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Case number 20-5154, Mellingrod ARD LLC, formerly known as Mellingrod ARD Inc.

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Appellant versus Sima Vermin in her official capacity as Administrator, Centers for Medicare and Medicaid Services, and Alex M. Azar II in his official capacity as Secretary, United States Department of Health and Human Services, Ms.

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Stetson for the Appellant, Mr. Saltzman for the Appellees.

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Good morning, Your Honors, and may it please the board.

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Good morning.

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My name is Kate Stetson.

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I represent the appellant Malincrot in this appeal.

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This appeal involves two diametrically opposed CMS decisions on the same issue.

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In 2012, CMS expressly permitted Malincrot's predecessor, QuestCore, to change the base date average manufacturer price, which I'll call AMP, for its product Axar.

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CMS is now requiring Malincrot to change it back.

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And not just to change it back, but to pay rebates retroactively back to 2013 when the base state was first changed that total in the hundreds of millions of dollars.

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There are a couple different legal issues on appeal.

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The primary one, of course, is whether CMS's subsequent decision was legally justified, either as a substantive matter or a practical or a procedural matter.

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The other question is whether CMS can permissibly apply that new interpretation retroactively to Malancroft, even if it could be justified or has been justified.

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Our overarching statutory argument is that CMS is current interpretation is clearly foreclosed by the controlling statute.

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And if this court agrees with us on that, that resolves the analysis for all of the various permutations of the arguments that follow.

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But even if CMS's interpretation isn't clearly foreclosed, even if CMS has or could conceivably justify its action here, there are still some fundamental problems with applying those actions to Malancrot in this case in order to work the kind of retroactive liability that Malancrot is facing here.

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If CMS had used the term

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efficacy supplement instead of type six NDA.

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And everything else in the case were the same.

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Would there be a statutory violation?

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So Judge Piller, do you mean if FDA had categorized this as an efficacy supplement?

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Right, and not use the term type six NDA, which I gather is,

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nomenclature that's not in the regulations or the statute.

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It's just their choice in their manual to talk about this kind of application for a new indication, for permission to use a new indication.

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That's right.

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So on the manual point, just briefly, all types of NDAs are essentially administrative types.

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They're done for FDAs,

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kind of regulatory clarity.

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And you can see that in the description of the various types at J524 to 533.

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But with respect to your question, I actually think that was the question that was asked and answered in the Ipsen case after it went back to the district court on remand from this court.

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And what Ipsen ultimately found was that the drug in that case

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because it was a supplement, a supplemental NDA and not an independent NDA, did not warrant a new base date based on that difference.

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But that difference matters here.

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And it matters for the reason that CMS said in 2012.

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But just backing up, just for my clarity of what the legal bearing is of your argument, if they hadn't referred to this as a Type 6 NDA,

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only ever referred to it as an efficacy supplement and everything else is the same, the regulations and the law, you wouldn't have an argument, would you?

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Let me approach it this way.

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When QuestCorp came into CMS in 2012, asking for relief from what was then its current base state AMP, its argument was based not on the NDAG at all.

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And you can see this from the slides from March 2012 that are in the record at 425 to 444 and the extensive letter that QuestCorp sent at the suggestion of Larry Reed.

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the Director of Pharmacy at the time of CMS, which is immediately after those slides.

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And I refer those to you because it's very important to understand that the acronym NDA doesn't even occur in the slides that QuestCore presented to CMS.

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CMS' or QuestCore's argument at the time was, look, this product, which has been around for decades, the label for which has not been changed in 30 years, that's evident on the face both of the letter and the slides, this product has undergone a fundamental revision

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both in the indications that it is used for.

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We took 30 off and we added a significant one.

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We added an orphan drug indication for infantile spasms.

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We got seven years of marketing exclusivity for infantile spasms and the label was significantly changed.

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Those were all the reasons that Quest Corps put in front of CMS in 2012, justifying the change.

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So Judge Pillard, I'm answering your question that way because that was,

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Quest Core's proffer justification.

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If it had gone in right now after at least the district court's decision in Ipsen, it might not have an argument today.

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It certainly thought it had an argument in 2012 based on the significant revisions that were undergone.

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But the drug here is, I mean, I appreciate what you're saying about the

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The presentation that they made and their position about what was different, but it's not a nobody's arguing that it's a different dosage form and strength from the existing actor with the 1990 pasting right it's the same dosage form and strength.

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Correct.

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And I think that was something CMS recognized in 2012 that the key question.

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And this is what it says in its letter that August of 2012 approval letter, which is 453 of the J.A.

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What it says is the statutory question is

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Section 1396, and forgive me, R8C2A, defines the base date AMP in part for each single source or innovator multiple source drug approved by the FDA before or after October 1, 1990.

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In accordance with that provision, the base date AMP is calculated based on the NDA, which is approved by the FDA, not the National Drug Code.

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Therefore, given that the recently approved dacthyl gel was approved under a different NDA in the Scrivener's era that was corrected in September, a different NDA from the original product, Questcor may set a new base date amp.

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So it was the existence of the NDA that made a difference under the statute.

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That NDA, of course, was a new NDA, a type 6 NDA.

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The new NDA.

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But this is where the government's and the district court's argument on retroactivity in particular gets so interesting, right?

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Because the statute doesn't say anything about a distinguishing between or among types of NDAs.

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The statute says new drug application.

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The regulation says an original NDA, using the old statutory language,

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is an NDA other than an ANDA, the generic new drug application.

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If FDA or CMS on the regulation had wanted to distinguish among types of NDAs, a type 1 NDA is okay, a type 6 not so much, type 9 which is expressly not used for marketing, shouldn't be in the mix, it could have said that in the regulation.

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All the regulation says

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is NDA.

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And for retroactivity purposes, I think that the key question is, what should QuestCorp have known when it was looking at that express approval letter in 2012 about the basis for the agency's decision?

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What it knew was that the agency said, because ACTHAR was approved under a new NDA, which it was, ACTHAR is entitled to a new base date AMP.

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So you're arguing not that any time a new indication is accepted,

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there's a reset for the base date, average price, but only where a new indication is accepted under a type 6 NDA?

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No, I think our statutory argument is a little bit broader than that.

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Our statutory argument is when the FDA, in its expertise, decides to classify something as a new drug application,

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approves the application as an NDA, as in this case, by the way, awards it seven years of marketing exclusivity, keyed off of that NDA number, that that has significance for purposes of assigning this as a new single source drug.

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This was not, Judge Pillard, a new dosage form or strength, and CMS didn't think so.

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CMS thought that this was a new single source drug as the statute defines single source drug.

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Now where the government may interrupt for just a second here because the statute in I guess it's C2A that that sets forth how to calculate the additional rebate uses the term single source drug and then C2B

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which is headed treatment of subsequently approved drugs, uses the term covered outpatient drug.

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Is there a difference between single source drug and a covered outpatient drug?

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And if so, what is that difference?

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There is no difference in what there is a difference in a statute between the two, but for purposes of 2B, the provision that you just recited, the covered outpatient drug there is clearly just a shorthand for everything that followed from C to A. And I say that for one particular reason.

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C2B, as you see, directs that certain language in C2A be replaced with other language depending on when the particular drug at issue was approved by the FDA for marketing.

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And because C2B expressly refers back to C2A,

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It's quite natural that all of the description in C2A, the amount of the rebate with respect to each dosage form and strength of a single source drug or an innovator multiple source drug, that's the rebate formula for those drugs that we're talking about in C2.

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A and B just break it down into different timeframes.

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So I don't think that no one matters.

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Ms.

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Dessen, would I be oversimplifying this if I said

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Under this sub B trigger, AgFAR is not a covered outpatient drug approved after 1990, because it was approved in 1952.

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Have I hopelessly oversimplified this case?

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I think you may be.

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I have, but why?

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Because the question about what constitutes a single source drug refers back, of course, to the statutory definition of single source drug, which is back at K.

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7A4, I believe.

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And what single source drug says, and this is where CMS was actually using as a jumping off point, when it talked about a drug approved under a new NDA by FDA, this is what it was talking about.

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The term single source drug means a covered outpatient drug, everyone agrees, Axar was that, which is produced or distributed under a new drug application approved by the Food and Drug Administration.

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That language is largely replicated in the statute with the additional gloss that for purposes of this definition and the drug rebate program, an original NDA, which used to be that language in the statute, means an NDA other than an ANDA approved by the FDA for marketing, unless a narrow exception applies, and we all agree it doesn't here.

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So you're reading from the regulation, though, with the last part of what you just said.

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Yes, I am.

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So you're not relying exclusively on the statute, you're relying on the statute plus the regulation because, of course, the 1952 approval was an approval of a new drug application, right?

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It was.

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It was also an approval of a new drug application, yes.

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But for purposes of the statute, the 2010 approval, which also came with marketing exclusivity for that newly approved indication, it came with a direction that new labeling for marketing of the drug be submitted to the new NDA.

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That was all under a new NDA as well.

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And that had- I'm sorry.

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You said it was exclusivity for the new indication and just just stepping back and and trying to appreciate the the logic of your position as a practical matter.

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This reset of pricing applies not just to infantile seizures, but all indications for which act are maybe prescribed.

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Right.

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So to the extent that it is

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a different single source drug, it's, I mean, it's, your argument sweeps in the 1952 Actar as well as the, whatever it is, 2012 Actar.

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It does.

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And there's a there's a technical reason for that.

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And then there's a practical answer to that.

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The technical reason for that is that the way that CMS has set up the Medicaid rebate program, drugs are not reimbursed by indication under different base amps.

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They are reimbursed by

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base date amps.

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So there's no distinction between prescribing for one indication or another.

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The practical reason is under the Medicaid program in particular, the majority, if not the vast majority, of the prescriptions are of course for infantile spasms because so many infants are in Medicaid.

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The prescriptions for other uses, which tend to be tertiary or last step uses for very hard to treat diseases, amount to very low percentages in Medicaid in particular.

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Is that in the record?

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No, I don't believe it's in the record.

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I think it's publicly noticed, but we could also supplement with an explanation if you need it.

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Just going back, I have a simple question along the lines of Judge Tatel's simple question, which I'm sure you'll think is oversimplifying.

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But when I read the rebate provision, it provides for a new base state AMP for each dosage form and strength

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of a single source drug.

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And here we have a single source drug.

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It's only made by Malancrot.

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And it's the same dosage form and strength.

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So just as a common, so nothing about that is what's doing the work for you.

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It's only when you then delve into the definition of single source drug.

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And that's what you're relying on.

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Same dosage form and strength.

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And you're just saying, well, yeah, same dosage form and strength, identical drug, but it's a different single source drug because of the operation of the stick.

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Well, I think because of the operation of statute is key that what we've laid out in our briefing, and I don't think the government disagrees with this as a basic principle, it just disagrees with the application here, is that you need a different base date AMP for each distinct single source drug and each distinct dosage form and strength of a single source drug.

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I think that follows quite naturally from the statute and it's certainly backed up by the definition of single source drug.

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But remember, all of this statutory analysis that we're talking about, that's the kind of overarching analysis that I said, if you agree with us that the statute is clear, then we win across the board.

