LawFlash

CARES Act Provisions Impact Drug, Device, and Food Manufacturers and Suppliers

March 31, 2020

The $2 trillion economic stimulus package laid out in the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes $11 billion in appropriations for vaccines, therapeutics, and other medical needs, and $34.9 billion supporting agriculture, rural development, the US Food and Drug Administration, and related industries. This LawFlash addresses the act’s drug, device, and food product provisions, and outlines the impact of those provisions on manufacturers and other affected parties.

PROVISIONS IMPACTING THE PHARMACEUTICAL INDUSTRY

Addressing Supply Chain Security (Section 3001): This section requires the secretary of the US Department of Health and Human Services (HHS) and the National Academies of Sciences (NAS) to enter into an agreement within 60 days for NAS to assess the security of the US medical supply chain regarding

  • reliance on foreign suppliers for critical drugs,
  • any national or public health security impact of such reliance,
  • supply chain information gaps, and
  • potential economic impacts associated with greater domestic manufacturing of critical supplies.

NAS, with input from a variety of public and private stakeholders, is also required to make recommendations to address the above gaps to improve the national drug supply chain’s resiliency and to address potential supply vulnerabilities or disruptions, including ways to

  • promote supply chain redundancy and contingency planning,
  • promote domestic manufacturing of critical supplies,
  • improve supply chain information gaps and planning for public health emergencies, and
  • promote access to critical drugs.

Drug Shortage Application Prioritization (Section 3111): This amends section 506C of the Federal Food, Drug, and Cosmetic Act (FFDCA) and requires the US Food and Drug Administration (FDA), as appropriate, to prioritize and expedite Abbreviated New Drug Applications (ANDAs), and New Drug Application (NDA) and ANDA supplements, as well as inspections of manufacturing facilities, that may prevent or mitigate a drug shortage with respect to drug products in short supply.

Drug Shortage Reporting (Section 3112): This section also amends FFDCA section 506C, regarding notices of manufacturing discontinuation or disruption for critical drugs, i.e., those that are life-supporting, life-sustaining, or intended for use in the prevention or treatment of a debilitating disease or conditions, including those used in emergency medical care or surgery.  Specifically:

  • It requires notifications for drugs that are critical to public health during a public health emergency and Active Pharmaceutical Ingredients (APIs) that could lead to meaningful disruption in the supply chain.
  • Notifications must include additional information on the following:
  • The reason for the discontinuance or interruption
  • If API is a reason or risk factor, the source of the API and alternative sources
  • Whether any associated devices for the preparation or administration of the product is a reason for or risk in the disruption
  • The expected duration of the disruption
  • Manufacturers of critical drugs, API, and associated medical devices used for drug preparation or administration, must also now have risk management plans for supply redundancies. These plans will be subject to FDA inspection.
  • FDA will also send a copy of inspection reports for manufacturers of critical drugs that have been subject to shortages in the last five years and for generic drugs with limited competition to the FDA drug shortage team.
  • Drug manufacturers will now be required to include with all drug listing submissions the volume of drugs produced in the prior year. This information will also be required if requested by FDA following the declaration of a public health emergency. As this information is likely confidential and trade secret, it will be held by FDA as confidential.

Potential Impacts on the Pharmaceutical Industry. The above provisions could have a significant impact on manufacturers of critical drugs:

  • The NAS study will identify critical drugs and domestic manufacturing and supply chain gaps for a number of drugs deemed necessary to address public health emergencies and bioterrorism attacks. If a manufacturer’s product falls into this category, the supply chain for the product, including the source of the API, will likely come under intense federal scrutiny.
  • Companies that produce those products, which rely heavily on foreign supply chains for all or part of the products, should begin identifying and planning for alternative sources of API, product, and potentially other components (delivery components and systems such as patches, syringes, inhalers, and other).
  • Alternative suppliers will need to be qualified, and NDAs and ANDAs amended through supplements to add them. There will be a race to find alternative US suppliers, and some US drug manufacturers will find themselves at the back of the queue. 
  • The new drug shortage notice requirements will enhance FDA scrutiny of a specific drug’s supply chain. The expanded information required in the shortage notices, including highly confidential alternative supplier information, may create new dynamics in the negotiation of supply contracts. 
  • In order to respond to increased drug shortage scrutiny, manufacturers should consider developing electronic systems to identify and understand potential shortage conditions.
  • The new requirement for risk management redundancy plans in place for supply chain disruptions and the sharing of that information with FDA through inspections will require the implementation of new quality and regulatory processes within drug companies.
  • The provisions may also encourage shifting of at least part of the supply chain for these products to the United States. Current manufacturers of drugs, API, and components will have opportunities to expand facilities and/or shift certain lines to manufacture the critical drug and component products. The impact on the cost of product from this shift to a domestic supply chain may be significant.
  • The requirement for NAS to identify ways to improve access to certain critical drugs is currently vague and could result in recommendations for new delivery systems or increases in direct-to-consumer or at-home use for certain therapeutic treatments. New product access approaches including novel uses of pharmacies and retailers, telemedicine, and related systems could require significant changes to the labeling of these products, significantly expand markets for them, and affect the coverage and pricing of the products.

NEW OTC DRUG REVIEW PROCESS FOR MARKET ENTRY—NEW ADMINISTRATIVE ORDER PROCESS TO REPLACE OTC DRUG MONOGRAPH PROCESS

OTC Drug Review Process (Sections 3851-3853): These sections amend the FFDCA to remove the current rulemaking procedures for over-the-counter (OTC) drugs, and instead institute an Administrative Order process. The new provisions will not apply to homeopathic drugs, a category of drugs that were excluded from the original OTC drug review. 

  • The new law automatically classifies any Category I ingredient in a final monograph or tentative final monograph (TFM) as generally recognized as safe and effective (GRASE) and eligible for continued OTC marketing under the Administrative Order process.  Category III ingredients presently subject to a TFM, and Category I ingredients subject to an advanced notice of proposed rulemaking (ANPRM), can continue to be marketed without an approved NDA, unless otherwise directed by an Administrative Order. Category II and other OTC ingredients that have been determined as not GRASE are required to file NDAs to be marketed and must leave the market within 180 days, unless the time period is extended by HHS/FDA.
  • Notably, except in the case of a “minor change” or as permitted under an Administrative Order, Category I and III ingredients can be marketed only in a dosage form that has been used to a material extent and for a material time immediately prior to the CARES Act enactment. A “minor change” to a dosage form is allowable where it does not change the safety, effectiveness, or material absorption of, or exposure to, the ingredient.
  • The new process permits FDA to—on its initiative or at drug developer’s request—make GRASE decision for OTC drugs, including safety labeling changes and packaging requirements, using the existing GRASE standard, and provides for a public comment period, appeals process, formal hearing upon request, and judicial review. Presently existing final monographs and TFMs will be deemed to be final Administrative Orders, as will the current regulation on disallowed OTC ingredients (21 CFR § 310.545). For sunscreen products, the Administrative Order shall implement the existing monograph conditions at 21 CFR part 352 and 21 CFR 201.327. Further details on how the new process will work shall be developed via FDA guidance documents.
  • New 18-month market exclusivity will be awarded for either an active ingredient not previously included in a monograph or Administrative Order, or a new condition for use, so long as new human studies were conducted that were essential to the issuance of a final Administrative Order. FDA will decide which studies qualify for exclusivity, and if the process is similar to the current process for NDA products, the decision will not be made until after the study has been completed and the Administrative Order for the product issued. The exclusivity period will begin when the requestor markets the drug in compliance with the order (and with notice given to FDA if market launch cannot occur within one year). In most cases, FDA will treat the human studies as confidential and not for public disclosure. This new exclusivity process will be evaluated by the US Government Accountability Office (GAO) within four years, including the impact on FDA resources, consumer access, OTC drug prices, and sunscreens, among other things.
  • Nonprescription drugs will be deemed to be misbranded if they do not comply with the above-described Administrative Order process, or if they were manufactured in a facility that did not pay user fees (described below).

