FDA Publishes Agenda for Upcoming Guidance Documents

The FDA has recently issued its annual guidance document agenda. The Annual Guidance Agenda details the topics that the Agency intends to focus on in the upcoming year. While the agenda includes a wide-range of topics, like “Use of Dietary Guidance Statements” and “Promotion of Prescription Drug Products Using Social Media Tools”, the Agency is not bound by this list of topics. The agenda does not constitute a comprehensive list of topics that the Agency intends to focus on in the near future, but it does give some indication of the FDAs plans for the coming year. As always, we will keep our eye on the FDA and update this blog as often as possible.

For more information on FDA guidance documents, please contact us at contact@fidjlaw.com.

McNeil Brings Failure-to-Warn Preemption Issue to Supreme Court

McNeil, the manufacturer of Tylenol Cold, has asked the U.S. Supreme Court to decide whether federal law, which imposes certain requirements for labeling on makers of over-the-counter (OTC) drugs, preempts state law thereby precluding product liability actions for failure-to-warn. The case originated in 1999, when sixteen year old Armando Valdes suffered a heat stroke during a roller hockey game after ingesting McNeils product, along with a caffeinated beverage, earlier that morning. Having suffered permanent disability in connection with this incident, the Valdes family brought suit against McNeil under a state law failure-to-warn theory.
The suit alleged that McNeil was negligent and/or strictly liable for failing to warn of the increased risks involved with taking the product when ingested with caffeinated drinks and coupled with strenuous physical activity. While the Miami-Dade County Circuit Court granted summary judgment in favor of McNeil, finding federal law impliedly preempted state law products liability actions in this context, the Third District Court of Appeal reversed this ruling. Found here, the Third District found that the Federal Food, Drug, and Cosmetic Act (the FDCA) neither expressly nor impliedly preempted state law and that the Supreme Courts recent decision in Wyeth v. Levine was controlling.

In Wyeth, the Court found that the FDCAs provisions for prescription drugs did not preempt state law failure-to-warn claims because Congress did not expressly preempt such claims in the revisions to the Act. The Supreme Court reasoned that because Congress expressly provided for such preemption in the case of medical devices, any failure to include the same for other types of products was not due to oversight. This is the reasoning that the Third District used in reaching its decision concerning preemption and OTC drugs.

In its recent petition for certiorari filed with the Supreme Court, the drug manufacturer argues that the Third District Court of Appeal erred in failing to consider that the product in Wyeth was a prescription drug. Rather, McNeil argues that Wyeth is distinguishable because McNeils product, Tylenol Cold, is an OTC drug and thus subject to different provisions under the FDCA. As McNeil argues, the granting of its petition would enable the Supreme Court “to resolve the overbroad and conflicting application of Wyeth” and decide whether Congress, by adopting less stringent processes for OTC drugs when compared to prescription drugs, intended to preempt state law failure-to-warn claims.

For more information on FDA regulation and labeling guidelines, please contact us at contact@fidjlaw.com.

FDA Clearance of New Embryonic Stem Cell Clinical Trials and Upcoming Arguments in Federal Court of Appeals

Earlier this week, the U.S. Food and Drug Administration (FDA) cleared a human clinical trial using embryonic stem cells. This clinical trial will examine the effects of the stem cells on a rare disease causing serious vision loss, Stargardts Macular Dystrophy. The approval of the trial marked only the second time human trials involving embryonic stem cells have been cleared by the U.S. government.

The California biotech company, Advanced Cell Technology (ACT), expects to begin the research in early 2011. The ACT announcement follows just months after the approval by the FDA of Geron Corp.s clinical trials of a treatment for spinal cord injuries through the injection of cells derived from embryonic stem cells. Our original report on the August approval of the Geron Corp. trials can be found here.

