Life Science Compliance Update

January 05, 2016

Pacira Settlement and the Future

Pacira Pharmaceuticals announced a settlement with the United States Food and Drug Administration (FDA) in connection with their First Amendment challenge regarding the promotion of its drug, Exparel. Pacira had previously sought to prevent the FDA from bringing an enforcement action against Pacira for its truthful and nonmisleading speech about Exparel.


The settlement not only required FDA to remove the Warning Letter previously posted on its website and provide an explanation for the removal, but it also required a revision of the Prescribing Information (PI) to be submitted with the Exparel Labeling Supplement. The revision is "intended to describe accurately the scope of the indication initially approved by FDA," which is expected to avoid any future confusion by any entity or agency about the scope of Exparel's FDA approval.

The settlement also included a promising agreement between both parties that Pacira and the FDA would agree to "deal with each other in an open, forthright, and fair manner," which could eventually lead to more cooperation, understanding, and openness on behalf of the FDA when it comes to interacting with life science companies.

Dave Stack, Chief Executive Officer and Chairman of Pacira, stated,

We are pleased to announce a successful collaboration with the FDA to resolve this matter in an expeditious and meaningful way that allows us to get back to the important task at hand – reducing postsurgical opioid exposure by providing a non-opioid option like Exparel to as many patients as appropriate. This is especially important given the burgeoning U.S. opioid epidemic, underscored by the reality that one in 15 patients will go on to long-term use after receiving an opioid in the hospital setting.

Removal of the Warning Letter

The settlement follows the much-discussed removal of Pacira's warning letter from the FDA website, which helps to confirm that Exparel is broadly indicated for "administration into the surgical site to produce postsurgical analgesia," and has been indicated as such since its approval in 2011.

Janet Woodcock, M.D., the Director of the Center for Drug Evaluation and Research at the Food and Drug Administration, issued a letter to David Stack, explicating the reasons for the rescission of the 2014 Warning Letter. Dr. Woodcock believes that the withdrawal of the Warning Letter, taken together with the FDA's recent approval of Exparel's labeling supplement, clarifies the FDA's positions and conclusions "regarding the scope of Exparel's indication."

After a review of the Warning Letter, the FDA determined that "different statements in various parts of the approved labeling created ambiguity with respect to the scope of the approved indication." Based on plain language found in Exparel's Indications and Usage section of the full prescribing information, as well as clinical trials, the FDA determined that the indication was not limited to bunionectomy and hemorrhoidectomy procedures, and therefore rescinded the Warning Letter issued to Pacira.

What Does This Mean?

This settlement marks a clear victory for Pacira in that it allows Pacira to continue promoting the use of Exparel in specific surgeries. This settlement also likely provides a larger benefit to the life sciences industry: a generous clarification of "general versus specific use" indications. Medical device companies often face a similar "general versus specific use" question as many medical devices receive clearance for general use. This settlement may have given medical device companies a victory, particularly if the approval or clearance of the medical device was based on clinical studies.

It is also important to note that the FDA has not been successful in many of their First Amendment cases over the past several years, see Caronia and Amarin. As such, the ability of the FDA to ban off-label promotion has been called into question and the pace and style of the agency is likely to change in the coming months. In fact, one of the priorities in 2016 for Center for Drug Evaluation and Research is to "[r]e-evaluate our regulation of drug advertising and promotion in light of current jurisprudence around the 1st Amendment."

These cases, taken together, could signal upcoming FDA changes on how carefully they approve indication statements – especially broadly worded ones – which might, in turn, affect FDA class labeling policies. This settlement likely provides an opportunity for pharmaceutical and medical device companies to successfully put forth medical arguments that support broader extrapolation, especially if they have a favorable regulatory history.

This settlement should be considered encouraging to the life science industry, as it shows that the FDA is starting to learn from past mistakes, permit companies to take advantage of their First Amendment rights, and work with industry to create solutions that benefit patients.

November 30, 2015

Novartis Settlement and Corporate Integrity Agreement Amendment

We have previously written about the proposed Novartis AG settlement relating its False Claims Act suit. The suit alleged Novartis participated in improper kickbacks to pharmacies to boost sales of several prescription drugs. Novartis Chief Executive Joe Jimenez claimed that Novartis had made the disputed payments, but did so to ensure patients took the drugs.

In October, Novartis announced a $390 million tentative agreement to settle that claim against them. That tentative agreement did not assign liability for the resolved allegations of improper discounts and rebates to specialty pharmacies in conjunction with the immunosuppressant Myofortic and the iron overload drug Exjade.

