Three patient advocate groups have sued the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS), challenging HHS’s 2020 Notice of Benefits and Payment Parameters (NBPP) rule.  As it stands, the rule allows insurers and pharmacy benefit managers (PBMs) to broadly use copay accumulator programs, which have long been criticized by patient advocacy groups as padding insurers’ pockets while leaving patients high and dry.

Recognizing the problems that high prescription drug costs pose to patient access to medications, many drug manufacturers have created copay assistance programs to help patients afford the copays and deductibles for their medications.  In a common example of this practice, the drug manufacturer issues a coupon to an insured individual to present at the pharmacy.  The pharmacy bills all or most of the individual’s copayment or coinsurance—which the patient would otherwise pay the pharmacy directly—to the manufacturer.

Insurance companies and PBMs, on the other hand, have largely resisted these programs to shift drug costs away from patients and have instead found ways to shift the cost of drugs back to the patient and away from the insurer.  By prohibiting patients from counting manufacturer-provided assistance as part of the patient’s copay obligation, insurers can collect from both the patient and the manufacturer.  These prohibitions are often referred to as copay accumulator adjustment programs.  Under a copayment accumulator adjustment program, if a patient pays the $300 copay for a one-month supply of medication using a $300 manufacturer copay card or coupon, the insurer accepts the payment but does not count any manufacturer-provided copay assistance against the insured individual’s deductible or out-of-pocket maximum in the insurer’s internal accounting systems.  The insurer receives a windfall by being able to collect payments from the manufacturer and then still collect the full deductible and copayment amounts from the patient.

The patient, on the other hand, is no closer to meeting their deductible than before.  Despite securing funds to satisfy the copay obligation, the insurer’s disregard of that payment leaves full benefits and more affordable drugs for the rest of the year the same distance out of reach.  Patients who exhaust any available copay assistance program benefits will then return to square one, facing the same, limited choice: go into debt to acquire needed medications or forgo sometimes life-saving or life-extending treatment.

During the Trump administration, HHS and CMS issued the 2020 NBPP rule, revising 45 C.F.R. § 156.130(h) to explicitly allow insurers to broadly use copay accumulator programs.  The 2019 rule allowed the use of copay accumulator programs, but only with respect to drugs for which a generic alternative was available.  The complaint alleges that “copay accumulator adjustment policies have grown in the wake of HHS’s changing policy” (internal quotations omitted).

We have blogged before on Trump-era drug pricing and payment regulations, most of which have been struck down by the courts (see here and here), including another accumulator adjustment rule (see here).  The HIV and Hepatitis Policy Institute, the Diabetes Patient Advocacy Coalition, and the Diabetes Leadership Council have similarly filed suit in the U.S. District Court for the District of Columbia, challenging the 2020 NBPP rule as plainly unlawful on the grounds that it conflicts with the plain language of the Affordable Care Act (ACA) and the agencies’ existing regulations, and is arbitrary and capricious.

Among other arguments, the complaint asserts that the NBPP rule violates the ACA’s cost-sharing cap, which mandates that cost-sharing, i.e., the part of an insured patient’s annual healthcare costs for which the patient is responsible, “shall not exceed” the result of a statutory formula.  The ACA defines “cost-sharing” to include “deductibles, coinsurance, copayments, or similar charges” and “any other expenditure required of an insured individual…”  The statute sets an annual cap on the “expenditure[s] required of an insured individual” by their health insurance plan.  The complaint argues that the rule must be set aside as contrary to the ACA because the statutory text “looks not to where the money used for a copay originates,” yet the rule permits insurers to exclude payments from the annual statutory cap on cost-sharing “just because the insured obtains assistance from the drug manufacturer in satisfying that obligation.”

The complaint further argues that the rule contradicts the statute because the ACA defines the maximum amount of funds that an insurer may receive as compensation beyond premiums, yet the rule allows insurers to collect more money than the statute authorizes by collecting the ACA out-of-pocket maximum and any manufacturer-provided copay assistance.

The patient advocate groups are requesting that the court declare unlawful and set aside the rule.  An opinion that is favorable to the patient groups would mark another defeat of Trump-era drug pricing regulations.  As it stands, 14 states and Puerto Rico have passed laws outlawing copay accumulator programs.  It remains to be seen whether copay accumulator programs will be banned throughout the nation.

Last month FDA published its 4th annual report on the state of pharmaceutical quality and, needless to say, there were some interesting statistics, particularly for us FDA nerds.

Number of Manufacturing Sites and Registered Products

The report states that for fiscal year 2021, there were 4,451 CDER drug manufacturing sites, which is a 3% increase over fiscal year 2018, the only comparison year provided.  39% of these manufacturing sites are what is referred to as “no application” sites, meaning that the products manufactured there are without an approved FDA application, which includes over-the-counter (OTC)  products, unapproved prescription drug products and homeopathic products.  The remaining 61% of the sites manufacture at least one application product, meaning either a product resulting from a Biologics License Application (BLA), a New Drug Application (NDA), or an Abbreviated New Drug Application (ANDA).

The countries with the five most manufacturing sites, namely, the United States, India, China, Germany and Canada, all saw net increases in the number of manufacturing sites in inventory over the past three years.

For fiscal year 2021, CDER oversaw 12,428 ANDAs, 3,537 NDAs and 315 BLAs. CDER also oversaw more than 140,000 non-application products, including 75,300 OTC products, and 15,640 homeopathic products.  Presumably the balance of non-application products are unapproved prescription drug products, though that was not specified in the report.

Quality Surveillance with Foreign Regulatory Authority Inspection Reports and Record Requests

Given the problems with performing on-site inspections during COVID over the last year, alternative inspection tools were used by FDA to a greater degree during fiscal years 2021, including review of foreign regulatory authority inspection reports and records requests of the facility at issue.  During fiscal year 2021, FDA reviewed and classified 139 site inspections in 18 Mutual Recognition Agreement (MRA) countries, as we as six other countries.  The latter point about six other countries is particularly interesting because FDA does not appear to have previously acknowledged accepting for review and classification site inspections from non MRA countries.  In addition, during the same period FDA conducted 288 surveillance-based assessments using information from section 704(a)(4)(A) (record review) requests, which resulted in 21 import alerts.

Product Quality Defect Reports

The so-called product quality defect (PQD) reports includes Field Alert Reports (FARs), Biological Product Deviation Reports (BPDRs), MedWatch Reports (MWs) and Consumer Complaints (CCs). During fiscal year 2021, CDER received  4,115 FARs, 205 BPDRs, 11,512 quality related MWs and 273 CCs, which appear to be similar to the number of such product quality defects reported in fiscal year 2020.  According to FDA, in the coming years, the CARES Act will enable FDA to normalize product quality defect reports by the amount of each product manufactured, thereby allowing for a more thorough evaluation of the impact and magnitude of PQDs.

Import Alerts and Recalls

During fiscal year 2021, FDA placed 49 sites on import alert for, among other things, non-compliant laboratory testing, non-compliant findings from inspections, refusing inspections, and refusing 704(a)(4)(A) records requests.  The largest number of import alerts were from sites in China and Latin America, the latter owing to the large number of facilities that manufactured hand sanitizer that were detained at the border.

For the second consecutive year, the total number of recalls increased, from a near historic low in fiscal year 2019 of around 300 (my estimate, based on a review of figure 3 in the report), to around 700 in fiscal year 2020 and around 800 in fiscal year 2021 (the report doesn’t provide precise numbers).  In addition, the number of Class I recalls appears to have nearly doubled in fiscal year 2021 from the prior year, due in large measure to the recalls associated with hand sanitizer products that contained methanol, and the sunscreen products that contained benzene.

In my next blog post, I will summarize FDA’s views from the report on their research into the general state of quality in the pharmaceutical industry, as well as detail the agency’s progress with respect to two initiatives, the New Inspection Protocol Project (NIPP), and the Quality Management Maturity Project (QMM). So stay tuned!

FDA recently published a Draft Guidance entitled “Charging for Investigational Drugs under an Investigational New Drug Application: Questions and Answers” (the Draft Guidance). This Draft Guidance, when finalized, will replace the Final Guidance issued just six years ago (the 2016 Guidance). As the new Federal Register notice explains, FDA issued the 2016 Guidance in question and answer format to respond to the most frequently asked questions about charging for investigational drugs provided under an IND for either clinical trials or expanded access for treatment use under 21 CFR section 312.8

Changes from the 2016 Guidance

What’s new in the new Draft Guidance? Not all that much.  The 2022 Draft Guidance keeps all the same 20 questions with minimal tweaks to wording and added just three new questions and answers.  The new Q & As (Q21, Q22, and Q23) all concern charging in the context of expanded access.  Below we outline the Draft Guidance and highlight the new information in the 2022 Draft Guidance.

