FDA Inspections: Handling the Administrative and Legal Consequences -- Understanding How Ugly It Can Get

Solving FDA Legal Challenges for the Life of a Life Sciences Company -1- © 2018 Law Offices of Michael A. Swit
LAW OFFICES OF MICHAEL A. SWIT
FDA Inspections: Handling the
Administrative and Legal Consequences
Understanding How Ugly It Can Get
Michael A. Swit, Esq.
Vice President, Life Sciences
Presentation
to the
MAGI Clinical Research Conference – 2018 West
October 21, 2018
San Diego, California

Standard Disclaimers
• Views expressed here are solely mine and do not
reflect those of my firm or any of its clients.
• This presentation supports an oral briefing and
should not be relied upon solely on its own to
support any conclusion of law or fact.
• These slides are intended to provide general
educational information and are not intended to
convey legal advice.

What I Will Cover
• After the Inspection --
– FDA Administrative Powers
– FDA Judicial Powers – When they take you to Court
– Collateral Consequences of Serious Violations

➢ Inspections (actually is FDA’s #1 enforcement tool)
➢ Clinical hold
➢ Disqualification of Clinical Investigators
➢ Withdrawal or suspension of marketing permit
➢ Recall (FDA-requested or “voluntary”)
➢ Generic Drug Enforcement Act -- debarment
Administrative Enforcement Tools

➢ Import detention or refusal
➢ Civil money penalties
➢ Warning Letters
– addressed to CEOs/other executives; FDA’s effort to get
executive buy-in on necessary fixes is often sabotaged by
corporate bureaucracy, which sends the letter back down to the
person with knowledge of the specifics –
– purpose of WL
➢ Application Integrity Program (AIP) – the ultimate
“fix” (or death) for data integrity issues
FDA Administrative Enforcement Tools …

➢ FDA Website
➢ Press release
➢ Press conference/television and radio interview
➢ Speeches
➢ Congressional and other testimony
The Pen Is Mightier Than The Sword:
Adverse Publicity

Publicity as an Enforcement Tool?

➢ Civil action
– Technically, is against the goods themselves
– Owner or others with interest must intervene to defend the
goods
• If do, then trial on merits of alleged violations
– Lose – goods usually destroyed, but may be reconditioned if
possible
– Win – goods go free
Seizure

➢ Action to either:
– Compel compliance
– Prevent future violations
➢ Personal against individuals or corporations
➢ Can result in an order that will involve tremendous
allocation of resources over a long period of time to
address
Injunction

➢ Order of a court
➢ Entered by consent of the parties
➢ Not technically a judicial verdict, but a negotiated
contract between the parties under the sanction of
the court
➢ Parties represent that it is a just determination of
their rights as if the alleged facts of the case had
been proven
Consent Decree

➢ How do they come about??
➢ Settlement of a court case after FDA has filed for an
injunction
– “Voluntary” negotiations with FDA after an adverse inspection
– Most terms/conditions negotiable -- but depends on your
leverage point
– companies more often concerned about naming executives as
individually responsible: FDA finds this point important as a
deterrent and necessary to pursue contempt charges if decree
becomes ineffective
Consent Decrees …

Strict Liability and the “Park Doctrine” –
Criminal Liability for
Responsible Corporate Officials

➢ 1975 – 421 U.S. 658
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=421&invol=658
➢ Facts:
– John Park – CEO of Acme Markets – based in Phila.
– Warehouse – in Baltimore –multiple FDA inspections found
rodent and insect infestation
• 1970 – letter to Park re Baltimore warehouse
• 1971 – FDA inspection in October and November
• 1972 – January letter from FDA
• March 1972 – FDA inspection – still found rodent inspection
U.S. v. Park – Strict Criminal Liability in the
FDA World
13

