The 340B drug pricing program has been booming, according to the Health Resources and Services Administration (“HRSA”), the agency under the U.S. Department of Health and Human Services (“HHS”), which reported that discounted purchases totaled $38 billion in 2020, a 27% increase compared to 2019.  The 340B program, authorized under Section 340B of the Public Health Services Act and administered by HRSA, imposes a ceiling price on pharmaceutical manufacturer sales to “covered entities,” which are certain health clinics that receive federal funding and certain types of safety net hospitals to provide them drugs at lower prices.  Manufacturers may choose not to participate in this program, but the federal government will not reimburse for their outpatient drugs under Medicaid or Medicare Part B if they do not.

A growing list of drug manufacturers are claiming that the discounts meant for low-income patients of 340B covered entities are instead contributing to profits for pharmacies that contract with covered entities to dispense 340B drugs.

Use of contract pharmacies ballooned after  a guidance issued by HRSA in 2010 allowed covered entities to use multiple contract pharmacies to dispense drugs to covered entity patients. By 2014, the HHS Office of Inspector General (“OIG”) found that the rise of contract pharmacy arrangements resulted in duplicate discounts and drug diversion, and a lack of access to 340B pricing at the contract pharmacies. A 2018 report by the Government Accountability Office (“GAO”) found similar issues, as well as contract pharmacy noncompliance and poor federal oversight.

Drug Manufacturers Fight Back Against Proliferation of Contract Pharmacy Arrangements

Drug manufacturers raised their concerns about the 340B program with HRSA with no success. Starting August 2020, several drug manufacturers announced that they would offer 340B prices only to covered entities that have an in-house pharmacy or contract with a single contract pharmacy, essentially reverting to a 1996 HRSA guidance. The companies asserted that their position fully complied with applicable law, and objected  that the practice of using multiple contract pharmacies, based on HRSA’s nonbinding interpretive guidance, has resulted in widespread contract pharmacy noncompliance, and has affected costs, distorted prescribing decisions, and hurt patient care.

In response to this trend, the HRSA general counsel issued an Advisory Opinion (“Opinion”) on December 30, 2020 reaffirming that the 340B program allows covered entities to distribute discounted drugs through multiple contract pharmacies—and that manufacturers are required to sell them those drugs. HRSA based its opinion on the statute and agency precedents over the last 25 years. In January 2021, several companies and the Pharmaceutical Research and Manufacturers of America (PhRMA) sued the agency on various statutory and procedural grounds.  See, e.g., AstraZeneca Pharmaceuticals v. Becerra, No. 1:21-cv-00027-LPS, 2021 WL 2458063 (D. Del. Jan. 12, 2021).

Despite the ongoing legal proceedings, HRSA sent letters to the drug companies on May 17, 2021 stating that their 340B restrictions violated the 340B statute and that they “must immediately begin offering its covered outpatient drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements.” (see for example, this letter to Astra Zeneca).  The letters also stated that a refusal to do so may result in civil monetary penalties of around $5,883 for each instance of overcharging—over and above repaying the covered entity the amount overcharged. In AstraZeneca v. Becerra, the company requested, but the Court refused to an administrative stay of these fines until the lawsuit was settled. According to AstraZeneca’s court filings, the fines alone would accrue to the tune of $530 million per month.

Federal Court Found HRSA’s Advisory Opinion Was Based on Faulty Legal Grounds

On June 16, 2021, the District Court of Delaware issued a memorandum opinion denying HRSA’s motion to dismiss AstraZeneca’s case, finding that the Advisory Opinion was based on faulty legal grounds. Judge Stark found that, although HRSA’s interpretation of the statute was permissible, the Advisory Opinion unjustifiably assumed that Congress imposed this interpretation as a statutory requirement. According to the court, the relevant language of the Act was ambiguous and neither the plain meaning of the statute, nor the context of the statutory provisions or the legislative intent, explicitly supported HRSA’s Opinion (or, for that matter, AstraZeneca’s position). Because “the agency wrongly believes that interpretation is compelled by Congress,” the court refused to give agency deference to HRSA. The court also disagreed with HRSA’s arguments regarding longstanding agency precedents. The court noted that HRSA “dramatically expanded how covered entities may purchase 340B drugs” in the past 25 years. In fact, the Advisory Opinion was the first agency document to explicitly conclude that manufacturers are required by statute to provide 340B drugs to multiple contract pharmacies. According to the court, “because the government has changed what covered entities may do,” HRSA “has consequently changed what drug manufacturers must do” (emphasis in original).

Two days after the court’s opinion, HHS withdrew the December 30, 2020 Opinion, but the parties agreed that the lawsuit was not moot because HRSA did not withdraw the May 17 letters and continued to maintain that companies must sell to covered entities through contract pharmacies.  AstraZeneca was permitted to amend its complaint to focus on the unlawfulness of the May 17 letters instead of the Advisory Opinion.  As of this writing, the court is still deliberating on the relief to be granted to the manufacturer.  A decision is expected in the coming months.

HRSA Ploughs on With Enforcement Despite Federal Court Decision

Despite the ongoing litigation, on Wednesday, September 22, 2021, HRSA signaled its continued intention to enforce its own interpretation of the 340B program requirements by referring the alleged violations of six drug companies to the HHS OIG. In its letters to the companies informing them of the referral, HRSA notes that, “given [the companies’] continued refusal to comply, HRSA has referred this issue to the HHS Office of Inspector General (OIG) in accordance with the 340B Program Ceiling Price and Civil Monetary Penalties Final Rule.”  OIG enforcement would provide HHS another opportunity to impose fines and restitution while avoiding the procedural issue of lack of notice-and-comment rulemaking. The OIG will nevertheless have to account for the federal court’s conclusion that the requirement to sell 340B drugs to multiple contact pharmacies is not contained in the statute.  The drug companies can be expected to challenge any OIG penalties.

At some point, Congress may cure the statutory ambiguity by clarifying the scope of permitted contract pharmacy use under the 340B program, but such a clarification does not appear in the White House drug pricing plan (summarized here) or the major drug pricing bills currently being considered by Congress.

The American Conference Institute (“ACI”) is sponsoring its 16th Annual Paragraph IV Disputes Conference on November 9-10, 2021 in New York, NY (Livestream Option Available) at the Sheraton New York Times Square Hotel.  And, unlike a lot of conferences over the past year-plus, the ACI conference format will be a live, in-person event (though an interactive, virtual livestream is also available).

ACI’s Paragraph IV Disputes Conference provides invaluable professional development opportunities, meaningful networking, and vital “take-aways” for legal strategies and cost analysis for every aspect of this complex form of litigation

A “Who’s Who of the Food Law Bar” will give you critical insights in sessions like:

• “Forecasting the Future of Pharmaceutical Patent Litigation: Trends, Legal Analyses and Business Prognoses Post-Covid”
• “Spotlight on Delaware: District Court Judges Address Brand and Generic Concerns”
• “The PTAB Live! Practice, Policy, and Procedure in the New World of Pharmaceutical Patent Validity Challenges”
• “The Ethical Practice of Paragraph IV Litigation: New Developments Impacting Professional Responsibility in the Hatch-Waxman Arena”

Hyman, Phelps & McNamara, P.C.’s Kurt R. Karst will be speaking at a “Regulatory Think Tank” session, titled “Analyzing the Effect of the Latest FDA Initiatives on Generic Drug Access and PIV Disputes.”

FDA Law Blog is a conference media partner. As such, we can offer our readers a special 10% discount. The discount code is: D10-895-895AX04. You can access the conference brochure and sign up for the event here. We look forward to actually seeing you at the conference.

On September 24, 2021, the owner of a pharmacy in Puerto Rico pleaded guilty to participating in a felony conspiracy to convert government property and to commit health care fraud in connection with the illegal vaccination of minors between the ages of 7 to 11 with the Pfizer-BioNTech COVID-19 vaccine.  The U.S. Attorney’s Office (USAO) for the District of Puerto Rico and the Department of Health and Human Services, Office of Inspector General (HHS-OIG) announced both the charge and the plea on Monday.  To the best of our knowledge, this is the first time anyone has been federally charged for administering the COVID-19 vaccine to an unauthorized population.

From approximately May 28, 2021 through June 22, 2021, the pharmacy owner and her employees conspired to knowingly and willfully administer the Pfizer-BioNTech COVID-19 vaccine to a total of 24 children aged 7-11 and to submit corresponding claims to the Pharmacy Benefit Manager (PBM) for Medicaid in Puerto Rico.  A full dosage (30 µg) of the vaccine was administered to the children; no serious medical conditions have been identified to date as a result of the illegal vaccination.  The Pfizer-BioNTech COVID-19 vaccine received emergency use authorization (EUA) for the prevention of COVID-19 disease in individuals aged 12-15 in May 2021.  While Pfizer and BioNTech recently announced positive results from a pivotal trial of its COVID-19 vaccine in children ages 5-11, it has not yet received an EUA for this age group.  Additionally, this recent trial studied a two-dose regimen of 10 µg administered 21 days apart, a much smaller dose than the 30 µg dose used for individuals 12 and older.  The Pfizer-BioNTech COVID-19 vaccine, now marketed as Comirnaty, has received full approval for the prevention of COVID-19 disease in individuals 16 years of age and older, and is available under EUA for children 12-15.

The use of an approved drug for a use that was not approved by FDA, commonly known as “off-label” use, is typically a decision left to individual healthcare providers.  However, that is not necessarily the case within the specific context of the COVID-19 vaccines.  Currently, all COVID-19 vaccine used in the United States has been purchased by the government for administration exclusively by enrolled providers through the CDC COVID-19 Vaccination Program.  Eligible pharmacies participating in the program must comply with all FDA requirements, including the vaccine’s EUA or approval.  COVID-19 vaccines must be free to the patient, but vaccination providers may seek reimbursement for vaccine administration fees from the applicable private or public payor.  By administering the vaccine to children aged 7-11, which is not an age group authorized under the EUA, the pharmacy illegally conspired to “convert” the government’s property (i.e., the vaccine itself).  “Conversion” is a common law tort that may occur when one intentionally interferes with a person’s right to property without the owner’s consent and without lawful justification.  By billing the PBM for the administration of the vaccine to an unauthorized population, the pharmacy committed health care fraud.  In Monday’s statement, the USAO and HHS-OIG said that the unlawful activity was “identified quickly” by the Puerto Rico Department of Health.

Under the terms of the plea, the pharmacy owner voluntarily agreed to be excluded as a provider for Medicare, Medicaid, and all federal health care programs for a period of five years.  She also faces a maximum penalty of 5 years in prison, a fine of up to $250,000, and 3 years of supervised release.  The pharmacy itself was suspended from the COVID-19 vaccination program and all funds received for the corresponding Medicaid billings were repaid.