The Draft Guidance covers charging in a clinical trial or in one of the expanded access settings and the differences between them. However, many provisions are broadly applicable in both settings. For example, the Draft Guidance includes answers to general questions about the intended timeframe for response to charging requests (30 days), who should request FDA’s authorization to charge (the IND sponsor), and whom the sponsor may charge with this authorization (not FDA’s business). For this last question, FDA explains that it anticipates the sponsor would charge the patient directly or would charge a payor if reimbursement were available, but clearly states that FDA has no authority in this arena.  FDA has added language to the Answer that covers this topic (A3), stating that sponsors should ensure that charging for drugs in a clinical trial or through expanded access does not create barriers to access “that may exacerbate disparities in clinical trial participants or expanded use patients.”

Authorization for Charging in the Clinical Trial Context

The Draft Guidance continues to list the regulatory requirements to obtain authorization for charging in a clinical trial setting: (1) evidence that the drug has a potential clinical benefit that would provide a significant advantage over available products; (2) the data to be obtained from the trial would be essential to establishing that the drug is safe or effective for the purpose of initial approval or a significant change in labeling; and, (3) the trial could not be conducted without charging because the cost of the drug is “extraordinary” to that particular sponsor.

The Draft Guidance also notes that if the sponsor is evaluating an unapproved use of its approved drug, it is still required to obtain authorization; however, if a sponsor is not the marketing entity and must purchase an approved drug, it is not required to obtain authorization to charge for the drug (limitations on the amount that can be charged still apply even when authorization is not required). Additionally, authorization is not required for a sponsor to charge for the use of its own approved drug as concomitant therapy in a clinical trial intended to evaluate another drug when the concomitant therapy is not part of the clinical trial evaluation, as this is not an investigational use of the approved drug. Finally, the Draft Guidance notes that charging may continue for the duration of the clinical trial unless FDA specifies otherwise.

Authorization for Charging in the Expanded Access Context

The requirements described in the Draft Guidance for authorization to charge in an expanded access setting reflect the particular concerns that arise in the expanded access context.  Specifically, reasonable assurance that charging will not interfere with drug development is needed, and for a treatment IND or treatment protocol under 21 CFR § 320. The reasonable assurance must include (1) evidence of sufficient enrollment in ongoing clinical trials (to reasonably assure FDA that those trials will be completed as planned); (2) evidence of “adequate progress” in the development of the drug for marketing approval; and, (3) information about drug development milestones the sponsor plans to meet in the next year.

Charging may continue for 1 year from authorization unless FDA specifies a shorter period. The Agency may reauthorize upon request for additional periods if the requirements continue to be satisfied.

Cost Calculations

The Draft Guidance explains that the regulation is intended to allow a sponsor to recover direct costs specifically and exclusively incurred in making a drug available. The cost calculation submitted in the request must be accompanied by a statement that an independent certified public accountant (CPA) has reviewed and approved the calculations. The Draft Guidance adds a clarification that the independent CPA “must be qualified to make the required determinations”.

When the amount to be charged is simply the amount charged to the expanded access sponsor by a third party such that there is no calculation to be made, the sponsor does not need to submit the CPA statement, but should submit a copy of the receipt or invoice from the source to justify the amount to be charged.

Although a sponsor of an individual patient expanded access trial may only recover direct costs associated with making the drug available, a sponsor of an intermediate-size patient population expanded access IND, or a treatment IND may also recover administrative costs directly associated with the expanded access use. These additional costs may include fees paid to a third party for administration, including any profit that may be included in the fees.

Two of the new questions added in the Draft Guidance (Q22 and Q23) address the fact that monitoring and other administrative “startup” costs, and manufacturing costs are often higher in the first year compared to subsequent years. These new Q & As explain that some sponsors may amortize costs.  Specifically, sponsors of an intermediate or treatment IND or protocol  can take this approach for monitoring and other administrative startup costs, and sponsors of an expanded access IND or protocol may do so for the costs of manufacturing. In these cases, the sponsor can distribute the additional costs to reduce the per patient cost difference between patients treated earlier and patients treated later. Such a cost amortization plan should be done in accordance with standard accounting practices and this must be reviewed and approved by an independent CPA. In these situations, sponsors must still submit requests to reauthorize charging to continue after the expiration of the initial authorization period.

Finally, the Draft Guidance adds the new recommendation that if a sponsor of an intermediate-size patient population expanded access IND or treatment IND seeks to recover fees paid to a third party, it should disclose the relationship with the third party to patients, and notes that under the regulations governing informed consent, this information  also must be included in the informed consent document.

We are almost three years into the public health emergency as a result of the COVID-19 pandemic, and still only have 19 rapid antigen tests authorized for at-home use in the United States. The primary barrier to bringing new antigen tests to market has been FDA’s minimum requirement of 80% sensitivity for authorization. The 80% sensitivity requirement for antigen tests has yet to be explained either scientifically or clinically by the Agency.

It is clearly rooted in fear that less sensitive tests may have too many false negatives. But the question is, is 80% sensitivity the right place to set the bar? By doing so, FDA has limited the number of tests that have reached the market, thereby reducing available supply and increasing prices. Right now, the demand is not particularly high, but last winter had a severe shortage in which it was hard to find antigen tests at any price. That could happen again.

As FDA would acknowledge, the antigen tests are the fastest and most practical method for distributing testing in the general population. These practical benefits are in marked contrast to molecular COVID-19 tests that are used for definitive diagnosis and are generally expected to detect the SARS-CoV-2 virus at least 95% of the time when someone is infected. The molecular tests must be run in a laboratory and usually take several days due to the need to ship the sample and the constraints on laboratory availability and supplies.

Everyone understands that antigen tests are less sensitive and could miss someone who is asymptomatic with an early infection or a low viral load. But on the flip side, they are very specific, i.e., if a positive result is obtained, the result is typically very accurate in the range of 95% of the time or better.  The question is whether requiring 80% sensitivity is too high for this tool and keeping too many of them from the market.

Ironically, a recent FDA safety communication points to a potential way out of this dilemma.  In this safety communication, FDA advises the public as follows:  If you test negative and have COVID-19 symptoms, you test again 48 hours later for a total of two tests. After two negative tests, you should consider a molecular test, or call your healthcare provider. If you test negative and do not have COVID-19 symptoms, you should test again 48 hours later. If the second test is negative, you should test again 48 hours after the second test. If the third test is negative, you should test again with an antigen test, or get a laboratory molecular-based test, or call your healthcare provider. If you get a positive result on any repeat test with an at-home COVID-19 antigen test, you most likely have COVID-19.

These recommendations come based on the latest National Institutes for Health (NIH) and University of Massachusetts Chan Medical School study which was funded by the NIH Rapid Acceleration of Diagnostics (RADx) program.  This prospective cohort study recruited participants who were asymptomatic to investigate the performance of serial testing using COVID-19 rapid antigen tests compared to molecular tests. The study represents the most robust attempt at understanding the performance of serial use of rapid antigen tests for SARS-CoV-2 detection among asymptomatic individuals in the U.S. The study demonstrates that serial testing does optimize the ability to detect SARS-CoV-2 infections when using at-home rapid antigen tests.

This testing scheme calls into question whether it is really necessary to require at least 80% sensitivity when comparing an initial at-home antigen test result to the more sensitive molecular tests. One can use serial testing to make up for the sensitivity shortfall in most antigen tests.

In fact, FDA recently authorized several antigen tests that did not meet the sensitivity threshold of 80% for symptomatic individuals when the study population had more than 20% of individuals with low viral loads. The low viral loads were most likely due to individuals infected with the Omicron variant. Instead of simply denying authorization, FDA responded by authorizing these tests with a requirement in the labeling for serial testing. For example, labeling stated: This test is authorized “when tested twice over three days with at least 24 hours (and no more than 48 hours) between tests.”

While this was a step in the right direction, only the tests whose clinical studies occurred during the Omicron surge had this stipulation included in their labeling. Low viral loads within the population will impact all authorized tests, not just the ones that have been authorized since the emergence of the Omicron variant. However, we have not observed any action on the part of FDA to revise the labeling of products that were authorized in 2020 or 2021 to make the labeling consistent across all tests. Nor has FDA required additional warnings highlighting, to the user, that the clinical performance data on the currently authorized tests were generated primarily on a variant that is no longer circulating in the U.S. This lack of uniformity across manufacturers may place an unfair stigma on the newest entrants to the market as being fundamentally less accurate when that may not be the case.

The NIH RADx-sponsored study mentioned in the safety communication addresses a data gap in FDA’s review of antigen tests. FDA permitted the authorization of tests with at least 80% sensitivity in symptomatic individuals and allowed claims regarding serial screening of asymptomatic individuals without submitting performance data on this population. While companies were required to commit to conducting such studies post-authorization, none have been completed to date based on our knowledge. (This nebulous post-authorization study is not well defined in the public templates. See our previous post on the topic here.) The NIH RADx-funded study is a long-awaited dataset finally made public addressing the question of performance in asymptomatic individuals but also includes performance against the Omicron variant for tests authorized without this challenge.

