In September 2013, FDA issued a final guidance addressing when, according to FDA, companies need an Investigational New Drug Application (IND) for clinical studies in humans. The final guidance created quite a stir, as it included several sections that had not been included in the draft guidance; notably, the final guidance suggested that an IND was required for most clinical studies on food, dietary supplements, and cosmetics. We previously blogged on this guidance here. After receipt of numerous comments, FDA reopened the comment period regarding these new sections. Then, in October 2015, FDA announced a stay on a select few subsections regarding clinical studies on foods and dietary supplements. As we previously discussed, FDA did not stay the IND requirement for clinical studies designed to evaluate a dietary supplement’s ability to diagnose, cure, mitigate, treat, or prevent a disease (except if those studies are designed to evaluate whether a dietary supplement reduces the risk of a disease, are intended to support a health claim, and are conducted in a population that does not include individuals in the medically vulnerable population) and clinical studies designed to evaluate whether a dietary supplement reduces the risk of a disease conducted in a population that includes individuals in the medically vulnerable population.

Although the document is merely guidance and is not binding, generally IRBs tend to require an IND if FDA guidance has taken the position that an IND is needed. Moreover, as explained in the March 15, 2018 Petition by the Alliance for Natural Health, FDA’s requirement for an IND has created a bit of a conundrum for dietary supplement companies developing new dietary ingredients. If they want to do a clinical study on their dietary ingredient and that ingredient has not yet been marketed, they may forever foreclose the marketing of the dietary ingredient as a dietary ingredient. This is because, under the exclusionary clause in FDC Act § 201(ff)(3), the clinical studies under an IND (which FDA claims are needed) result in the exclusion of the product from the dietary supplement definition, even though the company had no intent to ever market the product as a drug.

Petitioner argues that FDA has historically regulated products based on intended use, which is determined by the manufacturer’s marketing representations and labeling of a product rather than by the clinical investigations, and FDA has not offered a rationale for the requirement for an IND when a company wants to perform a clinical study on a dietary supplement but has no plans to develop the product as a drug. Comments to the guidance had made similar arguments. Maybe the Petition will result in FDA providing a rationale, or better yet, result in a revision of the IND guidance. Petitioner asks that FDA amend the guidance to clarify that, if the supplement under investigation is fully compliant with IRB procedures and is not represented as a drug through marketing statements, and any claims made for the supplement are lawful dietary supplement claims, no IND is required for clinical studies on the supplement even if the endpoint measured is a disease endpoint.

Last week, the U.S. District Court for the District of Columbia dismissed a lawsuit filed by the Environmental Working Group (EWG) and Women’s Voices for Earth (WVE) against the Food and Drug Administration (FDA) and the Commissioner of the FDA. The facts of this case date back to 2011, when EWG filed a Citizen Petition with FDA “requesting that the FDA take immediate action to protect the public from formaldehyde-containing keratin hair straighteners.” FDA replied on or about September 6, 2011 with a tentative response to the Citizen Petition, explaining that it was unable to reach a decision due to “competing priorities.” Dissatisfied with this response, on December 13, 2016 EWG and WVE filed a complaint in federal court alleging that FDA violated the Administrative Procedure Act; the Federal Food, Drug, and Cosmetic Act; and its own regulations by failing to formally respond to the Citizen Petition.

After the complaint was filed by EWG and WVE, on March 29, 2017, FDA issued a formal response granting EWG’s request to review the appropriateness of a ban on these products, but denying EWG’s request to initiate rulemaking before FDA completed its analysis of the formaldehyde in the keratin hair straighteners. (The issued opinion states that FDA issued a formal response to the Petition on March 29, 2018. We assume this is a typo, and the formal response was actually issued on March 29, 2017.) Based on the response by FDA, which included a denial to their Citizen Petition, plaintiffs amended the complaint to request that the court direct “Defendants to grant the Petition by a date certain.” Defendants moved to dismiss for lack of jurisdiction under Fed. R. Civ. P. 12(b)(1) and for failure to state a claim under Fed. R. Civ. P. 12(b)(6). Because the court found no jurisdiction, it did not discuss the merits of the 12(b)(6) arguments.

As a quick refresher from Constitutional Law, an organization can assert standing on its own behalf, on behalf of its members, or both. The organization must show “actual or threatened injury in fact that is fairly traceable to the alleged illegal action and likely to be redressed by a favorable court decision.” People for the Ethical Treatment of Animals v. U.S. Dep’t of Agric., 797 F.3d 1087, 1093 (D.C. Cir. 2015). Organizations can also assert associational standing. This requires a showing that “(1) at least one of their members would have standing to sue; (2) the interests they seek to protect are germane to the organizations’ purposes; and (3) neither the claim asserted not the relief requested requires the participation of individual members.” Sierra Club v. EPA, 754 F.3d 995, 999 (D.C. Cir. 2014).

The court ultimately concluded that the plaintiffs failed to allege sufficient injury to constitute standing, whether organizational or associational. With respect to organizational standing, plaintiffs argued that they were injured because they were forced to expend considerable funds on lobbying efforts and educational activities to warn consumers about these products. In dismissing these arguments, the court noted that an injury to an organization’s interest has to be more than expending resources to educate its members, unless there is an actual inhibition of daily operations. Neither organization sufficiently alleged any inhibition to its daily operations sufficient to constitute a concrete injury to their interests. While the court acknowledged that a significant amount of funds were spent on lobbying, it noted that such efforts alone could not constitute sufficient injury to result in standing. To hold otherwise would allow lobbyists on any issue to take the government to court.

The court also rejected the plaintiffs’ argument that the expenses put into their educational activities were sufficient to constitute an injury, noting that educating its members is the exact work the organizations are in the business of doing. Even if they diverted resources to this issue, the organizations did not allege that such expenditures constituted operational costs beyond those normally expended. Without such a showing, the court found that the suit amounts to no more than an assertion of generalized grievances.

The WVE argued separately that it had associational standing to sue on behalf of its members. Specifically, WVE listed three members who suffered significant past injuries allegedly caused by exposure to formaldehyde in hair-straightening products. The issue, from the court’s perspective, was that these instances of past harm did not establish a real and immediate threat that the harm would recur. Nor did the plaintiffs allege that the injured individuals would likely use or be exposed to the formaldehyde-releasing hair straightening products in the future.   These allegations, the court determined, were insufficient to establish standing for the prospective injunctive relief sought by the plaintiffs.

This case has potential implications for industry. To the extent that a company is being sued by an association for injunctive relief, this case might be used as a sword to dismiss a complaint for lack of standing.

In 1997, Congress directed FDA to use the “least burdensome” approach in reviewing device applications. This legislation resulted in little change in behavior.  In 2012, Congress enacted new legislation with the same outcome.

In 21st Century Cures, Congress addressed the “least burdensome” approach for the third time. On December 15, 2017, FDA issued a Draft Guidance Document (see our previous post here).

