Attorney East Hampton

The RAPS Wisconsin Chapter is hosting a webcast on Wednesday, June 23, 2021, discussing device requirements for drug-led combination products.  Hyman, Phelps & McNamara, P.C.’s Adrienne Lenz will be the speaker.  This webcast will cover U.S. FDA requirements applicable to sponsors of drug-led drug/device combination products, including device requirements for the quality management system and good manufacturing practices (GMPs), device content to include in a new drug application (NDA), registration and listing, and post market reporting.  Attendees will gain a broad understanding of integrating device requirements into plans for development, NDA submission, and post market compliance.  A live Q&A portion with the speaker will follow the presentation.

FDA Law Blog readers are offered a discount of $5 off the RAPS member and nonmember prices.  ($5 for RAPS members and $20 for nonmembers).  The discount code is:  CHAPSPK5315DF.  You can access the webcast information and sign up for the event on the RAPS website.

Every year, the Food and Drug Law Institute (FDLI) publishes a compendium of the Top Food and Drug Cases from the previous year, as well as Cases to Watch, in conjunction with its popular Annual Conference.  This year was no different.  Recently, FDLI published on its website  its Top Food and Drug Cases 2020, and Cases to Watch 2021.  Hyman, Phelps & McNamara, P.C. attorneys Sara Koblitz and Anne Walsh contributed to this year’s installment.  We invite you to read Sara Koblitz’s chapter on the GSK v. Teva skinny-label carve-out case (see our previous coverage here and here), and Sara Koblitz’s and Anne Walsh’s contributions to Cases to Watch 2021.

By Serra J. Schlanger —

While federal efforts to address prescription drug prices are debated, states have continued to pursue their own measures that require drug manufacturers and other entities in the drug supply chain to disclose information about pricing. (See our previous coverage of such state laws here, here and here.) In passing HB 1032, North Dakota became the most recent state to enact a prescription drug price transparency law. In addition, Texas recently passed HB 1033 to update its prescription drug price disclosure law that took effect in 2019. A summary of these new state law developments is included below.

Texas

As we initially reported here, Texas enacted a law in June 2019 requiring manufacturers to submit two types of reports beginning in January 2020. First, manufacturers must submit an annual report by January 15 stating the wholesale acquisition cost (WAC) of every approved drug sold in Texas. Second, manufacturers are required to submit a price increase report for a drug within 30 days after a WAC increase of 40% or more over the preceding three calendar years or 15% or more in the preceding calendar year. This report is due only for a drug with a WAC of at least $100 for a 30-day supply before the increase. Under the 2019 law, the price increase report had to contain, among other things, aggregate research and development costs, factors that led to the WAC increase, and the role of each factor’s impact on the cost. The 2019 law did not include any penalties for noncompliance with these reporting requirements.

Texas has now updated its price disclosure law to require that the manufacturer’s annual WAC report include additional information for any drugs that had a reportable price increase during the year. The additional information includes the aggregate, company-level research and development costs, the name of each of the manufacturer’s drugs approved by the FDA in the previous three calendar years, and the name of each drug that lost patent exclusivity in the previous three calendar years. Manufacturers will also now be required to submit a fee not to exceed $400 with their annual report. Manufacturers must still submit a WAC increase report within 30-days of an increase, and must still describe the factors that led to the price increase, but the disclosure of aggregate research and development costs has been removed from the price increase report and added instead to the annual report.

Texas has also added new provisions regarding enforcement of the reporting requirements. If a manufacturer fails to submit a report or fee, or fails to timely submit a report or fee, the manufacturer may be subject to administrative penalties of up to $1,000 per day. The state is supposed to provide manufacturers with written notice of noncompliance and administrative penalties may not be assessed if the manufacturer submits the required report or fee within 45 days after receiving the notice of noncompliance.

These changes take effect on September 1, 2021 and will therefore be applicable to the annual reports due by January 15, 2022.

North Dakota

North Dakota’s new law, HB 1032, sets forth reporting requirements applicable to drug manufacturers, pharmacy benefit managers (PBMs), and health insurers. Under the new law, PBMs are required to submit an annual report with information about aggregated rebates, fees, payments and financial incentives received by the PBM, distributed to health insurers, collected from pharmacies and passed to enrollees at the point of sale, retained as revenue by the PBM, and passed on to employers. Health insurers are required to submit annual reports with information related to the 25 most frequently prescribed drugs; the 25 prescription drugs dispensed with the highest dollar spend; annual net spending for prescription drugs; increases in premiums attributable to prescription drugs; and specialty drugs with utilization management requirements.

The North Dakota law includes three reporting requirements for drug manufacturers. First, manufacturers are required to submit quarterly reports (due no later than the 15th day of January, April, July and October) with the current WAC information for drugs sold in or into the state. Second, manufacturers are required to submit a report no more than 30 days after a WAC increase of 40% or greater over the preceding five calendar years or 10% or greater in the preceding twelve months for a manufacturer-packaged drug. Each WAC increase report must include:

• The name of the drug;
• Whether the drug is a brand name or generic;
• Effective date of the change in WAC;
• Aggregate, company-level research and development costs for the previous calendar year;
• Aggregate rebate amounts paid to each PBM for the previous calendar year;
• Name of each of the manufacturer’s new drugs approved by the FDA in the previous five calendar years;
• Name of each drug that lost patent exclusivity in the United States in the previous five calendar years; and
• A concise statement regarding the factor(s) that caused the WAC increase.

