Ipsen Biopharmaceuticals, Inc. v. Price et al

MOTION for Summary Judgment

D.D.C.May 8, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA IPSEN BIOPHARMACEUTICALS, INC. 106 Allen Rd. Basking Ridge, NJ 07920 Plaintiff, v. THOMAS E. PRICE, in his official capacity as Secretary of Health and Human Services Hubert H. Humphrey Building 200 Independence Avenue, SW Washington, DC 20201 SEEMA VERMA, in her official capacity as Administrator of the Centers for Medicare & Medicaid Services Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 CENTERS FOR MEDICARE & MEDICAID SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 16-cv-02372-ABJ PLAINTIFF IPSEN BIOPHARMACEUTICALS, INC.’S MOTION FOR SUMMARY JUDGMENT Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 1 of 36 Plaintiff Ipsen Biopharmaceuticals, Inc. respectfully moves for summary judgment in this Administrative Procedures Act action against the U.S. Department of Health and Human Services, Secretary Price in his official capacity, the Centers for Medicare & Medicaid Services, and Administrator Verma in her official capacity. In accordance with LCvR 7, this motion is based upon the accompanying memorandum of points and authorities and the Administrative Record compiled by Defendants and is accompanied by a proposed order. Plaintiff Ipsen respectfully requests that this Court grant its motion for summary judgment, declare that Somatuline® (lanreotide) Depot Injection With Enhanced Device is a new and different drug product from Ipsen’s predecessor product for purposes of the Medicaid Drug Rebate Program, and set aside CMS’s determination to the contrary. Dated: May 8, 2017 Respectfully submitted, /s/ Jeffrey S. Bucholtz Jeffrey S. Bucholtz D.C. Bar No. 452385 John Shakow D.C. Bar No. 451429 Nikesh Jindal D.C. Bar No. 492008 Marisa Maleck D.C. Bar. No. 1015210 KING & SPALDING LLP 1700 Pennsylvania Ave., NW Washington, D.C. 20006 Telephone: (202) 737-0500 Facsimile: (202) 626-3737 jbucholtz@kslaw.com jshakow@kslaw.com njindal@kslaw.com mmaleck@kslaw.com Counsel for Plaintiff Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 2 of 36 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA IPSEN BIOPHARMACEUTICALS, INC. 106 Allen Rd. Basking Ridge, NJ 07920 Plaintiff, v. THOMAS E. PRICE, in his official capacity as Secretary of Health and Human Services Hubert H. Humphrey Building 200 Independence Avenue, SW Washington, DC 20201 SEEMA VERMA, in her official capacity as Administrator of the Centers for Medicare & Medicaid Services Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 CENTERS FOR MEDICARE & MEDICAID SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 16-cv-02372-ABJ MEMORANDUM IN SUPPORT OF PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 3 of 36 i TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................................................ ii TABLE OF AUTHORITIES ......................................................................................................... iii INTRODUCTION .......................................................................................................................... 1 FACTUAL BACKGROUND ......................................................................................................... 4 A. Ipsen Creates The New Somatuline ED Drug Product. ...................................................... 4 B. The Medicaid Drug Rebate Program. ................................................................................. 8 C. CMS Rejects Ipsen’s Plan To Establish Independent Base Date AMPs For Its New Somatuline ED Drug Product. .................................................................................. 10 D. CMS Adheres To Its Decision. ......................................................................................... 11 ARGUMENT ................................................................................................................................ 12 I. Standard Of Review .......................................................................................................... 12 II. CMS’s Policy Is Contrary To The Statutory And Regulatory Framework. ..................... 15 III. CMS’s Position Is Arbitrary And Capricious. .................................................................. 20 CMS Did Not Adequately Justify Its Decision. ................................................................ 21 A. CMS’s Position Is Substantively Arbitrary....................................................................... 25 B. CMS Did Not Put Ipsen On Fair Notice. .......................................................................... 25 C. CONCLUSION ............................................................................................................................. 28 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 4 of 36 ii TABLE OF AUTHORITIES Cases Alpharma, Inc. v. Leavitt, 460 F.3d 1 (D.C. Cir. 2006) .................................................................................................. 13 Am. Fed’n of Gov’t Emps., AFL-CIO v. Veneman, 284 F.3d 125 (D.C. Cir. 2002) .............................................................................................. 14 Bechtel v. F.C.C., 10 F.3d 875 (D.C. Cir. 1993) ................................................................................................ 13 BedRoc Ltd., LLC v. United States, 541 U.S. 176 (2004) .............................................................................................................. 15 Chisom v. Roemer, 501 U.S. 380 (1991) .............................................................................................................. 20 Chocolate Mfrs. Ass’n of United States v. Block, 755 F.2d 1098 (4th Cir. 1985) .............................................................................................. 27 Christensen v. Harris County, 529 U.S. 576 (2000) .............................................................................................................. 14 Cty. of L.A. v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) ............................................................................................ 13 Dolan v. USPS, 546 U.S. 481 (2006) .............................................................................................................. 15 Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) .......................................................................................................... 24 Fabi Constr. Co. v. Sec’y of Labor, 508 F.3d 1077 (D.C. Cir. 2007) ............................................................................................ 26 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) .............................................................................................................. 18 Gen. Elec. Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995) .............................................................................................. 26 Gutierrez-Brizuela v. Lynch, 834 F.3d 1142 (10th Cir. 2016) ............................................................................................ 14 Lewis v. Exxon Corp., 716 F.2d 1398 (D.C. Cir. 1983) ............................................................................................ 20 *Loving v. I.R.S., 742 F.3d 1013 (D.C. Cir. 2014) ................................................................................ 14, 18, 19 Michigan v. EPA, 135 S. Ct. 2699 (2015) .......................................................................................................... 14 *Miller v. Clinton, 687 F.3d 1332 (D.C. Cir. 2012) .......................................................................... 13, 14, 19, 20 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 5 of 36 iii *Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) .......................................................................................................... 13, 25 Nat’l Ass’n of Clean Water Agencies v. EPA, 734 F.3d 1115 (D.C. Cir. 2013) ............................................................................................ 27 Nat’l Tour Brokers Ass’n v. United States, 591 F.2d 896 (D.C. Cir. 1978) .............................................................................................. 27 Pub. Citizen, Inc. v. FAA, 988 F.2d 186 (D.C. Cir. 1993) .............................................................................................. 13 Sierra Club v. EPA, 671 F.3d 955 (9th Cir. 2012) ................................................................................................ 