Sharon Ayd is chief scientific officer and SVP, Pharmaceuticals at Regulatory Compliance Associates.

Sharon Ayd

A previously published article (1) reviewed, in depth, the many options FDA has available to escalate the enforcement process when a biopharmaceutical company repeatedly violates the main regulatory standards for ensuring pharmaceutical quality (i.e., 21 Code of Federal Regulations [CFR] Parts 210 and 211, collectively referred to as the current good manufacturing practices [CGMPs]). When a biopharmaceutical company repeatedly violates CGMP requirements, FDA can force it to make specific changes. Under this severe form of escalation by FDA, it’s no longer a discussion about responses to FDA 483 notices or warning letter observations, it’s about a forced make-over. This process, known as Consent Decree (CD), exposes all the broken systems within a company. The impacts of FDA warning letters and CDs extend far beyond the biopharmaceutical company. Today, many times, the impact of a warning letter or CD is discussed only with regard to the effort exerted internally by the biopharmaceutical company to remediate FDA’s enforcement action against itself. This article discusses, in broader context, how non-compliance spills over and impacts the US healthcare system and the consumer. 

	Current snapshot of the American healthcare consumer

	The US healthcare consumer is older than ever before. From 2012 on, the number of people in the United States turning 65 increased from an annual rate of approximately 2.6 million per year to approximately 3.5 million per year in 2015, a number that is forecasted to rise to nearly 4 million per year over the next decade (2).  By 2020, retiring baby boomers will drive Medicare and Medicaid costs to 24% of the United States healthcare budget. As healthcare costs increase faster than economic growth, Medicare taxes and the Trust Fund will cover less and less. In 2016, US healthcare costs were $3.3 trillion. That makes healthcare one of the country’s largest industries, equaling 17.9% of gross domestic product (GDP). In comparison, in 1960, healthcare cost $27.2 billion, or just 5% of GDP (3).  

	The healthcare consumer is not just the patient, they are caregivers too. More and more people in the US are putting jobs on hold or otherwise impacting their lives to provide medical-related support to someone close to them. On Jan. 22, 2018, the Recognize, Assist, Include, Support, and Engage (RAISE) Family Caregivers Act (4) was signed into law. Providing care for a family member, partner, or friend with a chronic, disabling, or serious health condition, known as “family caregiving”, affects most people at some point in their lives. The need to support family caregivers will grow as the population ages, more people of all ages live with disabilities, and the complexity of care tasks increases. In 2013, about 40 million family caregivers in the US provided an estimated 37 billion hours of care to an adult with limitations in daily activities. The estimated economic value of their unpaid contributions was approximately $470 billion in 2013, up from an estimated $450 billion in 2009 (5).

	Healthcare challenges in the US are not geographically blind. The healthcare delivery system in rural America is largely fragmented. The challenges affecting people living in rural areas are different than those affecting people in urban areas (6). These challenges are significant because approximately 51 million, or about 1 in 6, people live in rural areas of the US. The rural population is also older; the rate of growth for seniors living in rural areas has tripled since the 1990s, and if the 80 million baby boomers living in the US continue to follow these migration patterns, the rural population of those age 55 to 75 is set to increase 30% between 2010 and 2020 (6, 7).

	Rural Americans have the same issues as other healthcare consumers, only they are more extreme. They tend to have lower incomes, poorer health status, and are less likely to have health coverage through work because there are fewer large employers in rural areas. Consequently, rural consumers also are more likely to be uninsured and more likely to be covered by public rather than private insurance (7).  When compared to urban areas, rural areas have higher rates of unemployment and poverty. Recent numbers show rural unemployment averaged 5.4%, while urban unemployment was 4.8% (7).

	So, let’s examine some of the ways in which a pharmaceutical company’s failure to manage quality manifests itself outside the company and impacts the American healthcare consumer.

