ANDA Arbitrage & the New ANDA Holder Program Fee Under GDUFA II: A Follow-Up

ANDA Arbitrage & the New ANDA Holder Program Fee Under GDUFA II: A Follow-Up

By Kurt R. Karst –     
A couple of months ago, as Congress was considering legislation that would ultimately be enacted as the Food and Drug Administration Reauthorization Act of 2017 (“FDARA”) (see our FDARA Summary and Analysis here), we put up a post on the new user fee structure under the second iteration of the Generic Drug User Fee Amendments (“GDUFA II”), and the new ANDA Holder Program Fee in particular.  Now that FDA has published the Generic Drug User Fee Rates for Fiscal Year 2018, and as we quickly approach the October 1, 2017 deadline when the state of ANDAs solidifies and fee payments are due (actually, fees are due no later than the first business day on or after October 1 of each such year), we thought it would be a good time to remind some ANDA owners who have a small number of approved ANDAs, or who are just over the application count threshold for paying a higher ANDA Holder Program Fee, that there’s another option out there to consider.  So we’re republishing and updating our previous post on the topic.
GDUFA II significantly changes the current user fee system and structure that have been in place the past five fiscal years under GDUFA I.  Not only will FDA collect a greater amount of user fee funding each year ($493.6 million annually adjusted for inflation), but one fee type will be eliminated (i.e., the Prior Approval Supplement fee), while others fees would be modified (e.g., a new Finished Dosage Form (“FDF”) facility fee for Contract Manufacturing Organizations (“CMO”)).  GDUFA II will also introduce a new fee type – the ANDA Holder Program Fee – that will account for 35% of annual fee funding.  The annual ANDA Holder Program Fee, along with the annual CMO FDF facility fee, are “small business considerations,” according to FDA.
Under the GDUFA II fee structure, the ANDA Holder Program Fee is set up as follows: a firm and its affiliates pays one program fee each fiscal year commensurate with the number of approved ANDAs (both active and discontinued ANDAs) that the firm and its affiliates collectively own. The program fee to be paid each year depends on the number of ANDAs owned.  Firms do not pay a per-ANDA fee.  Instead, the program fee is split into three tiers that represent different positions held by the firms and their affiliates within the market.  Specifically, FDARA amended the FDC Act to add Section  § 744B(b)(2)(E) to state:

(i) Thirty-five percent shall be derived from fees under subsection (a)(5) (relating to generic drug applicant program fees). For purposes of this subparagraph, if a person has affiliates, a single program fee shall be assessed with respect to that person, including its affiliates, and may be paid by that person or any one of its affiliates.  The Secretary shall determine the fees as follows:
(I) If a person (including its affiliates) owns at least one but not more than 5 approved [ANDAs] on the due date for the fee under this subsection, the person (including its affiliates) shall be assessed a small business generic drug applicant program fee equal to one-tenth of the large size operation generic drug applicant program fee.
(II) If a person (including its affiliates) owns at least 6 but not more than 19 approved [ANDAs] on the due date for the fee under this subsection, the person (including its affiliates) shall be assessed a medium size operation generic drug applicant program fee equal to two-fifths of the large size operation generic drug applicant program fee.
(III) If a person (including its affiliates) owns 20 or more approved [ANDAs] on the due date for the fee under this subsection, the person (including its affiliates) shall be assessed a large size operation generic drug applicant program fee.
(ii) For purposes of this subparagraph, an [ANDA] shall be deemed not to be approved if the applicant has submitted a written request for withdrawal of approval of such [ANDA] by April 1 of the previous fiscal year.

The statute (FDC Act 744B(g)(5)) was also amended to include certain penalties for failure to pay the new ANDA Holder Program Fee:

(A) IN GENERAL.—A person who fails to pay a fee as required under subsection (a)(5) by the date that is 20 calendar days after the due date, as specified in subparagraph (D) of such subsection, shall be subject to the following:
(i) The Secretary shall place the person on a publicly available arrears list.
(ii) Any abbreviated new drug application submitted by the generic drug applicant or an affiliate of such applicant shall not be received, within the meaning of section 505(j)(5)(A).
(iii) All drugs marketed pursuant to any abbreviated new drug application held by such applicant or an affiliate of such applicant shall be deemed misbranded under section 502(aa).
(B) APPLICATION OF PENALTIES.—The penalties under subparagraph (A) shall apply until the fee required under subsection (a)(5) is paid.

