Pharmaspective

The Supreme Court to Determine Whether Pharmaceutical Sales Representatives are Entitled to Overtime Pay

By: Sandra González

    Since our previous post, Should Sales Representatives Be Entitled to Overtime Pay?, we have continued to track the circuit split between the Second and Ninth Circuits on the issue of whether pharmaceutical sales representatives are entitled to overtime-pay.  The United States Court of Appeals for the Second Circuit found that sales representatives were not exempt from the Fair Labor Standards Act (“FLSA”) overtime-pay requirements, thus, they were entitled to overtime-pay.  In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010).  However, the United States Court of Appeals for the Ninth Circuit ruled that pharmaceutical sales representatives are not entitled to overtime pay under FLSA.  Christopher v. SmithKlineBeecham Corp., 635 F.3d 383 (9th Cir. 2011).  Notably, two weeks after the Ninth Circuit decided Christopher, the Supreme Court denied review of the Second Circuit’s decision.  The Court’s denial of certiorari left many wondering about the repercussions that the circuit split would have on the industry.  Last month, PhRMA filed an amicus brief with the Supreme Court in which the organization requested review of the Ninth Circuit’s decision.  In that brief, PhRMA stated that “[u]ntil this circuit split is resolved, PhRMA members are exposed both to potentially staggering retrospective liability and to uncertainty over whether they must undertake major restructuring that would have significant consequences for the industry and its employees[.]”

On November 28, 2011, the Supreme Court agreed to review the Ninth Circuit’s case.  Upon review, the Supreme Court will examine two issues:  (1) whether deference is owed to the Secretary of the U.S. Department of Labor’s interpretation of the FLSA’s outside sales exemption and related regulations; and (2) whether the FLSA’s outside sales exemption applies to pharmaceutical sales representatives. 

Regarding  the first issue, the Department of Labor (“Department”) sided with the sales representatives in Christopher, stating that the outside sales exemption in the FLSA does not apply to pharmaceutical sales representatives.  Furthermore, in its brief to the Supreme Court, the Department stated that the Ninth Circuit’s opinion undermines “several decisions of the Supreme Court . . . instructing courts to defer to an agency’s interpretation of its own regulation unless ‘that interpretation is plainly erroneous or inconsistent with the regulation[.]’”  The Department argues that by denying deference to the Secretary’s interpretation, the Ninth Circuit has wrongfully expanded the definition of the outside sales exemption. 

The second issue will turn on the Supreme Court’s classification of the activities that pharmaceutical sales representatives engage in as “promotional” or as “making sales.”  If the Supreme Court rules that pharmaceutical sales representatives engage in promotional activities and do not “make sales,” the FLSA outside sales exemption would no longer apply and, absent application of another exemption, such as the administrative exemption, pharmaceutical companies would face multi-billion dollar repercussions. 

The Supreme Court will likely decide the issue in June of 2012.  Until then, we are left with a number of questions:  Why did the Supreme Court deny review of the Second Circuit’s decision, but grant review of the Ninth Circuit’s ruling?  Does the Supreme Court agree with the Second Circuit’s ruling?  If so, what are the implications for pharmaceutical companies?  Should companies start rethinking the industry’s current selling model and their current organizational structures? 

Zyrtec Went Viral on YouTube, Will Others Follow?

With the onset of the fall allergy season, Zyrtec made the bold decision to take its ad campaign viral with an interactive Choose-Your-Own-Adventure style video clip game, Parks Unleashed, on YouTube.  This was uncharted territory for both YouTube and the pharmaceutical marketing industry.  On September 5^th, Zyrtec launched its Parks Unleashed YouTube channel, which featured an interactive game based upon the premise of anthropomorphic dogs acting out the heist of stealing computer tablets from unsuspecting park visitors and burying those tablets throughout the park.  

 

The player was tasked with clicking on various screens and answering different questions, which led the player down different paths in search of the stolen tablets.  By clicking through the interactive game that includes talking dogs and quirky characters (Kyle the Krazy Kite King Guy, Roadie Rick, and Diamond Lady, to name a few), the player could earn a chance to win one of 200 Samsung Galaxy Tab Android tablet.  The game was available through the Zyrtec YouTube channel for about 6 weeks.  During that 6-week time period, the Parks Unleashed YouTube channel had more than 2.2 million views with each player spending an average of 7 minutes playing the game, and returning players spending as much as 30 minutes or more.  To date, the Parks Unleashed YouTube channel has had more than 2.6 million views.  McNeil Consumer Healthcare integrated its YouTube Zyrtec campaign with its branded website, used a Facebook ad campaign, and included a reference to its YouTube channel on one TV advertisement that ran for about one week.