The draft guidance contains some potentially positive implements, provided that they are actually implemented. Yet, based on FDA’s past conduct, doubts are inevitable.  Hyman, Phelps & McNamara, P.C. has submitted comments to FDA regarding the draft guidance document.

Whether the “least burdensome” approach will truly be incorporated into practice or remain a largely meaningless phrase will not be known for some time. If truly embraced by FDA, the “least burdensome” approach could have a significant, positive impact on device regulation.  The content of the final guidance, though, will provide important clues.

After President Obama signed into law Title I of the Drug Quality and Security Act (the Compounding Quality Act), which created a new breed of drug compounders (deemed “outsourcing facilities”), FDA also came up with a plan to evaluate bulk substances outsourcing facilities could use in compounding pursuant to the statutory mandate set forth in FDCA Section 503B. That draft guidance, rolled out in December 2013, led to industry’s nomination of thousands of bulk substances (here).  After FDA reviewed those nominations, FDA asked for a “do over” of the process (here). About a year after that process concluded, and after receipt of hundreds of bulk substance nominations, FDA published its draft and final “Interim Policies” on compounding using bulk substances by Section 503B facilities (here). The policy included three lists, including “Bulks List I”, which are those nominated substances where FDA made a determination of “clinical need.” Until FDA publishes a final rule concerning the substances, FDA also stated outsourcing facilities were permitted to compound using those List I bulk substances. FDA updated the list on several occasions based on additional industry nominations that met FDA’s published clinical need criteria, and FDA opened a new docket to accept nominations in October 2015 (here). Even as recently as January 2017, FDA publicly announced its revision of its interim policy on bulk substances for 503B outsourcing facilities, and welcomed nominations via a newly established docket (here). True to its word, until July 2017, FDA also regularly updated its interim bulks list based on nominations received and encouraged outsourcing facilities to nominate substances for the lists.

What happened next? One can speculate that a lawsuit filed against the Agency rooted in the Administrative Procedure Act and FDA’s promulgation of the bulks lists as “interim policy” and not a final rule promulgated by notice-and-comment rulemaking (among other claims) is at least part (if not all…) of the issue. See the Complaint filed by Endo International against FDA and blogged about (here), and Press Release by Endo announcing a stay of that litigation in January 2018 based on FDA’s promise to promulgate new guidance by the end of March 2018 concerning compounding from bulk substances by outsourcing facilities pursuant to FDCA Section 503B (here).

Commissioner Gottlieb announced FDA’s latest efforts at creating a bulks list for outsourcing facilities on March 23, 2018. The Commissioner also announced the new draft guidance; (Federal Register Notice here), which is substantially different than the prior interim bulks policy, and which industry has been working with (and relying on) for the last several years in formulating meaningful bulk substance nominations based on FDA’s (now) well-established criteria.

After spending pages describing what bulk substances are and the prior nomination process, FDA states in its latest draft that it intends to maintain a current list of all bulk substances it has evaluated on its website, including separate lists for those substances that it has placed on the list and those that it as determined to not place on the list. Does this mean the current List I will stay in place for at least a while?

FDA also states that it will consider nominations on a rolling basis, and will only include a substance on the list where it has made a determination of “clinical need” for outsourcing facilities to compound the product using bulk substances (which, of course, sounds much like FDA’s statements concerning determinations both the Agency and its Pharmacy Compounding Advisory Committee have been making over the course of the past three years).

The draft guidance details how FDA will now interpret “clinical need” as that term is used in Section 503B(a)(2), including “certain additional procedures” FDA will use in its review of nominations. On the last page of the draft guidance, FDA provides a flow chart of the analysis it intends to engage when making the clinical need determination for bulk substances that that are a component of an FDA-approved drug product, and those that are not. The chart is a helpful summary that boils down to a single page FDA’s multi-page analysis.

Concerning FDA’s “clinical need” determination, FDA points out that it does not consider supply issues or cost to be within the meaning of clinical need.

FDA further states that clinical need determinations may be limited to specific strengths, routes of administration or dosage forms for a particular substance and thus FDA may limit that determination to such uses for particular substances.

Overview of FDA’s Proposed Two-Part Bulk Substance Analysis

FDA intends to use a two-part analysis in its new clinical need determination. Each step is set forth briefly below: Refer to the guidance for FDA’s in-depth description of each part. Note that FDA’s analysis here is substantially different than FDA’s previous nomination process, especially given its new, threshold focus on whether the substance is a component of an FDA-approved drug product.

(1) Determination of whether the bulk substance is a component of an FDA-approved drug

FDA will consider the following questions:

(a) Is there a basis to conclude, for each FDA-approved product that includes the nominated bulk drug substance, that (i) an attribute of the FDA-approved drug product makes it medically unsuitable to treat certain patients for a condition that FDA has identified for evaluation, and (ii) the drug product proposed to be compounded is intended to address that attribute?

(b) Is there a basis to conclude that the drug product proposed to be compounded must be produced from a bulk drug substance rather than from an FDA-approved drug product?

FDA states that if it answers “no” to either of these threshold questions, then it does not intend to include that substance on a bulks list. If it answers yes to both questions, then it will proceed to the second part of its analysis,

(2) FDA’s “balancing test” of factors when considering bulks substances that are components of approved drugs (and “yes” to the questions above) and when evaluating bulk substances that are not components of approved drug products.

FDA will use these factors in the context of information provided in the nominations and about proposed uses of the compounded products (as well as other information provided through comments, upon request, or by FDA), as follows:

(a) The physical and chemical characterization of the substance;

(b) Any safety issues raised by the use of the substance in compounding;

(c) The available evidence of effectiveness or lack of effectiveness of a drug product compounded with the substance, if any such evidence exists; and

(d) Current and historical use of the substance in compounded drug products, including information about the medical condition(s) that the substance has been used to treat and any references in peer-reviewed medical literature.

FDA then spends several pages detailing what it will consider in making the threshold determination concerning the attributes of the nominated substances that are components of FDA-approved products, and now the bulk substance proposed to be compounded will address these issues. For example, FDA states that unless an FDA-approved drug is “medically unsuitable for certain patients” and a compound intends to address the attribute that makes it medically unsuitable, then there is no clinical need to compound using that bulk substance. FDA will focus on the rationale set forth in the nomination, or a rationale that FDA identifies for use of the bulk substance in compounding. FDA states that broad statements without sufficient evidence supporting will not be adequate to demonstrate that an attribute of an approved drug makes it unsuitable for certain patients.

If the substance is not a component of an approved drug, FDA will proceed to Part 2 of its evaluation where it will also evaluate each of the four factors listed above (and described in the draft starting at page 13 of the draft guidance). Thus, the process does not appear to be that different from FDA’s prior nomination process with respect to bulk substances that are not components of FDA-approved drugs.