At 35% of the overall GDUFA user fee funding, the ANDA Holder Program Fee is a decent amount of cash for some companies to lay out. And for some companies with a small number of ANDAs, they’ll be laying out cash for drug products that they don’t currently market, because their ANDAs are in stasis, as identified in the Discontinued Drug Product List section of the Orange Book. 
Over the past several months, FDA has collected information from ANDA sponsors – see here and here – in an effort to set the fee, which was published on August 29, 2017.  The Generic Drug Applicant Program Fee rates for Fiscal Year 2018 were set as follows:

Large size operation generic drug applicant:  $1,590,792
Medium size operation generic drug applicant:  $636,317
Small business operation generic drug applicant:  $159,079

We understand from FDA that should ANDA ownership transfer prior to October 1, 2017, the mechanism of communication to FDA should be as follows: 1. Transfer of Ownership Letters (Seller) and Acknowledgment of Transfer of Ownership letters (Buyer) to the Office of Generic Drugs; and 2. Email and call CDER Collections notifying them of the change in ownership. 
A new venture might offer some user fee relief and a solution to companies that have discontinued ANDAs for drug products not currently marketed. A company called ANDA Repository, LLC (info@andarepository.com; and http://ift.tt/2x1x2re) is offering what we can only characterize as “ANDA arbitrage.”  Imagine, if you will, a parking lot.  The owner of a car that is not being used on a daily basis needs a parking space for that car.  In exchange for that parking space (and an annual fee) the car’s owner transfers title of the automobile to the parking lot owner.  The old owner of the car can, with appropriate notice, take back ownership when he decides that he wants to use the automobile again.  Provided the parking lot owner has enough cars, this can be a beneficial venture for all of the parties involved. 
In the imagery above, the automobile owner is an ANDA sponsor, and the parking lot owner is ANDA Repository, LLC. If ANDA Repository, LLC is able to obtain title to 20 or more ANDAs, then the company will be identified as a “large size operation” and will pay a full generic drug applicant program fee regardless of how may additional ANDAs are owned. In exchange for its services, ANDA Repository, LLC will charge an ANDA sponsor an annual fee, which would be significantly less than the ANDA Holder Program Fee such ANDA sponsor would otherwise pay as a small or medium size operation.  Not a bad idea! 

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Accelerating Accelerated Approval & Other Drug Development Signals fron FDA’s Approval of 1st  Therapy for Chagas

Accelerating Accelerated Approval & Other Drug Development Signals fron FDA’s Approval of 1st  Therapy for Chagas

By Frank J. Sasinowski & James E. Valentine – 
On August 29, 2017, FDA approved Chemo Research’s NDA for benznidazole for treatingchildren with Chagas disease and granted the sponsor a Tropical Disease Priority Review Voucher (PRV) (see FDA Press Release here).  This is the first drug to treat Chagas disease, a life-threatening parasitic disease that affects an estimated 6 to 8 million people worldwide.  This blog post explores key regulatory developments that may be important precedents for sponsors developing many other types of drugs.
FDA’s Accelerating Use of Accelerated Approval
Research conducted by Hyman, Phelps & McNamara, P.C. (HP&M) attorneys reported that FDA has been extraordinarily flexible in applying the quantum of evidence needed forAccelerated Approval (Subpart H, Fast Track) (see blog post & full text paper here).  When published in 2016,  the HP&M analysis described 19 therapies approved for other than AIDS or cancer under Subpart H.  The benznidazole approval brings the current count ofsuch FDA accelerated approvals to 25 (see Approval Letter here), with the other 5more recent Subpart H approvals for Jadenu, Ferriprox, Praxbind, Ocaliva, and Exondys 51.

Jadenu (March 2015) for treatment of chronic iron overload due to blood transfusions in patients 2 years of age and older and for the treatment of chronic iron overload in certain patients 10 years of age and older with non-transfusion-dependent thalassemia syndromes
Ferriprox (Sept. 2015) for the treatment of patients with transfusional iron overload due to thalassemia syndromes when current chelation therapy is inadequate
Praxbind (Oct. 2015) indicated in patients treated with Pradaxa when reversal of the anticoagulant effects of dabigatran is needed for emergency surgery/urgent procedures and in life-threatening or uncontrollable bleeding
Ocaliva (May 2016) for the treatment of primary biliary cholangitis in combination with ursodeoxycholic acid (UDCA) in adults with inadequate response to UDCA or in adults unable to tolerate UDCA
Exondys 51 (Sept. 2016) for the treatment of amenable patients with Duchenne Muscular Dystrophy

