FDA Law Update

Congress Contemplates Action on Rolling Machines

Sheppard Mullin — Tue, 03 Apr 2012 12:14:03 -0800

As part of Sheppard Mullin’s monthly blog on tobacco retailer issues, we are taking a look at the possible future of retailer-operated rolling machines. On March 8, 2012, the U.S. Senate adopted an amendment to the federal highway bill “Moving Ahead for Progress in the 21st Century Act” (MAP–21) that included a provision impacting retail establishments that offer rolling machines for use to customers. The provision would have changed the definition of “manufacturer of tobacco products” in section 5702(d) of the Internal Revenue Code of 1986 to “include any person who for commercial purposes makes available for consumer use . . . a machine capable of making cigarettes, cigars, or other tobacco products.”[1]

The bill containing the provision was never passed by the House. Instead, Congress voted on March 29 for another short-term extension of highway funds. This short-term extension lacked the provision changing the definition of a manufacturer of tobacco products. Regardless, retailers should be wary that this provision may reappear again in future legislation, transportation or otherwise.

The provision was offered by Senators Baucus, Murkowski, Bingaman, Crapo, Wyden, Risch, Merkley, Tester, and Bennet as part of an amendment to extend the Secure Rural Schools and Community Self-Determination Act of 2000 for one additional year. The amendment was adopted by the Senate in a vote of 82 to 16, demonstrating clear bipartisan support. There is no suggestion that the provision regarding rolling machines had any bearing on the overall fate of MAP-21.

Reports indicate that Congress views the change to the definition as an easy way to help balance costs associated with a bill or amendment. It is easy to see why. The provision was estimated to raise $99 million in Federal excise taxes. As noted in a recent article by The Washington Post, an aide to the Senate Finance Committee commented that a change to the definition has been considered by both the deficit-reduction supercommittee, and negotiators involved in the extension of the payroll tax cut. [2]

Congress is positioning the change to the definition as the closing of a “tax loophole,” and not a new tax. According to Senator Baucus, the provision:

. . . partially closes a loophole regarding roll-your-own tobacco. Congress raised taxes on tobacco to pay for the reauthorization of the Children's Health Insurance Program in 2009. Tax rates on pipe tobacco were not increased as much as on roll-your-own tobacco; therefore, tobacco companies are selling bags of roll-your-own tobacco and labeling them as pipe tobacco. In other words, the pipe tobacco is masquerading as tobacco to be rolled into cigarettes to avoid the additional tax.[3]

Senator Baucus noted that “[t]he abuse is so prevalent that gas station owners now have cigarette rolling machines to facilitate the loophole. A customer purchases a bag of pipe tobacco and then uses the machine to roll cigarettes."[4]

Despite the intent of Congress to close a perceived tax loophole created by the misuse of pipe tobacco, the provision (in its MAP-21 form) would also impact taxation of roll-your-own tobacco. As the provision only changes the definition of a “manufacturer of tobacco products,” it would draw no distinction between cigarettes rolled using pipe tobacco or roll-your-own tobacco. This could lead to the double taxation of roll-your-own tobacco.

Further, the language is vague enough to include retailers and companies that sell personal roll-your-own machines to consumers as “manufacturers of tobacco products.” Although section 5702(d) of the Internal Revenue Code currently includes an exemption for individuals that make tobacco products for their own personal consumption, this exemption would not apply to retailers and other companies that only sell supplies and equipment to individuals that make their own tobacco products.

Another issue not directly addressed in the language of the provision was how affected retailers would be treated under the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act). An expansion to the definition in the Internal Revenue Code would not have a direct bearing on the definition of a “tobacco product manufacturer” in the Tobacco Control Act. Despite this, the change to the Internal Revenue Code may prompt FDA to consider broadening its application of the current Tobacco Control Act definition to include rolling machine operations by retailers. If FDA decided to follow the lead of Congress (when and if such a provision is ultimately enacted), affected retailers would be subject to regulatory requirements equivalent to those imposed on cigarette manufacturers. Such regulatory requirements currently include payment of user fees, submitting premarket applications for new tobacco products, and compliance with labeling, good manufacturing practice (GMP), registration and reporting provisions.

If FDA chose to adopt a broader interpretation of “tobacco product manufacturer,” along the lines of the Internal Revenue Code proposal, it is not currently known how FDA would implement such a change. For example, FDA may determine such a change requires notice and comment through the traditional administrative rulemaking process. Alternatively, FDA may consider the current definition of “tobacco product manufacturer” in the Tobacco Control Act sufficiently broad enough to include retailers affected by the proposed Internal Revenue Code.

The Senate’s action last month leaves a number of unanswered questions that have a direct impact on the business of many retailers and other companies. Most immediate among these questions is the potential impact such a change would have on the taxation of retailers, and how the government might assess those taxes. Such a change would also undoubtedly have an impact on the taxes paid to states for the manufacture of cigarettes.

Sheppard Mullin is actively monitoring this provision, as it is an important issue for many retailers. Updates will be posted on our blog as they develop. Retailers and other companies seeking further clarity on this provision may contact the author directly.

[1] 158 Cong. Rec. S. 1544, 1548 (Mar. 8, 2012).

[2] Rosalind S. Helderman, “Amendment to highway bill sideswipes Little Tobacco,” The Washington Post (Mar. 17, 2012), available at http://www.washingtonpost.com/politics/2012/03/14/gIQAKoCBJS_story.html.

[3] 158 Cong. Rec. S. 1645, 1652 (Mar. 14, 2012).

[4] Id.

Mandatory Debarment for FCPA Violations? A Bad Idea Whose Time Should Never Come

Sheppard Mullin — Wed, 28 Mar 2012 09:53:57 -0800

By Mike Emmick

In the fervor of the U.S.'s current anti-foreign-corruption efforts, a particularly misguided proposal has occasionally reared its ugly head: Requiring “mandatory debarment” for any company that violates the Foreign Corrupt Practices Act (“FCPA”).

On the merits, such a proposal is completely wrong-headed. Debarment is a severe, forward-looking administrative remedy – the corporate “death penalty” – not a vehicle to “boost” the penalties for past criminal FCPA violations.

Nonetheless, in 2010, such a “mandatory debarment” bill was passed by the House, only to die in Congress due to Senate inaction. Optimistic multinational contractors might therefore have concluded, “Whew, we dodged that bullet.”

However, a recent law-review article has sought to resurrect the debarment idea, contending that no other remedy will deter large global companies from violating the FCPA.

Below is a snapshot of the relevant law, recent developments, and pertinent arguments. As will be explained, despite the recent article, the notion of “mandatory debarment” is unlikely to gain traction – even the Department of Justice (“DOJ”) opposes it – but the article and the current anti-corruption frenzy may cause authorities to reconsider the idea. Any multinational company that does substantial government contract work should therefore monitor and resist such efforts.

As nearly everyone who operates in this market knows by this time, the FCPA prohibits U.S. companies from paying bribes to foreign officials in order to obtain or retain business. The FCPA also requires accurate books and records and meaningful internal accounting controls. Violations of the FCPA can result in huge criminal and civil fines, disgorgement of profits, and payment of interest, not to mention a wide range of collateral consequences. The FCPA is enforced by DOJ and the SEC.

Over the past five years DOJ has been extremely aggressive in its prosecution of FCPA violations. Eight of the ten largest FCPA fines in history occurred in 2010, and multi-million-dollar fines have now become routine. There are currently dozens of pending FCPA investigations – many more than in previous years. Indeed, DOJ has dubbed this “the new era of FCPA enforcement.”

Congress attempted to climb aboard this FCPA-enforcement bandwagon when, on September 15, 2010, the House unanimously passed a “mandatory debarment” bill – H.R. 5366, known as the 2010 Overseas Contractor Reform Act. The bill would have created a government-wide policy that no contracts be awarded to companies or individuals that violated the FCPA. H.R. 5366, § 3. Procedurally, the law would have required the contracting agency to propose for debarment all contractors found to be in violation of the FCPA.

The bill was flawed in many ways. It did not define a “finding” of an FCPA violation, so it was unclear whether the debarment would be triggered by a non-prosecution or deferred prosecution agreement. The bill failed to differentiate between major and minor FCPA violations, or between different kinds of violations (i.e., bribe payments versus “books and records” or accounting violations). The bill did not require or permit consideration of how the violation occurred, whether the company self-reported the violation, or whether the company dramatically improved its anti-corruption compliance program thereafter.

Shortly after the bill was passed, DOJ answered questions about the FCPA generally, as the Chamber of Commerce was proposing FCPA amendments. DOJ expressed its opposition to “mandatory debarment,” stating that mandatory debarment “would likely be counterproductive, as it would reduce the number of voluntary disclosures and concomitantly limit corporate remediation and the implementation of enhanced compliance programs.” According to DOJ, such a debarment program could also hurt the government's ability to investigate and prosecute transnational corruption. Linking debarment to criminal conviction would “fundamentally alter the incentives of a contractor-company,” because an FCPA resolution would then cause the company to suffer a dramatic reduction in revenue. That, in turn, would negatively impact prosecutorial discretion and the flexibility to reach an appropriate resolution given the facts and circumstances of the particular case.

DOJ's opposition would ordinarily be enough to ensure that “mandatory debarment” would not be taken seriously. And in fact the Senate took no further action on the House bill, perhaps because of DOJ's opposition after the House bill was passed.

However, a recent law-review article has sought to resurrect this misguided debarment notion. In November 2011, Fordham Law Review published a 70-page article entitled “FCPA Sanctions: Too Big to Debar,” available here, which was written by Professor Drury Stevenson of the South Texas College of Law, along with one his law students. The article took the position that debarment should be considered as an additional punishment for FCPA violations. According to the article, corporations can only be punished via fines, and government contract revenues are so large that fines often become a mere “cost of doing business,” which prevents those fines from having deterrent value. In addition, the public may interpret a failure to debar a company as suggesting that companies can buy their way out of FCPA violations.

The article acknowledged that mandatory debarment might discourage self-disclosure – one of DOJ's concerns – but proposed that self disclosure might be meaningfully rewarded through a reduced criminal fine. The article also acknowledged that debarment might be the contractor's “death knell”; it might even raise an “Arthur Andersen” problem by driving an important and responsible company out of business entirely, which might harm the contracting market, foreign relations, national security, and the company's shareholders. As an alternative to mandatory debarment, the article proposed an increase in discretionary debarments based on FCPA violations.

For a number of reasons, “mandatory debarment” for FCPA violations is a bad idea. In fact, In January 2012, two months after “Too Big to Debar” was published, Fordham Law Review published a responsive article authored by Jessica Tillipman, a professor at George Washington Law School. Jessica Tillipman, “A House of Cards Falls: Why “Too Big to Debar” is All Slogan and Little Substance”, available here. Tillipman disagreed with nearly all of Professor Stevenson's conclusions and analysis, and her remarks warrant summarizing here.

First, the debarment provision in the Federal Acquisition Regulations (FAR) is itself inconsistent with “mandatory debarment.” FAR 9-402(b) states that “the serious nature of debarment and suspension requires that these sanctions be imposed only in the public interest for the Government's protection and not for purposes of punishment.” (Emphasis added.) The point of debarment is to ensure that the government works with “responsible partners.” Indeed, that is why the prosecutors handle the fines, and the debarring officials handle the debarment.

Second, the FAR expressly requires the debarment officials to consider whether the contractor undertook remedial measures or whether the violation involved mitigating factors that demonstrate that the contractor is still “presently responsible.” FAR 9-406-1. Mandatory debarment would make those provisions meaningless, and would shift the focus of debarment from future conduct to past conduct.

Third, imposing the remedy of “mandatory debarment” would unfairly focus on government contractors, not on other companies or individuals that may violate the FCPA. Why should contractors be discriminated against – especially automatically discriminated against?

Fourth, debarment is an inappropriate “all or nothing” remedy. Its use might destroy responsible companies – even essential companies – that have thousands of employees and contribute immensely to the economies of the U.S. and the world. That is why debarment should be used only rarely, and only after an extensive review of what prompted the transgression, how the company responded, and other important factors.

Fifth, if mandatory debarment were to become the law, it might even discourage large companies from engaging in business with the U.S., because their devotion of time to and their monetary investments in government contract work could be lost at the whim of federal prosecutors, perhaps as the result of actions by rogue employees who clandestinely refused to adhere to the companies' anti-corruption compliance program.

Finally, as DOJ itself pointed out in 2010, “mandatory debarment” might actually hurt the US's FCPA-enforcement efforts by discouraging corporate self-disclosure and cooperation as part of the remediation process. Those procedures are currently a critical source of information for DOJ to use in its prosecution of FCPA violations.

In light of DOJ's opposition, “mandatory debarment” for FCPA violations is unlikely ever to become law. Nonetheless, because the consequences would be potentially devastating, any such possibility should be monitored closely by and vigorously opposed by global contractors.

The Uncomfortable Resurgence of the Responsible Corporate Officer Doctrine

Sheppard Mullin — Wed, 28 Mar 2012 09:45:47 -0800

By Mike Emmick and Joseph Barton

Corporate executives in the health care and environmental industries are rapidly coming to appreciate the implications of the responsible corporate officer doctrine, a recently-revitalized weapon in U.S. Department of Justice’s battle against corporate crime.

This doctrine is a peculiar exception to the usual requirements for a criminal prosecution. Ordinarily, criminal law requires a defendant to have committed a criminal act, and to have done so with criminal intent.

