In yet another installment of the drama that is Jazz v. Avadel, the Federal Circuit recently reviewed a decision from the U.S. District Court for the District of Delaware that addressed the scope of an injunction under the patent safe harbor imposed on Avadel’s Lumryz (sodium oxybate).   Specifically, the District Court enjoined Avadel from (1) offering open-label extensions to clinical trial participants, (2) applying for FDA approval of Lumryz for idiopathic hypersomnia, and (3) initiating new clinical trials or studies after the Court’s Order.  But because the District Court failed to seriously consider the application of the safe harbor under 35 U.S.C. § 271(e), the Federal Circuit reversed in part, vacated in part, and remanded in part.

As long time readers know, Jazz and Avadel have been fighting a battle over sodium oxybate for a while (see our coverage here, here, and here).  Jazz is the sponsor of two products, Xywav and Xyrem, both of which are approved for the treatment of cataplexy or excessive daytime sleepiness in patients 7 years of age and older with narcolepsy, and Xywav also is approved for the treatment of Idiopathic Hypersomnia in adults.  Avadel is the sponsor of its own sodium oxybate product, Lumryz, which is also approved in excessive daytime sleepiness in narcolepsy patients older than 7.  Avadel’s product was approved as a 505(b)(2) referencing Xyrem.

Jazz holds a patent that does not cover Xyrem or Xywav and, therefore, is not listed in the Orange Book.  Jazz nonetheless sued Avadel for patent infringement on that patent after Avadel submitted its 505(b)(2), but Avadel claimed the patent was invalid.  After a jury found the patent valid and awarded Jazz royalties for past infringement, the District Court imposed an injunction that prohibited Avadel from seeking approval of Lumryz in idiopathic hypertension; from offering open-label extensions to clinical trial participants; and from initiating new clinical trials or studies after the injunction effective date.  Avadel both appealed and sought an emergency stay in the District Court; the stay was denied.

In this appeal, Avadel argued that the forward-looking injunction is unlawful because it “enjoins Avadel from making, using, and selling Lumryz ‘solely for uses reasonably related to the development and submission of information’ to the FDA . . . in violation of § 271(e)(3)”.  Section 271(e)(3) states: “no injunctive or other relief may be granted which would prohibit the making, using, offering to sell, or selling within the United States or importing into the United States of a patented invention under paragraph (1),” which essentially precludes an injunction against activities protected by the patent safe harbor.

The Federal Circuit agreed with Avadel and reversed the District Court’s injunction prohibiting any new clinical trials as unlawfully overbroad.  Further, the Federal Circuit explained that open label extensions cannot be enjoined without an accusation of infringement and “[o]nly if and when that activity is adjudicated to fall outside the protection of the safe harbor, and only if and when the district court finds the eBay factors to favor an injunction, may it be permanently enjoined.”   Finally, the Court vacated and remanded the injunction prohibiting Avadel from seeking FDA approval of new indications because the submission of the application to FDA is not infringement under § 271(a), as it “is not a making, using, offering to sell, selling, or importing of a patented invention.”  Implicitly, this decision limited the imposition of injunctions that would interfere with patent safe harbor.

The decision leaves open a question posed by Avadel: whether a 505(b)(2) submission is an artificial act of infringement under § 271(e)(2) if there was no Orange Book patent certification.  The Court remanded that back to the District Court to discern, explaining that if it is the submission of the NDA that is the artificial act of infringement, then the District Court’s injunction barring Avadel from seeking FDA approval of any new indications was unlawful because it exceeds the scope of the remedies available to a patent owner for an artificial act of infringement.  If, however, Avadel’s submission of its paper NDA is not an act of infringement under § 271(e)(2), then an injunction could have been appropriate if it would prevent infringement.  In other words, to determine the appropriate remedy, the District Court must determine whether the NDA submission is the artificial act of infringement or the submission of a patent certification.

FDA recently announced, “CEO Forums: An FDA Listening Tour to Engage Pharma CEOs.” These are scheduled to take place in several cities on both coasts in June and July (here).”

This tour to engage with pharmaceutical and biotech CEOs is unprecedented. According to the announcement, Commissioner Makary will be holding these along with Principal Deputy Commissioner Sara Brenner, M.D., M.P.H and Director of FDA’s Center for Biologics Evaluation and Research, Vinay Prasad, M.D., M.P.H.  The stated purpose of them is to gather direct input from biotechnology and pharmaceutical leaders on how the FDA can modernize its regulatory framework to better support innovation and patient access to safe and effective therapies.

Interested parties must meet specific criteria, including having at least one active IND, NDA or BLA, and must register (registration form). Importantly, final eligibility for attendance will be determined by the FDA. Interestingly, leadership from the Center for Drugs is absent and the tour excludes CEOs in the device space.

Here are some of the unanswered questions:

• Is this a listen-only tour? Should executives expect to hear answers to their questions?
• How will industry participants be chosen? Is there a lottery?
• How many will be present in each meeting?
• Will topics need to be submitted ahead of time?
• Will the meeting discussion be made public?
• What is the output of these meetings?

Like you, we are actively seeking answers to these and other questions.

Listening sessions at FDA are not novel. Speaking from my personal experience, as a former Deputy Division Director in OND, attending listening sessions with patients were not just helpful, but often transformative in better understanding unmet need and helping characterize benefit-risk. We at HPM are optimistic that these listening sessions with CEOs can be equally impactful for product development. Given the recent sudden, frequent and often chaotic changes in the Agency, it is critical that the Commissioner hears directly from Industry about their goals, plans, and concerns. We anticipate the CEOs will have many questions for the Commissioner, including:

• Given that approximately 5% of CDER and CBER staff have left the Agency following significant staff reductions, additional staff continue to exit, and the hiring freeze continues, how can he ensure the safety and efficacy of drugs and biologics? How can the agency avoid the seemingly unavoidable delays to user-fee programs and other critical programs?
• Given the departure of staff with significant institutional and historical knowledge, how does he plan on filling this gap while retaining remaining staff with such knowledge?
• How will he ensure the independent, scientific integrity of the review process?
• How does he plan on implementing the framework for his proposal of a regulatory pathway based on a scientifically plausible mechanism?
• How does he plan on implementing AI in regulatory science and application reviews?
• How does he plan to remedy widely reported low morale among review teams?
• What should industry anticipate with respect to upcoming user fee negotiations?

We will follow this closely and hope that the discussion from these meetings is made public so that all stakeholders can benefit.

At our webinar earlier this month, we talked about Administration priorities as they relate to the FDC Act and noted that we expect much to remain the same with respect to enforcement.  One notable exception has been the Administration’s targeting of certain surgical procedures and the use of certain drugs for a particular intended purpose.  Specifically, these are procedures and drugs used in providing what HHS had, until recently, referred to as gender-affirming care.  The gray box at the top of the document at this link shows the change in position.

We’re not trying to bury the lead here, but the battle of labeling these surgical and drug treatments is a political one.  The political battle went into gear on January 28, 2025, with an Executive Order titled “Protecting Children from Chemical and Surgical Mutilation.”  That EO contained instructions to the Department of Justice, including that the:

Attorney General shall:

(a)  review Department of Justice enforcement of section 116 of title 18, United States Code, and prioritize enforcement of protections against female genital mutilation; . . . . [and]

(c)  prioritize investigations and take appropriate action to end deception of consumers, fraud, and violations of the Food, Drug, and Cosmetic Act by any entity that may be misleading the public about long-term side effects of chemical and surgical mutilation[.]

Late last month the Attorney General issued a memo addressing both directives.

• First, it “direct[s] all U.S. Attorneys to investigate all suspected cases of FGM [female genital mutilation]—under the banner of so-called ‘gender-affirming care’ or otherwise—and to prosecute all FGM offenses to the fullest extent possible.”
• Second, it “direct[s] the Civil Division’s Consumer Protection Branch to undertake appropriate investigations of any violations of the Food, Drug, and Cosmetic Act by manufacturers and distributors engaged in misbranding by making false claims about the on- or off-label use of puberty blockers, sex hormones, or any other drug used to facilitate a child’s so-called ‘gender transition.’ Even if otherwise truthful, the promotion of off-label uses of hormones-including through informal campaigns like those conducted by sales reps or under the guise of sponsored continuing medical education courses-run afoul of the FDA’s prohibitions on misbranding and mislabeling.”