 While Zyrtec is the first pharmaceutical company to utilize YouTube to advertise its product with an interactive game, Pepto Bismol also ventured into the YouTube social media advertising world around Cinco de Mayo this year by creating a YouTube app that allowed visitors to create their own “Pinata Smash” video and share their own video on Facebook or Twitter.

 The life science industry may be reluctant to charge forward and take full advantage of the advertising opportunities presented by social media based on the lack of specific guidance from FDA.  Typically, the life science industry will use its YouTube presence to post its television advertisements rather than create material specifically for YouTube, much less material that engages the user.  John Mack of the Pharma Marketing Blog is cited as stating that the lack of guidance from FDA is an easy excuse, but that is not the real problem.  According to Mr. Mack,  “What’s holding back the industry is the old axiom: You can’t teach an old dog new tricks…Social media is alien to both pharmaceutical marketers and corporate communications executives who are used to ‘pushing’ messages out to ‘targets’ rather than engaging in two-way communications with peers, which is the essence of social media.” 

 With both McNeil Consumer Healthcare and Proctor & Gamble dipping their toes into the social media water and using interactive social media to advertise over-the-counter pharmaceutical products, will we see other life science companies follow suit, take a risk and increase their use of social media to advertise their products, both over-the-counter and prescription?  Will the statistics of 2.2 million views in a 6-week time period be enough to convince the industry venture out of their advertising comfort zone and give social media a chance?

Goodbye DDMAC, Hello OPDP

Following an 18 month approval process, Director Janet Woodcock announced in an email to Center for Drug Evaluation and Research (“CDER”) staff on Monday, September 19^th that the Division of Drug Marketing, Advertising and Communication (“DDMAC”) is now reorganized and elevated into the newly formed Office of Prescription Drug Promotion (“OPDP”).  FDA first announced that it was considering the elevation of DDMAC to office status in February 2010.  Given the size of DDMAC, FDA no longer considered the designation of division appropriate.  This recent elevation and reorganization comes as CDER’s Office of Medical Policy undergoes a transition into a super office, which continues to be led by Rachel E. Behrman, Director of the Office of Medical Policy.

The new OPDP will house two divisions, the Division of Professional Promotion and the Division of Direct-to-Consumer Promotion.  The reorganization did not involve a change in leadership.  Thomas Abrams will be the Director of OPDP with Mark Askine as the Associate Director, Marci Kiester as Associate Director of Operations, Catherine Gray as Acting Director of Division of Professional Promotion, and Robert Dean as Acting Director of Division of Direct-to-Consumer Promotion.

The regulated community waits with baited breathe to see if these monumental changes result in equally monumental shifts in regulations and enforcement.  Perhaps OPDP’s first regulatory act will be to issue the long promised internet and social media rules.

The OIG’s Interesting Reversal in the Solomon Case

In what appears to be a complete about-face, earlier this month, the OIG informed Forest’s Chairman, CEO and President, Howard Solomon, that it has decided not to seek his exclusion from federal healthcare programs. This decision stands in stark contrast to the OIG’s initial notification to Solomon of his potential exclusion based on his association with Forest, as well as its position as stated in the May 10, 2011 fact sheet, which explicitly asserted the OIG’s authority to exclude corporate officers when a company is convicted of a crime. In a very short and simple letter to Solomon on August 5, 2011, the OIG advised Solomon that after reviewing its file and the information provided by Solomon’s attorneys, the OIG was closing its case. Although a good outcome, the unsatisfying explanation in the OIG’s letter fails to shed any light on why the OIG chose to pursue the exclusion in the first place and what specifically caused them to abandon the pursuit. Moreover, it only begets more unanswered questions. Will the OIG pursue the exclusion of officers based on association as a matter of course when a company is convicted of a crime, unless the officer can prove, as apparently Solomon did, that the factors weigh against exclusion? How can an executive demonstrate that he or she has established compliance and lawful behavior as an integral facet of the company’s culture? How will future executives and officers persuade the OIG that they are trustworthy participants in federal healthcare programs when they might not have the amazing reputation and career of Solomon to recount? In Solomon’s case, he was able to provide the OIG with evidence of his personal reputation, the strong compliance program the company instituted under his direction, and the proactive approach he took towards compliance issues. While it is unclear exactly what piece of evidence led to the case’s closure, it is apparent that executives must consider what policies, procedures, and programs they have and (perhaps even more importantly) have not instituted and what message it could send to personnel and the OIG during an investigation.

Kansas Prescription Monitoring Program: What do Wholesalers Have to do With It?

