On April 3, 2018, FDA announced that it had issued a mandatory recall order for all food products containing powdered kratom manufactured, processed, packed, or held by Triangle Pharmanaturals LLC (Triangle). FDA issued this order based on its finding that several Triangle products contained kratom that tested positive for salmonella.   FDA issued the order after the company failed to respond to FDA’s request that it conduct a voluntary recall.  This is the first time FDA has issued a mandatory recall order for food products.

In 2011, section 206(a) of the Food Safety Modernization Act (FSMA) amended the Federal Food, Drug, and Cosmetic Act (FDCA) to add section 423, granting FDA the authority to order the recall of food products (other than infant formula) when it determines that there is a reasonable probability that the food product is adulterated under section 402 or misbranded under section 403(w) and that the use of or exposure to such article will cause serious adverse health consequences or death to humans or animals.  Once FDA makes this determination, the Agency must give the responsible party the opportunity to voluntarily recall the food product at issue (discussed previously here and here). If the responsible party refuses to or does not voluntarily recall, FDA has the authority to initiate a mandatory recall by issuing a mandatory recall order.

In this instance, according to the Agency’s press release, FDA found that two samples of kratom products manufactured by Triangle and collected by the Oregon Public Health Division as well as four samples of various types of kratom product associated with Triangle and collected by FDA tested positive for salmonella.  Additionally, Triangle denied FDA investigators access to records relating to potentially contaminated products, and company employees refused attempts to discuss FDA’s findings.

On March 30, 2018, FDA issued a Notification of Opportunity to Initiate a Voluntary Recall to Triangle, formally requesting that the company cease distribution and notify applicable parties within 24 hours if it did not conduct a voluntary recall. Triangle did not comply with FDA’s request.  As a result, on March 31, 2018, FDA ordered the company to cease distribution and offered an opportunity to request an informal hearing.  According to FDA, Triangle did not respond to FDA’s request within the required timeframe and thus waived its opportunity for the informal hearing.  Ultimately, FDA issued the mandatory recall order.

Although this is the third time FDA has started the process of exercising its mandatory recall authority by issuing a Notification of Opportunity to Initiate a Voluntary Recall, it is the first time the Agency has actually ordered a mandatory recall due to a company’s refusal to voluntarily recall after receiving such a notification. The first time FDA issued a Notification of Opportunity to Initiate a Voluntary Recall was on February 13, 2013 to Kasel Associates Industries, Inc., regarding pet treat products found contaminated with salmonella. The second time FDA issued a Notification of Opportunity to Initiate a Voluntary Recall was on November 6, 2013 to USPlabs LLC, regarding its OxyElite Pro-branded products found linked to liver illnesses.  After FDA started the process of exercising its mandatory recall authority, both companies voluntarily recalled their products according to FDA’s request.  Triangle, however, failed to comply with FDA’s request to initiate a voluntary recall.

Noncompliance with a mandatory recall order can trigger the following provisions of the FDCA:

• Section 743(a)(1)(B), which authorizes FDA to collect fees from a responsible party for a domestic facility as defined under 415(b) and an importer who does not comply with a food recall order under section 423.

• Section 301(xx), which prohibits the refusal or failure to follow an order under section 423.

• Section 303(f)(2)(A), as amended by FSMA, which permits FDA to assess civil money penalties to any person who does not comply with a recall order under section 423.

We’ll be following this matter to see how this first exercise of FDA’s mandatory recall authority unfolds.

For anyone not familiar with the legal framework governing “organic” claims, first a brief summary. The Organic Food Production Act of 1990 (OFPA) established a process for organic certification by the United States Department of Agriculture Agricultural Marketing Service, National Organic Program (NOP). Under the OFPA and NOP’s implementing regulations, a food manufacturer that wants to use an organic claim for a food product must first design an organic system plan (OSP). The manufacturer’s OSP plan details what ingredients and what manufacturing processes will be used. An accredited certifying agent then reviews the OSP, performs an on-site inspection, and determines whether both the facility and the food products comply with the organic standards and may carry an organic claim. The certifying agent is not employed by the federal government. However, NOP accredits the certifying agents, and also may suspend certifying agents. In addition, NOP may impose penalties on fraudulent or non-compliant producers.

