Strategies and Concerns in the Sourcing of FDA-Regulated Products, Components & Services

1. Strategies and Concerns in the Sourcing of FDA-RegulatedProducts, Components & Services 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 FDACounsel.com

2. BIO 2001Procurement and Supply Chain ManagementSeminarMonday, June 25, 2001 San Diego Marriott Hotel and Marina San Diego, California FDACounsel.com

3. Why Worry About FDA Compliance? • FDA Compliance Can Make or Break a Deal • Recent Examples: • Abbott/Alza Merger • Guilford/Gliatech Merger • When sourcing you become a “partner” with your vendor -- their problems are yours FDACounsel.com

4. Why Worry...? • FDA mandates you worry about your vendor/partner’s compliance • Poor Suppliers May Delay or Void an Approval • Active Pharmaceutical Ingredient (“API”) Supplier • Sponsor’s application will not be approved if deficiency at API maker FDACounsel.com

5. Why Worry? • Poor Suppliers May Delay or Void an Approval … • Active Pharmaceutical Ingredient (“API”) Supplier …. • Special tactics/concerns: • be extremely careful with first-time suppliers • special concern -- if never used before, FDA foreign inspection may delay approval process as well FDACounsel.com

6. Why Worry…? • FDA will make you worry … • Poor Suppliers May Delay/Void Approvals ... • Clinical researchers • sponsor’s application may not be approved -- data may be excluded • if discovered post-approval, can lead to formal withdrawal of the approval FDACounsel.com

7. Why Worry? • FDA will make you worry … • Poor Suppliers May Delay/Void Approvals ... • Clinical researchers … • Special tactics/concerns • area of high interest today due to 1999 gene therapy death @ U. of Penn. & problems at other major clinical research centers (e.g., Duke, U. of Colo.) • sponsors can not avoid FDA liability via contract -- have to have systems in place to ensure compliance FDACounsel.com

8. Why Worry…? • FDA will make you worry … • Poor Suppliers May Delay/Void Approvals … • Contract Manufacturers • must be GMP compliant or FDA approval can be refused • Special tactics/concerns • tied directly into your application -- their changes will trigger a regulatory duty that may require an FDA filing/approval • may be high volume/low margin producers -- pressure on production may lead to errors FDACounsel.com

9. Why Worry…? • FDA will make you worry … • Supplier or component qualification -- Required -- explicitly or implicitly • Drugs -- 21 CFR 211.22(a)“…The quality control unit shall be responsible for approving or rejecting drug products manufactured, processed, packed or held under contract by another company.” FDACounsel.com

10. Why Worry? • FDA will make you worry … • Supplier or component qualification -- Required -- explicitly or implicitly … • Devices -- 21 CFR 820.50 “Each manufacturer shall establish and maintain procedures to ensure that all purchased or otherwise received product and services conform to specified requirements.” FDACounsel.com

11. Why Worry…? • FDA will make you worry … • Supplier qualification … • Devices -- 21 CFR 820.50(a)(1) -- Evaluation Duty • applies to suppliers, contractors and consultants-- evaluated as to abililty to meet specified requirements • must define the “type and extent of control” over products, services, suppliers, contractors, and consultants” • keep records of acceptable suppliers, contractors & consultants FDACounsel.com

12. Why Worry…? • FDA will make you worry … • Supplier qualification … • Devices -- 21 CFR 820.50(b) -- Purchasing Data Duty • keep data that “clearly describe or reference the specified requirements, including quality requirements, for purchased or otherwise received product and services.” • Note: “product” includes components, manufacturing materials, in-process devices, finished devices and returned devices [21 CFR 820.3(r)] FDACounsel.com

13. Why Worry...? • FDA will make you worry … • Supplier qualification … • Devices -- 21 CFR 820.50(b) -- Purchasing Data Duty • Documents “shall include, where possible” an agreement requiring a supplier/contractor/consultant to notify the manufacturer of changes “so that the manufacturer may determine whether the changes may affect the quality of a finished device. FDACounsel.com

14. Why Worry...? • FDA will make you worry … • Supplier qualification … • Biologics -- 21 CFR 600.12(e) -- Records in “divided” manufacturing • each participating manufacturer shall furnish the “last” manufacturer “all records relating to the manufacturing operations performed by such manufacturer insofar as they concern the safety, purity and potency of the lots of the product involved FDACounsel.com

15. Why Worry? • FDA will make you worry … • Supplier qualification -- • Biologics -- 21 CFR 600.12(e) -- Records in “divided” manufacturing … • Tactics/concerns if you’re the “last” mfr. -- • defining the records needed re “safety, purity, and potency” -- e.g., does that mean “effectiveness”? • be as specific as possible in the supply agreement FDACounsel.com

