In a Surprise Move, the Trump Administration Ends FDA’s “Unapproved Drugs Initiative”

By Kurt R. Karst

If your 2020 FDA BINGO card included the end to FDA’s Unapproved Drugs Initiative, then, BINGO!  Late last Friday, the Department of Health and Human Services—but not FDA—announced a forthcoming Federal Register Notice withdrawing both the 2006 (Docket No. FDA-2003-D-0030) and 2011 (Docket No. FDA-2011-D-0633) versions of FDA’s guidance document/Compliance Policy Guide (“CPG”), titled “Marketed Unapproved Drugs – Compliance Policy Guide Sec. 440.100, Marketed New Drugs Without Approved NDAs or ANDAs.”

According to the Notice and a Frequently Asked Questions document, “although [the CPGs] originated with the laudable goal of generating more clinical data about unapproved drugs, [they] are linked to prescription drug price increases and shortages.”  That alleged link comes from the results of a 2017 study published in the Journal of Managed Care and Specialty Pharmacy (“JMCP”), titled “The FDA Unapproved Drugs Initiative: An Observational Study of the Consequences for Drug Prices and Shortages in the United States.”  Another, more recent 2020 analysis also alleged prices increases as a result of FDA’s Unapproved Drugs Initiative.

It seems like it was just yesterday that we announced FDA’s September 2011 decision to ramp up enforcement on marketed unapproved drugs with the Agency’s revision to the 2006 Marketed Unapproved Drugs CPG, which is part of the Agency’s broader Unapproved Drugs Initiative.  And now it appears that it is on its way to the ash heap history.  (Though folks should keep in mind that someone’s trash is another’s treasure.  After all, the new administration may decide to reverse course.)

By way of background (and only some background, as the Marketed Unapproved Drugs CPG is rooted in the entirety of FDA law history), for a drug to be legally marketed in the United States, generally it must be approved by FDA as safe and effective for its intended use or comply with an FDA Over-the-Counter (“OTC”) drug monograph.  However, as a result of various changes to the law over the last 100+ years, certain drug products are marketed without approval.  FDA permits, subject to the Agency’s “enforcement discretion,” the marketing of certain unapproved drugs that are neither approved by FDA nor marketed under an OTC drug monograph.  They are, with some exceptions, considered “illegally marketed drug products,” but FDA, for myriad reasons, has generally not opted to take enforcement action against them.

The 2011 Marketed Unapproved Drugs CPG clarified FDA’s approach to prioritizing enforcement actions and exercising enforcement discretion with respect to marketed unapproved drug products.  For products marketed on or prior to September 19, 2011, FDA applied a historical risk-based enforcement approach.  FDA’s risk-based enforcement approach placed higher priority on actions involving unapproved drugs in the following categories:

  • Drugs with potential safety risks;
  • Drugs that lack evidence of effectiveness;
  • Health fraud drugs;
  • Drugs that present direct challenges to the new drug approval and OTC drug monograph systems;
  • Unapproved new drugs that violate the FDC Act in other ways; and
  • Drugs that are reformulated to evade an FDA enforcement action.

Unapproved drugs introduced to the market after September 19, 2011, have been subject to immediate enforcement action.  FDA stated in the 2011 Unapproved Drugs CPG that:

The enforcement priorities and potential exercise of enforcement discretion discussed in [the Unapproved Drugs CPG] apply only to unapproved drug products that are being commercially used or sold as of September 19, 2011.  All unapproved drugs introduced onto the market after that date are subject to immediate enforcement action at any time, without prior notice and without regard to the enforcement priorities set forth below.  In light of the notice provided by this guidance, we believe it is inappropriate to exercise enforcement discretion with respect to unapproved drugs that a company (including a manufacturer or distributor) begins marketing after September 19, 2011. [(Emphasis added)]

Although FDA states in the Unapproved Drugs CPG that “any product that is being marketed illegally is subject to FDA enforcement action at any time,” there is a general exception to this policy for marketed unapproved drugs subject to an ongoing proceeding under the Drug Efficacy Study Implementation (“DESI”) program.  There are very few pending DESI proceedings under the DESI program, which started nearly 50 years ago.  FDA explains this exception in the Unapproved Drugs CPG as follows:

