Does the Trickle of cGMP Prosecutions Foreshadow a Flood?

Thus, cGMPs are not fixed or bright lines, but instead evolve with technical advances. Criminal liability should be rare, since “the statute explicitly look[s] to companies to determine the appropriate balance in the first instance, thereby making you partners with government ' ” according to Deputy Assistant Attorney General Maame Ewusi-Mensah Frimpong in a speech given at the CBI Pharmaceutical Compliance Congress in January 2013. She further conceded that “ achieving GMP compliance is not easy given that safety is not a simple black and white issue. Rather, it is a continuous process of assessing and eliminating or minimizing risks.” Thus, prosecution raises serious issues of notice and due process. Historically then, the FDA inspected, issued a Form 483 ' Inspectional Observation ' and evaluated the corrections. If warranted, the agency issued a warning letter without involving criminal authorities.'

However, in 2010, for the first time, a major pharmaceutical manufacturer faced felony prosecution for cGMP violations. Specifically, SB Pharmaceutical (SB), a subsidiary of Glaxo SmithKline (GSK), admitted to violations from the years 2001 to 2005. The violations included split tablets, microorganism contaminants, incorrect active ingredients and sterility issues.'

Several characteristics of this prosecution foreshadow the DOJ's present approach to the criminal sanction: The manufacturing plant was not in the continental United States; the DOJ press release repeatedly mentioned patient “harm” or “risk”; violations covered an extended period; and violations followed a Form 483 and warning letter, which did not lead to corrective action.'

Throughout 2012, cGMP issues were widespread but were still being addressed without criminal prosecution. For example, a Johnson & Johnson subsidiary had a recall and was shut down pending process changes; Genzyme settled civilly with the DOJ for its failure to use equipment with properly constructed surfaces; and, since March 2012, at least four pharmaceutical or device companies disclosed FDA warning letters about cGMP violations (Viropharma., Inc., Warner Chilcott PLC, Intellicell Bio Sciences, Inc., Alexion Pharmaceuticals, Inc.). None of these have indicated there is any criminal investigation. As civil investigations flourished, the July 2012 Food and Drug Administration Safety and Innovation Act further enhanced the FDA's investigative authority as to inspections and promoted international information sharing about manufacturing facilities.'

The Feds Speak

While there were no cGMP cases against major device or pharmaceutical companies for the two years after the SB plea, in early 2013 representatives of the DOJ and FDA announced that cGMP prosecution was, indeed, a top law enforcement priority. In her January 2013 speech to the CBI Pharmaceutical Compliance Congress, Deputy Assistant Attorney General Frimpong said:

We will also be taking an especially hard look whenever patients are placed at an unacceptably high risk of harm by those violations of current good manufacturing practices. We also know that many of you have implemented strong compliance programs to detect and provide early warnings before misconduct develops into a criminal violation, and our enforcement priorities and approach are intended to recognize that in a meaningful way.

In addition, she stressed that the DOJ will pursue cases where companies failed to heed internal red flags and FDA warning letters, and when companies fail to have procedures that detect problems.'

Likewise, at the March 2013 American Bar Association (ABA) White Collar Crime Institute, John Roth, Director of the FDA Office of Criminal Investigations, identified prosecution of cGMP violations as a top priority. Roth, a former federal prosecutor, noted this as an area “where regulation is insufficient,” and said this priority was part of the FDA's broader efforts to enhance consumer safety through criminal investigations of peanut and egg processors after salmonella outbreaks ' and the criminal investigation pursuit of New England Compounding, Inc. after deaths allegedly due to adulterated drugs. Roth highlighted the risk of consumer and patient harm as the rationale for the FDA's focus on criminal cGMP cases.'

More Qui Tams, and the Ranbaxy Prosecution

The federal regulators' pronouncements outlined above were followed on April 24, 2013, by pharmaceuticals manufacturer Novartis announcing it was under criminal investigation for cGMP issues relating to vaccine manufacturing.