	How non-compliance impacts on the American healthcare consumer

	For purposes of this article, non-compliance will equate to FDA enforcement activity (i.e., warning letter or CD) against a biopharmaceutical company in the US. Operating under a warning letter or CD is a dire situation for the company and one where there is no certain predictability of the outcome. To really understand the magnitude of the warning letter’s or CD’s impact, one needs to take into consideration the many and various modes in which the negative consequences can be realized externally and how this impacts the American healthcare consumer. 

 illustrates the ways in which non-compliance effects can propagate internally and externally to the company. This article focuses on those external effects as they impact the American healthcare consumer. To better understand, think of Figure 1 as a “Tile Slide”. The first three tiles of the first row represent different categories of negative impact to the biopharmaceutical company, while the last tile represents negative impact to the healthcare consumer. Each subsequent tile or row in a column describes a more specific negative effect.

	Biopharmaceutical companies manufacture many different drug formulations. Drugs that will be given to a patient by intravenous injection must be manufactured under conditions suitable for human use. They must be manufactured to standards of quality, purity, and sterility that are uncompromising or the patient could be harmed. Interpretation of the GMP guidelines for ensuring integrity of injectable drugs can be a challenge, leading to questioning of how to achieve the standards. The manufacture of sterile injectable pharmaceuticals suitable for human use is complex. Biopharmaceutical manufacturers must ensure the necessary quality parameters described within the 

 are met. Substandard injectable drugs can arise through inadequate production processes including unintentional use of inferior APIs or excipients, manufacturing processes that cause contamination or do not adequately ensure sterility, and inadequate packaging design or quality. If such medicine left the manufacturing facility it would most certainly be recalled.

	How non-compliance officially gets recognized

	The main regulatory standard for ensuring pharmaceutical quality is collectively referred to as the CGMP regulations for human pharmaceuticals. It’s not only the CGMP regulations that matter; how companies interpret and embrace them is of equal, if not more, importance. CGMPs place emphasis on product quality and compliance with the regulations.

	FDA’s Office of Regulatory Affairs is the lead office for all field activities, including inspections and enforcement. FDA conducts several types of inspections to help protect consumers from unsafe products: pre-approval inspection, routine inspections of a registered facility, and “for-cause” inspections.

	After FDA completes an inspection, company management may receive an FDA Form 483 (8) when an investigator(s) has observed any conditions that, in their judgment, may constitute violations of the Food, Drug, and Cosmetic (FD&C) Act, related Acts, and applicable sections of 21 

 210 and 211. Observations are made when in the investigator’s judgment, conditions, or practices observed would indicate that any food, drug, device, or cosmetic has been adulterated or is being prepared, packed, or held under conditions whereby it may become adulterated or rendered injurious to health. FDA Form 483 notifies the company’s management of objectionable conditions. Companies respond to the 483 in writing with their corrective action plan and implement schedule. The 483 is closed when the company receives their establishment inspection report. Unfortunately, there are companies that either do not follow through on their commitments or they do so too slowly. If circumstances merit, FDA can choose to escalate the situation by serving the company with a warning letter.

	Typically, FDA’s practice is to give individuals and companies an opportunity to take voluntary and prompt corrective action before it initiates an enforcement action. The warning letter is FDA’s principal means of notifying regulated industry of violations and achieving prompt voluntary correction. Following are some of the factors FDA uses to determine whether to issue a warning letter (9):

		The company’s compliance history (e.g., a history of serious violations, or repeated failure to prevent the recurrence of violations)

		The nature of the violation (e.g., a violation that the firm was aware of [was evident or discovered] but failed to correct)

		The risks associated with the medical products (i.e., drugs and the potential that such risks could cause harm to patients).

