FTC and Brain-Pad Settlement Provides New Substantiation Standard and Highlights Issues with Enforcement of Consent Decrees on Non-Parties

On August 16, 2012, the Federal Trade Commission (“FTC“) announced a proposed settlement with the mouthguard marketer Brain-Pad, Inc. (“BPI”).  According to the FTC Administrative Complaint, BPI violated Sections 5(a) and 12 of the Federal Trade Commission Act (“FTC Act“) by making deceptive advertising claims that its mouthguards are clinically proven to reduce the risk of concussions from lower jaw impacts. However, a careful analysis of the Consent Decree reveals yet another definition for the FTCs substantiation requirement for health claims and illustrates the FTCs attempt to exceed the scope of the consent decree and bind non-parties.

Substantiation Requirement

The BPI Consent Decree states that BPI must possess “competent and reliable scientific evidence” to substantiate claims that BPIs products will reduce the risk of concussions. “Competent and reliable scientific evidence” is defined as “tests, analysis, research, or studies that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.”

The definition contained in the BPI Consent Decree marks another attempt by the FTC to employ and enforce a heightened level of substantiation for health related claims through consent decrees. As we have previously reported (here, here, here, and here), the FTC has sought to enforce the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” or “one [a]dequate and well-controlled human clinical study” in litigation with companies such as Garden of Life, The Dannon Company, Nestle HealthCare, Iovate Health Sciences, POM Wonderful, and Medifast, Inc.

The varying definitions of “competent and scientific evidence” may be due to the recent trend of courts disagreeing with the FTCs attempts to redefine and enforce a heightened level of substantiation requiring two adequate and well-controlled human clinical studies for health related claims.  As we previously reported, the Garden of Life decision is one example. In FTC v. Garden of Life, the FTC sought to modify a previous consent decree by changing the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for disease claims. In rejecting the FTCs position, the Court stated that competent and reliable evidence does not mean “uncontroverted proof.”

Enforcement of Consent Decrees on Non-Parties

At the bottom of its press release, the FTC stated that “[w]hen the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.” However, in reality, FTC consent decrees have the force and effect of law solely with respect to the future actions by the party, or parties, and products subject to the decree. Porter & Dietsch, Inc. v. FTC, 605 F.2d 294 (7th Cir. 1979). For enforcement purposes, FTC consent decrees must be construed as contracts. US v. ITT Cont’l Baking Co., 420 U.S. 223, 237 (1975). Therefore, the scope of consent decrees must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to the decree. Id at 245.

In this case, the parties subject to the decree are (1) BPI, “its successors and assigns and their officers, and each of the aboves [sic] agents, representative and employees” and (2) “Joseph Manzo [the President of BPI] and his agents, representatives and employees.” The covered product refers to “any (1) mouthguard or (2) equipment used in athletic activities that is intended in whole or in part, to protect the brain from injury.”   Thus, the FTC consent decree carries the force and effect of law solely with respect to future actions of those specific parties and products.

Our previous report regarding the Garden of Life decision highlights one example of the FTCs attempt to broaden the scope of enforcement through the use of consent decrees.  In Garden of Life, the Court noted that “consent decrees generally do not have overarching purposes” such as consumer protection, and the actually negotiated purpose of consent decrees is usually far more limited. Furthermore, the Court stated that “decree[s] cannot be interpreted as requiring whatever might be necessary and appropriate to achieve [consumer protection.]” Order at 8 (citing Sierra Club v. Meiberg, 296 F.3d 1021, 1031-1032 (11th Cir. 2002)).

For more information on FTC regulations and substantiation requirements, or on how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.

The Regulation of Compounding Pharmacies Under Scrutiny Once Again

The recent nationwide outbreak of fungal meningitis has pushed compounding pharmacies back into the public spotlight. The cases of fungal meningitis have been traced to contaminated injections produced by a compounding pharmacy in Framingham, Massachusetts. This outbreak has been linked to 15 deaths and 230 confirmed cases of fungal meningitis in 15 states. (For the most up-to-date information on the number of confirmed fungal meningitis cases in the United States, please visit the website for the Centers for Disease Control and Prevention here.) Over the past month, the number of confirmed cases has steadily risen, prompting calls by the public for better oversight and tighter regulation of compounding pharmacies.

Compounding pharmacies have historically been an important part of the pharmaceutical landscape. Unlike their mass-market manufacturing counterparts, compounding pharmacies typically prepare small batches of medications to meet a prescribing doctor’s requirements for dosages or combinations of ingredients that would otherwise be unavailable from commercial manufacturers. In particular, compounding pharmacies have been critical in filling prescriptions for patients who need solutions, creams and other medicines customized to, for example, alter dosage forms or remove ingredients that cause allergies. Due to drug shortages over the past few decades, the market for compounding pharmacies has substantially expanded. Today, over half of the nation’s pharmacies engage in some form of drug compounding and account for roughly one to three percent of the overall $300 billion U.S. prescription market. (For more statistics about drug compounding, please visit the International Academy of Compounding Pharmacists here.)

News of the deadly meningitis outbreak has led many to question what the difference is between a compounding pharmacy and a drug manufacturer. Generally, the operations of compounding pharmacies are regulated by State Boards of Pharmacy, whereas drug manufacturers are regulated by the U.S. Food and Drug Administration (FDA). Consequently, drugs produced by compounding pharmacies are not subject to premarket review by the FDA or any other regulatory body, unless state laws so require. The activities of the compounding pharmacy in this case, which appear to have involved the manufacture and shipping of drug products across the country, appear to be much more akin to traditional notions of drug manufacturing than compounding. Unfortunately, at least at the federal level, there are no statutes or regulations in place to help us understand where, exactly, compounding ends and manufacturing begins.

In an effort to provide some guidance on the regulation of compound pharmacies, the FDA issued a compliance policy guide (CPG) in 1992 that outlined the FDA’s enforcement policy on pharmacy compounding. This CPG remained in effect until the enactment of the Food and Drug Administration Modernization Act (FDAMA) in 1997. (For the full text of FDAMA, please click here.) FDAMA amended the federal Food, Drug, and Cosmetic Act (FDCA) by adding section 503A, which stated that drug products compounded by a pharmacist were entitled to exemptions from three provisions of the FDCA:

  1. The adulteration provision of section 501(a)(2)(B) (concerning the good manufacturing practice requirements);
  2. The misbranding provision of section 502(f)91) (concerning the labeling of drugs with adequate directions for use); and
  3. The new drug provision of section 5005 (concerning the approval of drugs under new drug or abbreviated new drug applications).