The responsible corporate officer doctrine ("RCO doctrine") departs from that model and imposes vicarious and strict liability on corporate officers based entirely on their position within the company. Under the doctrine, a corporate officer can be held criminally liable for a low-level employee's criminal activity, even if the officer did not participate in or know anything about the criminal activity. The criminal liability is based entirely on the officer's responsibility and authority to prevent or correct the violation, and his failure to do so. The only defense is where prevention of the crime was "objectively impossible," which is almost never the case.

This doctrine has been around a long time, although it has been used only occasionally. The two leading cases upholding the doctrine involve an interpretation of the Food, Drug, and Cosmetic Act: U.S. v. Dotterweich, 320 U.S. 277 (1943)(misbranded drugs) and U.S. v. Park, 421 U.S. 658 (1975)(rats in a warehouse). Those cases involved misdemeanor violations and relatively small fines, which helps explain why the U.S. Supreme Court tolerated and upheld the doctrine.

The RCO doctrine was used primarily for prosecutions brought under the Food, Drug, and Cosmetic Act until the mid-1980s, when it began to be used for environmental crimes as well. Some environmental statutes, such as the Clean Air Act and Clean Water Act, expressly provide that "responsible corporate officers" are among the "persons" who can be prosecuted for any violations. See 33 U.S.C. Section 1319(c)(6)(1987 Clean Water Act).

The rationale for the doctrine is straightforward. Prosecuting "public welfare" offenses is particularly important because those crimes can have a far-reaching impact. Yet, prosecuting the low-level employees who actually carried out the crimes is often impossible, unfair, or unappealing. Similarly, prosecuting the corporation often has minimal deterrent value because the corporation can regard the criminal fines as a "cost of doing business." On the other hand, prosecuting corporate executives for crimes committed "on their watch" will encourage greater supervision and prevention of those crimes, which will ultimately provide greater protection for the public.

Recently, federal authorities announced a return to using the RCO doctrine. In 2009, Assistant Attorney General Tony West said the Justice Department would be making more use of the doctrine to combat health care fraud; and in 2010, Food and Drug Administration Commissioner Margaret Hamburg made a similar announcement.

True to those announcements, several responsible corporate officer prosecutions have recently been brought. Two aspects of those prosecutions are, however, somewhat unsettling: the doctrine's practical implications in this new world of corporate cooperation, and the unexpected use of these convictions to obtain prison sentences and debarment.

From a practical point of view, the RCO doctrine is largely a way for the Justice Department to prosecute individual corporate executives whom it believes or suspects (but cannot prove) actually played a role in directing, encouraging, or approving the corporation's criminal conduct. In that sense, the doctrine operates a bit like criminal liability based on theories of recklessness or criminal negligence, or like the practice of proving criminal knowledge through a defendant's "conscious avoidance" of learning the underlying facts. The doctrine is thus an easier "fall-back" way of bringing or threatening criminal charges against a deserving corporate officer.

More to the point, prosecutors can thus use the threat of an RCO prosecution to put pressure on corporate executives to cooperate with the government's investigation. With the doctrine in hand, the prosecutor's negotiation with the executive and his attorney is no longer simply about what the executive did and what he knew; the prosecutor can simply say, "This was your area of responsibility, right?" Such a threat can be effective because the doctrine is broad and vague, and its use is limited primarily by prosecutorial discretion.

The recent use of the doctrine is disturbing, though, because it goes beyond Dotterweich and Park, which involved only minimal fines for misdemeanor charges. The recent sentences for RCO violations have included substantial incarceration – at least, "substantial" by the standards of a corporate executive who did little to warrant any conviction at all. In the Synthes prosecution, for example, four executives pleaded guilty to responsible corporate officer misdemeanors and were sentenced in 2011. Two were sentenced to nine months in prison; one was sentenced to eight months in prison; and one was sentenced to five months in prison. All four received fines of $100,000.

Also unsettling is the government's recent use of these convictions to debar executives from further work in their industry – arguably a greater consequence than the misdemeanor conviction and fine. For example, in the Purdue Frederick case, an executive who pleaded guilty to a responsible corporate officer count was debarred for 12 years, even though the common period of debarment would be only three years if the officer had directly committed the crime.

The legitimacy of that debarment is being challenged on appeal, but the point here is clear: A guilty plea to a "soft" or "fall-back" RCO count can have harsh and far-reaching consequences, which is quite different than the small, almost-regulatory fines envisioned by Dotterweich and Park.

These renewed applications of the doctrine also raise questions about how it might be used in the future. If the doctrine can be the basis for substantial prison time, can it also be used for felony prosecutions? Although the doctrine is now limited to public welfare offenses involving health care and environmental crimes, could it also be used for other crimes that can be characterized as public welfare offenses, or perhaps for crimes that do not involve public welfare at all? Is the doctrine a creature of statutory interpretation, or has it evolved into a common law concept applicable to other settings entirely?

Finally, there is a quirky recent development that, properly interpreted, might serve as a "wake-up call" regarding this new threat of RCO prosecutions. Just this month, insurance companies have begun offering "RCO insurance" to cover the economic loss an executive might suffer as a result of such a prosecution, debarment, and/or loss of salary. Needless to say, the insurance company will not also serve the executive's prison sentence.

The lesson going-forward is therefore clear: Executives must protect themselves through active and responsible adherence to the corporate compliance program. The days of "protecting yourself from criminal responsibility by doing nothing" are long behind us.

Comment Period to Close On Petition to FDA for Mandatory Labeling of All Foods Produced Using Genetic Engineering

Sheppard Mullin — Mon, 26 Mar 2012 10:55:25 -0800

By Robert Uram

On March 27, 2012, the comment period will close on a petition filed by the Center for Food Safety that calls for the FDA to issue new regulations requiring labeling of all foods produced using genetic engineering (GE). Docket No. FDA-2011-P-0723 (Filed October 12, 2011). Unlike many other developed countries – such as 15 nations in the European Union, Japan, Australia, Brazil, Russia and even China – the U.S. has no laws requiring labeling of genetically engineered foods.

Nearly one million individuals, more than 500 partner organizations representing the healthcare community, consumer advocates, farmers, concerned parents, environmentalists, food and farming organizations, businesses and 55 members of Congress and many more concerned with protecting the consumer’s right to know have joined together in support of the FDA petition and the mandatory labeling of genetically engineered foods.

A recent letter by 55 members of Congress explains:

At issue is the fundamental right consumers have to make informed choices about the food they eat…The agency currently requires over 3,000 other ingredients, additives, and processes to be labeled; providing basic information doesn’t confuse the public, it empowers them to make choices. Absent labeling, Americans are unable to choose for themselves whether to purchase GE foods…. We urge you to fully review the facts, law, and science, and side with the American public by requiring the labeling of genetically engineered foods as is done in nearly 50 countries throughout the world.

According to Justlabelit.org, studies show that more than 90 percent of the population support mandatory labeling of genetically engineered foods.

Why Are GE Foods Not Labeled?

The Federal Food, Drug, and Cosmetic Act requires the FDA to prevent consumer deception by clarifying that a food label is misleading if it omits significant “material” information. In 1992 the FDA issued a policy statement that defined “material” as the ability to be sensed by taste, smell, or other senses. The FDA determined that GE Foods were “substantially equivalent” to conventionally produced foods, so there was no material difference – and no labeling was required. After almost 20 years, this policy is still in effect today.

The petition calls for the FDA to:

Issue new regulations requiring labeling of all foods produced using genetic engineering.
Change the way it defines “material” to a change in food at the atomic, molecular or genetic level that a significant share of consumers would find relevant to their purchasing decisions; and/or
Issue new regulations requiring labeling of all transgenic food because it always results in novel DNA and proteins never before present in the foods, and which consumers would not expect.

The issue has attracted significant press attention and is being closely watched. Use of GE products have also raised significant environmental and economic issues. Further information on the petition can be found at http://justlabelit.org/about-just-label-it/.

State-by-State Differences in Retailer Enforcement

Sheppard Mullin — Thu, 15 Mar 2012 11:33:21 -0800

By Seth A. Mailhot

Welcome to the next monthly installment in FDA's enforcement of regulated tobacco products. This month we will examine some of the differences found between different states in FDA enforcement actions against retailers.

Sheppard Mullin has been closely monitoring FDA's tobacco enforcement actions to better serve its clients. From the beginning of FDA's program inspecting tobacco retailers, a trend emerged suggesting that there are significant differences in enforcement between retailers depending on the state in which the inspection was conducted. This raises concerns about not only in how each state conducts its retail inspection program, but the level of oversight applied by the Center for Tobacco Control over the program as a whole.

One of the most important of these state-to-state differences relates to the percentage of inspections resulting in an enforcement action. The following table provides the most recent data for states where more than 1,000 retailer inspections were conducted.

State	Inspections	Enforcement Action Rate	Civil Money Penalties
MO	2,235	13.65%	0
IL	1,214	13.18%	0
CO	2,125	11.11%	7
AZ	1,251	8.07%	1
WA	1,644	7.42%	4
MS	4,976	6.95%	10
AR	1,541	5.58%	0
All[1]	40,001	5.07%	29
MA	3,892	4.39%	5
TN	1,342	4.32%	0
MD	2,294	3.05%	1
PA	5,883	3.04%	0
AL	3,221	2.64%	1
KS	2,687	2.01%	0
ME	4,203	0.74%	0

As demonstrated by the table, the rates across the different states vary by a broad margin. For states where more than 1,000 inspections have been conducted, the highest state action rate is well over 10% greater than the lowest state action rate. In statistical terms, enforcement action rates for four (4) of these fourteen (14) states fall outside of the standard deviation for the set.[2]

The difference in enforcement action rate may be due to any number of causes. The most critical issue is whether the difference is the result of factors that are within FDA's control, or the result of factors outside of FDA's control. For example, a particular state government's bias for or against tobacco retailing in general may have a significant influence on that state's enforcement action rate. This would be a factor controllable by FDA through the administration and management of state retail inspection contracts.

Not every factor is within FDA's power to control. For example, a state may have lacked laws or regulations governing tobacco retailing prior to the enactment of the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act), or may have lacked funding to enforce such laws or regulations. Alternatively, a state may have had a very strict regulatory regime with robust enforcement prior to enactment.

There is reason to believe that the difference in enforcement action rate is due to factors within FDA's control. Most telling are the state-by-state differences in the length of time from inspection to Warning Letter issuance. A wide variation across different states suggests that FDA’s management of the inspection program has a significant impact on many aspects of the program, including enforcement.

A lengthy delay between a retailer’s inspection and the issuance of a Warning Letter is a common occurrence, which leads to a lack of notice to retailers who wish to act responsibly. As of January 20, 2012, the average length of time between inspection of a tobacco retail facility and the subsequent issuance of a Warning Letter was over seventy (78) days. The following table displays the minimum, maximum, and average number of days from inspection to Warning Letter, by state, as well as the standard deviation.[3]

This data is represented graphically in the following chart. The red I-bars represent one standard deviation from the average.

Figure 1

On average, a retailer can expect to wait eleven (11) full weeks from the date of an inspection before a Warning Letter is sent. In many instances, a retailer first learns that an inspection has occurred when the Warning Letter is received. Of course such lengthy delays make it nearly impossible for a retailer to effectively evaluate the situation, and adequately address any alleged violations.

Maintaining consistency in enforcement has long been a struggle of the agency in other areas. While it is not surprising to see these issues arise in the context of tobacco retailer enforcement, it is discouraging given the centralized nature of FDA's management over the retail inspection program. Whether a retailer has received a Warning Letter, or a more serious Civil Money Penalty complaint, they are strongly encouraged to consult counsel when preparing a response.

In the next installment, we will examine how different combinations of violations impact Civil Money Penalty complaints, and reflect upon some of the differences in the types of violations found among different states.

[1] Note that this total includes all state inspections conducted to date, and not just the fourteen (14) states with over 1,000 inspections.

[2] The standard deviation in enforcement action rate for states with more than 1,000 inspections is 4.12%, placing Maine, Colorado, Illinois and Montana outside of this range. The standard deviation calculated for all states, including those with less than 1,000 inspections, is significantly higher at 20.41%. The calculation of standard deviation is not weighted by the number of inspections.

[3] Data was compiled as of January 20, 2012.

Update on Tobacco Warning Letters

Sheppard Mullin — Mon, 30 Jan 2012 14:54:26 -0800

Welcome to the first monthly update on FDA's enforcement over regulated tobacco products. This update will examine trends in Warning Letters, and cover some unique Warning Letters and enforcement actions that have occurred in the previous month. As the first post regarding tobacco products, we begin with an alert regarding FDA's issuance of civil money penalty complaints. The update also provides a summary of tobacco related Warning Letters issued by the FDA to date.[1]

The most significant enforcement event over the last month is the issuance of twenty (20) civil money penalty complaints to retailers by the FDA. The Family Smoking Prevention and Tobacco Control Act provides for civil money penalties for violations of FDA's tobacco regulations at 21 C.F.R. part 1140. This is a significant concern, particularly as some of these complaints allege five (5) violations, which is the minimum necessary for FDA to bring a "No Tobacco Sale Order" against a retailer. The following tables list the violations identified in the complaints, the values of the civil money penalties assessed, and the states where the retailers are located.