24 Sprint v. FCC, 315 F.3d 369 (D.C. Cir. 2003) .............................................................................................. 26 Trinity Broad. of Fla., Inc. v. FCC, 211 F.3d 618 (D.C. Cir. 2000) .............................................................................................. 26 U.S. Air Tour Ass’n v. FAA, 298 F.3d 997 (D.C. Cir. 2002) .............................................................................................. 24 United States v. Delgado-Garcia, 374 F.3d 1337 (D.C. Cir. 2004) ............................................................................................ 18 United States v. Mead Corp., 533 U.S. 218 (2001) .............................................................................................................. 13 Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius, 650 F.3d 685 (D.C. Cir. 2011) .............................................................................................. 26 Waterkeeper All. v. Envtl. Prot. Agency, 853 F.3d 527 (D.C. Cir. 2017) .............................................................................................. 14 Statutes 5 U.S.C. § 706 ............................................................................................................................... 12 21 U.S.C. § 321 ......................................................................................................................... 6, 16 21 U.S.C. § 355 ...................................................................................................................... passim 21 U.S.C. § 360 ............................................................................................................................... 5 21 U.S.C. § 360cc ........................................................................................................................... 6 *42 U.S.C. § 1396r-8 ............................................................................................................. passim Regulations 21 C.F.R. § 207.33 .......................................................................................................................... 5 21 C.F.R. § 207.35 .......................................................................................................................... 5 21 C.F.R. § 314.1 et seq. ........................................................................................................... 7, 17 21 C.F.R. § 314.108 ........................................................................................................................ 5 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 6 of 36 iv 21 C.F.R. § 314.50 .......................................................................................................................... 7 *21 C.F.R. § 314.70 .............................................................................................................. 6, 7, 17 21 C.F.R. § 316.31 .......................................................................................................................... 6 *42 C.F.R. § 447.502 .................................................................................................... 9, 10, 18, 23 Legislative Material H.R. Rep. No. 111-299 (2009) ...................................................................................................... 19 S. Rep. No. 111-89 (2009) ............................................................................................................ 19 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 7 of 36 1 INTRODUCTION When a pharmaceutical manufacturer makes significant changes to a Food and Drug Administration-approved drug, federal law deems the modified drug a “new drug” that, as such, requires a new FDA approval before it may be sold. The Centers for Medicare & Medicaid Services, however, treats that new drug as if it were the same old drug—thereby increasing the rebates that manufacturers owe to the states under the Medicaid Drug Rebate Program. CMS’s policy is contrary to law as well as common sense, and this Court should strike it down. Plaintiff Ipsen sold an FDA-approved drug product known as Somatuline® (lanreotide) Depot Injection for several years. Ipsen then invested tens of millions of dollars over many years to make multiple significant changes to the drug product, including modifying its formulation, redesigning its delivery device, and conducting clinical trials to demonstrate safety and efficacy for a new indication for an entirely distinct disease condition. Those changes required Ipsen to obtain a new approval from FDA before it could sell the modified product or promote its new indication; if Ipsen had not obtained a new approval from FDA, it would have been guilty of selling an unapproved “new drug.” Ipsen obtained the required new approval from FDA for its new product—referred to here as Somatuline® (lanreotide) Depot Injection With Enhanced Device, or Somatuline ED for short. FDA, in fact, believed that Somatuline ED was so new that it was entitled to three years of “new drug product exclusivity,” barring FDA from approving certain applications from other manufacturers. Ipsen thus requested that CMS recognize that Somatuline ED was a new and different drug from its predecessor. CMS, of course, does not regulate the approval or sale of drugs, new or otherwise; that is the responsibility of FDA, CMS’s sister agency within the Department of Health & Human Services. As relevant here, CMS administers the MDRP, under which Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 8 of 36 2 manufacturers pay rebates to the states as a condition of having their drugs covered by Medicaid. The Social Security Act, which governs the MDRP, directs manufacturers to calculate discrete rebates for each “dosage form and strength” of “the drug.” 42 U.S.C. § 1396r-8(c)(1)(A)(c). That requires knowing what “the drug” is, including how to distinguish new and different drugs from predecessor drugs. One factor determining the amount of rebates owed is the Average Manufacturer Price for the first full quarter after the drug was first sold, known in the MDRP as the “base date AMP.” The predecessor Somatuline product was first marketed by Ipsen in August 2007, so its base date AMP is its AMP for the fourth quarter of 2007. Somatuline ED, reflecting the multiple significant changes described above, was first sold in January 2015. Its base date AMP should thus be its AMP for the second quarter of 2015. CMS, however, decided that Somatuline ED was not a new drug at all, but rather was the same old drug as the predecessor Somatuline. CMS reached this conclusion because FDA approved Somatuline ED via supplemental new drug applications (often called “sNDAs”) linked to the existing, approved new drug application (often called an “NDA”), rather than via a stand-alone NDA. CMS did not and could not point to anything in the Social Security Act supporting the notion that a drug is nothing more than the same old drug if FDA approves it via sNDA instead of via NDA. It would be odd for Congress to create a parallel regime, unique to the MDRP, to determine what constitutes a new and different drug. After all, Congress long ago enacted detailed provisions in the Food, Drug & Cosmetic Act to govern that question, and Congress delegated authority to implement those provisions to FDA, the agency that regulates the approval and marketing of drugs and thus has expertise on that question. Under the FDCA regime, it is crystal clear that the significant changes made by Ipsen created a new drug that required new Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 9 of 36 3 FDA approval—and that Ipsen was free to obtain that new approval either by submitting sNDAs linked to its approved NDA or by submitting a new stand-alone NDA. It would be odder still for Congress to authorize CMS, which lacks FDA’s expertise, to create its own parallel-but- conflicting regime to sit uncomfortably alongside FDA’s within the same federal agency—let alone to authorize CMS to make important MDRP decisions turn on whether the manufacturer proceeded via sNDA or via NDA when that distinction has no legal consequence under the FDCA regime. Congress did neither of those odd things. Instead, the Social Security Act repeatedly incorporates provisions of the FDCA and conspicuously does not contain any definition of its own of “new drug” or any related term. That reflects Congress’ common-sense intent that CMS look to the FDCA and FDA regulations in implementing the MDRP. CMS contravened the statutory scheme by deciding that Somatuline ED, despite constituting a new drug as a matter of federal law, should nonetheless be treated for purposes of the MDRP as if it were merely the same drug as the predecessor product. CMS’s decision also violated the Administrative Procedures Act’s prohibition on arbitrary and capricious decision-making and constituted an abuse of CMS’s discretion. Among other failings, CMS never engaged in notice-and-comment rulemaking or otherwise publicly announced its policy. Not surprisingly as a result, CMS has never offered a reasoned justification for its policy. Nor is there one: FDA encourages manufacturers to proceed via sNDA, and it is arbitrary and unfair for CMS to penalize Ipsen for doing what the FDCA and FDA regulations permitted it to do—and especially unfair for CMS to do so after the fact, never having disclosed that whether a manufacturer will receive a new base date AMP turns on whether it proceeded via sNDA or NDA. