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  • Most Favored Nation Drug Pricing Rule on Hold Awaiting Changes

    As we previously reported (see here and here), in three separate cases, federal courts blocked the implementation of the Most Favored Nation (MFN) rule for Medicare Part B drug payment.  (Our summary of the MFN rule is available here.)  In December 2020, the District Court for the Northern District of California and the District Court for the Southern District of New York issued nationwide preliminary injunctions, while the District Court for the District of Maryland issued a temporary restraining order.  Each order effectively blocked the MFN rule from taking effect on January 1, 2021.

    On January 13, 2021, Judge George J. Hazel granted a stay in the suit filed in the District Court for the District of Maryland.  As explained in the Joint Motion to Stay, the plaintiffs (the Association of Community Cancer Centers, the National Infusion Center Association, the Global Colon Cancer Association, and PhRMA) and government defendants agreed to stay the litigation until a new final rule is published in the Federal Register, based on “(1) Defendants’ agreement that they will not appeal the preliminary injunction issued by the Northern District of California; and (2) Defendants’ agreement that the performance period for any final regulation … shall not commence earlier than 60 days after publication of that regulation in the Federal Register.”  We note that, in a fourth lawsuit challenging the MFN rule, the government filed a Status Report on January 8, notifying the District Court for the District of Columbia that it will not appeal the nationwide preliminary injunctions issued by the District Courts in the Northern District of California and Southern District of New York.

    A new administration has taken over since these court developments.  Based on what we’ve seen so far, including the Biden White House’s “Regulatory Freeze Pending Review” memo issued on January 20, we can safely say the MFN Rule published in November 2020 will not take effect in the short term.  We can also confidently predict that, if and when a new MFN rule is introduced, it will be in the form of a proposed rule with an opportunity for public comment.  More difficult to predict is whether an international reference pricing model will fit into the overall drug price reduction strategies of the new administration and Congress.

    FDA Continues Discussion of AI/ML Software Medical Devices

    On January 12, 2021, FDA issued an Artificial Intelligence/Machine Learning (AI/ML)-Based Software as a Medical Device (SaMD) Action Plan (“AI/ML Action Plan”) and a discussion paper on their Proposed Regulatory Framework for Modification to Artificial Intelligence/Machine Learning (AI/ML) – Based Software as a Medical Device (SaMD) (“Modifications Discussion Paper”).  FDA started its public discussion of AI/ML in 2019, as we blogged about here, with publication of an AI/ML-based SaMD discussion paper outlining a potential framework for regulation of AI/ML-based SaMD.

    The new AI/ML Action Plan describes feedback in response to the initial discussion paper and briefly describes a five-part action plan at a high level.  The Modifications Discussion Paper provides more detail on FDA’s thoughts related to modification of AI/ML-based SaMD and the “Predetermined Change Control Plan” that was introduced in the 2019 discussion paper.

    The AI/ML Action Plan describes the following actions and goals:

    • Develop an update to the proposed regulatory framework presented in the AI/ML-based SaMD discussion paper, including through the issuance of a Draft Guidance on the Predetermined Change Control Plan.

    • Strengthen FDA’s encouragement of the harmonized development of Good Machine Learning Practice (GMLP) through additional FDA participation in collaborative communities and consensus standards development efforts.

    • Support a patient-centered approach by continuing to host discussions on the role of transparency to users of AI/ML-based devices. Building upon the October 2020 Patient Engagement Advisory Committee (PEAC) Meeting focused on patient trust in AI/ML technologies, hold a public workshop on medical device labeling to support transparency to users of AI/ML-based devices.

    • Support regulatory science efforts on the development of methodology for the evaluation and improvement of machine learning algorithms, including for the identification and elimination of bias, and on the robustness and resilience of these algorithms to withstand changing clinical inputs and conditions.

    • Advance real-world performance pilots in coordination with stakeholders and other FDA programs, to provide additional clarity on what a real-world evidence generation program could look like for AI/ML-based SaMD.

    AI/ML Action Plan at 8.

    SaMD as a whole, and especially SaMD that uses AI/ML, is updated frequently.   Under the current regulatory framework, for class II devices subject to 510(k) premarket notifications, a new submission is required whenever software changes introduce new risks, impact risk controls, or significantly affects clinical functionality or performance specifications.  With AI/ML, software can be retrained using new data and, given the technology, these changes can be made more quickly than other types of design changes.  These types of changes often times improve performance or allow use of the software in expanded populations which, today, require a new regulatory submission.

    In the Modifications Discussion Paper, FDA proposes a total product lifecycle (TPLC) approach for regulation of AI/ML-based SaMD that would allow some modifications that currently require a new regulatory submission to be made without one.  The proposed TPLC approach would start with the incorporation of GMLPs into the device manufacturer’s quality system.  While the specifics are not yet defined, GMLPs would describe best practices such as data management, feature extraction, training and evaluation used in the development of AI/ML-based SaMD.

    The Modifications Discussion Paper then describes a regulatory pathway including an initial premarket evaluation of the AI/ML-based SaMD that includes both an evaluation of the safety and effectiveness of the device as well as an evaluation of “SaMD pre-specifications” (SPS) and an “algorithm change protocol” (ACP).

    An SPS would describe “anticipated modifications to ‘performance’ or ‘inputs,’ or changes related to the ‘intended use’ of AI/ML-based SaMD.” Modifications Discussion Paper at 10.

    An ACP would define “specific methods that a manufacturer has in place to achieve and appropriately control the risks of the anticipated types of modifications delineated in the SPS.” Id.   After initial FDA clearance, including the SPS and ACP, future modifications within the bounds of the cleared SPS and ACP could be made without a pre-market submission.

    The Modifications Discussion Paper also proposes a process for transparency and real‑world performance monitoring of AI/ML-based SaMD, including “periodic reporting to FDA on updates that were implemented as part of the approved SPS and ACP, as well as performance metrics for those SaMD.” Id. at 14.  Labeling to accurately and completely describe the modification and its impact on performance are also proposed.  Again, the Modifications Discussion Paper does not provide details on the mechanisms by which transparency would be achieved as it seeks to receive input from stakeholders.

    For some SaMD, we see a potential tradeoff between speed of the initial clearance and speed at which future changes may be made.  If the future path of the AI/ML-based SaMD is clear, spending extra time to develop an SPS and/or an ACP before the initial submission would allow future changes to be implemented without pre-market review, which will decrease time to market.  In cases where future modifications may not be well defined during initial review, developing an SPS and/or an ACP may delay initial submission without much gain down the road.

    Anticipating that changes may not always be known at the time of the initial submission, the Modifications Discussion Paper proposes a step where FDA can perform a focused review of the SPS and ACP for any modification that is outside of the SPS and ACP agreed to in the initial clearance.  The mechanism for this interaction and its timeframe are not yet defined.   For any AI/ML-based SaMD where development of an SPS and ACP at time of initial submission does not make sense or would be likely to cause delays that are not balanced by improved speed of future modifications, the traditional framework would still remain an option.

    While the unique characteristics of AI/ML may make it faster to implement a design change compared to other device types, the proposed framework may also be welcomed by industry for other types of devices.  A regulatory submission is currently filed at the end of development when verification and validation data supporting the final, finished device are complete for FDA review.

    Many manufacturers start with an initial regulatory application for a foundational device and then submit subsequent submissions to add new feature and uses, many of which are known from the beginning.  The Modifications Discussion Paper makes us wonder, if FDA can define a mechanism by which to allow modification of an AI/ML-based SaMD based on pre‑specifications and change protocols, would they consider a similar approach for other device types?

    In thinking about the current approach to FDA review, we recognize that, in using the pre-submission process, there are frequently multiple iterations of a protocol with the agency before agreement is obtained.  For device submissions that include data generated by following a protocol that had been subject to pre-submission interactions with FDA, FDA still scrutinizes the data and often raises questions or concerns during review of the study report in the pre-market application.

