Despite vigorous criticism of high drug prices from the public and politicians in both parties, drug companies have largely dodged bullets on drug pricing and payment reform.  In 2018, Trump’s Department of Health and Human Services (HHS) released its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, but the edifice envisioned by the Blueprint largely failed to materialize.  A proposal to move specified high cost drugs from Medicare Part B to Part D coverage to take advantage of formulary controls to negotiate better drug prices was never acted upon.  A final rule to establish a Most Favored Nation model to base Medicare drug payment on international prices was enjoined by two federal courts, and HHS recently proposed to rescind the rule (see our post here).  A final OIG rule to change the structure of manufacturer rebates to Medicare Part D and Medicaid Managed Care plans and their PBMs is enmeshed in litigation and is likely to be at least postponed until 2026 (see our post), and perhaps prevented from implementation altogether, by Congressional mandate.  A May 2019 CMS final rule that would have required drug TV advertisements to disclose the WAC of the drug was challenged by a group of pharmaceutical companies and vacated on statutory grounds by the D.C. Court of Appeals (again, see our post).

Although drug manufacturers emerged from the Trump era relatively unscathed, a reckoning is almost certainly at hand with Congress and the Administration controlled by Democrats.  The pieces of major drug pricing and payment reform are falling together.  Today we offer the article below on one of those pieces:  an HHS report released to the public last Thursday outlining the Biden Administration’s strategies on drug pricing and payment reform.  Tomorrow, our post will focus on the second piece: the drug pricing provisions of the House’s budget reconciliation bill (the Build Back Better Act), also released last Thursday and currently undergoing committee markup.  The third piece – the drug pricing provisions being developed for inclusion in the Senate version of the budget reconciliation bill – will be the subject of future articles here.

White House Drug Pricing Plan Offers Laundry List of Existing Democrat Priorities

As we await Congressional drug pricing reform proposals through the House and Senate budget reconciliation process, and a House of Representative vote on the infrastructure bill (both expected this month), the Biden Administration has published its own wide-ranging list of policy proposals to reduce drug prices and drug payment. Last Thursday, the U.S. Department of Health and Human Services (“HHS”) released a “Comprehensive Plan for Addressing High Drug Prices” (the “Plan”), which it had submitted to the White House last month in response to President Biden’s July 7, 2021 Executive Order on Promoting Competition in the American Economy.  The Plan is the Biden Administration’s answer to the Trump HHS’ 2018 Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, except that the Plan relies to a much greater extent on Congress to implement its principles.

The Plan identifies “a lack of competition” as a key driver for rising drug prices and promises a strategy “for equitable drug pricing reform through competition, innovation, and transparency.” The actual policy proposals read like a wish list. It outlines a host of legislative and administrative strategies and policy proposals aimed at reducing drug prices. Readers following drug pricing activity will recognize several strategies already associated with Senate Democrats (e.g., Medicare negotiation authority; encourage biosimilars and generic drug utilization).

The HHS plan’s proposals are defined in general terms, without estimates of taxpayer savings or timelines. Some proposals indicate what to expect in the Senate Democrats’ budget reconciliation package while others show the Biden Administration drawing its lines in the sand on its policy priorities for the remainder of this term. Below, we summarize the key proposals of the HHS plan.

LEGISLATIVE PROPOSALS

1. Drug Price Negotiation to Benefit Medicare and Commercial Plans

One of the more consequential proposals in the Plan is giving Medicare the authority to directly negotiate prices with drug manufacturers. Currently, individual Medicare Part D plan sponsors negotiate rebates but the government is explicitly prohibited from interfering in those negotiations. HHS believes that Medicare, the largest drug purchaser in the country by far, can force drug manufacturers to offer fairer prices. The Biden Administration also proposes to authorize HHS to negotiate Medicaid supplemental rebates on behalf of states, upon request, in order to strengthen their negotiation power. Senate Democrats are expected to include Medicare’s authority to negotiate prices in the budget reconciliation, which could be announced as early as this week.  Significantly, the proposal allows employer-based plans, ACA Marketplace plans, and other commercial plans to access the prices negotiated by Medicare.

The repeal of the prohibition on Medicare negotiation with manufacturers under Medicare Part D is already included in the House’s reconciliation bill, the Build Back Better Act (watch for our post on that bill tomorrow).  In the Senate, the repeal is also included in the Principles for Drug Pricing Reform issued by Senator Wyden, Chairman of the Senate Finance Committee, and is expected to be included in the Senate version of the reconciliation bill.  The attraction of the repeal is that Part D negotiations can potentially save the federal government “hundreds of billions of dollars,” as explained in the Plan.

2. Controlling Medicare Part D Patient Out-of-Pocket Costs and Total Drug Costs

The Plan supports legislative action to control total drug costs and patient out-of-pocket (“OOP”) costs for Medicare Part D beneficiaries.  One proposal is a cap on out-of-pocket costs, primarily to help beneficiaries with expensive chronic conditions that can face large, even catastrophic, out-of-pocket spending every year.  Part D currently has no such cap.

The Plan also supports redistributing financial responsibility for Part D drug costs: below the OOP cap, Part D and the drug manufacturers would pay higher percentages than they do now; beyond the cap, Medicare would decrease its percentage, setting manufacturers up to have to pick up the majority of the costs. The Administration notes that such policies are already in place in most commercial plans. They incentivize manufacturers to offer lower prices and incentivize plans to offer cheaper drugs and biologics.  Both the cap on OOP expenses and the redistribution of cost burdens under Part D are incorporated into the House reconciliation bill.

The plan also mentions mandates for the government to purchase the least costly alternative and to institute value-based or outcomes-based pricing arrangements. The Centers for Medicare and Medicaid Services (“CMS”) Innovation Center is already studying several regulatory proposals in this regard (see Administrative Actions, below).

3. Controlling Drug Price Increases

The Administration proposes strategies and incentives to control drug price increases, which it noted are rising twice as fast as inflation. To counter this increase, the Administration threw its support behind proposals to levy an excise tax or a rebate for manufacturers that raise product prices faster than the rate of inflation with no clinical reason. The proposal to give manufacturers partial responsibility for drug costs above the OOP cap (see previous section) would also discourage manufacturers from pricing drugs in a manner that will cause beneficiaries to exceed the catastrophic costs threshold.

4. Facilitating Entry and Prescription of Biosimilars and Generics

The Plan supports legislation to incentivize the development and use of biosimilars and generic drugs by streamlining the biosimilar licensure process to facilitate the prompt approval of biosimilars and generics. HHS proposes requiring brand manufacturers—or allowing FDA—to disclose full information about inactive ingredients in their labeling so biosimilar and generic producers can more easily manufacture and gain approval for interchangeable products. Other legislative proposals include reassessing exclusivity periods of biological products; exempting biosimilar manufacturers from the U.S. Pharmacopeia (“USP”) monograph standards; providing greater flexibility and clarity regarding the inclusion of data from animal studies; and incentivizing second-in-market brands to increase competition between brand drugs.  The Plan supports legislation to expedite market entry of biosimilars and generics by providing federal support to develop nonprofit generic drug manufacturers.

The Plan also proposes strategies to prevent brand manufacturer practices to delay the entry of biosimilars and generic products and discourage competition. HHS criticizes brand drug manufacturers for exploiting their patents and statutory exclusivity to stifle competition and maintain a monopoly. The Plan advocates better cross-agency efforts between the Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”) and the U.S. Patent and Trademark Office (“USPTO”) to prohibit or decrease the impact of patent thickets, product hopping, pay-for-delay, “sham” citizen petitions, and Risk Evaluation and Mitigation Strategies (“REMS”) abuse that can stifle the development or approval of biosimilars and generics. The Plan proposes to address pay-for-delay practices by deeming such agreements anti-competitive by statute; by requiring first-to-file generic manufacturers to begin commercial marketing for the 180-day exclusivity to apply; and expanding the circumstances in which the 180-day exclusivity may be forfeited by first applicants who fail to market their product within a specified timeframe.

The Plan also proposes establishing payment models to support the increased utilization of biosimilars and generics by further incentivizing providers to prescribe them. According to HHS, Medicare Part D could have saved as much as $3 billion in 2016 if generics were substituted for brand-name drugs wherever they were available. One proposal involves using the same payment limit for both reference biological product and the biosimilars to spur a price competition and drive down the average sales price for all products involved.

