Michael A. Swit, Esq. Law Offices of Michael A. Swit 539 Samuel Ct., Suite 229 Encinitas, California 92024 760-815-4762

1. Legal and Regulatory Concerns in the Sourcing of FDA-RegulatedProducts, Components & ServicesPart 1 – The Impact of FDA Legal & Regulatory Requirements on Device Company Sourcing Activities Michael A. Swit, Esq. Law Offices of Michael A. Swit 539 Samuel Ct., Suite 229 Encinitas, California 92024 760-815-4762 ♦ 760-454-2979 (fax) mswit@fdacounsel.com FDACounsel.com

2. Center for Professional AdvancementIn-House SeminarVendor & Supplier Qualification Siemens Concord, California January 29, 2004 FDACounsel.com

3. THE FEDERAL FOOD, DRUG, and COSMETIC ACT (“FDCA”)  The main law that applies to biomedical companies • How the FDCA works: • FDCA creates requirements you must meet • If you don’t meet the requirements, either by doing the wrong thing or failing to do the right thing, you commit a “prohibited act” • Any “person” that commits a “prohibited act”can be charged with a crime under the FDCA FDACounsel.com

4. THE FDCA IS A “STRICT LIABILITY” CRIMINAL LAW • No intent or knowledge (of the crime or the act that = the crime) is needed for a person to be accused of a crime for violating the FDCA; instead … • If a violation of the FDCA occurs, and a person was in a position to prevent the violation, then the person may be charged with a crime. • U.S. v. Park -- Supreme Court case (1975) FDACounsel.com

5. WHAT FDCA REQUIRES OF A REGULATED COMPANY and ITS EMPLOYEES: • Three basics: • Make and sell products that are “approved,” “cleared” or otherwise lawfully marketed • Do NOT make or sell products that are “adulterated” • Do NOT make or sell products that are “misbranded” FDACounsel.com

6. VIOLATING FDCA’sREQUIREMENTS MAY LEAD TO CRIMINAL CHARGES  GENERAL RULE #1: If you do anything involving the sale of an unapproved, misbranded or adulterated drug or device, you have committed a Prohibited Act” under §301 of the FDCA  GENERAL RULE #2:If you do a Prohibited Act, you can be charged with a crime under the FDCA FDACounsel.com

7. EXAMPLES OF “PROHIBITED ACTS” UNDER FDCA §301  Selling an adulterated or misbranded drug in “interstate commerce” -- i.e., across state lines  Receiving an adulterated or misbranded drug after it was shipped  Selling a drug requiring an NDA without having an effective approval FDACounsel.com

8. “PROHIBITED ACTS” UNDER FDCA §301 (cont’d)  Refusing to permit FDA toinspect your plant  Counterfeiting a drug FDACounsel.com

9. FDA’s THREE POWERS UNDER FDCA IF A PERSON DOES A “PROHIBITED ACT”  Criminal prosecutionof individuals or companies  Seizureof violative goods  Injunction orders against persons or companies doing the prohibited acts FDACounsel.com

10. SEIZUREFDCA § 304 • Civil Action in rem • On “libel” of information in U.S. District Court • Affected person can file a “claim” and show why goods are OK • After entry of decree, can be: • destroyed, sold (if OK) or reconditioned FDACounsel.com

11. INJUNCTIONFDCA §  302 • Civil Action Against Person or Corporation • Court has authority to restrain violation AND, in certain circumstances, may order a recall • Disgorgement & Abbott Labs & Schering • the costs are rising – now $500MM • An Injunction action may lead to -- or arise out of -- consent orders FDACounsel.com

12. Schering-Plough Consent Decree, May 2002 • $500MM fine, subject to court approval, represents disgorgement of profits from adulterated products • Result of 13 FDA inspections at 4 facilities in NJ and PR since 1998 • Fine includes $471,500 payment to cover costs of past FDA inspections FDACounsel.com

13. Schering-Plough Consent Decree, May 2002 … • 125 Rx/OTC drugs made at these plants, representing 90% of S-P's products • Permanent injunction requires procedures to assure cGMP compliance; suspended manufacturing of 73 products • Intensive internal audit required for 5 years, with increased FDA inspection as well FDACounsel.com