Third, manufacturers are required to provide notice in writing if the manufacturer is introducing a new prescription drug at a WAC that exceeds the threshold set for a specialty drug under the Medicare Part D program (currently $670 for a 30-day supply). The new drug notice must include a concise statement regarding the factor(s) that caused the new drug price to exceed the Medicare Part D program price and must be submitted within three calendar days following the release of the drug in the commercial market.

Information submitted in response to the new law will be published on a public website that is to be developed by the North Dakota insurance commissioner. The law provides that the quality and type of information submitted by manufacturers must be the same as that included in other public disclosures (for example, filings with the Securities and Exchange Commission).

North Dakota plans to pay for the administrative work related to these new requirements by increasing the license fees for jobbers, brokers, manufacturers, own label and private label distributors, repackagers, third party logistic providers, and wholesalers or distributors, including virtual wholesalers and distributors. Entities that do not comply with the new reporting requirements may be subject to a civil penalty of up to $10,000 per violation.

The North Dakota prescription drug price transparency law will become effective on August 1, 2021, so the first quarterly reports should be due by October 15, 2021. However, in our experience, states have historically struggled to set up the websites and infrastructure necessary for this kind of reporting in short timeframes. We will watch to see if North Dakota delays enforcement of this new reporting requirement.

By Deborah L. Livornese & Josephine M. Torrente —

This sentiment is being exchanged by many with family, friends and colleagues looking forward to what we all hope is a near future in which we meet in person for work, play and everything else life has to offer.  We at Hyman, Phelps & McNamara, P.C. include FDA among those we are eager to see in person again soon.  Due to the COVID pandemic, during the past 14+ months our interactions with the Center for Drug Evaluation and Research (CDER) at all levels on behalf of our clients have been limited to telephone conferences which have by necessity taken the place of in-person meetings at FDA’s offices.  As pointed out by Dr. Patrizia Cavazzoni, Director of CDER, in her remarks at FDLI’s recent annual conference, FDA is to be commended not only for rising to the direct challenges posed by the COVID crisis, but also for adroitly pivoting to conducting the agency’s normal business without the opportunity to meet in-person internally or directly with the regulated community and its advisors.   But it’s just not the same. Meetings in person allow for the pre- and post-meeting informal exchanges that help to build collegiality and good working relationships.  The opportunity to observe body language is, as MasterCard would say, priceless.  And, in our experience, meetings in person result in a more robust dialogue between the agency and sponsors.

That’s why when Dr. Cavazzoni mentioned considering the continuation of virtual meetings with sponsors at CDER even after the pandemic in order to perhaps have more meetings and to avoid “sponsors wasting sometimes a day to travel, waiting at security for another 20 minutes and all that,” we wished we were attending the FDLI conference in person so we could rush to the podium to assure her that no sponsor we know would give up the opportunity to meet with CDER in person to avoid a trek to White Oak.  Offering the option to meet by phone to the sponsor would be appreciated and, in some instances, accepted, but the savings in travel time and costs pales in comparison to the benefits of an in-person meeting.  We hope that our clients will be heading out to White Oak soon.

By Faraz Siddiqui & Alan M. Kirschenbaum —

The past two weeks have seen two noteworthy developments relating to CMS’s Medicaid Drug Rebate Program (MDRP) regulations.

1.  PhRMA Sues CMS Challenging MDRP Rule Curbing Patient Assistance

In December 2020, CMS published  a final rule making several changes to the MDRP regulations.  See our post here and our summary of the final rule here.   One of these amendments was a poorly thought-out rule that, if implemented, will render virtually unusable the current best price exclusion for manufacturer patient savings programs in the form of coupons, patient rebates/refunds, copay assistance, vouchers, and free drug programs.  The effective date of this amendment is January 1, 2023.

Manufacturers provide patient savings programs at the pharmacy counter to defray the patient’s out-of-pocket costs such as co-pays and deductibles.  Believing that these discount programs incentivize patients and their physicians to favor brand drugs over generics and other less expensive formulary alternatives, pharmacy benefit managers (PBMs) and health plans have implemented “accumulator programs” whereby the PBM or health plan declines to apply manufacturer assistance towards the patient’s deductibles or out-of-pocket maximums. Compl. ¶ 5.  This forces patients ultimately to pay the amounts subsidized by a manufacturer in order to meet their deductibles or maximums. Id.

CMS views accumulator programs as a way for PBMs and insurers to siphon off the benefit of manufacturer assistance so that it does not reach the patients for whom it is intended.  However, rather than directly restricting accumulator programs, CMS has opted to exclude manufacturer assistance from best price only if the manufacturer “ensures” that full value of the assistance is passed on to the consumer, thus imposing on manufacturers the onus of somehow determining whether a particular patient’s insurance plan has an accumulator program and negating it.

On May 21, the Pharmaceutical Research and Manufacturers of America (PhRMA) sued CMS on APA grounds, claiming that this change to the best price rule exceeds CMS’s statutory authority and is contrary to the Medicaid Rebate statute.  According to PhRMA, CMS recognizes that patient savings programs help patients afford necessary medications and stay on them, compl. ¶¶ 37, 41, and that accumulator programs dilute the benefit of such assistance and hurt the patient. Id. ¶ 41. But “rather than proposing solutions to limit the negative impact of accumulator adjustment programs,” CMS is penalizing manufacturers offering assistance to patients “unless the manufacturer somehow ‘ensures’ that the patient’s health plan does not use an accumulator adjustment program.” Id.