Dr. Woodcock and others have expressed interest in expanding the use of this approval pathway and it appears to be happening.  The Chagas approval is the 6th Subpart H approval in past 30 months, as contrasted with 19 approved in over 30 years before March 2015.
FDA Reaching out to and Responding to Patients in Drug Development
On April 28, 2015, FDA hosted a Patient-Focused Drug Development (PFDD) meeting on Chagas disease.  Like other PFDD meetings, it gave individuals living with that disease and their loved ones an opportunity to share their experiences, including its impacts on daily life and their ability to manage the symptoms and burdens of the disease.  During the meeting’s public comment period, HP&M’s Frank Sasinowski was the only speaker representing the global patient community.  In his testimony on behalf of the Argentinian-based patient organization, Mundo Sano, he urged FDA, among other things, to provide incentives (i.e., Tropical Disease PRV) for Chagas disease.  With FDA’s growing commitment to utilize the voice of the patient to set the context for assessing benefits and risks of new drugs (see previous coverage of the PFDD initiative here), the understanding of the disease shared by individual patients and caregivers, as well as by Mundo Sano, are likely to have been key contributors to FDA’s flexibility in assessing the data relied upon by Chemo Research in its 505(b)(2) NDA (see Labeling here).
Expanding Tropical Diseases Eligible for a PRV
At the time Chemo Research began doing the work to establish the evidence to support an NDA for benznadazole, Chagas disease was not on the list of tropical diseases eligible for a PRV.  As mentioned above, FDA opened its doors to the Chagas patient community.  Shortly after the PFDD meeting, we noted in a blog post (here) how Chagas disease was a good candidate for this incentive program.  It is thought that one of the outcomes of Agency officials hearing from patients and Mundo Sano is that FDA decided to add Chagas to the list, which the Agency did just four months after the PFDD meeting (via a mechanism to add tropical diseases to the program under section 524(a)(3)(R) of the Federal Food, Drug, and Cosmetic Act – see previous post here). 
Setting Precedent for Using PRV to Improve Patient Access
Not only was the patient community engaged with regulators (as discussed above), Mundo Sano was also a partner to Chemo Research in the development of benznidazole, along with support from the Drugs for Neglected Diseases initiative (DNDi), a non-profit drug development organization.  As part of the collaboration, Chemo Research has committed that “a substantial portion of any revenue derived from the future sale of the PRV will be directed towards enhancing access to treatment of Chagas patients and improving patient health in other disease areas” (see Mundo Sano press release here).  Given the scrutiny that the PRV programs have been under, redistributing funds from the sale of PRVs to patients in need, especially in tropical diseases which are endemic in lower income regions of the world (e.g., Latin American countries with Chagas disease).  This type of socially responsible behavior by drug sponsors may help to maintain this incentive so that it can continue to encourage development of drugs.

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Join Our Team: HP&M Seeks Drug Development Attorney

Join Our Team: HP&M Seeks Drug Development Attorney

Hyman, Phelps & McNamara, P.C., the nation’s largest boutique food and drug regulatory law firm, seeks an attorney to work with our drug development team. The attorney will assist our clients secure FDA approval for new drugs by leveraging our legal expertise of the approval standards in the FDC Act and implementing regulations to overcome potential regulatory or scientific impediments. The position affords the opportunity to participate in product development strategy at the initiation stage and to navigate the drug through the FDA regulatory process
Strong verbal and writing skills are required, as well as a detailed understanding of FDA and the regulatory process.  Ideal candidates will possess a scientific background, such as a masters degree or higher in a hard science.  
Compensation is competitive and commensurate with experience.  HP&M is an equal opportunity employer.
Please send your curriculum vitae, transcript, and a writing sample to Anne K. Walsh (awalsh@hpm.com).  Candidates must be members of the DC Bar or eligible to waive in.

