Presentation on December 3, 2009 to Southern California Biomedical Council Regulatory Workshop, Irvine, CA, with a focus on:  Enforcement Trends Prior to Obama Administration  Commissioner Hamburg Revives FDA’s Compliance Culture – The August 6, 2009 Speech and its Impact  How to Prepare for Increased Enforcement  How to Respond if Targeted  Consequences of Non-Compliance

1. ASoCalBioRegulatoryWorkshopASoCalBioRegulatoryWorkshop
UCI University Club December 3rd, 2009
FDA & California Audit Preparedness
FDA Enforcement – The Perils of
Inadequate Compliance
Michael A. Swit, Esq.
Vice President
The Weinberg Group Inc.

3. Standard Disclaimers
 These slides support an oral briefing and thus should
not be solely relied upon to support any conclusion of
fact or law.
 The views expressed here are my own and do not
necessarily reflect those of my firm or our clients.

4. What We Will Cover
 Enforcement Trends Prior to Obama Administration
 Commissioner Hamburg Revives FDA’s Compliance
Culture – The August 6, 2009 Speech and its Impact
 How to Prepare for Increased Enforcement
 How to Respond if Targeted
 Consequences of Non-Compliance
4

5. Enforcement Trends Prior to
Obama Administration
5

6. All Inspections – 2004 to 2008
6

7. Warning Letters – 2004 to 2008
7

8. Seizures – 2004 to 2008
8

9. Injunctions – 2004 to 2008
9

10. Commissioner Hamburg Revives FDA’s
Compliance Culture – The August 6, 2009 Speech
and its Impact

11. Hamburg: Why We Need
Effective FDA Enforcement
 Conceded FDA enforcement efforts have been
deficient
 Five key benefits of effective enforcement:
 Protect public health by promptly intercepting unsafe or
fraudulent products – prevents additional harm
 Deter others who might violate law
 Informs public of potential harm
 Creates level playing field for industry
 Instill public confidence in FDA
11

12.  Vigilance – both FDA and Industry
 FDA – Regular inspections and follow-ups
 Companies
 Must work quickly and thoroughly to correct problems
 Must understand
 if you cross the line, “you will be caught”
 If you fail to act, FDA will
 Strategic enforcement –
 Greater focus on significant risks and violations
 More meaningful penalties to “send a strong message to
discourage future offenses”
Hamburg: Four Essential Elements for
Effective FDA Enforcement
12

13. Four Essential Elements for
Effective Enforcement …
 Quick action – FDA must respond rapidly, especially to:
 Egregious violations
 Violations that threaten the public health
 Visible efforts – FDA must show all stakeholders it is on
the job
 Will publicize enforcement actions widely – including rationales
for action
 Goal:
 Increase confidence in FDA
 Deter non-compliance
13

14. Hamburg: Six New FDA
Enforcement Mandates
 Impose clear post-inspection deadlines
 Generally – no more than 15 business days to respond to 483
 After that, agency can issue warning letter or take other
enforcement action
 Speed the warning letter process – by limiting review
by FDA Office of Chief Counsel to warning letters that
present significant legal issues
 Work more closely with FDA’s regulatory partners
 Example: in some cases, such as food safety, state, local, and
international officials can act more quickly than the FDA
 When public health is at risk, the agency will coordinate with
its regulatory partners to take rapid action
14

15. Six New Enforcement Mandates …
 Prioritize follow-up on all warning letters and other
enforcement actions
 FDA will work quickly to assess the corrective action taken by industry
after a warning letter, a major product recall, or other enforcement action
 Via new inspection or other form of investigation
 FDA will be prepared to take immediate action to respond to
public health risks
 Actions may occur before a formal warning letter is issued – at any time
 Days of multiple responses to inspections – over
 Develop and implement a formal warning letter “close-out”
process
 If FDA determines a firm fully corrected violations in a warning letter,
agency will issue an official “close-out” notice and post on FDA Web site
 Seen as an “important motivator” for corrective action
15

