After months of promises and postponements, FDA has finally published its long-awaited draft guidance on biological product interchangeability, Considerations in Demonstrating Interchangeability With a Reference Product, under the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).  While FDA had originally promised the guidance in 2016, FDA’s biosimilar user fee reauthorization commitment letter pushed its goal to December 31, 2017. Imagine our delight when we saw that FDA released the guidance so early in 2017!  (And just days after the U.S. Supreme Court granted certiorari in a case concerning two important provisions of the BPCIA – see our previous post here.)

FDA’s draft interchangeability guidance is incredibly important for biosimilar and reference product manufacturers alike. As of now, only four biosimilar products have been approved, and none of them are considered interchangeable. While these products are “highly similar” to their respective reference product counterparts, as shown by a “B” rating in the Purple Book, only interchangeable products (shown in the Purple Book with an “I” rating) can be substituted for the reference product by a pharmacist without the intervention of a health care provider. “Interchangeable” is obviously a coveted status for biosimilar manufacturers and a source of anxiety for reference product manufacturers. As such, the entire biologics industry has anxiously awaited this guidance.

As explained in the draft guidance, FDA requires interchangeable biologics to be biosimilar to the reference product in addition to other criteria. An interchangeable product is expected to produce the same clinical result as the reference product in any given patient. Also, if the product is administered more than once to an individual, the sponsor must demonstrate that the safety and efficacy risks of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using only the reference product. FDA expects clinical data to demonstrate this in all of the reference product’s licensed conditions of use.

As with generic versions of small molecule drugs, the data and information to support an interchangeable biosimilar application will vary based on the nature of the proposed product. To that end, FDA reiterates the Agency’s “totality of the evidence” and “reduction of residual uncertainty” approaches first expressed by the Agency in the biosimilars world in the context of demonstrating biosimilarity (see our previous post here).  The potential interchangeable product will first need to provide all of the information necessary to demonstrate biosimilarity (i.e., analyses of critical quality attributes and mechanisms of action for each condition of use for which the reference product is licensed; PK and biodistribution of the product in different patient patients; and differences in toxicities in each condition of use and patient population). These data likely will also suffice to support a showing that the proposed interchangeable product can be expected to produce the same clinical result as the reference product in any given patient. However, other elements of interchangeability will require additional testing.

FDA anticipates that interchangeable applications will include data from a switching study or studies in one or more appropriate conditions of use. The guidance outlines considerations for the design of these studies and stipulates that only the U.S. version of the reference product should be used in these studies. If the product is not designed to be administered more than once, a sponsor should provide justification for the omission of a switching study in the interchangeable application.

Importantly, the guidance notes that postmarketing data collected from products first licensed and marketed as a biosimilar, without corresponding data from an appropriate switching study, is not sufficient to demonstrate interchangeability. While postmarketing data may be helpful to determine what data is necessary to support interchangeability, the data itself are not enough. This means that even already-approved biosimilar products may be able to obtain interchangeable status if sponsors provide switching study data.  In addition, the draft guidance notes that while a non-U.S.-licensed comparator may be used for purposes of demonstrating biosimilarity, for switching studies intended to demonstrate interchangeability “using a non-U.S.-licensed comparator product generally would not be appropriate” for various reasons.

Finally, the draft guidance emphasizes that the presentation and design attributes of the proposed interchangeable product should be the same as the reference product in an effort to simplify substitution. This reasoning applies to container closure systems and delivery devices, as well.

The guidance rates to be a handy tool for sponsors, but FDA encourages sponsors to consult FDA early and often rather than relying on the guidance alone. And remember, this is just FDA’s first attempt at outlining interchangeability requirements, so there is likely room for other approaches.

Just before the holidays, the First Circuit gave the defense bar a gift by applying a stringent standard to reject a fraud-on-FDA claim under the federal False Claims Act (FCA). This case effectively serves as the death knell for the fraudulent inducement theory in the First Circuit, and the rationale should apply to all courts without limitation.

The relator was Jeffrey D’Agostino, a former sales representative of one of the two defendants: ev3 and Micro Therapeutics, Inc.  ev3 manufactured Onyx, an artificial liquid embolic, and ev3’s subsidiary, Micro Therapeutics, Inc, manufactured Axium, another embolic product. When FDA approved Onyx for the treatment of brain arteriovenous malformations, FDA restricted the use in the labeling to physicians with specific training.  Nevertheless, according to D’Agostino, the company marketed Onyx for off-label uses, provided off-label product training to physicians, and sold the device to physicians who had little or no training.  D’Agostino claimed that the defendants, when seeking approval to market Onyx, “disclaimed” marketing the device for other uses, “overstated” the training they would provide to physicians, and “omitted” important safety information about the product.  Opinion at 12.

Plaintiffs have tried to bring private fraud-on-FDA claims against device manufacturers in the past under state law, but courts routinely rejected these attempts under the preemption doctrine. See Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001) (here).  So D’Agostino and his counsel tried a different tack: D’Agostino alleged that the defendant’s fraudulent representations to FDA during the approval process “could have” influenced FDA’s approval decision, and that, under the implied certification theory, led to false claims being submitted to the government.  Opinion at 12-13.

The court strongly rejected D’Agostino’s theory.

First, the court held that D’Agostino’s allegation that fraudulent representations “could have” influenced FDA to approve Onyx was not an adequate pleading of a causal link between the representations to FDA and the claims reimbursed by CMS. According to the court:

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, CMS would still have paid the claims.  In this respect, D’Agostino’s fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id. at 13.  Merely saying that a fraudulent statement “could have” caused FDA to grant approval was not enough.

The court further held that D’Agostino’s allegations could not meet the FCA’s materiality standard as articulated in the Supreme Court’s recent ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (here).  The fact that CMS continued to reimburse for Onyx in the years after D’Agostino had raised his allegations, in the court’s view, “cast[] serious doubt on the materiality of the fraudulent representations that D’Agostino allege[d].”  D’Agostino Opinion at 14.

But the second, and arguably more significant, reason that the court rejected D’Agostino’s theory was that, in the six years after D’Agostino had raised his allegations, there was no evidence that FDA had taken any form of post-approval enforcement or action, such as demanding a recall or relabeling of the product, temporarily suspending approval, or withdrawing approval. “The FDA’s failure actually to withdraw its approval of Onyx in the face of D’Agostino’s allegations precludes D’Agostino from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” Id. at 16. In the absence of such official agency action by FDA, the court held that it was impossible to determine that FDA would not have approved the Onyx device without the alleged fraudulent representations.

To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so. The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies’ judgments about whether to rescind regulatory rulings.

Id.

Now defendants faced with a fraudulent inducement allegation can breathe easier knowing that relators cannot sufficiently plead an FCA claim under this theory unless FDA has in fact taken official action against the manufacturer upon learning of the alleged fraud. Also, the First Circuit joins other courts interpreting the Supreme Court’s decision in Escobar to reject the “materiality” element of the FCA when CMS continues to reimburse for the use of a product.  Win-win.

Last January, when FDA issued the Agency’s Calendar Year 2016 Guidance Agenda, we were pretty stoked to seek guidance was planned on various ANDA and Hatch-Waxman issues, including “Three-Year Exclusivity Determinations for Drug Products;” “Submission of ANDAs for Certain Highly Purified Synthetic Peptide Drug Products;” and “Determining Whether to Submit an Application Under 505(b)(2) or 505(j).” But we were especially excited about a guidance tentatively titled “180 Day Exclusivity: Guidance for Industry.”  After all, it’s not very often that we see FDA issue guidance on that topic.  In fact, we’re not aware of any guidance document issued by FDA on the topic since the December 2003 enactment of the Medicare Modernization Act (“MMA”).  Instead, FDA has issued numerous citizen petition decisions, 180-day exclusivity forfeiture letter decisions, and precedent-setting approval decisions.  And then there are all of the court decisions over the past decade.  (While we’re on the topic of FDA guidance documents, earlier this week, FDA issued the Calendar Year 2017 Guidance Agenda for the Center for Drug Evaluation and Research.)

So we waited, and then we waited some more . . . but nothing was released by FDA. Of course, we had lots to keep us busy in the interim.  In particular, there was FDA’s October 6, 2016 publication of a Final Rule implementing portions of the MMA (see our previous post here, as well as a recent webinar we presented on the rule – here and here).  The final rule largely deals with the non-180-day exclusivity provisions of the MMA, though it does include some discussion about 180-day exclusivity (e.g., commercial marketing to trigger exclusivity).

Finally, and with little fanfare, FDA released earlier this week a draft guidance titled “180-Day Exclusivity: Questions and Answers.” The draft guidance, which is also identified on FDA’s Calendar Year 2017 Guidance Agenda, is one of many guidance documents FDA has issued in a recent pre-Trump Administration blitz of guidance documents.  While the draft guidance on 180-day exclusivity itself does not reveal anything revolutionary, the guidance provides a one-stop shop reference on post-MMA 180-day exclusivity insofar as it consolidates court cases and documents released in litigation, letter decisions, citizen petition responses, and other correspondences to provide answers to commonly asked questions about 180-day exclusivity.  It’s a must-read guidance document for anyone involved in Hatch-Waxman issues, and a guidance that we appreciate FDA publishing.

Although the guidance document mentions pre-MMA 180-day exclusivity, FDA doesn’t rehash history. That being said, folks should keep in mind that, like a bad penny, pre-MMA 180-day exclusivity can – and does – continue to show up, and could theoretically do so in perpetuity (see our previous post here).  We were recently reminded of that fact when FDA approved ANDA 206726 for Methylphenidate Hydrochloride Extended-Release Tablets, 18 mg, 27 mg, 36 mg, and 54 mg.

FDA’s guidance document on 180-day exclusivity addresses a wide range of questions and concerns that arise when 180-day exclusivity is contemplated. As with all FDA guidance documents, FDA details the applicable statutory scheme and the legal authority for 180-day exclusivity.  FDA also details the approval pathway for ANDAs, including patent certifications, patent infringement actions, tentative approval, and conditions under which 180-day exclusivity may be forfeited.  The guidance then transitions to a Question and Answer format and divides the document into several topics of note to ANDA applicants:

• First applicant status;
• The relationship of 180-day exclusivity to patents;
• The trigger for and the scope of 180-day exclusivity;
• Relinquishment and waiver of 180-day exclusivity;
• Forfeiture of 180-day exclusivity; and
• Procedural questions.

The guidance addresses both basic questions and more nuanced questions. Notably, in spite of judicial objection (see our paper on FDA’s Broken System), FDA adheres to the Agency’s position outlined in Hi-Tech Pharmacal Co., Inc., v. United States Food and Drug Administration and AstraZeneca Pharmaceuticals LP v. Burwell, that FDA will make decisions about eligibility for 180-day exclusivity when an ANDA is ready for approval.

As always, FDA intends that the guidance will “enhance transparency” and facilitate the development, approval, and marketing of generic drugs. FDA will update the guidance with additional questions and answers as appropriate. After all, there are still a lot of unanswered questions pending – see, e.g., here – and there will certainly be more to come.