Pursuant to this framework, a food product may carry an “organic” claim provided that the food contains no more than 5% non-organic ingredients that are included in the National List of Allowed and Prohibited Substances (National List).

In recent years, on several occasions, consumers have brought actions against companies for marketing organic foods, notably infant formula, alleging that these products were falsely labeled organic. Specifically, plaintiff consumers claimed that the products were not organic because some of the ingredients, primarily nutrients, were not listed as “allowed” on the National List. Not surprisingly, defendants filed motions to dismiss arguing preemption in these cases. They argued that the products had been certified organic by an accredited certifying agent.

In the first case of this kind, Segedie v. Hain Celestial Grp., Inc., the District Court of the Southern District of New York concluded that state-law enforcement actions would enhance instead of obstruct the purposes of the OFPA, and rejected the preemption argument. The Court in Hain Celestial acknowledged the goals of federal regulations, i.e., “(1) to establish national standards governing the marketing of certain agricultural products as organically produced products; (2) to assure consumers that organically produced products meet a consistent standard; and (3) to facilitate interstate commerce in fresh and processed food that is organically produced.” It also recognized that the Eighth Circuit had concluded, in In re Aurora Dairy Corp. & Organic Milk Mktg. & Sales Practices Litig., 621 F.3d 781 (8th Cir. 2010), that conflict preemption applied and precluded similar claims. However, the District Court distinguished Aurora Dairy and concluded that even though the products at issue in Hain Celestial were certified organic by an accredited certifying agent, they did not comply with the standard of the OFPA. Although NOP had determined that for the time being the nutrients at issue could be included in organic foods, the Court found that NOP was wrong and allowed the action to proceed.

In subsequent cases, district courts have appeared to follow Aurora Dairy, and have recognized that allowing state law actions against foods that were organic certified in accordance with NOP standards would result in inconsistency across the country and undermine interstate commerce. See Marentette Labs v. Abbott, 201 F. Supp. 3d 374, 376 (E.D.N.Y. 2016); and Organic Consumers Ass’n v. Hain Celestial Grp., Inc., Case No. 1:16-cv-00925, 2018 U.S. Dist. LEXIS 1053 (D.D.C. Jan. 3, 2018). According to the judges in these cases, allowing this type of case to proceed would defeat at least one of the goals of the OFPA –to have a national standard for organic claims. If plaintiffs were to prevail, “a savvy consumer would know that the [products] are not considered ‘organic’ in [one place], but would wonder why they were labeled as ‘organic’ elsewhere.” Organic Consumers Ass’n at 15. Also, a success for plaintiffs would undermine interstate commerce.

The case for preemption was further strengthened in March 2018, when the Court of Appeals of the Second Circuit affirmed the lower court’s ruling in Marentette. Marentette v. Abbott Laboratories, No. 17-62-cv, (2d Cir. 2018). The Court of Appeals concluded that “There is simply no way to rule in [the plaintiffs’] favor without contradicting the certification decision, and, through it, the certification scheme that Congress enacted in the OFPA.” The goal of the OFPA is a single, national organic-certification standard to facilitate interstate commerce. The Court had no doubt that state-law claims that force the courts to “look behind” USDA’s certification of a product “are an obstacle to the federal scheme.”

Hopefully, Marentette, together with the Eighth Circuit decision, In re Aurora Dairy Corp. & Organic Milk Mktg. & Sales Practices Litig., and the trial court rulings mentioned above will be sufficient to have consumer-class-action lawyers think more than twice before filing a lawsuit claiming improper organic certification.

