Financial disclosure requirements for clinical studies are explored with a particular emphasis on how the requirement for tracking "Significant Payments of Other Sorts" -- or SPOOS -- present challenges in clinical study compliance.

1. FDACounsel.com
Financial Disclosure – Duties
and Strategies for Clinical
Studies
Michael A. Swit, Esq.
Law Offices of Michael A. Swit
539 Samuel Ct.
Encinitas, CA 92024
760-815-4762 -- fax: 760-454-2979
mswit@fdacounsel.com
www.fdacounsel.com

2. FDACounsel.com
Presented to:
 San Diego Chapter, Association of
Clinical Research Professionals
(ACRP)
 January 21, 2003
 San Diego, California

3. FDACounsel.com
How to Focus on the “Law” of
Financial Disclosure
Law School in 60 seconds
 What is “law”?
 U.S. Constitution
 Statutes – Federal Food, Drug, and
Cosmetic Act (“the Act”)
 Regulations – force and effect of law – 21
CFR Part 54

4. FDACounsel.com
How to Focus on the “Law” of
Financial Disclosure …
 What’s not “law”?
 Anything else FDA writes – guidances, speeches,
warning letters, complaints in Federal court –
 “Guidance” –
 “…describes the agency’s interpretation of or policy on a
regulatory issue” – 21 CFR 10.115(b)(1)
 “…do not legally bind the public or FDA…” – 21 CFR
10.115(d)(1)

5. FDACounsel.com
How to Focus on the “Law” of
Financial Disclosure
 FDA advisory opinions – formal position
of FDA; binding until refuted; FDA can’t
take regulatory action vs. someone who
relies on an FDA advisory opinion – 21
CFR 10.85(e)
 Preambles to proposed or final rules =
an advisory opinion – 21 CFR 10.85(d)(1)
 “Common” law = case law

6. FDACounsel.com
How to Focus on the “Law” of
Financial Disclosure
 So, where do we find the law of
Financial Disclosure?
 NOT:
 in Constitution, the Act (or any other law administered
by FDA), or the Common Law
 YES:
 Regulation – 21 CFR Part 54
 Problem – often doesn’t say much more than the
definition on SPOOS on Slide #
 What do you do -- read every word with care

7. FDACounsel.com
How to Focus on the “Law” of
Financial Disclosure
 Finding the law of Financial Disclosure
…
 YES
 in the Feb. 2, 1998 Federal Register -- --- see preamble
to the Final Rule
 = binding advisory opinion
 read very carefully
 The rest is commentary …
 The March 2001 Guidance document
 FDA presentations at DIA, RAPS, etc.
 Caution – FDA does not cite GAAP

8. FDACounsel.com
Financial Disclosure – the
Basics
 Goal -- Reduce potential for bias in clinical
studies and enhance human subject
protection
 How implemented
 FDA Rules @ 21 CFR Part 54; Feb. 2, 1998 –
published in F.R.; effective 1 year later
 FDA Guidance: “Financial Disclosure by Clinical
Investigators” – March 20, 2001

9. FDACounsel.com
Basics…
 Requirements – for any application
(NDA, PMA, BLA, etc.) submitted after
effective date, applicant must:
 disclose data on the “financial interest” of
“clinical investigators” of “covered clinicals
studies; or
 certify there are NO disclosable interests

10. FDACounsel.com
Basics…
 “Clinical investigators” – covers:
 Principal investigators
 Sub-investigators named in 1572
 spouses and dependent children
 exempted: per March 2001 Guidance -- “nurses,
residents, or fellows and office staff who provide
ancillary or intermittent care but who do not make
direct and significant contribution to the data”

11. FDACounsel.com
Basics…
 The Five Basic “Financial Interests”
subject to disclosure --
 Direct payments > $25,000 -- aka “Significant
Payments of Other Sorts” or SPOOS
 excludes costs to conduct the clinical studies
 includes honoraria, grants to fund ongoing research,
compensation for or in the form of equipment or
services, or retainers for ongoing consultation
 disclosure (for all interests) must be made during the
“covered” clinical trial and for one year following
completion of the trial