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The problem, I think, the real fundamental issue that this court has to confront, if it concludes the statute, is anything other than clear in our favor is

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Was it appropriate for CMS to apply its new interpretation retroactively all the way back to 2013?

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But if it were clear in their favor, if it were clear in their favor, and I recognize our position because it's so clear, why did they ever

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allow a new Bay State AMP.

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That's the difficulty for them.

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But if it's clear in their favor, then there's no issue of retroactivity or lack of notice.

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I mean, in fact, we're confined to just apply it.

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If it is clear in their favor, and this, you are correct, this is the only argument they have for why retroactivity is appropriate, right?

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Which is, regardless of what CMS said in 2012, in that letter that was sought by Questcor, urged by CMS's director of pharmacy, expressly approved the Bay State change, what CMS said in that letter was so wildly contrary

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to what the statute actually says.

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What difference does that make if the statute is clear?

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In other words, speak with Judge Pillard's hypothetical.

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If we think the statute is clear in favor of the agency, that is, that this drug is not entitled to a new base AMP, and that that's clear,

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What difference does it make what the agency said?

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The agency has no authority under the statute to authorize a new base date AMP, period.

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Oh, I think it makes a great deal of difference what the agency said for purposes of the retroactivity analysis.

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Why?

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That's why I'm asking you.

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But if the statutes, if Congress appropriates $100 million for X,

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And if the agency administering that statute responds to a request from a grantee and says, you know, we've interpreted X to mean Y. And then later changes its mind.

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Doesn't the grantee have to pay the money back?

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What difference does it make what the agency said?

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Congress did not appropriate the money for purposes of why, period.

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And the agency has no authority under the statute or the Constitution to authorize the expenditure of funds for purposes other than what Congress appropriated them for.

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So that's the type of hypothetical that the government is urging is applicable here.

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The government is saying the statute was so clear that the party- Well, that's my question.

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I was only asking you the same question.

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Assume it's clear.

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If it's ambiguous, I think you've got a very powerful case.

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But stick with my hypothetical.

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Let's assume it is clear.

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Isn't it true that that ends the analysis?

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It makes no difference what the agency says, because the agency has no authority to allow appropriated funds to be used for purpose other than that prescribed by Congress.

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Yes, if you have a black and white statute that says X and the agency interprets it to be Y, then it would naturally follow that no regulator... So this case then turns on whether this statute is

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ambiguous or unambiguous, correct?

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Correct.

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Correct.

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Because if it's ambiguous, I get your point.

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You have a very strong argument.

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So you would agree then if this panel concludes that the statute is unambiguously clear in the agency's favor, then we would affirm the grant of summary judgment.

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It all turns on the clarity of the statute, correct?

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And by clarity, I mean you can have a statute that's

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extremely complex, but nonetheless clear, right?

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You certainly can.

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Yes.

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Yes, right.

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In fact, that's kind of what we do here at Discord.

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Those are the cases we see.

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All right, so let me ask you one other question.

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If we agree that, and again, stick with my hypothetical, because I know you don't agree with it, but if we think that the statute is clear in favor of the agency,

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We don't have to address your arguments that the agency violated its regulations or failed adequately to explain its change in position, right?

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Those both also fall away.

[00:21:51] Speaker 06:
If the statute is clear in either party's favor, all the subsidiary arguments fall away.

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If you're right, none of the other arguments matter.

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If the government's right, none of our arguments matter.

[00:22:01] Speaker 06:
But let me spend some time, then, if I could.

[00:22:04] Speaker 03:
So tell us once again,

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Tell us as clearly as you can why you think this statute is not clear.

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In the agency's favor.

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Let me tell it from the perspective of what the government and the district court now argue makes the statute so clear, if I could.

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What I would really like to hear from you is what in the statute makes it unambiguous about whether this drug is entitled

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to a new base state AMP.

[00:22:37] Speaker 06:
From our perspective, what in the statute makes this unambiguous?

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From our arguments perspective?

[00:22:43] Speaker 03:
No.

[00:22:45] Speaker 06:
You mean from the government's unambiguous argument or mine?

[00:22:50] Speaker 06:
I think the question was from the government's.

[00:22:52] Speaker 03:
You can hear both.

[00:22:53] Speaker 03:
Yeah, from yours.

[00:22:54] Speaker 03:
Go ahead.

[00:22:55] Speaker 06:
So let me take both in order.

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Let me take ours first.

[00:22:58] Speaker 03:
Actually, my question was about the government.

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The government's argument is basically the one I

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described to you, which I thought, the one that I thought you might think was oversimplified.

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So why isn't that?

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Tell me why that's not unambiguously required by the statue.

[00:23:15] Speaker 06:
because the statute says absolutely nothing about administrative or different types of MDAs.

[00:23:23] Speaker 06:
The government's current argument, and I want to land on that word current for a minute, the government's current argument is that because this particular new drug application was a type six new drug application, and in CMS's estimation,

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Type 6 new drug applications are merely administrative and there's nothing that actually happens under them.

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They have no function.

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Nothing is marketed under them.

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Remember, by the way, this is the question that FDA, the expert agency, declined to answer.

[00:23:52] Speaker 06:
There is nothing in the statute that talks about different types of NDAs.

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It says,

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when a drug is approved for marketing under an NDA, it's a new single source drug, full stop.

[00:24:04] Speaker 06:
Now, the reason I said current interpretation is that I also want this court to understand how much these arguments have evolved, both over the course of this case and over the course of the district court decision and appeal.

[00:24:15] Speaker 06:
In the district court, what the district court said and what the government said at the time was that CMS was mistaken, which by the way is not a word that appears in the administrative record,

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mistakenly believe that the FDA had approved the decades-old Acthar as a new drug.

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That was the government's argument below.

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District Court concludes CMS thought in 2012 it was approving an entirely new drug.

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That can't be, and the government clearly knows it.

[00:24:42] Speaker 06:
CMS knew what drug this was, knew how old it was, knew how important it was, knew the value to the Medicaid program of keeping Axar in the program, rather than having it leave.

[00:24:55] Speaker 06:
Because, of course, as Larry Reed, the CMS Director of Pharmacy, understood, this drug leaves the program.

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States still pay for it under the early screening and treatment program.

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So keeping the drug in the program was the real focus of 2012.

[00:25:09] Speaker 06:
So now the government is saying, well, what we really were mistaken about, and again, mistake is not in the administrative record, were this critical fact about the Type 6 NDA, but it wasn't marketed under the NDA.

[00:25:21] Speaker 06:
That, again, is nowhere in the statute.

[00:25:24] Speaker 06:
And so to agree with the government that the statute is unambiguous, you either have to conclude what the district court did, citing a late 1800s decision, that the statute implicitly contemplates approval of a brand new drug, an entirely new drug,

[00:25:41] Speaker 06:
Or you have to agree with the government's current gloss, which is while the statute says NDA, while the regulation to Judge Wilkins's point says any NDA other than ANDA, that what it's really talking about are the true NDAs, not the ones that are just kind of administrative.

[00:25:58] Speaker 06:
But that simply cannot be found.

[00:26:01] Speaker 05:
One of my early questions came from, which is, it just leads to a very arbitrary differential treatment of

[00:26:10] Speaker 05:
different otherwise completely analogous decisions accepting new indications.

[00:26:18] Speaker 05:
There have been many new indications accepted for ACTHA that are as important medically and as supported by new information as this one.

[00:26:28] Speaker 05:
But just to put it most tendentiously, because the form of this one, instead of being a

[00:26:40] Speaker 05:
supplemental, an efficacy supplement, it's called a type 6 NDA, which needn't be under the regulations or the statute, but just because it is, then randomly this new indication resets the base date AMP.

[00:26:56] Speaker 05:
That just seems really arbitrary and not not defensible.

[00:27:02] Speaker 06:
That is exactly what CMS concluded in 2012.

[00:27:07] Speaker 06:
I think it's completely defensible, but both from the statutory and regulatory language perspective we've been talking about, and Judge Pillard on the facts.

[00:27:15] Speaker 06:
Let me mention a couple of things.

[00:27:16] Speaker 06:
The first is CMS is general.

[00:27:20] Speaker 05:
Before you get into that, as a descriptive matter, that's right.

[00:27:23] Speaker 05:
Most new indications when they're accepted don't trigger a new base AMP, right?

[00:27:31] Speaker 06:
That's correct, but that is because FDA chose in this case to assign a new NDA number to this.

[00:27:39] Speaker 06:
And it might be helpful if I spend a couple of minutes on the type NDA issues, because I think there's something that's important for this court to note in the joint appendix.

[00:27:49] Speaker 06:
If you look at joint appendix 529 to 530, there's a description of the two types of NDA that essentially took the place of a type 6 NDA.

[00:28:00] Speaker 06:
And I'm talking about Type 9 and Type 10.

[00:28:02] Speaker 06:
Type 9 NDAs are expressly deemed not to be marketed.

[00:28:07] Speaker 06:
under that new type 9 NDA number.

[00:28:11] Speaker 06:
The manufacturer intends that the product be marketed under the parent NDA.

[00:28:16] Speaker 06:
Type 10 is the opposite.

[00:28:18] Speaker 06:
Type 10 is marketed under the type 10 NDA number, and that tends to be applied, as you'll see in the JA at 530, that tends to be applied when there are, among other things, significant labeling revisions.

[00:28:32] Speaker 06:
Type 9 and 10 NDAs replace type 6.

[00:28:35] Speaker 06:
And you'll remember that there is a back and forth also in the Joint Appendix at page 536 to 538 where CMS asks FDA, does this mean that ACTHAAR is not marketed under the first NDA and what or not marketed under the second NDA and what

[00:28:53] Speaker 06:
What FDA, the expert agency, says is the policy on type 6 NDAs is still being deliberated.

[00:29:01] Speaker 06:
Come back and ask us in a few months.

[00:29:03] Speaker 06:
And I lay all this out because the distinctions among types of NDAs, you'll notice type 8 applies when somebody is just changing a drug from prescription to over-the-counter in a couple different dosages or strengths.

[00:29:19] Speaker 06:
The FDA has decided when and how it will alter a drug application to make it a new NDA Congress decided and CMS decided to make the NDA the pivot point for a base date and not a particular type of NDA, but the NDA itself.

[00:29:38] Speaker 06:
But the reason I think there's some irony in this judge pillar, just as a practical matter, is CMS's general approach to the definition of NDA, as you can see in the regulation, is to actually make it as broad as possible.

[00:29:52] Speaker 06:
An NDA is any NDA other than an ANDA, full stop.

[00:29:57] Speaker 06:
And the reason they do that, of course, is because in lots of circumstances,

[00:30:01] Speaker 06:
There are NDAs that FDA assigns for different indications, to your point, a change in delivery system from some kind of a powder to an objection.

[00:30:14] Speaker 06:
It's the same drug, but it's delivered in a different way.

[00:30:17] Speaker 06:
CMS wants all of those drugs.

[00:30:20] Speaker 06:
to be considered to be single source drugs because the rebate amount is higher for single source drugs than it is for generic drugs, which a lot of these otherwise would be.

