FDA Enforcement – The Perils of Inadequate

Compliance

Michael A. Swit, Esq.Vice President

Amylin Pharmaceuticals

What We Will Cover

Enforcement Trends Prior to Obama Administration

Commissioner Hamburg Revives FDA’s Compliance Culture – The August 6, 2009 Speech and its Impact

How to Prepare for Increased Enforcement

How to Respond if Targeted Consequences of Non-Compliance

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Enforcement Trends Prior toObama Administration

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All Inspections – 2004 to 2008

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Warning Letters – 2004 to 2008

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Seizures – 2004 to 2008

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Injunctions – 2004 to 2008

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Commissioner Hamburg Revives FDA’s Compliance Culture – The August 6, 2009 Speech and its

Impact

Hamburg: Why We Need Effective FDA Enforcement

Conceded FDA enforcement efforts have been deficient

Five key benefits of effective enforcement: Protect public health by promptly intercepting

unsafe or fraudulent products – prevents additional harm

Deter others who might violate law Informs public of potential harm Creates level playing field for industry Instill public confidence in FDA

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Vigilance – both FDA and Industry FDA – Regular inspections and follow-ups Companies

Must work quickly and thoroughly to correct problems

Must understand if you cross the line, “you will be caught” If you fail to act, FDA will

Strategic enforcement – Greater focus on significant risks and violations More meaningful penalties to “send a strong

message to discourage future offenses”

Hamburg: Four Essential Elements for

Effective FDA Enforcement

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Four Essential Elements for Effective Enforcement …

Quick action – FDA must respond rapidly, especially to: Egregious violations Violations that threaten the public health

Visible efforts – FDA must show all stakeholders it is on the job Will publicize enforcement actions widely –

including rationales for action Goal:

Increase confidence in FDA Deter non-compliance

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Hamburg: Six New FDA Enforcement Mandates

Impose clear post-inspection deadlines Generally – no more than 15 business days to respond to

483 After that, agency can issue warning letter or take other

enforcement action Speed the warning letter process – by limiting

review by FDA Office of Chief Counsel to warning letters that present significant legal issues

Work more closely with FDA’s regulatory partners Example: in some cases, such as food safety, state, local,

and international officials can act more quickly than the FDA

When public health is at risk, the agency will coordinate with its regulatory partners to take rapid action

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Six New Enforcement Mandates …

Prioritize follow-up on all warning letters and other enforcement actions FDA will work quickly to assess the corrective action taken by

industry after a warning letter, a major product recall, or other enforcement action

Via new inspection or other form of investigation FDA will be prepared to take immediate action to

respond to public health risks Actions may occur before a formal warning letter is issued – at any

time Days of multiple responses to inspections – over

Develop and implement a formal warning letter “close-out” process If FDA determines a firm fully corrected violations in a warning

letter, agency will issue an official “close-out” notice and post on FDA Web site

Seen as an “important motivator” for corrective action13

Enhanced Enforcement In Action –

Timely 483 Responses Policy Aug. 11 Federal Register notice – Post-inspection 483

responses timing policy published – 15 business days Timely Responses

FDA will conduct “detailed review” in deciding any enforcement action

If FDA issues a warning letter, letter will address sufficiency of response

Late responses Response will not be considered by FDA in deciding to take

enforcement action such as a warning letter If warning letter issues after a late 483 response, FDA will consider

the 483 response in assessing firm’s later reply to warning letter Purpose of Warning Letter:

“ensure … seriousness and scope of the violations are understood by top management … and that the appropriate resources are allocated to fully correct the violations and prevent their recurrence”

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Enhanced Enforcement – In Action

KV – March 2009 – GMP consent decree four weeks after inspection’s end

H1N1 Websites – May 2009 -- 68 Warning Letters – response time shortened to 48 hours due to the public health aspects

Caraco – June 2009 – seizure six weeks after inspection September 2009 – consent decree

Apotex Import Alert – June 25 – Warning Letter September 8 – FDA announces import alert on

two Apotex facilities15

KV and Caraco Consent Decrees

Key Features Permanent injunction vs. future violations – punishable by

contempt To resume manufacturing;

Must certify that management has control over QA function Must certify compliance with GMP and that all violations are

corrected Batch certification process – first 3 batches of each product must

be certified as compliant by GMP expert Later audits – periodic to verify continued compliance Must pay for all FDA inspections Violations of Consent Decree – Civil Penalties

$10,000 per day (Caraco); $15,000 (KV) $10,000 per violation (Caraco); $15,000 (KV) 2x retail value of goods sold in violation (Caraco); 3x retail value

(KV) Cap -- $5,000,000 per year (both)

Enhanced Enforcement – International

FDA to double foreign GMP inspections Focus: GMP inspections, not inspections linked to

applications Result:  Look for more import alerts

FDA can impose alert based on just an “appearance” of a violation

Contrast: formal U.S. enforcement such as seizure, injunction or prosecution, FDA must prove a violation

