FDA has historically classified accessories in one of two ways: (1) according to the parent device’s classification (either by express inclusion in the classification regulation or by clearance or approval of an accessory under the parent device’s classification regulation); or (2) by establishment of a separate classification regulation specific to the accessory type. This classification scheme led to a number of issues.  With regard to accessories classified according to the parent device’s classification were, in at least some instances, being over-regulated.  For example, does a filter in suction device, when sold separately from the suction device by a third party, carry the same risk as the suction device supporting a Class II designation?  Possibly not.  Similarly, software used with a traditional device was generally considered an accessory to the device.  However, depending on the software’s function, it could (and in many instances does) present much less risk than the parent device.

With regard to accessories that were separately classified, these accessories were presumably classified based on the risk that they present, separately from the parent device. These classification regulations typically classified the accessory as lower risk than the device.  For example, Endosseous dental implant accessories are Class I devices whereas Endosseous dental implants are Class II devices.  21 C.F.R. §§ 872.3980 and 872.3640.

In practice, however, FDA did not always utilize the appropriate accessory classification regulation when it existed, leading to some accessories being classified under the higher, parent device classification regulation. For example, powered wheelchairs, wheelchair accessories, and wheelchair components each have their own separate classification regulation, all of which were promulgated at the same time in 1983.  21 C.F.R. §§ 890.3860, 890.3910, and 890.3920.  The finished powered wheelchairs are classified as Class II devices and the accessories and components are classified as Class I devices (for purposes of this post, we are ignoring the fact that FDA classified a component but did not exempt it from the QSR – that is a post for another day).  Because of this classification framework, one might expect that 510(k)s cleared under the powered wheelchair classification regulation would be limited to finished wheelchairs only, after all there are separate, specific classification regulations for wheelchair components and wheelchair accessories.  However, there are numerous Class II 510(k) clearances for powered wheelchair components/accessories under the powered wheelchair classification regulation.

In short, FDA’s scheme for classifying accessories led to some accessories being over-regulated because they are not as risky as the parent device (but they were classified according to the parent device), or a somewhat confusing scheme of certain accessories having their own classification but a subset of those accessories being classified under the parent device classification.

FDA sought to resolve this issue for new types of accessories (i.e., accessories not previously classified according to one of the methods described above) in January 2015 when it released the draft guidance “Medical Device Accessories – Defining Accessories and Classification Pathway for New Accessory Types” (see our earlier post here). The draft guidance acknowledged that some accessories present less risk than the parent device with which they are used and do not, accordingly, need to be placed in the same class as the parent device.  The draft guidance proposed that sponsors should utilize the de novo process for new types of accessories (i.e., not yet classified) for which the risk is less than the parent device.  The de novo process would allow for the risk-based classification of the new accessory type on its own.

Almost two years after FDA’s release of the draft guidance, Congress, apparently agreeing with FDA’s proposal in this draft guidance, passed the 21st Century Cures Act (Cures) amending Section 513(b) of the Federal Food, Drug, and Cosmetic Act (FDCA) which directed the Agency 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.” FDA finalized the draft guidance document with virtually no changes, a mere 17 days after Congress’s change to the law (see our earlier post here).

Congress’s directive in Cures was new – classify devices based on their risk independent of the parent device. FDA’s draft and final guidances also only addressed new types of accessories.  Thus, neither Congress nor FDA addressed the potentially over-regulated accessories or accessories with confusing regulatory schemes that were classified prior to passage of Cures.  It appears that the only option for reclassification of these accessories would be to submit a petition for reclassification under 21 C.F.R. § 860.123.  Petitions for reclassification are seldom used and the Agency is typically slow to respond.

FDA was well aware of the issues surrounding previously classified accessories because nearly every comment that the Agency received regarding the draft accessory guidance in early 2015 specifically raised this issue. FDA received thirteen individual comments regarding this draft guidance – admittedly not a huge number – but the vast majority of them all said the same thing.  Commenters indicated that there should be a mechanism to reclassify existing devices (note: some commenters appeared to have mistakenly believed that the de novo process could be used to reclassify existing devices and therefore discussed the disadvantages of the de novo process as it related to existing devices).

In addition, many commenters also stated that the de novo process is an onerous process that may be unduly burdensome for low-risk accessories.  Moreover, one manufacturer would need to go through the de novo process, at its own time and expense, to establish a low-risk classification for a new accessory type and then, assuming that the accessory was exempt from most regulatory requirements, all other manufacturers of the same accessory type would benefit.

A new piece of legislation released last week seeks to address previously classified accessories and also create a new, less burdensome regulatory pathway for classification of low risk accessories. The Bill, H.R. 2144, entitled “Risk-Based Classification of Accessories Act of 2017,” was introduced in the House by Representative Mimi Walters of California.  For new types of accessories, when a manufacturer files a premarket submission for the parent device, it can also submit a recommendation for an appropriate, risk-based classification of any related accessories, if applicable (note: in some instances the accessory should carry the same classification as the parent device and in that case no such separate classification would be appropriate).  The Agency will review and classify both the parent device and the accessory appropriately as part of its premarket review.  This change in the law would be helpful to manufacturers of parent devices who wish to submit a single submission for a parent device and its accessories.  Under the current regulatory framework, a 510(k) clearance or PMA approval results in a single classification determination for all devices/accessories included within that submission.

With respect to accessories that were classified prior to Cures (e.g., through 510(k) clearance or PMA approval with a parent device), a manufacturer may submit an application proposing an alternative, appropriate, risk-based classification for an accessory (presumably lower than its current classification). The application must include information to support the recommended classification.  FDA would have 60 days to review and decide on such an application; however, before making a final decision the manufacturer would be given an opportunity to meet with appropriate FDA personnel regarding the proposed reclassification.

In our view, this proposal would provide a reasonable process for reclassification of existing accessories, which may be over-regulated. This process could also allow accessories with confusing regulatory schemes (i.e., a specific accessory classification regulation but some accessories cleared under the parent device’s classification) to be easily clarified by allowing for reclassification into a more appropriate, existing accessory classification regulation.  As discussed above, there is currently no good means by which industry (or FDA) can undertake either of these activities.  We will certainly keep our readers updated on any future developments related to this Bill.

The latest issue of FDLI’s Update Magazine features an interview conducted by Hyman, Phelps & McNamara, P.C.’s James E. Valentine. In the interview, James Valentine talks with rare disease patient advocate Christine McSherry about patient engagement in the drug development and approval process, focusing on the Jett Foundation’s involvement in the approval of Exondys 51 (eteplirsen) for Duchenne muscular dystrophy and opportunities under the patient provisions of the recently enacted 21st Century Cures Act (see our previous webinar on the drug and biologics provisions of the 21st Century Cures Act here). Among other things, the interview discusses the Jett Foundation’s presentation of “Patient and Caregiver-Reported Outcomes of Patient in Clinical Trials of Eteplirsen for Treatment of Duchenne” at the April 25, 2016 FDA Peripheral and Central Nervous System Advisory Committee meeting – this first known presentation by a patient advocate during the core presentation at an FDA advisory committee meeting (recording and report available here).