Notwithstanding, the draft guidance likely renders the nomination process not only more complicating (especially for substances that are components of FDA-approved drugs), but also one that is fraught with questions concerning what an “appropriate” nomination looks like, especially given the DQSA simply does not differentiate between “clinical need” for an FDA-approved bulk substance (which arguably was established during the FDA drug approval process) and a substance is not FDA-approved. The draft guidance also leaves outsourcing facilities (given there are only around 65 facilities at any given time), which FDA has touted since enactment of the DQSA as the safer alternative for compounding, grappling whether to return to more traditional compounding roles or engage in the rigorous nomination process. The next 90 days will be fascinating to watch as outsourcing facilities comment on FDA’s proposed process, which comments are due on May 25, 2018 (Docket No. FDA-2018-D-1067).

Last February we reported on FTC v. Shire ViroPharma, in which the Federal Trade Commission (FTC) took the relatively unusual (although not unprecedented) step of suing a brand drug company for anti-competitive use of the Food and Drug Administration’s (FDA’s) citizen petition process to delay generic competition.  The FTC sued Shire after the company exploited FDA’s petition process to an extraordinary degree, drawing pointed rebukes from FDA in response to its more than forty-six regulatory and court filings. The company’s petitions, regulatory submissions, and litigation against FDA were ultimately unsuccessful on the merits, as Shire lost its legal challenges to FDA’s (1) bioequivalence requirements for generic VANCOCIN, and (2) denial of 3-year exclusivity for a VANCOCIN NDA Supplement FDA approved in December 2011 (Our firm represented ANDA applicant and intervenor Akorn in that lawsuit).  Nevertheless, FTC’s complaint alleged that “ViroPharma’s campaign [] succeeded in delaying generic entry at a cost of hundreds of millions of dollars to patients and other purchasers.”  Complaint at 2, No. 1:17-cv-00131 (D. Del. Feb. 7, 2017).

Last Tuesday, the FTC’s unfair competition case against Shire took a fascinating turn that could broadly impact the FTC’s authority to litigate cases in federal court. Shire won a motion to dismiss the FTC’s complaint, but not based on Noerr-Pennington immunity, which (as we have discussed in past posts, including our initial post on this case) generally protects companies’ right to petition the government for redress of grievances or to influence policy, without incurring antitrust liability.  The Court found that the FTC had sufficiently pleaded the so-called “sham exception” to Noerr-Pennington, in which the petition at issue is “a mere sham to cover what is actually nothing more than an attempt to interfere directly with business relationships of a competitor.”  But the Court dismissed the FTC’s complaint anyway, based on a novel interpretation of the Federal Trade Commission Act (“FTC Act”); holding that the FTC had failed to plead the facts necessary to invoke its authority to sue for permanent injunction in federal court (FTC Act § 13(b) (15 U.S.C. § 53(b))) because it did not allege an ongoing or imminent violation of the FTC Act. 

The FTC’s primary statutory mechanisms for seeking injunctive and other relief from entities and individuals it believes have violated the FTC Act are (1) Section 5(b) of the FTC Act, which authorizes the FTC to file an administrative complaint seeking an administrative cease and desist order, and (2) Section 13(b) of the Act, which authorizes the FTC to bring suit in federal court seeking injunctive relief. Both routes offer distinct benefits and downsides from the FTC’s perspective, and it is difficult to determine why the FTC chooses one or the other route in any given case.  For example, the FTC cannot seek restitution or disgorgement in administrative litigation (although it can pursue such remedies in federal court after a final administrative order has issued), but it benefits from procedural and institutional advantages.

Section 13(b) of the FTC Act sets forth the FTC’s authority to sue for injunctive relief in cases such as FTC v. Shire ViroPharma as follows:

(b) Whenever the Commission has reason to believe –

(1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and

(2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public

the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, however, That if a complaint is not filed within such period (not exceeding 20 days) as may be specified by the court after issuance of the temporary restraining order or preliminary injunction, the order or injunction shall be dissolved by the court and be of no further force and effect: Provided further, That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction.

15 U.S.C. § 53(b)(2012).

The final sentence of section 53(b) – “Provided further, That in proper cases the Commission may seek, and after proper proof the court may issue, a permanent injunction” – has historically been viewed as a separate grant of authority for the FTC to litigate its case against a company or individual in the first instance in federal court, regardless of whether the requirements in sections 53(b)(1) and (2) are satisfied.  See, e.g. F.T.C. v. Virginia Homes Manufacturing Corp., 509 F. Supp. 51 (D. Md. 1981) (noting in dicta that it appears (b)(1)’s requirements do not apply to suits for permanent injunction); see also, e.g., United States v. JS & A Group, Inc., 716 F.2d 451, 456 (7th Cir. 1983) (holding that 53(b)(2)’s limitations on actions for preliminary injunction did not apply to the separate permanent injunction provision).  The District Court in FTC v. Shire ViroPharma rejected this view.

The Court instead accepted Shire’s argument that the statutory language authorizes FTC to “bring suit” only upon satisfying the conditions of (b)(1), and after which it “may seek” certain types of relief, including either preliminary or permanent injunctive relief. Thus, to seek permanent injunctive relief in federal court, the FTC must have already satisfied the requirements for bringing suit by alleging that the defendant – in this case ViroPharma –  “is violating, or is about to violate” a law enforced by the FTC.  The court further rejected the FTC’s alternative argument that “is about to violate” should be read as equivalent to the general standard for awarding injunctive relief – i.e. that the violation is likely to recur (see United States v. W.T. Grant Co., 345 U.S. 629 (1953).  The Court ruled that the FTC must adequately allege an ongoing, or imminent future, violation (see Opinion at 10-11), and it had not done so with respect to ViroPharma.

If the District Court’s statutory interpretation is accepted more broadly, it would significantly limit a statutory mechanism that the FTC has used extensively to seek injunctive and other relief in both antitrust and consumer protection actions since the 1980s. It would prevent the FTC from bringing suit in federal court for past violations of the FTC Act and other laws enforced by the FTC, and from seeking damages and restitution for such violations (let alone permanent injunctions) unless it can also allege an imminent future violation.  With respect to past violations, the FTC would be required to first engage in administrative litigation pursuant to FTC Act § 5(b) (15 U.S.C. § 45(b)).

The Court’s ruling on Tuesday dismissed the case without prejudice and gave the FTC leave to amend its complaint. The Court even provided some guidance to the FTC in amending the complaint, by suggesting that facts about another Shire drug discussed at oral argument, but which did not appear in the complaint, might satisfy the “about to violate” requirements of Section 13(b)(1).  The FTC therefore has the option to amend in accordance with the Court’s ruling in an effort to survive dismissal, which would leave the Court’s underlying statutory interpretation in place in the short term.  Alternatively, the FTC could take steps to pursue an appeal, such as moving the District Court to certify the legal issue for appeal pursuant to 28 U.S.C. § 1292(b) and stay the case pending review by the Third Circuit.  Given the high stakes, we would not be surprised if the FTC chose this latter option.

