Looking at the Horizon:
Current & Future Regulatory Issues for the
Medical Device, Drug and Food Industries
Increased Aggressive Enforcement:
Current Enforcement Trends and
Effective Defense Response
Steven M. Kowal
Partner
Chicago, IL
1
Increased Enforcement Threat
High profile public concerns
Melamine contamination
Peanut processing
Pharmaceutical post-marketing problems
Congressional pressure
Increased enforcement budget
2
Statutory Basis for Criminal Liability
Food, Drug, and Cosmetic Act
Healthcare fraud statutes
General criminal statutes
3
2
FD&C Act - Misdemeanor
Both misdemeanor and felony provisions
Commission of any prohibited act in Section 301 can result in
criminal liability
Misdemeanor violation does not require personal knowledge or
participation
Responsible relation to violation is enough
Strict liability crime
4
FD&C Act - Felony
Prohibited act becomes a felony in two ways
Second strict liability violation
Commission of prohibited act with intent to defraud or mislead
Intent will be inferred from circumstances
5
3
Healthcare Statutes
HIPAA included specific healthcare fraud and false statement
provisions
Federal False Claims Act prohibits knowing submission of false or
fictitious claims
Anti-kickback statute prohibits solicitation of payments for Medicare
or Medicaid related business
6
General Criminal Statutes
Mail and wire fraud
False statements
Conspiracy
Obstruction of justice
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4
Penalties
Incarceration
Misdemeanors
one year per count
Regulatory felonies
three years per count
General criminal statutes
count
five years to twenty years per
Government seeks to prosecute individuals for deterrent effect
United States v. Abtox, Inc., et al.
Ross Caputo, President
James Reilly, CFO
ten years of incarceration
six years of incarceration
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Penalties
Fines
Misdemeanors
Individual - $100,000 per count
Company - $200,000 per count
Felony
Individual - $250,000 per count
Company - $500,000 per count
Alternative calculation
Twice gain or loss caused by the illegal conduct
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5
Current Government Focus
Food sanitation
Post-marketing surveillance
Clinical investigations
Adverse event reporting
Foreign inspections
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Off-Label Promotion
IG reports 300 investigations for 2009
Focus on pharmaceutical and medical device industries
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6
Pharmaceutical manufacturer
Eli Lilly
Promotion of Zyprexa
Approval for schizophrenia, treatment of acute bi-polar disorder and
maintenance treatment of bi-polar disorder
Marketed for pediatric use, at high dosage levels and in the elderly
for treatment of dementia
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Eli Lilly
Lilly pled guilty to one misdemeanor count of misbranding
Total financial penalty of $1.415 billion
$515 million criminal fine
$100 million forfeiture
$800 million FCA settlement
$438 million for federal government
$361 million to various states
$78.8 million to qui tam relators
Prior settlement of $62 million to 32 states under consumer
protection theories
Suits by 12 states remain pending
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7
Pharmaceutical manufacturer
Cephalon
Promotion of Actiq, Provigil and Gabitrol
Approved to treat cancer pain, narcolepsy and epilepsy
Promoted for non-cancer patients, general tiredness and to remedy
anxiety
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Cephalon
Cephalon pled guilty to one misdemeanor count of misbranding
Total financial penalty of $425 million
$40 million criminal fine
$10 million forfeiture
$375 million FCA settlement
Five year corporate integrity agreement
$46.5 million to qui tam relators
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8
Medical device manufacturers
Zimmer, DePuy, Smith & Nephew, and Biomet
Deferred prosecution agreements
Total of $311 million payment
Surgeons were paid financial inducements to use companies
products exclusively
Corporate monitoring agreement for 18 months.
