On December 29, 2022, President Biden signed into law H.R. 2617, the Consolidated Appropriations Act of 2023 (CAA23). Buried in this massive piece of legislation is Section 3621, Regulation of Certain Products as Drugs, which deems all “contrast agent[s], radioactive drug[s], [and over-the-counter (OTC)] monograph drug[s]” to be drugs, as opposed to medical devices.
The new law brings to an end the uncertainty regarding the regulatory status of these product classes following the court case Genus Medical Technologies, LLC v. FDA and the subsequent “Request for Information” issued by the Food and Drug Administration (FDA) in August 2021 that offered the notion of reclassifying products that had been regulated as drugs for several decades as medical devices. Although FDA was not compelled to make such reclassifications as a result of the Genus case and could classify products as drugs, even if they lack chemical action (as we discussed previously), the clarification of law brings a level of certainty to the regulatory status of contrast agent, radioactive drug, and OTC monograph drug products that could provide substantial benefits to innovation. Further, there is an opportunity for FDA to build on this regulatory clarity through its user fee waiver policies, which should help clear, and not hinder, the path for small pharmaceutical companies to pursue innovative drug development efforts.
What Products Are “Deemed” Drugs?
For the purposes of the statute, a “contrast agent” is defined as “an article that is intended for use in conjunction with a medical imaging device, and—
This definition removes any doubt that products such as the one in question in Genus (barium sulfate), as well as all other imaging products that have traditionally been regulated as drugs, will remain drugs.
Interestingly, the enacted law removes language from a previously proposed version of these provisions that expressly included within the “contrast agent” definition “PET drugs, as defined in section 212.1 of title 21, Code of Federal Regulations (or any successor regulations) and positron emission tomography radiotracers.” The reason for the change was not discussed, though it may have been removed due to PET products already being encompassed within the overall language of the law, as they are referred to in regulation as a subset of “radioactive drugs.”
The law confirms that “radioactive drugs,” as defined at 21 C.F.R.§ 310.3(n), remain drugs but clarifies that this category excludes (i) implants (or articles similar to implants), (ii) articles that apply radiation from outside of the body, and (iii) radiation sources for (i) and (ii). These exceptions ensure that existing devices, such as implantable radioactive seeds (internal radiation-emitting products used in brachytherapy to treat certain cancers), do not become subject to drug regulation.
OTC Monograph Products
Additionally, the law affirms that OTC monograph drug products, including those that lack chemical action—such as certain sunscreens that work by reflecting ultraviolet radiation, eye drops, and certain gastrointestinal products that work physically as opposed to chemically—will remain drugs.
The statute also acknowledges the possibility that some products that are currently marketed as medical devices could be deemed “drugs” by FDA as a result of the new provisions and afforded an application user fee waiver exemption if any devices need to transition to drug regulation. However, the apparent focus of the legislation is on maintaining the regulatory status quo (drugs remaining drugs) as opposed to shifting product jurisdictions, and we do not anticipate any substantial plans for the reclassification of devices to drugs as a result of the law.
What Products Are Not “Deemed” Drugs?
One product class that would have been deemed drugs based on a previously proposed version of the relevant provisions, but did not make it into the final legislation, are “ophthalmic drug articles.” They would have included “any eye cup, eye dropper, or other similar dispenser intended for ophthalmic use if packaged with the drug with which such article is intended to be used.” The inclusion of ophthalmic drug articles in CAA23 would have effectively overruled a recent FDA guidance on the topic, which signaled FDA’s intent to regulate these products as devices (rather than drugs). The regulation of these articles as drugs was a historical artifact from a time before “combination products” was defined in law and when FDA regulated certain devices as drug components (e.g., syringe components of pre-filled syringes were regulated as drug container closures as opposed to drug delivery systems). Over the years, FDA had addressed this issue in other product areas (e.g., by imposing design controls on device constituents of drug-led combination products), but had not yet addressed the ophthalmic area.