	Many drug shortages are of sterile injectable drugs and can be traced to supply disruptions caused by company manufacturing facilities slowing or halting production to address quality issues. The number of new shortages has generally decreased since 2011, while the number of ongoing shortages remains high. In 2015, the number of ongoing shortages that began in prior years was up compared to 2014 at 291 and 277, respectively. The number of new shortages being first reported in 2016 was down compared to those reported in 2014 at 136 and 179, respectively (10). Shortages of sterile injectables can be associated with other factors: a decline in the number of manufacturers; failure to comply with CGMP standards, resulting in a warning letter which causes supply disruptions in the first place; and/or prolonged time under warning letter remediation when the manufacturer either cannot manufacturer drugs or the situation warrants that each drug lot must be released only after extensive oversight and review. Another reason is that many of these are generic drugs that can have a relatively low profit margin and manufacturers are less likely to increase production. Regardless the reason, all of these situations only exacerbate already existing supply disruptions.

	Characteristics of the sterile injectables industry may make these drugs susceptible to shortage when the number of suppliers decreases. A manufacturer, for example, may decide to permanently discontinue an unprofitable product, or the unavailability of raw materials may lead to production delays. Further, failure to comply with CGMP standards resulting in a warning letter could also trigger a supply disruption if a manufacturer chooses to temporarily shut down production to correct the conditions that led to a warning letter. In this industry, there is limited inventory in the supply chain, manufacturing capacity is constrained because production is scheduled months in advance. New manufacturers must receive regulatory approval before entering the market, and the production process is complex. After a supply disruption for any reason, if other manufacturers are not able to increase supply in a timely manner, a shortage may ensue.

	There are specific characteristics of the sterile injectables industry that make these drugs susceptible to shortages (11).

. The use of just-in-time supply demand can increase the vulnerability of the supply chain to shortages. It is not uncommon for manufacturers to have approximately two to three months of inventory available. Wholesale distributors may have one month, and providers may only have a few weeks of inventory. Hence, when a manufacturer stops production, a shortage can result quickly.

. A new manufacturer could decide to supply the market but usually can’t enter quick enough to produce more drug and remedy the shortage. This is because FDA’s approval of an abbreviated new drug application (ANDA), which is a requirement, can take more than a year. Even if existing manufacturers of the drug could ramp up their own production, they would need FDA approval if changes to manufacturing conditions or processes were made that have a potential to adversely affect the identity, strength, quality, purity, or potency of the drug, before the additional drug manufactured under the new conditions can be marketed.

. Expensive and specialized equipment is required to manufacture drugs, and production processes are complex, particularly for sterile injectables (12). Maintaining sterility throughout the production process is particularly important for sterile injectables because serious harm can occur if non-sterile drugs are injected into patients. Some generic sterile injectables need to be manufactured on lines or in facilities dedicated solely to those drugs, thus creating challenges for new manufacturers to enter the market.

. The generic sterile injectable drug industry is filled with several players. It’s not uncommon for a manufacturer to produce numerous and different drugs on only a few manufacturing lines. As a result, this leaves little flexibility when one manufacturer ceases production of a particular drug. Adding yet more constraint is that many times the production schedule of each drug is planned for up to a year at a time. This leaves little opportunity for sudden changes in production schedule to produce additional quantities of a drug in shortage.

	Characteristics of the sterile injectables industry may make these drugs susceptible to shortage when the number of suppliers decreases.

	When a supply interruption becomes a drug shortage

	Drug shortages in the US are a serious public health concern and have been for many years. Shortages caught the attention of the US Congress and resulted in a provision in statute for the US Government Accountability Office (GAO) to review several aspects of drug shortages. The period covered was 2010 to 2015, and GAO’s review was published in an extensive report to Congressional committees in July 2016 (10, 13).

	Shortages of sterile injectable anti-infective and cardiovascular drugs during 2012, 2013, and 2014 were strongly associated with the following factors: a decrease in the number of manufacturers, sales of a generic version, and the failure of a manufacturer making the drug to comply with CGMPs resulting in a warning letter. For each factor, the GAO report estimated a percentage point increase in the probability of a shortage. Their estimates showed that the presence of a single factor increases the probability of a drug shortage by as much as 16.8 percentage points from what the model otherwise predicted (10). The strong association between shortages and both a decrease in the number of manufacturers and the failure of a manufacturer to comply with CGMPs resulting in a warning letter suggests that shortages may be triggered by supply disruptions.