The article is available for download here and a full audio recording of the interview is available here.

Interested in this topic and attending the FDLI Annual Conference on Friday, May 5th?

James Valentine will be facilitating a Table Topic Discussion on patient engagement in regulatory decision-making on May 5th at 12:30pm. More information about the FDLI Annual Conference can be found here.

FDA has again decided to delay the compliance date for its regulations governing calorie labeling for menus and menu boards at restaurants and similar retail food establishments. In an unpublished Interim Final Rule (IFR) released on May 1 (and scheduled to be published in the Federal Register on May 4), FDA states that it will delay the compliance date for menu labeling from May 5, 2017 to May 7, 2018. The Agency is reconsidering certain aspects of the menu labeling regulations and requesting comments from industry and other stakeholders. FDA says it is “taking this action to enable [FDA] to consider how we might further reduce the regulatory burden or increase flexibility while continuing to achieve our regulatory objectives, in keeping with the Administration’s policies.”

The delay in the compliance date will be effective immediately upon formal publication of the IFR in the Federal Register. FDA cites the good cause exception of the Administrative Procedure Act (5 U.S.C. 553(b)(B)) as its basis for not following notice and comment rulemaking before issuing the delay. Specifically, the Agency says that because “a number of regulated establishments continue to raise numerous, complex questions about applicability of the menu labeling requirements and about how to implement them, we have decided that providing an opportunity for public comment would be impracticable and contrary to the public interest.”

As we reported here, the deadline for compliance with FDA’s final menu labeling regulations has been delayed a number of times. Back in 2010, the Affordable Care Act required that certain chain restaurants and other covered establishments include calorie and other nutrition information on menus, menu boards, and elsewhere in the restaurant. FDA issued final regulations implementing those menu labeling requirements in 2014, and set a compliance date of December 1, 2015. In response to requests from industry, FDA extended the compliance date to December 1, 2016. Then, in the omnibus appropriations bill for 2016, Congress prohibited FDA from using appropriated funds to implement the rule until one year after FDA would issue a final guidance on the menu labeling requirements. FDA issued the final guidance document in May 2016 and later formally extended the compliance date to May 5, 2017.

FDA has received five requests for an extension of the compliance date and a Citizen Petition that asked FDA to delay and reconsider the final menu labeling rule. (In the IFR, the Agency states that it intends to add the five requests to the docket on Regulations.gov).

Although this week’s announcement of the delay has not been framed as a response to any one of the various requests from industry, the Agency states that “continued, fundamental questions and concerns with the final rule suggest that critical implementation issues, including some related to scope, may not have been fully understood and the agency does not want to proceed if we do not have all of the relevant facts on these matters.” In its request for comments, FDA is particularly interested in “approaches to reduce the regulatory burden or increase flexibility with respect to:

(1) Calorie disclosure signage for self-service foods, including buffets and grab-and-go foods;

(2) methods for providing calorie disclosure information other than on the menu itself, including how different kinds of retailers might use different methods; and

(3) criteria for distinguishing between menus and other information presented to the consumer.”

Issue (3) is one that has caused considerable confusion and that we have blogged about before.

FDA is requesting that comments be submitted within 60 days after the IFR is published, i.e., by July 3, 2017.

Last week, the Texas Department of Criminal Justice (“TDCJ”) filed an Amended Complaint in a case initially filed against FDA in January 2017 in the U.S. District Court for the Southern District of Texas. TDCJ initially challenged FDA’s delay in determining the admissibility, into domestic commerce, of an import shipment of the drug thiopental sodium for purposes of carrying out capital sentences through lethal injection. TDCJ’s Amended Complaint follows a 26-page April 20, 2017 decision and an April 21, 2017 Notice of Refusal from FDA’s Southwest Import District Office in which the Agency concluded that the detained thiopental sodium drug appears to be an unapproved new drug and misbranded under FDC Act § 502(f)(1) and § 505(a).

As readers of this blog might recall, in March 2012, the U.S. District Court for the District of Columbia granted a Motion for Summary Judgment filed on behalf of a group of death row inmates challenging FDA’s release of imported thiopental sodium for use as an anesthetic as part of lethal injection (see our previous post here).  Later, the district court issued an order permanently enjoining FDA from “permitting the entry of, or releasing any future shipments of, foreign manufactured thiopental that appears to be misbranded or in voplation of [FDC Act § 505 as an unapproved new drug.]”  In July 2013, a 3-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit unanimously and largely affirmed the DC District Court’s March 2012 decision (see our previous post here).  See Beaty v. FDA, 853 F. Supp. 2d 30 (D.D.C. 2012), aff’d in part, rev’d in part sum nom Cook v. FDA, 733 F.3d 1 (D.C. Cir. 2013 (“Beaty/Cook”).

Fast-forward to FDA’s April 2017 decision, in which the Agency concludes:

FDA is bound by the terms of the order issued by the District Court in [Beaty/Cook].  That order requires the Agency to refuse admission to import entries of foreign-manufactured sodium thiopental if the sodium thiopental appears to be an unapproved new drug or a misbranded drug. . . .  [W]e disagree with [the] contention that FDA has room to exercise discretion regarding the foreign-manufactured sodium thiopental [redacted] wishes to import. . . .

Based on a review of the entire record in this matter . . . . we have concluded that the detained drugs . . . appear to be unapproved new drugs and misbranded drugs. . . .

Much of the remainder of FDA’s April 20, 2017 memorandum decision details the Agency’s basis for concluding that the subject thiopental sodium is an unapproved new drug (because, among other things, statements on the label of the detained thiopental sodium suggest its use for lethal injection and the drug is nort generally recognized as safe and effective for use as part of a lethal injection), and that the drug is misbranded under FDC Act § 502(f)(1) and § 505(a) (because the drug does not bear adequate directions for use as required by FDC Act § 502(f)(1)).

TDCJ addresses each of the issues above in its April 26, 2017 Amended Complaint (at least to the extent permitted in a Complaint), and requests that the court set aside FDA’s prohibitory actions, declare that they are unlawful, and enjoin FDA from imposing similar import prohibitions in the future.

“The refused thiopental sodium may be lawfully admitted into domestic commerce without prior FDA approval,” says TDJC, because such drugs are not “new drugs” within the meaning of FDC Act § 201(p) in that the labeling that does not prescribe, recommend, or suggest any conditions of use for the drugs.

TDJC also says that “[t]he statutory and regulatory requirements that FDA invokes to support its prohibitory actions do not apply in this law enforcement context.” “An FDA ‘law enforcement’ exemption precludes application of one of the requirements at issue.  And the remaining requirements also do not apply, among other things because the drugs have labeling that does not prescribe, recommend, or suggest any patient treatment use.”