The EO and DOJ memo were followed by a May 1, 2025 announcement of a report from the U.S. Department of Health & Human Services purporting to provide a “comprehensive review of the evidence and best practices for promoting the health of children and adolescents with gender dysphoria.”

The clear intended message from the EO and the DOJ memo is that individuals and entities who engage in conduct within their scope may be targeted for criminal investigation and prosecution.  Such a message may understandably deter the targeted conduct to avoid such a risk.

Importantly, that is not the only option, however.  As the Supreme Court has recognized: “The dilemma posed by that coercion—putting the challenger to the choice between abandoning his rights or risking prosecution—is ‘a dilemma that it was the very purpose of the Declaratory Judgment Act to ameliorate.’” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 129 (2007) (quoting Abbott Labs v. Gardner, 387 U.S. 136, 152 (1967)). While ensuring that a pre-enforcement challenge is properly presented to a court is not a simple task, it can be done, and for those interested, there may be much to challenge. The Supreme Court has recognized the ripeness of pre-enforcement challenges to criminal laws in a number of contexts, including where threatened injury is “certainly impending” or there is a “substantial risk that the harm will occur.”  Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158 (2014).  The AG’s memo may well be relevant to establishing an impending and credible threat.

Below, we highlight some of the challenges we would see in the government’s attempt to pursue these cases.

18 U.S.C. § 116(a) – Female Genital Mutilation

This statute, as codified in 1996, criminalizes female genital mutilation (FGM) on any person under the age of 18.  There are at least two issues with DOJ’s planned use of the statute.  First, and more generally, it has already been found unconstitutional by one federal court in the first prosecution of FGM under the statute.  Specifically, in United States v. Nagarwala, 350 F. Supp. 613 (E.D. Mich. 2018), the district court ruled that Congress had exceed its constitutional bounds and had no authority to pass this law under the Necessary and Proper Clause or the Commerce Clause.  While DOJ initially appealed the lower court’s decision to the Sixth Circuit, it later moved to voluntarily dismiss the appeal.  See United States v. Nagarwala, No. 18-1156, 2018 U.S. App. LEXIS 37299 (6th Cir. Mar. 30, 2018).  In a letter to the Senate Judiciary Committee, then-Solicitor General Noel Francisco (part of President Trump’s first administration) wrote that DOJ had determined that the statute lacked a reasonable constitutional defense.  It is hard to see how the statute fairs better under constitutional scrutiny this time around, or why it is necessary to wait for a prosecution to find out.

Second, the memo makes it clear that the intended investigation targets are persons and entities providing medical care, but the statute’s own definition of FGM excludes such care.  FGM is defined as “any procedure performed for non-medical reasons . . . .  18 U.S.C. § 116(e) (emphasis added).  It seems a relatively straightforward legal issue of statutory construction, ripe for pre-enforcement review, whether a medical professional providing medical care according to recognized medical standards within their profession can be subject to prosecution.

Food, Drug & Cosmetic Act

The AG’s memo also cites the FDC Act as a tool for DOJ to “hold accountable medical providers and pharmaceutical companies that mislead the public about the long-term side effects of chemical and surgical mutilations,” although as we noted in the webinar, the Consumer Protection Branch tasked with “undertak[ing] appropriate investigations” of FDC Act violations has been slated for elimination, so that obligation may fall to other DOJ components.  The memo also instructs U.S. Attorneys’ Offices to use the False Claims Act (FCA) to investigate the submission of false claims to federal healthcare programs for non-covered services related to “radical gender experimentation.”  And the memo welcomes qui tam whistleblower suits with knowledge of “such violations.”

As to the FDC Act, substantively, the memo asserts that false claims about on- or off-label use of “puberty blockers, sex hormones, or any other drug used to facilitate a child’s so-called ‘gender transition’” may constitute misbranding under the FDC Act.  And the memo goes one step more arguing that, even if otherwise truthful, promotion of off-label uses of hormones can “run afoul” of FDA prohibitions on misbranding and mislabeling.

Recent precedent allows for misbranding prosecution of firms or their owners that engage in promotion of off-label intended uses, including by looking at truthful, non-misleading speech as evidence of a new intended use.  See United States v. Facteau, 89 F.4th 1, 22-26 (1st Cir. 2023).  However, truthful, non-misleading speech on its own cannot be a criminal act as it is protected under the First Amendment.  Id.  Additionally, courts have generally been even more receptive to pre-enforcement challenges to prosecution that impinges on First Amendment rights.

A pre-enforcement challenge is not the only option, of course.  Defenses can also be raised during an investigation. The memo’s suggested use of the FDC Act to investigate and prosecute misbranding by manufacturers may have precedent, but a misbranding charge against a practitioner who uses drugs or other products in gender-affirming procedures would be subject to multiple legal challenges.  First, the FDC Act is generally designed not to limit or interfere with the general practice of medicine.  See 21 U.S.C. § 396.  Second, absent some kind of contractual relationship between a provider and a manufacturer, a provider is generally immune from misbranding if the provider is not also selling a regulated product.

Nevertheless, individuals and organizations could be in receipt of grand jury or HIPAA subpoenas requesting records, or they could be visited by federal agents.  Healthcare providers and others that find themselves the target of a criminal investigation or recipient of a subpoena related to provision of gender-affirming care would be well-advised to obtain counsel experienced in FDA enforcement and prosecutions under the FDC Act.

Last week, FDA published a Request for Information (RFI) (here) seeking input from the public on its efforts to “to identify and eliminate outdated or unnecessary regulations.”  The Announcement raises several questions and issues for the device industry.

10-for-1 Rule and its effect on de novos.  The RFI reinforces Trumps January 31, 2025 executive order indicating that for every new regulation introduced, at least ten existing regulations must be eliminated (the “10‑for-1 Rule”).  To date, the 10-for-1 Rule does not appear to have impacted the granting of de novo authorization, which by their very process create a new classification regulation. Indeed, since the start of Trump 2, seven de novos have been granted.  The same order was in place during the first Trump Administration, with no actual impact on the issuance of new regulations for de novo authorizations, or any other regulations. During the first Trump Administration, the 10-for-1 Rule seemed to be more in name only when it came to FDA, whereas this administration seems more intent on its deregulatory approach, so we expect it to have more of an impact on FDA governance this time around. We will certainly be keeping a close eye on whether de novos become affected by this policy.

Radical Transparency.  The RFI promises that “HHS will publish annual reports detailing estimated regulatory costs and the specific rules being offset, promoting greater transparency and accountability.”  While transparency is an admirable goal, to date, the administration’s actions have stifled transparency, which will increase regulatory cost and burden for industry.  For example, while FDA updated certain guidance documents to remove terms offensive to this administration, like “gender,” since the start of Trump 2, not a single new device-related guidance has been issued.  Industry relies on guidance documents to understand the Agency’s current policy and practice.  Last fall, CDRH issued its annual guidance agenda (here) with dozens of planned guidance documents on important topics like cybersecurity, artificial intelligence, and device shortages.  It’s unclear if or when CDRH will begin issuing guidance documents again.

Beyond formal guidance documents, industry relies on prompt communication of 510(k) clearance and de novo authorization documents for new devices reviewed by FDA.  Following the April 1 reduction in force (RIF), however, there has been a significant delay in publication of these materials. For example, 510(k) summaries have routinely been posted within one to two weeks of the clearance. In April, not a single 510(k) summary was posted, however.  It wasn’t until early May that all of the 510(k) summaries (or statements) for the nearly 250 510(k)s cleared in April were posted.  As of the date of this post, not a single 510(k) summary has been posted for a 510(k) cleared in May even though the month is over half over.  We’ll be watching carefully to see if the trend of it taking a month or more to post 510(k) summaries continues.