    It is hard to envision FDA becoming comfortable with granting marketing authorization based on authorization of specifications and a change plan without review of the test results to ensure the protocol was strictly followed, that all data meet the specification as it was agreed upon, that appropriate regression testing was also performed, and that any justified anomalies or adverse events are appropriate.  The proposed real-world performance monitoring will need to be robust to ensure FDA feels the types of issues it may have detected in premarket review would be detected quickly via the postmarket processes.

    As with the initial AI/ML discussion paper, the Modifications Discussion Paper is not a guidance or even a draft guidance, but is intended to further the AI/ML discussion by eliciting additional comments and feedback that the Agency can incorporate into guidance planned for later this year.

    Despite these matters being in the discussion phase, FDA has already granted marketing authorization via the De Novo pathway of a device incorporating artificial intelligence that utilized a predetermined control plan to incorporate future modifications (DEN190040); thus, it seems the Agency is committed to going in this direction for regulation of AI/ML-based SaMD.

    Interested parties are encouraged to provide feedback to the questions FDA has raised in the Modifications Discussion Paper to ensure that the process, when it is able to move out of the discussion phase, will provide a viable mechanism for today’s SaMD and innovations that are yet to come.

    Categories: Medical Devices

    Proposed Changes to Short-Form Version of Safe Harbor Proposition 65 Warning

    On January 8, 2021, California’s Office of Environmental Health Hazard Assessment (OEHHA) announced proposed amendments to Proposition 65 warning regulations that would limit use of the short-form version of the safe harbor warning.

    Proposition 65, California’s Safe Drinking Water and Toxic Enforcement Act of 1986, mandates that businesses that sell consumer products—including food, cosmetics, and OTC drugs—notify Californians about possible exposure via a clear and reasonable warning about certain chemicals that have been identified as substances that cause cancer or reproductive toxicity.

    Since the original warning requirements took effect in 1988, most Proposition 65 warnings simply stated that a chemical is present that causes cancer or reproductive harm, but they did not identify the chemical or provide specific information about how a person may be exposed or ways to reduce or eliminate exposure to it.

    New OEHHA regulations, adopted in August 2016 (and effective in August 2018) changed the “safe harbor warning” that was deemed to meet the requirements for a clear and reasonable warning.  Importantly, the new safe harbor warning was to identify at least one chemical that prompted the warning.  In addition, the warning statement would no longer state “contains” the chemical but instead “can expose you to” a Proposition 65 chemical.  The regulations did provide for a short-form version of the Proposition 65 warning.  The key difference between these two warning statements is that the long-form warning requires that the business specifically must name at least one Proposition 65 chemical that could result in exposure from the product’s use, whereas the short form warning requires only a statement of the potential health hazard.  For example, a long-form warning for a product containing a chemical listed as a carcinogen could read:

    ⚠WARNING: This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.

    A short-form warning for the same product could read:

    ⚠WARNING: Cancer – www.P65Warnings.ca.gov

    Not surprisingly, many businesses chose to use a short-form warning.  In its “Initial Statement of Reasons” OEHHA asserts that the short-form warnings are used in ways that were not intended and do not further the purposes of Proposition 65.  Specifically, the intent of the 2016 updates had been to provide consumers with more meaningful and informative warnings, avoid over-warning, and limit the use of the short form warning where the full-length warning will not fit on the label. Therefore, OEHHA is proposing amendments that limit and revise the use of short-form warnings.  Proposed changes include:

    • Allow the short-form warning only

    (a) on products with 5 square inches or less of “label space” and

    (b) when the standard warning will not fit.

    • Prohibit the short-form warning for internet and catalog sales. This prohibition would apply even if the actual product label is eligible and contains the short-form warning.
    • Add a requirement that the name of at least one chemical per relevant toxicity endpoint be included in the short-form warning; and
    • Include the words “Risk” and “Exposure” in the warning.

    Under the proposal, the new safe harbor warning for a product containing a potential carcinogen would read “ WARNING: Cancer Risk from [insert chemical name] Exposure – www.P65Warnings.ca.gov.”

    The existing minimum type size requirements under the current regulations would not change.  In addition to requiring more transparency concerning the identity of chemicals in the warning, OEHHA hopes the proposed changes will dissuade businesses from over-warning.

    OEHHA is accepting comments on the proposal through March 8, 2021.

    AMG v. FTC: A Moot Court-Worthy Conflict at the Supreme Court

    With a legal question that led to a classic oral argument where all nine Justices refused to tip their hands on how the case will turn out, the U.S. Supreme Court this week heard oral arguments in AMG Capital Management v. Federal Trade Commission.  The sole issue before the Court is the FTC’s authority to seek and obtain equitable relief from a court with regard to the meaning of a statutory scheme that both sides acknowledged is not expressly resolved by the wording of Section 13(b) of the FTC Act, 15 U.S.C. 53(b).  The operative language of that provision simply authorizes the FTC to seek, and a court to issue, “a permanent injunction.”

    You can read more about the background of this case in our previous posts here, here, and here.  At its base, though, the Justices clearly recognized that this issue is the classic – and moot court-worthy – conflict between a pure textual reading of the statute, versus examining the historical context of the provision built on decades of enforcement actions and court decisions both before and after the provision was enacted by Congress in 1973.  AMG primarily argued that because Congress explicitly included equitable relief in Sections 19 and 5(l), the failure to include that language in 13(b) must mean that Congress intended to exclude such relief from that provision. The FTC asserted that while the legislative history of the 13(b) is sparse, Congress employed the facially unclear “injunction” language in 13(b) with a backdrop that Congress intended that two pre-enactment Supreme Court rulings involving other federal agencies gave the FTC the same powers to seek equitable relief.  However, several Justices noted that soon after 13(b) was enacted, the FTC itself did not believe that this section authorized the FTC to seek equitable relief.

    Joel Marcus, Deputy General Counsel for Litigation argued for the FTC, and Michael Pattillo of MoloLamken argued for AMG.  One interesting sidenote is that the case is one of the extremely rare cases where the FTC is representing itself before the Court, rather than relying on the Solicitor General of the United States.

    Both sides’ arguments were excellent, as were their briefs, and as Justice Breyer commented during the argument, “Blue brief I think you’re right. Red brief I think you’re right. You can’t both be right. That’s right. Alright. You see, that’s the old joke but that’s where I am.”  Many commentators are right there with you, Justice Breyer.

    Chief Justice Roberts noted that the Court has changed over time the way that it interprets statutes.  He stated (and other justices agreed) that the Court interprets statutes in a “more disciplined” way than its prior approach, which he described as “freewheeling.” While he made this comment in the course of asking if the court should construe the statute in the environment in which it was passed, the Chief Justice did not explain what he meant by these terms.

    While we could look into a crystal ball and try to guess where the Court will land, we won’t – mainly because it would be a wild guess. We do, however, want to address an oversimplification that came up a few times during the argument, that being that employing 13(b) as a means to get relief is the “easier” or “more attractive” path for the FTC to take to get equitable relief when the FTC is deciding to choose among Section 13(b), Section 19 (15 U.S.C. § 57b) or Section 5(l) (15 U.S.C. § 45(l)) of the FTC Act.

    In contrast to Section 13(b), Sections 19 and 5(l) expressly authorize the government to obtain equitable relief.  The first provision requires the FTC to first obtain an administrative cease and desist order against a company or other person, before the FTC can go to court to get equitable relief.  The second provision is also quite limited because it too requires a prior cease and desist order or administrative rule before the FTC can go to court to seek equitable relief.  In contrast, 13(b) allows the FTC to go to court to enjoin allegedly unlawful conduct without providing any notice at all to the alleged violator.  This “lack of prior notice” contrast was noted by a number of the Justices in this week’s argument.

