Life Science Compliance Update

November 09, 2015

Court Strikes Down HRSA’s 340B Orphan Drug Policy, Again

In October, a federal court struck down a Health Resources and Services Administration 340B orphan drug policy (the "Interpretive Rule") that called for manufacturers to provide drug discounts when orphan drugs were used for either off-label purposes, or to treat common conditions.

This decision follows a May 2014 decision where the Court vacated a Final Rule promulgated by the Secretary of the Department of Health and Human Services. In May 2014, the Court concluded that HHS lacked the statutory authority to promulgate such a rule. The Court noted that Congress granted HHS only "a specific delegation of rulemaking authority to establish an adjudication procedure to resolve disputes between covered entities and manufacturers." In the decision to vacate the final rule, however, the Court raised the possibility that HHS could issue the rule as an interpretive rule rather than a legislative rule.

Therefore, after the initial Final Rule was struck down, HHS issued an interpretive rule identical in substance to the vacated Final Rule, and Pharmaceutical Research and Manufacturers of America (PhRMA) challenged that Interpretive Rule.

PhRMA's Position

PhRMA challenged the Interpretive Rule under the Administrative Procedure Act (APA) as being arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. PhRMA believed that the HHS rule extending the discounts to orphan drugs violated the plain language of the ACA's orphan drug exemption and that the government lacked authority to issue the final rule.

Various pharmaceutical company officials submitted sworn declarations to the Court representing that their companies "must make changes to [their] own accounting, contracting and government price reporting systems and require the wholesaler[s] through whom [they] sell [their] 340B drugs to make changes to their tracking system." The D.C. Circuit Court has previously found similar requirements to constitute an immediate and significant burden on a regulated entity.

HHS' Position

HHS tried to argue that the Interpreted Rule was not a final agency action and therefore not actionable under the APA, and that even if the Court determined the rule could be challenged, the HHS should be afforded judicial deference to make their own rules as they apply to the agency.

HHS claimed that the "Interpretive Rule, itself, 'does not alter the legal obligations of the program participants' and that the rule has no legal force 'independent of any binding effect that the statute itself may have.'" HHS did, however, concede that the Interpretive Rule represents the consummation of the agency's decision-making process.

The Court's Decision

The Court concluded that the case was a question of statutory interpretation and the Interpretive Rule imposed an immediate and significant practical burden on the regulated entities and rejected HHS' position, and struck down the Interpretive Rule as contrary to the plain language of the 340B Program statute.

The Court found that the "Interpretive Rule imposes a significant burden on pharmaceutical manufacturers and other regulated entities alike." The Court found that deciding "whether to comply with the Interpretive Rule presents pharmaceutical manufacturers, too, with a 'painful choice between costly compliance and the risk of prosecution at an uncertain point in the future.'" As such, the court granted a summary judgment motion in favor of PhRMA, taking the case off the docket and essentially invalidating the Interpretive Rule.

Industry and Legal Response

Mit Spears, PhRMA's executive vice president and general counsel said PhRMA was "very pleased with the Court's decision," and that "PhRMA supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help. To achieve this important objective, it is critical that the program operates in a manner consistent with the clear and unambiguous direction of Congress."

The Court's decision will have an immediate impact on the finances of the hospitals to which the orphan drug exclusion applies as they will no longer be authorized to purchase orphan drugs at a 340B discounted price when used for non-orphan purposes.

This decision by the court also has the potential to lead to more litigation surrounding HHS' recent proposed omnibus guidance on the 340B program. Attorney Donna Lee Yesner of Morgan Lewis & Bockius, LLP, stated, "What is interesting to me – and will impact the proposed mega-guidance – is the court's conclusion that the rule was reviewable as final agency action by a trade association rather than forcing individual companies to litigate the issue in enforcement proceedings." Ms. Yesner sees more litigation in the future, commenting, "Factors that the court considered – that HRSA was unlikely to change its position that noncomplying manufacturers would be in violation of the statute, compliance was costly and manufacturers who did not comply would be subjected to severe sanctions – apply equally to some of the positions taken in the proposed guidance."

