Attorney East Hampton

By JP Ellison & Anne K. Walsh —

The adage that “no one is perfect” applies as equally to companies as it does to people.  Before committing to a merger or acquisition with another company, a potential Buyer must conduct due diligence to identify the imperfections of a target company so the Buyer knows what it is buying.  This diligence is particularly critical when the target company is privately held, and thus not subject to scrutiny from public markets.  The results of the diligence inform the Buyer as it weighs the benefits, costs, and risks associated with a potential transaction to determine whether, and on what terms, to proceed.

There are standard topics diligence typically covers: financial, employment, environmental, tax, intellectual property, and litigation, among other things.  For companies that play in the FDA-regulated space, however, a focused regulatory diligence should be a high priority.  Of course a solid understanding of the regulatory compliance status of a target company is necessary for pure business reasons.  But the scope of regulatory diligence and its application to post-acquisition activities has broader implications, namely whether the government will hold the Buyer responsible, either criminally, civilly, or administratively, for the regulatory issues it inherited through the acquisition.  Thus, identifying risks and appropriately structuring a transaction, while critical, are only part of a strategy to manage regulatory compliance risks.  Equally important is the question of what steps a company has taken post-acquisition to address the issues identified during the diligence process.

The US DOJ’s Justice Manual requires prosecutors to consider certain factors in deciding whether to bring criminal charges against a corporate entity, one of which is whether the company maintains a well-designed compliance program.  In its June 2020 updated guidance document, “Evaluation of Corporate Compliance Programs,” DOJ makes clear that pre M&A due diligence is a critical aspect of that determination:  “A well-designed compliance program should include comprehensive due diligence of any acquisition targets, as well as a process for timely and orderly integration of the acquired entity into existing compliance program structures and internal controls.”  DOJ expects companies to act promptly on information obtained during the diligence process.  Specifically, DOJ asks: “What has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process?” (emphasis added).

Similarly, in the civil context, the Justice Manual highlights the importance of taking remedial action once it is known.  Such remedial actions may include:

1. demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
2. implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;1
3. appropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred; and
4. any additional steps demonstrating recognition of the seriousness of the entity’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.

In a recent civil False Claims Act case settlement, DOJ relied on the information the company gleaned during diligence to hold a Buyer responsible for the violative conduct:  “Specifically, the United States alleges that Ancor, through its due diligence . . . learned about the alleged conduct in Paragraphs E.1 and E.2.  . . . . The United States contends that Ancor caused false claims when it allowed the alleged conduct described in Paragraphs E.1 and E.2 to continue . . . . ” (emphasis added).

Last, in considering whether to impose integrity obligations on healthcare companies, the HHS OIG has noted that certain successor owners may avoid such obligations if they can demonstrate, among other conditions, that they “purchased the entity after the fraudulent conduct occurred;” and” took appropriate steps to address the predecessor’s misconduct and reduce the risk of future misconduct.”

Companies considering an acquisition need to be mindful of these and similar government pronouncements as they evaluate the merits of such transactions as part of their regulatory diligence.  Should they proceed with the transaction, companies can minimize potential liability by appropriately prioritizing the remediation activities for those uncovered regulatory issues.

By Dara Katcher Levy & Kalie E. Richardson —

In what appears to be an “about face” in terms of Facebook’s historical wooing of big pharma (are we the only ones that immediately thought, “More Cowbell” when seeing that headline?  You can thank us for that 5 minute rabbit hole later), the social media giant has implemented yet another policy change affecting branded content for prescription drugs.   While it appears to have gone largely unnoticed by industry, Facebook updated its Branded Content Policies in May 2021, and now prohibits the promotion of “drugs and drug-related products, including illegal, prescription, or recreational drugs” via branded content.

Facebook defines branded content as “a creator or publisher’s content that features or is influenced by a business partner for an exchange of value, such as monetary payment or free gifts” and posts that are considered branded content begin with “Paid partnership with.”  A celebrity or influencer sponsored post on Instagram, which is owned by Facebook, endorsing a product is a common example of branded content.