    Speaking as a former FTC staff attorney (Karin) and the former Director of the DOJ’s Office of Consumer Litigation (now called the Consumer Protection Branch) (John), we believe this contrast oversimplifies the strategic analysis that FTC Staff conducts when assessing which provision to employ to determine the path forward on every case.  We have clearly seen that FTC Staff considers a multitude of factors in their strategic analysis of whether to proceed against an alleged offender by bringing a 13(b) action in court as opposed to seeking an administrative cease and desist order without first resorting to a court.  For example, the FTC weighs primarily which of the two actions is most conducive to discovery issues and an expedited resolution.  In addition, the FTC considers how forthcoming the target of the investigation has been with information, whether the case presents a novel theory or otherwise complex issues or whether it’s “run of the mill”, what injunctive relief is necessary and how quickly it is needed, what equitable relief might be available, where assets are located (here or abroad).  In other words, FTC lawyers do not necessarily agree in every case that a 13(b) action, which the Court seemed to believe is always the faster and better alternative for the FTC, is the path the agency wants to follow.  And for defendants, there are other important distinctions between the two paths.  For example, injunctions obtained by the FTC in court are generally much more detailed and onerous on the defendants than most cease and desist administrative orders.

    Additionally, the concept that 13(b) is “easier” or “more attractive” seems to ignore the reality of the hundreds of cases the FTC has decided administratively.  See, e.g., In re POM Wonderful, LLC, 155 F.T.C. 1 (2013), aff’d as modified, 777 F.3d 478 (D.C. Cir. 2015) (FTC order clarifying policy on health claim substantiation); In re 1-800 Contacts, 2018 WL 6078349 (F.T.C. 2018) (FTC order resolving antitrust case alleging anticompetitive practices in the online contact lens market).

    As noted above, this is a case where it is impossible to predict the outcome.  It is possible that the Court will overrule its earlier precedent dealing with agencies’ authority to seek and obtain equitable relief.  It is also possible that the Court will decide to follow that precedent.  We also do not know if the Court will use this case as a vehicle to reexamine long standing precedent regarding what is and is not appropriate equitable relief.  But one thing is crystal clear: a ruling against the FTC will put a dagger in the agency’s enforcement of the FTC Act.  Absent a subsequent amendment of that statute, the FTC would lose what is probably its main enforcement weapon, namely obtaining monetary relief, to combat alleged violations of the FTC Act.

    As we have written before, this is not solely an issue for those dealing with the FTC.  Other federal agencies such as the SEC and FDA have also sought to obtain equitable relief under statutory schemes that authorize the agencies to bring lawsuits seeking injunctions.  It may well be true that the parameters of agencies’ authority to obtain such relief will depend on the specific wording of their governing statutes.  Nevertheless, the Court’s ruling could well impact other agencies.

    In light of the developing case law, FDA may also need to be more circumspect in seeking equitable relief when it (through the Department of Justice) files an injunction action under 21 U.S.C. § 332.  That provision authorizes courts to “restrain violations” of the Federal Food, Drug, and Cosmetic Act, but is silent on the court awarding equitable relief as part of the injunction.  We will let you know what the Supreme Court decides.

    An historical note.  Over fifty-five years ago, on November 8, 1965, the Supreme Court decided a false advertising case entitled FTC v. Mary Carter Paint Co.  The Beatles were in their heyday, at least in terms of performing concerts in this country.  The Selma to Montgomery freedom marches had occurred earlier that year.  And alas, the Cleveland Browns had won their last championship less than one year earlier.  It is hard to believe that this ruling was probably the last case decided by the U.S. Supreme Court involving the scope and powers of the Federal Trade Commission’s Bureau of Consumer Protection relating to deceptive practices.  The Court’s decision in AMG will likely come down sometime between mid-March and the end of June.

    Categories: Uncategorized

    Orange Book Modernization Act: Congress Largely Codifies FDA’s Existing Orange Book Practices, But Also Brings PTAB Decisions Into the Fold

    Those of you keeping up with the Orange Book know that FDA has been considering changes to patent listing requirements, many of which industry has been requesting for decades.  Now, Congress is trying to facilitate effective administration of the Orange Book.  On January 5, 2021, President Trump signed into the law the Orange Book Modernization Act, Pub. L. 116-290, which had been kicking around since March 2019.  Though the Act does revise the seminal Federal Food, Drug, and Cosmetic Act (FDC Act) drug provisions set forth in Section 505, there are few new concepts introduced.  Primarily, the Orange Book Modernization Act codifies existing FDA listing practices, most of which are described in 21 C.F.R. § 314.53.  Notwithstanding the lack of new policies, the Orange Book Modernization Act represents Congress’s interest and attention to Orange Book reform—something (as we mentioned in our June 2020 post) FDA essentially has been avoiding for the last 15 years.

    In the House Report on the bill, written in May 2019, Congress explains its concerns over the patent listing process.  Despite patent listing regulations, Congress noted that “some branded drug manufacturers may choose not to submit every patent on a product to the FDA, and others are submitting patents potentially for the purpose of blocking generic competition.”  Further, stakeholders are concerned that “the patent information included in the Orange Book is not as accurate or up-to-date as it could be.”  To address such concerns, the Orange Book Modernization Act specifies the patent information that must be submitted and listed in the Orange Book, clarifies that canceled or invalid patents must be timely removed, directs FDA to solicit public comments on information listed in the Orange Book (which FDA already did) and issue a report to Congress, and instructs the Government Accountability Office (GAO) to study whether certain patents should be listed in the Orange Book at all.

    The specific provisions of the Orange Book Modernization Act amend FDC Act § 505(b), (c), and (j).  The revisions to FDC Act § 505(b) are mainly administrative, revising the numbering and enumerating the elements that must be included in any 505(b)(1) submission.  It’s in this section that Congress codifies the limitations on patents listed in the Orange Book, stating that only drug substance, drug product, or method of use patents can be listed.  Of course, this has been FDA’s policy for years, but now it’s statutorily-mandated.  The most interesting revision to 505(b)(1) is the removal of sentence: “Upon approval of the application, the Secretary shall publish [patent] information submitted under the two preceding sentences.”  This sentence, albeit revised to conform with the amended statutory language, was originally included in the bill and is included in the 2019 House Report, but it does not appear in the final version.  While seemingly a minor blip, removal of this provision means that FDA no longer needs to publish patent information immediately on approval and can instead publish it 30 days after approval as set forth in 505(j)(7).  At first, this seems like an oversight, but because it was intentionally removed, it raises some questions about whether FDA will change its patent publishing practices.

    The Act revises 505(c)(2) to conform to the changes in (b)(1), address timing for submission of patent information (again, codifying existing policy), and emphasizes that patent information not addressed in 505(b)(1) should not be submitted to the Agency.  The Act also revises 505(j)(7) to conform to the revisions in (b)(1), but, more importantly, adds authority for FDA to list exclusivities in the Orange Book (again, something FDA already does).  It also tries to better explain the requirements to delist patents that have been cancelled or invalidated by PTAB, requiring FDA to remove from the Orange Book such patent information, other than patents subject to challenges that may result in periods of 180-day exclusivity, within 14 days of notification.  However, the PTAB decisions on cancellation and invalidity remain limited to those decisions “from which no appeal has been taken or can be taken,” meaning that most IPR decisions still fall outside the scope of delisting requirements.

    Finally, the Orange Book Modernization Act requires FDA to solicit comments on the types of information that should be included on or removed from the Orange Book and provide a summary to Congress of such comments and any responsive action.  The GAO also must investigate and commission a report on the listing of drug/device or device delivery system patents in the Orange Book, as well as the effects of such listing on market entry.  Congress required that the GAO Report include recommendations as to whether such device patent information should be included in the Orange Book and which patents should not be listed at all in order to reduce barriers to approval and market entry.  Presumably, these reports will be used to assess whether further revisions to the Orange Book listing process are necessary – and will perhaps provide long-awaited answers to the questions associated with listing device patents in the Orange Book.

    Again, nothing in the Orange Book Modernization Act is revolutionary, but it does signal that FDA and Congress are on the same page with respect to the importance of maintaining accurate and up-to-date patent information, and that Congress is willing to fold PTAB/IPR decisions into Hatch-Waxman.  That could be important in the future if it becomes necessary to further incorporate PTAB/IPR decisions into Hatch-Waxman for purposes of 30-month stay termination or 180-day exclusivity forfeiture. In any case, the orderly administration of the Orange Book helps both innovators and generics attain certainty.  Further, that Congress passed this Act in the first place suggests that if FDA is not prepared to reform the Orange Book and industry listing practices, Congress may take the issue into its own hands.