“FDA Without Borders” Initiative Offshoot of Heparin and other scandals FDA foreign offices opened: Brussels; Mumbai; New

Delhi; San Jose, Costa Rica; Beijing, Shanghai and Guangzhou, China

Additional planned FDA offices: Mexico City, Middle East (site TBD) 17

How to Prepare for Increased Enforcement

How to Prepare for The New Enforcement Climate

The Big Picture Compliance Culture – must exist at the top of

your organization and be driven down by senior management throughout your firm not only in word, but in resources FDA law requires – “Park Doctrine” – Strict Liability Corporate law requires

Public company duties/Sarbanes-Oxley compliance Best strategy to “avoid” enforcement – strict

compliance via robust “quality systems” in all impacted areas – quality, regulatory, manufacturing, packaging, testing, etc.

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How to Prepare … Change Your Corporate Compliance World

View Oust the Reactionary Compliance Model

Historical focus – always after-the-fact Expense focus creates little incentive for forward thinking Compliance generally seen as production cost Rarely seen as a revenue-generating opportunity Viewed as lower priority within an organization Perceived as a burden – a leash with little up side potential

Embrace Compliance As a Corporate Asset Corporate culture must change Quality Systems must be integrated into the process, not

an additional component Process must evolve from one of police action to one of

forethought View as a competitive advantage

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How to Prepare … Culture Change – Dramatic And Difficult

Quality function must be valued by management Increase visibility of quality unit Visibly exhibit an intolerance for lack of compliance Quality must be seen as a priority

Embrace a Proactive Approach “It is often said at FDA that firms that are in

compliance tend to stay in compliance, but once a firm gets out of compliance getting back into compliance is a very steep road to climb. Try to avoid that road.” – Daniel Troy, former FDA Chief Counsel

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How to Prepare … Build The Right Quality Systems

Create a self-determining culture Make regulatory mandates obvious and routine Use Quality Assurance as a cost-improvement

methodology Proactive Approach To Increasing Profitability

Approach facilities and operations inspections proactively Use third parties Assess all business operations Act on things immediately

Change focus from compliance to improvement – that compliance is subset of quality

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How to Prepare … Detailed view – quality systems throughout

your organization that reflect strong: Procedures Training Audits Validation Recordkeeping

Key SOPS Handling FDA Inspections CAPA Investigations Recalls Audit Plans

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How to Respond if Targeted

When FDA Enforcement Hits How it may hit

Administrative Enforcement Inspections & Investigations Warning letter Clinical Holds – can be compliance-based AIP Termination of an IND or IDE Disqualification procedures with clinical

investigators Recalls and market withdrawals Civil Money Penalties Publicity –

e.g., Genzyme 483 from a Nov. 2009 inspection is on FDA’s website already

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When FDA Enforcement Hits How It May Hit …

Judicial Enforcement Seizure of test articles Disgorgement Injunction Criminal Prosecution

When FDA Enforcement Hits … Who FDA Can Target: any individual

within the company that has a position of responsibility for the violative aspect of the company’s operation, including:

President/CEO/COOGeneral CounselVP or Director of QA, QC, RA, Mfg., etc.ManagersTechnicians (rare)

The “Park Doctrine”

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When FDA Enforcement Hits – Assessing

Assess each allegation/observation Focus on specifics Focus on system-wide implications Focus on global implications Consider affected products Consider root-cause analysis

Focus on the regulatory requirement(s) associated with each allegation/observation

Develop action plan to achieve immediate, short-term, and long-term correction and to prevent recurrence Know when to seek outside assistance

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When Enforcement Hits – Keys to Responding

Include a commitment/statement from senior leadership

Address each allegation/observation separately General rule – do not specifically state whether

you agree or disagree with the allegation/observation

Provide corrective action accomplished and/or planned; tell FDA the plan Be specific (e.g. observation-by-observation) Be complete Be realistic Be able to deliver what you promise Address affected products

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When Enforcement Hits – Keys to Responding …

Provide time frames for correction Describe method of verification and/or

monitoring for corrections Submitting documentation of corrections

where reasonable & feasible Be timely and thorough – deliver what you

promised when you promised it

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FDA Expectations for Your Response

Wants to Hear Your D.R.U.M. – expects your response to have these qualities: Direct – i.e., address the items directly raised in the

483 or Warning Letter Related – go beyond those to potentially related

problems Universal – expand to review those issues company-

wide Management & Monitoring – show that you will stay

on top of the issues and that management is involvedSource: “Compliance and Enforcement.” Presentation by David

K. Elder, Director, FDA Office of Enforcement, at the Orange County Regulatory Affairs (OCRA)/FDA Joint Educational Conference. June 15, 2005. Irvine, California.