[00:30:29] Speaker 06:
So there's some irony here in CMS saying, well, for this particular NDA in this particular case, just because we don't like the direction that this went in, this particular NDA actually is off the table.

[00:30:40] Speaker 06:
But more to the point, this entire debate presumes that QuestCore in 2012, when it sought

[00:30:48] Speaker 06:
And then got this letter from CMS saying you can you should and can stay in the program.

[00:30:53] Speaker 06:
We're changing your base date and we're changing it because you got a new drug approval.

[00:30:58] Speaker 06:
that that was so worthless that Questcor and then Malancroft could not rely on that express guarantee.

[00:31:05] Speaker 06:
That's essentially what the government is arguing.

[00:31:07] Speaker 06:
And I submit there is simply no way to read that statute or that regulation to support that clear interpretation.

[00:31:15] Speaker 06:
Not even the district court could bring itself to say the statute was clear.

[00:31:19] Speaker 06:
What the district court ended up having to say is, what is implicit in the statute is as good as what is expressed.

[00:31:25] Speaker 06:
And that's simply

[00:31:26] Speaker 06:
is not the case when it comes to a clear textual command to a regulated entity that is discernible with ascertainable certainty, as this court said in GE, cannot work in unfair surprise.

[00:31:39] Speaker 06:
This did all of those things to this particular regulated entity.

[00:31:43] Speaker 06:
If CMS made a mistake, if it made a mistake in interpretation, which it now says it did, never said in the record, if CMS made a mistake,

[00:31:51] Speaker 06:
Why is Mallinckrodt on the hook for footing a bill for hundreds of millions of dollars for the agency's mistake?

[00:31:57] Speaker 06:
That I think is- Ms.

[00:31:58] Speaker 03:
Detson, thank you.

[00:32:01] Speaker 03:
You're welcome.

[00:32:02] Speaker 03:
We've taken you well over your time.

[00:32:04] Speaker 03:
We'll give you a minute or two on Roboto.

[00:32:07] Speaker 03:
Let's hear from the agency.

[00:32:11] Speaker 02:
Thank you, Your Honor, and may it please the court, Joshua Salzman on behalf of the defendants.

[00:32:16] Speaker 02:
I'll just dive right in.

[00:32:17] Speaker 02:
I don't think the court should be afraid of oversimplifying the statutory analysis here.

[00:32:21] Speaker 02:
The statute is straightforward as applied to this sets of facts.

[00:32:25] Speaker 02:
I think there are two different paths you can get to the right result, but the easier and more straightforward one is one that I think Judge Tatel put forward most cleanly, which is to just look at provision C2A and C2B together.

[00:32:38] Speaker 02:
If you look at C2A, it sets a default rule.

[00:32:42] Speaker 02:
That default rule, which applies to all drugs that were then existing when the statute was adopted in 1990, is that the base date AMP is based on the third quarter of 1990.

[00:32:52] Speaker 02:
ACTHAR existed in 1990.

[00:32:53] Speaker 02:
Everybody now agrees there's only one ACTHAR.

[00:32:56] Speaker 02:
Initially, in this litigation, they contended that ACTHAR was actually two drugs.

[00:33:01] Speaker 02:
If you look at the opening pages, they're briefed now, they describe ACTHAR as an old drug that got a new approval.

[00:33:07] Speaker 02:
So everybody agrees that ACTHAR should have been covered under C2A.

[00:33:12] Speaker 02:
Then the question is, do we get out from C2A under C2B?

[00:33:16] Speaker 02:
Because that's the only way out.

[00:33:17] Speaker 02:
C2B is titled Subsequently

[00:33:22] Speaker 02:
approved drugs and applies to covered outpatient drugs approved by FDA after October of 1990.

[00:33:30] Speaker 02:
Now, FDA approved indications and labeling changes for ACTHAR after 1990.

[00:33:36] Speaker 02:
And I think Judge Pillard's line of questioning about supplemental NDAs and efficacy supplements was squarely on point here and got to the heart of the matter, which is what happened in 2010 was an approval of an efficacy supplement

[00:33:51] Speaker 02:
of a new indication, but it wasn't approval of the underlying drug.

[00:33:55] Speaker 02:
And therefore, without even resorting to look to the definition of single source drug, you can resolve this case solely on the basis of C2.

[00:34:03] Speaker 01:
But what is a covered outpatient drug and how is a covered outpatient drug different than the single source drug?

[00:34:12] Speaker 02:
Sure, Your Honor.

[00:34:13] Speaker 02:
So the definition of covered outpatient drug, you can find this on page 41 of the addendum.

[00:34:18] Speaker 02:
It's subsection K2.

[00:34:20] Speaker 02:
The definition is a little lengthy, but I think the relevant provision for our purposes here would be a, I'm reading from K2A little i. It's a drug that's approved for safety and effectiveness.

[00:34:34] Speaker 02:
as a prescription drug under Section 505 or 507 of the Federal Food Drug and Cosmetic Act.

[00:34:41] Speaker 02:
Now, what happened in 2010 wasn't approval of the underlying drug as safe and effective.

[00:34:46] Speaker 02:
The FDA had done that 50 years or 60 years earlier.

[00:34:49] Speaker 02:
What they did was they analyzed this one indication, this infantile spasms indication.

[00:34:56] Speaker 02:
And you can see that if you look at the approval they eventually got from FDA, this is, I'm reading the last page

[00:35:04] Speaker 02:
of the, or I direct you to the last page of that approval letter, which is JA411.

[00:35:10] Speaker 02:
But if you look at the entire letter, it's devoted only to this infantile spasms indication, not to reevaluating the drug as a whole.

[00:35:17] Speaker 02:
And that letter on JA411 culminates in

[00:35:22] Speaker 02:
FDA instructing Quest Corps that all of the active maintenance you need to do for maintaining a drug, there's periodic reporting requirements and other things you need to do as you continue to be regulated by FDA.

[00:35:37] Speaker 02:
All of that should be addressed to the original NDA 008372 for this drug product, not to this NDA.

[00:35:44] Speaker 02:
In the future, do not make submissions to this NDA except for the final printed labeling.

[00:35:50] Speaker 02:
And just in case there was any concern about what Quest Corps understood at the time, I think if nothing else, all of their concerns about being misled by the agency are largely rebutted by the document at JA 414, which is something that was central to the district court's opinion.

[00:36:06] Speaker 02:
And yet, Mallinckrodt can't even bring itself to acknowledge this document in its briefing here.

[00:36:12] Speaker 02:
This is the letter, this is rather the submission that Mallinckrodt made to FDA to associate

[00:36:19] Speaker 02:
the new indication, the infantile spasms indication, with the parent FDA.

[00:36:26] Speaker 02:
And at that time, I'm reading from JA 414.

[00:36:29] Speaker 02:
It says, QuestCore is submitting something in reference to NDA 08372.

[00:36:35] Speaker 02:
That's the old one.

[00:36:36] Speaker 02:
That's the original 1952 for HP Actar gel.

[00:36:40] Speaker 02:
And tracking NDA 22432, that's the type 6, for the supplemental NDA

[00:36:50] Speaker 02:
They were calling it a supplemental NDA for treatment of infantile spasms.

[00:36:55] Speaker 02:
They then call it an efficacy supplement and go on to repeatedly refer to it as a tracking NDA number that will no longer be used.

[00:37:04] Speaker 02:
So Quest Core was very aware in 2011 of exactly what FDA had approved and had not approved.

[00:37:10] Speaker 02:
in 2010, and the source of their authority from FDA to market this product going forward.

[00:37:17] Speaker 02:
And that source was the original parent NDA, the 1952 NDA.

[00:37:22] Speaker 02:
So that is what makes this case so clear under the statute.

[00:37:26] Speaker 01:
When the FDA approves a new indication

[00:37:35] Speaker 01:
And there's a definition for medically accepted indication in the same statute, right?

[00:37:45] Speaker 01:
Why isn't that an approval of safety and efficacy?

[00:37:51] Speaker 01:
I mean, what in the definition of medically accepted indication excludes it from also being considered an approval of safety and efficacy?

[00:38:06] Speaker 02:
So I understood from Ms.

[00:38:08] Speaker 02:
Stetson's colloquy with Judge Pillard, and perhaps I misunderstood, I heard her acknowledge and accept the fact that when a supplemental new drug application, for example, is used to process an efficacy supplement,

[00:38:21] Speaker 02:
that that is not something that would reset the base date AMP.

[00:38:26] Speaker 02:
And with good reason, because the statute is directed to approval of the underlying drug, not the iterative changes that can happen to the label.

[00:38:35] Speaker 02:
And that is not all of that infrequent of an event.

[00:38:38] Speaker 02:
As I think Judge Pillard noted, ACTHAR itself has, over the years, undergone many labeling changes.

[00:38:44] Speaker 02:
There have been many indications that have been added to the label, that have been removed from the label over the years with FDA approval.

[00:38:50] Speaker 02:
There's a process for that.

[00:38:51] Speaker 02:
But none of that is approval of the underlying drug.

[00:38:54] Speaker 02:
It doesn't provide the authorization to market the underlying drug, which of course has been continuously on the market for 70 years, thanks to that 1952.

[00:39:01] Speaker 01:
Well, how did the agency seem to come to the exact opposite conclusion in 2012 then?

[00:39:10] Speaker 02:
I'm glad you asked that, Your Honor.

[00:39:12] Speaker 02:
First of all, I do think as Judge Tatel elucidated earlier, you don't even need to get to any of this if you think the statute is clear in our favor.

[00:39:22] Speaker 02:
But if you want to look at the 2012 letter, I think it actually underscores the fact that

[00:39:29] Speaker 02:
The agency just simply did not understand the true nature of the facts.

[00:39:33] Speaker 02:
And in particular, what it did not know in 2012 but subsequently learned in 2015 and 2016 was that this approval had been limited to the underlying, to the limited infantile spasms indication was really just an efficacy supplement.

[00:39:49] Speaker 02:
And the way you know that clearly, I'm reading from JA 453, which is the letter,

[00:39:54] Speaker 02:
There's a clear distinction drawn in that letter between the, quote, recently approved Actar gel and the, quote, original product.

[00:40:03] Speaker 02:
And I think that that shows that CMS at the time did not appreciate that this NDA was for, though denominated an NDA, was in fact merely approval of a new indication and not approval of a new

[00:40:20] Speaker 02:
underlying drug, to the extent that you have concerns.

[00:40:23] Speaker 02:
I'm sorry, Judge Pillard, were you about to ask this question?

[00:40:25] Speaker 05:
The difficulty for me in saying that the statute is clear.

[00:40:31] Speaker 05:
The statute is clear that only an NDA, a drug that is distributed under an NDA, is going to be the basis for

[00:40:49] Speaker 05:
a new date, a new base date AMP, but the statute doesn't really define NDA.

[00:40:59] Speaker 05:
And so the question is, if the statute is clear, and I take this really to be Ms.

[00:41:07] Speaker 05:
Sesson's argument, although she'll correct me on rebuttal, the statute doesn't define NDA, but says that consequences flow.

[00:41:16] Speaker 05:
from the issuance of the approval of an NDA.

[00:41:21] Speaker 05:
And if the agency, erroneously or not, says this is an NDA, then in what respect is it not the agency's responsibility that it made that error?