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 10 of 36 4 For all of these reasons, this Court should declare that Somatuline ED is a new and different drug product from the predecessor product and set aside CMS’s contrary decision. FACTUAL BACKGROUND A. Ipsen Creates The New Somatuline ED Drug Product. As noted, this case concerns Ipsen’s new Somatuline ED drug product. FDA approved Ipsen’s predecessor product, the original Somatuline, under an NDA in 2007. See Compl. ¶ 40. Both drug products have been approved in three strengths—60 mg, 90 mg, and 120 mg. The original Somatuline was approved only to treat acromegaly, a condition involving excessive growth of the hands, feet, and face as a result of excessive growth hormone production during adulthood. Id. ¶ 41. Somatuline had no other indicated uses for seven years. Between 2010 and 2014, Ipsen conducted extensive and costly research to support significant changes and improvements to Somatuline. Compl. ¶ 42. Ipsen changed the drug’s formulation and manufacturing processes (adding acetic acid), redesigned the syringe in which the drug is delivered, removed latex to make the product safer for use with many patients, and revised the labeling. See A.R. 3–4; A.R. 10. Along with providing automatic needle protection, the new syringe design ensures that patients receive a full dose with each injection. A.R. 10. In connection with these changes, Ipsen submitted to FDA four major user studies, conducted over four years, that demonstrated the safety and efficacy of the new syringe design. Id. Ipsen sought FDA approval for these changes by submitting an sNDA, a supplemental new drug application linked to its existing, approved NDA for the original product. FDA approved an sNDA with respect to these changes in October 2014. A.R. 40 (FDA letter approving Ipsen’s “‘Prior Approval’ supplemental new drug application propos[ing] changes to the drug substance and drug product manufacturing processes, and to the drug product container Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 11 of 36 5 closure system”). In light of these significant changes to the drug product, FDA regulations required Ipsen to assign new product codes resulting in new National Drug Codes (“NDCs”) for each of the three strengths approved via the sNDA. See 21 C.F.R. § 207.35(a)–(b).1 In December 2014, FDA approved a second Ipsen sNDA that sought approval of a new indication to treat a particularly rare type of cancer, metastatic gastroenteropancreatic neuroendocrine tumors (sometimes known as “GEP-NETs”). A.R. 76 (FDA letter approving Ipsen’s “‘Prior Approval supplemental new drug application provid[ing] for a new indication for the treatment of patients with unresectable, well- or moderately-differentiated, locally advanced or metastatic gastroenteropancreatic neuroendocrine tumors (GEP-NETs) to improve progression-free survival”). In support of its sNDA for this new indication, Ipsen had conducted an $80 million, multicenter, randomized, double-blind, placebo-controlled efficacy trial of 204 patients. See A.R. 10. Somatuline ED is the first drug approved by FDA for this type of cancer, so Ipsen is providing oncology patients with access to an important new therapy. Id. Congress incentivized manufacturers to conduct clinical trials by providing three years of “new drug product exclusivity” to a manufacturer that conducts new clinical studies to support significant modifications to a drug, such as a new indication. 21 U.S.C. § 355(c)(3)(E)(iii); 21 C.F.R. § 314.108(b)(5). Because of Ipsen’s efforts in conducting clinical studies to support approval of Somatuline ED to treat GEP-NETs, FDA recognized that Ipsen was entitled to three years of “new drug product exclusivity,” meaning that FDA will not approve a “505(b)(2) [new drug] application or an ANDA [abbreviated new drug application] . . . that relies on the information supporting a change approved in the supplemental NDA” for a three-year period. 21 C.F.R. § 314.108(b)(5); see A.R. 10. In addition, because Somatuline ED’s new indication is to 1 “The NDC for a drug is a numeric code” that identifies the “labeler, product, and package size and type.” 21 C.F.R. § 207.33(a); see also 21 U.S.C. § 360(e). Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 12 of 36 6 treat patients with a rare disease, Somatuline ED earned orphan drug exclusivity under the FDCA. See 21 U.S.C. § 360cc; 21 C.F.R. § 316.31(a); Compl. ¶ 50. This means that FDA generally “will not approve another sponsor’s marketing application for the same drug for the same use or indication before the expiration of 7 years.” 21 C.F.R. § 316.31(a). These changes to the predecessor drug required Ipsen to obtain new approval from FDA under both the FDCA and its implementing regulations. Under the FDCA, whether a product is a “new drug” depends not only on its chemical composition but also on the data supporting its safety and efficacy for a particular intended use. Congress defined “new drug” in relevant part as “[a]ny drug . . . the composition of which is such that such drug is not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof.” 21 U.S.C. § 321(p). FDA’s determination of safety and effectiveness is limited to the conditions described in a product’s labeling, and if a manufacturer proposes to modify the approved conditions of use—like Ipsen did here with respect to the new cancer indication—federal law will classify the product as a new drug that requires supplemental information to substantiate the safety and effectiveness of the proposed changes and a new FDA approval before it may be sold. See A.R. 14–15. Moreover, under FDA regulations, an applicant must notify FDA about “each change in each condition established in an approved [application] beyond the variations already provided for in the [application].” 21 C.F.R. § 314.70(a). When these changes are “major changes,” the manufacturer must obtain approval before marketing the changed drug. Id. § 314.70(b). “Major changes” include (among other things) “changes in the qualitative or quantitative formulation of the drug product, including inactive ingredients” (id. § 314.70(b)(2)(i)); certain types of labeling Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 13 of 36 7 changes (id. § 314.70(b)(2)(v)(A)); and “[c]hanges in a drug product container closure system that controls the drug product delivered to a patient” (id. § 314.70(b)(2)(vi)). Here, Ipsen made many changes that the regulations classify as “major,” including adding a new indication, redesigning the delivery device, modifying the inactive ingredients, and changing the labeling. See A.R. 16. Ipsen could have obtained FDA approval to market the new Somatuline ED product either by submitting a new NDA or (as Ipsen in fact did) by submitting an sNDA. See Compl. ¶ 51; see also 21 C.F.R. §§ 314.50, 314.70. NDAs and sNDAs are subject to many of the same approval requirements. See 21 C.F.R. § 314.1 et seq. Whether a new drug application is an original or supplemental one, the application must include “full reports of [all clinical] investigations which have been made to show whether . . . such drug is effective in use.” 21 U.S.C. § 355(b)(1)(A). Nevertheless, FDA encourages manufacturers to submit sNDAs rather than new NDAs for efficiency reasons (Compl. ¶ 51), because sNDAs are less voluminous (and therefore less burdensome) and less expensive. An sNDA need not include all of the information the manufacturer included in the original NDA, but rather may include only information related to the proposed changes. See 21 C.F.R. § 314.70(a)(1)(i) (sNDA “must notify FDA about each change in each condition established in an approved NDA”). FDA