Of the seven de novos granted since the Executive Order, two were issued before the RIF of April 1, and five after. None of the five issued after the RIF have posted classification letters. As we have previously reported, CDRH has a long history of failing to timely post decision summaries. The classification letters, however, were generally reported fairly quickly, within at least a month or so of the decision posting. It is therefore surprising that nearly a month or more has passed for four of these five de novos without any information being posted.

The impact of having no de novo classification letters and a lag in posting 510(k) summaries is significant, and will become more significant over time.  The classification letters are important because they include the special controls with which all similar devices must demonstrate compliance in a future 510(k) submission. It is necessary that the special controls be made publicly available as soon as possible to enable future manufacturers to use the de novo as a predicate device. The 510(k) summaries are similarly crucial to the development of new technologies because they allow companies to make substantial equivalence determinations about recently cleared devices. As FDA stated in guidance in 2023, “newer devices should be compared to the benefits and risks of more modern technology.” (here)

The delay in the availability of these documents may also create more work for CDRH review staff.  It is common for manufacturers, particularly those submitting a 510(k) using a de novo‑authorized device as the predicate, to submit a pre-submission to align on testing strategy and expectations.  Without access to the special controls, manufacturers will have no idea how to approach a pre-submission, which may require CDRH to provide significantly more guidance and direction than if manufacturers had a clear starting point to know at least the types of verification and validation that will be expected.

Deregulation Efforts.  The RFI is not all bad news and irony, though.  If this administration is actually interested in reducing regulatory burdens and getting novel technologies into the hands of providers more quickly, there is plenty of opportunity for CDRH to do so.  Over the last decade or so CDRH has moved away from granting clearance/authorization for new tools, instead forcing sponsors to get new clearances and authorizations for specific indications (e.g., specific patient populations, disease states, and procedures).  One examples of this is with robotic surgical devices, about which we have previously blogged  (here).  Not only has FDA required that each new robotic surgical device be authorized for a specific surgical procedure, FDA has also required that each system go through the de novo process, even if it is intended for the same surgical procedure(s) as an already cleared/authorized system. The administration could do some real good by bringing back the ability to get a tool, like a robotic surgical system, cleared so that those novel tools can be put in the hands of providers.

The RFI is open through July 14, 2025.  Comments can be submitted online through the docket (here) or through an online form specifically created for this effort (here).

On May 21, FDA announced “enhancements” to the Section 804 import program (SIP).  Section 804 of the Federal Food, Drug, and Cosmetic Act provides a pathway for certain prescription drug imports from Canada. The FDA news release provides that FDA is offering to pre-review SIP proposals and meet with individual states and tribes to provide initial feedback on the proposal, with the goal of reducing burden on the state or tribe.  FDA also announced that it is working to develop a “user-friendly” tool to help states in developing proposals and that it will assist states with options to streamline the required cost savings analysis that must be included in such proposals.

The announcement comes a little over a month after President Trump’s April 15 Executive Order (EO), “Lowering Drug Prices by Once Again Putting Americans First.  That EO provided that within 90 days, “the Secretary, through the Commissioner of Food and Drugs, shall take steps to streamline and improve the Importation Program under section 804.”  Presumably, the enhancements noted in FDA’s news release are intended to meet this objective.

While creating a user friendly tool and developing options to streamline the cost savings analysis may assist with expediting state SIP proposal submissions, there are still several hurdles for states and tribes to get over before actually being able to import prescription drugs from Canada.  After the SIP proposal submission, FDA must first authorize the SIP proposal.  From there, the state/tribe must submit a Pre-Import Request to FDA within twelve months of the SIP authorization.  That Pre-Import Request, which requires extensive information, must be granted by FDA before imports can take place.

While we are aware of at least five states that have submitted SIP proposals to FDA, only one state, Florida, has received FDA authorization.  FDA authorized Florida’s SIP proposal in January 2024, three years after the SIP proposal had been submitted to FDA and after Florida filed a lawsuit over FDA’s failure to respond to Florida’s FOIA request for records regarding its proposal.  Despite being a motivated party, Florida still has not begun importing prescription drugs from Canada.  Shortly after the SIP was authorized,  we noted the significant hurdles that remained before Florida could begin to import.  In December 2024, FDA granted Florida a six-month extension to submit its Pre-Import Request.

The Florida case raises real questions about whether the actions announced today, even if they reduce  the timelines for SIP proposal submissions, will meaningfully impact the overall timeline for states to begin importing drugs from Canada.

Following up on Donald Trump’s May 12 Executive Order on Most Favored Nation Prescription Drug Pricing (see our post here), The Department of Health and Human Services today issued a brief press release answering a few of the multitude of questions raised by the Executive Order.  First, most favored nation (“MFN”) pricing will apply only to brand products without generic or biosimilar competition.  In other words, MFN pricing will apply only to single-source innovator drugs, and not to drugs approved under ANDAs or to biosimilars.  The reference foreign countries will include only those in which the drug similarly does not have generic or biosimilar competition.

Second, the MFN target price will be the lowest price in a country that is a member of the Organisation for Economic Co-operation and Development (“OECD”) with a gross domestic product (GDP) per capita of at least 60% of the U.S. GDP per capita.  According to the U.S. Mission to the OECD, the organization currently has 38 member countries.  At the time of CMS’s November 2020 final rule with comment period to implement MFN pricing under Medicare Part B (a rule that was ultimately invalidated by several courts for procedural defects and then withdrawn), CMS had determined that 22 OECD countries had GDP per capita above the 60% threshold.  The 22 countries were identified in the preamble (click here), though that list may have expanded somewhat during the past 4½ years.  Like the previous regulation, the HHS press release states that HHS will use the lowest price among the economic peer countries.  However, a straight comparison between another country’s price and the U.S. price does not take into account differences in purchasing power between the two countries.  To address this problem, the 2020 regulation would have adjusted the comparator country’s price by calculating a ratio of its GDP per capita divided by U.S. GDP per capita, then dividing the country’s price by that ratio.  HHS may use a similar approach in developing its pricing targets under the Executive Order.

Third, the HHS press release, like Executive Order, makes no mention of limiting reduced pricing to Medicare and Medicaid.  On the contrary, the release states that each manufacturer will be expected to commit to lower pricing for all brand products “across all markets . . . .”

The May 12 Executive Order directed HHS, within 30 days, not only to develop MFN targets but to communicate them to pharmaceutical manufacturers.  The next questions likely to be answered are what the nature of those communications will be and which manufacturers will receive them.  To be continued . . . .

Last month the U.S. Attorney’s Office for the Northern District of Illinois announced that Walgreens agreed to pay up to $350,000,000 to resolve allegations that its pharmacies illegally filled millions of invalid prescriptions for opioids and other controlled substances in violation of the federal Controlled Substances Act, and sought payment for filling many of those prescriptions by federal health care programs, violating the False Claims Act.  Press Release, Walgreens Agrees To Pay Up to $350M for Illegally Filling Unlawful Opioid Prescriptions and Submitting False Claims, U.S. Attorney’s Office, Northern District of Illinois, April 21, 2025.  The government complaint, filed January 16, 2025, and amended April 18th, alleged that Walgreens pharmacies “knowingly filled millions of unlawful controlled substance prescriptions” between August 2012 and March 2023 “despite clear red flags indicating a high likelihood that the prescriptions were invalid because they lacked a legitimate medical purpose or were not issued in the usual course of professional practice.”  Id.

We have regularly posted on recognized prescribing red flags that pharmacists have ignored that resulted in administrative or civil actions by the Drug Enforcement Administration (“DEA”) including against Gulf Med and Coconut Grove pharmacies in Florida and Zarzamora Healthcare LLC in Texas.  We thought that it would be instructive to review the prescribing red flags alleged in the recent high-profile Walgreens settlement and complaint for an insight into current DEA dispensing expectations.