    OTC Monograph Drug User Fees FY2021 (Temporarily?) Off the Table

    That did not take long.  As we reported at the end of 2020, FDA announced in a notice the User Fees for OTC Monograph Drug Manufacturers and other fees.  Then on Jan. 6, 2021, HHS announced that the fees are off the table.

    What happened?  Well, apparently, the notice about user fees for OTC monograph drug manufacturers took some parties by surprise.  Notably, distilleries and other parties, which, during the pandemic, had started to manufacture badly needed hand sanitizer (a monograph product), learned that their registration as OTC monograph drug manufacturers (a requirement to fall under FDA’s temporary policy) was associated with a significant price ticket that would negate at least some of the benefit (if any) of their (temporary?) move into drug manufacturing.  FDA’s temporary policy makes no mention of possible liability for user fees and many were unaware that these fees might apply to their activities under the policy.

    Not long after the notice was published, just before the end of 2020, HHS issued a statement that the action by FDA had not been

    cleared by HHS leadership, who only learned of it through media reports . . . HHS leadership convened an emergency meeting  . . . to discuss the matter and requested an immediate legal review. The HHS Office of the General Counsel (OGC) has reviewed the matter and determined that the manner in which the fees were announced and issued has the force and effect of a legislative rule. Only the HHS Secretary has the authority to issue legislative rules.

    This is consistent with the HHS memo from September 2020, which stated that all departmental rules must be signed by the Secretary.

    The Jan 6, 2021 Federal Register announcement states that HHS has “ordered FDA to cease collections activities related to the Over-the-Counter Monograph User Fee Program (‘OMUFA’) until, with the approval of the Secretary, the Department issues further direction concerning FDA’s administration of OMUFA which provides the public with notice and opportunity for comment.”  The latter is somewhat surprising as other user fee programs have not been treated as rules and the setting of annual fees has not been subject to notice and comment prior to going into effect.

    Since the user fees are an essential component of the OTC monograph reform program, a new notice (with opportunity to comment this time) can be expected.  It seems that the monograph system’s long history of delay is not yet over.

    When Will the Emergency End?

    It’s a burning question: when will we return to normal?  And although the answer is hugely subjective, this post focuses on the date the official emergency declaration for COVID-19 will terminate.  Despite the general sentiment that we want to be back to normal sooner rather than later, precedent reveals that the termination of an emergency declaration can take years.  Indeed, many public health crises that now seem historic, like Ebola or Zika, remain subject to a Public Health Emergency Declaration, with some extending over seven years.  This lengthy duration is not a bad thing, however, as the emergency status supports the continued distribution of medical products subject to an Emergency Use Authorization (EUA).

    As background, in 2004, through the National Defense Authorization Act, Congress established a program to permit during times of emergency the sale of a drug, biologic, or medical device that lacks FDA approval, license, or clearance.  This program, codified in section 564 of the Federal Food, Drug, and Cosmetic Act, allows FDA to authorize the use of an unapproved drug, biologic or medical device when alternative therapies are not available.  The criteria for issuance of an EUA are lower than the standards FDA typically requires for product approval and, among things, only requires a showing that there is a “reasonable belief” that a product “may be effective.”   21 U.S.C. § 360bbb-3(c).

    The Secretary of HHS published a statement in February 2020 declaring that there is a public health emergency involving the virus that causes COVID-19.  See 85 Fed. Reg. 7316 (Feb. 7, 2020).  This Declaration serves as the basis for hundreds of EUAs, including face masks and other personal protective equipment, ventilators, remdesivir, convalescent plasma, and most recently vaccines.

    Companies have relied on these EUAs, some of which are tied to a specific product and others that provide an “umbrella” authorization for whole product categories, to build up infrastructure and distribution chains to bring these necessary products to market.  But there is uncertainty about how long these companies can rely on the EUA as its marketing authorization.  Under the statute, an EUA is effective until 1) the Secretary terminates the declaration or the company obtains approval for the product; or 2) FDA revokes or revises the EUA based on its determination that the circumstances supporting the EUA no longer exist.   See 21 U.S.C. § 360bbb-3(f)(1).  This post provides perspective on when the first criterion might occur.

    Since 2005, there have been 11 declarations of a public health emergency under the FDC Act.  The chart below lists in chronological order the type of emergency and the date HHS issued its declaration.

    Public Health Emergency Section 564 Declaration
    Anthrax (AVA)1/14/2005
    Anthrax (Doxycycline)10/1/2008
    H1N1 Influenza (Swine Flu)4/27/2009
    H7N9 Influenza (Bird Flu)4/19/2013
    Middle East Respiratory Syndrome Coronavirus (MERS-CoV)5/29/2013
    Ebola Virus8/4/2014
    Enterovirus D68 (EV-D68)2/6/2015
    Zika Virus2/26/2016
    Nerve Agent4/11/2017
    Freeze Dried Plasma7/9/2018
    COVID-192/4/2020

    Of the 11 public health emergencies since 2004, HHS has terminated only three: two for Anthrax and one for H1N1.  The other public health emergency declarations remain open, and products marketed under EUAs for these emergencies continue to be available to the public.

    The bar chart below shows the duration of each recent public health emergency (the data were run back in November 2020).  In context, the short tenure of the COVID-19 emergency (just shy of a year) in comparison with Bird Flu (approaching 8 years), makes us reasonably confident that HHS will not terminate the COVID-19 declaration any time soon.  The pace in which vaccines and treatments have become available could change the calculus, of course.

    And even if the Secretary decides to terminate the emergency declaration, the statute provides some comfort to companies selling products pursuant to an EUA that they will not be left in the lurch with huge inventories of unapproved product.  The Secretary must provide advance notice that a declaration will be terminated, and that period of advance notice must reasonably provide sufficient time for disposition of the product or relabeling, as needed.  21 U.S.C. § 360bbb-3(b)(3).  Thus, the program has built-in a safety mechanism for companies to manufacture and distribute unapproved products pursuant to EUAs without fear that the rug could be pulled out from underneath them.

    Categories: COVID19

    The Long and Winding Road: DEA Issues Final Marijuana Registration Rule

    More than four years ago the Drug Enforcement Administration (“DEA”) started down a path by issuing a policy statement asserting that the agency “fully supports expanding research into the potential medical utility of marijuana and its chemical constituents.”  Applications to Become Registered Under the Controlled Substances Act to Manufacture Marijuana to Supply Researchers in the United States, 81 Fed. Reg. 53,846 (Aug. 12, 2016).  DEA noted increasing public interest in determining whether marijuana or its chemical constituents might be potential treatments for certain medical conditions.  Id.  DEA concluded, based on discussions with the National Institute on Drug Abuse (“NIDA”) and the Food and Drug Administration (“FDA”), that the best way to satisfy researcher demand for a variety of marijuana strains and cannabinoid extracts was to increase the number of registered marijuana growers.  [For our post on DEA’s policy statement, see DEA Policy Expands the Number of Marijuana Cultivators for Research, Aug. 17, 2016].  So at that point the Agency seemed poised to execute on that policy.

    Well, DEA has been on a long and winding road with more than a few hazards in the form of Congressional prodding and a Department of Justice (“DOJ”) review of the Controlled Substances Act (“CSA”) and regulations forcing revisions to DEA’s 2016 policy.  However, it appears Agency is finally in a position to make good on its policy of registering additional marijuana growers for research with the issuance of a final rule on cultivation of marijuana for research.  Controls to Enhance the Cultivation of Marihuana for Research in the United States, 85 Fed. Reg. 82,333 (Dec. 18, 2020) (“Controls”).

    Given DEA’s status as an agency within DOJ, it seems extraordinary that DEA would have issued a policy statement on marijuana only to have DOJ then determine that the policy failed to comply with the U.S. obligations under the international treaties.  But that appears to be the case.  Specifically, as a result of DOJ’s review concluding that DEA’s 2016 policy statement was inadequate to comply with U.S. obligations under the Single Convention on Narcotic Drugs, 1961, as amended by the 1971 Protocol (“Single Convention”), the DEA’s final rule requires DEA to purchase, take possession and distribute cannabis to researchers.