The “law enforcement” exception relied on by TDCJ is at 21 C.F.R. § 201.125 and exempts a drug from having “adequate directions for use.” Specifically, the regulation provides that:

A drug subject to [21 C.F.R. §§] 201.100 or 201.105, shall be exempt from [FDC Act §] 502(f)(1) of the act if shipped or sold to, or in the possession of, persons regularly and lawfully engaged in instruction in pharmacy, chemistry, or medicine not involving clinical use, or engaged in law enforcement, or in research not involving clinical use, or in chemical analysis, or physical testing, and is to be used only for such instruction, law enforcement, research, analysis, or testing.”  [(Emphasis added)]

“In this case, the drugs at issue fall within the exemption that applies to drugs ‘shipped or sold to . . . persons . . . engaged in law enforcement, . . . and [are] to be used only for such . . . law enforcement,’ says TDCJ.  Moreover, says TDCJ, although the statute, at FDC Act § 502(f)(1), requires certain warnings to protect patients, “[i]n this case, no labeling warnings are necessary to protect patients, among other things because the drugs at issue will not be used for patient treatment.”

TDCJ’s three-count Amended Complaint alleges FDA violations of the Administrative Procedure Act and FDC Act § 505(a), FDC Act § 801(a), and FDC Act § 502(f)(1) stemming from FDA’s import refusal order and import ban.

On April 10, 2017, the American Bakers Association (ABA) submitted a Citizen Petition and a Petition for Stay of Action on FDA’s new definition of dietary fiber in 21 C.F.R. § 101.9(c)(6)(i), and the accompanying recordkeeping requirement in 21 C.F.R. § 101.9(g)(10) and (11).

By way of background, FDA’s final rule issued in May 2016 defined dietary fiber as:

non-digestible soluble and insoluble carbohydrates (with 3 or more monomeric units), and lignin that are intrinsic and intact in plants; isolated or synthetic nondigestible carbohydrates (with 3 or more monomeric units) determined by FDA to have physiological effects that are beneficial to human health.

FDA identified “[beta]-glucan soluble fiber (as described in § 101.81(c)(2)(ii)(A)), psyllium husk (as described in § 101.81(c)(2)(ii)(A)(6))[sic], cellulose, guar gum, pectin, locust bean gum, and hydroxypropylmethylcellulose” as isolated or synthetic non-digestible carbohydrate(s) that have physiological effects that are beneficial to human health. Therefore, these non-digestible carbohydrates qualified as dietary fiber. The Agency indicated that it did not have sufficient evidence for a beneficial physiological effect for a number of other non-digestible carbohydrates. The Agency set a compliance date of July 26, 2018 for companies with more than $10 million in annual sales.

In the months following the issuance of the final regulation, a number of companies submitted Citizen Petitions to amend the dietary fiber definition to include additional non-digestible carbohydrates. See, e.g., Docket No. FDA-2016-P-3620; Docket No. FDA-2016-P-1674; and Docket No. FDA-2016-P-2736.  In addition, General Mills submitted a Citizen Petition requesting that FDA extend the compliance date to allow for the required rule making and label revisions (or reformulation of products) for products containing dietary fiber.

It was not until November 2016 that FDA issued a Draft Guidance on the type and amount of scientific evidence fiber petitions would need to include before FDA would review whether an “isolated or synthetic” fiber met the definition of dietary fiber. The Agency also published a summary of the scientific and clinical data for non-digestible carbohydrates for which FDA had not been able to reach a conclusion in the final regulation. After an extension, the comment period for these two documents closed on February 13, 2017.

Since then, FDA has issued several interim responses to the Citizen Petitions advising Petitioners that it has “not been able to reach a decision on [the] petition[s] because of other agency priorities and the limited availability of resources.” These responses have raised serious concerns and uncertainty about the path forward given the imminent compliance date and the time needed to finalize the guidance, review the Citizen Petitions, and complete the notice and comment rulemaking required to amend the definition of dietary fiber. It thus comes as no surprise that the agency has been formally asked to hit the brakes.

The ABA Citizen Petition asks that FDA revoke the new definition of dietary fiber and reinstate the previous “chemical definition.” In the alternative, if FDA does not revoke the definition, ABA asks that FDA revise (and correct) the definition. In any case, while considering such revisions, ABA asks that FDA immediately stay the new definition.

The 29-page Petition posits a number of grounds as to why FDA should take the requested action including 1) FDA’s lack of authority to establish a physiological-based definition for dietary fiber (or any other nutrient); 2) the unjustified application of a different standard for intrinsic and intact fiber (which is presumed to have a beneficial physiological effect) vs isolated or synthetic fiber; 3) FDA’s failure to clearly define dietary fiber which violates the Administrative Procedure Act; and 4) the various errors in the definition of new dietary fiber (e.g., psyllium husk is not an isolated or synthetic fiber). In addition, in a 17-page Appendix to the Petition, Petitioners provide a detailed analysis of FDA’s limited authority to access and inspect records of food manufacturers, and argue that FDA does not have legal authority to establish the records access requirement for dietary fiber.

The Petition is limited to dietary fiber definition but some of the arguments, such as the issue of FDA’s (lack of) authority to access records, would appear to apply also to other aspects of the amended regulation (e.g., labeling of added sugars).

Meanwhile, some in the industry have sought to delay the compliance date of the rule to coincide with the compliance date of the yet to be developed regulations for GMO labeling.  Also, FDA’s draft guidance “Questions and Answers on the Nutrition and Supplement Facts Labels Related to the Compliance Date, Added Sugars, and Declaration of Quantitative Amounts of Vitamins and Minerals” appears to have raised additional questions concerning other aspects of the new regulation (see here).

All in all, it appears that there is great uncertainty within the industry as to how to comply with the new regulations and a need for more time. Additional actions seem likely.

Apotex and its subsidiary Apobiologix submitted a Citizen Petition (Docket No. FDA-2017-P-2528) on April 21, 2017 asking that FDA ensure a level playing field for all biosimilar applicants referencing NEULASTA (pegfilgrastim). A common tactic in the small molecule world to introduce additional hurdles to generic approval in an effort to extend market exclusivity, it isn’t typical to see this type of petition from a party who isn’t the brand or innovator.  But, as we have seen recently, the BPCIA is setting up some interesting competition schemes in an effort to reduce costs for consumers. As we discussed, whether increased competition between biosimilars will actually reduce costs for consumers in any meaningful way still remains to be seen, but it’s probably a positive indication for pricing that biosimilar manufacturers are trying to keep each other from the market.

Apotex submitted a 351(k) application to FDA for NEUPOGEN and NEULASTA, likely in December 2014. Apotex noted that it was required to perform its comparative studies in intended patient populations.  But, Apotex explained, Coherus issued a press release in October 2016 indicating that it had filed a 351(k) application for NEULASTA, but only evaluated the clinical effect in healthy subjects.