As mentioned in Federal Register Vol. 86, 72703 (December 22, 2021), DEA emphasized in the Gulf Med decision that prescribing “[r]ed flags are circumstances surrounding a prescription that cause a pharmacist to take pause, including signs of diversion or the potential for patient harm.”  While the presence of a dispensing red flag does not prohibit a pharmacist from filling a controlled substance, it “means that there is a potential concern with the prescription, which the pharmacist must address and…make a record of its resolution, assuming it is resolvable.”  Id.

For a controlled substance prescription to be “effective,” that is valid, it must be issued for a legitimate medical purpose by an individual practitioner acting in the usual course of their professional practice.  21 C.F.R. § 1306.04(a).  Prescribers are responsible for the proper prescribing and dispensing of controlled substances, but pharmacists have a corresponding responsibility to ensure that prescriptions they fill are issued for legitimate medical purpose and in the usual course of professional practice.  Id.  As the Walgreen’s Amended Complaint notes, “Pharmacists are professionally educated and trained to recognize and assess red flags and to determine whether a prescription is valid.”  Complaint, ⁋ 82.

The Walgreens Amended Complaint recognizes the following prescribing red flags:

1. Prescribers who prescribe the same medication, with the same directions, for the same quantity, for a large number of individuals. ⁋ 81.
2. Prescriptions of drugs or drug combinations that are frequently sought by individuals known to abuse or misuse prescription drugs, including the combination of an opioid, a benzodiazepine and a muscle relaxant, known as the “trinity.” ⁋⁋ 81, 86, 251.
3. Patients who repeatedly seek early fills of schedule II prescriptions or refills of schedule III-V prescriptions earlier than the date the drug would have run out if taken according to the prescriber’s instructions. ⁋⁋ 81, 89, 251.
4. Opioid prescriptions for high dosages and quantities, including prescriptions that individually or in combination, provide patients with daily dosages of greater than or equal to 300 Morphine Milligram Equivalents (“MMEs”). ⁋⁋ 84, 251.
5. Patients filling prescriptions from multiple prescribers, particularly for the same type of controlled substance or dangerous combinations of drugs. ⁋ 87.
6. Patients filling prescriptions at the same time at multiple pharmacies. ⁋ 88.
7. Patients traveling long distances to the prescriber and/or to the pharmacy. ⁋ 90.
8. Patients paying cash or a cash equivalent for controlled substance prescriptions, especially when they use insurance to pay for other prescriptions. ⁋ 92.

The Walgreens Amended Complaint notes that pharmacists “may be able to resolve a red flag by reviewing the patient’s diagnosis to confirm the drug prescribed is an appropriate treatment for the patient’s condition, reviewing the pharmacy’s dispensing history for the patient or prescriber, contacting the prescriber, or checking the state prescription drug monitoring program (PDMP) database to see all of the prescriptions obtained by the patient.”  ⁋ 93.

As noted in the Press Release, along with the monetary payment, Walgreens entered into a seven-year Memorandum of Agreement (“MOA”) with DEA to implement measures to prevent dispensing controlled substances without resolving red flags.  The MOA requires Walgreens to maintain policies and procedures requiring pharmacists to confirm the validity of prescriptions prior to filling, provide annual training to employees about their obligations related to controlled substances, ensure that staffing is sufficient to enable employees to comply with their obligations and maintain a system that blocks prescriptions issued by prescribers known to write non-legitimate prescriptions.  Walgreens also entered a five-year Corporate Integrity Agreement with Health and Human Services-Office of the Inspector General also related to controlled substance dispensing by its pharmacies.

The Amended Complaint, MOA and Corporate Integrity Agreement provide sound framework for identifying and not filling prescriptions exhibiting red flags.

Operation Stork Speed is a go!

On March 18, 2025, the U.S. Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA) launched a significant initiative called Operation Stork Speed to bolster the availability and safety of infant formula in the United States (see our previous blog post here).

The March announcement outlined six key actions underlying Operation Stork Speed, including the launch of the first comprehensive review of infant formula nutrients (see 21 C.F.R. § 107.100) since 1998.  HHS/FDA explained that such a review would help update the nutrient requirements for infant formulas, ensuring they meet the evolving needs of healthy, full-term infants.

Approximately two months later, HHS/FDA made good on their pledge.  On May 13, 2025, HHS/FDA published in the Federal Register, as well as via an FDA news release, a request for information and data to initiate the nutrient review process for infant formula.  The agency intends to use the collected information to determine what actions, if any, should be taken to update the nutrient requirements.  Purportedly, this review aims to ensure that infant formulas continue to meet the nutritional needs of infants and reflect the latest scientific research.

Specifically, FDA is requesting comments on the below six questions.

• What new scientific data or information since the 1998 comprehensive assessment should we consider regarding nutrient requirements for healthy, full-term infants that are associated with positive short- and/or long-term health outcomes?
• What scientific data or information have emerged since the 1998 comprehensive assessment regarding nutrient intakes for healthy, full-term infants that are associated with poor short- and/or long-term health outcomes?
• Which existing nutrients required in 21 C.F.R. § 107.100 should we review? Please explain your rationale.
• For the nutrients required in 21 C.F.R. § 107.100, what, if any, adjustments should be made to existing minimum or maximum levels? For the 20 nutrients with only a minimum level, which, if any, should have a maximum level added?  Please explain your rationale.  For example, describe how changes might positively impact health outcomes.
• What other nutrients (e.g., docosahexaenoic acid and arachidonic acid) or specifications for nutrients (e.g., ratio of linoleic acid to alpha-linolenic acid), if any, should we consider adding to 21 C.F.R. § 107.100? Please explain your rationale.
• Which nutrients, if any, should we remove from 21 C.F.R. § 107.100? Please explain your rationale.

Any interested parties should submit comments within 120 days of the Federal Register publication.

In his remarks at the Food Drug Law Institute’s Annual Conference last week, Commissioner Makary noted that FDA plans to convene an expert panel in June as part of Operation Stork Speed, but the Agency has not yet formally announced those plans.  Commissioner Makary also acknowledged some consumers’ desire for infant formulas free of certain ingredients such as seed oils.  It is not yet clear how FDA plans to address that issue.  We will continue to monitor Operation Stork Speed’s progress and report on any further developments.

Dr. Marty Makary took the stage on Thursday at the Food and Drug Law Institute’s Annual Conference, continuing the tradition of Commissioners speaking at this event, but with a tone and tempo distinctly his own.

Now firmly in the chair after the agency’s controversial RIFs—which he was quick to remind everyone he did not initiate—Commissioner Makary said that the FDA’s future depends on rebuilding its culture, empowering its staff, and applying his vision of the now oft-repeated “gold standard science and common sense.” The agency, he noted, isn’t a passive inbox for industry petitions. It’s a brand—the greatest in the world, he said—and he thinks that change is needed to live up to that lofty reputation.

Many of the Commissioner’s comments were familiar to those who have followed his podcasts and book rounds: he firmly believes the FDA’s regulatory model needs disruption. Dr. Makary noted that he doesn’t believe that the traditional playbook works for everything—particularly in the case of life-threatening diseases where randomized controlled trials are neither feasible nor humane. “Stage IV cancer should not be approved like a cosmetic,” he quipped, quickly calling to mind his days as an oncological surgeon and the many difficult conversations he had with patients and families with very limited options. Industry can, however, expect smarter tailoring of regulatory frameworks by condition, product type, and risk. He also specifically mentioned rare diseases here, in addition to his example of late-stage illnesses.

While Commissioner Makary reiterated the “no reorganization” refrain that has been consistent since he took the helm, he is interested in reducing internal redundancies and called for more consolidated operations and smarter tech.  He spoke with obvious enthusiasm about the recently announced pilot AI-assisted review and its potential to shave weeks off approval timelines, as he described hearing from one reviewer in the pilot project who said the pilot AI tool completed three days’ work in gleaning salient facts from medical literature in six minutes.

