International Pharmaceutical Supply Chain Imperiled Like Never Before

February 29, 2016

Over the past few years, the Food and Drug Administration has dramatically increased its inspections of foreign manufacturing facilities for Active Pharmaceutical Ingredients (APIs) and finished dosage form drugs, with potentially cataclysmic consequences for U.S. parent companies, distributors, and manufacturers relying on foreign APIs or contract manufacturing. Additionally, the Justice Department and the Securities and Exchange Commission have brought multiple enforcement actions under the anti-bribery and record-keeping provisions of the Foreign Corrupt Practices Act (FCPA) for inappropriate inducements provided to foreign physicians and others deemed to be “foreign officials” because they are in the business of providing health care.  Sharing information with U.S. agencies and among themselves, anti-corruption authorities in other countries (especially China) have also been flexing their enforcement muscles against pharma companies.

Learning how to protect vital overseas supplies of APIs and pharmaceuticals can prevent or alleviate serious hardship. Dechert LLP and Hyman, Phelps & McNamara P.C., are proud to sponsor a free joint conference on these topics April 5, 2016, from 2:30 to 5:15 p.m., in Dechert’s New York City law offices.  The conference (with cocktails to follow) will feature two panels of experts who will address the current enforcement climate for corrupt practices and for FDA inspections that can block imports of pharmaceuticals to the United States.  Speakers will recommend measures that pharmaceutical companies and their investors can take to avert or alleviate harm.

FDA Inspections outside the United States, and their disastrous consequences 

Many of FDA’s foreign inspections are taking place in China and India, and they have led to the discovery of an increasing number of serious current good manufacturing practice (cGMP) violations, along with a commensurate increase in Warning Letters threatening enforcement action (15 Warning Letters to Chinese and Indian firms in 2015 versus four in 2012). Furthermore, a disturbingly large number of those Warning Letters have raised concerns about the pharmaceutical firms’ “data integrity” (13 Warning Letters to Chinese and Indian firms in 2015 versus two in 2012).

In addition to Warning Letters, adverse regulatory consequences resulting from bad foreign inspections include seizures, injunctions, criminal prosecutions, the refusals to approve New Drug Applications (NDAs) and applications to market generic drugs, and, just as significant, import detentions. Indeed, imports of products, including APIs, can be refused admission into the United States “…if it appears…that such article is adulterated [or] misbranded…” as defined in the Federal Food, Drug, and Cosmetic Act (emphasis supplied).  

These foreign facilities may be just an inspection away from disrupting the supply chain of countless U.S. drug manufacturers. Case in point, on March 2, 2015, FDA investigators walked into Zhejiang Hisun Pharmaceutical Co., Ltd. (Hisun), in China and immediately discovered a number of serious cGMP deficiencies, including data integrity problems.  At one point, according to FDA, the investigators walked into a lab and noticed an employee pull a memory stick from a computer and place it in his pocket.  When they asked what he had taken, the man ran away (see here). The agency issued a warning letter to Hisun, and at least 15 of the firm’s products have been barred from entering the U.S., creating a significant disruption in the pharmaceutical supply chain.  

At the April 5 conference, two experts from the internationally recognized pharmaceutical/medical device law firm Hyman, Phelps & McNamara P.C., Douglas B. Farquhar and Mark I. Schwartz, will discuss what can be done to prevent adverse FDA inspectional findings at foreign plants, and how to cope with the bad inspection when it happens.

We will be joined at the seminar by Lewis Ho of Dechert LLP, who will discuss the impact of the enforcement effort on companies in China, and Carmen M. Shepard, Senior Vice President of Global Policy and Regulatory Counsel at Mylan Inc., who will provide industry perspective on these issues. Ms. Shepard will also be interested in hearing from other industry attendees to develop an action plan urging FDA to streamline the process for lifting Official Action Indicated status from plants with poor inspections, and for closing out Warning Letters.