5. Increase Transparency and Strengthen Supply Chain and Research Capacity

Other legislative proposals included improving supply chain transparency. HHS proposes increasing price transparency generally, so plans and patients know the distribution of costs at the pharmacy counter, the physician’s office, or hospital outpatient department. This way, patients can know what they have to pay out-of-pocket, compare the price and value of alternative therapies, and decide whether they can get the drug at a lower price elsewhere. The plan also proposes prohibiting “spread pricing,” whereby manufacturers pay rebates to pharmacy benefit managers (“PBMs”) to incentivize prescribing the manufacturer’s branded drugs in formularies even if generics are available.

Finally, the HHS plan encourages Congress to create incentives to foster scientific innovation. The Biden Administration proposes the creation of an Advanced Research Projects Agency for Health to focus on diseases like cancer, diabetes, and Alzheimer’s. Similar to the Defense Advanced Research Projects Agency (DARPA), this agency would build high-risk, high-reward capabilities to drive biomedical breakthroughs and spur private innovation in these disease areas. The Biden Administration also proposes to generally incentivize supply chain resilience, build domestic capability, especially for critical drugs, and promote investments in breakthrough medicines.

ADMINISTRATIVE ACTIONS

The Plan listed a litany of administrative actions that federal agencies have undertaken to promote competition and reduce drug prices and proposals to develop them further.

The CMS Innovation Center has been exploring or testing several innovative payment and service delivery models to reduce program and beneficiary spending on prescription drugs. These include Medicare Part B models that link payment for drugs and biologics to patient outcomes, reductions in health disparities, patient affordability, and lower overall costs. The Plan further proposes to make these models available to commercial payers to have a greater effect on prices and expand biosimilars and generics use across the board. HHS also claims to be continuing to study the Trump era Most Favored Nation model, an international reference pricing demonstration model for select Medicare Part B drugs, although it was proposed to be rescinded last month. The CMS Innovation Center is also studying models to share the savings from the utilization of biosimilars and generics with prescribing providers.

The Center is also exploring models to bundle payments for episodes of care over a period of time instead of paying for drugs and other administrative and related services separately. This would incentivize providers to use cheaper biosimilars and generics to get appropriately compensated for the remaining, non-drug services. The Center is also studying Total Cost of Care models that supplement bundled payments with incentives to redesign care to enhance care coordination, patient engagement, and quality. HHS proposes to incentivize the use of biosimilars and generics in these models, especially for conditions like hepatitis, C, HIV/AIDS, opioid use disorder, and diabetes.  The Plan also supports legislation to allow states to apply the Medicaid Drug Rebate Program requirements to bundled drugs provided as part of outpatient hospital and physician services.

Though drug pricing is not technically within FDA’s mandate, the Plan describes several FDA initiatives to encourage competition and implement drug importation programs “so that consumers can access the medicines they need at affordable prices.”  Chief among those programs are the Biosimilar Action Plan (“BAP”) and the Drug Competition Action Plan  (“DCAP”), both of which have been in effect for several years.  Both programs seek to facilitate competition by increasing efficiency, clarity, flexibility, and collaboration in the follow-on product development process, in addition to reducing the gamesmanship that can lead to delays in approval.  Highlighting the success of the BAP, the Report touts the July 28, 2021 approval of the first interchangeable biosimilar, Semglee.  The Report also features FDA’s efforts as part of DCAP to encourage development and approval of complex generic small molecule products for which generic development is challenging.  These initiatives, combined with CREATES Act provisions that facilitate access to reference product samples for follow-on development, are specifically intended to address additional product approval.

As an aside, the Report also references the “recent litigation” that has raised industry concerns regarding the future of “skinny labelled” generics due—the GSK v. Teva case—and the possibility of delays in the approval due to threats of induced infringement liability.  Providing no specifics, HHS assures industry that it is “committed to taking steps as appropriate to ensure these critical practices remain available for generic drugs and biosimilars.”

FDA and HHS have also adopted provisions to allow the import of certain prescription drugs from Canada to achieve a significant reduction in the cost of these products (see our blogpost on these provisions here).

CONCLUSION

What most differentiates President Biden’s Plan from Trump’s Blueprint is Biden’s reliance on Congress for major drug price and payment reforms.  President Biden has made known since the beginning of his presidency that he would primarily rely on Congress in this area.  As a result, most of the legislative proposals in the Plan have already appeared in previously proposed legislation, and/or are included in current bills destined to be incorporated into budget reconciliation.  As for the administrative actions described in the Plan, these are largely a catalogue of activities already underway at CMS and FDA.  In short the “Plan” is not so much a strategy for future action as restatement of ideas that have already been, or are in the process of being, brought to fruition.  The real interest for drug manufacturers is in how the major ideas in the Plan will be incorporated into a budget reconciliation bill that is able to pass the House and Senate, and what specific form they will take.  Tomorrow’s post will focus on how the rubber is meeting the road in the House.

Earlier this year, North Dakota enacted a prescription drug price transparency reporting law, HB 1032, that became effective on August 1, 2021. (See our summary here.) This new law requires prescription drug manufacturers to report the current wholesale acquisition cost (WAC) information for drugs sold in or into the state on a quarterly basis. The new law also requires manufacturers to submit WAC price increase reports and new drug WAC reports. Prescription drug manufacturers’ first quarterly WAC reports are due by October 15, 2021.

In advance of the upcoming deadline, North Dakota issued a Manufacturer’s Disclosure User Guide that provides step by step instructions for manufacturers to submit their quarterly reports. Manufacturers will need to complete the WAC Template and send it to the state via email. The User Guide also includes directions for manufacturers who wish to submit their reports via secure file transfer.

The Disclosure User Guide also includes instructions for manufacturers who need to submit WAC price increase reports (template available here) and new drug WAC reports (template available here). WAC price increase reports are due within 30 days after an increase if the drug’s WAC is greater than $70 and the WAC increased 40% or more over the lowest WAC of the preceding five calendar years, or 10% or more over the lowest WAC in the preceding twelve consecutive months. New drug WAC reports are due within three calendar days after introducing a new prescription drug with a WAC that exceeds the threshold set for a specialty drug under the Medicare Part D program (currently $670 for a 30-day supply) to the market in North Dakota.

The quarterly WAC reports submitted in October will be made available on the North Dakota Insurance Department’s Prescription Drug Cost Transparency website.

As readers of our blog know, FDA and the Food Safety Inspection Service of the USDA (FSIS) agreed to jointly oversee the production of human food products using animal cell culture technology.  Under the Memorandum of Understanding signed in March 2019, FDA will oversee cell collection, growth, and differentiation of cells, and help coordinate  transfer of oversight to FSIS at the cell harvest stage.  FSIS will then determine whether harvested cells are eligible to be processed into meat or poultry products, and oversee processing, packaging, and labeling of those products.

FDA and FSIS also agreed to develop joint principles for the labeling of products made using cell culture technology under their respective labeling jurisdictions.   As we previously reported, FDA issued a request for information regarding labeling of products made using cell culture seafood cells in Oct. 2020.

On Sept. 2, 2021, FSIS issued an advance notice of proposed rulemaking (ANPR) asking for comment on several issues that will help the Agency develop a proposed regulation addressing labeling of cultured meat and poultry products.  See here and here.  (The ANPR does not appear to address Suliformes fish (including catfish)).  Like FDA, FSIS uses the term “cultured” for this type of product.  However, FSIS notes that the use of this term is not intended to establish or suggest nomenclature for labeling purposes.

FSIS requests input on a range of issues, including:

• Should the names of cultured products differ from those of slaughtered products?
• What terms should be used to differentiate cultured products?
• What terms would be potentially false/misleading or have negative impacts on consumers or the industry?
• Should it be permissible to use established names of slaughtered products (e.g., loin) or terms that specify form (e.g., fillet)?
• Should USDA establish a standard of identity for cultured products?
• What are the material differences between cultured and slaughtered products?
• Should meat and poultry-related definitions be amended to include or exclude cultured products?

FSIS also asks for economic data and consumer research regarding cultured products, including:

• impact of labeling on consumer perception and willingness to pay for cultured products;
• expected price of cultured products;
• number of companies in the sector;
• expected annual volume per company;
• data on consumer benefits of labels that differentiate cultured from slaughtered products;
• naming conventions that would discourage purchase or innovation.