Beyond regulatory work, the Commissioner ventured into what he called “crossing into advocacy,” especially relating to food regulation. Citing the chronic health crisis among children, he challenged attendees to rethink society’s tolerance for environmental and dietary toxins, from petroleum-based food dyes to candy coated in talc. “Kids don’t have a willpower problem,” he said. “We’ve been poisoning them and drugging them at scale.” Expect new expert panels starting in June on infant formula, menopause, and peanut allergies, and a renewed focus on the upstream causes of America’s downstream health costs.

He delivered sharp words on tobacco and e-cigarette imports, warning that foreign manufacturers are gaming our “porous border” by importing products that would be illegal in their own countries. He also promised a clearer vaccine framework from CBER perhaps in a matter of days, a stronger commitment to “the letter and the spirit of Right to Try,” and major investment in post-market safety surveillance via big data.

Commissioner Makary made it clear that he isn’t here to maintain the status quo and he is here to shake loose entrenched assumptions, and remind industry of his view that common sense, in the right hands, can be a regulatory force multiplier. How he will impose common sense on policy will unfold over the next few months.  We’ll be back with updates.

Hyman, Phelps & McNamara, P.C. is pleased to announce that Sophia Gaulkin will be presenting and speaking on an expert panel at Informa Connect’s annual Life Sciences Pricing & Contracting USA Summit, which is being held virtually and in-person in Philadelphia on May 19-21.

Ms. Gaulkin’s presentation, Product Price Increases: A SPTR Practical Walkthrough, will provide an interactive case study outlining the hypothetical enforcement, appeal, and settlement scenarios that may apply to qualifying drug price increases.  The presentation will also cover the legal, regulatory, and practical considerations involved throughout the reporting and enforcement process, including recent developments in state-level enforcement approaches and their impact on reporting and mitigation strategies.

Against the backdrop of increasing uncertainty and change in the drug pricing landscape, this hybrid event brings together experts working in or with the pharmaceutical and biotechnology industries to share best practices and discuss the cross-functional impacts of the ever-changing government and state drug pricing landscape on commercialization, pricing, contracting, reimbursement, market access, and compliance.

FDA Law Blog readers are offered a discount of 10% off the registration price.  The discount code is 25HYMAN10.  You can access conference information and register for the event here.

In early April, Cellares became the first company to announce receipt of an Advanced Manufacturing Technology (“AMT”) designation from FDA. The designation was granted by CBER to Cellares for its automated cell therapy platform, the Cell Shuttle. We were excited to see the news and look forward to seeing the full implementation of the AMT program and its potential benefits.

First, some background on the AMT program. Section 3213 of the Food and Drug Omnibus Reform Act of 2022 (“FDORA”), (21 U.S.C. § 356l), directed FDA to establish the AMT Designation Pilot Program. The program is intended for manufacturing methods that “incorporate[] a novel technology, or use[] an established technique or technology in a novel way, that will substantially improve the manufacturing process for a drug while maintaining equivalent, or providing superior, drug quality.” Such improvements could include reducing development time or increasing or maintaining the supply of a critically important drug or a drug on the drug shortage list.

An AMT designation is distinct from other FDA designation programs in that it is independent of any application submission. The designation could be used to support the development of a specific investigational drug, or a new method of manufacturing an approved drug, but it could also be granted to a technology separate from any specific application. A designation is instead granted for a particular “context of use,” which should be specific to a particular class of drugs, but does not have to be specific to a single product. However, the benefits of the designation are realized only in the context of an appropriate application within the designated context of use.

The law directed FDA to issue guidance regarding the implementation of the program, which was finalized in December 2024. As described in this guidance, AMT designation requests may be made at any point in time; however, the technology must be mature enough to consistently and reliably manufacture product in the context of use for which an AMT designation is sought. FDA recommends early engagement with CDER’s Emerging Technology Team (“ETT”) or CBER’s Advanced Technologies Team (“CATT”).

The types of supporting data and information to include with a request depend on the specific method of manufacturing and its proposed context of use. The robustness of these data and information should be commensurate with the level of risk.

As described in guidance, an AMT designation request should include the following:

• A description of the method of manufacturing and why it should be considered for designation, including an explanation of how the method incorporates a novel technology or uses an established technology in a novel way (novel here generally means a new technology FDA has not previously seen in a submission, or a technology with which FDA has experience but with a significantly different use);
• The context of use under which the proposed AMT will be used;
• A detailed description of how the method meets statutory eligibility criteria in a particular context of use, including quality-related data generated through process development studies, and information that describes and justifies the proposed AMT’s context of use;
• Perceived challenges to implementation;
• If the requestor is also an applicant or prospective applicant, an anticipated timeline for drug development activities incorporating the proposed AMT;
• If the requestor intends to use the proposed AMT for manufacturing an existing drug, a cross-reference to the existing application, information demonstrating that the proposed AMT will increase or maintain the supply of the drug, and evidence that equivalent or superior drug quality will be maintained.

The guidance states that requestors who are not applicants should include data generated using a model drug to provide FDA with a clear understanding of the AMT’s parameters, limitations, and context of use.

Within FDA, the center with jurisdiction over the type of drug that would incorporate the proposed AMT reviews the request, along with members of ETT or CATT, as applicable. The statute requires that a determination on the request be made within 180 days of receipt.

If granted, designated AMT holders should communicate updates or proposed changes that could affect the context of use or AMT eligibility. FDA will assess the proposed changes to confirm that the designated AMT continues to meet AMT criteria and maintains the same context of use for which the AMT was designated. Whether the context of use is the “same” should be discussed with FDA, and FDA may determine that a new designation request is necessary.

The benefits of designation include efforts by FDA to expedite the development and review of applications submitted for drugs that are manufactured using the AMT as well as allowing the holder of a designation, or another authorized party, to reference or rely upon data and information about the technology in subsequent applications for use in manufacturing drugs in the same context of use for which the designation was granted. FDA also intends to provide timely advice and to engage in additional communication (e.g., written correspondence, meetings) with applicants for a drug manufactured using a designated AMT. FDA expects to give higher priority where the technology is expected to significantly improve product quality, address known quality issues, or increase or maintain the supply of drugs that are life-supporting, life-sustaining, or of critical importance to providing health care, or are in shortage. The designated lead for the AMT request will coordinate with the FDA quality assessment team in the context of an application with the aim of making the assessment process more efficient than for applications using non-designated manufacturing methods.

Perhaps most importantly, FDA intends to support applicants while they are developing the CMC section of their applications such that the incorporation of a designated AMT will not increase the time or number of assessment cycles required to reach a quality-related decision, and thus will not increase the time required to make a decision regarding overall application approval. While it remains to be seen how advantageous this will be in practice, one of the most significant obstacles related to implementing a new manufacturing technology is the concern that FDA’s relative unfamiliarity with it will cause delays. The possibility that such delays could be avoided with the use of the AMT designation is definitely appealing.

As described in guidance, once FDA has gained significant experience with a specific designated AMT and it has been used in multiple approved applications, FDA may “graduate” the technology from AMT designation and transfer the review of future applications referencing that AMT to the standard quality assessment process rather than an expedited process. Such graduation would keep AMT designation aligned with the statutory requirement of “novelty” and facilitate further innovation to focus on new AMTs that meet the program’s goal of encouraging adoption of novel technologies. We can certainly foresee challenges related to such “graduation” determinations as there is currently a lack of clarity about when it would occur. Hopefully, this will become clearer in time.

Cellares does not appear to have any products in development on its own, and the company, in public statements, describes the likely use of the designation as supporting development and marketing applications of partners. As such, the specifics of how this AMT designation may ultimately impact FDA review of applications are not yet known. It would not be a surprise to us if this was the beginning of a pattern where many such manufacturing organizations seek the designation rather than the applicants themselves. However, this remains to be seen.

Now that we have an example of an AMT designation, we will hopefully be able to gain a better understanding of the benefits of such designations. We have seen quality issues delay otherwise approvable applications on numerous occasions, especially for products with more novel and complex manufacturing processes. It is an exciting thought that companies can get some level of comfort that such issues may be avoided through this proactive designation pilot program, especially for the novel technologies for which it is intended.