The timing of the FDA clearance of these clinical trials coincides with the ongoing law suit in the U.S. Court of Appeals for the D.C. Circuit regarding federal funding of human embryonic stem cell research. In that case, Sherley v. Sebelius, former MIT professor James L. Sherley is suing the National Institutes of Health alleging that embryonic stem cell research violates federal law. The federal district court had issued a preliminary injunction in the case blocking federally-funded human embryonic stem cell research, but the appeals court temporarily blocked that injunction pending the outcome in the case. Oral arguments are to take place in that case next month.

With the FDA clearance of these embryonic stem cell trials, the Department of Justices fight against government funding of human embryonic stem cell research, and the on-going controversy surrounding stem cell research and lack of clear government regulation or policy on the industry, it seems like the embryonic stem cell debate could be reaching a boiling point.

This week, John Gearhart, head of the University of Pennsylvania’s Institute for Regenerative Medicine and one of the first two scientists to isolate human embryonic stem cells, told the Philadelphia Inquirer that a clear policy on the subject is required. “We need a comprehensive national policy on all human embryo research with appropriate, unequivocal laws,” he said last week. “Congress has no stomach to take this up.” Click here to read the Philadelphia Inquirer article.

Fuerst Ittleman is watching these developments with a keen eye. As a firm with a practice area dedicated to the legal issues surrounding human cellular tissue-based products (HCT/Ps), and as frequent contributors to the debate on the use of adult stem cells, we are anxious to see how the legal issues surrounding the use of embryonic stem cells play out.

For more information on Fuerst Ittlemans experience handling the FDA regulatory framework regarding stem cells, drugs, and biologics, please contact us at contact@fidjlaw.com.

Physicians’ Ties With Pharmaceutical Companies: Down, but not out

Medical doctors relationships with pharmaceutical industry representatives are insidious. Industry representatives seek to induce physicians to prescribe certain drugs through the use of free samples, sponsored lunch programs, educational symposiums, gifts, reimbursements, payments, and sales calls whereby representatives are armed with detailed prescribing data. Although this interaction remains highly pervasive, a number of attempts have been made to control the situation and offset the rising prescription drugs costs in the United States. First, Individual states have tried to legislatively bar the sales of prescribing data mined from pharmacy records to drug companies. Second, institutions such as hospitals and doctors offices have created policies targeted at lessening the interaction between physicians and pharmaceutical companies. And most recently, Senator Grassley helped push Congress to pass the “Physician Payments Sunshine Act” as part of the health care reform package, requiring drug companies to report and record physician payments to a searchable database. PhRMA, the industry lobby association, has responded to the pressure, revising its marketing code for drug companies to no longer distribute non-educational items (readno more drug pens and pads)!

To assess the impact of this sea of change, researchers at Massachusetts General Hospital, The University of Massachusetts at Boston, and Harvard Medical School conducted a study comparing the physician-industry relationship to a similar study conducted five years earlier. The findings, published in the November 8, 2010 Archives of Internal Medicine, reveal that physicians still have considerable interaction with industry representatives, although to a lesser extent than five years earlier. Of almost 3,000 physicians surveyed in 2009, 83.8% reported some interaction with industry representatives, compared to 94% five years earlier. 14.1% received industry payments in 2009 (compared with 28% five years earlier) and 70.8% received gifts (down from 83% five years earlier). All these findings represent a statistically significant and important decline. In short, pharmaceutical representatives still employ an armamentarium targeted at physicians, although most recently, policy holders are gaining a foothold in the battle. The impact of this change on drug costs and patient safety are uncertain, although, by most accounts, it is a positive influence on an important and timely medical, legal, and social issue.

Recent Action Against Caffeinated Alcoholic Beverage Manufacturers Highlights The Dual Jurisdiction Of FDA and TTB In Federal Labeling Issues

On November 17, 2010, the FDA issued warning letters to four companies that manufacture caffeinated alcoholic beverages. The FDA declared that the caffeine added to the companies malt alcoholic beverages is an “unsafe food additive” and therefore their products are considered adulterated under section 402(a)(2) of the Food, Drug, and Cosmetic Act (“FDCA”), 21 U.S.C. § 342(a)(2). A copy of the FDA press release can be read at: FDA press release on caffeinated alcoholic beverages.

