Apropos for the name of the great blues musician, Muddy Waters, the various federal, state and international classifications of cannabis and cannabis-derived substances is a complex scheme in search of the right rhythm.  Cannabis and cannabis-derived substances are controlled within different schedules under the federal Controlled Substances Act (“CSA”), while some are not controlled at all.  With cannabis now legal in 36 states and territories for medical purposes, and in 15 states for adult recreational use, control of cannabis substances is all over the map.  As with Muddy Waters, cannabis scheduling is far from clear.

Two recent developments may further muddy the waters in regard to the “legality” of cannabis and cannabis-derived substances.  First, on December 2, 2020, the UN Commission on Narcotic Drugs (“CND”) voted to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs.  Under the international treaty, drugs in Schedule IV are a subset of drugs classified in Schedule I.  The additional classification provides more restrictions on use and research involving such drugs.  Thus, while cannabis remains a Schedule I drug under the 1961 Convention, its removal from Schedule IV will open the door for research and potential consideration for approval for medical use by the UN CND.

Second, December 4, 2020 may prove to be an important watershed in the history of how the United States treats cannabis because, for the first time, a chamber of the U.S. Congress, the House of Representatives, voted to decriminalize cannabis by removing it from the CSA.  The Marijuana Opportunity Reinvestment and Expungement Act of 2019, (the “MORE Act”), H.R. 3884, passed 228-164, largely along party lines.  The MORE Act will assuredly not pass the Republican-dominated Senate in the unlikely event it is even introduced.

The MORE Act, if enacted, would institute a number of changes but none more monumental than removing marijuana and THC, the primary psychoactive substance in marijuana, from federal control.  With so many states having legalized cannabis for medical and recreational purposes, the MORE Act, even if not enacted by this Congress, portends what is likely on the horizon for cannabis.

The MORE Act would remove marijuana and THC not just from Schedule I of the CSA, but from the CSA altogether.  One needs a detailed, ever-changing scorecard to keep up with how cannabis and cannabis products are scheduled under the CSA, but unless and until cannabis is removed entirely from control, manufacturers, distributors, retailers, and others must be cognizant of how cannabis and cannabis-derived products are scheduled (controlled) and comply with federal (and state) control requirements.

There are five schedules (classifications) under the CSA based on each drug’s potential for abuse relative to their accepted medical uses.  Manufacturers, distributors, and others who prescribe or handle controlled substances must obtain a Drug Enforcement Administration (“DEA”) registration and a drug’s scheduling triggers specific quota, recordkeeping, reporting, and security requirements.  Schedule I drugs are the most stringently controlled while Schedule V the least.  Criteria and current cannabis scheduling follows:

Schedule I Criteria:

• High potential for abuse;
• No currently accepted medical use in treatment in the U.S.; and
• Lacks accepted safety for use under medical supervision.  21 U.S.C. § 812(b)(1).

Cannabis Substances in Schedule I:

• Marijuana and parts of the Cannabis sativa L. plant within the CSA definition “marihuana.”
  • Includes all parts of the plant whether growing or not; the seeds; the resin extracted from any part of the plant, and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin;
  • Excludes hemp and mature stalks, fiber from the stalks, oil or cake from the seeds, any other compound, manufacture, salt, derivative, mixture, or preparation of mature stalks (except the resin therefrom), fiber, oil, or cake or sterilized seeds incapable of germination). DEA Drug Code 7360; 21 U.S.C. §§ 802(16), 812(c)(10).
• Marijuana Extract. DEA Drug Code 7350; 21 C.F.R. § 1308.11(d)(58).
• THC not in hemp.
  • Includes natural delta-8-THC, delta-9-THC and synthetic equivalents including trace quantities in synthetic CBD. DEA Drug Code 7370; 21 U.S.C. § 812(c)(17); 21 C.F.R. § 1308.11(d)(31)(i).

Schedule II Criteria:

• High potential for abuse;
• Currently accepted medical use in treatment in the U.S. or a currently accepted medical use with severe restrictions; and
• Abuse may lead to severe psychological or physical dependence.  21 U.S.C. § 812(b)(2).

Cannabis Substances in Schedule II:

• FDA-approved synthetic dronabinol (delta-9-THC) in an oral solution (Syndros). DEA Drug Code 7365; 21 C.F.R. §1308.12(f)(2).

Schedule III Criteria:

• Potential for abuse less than drugs in Schedule I and II;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to moderate or low physical dependence or high psychological dependence. 21 U.S.C. § 812(b)(3).

Cannabis Substances in Schedule III

• FDA-approved synthetic dronabinol (delta-9-THC) in an oral solution in sesame oil encapsulated in soft gelatin capsules (Marinol). Drug Code 7369; 21 C.F.R. § 1308.13(g)(1).

Schedule IV Criteria:

• Low potential for abuse relative to drugs in Schedule III;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to limited physical dependence or psychological dependence relative to drugs in Schedule III. 21 U.S.C. § 812(b)(4).

Cannabis Substances in Schedule IV

None.

Schedule V Criteria:

• Low potential for abuse relative to drugs in Schedule IV;
• Currently accepted medical use in treatment in the U.S.; and
• Abuse may lead to limited physical dependence or psychological dependence relative to drugs in Schedule IV. 21 U.S.C. § 812(b)(5).

Cannabis Substances in Schedule IV

None.

Not Scheduled, Not Controlled:

• Hemp.
  • Includes the Cannabis sativa L. plant and any part of the plant, including seeds and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9-THC concentration of not more than 0.3% on a dry weight basis. 7 U.S.C. § 1639o(1); 21 U.S.C. § 802(16)(B), 812(c)(10); 21 C.F.R. § 1308.11 (d)(31)(ii).
• THC in hemp. 21 U.S.C. § 812(c)(17); 21 C.F.R. § 1308.11(d)(31)(ii).
• CBD and products derived from parts of the Cannabis sativa L. plant excluded from the CSA definition of “marihuana.” 21 U.S.C. § 802(16)(B).
• FDA-approved CBD-derived from cannabis with no more than 0.1% THC (Epidiolex).
  21 C.F.R. § 1308.15(f) (removed 2020).

The MORE Act’s removal of cannabis from Schedule I and the CSA would transfer cannabis and cannabis-derived substances from among the most stringently controlled substances in the same class as heroin, LSD, and peyote with strict quota, recordkeeping/reporting, and security requirements to no controls nor requirements.  It would remove DEA authority over legitimate handlers of cannabis, such as researchers and analytical laboratories.  Unless their language is clear and narrowly tailored, the MORE Act and similar statutes would raise a number of questions.  For example, the statute should clarify whether descheduling applies only to Cannabis sativa L. plant-derived material or also to synthetic material.  The Agriculture Improvement Act (“Farm Bill”) removed cannabis defined as “hemp” with a delta-9-THC concentration of not more than 0.3% on a dry weight basis, but what about delta-8-THC?

Decontrolling cannabis altogether under the CSA would end conflicts between federal law and states that have loosened cannabis restrictions.  But decontrolling cannabis at the federal level would initiate new conflicts between would-be looser federal laws and more restrictive states that have not decontrolled cannabis.  We note that the controlled substance statutes of a number of states automatically follow the federal lead on scheduling, rescheduling, and descheduling so unless those states take other action, they would also decontrol cannabis.

Many pro-cannabis advocates are justifiably frustrated with DEA’s snail pace on its addressing cannabis issues.  The agency has yet to move on issuing registrations to manufacture cannabis for research to any of the 37 applicants, some of whom submitted applications and began investing in operations and secure facilities over four years ago.

So, if you manufacture, distribute, sell, or otherwise handle cannabis and cannabis products, you must understand how they are scheduled and controlled, and comply accordingly.  Lawmakers and regulators have the opportunity assess and address how the U.S. moves forward with handling cannabis.  In decontrolling or rescheduling cannabis, draft the legislation or regulations clearly to say exactly what you intend them to achieve.  Unlike Muddy Waters, cannabis scheduling and control should be clear, relative to its abuse potential and legitimate medical and scientific uses.

Biosimilars have been around for a bit over 10 years now, and there has been tremendous progress in licensing new biosimilar products.  But there is no question that there are still significant holes that FDA must address to further facilitate biosimilar development under section 351(k) of the PHS Act.  Many of these questions relate to interchangeable products, as FDA and industry have had very limited experience with interchangeable biosimilars.  As of December 2020, FDA has approved 28 biosimilars, but not one has been approved as “interchangeable” for its reference product.  For this reason, FDA explicitly included “providing additional clarity” to product developers on interchangeability as an objective of the Biosimilar Action Plan announced in 2018.

In one recent attempt to provide such clarity, FDA published a new draft guidance entitled Biosimilarity and Interchangeability:  Additional Draft Q&As on Biosimilar Development and the BPCI Act.  This guidance is not a stand-alone guidance, but, when finalized, it will be added to the final guidance document Questions and Answers on Biosimilar Development and the BPCI Act.  Like FDA’s previous biosimilar guidance documents, the intent of this Q&A guidance is to “enhance transparency and facilitate the development and approval of biosimilar and interchangeable products” and “provide clarity for developers who want to demonstrate that their proposed biological product meets the statutory interchangeability standard under the Public Health Service Act.”  FDA Press Release, FDA Releases a Draft Q&A Guidance for Industry on Biosimilar and Interchangeable Product Development and the BPCI Act (Nov. 19, 2020).  To that end, this guidance provides further draft responses to frequently asked questions about biosimilars and interchangeability.

Specifically, the guidance addresses some procedural elements related to the submission of an interchangeable biosimilar application.  Because the BLA (sometimes called an “aBLA”) submission for a biosimilar and for an interchangeable are the same, industry has asked FDA for clarification on distinguishing interchangeable applications from biosimilars.  The guidance explains that a BLA for an interchangeable product must include an affirmative statement that the application seeks licensure for an interchangeable biosimilar; without that statement, FDA will evaluate the submission as a biosimilar application.  And if the applicant applies for interchangeable status but fails to meet that standard, FDA will bifurcate the application for administrative purposes.  In that circumstance, FDA could license the product as a biosimilar while separately reviewing and providing a Complete Response Letter outlining deficiencies for interchangeability.  FDA notes that the administrative “split” is the default in such circumstances, but the applicant can request that FDA only license the product if determined to be interchangeable.