The complaint explains that manufacturers will not be able to structure their assistance to patients in a manner that can avoid accumulator programs because they do not know when or which health plan operates an accumulator program and thus “misappropriate[s] the benefit of the assistance from the patient to the plan.” Id. ¶¶ 45, 52.  Accumulator programs are not public knowledge; manufacturers, and even most patients, are unaware of them.  PhRMA argues that manufacturers will either be forced to conduct extensive investigations of health plans or claim adjudications for each patient, somehow gain the cooperation of health plans, or withdraw their assistance programs altogether.  Id. ¶¶ 47, 59.

The penalty for a manufacturer failing to ensure that a patient’s health plan does not use an accumulator program is to include the assistance in the determination of best price, which would almost always increase manufacturer rebates.  PhRMA argues, among other things, that manufacturer assistance cannot be taken into consideration in best price because it is not part of a drug’s price offered to health plans.  The complaint seeks a ruling that the amendment is invalid and an injunction against its implementation.  ¶¶ 49-63.

2.  CMS Proposes to Extend Effective Dates of Two MDRP Regulations

On Friday May 28, CMS proposed to extend the effective date of another best price amendment that appeared in CMS’s December 2020 final rule —  a new provision that permits a manufacturer to report multiple best prices if it offers a value based purchasing (VBP) arrangement to all of the states.  See our summary at 2-4.  That provision was supposed to become effective on January 1, 2022.  CMS now proposes to extend the effective date by six months to July 1, 2022, in order to “provide more time for CMS, states, and manufacturers to implement the new best price and VBP program …,” and also to give CMS more time to complete implementation of its new Medicaid Drug Program system that will replace the current Drug Data Reporting (DDR) system.

In addition, CMS proposes to extend the effective date of a 2016 regulation that requires AMP and Best Price to include sales to purchasers in the U.S. Territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands).  The original effective date of April 1, 2017 has already been delayed twice and is now proposed to be extended an additional two years until April 1, 2024.

Comments on these two proposed extensions are due by June 28, 2021.

By Ricardo Carvajal & Karin F.R. Moore & JP Ellison —

As has been widely covered in local and national press in and around the Washington, DC area, this month marks the once every seventeen year emergence of the Brood X cicadas.  These insects are so plentiful in local areas with trees, including FDA’s aptly named White Oak campus, that they have prompted lots of advice about whether it is safe for human and pets to consume them.  At this point in the cicada cycle, a very unscientific sample of data seems to suggest that most dog owners have concluded that it is both unnecessary and futile to dissuade dogs from consuming them. Intake by humans appears more selective, but those in the know are strong advocates.

Globally, the United Nations Food and Agriculture Association has been reporting on insects as a human food source for some time, and recently issued a report that again recognizes the benefits of insect agriculture and lays out opportunities and challenges for the sector going forward. Insects have long been consumed in a number of regions, but have been slow to find acceptance in the west. That is slowly changing, partly in response to interest in more sustainable sources of protein. Earlier this year, the European Food Safety Authority found certain food uses of mealworms to be safe.  In the US, insect-based products have started showing up at select grocery stores, and interest is building in the use of insects in food for animals. In a potential sign of things to come,  last year a major pet food manufacturer launched a line of insect based dog and cat food in Switzerland.

A lot has changed in the FDA regulatory space since the last time cicadas were in the DC area in 2004.  By 2038 will humans and pets be eagerly anticipating a rare vintage of Brood X-based food products?  We wouldn’t bet against it, and we’ll be following and posting on developments in this area in the interim.

By Deborah L. Livornese & David B. Clissold & Josephine M. Torrente —

NDA approval – that pinnacle of drug development – marks a moment of success for both FDA and the drug applicant.  The regulated and the regulator, having worked together for years, place a novel or improved therapy, with adequate directions for its use, in the hands of prescribers and patients.  The adequacy of those directions for use, in the form of the Prescribing Information (PI), is essential to the shared success.  The PI is key to both the safe and effective use of the product and the applicant’s ability to fully inform prescribers of its uses.  It’s for this reason that we are somewhat alarmed by a disturbing trend in the development of the PI for certain drugs.  That trend has seen some CDER review divisions providing dramatic changes to proposed labeling so late in the review process as to thwart thoughtful discussion.

Let’s take a step back.  As part of a drug’s marketing application, the applicant submits a proposed PI that includes information about the drug’s “indications, effects, dosages, routes, methods, and frequency and duration of administration and any relevant warnings, hazards, contraindications, side effects, and precautions, under which practitioners licensed by law to administer the drug can use the drug safely and for the purposes for which it is intended, including all conditions for which it is advertised or represented.” 21 CFR 201.100(d)(3), 314.50.   The applicant’s proposed PI is heavily annotated to technical reports and information in the NDA that support the inclusion of each statement in the labeling. 21 CFR 314.50.  Needless to say, teams of professionals, including clinicians, statisticians, pharmacists, clinical pharmacologists, and commercialization and reimbursement experts, spend many months refining and annotating the proposal.  During review, CDER professionals, including multiple members of the primary review team, the Office of Prescription Drug Promotion (OPDP), Clinical Outcome Assessment Qualification Program (COA) and the Office of Surveillance and Epidemiology (OSE), carefully evaluate the information and convene internal meetings to discuss any revisions that it believes are necessary.  Subsequent labeling discussions between the applicant and CDER to resolve any differences result in a final approved PI.

