The CREATE Act of 2016: Senate Listens to Generics Industry

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Last week, co-sponsors Senators Leahy (D-VT), Grassley (R-IA), Klobucher (D-MN), and Lee (R-UT) introduced a bill (S. 3056), entitled the "Creating and Restoring Equal Access to Equivalent Samples Act of 2016" or the "CREATES Act of 2016".  According to Senator Grassley:

[C]oncerns have been raised that some brand-name companies are misusing an FDA program, known as the Risk Evaluation and Mitigation Strategy, to thwart that process by preventing the sale of samples of their product and refusing to allow generic competitors to participate in their Risk Evaluation and Mitigation Strategy protocol.  These tactics result in blocking generic drug approval and keeping drug prices high for consumers.  The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act addresses this anticompetitive behavior by giving generic companies an opportunity to obtain relief in a timely fashion rather than through lengthy antitrust litigation.

The bill was referred to the Judiciary Committee, a sub-committee of which has already held a hearing on the subject matter the bill was introduced to address.

After an introductory section, the bill provides in Section 2 "Findings."  In addition to encomiums to the effectiveness of the Drug Price Competition and Patent Term Restoration Act of 1984 (Public Law 98-417; 98 Stat. 1585) and the Biologics Price Competition and Innovation Act of 2009 (Subtitle A of title VII of Public Law 111-148; 124 Stat. 804), the bill asserts that "developers of generic drugs and biosimilar biological products [] must be able to obtain quantities of the reference listed drug or biological product with which the generic drug or biosimilar biological product is intended to compete [] for purposes of supporting an application for approval by the Food and Drug Administration."  Moreover, the Findings state that, for those drugs subject to a "risk evaluation and mitigation strategy" or REMS, or a REMS with elements to assure safe use ("REMS with ETASU"), the FDA requires the branded/innovator and the generic/biosimilar to have "a single, shared system of elements [pursuant to (21 U.S.C. 355-1)] to assure safe use and supporting agreements, or secure a variance therefrom"

The problem, according to the bill's cosponsors, is that "certain license holders (i.e., branded drug and biologics companies) are preventing generic product developers from obtaining quantities of the covered product necessary for the generic product developer to support an application for approval by the Food and Drug Administration, including testing to show bioequivalence, biosimilarity, or interchangeability to the covered product, in some instances based on the justification that the covered product is subject to a risk evaluation and mitigation strategy with elements to assure safe use."  And, according to the Director of the Center for Drug Evaluation and Research (CDER) at FDA, "some manufacturers of covered products have used REMS and distribution restrictions adopted by the manufacturer on their own behalf as reasons to not sell quantities of a covered product to generic product developers, causing barriers and delays in getting generic products on the market."  The FTC has voiced similar concerns, and the Findings also allege that "certain license holders are impeding the prompt negotiation and development on commercially reasonable terms of a single, shared system of elements to assure safe use, which may be necessary for the generic product developer to gain approval for its drug or licensing for its biological product."  While the antitrust laws provide one avenue for addressing this problem (insofar as it exists; the bill contains allegations but no examples of specific anticompetitive behavior), the bill contains the statement that it would be better to have "a more tailored legal pathway" which this bill is intended to provide.  (In this regard, the drafters have included a provision later in the text of the bill that the causes of action and remedies provided by the bill are not intended to foreclose access to such antitrust remedies under appropriate circumstances (Sec. 3(d)(2)).

Section 3 of the bill, entitled "ACTIONS FOR DELAYS OF GENERIC DRUGS AND BIOSIMILAR BIOLOGICAL PRODUCTS," is directed to "covered products" (defined as "any drug approved under subsection (b) or (j) of section 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) or biological product licensed under subsection (a) or (k) of section 351 of the Public Health Service Act (42 U.S.C. 262)") or combination thereof, or device or drug marketed for use thereof.  The bill expressly excludes from its ambit any drug or biological product "that the Secretary has determined to be currently in shortage and that appears on the drug shortage list in effect under [] 21 U.S.C. 356e" provided that the shortage has not been in effect for more than 6 months.  The bill then sets forth a new cause of action ("Civil Action") under Sec. 3(b)(1)(A):

An eligible product developer [a generic drugmaker or biosimilar applicant] may bring a civil action against the license holder for a covered product [i.e., the generic or biosimilar drug] seeking relief under this paragraph in an appropriate district court of the United States alleging that the license holder has declined to provide sufficient quantities of the covered product to the eligible product developer on commercially reasonable, market-based terms.

