White House Advances War On 'Guidance'; FDA Not Target, But May Feel Ripple Effects

US FDA's efforts to enforce against regenerative medicine and other gray market products might be collateral damage in Trump administration's latest attack on the perceived abuse of powers by regulatory agencies.

President Trump signed two new executive orders intended to limit “abuse” by federal agency of informal policy documents on 9 October as the latest step in his effort to claim success at reining in bureaucracy.

The new orders continue a theme of regulatory reform activities in the Trump Administration that began on the campaign trail with his promise to implement a “two for one” rule, requiring agencies to withdraw two regulations for each new one they issue.

More recently, the Office of Management & Budget has established new pre-clearance rules that seemingly broadened the scope of guidances that could be delayed (or derailed) at the White House. (Also see "US FDA Guidance Production May Be Slowed By New OMB Review Requirement" - Pink Sheet, 14 Apr, 2019.)

Each of those pronouncements prompted questions and concerns about potentially interfering with the Food and Drug Administration's plans to accelerate promulgation of guidances, a key priority for the agency in the context of reorganizing its new drug review operations. (Also see "'Just Say It!' – New Streamlined Guidance Format Coming, FDA's Woodcock Says" - Pink Sheet, 14 Nov, 2017.)

Thus far, however, there does not appear to have been a chilling effect on guidances from FDA, at least in the context of the medical product review activities.

The new White House priorities will almost certainly not do anything to change the pace of drug development guidances either, and instead may help FDA continue to stand out as a model of “good” regulation in the Trump Administration.

The first executive order, “Promoting the Rule of Law Through Improved Agency Guidance Documents,” largely includes directives for agencies to adopt practices that are already in place at FDA. Specifically, agencies are directed to maintain a public website of all guidance documents, assure that all economically significant guidances are published in the Federal Register for public comment, and include a statement that they are not legally binding.

OMB is directed to issue an implementing memorandum outlining those procedures. For FDA, that will presumably trigger a period of review to ensure that its existing practices meet the letter of OMB’s policies, but does not seem likely to require any substantive changes.

Obstacle In The Way Of FDA's New Enforcement Priorities

However, the second order, “Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication,” applies more broadly to agency enforcement actions and could place obstacles in the way of FDA asserting new priorities in areas like compounding, CBD, unapproved drugs, regenerative medicine, or lab-developed test regulation.

To be clear, FDA is not the intended target of the order. Instead, the White House’s focus is on cases championed by libertarian organizations and property rights advocates, with a focus on environmental and land use policies.

The White House signing ceremony featured statements from three men who cast themselves as victims of overzealous environmental and land use regulations. Two of the three were represented by the Pacific Legal Foundation, “a nonprofit legal organization that defends Americans’ liberties when threatened by government overreach and abuse.”

Unlike the executive order on guidances – which will boil down to a checklist for agencies to follow for their procedures – this order is a more open-ended declaration that agencies need to provide appropriate notice and education before moving to enforcement.

The underlying libertarian spirit of the order can – and almost certainly will – provide another avenue for arguments by firms or individuals who want to offer alternatives to FDA-regulated medical products without subjecting themselves to FDA regulation.

Specifically, the order directs that “when an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.  An agency must avoid unfair surprise not only when it imposes penalties but also whenever it adjudges past conduct to have violated the law.”

Defining An "Unfair Surprise"

The concept of “unfair surprise” is itself defined in a manner that has direct connections to biopharmaceutical companies: the order references a Supreme Court case involving application of labor laws to pharmaceutical sales reps.

“‘Unfair surprise’ means a lack of reasonable certainty or fair warning of what a legal standard administered by an agency requires,” the order states. “The meaning of this term should be informed by the examples of lack of fair notice discussed by the Supreme Court in Christopher v. SmithKline Beecham Corp.”

That 2012 decision involved litigation brought by two sales reps arguing that they should be entitled to overtime pay because they routinely worked more than 40 hours per week. The Department of Labor initially sided with the sales reps, and determined that they should receive time-and-a-half – a determination that would have had far reaching impacts on all pharmaceutical companies.

In a 5-4 decision, the court held that the sales reps had been appropriately compensated under labor laws that exempt “outside salesmen” from overtime requirements. (Also see "Supreme Court’s Pro-Pharma Decision On Sales Rep Overtime Reproves Informal Agency Policymaking" - Pink Sheet, 18 Jun, 2012.)

The majority held that “to defer to the DOL’s interpretation would result in precisely the kind of ‘unfair surprise’ against which this Court has long warned.”

“Until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed” federal law, the opinion states. “The statute and regulations do not provide clear notice. Even more important, despite the industry’s decades-long practice, the DOL never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully. The only plausible explanation for the DOL’s inaction is acquiescence.

The argument that a long history of inaction amounts to acquiescence could carry over into a number of areas of FDA regulation – particularly in fields like “regenerative medicine” or “legacy” (i.e., unapproved) drugs.