What with so many people evaluating so much information in such an important document, the need for thorough and thoughtful labeling discussions becomes an imperative to those with a sincere desire to see the drug succeed in aiding patients.  To be clear, we have no doubts about CDER staff’s sincere desire to see drugs it approves aid patients.  But that desire just doesn’t square with presenting the applicant with a take-it-or-leave-it approach to initial suggested labeling edits with no opportunity for discussion.  And yet, that’s what we see in far too many cases:  either labeling is not provided at all until very close to the action date or, perhaps more objectionable, CDER’s initial revised labeling is provided consistent with a communicated and reasonable timeline but edits to certain key sections are withheld until very close to the action date.  In these cases, applicants are invariably told that there is no time for discussion; their choices are to accept CDER’s edits and have the drug approved or to engage in discussions which, the applicants are warned, will likely result in a Complete Response action with the discussions occurring in the ominous “next cycle of review.”  While valor suggests that an applicant should stand its ground and fight for its drug, many companies understandably choose to accept FDA’s imperfect edits.  (As an aside, this is when we at HPM usually get a call from a potential client wanting to appeal the approved labeling language.  But, of course, such an appeal is not permitted as FDA argues that the applicant “voluntarily” changed its labeling and agreed to submit the labeling as revised by FDA.  And we have the unenviable task of explaining to a CEO that we cannot appeal her drug’s approval.)

This isn’t to say that CDER as a whole has adopted this approach.  CDER in fact recognizes that “[s]ince essential labeling discussions by necessity occur toward the end of the review cycle when available time is limited, it is important that communication between the FDA and applicants be clear and efficient.  Adherence to the review timeline, including completion of primary and secondary reviews well in advance of the PDUFA goal date, allows time to resolve labeling content issues and avoids crisis management of these issues near the PDUFA goal date.”  Guidance for Review Staff and Industry:  Good Review Management Principles and Practices for PDUFA Products (GRP Guidance) at 21.  CDER intends that draft labeling comments, along with an explanation for major changes, will be returned to the applicant at Month 8.25 of a 10-month review cycle.  CDER 21st Century Review Process Desk Reference Guide (DRG).

The DRG cautions that “[l]abeling discussions beginning too close to the end of the review cycle frequently result in inadequate time available to discuss labeling that both the applicant and the Agency can agree upon.”  DRG at 45.  This caution is correctly read as a call to ensure timely review.  But multiple clients allege that some CDER divisions seem to view it as a method of avoiding discussions of proposed language changes that lack scientific justification.  Essentially, the less defensible a proposed edit to the PI, the more likely that it will come as a last-minute change without time for discussion in the current review cycle.

As acknowledged in the DRG, it is the discussion – “the action or process of talking about something in order to reach a decision or to exchange ideas; a conversation or debate about a certain topic” (Lexico.com) that culminates in a PI that is maximally informative and valuable to prescribers and patients.  The exchange of redlined versions of the PI, often with no explanation for the division’s changes (or, worse, with only conclusory statements about certain language being “misleading” and no time to clarify the point) and/or no attempt to respond to scientific points made by the applicant (i.e., “The Division continues to believe that our recommended language is appropriate”) may serve as the start of that “conversation” by highlighting particular areas of disagreement with or misunderstanding of the sponsor’s proposal.  It should not, however, be the either the only means of communication about these points or the only step to approved labeling.

A timely, thoughtful and iterative process between the applicant and FDA is most likely to produce an informative PI that improves the drug’s benefit-risk profile.  Here’s hoping we can all keep our eye on that goal when nearing drug approval.

By Larry K. Houck —

Although we blogged on Drug Enforcement Administration (“DEA”) cyclic and on-site inspections in June 2014, we thought it helpful to update registrants on what they can expect as diversion investigators resume activities following the Covid-19 shutdown.  We are providing a post in three parts on cyclic and on-site inspections in which we focus on the background of inspections, how investigators conduct them, and how registrants should proactively prepare for and manage them.  Part 2, below, explains how diversion investigators conduct on-site inspections and what registrants must do before, during, and after each inspection to minimize negative findings.  Part 1, posted May 3rd, explains the purpose, background, and scope of DEA cyclic and on-site inspections.  The link to Part 1 is here.

A.  Investigator Preparation 

Based upon my experience conducting cyclic and on-site inspections, investigators prepare by reviewing reports of prior inspections and Automation of Reports and Consolidated Orders System (“ARCOS”) transaction reports involving the registrant.  Investigators review records and reports the registrant submitted to DEA including Official Order Forms (“DEA-222s”), Controlled Substance Ordering System (“CSOS”) transactions, and Theft/Loss Reports (written notifications and “DEA-106s”).  They also review any suspicious order reports filed by or about the registrant.  Investigators are known to focus on areas of prior non-compliance for close scrutiny during the current inspection to ensure the registrant has remedied past deficiencies.  Investigators likely consult with DEA headquarters about the registrant’s compliance with required reporting and review its registration category, status, and authorized controlled substances to assess whether it may be conducting unauthorized activities.  Investigators typically confirm with state authorities that the registrant has maintained required state professional and controlled substance licenses, and whether it has been the target of a state investigation.  They ask for the results of any state inspections.  Investigators may inquire with local police whether the registrant has reported controlled substance thefts or other criminal activity.