FDAMA went into effect in November of 1998; however, several provisions of section 503A were challenged as a violation of commercial speech. In 2001, in Western States Medical Center v. Shalala, the Ninth Circuit Court of Appeals declared section 503A invalid in its entirety for violating commercial speech, a decision that was affirmed by the Supreme Court in 2002. However, the Supreme Court did not address the Ninth Circuit’s holding that the commercial speech provisions could not be severed from the rest of section 503A. As a result, in at least the Ninth Circuit, all of section 503A is invalid. Since 2002, no other federal laws have been enacted to replace the regulatory void left by the invalidation of section 503A.

Following the Supreme Court’s decision in Western States Medical Center, the FDA released a compliance policy guide that explains how the FDA will determine whether a pharmacy’s operations constitute compounding or cross the line into drug manufacturing. This CPG has been the primary basis upon which the FDA has relied in making its decisions regarding whether or not to take federal enforcement action against compound pharmacies. According to the CPG, the “FDA will continue to defer to state authorities regarding less significant violations of the [FDCA] related to pharmacy compounding of human drugs.” Nevertheless, the FDA will take into account several factors when determining whether “the scope and nature of a pharmacy’s activities raise the kinds of concerns normally associated with a drug manufacturer.” For example, the FDA will consider whether the pharmacy compounds drugs in anticipation of receiving prescriptions, compounds drugs from active ingredients that are not components of FDA-approved drugs, or uses commercial-scale manufacturing or testing equipment to compound drugs. (For the full text of the FDA’s CPG, please click here.)

In spite of the FDA’s 2002 CPG, serious questions about the ambiguous compounding pharmacy “regulations” have continued to arise, and the FDA and individual states have received criticism for their lack of oversight. In a briefing on October 11, 2012, Deborah Autor, a deputy commissioner at the FDA, stated that “[t]he world has changed a lot since the days of the mortar and pestle, and this is the time for pharmacists, for lawmakers, for regulators, for doctors, to sit down and grapple with this new model and come up with a regulatory scheme that appropriately controls the risk.” (See National Public Radio’s article, “Meningitis Outbreak Puts Doctors, Regulators In New Territory“.) The trail of incidences of infection and death resulting from the poor oversight of compound pharmacies is “not a trend that’s popped up overnight.” In fact, questions about the regulation of compound pharmacies span back as far as the 1990s.

For example, in September 2005, three patients died and several others were sickened in Virginia after being given contaminated medications made at a compounding pharmacy in Maryland. In March 2007, two patients in Washington and Oregon died after receiving doses of intravenous pain medication that were measured improperly by a compounding pharmacy in Texas. In 2009, Frank’s laboratory, a compounding pharmacy in Florida, mistakenly produced contaminated drugs that killed over two dozen polo ponies and, in another incident, provided solutions that damaged the vision of 33 eye surgery patients. In March 2011, nine patients died after receiving contaminated nutritional supplements prepared by a compounding pharmacy in Alabama. Most recently, FDA officials raided the Framingham, Massachusetts pharmacy linked to the widespread fungal meningitis outbreak to investigate whether the sterility of its products had been compromised. (For more examples, you can read USA TODAY’s article here, and the Washington Post’s article here related to the regulation of compounding pharmacies.)

In many of these cases, the FDA has issued a recall of medications and conducted investigations that revealed practices which violated the FDCA. Pursuant to its enforcement authority, and in consideration of the factors outlined in the CPG, the FDA has issued over 40 Warning Letters to compounding pharmacies, over half of which were issued in the last three to four years. These Warning Letters have cited pharmacies for producing banned compounds, distributing drugs that were adulterated or contaminated, and selling medication in improper dosages or without accurate labels.

It is important to emphasize that health issues associated with compounding pharmacies are in no way new. The FDA, lawmakers, courts and industry have been well-aware of these issues for nearly two decades. As a result of the recent meningitis outbreak, however, calls for regulation in this area seem to have gained renewed political traction. In particular, Senator Edward Markey has called on Congress, demanding that the Legislature address the gaps in the piecemeal regulatory system and reconcile varying standards and requirements in state regulations. (For more information about Senator Markey’s push to fix the regulation of compounding pharmacies, see the Boston Globe’s article here.) At this point, it is uncertain how far the Senator’s initiative will go, given that previous attempts to introduce new legislation in this area have largely failed.

In sum, health scares like the meningitis outbreak will continue to provide reminders of the remaining inefficiencies and problems with the current regulatory and enforcement scheme. It is difficult to discern whether the fundamental problem is a complex systematic failure to regulate or monitor the compound pharmacy industry, or whether these adverse incidences are merely representative of the small minority of noncompliant pharmacies whose violative practices have caught national media attention. Even though the public continues to put pressure on lawmakers to take a closer look at the regulatory structure on both a federal and state level, it remains unclear how”or even if”Congress will respond.

Fuerst Ittleman David & Joseph, PL will continue to monitor any developments in the regulation of compounding pharmacies. For more information, please feel free to email our offices at contact@fidjlaw.com or by phone at (305) 350-5690.

U.S. Indicts Multiple Companies and 165 Parties Added to the BIS Entity List for Alleged Involvement in Russian Military Procurement Network

On October 3, 2012, two companies and 11 individuals of an alleged Russian military procurement network operating in the United States and Russia were indicted in the U.S. District Court for the Eastern District of New York. The individuals, who work for a Texas-based export company and Russia-based procurement firm, are alleged to have illegally exported high-tech microelectronics to Russian military intelligence agencies. These high-tech microelectronics are subject to U.S. Department of Commerce dual-use export controls due to their potential use in an array of military systems such as radar and surveillance systems, detonation triggers, and weapons guidance systems.

In a coordinated effort, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) also issued an amendment (found here) to the Export Administration Regulations (“EAR”) to add 165 foreign persons and companies to the Entity List which identifies specific licensing requirements independent of those required under the EAR. These 165 foreign persons and individuals were alleged to have received, transshipped or facilitated the export of microelectronics to Russia and have “been determined by the U.S. government to be acting contrary to the national security or foreign policy interests of the United States.”

The indictment alleges that since October 2008, Alexander Fishenko, the president of the Russia-based procurement firm Apex Systems, LLC (“Apex”), and the Texas-based export company, Arc Electronics, Inc. (“Arc”), along with ten other defendants engaged in a “surreptitious and systematic conspiracy to obtain advanced microelectronics from the U.S. and to export those high-tech goods to Russia, while carefully evading the government licensing system set up to control such exports.”