12. FDACounsel.com
Basics …
 The Five “Financial Interests” …
 Equity interest of more than $50,000
in a publicly traded company
 Ownership interest, stock, stock
option or other financial interest, no
matter how small, the value of which
cannot be readily determined through
reference to public prices (e.g., any
privately held company or unlisted equity
interests)

13. FDACounsel.com
Basics …
 The Five “Financial Interests” …
 Proprietary interest in the investigational
product
 including, but not limited to, patents, copyrights, trade
secrets, and licenses
 Financial arrangements under which the
compensation (e.g., money, equity interest, royalty
interest) could be higher for a favorable trial
outcome than for an unfavorable trial outcome

14. FDACounsel.com
Basics …
 “Covered Studies” –
 trials FDA or the sponsor relies on to establish that the
tested product is effective; or
 a study in which a single investigator makes a significant
contribution to the demonstration of safety
 FDA is particularly concerned with Phase II and III trials
(efficacy) and bioequivalence studies where results obtained by
a single investigator can have a profound statistical effect on
trial outcome
 In general, large open-label studies conducted at multiple sites,
treatment protocols, Phase I tolerance studies, pharmacokinetic
studies, and most clinical pharmacology studies are not
“covered” studies

15. FDACounsel.com
How FDA Addresses
Questionable Financial Deals
 FDA may take "any action it deems
necessary to ensure the reliability of the
data, including":
 FDA itself auditing the data from that
investigator;
 Requesting the applicant submit further
analyses of data; e.g., to evaluate the effect of
that investigator's data on the overall study data;
 and …

16. FDACounsel.com
How FDA Addresses Questionable
Financial Deals …
 FDA may take "any action it deems
necessary” …
 Requesting sponsor conduct additional independent
studies to confirm the results of the questioned study;
and
 Refusing to treat the covered clinical study as
providing data that can be the basis for agency
action (e.g., an application approval).

17. FDACounsel.com
Addressing Financial
Disclosure Before FDA Does
 Clinical investigator selection process --
make compliance an integral aspect of
selection
 find out early, before clinical protocols are set in
stone; allows you to possibly address via study
design to minimize bias
 if present, document per regulations

18. FDACounsel.com
Addressing Financial
Disclosure Before FDA Does …
 Clinical study agreements should “mirror” the
regulations –
 mandate disclosure of Interests or a certification
there’s nothing to disclose
 a constant duty to update if there is any change
 include the right to obtain a one-year post study
update regarding interests
 CRO agreements should obligate the CRO to obtain
disclosure/ certification

19. FDACounsel.com
Minimizing Bias In Event of
Financial Disclosure
 Key – take the action early; you will have to describe it
later in your marketing application and you also may not
be able to address effectively later
 Possible angles:
 multiple study sites/investigators
 blinding
 objective endpoints
 randomized assignment of patients to treatment v.
control groups
 have someone other than investigator measure
subjective endpoints

20. FDACounsel.com
Other Considerations
 The Jesse Gelsinger scenario -- If an
investigator has a significant financial
interest, has that been adequately disclosed
in the study’s informed consent
documents??
 Other entities may also impact financial
disclosure duties, such as:
 the investigator’s institution (e.g., university or
hospital) may have separate rules with different, lower
thresholds
 HHS rules may apply as well (e.g., if federally funded);
and are not identical

21. FDACounsel.com
Why comply?
 It’s the law
 If FDA doesn’t get you, Alan Milstein
and Bill Lerach will!!

22. FDACounsel.com
“SPOOS”
The Do’s and Don’t’s of “Significant
Payments of Other Sorts”

23. FDACounsel.com
What’s a SPOOS?
Direct “payments” > $25,000 --
aka “Significant Payments of Other
Sorts” or, more precisely, per 21 CFR
54.2(f), means:

24. FDACounsel.com
So How Do We Know If It’s A
SPOOS?
“…payments made by the sponsor of a covered study
to the investigator or the institution to support
activities of the investigator that have a monetary
value of more than $25,000, exclusive of the costs of
conducting the clinical study or other clinical studies
(e.g., a grant to fund ongoing research, compensation
in the form of equipment or retainers for ongoing
consultation or honoraria) during the time the clinical
investigator is carrying out the study and for 1 year
following the completion of the study.”

