NATIONWIDE: An Introduction to USA - Nationwide

Overview: Life Sciences Industry 

In 2019, important legal issues and market trends facing the life sciences sector include:

Real-World Evidence and Digital Health take center stage as FDA modernizes the regulatory framework for harnessing the potential power of big data to aid in more efficient pre- and post-marketing regulatory determinations.

21st Century Cures continues to dominate FDA’s approach to innovation and the approval of novel therapies, as FDA announced:

• a record year in 2018 for novel drug therapy approvals—73% of which came to market through innovative approval methods (Fast Track, Breakthrough, Accelerated Approval, and Priority Review)—as well as for generic drug and novel medical device approvals; and

• a “surge of cell and gene therapy products entering early development,” as FDA provides further guideposts around regenerative medicine regulation.

Emerging sources of innovation arise as large biopharmaceutical companies continue to invest significantly in research and development—and to partner with emerging innovators at earlier stages in the drug development process to grow their pipelines and to bring new therapies to market. Private equity (PE) firms increasingly are joining this trend, seeking themselves to partner with such innovators, requiring ever-more complex regulatory awareness and diligence.

Novel Foods—including cell-based meat, poultry, and seafood products (a/k/a “cell-cultured” products); cell-based products and plant-based protein products marketed as “meat” or “dairy”; and genetically engineered and gene-edited foods—continue to garner significant attention from the market, as FDA and other regulators, including USDA, work to construct a modern regulatory apparatus for such products.

Intellectual Property has witnessed an increased focus on the law of subject matter eligibility and its impact on life sciences patents, particularly in the field of diagnostics. The Patent Office and the courts continue to grapple with how to apply the “abstract idea” test set forth in the Supreme Court’s Alice decision. And the Supreme Court’s 2018 Helsinn decision highlights how a drug maker’s own commercialization efforts can create patent-defeating prior art, as enhanced scrutiny is placed on prior collaboration and partnership activities during the IP due diligence phase of transactions and in patent litigation.

Drug Pricing continues to be a top government priority. Congressional hearings continue to focus on drug costs and the Administration continues to issue proposals aimed at bringing down the cost of drugs, such as the International Pricing Index Model, cuts to Medicare reimbursement of 340B drugs used in certain outpatient settings, and proposed Anti-Kickback Statute safe harbor reforms targeting drug company payments to pharmacy benefit managers.

Pricing Transparency efforts continue apace:

• Since Vermont passed the first transparency law in 2016, many states have followed suit. This trend has added new complexity to compliance, as some states focus on affirmative reporting requirements from manufacturers while other states require manufacturers to report information if their drug appears on a state-created list or if requested by the state. Recent legislative sessions have seen some transparency bills fail, but others may follow.

• CMS proposed a rule that would require drug manufacturers to disclose list prices in TV advertisements; the rule is expected to finalize in 2019.

• A major pharmaceutical trade association voluntarily adopted an updated code that would require members to disclose list price and other information in direct-to-consumer TV advertisements.

Patient Assistance Programs continue to be under a microscope, and the trend of manufacturer settlements relating to patient assistance programs shows no signs of slowing down. Settlements pertaining to manufacturer donations to independent charities operating co-pay assistance funds have included eight- and nine-figure penalties, with accompanying Corporate Integrity Agreements. OIG continues to issue guidance on the permissible parameters of patient assistance programs in the form of Advisory Opinions, adding complexity to the regulatory environment.

Cybersecurity and Data Protection continue to be a source of significant regulatory and legislative focus, with states pursuing oversight and the federal government stepping up enforcement.

• HHS released a multi-volume publication on cybersecurity for healthcare organizations, the Healthcare and Public Health Sector Coordinating Council released a “Medical Device and Health IT Joint Security Plan,” a set of cybersecurity recommendations for medical device manufacturers, healthcare information technology vendors, and healthcare providers.

• HHS’s Office for Civil Rights reached its largest HIPAA settlement to date (three times larger than the prior record), and a dozen state attorneys general filed the first multi-state data breach lawsuit alleging HIPAA violations.

• California enacted its own data privacy legislation, the California Consumer Privacy Act of 2018, modeled on key provisions of the GDPR. Other states are considering following suit, and preemptive federal legislation may follow.

• California enacted novel legislation on cybersecurity of the Internet of Things (i.e., connected devices), and federal and state enforcement agencies continue to be active in these areas.

• The Illinois Supreme Court ruled that plaintiffs may state a claim by alleging a violation of the state’s Biometric Information Privacy Act, even if there is no financial or other tangible harm to the person.

The Enforcement Landscape has witnessed shifting enforcement policies:

• DOJ updated the Justice Manual to incorporate “Brand Memo” restrictions on using non-binding regulatory guidance documents in civil and criminal enforcement action and to clarify “Yates Memo” expectations that companies provide information on the conduct of individuals to obtain cooperation credit in civil and criminal actions.

• Under the “Granston Memo,” DOJ increasingly is moving to dismiss non-intervened qui tam actions under the False Claims Act where they are found to lack merit, consume agency resources, be at odds with other priorities, or run the risk of generating adverse case law.

Government enforcement is focused on several key areas of interest to the life sciences industry:

•Opioids. The government is mining data and leveraging enforcement tools to identify and aggressively pursue criminal and civil actions to address the opioid epidemic, targeting participants along the distribution chain—from manufacturers and distributors to physicians and pharmacies.

•Pricing. From criminal and civil actions by DOJ and State AGs targeting high priced drugs, to guidance statements and rulemaking activities by HHS, to investigations by Congress, the government is taking steps to reduce prices for biopharmaceuticals, lower out-of-pocket costs, and decrease spending by government healthcare programs.

•Violations of cGMP regulations. FDA remains focused on good manufacturing practices for regulated products and scrutiny is expected to be most intense where there is a clear risk of patient harm.

• False and Misleading Promotion. Statements that do not accurately convey the risks and benefits of biopharmaceuticals and medical devices—whether about on- or off-label uses—remain a continuing area of enforcement focus, even as enforcement against traditional off-label issues has waned and the courts and FDA continues to clarify the First Amendment landscape.

•Compounding Pharmacies. FDA is stepping up efforts to identify compounding pharmacies that, like the New England Compounding Center, may be preparing sterile drugs in insanitary conditions, and is working with DOJ to aggressively pursue such matters.

•Private Equity Investor Liability. DOJ and whistleblowers increasingly are targeting False Claims Act actions at private equity (PE) firms investing in the healthcare space based on alleged violations of laws by their portfolio companies.