In order for their outpatient drugs to be covered under Medicaid and Medicare Part B, drug manufacturers must enter into a National Drug Rebate Agreement (“Agreement”) with the Department of Health and Human Services. The Agreement requires the manufacturer to pay quarterly rebates to state Medicaid programs on units of the manufacturer’s drug that are dispensed to Medicaid beneficiaries during the quarter, and to submit monthly and quarterly reports containing certain pricing data that are used by CMS to calculate the unit rebate amount. Today, CMS issued a final revised Agreement to replace the current one, which dates back to the inception of the Medicaid Drug Rebate Program in January 1991 and has become largely outdated as a result of amendments to the Program since that time. The new revision brings the Agreement into alignment with 2010 Affordable Care Act amendments to the Medicaid rebate statute and CMS’ implementing final rule issued on February 1, 2016, and also contains additional changes incorporating CMS policies adopted over the years.

Manufacturers with existing Agreements will have until October 1, 2018 to sign the revised Agreement, otherwise their existing Agreement will be terminated.

The final NDRA contains only minor changes from a draft that CMS issued for comment on November 9, 2016, which we described in a previous post here. Among the changes from the draft are the following:

• Language has been added to the Manufacturer’s Responsibility section to make clear that required pricing data must be calculated and reported “for all covered outpatient drugs of all labeler codes of a manufacturer.” See § II(b). The preamble elaborates that manufacturers are required to report “all of their covered outpatient drugs to CMS, regardless of labeler code. Therefore, in an effort to prevent selective reporting of NDCs, manufacturers must ensure that all associated labeler codes . . . enter into a rebate agreement in order to comply with the terms of the NDRA.” (P. 43.)
• In the same section, a sentence has been added reflecting long-standing CMS policy that, although CMS ordinarily calculates the unit rebate amount (URA) based on reported pricing and communicates the URA to the states, that does not relieve the manufacturer of the responsibility for doing its own URA calculation.
• The draft version of Section II(f) addressed revisions to previously submitted prices, but only those revisions resulting in additional rebate payments. In response to comments, a sentence has been added to also address overpayment situations, providing that manufacturers should communicate with states about how to apply the credit due to the manufacturer.
• The final Agreement retains the definitions of “depot price,” “single-award contract,” and “single-award contract price,” which the draft Agreement had proposed to delete. These terms are used in statutory and regulatory provisions regarding best price, but are defined only in the MDRA.

Several of the definitions and other provisions of the Agreement refer to Form CMS‑367c, which lists the data fields contained in the monthly and quarterly electronic reports to the Medicaid Drug Rebate Program and defines each field. The current Form
CMS-367c is appended to the final Agreement.

Last year, the First Circuit reversed the dismissal of a False Claim Act (FCA) case brought against DePuy Orthopaedics, Inc., holding that the district court had wrongly dismissed the relators’ complaint for failing to plead with particularity under Federal Rule of Civil Procedure 9(b) (see post here). In February, DePuy, now known as Medical Device Business Services, petitioned the Supreme Court for review, arguing there is a growing circuit split on appropriate pleading standards in FCA cases.

By way of background, relators—two physicians who are also serving as experts in an ongoing products liability suit against DePuy—alleged that DePuy sold orthopedic products (namely, the Pinnacle metal-on-metal hip implant) to the government and that these products were used in procedures reimbursed by the government. Because the implants allegedly contained manufacturing defects, relators claimed DePuy caused third parties to submit false claims to the government.  The complaint contained a weak example of one claim, and primarily relied on a statistical analysis of the sales and use of the device, along with the percentage of procedures typically covered by government programs, to contend that it was virtually certain that government programs reimbursed many of the procedures in which a defective device was used.

The government declined to intervene, and the district court dismissed the claims under Rule 9(b), in part, for lack of particularity.

The First Circuit disagreed. While noting the general rule that a relator must “allege the essential particulars of at least some actual false claims that were in fact submitted to the government for payment,” the court stated that there is an exception for allegations that a defendant “induced a third party to file false claims”:

We apply a “more flexible” standard in actions of the latter, indirect type: where the defendant allegedly “induced third parties to file false claims with the government . . . a relator could satisfy Rule 9(b) by providing ‘factual or statistical evidence to strengthen the inference of fraud beyond possibility’ without necessarily providing details as to each false claim.” Such evidence must pair the details of the scheme with “reliable indicia that lead to a strong inference that claims were actually submitted.”

Slip Op. at 21-22 (internal citations omitted).

Because relators had alleged facts showing that it was “statistically certain” that DePuy caused third parties to submit false claims to the government, the First Circuit held that relators had met Rule 9(b)’s specificity standard. The court also noted that it “need not and [did] not” decide whether the one pleaded example was necessary to satisfy Rule 9(b), id. at 27 n.8, leaving open the door that relators could build an FCA case without alleging any specific example of a manufacturer inducing third parties to submit false claims to the government.

On petition for writ of certiorari to the Supreme Court, DePuy raises the following question: “Whether a False Claims Act relator can satisfy Federal Rule of Civil Procedure 9(b)’s particularity requirement without alleging details about any specific false claims.”  Pet. at i.

DePuy argues that the First Circuit’s “more flexible” pleading standard for indirect submission of false claims is inconsistent with the standard used by the Second, Fourth, Sixth, Eighth, and Eleventh Circuits. The company claims that the decision is evidence of a wide circuit split that even the government, in other cases, has said should be addressed by the Supreme Court.

DePuy also contends that this loose standard is inconsistent with the “overarching purpose” behind Rule 9(b), which is to “ensure that a defendant possesses sufficient information to respond to an allegation of fraud.” Id. at 28 (quoting United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008)).  And the low standard negates Rule 9(b)’s “critical role in filtering out opportunistic actions” by relators who lack sufficient information. Id. at 27.

Relators filed a brief opposing DePuy’s petition, arguing that there is no circuit split, and that the federal courts should be allowed to apply a case-specific approach. Multiple organizations, including Pharmaceutical Research and Manufacturers Association of America, Advanced Medical Technology Association, and the Chamber of Commerce, have filed amicus briefs in support of DePuy.  The government has not filed a brief.  The Supreme Court is expected to make a decision on whether to grant the petition in the coming weeks.

On March 12, 2018, the USDA announced its decision to withdraw the Organic Livestock and Poultry Practices (OLPP) final rule that was published on January 19, 2017.

As previously discussed, the OLPP was essentially an animal welfare rule, establishing minimum indoor and outdoor space requirements for chickens based on the type of production and the stage of life, and adding new provisions for livestock handling and transport for slaughter. The OLPP would have increased federal regulation of livestock and poultry for certified organic producers and handlers.

