International Pharmaceutical Supply Chain Imperiled Like Never Before: A Webinar Summary

June 30, 2016

In recent years, the level of scrutiny of foreign pharmaceutical manufacturing facilities in countries like China and India has skyrocketed—along with the demand for and dependence of Western countries on the supply of goods coming from those facilities.  A recent webinar, International Pharmaceutical Supply Chain Imperiled Like Never Before, presented by lawyers from Dechert and Hyman, Phelps & McNamara, PC, discussed current pharmaceutical supply chain developments and the steps drug manufacturers should be taking to prevent and remediate compliance issues.

Key questions addressed during the webinar include:

How has the FDA's enforcement focus shifted?

Until recently, most FDA enforcement activity (including warning letters, seizures, injunction actions, consent decrees, criminal prosecution, etc.) relating to pharmaceutical manufacturing was aimed at U.S. facilities. However, the FDA's enforcement focus has shifted to foreign facilities, resulting in a significant increase in investigations in China and India.

  • The FDA is staffing up in both China and India, which is a leading indicator that we will see increased enforcement activity in these jurisdictions. While the number of inspections in China and India have held steady, the number of violations they’re finding suggests there is greater scrutiny.
  • Within the last 12 months, 25 Warning Letters were issued with 23 of them being to facilities outside of the U.S.
    • Approximately two thirds of the letters alleged violations of data integrity or deficient systems designed to protect data integrity.
    • Many of the cited facilities were subject to Import Alerts, which barr importation of drugs manufactured at those plants, of Active Pharmaceutical Ingredients (APIs) from those plants, and finished dosage forms of drugs manufactured with those APIs.

What should we know about the CFDI?

The Center for Food and Drug Inspection (CFDI) is the department responsible for inspections at the China Food and Drug Administration (CFDA), China’s FDA equivalent.

  • The CFDI typically conducts an inspection with a team of at least three people. Inspections are often unannounced and can be completed quickly.
  • Retaining an experienced translator is important since the CFDI inspectors usually do not speak English. The inspection results are revealed in a written report only.
  • Should your CFDI inspection go poorly, be prepared for: 
    • Import bans publicized on the CFDA website (in Chinese only).
    • Return of drug registration application.
    • Renewal application denied.

Who needs to be prepared?

  • Pharmaceutical manufacturers with facilities in China, India, or Europe.
  • Pharmaceutical manufacturers that use contract manufacturers in China, India, or Europe. 
    • Nearly 40 percent of drugs sold in the U.S. are manufactured in foreign countries.
  • Pharmaceutical manufacturers or related contract manufacturers that use APIs from overseas facilities. 
    • About 80 percent of APIs used in drugs manufactured in the U.S. come from foreign countries.

What important anti-corruption enforcement trends are we seeing in both the United States and Asia?

Recent enforcement of anti-bribery has been vigorous.

  • United States
    • In recent years, the DOJ has brought more than a hundred cases against corporations and individuals, resulting in $4 billion in penalties. The SEC has brought actions against 85 companies and approximately 35 individuals, with many billions of dollars in fines, disgorgement and prejudgment interest.
    • An increase in cross-border cooperation among enforcement authorities.
    • An increase in holding corporate executives accountable for corrupt behavior.
  • Asia 
    • Emerging markets, such as China and India, rank among the highest in terms of perceived corruption on a jurisdiction basis, leading to a ramp up in anti-corruption efforts.
    • Traditionally China has investigated and taken enforcement action against corrupt officials who receive bribes but, since 2012, when the anti-graft campaign was launched, the focus has also been on companies and individuals who give bribes.
    • The majority of these investigations and enforcement actions have been in areas that affect public safety and the livelihood of Chinese people, most particularly in the life sciences industry.

Continued enforcement against pharmaceutical companies, with a new supply chain focus.

  • The head of the SEC’s FCPA unit recently announced a renewed focus on the pharmaceutical industry.
  • Prior FCPA enforcement actions have targeted pharmaceutical companies that provided cash, trips, entertainment and other things of value to physicians in state-owned health systems in order to induce them to prescribe the companies’ products. 
  • Chinese authorities' investigations and enforcement actions against pharmaceutical companies continue unabated.
  • The supply chain represents the next frontier for FCPA and Chinese enforcement in the pharmaceutical industry, focusing on bribes paid within the pharmaceutical in-country supply chain, including by local manufacturers, to secure advantages that ultimately benefit multinational pharmaceutical companies.

How can we avoid risk and create a culture of compliance?

  • 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 (i.e., gifts, entertainment, hospitality, sponsored travel, and political contributions) that take into account both overseas (FCPA, UK Bribery Action) and local requirements.
  • Know your vendors and supply chain partners well — vet them in advance, and monitor them thereafter — as you will be held accountable for any wrongdoing on their part.

A copy of the webinar presentation is available here. You can access a recording of the webinar here.