B.  Investigator Arrival

Historically, diversion investigators arrived unannounced at a registrant’s facility but, during the Covid-19 shutdown, some DEA offices have reached out beforehand to schedule inspections when the registrant is open and operating.  At least two investigators must be present during the on-site inspection, but teams can include DEA special agents or task officers from state and local law enforcement and regulatory agencies.  They are required to present their credentials, explain the purpose of their visit, and provide a written notice of their inspection authority.  21 C.F.R. § 1316.05.

The investigators ask the registrant’s designated responsible employee, such as the Operations or Compliance Manager, for informed consent by signing a Notice of Inspection (“DEA Form-82”).  Notices of Inspection contain the name and title of the owner, operator, or agent in charge of the premises; controlled premises name; address; date and time of inspection; inspection authority; and investigator’s signature.  Id. § 1316.06.  Notices of Inspection inform the responsible employee that the registrant has the right not to be subject to an administrative inspection without an administrative inspection warrant.  Registrants may withhold consent or, if given, can withdraw consent at any time.  Withholding or withdrawing consent will require the investigators to obtain an administrative inspection warrant from a federal magistrate.  Administrative inspection warrant applications need only identify the name and address of the controlled premises, contain a statement of statutory authority, set forth the nature and extent of the inspection, and provide a statement that the establishment has not been previously inspected or date when it was last inspected.  Id. § 1316.09(a).

Investigators may also conduct targeted inspections rather than routine cyclic inspections as part of the local DEA office’s annual workplan if the registrant reported controlled substance thefts/losses or were the subject of suspicious order reports.

In our experience, investigators review copies of the registrant’s federal and state licenses.  They will ask for updated information about the registrant’s operations, responsible employees, corporate structure, controlled substances handled, and hours of operation.  Although not required by the Controlled Substances Act (“CSA”) or regulations, investigators will ask for personal information of management and employees with access to controlled substances that includes home addresses, dates of birth, and social security numbers.  Registrants should consult with counsel and their Human Resources departments in deciding whether to provide this information.  Investigators ask about controlled substance security including who has access to the vault, cage, and safe, system components and specifications, internal inspection results, alarm test results, and central station monitoring contracts.  They may request a list of the registrant’s suppliers and customers.  Upon arrival, investigators might conduct a preliminary walk-through of the facility for obvious security violations such as propped-open or broken vault or cage locks or doors and unsecured controlled substances.

Some registrants compile and maintain a binder containing the information and documentation that investigators typically request during on-site inspections.  Having this updated information and documentation together eliminates time and stress required to search and compile it during the inspection.

C.  Policies and Procedures

It is crucial that registrants understand what the investigators request and require to successfully conduct their inspection.  To prevent misunderstanding, registrants must also ensure that the investigators fully understand their controlled substance recordkeeping, reporting, and security systems.  Investigators will likely ask for a copy of the registrant’s policies and procedures, and although not required by the CSA or DEA regulations, registrants should consider whether to provide copies to assist them with their understanding of controlled substance operations.  Registrants should ensure when developing their policies and procedures that they comply with federal and state controlled substance requirements and are updated frequently.  Registrants must comply with their own policies and procedures in practice.  The policies and procedures should include a section on how the registrant handles DEA inspections.

D.  Accountability Audit

Registrants must account for all of the controlled substances they receive, manufacture, or otherwise handle, so it is important that registrants document all controlled substance movement from receipt to transfer from the facility or disposal.  Because registrants must account for all the controlled substances they handle, investigators will conduct an accountability audit of a random number of controlled substances, usually at least two drugs in each schedule, for a minimum one year period.  The accountability audit allows investigators to ascertain whether the registrant can account for all controlled substances handled during the period, that it has maintained complete and accurate records, and that it provides effective controls against diversion.

The investigators select the drugs they will audit.  They may choose drugs audited during the last DEA inspection for continuity or those that are highly abused in the geographic area.  As the starting point for the audit, the investigators use a physical count conducted by the registrant, usually a biennial inventory taken at least a year prior.  The registrant’s employees together with the investigators conduct a closing physical count of the drugs to be audited.

Registrants with automated records systems may offer to assist investigators by generating a report of receipt and disposition transactions for the audit period.  However, generating and providing such a report may negatively impact the registrant if investigators find it to be inaccurate.  Registrants should check with counsel before creating this secondary transaction record.  If the registrant generates an electronic report, each transaction should correspond to a specific primary record including DEA-222, CSOS record, invoice, packing slip prescription, or administration record.  Investigators typically compare and verify a number of transactions on the automated report with the primary records.  Investigators may review all primary records if there are discrepancies with the automated report.

The accountability audit calculates controlled substance quantities that the registrant can account for versus what it is responsible to account for during the period.  The investigators compare the controlled substances on-hand at the beginning of the audit period plus receipts against dispositions plus quantities on-hand at the end of the period.  Ideally, the audit balances.  A negative variance can identify a shortage.  It may also indicate incomplete or inaccurate records.  A positive variance can also indicate recordkeeping deficiencies.  While it is more favorable for registrants to have smaller audit variances, there is no “acceptable” discrepancy range for DEA purposes.