[00:41:42] Speaker 02:
I want to be clear about which agency we're talking about here, whether you're talking about FDA making an error or CMS making an error, because I don't think either entity erred exactly.

[00:41:52] Speaker 02:
But I think you're talking about FDA potentially making an error.

[00:41:56] Speaker 02:
And for that, I think it's very helpful to look at the administrative record here, starting with what FDA told Malin Crot, or at the time it was Quest Corps, upfront when it assigned this.

[00:42:06] Speaker 02:
Because remember,

[00:42:07] Speaker 02:
Quest Core understood it was just asking for a new indication.

[00:42:10] Speaker 02:
So it didn't submit an entire new big NDA packet.

[00:42:14] Speaker 02:
It submitted a supplemental NDA.

[00:42:16] Speaker 02:
And at the time in 2008, this is at JA 330, FDA told Malin recognized that because of a quirk of its filing system at the time, there were going to be issues routing

[00:42:30] Speaker 02:
submissions related to this efficacy supplement to the proper unit within FDA because the underlying file, the active file that approved the underlying drug was under the purview of the metabolic folks.

[00:42:47] Speaker 02:
And this efficacy supplement related to infantile spasms needed to be routed to the neurology people.

[00:42:56] Speaker 02:
Now, FDA subsequently solved this when they adopted a new system called DARTs in July of 2009.

[00:43:03] Speaker 02:
But a year before that, they hadn't adopted this new approach yet.

[00:43:08] Speaker 02:
They didn't have that solution.

[00:43:10] Speaker 02:
So they assigned a new number for administrative purposes.

[00:43:13] Speaker 02:
And they were very clear in the 2008 correspondence with Quest Core that we're assigning a new number for administrative purposes.

[00:43:21] Speaker 02:
And then when they approved it finally in 2010, there's that language from JA 411 that I was quoting that they said,

[00:43:28] Speaker 02:
Don't use this number anymore.

[00:43:30] Speaker 02:
This isn't your number.

[00:43:31] Speaker 02:
All of your reporting, all of your obligations tied to the underlying drug itself are associated with and are supposed to be completed with J under the original NDA number.

[00:43:43] Speaker 02:
And as I said, Quest Core was not in any way confused by that.

[00:43:47] Speaker 02:
as indicated by that letter at JA-414 that I was reading earlier.

[00:43:53] Speaker 01:
So against that backdrop, you then- So if the FDA had at that point said, it's okay with us to use your new number and to market the drug when it's used for this indication under the new number, if those were the facts, would you win or would you lose?

[00:44:17] Speaker 02:
I need to know a little more if FDA had approved this as essentially a new drug product and then was continuing to administer and authorize its distribution under that new NDA.

[00:44:32] Speaker 02:
then I think probably the base aid AMP would be reset.

[00:44:38] Speaker 02:
But I don't think it would be on an indication by indication basis.

[00:44:41] Speaker 02:
I think it would have to be that there was a new drug product.

[00:44:44] Speaker 02:
Drugs are not approved and evaluated for these purposes on an indication by indication basis.

[00:44:50] Speaker 01:
Fair point.

[00:44:50] Speaker 01:
But I guess my point is, did the FDA have the discretion to assign it a new NDA number at that point and allow it to be marketed under a new NDA number?

[00:45:04] Speaker 02:
I don't know specifically what the, there's nothing in the record addressing the specific criteria that FDA uses.

[00:45:14] Speaker 02:
I would say that if you were assigning an entirely new drug application

[00:45:19] Speaker 02:
treating this as an entirely new NDA as opposed to an efficacy supplement.

[00:45:23] Speaker 02:
There are several criteria Malancrot would have had to satisfy or Questcor would have had to satisfy as to what would go into that application to make it a new NDA that were not satisfied here, precisely because Questcor understood this to be just an efficacy supplement.

[00:45:39] Speaker 01:
So there are lots of... But the reason I'm asking these questions is that your friend on the other side talked about

[00:45:49] Speaker 01:
JA 529 to 530 and the fact that the FDA under certain circumstances now does assign a new NDA number and allow the drug to be marketed under that number.

[00:46:08] Speaker 01:
So since statute doesn't define new drug application,

[00:46:19] Speaker 01:
Can the agency effectively then just either depending upon, you know, how they arbitrarily assign new drug application numbers or by regulation just basically change when

[00:46:43] Speaker 01:
A drug that was previously approved gets a new base date AAP.

[00:46:52] Speaker 02:
So this is the first time at oral argument that they've made the argument about type 9 and type 10 NDAs.

[00:46:59] Speaker 02:
So I apologize.

[00:47:01] Speaker 02:
I'm not in a position to address what established criteria FDA may have for determining whether something should be categorized as a type 9 or type 10.

[00:47:14] Speaker 02:
But I think returning to the type 6 issue here, which is,

[00:47:20] Speaker 02:
I think what's central is the fact that Malin Crot or Questcor was notified at the time that it was just an administrative crack tracking number.

[00:47:29] Speaker 02:
And the fact that this was put in just as an efficacy supplement.

[00:47:31] Speaker 02:
And maybe there's another circumstance.

[00:47:34] Speaker 02:
Yes, Judge Tatel?

[00:47:35] Speaker 03:
No, you finish your sentence and then you finish.

[00:47:38] Speaker 03:
I'm just getting ready to ask you a follow up question.

[00:47:41] Speaker 02:
Okay, I think I got the core of the point I was hoping to get out.

[00:47:46] Speaker 02:
So I'm happy for the follow up.

[00:47:49] Speaker 03:
I was wondering whether your response to Judge Wilkins would have been in the definition of a single source drug, which is a covered outpatient drug must be produced or distributed under an NDA to qualify.

[00:48:10] Speaker 03:
And even if

[00:48:11] Speaker 03:
Even if the later, even if the type six NDA is an NDA, this drug was not produced or distributed under it.

[00:48:22] Speaker 03:
It was produced and distributed under the 52 NDA.

[00:48:27] Speaker 02:
That's absolutely right, Your Honor, and that is- Why isn't that the argument?

[00:48:33] Speaker 03:
Why wasn't that your answer?

[00:48:35] Speaker 02:
Perhaps it should have been, Your Honor.

[00:48:37] Speaker 02:
You're certainly right that that is the other way to resolve this case in our favor.

[00:48:42] Speaker 02:
As I said, there are two statutory paths, and I agree that that second one is, I think, I hope, responsive to Judge Wilkin's concern.

[00:48:50] Speaker 02:
Either you just get there by saying that it's not a new covered out a subsequently approved covered outpatient drug for purposes of C2B, or you look at the definition of single source drug in in case seven that your honor was just referring to and will get the requirement that it be produced and distributed at the point that FDA.

[00:49:08] Speaker 02:
authorizes this as a new drug and is administering and providing the authorization to produce and distribute and market that drug under a new NDA number, then I think under the statute, you would say that the applicable NDA is a new one.

[00:49:22] Speaker 03:
So is it your position?

[00:49:25] Speaker 03:
Go ahead.

[00:49:26] Speaker 03:
Well, you go ahead.

[00:49:27] Speaker 03:
I was going to change the subject.

[00:49:29] Speaker 05:
I was just going to say whether it's the agency's position that

[00:49:35] Speaker 05:
they could have and perhaps should have identified, instead of referring to a type 6 NDA, they could have just said efficacy supplement dash N, and that would have routed it to the, what is it, the neurology review entity.

[00:49:54] Speaker 02:
Could have done that.

[00:49:56] Speaker 02:
I, yes, I think that that happened not to be their practice.

[00:50:00] Speaker 02:
I don't know how their computer systems were set up at the time.

[00:50:03] Speaker 02:
I believe there might've been just sort of a need to have an underlying NDA number to be associated with the file, but the file at issue here is just the file for the efficacy supplement.

[00:50:14] Speaker 02:
It's not the file for the underlying NDA that is charged with, that is the file under which the drug itself is being administered.

[00:50:23] Speaker 05:
The file associated with the Type 6 NDA, you're saying, is only, is limited to the file that supports the IS indication.

[00:50:34] Speaker 02:
Yes, that's right, Your Honor.

[00:50:37] Speaker 02:
Because you wanted to carve off a piece to give over from the metabolic and endocrine folks over to the neurology folks, I believe as a function of how their computer system and their filing system was set up at the time, they needed to have a overarching number to associate with it at the neurology end of things.

[00:51:00] Speaker 02:
So they assigned a type 6 NDA.

[00:51:02] Speaker 05:
But presumably it cross-references everything in the original NDA.

[00:51:06] Speaker 05:
And I mean, they would say, then they did say in their brief, Malincross said in their brief that, of course it's produced or distributed under the type 6 NDA because it couldn't be produced and distributed in response to infantile seizures unless it had that approval.

[00:51:26] Speaker 05:
it ends up feeling like the agency is just saying, well, because we told you to close that, it's very formalistic.

[00:51:34] Speaker 05:
We said, we're not gonna refer to that anymore, but you needed that in order to market it the way you're marketing it.

[00:51:44] Speaker 05:
And then they said, actually, we are gonna reset your base date, AMP.

[00:51:49] Speaker 05:
So it's a little hard to say the statute is clear where the agency has all this wiggle room

[00:51:54] Speaker 05:
About how it labels things and those labels have major statutory consequences for it to say, well, it's clear that when we labeled this in a way that would have major statutory comp consequences.

[00:52:06] Speaker 05:
We never meant that

[00:52:08] Speaker 02:
So a few things, Your Honor, that I'd like to unpack there.

[00:52:12] Speaker 02:
One is the question of whether this idea, well, they couldn't market it for that specific indication, but for the approval they received under the 2010 Type 6 NDA.

[00:52:25] Speaker 02:
And that point proves too much, because that's equally true of any efficacy supplement approved under a supplemental NDA.

[00:52:32] Speaker 02:
The indication, to be sure, needed to be approved by FDA.

[00:52:38] Speaker 03:
But that's a supplemental NDA, not an NDA.

[00:52:43] Speaker 02:
Well, this was an NDA number.

[00:52:45] Speaker 02:
And it was certainly an NDA number that was used in processing this.

[00:52:50] Speaker 02:
But it was always described to Quest Core as being used for administrative purposes only.

[00:52:56] Speaker 02:
At the time that it was closed out, they were told that

[00:53:01] Speaker 02:
if you look at the letter itself, it's not reviewing all of the underlying drug or purporting to reconsider whether the drug itself is safe and effective writ large.

[00:53:10] Speaker 02:
It's only analyzing the efficacy supplement.

[00:53:13] Speaker 02:
And then it's saying, we're closing this out and go back to using your original NDA.

[00:53:19] Speaker 02:
And if you're concerned about what FDA was saying later on and their confusion, if you look at JA 522, this is a 2015 correspondence

[00:53:28] Speaker 02:
from FDA back to CMS.

[00:53:31] Speaker 02:
This is when CMS had started questioning whether the right base-date AMP was being used.

[00:53:37] Speaker 02:
You have FDA writing to CMS, the only active NDA for Hbacthar gel is 008372, the 1952 NDA.

[00:53:49] Speaker 02:
And again, that's not a surprise.