Some unapproved marketed products are undergoing DESI reviews in which a final determination regarding efficacy has not yet been made.  In addition to the products specifically reviewed by the NAS/NRC (i.e., those products approved for safety only between 1938 and 1962), this group includes unapproved products identical, related, or similar [(“IRS”)] to those products specifically reviewed (see 21 CFR 310.6).  In virtually all these proceedings, FDA has made an initial determination that the products lack substantial evidence of effectiveness, and the manufacturers have requested a hearing on that finding.  It is the Agency’s longstanding policy that products subject to an ongoing DESI proceeding may remain on the market during the pendency of the proceeding.  See, e.g., Upjohn Co. v. Finch, 303 F. Supp. 241, 256-61 (W.D. Mich. 1969). [(Emphasis added)]

In addition, some companies market drug products without approval under the premise that they are so-called “grandfathered” drugs, and, therefore, are not “new drugs” subject to the FDC Act’s approval requirements.  To qualify for exemption from the statutory “new drug” definition, a drug product must have been subject to the Federal Food and Drugs Act of 1906 prior to the enactment of the FDC Act on June 25, 1938, and at such time its labeling must have contained the same representations concerning the conditions of its use.  See FDC Act § 201(p)(1).  Thus, for FDA to determine that a drug product is not a new drug under the grandfather exemption, the following two questions must be answered affirmatively:

  1. Was the drug product marketed between January 1, 1907 (the effective date of the 1906 Federal Food and Drugs Act) and June 25, 1938?; and
  2. Is the drug product at issue the same drug product that was marketed between January 1, 1907 and June 25, 1938, and does its labeling describe the same conditions of use?

Further, a drug product is not a “new drug” if: (1) its composition is such that the drug product is Generally Recognized As Safe and Effective (“GRASE”) by qualified experts under the conditions of use for which it is labeled; and (2) it has been used “to a material extent or for a material time under such conditions.”  See Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 631 (1973); Premo Pharmaceutical Labs., Inc. v. United States, 629 F.2d 795, 801 (2d Cir. 1980).

Both of these grandfathered drug exemptions have been construed narrowly by courts and FDA.  The burden of proof falls on the party seeking grandfathered status to prove the drug qualifies for such status, and that showing may be difficult to make.  In a 2010 district court decision, the court explained:

Unless the evidence produced by plaintiffs establishes that there have been no changes whatsoever in the formulation, dosage form, potency, route of administration, indication for use, or intended patient population for their 20 mg/ml morphine sulfate oral solution since 1938, plaintiffs’ drug does not qualify for the 1938 grandfather clause exemption. . . .  Plaintiffs admit that they have only been marketing their drug for the past five years and have failed to produce any pre-1938 labeling for their drug.  Thus, it is impossible for plaintiffs to demonstrate that their drug’s “labeling contained the same representations concerning the conditions of its use” in 1938 that it presently contains.

Cody Laboratories, Inc. v. Sebelius, No. 10-DC-00147-ABJ, 2010 WL 3119279 at *13 (D. Wyo. filed July 26, 2010).  Further, FDA has stated, “the Agency believes it is not likely that any currently marketed prescription drug product is grandfathered or is otherwise not a new drug.  However, the Agency recognizes that it is at least theoretically possible.”  Unapproved Drugs CPG at 12 (italics in original).

According to the forthcoming Federal Register Notice, the concern with FDA’s Unapproved Drugs Initiative stems from a passage in the 2011 Marketed Unapproved Drugs CPG concerning so-called “de facto market exclusivity.”

The September 2011 Marketed Unapproved Drugs CPG states that when a company obtains approval of a drug previously marketed without approval, other similar drug products on the market without approval become “[d]rugs that present direct challenges to the new drug approval and OTC drug monograph systems.”  Thus, they become a target for FDA enforcement action.  But that enforcement action is not immediate (or certain).  Here’s how FDA explains the situation in the 2011 Marketed Unapproved Drugs CPG:

When a company obtains approval to market a product that other companies are marketing without approval, FDA normally intends to allow a grace period of roughly 1 year from the date of approval of the product before it will initiate enforcement action (e.g., seizure or injunction) against marketed unapproved products of the same type.  However, the grace period provided is expected to vary from this baseline based upon the following factors: (1) the effects on the public health of proceeding immediately to remove the illegal products from the market (including whether the product is medically necessary and, if so, the ability of the holder of the approved application to meet the needs of patients taking the drug); (2) whether the effort to obtain approval was publicly disclosed; (3) the difficulty associated with conducting any required studies, preparing and submitting applications, and obtaining approval of an application; (4) the burden on affected parties of removing the products from the market; (5) the Agency’s available enforcement resources; and (6) any other special circumstances relevant to the particular case under consideration.  To assist in an orderly transition to the approved product(s), in implementing a grace period, FDA may identify interim dates by which firms should first cease manufacturing unapproved forms of the drug product, and later cease distributing the unapproved product.