	For the drugs reviewed in the GAO report, the association between noncompliance resulting in a warning letter and shortages is largely driven by the structure of the generic injectable manufacturing industry. In this industry, manufacturers produce multiple drugs, and so one manufacturer’s failure to comply with that results in a warning letter could affect many drugs. For example, 69% of the 118 drugs in the GAO study were manufactured by at least one of nine companies. Thus, if one of these nine companies failed to comply with CGMP standards, many drugs could be affected (14, 15). In 2012, one manufacturer that received a warning letter manufactured 22 drugs just by itself. While the strong association between non-compliance resulting in a warning letter and shortages could support the thought that FDA enforcement triggered some shortages, it could also support the thought that there were growing CGMP problems and possibly related quality concerns that both precipitated the warning letters and led to shortages.

	Additionally, the finding that sales of a generic version were associated with shortages suggests that relatively low profit margins may also trigger shortages for sterile injectables. Specifically, compared with drugs for which there were only brand-name sales and thus only one supplier, drugs sold generically may have multiple suppliers and relatively lower profit margins. The 88 drugs in the GAO report sold generically were available from an average of four suppliers during 2013, and 10 drugs had eight or more suppliers. Other researchers have found that prices, and consequently profit margins, decline for generic drugs as the number of suppliers increase (16). Relatively low profit margins may cause manufacturers to exit the market for less profitable drugs in favor of more profitable ones or may make it unprofitable to increase supply, which could make the market vulnerable to shortages.

	In US emergency rooms, some of the most common injectable painkillers (e.g., morphine, hydromorphone, and fentanyl) are in short supply. These are first-line choices and vital. What’s challenging is that second-line drugs are out, too. In 2017, half of the medications in drug shortages were for critical care (17). While the majority of the drugs involved in nearly 2000 drug shortages from 2001 to 2016 had an alternative available, one-quarter of the time those alternatives were also on the FDA shortage list. The most common drugs in those shortages were for infectious diseases.

	The average length of shortages for drugs used in ambulatory medicine is more than seven months (18).  First responders, including some fire departments, have come up with different solutions, including diluting the concentration of a medication on the scene of an emergency and using varying packaging and delivery methods for those drugs (19). They resort to using less potent medication, such as morphine during a fentanyl shortage. Or, it could involve not giving the most basic, benign medication: a saline drip to rehydrate patients or dilute drugs given intravenously. Other ways to address a shortage is to encourage field personnel to provide treatment only when needed as opposed to prophylactic measures (i.e., start the IV if the patient needs the IV, as opposed to starting an IV just in case something should happen) (19).

	As for saline, while the smaller 100mL to 500mL bags are in short supply, the larger one-liter bags are used. Or, if they’re being used to deliver medication, it can be given via syringe, although this takes up more of a caregiver’s time. Overall, it’s part of a balance that healthcare providers face in delivering needed medication to patients while still preparing for the unknown: local disasters, epidemics, or even a worsened drug shortage.

	When available supplies of prescription drugs are insufficient, patient care may be adversely affected. Drugs in shortage include those that are essential therapies, such as antibiotics, chemotherapy agents, cardiovascular drugs, and pain medications. Shortages can result in delayed patient care and medication errors. They may also result in rationing, which can lead to the use of less effective treatments and force healthcare providers to make difficult choices, such as deciding which cancer patients should start or complete a round of chemotherapy (20).  Drug shortages can impair patient care, raise healthcare costs, and hamper clinical trials. Hospitals receive a daily report that shows which drugs are in short supply. In any week, injectable opiates, IV solutions, and a variety of other drugs widely used treatments for heart surgery, dehydration, pain management, nausea, and other ailments compromise nearly all types of care, appear on the drug shortage list.

	Emergency physicians must spend more time working around drug shortages. That means they spend less time with the patient, who may receive a more expensive but less effective treatment.