FSIS mentions that it will consider comments submitted in response to FDA’s RFI as FSIS develops rules governing the labeling of cell cultured products under its jurisdiction, to the extent those comments are relevant to the development of joint labeling principles.

FSIS indicates that it is willing to review labels for cultured products before its rulemaking process is complete.  Labels for such products must be submitted for review and approval by FSIS so the Agency can prevent false or misleading labeling.  Although this will help industry avoid delays associated with rulemaking, labels approved during the interim (pre-final rule) period may need to be modified once FSIS finalizes the rule.

FSIS mentions that it does not plan to issue any other regulation addressing other aspects of cultured meat/poultry products (e.g., safety) because the existing regulatory requirements, including sanitation and Hazard Analysis and Critical Control Point (HACCP) systems, are immediately applicable and sufficient to ensure the safety of products cultured from the cells of livestock and poultry.

Comments may be submitted to the docket here through Nov. 2, 2021.

Innovators rejoice while generic sponsors mourn: In the wake of the latest in GSK v. Teva decision, the skinny label may be dead.

The “skinny label,” also known as a “carve-out” or a “section viii statement,” is a widely-used statutory provision adopted in the Hatch Waxman Amendments that allows generic sponsors to come to market notwithstanding a method-of-use patent covering an aspect of the reference listed drug (RLD) labeling by removing that patent-protected use from the generic labeling.  Typically, generic sponsors carve out a patent-protected indication or patient population, but technically, any method of use can be carved out as long as FDA determines that the product can still be used safely and effectively without the patent-protected information.  Though the carve-out seems at odds with FDA’s regulations requiring generic drugs to have the “same labeling” as their RLDs, such regulations specifically provide for differences arising from carved-out, patent-protected method of use.  The catch is, as we have learned from the GSK v. Teva case, that the statutory provisions governing patent infringement, specifically induced infringement, do not address carve-outs.  So while Congress provided a pathway for approval of a skinny-label drug, it did not provide a safe harbor to protect generic sponsors from allegations of induced infringement based on marketing a skinny-labeled generic as therapeutically equivalent to its RLD.  Until recently, there hasn’t been a need for such a safe harbor, as Courts have not found inducement to infringe in this context, but the GSK v. Teva decision changed everything.

Briefly (more detail is available here), GSK sued Teva back in 2014 alleging that Teva induced infringement of a method-of-use patent when Teva marketed a skinny-labeled generic version of GSK’s Coreg (carvedilol) as AB-rated.  GSK had listed several patents for Coreg, including a method-of-use patent listed with the use code “decreasing mortality caused by congestive heart failure.”  Teva submitted an ANDA in 2002, and after some complicated regulatory history, ultimately carved-out the congestive heart failure indication by way of a section viii statement.  Teva received tentative approval in June 2003 and launched in 2007 after a blocking patent expired.  Like all generics, FDA assigned Teva’s carvedilol an AB-rating, meaning that the products are therapeutically equivalent as labeled.  At trial, Teva argued that it had carved-out the treatment of congestive heart failure with a section viii statement and therefore could not have infringed the ‘000 patent, but the jury disagreed.  The jury found that Teva caused physicians to prescribe generic carvedilol for the carved-out indication and therefore willfully induced infringement and awarded GSK $235 million in damages.  The District Court, however, granted Teva’s Motion for Judgment as a Matter of Law (JMOL), and overturned the jury verdict, explaining that GSK did not prove that Teva’s promotion caused physicians to appeal.

Unsurprisingly, GSK appealed the JMOL in the Federal Circuit.  in a 2-1 decision, which included a vehement dissent by Chief Justice Prost, the Federal Circuit reversed the JMOL and reinstated the jury verdict.  The Federal Circuit held that the “criteria of induced infringement are met” based on the “ample record evidence of promotional materials, press releases, product catalogs, the FDA labels”—almost all of which touted the generic’s AB-rating—”and testimony of witnesses from both sides.”  This decision was widely praised by innovators and derided by generic sponsors.

Teva moved for a rehearing en banc with the support of the generic industry.  Teva argued that the October 2020 decision, due in part to a lack of clarity, essentially imposed liability on any ANDA filer relying on a carve-out.  However, rather than grant the en banc rehearing, the Federal Circuit had the same panel rehear the case, and ultimately, the panel—voting in the same way as it did in October 2020—made the same decision.  In the reissued decision, the Court explained that it “agreed to rehear this case to make clear how the facts of this case place it clearly outside the boundaries of the concerns” raised by industry.  This time, focusing on the specifics of Teva’s promotion, the Court determined that the record reflects “substantial evidence . . . that Teva actively induced by marketing a drug with a label encouraging a patented therapeutic use.”  The Court posited that, despite GSK’s listing of the patent with a use code covering only Congestive Heart Failure (CHF), the patent also covered the use of the product in patients suffering from left ventricular dysfunction following a myocardial infarction myocardial infarction (post-MI), and because Teva’s labeling did not carve out all references to myocardial infarction, Teva induced infringement—even though its skinny label complied with FDA requirements.

In brief, the Court stated that whether Teva carved out enough information from its skinny-label was a question for the jury rather than for the District Court to decide in a JMOL.  And, that GSK did not mention the post-MI information in the use code does not mean that Teva had no duty to carve that information out.  Instead, noting FDA is not the arbiter of patent infringement issues, the Court explained that use codes are not substitutes for the ANDA applicant’s review of the patent.  It was therefore Teva’s responsibility, according to the Court, to review the patent and make sure both CHF and any post-MI information was carved-out, regardless of the use code.

Ultimately, the Court hung its decision on Teva’s implied intent to induce physicians to use generic carvedilol in an infringing manner.  Though Teva argued that physicians do not read generic labeling, the Court held that GSK’s evidence refutes that claim, particularly because Teva’s promotional materials referred health care providers to its labeling and advised them to prescribe accordingly.  “In other words, the literature Teva provided to doctors told them to read labels and to prescribe according to them,” and thus caused physicians to infringe.  The Court further found that Teva’s marketing efforts demonstrated that Teva encouraged generic carvedilol sales for CHF despite the carve-out by marketing the product as an AB rated therapeutic to Coreg, which Teva described as approved as a cardiovascular treatment.  The decision did include a footnote stating: “We do not hold that an AB rating in a true section viii carve-out (one in which a label was produced that had no infringing indications) would be evidence of inducement.”  But it’s not clear what would suffice as a “true carve-out” and it may not be clear until a court opines on the scope of the relevant carved-out patent.

As she did in the vacated decision, Chief Judge Prost vehemently dissented to the Majority Opinion stating frankly: “I write in this case because far from being a disagreement among reasonable minds about the individual facts, this case signals that our law on this issue has gone awry.”  Chief Judge Prost poignantly criticized the Majority Opinion for “weakening” and “eviscerating” the “intentional-encouragement prong of inducement” and “the causation prong of inducement.”  With respect to the carve-out itself, Chief Judge Prost writes that the “majority creates confusion for generics, leaving them in the dark about what might expose them to liability. These missteps throw a wrench into Congress’s design for enabling quick public access to generic versions of unpatented drugs with unpatented uses.”

Chief Judge Prost warns that this ruling could prevent a less-expensive generic product from coming to market even though the drug itself and other uses of it were unpatented.  Congress had intended the section viii statement, as well as the use code, to ensure that one patented use wouldn’t prevent public access to a generic version for an unpatented use, but the Majority essentially inferred intent based on Teva’s failure to carve-out language, which, again, was not addressed in the use code.  In contrast, that Teva carved out all of the language included in the use code, Chief Judge Prost explained, signifies a lack of intent, as Teva carved out exactly the language it was required to under the statute and the relevant FDA regulations—precisely to avoid infringement.  Instead, it was GSK who erred in omitting the post-MI language from the use code.  Intent cannot be inferred from following all the rules and claiming that its product is the equivalent of its RLD—because the regulatory scheme determined that Teva’s product is the equivalent of its RLD.   Further, Judge Prost found no evidence that doctors even read Teva’s labeling prior to making prescribing decisions, undermining any evidence of causation.

As many critics said of the initial, now-rescinded Opinion, Chief Judge Prost explained, this time, “[u]nder [the Majority’s] analysis, the difference is indiscernible between this case and one in which the generic is safe. Indeed, it’s unclear what Teva even did wrong—or, put another way, what another generic in its shoes should do differently.”  Instead, Judge Prost wrote that the Majority Opinion eliminates both the generic industry’s and FDA’s expectations that “they could rely on what brands said about what their patents covered.”  She continued: “is the takeaway, instead, that Congress meant to expose ANDA generics to liability for simply describing themselves as the ‘generic version’ or ‘generic equivalent’ of a brand drug?”

