A New Private Right of Action is Created for Refusals to Provide Drugs and Biologics to Certain Product Developers

On December 20, 2019, the Further Consolidated Appropriations Act, 2020 (Act) became law. While the Act was primarily designed to provide appropriations for the 2020 fiscal year, it included long-debated new provisions that may have a significant impact on drug and biologic manufacturers. Specifically, Section 610 of the Act provides generic and biosimilar developers a private right of action to obtain sufficient quantities of reference product from the product's manufacturer in order to conduct testing necessary to obtain approval for generic or biosimilar products.

Section 610 is the culmination of a protracted effort to enact the Creating and Restoring Equal Access to Equivalent Samples Act (CREATES Act), which was prompted by allegations that reference product manufacturers were delaying generic/biosimilar competition by refusing to provide reference product supply—typically of products subject to a Risk Evaluation and Mitigation Strategy (REMS) with Elements to Assure Safe Use (ETASU) or an otherwise restricted distribution system—to generic/505(b)(2) new drug application (NDA)/biosimilar drug developers for bioequivalence/biosimilarity testing.¹ Many manufacturers refuted such allegations by citing concerns regarding potential violations of REMS or product liability risks.

I. Regulatory Background

A REMS may be required for a product when FDA determines it is necessary to ensure the product's benefits outweigh its risks. The components of a REMS vary among products and only certain REMS require the implementation of ETASU. One particular type of ETASU is the use of a restricted distribution program, which consists of a limited distribution network to ensure drugs are provided only to patients with prescriptions from certified and trained physicians under specified conditions. For other products, including those for rare diseases, manufacturers may implement restricted distribution programs in order to ensure appropriate product commercial and risk management, and to facilitate needed patient support activities. In such scenarios, individuals or entities seeking to obtain quantities of a drug subject to such a REMS or restricted distribution program are generally unable to do so via typical means.

The Federal Food, Drug, and Cosmetic Act (FDCA) expressly prohibits manufacturers from using any ETASU of a REMS to block or delay approval of an application under 505(b)(2) or 505(j) of the FDCA.² However, FDA does not have authority to require a reference product manufacturer to provide a generic drug developer with reference product. Moreover, neither the FDA nor Federal Trade Commission (FTC) has directly taken action against reference product manufacturers for allegedly using an ETASU to delay or prevent generic/biosimilar competition. Rather, private litigants, such as generic drug developers, have sued reference product manufacturers under antitrust causes of action alleging such conduct is anticompetitive.

II. The New Private Right of Action

Section 610 authorizes an "eligible product developer" to file a civil action in federal district court against the "license holder" of a "covered product" for declining to provide "sufficient quantities" of such product on "commercially reasonable, market-based terms".³ An "eligible product developer" is a person developing a product for approval under Section 505(b)(2) or 505(j) of the FDCA or licensing under Section 351(k) of the Public Health Service Act (PHSA).⁴ In other words, companies seeking to develop generic drugs or biosimilars. A "license holder" means a holder of an application approved under Section 505(c) or 505(j) of the FDCA or of a license under Section 351(a) or 351(k) of the PHSA.⁵ This includes brand reference product manufacturers as well as generic and biosimilar manufacturers, which in some cases may be designated a reference drug, such as after the discontinuance of a branded product.

"Covered products" include a drug, biologic, generic drug, biosimilar, and any combination of a drug or biological product. In addition, where reasonably necessary to support approval requirements under Section 505 of the FDCA and Section 351 of the PHSA, a covered product includes any product, including a device, marketed or intended for use with such drug or biological product. As such, drug-device, biologic-device, and drug-device-biologic combination products are within the reach of Section 610. However, Section 610 expressly excludes from the covered product definition any drug or biologic on the drug shortage list in effect under Section 505E of the FDCA⁶, except where the product has been on the drug shortage list continuously for more than six (6) months or the Secretary determines including such product as a covered product is likely to contribute to alleviating or preventing a shortage.⁷

The Section 610 private right of action hinges on the provision of, or failure to provide, "sufficient quantities" of covered product, which is defined as the amount of a covered product that the eligible product developer determines will allow it to conduct testing to support an application, and fulfill any regulatory requirements relating to approval, under Section 505(b)(2) or 505(j) of the FDCA or Section 351(k) of the PHSA.⁸ Section 610 also turns on whether the covered product is provided on "commercially reasonable, market-based terms." This requires that the license holder (i) set a nondiscriminatory price for the sale of the covered product no greater than its most recent wholesale acquisition cost⁹; (ii) establish a schedule for delivery that results in the transfer of the covered product within 31 days of receiving a request for the product, or potentially later if the product is subject to a REMS with ETASU (discussed below); and (iii) not impose any additional conditions on the sale of the covered product.¹⁰

A. Elements of the Action

For an eligible product developer to prevail on its claim, it must prove the following by a preponderance of the evidence:

(i) the covered product is not subject to a REMS with ETASU or the eligible product developer has received a covered product authorization (further discussed below) from the Secretary of Health and Human Services and provided a copy to the license holder;

(ii) the eligible product developer has not obtained sufficient quantities of the covered product on commercially reasonable, market-based terms as of the date the suit is filed;

(iii) the eligible product developer submitted a written request to purchase sufficient quantities of the covered product to the license holder and such request:

(a) was sent to a named corporate officer of the license holder;

(b) was sent by certified or registered mail with return receipt requested;

(c) specified an individual as a point of contact for the license holder and means for     electronic and written means of communication with such individual; and

(d) specified an address to which the covered product was to be shipped; and

(iv) the license holder has not delivered sufficient quantities of the covered product on commercially reasonable, market-based terms:

(a) within 31 days after the date the license holder received the request for the product; or