16. Why Worry…? • FDA will make you worry ... • Receipt of Components -- Procedures • Drugs -- • 21 CFR 211.84 -- Testing and Approval or rejection of components, drug product contaniers, and closures • number to be tested will depend on … “the past quality history of the supplier” • testing can be avoided if:For drug components:** vendor supplies a Certificate of Analysis showing test results + you do at least one specific identity test** buyer must establishe reliability of supplier’s analyses via “appropriate validation … at appropriate intervals” FDACounsel.com

17. Why Worry…? • FDA will make you worry ... • Receipt of Components -- Procedures • Drugs -- • testing can be avoided if: For container/closure systems -- ** vendor supplies a Certificate of Testing + does visual ID on the container/closure systems ** buyer establishes reliability of supplier’s testing via “appropriate validation of the supplier’s test results at appropriate intervals” FDACounsel.com

18. Why Worry…? • FDA will make you worry ... • Receipt of Components -- Procedures • Devices -- 21 CFR 820.80(b) -- • must have procedures for accepting incoming product • tested, inspected or otherwise verified to meet specified requirements • acceptance or rejection must be documented • nonconforming product -- must notify 3rd party manufacturers -- arguably, there must be an investigation • Tactics/concerns -- having leverage to make the manufacturer do such an investigation FDACounsel.com

19. Why Worry…? • FDA Problems Can Be Hard to Fix • FDA statutory and other powers against violative companies/products may delay or preclude a fix • Inspection -- type will determine impact • routine vs. directed • short vs. lengthy • Seizure -- can be least intrusive • Injunction • consent decrees -- e.g., Abbott • litigated orders FDACounsel.com

20. Why Worry…? • FDA Problems Can Be Hard to Fix ... • Criminal Prosecution -- • The sins of your partner may visit upon you -- • The E-Ferol Case • does not technically preclude supply, but can be so disruptive as to undermine the effectiveness of a vendor • Application Integrity Program (AIP) -- [formerly known as the “Alert List” or “Fraud List” • if your supplier is on it, can be a lengthy, very subjective process for getting through FDACounsel.com

21. Why Worry…? • FDA Problems Can Be Hard to Fix ... • Regulatory hurdles -- to cure a problem with an approved product, may require FDA sign-off depending on the nature of the problem.Examples • Active pharmaceutical ingredient maker unable to supply: • Apparent Solution -- get a new one • Problem -- will require prior approval by the agency and additional scientific data to support change • Best approach -- have two qualified as early as possible FDACounsel.com

22. Why Worry…? • Products Liability • Examples where a supplier caused the problem: • Tryptophan -- raw material problem • E-Ferol -- poor formulation • Carbamazapine -- API process change • Securities Liability -- worst case, deal caves; investors (i. e., their lawyers) sue • Economic disruption -- you can’t sell if they don’t sell to you FDACounsel.com

23. Keys to Preventing & Mitigating Problems with FDA-Regulated Suppliers • Contract Clauses • Audits • Surveillance between audits • Teamwork at the Buyer FDACounsel.com

24. Preventing & Mitigating Problems... • Contract Clauses • Buyer’s right to audit vendor (and vendor’s key suppliers) • without notice • at any reasonable time during operations • vendor to cooperate fully with audit • access to records and personnel to be spelled out FDACounsel.com

25. Preventing & Mitigating Problems … • Contract Clauses … • advance notice of changes in vendor’s processing -- KEY -- so buyer can assess what regulatory action it must take to keep its approval/submission current

26. Preventing & Mitigating Problems... • Contract Clauses ... • Vendor to cooperate, at no additional expense, with Buyer’s needs to take action to continue to comply with FDA requirements (e.g., vendor to provide data to support filing of supplements to make changes to approved applications) FDACounsel.com

27. Preventing & Mitigating Problems … • Contract Clauses ... • Vendor’s relations with FDA ... • Provide copies of 483’s, EIRs • prompt notice to buyer of initiation of FDA inspections • prompt transmission/notice to buyer of any FDA regulatory correspondence or other regulatory action FDACounsel.com

28. Preventing & Mitigating Problems... • Contract Clauses ... • Timely notice of other problems encountered by vendor in its manufacturing process • timely notice of any adverse reactions or complaints reported to vendor FDACounsel.com

