution to pharmacies, hospitals, or other sellers or dispensers of the drug product to patients or consumers” (21 C.F.R. § 207.1)—in anticipation of marketing the product upon FDA approval of the NDA. Because the finished drug product is not for investigational use, the API used in its manufacture cannot be imported under the previously described exemption. A separate exemption covers API intended for use in the manufacture of a finished drug product that is subject to a pending NDA. See 21 C.F.R. § 201.122(c). FDA regulations state that API can be subject to this exemption if an NDA has been “submitted but not yet approved, disapproved, granted, or denied, the bulk drug is not exported, and the finished drug product is not further distributed after it is manufactured until after the new drug application . . . is approved.” Id. Alternatively, manufacturers could produce commercial scale batches of finished drug product outside the U.S. and import them into the U.S. once the NDA is approved or utilize FDA’s Pre-Launch Activities Importation Request to stage finished product in advance of approval.

FDA has significant concerns about API imports, as is reflected in its Import Alert 66-66, requiring detention without physical examination for APIs that appear to be misbranded because they do not meet one of the exemptions provided in the regulations. FDA, Import Alert 66-66 (Dec. 1, 2017). Import Alerts are issued when FDA identifies a potentially recurring problem with imported articles. A drug placed on import alert shifts the burden to the importer to prove that its drug does not violate the FD&C Act. FDA issued the Import Alert for APIs because of concerns that importers obtained entry of their APIs by supplying legitimate NDA or IND numbers when the number did not cover the source of the API or when the importer had no right of reference to the NDA or IND number.

In essence, FDA’s current interpretation of its regulations may delay the importation of API at critical times during the development cycle and thus result in an overall delay to drug development. It may also present substantially increased costs involved with manufacturing the same finished drug product twice, but for different uses. Manufacturing drug product outside the U.S. may be a viable strategy for eliminating certain delays imposed by regulatory requirements. Therefore, the unintended consequence of FDA regulations covering the importation of APIs may be to drive the manufacturing of drug product outside the United States.

FDA should interpret and enforce the law and regulations to allow for the intended use of imported API to “evolve” through the drug development cycle.