Product Jurisdiction: With respect to the products that were within the scope of the legislation, the law is now clear that these products will remain drugs. This will likely address several requests for designation and other regulatory submissions that were pending at the time the legislation passed. But Genus will continue to have an impact on product jurisdiction questions for years to come because it still constrains FDA’s discretion by clarifying that products that meet the definition of a device cannot also be considered a drug.
One issue of statutory interpretation that remains unresolved, and could be crucial in future jurisdictional determinations, is the role of the “instrument clause.” This clause states that a device must be “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory….” A product that does not satisfy the instrument clause would not be a device, opening the path to drug regulation.
An amicus brief to the Genus court raised the issue of the instrument clause being integral to the basis for regulating contrast agents as drugs, regardless of the presence of chemical action. In its decision, the Genus court acknowledged that “it is not immediately obvious . . . how a contrast agent satisfies the device definition’s [instrument clause],” while a concurring opinion noted the instrument clause was “a big piece of the device definition,” and one would question why “Congress used twenty words in the device definition’s instrument clause if it meant nothing more specific than is expressed by the word ‘articles’ alone in the drug definition.” The other parties to the case had not raised this issue as FDA’s position was that it had full discretion to regulate devices as drugs, which made the instrument clause moot.
However, prior to FDA adopting its expansive reading of the law (which followed the Safe Medical Device Amendments of 1990), the agency did rely on the instrument clause to classify several products lacking chemical action as drugs. More information about this instrument clause and FDA’s historical use of the provision can be found in the prior Epstein Becker Green Insight “Deconstructing Genus Medical Technologies, LLC v. FDA: A Misunderstood Court Decision.” But the extent and scope of the instrument clause will likely be the subject for further guidance updates (such as updates to FDA’s 2017 product jurisdiction guidance), requests for designation, and potentially litigation, in the coming years as those “twenty words” noted above gain renewed relevance.
Incentivizing Drug Development: The enactment of CA223 provides welcome regulatory clarity for drug companies, which, on its own, can help encourage innovation. However, to ensure small drug companies in particular have the opportunity to launch (or continue) their development efforts, application of FDA’s user fee waiver policies deserves a closer look.
One of the main issues that leads many small companies to fight jurisdictional battles is user fees. To provide a sense of scale, an application fee for a new drug application (NDA) in fiscal year (FY) 2023 is more than 160 times the fee for a 510(k). Although there is a first-time NDA user fee waiver for businesses with less than 500 employees that can help small pharmaceutical companies get off the ground, such companies remain subject to substantial Drug Program User Fees (which are in excess of $400,000 per year per drug in FY 2023, and only continue to rise).
As Congress recognized the challenge that these user fees could pose for small businesses, it granted FDA waiver authority to “alleviate the burden of fees where such fees are a barrier to an entity’s ability to bring, or to continue to bring to market products that are innovative or that promote the public health.” Historically, FDA focused on company resources (e.g., revenue thresholds) as a basis for deciding whether these types of user fee waivers were warranted. However, FDA has more recently adopted more aggressive cost policies to justify the denial of waivers for products that are unquestionably innovative—including those that are new molecular entities, and covered by patents issued by the U.S. Patent and Trademark Office (which knows from innovative)—and which benefit the public health, trying to limit the scope of waivers to “breakthrough products,” and other small niches. As this approach is far afield of both Congress’ apparent intent and FDA’s own interpretation of its waiver authority, FDA’s current guidance may not withstand judicial scrutiny or sufficiently encourage innovation by small pharmaceutical and biotechnology companies.
The passage of CAA23 provides a great opportunity, and reason, for FDA to make sure its fee waiver policies are being applied in a manner that supports innovation. FDA can signal to small companies that will become or remain subject to drug regulation, and the patients they help, that it’s taking steps to level the playing field—i.e., by not treating companies with less than $20 million in working capital (which may not even have generated profits yet) the same as companies generating billions of dollars in profits from a single product. Congress has routinely emphasized the importance of helping small businesses, and likely had this in mind when clarifying FDA’s authority in CAA23. Accordingly, it’s an opportune time for FDA to reexamine application of its fee waiver provisions to ensure small pharmaceutical companies can stay afloat and continue to infuse resources into research, development, and innovation to help patients.
