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  • Is FDA Going to Get A Little Help From Its Friends at the PTO?

    Drug pricing has been a hot button issue in the U.S. for decades, and patent protections have been cited as a source of “gamesmanship” allowing brand companies to keep drug prices high.  Yet, as long as FDA and FTC have been trying to address anticompetitive behavior, the U.S. Patent and Trademark Office (PTO) has been relatively absent from these discussions.  Really, FDA and the PTO only interact in the context of patent term extensions, in which the PTO relies on FDA to determine the dates of the applicable regulatory review periods.  But President Biden wants that to change.

    In the July 2021 Executive Order on Promoting Competition in the American Economy, the White House noted that patent laws “have been misused to inhibit or delay—for years or even decades—competition from generic drugs and biosimilars, denying Americans access to lower-cost drugs.”  To that end, the Executive Order directs FDA to “write a letter” to the PTO “enumerating and describing any relevant concerns” in order to “to help ensure that the patent system, while incentivizing innovation, does not also unjustifiably delay generic drug and biosimilar competition beyond that reasonably contemplated by applicable law.”  In September 2021, FDA did just that.

    On September 10, 2021, then-Acting Commissioner of FDA, Janet Woodcock, sent a letter to the PTO emphasizing FDA’s commitment to fostering innovation and competition and working to address abuses of the system that serve as impediments to these goals.  FDA recognizes the critical role of patents but laments certain patenting practices in the pharmaceutical industry that are used to forestall access to lower cost medicines.  Specifically, Commissioner Woodcock’s letter cites patent thickets, patent evergreening, and product-hopping as major issues used to inappropriately impede competition:

    • Patent thickets, or “continuation” patent applications, allow filers to obtain follow-on patents resulting in multiple patents on different aspects of the same product. While the term of the patent is not extended, multiple patents increase litigation burden.
    • Patent evergreening, in which sponsors patent post-approval or secondary changes to previously-approved just as earlier patents are expiring, extends patent protections beyond the intended patent life.
    • Product-hopping occurs when sponsors submit a new application for a modified drug product, protected by new patents, and effectively switches the market to the new product before generic competition is set to come to market. This forces the market to adopt the new product in place of the old, obviating the newly-approved generic.

    These issues are at the heart of FDA’s concerns about the abuse of the patent system to thwart generic entry.  But because FDA has no authority to address any of them, it must rely on the PTO.  To that end, the September 2021 letter, at the direction of the Executive Order, FDA outlines FDA’s suggestions and questions for the PTO.  FDA suggests that it could provide training for PTO examiners to help determine whether particular documents constitute prior art to a claimed invention.  FDA also suggests that FDA and PTO could hold joint Patent Term Extension training.  In information-gathering mode (though, my snarky brain likes to think its passive aggressiveness), FDA asks for the PTO’s perspective on the possible misuse of the patent system and “whether it is considering means of limiting such practices.”  Finally, FDA asks how the Patent Trial and Appeal Board (PTAB), including Post Grant Review and Inter Partes Review, can have any impact on Orange Book-listed or biological product patents.

    In July 2022, PTO responded to FDA’s letter.  In this response—which, frankly, reads like your typical response to an FDA Form 483—the PTO commits to initiatives to protect against patenting of incremental and obvious changes to drugs, providing additional time and resources for examiners, and collaboration with FDA to develop new policies.  Consequently, PTO is “prioritizing” various initiatives to strengthen the patent system for both the pharmaceutical industry and other technologies.  The PTO plans to:

    • Enhance collaboration with other agencies, including the development of formal mechanisms to do so. Specifically, the PTO proposes to explore joint PTO-FDA collection of stakeholder input; to provide training to examiners in collaboration with FDA; to coordinate with other agencies to ensure consistency in industry representations to each agency; to collaborate with FDA on America Invents Acts proceedings; to collaborate with FDA to improve the Patent Term Extension process; and to work to understand the overlap between agencies with respect to regulatory policy.
    • Improve procedures for obtaining a patent by providing more examining time; providing more training and resources; enhancing communication between patent examiners and the PTAB, which hears patent challenges; “considering” enhancement of information disclosure and scrutiny for continuation applications; revisiting certain double patenting practices; revising procedures for third-party input during prosecution; comparing the U.S. patenting system to that of other countries’; and providing technical input on proposed legislation.
    • Improve the PTAB challenge practice by potentially applying additional scrutiny and allowing third-party input.
    • Improve public participation.

    The letter also states that the PTO will “consider and evaluate new proposals for incentivizing and protecting the investment essential for bringing life-saving and life-altering drugs to market while minimizing any unnecessary delay . . . .”

    All in all, the letters don’t really provide much in the way of substance.  Essentially, they commit to better collaboration, enhanced training, and improving processes, but there’s little in the way of concrete plans.

    But the real question here is why it took this long for PTO to get involved in the conversation.  As FDA notes, the misuse of the patent process is a significant issue, and it’s one that has been discussed in the industry for more than a decade.  But FDA can’t deal with that alone, and the PTO has been largely silent until now.  Indeed, it’s a bit late for the PTO to be trying to “understand” how FDA’s and the PTO’s authorities and responsibilities overlap; and references to “exploring the policies surrounding the use of ‘skinny labels,’” use codes, and REMS seem pretty dated more than four years after the first GSK decision brought skinny labeling front and center, almost 13 years since the Caraco decision ordering correction of a patent use code, and 15 years since Celgene’s Citizen Petition objecting to sharing its patented REMS program with competitors.  Conversations about these issues have been ongoing for years yet this seems like the first time the PTO has taken any real interest.

    It’s not entirely clear why it has taken an Executive Order to get the PTO’s attention, but we’re here now.  We wait with baited breath to see if this exchange of letters is merely lip-service for the sake of the Executive Order or reflects a real commitment to collaboration.