    We now wonder where this road will lead given the complexity of DEA’s multiple roles as a regulator, purchaser and distributor of marijuana.

    Background

    For almost 50 years, DEA has restricted marijuana production to a single registered manufacturer, the University of Mississippi under contract with NIDA, believing that fewer registrants decreased the likelihood of diversion.  DEA has noted a 149 percent increase of researchers registered to conduct research with marijuana, marijuana extracts, and marijuana derivatives from 237 in November 2014 to 589 in June 2020 and a 575 percent increase of the annual marijuana production quota since 2017, from 472 kilograms (1,041 pounds) to 3,200 kilograms (7,055 pounds).  Id. at 82,336; DEA, Press Release, DEA Proposes Process to Expand Marijuana Research in the United States (Mar. 20, 2020).  DEA has authority to register manufacturers of marijuana, a schedule I controlled substance, provided the registration is consistent with the 21 U.S.C. § 823(a) public interest factors and U.S. obligations under the Single Convention.  85 Fed. Reg. 82,334.  DEA received 256 comments in response to its March 23, 2020, notice of proposed rulemaking (“NPRM”).  Commenters weighed in on a wide range of issues including the application process and registration criteria, marijuana quality, purchase and sale controls and costs.  The final rule adopts the NPRM with minor modifications and becomes effective on January 19, 2021.  [For our post on the NPRM, see Open for Business: DEA’s Proposed Rule Would Make the Agency an Active Buyer and Seller of Marijuana, Mar. 26, 2020].

    Application Process

    Over the last four years, DEA has received 38 applications from potential manufacturers after it published the policy statement in August 2016.  These applicants believed that DEA had indicated it would start reviewing and making a determination of potential registrations at that time.  DEA has stated that it will not consider applications received after January 19, 2021, until it has granted or denied applications received prior to that date.  21 C.F.R. § 1318.05(c) (all regulations under 21 C.F.R. § 1318 will be effective Jan. 19, 2021).  We assume DEA is indicating it will review the applications in the order they were received.

    Registration Criteria

    The CSA states that DEA should register only the number of bulk marijuana manufacturers necessary “which can produce an adequate and uninterrupted supply … under adequately competitive conditions for legitimate medical, scientific, research, and industrial purposes.”  21 U.S.C. § 823(a)(1).  However, DEA’s interpretation of the law is not as limiting as it appears.   In fact, DEA/DOJ has stated that the CSA “requires the DEA to register an applicant who meets all the other statutory requirements, without regard to the adequacy of competition, if the Administrator determines that registering another manufacturer will not increase the difficulty of maintaining effective controls against diversion.”  See, Memorandum of the Antitrust Division of the United States Department of Justice as Amicus Curiae in Support of the Application of Johnson Matthey, Inc., found at https://www.justice.gov/atr/memorandum-antitrust-division-united-states-department-justice-amicus-curiae-support-application

    Thus, it will be interesting to see how many entities the DEA decides to register and if the agency makes a determination that the number should be limited based on the ability to maintain effective controls against diversion.

    So, how will DEA handle well-qualified applicants who have engaged in marijuana-related activities that were legal under state law but in violation of the federal CSA?  DEA explained that any applicant that has manufactured marijuana without a DEA registration has violated the CSA regardless of whether they violated laws of the state where they are located, noting “[s]uch activity is relevant to past experience in the manufacture of a schedule I controlled substance, past experience in preventing diversion of a controlled substance from other than DEA-authorized sources, and the promotion and protection of public health and safety.”  Controls at 82,335.  DEA further asserted that such prior conduct is relevant and “wholly appropriate to consider” along with all relevant factors on a case-by-case basis in determining whether to issue a registration to the applicant.  Id.

    DEA has no choice but to consider the public interest factors of 21 U.S.C. § 823(a).  There are applicants who adhered patiently to the CSA and DEA’s past warnings.  They forewent potentially lucrative opportunities so DEA would consider their application favorably when it was ready to issue registrations to manufacture marijuana for research.  DEA’s August 2016 policy statement put applicants on notice when it stated that “illegal activity includes any activity in violation of the CSA (regardless of whether such activity is permissible under State law) as well as activity in violation of State or local law.”  Applications at 53,847.  But DEA’s policy statement did not close the door on those applicants because it also noted that while past illegal conduct does not “automatically disqualify an applicant, it may weigh heavily against granting the registration.”  Id.

    Conducting marijuana activities compliant with state law that violated the CSA may constitute grounds for DEA to deny an applicant’s registration.  We further wonder if DEA, with all other factors being equal might look more favorably upon registering applicants who conducted state-authorized marijuana activities in violation of the CSA but did not violate the enforcement priorities of the Cole Memo than those who violated the Cole Memo?  [For further discussion of the Cole Memo, see Up in Smoke? Will the Feds Ramp Up Enforcement Action Against Budding State Marijuana Industry?, January 4, 2018; GAO Recommends Better Monitoring of Federal Marijuana Enforcement Priorities; DOJ and DEA Officials Report on Marijuana Enforcement, February 4, 2016].

    DEA also assesses an applicant’s compliance with state law.  Applicants must hold a valid state license to manufacture marijuana or explain that a state license is not required.  Controls at 82,335. 

    Responding to commenters’ concerns about marijuana quality, DEA replied that a significant factor for selecting applicants to register is their “ability to consistently produce and supply cannabis of a high quality and defined chemical composition.”  Id. at 82,337; 21 C.F.R. § 1318.05(b)(2).  DEA will also place emphasis on the extent the applicant can supply quantities and varieties of cannabis and its derivatives to satisfy the anticipated demand of researchers and other registrants as demonstrated through a bona fide supply agreement.  21 C.F.R. § 1318.05(b)(3)(i).

    Registration Process

    DEA explained the process for issuing marijuana manufacturer registrations.  After receiving an application, DEA sends a questionnaire to applicants for them to complete and return within 10 business days.  Controls at 82,334.  DEA determines whether to grant an application under the 21 U.S.C. § 823 public interest factors by evaluating information provided in the application and questionnaire.  DEA then publishes a notice of application in the Federal Register, and current bulk marijuana manufacturer registrants and applicants have 60 days to comment on or object to the application.  Id. at 82,334; 21 C.F.R. § 1301.33(a).  DEA investigators also conduct on-site pre-registration inspections and report on whether to grant a registration.  If DEA proposes to deny an application, it must serve the applicant with an order to show cause providing the factual and legal basis for denial and hold a hearing if the applicant requests one.  Controls at 82,335.

    Annual renewal and new application fees for manufacturers of marijuana and schedule I substances is $3,699.  21 C.F.R. § 1301.13(e)(1)(i).

    Manufacturing Process

    In addition to requiring DEA to grant a registration to grow marijuana only if the registration is consistent with the public interest, the registration must also be consistent with U.S. obligations under the Single Convention.  Controls at 82,339; 21 U.S.C. § 823(a).  The Single Convention requires signatory countries that allow the cultivation of cannabis for lawful purposes, such as manufacturing for research, to:

    1. Designate areas and plots of land where they will permit cannabis plant cultivation for producing cannabis or cannabis resin;
    2. Ensure only licensed cultivators engage in cultivation;
    3. Specify through licensing the extent of the land on which cultivation is permitted;
    4. Require cultivators to deliver all their cannabis to the responsible agency, ensuring the agency purchases and takes physical possession of the crops as soon as possible, but not later than four months after the end of the harvest; and
    5. “Have the exclusive right of importing, exporting, wholesale trading[,] and maintaining stocks [of cannabis and cannabis resin],” except the exclusive right need not extend to medicinal cannabis, cannabis preparation, or the stocks of cannabis and cannabis resin held by manufacturers of such medicinal cannabis and cannabis preparations. Single Convention, art. 28, 23.