This Insight was authored by James A. Boiani and Bonnie Odom. For additional information, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.
 Genus Medical Technologies LLC Versus Food and Drug Administration; Request for Information and Comments, 86 Fed. Reg. 43553 (Aug. 9, 2021).
 Epstein Becker Green Insight “Deconstructing Genus Medical Technologies, LLC v. FDA: A Misunderstood Court Decision” (Apr. 1, 2022), available at https://www.ebglaw.com/insights/deconstructing-genus-medical-technologies-llc-v-fda-a-misunderstood-court-decision-continues-to-sow-confusion-and-may-prompt-congressional-action/.
 Consolidated Appropriations Act, Pub. L. No: 117-328, § 3621(h)(2)(A) (2023).
 S. 4348, 117th Cong. § 908 (2022).
 PET drugs are defined in regulation as “radioactive drug[s] that exhibit[ ] spontaneous disintegration of unstable nuclei by the emission of positrons and [that are] used for providing dual photon positron emission tomographic diagnostic images.” 21 C.F.R. § 212.1 (emphasis added).
 Consolidated Appropriations Act, Pub. L. No: 117-328, § 3621(h)(1) & (h)(2)(B) (2023).
 Id. at § 3621(h)(4) (“The Secretary shall waive the application fee under sections 736 and 744B for applications for drugs that are—(A) on the date of enactment of the Prescription Drug User Fee Amendments of 2022, legally marketed as devices; and (B) deemed drugs pursuant to paragraph (1).”).
 S. 4348, 117th Cong. § 908 (2022).
 This FDA guidance provides that ophthalmic dispensers packaged with ophthalmic drugs should be regulated as drug-led combination products, with the ophthalmic dispensers considered device constituent parts. FDA, Certain Ophthalmic Products: Policy Regarding Compliance With 21 CFR Part 4, Guidance for Industry (2022), available at https://www.fda.gov/media/157067/download.
 21 U.S.C. § 321(h)(1).
 Brief for Giskit B.V. as Amicus Curiae Supporting Defendant-Appellant (FDA) in Genus Medical Technologies, LLC v. FDA, 994 F. 3d 631 (D.C. Cir. 2021), available at https://www.ebglaw.com/wp-content/uploads/2023/01/20-5026-Amicus-Curiae-Brief-of-Giskit-B.V.-in-Support-of-FDA.pdf. Epstein Becker Green attorneys prepared and filed the brief on behalf of their client, Giskit B.V.
 Genus Medical Technologies, LLC v. FDA, 994 F. 3d 631, 635 n. 3 (D.C. Cir. 2021).
 Id. at 648.
 This assumes an NDA application where clinical data is required ($3,242,026 fee) and the standard 510(k) application fee ($19,870).
 FDA, Draft Interim Guidance Document for Waivers of and Reductions in User Fees (1993), available at https://fda.report/media/80853/Attachment-G–Draft-Interim-Guidance-for-Waivers-of-and-Reductions-in-User-Fees.pdf.
 Id. (“FDA expects to evaluate a person’s or entity’s request for a fee waiver or reduction under the public health or innovation sections based on the annual revenues of the entity and its affiliates.”).
 See id. &FDA, Prescription Drug User Fee Act Waivers, Reductions, and Refunds for Drug and Biological Products: Guidance for Industry (2019), available at https://www.fda.gov/media/131797/download (“The limited financial resources of an applicant and its affiliates are an important indicator of whether user fees are a barrier to innovation or a waiver or reduction is necessary to protect the public health.”).
 This $20 million threshold is used by FDA in assessing whether an applicant and its affiliates have “limited resources” for purposes of evaluating a request for a user fee waiver or reduction (an applicant with $20 million or more in financial resources, including the financial resources of affiliates, generally will not be considered to have limited resources for user fee purposes). FDA, Prescription Drug User Fee Act Waivers, Reductions, and Refunds for Drug and Biological Products: Guidance for Industry (2019), available at https://www.fda.gov/media/131797/download.