“SPOOS” T he Do’s and Don’t’s of “ S ignificant P ayments o f O ther S orts”

1. “SPOOS”The Do’s and Don’t’s of “Significant Payments of Other Sorts” Michael A. Swit, Esq.Law Offices of Michael A. Switmswit@fdacounsel.com FDACounsel.com

2. Originally Presented to: • Barnett International Conference on Financial Disclosure • November 12 – 13, 2002 • Philadelphia, Pennsylvania FDACounsel.com

3. 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 FDACounsel.com

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

5. Where to Go for Perspective – How to Get the Scoop on SPOOS 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 FDACounsel.com

6. Where to Go for Perspective – Getting the Scoop on SPOOS … • 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 FDACounsel.com

7. Getting the Scoop on SPOOS … • 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) FDACounsel.com

8. Getting the Scoop on SPOOS … • So, where do we find the law of SPOOS? • NOT: • in Constitution, the Act (or any other law administered by FDA), or the Common Law • YES: • Regulation – 21 CFR Part 54 • Problem – doesn’t say much more than the definition on Slide #3 • What do you do -- read every word with care FDACounsel.com

9. Getting the Scoop on SPOOS … • Finding the law of SPOOS … • YES • in the Feb. 2, 1998 Federal Register -- --- seepreamble 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 FDACounsel.com

10. 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.” FDACounsel.com

11. “… 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 FDACounsel.com

12. “… 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 FDACounsel.com

13. “… 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 FDACounsel.com

14. “… 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 FDACounsel.com

15. “… 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” FDACounsel.com

16. “… 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 FDACounsel.com

17. “…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 the unwary – a CRO can be a sponsor under Guidance if it provides things of value to CI’s (FAQ #9) FDACounsel.com

18. “…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 FDACounsel.com

19. “…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 FDACounsel.com

20. “…investigator…” • What about payments to a corporation controlled by the investigator? “…or [to] the institution…” • What if to 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? FDACounsel.com

21. “…to supportactivities 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) FDACounsel.com

22. “…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 FDACounsel.com

23. “…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” FDACounsel.com

24. “ … 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? FDACounsel.com

25. “ … (e.g., a grant to fund ongoing research, compensation in the form of equipment or retainers for ongoing consultation or honoraria)…” • 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 FDACounsel.com

26. “ …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? FDACounsel.com

27. “ … 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 FDACounsel.com

28. 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 FDACounsel.com

29. Other SPOOS 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?? • California – Moore v. Regents – financial interest is an element of informed consent • 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 FDACounsel.com

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

31. 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 life form on the TV show Babylon 5 [the foregoing brought to you courtesy of Google®] FDACounsel.com

32. Questions? Michael A. Swit Attorney at Law Law Offices of Michael A. Swit 539 Samuel Ct. , Suite 229 ♦ Encinitas, CA 92024 Office & Cell: 760-815-4762 ♦ O-Fax: 760-454-2979 mswit@fdacounsel.com Also Admitted In Virginia and D.C. FDACounsel.com

33. About the speaker … Michael A. Swit has over 19 years of experience addressing critical FDA legal and regulatory issues. His vast and varied experience, which he is now providing as a solo practitioner, includes serving 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-regulated community. Before founding FDACounsel.com, Mr. Swit was special counsel in the FDA Law Practice Group in the San Diego office of Heller Ehrman White & McAuliffe. Before that, he was 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 and editing a guide to the generic drug approval process, Getting Your Generic Drug Approved. He is a member of the California, Virginia and District of Columbia bars, an avid hockey, basketball and baseball fan (and ex-player), and the father of triplet sons, born Feb. 29, 1996, and is married to Vera Caccioppoli, an accomplished creative writer, artist, and business and personal coach. FDACounsel.com