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  • Developments in State Prescription Drug Price Transparency Laws

    While federal efforts to address prescription drug prices are debated, states have continued to pursue their own measures that require drug manufacturers and other entities in the drug supply chain to disclose information about pricing. (See our previous coverage of such state laws here, here and here.) In passing HB 1032, North Dakota became the most recent state to enact a prescription drug price transparency law. In addition, Texas recently passed HB 1033 to update its prescription drug price disclosure law that took effect in 2019. A summary of these new state law developments is included below.


    As we initially reported here, Texas enacted a law in June 2019 requiring manufacturers to submit two types of reports beginning in January 2020. First, manufacturers must submit an annual report by January 15 stating the wholesale acquisition cost (WAC) of every approved drug sold in Texas. Second, manufacturers are required to submit a price increase report for a drug within 30 days after a WAC increase of 40% or more over the preceding three calendar years or 15% or more in the preceding calendar year. This report is due only for a drug with a WAC of at least $100 for a 30-day supply before the increase. Under the 2019 law, the price increase report had to contain, among other things, aggregate research and development costs, factors that led to the WAC increase, and the role of each factor’s impact on the cost. The 2019 law did not include any penalties for noncompliance with these reporting requirements.

    Texas has now updated its price disclosure law to require that the manufacturer’s annual WAC report include additional information for any drugs that had a reportable price increase during the year. The additional information includes the aggregate, company-level research and development costs, the name of each of the manufacturer’s drugs approved by the FDA in the previous three calendar years, and the name of each drug that lost patent exclusivity in the previous three calendar years. Manufacturers will also now be required to submit a fee not to exceed $400 with their annual report. Manufacturers must still submit a WAC increase report within 30-days of an increase, and must still describe the factors that led to the price increase, but the disclosure of aggregate research and development costs has been removed from the price increase report and added instead to the annual report.

    Texas has also added new provisions regarding enforcement of the reporting requirements. If a manufacturer fails to submit a report or fee, or fails to timely submit a report or fee, the manufacturer may be subject to administrative penalties of up to $1,000 per day. The state is supposed to provide manufacturers with written notice of noncompliance and administrative penalties may not be assessed if the manufacturer submits the required report or fee within 45 days after receiving the notice of noncompliance.

    These changes take effect on September 1, 2021 and will therefore be applicable to the annual reports due by January 15, 2022.

    North Dakota

    North Dakota’s new law, HB 1032, sets forth reporting requirements applicable to drug manufacturers, pharmacy benefit managers (PBMs), and health insurers. Under the new law, PBMs are required to submit an annual report with information about aggregated rebates, fees, payments and financial incentives received by the PBM, distributed to health insurers, collected from pharmacies and passed to enrollees at the point of sale, retained as revenue by the PBM, and passed on to employers. Health insurers are required to submit annual reports with information related to the 25 most frequently prescribed drugs; the 25 prescription drugs dispensed with the highest dollar spend; annual net spending for prescription drugs; increases in premiums attributable to prescription drugs; and specialty drugs with utilization management requirements.

    The North Dakota law includes three reporting requirements for drug manufacturers. First, manufacturers are required to submit quarterly reports (due no later than the 15th day of January, April, July and October) with the current WAC information for drugs sold in or into the state. Second, manufacturers are required to submit a report no more than 30 days after a WAC increase of 40% or greater over the preceding five calendar years or 10% or greater in the preceding twelve months for a manufacturer-packaged drug. Each WAC increase report must include:

    • The name of the drug;
    • Whether the drug is a brand name or generic;
    • Effective date of the change in WAC;
    • Aggregate, company-level research and development costs for the previous calendar year;
    • Aggregate rebate amounts paid to each PBM for the previous calendar year;
    • Name of each of the manufacturer’s new drugs approved by the FDA in the previous five calendar years;
    • Name of each drug that lost patent exclusivity in the United States in the previous five calendar years; and
    • A concise statement regarding the factor(s) that caused the WAC increase.

    Third, manufacturers are required to provide notice in writing if the manufacturer is introducing a new prescription drug at a WAC that exceeds the threshold set for a specialty drug under the Medicare Part D program (currently $670 for a 30-day supply). The new drug notice must include a concise statement regarding the factor(s) that caused the new drug price to exceed the Medicare Part D program price and must be submitted within three calendar days following the release of the drug in the commercial market.

    Information submitted in response to the new law will be published on a public website that is to be developed by the North Dakota insurance commissioner. The law provides that the quality and type of information submitted by manufacturers must be the same as that included in other public disclosures (for example, filings with the Securities and Exchange Commission).

    North Dakota plans to pay for the administrative work related to these new requirements by increasing the license fees for jobbers, brokers, manufacturers, own label and private label distributors, repackagers, third party logistic providers, and wholesalers or distributors, including virtual wholesalers and distributors. Entities that do not comply with the new reporting requirements may be subject to a civil penalty of up to $10,000 per violation.

    The North Dakota prescription drug price transparency law will become effective on August 1, 2021, so the first quarterly reports should be due by October 15, 2021. However, in our experience, states have historically struggled to set up the websites and infrastructure necessary for this kind of reporting in short timeframes. We will watch to see if North Dakota delays enforcement of this new reporting requirement.

    In Seventeen Years will the Cicadas Around FDA’s White Oak Campus Find Complete Culinary Acceptance? Stay Tuned

    As has been widely covered in local and national press in and around the Washington, DC area, this month marks the once every seventeen year emergence of the Brood X cicadas.  These insects are so plentiful in local areas with trees, including FDA’s aptly named White Oak campus, that they have prompted lots of advice about whether it is safe for human and pets to consume them.  At this point in the cicada cycle, a very unscientific sample of data seems to suggest that most dog owners have concluded that it is both unnecessary and futile to dissuade dogs from consuming them. Intake by humans appears more selective, but those in the know are strong advocates.

    Globally, the United Nations Food and Agriculture Association has been reporting on insects as a human food source for some time, and recently issued a report that again recognizes the benefits of insect agriculture and lays out opportunities and challenges for the sector going forward. Insects have long been consumed in a number of regions, but have been slow to find acceptance in the west. That is slowly changing, partly in response to interest in more sustainable sources of protein. Earlier this year, the European Food Safety Authority found certain food uses of mealworms to be safe.  In the US, insect-based products have started showing up at select grocery stores, and interest is building in the use of insects in food for animals. In a potential sign of things to come,  last year a major pet food manufacturer launched a line of insect based dog and cat food in Switzerland.

    A lot has changed in the FDA regulatory space since the last time cicadas were in the DC area in 2004.  By 2038 will humans and pets be eagerly anticipating a rare vintage of Brood X-based food products?  We wouldn’t bet against it, and we’ll be following and posting on developments in this area in the interim.

    Can’t Wait to See You! Will CDER Soon Resume In-Person Meetings?

    This sentiment is being exchanged by many with family, friends and colleagues looking forward to what we all hope is a near future in which we meet in person for work, play and everything else life has to offer.  We at Hyman, Phelps & McNamara, P.C. include FDA among those we are eager to see in person again soon.  Due to the COVID pandemic, during the past 14+ months our interactions with the Center for Drug Evaluation and Research (CDER) at all levels on behalf of our clients have been limited to telephone conferences which have by necessity taken the place of in-person meetings at FDA’s offices.  As pointed out by Dr. Patrizia Cavazzoni, Director of CDER, in her remarks at FDLI’s recent annual conference, FDA is to be commended not only for rising to the direct challenges posed by the COVID crisis, but also for adroitly pivoting to conducting the agency’s normal business without the opportunity to meet in-person internally or directly with the regulated community and its advisors.   But it’s just not the same. Meetings in person allow for the pre- and post-meeting informal exchanges that help to build collegiality and good working relationships.  The opportunity to observe body language is, as MasterCard would say, priceless.  And, in our experience, meetings in person result in a more robust dialogue between the agency and sponsors.

    That’s why when Dr. Cavazzoni mentioned considering the continuation of virtual meetings with sponsors at CDER even after the pandemic in order to perhaps have more meetings and to avoid “sponsors wasting sometimes a day to travel, waiting at security for another 20 minutes and all that,” we wished we were attending the FDLI conference in person so we could rush to the podium to assure her that no sponsor we know would give up the opportunity to meet with CDER in person to avoid a trek to White Oak.  Offering the option to meet by phone to the sponsor would be appreciated and, in some instances, accepted, but the savings in travel time and costs pales in comparison to the benefits of an in-person meeting.  We hope that our clients will be heading out to White Oak soon.

    Recent Developments in the Medicaid Drug Rebate Program

    The past two weeks have seen two noteworthy developments relating to CMS’s Medicaid Drug Rebate Program (MDRP) regulations.

    1.  PhRMA Sues CMS Challenging MDRP Rule Curbing Patient Assistance

    In December 2020, CMS published  a final rule making several changes to the MDRP regulations.  See our post here and our summary of the final rule here.   One of these amendments was a poorly thought-out rule that, if implemented, will render virtually unusable the current best price exclusion for manufacturer patient savings programs in the form of coupons, patient rebates/refunds, copay assistance, vouchers, and free drug programs.  The effective date of this amendment is January 1, 2023.

    Manufacturers provide patient savings programs at the pharmacy counter to defray the patient’s out-of-pocket costs such as co-pays and deductibles.  Believing that these discount programs incentivize patients and their physicians to favor brand drugs over generics and other less expensive formulary alternatives, pharmacy benefit managers (PBMs) and health plans have implemented “accumulator programs” whereby the PBM or health plan declines to apply manufacturer assistance towards the patient’s deductibles or out-of-pocket maximums. Compl. ¶ 5.  This forces patients ultimately to pay the amounts subsidized by a manufacturer in order to meet their deductibles or maximums. Id.

    CMS views accumulator programs as a way for PBMs and insurers to siphon off the benefit of manufacturer assistance so that it does not reach the patients for whom it is intended.  However, rather than directly restricting accumulator programs, CMS has opted to exclude manufacturer assistance from best price only if the manufacturer “ensures” that full value of the assistance is passed on to the consumer, thus imposing on manufacturers the onus of somehow determining whether a particular patient’s insurance plan has an accumulator program and negating it.

    On May 21, the Pharmaceutical Research and Manufacturers of America (PhRMA) sued CMS on APA grounds, claiming that this change to the best price rule exceeds CMS’s statutory authority and is contrary to the Medicaid Rebate statute.  According to PhRMA, CMS recognizes that patient savings programs help patients afford necessary medications and stay on them, compl. ¶¶ 37, 41, and that accumulator programs dilute the benefit of such assistance and hurt the patient. Id. ¶ 41. But “rather than proposing solutions to limit the negative impact of accumulator adjustment programs,” CMS is penalizing manufacturers offering assistance to patients “unless the manufacturer somehow ‘ensures’ that the patient’s health plan does not use an accumulator adjustment program.” Id.

