Attorney East Hampton

By Anne K. Walsh & Andrew J. Hull —

Last year, the First Circuit reversed the dismissal of a False Claim Act (FCA) case brought against DePuy Orthopaedics, Inc., holding that the district court had wrongly dismissed the relators’ complaint for failing to plead with particularity under Federal Rule of Civil Procedure 9(b) (see post here). In February, DePuy, now known as Medical Device Business Services, petitioned the Supreme Court for review, arguing there is a growing circuit split on appropriate pleading standards in FCA cases.

By way of background, relators—two physicians who are also serving as experts in an ongoing products liability suit against DePuy—alleged that DePuy sold orthopedic products (namely, the Pinnacle metal-on-metal hip implant) to the government and that these products were used in procedures reimbursed by the government. Because the implants allegedly contained manufacturing defects, relators claimed DePuy caused third parties to submit false claims to the government.  The complaint contained a weak example of one claim, and primarily relied on a statistical analysis of the sales and use of the device, along with the percentage of procedures typically covered by government programs, to contend that it was virtually certain that government programs reimbursed many of the procedures in which a defective device was used.

The government declined to intervene, and the district court dismissed the claims under Rule 9(b), in part, for lack of particularity.

The First Circuit disagreed. While noting the general rule that a relator must “allege the essential particulars of at least some actual false claims that were in fact submitted to the government for payment,” the court stated that there is an exception for allegations that a defendant “induced a third party to file false claims”:

We apply a “more flexible” standard in actions of the latter, indirect type: where the defendant allegedly “induced third parties to file false claims with the government . . . a relator could satisfy Rule 9(b) by providing ‘factual or statistical evidence to strengthen the inference of fraud beyond possibility’ without necessarily providing details as to each false claim.” Such evidence must pair the details of the scheme with “reliable indicia that lead to a strong inference that claims were actually submitted.”

Slip Op. at 21-22 (internal citations omitted).

Because relators had alleged facts showing that it was “statistically certain” that DePuy caused third parties to submit false claims to the government, the First Circuit held that relators had met Rule 9(b)’s specificity standard. The court also noted that it “need not and [did] not” decide whether the one pleaded example was necessary to satisfy Rule 9(b), id. at 27 n.8, leaving open the door that relators could build an FCA case without alleging any specific example of a manufacturer inducing third parties to submit false claims to the government.

On petition for writ of certiorari to the Supreme Court, DePuy raises the following question: “Whether a False Claims Act relator can satisfy Federal Rule of Civil Procedure 9(b)’s particularity requirement without alleging details about any specific false claims.”  Pet. at i.

DePuy argues that the First Circuit’s “more flexible” pleading standard for indirect submission of false claims is inconsistent with the standard used by the Second, Fourth, Sixth, Eighth, and Eleventh Circuits. The company claims that the decision is evidence of a wide circuit split that even the government, in other cases, has said should be addressed by the Supreme Court.

DePuy also contends that this loose standard is inconsistent with the “overarching purpose” behind Rule 9(b), which is to “ensure that a defendant possesses sufficient information to respond to an allegation of fraud.” Id. at 28 (quoting United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008)).  And the low standard negates Rule 9(b)’s “critical role in filtering out opportunistic actions” by relators who lack sufficient information. Id. at 27.

Relators filed a brief opposing DePuy’s petition, arguing that there is no circuit split, and that the federal courts should be allowed to apply a case-specific approach. Multiple organizations, including Pharmaceutical Research and Manufacturers Association of America, Advanced Medical Technology Association, and the Chamber of Commerce, have filed amicus briefs in support of DePuy.  The government has not filed a brief.  The Supreme Court is expected to make a decision on whether to grant the petition in the coming weeks.

 

By Riëtte van Laack —

On March 12, 2018, the USDA announced its decision to withdraw the Organic Livestock and Poultry Practices (OLPP) final rule that was published on January 19, 2017.

As previously discussed, the OLPP was essentially an animal welfare rule, establishing minimum indoor and outdoor space requirements for chickens based on the type of production and the stage of life, and adding new provisions for livestock handling and transport for slaughter. The OLPP would have increased federal regulation of livestock and poultry for certified organic producers and handlers.

However, because the final rule was published shortly before the inauguration of President Trump and had an effective date of March 20, 2017, it was subject to a regulatory freeze to allow review by the new administration. USDA delayed the effective date of the rule several times, and on December 18, 2017 (as previously reported), issued a proposal to withdraw the OLPP rule. In its withdrawal proposal, USDA announced that it had concluded that the OLPP rule exceeded the Agency’s statutory authority under the Organic Food Production Act (OFPA). Moreover, USDA determined that the resulting changes to the existing organic regulations could have a negative effect on voluntary participation in the National Organic Program, leading to increased costs for both producers and consumers.

In response to its proposal to withdraw the OLPP rule, USDA received approximately 72,000 comments. Apparently, 63,000 of the comments (more than 56,000 of which were form letters) opposed the proposed withdrawal.  Approximately fifty comments supported withdrawal.  (According to USDA, the remaining comments were not clearly for or against).