regulations also provide that applicants may make changes to an approved product in accordance with a guidance, notice, or regulation that provides for a “less burdensome notification of the change,” 21 C.F.R. § 314.70(a)(3), a description that applies to an sNDA compared to a stand-alone NDA. Finally, NDAs are more expensive for the applicant because they require significant user fees. See A.R. 2. It is thus common for manufacturers to proceed via sNDA when seeking FDA approval to Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 14 of 36 8 market “new drugs” that reflect significant changes from a predecessor product. Id.; Compl. ¶ 51. Following FDA approval of both sNDAs, Ipsen began marketing Somatuline ED in January 2015. See Compl. ¶ 54. B. The Medicaid Drug Rebate Program. To obtain Medicaid coverage for their prescription drugs, manufacturers must participate in the MDRP. See generally 42 U.S.C. § 1396r-8 et seq. The MDRP is designed to reduce Medicaid state and federal spending on outpatient prescription drugs. The Social Security Act directs manufacturers to calculate a distinct quarterly unit rebate amount for each “covered outpatient drug” and for each “dosage form and strength” of “the drug.” 42 U.S.C. § 1396r- 8(c)(1)(A). Different drugs are generally distinguished in the MDRP through the use of identification codes called “National Drug Codes” or “NDCs.” Somatuline and Somatuline ED have different NDCs. The Medicaid unit rebate amount for covered outpatient drugs consists of two components: the “basic” rebate and the “additional” rebate. The basic rebate is the greater of: (a) the difference between the product’s AMP and its Best Price, and (b) 23.1 percent of the product’s AMP. Id. § 1396r-8(c)(1). The additional rebate is the amount by which (a) the AMP “for the dosage form and strength of the drug” for the reporting quarter exceeds (b) the AMP “for the dosage form and strength of the drug” for the first full calendar quarter after the day on which the product was first marketed (the “base date AMP”) as adjusted for the increase in inflation over the same period. Id. § 1396r-8(c)(2). The additional rebate acts to increase rebates when price increases outpace inflation. See Compl. ¶ 18. The base date AMP is therefore Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 15 of 36 9 significant because it is used to calculate the additional Medicaid rebate due for the life of each dosage form and strength “of the drug.” The relevant provisions of the Social Security Act concerning the MDRP define “covered outpatient drug” by reference to various FDCA requirements. A “covered outpatient drug” is a drug “which [is] treated as [a] prescribed drug[] for purposes of section 1396d(a)(12) of [Title 42],” which generally may be dispensed only upon prescription, and “which is approved for safety and effectiveness as a prescription drug under section 505 … of the Federal Food, Drug, and Cosmetic Act [21 U.S.C. § 355].” 42 U.S.C. § 1396r-8(k)(2). Calculating rebates under these provisions requires knowing what “the drug” at issue is so the base date AMP and the current reporting quarter AMP “for the dosage form and strength of the drug” can be identified. If products A and B are different drugs, the AMPs for the dosage forms and strengths of drug A are irrelevant to the rebate liability for drug B, because the latter turns on the base date and current AMPs “for the drug” at issue, i.e., drug B. As noted above, the Social Security Act does not define “drug” or “new drug” or otherwise authorize CMS to determine that a product that constitutes a new drug under the FDCA compared to a predecessor product is still “the drug”—that is, the same old drug—for MDRP purposes. In fact, CMS’s regulation governing bundled sales takes the opposite tack: it states that drugs with different NDCs (like Somatuline and Somatuline ED) are not the “same drug” but rather are “drugs of different types.” 42 C.F.R. § 447.502.2 2 The regulation provides: “Bundled sale means any arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug, drugs of different types (that is, at the nine-digit national drug code (NDC) level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 16 of 36 10 C. CMS Rejects Ipsen’s Plan To Establish Independent Base Date AMPs For Its New Somatuline ED Drug Product. On January 7, 2015, before selling a single unit of Somatuline ED, Ipsen wrote to CMS to inform the agency of its intent to establish independent base date AMPs for Somatuline ED (one for each of the three strengths) in the first full quarter after the new drug was launched. A.R. 24–28. Ipsen explained that Somatuline ED is a new and different drug product that is distinct from the predecessor product and so is entitled to its own base date AMPs and corresponding rebate calculations. See id. On July 2, 2015, CMS responded to Ipsen’s letter via an email from Wendy Tuttle, a Health Insurance Specialist in the Pharmacy Division of CMS Medicaid. A.R. 30. The agency rejected Ipsen’s position, asserting that “the baseline data for the[] three NDCs [of Somatuline ED] must be changed to reflect the original baseline data of Somatuline Depot,” including the base date AMPs for the predecessor products. Id. The agency focused on the fact that Somatuline ED has the same dosage form and strengths as the predecessor product, stating with emphasis in the original that AMP baseline data “is established for each dosage form and strength of the drug”— thus begging the fundamental question of whether Somatuline ED is the same “drug” as the predecessor product, a question that went unaddressed in CMS’s email. Id. CMS recognized that Ipsen had made “enhancements to the delivery mechanism” and lauded the company for achieving “new indications for the use of the product.” Id. But despite Ipsen’s “time, effort and financial support that went into the development of Somatuline ED,” CMS stated that none of these significant changes “me[t] the criteria for the establishment of new base date AMPs for the three strengths of Somatuline ED.” Id. the bundled drugs been purchased separately or outside the bundled arrangement.” 42 C.F.R. § 447.502 (emphasis added). Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 17 of 36 11 CMS then revealed its “criteria”: because FDA approved Somatuline ED “under the same NDA number”—i.e., via sNDAs linked to the original NDA, rather than via a stand-alone NDA—Somatuline ED is not a new drug and therefore does not qualify for new base date AMPs. Id. CMS has articulated this policy only in non-public letters to other pharmaceutical companies. See A.R. 116–96. D. CMS Adheres To Its Decision. In September 2015, Ipsen requested senior review of CMS’s determination. A.R. 30–32. On August 3, 2016, CMS responded in a letter from John M. Coster, the Director of the Division of Pharmacy in CMS Medicaid. A.R. 33–34. CMS acknowledged that the Social Security Act defines “covered outpatient drug” based on FDCA provisions, but asserted that there is “no indication” from Congress that FDA “approval status be used for determining whether a drug qualifies as a new drug for the purposes of price reporting for the MDRP.” A.R. 33–34. CMS neither pointed to anything in the Social Security Act authorizing CMS to create its own regime on that question in conflict with the FDCA and FDA regulations nor explained why Congress would have wanted CMS to do so. Instead, CMS simply restated its internal, unannounced policy: an sNDA that “contains the same ‘route number’ with an extension (indicating that it is a supplement to the NDA) [is] approved under the same NDA, and such products should not have separate baseline data.” A.R. 34. Once again, CMS did not cite anything in any statute supporting this distinction between obtaining FDA approval of a new drug via sNDA versus stand-alone NDA. Nor did CMS rely on any regulation setting forth this position, as none exists. CMS relied only on “Manufacturer Release No. 26,” a non-binding guidance document issued in February 1997 that addresses an entirely different situation. Release No. 26 speaks to a Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 18 of 36 12 situation in which one company buys a drug from another company but the drug is unchanged in the transaction. The transfer of the drug from one company to another results in a change to the drug’s NDC, because one component of the NDC designates the manufacturer that is labeling the drug for sale. But because the drug itself is unchanged, CMS unsurprisingly takes the position that the drug’s base date AMP follows it to the new company: it