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Problematic promotional practices
Use of anecdotal testimonials
Use of invitro or animal data to suggest clinical significance
Direct or implied comparisons to dissimilar products
Inaccurate characterizations of drug actions, indications or adverse
events
Inadequate qualifications and/or limitations regarding safety or
effectiveness
Vague or open-ended claims or suggestions of superiority
17
9
Focus of medical device CIAs
Restriction on payments to surgeon consultants
Publication of all payments to consultants
Limitations on training venues
Avoidance of unrealistic sales targets
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HHS future focus
medium sized firms
Smaller compliance staffs and budgets
Entrepreneurial culture
Greater financial pressures
19
10
Government Investigations
Defense Response
Ambush interviews
Search warrants
20
Ambush interviews
Interviews are pursued aggressively
Can occur anywhere and at any time
Uncertainty concerning legal rights and obligations
Confer substantial psychological advantages on the government
Unable to contact a lawyer
No opportunity to review information
Agents treat uncooperative response as evidence of guilt
Atmosphere of intimidation
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11
Ambush interviews
Interview is voluntary
Ability to choose includes the power to refuse
Participation cannot be compelled
A subpoena cannot be used to secure an interview
Little incentive to consent
No reason to sign or affirm statements
There is no such thing as off the record
The statements will be used against the individual and the company
Former employees are not insulated from contact or prosecution
22
Search warrants
Warrant requires approval of a judicial officer
Executed by a team of government agents who take control of the
facility
Warrants are used to:
Avoid destruction of evidence
Shock and intimidate
Identify and interview employees
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12
Search warrants
In responding to the execution of a warrant:
Do not impede the agents
Designate a senior executive to deal with the agents
Ask to review a copy of the warrant
Answer only questions that relate to the location of documents
If the search exceeds the scope of the warrant, complain to the
agent in charge
Protest the seizure of privileged materials
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Any questions or comments?
Steven Kowal, Partner (Chicago)
(312) 807-4430 (ph)
(312) 827-8009 (fax)
steven.kowal@klgates.com
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13
Short Break
Next Presentation:
A View from Washington: USDA & FDA Food Regulatory Issues
A View from Washington:
USDA & FDA Food Regulatory Issues
Tony Pavel
Senior Associate
Washington, DC
14
USDA FSIS
USDA has released limited info regarding FY 2010 budget
$134 Billion USDA (8% increase)
$1.02 Billion to FSIS (5% increase)
$47 Million for agency employees, upgrade information tech,
additional FSA s
Regulatory Agenda relatively short
Semiannual Agenda only had one item for FSIS Performance
Standards for processed meat and reduction of Lm
28
FSIS - NATURAL STATUS
No coherent natural policy in effect
Official guidance always just around the corner
Natural comment record no consensus
Ingredients vs. incidental additives
Ingredients vs. processes
Increased (uneven) focus on ingredient manufacturing
Processing aids
Related claims
Prospects for Natural Rulemaking
Long promised, low priority
Regulatory agenda states ANPRM 28 days ago
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15
Allergens - FSIS
No proposed rule on horizon
Top cause for recalls
Largely following FDA s lead
Notice 45-05, July 2005
Notice 72-05, November 2005
Compliance Assistance
Voluntary Labeling Statements Policy
No Temporary Label Approval
Frequent issue on Noncompliance Reports
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Allergens
School Lunch
Only USDA Guidance
Dietary Needs
Accommodating Children with Special
Schools must make substitutions in foods in the reimbursable
meal for students who are disabled and whose disability
restricts their diet.
However
CDC preparing two Guidance Documents
USDA and FDA have reviewed and consulted
Not publicly available yet
Allergens have the ear of a number of people on the Hill
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16
Other Labeling Issues
Data Collection Improvements
Expansion of Generics?
Nutrition Labeling for Single Ingredient
Future of Prior Approval
32
FSIS Agenda (Tentative)
Pathogens:
Salmonella
E.Coli
Listeria
relative lack of progress, NRTE Product
N60 labeling, allocation of responsibility
Risk assessment
Campylobacter
Performance standards
33
17
FSIS Agenda (Tentative)
Increased reliance upon FSAs
Increased use of interpretative documents
rulemaking
the death of
Increased retail focus
Enhanced data collection
Catfish?