FDA also provides guidance for sponsors of existing 351(a) or “deemed” BLAs that would like to be considered biosimilar to other approved biologics.  In such a case, FDA requires that the sponsor submit a new BLA under 351(k) containing data demonstrating that its product is biosimilar or interchangeable to the reference product.  Importantly, there is no need to revoke the original BLA, as a product may be on the market as both a stand-alone biologic and a biosimilar.

Finally, the guidance tackles biosimilar and interchangeable biosimilar labeling.  FDA explains that neither biosimilar nor interchangeable biosimilar labeling should include descriptions of the data used to demonstrate biosimilarity or interchangeability.  Because the biosimilarity studies are not safety and effectiveness studies, they do not facilitate understanding of a product’s safety and effectiveness and therefore do not belong in the product labeling.  FDA reiterates here that certain differences in labeling between interchangeable biosimilars and their reference products may be appropriate and highlights that an interchangeable product may be licensed for fewer than all of the reference product’s licensed conditions of use.  Notably, FDA expressly recommends that sponsors, whenever possible, seek approval for all conditions of use (which is probably good advice—at least for now—considering the Federal Circuit’s recent decision on induced infringement for carve-outs in the small molecule context).  Further, FDA recommends that sponsors of approved interchangeable biosimilars include the following labeling statement regarding interchangeability:

An interchangeable product (IP) is a biological product that is approved based on data demonstrating that it is highly similar to an FDA-approved reference product (RP) and that there are no clinically meaningful differences between the products; it can be expected to produce the same clinical result as the RP in any given patient; and if administered more than once to a patient, the risk in terms of safety or diminished efficacy from alternating or switching between use of the RP and IP is not greater than that from the RP without such alternation or switch. Interchangeability of [INTERCHANGEABLE BIOSIMILAR’S PROPRIETARY NAME] has been demonstrated for the condition(s) of use, strength(s), dosage form(s), and route(s) of administration described in its Full Prescribing Information.

As it does for all draft guidance documents, FDA encourages industry to submit comments on this guidance.  Comments are due by January 19, 2021.  Once final, these questions and responses will be incorporated into existing final guidance on biosimilars and interchangeability.

In October, the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA) published a Final Rule that permits the importation of prescription drug products from Canada (the “Final Rule”). The Final Rule became effective on November 30, but the potential for Canadian drug importation faces significant challenges. First, on November 23, 2020, Pharmaceutical Research and Manufacturers of America (PhRMA), Partnership for Safe Medicines (PSM), and Council for Affordable Health Coverage (CAHC) filed a lawsuit challenging the Final Rule. Then, a few days later, Canada passed an interim order banning the export of certain drugs from Canada.

The Final Rule

As discussed in our prior post, the Final Rule implements Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act), 21 U.S.C. § 384, to allow states and other entities (Sponsors) to develop a Section 804 Importation Program (SIP) to import certain prescription drugs from Canada into the United States. Drugs imported under a SIP must be approved by Health Canada and meet the conditions in an FDA-approved new drug application (NDA) or abbreviated new drug application (ANDA) – meaning that the drug must be currently marketed in the United States under an NDA or ANDA, and the manufacturer must attest that the imported version of the drug meets the conditions of that NDA or ANDA. Before they can be sold in the United States, imported drugs must undergo testing and be relabeled for sale in the United States. The Final Rule includes other requirements to protect the drug supply chain, such as requiring that SIP Sponsors partner with a Health Canada licensed Foreign Seller who must also register with the FDA; limiting product Importers to licensed pharmacists or wholesale distributors; and controlling the number of Sponsors, Foreign Sellers, and Importers for each SIP. The Final Rule also requires SIP Sponsors to provide FDA with data and information about the SIP, including the SIP’s cost savings to American consumers.

As set forth in the FDC Act, Section 804 becomes effective only if the Secretary of HHS certifies to Congress that the importation plan will (A) pose no additional risk to the public’s health and safety, and (B) result in a significant reduction in the cost of covered products to the American consumer. Concurrent with the issuance of the Final Rule, HHS Secretary Alex Azar certified that the importation program described in the Final Rule would meet both of the statutory requirements. As we have previously noted, Section 804 was enacted in 2003, yet this is the first time that the Secretary of HHS has made such a certification.

The Lawsuit

On November 23, 2020, PhRMA, PSM, and CAHC (collectively, “the Plaintiffs”) filed a lawsuit in the U.S. District Court in the District of Columbia challenging the Final Rule and Secretary Azar’s Certification. The lawsuit seeks a finding that the Final Rule is unlawful and asks the Court to set aside and permanently enjoin implementation of the Final Rule and the Certification made by Secretary Azar.

According to the Plaintiffs, for nearly two decades the government has insisted that importation under Section 804 could not adequately address the statutory requirements for drug safety or cost savings. HHS successfully defended this position in court twice and, even under the current administration, made multiple statements against Section 804 importation – some of which were raised as concerns in the Final Rule. As such, the Plaintiffs allege that the government’s failure to explain its shift in policy renders the Final Rule arbitrary and capricious.

The Plaintiffs allege that the Final Rule fails to satisfy the statutory requirements of ensuring drug safety and cost savings. According to the Plaintiffs, the Final Rule will open the United States’ “closed” system of drug distribution, increasing the likelihood that patients in the United States receive unapproved, misbranded, and adulterated drugs. The Plaintiffs suggest that the labeling of SIP-imported drugs could mislead and confuse consumers and increase medication errors because of the similarity between the labels of the FDA-approved and SIP-imported products. In addition, the lack of FDA scrutiny over relabeling and repackaging could allow adulteration, and FDA would not be able to ensure that products are not illegitimate or counterfeit. The Plaintiffs also allege that the Final Rule undermines important safety protections in the FDC Act, and inappropriately places the responsibility for ensuring the safety of SIP-imported drugs on the Sponsors and other entities that have little expertise and resources to ensure that all aspects of drug safety are satisfied. The Plaintiffs assert that the alternative safeguards set forth in the Final Rule (e.g., the requirement to test SIP-imported drugs) do not ensure safety because FDA will not be able to verify that the methods, facilities, and controls used for the manufacture, processing, packing, and labeling of the drugs are in conformance with FDA requirements.

The Plaintiffs also allege that the Final Rule fails to address the statutory cost savings requirement by conditioning it on future events, and delegating responsibility for demonstrating cost savings to the SIP Sponsors. The Final Rule explicitly acknowledges the government’s current inability to estimate potential cost savings due to a lack of information about the likely size and scope of the SIPs, the specific prescription drugs that may be imported, and the degree to which the imported drugs will be less expensive than drugs currently available in the United States. Since the demonstration of cost savings is required under the FDC Act, the Final Rule envisions that FDA will “find that a particular SIP proposal meets the certification requirements based on the information received as part of the proposal.” 85 Fed. Reg. at 62,112. According to the Plaintiffs, Section 804 does not contemplate or permit this SIP-by-SIP determination. In addition, the Plaintiffs argue that there is no indication that the Final Rule will reduce drug costs or yield substantial savings to American consumers. The Plaintiffs posit that any difference between the cost of comparable U.S. and Canadian drugs will be negated by the costs of the Foreign Sellers and Importers, including the costs of the relabeling and testing required under the Final Rule.

The Plaintiffs also allege that the Final Rule is contrary to intellectual property laws, violates the First Amendment, and raises serious questions under the Takings Clause. These allegations are related to the Final Rule’s requirement that manufacturers help facilitate importation or risk criminal liability. For example, the Final Rule requires manufacturers to either test SIP-imported products for free or turn over trade secrets and other confidential information so that Importers can test and authenticate the drugs. The Final Rule also requires manufacturers to provide Importers with authorization for the use, at no cost, of the approved labeling for the prescription drug, which could include trademarked names and logos. Since the Final Rule does not allow manufacturers to charge for the costs of conducting the required testing or the provision of trade secrets and confidential information, the Plaintiffs allege that this would amount to an uncompensated taking in violation of the Fifth Amendment.

The Canadian Interim Order

Before the Final Rule was published, Canada voiced its opposition to the importation proposal, predicting that importation would increase pressure on the Canadian drug supply, exacerbate drug shortages, and limit access to needed medicines in Canada. In direct response to the Final Rule, on November 27, the Canadian Minister of Health signed an Interim Order Respecting Drug Shortages (Safeguarding the Drug Supply). This Order prohibits licensed Canadian establishments (e.g., wholesalers and distributors) from distributing drugs for consumption or use outside of Canada, unless the licensee has reasonable grounds to believe that the distribution will not cause or exacerbate a drug shortage. Canadian licensees are required to create and retain detailed records with the information used to determine that distribution is not prohibited (i.e., will not cause or exacerbate a drug shortage) and must provide this information to the Minister of Health upon request. The Order applies to all drugs that are eligible for importation to the United States under the Final Rule as well as biologics and controlled substances, which are not eligible for importation by SIPs.

Our Thoughts

Drug prices and the desire to provide savings to American patients and consumers will likely continue to be an important issue as the Administration changes. While the Final Rule purports to set forth a possible solution by allowing for importation of drugs from Canada, it seems unlikely that this will be a viable solution. The Canadian Interim Order will effectively prevent the Foreign Sellers that SIP Sponsors partner with from exporting drugs to the United States, raising substantial questions about how SIP Sponsors will satisfy the requirements set forth in the Final Rule. In addition, the Plaintiffs’ lawsuit raises significant questions about the appropriateness of the Final Rule and the validity of the Certification that underlies the Final Rule. In the face of this legal challenge, it remains to be seen whether the new Administration will support the Final Rule and Certification. We will continue to monitor and report on developments related to drug importation plans and other efforts to lower drug prices in the United States.

On December 4, 2020, FDA finalized the guidance document, Requesting FDA Feedback on Combination Products (Guidance), which was issued to fulfill the requirement under Section 3038 of the Cures Act.  As a reminder, Section 3038 contained several provisions to help facilitate FDA engagement and appropriate review of combination products by, among other things, reaffirming FDA’s task of choosing a lead Center to regulate combination products based upon their primary mode of action (PMOA), and nudging FDA to conduct premarket review of combination products under a single application, although it left open the continued possibility of FDA using separate applications “whenever appropriate” (see previous coverage here).  With the intent of improving pre-submission interactions around combination product development, the Guidance updates the December 2019 draft of the same title and describes “ways in which combination product sponsors can obtain feedback from FDA on scientific and regulatory questions and to describe best practices for FDA and sponsors when interacting on these topics.” Guidance at 2.  In comparing the final guidance to its draft, some re-organization and clarifications have been made, but the two documents are substantively very similar.