As a result of this determination, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) of the U.S. Department of the Treasury, formerly known as the ATF, announced on November 18th that the caffeinated alcoholic beverages were also mislabeled under the Federal Alcohol Administration Act (“FAAA”). These recent actions highlight the interrelated roles and dual jurisdiction of the FDA and TTB in the regulation of alcoholic beverages.

TTB is tasked with enforcing the labeling provisions of the Federal Alcohol Administration Act found at 21 U.S.C. § 205(e). However, while TTB regulates the labeling of alcoholic beverages, it is the FDAs responsibility to evaluate the safety of ingredients added to alcoholic beverages, pursuant to the FDAs authority under the FDCA. Therefore, while a manufacturer may receive a certificate of label approval (“COLA”) from the TTB for its alcoholic beverage, a COLA does not constitute a determination that the product complies with the FDCA, including a determination of whether the product is adulterated because it contains an unapproved food additive.

The dual relationship between the FDA and TTB in regards to alcoholic beverages stems from a 1987 Memorandum of Understanding entered into by both agencies that is still in effect today. Under the Memorandum of Understanding, TTB is the agency with regulatory control over alcoholic beverages but FDA has authority regarding determinations of the safety of food additives used in making alcoholic beverages. The FDA also has the power to determine whether an alcoholic beverage is adulterated. A copy of the Memorandum of Understanding is available on TTBs website at: TTB-FDA Memorandum of Understanding.

In a special edition newsletter posted November 18, 2010, TTB described the inter-agency relationship in regards to alcoholic beverages as follows:

This topic highlights the fact that FDA does have jurisdiction over certain aspects of alcohol beverages. TTB enforces the provisions of the Federal Alcohol Administration Act. Under this authority, TTB regulates the labeling and advertising of alcohol beverages to ensure that labels and advertisements provide consumers with adequate information about the identity of the product and to prevent consumer deception. TTB also enforces provisions of the Internal Revenue Code of 1986 related to the production and taxation of distilled spirits, wines, and beer. Under these authorities, TTB reviews formulations for various alcohol beverages and nonbeverage products that contain alcohol. FDA enforces the provisions of the Federal Food, Drug, and Cosmetic Act (FFDCA). The definition of “food” under the FFDCA includes “articles used for food or drink” and thus also includes alcohol beverages. Under this law FDA is responsible for determining the safety of food products and additives used in the production of alcohol beverages and nonbeverage products that contain alcohol including authority over adulterated alcohol beverages.

The TTB newsletter can be read in full at: TTB November 18 Newsletter.

For more information on labeling issues under the FDCA or the FAAA, please contact us at contact@fidjlaw.com.

FDA Releases Detained Shipment After Company Brings Suit

November 18, 2010

Last week, Amphastar filed a Notice of Withdrawal, voluntarily dropping its Motion for a Preliminary Injunction in the Companys suit against the FDA. The Motion, which was filed just eight days earlier, concerned the detention of two shipments from Amphastars foreign-manufacturer. The two shipments detained by the FDA contained semi-purified heparin, an intended starting material, for which the Company needs to complete the FDAs qualification process. To secure approval from the FDA, the Company must get the raw material and its source approved before they are able to move forward. Because Amphastar needed these materials released in order to ultimately gain FDA approval, the Company sought injunctive relief to secure the release of the shipments.

The Motion raised serious issues as to the appropriateness of the detention. According to the Motion, while the first shipment was initially released by an FDA Customs Officer after samples had shown no contamination, the FDA rescinded the release. Citing a “mistake,” the Agency reopened its investigation and again detained the shipment. The FDAs basis for detaining the heparin was two-fold. First, the FDA notified Amphastar that the heparin was misbranded because the packaging lacked “adequate directions for use.” Second, the FDA informed the Company that the foreign-manufacturer of the heparin was not registered with the Agency
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While Amphastar refuted these allegations in the Motion, the FDA soon responded by releasing the detained materials. Because Amphastar obtained the relief they were ultimately seeking, the Company voluntarily withdrew their motion. Interestingly, this is not the first time the FDA has released shipments after legal action has been taken against them. Rather, it is becoming more common to see the Agency release shipments after the legality of their detentions are challenged in court.

