Mass Tort Implications of FDA’s First of its Kind State Drug Importation Program

Introduction

Although under ordinary circumstances, it would be illegal to sell pharmaceuticals in the U.S. that have not been approved by FDA, under a new FDA program, the importation of drugs approved by Health Canada (Canada’s FDA analog) may now be possible. On January 5, 2024, pursuant to the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) Section 804 Importation Program (“SIP”), FDA for the first time approved a proposal for an SIP in Florida. SIP applies only to Canadian-approved drugs and is the first program of its kind to allow a state’s importation of pharmaceuticals approved by a foreign regulator. While Florida is the first state to receive approval of an SIP proposal, other states have laws allowing for drug importation, and many, such as Colorado, are seeking or plan to seek FDA approval.

Although many hurdles remain, FDA’s recent authorization of Florida’s SIP proposal is a groundbreaking move toward the availability of Canadian-approved drugs in the U.S.. As this new path is blazed, however, foreign manufacturers—many of whom may be subjecting themselves to potential U.S. mass tort litigation for the first time—must evaluate their U.S. litigation strategy, including the effect of foreign regulation on anticipated legal defenses.

For example, foreign manufacturers should consider threshold legal challenges to the jurisdiction of U.S. courts to adjudicate claims brought against them. Additionally, FDA’s role in approving and regulating a medication is central to virtually every facet of a manufacturer’s defense in a mass tort litigation, from threshold preemption challenges, to regulatory expert testimony, to reinforcing a narrative of responsible corporate conduct at trial. Thus, it is important to consider and factor in the role of Health Canada (rather than FDA) in approving and monitoring these medications.

Moreover, SIP has implications for U.S.-based companies—in particular, U.S. distributors and pharmacies, who, as “importers” of Canadian-approved products under SIP, may have substantially increased litigation exposure.

Below, we explain the general requirements under SIP, and then explore the potential impact of a drug importation program on some traditional mass tort defenses and litigation themes.

FDA SIP Background

Passage of SIP Rule. SIP was first passed by Congress in 2000 to address rising prescription drug prices in the U.S. by creating a path that would allow for the importation of Canadian-approved drugs. It was not until 2019, however, that FDA finally sought to implement a rule to carry out SIP.¹ FDA faced strong opposition to its proposed rule implementing SIP, primarily from the U.S. pharmaceutical industry and Canadian government, but ultimately the rule became final and effective in November 2020.² Shortly after the SIP rule became final in 2020, Canada issued a rule to prohibit shipment of drugs outside of Canada if the shipment would cause or worsen a shortage of that drug within Canada.³ Days after FDA approved Florida’s SIP, Health Canada issued a press release stating: “The Government of Canada is taking all necessary action to safeguard the drug supply and ensure Canadians have access to the prescription drugs they need and has been clear in its position: bulk importation will not provide an effective solution to the problem of high drug prices in the U.S.”⁴

Proposal Process. The SIP process begins with an SIP proposal, submitted by a state or Indian Tribe (the “SIP Sponsor”) to FDA for review and approval. The proposal must include the SIP Sponsor’s plan for importing specific, eligible prescription drugs, including how the SIP Sponsor will ensure that the imported drug(s) meets the Statutory Testing requirements, that a secure supply chain exists for each drug, and that various labeling, post-importation pharmacovigilance, and other requirements for the drugs are met.⁵ An SIP may be authorized for up to 2 years from date of importation of first shipment, and FDA may extend the authorization for up to 2 years at a time.⁶

FDA-Approved Counterpart and Labeling Required. To be eligible for importation under an SIP, a drug must have been approved by Health Canada and meet various FDA conditions.⁷ Importantly, FDA conditions include that an SIP-eligible drug must have an FDA-approved counterpart so that the imported drug can be re-labeled for sale in the U.S. using the FDA-approved label. Certain types of drugs are excluded, such as controlled substances and drugs that cannot be repackaged without compromising the drug’s container closure system (given that the drug must be relabeled for sale in the U.S.).⁸

SIP Testing and Pharmacovigilance. The Importer or manufacturer must conduct testing on each shipment to ensure the drug meets FDA specifications and standards, including authenticity, degradation, and compliance.⁹ Samples and laboratory records must be submitted to FDA. As discussed, the Importer must also relabel the drugs to match the corresponding FDA-approved labeling for the FDA-approved counterpart’s label.¹⁰ The replacement label must state that the drug was imported from Canada under SIP. Following importation, an Importer is responsible for submitting all adverse event reports, field alerts, and other relevant reports relating to the imported drugs to both FDA and the manufacturer.¹¹

SIP Sponsor Monitoring. Following commencement of an SIP, the SIP Sponsor must regularly update FDA with data and information about its SIP, including its cost savings and any potential safety and quality issues, and is responsible for developing and implementing protocols to ensure that any FDA recall is effectuated.¹²

SIP Supply Chain. The eligible drug’s supply chain includes three parties: one manufacturer, one Health-Canada-licensed Foreign Seller, and one Importer who is either a U.S. state-licensed pharmacist or a U.S. state- or FDA-licensed wholesale distributor.¹³ After FDA authorization of an SIP proposal, a Pre-Import Request must be submitted for each drug shipment by the Importer, and FDA will determine whether or not it will grant the request.¹⁴

Mass Tort Considerations for Canadian Drug Manufacturers

Though many foreign pharmaceutical manufacturers are not strangers to the time-honored tradition of American mass tort litigation, for some foreign manufacturers, SIP may be their first potential significant U.S. litigation exposure. For these relative newcomers, the breadth and scope of U.S. pharmaceutical litigation—which can involve thousands of cases across multiple jurisdictions and wide-ranging injury allegations—may dwarf anything they are accustomed to seeing in Canada or elsewhere.

