For over nine months FDA has dithered on whether and, if so how, to conduct remote inspections of drug facilities during the pandemic. On the other hand, many foreign regulatory bodies appear to have implemented just such a system of remote inspections. Has FDA just decided to wait out the pandemic? Hyman, Phelps & McNamara, P.C.’s Mark I. Schwartz discussed this issue and more in an op-ed published earlier this week with Bloomberg News.
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The FDA Law Blog may appear to have become a little patent-heavy over the last few months, but you can thank the Federal Circuit for that. It just can’t stop changing the landscape for Hatch-Waxman litigation. In October, the Federal Circuit, for all intents and purposes, shut down the statutorily-authorized method-of-use patent carve-out practice by finding that skinny-labeled generics induce infringement merely by stating that they are AB-rated. Now, the Federal Circuit has reinterpreted the venue provisions governing patent cases so that the location of the submission of an ANDA, at least for U.S. entities, determines where patent litigation can take place. It’s impressive that, after more than 35 years, litigants still find new questions to raise about proper implementation of the Hatch-Waxman Amendments and the related patent infringement provisions set forth in 35 C.F.R. § 271(e).
In Valeant Pharmaceuticals v. Mylan Pharmaceuticals, decided in early November 2020, the Federal Circuit held that the District Court of New Jersey properly dismissed claims against two U.S.-based defendants based on improper venue. Mylan, with a U.S.-entity based in West Virginia, submitted to FDA, based in Maryland, an ANDA referencing Valeant’s Jublia with a Paragraph IV certification in 2018, and Valeant brought a patent infringement suit against Mylan in Valeant’s home state of New Jersey. Valeant posited that venue was appropriate in New Jersey because New Jersey “is a likely destination for Mylan’s generic” product, because Mylan does business in New Jersey, and because Mylan has previously submitted to the jurisdiction of the District Court of New Jersey. For good measure, Valeant also filed separate infringement litigation regarding the same patents in the District Court of West Virginia.
While Mylan didn’t deny Valeant’s allegations of presumed marketing in New Jersey, Mylan moved to dismiss the New Jersey litigation, arguing that venue was improper in New Jersey because no Maryland defendant resides in New Jersey and no alleged act of infringement occurred in New Jersey. The Federal Circuit upheld the District Court of New Jersey’s decision to grant the Motion to Dismiss based on improper venue. Essentially, the Court found that any infringing activities in New Jersey were too speculative for venue to be proper.
Previous cases had held that “planned, future acts” were sufficient to justify specific personal jurisdiction over a defendant in ANDA-related patent infringement cases, as were planned, future interactions with a state in the form of marketing activities. But the Supreme Court “dramatically changed the venue landscape in patent cases” in 2017 in TC Heartland LLC v. Kraft Foods Grp. Brands LLC. That decision held that the term “resides” in the patent venue statute, 28 U.S.C. § 1400(b), refers only to a corporation’s state of incorporation, meaning that a corporation may be sued for patent infringement only in those states in which it is incorporated and those states in which it has a regular and establishment place of business and an act of infringement occurred.
Looking to TC Heartland, the Federal Circuit examined the plain language of the infringement statute in 35 U.S.C. § 271 as juxtaposed to the patent venue statute in 28 U.S.C. § 1400(b). Both parties agreed that the venue provisions for patent cases states that an action for patent infringement may be brought “where the defendant has committed acts of infringement” and therefore, based on the present perfect tense, requires an act of infringement to have occurred in the past. In the case of ANDA submission, where 35 U.S.C. § 271(e)(2) renders it an “act of infringement to submit” an ANDA, the Court determined that the act of infringement is the actual submission—and only the submission—of the ANDA. The Court explained that the common claim that an ANDA submission is an “artificial” act of infringement misstates the statutory construction: “ANDA submission is a real, albeit statutorily created, act of infringement.” The act of infringement is real, and it is the submission of the ANDA that is in the infringing act. Thus, the Court must look to the act of submission, and where it occurred, to determine proper venue—in this case, West Virginia. In the Court’s view, future marketing plans are not relevant to the inquiry of where “the defendant has committed acts of infringement.”
Despite the broad approach to venue that courts have previously taken in Hatch-Waxman patent infringement cases, the Court explained that there was no textual hook in the statute to declare that an ANDA submission is an act of infringement everywhere in the U.S. As such, there is no indication that Congress wanted to adopt such a broad interpretation of venue. And though the Court found Valeant’s policy argument persuasive, in which it argued that patent-holders would be forced to bring multiple repetitive suits in different jurisdictions, the Court found that it was not persuasive enough to overcome the statutory language. Thus, the Federal Circuit dismissed the case because no act of infringement actually occurred in New Jersey. A different issue, related to foreign defendants, was remanded back to the District Court.
