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In an apparent effort to combat prescription drug shortages and price spikes, the US Department of Health and Human Services (HHS) recently announced the forthcoming termination of FDA’s Unapproved Drugs Initiative (UDI). This announcement essentially walks back FDA’s enforcement approach regarding “marketed unapproved drugs,” allowing them to continue to be sold consistent with the 2006 FDA policy, and may cause objections from those companies that spent millions of dollars in scientific resources and application user fees to obtain New Drug Application (NDA) approval for these drugs over the last 14 years.

FDA’s UDI program, originally issued through guidance documents in 2006 and 2011, clarified its enforcement approach and intended to reduce the number of pre-1938 and pre-1962 drugs on the market. Due to claims of “grandfather” or other regulatory status (e.g., Drug Efficacy Study Implementation (DESI)), these drugs were marketed even though they lacked FDA-approved NDAs or Abbreviated New Drug Applications (ANDAs).

Broadly speaking, for products marketed on or prior to September 19, 2011, FDA applied a risk-based enforcement approach, while unapproved drugs marketed after September 19, 2011, have been subject to immediate enforcement action—a cutoff date that gave rise to complaints that FDA was allowing ongoing monopolies for older drugs. Additionally, the 2011 guidance document in particular observed that “the first company to obtain an approval” of a previously unapproved drug “will have a period of de facto market exclusivity before other products obtain approval.”

However, HHS, in its November 25, 2020 notice in the Federal Register, stated that, despite FDA’s original “laudable objective,” the UDI program led to adverse consequences, such as providing drug manufacturers with “an opportunity to raise prices in an environment largely insulated from market competition.” Several of these cases have been covered extensively by the press. HHS found that this artificial monopoly was linked to drug shortages and price increases. Furthermore, HHS noted “serious concerns” that the original UDI program was not issued “pursuant to legally appropriate procedures” that should have involved formal notice-and-comment rulemaking. This lack of public process has been a topic raised by the Trump administration in many other contexts.

Although the incoming Biden administration may ultimately decide to reinstitute the UDI program, for now, the prior enforcement program on marketed unapproved drugs is set to expire December 25, 2020, which is 30 days after the Federal Register notice, at which point the heightened enforcement against unapproved drugs will end. However, even if drugs that are found to be less than effective under FDA’s DESI standards or have yet to complete a DESI review are not subject to enforcement actions, they may be excluded from coverage by Medicare and Medicaid and by private health plans that follow federal plan coverage standards.