In May 2013, another qui tam suit ripened into a criminal prosecution when Ranbaxy Laboratories, Ltd. pleaded guilty to introducing into commerce adulterated drugs produced in India. Following FDA inspections and warnings, shipment of adulterated product continued, and from 2003 to 2008 Ranbaxy: 1) failed to timely file required reports for failed drugs; 2) made false statements to the FDA in Annual Reports; 3) stored untested drugs in a refrigerator not meeting the required temperature and humidity; and 4) failed to disclose this to the FDA. The Ranbaxy prosecution is reminiscent of the GSK case: The DOJ referred to the case as a “drug safety settlement,” the manufacturing was outside the continental United States, the company was warned by regulators, and the conduct occurred over an extended period of time.'

The Declinations: The Lessons Of Omnicare and Ruhe

In 2012 and 2013, there were FCA cases alleging cGMP violations where the DOJ declined to intervene. The relevant GSK/SB and Ranbaxy factors were nearly completely missing.'

In U.S. ex rel. Rostholder v. Omnicare Inc., 2012 U.S. Dist. LEXIS 114278 (D. Md., 2012), Omnicare's subsidiary allegedly had a potential penicillin cross-contamination issue, according to a January 2011 warning letter. Omnicare agreed to correct the problem, and it recalled the drug. The DOJ declined to intervene, and the court dismissed the complaint in August 2012, focusing on lack of allegations of “knowledge.” However, the court noted that:

This opinion should not be taken to suggest that a violation of the cGMP may never result in FCA liability. The government, in its Statement of Interest, submits that “violations of cGMP regulations may, in certain circumstances, be material to the government's decision whether to pay for the affected products, and thus relevant in an FCA case.” (Statement of Interest 4, ECF No. 89.) As an example, the government directs the Court's attention to the “worthless services” doctrine, under which “the performance of the services is so deficient that for all practical purposes it is the equivalent of no performance at all.”
Id. at * 51-52, footnote 19.'

It appears in this case that there was an isolated event, at a U.S. facility, that notice was met with corrective action and that there was no patient harm. Likewise, in U.S. ex rel. Ruhe v. Masimo Corp., 2013 U.S. Dist. LEXIS 149814 (C.D. Cal., 2012), the relators claimed that the Masimo Corporation (Masimo) caused the government to pay for defective hemoglobin measurement devices, accusing Masimo of marketing the devices despite knowing they were inaccurate and that there was no valid clinical data supporting their accuracy. The DOJ declined to intervene and, on Oct. 2, 2013, the court concluded that the relators lacked proof of knowing misstatements and granted summary judgment. Id. at *3. The court stated: “At most, relators have shown that Masimo was aware of isolated complaints and anecdotal feedback from physicians regarding the performance of the devices.” Id. Once again, the DOJ seems to have declined when there was solely an allegation of isolated activity and no patient harm.

Conclusion

cGMP investigations seem to be here to stay, with a subset attracting the attention of criminal investigators. While the prosecutions and declinations to date seem to reflect an appropriate consideration of repeated conduct, after notice, with a genuine risk of patient harm, the DOJ will need to continue to limit its criminal attention to those situations to avoid the risks and harm inherent in expanding criminal enforcement where the regulatory framework is vague and evolving. Unfortunately, if history is any guide, once a new theory for criminal prosecution emerges it inevitably finds increasingly expansive application by prosecutors under pressure from motivated and creative qui tam lawyers. Industry would be well advised to have policies and processes in place ahead of this certain expansion.

Joseph F. Savage, Jr. ([email protected]), a member of this newsletter's Board of Editors, is a partner in the Boston office of Goodwin Procter LLP and a former federal prosecutor. Christopher J. Somma is an attorney in the same office, and a former state court prosecutor.'

By at least 2004, qui tam relators were filing False Claims Act (FCA) cases alleging that violations of current good manufacturing practices (cGMP) by companies selling federally reimbursed products led to false reimbursement claims. Two of these cases led to corporate prosecutions. Other cases were declined by the Department of Justice (DOJ). Significant uncertainty remains, but apparently, under particular circumstances, cGMP allegations will now be a top prosecution priority.'