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Join Our Team: HP&M Seeks Drug Development Attorney

Join Our Team: HP&M Seeks Drug Development Attorney

Hyman, Phelps & McNamara, P.C., the nation’s largest boutique food and drug regulatory law firm, seeks an attorney to work with our drug development team. The attorney will assist our clients secure FDA approval for new drugs by leveraging our legal expertise of the approval standards in the FDC Act and implementing regulations to overcome potential regulatory or scientific impediments. The position affords the opportunity to participate in product development strategy at the initiation stage and to navigate the drug through the FDA regulatory process
Strong verbal and writing skills are required, as well as a detailed understanding of FDA and the regulatory process.  Ideal candidates will possess a scientific background, such as a masters degree or higher in a hard science.  
Compensation is competitive and commensurate with experience.  HP&M is an equal opportunity employer.
Please send your curriculum vitae, transcript, and a writing sample to Anne K. Walsh (awalsh@hpm.com).  Candidates must be members of the DC Bar or eligible to waive in.

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Rehearing Urged for Bad Ninth Circuit Decision

Rehearing Urged for Bad Ninth Circuit Decision

By Anne K. Walsh –
In July, as reported here, the Ninth Circuit reversed the lower court’s decision to dismiss a False Claims Act (FCA) case against Gilead Sciences, Inc.  Not surprisingly, Gilead timely filed a petition for rehearing or rehearing en banc with the Ninth Circuit, and several groups submitted briefs in support of Gilead, including Pharmaceutical Research and Manufacturers of America, Biotechnology Innovation Organization, the U.S. Chamber of Commerce, and the Washington Legal Foundation.
In its July ruling, the Ninth Circuit determined that the complaint alleged sufficient facts to show “materiality” of the underlying violations to the reimbursement decision. Unlike other appellate courts, the Ninth Circuit did not find FDA’s continued approval of Gilead’s drugs determinative that the alleged violations were not material to reimbursement. 
In its petition, Gilead argues that the Ninth Circuit’s ruling is inconsistent with the materiality test set forth by the U.S. Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar.  In Escobar, the Court determined that FCA liability does not exist unless the relator demonstrates that the alleged misrepresentation likely induced the government to pay the claim.  Thus, according to Gilead, a regulatory violation is not material if the government continues to reimburse for products after knowledge of the violation.  Gilead urges the Ninth Circuit to grant the petition for rehearing because its ruling is inconsistent with five circuits (First, Third, Fifth, Seventh, and Tenth), and the Fourth Circuit’s caution against using regulatory violations to support FCA liability.  
Gilead and amici also argue that companies would be forced to decide between two impossible choices: 1) continue marketing products that have minor regulatory violations and face potential steep damages and penalties under the False Claims Act; or 2) discontinue those products and deprive patients of important medicines. And if the Ninth Circuit permits the case to proceed, Relators (and their counsel) will file suit against any company with “even inconsequential violations of federal regulatory requirements.”  WLF brief, at 19.
According to the Rules of Appellate Procedure, no response may be filed to a petition for an en banc consideration unless the court orders a response.  And no timing is set for when the court must decide on the petition.  Even if the Ninth Circuit denies the petition to rehear the matter, the lower court may still dismiss the action based on a failure to satisfy the Rule 9(b) heightened pleading standard, which the Ninth Circuit specifically declined to decide.

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FDARA Enacted; HP&M Issues Detailed Summary and Analysis

FDARA Enacted; HP&M Issues Detailed Summary and Analysis

On August 18, 2017, President Trump signed into law the Food and Drug Administration Reauthorization Act of 2017 (“FDARA”).  In addition to reauthorizing and amending several drug and medical device provisions that were scheduled to sunset, FDARA also makes several changes to the law concerning medical device manufacturer inspections, and addresses access to generic drugs.  The law significantly changes the FDC Act and the PHS Act in several respects that will have considerable short- and long-term effects on the regulated industry and FDA.
Hyman, Phelps & McNamara, P.C. has prepared a detailed Summary and Analysis of FDARA.  The memorandum summarizes each section of FDARA and analyzes the new law’s potential effects on the FDA-regulated industry.
FDARA includes nine titles, the first five of which concern drug and medical device user fee and pediatric-related programs.  Title VI includes a potpourri of changes to the law styled as improvements related to drugs.  Title VII makes significant changes to the law to enhance FDA’s medical device inspection process.  Title VIII is intended to improve generic drug access and creates a new 180-day exclusivity incentive to encourage the development of so-called “competitive generic therapies.”  Finally, Title IX makes technical and miscellaneous changes to the law.