(b) if the product is subject to a REMS with ETASU, within 31 days of the date the license holder received the request for the product or the date it received a copy of the covered product authorization, whichever is later.¹¹

B. Authorization for Covered Product Subject to a REMS with ETASU

An eligible product developer may submit a written request to FDA to be authorized to obtain sufficient quantities of a covered product subject to a REMS with ETASU. Within 120 days of receiving such request, the Secretary must provide such authorization for the purpose of conducting clinical or non-clinical development and testing. While the authorization can be conditioned on requirements imposed by the Secretary, in the case of clinical development and testing, an eligible product developer must submit protocols, informed consent documents, and informational materials for such testing that include safety protections comparable to those provided by the REMS, or otherwise satisfy the Secretary that such protections will be provided, in order to receive the authorization.¹²

To alleviate the concerns of license holders providing a covered product outside of its REMS, the authorization will explicitly state that the provision of covered product under the terms of the authorization will not be a violation of its REMS. The mechanism for obtaining such an authorization has already been available under a 2014 FDA Draft Guidance allowing generic drug developers to request a letter from FDA stating, among other things, that the Agency would not consider a reference product manufacturer's provision of product subject to a REMS with ETASU to the developer to perform bioequivalence testing a violation of the REMS.¹³ It is important to note that Section 610 clarifies that a license holder would not be prohibited from providing an eligible product developer access to a covered product even in the absence of an authorization and codifies this through an amendment to Section 505-1 of the FDCA.¹⁴ To address liability concerns, the new law provides that license holders will not be liable for any claims under federal, state, or local law arising out of the failure of an eligible product developer to follow adequate safeguards to assure safe use of the covered product during development or testing activities.¹⁵ Of course, the actual value of this liability shield has not been tested in the courts.

C. Affirmative Defenses

In response to a suit under the new law, a license holder may raise any of the three following affirmative defenses, which must be established by a preponderance of the evidence:

(i) on the date of the request, neither the license holder nor any of its agents, wholesalers or distributors was engaged in the manufacturing or commercial marketing, or otherwise had access to inventory, of the covered product to supply to the eligible product developer on commercially reasonable, market-based terms;

(ii) the license holder sells the covered product through agents, distributors or wholesalers without explicit or implicit restrictions on sales to eligible product developers, and the eligible product developer can purchase the product in sufficient quantities on commercially reasonable, market-based terms from such entities; or

(iii) the license holder made an offer to the eligible product developer's point of contact by means of electronic or written communication to sell sufficient quantities of the covered product on commercially reasonable market-based terms: (a) within 14 days after receiving the request for the product, and the eligible product developer did not accept such offer within 7 days of receipt of the offer; or (b) if the product is subject to a REMS with ETASU, within 20 days after receiving the request for the product and the eligible product developer did not accept such offer within 10 days of receipt of the offer.¹⁶

D. Remedies

If an eligible product developer is successful in its claim, it may be entitled to three types of remedies. The first and primary remedy is that the court will order the license holder to provide sufficient quantities of covered product on commercially reasonable, market-based terms without delay.¹⁷ The court may also award the eligible product developer reasonable attorney's fees and costs as a second form of relief.¹⁸

The third type of remedy is punitive in nature and provides the eligible product developer with a monetary award to deter the license holder from declining to provide sufficient quantities of a covered product to other developers. The court may only grant this relief if it determines, by a preponderance of the evidence, that the license holder: (i) delayed providing sufficient quantities of covered product to the eligible product developer without a legitimate business justification; or (ii) failed to comply with an order described above.¹⁹ The monetary award is subject to a cap equal to the revenue the license holder earned from the covered product during the period beginning (a) 31 days after the date the license holder received the request for the product; or (b) if the product is subject to a REMS with ETASU, 31 days after the date the license holder received the request for the product or the date it received a copy of the covered product authorization, whichever is later; and ending on the date when the eligible product developer received sufficient quantities of the covered product.²⁰ While capped, this award could be a significant amount and essentially serves as a disgorgement.

E. Interplay with Antitrust Laws

As discussed above, the concerns Section 610 is meant to address have been challenged through private litigation under antitrust causes of action. Although Section 610 is a direct response to these concerns, it clarifies that it will not limit the operation of any antitrust laws, such as the Clayton Act, Sherman Act, and Section 5 of the FTC Act.²¹ As such, Section 610 is not an exclusive remedy and may be used in conjunction with antitrust claims.

III. Revisions to REMS Single, Shared System Authorities

In addition to establishing a private right of action, Section 610 amends FDA's REMS authority to combat concerns that reference product manufacturers have allegedly delayed negotiations with generic developers on a required single, shared system. First, Section 610 expanded the Secretary's authority to require modification of a REMS. The Secretary may now mandate modification to accommodate different, comparable aspects of the ETASU for a drug subject to a 505(j) application and the applicable reference drug.²² In addition, it is no longer a default requirement that a generic drug and reference drug use a single, shared system. Rather, the generic drug developer has the option to use a single, shared system or a different, comparable aspect of the ETASU.²³ If a different, comparable aspect of the ETASU is approved for a generic drug developer, the Secretary may require that it be used with any other drug subject to a 505(b) or 505(j) application referencing the same reference drug.²⁴ Moreover, the Secretary can only require a single, shared system if it determines that no different, comparable aspect of the ETASU could satisfy Section 505-1(f) of the FDCA.²⁵ For purposes of these revisions, a "different, comparable aspect of the ETASU" means a REMS that uses different methods or operational means than the REMS for the reference drug but achieve the same level of safety.²⁶

IV. Conclusion

While it remains to be seen how courts will interpret Section 610, it is anticipated that the private right of action it creates will become an important tool for generic, 505(b)(2) NDA, and biosimilar product developers who need product for testing, and it may also streamline processes for generic entry into the market for products with REMS.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.