In the preamble to its final rule withdrawing the OLPP rule, USDA discusses the basis for its determination that the OFPA does not authorize those regulations, and responds to the comments by the opponents of withdrawal. USDA reasons that the OFPA authorizes the Agency to develop regulations to ensure that livestock and poultry are organically produced but the statutory language related to animal care is focused on avoiding or minimizing organic animals’ ingestion of non-organic substances.  The OFPA cannot reasonably be interpreted as giving USDA carte blanche to develop animal welfare standards.  USDA also notes that the OLPP rulemaking did not identify a failure of the organic market under the currently operative regulations, so as to justify additional regulation.  Finally, USDA’s corrected cost benefit analysis demonstrates that the cost of the OLPP rule outweighs potential benefits.  Under these circumstances USDA declines to regulate, even though the organic industry appears to support such regulation by (as suggested by the number of comments opposing withdrawal).  The withdrawal of the OLPP rule is effective May 13, 2018.

Not surprising, the Organic Trade Association (OTA) “blasted” USDA’s withdrawal of the OLPP. As we reported in our earlier posts, OTA sued USDA over the Agency’s repeated delays of the effective date of the OLPP final rule.  That action remains pending.  Earlier this month, USDA filed its reply in support of the motion to dismiss.  Now that the OLPP rule has been withdrawn, OTA can be expected to amend its complaint to challenge the withdrawal.  We will continue to monitor this case.

Whether or not the OLPP rule withdrawal survives legal challenge, a significant number of consumers and retain businesses remain focused on animal welfare standards within the organic industry. USDA’s withdrawal of the OLPP final rule does not prevent organic producers from providing their animals with outdoor access or voluntarily adopting all or some of the standards that were included in the OLPP final rule, nor does it prevent customers from demanding that producers comport with such standards.  The proliferation of private certification labels regarding animal welfare appears likely.

By Serra J. Schlanger & Jeffrey N. Wasserstein —

On March 16, 2018, the Centers for Medicare and Medicaid Services (CMS) finalized a new National Coverage Determination (NCD) for Next Generation Sequencing (NGS) tests.  The granting of the new NCD resulted from the FDA – CMS Parallel Review of Foundation Medicine, Inc.’s FoundationOne CDx (F1CDx) – a NGS-based multi-drug companion diagnostic test that received FDA approval in November 2017.

The new NCD applies to NGS-based diagnostic tests for advanced cancers. These tests are now considered reasonable and necessary and covered nationally when:

1. Performed in a CLIA-certified laboratory;
2. Ordered by a treating physician;
3. The patient has:
   • either recurrent, relapsed, refractory, metastatic, or advanced stages III or IV cancer; and
   • either not been previously tested using the same NGS test for the same primary diagnosis of cancer or repeat testing using the same NGS test only when a new primary cancer diagnosis is made by the treating physician; and
   • decided to seek further cancer treatment (e.g., therapeutic chemotherapy).
4. The diagnostic laboratory test using NGS has:
   • FDA approval or clearance as a companion in vitro diagnostic; and
   • an FDA approved or cleared indication for use in that patient’s cancer; and
   • results provided to the treating physician for management of the patient using a report template to specify treatment options.

The new NCD allows for national coverage of the F1CDx test as well as any other NGS-based companion diagnostic tests for cancer that are approved by FDA. The NCD Decision Summary notes that there are currently four specific FDA-approved companion diagnostic tests using NGS (the F1CDx, the FoundationFocus CDxBRCA, the Oncomine Dx Target Test, and the Praxis Extended RAS Panel).  The NCD allows for coverage of FDA approved or cleared NGS-based companion diagnostic tests for cancer that are performed at any CLIA-certified laboratory, including academic medical centers and community hospitals.  The new NCD does not provide coverage for cancer screening tests or for complementary diagnostic tests.  Similarly, it does not provide coverage for NGS-testing for non-cancer conditions.

The requirement that the diagnostic test has FDA approval or clearance essentially precludes automatic national coverage of laboratory developed tests (LDTs) that utilize NGS. CMS stated that coverage determinations for other diagnostic laboratory tests that utilized NGS for cancer will be left to the local Medicare Administrative Contractors (MACs).  MACs that choose to cover LDTs and other diagnostic laboratory tests that utilize NGS for cancer must follow the other three criteria for coverage (e.g., CLIA-certified laboratory, physician ordered test; patient criteria).

This coverage determination demonstrates a distinct preference by CMS for FDA approved or cleared tests. Even though some of the public comments provided examples of LDTs that are as sensitive and specific as FDA-approved tests, in finalizing the new NCD, CMS explained that “FDA approval or clearance demonstrates analytical and clinical validity[.]”  While FDA has not taken recent action to increase its regulation of LDTs, this NCD may be viewed as a small push for LDT developers to seek approval or clearance from FDA in order to receive Medicare coverage.

