The FDA's proposed rule changes for generic pharmaceutical labels and the GPhA response

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Following the Court's decision in Pliva Inc. v. Mensing that generic drug makers were shielded from liability for inadequate warnings because of their inability to easily strengthen those warnings, the FDA began a rulemaking procedure to change the rule governing generic drug labeling. On November 13, 2013 the FDA published its proposed rule to provide an opportunity for comments by industry and other interested parties.¹ The proposed rule is intended to remove the restrictions on generic drug labeling that lead the Pliva majority to rule that it was impossible for a generic drug company to comply with a state court's determination that generic drug was unreasonably dangerous because the label failed to adequately warn doctors and patients of the drug's risks:

The proposed rule would create parity among application holders with respect to such labeling changes by permitting holders of abbreviated new drug applications (ANDAs) to distribute revised product labeling that differs in certain respects, on a temporary basis, from the labeling of its reference listed drug

The FDA explained that because generic companies that received approval to market a drug under an ANDA, just as the sponsors of new drug applications receiving approval under an NDA, "have an ongoing obligation to ensure their labeling is accurate and up-to-date" and that therefore:

tension has grown between the requirement that a generic drug have the same labeling as its RLD, which facilitates substitution of a generic drug for the prescribed product, and the need for an ANDA holder to be able to independently update its labeling as part of its independent responsibility to ensure that the labeling is accurate and up-to-date.

At the time this is written, the FDA had not closed the comment period, so the rule is not yet in its final form. However, the FDA is clearly taking the position that the potential for tort liability is an important incentive for pharmaceutical companies' efforts to monitor the safety of their drugs, and that the decision in Pliva, by shielding generic manufacturers from liability, undermined their incentive during an important period in a drug's use. In its statement in support of the proposed rule, the FDA cited its own study of the safety-related labeling changes made in 2010, which found that the "most critical safety-related label changes, boxed warnings and contraindications, occurred a median 10 and 13 years after drug approval."²  

Not surprisingly, the proposed rule has met with strident opposition from the generic drug industry. "[T]he unintended consequences of this rule would be nothing short of catastrophic" according to the Ralph Neas, the President and CEO of the Generic Pharmaceutical Association (GPhA) in a February 5th release by the GPhA arguing that effects of the proposed rule would have negatively impact patient safety and the cost of health care. The GPhA's argument against the proposed rule relied primarily on a study by the economic consulting firm Matrix Global Advisors which the GPhA had commissioned to examine the proposed rules.³ The Matrix study, authored by Alex Brill, found that the principal cost of the proposed rule would come from its effects on liability costs and liability insurance and estimated that these costs would total $4 billion per year for the generic drug industry, costs which would be borne directly by consumers and their insurors. The way in which Brill arrived at that estimate is, to say the least, interesting. Brill first stated: "We conducted an extensive literature review in an effort to determine total product liability spending specific to the brand pharmaceutical industry but found no conclusive estimates." In the absence of "conclusive" estimates of product liability spending by the research-based pharmaceutical industry (he uses the term "brand" to distinguish it from his GPhA client), Brill turns to a 1993 study by Viscusi and Moore which contained an estimate of product liability costs across all industry of .67 percent of sales.⁴ Before looking at the way that Brill used that .67 figure, a look at the Viscusi and Moore study raises substantial questions about the usefulness of number. First, the Viscusi and Moore study's estimate of insurance costs relied on insurance premium data from the Insurance Services Office (ISO) from 1980 to 1984, which is 30 years or more ago. Second, the Viscusi and Moore paper indicates that the ISO data is broken down by industry, although the industry specific data for pharmaceutical is not provided in the paper. However, Viscusi and Moore identify 11 industries as being on the higher end of liability costs as a percent of sales, and the pharmaceutical industry was not one of them.⁵ Thus the aggregate, across all industries number appropriated by Brill is necessarily higher than the number that would be derived from data confined only to the remaining industries that includes the pharmaceutical industry. While that number cannot be calculated from the Viscusi and Miller study, the .67 figure used by Brill, based on that 1980 to 1984 data, simply cannot be a reasonable proxy for the actual liability costs for the branded pharmaceutical industry. It wasn't a useful basis for estimating those costs even in 1984 and there is no reason to expect it would be now.

Setting aside the question of the complete irrelevancy of this key .67 figure, the use that Brill makes of that number is even more questionable. One might assume that since .67 is Brill's chosen number for liability costs as a percentage of sales, it would be straightforward to apply that figure to the generic drug sales figure and produce an estimate of generic drug liability costs. After all, the .67 figure across all industries, however dated a number, certainly is derived from a preponderance of competitive industries, which as Brill points out, the generic pharmaceutical industry certainly is (and the brand name pharmaceutical industry is not, in terms of primarily competing on price). However, that number would not be anywhere near the magnitude of $4 billion. So to get to $4 billion, Brill converts the brand name liability total to a "per prescription" figure of $1.16 per prescription and then uses that figure for the total number of generic prescriptions to get to $4 billion. This figure, which undoubtedly will be widely quoted, clearly has no basis whatsoever in any actual liability figures for the brand name industry, let alone as a basis for estimating future generic liability. Look for an estimate of actual pharmaceutical liability costs, estimated from actual verdicts and estimated settlements, in a future post.  Let me add that this post is not an argument for or against the FDA's proposed rule.  I will also comment on that in the future.  I simply hope that this post will provide some perspective on the GPhA's response to the rule and the numbers that it cites.

1FDA, Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products, 78 Fed Reg 67985-2 (2013).

2Id. at end of Section C.

3Alex Brill, FDA’s Proposed Generic Drug Labeling Rule: An Economic Asssessment (2014).

4W. Kip Viscusi and Michael J. Moore, “Product Liability, Research and Development, and Innovation,” 101 Journal of Political Economy 161 at 171 (February 1993).

5Id. at 181-182. The list is: the sellers of asbestos (composition goods); of miscellaneous chemical products that include battery acid, fireworks, and jet fuel igniters; the makers of pottery products that include bathroom fixtures (tubs and showers); the miscellaneous fabricated metal products (safety valves of various types) industry; the metalworking machinery industry (including hand-held power tools. welding equipment, etc.); the special machinery industry (sawmill machines, band saws, and food slicers; the electrical industrial apparatus industry; the laboratory apparatus industry; and the miscellaneous manufacturing industry (matches, cigar and cigarette lighters).