The Traditional Approach ' and Then, SB Pharmaceutical

Traditionally, cGMP cases were addressed administratively by the Food and Drug Administration (FDA), with the occasional injunction or consent decree following an inspection or warning letter. cGMP violations under the Food, Drug and Cosmetic Act (FDCA) can be criminal when they result in shipping adulterated drugs or devices. The standard, however, is amorphous. For example, for drugs there is adulteration, as defined in 21 U.S.C. ' 351(a)(2)(B): “If the methods used in, or the facilities or controls used for, its manufacture, processing, packing or holding do not conform to or are not operated or administered in conformity with current good manufacturing practices to assure that such drug meets the requirements of this chapter as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess.”

Thus, cGMPs are not fixed or bright lines, but instead evolve with technical advances. Criminal liability should be rare, since “the statute explicitly look[s] to companies to determine the appropriate balance in the first instance, thereby making you partners with government ' ” according to Deputy Assistant Attorney General Maame Ewusi-Mensah Frimpong in a speech given at the CBI Pharmaceutical Compliance Congress in January 2013. She further conceded that “ achieving GMP compliance is not easy given that safety is not a simple black and white issue. Rather, it is a continuous process of assessing and eliminating or minimizing risks.” Thus, prosecution raises serious issues of notice and due process. Historically then, the FDA inspected, issued a Form 483 ' Inspectional Observation ' and evaluated the corrections. If warranted, the agency issued a warning letter without involving criminal authorities.'

However, in 2010, for the first time, a major pharmaceutical manufacturer faced felony prosecution for cGMP violations. Specifically, SB Pharmaceutical (SB), a subsidiary of Glaxo SmithKline (GSK), admitted to violations from the years 2001 to 2005. The violations included split tablets, microorganism contaminants, incorrect active ingredients and sterility issues.'

Several characteristics of this prosecution foreshadow the DOJ's present approach to the criminal sanction: The manufacturing plant was not in the continental United States; the DOJ press release repeatedly mentioned patient “harm” or “risk”; violations covered an extended period; and violations followed a Form 483 and warning letter, which did not lead to corrective action.'

Throughout 2012, cGMP issues were widespread but were still being addressed without criminal prosecution. For example, a Johnson & Johnson subsidiary had a recall and was shut down pending process changes; Genzyme settled civilly with the DOJ for its failure to use equipment with properly constructed surfaces; and, since March 2012, at least four pharmaceutical or device companies disclosed FDA warning letters about cGMP violations (Viropharma., Inc., Warner Chilcott PLC, Intellicell Bio Sciences, Inc., Alexion Pharmaceuticals, Inc.). None of these have indicated there is any criminal investigation. As civil investigations flourished, the July 2012 Food and Drug Administration Safety and Innovation Act further enhanced the FDA's investigative authority as to inspections and promoted international information sharing about manufacturing facilities.'

The Feds Speak

While there were no cGMP cases against major device or pharmaceutical companies for the two years after the SB plea, in early 2013 representatives of the DOJ and FDA announced that cGMP prosecution was, indeed, a top law enforcement priority. In her January 2013 speech to the CBI Pharmaceutical Compliance Congress, Deputy Assistant Attorney General Frimpong said:

We will also be taking an especially hard look whenever patients are placed at an unacceptably high risk of harm by those violations of current good manufacturing practices. We also know that many of you have implemented strong compliance programs to detect and provide early warnings before misconduct develops into a criminal violation, and our enforcement priorities and approach are intended to recognize that in a meaningful way.

In addition, she stressed that the DOJ will pursue cases where companies failed to heed internal red flags and FDA warning letters, and when companies fail to have procedures that detect problems.'

Likewise, at the March 2013 American Bar Association (ABA) White Collar Crime Institute, John Roth, Director of the FDA Office of Criminal Investigations, identified prosecution of cGMP violations as a top priority. Roth, a former federal prosecutor, noted this as an area “where regulation is insufficient,” and said this priority was part of the FDA's broader efforts to enhance consumer safety through criminal investigations of peanut and egg processors after salmonella outbreaks ' and the criminal investigation pursuit of New England Compounding, Inc. after deaths allegedly due to adulterated drugs. Roth highlighted the risk of consumer and patient harm as the rationale for the FDA's focus on criminal cGMP cases.'