By Mark I. Schwartz —

Back in 2015, FDA stated its intention of initiating a voluntary quality metrics reporting program (a cornerstone of FDA’s framework for building quality into drug products) and, in July of that year, announced the publication of a draft Quality Metrics Guidance. We blogged about the draft guidance at that time (see prior posting here).

Then in November of 2016, FDA announced the publication of a revised version of this draft Quality Metrics Guidance, indicating its intention of making it mandatory rather than voluntary for the pharmaceutical industry. This revised draft differed in many other respects from the original draft (for details on the modifications please see our blog posting on the revised draft guidance here). In addition, the Notice of Availability (NOA) for the revised draft guidance stated that: “After evaluating the results of the voluntary phase of the quality metrics program in 2018, FDA intends to initiate notice and comment rulemaking under existing statutory authority to develop a mandatory quality metrics program.”

At the time, we speculated that the agency may have changed course from guidance to rulemaking, in part, because of FDA’s waning confidence in its legal authority for this program since the publication of the initial draft. In addition, we mused about the likelihood that the November 2016 publication had been put in motion prior to the election earlier that month of a President who is decidedly against increasing the regulatory burden on industry writ large (admittedly, not a position at odds with this author’s).

We also stated that, by engaging in rulemaking, the agency is likely reducing the probability that the quality metrics reporting program will be dismantled by the courts; however, this formal elevation of the program through the rulemaking process also likely increases the probability that it will be placed on the chopping block by the Trump administration.

Since the publication of the revised draft guidance, several industry organizations have voiced significant opposition to the guidance. For example, PhARMA, AAM (formerly GPhA) and ISPE, among others, submitted joint comments to the FDA docket, stating, in part that: “We believe that the burden of FDA metrics collection far outweighs the benefits, at least as currently proposed. As we have continued to learn in depth about what it would take to operationalize a metrics program of the kind proposed by FDA, we have concluded that such a program would require substantial resources, present significant operational challenges and complexities, and draw resources and management attention away from other programs that drive continual quality improvement. In our organizations’ individual comments, you will find details of the potential legal and practical issues raised by the agency’s proposal, and detailed suggestions for improvements.” [Emphasis added]

And what has FDA’s response been in the 16 months since publication of the revised draft guidance (i.e., since the Presidential election), and since the submission of comments from stakeholders? It is perhaps best described as silence, or at the most, crickets chirping.

For instance, in the NOA from November 2016, FDA stated: “FDA expects to encourage reporting establishments to submit quality metrics data reports where the data is segmented on a quarterly basis throughout a single calendar year. At present, FDA intends to open the electronic portal in January 2018 to receive voluntary submissions of data. FDA expects to publish a Federal Register notice providing instructions on the submission of voluntary reports and specifying the dates that we intend to open the portal, published no fewer than 30 days before the portal is opened…” [Emphasis added]

However, the FDA website devoted to Quality Metrics now has an update banner that states: “the portal is not opening in January 2018 for widespread, voluntary reporting. Stay tuned for additional updates.”

One has to wonder whether the administration, or more precisely, Commissioner Gottlieb, has either decided to end this nascent program, or to make it less burdensome and more palatable to industry. Either way, we are confident that industry is waiting with bated breath, as whatever doesn’t get finalized in this administration is likely to be finalized in a more burdensome way in the next (Democratic) administration.

By Anne K. Walsh —

As one of her final acts before leaving DOJ, Associate Attorney General Rachel Brand announced that DOJ would no longer permit its lawyers to use guidance documents issued by its “client” agencies as a basis for civil enforcement. The “Brand Memo” provides guidance about DOJ’s use of guidance, as we described here.

In a couple of coordinated speeches, DOJ officials reiterated and clarified this position. Deputy Associate Attorney General Stephen Cox, who worked closely with Rachel Brand, spoke at the Federal Bar Association Qui Tam Conference on February 28, 2018. Cox described federal agencies’ use of guidance in lieu of formal regulatory rulemaking required under the Administrative Procedure Act: “Rulemaking can be cumbersome and slow, of course, and sometimes agencies have used guidance as a short-cut to effectively make new rules when they should have undertaken notice-and-comment rulemaking instead.” He referenced a recommendation from the Administrative Conference of the United States (ACUS) to make clear that “the public may take a lawful approach different from the one set forth in” a guidance document. Per Cox, the Brand memo implements the ACUS recommendation: “The Brand Memo makes clear that we won’t be using noncompliance with a guidance document to prove a violation of the applicable statute or regulation. In other words, we won’t use our affirmative civil enforcement authority to effectively convert a nonbinding guidance document into a requirement that has the force or effect of law.”