Combination products consist of any combination of a drug, device, and/or biologic and their regulation tends to be more complex than regulation of a single entity product.  There are many times when a sponsor is uncertain whether the product should be regulated as a drug, biologic, or device, and in these situations, the Guidance recommends FDA’s Office of Combination Products (OCP) as the first line of communication, so that an Agency Center may be assigned based on the product’s PMOA.  OCP can also be contacted for general questions related to combination products.

When a combination product’s lead Center is known, to communicate with FDA, combination product sponsors may use either (1) typical application-based mechanisms or (2) a Combination Product Agreement Meeting (CPAM).  The application’s FDA Point of Contact (POC), when an application has already been submitted, or the Center’s Project Jurisdiction Officer (PJO) can be contacted with preliminary or general questions, or to discuss whether an application-based mechanism or CPAM is more appropriate.

Meetings with FDA: Traditional vs. CPAM

Traditional application-based mechanisms include the pre-submission process used in the Center for Devices and Radiological Health (CDRH) and the Center for Biologics Evaluation and Research (CBER) and formal milestone or guidance meetings used in the Center for Drug Evaluation and Research (CDER) and CBER.  The Guidance suggests these mechanisms will be the most efficient and recommends their use to request feedback on “scientific issues, study design, testing approaches, or application preparation considerations for combination products or clarifying topics for which FDA has already published technical guidance.” Id. at 15.  The application-based request should identify the product as a combination product and should include information on all constituents (i.e., drug, biologic, and/or device).  For a drug or biological product-led combination product that includes a device constituent part, the request should include a description of the device (including images or drawings), identification of components, and identification of clearance or approval numbers, where applicable.  For a device-led combination product, the request should include a description of the drug and/or biologic (including chemical name, established or proper name, and structure), route of administration, dosing information, and approval numbers, where applicable.

A CPAM is an alternative mechanism for communication available to combination product sponsors when previous feedback and agreement under an application-based mechanism has not provided enough certainty.  In other words, while application-based mechanisms may be used to obtain FDA feedback on both general and more specific topics as a combination product moves through development, a CPAM should be used when a formal agreement with the Agency is warranted.  It should not, however, be used to resolve disputes that are otherwise reviewed under existing dispute resolution and appeals processes.  However, it should be noted that CPAM agreements can be invalidated if there are changes, including changes to a product’s intended use, design/contents, manufacturing processes, or the investigational plan.  With this in mind, a CPAM should be used once development has reached a stage where changes that might invalidate an agreement are unlikely (e.g., the scientific basis of the sponsor’s proposal is mature), with application-based interactions being more appropriate when product design and/or scientific evidence is evolving.  FDA plans to notify sponsors upon receipt of a CPAM request if they believe an application-based meeting may be more effective.  Also, if FDA plans to notify sponsors if they determine, during a subsequent review of a marketing application, that CPAM agreements are no longer valid.

Operationally, a CPAM may only be used when the lead Center is assignment is clear. Also, FDA will meet with the sponsor within 75 calendar days of receiving the request.

Other Best Practices for FDA Communication

The Guidance provides a number of best practices for communication between FDA and sponsors of combination products.  For sponsors, even if questions relate to a different constituent part, communication should always go through the lead Center, and the POC, when known.  All submissions should identify the product as a combination product.  Sponsors should be clear and specific in their requests for Agency feedback and questions should be appropriate for the stage of development.  Comprehensive rationale and sufficient supporting information should be provided to allow FDA to consider the issue and provide feedback.  For FDA, the Guidance recommends the Agency notify sponsors of the POC; engage relevant expertise from other medical product Centers and OCP to address sponsor questions; and provide consolidated, aligned, and reliable feedback.

Overall, the Guidance provides consolidated recommendations for combination product sponsors, including details about the content and format of submissions, and should be a useful reference for ensuring efficient and effective communication with FDA.  Sponsors should also like FDA’s commitment to engage cross-Center experts and provide consolidated and aligned feedback as these have been areas of frustration to many during combination product development and review.

Pharmacists, in general, can partially fill any prescription for non-controlled and most Schedule III-V controlled substances.  Partial filling has several benefits, including reducing waste and potentially lowering the cost of a prescription.  However, Schedule II (C-II) controlled drugs are an exception to general rule allowing partial fills, as federal law and regulations only permit partially filling C-II prescriptions in certain instances.

The Comprehensive Addiction and Recovery Act (CARA), passed in July 2016, amended the Controlled Substance Act (CSA) to authorize additional partial filling of Schedule II controlled substances.  Comprehensive Addiction and Recovery Act of 2016, Pub. L. No. 114-198, 130 Stat. 695 (codified as amended in scattered sections of 42 U.S.C. and 21 U.S.C.).  DEA has now proposed a rule to amend its regulations in accordance with CARA that will expand the situations where a partial filling of a C-II prescription is permitted.  21 C.F.R. Part 1306.

The DEA published this notice of proposed rule on December 4, 2020 and there is a 60-day comment period thereafter.  Partial Filling of Prescriptions for Schedule II Controlled Substances, 85 Fed. Reg. 78,282 (proposed Dec. 4, 2020).

Background of Partial Filling of C-II Prescriptions

As a general rule, a pharmacist is not permitted to partially fill a C-II prescription for a patient.  However, DEA regulations currently provide three exceptions for partial filling of C-II prescriptions:

• If a pharmacist is unable to supply the full quantity of a C-II prescription. In these instances, the pharmacist must make a notation of the quantity supplied on the prescription itself.  The remaining portion of the prescription may be filled within 72 hours of the partial filling.  However, no further quantity may be supplied beyond 72 hours without a new prescription and the pharmacist must notify the prescriber.  21 C.F.R. § 1306.13(a).
• If a C-II prescription is written for a patient in a Long-Term Care Facility (LTCF). The pharmacist must record on the prescription whether the patient is an “LTCF patient.”  21 C.F.R. § 1306.13(b).
• If a C-II prescription is written for a patient with a medical diagnosis documenting a terminal illness. Both the pharmacist and the prescribing practitioner have a corresponding responsibility to assure that the controlled substance is for a terminally ill patient.  The pharmacist must record on the prescription that the patient is “terminally ill.”  21 C.F.R. § 1306.13(b).

For each partial filling for a LTCF or terminally ill patient, the dispensing pharmacist must record the date of the partial filling, quantity dispensed, remaining quantity authorized to be dispensed and the identification of the dispensing pharmacist.  The total quantity of C-II controlled substances dispensed in all partial fillings must not exceed the total quantity prescribed.  C-II prescriptions for patients in a LTCF or terminally ill patients are valid for 60 days from the issue date.  21 C.F.R. § 1306.13(b).

Proposed C-II Partial Fill Rule

DEA is now proposing a new regulation to add a fourth scenario where a pharmacist can partially fill a C-II prescription as authorized under CARA.

The proposed rule would allow a pharmacist to partially fill a C-II prescription if requested by the patient or prescriber.  However, to be lawful under CARA, the partial filling must not be prohibited by State law; must be written and filled in accordance with the CSA, DEA regulations and State law; and the total quantity dispensed in all partial fillings cannot exceed the total quantity prescribed.  85 Fed. Reg. at 78,285.  Moreover, after the first partial fill, any additional partial fill(s) must occur within 30 days after the date on which the prescription is written (unless the prescription is issued as an emergency oral prescription, in which case the remaining portion must be filled no later than 72 hours after it was issued).  Id.

We also note that DEA has proposed additional regulations related to this new partial fill rule not required under the CARA amendment to the CSA.  Specifically, prescribers must communicate their intent for a partial filling by writing such terms on the face of the prescription at the time that it is completed (or, in the case of an emergency oral prescription, directly stating to the pharmacist when such prescription is communicated to the pharmacist).  Additionally, if a patient is requesting the partial fill, then the patient must be the one to request a partial fill.  However, the patient must request the partial fill, and not merely the person dropping off or picking up the prescription.  The DEA specifically noted that this restriction is required by CARA and thus is an exception to the general authority for a pharmacy to deliver a prescription to the “ultimate user.”  85 Fed. Reg. at 78,284.  Under the CSA, the ultimate user can be “a person who has lawfully obtained, and who possesses, a controlled substance for his own use or for the use of a member of his household or for an animal owned by him or by a member of his household.”  21 U.S.C. § 802(27).  The patient can request the partial fill either in-person, telephonically or in a written note.  For example, the patient can write and sign a note to be delivered to the pharmacist by another person.  85 Fed. Reg. at 78,284.

The pharmacist, in the event of a prescriber-requested partial fill, must record the amount partially filled, the date, name/initials of the filling pharmacist and all other information required by 21 C.F.R. § 1306.22(c) for schedule III and IV prescription refills.  In the event of a patient-requested partial fill, the pharmacist, in addition to the information above, must also record the following statement:  “patient requested partial fill on [date such request was made].”  Id.  Note, however, if both the prescriber and patient request a partial fill, the pharmacist cannot dispense a partial quantity greater than authorized by the prescriber.

The DEA notes several potential benefits for this proposed rule, including lower costs for patients, reduction of unused controlled medication and reduction of the potential for addiction, overdose and diversion.

It also important to note that the pharmacist is not absolved of their “corresponding responsibility” to verify the legitimacy of the prescription — including any partial filling request by a patient or prescriber.  See 21 C.F.R. § 1306.04(a) (“The responsibility for the proper prescribing and dispensing of controlled substances is upon the prescribing practitioner, but a corresponding responsibility rests with the pharmacist who fills the prescription.”) (emphasis added).  For example, pharmacists cannot partially fill a C-II if the prescription quantity exceeds any state-mandated controlled drug quantity limits.  In such a case, the pharmacist must exercise his or her corresponding responsibility and decline to fill, or partially fill under this proposed rule, the entire C-II prescription because it would be invalid pursuant to state law.