In this petition, Apotex asks FDA to require all biosimilar applicants referencing NEULASTA to conduct comparative clinical efficacy studies in at least one intended patient population. Apotex argues that comparative studies in healthy patients alone would not demonstrate that there are “no clinically meaningful differences” between a proposed biosimilar and NEULASTA for one of the indications of NEUALSTA, a decreased incidence of infection.  The argument was based on the notion that every approved biosimilar thus far has conducted trials in at least one indicated patient population.  The question at issue here is ostensibly what FDA really means by the term “no clinically meaningful differences.”  But the real issue Apotex wants to address here is consistency of approval standards across biosimilar manufacturers.

Additionally, Apotex requested that FDA require biosimilar applicants referencing NEULASTA to conduct immunogenicity studies over at least four cycles. Apotex makes an interesting point that if FDA required sponsors to conduct more rigorous comparative clinical efficacy patients in cancer chemotherapy patients, oncologists are more likely to consider using a biosimilar than the reference product.  If that is in fact true, then it might behoove biosimilar manufacturers to perform this type of study for marketing purposes alone.

Although the First Amendment has been more often discussed in the context of drug and medical device promotion, the Eleventh Circuit recently evaluated whether claims for a food also deserve similar constitutional scrutiny. In Ocheesee Creamery LLC v. Putnam, the Eleventh Circuit considered whether the State of Florida’s actions prohibiting the truthful use of the term “skim milk” violated the First Amendment, and held that the state’s restriction of the creamery’s description of the product as “skim milk” violated the Central Hudson test for commercial speech regulation.

The Ocheesee Creamery is a seller of skim milk, which, consistent with standard practice, is produced by skimming the cream from the top of the milk. The leftover product is skim milk. Although the skimming process depletes the vitamin A from the milk, the creamery does not replace the lost vitamin A because it sells only all-natural, additive-free products.

The issue arose because Florida law prohibits the sale of “milk” that does not contain vitamin A. During attempts to compromise, the state proposed that the creamery could include a label that used the term “milk product” in place of “skim milk.” The creamery ultimately brought suit in the U.S. District Court for the Northern District of Florida, arguing that the state’s refusal to allow it to call its product “skim milk” amounted to censorship in violation of the First Amendment. The court rejected the creamery’s claim, and granted summary judgment to the state.

On appeal, the Eleventh Circuit disagreed. Its opinion walks through the Central Hudson analysis for evaluating commercial speech. The threshold question asks whether the expression is protected by the First Amendment at all. Commercial speech does not merit First Amendment protection if (1) the speech concerns unlawful activity, or (2) the speech is false or inherently misleading. The court found that the speech did not violate the first prong, relating to unlawful activity, because the state does not ban the sale of milk without vitamin A. Instead vitamin-deficient skim milk can lawfully be sold as “imitation” milk. Thus, the court held that the state’s action is a speech regulation because the court would permit the sale but for the speech: calling it “skim milk.”

The court evaluated the second prong, whether the speech is false or inherently misleading. The state relied on its definition of “skim milk,” which the creamery’s product did not meet because it did not contain vitamin A, and argued that it was false or inherently misleading to consumers to label a product inconsistent with this definition. Curiously, nowhere in the court’s opinion does it reference FDA’s regulation of skim milk at 21 C.F.R. Part 131, which does not contain a similar vitamin A requirement.   The court rejected the state’s premise that any use of a defined term inconsistent with the state’s preferred definition is inherently misleading. “Such a per se rule would eviscerate Central Hudson, rendering all but the threshold question superfluous.” Instead, the court reviewed the Webster’s dictionary definition of “skim milk,” and concluded that consumers did not expect skim milk to meet the state’s “alternative definition.”

Thus, the court concluded that the state did not meet its burden to satisfy Central Hudson, and vacated the summary judgment prohibiting the creamery’s use of the term “skim milk.” The case was remanded to the district court for further consideration.

On April 21, FDA approved Samsung Bioepis’ Renflexis, a biosimilar referencing Pfizer’s Remicade. Like Remicade, Renflexis is approved for the treatment of Crohn’s Disease (both pediatric and adult), Ulcerative Colitis, Rheumatoid Arthritis, Ankylosing Spondylitis, Psoriatic Arthritis, and Plaque Psoriasis.  Remicade was approved as an Orphan Drug in 1998 and faced no competition until April 2016. In April 2016, FDA approved Inflectra, another biosimilar product referencing Remicade.

The approval of Renflexis marks just the fifth biosimilar to have received approval since the implementation of the BPCIA in 2005.  It also marks the first time that FDA has approved a biosimilar referencing a product that already has a biosimilar (and without an advisory committee meeting), introducing more competition into the Remicade market and an element of competition between biosimilars themselves. While it is obviously too early to see a competitive effect of this approval, it should, in theory, have a positive impact on biologic prices for consumers.

However, at this point, the effect of the BPCIA on biologic prices has been less than hoped.  Zarxio, referencing Neupogen, was only 15% lower in price than Neuopogen after six months on the marketing and only captured about 10% of Neupogen’s market share. Similarly, Inflectra has captured about the same from Remicade thus far. In a typical small molecule product, generics are approximately 40% of the cost of the reference product and capture about 75% of sales. Granted, generics are, by definition, interchangeable with their reference products while biosimilars require extra approval to be considered interchangeable. But from an economic standpoint, the more biosimilars approved for a product, the more prices should fall. However, how accurate this prediction will be in the biosimilar context is an open question given that biosimilars are not interchangeable with their reference products. (No product has yet been approved as interchangeable under the BPCIA.)

Without mandatory substitution, biosimilars will only capture more market share if health care professionals make the conscious decision to switch from a reference product to a biosimilar.  And this will require their review of labeling and literature to determine if a biosimilar is appropriately substitutable for its reference product. With multiple options in the same category, this will make more work for already hurried health care professionals. There is also a question of whether Renflexis will contribute to a larger erosion of the Remicade market share or whether it will only eat away at the market share of Inflectra. And, given the naming conventions adopted for biosimilars, each biosimilar will need to build brand awareness of its own product: because each biosimilar has a distinct name, the marketing required by biosimilar companies could eat into potential savings for consumers.

In time, we may see more state rules relating to substitution in an effort to increase the competitive effect of biosimilars, but there is no telling how states will handle the issue of interchangeability.  While more competition is definitely a step in the right direction for biologic pricing, it remains to be seen whether non-interchangeable biosimilars will actually have an impact on the biologic market and its prices.

It has been 40 years since Steve Perry changed the lyrics to the iconic song Lights to refer to San Francisco rather than Los Angeles.  As it turns out, litigants looking to gain easy access to otherwise confidential agency documents may want to make the same choice.

As we have detailed before (here), in March of last year, several organizations sued FDA and the U.S. Fish and Wildlife Service to challenge FDA’s November 2015 approval of the genetically engineered AquAdvantage Salmon (a full description of the salmon can be found in our earlier post on that topic, here).  After 12 months of litigation, the case has not proceeded past discovery.  FDA has thus far produced over 38,000 pages of documents to the plaintiffs.

