Podcast - Changes in FDA, Cannabis Policies and AI Developments

Michael Werner: Welcome to the Holland & Knight podcast. I'm Michael Werner, partner with Holland & Knight and the head of our FDA group, and I'm joined, as always, by my colleague, Sara Klock.

Sara Klock: Hi everyone, this is Sara Klock. I am an FDA regulatory attorney and work with Michael in Washington, D.C.

Michael Werner: So we have a couple of things we wanted to talk about today. There have been a whole series of events in the last month or so, announcements that have come from the FDA that we wanted to touch on today. Specifically, we want to talk about the new regulation governing diagnostic and tests. We'll talk a little bit about upcoming, really from DEA announcement about cannabis rescheduling. And then FDA has made some comments about use of AI as well as issued guidance around new dietary ingredient notifications. So why don't we start with the new regulation governing diagnostic tests. Sara, why don't you to describe a little bit what the rule says and why it's significant.

Sara Klock: Thanks, Michael. So last week, FDA finally released their final rule on laboratory developed tests. I think industry has been long awaiting this rule, and if listeners are aware, there's been proposed legislation, I think in the last Congress or at this Congress, correct me, Michael, trying to regulate laboratory developed tests outside of the FDA purview. But at a high level, the final rule puts laboratory developed tests that were previously not directly regulated by FDA within the purview of FDA, and is regulating these tests, which are in vitro diagnostic tests that are used in a single lab, within the definition of medical device, and specifically regulating LDTs as medical devices subjects, those labs and other manufacturers industry stakeholders who are using this type of diagnostic test to the general requirements of a medical device manufacturer. So FDA has proposed, I think, a three- or four-year or phaseout rollout policy requiring manufacturers in this space to start hitting what other medical device manufacturers are required to hit, or their general compliance requirements. So within a year of the final rule being published, which was on May 6, so by May 6 of 2025, medical device manufacturers that manufacture LDTs need to comply with FDA's medical device reporting requirements, correction and removal reporting requirements, and general quality systems as it relates to complaint files. Then the year after that, so May 6, 2026, those in the industry will have to comply with registration and listing requirements, labeling requirements and investigational use requirements, if those are applicable. I'll note on the registration listing requirements — it's the very basic FDA requirement. Does not require pre-approval. It requires you to pay the FDA establishment fee and just list your products. So this one is pretty straightforward. By May 6, 2027, these manufacturers will have to comply with broader quality systems generally that other medical device manufacturers need to comply with, so expanding on those that are required within the first year. And then the last stage of this rollout, which will start on November 6, 2027 — so three and a half years after May 6, 2024 — FDA is going to require pre-market review for products that it views as high-risk laboratory developed tests. The next stage is for 510(k)s, so the last two stages about pre-market review, pre-market clearance are really going to be the most burdensome for industry because you're going to have to submit your application to the FDA and say, here's my test, please approve it. And that is actually going to take time.

Michael Werner: I'm going to say that for a lot of manufacturers of sort of a lab developed test, this is going to mean more regulatory requirements, potentially make it more expensive for them to come to market. So why do we think the FDA took these steps?

Sara Klock: So the FDA for a long time has wanted, I think, to specifically regulate LDTs. They think that the technology of these tests is so much more advanced than it was 20 years ago. I think, you know, FDA generally thought LDTs were medical devices, but they use their enforcement discretion saying, you know, we're not going to regulate you because you're operating within this very specific parameter, being a IBD, any single lab. I think probably COVID also had a lot to do with this, because so many tests were entering the market because of COVID and we needed more testing. But it's definitely been something on the FDA's mind for a while.

Michael Werner: So what I think is going to be interesting to be watching going forward is two things. One is it's certainly possible that there'll be some litigation over this in terms of maybe challenging the FDA's authority or the like. And I think the other thing is whether Congress takes any steps. Sara, you mentioned that Congress has for some time been trying to enact bipartisan legislation that would create a regulatory framework for a lot of diagnostics, including lab developed tests, that would be risk-based. So ones that are deemed to be low risk wouldn't have as much, let's say, scrutiny or perhaps regulatory requirements, as those that are seen as high risk. And it seemed like a lot of folks who were behind that kind of idea, which I think in some ways is an alternative to what FDA has proposed. So I think it'll be interesting to see if Congress kind of lets, this will go into effect or tries, in fact, to legislate.