    The complaint explains that manufacturers will not be able to structure their assistance to patients in a manner that can avoid accumulator programs because they do not know when or which health plan operates an accumulator program and thus “misappropriate[s] the benefit of the assistance from the patient to the plan.” Id. ¶¶ 45, 52.  Accumulator programs are not public knowledge; manufacturers, and even most patients, are unaware of them.  PhRMA argues that manufacturers will either be forced to conduct extensive investigations of health plans or claim adjudications for each patient, somehow gain the cooperation of health plans, or withdraw their assistance programs altogether.  Id. ¶¶ 47, 59.

    The penalty for a manufacturer failing to ensure that a patient’s health plan does not use an accumulator program is to include the assistance in the determination of best price, which would almost always increase manufacturer rebates.  PhRMA argues, among other things, that manufacturer assistance cannot be taken into consideration in best price because it is not part of a drug’s price offered to health plans.  The complaint seeks a ruling that the amendment is invalid and an injunction against its implementation.  ¶¶ 49-63.

    2.  CMS Proposes to Extend Effective Dates of Two MDRP Regulations

    On Friday May 28, CMS proposed to extend the effective date of another best price amendment that appeared in CMS’s December 2020 final rule —  a new provision that permits a manufacturer to report multiple best prices if it offers a value based purchasing (VBP) arrangement to all of the states.  See our summary at 2-4.  That provision was supposed to become effective on January 1, 2022.  CMS now proposes to extend the effective date by six months to July 1, 2022, in order to “provide more time for CMS, states, and manufacturers to implement the new best price and VBP program …,” and also to give CMS more time to complete implementation of its new Medicaid Drug Program system that will replace the current Drug Data Reporting (DDR) system.

    In addition, CMS proposes to extend the effective date of a 2016 regulation that requires AMP and Best Price to include sales to purchasers in the U.S. Territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands).  The original effective date of April 1, 2017 has already been delayed twice and is now proposed to be extended an additional two years until April 1, 2024.

    Comments on these two proposed extensions are due by June 28, 2021.

    When FDA Makes You An Offer You Can’t Refuse

    NDA approval – that pinnacle of drug development – marks a moment of success for both FDA and the drug applicant.  The regulated and the regulator, having worked together for years, place a novel or improved therapy, with adequate directions for its use, in the hands of prescribers and patients.  The adequacy of those directions for use, in the form of the Prescribing Information (PI), is essential to the shared success.  The PI is key to both the safe and effective use of the product and the applicant’s ability to fully inform prescribers of its uses.  It’s for this reason that we are somewhat alarmed by a disturbing trend in the development of the PI for certain drugs.  That trend has seen some CDER review divisions providing dramatic changes to proposed labeling so late in the review process as to thwart thoughtful discussion.

    Let’s take a step back.  As part of a drug’s marketing application, the applicant submits a proposed PI that includes information about the drug’s “indications, effects, dosages, routes, methods, and frequency and duration of administration and any relevant warnings, hazards, contraindications, side effects, and precautions, under which practitioners licensed by law to administer the drug can use the drug safely and for the purposes for which it is intended, including all conditions for which it is advertised or represented.” 21 CFR 201.100(d)(3), 314.50.   The applicant’s proposed PI is heavily annotated to technical reports and information in the NDA that support the inclusion of each statement in the labeling. 21 CFR 314.50.  Needless to say, teams of professionals, including clinicians, statisticians, pharmacists, clinical pharmacologists, and commercialization and reimbursement experts, spend many months refining and annotating the proposal.  During review, CDER professionals, including multiple members of the primary review team, the Office of Prescription Drug Promotion (OPDP), Clinical Outcome Assessment Qualification Program (COA) and the Office of Surveillance and Epidemiology (OSE), carefully evaluate the information and convene internal meetings to discuss any revisions that it believes are necessary.  Subsequent labeling discussions between the applicant and CDER to resolve any differences result in a final approved PI.

    What with so many people evaluating so much information in such an important document, the need for thorough and thoughtful labeling discussions becomes an imperative to those with a sincere desire to see the drug succeed in aiding patients.  To be clear, we have no doubts about CDER staff’s sincere desire to see drugs it approves aid patients.  But that desire just doesn’t square with presenting the applicant with a take-it-or-leave-it approach to initial suggested labeling edits with no opportunity for discussion.  And yet, that’s what we see in far too many cases:  either labeling is not provided at all until very close to the action date or, perhaps more objectionable, CDER’s initial revised labeling is provided consistent with a communicated and reasonable timeline but edits to certain key sections are withheld until very close to the action date.  In these cases, applicants are invariably told that there is no time for discussion; their choices are to accept CDER’s edits and have the drug approved or to engage in discussions which, the applicants are warned, will likely result in a Complete Response action with the discussions occurring in the ominous “next cycle of review.”  While valor suggests that an applicant should stand its ground and fight for its drug, many companies understandably choose to accept FDA’s imperfect edits.  (As an aside, this is when we at HPM usually get a call from a potential client wanting to appeal the approved labeling language.  But, of course, such an appeal is not permitted as FDA argues that the applicant “voluntarily” changed its labeling and agreed to submit the labeling as revised by FDA.  And we have the unenviable task of explaining to a CEO that we cannot appeal her drug’s approval.)

    This isn’t to say that CDER as a whole has adopted this approach.  CDER in fact recognizes that “[s]ince essential labeling discussions by necessity occur toward the end of the review cycle when available time is limited, it is important that communication between the FDA and applicants be clear and efficient.  Adherence to the review timeline, including completion of primary and secondary reviews well in advance of the PDUFA goal date, allows time to resolve labeling content issues and avoids crisis management of these issues near the PDUFA goal date.”  Guidance for Review Staff and Industry:  Good Review Management Principles and Practices for PDUFA Products (GRP Guidance) at 21.  CDER intends that draft labeling comments, along with an explanation for major changes, will be returned to the applicant at Month 8.25 of a 10-month review cycle.  CDER 21st Century Review Process Desk Reference Guide (DRG).

    The DRG cautions that “[l]abeling discussions beginning too close to the end of the review cycle frequently result in inadequate time available to discuss labeling that both the applicant and the Agency can agree upon.”  DRG at 45.  This caution is correctly read as a call to ensure timely review.  But multiple clients allege that some CDER divisions seem to view it as a method of avoiding discussions of proposed language changes that lack scientific justification.  Essentially, the less defensible a proposed edit to the PI, the more likely that it will come as a last-minute change without time for discussion in the current review cycle.

    As acknowledged in the DRG, it is the discussion – “the action or process of talking about something in order to reach a decision or to exchange ideas; a conversation or debate about a certain topic” (Lexico.com) that culminates in a PI that is maximally informative and valuable to prescribers and patients.  The exchange of redlined versions of the PI, often with no explanation for the division’s changes (or, worse, with only conclusory statements about certain language being “misleading” and no time to clarify the point) and/or no attempt to respond to scientific points made by the applicant (i.e., “The Division continues to believe that our recommended language is appropriate”) may serve as the start of that “conversation” by highlighting particular areas of disagreement with or misunderstanding of the sponsor’s proposal.  It should not, however, be the only means of communication about these points or the only step to approved labeling.

    A timely, thoughtful and iterative process between the applicant and FDA is most likely to produce an informative PI that improves the drug’s benefit-risk profile.  Here’s hoping we can all keep our eye on that goal when nearing drug approval.

    I Hear You Knockin’… Preparing for and Managing DEA Inspections (Part 2)

    Although we blogged on Drug Enforcement Administration (“DEA”) cyclic and on-site inspections in June 2014, we thought it helpful to update registrants on what they can expect as diversion investigators resume activities following the Covid-19 shutdown.  We are providing a post in three parts on cyclic and on-site inspections in which we focus on the background of inspections, how investigators conduct them, and how registrants should proactively prepare for and manage them.  Part 2, below, explains how diversion investigators conduct on-site inspections and what registrants must do before, during, and after each inspection to minimize negative findings.  Part 1, posted May 3rd, explains the purpose, background, and scope of DEA cyclic and on-site inspections.  The link to Part 1 is here.

    A.  Investigator Preparation 

    Based upon my experience conducting cyclic and on-site inspections, investigators prepare by reviewing reports of prior inspections and Automation of Reports and Consolidated Orders System (“ARCOS”) transaction reports involving the registrant.  Investigators review records and reports the registrant submitted to DEA including Official Order Forms (“DEA-222s”), Controlled Substance Ordering System (“CSOS”) transactions, and Theft/Loss Reports (written notifications and “DEA-106s”).  They also review any suspicious order reports filed by or about the registrant.  Investigators are known to focus on areas of prior non-compliance for close scrutiny during the current inspection to ensure the registrant has remedied past deficiencies.  Investigators likely consult with DEA headquarters about the registrant’s compliance with required reporting and review its registration category, status, and authorized controlled substances to assess whether it may be conducting unauthorized activities.  Investigators typically confirm with state authorities that the registrant has maintained required state professional and controlled substance licenses, and whether it has been the target of a state investigation.  They ask for the results of any state inspections.  Investigators may inquire with local police whether the registrant has reported controlled substance thefts or other criminal activity.

    B.  Investigator Arrival

    Historically, diversion investigators arrived unannounced at a registrant’s facility but, during the Covid-19 shutdown, some DEA offices have reached out beforehand to schedule inspections when the registrant is open and operating.  At least two investigators must be present during the on-site inspection, but teams can include DEA special agents or task officers from state and local law enforcement and regulatory agencies.  They are required to present their credentials, explain the purpose of their visit, and provide a written notice of their inspection authority.  21 C.F.R. § 1316.05.

    The investigators ask the registrant’s designated responsible employee, such as the Operations or Compliance Manager, for informed consent by signing a Notice of Inspection (“DEA Form-82”).  Notices of Inspection contain the name and title of the owner, operator, or agent in charge of the premises; controlled premises name; address; date and time of inspection; inspection authority; and investigator’s signature.  Id. § 1316.06.  Notices of Inspection inform the responsible employee that the registrant has the right not to be subject to an administrative inspection without an administrative inspection warrant.  Registrants may withhold consent or, if given, can withdraw consent at any time.  Withholding or withdrawing consent will require the investigators to obtain an administrative inspection warrant from a federal magistrate.  Administrative inspection warrant applications need only identify the name and address of the controlled premises, contain a statement of statutory authority, set forth the nature and extent of the inspection, and provide a statement that the establishment has not been previously inspected or date when it was last inspected.  Id. § 1316.09(a).