The study results are not surprising, excluding singleton RT-PCR positives, the first-week sensitivity was only 79.2% (71.0-85.9%) after testing three times with a rapid antigen test at 48-hour intervals. Meaning the tests currently on the market and evaluated in the study do not appear to meet FDA’s minimum requirement of 80% sensitivity, even when tested three times in a serial fashion.

The results of this study referenced in the safety communication could be a signal of a new requirement for antigen test developers to add to their labeling, essentially requiring testing at least 3 times with 48 hours between tests if you are asymptomatic and get a negative test result. Adding this new testing scheme to labeling may provide flexibility to the 80% sensitivity requirement but may also require new clinical study designs from sponsors still vying for EUA authorization.

FDA said they are committed to appropriately accurate and reliable at-home COVID-19 tests. The recent safety communication may be a model for how FDA can more broadly authorize tests that do not meet the 80% sensitivity requirement and in addition level the playing field through consistent labeling of the testing scheme for all EUA holders.

After 5 long years, FDA has finally adopted the long-awaited OTC hearing aid rules.  While the Proposed Rule was a year and a half overdue, FDA impressively turned out the Final Rule about 7 months after the close of comments on the Proposed Rule, which is only one month after it was due and before Congress could pass a bill chastising FDA for the anticipated delay.  Kudos to FDA for getting this out so quickly and even making some significant changes and clarifications in response to the comments it received on the Proposed Rule.  We note, however, that some of the most important clarifications are not codified in the actual rule but are presented in the Preamble; thus, while FDA currently plans to interpret the rule as it states in the Preamble, it is not bound to do so.

Nevertheless, FDA clearly put a lot of effort into clarifying the major points that led to confusion in the Proposed Rule.  As we previously noted, a lack of clarity was one of the biggest concerns throughout the submitted comments.  This was especially a concern in the context of self-fitting hearing aids.  As the Proposed Rule suggested, self-fitting hearing aids are OTC hearing aids, but not all OTC hearing aids are self-fitting.  This is important because self-fitting hearing aids require the submission and clearance of a 510(k) while regular OTC hearing aids do not, which provides incentive for manufacturers to self-classify their hearing aid products as regular OTC rather than self-fitting.  (FYI, FDA does not use the term “regular hearing aids,” but we are for simplicity.)  And FDA provided no dividing line between self-fitting and regular OTC, leaving the self-fitting hearing aid category vulnerable to evasion.  The Preamble to the Final Rule addresses this issue by explaining the intended distinction.  While there’s a lot more technicality to the discussion in the Preamble, it basically boils down to user preferences versus user-specific profile; when the hearing aid frequency changes are based on a specific audiogram or hearing profile, the product is “self-fitting.”  While FDA declined to change any definitions from the Proposed Rule, the Preamble provides much-needed guidance in this area though notably, the distinction here is still subjective.

With respect to 510(k)s, FDA stood by its position that 510(k)s would not be required for all OTC hearing aids.  Despite many comments that requested this, FDA declined to implement this position and declined to define all OTC hearing aids as self-fitting devices.  Thus, only self-fitting hearing aids need to be cleared by FDA prior to marketing; regular OTC hearing aids—ones that are customizable based on user preference—do not, and consumers must rely on FDA postmarket enforcement activities to ensure safety and effectiveness of OTC hearing aids (more on that later).

With respect to design specifications, FDA made some significant changes.  The most important change is the reduction in output limit.  While previously FDA planned to impose a 115 dB SPL limit (or 120 dB SPL for devices with activated input-controlled compression), FDA lowered that threshold to 111 dB SPL (or 115 dB SPL with activated input-controlled compression).  FDA made this change in response to a multitude of comments recommending a limit of 110 dB SPL.  Rather than the lower limits of 110 dB SPL (or 115 dB SPL), which FDA noted “would reduce device effectiveness for people with perceived mild to moderate hearing impairment to such a degree that the limits would exclude some intended users from obtaining sufficient benefit of OTC hearing aids,” FDA found a compromise with 111 dB SPL (or 117 dB SPL).  FDA, however, refused suggestions to adopt a gain limit, noting that a gain limit would reduce the ability to amplify soft sounds, again decreasing device effectiveness and user satisfaction.  FDA did agree that user adjustable volume control should be a design feature for all OTC hearing aids, and insertion depth should be limited to 10 mm.  FDA also updated some of the required labeling to make it more user-friendly, though ultimately the Agency decided that usability studies for such language are not necessary due to the immense amount of public input the Agency has already received.  FDA also clarified that all hearing aids, OTC or otherwise, are subject to Quality System Requirements (“QSRs”).

While FDA addressed some major controversial issues that arose from the Proposed Rule, other areas remained untouched.  The preemption provisions, for example, have not changed.  Under both the Final and the Proposed Rule, FDA determined that the OTC hearing aid rules should preempt any state or local government law that is different from the applicable regulations and “would restrict or interfere with the servicing, marketing, sale, dispensing, use, customer support, or distribution of over-the-counter hearing aids, as defined under section 520(q) of the Federal Food, Drug, and Cosmetic Act, through in-person transactions, by mail, or online.”  While some comments, including those from 41 State Attorneys’ General, raised concerns about the implications of the ambiguity of that preemption proposal and the application to state law, FDA decided against any further clarification.  Essentially, FDA stated that it will look to the plain terms of “restrict or interfere” to determine whether a state law should be preempted, and states can reach out to the CDRH ombudsman for clarification.

Of particular note is that there are numerous consumer protection laws baked into state hearing aid laws, and while they may be protected under FDA’s approach to preemption, it is not entirely clear because the preemption provisions, on their face, could be interpreted in multiple ways.  In response to these concerns, FDA noted that state consumer protections are “not necessary to provide reasonable assurance of the safety and effectiveness of OTC hearing aids.”  Rather than directly addressing consumer protection concerns therefore, FDA explained that it would assess preemption of specific state consumer protection provisions on a case-by-case basis.  Nonetheless, FDA stood firm in its position that consumer protections would not “restrict or interfere” with OTC hearing aid distribution but drew no hard-lines that would provide guidance to states and industry.  FDA explained that its intent in adopting the preemption provision language was merely to codify the preemption language as set forth in FDARA.

Further, FDA explained that state consumer protection laws can continue to be imposed through any licensing requirements that remain for hearing care professionals, meaning that some consumer protection laws may apply to some OTC hearing aids but not others depending on the seller.  In other words, it’s a get-what-you-pay-for type situation.  Where a consumer spends additional money to receive an OTC hearing aid from a licensed professional, the consumer protections required to be provided by the licensed professional apply; otherwise, those consumer protections may not, as state consumer protections typically are required only of licensees.  Inherently, the Agency has set up a system in which any seller of a given hearing aid that has a license is required to comply with more stringent state regulations than one without.  Thus, consumers worried about protections can either shop with a licensed professional or can rely on FTC to enforce its regulations precluding false and misleading advertising and unfair or deceptive business practices.  In other words, consumer protections are not, and will not be, FDA’s problem.

It’s clear that FDA put a lot of thought and consideration into these Final Rules, but it remains to be seen how the proliferation of OTC hearing aids will affect uptake and consumer retention.  Success here depends on FDA enforcement, as there is no premarket review for regular OTC hearing aids.  But the Agency has not made hearing aid enforcement a priority in previous years, which is why “[s]everal comments shared a concern for an influx of unsafe or ineffective devices to the marketplace, for example, devices that do not satisfy the requirements of the OTC Hearing Aid Controls because of lax enforcement and/or manufacturers or sellers evading regulatory controls necessary for reasonable assurance of safety and effectiveness of OTC hearing aids.”  And FDA makes no promises here of increased enforcement now that the Final Rule is out; in fact, the Agency states that it “intends to apply existing practices for monitoring the market and will take action, including enforcement as necessary and appropriate.”  Existing practices for monitoring the market and enforcement—even in the face of the trade complaints that FDA encourages in the Final Rule Preamble—has led to almost no enforcement in the last five years.  Without increased resources devoted to enforcement now to ensure compliance with the Final Rule, it will be difficult to ensure that market entrants are complying with the detailed design and labeling requirements that FDA has established in this rulemaking, and, without that strong enforcement, OTC hearing aid consumers have no other safeguards.  While it’s great that FDA has published such detailed and thoughtful Final Rules, consumers may not be able to actually—and safely—hear using OTC hearing aids without FDA’s committed oversight.

The Final Rule goes into effect 60 days from publication on October 17, 2022.  Unless a device is currently on the market and does not require a new 510(k), FDA expects that any hearing aid complies with these regulations as soon as the law is in effect.  Legally marketed devices that do not need a new 510(k) must comply with these regulations by April 14, 2023.

On August 5, the United States Department of Agriculture’s Agricultural Marketing Service (AMS) announced a proposal to amend the organic livestock and poultry production requirements by adding new provisions for livestock handling, transport for slaughter, and avian growing/living conditions, as well as provisions to clarify existing requirements for livestock care and production practices. This proposed rule reverses the withdrawal by the Trump Administration in 2018 of the 2017 Organic Livestock and Poultry rule (the 2017 rule took ten years to develop).

