Legal and Regulatory Concerns in
the Sourcing of FDA-Regulated
Products, Components & Services
Part 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
Center for Professional Advancement
In-House Seminar
Vendor & Supplier Qualification
Siemens
Concord, California
January 29, 2004
FDACounsel.com
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
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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.

FDACounsel.com
U.S. v. Park -- Supreme Court case (1975)
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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”

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VIOLATING FDCA’s
REQUIREMENTS 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
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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
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“PROHIBITED ACTS” UNDER
FDCA §301 (cont’d)
 Refusing to permit FDA to
inspect your plant
 Counterfeiting a drug
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FDA’s THREE POWERS UNDER FDCA
IF A PERSON DOES A “PROHIBITED
ACT”
 Criminal prosecution of individuals or
companies
 Seizure of violative goods
 Injunction orders against persons or
companies doing the prohibited acts
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SEIZURE
FDCA § 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
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INJUNCTION
FDCA § 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
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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
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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
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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

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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
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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

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FDA’s Non-Judicial
Enforcement Tools:

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

Warning Letters
Civil Penalties (devices)
“Notices of Violation”
Inspections
Application Integrity Program
Generic Drug Enforcement Act of 1992
Powers (e.g., debarment)
Publicity
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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)
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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
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APPLICATION INTEGRITY
PROGRAM (AIP)


Spawned by the generic drug scandal
56 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
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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
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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
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CRIMINAL PROSECUTION
FDCA § 303

Process -FDA District Office -- FDA Center OC -FDA GC -- Justice Department (Ofc. Of
Civil
Litigation) -- U.S. Attorney -- Grand
Jury (if felony sought) –


Indictment – felony
Information – misdemeanor or for plea
agreements
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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
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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
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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
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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
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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
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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
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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

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Sponsor’s application will not be approved if
deficiency at component maker
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Why Worry …?

FDA will make you worry … Power or Law?

Poor Suppliers May Delay or Void an
Approval …

Crucial Device Component

Special tactics/concerns:



FDACounsel.com
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
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Why Worry…?

FDA will make you worry … Power or
Law?

Poor Suppliers May Delay/Void
Approvals ...

Clinical researchers


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sponsor’s application may not be approved -- data
may be excluded
if discovered post-approval, can lead to formal
withdrawal of the approval
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Why Worry …?

FDA will make you worry … Power or Law?

Poor Suppliers May Delay/Void Approvals ...

Clinical researchers …

Special tactics/concerns


FDACounsel.com
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
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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

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tied directly into your application -- their changes
will trigger a regulatory duty that may require an
FDA filing/approval
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Why Worry…?

FDA will make you worry … Law

Supplier or component qualification -Required -- explicitly or implicitly …

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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.”
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Why Worry…?

FDA will make you worry … Law

Supplier qualification …

Devices -- 21 CFR 820.50(a)(1) -Evaluation Duty



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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
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Why Worry…?

FDA will make you worry … Law

Supplier qualification …

Devices -- 21 CFR 820.50(b) -- Purchasing
Data Duty

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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)]
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Why Worry...?

FDA will make you worry … Law

Supplier qualification …

Devices -- 21 CFR 820.50(b) -- Purchasing
Data Duty

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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.
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Why Worry...?

FDA will make you worry … Law

Supplier qualification …

Biologics -- 21 CFR 600.12(e) -- Records
in “divided” manufacturing

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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
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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. -

FDACounsel.com
defining the records needed re “safety, purity,
and potency” -- e.g., does that mean
“effectiveness”?
be as specific as possible in the supply
agreement
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Why Worry…?

FDA will make you worry ... Law

Receipt of Components -- Procedures

Devices -- 21 CFR 820.80(b) -

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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
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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




Seizure -- can be least intrusive
Injunction

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routine vs. directed
short vs. lengthy

consent decrees -- e.g., Abbott
litigated orders
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Why Worry…?

FDA Problems Can Be Hard to Fix ...

Criminal Prosecution -


Application Integrity Program (AIP) -
FDACounsel.com
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
if your supplier is on it, can be a lengthy, very
subjective process for getting through
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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
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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
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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
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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.
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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
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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
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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 -

FDACounsel.com
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
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one
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
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Questions?
Call, e-mail, fax or write:
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
http://www.fdacounsel.com
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About the speaker ...
Michael A. Swit has extensive experience in all aspects of FDA regulation with a particular emphasis on
drugs and medical device regulation. In addition to his regulatory law experience, Mr. Swit also
served for three and a half years as vice president and general counsel of Pharmaceutical Resources,
Inc. (PRI) a prominent generic drug company and, thus, brings an industry and commercial
perspective to his representation of FDA-regulated companies. While at PRI from 1990 to late
1993, Mr. Swit spearheaded the company’s defense of multiple grand jury investigations, other
federal and state proceedings, and securities litigation stemming from the acts of prior management.
Mr. Swit then served from 1994 to 1998 as CEO of Washington Business Information, Inc. (WBII) a
premier publisher of FDA regulatory newsletters and other specialty information products for the
FDA publishing company. Before starting FDACounsel.com, he was with Heller Ehrman from
May 2001 to May 2003, and also twice in private practice with McKenna & Cuneo, from 1988 to
1990 and, most recently, from 1999 to 2001, first in that firm’s D.C. office and most recently, in its
San Diego office. He first practiced FDA regulatory law with the D.C. office of Burditt & Radzius
from 1984 to 1988. Mr. Swit has taught and written on a wide variety of subjects relating to FDA
law including, since 1989, co-directing a three-day intensive course on the generic drug approval
process, serving on the Editorial Board of the Food & Drug Law Journal, and editing a guide to the
generic drug approval process, Getting Your Generic Drug Approved, published by WBII. Mr. Swit
holds an A.B., magna cum laude, with high honors in history, in 1979, from Bowdoin College, and
earned his law degree from Emory University in 1982. He is a member of the California, Virginia
and District of Columbia bars.
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