As we understand it, this policy prohibits all branded content for drugs, regardless of whether or not that content contains the required safety information and branded content disclosure.  Branded content for OTC drugs, which we would have assumed fall into the category of “drugs,” however, is considered “restricted content” rather than the aforementioned “prohibited content.” Facebook’s restricted content policy for OTC drugs requires that the branded content “must comply with all applicable local laws, required or established industry codes, guidelines, licenses and approvals, and include age and country targeting criteria consistent with applicable local laws.”  There is no mention of prescription or OTC medical devices in Facebook’s current Branded Content Policies.

It is not clear whether or how Facebook is enforcing this policy, or whether such enforcement would apply to the poster, the sponsor, or both.  The new policy would represent a consequential change in Facebook advertising as branded content is a major marketing expenditure; celebrities and influencers with significant followings easily earn tens of thousands of dollars for a single post.  To the best of our knowledge, branded content for prescription drugs has continued to appear on Facebook and Instagram since the May 24 date of the policy.

We note that this policy change is separate from the new Facebook policy requiring Legitscript certification for certain Rx drug advertisers and pre-approval for prescription drugs advertisers that was announced last month and is covered in an earlier blog post.

Aside from specific platform policies around prescription drug advertising, sponsors and influencers should be mindful of FTC and FDA guidance covering sponsored social media posts.  The FTC Disclosures 101 for Social Media outlines influencer obligations to clearly disclose sponsored content.  And, while largely outdated, FDA has previously issued draft guidances on presenting risk and benefit information for prescription drugs and medical devices on social medial platforms with character space limitations and on correcting independent third-party misinformation on social media.

Given the resources pharmaceutical companies have put toward increasing social media presence with influencer marketing, we are curious about what, if any, changes are to come in this space – from FDA/FTC enforcement, new/different platform policies relating to sponsored content, or to pharma’s ultimate investment.

By Philip Won —

On June 17, 2021, FDA has released a discussion paper to discuss cybersecurity issues related to the servicing of medical devices. We have previously posted blogs about FDA’s increasing interest on cybersecurity both in the premarket (see our past blog posts here, here, and here) and the postmarket space (see our past blog posts here and here). FDA is now expanding its cybersecurity effort in servicing of medical devices.

Medical device cybersecurity is a shared stakeholder responsibility over the total product lifecycle to prevent compromised functionality, loss of medical or personal data, inadequate data integrity, or the spreading of security threats to other connected devices or networks.  In this discussion paper, FDA emphasizes cybersecurity challenges related to a non-OEM (original equipment manufacturer) entity’s activities in the following four areas.

First, how can non-OEMs address cybersecurity challenges related to the entity’s need for privileged access to diagnose, maintain, and repair the functions of the device (i.e., privileged access issue)?

Second, how can servicing entities collect and share the postmarket data regarding identification of cybersecurity vulnerabilities and incidents (i.e., Identification of Cybersecurity Vulnerabilities and Incidents)?

Third, what would be effective methods or pathways for interested stakeholders to prevent and mitigate cybersecurity vulnerabilities (i.e., Prevention and Mitigation of Cybersecurity Vulnerabilities)?

Fourth, when OEMs stop supporting the device while healthcare establishments continue to use unpatched but still clinically useful devices despite vulnerability to cyber-attack, what would be an effective mitigation to address unpatched medical device cybersecurity over the total product lifecycle (i.e., Product Life Cycle Challenges and Opportunities)?

FDA invites stakeholders to specifically address the following three questions.

1. What are the cybersecurity challenges and opportunities associated with the servicing of medical devices?
2. Are the four areas identified in this discussion paper (privileged access, identification of cybersecurity vulnerabilities and incidents, prevention and mitigation of cybersecurity vulnerabilities, and product lifecycle challenges and opportunities) the correct cybersecurity priority issues to address in the servicing of medical devices? If not, which areas should be the focus?
3. How can entities that service medical devices contribute to strengthening the cybersecurity of medical devices?

Interested parties have until September 22, 2021 to comment on these three questions as well as the issues raised in this discussion paper.  You can browse comments already submitted or submit your own at this link.

