Medical device and pharma companies must go on the compliance offensive

September 28, 2016 Stephen Mulrenan

Medical device and pharmaceutical companies are under regulatory scrutiny like never before. Within the last five years, medical device manufacturers have been issued with 785 warning letters by the United States Food and Drug Administration (FDA). Approximately one-third of letters that referenced ‘quality’ issues were the result of inspections of foreign facilities.

Pharmaceutical manufacturers, meanwhile, have received 25 warning letters from the FDA within the last 12 months of which 23 were to facilities outside of the United States. Many of these facilities were subject to ‘import alerts’, which can result in the FDA refusing to permit the importation of drugs manufactured at those plants.

Warning letters are just one of the weapons in the FDA’s arsenal of enforcement activity – consent decrees, criminal prosecutions, injunction actions and seizures are some of the others. Until recently, such activity was primarily aimed at facilities in the United States, but not anymore.

The FDA is in the process of boosting its on-the-ground resources in China and India, tripling the number of American staff in the former and adding 10 in the latter. This should be viewed as an indication that there will likely be increased enforcement activity in these jurisdictions, says Hong Kong based Dechert partner and Asia life sciences head Lewis Ho. “While the number of inspections in China and India have held steady,” he says, “the number of violations they’re finding suggests there is greater scrutiny.”

For the medical device industry, increased enforcement aimed at the safety and effectiveness of medical device production will also likely extend to Europe, where European Union regulations dating back to 1993 – and last updated in 1997 – have recently been revised.

While previously being able to self-evaluate and obtain certifications from certified private agencies, which allowed for the placing of their product on the EU single market, medical device manufacturers will soon be subject to the following changes:

  • Pre-approval – including stronger pre-market scrutiny and clinical data requirements for medical device manufacturers. Regulators will also have a right to carry out on-site audits and conduct physical or lab tests on devices to ensure continuous compliance after receipt of the original certification.
  • Post-approval – including a maximum validity of five years for certificates, greater emphasis on device traceability, risk management plans and post-marketing surveillance, and coordination between member states.

Washington DC based Hyman Phelps & McNamara partner Douglas B Farquhar says: “Medical device manufacturers will also be required to have liability insurance coverage of authorised representatives in case of defective products.”

The proposed new European Medical Device Regulations will have a major impact on a market that is highly significant – there are more than 500,000 types of medical devices in the EU, a market with an annual turnover of €1.1 billion (US$1.23 billion). The new rules are expected to be adopted in the first quarter of 2017 and applied within a three to five year period.

Nearly 40 percent of drugs sold in the United States are manufactured in foreign countries. Washington DC based Jeremy B Zucker, co-chair of international trade and government regulation at Dechert, says that medical device and pharmaceutical companies with facilities in, or who use contract manufacturers in, China, India or Europe, need to go on the compliance offensive.

“There is renewed focus on the pharmaceutical industry,” he says, “as publically announced by the head of the FCPA unit at the SEC.”

Dechert’s recent experience in the life sciences sector includes advising CVS Health on its US$1.9 billion acquisition of Target’s pharmacy business, and representing Celgene Corporation on strategic collaborations with Nurix and AstraZeneca-subsidiary MedImmune as well as on its acquisition of biotech company Quanticel Pharmaceuticals.

Ho, Farquhar and Zucker recently participated in a webinar that discussed the prospects for the supply chains of medical device and pharmaceutical companies. Speakers outlined the following tips on how best to avoid risk and create a culture of compliance at such organisations:

  • Conduct internal audits with a focus on electronic data recording systems
  • Encourage unannounced quality assurance visits to ensure that workers are making contemporaneous entries
  • Perform mock inspections
  • Do not rely on inspection results from foreign regulators or customers
  • Demonstrate top-down senior management support for compliance
  • Develop clearly written compliance policies and procedures for high risk areas – such as gifts, entertainment, hospitality, sponsored travel, and political contributions – that take into account both overseas (US FCPA, UK Bribery Act) and local requirements
  • Know your vendors and supply chain partners well, as you will be held accountable for any wrongdoings on their part
  • Third parties present heightened compliance risk: get to know them well prior to signing any agreements (pre-retention diligence) and then make sure to stay close (post-retention monitoring).
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