[00:53:52] Speaker 02:
That wouldn't have come as a surprise to Quest Core, because they said the same thing in 2011.

[00:53:57] Speaker 02:
So against that backdrop, I think the statute can be plainly applied according to its words, either by recognizing that ACTHAR, the drug, not the infantile spasms indication, but ACTHAR, the drug was not a subsequently approved drug and also the authorization for the production and distribution of the drug itself flowed from the 1952 NDA.

[00:54:19] Speaker 01:
I'm trying to understand, um,

[00:54:25] Speaker 01:
Something can be both a single source drug and a covered outpatient drug, right?

[00:54:31] Speaker 02:
A single source drug is a type of covered outpatient drug.

[00:54:34] Speaker 02:
So in the definition of single source drug, it refers to it as a type of covered outpatient drug.

[00:54:40] Speaker 01:
That's what I thought.

[00:54:42] Speaker 01:
So I mean, earlier you said, well, here the statute

[00:54:53] Speaker 01:
a clear and simple application of the statute is to say that this using the definition of single source drug, that when we look at the language which is produced or distributed under a new drug application approved by the Food and Drug Administration,

[00:55:22] Speaker 01:
In that sense, this particular one in your view was not approved under a new drug application in 2012.

[00:55:40] Speaker 01:
So it's not a single source drug.

[00:55:45] Speaker 01:
But that doesn't necessarily mean that it couldn't be a covered outpatient drug, does it?

[00:55:51] Speaker 02:
it doesn't necessarily, inherently the subset of covered outpatient drugs is larger than single source drugs, but there is no circumstance under which ACTAR would be like a multiple source drug or anything else.

[00:56:04] Speaker 02:
And I don't think Ms.

[00:56:05] Speaker 02:
Stetson will argue otherwise.

[00:56:08] Speaker 01:
So you're saying that it can't be a covered outpatient drug just looking at the definition

[00:56:16] Speaker 01:
because the only one of those that could possibly apply to it is in A, Romanet 1, and that doesn't apply because its safety and effectiveness wasn't approved by the FDA in 2012, only a new indication.

[00:56:46] Speaker 02:
Yeah, I think that's mostly right.

[00:56:47] Speaker 02:
To be clear, Akhtar is a single source drug.

[00:56:50] Speaker 02:
It's just one single source drug that was approved in 1952.

[00:56:54] Speaker 02:
Their argument is that Akhtar, they're a little cagey about this, but they say Akhtar became a distinct single source drug afterwards, and that's where we take issue.

[00:57:05] Speaker 02:
There is one Akhtar.

[00:57:06] Speaker 02:
It's an old drug

[00:57:07] Speaker 02:
that received its approval in 1952, and that's the relevant approval for all purposes.

[00:57:13] Speaker 02:
Notwithstanding the approval of a supplemental indication, it is not a subsequently approved drug.

[00:57:20] Speaker 02:
And that's why it's not within C2B.

[00:57:24] Speaker 01:
I'm sorry, maybe I'm just a little thick here, but the statute that we're, that where the rubber meets the road is the statute that defines how you calculate the additional rebates.

[00:57:37] Speaker 01:
Yes, your honor.

[00:57:38] Speaker 01:
In that provision, in part B, for treatment of subsequently approved drugs, talks about what do you do if you have a covered outpatient drug that is approved by the FDA after October 1, 1990.

[00:58:03] Speaker 01:
So saying

[00:58:07] Speaker 01:
that this is or isn't a single source drug doesn't necessarily answer that question, right?

[00:58:16] Speaker 02:
Yes, I agree with that.

[00:58:18] Speaker 02:
It's Ms.

[00:58:18] Speaker 02:
Stetson who wants to direct you to the definition of single source drug.

[00:58:22] Speaker 02:
I'm very content to have the court look only at C2B and to see that C2B is directed to the approval of a drug, not the approval of an indication, because I think that's sufficient to resolve this case.

[00:58:34] Speaker 02:
What was subsequently approved for ACTAR in 2010 was a new indication.

[00:58:40] Speaker 02:
It was an efficacy supplement.

[00:58:42] Speaker 02:
It wasn't approval of the underlying drug itself.

[00:58:45] Speaker 02:
And that's why we think C2B is sufficient.

[00:58:48] Speaker 02:
We're not affirmatively relying on, on K7.

[00:58:51] Speaker 02:
That's, that's Ms.

[00:58:52] Speaker 02:
Stetson's argument.

[00:58:53] Speaker 02:
And I've tried to explain why the produced and distributed requirement in K7 means even if you go down that path with her, you're going to lead to, it's going to lead to the same result.

[00:59:02] Speaker 02:
But we are perfectly content for you to resolve this just on the face, on the strength of C2B.

[00:59:10] Speaker 03:
So were you done, Robert?

[00:59:13] Speaker 03:
Sorry.

[00:59:15] Speaker 01:
I have a different line of questions, so go ahead.

[00:59:18] Speaker 03:
OK.

[00:59:19] Speaker 03:
I'll give you a break.

[00:59:21] Speaker 03:
Mr. Saltzman, let's talk about the retroactivity issue for a minute here.

[00:59:25] Speaker 03:
And I want to be sure I understand your position here.

[00:59:32] Speaker 03:
Am I right that your position is that even if quests

[00:59:40] Speaker 03:
2012 letter had been completely forthcoming.

[00:59:44] Speaker 03:
And I'm not saying it wasn't or was, but assuming it had been completely forthcoming.

[00:59:49] Speaker 03:
And even if the agency's CMS's response hadn't reflected any of the confusion you think is in there.

[00:59:56] Speaker 03:
In other words, both of those had happened.

[00:59:59] Speaker 03:
Your position is that CMS can still recover

[01:00:06] Speaker 03:
all of these payments because the statute's clear, right?

[01:00:08] Speaker 03:
Clear statutory language trumps whatever the agency says.

[01:00:13] Speaker 03:
That's your position, right?

[01:00:14] Speaker 02:
That is my position, but I do think that our position is further strengthened by the fact that there was- Well, you're changing my question.

[01:00:26] Speaker 03:
I'm trying to get to the bottom of what your position is.

[01:00:29] Speaker 03:
Clear statutory language trumps, and I take your point that

[01:00:34] Speaker 03:
that you don't think they were forthcoming?

[01:00:35] Speaker 03:
And I take your point that you think CMS letter was a little cagey itself or had limitations to it.

[01:00:42] Speaker 03:
But just stick with my question, which is, if the statutory language is clear, the agency's position is, right, doesn't make any difference what the agency told the regulated party, correct?

[01:00:56] Speaker 02:
I think that's right, Your Honor, both because if it's fair notice,

[01:01:01] Speaker 02:
So there's two things.

[01:01:03] Speaker 02:
I'm sorry, Your Honor.

[01:01:04] Speaker 02:
Go ahead.

[01:01:07] Speaker 03:
I'm surprised with you saying you think that's your position.

[01:01:10] Speaker 03:
That's the way I read your brief.

[01:01:12] Speaker 03:
If that's not

[01:01:13] Speaker 03:
accurate, then you need to tell me that now.

[01:01:17] Speaker 02:
I apologize, Your Honor.

[01:01:18] Speaker 02:
Yes, it is our position that the statutory requirement is fair, or the constitutional requirement, rather, is fair notice.

[01:01:26] Speaker 02:
And here, any fair notice was supplied by the plain text of the statute.

[01:01:31] Speaker 02:
On top of that, I direct it.

[01:01:34] Speaker 03:
And it makes no difference whether the agency misled the regulated party or not, right?

[01:01:42] Speaker 03:
I think that's a fact of OPM.

[01:01:45] Speaker 03:
They're making two different arguments.

[01:01:46] Speaker 03:
They're making a due process argument.

[01:01:48] Speaker 03:
And your response to that is, look, the statute's clear.

[01:01:53] Speaker 03:
But their other argument is that, and they cite our case for this, is that, look, it's the situation.

[01:02:00] Speaker 03:
This is what they say.

[01:02:01] Speaker 03:
You don't have to tell me it isn't your position.

[01:02:04] Speaker 03:
It's what they say.

[01:02:05] Speaker 03:
That, look, the agency told us we could do this.

[01:02:12] Speaker 03:
And your answer to that is, makes no difference, right?

[01:02:17] Speaker 02:
So my argument is, it needs to meet the manifest injustice standard laid out in the Quest case.

[01:02:25] Speaker 02:
I'm not saying that no case might ever, for the retroactivity argument.

[01:02:30] Speaker 03:
Yeah.

[01:02:32] Speaker 03:
Give me an example.

[01:02:34] Speaker 03:
I'm curious.

[01:02:35] Speaker 03:
We have to write an opinion here.

[01:02:37] Speaker 03:
And if we write an opinion which says what you say we should say, namely,

[01:02:42] Speaker 03:
plain, clear statutory language trumps whatever the agency says.

[01:02:48] Speaker 03:
That will be cited in future cases.

[01:02:50] Speaker 03:
And I'm wondering what the limiting principle is to that.

[01:02:54] Speaker 03:
Is there a way, does this apply to all cases?

[01:02:57] Speaker 03:
Or just to a case like this?

[01:02:59] Speaker 03:
And if so, why?

[01:03:01] Speaker 02:
So I think the reasons it's acceptable to limit it, I think you can direct it to the facts here.

[01:03:08] Speaker 02:
And I think it's important.

[01:03:13] Speaker 03:
We don't write opinions that way.

[01:03:15] Speaker 03:
Every opinion contains a holding, which applies to future cases.

[01:03:19] Speaker 03:
We can't decide a case based on just these facts.

[01:03:23] Speaker 03:
We have to apply a principle to these facts.

[01:03:26] Speaker 03:
And your principle is,

[01:03:28] Speaker 03:
to repeat myself, clear statutory language trumps agency misleading statements, right?

[01:03:36] Speaker 02:
That is our threshold argument.

[01:03:39] Speaker 02:
As I said, we also have arguments as to why the facts here, in particular, underscores the original manifesto.

[01:03:45] Speaker 03:
I understand that.

[01:03:45] Speaker 03:
So then you were going to say to me, and I may have interrupted you, that may not be true in all cases, right?

[01:03:52] Speaker 03:
That's what I'm curious to explore with you.

[01:03:55] Speaker 03:
Let me just give you a hypothetical, OK?

[01:03:58] Speaker 03:
So suppose Congress enacts, well, it does have.

[01:04:01] Speaker 03:
Congress has one of its housing programs provides vouchers to poor people, right, for housing.

[01:04:11] Speaker 03:
Suppose, this is just a hypothetical.

[01:04:14] Speaker 03:
Suppose it says the voucher is canceled if the resident runs a business, okay?

[01:04:23] Speaker 03:
And it defines a business as a sale of any goods for money.

[01:04:28] Speaker 03:
You got the hypothetical?

[01:04:29] Speaker 02:
Yes, I do, Your Honor.

[01:04:30] Speaker 03:
OK.

[01:04:30] Speaker 03:
So a resident comes to the agency, says, look, we're having a pandemic.

[01:04:36] Speaker 03:
I want to make masks.

