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David Horowitz, Philip Katz and Christopher H. Schott, who are partners in global regulatory law at Hogan Lovells, published this analysis in Lexology on October 14, 2020.

FDA, CMS Actions on Drug Importation Promise Much, Likely Deliver Little

Recently, the U.S. Food and Drug Administration (FDA) and Centers for Medicare & Medicaid Services (CMS) announced policies intended to permit the importation of, and Medicaid reimbursement for, certain foreign prescription drugs that under current law cannot be imported for U.S. distribution and that are not eligible for coverage under Medicaid. Despite the fanfare, it’s not at all clear that the changes will actually result in any additional importation of drugs, let alone meet the expressed goal of materially reducing the cost of prescription drugs.

In short:

  • The Federal Food, Drug, and Cosmetic Act (FDCA) allows importation of certain prescription drugs from Canada if identified conditions are met. Key among the prerequisites is a certification by the Department of Health and Human Services (HHS) that such importation will (1) not create additional risks, and (2) result in “significant” cost reductions. FDA issued a final rule that aims to establish the agency’s position regarding what’s necessary to show no increased risk, but there remain important hurdles and restrictions that seem likely to limit the impact of the new regulation. CMS issued a release stating that Canadian drugs imported under the new regulation will not be “covered outpatient drugs,” and therefore will not be subject to mandatory Medicaid coverage, which, along with the FDA restrictions, may make importation under the new regulation less commercially attractive.
  • FDA issued a guidance outlining how manufacturers may be able to import and obtain NDC numbers for certain of their foreign-approved and -manufactured drugs and biologics that are also FDA-approved. Here, too, the thought is that the availability of these additional products will help reduce drug prices. Although CMS issued a release explaining that drugs imported under this program will be considered “covered outpatient drugs,” the relatively narrow circumstances under which drugs will qualify for importation suggest this, too, will not lead to significant importation or price competition.

Altogether, there are significant statutory, regulatory, and procedural barriers that can be expected to delay the implementation of any drug importation program, and substantially curtail the impact, if any programs are implemented.

Nonetheless, depending on the outcome of the election, it is within the realm of possibility that FDA would proceed to implement the final rule, including by liberally interpreting the applicable requirements and restrictions. For that reason, companies need to carefully examine the recent actions to identify risks and opportunities. The Hogan Lovells lawyers who work in this space stand ready to assist in those efforts.

Drug importation from Canada

On October 1, FDA published a final rule, effective November 30, that provides a pathway for states, Indian tribes and, in certain circumstances, pharmacists and wholesalers to establish programs to import certain drug products from Canada. The final rule implements parts of FDCA Sec. 804, which allows certain prescription drugs to be imported from Canada under specific conditions. The statutory provisions themselves are fairly limiting, however, and the newly-adopted regulation imposes significant additional requirements.

At the outset, importation under Sec. 804 is not available for biological products, controlled substances, infused drugs, intravenously injected drugs, drugs inhaled during surgery, or any parenteral product that FDA determines poses a public health threat. In addition, the final rule excludes from the definition of drugs eligible for import: peritoneal dialysis solutions, intrathecally-injected drugs, intraocularly injected drugs, drugs subject to a risk evaluation and mitigation strategy (REMS), and any drug that is not a “product” for the purposes of the Drug Supply Chain Security Act (DSCSA), which excludes imaging drugs and medical gases, among others.

The final rule states that concurrent with its publication the Secretary is certifying to Congress that the implementation of Sec. 804(b) through (h) under the rule will “pose no additional risks to the public’s health and safety” and “result in a significant reduction in the cost of the covered products to the American consumer.” At the same time, the rule acknowledges that the Secretary is “unable to estimate the cost savings.” In defending the certification in the absence of knowledge regarding cost savings, the rule states that cost savings can be presumed because no importation program could be authorized under the rule unless it results in cost savings. Note also that the authority to issue the final rule depends on the certification for which the cost savings are presumed. Putting aside the circularity of this approach, it also presumes that it is even possible to develop an importation plan that achieves the safety and cost savings that are required by the certification, which is far from obvious.

Moreover, the new regulation itself imposes a number of requirements and restrictions, including that the imported drug is:

  • Managed by importation program sponsors that are states or Indian Tribes, or in certain circumstances pharmacists or wholesale distributors;
  • Limited to a supply chain that includes only three entities: manufacturer, foreign seller and importer;
  • Approved by Canada’s Health Canada’s Health Products and Food Branch (HPFB);
  • Meets the conditions of an FDA-approved NDA or ANDA, which requires an FDA determination on the basis of required testing and information provided by the manufacturer, including the information that an importer would need to authenticate the drug, such as the relevant testing protocols and specifications;
  • Sold by a foreign seller in Canada that purchases eligible drugs directly from the manufacturer;
  • Sold by a foreign seller that is licensed by Health Canada to wholesale distribute drugs and registered with FDA as a foreign seller under Sec. 804; and who is not licensed by a provincial regulatory authority with an international pharmacy license that allows it to distribute drugs that are approved by countries other than Canada and that are not HPFB-approved for distribution in Canada;
  • Imported by a wholesale distributor or pharmacist licensed to operate in the U.S.;
  • From a foreign seller and importer subject to DSCSA requirements, including serial identification;
  • From an importer that arranges for the statutorily prescribed testing by a qualified U.S. testing laboratory for authenticity, degradation, and other requirements, unless the manufacturer provides this information;
  • Labeled properly in accordance with U.S. requirements after FDA has reviewed and accepted the required testing results;
  • From a sponsor that provides FDA with the necessary information about the drug importation program, including the cost savings to the American consumer;
  • From an importer that submits to the drug’s manufacturer and FDA adverse event reports, medication errors, and field alerts reports; and
  • From a sponsor (state or other non-federal entity) that would be responsible for effectuating a recall if warranted.