There are many potential applications of the Brand Memo in the FDA context, given FDA’s prolific guidance document library. As an illustration, FDA regulation requires the submission of a new 510(k) under certain circumstances, and FDA guidance walks through the analysis FDA recommends to determine whether a new 510(k) is required. Many companies prepare a Letter to File to evidence its decision not to file a new 510(k), but this is not a requirement by statute or regulation. Per DOJ policy, “if there’s a guidance document that expands upon that regulatory requirement – by suggesting that there are additional requirements or prohibitions that go beyond what the regulation actually says – then we’re not going to use noncompliance with those supposed ‘requirements’ to show that a party violated the regulation.” Thus, a company’s failure to document its decisionmaking cannot be used to solely support a civil enforcement action against a company for failing to submit a new 510(k).

These thoughts were reinforced by Ethan Davis, the soon-to-be former Deputy Assistant Attorney General for the Consumer Protection Branch (CPB), who is leaving DOJ to clerk for Supreme Court Justice Neil Gorsuch. Because CPB specifically counts FDA as its client, Davis’ remarks in his speech are specifically relevant to FDA Law Blog readers. He described the basic tenet that “[i] n our system, law is made by statute, and regulations are made by notice and comment rulemaking. Neither should be made by guidance documents.” And Davis renewed the commitment by DOJ CPB to “create an enforcement environment premised on the rule of law, so that you as regulated entities do not feel subjected to arbitrary and unpredictable enforcement actions.”

Only time will tell whether these DOJ principles are followed in future enforcement actions, but it behooves companies to remind DOJ of these stated principles if prosecution appears not grounded in law and only in guidance.

By Serra J. Schlanger & Alan M. Kirschenbaum —

On March 13, 2018, Oregon became the latest state to enact a law focused on transparency in drug pricing (see our roundup of other recent state laws). The Prescription Drug Price Transparency Act, H.B. 4005, places new reporting requirements on drug manufacturers related to price increases and patient assistance programs. Insurers are also required to report certain information about prescription drugs use and costs to the Department of Consumer and Business Services.

Manufacturer Reports

Under Oregon’s new law, manufacturers must report certain information for each prescription drug that has a price of $100 or more for a one-month supply or for a course of treatment lasting less than one month, and that had a net increase of 10% or more in the price over the course of the previous calendar year. Price is defined as the wholesale acquisition cost. By July 1, 2019, and by March 15 of every year thereafter, manufacturers must report extensive pricing and cost information for each such drug, including:

• Net increase, expressed as a percentage, in the price of the drug over the course of the previous calendar year;
• Factors that contributed to the price increase;
• Research and development costs associated with the prescription drug that were paid using public funds;
• Direct costs incurred by the manufacturer to (1) manufacture the prescription drug, (2) market the prescription drug, (3) distribute the prescription drug, and (4) for ongoing safety and effectiveness research associated with the prescription drug;
• Total sales revenue for the prescription drug during the previous calendar year;
• Manufacturer’s profit attributable to the prescription drug during the previous calendar year;
• The introductory price of the prescription drug when it was approved for marketing by FDA and the net yearly increase, by calendar year, in the price of the prescription drug during the previous five years.

The manufacturer must also provide the following information about each patient assistance program (including coupons and other copay assistance) offered by the manufacturer to consumers in Oregon for each prescription drug:

• Number of consumers who participated in the program;
• Total value of the coupons, discounts, copayment assistance or other reduction in costs provided to Oregon consumers who participated in the program;
• For each drug, the number of refills that qualify for the program;
• The period of time that the program is available to each customer.

Oregon’s new law also includes price transparency reporting requirements for new prescription drugs. Beginning on March 15, 2019, if a manufacturer introduces a new drug for sale in the U.S. at a price that exceeds the threshold for specialty drugs set in the Medicare Part D program ($670 in 2018), within 30 days of introducing the new drug for sale, the manufacturer must report:

• A description of the marketing used in the introduction of the new prescription drug;
• The methodology used to establish the price of the new prescription drug;
• Whether the FDA granted the new prescription drug a breakthrough therapy designation or a priority review;
• The date and price of acquisition if the new prescription drug was not developed by the manufacturer;
• The manufacturer’s estimate of the average number of patients who will be prescribed the new prescription drug each month; and
• The research and development costs associated with the new prescription drug that were paid using public funds.

Manufacturers who do not comply with the new law may be subject to civil penalties of up to $10,000 per day of violation. The Department of Consumer and Business Services may establish fees to be paid by manufacturers to cover the costs of this law.

The new law includes an element of public shaming. The Oregon Department of Consumer and Business Services will post a list of the prescription drugs that have net increases of more than 10% on its website. In addition, the information provided by the manufacturers will be posted on the same website. Trade secrets protected under Oregon’s public records law may not be posted on the website, if “the public interest does not require disclosure of the information.” There is no further elaboration concerning circumstances in which the public interest may justify posting of trade secret information. The Department is also going to develop a process for consumers to notify the state about an increase in the price of a prescription drug.

Insurer Reports

Oregon is not only seeking pricing information from manufacturers. Under the new law, insurers must report:

• The 25 most frequently prescribed drugs;
• The 25 most costly drugs as a portion of total annual spending;
• The 25 drugs that have caused the greatest increase in total plan spending from one year to the next; and
• The impact of the costs of prescription drugs on premium rates.