[01:04:37] Speaker 03:
Is that OK?

[01:04:38] Speaker 03:
Make them sell masks.

[01:04:39] Speaker 03:
And they say, sure.

[01:04:41] Speaker 03:
That's OK.

[01:04:41] Speaker 03:
It's just kind of a side thing.

[01:04:43] Speaker 03:
Fine.

[01:04:44] Speaker 03:
And then a year later, they take another look and they say, no, we can't do this.

[01:04:48] Speaker 03:
This is a business.

[01:04:49] Speaker 03:
It's selling goods for money.

[01:04:54] Speaker 03:
Now, what about that case?

[01:04:55] Speaker 03:
Can they collect the back voucher payments?

[01:04:58] Speaker 02:
I don't think they can.

[01:05:00] Speaker 02:
Under OPM versus Richmond, that's actually a remarkably close analog to the facts of OPM versus Richmond.

[01:05:06] Speaker 02:
So I think under Supreme Court case law that that's actually going to resolve that case.

[01:05:13] Speaker 02:
But to the extent your honor is concerned with the breadth of the rule, I'd remind you that the relevant standard here is manifest injustice, which I think is inherently something that lends itself

[01:05:23] Speaker 02:
to fact-based applications.

[01:05:25] Speaker 02:
It's going to necessarily turn to some extent on the circumstances.

[01:05:29] Speaker 03:
If the hypothetical I gave you isn't manifest injustice, give me one that would be.

[01:05:35] Speaker 03:
Just give me an example of a case that falls on the other side of the line.

[01:05:40] Speaker 03:
If you're asking us to write an opinion based on the principle I'd like on the principle you're offering,

[01:05:51] Speaker 03:
I'd like to know what case falls on the other side of the line.

[01:05:56] Speaker 02:
Just give me an example.

[01:06:03] Speaker 02:
But nonetheless, you want it to be, I'm not sure if I can give you an example.

[01:06:06] Speaker 02:
I want a case.

[01:06:07] Speaker 03:
I want you to give me an example of a case where the statute is clear, the agency has misled the person,

[01:06:19] Speaker 03:
yet we would be able to hold that they can't recover back pain.

[01:06:25] Speaker 03:
I just need an example.

[01:06:27] Speaker 02:
I'm not sure I can give you one thing the statute is.

[01:06:31] Speaker 02:
If the statutory language is sufficiently clear that it's providing adequate notice of the rules and certainly with a sophisticated business party like Malincrot.

[01:06:42] Speaker 03:
Wait a minute, wait a minute.

[01:06:45] Speaker 03:
Now you've just changed, you've come with maybe sophisticated business.

[01:06:50] Speaker 03:
Is that a sophisticated party?

[01:06:52] Speaker 03:
Is that the difference?

[01:06:54] Speaker 02:
I think, again, that the manifest injustice is in there.

[01:06:59] Speaker 03:
And how do we define that?

[01:07:02] Speaker 03:
Like my housing case, the resident is a poor person who has a housing voucher, unsophisticated.

[01:07:16] Speaker 03:
Where do you draw the line between Quest and that person?

[01:07:20] Speaker 03:
Where is it?

[01:07:21] Speaker 03:
I have absolutely no idea.

[01:07:24] Speaker 03:
I don't know of any cases that help us to find that.

[01:07:26] Speaker 03:
Do you see what I'm getting at here?

[01:07:28] Speaker 03:
You're being very candid with me about your principle, and I appreciate that.

[01:07:33] Speaker 03:
That's very helpful to explain to us what the agency's principle is you're offering.

[01:07:42] Speaker 03:
I worry about us incorporating that in a binding opinion of the DC Circuit without us understanding what its implications are.

[01:07:49] Speaker 02:
I certainly appreciate that concern, Your Honor, and that's why I think the Court is aided by the fact that there are other factors you can point to that will

[01:07:59] Speaker 02:
that I'm not necessarily asking you to adopt a per se rule here.

[01:08:04] Speaker 02:
I think it's appropriate to look to things like the 2011 letter in which Quest Court acknowledged and recognized that the NDA would not be used on a prospective basis and was limited to the efficacy supplement.

[01:08:17] Speaker 02:
I think it would be appropriate for the court to look to the sophistication of Mal and Pratt.

[01:08:21] Speaker 02:
It would be appropriate

[01:08:22] Speaker 02:
to look to the fact that the court isn't, that this isn't the government going out and regulating parties in the market, but rather is merely enforcing statutory and contractual obligations against a voluntary participant in a government program who reaped significant revenues as a result of that participation and is not being asked of any penalty, but is merely being asked to repay the amounts that it took out of Medicaid by raising its prices.

[01:08:46] Speaker 02:
So I think you can look to those confluence of facts and use those as being, and treat them as sufficient to recognize there would not be a manifest injustice here.

[01:08:53] Speaker 01:
I have a couple of questions to follow up if Judge Tatel, I don't want to interrupt you though.

[01:08:59] Speaker 01:
No, I'm done.

[01:09:00] Speaker 03:
That's good.

[01:09:00] Speaker 01:
I'm finished.

[01:09:01] Speaker 01:
Thank you.

[01:09:02] Speaker 01:
So in 2012, when Malin Crot, or when the regulated entity gets the letter from CMS,

[01:09:14] Speaker 01:
It's final agency action, right?

[01:09:18] Speaker 02:
I'm actually not sure that's true, Your Honor.

[01:09:20] Speaker 02:
Under this court's Ibsen case, if the agency had said no and had required them to change the Bay State AMP, that would be final agency action.

[01:09:32] Speaker 02:
I'm actually not sure whether the corollary extends here.

[01:09:37] Speaker 01:
Well, and that just kind of even makes my questioning a little easier.

[01:09:43] Speaker 01:
My question is basically getting at,

[01:09:46] Speaker 01:
Was there any way for the regulated entity to get a definitive ruling from a court in 2012?

[01:09:57] Speaker 01:
There wasn't, was there?

[01:09:59] Speaker 01:
Because even if it was final agency action, they wouldn't be injured by anything.

[01:10:04] Speaker 01:
So I don't see what standing they would have.

[01:10:07] Speaker 01:
So you want us to adopt the rule

[01:10:11] Speaker 01:
where a regulated entity, let's assume for the sake of my question, that we find that everything that they did was above board.

[01:10:20] Speaker 01:
And they go to the agency and they say, look, we're losing money by participating in this.

[01:10:25] Speaker 01:
We don't think you want us to opt out of this.

[01:10:29] Speaker 01:
Here's what's going on.

[01:10:30] Speaker 01:
And the agency comes up with a solution and an interpretation of the statute.

[01:10:36] Speaker 01:
They can't go to a court and get some sort of a declaratory judgment

[01:10:41] Speaker 01:
So they're completely at the mercy of the agency as to whether it's ever going to change its mind as to whether it's going to interpret the statute.

[01:10:54] Speaker 01:
But it's not like some low-level bureaucrat gave them this interpretation.

[01:10:59] Speaker 01:
It was the head of the Division of Pharmacy, right?

[01:11:04] Speaker 02:
That's correct, Your Honor.

[01:11:06] Speaker 01:
So when the regulated entity

[01:11:10] Speaker 01:
is basically kind of stuck.

[01:11:15] Speaker 01:
Shouldn't that factor in to how we look at whether it was reasonable for them to rely on this in a due process sense?

[01:11:28] Speaker 02:
The concern there is certainly reasonable to take into account, but I do want to emphasize what Malancrot or at the time Quest Core did not do and why you shouldn't be concerned that this case is the one you're describing.

[01:11:44] Speaker 02:
And I want to point out exactly what they didn't do.

[01:11:47] Speaker 02:
But before I do that, I want to make sure that the goal posts aren't shifted on us a little bit because Miss Stetson's briefing emphasizes or pushes back on the idea that Quest Core was trying to hoodwink the agency.

[01:12:00] Speaker 02:
And the hoodwink standard or the above board standard, I think, isn't the relevant standard here.

[01:12:06] Speaker 02:
Equestcorps might have been operating entirely in good faith on the front end when they came to the agency.

[01:12:12] Speaker 02:
And indeed, they recognized the real deficiencies in this NDA theory.

[01:12:17] Speaker 02:
They didn't even bother to propound it.

[01:12:19] Speaker 02:
But because they were writing to a different theory, they didn't put all the critical facts before the agency.

[01:12:24] Speaker 02:
And in particular, they didn't say what they told FDA in 2011, which is we recognize this was approval of an efficacy supplement, not of a true underlying drug, and that the tracking number will no longer be used.

[01:12:39] Speaker 02:
So that information wasn't before.

[01:12:42] Speaker 02:
CMS.

[01:12:43] Speaker 02:
Now, Quest Core might have thought there was no reason to put that before CMS, because that wasn't their theory.

[01:12:50] Speaker 02:
But then what happens in 2012?

[01:12:51] Speaker 02:
The agency comes back and says, aha, we think we can help you out.

[01:12:56] Speaker 02:
Your theories don't make any sense.

[01:12:58] Speaker 02:
Your theories we can't adopt.

[01:13:00] Speaker 02:
But we have an alternative basis of way of getting there.

[01:13:03] Speaker 02:
we can do this because the quote recently approved Actar gel was approved under an NDA and is therefore different than the quote original product.

[01:13:13] Speaker 02:
At that point, there's a blinking red light and the onus was on Quest Core to come back to CMS and say, wait a sec, just so we're clear here, here's what that 2010 NDA number was and what it wasn't.

[01:13:25] Speaker 02:
And particularly in a situation where the agency had said,

[01:13:29] Speaker 02:
We're limiting our determination here to the facts that were before us, and this is not a release of liability.

[01:13:35] Speaker 02:
Quest Corps got an answer they liked and they ran with it, as opposed to fulfilling their obligation at a minimum to confer with the agency and make sure the agency was aware of all of the relevant facts.

[01:13:49] Speaker 01:
So I guess my other question is, along these lines, is what if we

[01:13:59] Speaker 01:
think that reasonable lawyers and judges could disagree as to whether or not the agent, the statute is clear and unambiguous.

[01:14:09] Speaker 01:
Does that have any role to play on our retroactivity analysis?

[01:14:15] Speaker 02:
Yes, I think it does.

[01:14:17] Speaker 02:
I mean, a key piece of our argument as to why it's, if you were going to say the statute doesn't provide adequate fair notice, then I think you'd have to say at what point did Quest Corps get fair notice.

[01:14:33] Speaker 02:
Well, first of all, you'd have to see was Quest Corps sufficiently upfront with the agency in 2012 that they should even get the benefit of the 2013 to 2016 period.

[01:14:44] Speaker 02:
I think there's no concern after April of 2016.

[01:14:47] Speaker 03:
We're not talking about that time.

[01:14:49] Speaker 03:
We're talking about 2012.

[01:14:51] Speaker 03:
Stick with 2012 to 2016.

[01:14:54] Speaker 03:
Just to say, just to some, Ms.

[01:15:01] Speaker 03:
Stetson candidly explained that if the statute's clear, she loses on this period.

[01:15:08] Speaker 03:
I hear you explaining

[01:15:10] Speaker 03:
to Judge Wilkins that if the statute's ambiguous, you lose on that, Kerry, right?