    Investigators may also conduct targeted inspections rather than routine cyclic inspections as part of the local DEA office’s annual workplan if the registrant reported controlled substance thefts/losses or were the subject of suspicious order reports.

    In our experience, investigators review copies of the registrant’s federal and state licenses.  They will ask for updated information about the registrant’s operations, responsible employees, corporate structure, controlled substances handled, and hours of operation.  Although not required by the Controlled Substances Act (“CSA”) or regulations, investigators will ask for personal information of management and employees with access to controlled substances that includes home addresses, dates of birth, and social security numbers.  Registrants should consult with counsel and their Human Resources departments in deciding whether to provide this information.  Investigators ask about controlled substance security including who has access to the vault, cage, and safe, system components and specifications, internal inspection results, alarm test results, and central station monitoring contracts.  They may request a list of the registrant’s suppliers and customers.  Upon arrival, investigators might conduct a preliminary walk-through of the facility for obvious security violations such as propped-open or broken vault or cage locks or doors and unsecured controlled substances.

    Some registrants compile and maintain a binder containing the information and documentation that investigators typically request during on-site inspections.  Having this updated information and documentation together eliminates time and stress required to search and compile it during the inspection.

    C.  Policies and Procedures

    It is crucial that registrants understand what the investigators request and require to successfully conduct their inspection.  To prevent misunderstanding, registrants must also ensure that the investigators fully understand their controlled substance recordkeeping, reporting, and security systems.  Investigators will likely ask for a copy of the registrant’s policies and procedures, and although not required by the CSA or DEA regulations, registrants should consider whether to provide copies to assist them with their understanding of controlled substance operations.  Registrants should ensure when developing their policies and procedures that they comply with federal and state controlled substance requirements and are updated frequently.  Registrants must comply with their own policies and procedures in practice.  The policies and procedures should include a section on how the registrant handles DEA inspections.

    D.  Accountability Audit

    Registrants must account for all of the controlled substances they receive, manufacture, or otherwise handle, so it is important that registrants document all controlled substance movement from receipt to transfer from the facility or disposal.  Because registrants must account for all the controlled substances they handle, investigators will conduct an accountability audit of a random number of controlled substances, usually at least two drugs in each schedule, for a minimum one year period.  The accountability audit allows investigators to ascertain whether the registrant can account for all controlled substances handled during the period, that it has maintained complete and accurate records, and that it provides effective controls against diversion.

    The investigators select the drugs they will audit.  They may choose drugs audited during the last DEA inspection for continuity or those that are highly abused in the geographic area.  As the starting point for the audit, the investigators use a physical count conducted by the registrant, usually a biennial inventory taken at least a year prior.  The registrant’s employees together with the investigators conduct a closing physical count of the drugs to be audited.

    Registrants with automated records systems may offer to assist investigators by generating a report of receipt and disposition transactions for the audit period.  However, generating and providing such a report may negatively impact the registrant if investigators find it to be inaccurate.  Registrants should check with counsel before creating this secondary transaction record.  If the registrant generates an electronic report, each transaction should correspond to a specific primary record including DEA-222, CSOS record, invoice, packing slip prescription, or administration record.  Investigators typically compare and verify a number of transactions on the automated report with the primary records.  Investigators may review all primary records if there are discrepancies with the automated report.

    The accountability audit calculates controlled substance quantities that the registrant can account for versus what it is responsible to account for during the period.  The investigators compare the controlled substances on-hand at the beginning of the audit period plus receipts against dispositions plus quantities on-hand at the end of the period.  Ideally, the audit balances.  A negative variance can identify a shortage.  It may also indicate incomplete or inaccurate records.  A positive variance can also indicate recordkeeping deficiencies.  While it is more favorable for registrants to have smaller audit variances, there is no “acceptable” discrepancy range for DEA purposes.

    E.  Records and Reports

    Diversion investigators also review required controlled substance records and reports to ensure that they are complete, accurate, and maintained for at least two years.  Investigators review initial or biennial inventories and, when required, year-end inventories, ensuring that registrants have taken a complete physical count of all controlled substances on-hand, that inventories document date and whether taken at the beginning or close of business, and that schedule I and II substances are separate from schedule III-V substances.

    Investigators review DEA-222 purchaser and supplier copies to ensure that the registrant has maintained them, they are properly executed, complete and accurate, and orders were filled within sixty days of the date customers completed them.  They also review CSOS transactions for completeness and accuracy.  Investigators review the registrant’s Powers of Attorney to ensure that individuals ordering schedule I and II substances are properly authorized to do so.  They may check the timeliness and accuracy of ARCOS reporting.  Investigators review invoices and packing slips to ensure that the registrant has maintained them and that they also are complete and accurate.  Investigators review prescriptions at pharmacies and administration/dispensing records at Narcotic Treatment Programs.  They review destruction and disposal records including DEA Form-41s.  Off-site investigators typically verify random transactions with the registrant’s suppliers and customers to ensure the transactions occurred as documented and the registrant’s records are accurate.

    If the registrant has a manufacturing or import quota, the investigators may ensure the registrant has not exceeded their established quota.

    F.  Security

    Registrants must provide effective controls to guard against controlled substance theft and diversion, and employ specified security (set forth in applicable DEA regulations) depending upon their business activity and the type and quantities of controlled substances they handle.  The investigators inspect the overall security system and individual components to ensure that they meet specifications, are fully operational, and have not changed since the last inspection.  Investigators work with the central monitoring station to test the alarm system by activating a number of sensors.

    DEA regulations have required the identification and reporting of suspicious orders since 1971 but investigators may not have focused on them during past inspections.  Going forward, investigators will assuredly assess registrants’ suspicious order monitoring and reporting policies and procedures.  Investigators will likely inquire about the registrant’s customer due diligence as well as how the registrant monitors, identifies, handles, and reports suspicious orders.  The investigators may review suspicious order records and reports.

    G.  Investigator’s Departure

    Diversion investigators may, but are not required to, have a final discussion with the registrant’s management at the end of an on-site inspection.  They may recommend corrective action for the registrant to comply with the CSA and its regulations, and may work with the registrant to remedy deficiencies while on-site.  Investigators will likely not provide final conclusions and definitive enforcement action that DEA may take without consulting with their supervisors.  After conclusion of the inspection, registrants may not receive a formal notice of the inspection and audit results, and DEA’s intended enforcement action, such as a Letter of Admonition, informal or formal hearing, civil penalty, or administrative action, for a number of months or longer.

    H.  Mirror DEA Inspection and Audit

    Registrants should photocopy or set aside in a separate file every record and report that the investigators use in their accountability audit and inspection.  Concurrent with the DEA inspection, or very shortly afterwards, the registrant should conduct a mirror inspection and accountability audit of DEA’s inspection and audit.  The mirror inspection and audit will identify DEA’s potential findings for the registrant before the investigators may be prepared to share them.  Conducting a concurrent mirror inspection and audit will also enable the registrant to respond to DEA’s findings without having to reconstruct the inspection and audit when investigators share their results in the future.


    The third part of our series, also scheduled for publication in about two weeks, will identify the DEA inspection do’s and don’ts for registrants.

    Laboratory Developed Tests: Members of Congress Ask FDA to Do Their Job for Them

    You may recall that last summer (on August 19), the Department of Health and Human Services (HHS) ordered the Food and Drug Administration (FDA) to cease premarket review of laboratory developed tests (LDTs), including COVID‑19 LDTs.  At the time, we wrote favorably about this move.  Put bluntly, the review of COVID‑19 LDTs was a waste of FDA’s scarce time and resources during the pandemic.

    A few members of Congress have now waddled in 10 months letter with a letter to HHS urging that FDA immediately begin reviewing COVID‑19 LDTs again.  By now the point is moot, since FDA not only stopped reviewing COVID‑19 LDTs 10 months ago, but it has deprioritized EUAs for virtually all PCR tests that must be sent to laboratories (even those that are not LDTs).  The hot ticket these days is rapid antigen testing to satisfy other testing priorities that PCR testing is less well‑suited for, like back to work screening.

    However, we cannot help but comment on some of the more dismaying aspects of this letter.  In particular, these members of Congress seem to be requesting that HHS revive a dysfunctional (and probably unconstitutional) approach to regulation of LDTs.  The letter states:  “Only FDA has the legal responsibility, as well as the experience and expertise, to evaluate the accuracy and reliability of diagnostic tests.”  And:  “While FDA has typically exercised enforcement discretion for LDTs, allowing them to come to market without prior review, the agency has maintained that “clinical laboratories that develop [in-house] tests are acting as manufacturers subject to FDA jurisdiction under the [Federal Food Drug and Cosmetic Act].”

    One would think that, as members of a great legislative body, these particular members might be at least a little concerned that FDA has been not fulfilling its “legal responsibility” under the Federal Food, Drug, and Cosmetic Act (FDCA).  Yet, they blandly acknowledge that FDA typically did not conduct premarket review of LDTs and had singled out COVID‑19 LDTs as one of the few that the agency would review.  If they sincerely believe FDA has statutory authority to conduct premarket review of LDTs, why is it acceptable to them for FDA to pick and choose which ones to review?  Since when has FDA been authorized to to abjure premarket review of a medical device whenever it chooses to do so, other than pursuant to express regulations placing a device in Class I or II and designating it as 510(k) exempt?  FDA has not followed that procedure for LDTs.

    One of the most fervent aspects of the letter is an alleged concern that the absence of FDA review of COVID‑19 LDTs has led to inaccurate tests and/or tests that are not adequately validated.  Given this stated concern about test accuracy and validation, why are they only urging FDA to regulate COVID‑19 LDTs?  Logically, the stated concern would apply to all other LDTs, and not just COVID‑19 LDTs, would it not?

    Summing up, the letter writers seem to think that FDA can have it both ways.  On the one hand, FDA may ignore premarket review requirements for most LDTs on whatever grounds it chooses to do so.  On the other hand, FDA may impose such requirements on COVID‑19 LDTs and perhaps a few other tests on whatever grounds it chooses to do so.  This position defers all the important jurisdictional decisions to FDA.  Apparently, the letter writers think FDA rules and their job is to hector from the sidelines when they do not like a decision.  In truth, it is the other way around.  In living memory, we had a system in which Congress enacted laws and the Executive Branch executed them.  Congress should take charge of determining the boundaries around the regulation of LDTs.  It is long past time for Congress to assert its powers and legislate on this issue.  FDA should do no more than color within the lines Congress chooses to draw.

