1. 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 FDA Counsel.com

2. Center for Professional Advancement In-House Seminar Vendor & Supplier Qualification Siemens Concord, California January 29, 2004 FDA Counsel.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 FDA Counsel.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) FDA Counsel.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” FDA Counsel.com

6. 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 FDA Counsel.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 FDA Counsel.com

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

9. 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 FDA Counsel.com

10. 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 FDA Counsel.com

11. 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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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) FDA Counsel.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 FDA Counsel.com

19. 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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.com

22. 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 FDA Counsel.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) FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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.” FDA Counsel.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 FDA Counsel.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)] FDA Counsel.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. FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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 FDA Counsel.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. FDA Counsel.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 FDA Counsel.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 FDA Counsel.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) FDA Counsel.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 FDA Counsel.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 FDA Counsel.com

51. Legal and Regulatory Concerns in the Sourcing of FDA-Regulated Products, Components & Services Part 2 – The Contract and Related Legal Strategies 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 FDA Counsel.com

52. Keys to Preventing & Mitigating Problems with FDA-Regulated Suppliers Contract Clauses Audits Surveillance between audits Teamwork at the Buyer FDA Counsel.com

53. THE CONTRACT – Defining Your Regulatory Duties Establishes rights and obligations of both parties Written document that reflects oral agreement The basis for any remedial action FDA Counsel.com

54. Drafting The Contract Should be written in language you understand Should set forth all the conditions of the contract that are important RECOGNIZE -- FDA regulations control/impact many contracting issues FDA Counsel.com

55. Contract Issues For Medical Devices And Components Drafting a 510(k) contract List of parties Who sets product specifications Product release Compliance with QSR Compliance with Federal Food, Drug, and Cosmetic Act Responsibility for vendor audits FDA Counsel.com

56. Medical Device Contract Issues … Drafting a 510(k) contract … Right to audit without notice or with short notice Notification of change in components or manufacturing process Penalties and/or remedies for nonperformance Notification of FDA inspection, including providing FDA 483 and responses FDA Counsel.com

57. Medical Device Contract Issues … Drafting a 510(k) contract … Termination notification -- usually two years Price Price adjustments based on cost, volume, new regulatory requirements Authority to order recall and cost allocation of recall FDA Counsel.com

58. Medical Device Contract Issues … Drafting a 510(k) contract … Arbitration clause Notification provision Intellectual property handling Confidentiality FDA Counsel.com

59. Medical Device Contract Issues … Drafting the PMA Agreement Who is responsible for clinical study data Who is responsible for submitting IDE to FDA or determination that submission of IDE to FDA is not necessary Who will submit PMA Who will respond to agency questions on PMA Publication of data – how handled FDA Counsel.com

60. Preventing & Mitigating Problems... A Look at Specific Contract Clauses Buyer’s right to audit vendor (and vendor’s key suppliers) without notice at any reasonable time during operations vendor to cooperate fully with audit access to records and personnel to be spelled out FDA Counsel.com

61. Preventing & Mitigating Problems … Specific Contract Clauses … advance notice of changes in vendor’s processing -- KEY -- so buyer can assess what regulatory action it must take to keep its approval/submission current FDA Counsel.com

62. Preventing & Mitigating Problems... Specific Contract Clauses... Vendor to cooperate, at no additional expense, with Buyer’s needs to take action to continue to comply with FDA requirements (e.g., vendor to provide data to support filing of supplements to make changes to approved applications) FDA Counsel.com

63. Preventing & Mitigating Problems … Specific Contract Clauses... Vendor’s relations with FDA... Provide copies of 483’s, EIRs prompt notice to buyer of initiation of FDA inspections prompt transmission/notice to buyer of any FDA regulatory correspondence or other regulatory action FDA Counsel.com

64. Preventing & Mitigating Problems... Specific Contract Clauses... Timely notice of other problems encountered by vendor in its manufacturing process Example: problems in making similar products for others – duty to notify you timely notice of any adverse reactions or complaints reported to vendor FDA Counsel.com