And even as to those manufacturers familiar with U.S. litigation, SIP charts new territory because of Health Canada’s role (rather than FDA) in the initial approval and regulation of these imported drugs. At bottom, and as discussed herein, the stalwart defenses and strategies deployed in pharma litigation may require novel approaches for foreign manufacturers to successfully navigate SIP-related litigation.

Personal Jurisdiction & Forum Non Conveniens Arguments

In a mass tort litigation, foreign manufacturers participating in SIP may consider personal jurisdiction defenses. Foreign manufacturers of FDA-approved drugs are regularly sued in the U.S., and these manufacturers raise personal jurisdiction challenges to dismiss cases on the basis that the court does not have the power to adjudicate claims against the manufacturer. Personal jurisdiction defenses must be asserted at the outset of the case and are typically the first questions a court must resolve before allowing the litigation to continue. There are two types of personal jurisdiction—general and specific—either or both of which a defendant may raise. General jurisdiction is typically limited only to where the defendant is “at home,” meaning the company’s state of incorporation or principal place of business.¹⁵ Therefore, a U.S. plaintiff likely could not assert general jurisdiction over a Canada-based or other foreign manufacturer participating in SIP.¹⁶

For a court to have specific jurisdiction, the foreign manufacturer’s activities in the forum state must be related to the plaintiff’s claims in some way.¹⁷ Plaintiffs will likely argue that because of the state-specific nature of SIP, Canadian manufacturers are making purposeful and direct contact with the state as it relates to the drug such that it was reasonably foreseeable that the drug would be imported, prescribed, and used by a plaintiff in the state, resulting in his or her injury. While this could be a commonly-asserted argument for plaintiffs in the state participating in an SIP, foreign manufacturers should have strong arguments to oppose a finding of specific jurisdiction as to any plaintiff residing in and/or asserting claims in a different U.S. state.

In addition to lack of personal jurisdiction, foreign sellers and manufacturers in Canada may seek transfer or dismissal under the doctrine of forum non conveniens. In asserting forum non conveniens, Canadian manufacturers may claim that Canada, where the SIP-participating drug was approved, is a more appropriate venue for any litigation related to that drug because Canada’s courts are best suited to interpret its regulatory regime. However, plaintiffs will likely argue that the U.S. forum is appropriate because the medicine was sold and allegedly caused injury in the U.S..

Preemption Arguments for SIP Drugs Approved by Health Canada

Preemption is a defense frequently, and often successfully, asserted by manufacturers in prescription drug cases to dispose of certain state law claims early on in a litigation. Under settled Supreme Court precedent, federal law preempts state law where a party cannot comply with both state and federal requirements.¹⁸ In pharmaceutical litigation, branded and generic drug manufacturers most often claim that state law claims are preempted because it is impossible for a manufacturer to comply with both FDA requirements and state law.¹⁹ For example, generic manufacturers have successfully argued that state law failure-to-warn claims based on alleged labeling omissions or misrepresentations are preempted by federal law because, under federal law, the label of a generic drug is required to mirror the label of the brand-name drug.²⁰ Similarly, brand and generic manufacturers also frequently challenge design defect claims on the basis that they could not change the formulation of the product unilaterally because a different design would have required FDA approval and the plaintiff cannot demonstrate that FDA would have approved a different formulation.²¹

Whether SIP drug manufacturers can raise preemption to defeat state law failure-to-warn and design-defect claims is a novel question. On the one hand, plaintiffs may argue that preemption does not apply because the drugs at issue were approved by Health Canada, and thus there purportedly is no conflict between obligations under federal and state law. On the other hand, a manufacturer may argue that preemption does apply because federal law (SIP) requires that an imported drug have an FDA-approved analog and be relabeled with the label for the FDA-approved version of the drug. Thus, Canadian manufacturers could lean into the well-developed jurisprudence around generic preemption to argue that because imported drugs are required to essentially mirror an FDA-approved medication, both in design and labeling, any state law claim seeking to impose a different design or labeling requirement is preempted.

Labeling and the Learned Intermediary Doctrine

Under the learned intermediary doctrine, which has been adopted by most states, prescription drug manufacturers fulfill their duty to warn (and thus may defeat failure-to-warn claims) by providing adequate warnings to the prescribing physicians, not directly to patients, about any risks associated with the drug.²² Under SIP, because the drug must be relabeled to match the corresponding FDA-approved labeling, Canadian manufacturers would likely be in a similar position to FDA-approved drug manufacturers with respect to asserting the learned intermediary doctrine as a defense to failure-to-warn claims. However, whether particular jurisdictions reject or limit the learned intermediary doctrine as a defense, or whether the injury alleged was not disclosed in the product’s label, may also impact the analysis.

