Companies that Source Pharmaceutical and Food Ingredients in the People’s Republic of China Should Take Heed of the Government’s Response to Recent Chromium Contamination

Companies that Source Pharmaceutical and Food Ingredients in the People’s Republic of China Should Take Heed of the Government’s Response to Recent Chromium Contamination

China’s State Food and Drug Administration (SFDA) detained 45 people and seized more than 77 million gelatin drug capsules tainted with chromium in April 2012. The SFDA found that 254 pharmaceutical companies, or 12.7 percent of the drug capsule producers in China, had made products with unsafe levels of this toxic heavy metal. In extreme cases, tainted capsules contained 90 times the national standard for chromium. The SFDA found that certain manufacturers knowingly obtained non-pharmaceutical grade gelatin from a number of uncontrolled sources, including leather manufacturers (leather manufacturers can produce industrial-grade gelatin from scrap leather). Working in tandem with the SFDA, China’s Ministry of Public Security shut down 80 illegal production lines in the Zhejiang, Hebei and Jiangxiprovinces. While there have been no immediate reports of deaths or illness caused by the tainted gel capsules, long-term chromium exposure has been linked to organ damage and the development of cancer and chronic illnesses.1

In a recent quarterly disclosure to the Securities and Exchange Commission, Biostar Pharmaceuticals, Inc., detailed the effect of the chromium investigation on drug companies operating in China. Biostar reported that the SFDA suspended the sale and distribution of thirteen drugs from nine pharmaceutical companies that used contaminated capsules. In addition to suspending drug sale, the SFDA also revoked production licenses of two gel capsule manufacturers. In an official statement, the SFDA reported that it had ordered the Zhejiang provincial drug authority to revoke the licenses of plants in Huaxing and Zhuokang for “grave violations of laws and regulations,” without specifying their wrongdoings. The SFDA stated that it would pursue criminal charges and harsh punishments where appropriate.

The SFDA is pursuing remedial measures. The SFDA promulgated regulations that require pharmaceutical companies to self-inspect and self-screen to ensure that moving forward they do not accept toxic products into their inventory. Biostar’s disclosure cites a government mandate titled the “Notification of Strengthening Quality Control on Capsule Drug and Related Products and Announcement of Strict Implementation of Inspection of Every Batch of Official Gelatin Capsule and Capsule Drug.” Pursuant to the mandate, all companies purchasing capsules must maintain quality inspection certificates from the manufacturing facilities. The capsules must also have passed quality inspections by the SFDA. In addition to the self-screening measures listed above, the SFDA dispatched an investigation group for onsiteinspection and investigation of pharmacies and plants.2

The SFDA has also taken a page out of the US HHS-OIG exclusion manual and its List of Excluded Individuals and Entities (LEIE). In June 2012, the SFDA proposed to “blacklist” executives who oversee pharmaceutical companies found to produce substandard or counterfeit drugs. If approved, eight categories of individuals and companies would be subject to blacklisting, including those who produce or sell counterfeit drugs, produce medical instruments without a business license, and cause injuries with unlicensed products.

According to a draft of the blacklist proposal released by the agency, the list of offending executives would be made public and would detail their respective companies’ violations. The proposed regulations would also exclude “serious” offenders from engaging in drug or medical device production or other related business activities for 10 years. The SFDA would also inspect blacklisted companies and their products more frequently. It will also require violators to file periodic reports on quality control changes and other manufacturing improvements, not unlike the Corporate Integrity Agreement process in the United States.3

The SFDA’s response to the chromium contamination scandal is part of a larger effort by the Chinese government to modernize and increase the safety of its pharmaceutical and medical device industries. In December 2011, the Chinese government unveiled its 2011-2015 National Drug Safety Plan. The Plan requires the revision of laws and regulations governing the distribution of medicines, including a “severe crackdown” on counterfeit and other illegal medicines. The Plan seeks to achieve 100 percent adherence to China’s new Good Manufacturing Practices (GMP) rules by 2015. The Plan also calls for strengthening the SFDA’s enforcement powers. At the same time that the Plan was released, China’s State Council identified an objective of more frequent and broader SFDA inspections of manufacturing and clinical facilities, especially in rural areas.4

These reforms in China have broad implications for U.S. companies conducting business there. Manufacturers who source food and drug supplies in China for production plants there must prepare for SFDA investigations. Best practices require these companies to adopt self-regulation procedures, such as inventory acceptance testing, third-party calibration of testing equipment, self-inspections and quality audits, rehearsals for SFDA inspections, and education within the quality function of the SFDA’s expectations.

The SFDA’s response to the chromium contamination scandal continues. The Saul Ewing White Collar and Government Enforcement practice group will keep you up-to-date on this story as it develops and will advise you on how it might affect your business.

1 Miranda Shek, SFDA Plans to Blacklist Drugmakers, Global Times, June 1, 2012.

2 Biostar Pharmaceuticals, Inc., Quarterly Report (Form 10-Q), at 16 (May 15, 2012).

3 SFDA Proposes ‘Blacklist’ to Shame Drugmakers into Higher Standards, Pharm. Corp. Compliance Rep., June 8, 2012, at 2012 WLNR 11973655.

4 Phil Taylor, China unveils five-year drug safety plan, Securing Pharma, December 7, 2011.

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