Hyman, Phelps & McNamara, P.C. is pleased to announce that Jeffrey Shapiro and Serra Schlanger will present at this year’s Food and Drug Law Institute virtual Advertising and Promotion for Medical Products Conference on October 13–15.  This conference will analyze the latest regulatory issues related to advertising and promotion of human and animal drugs, medical devices, and biologics.  Jeff will participate in a session on Drug and Device Uses of Digital Health Tools: Considerations for Advertising and Promotion, focusing on how pharma and device companies should approach labeling and other promotional materials for digital health tools, including software apps and digital therapeutics.  Serra will moderate a session on the Impact of Telehealth on Advertising and Promotion, addressing marketing issues and opportunities associated with virtual health care.

We can offer our readers a discount of 15% off registration using code AP15.  We look forward to seeing you at this virtual conference.

Few FDA publications are as eagerly anticipated in the drug development world as the twice-a-decade PDUFA Reauthorization Performance Goals and Procedures (hereinafter the “goals letter”). When FDA published the fiscal years (FY) 2023-2027 goals letter at the end of August, making known their commitments and planned initiatives for the coming years, we were both excited by many of the announcements, while recognizing the real success will come from how the Agency implements them. From new initiatives to facilitate faster reviews for new indications under the Split Real Time Application Review (STAR) pilot program, to bringing new meetings under PDUFA goals, to continued support for rare diseases and incorporation of the patient voice, the goals letter revealed a good number of welcome announcements.

Perhaps the most welcome commitment, both the Center for Biologics Evaluation and Research (CBER) and the Center for Drug Evaluation and Research (CDER) plan to hire significantly more drug review staff under PDUFA VII than we had seen under PDUFA VI. The targets for FY 2023 are 132 new hires for CBER and 77 for CDER, representing a tripling and quintupling, respectively, of the equivalent hiring targets for the first FY under PDUFA VI. In total for all FYs, the hiring commitments would equal a jump from 171 (PDUFA VI) to 228 (PDUFA VII) new staff in CBER and 32 (PDUFA VI) to 123 (PDUFA VII) in CDER. However, the hiring targets drop dramatically in both centers in each subsequent FY after FY 2023. We have seen first-hand the difficult task faced by CBER review staff to keep up with the flood of innovative cell and gene therapy products, as well as the taxing influx of COVID-19 pandemic related applications requiring review resources in both Centers. Our hope is that expanding review capacity will have the secondary effect of maintaining staff retention, as there are real concerns over retention from burnout, especially with a large retirement-eligible workforce.

A lasting impact of the COVID-19 pandemic can also be seen in the FY 2023-2027 goals letter. When travel restrictions and public health precautions halt facilities inspections, many sponsors are left wondering how FDA will complete pre-approval inspections and meet their products’ respective PDUFA dates. In response, FDA memorialized its intention to use some of the new tools explored during the pandemic and potentially make them more permanent fixtures of facility inspections (e.g., requesting records in lieu of an inspection, use of information shared by trusted foreign regulatory partners).

While FDA’s plan to use new tools in facilities inspection may be welcome news to those who saw their PDUFA dates extended due to a pending inspection during the pandemic, a far more disappointing consequence of the pandemic can also be seen in the goals letter. FDA appears to be more readily equating in-person with virtual (videoconference) face-to-face meetings. Several small textual changes as well as a footnote buried amidst the meetings goals show FDA using “face-to-face” meetings to mean both in-person and virtual platforms. As our colleagues, Deborah L. Livornese and Josephine M. Torrente, explained in a previous post, in-person meetings create important opportunities for building rapport, and lead to more robust dialogue and collegial relationships between the Agency and sponsors. We echo this sentiment and hope this will merely be an artifact when the pandemic risks subside, which we certainly hope will be before the end of PDUFA VII in 2027.

Meeting requests should still include a statement with “the sponsor’s proposal for either a face-to-face/virtual/teleconference meeting or a written response.” While it’s not clear whether this inclusion of both “face-to-face” and “virtual” was an intentional distinction from earlier references in the goals letter only to “face-to-face” as opposed to an oversight, those who share our concern will have opportunities to voice such concerns during two public meetings. FDA will discuss the goals letter and field public comments, on September 28, 2021 (announcement here), as well as a separate workshop on meetings management practices, which is to be held by July 30, 2024. On the other hand, given that virtual PDUFA meetings held during the pandemic, even when over videoconference platforms like Zoom or WebEx, have been absent of video (with the exception of a few senior officials), we hope that during the time that virtual meetings continue to be necessary, that the intent of this commitment letter to allow them to include video.

Pandemic influences aside, the FY 2023-2027 goals letter contained many notable new initiatives, announcements, and commitments. Some of these will be subjects of more detailed posts in the future and readers should keep an eye on the blog for additional coverage. Below we provide an overview of some of the goals letter’s most notable contents such as new initiatives as well as some large-scale enhancements to programs that have already been in the works. Programs like Advancing Real-World Evidence (RWE) and new commitments to patient focused drug development (PFDD) represent evolutions and formalizations of existing commitments, whereas examples such as STAR and Type D meetings are entirely new. As such, we present these programs and initiatives roughly in order of the newest and most substantial changes to more minor.

1.  Split Real Time Application Review (STAR) Pilot Program – FDA announced this new two-stage split review program, which is similar to the existing Real Time Oncology Review (RTOR) but applicable to efficacy supplements across all therapeutic areas. STAR aims to facilitate earlier access to novel uses of existing therapies for patients with a serious condition with unmet medical needs. In brief, the process begins with a request for a presubmission informal teleconference (or alternatively, a discussion as part of a pre-sNDA or pre-sBLA meeting). If FDA accepts the application, the sponsor can then submit their supplement in two parts.

The sponsor then gets the review ball rolling by submitting all of the efficacy supplement minus the final clinical study reports and clinical summaries. Part 1 can be submitted as much as 2 months (but no more than 3 months) before completing the application with the submission of Part 2, containing the finalized clinical study reports and summaries. Although the PDUFA review timeline begins with submission of Part 2, FDA will set an action date to be at least 1 month earlier than the normal 6-month goal date for a priority review application.

Notable Dates and Timelines – Program opens, beginning of FY 2023; Expediting reviews fully implemented, by FY 2024; Webpage with detailed criteria for acceptance and participation, October 1, 2022; Interim assessment, end of FY 2025; Public workshop, end of Q2 FY 2026.

2.  Rare Disease Endpoint Advancement (RDEA) Pilot Program – The challenges of establishing substantial evidence of efficacy for a rare disease treatment (small patient populations, slow disease progression, heterogenous or even variable disease presentation) manifest long before providing a final efficacy analysis to FDA reviewers. Establishing efficacy endpoints is perhaps the biggest obstacle to successfully developing therapies for patients with rare diseases. The Agency acknowledged that the current methods by which sponsors and reviewers at FDA interact “are not structured to provide repeated, intensive interactions” in the ways necessary to advance endpoint development for rare diseases.

The RDEA Program is a pilot that will provide an opportunity to submit a proposal for one or more endpoints associated with a development program in an active IND or pre-IND, or in the absence of an active development program, a natural history study. The endpoints must be novel (i.e. never been used to support drug approval) or substantially changed from a previous use. Preference will be given to those proposals for exploring endpoints that may have broad applicability to several diseases, those that reflect different types of endpoints, and, for surrogate endpoints, those with novel approaches to collecting data pre-market to accelerate validation of the endpoint.

RDEA will accept a maximum of one proposal in FY 2023 and a maximum of one proposal per quarter, capped at three per year, in each of the remaining fiscal years of PDUFA VII. Acceptance into the RDEA Program will provide sponsors with 4 meetings (in addition to any other meetings associated with their product development program) focused on developing the endpoint. However, sponsors should understand (1) that participation will require a public disclosure agreement specifying, which aspects of an endpoint development program FDA may disclose publicly, and (2) that advice given during RDEA meetings is neither a regulatory decision nor is it binding. The public disclosure agreement is important for participation in RDEA as the FDA plans to discuss endpoints developed in the program during public workshops, in guidance and on its website, potentially prior to drug approval. The Agency will hold as many as three public workshops during PDUFA VII related to rare disease endpoint development.

We commend the recognition of the increased attention needed to foster drug development in rare diseases, and believe that more iterative interactions may be able to help advance novel endpoints for use in evaluating effectiveness.  At the same time, we hope that this process will be implemented in a way that embraces the need for expediency and appropriate flexibility in rare diseases, rather than instead use this heightened oversight to serve to shift these endpoint development programs into a process more akin to the Clinical Outcome Assessment (COA) Qualification Program, which is known to be slow and burdensome, such that few endpoints make it through the process.

Notable Dates and Timelines – Applications open, Q4 of FY 2023.

3.  CMC Development and Readiness Pilot (CDRP) and Support for Accelerated Development Programs – Acknowledging that drug development programs eligible for accelerated clinical development (i.e. those that address a serious condition with unmet medical needs) through tools like Breakthrough Therapy Designation may not result in more timely approval if CMC development does not keep pace, FDA announced plans aimed at addressing this mismatch. First, CDER will publish a new MAPP (the Manual for Policies and Procedures, meant to guide CDER staff in their review activities and interactions with sponsors) describing: (1) early engagement with sponsors and (2) “science- and risk-based approaches” for CMC development that “may be warranted and utilized . . . based upon the anticipated clinical benefit of earlier patient access to the product.”

In addition, a new CMC pilot program, CDRP, will provide an opportunity for additional meetings and Agency feedback during product development under an IND. Sponsors accepted into the pilot will receive “two additional CMC-focused Type B meetings and an additional limited number of CMC-focused discussions based on readiness and defined CMC milestones.” Few details regarding the CDRP’s procedures or additional eligibility criteria are available until FDA publishes a notice in the Federal Register announcing the program, except that FDA plans to accept 8-10 proposal per FY over a 4-year period.

Both the new MAPP and the CDRP program are intended to assist sponsors with CMC development associated with products that have accelerated development timelines by facilitating better understanding about how to demonstrate and achieve CMC readiness for their products. Although the additional approaches expected in the MAPP will be helpful, the increased communication under the CDRP to provide direct feedback to sponsors about CMC earlier in development will be crucial to fulfilling FDA’s goal.

We have seen first-hand that our clients would benefit from earlier focused engagement with the Agency on their CMC plans. Such engagement should help to avoid discovering only late in a review cycle or even in the context of a complete response letter that their process controls or potency assay are not sufficient, especially in the context of complex products like cell and gene therapies. The Agency also intends to use lessons learned during the CDRP to further improve processes, which will be discussed in a public workshop and potentially inform revisions to MAPPs, SOPPs or guidance documents. The Agency will publish a strategy document following the workshop detailing how they intend to incorporate the lessons learned from the program.

Notable Dates and Timelines – New MAPP published, by Dec. 31, 2022; Publish notice of the CDRP program, by Dec. 31, 2022; CDRP start, FY 2023; Public workshop, by July 31, 2025; Strategy document published, by April 30, 2026.

