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  • 10th Annual Legal, Regulatory & Compliance Forum on Dietary Supplements is Just Days Away

    The American Conference Institute and Council for Responsible Nutrition are hosting the 10th Annual Legal, Regulatory & Compliance Forum on Dietary Supplements live in New York next week, June 29-30. The conference will feature speakers from government and industry who will provide updates on the latest developments in regulation, legislation, and litigation specific to this diverse and expanding product category. Hyman, Phelps & McNamara, P.C.’s Ricardo Carvajal will participate in a panel on strategies companies can pursue while awaiting updated FDA guidance on new dietary ingredients. If you can’t join us in person, livestreaming is an option. Information on registration is available here.

    Corporate Liability from Employee Diversion: Costly on Many Fronts

    On June 8, 2022, the U.S. Attorney’s Office for the Western District of Virginia, announced that   Sovah Health (“Sovah”), a two-campus health system in Danville and Martinsville in southern Virginia, had entered into a non-prosecution agreement (“NPA”) and $4.36 million civil settlement due in large part to the ability of two employees to divert significant controlled substance quantities over extender periods.  Press Release, U.S. Department of Justice (“DOJ”), Sovah Health to Pay United States $4.36 Million to Settle Claims of Controlled Substance Act Violations (June 8, 2022).  This matter is the latest in a recent string of large monetary settlements between the government and health care providers involving employee diversion.  Moreover, the non-prosecution agreement resulting from the criminal investigation illustrates the extent of liability for hospitals and other health care entities and the importance to maintain robust controls and oversight over employee activities related to dispensing and administering controlled substances.  The facts also highlight the health care risks when bad employees change employment only to continue their bad acts.

    Lax Controls Provided Employees with Opportunity to Divert

    While the two employees in this case devised separate and independent schemes to divert controlled substances, the common element was a lack of an effective corporate security program and monitoring of existing policies and procedures to prevent and detect diversion.  In one case, between 2017 and 2019, a Sovah pharmacy technician diverted more than 11,000 schedule II drugs and 1,900 schedule III and IV drugs by indicating in the computer system that they were moved to a location no longer used by the hospital and she destroyed required drug movement forms.  See Sovah Non-Prosecution Agreement, Addendum A, Agreed Facts, ¶2.  In the second case, occurring from January to May 2020, a registered nurse, admitted to daily tampering of fentanyl vials and hydromorphone injectables wherein she removed the drugs from the vials replacing them with saline solution.  It was alleged that other employees administered the medication to patients even after observing signs of tampering, although no patients were reported harmed.  Id. at ¶3.

    The government alleged that Sovah failed to conduct a full physical inventory during this period which would have identified the pharmacy tech’s diversion exploiting that a non-utilized location was still in the computer system.  In addition, Sovah failed to enforce or audit procedures requiring that all transfers of controlled substances be witnessed by two employees, that sequentially numbered forms should be maintained in a designated binder and that key-card controlled security cage be locked. In short, the employees were provided the opportunity to not only commit the crimes but that they went undetected.

    Both the pharmacy tech and the nurse plead guilty and were sentenced to 13 months and 36 months in federal prison, respectively. See Press Release, DOJ, Danville Pharmacy Technician Sentenced for Federal Drug Charge (Aug. 18, 2020); Press Release, DOJ, Former Nurse at Danville Hospital Sentenced for Tampering with Prescription Opioid Drugs, Making False Statements (Feb. 4, 2022).  It is worth noting that the nurse was separately sentenced to 4.5 years for admitting to committing similar crimes from July to November 2020, while subsequently employed by the Novant Health Forsyth Medical Center in Winston-Salem, North Carolina.  Press Release, DOJ, Nurse Sentenced to 54 Months for Drug Tampering (June 1, 2022).  It is unclear from the publicly available documents whether the nurse had changed employment because of suspicions about her illegal conduct at Sovah, but it highlights the public health risks if such activity goes undetected and/or unreported.

    Costly NPA Requirements: More than Just Money

    In addition to the significant civil monetary penalties Sovah has agreed to pay, the company is also required to comply with certain extraordinary compliance terms for four years.  See generally, NPA ¶¶6(a) – (q).  While some of these are standard terms we have seen in such agreements (e.g., compliance with all regulations, giving DEA unannounced inspection authority, conducting background checks, etc.), some of the requirements could find their way into future agreements involving similar cases of employee diversion.  These include:

    1. Sovah is required to install cameras at each automated dispensing machine (“ADM”) that are positioned to capture placing and removing controlled substances. DEA regulations require “adequate security” but do not specially require cameras in health care facilities.  This requirement could be costly at some locations given the increased number of ADM’s in use and the costs of maintaining a record of the camera surveillance.
    2. The NPA requires “management” review of “any discrepancies discovered during an employee’s blind count when accessing controlled substances.” The NPA requires that software should monitor which machines and employees experience discrepancies and Sovah must maintain all blind counts and employees must document actions to resolve/reconcile discrepancies.  Requiring “management” to have an active role is obviously intended to ensure corporate accountability in the future.
    3. Sovah is required to report any potential thefts, losses, or abuse/diversion by employees be reported not only to DEA but to the Virginia State Police. While many registrants routinely contact law enforcement, requiring this as a required procedure also heightens corporate responsibility.  Sovah also must maintain a policy requiring employees to report such arrests or charges to management.
    4. Sovah must also establish a mandatory random drug testing program for employees with access to controlled substances and test employees at least every six months. Positive test results must be reported to the appropriate licensing authorities.  Neither the federal CSA nor DEA regulations require drug testing.  DEA has traditionally been concerned that mandating such requirements for all DEA registrants could run afoul of some state restrictions.
    5. The NPA requires Sovah to create and implement a written policy of progressive discipline for employees with controlled substance access who violate Sovah’s controlled substance policies and procedures. In our experience, companies can be inconsistent in taking disciplinary action for violations involving controlled substances. This requirement provides Sovah with clear direction to enforce disciplinary action against employees for such violations.
    6. Sovah must also “conduct a full physical inventory annually” of schedule II-V controlled substances on-hand consistent with DEA biennial inventory requirements that specifically includes drugs in the ADMs and vault. As stated in the NPA, this is more than just a “count” but also requires a reconciliation of the counts, something DEA regulations do not require as part of a biennial inventory.  The NPA states that Sovah report to DEA the results “24 hours after conducting the inventory.”  We expect that that Sovah could provide an “inventory” within 24 hours, however, we believe it will be difficult for Sovah to reconcile all discrepancies within 24 hours of taking the count.  This may require Sovah to maintain a perpetual inventory, something again not required by DEA regulations.
    7. In addition to the annual inventory requirement, Sovah must conduct an accountability audit of at least two schedule II medication formulations each quarter and provide the results to DEA within two days. The question here is whether Sovah will have the ability to reconcile any discrepancies in the accountability audit or just report the results within two days.  If the latter, this could trigger false positives of potential diversion.
    8. Finally, the NPA requires an annual self-evaluation to review compliance with all CSA regulations and the terms of the NPA. The Pharmacist-in-Charge (“PIC”) or DEA-designate is required to certify they have completed the evaluation and document any corrective action.  The certifications must be maintained for two years and must be available to DEA.  This imposes a heavy burden on the PIC although we are aware of several state boards of pharmacy that require licensees to conduct self-evaluations.