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FDARA Enacted; HP&M Issues Detailed Summary and Analysis

FDARA Enacted; HP&M Issues Detailed Summary and Analysis

On August 18, 2017, President Trump signed into law the Food and Drug Administration Reauthorization Act of 2017 (“FDARA”).  In addition to reauthorizing and amending several drug and medical device provisions that were scheduled to sunset, FDARA also makes several changes to the law concerning medical device manufacturer inspections, and addresses access to generic drugs.  The law significantly changes the FDC Act and the PHS Act in several respects that will have considerable short- and long-term effects on the regulated industry and FDA.
Hyman, Phelps & McNamara, P.C. has prepared a detailed Summary and Analysis of FDARA.  The memorandum summarizes each section of FDARA and analyzes the new law’s potential effects on the FDA-regulated industry.
FDARA includes nine titles, the first five of which concern drug and medical device user fee and pediatric-related programs.  Title VI includes a potpourri of changes to the law styled as improvements related to drugs.  Title VII makes significant changes to the law to enhance FDA’s medical device inspection process.  Title VIII is intended to improve generic drug access and creates a new 180-day exclusivity incentive to encourage the development of so-called “competitive generic therapies.”  Finally, Title IX makes technical and miscellaneous changes to the law.

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PhRMA and BIO Team Up Again to Challenge a State Drug Pricing Law

PhRMA and BIO Team Up Again to Challenge a State Drug Pricing Law

By David C. Gibbons & Alan M. Kirschenbaum –
On September 1, 2017, two industry trade associations, Pharmaceutical Research and Manufacturers of America (“PhRMA”) and Biotechnology Innovation Organization (“BIO”), jointly filed a civil action seeking declaratory and injunctive relief against the Nevada Governor and Director of the Nevada Department of Health and Human Services (“NDHHS”) to prevent enforcement of a recent Nevada law aimed at containing drug prices, S.B. 539, which was enacted on June 15, 2017.  In summary, S.B. 539 places new reporting requirements on pharmaceutical manufacturers and pharmacy benefit managers related to diabetes treatments and health care provider payments.  Patient advocacy groups are also required to report certain payments from pharmaceutical manufacturers, PBMs, and other third parties.  (See our previous blog post on S.B. 539 here).  The Complaint, filed in the United States District Court for the District of Nevada, seeks a declaratory judgment that S.B. 539 is unconstitutional and, thereby, void, as well as a permanent injunction barring implementation or enforcement of the bill.  Compl. at 43, PhRMA v. Sandoval, No. 2:17-cv-02315 (D. Nev. Sep. 1, 2017). 
PhRMA and BIO advance four arguments in their Complaint as to why S.B. 539 is unconstitutional. First, PhRMA and BIO argue that S.B. 539 is preempted by federal patent law because S.B. 539 “impermissibly burdens” manufacturers’ patent rights by coercing manufacturers to cap prices on certain diabetes drugs, thus interfering with their right to set prices in accord with the economic incentives provided under federal patent law. Id. at 25-27, 40.  Pursuant to S.B. 539, manufacturers of prescription drugs determined by NDHHS to be “essential for treating diabetes” in Nevada are required to make annual disclosures regarding costs, expenses, profits, rebates, financial assistance data as well as the wholesale acquisition cost (“WAC”) related to such products, which PhRMA and BIO argue are trade secrets (see discussion below).  Manufacturers can avoid disclosing such trade secrets by ensuring the WAC for these certain diabetes drugs does not increase by a percentage equal to or greater than the Consumer Price Index, Medical Care Component (“CPI Medical”) during the preceding calendar year or twice the CPI Medical during the preceding two years.  Thus, under S.B. 539, manufacturers must choose how to forego their rights under federal patent law by either disclosing trade secrets or restraining price increases on their products.  The argument that such a law is preempted by federal patent law was successfully advanced by PhRMA and BIO previously, in a lawsuit challenging a District of Columbia statute prohibiting excessive drug pricing of patented drugs.  In that case, the United States Court of Appeals for the Federal Circuit held, that:

By penalizing high prices — and thus limiting the full exercise of the exclusionary power that derives from a patent — the [government] has chosen to re-balance the statutory framework of rewards and incentives insofar as it relates to inventive new drugs. . . . The Act is a clear attempt to restrain those excessive prices, in effect diminishing the reward to patentees in order to provide greater benefit to . . . drug consumers. This may be a worthy undertaking on the part of the . . . government, but it is contrary to the goals established by Congress in the patent laws.