The decision here appears to give the ANDA filer has significant control over the venue for patent litigation. Indeed, Valeant warns of ANDA applicants “gaming” the system. But, at the least, the Federal Circuit gave generic sponsors something to ease their pain after the potential loss of the section viii carve-out (though we’ll have to see how that ultimately plays out).
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As part of its final push to lower drug prices, the Trump administration announced that it was finalizing a January 2019 proposed rule to amend the safe harbor provisions relating to manufacturer rebates to Medicare Part D plans, Medicaid Managed Care Organizations (MCOs) and their pharmacy benefits managers (PBMs). The Final Rule was published in the Federal Register on November 30, 2020.
The rebate rule has not had a straightforward history. Although the OIG claims that it never withdrew the rule from consideration, the White House and HHS Secretary Alex Azar scrapped the proposed rule in July of last year, soon after a Congressional Budget Office (CBO) report agreed with CMS’s own estimates that the rule will increase Medicare Part D premiums by $58 billion over ten years, likely offsetting any cost savings for patients, and cost the Federal government an additional $177 billion. This July, the President revived the rule in the middle of his election campaign with one additional mandate: that the HHS Secretary “confirm . . . that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” (see our report on the executive order here).
We previously summarized the main elements of the rule when it was first proposed and it has largely stayed the same. As we explained, the rebate rule is based on the premise that confidential manufacturer rebates to plan sponsors under Medicare Part D, either directly or through PBMs acting under contract with them, do not result in cost savings for the patients but act as kickbacks to these “middlemen.” According to the OIG, this system incentivized plan sponsors to negotiate higher rebates from manufacturers. Higher rebates allowed the plans to maintain higher profit margins, especially because these payments generally did not reduce patient out-of-pocket costs (deductibles and co-insurance), which are based on the published list price of the prescription pharmaceutical product, that is, the price before the rebates are applied. Manufacturers agree to higher rebates in exchange for exclusive or preferred positions on the plan formulary and the plans and PBMs give preferred formulary placement to the products that will provide them the greatest rebate. (p. 76685)
Under the final rule, the OIG aims to change these incentives by significantly narrowing the anti-kickback statute (AKS) safe harbor for discounts at 42 C.F.R. § 1001.952(h). The final rule would add an exclusion to the current discount safe harbor for “[a] reduction in price or other remuneration in connection with the sale or purchase of a prescription pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D either directly to the plan sponsor under Medicare Part D, or indirectly through a pharmacy benefit manager acting under contract with a plan sponsor under Medicare Part D, unless it is a price reduction or rebate that is required by law.” (p. 76731) The final rule also adds two new safe harbors: one to protect certain manufacturer price reductions at the point-of-sale (§ 1001.952(cc)), and another to protect certain administrative fees paid by pharmaceutical manufacturers to PBMs (§ 1001.952(dd)). The new safe harbor at § 1001.952(cc) requires the manufacturer to set the price reduction it is offering the plan sponsor under Medicare Part D or Medicaid MCO in writing before the first purchase of the product at that reduced price. The reduction in price must be completely reflected in the price of the prescription pharmaceutical product at the time the pharmacy dispenses it to the patient. The reduction in price can only be a rebate if the full value of the reduction is provided a dispensing pharmacy, directly or indirectly, through a point-of-sale chargeback, or if otherwise required by law. The point-of-sale chargeback is intended to make pharmacies whole for any difference between their acquisition cost and the price reduction agreed to by the Part D Plan, Medicaid MCO, or their PBM.
Changes from the Proposed Rule
Following are the main differences between the proposed rule and the final rule.
Discount safe harbor amendments effective date moved to January 1, 2022
In response to comments that the effective date of January 1, 2020 in the proposed rule would cause patient, pharmacy, and supply chain disruptions, the OIG moved the effective date to January 1, 2022. The proposed rule comment period was set to close on April 8, 2019, which would have meant that entities would have had six months or less to comply with any final rule. Now, entities have just over a year to make any necessary changes to their business arrangements and come into compliance. OIG stated that the updated effective date should not impact the 2020 Part D bid submission process. (p. 76673) OIG also rejected requests to apply enforcement discretion past the effective date. (p. 76680)
The new safe harbors for point-of-sale price reductions and for PBM service fees will be available for entities to use within 60 days of the publication of the final rule, or January 29, 2021. (p. 76666)
Medicaid MCOs Can Continue to Benefit from the Existing Discount Safe Harbor
The most significant difference in the final rule as compared to the proposed rule is that rebates to Medicaid MCOs are not excluded from the discount safe harbor. In other words, rebates offered from pharmaceutical manufacturers directly to Medicaid MCOs will still be protected by the discount safe harbor, as long as all the conditions of the safe harbor are met. (p. 76675) However, it is important to note that, in the OIG’s view, any rebates retained by a PBM are service fees, not discounts, and therefore never were, and still are not, protected under the discount safe harbor. (pp. 76675, 76679)
The OIG decided not to apply the rebate exclusion to Medicaid MCOs because of strong opposition from commenters. These commenters described additional costs to states to set and certify new Medicaid MCO rates, and for the various affected entities to renegotiate their contracts, some of which may require legislative or agency approval and could lead states to make significant cuts to other parts of their Medicaid programs. (p. 76675-76) OIG conceded that Medicaid beneficiaries often already have nominal cost-sharing obligations for prescription pharmaceutical products, maximum allowable cost-sharing amounts, or no coinsurance obligations. (p. 76675) For these reasons, the OIG agreed that eliminating discount safe harbor protection for reductions in price offered to a Medicaid MCO would have minimal, if any, effect on the amount a Medicaid beneficiary pays for a prescription pharmaceutical at the pharmacy. Id.