Overall, there have been 1,370 Warning Letters issued by the Center for Tobacco Products since the Family Smoking Prevention and Tobacco Control Act was passed in 2009. The majority of Warning Letters were issued as the result of state contract inspections of retailers. The remaining 45 Warning Letters were issued directly by the Center for Tobacco Products to Internet retailers and manufacturers.

Tobacco Warning Letters Issued to Date

Tobacco Warning Letters Issued in 2011

The most common violation among brick-and-mortar retailers is the sale of a tobacco product to a minor, which is prohibited by 21 C.F.R. § 1140.14(a). This violation is often combined with a violation for the failure to check for identification, which is a requirement of 21 C.F.R. § 1140.14(b)(1). These violations arise out of the undercover purchases made by minors who are accompanied by state contract inspectors. FDA has also given considerable attention to the use of self-service displays and vending machines, which are prohibited in establishments that permit anyone under the age of 18 to enter. Inspections of facilities that do not permit anyone under the age of 18 to enter are generally conducted only by the state contract inspector, and do not include a minor. The following table provides totals for violations found among all state contract inspections.

In addition, four (4) Warning Letters cited brick-and-mortar retailers for selling cigarettes that contained a characterizing flavor, and forty-four (44) brick-and-mortar retailers were notified regarding the use of modified risk language in labeling.

Warning Letters issued directly by the Center for Tobacco Products, and not as the result of a state contract inspection, were primarily sent to Internet retailers. These Warning Letters generally concerned the sale of cigarettes with a characterizing flavor (39 of 45 Warning Letters), and the use of modified risk language in advertising and labeling (19 of 45 Warning Letters). Two manufacturers were cited for sponsoring an event, and one was cited for offering a free gift or item for the sale of a tobacco product.

The FDA has taken a hard line against cigarettes containing a characterizing flavor, and it is not surprising to see the agency continuing to monitor the Internet for such products. Use of modified risk language, even if explaining a change in product name, has also been a focus of the FDA with regards to Internet retailers and manufacturers.

Warning Letters regarding the offer of a free gift or item generally involved a free item, most commonly a lighter. One Warning Letter, however, involved a rewards program, which offered a check to customers in exchange for providing proof of purchase of specially marked tobacco products.[2] This is the first public Warning Letter to address the issue of a rewards program (as opposed to a free item), and it remains to be seen what attention the FDA will give to more general rewards programs.

Based on this data, retailers should review their training policies and procedures, and be on the lookout for state contract inspections with an undercover minor. There are a number of programs available, and counsel may be retained to assist with implementing such programs. Further, given the large penalties possible under the Tobacco Control Act, any company that receives a Warning Letter or complaint should retain counsel to represent its interests before the FDA.

Next month will include an examination of trends seen between different states.

[1] This includes all Warning Letters posted by the FDA as of January 13, 2012

[2] FDA, Warning Letter issued to Pinkerton Tobacco Company LP (Nov. 28, 2011).

FDA Announces Proposals for Biosimilars User Fees and Performance Review Goals

Sheppard Mullin — Fri, 09 Dec 2011 11:27:28 -0800

By Peter Reichertz

FDA has at last began formal implementation of the Biologics Price Competition and Innovation Act of 2009 ("BPCI Act"), by announcing the proposal it will send to Congress to implement user fees for "generic" copies of biologics, called biosimilars in the BPCI Act. A biosimilar is a product approved under Section 351(k) of the Public Health Service Act ("PHSA"); approvals are not Federal Food, Drug and Cosmetic Act ("FFDCA") approvals. Under the proposal, the user fees for biosimilars - including the product application fee, the annual product fee and the annual establishment fee - would be identical to the fees established for human drug products approved under Section 505(b) of the FFDCA with one significant difference.[1]

Because there are currently no biosimilars approved, FDA expects to expend significant resources upfront in evaluating research and protocols for biosimilar applications. As a result, it is proposing to assess a Biological Product Development ("BPD") Fee for review of Investigational New Applications ("INDs") submitted for biosimilar products. The fee would be due at the time of submission of an IND for a biosimilar product or, if requested, within five (5) days of FDA granting a request for a BPD meeting. In addition, a BPD fee would be assessed to any IND filed for a biosimilar product before any biosimilars user fee legislation is enacted. The BPD fee would be ten percent (10%) of the application fee established for a 505(b) application for the year submitted.

In addition, the fee would be assessed on an annual basis until the applicant either submits a marketing application, or withdraws the IND.[2] The BPD fees would be subtracted from the application user fee due when a biosimilars application is filed under Section 351(k) of the PHSA. There is also a reactivation fee if one withdraws an IND and reactivates subsequently. That fee would be in amount equal to twice the BPD user fee for fiscal year the IND is reactivated, and would be due upon reactivation of the IND, or within five (5) days of FDA granting a request for a BPD meeting.[3]

In addition, FDA has announced proposed review performance goals. The full description of the proposed performance goals and procedures for the biosimilars user fee program can be found in the draft biosimilars user fee commitment letter (draft commitment letter) posed on FDA's Web site at:

FDA: Biosimilar Biological Product Authorization Performance Goals and Procedures Fiscal Years 2013 Through 2017

In brief FDA proposes to review 70% of 351(k) application within 10 months of receipt in fiscal 2013 and 2014, 80% in fiscal 2015, 85% in fiscal 2016 and 90% in fiscal 2017. There are other performance goals for review of supplements, review of proprietary names, clinical hold responses, meeting requests, and the like.

FDA is holding a public hearing on these proposals on December 16, 2011, and is requesting comments - which are due by January 6, 2011. FDA's proposal can be found at 76 Fed. Reg. 76, 424 (December 7, 2011).

These proposals are just the first in a series of proposals on the regulation of biosimilars expected to be announced in the near future. Other expected proposals include proposals on generic names of biosimilars, clinical trial requirements and ability to rely upon foreign approvals, implementation of the "interchangeability" provision and characterization of molecules. It has been almost twenty months since the BCPI Act was enacted. At last manufacturers are being provided some formal notice on how FDA intends to approve biosimilars.

Authored By:

Peter Reichertz
(202)772-5333
preichertz@sheppardmullin.com

[1]The 2012 user fees for human drug products approved under Section 505(b) are currently as follows: - NDA - $1,841,500 - Supplements - $920,750 - Establishment - $520,100 (after approval) - Product - $98,970 (after approval) These fees, as well as the user fees for medical devices, are up for renewal. A comprehensive bill establishing new conditions for these fees - and new fees for generic human drug products approved under Section 505(j) of the FFDCA - is expected to be enacted during the next year (prior to September 30, 2012).

[2] A sponsor would need to withdraw the IND by August 1 to avoid paying a fee that would be due on each October 1.

[3]If fees are not paid, FDA would not grant BPD meetings or not consider IND's as submitted. If annual BPD fees were not paid, FDA would place by investigation on "financial hold".

Safe-Harbor Provision of Hatch-Waxman Act Does Not Protect Post-Approval Research Activities

Sheppard Mullin — Mon, 24 Oct 2011 13:22:50 -0800

By Gray Buccigross

The Federal Circuit issued its opinion in Classen Immunotherapies, Inc. v. Biogen Idec, 2011 U.S. App. Lexis 18126, on August 31, 2011. As part of that decision it held that the safe-harbor provision of the Hatch-Waxman Act is limited to activities reasonably related to obtaining pre-marketing FDA approval of generic counterparts, and does not protect post-approval research activities.

Two of Classen’s patents are broadly directed to comparing the effectiveness of immunization schedules with regard to risk of developing chronic immune-mediated disorders (e.g., diabetes, asthma, cancer), and then immunizing according to the lower risk schedule. [1] Classen alleged Biogen and GlaxoSmithKline directly infringed by:

(1) participating in studies “to evaluate suggested associations between childhood vaccinations, particularly against hepatitis B and Haemophilus influenza … and risk of developing type 1 diabetes; and to determine whether timing of vaccination influences risk;” and
(2) “providing instructions and/or recommendations on a proper immunization schedule for vaccines.”

These research activities involved post-approval research.

The "safe harbor" provision of the Patent Act, 35 U.S.C. Section 271(e)(1), which was added by the Hatch-Waxman Act, provides:

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States … a patented invention … solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.

Judges Newman and Rader examined the Hatch-Waxman House of Representatives Report, which stated, inter alia, that “the only activity which will be permitted by the bill is a limited amount of testing so that generic manufacturers can establish the bioequivalency of a generic substitute.” They further reasoned that “[e]very decision examining the statute has appreciated that §271(e)(1) is directed to premarketing approval of generic counterparts before patent expiration.” The decision held that the safe-harbor provision “does not apply to information that may be routinely reported to the FDA, long after marketing approval has been obtained.” Rather, it is limited to activities related to the “development of information for regulatory approval of generic counterparts of patented products.”

Judge Moore vigorously dissented on several grounds. First, she argued that the plain text of the provision does not explicitly limit the safe harbor to pre-approval uses. Second, she argued that Supreme Court precedent (Merck v. Integra, which evaluated pre-approval activities) stated that the safe harbor applies to “submission of any information under the FDCA.” Third, the legislative history relied on by the majority did not address whether the provision covers more than just pre-approval activity.

It remains to be seen whether the defendants will seek Supreme Court review, and, if so, whether certiorari will be granted. For the time being, companies should not rely on the Section 271(e)(1) safe harbor to shield them from activities other than those reasonably related to seeking pre-marketing FDA approval.[2] To the extent that activities may not fall within this scope, particularly any post-approval research, it would be wise to explore in more detail: (a) whether the activities actually practice the pertinent patent claims; (b) whether they fall under the common law experimental use exemption; and (c) whether the pertinent patents are invalid.

Authored By:

Gray Buccigross
(858) 720 - 7427
gbuccigross@sheppardmullin.com

[1]The opinion also addressed whether the claims recited patent-eligible subject matter under 35 U.S.C. § 101; however, that aspect is not discussed here.

[2]Note that in Eli Lilly v. Medtronic, 496 U.S. 661, 671 (1990), the U.S. Supreme Court held that research activities related to obtaining approval of a medical device were protected under the safe harbor. Thus, the extent of the Safe Harbor is arguably broader than suggested by the majority opinion, which limits it to obtaining approval of generic counterparts of drugs. See also Merck KGaA v. Integra Life Sciences I, Ltd., 545 U.S. 193, 207 (2005).

Rights to Compensation for use of Biospecimens: OHRP and FDA Clarify that Waivers of Rights in Informed Consents are not "Exculpatory"

Sheppard Mullin — Mon, 12 Sep 2011 09:48:53 -0800

By Peter S. Reichertz

In a Federal Register notice of September 7, 2011,[1] the Office of Human Research Protection (“OHRP”) and the Food and Drug Administration have clarified that a waiver by an individual in an informed consent to compensation for use of his/her biospecimens is not “exculpatory”, and permissible, if worded properly. This Guidance – entitled “Guidance on Exculpatory Language in Informed Consent" – applies to research conducted for purposes of FDA approval, as well as research sponsored by the Department of Health and Human Services (“DHHS”).

Under current OHRP and FDA regulations, found at 45 C.F.R. § 46.116 and 21 C.F.R. § 50.21, a waiver by a subject in an informed consent is not permissible if it is exculpatory. In the Guidance referred to in the Federal Register notice, OHRP and FDA have clarified that a waiver is only exculpatory – and, hence, impermissible – if it has the “general effect of freeing or appearing to free an individual or entity from responsibility for malpractice or negligence, or from blame, fault or guilt. …” As stated in the Guidance:

On the other hand, a subject’s waiver of any rights he or she may have with respect to a biospecimen obtained by investigators for research purposes would not be exculpatory because it does not have the effect of freeing the investigator, sponsor, institution, or others involved in the research from malpractice, negligence, blame, fault, or guilt. Accordingly, including such waiver language in an informed consent document would be permissible under 45 CFR 46.116 and 21 CFR 50.20. OHRP and FDA understand it has long been common practice of investigators and sponsors not to compensate research subjects who agree to provide biospecimens for research purposes even if those biospecimens are later used for commercial purposes. Moreover, OHRP and FDA are not aware of any federal or state laws or policies that suggest that research subjects would have any legal right to such compensation if they voluntarily signed an informed consent form which clearly stated that they would not be paid or otherwise compensated for providing their biospecimens.

They provide the following examples of ACCEPTABLE waiver language:

Although future research that uses your samples may lead to the development of new products, you will not receive any payments for these new products.
By agreeing to this use, you are giving up all claims to any money obtained by the researchers from commercial or other use of these specimens.
I voluntarily and freely donate any and all blood, urine, and tissue samples to the [name of research institution] and hereby relinquish all property rights, title, and interest I may have in those samples.
By consenting to participate in this research, I give up any property rights I may have in bodily fluids or tissue samples collected during this research.
Although the results of research, including your donated materials, may be patentable or have commercial value, you will have no legal or financial interest in any commercial development resulting from the research.
Tissue obtained from you in this research may be used to establish a cell line that could be patented and licensed. No financial compensation will be provided to you should this occur.
By consenting to participate, you authorize the use of your bodily fluids and tissue samples for the research described above.
Because of hospital policy, the hospital is not able to offer financial compensation should you be injured as a result of participating in this research. However, you are not precluded from seeking to collect compensation for injury related to malpractice, fault, or blame on the part of those involved in the research, including the hospital.
Because of hospital policy, the hospital makes no commitment to provide free medical care or payment for any unfavorable outcomes resulting from participation in this research. Medical services will be offered at the usual charge. However, you are not precluded from seeking to collect compensation for injury related to malpractice, fault, or blame on the part of those involved in the research, including the hospital.
In the event that you suffer a research-related injury, your medical expenses will be your responsibility or that of your third-party payer, although you are not precluded from seeking to collect compensation for injury related to malpractice, fault, or blame on the part of those involved in the research.