Sara Klock: Yeah, I agree completely. I mean, you could actually argue that the rule is currently in effect. We're recording this two days after May 6, but there's a long runway here for litigation to occur, for Congress to act, for what FDA has proposed to actually not pan out. Just one last thing I'd like to identify here. There's a lot of opportunity for industry to engage with the FDA on this. There will be a webinar on May 14, and FDA plans to hold additional webinars to really help industry adjust, and it will be an adjustment.

Michael Werner: Yeah. And I think something you alluded to — it's fine to say that, for example, test would have to have 510(k) clearance or perhaps even pre-market approval before it can be marketed, and that goes into effect in a few years. But as you alluded to, if you're a manufacturer and you now think you are going to have to have a 510(k) cleared by the FDA, you are going to have to start that planning process relatively soon, because it takes a while to put together that application. And of course, there's FDA review time. So the idea that some of these requirements don't go into effect for, let's say, three, four or five years is a little bit misleading because as a practical matter, as a manufacturer, you are going to have to start preparing very soon for that new environment.

Sara Klock: That's exactly right. And, you know, I expect FDA to be inundated with 510(k)s if that is what actually happens. Just like the agency was inundated during COVID with COVID diagnostic tests and COVID PPE right there suddenly became this really big lag for the device center to actually review and then issue the 510(k)s. And so this is just one other thing industry should be thinking about in their long-term strategy of not only how does my product need to be on the market, but how much time is this actually going to take. Because I think our current advice of six to nine months for a 510(k) to get to the market quickly may be extended.

Michael Werner: Right, right. So definitely a changing environment that manufacturers of tests need to be aware of. And while we said that there's possibility of litigation and there's possibility that Congress may kind of get involved, I think our advice for manufacturers would probably be you can count on either of those things happening necessarily. So what you need to do is learn about the new requirements and start getting ready so that you are in compliance starting as soon as next year.

Sara Klock: Exactly.

Michael Werner: So interesting and obviously a lot more to come on this, obviously a very fluid area. We also wanted to talk a little bit about cannabis and always have, always kind of a topic that that people are interested in for a lot of reasons. And what we want talk about is the fact that there was a recent announcement that the DEA plans to reschedule marijuana. The theory is that it would go from its current status as a Schedule I drug to potentially, let's say, a Schedule III prescription drug. So, Sara, why don't you start by explaining the significance of it being a Schedule I drug now and what it would mean if it became a Schedule III drug.

Sara Klock: Of course. I am not aware of something like this happening at this scale from DEA. Typically, the process to reschedule a drug that is in a higher schedule is that FDA approves the drug through a new drug application, and then, the manufacturer petitions, essentially, DEA to reschedule their specific drug to a lower schedule. So we are talking about a very large shift, I think, both in society and the regulatory landscape, from a Schedule I drug where you can barely research this, you can research it through DEA at a federal level, but it is very tightly regulated, to a Schedule III, which is much easier to access, to prescribe, to administer or to study. I don’t know what this is actually going to look like, I think, from a state perspective. I have an idea of what it will look like from the federal perspective. There's no Schedule III drug on the market that I'm aware of that does not have a new drug application. And so DEA rescheduling it from a Schedule I to a Schedule III, puts the regulatory oversight mostly on FDA to approve drugs that contain cannabis. Not aware of a wide-scale plant that anyone could grow or sell that FDA has approved. So there's going to be a lot of unknowns, I think, in how this actually plays out and who is regulating it and how is it going to be regulated. And that's only from a federal level. There are complete state ecosystems that are based on state legalization of cannabis or medical marijuana. So it's unclear, I think, how this will play out. We have not seen the proposed rule, so we don't know exactly what DEA is proposing, but it will be a major shift in the regulatory landscape. And then one other thing. Scheduling it as a Schedule III allows banks to touch the money versus keeping cannabis as a Schedule I drug, banks can't touch the money. So it's very much a cash business that will move into, I think, a more sophisticated financial system.