By:  Elizabeth H. Kim and Frank Fazio

Wholesale distributors shipping drugs into Kansas may have recently received a letter from the Kansas Board of Pharmacy ("Board") requesting monthly shipment lists of prescription drugs sold or distributed into the state. Why?  Well, the letter notes that the request is part of the newly launched Kansas Prescription Monitoring Program ("PMP").

 The PMP is a state-wide initiative that tracks prescriptions for controlled substances and “drugs of concern” in the state as a means of combating drug diversion and abuse.  The implementing regulations, which appear at Kan. Admin. Regs. 68-21-1 to -7 (2011), define “drugs of concern” as products containing a combination of butalbital, acetaminophen, and caffeine; as well as carisoprodol; and tramadol.  Controlled substances include schedules II, III, or IV substances as delineated in the Federal Controlled Substances Act. This information, to be provided by dispensing practitioners and pharmacies, will be synthesized and uploaded into the Kansas Tracking and Reporting of Controlled Substances ("K-TRACS") centralized electronic database.

 Kansas joins about 35 other states, such as California and Pennsylvania, that currently have PMPs. Thirteen states and the District of Columbia have enacted legislation to establish a PMP, but the programs are not fully operational.

 The purpose of the PMP, as proudly displayed on the Board’s website, is to “provide useful feedback to prescribers on their own prescribing trends as well as their patients’ controlled substance histories. PMPs also provide useful information to prescribers when they suspect that a patient may be non-compliant in their controlled substance use.” 

 While the purpose and reasoning behind the PMP appear beneficial, if not admirable, the question remains:  What do wholesalers have to do with it?

 According to the Kansas statutes and regulations, nothing. According to the Board, however, a lot.

 A little investigative work into this issue has revealed that the monthly shipment information from wholesale distributors is intended to help the Board identify those practitioners in the state who are dispensing to patients. In other words, rather than notifying all the licensed practitioners in Kansas of this new requirement, and therefore placing the onus on the practitioner to self-identify as a dispenser, the Board has taken the liberty of requesting this information from wholesale distributors. Although the board is requesting this information from wholesalers, the Kansas Legislature expressly exempted licensed wholesalers from PMP reporting obligations.

 Does this strategy make sense?  Only time will tell. 

 As of now, it appears that the Board is committed to amassing this information from wholesalers.  And as a representative from the Board compellingly expressed, while the enforcement policies have yet to be ironed out, the Board expects full compliance from wholesalers (particularly in light of the fact that it is the entity that issues wholesalers’ licenses).

 So, while wholesalers have nothing to do, officially, with Kansas’ PMP, unofficially, they are expected to provide information that will serve as the foundation of the PMP. Go figure.

The Razor’s Edge: Clinical Trial Results Reporting or Illegal Promotion?

 Peruse the web site of any branded pharmaceutical or biotech company and you will likely find a section describing its pipeline.  That section often summarizes investigational products, where they are in the developmental process, and provides summary results of the latest clinical trials.  Communicating such information has value to both the scientific community as well as potential investors attempting to divine the company’s financial direction.  

 The federal regulations permit a company to engage in a full exchange of scientific information “including dissemination of scientific findings in scientific or lay media.”  21 CFR §312.7(a).  A company is not, however, permitted to represent “in a promotional context that an investigational new drug is safe or  effective for the purposes for which it is under investigation.”  But when does a company cross the razor’s edge from factual communication to illegal promotion?   

 On June 30, 2011, the Division of Drug Marketing, Advertising, and Communications (DDMAC) issued an untitled letter to AOI Pharmaceuticals, Inc./Keryx Biopharmaceuticals, Inc. (“Keryx”) for crossing that line on its web site.  DDMAC found that several of the comments in the “About Us” and “Product Pipeline” sections of the Keryx web site were “promotional,”  contravening  the federal regulation. 

 The offending claims identified by DDMAC could likely be found on dozens of other web sites.  They included a representation that the compound “has demonstrated both safety and clinical efficacy.”  They also reported that the  “safety profile is distinctly different from that of most cytotoxic agents” and it “does not appear to cause” certain side effects common among the class.  The web site summary further claimed that the trials “demonstrated that [the product] can be safely given to humans with a manageable toxicity profile” and “has been well tolerated …”   A casual review of the offending website would lead one to believe that Keryx was attempting to couch these claims as clinical findings.  They used words and phrases such as “demonstrated” and “does not appear” in an attempt to walk the line between communication and promotion.

  Keryx also included standard disclaimer language stating that “This investigational drug product has not been approved by the US Food and Drug Administration for safety and effectiveness.  This investigational drug product is still undergoing clinical study to verify its safety and effectiveness.”  DDMAC determined that this disclaimer was insufficient “to mitigate the overwhelming misleading impression conveyed by claims on Keryx’s website.”