Companies conducting clinical research for purposes of obtaining FDA approval should review their informed consents and make sure they are consistent with the FDA/OHRP Guidance.

Comments on the Guidance may be submitted to FDA or OHRP by November 7, 2011.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

[1] 76 Fed. Reg. 55390.

Institute of Medicine Report: Dead on Arrival

Sheppard Mullin — Mon, 01 Aug 2011 13:56:08 -0800

By Seth A. Mailhot

On Friday, July 29, 2011, the Institute of Medicine of the National Academies (IOM) released its long awaited report on the premarket clearance process under section 510(k) of the Federal Food Drug and Cosmetic Act.[1] The premarket clearance submission, commonly known as a 510(k), allows manufacturers to market a medical device based on its similarity, or “substantial equivalence,” to one or more marketed devices (called “predicate devices”). The 510(k) process is the most widely used pathway for marketing medical devices through the U.S. Food and Drug Administration (“FDA”), and is intended for intermediate risk devices.[2] The report was anticipated to provide clear action items to the agency to strengthen the 510(k) process and make it more responsive to companies developing emerging medical technology. Instead, the recommendations made by the IOM committee only heighten the current uncertainty with the future direction of the 510(k) process.

The IOM committee was convened sixteen (16) months ago to address perceived problems with the 510(k) process based on comments from groups such as Public Citizen regarding the safety and effectiveness of 510(k) cleared devices and concerns raised following the clearance and subsequent rescission of the ReGen Biologics Menaflex Collagen Meniscus Implant.[3] The FDA tasked the IOM committee with answering the following questions:

Does the current 510(k) clearance process optimally protect patients and promote innovation in support of public health?
If not, what legislative, regulatory, or administrative changes are recommended to optimally achieve the goals of the 510(k) clearance process?

During the IOM committee’s review, the FDA commenced a concurrent internal review of the 510(k) process and came to its own preliminary conclusions on ways to strengthen the existing system.[4] The FDA has started to act on its internal conclusions by developing a twenty-five (25) item action plan that the FDA hopes to implement over the course of 2011.[5] The FDA has begun to implement this action plan, as evidenced by the recent release of revised draft guidance on when a new 510(k) may be required for a change to an existing device.[6]

In publishing its action plan, the FDA expressed the hope that the IOM committee’s report would help to resolve debate on some of the FDA’s more controversial proposals regarding the 510(k) process.[7] There was also a hope that the IOM report would potentially bring an end to the period of self-reflection that had seemed to paralyze and significantly slow device decisions at the agency. A carefully thought out set of proposals could also help frame the discussions between FDA and industry on modifications to the 510(k) process.

The IOM’s report, however, citing “the legislative and regulatory history of the 510(k) program,” determined that the 510(k) process was never “designed to determine whether a new device provides a reasonable assurance of safety and effectiveness or whether it promotes innovation.”[8] As such, the IOM recommended that the 510(k) process be abandoned in favor of a new process that would serve as “an integrated premarket and postmarket regulatory framework that effectively provides a reasonable assurance of safety and effectiveness throughout the device life cycle.”[9] Implementing such a framework would require development by the FDA and the enactment of legislation by Congress.

There are flaws with the IOM committee’s reasoning, most significant of which is their finding that substantial equivalence has no relationship to safety and efficacy. The IOM premises this on the concern that substantial equivalence only requires that devices be as safe and effective as their predicate. This ignores the fact that substantial equivalence serves as an iterative process where technological improvements in medical devices are captured as each new generation serves as the predicate for the next generation. Further, as the FDA has the ability to reclassify devices or implement special controls, it has the ability to move devices that could previously be cleared into a higher class requiring regulatory approval (and clinical data of safety and effectiveness), or make specific testing requirements and standards mandatory on new devices.

Notwithstanding the flaws in the IOM committee’s reasoning, there are no actual recommendations on what sort of model would serve in the 510(k) process’s stead. The IOM committee only comments “that available information is [not] adequate to inform the design of an appropriate [replacement] framework.”[10] Despite the arduous process involved with researching and developing legislation, the time required to pass such legislation, and then the efforts required to write and implement regulations and guidance to inform such legislation, the IOM committee states that “further investment in the 510(k) process is [not] a wise use of the FDA’s scarce resources.”1[11]

It is unrealistic to presume that the IOM committee’s overall recommendations could ever be acted on, particularly in the present political environment. The recommendations, however, will serve as powerful ammunition for those seeking to severely limit industry’s access to the 510(k) pathway. For its part, the FDA was critical of the report, stating that “FDA believes that the 510(k) process should not be eliminated.”[12] While the FDA has opened a public docket to receive comments on the IOM committee’s report, a greater concern will be the continued pressure on legislators by some groups to tighten controls over the 510(k) process or eliminate innovation-promoting aspects of the Federal Food, Drug and Cosmetic Act, such as the least burdensome provisions. Industry must continue its pressure on legislators and the FDA to encourage innovation in medical technology and its speedy introduction to patients.

Authored By:

Seth A. Mailhot
(202) 469-4980
smailhot@sheppardmullin.com

[1] The prepublication copy of the IOM’s report is available on its website. IOM, Medical Devices and the Public’s Health: The FDA 510(k) Clearance Process at 35 Years (Washington, DC: The National Academies Press, 2011) (available at http://www.iom.edu/Reports/2011/Medical-Devices-and-the-Publics-Health-The-FDA-510k-Clearance-Process-at-35-Years.aspx, hereinafter IOM Report).

[2] Intermediate risk devices are generally categorized as Class II devices, although some Class I devices and transitional Class III devices also utilize the 510(k) process.

[3] Comments included statements such as “devices with no meaningful evidence of effectiveness that would never be approved, were they drugs, instead can be approved when they’re devices,” and “[t]he 510(k) process is a loophole that’s swallowed the law.” Ingrid Mezo, Scrutinizing 510(k)s: Critical Voices Get Heard In Congress, The Gray Sheet (July 16, 2007), at 6-7 (quoting Peter Lurie, Deputy Director of Public Citizen’s Health Research Group).

[4] The preliminary report and recommendations are detailed in two (2) reports, CDRH Preliminary Internal Evaluations, Volume I: 510(k) Working Group Preliminary Report and Recommendations (at http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDRH/
CDRHReports/UCM220784.pdf), and CDRH Preliminary Internal Evaluations, Volume II: Task Force Utilization of Science in Regulatory Decision Making Preliminary Report and Recommendations (at http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDRH/
CDRHReports/UCM220783.pdf).

[5] FDA, Plan of Action for Implementation of 510(k) and Science Recommendations (at http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDRH/
CDRHReports/UCM239450.pdf).

[6] FDA, Guidance for Industry and FDA Staff - 510(k) Device Modifications: Deciding When to Submit a 510(k) for a Change to an Existing Device, Draft Guidance (Jul. 27, 2011) (at http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/
GuidanceDocuments/ucm265274.htm).

[7] In announcing its action plan, the FDA commented that it planned to “give the IOM an opportunity to provide feedback” on certain recommendations before implementing them. FDA, 510(k) and Science Report Recommendations: Summary and Overview of Comments and Next Steps (at http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDRH/
CDRHReports/UCM239449.pdf).

[8] IOM Report at xi.

[9] IOM Report at 6.

[10] Id.

[11] Id.

[12] FDA, Press Release, “FDA to seek public comment on IOM recommendations” (Jul. 29, 2011) (at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/
ucm265908.htm).

Generic Drug Manufacturers And Failure To Warn: What duty is there after Pliva v. Mensing?

Sheppard Mullin — Mon, 27 Jun 2011 09:50:42 -0800

By Peter S. Reichertz

The Supreme Court ruled on June 23, 2011, that generic drug manufacturers cannot be sued for a failure to warn under state tort law, as long as their labeling complies with the FDA mandated labeling for the innovator drug product. While the Court had previously declined to find that federal regulation and approval of drug labeling of an innovator drug preempted state tort law in Wyeth v. Levine, 555 US 555 (2009), the Court ruled 5-4 in Pliva that the comprehensive scheme for approval of generic drugs under the 1984 Hatch-Waxman amendments required generic manufacturers to use the same labeling as the innovator brand name product. Since the law and FDA regulations, as conceded by the Food and Drug Administration (FDA), preclude a generic company from obtaining approval of labeling different from the innovator brand name product, the Court held it was not possible for a generic manufacturer to comply with both federal and state law. As such, under the doctrine of impossibility, they ruled federal law was supreme and state tort laws on failure to warn were preempted. In so finding, they held that the issue of “impossibility” turns on whether the private party could independently do under federal law what state law requires of it. In this case, they held that generic manufacturers could only ask FDA to change labeling and could not do so without FDA approval, and thus could not act independently.

As stated by the Court:

The non obstante provision suggests that pre-emption analysis should not involve speculation about ways in which federal agency and third-party actions could potentially reconcile federal duties with conflicting state duties. When the “ordinary meaning” of federal law blocks a private party from independently accomplishing what state law requires, that party has established pre-emption.

The Court ruled at length upon the FDA’s interpretation of its authority. FDA conceded that a generic company could not obtain approval of a CBE-30 (Changes Being Effected in 30 day supplement) to add additional warning language to labeling, and that its only alternative if it chose to do so was to propose new warnings to the FDA if they believed they were necessary. At that point the Agency is to work with the brand name manufacturer “to create a new label”. The appellant manufacturers and FDA did not agree as to whether there was such a duty. The Court did not rule on that issue, since it found that pre-emption applies, even if there were such a duty.

Both the majority opinion conceded, and the dissent made a big point of, the fact that the result of the decision resulted in a situation where an individual’s right to seek relief for failure to warn turns on whether he/she took a generic or brand name of a product. As noted in the majority opinion:

We recognize that from the perspective of Mensing and Demahy, finding pre-emption here but not in Wyeth makes little sense. Had Mensing and Demahy taken Reglan, the brand-name drug prescribed by their doctors, Wyeth would control and their lawsuits would not be pre-empted. But because pharmacists, acting in full accord with state law, substituted generic metoclopramide instead, federal law pre-empts these lawsuits. See, e.g., Minn. Stat. §151.21 (2010) (describing when pharmacists may substitute generic drugs); La. Rev. Stat. Ann. §37:1241(A)(17) (West 2007) (same). We acknowledge the unfortunate hand that federal drug regulation has dealt Mensing, Demahy, and others similarly situated.

But “it is not this Court’s task to decide whether the statutory scheme established by Congress is unusual or even bizarre.” Cuomo v. Clearing House Assn., L.L.C., 557 U. S. ___, ___ (2009) (THOMAS, J., concurring in part and dissenting in part) (slip op., at 21) (internal quotation marks and brackets omitted). It is beyond dispute that the federal statutes and regulations that apply to brand name drug manufacturers are meaningfully different than those that apply to generic drug manufacturers. Indeed, it is the special, and different, regulation of generic drugs that allowed the generic drug market to expand, bringing more drugs more quickly and cheaply to the public. But different federal statutes and regulations may, as here, lead to different pre-emption results. We will not distort the Supremacy Clause in order to create similar preemption across a dissimilar statutory scheme. As always, Congress and the FDA retain the authority to change the law and regulations if they so desire.

Given this ruling, what duty do generic manufacturers have if they become aware of new information as to the safety of a drug? Generic drug manufacturers still have pharmacovigilance duties under 21 C.F.R. § 314.80, and may become aware of data that they believe requires a labeling change. While the Court did not rule there was a duty to take any action, the FDA made it clear in their briefing that there was an obligation to bring such information to their attention and request a label change. As stated by the Court:

According to the FDA, the Manufacturers could have proposed—indeed, were required to propose—stronger warning labels to the agency if they believed such warnings were needed. U. S. Brief 20; 57 Fed. Reg. 17961. If the FDA had agreed that a label change was necessary, it would have worked with the brand-name manufacturer to create a new label for both the brand-name and generic drug. Ibid.

The agency traces this duty to 21 U. S. C. §352(f)(2), which provides that a drug is “misbranded . . . [u]nless its labeling bears . . . adequate warnings against . . . unsafe dosage or methods or duration of administration or application, in such manner and form, as are necessary for the protection of users.” See U. S. Brief 12. By regulation, the FDA has interpreted that statute to require that “labeling shall be revised to include a warning as soon as there is reasonable evidence of an association of a serious hazard with a drug.” 21 CFR §201.57(e).

According to the FDA, these requirements apply to generic drugs. As it explains, a “ ‘central premise of federal drug regulation is that the manufacturer bears responsibility for the content of its label at all times.’ ” U. S. Brief 12–13 (quoting Wyeth, 555 U. S., at 570–571). The FDA reconciles this duty to have adequate and accurate labeling with the duty of sameness in the following way:

Generic drug manufacturers that become aware of safety problems must ask the agency to work toward strengthening the label that applies to both the generic and brand name equivalent drug. U. S. Brief 20.