    DEA has historically performed, and will continue to perform, the first three functions under the CSA, and NIDA carried out functions three and four.  Applications at 53,847.  DEA’s 2016 policy statement opined that to register additional cultivators to be consistent with the Single Convention, the cultivators had to agree through written memorandum of agreement with DEA, to distribute marijuana only with prior, written approval from DEA.  Id. at 53,848.  As a result of DOJ’s review, to comply with the CSA and issue registrations consistent with the Single Convention, the agency revised the regulations for DEA “to directly perform” the fourth and fifth functions as well. Controls to Enhance the Cultivation of Marihuana for Research in the United States; Proposed Rule, 85 Fed. Reg. 16,294.  The revised regulations require DEA to:

    1. Take possession of marijuana after harvest; and
    2. Maintain the exclusive right to import, export, wholesale trade and maintain stocks of marijuana and its resin. Controls at 82,339.

    DEA Taking Possession

    Manufacturers authorized to grow cannabis must notify DEA in writing of their proposed date of harvest at least 15 days before the commencement of the harvest and deliver their entire cannabis crop to DEA.  21 C.F.R. §§ 1318.04(c), (a).  The 15 days provides DEA with adequate time to travel to the manufacturer to take possession of the cannabis.  Controls at 82,341.  DEA purchases and takes physical possession of the crops as soon as possible, but no later than four months after the end of the harvest.  21 C.F.R. § 1318.04(a).  DEA may accept delivery and maintain possession of the cannabis at the manufacturer’s registered location consistent with maintaining effective controls against diversion.  Id.  DEA will designate secure storage at the manufacturer’s registered location where it will maintain possession and control access to the cannabis.  Id.  If no suitable storage location exists at the manufacturer’s registered location, DEA will designate a location for the grower to deliver the cannabis again, as soon as possible but not later than four months after the end of the harvest.  Id.  Manufacturers cannot distribute cannabis to researchers without DEA.  We are curious to see whether DEA headquarters and individual field offices will have adequate resources to participate in purchasing and distributing the cannabis in a timely manner along with fulfilling their other responsibilities.

    Manufacturers may distribute small quantities of cannabis to registered analytical labs for chemical analysis prior to DEA purchasing and taking physical possession.  Id. 1318.04(d).

    DEA has the exclusive right to import, export, wholesale trade, and maintain cannabis stocks, but that right does not extend to medicinal cannabis or cannabis preparations.  Id. 1318.04(b).  Medicinal cannabis is a drug product made from the cannabis plant or derivatives, and can be legally marketed under the Food, Drug and Cosmetic Act, while a cannabis preparation is cannabis delivered to DEA and converted by a manufacturer into a mixture containing cannabis, cannabis resin or extract of cannabis.  Id. 1318.02(b) and (c).  DEA can exercise its exclusive right by authorizing registrants to conduct such activities.  Id. 1318.04(b).  DEA requires prior written notice of each cannabis import, export, or distribution specifying the quantity and the name, address, and registration number of the registered manufacturer or researcher recipient before authorization.  Id.  Registered manufacturers cannot import, export, or distribute cannabis without the express written authorization of DEA.  Id. 

    Purchase/Administrative Fee

    DEA purchases marijuana with funds from the Diversion Control Fee Account and adds an administrative cost per kilogram to the sales price to end users.  In setting the administration fee, DEA will annually determine the preceding fiscal year’s cost of operating the program to cultivate cannabis and divide the prior fiscal year’s cost by the number of kilograms of cannabis authorized to be manufactured in the current year’s quota to arrive at the administrative fee.  Id. 1318.06(a).  DEA adds the administrative fee per kilogram to the sales price of the cannabis purchased from DEA, and the administrative fee is paid to the Diversion Control Fee Account which by statute must recover the full costs of operating the diversion control program.  Id.  DEA will post updated administrative fees on its website by December 15th of the year preceding the year when the administrative fee will be collected.  Id. 1318.06(c).

    With having the exclusive right to wholesale trade in cannabis that it purchases from manufacturers, DEA will buy cannabis from manufacturers, sell cannabis to researchers and manufacturers, and establish prices for purchases and sales.  The new regulations summarize how DEA will set prices:

    1. Bulk cannabis growers negotiate directly with researchers and manufacturers to determine a sale price. Upon entering into a contract and prior to the exchange of cannabis, the parties pay an administrative fee to DEA based on the quantity of kilograms involved.  1318.06(b)(1).
    2. DEA sells cannabis to the buyer at the negotiated sale price plus the assessed administrative fee. The buyer pays the negotiated purchase price and administrative fee to DEA prior to the cannabis purchase by DEA.  DEA holds funds equal to the purchase price in escrow until delivery of the cannabis by the manufacturer to DEA.   1318.06(b)(2).
    3. After receiving the purchase price and administrative fee from the buyer, DEA purchases the cannabis from the manufacturer on behalf of the buyer at the negotiated sale price. DEA has no obligation to purchase the cannabis and may order the manufacturer to destroy the cannabis if the buyer fails to pay the purchase price and the administrative fee if the manufacturer cannot find an alternative buyer within four months of harvest.  1318.06(b)(3).
    4. When the manufacturer is the same entity as the buyer, or a related or subsidiary entity, the entity may establish a nominal cannabis purchase price. DEA purchases the entity’s cannabis at that price and sells the cannabis back to the entity, or a related or subsidiary entity, at the same price plus an administrative fee.  1318.06(b)(4).

    DEA Liability

    A number of commenters expressed concern that the regulations exclude DEA from liability for damage that may occur while cannabis is in DEA’s possession, and that there is nothing to ensure the quality of marijuana while in DEA’s possession.  Controls at 82,337–38.  The commenters note that there is no remedy for damage or loss of cannabis that occurs while in DEA’s possession.  Id. at 82,338.  The buyer’s sole remedy for defective cannabis is against the grower.  21 C.F.R. § 1318.07.  DEA reasoned that risk of loss or damage of cannabis in DEA’s possession will be low because the agency does not anticipate retaining possession for long periods of time and transfer from seller to buyer will be quick in most instances.  Controls at  82,338.  DEA also expects to maintain possession of the cannabis largely in secure locations designated at manufacturers’ registered locations.  Id.

    Conclusion

    DEA’s eventual registration of additional marijuana manufacturers took a long and winding road.  The new regulations have led to opening the door to increase needed quantities and varieties of cannabis for legitimate medical and scientific research.  When that door opens, and how wide, remains to be seen.  DEA is taking on a large role in the new cannabis program.  We have concerns about how DEA’s insertion into the manufacturer-to-researcher equation by buying, taking possession, and distributing marijuana will play out.  DEA has often been an impediment in the loosening of cannabis restrictions even for registering additional marijuana manufacturers for research.  With the new year, perhaps DEA will assume a new role: cannabis research facilitator.

    Strike Three. Southern District of New York Joins Other Federal Courts In Blocking Trump Administration’s Most Favored Nation Drug Pricing Rule on Procedural Grounds

    On December 30, 2020, District Court Judge Kenneth M. Karas of the Southern District of New York issued a nationwide preliminary injunction preventing the Most Favored Nation (MFN) rule from applying to Regeneron’s drug EYLEA (aflibercept).  This is the third federal court ruling preventing implementation of the MFN rule.

    Our previous post summarizing the MFN rule can be found here; our summary of the District of Maryland’s temporary restraining order and the Northern District of California’s preliminary injunction can be found here.  The two earlier decisions applied to all of the products currently listed in the MFN as well as any others that would have been added under the rule.

    In holding that a nationwide preliminary injunction is appropriate, the court analyzed Regeneron’s likelihood of success, likelihood of irreparable injury, the balance of hardships and the public interest.  The court specifically held that Regeneron would be financially and reputationally harmed if the MFN rule took effect because the company would lose business to other competitors’ drugs.  Moreover, similar to the prior federal courts’ opinions, Judge Karas held that Regeneron was likely to succeed on the merits because the government failed to comply with, and did not have good cause to ignore, the Administrative Procedure Act’s notice and comment requirement.  Finally, the public interest and balance of hardships favored Regeneron.  Specifically, implementation of the MFN rule may require Regeneron to cut its research and development budget, which could limit access to medication in the future.  The court also noted that failure to follow the notice and comment rules dilutes the public interest because it prevents proposed rules from being “tested via exposure to diverse public comment.”

    After a temporary restraining order and two preliminary injunctions, it is highly unlikely that the MFN rule will survive as an interim final rule.  Therefore, the burden of whether, and how, to proceed with the MFN rule will fall to the new Biden administration and their appointees.