 So how do you report on pipeline status and positive clinical trial results without crossing the line into illegal promotion?  Keryx may have been able to avoid this untitled letter by more clearly noting that clinical trials to date had provided encouraging data on safety and efficacy while noting that additional research is required.  Will your web site pass muster? Although there is no certainty, a working knowledge of untitled and warning letters will provide valuable guidance in ensuring your company’s promotional compliance.

FDA Moves to Repeal Existing Pedigree Regulations

 
 
Citing ongoing concerns associated with the full implementation of the present federal pedigree requirements “on the nation’s drug supply and on wholesale distributors,” the FDA has proposed removing the provisions set forth at 21 CFR § 203.50(a) from the Code of Federal Regulations.  76 FR 41436 (July 14, 2011).

 The proposal would remove the requirement that the pedigree identify each transaction back to the manufacturer along with the presently required identifying information, e.g. proprietary and established name, dosage, lot, name and address of parties to each transaction, etc.  The FDA intends to exercise enforcement discretion with respect to the present rule while the proposed removal is pending.  Although the statutory provisions of the PDMA will remain, the FDA will exercise enforcement discretion with respect to the statutory requirements and identifying  information “as long as the pedigree otherwise identifies the last authorized distributor of record that handled the drugs and the associated dates of the transactions, as well as the names and addresses of all unauthorized distributors that handled the drug after the last authorized distributor, and the corresponding dates of those transactions.”  76 FR at 41437.  The FDA does, however, encourage wholesalers to continue to include the identifying information.

 The Prescription Drug Marketing Act (PDMA) was enacted on April 22, 1988 and was modified by the Prescription Drug Amendments of 1992 (PDA).  One provision of the PDMA requires a wholesale distributor who is not the manufacturer or authorized distributor of record to provide a pedigree to purchasers demonstrating each prior sale, purchase or trade of the drug.  21 U.S.C. 353.  The implementing pedigree regulations have been fraught with controversy since the issuance of the proposed rule in 1994.

 The FDA issued a guidance letter in 1988 advising that a pedigree include necessary identifying information for all sales in the chain of distribution “starting with the manufacturer or the authorized distributor of record.”   The controversy began when the proposed and ultimately final rule retreated from the guidance and required that the pedigree list each prior transaction “starting with the manufacturer.”  21 CFR § 203.50(a)(6). Unauthorized distributors have since vehemently complained that the required information is not available to them.   The  authorized distributors of record, from which they purchase, are exempt from passing on that information and are unwilling to do so voluntarily.  As such, they have contended that they do not have access to the information in order to meet the requirements.

 Several stays by the FDA pushed the effective date back from December 4, 2000 to December 1, 2006.   A federal court enjoined the FDA from implementing the regulation on December 8, 2006.  Since its original publication in the December 3, 1999 Federal Register,  21 CFR § 203.50(a) was in effect for only seven days.

 The FDA has expressed its commitment to securing the nation’s drug supply and its continued exploration of track and trace alternatives.  It is highly unlikely that such a program will be in place to stave off the looming January 1, 2015 California electronic track and trace pedigree deadline.  The industry has about 42 months and counting…

Maryland Board of Pharmacy Stages a Limited Retreat From Its Definition of “Manufacturer” For Licensing Purposes

  
 By: Frank Fazio

Any manufacturer or private label distributor that utilizes a contract manufacturing organization (CMO) can share horror stories about the year-end renewal of the Maryland distribution license.   Prior to the December 31, 2010 renewal deadline, the board determined that only facilities that physically manufactured product and had an FDA Establishment Registration could utilize the abbreviated form for manufacturers.  Any entity that utilized a CMO would now have to complete the more onerous wholesaler application.  Suddenly, NDA/ANDA holders and private label distributors had to scramble to obtain fingerprints and background checks of senior corporate officers while attempting to secure surety bonds.  If they were not located in one of a handful of specified states they were told they needed VAWD certification from the National Association of Boards of Pharmacy (“NABP”), notwithstanding the fact that the NABP will not certify the corporate offices of a company that does not store or warehouse drugs.

 We had numerous communications with the board over the past six months in an effort to reconcile the inconsistencies in their position.  The board’s FAQs attempted to explain who could file the manufacturer application and defined manufacturer  to include preparing, propagating and labeling.  Contrary to its adoption of the customary definition, they then restricted use of the short form to only those entities that physically manufacture.