Allegedly, sales of Exjade were not meeting expectations primarily due to the side effects of the drug, when Novartis pressured a set of three hand-selected specialty pharmacies, including Bioscrip, Inc. and Accredo Health Group, to "hire or assign nurses to call Exjade patients and under the guise of education or clinical counseling, encourage patients to order more refills."

With regard to Myofortic, Novartis allegedly offered "lucrative rebate offers to five specialty pharmacies in return for the pharmacies' promise to recommend to doctors that they switch patients to Myofortic from competitor drugs."

Settlement and Admissions

The final settlement, approved November 20, 2015, settled the claims against Novartis for $370 million. That $370 million goes towards paying the fines to settle the claims against it, while an additional $20 million in profits will be forfeited, bringing the total settlement to $390 million. This is much less than the $3.35 billion the government was seeking. Of the $270 million, $286,870,245.98 will be paid to the federal government and $83,129,754.02 will be paid to settling states.

This settlement is the third settlement of this lawsuit – in January 2014 and April 2015, two specialty pharmacies (Bioscrip and Accredo) agreed to pay a total of $75 million to resolve federal and state claims against them based on the same allegations. Taken with this recent Novartis settlement, the federal and state governments' recovery will total $465 million.

In addition to the settlement, Novartis made a lengthy list of admissions relating to the Exjade and Myofortic claims. Novartis admitted to pressuring at least one of the specialty pharmacies into filling more Exjade prescriptions, even if it meant skirting the law a bit. Novartis also admitted to offering discounts and market share rebates to certain specialty pharmacies that dispensed Myofortic, though the agreements did not refer to any action that the pharmacies contemplated taking to increase Myofortic's market share.

Corporate Integrity Agreement Amendment

Part of this settlement requires Novartis to add provisions relating to specialty pharmacies as part of an addendum to its existing corporate integrity agreement, which will be extended for five years from November 19, 2015. These new CIA obligations will provide greater clarity on working with specialty pharmacies in support of patient care.

Novartis will "implement the agreed upon controls to ensure appropriate support for patients, and compliance with all Federal Healthcare program requirements related to its interactions with specialty pharmacies." These controls include a variety of things, such as "enhancing policies and procedures at [Novartis] for specialty pharmacy service arrangements and contracts, training for [Novartis] associates, as well as strengthened monitoring and tracking processes to ensure that services are provided in a compliance manner."

Part of those controls require an annual certification from Novartis officers and employees that the applicable Novartis business unit is compliant with applicable Federal health care program and FDA requirements.

In addition, Novartis will design policies and procedures to ensure that Novartis' arrangements with specialty pharmacies are "used for legitimate and lawful purposes in accordance with the federal anti-kickback statute ... and other applicable Federal health care program and FDA requirements." All arrangements will be subject to a written review and approval process. The policies and procedures shall include requirements about the business need for the arrangements, the services provided under the arrangements, and the amount of compensation provided under the arrangements – including that the amount of compensation is fair market value for the service.

Within 120 days of the effective date of the addendum, Novartis is required to create procedures reasonably designed to ensure that each existing and new or renewed arrangement does not violate the anti-kickback statute or the regulations, directives, and guidance related to the statute. Each new or renewed arrangement must be set forth in writing and comply with the arrangements procedures. Each party to the arrangement must have a copy of its Code of Conduct and relevant policies and procedures relating to the anti-kickback statute. A certification must be signed that the parties shall not violate the anti-kickback statute with respect to the performance of the arrangement, and that certification must remain on file.

Novartis has stated that they will provide its contracted specialty pharmacies with a "clear understanding of the Novartis Code of Conduct and training on the policies that guide our activities to help ensure compliance with Federal Healthcare program requirements." Novartis has agreed to provide a comprehensive annual report to the government of on its compliance with the aforementioned, and other, CIA obligations.

Novartis insists that it is "committed to high standards of ethical business conduct" and now has a comprehensive compliance program in place to ensure its future responsible behavior.

Preet Bharara, the U.S. Attorney for Manhattan made a warning statement to all pharmaceutical companies, stating, "Novartis turned pharmacies that should have been disinterested healthcare providers into a biased sales force for the drug maker. Drug makers and their relationships with healthcare providers ... must comply with the Anti-Kickback Statute. If they don't we will bring all appropriate law enforcement tools to bear to ensure that they do."

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.


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