    Categories: Hatch-Waxman

    PETA Petition to FSIS to Remove Animal Raising Claims from Label Approval Process

    Last month, the People for Ethical Treatment of Animals (PETA) submitted a petition to the Food Safety and Inspection Service of the U.S. Department of Agriculture (FSIS) requesting that FSIS initiate rulemaking to remove animal raising claims from the label approval process because, according to PETA, FSIS has no authority to approve animal raising claims and FSIS is not authorized to regulate on-farm animal raising conditions or activities.

    So, what is going on?  The issue relates to FSIS premarket review and approval of labels for meat and poultry.  FSIS has interpreted the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) as requiring premarket label approval.  It bases this interpretation on the provisions in the FMIA and PPIA that USDA must maintain an inspection program to assure that meat and poultry products distributed to consumer are safe, wholesome, not adulterated, and properly marketed, labeled, and packaged, and that the label and labeling is not false or misleading.  For decades, FSIS has maintained that without approved labels, meat and poultry products may not be sold, offered for sale, or otherwise distributed in commerce.  Because labels are approved by FSIS, they cannot be challenged by private parties.

    Over time, FSIS has issued regulations specifying that certain labels are subject to so-called generic label approval.  Specifically, under 9 C.F.R. § 412.2, labels that include “all applicable mandatory labeling features [consistent with] Federal Regulations [and] [l]abels that bear claims and statements that are defined in FSIS’s regulations or the Food Standards and Labeling Policy Book (except for natural and negative claims),and . . . comply with those regulations are “deemed to be generically approved . . . without being submitted for evaluation and approval.”  On the other hand, labels that bear so-called “special statements and claims” must be submitted to and approved by FSIS’s Labeling Program and Delivery Staff before they can be used on meat or poultry products.

    The list of special statements and claims, in FSIS regulation 9 CFR 412.1(e),  includes so called “animal raising claims.” FSIS requires substantiation to support this type of claims.  In 2019, it published a guidance document that describes the evidence needed to substantiate animal raising claims. These include documentation describing the manner in which the animals are raised, a written description explaining the controls for ensuring the claim is valid, a description of product tracing and segregation (including for non-conforming product), and a copy of any applicable third-party certificates. FSIS does not visit or inspect farms to verify the documentation provided by the applicant.

    In its petition, PETA argues that FSIS exceeds its authority by approving animal raising claims because the FMIA and the PPIA do not authorize FSIS to regulate on-farm animal raising/practice activities.  Consequently, FSIS is unable to verify the validity of these claims.  PETA also argues that animal raising claims such as “humanely raise” and “free to roam” are “amorphous and have a high potential for creating consumer confusion” and “can be, and are, used on products that do not exceed industry standards, despite companies’ attempts to portray them as more ‘humane’ or otherwise adhering to superior animal-welfare standards compared to other products on the market.” As a result, consumers may be misled into paying a premium for products with animal raising claims whereas such products are not different from other products in the market. The petition includes four examples that, according to PETA, illustrate that many of the animal raising claims approved by FSIS are not truthful and/or misleading.

    PETA “urges FSIS to amend its regulations to no longer allow for the approval of animal raising claims on product labels.”  As mentioned above, FSIS interprets the FMIA and PPIA as mandating that FSIS review (and approve) labels.  Consequently, it appears that, if FSIS were to amend the regulation as requested, animal raising claims on meat and poultry products essentially would be prohibited.

    CMS Proposes Rule to Implement Mandatory Medicare Part B Discarded Drug Rebates

    Last November, we blogged about a provision of the Infrastructure Investment and Jobs Act that requires new rebates for discarded amounts of drugs that are covered under Medicare Part B, and that are packaged in a single-dose container or single-use package.  An example of such a drug is a single-use vial of an injectable cancer drug that is dosed based upon weight, and therefore might not be entirely used for a lighter weight patient.  Currently, a health care provider identifies any discarded quantity from such a vial in the claim using a JW modifier, and Medicare Part B pays for both the utilized and the discarded amount.  Under the new law, Part B will continue to pay for discarded amounts from single-dose containers, but the manufacturer must pay a rebate (called a “refund”) to Medicare for discarded amounts above a specified threshold.

    On July 8, as part of its annual physician fee schedule update for 2023, CMS issued a proposed regulation to implement the new refund.  Under the regulation, manufacturers would pay refunds on a “refundable single-dose container or single-use drug,” defined as a drug (1) that is a single source drug or biological (including a biosimilar); (2) that is paid for under Medicare Part B; and (3) that is furnished in a single-dose container or single-use package.  The preamble adds that, to meet this definition, all NDCs of the drug assigned to the drug’s billing and payment code must be single-dose containers or single-use packages.  Excluded are radiopharmaceuticals, imaging agents, and drugs whose administration requires filtration and discarding of the unused portion prior to administration.  No refunds would be due for discarded amounts that are not separately payable — for example, drugs that are packaged under the hospital outpatient or ambulatory surgical center prospective payment systems.  The discarded amounts would be identified in a claim as a separate line item with the JW modifier, as they currently are, but a new JZ modifier would be required for drugs in single-dose containers when there is no discarded amount.

    Tracking the statute, the proposed rule provides that the refund amount for a refundable drug each quarter would be the amount by which the Part B payment amount for the total discarded units in the quarter (based on date of service) exceeds 10% of the total allowed charges for the drug during the quarter.  Both the discarded units and the total allowed charges would be included in a quarter based on the date of service.  The following example is provided in the preamble:  If Part B paid a total of $1.5 million for 15,000 units of a refundable drug during a quarter, and paid $200,000 for 2,000 discarded units, the refund for the quarter would be $50,000 ($200,000 minus 10% of $1.5 million).  In other words, up to 10% of the Part B payment amount for a single-dose container drug during a quarter may be discarded with no refund, but any discarded amount greater than that is subject to refund.

    Refunds will be payable for single-dose container drugs beginning on January 1, 2023.  The manufacturer responsible for paying the refunds will be the company whose NDC is on the label.  No later than October 1 of each year, manufacturers of refundable drugs will receive a utilization report from CMS containing refund claims for the four quarters ending with the first quarter of that year, and payment of undisputed refunds will be due on December 31.  Of necessity, the October 1, 2023 report will contain only claims for 1Q 2023.  Each report will also contain late-received (lagged) claims for the period covered by the previous year’s report.  For example, the October 1, 2025 report will contain claims for 2Q 2024 through 1Q 2025, plus lagged claims from 2Q 2023 through 1Q 2024.  Lagged claims will no longer be subject to refund after the second subsequent annual report.