Much to the plaintiffs’ chagrin, those documents do not include internal deliberative documents that detail FDA’s thinking during the more than 20 years that FDA reviewed the salmon before approval. The plaintiffs demanded that FDA provide them these internal deliberative documents, and the U.S. District Court for the Northern District of California agreed, issuing an order requiring FDA to supplement the administrative record with hundreds of thousands of additional documents.

On April 19, 2017, FDA took the unusual step of filing a petition with the U.S. Court of Appeals for the 9th Circuit asking that the court issue a writ of mandamus (a fancy phrase for an order to a lower court when the lower court has acted contrary to law) requiring the lower court to vacate its ruling.

As arcane as this case may initially sound, the breadth of its implications is difficult to understate.

Federal agencies, including FDA, make administrative decisions on a daily basis, whether that is issuing a permit, denying a petition, or granting approval for a product. Prior to making these decisions, these agencies gather data and information and may even seek public comment.  Importantly, agencies deliberate internally and (often) with other governmental agencies.  There is no doubt that the contents of public comments to an agency as well as the specific data used to support an agency decision are a part of the administrative record of the decision.  The question posed in the AquAdvantage Salmon litigation is whether the written documents that constitute the agency deliberative process are also a part of that administrative record.

This is a critical question because the public should be entitled to review the administrative documents that constitute the administrative record for a given agency decision. Congress, when passing the Administrative Procedure Act, stated that the “exclusive record for decision” consists of the “transcript of testimony and exhibits, together with all papers and requests filed in the proceeding.”  5 U.S.C. § 556(e).

In 1938, however, the U.S. Supreme Court stated that it is “not the function of the court to probe the mental processes” of a government agency. U.S. v. Morgan, 304 U.S. 1, 18 (1938) (here).  Many courts, including the U.S. Court of Appeals for the District of Columbia Circuit and the U.S. District Courts for the Eastern and Central Districts of California, have determined that, following U.S. Supreme Court precedent, the internal deliberations of federal agencies are not subject to review.  This is not to say that such internal deliberations are free from public scrutiny, but rather it reflects the policy choice that, absent a strong showing that the government acted in bad faith, the public is best served by allowing agencies to freely debate administrative decisions without the chilling effect of having all deliberative documents subject to public disclosure and review.

Interestingly, however, the Northern District of California has a history of granting plaintiffs access to agency deliberative documents. Over the last 15 years, this district court has allowed access to deliberative documents from the Department of Justice, the Environmental Protection Agency, and the U.S. Department of Agriculture, to name a few.  FDA’s position in its filing is that the court erred when it required  FDA to provide plaintiffs documents that detail FDA’s deliberative process, and that the district court’s decision is at odds with the precedent established by the Supreme Court, other circuit courts, and  the Administrative Procedure Act.

FDA goes further to note that compliance with the lower court’s order to produce the deliberative documents would be overly burdensome. After a negotiated narrow search of just three document custodians, FDA identified approximately 400,000 pages of responsive material.  If the FDA staff dedicated to reviewing those documents prior to production were to work on the ordered production only, FDA asserts that it would take the agency over three years to review just those documents.  Of note, the plaintiffs are currently seeking documents from 17 custodians and have reserved the right to seek additional documents in the future.  At that rate it will take over a decade for FDA to fully respond to the document request from the plaintiffs.  Unlike private party defendants, who the Department of Justice expects to review similarly large productions in a matter of months, FDA asserts it has no available resources to hire additional staff to speed the document review process.  After years of sequester and budget cuts, it is difficult to imagine Congress or the President providing additional appropriations to facilitate document production in this case.

According to FDA, if the court denies FDA’s petition, the entire government will be exposed to innumerable lawsuits seeking production of deliberative documents. Further, subsequent internal deliberations may be stymied given they will be conducted with knowledge that expressed opinions and open debate will potentially be subject to public scrutiny, even if the ultimate agency decision is substantially different from those opinions and debate.

At bottom, because the 9th Circuit has not ruled previously on this specific question of law, it will be interesting to see whether the court is ready to open its circuit to all comers dreaming of pulling back the curtain of the government’s deliberative process or whether the court will follow the rulings of other courts.  We will continue to monitor this case and this important petition.

The court may deny the petition without an answer from the respondent or may order the respondent to file an answer within a fixed period of time.

The scourge of opioid addiction has received considerable attention for some time, and now legislation is proposed to address the overuse of addictive prescription opioids: Senate bill 892, the Opioid Addiction Prevention Act of 2017. The proposed legislation defines conditions of acute pain and tells physicians how they may prescribe for them.

This bipartisan bill, offered by Senator John McCain (R-AZ) and Senator Kirsten Gillibrand (D-NY), would require physicians who prescribe opioids to certify, in order to secure registration or renewal of registration under the Controlled Substances Act, that they would, to treat acute pain, not write a prescription for more than a 7-day supply of an opioid. Further, the bill prohibits the refill of such prescriptions for acute pain. It does appear that the bill would not prohibit a physician to treat acute pain that lasts for more than 7 days by issuing serial 7-day,but nonrefillable prescriptions.

If there are other limitations on prescribing for acute pain imposed by the states, those limitations would be given force by this the bill.

“Acute pain” is defined as “pain with abrupt onset and caused by an injury or other process that is not ongoing.” The bill excludes from the meaning of “acute pain” the following: “chronic pain,” “pain treated as part of cancer care,” “hospice or other end-of-life care,” or “pain treated as part of palliative care.” Further, the prescribing limitations of the bill do not apply to prescriptions of Schedule II, III, or IV opioids intended and used to treat addiction.

Navigating treatment of patients in compliance with federally-prescribed diagnoses of pain will be the responsibility of the physicians. The bill defines acute pain as pain from a particular source — an injury or other process that is not ongoing — but it makes no attempt to say how much the pain must hurt to be “acute;” that is evidently left to the doctor. Further, when a “process is not ongoing” could be hard to know — consider the pain following surgeries; if the process of healing is “not ongoing” pain, then the scripts need to be issued every 7 days.

Given that the bill does not limit the number of 7-day scripts the doctor might write, it can be assumed that its intent is to require weekly patient/doctor interaction. The need for that, and its effect upon the patients and their physicians, needs study; perhaps the medical profession can best determine what is good medical practice.

The bill gives a clear signal that members of Congress are deeply concerned about opioid addiction, and they are to be commended. How much it might do to reduce the abuse of opioids is questionable.