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Consequences of Non-Compliance

“Does Crime Pay?” -- Problems Beyond Jail and

Fines Problems For Companies Caused By

Convictions and Other Serious FDA Compliance Actions: Shareholders sue the company, its officers and

directors Other companies may sue the company

(e.g., Mylan Labs sued Par and others) Federal government may suspend or “debar”

company from selling to government “Qui Tam” actions under the False Claims Act --

e.g., Lifescan & Neurontin cases -- “whistle blower” cases -- leading to civil damages and may also spawn a criminal prosecution

“Does Crime Pay?” -- Problems Beyond Jail and

Fines Problems For Companies …

FDA may refuse to approve NDAs, PMAs or other filings under Application Integrity Program (AIP)

May lose state licenses Customers abandon you Decreased sales may force lay-offs of

employees

“Does Crime Pay?” -- Problems Beyond Jail And

Fines Problems For Companies …

Financing disappears -- banks may refuse to lend money

May violate lending agreements, real estate mortgages or leases

A criminal investigation can cause great disruption to normal business activities

“Does Crime Pay?” -- Problems Beyond Jail and

Fines Problems For Companies …

Incredible financial costs of non-compliance lost sales stock price falls attorney’s fees and costs consultants fees costs of complying with requests by

government for documents

“Does Crime Pay?” – Problems Beyond Jail and

Fines Problems For

Individuals If Convicted: Lose right to vote Lose right to run

for public office

Damage to reputation

“Does Crime Pay?” -- Problems Beyond Jail and

Fines Problems For

IndividualsIf Convicted): Can be deported if

not a U.S. citizen Financial ruin - -

lose your job

The Costs – The Par Case Direct Costs

Criminal Fines -- $2,800,000 Legal Fees -- $4,000,000 Consultant Fees -- $5,000,000 Shareholder Litigation -- $2,200,000 Competitors Litigation -- $13,000,000 Lost Sales – one year alone – down $49,000,000

TOTAL Direct costs/lost sales – $75,900,000 (just one year of lost sales)

Indirect Costs Stock price – dropped from $27 per share to $3 per share; market cap

from about $297,000,000 to $33,000,000 Employees – 900 to 450 Approvals -- ANDAs – none approved for about 5 years Quad Subsidiary – shut down fully

Other Common Direct Costs (often not present in older cases; common since 1999) False Claims Act Consent Order Disgorgement

Final Sermon: Please Teach Vigorous Risk Avoidance

Corporately

P = Procedures T = Training V = Validated R = Records A = Audit C = Compliance Culture

from the Top

Call, e-mail, fax or write:

Michael A. Swit, Esq.Vice President

The Weinberg Group Inc.336 North Coast Hwy. 101

Suite CEncinitas, CA 92024

Phone 760.633.3343Fax 760.454.2979Cell 760.815.4762

michael.swit@weinberggroup.comwww.weinberggroup.com

Questions?

About your speaker…Michael A. Swit, Esq., is a Vice President at THE WEINBERG GROUP, where he develops and ensures the execution of a broad array of regulatory and other services to drug, biologics, medical device and other highly-regulated clients seeking to market products in the United States. His expertise includes FDA development strategies, compliance and enforcement initiatives, recalls and crisis management, submissions and related traditional FDA regulatory activities, labeling and advertising, and clinical research efforts.

Mr. Swit has been addressing critical FDA legal and regulatory issues since 1984. His multi-faceted experience includes serving for three and a half years as corporate vice president, general counsel and secretary of Par Pharmaceutical, a prominent, publicly-traded, generic drug company and, thus, he brings an industry and commercial perspective to his work with FDA-regulated companies. Mr. Swit then served for over four years as CEO of FDANews.com, a premier publisher of FDA regulatory newsletters and other specialty information products for the FDA-regulated community. His private FDA regulatory law practice has included service as Special Counsel in the FDA Law Practice Group in the San Diego office of Heller Ehrman White & McAuliffe and with the Food & Drug Law practice at McKenna & Cuneo, both in the firm’s Washington office and later in San Diego. He first practiced FDA regulatory law with the D.C. office of Burditt & Radzius.

Mr. Swit has taught and written on a wide variety of subjects relating to FDA law, regulation and related commercial activities, including, since 1989, co-directing a three-day intensive course on the generic drug approval process and editing a guide to the generic drug approval process, Getting Your Generic Drug Approved. A former member of the Food & Drug Law Journal Editorial Board, he also has been a prominent speaker at numerous conferences sponsored by such organizations as RAPS, FDLI, and DIA. A magna cum laude graduate of Bowdoin College, he received his law degree from Emory University Law School and is a member (inactive) of the California, D.C. and Virginia bars.

For more than twenty-five years, leading companies have depended on THE WEINBERG GROUP when their products are at risk. Our technical, scientific and

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