As we previously reported, the Trump Administration justified the withdrawal of the rule by arguing that it was not AMS’s job to regulate humane treatment of animals. In addition, AMS had concluded that the Economic Analysis of the final rule was flawed.  The withdrawal of the rule resulted in four years of litigation.  See here for information about this litigation.  In the end, the U.S. District Court for the Northern District of California decided in favor of allowing the USDA to redo and update its rulemaking.

The proposed rule essentially reinstates the 2017 rule.   It addresses a range of topics related to the care of organic livestock.  Much of the proposed rule focuses on clarifying and codifying existing practices, but for poultry, additional indoor space and access to outdoors are added.

Livestock health care practices — Certain physical alteration procedures, such as debeaking and tail docking, will be prohibited or restricted for use on organic livestock. The proposal also includes requirements for euthanasia to reduce suffering of any sick or disabled livestock.

Living conditions —Requirements were a major issue of contention in the previous rulemaking.  The proposed rule sets separate standards for mammalian and avian livestock. The proposed avian livestock living standards set maximum indoor and outdoor stocking densities to ensure the birds have sufficient space to engage in natural behaviors, and essentially prohibit  what are often referred to as screened-in “porches.”. Generally, these porches consist of small enclosures placed just outside of the chicken houses.  Chickens can access these porches from inside the chicken house. However, according to opponents of the use of porches, these porches are not what consumers would consider access to the outdoors.  The proposed rule would make such porches an item of the past.  An outstanding item for which AMS requests feedback is the implementation of the outdoor access requirement (instead of porches).  In one of the three options, AMS would give existing facilities for layers 15(!)  years to come into compliance with the outdoor access requirements.

Transport of animals — The proposed rule adds new requirements on the transport of organic livestock to sale or slaughter.

Slaughter — The  proposed rule adds a section clarifying how organic slaughter facility practices and USDA Food Safety and Inspection Service regulations work together to support animal welfare.

AMS will host a virtual listening session on Aug. 19 from noon to approximately 2 p.m. EDT.  The deadline to register for oral comment is 11:59 p.m. EDT, Aug. 15. https://www.ams.usda.gov/event/listening-session-organic-livestock-and-poultry-standards.

Comments to the proposed rule may be submitted until Oct. 11, 2022.

Those of us who work frequently on FDA inspections of drug and medical device manufacturing facilities have noticed an uptick in regular inspections after a dramatic falloff during the first two years of COVID.  That impression was corroborated this week at the GMP by the Sea conference when Douglas Throckmorton, Deputy Director for Regulatory Programs at FDA’s Center for Drug Evaluation and Research, stated that domestic FDA inspections of facilities have been performed at “standard operational levels” since October 2021.  He added that FDA’s foreign offices have also resumed performing inspections for nearly six months now, except in China, where Zero-COVID policies complicate logistics and scheduling.

More surprising was Dr. Throckmorton’s statement that one area of FDA inspections has been deliberately and significantly reduced from pre-COVID levels: inspections that are required of facilities manufacturing drug products or drug components (like Active Pharmaceutical Ingredients) prior to approval of a new Drug Application, Abbreviated New Drug Application, or Biologics License Application.  These are called Pre-Approval Inspections, and, when COVID difficulties would otherwise delay inspections leading to drug approvals, numerous applicants have struggled with trying to expedite these inspections, or to convince FDA that the PAIs are unnecessary.  Dr. Throckmorton stated that the number of required PAIs has been reduced by about 50%, as a result of re-examining the necessity of so many PAIs (he said PAIs used to be required for about 20% of applications).

Both he and Alonza Cruse, the Director of the FDA office responsible for, among other things, facility inspections (he heads the Office of Pharmaceutical Quality Operations), emphasized that a lot of the changes effectuated in response to COVID will be permanent.  The agency has re-examined whether, from a risk perspective, so many on-site inspections are necessary, either because the risk of problems at a particular facility is low, or because alternatives (such as records inspections or what FDA refers to as “remote interactive evaluations”) can substitute for on-site inspections.

Mr. Cruse also mentioned that FDA has been putting a premium on performing PAIs – or on finding alternatives – to permit FDA to take action on drug applications by the PDUFA (Prescription Drug User Fee Act) and GDUFA (Generic Drug User Fee Act) date goals.

In response to my question, Mr. Cruse said that FDA has performed probably fewer than 10 of what FDA calls “Remote Interactive Evaluations” at drug manufacturing facilities since the FDA guidance was issued permitting these forms of virtual inspections.  Mr. Cruse pledged that the frequency of these inspections would increase.

The GMP by the Sea conference is a regular conference (it was held annually until COVID hit) sponsored by PharmaConference (www.pharmaconference.com).

The Inflation Reduction Act of 2022 (“IRA”) has now passed both the Senate (on August 7) and the House (on August 12), and is headed to President Biden for signature.  We have prepared a slide deck that summarizes Subtitle B of the IRA, entitled “Prescription Drug Pricing Reform.”  The slide deck is available here.  The major provisions of Subtitle B, which are described in more detail in the slides, are briefly outlined below:

• Price negotiation under Medicare Parts B and D: For each year starting in 2026,  the Department of Health and Human Services (“HHS”) will negotiate the selling prices of a certain number of selected high-expenditure single-source drugs and biologics.  The number will begin in 2026 with 10 drug covered under Medicare Part D and will increase annually to 20 Part B and 20 Part D drugs by 2029 and thereafter, with the selected drugs accumulating from year to year.  Drugs that have been approved within the previous 7 years and biologics that have been approved within the previous 11 years cannot be selected for negotiations.  The negotiations will result in a Maximum Fair Price (“MFP”) that the manufacturer must make available to providers furnishing the drug under Medicare Part B or pharmacies dispensing the drug under Part D.  The MFP cannot exceed a statutory ceiling based on a percentage of the drug’s non-federal average manufacturer price (“NFAMP”), with the percentage decreasing the longer the drug has been on the market.
• Inflation rebates under Medicare Parts B and D: Starting in 1Q 2023, mandatory quarterly rebates will be imposed on manufacturers of single-source drugs and biologics covered under Part B that have price increases exceeding the rate of inflation. Similarly, for the fiscal year starting October 1, 2022, mandatory annual rebates will be imposed for certain Part D drugs, biologics, and biosimilars with price increases exceeding the rate of inflation.
• Medicare Part D redesign: The IRA changes Medicare Part D starting in 2025 by lowering the patient out-of-pocket (“OOP”) limit to $2,000, adjusted annually in subsequent years. The coverage gap will be eliminated, and the relative contributions of Medicare, Part D plans, the enrollee, and the manufacturer toward the costs of a drug will change for the periods before and after the OOP threshold is reached.  The current Coverage Gap Discount Program will be replaced by a new manufacturer discount program, through which drug manufacturers subsidize 10% of the enrollees’ brand drug costs below the OOP limit and 20% of the costs above that limit.
• Insulin: Any insulin approved under an NDA or BLA and covered under Medicare Part D or a Medicare Advantage plan will have no deductibles starting in 2023 and will have a monthly limit of $35 on copayments.  Starting July 1, 2023, the IRA will also limit to $35 the total monthly contribution by a Medicare Part B beneficiary for insulin purchased through a durable medical equipment (“DME”) supplier.
• Vaccines: Starting in 2023, Medicare Part D will cover all adult vaccines approved by the Advisory Committee on Immunization Practices (“ACIP”) without any deductible or coinsurance.  The same will be required under state Medicaid and CHIP programs by October 1, 2023.
• Biosimilar payment: The IRA will, for a five-year period, increase the Medicare Part B add-on payment for biosimilars for which the average sales price (“ASP”) does not exceed the ASP of the reference biologic.
• OIG PBM rebate regulation: Until January 1, 2032, the HHS OIG may not implement its 2020 regulation that amended the antikickback law safe harbors to exclude manufacturer rebates to Part D plans (and their PBMs) unless they are passed through to pharmacies.

Much has been written in the press and by analysts about the impact that these provisions will have on drug innovation, drug manufacturer revenues, and patient access.  Rather than adding to these predictions, we’d like to focus on what, to us, is ground-breaking about the IRA:  for the first time, mandatory price controls are imposed on drugs in the U.S.  With one recent and minor exception (see our blogpost here), all of the government discount and rebate programs heretofore have been founded on agreements between the government and manufacturers.  These agreements are voluntary, and in exchange for signing them a manufacturer obtains the benefit of coverage or procurement under federal health care programs.  The Congressional sponsors of these programs deliberately made them voluntary precisely in order to avoid imposing price controls, consistent with the traditional view in the U.S. that price controls distort markets and reduce competition.  They also hoped to avoid Takings Clause or other constitutional challenges.  Those constraints have now been abandoned.  Under the IRA, the obligations to negotiate and adhere to an MFP and pay inflation rebates to Medicare are mandates, enforced by excise taxes and/or monetary penalties – in the case of the MFP requirements, draconian monetary penalties.  Manufacturers receive no benefits in exchange for the inflation rebates.  In return for providing the MFP, manufacturers of selected drugs do receive coverage, but high utilization drugs are certain to have coverage anyway.  Adding to their compulsory nature, many elements used in the determination of the mandated discounts, including the number of units subject to inflation rebates, whether a drug is a rebatable drug, and the amount of an inflation rebate, will be determined unilaterally by HHS with no dispute process and no possibility of administrative or judicial review, which are precluded in the law.