This extensive list of requirements/restrictions suggests that the new regulation is not likely to significantly increase importation from Canada or reduce drug prices paid by consumers, because so few products will qualify.

Imports from Canada are not “covered outpatient drugs” for Medicaid purposes

On September 25, CMS issued a Medicaid Drug Rebate Program (MDRP) Notice for State Medicaid Programs, Release No. 187, which says drugs imported from Canada under FDA’s new regulation would not be “covered outpatient drugs” under Sec. 1927(k)(2) of the Social Security Act. The release explains that this is because the imported products would not be the subject of an approved NDA or ANDA, but are required only to “meet the conditions” of an FDA-approved NDA or ANDA for a drug that is currently commercially marketed in the United States. If a product is not a covered outpatient drug, it is not subject to mandatory Medicaid coverage, MDRP price reporting and rebate obligations, or to ceiling price obligations under the 340B drug pricing program. The lack of mandatory Medicaid coverage may further disincentivize companies from seeking to import under the new regulation.

New NDC number for certain imported FDA-approved drugs

In addition to the pathway for Canadian drugs addressed in the final rule, FDA issued a final guidance under which a manufacturer may import certain FDA-approved drugs that are also authorized for sale in a foreign country in which the drugs were originally intended to be marketed. The guidance calls such a product a “multi-market approved” (MMA) product, which the agency defines as an NDA- or BLA-approved prescription drug, biological product, or combination product that:

  • Was manufactured outside the U.S. and authorized for marketing by another country’s regulatory authority;
  • Is the subject of a supplement to an approved NDA or a BLA;
  • Is imported into the U.S. and is authorized by the manufacturer under Sec. 801(d)(1)(B) of the FDCA to be marketed in the U.S.;
  • Meets the quality standards in the approved application for marketing in the U.S.;
  • Continues to meet the quality standards for marketing in its originally intended market; and
  • Differs from the FDA-approved product or FDA-licensed biological product only with regard to the required labeling statement that distinguishes the MMA from the originally approved product.

The final guidance requires submission of a prior-approval NDA or BLA supplement to establish that the product is actually covered by an FDA-approved application and labeled properly to avoid confusion. This supplement must include substantial information to demonstrate that the product intended for import is FDA-approved and can be lawfully imported. The supplement must also include revised labeling to avoid potential confusion and differentiate the drug from other drugs approved under the NDA or BLA that are not the subject of the guidance.

The guidance explains how, if an MMA product meets all of conditions specified, it is eligible to receive a National Drug Code number (NDC) consistent with applicable registration and listing requirements. The guidance states that the new NDC could provide an avenue to offer drugs at lower cost because FDA believes that obtaining additional NDCs could help some drug manufacturers “address certain challenges in the private market.”

Notably, the final guidance applies only to manufacturers importing their own FDA-approved prescription drugs, not to third parties who seek to import drugs manufactured by other companies. And if the foreign version differs in virtually any way from the FDA-approved product, it will not qualify as an MMA that may be imported under this pathway. In addition, the guidance “is not intended to address certain biological products, such as blood and blood components, including those intended for transfusion, or allogeneic cellular or tissue-based products.”

This guidance does not actually create a new drug importation pathway, as certain drug products can already be imported by the manufacturer or someone authorized by the manufacturer under existing laws. Instead, this guidance seeks to clarify the use of an existing pathway (Sec. 801(d)(1)(B) of the FDCA) by setting forth the procedures FDA would use to assess whether a drug offered for import that was originally intended for a foreign market falls within the scope of an approved NDA or BLA. In general, these drug importation requirements and procedures are very detailed, complex, and resource-intensive. Because this pathway is limited to manufacturers importing their own drugs, and because it will be complex and burdensome to use, we will be interested to see if any drugs are ever actually imported under this pathway.

MMA products can be “covered outpatient drugs” for Medicaid purposes

In MDRP Program Notice for Manufacturers, Release No. 114, issued on September 25, CMS indicates that MMA products can be “covered outpatient drugs” under Sec. 1927(k)(2) of the Social Security Act, because they — unlike drugs imported under Sec. 804 — are approved under Sec. 505 of the FDCA (i.e., under an NDA) or are biological products licensed under Sec. 351 of the Public Health Service Act (i.e., approved via a BLA). An MMA product that qualifies as a covered outpatient drug would be subject to mandatory Medicaid coverage, to MDRP price reporting and rebate obligations, and to ceiling price obligations under the 340B program. The release states that when the manufacturer sells both the MMA product and the related non-MMA product, a separate Average Manufacturer Price (AMP) should be reported for each drug, but a single Best Price (BP) should be reported for both drugs — applying the same approach as in the authorized generic context.

As the above analysis suggests, although the regulation, guidance, and releases may be intended to foster importation of foreign drugs with the goal of reducing prices paid by U.S. consumers, we expect statutory, regulatory, and procedural barriers to substantially delay (if not totally prevent) any drug importation under these pathways. With regard to Canadian drugs imported under the final rule, states will need to develop extensive drug importation programs to meet the safety and cost-savings prerequisites, and even then, meeting the conditions of the new regulation will depend to some extent on assistance from U.S. manufacturers and the Canadian government, whose interests are unlikely to align with those seeking to import the Canadian drugs. As to manufacturers importing their own FDA-approved drugs, as addressed by the guidance, manufacturers are unlikely to seek new NDCs to market their FDA-approved drugs originally intended for foreign markets except in fairly extraordinary circumstances.

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