    FDA Announces it is Ready to Act on Menthol Cigarettes, but its Success is Uncertain

    The Food & Drug Administration (FDA) announced on April 29, 2021 that it is working towards banning menthol flavored cigarettes, committing itself to issuing a proposed product standard to prohibit menthol as a characterizing flavor in cigarettes “within the next year.” In the same announcement, FDA also shared its intent to propose a product standard that would ban flavored cigars. FDA’s announcement was supported with a matching statement by U.S. Department of Health & Human Services Secretary, Xavier Becerra.

    The announcement followed a Center of Tobacco Products (CTP) response to a citizen petition originally submitted in 2013 by anti-tobacco and public health groups (including prominent African American groups like the African American Tobacco Control Leadership Council) on prohibiting menthol cigarettes. In January of this year, the petitioners submitted a supplement to the original petition with additional research on the public health impact of menthol in cigarettes. The petitioners also filed suit to compel the Agency to respond to the petition in the federal district court for the Northern District of California last year. On January 28, 2021, the judge in that case ordered the agency to respond to the petitioners by April 29, 2021.

    Federal actions on menthol cigarettes

    In 2009, Congress specifically exempted “tobacco or menthol” when it prohibited all other flavored cigarettes under the Family Smoking Prevention and Tobacco Control Act (TCA)’s “Special Rule for Cigarettes.” According to the legislative history of the bill, Congress recognized that “unique issues” surrounded menthol and mentholated cigarettes, including “the large number of Americans who smoke menthol, the disproportionate prevalence of menthol cigarettes among African Americans, the racial and ethnic differences in lung cancer incidence, and the uncertainty about the potentially negative consequences of an immediate menthol ban. . . .” H.R. Rep. No. 111-58, at 38-39 (2009). “Given the number of open questions related to menthol cigarettes, the legislation authorize[d] the Secretary to ban or modify the use of menthol in cigarettes based on scientific evidence.” Id. This would ensure that FDA has the scientific evidence necessary to make the best decisions to protect the public health. Id.

    As enacted, the TCA had the purpose “to continue to permit the sale of tobacco products to adults in conjunction with measures to ensure that they are not sold or accessible to underage purchasers.” 21 U.S.C. § 387 (notes to statute, § 3, ¶ 7). Congress would let FDA come to its own decision based on whether menthol cigarettes posed a danger to public health. Id. § 387g(a)(1)(A). Congress would also mandate FDA to have the newly created Tobacco Product Scientific Advisory Committee (TPSAC) study and report on “the impact of the use of menthol in cigarettes on the public health, including such use among children, African-Americans, Hispanics, and other racial and ethnic minorities.” Id. § 387g(e).

    TPSAC released a report of its findings in 2011. According to TPSAC, there was little scientific evidence to suggest that menthol cigarettes were more (or less) toxic, or contribute to more disease, compared to nonmentholated cigarettes. TPSAC also found “adequate data” to suggest that menthol use is likely associated with increased smoking initiation by youth and young people, and is likely associated with greater addiction. In sum, TPSAC concluded that “[m]enthol cigarettes have an adverse impact on public health in the United States.” Shortly thereafter, CTP published a preliminary scientific evaluation stating that “menthol cigarettes pose a public health risk above that seen with nonmenthol cigarettes.”

    Yet, TPSAC did not recommend, and FDA did not take, any regulatory action based on the report, which would require rulemaking procedures that include public notice and an opportunity for public comment. But TPSAC also stated that there were “gaps in understanding of menthol cigarettes and public health that should be addressed with further research.” For example, TPSAC noted that FDA would need to assess the potential for contraband menthol cigarettes, which was required by the Act.

    Thereafter, in 2013, FDA issued an advance notice of proposed rulemaking (ANPRM) to obtain more data and information regarding a number of complex questions regarding the potential regulation of menthol in cigarettes. 78 Fed. Reg. 44,484 (July 24, 2013) (Menthol ANPRM). In a meeting with the media, Mitch Zeller, Director of the CTP said that FDA could only go as far as the regulatory science will take us: “The bottom line is, we need more information. . . . We also need input from the public.”

    In November 2018, amidst an aggressive campaign against flavored e-cigarettes, the Trump administration announced plans to ban menthol cigarettes. According to interviews with then Commissioner Scott Gottlieb, the proposed ban faced opposition at the Health and Human Services, the White House and by members of Congress. By the time the flavor ban was formally announced, it had been pared down to exclude both mentholated cigarettes and e-cigarettes. When asked about menthols, Gottlieb explained that excluding menthol from the bans “reflected a ‘careful balancing’ of concerns about youth and the need of adult smokers using e-cigarettes to quite [sic.] smoking.”

    FDA’s citizen petition response and proposed action on menthol

    FDA now believes there is “sufficient evidence in the record to support a decision to begin the rulemaking process to prohibit menthol as a characterizing flavor in cigarettes.” FDA said that it considered the evidence from the citizen petition and its supplement in its response, as well as the comments to the petition and the agency’s own independent study of the evidence related to menthol cigarettes. According to the agency’s response, “the science has evolved” since the release of the TPSAC report. In the intervening eight years, “there has been an accumulating evidence base regarding the role menthol in cigarettes plays in regard to facilitating experimentation and progression to regular use.” Also in the intervening years, both Canada and the European Union have imposed bans on menthol cigarettes, in 2017 and 2020 respectively. The FDA appears ready to use this evidence to issue a proposed rule to prohibit menthol as a characterizing flavor in cigarettes within the next year as “one of the Agency’s highest priorities.”

    Not everyone is likely to agree with the FDA’s assessment regarding the sufficiency of the evidence or the public health benefit of such a ban, especially when it comes to the countervailing effects brought about by the ban such as illicit trade or enforcement. As recently as 2020, the U.S. Surgeon General concluded that evidence is “suggestive but not sufficient” that restricting the sale of certain types of tobacco products, such as menthol, will increase smoking cessation. In addition, any menthol rule would require significant public comment and could likely face litigation in federal court. It is also likely that the measures attract Congressional attention, but lawmakers are divided have been divided on the issue in the past. Others, such as Senators Richard Burr of North Carolina have vehemently opposed the ban when illegal drugs such as marijuana are being legalized.

    Even the African American community is split on the issue of a menthol ban. Organizations like NAACP have long supported a menthol cigarettes ban, pointing to research that shows that the tobacco industry has specifically targeted its marketing to African Americans. Others, including prominent Black leaders like Al Sharpton and civil rights organizations like the ACLU have strongly opposed such a ban for its prospect of criminalization a product popular in the African American community. In response to this, the FDA announcement pointed out that any ban on menthol cigarettes will only address manufacturers, distributors, wholesalers, importers and retailers: “the FDA cannot and will not enforce against individual consumer possession or use of menthol cigarettes or any tobacco product.”

    At least one of the authors of the citizen petition has already claimed victory, announcing on its website homepage that “FDA Bans Menthol in Cigarettes.” (Accessed May 2021). But an actual ban could still be years away, if it comes at all. For one, a product standard must be issued under formal rulemaking procedures that include public notice and an opportunity for public comment, § 387g(c), and  the FDA is only just starting the drafting of the proposed rule. In addition, FDA must consider “[i]nformation . . . regarding the technical achievability of compliance with such standard” as well as “the countervailing effects of the tobacco product standard on the health of adolescent tobacco users, adult tobacco users, or nontobacco users, such as the creation of a significant demand for contraband or other tobacco products that do not meet the requirements of [the TCA] and the significance of such demand.” § 387g(b).  Finally, any final rule must have an effective date of at least one year unless FDA can show that an earlier date “is necessary for the protection of the public health.” Id. at § 387g(d)(2).

    How will the flavored cigar ban affect premium cigars?

    According to 2017 research partly funded by FDA, the use of flavored cigars increased by over 50% after the TCA’s Special Rule for Cigarettes went into effect in 2009, with fruit, sweet/candy, and wine as the most popular flavors in the market (mint/menthol made up less than 3% of the market before and since TCA). Both the FDA’s announcement and the research on cigar uptake amongst youth focus on flavored, machine-manufactured, mass-produced cigars and cigarillos that can closely resemble cigarettes.It is unclear how FDA will address premium, often hand-rolled, cigars in the proposed standard that would ban “flavored” cigars, especially after the district court for D.C. ordered the FDA to develop a distinct, streamlined marketing process for premium cigars.

    Premium cigar manufacturers previously articulated several reasons why regulating cigar “flavors” is fraught with uncertainty, and advocated for more specific guidance.  For example, like wine, differences in cultivation, aging, and blending techniques result in cigars with distinctive flavor profiles that cigar marketers and smokers may describe as including “notes” of certain flavors (e.g., coffee, citrus, minerals, bittersweet chocolate).  However, these products contain no additives to deliver these flavor experiences.  In addition, cigar products may also contain various non-tobacco ingredients that the manufacturer uses primarily or exclusively for non-flavoring purposes (e.g., humectants, preservatives, adhesives), but could nonetheless affect the “flavor” of the final product.  Finally, FDA must respect that the TCA “special rule” applies to “characterizing flavors” in cigarettes and their components, not necessarily every flavor.  § 387g(a)(1)(A).

    FDA may be forced to examine different approaches in regulating flavored cigarettes and cigars.  In any case, we will be closely following the regulatory and policy challenges that will result from FDA’s announcement.

    Categories: Tobacco

    HP&M’s Frank Sasinowski Receives “2021 Pontifical Hero Award for Inspiration” from Pope Francis & Vatican for his Many Decades of Rare Disease Advocacy

    Hyman, Phelps & McNamara, P.C., is proud to announce that Frank J. Sasinowski, a Director at the firm, this past Saturday was awarded by Pope Francis the “2021 Pontifical Hero Award for Inspiration” for his “unwavering advocacy for those who live with rare diseases.” The award (see below) was announced during last week’s 3-day virtual conference that featured more than 100 speakers, ranging from Dr. Tony Fauci & Dr. Francis Collins to an audience with Pope Francis. The conference also included a session on “Developing Drugs for Rare Diseases” that featured a colloquy between CBER Director Peter Marks and Frank. The 2021 Pontifical Hero Awards are conferred by the Vatican’s Pontifical Council for Culture and the Cura Foundation to individuals who have inspired hope through their generosity, compassion, wisdom, and leadership.

    In the video accompanying this presentation, the Vatican stated: “Frank Sasinowski has assisted in the approval of hundreds of new drugs, including those that address rare and serious conditions that don’t often garner worldwide attention. He distinguishes himself by recognizing that a disease need not be common to be debilitating and that the value of even just one life saved is incomparable. As Frank says: ‘My spiritual work and my work in medicine are all one, it is seamless and it is my ministry.“

    Congratulations, Frank, on this incredibly well-deserved recognition!