25. FDACounsel.com
“… payments”
 Remember – this is a noun – thus, we
are describing types of remuneration
 Rule – silent directly, but indirectly
(“e.g.”) makes clear can include:
 honoraria
 equipment
 retainers for consultation

26. FDACounsel.com
“… payments …”
 Preamble – fairly silent on what’s a payment other
than those examples actually in the Rule.
 exception – FDA: no duty to disclose
competing interests that also could bias the
investigator (see Comment #17)
 Guidance – travel expenses added to mix
 excessive; or
 for other family members (FAQ #26)
 Common sense – has an immediate or measurable
value – arguably is a payment; if your friendly CPA
would regard as income if you were a sole proprietor

27. FDACounsel.com
“… payment.”
 Gray areas:
 What if deferred until after one year from study
completion?
 What if contingent on an event unrelated to
study’s success – e.g., the stock reaches $XX in
value, we will pay you $25,001?
 What if duty to pay back or return? Arguably, look
at:
 FRV/FMV at end of use during study
 interest – opportunity cost of money

28. FDACounsel.com
“… made”
 Intertwined with “payment”
 What if only parts of the payment have been
made (see, also, “What is $25,000” slide, to
follow)?
 may depend on whether contingent
 What if a present pledge to give the money at a
time after the study completed?
 Rule: silent
 Preamble: silent
 Guidance: silent

29. FDACounsel.com
“… by the sponsor”
 “By”
 what if made by someone else, but the money
came from the sponsor originally?
 might look to CME rules for guidance
 conspiracy to avoid 21 CFR 54?
 “Sponsor” -- per 21 CFR 54.2(h) = “…the
party supporting a particular study at the
time it was carried out” –
 thus, the “applicant” – a term itself defined in 21
CFR 54.2(g) – may not be “sponsor”

30. FDACounsel.com
“… by the sponsor?
 must they be named in the IND?
 what re joint venture partner (e.g., Lilly/Icos on Cialis®)
not in the IND?
 “the” – DOES THAT MEAN THERE CAN
ONLY BE ONE PERSON WHO’S THE
SPONSOR?
 risky argument to make and inconsistent with
other FDA positions
 Waxman-Hatch Act – “conducted or sponsored”
for 3-year exclusivity
 files the IND; or
 provides significant support to the study

31. FDACounsel.com
“…sponsor?”
 Preamble: silent
 Guidance:
 whoever provides “material” support (either
money or test product)
 “sponsor” here is not same as some other FDA
regulatory definitions of sponsor (e.g., 21 CFR
312.53 and 812.43, where a “sponsor” is someone
who submits a marketing application)
 Common sense: usually whoever pays the bills
 Trap for unwary – CRO can be a sponsor under
Guidance if provides things of value to CI’s (FAQ #9)

32. FDACounsel.com
“…of a covered study”
 See definition of “covered clinical study”
at 21 CFR 54.2(e)
 But, the SPOOS definition itself in Rule
does not include the word “clinical” –
any significance?
 doubtful
 probably inadvertent

33. FDACounsel.com
“…to the investigator”
 21 CFR 54.2(d) defines “clinical investigator”:
“…means only a listed or identified investigator or
subinvestigator who is directly involved in the
treatment or evaluation of research subjects.
The term also includes the spouse and each
dependent child of the investigator.”
 PhRMA – companies err on side of inclusion out
of fear of omission leading to regulatory
challenge by FDA

34. FDACounsel.com
“…investigator”
 What about payments to a corporation controlled by the
investigator?
“…or [to] the institution…”
 What if a related entity, but not legally same as the
institution (e.g., WARF vs. U. of Wis.)?
 Rule – defines investigator
 Preamble – also clarifies no duty on business partners
(Comment #18)
 Guidance – only if parent company itself is a “Part 54
sponsor” (FAQ #22)
BUT – what re Publicly-held parent vs. privately
held operating subsidiary?