The length of any grace period and the nature of any enforcement action taken by FDA will be decided on a case-by-case basis.  Companies should be aware that a Warning Letter may not be sent before initiation of enforcement action and should not expect any grace period that is granted to protect them from the need to leave the market for some period of time while obtaining approval.  Companies marketing unapproved new drugs should also recognize that, while FDA normally intends to allow a grace period of roughly 1 year from the date of approval of an unapproved product before it will initiate enforcement action (e.g., seizure or injunction) against others who are marketing that unapproved product, it is possible that a substantially shorter grace period would be provided, depending on the individual facts and circumstances.

The shorter the grace period, the more likely it is that the first company to obtain an approval will have a period of de facto market exclusivity before other products obtain approval.  For example, if FDA provides a 1-year grace period before it takes action to remove unapproved competitors from the market, and it takes 2 years for a second application to be approved, the first approved product could have 1 year of market exclusivity before the onset of competition.  If FDA provides for a shorter grace period, the period of effective exclusivity could be longer.  FDA hopes that this period of market exclusivity will provide an incentive to firms to be the first to obtain approval to market a previously unapproved drug.  [(Emphasis added)]

Latching on to this last paragraph, the HHS Notice states:

Through a guidance document issued in 2006 and later revised in 2011, and without conducting notice-and-comment rulemaking, FDA launched a program called the Unapproved Drugs Initiative (UDI).  The UDI sprang from a laudable objective, namely to reduce the number of unapproved drugs on the market.  To achieve this end, FDA provided in its 2011 UDI Guidance that “the first company to obtain an approval [of a previously unapproved drug] will have a period of de facto market exclusivity before other products obtain approval.”  The agency “hope[d] that this period of market exclusivity will provide an incentive to firms to be the first to obtain approval to market a previously unapproved drug.”  Ultimately, manufacturers of older drugs previously thought to be exempt from the FDA approval requirement obtained market exclusivity for those products after FDA took unapproved versions off the market.  An unintended consequence of the “period of de facto market exclusivity” provided by the UDI allowed manufacturers an opportunity to raise prices in an environment largely insulated from market competition.

This proffered basis for ending the Unapproved Drugs Initiative seems to this blogger like a bunch of malarkey.

Here are the results and conclusions from the 2017 JMCP article:

RESULTS: Between 2006 and 2015, 34 previously unapproved prescription drugs were addressed by the UDI.  Nearly 90% of those with a drug product that received FDA approval were supported by literature reviews or bioequivalence studies, not new clinical trial evidence.  Among the 26 drugs with available pricing data, average wholesale price during the 2 years before and after voluntary approval or UDI action increased by a median of 37% (interquartile range [IQR] = 23%-204%; P < 0.001).  The number of drugs in shortage increased from 17 (50.0%) to 25 (73.5%) during the 2 years before and after, respectively (P = 0.046).  The median shortage duration in the 2 years before and after voluntary approval or UDI action increased from 31 days (IQR = 0-339) to 217 days (IQR = 0-406; P = 0.053).

CONCLUSIONS: The UDI was associated with higher drug prices and more frequent drug shortages when compared with the period before UDI action, while the approval process for these drugs did not necessarily require new clinical evidence to establish safety or efficacy.

Buried in the article is a short discussion of “de facto exclusivity” as one of the “several possibilities that may account for why the UDI was associated with increased drug prices and shortages” (emphasis added).  And even then, the study authors suggest alternative ways to address the issue:

Our findings suggest several ways to mitigate the unintended consequences of the FDA’s regulation of unapproved drugs through the UDI.  First, the FDA views a short grace period as a way to incentivize manufacturers to be the first to obtain approval of a previously unapproved drug, since it may establish a period of de facto exclusivity for the first manufacturer.  However, grace periods should only be granted when the manufacturer guarantees supply and sets a fair price.  Grace periods should also be made longer to allow time for additional manufacturers to obtain approval.

While FDA’s forthcoming Federal Register Notice states that “[n]othing in this Notice otherwise limits FDA’s authority to take action against manufacturers of unapproved drugs that meet the statutory definition of a ‘new drug’ (such as, for example, an unapproved drug that claims to mitigate, treat, or cure COVID-19) or violate the FD&C Act in other ways,” one has to wonder whether there will now be a return to the Wild West of marketed unapproved drugs instead of companies deciding to seek FDA approval.  Curiously, FDA has been silent on the HHS announcement.