    FDA Cracks Down on ClinicalTrials.gov Reporting Failures

    On April 28, FDA issued its first Notice of Noncompliance for failure to submit required clinical trial results information to ClinicalTrials.gov.  The notice was given to Acceleron Pharma, Inc., for failure to submit the required information following completion of a clinical trial evaluating the safety and effectiveness of the drug dalantercept in combination with axitinib in patients with advanced renal cell carcinoma (see FDA press release announcing the Notice of Noncompliance here).

    The ClinicalTrials.gov database is a public database of clinical studies administered by the U.S. National Library of Medicine.  Section 402(j) of the Public Health Service Act (PHS Act) (42 U.S.C. § 282(j)), enacted via section 801 of the FDA Amendments Act of 2007 (FDAAA), requires that the “responsible party” of an “applicable clinical trial” submit for posting on ClinicalTrials.gov certain required information, including the study title, study design, start date and estimated completion date, outcome measures, recruitment information, study site locations, and results.

    The “responsible party” is the sponsor or principal investigator of the trial.  An “applicable clinical trial” is generally defined to mean any clinical trial (other than a device feasibility trial or a phase I drug trial) to collect data to support an FDA premarket submission, such as a New Drug Application or 510(k) premarket notification.

    The results from a completed clinical trial must be submitted for posting in the database no later than one year after the “completion date” of the trial, which is defined to mean “the date that the final subject was examined or received an intervention for the purposes of final collection of data for the primary outcome.”  42 C.F.R. §§ 11.10, 11.44(a).  The implementing regulations provide an alternative option for delayed submission of results information if the responsible party submits a certification that a premarket submission “has been filed or will be filed within 1 year” of the reporting deadline.  Id. § 11.44(b)(1).  If eligible, the responsible party can delay submission of results information until up to 30 calendar days of (i) the FDA approval or clearance date, (ii) the date that FDA ends the review cycle without approving or clearing the product, or (iii) the date that the submission is withdrawn.  However, submission of results information cannot exceed 2 years from the date the certification is submitted, even if FDA has not yet reached a decision on the application.  Id. § 11.44(b)(2).

    The PHS Act grants the Secretary of Health and Human Services (HHS) the authority to issue a notice of noncompliance to a responsible party for failure to submit clinical trial information as required, but states that the responsible party should be allowed 30 days to correct the noncompliance and submit the required information.  42 U.S.C. § 282(j)(5)(A)(iii).  The failure to submit clinical trial information to ClinicalTrials.gov as required is also a prohibited act under section 301(jj)(2) of the Federal Food, Drug, and Cosmetic Act (FDC Act).  This violation is subject to potential civil monetary penalties of up to $10,000 for each day the violation continues.

    The ClinicalTrials.gov database was launched more than 10 years ago in 2008.  However, FDA historically had not enforced the ClinicalTrials.gov reporting requirements, due in part to HHS’ long delay in issuing implementing regulations.  HHS issued implementing regulations in 2016, almost 10 years after enactment of FDAAA and nearly 6 years after the deadline imposed on HHS (see our blog post here).

    In March 2020, an investigative journalist and Peter Lurie, former FDA associate commissioner and president of the Center for Science in the Public Interest, challenged FDA’s failure to engage in enforcement action (see our blog post here).  The District Court for the Southern District of New York found that FDA’s obligation to issue a notice of noncompliance only arises after FDA determines that clinical trial information has not been submitted, but that determination is within FDA’s discretion and FDA had never made such a determination.  Nevertheless, in August 2020, FDA issued a guidance document titled Civil Money Penalties Relating to the ClinicalTrials.gov Data Bank putting study sponsors and principal investigators on notice that the Agency intended to begin enforcement of ClinicalTrials.gov reporting requirements.

    The April 28th Notice of Noncompliance to Acceleron is noteworthy because it is the first ever issued by the Agency.  The notice alerts Acceleron of “potential noncompliance with the requirement to submit clinical trial results.”  The notice references an earlier July 2020 letter, a “Pre-Notice of Noncompliance,” in which FDA requested that Acceleron review its records and submit all required results information promptly.  As described by FDA, the July 2020 Pre-Notice stated that FDA would conduct further review after 30 calendar days and might take regulatory action.

    The April 28th Notice gives Acceleron 30 days to submit the required results information.  The Notice threatens the possibility of civil monetary penalties if Acceleron fails to submit the required information.  As stated in the Notice, in addition to civil monetary penalties, violations may also result in other regulatory action, such as injunction and/or criminal prosecution.

    Companies are now on notice that FDA is starting to enforce ClinicalTrials.gov reporting requirements.  Now that FDA has finally developed its process for assessing noncompliance and issuing notices to responsible parties, we can expect to see additional notices posted in the near future.

    I Hear You Knockin’… Preparing for and Managing DEA Inspections (Part 1)

    Observers can be forgiven for thinking that the Drug Enforcement Administration’s (“DEA’s) primary focus is suspicious controlled substance orders or pharmacists’ “corresponding responsibility.”  While these areas have been the subject of increased enforcement activity because of the national opioid epidemic, DEA registrants should not forget that at the local level compliance with the Controlled Substances Act (“CSA”) and DEA regulatory requirements on recordkeeping, reporting and security remain an Agency priority.  Granted COVID has impacted regular DEA inspection schedules for most local DEA offices, but that is likely to change in the coming months.

    Maintaining complete and accurate records with direct, ongoing oversight by management reduces risk of internal employee pilferage and maximizes potential for early detection should diversion occur.  Recent Department of Justice (“DOJ”) press releases continue to show evidence of reported registrant civil settlements with the Government alleging recordkeeping and reporting deficiencies.  Incomplete and inaccurate records currently subject registrants to civil monetary penalties of up to $15,691 per violation.  28 C.F.R. § 85.5.  Needless to say, monetary penalties add up quickly for multiple violations of the same requirements.

    We have also noticed a renewed emphasis on requirements related to remedial compliance programs in these civil settlements, often including a Memorandum of Agreement (MOA) with DEA and in some cases requiring a third-party auditor.  Thus, non-compliance can be very costly, so it is more important than ever to dot every “i,” cross every “t.”

    As the nation opens up from the Covid-19 shutdown, and DEA resumes cyclic and on-site regulatory inspections, it behooves registrants to “kick the tires” of their controlled substance recordkeeping, reporting and security.  Management not directly overseeing daily or weekly compliance is always surprised when recordkeeping and reporting deficiencies are brought to their attention during the Agency’s on-site inspections.  The opioid epidemic has led DEA to take a more aggressive approach to cyclic and on-site inspections.  In July 2020, DEA stated as a justification for increasing registration fees that it planned to increase the number of scheduled regulatory inspections and investigations.  Registration and Reregistration Fees for Controlled Substances and List I Chemical Registrants, 85 Fed. Reg. 44,710, 44,716 (July 24, 2020).

    We thought this would be a good time to post a series of blog posts focusing on DEA inspections and how registrants should prepare for and manage them, with a list of registrant do’s and don’ts.  While DEA has broad inspection authority under the CSA, registrants need to be aware of the scope and limits of such inspections and be proactive in preparing for and managing inspections.

    Part 1 provides background and explains the scope of DEA cyclic and on-site inspections.

    A.  Background

    Congress enacted the CSA in 1970 establishing a comprehensive statutory framework to prevent the diversion and abuse of legitimate and illicit controlled substances with the Bureau of Narcotics and Dangerous drugs, now DEA, the primary federal agency responsible for enforcement.  The Agency’s mission is to eliminate illicit controlled substances altogether but its responsibilities for legal controlled pharmaceuticals is far more complex.  DEA seeks to prevent, detect and eliminate the diversion of controlled pharmaceuticals while ensuring their availability for legitimate medical, scientific and industrial purposes.  The CSA establishes a closed system of controlled substance distribution that requires every entity in the chain, from importers to manufacturers, distributors, exporters, pharmacies, hospitals, narcotic treatment programs and practitioners, to obtain a DEA registration and account for the controlled substances they handle.  The CSA establishes classifications for drugs based on their potential for abuse relative to their legitimate medical use.  21 U.S.C. § 812.  A drug’s classification, or “schedule,” triggers certain recordkeeping and reporting, registration, quota, and security requirements applicable to each controlled substance.

    DEA’s Diversion Control Division is the dedicated unit responsible for regulating legitimate controlled pharmaceuticals and regulated chemicals.  Diversion investigators ensure that registrants comply with the CSA’s regulatory requirements and bring registrants into compliance when they are noncompliant.  DEA can seek administrative action, and working with U.S. Attorney’s Offices, civil or criminal action, against registrants who fail to comply with the CSA and its regulations.  We have also seen increased participation by the DOJ Consumer Protection Branch in DEA investigations and enforcement actions brought against DEA registrants.  See, for example, Federal Court Orders North Carolina Pharmacy, Pharmacy Owner, and Pharmacist-in-Charge to Pay More Than $1 Million and to Cease Dispensing Opioids or Other Controlled Substances, Dec. 17, 2020.

    DEA Diversion investigators are primarily responsible for conducting inspections of the regulated industry.  However, more recently, we have observed that DEA special agents are also becoming more involved in investigations of registrants, thus, raising the stakes for compliance.  Also, local task force officers with law enforcement and regulatory agencies have also become increasingly involved in such actions.  Pre-registration and cyclic inspections are critical to DEA diversion investigators ascertaining new and existing registrant compliance with the CSA and DEA regulations.  Diversion investigators and DEA special agents may also conduct targeted investigation inspections which often are accompanied by an Administrative Subpoena or Administrative Inspection Warrant.  We will discuss these actions in more detail in later blog.

    It is worth noting that DEA headquarters is actively involved in establishing annual workplans for the DEA local offices identifying certain  “non-practitioner” registrants (manufacturers, distributors, importers, exporters, narcotic treatment programs) for local diversion groups to inspect during the year within their geographic region.  This ensures that every non-practitioner registrant is inspected periodically.  Beginning about 2009, DEA “intensified its regulatory activities to help the registrant population better comply with the CSA and to identify those registrants who violated the CSA and implementing regulations.”  Controlled Substances and List I Chemical Registration and Reregistration Fees, 76 Fed. Reg. 39,318, 39,324 (July 6, 2011).  At that time, DEA began conducting more frequent scheduled investigations of “non-practitioners.” Id.

    Then-Administrator Michele Leonhart, testifying before the House of Representatives Committee on Energy and Commerce’s Subcommittee on Commerce, Manufacturing and Trade, affirmed the Agency’s “renewed focus on regulatory control [that] has enabled DEA to take a more proactive approach on multiple fronts to ensure that DEA registrants are complying with the Controlled Substances Act and implementing regulations.”  Warning: The Growing Danger of Prescription Drug Diversion Hearing Before the Subcomm. On Commerce, Manufacturing and Trade of the H. Comm. On Energy and Commerce, 112th Cong. 6 (2011) (statement of Michele M. Leonhart, Administrator, DEA, Department of Justice).  Since that time, DEA has undertaken initiatives addressing the current opioid abuse epidemic, including moving its focus from prescribers as controlled substance gatekeepers to patient access up the chain to pharmacies, distributors and manufacturers.