4.  Other CMC Enhancements (Four-Part Harmony Information Requests (IRs), Inspections Tools, Plans to Advance Innovative Manufacturing) – Beyond the initiatives targeted at CMC programs with accelerated clinical timelines above, the PDUFA VII goals letter contained several additional CMC-targeted enhancements including a new structure for IRs (Four-Part Harmony), continued use of tools developed during the pandemic for facilities inspections, and plans to develop a strategy for advancing the use of innovative manufacturing. The first of these CMC-related announcements, the Four-Part Harmony IR, is meant to improve efficiency and clear communication of information requests during application review. The IR format should clearly indicate (a) what information was provided, (b) what is the issue or deficiency, (c) what is needed, and (d) why it is needed.

As mentioned at the outset, the pandemic forced FDA to use alternatives to in-person visits to conduct facilities inspections. These alternative tools have included requesting records and other information from facilities/sponsors, using information and inspection reports from foreign regulatory authorities, and alternative technology platforms. Informed by experiences during the pandemic and likely in acknowledgement of the potential for future travel restrictions, FDA plans to issue new draft guidance. This guidance will lay out the Agency’s plans and intentions regarding carrying these alternative inspection tools and technologies forward.

To improve adoption of innovative manufacturing techniques, FDA plans to hold a public workshop to discuss the following: best practices and lessons learned from the CDER Emerging Technology Team and the CBER Advanced Technology Team, case studies from sponsors, barriers to adoption, regulatory strategies to improve adoption, and science- and risk-based approaches to development. The discussion and public comments during this workshop will inform a new strategy document with actions the Agency will take during PDUFA VII to advance the utilization of innovative manufacturing technology.

Notable Dates and Timelines – Inspection tools draft guidance, by Sept. 30, 2023; Public workshop on advancing innovative manufacturing technology, by end of FY 2023; Publish advancing innovative manufacturing technology strategy document, by Sept. 30, 2024.

5.  Advancing Real-World Evidence (RWE) Program – The 21st Century Cures Act mandated that FDA develop a program for using RWE to support approval of new indications for approved drugs and support or satisfy postapproval study requirements. While elements of an RWE program to satisfy this statutory mandate have been underway for a few years now, the PDUFA VII goals letter proposal for a process to submit RWE proposals and gain direct feedback from the Agency prior to study initiation appears promising. Similar to the RDEA program, described above, the drawback is that participation is contingent upon willingness and agreement with the Agency about public disclosure of elements of the RWE proposal.

Although a formal announcement of the program is expected by end of 2022, the rough description of the program is as follows – (a) FDA solicits applications twice per year; (b) Applications should describe the regulatory question that the RWE is intended to answer, the RWE study design, and the intended sources of real-world data (RWD) (for the unfamiliar reader, think of RWD as the building blocks and components that make up RWE , similar to the way data from a particular clinical outcome is one component of the clinical evidence of a drug’s safety or effectiveness that a clinical study may provide); (c) FDA will evaluate and rank the applications, accepting one to two applications per cycle for the first two years and one to four per cycle thereafter; (d) Sponsors may then request up to four meetings under the program to discuss data, design, and regulatory issues with FDA staff from across review divisions as well as other offices and senior leadership with RWE expertise. As the program is intended to both support sponsors directly through interactions, as well as broadly inform FDA practices and guide industry when adopting RWE approaches, the Agency will publish annual reports containing application details that have been aggregated and anonymized, hold a public workshop, and update existing RWE guidance documents or publish new guidance.

While use of RWE has largely been focused on the postapproval setting, it remains to be seen if prior experience with RWE under prior PDUFAs will provide the comfort needed to extend the use of this data more broadly into the preapproval setting.  This would be of particular value to the development of drugs for rare diseases where it is incredibly valuable to triangulate safety and efficacy data from multiple sources to gain confidence in the findings.

Notable Dates and Timelines – Initiation of the pilot program, by December 31, 2022; Annual reports, starting by June 30, 2024 and at least annually thereafter; Public workshop, by December 31, 2025; Revise RWE guidance documents and/or publish new guidance, by December 31, 2026.

6.  Patient Focused Drug Development (PFDD) – FDA continues its legacy of PFDD (see our previous coverage here) when it announced that it will continue its efforts to incorporate the patient voice into drug development and regulatory decision-making in several ways. First, the Agency committed to continued internal staff training and outreach to industry and patient groups to facilitate integration of PFDD methods into regulatory decision-making, as well as use the Intergovernmental Personnel Act to leverage outside expertise to support review of patient experience data. The Agency also announced that it will issue a Request for Information soliciting “public input on methodological issues, including the submission and evaluation of patient experience in the context of benefit-risk assessment and product labeling” and plans for two public workshops to discuss these methodological issues, culminating in a report on the findings of the RFI and public workshops and how these will inform priorities for PFDD work in the future. Other PFDD announcements include continued development of a virtual catalog of standard core Clinical Outcome Assessments (COAs) and Related Endpoints, continued work to understand how patient preference may inform benefit-risk determinations, and the intention to use public input to understand stakeholder perspective on priority areas for both core COA development and incorporation of patient preference in regulatory decision-making. Finally, FDA plans to publish a new draft guidance on use and submission of patient preference information (PPI).

While this PFDD commitment sounds much more lackluster than the original PFDD meetings under PDUFA V and the subsequent PFDD guidance series under PDUFA VI, this commitment feels like the prudent approach.  The PFDD meeting initiative, including its expanded externally-led PFDD meeting program, continues on.  Further, the Agency is still finalizing the drafts of the full PFDD guidance series, such that using PDUFA VII to reflect on the application of these programs and guidance is the right approach, while providing the Agency resources through PDUFA to keep these earlier programs running.

Notable Dates and Timelines – RFI announced, by end of June 2023; RFI summary published, by end of December 2023; Two public workshops, by end of FY 2024 and FY 2025, respectively; Summary of RFI and public workshop learning with new priorities, by end of FY 2026; Publish new PPI draft guidance, by Sept. 30, 2026.

7.  Changes to Pre-Approval and Post-Approval Postmarketing Requirements (PMRs) Communications – The goals letter contained new plans and timelines to improve Agency communications with sponsors regarding anticipated PMRs during the review cycle as well as adding new procedures for sponsors to request a review of and release from a PMR post-approval. As our HPM colleagues plan to spell out the details more fully in a subsequent post, we will briefly note that the PDUFA VII commitments require the Agency to communicate detailed thinking about potential PMRs no later than 8 weeks, for standard review, and 6 weeks, for priority review, ahead of the action date for NME NDAs and original BLAs. PMRs can require significant additional time and resource commitments on the part of drug sponsors after already investing years and millions of dollars getting a product successfully to the end of the review cycle and to approval. As such increased communication and predictability, both pre-approval and post-approval, will be a welcome development for sponsors and patients to know that PMRs are both thoughtfully planned and released.

Notable Dates and Timelines – Expect revisions to MAPPs, SOPPs and guidance, starting in FY 2023.

8.  Expansion of INTERACT Meetings, New Type D Meeting, and Meeting Follow-up Questions – Initial Targeted Engagement for Regulatory Advice on CBER/CDER ProducTs (INTERACT) meetings first started in CBER in 2018 as an informal way for sponsors to get pre-pre-IND advice on innovative biological products with new and unique challenges. Sponsors with novel questions, those for which there is no existing FDA guidance, will now be able to use the INTERACT meetings to seek FDA guidance for products regulated in both CDER and CBER (previously, the ‘C’ in INTERACT stood solely for CBER). In effect, this program aims to reduce bottlenecks in the IND-enabling phase by answering questions about, for example, appropriate preclinical models and toxicology studies for novel drugs, design of proof-of-concept studies, or adequate CMC testing to demonstrate safety for first-in-human studies. Direct feedback earlier in development will help get sponsors to the pre-IND meeting with fewer major questions and better equipped to launch the clinical phase of their development programs.  However, as the INTERACT meeting framework is rolled out more broadly, we have seen a recent an increase in these meetings being denied by CBER and the sponsor asked to wait to request a Pre-IND meeting, so it will be important for the Agency to more clearly describe more clearly elucidate when an INTERACT is appropriate.

PDUFA VII also brings a new meeting type to the drug development armamentarium: the Type D meeting. These meetings will be available when a sponsor needs input on a narrow set of questions such as a follow-up question that raises new issues after a formal meeting. However, the sweet spot for the scope of such a question is one that would be narrower than spanning multiple disciplines but broader than just a clarifying question. FDA will limit Type D meetings to no more than 2 topics and questions that require input from no more than 3 disciplines or Divisions.

Even narrower in scope than the Type D meeting question, FDA also added follow-up opportunities or questions in the form of a Request for Clarification to the goals letter. This memorializes a more recent practice adopted by the Agency given the increased use of WRO meetings during the COVID-19 pandemic, allowing follow-up questions to clarify the Agency’s feedback in a WRO or something captured in meeting minutes.  Now formalized, this request should be submitted by a sponsor within 20 calendar days of receipt of the meeting minutes or WRO. Similarly, FDA committed to responding to such requests within 20 days.

Finally, FDA will hold a public workshop on meeting management. In addition to issues applicable to all meeting types such as submission of meeting requests, time management, and coordinating agenda and development of meeting background packages, the workshop will discuss lessons learned while implementing the two new meeting types as well as those learned during the COVID-19 pandemic.

Notable Dates and Timelines – Response to meeting requests, Type D 14 days, INTERACT 21 days; Meeting scheduled or WRO Issued, Type D 50 days, INTERACT 75 days; Submission of meeting background, at time of request (both); Preliminary responses sent; 5 days before meeting (both); Meeting minutes issued, 30 days (both but INTERACT meeting preliminary responses will only be annotated and resent if necessary); Publish revised formal meetings guidance, by September 30, 2023; Public workshop, by July 30, 2024.

9.  Enhanced CBER Capacity for Cell and Gene Therapy Products – FDA looks to expand the Cell and Gene Therapy Program (CGTP) primarily by increasing CBER staff capacity (hiring targets discussed above) and hinted at potential reorganization by stating “[t]he current CGTP organization will be evaluated, with input from external consultants, to determine the optimal organization to effectively integrate new staff and facilitate operations and customer service.” New hires and organizational changes will be aimed towards “direct review activities, indirect activities (e.g., policy, external outreach, postmarket safety), and supporting activities in the CGTP.” Many of the indirect activities include fostering industry development activities through external outreach, workshops, public meetings, webinars, as well as updating guidance and SOPPs, amongst others.

The goals letter specifically called out continuing commitments in key several areas of interest for cell and gene therapy (CGT) sponsors – advancing manufacturing, testing and implementation of new technologies, continued use of surrogate endpoints, RWE, complex innovative designs and disease natural history, as well as new approaches to establish safety and efficacy for rare and ultra-rare diseases. FDA committed to CGT specific workshops and public meetings: (1) a PFDD workshop focused on understanding patient perspective regarding benefit and risk with CGTs and involvement in study design and execution (in addition to the two PFDD workshops noted above), (2) approaches to capturing post-approval safety and efficacy data, and (3) leveraging knowledge from across therapeutic contexts to facilitate CGT development and review. Novel approaches to development will receive additional attention through public-private partnerships to understand challenges to development of CGTs such as novel endpoints, less defined natural histories, and other challenges common to individualized therapies and rare diseases.