Conclusion

As we have previously reported, in the absence of federal action, a growing number of states are seeking to limit drug costs through legislation. Some states have focused on marketing prohibitions and/or limitations on payments to practitioners (for example, see our post on New Jersey’s new limits). Other states, like Oregon, have focused on drug prices, with some states enacting requirements for reporting or outright restrictions on price increases on certain drugs (for example, Maryland and Vermont).

Many of the new state drug price reporting laws are facing legal challenges that argue these laws are unconstitutional (see our coverage of the challenges to laws in Maryland, Nevada, and California). Due to the amount of information that manufacturers are required to report under the new Oregon law, and the fact that this information will be made available to the public, we anticipate that similar legal challenges may be raised before the new Oregon law goes into effect. We will continue to monitor this law and similar developments in other states.

By Anne K. Walsh & Rachael E. Hunt —

The saga continues in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017), a False Claims Act case alleging that Gilead concealed information from FDA regarding the contamination of certain drugs, leading to false claims being paid by the government. We have been closely following this case because of the implications it could have on the materiality analysis applied in FCA cases post-Escobar. (See prior posts here and here.)

Although the Campie’s case was twice dismissed by the district court, the Ninth Circuit Court of Appeals overturned the dismissal, concluding that whether allegations are material for purposes of an FCA claim raised matters of proof that could not be resolved prior to discovery. Late last year, Gilead filed a petition for a writ of certiorari requesting the U.S. Supreme Court rule on the following question: Whether an FCA allegation fails when the Government continued to approve and pay for products after learning of alleged regulatory infractions and the pleadings offer no basis for overcoming the strong inference of immateriality that arises from the Government’s response. For a discussion of this Writ, see our prior post here.

On March 5, 2018, Respondents filed a response outlining three primary arguments against granting certiorari in this case. First, Respondents argue that Gilead misrepresents the holding of the Ninth Circuit as overly restrictive. Contrary to Petitioner’s characterization, Respondent’s assert that the holding “properly followed Escobar’s holistic approach to materiality.” Respondents rely on the Ninth Circuit’s conclusion that the contested issues, including materiality, “are matters of proof, not legal grounds to dismiss relators’ complaint,” and claim the complaint satisfies the pleading requirements of Rule 12(b)(6). Note, however, that the Ninth Circuit specifically reserved a ruling on whether the relators’ complaint would satisfy the heightened pleading standards under Rule 9(b), a basis that other courts have used to dismiss FCA cases.

It also is significant that Respondents make affirmative use of DOJ’s recently issued Granston memo, discussed here, to support its position that this case does not undermine FDA’s regulatory authority. Respondents suggest that the government’s ability to dismiss FCA cases, and its failure to do so here, means that its suit advances the government’s interest. As Granston noted, however, “a decision not to intervene in a particular case may be based on factors other than merit, particularly in light of the government’s limited resources.”

Respondents also argue that there is no circuit split, and that even if there was, this case is a “poor vehicle” to clarify the materiality standard because it is not clear that the government actually had knowledge of the fraudulent conduct at the time it made the payments. Respondents contend that dismissing the case at this juncture is premature given that Gilead will have another chance to contest materiality at the summary judgment stage.

Per the Rules of the Supreme Court, Gilead can file a reply within 14 days of the Brief in Opposition, which would be no later than March 19, 2018.

By Riëtte van Laack & Ricardo Carvajal —

On March 5, 2018, GAO released to the public a report titled “Food Safety and Nutrition: FDA Can Build on Existing Efforts to Measure Progress and Implement Key Activities.” The report confirms that FDA’s Food and Veterinary Medicine (FVM) Program has been primarily preoccupied with implementation of the Food Safety Modernization Act (FSMA) and other food safety activities. In the period between January 2011 (when FSMA was enacted) and September 2017, FDA published “33 key proposed or final regulations” – 21 of which related only to food safety – and “111 key draft or final guidance documents” – 82 of which related only to food safety. (A list of the regulations and guidance documents is included in Appendix I). The numbers for staffing and expenditures are considerably more lopsided, with approximately 98% of FTEs and expenditures dedicated to food safety-related activities.

The GAO report gives FDA credit for setting goals for food safety and nutrition related activities via the FVM Program Strategic Plan, but notes that the Agency “cannot fully assess progress” because performance measures have not been developed for all of the FVM Program’s strategic objectives. In addition, GAO notes that the Strategic Plan as yet lacks an implementation plan that would lay out “specific actions, priorities, and milestones” to execute the identified strategies. GAO also notes that it is not clear and FDA does not document how the Agency determines whether it will issue a regulation or guidance. Consequently, FDA cannot ensure consistency and transparency in this determination.