E.  Records and Reports

Diversion investigators also review required controlled substance records and reports to ensure that they are complete, accurate, and maintained for at least two years.  Investigators review initial or biennial inventories and, when required, year-end inventories, ensuring that registrants have taken a complete physical count of all controlled substances on-hand, that inventories document date and whether taken at the beginning or close of business, and that schedule I and II substances are separate from schedule III-V substances.

Investigators review DEA-222 purchaser and supplier copies to ensure that the registrant has maintained them, they are properly executed, complete and accurate, and orders were filled within sixty days of the date customers completed them.  They also review CSOS transactions for completeness and accuracy.  Investigators review the registrant’s Powers of Attorney to ensure that individuals ordering schedule I and II substances are properly authorized to do so.  They may check the timeliness and accuracy of ARCOS reporting.  Investigators review invoices and packing slips to ensure that the registrant has maintained them and that they also are complete and accurate.  Investigators review prescriptions at pharmacies and administration/dispensing records at Narcotic Treatment Programs.  They review destruction and disposal records including DEA Form-41s.  Off-site investigators typically verify random transactions with the registrant’s suppliers and customers to ensure the transactions occurred as documented and the registrant’s records are accurate.

If the registrant has a manufacturing or import quota, the investigators may ensure the registrant has not exceeded their established quota.

F.  Security

Registrants must provide effective controls to guard against controlled substance theft and diversion, and employ specified security (set forth in applicable DEA regulations) depending upon their business activity and the type and quantities of controlled substances they handle.  The investigators inspect the overall security system and individual components to ensure that they meet specifications, are fully operational, and have not changed since the last inspection.  Investigators work with the central monitoring station to test the alarm system by activating a number of sensors.

DEA regulations have required the identification and reporting of suspicious orders since 1971 but investigators may not have focused on them during past inspections.  Going forward, investigators will assuredly assess registrants’ suspicious order monitoring and reporting policies and procedures.  Investigators will likely inquire about the registrant’s customer due diligence as well as how the registrant monitors, identifies, handles, and reports suspicious orders.  The investigators may review suspicious order records and reports.

G.  Investigator’s Departure

Diversion investigators may, but are not required to, have a final discussion with the registrant’s management at the end of an on-site inspection.  They may recommend corrective action for the registrant to comply with the CSA and its regulations, and may work with the registrant to remedy deficiencies while on-site.  Investigators will likely not provide final conclusions and definitive enforcement action that DEA may take without consulting with their supervisors.  After conclusion of the inspection, registrants may not receive a formal notice of the inspection and audit results, and DEA’s intended enforcement action, such as a Letter of Admonition, informal or formal hearing, civil penalty, or administrative action, for a number of months or longer.

H.  Mirror DEA Inspection and Audit

Registrants should photocopy or set aside in a separate file every record and report that the investigators use in their accountability audit and inspection.  Concurrent with the DEA inspection, or very shortly afterwards, the registrant should conduct a mirror inspection and accountability audit of DEA’s inspection and audit.  The mirror inspection and audit will identify DEA’s potential findings for the registrant before the investigators may be prepared to share them.  Conducting a concurrent mirror inspection and audit will also enable the registrant to respond to DEA’s findings without having to reconstruct the inspection and audit when investigators share their results in the future.

*****

The third part of our series, also scheduled for publication in about two weeks, will identify the DEA inspection do’s and don’ts for registrants.

By Jeffrey K. Shapiro —

You may recall that last summer (on August 19), the Department of Health and Human Services (HHS) ordered the Food and Drug Administration (FDA) to cease premarket review of laboratory developed tests (LDTs), including COVID‑19 LDTs.  At the time, we wrote favorably about this move.  Put bluntly, the review of COVID‑19 LDTs was a waste of FDA’s scarce time and resources during the pandemic.

A few members of Congress have now waddled in 10 months letter with a letter to HHS urging that FDA immediately begin reviewing COVID‑19 LDTs again.  By now the point is moot, since FDA not only stopped reviewing COVID‑19 LDTs 10 months ago, but it has deprioritized EUAs for virtually all PCR tests that must be sent to laboratories (even those that are not LDTs).  The hot ticket these days is rapid antigen testing to satisfy other testing priorities that PCR testing is less well‑suited for, like back to work screening.

However, we cannot help but comment on some of the more dismaying aspects of this letter.  In particular, these members of Congress seem to be requesting that HHS revive a dysfunctional (and probably unconstitutional) approach to regulation of LDTs.  The letter states:  “Only FDA has the legal responsibility, as well as the experience and expertise, to evaluate the accuracy and reliability of diagnostic tests.”  And:  “While FDA has typically exercised enforcement discretion for LDTs, allowing them to come to market without prior review, the agency has maintained that “clinical laboratories that develop [in-house] tests are acting as manufacturers subject to FDA jurisdiction under the [Federal Food Drug and Cosmetic Act].”

One would think that, as members of a great legislative body, these particular members might be at least a little concerned that FDA has been not fulfilling its “legal responsibility” under the Federal Food, Drug, and Cosmetic Act (FDCA).  Yet, they blandly acknowledge that FDA typically did not conduct premarket review of LDTs and had singled out COVID‑19 LDTs as one of the few that the agency would review.  If they sincerely believe FDA has statutory authority to conduct premarket review of LDTs, why is it acceptable to them that for FDA to pick and choose which ones to review?  Since when has FDA been authorized to to abjure premarket review of a medical device whenever it chooses to do so, other than pursuant to express regulations placing a device in Class I or II and designating it as 510(k) exempt?  FDA has not followed that procedure for LDTs.