BIO v. District of Columbia, 496 F.3d 1362, 1374 (Fed. Cir. 2007).
Second, PhRMA and BIO argue that S.B. 539 is preempted by the Defend Trade Secrets Act, Pub. L. No. 114-153, 130 Stat. 376 (2016) (codified at 18 U.S.C. § 1836(b)) (“DTSA”), because it compels the disclosure of trade secrets related to products in interstate commerce.  Compl. at 31, 41.  In addition, S.B. 539 expressly amends the Nevada trade secret statute by eliminating trade secret protection for the information required to be reported to NDHHS under the new law.  As described above, manufacturers must disclose confidential information to NDHHS regarding the pricing, rebates, and other financial details for essential diabetes products.  NDHHS must also make such information publicly available pursuant to S.B. 539.  A number of courts have held that confidential information, such as “advertising, cost, marketing, pricing, and production” information, constitutes a trade secret. See id. at 31.  S.B. 539 conflicts with federal trade secret law by “alter[ing] the operation of the DTSA” with its express elimination of trade secret protection for confidential pricing and other financial information — information that Congress sought to protect under the DTSA, according to PhRMA and BIO. 
The third argument advanced by PhRMA and BIO is that S.B. 539 violates the Fifth Amendment Takings Clause because it amounts to an uncompensated, and thereby unconstitutional, taking of trade secrets from certain diabetes drug manufacturers. PhRMA and BIO argue that S.B. 539 is a categorical taking of a property interest—the right to exclude others—in intangible property, namely the statutorily-created patents for innovative drugs.  In their Complaint, PhRMA and BIO argue that “under any Takings analysis, S.B. 539’s disclosure requirements destroy valuable trade secrets related to diabetes drugs without any compensation, let alone just compensation, in violation of the Takings Clause.” Id. at 36.
Finally, PhRMA and BIO contend that S.B. 539 violates the Commerce Clause by directly regulating interstate commerce. The Commerce Clause empowers Congress to regulate commerce “among the several states,” and thereby prohibits states from discriminating against or unduly burdening interstate commerce.  U.S. Const. art. I, § 8, cl. 3; see, e.g., Philadelphia v. New Jersey, 437 U.S. 617, 623-624 (1978).  PhRMA and BIO argue that the “extraterritorial effects of S.B. 539 are substantial and unavoidable because the market for diabetes drugs—especially ‘essential’ diabetes drugs—is inherently national.”  Compl. at 37.  PhRMA and BIO describe three ways in which S.B. 539 violates the Commerce Clause.  To begin with, it directly affects trade secrets belonging to companies whose operations are entirely outside of Nevada.  According to PhRMA and BIO, by eliminating trade secret protection for the confidential pricing and financial information required to be reported to and publicly disclosed by NDHHS, S.B. 539 disrupts manufacturers’ ability to protect such trade secrets in every other state and impacts the “economic success” of such manufacturers as well.  In addition, PhRMA and BIO highlight the fact that WAC is a “national list price,” and restraints on WAC by one state will affect the diabetes drug prices associated with manufacturers’ transactions carried out wholly outside of Nevada.  This is similar to the Commerce Clause arguments advanced in other litigation against state drug pricing transparency laws, such as the lawsuit against Maryland brought by the Association for Accessible Medicines (“AAM”), the generic drug trade association, which we blogged on recently (here). See Compl. at 2, 23-27, Ass’n for Accessible Meds. v. Frosh, No. 1:17-cv-1860 (D. Md. July 6, 2017).  Moreover, PhRMA and BIO argue that disclosure of otherwise confidential pricing information could have anti-competitive effects on drug pricing.  PhRMA and BIO relate certain opinions by the Congressional Budget Office and the Federal Trade Commission indicating that “tacit collusion” among pharmaceutical manufacturers can arise from “compelled disclosure of drug pricing information, specifically rebates . . . .”  These government agencies postulate that lack of secrecy could result in inflated prices for drugs.
We will continue to monitor this and similar lawsuits against states that have enacted drug pricing laws aimed at curbing drug price increases.