    In summary, we expect that DOJ and DEA will pursue similar compliance requirements in future cases of employee diversion, especially where the lack of corporate policies or compliance fails to provide safeguards against this criminal activity.

    ‘Til I Hear It From Congress: FDASLA to Direct Publication of Final OTC Hearing Aid Rules

    There is a lot to unpack in the 430 pages of FDASLA, which means that some provisions are falling a little under the radar.  One of those provisions is an unusual one in which Congress directs FDA to issue final rules concerning Over-the-Counter hearing aids.  Section 904 of the Senate version of the must-pass user fee legislation states:

    Not later than 30 days after the date of enactment of this Act, the Secretary of Health and Human Services shall issue a final rule to establish a category of over-the-counter hearing aids, as defined in subsection (q) of section 520 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360j), as described in section 709(b) of the FDA Reauthorization Act of 2017 (Public Law 115–52).

    This provision adds nothing substantive to the OTC hearing aid regulatory scheme—it merely tells FDA that it has 30 days from enactment of the user fee legislation to issue its final rules governing OTC hearing aids.  Directing FDA to issue rules isn’t out of the ordinary.  Nor is it unusual for FDA to give FDA a deadline (which is often missed).  What makes this relatively unusual is that FDA, in the last round of user fee legislation, already directed FDA to do the very same thing.

    Back in the 2017 user fee package, the FDA Reauthorization Act (also called “FDARA”), Congress set forth a process for establishing a category of OTC hearing aids—hearing aids that may be sold directly to patients without the intervention of a medical provider.  In that legislation, Congress instructed FDA to publish proposed OTC hearing aid rules by August 2020 and to finalize those rules within 180 days after the closing of the public comment period for those proposed rules.  Though FDA failed to meet that deadline (by over a year), it did eventually issue proposed rules establishing OTC hearing aids in October 2021, after President Biden issued an Executive Order in July 2021 commanding publication.  The Comment Period for those rules closed on January 18, 2022 with over 1100 comments submitted to the docket.  Based on FDARA, FDA should be publishing final rules governing OTC hearing aids on July 15 (technically July 17, but that’s a Sunday).

    The statutorily-mandated final rule publication date has not passed, yet Congress already seems convinced that FDA won’t meet that deadline.  While it’s certainly understandable that Congress would doubt FDA’s punctuality in the context of OTC hearing aid rules, it’s not common practice for Congress to pass additional legislation reminding FDA of its obligation to be timely.  It’s even more unusual for the legislation to impose a deadline (30 days after the effective date of FDASLA) which is later than the existing deadline (July 15) that hasn’t yet been missed.  Likely, the inclusion of this provision in must-pass legislation signals Congress’s frustration with the lack of action here on the part of FDA.  Indeed, it took an actual order from the President for the Agency to issue the proposed rules.  And that frustration is understandable given the political pressure to reduce medical costs and the fact that this push for OTC hearing aids has been in motion for 5 years.

    Yet there are some serious concerns with mandating the timeline for FDA to release a final rule.  It’s one thing to do so when it’s a proposed rule at stake; FDA can tinker and perfect the rule as it finalizes it.  But rushing a final rule in any context comes with serious consequences, as establishment of an inadequate or unclear regulatory scheme raises safety or effectiveness concerns.

    Lack of clarity in the proposed rule is one of the major reasons that FDA needs to carefully evaluate the rule it has proposed.  As many of the 1100+ comments note, the rules provide no clear distinction between the types of OTC hearing aids exempt from or subject to FDA’s 510(k) requirements.  Under the proposed rule, OTC hearing aids are exempt except “self-fitting” hearing aids, which are subject to testing requirements and special controls.  The problem is most of the terms that FDA uses in distinguishing “self-fitting” from “non-self-fitting” hearing aids greatly overlap.  This blurring of the line between an OTC hearing aid and an OTC self-fitting hearing aid would allow hearing aids that do require “self-fitting” to be sold as “non-self-fitting” without clinical testing and conformance to the parameters, software analysis, and usability testing required for self-fitting hearing aids.

    One might dismiss these concerns because enforcement tools will protect patients from unsafe hearing aids, but that raises the important question of who will be responsible for that enforcement.  For those unfamiliar with the hearing aid industry, the industry faces regulations on all fronts: FDA regulates the devices while states regulate their distribution and impose conditions of sale via their licensing authority over “hearing health professionals” including audiologists or hearing aid dispensers.  While some state regulations overlap, each state has its own regulatory scheme, and that regulatory scheme currently imposes some of the most significant consumer protections for patients.  These consumer protections have evolved over time based on consumer experience and now include requirements that hearing aids are distributed with receipts providing detailed information about the device and services provided, mandatory return policies to ensure that the selected device is appropriate for a given patient, and warranties in case the device doesn’t work or otherwise malfunctions.   Absent these state laws, these protections vanish.  And under FDA’s proposed rules, many of them will, in fact, vanish.

    Because of the interplay between the state and federal hearing aid regulatory scheme, Congress added a preemption clause to FDARA. The basic purpose was to make sure that state laws would not stand in the way of the availability of OTC hearing aids.  The preemption clause provides that no state:

    shall establish or continue in effect any law, regulation, order, or other requirement specifically related to hearing products that would restrict or interfere with the servicing, marketing, sale, dispensing, use, customer support, or distribution of over-the-counter hearing aids  . . . through in-person transactions, by mail, or online, that is different from, in addition to, or otherwise not identical to, the regulations promulgated under this subsection, including any State or local requirement for the supervision, prescription, or other order, involvement, or intervention of a licensed person for consumers to access over-the-counter hearing aids.

    But Congress left it to FDA to figure out how to effectuate that preemption.  In so doing, FDA’s proposal has been to broadly preempt any state regulations related to hearing aids, which would include licensing provisions (as states cannot impose licensing requirements on the distribution of OTC hearing aids, and, logically, no state licensing requirements distinguish between OTC and other hearing aids since OTC hearing aids don’t yet exist).  And, given that most consumer protection laws are imposed through the licensee, FDA inadvertently preempted virtually all consumer protection requirements.  This means that states need to rewrite all of their regulations to ensure that the consumer protections for hearing aids remain.  There’s no way that can happen in the 60 days that FDA currently provides between publication of the final rule and implementation.  Additionally, the ambiguity in FDA’s approach to preemption raises some other concerns, some of which are addressed in comments from the National Association of Attorneys General.