One of the most fervent aspects of the letter is an alleged concern that the absence of FDA review of COVID‑19 LDTs has led to inaccurate tests and/or tests that are not adequately validated.  Given this stated concern about test accuracy and validation, why are they only urging FDA to regulate COVID‑19 LDTs?  Logically, the stated concern would apply to all other LDTs, and not just COVID‑19 LDTs, would it not?

Summing up, the letter writers seem to think that FDA can have it both ways.  On the one hand, FDA may ignore premarket review requirements for most LDTs on whatever grounds it chooses to do so.  On the other hand, FDA may impose such requirements on COVID‑19 LDTs and perhaps a few other tests on whatever grounds it chooses to do so.  This position defers all the important jurisdictional decisions to FDA.  Apparently, the letter writers think FDA rules and their job is to hector from the sidelines when they do not like a decision.  In truth, it is the other way around.  In living memory, we had a system in which Congress enacted laws and the Executive Branch executed them.  Congress should take charge of determining the boundaries around the regulation of LDTs.  It is long past time for Congress to assert its powers and legislate on this issue.  FDA should do no more than color within the lines Congress chooses to draw.

By Faraz Siddiqui & David B. Clissold —

The Food & Drug Administration (FDA) announced on April 29, 2021 that it is working towards banning menthol flavored cigarettes, committing itself to issuing a proposed product standard to prohibit menthol as a characterizing flavor in cigarettes “within the next year.” In the same announcement, FDA also shared its intent to propose a product standard that would ban flavored cigars. FDA’s announcement was supported with a matching statement by U.S. Department of Health & Human Services Secretary, Xavier Becerra.

The announcement followed a Center of Tobacco Products (CTP) response to a citizen petition originally submitted in 2013 by anti-tobacco and public health groups (including prominent African American groups like the African American Tobacco Control Leadership Council) on prohibiting menthol cigarettes. In January of this year, the petitioners submitted a supplement to the original petition with additional research on the public health impact of menthol in cigarettes. The petitioners also filed suit to compel the Agency to respond to the petition in the federal district court for the Northern District of California last year. On January 28, 2021, the judge in that case ordered the agency to respond to the petitioners by April 29, 2021.

Federal actions on menthol cigarettes

In 2009, Congress specifically exempted “tobacco or menthol” when it prohibited all other flavored cigarettes under the Family Smoking Prevention and Tobacco Control Act (TCA)’s “Special Rule for Cigarettes.” According to the legislative history of the bill, Congress recognized that “unique issues” surrounded menthol and mentholated cigarettes, including “the large number of Americans who smoke menthol, the disproportionate prevalence of menthol cigarettes among African Americans, the racial and ethnic differences in lung cancer incidence, and the uncertainty about the potentially negative consequences of an immediate menthol ban. . . .” H.R. Rep. No. 111-58, at 38-39 (2009). “Given the number of open questions related to menthol cigarettes, the legislation authorize[d] the Secretary to ban or modify the use of menthol in cigarettes based on scientific evidence.” Id. This would ensure that FDA has the scientific evidence necessary to make the best decisions to protect the public health. Id.

As enacted, the TCA had the purpose “to continue to permit the sale of tobacco products to adults in conjunction with measures to ensure that they are not sold or accessible to underage purchasers.” 21 U.S.C. § 387 (notes to statute, § 3, ¶ 7). Congress would let FDA come to its own decision based on whether menthol cigarettes posed a danger to public health. Id. § 387g(a)(1)(A). Congress would also mandate FDA to have the newly created Tobacco Product Scientific Advisory Committee (TPSAC) study and report on “the impact of the use of menthol in cigarettes on the public health, including such use among children, African-Americans, Hispanics, and other racial and ethnic minorities.” Id. § 387g(e).

TPSAC released a report of its findings in 2011. According to TPSAC, there was little scientific evidence to suggest that menthol cigarettes were more (or less) toxic, or contribute to more disease, compared to nonmentholated cigarettes. TPSAC also found “adequate data” to suggest that menthol use is likely associated with increased smoking initiation by youth and young people, and is likely associated with greater addiction. In sum, TPSAC concluded that “[m]enthol cigarettes have an adverse impact on public health in the United States.” Shortly thereafter, CTP published a preliminary scientific evaluation stating that “menthol cigarettes pose a public health risk above that seen with nonmenthol cigarettes.”

Yet, TPSAC did not recommend, and FDA did not take, any regulatory action based on the report, which would require rulemaking procedures that include public notice and an opportunity for public comment. But TPSAC also stated that there were “gaps in understanding of menthol cigarettes and public health that should be addressed with further research.” For example, TPSAC noted that FDA would need to assess the potential for contraband menthol cigarettes, which was required by the Act.

Thereafter, in 2013, FDA issued an advance notice of proposed rulemaking (ANPRM) to obtain more data and information regarding a number of complex questions regarding the potential regulation of menthol in cigarettes. 78 Fed. Reg. 44,484 (July 24, 2013) (Menthol ANPRM). In a meeting with the media, Mitch Zeller, Director of the CTP said that FDA could only go as far as the regulatory science will take us: “The bottom line is, we need more information. . . . We also need input from the public.”