By Anne K. Walsh & JP Ellison —

Companies often use rebranding to reposition and refocus their business.  Sometimes they do it with great fanfare; sometimes it is done quietly and incrementally.  The federal government does its own version of rebranding with each change in administration.  Just before the July 4 holiday weekend, DOJ quietly rebranded the role of guidance documents, reversing two distinct but related policies regarding such documents.  The first policy it reversed, originally announced in 2017 by Attorney General Sessions, prohibited all DOJ components from “issu[ing] guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch (including state, local, and tribal governments).”  The second, and arguably more significant, policy prohibited its lawyers from civilly prosecuting companies for violating “requirements” set forth in agency guidance documents.  This policy, announced by then Associate Attorney General Rachel Brand in 2018 was referred to as the Brand Memo.  As a matter of administrative law, the Brand Memo made good sense from the perspective of FDA-regulated industry, as we described here.  Because guidance documents have not undergone the notice-and-comment rulemaking process required under the Administrative Procedure Act, these documents should not be used to bind the public or coerce regulated parties into acting beyond what is required by law and regulation.  DOJ’s policy (ironically issued via guidance document, but later memorialized in the Justice Manual) stated that DOJ would not use noncompliance with guidance documents as the sole basis for an affirmative civil enforcement case.

The July 1, 2021 Memo signed by Attorney General Garland describes the earlier policies as “overly restrictive,” and claims it has “discouraged the development of valuable guidance” and “hampered [DOJ] attorneys when litigating cases where there is relevant agency guidance.”  The Attorney General now instructs DOJ lawyers handling an enforcement action that they “may rely on relevant guidance documents” in instances when a guidance document “may be entitled to deference or otherwise carry persuasive weight with respect to the meaning of the applicable legal requirements.”  The memorandum cites the 2019 Supreme Court decision, Kisor v. Wilkie, 139 S. Ct. 2400, 2420 (2019), which recognized that agencies can issue interpretive rules without notice-and-comment as long as they are meant only to advise the public of how the agency understands, and is likely to apply, the binding laws and regulations.

FDA’s database contains 2,623 guidance documents that address a plethora of topics, ranging from the mundane (e.g., electronic formatting for regulatory submissions), scientific (e.g., clinical testing of implanted brain computer interface devices for patients with paralysis or amputation), enforcement (e.g., recalls), and the COVID-19 emergency.  The top of each document includes the following disclaimer:

Even though these guidance documents explicitly are “not binding on FDA or the public,” companies rarely divert from terms within a guidance document because disagreement with FDA could result in costly delays in regulatory approval or administrative sanctions.  Nevertheless, the Brand Memo gave companies some solace that a failure to “dot all the I’s and cross all the T’s” within a guidance document would not be the basis for a government prosecution.  Rather, companies that met the legal and regulatory standards could defend their conduct even if they did not do so exactly as FDA proposed in guidance.

In light of the seemingly renewed general focus on enforcement activities after a COVID-19 lull, regulated companies should anticipate the resumption of FDA inspections.  In preparation, companies should consider whether new guidance documents have been issued that “require” changes in business practices and documentation.

Additionally, on the government investigation front, companies should expect that DOJ lawyers assessing potential False Claims Act cases based on alleged FDC Act violations, are reading FDA guidance documents with renewed vigor and contemplating how to use those guidance documents in their cases, which routinely result in multi-million dollar settlement demands.  Companies should be prepared to vigorously defend themselves, starting with Attorney General Garland’s own reminder: “By definition, guidance documents ‘do not have the force and effect of law.’”

By JP Ellison —

It is a well-accepted fact that even well run ethical and compliant organizations can have serious problems.  The Sentencing Guidelines, the DOJ Manual, and the HHHS OIG–among others–all recognize that reality.  In its Compliance Guidance for Pharmaceutical Manufacturers, the HHS OIG notes:

The OIG recognizes that the implementation of a compliance program may not entirely eliminate improper conduct from the operations of a pharmaceutical manufacturer. However, a good faith effort by the company to comply with applicable statutes and regulations as well as federal health care program requirements, demonstrated by an effective compliance program, significantly reduces the risk of unlawful conduct and any penalties that result from such behavior.

Generally speaking, that recognition has limits, however.  While the Organizational  Sentencing Guidelines provide for a sentencing reduction for companies with an effective compliance and ethics program, that reduction is presumptively not available “if an individual— within high-level personnel of a small organization; or within substantial authority personnel, but not within high-level personnel, of any organization, participated in, condoned, or was willfully ignorant of, the offense.”  The Guidelines rationale is that “[o]rganizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.”  The Justice Manual on the Principles of Federal Prosecution of Business Organizations further expounds on this notion:

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation . . . .

Agents may act for mixed reasons—both for self-aggrandizement (direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. . . . . Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable.

In light of the above, the government generally resists the notion that an organization is a victim of its own employees.  Earlier this year, in denying a restitution request from a company, Judge Rakoff in the Southern District of New York wrote that a company’s “efforts to root out misconduct, however extensive, do not ‘immunize the corporation from liability when its employees, acting within the scope of their authority, fail to comply with the law.’” He further noted that “the mere fact that the defendants may have misled other employees or agents of [the company does not relieve [the company of its criminal liability under the principle of respondeat superior, especially where, as here, the wrongdoing was committed by company’s highest officers.

In sum, a company seeking to show that it is not responsible for the bad acts of its employees faces an uphill fight. Which brings us to the FIFA prosecutions, a topic that would not typically be blogworthy for the FDA law blog.

At a very general level, starting in 2015, in a high profile series of prosecutions, the DOJ accused a number of top FIFA officials of widespread criminal conduct.    At that time, DOJ noted that “[t]he defendants charged in the indictment include high-ranking officials of the Fédération Internationale de Football Association (FIFA), the organization responsible for the regulation and promotion of soccer worldwide.”  That type of headline typically signals that the organization is going to be a defendant, not a victim, but earlier this week, DOJ announced that FIFA would be receiving victim compensation in the form of remission.  In that same announcement, DOJ noted that:  “To date, the prosecutions have resulted in charges against more than 50 individual and corporate defendants from more than 20 countries, primarily in connection with the offer and receipt of bribes and kickbacks paid by sports marketing companies to soccer officials in exchange for the media and marketing rights to various soccer tournaments and events.”  In other words, despite a widespread and seemingly systemic fraud, the organization was a victim.  These types of resolutions are intensely fact-specific, and for all the reasons noted above a company that simply claims that it’s a victim without laying the factual and legal basis for such a claim is unlikely to get very far, but nevertheless, this case is relevant precedent for companies who find themselves investigating employee misconduct and navigating government investigations.

By McKenzie E. Cato & Alan M. Kirschenbaum —

On August 6, 2021, the Pharmaceutical Research and Manufacturers of America (PhRMA) announced the release of a revised PhRMA Code on Interactions with Health Care Professionals, which takes effect on January 1, 2022.  The PhRMA Code is a voluntary code of conduct focusing on the pharmaceutical industry’s interactions with health care professionals as they relate to the marketing of products.  The PhRMA Code is updated periodically to reflect changes in industry norms or, as is likely the case with the latest revision, in response to political pressure or increased scrutiny from the federal government.

The latest changes to the PhRMA Code are primarily focused on speaker programs, including meals and drinks offered, the venue used, and attendance at such programs.  These revisions appear to be responsive to a November 16, 2020 Special Fraud Alert issued by the Office of Inspector General at the U.S. Department of Health and Human Services (OIG) (see our blog post on this Special Fraud Alert here).

While PhRMA does not reference the OIG Special Fraud Alert in its announcement of the revised code or its summary of revisions to the code, the substantive updates to the code are directly traceable to OIG’s critiques of speaker programs.  OIG provided examples of practices that are common in violative speaker programs that are conducted with the intent to induce health care professionals (HCPs) to prescribe or order products paid for by Federal health care programs:  holding programs at non-conducive venues or events; providing expensive meals; repeat attendance by HCPs at substantially similar trainings; and attendance by the HCP’s friends or families.