    All of this is the long way to say that Congress’s concern about delays in the issuance of a final rule is fully understandable.  We are approaching 5 years since Congress directed FDA to issue the OTC rules.  Yet this is a complex matter that will affect tens of millions of consumers, and there are serious risks in rushing implementation of a final rule.  Because of the complicated issues here, as well as the 1100+ comments, many assumed that FDA would need significantly longer than 180 days to publish final regulations.  And FDA may still take longer than that, as its no stranger to ignoring congressional deadlines, which is probably why Congress might think that it could get away with doing nothing—with apologies to the Gin Blossoms—’til it hears it from Congress.

    Categories: Medical Devices

    In Bid to Curtail 180-day Exclusivity, FDA Alters Longstanding Practice and Newly Declares that Converted OTC Products Are Not “Listed Drugs”

    Readers of this blog surely are familiar with FDA’s repeated efforts to rein in Congress’s 180-day exclusivity reward to the first generic applicant that challenges an NDA holder’s patent monopoly (most recently by lobbying Congress to effectively end 180-day exclusivity together – see our prior post here).  We recently learned of another behind-the-scenes effort to do so—this time in the context of over-the-counter (“OTC”) conversions.

    By way of background, FDA’s longstanding regulations “fulfill[] the statutory requirements for patent listing,” 80 Fed. Reg. 6,802, 6,823, by compelling NDA holders to submit patent information for any supplement that seeks “[t]o change [a] drug product from prescription use to over-the-counter use.”  21 C.F.R. § 314.53(d)(2)(i).  And both the statute and FDA’s implementing regulations in turn make clear that any generic applicant who wishes to reference such a product “must” submit “[a]n appropriate patent certification or statement” to each patent that has submitted by the NDA holder for listing in the Orange Book.  21 U.S.C. § 355(j)(2)(A)(vii); 21 C.F.R. § 314.94(a)(12).

    Given the interplay between these two requirements, one might think that submitting a Paragraph IV certification to a patent the NDA holder submitted for a converted OTC product can ground 180-day exclusivity.  After all, such exclusivity attaches to every first-filed ANDA that “contains and lawfully maintains a certification described in paragraph (2)(A)(vii)(IV) for the [referenced] drug.”  21 U.S.C. § 355(j)(5)(B)(iv)(II)(bb).  And regardless of whether the referenced NDA for which the underlying patent was submitted is available OTC or only with a doctor’s prescription, the submission of any Paragraph IV certification entails the very risk that 180-day exclusivity is designed to compensate—namely, that it constitutes an artificial act of patent infringement which immediately subjects to the ANDA to the risk of costly patent litigation.  35 U.S.C. § 271(a)(2); see also Teva Pharms. USA, Inc. v. Sebelius, 595 F.3d 1303, 1318 (D.C. Cir. 2010) (“[180-day exclusivity] deliberately sacrifices the benefits of full generic competition at the first chance allowed by the brand manufacturer’s patents, in favor of the benefits of earlier generic competition, brought about by the promise of a reward for generics that stick out their necks (at the potential cost of a patent infringement suit) by claiming that patent law does not extend the brand maker’s monopoly as long as the brand maker has asserted.”).

    Not so fast.  In an internal and previously undisclosed memorandum that this blog recently obtained under the Freedom of Information Act, FDA appears to have determined that such a Paragraph IV certification “does not create a new period of 180-day exclusivity” because “a full switch through approval of a supplement to an NDA does not create a new ‘listed drug’”—even though OTC conversion admittedly requires the elimination of a listing from the Orange Book’s Prescription Drug List and the addition of a new listing to the Orange Book’s OTC Drug Product List.

    Though the Agency’s memorandum provides little interpretive justification for this new approach, it appears to be based entirely on a superficial change in administrative practice.  Until this internal memorandum was finalized, FDA’s traditional response to OTC conversion was to “remove[] the prescription listing and product number (e.g., “Product Number: 001”) from the Orange Book and create[] a new entry and new product number (e.g., “Product Number: 002”) in the OTC section, giving the new product number the approval date of the supplement for the switch.”  In order to effectuate its new anti-exclusivity policy, however, the memorandum explains that FDA now intends to “creat[e] a new entry in the OTC section but retain the product number from the prescription section (i.e., “Product Number: 001”). FDA will not describe the new entry as “Product Number: 002,” in the OTC section, which is a change from the administrative practice described above.”

    We will leave it to you to decide whether Congress truly intended the incentive for challenging competition-blocking patents to hinge on whether FDA’s Orange Book staff labels a drug “Product Number: 001” or “Product Number: 002” when it deletes a previously approved drug from the Orange Book’s Prescription Drug Product List and lists a newly approved supplement in the Orange Book’s OTC Drug Product List for the first time.  As a policy matter, however, the consequences of FDA’s previously undisclosed change are clear: It allows NDA holders to effectively gut the 180-day exclusivity incentive by effectuating an OTC switch after receiving a first applicant’s Paragraph IV certification.  For applicants who certify to a listed patent when the product is prescription-only, OTC conversion renders 180-day exclusivity illusory because the product no longer can be marketed lawfully following the OTC switch.  See, e.g., Breckenridge Pharms., Inc. v. FDA, 754 Fed. Appx. 1, 3 (D.C. Cir. 2018) (citing 21 U.S.C. § 353(b)(4)(B) for the proposition that a drug approved for OTC use is “misbranded if it displays an ‘Rx only’ symbol”).  And by refusing to recognize 180-day exclusivity based on a Paragraph IV certification to the newly listed OTC product, FDA’s new position eliminates the statutory incentive to challenge the newly listed OTC product’s patents at the first available opportunity, since it allows FDA to approve subsequent applicants at any time.

    That outcome hardly seems consistent with the oft-repeated principle that NDA holders cannot unilaterally undermine the incentives for challenging their patents.  See, e.g., Teva, 595 F.3d at 1317-18; see also Apotex, Inc. v. Sebelius, 384 Fed. Appx. 4 (D.C. Cir. 2010), aff’g 700 F. Supp. 2d 138 (D.D.C. 2010); Ranbaxy Labs. Ltd. v. Leavitt, 469 F.3d 120, 121-22 (D.C. Cir. 2006).  It is, however, entirely consistent with FDA’s longstanding efforts to do so.

    The FTC Proposes Updates to its Endorsement Guides

    Last month, the FTC announced and posted a prepublication of its proposed changes to its guides concerning the use of endorsements in advertising (Endorsement Guides).

    The Endorsement Guides date back several decades. Since the publication of the original Endorsement Guides in 1975, FTC has made several amendments to address modern developments, such as internet advertising and social media.  The most recent version of Endorsement Guides dates from 2009.