Michael Werner: So I think that I want to unpack a couple of things that you mentioned. One is I think the impact on state regulatory schemes is really a big unknown here. Of course, we know that many states have legalized medical marijuana, medical use of marijuana. I guess we also know, of course, there are some who realize marijuana — we know that many of those states that there are some, some version of a state regulatory scheme, there are dispensaries that, you know, with various licensing, requirements and things like that. But to your point, once this becomes a Schedule III drug that is an FDA-regulated drug, I mean, if you think about it, other Schedule III drugs like Tylenol with codeine, right? It's not like the states can set up dispensaries where people can just go buy Tylenol with codeine, right? It's tightly regulated in terms of distribution. It's tightly regulated in terms of sales and marketing. So for example, you can't buy a Schedule III drug outside of a licensed pharmacy. Do we think that all those dispensaries and different states now have to get pharmacy licenses, and could they qualify as pharmacy licenses? And how is the supply chain going to be regulated? And of course, how are we going to deal with the fact that people grow, let's call, their own marijuana and either, you know, take it themselves or perhaps they supply it to a dispensary. All of these things that are kind of out there that do not exist, to your point, do not exist for prescription drugs. The other thing is a Scheduled III drug is prescription drug only. So are we now saying that you can't get marijuana unless you have a doctor's prescription? It will be very, very interesting to see how all of these rules coincide. The other issue that you raise is that this will happen as a practical matter through a DEA rulemaking process, meaning that DEA will publish a proposed rule in the Federal Register. There will be an opportunity for stakeholders to submit comments. We would anticipate that lots and lots of people will have comments. By law, a federal agency is required to review and respond to every comment, so they'll get lots and lots of comments, which they have to review and they have to respond to. And then they publish their final regulation. So what that means is, as a practical matter, number one, as you pointed out, we don't know exactly what DEA has proposed or is going to propose. Number one. Number two, whatever they propose has to go through this process, which is public and time-consuming. And by the way, members of Congress typically weigh in, and I would be really surprised if they didn't weigh in on this issue, which, of course, could put pressure on DEA to change whatever they propose, could slow things down, could have any number of, of impacts. So I think that it means that we don't know what DEA is going to do. We don't know what rescheduling will look like and what the rules of the road will be. And we're not going to know for quite some time. So I think that, you know, our advice would be for stakeholders in that space that let's see what DEA proposes, and then let's figure out what it's going to mean, because right now there's way more questions than answers.

Sara Klock: I agree completely. This is going to be a long game. I don't think anything is changing in the next six to 12 months, but it will. So it's helping companies situate themselves in the forthcoming weeks and months for what industry will look like, I think, two years from now.

Michael Werner: Right. So one of the other things we want to talk about is strictly within FDA's purview. And that has to do with AI. And of course, AI is a topic that lots of people are interested in. The technology is rapidly changing. And I think it's fair to say that FDA is kind of struggling to get its hands around it. And both in terms of how AI technologies can be used in drug development, how it could be used in a review process and all kinds of other applications. Can you explain what FDA has said lately about it?

Sara Klock: Sure. So as you mentioned, the agency is struggling. I view this as a square peg, round hole type of situation. Right? FDA has these very specific categories, product categories, and very specific pathways to market. And suddenly you have software, AI, machine learning that doesn't fit squarely within the peg that it looks like. So I will say FDA hasn't made any huge, huge announcements over the last year or so. Once they finalized a few software-specific guidance documents, but I will say in October last year, so we're talking six months, the agency had published that they had 171 AI machine learning medical devices that were essentially approved or cleared by the agency. And so the agency is very, very active in this space. But I think the big announcement that came out in Q1 of 2024 was FDA published this artificial Intelligence and medical products guide, where they just talk about what, one, what the agency is doing, and two, how all of the subgroups of the agency interact. And I read this document more. As we know, industry is waiting for us to make specific statements on this. But no, this is complicated. This is very product specific and very technical, and it's not likely just going to be one review division that reviews your product.