Given FDA’s decision to issue draft guidance on 180-day exclusivity, we’re unlikely to see a proposed rule any time soon to implement the 180-day exclusivity forfeiture provisions of the MMA. But if the new draft guidance doesn’t whet your appetite for 180-day exclusivity, and you still need to “geek out” on the topic, then you can give Erika Lietzan’s recent paper on “The Law of 180-Day Exclusivity” a read. Or, for fun, match up the FDA interpretation discussed in the draft guidance with the appropriate letter decision or citizen petition decision.

As the door was closing on 2016, FDA squeezed through three guidance documents on drug compounding: (1) Final guidance on Section 503A prescription requirement here; (2) Final guidance on electronic drug product reporting for outsourcing facilities here, and (3) Draft guidance on compounding of radiopharmaceuticals here. This blog post focuses on FDA’s final guidance addressing the prescription requirement under Section 503A (guidance document available here; see our coverage of the draft guidance here).

As a reminder, Section 503A of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) describes the conditions under which drug products compounded by a licensed pharmacist in a state-licensed pharmacy or federal facility, or by a licensed physician, are exempt from certain requirements of the FD&C Act (i.e., new drug, adequate directions for use, and FDA’s current good manufacturing practices (“cGMP”)). A condition to qualify for Section503A’s exemptions is that the drug product must be compounded for an identified individual patient based on the receipt of a valid prescription order or a notation for the patient or in limited quantities before receipt of a valid prescription order for an identified individual patient.  The final guidance issued on December 30, 2016 addresses the prescription requirement in Section 503A, including FDA’s policies regarding compounding after the receipt of a prescription for an identified individual patient, compounding before the receipt of such a prescription (referred to as “anticipatory compounding”), and compounding for office use (referred to as “office stock”).  The final guidance contains at least three noteworthy changes from FDA’s earlier draft:

1.    Documentation of the “Valid Prescription Order” Requirement for Purposes of Section 503A

In the draft guidance, FDA proposed that, to be a valid prescription order for a compounded drug product, the prescription order needed to state clearly that it is for a compounded drug and necessary for the treatment of the identified individual patient.  If the prescription did not contain this information, then the draft guidance recommended that the pharmacist consult with the prescriber to determine whether the patient needs a compounded drug, and that the compounder must make the appropriate notation on the prescription order or other appropriate documentation that the compounded preparation is necessary (including suggested language for the notification).  The final guidance no longer states that pharmacists should contact a prescriber for clarification concerning the individual patient who will receive the drug, and that the compounder document the same.

To the extent compounders believe FDA has softened its position concerning the necessity of documentation in the final guidance, however, please note the final guidance states that FDA intends to describe its policies regarding the documentation requirement in a future policy document (Guidance at 8 n.10).

The final guidance maintains the complementary requirement that, for a notation in a health record (i.e., patient chart) in an office or hospital setting to serve as the basis for compounding under Section 503A, this type of information should be recorded in the patient chart.

Importantly, the guidance recognizes (using an ophthalmologist as an example) that some drugs – for safety or emergency reasons – require immediate administration in a physician’s office. For example, if a patient presents with a fungal eye infection, “timely administration of a compounded antifungal medication may be critical to preventing vision loss.  In such a case, the ophthalmologist may need to inject the patient with a compounded drug product immediately, rather than writing a prescription and waiting for the drug product to be compounded and shipped to the prescriber.”  (Guidance at 3; 3 n.3).  Although FDA recognizes the importance of the availability of compounded medications for office use in exigent situations and as a matter of patient safety, FDA’s policy remains (at page 10-11) that these medications are only available from outsourcing facilities.  Otherwise, for compounding pursuant Section 503A, FDA requires a prescription for an individually identified patient.

2.    Clarification of “Interim” Compliance Policy for the “Limited Quantity” Condition

The final guidance clarifies that FDA’s draft guidance for considering whether a compounder has exceeded the “limited quantity” (i.e., 30-day supply) condition for anticipatory compounding in Section 503A(a)(2) is an interim policy.

Furthermore, FDA’s interim policy now explicitly contemplates that a drug compounded before receipt of a valid prescription might be distributed to any identified individual patient for the particular compounded drug.   The limited quantities policy also may not alter the beyond use dating on the product.  (Guidance at 9 n. 13).

Finally, the final guidance includes an illustrative example of anticipatory compounding that is consistent with the interim compliance policy, where compounders are allowed to adjust the number of units of a compounded product produced based on real-time changes in the historically highest number of valid patient-specific prescriptions (e.g., for the most recent 30-day period, even if not a calendar month).  FDA provides as an example that a compounder may consider a rolling 30-day period in a given year to determine the quantity it may compound in advance of receiving prescriptions. (Guidance at 9-10, 9 n. 16).

3.    Removing Recordkeeping Requirements to Demonstrate Compliance

To the (at least temporary) relief of prescribers and pharmacies, FDA’s final guidance dispenses with the draft’s section addressing onerous recordkeeping, including additional tracking and maintaining the documentation of compounding necessity, clarification of prescriptions, and quantities dispensed. The draft’s terms required pharmacists and physicians seeking to compound drugs under section 503A to maintain records to demonstrate compliance with the prescription requirement (e.g., valid prescription orders) and to document the basis for any anticipatory compounding (e.g., calculations performed to determine the limited quantities of drug products compounded before receipt of a valid prescription order).

On January 5, 2017, the U.S. Department of Health and Human Services (“HHS”) Health Resources and Services Administration (“HRSA”) issued a Final Rule implementing the 340B Drug Pricing Program Ceiling Price policy and Civil Monetary Penalty (“CMP”) standards, including the knowledge requirement related to overcharging 340B Covered Entities. The Final Rule becomes effective on March 6, 2017, but HRSA stated that it does not intend to enforce the regulation until April 1, 2017, when the following quarter begins.

Section 340B of the Public Health Services Act (“the Act”; codified at 42 U.S.C. § 256b) requires pharmaceutical manufacturers who participate in the Medicaid Drug Rebate Program (“MDRP”) to enter into a Pharmaceutical Pricing Agreement (“PPA”) with HHS, under which the manufacturer agrees to sell Covered Outpatient Drugs to statutorily designated Covered Entities at a price not exceeding a statutory “ceiling price.”

340B Ceiling Price and the Penny Pricing Policy

Section 7102 of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), (“ACA”) required HHS to develop a system to enable HHS to verify the accuracy of ceiling prices calculated and reported by manufacturers pursuant to the Act. HHS was required to develop and publish “precisely defined standards and methodology for the calculation of ceiling prices.” 42 U.S.C. § 256b(d)(1)(B)(i)(I).

The 340B ceiling price is calculated based on drug pricing data already reported by manufacturers to the Centers for Medicare and Medicaid Services (“CMS”) under the MDRP. The basic formula for the 340B ceiling price is to take the Average Manufacturer Price (“AMP”), defined under the MDRP as the average price wholesalers pay manufacturers for drugs that are sold to retail pharmacies, as reported quarterly to CMS, and subtract the Unit Rebate Amount (“URA”). The URA is the sum of the basic plus additional rebate. The basic rebate is calculated using a statutorily defined rebate percentage: 23.1 % of AMP for single source or multiple source innovator drugs, 17% of the AMP for clotting factors and drugs for exclusively pediatric indications, and 13% of the AMP for noninnovator drugs. An additional rebate may be due if the quarterly AMP increases at a rate greater than inflation, as measured by the Consumer Price Index—Urban. The URA can equal but not exceed 100% of the AMP for a period. Thus, for purposes of the 340B ceiling price calculation, AMP minus URA could equal zero, thereby resulting in a 340B ceiling price of $0. HRSA recognized that a ceiling price of $0 would be inconsistent with the Act and result in operational challenges. Therefore, HRSA finalized an exception that would set the ceiling price to $0.01 when the formula would result in a ceiling price of $0 — the “Penny Pricing Policy.”

According to the preamble of the Final Rule, many commenters “strongly objected” to HRSA’s Penny Pricing Policy. 82 Fed. Reg. 1216. Pharmaceutical manufacturers argued that HRSA’s rulemaking was arbitrary and capricious, that it would fail to cover the cost of goods and would result in an unlawful taking by the government, and that it would potentially result in drug shortages, diversion, stockpiling, and harm to patients. HRSA countered that the Penny Pricing Policy “reflects a balance between the equities of different stakeholders and establishes a standard pricing method in the market.” 82 Fed. Reg. 1215. HRSA explained that any alternative pricing methodology would result in a price that exceeds the statutory ceiling price formula, adding that the Penny Pricing Policy would impact manufacturers infrequently, as only approximately 1% of 340B drugs sold in the first quarter of 2016 had a calculated ceiling price of zero.

HRSA finalized regulations implementing its Penny Pricing Policy as originally proposed, creating an exception for 340B drugs with a calculated ceiling price of zero by imputing a ceiling price of $0.01 for such products.

340B Ceiling Price—New 340B Drugs

When new drugs enter the market, there are insufficient data available to calculate the AMP, and thereby, the 340B ceiling price. Therefore, HRSA finalized regulations that would set an estimated 340B ceiling price at wholesale acquisition cost (“WAC”) minus the rebate percentage appropriate for the drug category (i.e., single source/innovator multiple source, noninnovator). Once a manufacturer is able to calculate the AMP for a product—no later than four quarters after the drug is made available for sale in the U.S.—then manufacturers will be required to calculate the 340B price based on AMP. Importantly, if the difference between the estimated 340B ceiling price based on WAC and the actual 340B ceiling price based on AMP results in an overcharge to Covered Entities, then the manufacturer must offer a refund of the overcharged amount, or face potential liability under the CMP for charging a Covered Entity a price for a 340B drug that exceeds its ceiling price (see below). The Final Rule states that manufacturers must offer to refund or credit the difference within 120 days after the overcharge occurred.

Unlike previous HRSA guidance on new drug ceiling prices, the Final Rule requires manufacturers to affirmatively contact Covered Entities to offer repayment. However, manufacturers and Covered Entities may pursue “mutually agreed-upon alternative refund arrangements,” such as netting, crediting, or forgiving de minimus or insignificant overcharges. 82 Fed. Reg. 1218, 1220.

Manufacturer Civil Monetary Penalties

The Act provides that CMPs may be imposed upon a manufacturer operating under a PPA who knowingly and intentionally charges a Covered Entity a price for a 340B drug that exceeds the ceiling price. Authority to impose CMPs under the statute has been delegated to the HHS Office of Inspector General (“OIG”). The CMP is up to $5,000 per “instance” of overcharging. An instance of overcharging is defined as any order for a 340B drug at the National Drug Code (“NDC”) level (regardless of the number of units sold in the order), and cannot be offset by manufacturer discounts on other NDCs or discounts on the same NDC made on other transactions, orders, or purchases. Instances of overcharging can be associated with the initial purchase of a 340B drug or upon ceiling price recalculations due to MDRP drug pricing restatements when the manufacturer does not issue a refund or credit for the overcharge. The CMP applies to manufacturers regardless of whether the instance of overcharging occurs on purchases directly from the manufacturer or fulfilled through a wholesale distributor. In the preamble to the Final Rule, HRSA stated that charging a Covered Entity a price for a 340B drug that is higher than the ceiling price is not an overcharge if the Covered Entity does not identify the purchase as 340B-eligible at the time the purchase is made. Furthermore, Covered Entities are not permitted to reclassify a purchase as 340B eligible after such purchase has been made.

