Pharmaceuticals and PBMs

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The 2017 National Defense Authorization Act, Pub. L. No. 114-328 (Dec. 23, 2016), introduces major changes to the Defense Department healthcare program known as TRICARE. By this time next year, we’ll see a new program to contain the cost of prescription drugs at retail pharmacies, contractual incentives for improving the quality of healthcare and…

This is the third article in our series on the effect of a “slow repeal” of the ACA. This week’s discussion focuses on the potential impact of a slow repeal of the ACA on the pharmaceutical industry (Pharma).

Unlike many of the players detailed in our prior articles on the slow repeal of the ACA, Pharma has not made a lot of noise regarding a repeal of the ACA. In fact, Pharma and biotech stocks soared—generally 3 percent to 10 percent—on November 8, 2016, largely because the industry had been preparing for a Clinton victory. A recent quote attributed to one Pharma industry official—“I actually think the Republican Party is a far less certain bet for the pharmaceutical industry”—reflects some of the unease surrounding the change in administration, and the likely repeal of the ACA.

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) recently announced additional rule amendments intended to continue improving relations between the U.S. and Cuba by allowing even greater commerce and humanitarian efforts between the two countries. These new OFAC  and BIS  rules took effect last week.

The Orphan Drug Act aims to incentivize treatment of rare disorders or conditions affecting fewer than 200,000 persons in the United States through: (1) federal funding of grants and contracts to perform clinical trials of orphan products; (2) a tax credit of 50 percent of clinical testing costs; and (3) an exclusive right to market the orphan drug for approved orphan indications for 7 years from the date of marketing approval. While these financial incentives certainly make the business decision to engage in orphan drug development more palatable, the FDA does not approve orphan drugs on a separate pathway, despite the limited understanding of the diseases in question that presents developers of these drugs with problems stemming from small sample size and lack of well-defined efficacy endpoints.

Pfizer, Inc. recently petitioned the Supreme Court, seeking review of three companion decisions from the First Circuit Court of Appeals.  These decisions found against Pfizer and in favor of multiple third-party payors (TPPs)—the Kaiser Foundation Health Plan, Inc. (an HMO), Aetna, Inc. (a health insurer), and a putative class of employer health plans—on civil Racketeer Influenced and Corrupt Organizations Act (RICO) claims for damages suffered due to Pfizer’s fraudulent marketing of off-label uses for the prescription drug Neurontin, an anti-convulsive approved for the treatment of epilepsy.  At the heart of the dispute is causation—the causal chain that runs from a drug manufacturer, such as Pfizer, to third-party payors of prescription drug benefits, such as HMOs, insurers and other health plans.

The First Circuit’s lead opinion—laying the common predicate necessary to understand each of the companion cases—came in the action brought against Pfizer by Kaiser, in which the court affirmed a $142 million jury award to the HMO.

The Development and Marketing of Neurontin

Neurontin was developed during the 1980s and early 1990s as an anti-epileptic drug.  In 1993, the Food and Drug Administration approved Neurontin for treatment of partial seizures in adults with epilepsy.  A campaign to market Neurontin for off-label conditions—conditions not included on the official label approved by the FDA—began in 1995.  These off-label conditions included neuropathic pain (pain from nerve damage), migraine headaches, and bipolar disorder.  Neurontin was marketed for treatment of these off-label conditions by way of, among other things:  (1) direct marketing to doctors, which misrepresented Neurontin’s effectiveness for off-label indications; (2) misleading information supplements and continuing medical education programs; and (3) articles published in medical journals that touted Neurontin’s off-label effectiveness but suppressed negative information about the drug. 

On June 14ththe Governor signed into law SB 1803. It amends Chapter 531 by limiting the Texas Health and Human Services Office of Inspector General’s (HHSC-OIG) ability to implement payment holds, improving providers’ rights to expedited appeals before the State Office of Administrative Hearings, redefining the liability for hearing costs, creating new requirements…

New Hampshire law applies a hybrid design-defect standard that imposes liability for harm caused by a drug product if the drug product, in light of the manufacturer’s warning on the label, is unreasonably dangerous. Does such a framework avoid federal preemption issues that have doomed failure to warn negligence claims premised on taking allegedly dangerous generic pharmaceuticals? That was the question addressed by the Supreme Court at oral argument in Mutual Pharmaceutical Co. v. Bartlett, the third in a trilogy of cases addressing preemption of state tort claims against drug manufacturers based on federal laws mandating prescription drug labeling requirements. While several justices appeared uncomfortable with the possibility of creating a system that allowed for FDA approval to serve as both a ceiling and a floor for generic drug liability, overall it appeared that the Court would find preemption, consistent with the defendant and Solicitor General’s arguments.

Three years ago in Wyeth v. Levine, the Court held that a state law failure-to-warn claim related to a branded pharmaceutical was not preempted federal drug laws. The next year in a 5-4 decision, the Court held in PLIVA, Inc. v. Mensing that a negligence claim for failure to warn by a generic manufacturer was preempted by federal law because the Hatch-Waxman Act (which sets up the generic pharma framework) allowed for no discretion in what a generic pharmaceutical manufacturer can put on its label.

Mutual comes to the Supreme Court after the First Circuit upheld a New Hampshire Federal District Court’s jury verdict premised on the finding that a generic version of sulindac was unreasonably dangerous. The arguments before the Court centered on whether a design defect claim was somehow different from a failure to warn claim, and therefore merited a different result than the one reached in PLIVA.