	More than one-third of emergency physicians said patient outcomes have been negatively affected as a result. Nearly 90% said they have had to take time away from patients to deal with these shortages while 97% said they had to substitute medications.  Drug shortages are expensive (20), and they often lead to mistakes. Providers have had to reconfigure crash carts and other trauma toolkits, which means that it may take longer for first responders to find a drug during an emergency. All this requires thorough staff training, new processes, and constant surveillance.

	Drug shortages in America exist for a varying number and combination of reasons that are complex and interrelated. While some of many reasons why drug shortages exist may not be directly linked to non-compliance, it seems that non-compliance is one of the most common reasons that puts things into motion. Ultimately, it is incumbent on the companies and FDA to find new ways to work together to manage these situations before they arise.

	1. S. Ayd, “Managing the Cost of Non-Compliance,” 

 41 (11), pages 54-47 (November 2017).
	2. I. Morrison, 

 (January 2015).
	3. K. Amadeo, “The Rising Cost of Health Care by Year and Its Causes,” 

, August 2018
	4.  S.1028 “RAISE Family Caregivers Act”, 115th Congress (2017-2018), Became Public Law No: 115-119, effective January 2018.
	5. S. Reinhard, “Valuing the Invaluable: 2015 Update Undeniable Progress, but Big Gaps Remain,” AARP Public Policy Institute, July 2015.
	6. National Conference of State Legislatures, Rural Health in America: Challenges and Opportunities for State Legislatures, January 2013.
	7. US Department of Agriculture, Economic Research Service, Rural Employment and Unemployment Report, July 2017.
	8. FDA, “FDA Form 483 Frequently Asked Questions,” FDA.gov, www.fda.gov/ICECI/Inspections/ ucm256377.htm.
	9. FDA, “WL Procedures”, FDA.gov. www.fda.gov/iceci/compliancemanuals/regulatory proceduresmanual/ucm176870.htm#SUB4-1-1).
	10. GAO Analysis of University of Utah Drug Information Service Data. GAO-16-595, July 2016.
	11. Drug Shortages: Public Health Threat Continues, Despite Efforts to Help Ensure Product Availability, GAO-14-194, February 2014.
	12. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Economic Analysis of the Causes of Drug Shortages, Washington, D.C., October 2011.
	13. J. Woodcock, 

, 87 (1), 37-49 (2005).
	16. M. Mazer-Amirshahi, 

, Vol. 41, 283-288 (October 2017).
	17. K.  Donnelly, The Journal for Pediatrics, Vol. 199, 65-70 (August 2018).
	18. B. Krans, “Drug Shortages in ER Are More Common Than You Think,” Healthline.com, July 2018.
	19. A. Kacik, 

	Sharon Ayd is CEO, Ayd BioPharma Consulting Group, and has 30 years of extensive experience in all facets of developing and launching branded, legacy, specialty, orphan, generic, and biosimilar drugs to the market and maintaining competitive advantage through lifecycle maintenance and RA/QA compliance.

Vol. 42, No. 12
	December 2018
	Pages: 30–34

	When referring to this article, please cite it as S. Ayd, “Impact of Non-Compliance on the American Healthcare Consumer," 

Articles

GMP non-compliance can spill over and impact patient access to life-saving medications.

Impact of Non-Compliance on the American Healthcare Consumer

The main regulatory standard for ensuring pharmaceutical quality is 21 

) Parts 210 and 211, collectively referred to as the current good manufacturing practice (CGMPs) regulation for human pharmaceuticals. It’s not only the CGMP regulations that matter; the approaches biopharmaceutical companies take to interpret and embrace these regulations are of equal, if not more, importance. CGMPs place emphasis on product quality and compliance with the regulations. So how do companies embrace, and even embody, quality and compliance with CGMPs? One way is to operate under a quality culture.  