35. FDACounsel.com
“…to support activities of the
investigator…”
 “Support”
 FDA – little written on its precise meaning
 presumably, it’s inverse of a study cost
 “Activities of the investigator”
 what if give money for “indirect” reasons –
 agreement not to study anyone else’s NSAID?
 scholarship/fellowship funds
[allows institutional funds to be used for other purposes;
indirectly leaving more money for CI’s activities]
 general grant to CI’s Dept.?
 Guidance – “direct support” (FAQ #25)

36. FDACounsel.com
“…that have a monetary
value…”
 When is value measured?
 at initial donation?
 $75,001 piece of lab equipment; 3-year depreciation;
study takes 2 years; do you need to disclose?
 at end of study?
 How long does it have to stay >$25G?
[contrast here to stock; which is not SPOOS]
 What if value fluctuates – rarer; could
happen – e.g., donated raw materials for
experiments; Rule and Preamble are silent;
Guidance – only addresses stock fluctuations

37. FDACounsel.com
“…of more than $25,000…”
 Thus, must be at least $25,000.01.
 Picayune lawyer’s observation # 1 –
Guidance incorrectly says “$25,000 or more”
 Aggregate payments relative to the
>$25G threshold?
 Rule – silent
 Preamble – silent
 Guidance – “cumulative monetary value”

38. FDACounsel.com
“ … exclusive of the costs of
conducting the study or other clinical
studies … ”
 Exclusion – necessary or you would be
disclosing the study costs themselves;
presumably those are “for services
rendered” and/or direct expenses
 Costs – what is a cost:
 overhead – what if excessively allocated to
the study?
 profit allowed?

39. FDACounsel.com
“ … (e.g.,)
 By including some examples, does NOT
exclude others meeting definition
 Specifics listed:
 a grant to fund ongoing research
 compensation in the form of:
 equipment, or
 retainers for ongoing consultation, or
 honoraria

40. FDACounsel.com
“ …during the time the clinical
investigator is carrying out the
study…”
 When does a study begin?
 Guidance – by implication, cites to 21 CFR 312.53
and 812.43 as keying when an investigator’s
involvement in a study starts (FAQ #6)
 Why important?
 what if there was a payment just before site
initiation cleared, but the protocol has been
signed?
 IND on file naming that investigator?

41. FDACounsel.com
“ … and for 1 year following
completion of the study …”
 Varies – no hard and fast rules
 But, what if the investigator’s role in the study
ends on 12/31/02, but the study continues at
other sites for more than a year thereafter?
 Guidance – flexible; can make site specific
(FAQ #14)
 Be sure to establish up front and stick by it and
make sure the investigators understand the
measure

42. FDACounsel.com
Internal Controls
 Need an interdisciplinary team on this
 FDA’s view of the time and expense
involved is not shared by PhRMA
 Have a written procedure
 train on it
 audit its implementation
 If you use CROs and other contractors,
you will have to ride herd on them

43. FDACounsel.com
Tired of SPOOS?
 A few truly obscure things to know about
SPOOS:
 According to CDRH, applies to payments made for
“consolation” – means you have to disclose if they
pay you for failing results?
 on Wall Street, “SPOOS” is the nickname for the
Standard & Poors 500 Futures Contract”
 rule was created on Groundhog’s Day
 a SPOO is a lifeform on the TV show Babylon 5
[the foregoing brought to you courtesy of Google]

44. FDACounsel.com
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

45. FDACounsel.com
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.