➢ Supreme Court, quoting Dotterweich (1943):
– observed that the Act is of "a now familiar type" which
"dispenses with the conventional requirement for criminal
conduct - awareness of some wrongdoing. In the interest of
the larger good it puts the burden of acting at hazard upon a
person otherwise innocent but standing in responsible relation to
a public danger."
➢ “Moreover, the principle had been recognized that a
corporate agent, through whose act, default, or
omission the corporation committed a crime, was
himself guilty individually of that crime. “
U.S. v. Park – Strict Liability …
14

• The principle had been applied whether or not the crime required
"consciousness of wrongdoing," and it had been applied not only
to those corporate agents who themselves committed the criminal
act, but also to those who by virtue of their managerial
positions or other similar relation to the actor could be deemed
responsible for its commission.
• The liability of managerial officers did not depend on their
knowledge of, or personal participation in, the act made
criminal by the statute. Rather, where the statute under which
they were prosecuted dispensed with "consciousness of
wrongdoing," an omission or failure to act was deemed a
sufficient basis for a responsible corporate agent's liability. It
was enough in such cases that, by virtue of the relationship he
bore to the corporation, the agent had the power to prevent the
act complained of.
U.S v. Park …
15

➢ Duty to seek out and fix violations -- the Act imposes not only
a positive duty to seek out and remedy violations when they
occur but also, and primarily, a duty to implement measures
that will insure that violations will not occur.
– The requirements of foresight and vigilance imposed on responsible
corporate agents are beyond question demanding, and perhaps onerous, but
they are no more stringent than the public has a right to expect of those who
voluntarily assume positions of authority in business enterprises whose
services and products affect the health and well-being of the public
➢ But the Act, in its criminal aspect, does not require that which
is objectively impossible -- the Act permits a claim that a
defendant was "powerless" to prevent or correct the violation
to "be raised defensively at a trial on the merits."
U.S. v Park …
16

➢ Objective impossibility – not construed by Supreme
Court since Park.
– One federal court of appeals – would have to show that you took
extraordinary measures, but still the violation occurred
– Delegation is not a defense
➢ March 2010 – Commissioner Hamburg writes
Congress -- renewed commitment to use Park
– issued a revision to its Regulatory Procedures Manual (RPM) on
factors FDA will use in invoking Park
U.S. v. Park …
17

➢ May 10, 2007 -- Purdue Frederick Company, Inc. – as
a company -- agreed to pay more than $600 million to
resolve felony criminal charges and civil liabilities in
connection with a long-term illegal scheme to
promote, market and sell OxyContin
➢ Purdue trained its sales representatives to falsely
represent:
– to health care providers about the difficulty of extracting oxycodone,
the active ingredient, from OxyContin
– to health care providers that OxyContin did not cause euphoria and
was less addictive than IR opiates;
– to health care providers the erroneous belief that OxyContin was less
addictive than morphine.
The Park Doctrine – A Recent Example –
OxyContin
18

➢ As part of the plea, Purdue paid a $600 million
settlement, which included:
– a criminal fine
– restitution to government agencies
– over $276 million in forfeiture,
– civil settlement of $100.6 million to the United States.
➢ Purdue's then current and former executive
employees, Michael Friedman, Howard Udell and Dr.
Paul Goldenheim, pled guilty to a misdemeanor violation
of misbranding OxyContin as being the responsible
corporate officers during the long-term illegal promotion
of the drug
The Park Doctrine – A Recent Example –
Oxycontin …
19

➢ Congress and Executive Branch – concerned that
even huge fines and Corporate Integrity Agreements
are “cost of business”
➢ Corporate Executives – being targeted under premise
that:
– Organizational misconduct cannot occur without individuals
– What officials could prevent a violation if they tried?
– Answer: the “Responsible Corporate Official” (RCO)
Why is Park Being Resurrected?
20

➢ Misdemeanor
– Fines up to $100,000 and $200,000 per misdemeanor offense for
an individual and a corporation respectively ($250,000 and
$500,000 if the misdemeanor offense resulted in death)
– Imprisonment – up to a year in jail per violation
Criminal Prosecution: Misdemeanors
21

➢ Must prove intent
➢ Fines are greater
➢ More common than misdemeanor prosecutions
➢ Often will combine FDA violations with other federal
crimes (e.g., conspiracy, false statements)
Criminal Prosecution -- Felony
22