While opinions may differ on the wisdom of mandatory drug price controls as a matter of health care policy, there can be no doubt that, with the IRA, they are here now.  The dam having been breached, we are likely to see more of them in the future.

For years, FDA has been wrestling with questions about what patents should be listed in the Orange Book, but, as we have reported, FDA has made little to no progress on addressing those questions.  One of those pressing questions that remains unanswered involves the listing of REMS patents in the Orange Book.  While FDA asked for Comments in 2020 about whether REMS patents, among others, “are in fact the type of patents that must be submitted” for listing in the Orange Book, FDA has not yet taken a position on the issue.  With no guidance from FDA, sponsors have listed their REMS patents in the Orange Book, requiring follow-on sponsors to certify to those REMS patents upon submission of their 505(b)(2) NDAs or ANDAs.  Though the Agency has not officially blessed listing REMS patents in the Orange Book, a recent lawsuit challenges FDA’s facilitation of such a listing by requiring a patent certification to a REMS patent listed in the Orange Book where the proposed follow-on developed its own REMS and proposed to carve-out the method of use claimed in the listed REMS patent.  Essentially, the lawsuit asks, does FDA have the authority to compel patent certifications where a section viii statement has been filed?

In July, Avadel CNS Pharmaceuticals (“Avadel”) sued FDA (here and here) over a 16-page decision requiring Avadel to certify to a method-of-use REMS patent listed in the Orange Book with use code, U-1110, a “method of treating patients with a prescription drug using a computer database in a computer system for distribution”—or as Avadel puts it, “the use of a ‘computer database.’”  Avadel submitted a 505(b)(2) NDA for Lumryz, a sodium oxybate drug product referencing Jazz Pharmaceuticals’ Xyrem.  Xyrem is listed in the Orange Book with multiple patents, including the aforementioned method-of-use patent, U.S. Patent Number 8,731,963 (the “’963 patent”), which describes Jazz’s single, centralized REMS drug distribution database with use code U-1110.  Because Avadel intended to use its own REMS rather than Jazz’s, Avadel did not certify to the ‘963 patent but instead submitted a section viii statement confirming that the patent does not “claim a use for such drug for which the applicant is seeking approval.”  Despite this section viii statement, FDA, more than a year and a half after NDA submission—525 days to be exact—ordered Avadel to certify to the ‘963 patent based on the conclusion that the Lumryz REMS’s use of four computer databases for distribution overlaps with the U-1110 use code.  In other words, because the U-1110 use code describes the use of “a computer database in a computer system for distribution,” and because the proposed Lumryz REMS will use four computer databases for distribution, FDA determined that the patent does claim a use for which the applicant is seeking approval.

Avadel certified to the ‘963 patent “under protest” in June 2022, Jazz sued Avadel for infringement of the ‘963 patent on July 15, 2022, and FDA tentatively approved the Lumryz NDA on July 18, 2022.  Because Jazz timely sued Avadel, the lawsuit triggered a 30-month stay, which effectively precludes final approval of the Lumryz NDA until the expiration of the patent in June 2023.

Looking at an almost-one-year delay before final approval of Lumryz, Avadel filed suit against FDA alleging that FDA violated the Administrative Procedure Act by requiring certification to the ‘963 patent and thereby delaying final approval.  Avadel argues that the decision whether to file a patent certification or a section viii statement rests solely in the “opinion” of the new drug “applicant” under the plain language of the statute set forth in 21 U.S.C. § 355(b)(2), and FDA therefore lacks statutory authority to “second-guess Avadel’s decision to file a patent statement, rather than a patent certification.”  Accordingly, Avadel argues that FDA does not have legal basis to compel a patent certification to the ‘963 patent.

First, Avadel explains that the U-1110 use code “does not describe the use of any drug, much less sodium oxybate,” and thus does not trigger the patent certification requirement.  Nor does FDA have the authority to look beyond the Lumryz labeling to its REMS document for a use that overlaps with the listed use code, Avadel argues.  Finally, Avadel explains that its REMS does not use “a computer database in a computer system for distribution,” but uses multiple computer databases to implement the Lumryz REMS and therefore does not overlap with the U-1110 use code.  Thus, Avadel believes that FDA’s decision ordering Avadel to submit a patent certification with respect to the ‘963 patent is arbitrary, capricious, an abuse of discretion, not in accordance with law, in excess of statutory jurisdiction and authority, and short of statutory right.  In a second claim, Avadel also alleges that FDA’s prolonged review of the Lumryz NDA unlawfully withheld agency action.

The argument that the statute does not provide FDA authority to require a patent certification rather than a section viii statement is interesting.  Textually, it makes sense.  After all, 21 U.S.C. § 355(b)(2) calls for certification based on “the opinion of the applicant and to the best of his knowledge.”  This seems to delegate decision-making authority regarding the proper patent certification to the applicant.  But under this interpretation, FDA would not be able to disagree with a sponsor’s certification decision, which seems like it could be ripe for abuse—and really pretty impractical.  That said, practicality doesn’t have anything to do with statutory interpretation.

Another interesting question this suit raises is whether FDA can look beyond the labeling to determine whether a section viii carve-out is acceptable.  Because FDA regulations state that a patent certification is necessary “[i]f the labeling of the drug product for which the application is seeking approval includes an indication or other condition of use that, according to the patent information submitted under section 505(b) or (c) of the Federal Food, Drug, and Cosmetic Act and § 314.53 or in the opinion of the applicant, is claimed by a method-of-use patent,” (emphasis added) Avadel argues that FDA’s review of the Lumryz REMS document to assess the use code overlap—rather than the Prescribing Information alone—violated FDA regulations.  This is an important question because FDA frequently assesses the propriety of use code carve-outs in Citizen Petitions and, in that assessment, often looks at the impact of a carve-out on doctors’ prescribing decisions.  If FDA is not permitted to look beyond the confines of the Prescribing Information to assess a carve-out, FDA likely could not rely on the implications of the omission of that carved-out language beyond the actual instructions for use in the labeling to the foreseeable use of those instructions.

Further, Avadel’s suit is also challenging the propriety of listing REMS patents in the Orange Book when that patent doesn’t cover a specific drug product.  Indeed, Avadel questions whether a patent certification for the REMS patent as the use code in question “does not describe the use of any drug, much less sodium oxybate” and therefore should not “trigger a patent certification” under section 505(b).  If a patent shouldn’t trigger a certification, it follows then that that patent shouldn’t be in the Orange Book.  Thus, it seems that this lawsuit implicitly challenges FDA’s current approach—or lack thereof—to listing in the Orange Book (and thereby requiring certification to) patents that don’t explicitly claim the drug substance.

If the Court opines on whether REMS patents that do not claim the drug product specifically should be listable in the Orange Book, the District Court of D.C. will join the First Circuit in exploring the types of patents that should be eligible for listing in the Orange Book.  The First Circuit, in 2020, was the first to weigh in on the propriety of listing patents in the Orange Book when, in the context of an antitrust case, it declared that device component patents that do not explicitly claim the drug product cannot be listed in the Orange Book.  Though FDA has since opened a docket to explore the issue of these types of patents in the Orange Book, the Agency’s inaction may result in the court deciding the issue on FDA’s behalf.

In a recent decision, the Second Circuit upheld the HHS Office of the Inspector General (OIG)’s position that Pfizer’s proposed copay assistance program for its high-cost heart treatment would violate the Federal Anti-Kickback Statute (AKS).  Pfizer, Inc. v. U.S. Department of Health and Human Services et al., July 25, 2022.  In the course of explaining its decision, the Court interpreted several aspects of AKS, including:

• The meaning of “induce” (according to the Court, it is persuading someone to take an action, with or without “bad motives”);
• The meaning of “willfully” (it is voluntarily and intentionally violating a known legal duty);
• Whether corrupt intent is required for a violation (it isn’t);
• Whether “remuneration” is limited to kickbacks, bribes, and rebates (it isn’t); and
• Whether the Beneficiary Inducement Statute (BIS) is relevant to interpreting the AKS (essentially, no).

Background

Pfizer manufactures tafamidis, a breakthrough treatment for a rare, progressive heart condition known as transthyretin amyloid cardiomyopathy.  Pfizer set the price of tafamidis at $225,000 for each one-year course of treatment.  Under Medicare’s pricing formula, beneficiaries who take tafamidis are responsible for a copay of approximately $13,000 per year.  Recognizing that this out-of-pocket cost still represents a significant financial barrier for many patients, Pfizer proposed a Direct Copay Assistance Program for Medicare Part D beneficiaries using tafamidis.  On June 27, 2019, Pfizer sought an OIG advisory opinion to ensure that its proposal would not run afoul of federal law.

