increased aggressive enforcement: current enforcement ......zimmer, depuy, smith & nephew, and...

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Looking at the Horizon:Current & Future Regulatory Issues for the Medical Device, Drug and Food Industries

Steven M. KowalPartnerChicago, IL

Increased Aggressive Enforcement:Current Enforcement Trends and

Effective Defense Response

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Increased Enforcement Threat

High profile public concerns

Melamine contamination

Peanut processing

Pharmaceutical post-marketing problems

Congressional pressure

Increased enforcement budget

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Statutory Basis for Criminal Liability

Food, Drug, and Cosmetic Act

Healthcare fraud statutes

General criminal statutes

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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

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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

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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 Medicareor Medicaid related business

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General Criminal Statutes

Mail and wire fraud

False statements

Conspiracy

Obstruction of justice

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Penalties

Incarceration

Misdemeanors one year per count

Regulatory felonies three years per count

General criminal statutes five years to twenty years per count

Government seeks to prosecute individuals for deterrent effect

United States v. Abtox, Inc., et al.

Ross Caputo, President ten years of incarceration

James Reilly, CFO 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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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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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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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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Medical device manufacturers Zimmer, DePuy, Smith & Nephew, and Biomet

Deferred prosecution agreements

Total of $311 million payment

Surgeons were paid financial inducements to use companiesproducts 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 oreffectiveness

Vague or open-ended claims or suggestions of superiority

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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

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Government Investigations Defense Response

Ambush interviews

Search warrants

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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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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

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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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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)

[email protected]

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Short Break

Next Presentation: A View from Washington: USDA & FDA Food Regulatory Issues

Tony Pavel Senior AssociateWashington, DC

A View from Washington: USDA & FDA Food Regulatory Issues

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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

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FSIS - NATURAL STATUS

No coherent natural policy in effect

Official guidance always just around the corner

Natural comment record no consensusIngredients vs. incidental additivesIngredients vs. processesIncreased (uneven) focus on ingredient manufacturingProcessing aidsRelated claims

Prospects for Natural RulemakingLong promised, low priorityRegulatory agenda states ANPRM 28 days ago

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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 Accommodating Children with Special Dietary Needs

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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Other Labeling Issues

Data Collection Improvements

Expansion of Generics?

Nutrition Labeling for Single Ingredient

Future of Prior Approval

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FSIS Agenda (Tentative)

Pathogens:

Salmonella relative lack of progress, NRTE Product

E.Coli N60 labeling, allocation of responsibility

Listeria Risk assessment

Campylobacter Performance standards

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FSIS Agenda (Tentative)

Increased reliance upon FSAs

Increased use of interpretative documents the death of rulemaking

Increased retail focus

Enhanced data collection

Catfish? 16.5 Million, 95 employees and 1 jail term

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Organics

Standards for the Organic Certification of Wild Captured AquaticAnimals

Pet Food Standards

NOSB received final recommendations from Working Group re Clarification of Definition of Synthetic Substance

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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

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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

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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 GeneralDrink manufacturer sued by group of State Attorneys General regarding weight loss claims

Settlement February 2009

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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 one year

National Advertising Division, BBBContinues to see active cases regarding food claims

Cases regarding preservative claims, probiotics

NAD rarely defers to FDA/USDA

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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.

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Items to Watch on Congressional Agenda

Food Safety Bill

Menu Labeling

Child Nutrition Reauthorization

Nutrition Standards

USDA reorganization

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Tony Pavel (DC)

(202) 778-9089 (ph)

(202) 778.9100(fax)

[email protected]

FOOD REGULATION

John LemkerPartnerChicago, IL

A Look Ahead at Food Regulation: Initiatives, Existing Authorities and Pending Matters

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PLAYERS

Food and Drug Administration

Department of Agriculture

Center for Disease Control

States

Federal Trade Commission

Private Lawsuits (class actions)

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ENFORCEMENT

Do-Rene and Clover Knolls Dairies and their owners Injunction January 2009

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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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

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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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EXISTING AUTHORITIES

Dietary Supplements

Serious adverse event reporting

15 business day requirement

Recordkeeping requirements applies to all adverse events;FDA access

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

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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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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 asecure facility...

Such food may be delivered to a person who is not a debarred person if such person affirmatively establishes that the articlecomplies with the requirements of the Federal Food, Drug and Cosmetic Act.

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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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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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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 adversehealth 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.

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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.

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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 areasonable 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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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.

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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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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 all natural

Gerber fruit snacks

Proposition 65

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John Lemker, Partner (Chicago)

(312) 807-4413 (ph)

(312) 827-8009 (fax)

[email protected]

Looking at the Horizon:Current & Future Regulatory Issues for the Medical Device, Drug and Food Industries