    In 2020, as part of its regulatory review process, the FTC issued a notice for comments  regarding the Endorsement Guides.  It posed 22 specific questions and received more than 100 comments in response.

    The proposed rule, to be published in the Federal Register, is based on these comments.

    Among other things, the proposed revisions include an expanded definition of endorser (to include fabricated endorser), a new definition of “clear and conspicuous disclosure” (tightening the standard), and clarification that endorsers and intermediaries, such as advertising agencies, may be liable for misleading or unsupported representations.

    Disclosures are an important aspect of endorsements.  Disclosures must be clear and conspicuous.  FTC recognizes that in deciding whether the disclosure is clear and conspicuous, it is important to consider the target audience. Notably, FTC discusses various comments regarding disclosures in advertising to children and whether such disclosures would be effective. Before proposing guidance regarding advertising disclosures for this target group, several factors need to be considered, including the relevance of age and the type of advertising media. FTC has planned a public workshop on October 19, 2022 to discuss issues related to disclosures in advertising to children.

    Comments on the proposed revision can be submitted until 60 days after the publication of the proposal in the Federal Register. Anyone involved in advertising using endorsements, testimonials and reviews would be well-advised to review the proposal and consider the potential consequences.

    Supreme Court Finds CMS’ Reduction of Medicare Hospital Outpatient Payment Rates for 340B Hospitals was Not Authorized by Statute

    In 2017, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule to significantly decrease the rate the government will reimburse 340B hospitals in 2018 for outpatient prescription drugs from average sales price (“ASP”) plus 6% to ASP minus 22.5%.  82 Fed. Reg. 52494 (Nov. 13, 2017).  CMS noted that 340B covered entities already enjoy significant discounts purchasing these drugs under the 340B drug pricing program—estimated to be as much as 33.6%  of ASP—and that CMS’ generous reimbursement rates “generate significant profit” for these hospitals.  CMS estimated a savings of $1.6 billion annually, and continued the same reimbursement cuts for 2019.

    Within days after the December 2017 rule was published, several hospital groups sued to enjoin HHS from implementing the rule.  The hospitals argued that the profits helped them offset the considerable costs of providing healthcare to the uninsured and underinsured in low-income and rural communities, something that Congress was well aware of and intended when it passed the Medicare Prescription Drug, Im­provement, and Modernization Act in 2003.  In 2019, we blogged that the District Court found for the plaintiffs, holding that CMS did not have the statutory authority to make such a change without first conducting a hospital acquisition cost survey data. See  42 U.S.C. §1395l.  The District Court opinion was subsequently reversed by the D.C. Circuit, but today, the Supreme Court reversed again and upheld the District Court’s opinion in American Hospital Assn v. Becerra, No. 20-1114, 596 U. S. ____ (2022).

    Writing for a unanimous court, Justice Kavanaugh explained that the Medicare statute provides CMS a choice between two options on how to set reimbursement rates for drugs provided in the hospital outpatient setting.  See 42 U.S.C. § 1395l(t)(14)(A)(iii).  Under option 1, the agency must conduct a survey of the amount that hospitals pay to acquire the prescription drugs, and set a reimbursement rate based on the hospitals’ “average acquisition cost” for each drug.  Op. at 3 (citing §1395l(t)(14)(A)(iii)(I)).  Under this option, HHS may vary the reimbursement rate for different groups of hospitals.  Id. Option 2 applies only if HHS has not conducted such a survey.  In this case, the agency must set reimbursement rates using each drug’s “average price” charged by the manufacturers for the drug, as “calculated and adjusted by the Secretary as necessary for purposes of” this statutory provision.  See id. (citing §1395l(t)(14)(A)(iii)(II)).  The statute sets this  “average price” as ASP plus 6%.  See id. (citing §1395w–3a).  Critically, option 2, unlike option 1, does not authorize HHS to vary reimbursement rates for different groups of hospitals.  Id.  Before 2018, CMS always relied on option 2 to set reimbursement rates at ASP plus 6%, and set this rate uniformly for all hospitals.  See op. at 3-4.

    In reducing the 2018 and 2019 drug reimbursement rates for 340B hospitals, HHS acknowledged that it had not conducted a survey of hospitals’ acquisition costs.  82 Fed. Reg. at 52496.  Nonetheless, HHS pointed to its statutory authority under option 2 to “adjust” the average price “as necessary for purposes of” the statute.  Id. at 52499.  HHS claimed that its authority to “adjust” the average price for each drug also implicitly encompassed the authority to vary the reimbursement rates by hospital group.  Op. at 5-6.

    After finding that the statute was subject to statutory review, the Court turned to the merits of the case.  According to the Court, under the text and structure of the statute, HHS acted unlawfully by reducing the reimbursement rates for 340B hospitals because it did not conduct a survey of hospitals’ acquisition costs.  The Court held that when it is setting or adjusting rates under option 2, HHS may not vary the reimbursement rate by hospital group.  According to the Court, Congress carefully crafted the goals and the means of ensuring proper reimbursement rates. Op. at 9.  The statute expressly authorizes HHS to vary rates by hospital group but only if it has conducted such a survey.  Id. at 10.  The Court characterized the survey requirement as “an important procedural prerequisite” or protection before HHS may target particular groups of hospitals for lower reimbursement rates.  Absent that survey data, as Congress mandated, HHS may not make “’billion-dollar decisions differentiating among particular hospital groups.’”  Id. (citing 967 F. 3d, at 837 (Pillard, J., dissenting).  Responding to HHS’s argument that the 340B hospital rate cut was within its authority to “adjus[t]” the average price as necessary for purposes of” the statute, the Court held that the authority to adjust the average price up or down does not confer authority to vary the reimbursement rates by hospital group unless HHS has conducted the re­quired survey of hospitals’ acquisition costs.  To read option 2 to allow CMS to vary the reimbursement rate by hospital group would render option 1 irrelevant.

    Although this case concerned rate setting for 2018 and 2019, CMS has continued the same drug payment cuts for 340B hospitals in 2020, 2021, and 2022.  After the District Court struck down CMS’s rate cut, but before the DC Circuit’s reversal of the lower court decision, CMS announced that it would initiate a survey of 340B drug acquisition costs for 340B hospitals for certain quarters of 2018 and 2019, which might then provide a basis under option 1 for reducing drug payment for 340B hospitals in those years and subsequent years.  See 85 Fed. Reg. 85866, 86042-86052 (Dec. 29, 2020).  It is uncertain when the survey will be completed, or whether its results will justify the rate reductions that CMS has sought to impose.  Unless and until CMS is able to lawfully reduce drug payment rates to 340B hospitals based on the acquisition cost survey results, compliance with the Supreme Court decision will presumably require CMS to align its drug payment policy for 340B hospitals with the ASP+6% payment rate applicable to other hospitals in all affected years.