Conclusion

The DEA’s proposed C-II partial fill rule comports with the CARA amendment to the CSA.  We agree that it has the potential to reduce the amount of unused C-II medication and the risk of diversion and abuse.  However, we question whether this will result in significant cost savings.  We understand that most patients receiving a C-II prescription pay a copay and do not pay out-of-pocket for the full cost of the drug.  The drug copay does not necessarily decrease based upon small changes in drug quantity.  Therefore, it is currently unclear whether prescription insurance plans will lower a copay if a C-II prescription is only partially filled.  If not, then a patient may ultimately pay multiple copays and more money out-of-pocket then they would otherwise.  Indeed, DEA has recognized this issue and has specifically requested comments from industry regarding whether copays will be reduced if C-II prescriptions are partially dispensed.

For over nine months FDA has dithered on whether and, if so how, to conduct remote inspections of drug facilities during the pandemic.  On the other hand, many foreign regulatory bodies appear to have implemented just such a system of remote inspections. Has FDA just decided to wait out the pandemic?  Hyman, Phelps & McNamara, P.C.’s Mark I. Schwartz discussed this issue and more in an op-ed published earlier this week with Bloomberg News.

The FDA Law Blog may appear to have become a little patent-heavy over the last few months, but you can thank the Federal Circuit for that.  It just can’t stop changing the landscape for Hatch-Waxman litigation.  In October, the Federal Circuit, for all intents and purposes, shut down the statutorily-authorized method-of-use patent carve-out practice by finding that skinny-labeled generics induce infringement merely by stating that they are AB-rated.  Now, the Federal Circuit has reinterpreted the venue provisions governing patent cases so that the location of the submission of an ANDA, at least for U.S. entities, determines where patent litigation can take place.  It’s impressive that, after more than 35 years, litigants still find new questions to raise about proper implementation of the Hatch-Waxman Amendments and the related patent infringement provisions set forth in 35 C.F.R. § 271(e).

In Valeant Pharmaceuticals v. Mylan Pharmaceuticals, decided in early November 2020, the Federal Circuit held that the District Court of New Jersey properly dismissed claims against two U.S.-based defendants based on improper venue.  Mylan, with a U.S.-entity based in West Virginia, submitted to FDA, based in Maryland, an ANDA referencing Valeant’s Jublia with a Paragraph IV certification in 2018, and Valeant brought a patent infringement suit against Mylan in Valeant’s home state of New Jersey.  Valeant posited that venue was appropriate in New Jersey because New Jersey “is a likely destination for Mylan’s generic” product, because Mylan does business in New Jersey, and because Mylan has previously submitted to the jurisdiction of the District Court of New Jersey.  For good measure, Valeant also filed separate infringement litigation regarding the same patents in the District Court of West Virginia.

While Mylan didn’t deny Valeant’s allegations of presumed marketing in New Jersey, Mylan moved to dismiss the New Jersey litigation, arguing that venue was improper in New Jersey because no Maryland defendant resides in New Jersey and no alleged act of infringement occurred in New Jersey.  The Federal Circuit upheld the District Court of New Jersey’s decision to grant the Motion to Dismiss based on improper venue.  Essentially, the Court found that any infringing activities in New Jersey were too speculative for venue to be proper.

Previous cases had held that “planned, future acts” were sufficient to justify specific personal jurisdiction over a defendant in ANDA-related patent infringement cases, as were planned, future interactions with a state in the form of marketing activities.  But the Supreme Court “dramatically changed the venue landscape in patent cases” in 2017 in TC Heartland LLC v. Kraft Foods Grp. Brands LLC.  That decision held that the term “resides” in the patent venue statute, 28 U.S.C. § 1400(b), refers only to a corporation’s state of incorporation, meaning that a corporation may be sued for patent infringement only in those states in which it is incorporated and those states in which it has a regular and establishment place of business and an act of infringement occurred.

Looking to TC Heartland, the Federal Circuit examined the plain language of the infringement statute in 35 U.S.C. § 271 as juxtaposed to the patent venue statute in 28 U.S.C. § 1400(b).  Both parties agreed that the venue provisions for patent cases states that an action for patent infringement may be brought “where the defendant has committed acts of infringement” and therefore, based on the present perfect tense, requires an act of infringement to have occurred in the past.  In the case of ANDA submission, where 35 U.S.C. § 271(e)(2) renders it an “act of infringement to submit” an ANDA, the Court determined that the act of infringement is the actual submission—and only the submission—of the ANDA.  The Court explained that the common claim that an ANDA submission is an “artificial” act of infringement misstates the statutory construction: “ANDA submission is a real, albeit statutorily created, act of infringement.”  The act of infringement is real, and it is the submission of the ANDA that is in the infringing act.  Thus, the Court must look to the act of submission, and where it occurred, to determine proper venue—in this case, West Virginia.  In the Court’s view, future marketing plans are not relevant to the inquiry of where “the defendant has committed acts of infringement.”

Despite the broad approach to venue that courts have previously taken in Hatch-Waxman patent infringement cases, the Court explained that there was no textual hook in the statute to declare that an ANDA submission is an act of infringement everywhere in the U.S.  As such, there is no indication that Congress wanted to adopt such a broad interpretation of venue.  And though the Court found Valeant’s policy argument persuasive, in which it argued that patent-holders would be forced to bring multiple repetitive suits in different jurisdictions, the Court found that it was not persuasive enough to overcome the statutory language.  Thus, the Federal Circuit dismissed the case because no act of infringement actually occurred in New Jersey.  A different issue, related to foreign defendants, was remanded back to the District Court.

The decision here appears to give the ANDA filer has significant control over the venue for patent litigation.  Indeed, Valeant warns of ANDA applicants “gaming” the system.  But, at the least, the Federal Circuit gave generic sponsors something to ease their pain after the potential loss of the section viii carve-out (though we’ll have to see how that ultimately plays out).

As part of its final push to lower drug prices, the Trump administration announced that it was finalizing a January 2019 proposed rule to amend the safe harbor provisions relating to manufacturer rebates to Medicare Part D plans, Medicaid Managed Care Organizations (MCOs) and their pharmacy benefits managers (PBMs). The Final Rule was published in the Federal Register on November 30, 2020.

The rebate rule has not had a straightforward history. Although the OIG claims that it never withdrew the rule from consideration, the White House and HHS Secretary Alex Azar scrapped the proposed rule in July of last year, soon after a Congressional Budget Office (CBO) report agreed with CMS’s own estimates that the rule will increase Medicare Part D premiums by $58 billion over ten years, likely offsetting any cost savings for patients, and cost the Federal government an additional $177 billion. This July, the President revived the rule in the middle of his election campaign with one additional mandate: that the HHS Secretary “confirm . . . that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” (see our report on the executive order here).

We previously summarized the main elements of the rule when it was first proposed and it has largely stayed the same. As we explained, the rebate rule is based on the premise that confidential manufacturer rebates to plan sponsors under Medicare Part D, either directly or through PBMs acting under contract with them, do not result in cost savings for the patients but act as kickbacks to these “middlemen.”  According to the OIG, this system incentivized plan sponsors to negotiate higher rebates from manufacturers. Higher rebates allowed the plans to maintain higher profit margins, especially because these payments generally did not reduce patient out-of-pocket costs (deductibles and co-insurance), which are based on the published list price of the prescription pharmaceutical product, that is, the price before the rebates are applied. Manufacturers agree to higher rebates in exchange for exclusive or preferred positions on the plan formulary and the plans and PBMs give preferred formulary placement to the products that will provide them the greatest rebate. (p. 76685)

Under the final rule, the OIG aims to change these incentives by significantly narrowing the anti-kickback statute (AKS) safe harbor for discounts at 42 C.F.R. § 1001.952(h). The final rule would add an exclusion to the current discount safe harbor for “[a] reduction in price or other remuneration in connection with the sale or purchase of a prescription pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D either directly to the plan sponsor under Medicare Part D, or indirectly through a pharmacy benefit manager acting under contract with a plan sponsor under Medicare Part D, unless it is a price reduction or rebate that is required by law.” (p. 76731) The final rule also adds two new safe harbors: one to protect certain manufacturer price reductions at the point-of-sale (§ 1001.952(cc)), and another to protect certain administrative fees paid by pharmaceutical manufacturers to PBMs (§ 1001.952(dd)). The new safe harbor at § 1001.952(cc) requires the manufacturer to set the price reduction it is offering the plan sponsor under Medicare Part D or Medicaid MCO in writing before the first purchase of the product at that reduced price. The reduction in price must be completely reflected in the price of the prescription pharmaceutical product at the time the pharmacy dispenses it to the patient. The reduction in price can only be a rebate if the full value of the reduction is provided a dispensing pharmacy, directly or indirectly, through a point-of-sale chargeback, or if otherwise required by law. The point-of-sale chargeback is intended to make pharmacies whole for any difference between their acquisition cost and the price reduction agreed to by the Part D Plan, Medicaid MCO, or their PBM.

Changes from the Proposed Rule

Following are the main differences between the proposed rule and the final rule.

Discount safe harbor amendments effective date moved to January 1, 2022

In response to comments that the effective date of January 1, 2020 in the proposed rule would cause patient, pharmacy, and supply chain disruptions, the OIG moved the effective date to January 1, 2022. The proposed rule comment period was set to close on April 8, 2019, which would have meant that entities would have had six months or less to comply with any final rule.  Now, entities have just over a year to make any necessary changes to their business arrangements and come into compliance. OIG stated that the updated effective date should not impact the 2020 Part D bid submission process. (p. 76673) OIG also rejected requests to apply enforcement discretion past the effective date. (p. 76680)

The new safe harbors for point-of-sale price reductions and for PBM service fees will be available for entities to use within 60 days of the publication of the final rule, or January 29, 2021. (p. 76666)

Medicaid MCOs Can Continue to Benefit from the Existing Discount Safe Harbor

The most significant difference in the final rule as compared to the proposed rule is that rebates to Medicaid MCOs are not excluded from the discount safe harbor. In other words, rebates offered from pharmaceutical manufacturers directly to Medicaid MCOs will still be protected by the discount safe harbor, as long as all the conditions of the safe harbor are met. (p. 76675)  However, it is important to note that, in the OIG’s view, any rebates retained by a PBM are service fees, not discounts, and therefore never were, and still are not, protected under the discount safe harbor. (pp. 76675, 76679)

The OIG decided not to apply the rebate exclusion to Medicaid MCOs because of strong opposition from commenters. These commenters described additional costs to states to set and certify new Medicaid MCO rates, and for the various affected entities to renegotiate their contracts, some of which may require legislative or agency approval and could lead states to make significant cuts to other parts of their Medicaid programs. (p. 76675-76) OIG conceded that Medicaid beneficiaries often already have nominal cost-sharing obligations for prescription pharmaceutical products, maximum allowable cost-sharing amounts, or no coinsurance obligations. (p. 76675) For these reasons, the OIG agreed that eliminating discount safe harbor protection for reductions in price offered to a Medicaid MCO would have minimal, if any, effect on the amount a Medicaid beneficiary pays for a prescription pharmaceutical at the pharmacy. Id.