According to the indictment, Apex functioned as a certified supplier of military equipment for the Russian government. The defendants often provided false end user information in connection with the purchase of goods, concealed their status as exporters, and falsely classified goods as having civilian end uses so as to induce manufacturers and suppliers to sell them the highly sought after microelectronics. Arcs website, for example, falsely claimed to be a traffic light manufacturer when it manufactured no goods and operated exclusively as an exporter. In another instance it is alleged that one of the defendants instructed the Russian procurement company to “make sure that” the end-use certificate indicated “fishing boats, and not fishing/anti-submarine ones” before they start working.

Each individual defendant in the case faces a maximum of 5 years incarceration for the conspiracy charges, 20 years for substantive International Emergency Economic Powers Enhancement Act (“IEEPA”) and Arms Export Control Act (“AECA”) charges, and an additional 20 years for obstruction of justice changes. In addition Fishenko faces a possible additional sentence of 20 years for money-laundering conspiracy charges and an additional 10 years for acting as an unregistered agent of the Russian government. Both Arc and Apex face up to $500,000 in fines for conspiracy counts and $1,000,000 in fines for the substantive IEEPA and AECA counts.

The involvement of Arc, Apex, Fishenko, and the 10 remaining individuals in the alleged Russian military procurement scheme offers proof of suspect activity that has the potential to result in significant incarceration and monetary penalties for these parties. But what about the additional 160+ individuals and companies “ which include suppliers, re-exporters, and transhippers “ which, to their detriment, may have relied on Fishenkos alleged fraud, misclassification of goods, and claims that his exports were for civilian end uses? They now find themselves on the EAR Entity List on the basis of Section 744.11 for acting contrary to the national security or foreign policy interests of the United States. And as such, these individuals and businesses find themselves subject to additional BIS license requirements and limited ability to apply license exceptions for exports and re-exports.

While at this stage there is no way to prove for certain the level of knowledge or active involvement of these 160+ individuals and businesses, we can expect that at least some of them were not fully aware of the nature of Fishenkos business operation and intended Russian military end uses of its high-tech exports.

Exporters, re-exporters, transshippers, and all parties involved in export-related transactions must implement effective export compliance procedures to help insulate themselves from situations such as this, situations in which they can be accountable for their passive involvement in illegal export activities. An effective compliance program and inquiry into products intended end uses prior and throughout the shipment process can provide crucial insight into the legitimacy of an exporters operation.

Furthermore, as set forth in Supplement 1 and 2 of Part 766 of the EAR, an effective compliance program is entitled a high level of consideration with respect to mitigation of actual and suspected violations of the EAR. Exporters, re-exporters, and transhippers are encouraged to complete their due diligence with respect to all of their shipments by implementing proper export controls. While even the most effective export compliance plan may not identify business activity that is a result of fraud or conspiracy (such as in the alleged Russian military procurement network mentioned above), the presence of an established export compliance program may provide BIS sufficient proof of passively involved shipping companies attempts to comply with U.S. export control law. This proof may be just enough to keep unsuspecting businesses off of the Entity List and/or mitigate EAR violation penalties issued by BIS.

Below we have provided some of the guidelines that BIS takes into account when assessing the effectiveness of a companies export compliance program:

  • Whether the company has performed a meaningful risk analysis of the goods being exported and their intended end use
  • The existence of a written compliance program that is communicated to others
  • Whether senior management oversees export compliance program
  • Whether the company screens customer transactions
  • An existence of an internal system for reporting export violations
  • Whether corrective action has been taken in response to export violations

The Customs and Trade Practice at Fuerst Ittleman David & Joseph, PL, has extensive experience in drafting customized export compliance manuals for a wide variety of business types and industry applications. If you want to strengthen your businesss export compliance procedures please feel free to email our offices at contact@fidjlaw.com or phone 305-350-56909.

Update: Third Party Payment Processor Sentenced to Jail Time for Processing Internet Poker Company Funds

On October 3, 2012, Judge Lewis A Kaplan of the United States District Court for the Southern District of New York sentenced Chad Elie to five months in prison for his role in facilitating the processing of payments for three online poker companies. A copy of the Department of Justices press release announcing the sentencing can be read here.

As we previously reported, the poker companies, Fill Tile Poker, Absolute Poker, and PokerStars, were shut down by the FBI on April 15, 2011 as part of an investigation and eventual indictment of 11 people for various gambling related charges including violations of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) 31 U.S.C. §§ 5361-5366, bank fraud  18 U.S.C. § 1344, wire fraud 18 U.S.C. § 1343, and money laundering 18 U.S.C. § 1956. A copy of the indictment can be read here.

As a result of the indictment, PokerStars and Fill Tilt reached a $731 million settlement with the federal government. Additionally, several top executives have pleaded guilty for their roles in the alleged UIGEA, bank fraud, and money laundering conspiracy. More information on these guilty pleas and the PokerStars settlement can be read in our prior reports here, here, and here.

According to authorities, the companies used third party payment processors to disguise financial transactions between the companies and U.S. players so that the transactions would appear to be unrelated to online gambling. The third party payment processors would then lie to U.S. financial institutions about the source of the funds processed, often times facilitated by the creation of nonexistence online companies and phony websites.

Authorities alleged that between 2008 and 2011, Elie served as a payment processor for each online poker company. Authorities further allegedly that in order to conceal the sources of the funds he was processing, Elie falsely represented to U.S. banks that he was processing “payday loans” and payments for online club memberships. As a result of these allegations, Elie pleaded guilty to participating in a conspiracy to commit bank fraud and to operating illegal gambling businesses.

In sentencing Elie to five months in prison, rather than the federal Probation Departments recommended sentence of probation, six months home confinement, and community service, Judge Kaplan found that the evidence against Elie indicated that he continued to process payments for the poker companies despite his knowledge of the federal investigation and arrests of other payment processors and company executives. In addition to prison, Elie was ordered to two years of home confinement and was ordered to forfeit $500,000 to the United States. Elies sentencing highlights the potential consequences and criminal penalties payment processors can face when processing ill-gotten assets on behalf of others.

If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about FIDJs experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com

Physicians and Pharmacies Must Be Aware of the Dangers and Potential Penalties Associated with Importing Prescription Drugs

Introduction

As the price of healthcare continues to increase, healthcare practitioners have become more innovative and creative in their attempts to keep costs affordable for their patients. One technique which has increased in its popularity is doctors purchasing prescription drugs from foreign sources, particularly online pharmacies. However, while such techniques may provide for less expensive medical care, the importation of drugs from foreign sources can expose healthcare practitioners to a variety of criminal and civil penalties, and according to the FDA, can seriously endanger patients.