In the Proposed Rule, HRSA sought comments on how to define the “knowing and intentional” element of the CMP. In the Final Rule, HRSA declined to provide a bright line definition of this standard, but the preamble does provide examples of circumstances associated with overcharging a Covered Entity that would not be considered a knowing and intentional overcharge. These non-exhaustive examples included:

• “The manufacturer made an isolated inadvertent, unintentional, or unrecognized error in calculating the 340B ceiling price;

• “The manufacturer sells a new covered outpatient drug during the period the manufacturer is estimating a price based on this final rule, as long as the manufacturer offers refunds of any overcharges to covered entities within 120 days of determining an overcharge occurred during the estimation period;

• “When a covered entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase; or

• “When a covered entity chooses to order non-340B priced drugs and the order is not due to a manufacturer’s refusal to sell or make drugs available at the 340B price.”  82 Fed. Reg. 1221.

The future of this Final Rule is somewhat uncertain. If the provisions of the ACA authorizing HHS to establish regulations implementing CMPs and to develop standards for calculating ceiling prices are repealed by the new Congress, the specific statutory authority for the promulgation of the Final Rule will disappear. In that event, it is questionable whether the Final Rule would survive a challenge to HRSA’s rulemaking authority. See our previous post about PhRMA’s successful challenge to a previous HRSA rule implementing a 340B provision.

Congress also could disapprove or reject the Final Rule regardless of any action taken on the ACA. On November 17, 2016, the House passed the Midnight Rules Relief Act of 2016, H.R. 5982, 114th Cong. (2016), which would amend the Congressional Review Act to allow Congress, by joint resolution, to reject a group of regulations submitted by federal agencies for congressional review within the last 60 days of a legislative session of Congress during the final year of a President’s term. Currently, Congress must reject each regulation on a case-by-case basis. This bill has been referred to a Senate committee.

We will be closely monitoring the impact of the ACA repeal initiative and the Midnight Rules Relief Act on the 340B Program and other government discount programs, and will be posting updates on this blog.

As part of its end of year rush to issue guidance documents, FDA issued a final guidance document, Medical Device Accessories: Describing Accessories and Classification Pathway for New Accessory Types, on December 30, 2016. The title page of a guidance document rarely has anything to comment on, but in this case it is at least worth noting that FDA changed the title from “Defining Accessories” to “Describing Accessories.” Given that there is little more description in the final than there was in the draft guidance, on which we posted here, the purpose of this change is not clear.

The final guidance references the recently enacted Cures Act, which modified section 513(b) of the Federal Food, Drug & Cosmetic Act to require FDA to classify an accessory “based on the intended use of the accessory, notwithstanding the classification of any other device with which such accessory is intended to be used.” This statutory provision is consistent with the position FDA took in the draft and final guidances, in which FDA stated that if an accessory has a different risk profile than the parent, then it should be classified differently.

The final guidance, unlike the draft, includes a brief discussion of software products that meet the definition of an accessory, including those that meet the definition of “Software as a Medical Device (SaMD).” Although not specifically mentioned in the draft guidance, it was assumed that software meeting the definition of a medical device would have been included in the scope of the guidance. The final guidance clarifies that SaMD that meets the definition of a device and uses data from a medical device “does not automatically become an accessory for purposes of this guidance.” The example provided is a stand-alone software program that is intended to analyze radiological images or analyzes specific data parameters generated by a device. The guidance states that the software would be considered a SaMD “but would not be considered to support, supplement, and/or augment the performance of the device that generated the data, and therefore, would not be an accessory.” Although analyzing data from a device would not result in the software being deemed an accessory, the guidance states that software that may be used in combination with other devices may be considered an accessory. This apparent differentiation between the two different uses of the software is not entirely clear, nor is it clear why in one role the software would be deemed an accessory and in the other it would not—or what difference it would make from a regulatory classification perspective whether the software was deemed an accessory or an independent medical device.

The final guidance also includes a few more definitions than did the draft guidance. The draft defined only an accessory and a parent device, whereas the final also includes definitions for component and finished device. Additionally, the definition of an accessory has been modified to be defined as a “finished device” rather than just a “device,” though the extent to which the addition of “finished” may be helpful in distinguishing between a component and an accessory is not evident. It has long been accepted that an accessory is a finished device, subject to applicable regulatory requirements, whereas components are excluded from such regulation. Therefore, adding the word “finished” to the definition of “accessory” does not significantly alter industry’s historical understanding of an accessory versus a component, nor does it necessarily help distinguish between the two.

The examples of accessories provided in the guidance are largely unchanged from the draft, with one notable exception. The draft guidance included as an example of an accessory a rechargeable AED battery, which, as we noted in our prior blog post, seemed to push the limits as to what could reasonably be considered an accessory. The battery example is now absent from the final guidance, and the final guidance states: “non-device-specific off-the-shelf replacement parts (e.g., batteries, USB cables, computer mouse, etc.) may be used with a medical device, but FDA does not intend to consider these products to be accessories or medical devices.”

The focus on use of the de novo classification process remains, although the final guidance fails to provide any additional information regarding the suitability of that process for the vast majority of device accessories. As noted in the blog post regarding the draft guidance, the final guidance is not likely to alter the way in which most device accessories will come to market.

The Drug Enforcement Administration (“DEA”) published a final rule on December 30th revising its import and export regulations governing controlled substances, listed chemicals and tableting and encapsulating machines. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System (ITDS); Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 96,992 (Dec. 30, 2016) (hereinafter “Final Rule”).   The final rule implements recent amendments to the Controlled Substances Import and Export Act (“CSIEA”) for controlled substance reexports among members of the European Economic Area (“EEA”) as provided by the Improving Regulatory Transparency for New Medical Therapies Act. The final rule also revises reporting requirements for the unusual or excessive loss or disappearance of listed chemicals and for domestic transactions involving listed chemicals and tableting/encapsulating machines. DEA is also mandating electronic filing and reporting related to import/export permit applications, declarations and certain other import/export and domestic notifications and reports electronically through the DEA Diversion Control Division secure network application. The mandate represents DEA’s latest move from a paper-based system of applications, reports and communications to an electronic one.

In summary, while the electronic reporting and other technical amendments provide some benefits, in our view the Agency missed the opportunity to remove certain obstacles which have hindered re-exports of controlled substances since 2005. For example, DEA implemented certain required regulations based on the amendments to the CSIEA, but DEA rejected a comment to remove the 180-day re-export requirement on all exports. While the CSIEA amendments required that DEA eliminate this limit for exports to the EEA, the Agency could have eliminated this unreasonable restriction in all cases. Requiring product to be re-exported within an arbitrary 180 day time period has been a significant obstacle to many exporters where processing and distribution reasonably takes longer. Also, DEA rejected a request to limit re-export reporting where ownership is maintained by the U.S. exporter. In cases where the product has been transferred to other entities, complying with DEA reporting requirements within the 30 day limit is difficult and does not further U.S. interests.

While the final rule is effective on January 30, 2017, the industry has until June 28, 2017 to implement most of the requirements. We summarize the final rule’s most significant revisions below

1.    The Final Rule Requires Electronic Submission of Import/Export Permits, Declarations and Certain Reports

The CSIEA and regulations promulgated by DEA require importers and exporters of controlled substances to apply for permits, submit declarations and/or file certain reports. As noted in DEA’s Notice of Proposed Rulemaking, Executive Order 13659 of February 19, 2014 directs DEA and other federal agencies to have the capabilities, agreements and requirements in place to allow electronic filing through the International Trade Data System (“ITDS”) and other data systems required for imported and exported goods. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System; Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 63,576 (Sept. 15, 2016). The final rule mandates submission of all applications and filings electronically through the DEA Office of Diversion Control secure network application to integrate required import and export procedures through the ITDS as directed by Executive Order 13659.

DEA clarified that permits expire no later than 180 calendar days after issue rather than the less exacting “six months.” DEA has also clarified how importers and exporters may amend or cancel permits. Declarations must continue to be filed at least 15 calendar days before the anticipated date of release by a customs officer at the port of entry or port of export, and while declarations did not previously expire, they now expire no later 180 calendar days after issue. As with import/export permits, the final rule also clarifies how to amend or cancel import/export declarations.

2.    DEA Clarifies that Drop Shipments of Imports are Prohibited

There has been confusion within the industry as to whether imports of controlled substances could be drop shipped directly to customers. In many cases drop shipments are more efficient and reduces handling and the potential for diversion. Also, there have been cases where local DEA offices have been aware of such activity without objection further confusing whether such actions were permitted. However, in the final rule, DEA has clarified that the final destination of an import must be the registered location of the importer before being transferred to another location of the importer or delivered to a customer, thus prohibiting drop shipments.

3.    DEA Narrowly Interpreted its Obligations to Promulgate Regulations on the CSIEA Amendments

Not all controlled substance reexports are created equal. The Improving Regulatory Transparency for New Medical Therapies Act (“2015 Act”), amended the CSIEA to allow additional reexportation of certain controlled substances among members of the EEA. The final rule implements additional reexportation to EEA countries under the 2015 Act. The CSIEA had provided that schedule I or II controlled substances and narcotic drugs in schedule III or IV could be exported from the U.S. for subsequent reexport from the recipient country to a second country, but allowed no further reexports. The 2015 Act removed certain restrictions on reexporting if every subsequent recipient country is a member of the EEA. The final rule implements the following changes:

• Allows unlimited reexports among EEA countries;
• Eliminates the 180 day period to complete reexport from the first country to the second country and subsequent countries;
• Does not require bulk substances to undergo further manufacturing within the first EEA country if the substance is reexported within the EEA;
• Does not require the exporter to provide product and consignee information beyond the first country prior to export from the U.S.; and
• Establishes a new DEA Form 161R-EEA for reporting reexports among EEA members through the DEA Diversion Control Division secure network application.

Of note, one commenter requested that the reexport provisions should apply to EEA member countries as of November 25, 2015, noting that the United Kingdom was a member of the European Union at that time. DEA replied that the 2015 Act is devoid of language stating that the EEA includes all members as of November 2015 so for the EEA provisions to apply, a country must be a member at the time the export leaves the U.S.

Moreover, as discussed above, DEA refused to remove reexport restrictions outside of the EEA because the 2015 Act did not require it to do so. We continue to not see a distinction between EEA members and other signatories to the international treaties and disagree with DEA that the 180 day limit serves a useful anti-diversion or public policy function. 

4.    The Final Rule Provides Several Technical Amendments Regarding Listed Chemicals

The final rule requires regulated persons who import or export a listed chemical that meets or exceeds a threshold quantity to submit a declaration to DEA via a DEA Form 486/486A through the DEA Diversion Control Division secure network application also no later than 15 calendar days before the date of release by a customs officer at the port of entry or export. DEA requires notification at least three business days before the date of release by a customs officer at the port of entry for those entities with regular customer and regular importer status. Consistent with the controlled substance import/export permits, declarations expire in 180 calendar days. And as with controlled substance imports, the final destination of List I chemical imports must be the registered importer’s registered location. Brokers and traders must also electronically file notifications for international transactions involving listed chemicals that meet or exceed the thresholds not later than 15 calendar days before the transaction is to occur.