On April 14, 2017, Congress released a discussion draft of a bill to reauthorize the FDA’s various user fee programs, commonly referred to as “the UFAs.” The FDA Reauthorization Act (FDARA) would renew the Agency’s authority to collect user fees in Fiscal Years 2018 through 2022 and put into effect the commitments negotiated by FDA and regulated industry, which are proposed in the following commitment letters:

• PDUFA VI
• MDUFA IV
• GDUFA II
• BSUFA II

Without such legislative action, the authority to collect user fees is set to expire on September 30^th. In fact, if the user fee programs aren’t reauthorized before August, FDA will have to send layoff notices to more than 5,000 employees whose positions are supported through user fee funds – and if not enacted, or not in a timely manner, it would cripple the Agency’s drug and device review functions. However, it appears both the Senate and House are interested in a timely reauthorization, with Energy and Commerce Committee Chairman Greg Walden (R-OR) stating that the House is “fully committed to a timely reauthorization of the agreements” and Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) stating “the sooner we reauthorize the agreements the better.”  The full text of the FDARA discussion draft is available here.

A “Clean” User Fee Bill

The most noteworthy aspect of FDARA is what is not included: a litany of policy proposals tacked onto the core user fee reauthorization language. This is counter to what we have come to expect, with the 156 page FDAAA in 2007 and the 140 page FDASIA in 2012 – FDARA is all of 34 pages. This means it includes very minimal provisions that go beyond the language needed for FDA to collect user fees and report on performance and finances, including updating base fee amounts and workload/capacity adjustments.

In addition to potential expediency of passing this proposed legislation that is supported in a bipartisan manner, another possible reason that Congress is interested in a clean bill is that it just had an opportunity to pass comprehensive FDA reform legislation with the 21st Century Cures Act, which was signed into law in December of 2016 (see our summaries of 21st Century Cures here, here, here, and here).

With that being said, there are a number of reforms to the structures of how fees are assessed, as well as a limited number of policy riders, which are discussed in turn below.

Restructuring the User Fee Programs

Under PDUFA VI, FDARA would change the historical structure where prescription drug user fees were derived one-third from facility fees, one-third from various application fees, and one-third from product fees. The new structure would collect 20% from application fees and 80% from fees for approved products, with fees for supplemental applications and facilities being eliminated.

Meanwhile, MDUFA IV would add a user fee for de novo classification requests, which makes sense since there was no apparent reason for an exemption for this type of application, which has grown in popularity.

GDUFA II would eliminate prior approval supplement and establish a generic drug applicant program fee. This program fee would be based on how many ANDAs the applicant has approved by FDA (tiered by 20+ paying the full fee, 6-9 paying 40% of the fee, and 1-5 paying 10% of the fee). Ultimately, 33% of total generic drug user fees will come from application fees, 20% from generic drug facility fees, 7% from API facility fees, and 35% coming from this new program fee.

Finally, BSUFA II would establish a fee structure for biosimilars as follows: (i) Initial Biosimilar Development Fee for the 1st year of clinical development, (ii) Annual Biosimilar Development Fee for subsequent years of clinical development, (iii) Biosimilar Program Fee for sponsors of approved biosimilars, and (iv) Application Fee for new biosimilar applications (and eliminate supplement and establishment fees).

Non-User Fee Policy Riders

As previously mentioned, FDARA includes a limited number of policy riders. There are two device-related policy riders. The first is the proposed establishment of a pilot accreditation scheme for conformity assessment to provide FDA the authority to audit and certify laboratories who conduct device conformance testing to a recognized standard, and also to withdraw the certification if necessary. The second is the proposed reauthorization third party review, with provisions to increase flexibility, such as through conducting a public guidance development process to identify the factors FDA will use to determine which devices are eligible for third party review.

In addition, FDARA would reauthorize a number of other programs for five years:

• Pediatric humanitarian device exceptions;
• Critical Path Public-Private Partnerships;
• Pediatric Device Consortia; and
• Orphan Drug Grants.

Finally, FDARA would reauthorize section 505(u) of the Federal Food, Drug, and Cosmetic Act, which provides FDA the authority to grant exclusivity for drugs containing single enantiomers for another 5 years. Perhaps this incentive will be used more in this reauthorization since it has only been used once to date (see our previous discussion of this exclusivity here).

The Future of FDARA

The question remains: will FDARA remain clean? There is still several months before the UFAs need to be reauthorized, so there is plenty of time for other policy priorities (e.g., drug pricing) to make their way into the bill – especially since it is considered “must pass” legislation. And it appears this option is not off the table with Energy & Commerce Committee Chairman Walden stating “as this process proceeds, I look forward to continued discussions with my colleagues in the House on other member priorities that could strengthen this important legislation.”

We last updated readers on the Decosters’ criminal case in January, when the Decosters timely petitioned the Supreme Court for review of the Eighth Circuit decision upholding their three-month prison sentences under the FDC Act. Last week, the government responded to that petition.

As reported in our previous posts here, here, and here, the Decosters’ case is significant because it tests the limits of the Park doctrine, also known as the “responsible corporate officer” doctrine. The doctrine’s name originated with United States v. Park, 421 U.S. 658 (1975) (here), in which the Supreme Court held that the Federal Food, Drug, and Cosmetic Act (“FDC Act”), 21 U.S.C. § 331, imposes criminal liability on individuals whose corporate position affords them “the power to prevent or correct” violations of that section, even absent “knowledge of, or personal participation in” the violations. Park, 421 U.S. at 670, 676. Park expanded on an earlier Supreme Court decision upholding strict liability for a responsible corporate officer under a different statute in United States v. Dotterweich, 320 U.S. 277 (1943) (here).

By way of brief background, Jack and Peter Decoster, the former owner and CEO, respectively, of Quality Egg, LLC, were each sentenced to three-months imprisonment after pleading guilty to responsible corporate officer violations of the FDC Act. The government acknowledged that it lacked evidence of either Decoster’s knowledge of or participation in the FDC Act violations at issue. However, the U.S. District Court for the Northern District of Iowa found by a preponderance of the evidence at sentencing that the Decosters had acted negligently. The Eighth Circuit, in a split decision, upheld the Decosters’ three-month prison sentences. While the Eight Circuit panel was unanimous that a sentence of imprisonment for a “vicarious liability” offense – absent a finding of some blameworthiness or negligence – would not be permissible, two members of the three-judge panel determined that blameworthiness was either inherent in a responsible corporate officer conviction (Murphy, J.), or had been established in the Decosters’ case by the District Court at sentencing (Gruender, J., concurring).

The government’s brief in opposition to Supreme Court review of the Decosters’ sentences largely reflects Eight Circuit Judge Murphy’s, and in the alternative Judge Gruender’s, views of the law, and argues that the Decosters’ case is not an appropriate vehicle for the Supreme Court to resolve the questions of law raised in their petition.

The government points to the Decosters’ (1) “unqualified” guilty pleas to FDC Act misdemeanor offenses, and (2) agreement to be sentenced based on facts by the district court judge based on a preponderance of the evidence, as dispositive of the issues surrounding their sentencing. The government argues that the Decosters’ three-month prison sentences would have been justified based on the blameworthiness inherent in a responsible corporate officer conviction under the FDC Act, regardless of any fact-finding by the District Court. But the Decosters’ prison sentences were not based purely on their guilty pleas for responsible corporate officer violations of the FDC Act, and the District Court did find additional facts about the Decosters’ acts and omissions relating to the FDC Act violations at issue. The government emphasizes that in their guilty pleas, the Decosters agreed to be sentenced based on facts determined by the District Court judge by a preponderance of the evidence.