    The statute contains an 18-month grace period during which no refunds are payable for single-dose container drugs approved by FDA on or after November 15, 2021.  CMS has chosen to measure this grace period from the first full quarter following the first date of sale, as reported in the manufacturer’s average sales price reports, through the following five quarters.  The grace period would be available only for the first NDC marketed under a billing code; additional NDCs subsequently marketed under the same billing code (for example, a new vial size) would not be eligible for the grace period.

    The proposed regulation establishes a dispute resolution procedure, and codifies the statutory penalty for failure to pay refunds, which is 125% of the amount the manufacturer was required to pay.

    Although the scope of drugs subject to the new refunds is narrow, the refunds represent a significant departure from previous federal programs establishing rebates or discounts on drugs purchased or reimbursed by the government.  Those programs, comprising the Medicaid Drug Rebate Program, the 340B drug discount program, the Veterans Affairs drug discount program, the TRICARE retail refund program, and the Medicare Part D Coverage Gap Discount Program, are all implemented through agreements between the manufacturer and the government.  Though foregoing such an agreement may have adverse financial consequences for a manufacturer, the agreements are nevertheless voluntary.  When most of these programs were established in the early 1990s, the voluntary agreement approach was viewed as a way to prevent the programs being perceived and challenged as direct price controls.  The new discarded drug refunds are unique in being mandatory, with a civil penalty for non-compliance.  Medicare Part B and Part D inflation rebates currently being considered by Congress would similarly be mandatory.  It is safe to conclude that Congress’ sensitivity about imposing mandatory drug price reductions is a thing of the past.

    Here It Goes, Here It Goes, Here It Goes Again: The Build Back Better Act (Redux)

    The Build Back Better Act—the food and drug law implications of which we discussed last year—has popped up again in Congress, and it is just as dense as ever.  With 190 pages dedicated to prescription drug pricing reform, the program is ambitious…and complicated.

    As we explained last year, the Act proposes to amend Title XI of the Social Security Act to require that HHS establish a “Drug Price Negotiation Program” to “negotiate and, if applicable, renegotiate maximum fair prices” for certain single-source drugs and biological products.  While some of the terminology has changed, the new iteration is pretty similar to the last version shopped around the hill: HHS will select certain drugs that will be subject to negotiations for purposes of reducing drug prices for products with limited competition, theoretically increasing access to these products.

    The last iteration of the Build Back Better Act neglected to consider the impact on the generic and biosimilar industries.  Indeed, a major complaint we highlighted last year is that the discounts negotiated for the relevant selected products—at least 60% off of the average price—could undercut generic and biosimilar manufacturer’s development programs, ultimately disincentivizing investment in generic and biosimilar development for single-source products.  The new version makes an attempt to address that problem.

    In the Build Back Better Act Redux, Congress has added a section that would delay the addition of certain biological products—and only biological products—to the negotiation list for up to two years if there is a “high likelihood” of biosimilar competition.  If a drug that has been approved for 12 years—but less than 16 years—is selected for the Drug Price Negotiation Program, a biosimilar manufacturer can request a one-year moratorium on negotiations for that product so that the biosimilar manufacturer has time to secure licensure and begin marketing of the biosimilar version.  If that biosimilar has not been licensed or marketed within 1 year, the product may be eligible for a second year of delay if there remains a high likelihood of licensure and a significant amount of progress toward both licensure and marketing has been made since the receipt of initial request.  If the biosimilar has not been licensed and marketed within the approved delay period (either 1 or 2 years depending on likelihood of licensure), the manufacturer of the biological product must pay a rebate to the government for the lost savings due to the delay.  Each product is limited to two years of delay.

    As a threshold matter, the 2-year delay provision does not solve the core problem for biosimilars manufacturers: the lack of predictability that Build Back Better injects into biosimilar development.  Indeed, it is very difficult to predict whether and when a particular reference product will be negotiated, the specific terms for that negotiation – which are all subject to Secretarial discretion – and how that will map to a biosimilars development program.  Importantly, investment decisions about whether to develop a biosimilar – which can take 8-10 years on average – are made years in advance, and years before any of the relevant milestones in the bill.  Without any predictability or clarity, biosimilar manufacturers will be less likely to take on the risk of developing these critical medicines, and patients will ultimately have less options.

    Moreover, there are some significant limitations to the application of this delay provision that appear to make it difficult to utilize.  First, the “delay” option is available only to biosimilar manufacturers who submit a request regarding a so-called “extended monopoly drug,” meaning a reference product that has been on the market between 12 and 16 years; products that have been on the market for longer than 16 years are not eligible for such a delay (unless the product transitions from 15 to 16 years during the delay period).  This period is seemingly arbitrary given that biosimilars have only existed since 2010, and it’s entirely possible that the development of a biosimilar version of a reference product approved 16 years ago could take longer than a product that was approved 8 years ago.  Given that patent life can also extend beyond 16 years on the biosimilar side, several products may never be eligible for delay.  Indeed, a number of biosimilars already on the marketed launched much closer to year 20 after BLA approval.  Given the number and length of the patents that frequently surround biologics, it is unlikely that the biosimilar manufacturer will have addressed all of them – or even some fraction of them –when the manufacturer would be required to make the request for delay under the statute.  Even a biosimilar manufacturer in the midst of invalidating patents in a patent litigation may not be able to make a request given the unpredictability of court deadlines.