Ms. Yesner believes that the contract pharmacy program may be "especially vulnerable to challenge as an improper interpretation of the term 'covered entity' and as an unauthorized substantive rule," since the contract pharmacy program was expanded to include retail pharmacies as covered entities. She also said it is possible that the covered entities will sue over the interpretation of the term "patient," because that limits the revenues of the pharmacies.

November 07, 2014

Ebola Update: New Bill to Fast Track Ebola Treatment; FDA Focuses on Importance of "Randomized Trials"


On Wednesday, November 12, HHS Secretary Sylvia Burwell and Homeland Security Secretary Jeh Johnson will appear before the Senate Appropriations Committee to testify on the government’s response to Ebola. CDC Director Dr. Thomas Frieden, National Institute of Allergy and Infectious Diseases Director Dr. Anthony Fauci, as well as other officials from the State Department, Defense Department, USAID and the Joint Chiefs of Staff are also expected to testify. 

Challenges and Incentives for Development

The companies that are working to come up with vaccines and treatments for Ebola are faced with several challenges that arise from the nature of the disease. The first difficulty is that the disease is unpredictable, so it is difficult to find people who are at high risk to test any vaccine or antibiotic (see ‘No Market’: Scientists Struggle to Make Ebola Vaccines, Treatments). Another challenge that drug companies face is the rarity of Ebola outbreaks. With the infrequency of the outbreaks and the small number of patients being impacted, it is difficult to motivate the private sector into supplying the millions of dollars necessary to research a vaccine or antibiotic.

Senators Tom Harkin (D-IA) and Lamar Alexander (R-TN) are planning to introduce a bill that would fast-track the creation of Ebola treatments by offering incentives to drug companies. The respective bipartisan leaders of the Senate HELP Committee say their bill would accelerate processing a company’s drug application for Ebola within about six months through a program called “priority review.” As an added incentive, companies would also earn a bonus voucher for another drug of their choice to receive priority review, even if it’s not meant to treat a neglected disease like Ebola.  Harkin and Alexander plan to introduce their bill when Congress reconvenes for the post-election lame-duck session.

Vaccine trials- FDA weighs-in on importance of placebos

GlaxoSmithKline, in a joint effort with the US National Institutes of Health and the World Health Organization (WHO), has begun Phase 1 Safety trials in humans. The BBC News just ran an interesting article yesterday entitled Volunteering to test Ebola vaccine in Mali. Dr Samba Sow, an infectious disease epidemiologist and vaccine expert and director of Centre for Vaccine Development (CVD) in Mali, provided some good news: "We know that after two weeks they're starting to have some immune response and there are no adverse reactions."

Currently, however, trials do not involve the use placebos. 

FDA officials speaking at a tropical medicine conference in New Orleans Wednesday said experimental Ebola drugs should be tested in randomized controlled trials -- a "gold standard" form of drug assessment that involves giving some ill patients a placebo. Edward Cox, director of the FDA’s Office of Antimicrobial Products, stated that “[w]hile randomized trials would be ‘challenging,’ they’re needed to understand whether or how well the medicines work.” Trials would compare “the best supportive care versus the best supportive care with a drug,” he said.

Bloomberg's coverage notes that using placebos in West Africa has created an “ethical debate pitting one of the world’s deadliest pathogens against the need to better understand exactly which drugs are most effective."

Other developments

The National Institute of Health also recently announced that they were beginning human trials on a new Ebola vaccine. Human testing of this second investigational Ebola vaccine candidate is under way at the NIH’s Clinical Center in Bethesda, Maryland. Researchers at the National Institute of Allergy and Infectious Diseases (NIAID) are conducting the early phase trial to evaluate the vaccine, called VSV-ZEBOV, for safety and its ability to generate an immune system response in healthy adults who are given two intramuscular doses, called a prime-boost strategy. The Walter Reed Army Institute of Research (WRAIR) is simultaneously testing the candidate as a single dose at its Clinical Trials Center in Silver Spring, Maryland.

Profectus BioSciences has received around $27m, and is working first on the vaccine for Ebola Zaire, the strain that has killed thousands in West Africa this year, with plans to advance it to clinical trials by June 2015. “Unlike previous investments that focused on a vaccine designed specifically for the strain of Ebola present in the outbreak, Profectus' most recent contract focuses on a vaccine that would offer more broad protection against two types of Ebola as well as the Marburg virus, which causes hemorrhagic fever similar to Ebola,” notes the Baltimore Sun. “By fall, the company plans to begin testing of what is a called a "trivalent" vaccine that would build immunity to three pathogens – Ebola Zaire, Ebola Sudan and Marburg,” according to Profectus President Jeffrey Meshulam. 