And Chief Judge Prost is correct as to the lack of clarity here: Though the Majority Opinion insists that “[t]his narrow, case-specific review of substantial evidence does not upset the careful balance struck by the Hatch-Waxman Act regarding section viii carve-outs,” it’s difficult to see how the new revised decision limits the effects.  Yes, the decision specifically focused on Teva’s conduct—including listing a litany of promotional materials stating that the product was “AB-rated” or a “generic version” of Coreg—and some of those statements may raise legitimate risk (as Teva mentioned “heart failure” in its press release) of induced infringement.  But the Court merely says that labeling of a “true carve-out” would not be sufficient evidence alone of inducement infringement.  But what is a “true carve-out?”  Especially now with the utility of the use code minimized.  And could AB-rating or equivalence claims be enough evidence for inducement?  As Chief Judge Prost stated “[t]he only clear thing now is that no generic can know until hit with the bill whether it’s staying within the confines of the law.”

This decision also raises questions about approval of generic drug labeling.  If use codes are now meaningless and generic sponsors must decide what labeling is covered by the patent, on what basis will FDA determine the scope of an appropriate carve-out?  How will labeling negotiations work?  Must FDA review the patent to ensure that the only information carved out (which is the only labeling that may differ substantively from the RLD) is covered by the patent?  Or is the interpretation of the patent claims subject only to a jury’s interpretation, which would delay generic entry for both patented and unpatented uses until after the completion of litigation?  Alternatively, FDA could continue to rely on use codes as it currently does, and RLD sponsors would be able to list narrow use codes—which would dictate the scope of the language that could be permissibly carved-out from the “identical labeling” requirements for generic drugs—to allege induced infringement.   In this circumstance, FDA would only approve a generic with the narrow use code carved out; any other potentially infringing information would need to remain in the labeling, leaving the generic vulnerable to induced infringement litigation.  The generic applicant therefore could either forego section viii approval, wait for a resolution of patent litigation, or risk treble damages.  And too broad use codes are already considered problematic for blocking approval of generics.

While the Majority Opinion may be limited to this case with respect to the specific way the Court found induced infringement, it nonetheless upends the industry.  This decision raises just as many questions as the last, which can be seen from the follow-on cases that already are in progress in the courts.  Amarin, for example, sued Hikma on the heels of the first GSK decision for induced infringement based on Hikma’s carve-out of the method-of-use patent covering hypertriglyceridemia from the labeling of its generic Vascepa product and the promotion of its product as AB-rated or a “generic.”  There, Amarin argues that Hikma’s carve-out of patent-protected language itself, absent a disclaimer, is evidence of an intent to induce.  Amarin even sued a health insurer alleging active encouragement to use Hikma’s generic version instead of Vascepa for the patented indication.  Par also has filed similar litigation.

GSK has opened the floodgates for induced infringement for years to come, impacting both approved and pending ANDAs.  As Judge Prost wrote “Initially, the majority suggests that this is not a skinny-label case. Nothing to see here, the majority reassures concerned amici: the Act remains intact. See Maj. 10–11. But it’s hard to see how.”

So, for now, the skinny label may effectively be dead for any risk-averse generic sponsor (given the potential for treble damages for a blockbuster product with no generic competition).  The generic industry anxiously awaits to see whether SCOTUS or Congress can revive it.  While we wait, the brand side continues to bring more induced infringement suits while singing the Munchkins’ song.

The adage that “no one is perfect” applies as equally to companies as it does to people.  Before committing to a merger or acquisition with another company, a potential Buyer must conduct due diligence to identify the imperfections of a target company so the Buyer knows what it is buying.  This diligence is particularly critical when the target company is privately held, and thus not subject to scrutiny from public markets.  The results of the diligence inform the Buyer as it weighs the benefits, costs, and risks associated with a potential transaction to determine whether, and on what terms, to proceed.

There are standard topics diligence typically covers: financial, employment, environmental, tax, intellectual property, and litigation, among other things.  For companies that play in the FDA-regulated space, however, a focused regulatory diligence should be a high priority.  Of course a solid understanding of the regulatory compliance status of a target company is necessary for pure business reasons.  But the scope of regulatory diligence and its application to post-acquisition activities has broader implications, namely whether the government will hold the Buyer responsible, either criminally, civilly, or administratively, for the regulatory issues it inherited through the acquisition.  Thus, identifying risks and appropriately structuring a transaction, while critical, are only part of a strategy to manage regulatory compliance risks.  Equally important is the question of what steps a company has taken post-acquisition to address the issues identified during the diligence process.

The US DOJ’s Justice Manual requires prosecutors to consider certain factors in deciding whether to bring criminal charges against a corporate entity, one of which is whether the company maintains a well-designed compliance program.  In its June 2020 updated guidance document, “Evaluation of Corporate Compliance Programs,” DOJ makes clear that pre M&A due diligence is a critical aspect of that determination:  “A well-designed compliance program should include comprehensive due diligence of any acquisition targets, as well as a process for timely and orderly integration of the acquired entity into existing compliance program structures and internal controls.”  DOJ expects companies to act promptly on information obtained during the diligence process.  Specifically, DOJ asks: “What has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process?” (emphasis added).

Similarly, in the civil context, the Justice Manual highlights the importance of taking remedial action once it is known.  Such remedial actions may include:

1. demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
2. implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;1
3. appropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred; and
4. any additional steps demonstrating recognition of the seriousness of the entity’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.

In a recent civil False Claims Act case settlement, DOJ relied on the information the company gleaned during diligence to hold a Buyer responsible for the violative conduct:  “Specifically, the United States alleges that Ancor, through its due diligence . . . learned about the alleged conduct in Paragraphs E.1 and E.2.  . . . . The United States contends that Ancor caused false claims when it allowed the alleged conduct described in Paragraphs E.1 and E.2 to continue . . . . ” (emphasis added).

Last, in considering whether to impose integrity obligations on healthcare companies, the HHS OIG has noted that certain successor owners may avoid such obligations if they can demonstrate, among other conditions, that they “purchased the entity after the fraudulent conduct occurred;” and” took appropriate steps to address the predecessor’s misconduct and reduce the risk of future misconduct.”

Companies considering an acquisition need to be mindful of these and similar government pronouncements as they evaluate the merits of such transactions as part of their regulatory diligence.  Should they proceed with the transaction, companies can minimize potential liability by appropriately prioritizing the remediation activities for those uncovered regulatory issues.

In what appears to be an “about face” in terms of Facebook’s historical wooing of big pharma (are we the only ones that immediately thought, “More Cowbell” when seeing that headline?  You can thank us for that 5 minute rabbit hole later), the social media giant has implemented yet another policy change affecting branded content for prescription drugs.   While it appears to have gone largely unnoticed by industry, Facebook updated its Branded Content Policies in May 2021, and now prohibits the promotion of “drugs and drug-related products, including illegal, prescription, or recreational drugs” via branded content.

Facebook defines branded content as “a creator or publisher’s content that features or is influenced by a business partner for an exchange of value, such as monetary payment or free gifts” and posts that are considered branded content begin with “Paid partnership with.”  A celebrity or influencer sponsored post on Instagram, which is owned by Facebook, endorsing a product is a common example of branded content.

As we understand it, this policy prohibits all branded content for drugs, regardless of whether or not that content contains the required safety information and branded content disclosure.  Branded content for OTC drugs, which we would have assumed fall into the category of “drugs,” however, is considered “restricted content” rather than the aforementioned “prohibited content.” Facebook’s restricted content policy for OTC drugs requires that the branded content “must comply with all applicable local laws, required or established industry codes, guidelines, licenses and approvals, and include age and country targeting criteria consistent with applicable local laws.”  There is no mention of prescription or OTC medical devices in Facebook’s current Branded Content Policies.

It is not clear whether or how Facebook is enforcing this policy, or whether such enforcement would apply to the poster, the sponsor, or both.  The new policy would represent a consequential change in Facebook advertising as branded content is a major marketing expenditure; celebrities and influencers with significant followings easily earn tens of thousands of dollars for a single post.  To the best of our knowledge, branded content for prescription drugs has continued to appear on Facebook and Instagram since the May 24 date of the policy.

