Enforcement, Litigation and Compliance Conference December 8, 2014

 Marilyn May Counsel Arnold & Porter LLP T:  David L. Chesney VP and Practice Lead Strategic Compliance Services PAREXEL International T: M:  Neil Di Spirito Partner Olsson Frank Weeda Terman Matz PC T:

Hypothetical: Critical Pharmaceutical Co.  Medium-sized U.S.-based biopharmaceutical company, with 5000 employees and $5 billion in revenue  Therapeutic areas of focus include oncology, anemia, and several orphan indications  Critical was under an FDA consent agreement in the 1980s due to cGMP problems. That was under prior management, and Critical has had a reasonably good inspection record in recent years. 3

Osteon ®  Produced from the wild osteonia plant, which is collected across India in a complex supply chain  Critical’s contractual relationship is with its primary API manufacturer, Mumbai Pharma  Critical regularly audits Mumbai Pharma, but relies upon Mumbai to qualify and audit the supply chain across Asia 4

Small entities and individuals across India collect the plant in the wild. Sells plants to workshops in rural areas, which process plants and create a uniform slurry. Workshops sell to Mumbai Pharma, where it is further processed into an API. Ships to Critical Pharma in New Jersey. Osteon ® 5

Adverse Events Emerge  Recently, reports of elevated liver enzymes, cirrhosis, and liver failure have emerged in the Osteon patient population.  These events have been seen in the patient population over the years, but this appears to be an unusual spike in reports. 6

Adverse Events Emerge (cont’d.)  Osteonia product samples are initially retested using standard methods and the product appears to be fine.  After consulting with leading experts and conducting additional testing, however, a contaminant is identified.  After a QA/root cause investigation, it appears that substandard osteonia had entered the supply chain, and it had been treated with a banned pesticide product. 7

Critical Investigation  Critical conducts an investigation and learns that corruption in the supply chain likely resulted in adulteration -- substandard, pesticide-contaminated raw material was accepted by Mumbai Pharma, and tests were falsified. 8

Bad Documents  Documents suggest early concerns about risks of adulteration due to uncontrolled pesticide use in India, as well as a draft plan to audit the supply chain that was left unfunded. 9

The FDA Investigation 10

FDA Investigation: Questions  How should Critical prepare for the inspection?  What if the inspector wants to take photos?  What preemptive corrective and preventive actions can Critical take at this time?  What should be done vis-a-vis Mumbai Pharma?  How and when should Critical respond to the 483?  What should Critical communicate to the public at this time?  What is the impact of the old Critical consent decree in the 1980s, despite recent compliance? 11

Warning Letter  FDA sends Warning Letter to Critical -- failures in cGMPs (qualification and auditing of suppliers; lack of impurity profile) and pharmacovigilance issues.  FDA sends Warning Letter to Mumbai – failures in API cGMPs (qualification and auditing of suppliers) and falsification of records. – Imposes Import Alert 12

Warning Letter: Questions  What is the import of these Warning Letters?  What are best practices in responding to the Warning Letters in this situation?  How should Critical handle its relationship with Mumbai at this point?  What can be done at this point to mitigate future litigation risks? 13

Criminal Investigation  FDA’s Office of Criminal Investigation also initiates an investigation. – They ask to interview key personnel at both Critical and Mumbai Pharma. 14

Criminal Investigation: Questions  Should Critical cooperate in the criminal investigation?  What are the potential criminal charges? –Against whom?  What effect will the warning letters have on the criminal investigation?  How might the information from the internal investigation be used?  What are best practices in preparing for an OCI interview?  How will Critical’s actions during the FDA investigation affect the criminal proceedings?  What should Critical do vis-a-vis Mumbai Pharma? 15

The Government Files an Injunction  Based on issues discovered in the OCI investigation, the Government files an injunction against Critical and its CEO seeking to enjoin them from distributing Osteon already cleared for U.S. distribution. 16

Injunction: Questions  Should Critical cooperate?  Should Critical negotiate a consent judgment?  If so, against whom? 17

A Sealed Qui Tam Complaint is Filed  A qui tam suit is filed under seal by the compliance officer.  Critical is not aware of the suit. 18

U.S. Attorney’s Office Issues a HIPAA Subpoena  Critical receives a HIPAA subpoena from the U. S. Attorney’s office requesting copies of all internal investigations relating to Osteon, all contracts and communications between Critical and Mumbai, all documents relating to standard operating policies for cGMP, all tests and audits done of Osteon, among other documents. 19

HIPAA Subpoena/Qui Tam: Questions  What is the significance of the HIPAA subpoena?  How should Critical respond?  What are the theories of liability?  What are the defenses?  Are violations of FDA requirements sufficient to state a False Claims Act claim?  What are the potential damages?  What action could Critical have taken previously that might have affected the filing of a qui tam suit?  What effect will providing information to the government have on other litigation?  What impact will the bad documents have on the qui tam suit? The criminal investigation?  What impact will the consent decree have on the qui tam suit ? The criminal investigation?  How do you handle parallel criminal and civil investigations? 20

Settlement 21

Settlement: Questions  What are the possible criminal resolutions? – Against whom?  What effect will a criminal resolution have on possible exclusion?  What effect will a criminal resolution have on other pending or subsequent litigation?  What effect will a civil resolution have on possible exclusion?  What effect will a civil resolution have on other pending or subsequent litigation?  What effect will a federal civil resolution have on potential State AG actions?  How can you coordinate negotiations / timing for criminal/civil/ exclusion resolution? 22

Notes: Key Take-Aways on the Osteon Crisis  Have the necessary policies and procedures in place  Vetting and auditing of partners  Be current in FDA requirements  Forming/coordinating crisis teams early  Incorporate important stakeholders/competencies 23