In a year when initial public offerings and acquisitions were almost unheard of, the supplement business saw many go public and get bought.  Only iPhone apps fared better, and not by much.

Meanwhile, the regulatory landscape tightened, but not as much as expected under a Democratic administration.  While both foods and drugs had their shares of scandals, supplement makers passed their early cGMP inspections and emerged unscathed.

Looking ahead to 2010 we envision many new challenges and opportunities for the supplement business.  In no particular order, here’s what to look for in the year ahead:

Sports supplements face stiffer regulation. Under several proposals currently being circulated in Congress, the Drug Enforcement Administration would be given increased powers to schedule substances that are chemically similar to or precursors of human growth hormone effectively banning them from use without a prescription.  Some sports supplement makers will need to reformulate their products or face enforcement action from DEA, an agency far more aggressive than the FDA supplement companies are used to.

CGMP regulations impact small supplement businesses. In June companies with 20 and fewer employees become subject to the FDA’s dietary supplement CGMP regulations.  Companies that rely on contract manufacturing will receive a rude awakening as they are subject to regulatory scrutiny they have never previously experienced.  Small supplement makers should begin to prepare themselves by implementing standard operating procedures to comply with the new cGMP rules.  Many will fail to do so and by year’s end fewer small supplement companies will be around to see 2011 as a result.

Investors get serious about supplements. Expect more merger and acquisition activity in 2010 with special emphasis on venture capital firms seeking new opportunities for profit in the supplement space.  Ingredient suppliers, contract manufacturers, marketers and retailers are all in play.

Regulators take aim at Internet supplement businesses. Armed with new rules and increased funding, regulators at the Federal Trade Commission, Food and Drug Administration and state attorneys general will step up their attack on supplements sold as drugs and deceptive and unfair sales practices.  The FTC endorsement rule will be used against bloggers and the companies that sponsor them.  Learn and follow the rules now or get caught violating them later.

By all accounts 2010 will be a great year to not just survive but thrive.  We hope to be there with you and look forward to your comments in the year ahead.

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Jonathan W. Emord, Esq.

This is Part II of the Post that began here in which we discuss the three important suits filed this summer by supplement lawyer Jonathan Emord challenging FDA administrative action on first amendment grounds.

The cGMP Challenge – FDA Overreaching?

The FDA supplement cGMP regulations were anticipated from the time that DSHEA was passed in 1994 since the statute delegated authority to the Secretary of Health and Human Services to prescribe good manufacturing practices for dietary supplements.¹ The FDA’s dietary supplement GMPs were to “be modeled after current good manufacturing practice regulations for food and may not impose standards for which there is no current and generally available analytical methodology.”²

Of course, any regulation the FDA would promulgate under DSHEA would need to be consistent with the statute. DSHEA created a system of regulation where dietary supplements are deemed safe unless the FDA proves that a particular supplement presents a significant or unreasonable risk of illness or injury. As the cGMP Challenge Complaint correctly notes, “the express purpose of DSHEA was to ensure that ‘the Federal Government erects no regulatory barriers that impede the ability of consumers to improve their nutrition through the free choice of dietary supplements.’”³. Therefore, Congress placed “the burden of proof . . . on the Food and Drug Administration to prove that a product is unsafe before it can be removed from the marketplace.”⁴

FDA dragged its feet on the cGMP regulations until finally in 2003 the FDA published its Proposed Rule for dietary supplement GMPs.⁵ FDA published the Final Rule on June 22, 2007.⁶

The cGMP Challenge takes on the Final cGMP Rules on three separate fronts. First it argues that the cGMP Rules are contrary to DSHEA because under the regulations no longer is the burden on the FDA to prove a supplement is dangerous before it can be yanked from the market. Second it argues that the cGMP Rules create excessive burdens on small business and society. Third it argues that the cGMP Rules are unconstitutionally vague.

All these arguments appear sound. Emord argues convincingly that FDA has granted itself wide discretion to declare a dietary supplement adulterated for any violation of the Final Rule, without proof that a dietary supplement was prepared, packed, or held under conditions that violate the GMPs.

FDA concludes that it has no duty to prove a finished product to present a risk of illness or injury before deeming it adulterated and pulling it from the market for cGMP Rule violations. This is because under the GMPs, FDA can declare inadequate any record required to be kept and to deem on that basis alone a dietary supplement adulterated without meeting the statutory requirements of DSHEA.

The decisions that emerge from these cases could determine whether the courts will stand by the principles in DSHEA and protect the public’s access to supplement products in the future.

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1. See 21 U.S.C. § 342(g
2. Id.
3. See 140 Cong. Rec. S11705-06, at S11706 (Aug. 13, 1994
4. Id.
5. See Current Good Manufacturing Practice in Manufacturing, Packing, or Holding Dietary Ingredients and Dietary Supplements; Proposed Rule, 68 Fed. Reg. 12158 (Mar. 13, 2003
6. See Final Rule, 72 Fed. Reg. 34752 (June 25, 2007

The companies facing legal action are American Sports Nutrition Inc., Quality Formulation Laboratories, Inc. and Sports Nutrition International LLC, all in Paterson, N.J. The FDA says that Mohamed S. Desoky  manages all three companies. The FDA had warned Desoky in July 2007 that there were problems both with cleanliness in the Quality Formulation manufacturing plant and with unlisted ingredients in some products. Desoky has had a problem with inspectors in May 1998, according to FDA records.

The FDA complaint filed July 10 of this year says that management of the companies did not live up to promises to correct problems. In the latest inspection, “the company failed to clean processing equipment between batches and control allergens in the facility. FDA investigators also discovered live and dead rodents and rodent urine, feces and gnaw holes on bags of product.”