There are questions left open on this issue, including the lack of any clarity on whether this is indeed a statutory duty. If it is, what is the consequence if a generic manufacturer becomes aware of a safety issue with one of its product and does not act to bring the matter to FDA? In addition to the potential misbranding charges which FDA’s interpretation suggests, will the knowing failure to bring the matter to FDA result in liability under a negligence or other theory? Or is the only possible liability a potential violation of the Federal Food Drug and Cosmetic Act? (the Act) Would a plaintiff claiming a generic manufacturer did not pursue its duty to request a label change face the defense that there is no private right of action with regard to a generic manufacturer’s duty as outlined by FDA?

In addition, as discussed at same length in the dissent, what happens when the brand name product is discontinued as frequently occurs after generics enter the market? Who, if any one, may be exposed to failure to warn issue? If, as FDA frequently does, FDA lists the first generic as the Reference Listed Drug for purposes of bio-equivalence studies, does that “generic” manufacturer get put in the place of the brand name company in the analysis? While it may appear to be the last word on generic drug manufacturer labeling for failure to warn under state law, Pliva may not totally absolve generic drug manufacturers from product and other liability if they become aware of safety data and do not act to address the issue.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

Sunscreen in the Spotlight: FDA Illuminates New Sunscreen Regulations

Sheppard Mullin — Fri, 17 Jun 2011 04:19:37 -0800

By Seth A. Mailhot and Allie Frumin

On June 14, 2011 the U.S. Food and Drug Administration (FDA) announced new requirements for sunscreens and sunscreen-containing products currently sold over-the-counter. These changes are covered in a Federal Register notice to be published on June 17, 2011. The Final Rule will have a significant impact on producers of sunscreens and cosmetics and will result in changes to labeling, advertising and formulation of a vast array of products containing sunscreen and making sunscreen claims. In addition to the Final Rule, which will take effect for most producers on June 18, 2012, the FDA has also developed a Proposed Rule, an Advance Notice of Proposed Rulemaking and a Draft Guidance for Industry regarding these products.

The Final Rule imposes a number of new labeling, testing and formulation requirements on consumer products that contain sunscreen. According to Dr. Janet Woodcock, Director of the FDA’s Center for Drug Evaluation and Research, the FDA developed these requirements in an effort to “modernize . . . product information” about sunscreens. These changes come after over thirty years of development and delays in revising the previous requirements.

Prior rules on sunscreens focused on protection against ultraviolet B (UVB) radiation from the sun. After spending many years reviewing the science on ultraviolet A (UVA) radiation, FDA has finally established a standard broad spectrum test procedure that measures UVA radiation protection in relation to the amount of UVB radiation protection. This test procedure helps to provide a standard by which sunscreen products may be labeled as "Broad Spectrum," protecting against both UVA and UVB rays. Broad Spectrum sunscreen products with a Sun Protection Factor (SPF) of 15 or higher are also permitted to make claims regarding protection against skin cancer and early skin aging. By contrast, sunscreen products that do not meet the requirement for Broad Spectrum, or have an SPF value of less than 15, may only make claims related to the amount of protection against sunburn and must contain a warning regarding the effects of the sun on skin cancer and early skin aging.

Now that the FDA has defined the specific conditions under which statements regarding protection against skin cancer and early skin aging may be made on labeling, some sunscreen and cosmetic products may require reformulation in order to continue to use such statements. Further, advertisers of products with anti-skin aging properties based on the sunscreen content of the product will need to ensure the appropriateness of those statements or risk action by the FDA and/or the U.S. Federal Trade Commission.

FDA has also prohibited the use of claims such as “waterproof” or “sweatproof” on labeling due to the implication that such statements are misleading. Instead, products may only be labeled as “water resistant,” if they meet FDA requirements for the claim, and must bear a statement as to the length of time (either 40 minutes or 80 minutes) that the sunscreen remains effective while swimming or sweating. As with the Broad Spectrum claim, “water resistant” claims must be verified through standardized testing. Similarly, non-water resistant sunscreens must bear a warning on labeling instructing consumers to use a water resistant sunscreen if swimming or sweating.

Other claims expressly prohibited by the FDA include providing sun protection for more than two (2) hours without reapplication, providing protection immediately after application (such as “instant protection”), or identifying the product as a “sunblock.” Each of these claims are considered to overstate the effectiveness of sunscreen products that meet the Final Rule. Companies do, however, have the option of submitting data in an application to the FDA to label for the ability to provide protection for more than two (2) hours or for the ability to provide protection immediately after application.

The Final Rule may not impact all sunscreen-containing products equally. The FDA is addressing the issue of dosage forms for sunscreens in an Advance Notice of Proposed Rulemaking to be published on the same day as the Final Rule. In the Advance Notice, the FDA states that sunscreen products in “dosage forms such as wipes, towelettes, powders, body washes, and shampoos are not currently considered eligible for inclusion in the sunscreen monograph.” While the FDA considers oils, lotions, creams, gels, butters, pastes, ointments, sticks and sprays to fall within the Final Rule, the FDA plans to review the safety and effectiveness of sunscreen spray products. In particular, FDA will be considering the possibility and consequences of unintentional inhalation of spray sunscreens.

Along with the Final Rule and Advance Notice of Proposed Rulemaking, the FDA is issuing a Proposed Rule that, if finalized, would limit the maximum SPF value on sunscreen labels to “50 +.” The FDA explains that the Proposed Rule is necessary because it has not gathered sufficient data to demonstrate that products with SPF values higher than 50 would provide greater protection than products with SPF values of 50.

The Final Rule will take effect for most manufacturers on June 18, 2012. Companies with products with annual sales less than $25,000, however, will have extra time to prepare, as the new requirements will not take effect as to them until June 17, 2013. In the interim, the FDA has made available a draft guidance that sets out its enforcement policy with respect to sunscreen products prior to the effective date of the Final Rule. This draft guidance will be published on the same day as its other sunscreen announcements. In light of these developments, some companies have indicated that they intend to begin the process of complying with the Final Rule ahead of the official start date.

Given these sweeping changes, it is imperative that every company with products containing sunscreen review the Final and Proposed Rules carefully. To the extent that advertising, labeling and formulation of sunscreen products must change, companies should prepare action plans now to determine what changes need to be made. Additionally, to the extent that FDA’s proposals impact existing sunscreen products, companies should seriously consider engaging the FDA as the rulemaking process moves forward.

The FDA practice at Sheppard Mullin Richter & Hampton LLP is well versed in the issues facing cosmetic and over-the-counter drug companies. Our attorneys are able to assist clients with the process of parsing the Final and Proposed Rules for sunscreen products, preparing action plans, and identifying necessary changes to labeling, advertising and formulation.

Authored By:

Seth A. Mailhot
(202) 469-4980
smailhot@sheppardmullin.com

and

Allie Frumin
(202) 469-4948
afrumin@sheppardmullin.com

A MATRIXX Revolution, Part II: Supreme Court affirms Ninth Circuit's holding that life science companies cannot rely on a statistical significance standard when deciding whether adverse event reports are material for the purpose of securities disclosures

Sheppard Mullin — Tue, 29 Mar 2011 04:23:00 -0800

By Peter S. Reichertz and Allie Frumin

On March 22, the U.S. Supreme Court affirmed the Ninth Circuit’s ruling in Matrixx Initiatives, Inc. v. Siracusano, 09-1156. See our prior blog article from November 18, 2010.

Matrixx Initiatives, Inc. (“Matrixx”) is a manufacturer of over-the-counter pharmaceuticals. Its core brand of products is Zicam, a popular cold remedy. NECA-IBEW Pension Fund and named plaintiff James Siracusano brought a securities fraud class action lawsuit against Matrixx in 2005, alleging that Matrixx and three of its executives made certain misleading public statements about the company’s projected growth in light of information it had that Zicam’s nasal spray had been linked to several cases of anosmia, or loss of the sense of smell. To prevail on a §10(b) claim, a plaintiff must show that the defendant made a statement that was “misleading as to a material fact.” See 17 C.F.R. 240.10b. The Plaintiffs argued that these adverse events were material and that the company’s failure to report them in its SEC filings violated the Securities Exchange Act of 1934 (“the Act”).

Matrixx countered that the reports of anosmia it received were not numerous enough to be “statistically significant” and therefore Matrixx was not required to report them. Matrixx urged the Court to adopt a bright line rule that “reports of adverse events associated with a pharmaceutical company’s products cannot be material absent a sufficient number of such reports to establish a statistically significant risk that the product is in fact causing the events.” Matrixx, at 11. Absent statistical significance, Matrixx viewed adverse event reports as merely “anecdotal evidence” of a possibly coincidental event.

The Court disagreed with this argument. Justice Sotomayor, writing for the Court, explained that a “lack of statistically significant data does not mean that medical experts have no reliable basis for inferring a causal link between a drug and adverse event.” Id. at 12.

The Court reiterated its prior holding in Basic Inc. v. Levinson, 485 U.S. 224 (1988), where it found that the §10(b) materiality requirement is satisfied when there is a “substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”

Here, the court reasoned, “Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.” Matrixx, at 15.

The Ninth Circuit decision, which the Supreme Court affirmed here, drew considerable concern from members of the life sciences industry who feared that requiring manufacturers to disclose every adverse event report would be both a logistical nightmare due to the volume of reports typically received by manufacturers, and confusing or misleading to the general public because people would be unable to distinguish the legitimate reports of potential concern from the unreliable or anecdotal ones.

In response to the industry’s anxiety on this point, Justice Sotomayor explained:

Application of Basic’s “total mix” standard does not mean that pharmaceutical manufacturers must disclose all reports of adverse events. Adverse event reports are daily events in the pharmaceutical industry; in 2009, the FDA entered nearly 500,000 such reports into its reporting system. … The fact that a user of a drug has suffered an adverse event, standing alone, does not mean that the drug caused that event. … The question remains whether a reasonable investor would have viewed the nondisclosed information “as having significantly altered the “total mix” of information made available.” … [T]he mere existence of reports of adverse events – which says nothing in and of itself about whether the drug is causing the adverse events – will not satisfy this standard. Something more is needed, but that something more is not limited to statistical significance and can come from the source, content, and context of the reports.

… Moreover, it bears emphasis that §10(b) and Rule 10b-5(b) do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading. Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market.

Id. at 15-16 (internal citations and quotation marks omitted, emphasis in original).

Ultimately, the Court found for the plaintiffs, holding that they successfully argued both (1) that a reasonable investor would view the adverse event reports in this particular situation as being material, and (2) facts giving rise to a strong inference of scienter, or a knowledge of wrongdoing on the part of Matrixx. The opinion emphasized the Court’s refusal to establish a bright line rule for determining when adverse event reports are significant enough to mandate disclosure. It remains to be seen how this ruling will impact a manufacturer’s evaluation of which adverse event reports it believes it must disclose; the lack of a bright line rule will leave the decision of materiality to each company.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

and

Allie Frumin
(202) 469-4948
afrumin@sheppardmullin.com

FDA Announces Its Plan For Changes to the 510(k) "Approval" Pathway

Sheppard Mullin — Thu, 27 Jan 2011 07:14:08 -0800

By Peter S. Reichertz and Allie Frumin

January 19, FDA announced its plan to modify the 510(k) “approval” pathway, the most common review path for medical devices. Specifically, FDA released a report containing twenty-five actions it intends to take in 2011 to “improve” the review process. Importantly, however, no changes have yet been made to the process; FDA has just announced its plan of action of how it intends to address potential changes to the process.

A medical device manufacturer who wishes to market a device classified in Class II or, in limited cases, Class I or III, that it believes is substantially equivalent in both safety and effectiveness to a device already on the market (a “predicate device”) must make what is known as a 510(k) notification. Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FFDCA”) requires medical device manufacturers to notify FDA of their intent to market a medical device at least 90 days in advance of doing so. A 510(k) premarket notification allows FDA to determine whether the particular device is substantially equivalent in safety and effectiveness to a predicate device already being legally marketed. Many changes to medical devices previously cleared for marketing must also be submitted for review prior to implementation.

In September 2009, two committees were established by FDA’s Center for Devices and Radiological Health (“CDRH” or the “Center”) to address challenges facing the medical device review process. Concerns had been raised that the 510(k) program had become less predictable, less consistent, and less transparent, resulting in stifled innovation and the shifting of companies and jobs to overseas locations. Some were concerned that the current 510(k) process was neither providing adequate assurances of safety and effectiveness, nor providing sufficient information for healthcare providers and patients to make well-informed treatment or diagnostic decisions. Within CDRH, employees were dissatisfied with the 510(k) program’s adaptation to the increasing complexity of devices, and expressed frustration that a reviewer’s ability to make well-informed decisions was undermined by the poor quality of 510(k) notifications.

The two committees created by CDRH ultimately produced a list of recommendations which were then submitted for public comment. Based on the feedback CDRH received, FDA has issued a schedule as to how and when it plans to implement these changes. Along with the changes the FDA plans to implement, it announced a date by which it expects each will be addressed. Below is each action listed chronologically by its planned date of action. [Note: There are twenty-six dates listed below because one action, the establishment of the Center Science Council, has a two-part timeline for completion.]

March 31: Implement an “Assurance Case” pilot program to explore the use of an “assurance case” framework for 510(k) notifications.