PhRMA has updated its guidance regarding speaker programs through the following additions to the Code:

• The purpose of a speaker program should be to present substantive educational information to address a bona fide educational need, and only those with a bona fide educational need for the information should be invited (i.e., not friends, significant others, or family members of a speaker or invitee). Repeat attendance at a program on the same topic is generally not appropriate, unless there is a bona fide educational need for repeat attendance.
• The speaker program should occur in a venue that is conducive to the informational communication. If held in a third-party venue, the venue “should not be extravagant or the main attraction of the event” (e.g., the venue should not be a luxury resort, high-end restaurant, or other entertainment, sporting, or recreational venue).  The new Code continues to permit incidental meals that are modest by local standards (still without defining “modest”), but adds a prohibition on providing alcohol.
• It continues to be appropriate for companies to offer HCP speakers reasonable compensation for their time, travel, lodging, and meal expenses. However, the revised Code clarifies that an HCP should not be selected to serve as a speaker based on past revenue that the speaker has generated or potential future revenue that the speaker could generate by prescribing or ordering a company’s products.

Other, less extensive changes have been made to Code sections on topics other than speaker programs.  The section on informational presentations by company representatives continues to permit modest meals to be provided during such presentations, but a requirement has been added that there must be a reasonable expectation, and reasonable steps taken to confirm, that each attendee has a substantive interaction or discussion with a company representative.  “Grab-and-go” meals and alcohol are not appropriate.

The current Code discourages the use of resort venues for several types of meetings, including consultant meetings, speaker programs, and speaker training meetings.  Wherever a “resort” venue is discouraged in the current Code, the revised Code substitutes “luxury resort.”  In other words, under the revised Code, a resort may be an appropriate venue as long as it is not a “luxury resort.”  This change probably reflects the trend since the Code was last revised for relatively modest hotels to include “resort” in their names.

It is timely to remind our readers that, although the PhRMA Code remains a voluntary industry code, its important function in risk reduction cannot be overstated.  The OIG long ago recommended that drug manufacturers adopt the Code, explaining in the Compliance Program Guidance for Pharmaceutical Manufacturers that, “[a]lthough compliance with the PhRMA Code will not protect a manufacturer as a matter of law under the anti-kickback statute, it will substantially reduce the risk of fraud and abuse and help demonstrate a good faith effort to comply with the applicable federal health care program requirements.”  Moreover, three states — California, Connecticut, and Nevada – have essentially incorporated the Code into state law by requiring pharmaceutical companies to develop and maintain compliance programs that include, or are consistent with, the PhRMA Code.

By Karin F.R. Moore —

In a repeat of 2013, 2015 and 2018, Rep. Frank Pallone (D-N.J.) has yet again introduced the Food Labeling Modernization Act (FLMA).  As in the past, there are a few new things of note, and a few other things have been removed (e.g., requirements for sesame allergen labeling, which was accomplished earlier this year).

The latest version of the bill again directs FDA to establish a standard symbol system for front-of-package labeling for conventional foods.  A food would be misbranded unless its principal display panel bears “summary nutrition information that reflects the overall nutritional value of the food or specified ingredients” as required in regulations that would be issued by FDA.

As noted in the previous iterations, the 2021 FLMA focuses on nutrients.  As FDA has recognized, modern nutrition science no longer focuses on nutrients, but instead focuses on certain foods and dietary patterns

The FMLA seems to be a compilation of items that have been subject to petitions by various NGOs and others covering a wide range of topics, as well as a few things already in process as part of FDA’s Nutrition Innovation Strategy, including:

• Amending the Food Drug and Cosmetic Act to address the amount of wheat and grains in grain-based products, and real fruit, vegetable, and yogurt required in products bearing fruit, vegetable and yogurt claims. Interestingly, this provision also applies to the terms “froot” and “frooty.”
• Revising the term “healthy” and addressing nutrient content claims that “may not be compatible with maintaining healthy dietary practices” and how those claims should be qualified. Defining the term “natural.”
• The addition of “gluten-containing grain” when referencing food allergens, and the addition of “gluten-containing grain” to FSMA’s Hazard Analysis and Preventive Controls, as well as to food allergen inspections language.
• A review of Standards of Identity, as well as amendments to existing standards to allow for the use of salt substitutes where appropriate. The bill includes a specific provision related to a minimum level of live and active cultures per gram – an issue that has been addressed already in FDA’s June 2021 final rule to amend the standard of identity for yogurt.
• A study on the fortification of corn masa flour.
• Regulation to establish levels of allulose, polydextrose, sugar alcohols or isolated fibers above which require a warning that the food contains levels that cause “deleterious health effects.”
• A provision setting forth requirements for infant and toddler beverages.
• A study on text size and color contrast that make food labeling information visually accessible to most consumers.
• Regulations to establish requirements for the sale of food online, including access to label or labeling information prior to purchase