FDA committed to publish new guidance on (1) evaluation of efficacy in small patient populations using novel trial designs and statistical methods (and how to apply these methods to more common diseases), (2) question and answer (Q&A) format for FAQs and on common issues from CGT sponsors, (3) approaches for gathering post-approval safety and efficacy data for CGTs, and (4) leveraging prior knowledge regarding CMC, non-clinical and clinical development across therapeutic contexts to facilitate CGT development and BLA review. The Agency also committed to revising the existing guidance Expedited Programs for Regenerative Medicine Therapies for Serious Conditions.

Notable Dates and Timelines – PFDD workshop on CGTs, by end of FY 2023; PFDD workshop report, by mid FY 2024; Draft guidance on efficacy in small patient populations, end of FY 2025; Draft Q&A guidance on common CGT issues, end of FY 2024; Draft guidance on post approval safety and efficacy data, end of FY 2024; Revised guidance Expedited Programs for Regenerative Medicine Therapy for Serious Conditions, end of FY 2025; Public meeting on leveraging knowledge across therapeutic contexts, end of FY 2025; Draft guidance on leveraging knowledge, end of FY 2026.

10.  Allergenic Extract Products Added to PDUFA Review – Although few additional details are available, review of allergenic extract products will be added to PDUFA and benefit from all performance goals, procedures, and commitments. Those allergenic extract products added to PDUFA under PDUFA VII and licensed after October 1, 2022 will generally be included in user fees.

Although we provide this overview of our top ten major changes, commitments and program enhancements, the PDUFA VII goals letter contained several other notable changes. Check back for new posts on the FDA Law Blog as our HPM colleagues take a deeper look at certain programs of interest, address topics excluded from this overview (e.g., safety initiatives, combination product review, digital technology enhancements), and update our readers on ongoing developments regarding PDUFA VII.

Drug pricing and payment reform is a three-legged stool drawing support from the Administration, the House, and the Senate.  Yesterday our post focused on the Administration’s priorities and initiatives, as described in HHS’s recent Comprehensive Plan for Addressing High Drug Prices.  Today we focus on the House, which, on the same day as the HHS report, released text of its budget reconciliation bill, entitled the Build Back Better Act (BBB Act), which is currently undergoing committee markup.  This bill, which addresses numerous areas of the economy, public health, and government regulation, includes Subtitle E, Drug Pricing.  Subtitle E is a slightly modified version of H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act introduced by Representative Pallone on April 22, which in turn was a slightly revised version of the comprehensive drug pricing bill that passed the House during the last Congress.  Subtitle E draws on several ideas – most of them bipartisan – that have emerged in recent years for drug pricing and payment reform: negotiation of prices under Medicare Parts B and D with repeal of the price negotiation prohibition under Medicare Part D, benchmarking Medicare payment to foreign prices, price inflation rebates to Medicare, and restructuring of the Part D benefit.  The four parts of Subtitle E are summarized in turn below.

PART 1:  MAXIMUM FAIR PRICE PAYMENT LIMITATION UNDER MEDICARE PARTS B AND D AND THE COMMERCIAL INSURANCE MARKET

The most far reaching drug pricing provision of Subtitle E is an amendment to the Social Security Act to establish a Fair Price Negotiation Program applicable to Medicare Parts B and D as well as group and individual health plans in the commercial market.  Beginning in 2025, payment for certain “Selected” single source drugs under Parts B and D, and under commercial plans that do not opt out of the program, would be limited to a Maximum Fair Price (MFP).  The MFP would be established through negotiations between HHS and the manufacturer and would incorporate foreign pricing benchmarks, as further described below.  In order to permit MFPs to be negotiated under Part D, the current prohibition on Medicare negotiating with manufacturers would be repealed.

For Selected drugs covered under Medicare Part B, the MFP would replace the average sales price (ASP) as a basis of payment (i.e., payment would generally be 106% of the MFP instead of the ASP), and for drugs covered under Part D, the MFP would replace the negotiated price (i.e., the amount Part D plans pay pharmacies for the drugs).  For commercial plans, the MFP would replace the otherwise applicable payment rate.  Under all of these programs, patient co-insurance would be calculated based on the MFP so that patients receive the benefit of that price.  MFP pricing would also extend to the Department of Veterans Affairs, which could elect to replace the Federal Ceiling Price established under 38 U.S.C. § 8126 with a lower MFP.  The MFP would be adjusted for inflation each successive year and would remain in place until a generic or biosimilar version of the Selected drug is approved.

Single source drugs would be selected, and MFPs established for them, as follows.  Each year, HHS would determine the 125 single source drugs with the greatest net spending under Medicare Parts B and D, and 125 drugs with the greatest net spending in the U.S. in general (the statute does not indicate that these lists would be mutually exclusive).  From this universe of single source drugs, HHS would select at least 50 drugs (or at least 25 drugs in 2025, the first year of the program) for which a negotiated price is projected to result in the greatest savings to the federal government and affected patients, taking into account the volume of utilization and the amount by which the drug’s price exceeds an Average International Market (AIM) price.  The AIM price is the volume-weighted average price of the drug in Australia, Canada, France, Germany, Japan, and the U.K.  A drug selected in one year could not count toward the minimum of 50 selected the following year, so that the cumulative number of Selected drugs would increase substantially each year.

HHS would publish the list of Selected drugs in the Federal Register by April 1 of the second year preceding the applicable pricing year.  The manufacturer of a Selected drug would then be required to enter into MFP negotiations with HHS.  The latter would take into consideration financial information such as research and development (R&D) costs, market data, costs of production, prior federal R&D support, and sales data; effectiveness compared with other therapeutic alternatives; whether the drug represents a therapeutic advance; and foreign sales information.  The manufacturer would be required to submit cost, sales, R&D, and other data to HHS.  The agreed upon MFP could not exceed 120% of the AIM price, or for drugs for which an AIM price is unavailable, 85% of the Medicaid Rebate Average Manufacturer Price (AMP).  If a manufacturer offered a price equal to the lowest average price in any of the countries listed above (or, in the absence of an available AIM price, 80% of AMP), that price would automatically be accepted as the MFP.  The final MFPs would be published by April 1 of the year before the applicable pricing year.

After an MFP was agreed to for a Selected drug, HHS could decide to renegotiate the MFP if there were changes in the AIM price or in the negotiation factors referred to above.  A manufacturer that refused to negotiate, delayed negotiations, or delayed submitting required information would be subject to an excise tax increasing with the time of noncompliance and also with the price of the drug.  A manufacturer that failed to provide access to the MFP would be subject to a civil monetary penalty of ten times the excessive price charged.

PART 2:  INFLATION REBATES UNDER MEDICARE PARTS B AND D

The second drug pricing provision in Subtitle E would impose rebates on Medicare Part B and Part D drugs whose prices increase greater than inflation, similar to the additional rebate currently required under the Medicaid Drug Rebate Program.

The Part B rebate would be payable for single source drugs and biologicals (including biosimilars).  For drugs approved on or before July 1, 2015, the inflation rebates would be payable beginning 3Q 2023, and for those approved after that date, rebates would be payable beginning with the later of 3Q 2023 or the sixth full calendar quarter after launch.  The amount of the rebate per unit would be the amount by which the current quarter Part B ASP-based payment amount exceeds the payment amount for a baseline quarter, adjusted for inflation.  For drugs approved before July 1, 2015, the baseline quarter is 1Q 2016, and for drugs approved after that date, the baseline quarter is the third full quarter after launch.  Thought the Part B rebates would not initially apply to multiple source drugs, HHS would have the authority to extend the rebates to multiple source drugs pursuant to a rulemaking.

Unlike the Medicare Part B rebates, the Part D rebates would not be not limited to single source drugs.  The Part D rebates would be paid each year instead of quarterly, beginning with rebates for 2023.  Since manufacturers do not calculate or submit any prices under Part D, the statute borrows the AMP submitted under the Medicaid Drug Rebate Program to develop an “Annual Manufacturer Price” for both the rebate calculation year and a baseline year.  The Annual Manufacturer Price is essentially an average of the quarterly AMPs reported to CMS for the four quarters of the year, weighted by units sold during the quarter.  The unit rebate amount would be the amount by which the Annual Manufacturer Price for the rebate year exceeds that for the baseline year, adjusted for inflation.  For drugs approved on or before January 1, 2016, the baseline year would be 2016, and for those approved after that date, it would be the first calendar year following launch.

Excluded from both the Part B and the Part D rebates would be drugs in shortage, drugs subject to an MFP (see Part 1, above), and drugs for which the average total annual allowed charges (Part B) or cost (Part D) for an individual are less than $100 (adjusted for inflation after 2023).  The Part B rebate would exclude vaccines as well.  Both the Part B and Part D rebates would be excludable from ASP and Medicaid Rebate best price.  The penalties for non-payment of Part B or Part D rebates would be 125% of the amount owed.

PART 3:  CHANGES TO MEDICARE PART D COVERAGE GAP DISCOUNT PROGRAM AND BENEFIT STRUCTURE

Subtitle E makes substantial changes to the benefit structure and sharing of costs under Medicare Part D.  Currently, a Part D enrollee passes through four phases during a plan (calendar) year (dollar thresholds are for 2021):

1. Deductible ($435): enrollee pays 100% of drug cost
2. Initial coverage phase (deductible to initial coverage limit ($4,130 in total drug costs)): plan pays 75%, enrollee pays 25% coinsurance (or the actuarial equivalent)
3. Coverage gap phase (initial coverage limit to catastrophic coverage threshold ($6,550 in patient out-of-pocket expenses)): plan pays 5%, manufacturer pays 70% through the Coverage Gap Discount Program (CGDP), enrollee pays 25% coinsurance
4. Catastrophic Coverage phase: Medicare pays 80%, plan pays 15%, enrollee pays 5% coinsurance

Under Subtitle E, beginning January 1, 2024, the catastrophic coverage threshold (currently $6,550 and likely to increase in 2022 and 2023) would be substantially reduced to $2,000, and during the catastrophic coverage phase, Medicare would pay 25% instead of 80%, the plan would pay 50% instead of 15%, the enrollee would pay zero coinsurance instead of 5%, and the remaining 30% would be subsidized by manufacturers through a new Coverage Gap Discount Program (CGDP).  In the coverage gap phase, the patient would continue to pay 25% coinsurance but manufacturers would subsidize 10% of the remaining cost through the new CGDP.

The new CGDP (with new agreements) would become effective on January 1, 2024, and the current CGDP would simultaneously sunset.  The new CGDP program would be much like the current one, except that, consistent with the above changes to the coverage phases, the coverage gap discount would equal 10% instead of 70% of the drug cost in the coverage gap, and 30% of the drug cost instead of zero in the catastrophic coverage phase.

PART 4:  OIG SAFE HARBOR AMENDMENTS RELATING TO PBM REBATES

On Nov. 30, 2020, the Trump HHS published a final rule amending the safe harbors under the Federal health care program antikickback statute as they apply to manufacturer rebates paid to Medicare Part D plans, Medicaid Managed Care plans, and their PBMs.  The original January 29, 2021 effective date of that rule has been postponed several times pursuant to court orders and is likely to be again postponed until January 1, 2026 pursuant to a provision of the Senate infrastructure bill that is expected to pass the House and be signed by the President (see our post here).  Subtitle E would go further and prohibit implementation of the rule altogether.