    Additionally, the definition of “high likelihood” limits eligibility to biological products for which a biosimilar application has been accepted and for which the biosimilar applicant has provided “clear and convincing evidence” that the biosimilar will be marketed within the applicable time period.  That “clear and convincing evidence” requires, amongst other things, submission of proposed manufacturing schedules, SEC disclosures, and patent settlement agreements.  Thus, there’s a significant burden on biosimilar manufacturers to prove that licensure likely will be granted that year and that marketing will follow soon after—that’s a tough showing to make.  Moreover, the clear and convincing evidence standard is known to be a high standard that is difficult to satisfy.

    A biosimilar that has been approved for more than a year and not marketed is also ineligible for the 2-year delay option.  That removes biosimilars that, by definition, should meet the “high likelihood of biosimilar competition” criteria given that they have received a full approval.  Those biosimilars—particularly those who were approved before BBB and had no idea that an approval would start a clock for them—may be reasonably waiting for a number of different circumstances, yet cannot take advantage of the 2-year delay window

    Finally, the option to request a delay is limited to certain biosimilar manufacturers.  Specifically, any biosimilar manufacturer that has been the subject of prior enforcement proceedings are not eligible.  The program is not available to:

    • Biosimilar manufacturers currently subject to integrity agreements with HHS;
    • Biosimilar manufacturers that have been subject to exclusion or civil monetary penalty within the last 5 years;
    • Biosimilar manufacturers subject to cease and desist or injunction through the FTC; or
    • Biosimilar manufacturers that have entered into any agreement with the reference product manufacturer that requires or incentivizes the manufacturer to submit a request for delay.

    On the final condition, it’s not clear what “incentivizes . . . the manufacturer to submit a request” even means.  Patent settlements, by their nature, incentivize competition by providing a date certain for entry before patent expiration.  A “high likelihood” of competition will trigger the 2-year delay, so it’s not clear what the provision is targeting and whether it could be applied in a very overbroad manner.  It’s clear that Congress has heard the complaints about the impact of the Build Back Better Act on biosimilar competition, but it’s not clear that this “delay” provision fixes much.  The barrier to obtaining a delay is both high and subjective, and, in the grand scheme of drug development and approval, a year or two may not be enough time to allow for approval even if the application has been submitted—especially if inspections are necessary and time-consuming patent litigation is ongoing.  And while this provision seeks to help the biosimilar market, it does nothing for small molecules where costs can be just as prohibitively high.  This is particularly true for so-called “complex generics,” which require a significant investment and that can languish for years in the FDA approval process.

    As we said back in November, the Build Back Better Act may have a serious effect on the generic drug and biosimilars markets.  The new provisions do not appear to change that conclusion.

    Electronic 510(k) Submissions Ahead (FINALLY!)

    Last month, FDA announced two important steps towards accepting electronic 510(k) submissions.  The first relates to the Customer Collaborations Portal (or CCP).  As discussed in our prior post on the CCP (here), the CCP is currently a submission tracker providing details of completed and upcoming dates.  At this time, the CCP is only available for Traditional 510(k)s, but FDA has said that it plans to expand the CCP to all submission types in the future.

    On June 30, individuals with access to the CCP (i.e., 510(k) correspondents for Traditional 510(k)s since the CCP was originated) received an email from CDRH announcing that “Soon, FDA will let you send new CDRH-led premarket submissions online through our Customer Collaboration Portal (CCP) instead of shipping them as physical media.”  This is welcome news for those of us that have been holding on to CDs and thumb drives to continue to send in submissions.  According to the announcement, the CCP will accept both eSTAR and eCopy submission formats.​  As discussed in an earlier post (here), CDRH piloted the eSTAR electronic submission template last year.  While the tool is useful for ensuring the proper electronic formatting for a 510(k) submission, the output still needed to be downloaded and sent to FDA.

    The email also states that the ability to submit completely electronically will first be offered to individuals with CCP accounts so that CDRH can assess the platform’s performance.  Once the initial assessment is complete, CDRH notes that it expects the ability to submit through the CCP will be offered to all premarket applicants.  The announcement does not indicate whether the CCP will allow for submission of all 510(k) types or just Traditional 510(k)s (i.e., the only submission type currently trackable via the CCP).

    The announcement concludes by stating that individuals need not do anything to participate because we are already using the CCP, and another communication will come once we are able to begin sending submissions electronically.  Being able to submit completely electronically would be a huge benefit in terms of efficiency and timing for applicants.

    The second announcement was made earlier in June through the Federal Register (here), when CBER announced that it would pilot the eSTAR electronic submission template for 510(k)s for biologic products regulated as medical devices. As noted above, the eSTAR electronic submission template was previously piloted in CDRH.  The pilot appears to have gone well now that eSTAR formatted submissions will be accepted through the CCP.  It is a positive next step for eSTAR to be proceeding to CBER 510(k)s.  The pilot will be available to applicants planning to submit Traditional, Special, or Abbreviated 510(k)s.  Interested applicants should contact CBER, at the email in the Federal Register notice.

    These two announcements are positive next steps towards standardized electronic submission of 510(k)s for all medical device types.  We look forward to FDA expanding both programs.

    Categories: Medical Devices

    Goodbye NSURE, Hello ACNU! FDA Issues Long-Awaited Proposed Rule to Bring OTC Drugs with a Little Something Extra to Market

    Ten years in the making, a proposed rule was issued by FDA last week that has the potential to bring some prescription drugs that have not been able to gain an OTC approval to retail shelves at long last.  Sponsors have been unable to overcome the challenges of switching some widely used prescription drugs to OTC for a very long time and a path to market may be clearing for at least some of these and others.  In March 2012, FDA convened a public meeting to discuss a new paradigm under consideration, “Using Innovative Technologies and Other Conditions of Safe Use to Expand Which Products Can Be Considered Nonprescription”.  The purpose of the meeting was to explore the feasibility of imposing conditions or requirements beyond what can be contained in the Drug Facts Label (DFL) to allow certain prescription drugs to be available OTC when labeling alone will not suffice to ensure safe and effective use without a prescription and the oversight of a healthcare professional.  A wide variety of novel ideas were floated and showcased – such as kiosks and websites to question consumers and expanding the role of pharmacists to be a sort of gatekeeper to these OTC drugs for customers.  FDA was and remains clear, however, than any such drug would still be a nonprescription drug, and the statutory provisions identifying only two classes of drugs – prescription and nonprescription (colloquially, OTC) – would be respected.