The bill does not include any provisions to fund the work to conduct the studies and establish the required regulations, and includes a provision requiring the issuance or proposed regulations within one year of passage (shortened from two years in the last iteration), and two years to finalize the regulations (shortened from three years) – and if final regulations are not issued within that timeframe, the proposed regulations become final on that deadline. This is an incredibly short timeframe, and would seemingly make final regulations that do not have the benefit of any incorporation of comments.  As to whether this version will eventually become a law, it is doubtful given that this is the fourth iteration and a partisan bill, but we will alert you if things change.

By Jeffrey K. Shapiro —

A determination of “intended use” is fundamental to FDA’s regulation of drugs and medical devices.  It is a primary basis for determining if an article is regulated by FDA at all, and if so, what regulatory requirements apply.  It is embodied in parallel drug and device regulatory definitions of intended use (21 C.F.R. §§ 201.128 (drugs), 801.4 (devices)).

FDA has now issued a final rule governing how intended use of a distributed product is to be determined.  Thus ends a saga that began with a proposal in 2015 to amend the “intended use” regulation.  The proposal was to remove the “knowledge provision,” which had always seemed to problematically suggest that a manufacturer could be held responsible for off‑label use if the manufacturer knew about it.

This provision stated (as of April 2021):

But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.

The proposal to delete this provision made sense, because the off‑label uses under consideration are entirely lawful.  It is contrary to the statutory scheme to require a manufacturer to obtain cleared or approved labeling for an off-label label use simply based on knowledge that physicians were choosing to use the device off‑label.  It is especially problematic to criminalize these otherwise lawful sales until such clearance or approval can be obtained.

In 2017, however, FDA shockingly finalized this proposed rule without deleting the knowledge provision.  Indeed, FDA arguably strengthened it.  This set off a firestorm, eventually leading to a new proposed rule in 2020, which was much closer to the one in 2015.  We were generally in favor of it, although not without some criticisms.

FDA has now finalized the rule roughly as proposed last year.  On the whole, the amended intended use regulation is a modest improvement over the one in place for many decades.  (It could have been made much better; our more comprehensive proposal is here.)

The entire modified rule (device version) can be found here.  It states:

The words intended uses or words of similar import in §§  801.5, 801.119, 801.122, and 1100.5 of this chapter refer to the objective intent of the persons legally responsible for the labeling of an article (or their representatives). The intent may be shown by such persons’ expressions, the design or composition of the article, or by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. Objective intent may be shown, for example, by circumstances in which the article is, with the knowledge of such persons or their representatives, offered or used for a purpose for which it is neither labeled nor advertised; provided, however, that a firm would not be regarded as intending an unapproved new use for a device approved, cleared, granted marketing authorization, or exempted from premarket notification based solely on that firm’s knowledge that such device was being prescribed or used by health care providers for such use. The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer. If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he or she received the article, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses.  (Italics supplied.)

We have three quick comments on the revised regulation:

First, the removal of the problematic knowledge provision is a significant victory for regulatory clarity and brings the regulation more in line with the statutory scheme.  This was the core of the 2015 proposal and it is amazing that it took six years to back to that proposal.  Still, it is a welcome outcome.

Second, the new italicized proviso introduced in this rulemaking is important.  It further prevents FDA from inferring off-label intent based merely on knowledge that an otherwise lawfully marketed device is being used off-label.  We had suggested striking the word “solely” to clarify further that a manufacturer’s knowledge of off-label use should never enter into a FDA’s determination of intended use.  Nonetheless, although FDA did retain “solely,” it seems unlikely that mere knowledge of lawful off-label use could be used to bring a case against a manufacturer without significant unlawful promotion being involved as well.

Finally, as discussed here, this revised provision gives FDA the right to consider “design and composition” in determining intended use.  To the extent that FDA infers an unapproved new intended use based upon the design and composition of a device as it has been cleared or approved, then it may conflict with Section 513(i)(1)(E) of the FDCA.