Under the law, FDA must post on its website by the end of 2025 a report describing the details of the program, including the types of manufacturing approaches supported. This report will also include numbers of designations granted and numbers related to applications that have included designated AMTs. We eagerly await its publication. As it currently stands, the program is scheduled to begin sunsetting October 1, 2032, with no further designations being considered beyond that date. Hopefully before then, we will see the benefits of designation realized through more efficient approvals with technologies that accomplish the goals of the program.

We are still parsing through the May 12 Executive Order (EO), “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients” and impacts this may have on the pharmaceutical industry.  We’ve blogged about Most-Favored-Nation (MFN) drug pricing and how the new EO goes well beyond the 2020 order and questions we have.  Of interest to these bloggers is the provision that deals with personal use importation.  (We note our departure from more light-hearted content and absence of musical references.  Please bear with us.)

Section 5 of the May 12 EO states that within 30 days, HHS will communicate MFN price targets to pharmaceutical manufacturers to bring prices for patients in line with “comparably developed nations.” If significant progress toward MFN is not made, the EO seeks to permit personal importation of less expensive drugs from foreign countries.  It provides that

the Secretary shall consider certification to the Congress that importation under section 804(j) of the Federal Food, Drug, and Cosmetic Act (FDCA) will pose no additional risk to the public’s health and safety and result in a significant reduction in the cost of prescription drugs to the American consumer; and if the Secretary so certifies, then the Commissioner of Food and Drugs shall take action under section 804(j)(2)(B) of the FDCA to describe circumstances under which waivers will be consistently granted to import prescription drugs on a case-by-case basis from developed nations with low-cost prescription drugs

We’ve seen this type of language in an EO before and to date, we still do not have a legal pathway for the personal importation of unapproved drugs.  Given that the provision in the May 12 EO may be a rehash of what occurred in 2020, we thought it would be helpful to provide a bit of history and background on personal importations.

As an initial matter, the Federal Food, Drug, and Cosmetic Act (FDC Act) precludes the importation of unapproved prescription drug products, including versions of FDA-approved drugs intended for distribution in foreign markets like the EU. As documented in a Congressional Research Service Report, FDA has taken the position that even a foreign-made drug that has the same active ingredient and is made by the same manufacturer of an FDA-approved drug is “highly unlikely” to “meet all of the requirements in the [FDC Act] for approval” such that it may be eligible for importation into the U.S.  Instead, FDA’s webpage on Personal Importation provides that “[i]f a drug is approved for use in another country but is an unapproved new drug in the U.S. it is illegal to import.”

Congress afforded FDA discretion to waive the prohibition on importation of unapproved prescription drugs where importation is for personal use and the drug does not appear to present an unreasonable risk to the individual.  FDC Act § 804(j)(1), (2).  FDA may issue such waivers by regulation or on a case-by-case basis.  Congress also directed FDA to issue guidance describing circumstances under which FDA consistently would grant such waivers.  This provision is effective only upon certification to Congress under FDC Act § 804(l) that the implementation of a waiver system would “pose no additional risk to the public’s health and safety” and would “result in a significant reduction in the cost of covered products to the American consumer.”   Absent such a certification, the provisions of FDC Act § 804 legally are not in effect.

Note – This is what the May 12 Executive Order is requiring – that HHS consider certifying to Congress that personal imports will pose no additional risk to the public’s health and safety.

The May 12 EO regarding personal importation is similar in this regard to the EO from 2020.  President Trump, at that time, directed HHS and FDA to facilitate “grants to individuals of waivers of the prohibition of importation of prescription drugs,” subject to the caveat that “such importation poses no additional risk to public safety and results in lower costs to American patients, pursuant to section 804(j)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. 384(j)(2).”  Rather than obviate the need for a certification to that effect, the EO mandates that such waivers are granted only as “consistent with applicable law,” which, again, requires a certification under 804(l) for 804(j) to be in effect.  While then-Secretary of Health and Human Services, Alex Azar, made a certification to Congress about other provisions in §804 of the FDC Act (namely, importations from Canada as described in FDC Act §§ 804(b)-(h)) this certification expressly excluded § 804(j).  Letter from Alex Azar II to Hon. Kevin McCarthy (Sept. 23, 2020).  Specifically, the certification letter states that “[t]he personal importation provisions of section 804(j) of the FD&C Act are not being implemented . . . and thus section 804(j) is not currently in effect.”   Secretary Azar goes on to say “[a]ny implementation of section 804(j) . . . would occur through a separate certification.”  No such separate certification has been issued to date.

Due to the risks involved in personal importation, FDA specifically refused to implement a formal personal importation policy.  See Proposed Rule, Importation of Prescription Drugs, 84 Fed. Reg. 70,796, 70,800 (Dec. 23, 2019).  In a Proposed Rule implementing provisions relating to the importation of certain prescription drugs from Canada, FDA explained that it “is not proposing to implement the personal importation provisions in section 804(j)” because imported medications “pose significant challenges for FDA and its ability to adequately safeguard the quality and safety of drugs taken by U.S. consumers.”  FDA recognized that “there are pharmacy websites that operate legally and offer convenience, privacy, and safeguards for purchasing medicines,” but there are many that fail to adhere to safeguards followed by pharmacies licensed in the U.S.  Accordingly, FDA did “not implement personal importation provisions under section 804(j) of the FD&C Act” when it adopted rules implementing other provisions in section 804 of the FDC Act.  And while the Final Rule acknowledges that EO 13938 directs FDA and HHS to facilitate waivers under section 804(j) of the FDC Act, FDA maintained that it was “not implementing the personal importation provisions in section 804(j) of the FD&C Act through this rulemaking.”  Final Rule, Importation of Prescription Drugs, 85 Fed. Reg. 62,094, 62,097 (Oct. 1, 2020).

To date, neither FDA nor HHS has issued a guidance document describing circumstances in which the agencies will consistently grant waivers, as required under FDC Act § 804(j)(2).  FDA has, however, set forth on its website a policy for “personal importation.”  Under that policy, FDA would permit imports of Over-the-Counter treatment and limited imports of prescription drug products for personal use.   https://www.fda.gov/industry/import-basics/personal-importation.  With respect to prescription drug products, FDA will allow personal imports if the product is for a serious condition for which effective treatment may not be available domestically; there is no known commercialization or promotion of the product to persons in the U.S.; the product does not represent an unreasonable risk; the consumer affirms in writing that the product is for personal use; and the quantity is not more than a three-month supply.

It’s hard to read the tea leaves on the future of personal imports.  FDA has previously issued Warning Letters to entities facilitating the importation of foreign drugs and maintains an active import alert regarding these products, last updated on April 14, 2025.  That import alert notes the following:

FDA has observed foreign unapproved prescription drugs offered for sale in the United States by unsafe online pharmacies which poses a significant public health concern. Unapproved prescription drugs present serious safety and effectiveness concerns. Moreover, FDA-approved versions of these drugs are often available in the United States. Therefore, this import alert is intended to identify known distributors, including online pharmacies, of unapproved prescription drugs to U.S. consumers.

There are inherent risks to consumers who purchase unapproved new drugs and misbranded drugs. Unapproved new drugs do not carry the same assurances of safety and effectiveness as those drugs subject to FDA oversight. Drugs that have circumvented regulatory safeguards may be contaminated, contain varying amounts of active ingredients, or contain different ingredients altogether. In examining imported drugs sent through the mail, FDA has identified unapproved drugs, counterfeit drugs, improperly labeled drugs, drugs that failed to meet special storage conditions, and drugs that require supervision of a practitioner licensed by law to administer them.

It’s not clear whether the May 12 EO will lead to a certification to Congress that personal imports pose no additional risk to the public’s health and safety.  That position is at odds with FDA’s historical stance.  Given the unprecedented turnover within FDA and new leadership, however, FDA’s historical stance may not be relevant.