The risks associated with imported prescription drugs

For years, FDA has warned businesses and individuals about the risks associated with buying prescription drugs from foreign sources, specifically Canada. Recently, on September 28, 2012, the FDA issued a news release launching a national campaign called BeSafeRx that is designed to raise public awareness about the dangers of ordering prescription drugs from foreign unapproved sources. According to the FDA, the National Association of Boards of Pharmacy has found that less than three percent (3%) of online pharmacies meet the licensing requirements under federal law. A copy of the BeSafeRx announcement can be read here.

The FDA has taken the position that the dangers consumers face when purchasing foreign prescription drugs include consumption of expired, subpotent, contaminated or counterfeit drugs. Further, because foreign drugs may be manufactured for sale in non-English speaking countries, consumers may receive drugs without adequate directions for use. See South Florida Access to Affordable Prescription Drugs: Costs and Benefits of Alternative Solutions, Hearing before Subcomm. on Oversight and Investigations of H. Comm. on Energy and Commerce, 108th Cong. (2003).  Additionally, as many of these foreign drugs are produced in non-FDA approved facilities, the FDA cannot assure that they were manufactured in compliance with current good manufacturing practice (cGMP) standards. See generally, 21 U.S.C. § 360; 21 C.F.R. part 207.  Thus, per the FDA, consumers are exposed to numerous risks when purchasing drugs from internet pharmacies that dispense foreign drugs.

An example of the dangers consumers and healthcare practitioners face when importing foreign drugs played out earlier this year. In February, the FDA issued Warning Letters to numerous healthcare professionals that may have purchased counterfeit copies of the cancer drug Avastin from Canadian internet pharmaceutical distributors. According to reports, the fake Avastin, which was manufactured in unapproved facilities in Europe then distributed into the United States through Canadian internet pharmacy CanadaDrugs.com, contained no active cancer fighting ingredients. As a result of these events, healthcare practitioners who imported the counterfeit products may face criminal and civil penalties for having participated in adulteration and misbranding violations. See 21 U.S.C. § 351, 21 U.S.C. § 352.

More recently, on September 21, 2012, the FDA issued Warning Letters to over 4,100 identified websites that sell drugs or medical devices to American consumers. The Warning Letter, which was addressed to Canadadrugs, explained that these online pharmacy websites “offer unapproved and misbranded new drugs for sale” and requested each website to “immediately cease marketing violative drug products to United States consumers.” (To read the FDAs Warning Letter, click here.) Furthermore, the FDA sent notices to Registries, Internet Service Providers (ISPs), and domain Name Registrars (NDRs) informing them of the websites allegedly violative practices.

Additionally, on October 4, 2012, the FDA announced the details of Operation Pangea V, a global effort to combat the online sale and distribution of potentially counterfeit and illegal medical products. For the full text of the FDAs press release, please click here. In executing Operation Pangea V, the FDA collaborated with INTERPOL, the World Customs Organization, Permanent Forum of International Pharmaceutical Crime, Heads of Medicines Agencies Working Group of Enforcement Officers, the Medicines and Healthcare products Regulatory Agency of the United Kingdom, the Irish Medicines Board, the London Metropolitan Police, the U.S. Department of Homeland Security, the Center for Safe Internet Pharmacies, and the national health and law enforcement agencies from 100 other participating countries. The cooperative investigations conducted by these law enforcement, customs, and regulatory authorities resulted in civil and criminal charges, seizure of illegal produces, and removal of websites. For more information regarding Operation Pangea V, please see our previous report here.

The following discussion contains an outline of the penalties practitioners may face when importing foreign pharmaceutical drugs. This outline, however, is not exhaustive, as different penalties may be applicable to different importation activities under different circumstances.

1. Criminal Penalties under the FDCA

Under the FDCA, it is unlawful to import unapproved, misbranded, and adulterated drugs into the United States. This includes the importation of foreign versions of U.S. approved pharmaceuticals as well as those drugs that are manufactured in the United States, exported to other countries, and then subsequently reimported.

Two of the more typical FDCA violations which healthcare practitioners may face as a result of importing misbranded drugs are: 1) introduction or delivery for introduction into interstate commerce of any drug that is adulterated or misbranded; and 2) the receipt in interstate commerce of any drug that is adulterated or misbranded, and the delivery or proffered delivery thereof for pay or otherwise. See 21 U.S.C. § 331 (a), (c). The penalties and punishments associated with these crimes are governed by 21 U.S.C. § 333 and depend on whether the government charges the defendant with committing a violation “with the intent to defraud or mislead.”

Pursuant to 21 U.S.C. § 333(a)(1), a first misbranding violation is a strict liability offense and is a misdemeanor. Thus, no criminal intent need be established by the Government in order to sustain a conviction. However, 21 U.S.C. § 333(c) provides several good-faith exceptions, of which, if the healthcare practitioner qualifies, would absolve them from liability.

The maximum sentence provided by statute for a violation of 21 U.S.C. 331(a) or (c) is 1-year imprisonment, a supervised release of one year; and a maximum fine not in excess of $100,000. 21 U.S.C. § 333(a)(1); 18 U.S.C. § 3571. In addition, section 2N2.1 is the Sentencing Guideline applicable to misdemeanor violations of biological products, devices, cosmetics, and usually used in FDA prosecutions of statutes and regulations relating to foods, drugs, agricultural products.

However, if a healthcare practitioner is charged with violating either 331(a) or (c) with the intent to defraud or mislead, enhanced penalties do exist and such cases are prosecuted as felonies. The penalties associated with a violation of 21 U.S.C. § 333(a)(2) are a term of imprisonment of not more than 3 years and a fine of not more than $250,000. See 21 U.S.C. § 333(a)(2); 18 U.S.C. § 3571.

A violation of 21 U.S.C. § 333(a)(2) is a specific intent crime, see United States v. Mitcheltree. The specific intent requirement in § 333(a)(2) requires:

  1. Proof of misbranding; and
  2. Proof of intent to mislead or defraud “which is connected to the misbranding violation.”

Id. In other words, because “knowledge of the essential nature of the alleged fraud is a component of the intent to defraud, a defendant cannot act with an intent to mislead or defraud under § 333(a)(2) without some knowledge of the misbranding.” Id. (citing United States v. Hiland, 909 F.2d 1114, 1128 (8th Cir. 1990)).