Based on its findings, GAO recommends that FDA: (1) “develop performance measures with associated targets and time frames for all eight of its food safety- and nutrition-related objectives”; (2) “complete a plan that includes specific actions, priorities, and milestones for implementing the FVM Program’s strategic plan”; and (3) “uniformly document the bases for their decisions for issuing either regulations or guidance related to food safety and nutrition.”

In its comments on the report, FDA concurred with GAO’s recommendations. On the day the report was issued, Commissioner Gottlieb issued a statement announcing FDA’s commitment to modernize and streamline its food and nutrition programs, and summarizing some of the Agency’s recent safety and nutrition related activities. Dr. Gottlieb also stated that he will soon “provide more details on a nutrition strategy to reduce preventable death and disease through better nutrition.” It remains to be seen what form that strategy will take, and whether the Agency will shift more of its resources toward nutrition-related activities, given the work that remains to be done on FSMA implementation.

By Karla L. Palmer —

As stated in our post last week, on February 28, 2018, Commissioner Gottlieb announced FDA’s release of a draft guidance document addressing certain requirements under the 2013 Drug Supply Chain Security Act (DSCSA) concerning standardization of data and documentation practices for product tracing. The purpose of the draft is to help trading partners “understand” data elements that they should include as part of product tracing information, and details when partners are permitted to omit certain data that otherwise would be required. The draft guidance also recommends documentation practices that trading partners can use to satisfy product tracing requirements set forth in the DSCSA, FDCA Section 582. FDA notes that “product tracing requirements” mean the exchange of product tracing information between trading partners, including transaction information, transaction history and the transaction statement (TH/TI/TS). The guidance also intends to help trading partners in “standardizing” the information captured, maintained and provided to subsequent purchasers or those that request it.  What is a tad interesting about the draft guidance is its timing: Trading partners have been providing TH/TI/TS pursuant to the DSCSA for quite a while now, as required by the statute. The draft guidance helpfully walks through elements of TH/TI/TS for those entities that are required to provide such information under FDCA Section 582 (i.e., manufacturers, wholesaler distributors, repackagers, and dispensers). Each is addressed below:

Manufacturers: To the extent that there are business relationships that involve multiple manufacturers (application holder, co-licensed partner, affiliates) those entities should document by written agreement which of those entities will be carrying out the activities required by manufacturers under Section 582(b) (manufacturer requirements).

Dispensers: The draft describes various recommendations for dispensers including when there are “dispenser to dispenser sales to meet a specific need.” In that case, dispensers are not required to provide tracing information if the product is sold from one dispenser to another dispenser to “fulfil a specific patient need” (i.e., a sale from one pharmacy to another for dispensing to an individually identified patient). Such sales do need to be appropriately documented in the event there is an investigation concerning a recall, or notification of a suspect or illegitimate product. Licensed health care practitioners that may prescribe or administer medications under state law, or those under their supervision, are exempted from product tracing requirements, as described in the guidance. (Draft Guidance at 5). FDA also provides that dispensers may enter into third party agreements so that tracing information may be maintained by that third party. Notwithstanding use of third party agreements for the maintenance of product tracing information, such agreements do not relieve dispensers from their statutory obligations under 582 (i.e., among others, notification and reporting requirements).

The rest of the Draft Guidance addresses the Agency’s thoughts on standardization of product tracing data. Although the elements of what should be included are generally set forth in the DSCSA (and are being exchanged between trading partners), the Draft Guidance walks through in more detail (than FDA’s initial guidance issued in November 2014 [here]) what information should be included in TI/TH/TS.

Standardizing the Transaction Information (TI)

The DSCSA sets forth ten elements that should be included in TI. The Draft Guidance provides detail on these elements, and describes when certain detail may be omitted. Some but not all additional details on data elements include:

• Proprietary or established name of the product. The name should not be truncated, unless space limitations make it necessary to do so. FDA also provides instructions on products with multiple APIs, and names or abbreviations that the Institute for Safe Medications Practices (ISMP) has identified as being misinterpreted on prone to medication errors.
• Strength and dosage form. This information should remain consistent from one trading partner to the next in each transaction involving the product. FDA details the unit of measure, symbols and abbreviations that should be used.
• National drug code.  FDA advises that manufactures and repackagers that are creating the first TI for the product that they are introducing into commerce should use their respective NDC number. Subsequent partners should use the same NDC and the same configuration that is on the TI received from the product’s previous owner. Repackagers “should provide the NDC number that they have assigned to the repackaged product.”
• Container size. This should reflect the configuration of the “individual saleable unit, and not a larger shipping size of a “box, case, or tote.”
• Number of containers. FDA says that this should be the quantity of individual saleable units of a product of the same lot number that is included in a transaction.
• Lot number. The manufacturer should use the lot number it assigns to identify a batch or portion thereof that has “uniform character and quality within specified limits.”   If a repackager assigns a new lot number, it should use that number in the TI it provides to subsequent trading partners. If more than one lot number is used, then each should be reflected in the TI provided to the subsequent purchaser.
• Date of transaction. FDA considers this to be the date on which ownership of the product involved in the transaction transferred between trading partners. It may be a contract date or a shipment date, depending on the transaction.
• Date of shipment if more than 24 hours after date of transaction. The date should reflect the date shipped.
• Business name and address of the person from whom ownership is being transferred. FDA “recommends using the address of the facility from which the product is being shipped as the business address of the trading partner that is transferring ownership of the product,” although it states that this is a business decision between partners. If product is shipped from a third party logistics provider facility, the partner should still use the address of the entity from which ownership is being transferred.
• Business name and address of the person to whom ownership is being transferred. FDA’s recommendation concerning use of the appropriate business name and address is the same for the receiver of the product as it is for the sender (above). Use the address of the facility to whom the product is being shipped.