On September 15, 2020, I posted an article in this blog entitled “Trump Embraces International Reference Pricing in Executive Order,” which described an order in Trump’s first administration to use most-favored-nation (“MFN”) pricing as a limit on Medicare payment.  The article ended with the following prediction:  “Regardless of the fate of this Executive Order or the result of the upcoming election, this bipartisan concept will not go away soon.”  The MFN pricing concept did go away temporarily, but yesterday history repeated itself with a Trump Executive Order again embracing this concept – this time with a potentially broader scope.

Trump’s earlier Executive Order resulted in a November 27, 2020 interim final rule, which provided that Medicare Part B payment for 50 annually selected high-cost drugs would be based on prices in foreign countries instead of average sales price.  In the waning days of the first Trump administration, the implementation of the interim final rule was blocked by three different federal district courts, largely because of the lack of notice and comment rulemaking procedures.  The rule was finally rescinded by the Biden Administration in December 2021.  The concept of most favored nation pricing then mutated into a legislative proposal in the early versions of the Inflation Reduction Act’s Medicare drug price negotiation program, but Congress eventually opted to use non-Federal Average Manufacture Price reported to the Department of Veterans Affairs instead of prices in foreign countries to set a cap on negotiated prices.

MFN pricing reemerged in yesterday’s Executive Order, which goes well beyond the 2020 order.  Whereas the previous order called for CMS to establish payment models under which Medicare Part B and Part D would pay no more than an international reference price, the new order makes no mention of Medicare or Medicaid.  It sets forth the following three directives:

1. HHS shall “facilitate” direct-to-consumer purchasing programs for pharmaceutical manufacturers that sell their products to American patients at the most-favored-nation (“MFN”) price.
2. Within 30 days (i.e., by June 11), HHS will communicate MFN price targets to pharmaceutical manufacturers to bring prices for patients in line with “comparably developed nations.”
3. If “significant progress” toward MFN pricing is not made following the communications in (2), HHS must propose a regulation to impose it.

These directives raise a multitude of questions.  How will MFN targets be determined by HHS and for how many drugs?  What will constitute “significant progress” toward MFN pricing that will avoid a regulation and when will that determination be made?  What types of drugs are to be covered: brands, generics, biologics, biosimilars, or some combination?  Would the direct-to-consumer pricing and MFN pricing be limited to Medicare and Medicaid beneficiaries or extend to all consumers regardless of payor?  How many drugs would be subject to a direct-to-consumer pricing program and an MFN pricing rule?  All drugs?  Those with the greatest cost to Medicare and Medicaid?  To American consumers in general?  How would the drugs with highest cost be determined?  All of these are in addition to more practical questions about how the MFN price will be determined in the first place, which countries will be considered “comparably developed nations,” and how manufacturers would deliver MFN pricing to patients at the pharmacy counter under the direct-to-consumer program.

If significant progress toward MFN pricing is not delivered, the Executive Order also seeks to permit personal importation of less expensive drugs from foreign countries.  Under Section 804(b) through (h) of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) and implementing FDA regulations at 21 C.F.R. Part 251, states and other entities are already permitted to develop a Section 804 Importation Program (“SIP”) to import certain prescription drugs from Canada into the United States. (So far, only Florida has obtained FDA authorization to operate a SIP.)

However, besides authorizing the importation of less expensive drugs from Canada, Section 804 also authorizes FDA to grant to individuals, by regulation or on a case-by-case basis, waivers permitting importation of drugs from foreign countries for personal use.  Section 804(j)(2)(B) requires FDA to publish guidance on when such personal use importation will be permitted.  However, current FDA policy permits importation for personal use only when the drug is not available in the U.S.  The new Executive Order directs FDA to “take action under section 804(j)(2)(B) . . . to describe circumstances under which personal use waivers will be consistently granted to import prescription drugs on a case-by-case basis from countries used to determine the most-favored-nation price,” as described above.  In other words, personal use importation would be expanded to situations where the drug is available domestically but is more expensive.

The Executive Order provides that, in order for FDA to take such action, HHS must first certify to Congress that expanded personal importation will pose no additional risk to public health and safety and will result in significant reduction in cost to American consumers.  HHS previously made this certification with regard to importation of drugs from Canada, but importation from other countries would pose additional safety risks.

It is difficult to predict the impact of this Executive Order with so many questions unanswered.  However, MFN pricing, whether offered in response to HHS’s price targets or imposed by regulation, has the potential to cause a major shift in global drug pricing, as international companies seek to equalize prices in the U.S. and other developed countries.  The size of this shift will depend on the scope of MFN pricing that emerges – the number of manufacturers affected, what types of drugs are covered, and how many drugs are covered – all of which are as yet unknown.  Also unknown is whether, if a regulation is triggered, mandated MFN pricing would survive the inevitable constitutional and statutory challenges.  We will keep readers posted on this important development as answers emerge.

Note to readers:  An earlier version of this article, which was posted yesterday (May 12), referred to a 180-day period following HHS’s communication of target prices to pharmaceutical manufacturers during which manufacturers must make “significant progress” toward MFN pricing in order to avoid a regulation.  The final Executive Order did not provide for a 180-day period, instead leaving indefinite the period during which “significant progress” must be made.  That correction has been made in the above article.

On May 6, 2025, FDA announced that it planned to conduct more surprise inspections at foreign manufacturing facilities that produce foods, essential medicines, and other medical products intended for U.S. consumers. The stated goals are to ensure that “foreign companies will receive the same level of regulatory oversight and scrutiny as domestic companies,” and “every product entering the U.S. is safe, legitimate, and honestly made.” This change builds on the pilot program conducted by FDA’s Office of Inspection and Investigations Foreign Unannounced Inspection, which focused on drug manufacturing facilities in India and China. FDA’s plan now expands the use of foreign surprise inspections to other countries as well as to other types of FDA-regulated facilities (foods and medical devices).

Most FDA inspections of domestic facilities are unannounced, with limited exceptions. Further, domestic facilities cannot dictate the day or time of the inspection. Foreign manufacturers, however, “often had weeks to prepare,” which FDA concludes, “undermin[es] the integrity of the oversight process.” Despite the advanced notice, FDA claims that it found “serious deficiencies more than twice as often” in its inspections of foreign facilities as compared to domestic facilities.

The discrepancy between the regulatory oversight over foreign firms is not a new concern, and the U.S. Government Accountability Office (GAO) reported in 2019, that “FDA’s practice of preannouncing foreign inspections up to 12 weeks in advance may give manufacturers the opportunity to fix problems.” GAO repeated this concern in its 2022 report and again in 2024. In 2024, Hyman, Phelps & McNamara, P.C. Counsel John Claud testified before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations about FDA’s foreign inspection program, in a hearing entitled Protecting American Health Security: Oversight of Shortcomings in the FDA’s Foreign Drug Inspection Program.”

Although FDA wants to increase the number and types of foreign inspections, the question remains how FDA will practically implement this expansion. In a recent Executive Order (E.O.) to promote domestic drug manufacturing, President Trump stated that the increase of “routine reviews of overseas manufacturing facilities involved in the supply of United States medicines” “shall be funded by increased fees on foreign manufacturing facilities to the extent consistent with applicable law.”  The E.O. is not entirely clear which fees the government intends to increase as there are, among other things, user fees for drug and device approvals, and program fees and facility fees that are paid annually.   Some fees already have a premium built-in for foreign manufacturing sites (for example, the annual facility fee for a domestic manufacturer for a finished dosage form generic drug is $231,952 for FY2025, but $246,952 for a similar foreign manufacturer). And even with increased fees attributable to foreign companies, the large number of RIFs that have affected the inspections office, among other key functions at FDA, will surely limit the number of inspections that physically can be conducted.  Further, the abrupt retirement of Michael Rogers, the FDA Assistant Commissioner for Inspections and Investigations, one day before FDA announced this plan to expand foreign inspections, is likely to disrupt or delay implementation.