is, indeed, the same drug. CMS thus explained in Release No. 26 that “[b]aseline information . . . MUST follow the NDA of the product. It does NOT follow the NDC of the product.” A.R. 91–92 (emphasis in original). In context, that statement is unobjectionable. But nothing in Release No. 26 addressed the situation presented by Ipsen, where Somatuline underwent significant changes that render the new product, Somatuline ED, a new drug. Yet CMS inexplicably imported Release No. 26’s inapposite conclusion into the present context. A.R. 34. E. Ipsen Files Suit Ipsen then filed this suit respectfully requesting that the Court declare that Somatuline ED is a new and different drug product from its predecessor for purposes of the MDRP and set aside CMS’s contrary determination. CMS answered the complaint and defended its decision, see D.E. 9, at 12 (requesting the Court “to enter judgment affirming the validity of the Secretary’s denial of Plaintiff’s request to change its base-date AMP”), and the parties agreed on a schedule for cross-motions for summary judgment, which the Court entered. D.E. 11. ARGUMENT I. Standard Of Review A. The APA directs the Court to “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2). To uphold CMS’s decision, the Court must be satisfied, among other things, that the agency has “‘examine[d] the relevant data and articulate[d] Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 19 of 36 13 a satisfactory explanation for its action including a rational connection between the facts found and the choice made.’” Alpharma, Inc. v. Leavitt, 460 F.3d 1, 6 (D.C. Cir. 2006) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Moreover, “[t]he requirement that agency action not be arbitrary or capricious includes a requirement that the agency adequately explain its result.” Pub. Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993). Where the agency fails to do so, “or where the record belies the agency’s conclusion, [the court] must undo its action.” Cty. of L.A. v. Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999) (internal quotation marks omitted). Finally, “the agency must meet its obligation to respond to criticisms.” Bechtel v. F.C.C., 10 F.3d 875, 878 (D.C. Cir. 1993). “[T]he agency must always stand ready to hear new argument and to reexamine the basic propositions undergirding the policy.” Id. (internal quotation marks omitted). B. The Chevron framework does not govern this case. As the D.C. Circuit has explained, “not every kind of agency interpretation, even of a statute the agency administers, warrants Chevron deference.” Miller v. Clinton, 687 F.3d 1332, 1340 (D.C. Cir. 2012). Courts “accord Chevron deference only when Congress has ‘delegated authority to the agency generally to make rules carrying the force of law, and . . . the agency interpretation claiming deference was promulgated in the exercise of that authority.’” Id. at 1341 (internal quotation marks omitted). Here, CMS’s policy was not the product of a statutorily-created decision-making process such as formal adjudication or notice-and-comment rulemaking. Nor does CMS’s letter to Ipsen contain any indication that the agency “set out with a lawmaking pretense in mind.” United States v. Mead Corp., 533 U.S. 218, 233 (2001). Because CMS did not act in a way that carries the force of law when it rejected Ipsen’s proposal, its decision “has no more status than opinion letters, policy statements, agency manuals, and enforcement guidelines, all of which are undeserving of Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 20 of 36 14 Chevron deference.” Am. Fed’n of Gov’t Emps., AFL-CIO v. Veneman, 284 F.3d 125, 129 (D.C. Cir. 2002); see also Christensen v. Harris County, 529 U.S. 576, 587 (2000).3 Where, as here, Chevron is inapplicable, a court must “proceed to determine the meaning of [a statute] the old-fashioned way: [it] must decide for [itself] the best reading.” Miller, 687 F.3d at 1342 (internal quotation marks omitted). C. Even if the Court were to determine that the Chevron framework applies here, the same legal analysis contained in section II, infra, would apply. The D.C. Circuit has held that even where Chevron applies, courts “must employ all the tools of statutory interpretation, including text, structure, purpose, and legislative history,” before declaring a statute ambiguous and proceeding to Chevron’s second step. Loving v. I.R.S., 742 F.3d 1013, 1016 (D.C. Cir. 2014). In short, “[n]o matter how it is framed, the question a court faces when confronted with an agency’s interpretation of a statute it administers is always, simply, whether the agency has stayed within the bounds of its statutory authority.” Id. (internal quotation marks omitted; emphasis in original). 3 In all events, “[a]n Article III renaissance is emerging against the judicial abdication performed in Chevron’s name.” Waterkeeper All. v. Envtl. Prot. Agency, 853 F.3d 527, 539 (D.C. Cir. 2017) (Brown, J., concurring). Several judges have called for the Supreme Court to overrule Chevron. See, e.g., Michigan v. EPA, 135 S. Ct. 2699, 2713–14 (2015) (Thomas, J., concurring) (suggesting that Chevron violates separation of powers principles); Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1152–53 (10th Cir. 2016) (Gorsuch, J., concurring) (“For whatever the agency may be doing under Chevron, the problem remains that courts are not fulfilling their duty to interpret the law.”) (emphasis in original); Waterkeeper All., 853 F.3d at 539 (Brown, J., concurring) (questioning “Chevron’s consistency with the judicial department’s emphatic province and duty to say what the law is” (internal quotation marks and alterations omitted)). Although Ipsen appreciates that this Court is not at liberty to overrule Chevron, it makes this point for preservation purposes. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 21 of 36 15 II. CMS’s Policy Is Contrary To The Statutory And Regulatory Framework. At least four statutory interpretation considerations foreclose CMS’s policy of treating new drugs that were approved via sNDA as the same old drugs—and thus treating them differently from new drugs approved via stand-alone NDAs. First, the Social Security Act makes clear that Congress intended that CMS look to the existing FDCA regime to determine when changes to a predecessor drug product render it a new drug that, as such, is entitled to a new base date AMP. “The preeminent canon of statutory interpretation requires [courts] to presume that [the] legislature says in a statute what it means and means in a statute what it says there.” BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (internal quotation marks omitted). And courts must “read[] the whole statutory text, considering the purpose and context of the statute.” Dolan v. USPS, 546 U.S. 481, 486 (2006). Several provisions of the Social Security Act incorporate FDCA provisions, showing that Congress intended CMS to rely on the drug classification and approval framework that Congress created in the FDCA. For example, the MDRP statute defines “covered outpatient drug” in terms of the drug approval provisions of the FDCA, as a prescription drug approved under Section 505 or 507 of the FDCA. 42 U.S.C. § 1396r-8(k)(2). Section 505 of the FDCA, in turn, includes prescription drugs approved by FDA pursuant to an NDA, an sNDA, or other forms of application. 21 U.S.C. § 355(b)(1), (c)(5)(B), (j). Thus, “covered outpatient drugs” for purposes of the MDRP include drugs approved by FDA regardless of whether they were approved via sNDA or stand-alone NDA. Many other MDRP provisions likewise look to the FDCA, including a provision that requires payment for a drug only if FDA has given the drug a particular rating (among other conditions) (42 U.S.C. § 1396r-8(a)(3)(A)(ii)); a provision setting a reimbursement limit for Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 22 of 36 16 certain drugs that FDA has rated “therapeutically and pharmaceutically equivalent” to other drugs (id. § 1396r-8(e)(4)); and provisions excluding or restricting coverage of certain drugs, and requiring coverage of others, that reference and rely on FDA approval provisions (id. § 1396r- 8(d)(2)(F), (H); id. § 1396r-8(d)(4)(C); id. § 1396r-8(d)(7)(A)). As explained above, under the established FDCA standards for determining what constitutes a “new drug,” Somatuline ED indisputably qualifies. See supra at pp. 4–7. Among other things, Somatuline ED bears a new indication for use that the predecessor product did not have. A.R. 3. Because the predecessor product was “not generally recognized . . . as safe and effective” to treat GEP-NETs, it would have been an unapproved new drug if marketed for that indication. 