    HP&M’s Dara Katcher Levy to Present at DIA 2022 Global Annual Meeting on Healthcare Economic Information

    Hyman, Phelps & McNamara, P.C.’s Dara Katcher Levy will be presenting at the DIA 2022 Global Annual Meeting being held this June 19-23 in Chicago, IL.  Dara will be joining an expert panel as part of the Medical Affairs and Scientific Communications Track to discuss manufacturer communications related to Healthcare Economic Information (HCEI) and engaging with payers and formulary decisionmakers as part of Pre-Approval Information Exchange (PIE).  Come join Session #135, Demystifying the Delivery of Healthcare Economic Information (HCEI) by Medical Affairs and Market Access Personnel on Monday, June 20th at 4-5 pm Central.  Information about the meeting and registration can be found here.

    Not So Retro: FDA Says IRTNMTA Cannot Be Retroactively Applied

    Market exclusivities—patent or otherwise—are a critical part of the Hatch-Waxman compromise, intended to encourage continued innovation in spite of the introduction of generic competition.  Even a month of market exclusivity is financially lucrative enough to fight for, so it is no surprise that a company would go to the mat for an extra 13 months of patent exclusivity.  And that’s exactly what Eisai did back in 2016 when it submitted a supplement to its request for a patent term extension (PTE) asking FDA to revise its “date of approval” calculation for purposes of PTE calculation for its anti-epileptic drug product, Fycompa (perampanel), after Congress passed the “Improving Regulatory Transparency for New Medical Therapies Act” (IRTNMTA).

    IRTNMTA, as we explained back in 2016, amended the FDC Act, the PHS Act, the PTE statute, and the Controlled Substances Act (CSA) to provide, among other things, that the “date of approval” of an NDA, NADA, or Section 351(a) BLA for a controlled substance awaiting a scheduling determination by the DEA (or the “covered date” for PTE submission purposes) is the later of the date of NDA, NADA, or Section 351(a) BLA approval, or “the date of issuance of the interim final rule controlling the drug.”  This provision was necessary because controlled substances approved by FDA could not be marketed until the DEA issued a final determination scheduling the controlled substance, which sometimes takes years.  Such a delay can eat away at exclusivity and patent life periods, undercutting the incentives to innovate.  IRTNMTA served to correct that issue by pushing the date of approval—and the start of exclusivity—to the date of DEA scheduling.

    Nearly 6 years after Eisai asked FDA to recalculate its PTE using its controlled substance scheduling date as date of approval rather than its actual date of approval, FDA flatly denied its request.  Though Eisai’s Fycompa was initially approved in October 2012, it wasn’t scheduled until January 2014, meaning that Eisai lost a little more than a year of patent life awaiting scheduling—in addition to the time spent in regulatory development and review.  Because IRTNMTA pushed the approval date for controlled substances back to the date of DEA scheduling, Eisai argued that the Fycompa date of approval should be pushed back, as its PTE application was pending at the time of the November 25, 2015 IRTNMTA enactment.  After all, Eisai argued, IRTNMTA was a remedial statute, designed to address the inequitable loss of exclusivity—including patent term—while the DEA controlled the product; retroactive application of the statute makes sense to remediate said issue in any outstanding PTE application, regardless of when the relevant product had already been scheduled or approved.

    In what reads like a Motion for Summary Judgment, FDA dismissed every argument that Eisai made with respect to the retrospective application of IRTNMTA.  The crux of FDA’s point was that “Like the PTO, FDA concludes . . . that IRTNMTA does not apply to a patent term extension application for a drug approved by FDA and scheduled by DEA before IRTNMTA was enacted.”  Plain language, FDA explained, “evinces clear intent that it applies only to drugs scheduled after enactment.”  Because the statute “change[d] the process by which DEA makes a scheduling decision that identifies the controls under which a new drug with abuse potential can be marketed and sets a date by which that process must take place,” it logically follows that it applies only to scheduling decisions that have not yet occurred.   Eisai’s proposed reading of the statute would “yield absurd results,” as the Regulatory Review Period, and therefore the appropriate extension, could not be calculated.

    FDA next looked to legislative intent.  Citing the presumption against retroactivity, FDA saw no evidence that Congress intended retroactive application.  In fact, legislative history showed the exact opposite: The Congressional Budget Office had interpreted the provision to affect drugs approved and scheduled after enactment, so Congress “could have amended the text to avoid ambiguity and foreclose this interpretation.”  Looking again to the plain language, FDA stated “Congress was aware that Fycompa and other already-scheduled drugs were impacted by the non-inclusion of post-approval DEA scheduling activities in the regulatory review period as the statutorily defined, and yet Congress did not draft IRTNMTA so as to apply to those drugs.”  On the same basis, FDA also denied Eisai’s argument that IRTNMTA should apply to pending applications.

    Most interestingly, FDA rejected all of Eisai’s policy arguments.  Though Eisai argued that, as an innovator, it was entitled to the benefit of the Hatch-Waxman compromise, and the delay in scheduling wiped out a year of patent protection, FDA could not accept Eisai’s argument that IRTNMTA should be “construed liberally” simply because it was intended as a remedial statute—or at least as liberally as Eisai requested.  This is because, FDA explained, “liberal does not mean unfettered.”  Further, FDA countered with a policy argument of its own: Eisai argued that no generic reasonably could have relied on the patent expiration dates currently listed in the Orange Book—more than nine years away—and thus would not be hurt by a further patent term extension; in response, FDA stated that that position “seems to overlook that enabling and encouraging generic development to begin before expiration of innovator patents was a purpose of the Drug Price Competition and Patent Term Restoration Act of 1984 that created the patent term extension provisions at issue here.”  Two ANDAs referencing Fycompa had been submitted to FDA by October 2016, and the relevant patent listing in the Orange Book was directly relevant to the decision each applicant made to submit an ANDA referencing Fycompa.  Further extension of the patent would upset that reliance.

    Consequently, FDA concluded “that application of IRTNMTA to Fycompa would be retrospective, that IRTNMTA should not be applied retrospectively, and that . . . applying IRTNMTA in these circumstances would have an impermissible retrospective effect.”  Ultimately, FDA denied Eisai’s request to change the date of approval, and the calculation of the extension remains the same, as does the expiration of the relevant patent listed in the Orange Book.  The decision does not have an impact on too many products, but the Agency’s position on retroactive application of statutes—particularly those statutes that would extend a market exclusivity—can probably be extrapolated to many situations.  And from the thoroughness of this decision, it seems like FDA is prepared to defend the presumption against retroactivity in court.  We have to wait to see if that happens, but exclusivity is always fodder for some interesting litigation.

    Fraud-on-the-FDA As A Basis for A False Claims Act Lawsuit: Is It Dead Or Just Resting?

    Legal doctrines can be like parrots.  Sometimes it is hard to know if they are dead or just resting.