Changes in the new safe harbor on point-of-sale price reductions
The OIG also made some tweaks to clarify the new safe harbor on point-of-sale price reductions rule in several aspects:
Does the Final Rule Change the Cost Savings Calculation?
As required by the July 2020 Executive Order, Secretary Azar confirmed that the final rule “is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” The Secretary’s about-face is not based in any changes made to the rule itself but on a reassessment of the regulatory impact of the rule.
Indeed, the final rule dedicates a sizeable portion to a revised regulatory impact statement that attempts to explain away the earlier estimates by the CBO. The OIG notes that, unlike the proposed rule, the final rule “consider[s] the range of strategic behavior changes stakeholders may make in response to this rule, including the extent to which manufacturers lower list prices or retain a portion of current rebate spending, PBMs change benefit designs or obtain additional price concessions, and the impact on consumer utilization of lower-cost drugs.” (p. 76719) For example, the Secretary’s confirmation letter predicted that parties will continue to negotiate for several years into the future, and in his view (“informed by two decades of deep experience in pharmaceutical pricing, payment, and reimbursement”), this will lead to beneficiary price concessions beyond the earlier estimates.
It is unclear if the revised regulatory impact statement adds anything to the earlier analyses. For one, the CBO estimates appears to have already considered some of the behavior changes that the final rule claims to consider for the first time (e.g., likelihood that manufacturers will lower prices; the rule’s impact on beneficiary plan utilization). Also, the final rule presents the same analysis regarding the rule’s effects on Medicare premiums as the proposed rule, but highlights a different scenario as before (scenario with behavior change assumptions). Ironically, this scenario still predicts a smaller increase in Medicare premiums (the OIG claims that it is a de minimus increase). (p. 76726)
We can predict that these safe harbor amendments will dramatically alter the way in which Part D Plans, Medicaid MCOs, and their PBMs, use rebates received by manufacturers, and will reduce patient co-insurance obligations. They will also create new opportunities for wholesalers or other entities to provide chargeback administration services to facilitate compliance with the point-of-sale price reduction safe harbor. However, it is more difficult to predict whether these amendments will actually result in reduced list prices for pharmaceuticals, as intended, or whether the benefits to patients of reduced out-of-pocket expenses will be outweighed by increased premiums. Answers to these questions will begin to emerge over the next two years, as rebate contracting begins to conform to the new safe harbors and reacts to the narrowing of the discount safe harbor effective in January 2022.
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Hyman, Phelps & McNamara, P.C.’s Anne Walsh will be presenting on The Future of EUAs: What Happens Post-Crisis, as part of this year’s Food and Drug Law Institute’s virtual Enforcement, Litigation, and Compliance Conference on December 15-16. Hear from your peers about how they are staying compliant and inspection-ready, what companies need to do to plan for next year, trends in competitor litigation, and government priorities post-election.
Sign up with the discount code Enforcement15 for 15% off registration. You can learn more about the conference and register here.
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Welcome to the latest edition of Hyman, Phelps & McNamara, P.C.’s (“HP&M”) monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.
Tooting our own Horn: HP&M has been named the “Law Firm of the Year” in FDA Law by the folks over at U.S. News & World Report!
Food & Beverage
Supplements
Some Things We Are Monitoring:
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To close out 2020, Hyman, Phelps & McNamara, P.C. is pleased to present the latest issue of our quarterly newsletter highlighting key postings from our nationally acclaimed FDA Law Blog. Please subscribe to the FDA Law Blog to receive contemporaneous posts on regulatory and enforcement activities affecting the broad cross-section of FDA-regulated industry. As the largest dedicated FDA law firm, we are happy to help you or your clients navigate the nuances of the applicable laws and regulations.
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Hyman, Phelps & McNamara, P.C. has its finger on the pulse of FDA law. Our technical expertise and industry knowledge are exceptional in scope and depth. Our professional team holds extensive experience with the myriad of issues faced by companies. Please contact us with any questions you may have related to the issues described here or any other FDA-related issue affecting your industry.