    A flurry of activity followed the 2012 meeting including several workshops organized by the Brookings Institute and the launch of a new (and apparently now abandoned) acronym by FDA: NSURE – Nonprescription Drug Safe Use Regulatory Expansion.  Then, essentially nothing until July 2018 when FDA issued a draft guidance entitled, “Innovative Approaches for Nonprescription Drug Products”, outlining two potential approaches for demonstrating safety and effectiveness for an OTC drug when the DFL alone is not sufficient to ensure the drug can be used safely and effectively in a nonprescription setting.  The first was to develop labeling beyond the DFL and the second was to propose “additional conditions that a consumer must fulfill” with the examples self-selection tests utilizing a mobile app or a requirement for the consumer to affirm they have watched a video or read text about use of the drug.  To date, no OTC drug has been approved under this guidance.

    The recently proposed rule stays true to much of what has been discussed by FDA over time but also introduces a new acronym – ACNU for Additional Conditions of Nonprescription Use – as well as several new concepts and requirements.

    An NDA or ANDA (more on ANDAs later) for an OTC drug with ACNU would need to be submitted as a separate NDA or ANDA from the existing prescription approval and could not be done through a supplement.  Among other things, the applicant would need to include a statement of the necessity of the ACNU.  FDA makes it clear that it will not approve an application for a drug with ACNU if those ACNU are not necessary to the safe and effective use of the drug OTC.  Drugs currently on the market OTC would not be approved with ACNU.  The application also would need to describe the ACNU and provide information to support its use including its purpose and how it ensures appropriate self-selection or actual use or both, a description of the key elements of the ACNU, supportive data, and a description of “the specific way the ACNU is operationalized”.

    This concept of operationalizing (operationalization?) is new to this proposed rule and appears intended, at least in part, to solve thorny issues related to identifying and approving a generic version of a product approved with ACNU. FDA states that the specific way the ACNU is operationalized is not a key element of the ACNU and provides an illustrative example of the difference.  In the example, the applicant has demonstrated that consumers cannot appropriately self-select based on the DFL alone and provides the information supporting the use of a proposed ACNU requiring all consumers to complete a questionnaire on a secure website that uses the responses to calculate a risk score and determine whether the score is acceptable to allow the consumer to use the OTC drug.  In this case, the key elements of the ACNU include the questions in the questionnaire, but not how the questionnaire is administered (e.g., through a kiosk at the retail store, through a mobile app, via telephone).  How the questionnaire is administered is how it is operationalized.

    This brings us back to the ANDAs.  Under the proposed rule, an ANDA seeking approval for a drug with ACNU (i.e., the reference listed drug or RLD) must include the same key elements of the ACNU as the RLD, but may propose a different way to operationalize the ACNU.  This would seem to allow a generic to be approved even if the ANDA applicant cannot utilize the same mechanism such as a kiosk or mobile app (perhaps due to patents on the kiosk or software) provided the way the ANDA proposes to operationalize the ACNU achieves the same purpose as the ACNU for the RLD and the ANDA contains appropriate support.

    FDA is seeking comment on, among other questions, whether patents claiming aspects for the ACNU should be listed in the Orange Book and on any other issues related to the proposed rule that FDA should consider in implementing the proposal to help avoid unnecessarily delaying the entry of generics with an ACNU to the market.  FDA is also seeking comment on the proposal to allow differences in the ways to operationalize in an ANDA.

    The proposed rule also includes obligations for new postmarketing reports related to incidents of failure of the ACNU and specific additional labeling requirements for drugs with ACNU.

    Comments on the proposed rule are due by October 26, 2022. (Note that as of this writing the link to submit comments on FDA’s website is not working, but the docket can be reached through the www.regulations.gov website by searching for the docket number FDA-2018-D-2281 .)

    Will Modernization of Cosmetic Regulation Finally Happen?

    On June 14, 2022, the Senate Health, Education, Labor and Pensions Committee voted to pass the FDA Safety and Landmark Advancements (FDASLA) Act (S.4348).   While FDASLA focuses on user fees and includes several other provisions regarding drugs and devices, it also includes provisions related to cosmetics.  Specifically, FDASLA includes the Modernization of Cosmetics Regulation Act of 2022 proposing significant amendments to the FDC Act, intended to modernize safety standards for cosmetics in the United States.

    Efforts to update safety standards for cosmetics have been ongoing since 2013, with the proposed Personal Care Products Safety Act of 2021 being the most recent iteration prior to FDASLA.  The Modernization of Cosmetics Regulation Act of 2022 addresses much of what was included in previous bills, including:

    • adverse event reporting requirements;
    • a labeling requirement to include contact information for adverse event reporting;
    • ingredient labeling requirement for cosmetic products for professional use (these products are currently exempt from ingredient labeling requirements);
    • mandatory recall authority;
    • establishment of good manufacturing practices (GMPs) for cosmetics facilities;
    • registration and product listing requirements; and
    • a requirement for FDA to issue regulations to establish standardized testing methods for detecting and identifying asbestos in talc-containing products

    The bill includes certain exemptions for small businesses.

    The current bill is not as sweeping as the Personal Care Products Safety Act of 2021.   Among other things, rather than requiring that FDA promulgate a rule banning the addition of perfluoroalkyl and polyfluoralkyl substances (PFAS), the current bill only requires that FDA assess the use and safety of PFAS in cosmetics and prepare a report within two years of the enactment of the law.  Other provisions from the 2021 bill that are absent in the 2022 bill include the mandate for FDA to annually review the safety of at least five cosmetic ingredients or non-functional constituents, and registration fees.

    State law requirements differing from, or in addition to, those relating to registration and product listing, good manufacturing practice, recordkeeping, recalls, adverse event reporting, and safety substantiation would be preempted, but other prohibitions and limitations on the use or amount of an ingredient in a cosmetic product, state tort laws, and state laws and referendums, such as California’s Proposition 65 are carved out from preemption.