We note that this policy change is separate from the new Facebook policy requiring Legitscript certification for certain Rx drug advertisers and pre-approval for prescription drugs advertisers that was announced last month and is covered in an earlier blog post.

Aside from specific platform policies around prescription drug advertising, sponsors and influencers should be mindful of FTC and FDA guidance covering sponsored social media posts.  The FTC Disclosures 101 for Social Media outlines influencer obligations to clearly disclose sponsored content.  And, while largely outdated, FDA has previously issued draft guidances on presenting risk and benefit information for prescription drugs and medical devices on social medial platforms with character space limitations and on correcting independent third-party misinformation on social media.

Given the resources pharmaceutical companies have put toward increasing social media presence with influencer marketing, we are curious about what, if any, changes are to come in this space – from FDA/FTC enforcement, new/different platform policies relating to sponsored content, or to pharma’s ultimate investment.

UPDATE:  As of September 1, 2021, Facebook has updated the Branded Content Policies we blogged about here. Early in the day on September 1, prohibited content included “Drugs and drug-related products, including illegal, prescription, or recreational drugs.”  The policy that went into effect later in the day removed the word “prescription” and currently prohibits “Drugs and drug-related products, including illegal or recreational drugs.”   In addition, Facebook updated the Business Partner Authorization section to include the term “Prescription Drugs,” suggesting that Rx drugs may continue to be promoted by influencers that have contracted with Facebook pre-authorized entities.   Reference to OTC drugs appears to have been removed from the restricted content section as well.  We will continue to monitor Facebook’s Branded Content Policies for changes that may affect Rx pharma and medical device industries.

On June 17, 2021, FDA has released a discussion paper to discuss cybersecurity issues related to the servicing of medical devices. We have previously posted blogs about FDA’s increasing interest on cybersecurity both in the premarket (see our past blog posts here, here, and here) and the postmarket space (see our past blog posts here and here). FDA is now expanding its cybersecurity effort in servicing of medical devices.

Medical device cybersecurity is a shared stakeholder responsibility over the total product lifecycle to prevent compromised functionality, loss of medical or personal data, inadequate data integrity, or the spreading of security threats to other connected devices or networks.  In this discussion paper, FDA emphasizes cybersecurity challenges related to a non-OEM (original equipment manufacturer) entity’s activities in the following four areas.

First, how can non-OEMs address cybersecurity challenges related to the entity’s need for privileged access to diagnose, maintain, and repair the functions of the device (i.e., privileged access issue)?

Second, how can servicing entities collect and share the postmarket data regarding identification of cybersecurity vulnerabilities and incidents (i.e., Identification of Cybersecurity Vulnerabilities and Incidents)?

Third, what would be effective methods or pathways for interested stakeholders to prevent and mitigate cybersecurity vulnerabilities (i.e., Prevention and Mitigation of Cybersecurity Vulnerabilities)?

Fourth, when OEMs stop supporting the device while healthcare establishments continue to use unpatched but still clinically useful devices despite vulnerability to cyber-attack, what would be an effective mitigation to address unpatched medical device cybersecurity over the total product lifecycle (i.e., Product Life Cycle Challenges and Opportunities)?

FDA invites stakeholders to specifically address the following three questions.

1. What are the cybersecurity challenges and opportunities associated with the servicing of medical devices?
2. Are the four areas identified in this discussion paper (privileged access, identification of cybersecurity vulnerabilities and incidents, prevention and mitigation of cybersecurity vulnerabilities, and product lifecycle challenges and opportunities) the correct cybersecurity priority issues to address in the servicing of medical devices? If not, which areas should be the focus?
3. How can entities that service medical devices contribute to strengthening the cybersecurity of medical devices?

Interested parties have until September 22, 2021 to comment on these three questions as well as the issues raised in this discussion paper.  You can browse comments already submitted or submit your own at this link.

Companies often use rebranding to reposition and refocus their business.  Sometimes they do it with great fanfare; sometimes it is done quietly and incrementally.  The federal government does its own version of rebranding with each change in administration.  Just before the July 4 holiday weekend, DOJ quietly rebranded the role of guidance documents, reversing two distinct but related policies regarding such documents.  The first policy it reversed, originally announced in 2017 by Attorney General Sessions, prohibited all DOJ components from “issu[ing] guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch (including state, local, and tribal governments).”  The second, and arguably more significant, policy prohibited its lawyers from civilly prosecuting companies for violating “requirements” set forth in agency guidance documents.  This policy, announced by then Associate Attorney General Rachel Brand in 2018 was referred to as the Brand Memo.  As a matter of administrative law, the Brand Memo made good sense from the perspective of FDA-regulated industry, as we described here.  Because guidance documents have not undergone the notice-and-comment rulemaking process required under the Administrative Procedure Act, these documents should not be used to bind the public or coerce regulated parties into acting beyond what is required by law and regulation.  DOJ’s policy (ironically issued via guidance document, but later memorialized in the Justice Manual) stated that DOJ would not use noncompliance with guidance documents as the sole basis for an affirmative civil enforcement case.

The July 1, 2021 Memo signed by Attorney General Garland describes the earlier policies as “overly restrictive,” and claims it has “discouraged the development of valuable guidance” and “hampered [DOJ] attorneys when litigating cases where there is relevant agency guidance.”  The Attorney General now instructs DOJ lawyers handling an enforcement action that they “may rely on relevant guidance documents” in instances when a guidance document “may be entitled to deference or otherwise carry persuasive weight with respect to the meaning of the applicable legal requirements.”  The memorandum cites the 2019 Supreme Court decision, Kisor v. Wilkie, 139 S. Ct. 2400, 2420 (2019), which recognized that agencies can issue interpretive rules without notice-and-comment as long as they are meant only to advise the public of how the agency understands, and is likely to apply, the binding laws and regulations.

FDA’s database contains 2,623 guidance documents that address a plethora of topics, ranging from the mundane (e.g., electronic formatting for regulatory submissions), scientific (e.g., clinical testing of implanted brain computer interface devices for patients with paralysis or amputation), enforcement (e.g., recalls), and the COVID-19 emergency.  The top of each document includes the following disclaimer:

Even though these guidance documents explicitly are “not binding on FDA or the public,” companies rarely divert from terms within a guidance document because disagreement with FDA could result in costly delays in regulatory approval or administrative sanctions.  Nevertheless, the Brand Memo gave companies some solace that a failure to “dot all the I’s and cross all the T’s” within a guidance document would not be the basis for a government prosecution.  Rather, companies that met the legal and regulatory standards could defend their conduct even if they did not do so exactly as FDA proposed in guidance.

In light of the seemingly renewed general focus on enforcement activities after a COVID-19 lull, regulated companies should anticipate the resumption of FDA inspections.  In preparation, companies should consider whether new guidance documents have been issued that “require” changes in business practices and documentation.

Additionally, on the government investigation front, companies should expect that DOJ lawyers assessing potential False Claims Act cases based on alleged FDC Act violations, are reading FDA guidance documents with renewed vigor and contemplating how to use those guidance documents in their cases, which routinely result in multi-million dollar settlement demands.  Companies should be prepared to vigorously defend themselves, starting with Attorney General Garland’s own reminder: “By definition, guidance documents ‘do not have the force and effect of law.’”

It is a well-accepted fact that even well run ethical and compliant organizations can have serious problems.  The Sentencing Guidelines, the DOJ Manual, and the HHHS OIG–among others–all recognize that reality.  In its Compliance Guidance for Pharmaceutical Manufacturers, the HHS OIG notes:

The OIG recognizes that the implementation of a compliance program may not entirely eliminate improper conduct from the operations of a pharmaceutical manufacturer. However, a good faith effort by the company to comply with applicable statutes and regulations as well as federal health care program requirements, demonstrated by an effective compliance program, significantly reduces the risk of unlawful conduct and any penalties that result from such behavior.

Generally speaking, that recognition has limits, however.  While the Organizational  Sentencing Guidelines provide for a sentencing reduction for companies with an effective compliance and ethics program, that reduction is presumptively not available “if an individual— within high-level personnel of a small organization; or within substantial authority personnel, but not within high-level personnel, of any organization, participated in, condoned, or was willfully ignorant of, the offense.”  The Guidelines rationale is that “[o]rganizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.”  The Justice Manual on the Principles of Federal Prosecution of Business Organizations further expounds on this notion:

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation . . . .

Agents may act for mixed reasons—both for self-aggrandizement (direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. . . . . Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable.

In light of the above, the government generally resists the notion that an organization is a victim of its own employees.  Earlier this year, in denying a restitution request from a company, Judge Rakoff in the Southern District of New York wrote that a company’s “efforts to root out misconduct, however extensive, do not ‘immunize the corporation from liability when its employees, acting within the scope of their authority, fail to comply with the law.’” He further noted that “the mere fact that the defendants may have misled other employees or agents of [the company does not relieve [the company of its criminal liability under the principle of respondeat superior, especially where, as here, the wrongdoing was committed by company’s highest officers.

In sum, a company seeking to show that it is not responsible for the bad acts of its employees faces an uphill fight. Which brings us to the FIFA prosecutions, a topic that would not typically be blogworthy for the FDA law blog.

At a very general level, starting in 2015, in a high profile series of prosecutions, the DOJ accused a number of top FIFA officials of widespread criminal conduct.    At that time, DOJ noted that “[t]he defendants charged in the indictment include high-ranking officials of the Fédération Internationale de Football Association (FIFA), the organization responsible for the regulation and promotion of soccer worldwide.”  That type of headline typically signals that the organization is going to be a defendant, not a victim, but earlier this week, DOJ announced that FIFA would be receiving victim compensation in the form of remission.  In that same announcement, DOJ noted that:  “To date, the prosecutions have resulted in charges against more than 50 individual and corporate defendants from more than 20 countries, primarily in connection with the offer and receipt of bribes and kickbacks paid by sports marketing companies to soccer officials in exchange for the media and marketing rights to various soccer tournaments and events.”  In other words, despite a widespread and seemingly systemic fraud, the organization was a victim.  These types of resolutions are intensely fact-specific, and for all the reasons noted above a company that simply claims that it’s a victim without laying the factual and legal basis for such a claim is unlikely to get very far, but nevertheless, this case is relevant precedent for companies who find themselves investigating employee misconduct and navigating government investigations.

On August 6, 2021, the Pharmaceutical Research and Manufacturers of America (PhRMA) announced the release of a revised PhRMA Code on Interactions with Health Care Professionals, which takes effect on January 1, 2022.  The PhRMA Code is a voluntary code of conduct focusing on the pharmaceutical industry’s interactions with health care professionals as they relate to the marketing of products.  The PhRMA Code is updated periodically to reflect changes in industry norms or, as is likely the case with the latest revision, in response to political pressure or increased scrutiny from the federal government.

The latest changes to the PhRMA Code are primarily focused on speaker programs, including meals and drinks offered, the venue used, and attendance at such programs.  These revisions appear to be responsive to a November 16, 2020 Special Fraud Alert issued by the Office of Inspector General at the U.S. Department of Health and Human Services (OIG) (see our blog post on this Special Fraud Alert here).

While PhRMA does not reference the OIG Special Fraud Alert in its announcement of the revised code or its summary of revisions to the code, the substantive updates to the code are directly traceable to OIG’s critiques of speaker programs.  OIG provided examples of practices that are common in violative speaker programs that are conducted with the intent to induce health care professionals (HCPs) to prescribe or order products paid for by Federal health care programs:  holding programs at non-conducive venues or events; providing expensive meals; repeat attendance by HCPs at substantially similar trainings; and attendance by the HCP’s friends or families.

PhRMA has updated its guidance regarding speaker programs through the following additions to the Code:

• The purpose of a speaker program should be to present substantive educational information to address a bona fide educational need, and only those with a bona fide educational need for the information should be invited (i.e., not friends, significant others, or family members of a speaker or invitee). Repeat attendance at a program on the same topic is generally not appropriate, unless there is a bona fide educational need for repeat attendance.
• The speaker program should occur in a venue that is conducive to the informational communication. If held in a third-party venue, the venue “should not be extravagant or the main attraction of the event” (e.g., the venue should not be a luxury resort, high-end restaurant, or other entertainment, sporting, or recreational venue).  The new Code continues to permit incidental meals that are modest by local standards (still without defining “modest”), but adds a prohibition on providing alcohol.
• It continues to be appropriate for companies to offer HCP speakers reasonable compensation for their time, travel, lodging, and meal expenses. However, the revised Code clarifies that an HCP should not be selected to serve as a speaker based on past revenue that the speaker has generated or potential future revenue that the speaker could generate by prescribing or ordering a company’s products.

Other, less extensive changes have been made to Code sections on topics other than speaker programs.  The section on informational presentations by company representatives continues to permit modest meals to be provided during such presentations, but a requirement has been added that there must be a reasonable expectation, and reasonable steps taken to confirm, that each attendee has a substantive interaction or discussion with a company representative.  “Grab-and-go” meals and alcohol are not appropriate.

The current Code discourages the use of resort venues for several types of meetings, including consultant meetings, speaker programs, and speaker training meetings.  Wherever a “resort” venue is discouraged in the current Code, the revised Code substitutes “luxury resort.”  In other words, under the revised Code, a resort may be an appropriate venue as long as it is not a “luxury resort.”  This change probably reflects the trend since the Code was last revised for relatively modest hotels to include “resort” in their names.

It is timely to remind our readers that, although the PhRMA Code remains a voluntary industry code, its important function in risk reduction cannot be overstated.  The OIG long ago recommended that drug manufacturers adopt the Code, explaining in the Compliance Program Guidance for Pharmaceutical Manufacturers that, “[a]lthough compliance with the PhRMA Code will not protect a manufacturer as a matter of law under the anti-kickback statute, it will substantially reduce the risk of fraud and abuse and help demonstrate a good faith effort to comply with the applicable federal health care program requirements.”  Moreover, three states — California, Connecticut, and Nevada – have essentially incorporated the Code into state law by requiring pharmaceutical companies to develop and maintain compliance programs that include, or are consistent with, the PhRMA Code.

In a repeat of 2013, 2015 and 2018, Rep. Frank Pallone (D-N.J.) has yet again introduced the Food Labeling Modernization Act (FLMA).  As in the past, there are a few new things of note, and a few other things have been removed (e.g., requirements for sesame allergen labeling, which was accomplished earlier this year).

The latest version of the bill again directs FDA to establish a standard symbol system for front-of-package labeling for conventional foods.  A food would be misbranded unless its principal display panel bears “summary nutrition information that reflects the overall nutritional value of the food or specified ingredients” as required in regulations that would be issued by FDA.

As noted in the previous iterations, the 2021 FLMA focuses on nutrients.  As FDA has recognized, modern nutrition science no longer focuses on nutrients, but instead focuses on certain foods and dietary patterns

The FMLA seems to be a compilation of items that have been subject to petitions by various NGOs and others covering a wide range of topics, as well as a few things already in process as part of FDA’s Nutrition Innovation Strategy, including:

• Amending the Food Drug and Cosmetic Act to address the amount of wheat and grains in grain-based products, and real fruit, vegetable, and yogurt required in products bearing fruit, vegetable and yogurt claims. Interestingly, this provision also applies to the terms “froot” and “frooty.”
• Revising the term “healthy” and addressing nutrient content claims that “may not be compatible with maintaining healthy dietary practices” and how those claims should be qualified. Defining the term “natural.”
• The addition of “gluten-containing grain” when referencing food allergens, and the addition of “gluten-containing grain” to FSMA’s Hazard Analysis and Preventive Controls, as well as to food allergen inspections language.
• A review of Standards of Identity, as well as amendments to existing standards to allow for the use of salt substitutes where appropriate. The bill includes a specific provision related to a minimum level of live and active cultures per gram – an issue that has been addressed already in FDA’s June 2021 final rule to amend the standard of identity for yogurt.
• A study on the fortification of corn masa flour.
• Regulation to establish levels of allulose, polydextrose, sugar alcohols or isolated fibers above which require a warning that the food contains levels that cause “deleterious health effects.”
• A provision setting forth requirements for infant and toddler beverages.
• A study on text size and color contrast that make food labeling information visually accessible to most consumers.
• Regulations to establish requirements for the sale of food online, including access to label or labeling information prior to purchase

The bill does not include any provisions to fund the work to conduct the studies and establish the required regulations, and includes a provision requiring the issuance or proposed regulations within one year of passage (shortened from two years in the last iteration), and two years to finalize the regulations (shortened from three years) – and if final regulations are not issued within that timeframe, the proposed regulations become final on that deadline. This is an incredibly short timeframe, and would seemingly make final regulations that do not have the benefit of any incorporation of comments.  As to whether this version will eventually become a law, it is doubtful given that this is the fourth iteration and a partisan bill, but we will alert you if things change.