However, because the final rule was published shortly before the inauguration of President Trump and had an effective date of March 20, 2017, it was subject to a regulatory freeze to allow review by the new administration. USDA delayed the effective date of the rule several times, and on December 18, 2017 (as previously reported), issued a proposal to withdraw the OLPP rule. In its withdrawal proposal, USDA announced that it had concluded that the OLPP rule exceeded the Agency’s statutory authority under the Organic Food Production Act (OFPA). Moreover, USDA determined that the resulting changes to the existing organic regulations could have a negative effect on voluntary participation in the National Organic Program, leading to increased costs for both producers and consumers.

In response to its proposal to withdraw the OLPP rule, USDA received approximately 72,000 comments. Apparently, 63,000 of the comments (more than 56,000 of which were form letters) opposed the proposed withdrawal.  Approximately fifty comments supported withdrawal.  (According to USDA, the remaining comments were not clearly for or against).

In the preamble to its final rule withdrawing the OLPP rule, USDA discusses the basis for its determination that the OFPA does not authorize those regulations, and responds to the comments by the opponents of withdrawal. USDA reasons that the OFPA authorizes the Agency to develop regulations to ensure that livestock and poultry are organically produced but the statutory language related to animal care is focused on avoiding or minimizing organic animals’ ingestion of non-organic substances.  The OFPA cannot reasonably be interpreted as giving USDA carte blanche to develop animal welfare standards.  USDA also notes that the OLPP rulemaking did not identify a failure of the organic market under the currently operative regulations, so as to justify additional regulation.  Finally, USDA’s corrected cost benefit analysis demonstrates that the cost of the OLPP rule outweighs potential benefits.  Under these circumstances USDA declines to regulate, even though the organic industry appears to support such regulation by (as suggested by the number of comments opposing withdrawal).  The withdrawal of the OLPP rule is effective May 13, 2018.

Not surprising, the Organic Trade Association (OTA) “blasted” USDA’s withdrawal of the OLPP. As we reported in our earlier posts, OTA sued USDA over the Agency’s repeated delays of the effective date of the OLPP final rule.  That action remains pending.  Earlier this month, USDA filed its reply in support of the motion to dismiss.  Now that the OLPP rule has been withdrawn, OTA can be expected to amend its complaint to challenge the withdrawal.  We will continue to monitor this case.

Whether or not the OLPP rule withdrawal survives legal challenge, a significant number of consumers and retain businesses remain focused on animal welfare standards within the organic industry. USDA’s withdrawal of the OLPP final rule does not prevent organic producers from providing their animals with outdoor access or voluntarily adopting all or some of the standards that were included in the OLPP final rule, nor does it prevent customers from demanding that producers comport with such standards.  The proliferation of private certification labels regarding animal welfare appears likely.

On March 16, 2018, the Centers for Medicare and Medicaid Services (CMS) finalized a new National Coverage Determination (NCD) for Next Generation Sequencing (NGS) tests.  The granting of the new NCD resulted from the FDA – CMS Parallel Review of Foundation Medicine, Inc.’s FoundationOne CDx™ (F1CDx™) – a NGS-based multi-drug companion diagnostic test that received FDA approval in November 2017.

The new NCD applies to NGS-based diagnostic tests for advanced cancers. These tests are now considered reasonable and necessary and covered nationally when:

1. Performed in a CLIA-certified laboratory;
2. Ordered by a treating physician;
3. The patient has:
   • either recurrent, relapsed, refractory, metastatic, or advanced stages III or IV cancer; and
   • either not been previously tested using the same NGS test for the same primary diagnosis of cancer or repeat testing using the same NGS test only when a new primary cancer diagnosis is made by the treating physician; and
   • decided to seek further cancer treatment (e.g., therapeutic chemotherapy).
4. The diagnostic laboratory test using NGS has:
   • FDA approval or clearance as a companion in vitro diagnostic; and
   • an FDA approved or cleared indication for use in that patient’s cancer; and
   • results provided to the treating physician for management of the patient using a report template to specify treatment options.

The new NCD allows for national coverage of the F1CDx™ test as well as any other NGS-based companion diagnostic tests for cancer that are approved by FDA. The NCD Decision Summary notes that there are currently four specific FDA-approved companion diagnostic tests using NGS (the F1CDx™, the FoundationFocus™ CDxBRCA, the Oncomine™ Dx Target Test, and the Praxis™ Extended RAS Panel).  The NCD allows for coverage of FDA approved or cleared NGS-based companion diagnostic tests for cancer that are performed at any CLIA-certified laboratory, including academic medical centers and community hospitals.  The new NCD does not provide coverage for cancer screening tests or for complementary diagnostic tests.  Similarly, it does not provide coverage for NGS-testing for non-cancer conditions.

The requirement that the diagnostic test has FDA approval or clearance essentially precludes automatic national coverage of laboratory developed tests (LDTs) that utilize NGS. CMS stated that coverage determinations for other diagnostic laboratory tests that utilized NGS for cancer will be left to the local Medicare Administrative Contractors (MACs).  MACs that choose to cover LDTs and other diagnostic laboratory tests that utilize NGS for cancer must follow the other three criteria for coverage (e.g., CLIA-certified laboratory, physician ordered test; patient criteria).

This coverage determination demonstrates a distinct preference by CMS for FDA approved or cleared tests. Even though some of the public comments provided examples of LDTs that are as sensitive and specific as FDA-approved tests, in finalizing the new NCD, CMS explained that “FDA approval or clearance demonstrates analytical and clinical validity[.]”  While FDA has not taken recent action to increase its regulation of LDTs, this NCD may be viewed as a small push for LDT developers to seek approval or clearance from FDA in order to receive Medicare coverage.

Back in 2015, FDA stated its intention of initiating a voluntary quality metrics reporting program (a cornerstone of FDA’s framework for building quality into drug products) and, in July of that year, announced the publication of a draft Quality Metrics Guidance. We blogged about the draft guidance at that time (see prior posting here).

Then in November of 2016, FDA announced the publication of a revised version of this draft Quality Metrics Guidance, indicating its intention of making it mandatory rather than voluntary for the pharmaceutical industry. This revised draft differed in many other respects from the original draft (for details on the modifications please see our blog posting on the revised draft guidance here). In addition, the Notice of Availability (NOA) for the revised draft guidance stated that: “After evaluating the results of the voluntary phase of the quality metrics program in 2018, FDA intends to initiate notice and comment rulemaking under existing statutory authority to develop a mandatory quality metrics program.”

At the time, we speculated that the agency may have changed course from guidance to rulemaking, in part, because of FDA’s waning confidence in its legal authority for this program since the publication of the initial draft. In addition, we mused about the likelihood that the November 2016 publication had been put in motion prior to the election earlier that month of a President who is decidedly against increasing the regulatory burden on industry writ large (admittedly, not a position at odds with this author’s).