    Under the False Claims Act (FCA), if a company’s fraudulent conduct induces a governmental entity to enter into a contract with the company, then any claims for payments under that contract are false.  This fraudulent inducement theory is well‑established by statute and case law.  An offshoot legal doctrine that relators invoke to expand this FCA theory of liability has been termed “fraud-on-the FDA,” and suggests that fraudulent conduct directed at one governmental entity (FDA) renders a claim for payment to a different governmental entity (CMS) to be false.

    Back in 2016, the First Circuit’s decision in United States ex rel. D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016), was seen as a death knell for the fraud‑on-the-FDA theory in FCA cases.  The First Circuit essentially ruled that an allegation of fraud on FDA cannot simply allege that the defendant made material misrepresentations that may have induced FDA’s decision.  Rather, a relator must plead official FDA action demonstrating fraud in the inducement.  That rarely happens.

    In subsequent years, however, it appears that not all courts have adopted the holding of the ev3 decision.  Specifically, last year, the Ninth Circuit allowed a fraud‑on‑the‑FDA claim to proceed, even though the supporting allegation was that material information was withheld that might have led FDA to a different approval decision.  There was no allegation of official FDA action confirming an alleged fraud.

    So is fraud‑on‑the‑FDA dead or is it just resting?

    The latest attempt to say the parrot is alive comes from the Southern District of Florida.  In that case, the DOJ filed a statement of interest, arguing that a violation of the Federal Food, Drug, and Cosmetic Act (FDCA) or implementing regulations may sometimes be “material to the government’s decision whether to pay for the affected product, and thus relevant in an FCA case.”

    In the underlying case, the relator alleged that the defendant Trividia Health, among other things, hid material information that could have led FDA to require a product recall, and thus that payments for affected devices were based upon false representations.  The DOJ’s statement of interest claims that these or similar facts could potentially support a fraud-on-the-FDA theory of FCA liability.  The DOJ contends that a failure to report adverse events as required under FDA’s regulations could mask problems that would have led FDA “to institute or require a product recall.”

    The DOJ notes that “device manufacturers are required to investigate adverse events and report information to the FDA within 30 days of becoming aware of information that the marketed device “[h]as malfunctioned . . . and would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.” If there were a failure to comply, “subsequent claims relating to the affected devices could be rendered ‘false or fraudulent’ because the government would not have paid the claims for those affected devices but for the defendant’s conduct.”

    This position directly contradicts the First Circuit’s ev3 decision.  The DOJ effectively is urging the trial court to accept a complaint based on mere theorizing that FDA would have instigated a recall had proper adverse event reporting taken place.  If the ev3 decision were applied instead, such allegations would be insufficient to establish causation.  It would be necessary for FDA to institute an actual recall or otherwise confirm the alleged fraud.

    Many of the First Circuit’s reasons for rejecting fraud‑on‑the‑FDA also apply to the DOJ’s statement of interest.  As just one example, the First Circuit was concerned that allowing juries to find FDA has been defrauded in the premarket review process could lead to manufacturers to “swamp FDA with more data than it wants.”  Likewise, in the DOJ’s hypothetical, manufacturers would be incentivized to report all malfunctions to avoid the possibility of FCA liability, regardless of whether a malfunction met the regulatory standard for reporting.  The increased number of reports would likely swamp FDA’s data systems, creating even more signal to noise than already exists.

    (Note the vagueness of the regulatory standard in the first place.  One of us has argued that this standard is so vague it potentially violates the constitutional requirements of fair notice and due process.)

    There are other objections to the DOJ’s proposed use of adverse event reporting to support a fraud‑on‑the‑FDA theory.  The DOJ, however, does not attempt to answer any objections.  Rather, the DOJ merely suggests to the court that the fraud-on-the‑FDA theory might still be alive, without trying to argue persuasively for it.  The DOJ seemingly just wants to convince the court to refrain from any decision that would potentially preclude the DOJ from invoking a fraud‑on‑the‑FDA theory in future cases.

    In other words, as far as the DOJ is concerned, the parrot is just resting.

    Categories: Enforcement

    Back to Basics with the Jackson 5 – It’s ABC, as easy as 1, 2, 3: OPDP Issues the Most Unsurprising Untitled Letter of the Year

    While the Jackson 5 hit “ABC” predates even these rapidly aging bloggers (first performed on Dick Clark’s American Bandstand in 1970, and we challenge you to name all five members of the Jackson 5, we tap out after Michael, Tito, and Jermaine), its basic wisdom remains unchallenged when it comes to developing promotional materials.  Althera Pharmaceuticals, LLC would have been wise to follow this advice in formulating its professional piece for healthcare professionals for ROSZET (rosuvastatin and ezetimibe) tablets, for oral use (here and here).  ROSZET is indicated to reduce cholesterol in certain groups.  As discussed further below, Althera chose to mess with both the A, B, C’s and the 1, 2, 3’s and got the untitled letter.

    Let’s take these in reverse order, as FDA did.

    1, 2, 3, Or, Don’t Make Up the Numbers

    FDA’s primary complaint about the piece is that Althera included claims of cholesterol reduction ranging from 64% to 72% depending on the dose.  Pretty impressive dose reductions, no?  There’s only one problem:  These numbers “are not the findings of any study of Roszet.  Rather, the analysis used to generate these percentages combines the results of two separate and unrelated studies” from the package insert.  (Untitled Letter at 2).  The two studies were a monotherapy study that included rosuvastatin and a combination study that added ezetimibe to ongoing statin therapy.  Here’s the kicker:  the latter study didn’t even include rosuvastatin as one of the statins under consideration.  FDA did all but write “we shouldn’t have to say this, but don’t make numbers up.”  FDA had similar complaints about other claims.

    As seemingly obvious as this is, there is some more generalizable advice when creating promotional materials.  Companies can’t just average information from different studies.  If the studies have different time frames, different patient populations, different dosing regimens and the like, you can’t just combine the numbers and average them.  Care must be taken that the combination of studies is scientifically and statistically valid.  When in doubt, leave it out.  (budding lyricists here.)  And of course, don’t make up the numbers.

    A, B, C, Or Size Does Matter

    OPDP’s primary concern with the risk presentation is that the prominence and readability do not reasonably compare with the information on the benefits of ROSZET.  Whereas the claims of benefits are presented in conjunction with colorful graphics (much like the plaid shirts our mothers dressed us in when the Jackson 5 were big – check out the threads in these two originals of your bloggers here and here) and with large bolded headlines and lots of white space, the risk information, including contraindications and warnings and precautions were written in small font and paragraph format and relegated to the bottom of the first page.

    Context matters not only to the substance of claims and safety information, but to the presentation of such information as well.  It need not be a 1:1 relationship, but it does need to reasonably compare.