Last year, as lead counsel for Seagate, we successfully obtained the release of detained shipments by bringing suit and challenging the legality of the FDAs actions. Under circumstances similar to Amphastars situation, the FDA detained a series of shipments being imported into the country without alleging that the specific products were contaminated. After several unsuccessful communications with the FDA, the company attempting to import the products decided to pursue legal action. As Seagates lead counsel, we brought suit against the FDA, challenging the legality of the detention and seeking injunctive relief. Just weeks after the suit was filed, the Agency “voluntarily” released the detained shipments and removed the Import Alert that it placed on these products. For more details about this suit, the Complaint can be found here.

This pattern of detention and release upon being challenged in court is not new. As far back as 2007, while serving as lead counsel for Allied, we were able to secure the release of detained entries by bringing action against the FDA. Allied sought our help after several of its shrimp entries were detained upon arrival and the FDA refused to release the shipments. Despite receiving test results showing the shipments were not contaminated and were compliant with FDA standards, the Agency would not budge until formal action was brought to challenge their practices. However, after we brought suit to challenge the detention, the FDA quickly released the shipments. The Complaint can be accessed here. Because a trend has developed with the FDA releasing detained products as a response to being challenged in court, it appears that the Agency is more willing to cooperate with companies after formal action is taken against them.

For more information on FDA enforcement measures or import compliance, please contact us at contact@fidjlaw.com.

Freight Forwarder and Oil Service Companies Pay Huge Fines For Violating The Foreign Corrupt Practices Act

In another example of the recent enhancement in enforcement of the Foreign Corrupt Practices Act, (FCPA) a global freight forwarder and five oil and gas service companies resolved FCPA investigations conducted by the Department of Justice and the Securities and Exchange Commission by agreeing to pay $156,565,000 in criminal penalties and civil disgorgement, interest and penalties in the sum of $80,000,000.

A criminal information was filed on November 4 charging Panalpina World Transport (Holdings) Ltd., the global freight forwarding company based in Switzerland , (“Panalpina”)with conspiring to violate the anti-bribery provisions of the FCPA. In a deferred prosecution agreement and a plea agreement filed in federal court in the Southern District of Texas, Panalpina, and its U.S. subsidiary Panalpina, Inc., admitted that they engaged in a scheme to pay bribes to numerous foreign government officials on behalf of their many customers in the oil and gas industry. These bribes allowed them to circumvent local rules and customs regulations governing the importation of cargo into numerous foreign countries. Panalpina admitted paying bribes totaling $27,000,000 to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.

Panalpinas customers, Shell Nigeria Exploration and Production Company Ltd., Transocean Inc. and Tidewater Marine International, Inc. admitted in deferred prosecution agreements that they knew of and condoned the bribes paid on their behalf. These companies recorded the bribes as legitimate business expenses in their corporate books and records. These companies agreed to pay criminal fines in excess of $50,000,000 . Under the terms of the deferred prosecution agreements, Panalpina and its customers are required to cooperate fully with U.S. and foreign authorities in any ongoing investigations of the companies corrupt payments. Each company is also required to implement and adhere to a set of enhanced corporate compliance and reporting obligations.

In recent years, the Department of Justice has made FCPA prosecutions a priority, allocating substantial resources to a team of FBI agents and prosecutors dedicated solely to bringing FCPA cases against companies and their executives. Compliance with the FCPA, along with expanded due diligence, anti-bribery prevention programs and regular auditing of foreign payments are now essential for businesses with international operations and sales. As shown in this case, failure to abide by the FCPA can have catastrophic consequences and is at a companys (and its executives) peril.