Virtual manufacturers, whether private label, or the NDA/ANDA holder whose name and NDC number are on the product label are both the labeler and propagator of those products.  Although Maryland does not define propagate, Florida, which arguably has the most stringent licensing requirements, defines propagation to specifically include private label distributors.

In a communication from the board dated June 21, 2011, the Maryland board relented and potentially loosened the requirements for companies utilizing a CMO.  The board noted that virtual, own-label, and private label manufacturers may again qualify for the short form manufacturer application.  A company without an FDA establishment registration should be prepared to provide both proof that it owns the NDC number for the products  and a copy of the CMO contract.  It appears that decisions will be made by the board on a case-by-case basis.

Although Maryland’s new position is qualified, we believe that many of the companies that had to obtain surety and fingerprints for this renewal period will likely return to the prior short form application for the next renewal period.  Those tasked with managing renewals can breathe a sigh of relief knowing that they won’t have to haul  the company president down to his local law enforcement agency for fingerprints in the middle of the Holiday season and will not have to renew surety bonds or letters of credit.  We expect that the Maryland board will either revise their regulations to capture the change, or post clarifying information on their web site.

Vermont's Data Mining Law Backfires

The introduction of Vermont’s Data Mining Law and the subsequent court battle and rulings may have accidentally encouraged focused pharmaceutical detailing, the exact practice Vermont sought to squash.  In June 2007 the Vermont legislature passed its Prescription Confidentiality Law.  According to its text, the Vermont legislature believed that prohibiting the use of prescription information for marketing purposes would protect the privacy of prescribers and ensure that health care costs are contained.  Without  this prescription information pharmaceutical representatives of branded manufacturers would no longer be able to target physicians with certain prescribing habits, and their ability to promote their drugs effectively would be diminished.  Ironically, however, the legal battle, the press and the Supreme Court’s recent Opinion remind people how effective and powerful focused pharmaceutical detailing can be.  In recent years, many pharmaceutical companies have looked at new avenues for promotion, including increased visibility on the Internet.  One often wondered whether the days of traditional detailing were numbered.  After reading the majority opinion, however, I am more convinced than ever that pharmaceutical detailing has a place at the table.  The majority opinion points out that Vermont practitioners consider detailing based on prescriber identifying information to be “very helpful.” Not only do many prescribers find such information informative, but the recent review of the practice suggests that it is very effective. The state itself claimed in its brief that “pharmaceutical marketing has a strong influence on doctor’s prescribing practices.”  The majority decision also suggests that the government prohibited such detailing because “it found it too persuasive.”  Who knew that Vermont’s law prohibiting the use of prescribing information for marketing would have the unintended effect of creating a record establishing how useful and effective it can be?   In the wake of Vermont’s failure it will certainly be interesting to see if pharmaceutical companies place renewed energy on detailing. 

Vermont Marketing Disclosure Reports Move from Fiscal Year to Calendar Year

 
  On May 26^th, Governor Peter  Shumlin signed Vermont Senate Bill 104 into law, which amends sections 4631a and 4632 of Vermont's Prescribed Products Gift Ban and Disclosure Law.  Among other things, Senate Bill 104 shifts the reporting period for required marketing disclosures from the fiscal year to the calendar year.  Pursuant to the passed legislation, manufacturers must submit their disclosure report by April 1^st of each year for the reportable expenditures made in the previous calendar year.  This shift of the reporting period to a calendar year will bring Vermont in line with the federal disclosure requirements, as well as the state requirements for the District of Columbia, Maine, Massachusetts, Minnesota, and West Virginia.  Additionally, the marketing disclosure report will now be due on April 1^st, the same date as Vermont’s  Samples Disclosure Form.  This law will become effective July 1, 2011, following the reporting deadline for Vermont’s 2010 disclosure reports.  On April 1, 2012, manufacturers will be required to report expenditures and gifts to Vermont healthcare providers for the second half of 2011 (July 1, 2011 – December 31, 2011).  However, the Vermont Samples Disclosure Form that will also be due on April 1, 2012 will still cover the entire 2011 calendar year.  Then, on April 1, 2013 and going forward, manufacturers will be required to disclose all activity (expenditures, gifts, and samples to Vermont healthcare providers) for the calendar year by April 1. 

In addition, Senate Bill 104 amends section 4631a of Vermont's Prescribed Product Gift Ban and Disclosure Law to exclude "prescribed products distributed free of charge or at a discounted price pursuant to a manufacturer-sponsored or manufacturer-funded patient assistance program" from the definition of "sample."

Will we see other states amending their marketing disclosure laws to bring their laws into conformity with the federal disclosure requirements?  Will any state be so bold as to amend their marketing disclosure laws to allow the federal law to completely preempt the state requirements?