	A company should have a pharmaceutical quality system as described in FDA Guidance for Industry, Q10 

 (1). A quality culture is created when managers believe a company has a duty to create a mutually beneficial relationship between itself, its employees, and its customers. Culture is the shared beliefs, values, attitudes, and behavior patterns that characterize a family, a community, or an organization. A healthy organizational culture is rooted in the understanding that quality is good for the company and its customers. Thus, its existence is a driving force behind how employees act and behave regardless of level, title, or decision-making authority. A quality culture begins with company leaders who believe in the necessity of serving customers in order for their organizations to succeed. In defining a set of desirable values for a corporate culture, some of the primary core values should include integrity, customer focus, and people.

	FDA conducts several types of inspections to help protect consumers from unsafe products: pre-approval inspection, routine inspections of a registered facility, and “for-cause” inspections. After FDA completes an inspection, company management may receive an 

 (2) when an investigator(s) has observed any conditions that, in their judgment, may constitute violations of the Food Drug and Cosmetic (FD&C) Act, related acts, and applicable sections of 21 

 210 and 211. Observations are made when, in the investigator’s judgment, conditions or practices observed would indicate that product has been adulterated or is being prepared, packed, or held under conditions whereby it may become adulterated or rendered injurious to health. FDA Form 483 notifies the company’s management of objectionable conditions. Companies respond to the 483 in writing with their corrective action plan and implement schedule. The 483 is closed when the company receives their establishment inspection report (EIR). Unfortunately, there are companies that either do not follow through on their commitments or they do so too slowly. If circumstances merit, FDA can choose to escalate the situation by serving the company with a warning letter.

	Typically, FDA gives individuals and companies an opportunity to take voluntary and prompt corrective action before the agency initiates an enforcement action. A warning letter is FDA’s principal means of notifying regulated companies of violations and achieving prompt voluntary correction. The following factors are used to determine whether to issue a 

		The firm’s compliance history (e.g., a history of serious violations, or repeated failure to prevent the recurrence of violations)

		The nature of the violation (e.g., a violation that the firm was aware of [was evident or discovered] but failed to correct

		The risk associated with the product and the impact of the violations on such risk

		The overall adequacy of the firm’s corrective action and whether the corrective action addresses the specific violations, related violations, related products or facilities, and contains provisions for monitoring and review to ensure effectiveness and prevent recurrence

		Whether documentation of the corrective action was provided to enable the agency to undertake an informed evaluation

		Whether the timeframe for the corrective action is appropriate and whether actual progress has been made in accordance with the timeframe.

	When a company repeatedly violates cGMP requirements, FDA can force it, through legal channels, to make specific changes. Under this severe form of escalation by FDA, the objective is no longer a discussion about responses to 483s or warning letter observations, it’s about a forced company make-over. This process, known as consent decree, exposes all broken systems within a company. FDA does not care about any efforts and expenses undertaken by the company to redesign and implement a robust quality management system; a common element of a consent decree is demonstrating sustainability.

	Sustainability is the capability of an organization to know when it is veering off course and to make the correct decisions, take the appropriate actions, and maintain a state of control without external intervention. Sustainability embraces the core quality culture values and expected behaviors of integrity, empowerment, and accountability.  A consent decree mandates a series of annual inspections performed by a third-party to monitor sustainability. FDA recommends companies hire external experts and invest time and money to inspect and certify compliance, often for many years.

	Operating under a consent decree is a dire situation for the company and one where there is no certain predictability of the outcome. To understand the full magnitude of a consent decree’s impact, one needs to take into consideration the many and various modes in which the negative consequences can be realized (see 

	This discussion focuses on three ways to look at the costs of non-compliance: quantifiable costs, difficult-to-quantify costs, and invisible costs with hidden impacts. 

Quantifiable costs are those that can have a value assigned to them with a reasonable degree of accuracy. Quantifiable costs are usually more obvious, but they manifest in several ways as shown in 

	Often termination and replacement of specified employees with retraining of remaining legacy employees is an immediate step associated with a consent decree. This company action is meant to set the tone that the old way of doing business will not be tolerated anymore. A major requisite term of a consent decree is for the company to retain, at its own expense, an independent third-party for ongoing certification and oversight of the implementation of agreed to corrective action. Another requirement may be a commitment to have every released batch certified to be CGMP. 