Under the proposed program, Pfizer would directly cover nearly all of a Medicare Part D beneficiary’s copay for tafamidis, subject to certain eligibility criteria, including financial need.  Eligible patients would be responsible for only $35 per month, and Pfizer would cover the rest of the approximately $13,000 annual copay.  The Medicare program would pay the remainder of the $225,000 annual cost.

Pfizer emphasized to OIG that it would not offer this copay assistance as part of any advertisement or solicitation for tafamidis.  In its request to OIG, Pfizer argued that “offering co-payment assistance to help eligible patients afford a clinically-appropriate medication, when such medication is the only approved medication for the disease and the principal reason that patients would not fill their prescription is the inability to pay their out-of-pocket costs, does not improperly induce the underlying prescribing decisions.”

OIG disagreed.  In September 2020, the Agency issued an unfavorable advisory opinion to Pfizer, concluding that the proposal was “highly suspect” under the AKS “because one purpose of the [proposed program]—perhaps the primary purpose—would be to induce Medicare beneficiaries to purchase [Pfizer’s] federally reimbursable Medications.”  OIG argued that copay assistance “induces” a beneficiary to purchase a medication when the assistance removes a financial barrier, even if the medication is one that the beneficiary needs and would have purchased if they had the financial means to do so:

“[W]here a Medicare beneficiary otherwise may be unwilling or unable to purchase the Medications due to his or her cost-sharing obligations, which are driven by the list price of the Medications, the [proposed program] would induce the beneficiary to purchase the Medications by removing the financial impediment, and the Medicare program would bear the costs for the Medications.”

Pfizer challenged the Agency’s interpretation as contrary to law under the Administrative Procedure Act (APA) in the Southern District of New York.  That court granted summary judgment to the government on the APA claim and rejected Pfizer’s narrower reading of the AKS, which would require an element of “corrupt” intent to impose AKS liability.  Pfizer appealed to the Second Circuit.

The Second Circuit’s Interpretation of the Anti-Kickback Statute

The AKS makes it a criminal felony to knowingly and willfully offer or pay any remuneration (including a kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to induce a person to, inter alia, purchase, or arrange for the purchase of, a drug reimbursed in whole or in part by a federal healthcare program, such as Medicare Part D.

In affirming the district court’s decision, the Second Circuit held that Pfizer’s proposed program “falls squarely within the AKS’s prohibitions” because it “is specifically designed to induce Medicare beneficiaries to purchase Pfizer’s tafamidis, a federally reimbursable drug.”  In line with the district court, the Second Circuit concluded that the plain meaning of the terms “remuneration” and “induce,” as used in the AKS, describe a payment that persuades another to take a certain course of action.  The Court expressly stated that that “the plain meaning of ‘remuneration’ is clearly broader than a kickback, bribe, or rebate,” referencing Congress’s 1977 statutory expansion of the AKS to cover “any remuneration” (emphasis added).

In relying on the plain meaning of the term “induce,” as the district court had done, the Second Circuit clarified the definition as:  to “entice or persuade another person to take a certain course of action” (internal brackets omitted).  Contrary to Pfizer’s contention that the term implies a corrupt intent, the Court found it to be “neutral with regard to intent—one can persuade another to take an action with good or bad motives.”

Similarly, the Court drew on the plain meaning of “willfully” to reject Pfizer’s argument that the term suggests “an element of corruption.”  The Court instead concluded that the term, as used in the AKS, is “more accurately understood as a voluntary, intentional violation of a known legal duty…the mens rea element goes no further” (internal quotations omitted).  Consistent with the district court, the Second Circuit likewise “found nothing in the text of the AKS” indicating that corrupt intent is a required element of an AKS violation.  On the contrary, referring to the statement in the statute itself that “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of this section,” the Court concluded that a person can “willfully violate the AKS as long as he knows that his conduct is illegal, even if he is not aware of the exact statutory provision that his conduct violates.”

Lastly, in rejecting Pfizer’s argument that the AKS should be read more narrowly than the BIS, the Second Circuit found “no reason to interpret the AKS by reference to the text of the BIS…[A]lthough the two statutes have similar subject matter, they prohibit different activities.” Further, “there is little utility in comparing the language of the BIS to that of the AKS.”

The Lesson of this Case

We have blogged before about the OIG’s longstanding view that drug manufacturer copay subsidies violate the AKS, and the Department of Justice has followed suit with a number of cases challenging manufacturer copay subsidies under the AKS and the Federal False Claims Act.  Most of these cases have settled out of court (see, for example, Actelion Pharmaceuticals, 2018; Astellas Pharma and Amgen, 2019; Gilead Sciences, 2020).  Lilly, on the other hand, sought vindication of its copay program in court, possibly because Lilly thought the facts of the case painted a picture that seemed to show anything but corrupt or bad intent.  After all, Lilly offered access to treatment for critically ill patients in financial need who would otherwise have to forego treatment or be saddled with a $13,000 per year copay.  The decision in this case is a stark reminder that, however serious the disease and however beneficial a copay assistance program might be to patient access to treatment, manufacturer copay programs that include government beneficiaries are at high risk under the AKS.

Join members of the Judiciary and leading pharmaceutical patent litigators from brand name and generic drug companies at the American Conference Institute’s 8th Annual Paragraph IV Disputes Master Symposium taking place September 21-22, 2022, in Chicago!

As the industry prepares to address the fallout of global pharmaceutical patent losses of billions of dollars and the impact of evolving law, regulation and policy impacting the Hatch-Waxman landscape, the time for this conference has never been more relevant.

Ryan Daniel, Chief Patent Counsel from Fresenius Kabi USA, and 2022 Co-Chair says, “We’re excited to participate in ACI’s 8th Annual Paragraph IV Master Symposium, here in Chicago and in person for the first time in three years. It’s a very welcome opportunity to connect and engage with colleagues and the judiciary regarding the evolving landscape of Hatch-Waxman law and the pharmaceutical industry.”

Linda Friedlieb, Division Counsel from AbbVie, also 2022 Co-Chair adds, “The PIV conference attracts broad participation from key in-house and outside counsel, as well as the Patent Office and judges. It’s an excellent opportunity to cross-pollinate ideas and strategies.”

Along with this year’s 2022 co-chairs, join U.S. District Court Judges from District of Delaware, District of New Jersey, Eastern District of Pennsylvania, government representatives from key agencies, in-house counsel and law firms.

Register today (here) and save 10% with the FDA Law Blog promo code: D10-999-FDALAWBLOG.

The American Conference Institute is hosting their 39th FDA Boot Camp from September 14-15, 2022.  The conference will be held virtually.

Gain insight and training in core regulatory concepts for life sciences attorneys, business executives, and policy analysts.

The approval process, pre-approval concerns, product labeling, clinical trials, adverse events reports, patent concerns, and exclusivity – these are all critical aspects in the commercialization process for drugs and biologics that are governed by the FDA. It is important for attorneys who do not have regulatory practices and life sciences executives who deal with FDA-regulated products to have a familiarity with these concepts.

For this reason, ACI’s FDA Boot Camp returns for its 39th iteration – in a fully virtual format – with the continued intent of providing these individuals with an essential working knowledge of core FDA concepts, and real-world examples that will help them to excel in their everyday practices.

Conference Highlights Include:

Preeminent members of the nation’s Food and Drug bar will drill you in the essentials of FDA law and regulation and help you:

• COMPREHEND the structure of FDA and the roles of the three major agency centers: CDER, CBER, and CDHR
• MASTER the basics of the application and approval processes for drugs and biologics
• APPRECIATE the complexities of pharmaceutical IP and the regulatory balance between brand name and generic products
• GAIN a practical working knowledge of clinical trial process for pharmaceutical products
• RECOGNIZE the pivotal role of labeling in the drugs and biologics approval process
• DECIPHER the requirements for the advertising, marketing, and promotion of drugs and biologics
• UNDERSTAND the importance of cGMPs to the post-approval regulatory process

Register today (here) and save 10% with the FDA Law Blog promo code: D10-999-FDALAWBLOG.

Teva may be down, but it’s not out yet.  By now, the ongoing Teva v. GSK litigation— concerning induced infringement of patents covering the use of carvedilol in decreasing mortality caused by congestive heart failure in a patient—is well-worn territory (see our multiple posts on it here, here, here, and here).  Filed initially in 2014, the case has been through an unusual procedural history: Teva initially lost in the District Court of Delaware but the District Court overturned the jury verdict on a Judgment as a Matter of Law; the Court of Appeals for the Federal Circuit overturned the Judgment as a Matter of Law and reinstated the jury verdict; Teva petitioned for a rehearing, and, after a rehearing by the same panel, the Federal Circuit affirmed its earlier decision to overturn the Judgment as a Matter of Law.  Ultimately, the Federal Circuit panel rehearing decision was based on a “narrow, case-specific review” of evidence as to whether Teva sufficiently carved-out the protected use from its labeling (notwithstanding that the labeling carved out the use code GSK listed in the Orange Book) so that the remaining language did not encourage infringement of the patent.  Spoiler alert: The Federal Circuit rehearing panel determined that Teva failed to execute a “true section viii carve-out” and therefore its labeling is evidence of inducement.  The Federal Circuit declined to address whether the practice of skinny-labeling itself induces infringement but instead called for a fact-specific analysis of any allegedly infringement-inducing skinny-label.