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We will be following Subtitle E of the BBB Act as it works its way through the House, and also be keeping a close eye on drug pricing legislation currently being developed in the Senate for inclusion in their budget reconciliation bill.  Look for future posts on this fast-evolving area.

Despite vigorous criticism of high drug prices from the public and politicians in both parties, drug companies have largely dodged bullets on drug pricing and payment reform.  In 2018, Trump’s Department of Health and Human Services (HHS) released its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, but the edifice envisioned by the Blueprint largely failed to materialize.  A proposal to move specified high cost drugs from Medicare Part B to Part D coverage to take advantage of formulary controls to negotiate better drug prices was never acted upon.  A final rule to establish a Most Favored Nation model to base Medicare drug payment on international prices was enjoined by two federal courts, and HHS recently proposed to rescind the rule (see our post here).  A final OIG rule to change the structure of manufacturer rebates to Medicare Part D and Medicaid Managed Care plans and their PBMs is enmeshed in litigation and is likely to be at least postponed until 2026 (see our post), and perhaps prevented from implementation altogether, by Congressional mandate.  A May 2019 CMS final rule that would have required drug TV advertisements to disclose the WAC of the drug was challenged by a group of pharmaceutical companies and vacated on statutory grounds by the D.C. Court of Appeals (again, see our post).

Although drug manufacturers emerged from the Trump era relatively unscathed, a reckoning is almost certainly at hand with Congress and the Administration controlled by Democrats.  The pieces of major drug pricing and payment reform are falling together.  Today we offer the article below on one of those pieces:  an HHS report released to the public last Thursday outlining the Biden Administration’s strategies on drug pricing and payment reform.  Tomorrow, our post will focus on the second piece: the drug pricing provisions of the House’s budget reconciliation bill (the Build Back Better Act), also released last Thursday and currently undergoing committee markup.  The third piece – the drug pricing provisions being developed for inclusion in the Senate version of the budget reconciliation bill – will be the subject of future articles here.

White House Drug Pricing Plan Offers Laundry List of Existing Democrat Priorities

As we await Congressional drug pricing reform proposals through the House and Senate budget reconciliation process, and a House of Representative vote on the infrastructure bill (both expected this month), the Biden Administration has published its own wide-ranging list of policy proposals to reduce drug prices and drug payment. Last Thursday, the U.S. Department of Health and Human Services (“HHS”) released a “Comprehensive Plan for Addressing High Drug Prices” (the “Plan”), which it had submitted to the White House last month in response to President Biden’s July 7, 2021 Executive Order on Promoting Competition in the American Economy.  The Plan is the Biden Administration’s answer to the Trump HHS’ 2018 Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, except that the Plan relies to a much greater extent on Congress to implement its principles.

The Plan identifies “a lack of competition” as a key driver for rising drug prices and promises a strategy “for equitable drug pricing reform through competition, innovation, and transparency.” The actual policy proposals read like a wish list. It outlines a host of legislative and administrative strategies and policy proposals aimed at reducing drug prices. Readers following drug pricing activity will recognize several strategies already associated with Senate Democrats (e.g., Medicare negotiation authority; encourage biosimilars and generic drug utilization).

The HHS plan’s proposals are defined in general terms, without estimates of taxpayer savings or timelines. Some proposals indicate what to expect in the Senate Democrats’ budget reconciliation package while others show the Biden Administration drawing its lines in the sand on its policy priorities for the remainder of this term. Below, we summarize the key proposals of the HHS plan.

LEGISLATIVE PROPOSALS

1. Drug Price Negotiation to Benefit Medicare and Commercial Plans

One of the more consequential proposals in the Plan is giving Medicare the authority to directly negotiate prices with drug manufacturers. Currently, individual Medicare Part D plan sponsors negotiate rebates but the government is explicitly prohibited from interfering in those negotiations. HHS believes that Medicare, the largest drug purchaser in the country by far, can force drug manufacturers to offer fairer prices. The Biden Administration also proposes to authorize HHS to negotiate Medicaid supplemental rebates on behalf of states, upon request, in order to strengthen their negotiation power. Senate Democrats are expected to include Medicare’s authority to negotiate prices in the budget reconciliation, which could be announced as early as this week.  Significantly, the proposal allows employer-based plans, ACA Marketplace plans, and other commercial plans to access the prices negotiated by Medicare.

The repeal of the prohibition on Medicare negotiation with manufacturers under Medicare Part D is already included in the House’s reconciliation bill, the Build Back Better Act (watch for our post on that bill tomorrow).  In the Senate, the repeal is also included in the Principles for Drug Pricing Reform issued by Senator Wyden, Chairman of the Senate Finance Committee, and is expected to be included in the Senate version of the reconciliation bill.  The attraction of the repeal is that Part D negotiations can potentially save the federal government “hundreds of billions of dollars,” as explained in the Plan.

2. Controlling Medicare Part D Patient Out-of-Pocket Costs and Total Drug Costs

The Plan supports legislative action to control total drug costs and patient out-of-pocket (“OOP”) costs for Medicare Part D beneficiaries.  One proposal is a cap on out-of-pocket costs, primarily to help beneficiaries with expensive chronic conditions that can face large, even catastrophic, out-of-pocket spending every year.  Part D currently has no such cap.

The Plan also supports redistributing financial responsibility for Part D drug costs: below the OOP cap, Part D and the drug manufacturers would pay higher percentages than they do now; beyond the cap, Medicare would decrease its percentage, setting manufacturers up to have to pick up the majority of the costs. The Administration notes that such policies are already in place in most commercial plans. They incentivize manufacturers to offer lower prices and incentivize plans to offer cheaper drugs and biologics.  Both the cap on OOP expenses and the redistribution of cost burdens under Part D are incorporated into the House reconciliation bill.

The plan also mentions mandates for the government to purchase the least costly alternative and to institute value-based or outcomes-based pricing arrangements. The Centers for Medicare and Medicaid Services (“CMS”) Innovation Center is already studying several regulatory proposals in this regard (see Administrative Actions, below).

3. Controlling Drug Price Increases

The Administration proposes strategies and incentives to control drug price increases, which it noted are rising twice as fast as inflation. To counter this increase, the Administration threw its support behind proposals to levy an excise tax or a rebate for manufacturers that raise product prices faster than the rate of inflation with no clinical reason. The proposal to give manufacturers partial responsibility for drug costs above the OOP cap (see previous section) would also discourage manufacturers from pricing drugs in a manner that will cause beneficiaries to exceed the catastrophic costs threshold.

4. Facilitating Entry and Prescription of Biosimilars and Generics

The Plan supports legislation to incentivize the development and use of biosimilars and generic drugs by streamlining the biosimilar licensure process to facilitate the prompt approval of biosimilars and generics. HHS proposes requiring brand manufacturers—or allowing FDA—to disclose full information about inactive ingredients in their labeling so biosimilar and generic producers can more easily manufacture and gain approval for interchangeable products. Other legislative proposals include reassessing exclusivity periods of biological products; exempting biosimilar manufacturers from the U.S. Pharmacopeia (“USP”) monograph standards; providing greater flexibility and clarity regarding the inclusion of data from animal studies; and incentivizing second-in-market brands to increase competition between brand drugs.  The Plan supports legislation to expedite market entry of biosimilars and generics by providing federal support to develop nonprofit generic drug manufacturers.

The Plan also proposes strategies to prevent brand manufacturer practices to delay the entry of biosimilars and generic products and discourage competition. HHS criticizes brand drug manufacturers for exploiting their patents and statutory exclusivity to stifle competition and maintain a monopoly. The Plan advocates better cross-agency efforts between the Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”) and the U.S. Patent and Trademark Office (“USPTO”) to prohibit or decrease the impact of patent thickets, product hopping, pay-for-delay, “sham” citizen petitions, and Risk Evaluation and Mitigation Strategies (“REMS”) abuse that can stifle the development or approval of biosimilars and generics. The Plan proposes to address pay-for-delay practices by deeming such agreements anti-competitive by statute; by requiring first-to-file generic manufacturers to begin commercial marketing for the 180-day exclusivity to apply; and expanding the circumstances in which the 180-day exclusivity may be forfeited by first applicants who fail to market their product within a specified timeframe.

The Plan also proposes establishing payment models to support the increased utilization of biosimilars and generics by further incentivizing providers to prescribe them. According to HHS, Medicare Part D could have saved as much as $3 billion in 2016 if generics were substituted for brand-name drugs wherever they were available. One proposal involves using the same payment limit for both reference biological product and the biosimilars to spur a price competition and drive down the average sales price for all products involved.

5. Increase Transparency and Strengthen Supply Chain and Research Capacity

Other legislative proposals included improving supply chain transparency. HHS proposes increasing price transparency generally, so plans and patients know the distribution of costs at the pharmacy counter, the physician’s office, or hospital outpatient department. This way, patients can know what they have to pay out-of-pocket, compare the price and value of alternative therapies, and decide whether they can get the drug at a lower price elsewhere. The plan also proposes prohibiting “spread pricing,” whereby manufacturers pay rebates to pharmacy benefit managers (“PBMs”) to incentivize prescribing the manufacturer’s branded drugs in formularies even if generics are available.

Finally, the HHS plan encourages Congress to create incentives to foster scientific innovation. The Biden Administration proposes the creation of an Advanced Research Projects Agency for Health to focus on diseases like cancer, diabetes, and Alzheimer’s. Similar to the Defense Advanced Research Projects Agency (DARPA), this agency would build high-risk, high-reward capabilities to drive biomedical breakthroughs and spur private innovation in these disease areas. The Biden Administration also proposes to generally incentivize supply chain resilience, build domestic capability, especially for critical drugs, and promote investments in breakthrough medicines.

ADMINISTRATIVE ACTIONS

The Plan listed a litany of administrative actions that federal agencies have undertaken to promote competition and reduce drug prices and proposals to develop them further.

The CMS Innovation Center has been exploring or testing several innovative payment and service delivery models to reduce program and beneficiary spending on prescription drugs. These include Medicare Part B models that link payment for drugs and biologics to patient outcomes, reductions in health disparities, patient affordability, and lower overall costs. The Plan further proposes to make these models available to commercial payers to have a greater effect on prices and expand biosimilars and generics use across the board. HHS also claims to be continuing to study the Trump era Most Favored Nation model, an international reference pricing demonstration model for select Medicare Part B drugs, although it was proposed to be rescinded last month. The CMS Innovation Center is also studying models to share the savings from the utilization of biosimilars and generics with prescribing providers.