	FDA can levy significant fines for not meeting action dates: 

 include $15,000 per day for missed dates, royalty payments up to 24.6% (4) per product not revalidated on time, and costs for FDA inspections. Furthermore, the US Treasury can garnish profit from sales through fines. Such was the case for Wyeth in October 2000. Wyeth 

 regarding its Marietta, PA and Pearl River, NY. Inspections in 1995, 1996, and 1998 found several GMP deviations and resulted in warning letters (5).

	In 2013, one of the largest drug safety settlements occurred when generic-drug manufacturer, Ranbaxy USA Inc., a subsidiary of Indian generic-pharmaceutical manufacturer Ranbaxy Laboratories Limited, pleaded guilty to felony charges relating to the manufacture and distribution of certain adulterated drugs made at two of Ranbaxy’s manufacturing facilities in India (3). Ranbaxy paid a criminal fine and forfeiture totaling $150 million and settled civil claims under the False Claims Act and related state laws for $350 million.

	Entering into consent decree can also expose a company to civil penalties. Depending on the circumstances, shareholders, patients, and sometimes even company employees may be able to sue for damages. One such law suit arose from an 

 by Baxter International to fix problems with its Colleague Infusion Pump. Westmoreland County Employee Retirement System (Westmoreland) alleged that Baxter’s directors and officers breached their fiduciary duties by “consciously disregarding their responsibility to bring Baxter into compliance with the 2006 consent decree and related health and safety laws” (6). 

	The breach was alleged to have caused Baxter to lose more than $550 million after FDA mandated a recall of the Colleague Infusion Pumps in 2010. Baxter invested time and money trying to fix the pumps, but the problems persisted into early 2010. FDA invoked its power under the 2006 consent decree by ordering Baxter to recall and destroy all Colleague Infusion Pumps then in use in the US, reimburse customers for the value of the recalled device, and to assist in finding replacement devices for those customers.  The company’s stock price fell by more than 4% after the announcement and the company later recorded a pre-tax charge of $588 million to account for the estimated costs of the recall. 

	A company under consent decree loses future revenue in different ways. One way, which is particularly difficult to quantitate, is the price due to “lost innovation”. The company is redirecting revenue into compliance, oversight, and remediation instead of reinvesting it into research and development of new products. 

	When a drug manufacturer subject to enforcement action is the sole supplier of an important medicine, drug shortages become a concern. Short-term solutions may include doctors substituting medications that may have lesser efficacy. Pharmaceutical companies with potential manufacturing capability may be incentivized by FDA to manufacture identical or equivalent drug products; however, medium-to-long lead times can delay product availability. When supplies dwindle, patients must pay higher prices for the same drug. 

	One illustration of this scenario is the FDA consent decree with Genzyme in 2010 (7) regarding repeated manufacturing issues at the company’s Allston, MA facility, which included an up-front disgorgement of past profits of $175 million and the requirement to move fill/finish operations out of the Allston plant by a specific date.  Had Genzyme not met those deadlines, FDA could have required the company to disgorge 18.5% of revenue for the affected products. 

 Other financial ramifications from consent decrees may be difficult to quantify. For example, some employees may lose their confidence in the commitment or ability of the company’s CEO and other executives to manage the situation. Employee attrition is expected, but if the exodus includes long-tenured employees the company may be drained of valuable knowledge and talent. The longer the situation exists, the more difficult it becomes to retain the best employees.

	A company under a consent decree is subject to reputation damage, which can be accentuated by the ease of publicly available negative media coverage about how the company operated. Negative media coverage can result in public fear. In the Ranbaxy case, an import ban had been in place since 2008 for 30 drugs manufactured at two of its Indian manufacturing plants resulting from alleged data falsification (7).  This type of information can result in public concerns that medicines could be adulterated.