Substantive Safety Arguments

In prescription drug cases, manufacturers often rely on the extensive FDA regulatory record for a drug to substantiate the safety and efficacy of the product, as well as the manufacturer’s compliance with federal law. These regulatory files will include, among other things, all pre-approval communications with FDA such as clinical testing results and labeling proposals, as well as post-approval correspondence such as product stability testing results and adverse event reporting.

In seeking to put forward a similar regulatory record based on Health Canada’s regulation of their products, SIP participants may face challenges in overcoming perceptions that foreign regulators are less rigorous in their regulation than FDA. To counter these perceptions, defendants may analogize Health Canada’s approval and monitoring requirements to FDA’s, and any relevant legislative record demonstrating that SIP allows for the importation of Canadian drugs because of Health Canada’s rigorous requirements. Additionally, a defendant can point to SIP’s stringent requirements as additional, robust safeguards. For example, in Florida, the Agency for Health Care Administration must submit a quarterly report to FDA that includes information about the imported drugs, cost savings, and any potential safety and quality issues. This reporting requirement provides an additional layer of oversight and accountability and injects FDA into the regulation process, which can help to reassure the public about the safety of imported drugs.

Mass Tort Considerations for U.S. Importers of Canadian Drugs

Under SIP regulations, state-licensed pharmacists or FDA-licensed wholesale distributors are permitted to act as Importers.²³ Once an SIP-approved drug arrives in the U.S., the program allows either the Importer or the manufacturer to test the product to ensure it meets FDA specifications and standards.²⁴ The Importer must also relabel the drug to match its FDA-approved counterpart’s labeling.²⁵ As supply chain theories of liability have grown in popularity in U.S. mass torts, U.S. retailers, such as pharmacies and distributors, are increasingly implicated in pharmaceutical litigation. U.S. pharmacy and distributor importers should therefore consider how participating in an SIP may impact their liability and defense strategy.

The Importer’s role is in many ways similar to the role retailers and distributors have in typical U.S. pharmaceutical supply chains. Both generally do not hold the regulatory license—U.S. or otherwise—for the products they handle or sell and instead serve as either the intermediary between manufacturers and retailers (in the case of a distributor) and/or the end retailer. Yet under an SIP, the Importer is obligated to take on responsibilities in the supply chain beyond what is typical of a usual U.S. retailer or distributor. The Importer may be involved in FDA-required product testing.²⁶ SIP Importers are also responsible for re-labeling the Canadian-approved product with the FDA-approved U.S. counterpart labeling.²⁷

Distributors and retailers named in U.S. mass tort litigation are often successful in asserting preemption defenses against failure-to-warn and design-defect claims where they do not hold the regulatory license for the drug at issue. Because federal law provides only the license holder with the legal ability to change the product design and labeling, courts routinely find that state law claims that would require labeling or design changes by distributors or retailers preempted.²⁸

But how might these defenses be impacted when distributors and retailers acting as SIP Importers are (i) handling products that are not approved by FDA but by a foreign regulator, (ii) permitted to oversee or conduct testing, and (iii) required to implement the re-labeling of the product when it enters the U.S.? Even if SIP Importers undertake these roles, they still do not hold the regulatory license to the products they import and therefore, just as a distributor or retailer of an FDA-approved drug, cannot alter the design or labeling of the product. Considering all this, SIP Importers seem analogous in part to generic manufacturers in that they do not control the label, but are instead tied to the U.S. NDA-holder’s label, they do not control their own NDA, and they take part in routine stability monitoring and pharmacovigilance.

Importantly, however, an SIP Importer’s role in the testing and labeling of the Canadian drugs creates an opportunity for plaintiffs to attempt to argue against preemption of their claims against the Importer. If a plaintiff alleges that the Importer was negligent in its oversight of SIP-mandated testing and labeling, those claims, plaintiffs may assert, should not be preempted. Conversely, SIP Importers may point to a drug’s compliance with SIP’s testing and labeling requirements to argue that they have discharged their duties under federal law and preemption arguments should apply. Moreover, even if a court does not dismiss negligence-based claims against an SIP Importer as preempted, the Importer may leverage evidence of compliance with SIP requirements to defeat such claims on summary judgment or at trial.

Conclusion

The recent approval of Florida’s SIP Proposal has opened up the possibility for Health Canada-approved drugs to be imported into the U.S., but there is still a long road ahead before those drugs can reach U.S. consumers. Florida, the first and only state thus far to be preliminarily approved for an SIP, still needs to complete the full application process. And there remains opposition from the Canadian government and the U.S. pharmaceutical industry to the program, including concerns about drug safety standards and potential drug shortages in Canada.

But while implementation of SIP is still in its early phases, foreign manufacturers and U.S. distributors and pharmacies intending to take advantage of an SIP must begin to think through the legal implications of their role in such a program.