March 31: Establish a Center Science Council and post the Council’s charter to FDA’s website. The Council’s responsibilities will be to:

Oversee the development of a business process and SOP for determining and implementing an appropriate response to new scientific information;
Promote the development of improved metrics to continuously assess the quality, consistency, and effectiveness of the 510(k) program;
Periodically audit 510(k) review decisions to assess adequacy, accuracy, and consistency; and
Establish an internal team of clinical trial experts to provide support and advice on clinical trial design for Center staff and prospective IDE applicants.

April 7-8: A public meeting will be held on these dates to discuss making device photographs available in a public database without disclosing proprietary information.

April 7-8: A public meeting will be held on these dates to discuss the development of an on-line medical device labeling repository.

June 15: Draft guidance on 510(k) modifications to clarify which changes to previously cleared devices do or do not warrant submission of a new 510(k) and which modifications are eligible for a Special 510(k).

June 15: Post a Standard Operating Procedure (“SOP”) to FDA’s website in order to clarify and more quickly inform stakeholders when CDRH has changed its regulatory expectations on the basis of new scientific information.

June 15: Post the initial results of the Center Science Council’s 510(k) audit to FDA’s website.

June 30: Determine system requirements and select the platform for a new adverse event database in order to develop better data sources, methods and tools for collecting and analyzing meaningful postmarket information, and to enhance the Center’s capabilities to support evidence synthesis and quantitative decision making.

June 30: Complete an assessment of the IDE process in order to better characterize the root causes of existing challenges and trends in IDE decision-making.

June 30: Issue a proposed regulation on implementing a Unique Device Identification (UDI) System with the goal of permitting the rapid and accurate identification of devices and facilitating and improving adverse event reporting and identification of device-specific problems.

July 15: Develop a process for identifying and responding to Center staffing needs by:

formalizing the Center’s internal process for identifying staffing needs and enhancing recruitment, retention, training, and professional development of review staff; and
creating a mechanism to assemble an experienced ad hoc team to temporarily assist with unexpected surges in workload.

July 31: Draft guidance on strategies for improving the quality and performance of clinical trials.

July 31: Post SOPs to FDA’s website to provide greater clarity, predictability, and efficiency in the guidance and regulation development process.

August 31: Enhance training of Center staff by training new Center staff on core competencies; and training Center staff and industry on:

the determination of “intended use”;
the determination of whether a 510(k) raises “different questions of safety and effectiveness”;
the review of 510(k)s that use “multiple predicates”;
the development and assignment of product codes;
the interpretation of the “least burdensome” principles; and
the appropriate use of consensus standards.

September 15: Post SOP to FDA’s website to develop a network of external experts to appropriately and efficiently leverage external scientific expertise, assess best-practices and develop SOPs for staff engagement with external experts.

September 30: Draft guidance on the evaluation of automatic Class III designation (de novo) to clarify the appropriate use of consensus standards.

September 30: Draft guidance to provide greater clarity regarding:

when clinical data should be submitted in support of a 510(k);
the submission of photographs or schematics for internal FDA use only;
the appropriate use of multiple predicates;
the criteria for identifying “different questions of safety and effectiveness” and technological changes that generally raise such questions;
resolving discrepancies between the 510(k) flowchart and the FDCA;
the characteristics that should be included in the concept of “intended use”; and
the development of 510(k) summaries to assure they are accurate and include all required information.

September 30: Complete an evaluation of the methods used to integrate device information into a dynamic format so that it can be more readily used by staff to make regulatory decisions.

September 30: Post SOP to FDA’s website to develop a process for regularly evaluating the list of device types eligible for third-party review and to enhance third-party review training.

October 31: Draft guidance to clarify the appropriate use of consensus standards.

October 31: Draft guidance to clarify the process for appealing CDRH decisions, including decisions to rescind a 510(k).

October 31: Complete and make the results public of additional multiple predicate analysis to determine the basis for the apparent association between citing more than five predicates and a greater mean rate of adverse event reports.

November 30: Draft guidance to supplement the available guidance on pre-IDE meetings and enhance the quality of pre-submission interactions between industry and Center staff.

December 31: Draft guidance to more consistently develop and assign unique product codes.

December 31: Issue a proposed 510(k) transfer of ownership regulation to better document the 510(k) transfer of ownership process.

December 31: Issue a proposed regulation on medical device labeling to clarify the statutory listing requirements for the submission of labeling.

In addition to the above actions to be taken in 2011, CDRH has submitted seven more areas of possible changes to the 510(k) process to the Institute of Medicine (IOM) for evaluation. IOM is to provide its feedback to CDRH during Summer 2011. These particular recommendations were selected because, while they did garner general public support, significant concerns were raised about each one in comments submitted to the FDA docket. The additional areas of potential changes for feedback from IOM are as follows:

To consider defining the scope and grounds for the exercise of the Center’s authority to fully or partially rescind a 510(k) clearance.
To seek greater authorities to require postmarket surveillance studies as a condition of clearance for certain devices.
To develop guidance defining “class IIb” devices for which clinical information, manufacturing information, or, potentially, additional evaluation in the postmarket setting would typically be necessary to support a substantial equivalence determination.
To clarify when a device should no longer be available for use as a predicate.
To consolidate the concepts of “indication for use” and “intended use” into a single term, “intended use”.
To consider the possibility of requiring each 510(k) submitter to keep at least one unit of the device under review available for CDRH to access upon request.
To explore the possibility of pursuing a statutory amendment that would provide the agency with the express authority to consider an off-label use when determining the “intended use” of a device.

Again, CDRH has no plan to implement any of the above recommendations until it receives feedback from IOM and adjusts the recommendations accordingly.

It remains to be seen just how significantly these changes will modify the current system, which most in the device industry support. We will discuss further developments and proposals, when announced, on this blog.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

and

Allie Frumin
(202) 469-4948
afrumin@sheppardmullin.com

President Obama Signs New Expansive Food Safety Law

Sheppard Mullin — Wed, 05 Jan 2011 11:12:55 -0800

By Deborah M. Shelton

In the flurry of legislation passed by the 111^th Congress in its final days, the Food Safety and Modernization Act (FSMA) cleared the Senate by unanimous voice vote on December 20, passed the House 215-144 the following day, and was signed into law by President Obama on January 4, 2011 ("date of enactment"), immediately upon returning from his holiday vacation in Hawaii.

The FSMA amends the Food, Drug, and Cosmetic Act (“FDCA”) to confer FDA with significant additional authorities over food products, including the mandatory recalls and expanded inspection authority. The further strengthening of FDA's enforcement authorities over food products follows a spate of recent reports of tainted food products, including, for example, eggs, tomatoes, spinach, and peanuts.

With the enactment of this legislation, uncertainty now looms about how it will be funded. The CBO projects the cost of implementation of the FSMA to be approximately $1.4 billion over the next 5 years. The funding issue is further complicated by the fact that the legislation was passed in the final days of the 111^th Congress, so it is the newly seated 112^th Congress, with its shift in power in the House, that is charged with its funding. Concerns have been raised already by some members as to the cost of this legislation.

Although many of the new requirements imposed by the FSMA do not take effect immediately, there are a few significant requirements that do, including: (1) FDA’s enhanced inspectional authority; (2) FDA’s mandatory recall authority; (3) FDA’s authority to require import certifications; (4) FDA’s expanded authority to order an administrative detention; and (5) the protections provided to employees who provide information to the government about an employer’s FDCA violations. These provisions are discussed below, followed by a brief summary of some of the other key provisions.

Enhanced Inspectional Authority – Section 101 of the FSMA expands FDA's authority to inspect records of any entity (excluding farms and restaurants) that manufactures, processes, packs, distributes, receives, holds, or imports food products. The trigger for FDA's enhanced inspectional authority is broad: "a reasonable belief that an article of food, and any other article of food that [FDA] reasonably believes is likely to be affected in a similar manner." The records for which FDA is given authority to access and copy is similarly broad, and includes any records for the foregoing that "are needed to assist [FDA] in determining whether there is a reasonable probability that the use of or exposure to the food will cause serious adverse health consequences or death to humans or animals."

Mandatory Recall Authority – Section 206 of the FSMA amends the FDCA to add Section 423, which provides FDA with the authority to require a recall. FDA may invoke its mandatory recall authority based upon the Agency's determination that there is a "reasonable probability" that an article of food (other than infant formula) is adulterated or misbranded and the use of such food will cause "serious adverse health consequences or death to humans or animals." Prior to invoking its mandatory recall authority, FDA must first provide the applicable entity an opportunity to voluntarily cease distribution and recall the food. If the company does not do so voluntarily, FDA may then order a recall.

In addition, to further increase transparency into FDA recalls, the Agency must, within 90 days after the date of enactment, update FDA's website to provide users with the capability to search for all recall information, including status.

Authority to Require Import Certifications for Food – Section 303 of the FSMA requires refusal of admission for any imported food that fails to meet the certification requirements or other assurance that the food meets all applicable FDCA requirements. Section 304 of the FSMA further directs that FDA require, prior to importation of a food product, notice of any country to which such article has been refused entry. Section 306 requires the refusal of admission into the U.S. any imported food from a foreign facility to which a U.S. inspector is refused entry for inspection. Finally, Section 308 requires FDA, within 2 years of the date of enactment, to establish a system to recognize entities that accredit third-party auditors to certify that eligible entities meet all applicable FDCA requirements for importation of food into the U.S.

Administrative Detention of Food – Section 207 of the FSMA strengthens FDA's authority to order an administrative detention of food product by broadening the standard from "credible evidence or information" to that of "reason to believe," and "presents a threat of serious health consequences or death to humans or animals" to "adulterated or misbranded."

Employee Protections – Section 402 of the FSMA provides whistleblower protections for employees of entities involved in the manufacturing, processing, packing, transporting, distributing, receiving, holding or importing food who provide information relating to any violation of the FDCA.

In addition to the above provisions which take effect immediately, the FSMA also includes several other provisions, including, for example, the following:

Registration of Food Facilities – Section 102 of the FSMA expands the food-facility registration requirement by (1) requiring biennial renewal by registrants; (2) giving FDA the authority to suspend a registration if the Agency deems a food associated with that facility to have "a reasonable probability of causing serious adverse health consequences or death to humans or animals; and (3) giving FDA the discretion to require a registration for "any other food categories" determined appropriate by FDA, whether by regulation or guidance.

The new registration requirements take effect on the earlier of the date of FDA's issuance of implementing regulations (which may include interim final regulations) or 180 days after the date of enactment.

Hazard Analysis and Risk-Based Preventive Controls – Section 103 of the FSMA requires food facilities to have in place numerous HACCP-like controls. Specifically, each owner, operator, or agent in charge of a food facility must (1) evaluate the hazards that could affect the applicable food products; (2) identify and implement preventive controls to "significantly minimize or prevent" those hazards and provide assurances that the food is not adulterated or misbranded; (3) monitor the performance of those preventive controls; and (4) maintain records of such routine monitoring.

These requirements take effect 18 months after the date of enactment.Notably, however, the FSMA provides additional time for compliance by a "small business" and a "very small business," both terms to be defined by FDA regulation. An entity meeting the definition of a "small business" has until 6 months after the effective date of FDA's final regulations to comply, and a "very small business" has until 18 months after that same effective date.

Seafood, juice, and low-acid canned food facilities subject to HACCP are exempt from the FSMA hazard analysis and risk-based preventive controls. In addition, these controls do not apply to a facility's activities that are subject to the standards for produce safety codified at Section 419 of the FDCA. Finally, certain small business and other facilities with limited sales meeting the FSMA definition of a "qualified facility" are eligible for an exemption from full hazard analysis and risk-based preventive control requirements. Notably, however, such a "qualified facility" is still subject to specific documentation submission and labeling requirements as set forth in the FSMA.

Within 18 months of the date of enactment, FDA is required to issue regulations establishing minimum standards for compliance with the hazard analysis and risk-based preventive control requirements, and is also required to issue industry guidance related to those regulations.

Produce Safety – Section 105 of the FSMA requires FDA, to issue regulations establishing "science-based minimum standards for the safe production and harvesting" of the types of fruits and vegetables that are "raw agricultural commodities" for which FDA has determined that "such standards minimize the risk of serious adverse health consequences or death." FDA is required to promulgate these regulation in coordination with USDA, state departments of agriculture, and in consultation with Homeland Security.

The FSMA provides FDA with the discretion to exclude from such rulemaking, or otherwise modify as applicable, the production and harvesting of fruits and vegetables by small business and very small businesses that FDA has determined are "low risk and do not present a risk of serious adverse health consequences or death."

Direct farm marketing is also exempt from these requirements. Specifically, the FSMA provides that farms are exempt if during the previous 3-year period, the average annual monetary value of the food sold by such farm directly to "qualified end-users" during that period exceeded the average annual monetary value of the food sold by such farm to all other buyers; and the average annual monetary value of all food sold during such period was less than $500,000 adjusted for inflation. For purposes of this exemption, a "qualified end user" is defined as a non-commercial consumer or restaurant or retail food establishment) located either in the same state, or within 275 miles, of that farm. Foods exempt from these requirements pursuant to the exemption for direct farm marketing are subject to certain labeling requirements (if a packaging label is required for that food) or similar notification (if a food packaging label is not required for that food product).

In addition, these produce safety requirements are not applicable to activities of a facility subject to the HACCP-like controls set forth in Section 103 of the FSMA.