    The current House bill does not include the cosmetic provisions and it remains to be seen which riders will survive and which will be eliminated.

    Categories: Cosmetics

    DSCSA’s Wholesale Drug Distributor and Third-Party Logistics Provider Regulations and Preemption of State Laws: Now Dancing on the “Floor” and the “Ceiling”

    Oh what a feeling, we’ll be dancing on the ceiling as they say. One day. As the drug distribution industry is well aware, and as blogged about here, on February 4, 2022, FDA published its long-awaited proposed rule titled “National Standards for the Licensure of Wholesale Drug Distributors and Third-party Logistic Providers” (87 Fed. Reg. 6,708 (Feb. 2. 2022)). The FDA’s proposed licensing rule would implement a long-awaited provision of the 2013 Drug Supply Chain Security Act (“DSCSA”) that establishes the requirement for national license standards for WDDs and 3PLs. Section 583 of the FDCA (added by the DSCSA) requires that FDA “establish by regulation the standards for the licensing of persons under section 503(e)(1) … including the revocation, reissuance and renewal of such license.”  Similarly, FDCA Section 584 requires that FDA “issue regulations regarding the standards for licensing … including the revocation and reissuance of such licenses” to 3PLs.  We have all long grappled with the multitude of state licensing obligations.  That is why a key provision of the proposed rule, buried deep in the proposal’s voluminous text, detailing FDA’s revised “preemption” interpretation addressing licensing of WDDs and 3PLs is of so much interest – and potential consequence. These preemption provisions apply to state and local licensure standards, requirements, and regulations.

    As a reminder, the preemption provisions in FDCA Section 585(b)(1) (passed as part of the 2013 DSCSA) read as follows:

    (b) Wholesale Distributor and Third-Party Logistics Provider Standards.—

    (1) In general.–Beginning on the date of enactment of the Drug Supply Chain Security Act, no State or political subdivision of a State may establish or continue any standards, requirements, or regulations with respect to wholesale prescription drug distributor or third-party logistics provider licensure that are inconsistent with, less stringent than, directly related to, or covered by the standards and requirements applicable under section 503(e) (as amended by such Act), in the case of a wholesale distributor, or section 584, in the case of a third-party logistics provider.

    (2) State regulation of third-party logistics providers.–No State shall regulate third-party logistics providers as wholesale distributors.

    Preemption of state laws governing not only the tracking and tracing of prescription drugs but also the licensing of WDDs and 3PLs, is a key component of the DSCSA.  Concerning the track and trace requirements, the DSCSA, as of the date of enactment (November 23, 2013) preempted states from establishing, or continuing in effect any requirements for the tracing of prescription drugs through the supply chain, that were inconsistent with, more stringent than, or in addition to any requirements established under the DSCSA.

    The federal track and trace process started in early 2014, and industry is accustomed to passing “T3” as required by the DSCSA, as well as relieved that overly restrictive state drug pedigree laws are indeed preempted. FDA (albeit in a 2022 guidance document) made it clear that, concerning preemption of state drug pedigree requirements that went into effect starting in 2015: “Any requirements for tracing drugs through the pharmaceutical distribution supply chain that are inconsistent with, more stringent than, or in addition to any requirements applicable under section 503(e) of the FD&C Act are preempted.”

    Now, with the WDD/3PL rule, the second DSCSA preemption piece finally comes into play. Once finalized and effective, states and local governments may not establish or continue licensure requirements for 3PLs or WDDs unless those state requirements are the same as federal requirements. Until the issuance of the proposed rule, industry had been confused by myriad different licensing standards for both WDD and 3PLs.  And, industry had grappled with whether FDA’s future licensing standards would serve as a regulatory “floor,” permitting more stringent state regulation, or a “ceiling,” defining the point at which any state law could not exceed its regulatory authority.  Moreover, a number of states in the interim passed new licensing requirements specifically for 3PLs given the DSCSA’s prohibition on states continuing to license 3PLs under existing WDD state licensing requirements.

    FDA’s proposed regulation now plainly intends to establish a regulatory “floor” and a “ceiling,” which is a welcome change from the Agency’s prior preemption interpretation of this statutory section.  But how states will ultimately interpret the rule is anyone’s guess, given how states must significantly change both their regulatory and licensing fee schemes.  FDA does recognize that the prior “floor only” interpretation would have required WDDs and 3PLs to comply with a “patchwork of state and local licensure requirements which could undermine the goal of national uniformity and could create barriers to the statute’s implementation and administrability.” See 87 Fed. Reg. 6735.  In particular, FDA states that FDCA Section 585(b)(1) preempts states from establishing licensure standards that are “different” from the federal standard; thus, states and local governments may not establish or continue licensure requirements for 3PLs or WDDs unless those state requirements are the same as the federal requirements, and different requirements are preempted.

    This is a welcome departure from FDA’s now withdrawn guidance issued in 2014, where FDA seemed to consider the federal standard a “floor” where states could impose different requirements that did not fall below the federal standard.  For the near term, however, industry will not be relieved from states’ multiple and wholly conflicting licensing requirements. Given the vested interest most states have in their current licensing requirements (and related fee collections), we would expect an extensive timeline would be needed to bring states into compliance with the federal requirements. State and local license requirements will be preempted only once the federal regulation takes effect.  Thus, until the effective date of the final rule, which is likely years away, (i.e., at least 2-3 years after the rule is finalized) the complicated current state and local license regimes continue.

    Through with Breakthrough? FDA’s New Draft Guidance Reflects an Uptick in Notices of Intent to Rescind

    Last week, FDA issued a draft guidance entitled “Considerations for Rescinding Breakthrough Therapy Designation” (the Draft Guidance), authored by CDER, CBER, and the Oncology Center of Excellence (it is interesting, though not surprising, to see the OCE as an author on this document, given the popularity of the program in oncology). Prior to issuance of this Draft Guidance, information about this previously little-used process was included in a variety of sources we describe below. Indeed, the Draft Guidance appears intended largely to capture these policies in one single document.