Changes in the new safe harbor on point-of-sale price reductions

The OIG also made some tweaks to clarify the new safe harbor on point-of-sale price reductions rule in several aspects:

• The final rule clarifies that under the new safe harbor, the price reductions can be contingent on formulary placement as long as all conditions of the safe harbor are met. (p. 76708) The OIG confirmed that the rule does not limit the types of negotiation methods the parties may use, and even noted that such contingent discounts can foster competition to the ultimate benefit of patients and Federal health care programs. (p. 76683) However, the OIG cautioned that the reduction in price must be a reduction in price and not a payment for a service (e.g., marketing or switching). (p. 76683, -708)
• The OIG clarified that the value of the point-of-sale chargeback to a pharmacy must be “equal to the reduction in price” between the manufacturer and the Part D plan sponsor or Medicaid MCO, rather than “at least equal to the [discounted] price,” as earlier proposed. (p. 76697) The OIG had not intended to permit patients to receive the entire dollar value of a discount but instead to apply the discount when calculating the price upon which the beneficiary’s cost sharing is calculated. (p. 76682) The modification is in line with this intent.
• The OIG also clarified that an entity other than a PBM may administer the point-of-sale chargeback process. (p. 76699-70)
• The chargebacks are renamed “point-of-sale chargebacks” under the final rule to avoid confusion. They are defined broadly enough to cover both direct rebates from a manufacturer to a pharmacy, or chargebacks administered by third parties.

Does the Final Rule Change the Cost Savings Calculation?

As required by the July 2020 Executive Order, Secretary Azar confirmed that the final rule “is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” The Secretary’s about-face is not based in any changes made to the rule itself but on a reassessment of the regulatory impact of the rule.

Indeed, the final rule dedicates a sizeable portion to a revised regulatory impact statement that attempts to explain away the earlier estimates by the CBO. The OIG notes that, unlike the proposed rule, the final rule “consider[s] the range of strategic behavior changes stakeholders may make in response to this rule, including the extent to which manufacturers lower list prices or retain a portion of current rebate spending, PBMs change benefit designs or obtain additional price concessions, and the impact on consumer utilization of lower-cost drugs.” (p. 76719) For example, the Secretary’s confirmation letter predicted that parties will continue to negotiate for several years into the future, and in his view (“informed by two decades of deep experience in pharmaceutical pricing, payment, and reimbursement”), this will lead to beneficiary price concessions beyond the earlier estimates.

It is unclear if the revised regulatory impact statement adds anything to the earlier analyses. For one, the CBO estimates appears to have already considered some of the behavior changes that the final rule claims to consider for the first time (e.g., likelihood that manufacturers will lower prices; the rule’s impact on beneficiary plan utilization). Also, the final rule presents the same analysis regarding the rule’s effects on Medicare premiums as the proposed rule, but highlights a different scenario as before (scenario with behavior change assumptions). Ironically, this scenario still predicts a smaller increase in Medicare premiums (the OIG claims that it is a de minimus increase). (p. 76726)

We can predict that these safe harbor amendments will dramatically alter the way in which Part D Plans, Medicaid MCOs, and their PBMs, use rebates received by manufacturers, and will reduce patient co-insurance obligations.  They will also create new opportunities for wholesalers or other entities to provide chargeback administration services to facilitate compliance with the point-of-sale price reduction safe harbor.  However, it is more difficult to predict whether these amendments will actually result in reduced list prices for pharmaceuticals, as intended, or whether the benefits to patients of reduced out-of-pocket expenses will be outweighed by increased premiums.  Answers to these questions will begin to emerge over the next two years, as rebate contracting begins to conform to the new safe harbors and reacts to the narrowing of the discount safe harbor effective in January 2022.

Hyman, Phelps & McNamara, P.C.’s Anne Walsh will be presenting on The Future of EUAs: What Happens Post-Crisis, as part of this year’s Food and Drug Law Institute’s virtual Enforcement, Litigation, and Compliance Conference on December 15-16.  Hear from your peers about how they are staying compliant and inspection-ready, what companies need to do to plan for next year, trends in competitor litigation, and government priorities post-election.

Sign up with the discount code Enforcement15 for 15% off registration.  You can learn more about the conference and register here.

Welcome to the latest edition of Hyman, Phelps & McNamara, P.C.’s (“HP&M”) monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.

Tooting our own Horn:  HP&M has been named the “Law Firm of the Year” in FDA Law by the folks over at U.S. News & World Report!

Food & Beverage

• Traceability: The Food & Beverage Issues Alliance requested a comment extension for FDA’s recently published rule on traceability. The comment period currently ends on January 21, 2021.  The FDA also released additional resources, including a tool to help determine which foods to include on the Food Traceability List.
• Rarely Consumed Raw: FDA has extended the comment period until January 8, 20201 on its RFI for rarely consumed raw products  which are exempt from the Produce Safety Rule.
• Laboratories of Democracy, Part I: Remember last year when Illinois passed a law requiring sesame labeling? The FDA issued draft guidance on voluntary disclosure of sesame as an allergen, recommending that manufacturers clearly declare sesame in the ingredient list when it is used in foods as a “flavor” or “spice”, among other things. Comments are due by January 11, 2021.
• Laboratories of Democracy, Part II: On October 27, 2020, the New York State Department of Health issued proposed regulations regarding cannabinoid hemp products. These proposed regulations (availablehere) are open for public commentary until January 11, 2021. Check out our colleague’s post here.
• Less Sugar: NAD recently concluded that Chobani’s unqualified “45% less sugar than other yogurts” claim could reasonably convey a misleading message to consumers about the amount of sugar in “other yogurts” as it might imply that “other yogurts” include products that use non-nutritive sweeteners.
• Cancer Warnings on Alcoholic Beverages: Several public health and consumer group advocates filed a Petitionwith TTB requesting that the warning be updated to include a statement that alcohol consumption is linked to cancer. Check out Riëtte’s post here.
• Festivus for the Rest of Us: Check out Karin’s post on how to air grievances with the new administration and stay within the boundaries of the antitrust laws.
• GE Salmon Approval Stands: In long-running litigation over FDA’s approval of AquaBounty’s genetically engineered salmon, a federal court remanded the case to FDA for reconsideration of the agency’s environmental assessment under the National Environmental Policy Act and the Endangered Species Act. However, the court declined to vacate the agency’s approval on the ground that “the disruptive consequences of vacatur would outweigh the seriousness of the agency’s errors.”
• Boring but Important: Don’t forget to renew your food establishment registration.

Supplements

• Earnings and Health-Related Claims Draw Fire: The Direct Selling Self-Regulatory Council took issue with certain earnings claims and also weight loss and other health-related claims made by LurraLife, LLC. The company agreed to discontinue some claims, modify others, and take other compliance-related measures.
• Sport Supplement Company Pleads Guilty to Felony: The Department of Justice announced that a sports supplement company and its owner pleaded guilty to “distributing unapproved new drugs with the intent to mislead and defraud” FDA and consumers – a felony. The products contained selective androgen receptor modulators, and the product labels omitted certain ingredients and were misrepresented as dietary supplements.

Some Things We Are Monitoring:

• 2020-2025 Dietary Guidelines: Still expected by year end.
• A hemp case where HIA and RE Botanicals filed a lawsuit against the DEA in the D.D.C., seeking a declaration that the definition of hemp in Section 1639o, includes “intermediate hemp material” (IHM) and “waste hemp material” (WHM) and that the THC in IHM and WHM is not a controlled substance. You can read about that litigation in our colleagues’ post.
• FTC’s 13(b) Disgorgement: Scheduled for a Supreme Court argument on January 13, 2021. The FTC recently filed their brief.

To close out 2020, Hyman, Phelps & McNamara, P.C. is pleased to present the latest issue of our quarterly newsletter highlighting key postings from our nationally acclaimed FDA Law Blog.  Please subscribe to the FDA Law Blog to receive contemporaneous posts on regulatory and enforcement activities affecting the broad cross-section of FDA-regulated industry.  As the largest dedicated FDA law firm, we are happy to help you or your clients navigate the nuances of the applicable laws and regulations.

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Drug Development

• Kurt Karst probes HHS’ announcement to withdraw FDA’s guidance/Compliance Policy Guide related to the marketing of unapproved drugs, effectively ending FDA’s “Unapproved Drugs Initiative.” Karst describes the regulatory background and framework for such products, scrutinizes the purported reason underlying this withdrawal, and contemplates the end result of this decision.
• In this post, Sara Koblitzand David Clissold highlight the approval of Veklury (remdesivir) which was awarded a material threat medical countermeasure (MCM) Priority Review Voucher (PRV) despite COVID-19 not being designated a material threat, at least publicly.  Among other issues, the authors assess the effectiveness of the PRV program (i.e., encouraging development of MCMs) when the underlying information for obtaining such an incentive (i.e., a material threat determination) is not made public.
• Sara Koblitz analyzes the ramifications of a Federal Circuit decision holding that “skinny labeling” for abbreviated new drug applications (ANDAs) can constitute induced infringement. This decision encapsulates the delicate balance of interests that Congress dealt with in passing the Hatch-Waxman Amendments—protecting intellectual property while also facilitating generic drug access—and has potentially massive implications for the generic industry.

Compliance and Enforcement  

• Anne Walsh, John Fleder, and Robert Dormer provide a breakdown of Executive Order 13924 and a follow-on memorandum from the Office of Management and Budget, both of which purport to inject more fairness into administrative enforcement and adjudication actions.
• Jeffrey Shapiro reviews FDA’s proposed rule to amend the “intended use” regulation that governs the fundamental determination of whether a product is regulated by FDA, and if so, what regulatory requirements apply. The Agency proposes to remove language from the regulation that has proved problematic to regulated industry; however, Shapiro examines two other substantive, and arguably unnecessary, additions to the intended use regulation stemming from the proposed rule.
• Ricardo Carvajal and Anne Walsh discuss two firsts by the Department of Justice (DOJ):  1) the largest-ever criminal penalty following a conviction in a food safety case, and 2) the first ever consent decree of permanent injunction against a firm or grower for violating safety standards enacted under the Food Safety Modernization Act of 2011.
• Karin Moore describes a Third Circuit decision overruling a lower court’s order requiring disgorgement and outright rejecting the Federal Trade Commission’s (FTC) authority to seek disgorgement. The debate over the FTC’s authority to order disgorgement has been front and center in several recent cases and is pending before the Supreme Court, so look for our next update on this evolving jurisprudence.

