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 2

Enforcement Trends Prior to Obama Administration 3

All Inspections – 2004 to

Warning Letters – 2004 to

Seizures – 2004 to

Injunctions – 2004 to

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 9

 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 10

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 11

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 12

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 action 13

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” 14

Enhanced Enforcement – In Action  KV – March 2009 – GMP consent decree four weeks after inspection’s end  H1N1 Websites – May 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 facilities 15

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. 19

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 20

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 21

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 22

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 23

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 inspection is on FDA’s website already 25

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: a ny individual within the company that has a position of responsibility for the violative aspect of the company’s operation, including: President/CEO/COO General Counsel VP or Director of QA, QC, RA, Mfg., etc. Managers Technicians (rare)  The “Park Doctrine” 27

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 28

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 29

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 30

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 involved Source: “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, Irvine, California. 31

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 Individuals If 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, , fax or write: Michael A. Swit, Esq. Vice President The Weinberg Group Inc. 336 North Coast Hwy. 101 Suite C Encinitas, CA Phone Fax Cell 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 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.

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