That provision requires FDA limit the determination of intended use in premarket review to the proposed labeling.  If FDA believes based upon a device’s design (which includes composition) that an off-label is possible and could cause harm, it may do no more than require certain cautionary labeling statements.  The agency may not require that the manufacturer obtain clearance or approval of the off‑label use implied by the design or composition.

It would contradict this statutory scheme for FDA to clear or approve a device with a particular design or composition and then turn around and seek to hold the manufacturer liable for an off-label intended use based upon the same design or composition.  That would be an inappropriate end run around Section 513(i)(1)(E).

By Sara W. Koblitz —

About two weeks ago, FDA made an exciting announcement (and it remains exciting even if we’re late posting about it): FDA approved the first interchangeable biosimilar.  On July 30, 2021, FDA approved Semglee (insulin glargine-yfgn), an insulin product that relies on Lantus (insulin glargine) as its reference product.  In its Press Release, FDA explains that Mylan, the Semglee sponsor, submitted evidence that showed that “there are no clinically meaningful differences” between Semglee and Lantus “in terms of safety, purity, and potency (safety and effectiveness)” and that Semglee “can be expected to produce the same clinical result as Lantus” in any giving patient.  As a result of this decision, Semglee can now be substituted for Lantus prescriptions without the intervention of a health care provider in accordance with state substitution regulations.  While Semglee was previously approved as a 505(b)(2) NDA referencing Lantus in June 2020, it was not rated as therapeutically equivalent (and therefore substitutable) to Lantus, and it immediately transitioned to a BLA upon approval as a result of the BPCIA (more on that below).  Thus, though Semglee is not new to the market, it is for the first time substitutable for Lantus without intervention of a health care provider.

Though Congress enacted the pathway for approval of interchangeable biosimilars in 2010 in an effort to incentivize competition to address the high prices of biologics, no sponsor had yet to crack the code to interchangeable approval until now.  In the past eleven years, we have seen a plethora of biosimilar approvals—which, like their name implies, are “similar” but not quite the “same” as and therefore substitutable for approved biologics—but substitutable biologics remained a pipe dream due to the difficulty of replicating a large molecule.  Biosimilars do provide a more affordable way for sponsors to get products onto the market—by referencing the clinical studies performed by the reference product sponsor—which, in theory, allows for the introduction of lower cost versions of expensive biologics.  But because these biosimilar cannot be substituted for their reference products—requiring health care professional brand awareness for both the brand name and the biosimilar—biosimilars have not quite made the dent in the market that Congress had hoped.  The expectation is that interchangeable biologics would make all the difference.

Yet, even with the first interchangeable biosimilar approval, it’s not quite clear when patients will see those savings.  Though not exclusivity is listed in the Purple Book yet, Semglee should be eligible for 12 months of exclusivity, which would block FDA licensure of any subsequent interchangeable biosimilars starting from its first commercial launch.  Even though Semglee has been approved and marketed as a biologic for a little over a year already and therefore first commercial marketing already has occurred, it’s interchangeable biosimilar is approved under a new BLA.  Interchangeable exclusivity, assuming it’s awarded, likely will be triggered at launch of the product under the new BLA, which, according to the NDC Code database, has not yet occurred.

Regardless of exclusivity, with no interchangeable competition as of yet, Mylan can price Semglee only slightly less than Lantus and still take market share, only marginally reducing costs to consumers.  As FDA states in its Press Release, “Biosimilars marketed in the U.S. typically have launched with initial list prices 15% to 35% lower than comparative list prices of the reference products,” but this 15 to 35% is not a huge relief for patients given the high cost of biologics.  For that reason, FDA merely states that biosimilars have the “potential to reduce health care costs.”  It’s not clear how much interchangeable approval will affect these health care cost reductions or how much competition is needed for prices to come down.  So, it remains to be seen if and when interchangeable Semglee will have any meaningful effect on insulin prices in the near future.