Finally, in response to the Decosters’ novel argument that the Park doctrine itself should be invalidated in its entirety, the government argues that their guilty pleas, and failure to contest the statutory basis for their convictions before the district and circuit courts, preclude Supreme Court consideration of that issue.

Despite the government’s opposition, the Decosters already have the support of multiple amici urging the Court to review their prison sentences. The Washington Legal Foundation and the National Association of Criminal Defense Lawyers both filed amicus briefs in support of the Decosters’ petition. If the Eighth Circuit briefing is any indication, additional influential amici may follow. Stay tuned – we will keep you posted on the Court’s disposition of the Decosters’ petition.

FDA generated a great deal of the buzz a few weeks ago when it proposed exempting more than 1,000 Class II devices from the 510(k) requirements (see our earlier post here). Given the excitement, we thought it might be worth discussing what devices are no longer subject to the 510(k) requirements when a generic device type becomes 510(k)-exempt.

FDA classifies devices into Class I, II, and III. There are specific classification regulations associated with each generic type of device. The classification regulations can, however, cover a broad category of devices (e.g., manual surgical instruments). In order to create additional granularity with regard to device technology within each classification regulation, FDA created product codes. There can be one or many product codes within a classification regulation.

FDA’s analysis of whether to exempt a type of device from the 510(k) requirements is specific to the devices within the generic category in question. Thus, FDA does not always propose exempting all product codes within a classification regulation. In addition, FDA sometimes places limitations (e.g., type of technology or indications for use) on an exemption within a classification regulation.

When a generic type of product (often identified by its product code within a classification regulation) becomes exempt from the 510(k) requirements, future products of that generic type will not be required to obtain 510(k) clearance prior to marketing – but, the exemption is subject to the .9 limitations. Each classification regulation part (21 C.F.R. Parts 862 – 892) includes a .9 section (e.g., 21 C.F.R. § 862.9). This section is often overlooked for the more substantive, device-specific sections later in the Part. However, the .9 limitation is crucial in understanding what is and is not 510(k)-exempt.

The .9 limitation says that a device of the generic type in a 510(k)-exempt classification regulation is exempt so long as its characteristics were “existing and reasonably foreseeable” at the time the generic type of device became exempt from the 510(k) requirements. The .9 regulation elaborates on what this phrase means by way of examples. Specifically, a 510(k) is required if the proposed device:

1. has a “different” intended use as compared to the generic device type; or
2. uses a different “fundamental scientific technology” compared to the generic device type.

Note: there are other additional .9 limitations specific to in vitro diagnostic devices, which we are not discussing here.

Determining whether or not a device’s characteristics (i.e., fundamental technology and intended use) were foreseeable at the time of the exemption is not an easy task, and is rather subjective. Certainly the technology and intended use described in the classification regulation are existing and foreseeable. Beyond the classification regulation, 510(k) clearances already in place at the time of an exemption can shape whether an intended use or technology are considered reasonably foreseeable. See 63 Fed. Reg. 59222, 59224 (Nov. 3, 1998) (here).

Clearances that are granted after an exemption is finalized are also useful information. These post-exemption clearances provide insight into the types of changes that FDA concluded exceeded the limitations in a .9 regulation. Once a specific device is deemed to trip the .9 limitation and must undergo 510(k) review, similar devices must also undergo 510(k) review.

If there are no pre- or post-exemption 510(k) clearances that obviously answer the question whether a proposed device is exempt or not, a manufacturer will need to analyze the need for a 510(k) more generally based upon the intended use and fundamental scientific technology prongs, described above. With regard to intended use, as described in the .9 regulation, the bar is quite high – a different intended use, including a new medical purpose or changing the user population (e.g., from professionals to lay users). However, FDA has analogized this prong of the analysis to the standard for determining if a new 510(k) is required, as set out in its 1997 Blue Book Memorandum, “Deciding When to Submit a 510(k) for a Change to an Existing Device.” See 63 Fed. Reg. 59224. Thus, although the standard may appear high, generally, from FDA’s perspective, even modest changes to the indications for use could trip the exemption.

Fundamental scientific technology on its face appears to be a very high standard – essentially a completely different technological means of achieving the same end goal. The specific examples cited in the .9 regulations support this being a high standard. These examples are a surgical instrument that cuts tissue with a laser beam rather than with a sharpened metal blade and an in vitro diagnostic assay that uses a DNA probe or hybridization rather than traditional immunoassay. These are significant changes. Thus, manufacturers can generally iterate and evolve from a technological perspective and still fall within a 510(k) exemption. A manufacturer should analyze the proposed technological features of a device compared to the technological features within the exemption to determine whether or not the proposed device trips this prong of the exemption.

The most recent list of proposed 510(k) exemptions is set to be finalized this July. When the list is finalized, there are certain to be at least a few 510(k)s pending for devices within the scope of the exemption. In the past, FDA has advised manufacturers that a 510(k) submission pending when an exemption is finalized should be withdrawn. 63 Fed. Reg. 3142, 3143 (Jan. 21, 1998) (here). FDA has not reiterated that guidance more recently.

Anyone with a submission pending when an exemption is proposed, should discuss with the lead 510(k) reviewer whether the submission should be withdrawn – meaning it falls within the exemption – or whether it should proceed – meaning that it falls outside the exemption.

As we reported previously, just before President Trump took the oath of office, FDA issued two guidance documents regarding its approach to the regulation of genetically engineered (“GE”) animals. One of those guidance documents was a revision of a 2009 guidance document that, for the first time, set up a formal review paradigm for GE animals. The guidance, entitled CVM Guidance for Industry #187 – Regulation of Intentionally Altered Genomic DNA in Animals (the “Draft Revised Guidance”), formally expanded the scope of the prior version of the guidance to explicitly state that FDA’s review paradigm for GE animals would apply to all GE animals, regardless of the molecular tools used to produce those animals.

Earlier this week, FDA announced that it is extending the comment period for the Draft Revised Guidance by an additional two months. Comments must now be submitted by June 19, 2017.

This is an important extension for several reasons. First, the area of GE animal regulation is not without its detractors. Some believe that these animals pose little risk and should have less regulatory oversight than FDA currently imposes. Others have sued FDA saying that FDA regulatory oversight is so lacking that it presents a danger to public health and the environment. Thus, FDA’s approach is under attack by both sides of the social/political spectrum. The extension provides additional time for all voices to be heard by allowing more time for disparate groups and interests to file comments.

Given that parties that oppose the Draft Revised Guidance are motivated to provide comments, it is important for parties that are in favor of the Draft Revised Guidance to also provide comments so that the public record includes an accurate representation of the various opinions of industry and the public at large.