On the heels of the Federal Circuit’s rehearing loss, Teva, unsurprisingly, has appealed the case to the Supreme Court.  Appeal of this decision is important because the Federal Circuit’s rehearing decision raises concerns as to the future of the carve-out due to the potential for induced infringement litigation—particularly because the Federal Circuit left no clues as to the standard for a “true section viii carve-out.”  To Teva, the question presented is simple: “If a generic drug’s FDA-approved label carves out all of the language that the brand manufacturer has identified [in its patent use code listed in the Orange Book] as covering its patented uses, can the generic manufacturer be held liable on a theory that its label still intentionally encourages infringement of those carved-out uses?”  Of course, GSK would frame it a little differently, questioning whether labeling language that doesn’t fully carve out the patented use should be protected from induced infringement liability.  Each has its own policy concerns based in the construct that governs the entirety of the Hatch Waxman compromise, which implemented the carve-out provisions: Access and affordability weighed against the reward for innovation.  Right now, however, Teva’s side of the story is front and center as Teva asks the Supreme Court to dive into the very important conflict of law.

Two fundamental takeaways underlie Teva’s Petition for Certiorari.  First, and emphasized heavily throughout the Petition, is the uncertainty that this decision creates in the generic industry.  The lack of predictability in the safe usage of the carve-out is a serious problem that could lead generic drug manufacturers to stop relying on the practice; after all, if you can’t tell whether a carve-out is a true carve-out (or you can’t do a true carve-out due to the listed use code), you’re launching at risk of induced infringement litigation.  Should generic drug manufacturers abandon the practice, method-of-use patents covering one indication would effectively extend coverage over a second, non-patent protected indication.  Such a scenario, if it happens, could delay generic entry for any and all indications thereby undercutting the government’s drug pricing initiatives and attempts at addressing tactics used to delay competition, which are issues that the government has raised over and over again.

The second point the Petition raises is that “[t]he carve-out statute cannot function if every carve-out leads to a jury trial.”  And that’s exactly the system that the Federal Circuit has set up here.  By availing brand sponsors of the “induced infringement” argument based only on a highly “fact-specific” inquiry, the Federal Circuit has set up a vague standard that fundamentally requires examination by a judge to assess the adequacy of a carve-out.  There are no guidelines upon which a generic manufacturer can assess a carve-out, and there’s little disincentive for a brand sponsor (with means to sue) to ask a court to weigh in even where a patented use may be completely carved-out.  Thus, brand manufacturers can roll the dice and see what the district courts, and eventually the appellate courts, have to say about any given carve-out.  While a brand sponsor may not always be successful, litigation is expensive—as are $235 million verdicts— and the threat alone may be enough to deter use of the carve-out for generic companies that lack the funding for protracted litigation

Notably, the Federal Circuit rehearing decision leaves room to exploit FDA’s reliance on the use code to dictate a permissible carve-out.  The rehearing decision emphasizes that use codes are not substitutes for the ANDA applicant’s review of the patent, and thus it is up to the generic sponsors to carve-out information in accordance with the patent.  While it is true that the use code is not intended to replace review of the patent, the problem here is that FDA only permits the carve-out of labeling information in accordance with the use code.  The Federal Circuit rehearing decision, if it stands, can be read to encourage brand sponsors to write narrow use codes; because the use code governs the information that FDA permits generic sponsors to carve out of the labeling, a narrow use code would require that information covered by the patent but not covered by the use code remain in the labeling, ultimately rendering the “true section viii carve-out” impossible.  Now, not only could a too-broad use code block carve-outs, a too-narrow use code would set-up an induced infringement suit—yet another  mechanism of “gaming” the system.  In turn, if the Federal Circuit’s rehearing decision stands, it points to the necessity for reform of the carve-out administration with a bigger role for FDA—or contribution by the PTO—to examine and assess use codes.  As the Petition says, the Federal Circuit rehearing decision essentially makes more work for FDA (or the PTO).

The skinny label may be a bad thing for brand companies, but it’s a system that Congress set up and codified, and neither of the Federal Circuit decisions really addressed the conflict of law.  It was decided as a patent case—and it is a patent case—but the problem here is the reverberation across the FDC Act, which does not seem to be a consideration for the majority.  Instead, both Federal Circuit majority opinions (initial and rehearing) ignore the conflict between patent law and the statutory section viii carve-out.  This is a serious problem because the Federal Circuit’s interpretation of the induced infringement statutory provisions is diametrically opposed to the language in the FDC Act; ultimately—and implicitly—the Federal Circuit has determined that patent law trumps the FDC Act without consideration of the impact on regulated industry.  And while the impact on industry should not necessarily be a factor in a court’s decision, the impact on the interpretation of existing and related statutory provisions should be.  Thus, the statutory conflict is a huge element of the case that should have been considered.  In other words, it’s not just a patent case—the patent laws must be looked at in the larger context of the entire U.S. Code.

It’s now up to the Supreme Court to address this major issue, and if the Supreme Court won’t do it, it’s up to Congress.  Otherwise, Teva and other generic manufacturers will really be knocked down—and the skinny label may never get back up again.

GSK makes its case to the Supreme Court—presumably asking the Court to reject Teva’s Petition for Certiorari—on September 12, 2022.

Happy Birthday Laboratory Developed Tests (LDTs).

Thirty years ago today, FDA announced that it had the authority to regulate you.  Not yet understanding how important you’d become, you entered the regulatory world without a name – the Agency simply referred to you as “home brew” products.  It has been a long, strange trip ever since.

There was no fanfare for this momentous “birth.”  If anything, the announcement was remarkably inconspicuous: a seemingly throwaway sentence in a draft compliance policy guide for research use only and investigational use only products.  U.S. Food and Drug Administration, Compliance Policy Guide, Commercialization of Unapproved In Vitro Diagnostic Devices Labeled for Research and Investigation (Aug. 3, 1992) (“It has come to the attention of FDA that laboratories have been manufacturing, “home brew” products, either from products already on the market, or from components, and utilizing these unapproved products for diagnostic purposes. These products are subject to the same regulatory requirements as any unapproved medical device”).  These two sentences turned out to be the opening salvo in a thirty-year battle – and counting – over how LDTs should be regulated.

Of course, FDA’s August 3, 1992 statement that it could regulate LDTs came long after laboratories began offering diagnostic tests.  It came 16 years after Congress passed the Medical Device Amendments of 1976, without saying a word about FDA authority over laboratory testing.  And it came four years after the comprehensive federal legislation governing laboratories, again without mentioning FDA or referring to such tests as devices.

FDA’s claim of authority over LDTs (née “home brews”) prompted a citizen petition disputing FDA’s position.  That was the first of many challenges to FDA’s assertion that it could regulate LDTs at all, let alone through guidance documents.  FDA denied the petition six years after it was submitted.  See FDA Response to Citizen Petition from Jeffrey N. Gibbs, Hyman, Phelps & McNamara, Docket No. 92P-0405 (Aug. 12, 1998) (available here).

Since then, the battle has waxed and waned.  At times, FDA was on the verge of issuing formal guidance, only to retreat.  See our prior posts here and here.  Other times, the issue was quiescent.  Yet thirty years after FDA’s pronouncement that it could regulate LDTs, the Agency’s core position hasn’t changed: it has the legal authority to regulate LDTs.  At the same time, FDA’s basic operational stance hasn’t changed much either.

In the LDT’s “toddler years,” when issuing its analyte specific reagent rule in 1997, FDA stated that it would generally exercise enforcement discretion over LDTS.  Like any good worn down parent of a wild toddler, the Agency perhaps realized it had more than it could handle when it came to its dear, sweet LDTs.  That is still FDA’s core position, albeit with nuances, e.g., FDA reserving the right to regulate tests developed in one lab and licensed to another (see here) and declaring that “direct-to-consumer” tests do not qualify as LDTs (see here).

What has changed since 1992 is the role that LDTs play in the health care system.  As with any “child” they’ve matured and developed as they’ve grown into adulthood.  Tests created by labs were important in 1992, but they play a far more vital role in medicine today.  Nobody knows how many LDTs exist today, but it is clear that many of the most novel, innovative tests are LDTs.  That growth has, unsurprisingly, led to different views about regulation of LDTs.  Advocates of greater regulation point to the proliferation of clinically significant tests as evidence supporting the need for more oversight.  Opponents view the same facts in precisely the opposite way: it is critical that government regulation not stifle this innovation.