14. A FOURTH FDA “POWER” • “Force” a person to do a “Recall” • Recalls are “voluntary” requests by a regulated company to send back products that violate the law • Devices -- FDA does have power to order a recall [§ 518(e)]; rarely done -- requires a finding that a device would cause “serious, adverse health consequences or death.” See 21 CFR Part 7 -- general info on recalls FDACounsel.com

15. RECALLS -- • BUT, FDA has ways to “make” you do a recall • threatens prosecution, injunction or seizure • threatens or actually spreads bad publicity about person who did the “prohibited act” ♦ FDCA §  705 FDACounsel.com

16. FDA’s Non-Judicial Enforcement Tools: • Warning Letters • Civil Penalties (devices) • “Notices of Violation” • Inspections • Application Integrity Program • Generic Drug Enforcement Act of 1992 Powers (e.g., debarment) • Publicity FDACounsel.com

17. WARNING LETTERS • Procedure -- see Regulatory Procedures Manual (RPM), Chapter 8 • May issue directly from district office • Others require FDA HQ sign-off • Public documents (your competitors will read -- and circulate -- them) FDACounsel.com

18. Notices of Violation • Most frequently used on the drug side; now require clearance via FDA Office of Chief Counsel (may change back) • Not quite a warning letter, but should be taken seriously FDACounsel.com

19. APPLICATION INTEGRITY PROGRAM (AIP) • Spawned by the generic drug scandal56 Fed. Reg. 46191 -- Sept. 10, 1991 • See Compliance Policy Guide (CPG) 7150.09 (www.fda.gov/ora/ora_home_page.html) • Triggers -- “actions subverting FDA process”: Examples: • Fraud in applications or other falsifications • Bribery or gratuities • Problem -- “bars” you from approvals FDACounsel.com

20. APPLICATION INTEGRITY PROGRAM (AIP) -- con’d • Corrective Action Plan -- what you need to do if fall under AIP: • Cooperate with FDA and other federal investigators • Identify all wrongdoers and remove them from authority FDACounsel.com

21. APPLICATION INTEGRITY PROGRAM (AIP) -- con’d • Conduct an internal review with outside consultants to uncover all other wrongdoing • Written action plan: • Procedures and controls to preclude in future • Ethics programs • FDA Verification -- reinspection FDACounsel.com

22. CRIMINAL PROSECUTIONFDCA § 303 • Process --FDA District Office -- FDA Center OC -- FDA GC -- Justice Department (Ofc. Of CivilLitigation) -- U.S. Attorney -- Grand Jury (if felony sought) – • Indictment – felony • Information – misdemeanor or for plea agreements FDACounsel.com

23. THE PARK CASE: “Strict Liability in Action”  Question:Is it fair to charge a person with a crime if they did not know about a violation or did not intend to violate the law?  Mr. Park --president of Acme Markets  Acme had a warehouse in Baltimore, which FDA inspectors found to be filthy -- thus, Acme and Mr. Park were charged with adulterating food (also a prohibited act under §301 of FDCA) FDACounsel.com

24. THE PARK CASE (cont’d ...)  U.S. Supreme Court: If a person is in a position to stop a violation of the FDCA from occurring, but the violation happens anyway, then that person (whether an individual such as Mr. Park or a company) can be charged with a crime under the FDCA FDACounsel.com

25. THE PARK CASE (cont’d ...) Reason: a person who voluntarily takes a job in an industry regulated by the FDCA has a higher duty -- to protect the public health -- thus is subject to the “strict liability” standard of FDCA FDACounsel.com

26. THE PARK CASE(cont’d ...)  Exception to Strict Liability:if it was “objectively impossible”for the responsible person (such as Mr. Park) to prevent the violation, then not a crime under FDCA  “Objective Impossibility” may require, according to one court, that a person show that they exercised extraordinary care to prevent the violation, but it still happened FDACounsel.com