    Judge Karas’ full opinion can be found here.

    HP&M’s Food, Beverage & Supplement Wrap Up: December 2020

    Welcome to the final 2020 edition of Hyman, Phelps & McNamara, P.C.’s monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.  Happy New Year, everyone.

    Food & Beverage

    • Make Every Bite Count: USDA and HHS just released the Dietary Guidelines for Americans, 2020-2025, rejecting an external scientific advisory committee’s recommendations (discussed in Karin’s July blog post) that men should cut back on alcohol and that all individuals should further limit their intake of added sugars.
    • Eat Your Fruits & Veggies: The UN has declared 2021 the International Year of Fruits and Vegetables, recognizing the “urgent need to raise awareness of the nutritional and health benefits of fruit and vegetable consumption and to advocate for healthy diets through increased sustainable production and consumption of fruits and vegetables.”
    • Losing Patience With Undeclared Allergens?: FDA sent a pointed warning letter to Whole Foods, indicating in a press release, “As part of the FDA’s ongoing efforts to address undeclared allergens as the leading cause of food recalls, we have analyzed patterns of recalls, and this letter is part of that work along with other work to improve industry’s compliance with allergen labeling requirements and reduce undeclared allergen-related food recalls.”
    • Not Quite 100%: The 7th Circuit revived a suit alleging that cheese misleads consumers by claiming to be “100% Grated Parmesan Cheese,” ruling that consumers aren’t obligated to scrutinize labels to ferret out ambiguities the way attorneys would in a courtroom. “How reasonable consumers actually understand” an ambiguous product name “is a question of fact that cannot be resolved on the pleadings.”
    • More on Corporate Social Responsibility: With the Supreme Court pondering arguments made in the cocoa and Alien Tort Statute cases, note that Senate Democrats are focusing on CBP’s enforcement strategy to ensure that imports of palm oil made with forced and child labor do not enter the United States.
    • Genomic Alteration: FDA had approved an intentional genomic alteration in animals for food uses or therapeutic uses, but not both – until this month, when FDA announced just such an approval of an alteration in a line of domestic pigs.  See Ricardo’s post here.  Just two weeks later, USDA published an Advanced Notice of Proposed Rulemaking and request for comments on a new regulatory framework under which “USDA would in most instances provide end-to-end regulatory oversight from pre-market reviews through post-market food safety monitoring for animals modified or developed using genetic engineering intended for use as human food.”  Comments are due by February 26, 2021.
    • Some Clarity on FUAs: FDA’s Center for Veterinary Medicine finalized guidance intended to help companies submit information for effective and efficient pre-submission consultations and preparation of an Food Use Authorization request.
    • Just a Little Bit Longer: FDA has extended the comment period for Draft Guidance on Voluntary Disclosure of Sesame until February 25, 2021, and extended the comment period for the Food Traceability Propose Rule until February 22, 2021.
    • Salt by any other name…: FDA issued guidance on their intent to exercise enforcement discretion for declaration of the name “potassium salt” in the ingredient statement on food labels as an alternative to the common or usual name “potassium chloride.” As we reported in 2019, in draft guidance, FDA had indicated that it did not think the name potassium salt was appropriate.
    • Gottlieb on Cherry Pies: “Thanks to the hard work of my FDA team in 2018, the Federal government will no longer be regulating the contents of frozen cherry pie,” Gottlieb tweeted earlier in December. “The American people are free add extra fruit, sugar, and make the crust especially thick.” He did not claim credit for FDA’s proposal to do away with the standard of identity for French dressing.
    • Red, Red Wine: TTB amended their regulations  by adding some new standards of fill for wine and distilled spirits.
    • FSIS Will Prohibit the Use of “Uncured” and “No Nitrate or Nitrite Added” on Processed Products that Contain Nitrite/Nitrate from “Natural” Sources: In response to a Petition by CSPC (which we discussed here), FSIS has announced that it intends to conduct rulemaking to propose to prohibit the statements, “No Nitrate or Nitrite Added” and “Uncured,” on products that have been processed using any source of nitrates or nitrites. Rather than requiring disclosure statements about the use of nitrate or nitrites on labels of meat and poultry products, FSIS intends to propose new definitions for “Cured” and “Uncured.” A proposed rule, tentatively scheduled for May 2021, will provide details.

    Supplements

    • Distribution of SARMs leads to forfeiture: DOJ announced a guilty plea by the owner of a sport supplement company that distributed purported dietary supplements that contained Selective Androgen Receptor Modulators (SARMs) – “synthetic chemicals designed to mimic the effects of testosterone and other anabolic steroids.” In addition to pleading guilty to a felony charge, the owner agreed to forfeit $3.5 million in proceeds from sale of the products.

    Cannabis

    • Operation CBDeceit: The FTC cracked down on six sellers of CBD-containing products for making a wide range of deceptive and scientifically unsupported claims about their ability to treat serious health conditions.
    • Imminent Enforcement: Enforcement for THC-related Proposition 65 warnings began January 3, 2021. Make sure that THC-containing products (including those derived from hemp) that are sold in California have appropriate labeling to comply with Proposition 65 labeling mandates.
    • The Muddy Waters of Cannabis: For the first time, a chamber of the U.S. Congress, the House of Representatives, voted to decriminalize cannabis by removing it from the Controlled Substances Act.  See a blog post by our colleague Larry Houck here.

    Final Medicaid Best Price Changes Encourage Value Based Purchasing but Discourage Copay Assistance

    In the New Year’s Eve edition of the Federal Register, CMS published a final rule to implement statutory amendments to the Medicaid Rebate Program statute, and to add CMS’s own policy proposals to encourage value based purchasing arrangements and discourage patient copay assistance.  The variety of topics covered in this rule include:

    • Best price changes and other and other measures to encourage value based arrangements in Medicaid
    • New regulations to implement the alternative rebate for line extensions, including definitions of “new formulation” and “oral dosage form”
    • A new, difficult hurdle for claiming the best price exceptions for manufacturer coupon and other patient savings programs
    • Clarification of the average manufacturer price (AMP) and best price treatment of rebates to Medicaid Managed Care plans that are not pursuant to a CMS-approved supplemental rebate program.
    • Implementation of statutory amendments to exclude sales of authorized generics from the brand AMP, redefine single source and innovator source drugs to remove references to “original NDAs”; and redefine multiple source drugs to include OTC drugs that are covered outpatient drugs.

    Hyman, Phelps & McNamara, P.C. has prepared a memo summarizing this wide-ranging final rule (available here).

    2020-2025 Dietary Guidelines for Americans

    At long last, and with just two days remaining in 2020, HHS and USDA released the 2020-2025 Dietary Guidelines for Americans (Guidelines).  For those who work in and around the food industry, the Guidelines are a big deal (I could quote Joe Biden here, but I won’t). The report is also a big deal for those outside the food industry, though they may not know it.  The Guidelines form the basis of federal nutrition policy and programs, which touch at least one in four Americans every month. These programs include the National School Lunch Program, Supplemental Nutrition Assistance Program (SNAP) (formerly “Food Stamps”), Special Nutritional Program for Women, Infants and Children (WIC), as well as feeding programs for the elderly.  The Guidelines also direct FDA regulations for food, including the labeling, such as health claims and the Nutrition Facts Panel.

    Of particular note – and the source of criticism by some in the public interest space – the Guidelines rejected some of the July 2020 recommendations of the Dietary Guidelines Advisory Committee (DGAC), tasked with providing USDA and HHS with a scientific review of specific topics and supporting scientific questions on nutrition and health (discussed in our blog post here).  Specifically, the DGAC recommended lowering the limit for added sugars from 10% to 6% of the daily calories and limiting daily consumption of alcoholic beverages for men from two drinks per day to one. Neither of these recommendations were adopted in the Guidelines. The new Guidelines continue to advise people to eat a diet of primarily fruits, vegetables, whole grains, lean meat and poultry, low-fat dairy, seafood, nuts and vegetable oils. They specifically suggest limiting added sugar and alcohol, along with saturated fats and sodium, and staying within recommended calorie limits.