The final rule also mandates electronic submission of required monthly reports of domestic transactions involving ephedrine, pseudoephedrine, phenylpropanolamine, and gamma-hydroxybutyric acid (including drug products containing these chemicals/controlled substances) through the U.S. Postal Service or any private or commercial carrier required to be filed pursuant to 21 U.S.C. 830(b)(3). DEA is implementing a new DEA Form 453 to be completed and submitted through the DEA Diversion Control Division secure network application.

The final rule requires regulated persons to report orally, not in writing, any proposed regulated transaction with a person whose description or other identifying characteristic was provided by DEA, and DEA must approve the transaction. Regulated persons must orally report any regulated transaction involving an extraordinary quantity of a listed chemical, an uncommon method of payment or delivery, or any other circumstance the regulated person believes may indicate the chemical will be used in violation of the law at the earliest practicable opportunity to the DEA Field Division Office where they are located.

5.    DEA Created a New Reporting Requirement for Unusual or Excessive Losses or Disappearances of Listed Chemicals.

The final rule also requires regulated persons to report any unusual or excessive loss or disappearance of listed chemicals orally to DEA “at the earliest practicable opportunity”. The regulations create a new form, a DEA Form 107, that must be electronically submitted through the DEA Diversion secure network application within 15 calendar days after becoming aware of the circumstances. Importers are responsible for reporting listed chemical losses after a shipment is released by the customs officer at the port entry, and exporters must report losses until a shipment has released at the port of export.

The final rule establishes guidelines for determining whether a listed chemical loss or disappearance is unusual or excessive and thus reportable. The guidelines for determining whether a listed chemical loss is unusual or excessive include:

• The actual quantity of the listed chemical;
• The specific listed chemical involved;
• Whether the loss or disappearance can be associated with access by specific individuals, or can be attributed to unique activities involving the listed chemical;
• A pattern of losses or disappearances over a specific time period, whether the losses or disappearances appear to be random, and the result of efforts taken to resolve the losses; and
• If known, whether the listed chemical is a likely candidate for diversion and local trends and other indicators of the diversion potential.

DEA notes that “[t]his language,” meaning the unusual or excessive loss factors, “is similar to the current regulatory language relating to theft and loss of controlled substances in § 1301.74(c).” Final Rule at 97,007. We do not agree. First, it is unclear whether all thefts of listed chemicals must be reported or whether a theft only needs to be reported if it is “unusual” or “excessive.” Second, it is very ambiguous as to what would constitute an “unusual” loss or disappearance. Third, we do not believe the criteria established here equates to the requirement for controlled substances. For example, “Significant” (controlled substance losses) is not necessarily “excessive” (chemical losses). Fourth, how listed chemicals must be reported is also more ambiguous than what is required for controlled substances. While registrants must report controlled substance losses in writing within one business day of discovery and follow-up with a DEA-106, regulated persons must first report chemical losses orally “at the earliest practicable opportunity” followed 15 calendar days later by a DEA-Form 107 filed electronically.

6.    DEA Standardizes Transactions Involving Tableting and Encapsulating Machines

The final rule standardizes electronic reporting for regulated transactions involving tableting machines and encapsulating machines, including domestic, import, and export transactions, through use of a new DEA Form 452 through the DEA Diversion Control Division secure network application.

The final rule makes oral reporting of domestic transactions in tableting and encapsulating machines mandatory and requires electronic filing of the written report. Regulated persons must orally report domestic regulated transactions of a tableting machine or an encapsulating machine when an order is placed rather than at the earliest practicable opportunity after the regulated person becomes aware of the circumstances. Written DEA Form 452 must be filed within 15 calendar days after the order has been shipped by the seller.

DEA requires submission of Form 452 through the DEA Diversion Control Division secure network application 15 calendar days before the anticipated date of arrival at the port of entry or port of export. An importer or exporter cannot initiate a transaction involving a tableting machine or encapsulating machine until DEA has issued a transaction identification number. DEA also requires import shipments of tableting machines or encapsulating machines that have been denied release by customs to be reported to DEA through the DEA Diversion Control Division secure network application within five business days of denial.

To complete our initial summaries (see here, here, and here) of the 21st Century Cures Act (Act), we want to highlight the three health care provisions included in Title IV – Delivery and Title V – Savings that we think are of most relevance to our readers.

Sec. 4010. Medicare pharmaceutical and technology ombudsman.

Section 4010 creates a new pharmaceutical and technology ombudsman within the Centers for Medicare & Medicaid Services (CMS). This will provide an avenue for drug and device manufacturers to communicate with CMS about coverage, coding, and payment issues under Medicare Parts A, B, and D. The new ombudsman must be in place no later than 12 months after the date of enactment of the Act.

Sec. 5004. Reducing overpayments of infusion drugs.

Section 5004 addresses findings from an OIG report that determined Medicare has overpaid for certain drugs and underpaid for others by applying a new pricing methodology to better reflect actual transaction prices. The payment amount for Part B infusion drugs furnished through durable medical equipment will be set to Average Sales Price (ASP) plus 6% beginning on January 1, 2017. These drugs were previously paid based on 95% of the Average Wholesale Price (AWP) in effect on October 1, 2003.

Sec. 5012. Medicare coverage of home infusion therapy.

Section 5012 updates the payment policy for home infusion therapy by implementing a single payment for items and services furnished by a qualified home infusion therapy supplier. The single payment unit is for each infusion drug administration calendar day in the patient’s home. In addition, this section requires the Secretary to designate organizations to accredit suppliers furnishing home infusion therapy by January 1, 2021. This section applies to items and services furnished on or after January 1, 2021.

We would also like to remind our readers that Hyman, Phelps & McNamara, P.C. (“HP&M”) will hold complimentary webinars on Thursday, January 12, 2017 from 12:00-1:30 PM (Eastern) and Wednesday, January 18, 2017 from 12:00-1:30 PM (Eastern).

During the January 12 webinar, Frank Sasinowski, David Clissold, and James Valentine, with Michelle Butler moderating, will focus on the pharmaceutical and biologics provisions. Jeff Shapiro and Allyson Mullen will focus on the device and combination products provisions during the January 18 webinar. See our previous announcement for more details.

Both webinars will provide a question and answer period and attendees will have an opportunity to submit questions during the webinar. Responses to any questions that are not addressed will be available on the HP&M firm website after the webinar.

You can register for the first webinar here and the second webinar here

Please contact Lisa Harrington at lharrington@hpm.com with any registration questions.

If you have questions or need more information about the health care provisions in the Act, please contact:

• Michelle L. Butler, mbutler@hpm.com, 202-737-7551
• Alan M. Kirschenbaum, akirschenbaum@hpm.com, 202-737-4283
• Jeffrey N. Wasserstein, jwasserstein@hpm.com, 202-737-9627
• David C, Gibbons, dgibbons@hpm.com, 202-737-4286
• Serra J. Schlanger, sschlanger@hpm.com, 202-737-4593

Last week, FDA finalized the guidance document, “Postmarket Management of Cybersecurity in Medical Devices.” We previously blogged on the draft guidance released in early 2016 (here). The final guidance is similar to the draft issued in early 2016. There are, however, several noteworthy and significant edits.

In our view, the most significant of these edits is that FDA has changed nearly all references to “essential clinical performance” to “patient harm.” This change appears to shift the way in which FDA plans to evaluate cybersecurity risk—from essential clinical performance to the potential for patient harm. Specifically, FDA modified the purpose of the guidance to read, “this guidance recommends how to assess whether the risk of patient harm is sufficiently controlled or uncontrolled. This assessment is based on an evaluation of the likelihood of exploit, the impact of exploitation on the device’s safety and essential performance, and the severity of patient harm if exploited.” As exemplified by this quote, patient harm is now a key element of the final guidance.

The draft guidance dedicated several sections to defining and discussing essential clinical performance. It stated:

essential clinical performance means performance that is necessary to achieve freedom from unacceptable clinical risk, as defined by the manufacturer. Compromise of the essential clinical performance can produce a hazardous situation that results in harm and/or may require intervention to prevent harm.

Thus, while the shift from essential clinical performance to patient harm is significant for purpose of the guidance, it may ultimately be simpler for manufacturers to apply. Essential clinical performance incorporated the concept of harm, but also used more amorphous concepts such as acceptable and unacceptable clinical risk. These elements may have been difficult for manufacturers to determine on a case-by-case basis. Patient harm appears to be more straightforward and in line with standards that the device industry is already used to, including for example, reporting corrections and removals under 21 C.F.R. Part 806, which is required when the action is undertaken to reduce a risk to health.

A few additional important changes include:

• FDA added a new definition section discussing patient harm. The term “patient harm” was not used at all in the draft guidance. Thus, it was essential for FDA to provide additional clarity regarding this term. The final guidance defines patient harm “as physical injury or damage to the health of patients, including death. Risks to health posed by the device may result in patient harm.”

• FDA added a new Section IX to detail what it means to actively participate in an Information Sharing Analysis Organization (ISAO). ISAOs are public-private partnerships that, according to the guidance, “gather and analyze critical infrastructure information in order to better understand cybersecurity problems and interdependencies, communicate or disclose critical infrastructure information to help prevent, detect, mitigate, or recover from the effects of cyber threats, or voluntarily disseminate critical infrastructure information to its members or others involved in the detection and response to cybersecurity issues.” Both the draft and final guidances state, “the Agency considers voluntary participation in an ISAO a critical component of a medical device manufacturer’s comprehensive proactive approach to management of postmarket cybersecurity threats and vulnerabilities and a significant step towards assuring the ongoing safety and effectiveness of marketed medical devices.”

• FDA expanded the scope to expressly include mobile medical applications (MMAs). MMAs could have been inferred from the original scope which included all devices.

• Both the draft and final state that software changes made to strengthen cybersecurity are not typically subject to Part 806 recall reporting requirements so long as they meet certain criteria. One such criteria in the draft guidance required implementing device changes and compensating controls within 30 days of becoming aware of the cybersecurity vulnerability. The final guidance modified this requirement to be that as soon as possible, but no later than 30 days after becoming aware of the cybersecurity vulnerability, a manufacturer must “communicate with . . . customers and user community regarding the vulnerability, identify interim compensating controls, and develop a remediation plan to bring the residual risk to an acceptable level.” The final guidance adds several other requirements regarding this process and timing.

• The final guidance adds that upgrades to increase confidentiality protection (i.e., cybersecurity) are also not generally subject to Part 806 reporting.

• Both the draft and final guidances indicate that routine cybersecurity updates and patches will not generally require premarket review. The final guidance adds, however, that cybersecurity routine updates and patches could change other functionality of the device, and therefore must be assessed to determine whether premarket review is required.

• One of the recommendations in the draft and final guidance for remediating a cybersecurity threat is to “identify and implement compensating controls to adequately mitigate the cybersecurity vulnerability risk.” The final guidance notes that manufacturers should consider the knowledge and expertise necessary to properly implement the recommended control.