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On November 23, 2020, the FDA announced that it had approved Alnylam Pharmaceuticals’ Oxlumo (lumasiran) as the first treatment for primary hyperoxaluria 1 (PH1), a rare metabolic disorder that causes recurrent kidney stones and loss of kidney function. In the Agency’s press release, it credited the approval as the “cumulation of the work of experts and community members coordinated by the Oxalosis & Hyperoxaluria Foundation and the Kidney Health Initiative.” More specifically, the press release quotes the Director of the Division of Cardiology and Nephrology, Dr. Norman Stockbridge:
The approval of Oxlumo represents a great triumph of community involvement to address a rare disease. It is a result of input from patients, treating physicians, experts and sponsors at a patient-focused drug development meeting and through other collaborative efforts.
As mentioned by Dr. Stockbridge, this approval comes on the heels of a recent Externally-Led Patient-Focused Drug Development (EL-PFDD) meeting for primary hyperoxaluria held virtually on October 5, 2020. HP&M’s James Valentine and Larry Bauer helped in the planning and moderation of this meeting which was sponsored by the Oxalosis & Hyperoxaluria Foundation. Benefit-risk assessment is the foundation for FDA’s regulatory review of human drugs and biologics; input from PFDD meetings can provide important data obtained directly from patients and caregivers, which we applaud FDA for acknowledging so prominently with this approval.
Building on a Legacy of Over 70 PFDD Meetings
This expression of FDA’s appreciation for PFDD meetings and the value of patient and caregiver input builds on a more than 8-year legacy of the PFDD initiative, including 29 FDA-led and 43 externally-led meetings to date. These meetings were established in 2012 as part of PDUFA V to more systematically collect patient and caregiver experiences and perspectives about the symptoms most impacting daily life, assessments of available treatments, and preferences for future treatments. This input was intended to inform the “clinical context” for benefit-risk decision-making, although it has much broader application (e.g., informing selection and development of clinical outcome assessments).
To supplement those meetings that FDA organizes, in 2015 the Agency broadened the program by allowing externally-led PFDD meetings, which are supported by FDA but sponsored by patient groups. Each group has been responsible for organizing the meeting, speakers, and all aspects of the meeting. The FDA Patient-Focused Drug Development Program Staff review Letters of Intent for new meetings and provide guidance to advocacy groups planning meetings.
Other Examples of When PFDD Meetings Informed Regulatory Decision-Making
PFDD meetings have had an impact on several key FDA decisions and initiatives. As one example, an externally-led PFDD meeting for the rare skin disorder, epidermolysis bullosa (EB), was held on April 6, 2018, and sponsored by the advocacy group the Dystrophic Epidermolysis Bullosa Research Association of America (Debra of America). This meeting highlighted the devastating physical and emotional impacts of EB. Prior to this meeting, FDA directed drug developers to its “burn wounds” guidance as that reflected the most analogous clinical experience, despite the stark difference in etiology and chronicity to EB wounds. This guidance focused primarily on endpoints of complete wound healing, highlighting its clinical meaningfulness.
On its face this may seem reasonable, as EB is characterized by multiple open wounds all over the body. However, short of a cure, complete wound healing would not be expected due to the ever-present genetic defect in the skin cells. Yet, FDA requires a treatment effect that is “clinically meaningful,” so the Agency needed information that would enable it to calibrate its bar for drugs to treat EB. The EB EL-PFDD meeting highlighted the great unmet medical need in EB patients and their desire for treatments that might help shrink wounds or treat other symptoms, even if 100% wound healing was not possible. For example, if a wound was made smaller, that might represent less overall pain a child with EB may experience each night during excruciatingly painful bandage changes that are required to keep the wounds clean. In response, just one month after that meeting, FDA on its own initiative (that is, no patient explicitly asked FDA to issue a new guidance) issued a disease-specific guidance. This guidance focuses on drug development specific to the treatment of EB, including FDA’s thinking on trial endpoints. In it, FDA expresses that trial endpoints for new EB therapies can include effects on patients’ symptoms, such as pain, as well as on wound healing, although not establishing a 100% healing threshold.
Like PH1, other patient communities’ investments in EL-PFDD meetings have resulted in the first-ever approved drugs for their conditions or major advances in treatments over approved therapies. This includes multiple products for forms of amyloidosis following the Amyloidosis Research Consortium’s November 16, 2015, EL-PFDD meeting, and the first-ever systemic gene therapy following CureSMA’s April 18, 2017, EL-PFDD meeting.