Standardizing the Transaction History (TH)

FDA’s guidance document also sets forth the Agency’s recommendations for standardization of the product’s transaction history as it passes between trading partners. The transaction history should be a compilation “of the transaction information for each prior transaction involving that product.” FDA outlines the two ways in which trading partners may provide TH, how it should be organized, and what does and does not need to be included in that TH. (Draft Guidance at 11).

Standardizing the Transaction Statement (TS)  

FDA’s Draft Guidance sets forth the statutory definition of “transaction statement” and all of its requisite elements indicating compliance with the DSCSA. In addition, the Draft Guidance discusses the “direct purchase statement” that may be included with certain products. If a distributor purchases a product directly from the manufacturer, exclusive distributor of the manufacturer, or a repackager that purchased directly from the manufacturer, then the direct purchase statement must be included. The Draft Guidance sets forth at page 13 the statement that FDA recommends that such partners use.   FDA notes that this will help partners understand why TH may not include certain transaction information back to the manufacturer.  FDA is also recommending the passing of such statements when a wholesaler purchases the product from another wholesaler that directly purchased the product from a manufacturer or repackager. (Draft Guidance at 13).

Documentation Practices

Finally, the Draft discusses various documentation practices for subsequent transactions where the statute permits certain transactions to omit certain elements of TH/TI/TS. These transactions include direct purchases by a wholesaler, drop shipments to a dispenser, and transactions involving grandfathered products. Those entities that participate in such transactions should focus on FDA’s draft detailed recommendations for documentation involving such transactions at pages 14-18 of the Draft Guidance.

Got questions or comments? Please submit them to Docket No. FDA-2018-D-0688, by May 1, 2018.

By Kurt R. Karst —

For this blogger, paging through and poring over FDA exclusivity determinations is about as much fun as sitting down with a hot cup of coffee and reading the Sunday newspaper. We recently came across an interesting FDA decision on 180-day exclusivity for generic LIALDA (mesalamine) Delayed-release Tablets, 1.2 g, approved under NDA 022000, that we thought was worth sharing. It concerns the familiar failure to obtain-timely tentative (or final) approval forfeiture provision at FDC Act § 505(j)(5)(D)(i)(IV), which states that eligibility for 180-day exclusivity is forfeited if:

The first applicant fails to obtain tentative approval of the application within 30 months after the date on which the application is filed, unless the failure is caused by a change in or a review of the requirements for approval of the application imposed after the date on which the application is filed.

The 2007 FDA Amendments Act clarified FDC Act § 505(j)(5)(D)(i)(IV), such that if “approval of the [ANDA] was delayed because of a [citizen] petition, the 30-month period under such subsection is deemed to be extended by a period of time equal to the period beginning on the date on which the Secretary received the petition and ending on the date of final agency action on the petition (inclusive of such beginning and ending dates) . . . .” (FDC Act § 505(q)(1)(G)).

According to FDA’s Paragraph IV Certifications List, the first ANDA for a generic version of LIALDA containing a Paragraph IV certification was submitted to FDA on December 16, 2009. That submission was made by Zydus Pharmaceuticals (USA), Inc. (“Zydus”) under ANDA 091640 and made the company a “first applicant” eligible for a period of 180-day exclusivity. Thirty months after that ANDA submission was June 16, 2012, but several more years went by without an FDA approval action on the ANDA. Finally, on June 5, 2017, FDA approved Zydus ANDA 091640 after the company responsed to a December 2016 Complete Response Letter. As to 180-day exclusivity, FDA’s approval letter says that the Agency decided to “punt” on whether or not exclusivity would be available to Zydus:

With respect to 180-day generic drug exclusivity, we note that Zydus was the first ANDA applicant for Mesalamine Delayed-Release Tablets USP, 1.2 g, to submit a substantially complete ANDA with a paragraph IV certification. Therefore, with this approval, Zydus may be eligible for 180 days of generic drug exclusivity for Mesalamine Delayed-Release Tablets USP, 1.2 g. This exclusivity, which is provided for under 505(j)(5)(B)(iv) of the FD&C Act, would begin to run from the date of the commercial marketing identified in section 505(j)(5)(B)(iv). The Agency notes that Zydus failed to obtain tentative approval of this ANDA within 30 months after the date of which the ANDA was filed. See section 505(j)(5)(D)(i)(IV) of the FD&C Act (forfeiture of exclusivity for failure to obtain tentative approval). The Agency is not, however, making a formal determination at this time of Zydus’s eligibility for 180-day generic drug exclusivity. It will do so only if a subsequent paragraph IV applicant becomes eligible for full approval (a) within 180 days after Zydus begins commercial marketing of Mesalamine Delayed-Release Tablets USP, 1.2 g, or (b) at any time prior to the expiration of the ‘720 patent if Zydus has not begun commercial marketing. Please submit correspondence to this ANDA informing the Agency of the date commercial marketing begins.