The elements to be proven, by a preponderance of the evidence (Sec. 3(b)(1)(B)), are:

"(I) that --
    (aa) the covered product is not subject to a REMS with ETASU; or
    (bb) if the covered product is subject to a REMS with ETASU--
        (AA) the eligible product developer has obtained a covered product authorization from the Secretary in accordance with clause (ii); and
        (BB) the eligible product developer has provided a copy of the covered product authorization to the license holder;
(II) that, as of the date on which the civil action is filed, the product developer has not obtained sufficient quantities of the covered product on commercially reasonable, market-based terms;
(III) that the eligible product developer has requested to purchase sufficient quantities of the covered product from the license holder; and
(IV) that the license holder has not delivered to the eligible product developer sufficient quantities of the covered product on commercially reasonable, market-based terms--
    (aa) for a covered product that is not subject to a REMS with ETASU, by the date that is 31 days after the date on which the license holder received the request for the covered product; and
    (bb) for a covered product that is subject to a REMS with ETASU, by 31 days after the later of--
        (AA) the date on which the license holder received the request for the covered product; or
        (BB) the date on which the license holder received a copy of the covered product authorization issued by the Secretary in accordance with clause (ii).

The bill also permits an eligible product developer to submit a written request (Sec. 3(b)(1)(B)(ii)(I)) to the Secretary of Health and Human Services to obtain sufficient quantities of a covered product, which request shall be granted by the Secretary "not later than 90 days after the request [] is received for a product subject to a REMS with ETASU."  The sample of covered product will be sufficient to perform testing with or without human clinical trials as necessary.  The license holder (NDA or BLA) will be absolved of any violation of the REMS for the covered products if the product is supplied under the Secretary's authorization.  (Sec. 3(b)(1)(B)(ii)(III)).

The bill also contains, as an affirmative defense (Sec. 3(b)(1)(C)) to the cause of action created by the Act, provisions that absolve the NDA or BLA holder from liability where neither the license holder or any of its "agents, wholesalers, or distributors was engaged in the manufacturing or commercial marketing of the covered product; and that none of the license holder or any of its "agents, wholesalers, or distributors otherwise had access to inventory of the covered product to supply to the eligible product developer on commercially reasonable, market-based terms.''  Alternatively, it will be an affirmative defense if the license holder or its "agents, distributors, or wholesalers" sells the product, without restrictions "explicit or implicit" against selling to an eligible product developer and an eligible product developer could purchase the covered product "in sufficient quantities on commercially reasonable, market-based terms from the agents, distributors, or wholesalers of the license holder."

The bill also contains (Sec. 3(b)(1)(D)(i)) the following remedies for the eligible product developer:  an order from the Secretary that the license holder must provide the eligible product developer with "sufficient quantities of the covered product on commercially reasonable, market-based terms" without delay; an award of attorneys' fees and costs; and a monetary award "sufficient to deter the license holder from failing to provide other eligible product developers with sufficient quantities of a covered product on commercially reasonable, market-based terms," provided that the license holder either delayed in providing the covered product "without a legitimate business justification" or the license holder failed to comply with an order by the Secretary under the statute.  The amount of the monetary award is capped (Sec. 3(b)(1)(D)(ii)) at the revenue the license holder earned on the covered product (in its entirety) during a period beginning 31 days after the date the license holder received the request for the product or, for a product covered by a REMS with ETASU, 31 days after the later of when the license holder received the request or the Secretary's authorization order.  The statutory term for calculating the maximum extent of the monetary award ends on the date the license holder provides the sufficient amount of the covered product.  Thus, the bill provides incentives for the license holder to provide the sufficient quantities either upon request by the eligible product developer or as soon thereafter as possible.