    Breakthrough Therapy Designation (BTD) was created in 2012 as part of the FDA Safety & Innovation Act (FDASIA). Section 506 of the Food, Drug, & Cosmetic Act describes the qualifications for a designation, the procedures for both the applicant and FDA to take to result in a BTD, and the implications of a designation. Notably, nothing in the statutory language describes grounds or a process for the rescission of a BTD.

    In May 2014, FDA finalized a guidance document entitled “Expedited Programs for Serious Conditions – Drugs and Biologics,” (the Expedited Programs Guidance) This guidance noted that a “[d]esignation may be rescinded if it no longer meets the qualifying criteria for breakthrough therapy.” It added the justification that “FDA commits significant resources to work particularly closely with sponsors of breakthrough therapy products,” and, thus, “needs to focus its resources on breakthrough therapy drug development programs that continue to meet the program’s qualifying criteria.” The Expedited Programs Guidance describes situations warranting rescission as when emerging data no longer support the BTD, another product gains traditional approval and evidence is not provided that the designated drug may demonstrate substantial approval over the approved product, or when the program is no longer being pursued. In such an instance, the guidance elaborated, “FDA will notify the sponsor of its intent to rescind and will offer the sponsor an opportunity to justify its product’s continued designation.”

    Subsequently, CDER, in MAPP 6025.6, and CBER, in SOPP 8212, provided more granularity as to how this process would work with step-by-step instructions for FDA staff. Both documents describe the process in two steps: the intent to rescind step and the rescinding step. The review division notifies the sponsor of its intent to rescind the BTD with supporting justification (CDER’s MAPP explicitly cites the three justifications cited in the Expedited Programs Guidance) and provides the sponsor with an opportunity to submit additional data and justification to support the continuing BTD and/or to request a meeting. If the sponsor fails to convince the division that the BTD should be continued, the division then notifies the sponsor that BTD has been rescinded. For CDER specifically, the division must discuss the proposed rescission with CDER’s Medical Policy Council prior to notifying the sponsor. The Medical Policy Council’s role, as described in the MAPP, is to discuss decisions to rescind to ensure consistency in policy implementation across review divisions. For both CDER and CBER, the Division Director’s concurrence on the decision is required. If the sponsor succeeds in persuading FDA to maintain the BTD, the Medical Policy Council is not explicitly involved, and plans for a path forward under the BTD should be discussed.

    Until last week, these documents constituted the official descriptions of the process for rescinding a BTD.

    This bring us to the publication of the recent Draft Guidance which begins by noting that the breakthrough therapy program involves a significant resource commitment, and as such, “it is important that available evidence continues to fulfill the standard for BTD.” FDA goes on to say that the information that originally supported the BTD, often preliminary or early data, “may change over time,” and, thus, FDA has determined its BTD determination must also change. The Draft Guidance specifically lists the three reasons originally cited in the Expedited Programs Guidance as examples justifying rescission:

    1. A different drug is approved to treat the unmet need and the BTD drug no longer meets the criteria regarding substantial improvement over available therapies. In accord with FDA’s definition of “available therapy,” the Draft Guidance notes that drugs approved under accelerated approval will not generally be considered available therapy unless and until it is granted traditional approval.
    2. Emerging data no longer support the BTD.
    3. The sponsor is no longer pursuing the development program.

    The Draft Guidance also includes a few interesting new pieces of information that are part of the rescission determination. It explains that “FDA typically gives greater weight to trials that are conducted in larger populations, use a well-understood and widely accepted, well-constructed clinical endpoint, and incorporate certain design features (e.g., randomization, blinding).” If there are “significant issues with the conduct and design of a subsequent study,” FDA may decide not to rescind the BTD, even if the trial’s results appear to support such an action.  More on this point below.

    Additionally, if trial results from multiple well-designed studies “reflect an inconsistent picture of clinical benefit,” the determination may also be “more challenging”. The Draft Guidance describes a scenario where the primary endpoint does not demonstrate statistical significance, but a secondary clinical endpoint of interest shows a favorable trend; in such a situation, the trial might still demonstrate “preliminary clinical evidence” to support the BTD. However, the determination “will depend on the facts specific to that drug development program.”

    Historically, FDA has not rescinded many BTDs. As of March 31, 2022, CBER had never rescinded a BTD.  As for CDER, although rescission of a BTD has not been a particularly common occurrence, we have seen what seems to be an uptick in FDA’s issuing Notices of Intent to Rescind, even as requests and grants have slightly declined from the 2019 highs.

    Fiscal YearTotal Requests ReceivedGranted              Rescinded                 

    Sources: CDER BTD Requests and CDER BTD Rescissions.

    Perhaps the decision to publish this Draft Guidance reflects what may be a trend toward issuing notices, and maybe that trend, if there is one, is yet another consequence of the pandemic and its unprecedented strain on FDA staff.

    Regardless, the Draft Guidance leaves us with some questions. It describes how studies with “significant issues with the conduct and design,” are less likely to result in rescission. We assume this refers to the challenges of rare disease development, and how it may be more difficult for rare disease sponsors to design trials with the features outlined in this section (randomization, well-understood endpoints, etc.). Further clarification in the Final Guidance that this section is intended to reflect the need to evaluate these programs with more flexibility would be welcome.

    Additionally, while the Draft Guidance is entirely silent as to how a sponsor may challenge the proposed action, the referenced MAPP and SOPP include direction to FDA staff about providing an opportunity for a sponsor to submit more information and/or request a meeting. The Draft Guidance is silent on whether FDA intends to maintain the opportunity to justify the continued designation prior to rescission as described in those other documents. The intent may be to leave that to the individual Centers to describe as they now do, but it would be helpful to include a statement to that effect in the Draft Guidance.