OTC Drug User Fees (Sections 3861-3862): These sections authorize FDA to collect user fees from the OTC drug industry to fund its monograph modernization activities. The user fee assessment will begin for Fiscal Year 2021 (Oct. 1, 2020), to be paid on July 1, 2020 (unless extended by a Federal Register notice).

  • Two types of manufacturing facility fees will be assessed annually: 
  • OTC monograph drug facility – Each foreign or domestic facility engaged in manufacturing or processing the finished dosage form of an OTC monograph drug will pay a “full” facility fee.
  • Contract manufacturing organization facility – Each foreign or domestic facility, where neither the owner nor any affiliate sells the finished OTC drug produced at the facility directly to US wholesalers, retailers, or consumers, will pay two-thirds of a facility fee. 
  • FDA will establish the fees to be paid by each category of manufacturer by May 11, 2020, and the fees will be based on a total facility fee revenue amount of approximately $8 million plus certain economic adjustments. The OTC drug manufacturing facilities that are subject to these fees shall be identified as part of each facility’s drug establishment registration requirement.
  • Two types of Administrative Order requests will also be assessed, due at the time of submission of the request: 
  • A Tier 2 request has a $100,000 fee and involves a request for information/wording changes to the Drug Facts Label of an OTC drug. 
  • A Tier 1 request involves all other changes, including for new ingredients, new dosage forms, and Rx-to-OTC switches, and triggers a $500,000 fee (to be adjusted for inflation in future years). 
  • Non-payment of these user fees subjects the manufacturer or requestor to several potential penalties, such as inclusion on a public “arrears” list, drugs being deemed misbranded, order requests being refused, and ineligibility for meetings with FDA. The user fees have to be reauthorized by Congress after Fiscal Year 2025.

Separate Treatment of Sunscreen Products (Section 3854): This section provides that sponsors of sunscreen ingredients that are subject to a proposed sunscreen order may transition into the Administrative Order process upon written request made within 180 days of the enactment of the CARES Act. Without such request, the sunscreen ingredients shall continue to be governed by existing section 586C of the FFDCA, but that section will sunset at the end of Fiscal Year 2022. Final sunscreen orders shall be deemed to be final Administrative Orders under new section 505G.

  • FDA shall revise and amend the existing final monograph for sunscreen products as a proposed Administrative Order within 18 months of the passage of the CARES Act, and after finalization, shall provide at least one year before the order becomes effective. If FDA proposes to omit any presently available SPF levels or dosage forms, FDA shall submit a report to Congress with its rationale and a plan and timeline to address them. 
  • Sunscreen products are subject to both the user fees and the 18-month exclusivity provisions.

Treatment of Pediatric Cough-Cold Products (Section 3855): This section requires that the secretary of HHS shall, within one year, submit a report to Congress evaluating FDA’s progress on the cough and cold monograph as it applies to products for children under age 6 (which is presently published at 21 CFR part 341).

Impact on OTC Drug Industry. The impact on the OTC drug industry could include the following, among other effects:

  • The new review process for OTC drugs may speed the introduction of new OTC drugs to market but will likely result in FDA imposing more stringent testing requirements to demonstrate the safety and efficacy of these drugs for self-administration before issuing an Administrative Order.
  • The new user fees will be a challenge for some companies and may cause some short-term disruption and pricing adjustments in the contract manufacturing and supply chain for OTC products.
  • The ability to obtain 18-month marketing exclusivity for OTC drugs may spur innovation, the willingness to conduct clinical studies, and provide incentives to switch some NDA drugs to the OTC market through the Administrative Orders, but will depend in large part on how generous FDA is in granting exclusivity to “essential studies” and in making timely decisions.