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REMS Program Violations Result in Disgorgement and False Claims Act Liability

REMS Program Violations Result in Disgorgement and False Claims Act Liability

By Anne K. Walsh –
In a settlement noteworthy to any company with a drug subject to a Risk Evaluation and Mitigation Strategy (“REMS”), on September 5, 2017, the U.S. announced a multi-million dollar civil settlement with Novo Nordisk for an alleged violation of REMS requirements for its drug Victoza (liraglutide injection).
Under the Food and Drug Administration Amendments Act (“FDAAA”), Congress granted FDA authority to require a REMS as part of the approval of a new product, or for an approved product when new safety information arises, to manage a known or potential serious risk associated with a drug. The REMS program is well-known to impose stringent requirements on manufacturers to ensure that the benefits of a drug or biological product outweigh its risks. And FDAAA amended the FDC Act such that a drug is deemed to be misbranded for a failure to comply with the REMS requirements:

(y) Drugs subject to approved risk evaluation and mitigation strategy
If it is a drug subject to an approved risk evaluation and mitigation strategy pursuant to section 355(p) of this title and the responsible person (as such term is used in section 355–1 of this title) fails to comply with a requirement of such strategy provided for under subsection (d), (e), or (f) of section 355–1 of this title.

The $58 million civil settlement by Novo Nordisk involves two components. The first component resolves the FDC Act misbranding violation and resulted in disgorgement of $12.15 million under FDA’s equitable authorities (more on disgorgement here). The Complaint details the allegations regarding Victoza, a drug approved in 2010 to treat Type II diabetes. At the time it was approved, FDA required a REMS to mitigate the potential risk in humans of a rare form of cancer called Medullary Thyroid Carcinoma (MTC). According to the Complaint, between 2010 and 2012, some Novo Nordisk representatives failed to comply with the REMS by giving information that the FDA-required message was “erroneous, irrelevant, or unimportant.” Complaint ¶ 24. And after FDA modified the REMS in 2011 to increase awareness of the risk, the Complaint alleges that Novo Nordisk failed to comply with the REMS modification and tried to obscure the risk.
The second component of the civil settlement involves a payment of $46.5 million to resolve False Claims Act liability. The FCA settlement spans a longer period of time (2010-2014), and resolves allegations that the sales force created a false or misleading impression about the risk of MTC and promoted the off-label use of Victoza for patients who did not have Type II diabetes. The FCA settlement ends seven lawsuits filed by private parties against Novo Nordisk in the District of Columbia. It is not yet known the amount that each of the whistleblowers will receive.
This settlement represents another example of an FDA regulatory violation resulting in False Claims Act liability, a slippery slope that could mean that even inconsequential regulatory violations could result in multi-million dollar payments. This very issue is the subject of a petition before the Ninth Circuit.

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Medical Device “Fraud on the FDA” Theory Might Be Viable in Minnesota, if Properly Pled

Medical Device “Fraud on the FDA” Theory Might Be Viable in Minnesota, if Properly Pled