    Teacher’s Gonna Show You, How to Get an “A,” Or, Let’s Not Forget About 21 C.F.R. §202.1

    Promotional pieces like this have us scratching our head.  On the efficacy side, maybe the focus was on the claims being “consistent” with the labeling, forgetting that the claims still needed to be adequately substantiated.[1]  And, on the safety side, maybe the inclusion of extensive “Important Safety Information” led to forgetting that fair balance is not just about quantity, but about comparable prominence and readability to the efficacy information presented.  It’s times like these when we would highly encourage a re-read of 21 C.F.R. §202.1 to level-set on regulatory requirements.

    We wish there had been a TV or radio ad so we could work in the do, re, mi part of the chorus and really beat this dead horse, but there isn’t, so we’ll close with this.  Don’t get tripped up on the basics.  Make sure the numbers are scientifically valid and make sure the risk information is presented in a roughly equivalent manner to the claims of efficacy.  In other words, all members of marketing departments and promotional review committees would be well served to remember that:

    Reading, writing, arithmetic
    Are the branches of the learning tree
    But without the roots of love everyday
    Your education ain’t complete

    [1]              As a reminder, FDA’s 2018 Guidance, Medical Product Communications That Are Consistent With the FDA-Required Labeling Questions and Answers, provided a mechanism for communicating “consistent” claims that are scientifically appropriate and statistically sound (SASS).  While the Guidance recognizes that the SASS standard may be a lesser standard than “substantial evidence,” claims still require scientifically appropriate substantiation.

    Pre-Submission Program Update from CDRH: A Bit of Welcome News

    CDRH appears to be taking another step towards returning to pre-pandemic life.  On May 31, Drs. Shuren and Maisel announced that OHT7 (formerly OIR) will now be accepting all types of pre-submissions (see announcement here).  As you’ll recall from our earlier post (here), OHT7 had only been accepting a limited number of non-COVID related pre-submissions since late last year and prior to that was only accepting pre‑submissions for COVID-related tests.

    This update will likely come as a relief to many in the in vitro diagnostic space that have been wanting to seek feedback on their non-COVID related tests in anticipation of a premarket submission.  The announcement notes the sizable number of COVID and non-COVID related submissions – over 1,000 COVID EUAs and pre-EUAs for devices alone since the start of the year – that CDRH has been handling during the pandemic.

    An unanswered question from the Center’s update, however, is how quickly these newly accepted pre-submissions will be reviewed.  In the Center’s December update, it noted that pre-submission review times were extended to 120 days, as compared to the usual 70-day time frame, in many of the busiest Offices, including OHT7.  While the announcement touts additions of personnel and funding to support this move, we expect industry may need to be patient while OHT7 adjusts to the inevitable influx of pre‑submissions headed its way.

    Given the pent-up demand for pre-sub reviews and the continuing stream of COVID EUAs, companies should not expect that OHT7 will quickly return to the pre‑sub timeframes that pre-dated COVID.  This is particularly true because the pandemic is not over (despite everyone being over it!).  In fact, it is widely expected that HHS will extend the Public Health Emergency when it comes up for renewal in July.  With this most recent COVID wave, many industries are seeing an uptick in personnel being out sick, and OHT7 is presumably not exempt from this trend.  While it is welcome news that pre-subs will be accepted, companies should not be surprised if it takes weeks – or even months – longer to get OHT7’s feedback.

    Categories: Medical Devices

    FDA Can’t Always Get What It Wants…So It Asks Congress

    As the User Fee Acts move through Congress, it has been clear that FDA is using them as a vehicle to legislatively overturn some big court losses over the last few years.  As faithful readers of our blog know, FDA’s broad interpretations of its governing statute have not always fared that well in the courts.  In each of three cases—Genus v. FDA, Catalyst Pharms., Inc. v. Becerra, and Judge Rotenberg Educ. Ctr., Inc. v. FDA—the D.C. Circuit and the Eleventh Circuit Court of Appeals has limited the Agency’s discretion to interpret the statute as it sees fit.  Unsurprisingly, FDA hasn’t been too happy with these decisions and is now looking to Congress for a legislative fix to each of these losses.

    While industry has been celebrating its judicial success, FDA has been quietly lobbying Congress to revise its governing statutes to reverse the agency’s losses.  This language was added without hearings or any public input.  This is not how the system is supposed to work.  If it were, the public notice provisions embedded into the Administrative Procedure Act would have no value; the agency could circumvent public input by going to Congress.  But that’s exactly what FDA is doing here.

    Underscoring the unfairness of the legislative fix, several of the plaintiffs in cases overturning FDA interpretation were not even aware of the pending legislation until days before it went to committee for a vote.  This end-run obviates the purpose of public input and undermines democracy.  It also leads to bad outcomes, since Congress hears from a single stakeholder: FDA.  Though the American system of government is built to prevent the concentration of power in a single body, FDA’s actions here threaten the administrative process and basic notions of transparency, and, in the case of the JRC decision, federalism, as explained in this article by Rich Samp of the New Civil Liberties Alliance.

    Hyman, Phelps & McNamara, P.C. Directors Jeffrey N. Gibbs and Sara W. Koblitz discuss FDA’s activities with regard to these three cases in an article published by the Washington Legal Foundation last week.  Gibbs and Koblitz raise concerns about the use of the legislative fix to negate the judiciary and eliminate the public’s participation in setting policy.  Unfortunately for industry, it seems that when FDA can’t get what it wants, it will go to Congress and lobby.

    CDRH Returning to Pre-Pandemic Timelines for Premarket Submission Holds

    On June 3, FDA announced, via email to industry, that it plans to withdraw the guidance “Effects of the COVID-19 Public Health Emergency on Formal Meetings and User Fee Applications for Medical Devices–Questions and Answers (Revised).”  This guidance did two things: (1) automatically extended hold times for additional information requests (e.g., PMA major deficiency letters, 510(k) additional information requests) by 180 days; and (2) communicated that all advisory committee meetings would be held virtually.  This notice will be published in the Federal Register (here).  The guidance will formally be withdrawn 30 days after the notice is published in the federal register (the “Withdrawal Date”).

    So, what does this mean for submissions that have already received a hold letter and were counting on the additional 180 days to respond?  Not to worry.  Submissions that received a hold letter on or before the Withdrawal Date will still have the automatic extension.  Submissions that receive a hold letter after the Withdrawal Date will not receive the extended response time – in other words, they will have to respond in the standard time (e.g., 360 days for a PMA major deficiency letter and 180 days for a 510(k) or de novo additional information request).

    FDA’s notice acknowledges that the circumstances leading to this policy have not been completely resolved.  For example, many in industry are experiencing painfully long wait times at labs performing tests like biocompatibility.  Questions regarding biocompatibility and other tests that are typically performed by third-party laboratories or that require production units that may be constrained by on-going supply chain issues, are not uncommon in hold letters.  We are hopeful that FDA will consider extra flexibility even after the policy formally ends given that many sponsors may struggle to meet the standard deadlines in light of on-going industry conditions.