27. IMPACT OF THE PARK CASE ON A DRUG or DEVICE COMPANY: • Company executives have a duty: • to try to find violations of the law; and • to prevent violations from occurring in the first place • Company employees are basically “partners” with the executives because, if you violate the FDCA, your boss could be charged with a crime FDACounsel.com

28. Why Worry About FDA Compliance? • FDA Compliance Can Make or Break a Deal • Recent Examples: • Abbott/Alza Merger • Guilford/Gliatech Merger • When sourcing you become a “partner” with your vendor -- their problems are yours FDACounsel.com

29. Why Worry...? • FDA – via law or power -- mandates you worry about your vendor/partner’s compliance • Poor Suppliers May Delay or Void an Approval • Crucial Medical Device Component Supplier • Sponsor’s application will not be approved if deficiency at component maker FDACounsel.com

30. Why Worry …? • FDA will make you worry … Power or Law? • Poor Suppliers May Delay or Void an Approval … • Crucial Device Component • Special tactics/concerns: • be extremely careful with first-time suppliers • special concern -- if never used before, FDA foreign inspection may delay approval process as well • Can also impact initiating clinical studies – Example – Baxter Dialyzer filter recall FDACounsel.com

31. Why Worry…? • FDA will make you worry … Power or Law? • Poor Suppliers May Delay/Void Approvals ... • Clinical researchers • sponsor’s application may not be approved -- data may be excluded • if discovered post-approval, can lead to formal withdrawal of the approval FDACounsel.com

32. Why Worry …? • FDA will make you worry … Power or Law? • Poor Suppliers May Delay/Void Approvals ... • Clinical researchers … • Special tactics/concerns • area of high interest today due to 1999 gene therapy death @ U. of Penn. & problems at other major clinical research centers (e.g., Duke, U. of Colo.) • sponsors can not avoid FDA liability via contract -- have to have systems in place to ensure compliance FDACounsel.com

33. Why Worry…? • FDA will make you worry … Power or Law? • Poor Suppliers May Delay/Void Approvals … • Contract Manufacturers • must be GMP compliant or FDA approval can be refused • Special tactics/concerns • tied directly into your application -- their changes will trigger a regulatory duty that may require an FDA filing/approval FDACounsel.com

34. Why Worry…? • FDA will make you worry … Law • Supplier or component qualification -- Required -- explicitly or implicitly … • Devices -- 21 CFR 820.50 “Each manufacturer shall establish and maintain procedures to ensure that all purchased or otherwise received product and services conform to specified requirements.” FDACounsel.com

35. Why Worry…? • FDA will make you worry … Law • Supplier qualification … • Devices -- 21 CFR 820.50(a)(1) -- Evaluation Duty • applies to suppliers, contractors and consultants-- evaluated as to abililty to meet specified requirements • must define the “type and extent of control” over products, services, suppliers, contractors, and consultants” • keep records of acceptable suppliers, contractors & consultants FDACounsel.com

36. Why Worry…? • FDA will make you worry … Law • Supplier qualification … • Devices -- 21 CFR 820.50(b) -- Purchasing Data Duty • keep data that “clearly describe or reference the specified requirements, including quality requirements, for purchased or otherwise received product and services.” • Note: “product” includes components, manufacturing materials, in-process devices, finished devices and returned devices [21 CFR 820.3(r)] FDACounsel.com

37. Why Worry...? • FDA will make you worry … Law • Supplier qualification … • Devices -- 21 CFR 820.50(b) -- Purchasing Data Duty • Documents “shall include, where possible” an agreement requiring a supplier/contractor/consultant to notify the manufacturer of changes “so that the manufacturer may determine whether the changes may affect the quality of a finished device. FDACounsel.com

38. Why Worry...? • FDA will make you worry … Law • Supplier qualification … • Biologics -- 21 CFR 600.12(e) -- Records in “divided” manufacturing • each participating manufacturer shall furnish the “last” manufacturer “all records relating to the manufacturing operations performed by such manufacturer insofar as they concern the safety, purity and potency of the lots of the product involved FDACounsel.com