PROVISIONS IMPACTING THE MEDICAL DEVICE INDUSTRY

Scrutiny of the Device Supply Chain (Section 3101): This section requires the Department of Health and Human Services (HHS) to engage the NAS to examine and report on “the security of the United States medical supply chain,” including an evaluation of the dependence of the US market (including private commercial industry and state and federal governments) on critical devices and drugs sourced or manufactured abroad and any public health or national security risks associated with such dependence. The National Academies are also tasked with providing recommendations to improve critical device/drug supply chain resiliency, which may include, among other things, promoting supply chain redundancy or domestic manufacturing.

Expansion of National Stockpiling (Section 3102): This expands the stockpiling provisions under the Public Health Service Act to explicitly include “personal protective equipment, ancillary medical supplies, and other applicable supplies required for the administration of drugs, vaccines, and other biological products, medical devices, and diagnostic tests.”

Expansion of Covered Countermeasures (Section 3101): This section amends the Public Health Service Act to expand the definition of “covered countermeasures” to include respiratory protective devices approved by the National Institute for Occupational Safety and Health (NIOSH), when HHS determines priority for use in a public health emergency. This allows industrial NIOSH-approved masks to be deemed covered countermeasures. As a practical matter, HHS and FDA already have the ability to authorize such masks for covered countermeasure use, as evidenced by an emergency use authorization letter issued by FDA on March 2, 2020 for use of NIOSH-approved masks (described in our prior LawFlash).

Medical Device Shortages (Section 3121): This adds new provisions to the FFDCA, which impose new reporting requirements for manufacturers of devices critical to the public health during a public health emergency or for which HHS determines that information on potential meaningful disruption is needed during, or in advance of, a public health emergency. Specifically, manufacturers of such devices will be required to report during, or in advance of, an HHS declared public health emergency: (1) A permanent discontinuance of device manufacturing, and (2) any interruption in device manufacturing that is likely to lead to a meaningful disruption in supply for the United States.

Reports must be submitted at least six months in advance of the discontinuance or disruption, or as soon as practicable if six months advance notice is not possible. HHS is required to make such information publicly available and shall publish a list of device shortages, unless HHS determines that disclosure would adversely affect the public health (e.g., by increasing unnecessary purchasing or hoarding). The new provisions also provide FDA with authority to prioritize premarket submission reviews and inspections to help mitigate shortages and supply disruptions.

PROVISIONS IMPACTING ANIMAL DRUG INDUSTRY

Creation of Expedited Drug Approval Program for Zoonotic Diseases (Section 3302): This section creates a new fast track program for the designation, development, and review of applications for approval and conditional approval of new animal drugs where preliminary clinical data shows the drug’s potential to prevent or treat animal zoonotic diseases, including vector–borne diseases, that may cause serious health consequences, or serious or life-threatening diseases, in humans. The products would be Priority Zoonotic Animal Drugs. FDA must act within 60 days of the designation submission and take actions to expedite the development and review of an application. Such FDA actions may include

  • steps to ensure an efficient clinical trial design, such as novel trial designs or drug development tools to reduce the number of animals needed for studies;
  • prompt communications with the sponsor to assure the development program is as efficient as practicable;
  • involvement of senior-level FDA staff with experience in zoonotic or vector-borne disease, to facilitate a collaborative and cross-disciplinary review, or
  • other steps to facilitate an efficient review and development program.

Potential Impact of Animal Drug Industry Provisions. This legislation presents significant opportunities for the animal drug research and development industry and may create an incentive for greater investment in the United States in these kinds of products. However, it is unclear how quickly this program can be ramped up by FDA. It will need to

  • develop and notify stakeholders of the criteria required for designation as a Priority Zoonotic Animal Drug,
  • reach out across the agency to identify and assign staff with the necessary expertise to make the designation decisions, and
  • communicate and advise sponsors on drug development and expedite the review of any such drug applications.