16. Enhanced Enforcement In Action –
Timely 483 Responses Policy
 Aug. 11 Federal Register notice – Post-inspection 483 responses
timing policy published – 15 business days
 Timely Responses
 FDA will conduct “detailed review” in deciding any enforcement action
 If FDA issues a warning letter, letter will address sufficiency of response
 Late responses
 Response will not be considered by FDA in deciding to take enforcement
action such as a warning letter
 If warning letter issues after a late 483 response, FDA will consider the 483
response in assessing firm’s later reply to warning letter
 Purpose of Warning Letter:
 “ensure … seriousness and scope of the violations are understood by top
management … and that the appropriate resources are allocated to fully
correct the violations and prevent their recurrence”
16

17. Enhanced Enforcement – In Action
 KV – March 2009 – GMP consent decree four weeks
after inspection’s end
 H1N1 Websites – May 2009 -- 68 Warning Letters –
response time shortened to 48 hours due to the public
health aspects
 Caraco –
 June 2009 – seizure six weeks after inspection
 September 2009 – consent decree
 Apotex Import Alert –
 June 25 – Warning Letter
 September 8 – FDA announces import alert on two Apotex
facilities
17

18. KV and Caraco Consent Decrees
 Key Features
 Permanent injunction vs. future violations – punishable by contempt
 To resume manufacturing;
 Must certify that management has control over QA function
 Must certify compliance with GMP and that all violations are corrected
 Batch certification process – first 3 batches of each product must be
certified as compliant by GMP expert
 Later audits – periodic to verify continued compliance
 Must pay for all FDA inspections
 Violations of Consent Decree – Civil Penalties
 $10,000 per day (Caraco); $15,000 (KV)
 $10,000 per violation (Caraco); $15,000 (KV)
 2x retail value of goods sold in violation (Caraco); 3x retail value (KV)
 Cap -- $5,000,000 per year (both)

19. Enhanced Enforcement –
International
 FDA to double foreign GMP inspections
 Focus: GMP inspections, not inspections linked to applications
 Result: Look for more import alerts
 FDA can impose alert based on just an “appearance” of a violation
 Contrast: formal U.S. enforcement such as seizure, injunction or
prosecution, FDA must prove a violation
 “FDA Without Borders” Initiative
 Offshoot of Heparin and other scandals
 FDA foreign offices opened: Brussels; Mumbai; New Delhi;
San Jose, Costa Rica; Beijing, Shanghai and Guangzhou, China
 Additional planned FDA offices: Mexico City, Middle East (site
TBD)
19

20. How to Prepare for Increased Enforcement

21. How to Prepare for
The New Enforcement Climate
 The Big Picture
 Compliance Culture – must exist at the top of your
organization and be driven down by senior management
throughout your firm not only in word, but in resources
 FDA law requires – “Park Doctrine” – Strict Liability
 Corporate law requires
 Public company duties/Sarbanes-Oxley compliance
 Best strategy to “avoid” enforcement – strict compliance via
robust “quality systems” in all impacted areas – quality,
regulatory, manufacturing, packaging, testing, etc.
21

22. How to Prepare …
 Change Your Corporate Compliance World View
 Oust the Reactionary Compliance Model
 Historical focus – always after-the-fact
 Expense focus creates little incentive for forward thinking
 Compliance generally seen as production cost
 Rarely seen as a revenue-generating opportunity
 Viewed as lower priority within an organization
 Perceived as a burden – a leash with little up side potential
 Embrace Compliance As a Corporate Asset
 Corporate culture must change
 Quality Systems must be integrated into the process, not an
additional component
 Process must evolve from one of police action to one of forethought
 View as a competitive advantage
22

23. How to Prepare …
 Culture Change – Dramatic And Difficult
 Quality function must be valued by management
 Increase visibility of quality unit
 Visibly exhibit an intolerance for lack of compliance
 Quality must be seen as a priority
 Embrace a Proactive Approach
 “It is often said at FDA that firms that are in compliance tend
to stay in compliance, but once a firm gets out of compliance
getting back into compliance is a very steep road to climb. Try
to avoid that road.” – Daniel Troy, former FDA Chief Counsel
23