While these represent just a couple of examples of the lasting impact of PFDD meetings, we have seen impacts large and small across the EL-PFDD meetings we have had an active role in helping plan and moderated. HP&M has aided 31 of the 43 (72%) EL-PFDD meetings held to date. Here are some examples of recent meetings we have helped plan:
EL-PFDD Meetings HPM Helped Plan and Moderated (Since November 2018)
| Disease | Patient Organization | Meeting Date |
| Mitochondrial Diseases | United Mitochondrial Disease Foundation | March 29, 2019 |
| IgA Nephropathy | National Kidney Foundation | August 19, 2019 |
| Myeloproliferative Neoplasms (MPN) | MPN Research Foundation | September 16, 2019 |
| Pyruvate Kinase Deficiency (PKD) | NORD | September 20, 2019 |
| Atopic Dermatitis | National Eczema Association
Asthma & Allergy Foundation of America |
September 23, 2019 |
| CDKL5 Deficiency Disorder (CDD) | LouLou Foundation | November 1, 2019 |
| Pancreatitis | National Pancreas Foundation | March 3, 2020 |
| Hepatitis B* | Hepatitis B Foundation | June 9, 2020 |
| Adult Hypertrophic Cardiomyopathies* | Hypertrophic Cardiomyopathy Association | June 26, 2020 |
| FSHD* | FSH Society | June 29, 2020 |
| Pompe Disease* | Muscular Dystrophy Association | July 13, 2020 |
| FSGS* | National Kidney Foundation | August 28, 2020 |
| Spinocerebellar Ataxia/DRPLA* | Natl Ataxia Foundation/CureDRPLA | September 25, 2020 |
| Primary Hyperoxaluria* | Oxalosis and Hyperoxaluria Foundation | October 5, 2020 |
| Syngap 1* | Bridge the Gap | November 19, 2020 |
* Fully virtual meetings; more information on the virtual EL-PFDD meeting can be found here.
FDA continues to show its support for EL-PFDD meetings and the value of learning from patients and caregivers about what matters most. We applaud the Agency’s efforts to continue to include the voices of patients in drug development and regulatory decisions. After all, the patients are the true experts.
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Cannabidiol (“CBD”) products are everywhere. They are sold in pharmacies, as well as grocery, health food and convenience stores, and over the Internet. To protect its citizens in the absence of federal requirements governing CBD and hemp-derived products for human consumption, the New York Department of Health (“DOH”) announced the issuance of proposed regulations that if implemented would create new requirements for how those products are manufactured and sold there. The proposed regulations would establish a closed, cradle-to-grave distribution system for cannabinoid hemp products. Cannabinoid hemp processors (extractors and manufacturers) and retailers would have to obtain licenses issued by DOH and products would have to comply with stringent manufacturing, testing, packaging and labeling requirements. New York’s proposed regulations may become a model for how the U.S. and other jurisdictions regulate CBD and hemp-derived products for human consumption.
Comments on the proposed regulations can be submitted until January 11, 2021.
Cannabinoid Hemp Products
The proposed regulations apply to “cannabinoid hemp products,” defined as hemp or any product manufactured or derived from hemp, that include hemp-derived terpenes in its final form “used for human consumption.” Cannabinoid hemp products “used for human consumption” are products intended by the manufacturer or distributor to be used for their cannabinoid content or “used in, on or by the human body for its cannabinoid content.” Cannabinoid hemp products expressly exclude cosmetics and, consistent with the Drug Enforcement Administration’s (“DEA’s) August 2020 Interim Final Rule, would also exclude synthetic CBD.
Cannabinoid hemp products sold at retail cannot:
Products sold as a food or beverage product cannot contain more than 25 mgs. of total cannabinoids per product while supplements cannot contain more than 3,000 mgs. of cannabinoids per product.
Cannabinoid hemp products will need to be labeled with the quantity of cannabinoids in the product and quantity per serving. If the product contains THC, the label must state the THC quantity per serving and per package. Products must have a scannable code linking them to a certificate of analysis. Packaging must list consumer warnings and cannot be attractive to underage consumers.
Processors will have to test cannabinoid hemp products at a laboratory approved to test medical marijuana or that meets minimum requirements, including ISO/IEC 17025 accreditation and validation methods used for testing. The regulations will establish which analytes will be tested and establish limits for cannabinoids, heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals. Cannabinoid hemp products containing levels of analytes deviating from allowable limits will be considered adulterated and must be destroyed.
The regulations would establish advertising requirements for cannabinoid hemp processors and retailers, including prohibiting false or misleading statements and medical claims that they can or are intended to diagnose, cure, mitigate, treat or prevent disease. Advertising cannot lead anyone to believe the cannabinoid hemp product is marijuana or medical marijuana.
Hemp Processors
Extractors and manufacturers of cannabinoid hemp products in New York would have to obtain a processor license from DOH. Applicants must describe the products they intend to make, and submit proof of product liability insurance, evidence of Good Manufacturing Practices (“GMP”), organization documents and non-refundable $1,000 application fee, or $500 application fee for applicants seeking only to manufacture, not extract, cannabinoid hemp. If approved, hemp processors will follow-up with their facility’s certificate of occupancy, evidence of a GMP audit, and license fee of $4,500 for extracting or $2,000 for manufacturing. Processor licenses would be valid for two years. Licenses will be non-transferable except with prior DOH approval.