Meet the newest category of drug applications: the PANDA.  A PANDA, or the Pre-Hatch-Waxman Abbreviated New Drug Application, refers to abbreviated drug applications submitted and approved under sections 505(b) and 505(c) of the Federal Food, Drug, and Cosmetic Act (FDCA) prior to the enactment of the Hatch-Waxman Amendments in 1984, as FDA announced in the Federal Register last week.  Drugs approved as PANDAs are, for all intents and purposes, follow-on drugs approved based on FDA’s previous findings of safety and efficacy for a given drug, but, because they were not submitted under section 505(j) of the FDCA, they are not technically “Abbreviated New Drug Applications (ANDAs).”  Nonetheless, FDA has been calling them ANDAs and listing them in the Orange Book as ANDAs for years, but recent changes to the Orange Book have spurred some confusion.  Thus, FDA divided them into their own category and is now seeking Comments on whether the 505(b) or the 505(j) regulatory scheme should apply.

While generic drugs as we know them are a creation of the 1984 Hatch-Waxman Amendments, the Federal Register Notice explains that FDA first introduced the concept of an ANDA in 1968 to facilitate approval of Drug Efficacy Study Implementation (DESI) drugs.  By 1970, products evaluated as DESI drugs ultimately determined to be effective for one or more indications could be eligible for approval as ANDAs if they were similar or related to DESI drugs even if the drug products had not been marketed under a 505(b) New Drug Application (NDA).  However, because they are not necessarily the same as any previously approved drugs, the title “ANDA” is a bit of a misnomer.  Yet some of these ANDAs, which FDA is now calling PANDAs, still are marketed today, and, despite the misnomer, are listed in the Orange Book as ANDAs.

Because PANDAs are listed in the Orange Book as ANDAs but are not duplicates of any FDA-approved 505(b) drugs, there has been confusion about whether they can serve as Reference Listed Drugs (RLDs) for new ANDAs or 505(b)(2) NDAs.  As ANDAs, the PANDAs are not listed RLDs in the Orange Book; they are only Reference Standards (RS) and therefore cannot be relied on for FDA’s findings of safety and effectiveness.  While this was not an issue when FDA did not distinguish RLDs from its associated RS in the Orange Book (and therefore these PANDAs were listed as RLDs), it became confusing when FDA revised the Orange Book in 2017 to separately identify a RLD and a RS.  To address this confusion, FDA has decided to designate PANDA products as RLDs in an effort to provide “clarity both to prospective 505(j) ANDA applicants seeking to make generic versions of these products, and to applicants of 505(b)(2) applications that there is a finding of safety and effectiveness for these products that may be relied upon for approval.”  This approach, FDA explains, is consistent with its efforts to “advance competition and increase patient access to more affordable medicines.”

FDA already has started adding RLD designations for PANDAs to the Orange Book and will continue to do so “as expeditiously as resources permit.”  In the interim, ANDA applicants may also submit Controlled Correspondence to FDA seeking to designate a PANDA as a RLD.  FDA also provided a list of PANDA products currently identified as an ANDA in the Orange Book for reference.  FDA emphasizes, however, that this effort expressly excludes antibiotic drug products originally submitted under FDCA § 507.

The Federal Register Notice also solicits input from PANDA holders or other interested stakeholders related to FDA’s post-approval regulation of PANDAs.  Because PANDAs were submitted to FDA under section 505(b) and approved under 505(c)—which typically apply to NDAs—but are nonetheless treated as ANDAs, FDA recognizes ongoing confusion as to which regulatory scheme might apply for purposes of postmarketing reporting requirements, labeling updates, patent listing, exclusivity eligibility, and drug-safety related requirements or procedures; indeed, PANDA holders have typically elected which regulatory scheme to follow.  FDA therefore seeks industry comment on whether “there are regulatory or policy reasons for treating PANDAs differently from other 505(b) Application.”  Specifically, FDA asks for Comments on regulatory or policy rationales for treating PANDAs differently from other 505(b) applications in certain respects, in particular with respect to:

• Labeling requirements and updates, including safety-related information;
• Patent listing requirements;
• Eligibility for exclusivity; and
• Certain safety-related requirements, such as the postmarket studies and clinical trials, safety-labeling change requirements, and REMS requirements.

Further, FDA requests Comment on:

• Factors FDA should consider in determining a reasonable amount of time for PANDA holders to make changes to their practices, if applicable;
• Any additional steps FDA should take to highlight for PANDA holders that their ANDA is a PANDA;
• Any additional steps, beyond the Orange Book, that FDA should take to aid other interested persons in identifying PANDAs;
• Any necessary modifications to the PANDA list for accuracy; and
• Any other issues FDA should consider in assessing the regulatory framework for PANDAs under the FDCA.

FDA will accept Comments on its PANDA proposal—submitted to the docket in black and white (see what I did there?)—until December 13, 2021.

A determination of “intended use” is fundamental to FDA’s regulation of drugs and medical devices.  It is a primary basis for determining if an article is regulated by FDA at all, and if so, what regulatory requirements apply.  It is embodied in parallel drug and device regulatory definitions of intended use (21 C.F.R. §§ 201.128 (drugs), 801.4 (devices)).

FDA has now issued a final rule governing how intended use of a distributed product is to be determined.  Thus ends a saga that began with a proposal in 2015 to amend the “intended use” regulation.  The proposal was to remove the “knowledge provision,” which had always seemed to problematically suggest that a manufacturer could be held responsible for off‑label use if the manufacturer knew about it.

This provision stated (as of April 2021):

But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.

The proposal to delete this provision made sense, because the off‑label uses under consideration are entirely lawful.  It is contrary to the statutory scheme to require a manufacturer to obtain cleared or approved labeling for an off-label label use simply based on knowledge that physicians were choosing to use the device off‑label.  It is especially problematic to criminalize these otherwise lawful sales until such clearance or approval can be obtained.

In 2017, however, FDA shockingly finalized this proposed rule without deleting the knowledge provision.  Indeed, FDA arguably strengthened it.  This set off a firestorm, eventually leading to a new proposed rule in 2020, which was much closer to the one in 2015.  We were generally in favor of it, although not without some criticisms.

FDA has now finalized the rule roughly as proposed last year.  On the whole, the amended intended use regulation is a modest improvement over the one in place for many decades.  (It could have been made much better; our more comprehensive proposal is here.)

The entire modified rule (device version) can be found here.  It states:

The words intended uses or words of similar import in §§  801.5, 801.119, 801.122, and 1100.5 of this chapter refer to the objective intent of the persons legally responsible for the labeling of an article (or their representatives). The intent may be shown by such persons’ expressions, the design or composition of the article, or by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. Objective intent may be shown, for example, by circumstances in which the article is, with the knowledge of such persons or their representatives, offered or used for a purpose for which it is neither labeled nor advertised; provided, however, that a firm would not be regarded as intending an unapproved new use for a device approved, cleared, granted marketing authorization, or exempted from premarket notification based solely on that firm’s knowledge that such device was being prescribed or used by health care providers for such use. The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer. If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he or she received the article, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses.  (Italics supplied.)

We have three quick comments on the revised regulation:

First, the removal of the problematic knowledge provision is a significant victory for regulatory clarity and brings the regulation more in line with the statutory scheme.  This was the core of the 2015 proposal and it is amazing that it took six years to get back to that proposal.  Still, it is a welcome outcome.

Second, the new italicized proviso introduced in this rulemaking is important.  It further prevents FDA from inferring off-label intent based merely on knowledge that an otherwise lawfully marketed device is being used off-label.  We had suggested striking the word “solely” to clarify further that a manufacturer’s knowledge of off-label use should never enter into a FDA’s determination of intended use.  Nonetheless, although FDA did retain “solely,” it seems unlikely that mere knowledge of lawful off-label use could be used to bring a case against a manufacturer without significant unlawful promotion being involved as well.

Finally, as discussed here, this revised provision gives FDA the right to consider “design and composition” in determining intended use.  To the extent that FDA infers an unapproved new intended use based upon the design and composition of a device as it has been cleared or approved, then it may conflict with Section 513(i)(1)(E) of the FDCA.