    Non-practitioner registrants can expect DEA investigators to inspect their controlled substance operations about once every three years, and Drug Addiction Treatment Act (“DATA”)-waived practitioners (physicians who are administering, dispensing, and prescribing specific FDA-approved controlled substances for narcotic addiction treatment) approximately once every five years.  However, although non-practitioners are not subject to routine cyclic inspections, we are aware of local DEA offices conducting random inspections of pharmacies, hospitals, veterinarians and other non-practitioners.  We expect this trend to continue.

    B.  Scope

    The CSA authorizes DEA investigators and agents to inspect “controlled premises,” defined as places where registrants “may lawfully hold, manufacture, distribute, dispense, administer, or otherwise dispose of controlled substances or listed chemicals or where records relating to those activities are maintained.”  21 U.S.C. § 880(a)(2).  Investigators and agents can inspect and copy acquired records and reports; inspect finished and unfinished drugs, equipment, containers, labeling, processes and controls.  Investigators may inventory controlled substances on-hand and take samples.  21 U.S.C. § 880(b)(3).  They are not authorized to inspect financial data, sales data other than shipment and transaction data, or pricing data unless the registrant provides written consent.  21 U.S.C. § 880(b)(4).

    Investigators also typically request personal information about officers and employees with access to controlled substances, employee background checks and policies/procedures.  While this information is not specifically required to be maintained by the CSA or the regulations, it is relevant for assessing the registrant’s ability to comply with the recordkeeping, reporting and security requirements.


    Part 2, scheduled for posting in about two weeks, will explain the DEA inspection process and how registrants should prepare for and manage inspections.  Lastly, Part 3 will provide our list of DEA inspections do’s and don’ts for registrants.

    The Good, the Bad and the Ugly: New Legislation Would Reform the ANDA Suitability Petition Process and Require Timely Assignment of 505(b)(2) NDA Therapeutic Equivalence Evaluation Codes (“the Good”)

    Over the past few days there’s been an avalanche of FDA-related legislation introduced in both the U.S. House of Representatives and the U.S. Senate.  Some of the bills introduced are related to a House Judiciary Antitrust Subcommittee hearing, titled “Addressing Anticompetitive Conduct and Consolidation in Health Care Markets,” while others found their way into the Bill Hopper because of a renewed interest in Congress to address drug prices (see a recent U.S. Government Accountability Office report here).

    As we perused the bills, we sorted them into three categories: the Good, the Bad, and the Ugly.  Today, we’ll address a couple of bills that fit Clint Eastwood’s role as “the Good” in the 1966 Italian epic spaghetti Western film, “The Good, the Bad and the Ugly.”  In another post or two, we’ll address those that fit the role of Lee Van Cleef as “the Bad,” and Eli Wallach as “the Ugly.”

    Both bills – S. 1462, the “Simplifying the Generic Drug Application Process Act,” and S.1463, the “Modernizing Therapeutic Equivalence Rating Determination Act” – were introduced by Senators Bill Cassidy, M.D. (R-LA) and Tina Smith (D-MN) “to speed the development of and improve access to lower-cost generic drugs” by making changes to the FDC Act and 505(b)(2) NDA approval pathway, “which will make it easier for generics to come to market driving up competition and driving down drug prices,” according to a press release announcing the introduction of the bills.  While we’re pretty excited about the changes both bills would make to the law, we’re particularly stoked about S. 1462, the “Simplifying the Generic Drug Application Process Act.”

    Simplifying the Generic Drug Application Process Act (S. 1462)

    For years we’ve been critical of FDA’s ability (or rather, inability) to timely rule on ANDA Suitability Petitions.  Suitability Petitions permit the submission of an ANDA that differs from an NDA-approved listed drug in strength, dosage form, route of administration, or active ingredient (in a combination drug).  But until FDA approves a Suitability Petition, an ANDA cannot be submitted to the Agency for the proposed change.  Although the statute requires FDA to approve or reject a Suitability Petition within 90 days of receiving the petition, FDA very, very rarely meets that deadline.  Instead, FDA takes several years to rule on a Suitability Petition, by which time there may no longer be much of any interest (or value) in marketing the proposed generic drug product.  Indeed, back in 2014, we put together a review of more than 1,300 ANDA Suitability Petitions submitted to FDA since the enactment of the 1984 Hatch-Waxman statutory provision creating them.  That analysis (here) shows that FDA has been largely unable to meet the mandatory statutory 90-day goal of approving or disapproving a petition.

    Despite FDA’s historical policy of not ruling on ANDA suitability petitions within the statutory deadline, leading to a loss of faith in the process itself, FDA, in August 2013, published a Manual of Policies and Procedures (“MaPP”) – FDA, Manual of Policies and Procedures, Office of Generic Drugs: ANDA Suitability Petitions, MaPP 5240.5 (Aug. 21, 2013) – establishing the policies and procedures for responding to suitability petitions, and that reiterates that “[u]nder 21 CFR 314.93(e), the Agency will approve or deny the petition no later than 90 days after the petition is submitted.”  According to the MaPP:

    [The Office of Generic Drugs’ (“OGD’s”)] goal is to respond to suitability petitions in an efficient and effective manner.  To meet this goal, a number of parties within the Center for Drug Evaluation and Research (CDER) and throughout the Agency must work in a coordinated manner.  OGD, the office primarily responsible for responding to suitability petitions, has developed procedures for enhancing communication among parties involved in addressing the request(s) in the suitability petitions.

    Unfortunately, in the nearly eight years since FDA issued MaPP 5240.5, little progress has been made.  Curiously, the most recent version of MaPP 5240.5 omits any discussion of the 90-day statutory period, as well as to OGD’s goal to respond to suitability petitions in an efficient and effective manner.

    Perhaps as a result of FDA’s failure to timely address suitability petitions, Congress expressed its expectation that FDA meet this 90-day deadline in Section 805 of the 2017 FDA Reauthorization Act (“FDARA”).  In addition to a “Sense of Congress” provision stating that FDA “shall meet the requirement under [FDC Act § 505(j)(2)(C)] and [21 C.F.R. § 314.93(e)] of responding to suitability petitions within 90 days of submission” (FDARA § 805), Congress hoped to encourage FDA to expedite responses to such petitions by requiring a report of the number of outstanding suitability petitions and a report of the number of suitability petitions that remained outstanding 180 days after submission.  In addition, the GDUFA II Performance Goals Letter states that “FDA aspires to respond to Suitability Petitions in a more timely and predictable manner.”

    FDA has thus far not complied with this congressional mandate and GDUFA II Performance Goal.  According to FDA’s most recent FDARA § 805 activities report – from Fiscal Year 2020 – 174 suitability petitions are pending a substantive FDA response for more than 180 days from the date of receipt of the petition, and there are 180 suitability petitions pending a substantive FDA response.

    That brings us to S. 1462.  According to the press release on the bill:

    The Simplifying the Generic Drug Application Process Act repeals section 505(j)(2)(C) of the Food Drug and Cosmetic Act (FDCA) so that sponsors can submit generic drug applications (ANDAs) without the need for the U.S. Food and Drug Administration (FDA) to first grant a suitability petition.  FDCA requires that if a generic drug sponsor wants to submit an ANDA for a drug that differs from the brand in terms of its route of administration, dosage form, or strength, then the generic needs to first submit a suitability petition to FDA requesting permission to file the ANDA.  FDCA requires FDA to respond within 90 days, but if FDA does not respond, the generic cannot file the ANDA.  Unfortunately, FDA has not responded to many suitability petitions filed over the last seven years – preventing submission of ANDAs for drugs in shortage and drugs without generic competition.  This bill repeals the requirement to file a suitability petition for ANDAs that do not require clinical data.  Even with this change, FDA still has the opportunity to review the proposed change to the brand before the ANDA is filed and then again when reviewing safety and efficacy as part of the review process.

    That’s right!  Congress has finally given up on waiting for FDA to reform the Agency’s handling of ANDA Suitability Petitions and has wisely decided to step in and reform the system.

    Specifically, the bill would amend current FDC Act § 505(j)(2)(C) to allow the submission of an ANDA that differs from the listed drug in dosage form or strengths (i.e., the two most common Suitability Petition changes).  Instead of having to wait (years) for FDA to separately approve a Suitability Petition before submitting an ANDA for the proposed change, the law would be amended such that “[t]he Secretary shall approve or disapprove the submission of such an abbreviated application during the course of its determination whether to receive the application pursuant to [21 C.F.R. § 314.101].”  That is, the current petition process would effectively be collapsed into FDA’s filing (receipt) determination.

    This is a fantastic legislative proposal, and one that may truly reinvigorate the historical “petitioned ANDA.”

    Modernizing Therapeutic Equivalence Rating Determination Act (S. 1463)

    Beginning with the 36th (2016) edition of the Orange Book, the Orange Book Preface was updated to state that “[a] person seeking to have a therapeutic equivalence rating for a drug product approved in a 505(b)(2) application may petition the Agency through the citizen petition procedure (see 21 CFR 10.25(a) and 21 CFR 10.30).”   Since then, FDA has received numerous citizen petitions requesting the assignment of a Therapeutic Equivalence Code (“TE Code”).  In most cases, however, those petitions languish at FDA for an extended period of time (usually years).  In the meantime, 505(b)(2) NDA holders must pay an annual PDUFA user fee for such products and request a refund contingent on FDA’s citizen petition determination.  Prompt TE Code determinations (i.e., either “A” or “B” ratings) for drug products approved under a 505(b)(2) NDA would eliminate these inefficiencies, the costs to the Agency and the generic drug industry associated with those inefficiencies, and would clarify the substitutability of several drug products.

    According to the press release on S. 1463:

    The Modernizing Therapeutic Equivalence Rating Determination Act requires FDA to assign therapeutic equivalence ratings for 505(b)(2) applications at the applicant’s request, as it does for ANDAs.  The 505(b)(2) approval pathway is used to approve new drugs while leveraging certain data from an already approved drug.  To the extent that the drug candidate differs from the already approved drug, the sponsor has to generate sufficient data including clinical data to support the differences, but does not automatically receive a therapeutic equivalence rating.  A therapeutic equivalence rating is necessary to trigger automatic substitution at the pharmacy level and thus critical to driving competition.  Because 505(b)(2) is technically a new drug pathway, the statute does not require FDA to assign a therapeutic equivalence rating.  Sponsors can request it via the citizen petition process, but this can take significant time.  Requiring FDA to assign a therapeutic equivalence rating for 505(b)(2) applications will level the playing field for 505(b)(2) products to compete with name brand drugs.