Processors will have to maintain records demonstrating that all hemp and hemp extract they use was grown, derived, extracted and transported in compliance with applicable laws and licensing requirements where they were sourced. Processors will have to maintain qualified third-party GMP certification. They will also have to retain extraction and manufacturing process records documenting:
Processors procuring hemp from out-of-state will have to maintain records of the non-resident grower’s registration or license in the jurisdiction where they are located. Processors will have to maintain records for five years and produce them to DOH upon request.
In addition, processors would have to comply with security and sanitary standards including prohibiting access by unauthorized individuals to their premises to ensure safe and sanitary conditions. Unlike DEA’s unworkable prohibition, the New York regulations would allow sales of in-process hemp extract containing up to 3.0% THC concentration between licensed processors in the state. This allowance more realistically reflects how the regulated industry transfers in-process hemp extract exceeding 0.3% THC concentration with safeguards against diversion from legitimate licensees.
Cannabinoid hemp processors will be limited to whom they sell their products. They will not be able to sell cannabinoid hemp products directly to consumers unless they obtain a cannabinoid hemp retail license and can only sell cannabinoid hemp extract in New York to cannabinoid hemp processors or registered organizations in the DOH’s Medical Marijuana Program. Distributors of cannabinoid hemp products manufactured outside New York to cannabinoid hemp retailers within the state, would have to obtain a permit from DOH.
DOH will be authorized to conduct unannounced random sampling and testing of hemp, hemp extract, and cannabinoid hemp products during licensees’ normal business hours.
Hemp Retailers
Everyone selling cannabinoid hemp to consumers in New York would have to obtain a retailer license from the DOH. Applicants would have to describe the type of cannabinoid hemp products they intend to sell, name and state or country of origin of the manufacturers they intend to procure products from and proof of certificate of authority from the state Department of Taxation and Finance. A refundable $300 license fee for each retail location must accompany applications. Retailer licenses would be valid for only one year. Retailer licenses, like processor licenses, will be non-transferable without DOH approval.
Retailers who submit a retail license application prior by April 1, 2021, will be allowed to sell cannabinoid hemp products before the DOH approves or denies their license if they comply with all proposed regulatory requirements.
Retailers can only sell cannabinoid hemp products manufactured, packaged, labeled and tested that comply with prescribed standards. They cannot sell inhalable cannabinoid hemp products to underage consumers. Retailers will have to maintain records of the cannabinoid hemp product’s source, including the name of the hemp processor and the wholesaler or distributor.
DOH will have authority to inspect cannabinoid hemp retailers, take samples of cannabinoid hemp products to ensure compliance and require display of cannabinoid hemp products separately from other products.
Penalties
Proposed penalties for noncompliance include graduating civil penalties that increase with each violation. The first violation could incur a fine up to $1,000; the second violation within a three-year period, a fine of up to $5,000; the third violation or any additional violation, a fine of up to $10,000. DOH would also be able to limit, suspend, revoke or annul a license. Violating regulations three times within five-years may result in the licensee being deemed ineligible to manufacture or sell cannabinoid hemp products for five years.
Conclusion
There are significant changes on the near horizon for cannabinoid hemp product processors and retailers in New York, and those outside the state who supply hemp and hemp extract into New York. We reiterate that retailers selling hemp cannabinoid products must apply to continue sales by April 21, 2021, cease sales, or face potential civil fines and future administrative sanctions. FDA and other jurisdictions are watching closely what transpires in New York.
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A flourish of drug regulatory actions have issued from the Trump Administration during its waning days. Within the past two weeks, HHS has terminated FDA’s Unapproved Drug Initiative by withdrawing two guidances, finalized a proposed OIG safe harbor regulation on PBM rebates that HHS had earlier withdrawn, and revived a CMS rulemaking proceeding to establish international reference pricing under Medicare. The first of these actions was addressed in our recent post here. The OIG safe harbor amendments will be covered in a upcoming post. This post is devoted to the CMS regulation, an interim final rule with comment period published in Friday’s Federal Register, which establishes a Most Favored Nation (MFN) Model for Medicare Part B drug payment. If it survives legal challenges and a change in administration, this regulation promises to substantially change the drug reimbursement landscape. The MFN Model is an extensively reformulated version of the International Pricing Index model set forth in a CMS Advance Notice of Proposed Rulemaking (ANPR) in October 2018 (see our post here), and it follows a September 2020 Trump Executive Order directing the Secretary of HHS to “immediately implement the Secretary’s rulemaking plan” to establish a most favored nation model (see our post here).