    Finally, the notice states that FDA will “assess the appropriate venue for advisory committee meetings, keeping in mind FDA’s successful implementation of virtual advisory committee meetings.”  FDA will continue to announce the location of advisory committee meetings via the Federal Register.  There is no indication from this notice or other FDA communications as to when in-person advisory committee meetings or other industry meetings will resume.

    Categories: Medical Devices

    HP&M’s James Valentine & Ellis Unger @ DIA 2022: FDA Rare Disease Town Hall with CDER & CBER Center Directors, Optimizing Benefit-Risk Assessments, Reflecting on 10 Years of PFDD

    Hyman, Phelps & McNamara, P.C.’s James Valentine and Ellis Unger will be presenting at the DIA 2022 Global Annual Meeting held this June 19-23 in Chicago, IL.  This meeting brings together industry, regulators, academics, and patients to discuss global and local challenges in the life sciences industry.  James and Ellis will be participating in sessions covering key topic areas that our firm’s drug development client face on a daily basis:

    FDA and EMA Benefit-Risk Assessments: Can We Optimize and Is There an Enhanced Role for Sponsors and Patient Preferences? (June 20, 4-5pm Central)

    Ellis Unger will be joining an expert panel to review the EMA and FDA benefit-risk frameworks and how to optimize these processes.  Topics will include the addition of sponsor input to highlight critical considerations in the submission and suggestions for effective public communications.  As the former Director of the Office of Drug Evaluation-I and the Office of Cardiology, Hematology, Endocrinology, and Nephrology in CDER’s Office of New Drugs, Ellis brings important insights into implementing benefit-risk assessments. More information can be found here.

    Patient-Focused Drug Development: Reflecting on a Decade of Insights (June 21, 11am-12pm Central)

    It’s been 10 years since the FDA’s Patient-Focused Drug Development initiative was launched, and James Valentine joins a panel to share his lessons learned and future opportunities for engaging FDA.  His experience dates back to his involvement in helping develop and launch the program when at the Agency and has continued, having worked with dozens of patient advocacy organizations, including having helped plan and moderate three-fourths of the 55+ externally-led PFDD meetings held to date.  More information can be found here.

    FDA Rare Disease Town Hall with CDER & CBER Center Directors (June 22, 2-3pm Central)

    A recurring annual session not to be missed, James Valentine will be moderating a discussion with FDA officials on trends in the development and review of medical products for rare disease, including new regulatory tools and strategies to support this area of development and review.  This year James will be joined by CDER and CBER’s Center Directors, Drs. Patrizia Cavazzoni and Peter Marks, as well as a rare patient community perspective provided by Annie Kennedy from the EveryLife Foundation for Rare Diseases.  More information can be found here.

    Information about the meeting and registration can be found here.

    Prescription Drug User Fees Ex-PAND-ed to PANDAs (PANDA-monium Part II)

    A little less than a year ago, it was PANDA-monium at FDA when the Agency created a new category of drug applications called the PANDA—or the Pre-Hatch-Waxman Abbreviated New Drug Application—which referred to abbreviated drug applications submitted and approved prior to the enactment of the modern-day abbreviated new drug application (ANDA) as part of the Hatch-Waxman Amendments in 1984.  Since 1984, generic drugs have been approved under ANDAs pursuant to section 505(j) of the Federal Food, Drug, and Cosmetic Act (FDCA); before 1984, no formal mechanism for an ANDA existed so FDA used sections 505(b) and 505(c) to approve follow-on drugs based on the Agency’s previous findings of safety and efficacy.  The Hatch-Waxman Amendments essentially codified FDA’s existing practices but follow-on products approved before 1984 technically are not called ANDAs.

    Until August 2021, the pre- and post-1984 ANDA was a distinction without a difference: FDA treated the pre-1984 follow-on applications as ANDAs and listed them in the Orange Book as ANDAs even though they technically are NDAs.  However, with the 2017 revision to the Orange Book, which added a distinction between Reference Standards (RS) and Reference Listed Drugs (RLD), the pre-1984 ANDAs led to confusion, as they are RSs without RLDs.  In reinventing the pre-1984 ANDA as a PANDA, FDA has now decided to designate the pre-1984 ANDA as RLDs and treat them as 505(b) NDAs.  To implement this change, FDA solicited comments in a Federal Register Notice in August 2021 (which, to be clear, was not a rulemaking).

    Notably, back in 1984, Congress contemplated PANDAs and instructed FDA to treat PANDAs as ANDAs.  Indeed, Congress expressly authorized FDA to continue approving ANDA products under its pre-Hatch-Waxman ANDA regulations even after Hatch-Waxman’s passage—and made clear that such applications should be treated no differently from 505(j) applications even after the Hatch-Waxman Amendments took effect.  See Pub. L. 98-417 § 105(b).  To that end, recognizing that PANDAs and ANDAs are essentially the same, Congress exempted PANDAs from prescription drug user fees in 1997, specifically listing as an exception to prescription drug user fee requirements “the same product as another product that was approved under an abbreviated new drug application pursuant to regulations in effect prior to the implementation of the Drug Price Competition and Patent Term Restoration Act of 1984.”

    In the upcoming reauthorization of the User Fee Acts (here and here), however, the PANDA exception has been quietly removed from the prescription drug user fee provisions.  In so doing, is FDA signaling its intent to change the regulatory treatment of PANDAs from ANDAs to NDAs by essentially erasing PANDAs from the FDCA?  FDA’s quite clear position in the Federal Register Notice was that it will start treating PANDAs as NDAs, despite the Agency’s long history of treating PANDAs “similarly to 505(j) ANDAs . . . over the decades after the enactment of the Hatch-Waxman Amendments.”  But FDA only recently requested comments on the transition of PANDAs from 505(j) treatment to 505(b) treatment and has neither published its findings related to PANDAs.  Nor has FDA initiated a rulemaking to implement its changes to the regulatory scheme governing PANDAs. For that reason, this change seems a bit premature.

    It is important to note that the change from treating PANDAs as ANDAs to NDAs is not insignificant.  It gives FDA authority to impose post-marketing requirements on PANDA holders, and it could expose them to state tort liability by removing them from the Pliva v. Mensing protections from which post-1984 ANDAs benefit.  Both of these consequences may be enough to push PANDA sponsors out of the market given the low volume of sales for many of these products, and that unavailability would preclude follow-on versions of these products.  But if that were not enough, FDA is now imposing hundreds of thousands of dollars annually of user fees on PANDA holders with little fanfare.  Given that some PANDA sponsors may now be paying both PDUFA fees and GDUFA fees depending on their product portfolios, removing the exemption from prescription drug user fees could be the final nail in the coffin for many PANDA sponsors.