21 U.S.C. § 321(p)(1) (“new drug” definition); 21 U.S.C. § 355(a) (criminal offense to market an unapproved new drug). And the new GEP-NETs indication was so new that FDA granted Ipsen three years of “new drug product exclusivity” based on the clinical data Ipsen submitted to support approval of that indication. A.R. 17. Moreover, Ipsen made many significant changes to the predecessor product itself. In the new product, Ipsen added acetic acid to obtain a constant level of acetate and to compensate for variable levels of acetate salt; these improvements provide for more consistent production and lesser inactive-ingredient product variability. A.R. 4; see A.R. 40 (FDA letter approving “changes to the drug substance”). Somatuline ED has a completely redesigned delivery device. Ipsen made modifications to the drug product container-closure system, including the addition of a “sharps protection system” to the syringe to help prevent needle-stick injury after use. A.R. 40. Along with providing automatic needle protection, the new syringe design ensures that patients receive a full dose of Somatuline ED with each injection. A.R. 10. Ipsen also removed latex from the syringe, providing additional safety improvements. Id. These changes were of the type Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 23 of 36 17 that required Ipsen to obtain approval from FDA before marketing the drug. 21 C.F.R. § 314.70(b)(2)(i), (v)(A), (vi); A.R. 40 (approving Ipsen’s “‘Prior Approval’ supplemental new drug application”). In short, the FDCA and FDA regulations are clear that these changes rendered Somatuline ED a new drug that, as such, required new FDA approval. Notably, Somatuline ED’s status as a “new drug” under the FDCA has nothing to do with whether Ipsen obtained that required new approval via sNDA or stand-alone NDA. Instead, federal law considers Somatuline ED a “new drug” because of the changes it reflects; the pathway Ipsen chose to obtain FDA approval for those changes is irrelevant. FDA’s regulations would have required Ipsen to submit much of the same supporting information in either form of new drug application, and the agency would have applied the same approval standard in evaluating an NDA as it applied in evaluating Ipsen’s sNDAs. See 21 C.F.R. § 314.1 et seq. Efficiency and cost-savings reasons—which have nothing to do with whether a drug is “new” or “old”—are why FDA encourages manufacturers to submit sNDAs rather than stand-alone NDAs when making changes to predecessor products. Compl. ¶ 51; see supra pp. 7–8. But federal law permitted Ipsen to submit a stand-alone NDA instead. 21 U.S.C. § 355(b). CMS’s policy of deciding whether a drug is new or old based merely on the form of new drug application a manufacturer submits is inconsistent with the statutory and regulatory regime. Second, there is no indication that Congress authorized CMS to adopt its own conflicting standard for a “new drug” for use in the MDRP context. The statute requires CMS to distinguish new and different drug products from old ones. The statutory direction to calculate base date and current quarter data for each dosage form and strength “of the drug” presupposes that one knows which drug one is talking about and that each distinct drug has its own set of distinct pricing data. Yet the Social Security Act contains no definitions of its own of “drug,” “new drug,” or Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 24 of 36 18 any related term. It provides literally no guidance to CMS about how to determine whether a drug is a new and different drug or, rather, the same old drug. And, to the extent that CMS has promulgated any regulations on this subject, its regulations suggest that drugs with different NDCs (like Somatuline and Somatuline ED) are “drugs of different types,” as distinguished from “the same drug.” 42 C.F.R. § 447.502. That makes perfect sense if Congress intended CMS to look to the FDCA, where Congress had already defined those key terms. And no other interpretation makes any sense. On the face of the Social Security Act, it is clear that Congress did not, itself, create a separate regime for determining what constitutes a new drug unique to the MDRP. Nor does that Act contain any hint that Congress intended CMS to create such a separate regime. Even apart from the point that Congress had no good reason to want CMS to create its own parallel-but- conflicting regime, it defies belief to think that Congress wanted CMS to do so but provided CMS no guidance whatever about what that separate regime should look like. Courts, after all, are supposed to presume that Congress acts sensibly rather than anomalously. Cf. FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 160 (2000) (“we are confident that Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion”); Loving, 742 F.3d at 1021. Particularly given that CMS and FDA sit alongside each other within HHS and administer related regulatory programs involving the same regulated products and actors, it would be anomalous, to say the least, for Congress to silently authorize CMS to create a separate, conflicting regime. Cf. United States v. Delgado-Garcia, 374 F.3d 1337, 1347 (D.C. Cir. 2004) (“it is a traditional canon of statutory construction to construe related statutory provisions in similar fashion”). “Yet nothing in the [Medicaid statute’s] text or the legislative Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 25 of 36 19 record contemplates that vast expansion of [CMS’s] authority. This is the kind of case, therefore, where the Brown & Williamson principle carries significant force.” Loving, 742 F.3d at 1021. The Court should hold that CMS acted contrary to law when it disregarded the fact that Somatuline ED is a new drug as a matter of federal law.4 Third, recent amendments to the MDRP also confirm that, under “current law,” “modifications to existing drugs . . . are generally considered new products for purposes of reporting AMPs to CMS” and therefore trigger new base date AMPs. S. Rep. No. 111-89 (2009); H.R. Rep. No. 111-299 Pt. 1, at 635 (2009) (same). The Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, closed what Congress perceived as a loophole in the MDRP by adding language stating that Medicaid rebates for new versions of an existing oral solid dosage form product should be based in part on the highest additional rebate of the existing (original) product when a manufacturer makes only minor changes to the original product. 42 U.S.C. § 1396r-8(c)(2)(C). In Congress’ view, this additional language was necessary to stop manufacturers from “avoid[ing] incurring additional rebate obligations by making slight alterations to existing products, sometimes called line extensions.” S. Rep. No. 111-89 (2009); H.R. Rep. No. 111-299 Pt. 1, at 635 (2009) (same). This provision demonstrates that Congress understood that manufacturers generally were entitled to receive a new base date AMP when they made modifications to a drug. Congress chose to change things slightly by amending the MDRP to make clear that a manufacturer is not entitled to receive a new base date AMP when it makes only minor changes to an oral solid dosage form drug. Significantly, however, Congress did not alter the law as it applies to non- 4 Cf. Miller, 687 F.3d at 1337 (“Given the importance Congress ascribed to [one statute], it would be surprising if it had enacted subsequent exemptions [in a different statute] using ambiguous language.”). Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 26 of 36 20 oral solid dosage form drugs (like Somatuline ED) or drugs that undergo significant changes (also like Somatuline ED). “Congress’ silence” with respect to non-oral solid dosage form drugs and drugs that undergo significant changes “can be likened to the dog that did not bark.” Chisom v. Roemer, 501 U.S. 380, 396 n.23 (1991); Miller, 687 F.3d at 1350 (rejecting notion that a statute made an exception to another, because “one would expect the history to contain a reference” to the exception). CMS’s position here is clearly contrary to Congress’ understanding of the law. Fourth, not only does CMS’s interpretation conflict with the statutory and regulatory framework, it is also illogical and arbitrary. Lewis v. Exxon Corp., 716 F.2d 1398, 1400 (D.C. Cir. 1983) (rejecting an “illogical reading of the statute”). CMS has adopted a position untethered to any provision in any statute or regulation. No provision anywhere suggests that Medicaid rebates should depend on whether the manufacturer proceeded via sNDA or stand- alone NDA. It is an utterly arbitrary distinction given that a manufacturer is legally permitted to proceed via either avenue. Yet CMS has seized on this distinction and made it dispositive. * * * For all these reasons, CMS exceeded its authority and acted contrary to law by adopting a policy that new drugs approved via sNDA will not be recognized as new drugs for purposes of the MDRP. III. CMS’s Position Is Arbitrary And Capricious. Even if (contrary to fact) CMS had authority to spurn the FDCA’s definition of a “new drug,” its decision here would still violate the APA. CMS did not adequately justify its decision, relying exclusively on a sub-regulatory Manufacturer Release that addressed a situation where a drug is unchanged. Relatedly, CMS failed to address the arbitrary effects of its policy. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 27 of 36 21 Moreover, CMS failed to provide Ipsen (or any other MDRP stakeholder) with fair notice of its policy. CMS’s decision is therefore arbitrary and capricious even if CMS has some legal authority to adopt a position that differs from the FDCA. CMS Did Not Adequately Justify Its Decision. A. CMS’s policy to refuse to recognize that a drug is “new” if the manufacturer obtained FDA approval of changes through an sNDA is irrational and inexplicable—or, at the very least, not adequately explained by CMS’s decision. CMS rejected Ipsen’s justification for establishing new base date AMPs for its Somatuline ED products for two reasons. First, CMS suggested that base date AMP information follows the NDA number, and therefore, because Somatuline ED shares an NDA number with the original Somatuline, it could not qualify as a distinct “covered outpatient drug.” A.R. 33–34. For this proposition, CMS cited no statute and no regulation and instead relied on a plainly inapplicable Manufacturer Release. When the Court reads Release No. 26, it will see that it provides no support at all for CMS’s decision here. That guidance document is limited on its face to addressing the situation of one company buying a drug from another company, where the identity of the company owning the drug changes but the drug itself does not. Under the heading “BUYING INNOVATOR PRODUCTS FOR RESALE,” this guidance states: “If your company purchases an innovator product and repackages it under your NDC for sale, you MUST establish this new NDC with the Market Date and Baseline AMP equal to that of the innovator.” A.R. 91–92. In this context of “the purchase and repackaging of innovator products,” the guidance states that “Baseline information, such as Market Date and Baseline AMP[,] MUST follow the NDA of the product. It does NOT follow the NDC of the product.” A.R. 91–92 (emphasis in original). Nothing in this guidance addresses Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 28 of 36 22 changes to a drug; the whole point of “the purchase and repackaging” scenario addressed by this guidance is that the drug has not changed. Ipsen has no quarrel with the proposition that a drug is still the same drug if it has not changed in any way. But that has nothing to do with this case, and it was arbitrary and capricious for CMS to suggest otherwise. CMS compounded its error in choosing to rely exclusively on inapposite language from this inapplicable guidance—“Baseline information . . . follow[s] the NDA . . . of the product”— by ignoring a far more on-point guidance. CMS’s own Manufacturer Release No. 48 states: If a company buys a product, changes something (tablet to capsule, changes shape, makes a change in formulation, etc.) and applies for an ANDA, the NDC that reflects the product under the new ANDA has history start over for itself. Baseline information is to reflect dates, etc., of the product under the new ANDA, NOT under the old NDA/ANDA. A.R. 110. It is illogical to suggest that changes to existing products made via an ANDA—an abbreviated new drug application, commonly known as a generic drug application—create new drugs for MDRP purposes but changes made via an sNDA do not. Likewise, if a new base date AMP applies “[i]f a company buys a product [and] changes something,” the same must be true if the “change” is made by the original manufacturer; it would make no sense for the availability of a new base date AMP to turn on the identity of the manufacturer rather than the changes to the drug product. As a result, Release No. 48 should have led CMS to agree with Ipsen that its changes resulting in Somatuline ED entitle it to new base date AMPs (one for each strength of Somatuline ED). Instead, CMS ignored Release No. 48 and, as noted, relied entirely on Release No. 26. That choice by CMS is especially difficult to understand given that Release No. 48 addresses the “purchase and repackaging” (A.R. 91) scenario in which the drug is not changed on the same page as the scenario where a company “changes something”—and reaches opposite Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 29 of 36 23 results in those two different scenarios. A.R. 110. As to the former situation, which was already addressed in Release No. 26, CMS adhered to its position set forth in Release No. 26. Id. (“[i]f a company buys a product and changes the NDC,” the “product history stays with the product and is duplicated for the new NDC following that of the old NDC. History follows the NDA, NOT the NDC of the product.”). As to the latter situation, as explained above, CMS explicitly reached the opposite result, stating that the NDC for the changed product “has history start over for itself.” Id. CMS’s reliance on Release No. 26 also ignored the regulation that comes the closest to applying here. CMS promulgated a regulation stating that drugs with different NDCs are “drugs of different types,” as distinguished from “the same drug.” 42 C.F.R. § 447.502; see supra at p. 9 n.2. Somatuline ED has different NDCs from the predecessor product, so this regulation suggests that Somatuline ED is a “drug[] of []a different type[]” from the predecessor. To be sure, this regulation is not directly on point because it concerns bundling, not the setting of base date AMP. Nonetheless, it carries greater authority than Release No. 26, as it is a regulation rather than a mere guidance document. It was arbitrary for CMS not to even acknowledge it here in its simplistic focus on the NDA number. Second, the agency sought to justify its decision based on the fact that Somatuline ED shares the same dosage form and strengths as the predecessor product. A.R. 6. But this just begs the critical question of whether Somatuline ED is the same drug as the predecessor. If not, even CMS would have to agree that Somatuline ED is entitled to its own base date AMPs. And yet CMS ignored this critical threshold issue—twice. Both Ms. Tuttle’s email and Mr. Coster’s letter emphasize the statutory reference to dosage form and strengths, while skipping over the fundamental question of whether the products are even the same drug in the first place. See A.R. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 30 of 36 24 6 (“Sections 1927(c)(2)(A) and (B) of the Social Security Act (the Act) specify that the baseline data is established for each dosage form and strength of the drug.”) (emphasis in original); A.R. 34 (same). This is the height of arbitrary decisionmaking. To make matters worse, CMS’s decision here reflects an inconsistent approach. The record reveals that when other manufacturers sought CMS’s approval to establish new base date AMPs for their modified drugs, CMS often sought and received FDA’s input on whether the modifications rendered those drugs new. See A.R. 123, 124–25 (relating to what A.R. refers to as Manufacturer #1); A.R. 136–37, 139–40 (Manufacturer #3); A.R. 158, 171 (Manufacturer #4). Here, in contrast, so far as appears from the record, CMS failed to seek FDA’s input. CMS’s past practice of consulting the agency with expertise on what makes a drug “new” was eminently sensible, and CMS’s “[u]nexplained inconsistency” in failing to seek FDA input here is an additional “reason for holding [its decision] to be . . . arbitrary and capricious.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016); cf. Sierra Club v. EPA, 671 F.3d 955, 965–66 (9th Cir. 2012) (agency’s decision was arbitrary and capricious where it failed to consider newer “data [that] told a different story than . . . earlier data” that agency had relied on and where agency failed to provide an adequate explanation for doing so).5 In short, “in the absence of any reasonable justification” in CMS’s decision, the Court “must conclude that [it] is arbitrary and capricious.” U.S. Air Tour Ass’n v. FAA, 298 F.3d 997, 1019 (D.C. Cir. 2002). 