Developed under the auspices of CMS’ Center for Medicare and Medicaid Innovation (CMMI), the MFN Model will base Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price (ASP), and will establish a fixed add-on payment in place of the current 6 percent (4.3 percent after sequestration) of ASP. The MFN drug payment amount is expected to be lower than the current ASP-based payment limit because U.S. drug prices are generally the highest in the world. CMS expects that, as the Part B payment amounts for the included drugs are reduced, “in order for MFN participants to purchase MFN Model drugs at prices that does [sic] not lead to financial loss, the manufacturer will need to make available prices that are competitive with the MFN Drug Payment Amounts.” (85 Fed. Reg. at 762280) The essential features of the MFN Model are outlined below.
Performance Period: The MFN Model will be implemented for seven years beginning January 1, 2021. As described further below, the MFN pricing will be phased in over the first four years, taking full effect during the last three.
Participating Providers: MFN-based reimbursement will mandatorily apply to all Medicare participating providers that submit a claim to Medicare Part B for a separately payable MFN Model drug. These will include physicians and other practitioners, hospitals paid under the Outpatient Prospective Payment System (OPPS), and ambulatory surgical centers, among others. Certain providers will be excluded from the model, including children’s hospitals, cancer hospitals that are not paid under a prospective payment system, critical access hospitals, rural health clinics, Indian Health Service facilities, Federally Qualified Health Centers, and others.
Covered Drugs: In 2021, MFN payment will apply to the 50 separately paid drugs identified by CMS as having the highest aggregate 2019 total allowed charges. In subsequent years, the list will be updated to include new drugs that have the top 50 aggregate allowed charges for the most recent calendar year. However, drugs that drop out of the top 50 will not be deleted from the list, so the list will undoubtedly grow to more than 50. Certain drug categories are excluded from the model, including, among others, drugs approved under an ANDA; drugs paid under the End Stage Renal Disease Prospective Payment System, including those paid separately using the transitional drug add-on payment (TDAPA); vaccines covered by Part B (influenza, pneumococcal pneumonia, COVID 19, and hepatitis B); oral anti-cancer agents and antiemetic drugs; oral immunosuppressive drugs; and drugs paid under the DME benefit. Biosimilars are not excluded. The list of 50 drugs to be included in the MFN Model for 2021 appears in the preamble at 85 Fed. Reg. at 76194. The list includes two biosimilars.
MFN Drug Payment Amount Calculation Methodology: The payment for an MFN Model drug will be the MFN Drug Payment Amount plus a fixed add-on payment. The MFN Drug Payment Amount will be derived from the lowest price of the drug in a covered foreign country, adjusted for the difference in gross domestic product (GDP) between that country and the U.S. Essentially, the method for establishing the MFN Drug Payment Amount for each quarter will be to (1) use a pricing data source in each of the 22 countries to identify available average price information corresponding to the HCPCS code descriptor for each of the 50 drugs; (2) identify each country’s price for each drug; (3) adjust each price for the difference in GDP between that country and the U.S.; (4) select the lowest country-level adjusted price; (5) compare the latter price with the ASP for the drug and select the lower of the two as the MFN Price; and (6) apply a phase‑in percentage to the MFN Price to obtain the MFN Drug Payment Amount. This exercise will be repeated quarterly.
Financial Hardship Exemptions: Providers may apply for a financial hardship exemption if they were unable to obtain covered drugs at price below the MFN Model Payment during the year, despite exhausting all reasonable methods of doing so. The request must be submitted within 60 days after the end of the year, and must contain specified information on cost and the methods used to try to obtain each MFN model drug.
The Prospects for This Rule
Although the MFN Model interim final rule with comment period is effective as of November 27 and the model payment methodology is scheduled to begin on January 1, 2021, it faces uncertain prospects for implementation. In the first place, the authority for the regulation is Section 1115A of the Social Security Act, which established CMMI, and which was added by the Affordable Care Act. Paradoxically, the Trump Administration has joined a lawsuit brought by several states seeking to invalidate the Affordable Care Act in its entirety in a case pending before the Supreme Court. See Brief for the Federal Respondents, State of California, et al. v. State of Texas, et al., Nos. 19-840 and 19-1019. If the suit is successful, this rule will have no effect.
A more likely impediment will be the almost certain prospect of a pharmaceutical industry lawsuit challenging the regulation. PhRMA has issued a statement criticizing the Administration for “blindly proceeding” with a rule that takes unilateral action to set prices. At the very least, this interim final rule is vulnerable to a procedural challenge under the Administrative Procedure Act, since it was not preceded by a proposed rule, and is substantially different from the 2018 ANPR. The APA permits an agency to forego ordinary notice and comment procedures if there is good cause for a finding that they are “impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(B). The preamble explains that good cause exists because the Medicare population is in urgent need of relief from high drug prices in the midst of the financial burdens caused by the COVID-19 pandemic. (85 Fed. Reg. at 76249) However, it is uncertain whether this justification would prevail in an APA challenge. An industry lawsuit can also be expected to challenge the substance of the rule.