More Qui Tams, and the Ranbaxy Prosecution

The federal regulators' pronouncements outlined above were followed on April 24, 2013, by pharmaceuticals manufacturer Novartis announcing it was under criminal investigation for cGMP issues relating to vaccine manufacturing.

In May 2013, another qui tam suit ripened into a criminal prosecution when Ranbaxy Laboratories, Ltd. pleaded guilty to introducing into commerce adulterated drugs produced in India. Following FDA inspections and warnings, shipment of adulterated product continued, and from 2003 to 2008 Ranbaxy: 1) failed to timely file required reports for failed drugs; 2) made false statements to the FDA in Annual Reports; 3) stored untested drugs in a refrigerator not meeting the required temperature and humidity; and 4) failed to disclose this to the FDA. The Ranbaxy prosecution is reminiscent of the GSK case: The DOJ referred to the case as a “drug safety settlement,” the manufacturing was outside the continental United States, the company was warned by regulators, and the conduct occurred over an extended period of time.'

The Declinations: The Lessons Of Omnicare and Ruhe

In 2012 and 2013, there were FCA cases alleging cGMP violations where the DOJ declined to intervene. The relevant GSK/SB and Ranbaxy factors were nearly completely missing.'

In U.S. ex rel. Rostholder v. Omnicare Inc., 2012 U.S. Dist. LEXIS 114278 (D. Md., 2012), Omnicare's subsidiary allegedly had a potential penicillin cross-contamination issue, according to a January 2011 warning letter. Omnicare agreed to correct the problem, and it recalled the drug. The DOJ declined to intervene, and the court dismissed the complaint in August 2012, focusing on lack of allegations of “knowledge.” However, the court noted that:

This opinion should not be taken to suggest that a violation of the cGMP may never result in FCA liability. The government, in its Statement of Interest, submits that “violations of cGMP regulations may, in certain circumstances, be material to the government's decision whether to pay for the affected products, and thus relevant in an FCA case.” (Statement of Interest 4, ECF No. 89.) As an example, the government directs the Court's attention to the “worthless services” doctrine, under which “the performance of the services is so deficient that for all practical purposes it is the equivalent of no performance at all.”
Id. at * 51-52, footnote 19.'

It appears in this case that there was an isolated event, at a U.S. facility, that notice was met with corrective action and that there was no patient harm. Likewise, in U.S. ex rel. Ruhe v. Masimo Corp., 2013 U.S. Dist. LEXIS 149814 (C.D. Cal., 2012), the relators claimed that the Masimo Corporation (Masimo) caused the government to pay for defective hemoglobin measurement devices, accusing Masimo of marketing the devices despite knowing they were inaccurate and that there was no valid clinical data supporting their accuracy. The DOJ declined to intervene and, on Oct. 2, 2013, the court concluded that the relators lacked proof of knowing misstatements and granted summary judgment. Id. at *3. The court stated: “At most, relators have shown that Masimo was aware of isolated complaints and anecdotal feedback from physicians regarding the performance of the devices.” Id. Once again, the DOJ seems to have declined when there was solely an allegation of isolated activity and no patient harm.

Conclusion

cGMP investigations seem to be here to stay, with a subset attracting the attention of criminal investigators. While the prosecutions and declinations to date seem to reflect an appropriate consideration of repeated conduct, after notice, with a genuine risk of patient harm, the DOJ will need to continue to limit its criminal attention to those situations to avoid the risks and harm inherent in expanding criminal enforcement where the regulatory framework is vague and evolving. Unfortunately, if history is any guide, once a new theory for criminal prosecution emerges it inevitably finds increasingly expansive application by prosecutors under pressure from motivated and creative qui tam lawyers. Industry would be well advised to have policies and processes in place ahead of this certain expansion.

Joseph F. Savage, Jr. ([email protected]), a member of this newsletter's Board of Editors, is a partner in the Boston office of Goodwin Procter LLP and a former federal prosecutor. Christopher J. Somma is an attorney in the same office, and a former state court prosecutor.'