65. Preventing & Mitigating Problems … Specific Contract Clauses... Contractually articulated duty to comply with FDA laws/regulations general specific -- examples providing certificates of analysis testing to be done FDA Counsel.com

66. Preventing & Mitigating Problems... Contract Clauses... Recalls -- duty to of vendor to cooperate with recalls initiated by buyer (if applicable) representations, warranties, etc. about state of past and present compliance with FDA legal/regulatory reqs. ♦♦ “continuing Food & Drug Guarantee” – insulates downstream buyer – but is very limited – just bars criminal prosecution FDA Counsel.com

67. Preventing & Mitigating Problems... Contract Clauses... Indemnification duty from vendor to buyer in event of breach of any FDA- related reps or warranties IDE Related – if delegate to a CRO, must specify in contract what duties are delegated Problem – really doesn’t insulate you from liability FDA Counsel.com

68. Preventing & Mitigating Problems... Contract Clauses... If you want it to happen … or not happen Write it into the contract The contract can be a management tool Tension – time/expense vs. value of contract Partial answer – specific terms and conditions aimed at FDA compliance issues in P.O. or otherwise

69. Preventing & Mitigating Problems … Audits -- the key to compliance No notice (ideal world?) Conduct like an FDA inspection Audit team -- should be interdisciplinary in training -- Operations, QA, RA, QC should have an SOP for conducting FDA Counsel.com

70. Preventing & Mitigating Problems... Audits... Re-audit promptly to confirm corrections General Documents to review chronology of interactions with FDA and other regulatory agencies (e.g., EMEA, HPB, if applicable) all regulatory correspondence/filings between vendor and FDA FDA Counsel.com

71. Preventing & Mitigating Problems … Audits... General Documents to review … minutes of meetings/phone calls with FDA company’s FDA’s (get via FOI if vendor doesn’t have) Tip -- don’t rely just on what the company gives you; seek independent sources of related documents (e.g., under FOI) FDA Counsel.com

72. Preventing & Mitigating Problems... “Surveillance” between audits -- keeping an eye on your vendors Why? “Knowlege is Good” (Faber College motto; Animal House, 1978) -- to be in the best position to anticipate problems To be able to initiate dialogue with vendor as soon as possible after being alerted to a regulatory issue FDA Counsel.com

73. Preventing & Mitigating Problems … “Surveillance” between audits -- keeping an eye on your vendors … How? Read the trade and general press Keep track of FDA warning letters (subscribe to FDA e-mail notification services) FOI requests -- direct to FDA or via a third- party service FDA Counsel.com

74. Preventing & Mitigating Problems... Teamwork at the Buyer My old General Counsel’s nightmare -- “here’s the supply contract, we need to sign it today, can you look it over for any legal issues...?” My reply: “Did you run it by RA, QA, QC?” FDA Counsel.com

75. Specific Problems…A few unique ones…. Back-up Manufacturing Plant When needed: whenever manufacturing is contracted out for IND or approved Example: Lilly – 7/18/02 public announcement on 2 nd Quarter results and plant problems not being cured until 2003 What clause says: lets non-mfg. party seek a backup contractor under appropriate circumstances (e.g., Lilly had GMP problems holding up NDA approvals) FDA Counsel.com

76. Specific Problems…A few unique ones…. Who Owns the Data When needed: whenever studies of any sort are farmed out Example: Client has major study done at University; contract is ambiguous on who controls the data, although clear client can use in FDA product approval filing What clause says: makes clear who owns both raw data and results and the right to authorize publications and references FDA Counsel.com

77. Specific Problems…A few unique ones…. Copies of Data Generated by Contract Labs When needed: whenever testing is contracted out for IND or approved products Example: Oread What clause says: obligates the contract lab to maintain raw data, reports, etcs. and provide a copy in event of insolvency; also could require creation of an extra archival copy of data. FDA Counsel.com

78. 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 FDA Counsel.com

79. 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. FDA Counsel.com