By Jennifer M. Thomas – 
Since the Supreme Court issued its False Claims Act (“FCA”) ruling in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) courts have grappled with Escobar’s concept of FCA “materiality.” Materiality was described by the Supreme Court as a “rigorous” standard, not met where “noncompliance [with a particular requirement] is minor or insubstantial.” Id. at 1996, 2003. Of particular interest is Escobar’s emphasis on government action as a test for FCA materiality. Specifically, the Court stated that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated . . . [o]r, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated . . . that is strong evidence that the requirements are not material.” Id. at 1995.
We have recently blogged on cases (here and here) where courts applied Escobar’s government action/inaction materiality test to FCA claims predicated on “fraud on the FDA,” and reached opposite results. Now the U.S. District Court for the District of Minnesota has weighed in.
The Court evaluated Escobar and its progeny in deciding a motion to dismiss Relator Steven Higgins’ claims against Boston Scientific Corp. (“BSC”) relating to that company’s sale of its Cognis CRT-D and Teligen ICD defibrillators between 2008-2009. Higgins alleged that BSC defrauded FDA by failing to inform the agency of alleged defects in its defibrillator devices that resulted in insecure connection of the device leads to the header and pulse generator, thereby “undermining the devices’ ability to reliably provide shocks.” 2017 U.S. Dist. LEXIS 138767, at *3 (D. Minn. Aug. 29, 2017). The Complaint alleged that BSC failed to supplement its pending FDA pre-market application (“PMA”) to inform FDA when doctors in Europe began to report problems. FDA cleared the devices in May 2008. After launching the devices in the U.S., BSC allegedly took steps to minimize the number of Medical Device Reports (“MDRs”) that reached FDA as a result of issues with the defibrillator devices. When BSC developed revised versions of the defibrillators to address the alleged defects, the company presented those revisions to the FDA as modifications, rather than corrections to address a defect. FDA approved BSC’s PMA supplements for the modified defibrillators, allegedly based on BSC’s misrepresentations or omissions, in March 2009. In July 2009, the Agency ultimately issued a recall for the original versions of the Cognis CRT-D and Teligen ICD based on numerous MDRs relating to the lead connection issue.
In considering BSC’s motion to dismiss, the Court first determined that Higgins’ claims survived an FCA subject-matter jurisdiction challenge, because – despite FDA’s ultimate recall notice for the defibrillators – there had been no public disclosure of key elements of the alleged fraud (e.g., withholding numerous MDRs from FDA, failure to supplement the PMA upon discovery of device malfunctions in Europe).
The Court next evaluated BSC’s motion under Fed. R. Civ. P. 12(b)(6). BSC argued that “fraud on the FDA” had been rejected as a basis for FCA liability, citing (among others) United States ex. rel. Campie v. Gilead Scis., Inc., C-11-0941 EMC, 2015 WL 106255, at *8 (N.D. Cal. Jan. 7, 2015) (Order Granting Defendants’ Motion to Dismiss); United States ex rel. Modglin v. DJO Glob. Inc., 114 F. Supp. 3d 993, 1019 (C.D. Cal. 2015) (holding that even if a defendant was required to file a PMA Supplement, failing to do so did not support the imposition of FCA liability); United States ex rel. Simpson v. Bayer Corp., No. 05-3895 JLL, 2014 WL 2112357, at *2 (D.N.J. May 20, 2014) (“Simpson II”) (“The theory underpinning the first six counts of Simpson’s Complaint is that Bayer’s compliance with the FDCA’s misbranding provisions is, in and of itself, a condition of payment. The Court again rejects this theory.”). Higgins responded that his FCA claims were predicated on theories of fraudulent inducement, false certification, and “defective device.” The Government filed a statement of interest supporting Higgins’ position that those FCA theories are viable, without taking a position on the merits of the case.
Accepting Higgins’ allegations as true, the Court appeared inclined to accept his FCA theories. The court reasoned that FDA approval is required for a Class III medical device (like the defibrillators) to be considered “reasonable and necessary,” and thus eligible for reimbursement by federal healthcare programs. Higgins had alleged that (1) BSC obtained, and maintained, FDA approval by fraud, and (2) once alerted to issues with the BSC devices, FDA had characterized BSC’s removal of those devices from the market as a “recall.” The Court emphasized that the term “recall” applies “only if the Food and Drug Administration regards the product as involving a violation that is subject to legal action, e.g., seizure.” 21 C.F.R. § 7.46(a). The “gist” of these allegations, the Court determined, might be sufficient to state a FCA claim under the theories of implied false certification and/or fraudulent inducement (the Court declined to address Higgins’ “defective device”/worthless services theory). Slip Op. at *23-24, 29.
However, after several pages of exposition on Rule 12(b)(6), ending with a resounding “maybe,” the Court declined to “decide whether the Amended Complaint states a claim as a matter of law, because” it was not plead with particularity as required by Fed. R. Civ. P. 9(b). Slip Op. at 30. While Higgins alleged particular claims that were submitted to CMS and received federal reimbursement, he did not “plead with particularity the acts taken or statements made to allegedly defraud the FDA.” Id. at 31-32. The allegations of actions taken by BSC to mislead FDA failed to identify “the time, place, and content” of BSC’s alleged false representations or omissions. Id. at 32. The Court indicated that it would expect to see identified portions of BSC’s submissions to FDA that constituted misrepresentations or omissions, and specific MDRs that should have been submitted to the Agency but were not. Moreover, and most importantly, the Court noted that Higgins had failed to plead whether any claims had actually been denied by CMS subsequent to the recall FDA issued for BSC’s defibrillator devices.
This final element – CMS’ response to the recall – appears to us to be relevant to both Rules 9(b) and 12(b)(6). Although the Court dismissed Higgins’ complaint without prejudice, giving him another opportunity to amend his complaint (by September 19, 2017), as well as a roadmap to success for his amended complaint, this point could prove extremely sticky. It is the crux of the materiality test set forth in Escobar. Did CMS actually deny payment of any claims submitted after BSC’s recall, based on that recall? Or did it continue to reimburse for procedures that were performed before the recall even after the recall issued? Given the way that hospital and outpatient services are reimbursed by federal programs, we suspect the latter. If and when Higgins is unable to plead nonpayment of claims with specificity, how will the Court respond? We will keep you posted.

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