We also stated that, by engaging in rulemaking, the agency is likely reducing the probability that the quality metrics reporting program will be dismantled by the courts; however, this formal elevation of the program through the rulemaking process also likely increases the probability that it will be placed on the chopping block by the Trump administration.

Since the publication of the revised draft guidance, several industry organizations have voiced significant opposition to the guidance. For example, PhARMA, AAM (formerly GPhA) and ISPE, among others, submitted joint comments to the FDA docket, stating, in part that: “We believe that the burden of FDA metrics collection far outweighs the benefits, at least as currently proposed. As we have continued to learn in depth about what it would take to operationalize a metrics program of the kind proposed by FDA, we have concluded that such a program would require substantial resources, present significant operational challenges and complexities, and draw resources and management attention away from other programs that drive continual quality improvement. In our organizations’ individual comments, you will find details of the potential legal and practical issues raised by the agency’s proposal, and detailed suggestions for improvements.” [Emphasis added]

And what has FDA’s response been in the 16 months since publication of the revised draft guidance (i.e., since the Presidential election), and since the submission of comments from stakeholders? It is perhaps best described as silence, or at the most, crickets chirping.

For instance, in the NOA from November 2016, FDA stated: “FDA expects to encourage reporting establishments to submit quality metrics data reports where the data is segmented on a quarterly basis throughout a single calendar year. At present, FDA intends to open the electronic portal in January 2018 to receive voluntary submissions of data. FDA expects to publish a Federal Register notice providing instructions on the submission of voluntary reports and specifying the dates that we intend to open the portal, published no fewer than 30 days before the portal is opened…” [Emphasis added]

However, the FDA website devoted to Quality Metrics now has an update banner that states: “the portal is not opening in January 2018 for widespread, voluntary reporting. Stay tuned for additional updates.”

One has to wonder whether the administration, or more precisely, Commissioner Gottlieb, has either decided to end this nascent program, or to make it less burdensome and more palatable to industry. Either way, we are confident that industry is waiting with bated breath, as whatever doesn’t get finalized in this administration is likely to be finalized in a more burdensome way in the next (Democratic) administration.

As one of her final acts before leaving DOJ, Associate Attorney General Rachel Brand announced that DOJ would no longer permit its lawyers to use guidance documents issued by its “client” agencies as a basis for civil enforcement. The “Brand Memo” provides guidance about DOJ’s use of guidance, as we described here.

In a couple of coordinated speeches, DOJ officials reiterated and clarified this position. Deputy Associate Attorney General Stephen Cox, who worked closely with Rachel Brand, spoke at the Federal Bar Association Qui Tam Conference on February 28, 2018. Cox described federal agencies’ use of guidance in lieu of formal regulatory rulemaking required under the Administrative Procedure Act: “Rulemaking can be cumbersome and slow, of course, and sometimes agencies have used guidance as a short-cut to effectively make new rules when they should have undertaken notice-and-comment rulemaking instead.” He referenced a recommendation from the Administrative Conference of the United States (ACUS) to make clear that “the public may take a lawful approach different from the one set forth in” a guidance document. Per Cox, the Brand memo implements the ACUS recommendation: “The Brand Memo makes clear that we won’t be using noncompliance with a guidance document to prove a violation of the applicable statute or regulation. In other words, we won’t use our affirmative civil enforcement authority to effectively convert a nonbinding guidance document into a requirement that has the force or effect of law.”

There are many potential applications of the Brand Memo in the FDA context, given FDA’s prolific guidance document library. As an illustration, FDA regulation requires the submission of a new 510(k) under certain circumstances, and FDA guidance walks through the analysis FDA recommends to determine whether a new 510(k) is required. Many companies prepare a Letter to File to evidence its decision not to file a new 510(k), but this is not a requirement by statute or regulation. Per DOJ policy, “if there’s a guidance document that expands upon that regulatory requirement – by suggesting that there are additional requirements or prohibitions that go beyond what the regulation actually says – then we’re not going to use noncompliance with those supposed ‘requirements’ to show that a party violated the regulation.” Thus, a company’s failure to document its decisionmaking cannot be used to solely support a civil enforcement action against a company for failing to submit a new 510(k).

These thoughts were reinforced by Ethan Davis, the soon-to-be former Deputy Assistant Attorney General for the Consumer Protection Branch (CPB), who is leaving DOJ to clerk for Supreme Court Justice Neil Gorsuch. Because CPB specifically counts FDA as its client, Davis’ remarks in his speech are specifically relevant to FDA Law Blog readers. He described the basic tenet that “[i] n our system, law is made by statute, and regulations are made by notice and comment rulemaking. Neither should be made by guidance documents.” And Davis renewed the commitment by DOJ CPB to “create an enforcement environment premised on the rule of law, so that you as regulated entities do not feel subjected to arbitrary and unpredictable enforcement actions.”

Only time will tell whether these DOJ principles are followed in future enforcement actions, but it behooves companies to remind DOJ of these stated principles if prosecution appears not grounded in law and only in guidance.

On March 13, 2018, Oregon became the latest state to enact a law focused on transparency in drug pricing (see our roundup of other recent state laws). The Prescription Drug Price Transparency Act, H.B. 4005, places new reporting requirements on drug manufacturers related to price increases and patient assistance programs. Insurers are also required to report certain information about prescription drugs use and costs to the Department of Consumer and Business Services.

Manufacturer Reports

Under Oregon’s new law, manufacturers must report certain information for each prescription drug that has a price of $100 or more for a one-month supply or for a course of treatment lasting less than one month, and that had a net increase of 10% or more in the price over the course of the previous calendar year. Price is defined as the wholesale acquisition cost. By July 1, 2019, and by March 15 of every year thereafter, manufacturers must report extensive pricing and cost information for each such drug, including:

• Net increase, expressed as a percentage, in the price of the drug over the course of the previous calendar year;
• Factors that contributed to the price increase;
• Research and development costs associated with the prescription drug that were paid using public funds;
• Direct costs incurred by the manufacturer to (1) manufacture the prescription drug, (2) market the prescription drug, (3) distribute the prescription drug, and (4) for ongoing safety and effectiveness research associated with the prescription drug;
• Total sales revenue for the prescription drug during the previous calendar year;
• Manufacturer’s profit attributable to the prescription drug during the previous calendar year;
• The introductory price of the prescription drug when it was approved for marketing by FDA and the net yearly increase, by calendar year, in the price of the prescription drug during the previous five years.

The manufacturer must also provide the following information about each patient assistance program (including coupons and other copay assistance) offered by the manufacturer to consumers in Oregon for each prescription drug:

• Number of consumers who participated in the program;
• Total value of the coupons, discounts, copayment assistance or other reduction in costs provided to Oregon consumers who participated in the program;
• For each drug, the number of refills that qualify for the program;
• The period of time that the program is available to each customer.

