Generic Drugs, Federal Preemption, and FDA Rulemaking

Praedicat’s new modeling capabilities in the pharmaceutical space present both opportunities for modeling and challenges arising in the ever-changing landscape of federal pharmaceutical law and regulation.  To illustrate how we approach such challenges, I will go through our approach to modeling the liability that could attach to the manufacturer of a generic drug when a plaintiff claims that the manufacturer failed to warn of the drug’s potential side effects.

Praedicat’s liability catastrophe model is composed of several sub-models, each intended to address a particular facet of the legal risk.  For example, there are different legal issues for innovator (brand name) drugs versus generic drugs.  We call this factor “innovator liability/generics protection”.  How, though, did this factor come about?  What legal principles does this represent?  How is it modeled?  What if the settled law changes?  I will answer all these questions, starting with some background.

In 2011, the United States Supreme Court delivered its opinion in PLIVA, Inc. v. Mensing holding that, for a number of reasons, and only for generic drugs, federal law preempts state level failure-to-warn claims — i.e., lawsuits claiming that injury was caused by a drug manufacturer because it did not warn the prescribing physician of the relevant risk.  Generic drug manufacturers jumped with joy for this ruling, as it provided nearly complete protection from failure-to-warn claims, the most frequent source of mass litigation against drug makers.  The crux of the opinion holds that federal law and regulation expressly prevent the manufacturer of a generic drug from independently making a label change to strengthen a warning.  Therefore, as Justice Thomas’s 5 to 4 majority opinion explains, it is impossible for a generic drug company to comply with state laws that require stronger warnings while also obeying federal laws regarding labeling.  This is referred to as impossibility preemption.  The Court previously held, in Wyeth v. Levine, that impossibility preemption does not apply to brand name manufacturers because a brand name manufacturer does indeed have the ability to make independent changes to its drug label, and therefore the manufacturer cannot argue that state law failure-to-warn claims against it are preempted by federal law and regulation.

At the heart of both of these cases is the FDA’s changes being effected (CBE) rule.  The rule (21 CFR §314.70(c)(6)(iii)) allows a drug maker to make certain changes to the label on its own, without prior FDA approval, “to reflect newly acquired information” in any of five categories:

• To add or strengthen a contraindication, warning, precaution, or adverse reaction for which the evidence of a causal association satisfies the standard for inclusion in the labeling under §201.57(c) of this chapter;
• To add or strengthen a statement about drug abuse, dependence, psychological effect, or overdosage;
• To add or strengthen an instruction about dosage and administration that is intended to increase the safe use of the drug product;
• To delete false, misleading, or unsupported indications for use or claims for effectiveness; or
• Any labeling change normally requiring a supplement submission and approval prior to distribution of the drug product that FDA specifically requests be submitted under this provision.

The catch is that the CBE rule, as understood by the FDA, only applies to the holder of an approved New Drug Application — and not the holder of an approved generic drug application, called an Abbreviated New Drug Application (ANDA).  This understanding weighed heavily in PLIVA v. Mensing by showing that the generic drug manufacturer did not have independent authority to change its label, being a generic manufacturer with the duty of label “sameness” (compared to the corresponding brand name drug) rather than “accuracy”.  Case closed — generic manufacturers’ federal labeling duties trump the state law duty to warn, shielding them from failure-to-warn lawsuits.

In our model, then, we reflect the fact that generic application approval holders (along with drug manufacturers and relabelers) have a strong defense for liability stemming from a failure-to-warn lawsuit: impossibility preemption.  We model this in a straightforward manner, simply discounting the liability risk score by 80% for ANDA holders, drug manufacturers, and drug relabelers.

If generic manufacturers are generally protected from this sort of litigation, why include them in the model in the first place, and why isn’t liability risk zero?  The reason is simple: the rules can change.

Demonstrating that the rules can, indeed, change, on November 13, 2013, partly in response to the PLIVA v. Mensing decision, the FDA proposed new labeling rules that would allow generic drug approval holders to use the CBE process to unilaterally change a label under the same regulation discussed above.  This directly eliminates the basis for impossibility preemption, (re-)opening generic drug companies to liability in failure-to-warn litigation.  Unsurprisingly, this has generated significant opposition from generic drug companies.

The FDA acknowledges several difficulties with its proposed rule, most importantly the creation of a temporary difference between a generic drug’s label and the related brand name label upon which its approval is based.  This potentially contradicts the Hatch-Waxman Act of 1984 that established the generic drug approval process and also provides that the labels must be “the same”.  Seizing on this wording, generic drug makers have threatened to sue the FDA to prevent the rule from coming into effect.  They have also proposed a different scheme whereby responsibility for the labels would, in opposite fashion to the current proposed rule, shift to the FDA itself.  In response, the FDA has delayed the final rulemaking twice already, with the current deadline for finalizing the rule now in April 2017.

What will happen to this proposed rule?  Only time will tell with respect to lawsuits and their progress through the court system.  What is clear, though, is if this proposed rule is effected then we will change our model to reflect the change in the law.