The bill also has provisions (Sec. 3(b)(2) et seq.) relating to failure of the license holder and the eligible product developer to reach agreement on "a single, shared system of elements to assure safe use with respect to the covered product" or where the license holder has refused to permit the eligible product developer to "join a previously approved system of elements to assure safe use with respect to that product."  In order to prevail the eligible product developer must show that she has sought approval of a drug under Section 505(b)(2) or (j) or Section 351(k) referencing a covered product subject to a "REMS with ETASU that requires a single, shared system of elements to assure safe use with respect to the covered product"; that at least 120 days have elapsed from the date on which the eligible product developer "first initiated an attempt to reach an agreement with the license holder that would allow the product developer to participate in a single, shared system of elements to assure safe use"; and the license holder and eligible product developer have not reached agreement.  Recovery is also dependent on the Secretary not waiving the requirement that the covered product be part of "a single, shared system."  As in other parts of the statute, the remedy is an order from the Secretary to the license holder to "enter into a single, shared system of elements to assure safe use with the eligible product developer on commercially reasonable terms" or that the eligible product developer "join a previously approved system of elements to assure safe use with respect to the covered product on commercially reasonable terms."  Recovery is also allowed if the Secretary waives the requirement.  The remedy contained in the bill (Sec. 3(b)(2)(C)) includes attorneys' fees and costs, as well as a monetary amount "sufficient to deter the license holder from failing to reach agreements that would allow other eligible product developers to participate in a single, shared system of elements to assure safe use on commercially reasonable terms."  These remedies are available only upon a showing by the eligible product developer, by a preponderance of the evidence, that the license holder, not having any legitimate business justification, delayed entry of the eligible product developer into the "single, shared system of elements to assure safe use with respect to the covered product," or delayed securing a waiver from the Secretary, or failed to comply with the Secretary's order pursuant to the provisions of the bill.  This portion of the bill (Sec. 3(b)(2)(C)(ii)) also contains maximums the eligible product developer can be awarded, which comprise no more than entirety of the revenue the license holder makes on the product from a time that is 121 days "after the date on which the product developer first initiated an attempt to reach an agreement with the license holder that would allow the product developer to participate in a single, shared system of elements to assure safe use with respect to the covered product" and ending on the date "on which the eligible product developer and license holder reached an agreement that would allow the product developer to participate in a single, shared system of elements to assure safe use with respect to the covered product."  The final provisions of the bill (Sec. 3(c)) include a limitation on liability for the license holder, wherein "[a] license holder shall not be liable for any claim 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 described in this section, including transportation, handling, use, or disposal of the covered product by the eligible product developer."

Again according to Senator Grassley, the bill is supported by "consumer groups, generic drug manufacturers, antitrust experts, physicians, pharmacists, hospitals, insurers and other groups that advocate for lower-cost drugs, including:  the Generic Pharmaceutical Association, AARP, the National Coalition on Healthcare, Consumers Union, Families USA, the Center on Medicare Advocacy, Public Citizen, the American College of Physicians, the American Hospital Association, the Healthcare Supply Chain Association, the National Association of Chain Drug Stores, the Pharmaceutical Care Management Association, Express Scripts, Blue Cross Blue Shield Association, the Premier Healthcare Alliance, the AFL-CIO, the American Federation of Teachers, the Public Sector Healthcare Roundtable and the UAW Retiree Medical Benefits Trust.  With the exception of the GPhA these are all patient, consumer, or physicians' groups, all of which have a personal, economic and vested interest in getting generic or biosimilar drugs to market, without necessarily being overly concerned with the realities of producing any of these drugs to market (much less the commercial considerations involved).  The Senators are doing what our system expects them to do, listen to their constituents.  And while it is not impossible that sometimes it may look like branded and biologics companies are being obstructionist against their generic or biosimilar counterparts it is not always so, and Congress has the responsibility to ensure the litigation and sanctions envisioned by the statute are necessary to solve any unnecessary delay that may occur (and are not excused by the express provisions of the bill.  In view of the impending summer recess, followed by the Presidential and Congressional elections, it is unlikely that this bill will make it to the President's desk before November.  But it is certainly a bellwether for what we can expect from the 115th Congress when it convenes early next year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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