Michael Werner: And what's interesting is that Commissioner Califf and Center for Biologics Director Marks both this week made comments about FDA's framework, but also about the agency's struggle in terms of understanding the algorithms, AI algorithms and their impact and how they would work, as well as trying to stay abreast of all the technology. You know, in some ways, if you think of AI as use of data or use of software to drive decision making or to learn more about drugs and development, that has been going on for quite some time. And FDA has rules about, you know, I'm thinking of clinical decision software and things like that. And, you know, around use of digital technologies. I just think all of this is happening so fast that they're kind of struggling to figure out what it all means. And maybe, like all of us, trying to figure out how much stock should they put in these AI-driven algorithms versus sort of more traditional ways of gathering data. I think it's very interesting and will be really interesting to watch.

Sara Klock: I agree, this is this is just one other topic, that there's so much more to come here. And I think there's a lot of opportunity for our stakeholders and industry to provide their thoughts to the agency, whether that be through comments, stakeholder meetings, draft guidance. So more to come here too.

Michael Werner: Yeah. So the last thing in the remaining few minutes here we want to touch on was, you know, if you want to market a dietary supplement, of course the FDA requires that it be a known dietary ingredient or that contains a so-called new dietary ingredient. You have to submit a notification showing how it's going to be used, ensuring safety, and FDA will either accept that or not. And if they do, then you can bring your product to market. But FDA recently issued an update to its guidance. So Sara, you want to kind of explain what some of those changes are and why they're important.

Sara Klock: Yep. So FDA on March 5, 2024, released final guidance titled "Dietary Supplements: New Dietary Ingredient Notification Procedures and Timeframes" guidance for industry. So this is an update from a draft guidance in 2026 on NDINs, so new dietary ingredient modifications. And as you said, this is how manufacturers in the dietary ingredient space can get their ingredient to the market legally if it has not previously been on the market. So the final guidance really lays out some process requirements that I think wasn't 100 percent clear in the draft guidance. So who needs to submit the NDIN — and that would be a manufacturer or distributor — how is this information presented to the FDA, what should not be included in the NDIN and what should be included, and then what happens after it's submitted, and is it public. I think there isn't a lot out there on new dietary ingredients and NDIN separate from this guidance document. So it is, I think, a starting place for companies in the dietary supplement space to look at. But it is not inclusive of what the universe looks like because FDA just hasn't released a lot of guidance on it. Michael, you and I have a lot of experience in this space and can talk to companies who are exploring this, but note that FDA views this as a requirement if your ingredient hasn't previously been on the market.

Michael Werner: Yeah. That's right. And we have talked to a lot of companies over time. And I think one of the challenges figuring out kind of essentially what information FDA is looking for and how you present it and how much data is necessary. And to your point, Sara, FDA has an open mind about this. Certainly, like they have with, say, drugs or medical devices or sort of other types of regulated products that are perhaps more extensively regulated, they've provided a lot more published guidance. So I think for folks who are manufacturers, we're left with we certainly interpret the guidance that's out there. And then just base kind of on a case-by-case basis on our experience in terms of helping clients navigate through the process and get their products to market, seems to be the right way to go. I think we're, we're about out of time from this podcast. Sara, do you have any closing thoughts for folks?

Sara Klock: We've covered a lot, in part because the world of life sciences, I think, had a lot of major announcements over the last few months and just wanted to highlight them briefly, but I, you know, anticipate, Michael, you and I having probably a specific podcast on LDTs once we get a better understanding and sense of that and then definitely one on cannabis once we see the, the final rule. But there's a lot of movement and a lot of opportunity, I think, for comments and input from industry. And so I think we're always happy to help.

Michael Werner: Yeah, great. Lots of things to be watching for, for sure. And lots of opportunities for manufacturers either to learn about these changes but also to potentially influence them. So thanks for joining us today. As Sara mentioned, we touched on some of these kind of hot topics, but we anticipate doing more podcasts in more detail as developments unfold. Thanks very much.