Pharmaceutical Company Lawyer Indicted For Obstructing FDA Investigation Into Promotions of Unapproved Uses of Prescription Drug

An in-house counsel for a large pharmaceutical company was indicted for obstruction of justice and making false statements in relation to an FDA investigation into promotions of “off-label” uses of the companys prescription drugs. According to the indictment, the in-house counsel sent a series of letters to the FDA in response to FDA inquiries that falsely denied that the company had promoted the drug for “off-label” uses, even though the attorney knew that the company had sponsored numerous such promotions. The lawyer also knew that the company had paid physicians to give promotional talks that included information about unapproved uses of the drug. One physician had been paid to speak at more than 500 promotional events and another at 488 such events.

The indictment also alleges that the lawyer did not provide the FDA with certain slides used by the physicians in their presentations even though the FDA specifically requested them. With knowledge that the slide sets contained incriminating evidence, the lawyer wrote the FDA, and instead of producing the slide sets, informed FDA that the responses made to FDA were “final” and “complete”. According to the U.S. Attorney for the District of Massachusetts, “there is a difference between legal advocacy based on the facts and distorting the facts to cover up the truth. Federal agencies such as the FDA cannot protect the public health if the entities and individuals they regulate provide false information and conceal the true facts”.

Each of the obstruction of justice charges carry a maximum penalty of 20 years imprisonment upon conviction. Each of the false statement charges carry a maximum penalty of 5 years imprisonment. The pharmaceutical company for whom the lawyer worked was not charged with a crime and was not identified in the indictment.

Pinnacle Aircraft Parts, Inc. Reaches Settlement With OFAC For Violation Of Reporting, Procedures, And Penalties Regulations

On November 16, 2010, the Office of Foreign Assets Control (“OFAC”), of the U.S. Department of the Treasury announced that it reached a settlement with Pinnacle Aircraft Parts, Inc. (“Pinnacle”) for alleged violations of OFACs Reporting, Procedures, and Penalties Regulations (“RPPR”). The alleged violations stem from Pinnacles sale and delivery of a jet engine destined for Iran in February 2004. OFAC is a part of the U.S. Department of the Treasury and administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

OFAC alleged that Pinnacle violated the RPPR, found at 31 C.F.R. part 501, when it failed to provide documents in response to an administrative subpoena issued by OFAC as part of its investigation into Pinnacles jet engine sale. The administrative subpoena ordered Pinnacle to provide copies of all transactional documents and all other documents pertaining to the payment or transportation of the jet engine shipment. According to OFAC, while Pinnacle responded to the subpoena with 260 pages of documents, Pinnacles outside counsel failed to submit a copy of an e-mail that indicated that the engine was likely destined for Iran as well as other documents concerning the terms of sale.

Compounding the problem for Pinnacle was the fact that Pinnacle did not voluntarily self-disclose the error to OFAC. As a result of Pinnacles actions, Pinnacle faced a penalty of $250,000. However, this amount was reduced in the settlement agreement to $225,000. The settlement amount reflects OFACs consideration of several factors including that Pinnacle had no prior OFAC enforcement history, Pinnacle agreed to settle the matter, and that Pinnacle relied in good faith on the advice of legal counsel in not producing the e-mail and other documents. OFAC did note that while Pinnacle did rely on the advice of counsel, it remained the party that is legally responsible for compliance with OFAC regulations. As a result, the actions of Pinnacles counsel are attributable to Pinnacle for the purposes of calculating a base penalty and settlement amount.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Internal Revenue Service Office of the Chief Counsel Carves Out Narrow Exception for Properly Applied First Sale Rule in Customs Law

On October 29, 2010, the Office of the Chief Counsel of the Internal Revenue Service (IRS) issued Chief Counsel Advice (CCA) 2010-43-028, which discusses the effect of the First Sale Rule under customs law on Internal Revenue Code (IRC) § 1059A.