Healthcare

• Faraz Siddiquiand Jeffrey Wasserstein examine a Special Fraud Alert from the HHS Office of Inspector General (OIG) targeting fraud and abuse risks associated with in-person speaker programs.  On top of expressing an overall skepticism regarding such speaker programs, OIG expounds upon examples of common violative practices and suspect characteristics.
• Serra Schlanger, Faraz Siddiqui, Michelle Butler, and Alan Kirschenbaumdetail the final rule and FDA guidance creating two discrete pathways for importing certain prescription drugs.  The authors detail the accompanying guidance from the Centers for Medicare & Medicaid Services (CMS), which discusses manufacturer obligations under the Medicaid Drug Rebate Program for products described in the FDA guidance.

DEA

• In a series of posts (here, here), John Gilbertand Karla Palmer survey the long-awaited proposed rule from the Drug Enforcement Administration (DEA) addressing the Agency’s interpretation of suspicious order requirements.  The authors address DEA’s proposed new definitions, frameworks for identifying and reporting suspicious orders, due diligence requirements, and reporting requirements.

Medical Devices

• Jeffrey Shapiro explains that the Department of Health and Human Services’ (HHS) announcement that FDA will no longer conduct premarket review of laboratory developed tests (LDTs) is not actually much of a course change for the Agency but, regardless, may herald beneficial effects. The potential beneficial effects are two-fold: 1) there will no longer be the specter of possible FDA enforcement hovering over clinical laboratories, and 2) the Agency can more efficiently direct its resources to combat the COVID-19 pandemic.
• Allyson Mullen discusses FDA’s guidance regarding patient-reported outcome (PRO) measures in clinical studies. Mullen describes how the guidance seeks to provide insight into the Agency’s understanding of PROs as well as the instruments for such measurements, but she also posits that the guidance could have gone further in clarifying the necessary level of evidence for a specific PRO in various regulatory decision-making situations.

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Hyman, Phelps & McNamara, P.C. has its finger on the pulse of FDA law.  Our technical expertise and industry knowledge are exceptional in scope and depth.  Our professional team holds extensive experience with the myriad of issues faced by companies.  Please contact us with any questions you may have related to the issues described here or any other FDA-related issue affecting your industry.

On November 23, 2020, the FDA announced that it had approved Alnylam Pharmaceuticals’ Oxlumo (lumasiran) as the first treatment for primary hyperoxaluria 1 (PH1), a rare metabolic disorder that causes recurrent kidney stones and loss of kidney function.  In the Agency’s press release, it credited the approval as the “cumulation of the work of experts and community members coordinated by the Oxalosis & Hyperoxaluria Foundation and the Kidney Health Initiative.”   More specifically, the press release quotes the Director of the Division of Cardiology and Nephrology, Dr. Norman Stockbridge:

The approval of Oxlumo represents a great triumph of community involvement to address a rare disease. It is a result of input from patients, treating physicians, experts and sponsors at a patient-focused drug development meeting and through other collaborative efforts.

As mentioned by Dr. Stockbridge, this approval comes on the heels of a recent Externally-Led Patient-Focused Drug Development (EL-PFDD) meeting for primary hyperoxaluria held virtually on October 5, 2020. HP&M’s James Valentine and Larry Bauer helped in the planning and moderation of this meeting which was sponsored by the Oxalosis & Hyperoxaluria Foundation. Benefit-risk assessment is the foundation for FDA’s regulatory review of human drugs and biologics; input from PFDD meetings can provide important data obtained directly from patients and caregivers, which we applaud FDA for acknowledging so prominently with this approval.

Building on a Legacy of Over 70 PFDD Meetings

This expression of FDA’s appreciation for PFDD meetings and the value of patient and caregiver input builds on a more than 8-year legacy of the PFDD initiative, including 29 FDA-led and 43 externally-led meetings to date. These meetings were established in 2012 as part of PDUFA V to more systematically collect patient and caregiver experiences and perspectives about the symptoms most impacting daily life, assessments of available treatments, and preferences for future treatments. This input was intended to inform the “clinical context” for benefit-risk decision-making, although it has much broader application (e.g., informing selection and development of clinical outcome assessments).

To supplement those meetings that FDA organizes, in 2015 the Agency broadened the program by allowing externally-led PFDD meetings, which are supported by FDA but sponsored by patient groups.  Each group has been responsible for organizing the meeting, speakers, and all aspects of the meeting. The FDA Patient-Focused Drug Development Program Staff review Letters of Intent for new meetings and provide guidance to advocacy groups planning meetings.

Other Examples of When PFDD Meetings Informed Regulatory Decision-Making

PFDD meetings have had an impact on several key FDA decisions and initiatives. As one example, an externally-led PFDD meeting for the rare skin disorder, epidermolysis bullosa (EB), was held on April 6, 2018, and sponsored by the advocacy group the Dystrophic Epidermolysis Bullosa Research Association of America (Debra of America). This meeting highlighted the devastating physical and emotional impacts of EB. Prior to this meeting, FDA directed drug developers to its “burn wounds” guidance as that reflected the most analogous clinical experience, despite the stark difference in etiology and chronicity to EB wounds. This guidance focused primarily on endpoints of complete wound healing, highlighting its clinical meaningfulness.

On its face this may seem reasonable, as EB is characterized by multiple open wounds all over the body. However, short of a cure, complete wound healing would not be expected due to the ever-present genetic defect in the skin cells. Yet, FDA requires a treatment effect that is “clinically meaningful,” so the Agency needed information that would enable it to calibrate its bar for drugs to treat EB. The EB EL-PFDD meeting highlighted the great unmet medical need in EB patients and their desire for treatments that might help shrink wounds or treat other symptoms, even if 100% wound healing was not possible.  For example, if a wound was made smaller, that might represent less overall pain a child with EB may experience each night during excruciatingly painful bandage changes that are required to keep the wounds clean. In response, just one month after that meeting, FDA on its own initiative (that is, no patient explicitly asked FDA to issue a new guidance) issued a disease-specific guidance.  This guidance focuses on drug development specific to the treatment of EB, including FDA’s thinking on trial endpoints. In it, FDA expresses that trial endpoints for new EB therapies can include effects on patients’ symptoms, such as pain, as well as on wound healing, although not establishing a 100% healing threshold.

Like PH1, other patient communities’ investments in EL-PFDD meetings have resulted in the first-ever approved drugs for their conditions or major advances in treatments over approved therapies.  This includes multiple products for forms of amyloidosis following the Amyloidosis Research Consortium’s November 16, 2015, EL-PFDD meeting, and the first-ever systemic gene therapy following CureSMA’s April 18, 2017, EL-PFDD meeting.

While these represent just a couple of examples of the lasting impact of PFDD meetings, we have seen impacts large and small across the EL-PFDD meetings we have had an active role in helping plan and moderated. HP&M has aided 31 of the 43 (72%) EL-PFDD meetings held to date.  Here are some examples of recent meetings we have helped plan:

EL-PFDD Meetings HPM Helped Plan and Moderated (Since November 2018)

* Fully virtual meetings; more information on the virtual EL-PFDD meeting can be found here.

FDA continues to show its support for EL-PFDD meetings and the value of learning from patients and caregivers about what matters most. We applaud the Agency’s efforts to continue to include the voices of patients in drug development and regulatory decisions. After all, the patients are the true experts.

Cannabidiol (“CBD”) products are everywhere.  They are sold in pharmacies, as well as grocery, health food and convenience stores, and over the Internet.  To protect its citizens in the absence of federal requirements governing CBD and hemp-derived products for human consumption, the New York Department of Health (“DOH”) announced the issuance of proposed regulations that if implemented would create new requirements for how those products are manufactured and sold there.   The proposed regulations would establish a closed, cradle-to-grave distribution system for cannabinoid hemp products.   Cannabinoid hemp processors (extractors and manufacturers) and retailers would have to obtain licenses issued by DOH and products would have to comply with stringent manufacturing, testing, packaging and labeling requirements.  New York’s proposed regulations may become a model for how the U.S. and other jurisdictions regulate CBD and hemp-derived products for human consumption.

Comments on the proposed regulations can be submitted until January 11, 2021.

Cannabinoid Hemp Products

The proposed regulations apply to “cannabinoid hemp products,” defined as hemp or any product manufactured or derived from hemp, that include hemp-derived terpenes in its final form “used for human consumption.”  Cannabinoid hemp products “used for human consumption” are products intended by the manufacturer or distributor to be used for their cannabinoid content or “used in, on or by the human body for its cannabinoid content.”  Cannabinoid hemp products expressly exclude cosmetics and, consistent with the Drug Enforcement Administration’s (“DEA’s) August 2020 Interim Final Rule, would also exclude synthetic CBD.

Cannabinoid hemp products sold at retail cannot:

• Contain more than 0.3% total Δ9-Tetrahydrocannabinol (“THC”) concentration;
• Contain tobacco or alcohol; or
• Be an injectable, transdermal patch, inhaler, suppository, flower product including cigarette, cigar or pre-roll, or any other form disallowed by DOH.

Products sold as a food or beverage product cannot contain more than 25 mgs. of total cannabinoids per product while supplements cannot contain more than 3,000 mgs. of  cannabinoids per product.

Cannabinoid hemp products will need to be labeled with the quantity of cannabinoids in the product and quantity per serving.  If the product contains THC, the label must state the THC quantity per serving and per package.  Products must have a scannable code linking them to a certificate of analysis.  Packaging must list consumer warnings and cannot be attractive to underage consumers.

Processors will have to test cannabinoid hemp products at a laboratory approved to test medical marijuana or that meets minimum requirements, including ISO/IEC 17025 accreditation and validation methods used for testing.  The regulations will establish which analytes will be tested and establish limits for cannabinoids, heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals.  Cannabinoid hemp products containing levels of analytes deviating from allowable limits will be considered adulterated and must be destroyed.