Across the Atlantic, the Europe Union and pharmaceutical companies pledged yesterday to invest 280 million euros ($350 million) in Ebola research, “with the lion's share going to the testing and manufacture of potential vaccines,” Reuters reports. “The funding will go to projects backed by the Innovative Medicines Initiative (IMI), a public-private scheme jointly paid for by the European Commission and the pharmaceuticals industry.”

April 10, 2014

Takeda, Lilly Hit with $9 Billion Punitive Damages in Actos Lawsuit

Asia's biggest pharmaceutical company, Takeda, and their marketing partner, Eli Lilly, face $9 billion in punitive damages stemming from their Actos diabetes drug. The plaintiffs alleged that Takeda and Lilly concealed their knowledge of the drug's bladder cancer risks and failed to provide adequate warnings. Takeda countered that the plaintiff's bladder cancer wasn't caused by Actos, and that the drugmaker provided proper warnings as they became known over the years. The jury allocated 75% of the liability, $6 billion, to Takeda and 25%, $3 billion, to Lilly.

This startlingly large special damages award stems from a 2011 lawsuit filed by Terrence Allen and his wife, Susan Allen, who alleged that the diabetes medication caused Mr. Allen's bladder cancer. In addition to punitive damages, which seek to punish the wrongdoer rather than reimburse the victim, the jury awarded the Allens about $1.5 million in compensatory damages.

Interestingly, judgments were entered in Takeda's favor in all three previous Actos trials before the $9 billion bombshell. Bloomberg reports that last year, "state juries in California and Maryland ordered Takeda to pay a total of $8.2 million in damages to former Actos users," but "judges in both states threw out the verdicts." This year, jurors in a Las Vegas state court rejected claims that the company failed to properly warn consumers about the risks of Actos.

The litigation in the District Court of the Western District of Louisiana is the first federal case to be tried and the first in the consolidated Actos multidistrict litigation. Lilly, who co-promoted Actos with Takeda from 1999 to 2006, was not named in the previous state actions.

Kenneth D. Greisman, senior vice president and general counsel at Takeda, responded to the verdict: "Takeda respectfully disagrees with the verdict and we intend to vigorously challenge this outcome through all available legal means, including possible post-trial motions and an appeal." He also stated that "[w]e have empathy for the Allens, but we believe the evidence did not support a finding that ACTOS caused his bladder cancer. We also believe we demonstrated that Takeda acted responsibly with regard to ACTOS."

The Wall Street Journal reported that the news "sent Takeda shares down sharply Tuesday. Takeda shares fell 5.2% to ¥4,572 on the Tokyo Stock Exchange. Motley Fool noted that during 2011, Actos sales peaked with $4.5 billion in sales and accounted for 27% of Takeda's revenue. "The drug has since gone off patent and faces generic competition from Ranbaxy Laboratories and other drugmakers," the article notes. Under Lilly's agreement with Takeda, Lilly will be indemnified by Takeda for losses and expenses related to US litigation.

"There's no way that these [damages] will be $9 billion at the end of the day," said the plaintiff's lawyer, Mark Lanier. The Wall Street Journal's Law Blog notes that the Supreme Court has ruled that punitive and compensatory damages "must bear some relationship to one another." The article states that "[g]enerally speaking, punitive damages that are more than nine times that of compensatory damages have a poor survival rate."

Indeed, in this case the $9 billion punitive damages dwarfs the $1.5 million compensatory damage to an almost absurd degree. These types of damages may reflect particularly bad conduct. However, when deliberating punitive damages, juries are allowed to consider the net worth and profits of the defendants. The Wall Street Journal stated that "[p]erhaps they wanted to scale the award so it would financially sting the pharmaceutical companies, which are each worth tens of billions of dollars."

Punitive damages tend to be reduced on appeal, often drastically so. We will keep you posted on the outcome of the Actos lawsuits.


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