[01:15:16] Speaker 02:
No.

[01:15:17] Speaker 02:
There's one, we are sort of, if the statute is ambiguous- You're denying me the symmetry I was looking for.

[01:15:27] Speaker 02:
I'm sorry to deprive you of that, Your Honor, but if the statute is ambiguous- I like the symmetry.

[01:15:32] Speaker 02:
Yeah.

[01:15:33] Speaker 02:
Just as to the 2013 to 2016 period, the relevant analysis is, was the

[01:15:42] Speaker 02:
Quest Core, could Quest Core reasonably rely on that letter in light of the submissions it had made to the agency?

[01:15:49] Speaker 02:
If you're gonna say the statute didn't provide the fair notice, then it's just a question of, was there enough of a blinking red light in that letter that the agency might've misapprehended the relevant facts, that it was unreasonable for Quest Core to rely on that?

[01:16:04] Speaker 02:
So that's the other way you can rule in our favor for 2013 to 2016, even if you think the statute is ambiguous.

[01:16:11] Speaker 03:
I think you'd have a point if the Quest letter, 2012 letter, were clearly and plainly deceptive and misleading.

[01:16:27] Speaker 03:
I would understand your point, but you really can't say that about the letter.

[01:16:30] Speaker 03:
Sure, it could have been more forthcoming, but it wasn't inaccurate in any sense.

[01:16:35] Speaker 03:
Sure, it could have been more forthcoming, but it wasn't inaccurate.

[01:16:41] Speaker 03:
And the agency's response, sure, you can look at it now and see caveats and things like that in it.

[01:16:51] Speaker 03:
But as Judge Wilkins said, I thought he put it really well.

[01:16:55] Speaker 03:
What you had here was a company that really, really wanted to keep this drug in the program and an agency that also really, really wanted to keep this drug into the program.

[01:17:06] Speaker 03:
And if the statute

[01:17:09] Speaker 03:
It's ambiguous.

[01:17:10] Speaker 03:
It's a little hard for me to see how the agency can, consistent with principles of due process, require retroactive payment.

[01:17:19] Speaker 02:
Well, you're asking me, I think, to assume that we lose our alternative argument.

[01:17:25] Speaker 02:
I agree that if you both disagree, but we conclude that the statute's ambiguous, and also that it was reasonable for Quest Court to rely on that notice under the circumstances, I agree for the 2013 to 2016 period, we lose.

[01:17:41] Speaker 02:
That said, I want to add one caveat.

[01:17:44] Speaker 02:
I'm sorry, Judge, do you have a question?

[01:17:46] Speaker 01:
Well, my hypothetical was different.

[01:17:48] Speaker 01:
I was actually surprised that Ms.

[01:17:50] Speaker 01:
Stetson conceded that if we found that the statute was clear that she would have no retroactivity argument.

[01:17:58] Speaker 01:
Maybe she didn't concede that, but it sounded like she did.

[01:18:02] Speaker 01:
My question was, even if we conclude that the statute is clear in your favor,

[01:18:13] Speaker 01:
We could also believe that, you know, reasonable lawyers or judges might disagree on that question.

[01:18:22] Speaker 01:
I mean, that's why they pay lawyers like Ms.

[01:18:26] Speaker 01:
Stetson big bucks because, you know, the difference between Chevron step one and step two is not readily apparent all the time to us or the regulated entities, to agencies.

[01:18:43] Speaker 01:
So I guess I'm still not sure why it is that even if we ultimately after wrestling with this believe that the statute clearly cuts in your favor that that necessarily means that it was unreasonable for a regulated entity to rely on an authoritative letter from the agency that took the opposite position.

[01:19:08] Speaker 01:
If we think that, you know, that's a close question, and reasonable people might think that the statute is ambiguous on that point, and that the agency was essentially interpreting the statute in a way that made sense for everybody at the time, and maybe they changed their mind later, but they can rely on an agency interpreting an ambiguous statute.

[01:19:36] Speaker 01:
That's what agencies do every day.

[01:19:39] Speaker 02:
So, Your Honor, like you, I understood Ms.

[01:19:42] Speaker 02:
Stetson to concede that if the statute is unambiguous, it would supply the requisite fair notice in order for us to prevail.

[01:19:53] Speaker 02:
That being said, I think you can also just get there by looking at things in total.

[01:19:58] Speaker 02:
You don't have to sort of segment out all of the different pieces of this.

[01:20:01] Speaker 02:
One piece is the clarity of the statutory language, but but that act operates in tandem with the history here, the fact that quest core was unambiguously aware in 2011 that it had only gotten approval of an efficacy supplement that the.

[01:20:18] Speaker 02:
The plan for this type 10 NDA, that number was going to be closed.

[01:20:22] Speaker 02:
It was not to be used prospectively.

[01:20:25] Speaker 02:
And the drug itself was to be marketed only under the 1952 NDA.

[01:20:30] Speaker 02:
So then you have this correspondence back and forth.

[01:20:33] Speaker 02:
And I agree with, I think it was Judge Tatel said before, that nothing in the letter itself was that Quest Corps submitted in 2012 was affirmatively wrong.

[01:20:46] Speaker 02:
But that's why I wanted to emphasize before that the hoodwink standard isn't the relevant standard here.

[01:20:51] Speaker 02:
The relevant standard is lower.

[01:20:55] Speaker 02:
Did Quest Corps have a reasonable basis?

[01:20:58] Speaker 02:
Could they reasonably rely on that 2012 letter from CMS?

[01:21:03] Speaker 02:
And in light of the limited facts that had been put before CMS, the fact that there were key omissions from the factual record, yes, Judge, were you indicating?

[01:21:14] Speaker 03:
Moving my arm.

[01:21:17] Speaker 05:
I'd like you to finish your list, but I have a question.

[01:21:20] Speaker 05:
The language, the history, nothing in the letter probably wrong, but things admitted.

[01:21:26] Speaker 05:
But like they couldn't reasonably rely on the 2012 letter more

[01:21:33] Speaker 02:
No, I think that's everything for 2013 to 2016.

[01:21:35] Speaker 02:
And after 2016, I think it gets even clearer.

[01:21:39] Speaker 02:
But for that three-year stretch, that's what I'd point to.

[01:21:45] Speaker 05:
So is your view that CMS made a factual mistake in assenting to plaintiff's request to reset that base date AMP in 2012?

[01:21:55] Speaker 05:
Because plaintiff's briefing says you're not subscribing to the mistake theory of the district court.

[01:22:02] Speaker 02:
I'm not quite sure about their characterization of this.

[01:22:05] Speaker 02:
What we would say is CMS issued guidance on the facts that had been put before it and was very upfront that what it was saying was limited to the facts that had been put before it.

[01:22:17] Speaker 02:
I think on the facts that had been put before it, arguably CMS may have reached the right conclusion.

[01:22:23] Speaker 02:
The problem was it didn't have all the facts.

[01:22:25] Speaker 02:
And once it had all the facts in 2015, 2016, that's when it,

[01:22:30] Speaker 02:
came to the conclusion that it announced in April 2016 that they were using the wrong base date AMP.

[01:22:36] Speaker 05:
When you talk about the facts before it, I mean, internally, the agency has all the information, does it not?

[01:22:45] Speaker 02:
Well, CMS, not FDA.

[01:22:47] Speaker 02:
Obviously, they're both subcomponents of HHS.

[01:22:50] Speaker 02:
But CMS disclaimed, again, we're talking about how reasonable it was for them to rely on this letter.

[01:22:56] Speaker 02:
And at the point that CMS is disclaiming any intent or having done any outside research of having gone to track things down, that Ms.

[01:23:05] Speaker 02:
Stetson's brief is sort of directed to a world where the agency was on inquiry notice and sort of using that as the relevant standard.

[01:23:10] Speaker 02:
And I just don't think that's the right way

[01:23:12] Speaker 05:
not I'd like to I don't when you talk about CMS versus FDA versus like to me that that doesn't evoke a clear picture of sitting here I can't even really tell you who made which decisions and whether why they shouldn't all

[01:23:29] Speaker 05:
know all the information?

[01:23:32] Speaker 02:
Sure, Your Honor.

[01:23:33] Speaker 02:
So what we're dealing with here is the Quest Corps came to CMS and said, we'd like some guidance.

[01:23:42] Speaker 02:
This wasn't an application according to a formal process that's laid out or governed by statutes or regulations.

[01:23:49] Speaker 02:
They came to CMS and said, we'd like some guidance on this.

[01:23:52] Speaker 02:
Here are some facts.

[01:23:54] Speaker 02:
On those facts, what do you think?

[01:23:56] Speaker 02:
And the agency said,

[01:23:57] Speaker 02:
We're not going out and doing, this isn't a formal adjudication.

[01:24:02] Speaker 02:
We haven't taken the responsibility on ourselves to fully investigate this.

[01:24:07] Speaker 02:
We are saying, you've asked for what our views would be on these facts.

[01:24:10] Speaker 02:
On these facts, it seems to us like you can reset your base data AMP.

[01:24:14] Speaker 02:
Not for the reason you think, but one fact that you mentioned in your filing makes us think you probably can.

[01:24:19] Speaker 02:
But our advice here is limited to the facts you've given us, and it's not a release of liability.

[01:24:26] Speaker 02:
And Quest Core takes that.

[01:24:29] Speaker 02:
They don't say, oh, wait a sec, there's possible confusion here.

[01:24:32] Speaker 02:
Your guidance here might be incorrect, or you might not have considered this additional important information.

[01:24:39] Speaker 02:
They just sort of want to, because they like the answer they got, they left it there.

[01:24:44] Speaker 02:
And that's where I think the real sin was.

[01:24:48] Speaker 05:
And as for this is totally separate, but in the Medicaid Act in 2019 Congress deletes the word original before new drug application in the definition of single source drug.

[01:25:02] Speaker 02:
What should we make of that?

[01:25:04] Speaker 02:
Yeah, so our view is that that's not relevant here.

[01:25:08] Speaker 02:
That was directed to an ambiguity in the statute that isn't about when a base-state AMP gets reset.

[01:25:15] Speaker 02:
There was some confusion that was resulting about whether a drug was a single-source drug or a different category of drug.

[01:25:23] Speaker 02:
It wasn't about the base-state AMP.

[01:25:26] Speaker 02:
And that's the reason the deletion was made, and that's the reason we haven't focused on it.

[01:25:29] Speaker 05:
That's totally after the fact.

[01:25:31] Speaker 05:
It just struck me.

[01:25:32] Speaker ?:
OK.

[01:25:34] Speaker 03:
Okay.

[01:25:36] Speaker 03:
Anything else to either of my colleagues?

[01:25:38] Speaker 01:
So I'm sorry, judge pillard.

[01:25:41] Speaker 01:
I had one, one, one, one.

[01:25:45] Speaker 01:
I had one question I wanted to just get some clarity on.

[01:25:49] Speaker 01:
So is it your position?

[01:25:52] Speaker 01:
Um, is it your position?

[01:25:54] Speaker 01:
Um, mr. Saltzman that, that can you hear me?

[01:25:58] Speaker 02:
Yes, I can.