• The final guidance adds a new section titled “Examples of Vulnerabilities Associated with Controlled Risk and their Management.” In this section FDA provides four examples of instances in which a device manufacturer becomes aware of a cybersecurity vulnerability after a device has been commercialized. The examples describe the manufacturer’s evaluation as to whether the risk of patient harm is controlled or uncontrolled and the manufacturer’s response. In all three examples, the risk of patient harm is controlled, and consequently, the resulting routine update or patch to address the cybersecurity vulnerability does not need to be reported to FDA. While these examples are helpful, there are no corresponding examples of when the risk is uncontrolled and reporting under Part 806 would be required.

• In assessing uncontrolled risk, the final guidance states that “manufacturers should consider the exploitability of the vulnerability and the severity of patient harm if exploited.”

This list of some of the most significant changes in the final guidance highlights a key point we made in our post on the draft guidance: this guidance imposes significant new requirements on manufacturers of devices with potential cybersecurity vulnerabilities. For legacy products, manufacturers may need to consider cybersecurity vulnerability for the first time in its product’s life cycle. This can be a daunting task. However, like the draft guidance, the final guidance provides no additional information as to how FDA plans to enforce the recommendations set out in this guidance. Thus, only time will tell how (or if) FDA will choose to enforce the need for cybersecurity in medical devices in the postmarket setting.

On December 21, FDA announced the availability of a draft guidance for lead levels in cosmetics. As further described in that draft guidance, FDA has concluded that use of lipstick and externally applied cosmetics that meet the recommended maximum lead level of 10 ppm would not pose a public health risk. The 10 ppm level is consistent with international levels.

The draft guidance is in response to a June 2011 Citizen Petition (Docket No. FDA-2011-P-0458) submitted by the Personal Care Products Council (PCPC).  Congress repeatedly had directed FDA to respond to the Petition. Apparently, the delay in response was (at least partly) due to FDA’s research regarding lead levels in cosmetics and the health effects of these levels. FDA published “supporting documents” that present the details of FDA’s research, the scientific and legal background, and the Agency’s rationale for the recommended maximum level of 10 ppm.

Prior to 2011, FDA analyzed the lead content of more than 400 cosmetic lip products and updated its webpage regarding lead levels in lipstick and other cosmetics. Since then (presumably in response to the Citizen Petition), the Agency conducted two additional surveys of lip products and two surveys of externally applied cosmetics, including eye shadows and body lotions. All in all, the surveys provided results for lead content in 685 cosmetic lipand externally applied cosmetic products.  In all but four externally applied cosmetics, the lead level was below 10 ppm. After completing testing of cosmetics products and an exposure analysis (also described in detail in the supporting documents), FDA is granting the petition.

FDA stresses that this limit concerns the lead that is unavoidable despite adherence to good manufacturing practice and appropriate sourcing of raw materials. Companies are encouraged to keep the levels as low as possible. Moreover, FDA will take enforcement action against products that contain lead levels that may harm consumers.

Comments on the draft guidance may be submitted any time, but to be considered in finalizing the guidance, they should be submitted by February 21, 2017.

Our firm has previously posted some summaries of the 21st Century Cures Act (Cures Act), which the President signed into law on December 13, 2016 (Public Law No. 114-255). (Those summaries are available here, here, and here.)

This post focuses on only one section of the new law: Section 3060, “Clarifying Medical Software Regulation.” We covered the basics of Section 3060 in our prior summary, but thought it would be worthwhile to delve a little further in a separate post.

Section 3060 amends the Food, Drug, and Cosmetic Act (FDCA) to exclude from the definition of a “device” software intended:

(A) “for administrative support of a health care facility, including the processing and maintenance of financial records, claims or billing information, appointment schedules, business analytics, information about patient populations, admissions, practice and inventory management, analysis of historical claims data to predict future utilization or cost-effectiveness, determination of health benefit eligibility, population health management, and laboratory workflow;”

(B) “for maintaining or encouraging a healthy lifestyle and is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition;” and

(C) “to serve as electronic patient records, including patient-provided information, to the extent that such records are intended to transfer, store, convert formats, or display the equivalent of a paper medical chart, so long as” such records “were created, stored, transferred, or reviewed by health care professionals, or by individuals working under supervision of such professionals” and the software “is not intended to interpret or analyze patient records, including medical image data, for the purpose of the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition.”

The exclusion of the above classes of software from the FDC Act should not be controversial. Category A are obviously not medical devices. Categories B and C are arguable, but FDA has said already that, even if these types of software fall within the definition of a medical device, as a matter of agency enforcement discretion, FDA does not intend to regulate them. Now Congress has taken them off the table altogether.

The fourth exclusion provided in the Cures Act is software intended:

(D) “for transferring, storing, converting formats, or displaying clinical laboratory test or other device data and results, findings by a health care professional with respect to such data and results, general information about such findings, and general background information about such laboratory test or other device,” unless the software “is intended to interpret or analyze clinical laboratory test or other device data, results, and findings.”

Category D above appears to include products meeting the definition of either a medical device data system (MDDS) or a laboratory information system (LIS). FDA has previously announced it is exercising enforcement discretion not to regulate MMDS; this provision codifies that position. FDA currently regulates LIS as 510(k)‑exempt Class I devices under 21 C.F.R. § 862.2100, product code NVV. An LIS is “intended to store, retrieve, and process laboratory data.” FDA has continued to apply the quality system regulation (QSR) to these devices. Under the exclusion above, LIS products will now not be subject to the QSR or any other regulatory requirements at all.

The last type of software excluded from the definition of a device is software intended:

(E) unless the function is intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system, for the purpose of –

(i) displaying, analyzing, or printing medical information about a patient or other medical information (such as peer-reviewed clinical studies and clinical practice guidelines);

(ii) supporting or providing recommendations to a health care professional about prevention, diagnosis, or treatment of a disease or condition; and

(iii) enabling such health care professional to independently review the basis for such recommendations that such software presents so that it is not the intent that such health care professional rely primarily on any of such recommendations to make a clinical diagnosis or treatment decision regarding an individual patient.

The software described in the above provision is commonly known as “clinical decision support software” (CDSS). It is well known that FDA has been mulling CDSS guidance for the past few years. However, it has never issued draft guidance. The closest FDA has come is the Mobile Medical Apps guidance (Feb. 2015), which classifies mobile apps as medical devices if they perform “patient‑specific analysis and provid[e] patient-specific diagnosis, or treatment recommendations.” This statement suggests that FDA intended to regulate CDSS. However, it is possible that the CDSS guidance, had it been issued, would have walked that position back to some extent. In any event, Section 3060 resolves the status of CDSS more definitively than FDA guidance could have, by excluding CDSS from the definition of a medical device altogether.

The application of the definition in Category E will not always be self‑evident. There are questions about what it means for a health care professional to “independently review” the basis for software recommendations. Surely it does not require that the health care professional understand how the software reached a recommendation at the level of software coding and algorithms. It would be more reasonable to infer that the software must provide a sufficient level of transparency to allow a health care professional to discern the clinical basis of a recommendation. How exactly that must be accomplished will have to be worked out by FDA in guidance and administration and implementation of the statute.

In many cases, it may be sufficient for the software to provide links to the underlying clinical literature or guidelines. But what if the software uses “big data” from hospital records to derive recommendations for a patient? What information must the health care professional be given? And may the recommendations have confidence levels attached, if they are worked out with complicated probabilistic analysis? If so, what must be said about how the confidence levels are derived or should be used?

Another question is how the intended use environment factors in. For example, healthcare professionals have different levels of training and expertise. One of the benefits of CDSS is to encode the expertise of the best trained and most experienced doctors and make it available to other doctors. Yet, the latter are likely to rely more heavily on the software recommendations than would the best trained and most experienced doctors. Does that bring the CDSS under FDA regulation? FDA has long been prohibited under the statute from restricting devices to particular classes of health care practitioners based upon training or experience (see FDCA § 520(e)). However, the question here is whether the software is or is not to be regulated as a medical device. Therefore, it is not so clear that FDA may not make distinctions among the health care practitioners for whom the CDSS is intended when determining if it is regulated.

There is one more aspect of Category E we have not discussed. The clause that begins “unless the function is intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system” designates software products that are excluded from Category E and will continue to be fully FDA regulated as medical devices.

Had this clause not been included, one could argue that computer‑assisted detection or diagnostic (CAD) devices that analyze image data (e.g., identifying suspicious lesions in a CT scan) and in vitro diagnostic devices are a type of CDSS. Nonetheless, FDA has a long history of regulating these types of devices. This language ensures that FDA will continue to do so.

Section 3060 also gives FDA authority to bring some excluded CDSS software back under its jurisdiction. FDA may bring software described in Categories C, D, or E, above, back under its jurisdiction if it makes certain findings regarding: (1) the likelihood and severity of patient harm if the software does not perform as intended, (2) the extent to which the software is intended to support the clinical judgment of a health care professional, (3) whether there is a reasonable opportunity for a health care professional to review the basis of the information or treatment recommendation, and (4) the intended user and use environment.

For FDA to determine that software excluded from the device definition should in fact be regulated, FDA must publish a notification and proposed order in the Federal Register, and must include its rationale and evidence on which it is relying for the conclusion that such software should be regulated. The notice must allow for at least 30 days of public comment before issuing a final order or withdrawing the proposed order.

Section 3060 requires the Secretary of Health and Human Services to publish a report, within two years of enactment of the Cures Act and every two years thereafter, that includes input from industry, consumers, patients, health plans, and other “stakeholders with relevant expertise.” The report must include information about any risks and benefits associated with the software functions provided in the Cures Act, and “summarizes findings regarding the impact of such software functions on patient safety, including best practices to promote safety, education, and competency related to such function.” Time will tell how this information may be used to further modify FDA’s authority over software.

For now, the software exclusions in Section 3060 of the Cures Act are welcome news to an industry that has been struggling with the question of whether its products are subject to FDA regulation, particularly in the area of CDSS. The new clarity will allow innovative software developers to move forward with greater confidence as to whether a product will or will not be regulated by FDA as a medical device.

In June 2016 CDRH released the draft guidance “Factors to Consider Regarding Benefit-Risk in Medical Device Product Availability, Compliance, Enforcement Decisions” (see our earlier post here). In the waning days of 2016, CDRH finalized the guidance.

The final guidance is largely unchanged from the draft with CDRH making mostly minor clarifying changes. A few of these changes are noteworthy, including:

• Clarifying that manufacturers wishing to provide relevant risk-benefit information, including data and calculations, should contact FDA or provide it to the FDA contact person for the matter.
• Noting that the guidance is adopting the definitions for serious injury and malfunction from 21 C.F.R. Part 803.
• Adding further information regarding how the Agency will assess uncertainty, one of the factors considered as part of the overall benefit-risk assessment. The added language focuses on the real-world data being assessed, including its type, the degree to which it is representative of the intended use population, and statistical inferences and limitations.