	Lost revenue due to the company’s inability to sell product can also be an issue. Companies under consent decree experience long delays in releasing product due to the intensive oversight required, when a batch fails release testing, and when a product is recalled. The cost for the logistics of product recall and destruction can be high, especially if the API is expensive or has a long lead time.

	Another potential cost is the inability to sell a product. Group purchasing organizations (GPOs) use the power of 

to buy pharmaceuticals at discounts (8). An underlying premise is continuity of supply; if a pharmaceutical manufacturer is unable to deliver the product contracted, the GPO must obtain replacement product from the open market, often at a higher price. GPOs wary of a potential inability of the company to supply its products may consider other sources.

	In one of the largest settlements to date, Ranbaxy pled guilty to felony charges (9).  The charges were manufacturing and distributing adulterated drugs made at the Indian manufacturing sites. The criminal fine and forfeiture totaled $150 million and another $350 million to settle civil claims under the False Claims Act.

If the cost to bring a facility under consent decree into CGMP compliance is determined to exceed the company’s financial ability or it makes no financial sense to continue operations, the company’s management may decide to close the facility. Shuttering a facility, can have devastating impact on the local community, particularly in rural areas where the manufacturer is a primary employer. The community’s tax base will also suffer.

	The company can lose its competitive edge because its busy focusing inside rather than externally. This can be a competitive advantage to your closest competition looking for a way in which to leverage your situation for their benefit.  The potential opens for the company to become alienated and therefore lose rank compared to its direct competitors.

	A company can also be denied approval of new drug while non-compliance exists (4).  Because of its consent decree, approval of two new drugs by Eli Lilly was delayed. This was the result of CGMP issues being found during pre-approval inspection in the fall of 2001, which was six years after its consent decree.

	The collective cost of remediation of non-compliance far exceeds the cost to remain in compliance. The number of consent decrees issued per year has remained consistent during the past decade. However, companies have found it difficult to extricate themselves from the agreements. As a result, the number of companies under consent decrees at any given time has increased. Generally, it takes many years for a company to demonstrate that it is in full compliance. Only one company that has received a decree in the past 10 years has met all requirements and had the decree lifted.

	Considering the fines and the payments to the third-party consultants, the costs associated with a consent decree can become very high and have a significant effect on a company’s profit. It is estimated that the costs incurred by Warner-Lambert from 1993 to 2002 for a 1993 consent decree--in terms of product terminations, delays in approvals, and bringing facilities and systems into compliance--was nearly $1 billion (4). The Warner Lambert fine was only $10 million, a small percentage of the total cost. Schering-Plough’s initial fine was $500 million. Abbott Laboratories has spent almost $1 billion resulting from a consent decree issued in 1999, including a fine of approximately $100 million.

, Guidance for Industry (ICH, April 2009).
	2. FDA, 

, accessed Sept. 29, 2017.
	4. S. Chrai and M. Burd, 

 17 (6) (June 2004).
	5. Wyeth, “Wyeth-Ayerst Labs Enters into Consent Decree with FDA,” 

“Shareholder’s Right to Sue for Breach of Fiduciary Duty by Baxter International Directors and Officers Allowed,”

 Kreisman Law Offices, Chicago Injury Lawyer Blog, September 24, 2013.
	7. Sanofi Genzyme, “Genzyme Announces Final Terms of FDA Consent Decree,” Press Release, May 24, 2010.
	8. AmerisourceBergen “The Evolution of GPO Contracting,” 

, Nov 25, 2014, accessed Sept. 29, 2017. 
	9. US Department of Justice, “Generic Drug Manufacturer Ranbaxy Pleads Guilty and Agrees to Pay $500 Million to Resolve False Claims Allegations, CGMP Violations and False Statements to the FDA,” Press Release, May 13, 2013. 


	Vol. 41, No. 11
	November 2017
	Pages: 54–57

	When referring to this article, please cite it as S. Ayd, "Managing the Cost of Non-Compliance," 

Creating a quality culture can prevent the costs and challenges associated with receiving a consent decree.