In November 2018, amidst an aggressive campaign against flavored e-cigarettes, the Trump administration announced plans to ban menthol cigarettes. According to interviews with then Commissioner Scott Gottlieb, the proposed ban faced opposition at the Health and Human Services, the White House and by members of Congress. By the time the flavor ban was formally announced, it had been pared down to exclude both mentholated cigarettes and e-cigarettes. When asked about menthols, Gottlieb explained that excluding menthol from the bans “reflected a ‘careful balancing’ of concerns about youth and the need of adult smokers using e-cigarettes to quite [sic.] smoking.”

FDA’s citizen petition response and proposed action on menthol

FDA now believes there is “sufficient evidence in the record to support a decision to begin the rulemaking process to prohibit menthol as a characterizing flavor in cigarettes.” FDA said that it considered the evidence from the citizen petition and its supplement in its response, as well as the comments to the petition and the agency’s own independent study of the evidence related to menthol cigarettes. According to the agency’s response, “the science has evolved” since the release of the TPSAC report. In the intervening eight years, “there has been an accumulating evidence base regarding the role menthol in cigarettes plays in regard to facilitating experimentation and progression to regular use.” Also in the intervening years, both Canada and the European Union have imposed bans on menthol cigarettes, in 2017 and 2020 respectively. The FDA appears ready to use this evidence to issue a proposed rule to prohibit menthol as a characterizing flavor in cigarettes within the next year as “one of the Agency’s highest priorities.”

Not everyone is likely to agree with the FDA’s assessment regarding the sufficiency of the evidence or the public health benefit of such a ban, especially when it comes to the countervailing effects brought about by the ban such as illicit trade or enforcement. As recently as 2020, the U.S. Surgeon General concluded that evidence is “suggestive but not sufficient” that restricting the sale of certain types of tobacco products, such as menthol, will increase smoking cessation. In addition, any menthol rule would require significant public comment and could likely face litigation in federal court. It is also likely that the measures attract Congressional attention, but lawmakers are divided have been divided on the issue in the past. Others, such as Senators Richard Burr of North Carolina have vehemently opposed the ban when illegal drugs such as marijuana are being legalized.

Even the African American community is split on the issue of a menthol ban. Organizations like NAACP have long supported a menthol cigarettes ban, pointing to research that shows that the tobacco industry has specifically targeted its marketing to African Americans. Others, including prominent Black leaders like Al Sharpton and civil rights organizations like the ACLU have strongly opposed such a ban for its prospect of criminalization a product popular in the African American community. In response to this, the FDA announcement pointed out that any ban on menthol cigarettes will only address manufacturers, distributors, wholesalers, importers and retailers: “the FDA cannot and will not enforce against individual consumer possession or use of menthol cigarettes or any tobacco product.”

At least one of the authors of the citizen petition has already claimed victory, announcing on its website homepage that “FDA Bans Menthol in Cigarettes.” (Accessed May 2021). But an actual ban could still be years away, if it comes at all. For one, a product standard must be issued under formal rulemaking procedures that include public notice and an opportunity for public comment, § 387g(c), and  the FDA is only just starting the drafting of the proposed rule. In addition, FDA must consider “[i]nformation . . . regarding the technical achievability of compliance with such standard” as well as “the countervailing effects of the tobacco product standard on the health of adolescent tobacco users, adult tobacco users, or nontobacco users, such as the creation of a significant demand for contraband or other tobacco products that do not meet the requirements of [the TCA] and the significance of such demand.” § 387g(b).  Finally, any final rule must have an effective date of at least one year unless FDA can show that an earlier date “is necessary for the protection of the public health.” Id. at § 387g(d)(2).

How will the flavored cigar ban affect premium cigars?

According to 2017 research partly funded by FDA, the use of flavored cigars increased by over 50% after the TCA’s Special Rule for Cigarettes went into effect in 2009, with fruit, sweet/candy, and wine as the most popular flavors in the market (mint/menthol made up less than 3% of the market before and since TCA). Both the FDA’s announcement and the research on cigar uptake amongst youth focus on flavored, machine-manufactured, mass-produced cigars and cigarillos that can closely resemble cigarettes.It is unclear how FDA will address premium, often hand-rolled, cigars in the proposed standard that would ban “flavored” cigars, especially after the district court for D.C. ordered the FDA to develop a distinct, streamlined marketing process for premium cigars.

Premium cigar manufacturers previously articulated several reasons why regulating cigar “flavors” is fraught with uncertainty, and advocated for more specific guidance.  For example, like wine, differences in cultivation, aging, and blending techniques result in cigars with distinctive flavor profiles that cigar marketers and smokers may describe as including “notes” of certain flavors (e.g., coffee, citrus, minerals, bittersweet chocolate).  However, these products contain no additives to deliver these flavor experiences.  In addition, cigar products may also contain various non-tobacco ingredients that the manufacturer uses primarily or exclusively for non-flavoring purposes (e.g., humectants, preservatives, adhesives), but could nonetheless affect the “flavor” of the final product.  Finally, FDA must respect that the TCA “special rule” applies to “characterizing flavors” in cigarettes and their components, not necessarily every flavor.  § 387g(a)(1)(A).

FDA may be forced to examine different approaches in regulating flavored cigarettes and cigars.  In any case, we will be closely following the regulatory and policy challenges that will result from FDA’s announcement.