The Center is also exploring models to bundle payments for episodes of care over a period of time instead of paying for drugs and other administrative and related services separately. This would incentivize providers to use cheaper biosimilars and generics to get appropriately compensated for the remaining, non-drug services. The Center is also studying Total Cost of Care models that supplement bundled payments with incentives to redesign care to enhance care coordination, patient engagement, and quality. HHS proposes to incentivize the use of biosimilars and generics in these models, especially for conditions like hepatitis, C, HIV/AIDS, opioid use disorder, and diabetes.  The Plan also supports legislation to allow states to apply the Medicaid Drug Rebate Program requirements to bundled drugs provided as part of outpatient hospital and physician services.

Though drug pricing is not technically within FDA’s mandate, the Plan describes several FDA initiatives to encourage competition and implement drug importation programs “so that consumers can access the medicines they need at affordable prices.”  Chief among those programs are the Biosimilar Action Plan (“BAP”) and the Drug Competition Action Plan  (“DCAP”), both of which have been in effect for several years.  Both programs seek to facilitate competition by increasing efficiency, clarity, flexibility, and collaboration in the follow-on product development process, in addition to reducing the gamesmanship that can lead to delays in approval.  Highlighting the success of the BAP, the Report touts the July 28, 2021 approval of the first interchangeable biosimilar, Semglee.  The Report also features FDA’s efforts as part of DCAP to encourage development and approval of complex generic small molecule products for which generic development is challenging.  These initiatives, combined with CREATES Act provisions that facilitate access to reference product samples for follow-on development, are specifically intended to address additional product approval.

As an aside, the Report also references the “recent litigation” that has raised industry concerns regarding the future of “skinny labelled” generics due—the GSK v. Teva case—and the possibility of delays in the approval due to threats of induced infringement liability.  Providing no specifics, HHS assures industry that it is “committed to taking steps as appropriate to ensure these critical practices remain available for generic drugs and biosimilars.”

FDA and HHS have also adopted provisions to allow the import of certain prescription drugs from Canada to achieve a significant reduction in the cost of these products (see our blogpost on these provisions here).

CONCLUSION

What most differentiates President Biden’s Plan from Trump’s Blueprint is Biden’s reliance on Congress for major drug price and payment reforms.  President Biden has made known since the beginning of his presidency that he would primarily rely on Congress in this area.  As a result, most of the legislative proposals in the Plan have already appeared in previously proposed legislation, and/or are included in current bills destined to be incorporated into budget reconciliation.  As for the administrative actions described in the Plan, these are largely a catalogue of activities already underway at CMS and FDA.  In short the “Plan” is not so much a strategy for future action as restatement of ideas that have already been, or are in the process of being, brought to fruition.  The real interest for drug manufacturers is in how the major ideas in the Plan will be incorporated into a budget reconciliation bill that is able to pass the House and Senate, and what specific form they will take.  Tomorrow’s post will focus on how the rubber is meeting the road in the House.

Earlier this year, North Dakota enacted a prescription drug price transparency reporting law, HB 1032, that became effective on August 1, 2021. (See our summary here.) This new law requires prescription drug manufacturers to report the current wholesale acquisition cost (WAC) information for drugs sold in or into the state on a quarterly basis. The new law also requires manufacturers to submit WAC price increase reports and new drug WAC reports. Prescription drug manufacturers’ first quarterly WAC reports are due by October 15, 2021.

In advance of the upcoming deadline, North Dakota issued a Manufacturer’s Disclosure User Guide that provides step by step instructions for manufacturers to submit their quarterly reports. Manufacturers will need to complete the WAC Template and send it to the state via email. The User Guide also includes directions for manufacturers who wish to submit their reports via secure file transfer.

The Disclosure User Guide also includes instructions for manufacturers who need to submit WAC price increase reports (template available here) and new drug WAC reports (template available here). WAC price increase reports are due within 30 days after an increase if the drug’s WAC is greater than $70 and the WAC increased 40% or more over the lowest WAC of the preceding five calendar years, or 10% or more over the lowest WAC in the preceding twelve consecutive months. New drug WAC reports are due within three calendar days after introducing a new prescription drug with a WAC that exceeds the threshold set for a specialty drug under the Medicare Part D program (currently $670 for a 30-day supply) to the market in North Dakota.

The quarterly WAC reports submitted in October will be made available on the North Dakota Insurance Department’s Prescription Drug Cost Transparency website.

As readers of our blog know, FDA and the Food Safety Inspection Service of the USDA (FSIS) agreed to jointly oversee the production of human food products using animal cell culture technology.  Under the Memorandum of Understanding signed in March 2019, FDA will oversee cell collection, growth, and differentiation of cells, and help coordinate  transfer of oversight to FSIS at the cell harvest stage.  FSIS will then determine whether harvested cells are eligible to be processed into meat or poultry products, and oversee processing, packaging, and labeling of those products.

FDA and FSIS also agreed to develop joint principles for the labeling of products made using cell culture technology under their respective labeling jurisdictions.   As we previously reported, FDA issued a request for information regarding labeling of products made using cell culture seafood cells in Oct. 2020.

On Sept. 2, 2021, FSIS issued an advance notice of proposed rulemaking (ANPR) asking for comment on several issues that will help the Agency develop a proposed regulation addressing labeling of cultured meat and poultry products.  See here and here.  (The ANPR does not appear to address Suliformes fish (including catfish)).  Like FDA, FSIS uses the term “cultured” for this type of product.  However, FSIS notes that the use of this term is not intended to establish or suggest nomenclature for labeling purposes.

FSIS requests input on a range of issues, including:

• Should the names of cultured products differ from those of slaughtered products?
• What terms should be used to differentiate cultured products?
• What terms would be potentially false/misleading or have negative impacts on consumers or the industry?
• Should it be permissible to use established names of slaughtered products (e.g., loin) or terms that specify form (e.g., fillet)?
• Should USDA establish a standard of identity for cultured products?
• What are the material differences between cultured and slaughtered products?
• Should meat and poultry-related definitions be amended to include or exclude cultured products?

FSIS also asks for economic data and consumer research regarding cultured products, including:

• impact of labeling on consumer perception and willingness to pay for cultured products;
• expected price of cultured products;
• number of companies in the sector;
• expected annual volume per company;
• data on consumer benefits of labels that differentiate cultured from slaughtered products;
• naming conventions that would discourage purchase or innovation.

FSIS mentions that it will consider comments submitted in response to FDA’s RFI as FSIS develops rules governing the labeling of cell cultured products under its jurisdiction, to the extent those comments are relevant to the development of joint labeling principles.

FSIS indicates that it is willing to review labels for cultured products before its rulemaking process is complete.  Labels for such products must be submitted for review and approval by FSIS so the Agency can prevent false or misleading labeling.  Although this will help industry avoid delays associated with rulemaking, labels approved during the interim (pre-final rule) period may need to be modified once FSIS finalizes the rule.

FSIS mentions that it does not plan to issue any other regulation addressing other aspects of cultured meat/poultry products (e.g., safety) because the existing regulatory requirements, including sanitation and Hazard Analysis and Critical Control Point (HACCP) systems, are immediately applicable and sufficient to ensure the safety of products cultured from the cells of livestock and poultry.

Comments may be submitted to the docket here through Nov. 2, 2021.

Innovators rejoice while generic sponsors mourn: In the wake of the latest in GSK v. Teva decision, the skinny label may be dead.

The “skinny label,” also known as a “carve-out” or a “section viii statement,” is a widely-used statutory provision adopted in the Hatch Waxman Amendments that allows generic sponsors to come to market notwithstanding a method-of-use patent covering an aspect of the reference listed drug (RLD) labeling by removing that patent-protected use from the generic labeling.  Typically, generic sponsors carve out a patent-protected indication or patient population, but technically, any method of use can be carved out as long as FDA determines that the product can still be used safely and effectively without the patent-protected information.  Though the carve-out seems at odds with FDA’s regulations requiring generic drugs to have the “same labeling” as their RLDs, such regulations specifically provide for differences arising from carved-out, patent-protected method of use.  The catch is, as we have learned from the GSK v. Teva case, that the statutory provisions governing patent infringement, specifically induced infringement, do not address carve-outs.  So while Congress provided a pathway for approval of a skinny-label drug, it did not provide a safe harbor to protect generic sponsors from allegations of induced infringement based on marketing a skinny-labeled generic as therapeutically equivalent to its RLD.  Until recently, there hasn’t been a need for such a safe harbor, as Courts have not found inducement to infringe in this context, but the GSK v. Teva decision changed everything.

Briefly (more detail is available here), GSK sued Teva back in 2014 alleging that Teva induced infringement of a method-of-use patent when Teva marketed a skinny-labeled generic version of GSK’s Coreg (carvedilol) as AB-rated.  GSK had listed several patents for Coreg, including a method-of-use patent listed with the use code “decreasing mortality caused by congestive heart failure.”  Teva submitted an ANDA in 2002, and after some complicated regulatory history, ultimately carved-out the congestive heart failure indication by way of a section viii statement.  Teva received tentative approval in June 2003 and launched in 2007 after a blocking patent expired.  Like all generics, FDA assigned Teva’s carvedilol an AB-rating, meaning that the products are therapeutically equivalent as labeled.  At trial, Teva argued that it had carved-out the treatment of congestive heart failure with a section viii statement and therefore could not have infringed the ‘000 patent, but the jury disagreed.  The jury found that Teva caused physicians to prescribe generic carvedilol for the carved-out indication and therefore willfully induced infringement and awarded GSK $235 million in damages.  The District Court, however, granted Teva’s Motion for Judgment as a Matter of Law (JMOL), and overturned the jury verdict, explaining that GSK did not prove that Teva’s promotion caused physicians to appeal.

Unsurprisingly, GSK appealed the JMOL in the Federal Circuit.  in a 2-1 decision, which included a vehement dissent by Chief Justice Prost, the Federal Circuit reversed the JMOL and reinstated the jury verdict.  The Federal Circuit held that the “criteria of induced infringement are met” based on the “ample record evidence of promotional materials, press releases, product catalogs, the FDA labels”—almost all of which touted the generic’s AB-rating—”and testimony of witnesses from both sides.”  This decision was widely praised by innovators and derided by generic sponsors.

Teva moved for a rehearing en banc with the support of the generic industry.  Teva argued that the October 2020 decision, due in part to a lack of clarity, essentially imposed liability on any ANDA filer relying on a carve-out.  However, rather than grant the en banc rehearing, the Federal Circuit had the same panel rehear the case, and ultimately, the panel—voting in the same way as it did in October 2020—made the same decision.  In the reissued decision, the Court explained that it “agreed to rehear this case to make clear how the facts of this case place it clearly outside the boundaries of the concerns” raised by industry.  This time, focusing on the specifics of Teva’s promotion, the Court determined that the record reflects “substantial evidence . . . that Teva actively induced by marketing a drug with a label encouraging a patented therapeutic use.”  The Court posited that, despite GSK’s listing of the patent with a use code covering only Congestive Heart Failure (CHF), the patent also covered the use of the product in patients suffering from left ventricular dysfunction following a myocardial infarction myocardial infarction (post-MI), and because Teva’s labeling did not carve out all references to myocardial infarction, Teva induced infringement—even though its skinny label complied with FDA requirements.