24. How to Prepare …
 Build The Right Quality Systems
 Create a self-determining culture
 Make regulatory mandates obvious and routine
 Use Quality Assurance as a cost-improvement methodology
 Proactive Approach To Increasing Profitability
 Approach facilities and operations inspections proactively
 Use third parties
 Assess all business operations
 Act on things immediately
 Change focus from compliance to improvement – that
compliance is subset of quality
24

25. How to Prepare …
 Detailed view – quality systems throughout your
organization that reflect strong:
 Procedures
 Training
 Audits
 Validation
 Recordkeeping
 Key SOPS
 Handling FDA Inspections
 CAPA
 Investigations
 Recalls
 Audit Plans
25

26. How to Respond if Targeted

27. When FDA Enforcement Hits
 How it may hit
 Administrative Enforcement
 Inspections & Investigations
 Warning letter
 Clinical Holds – can be compliance-based
 AIP
 Termination of an IND or IDE
 Disqualification procedures with clinical investigators
 Recalls and market withdrawals
 Civil Money Penalties
 Publicity –
 e.g., Genzyme 483 from a Nov. 2009 inspection is on FDA’s website
already
27

28. Publicity as an Enforcement Tool?

29. Current FDA Enforcement Priorities:
Application/Data Integrity Policy
 The AIP applies to any application (e.g., NDA, BLA, PMA),
amendment, supplement, petition, or other submission in support
of the approval or marketing of a regulated product
 Does not apply only to data tainted or possibly tainted by fraud or
other intentional misconduct
“Data may not be unreliable due to sloppiness and inadvertent errors.
A pattern of errors by an applicant involving material subject matter
may raise a significant question regarding the general reliability of
data in applications from that applicant.”

30. AIP: History
 formerly known as the “Fraud” Policy
 developed and implemented in response to generic drug scandal of
1980s
 Dozens of generic company officials and employees indicted and
convicted of crimes including: making false statements, conspiracy to
defraud FDA, obstruction of justice (including obstructing an FDA
inspection), and introducing adulterated and misbranded drugs
 Criminal fines of $10,000,000 imposed on one company; a number
of officials and employees were incarcerated as well as fined

31. AIP
 if FDA has significant questions surrounding the reliability of the
data in an application, it will defer substantive scientific review of
all the data in the application - and, possibly, other applications
 deferral will continue until all questions regarding the reliability of
the data have been resolved

32. AIP: Managed Through Corporate Internal Audit and
Action Plan
 Importance of monitoring and QC visits
 Clean up clinical sites before making a submission to
FDA
 Lessons
 Select investigators with great care
 Don’t skimp on GCP compliance

33. FDA Enforcement Discretion
 Prior History of Company’s Compliance
 prior 483’s, warning letters, and company’s response
 Health risks
 Likelihood of recurrence

34. FDA Civil and Criminal Enforcement Tools
 Criminal prosecution - Title 18
 § 371 (conspiracy)
 § 1001 (false statements)
 § 1341,43(mail and wire fraud)
 § § 1505, 1509-10 (obstruction)
 § 1962 (RICO)
 Imprisonment
 Fines
 Seizure and destruction of product
 Import detention
 Injunctions
 Disgorgement/Restitution
 Consent Decrees

35. Criminal Prosecution: Misdemeanors
 Misdemeanor
 Strictly liability (no criminal intent necessary) – “The Park
Doctrine”
 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

36. The Park Doctrine – A Very Recent Example –
Oxycontin
 May 10, 2007 -- Purdue Frederick Company, Inc. agreed to pay more than $600 million to resolve criminal
charges and civil liabilities in connection with a long-term illegal scheme to promote, market and sell
OxyContin, a powerful prescription pain reliever that the company produces.
 Purdue trained its sales representatives:
 to make false representations to health care providers about the difficulty of extracting oxycodone, the active
ingredient, from the OxyContin tablet;
 to represent to health care providers that OxyContin did not cause euphoria and was less addictive than immediate-
release opiates;
 to allow health care providers to entertain the erroneous belief that OxyContin was less addictive than morphine.
 Purdue falsely labeled OxyContin
 as providing "fewer peaks and valleys than with immediate-release oxycodone," and
 that patients taking lower dosages of the drug can always be discontinued abruptly without suffering withdrawal
symptoms or tolerance.