Finally, President-Elect Biden will take office before the 60-day comment period for the rule expires, and the incoming administration may change or withdraw the rule in the infancy of the MFC Model. As a concept, international reference pricing does have support among Democrats. Indeed, a form of it was included in H.R. 3, the drug pricing bill that passed the Democrat-controlled House on December 12, 2019. However, the scope and details of the rule, and especially its timing, may not suit the priorities of the Biden Administration. President-Elect Biden has emphasized that his first priority is defeating COVID-19, and his administration will, to a large extent, be dependent on the cooperation of pharmaceutical companies in order to achieve that goal. His administration may be unwilling to go to battle with the pharmaceutical industry at this sensitive time. Nevertheless, even if this particular regulation does not come to fruition, the bi-partisan concept of international reference pricing is likely to find its way into a future regulation or legislation, especially if Democrats take control of the Senate.
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On November 20, 2020, the Office of Prescription Drug Promotion (OPDP) hosted a webinar to announce a new process for review of “core launch” promotional materials. Specifically, OPDP has added a five business day screening period to the beginning of core launch review to ensure that the submission meets the criteria for “core launch” as outlined in OPDP’s 2019 guidance document, Providing Regulatory Submissions in Electronic and Non-Electronic Format – Promotional Labeling and Advertising Materials for Human Prescription Drugs (OPDP Electronic Submissions Guidance). OPDP also clarified what it considers to be core launch materials, for purposes of estimated review timing.
As background, firms have a voluntary option to submit promotional materials to OPDP for review prior to dissemination. “Launch” materials are those draft promotional materials that firms intend to disseminate in the first 120 days that a new product indication, delivery system, formulation, dosage form, dosing regimen, strength, or route of administration is marketed to the public. “Core launch” materials are the following key launch materials, as outlined in the OPDP Electronic Submissions Guidance:
OPDP has a goal of reviewing all core launch materials within 45 calendar days, and it tracks its performance in meeting this goal (see OPDP Metrics webpage).
During the November 20 webinar, OPDP explained that some recent core launch submissions have presented challenges for both OPDP and firms, prompting OPDP to make improvements to its process to help streamline review and ensure that OPDP can meet the 45-day turnaround time. OPDP noted that there have been instances of lengthy comment letters from OPDP in sub-optimal timeframes for firms, core launch submissions with highly nuanced claims and presentations, and submissions with hundreds of pages of references requiring extensive review.
The purpose of the new five business day screening process is to ensure that the submission meets criteria for “core launch,” in that it is limited to the items listed in the OPDP Electronic Submissions Guidance and that the claims and presentations are based solely on information contained in the Prescribing Information, information from the pivotal trials, or publications directly related to those trials. The screening process is also intended to ensure that the submission is administratively complete. For example, firms must submit both clean and annotated versions of the draft promotional materials, and the annotated versions must be cross-referenced to annotated versions of the FDA-approved prescribing information. FDA intends to notify firms via teleconference if the submission is not a core launch submission, exceeds the page limits, or otherwise does not satisfy the criteria for core launch review. If no issues are identified, the firm will not be contacted, and FDA will proceed to the 45-day core launch review process.
The new process will help better frame expectations for industry as well as OPDP. OPDP stated that it expects materials to “be a true representation of the core introductory messaging for the product” and not material that includes all potential claims the firm wants to make. This is consistent with OPDP’s historical approach of reviewing pieces in totality to better understand format, context, and prominence of presentations. Of particular interest, OPDP clarified that core launch materials may contain claims and presentations that are consistent with the drug’s prescribing information, per its CFL Guidance so long as those claims otherwise meet the criteria of a “core launch” claim (e.g., relates to the prescribing information or to pivotal trials). While firms may provide a CFL analysis to support the presentation, one is not required and the example displayed during the webinar and as part of OPDP’s updated Frequently Asked Questions webpage is unhelpful in providing meaningful guidance to firms on information that supports the CFL analysis. The example of a CFL analysis simply re-states the three-factor test articulated in the CFL Guidance, without specific analyses that would support the claim.
Despite the modified process, OPDP also emphasized that there are still circumstances when firms should expect a turnaround time longer than 45 days. OPDP explained that if the submission of launch materials includes materials with claims that are not derived completely and directly from the prescribing information (e.g., it includes claims supported by clinical literature), OPDP may need to consult with other experts within FDA. Any time necessary for consultation outside of OPDP is not counted within the 45-day clock and reviews that include consults may not be completed within 45 days.
The new core launch review process will go into effect starting January 1, 2021.
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