In brief, the Court stated that whether Teva carved out enough information from its skinny-label was a question for the jury rather than for the District Court to decide in a JMOL.  And, that GSK did not mention the post-MI information in the use code does not mean that Teva had no duty to carve that information out.  Instead, noting FDA is not the arbiter of patent infringement issues, the Court explained that use codes are not substitutes for the ANDA applicant’s review of the patent.  It was therefore Teva’s responsibility, according to the Court, to review the patent and make sure both CHF and any post-MI information was carved-out, regardless of the use code.

Ultimately, the Court hung its decision on Teva’s implied intent to induce physicians to use generic carvedilol in an infringing manner.  Though Teva argued that physicians do not read generic labeling, the Court held that GSK’s evidence refutes that claim, particularly because Teva’s promotional materials referred health care providers to its labeling and advised them to prescribe accordingly.  “In other words, the literature Teva provided to doctors told them to read labels and to prescribe according to them,” and thus caused physicians to infringe.  The Court further found that Teva’s marketing efforts demonstrated that Teva encouraged generic carvedilol sales for CHF despite the carve-out by marketing the product as an AB rated therapeutic to Coreg, which Teva described as approved as a cardiovascular treatment.  The decision did include a footnote stating: “We do not hold that an AB rating in a true section viii carve-out (one in which a label was produced that had no infringing indications) would be evidence of inducement.”  But it’s not clear what would suffice as a “true carve-out” and it may not be clear until a court opines on the scope of the relevant carved-out patent.

As she did in the vacated decision, Chief Judge Prost vehemently dissented to the Majority Opinion stating frankly: “I write in this case because far from being a disagreement among reasonable minds about the individual facts, this case signals that our law on this issue has gone awry.”  Chief Judge Prost poignantly criticized the Majority Opinion for “weakening” and “eviscerating” the “intentional-encouragement prong of inducement” and “the causation prong of inducement.”  With respect to the carve-out itself, Chief Judge Prost writes that the “majority creates confusion for generics, leaving them in the dark about what might expose them to liability. These missteps throw a wrench into Congress’s design for enabling quick public access to generic versions of unpatented drugs with unpatented uses.”

Chief Judge Prost warns that this ruling could prevent a less-expensive generic product from coming to market even though the drug itself and other uses of it were unpatented.  Congress had intended the section viii statement, as well as the use code, to ensure that one patented use wouldn’t prevent public access to a generic version for an unpatented use, but the Majority essentially inferred intent based on Teva’s failure to carve-out language, which, again, was not addressed in the use code.  In contrast, that Teva carved out all of the language included in the use code, Chief Judge Prost explained, signifies a lack of intent, as Teva carved out exactly the language it was required to under the statute and the relevant FDA regulations—precisely to avoid infringement.  Instead, it was GSK who erred in omitting the post-MI language from the use code.  Intent cannot be inferred from following all the rules and claiming that its product is the equivalent of its RLD—because the regulatory scheme determined that Teva’s product is the equivalent of its RLD.   Further, Judge Prost found no evidence that doctors even read Teva’s labeling prior to making prescribing decisions, undermining any evidence of causation.

As many critics said of the initial, now-rescinded Opinion, Chief Judge Prost explained, this time, “[u]nder [the Majority’s] analysis, the difference is indiscernible between this case and one in which the generic is safe. Indeed, it’s unclear what Teva even did wrong—or, put another way, what another generic in its shoes should do differently.”  Instead, Judge Prost wrote that the Majority Opinion eliminates both the generic industry’s and FDA’s expectations that “they could rely on what brands said about what their patents covered.”  She continued: “is the takeaway, instead, that Congress meant to expose ANDA generics to liability for simply describing themselves as the ‘generic version’ or ‘generic equivalent’ of a brand drug?”

And Chief Judge Prost is correct as to the lack of clarity here: Though the Majority Opinion insists that “[t]his narrow, case-specific review of substantial evidence does not upset the careful balance struck by the Hatch-Waxman Act regarding section viii carve-outs,” it’s difficult to see how the new revised decision limits the effects.  Yes, the decision specifically focused on Teva’s conduct—including listing a litany of promotional materials stating that the product was “AB-rated” or a “generic version” of Coreg—and some of those statements may raise legitimate risk (as Teva mentioned “heart failure” in its press release) of induced infringement.  But the Court merely says that labeling of a “true carve-out” would not be sufficient evidence alone of inducement infringement.  But what is a “true carve-out?”  Especially now with the utility of the use code minimized.  And could AB-rating or equivalence claims be enough evidence for inducement?  As Chief Judge Prost stated “[t]he only clear thing now is that no generic can know until hit with the bill whether it’s staying within the confines of the law.”

This decision also raises questions about approval of generic drug labeling.  If use codes are now meaningless and generic sponsors must decide what labeling is covered by the patent, on what basis will FDA determine the scope of an appropriate carve-out?  How will labeling negotiations work?  Must FDA review the patent to ensure that the only information carved out (which is the only labeling that may differ substantively from the RLD) is covered by the patent?  Or is the interpretation of the patent claims subject only to a jury’s interpretation, which would delay generic entry for both patented and unpatented uses until after the completion of litigation?  Alternatively, FDA could continue to rely on use codes as it currently does, and RLD sponsors would be able to list narrow use codes—which would dictate the scope of the language that could be permissibly carved-out from the “identical labeling” requirements for generic drugs—to allege induced infringement.   In this circumstance, FDA would only approve a generic with the narrow use code carved out; any other potentially infringing information would need to remain in the labeling, leaving the generic vulnerable to induced infringement litigation.  The generic applicant therefore could either forego section viii approval, wait for a resolution of patent litigation, or risk treble damages.  And too broad use codes are already considered problematic for blocking approval of generics.

While the Majority Opinion may be limited to this case with respect to the specific way the Court found induced infringement, it nonetheless upends the industry.  This decision raises just as many questions as the last, which can be seen from the follow-on cases that already are in progress in the courts.  Amarin, for example, sued Hikma on the heels of the first GSK decision for induced infringement based on Hikma’s carve-out of the method-of-use patent covering hypertriglyceridemia from the labeling of its generic Vascepa product and the promotion of its product as AB-rated or a “generic.”  There, Amarin argues that Hikma’s carve-out of patent-protected language itself, absent a disclaimer, is evidence of an intent to induce.  Amarin even sued a health insurer alleging active encouragement to use Hikma’s generic version instead of Vascepa for the patented indication.  Par also has filed similar litigation.

GSK has opened the floodgates for induced infringement for years to come, impacting both approved and pending ANDAs.  As Judge Prost wrote “Initially, the majority suggests that this is not a skinny-label case. Nothing to see here, the majority reassures concerned amici: the Act remains intact. See Maj. 10–11. But it’s hard to see how.”

So, for now, the skinny label may effectively be dead for any risk-averse generic sponsor (given the potential for treble damages for a blockbuster product with no generic competition).  The generic industry anxiously awaits to see whether SCOTUS or Congress can revive it.  While we wait, the brand side continues to bring more induced infringement suits while singing the Munchkins’ song.

The adage that “no one is perfect” applies as equally to companies as it does to people.  Before committing to a merger or acquisition with another company, a potential Buyer must conduct due diligence to identify the imperfections of a target company so the Buyer knows what it is buying.  This diligence is particularly critical when the target company is privately held, and thus not subject to scrutiny from public markets.  The results of the diligence inform the Buyer as it weighs the benefits, costs, and risks associated with a potential transaction to determine whether, and on what terms, to proceed.

There are standard topics diligence typically covers: financial, employment, environmental, tax, intellectual property, and litigation, among other things.  For companies that play in the FDA-regulated space, however, a focused regulatory diligence should be a high priority.  Of course a solid understanding of the regulatory compliance status of a target company is necessary for pure business reasons.  But the scope of regulatory diligence and its application to post-acquisition activities has broader implications, namely whether the government will hold the Buyer responsible, either criminally, civilly, or administratively, for the regulatory issues it inherited through the acquisition.  Thus, identifying risks and appropriately structuring a transaction, while critical, are only part of a strategy to manage regulatory compliance risks.  Equally important is the question of what steps a company has taken post-acquisition to address the issues identified during the diligence process.

The US DOJ’s Justice Manual requires prosecutors to consider certain factors in deciding whether to bring criminal charges against a corporate entity, one of which is whether the company maintains a well-designed compliance program.  In its June 2020 updated guidance document, “Evaluation of Corporate Compliance Programs,” DOJ makes clear that pre M&A due diligence is a critical aspect of that determination:  “A well-designed compliance program should include comprehensive due diligence of any acquisition targets, as well as a process for timely and orderly integration of the acquired entity into existing compliance program structures and internal controls.”  DOJ expects companies to act promptly on information obtained during the diligence process.  Specifically, DOJ asks: “What has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process?” (emphasis added).

Similarly, in the civil context, the Justice Manual highlights the importance of taking remedial action once it is known.  Such remedial actions may include:

1. demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
2. implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;1
3. appropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred; and
4. any additional steps demonstrating recognition of the seriousness of the entity’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.

In a recent civil False Claims Act case settlement, DOJ relied on the information the company gleaned during diligence to hold a Buyer responsible for the violative conduct:  “Specifically, the United States alleges that Ancor, through its due diligence . . . learned about the alleged conduct in Paragraphs E.1 and E.2.  . . . . The United States contends that Ancor caused false claims when it allowed the alleged conduct described in Paragraphs E.1 and E.2 to continue . . . . ” (emphasis added).

Last, in considering whether to impose integrity obligations on healthcare companies, the HHS OIG has noted that certain successor owners may avoid such obligations if they can demonstrate, among other conditions, that they “purchased the entity after the fraudulent conduct occurred;” and” took appropriate steps to address the predecessor’s misconduct and reduce the risk of future misconduct.”

Companies considering an acquisition need to be mindful of these and similar government pronouncements as they evaluate the merits of such transactions as part of their regulatory diligence.  Should they proceed with the transaction, companies can minimize potential liability by appropriately prioritizing the remediation activities for those uncovered regulatory issues.

In what appears to be an “about face” in terms of Facebook’s historical wooing of big pharma (are we the only ones that immediately thought, “More Cowbell” when seeing that headline?  You can thank us for that 5 minute rabbit hole later), the social media giant has implemented yet another policy change affecting branded content for prescription drugs.   While it appears to have gone largely unnoticed by industry, Facebook updated its Branded Content Policies in May 2021, and now prohibits the promotion of “drugs and drug-related products, including illegal, prescription, or recreational drugs” via branded content.

Facebook defines branded content as “a creator or publisher’s content that features or is influenced by a business partner for an exchange of value, such as monetary payment or free gifts” and posts that are considered branded content begin with “Paid partnership with.”  A celebrity or influencer sponsored post on Instagram, which is owned by Facebook, endorsing a product is a common example of branded content.