As previously explained, “felony criminal responsibility requires a knowing violation with the specific intent to defraud or mislead.” Mitcheltree, 940 F.2d at 1350. A violation of 333(a)(2) “may be proved with facts indicating knowledge of the misbranding activity and a concomitant intent to defraud or mislead the FDA or its state counterpart.” Id.; see also United States v. Patwardhan,422 Fed. Appx. 614 (9th Cir. 2011); United States v. Bradshaw, 840 F.2d 871 (11th Cir. 1988) (sustaining a conviction under 333(a)(2) where defendant: 1) knowingly sold steroids without a prescription for unapproved use; 2)mislabeled the steroids as vitamins to avoid detection; and 3) made affirmative misrepresentations and omissions to state drug authorities while attempting to obtain a drug wholesalers permit.).

Additionally, while “the cases construing § 333(a)(2) have ordinarily been based on a sellers intent to defraud or mislead purchasers,” a prosecution under 333(a)(2) may be “based upon an intent to mislead or defraud not only natural persons, but also government agencies if there is evidence that a defendant consciously sought to mislead drug regulatory authorities such as the FDA or a similar governmental agency.” Mitcheltree, 940 F.2d at 1347, 1348 (10th Cir. 1991). As described by the Court in Mitcheltree, “if the government proceeds on this theory, there must be a demonstrated link between the § 331 violation and an intent to mislead or defraud an identifiable regulatory agency involved in consumer protection. Id. at 1349 (emphasis in original); see also United States v. Cattle King Packing Co., 793 F.2d 232 (10th Cir. 1986) (finding that the specific intent requirement of the statute could be satisfied by a showing that defendant intended to mislead or defraud the government agency charged with federal meat inspection); Bradshaw, 840 F.2d 871 (11th Cir. 1988) (finding defendant could satisfy the specific intent requirement of the statute by showing that defendant intended to mislead or defraud state agency in charge permitting and licensing). Additionally, “similar governmental agency” is interpreted to include agencies of foreign governments. See United States v. Industrial Laboratories, 456 F.2d 908 (10th Cir. 1972) (finding that the specific intent requirement of the statute could be satisfied by a showing that defendants intended to mislead or defraud Canadian authorities).

2. Additional criminal and civil liabilities

In addition to violations of the FDCA, practitioners who import foreign pharmaceuticals can face a variety of other criminal penalties. For example, according to the Centers for Medicare and Medicaid Services fact sheet, Medicare will not pay for health care or supplies obtained outside the U.S., which includes prescription drugs imported from Canada. 42 U.S.C. § 1395y. As such, doctors could face criminal and civil liability for knowingly importing drugs in violation of the FDCA and submitting a claim to Medicare for the illegally imported drugs.

Such charges may include:

  • Health care fraud for defrauding or obtaining money from a health care benefit program. 18 U.S.C. § 1347. Notably, the doctor does not need to have actual knowledge or specific intent to violate this section. Violations of the health care fraud statute are punishable by fines or imprisonment of no more than 10 years, or both.
  • False claims for knowingly presenting a false claim for payment or approval to the government. 31 U.S.C. § 3729. Violations for false claims are punishable by civil penalty of not less than $5,000 and not more than $10,000.Further, healthcare practitioners could be subject to various fraud charges related to importing drugs from overseas. Such charges may include:
  • Mail and wire fraud for the use of mails or wire communications in furtherance of a scheme to defraud. See 18 U.S.C. § 1341; 18 U.S.C. § 1343.  Violations of the mail and wire fraud statutes are punishable by imprisonment of no more than 20 years, or fines, or both.
  • Bank fraud for obtaining money held by a financial institution through false representations pursuant to 18 U.S.C. § 1344. Violations of the bank fraud statute are punishable by no more than $1,000,000 or imprisonment of no more than 30 years, or both. Section 2B1.1 is the Federal Sentencing Guideline applicable to fraud perpetrated by individuals. Under this guideline, although the “victims loss is usually used as the proxy for the severity of thr crime, the offenders gain, i.e. the proceeds from the illicit activity, can provide an adequate, alternative method of gauging the crimes just penalty when the loss is incalculable. See United States v. Haas, 171 F.2d 259, 269, 270 (5th Cir. 1999) (finding that while “the loss sustained by either the FDA or Haass customers is, for all practical purposes, incalculablethe district court can, however, estimate the gain that Haas received from defrauding the FDA. Thus, Haass gain from his fraudulent importation scheme appears to have been the monies received [from his company] by way of salary and profits.”). Therefore, under the sentencing guideline, the more money involved in a fraud scheme involving  the sale or distribution of misbranded or adulterated drugs, the greater the potential sentence.
  • Smuggling or clandestinely introducing goods because of failure to comply with other statutes. 18 U.S.C. § 545. Violations are punishable by fines or imprisonment of no more than 30 years, or both.Healthcare practitioners must also be aware of the potential liabilities they face if they engage in the re-importation of drugs.
  • Drug re-importation involves exporting U.S. manufactured prescription drugs to a foreign country, then subsequently importing the same drug back into the U.S. by someone other than the U.S. manufacturer, and carries additional penalties under the FDCA. The  FDCA prohibits anyone other than the U.S. manufacturer of a drug to re-import the drug into the U.S. even if the drug was approved and manufactured in the U.S; 21 U.S.C. § 381 (d)(1).The FDA has found that, because it does not have oversight over other countries drug distribution systems, insufficient safeguards in foreign handling and shipping exist to prevent the introduction and retail sale of substandard, ineffective, or counterfeit drugs. 59 Fed. Reg. 11842 (March 14, 1994). Thus, products that are re-imported by anyone other than the manufacturer will be denied entry into the U.S. 21 U.S.C. § 381(d)(3)(B).If a business or individual knowingly violates 21 U.S.C. § 381 (d)(1) by causing prescription drugs manufactured in the U.S. to be re-imported by persons other than the manufacturer of the drug, they may be subject to criminal liability consisting of a maximum of 10 years in prison and a maximum $250,000 fine. 21 U.S.C. § 333(b)(1)(A).It is important to note that those who aid and abet in a criminal violation of the FDCA, or conspire to violate the FDCA, can also be found criminally liable. 18 U.S.C. §§ 2, 371. Thus, businesses or individuals that import drugs from foreign sources in violation of the FDCA could potentially be charged with these offenses as well.

3. Exclusion from participation in federal health care programs

In addition to criminal penalties, practitioners may also face various administrative penalties. For example, 42 U.S.C. §1320a-7b(a) empowers the Secretary of Health and Human Services to exclude certain convicted individuals from participation in any “Federal Health Care Program.” In particular, § 1320a-7(b)(1)(a) authorizes the Secretary to exclude individuals convicted of a criminal offense consisting of a misdemeanor relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service.