That provision requires FDA limit the determination of intended use in premarket review to the proposed labeling.  If FDA believes based upon a device’s design (which includes composition) that an off-label use is possible and could cause harm, it may do no more than require certain cautionary labeling statements.  The agency may not require that the manufacturer obtain clearance or approval of the off‑label use implied by the design or composition.

It would contradict this statutory scheme for FDA to clear or approve a device with a particular design or composition and then turn around and seek to hold the manufacturer liable for an off-label intended use based upon the same design or composition.  That would be an inappropriate end run around Section 513(i)(1)(E).

About two weeks ago, FDA made an exciting announcement (and it remains exciting even if we’re late posting about it): FDA approved the first interchangeable biosimilar.  On July 30, 2021, FDA approved Semglee (insulin glargine-yfgn), an insulin product that relies on Lantus (insulin glargine) as its reference product.  In its Press Release, FDA explains that Mylan, the Semglee sponsor, submitted evidence that showed that “there are no clinically meaningful differences” between Semglee and Lantus “in terms of safety, purity, and potency (safety and effectiveness)” and that Semglee “can be expected to produce the same clinical result as Lantus” in any given patient.  As a result of this decision, Semglee can now be substituted for Lantus prescriptions without the intervention of a health care provider in accordance with state substitution regulations.  While Semglee was previously approved as a 505(b)(2) NDA referencing Lantus in June 2020, it was not rated as therapeutically equivalent (and therefore substitutable) to Lantus, and it immediately transitioned to a BLA upon approval as a result of the BPCIA (more on that below).  Thus, though Semglee is not new to the market, it is for the first time substitutable for Lantus without intervention of a health care provider.

Though Congress enacted the pathway for approval of interchangeable biosimilars in 2010 in an effort to incentivize competition to address the high prices of biologics, no sponsor had yet to crack the code to interchangeable approval until now.  In the past eleven years, we have seen a plethora of biosimilar approvals—which, like their name implies, are “similar” but not quite the “same” as and therefore substitutable for approved biologics—but substitutable biologics remained a pipe dream due to the difficulty of replicating a large molecule.  Biosimilars do provide a more affordable way for sponsors to get products onto the market—by referencing the clinical studies performed by the reference product sponsor—which, in theory, allows for the introduction of lower cost versions of expensive biologics.  But because these biosimilars cannot be substituted for their reference products—requiring health care professional brand awareness for both the brand name and the biosimilar—biosimilars have not quite made the dent in the market that Congress had hoped.  The expectation is that interchangeable biologics would make all the difference.

Yet, even with the first interchangeable biosimilar approval, it’s not quite clear when patients will see those savings.  Though no exclusivity is listed in the Purple Book yet, Semglee should be eligible for 12 months of exclusivity, which would block FDA licensure of any subsequent interchangeable biosimilars starting from its first commercial launch.  Even though Semglee has been approved and marketed as a biologic for a little over a year already and therefore first commercial marketing already has occurred, it’s interchangeable biosimilar is approved under a new BLA.  Interchangeable exclusivity, assuming it’s awarded, likely will be triggered at launch of the product under the new BLA, which, according to the NDC Code database, has not yet occurred.

Regardless of exclusivity, with no interchangeable competition as of yet, Mylan can price Semglee only slightly less than Lantus and still take market share, only marginally reducing costs to consumers.  As FDA states in its Press Release, “Biosimilars marketed in the U.S. typically have launched with initial list prices 15% to 35% lower than comparative list prices of the reference products,” but this 15 to 35% is not a huge relief for patients given the high cost of biologics.  For that reason, FDA merely states that biosimilars have the “potential to reduce health care costs.”  It’s not clear how much interchangeable approval will affect these health care cost reductions or how much competition is needed for prices to come down.  So, it remains to be seen if and when interchangeable Semglee will have any meaningful effect on insulin prices in the near future.

And it’s no surprise that the first interchangeable biosimilar is insulin.  FDA has long encouraged generic competition for insulin but developing a generic under an ANDA was very difficult “due to the complexities of these products”.  As part of the BPCIA, Congress amended the definition of “biologic” so that it included proteins, and protein products previously approved as drugs transitioned to biologics in March 2020, and, also under the BPCIA, became eligible for use as a reference product for biosimilar approval.  This transition eased the way for the development of insulin follow-on products because they no longer needed to be identical to their reference products for generic approval.  In 2019, Commissioner Gottlieb even noted: “The transition is particularly important for insulin” and that “FDA is dedicated to facilitating access to insulin.”  FDA further held a public hearing specific to insulin interchangeable biosimilar, and, in November 2019, issued a guidance on clinical immunogenicity specifically for insulin products.  To say that access to lower cost insulin products has been a priority for the Agency may be an understatement.

In tandem with its approval of Semglee, FDA issued a Consumer Update, as well as Fact Sheets and Stakeholder Toolkits, explaining the “treatment choices” arising from biosimilar and interchangeable approvals.  In contrast to claims made by certain reference product sponsors (which Pfizer took issue with back in 2018), FDA states in the Update that “Biosimilars are as safe and effective as the original biologic” and that consumers “can expect the same safety and effectiveness from the biosimilar over the course of treatment as you would from the original product.”  An interchangeable “meets additional requirements” for substitution, and “health care providers and patients can be confident in the safety and effectiveness of a biosimilar or an interchangeable biosimilar product, just as they would be for the FDA-approved original product.”  Even before this approval and Update, health insurers heard this message loud and clear and have taken to paying patients to switch to biosimilar versions of medications to encourage widespread use in an effort to address costs.

FDA, in its Consumer Updates, states that it “expects to approve more interchangeable products in the future.”  Now that FDA has hit this milestone and mapped a blueprint for its interchangeable expectations, hopefully we won’t have to wait too much longer for the flurry of interchangeable approvals needed to add some meaningful competition in the biologics market and presumably address biologic prices.

The Department of Health and Human Services (HHS) is proposing to rescind a Trump era rule that would have established a “most favored nation” (MFN) model to base Medicare Part B drug payment on international prices.  The Trump Administration rule had a troubled history.  The idea of basing Medicare drug reimbursement on prices in foreign countries was first proposed during the Obama Administration in 2016.  That proposal was withdrawn by the Trump HHS, but the notion of international reference pricing was subsequently incorporated in an October 2018 HHS Advance Notice of Proposed Rulemaking (ANPR) (see our post here).  HHS took no further action on the ANPR, but two years later, in the waning days of the Trump Administration, HHS issued a final rule with comment period establishing a MFN model for Part B rate setting methodology, circumventing the usual proposed regulation stage.  The MFN rule, which we summarized here, called for Part B payment for at least 50 high-expenditure drugs selected by HHS to be based on the lowest payment rate in 22 specified foreign countries, with a fixed add-on payment for drug administration.  Predictably, PhRMA, BIO, and numerous provider organizations took advantage of the procedural irregularity to challenge the rule on APA grounds in three separate lawsuits, and succeeded in obtaining injunctions blocking the rule from taking effect on January 1, 2021 (as we reported here and here).

Finally, CMS released a proposed rule on August 6 seeking to rescind the interim final rule.  According to CMS, the agency considered the nationwide preliminary injunction and multiple court challenges based on the rule’s procedural deficiencies, and stakeholder concerns about its start date and its far-reaching impact.  According to the proposal, CMS will review the issues identified by commenters and continue to explore opportunities to address high drug costs based on stakeholder comments to the interim final rule.  The proposed rule to rescind will be published in the August 10 Federal Register and comments will be due on October 9.

It is possible that CMS will issue a new proposed rule to impose international reference pricing in the future, but it is far more likely that the initiative will move to Congress.  Use of international reference pricing as a target for Medicare to negotiate prices with drug manufacturers appears in H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act,” introduced by Representative Pallone on April 22.  This bill is the slightly revised and re-introduced version of the comprehensive drug pricing bill that passed the House during the last Congress, and represents the House Democrats’ drug pricing proposal.  On the Senate side, a drug pricing bill being developed by Ron Wyden, Chairman of the Senate Finance Committee, has been reported by the trade press to include the use of either international or domestic prices as reference benchmarks for setting payment rates under Medicare, and perhaps  even commercial insurance markets.

As always, we are following drug payment and price reduction initiatives in the Administration and Congress with great interest, and will be reporting on important developments as they occur.