But just a few months later, apparently FDA was put into a position of having to resolve whether or not Zydus forfeited eligibility for 180-day exclusivity (presumably because a subsequent Paragraph IV applicant became eligible for full approval). Upon review of the Zydus ANDA file, FDA resolved this exclusivity punt in favor of Zydus. And, in doing so, FDA confirmed that it is when the Agency communicates to a particular ANDA applicant a prior determination on bioequivalence standards that counts (here, from a Citizen Petition Response), and not necessarily when an issue is decided by the Agency, for purposes of the failure to obtain timely tentative (final) approval forfeiture provision.

As initially submitted, Zydus ANDA 091640 contained, among other things, the results of a clinical endpoint bioequivalence study. But just 8 months after the submission of ANDA 091640, FDA changed course. In an August 20, 2010 Citizen Petition Response (Docket Nos. FDA-2010-P-0111 and FDA-2008-P-0507) concerning mesalamine extended-release products, FDA ruled that:

in light of new data from PK and comparative clinical endpoint studies in modified-release mesalamine products, as well as recent developments in regulatory science concerning the analysis of PK data, the Agency . . . no longer recommends comparative clinical endpoint studies to show bioequivalence for these products. Rather, . . . applicants should show bioequivalence to certain NDAs for mesalamine extended-release products (Asacol and Pentasa) through a combination of PK studies and in vitro dissolution testing.

According to an October 25, 2017 FDA Exclusivity Determination for Zydus ANDA 091640, this change in bioequivalence standard was not communicated to Zydus until a couple of years later:

In its February 23, 2012 bioequivalence review for ANDA 091640, FDA determined that the principles described in the Citizen Petition Response should apply to generic versions of Lialda as well and that Zydus must conduct comparative PK studies (under both fasting and fed conditions) and in vitro dissolution studies to demonstrate bioequivalence instead of the in vivo studies Zydus had previously conducted. This change in bioequivalence requirements for approval, which required Zydus to plan and conduct additional studies, was first communicated to Zydus as Bioequivalence Comments on March 13, 2012, three months before the forfeiture date of June 16, 2012 for ANDA 091640. Zydus later received a Complete Response Letter for this ANDA on March 13, 2013, which included the same bloequivalence deficiencies communicated in the Agency’s March 13, 2012 Bioequivalence Comments.

Zydus promptly responded to the March 2013 Complete Response Letter in October 2013, and, as noted above, eventually obtained ANDA approval in June 2017. But it was Zydus’ active pursuit to address the bioequivalence deficiencies communicated by FDA in March 2012 (and based on an August 2010 Citizen Petition Response) that saved the company from forfeiting eligibility for 180-day exclusivity. According to FDA:

On October 23, 2013, Zydus responded to the Agency’s March 13, 2013 Complete Response Letter, which included information to address the bioequivalence deficiencies communicated in the Agency’s March 13, 2012 Bioequivalence Comments and March 13, 2013 Complete Response Letter for ANDA 091640. A review of this information shows that Zydus’s application was not ready for approval at the forfeiture date due, in part, to the fact that while Zydus’s application was pending there was a change in the bioequivalence studies expected for approval. At the time of the forfeiture date of June 16, 2012, Zydus was actively addressing the bioequivalence deficiencies described above and communicated to Zydus in the March 13, 2012 Bioequivalence Comments, and Zydus had not yet demonstrated bioequivalence under the new methodology as of the June 16, 2012 forfeiture date. . . .

Based on these facts, we conclude that Zydus failed to obtain tentative approval within 30 months and this failure was caused by a change in the requirements for approval. As described above, Zydus was actively addressing the change at the forfeiture date. We conclude that Zydus’s efforts to comply with the new bioequivalence methodology for modified-release mesalamine products, which methodology was revised while Zydus’s application was pending, was a cause of its failure to obtain tentative approval by the June 16, 2012 forfeiture date.

We’ve said it before, and we’ll say it again: timing is everything when it comes to Hatch-Waxman. That’s certainly true in the case of Zydus ANDA 091640, where a Citizen Petition Response issued shortly after ANDA submission that changed bioequivalence standards was not determinative of 180-day exclusivity forfeiture, but rather when FDA communicated the substance of that petition decision to a particular ANDA applicant requesting new bioequivalence data and information.