39. Why Worry…? • FDA will make you worry … Law • Supplier qualification -- • Biologics -- 21 CFR 600.12(e) -- Records in “divided” manufacturing … • Tactics/concerns if you’re the “last” mfr. -- • defining the records needed re “safety, purity, and potency” -- e.g., does that mean “effectiveness”? • be as specific as possible in the supply agreement FDACounsel.com

40. Why Worry…? • FDA will make you worry ... Law • Receipt of Components -- Procedures • Devices -- 21 CFR 820.80(b) -- • must have procedures for accepting incoming product • tested, inspected or otherwise verified to meet specified requirements • acceptance or rejection must be documented • nonconforming product -- must notify 3rd party manufacturers -- arguably, there must be an investigation • Tactics/concerns -- having leverage to make the manufacturer do such an investigation FDACounsel.com

41. Why Worry…? • FDA Problems Can Be Hard to Fix • FDA statutory and other powers against violative companies/products may delay or preclude a fix • Inspection -- type will determine impact • routine vs. directed • short vs. lengthy • Seizure -- can be least intrusive • Injunction • consent decrees -- e.g., Abbott • litigated orders FDACounsel.com

42. Why Worry…? • FDA Problems Can Be Hard to Fix ... • Criminal Prosecution -- • The sins of your partner may visit upon you -- • The E-Ferol Case • does not technically preclude supply, but can be so disruptive as to undermine the effectiveness of a vendor • Application Integrity Program (AIP) -- • if your supplier is on it, can be a lengthy, very subjective process for getting through FDACounsel.com

43. Why Worry…? • FDA Problems Can Be Hard to Fix ... • Regulatory hurdles -- to cure a problem with an approved product, may require FDA sign-off depending on the nature of the problem. FDACounsel.com

44. Why Worry…? • Products Liability • Examples where a supplier caused the problem: • Tryptophan -- raw material problem • E-Ferol -- poor formulation • Carbamazapine -- API process change • Securities Liability -- worst case, deal caves; investors (i. e., their lawyers) sue • Economic disruption -- you can’t sell if they don’t sell to you FDACounsel.com

45. Specific FDA-Related Procurement Problems • Imported Components • FDA powers to stop questionable imports is much greater than for identical problem presented by a domestic manufacturer • Reason -- § 801 of the Federal Food, Drug, and Cosmetic Act gives FDA power to block an import if the product “appears” to be adulterated or misbranded FDACounsel.com

46. Specific FDA-Related Procurement Problems … • Imported Components • FDA powers to stop questionable imports is much greater than for identical problem presented by a domestic manufacturer • Action can occur without physical examination • Example -- bulk APIs going through the New York District Office in past half year have all been detained pending proof they are not counterfeit, adulterated or misbranded -- without physical examination.

47. Specific FDA-Related Procurement Problems … • Imported Components ... • Foreign suppliers are harder to sue • Tryptophan -- Showa Denko allegedly dodged responsibility for medical syndrome due to being off-shore • Sulzer -- foreign parent company allegedly refuses to provide any financial support to its subsidiary (ruptured breast implants) FDACounsel.com

48. Specific FDA-Related Procurement Problems … • Unusual events impacting supplies -- FDA will try to work with you; examples • Phillips Petroleum Plant explosion -- sole source for Marlex -- decreased availability of container/closure systems

49. Specific FDA-Related Procurement Problems … • Clinical Studies • if you’re the sponsor, need deep “down stream” audit systems and contract controls relative to: • CRO’s • Investigators -- • don’t forget to check the FDA list of disqualified investigators • IRB’s -- a critical focus today of concerns -- can invalidate data -- PROBLEM -- you may not have a contractual relationship -- insist upon one FDACounsel.com

50. Specific FDA-Related Procurement Problems … • Labels/Labeling • label errors are prime cause of recalls • your printer must have clear, written procedures on handling of labels, especially if not dedicated to you exclusively • intake controls have to be well-documented, trained and validated • change control procedures -- even for changes not being submitted for FDA approval -- are essential FDACounsel.com