    Good Doc, Bad Doc: Supreme Court Finds Prescriber Knowledge Counts

    On June 27, 2022, in one of the last opinions issued during its current term, a majority of the U.S. Supreme Court (six justices) issued a noteworthy opinion on criminal liability related to prescribers of controlled substances. This consolidated case has implications not only for prescribers of controlled substances but also for pharmacists and pharmacies who are subject to a “corresponding responsibility” to only fill prescriptions issued for a legitimate medical purpose pursuant to the Controlled Substances Act (21 U.S.C. § 841) and its implementing regulations (21 C.F.R. § 1301.74)).

    The following is a brief summary based on an initial review of the case.  Please stay tuned for further thoughts as we consider the potential broader implications of this important decision.

    In Ruan v. United States, No. 20-1410 and Kahn v. United States, No. 21-5261, 597 U.S. ____ (2022), the Supreme Court ruled that the government must prove — beyond a reasonable doubt — that a prescriber knew or intended that a prescription was not lawful in order to subject that prescriber to criminal penalties under the federal Controlled Substances Act (CSA).  Over the years, the government has pursued a number of criminal (and civil) cases against doctors based on the theory that doctors did not act in “good faith” and, equally as important, acted contrary to the responsibilities applicable to both pharmacies and pharmacists based on the government’s argument that both the pharmacy and the prescriber should have objectively known that the prescriptions were not legitimate.

    Ruan is a consolidation of two cases involving two doctors (Ruan and Kahn) that were found guilty of issuing prescriptions that violated 21 U.S.C. § 841 because they were not “authorized:” That is, the prescriptions were not issued for a legitimate medical purpose.  The relevant CSA provision provides:

    (a)  Unlawful acts

    Except as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally

    (1) to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance; or

    (2) to create, distribute, or dispense, or possess with intent to distribute or dispense, a counterfeit substance.

    21 U.S.C. § 841 (emphasis added).

    On appeal, the Eleventh Circuit upheld the conviction of Dr. Ruan, stating that “[w]hether a prescriber is acting in the usual course of professional practice must be evaluated based on an objective standard, not a subjective standard.”  In the case involving Dr. Kahn, the Tenth Circuit upheld his conviction stating that the government must prove the prescriber “either: (1) subjectively knew a prescription was not issued for a legitimate medical purpose: or (2) issued a prescription that was objectively not in the usual course of professional practice.”  The Supreme Court granted certiorari to resolve the Circuit split.

    Writing for the majority, Justice Breyer stated that the Court holds that the statutory language “knowing or intentionally” (mens rea) applies to the “except as authorized“ clause  under section 841,  meaning that if the prescriber was otherwise authorized to issue the prescription (e.g., appropriately licensed, etc.) the government must prove beyond a reasonable doubt that the prescriber knowingly or intentionally acted illegally in issuing the prescription.  In other words, the government must prove beyond a reasonable doubt that the prescriber issued a prescription that he or she  knew or intended was not for a legitimate medical purpose.  The Court noted that applying the general scienter provision of section 841 to whether a prescription is in fact authorized “helps separate wrongful from innocent acts.” The Court also stated the strong scienter requirement diminishes the risk of “overdeterrence;” or, more specifically, punishing “close calls” in prescribing.  The Court’s comment here is particularly relevant given the years-long debate related to setting and considering (and potentially criminalizing) the standards or limits for appropriate prescribing of opioid substances (i.e., MMEs) for pain treatment.

    The majority also rejected the government’s argument that it could criminally convict a prescriber by merely  showing that the prescriber did not make an “objectively reasonable” effort to meet the appropriate medical standard.  In doing so, the Court stated that to apply a “good faith” or “reasonable” standard would base the extent of criminal liability on a “reasonable doctor” standard, rather than on the “mental state of the doctor himself or herself.”  This ruling has broader implications given that many of the government’s recent criminal and civil penalty cases against pharmacies related to opioid prescribing and dispensing are based on claims that the pharmacies “should have known” that a prescription was not valid based on an “objective standard.”

    Three justices concurred in the decision of the Court to remand the case; however, the concurring opinion disagreed with the majority concerning the basis for the decision, arguing that the “authorized exceptions” under the CSA are really “affirmative defenses.” And to that point, the concurring opinion stated that a prescriber could invoke the CSA’s “authorization” defense by showing that the prescriber  acted in subjective good faith when prescribing controlled substances.

    More to come.

    Gun Violence Reduction Law Further Extends Moratorium on Trump-Era Rebate Rule

    We have blogged before (for example, here and here) on amendments to the Federal health care program antikickback law safe harbor regulations that were finalized by the Trump Department of Health and Human Services in November 2020.  If and when implemented, the amendments will likely force Medicare Part D plans and their PBMs to pass drug manufacturer rebates through to pharmacies to reduce out-of-pocket expenses of Part D enrollees, which would be a dramatic change from current practice.  The original effective date of January 29, 2021 was first extended until January 1, 2023 due to litigation.  However, because the rule was projected to cost the federal government about $196 billion over ten years, further moratoria on implementation of this rule have become a handy way for Congress to pay for other legislative priorities.

    For example, in the service of highway and other infrastructure enhancements, a moratorium on the rule was imposed until January 1, 2026 under the 2021 Infrastructure and Investment and Jobs Act.  The Build Back Better Act, had it passed the Senate, would have thrown the rule under the bus altogether in order to help pay for the many costs to the federal government in that bill.

    A little-noticed section (13101) of the Bipartisan Safer Communities Act, signed by the President on Saturday, continues the pattern by extending the moratorium on the rebate rule one more year until January 1, 2027, this time to help pay costs of implementing the gun violence reduction measures in that legislation.

    Thus, Congress has discovered in the rebate rule a use that was not originally intended by HHS.  This method of financing expenses may not work for the typical family trying to make ends meet, but Congress is undaunted.  This blogger wonders whether we might continue to see an additional moratorium on the rebate rule in every major piece of federal legislation until the rebate rule is delayed well into the 2050s.

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

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

    Corporate Liability from Employee Diversion: Costly on Many Fronts

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

    Lax Controls Provided Employees with Opportunity to Divert

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

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

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

    Costly NPA Requirements: More than Just Money

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Categories: Medical Devices

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

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

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

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

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

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

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

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