Under the microscope

19 July 2019

Regulatory non-compliance risks in the Life Science industry

There are many challenges within the supply chain of a life science product. A very real issue is regulatory intervention, one which global insurer Munich Re has been analysing for several years now. Indeed, Munich Re holds plenty of incident data derived from the FDA such as on shutdowns and import bans. In 2017, the FDA recorded 52 shutdowns and import bans in comparison to only seven in 2010, showing a heightening in regulatory interest and scrutiny.

Looking more closely at the FDA shutdowns and bans, while there has been a lot more development in life sciences in China and India, the standards are sometimes lower, even if the regulations are equivalent to Western standards. Enforcement of regulations is still catching up. Munich Re observes that the UK and French regulators are also very active on shutdowns, given regulatory sophistication. In terms of geographic location and raw numbers, the US, India and China is where these are happening the most.

Munich Re calls this regulatory action ‘the silent hurricane’. Comparing regulatory action by the FDA to the impact of a hurricane seems a bit farfetched, but they’re comparable because of the financial impact, despite how different the events are. Regulatory business interruption loss events since 2009 have cost the industry >$8bn. These have been uninsured. In the same period, insured ‘damage-related’ business interruption losses have probably cost between $1bn and $2bn.

It is important to note that when it comes to the top 15 deviations cited on FDA 483s, a lot of them seem uncomplicated, meaning that companies can get caught out more easily than they might think.

Case study: Mylan compliance issues

Impact of Puerto Rico Windstorm 2017: Tax incentives offered by the US Government in the 1990s made Puerto Rico an attractive place to set up operations. As of July 2017, 65 facilities were registered on the FDA’s Drug Establishment listing. During the 2017 Atlantic hurricane season Irma passed by and then Maria devastated the island.

Mylan regulatory 2017 & 2018 issues: Mylan’s own site in Morgantown received a 32-page FDA 483 and FDA warning letter. Following the impact of the hurricane the FDA found that “the firm failed to clean, maintain, and, as appropriate for the nature of the drug, sanitize and/or sterilize equipment and utensils at appropriate intervals to prevent malfunctions or contamination that would alter the safety, identity, strength, quality or purity of the drug product beyond the official or other established requirements”.

In 2017, Mylan’s own site in Hyderabad within India lost its EDQM Certificate of Suitability, and Valsartan and Amlodipine were recalled due to carcinogen contamination. As of December 2017, the cost of recalls related to Valsartan products were $22.6m.

In addition to their own issues, Mylan also suffered financial losses when its supplier, Pfizer’s Meridian Medical, received an FDA warning letter in 2017 citing failure to investigate any unexplained discrepancy; failure to establish, maintain and follow procedures; failure to adequately analyse processes, work operations, quality reports and other quality problems etc. This resulted in global recalls and a shortage of EpiPens. While the cost of recalls was covered by Pfizer, the drop in EpiPen sales impacted Mylan directly (estimated to be $100m over the last two years).

Consequences of non-compliance:

The following are consequences of non-compliance and adjoining issues:

  • Europe – Non-compliance report/licence suspensions generally very soon after an inspection
  • USA – Warning letters/import alerts/consent decrees, generally many months after an inspection
  • No longer able to supply active ingredients or products
  • Product shortages/failure to meet tenders
  • Time to remediate significant non-compliance issues:
    • A minimum of six months and up to several years
    • Massive disruption and costs

Future trends:

Most regulators are identifying Data Integrity issues:

  • Destruction of documents
  • Falsification of test results
  • Genuine mistakes/failure to check data submitted

Cross-contamination risks are often identified, including a lack of basic cleaning of equipment:

  • Sterility assurance findings are commonly cited by regulators
  • Issues that cause concern to the general public are things that the FDA and other regulators will focus on
  • Test methods are also an area the industry should be mindful of moving forward

Risk transfer solutions

The risk transfer solutions against this complex backdrop of risks when it comes to non-compliance and the supply chain:

  • EQuIP provides insurance against financial losses resulting from suspension of manufacturing due to GMP violations sustained during the indemnity period. Financial losses covered include loss of gross earnings, remediation costs, extra expenses including regulatory investigation costs and recall costs
  • Core Coverage – Regulatory Shutdown: Total or partial suspension of manufacture by or on behalf of the Insured as a direct result of:
    • An order by a Defined Regulatory Authority (DRA) to suspend manufacture, or voluntary action by the Insured or a named supplier to pre-empt a DRA order to suspend manufacture at an Insured’s named owned facility, or a named Supplier’s facility as a direct result of irregularities in the manufacturing process being discovered at that facility and not rectified to the satisfaction of the DRA

Optional coverage

  • Import Ban in respect of products (including materials and components) manufactured at one of the Insured’s named owned facilities or a named supplier facility situated in non-DRA countries as the direct result of irregularities in the Manufacturing Process at that facility discovered by a DRA during an inspection
  • A total or partial Suspension of Manufacture at an Insured’s facility resulting from the discovery, prior to their use in manufacture, of faulty, contaminated or out-of-specification materials or components or delivery devices received from a named supplier facility
  • Flexibility to provide additional coverage if relevant for:
    • Loss of royalty income from a contract as a direct result of an Insured Event
    • Liquidated damages contractually payable as a direct result of an Insured Event

Claims – a collaborative approach

Claims are never easy. The best way to get ready for a potential claims scenario is to be prepared for such an event. We’d suggest these three main tips:

  1. Give the insurer the opportunity to get to know the company better and understand potential challenge areas that could be addressed collaboratively
  2. Prepare for future claims by implementing: claims scenario workshops; claims preparation workshops; and defining a claims protocol, i.e. clearly defined procedures, contacts, roles & responsibilities
  3. Independent industry experts should also be involved to help the smooth running, for example have a cGMP expert panel in place

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