    Specifically, the bill would amend the statute’s Orange Book provisions FDC Act § 505(j)(7)(A) to require that FDA make a TE Code determination for a 505(b)(2) NDA “at the time of approval of such application or not later than 30 days after the date of such approval, provided that the sponsor requests such a determination in the original application, in a form prescribed by the Secretary.”

    Like S. 1462, S. 1463 would make small, but very meaningful, changes to the statute to address and remedy current FDA inefficiencies.  And if there’s one thing this German-blooded American likes, it is efficiency!

    FASTER Law Adds Sesame as Major Food Allergen

    On Friday April 23, President Biden signed into law the Food Allergy Safety, Treatment, Education and Research (FASTER) Act that designates sesame as the ninth major food allergen.  The first eight major allergens – peanuts, tree nuts, fish, Crustacean shellfish, soy, milk, eggs, and wheat – were designated major allergens with the passage of the Food Allergen Labeling and Consumer Protection Act (FALCPA) in 2004.  The FASTER law requires foods containing sesame to be clearly labeled on products entering interstate commerce on January 1, 2023, and directs the Department of Health and Human Services to prioritize regular reviews of promising food allergy treatments and research, which will help identify new allergens to be designated number 10 and beyond.

    Specifically, the FASTER Act amends section 201(qq)(1) of the Federal Food, Drug, and Cosmetic Act (FDCA), and makes sesame subject to FDCA requirements for major food allergens, including labeling disclosure, and cGMP and preventive controls requirements for allergen control.

    This Law has been a long time coming.  As we reported (here and here), proposals related to sesame allergen labeling have been introduced in Congress on several occasion. Then in 2019 Illinois enacted a law that required sesame allergen labeling.  In addition, FDA had been petitioned to issue regulations to declare sesame a major allergen and released a draft guidance which strongly encouraged companies to voluntarily declare sesame as an allergen, and recommended disclosure of the presence of any sesame derived ingredients in spices and flavorings.

    The Fifth Circuit Addresses Pay-for-Delay Agreements: Money for Nothing (and Patent Settlements for Free?)

    So-called “Pay-for-Delay” settlements, also called Reverse Payment, settlements—in which an innovator sponsor pays a generic sponsor to settle ongoing patent infringement litigation in exchange for a delay in generic market entry—have been fodder for antitrust concerns for decades (see, for example, our coverage from 2013).  Effectively, the first generic filer gets paid not to market—and, as a result of its 180-day exclusivity, block subsequent filers from coming to market—while an innovator gets an extension of its monopoly.  Critics of these agreements believe that these agreements belie the intent of the ANDA pathway: facilitation of access to affordable medicines.  Supporters, on the other hand, point out that the public ultimately benefits from these arrangements: sponsors can lower the costs of their medicines as a result of the money saved from lengthy litigation, and, should the relevant patent be valid and enforceable, generic sponsors can market their products earlier than if they had to await patent expiration.  To balance these concerns, Congress delegated to FTC the authority to review and sign off on all generic drug and biosimilar patent settlement agreements based on a “rule of reason” standard established in the 2013 case, FTC v. Actavis

    In February 2017, FTC had the opportunity to test out the Actavis framework.  After reviewing a settlement between Impax Laboratories and Endo Pharmaceuticals with respect to Paragraph IV patent litigation arising from Impax’s ANDA—eligible for 180-day exclusivity—seeking approval of a generic version of Endo’s Opana ER (oxymorphone), FTC brought separate enforcement actions against the parties alleging that the settlement was an unfair method of competition under and an unreasonable restraint of trade in violation of the FTC Act.  At that time, Endo had decided to launch a crush-resistant Opana ER and remove the original Opana ER from the market, which would ultimately render any generic to original Opana ER not substitutable, but Endo needed some time to shift the market to its crush-resistant product.  To buy some time, Endo sued Impax for patent infringement and triggered a 30-month stay in Impax’s ANDA approval.  One month before the expiration of the 30-month stay, FDA tentatively approved Impax’s ANDA, and, on the cusp of trial, Endo and Impax settled the litigation.

    Under the terms of that settlement, Impax would delay first commercial marketing of its generic until January 2013—which, as the first applicant with 180-day exclusivity, would delay all subsequent generic launches—and Endo agreed not to launch an authorized generic until after expiration of Impax’s 180-day exclusivity; to provide credit for any lost revenues upon Endo’s launch of crush-resistant Opana ER; to provide Impax a license for all existing and future Opana ER patents; and to collaborate with Impax on a new drug product with payments up to $40 million.  In total, Impax received approximately $100 million not to delay market entry for 2.5 years.  And, when Impax finally could come to market, Endo product-hopped to its crush-resistant Opana ER so that Impax’s generic did not even compete with Endo’s product.  Unfortunately for End, FDA the new crush-resistant Opana was withdrawn for safety reasons, leaving Impax’s the only version of Opana ER on the market.

    Endo settled with FTC while Impax fought the allegation allegations.  An Administrative Law Judge reviewed the agreement and determined that it restricted competition, but its procompetitive benefits outweighed the anticompetitive effects.  FTC, however, rejected the ALJ’s determination and determined that the cited procompetitive benefits could have been achieved through a less restrictive agreement.  Consequently, FTC issued a cease-and-desist order enjoining Impax from entering into any similar reverse payment agreements in the future.  Though Impax did not challenge the classification of the agreement as a “Reverse Payment” agreement, it appealed the FTC Order to the Fifth Circuit arguing that the payments and settlement size were justified.

    On April 13, 2021, the Fifth Circuit upheld the FTC’s Order looking to whether the agreement caused anticompetitive effects that outweigh the procompetitive benefits.  Under Actavis, the Court explained that the “likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification.”  When that payment is large an unjustified, it creates a likelihood of significant anticompetitive effects.  Using the Actavis “rule of reason” standard, the Court agreed that the FTC met its burden to show that the settlement was anticompetitive based on size and lack of justification.  Indeed, the size of the payment from Endo to Impax was comparable to other instances in which courts inferred anticompetitive effect, and that Endo’s savings in litigation expenses from settling—totaling approximately $3 million—was not enough to justify the $100 million that Endo would end up paying Impax under this agreement.   With the threat of competition “snuffed out” by the reverse payment agreement—combined with Endo’s known product-hop plans—the Court agreed that the FTC had “substantial evidence to conclude that the reverse payments replaced the ‘possibility of competition with the certainty of none.’”

    The Court rejected Impax’s argument that the FTC should have considered the strength of patent as irrelevant.  While Impax explained that the settlement would not have been anticompetitive if the patents were strong, as it would have permitted generic entry prior to patent expiration, the Court inferred anticompetitive effect merely from the large amount Endo was willing to pay to prevent further competition.  The Court further declined to look at the agreement in hindsight.

    While the next rule-of-reason question concerned whether the agreement has any procompetitive benefits—and FTC argued that it did not—the Court did not address this element because the FTC assumed arguendo that it have procompetitive benefits.  Instead of requiring Impax to meet its burden of demonstrating procompetitive benefits, the Court turned directly to the question of whether FTC reasonably found that the presumptive procompetitive benefits “could be reasonably achieved through less anticompetitive means.”  For such an assessment, FTC relied on industry practice, economic analysis, expert testimony, and credibility of Impax’s lead settlement negotiator.

    Based on the fact that most Paragraph IV patent challenge settlements do not include reverse payments and the economics showing that Endo likely would have entered the settlement agreement without the $100 million payout, the Court found that substantial evidence supported the FTC’s finding that the settlement could be achieved through less anticompetitive means.  Despite the testimony of the Impax negotiator, whose credibility was questioned, insisting that Impax would not have agreed to such a settlement, the Court explained that “any reluctance Impax had to agree to a no-payment settlement . . .  cannot undermine the Commission’s finding that a less restrictive settlement was viable.”  Because evidence supported a reasonable factfinder to make such a conclusion, the Court upheld the FTC Order.

    This case is important.  Not only does it reaffirm the utility of the FTC’s review of patent settlement agreements, but it for the first time clearly applies the rule-of-reason framework, including the necessary shifting of burdens, for evaluating the pay-for-delay cases.  While much deference is afforded to the FTC’s opinion, it’s clear that the framework leaves room for justification as to the procompetitive benefits of such a settlement, suggesting that each settlement truly will be evaluated on a case-by-case basis.  Unlike the recent California pay-for-delay law, in which these types of settlements are presumptively anticompetitive, the Court’s analysis here leaves room for sponsors to continue negotiating these types of settlements, as long as the terms are justifiable and ultimately beneficial to the public.  Nevertheless, the decision’s deference to FTC’s determination that a no-payment settlement, which theoretically should be available in any patent settlement, is a feasible less restrictive alternative to a reverse-payment settlement suggests that the FTC’s unspoken anticompetitive presumption may be difficult to overcome.

    The FTC brought additional action against both Impax and Endo in January 2021 for conspiring to share monopoly profits from Impax’s extended release oxymorphone product—the only extended release oxymorphone remaining on the market—after FDA withdrew approval of crush-resistant Opana ER.  On the condition that Endo would refrain from reentering the market, FTC alleges, Impax agreed to pay Endo a percentage of its oxymorphone ER profits.  This case remains ongoing.

    The Supremes Give the FTC “Nothing but Heartaches”: Court Unanimously Rules No Restitution in Injunction Cases, and How Will This Ruling Impact FDA?

    The Supreme Court has handed down a decision in AMG Capital Management, LLC, et al. v. Federal Trade Commission, No. 19-508 (Apr. 22, 2021) [hereinafter Slip Op.], gutting the FTC’s use of §13(b) of the FTC Act, 15 U.S.C. § 53(b), to obtain equitable monetary relief and, in the words of Miss Ross and the Supremes (1965), bringing the FTC “Nothing But Heartaches.”  Background on the case can be found in earlier posts here, herehere, and here.

    Justice Breyer, writing for a unanimous court, summed it up:

    Section 13(b) of the Federal Trade Commission Act authorizes the Commission to obtain, “in proper cases,” a “permanent injunction” in federal court against “any person, partnership, or corporation” that it believes “is violating, or is about to violate, any provision of law” that the Commission enforces.  87 Stat. 592, 15 U. S. C. §53(b).  The question presented is whether this statutory language authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement.  We conclude that it does not.

    Slip Op. at 1.