Additionally, § 1320a-7(b)(3) authorizes the Secretary to exclude any individual who has been convicted of a criminal offense consisting of a misdemeanor relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. See Friedman v. Sebelius, Case No. 11-5028 (D.C. Cir. July 27, 2012).  Further, “items and services furnished, ordered, or prescribed by [an excluded person] will not be reimbursed under Medicare, Medicaid and all other Federal health care programs until [that person] is reinstated by the OIG.” 42 C.F.R. § 1001.2. For more information regarding exclusion from federal health care programs under 42 U.S.C. § 1320a-7b, please see our previous report here.

Conclusion

Healthcare practitioners are in a never-ending struggle to control the costs of patient care, but must nevertheless ensure that the methods they choose comply with federal law. For more information regarding the importation of drugs from foreign sources, our FDA litigation practice, or how to ensure that your business maintains regulatory compliance, contact Fuerst Ittleman David & Joseph PL at (305) 350-5690 or contact@fidjlaw.com.

Operation Pangea V: A Global Attack on Online Prescription Drug Pharmacies

The U.S. Food and Drug Administration (FDA), in partnership with multiple international regulatory and law enforcement agencies, targeted over 4,100 internet pharmacies that allegedly sell potentially dangerous, unapproved drugs to consumers. On October 4, 2012, the FDA announced the details of Operation Pangea V, a global effort to combat the online sale and distribution of potentially counterfeit and illegal medical products. (For the full text of the FDAs press release, please click here.) In executing Operation Pangea V, the FDA collaborated with INTERPOL, the World Customs Organization, Permanent Forum of International Pharmaceutical Crime, Heads of Medicines Agencies Working Group of Enforcement Officers, the Medicines and Healthcare products Regulatory Agency of the United Kingdom, the Irish Medicines Board, the London Metropolitan Police, the U.S. Department of Homeland Security, the Center for Safe Internet Pharmacies, and the national health and law enforcement agencies from 100 other participating countries. The cooperative investigations conducted by these law enforcement, customs, and regulatory authorities resulted in civil and criminal charges, seizure of illegal produces, and removal of websites.

According to the FDA, the goal of Operation Pangea V, which took place between September 25 and October 2, 2012, was two-fold: first, to identify producers and distributors of illegal pharmaceutical products and medical devices and, second, to remove these products from the supply chain. In its press release, the FDA stated that the majority of medicines at issue pose potential health concerns for consumers because “they contain active ingredients that are approved by FDA for use only under the supervision of a licensed health care practitioner or active ingredients that were previously withdrawn from U.S. market due to safety issues.” Some of the medicines identified through Operation Pangea V were Domperidone, Isotretinoin, Tamiflu, and Viagra.

During Operation Pangea V, regulators and customs authorities across the globe inspected over 133,000 packages and confiscated over 3.75 million illicit and counterfeit pills. In total, approximately $10.5 million worth of pharmaceuticals were seized worldwide and over 18,000 pharmacy websites were ordered to shut down its operations. (To read INTERPOLs brief summary of Operation Pangea V, click here.) The FDA referred to the online sale of illegal, unapproved, counterfeit, or potentially adulterated or substandard drugs as an “inherently international crime problem.” To that end, INTERPOL estimates that roughly 80 individuals are currently under investigation or under arrest for criminal offenses, including operating a clandestine laboratory producing counterfeit medicines, membership in a criminal group selling illicit medicine online, and operating websites selling illicit medicines.

Pursuant to its enforcement authority in the United States, the FDA issued a Warning Letter to Canadadrugs, which listed over 4,100 identified websites that purportedly sell illegal or counterfeit drugs or medical devices to American consumers. The operators of each of these 4,100 websites received a copy of the FDAs Warning Letter to Canadadrugs, which explained that these online pharmacy websites “offer unapproved and misbranded new drugs for sale” and requested each website to “immediately cease marketing violative drug products to United States consumers.” (To read the FDAs Warning Letter to Canadadrugs, please click here.) Furthermore, the FDA sent notices to Registries, Internet Service Providers (ISPs), and domain Name Registrars (NDRs) informing them of the websites allegedly violative practices.

The FDA has stated that it will continue to work with international groups to investigate websites that sell potentially unapproved, counterfeit, or adulterated drugs and medical devices. Within the last week, alone, the FDA launched BeSafeRx”Know Your Online Pharmacy, a national campaign to provide consumers with information about the risks of purchasing prescription drugs online.

Fuerst Ittleman David & Joseph, PL will continue to monitor the regulation of online pharmaceutical drug companies. The attorneys in the Food, Drug, and Life Sciences practice group are well-versed in the complex regulatory framework for prescription drugs and medical devices. For more information, please email us at contact@fidjlaw.com or call us at (305) 350-5690.

The Corporate Solution to Texting While Driving

The safety hazards of texting or emailing while driving are obvious. Potentially fatal repercussions await such callous and indifferent texters, who pose a threat not just to themselves, but to everyone on the road. A texting driver is tantamount to an impaired driver — he is not focused on the task of driving or the hazardous conditions of the road. Instead, the texter is himself a danger that other drivers must defend against.

Strangely, lawmakers in Florida and many other states have not banned texting while driving. The lawmakers in these states have banned other driver-impairments, such as drunk driving, and imposed State-sponsored safety requirements, such as mandating that drivers and passengers alike fasten their respective safety belts. Yet, despite imposing its will on select-safety requirements, several States (including Florida) have failed to pass texting-related legislation.

Perhaps the court systems in these states have the ultimate panacea. For instance, Florida circuit judges have recently allowed juries to punish texting drivers by awarding punitive damages to injured plaintiffs. Thus, as the cases start to weave their way through our congested dockets, we are all on notice that there exists a heavy price to pay for engaging in dangerous, impaired driving, whether that “price” is in the form of our own personal injury or death, the pain inherent in causing others to suffer such calamities, or of course, paying for the injuries from our own wallets.

But is this enough? Unchecked, callous disregard for human life seems to be the norm of our society. Why should a faceless corporation care about texting drivers?

Consider this doomsday scenario: Your employee just finished a successful sales meeting and was heading home. She was so excited about the sale that she wanted to tell her husband (and brag about the big commission). While in her car, perhaps out of pure habit, she pulled out her smartphone and texted (or emailed) her husband, thumbing the good news, complete with a smiley face emoticon. While texting, she failed to notice the car in front of her, broken down with its lights flashing, parked in the middle of the street. As she hit the “send” key, she looked up from her phone and her eyes flashed to the road, suddenly realizing that she would be unable to stop in time to avoid hitting the parked car. She braced herself as she slammed into the rear of the parked car, which then collided with the road wall, killing the twin nine (9) year old girls who were standing on the side of the road next to their horrified mother.