Collateral Consequences of Serious
Enforcement Actions

➢ This is a picture you do not want to see ….
– in your newspaper ….
– on your local news ….
– on the Internet ….
or
– in an FDA lawyer’s presentation for years to come ….
Collateral Damage – Worst Case Scenario
from FDA Enforcement

Purdue Pharma Executives
Outside Court in Virginia
Udell Goldenheim Friedman

➢ 2008 – HHS Office of Inspector General – proposed
to disqualify all three from participating in federal
health care programs (e.g., Medicare, Medicaid)
– Did not allege direct involvement, but based on RCO theory
➢ 2010 – Twelve year exclusion upheld by federal
district court – Friedman v. Sebelius (on appeal to
D.C. Court of Appeals)
➢ July 2012 – Federal Court Appeals – agreed, although
remanded to see if length of exclusion was
consistent with prior exclusions
HHS Disqualification – The “Death”
Sentence

➢ Lose right to vote
➢ Lose right to run for
public office
➢ Damage to reputation
Problems For Individuals If Convicted

➢ Can be deported if not a U.S. citizen
➢ Financial ruin -- lose your job
➢ May not be able to ever work in industry again:
– Debarment (FDA)
– Disqualification (HHS, Clinical Investigator)
Problems For Individuals If Convicted …

➢ 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.,
GSK (GMP) & Pfizer cases -- “whistle blower” cases --
leading to civil damages and may also spawn a criminal
prosecution
Problems For Companies Caused By
Criminal Convictions …

➢ FDA may refuse to approve applications – the AIP
Program
➢ May lose state licenses
➢ Customers abandon you
➢ Decreased sales may force lay-offs of employees

➢ 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

➢ High financial cost of an investigation:
– lost sales
– stock price falls
– attorney’s fees and costs
– costs of complying with requests by government for
documents

Another Picture that You Don’t
Want to Star in …
33

Ex-Imclone CEO exits federal court after
entering guilty plea …

Questions?
➢ Call or e-mail:
Michael A. Swit, Esq.
LAW OFFICES OF MICHAEL A. SWIT
San Diego, California
m: 760-815-4762
e: mswit@fdacounsel.com
web: www.fdacounsel.com
➢ Follow me on:
– LinkedIn: http://www.linkedin.com/in/michaelswit
– Twitter: https://twitter.com/FDACounsel

About Your Speaker
Michael A. Swit, Esq., has been addressing critical FDA legal and regulatory issues for over 30
years. Before returning to his private law practice in late 2017, he served for 3 years as the chief
regulatory counsel at Illumina, Inc., the world’s leading developer of gene sequencing technologies.
Prior to that, Swit was a special counsel in the FDA Law Practice at the global law firm of
Duane Morris LLP, in its San Diego office. Before joining Duane Morris in March 2012, Swit served
for seven years as a vice president at The Weinberg Group Inc., a preeminent scientific and
regulatory consulting firm in the Life Sciences.
His expertise includes product development, compliance and enforcement, recalls and crisis
management, submissions and related traditional FDA regulatory activities, labeling and advertising,
and clinical research efforts for all types of life sciences companies, with a particular emphasis on
drugs, biologics, therapeutic biotech products, medical devices, and IVDs.
His FDA legal and regulatory work also has included tenures in private practice with McKenna &
Cuneo and Heller Ehrman, and as vice president, general counsel and secretary of Par
Pharmaceutical, a top public generic and specialty drug firm, where he helped spearhead the
company’s emergence from the Generic Drug Scandal. He also was, from 1994 to 1998, CEO of
FDANews.com, a premier publisher of regulatory newsletters and other specialty information
products for FDA-regulated firms.
He has taught and written on many topics relating to FDA regulation and associated commercial
activities and is a past member of the Food & Drug Law Journal Editorial Board. He earned his
A.B., magna cum laude, with high honors in history, at Bowdoin College, and his law degree at
Emory University.

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