And it’s no surprise that the first interchangeable biosimilar is insulin.  FDA has long encouraged generic competition for insulin but developing a generic under an ANDA was very difficult “due to the complexities of these products”.  As part of the BPCIA, Congress amended the definition of “biologic” so that it included proteins, and protein products previously approved as drugs transitioned to biologics in March 2020, and, also under the BPCIA, became eligible for use as a reference product for biosimilar approval.  This transition eased the way for the development of insulin follow-on products because they no longer needed to be identical to their reference products for generic approval.  In 2019, Commissioner Gottlieb even noted: “The transition is particularly important for insulin” and that “FDA is dedicated to facilitating access to insulin.”  FDA further held a public hearing specific to insulin interchangeable biosimilar, and, in November 2019, issued a guidance on clinical immunogenicity specifically for insulin products.  To say that access to lower cost insulin products has been a priority for the Agency may be an understatement.

In tandem with its approval of Semglee, FDA issued a Consumer Update, as well as Fact Sheets and Stakeholder Toolkits, explaining the “treatment choices” arising from biosimilar and interchangeable approvals.  In contrast to claims made by certain reference product sponsors (which Pfizer took issue with back in 2018), FDA states in the Update that “Biosimilars are as safe and effective as the original biologic” and that consumers “can expect the same safety and effectiveness from the biosimilar over the course of treatment as you would from the original product.”  An interchangeable “meets additional requirements” for substitution, and “health care providers and patients can be confident in the safety and effectiveness of a biosimilar or an interchangeable biosimilar product, just as they would be for the FDA-approved original product.”  Even before this approval and Update, health insurers heard this message loud and clear and have taken to paying patients to switch to biosimilar versions of medications to encourage widespread use in an effort to address costs.

FDA, in its Consumer Updates, states that it “expects to approve more interchangeable products in the future.”  Now that FDA has hit this milestone and mapped a blueprint for its interchangeable expectations, hopefully we won’t have to wait too much longer for the flurry of interchangeable approvals needed to add some meaningful competition in the biologics market and presumably address biologic prices.

By Faraz Siddiqui & Alan M. Kirschenbaum —

The Department of Health and Human Services (HHS) is proposing to rescind a Trump era rule that would have established a “most favored nation” (MFN) model to base Medicare Part B drug payment on international prices.  The Trump Administration rule had a troubled history.  The idea of basing Medicare drug reimbursement on prices in foreign countries was first proposed during the Obama Administration in 2016.  That proposal was withdrawn by the Trump HHS, but the notion of international reference pricing was subsequently incorporated in an October 2018 HHS Advance Notice of Proposed Rulemaking (ANPR) (see our post here).  HHS took no further action on the ANPR, but two years later, in the waning days of the Trump Administration, HHS issued a final rule with comment period establishing a MFN model for Part B rate setting methodology, circumventing the usual proposed regulation stage.  The MFN rule, which we summarized here, called for Part B payment for at least 50 high-expenditure drugs selected by HHS to be based on the lowest payment rate in 22 specified foreign countries, with a fixed add-on payment for drug administration.  Predictably, PhRMA, BIO, and numerous provider organizations took advantage of the procedural irregularity to challenge the rule on APA grounds in three separate lawsuits, and succeeded in obtaining injunctions blocking the rule from taking effect on January 1, 2021 (as we reported here and here).

Finally, CMS released a proposed rule on August 6 seeking to rescind the interim final rule.  According to CMS, the agency considered the nationwide preliminary injunction and multiple court challenges based on the rule’s procedural deficiencies, and stakeholder concerns about its start date and its far-reaching impact.  According to the proposal, CMS will review the issues identified by commenters and continue to explore opportunities to address high drug costs based on stakeholder comments to the interim final rule.  The proposed rule to rescind will be published in the August 10 Federal Register and comments will be due on October 9.

It is possible that CMS will issue a new proposed rule to impose international reference pricing in the future, but it is far more likely that the initiative will move to Congress.  Use of international reference pricing as a target for Medicare to negotiate prices with drug manufacturers appears in H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act,” introduced by Representative Pallone on April 22.  This bill is the slightly revised and re-introduced version of the comprehensive drug pricing bill that passed the House during the last Congress, and represents the House Democrats’ drug pricing proposal.  On the Senate side, a drug pricing bill being developed by Ron Wyden, Chairman of the Senate Finance Committee, has been reported by the trade press to include the use of either international or domestic prices as reference benchmarks for setting payment rates under Medicare, and perhaps  even commercial insurance markets.

As always, we are following drug payment and price reduction initiatives in the Administration and Congress with great interest, and will be reporting on important developments as they occur.