16.5 Million, 95 employees and 1 jail term
34
Organics
Standards for the Organic Certification of Wild Captured Aquatic
Animals
Pet Food Standards
NOSB received final recommendations from Working Group re
Clarification of Definition of Synthetic Substance
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18
FSIS/FDA Cross-Over Issues
Single food agency
Mandatory recall
User fees
Revival of performance standards
HACCP, SSOPs & GMPs
Distiller s Grains and Animal Feeds and CVM GRAS Notification
Pilot Program
36
FDA
Functional Foods & Select Ingredient Issues
Functional foods continue to gain importance in the marketplace
Years of relatively lax enforcement
Several high profile Warning Letters
Cheerios Warning Letter, May 5, 2009
FDA published a Q&A page on its website (May 14) to address
public questions arguably raised by media reporting of the WL
FDA sending a message
37
19
Jelly Bean Rule (21 CFR §104.20)
FDA Warning Letter December 10, 2008
Soft drink with vitamins
Firm pushing back, arguing products comply with regulations
State Attorneys General
Drink manufacturer sued by group of State Attorneys General
regarding weight loss claims
Settlement
February 2009
38
Class Action Lawsuits
Rapidly gaining momentum in plaintiff s bar
Unfair Business Acts, Fraud, Deceptive Advertising
Numerous food claim related suites filed in last six months
year
one
National Advertising Division, BBB
Continues to see active cases regarding food claims
Cases regarding preservative claims, probiotics
NAD rarely defers to FDA/USDA
39
20
FDAAA Section 912 (301(ll))
Origins (probably) - FDCA 201(ff)(3)(B) excludes some substances
from the definition of dietary supplement.
Race to market between drugs and biologics, and dietary
supplements.
However, if a substance is first approved or investigated as a drug or
biologic, then it cannot be marketed as a dietary supplement.
Very similar language in FDCA 301(ll), suggest similar Congressional
intent, however, no legislative history.
Appears in FDAAA title addressing drugs, not foods.
Prohibits addition to food of a drug or biological product for which:
Substantial clinical investigations were instituted and
existence of those investigations was made public.
40
Items to Watch on Congressional Agenda
Food Safety Bill
Menu Labeling
Child Nutrition Reauthorization
Nutrition Standards
USDA reorganization
41
21
Any questions or comments?
Tony Pavel (DC)
(202) 778-9089 (ph)
(202) 778.9100(fax)
tony.pavel@klgates.com
42
A Look Ahead
at Food
Regulation: Initiatives,
FOOD
REGULATION
Existing Authorities and Pending Matters
John Lemker
Partner
Chicago, IL
22
PLAYERS
Food and Drug Administration
Department of Agriculture
Center for Disease Control
States
Federal Trade Commission
Private Lawsuits (class actions)
44
ENFORCEMENT
Do-Rene and Clover Knolls Dairies and their owners
January 2009
Injunction
Captain s Select Seafood, Inc. and owners
Injunction February 2009
Del Rey Tortilleria Inc., president and two general managers
Injunction March 2009
Seizure of 1.5 million pounds of food and food ingredients
American Mercantile Corporation May 2009
$1.3 million of dietary supplements condemned and destroyed
May 2009
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23
INITIATIVES
FDA 2010 FY Budget Request
$3.2 billion
19% increase
$259 million increase for food
Third Party Inspections
Pilot program
certification of imported shrimp
FDA Food Protection Plan
Third party inspections and certifications are options to improve
food safety; imports and domestic
46
INITIATIVES (continued)
Economically Motivated Adulteration
Fraudulent, intentional substitution or adulteration of a
substance in a product for the purpose of increasing the
apparent value of a substance of the product or reducing the
cost of its production, i.e., economic gain
Melamine in pet food
Heparin contamination with over-sulfated chondroitin sulfate
Melamine in infant formula
Diethylene glycol in cough syrup, toothpaste
Coumarin in Mexican vanilla
Orange juice
Honey
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24
EXISTING AUTHORITIES
Dietary Supplements
Serious adverse event reporting
15 business day requirement
Recordkeeping requirements
FDA access
applies to all adverse events;
Good Manufacturing Practices
Imports
2003-2007 food imports increased from $45.6 billion to
$64 billion
13% of average American diet
31% of fruits, juices and nuts
78.6% of fish and shellfish
48
EXISTING AUTHORITIES (continued)
Bioterrorism Act of 2002
Debarment for repeated or serious food import violations from
importing or offering to import food into United States
A person is subject to debarment if
The person has been convicted of a felony for conduct
relating to the importation into the United States of any food;
or the person has engaged in a pattern of importing or
offering for import adulterated food that presents a threat of
serious adverse health consequences or death to humans or
animals
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EXISTING AUTHORITIES (continued)
Disposition of food imported by debarred person
If an article of food is being imported or offered for import into the
United States, and the importer, owner, or consignee of the article is
a person who has been debarred under section 306(b)(3), such
article shall be held at the port of entry for the article, and may not
be delivered to such person....The article shall be removed to a
secure facility...