Under the Customs Modernization Act, it is the responsibility of the importer of record to enter, classify and value goods entering the United States and provide any other information necessary to enable U.S. Customs and Border Protection (CBP) to properly assess duties, collect statistics, and determine whether all legal requirements are met. Under U.S. law, the transaction value of imported merchandise is the primary or preferred method for determining the value of imported goods. Generally, the transaction value is the price actually paid or payable for merchandise when sold for exportation to the United States, plus certain statutorily enumerated additions.

Before merchandise reaches the United States, however, it may have been subject to a series of sales. For example, it may be sold by its manufacturer to a middleman (in the same or a different country), who in turn sells the merchandise to a U.S. importer. In the case of a series of sales, the importer may, under criteria prescribed by CBP, choose a sale that occurred earlier in the chain and use the price paid at that point, as long as the importer can establish that the earlier sale was a sale for exportation to the United States. The option to choose the earlier sales price as the transaction value is known as the “First Sale Rule.” The United States International Trade Commission has provided guidance to ensure proper use of the First Sale Rule in customs law.

In CCA 2010-43-028, the IRS Office of the Chief Counsel discussed how this alternative valuation is treated for purposes of Federal Income Tax.

Given the option afforded by the first sale rule, importers often choose the first sale value because it minimizes custom duties. Use of first sale rule generally results in a disparity between the custom valuation and the income tax valuation because the income tax valuation is based on a later more valuable sale.

As discussed in the CCA, the conflict in tax law is apparent in IRC § 1059A(a), which provides:

If any property is imported into the United States in a transaction (directly or indirectly) between related persons (within the meaning of section 482), the amount of any costs (1) which are taken into account in computing the basis or inventory cost of such property by the purchaser, and (2) which are also taken into account in computing the customs value of such property, shall not, for purposes of computing such basis or inventory cost for purposes of this chapter, be greater than the amount of such costs taken into account in computing such custom value.

>> To read the complete Chief Counsel Advice Memorandum, click here.

In addressing the conflict for taxpayers who choose to take advantage of the First Sale Rule, the Office of the Chief Counsel cited to Treas. Reg. § 1.1059A-1(c)(2). The cited regulation allows taxpayers to increase the customs value of imported property by certain amounts that are properly not included in customs value, but which are incurred by the taxpayer and properly included in the transfer price of the property for income tax purposes.

Thus, the IRS Office of the Chief Counsel concluded that “an adjustment under section 1059A with respect to a value differential that results solely from an importers correct application of the first sale rule and subsequent real value added under Treas. Reg. § 1.1059A-1(c)(2) is not proper.”

Note, however, that the Office of the Chief Counsel limited its conclusion to only those situations where the taxpayer both correctly applied the first sale rule and subsequent real value was added. Thus, all other adjustments under § 1059A may nonetheless be appropriate.

Treas. Reg. § 1.159A-1(c)-7 stresses the independence of IRC § 1059A from IRC § 482. As discussed in the regulation, IRC § 1059A “in no way limits the authority of the Commissioner to adjust the taxpayers transfer price under IRC § 482 or other provision of the law. Consequently, where the basis or inventory value is determined under the arm’s-length standard of IRC § 482 as an amount less than the customs value, the taxpayer cannot adjust the basis or inventory value upward to equal such customs value by virtue of IRC § 1059A.

Not surprisingly, IRS Chief of Appeals Diane Ryan implied that the Commissioners discretion to adjust transfer price under IRC § 482 is frequently exercised. While speaking at the fall meeting of the American Institute of Certified Public Accountants Tax Division, she indicated that transfer pricing cases were “the largest deficiency cases in appeals.” Due to the increasing number of transfer pricing and other complex cases involving international issues, IRS Appeals now has a standalone unit for this area.

If you have any questions regarding correct application of the First Sale Rule, IRC § 1059A, or any other transfer pricing issues or regulations, please contact Fuerst Ittleman at contact@fidjlaw.com.