Second, in FDA’s Notice of Availability [https://www.federalregister.gov/documents/2017/01/19/2017-00839/regulation-of-intentionally-altered-genomic-dna-in-animals-draft-guidance-for-industry-availability] of the Draft Revised Guidance, FDA asked the public “whether there is any existing empirical evidence demonstrating that certain types of genome editing may pose minimal risk.” Despite those who have asserted for years that genome editing poses little or no risks, FDA’s request for information is almost rhetorical. As far as your author is aware, the science of genome editing simply has not advanced to a stage where data exists to support an a priori finding of minimal risk for an entire class of genomic changes. The genome editing community is working feverishly to improve the accuracy and precision of their molecular tools. The day will come when it is possible to make single small changes to a genome without off-target changes, but we aren’t there yet. If there is data to support a finding that certain types of genome editing pose minimal risk, submitters of such data will welcome the extra time to collect, organize, synthesize, and report such data to FDA.

As with any draft guidance document, we strongly encourage all parties whose products are or may be included under the scope of the Draft Revised Guidance to submit comments to FDA. So, if you were rushing to pull something together before next week, the extension is a welcome opportunity to put together additional thoughts and comments.

Since the Supreme Court’s decision in United Health Services v. United States ex rel. Escobar, we have seen a narrowing of situations in which courts will find liability under the False Claims Act (“FCA”).  A district court in Pennsylvania provided yet another example of this shifting trend when it dismissed a case by whistleblowers attempting to enforce a regulatory scheme via the FCA.  For another discussion of a court’s decision since Escobar, see this post.

Relators Sally Schimelpfenig and John Segura brought a case under the FCA and other state statutes alleging that Defendants manufactured and dispensed prescription drugs that did not comply with certain federal laws requiring child resistant packaging.  Specifically, according to Plaintiffs, Defendants violated the Poison Prevention Packaging Act (“PPPA”), which requires child resistant packaging for orally administered prescription drugs for use by humans. The Consumer Product Safety Improvement Act (“CPSIA”) requires manufacturers of imported goods to certify that their products comply with the rules and regulations enforced by the Consumer Protection Safety Commission (“CPSC”), which includes the PPPA.  These alleged violations of the PPPA and CPSC formed the basis of Plaintiffs’ FCA claims.

In an opinion issued on March 27, 2017, the United States District Court for the Eastern District of Pennsylvania found that Plaintiffs failed to plead sufficient facts to allege violations of the FCA.  United States ex rel. Schimelpfenig v. Dr. Reddy’s Labs. Ltd., 2017 U.S. Dist. LEXIS 44064, *8 (E.D. Pa. Mar. 27, 2017).  After so holding, the Court declined to exercise supplemental jurisdiction over the remaining state law claims.

Defendants in this case can be separated into two categories: the manufacturers who made the allegedly noncompliant prescription drugs and the pharmacies who received the drugs, provided them to customers, and sought reimbursement from government payors. Id. at 3.

Although Plaintiffs brought a total of thirty-four claims, the Court focused on the four concerning violations of the FCA. Id. at 7.  The FCA makes it unlawful to knowingly submit a fraudulent claim to the government.  A prima facie case requires a showing that (1) the defendant presented or caused to be presented to an agent of the United States a claim for payment, (2) the claim was false or fraudulent, and (3) the defendant knew the claim was false or fraudulent.

First, the Court analyzed the second prong of the FCA analysis: whether or not defendants submitted a claim that was false. A claim can be either factually false or legally false.  A claim is factually false when the claimant misrepresents what goods or services it provided to the government.  In such an instance, the claimant would misrepresent the types of goods or services provided, or seek reimbursement for goods or services that were never provided.  The Court noted that Plaintiffs’ SAC did not allege any facts supporting a factually false claim by Defendants, and thus dismissed any FCA claims based on the factual falsity theory of liability. Id. at 10-12.

A claim is legally false when the claimant knowingly falsely certifies that it has complied with a statute or regulation with which compliance is a condition for payment from the government.  This certification can be either express or implied.  Here, the Court found that Plaintiffs did not allege that Defendants expressly certified compliance with all federal statutes and regulations, and thus proceeded to analyze liability under an implied certification theory.  In this analysis, the Court relied in large part on the recent Supreme Court holding in United Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989, 195 L. Ed. 348 (2016).  In Escobar, the Supreme Court held that “the implied certification theory can be a basis for [FCA] liability, at least where two conditions are satisfied: first the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths.”  136 S. Ct. at 2001.

Ultimately, the Court found that Plaintiffs did not allege Defendants made any specific representations about the goods it provided for government reimbursement, or that Defendants failure to disclose noncompliance with the PPPA was material to the government’s payment decision.  Schimelpfenig, 2017 U.S. Dist. LEXIS 44064 at 14.  Importantly, the Court relied on a recent decision in the Third Circuit which it interpreted as changing the Circuit’s approach to the implied certification theory of FCA liability post-Escobar. Id. at 18.

In United States ex rel. Whately v. Eastwick College, the Third Circuit interpreted Escobar as requiring specific representations that, in conjunction with the claimant’s purposeful omissions, renders the ensuring claims legally false.  657 F. App’x 89, 94 (3d Cir. 2016).  As such, in the Third Circuit, the only way to succeed in proving an implied certification theory of legal falsity is to provide proof of specific representations made to the government payer regarding the goods or services provided.  Id. at 19.  Even if the manufacturing defendants made false express representations of compliance to the retail defendants, that, according to the Court, was of no import.  The sole question in the FCA analysis surrounded what representations were made to the government.

In analyzing the second prong of the Escobar analysis, the Court found that Plaintiffs failed to allege that this nondisclosure was material to the government’s decision to pay the reimbursements.  Importantly, the Court noted that it is not enough that a government or a federal agency found a particular issue important enough to regulate.  The relevant inquiry is whether the payment decision was influenced by the claimant’s purported compliance with a particular requirement.  Here, however, Plaintiffs’ claim was essentially that misbranding is a basis upon which the government would have the option to refuse payment of defendants’ claims—which the Court found insufficient to show materiality.

In so holding, the Court noted that there are federal agencies equipped with the administrative power to address the Defendants’ statutory and regulatory violations and the FCA is not the vehicle for punishing “garden variety breaches” or regulatory violations. Id. at 26.  In fact, the Court went so far as to conclude that allowing for FCA liability in such an instance would undermine the regulatory procedures in place for addressing Defendants’ exact kind of noncompliance.

This case represents another example of how Escobar has changed the landscape of FCA analysis in narrowing the instances where a Court will impose liability.  This case also signals an important shift to deference towards regulatory agencies in an effort to minimize situations in which companies experience regulatory consequences and then find themselves involved in litigation over the same conduct.  As lower courts continue to interpret and apply Escobar, we will keep you updated on the implications for False Claims Act jurisprudence.

* Rachel Hunt not admitted in the District of Columbia.