    Here are some highlights of the 2020-2025 Guidelines:

    • The Guidelines are structured around four basic recommendations:
      • Follow a healthy dietary pattern at every life stage;
      • Customize and enjoy nutrient-dense food and beverage choices to reflect personal preferences, cultural traditions, and budgetary considerations;
      • Focus on meeting food group needs with nutrient-dense foods and beverages, and stay within calorie limits; and
      • Limit foods and beverages higher in added sugars, saturated fat, and sodium, and limit alcoholic beverages.
    • The Guidelines acknowledge that a small amount of added sugars, saturated fat, or sodium can be added to nutrient-dense foods and beverages to help meet food group recommendations, but foods and beverages high in these components should be limited.  The recommended limits are:
      • Added sugars—Less than 10 percent of calories per day starting at age 2.  For the first time, the Guidelines recommend that those younger than 2 avoid foods and beverages with added sugars.
      • Saturated fat—Less than 10 percent of calories per day starting at age 2.
      • Sodium—Less than 2,300 milligrams per day—and even less for children younger than age 14.
      • Alcoholic beverages—Consistent with the prior version of the Guidelines, adults of legal drinking age can choose not to drink, or to drink in moderation by limiting intake to 2 drinks or less in a day for men and 1 drink or less in a day for women, when alcohol is consumed. Drinking less is better for health than drinking more. There are some adults who should not drink alcohol, such as women who are pregnant.

    Federal Courts in Maryland and California Block Trump Administration’s Most Favored Nation Drug Pricing Rule on Procedural Grounds

    Two district courts recently dealt what may become fatal blows to the Trump administration’s Most Favored Nation (MFN) rule for Medicare Part B drug payment. As noted in our summary (available here), the MFN rule was published as an interim final rule with comment period rather than a proposed rule, leaving it vulnerable to an Administrative Procedure Act (APA) challenge. Multiple organizations, including the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Innovation Organization (BIO), filed lawsuits challenging the controversial drug price reduction initiative that was scheduled to take effect on January 1, 2021.

    On December 23, Judge Catherine Blake of the District Court for the District of Maryland granted a nationwide temporary restraining order in the suit brought by the Association of Community Cancer Centers, the National Infusion Center Association, the Global Colon Cancer Association, and PhRMA. Ass’n of Cmty. Cancer Ctrs. v. Azar, No. 20-cv-3531, 2020 U.S. Dist. LEXIS 241732 (D. Md. Dec. 23, 2020). Judge Blake found that the MFN rule was promulgated without adequate notice and comment procedures and that the government’s rationale for dispensing with such procedures was insufficient under the APA.

    On December 28, Judge Vince Chhabria of the District Court for the Northern District of California largely adopted Judge Blake’s reasoning and granted a nationwide preliminary injunction in the suit brought by the California Life Sciences Association, Biocom California, and BIO. Cal. Life Scis. Ass’n v. CMS, No. 20-cv-08603, 2020 U.S. Dist. LEXIS 242991 (N.D. Cal. Dec 28, 2020). Judge Chhabria held that the California plaintiffs were “virtually certain” to prevail on their APA claim because the agency did not publish a notice of proposed rulemaking.

    The government’s assertions that the COVID-19 pandemic’s recent surge was increasing the financial burden on Medicare beneficiaries failed to convince either court that a good cause exception to the APA should apply. The courts also found that the $5 billion reduction in Medicare Part B reimbursements in the first year alone, as estimated by the government, would drastically reduce revenues for providers and could qualify as irreparable harm. Finally, both courts found that the balance of equities and public interest favored granting the TRO and preliminary injunction, especially because of the MFN rule’s predicted disruption on provider businesses and patient treatments.

    As a result of these court decisions, the MFN rule will not go into effect on January 1, 2021. It remains to be seen whether the Trump administration will attempt to salvage the MFN rule in its waning days or whether the incoming Biden administration will pick up the reins and seek to begin notice and comment rulemaking for this controversial initiative. As of our writing, the court in Maryland has directed the parties to submit a proposed schedule for further proceedings.  The government has the option to file an interlocutory appeal but has not done so yet. As always, we will continue to monitor and report on federal and state efforts to address drug prices.

    FDA Announces OTC Monograph Drug User Fees for Manufacturers for FY2021

    As we previously reported, in March, as part of the CARES Act, OTC monograph reform was signed into law.  This law amended the FDC Act to include, among other things, an OTC monograph drug user fee program, under which FDA is authorized to assess and collect facility fees from manufacturers of OTC monograph drugs.

    On Monday the 28th of December, FDA announced its scheduled Federal Register notice setting the user fees for manufacturers and contract manufacturers of OTC monograph drugs.  Based on information about manufacturing facilities registered by Dec. 31, 2019, FDA has set the user fees as follows:

    • Manufacturer facility fee: $14,060
    • Contract manufacturer facility fee $9,373

    The fees are effective as of October 1, 2020, when the Continuing Appropriations Act, 2021, Division A of Pub. L. 116-159 was enacted.  (Section 123 of this Act provided an appropriation for the user fees).

    The facility fee applies to manufacturers of finished monograph products, not to those manufacturers who produce only an active pharmaceutical ingredient.  In addition, a facility fee will not be assessed for an OTC monograph drug facility which, prior to December 31, 2019, had ceased all activities related to OTC monograph drugs and updated its registration to reflect this. Other exemptions include facilities that are involved in the production of clinical research supplies; testing; or the placement of outer packaging on packages containing multiple products, for such purposes as creating multipacks, when all monograph drug products included are already in a final packaged form before placement in the outer overpackaging.

    As we reported previously, the new law also provides for fees for OTC monograph order requests (OMORs).  Fees for OMORs are set at $500,000 for a Tier 1 and at $100,000 for a Tier 2 OMOR.  No fee will be assessed if the OMOR seeks to make certain safety changes with respect to an OTC monograph drug.  As FDA notes, OMOR fees are not included in the OMUFA target revenue calculation.

    Parties subject to the fees must complete an OTC Monograph User Fee Cover Sheet cover sheet.  The facility fees are due 45 days after the date of publication of the Federal Register notice, which is scheduled to be published on Dec. 29, 2020.

    New ASP Reporting Requirement for Manufacturers without a Medicaid Drug Rebate Agreement

    Buried in the 2,124-page Consolidated Appropriations Act, 2021 (the Act), which was signed by Donald Trump yesterday, was a brief provision requiring the reporting of average sales price (ASP) by manufacturers that do not have a Medicaid Drug Rebate Agreement.  ASP is used by CMS to set the payment rate for drugs and biologicals that are separately reimbursed under Medicare Part B.  Part B covers drugs that patients typically do not administer themselves but are instead administered in physicians’ offices and hospital outpatient departments.  Currently, only manufacturers that have entered into a Medicaid Drug Rebate Agreement with HHS are required to calculate and report ASP.  See 42 U.S.C. § 1396r-8(b)(3)(A)(iii).  Because not every manufacturer of drugs covered under Part B has such an Agreement, there are no ASPs reported for some Part B drugs.  In those cases, the Part B payment rate is based on published wholesaler acquisition cost (WAC) or average wholesale price (AWP), or sometimes the invoice price, which result in payment rates generally higher than a payment rate based on ASP would be.

    Under Section 401 of the Act, a manufacturer of drugs or biologicals separately payable under Medicare Part B that does not have a Medicaid Drug Rebate Agreement will be required to report ASP, WAC, and sales made at a nominal price.  This reporting requirement goes into effect for calendar quarters beginning January 1, 2022.  The information is to be reported in a time and manner to be specified by CMS.  At some point prior to the effective date, we would expect to see the current electronic ASP reporting procedures extended to include this new category of manufacturers.  Audit and enforcement provisions currently applicable to ASP reporters will apply to the new category of ASP reporters.  HHS will be authorized to audit reporting manufacturers and survey wholesalers and manufacturers to verify reported information. Failure to report ASP for these drugs or biologicals may result in civil money penalties in the same manner as the failure to report ASP by manufacturers with Medicaid Drug Rebate Agreements.