On January 30, 2018, FDA issued revised guidance documents: Refuse to Accept Policy for 510(k)s and PMAs (here and here). These revised guidances may have gone unnoticed by many as there was no federal register notice announcing or discussing the revisions from the policy in place since 2015.  However, last week, FDA held a webinar discussing the updated Refuse to Accept (RTA) checklist.

FDA’s Refuse to Accept policy describes the preliminary requirements that a 510(k) or PMA submission must include to be accepted for review by the Division. These requirements are meant to improve the efficiency of a review by reducing the instances where reviewers must request additional information or clarification from the applicant.

The updated checklist now requires 510(k)s and PMAs to specifically identify whether or not it is a combination product. During the webinar last week, FDA indicated that it will assess whether an applicant has “correctly” identified the subject product as a combination product.  This question seems fraught with potential complications.

There is often a debate as to whether some products are combination products or devices—for example, devices incorporating an antimicrobial where the antimicrobial acts solely as a preservative for the device. FDA’s 510(k) database often identifies these devices as combination products, but there is a legal and regulatory argument that these products are solely devices.  Currently, if CDRH believes there is a jurisdictional question related to a product under review, shortly after acceptance of a submission, the Agency will direct the applicant to obtain a determination from the Office of Combination Products (OCP).  This typically occurs when there is a question as to whether the 510(k) pathway is appropriate.

Under the revised RTA, if there is a debate as to whether a product is a combination product or strictly a device and a sponsor answers “incorrectly,” from FDA’s perspective, it is possible that the Agency could RTA the submission. Unlike our experience with the prior RTA checklist, the new question could prevent the submission from being filed, even if the response does not affect whether or not the product would proceed through the 510(k) pathway.  During the webinar, FDA did not specifically mention the need for increased interaction with OCP prior to filing of 510(k)s or PMAs.  This new question, however, certainly opens the door for CDRH to force more applicants to seek a definitive determination as to a product’s status from OCP prior to accepting a submission for review.

In addition, in December 2016, the 21st Century Cures Act (the Cures Act) amended the Federal Food, Drug, and Cosmetic Act provisions related to combination products.  Among other revisions, the Cures Act required that sponsors of combination products incorporating an approved drug constituent part submit a certification with respect to any patent information identified in the Orange Book for the listed drug identified, and, in the case of a Paragraph IV certification, provide notice that the challenged patent(s) is invalid, unenforceable, or not infringed.  If the NDA holder or patent owner timely brings suit, then clearance of the 510(k) or approval of the PMA for the proposed combination product can be delayed up to 30 months while patent infringement is litigated.  After that, clearance or approval could be granted, but if patent infringement litigation is not finally resolved, then a combination product sponsor will need to decide whether or not to market its product “at risk.”

The changes to the 510(k) and PMA RTA checklists also implement this statutory change, and include a new section for combination products. The earlier iterations of the RTAs included a preliminary question regarding whether the product was a device or included a device constituent subject to clearance or approval.  This was the extent of the combination product assessment.  All applicants, of course, answered this question “yes” (otherwise they would not have been submitting an application for the product).

The revised RTA adds a new preliminary question asking whether a combination product contains as a constituent part an approved drug as defined in 21 U.S.C. § 503(g)(5)(B). Such combination products are those covered by the new provision in the Cures Act.  A Sponsor would know if its combination product is of this type by searching for the drug constituent part in the Orange Book (available here). If the drug constituent part is listed in the Orange Book, an appropriate patent statement or certification and a statement that the applicant will give notice as applicable are required.

This new policy is worth noting and taking into consideration when preparing new 510(k) and PMA submissions. FDA highlighted during its webinar that the patent certification provisions relate not only to 510(k)s and PMAs, but to all other submission types even if they do not have an RTA.  Therefore, sponsors will need to keep this provision in mind with other submission types as well, including for example de novos.  Indeed, it likely adds an additional step for combination products that, if ignored, could result in getting an RTA.

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.