[01:26:01] Speaker 01:
Can you hear me?

[01:26:04] Speaker 01:
I can hear you.

[01:26:07] Speaker 01:
I can hear you.

[01:26:11] Speaker 01:
Okay.

[01:26:13] Speaker 01:
My internet connection is going in and out, I think.

[01:26:17] Speaker 01:
So is it your position that if an NDA has been previously approved for a drug, then it can never get a new base date

[01:26:31] Speaker 01:
AMP for the approval of a new indication and change in label, even if the FDA allows the drug to be marketed under a new NDA number, because the statute says that it's whether a drug is approved by the FDA after October

[01:27:00] Speaker 01:
after October 1, 1990, not whether a new indication is approved.

[01:27:07] Speaker 02:
So I think a single drug product can only have its original NDA.

[01:27:14] Speaker 02:
Now, if FDA processes an entire new drug application for a chemical compound and recognizes it as a distinct... That's not my hypothetical.

[01:27:27] Speaker 01:
I want you to answer my hypothetical, please.

[01:27:31] Speaker 01:
My hypothetical assumes it's the same drug, but a new indication was approved by the FDA, and the FDA gave it a new NDA number for whatever reason, and they said you can market it under that new NDA number.

[01:27:52] Speaker 01:
Your position is the same, that there could be no change in the base date AMP,

[01:27:59] Speaker 02:
I'm sorry to resist your hypothetical.

[01:28:02] Speaker 02:
I'm just not aware of any circumstance where that would occur.

[01:28:07] Speaker 02:
I think there are situations where it is conceivable that FDA would approve a new NDA for something that was a previously recognized drug compound and recognized it as a new product.

[01:28:22] Speaker 02:
And conceivably, that new product was going to be administered prospectively under a new NDA number.

[01:28:28] Speaker 02:
And with the additional indication, that would be entitled to a separate base date AMP.

[01:28:34] Speaker 02:
But if it's the same drug product with a new indication added, I don't think there's a situation where it would be approved just for marketing under the same base date AMP, under the same NDA number.

[01:28:48] Speaker 02:
So I'm but I think the relevant question under the statute.

[01:28:53] Speaker 01:
My question is, let's suppose, even though you don't believe that that could happen.

[01:28:58] Speaker 01:
If it happened.

[01:28:59] Speaker 01:
You would say they still wouldn't get a new base date AMP because what the statute says doesn't change in the statute says it's got to be a drug approved not a new indication approved

[01:29:14] Speaker 02:
If all that was approved was a new indication, yes, I think that what would be relevant.

[01:29:19] Speaker 02:
But I'm afraid then if I give that answer, I'm fighting your hypothetical that the drug itself has been approved for marketing under the new NDA.

[01:29:26] Speaker 02:
That's why I'm struggling a little with your hypothetical.

[01:29:30] Speaker 02:
But I think if unless the drug itself is approved under a new NDA, it is not a subsequently approved drug for purposes of C2B.

[01:29:41] Speaker 01:
All right.

[01:29:41] Speaker 01:
Thank you.

[01:29:41] Speaker 01:
That's all I have.

[01:29:43] Speaker 03:
Okay.

[01:29:44] Speaker 03:
Thank you, Mr. Saltzman.

[01:29:46] Speaker 03:
Ms.

[01:29:48] Speaker 03:
Stetson, we took you way over.

[01:29:49] Speaker 03:
You can have three minutes.

[01:29:52] Speaker 06:
Thank you.

[01:29:53] Speaker 06:
Thank you, Your Honors.

[01:29:54] Speaker 06:
Just a couple of quick points.

[01:29:56] Speaker 06:
The first is, Judge Wilkins, I did not concede the thing that you thought I shouldn't have conceded.

[01:30:02] Speaker 06:
What I conceded in response to Judge Tatel's line of questioning is that when you have a statute that makes itself perfectly clear that the agency can only do X

[01:30:13] Speaker 06:
and the agency does the opposite of X does Y, if it is so perfectly clear that a regulated entity should never have reasonably relied on that statute on its face, then you have the kind of blockage to my arguments that I was talking about.

[01:30:29] Speaker 06:
What you were talking about, Judge Wilkins, I think is far more common, which is that the statute can be interpreted to lead to a clear result

[01:30:36] Speaker 06:
but that different minds, reasonable minds, can disagree as they do here about what that clear result is.

[01:30:44] Speaker 06:
Judge Wilkins, the question that you just asked Mr. Saltzman I think is answered by Joint Appendix 530, and that's the Type 10 NDA.

[01:30:52] Speaker 06:
Type 10 NDAs, and I'm going to quote here, is for a drug product that is a duplicate of a drug product that is the subject of either a pending or approved NDA,

[01:31:01] Speaker 06:
and the applicant intends to market the drug product under the separate type 10 NDA after approval.

[01:31:07] Speaker 06:
Type 10 NDA is normally for a drug product that has a new indication or claim, and it may have labeling or a proprietary name that is distinct from the original NDA.

[01:31:17] Speaker 06:
That, of course, is our case, although our case was approved under a type 6 NDA.

[01:31:21] Speaker 05:
Type 6 lacks precisely

[01:31:24] Speaker 05:
the language that's in the Type 10, and that's critical.

[01:31:28] Speaker 06:
But that's actually critical to our argument, Judge Pillard, and this leads to a different question that Judge Tatel asked.

[01:31:36] Speaker 06:
Judge Tatel, you suggested that one of the things that makes this statute clear

[01:31:40] Speaker 06:
is that the statute talks about the drug being produced or distributed under the NDA.

[01:31:45] Speaker 06:
And this drug is produced or distributed under the 1952 NDA.

[01:31:49] Speaker 06:
And Mr. Saltzman, of course, said, yeah, that is CMS's ipsy dixit.

[01:31:55] Speaker 06:
That is exactly the question that is not resolved by what the Type 6 NDA is or is not.

[01:32:02] Speaker 03:
That is exactly what- This drug was not, quote, produced or distributed under the Type 6 NDA.

[01:32:10] Speaker 06:
But Judge Tatel, there's actually a very heated debate between the two, right?

[01:32:17] Speaker 06:
That is not correct, Judge Tatel.

[01:32:19] Speaker 06:
What we would say is I can point you to a couple points in the record.

[01:32:24] Speaker 06:
The most important thing is that the statute itself, the governing statute, 21 USC 355D, says that an NDA is for marketing approval.

[01:32:33] Speaker 06:
So that's your going in presumption, that if something is labeled an NDA, it's for marketing approval.

[01:32:38] Speaker 06:
But more to the point, in this case, you have the Orphan Approval Letter, Joint JA 422.

[01:32:44] Speaker 06:
that says, as the first sponsor of this drug to obtain marketing approval for this indication, you are entitled to seven years of orphan drug exclusive approval.

[01:32:53] Speaker 06:
Marketing approval began, quote, on the date of approval of your NDA 22432.

[01:32:59] Speaker 06:
So we can have a very spirited debate about whether something was or was not.

[01:33:06] Speaker 03:
The statute says, quote, produced or distributed.

[01:33:09] Speaker 03:
It doesn't say marketed.

[01:33:11] Speaker 03:
Yes.

[01:33:12] Speaker 03:
It doesn't say approved.

[01:33:14] Speaker 03:
It says distributed.

[01:33:19] Speaker 06:
Judge Tatel, the government below in its brief, in its summary judgment brief at note 14, which is page 19, the government below concedes that produced and distributed and marketed are the same.

[01:33:32] Speaker 06:
So for these purposes, well, we have a big problem here with

[01:33:37] Speaker 03:
As you yourself have pointed out, we had a big problem with the agency's interpretation of the statute pretty much at every level, right?

[01:33:44] Speaker 03:
I mean, you know.

[01:33:47] Speaker 06:
Yes.

[01:33:48] Speaker 03:
One thing that we're looking at the language of the statute, it doesn't really make any difference what FDA said in the district court about it.

[01:33:56] Speaker 03:
The language of the statute is clear, produced or distributed.

[01:33:59] Speaker 03:
If the agency says it also means

[01:34:02] Speaker 05:
marketed well particularly when you're talking about indications where the whole point is of course you can use it for infantile seizures as it was produced and distributed but you can't market it for that until the indication has been approved so it's and it only got orphan drug treatment for that marketing not for all sales and i i understand you said as a factual matter that that the infantile seizures was the most important under medicaid but

[01:34:29] Speaker 05:
but you conflate the resetting of the NDA for this indication with the notion that the NDA for the entire drug has been reset.

[01:34:38] Speaker 06:
Well, I think for purposes of what the discussion we're having now, which is whether Axar was marketed at any point for any indication under the new NDA, because of course the government's position is Axar has never been marketed under the new NDA.

[01:34:56] Speaker 06:
I think it is important that this received the orphan drug approval it did, that it received marketing approval to market for that indication under the NDA.

[01:35:05] Speaker 06:
For purposes of the base date AMP, there are statutory consequences that flow from the NDA approval.

[01:35:12] Speaker 06:
But on the marketing point, just to round it off if I could, remember that this is the issue that FDA squarely declined to decide.

[01:35:20] Speaker 06:
At Joint Appendix 536, it is asked

[01:35:24] Speaker 06:
Will this reflect that the drug is marketed under 8372?

[01:35:27] Speaker 06:
And FDA's answer is we're still deliberating how to list type 6 NDAs.

[01:35:32] Speaker 06:
So if it's not clear to the agency that's responsible for this, how can it be clear to the regulated entity?

[01:35:39] Speaker 06:
The last point I would make with respect to Mr. Seltzman's argument is a question, Judge Pillard, that you asked about FDA having some wiggle room here.

[01:35:47] Speaker 06:
And that's where the really expensive irony of this really lands, right?

[01:35:52] Speaker 06:
Because you have a company that didn't seek an NDA.

[01:35:55] Speaker 06:
It got one.

[01:35:56] Speaker 06:
it didn't seek this interpretation, it got it.

[01:35:59] Speaker 06:
And what Mr. Saltzman is now saying is, once that interpretation came over the transom, an interpretation not from some underling, as in OPM versus Richmond, but an official interpretation that was given after extensive consultation and extensive letters with Quest Corps,

[01:36:16] Speaker 06:
that that interpretation should have triggered the regulated entity to say, I want to make sure that you know all of the facts around it without Judge Pillard, the regulated entity presumably having gone to its sister agency and said, hey, what's up with this new NDA?

[01:36:31] Speaker 06:
This is for an old product.

[01:36:33] Speaker 06:
There is something that will strike fear in the hearts of every single regulated entity in the country.

[01:36:39] Speaker 06:
If it becomes incumbent on them,

[01:36:41] Speaker 06:
to follow up with an agency just to make super sure that the agency hasn't made a terrible mistake.

[01:36:47] Speaker 06:
If this isn't a terrible mistake that leads to a manifest injustice of 650 odd million dollars, I don't know what is.

[01:36:54] Speaker 06:
If there are no further questions.

[01:36:55] Speaker 03:
Thank you.

[01:36:57] Speaker 03:
Miss Stetson, Mr. Saltzman, thank you both.

[01:36:59] Speaker 03:
The case is submitted.