In terms of the timing of the notice-and-comment rulemaking process itself, FDA is required to publish a notice of proposed rulemaking within one year after the date of enactment, and then issue a final regulation not later than 1 year after the close of the comment period for the proposed rulemaking. Similar to other FSMA provisions, FDA is required to issue a small entity compliance guide on these requirements within 180 days after issuing the final regulations.

In addition to the regulations, the FSMA requires FDA, within one year after date of enactment, to issue guidance providing updated good agricultural practices and guidance for the safe production and harvesting of specific types of fresh product. FDA is also required to hold at least 3 public meetings in diverse geographical areas of the U.S. to conduct related education and outreach.

Notably, the FSMA explicitly states that none of the new federal produce safety requirements preempt state, local, country or other non-federal law regarding the safe production, harvesting, holding, transporting, and sale of fresh fruits and vegetables, and that compliance with the federal requirements shall not relieve one from either common law liability or liability under codified state law.

Protection Against Intentional Adulteration – Section 106 requires FDA, in coordination with the Department of Homeland Security and in consultation with the Department of Agriculture, to issue regulations to protect against the intentional adulteration of food. Specifically, these regulations are to specify how an assessment should be made as to whether one must implement mitigation strategies or measures intended to protect against the intentional adulteration of food, and, as appropriate, to specify science-based mitigation strategies or measures to prepare and protect the food supply chain at vulnerable points. FDA is required to issue such regulations within 18 months after date of enactment of the FSMA.

Section 106 further limits the applicability of these regulations, however, only to food for which there is a high risk of intentional contamination --as determined by FDA in consultation with the Department of Homeland Security -- that could cause serious adverse health consequences or death to humans or animals, including those foods for which there has been identified clear vulnerabilities (including short-self-life or susceptibility to intentional contamination at critical control points) prior to being packaged for the end user.

Farms (except for those that produce milk) are exempt from these regulations. For purposes of this exemption, a "farm" is a facility satisfying the definition set forth in 21 C.F.R. 1.227 (i.e., a facility in one general physical location devoted to the growing and harvesting of crops, the raising of animals (including seafood), or both.

In addition to the issuance of these regulations, Section 106 requires FDA to issue guidance documents further clarifying these requirements pertaining to the protection against the intentional adulteration of food. FDA is required to issue such guidance within a year after the date of enactment of the FSMA.

Foreign Supplier Verification Program – Section 301 of the FSMA requires U.S. importers to verify, via risk-based foreign supplier verification activities, that imported food is produced in compliance with all applicable requirements pertaining to hazard analysis and standards for product safety, and is not adulterated or misbranded.

Within one year of the date of enactment of the FSMA, FDA is required to issue regulations to provide for the content of this foreign supplier verification program. Also within 1 year after the date of enactment of the FSMA, FDA is required to issue guidance to assist importers in developing such programs.

* * *

The foregoing is intended to provide a high-level overview of some of the key provisions of the Food Safety Modernization Act. As FDA’s implementation efforts get underway, more detailed information will be provided.

Authored By:

Deborah M. Shelton
(202) 772-5351
dshelton@sheppardmullin.com

E-CIGARETTES GET A "SMOKING" BREAK: D.C. Circuit Clarifies Scope of FDA's Authority Over E-Cigarettes

Sheppard Mullin — Tue, 04 Jan 2011 10:51:43 -0800

By Deborah M. Shelton and Allie Frumin

On Tuesday December 7^th, the D.C. Circuit Court of Appeals affirmed a lower court’s ruling in Sottera, Inc. v. FDA, No. 10-5032, (D.C. Cir. Dec. 7, 2010) holding that that the Food and Drug Administration (FDA) could not regulate as a medical device the electronic cigarettes (often referred to as “e-cigarettes”) at issue in that case. Instead, the court affirmed the district court’s finding that FDA’s authority over these e-cigarettes, as labeled, was limited to that over traditional tobacco products.

E-cigarettes are battery-powered reusable products that allow users to inhale nicotine vapor without fire, smoke, ash, or carbon monoxide. Manufacturers of e-cigarettes market their electronic nicotine delivery products as a safer, cheaper, and more environmentally-friendly alternative to traditional cigarettes. Designed to look like traditional cigarettes complete with a small LED light on the tip that glows red when activated, each contains an atomizer and a rechargeable battery. These products are viewed by some as a potentially viable alternative to traditional cigarettes, causing their popularity to increase in recent years.

The case was brought first in the U.S. District Court for the District of Columbia (Smoking Everywhere, Inc. v. FDA, 680 F. Supp. 2d 62 (D. D.C. 2010)) (“Smoking Everywhere”), by two e-cigarette distributors, Smoking Everywhere and Sottera, Inc. (doing business as NJOY). They filed the case after inbound shipments of their e-cigarettes were denied entry into the United States by FDA based on the Agency’s claim that the products were an unapproved drug-device combination under the Food, Drug, and Cosmetic Act (“FDCA”). The plaintiffs sought to enjoin FDA from regulating e-cigarettes as a drug-device combination and from denying entry of those products into the United States. The plaintiffs argued that FDA’s authority over their e-cigarette products did not extend beyond that of FDA’s more limited authority over traditional cigarettes. The district court agreed with the plaintiffs and granted the injunction. FDA appealed and the D.C. Circuit Court of Appeals has now affirmed.

Before the U.S. District Court, FDA argued that e-cigarettes should be regulated like nicotine replacement gum or patches pursuant to FDA’s jurisdiction over medical devices. FDA has authority under the FDCA to regulate articles that are “drugs,” “devices,” or “drug/device combinations.” The FDCA defines drugs to include “articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” and “articles (other than food) intended to affect the structure or any function of the body of man or other animals.”21 U.S.C. § 321(g). Similarly, “device” is defined as “an instrument, apparatus, implement ... or other similar or related article, including any component, part, or accessory, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animals…” 21 U.S.C. § 321(h).In sum, FDA’s statutory authority to regulate a product as a “drug” or “device” is limited to products that are intended to be used to affect a structure or function of the body or that are intended for use in the cure, mitigation, treatment, or prevention of disease.

FDA also has statutory authority to regulate traditional cigarettes and other tobacco products under the FDCA as a result of the Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Act”), but that authority is more limited than that applicable to drugs and devices. Specifically, FDA may regulate “tobacco products,” which the FDCA defines as “any product made or derived from tobacco that is intended for human consumption.” 21 U.S.C. 321(rr)(1); however, the act excludes any “article that is a drug under 21 U.S.C. § 321(g)(1), a device under 21 U.S.C. § 321(h), or a combination product described in 21 U.S.C. § 353(g).” 21 U.S.C. § 321(rr)(2)-(3). Under its authority over tobacco products, FDA may impose restrictions on their sale, advertising and promotion, regulate their mode of manufacture, and establish other standards for their production and distribution. Unlike its more expansive authority over drugs and devices, however, FDA’s authority over conventional tobacco products does not include a pre-marketing clearance or approval requirement.

In the Smoking Everywhere litigation, the plaintiffs argued that e-cigarettes are the same as traditional cigarettes in their use and purpose, and therefore FDA must be required to regulate them under the Tobacco Act the same as it does traditional cigarettes. Conversely, FDA argued that nicotine is a drug that affects the structure or function of the body, and that, as a nicotine delivery mechanism, e-cigarettes are medical devices. If e-cigarettes were to be classified as a medical device because of their nicotine-delivery feature, the products would require FDA’s premarketing approval under the FDCA, subject to a rigorous demonstration of safety and effectiveness, as well as a host of other regulatory requirements.

The district court found for the plaintiffs, holding that since the e-cigarettes were neither labeled nor advertised as having any therapeutic uses, FDA could not regulate them as drugs or devices. FDA appealed the decision.

The appellate court agreed with the district court that e-cigarettes must be regulated the same way as other traditional tobacco products under the FDA’s Tobacco Act authority. The court noted that FDA itself frequently expressed the view that “cigarettes are beyond the scope of the [FDCA] absent health claims establishing a therapeutic intent on behalf of the manufacturer or vendor.” Sottera, Inc. v. FDA, at 9. The court found dispositive that, in enacting several statutes on tobacco regulation, “Congress has acted against the backdrop of the FDA’s consistent and repeated statements that it lacked authority under the FDCA to regulate tobacco absent claims of therapeutic benefit by the manufacturer.” Id., citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 144 (2000). Following the Supreme Court’s reasoning in Brown & Williamson, the court held that FDA can only regulate tobacco products marketed for therapeutic purposes under the FDCA’s drug/device provisions. Since the e-cigarettes at issue in the case were neither labeled nor marketed with any claim of therapeutic use, the court held that these products could not be regulated as drugs or medical devices, and that therefore FDA’s detention of them was unlawful.

Authored By:

Deborah M. Shelton
(202) 772-5351
dshelton@sheppardmullin.com

and

Allie Frumin
(202) 469-4948
afrumin@sheppardmullin.com

IRS Guidance On New Excise Tax On Branded Pharmaceutical Companies: Filing Due January 21, 2011

Sheppard Mullin — Wed, 15 Dec 2010 05:03:53 -0800

By Peter S. Reichertz

In a prior article dated May 25, 2010, we advised of a new excise tax on branded pharmaceutical manufacturers. We indicated that the Patient Protection and Affordable Care Act ("PPACA") required the Internal Revenue Service ("IRS") to publish guidance "necessary to carry out the purpose" of the section in which the tax is included. The IRS has now issued that guidance ("the Guidance").

The Guidance sets forth a proposed methodology for calculating the fee, as well as the requirements for pharmaceutical manufacturers subject to the tax. The fee is to be calculated by the IRS based on information obtained from government agencies which either reimburse for, or procure, branded prescription drugs, including those reimbursed under or purchased by Medicare Parts B and D, Medicaid, the VA, DOD and TRICARE. A description of the methodology for calculation of the fee is found on pages 2-7 of the Guidance.

What is required of pharmaceutical companies? Companies do not calculate the fees; they just provide certain information to the IRS. IRS then obtains information from the appropriate government agencies. Under the Guidance, pharmaceutical companies subject to the tax would have to file a Form 8947 annually, by December 15^th of each year except that the initial submission must be made by January 21, 2011.

Form 8947 solicits the following information from each "covered entity":[1]

For a single-person covered entity, the covered entity's name, address, and employer identification number. For a covered entity which is a controlled group, the name, address, and employer identification number of the designated entity and each manufacturer or importer with gross receipts from the sale of branded prescription drugs that was included in the covered entity as of the end of the day on December 31 of the sales year.
All of the NDCs for branded prescription drugs in which the covered entity is identified in the labeler code as of the end of the day on December 31 of the sales year. For a covered entity which is a controlled group, this includes all NDCs in which a member of the covered entity is identified in the Labeler Code as of the end of the day on December 31 of the sales year.
The brand name and NDC for each orphan drug for which the covered entity was allowed a section 45C credit. A credit was "allowed" for any particular drug if the covered entity claimed the credit and there has not been a final assessment or a court order disallowing the full credit taken for the drug. In addition, even if the credit has been allowed, a covered entity must not report an NDC for an orphan drug for any sales year following the calendar year in which the FDA approved the drug for marketing for any indication other than the treatment of the rare disease or condition for which the section 45C credit was allowed.
The rebates for each NDC paid in the sales year by the covered entity to Medicare Part D with respect to sales occurring in that sales year. Section 9008(d)(1) of PPACA defines covered entity as "any manufacturer or importer with gross receipts from branded prescription drug sales." For purposes of section 9008(a), a manufacturer or importer is the person identified in the Labeler Code of the National Drug Code (NDC) for a branded prescription drug.

Rebate is considered paid in the sales year if it is taken into account on the covered entity's tax return(s) for the sales year. This information is needed for the 2009 sales year because, at this time, CMS does not have rebate data on branded prescription drug sales by NDC. However, starting in 2011, CMS is planning to collect this rebate information by NDC for the 2010 and subsequent sales years. It is therefore possible that covered entities will not report this rebate information for years following 2009.
The state supplemental rebates for each NDC paid in the sales year by the covered entity with respect to sales under Medicaid occurring in that sales year. For this purpose, a rebate is considered paid in the sales year if it is taken into account on the covered entity's tax return(s) for the sales year. This information is needed because Medicaid data will not include state supplemental rebates.

The IRS will provide each "covered entity" with a preliminary fee calculation by May 2, 2011 setting forth the covered entity's:

fee
branded Rx drug sales by NDC, by government program|
drug sales taken into account
aggregate drug sales taken into account for all entities.

A final fee calculation will be sent on August 15, 2011.

Part III – Requests for comments

The IRS has requested comments on the procedures described for consideration when promulgating regulations setting forth procedures for 2011 and the following years. The deadline for submission of comments is June 2, 2011. Written comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2010-71), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2010-71), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC.: Comments may be transmitted electronically via the following e-mail address: Notice.Comments@irscounsel.treas.dov. "Notice 2010-71" should be in the subject line of any electronic communications.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

[1] Section 9008(d)(1) of PPACA defines a covered entity as "any manufacturer or importer with gross receipts from branded prescription drug sales." A manufacturer or importer is the person identified in the Labeler Code of the National Drug Code (NDC) for a branded prescription drug.