29. Preventing & Mitigating Problems … • Contract Clauses ... • Contractually articulated duty to comply with FDA laws/regulations • general • specific -- examples • providing certificates of analysis • testing to be done FDACounsel.com

30. Preventing & Mitigating Problems... • Contract Clauses ... • Recalls -- duty to of vendor to cooperate with recalls initiated by buyer (if applicable) • representations, warranties, etc. about state of past and present compliance with FDA legal/regulatory reqs. • Indemnification duty from vendor to buyer in event of breach of any FDA-related reps or warranties FDACounsel.com

31. Preventing & Mitigating Problems … • Audits -- the key to compliance • No notice (ideal world?) • Conduct like an FDA inspection • Audit team -- • should be interdisciplinary in training -- Operations, QA, RA, QC • should have an SOP for conducting FDACounsel.com

32. Preventing & Mitigating Problems... • Audits ... • Written follow-up -- give them a “483” • essential • get substantive replies from vendor • What to stress -- • systems specific to your product/service being provided to you by vendor • current FDA “hot buttons” FDACounsel.com

33. Preventing & Mitigating Problems ... • Audits ... • Re-audit promptly to confirm corrections • General Documents to review • chronology of interactions with FDA and other regulatory agencies (e.g., EMEA, HPB, if applicable) • all regulatory correspondence/filings between vendor and FDA FDACounsel.com

34. Preventing & Mitigating Problems … • Audits ... • General Documents to review … • minutes of meetings/phone calls with FDA • company’s • FDA’s (get via FOI if vendor doesn’t have)Tip -- don’t rely just on what the company gives you; seek independent sources of related documents (e.g., under FOI) FDACounsel.com

35. Preventing & Mitigating Problems ... • “Surveillance” between audits -- keeping an eye on your vendors • Why? • “Knowlege is Good” (Faber College motto; Animal House, 1978) -- to be in the best position to anticipate problems • To be able to initiate dialogue with vendor as soon as possible after being alerted to a regulatory issue FDACounsel.com

36. Preventing & Mitigating Problems … • “Surveillance” between audits -- keeping an eye on your vendors … • How? • Read the trade and general press • Keep track of FDA warning letters (subscribe to FDA e-mail notification services) • FOI requests -- direct to FDA or via a third-party service FDACounsel.com

37. Preventing & Mitigating Problems ... • Teamwork at the Buyer • My old General Counsel’s nightmare -- “here’s the supply contract, we need to sign it today, can you look it over for any legal issues...?” My reply:“Did you run it by RA, QA, QC?” FDACounsel.com

38. Specific Procurement Problems • Imported Components • FDA powers to stop questionable imports is much greater than for identical problem presented by a domestic manufacturer • Reason -- § 801 of the Federal Food, Drug, and Cosmetic Act gives FDA power to block an import if the product “appears” to be adulterated or misbranded • Action can occur without physical examination • Example -- bulk APIs going through the New York District Office in past half year have all been detained pending proof they are not counterfeit, adulterated or misbranded -- without physical examination. FDACounsel.com

39. Specific Problems ... • Imported Components ... • Foreign suppliers are harder to sue • Tryptophan -- Showa Denko allegedly dodged responsibility for medical syndrome due to being off-shore • Sulzer -- foreign parent company allegedly refuses to provide any financial support to its subsidiary (ruptured breast implants) • Unusual events impacting supplies -- FDA will try to work with you; examples • Phillips Petroleum Plant explosion -- sole source for Marlex -- decreased availability of container/closure systems FDACounsel.com

40. Specific Problems ... • Clinical Studies • if you’re the sponsor, need deep “down stream” audit systems and contract controls relative to: • CRO’s • Investigators -- • don’t forget to check the FDA list of disqualified investigators • IRB’s -- a critical focus today of concerns -- can invalidate data -- PROBLEM -- you may not have a contractual relationship -- insist upon one FDACounsel.com

41. Specific Problems ... • API’s (Active Pharmaceutical Ingredients) • many are foreign sourced -- thus less frequently inspected by FDA -- puts audit onus on you • still subject to all FDA rules -- while API makers technically do not have to meet GMP, there is a fairly stringent ICH guidance • make sure contract has API maker notify you of changes to process, etc. that need to be in the DMF and that FDA has been notified FDACounsel.com

42. Specific Problems ... • Labels/Labeling • label errors are prime cause of recalls • your printer must have clear, written procedures on handling of labels, especially if not dedicated to you exclusively • intake controls have to be well-documented, trained and validated • change control procedures -- even for changes not being submitted for FDA approval -- are essential FDACounsel.com

43. 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 FDACounsel.com