Finally, CDRH also added one new example of a benefit-risk assessment in the hypotheticals section of the guidance. This additional hypothetical is a situation in which a marketed OTC pregnancy test is found to have a higher rate of false positive results than expected based on data submitted in the 510(k).  CDRH reviewed the benefits, risks, patient tolerance for risk, mitigation, and patient impact, and concluded that, given the number of other similar products on the market, and the possibility that a false positive could delay certain medically necessary treatments, the risks of continuing to make the affected lots available outweighed any potential benefits.  In the hypothetical, the manufacturer notified retailers and distributors to remove the affected lots, and FDA classified that removal as a Class II recall.

Both the draft and final guidances state, almost in passing, that FDA intends to use pilots “to help determine how to apply the benefit-risk framework described” in the guidance. There is no further discussion of what these pilots will include, when they will be conducted, whether the public will have any input, or whether FDA will provide the results of the pilots to the public. It would be very useful to industry for FDA to publish the results of these initial pilot cases to further allow the public to see how CDRH plans to implement the guidance. The information could be published in an anonymized fashion as to protect the companies with whom CDRH is working.  Even if it does not give industry any further information, it is clear that any company facing an enforcement action or a potentially significant product shortage situation due to a recall should contact CDRH and make as strong a case as it can for enforcement discretion based on the factors laid out in the final guidance.

Week 52 is often more laid back than any of the other 51 weeks in the calendar year. It offers us a chance to sift through and clean out the office in preparation for yet another busy year.  But it’s also a chance for this blogger to catch up on some pleasure reading – you know, Citizen Petitions, FDA letter decisions, NDA Approval Packages, and law review and other similar academic articles on food and drug law – with my album of the year (“Subway Gawdz” by Too Many Zooz) in the iTunes playlist rotation.  If you too have a few minutes to spare this week, then below is a list of food and drug law-related articles (including an abstract of each article) that we think are worth a read.  Although we may not agree with some of the positions staked out in some of the articles, good research and writing is always appreciated and a pleasure to read.  Happy reading!

Empirical Evidence of Drug Pricing Games – A Citizen’s Pathway Gone Astray
Robin Feldman, Evan Frondorf, and Andrew K. Cordova
University of California Hastings College of the Law

The FDA’s citizen petition process was created in the 1970s as part of an effort to fashion more participatory regimes, in which ordinary citizens could access the administrative process. The theoretical underpinnings hypothesize that a participatory structure will prevent regulatory agencies from being captured by the very industries they were intended to police. Anecdotal evidence suggests, however, that the FDA’s citizen petition process may have taken a different turn. This empirical study explores whether pharmaceutical companies are systematically using citizen petitions to try to delay the approval of generic competitors. Delaying generic entry of a drug — even by a few months — can be worth hundreds of millions of dollars of additional revenue, a cost ultimately born by consumers and government agencies in the form of high drug prices.

The study results provide empirical evidence that the citizen petition process at the FDA has now become a key avenue for strategic behavior by pharmaceutical companies to delay entry of generic competition It is a far cry from the “participatory citizen” notion that fueled the creation of such avenues at regulatory agencies. The article concludes by examining the nature of the problem and exploring the feasibility of three types of approaches to curb the behavior. These include: 1) a simple prohibition, if one were to conclude that most behavior in the category is likely to be inappropriate; 2) procedural blocks to ensure that the behavior cannot create sub-optimal results; or 3) punitive measures as a deterrent.

The Law of 180-Day Exclusivity
Erika Fisher Lietzan, University of Missouri School of Law
Julia Post, Covington & Burling LLP

In 1984, Congress created a statutory pathway for approval of generic drug applications and included an incentive for generic applicants to challenge the patents claiming the reference drugs on which they based their applications. The first generic applicant to file an ANDA with a patent challenge is eligible for 180 days of generic market exclusivity. This article is the fourth in a series of articles describing the resulting body of law, as interpreted and applied by FDA (in regulations, guidances, citizen petition responses, and individual decisions awarding and denying exclusivity) and the courts. The heart of the article is section II, which discusses a series of twenty-eight discrete interpretive issues, arranged in five categories: which rules apply, earning exclusivity, forfeiture of exclusivity, commencing the exclusivity term, and enjoyment (use) of the exclusivity term. It devotes considerable attention to developments since 2009 (our last article): new issues that have arisen relating to 180–day exclusivity generally, such as premature notice of paragraph IV certification, as well as the body of law emerging around the forfeiture provisions enacted in 2003. Section III briefly discusses three policy issue arising out of the 180–day exclusivity scheme: the impact of the scheme on subsequent generic applicants, the relationship between the scheme and patent settlements, and authorized generics — noting key judicial, legislative, and academic commentary on each. The Article concludes with a discussion of recent and pending legislative proposals that indirectly or directly address 180–day exclusivity and notes the exclusivity for interchangeable biologics that was modeled, in part, on the generic drug precedent.

Regulatory Property: The New IP
Robin Feldman
University of California Hastings College of the Law

For thirty years, a new form of intellectual property has grown up quietly beneath the surface of societal observation. It is a set of government-granted rights that have the quintessential characteristic of intellectual property and other forms of property — that is, the right to exclude others from the territory.

The impact of this form of IP on the US health care system, in particular, is enormous. In 2014, more than 40% of all new drugs approved by the FDA came through just one of these portals, with the companies collecting regulatory property rights along the way.

Some forms of this regulatory property are quasi-patent. Other forms are quasi-trade secret. Finally, some forms of this regulatory property are more like pure personal property, in that these benefits can be sold or traded on the open market. Sprawling and incremental, the system has grown by accretion as various groups have succeeded in making good arguments that they, too, should have a benefit. When accidental property combines with a system that is largely hidden from view, the danger is great.

Treating regulatory property in its rightful place among the pantheon of intellectual property rights allows appropriate analysis of the interactions among these powerful forces. It isn’t just a matter of labelling these phenomena as forms of property. It is a matter of understanding and making sense out of them as a coherent whole, as well as making sense of how they interact with other types of rights to exclude, such as patent and trade secret.

The Myths of Data Exclusivity
Erika Fisher Lietzan
University of Missouri School of Law

This article contributes to an ongoing academic and public policy dialogue over whether and on what terms U.S. law should provide “data exclusivity” for new medicines. Five years after a new drug has been approved on the basis of an extensive application that may have cost more than one billion dollars to generate, federal law permits submission of a much smaller application to market a duplicate version of the drug. This second application is a different type of application, and it may cost no more than a few million dollars to prepare. A similar sequence is true for biological medicines: twelve years after approval of an application that may have cost over one billion dollars to generate, the law permits approval of a smaller and less expensive application for a duplicate. Scholars, courts, and policymakers use the phrase “data exclusivity” to describe the period before the new pathway opens – a nod to the fact that applications of the second type rely on the research submitted by the first entrant. The primary “myth” of data exclusivity is that it is a benefit provided by the government for the benefit of first entrants. This article reframes data exclusivity instead as a period of time during which all firms are subject to the same rules governing market entry. It uses this insight as the foundation for an exploration of the complex web of legal, regulatory, and practical factors that may influence whether and on what terms firms enter the market with duplicates during and after that period, and for a systematic comparison of the new drug exclusivity and biological product exclusivity schemes in order to propose an approach that could prompt strategic decisions – both during and after that period – that will contribute to dynamic social welfare.

The Uncharted Waters of Competition and Innovation in Biological Medicines
Erika Fisher Lietzan
University of Missouri School of Law

Six years ago, Congress fundamentally changed how federal law encourages the discovery and development of certain new medicines and for the first time authorized less expensive “duplicates” of these medicines to be approved and compete in the marketplace. The medicines at issue are biological medicines, generally made from, or grown in, living systems. Many of the world’s most important and most expensive medicines for serious and life–threatening diseases are biological medicines.

We have a profound interest in understanding and evaluating the impact of this legislation on innovation and competition. Scholars and courts considering this question may be tempted to reason from, or analogize to, experience with generic drugs. And the 2010 biosimilar law was similar to the 1984 generic drug statute in basic purpose and structure. But the biologic framework as a whole — the complete landscape within which innovation and competition in biological medicines take place — is profoundly different from anything that scholars and courts have seen before.

This Article is the first to offer a high level description of the framework organized around the characteristics that define it and distinguish it from the conventional drug framework. It argues that unlike the drug framework, the framework for competition and innovation in biologics is variable and dynamic. And it argues that biologic framework separates and distinguishes patents, both conceptually and functionally, from the regulatory paradigm. As a result, although scholars and policymakers focusing on innovation incentives and competitive behavior with respect to medicines have decades of experience with the generic drug paradigm, there is a meaningful risk that this experience is mostly irrelevant when it comes to biologics. This article provides the basis for understanding both the specific differences and broader thematic divergence at play in the biologic paradigm.

Citizen Petitions: Long, Late-Filed, and At-Last Denied
Michael A. Carrier & Carl J. Minniti III, Rutgers Law School

The pharmaceutical industry is ground zero for many of the most challenging issues at the intersection of antitrust and intellectual property (IP) law. It also presents a complex regulatory regime that is ripe for anticompetitive behavior. It thus should not be a surprise that the industry has been subject to rigorous antitrust scrutiny in recent years.

While settlements between brand and generic firms and “product hopping” from one version of a drug to another have received attention, one behavior has avoided serious scrutiny. Brand firms’ filing of citizen petitions with the U.S. Food and Drug Administration (FDA) has almost entirely slipped beneath the radar. While citizen petitions in theory could raise concerns that a drug is unsafe, in practice they bear a dangerous potential to extend brand monopolies by delaying approval of generics, at a potential cost of millions of dollars per day.

This Article offers an empirical study of “505(q)” citizen petitions, which ask the FDA to take specific action against a pending generic application. It analyzes every 505(q) petition filed with the FDA between 2011 and 2015, documenting (1) the number of petitions each year, (2) who files the petitions, (3) the success rate of the petitions, (4) the petitions’ length, (5) whether petitions were filed in close proximity to the expiration of a patent or data exclusivity date, and (6) occasions in which the FDA approved generics on the same day it decided petitions.

The study finds that brand firms file 92% of 505(q) petitions. And it concludes that the FDA grants an astonishingly low 8% of petitions, rejecting a full 92%. Why is the grant rate so low? We consider several reasons. First, in the past 5 years, the average length of petitions has more than doubled, and the FDA almost never grants petitions with a length above the mean. Second, 39% of petitions are filed within 6 months of the expiration of a patent or FDA exclusivity date, with almost all of these petitions denied. Third, the FDA resolved a number of petitions on the same day it approved the generic, likely delaying generic entry. These three settings result in grants of only 3%, 2%, and 0%, respectively.

The Article concludes by offering examples of serial petitions, late-filed petitions, and a combination of petitions with other behavior such as product-hopping and settlements. In short, citizen petitions represent a hidden tool in brands’ toolkit of entry-delaying activity, and when used inappropriately force consumers to pay high drug prices while providing no offsetting safety benefit.

Memo To The President: The Pharmaceutical Monopoly Adjustment Act Of 2017
Alfred Engelberg

Since 1980, Congress has enacted many laws granting pharmaceutical manufacturers monopolies that no other industry enjoys. These extra monopolies were created with the expectation that monopoly profits would spur greater investment in research to find important new drugs.  In fact, they have caused US consumers to pay higher prices for medicines for longer periods of time while making the pharmaceutical industry far more profitable than any other industry.  I believe the next president and Congress should take several key steps, which I outline below, to roll back these costly, unnecessary monopolies.