Oregon’s new law also includes price transparency reporting requirements for new prescription drugs. Beginning on March 15, 2019, if a manufacturer introduces a new drug for sale in the U.S. at a price that exceeds the threshold for specialty drugs set in the Medicare Part D program ($670 in 2018), within 30 days of introducing the new drug for sale, the manufacturer must report:

• A description of the marketing used in the introduction of the new prescription drug;
• The methodology used to establish the price of the new prescription drug;
• Whether the FDA granted the new prescription drug a breakthrough therapy designation or a priority review;
• The date and price of acquisition if the new prescription drug was not developed by the manufacturer;
• The manufacturer’s estimate of the average number of patients who will be prescribed the new prescription drug each month; and
• The research and development costs associated with the new prescription drug that were paid using public funds.

Manufacturers who do not comply with the new law may be subject to civil penalties of up to $10,000 per day of violation. The Department of Consumer and Business Services may establish fees to be paid by manufacturers to cover the costs of this law.

The new law includes an element of public shaming. The Oregon Department of Consumer and Business Services will post a list of the prescription drugs that have net increases of more than 10% on its website. In addition, the information provided by the manufacturers will be posted on the same website. Trade secrets protected under Oregon’s public records law may not be posted on the website, if “the public interest does not require disclosure of the information.” There is no further elaboration concerning circumstances in which the public interest may justify posting of trade secret information. The Department is also going to develop a process for consumers to notify the state about an increase in the price of a prescription drug.

Insurer Reports

Oregon is not only seeking pricing information from manufacturers. Under the new law, insurers must report:

• The 25 most frequently prescribed drugs;
• The 25 most costly drugs as a portion of total annual spending;
• The 25 drugs that have caused the greatest increase in total plan spending from one year to the next; and
• The impact of the costs of prescription drugs on premium rates.

Conclusion

As we have previously reported, in the absence of federal action, a growing number of states are seeking to limit drug costs through legislation. Some states have focused on marketing prohibitions and/or limitations on payments to practitioners (for example, see our post on New Jersey’s new limits). Other states, like Oregon, have focused on drug prices, with some states enacting requirements for reporting or outright restrictions on price increases on certain drugs (for example, Maryland and Vermont).

Many of the new state drug price reporting laws are facing legal challenges that argue these laws are unconstitutional (see our coverage of the challenges to laws in Maryland, Nevada, and California). Due to the amount of information that manufacturers are required to report under the new Oregon law, and the fact that this information will be made available to the public, we anticipate that similar legal challenges may be raised before the new Oregon law goes into effect. We will continue to monitor this law and similar developments in other states.

The saga continues in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017), a False Claims Act case alleging that Gilead concealed information from FDA regarding the contamination of certain drugs, leading to false claims being paid by the government. We have been closely following this case because of the implications it could have on the materiality analysis applied in FCA cases post-Escobar. (See prior posts here and here.)

Although the Campie’s case was twice dismissed by the district court, the Ninth Circuit Court of Appeals overturned the dismissal, concluding that whether allegations are material for purposes of an FCA claim raised matters of proof that could not be resolved prior to discovery. Late last year, Gilead filed a petition for a writ of certiorari requesting the U.S. Supreme Court rule on the following question: Whether an FCA allegation fails when the Government continued to approve and pay for products after learning of alleged regulatory infractions and the pleadings offer no basis for overcoming the strong inference of immateriality that arises from the Government’s response. For a discussion of this Writ, see our prior post here.

On March 5, 2018, Respondents filed a response outlining three primary arguments against granting certiorari in this case. First, Respondents argue that Gilead misrepresents the holding of the Ninth Circuit as overly restrictive. Contrary to Petitioner’s characterization, Respondent’s assert that the holding “properly followed Escobar’s holistic approach to materiality.” Respondents rely on the Ninth Circuit’s conclusion that the contested issues, including materiality, “are matters of proof, not legal grounds to dismiss relators’ complaint,” and claim the complaint satisfies the pleading requirements of Rule 12(b)(6). Note, however, that the Ninth Circuit specifically reserved a ruling on whether the relators’ complaint would satisfy the heightened pleading standards under Rule 9(b), a basis that other courts have used to dismiss FCA cases.

It also is significant that Respondents make affirmative use of DOJ’s recently issued Granston memo, discussed here, to support its position that this case does not undermine FDA’s regulatory authority. Respondents suggest that the government’s ability to dismiss FCA cases, and its failure to do so here, means that its suit advances the government’s interest. As Granston noted, however, “a decision not to intervene in a particular case may be based on factors other than merit, particularly in light of the government’s limited resources.”

Respondents also argue that there is no circuit split, and that even if there was, this case is a “poor vehicle” to clarify the materiality standard because it is not clear that the government actually had knowledge of the fraudulent conduct at the time it made the payments. Respondents contend that dismissing the case at this juncture is premature given that Gilead will have another chance to contest materiality at the summary judgment stage.

Per the Rules of the Supreme Court, Gilead can file a reply within 14 days of the Brief in Opposition, which would be no later than March 19, 2018.

On March 5, 2018, GAO released to the public a report titled “Food Safety and Nutrition: FDA Can Build on Existing Efforts to Measure Progress and Implement Key Activities.” The report confirms that FDA’s Food and Veterinary Medicine (FVM) Program has been primarily preoccupied with implementation of the Food Safety Modernization Act (FSMA) and other food safety activities. In the period between January 2011 (when FSMA was enacted) and September 2017, FDA published “33 key proposed or final regulations” – 21 of which related only to food safety – and “111 key draft or final guidance documents” – 82 of which related only to food safety. (A list of the regulations and guidance documents is included in Appendix I). The numbers for staffing and expenditures are considerably more lopsided, with approximately 98% of FTEs and expenditures dedicated to food safety-related activities.

The GAO report gives FDA credit for setting goals for food safety and nutrition related activities via the FVM Program Strategic Plan, but notes that the Agency “cannot fully assess progress” because performance measures have not been developed for all of the FVM Program’s strategic objectives. In addition, GAO notes that the Strategic Plan as yet lacks an implementation plan that would lay out “specific actions, priorities, and milestones” to execute the identified strategies. GAO also notes that it is not clear and FDA does not document how the Agency determines whether it will issue a regulation or guidance. Consequently, FDA cannot ensure consistency and transparency in this determination.

Based on its findings, GAO recommends that FDA: (1) “develop performance measures with associated targets and time frames for all eight of its food safety- and nutrition-related objectives”; (2) “complete a plan that includes specific actions, priorities, and milestones for implementing the FVM Program’s strategic plan”; and (3) “uniformly document the bases for their decisions for issuing either regulations or guidance related to food safety and nutrition.”