As we began to prepare this blog, we thought it might be both birthday card and death notice for LDTs.  Over the years there have been multiple attempts by Congress to pass legislation that would give FDA explicit power to regulate LDTs.  Leib, J. R. (2021). Proposed Federal Legislation on the Oversight of Diagnostics. J. Gibbs & A. Mullen.  Diagnostics at a Crossroads: Navigating IVD Regulation in a Changing Environment. Food & Drug Law Institute.  These efforts have faltered and failed.

More recently, the VALID Act has been wending its way through Congress.  See here.  This comprehensive bill would create a single category of In Vitro Clinical Tests (IVCTs), that would subsume both distributed assays (traditional in vitro diagnostic devices) and LDTs.  (If VALID were enacted, lab tests would have gone from unnamed, to home brews, to LDTs, to IVCTs in roughly 30 years, raising the question of whether an LDT, by any other name, would be as sweet).  For much of the year, it appeared that VALID would pass, and the term LDT would eventually become the answer to an obscure trivia question about obsolete regulatory acronyms.  More recently, the momentum for VALID appears to have stalled, and its fate hangs very much in the balance.

Meanwhile, the controversy remains as vigorous as ever. Proponents continue to urge passage.  See AdvaMed Welcomes Senate Committee Passage of MDUFA V Legislation (June 15, 2022).  On the other side, Sen. Rand Paul (R-Ky) wrote an op ed yesterday promoting his VITAL Act which presents significantly less regulatory burden for lab tests, citing the need for LDTs to address new diseases, such as monkey pox.  Rand Paul, The CDC royally messed up COVID testing and is now botching monkeypox testing, The Washington Examiner (Aug. 2, 2022) (here).  Of course, enactment of VALID will raise a whole host of new issues.  As Stephen Sondheim put it, “Just more questions.  Different kind.”

Whatever the regulatory future holds for tests run in labs, and regardless of their name, there is no doubt that tests developed and run in labs will continue to play an essential role in the U.S. health care system.  Laboratories, paraphrasing the Boss, will continue to say, “Baby, we were born to run – and develop – tests.”  And to paraphrase the Boss again: It remains to be seen whether LDTs soon be sighing that “glory days have passed me by,” or will “LDTs” play an even more pivotal role.

At least one public interest group and several members of Congress remain frustrated with the Biden Administration’s failure to take action to legalize cannabis.  Within the last month, the Cannabis Regulators of Color Coalition (“CRCC”) and handful of Democratic Senators have separately reached out to Biden Administration officials, including Attorney General Merrick Garland, requesting action to mitigate or eliminate federal prohibition on the use of cannabis.

As a reminder, cannabis remains a schedule I substance under the federal Controlled Substances Act (“CSA”), which by definition means it does not have an accepted medical use in treatment in the United States and thus cannot be legally sold or marketed for any purpose.  21 U.S.C. § 812(b)(1).  In contrast, as noted by both the public interest groups and members of Congress, 37 states have legalized cannabis for medical use, and almost 20 states and the District of Columbia have legalized cannabis for adult recreational use.

Cannabis Regulators of Color Request

The CRCC is an organization of cannabis regulators from jurisdictions where cannabis use is legal.  The Current and former CRCC officials submitted a letter on July 5th to the President, Vice President and Attorney General, opining on the necessity of restoring guidance embodied in the now infamous 2013 “Cole Memo,” and an earlier 2009  “Ogden Memo,” by providing clarity restricting the United States Department of Justice (“DOJ”) from “interfering with state-legal cannabis activity” in states that have legalized cannabis activity and have adopted “strong and effective regulatory and enforcement systems.”  Letter from Cannabis Regulators of Color Coalition to President Biden et al., 3 (July 5, 2022) [hereinafter CRCC Letter].

The “Cole Memo” was a memorandum from General James M. Cole providing guidance to U.S. Attorneys in August 2013 advising that DOJ would not take enforcement action against marijuana-related businesses operating in compliance with state law unless the businesses implicated one of eight specified enforcement priorities.  James M. Cole, Deputy Attorney General, Memorandum for All United States Attorneys (Aug. 29, 2013).  The guidance rested on the expectation that states that legalized marijuana would implement strong and effective regulatory systems to control cultivation, distribution, sale and possession.  However, in January 2018,  then-Attorney General Jeff Sessions rescinded the Cole and Ogden Memos.

The CRCC request comes in response to the less than clear guidance from  Attorney General Garland in testimony before Congress in April 2022, who, when asked whether he intended to reinstate the Cole guidance during a Senate subcommittee hearing, replied that the position taken and expressed during his confirmation had not changed.  Merrick Garland, Testimony Before the Senate Subcommittee on Appropriations, (01:06:35) (Apr. 26, 2022).  AG Garland stated during his confirmation that he did not “think it the best use of the Department’s limited resources to pursue prosecutions of those who are complying with the laws in states that have legalized and are effectively regulating marijuana.”  Merrick Garland, Responses to Questions for the Record to Judge Merrick Garland, Nominee to be United States Attorney General, 24.

The CRCC asserts that DOJ should “prioritize enforcement against federal offenses that pose a clear and legitimate threat to the public safety, health, equity, or the environment” and enforcement efforts “must not disproportionately target people of color.”  CRCC Letter, 3.  CRCC also requests such guidance should explicitly protect patients using cannabis for medical treatment.  The CRCC also states that clarifying that DOJ will refrain from prosecuting cannabis stakeholders whose activities are legal under state law and do not implicate a federal enforcement priority would provide needed assurance for individuals and companies who have heavily invested in the cannabis industry.  Such clarification is required so long as cannabis remains a federally-controlled schedule I controlled substance and not is similarly controlled or non-controlled under state law.   

Democratic Senators’ Request

An unrelated letter from six Democratic Senators, written a day after the CRCC letter and , presses the Administration to federally decontrol cannabis.  The July 6th letter, signed by Senators Elizabeth Warren, Cory Booker, Bernie Sanders, Edward Markey, Kirsten Gillibrand and Ron Wyden, follows an October 6, 2021, letter to the Attorney General from Warren and Booker and was written after receiving an “extraordinarily disappointing” DOJ response on April 13th “noting the Department of Health and Human Services’ (HHS) determination that ‘cannabis has not been proven in scientific studies to be a safe and effective treatment for any disease or condition’” as the reason DOJ has not begun the descheduling process.  Letter to President Joseph Biden, et al. from Senator Elizabeth Warren, et al., 1 (July 6, 2022).

The group of Democratic Senators argue that DOJ and the Drug Enforcement Administration (“DEA”) can begin descheduling and act independently of HHS’ determination.  The letter reiterates the point made in Warren’s and Booker’s October 2021 letter that the CSA authorizes the Attorney General to initiate rescheduling or descheduling proceedings separately or at the request of the HHS or any interested party.  Essentially, the Democratic Senators are advocating that DOJ should move forward with a rescheduling or descheduling regardless of whether HHS recommends such action or, more critically in this case, whether HHS determines that cannabis has a legitimate medical use for treatment in the United States.  The latter presents an interesting conundrum where DOJ would likely be disagreeing with the current medical and scientific findings of HHS.  It is worth noting that the CSA provides that HHS medical and scientific findings on drugs are controlling.

The Senators boldly assert that “it is obvious that cannabis has widely accepted medical benefits, affirmed by medical and scientific communities” in the U.S. and around the world, including treatment of chronic pain, seizure disorders, cancer, multiple sclerosis and others.  Id. at 2.  They further note that the tetrahydrocannabinol-alpha (“THC”) and cannabidiol (“CBD”) of cannabis “make it an excellent alternative to highly addictive opiates for pain relief.”  Id.  The letter states that there have also been economic, racial justice, public safety and health benefits where cannabis has been legalized.

The Senators remind the Administration of the President’s campaign commitment to decriminalize cannabis and expunge prior non-violent cannabis convictions but most importantly, that then-Candidate Biden “also acknowledged the importance of removing cannabis from its current classification under the CSA as a Schedule I substance.”  Id. at 3.

Lastly, the Senators observe that they had asked the President in November 2021 to pardon all individuals convicted of non-violent cannabis offenses, and while not receiving response, commend his pardon and commutation of nine people convicted of non-violent cannabis offenses.

The Senators conclude that “[t]he Administration’s failure to coordinate a timely review of its cannabis policy is harming thousands of Americans, slowing research, and depriving Americans of their ability to use marijuana for medical or other purposes.”  Id. at 4.  They ask the Administration to act swiftly “to rectify this decade long injustice harming individuals, especially Black and Brown communities.”  Id.

In a related action, Senator Booker introduced, with several Senators who signed the July 6th letter sponsoring, the Cannabis Administration and Opportunity Act (S. 4591) on July 21st.  this appears to be a bill directed at decriminalization of cannabis.  We will weigh in on the bill when its text is publicly available.

Finally, we note, that the CSA also provides that Congress has the authority to reschedule or decontrol any drug or substance through the legislative process.  With a majority of the states having passed some cannabis legislation, we wonder about the potential for Congress to amend the CSA to take such action.