The Need for FDA Reform: Four Models
Adam D. Thierer & Michael Patrick Wilt
George Mason University – Mercatus Center

The Food and Drug Administration, one of the oldest regulatory agencies, is showing unfortunate signs of age, particularly in its drug and device approval process. The approval process was established with the best of intentions — namely, to keep unsafe products off the market — but it has always come at a cost in terms of delaying life-enriching, and even lifesaving, drugs and devices.

The current cumbersome approval process generates both expense and uncertainty for inventors. The slow pace of approvals from the agency imposes avoidable suffering on patients, even as the FDA falls further behind technological progress. The agency’s review process needs to undergo comprehensive reform to streamline the process so that it may keep pace with modern developments and the need for speedier drug and device approval. The most important reform is for policymakers to determine where the FDA has a comparative advantage and where the private sector can take on some of the duties that the FDA has been performing.

The consequences of failing to implement comprehensive reform will be profound for innovators and, ultimately, patients. This policy brief summarizes four models for reform proposed by scholars affiliated with the Mercatus Center at George Mason University and others which would change how medical products are brought to markets and removed from markets by creating a process to adapt to technological growth and consumer demand in the 21st century.

A Second Look at the CREATES Act: What’s Not Being Said
Erika Fisher Lietzan
University of Missouri School of Law

The recently introduced CREATES Act would require innovative drug companies to sell their products to their competitors, and it would also require these companies to share with these same competitors the use and distribution arrangements they developed to manage the risks of the products. Supporters describe the bill as the latest remedy for the “regulatory abuse” and “predatory delay tactics” of the innovating pharmaceutical companies and thus part of a broader program to address high drug prices. Earlier proposals relating generally to the same topic, but differing in approach, were introduced in 2014 and 2015 but failed to move forward. Several recent drug pricing controversies have placed the pharmaceutical industry in the spotlight, however, and momentum for the proposal has picked up.

This brief article offers important additional context for understanding the proposal by laying out some of the things that are not being said — about use and distribution restrictions associated with new medicines, about the underlying complaints from the generics industry, and about the design and likely effect of the bill. The first part explains pharmaceutical risk management and FDA’s decades–old practice of requiring use and distribution restrictions for certain drugs to manage risk. The second part critically assesses the complaints levied against the research–based companies and the proposals offered to address those complaints. The final part explores the possible practical effects of the proposed legislation and broader implications for innovation policy.

Drug Shortages, Pricing, and Regulatory Activity
Christopher Stomberg
University of California, San Diego – Department of Economics

This study examines the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States. While shortages for injectable drugs have garnered more attention, shortages of other forms of prescription drugs have also been on the increase. In fact, they follow a strikingly similar trend with a number of important tablet drugs having recently been affected by shortage. This poses important questions about the root causes of these trends since most explanations found in the literature are specific to generic injectable drugs. Using a simple heuristic framework, three contributing factors are explored: regulatory oversight, potential market failures in pricing/reimbursement, and competition. This paper features an empirical examination of the contribution of changes in regulatory oversight to drug shortages. A pooled dynamic regression model using FDA data on inspections and citations reveals a statistically significant relationship between FDA regulatory activity (inspections and citations) and drug shortage rates. This result cuts across both injectable and non-injectable drugs, and could reveal a transition in equilibrium quality that should be transitory in nature, but it should also be interpreted with care given the other factors likely affecting shortage rates.

Pharmaceutical Antitrust: What the Trump Administration Can Do
Michael A. Carrier Rutgers Law School

Drug prices are in the news. “Pharma Bro” Martin Shkreli increased the price of Daraprim, a treatment for fatal parasitic infections, by 5000%. Mylan found itself on the hot seat for raising the price of the anaphylaxis-treating EpiPen 15 times in 7 years, resulting in a 400% increase to more than $600. Politicians rail about the harms of high drug prices.

What can the next Administration do? A lot. This article shows how — even without directly regulating price — it can use antitrust law to reduce prices by challenging an array of anticompetitive behavior. It can target settlements by which brand drug firms pay generics to delay entering the market. It can go after “product hopping,” by which a brand firm switches from one version of a drug to another to forestall generic competition. It can target distribution restrictions that brands have instituted to block generics. And it can challenge other conduct in the industry.

In short, antitrust law has a vital role to play. Antitrust is about competition, which lowers prices and increases choice. Consumers in the pharmaceutical industry suffer harms as directly in this setting as anywhere. High drug prices have resulted in patients not being able to take vital medicines or splitting pills in half. To add insult to injury, this anticompetitive behavior typically is not justified based on innovation or patents. The agencies in the next Administration have important tasks ahead of them in targeting conduct in the pharmaceutical industry.

The Scope of Preemption under the 2009 Family Smoking Prevention and Tobacco Control Act
Sam Halabi, University of Missouri School of Law

The 2009 Family Smoking Prevention and Tobacco Control Act endeavored to alter the regulatory regime for tobacco products in the United States by allocating authority to regulate tobacco products to the U.S. Food and Drug Administration (FDA). While the law aims at greater transparency in the constituent components of cigarettes and non-combustible tobacco products, it also includes a provision which will bring FDA’s consumer protection and tobacco control mandates into tension: Section 911’s process for the approval of modified risk tobacco products. That provision allows tobacco manufacturers to submit applications to label products as “reduc[ing] the harm or the risk of tobacco-related disease associated with commercially marketed tobacco products.” As public health researchers have noted, Section 911 threatens to codify and authorize long-standing industry practices of asserting or implying health-promotion or harm-limiting claims that are in fact intended and shown to have precisely the opposite outcome including most recently the use of descriptors like “mild”, “light”, “ultra-light” and “low.”

In 2014, FDA opened a comment period for the first modified risk tobacco product produced by Swedish Match as part of a joint venture with Philip Morris. One of the most effective ways of policing industry use of modified-risk tobacco labeling is product liability claims based on state common law torts. Section 916 of the Tobacco Control Act provides an ambiguously phrased preemption provision which will implicate the reach of Article VI preemption for FDA-approved products. This article is the first to analyze the heretofore unanswered question: what is the scope of constitutional preemption when Section 911 (modified risk tobacco products) and Section 916 (preemption of state law) are read together against the broader background of U.S. Supreme Court precedent that will shape that inquiry? Tobacco consumers will inevitably use state law causes of action to allege that the content of tobacco manufacturers’ modified risk claims are misleading, that modified risk claims extend use of non-modified risk claim products, and that modified risk tobacco products are used to shape risk perception across other product lines. At stake in answering the preemption question correctly is how the tobacco industry may use Section 911 to continue historical practices with FDA’s approval and the public health implications of doing so as well as the broader relationship between the 2009 Act and state law as FDA and federal courts shape the law’s implementation.

It’s been a couple of months since the dust has settled from FDA’s October 26, 2016 approval of Mylan Pharmaceuticals Inc.’s (“Mylan’s”) ANDA 078276 for a generic version of Daiichi Sankyo Inc.’s (Daiichi’s) BENICAR (medoxomil) Tablets, 5 mg, 20 mg, and 40 mg, so we though it might be a good time take a look back on the case. What had the potential to raise an interesting dispute over the so-called “failure-to-market” 180-day exclusivity forfeiture provision at FDC Act § 505(j)(5)(D)(i)(I) based on Mylan’s Paragraph IV certification to U.S. Patent No. 6,878,703 (“the ‘703 patent”) – see our previous post here – never materialized.  Instead, an issue concerning pediatric exclusivity applicable to U.S. Patent No. 5,616,599 (“the ‘599 patent”) listed in the Orange Book for BENICAR cropped up just before FDA was poised to take an approval action and became the defining exclusivity issue in the case.  We’ve previoulsy discussed the power of pediatric exclusivity (see our previous post here).  FDA’s October 26, 2016 approval of Mylan ANDA 078276 puts into action an FDA interpretation that makes it even more powerful (if just by a single day), and an interpretation we raised back in 2010 (see our previous post here).

The ‘599 patent expired on April 25, 2016, but was subject to a period of pediatric exclusivity that expired on October 25, 2016. The ‘703 patent expires on November 19, 2021, and is also subject to pediatric exclusivity that expires on May 19, 2022.  Mylan ANDA 078276 contained a Paragraph III certification to the ‘599 patent (which converted to a Paragraph II certification once the patent expired), and a Paragraph IV certification to the ‘703 patent (which, we note for completeness, is identified in the Orange Book as being subject to a request for delisting).

In September 2016, Daiichi filed a motion in U.S. District Court for the District of New Jersey seeking clarification of an August 6, 2009 Final Judgment enjoining Mylan from making, using, and selling its generic olmesartan medoxomil drug products until the expiration the ‘599 patent and “all extensions” thereof. The August 2009 Final Judgment doesn’t identify the precise date when Mylan would be free to market generic.  According to Daiichi, however, that date should be October 26, 2016, which is the day after expiration of pediatric exclusivity applicable to the ‘599 patent expires:

[Daiichi] ask[s] this Court to resolve a dispute between them and [Mylan] over when, consistent with the Judgment entered herein on August 6, 2009 (D.I. 143), Mylan can begin marketing its generic versions of Daiichi Sankyo’s patented olmesartan medoxomil blood pressure medicines BENICAR®, BENICAR HCT® and AZOR® (collectively, “the olmesartan medoxomil products”). The dispute is over one day—October 25, 2016, as Mylan contends, or October 26, as Daiichi Sankyo contends.  But it is significant, as North American sales of Daiichi Sankyo’s olmesartan medoxomil products average over $2.2 million per day.

Mylan opposed Daiichi’s motion and argued that:

Daiichi is wrong about the “one day.” Because patents are in effect from midnight on the day they issue, they expire at the stroke of midnight on the day of expiration—i.e., at the very start of the day.  Because Daiichi’s patent expired at the stroke of midnight on April 25, Daiichi’s Pediatric Exclusivity period will expire at the stroke of midnight on October 25. . . .  In other words, FDA’s approval becomes effective at that moment the calendar rolls over from October 24 to October 25, and marketing can commence immediately at that time.  Daiichi may not double count the issuance day of its patent by adding it on to the end of the term to extend its statutory monopoly, even by a single day.

Various briefs and letters filed in connection with the pediatric exclusivity issue are available here, here, here, here, and here.

The New Jersey District Court denied Daiichi’s motion for clarification on October 20, 2016, saying that Daiichi improperly employed Federal Rule of Civil Procedure 60(a) in an effort to fundamentally alter the Judgment.  In a footnote, the court also deferred to FDA on the question of pediatric exclusivity: “The question of whether Daiichi Sankyo’s pediatric exclusivity expires on October 25 or 26, 2016, is a question for the FDA to answer.  It has never been before the Court in this case and is wholly improper for the Court to consider under a Rule 60(a) motion.”