Your employee survives, suffering a few physical bruises, and of course, the debilitating, lifelong suffering of knowing that she unnecessarily killed two children. In addition to facing manslaughter charges, she will be mentally and economically ruined from the imminent lawsuit.

Is the corporation liable under theories of negligent supervision, negligent training, or respondeat superior? If so, to whom is the employer liable? Does the employer owe a duty to the responsible employee? What about the victims family? The issues are rather complex and center on such fine points as whether the employee was engaged in the scope of her employment, along with the formal training, policies and manuals of the corporation.

Notwithstanding the complex risk management issues associated with employees that use their cars for employment purposes, corporations throughout the country are taking a proactive approach to the dangers of texting while driving. The newest trend is for corporations to outright ban any texting or emailing while driving. The ostensible purpose of the trend is to show that the faceless corporation in fact cares about its employees. However, the fringe benefit of such caring is the proactive risk-management of setting black letter policy proscribing the reckless and avoidable impairment of its drivers.

Lawsuits are more easily defended, and risks more efficiently insured, where a company enacts firm, hard, understood rules prohibiting dangerous conduct. Corporations have the actual power to meet the threats imposed by impaired driving; power to enact the very rules which our State has been unsuccessful or unwilling to legislate. By corporations using this power, whether for care of their employees or simply safeguarding bottom-line profits, perhaps needless death and disability will be avoided by the corporate legislation of what is, in essence, simple common sense.

If you have any questions about this issue, and specifically about how our lawyers can help your company implement a ban on your employees texting while driving, please feel free to contact us at 305-350-5690 or contact@fidjlaw.com.

Medifast Agrees to Settle Advertising Dispute with FTC

On September 10, 2012, the Federal Trade Commission (“FTC“) announced that Jason Pharmaceuticals, Inc. (“Jason”), a subsidiary of Medifast, Inc. and the makers of Medifast weight loss meal replacement products, agreed to pay $3.7 million to settle charges for allegedly violating a 1992 Consent Decree regarding weight loss claims. This enforcement action is part of the FTCs ongoing effort to make sure that companies comply with FTC consent decrees, and the Commissions crackdown on what it deems to be deceptive and misleading health claims.

According to its Complaint, the FTC alleges that since at least November 2009, Jason violated the FTCs 1992 Consent Decree by making unsubstantiated weight loss claims in advertisements in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§ 45(a) and 52. The Complaint also alleges that consumer testimonials in Jasons advertisements conveyed unsubstantiated claims that Medifast products resulted in weight loss of 2 to 5 pounds per week.

The 1992 Consent Decree specifies that Jason must possess “competent and reliable scientific evidence” in order to substantiate heath claims. “Competent and reliable scientific evidence” is defined as “tests, analyses, research, studies, surveys or other evidence conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the relevant profession or science to yield accurate and reliable results.”  However, the newly entered 2012 Consent Decree redefines “competent and reliable scientific evidence” as “one [a]dequate and well-controlled human clinical study” of a “low calorie meal replacement program . . . designed to lower the users total caloric intake” that follows “acceptable designs and protocols” or a protocol “satisfying all of the criteria.”  The criteria require 16-week clinical studies for weight loss claims, and 52-week clinical studies to support any claims related to weight maintenance.

As we have previously reported (here, here, and here), over the past several years the FTC has attempted to employ and enforce a heightened level of substantiation for health related claims through consent decrees. In litigation with companies such as Garden of Life, The Dannon Company, Nestle HealthCare, Iovate Health Sciences and POM Wonderful, the FTC has sought to enforce the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for all “disease treatment and cure claims.”

Conversely, the new requirements for substantiation contained in the Jason consent decree mandate one, not two, adequate and well-controlled human clinical studies. This change may be due to the recent trend of courts disagreeing with the FTCs attempts to redefine and enforce a heightened level of substantiation requiring two adequate and well-controlled human clinical studies for health related claims.  As we previously reported, the Garden of Life decision is one example. In FTC v. Garden of Life, the FTC sought to modify a previous consent decree by changing the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for disease claims. In rejecting the FTCs position, the Court stated that competent and reliable evidence does not mean “uncontroverted proof.”

For more information on FTC regulations and substantiation requirements, or on how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.

FDA Warning Letters to Sprout Growers Highlight Complicated Legal Issues Associated with Warning Letters and Guidance Documents

Since 1996, there have been at least 30 reported outbreaks of foodborne illness associated with different types of raw and lightly cooked sprouts caused mostly by Salmonella and E. coli. In 1999, in response to numerous outbreaks and the potential for microbial contaminations, the U.S. Food and Drug Administration (“FDA“) issued two guidance documents,  “Reducing Microbial Food Safety Hazards for Sprouted Seeds” and “Sampling and Microbial Testing of Spent Irrigation Water During Sprout Production,” to assist all parties involved in the production of sprouts to reduce the risk of sprouts spreading foodborne illnesses.

For several years following the issuance of the guidance documents, the FDA reported that foodborne illnesses associated with sprouts appeared to diminish. However, in light of continuing outbreaks, the FDA strongly encouraged firms in the industry to review their operations to reduce microbial food safety hazards for sprouted seeds in accordance with the guidance documents.

Since 1999, the FDA has issued over 80 Warning Letters to firms involved in the production of sprouts. The majority of the Warning Letters state that the sprouts are adulterated within the meaning of Section 402(a)(4) of the Federal Food, Drug, and Cosmetic Act [21 U.S.C. § 342(a)(4)] because they have been prepared, packed, or held under insanitary conditions whereby they may have been contaminated with filth or rendered injurious to health. Please see our previous reports here and here, discussing whether, and if so how, the recipients of these Warning Letters may respond or challenge the Warning Letters in court in light of the United States Supreme Courts recent ruling in Sackett v. EPA.

In addition to the alleged violations, the Warning Letters state that the “proper handling and controls for sprout manufacturing can be found in [the 1999 guidance documents].” Therefore, the guidance documents are closely examined by industry because they provide important insight as to how FDA will act in terms of enforcement. However, FDA guidance documents describe the Agencys current thinking on a regulatory issue, and do not have the force or effect of law.

Because the FDA continues to heavily rely on the voluntary guidelines for enforcement action, the International Sprout Growers Association (“ISGA“), on behalf of the sprout industry, has urged the FDA to update the outdated guidance documents. The ISGA stated that there are numerous new methods for sprout sanitation that are not outlined in the guidance documents. For example, in the E. coli strain found in sprouts at Jimmy Johns restaurants earlier this year would not have been identified by microbiological tests currently recommended under the guidance. Please see our previous report discussing E. coli testing for more information.