37. The Park Doctrine – A Very Recent Example –
Oxycontin
 Purdue pled guilty to a felony count of misbranding a drug with intent to defraud and
mislead. As part of the plea, Purdue will pay a $600 million settlement. That amount
includes a criminal fine, restitution to government agencies, over $276 million in forfeiture,
and a related civil settlement under which Purdue will pay $100.6 million to the United
States.
 “In addition, Purdue's 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.”
Source: FDA Press Release @
http://www.fda.gov/bbs/topics/NEWS/2007/NEW01632.html

38. Criminal Prosecution -- Felony
 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)

39. Seizure
 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

40. Injunction
 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

41. Disgorgement
 FDA recovery of company profits
 can’t profit from sales of an illegal product that is nonetheless
medically necessary
 FDA refrains from enjoining production of non-compliant
products because it would compromise patient care by causing
significant shortages of medically necessary products
 in return, firms will pay a fixed % of future sales to ensure that they
did not profit from the violative products

42. Consent Decree
 Order of a court
 entered by consent of the parties
 not technically a judicial sentence, 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

43. Consent Decrees
 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

44. What Can FDA Target In An Enforcement Action?
Scope of Enforcement Action Can Be Very Broad:
 all areas where FDA perceives violations, and responsible persons
involved in such violations
 labeling, promotion, manufacturing, QA, distribution, regulatory
affairs, quality control

45. When FDA Enforcement Hits …
 Who FDA Can Target: any individual within the
company that has a position of responsibility for the
violative aspect of the company’s operation,
including:
President/CEO/COO
General Counsel
VP or Director of QA, QC, RA, Mfg., etc.
Managers
Technicians (rare)
 The “Park Doctrine”
45

46. When FDA Enforcement Hits – Assessing
 Assess each allegation/observation
 Focus on specifics
 Focus on system-wide implications
 Focus on global implications
 Consider affected products
 Consider root-cause analysis
 Focus on the regulatory requirement(s) associated
with each allegation/observation
 Develop action plan to achieve immediate, short-term,
and long-term correction and to prevent recurrence
 Know when to seek outside assistance
46

47. When Enforcement Hits –
Keys to Responding
 Include a commitment/statement from senior leadership
 Address each allegation/observation separately
 General rule – do not specifically state whether you agree
or disagree with the allegation/observation
 Provide corrective action accomplished and/or planned;
tell FDA the plan
 Be specific (e.g. observation-by-observation)
 Be complete
 Be realistic
 Be able to deliver what you promise
 Address affected products
47

48. When Enforcement Hits –
Keys to Responding …
 Provide time frames for correction
 Describe method of verification and/or monitoring for
corrections
 Submitting documentation of corrections where
reasonable & feasible
 Be timely and thorough – deliver what you promised
when you promised it
48

49. FDA Expectations for Your Response
 Wants to Hear Your D.R.U.M. – expects your
response to have these qualities:
 Direct – i.e., address the items directly raised in the 483 or
Warning Letter
 Related – go beyond those to potentially related problems
 Universal – expand to review those issues company-wide
 Management & Monitoring – show that you will stay on
top of the issues and that management is involved
Source: “Compliance and Enforcement.” Presentation by David K.
Elder, Director, FDA Office of Enforcement, at the Orange County
Regulatory Affairs (OCRA)/FDA Joint Educational Conference. June
15, 2005. Irvine, California.
49

50. Consequences of Non-Compliance

51. “Does Crime Pay?” -- Problems
Beyond Jail and Fines
 Problems For Companies Caused By Convictions
and Other Serious FDA Compliance Actions:
 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.,
Lupron ($875 MM), Neurontin ($450 MM), and Pfizer ($2.3 B) cases
-- “whistle blower” cases -- leading to civil damages
 may also spawn a criminal prosecution

52. “Does Crime Pay?” -- Problems
Beyond Jail and Fines
 Problems For Companies …
 FDA may refuse to approve NDAs, PMAs or other
filings under Application Integrity Program (AIP)
 May lose state licenses
 Customers abandon you
 Decreased sales may force lay-offs of employees