FDA’s decision on the matter is apparent in the Agency’s October 26, 2016 approval of Mylan ANDA 078276 instead of an October 25, 2016 approval. There, FDA interprets the phrase “after the date the patent expires” at FDC Act § 505A(b)(1)(B) to mean that ANDA (and 505(b)(2) NDA) approval cannot occur until the day after the expiration date identified in the Orange Book. But FDA hasn’t always interpreted pediatric exclusivity applicable to a patent in this manner.  It’s a relatively new FDA interpretation of the FDC Act, and one that has only been implemented by FDA in the past (approximately) six months.

In an October 25, 2016 presentation given at the Generic Pharmaceutical Association’s Fall Technical Conference (yes, we recognize the irony in the date of the presentation), FDA’s Office of Generic Drugs announced (Slide 25) that “ANDA approval [is] permissible [on the] day after expiration of pediatric exclusivity pursuant to section 505A(b)(1)(B)(ii) of the FD&C Act.” FDA points to the Agency’s January 25, 2015 denial of a Citizen Petition (Docket No. FDA-2012-P-0661) concerning calculation of the start of the 30-month period in which an ANDA holder must obtain tentative approval or risk forfeiture of 180-day exclusivity as proof of this interpretation (see our previous posts here, here, and here).  There, in footnote 20, FDA cites various courts that have considered the term “after” in the Hatch-Waxman context and that have concluded that the relevant period begins the day after a particular trigger event.  Here’s FDA’s support for that proposition:

See Janssen Pharmaceutica, N.V. v. Apotex, Inc., 540 F.3d 1353, 1360 (Fed. Cir. 2008) (interpreting pre-MMA section 505(j)(5)(B)(iv)(II) of the FD&C Act (subsequent AND As approvable “one hundred and eighty days after the date” of notice of first commercial marketing) to permit marketing on “181 days after” after first-filer marketing); Caraco Pharm. Labs., Ltd. v. Forest Labs., Ltd., 527 F.3d 1278, 1284 (Fed. Cir. 2008) (same); Altana PharmaAG v. Teva Pharms. USA Inc., no. 04-2355, 2010 U.S. Dist. LEXIS, at *11-12 (D.N.J. Aug. 13, 2010) (ANDA approval permissible day after expiration of pediatric exclusivity pursuant to section 505A(b)(I )(B)(ii) of the FD&C Act (which provides that ANDA approval not permissible until “six months after date the patent expires”)); Takeda Pharm. Co. Ltd. v. Teva Pharms. USA, Inc., no. 06-0033, 2009 U.S. Dist. LEXIS 105324, at *7-8 (D. Del. Nov. 9, 2009) (same). See also Scott v. U.S. Veteran’s Admin., 929 F.2d 146, 147 (5th Cir. 1991) (upholding like interpretation of analogous language in 28 U.S.C. 2401(b), which provides that “a tort claim against the United States shall be forever barred . . . unless action is begun within six months after the date of mailing, by certified or registered mail, of notice of final denial of the claim by the agency to which it was presented”) (emphasis added); Santiago v. U.S., 2004 WL 758196, at *1-*2 (E.D.N.Y. 2004) (same).

So, for those companies out there with pending ANDAs and 505(b)(2) NDAs containing a Paragraph III certification that converts to a Paragraph II certification upon patent expiration, and to which a period of pediatric exclusivity applies, don’t forget to take into consideration that FDA approval will not occur until the day (or the next business day) after the date identified in the Orange Book when pediatric exclusivity expires.

Approximately one year ago, on New Years Eve, FDA surprised the device industry with a draft guidance on emerging postmarket device signals (see our post on the draft guidance here). On December 14, FDA issued the final guidance document: Public Notification of Emerging Postmarket Device Signals (“Emerging Signals”). FDA has made significant changes to the draft guidance, including a modified definition of “emerging signal,” a description of the process CDRH will follow in identifying and assessing emerging signals, and the prospect for interactions between industry and FDA as the Agency assesses emerging signals and decides whether to post a public notification announcing the emerging signal.

The guidance defines an emerging signal as “new information about a marketed medical device:

1. that supports a new causal association or a new aspect of a known association between a device and an adverse event or set of adverse events, and
2. for which the Agency has conducted an initial evaluation and determined that the information has the potential to impact patient management decisions and/or the known benefit-risk profile of the device.”

Notably, the final guidance adds to the definition that “[i]nformation that is unconfirmed, unreliable, or lacks sufficient strength of evidence is not an emerging signal.” As we noted in our post on the draft guidance, there is a significant risk with providing unconfirmed data to the public too soon, including the risk that such notification could lead to the public not using a beneficial device. This addition to the definition, therefore, represents an important, and welcome, change from the draft guidance’s definition, which stated in part that an emerging signal is information “that has not yet been fully validated or confirmed.”

The most substantial addition to the final guidance is a section which outlines the process CDRH intends to follow in evaluating “signals that support a new causal association or a new aspect of a known association between a medical device and an adverse event or set of adverse events.” The draft guidance did not include a description of this process; this section is entirely new. This process appears to be independent of and will occur prior to FDA’s assessment of whether to issue a public notification announcing an emerging signal. The guidance states that this process will typically include the following elements: (i) collection of information; (ii) interaction with impacted medical device companies; (iii) review by a multidisciplinary team of subject matter experts; (iv) stakeholder engagement; and (v) management oversight. Note: these elements are not necessarily listed in order of occurrence, as explained by the process overview described below.

In this process section, the guidance explains that FDA initially identifies potential emerging signals using information from a variety of sources, such as Medical Device Reports (MDRs), MedSun Network reports, postmarket studies, data from clinical trials or scientific literature, epidemiological research, health care claims data or registries, and inquiries or investigations from other health agencies. Once an emerging signal has been identified, a CDRH “signal management team” of multidisciplinary experts is convened.

Next, the emerging signal undergoes a “signal refinement stage,” in which CDRH “attempts to better understand” the identified adverse event or risk, including the likelihood of a causal relationship between the device and the adverse event or risk. CDRH will conduct a preliminary assessment to determine whether the issue is limited to a single device model or manufacturer or whether the issue is more widespread (e.g., across a device type). During the signal refinement stage, the Agency identifies, gathers, and evaluates additional information from other data sources. It may also consult with other stakeholders, such as clinical or scientific experts, patients, industry, or other government or regulatory agencies.

The guidance notes that the signal refinement stage will also include interactions with the affected device manufacturer(s) “unless time does not permit because of the risk of patient harm or it is not feasible, e.g., CDRH cannot reach all manufacturers.” This is an important and necessary addition. The draft guidance did not indicate that the Agency would consult with or obtain information from industry regarding emerging signals. Unfortunately, the guidance does not elaborate on FDA interactions with industry. Therefore, it is still unclear the extent to which FDA will communicate with industry and the type of information that FDA will seek or accept from affected manufacturers. Furthermore, the guidance does not elaborate on the caveat that FDA will attempt to interact with manufacturers “unless time does not permit because of the risk of patient harm.” It remains to be seen how frequently FDA will determine that “time does not permit” interaction with industry.

Finally, the signal management team will identify public health and/or regulatory actions to mitigate the risks or adverse events which led to the identification of the emerging signal. The guidance lists several “tools” the Agency may employ in attempting to mitigate the risks or adverse events, including public communication (described below), requests to manufacturers to modify product labeling (e.g., to include a new warning/precaution), development of Agency guidance documents (e.g., that relate to premarket testing or requirements), and/or ordering postmarket surveillance studies.

In regard to the public communication “tool,” the draft guidance included a list of factors that CDRH will consider in determining whether FDA should issue a public notification about an emerging signal. This list is largely unchanged in the final guidance, but FDA did include two new factors: “[t]he quality of the data or information” and the “[p]otential for patients to not receive treatments they should even in light of the new information.”

Additionally, the guidance includes the clarification that the purpose of a public notification is to give the public current information about a device which may help inform patient management decision making, but it does not mean that FDA has definitively concluded that a causal relationship exists. However, the guidance notes, in instances where FDA has not definitively concluded that a causal relationship exists, “CDRH generally does not intend to issue a public notification unless 1) credible scientific evidence supports a new causal relationship, but the Agency needs additional time to reach a more definitive conclusion . . . or 2) FDA has concluded a causal relationship exists, but the Agency needs additional time to develop recommendations . . . .”

The draft guidance permitted public notification when FDA had identified a “potentially” causal relationship between the adverse event or risk and the use of the device. The prospect that the Agency might prematurely release a public notification based on a “potentially” causal relationship, which could irreversibly affect a device’s reputation, caused us concern. Thus, we are pleased to see that the final guidance appears to reflect CDRH’s intent not to release a public notification until they are more certain of a causal relationship. We will have to wait and see, however, how much or how little information the Agency believes “supports a new causal association” in practice.

In addition, it is yet to be seen how much information FDA will share with the public regarding the information on which it relied in deciding to make its notification. For example, earlier this year, FDA issued a public notice recommending against use of screening tests for ovarian cancer. In this publication, FDA generally referred to data not supporting tests currently on the market and that relying on an unproven test could lead to a delay in treatment or unnecessary treatment. In this instance, however, there are no other options for potential early detection of ovarian cancer. Therefore, it may have been helpful to provide readers with more specifics as to the information on which FDA relied and specific instances of deaths or serious injury so that healthcare providers could more fully evaluate whether to continue to use available tests.

Regarding the process and timeline for issuing public notifications and updates to notifications, the guidance includes a new statement that, in addition to interacting with affected companies during the signal management process, FDA will “inform the impacted company or companies shortly before issuing a public notification, unless time does not permit because of the risk of patient harm or it is not feasible, e.g., CDRH is not able to reach all manufacturers.” This statement contains the same caveat as with FDA’s attempt to interact with manufacturers during the signal management process. Again, it remains to be seen how frequently CDRH will determine that “time does not permit” sending notification to companies. This addition, as with the prospect for interaction with industry during the emerging signal assessment process, is an important addition further acknowledging that FDA needs to work with industry while investigating and publishing emerging signal notices.

The guidance indicates that FDA will issue an initial notification within 30 days of receiving information generating an emerging signal. However, FDA has still not clarified how it will communicate the initial notice to the public (e.g., actively through letters/emails or passively on its website). The guidance states that “updates to the public notification should be posted to the FDA website at least twice per year,” but, as with the draft guidance, it is still possible that FDA could actively notify the public (e.g., through letters to doctors), but then only provide updated information passively by posting it on the website. Those who are initially notified of an emerging signal may not be aware of updates later posted on FDA’s website.

FDA has also added to the final guidance that it “may notify the public when FDA has completed its evaluation and determined that additional regulatory or public health actions are not required.” It is notable that this communication is possible (“may notify”), but not necessary. We would have expected stronger language if it turns out that FDA action is not required after an initial communication. Nonetheless, after issuance of an emerging signal notice, further notification from FDA, even if it says that there is no further action needed, may not be effective in repairing any damage already done to a device’s reputation.

In sum, we are happy to see that FDA has stated that unconfirmed or unreliable information will not meet the definition of an emerging signal, and that FDA has seemingly created stricter criteria for a causal relationship that would warrant a public notification. It should be reassuring to industry that FDA has added several references to communicating with manufacturers regarding emerging signals. In practice, we continue to hope that the Agency balances the need to provide up-to-date risk information to the public with the risk that the public will reduce or cease use of a beneficial device following public notification of an emerging signal.