    The Court pointed out that its task was not to determine whether the ability of the FTC to substitute §13(b) for the administrative procedure in §5 and consumer redress under §19 was desirable, but rather to answer a “more purely legal question,” Slip Op. at 6.  It did that by focusing on the text of the statute.  Indeed, the first (and very succinct) point in the Court’s analysis of the statute is that “the language [of §13(b)] refers only to injunctions.”  Id.  The “coherent enforcement scheme” that the statute intended allowed the FTC to “obtain monetary relief by first invoking its administrative procedures and then §19’s redress provisions (which include limitations).  And the Commission may use §13(b) to obtain injunctive relieve while administrative proceedings are foreseen or in progress, or when it seeks only injunctive relief.”  Id. at 10.

    In addition to the textual analysis, the Court also noted that §13(b) is prospective, not retrospective – using terms such as “is violating” rather than “has violated.”  Id. at 8.  The Court also looked at the structure of the FTC Act beyond §13(b) to §5(l) and §19 which provide for the imposition of limited monetary penalties and awards of monetary relief where the FTC has already engaged in administrative proceedingsId. at 9.

    FTC Acting Chairwoman Rebecca Kelly Slaughter was quick to issue a strongly worded statement calling on Congress to act swiftly to undo the Court’s decision.  There is already a full-court press – acknowledged in the Court’s decision – for Congress to act quickly on two different pieces of legislation that would affirmatively confirm the asserted authority of the FTC to seek equitable relief, S. 4626 and H.R. 2668.  Indeed, earlier this week, the full Commission testified before the U.S. Senate Committee on Commerce, Science, and Transportation and submitted testimony on the need for such legislation.

    So, the obvious question to many readers is how does this Supreme Court decision implicate FDA?  In other words, can FDA, through the Department of Justice (DOJ), request that a court impose monetary sanctions against a person who violates the Federal Food, Drug, and Cosmetic Act (FDC Act) in light of the AMG decision?

    This is hardly a new question for us.  Almost twenty years ago, two of the writers of this blog addressed that question in a law review article published by the Food and Drug Law Institute:  Jeffrey N. Gibbs & John R. Fleder, Can FDA Seek Restitution or Disgorgement?, 58 Food and Drug L.J. 129 (2003).  FDA’s response to our 2003 article, authored by Eric M. Blumberg, who was then the FDA’s Deputy Chief Counsel for Litigation, can be found at 58 Food and Drug L.J. 169 (2003).

    The article followed some high-profile cases where FDA had collected hundreds of millions of dollars from companies which had allegedly violated the FDC Act.  We noted that FDA itself had informed the U.S. Supreme Court in 1999 that the agency lacked the authority to obtain compensatory relief or punitive damages.  Id. at 132.  The article also discussed the operative language of the FDC Act and its legislative history to demonstrate that the FDA does not have the authority to get monetary relief in injunction cases filed in court.  Id. at 142-45.  Our central conclusion was: “Section 302 [of the FDC Act] does not explicitly or even implicitly authorize FDA to ask a court to order restitution or disgorgement.”  Id. at 147.  As shown below, the Court’s decision in AMG should eliminate any legitimate question about the accuracy of that conclusion.

    There are really several subparts to the question posed above.  First, is the AMG decision binding on FDA.  Second, will the decision impact the way that FDA enforces the FDC Act?

    Regarding the first question, the starting point is to compare the wording of the FTC Act to the wording of the FDC Act.  The key operative language of §13(b) of the FTC Act is: “the Commission may seek, and after proper proof, the court may issue a permanent injunction.”  Section 302 of the FDC Act, 21 U.S.C. § 332, states: “The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301” [the Prohibited Acts provision of the FDC Act].  So, the FTC is empowered to seek permanent injunctions for FTC Act violations, while the FDA (through the DOJ) can ask a court to restrain violations of the FDC Act.

    As noted above, the Court’s decision cites several reasons why the FTC lacks the authority to obtain equitable relief under Section §13(b).  The first reason cited is that “§13(b)’s ‘permanent injunction’ language does not authorize the Commission directly to obtain court-ordered monetary relief.  For one thing, the language refers only to injunctions. . . .  An ‘injunction’ is not the same as an award of equitable monetary relief.”  Slip Op. at 6.

    This conclusion should apply to FDA even though the language in the two statutes is somewhat different.  Just like the operative FTC Act provision, Section 302 of the FDC Act is totally silent regarding monetary relief.  Moreover, the word “restrain” is forward-thinking.  The Merriam Webster dictionary defines the word “restrain” to mean “to prevent from doing.”  Preventing a defendant from future violations of the FDC Act is to restrain that defendant.  In contrast, asking a court to take money from a defendant based on past violations of the FDC Act is largely, if not entirely, backward-thinking and perhaps even punitive.  Thus, just as the Court ruled in AMG that the operative FTC Act’s language means that an injunction is not the same as an award of equitable monetary relief, it should seem inescapable that to “restrain” a violation does not permit a court to award equitable monetary relief.  FDA may rely on a number of court rulings interpreting the FDC Act and other statutes which contain the operative words “to restrain violations” to argue that that language authorizes district judges to grant equitable monetary relief as a component of an injunction case.  We submit that the AMG requires a different result in future FDC Act cases.  As the Supreme Court noted in AMG, Congress could not have intended that courts can grant equitable monetary relief in injunction cases for the reason that no such relief is set forth in the statute: “Congress . . . does not . . hide elephants in mouseholes.” Slip Op. at 10.

    There is a second relevant commonality between the FTC Act and the FDC Act.  The Court’s AMG decision cites several other provisions in the FTC Act where Congress explicitly authorized district courts to impose monetary penalties and equitable relief for violations of the FTC Act.  The Court cited these provisions for the purpose of its conclusion that “[i]t is highly unlikely that Congress would have enacted provisions expressly authorizing conditioned and limited monetary relief if the Act, via §13(b), had already implicitly allowed the Commission to obtain that same monetary relief . . . .”  Slip Op. at 9.

    Similarly, the FDC Act explicitly authorizes FDA to obtain monetary relief in several provisions.  For example, Section 303(a), (b)(1), and (e)(3) authorize a court to fine a defendant in a criminal case.  In the civil context, Section 303(b)(2), (f), and (g) authorize FDA to obtain civil penalties regarding violations of the FDC Act concerning drug samples, devices, foods, tobacco products, and direct to consumer drug advertisements.  Section 518(e) authorizes FDA to mandate refunds to persons who FDA believes have been damaged by a violation involving medical devices.  Thus, the absence of monetary relief in Section 302 coupled with the presence of monetary relief in other provisions of the FDC Act should lead to the inescapable conclusion that Congress did not authorize the government to obtain monetary relief in a Section 302 lawsuit.

    While we focus on the commonalities between the FTC Act and FDC Act, one point of differentiation that may be important is that FDA has a fairly large stick that FTC does not often have.  As we know, the FDC Act is a strict liability criminal statute, so every cGMP violation that supports an injunction also supports a criminal charge.  There is no question that FDA and DOJ can obtain fines, forfeiture, and restitution under its criminal authority, and while unlikely, this Supreme Court decision could have the perverse effect of encouraging broader use of criminal sanctions if FDA wants monetary relief.  But, keep in mind that the FTC has some – but more limited – authority under its statute to seek a criminal prosecution, limited to food and drug advertising under 15 U.S.C. § 54, whereas the FDA has broader criminal jurisdiction.

    There is the second and equally important question we will next address:  how will FDA react to the AMG decision?  FDA through the DOJ could decide to file one or more injunction cases where the government seeks monetary relief from a defendant.  But will it exercise that right?  The answer will have to be provided by FDA and DOJ.  Of course, the government could decide, after reading the AMG decision, that the ruling will similarly bar the government from seeking monetary relief pursuant to Section 302.  But what if it decides to bring a test case.  The defendant can certainly contest FDA’s statutory authority.  If that happens, the district judge assigned the case will have to decide the issue, subject to later appellate court review.  As noted above, we believe that any such case would fail.

    A more likely scenario would involve pre-filing negotiations between FDA and a potential defendant.  When FDA wants to get an injunction through a district court filing, the agency typically drafts and submits a proposed Consent Decree to counsel for the likely defendant[s].  We would not be surprised if FDA continues this practice by, in appropriate cases, asking the defendant[s] to agree to pay monetary relief as a component of the Consent Decree.  Of course, the proposed defendant can either agree or disagree to that demand for money.  If the defendant agrees to a monetary payment, the proposed Consent Decree would be submitted to the district court judge for approval.  But the judge has the legal authority to question the legality and indeed propriety of a proposed Consent Decree.  The judge could (but might well not) ask for briefing on whether the judge has the authority to award monetary relief under Section 302.  Some judges might well conclude that because the FDC Act does not authorize monetary relief, that part of the Consent Decree must be stricken.

    But what happens if a proposed defendant responds to an FDA demand for monetary relief by refusing to pay, citing the AMG decision?  And should a proposed defendant do so?

    FDA, not the proposed defendant, initially drafts proposed Consent Decree.  The agency puts forth a proposal on the remedial provisions the agency wants in the Decree such as a possible shutdown of certain operations, remedial steps the agency wants the defendant to take, and the sanctions that will be imposed if the defendant violates the Consent Decree.  If a proposed defendant balks at paying monetary relief for past violations, what will and should happen next?  FDA and DOJ can say (and probably would say before the AMG case was decided) that absent monetary relief there will be no Consent Decree.  Of course, a proposed defendant will have to make its own decision regarding whether to give in to FDA’s demand for monetary relief.

    We believe however, that in most cases, proposed defendants are on very strong legal and practical grounds in refusing an FDA demand for monetary relief.  FDA should realize that absent a change in the law, FDA will likely lose in court if it demands monetary relief.  If a proposed defendant accepts the remedial provisions of a proposed Consent Decree but rejects the monetary provisions, will FDA reject the settlement?  The answer to that question is unclear as it will need to be resolved by FDA and the DOJ.  Will FDA insist on even tougher remedial terms if a proposed defendant rejects a monetary payment?  The answer should be no.  Once FDA articulates the remedial terms it needs in a proposed Consent Decree, the agency will have a hard time justifying the need for additional remedial terms just because the company rejects a monetary payment.

    This leaves a final ancillary question.  Will FDA seek a legislative change to Section 302 to explicitly authorize the government to get monetary relief in an injunction suit?  We do not know the answer to that question, but we will eagerly await the answer.  Of course, FDA and the FTC may not be the only federal agencies negatively impacted by the AMG decision.  Thus, Congress could decide to implement a “legislative fix” to AMG that would apply to a multitude of federal agencies.  Alternatively, as has been the case all too often, Congress may be unable to reach an agreement on how to fix AMG, and the relevant law will remain unchanged.

    Categories: Enforcement |  FDA News