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Editorial: The Cost of Non-Compliance

By Len Monheit

Over the past several weeks, I’ve pondered, through viewing FDA warning letters, FTC enforcement actions, and dialogue in the Canadian marketplace, just what is the cost of non-compliance. In any given week, we see so many numerous examples of non-compliant activities in our market place that one cannot help but wonder, “surely not all these business are that naïve.”

At some point, many of these organizations must have at least an inkling that they have the potential to cross that regulatory line, yet despite possible guidance to the contrary, at least from a legal perspective, they still choose to go there.

Several years ago, I had the opportunity to attend an industry executive roundtable called at one of our tradeshows, where a key topic of discussion was flagrant disregard for regulations and the current crisis undermining industry credibility. Well, GMPs have possibly blunted the edge of the argument, but the fact that companies can still willfully push the regulatory boundaries based on a liberal risk-reward calculation still baffles me.

Some of the decisions we’re seeing currently though, do not involve flagrant disregard. Instead they involve careful calculation of the potential regulatory stretches, those murky areas where a contrary decision, on the part of the regulator, may take some time to arise, in the meantime, literally making hay while the sun shines. So whether it’s a pharma company making the leap into combination products, a young supplement company utilizing DRTV channels, or a NHP retailer using the Internet for distribution, it’s quite evident that at some level, in many organizations, meticulous risk-reward calculations are taking place to evaluate and plan corporate aggressiveness (and regulatory challenges).

When one combines this scenario with one of industry’s major ‘buggaboo’s’ – that of relatively low barriers to entry, the opportunity for credibility depriving entrants into the marketplace remains significant, despite GMPs, and site and product licensing in Canada.

In any regulated environment, it still comes down to enforcement, and on both sides of the North American border, this issue is no exception. While we’ve seen several recent examples of agency enforcement from both FDA and FTC, the fact remains that numerous practices are either under the radar, or just gray enough as to avert immediate action. We’ll soon find out (June next year and onward) just what FDA’s enforcement tactics will be for GMP’s, but in both marketplaces, consumers can still find and purchase questionable goods at best, overtly illegal at worst. And now superimpose on this environment the opportunity for calculated risk: “If they catch me, and if they pursue, and if I lose, and if I have to pay, I’m still ‘x’ million dollars ahead for each month they don’t catch me.”

If a company can make $5 million per month in profit; if the chances of getting prohibited in the first three months are relatively low; if the landmark fine in the type of case is $5 million (with a prohibition actually more likely in ‘gray’ cases), well, then… do the math yourselves.

Arguably, we’re seeing this type of behavior less frequently, or at least less overtly as was the case several years ago. Recent enforcement activities (and the penalties imposed) may be serving as the deterrent they are intended to be. But the practices are still out there, as they are in most sectors where there is an economic incentive to skirt some rules for the quicker or bigger buck. (read ‘melamine’)

As an industry, we need to be aware rather than naïve, collaborate where possible with regulatory agencies, and seek out some minimal barriers to entry presented rather as a cost of admission to the industry mainstream. From an enforcement standpoint, one would hope that the penalties accumulate making the risk-reward calculation for non-compliance a money-losing proposition.

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