The regulations would establish advertising requirements for cannabinoid hemp processors and retailers, including prohibiting false or misleading statements and medical claims that they can or are intended to diagnose, cure, mitigate, treat or prevent disease.  Advertising cannot lead anyone to believe the cannabinoid hemp product is marijuana or medical marijuana.

Hemp Processors

Extractors and manufacturers of cannabinoid hemp products in New York would have to obtain a processor license from DOH.  Applicants must describe the products they intend to make, and submit proof of product liability insurance, evidence of Good Manufacturing Practices (“GMP”), organization documents and non-refundable $1,000 application fee, or $500 application fee for applicants seeking only to manufacture, not extract, cannabinoid hemp.  If approved, hemp processors will follow-up with their facility’s certificate of occupancy, evidence of a GMP audit, and license fee of $4,500 for extracting or $2,000 for manufacturing.  Processor licenses would be valid for two years.  Licenses will be non-transferable except with prior DOH approval.

Processors will have to maintain records demonstrating that all hemp and hemp extract they use was grown, derived, extracted and transported in compliance with applicable laws and licensing requirements where they were sourced.  Processors will have to maintain qualified third-party GMP certification.  They will also have to retain extraction and manufacturing process records documenting:

• Source of hemp or hemp extract;
• Calibration and inspection of equipment or instruments;
• Disposal of hemp extract or hemp by-product;
• Tracking and documentation of THC; and
• Testing of samples from lots or batches.

Processors procuring hemp from out-of-state will have to maintain records of the non-resident grower’s registration or license in the jurisdiction where they are located.  Processors will have to maintain records for five years and produce them to DOH upon request.

In addition, processors would have to comply with security and sanitary standards including prohibiting access by unauthorized individuals to their premises to ensure safe and sanitary conditions.  Unlike DEA’s unworkable prohibition, the New York regulations would allow sales of in-process hemp extract containing up to 3.0% THC concentration between licensed processors in the state.  This allowance more realistically reflects how the regulated industry transfers in-process hemp extract exceeding 0.3% THC concentration with safeguards against diversion from legitimate licensees.

Cannabinoid hemp processors will be limited to whom they sell their products.  They will not be able to sell cannabinoid hemp products directly to consumers unless they obtain a cannabinoid hemp retail license and can only sell cannabinoid hemp extract in New York to cannabinoid hemp processors or registered organizations in the DOH’s Medical Marijuana Program.  Distributors of cannabinoid hemp products manufactured outside New York to cannabinoid hemp retailers within the state, would have to obtain a permit from DOH.

DOH will be authorized to conduct unannounced random sampling and testing of hemp, hemp extract, and cannabinoid hemp products during licensees’ normal business hours.

Hemp Retailers

Everyone selling cannabinoid hemp to consumers in New York would have to obtain a retailer license from the DOH.  Applicants would have to describe the type of cannabinoid hemp products they intend to sell, name and state or country of origin of the manufacturers they intend to procure products from and proof of certificate of authority from the state Department of Taxation and Finance.  A refundable $300 license fee for each retail location must accompany applications.  Retailer licenses would be valid for only one year.  Retailer licenses, like processor licenses, will be non-transferable without DOH approval.

Retailers who submit a retail license application prior by April 1, 2021, will be allowed to sell cannabinoid hemp products before the DOH approves or denies their license if they comply with all proposed regulatory requirements.

Retailers can only sell cannabinoid hemp products manufactured, packaged, labeled and tested that comply with prescribed standards.  They cannot sell inhalable cannabinoid hemp products to underage consumers.  Retailers will have to maintain records of the cannabinoid hemp product’s source, including the name of the hemp processor and the wholesaler or distributor.

DOH will have authority to inspect cannabinoid hemp retailers, take samples of cannabinoid hemp products to ensure compliance and require display of cannabinoid hemp products separately from other products.

Penalties

Proposed penalties for noncompliance include graduating civil penalties that increase with each violation.  The first violation could incur a fine up to $1,000; the second violation within a three-year period, a fine of up to $5,000; the third violation or any additional violation, a fine of up to $10,000.  DOH would also be able to limit, suspend, revoke or annul a license.  Violating regulations three times within five-years may result in the licensee being deemed ineligible to manufacture or sell cannabinoid hemp products for five years.

Conclusion

There are significant changes on the near horizon for cannabinoid hemp product processors and retailers in New York, and those outside the state who supply hemp and hemp extract into New York.  We reiterate that retailers selling hemp cannabinoid products must apply to continue sales by April 21, 2021, cease sales, or face potential civil fines and future administrative sanctions.  FDA and other jurisdictions are watching closely what transpires in New York.

A flourish of drug regulatory actions have issued from the Trump Administration during its waning days.  Within the past two weeks, HHS has terminated FDA’s Unapproved Drug Initiative by withdrawing two guidances, finalized a proposed OIG safe harbor regulation on PBM rebates that HHS had earlier withdrawn, and revived a CMS rulemaking proceeding to establish international reference pricing under Medicare.  The first of these actions was addressed in our recent post here.  The OIG safe harbor amendments will be covered in a upcoming post.  This post is devoted to the CMS regulation, an interim final rule with comment period published in Friday’s Federal Register, which establishes a Most Favored Nation (MFN) Model for Medicare Part B drug payment.  If it survives legal challenges and a change in administration, this regulation promises to substantially change the drug reimbursement landscape.  The MFN Model is an extensively reformulated version of the International Pricing Index model set forth in a CMS Advance Notice of Proposed Rulemaking (ANPR) in October 2018 (see our post here), and it follows a September 2020 Trump Executive Order directing the Secretary of HHS to “immediately implement the Secretary’s rulemaking plan” to establish a most favored nation model (see our post here).

Developed under the auspices of CMS’ Center for Medicare and Medicaid Innovation (CMMI), the MFN Model will base Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price (ASP), and will establish a fixed add-on payment in place of the current 6 percent (4.3 percent after sequestration) of ASP.  The MFN drug payment amount is expected to be lower than the current ASP-based payment limit because U.S. drug prices are generally the highest in the world.  CMS expects that, as the Part B payment amounts for the included drugs are reduced, “in order for MFN participants to purchase MFN Model drugs at prices that does [sic] not lead to financial loss, the manufacturer  will need to make available prices that are competitive with the MFN Drug Payment Amounts.”  (85 Fed. Reg. at 762280)  The essential features of the MFN Model are outlined below.

Performance Period:  The MFN Model will be implemented for seven years beginning January 1, 2021.  As described further below, the MFN pricing will be phased in over the first four years, taking full effect during the last three.

Participating Providers:  MFN-based reimbursement will mandatorily apply to all Medicare participating providers that submit a claim to Medicare Part B for a separately payable MFN Model drug.  These will include physicians and other practitioners, hospitals paid under the Outpatient Prospective Payment System (OPPS), and ambulatory surgical centers, among others.  Certain providers will be excluded from the model, including children’s hospitals, cancer hospitals that are not paid under a prospective payment system, critical access hospitals, rural health clinics, Indian Health Service facilities, Federally Qualified Health Centers, and others.

Covered Drugs:  In 2021, MFN payment will apply to the 50 separately paid drugs identified by CMS as having the highest aggregate 2019 total allowed charges.  In subsequent years, the list will be updated to include new drugs that have the top 50 aggregate allowed charges for the most recent calendar year.  However, drugs that drop out of the top 50 will not be deleted from the list, so the list will undoubtedly grow to more than 50.  Certain drug categories are excluded from the model, including, among others, drugs approved under an ANDA; drugs paid under the End Stage Renal Disease Prospective Payment System, including those paid separately using the transitional drug add-on payment (TDAPA); vaccines covered by Part B (influenza, pneumococcal pneumonia, COVID 19, and hepatitis B); oral anti-cancer agents and antiemetic drugs; oral immunosuppressive drugs; and drugs paid under the DME benefit.  Biosimilars are not excluded.  The list of 50 drugs to be included in the MFN Model for 2021 appears in the preamble at 85 Fed. Reg. at 76194.  The list includes one biosimilar.

MFN Drug Payment Amount Calculation Methodology:  The payment for an MFN Model drug will be the MFN Drug Payment Amount plus a fixed add-on payment.  The MFN Drug Payment Amount will be derived from the lowest price of the drug in a covered foreign country, adjusted for the difference in gross domestic product (GDP) between that country and the U.S.  Essentially, the method for establishing the MFN Drug Payment Amount for each quarter will be to (1) use a pricing data source in each of the 22 countries to identify available average price information corresponding to the HCPCS code descriptor for each of the 50 drugs; (2) identify each country’s price for each drug; (3) adjust each price for the difference in GDP between that country and the U.S.; (4) select the lowest country-level adjusted price; (5) compare the latter price with the ASP for the drug and select the lower of the two as the MFN Price; and (6) apply a phase‑in percentage to the MFN Price to obtain the MFN Drug Payment Amount.  This exercise will be repeated quarterly.