Pursuant to Section 105 of the Food Safety and Modernization Act to provide standards for produce safety, on February 28, 2012, the FDA announced the creation of the Sprouts Safety Alliance (“SSA”) in cooperation with the Illinois Institute of Technologys Institute for Food Safety and Health. The SSA is supposed to help sprout producers in identifying and implementing best practices in the safe production of sprouts. The FDA was expected to issue a proposed rule during early 2012 that would establish science-based standards for the production and harvesting of sprouts and other certain produce. However, the FDA has yet to announce the proposed rule as required under Section 105.

For more information, you can contact an attorney by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.

FDA Releases CPG for Labeling and Marketing of Therapeutic Animal Foods

On September 10, 2012, the U.S. Food and Drug Administration (FDA) released a draft compliance policy guide (“CPG”) entitled “Labeling and Marketing of Nutritional Products Intended for Use to Diagnose, Cure, Mitigate, Treat or Prevent Disease in Dogs and Cats.”  Therapeutic animal food products are products that, based on the product’s labeling and indications for use, meet the statutory definition of an animal drug under the Federal Food, Drug, and Cosmetic Act (“FDCA”). Pursuant to 21 U.S.C. 321(g)(1)(B), a product that is labeled as intended to diagnose, cure, mitigate, treat, or prevent diseases is a drug. Further, a product that is labeled as intended to provide nutrients in support of an animal’s daily nutrient needs also satisfies the definition of a drug under 21 U.S.C. 321(f). This proposed CPG outlines how the FDA intends to enforce its regulatory authority over the labeling and marketing practices of manufacturers of animal food products that meet these definitions.

Animal food products that purport to diagnose, cure, mitigate, treat, or prevent disease have been available on the U.S. market for over fifty years, but were generally only sold through, and used under the direction of,  licensed veterinarians. The FDA, however, has noticed a recent rise in the sale of therapeutic animal food products directly from manufacturers to consumers. This uptick in marketing and sales toward consumers sparked FDA concern about whether product labeling adequately informs consumers about the effectiveness and safety of products for pet consumption. As a result, the FDA has released this CPG to address continued concerns over the sale and use of unapproved therapeutic animal foods that are not used under the direction of veterinarians.

In this CPG, the FDA takes a stricter stance on how foods that bear health claims should be regulated. Specifically, the FDA takes the position that in order to market these therapeutic animal food products in compliance with federal regulations, manufacturers must obtain animal drug approval from the FDA. This process would require FDA approval indicating that the product is safe for use, only includes food additives that are generally recognized as safe (“GRAS”), and in compliance with requirements for facility registration, listing, and current good manufacturing practices.

According to this CPG, the FDA does not generally intend to recommend or initiate regulatory actions against dog and cat food products that are labeled as drugs when all the following factors are present:

  1. The product is made available to the public only through licensed veterinarians or through retail or internet sales to individuals purchasing the product under the directions of a veterinarian.
  2. The product is not marketed as an alternative to approved new animal drugs.
  3. The manufacturer is registered under section 415 of the FDCA.
  4. The product’s labeling complies with all food labeling requirements for such products.
  5. The product does not include indications for a disease claim (e.g., obesity, renal failure) on the label.
  6. Distribution of labeling and promotional materials with any disease claims for the product is limited to that it is provided only to veterinary professionals.
  7. Electronic resources for the dissemination of labeling information and promotional materials are secured so that they are available only to veterinary professionals.
  8. The product contains only ingredients that are GRAS ingredients, approved food additives, or feed ingredients defined in the 2012 Official Publication of the Association of American Feed Control Officials.
  9. The label and labeling of the product is not false and misleading in other respects.

The release of this CPG puts manufacturers of animal food products on notice that the FDA will closely scrutinize product labeling, particularly any claims that give the impression that a product purports to diagnose, cure, treat, or prevent diseases in animals. The FDA, however, will continue to take into consideration other factors in determining whether to take regulatory enforcement action. Specifically, the FDA has narrowed its enforcement attention to prioritize products that:

  1. Are marketed as alternatives to approved new animal drugs
  2. Contain unapproved food additives, unless the use of that unapproved food additive conforms to uses as listed in the 2012 Official Publication of the Association of American Feed Control Officials
  3. Include words or vignettes on the label of the product(s) that explicitly or implicitly indicate diseases for which the product is to be used.
  4. Are made directly available to the public circumventing the role of a licensed veterinarian for provision of directions for use, supervision of treatment and evaluation of the treatment outcome.

The FDA’s decision to develop and release a CPG on the regulation of therapeutic animal food products is an interesting one. Historically, the FDA has regulated pet foods similarly to human foods. In this CPG, the FDA’s description of therapeutic animal foods sounds rather similar to the language the FDA uses to describe human medical foods under section 21 U.S.C. 360ee(b)(3). The FDA defines a medical food as “a food which is formulated to be consumed under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.” In the regulations for medical foods, the FDA species further criteria for meeting the statutory definition of a medical food. The FDA has not outlined similar criteria for animal foods. Even though there are distinct similarities in the FDA’s descriptions of therapeutic pet foods and human medical foods, the FDA has yet to specifically clarify what constitutes a therapeutic pet food product, how it interprets the meaning of use “under the direction of licensed veterinarians,” or whether the sale of these products is restricted to licensed veterinarians.

Despite the lack of clarity regarding the definition of a therapeutic drug product, manufacturers should not take this CPG lightly. The information proposed in this CPG suggests that the FDA intends to strictly enforce animal drug approval requirements for these animal food products and also plans to considerably tighten its oversight on pet food labeling claims. Because the use of health claims on product labeling would require manufacturers to undergo the drug approval process, manufacturers should take extra caution when developing claims about a product’s safety and efficacy in affecting the body or treating health conditions.

Overall, this proposal could have a significant impact on the cost of bringing therapeutic animal food products to market. The heightened threat of enforcement action could result in significant costs associated with filing applications for new drug approval, testing, re-formulation, and/or re-labeling. Moreover, the animal drug approval pathway would likely extend the timeline required for a product to become compliant with applicable regulations and eligible for distribution and sale.

The FDA is currently seeking public comment on this proposed draft compliance policy guide (Docket No. FDA-2012-D-0755). To ensure that comments are considered before the FDA begins work on the final draft, all comments should be submitted prior to November 9, 2012. Fuerst Ittleman David & Joseph will continue to monitor the FDA’s enforcement of this Compliance Policy Guide for therapeutic pet foods. For more information, please contact us at contact@fidjlaw.com