The legislation does not address whether there will be any relief on animal drug user fees. The FFDCA authorizes certain fee waivers and reductions, for example, where fees present a significant barrier to innovation, or the animal drug is intended solely for a minor use for a minor species.

APPROPRIATIONS FOR PHARMACEUTICAL AND MEDICAL DEVICE RELATED ACTIVITIES

$11 Billion for Vaccines, Therapeutics, Diagnostics, and Other Medical Needs. The Senate Appropriations bill provides $11 billion for vaccines, therapeutics, diagnostics, and other medical needs including funding to support the development of necessary medical countermeasures and vaccines, advance domestic manufacturing for medical products, and monitor medical product supply chains.

A number of agencies including HHS, FDA, the US Centers for Disease Control and Prevention (CDC), the National Institues of Health (NIH), and other related government entities are receiving the bulk of this money. How the money will be allocated to agency development versus industry development efforts is unclear, but it will provide a significant boost to research and development and domestic manufacturing of vaccines and other preventative treatments, treatment therapies for COVID-19-related illnesses, and diagnostic testing.

PROVISIONS IMPACTING THE FOOD INDUSTRY

Nutrition Services (Section 3222): This section anticipates an increased demand in nutritional services needed for older Americans, particularly those practicing social distancing during the COVID-19 public health emergency.

Currently, the Older Americans Act (OAA) Nutrition Programs, overseen by the HHS Administration for Community Living (Administration on Aging), provides grants to states to help support nutrition services for older individuals throughout the country either in group settings or in the home. Recently, under the Families First Coronavirus Response Act, Congress allocated additional funding for this program. Now, under the CARES Act, state agencies will have more flexibility in the use of these funds in order to meet the needs of the state during the COVID-19 public health emergency. For example:

  • States can transfer funds (without prior approval and up to 100% of funds) between congregate nutrition services or home-delivered nutrition services, as it considers appropriate, to meet the needs of the state or area served.
  • The CARES Act also specifies that those individuals who are unable to obtain nutrition because they are practicing social distancing shall be treated the same as those who are homebound due to illness for purposes of access to home-delivered nutrition services. 
  • The CARES Act allows waiving requirements that meals provided to older Americans comply with the most recent Dietary Guidelines for Americans and minimum dietary reference intakes depending on the number of meals delivered per day. Should the COVID-19 public health emergency continue to escalate, these waivers favor ensuring older Americans have some type of food to eat over nutritional quality.

$34.9 Billion for Agriculture, Rural Development, FDA, and Related Agencies. The CARES Act includes an emergency supplemental appropriations package. Some of the main appropriations related to food include the following:

  • $15.51 billion in additional funding for the supplemental nutrition assistance program (SNAP), and an additional $200 million for US territories that cannot access SNAP (e.g., Northern Marina Islands, Puerto Rico, and American Samoa)
  • $14 billion to replenish the Commodity Credit Corporation (CCC) borrowing authority
  • $9.5 billion in emergency COVID-19 response funding to support agriculture producers impacted by COVID-19, including producers of specialty crops, producers that supply local food systems, and livestock producers
  • $8.8 billion in additional funding for food purchases to increase flexibility for schools
  • $450 million in additional funding for distribution of emergency food assistance through community partners, including food banks
  • $400 million for grants available to firefighters, emergency managers, and providers of emergency food and shelter
  • $100 million in funding for food distribution on American Indian Reservations
  • $33 million to support staffing and overtime expenses for Food Safety Inspection Service (FSIS) inspectors at federally inspected slaughter facilities

A full summary of the emergency supplemental appropriations package is available on the US Senate Appropriations Committee website.

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CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Kathleen Sanzo
Robert Hibbert
Jacqueline Berman
Michele Buenafe
Rebecca Dandeker
Dennis Gucciardo