In its comments on the report, FDA concurred with GAO’s recommendations. On the day the report was issued, Commissioner Gottlieb issued a statement announcing FDA’s commitment to modernize and streamline its food and nutrition programs, and summarizing some of the Agency’s recent safety and nutrition related activities. Dr. Gottlieb also stated that he will soon “provide more details on a nutrition strategy to reduce preventable death and disease through better nutrition.” It remains to be seen what form that strategy will take, and whether the Agency will shift more of its resources toward nutrition-related activities, given the work that remains to be done on FSMA implementation.

As stated in our post last week, on February 28, 2018, Commissioner Gottlieb announced FDA’s release of a draft guidance document addressing certain requirements under the 2013 Drug Supply Chain Security Act (DSCSA) concerning standardization of data and documentation practices for product tracing. The purpose of the draft is to help trading partners “understand” data elements that they should include as part of product tracing information, and details when partners are permitted to omit certain data that otherwise would be required. The draft guidance also recommends documentation practices that trading partners can use to satisfy product tracing requirements set forth in the DSCSA, FDCA Section 582. FDA notes that “product tracing requirements” mean the exchange of product tracing information between trading partners, including transaction information, transaction history and the transaction statement (TH/TI/TS). The guidance also intends to help trading partners in “standardizing” the information captured, maintained and provided to subsequent purchasers or those that request it.  What is a tad interesting about the draft guidance is its timing: Trading partners have been providing TH/TI/TS pursuant to the DSCSA for quite a while now, as required by the statute. The draft guidance helpfully walks through elements of TH/TI/TS for those entities that are required to provide such information under FDCA Section 582 (i.e., manufacturers, wholesaler distributors, repackagers, and dispensers). Each is addressed below:

Manufacturers: To the extent that there are business relationships that involve multiple manufacturers (application holder, co-licensed partner, affiliates) those entities should document by written agreement which of those entities will be carrying out the activities required by manufacturers under Section 582(b) (manufacturer requirements).

Dispensers: The draft describes various recommendations for dispensers including when there are “dispenser to dispenser sales to meet a specific need.” In that case, dispensers are not required to provide tracing information if the product is sold from one dispenser to another dispenser to “fulfil a specific patient need” (i.e., a sale from one pharmacy to another for dispensing to an individually identified patient). Such sales do need to be appropriately documented in the event there is an investigation concerning a recall, or notification of a suspect or illegitimate product. Licensed health care practitioners that may prescribe or administer medications under state law, or those under their supervision, are exempted from product tracing requirements, as described in the guidance. (Draft Guidance at 5). FDA also provides that dispensers may enter into third party agreements so that tracing information may be maintained by that third party. Notwithstanding use of third party agreements for the maintenance of product tracing information, such agreements do not relieve dispensers from their statutory obligations under 582 (i.e., among others, notification and reporting requirements).

The rest of the Draft Guidance addresses the Agency’s thoughts on standardization of product tracing data. Although the elements of what should be included are generally set forth in the DSCSA (and are being exchanged between trading partners), the Draft Guidance walks through in more detail (than FDA’s initial guidance issued in November 2014 [here]) what information should be included in TI/TH/TS.

Standardizing the Transaction Information (TI)

The DSCSA sets forth ten elements that should be included in TI. The Draft Guidance provides detail on these elements, and describes when certain detail may be omitted. Some but not all additional details on data elements include:

• Proprietary or established name of the product. The name should not be truncated, unless space limitations make it necessary to do so. FDA also provides instructions on products with multiple APIs, and names or abbreviations that the Institute for Safe Medications Practices (ISMP) has identified as being misinterpreted on prone to medication errors.
• Strength and dosage form. This information should remain consistent from one trading partner to the next in each transaction involving the product. FDA details the unit of measure, symbols and abbreviations that should be used.
• National drug code.  FDA advises that manufactures and repackagers that are creating the first TI for the product that they are introducing into commerce should use their respective NDC number. Subsequent partners should use the same NDC and the same configuration that is on the TI received from the product’s previous owner. Repackagers “should provide the NDC number that they have assigned to the repackaged product.”
• Container size. This should reflect the configuration of the “individual saleable unit, and not a larger shipping size of a “box, case, or tote.”
• Number of containers. FDA says that this should be the quantity of individual saleable units of a product of the same lot number that is included in a transaction.
• Lot number. The manufacturer should use the lot number it assigns to identify a batch or portion thereof that has “uniform character and quality within specified limits.”   If a repackager assigns a new lot number, it should use that number in the TI it provides to subsequent trading partners. If more than one lot number is used, then each should be reflected in the TI provided to the subsequent purchaser.
• Date of transaction. FDA considers this to be the date on which ownership of the product involved in the transaction transferred between trading partners. It may be a contract date or a shipment date, depending on the transaction.
• Date of shipment if more than 24 hours after date of transaction. The date should reflect the date shipped.
• Business name and address of the person from whom ownership is being transferred. FDA “recommends using the address of the facility from which the product is being shipped as the business address of the trading partner that is transferring ownership of the product,” although it states that this is a business decision between partners. If product is shipped from a third party logistics provider facility, the partner should still use the address of the entity from which ownership is being transferred.
• Business name and address of the person to whom ownership is being transferred. FDA’s recommendation concerning use of the appropriate business name and address is the same for the receiver of the product as it is for the sender (above). Use the address of the facility to whom the product is being shipped.

Standardizing the Transaction History (TH)

FDA’s guidance document also sets forth the Agency’s recommendations for standardization of the product’s transaction history as it passes between trading partners. The transaction history should be a compilation “of the transaction information for each prior transaction involving that product.” FDA outlines the two ways in which trading partners may provide TH, how it should be organized, and what does and does not need to be included in that TH. (Draft Guidance at 11).

Standardizing the Transaction Statement (TS)  

FDA’s Draft Guidance sets forth the statutory definition of “transaction statement” and all of its requisite elements indicating compliance with the DSCSA. In addition, the Draft Guidance discusses the “direct purchase statement” that may be included with certain products. If a distributor purchases a product directly from the manufacturer, exclusive distributor of the manufacturer, or a repackager that purchased directly from the manufacturer, then the direct purchase statement must be included. The Draft Guidance sets forth at page 13 the statement that FDA recommends that such partners use.   FDA notes that this will help partners understand why TH may not include certain transaction information back to the manufacturer.  FDA is also recommending the passing of such statements when a wholesaler purchases the product from another wholesaler that directly purchased the product from a manufacturer or repackager. (Draft Guidance at 13).

Documentation Practices

Finally, the Draft discusses various documentation practices for subsequent transactions where the statute permits certain transactions to omit certain elements of TH/TI/TS. These transactions include direct purchases by a wholesaler, drop shipments to a dispenser, and transactions involving grandfathered products. Those entities that participate in such transactions should focus on FDA’s draft detailed recommendations for documentation involving such transactions at pages 14-18 of the Draft Guidance.

Got questions or comments? Please submit them to Docket No. FDA-2018-D-0688, by May 1, 2018.