Such food may be delivered to a person who is not a debarred
person if such person affirmatively establishes that the article
complies with the requirements of the Federal Food, Drug and
Cosmetic Act.
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EXISTING AUTHORITIES (continued)
Prohibited Act
The importing or offering to import into the United States food
by, with the assistance of or at the direction of a person
debarred.
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26
EXISTING AUTHORITIES (continued)
Maintenance and Inspection of Records
Section 414, Maintenance and Inspection of Records of
Paragraph 414(a) provides, in part:
(a) Records Inspection
If the Secretary has a reasonable
belief that an article of food is adulterated and presents a
threat of serious adverse health consequences or death to
humans or animals, each person (excluding farms and
restaurants) who manufactures, processes, packs,
distributes, receives, holds, or imports such article shall, at
the request of an officer or employee duly designated by the
Secretary, permit such officer or employee, upon
presentation of appropriate credentials and a written notice
to such person,....,
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EXISTING AUTHORITIES (continued)
Paragraph 414(a) (continued)
to have access and to copy all records relating to such article
that are needed to assist the Secretary in determining whether
the food is adulterated and presents a threat of serious adverse
health consequences or death to humans or animals. The
requirement under the preceding sentence applies to all records
relating to the manufacture, processing, packing, distribution,
receipt, holding, or importation of such article maintained by or
on behalf of such person in any format (including paper and
electronic formats) and at any location.
53
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EXISTING AUTHORITIES (continued)
Under Paragraph 414(b) FDA issued regulations which required
persons who manufacture, process, pack, transport, distribute,
receive, hold or import food to establish and maintain records which
permit the identification of the immediate previous sources and the
immediate subsequent recipients of food, including packaging. This
permits product tracking.
FDA s inspection authority is amended to permit access to records
and information required under section 414.
The refusal to permit access is a violation of the FFDCA.
Inspection warrant enforced against Westco Fruit and Nuts, Inc.
April 2009.
54
EXISTING AUTHORITIES (continued)
Reportable Food Registry
Section 417
RESPONSIBLE PARTY. The term responsible party , with
respect to an article of food, means a person that submits the
registration under section 415(a) for a food facility that is
required to register under section 415(a), at which such article of
food is manufactured, processed, packed, or held.
REPORTABLE FOOD. The term reportable food means an
article of food (other than infant formula) for which there is a
reasonable probability that the use of, or exposure to, such
article of food will cause serious adverse health consequences
or death to humans or animals.
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EXISTING AUTHORITIES (continued)
IN GENERAL. Except as provided in paragraph (2), as soon as
practicable, but in no case later than 24 hours after a responsible
party determines that an article of food is a reportable food, the
responsible party shall
(A) submit a report to the Food and Drug Administration through
the electronic portal established under subsection (b) that
includes the data elements described in subsection (e) (except
the elements described in paragraphs (8), (9), and (10) of such
subsection); and
(B) investigate the cause of the adulteration if the adulteration of
the article of food may have originated with the responsible
party.
56
EXISTING AUTHORITIES (continued)
NO REPORT REQUIRED. A responsible party is not required to
submit a report under paragraph (1) if
(A) the adulteration originated with the responsible party;
(B) The responsible party detected the adulteration prior to any
transfer to another person of such article of food; and
(C) The responsible party
(i) corrected such adulteration; or
(ii) destroyed or caused the destruction of such article of food
Prohibited Acts
Failure to submit a report or provide notification required by section
417(d)
Submitting a false report or notification
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EXISTING AUTHORITIES (continued)
FDA Testimony
Want expanded access to records
Authority to require preventative controls at high risk plants
New inspection directives
Ask plants what pathogen testing being performed
incoming, in process, finished product, environmental
Take swab samples
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FOOD LABELING
FDA Enforcement
Warning Letters and Recalls
FTC
Kellogg
substantiation Frosted Mini-Wheats
QVC - $7.5 million deceptive claims for dietary supplement
Private Parties (class actions)
Dannon
substantiation for probiotic claims
Salmon
color additives
Conagra Foods
Gerber
all natural
fruit snacks
Proposition 65
59
30
Any questions or comments?
John Lemker, Partner (Chicago)
(312) 807-4413 (ph)
(312) 827-8009 (fax)
john.lemker@klgates.com
60
Looking at the Horizon:
Current & Future Regulatory Issues for the
Medical Device, Drug and Food Industries
31