Threats posed by bribery and corruption

For many years, pharmaceutical companies with overseas activities have faced compliance challenges in multiple jurisdictions. The Justice Department and the SEC have brought multiple enforcement actions under the FCPA.  Anti-corruption authorities in other countries also have been active.  Most prominently, Chinese authorities have been actively investigating and taking enforcement actions against pharma companies, and their local business partners and agents, for such conduct.  These enforcement actions and the increasing cooperation and information-sharing among government authorities globally are subjecting global pharma companies to the threat of simultaneous enforcement actions in multiple jurisdictions.  Pharma companies as a consequence are redoubling their efforts to preach and practice ethical compliance worldwide.

But compliance problems need not be limited to one’s own activities. Increasingly, pharma companies with global operations face potential liability for the corrupt behaviors of their third-party partners, including joint ventures, representatives and agents, and contract manufacturers.

And, in the wake of significant negative publicity about the ramp-up of inspections of non-U.S. pharmaceutical facilities by U.S. and local regulatory agencies, pressure may build to “make problems go away” via inappropriate payments. This threat may be acute in countries where both the local regulator and the regulated firm simply expect issues to be resolved in this manner.

Corrupt acts of this sort by local partners could cause global pharma companies significant reputational harm as well as supply chain disruption.    

Two experts on foreign corruption and compliance from Dechert, Jeremy Zucker (Washington, DC) and Kareena Teh (Hong Kong), will discuss these anti-corruption compliance issues from U.S. and Asian perspectives and share “war stories” from recent investigations.

Please click on this link to register to attend the event.


DOUGLAS B. FARQUHAR, Director at Hyman, Phelps & McNamara P.C., has more than 30 years of experience as a prosecutor and defense and regulatory attorney. Since joining the firm in 1997, he has advised pharmaceutical and medical device manufacturers and wholesalers, compounding pharmacies, and individuals on a wide range of enforcement activities, including consent decrees, criminal investigations, debarment issues, arbitration proceedings, civil seizures, FDA inspectional issues, and injunctions.

LEWIS HO, a Dechert partner in its Hong Kong office, leads the life sciences practice in Asia. He helps life sciences and technology companies and their financial sponsors to capture, manage, risk assess, evaluate and monetize their intellectual property assets.  He has extensive experience advising on both inbound and outbound technology transfer transactions, and has negotiated more than 60 collaboration, outsourcing, joint venture and licensing deals with various life sciences companies, academic institutes, hospitals and contract research organizations.  He also assists Chinese companies acquiring IP assets and manufacturing facilities overseas.

MARK I. SCHWARTZ, Of Counsel at Hyman, Phelps & McNamara P.C., advises clients on biologic, drug, and device compliance, as well as on regulatory issues. He joined the firm after spending close to 13 years at the Food and Drug Administration in various capacities. Most recently, Mr. Schwartz was CBER’s Deputy Director in the Office of Compliance and Biologics Quality, an office with approximately 140 staff members.

CARMEN M. SHEPARD, is the Senior Vice President, Global Policy and Regulatory Counsel at Mylan.  She is an expert in the area of generic drug approvals, both for finished dosage form drugs and APIs. Ms. Shepard is responsible for handling legal regulatory issues arising from the company’s generic drug business in over 140 countries. She is also responsible for the company’s policy efforts globally.

KAREENA TEH, a Dechert partner based in its Hong Kong office, advises multinational, PRC, and Hong Kong clients on governance, regulatory and compliance matters, as well as general corporate and commercial litigation matters. Ms. Teh’s experience in these areas includes representing multinational companies and individuals in cross-border fraud, corruption, money laundering and market misconduct investigations.

JEREMY ZUCKER, a Dechert partner based in its Washington, D.C. offices, is co-chair of the firm’s International Trade and Government Regulation practice. He advises clients on international trade regulatory compliance matters, including in relation to the FCPA, the Export Administration Regulations, the International Traffic in Arms Regulations, economic sanctions programs administered by the Office of Foreign Assets Control and the anti-money laundering provisions of the USA Patriot Act.  Mr. Zucker assists clients in all phases of their compliance and risk mitigation programs, including evaluating existing programs, developing and drafting new policies and procedures and providing training, as well as conducting risk assessments, compliance audits and complex internal investigations.

Categories: Enforcement |  Miscellaneous