53. “Does Crime Pay?” -- Problems
Beyond Jail And Fines
 Problems For Companies …
 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

54. “Does Crime Pay?” -- Problems
Beyond Jail and Fines
 Problems For Companies …
 Incredible financial costs of non-compliance
 lost sales
 stock price falls
 attorney’s fees and costs
 consultants fees
 costs of complying with requests by
government for documents

55. “Does Crime Pay?” – Problems
Beyond Jail and Fines
 Problems For
Individuals If
Convicted:
 Lose right to vote
 Lose right to run for
public office
 Damage to reputation

56. “Does Crime Pay?” -- Problems Beyond
Jail and Fines
 Problems For Individuals
If Convicted):
 Can be deported if
not a U.S. citizen
 Financial ruin - -
lose your job

57. The Costs – The Par Case
 Direct Costs
 Criminal Fines -- $2,800,000
 Legal Fees -- $4,000,000
 Consultant Fees -- $5,000,000
 Shareholder Litigation -- $2,200,000
 Competitors Litigation -- $13,000,000
 Lost Sales – one year alone – down $49,000,000
TOTAL Direct costs/lost sales – $75,900,000 (just one year of lost sales)
 Indirect Costs
 Stock price – dropped from $27 per share to $3 per share; market cap from about
$297,000,000 to $33,000,000
 Employees – 900 to 450
 Approvals -- ANDAs – none approved for about 5 years
 Quad Subsidiary – shut down fully
 Other Common Direct Costs (often not present in older cases; common since
1999)
 False Claims Act
 Consent Order Disgorgement

58. Final Sermon: Please Teach Vigorous Risk
Avoidance Corporately
 P = Procedures
 T = Training
 V = Validated
 R = Records
 A = Audit
 C = Compliance Culture from the
Top

59. Call, e-mail, fax or write:
Michael A. Swit, Esq.
Vice President
The Weinberg Group Inc.
336 North Coast Hwy. 101
Suite C
Encinitas, CA 92024
Phone 760.633.3343
Fax 760.454.2979
Cell 760.815.4762
michael.swit@weinberggroup.com
www.weinberggroup.com
Questions?

60. About your speaker…
Michael A. Swit, Esq., is a Vice President at THE WEINBERG GROUP, where he develops and ensures the
execution of a broad array of regulatory and other services to drug, biologics, medical device and other highly-
regulated clients seeking to market products in the United States. His expertise includes FDA development strategies,
compliance and enforcement initiatives, recalls and crisis management, submissions and related traditional FDA
regulatory activities, labeling and advertising, and clinical research efforts.
Mr. Swit has been addressing critical FDA legal and regulatory issues since 1984. His multi-faceted experience
includes serving for three and a half years as corporate vice president, general counsel and secretary of Par
Pharmaceutical, a prominent, publicly-traded, generic drug company and, thus, he brings an industry and commercial
perspective to his work with FDA-regulated companies. Mr. Swit then served for over four years as CEO of
FDANews.com, a premier publisher of FDA regulatory newsletters and other specialty information products for the
FDA-regulated community. His private FDA regulatory law practice has included service as Special Counsel in the
FDA Law Practice Group in the San Diego office of Heller Ehrman White & McAuliffe and with the Food & Drug
Law practice at McKenna & Cuneo, both in the firm’s Washington office and later in San Diego. He first practiced
FDA regulatory law with the D.C. office of Burditt & Radzius.
Mr. Swit has taught and written on a wide variety of subjects relating to FDA law, regulation and related commercial
activities, including, since 1989, co-directing a three-day intensive course on the generic drug approval process and
editing a guide to the generic drug approval process, Getting Your Generic Drug Approved. A former member of the
Food & Drug Law Journal Editorial Board, he also has been a prominent speaker at numerous conferences sponsored
by such organizations as RAPS, FDLI, and DIA. A magna cum laude graduate of Bowdoin College, he received his
law degree from Emory University Law School and is a member (inactive) of the California, D.C. and Virginia bars.

61. For more than twenty-five years, leading companies have
depended on THE WEINBERG GROUP when their
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