As we understand it, this policy prohibits all branded content for drugs, regardless of whether or not that content contains the required safety information and branded content disclosure.  Branded content for OTC drugs, which we would have assumed fall into the category of “drugs,” however, is considered “restricted content” rather than the aforementioned “prohibited content.” Facebook’s restricted content policy for OTC drugs requires that the branded content “must comply with all applicable local laws, required or established industry codes, guidelines, licenses and approvals, and include age and country targeting criteria consistent with applicable local laws.”  There is no mention of prescription or OTC medical devices in Facebook’s current Branded Content Policies.

It is not clear whether or how Facebook is enforcing this policy, or whether such enforcement would apply to the poster, the sponsor, or both.  The new policy would represent a consequential change in Facebook advertising as branded content is a major marketing expenditure; celebrities and influencers with significant followings easily earn tens of thousands of dollars for a single post.  To the best of our knowledge, branded content for prescription drugs has continued to appear on Facebook and Instagram since the May 24 date of the policy.

We note that this policy change is separate from the new Facebook policy requiring Legitscript certification for certain Rx drug advertisers and pre-approval for prescription drugs advertisers that was announced last month and is covered in an earlier blog post.

Aside from specific platform policies around prescription drug advertising, sponsors and influencers should be mindful of FTC and FDA guidance covering sponsored social media posts.  The FTC Disclosures 101 for Social Media outlines influencer obligations to clearly disclose sponsored content.  And, while largely outdated, FDA has previously issued draft guidances on presenting risk and benefit information for prescription drugs and medical devices on social medial platforms with character space limitations and on correcting independent third-party misinformation on social media.

Given the resources pharmaceutical companies have put toward increasing social media presence with influencer marketing, we are curious about what, if any, changes are to come in this space – from FDA/FTC enforcement, new/different platform policies relating to sponsored content, or to pharma’s ultimate investment.

UPDATE:  As of September 1, 2021, Facebook has updated the Branded Content Policies we blogged about here. Early in the day on September 1, prohibited content included “Drugs and drug-related products, including illegal, prescription, or recreational drugs.”  The policy that went into effect later in the day removed the word “prescription” and currently prohibits “Drugs and drug-related products, including illegal or recreational drugs.”   In addition, Facebook updated the Business Partner Authorization section to include the term “Prescription Drugs,” suggesting that Rx drugs may continue to be promoted by influencers that have contracted with Facebook pre-authorized entities.   Reference to OTC drugs appears to have been removed from the restricted content section as well.  We will continue to monitor Facebook’s Branded Content Policies for changes that may affect Rx pharma and medical device industries.

On June 17, 2021, FDA has released a discussion paper to discuss cybersecurity issues related to the servicing of medical devices. We have previously posted blogs about FDA’s increasing interest on cybersecurity both in the premarket (see our past blog posts here, here, and here) and the postmarket space (see our past blog posts here and here). FDA is now expanding its cybersecurity effort in servicing of medical devices.

Medical device cybersecurity is a shared stakeholder responsibility over the total product lifecycle to prevent compromised functionality, loss of medical or personal data, inadequate data integrity, or the spreading of security threats to other connected devices or networks.  In this discussion paper, FDA emphasizes cybersecurity challenges related to a non-OEM (original equipment manufacturer) entity’s activities in the following four areas.

First, how can non-OEMs address cybersecurity challenges related to the entity’s need for privileged access to diagnose, maintain, and repair the functions of the device (i.e., privileged access issue)?

Second, how can servicing entities collect and share the postmarket data regarding identification of cybersecurity vulnerabilities and incidents (i.e., Identification of Cybersecurity Vulnerabilities and Incidents)?

Third, what would be effective methods or pathways for interested stakeholders to prevent and mitigate cybersecurity vulnerabilities (i.e., Prevention and Mitigation of Cybersecurity Vulnerabilities)?

Fourth, when OEMs stop supporting the device while healthcare establishments continue to use unpatched but still clinically useful devices despite vulnerability to cyber-attack, what would be an effective mitigation to address unpatched medical device cybersecurity over the total product lifecycle (i.e., Product Life Cycle Challenges and Opportunities)?

FDA invites stakeholders to specifically address the following three questions.

1. What are the cybersecurity challenges and opportunities associated with the servicing of medical devices?
2. Are the four areas identified in this discussion paper (privileged access, identification of cybersecurity vulnerabilities and incidents, prevention and mitigation of cybersecurity vulnerabilities, and product lifecycle challenges and opportunities) the correct cybersecurity priority issues to address in the servicing of medical devices? If not, which areas should be the focus?
3. How can entities that service medical devices contribute to strengthening the cybersecurity of medical devices?

Interested parties have until September 22, 2021 to comment on these three questions as well as the issues raised in this discussion paper.  You can browse comments already submitted or submit your own at this link.

Companies often use rebranding to reposition and refocus their business.  Sometimes they do it with great fanfare; sometimes it is done quietly and incrementally.  The federal government does its own version of rebranding with each change in administration.  Just before the July 4 holiday weekend, DOJ quietly rebranded the role of guidance documents, reversing two distinct but related policies regarding such documents.  The first policy it reversed, originally announced in 2017 by Attorney General Sessions, prohibited all DOJ components from “issu[ing] guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch (including state, local, and tribal governments).”  The second, and arguably more significant, policy prohibited its lawyers from civilly prosecuting companies for violating “requirements” set forth in agency guidance documents.  This policy, announced by then Associate Attorney General Rachel Brand in 2018 was referred to as the Brand Memo.  As a matter of administrative law, the Brand Memo made good sense from the perspective of FDA-regulated industry, as we described here.  Because guidance documents have not undergone the notice-and-comment rulemaking process required under the Administrative Procedure Act, these documents should not be used to bind the public or coerce regulated parties into acting beyond what is required by law and regulation.  DOJ’s policy (ironically issued via guidance document, but later memorialized in the Justice Manual) stated that DOJ would not use noncompliance with guidance documents as the sole basis for an affirmative civil enforcement case.

The July 1, 2021 Memo signed by Attorney General Garland describes the earlier policies as “overly restrictive,” and claims it has “discouraged the development of valuable guidance” and “hampered [DOJ] attorneys when litigating cases where there is relevant agency guidance.”  The Attorney General now instructs DOJ lawyers handling an enforcement action that they “may rely on relevant guidance documents” in instances when a guidance document “may be entitled to deference or otherwise carry persuasive weight with respect to the meaning of the applicable legal requirements.”  The memorandum cites the 2019 Supreme Court decision, Kisor v. Wilkie, 139 S. Ct. 2400, 2420 (2019), which recognized that agencies can issue interpretive rules without notice-and-comment as long as they are meant only to advise the public of how the agency understands, and is likely to apply, the binding laws and regulations.

FDA’s database contains 2,623 guidance documents that address a plethora of topics, ranging from the mundane (e.g., electronic formatting for regulatory submissions), scientific (e.g., clinical testing of implanted brain computer interface devices for patients with paralysis or amputation), enforcement (e.g., recalls), and the COVID-19 emergency.  The top of each document includes the following disclaimer:

Even though these guidance documents explicitly are “not binding on FDA or the public,” companies rarely divert from terms within a guidance document because disagreement with FDA could result in costly delays in regulatory approval or administrative sanctions.  Nevertheless, the Brand Memo gave companies some solace that a failure to “dot all the I’s and cross all the T’s” within a guidance document would not be the basis for a government prosecution.  Rather, companies that met the legal and regulatory standards could defend their conduct even if they did not do so exactly as FDA proposed in guidance.

In light of the seemingly renewed general focus on enforcement activities after a COVID-19 lull, regulated companies should anticipate the resumption of FDA inspections.  In preparation, companies should consider whether new guidance documents have been issued that “require” changes in business practices and documentation.

Additionally, on the government investigation front, companies should expect that DOJ lawyers assessing potential False Claims Act cases based on alleged FDC Act violations, are reading FDA guidance documents with renewed vigor and contemplating how to use those guidance documents in their cases, which routinely result in multi-million dollar settlement demands.  Companies should be prepared to vigorously defend themselves, starting with Attorney General Garland’s own reminder: “By definition, guidance documents ‘do not have the force and effect of law.’”

It is a well-accepted fact that even well run ethical and compliant organizations can have serious problems.  The Sentencing Guidelines, the DOJ Manual, and the HHHS OIG–among others–all recognize that reality.  In its Compliance Guidance for Pharmaceutical Manufacturers, the HHS OIG notes:

The OIG recognizes that the implementation of a compliance program may not entirely eliminate improper conduct from the operations of a pharmaceutical manufacturer. However, a good faith effort by the company to comply with applicable statutes and regulations as well as federal health care program requirements, demonstrated by an effective compliance program, significantly reduces the risk of unlawful conduct and any penalties that result from such behavior.

Generally speaking, that recognition has limits, however.  While the Organizational  Sentencing Guidelines provide for a sentencing reduction for companies with an effective compliance and ethics program, that reduction is presumptively not available “if an individual— within high-level personnel of a small organization; or within substantial authority personnel, but not within high-level personnel, of any organization, participated in, condoned, or was willfully ignorant of, the offense.”  The Guidelines rationale is that “[o]rganizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.”  The Justice Manual on the Principles of Federal Prosecution of Business Organizations further expounds on this notion:

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation . . . .

Agents may act for mixed reasons—both for self-aggrandizement (direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. . . . . Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable.

In light of the above, the government generally resists the notion that an organization is a victim of its own employees.  Earlier this year, in denying a restitution request from a company, Judge Rakoff in the Southern District of New York wrote that a company’s “efforts to root out misconduct, however extensive, do not ‘immunize the corporation from liability when its employees, acting within the scope of their authority, fail to comply with the law.’” He further noted that “the mere fact that the defendants may have misled other employees or agents of [the company does not relieve [the company of its criminal liability under the principle of respondeat superior, especially where, as here, the wrongdoing was committed by company’s highest officers.

In sum, a company seeking to show that it is not responsible for the bad acts of its employees faces an uphill fight. Which brings us to the FIFA prosecutions, a topic that would not typically be blogworthy for the FDA law blog.

At a very general level, starting in 2015, in a high profile series of prosecutions, the DOJ accused a number of top FIFA officials of widespread criminal conduct.    At that time, DOJ noted that “[t]he defendants charged in the indictment include high-ranking officials of the Fédération Internationale de Football Association (FIFA), the organization responsible for the regulation and promotion of soccer worldwide.”  That type of headline typically signals that the organization is going to be a defendant, not a victim, but earlier this week, DOJ announced that FIFA would be receiving victim compensation in the form of remission.  In that same announcement, DOJ noted that:  “To date, the prosecutions have resulted in charges against more than 50 individual and corporate defendants from more than 20 countries, primarily in connection with the offer and receipt of bribes and kickbacks paid by sports marketing companies to soccer officials in exchange for the media and marketing rights to various soccer tournaments and events.”  In other words, despite a widespread and seemingly systemic fraud, the organization was a victim.  These types of resolutions are intensely fact-specific, and for all the reasons noted above a company that simply claims that it’s a victim without laying the factual and legal basis for such a claim is unlikely to get very far, but nevertheless, this case is relevant precedent for companies who find themselves investigating employee misconduct and navigating government investigations.