We will continue to monitor the events as they unfold. In the meantime, be prepared! Although we advise foreign companies to always maintain inspection-readiness, in light of the new Administration’s announcement and priorities, we recommend taking some immediate-term actions:  assess your high-risk areas (such as those reviewed by FDA during previous inspections) through the internal audit program; conduct refresher training for all personnel who will be involved in an FDA inspection, particularly as the scope and tone may differ from other governmental authorities; and review your previous FDA inspections (and those from other regulatory bodies) to ensure completion of any open CAPAs or commitments.

There has been increased enforcement against medical device companies that engage in the pervasive practice of paying third party sales agents based on their volume of sales.  This scrutiny was enhanced after the Fourth Circuit’s ruling in United States v. Mallory, 988 F.3d 730 (4th Cir. 2021), reh’g denied, as well as in recent settlements (see, e.g., here), that all such arrangements violated the federal Anti-Kickback Statute (AKS). Two recent cases from the Fifth and Seventh Circuits, however, support the legality of these arrangements in the absence of the government proving certain circumstances.

On April 14, 2025, the Seventh Circuit overturned the criminal conviction of Mark Sorensen, the owner of a durable medical equipment (DME) distributor, who had been found guilty of violating the AKS.  The Seventh Circuit took a more lenient approach than the Fourth Circuit, focusing its rationale on whether an independent contractor had improper influence over a healthcare provider’s independent healthcare decisions.  Sorenson follows the Fifth Circuit’s decision last year in United States v. Marchetti, 96 F.4th 818, which likewise held that volume-based compensation is not a per se violation of the AKS, and must instead be based on an evaluation of whether the sales agents had undue or improper influence over healthcare providers.

Though Sorensen and Marchetti can provide support against allegations that such arrangements are per se violations of the AKS, companies should evaluate and, if necessary, take steps to de-risk their marketing organization, which could include limiting the use of independent contractors for such roles.

Regulatory Framework

The AKS makes it a criminal felony to knowingly and willfully offer or pay any remuneration, directly or indirectly, to induce a person to order or refer patients for medical care that is reimbursable under a federal healthcare program (e.g., Medicare or Medicaid).  Recognizing that this broad prohibition could encompass many common and non-abusive practices, the Office of the Inspector General of the U.S. Department of Health and Human Services (OIG) has promulgated a number of safe harbor regulations describing activities protected from prosecution.  Of relevance here is the “employees” safe harbor, which protects, inter alia, volume-based commissions paid by a pharmaceutical or device company to employee sales representatives, even though the commissions are intended to induce the representative to recommend the purchase of the company’s products.  However, commissions paid to sales representatives who are independent contractors, as opposed to bona fide employees, are not protected under the safe harbor.

Still, the failure of an arrangement to meet the conditions of a safe harbor does not mean that the arrangement is necessarily unlawful, only that it does not have guaranteed protection.  OIG reviews non-safe harbored arrangements on a case-by-case basis.  Regarding commissions-based compensation structures for marketing agents, OIG has issued several instructive advisory opinions: AO 98-1 (adverse); AO 98-10 (favorable); AO 99-3 (favorable); and AO 99-8 (favorable).  Although commissions-based compensation to marketing agents is not protected under any safe harbor, OIG’s multiple favorable opinions about such arrangements indicate that they are not per se violations of the AKS.

Per its advisory opinions on the subject, OIG evaluates the following factors to determine whether a sales agent arrangement is abusive:

1. compensation based on percentage of sales;
2. direct billing of a Federal health care program by the Seller for the item or service sold by the sales agent;
3. direct contact between the sales agent and physicians in a position to order items or services that are then paid for by a Federal health care program;
4. direct contact between the sales agent and Federal health care program beneficiaries;
5. use of sales agents who are health care professionals or persons in a similar position to exert undue influence on purchasers or patients; or
6. marketing of items or services that are separately reimbursable by a Federal health care program (e.g., items or services not bundled with other items or services covered by a DRG payment), whether on the basis of charges or costs.

The primary factor in the advisory opinions, apart from the commission-based payment, is whether the sales agents have undue influence over purchasers.  The case law on commission-based marketing agents—including the Sorensen decision—follow in a similar vein.

Seventh Circuit ruling in Sorensen

In Sorensen, the government alleged, and the District Court agreed, that Sorensen paid illegal kickbacks to marketing firms based on the number of leads generated and a DME manufacturer based on the percentage of funds collected from Medicare.  The Seventh Circuit unanimously reversed Sorensen’s criminal AKS conviction, finding there was insufficient evidence that any of the commissions-based marketing entities “leveraged any sort of informal power and influence over healthcare decisions.”  Rather, the sales agents Sorensen paid had received consent from patients before faxing unsigned prescriptions to their physicians for review; more often than not, those physicians declined to prescribe the device.

The Court explained that the unsigned prescriptions sent to physicians “are best understood as proposals for care, not as referrals.”  In contrast to its decision in United States v. Polin, 194 F.3d 863 (7th Cir. 1999), in which the sales agent was considered a decisionmaker because his referrals had never been overturned by a provider during the 14 years he worked in that role, here, even if the unsigned prescriptions are considered “recommendations” to providers, they were frequently overruled.  Physicians had “ultimate control” and exercised “independent judgment” over their patients’ healthcare decisions.  As such, neither Sorensen nor the entities he paid “had any authority to act on behalf of a physician” or “unduly influence[d] the doctors’ decisions.”

Distinguishing between “payments to individuals who take advantage of their existing relationships with patients or other health care providers” from mere “aggressive advertising efforts,” the Court found no evidence suggesting that Sorensen or anyone he paid “had any special relationship with or influence over patients’ physicians so as to subject them to improper influence.”   In the absence of such evidence, the Court held that Sorensen’s volume-based (i.e., percentage-based or per-lead) compensation structures did not violate the AKS.

Fifth Circuit Case Law

The Seventh Circuit favorably cited the Fifth Circuit’s recent decision in United States v. Marchetti, 96 F.4th 818 (5th Cir. 2024), which affirmed Marchetti’s conviction for receiving illegal kickbacks but determined that most of his actions did not violate the AKS.  In that decision, a medical laboratory paid Marchetti percentage-based compensation for successful referrals of Medicare patients to the laboratory.  The government asserted that Marchetti had “relationships with, access to, and influence over” doctors, but failed to show that Marchetti exercised any impermissible influence on them.  The Fifth Circuit ultimately affirmed Marchetti’s conviction based on his separate work for two competing laboratories, where he decided which laboratory received patient samples and received payments intended to induce his referrals.

It is worth noting that Marchetti follows a string of Fifth Circuit decisions on this topic, the holdings for which were based on similar grounds.  In U.S. v. Miles, 360 F.3d 472 (5th Cir. 2004), the court distinguished between violative arrangements in which the sales agent has authority to select a provider and thereby earn compensation, and permissible ones in which a sales agent (in that case, agents promoting a home health agency to physicians) had no authority to select the provider.  In a subsequent case, the Fifth Circuit describes Miles as standing for the proposition that where a purchasing choice is made by the health care provider and “there is no evidence that the advertiser ‘unduly influence[s]’ or ‘act[s] on behalf of’ the purchaser, the mere fact that the [seller] compensates the advertiser following each purchase is insufficient to support” a violation.  U.S. v. Shoemaker, 746 F.3d 614, 627-28 (5th Cir. 2014).

In Practice

Volume-based compensation arrangements for independent contractor sales agents and marketers have long been a concern for HHS OIG.  Sorensen and Marchetti provide additional support for defending against allegations that such arrangements are per se violations of the AKS, at least outside the Fourth Circuit.  In evaluating non-safe harbored, commission-based marketing agents (e.g., independent contractors), undue influence is a key determinant of whether an arrangement is violative under OIG advisory opinions and the case law from the Seventh and Fifth Circuits.

To that end, businesses should carefully review their marketing practices, including the nature of their relationships with, and the compensation structures for, physicians and others in a position to influence referrals. Even if the use of commission-based independent contractors may not be a per se violation of the AKS, it nevertheless provides an attractive target for the government, and we are aware of several companies that decided to de-risk their marketing practices by ending such arrangements or that considered the risk associated with these arrangements in their valuation of a merger or acquisition.