5 Although the record is silent as to why CMS opted not to consult with FDA here, it should go without saying that it would be improper for CMS to depart from its past practice in a particular case because it would rather not hear what FDA would say. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 31 of 36 25 CMS’s Position Is Substantively Arbitrary. B. Even if CMS had some legal authority to adopt a position that departed from the FDCA and FDA regulations governing when changes to a product make it a new drug, and even aside from CMS’s failure to justify its decision here, CMS’s decision still could not stand because it is arbitrary. An agency must base decisions on a “rational connection between the facts found and the choice[s] made.” Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43. Here, CMS treated the fact that Ipsen sought FDA approval through an sNDA instead of an NDA as dispositive. A.R. 30, 34. But, as explained above, whether a manufacturer seeks approval of a new drug by submitting an supplemental new drug application instead of a stand-alone new drug application is a distinction without a difference. See supra pp. 7–8. Manufacturers use sNDAs because FDA encourages them to do so for efficiency reasons and because NDAs are more expensive, but they are legally free to use NDAs instead. See A.R. 19. As explained above, CMS has not provided a reasonable explanation for determining that Somatuline ED is the same old drug as the predecessor because Ipsen sought approval via an sNDA. But this is not a mere failure of explanation. To the contrary, the reality is that allowing the choice between two equally available FDA approval pathways to dictate the result under the MDRP is simply arbitrary. It is no accident, in other words, that CMS could not come up with a reasonable explanation. CMS Did Not Put Ipsen On Fair Notice. C. Finally, CMS acted arbitrarily by failing to give Ipsen fair notice of its policy. CMS’s policy was articulated in a letter sent to Ipsen only after it had proceeded via sNDA instead of stand-alone NDA. CMS has never published this sNDA/NDA distinction in any public forum (let alone subjected it to notice-and-comment rulemaking). Instead, CMS has announced its Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 32 of 36 26 policy only in unpublished letters to other companies that, like Ipsen, sought CMS’s approval to establish new base date AMPs. See A.R. 116–96. “[F]air notice” was critical here because CMS’s position was unknown and is so disconnected from the Social Security Act—in addition to being contrary to the FDCA and FDA regulations—that Ipsen could not have been expected to know that CMS would take this position. See Trinity Broad. of Fla., Inc. v. FCC, 211 F.3d 618, 628 (D.C. Cir. 2000) (question for fair notice purposes is whether agency’s interpretation was “ascertainably certain”); see also Fabi Constr. Co. v. Sec’y of Labor, 508 F.3d 1077, 1088 (D.C. Cir. 2007) (“[e]ven if the Secretary’s interpretation were reasonable, announcing it for the first time in the context of this adjudication deprives Petitioners of fair notice”); Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius, 650 F.3d 685, 688 (D.C. Cir. 2011) (while Secretary’s interpretation was reasonable, it was nonetheless erroneously applied to the provider since the provider was “not on notice of the agency’s ultimate interpretation”) (quoting Gen. Elec. Co. v. EPA, 53 F.3d 1324, 1334 (D.C. Cir. 1995)). If Ipsen had known that CMS placed dispositive weight on whether a manufacturer proceeded via sNDA versus NDA, Ipsen could have done the latter; as explained above, federal law permitted either avenue. Moreover, that many companies have sought CMS’s guidance on this precise issue is all the more reason for CMS to announce a public position, by, for example, undertaking notice- and-comment rulemaking. Public participation “improves the quality of agency rulemaking by exposing regulations to diverse public comment, ensures fairness to affected parties, and provides a well-developed record that enhances the quality of judicial review.” Sprint v. FCC, 315 F.3d 369, 373 (D.C. Cir. 2003) (internal quotation marks omitted). Public comment “allow[s] the agency to benefit from the expertise and input of [] parties,” Nat’l Tour Brokers Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 33 of 36 27 Ass’n v. United States, 591 F.2d 896, 902 (D.C. Cir. 1978), and “educates the agency, thereby helping to ensure informed agency decisionmaking.” Chocolate Mfrs. Ass’n of United States v. Block, 755 F.2d 1098, 1103 (4th Cir. 1985). The notice-and-comment process also helps ensure “that the agency maintains a flexible and open-minded attitude towards its own rules.” Nat’l Tour Brokers, 591 F.2d at 902. CMS’s failure to provide notice of its position is no mere technical error. It cuts to the very heart of the APA’s purpose to afford interested parties the opportunity to comment on basic rules of vital interest to their business and, equally importantly, afford the agency the benefit of that collective wisdom. Cf. Nat’l Ass’n of Clean Water Agencies v. EPA, 734 F.3d 1115, 1148 (D.C. Cir. 2013) (recognizing that the very purpose of rulemaking is “to ensure that affected parties have an opportunity to participate in and influence agency decision making . . .”). Had CMS proposed this policy through notice-and-comment rulemaking, parties like Ipsen could have raised the precise concerns raised here. For CMS to spring its dispositive distinction between sNDAs and NDAs on Ipsen only after Ipsen had lawfully and irrevocably opted for the FDA-favored sNDA pathway in obtaining approval for its new drug is arbitrary and unfair. Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 34 of 36 28 CONCLUSION For the foregoing reasons, this Court should declare that Somatuline ED is a new and different drug product from Ipsen’s predecessor product for purposes of the Medicaid Drug Rebate Program and set aside CMS’s determination to the contrary. Respectfully submitted, /s/ Jeffrey S. Bucholtz Jeffrey S. Bucholtz D.C. Bar No. 452385 John Shakow D.C. Bar No. 451429 Nikesh Jindal D.C. Bar No. 492008 Marisa Maleck D.C. Bar. No. 1015210 KING & SPALDING LLP 1700 Pennsylvania Ave., NW Washington, D.C. 20006 Telephone: (202) 737-0500 Facsimile: (202) 626-3737 jbucholtz@kslaw.com jshakow@kslaw.com njindal@kslaw.com mmaleck@kslaw.com Dated: May 8, 2017 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 35 of 36 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing via the Court’s CM/ECF on all counsel of record. /s/ Jeffrey S. Bucholtz Jeffrey S. Bucholtz Dated: May 8, 2017 Case 1:16-cv-02372-ABJ Document 13 Filed 05/08/17 Page 36 of 36 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA IPSEN BIOPHARMACEUTICALS, INC. 106 Allen Rd. Basking Ridge, NJ 07920 Plaintiff, v. THOMAS E. PRICE, in his official capacity as Secretary of Health and Human Services Hubert H. Humphrey Building 200 Independence Avenue, SW Washington, DC 20201 SEEMA VERMA, in her official capacity as Administrator of the Centers for Medicare & Medicaid Services Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 CENTERS FOR MEDICARE & MEDICAID SERVICES Hubert H. Humphrey Building 200 Independence Ave., SW Washington, DC 20201 Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 16-cv-02372-ABJ [PROPOSED] ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Case 1:16-cv-02372-ABJ Document 13-1 Filed 05/08/17 Page 1 of 3 Upon consideration of the parties’ summary judgment papers and the Administrative Record, the Court ORDERS that Plaintiff Ipsen Biopharmaceuticals, Inc.’s motion for summary judgment is GRANTED. The Court holds that Somatuline® (lanreotide) Depot Injection With Enhanced Device is a new and different drug product from Ipsen’s predecessor product for purposes of the Medicaid Drug Rebate Program and sets aside the Centers for Medicare & Medicaid Services’ contrary determination as arbitrary, capricious, not in accordance with law, and an abuse of discretion. SO ORDERED. Dated: ___________, 2017 ______________________________________ HONORABLE AMY BERMAN JACKSON UNITED STATES DISTRICT COURT JUDGE Case 1:16-cv-02372-ABJ Document 13-1 Filed 05/08/17 Page 2 of 3 SERVICE LIST Daniel Patrick Schaefer U.S. ATTORNEY’S OFFICE Civil Division 555 Fourth Street, NW Washington, DC 20530 (202) 252-2531 Fax: (202) 252-2599 Email: Daniel.Schaefer@usdoj.gov Case 1:16-cv-02372-ABJ Document 13-1 Filed 05/08/17 Page 3 of 3