• Covered countries: The covered foreign countries are the 22 member countries in the Organisation for Economic Co-operation and Development (OECD) that have a per capita GDP that is at least 60% of the U.S. per capita GDP as of October 1, 2020.  According to the preamble, the rationale for this selection criterion is to identify countries that are economically similar and have comparable purchasing power to the U.S., and generally have drug pricing data available (85 Fed. Reg. at 76200).  The 22 countries from which pricing data will be collected are identified on page 76200 of the preamble.  The list will not be updated during the seven years of the Model.
• Foreign average price data sources: Wherever possible, CMS will select drug pricing data in each country for the same quarter for which the drug’s ASP was calculated (i.e., two quarters before the payment quarter).  Ideally, the data source for each drug in each country will have both sales and volume data, but if not, other sources may be selected based on a hierarchy of criteria identified in the regulation.  The price will be extracted from the data source by “aligning the MFN Model drug’s HCPCS code long description … with the data sources’ standardized method for identifying scientific names or nonproprietary names and dosage formulations, as applicable.”  We caution our readers that this “alignment” is not a strict one.  For example, there is at least one instance where the HCPCS code long description identifies a specific drug brand and formulation that is not sold outside the U.S., yet CMS has calculated an MFN Drug Payment Amount for it based on foreign pricing data listed under a general nonproprietary name that includes numerous other drugs.
• GDP adjustment: Each country-level price derived from its average price data will be adjusted by a GDP adjuster, which is simply the country’s per capita GDP (obtained from the CIA’s World Factbook) divided by the U.S. per capita GDP.  The resulting price is the MFN Price.  A list of GDP adjustors for each of the 22 countries appears on pages 76203-4 of the preamble.  The GDP adjuster for France, for example, is 0.737, so if a drug costs the equivalent of $100 in France, the GDP-adjusted price (MFN Price) is $135.69.
• Phase-in adjustment: After the lowest GDP adjusted country-level price (MFN Price) is selected for a drug, a phase-in formula is applied to obtain the final MFN Drug Payment Amount during the first four years of the model.  The phase-in formula for year one (2021) is 75% of the ASP plus 25% of the MFN Price, for year two, 50% of the ASP plus 50% of the MFN Price; and so forth, until 100% of the MFN price is used for years five through seven.
• Price increase penalty: To counteract the incentive for manufacturers to increase their prices in the commercial market to subsidize lower prices on MFN Drugs to Medicare Part B, the MFN Model incorporates a penalty for price increases, which operates differently during and after the four-year phase-in period.  During the phase-in period, the phase-in percentage of the MFN Price will be accelerated by 5% each quarter if the cumulative percentage increase in the ASP of an MFN Drug, or any of the WACs for any of the NDCs in the drug’s HCPCS Code, is greater than the cumulative percentage increase in both (1) the CPI-U, and (2) the MFN Price.  The cumulative percentage increase in the ASP, the CPI‑U, and the MFN Price will be measured from the end of a baseline quarter to the end of the applicable ASP calendar quarter (i.e., the second quarter before the payment quarter, because that is the quarter whose ASP is ordinarily used to set the payment rate for the current quarter).  The baseline quarter for a drug on the market during 1Q 2021 is 3Q 2020, and the baseline quarter for subsequently launched drugs will be two quarters before the first quarter in which an ASP is published and in effect for the drug.  If conditions (1) and (2) above persist from quarter to quarter, the phase-in percentage of the MFN price will continue to increase 5% each quarter.  For example, if a price increase triggers both (1) and (2) in 3Q 2021 and continues to do so for 4Q 2021, then the phase-in percentages in 2021 will be 25% MFN Price/75% ASP for 1Q 2021, 25% MFN Price/75% ASP for 2Q 2021; 30% MFN Price/70% ASP for 3Q 2021, and 35% MFN Price/65% ASP for 4Q 2021.  Once accelerated, the MFN Price percentage will not decrease, even if the manufacturer lowers its price so that the triggers are no longer met.  After the fourth year of the phase-in period, in every quarter in which both of the triggering conditions are met, the excess percentage increase of ASP or WAC  compared to the percentage increase of CPI-U or MFN Price (whichever increase is greater) will be subtracted from the MFN Drug Payment Amount.  For example, if the greatest cumulative increase is in the ASP compared to the MFN Price and that increase is 3%, then the MFN Drug Payment Amount will be reduced by 3%.
• Add-on payment: To break the link between the add-on payment and the price of the drug, which encourages the use of more expensive drugs, CMS has substituted a fixed add-on payment for 2021 of $148.73 per dose, to be adjusted for inflation in subsequent years.  This will represent a reduction in payment for more expensive drugs and an increase for less expensive ones, but CMS estimates that it will constitute an increase for 70% of drug doses compared to the current 4.3% add-on (after sequestration).

Financial Hardship Exemptions:  Providers may apply for a financial hardship exemption if they were unable to obtain covered drugs at price below the MFN Model Payment during the year, despite exhausting all reasonable methods of doing so.  The request must be submitted within 60 days after the end of the year, and must contain specified information on cost and the methods used to try to obtain each MFN model drug.

The Prospects for This Rule

Although the MFN Model interim final rule with comment period is effective as of November 27 and the model payment methodology is scheduled to begin on January 1, 2021, it faces uncertain prospects for implementation.  In the first place, the authority for the regulation is Section 1115A of the Social Security Act, which established CMMI, and which was added by the Affordable Care Act.  Paradoxically, the Trump Administration has joined a lawsuit brought by several states seeking to invalidate the Affordable Care Act in its entirety in a case pending before the Supreme Court.  See Brief for the Federal Respondents, State of California, et al. v. State of Texas, et al., Nos. 19-840 and 19-1019.  If the suit is successful, this rule will have no effect.

A more likely impediment will be the almost certain prospect of a pharmaceutical industry lawsuit challenging the regulation.  PhRMA has issued a statement criticizing the Administration for “blindly proceeding” with a rule that takes unilateral action to set prices.  At the very least, this interim final rule is vulnerable to a procedural challenge under the Administrative Procedure Act, since it was not preceded by a proposed rule, and is substantially different from the 2018 ANPR.  The APA permits an agency to forego ordinary notice and comment procedures if there is good cause for a finding that they are “impracticable, unnecessary, or contrary to the public interest.”  5 U.S.C. 553(b)(B).  The preamble explains that good cause exists because the Medicare population is in urgent need of relief from high drug prices in the midst of the financial burdens caused by the COVID-19 pandemic.  (85 Fed. Reg. at 76249)  However, it is uncertain whether this justification would prevail in an APA challenge.  An industry lawsuit can also be expected to challenge the substance of the rule.

Finally, President-Elect Biden will take office before the 60-day comment period for the rule expires, and the incoming administration may change or withdraw the rule in the infancy of the MFC Model.  As a concept, international reference pricing does have support among Democrats.  Indeed, a form of it was included in H.R. 3, the drug pricing bill that passed the Democrat-controlled House on December 12, 2019.  However, the scope and details of the rule, and especially its timing, may not suit the priorities of the Biden Administration.  President-Elect Biden has emphasized that his first priority is defeating COVID-19, and his administration will, to a large extent, be dependent on the cooperation of pharmaceutical companies in order to achieve that goal.  His administration may be unwilling to go to battle with the pharmaceutical industry at this sensitive time.  Nevertheless, even if this particular regulation does not come to fruition, the bi-partisan concept of international reference pricing is likely to find its way into a future regulation or legislation, especially if Democrats take control of the Senate.

On November 20, 2020, the Office of Prescription Drug Promotion (OPDP) hosted a webinar to announce a new process for review of “core launch” promotional materials.  Specifically, OPDP has added a five business day screening period to the beginning of core launch review to ensure that the submission meets the criteria for “core launch” as outlined in OPDP’s 2019 guidance document, Providing Regulatory Submissions in Electronic and Non-Electronic Format – Promotional Labeling and Advertising Materials for Human Prescription Drugs (OPDP Electronic Submissions Guidance).  OPDP also clarified what it considers to be core launch materials, for purposes of estimated review timing.

As background, firms have a voluntary option to submit promotional materials to OPDP for review prior to dissemination.  “Launch” materials are those draft promotional materials that firms intend to disseminate in the first 120 days that a new product indication, delivery system, formulation, dosage form, dosing regimen, strength, or route of administration is marketed to the public.  “Core launch” materials are the following key launch materials, as outlined in the OPDP Electronic Submissions Guidance:

• One comprehensive promotional labeling piece directed towards professionals (e.g., sales aid, detail aid), which is 12 or fewer pages;
• One advertisement directed toward professionals (e.g., journal advertisement), which is 4 or fewer pages not including prescribing information or brief summary;
• One comprehensive direct-to-consumer (DTC) labeling piece (e.g., patient brochure), which is 12 or fewer pages;
• One DTC advertisement (e.g., magazine ad), which is 4 or fewer pages not including brief summary; and
• A professional and/or DTC product website (12 printed legible pages each) or electronic sales aid if derivative of a comprehensive labeling piece that is also submitted for voluntary advisory comment.

OPDP has a goal of reviewing all core launch materials within 45 calendar days, and it tracks its performance in meeting this goal (see OPDP Metrics webpage).

During the November 20 webinar, OPDP explained that some recent core launch submissions have presented challenges for both OPDP and firms, prompting OPDP to make improvements to its process to help streamline review and ensure that OPDP can meet the 45-day turnaround time.  OPDP noted that there have been instances of lengthy comment letters from OPDP in sub-optimal timeframes for firms, core launch submissions with highly nuanced claims and presentations, and submissions with hundreds of pages of references requiring extensive review.

The purpose of the new five business day screening process is to ensure that the submission meets criteria for “core launch,” in that it is limited to the items listed in the OPDP Electronic Submissions Guidance and that the claims and presentations are based solely on information contained in the Prescribing Information, information from the pivotal trials, or publications directly related to those trials.  The screening process is also intended to ensure that the submission is administratively complete.  For example, firms must submit both clean and annotated versions of the draft promotional materials, and the annotated versions must be cross-referenced to annotated versions of the FDA-approved prescribing information.  FDA intends to notify firms via teleconference if the submission is not a core launch submission, exceeds the page limits, or otherwise does not satisfy the criteria for core launch review.  If no issues are identified, the firm will not be contacted, and FDA will proceed to the 45-day core launch review process.

The new process will help better frame expectations for industry as well as OPDP.  OPDP stated that it expects materials to “be a true representation of the core introductory messaging for the product” and not material that includes all potential claims the firm wants to make.  This is consistent with OPDP’s historical approach of reviewing pieces in totality to better understand format, context, and prominence of presentations.  Of particular interest, OPDP clarified that core launch materials may contain claims and presentations that are consistent with the drug’s prescribing information, per its CFL Guidance so long as those claims otherwise meet the criteria of a “core launch” claim (e.g., relates to the prescribing information or to pivotal trials).  While firms may provide a CFL analysis to support the presentation, one is not required and the example displayed during the webinar and as part of OPDP’s updated Frequently Asked Questions webpage is unhelpful in providing meaningful guidance to firms on information that supports the CFL analysis.  The example of a CFL analysis simply re-states the three-factor test articulated in the CFL Guidance, without specific analyses that would support the claim.

Despite the modified process, OPDP also emphasized that there are still circumstances when firms should expect a turnaround time longer than 45 days.  OPDP explained that if the submission of launch materials includes materials with claims that are not derived completely and directly from the prescribing information (e.g., it includes claims supported by clinical literature), OPDP may need to consult with other experts within FDA.  Any time necessary for consultation outside of OPDP is not counted within the 45-day clock and reviews that include consults may not be completed within 45 days.

The new core launch review process will go into effect starting January 1, 2021.