Section 9008(d)(2) of PPACA provides a controlled group rule under which all persons treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code (Code) shall be treated as a single "covered entity". For this purpose, a foreign entity subject to tax under section 881 is included within a controlled group under section 52(a) or 52(b). This controlled group rule will be applied as of the end of the day on December 31 of the sales year. All persons treated as a single employer under section 9008(d)(2) are jointly and severally liable for the fee. In the case of a controlled group that is treated as a single covered entity under section 9008(d)(2), the controlled group must identify a single person as the "designated entity" that may act for the controlled group with respect to the section 9008 fee. If the controlled group, without regard to foreign corporations included under section 9008(d)(2)(B), is also an affiliated group that filed a consolidated return for federal income tax purposes, the designated entity is the common parent of the affiliated group as identified on the tax return filed for the sales year. In all other situations, the controlled group must select a person as the designated entity on Form 8947, Report of Branded Prescription Drug Information which is signed by the designated entity under penalties of perjury, stating that all the manufacturers or importers of branded prescription drugs who are members of the covered entity have consented to the selection of the designated entity.

A MATRIXX Revolution? Is there a need to describe all adverse event reports in SEC filings of life sciences companies?

Sheppard Mullin — Thu, 18 Nov 2010 10:45:28 -0800

By Peter S. Reichertz

The U.S. Supreme Court has scheduled oral argument for January 10, 2011, in the case of Matrixx Initiatives et al v. Siracusano, Case Number 09-1156, on appeal from the decision of the Ninth Circuit in Siracusano v. Matrixx Initiatives, Inc., 585 F3d 1167 (9^th Cir. 2008). The court granted certiorari on July 14, 2010.

In this case, plaintiff NECA-IBEW Pension Fund and the named plaintiff James Siracusano alleged that Matrixx and certain executives failed to describe in required SEC filings reports of adverse events associated with its nasal spray product ZICAM® Cold Remedy. Plaintiffs alleged that the reports in question were material and the failure to report them in 10-K’s, 10-Q’s and other SEC filings violated the Securities Exchange Act of 1934 (“the Act”).

The case has created a large degree of consternation in the pharmaceutical, medical device and biotechnology sectors, as the Ninth Circuit declined to adopt a scientific standard for a determination of “materiality” of reports, holding instead that the determination of materiality is a question of fact that should be left to the trier of fact. Id, at 1178. The District Court below had applied a statistical significance standard previously set forth in other cases[1], and found that the plaintiffs had not sufficiently pleaded materiality, an essential element of a violation of Section 10b of the Act and Rule 10b-5.[2] The issue of whether scienter was sufficiently pleaded was also reviewed by the Ninth Circuit, but the issue that has prompted the filing of numerous amicus briefs by life sciences industry groups is when adverse events become sufficiently material that they must be reported in SEC filings.

Among the groups filing amicus briefs are the Consumer Healthcare Products Association, the Council for Responsible Nutrition, the National Products Association, BayBio, the Advanced Medical Technology Association and the Pharmaceutical Research and Manufacturers Association. Universally, life sciences associations have expressed great concern about the Ninth Circuit ruling. An example of the concern, as expressed by BayBio, is as follows:

The Nation’s leading biotechnology companies produce and develop important as well as life-saving drugs. They are constantly inundated with adverse event reports and other data about the efficacy and safety of their products in clinical trials and on the market. These companies—many of which are members of amicus BayBio—thoroughly investigate these reports and, when required by law, transmit the reports to government regulators for further analysis.

The process by which these reports are analyzed is often not expedient. Nor can it be. Anecdotal evidence of an adverse event, without more, is almost never a statistically significant measure of risk correlated with a drug’s use. While anecdotal evidence might warrant further investigation, that investigation often requires controlled experiments or sophisticated observational studies to determine whether the adverse event is associated with, or caused by, use of the drug. At the same time, there are strong countervailing interests in keeping a drug on the market or not prematurely warning the public against its use. If the drug already has been approved and is on the market, government regulators already have made an assessment—based on rigorous scientific data—that the drug’s public health benefits outweigh any risk.

But the ruling below circumvents that deliberative process. To avoid liability for securities fraud, the Ninth Circuit’s ruling requires biotechnology companies to more broadly disseminate and emphasize isolated adverse event reports that ultimately might prove to be entirely unrelated to the drug in question. Not only is that result inconsistent with this Nation’s securities laws, but it will cause significant harm to the public by discouraging beneficial, and often necessary, use of the drug.

These concerns are echoed in the briefs of other life sciences industry trade associations.

If the Ninth Circuit decision is upheld on appeal, it could truly revolutionize SEC filings for life sciences companies, essentially requiring them to report every adverse event reported to them, whether serious or not serious, expected or unexpected. Quarterly and yearly SEC filings, already voluminous, could swell in size to the unmanageable. Given that such filings already contain much detail, it is uncertain what all of this additional information would mean to the investing public. Furthermore, such a rule potentially raises privacy concerns, depending upon what is required to be disclosed.

A decision on the appeal is likely by the end of June 2011. Publicly traded life sciences companies will be anxiously awaiting a decision.

Authored By:

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

[1]See e.g., In re Carter-Wallace Securities Litigation, 150 F.3d 153, 157 (2d. Cir. 1998) and In re Carter-Wallace Securities Litigation, 220 F3d. 361(2d Cir. 2000).

[2]In order adequately to allege a violation of 10b-5, “a plaintiff must [allege] ‘(1) a material misrepresentation or omission of the fact, (2) scienter, (3) a connection with a purchase or sale of a security, (4)a transaction and loss causation, and (5) economic loss.’”

FTC Changes Guidance on Environmental Marketing Claims

Sheppard Mullin — Mon, 11 Oct 2010 09:50:36 -0800

By Robert L. Magielnicki

Many marketers of OTC drugs and devices, cosmetics, foods and dietary supplements make claims with regard to the content of their products and/or the packaging for their products. and their fate in or effect on the environment. These claims are regulated by the Federal Trade Commission (“FTC”) and its “false and misleading” authority found in Section 5 of the Federal Trade Commission Act. The FTC first issued its guidance on these rules in 1992, and revised them in 1996 and 1998.

Observing that, in recent years, businesses have increasingly used "green" marketing to capture customers' attention, on October 6, 2010, the FTC proposed revisions to the guidance it gives marketers to help them avoid making misleading marketing claims. The proposed revisions to the FTC's "Guides for the Use of Environmental Marketing Claims" or "Green Guides" propose revisions to claims currently addressed as well as guidance for claims not currently addressed by the Guides.

Claims currently addressed by the Guides for which the FTC proposes revisions include:

General environmental benefit
Certifications and seals of approval
Degradable
Compostable
Ozone-safe/ozone-friendly
Recyclable
Free-of/Non-toxic

In addition, the FTC proposes guidance on the following claims not presently addressed by the Guides:

Made with renewable materials
Made with renewable energy
Carbon offsets

Copies of the FTC's press release, Summary of Proposal and proposed revised Guides can be found at www.ftc.gov/opa/2010/10/greenguide.shtm. The FTC is accepting comments on its proposal until December 10, 2010, before finalizing the changes.

Authored By:

Robert L. Magielnicki
(202) 218-0002
RMagielnicki@sheppardmullin.com

FDA Announces Much Anticipated Public Hearing on Biosimilars

Sheppard Mullin — Thu, 07 Oct 2010 11:28:31 -0800

By Deborah M. Shelton

Having had the opportunity to analyze the biosimilars provisions of the new health care law enacted this past March, stakeholders have at long last the chance on November 2-3 to weigh in on FDA's implementation of the biosimilar approval pathway. FDA will hold a two-day public hearing on November 2-3, 2010, from 8:30 am to 4:30 pm, at the FDA Conference Center on FDA's campus in White Oak, Maryland. FDA published its official announcement of the public hearing in the October 5^th issue of the Federal Register. 75 Fed. Reg. 61497 (Oct. 5, 2010). Here is the link to the Federal Register Notice: http://edocket.access.gpo.gov/2010/pdf/2010-24853.pdf.

The Biologics Price Competition and Innovation Act of 2009 (BPCIA), a subtitle of the Patient Protection and Affordable Care Act, creates an abbreviated approval pathway for biological products “highly similar” to a previously approved reference product. The BPCIA also permits FDA to deem as interchangeable a biosimilar that satisfies certain additional specified standards.

FDA now turns its attention to the implementation phase. As FDA acknowledges, implementation of the BPCIA poses significant scientific and technical challenges. Since most biological products are produced in a living system versus through chemical synthesis, their molecular structure and their manufacturing is highly complex.

The Agency seeks input from a diverse group of stakeholders -- including biopharmaceutical manufacturers, healthcare professionals and institutions, third-party payers, associations, and the public -- on the implementation of the abbreviated approval pathway and the scientific and technical challenges presented.

FDA solicits information and comments on any issues related to biosimilars and/or interchangeability, but poses several specific statutory provisions on which it seeks input at the public hearing. These areas of interest include issues concerning biosimilarity, interchangeability, pharmacovigilance, the definition of “biological product,” guidance priorities, exclusivity, permissible use of supportive data and information, the statutory provisions governing the transition of approval of biological products, and user fees.

Specifically, FDA seeks input on the following:

Biosimilarity
- What scientific and technical factors should FDA consider in determining whether a biological product is “highly similar” to the reference product notwithstanding minor differences in clinically inactive components?
- What scientific and technical factors should FDA consider in determining the analytical, animal, and clinical data required to assess the nature and effect of actual or potential structural differences between a proposed biosimilar and the reference product?
  - What is the range of structural differences between the reference product and the proposed biosimilar that may exist, but yet still permit a determination of "highly similar" in the absence of any clinically meaningful differences?
  - Under what circumstances would it be appropriate for FDA to consider exercising its authority to find that animal or clinical studies are “unnecessary” for a particularly biosimilar application.
Interchangeability
- What factors should FDA consider in determining whether a proposed biosimilar can be “expected to produce the same clinical result as the reference product in any given patient?”
- What factors should FDA consider in assessing the potential risk related to switching between use of a proposed interchangeable biological product and the reference product, or among interchangeable products?
Patient Safety and Pharmacovigilance
- In developing a pharmacovigilance program for proposed biosimilar and interchangeable biological products, what factors unique to these products should be considered?
- What approaches can FDA, industry, and the healthcare community take to ensure appropriate pharmacovigilance for biosimilar and interchangeable biological products?
- If each product were given a unique non-proprietary name, should there be appended a prefix or suffix added to that name to distinguish those products that are biosimilars, interchangeable, and those have not been demonstrated to be a biosimilar? What factors should be considered to reduce any negative impact on the healthcare delivery system related to unique non-proprietary names for highly similar biological products?
- What safeguards should FDA consider to assist the healthcare community when prescribing, administering, and dispensing biological products to prevent unsafe substitution?
- What are possible ways that FDA may consider to communicate a finding that a particular biological product is or is not biosimilar to, or interchangeable with, a reference product?
Use of Supportive Data and Information
- From a “scientific perspective,” to what extent, if any, should animal or clinical data comparing a proposed biosimilar with a non-U.S. licensed comparator product be used to support a demonstration of biosimilarity to an FDA-licensed reference product? What type of bridging data or other information would be needed to scientifically justify the relevance of the comparative data?
Definition of a “Biological Product”
- What “scientific and technical factors” should FDA consider if it were to develop a regulatory definition for “protein” as distinguished from peptide or polypeptide?
- What “scientific and technical factors” should FDA consider if it were to develop a regulatory definition for “chemically synthesized polypeptide?”
Guidance Documents
- What types of guidance documents should FDA make a priority during early implementation?
- What "scientific and technical factors" should FDA consider in determining whether current science and experience are sufficient to permit biosimilar approval for a product or product class?
Exclusivity
- What factors should FDA consider in determining the types of “related entities” that may be deemed covered by the existing 12-year exclusivity for a biological product?
- What factors should FDA consider in determining whether a modification to the structure of a biological product “results in a change in safety, purity, or potency” such that a subsequent BLA could be deemed eligible for a 12-year period of exclusivity?
Transition Provisions
- What “scientific” factors should FDA consider in defining and applying “product class” for purposes of determining which applications for biological products may be submitted under the Food, Drug, and Cosmetic Act during the statutory 10-year transition period?
- What “scientific” factors should FDA consider in determining whether another biological product approved under a full BLA could serve as the reference product for a biosimilar application?
User Fees
- If PDUFA were to be considered as a model for a user fee structure for biosimilar and interchangeable biological products, what factors should FDA consider and why?
- What factors should FDA consider when determining whether to recommend that user fees for biosimilar and interchangeable biological products be used to monitor post-market safety?
- In addition, FDA seeks to identify companies, and industry associations representing such companies, that would be affected by a user fee program for biosimilar and interchangeable biological products. FDA requests such entities to be identified by sending the following information to BiosimilarsUserFeeProgram@fda.hhs.gov: the name of the entity; contact person; e-mail address; and telephone number.

* * * *

Attendance at the public hearing is free and will be on a first-come, first-served basis. Persons wishing to present at the public hearing must register on or before October 11, 2010, by sending an e-mail to biosimilarspublicmtg@fda.hhs.gov, providing complete contact information (name, title, affiliation, address, e-mail and phone number). Those persons wishing to present but that do not have e-mail access may register by contracting Sandra Benton, FDA CDER, at (301) 796-1042. FDA will also make available a live Webcast of the two-day public hearing. The Webcast can be viewed via http://www.fda.gov/Drugs/NewsEvents/ucm221688.htm. A video recording of the public hearing will be made available at this same internet address for one year.

Authored By:

Deborah M. Shelton
(202) 772-5351
dshelton@sheppardmullin.com