Gross. Attorneys for the FDA have asked the federal court for a permanent injunction that would halt manufacturing and distribution until all problems are corrected. In essence, the FDA wants a shutdown that could last weeks, even months depending on the amount of work needed to trap animals, disinfect equipment and eliminate unlisted ingredients.

Can a brand name survive such a scandal over the quality and safety of its products? Desoky and the three companies face that and other challenges. If the judge grants the FDA’s request, they will spends tens of thousands of dollars putting operations back in order. Responding to regulators’ legal actions will also be very costly. And customers and distributors may defect en masse.

The lesson for other manufacturers is that the FDA is getting tougher on food safety. While the agency gave Doseky two years to correct problems, when time ran out, the hammer came down. It is likely to strike again and again this year.

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Following up on a post from June 30, the question of consumer confidence in nutritional supplements arises again. The Times-Herald reports that many supplements have quality problems.  No one knows just how many of 40,000 products underdeliver on the goods listed their labels and over-deliver on unlisted, harmful ingredients and contaminants. “I believe that the problem is narrow, that the well-established and reputable brands deserve their reputations,” Michael McGuffin, president of the American Herbal Products Association, tells the paper that serves the Hudson Valley of New York.

The article then reels off test results that indicate a much broader problem:  “In ConsumerLab.com tests, six out of nine chondroitin supplements failed testing in April 2007. One had only 8 percent of what it claimed to contain, and one ‘maximum strength’ product had none.”

How big will the elephant become before the people in the room acknowledge its presence? And who will act first: manufacturers, regulators, consumers, Congress, a state attorney general, or a sharp civil attorney? And which company will be hounded out of existence as an example to others in the industry?

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Anne Hart has lots of questions about the quality and safety of nutritional supplements, 19 questions to be exact. They revolve around product integrity, contamination, mislabeling (think sibutramine), FDA oversight and so on.  A nutrition columnist for Examiner.com, Ms. Hart has several ideas for matching products to their labels,  all of which create more questions about the testing of every pill, powder, gel and liquid that could be considered a nutritional supplement.

The basic premise of her column is that a lab — probably a lot of labs — should test each nutritional supplement to see if it contains what the label says. The test results should be made available free of charge to consumers whether they are buying online, in a store or from a friend. Who owns the labs and who pays for all those assays and the like? And what entity maintains the databases that must constantly be updated?

Ms. Hart would like the nutrition supplement industry to underwrite the testing costs, but that poses an ethical problem: Just how independent and trustworthy can the labs be if their clients are the  manufacturers? For the answer, look at the uneven history of research firms on Wall Street. The Council for Responsible Nutrition is off the list, too, says Ms. Hart. We can rule out the FDA because it does not have the funding and cannot tax the manufacturers to pay the costs.  Universities have lots of labs and student researchers, but not the money to conduct tests.

“What about forming a group of consumers that would watch the government agency, the independent testing labs, and the manufacturers?” asks Ms. Hart? The idea may be laudable but it is not realistic. America’s social and economic structure does not have a place for such an entity unless it is underwritten by a foundation. The closest model is the Insurance Institute for Highway Safety. It tests how well vehicles fare in crashes, but insurance companies — not consumers — pay for the publicly available research.

Is there a solution that gives consumers peace of mind that what they buy is what they get?

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Get ready for the not-so-kind-and-gentle FDA when it comes to food safety. The agency took abuse from politicians and consumer advocates over its handling of peanut and pistachio contamination earlier this year. Possibly to avoid a third hit, the agency moved swiftly and without warning on May 7 when it sent U.S. marshals into a warehouse of Memphis-based American Mercantile to seize $1.5 million in food ingredients.

The FDA found evidence in March of extensive rodent and insect infestation throughout the company’s warehouse, the agency said in a news release. American Mercantile did not clean up the mess, the agency said, so it obtained a court order to send federal agents to the company’s warehouse. They hauled away food products including sarsaparilla, spearmint leaves, cornstarch, sweet orange peels powder, licorice powder, sassafras and salt.

“FDA will not tolerate a company’s failure to adequately control and prevent filth in its facility,” said Michael Chappell, the FDA’s acting associate commissioner for regulatory affairs, said in the release. “The FDA is prepared to use whatever legal means are necessary and appropriate to keep potentially contaminated products out of the marketplace.

Tough action matched the words. Functional Ingredients reports that the FDA did not issue a warning letter to American Mercantile before the raid.

The door-kicking has rattled some in the ingredients industry. “If there is anything to be learned from this, it’s that this is a very visible example of a system that needs improvement. Better communication is needed from FDA, third-party certifiers and the National Organic Program and vice-versa,” says Marty Mesh, executive director of Quality Certification Services told Functional Ingredients. QCS was due to re-inspect American Mercantile for organic certification, according to the article.

“The food and supplements industry can expect a lot more of this,” says Loren Israelsen, executive director of the supplements trade group United Natural Products Alliance, told the publication. “This is the new FDA, so wake up everybody.”

Now that the FDA has everyone’s attention, what are the best courses of action?

• Take health inspections seriously. Ignore an FDA or state agency evaluation and armed men may come through your door.
• Keep warehouses and manufacturing facilities squeaky clean. Check vendors and demand documentation, not assurances, that they are following certified good manufacturing practices.
• Communicate. Tell customers, regulators and certification agencies what steps you are taking to make sure that your food ingredients are uncontaminated. Post documents online that show your company and its vendors passed inspections.
• Trust, but verify, as the Russian saying goes. American Mercantile says on its Web site that its manufacturing plant is GMP/FDA and pharmaceutical compliant, but Functional Ingredient could find no evidence to support those claims.

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FDA held a 3 hour webcast last week detailing its industry guidance on the new CGMP regulations. The webcast has been archived. To view the webcast at your leisure click here.

FDA suggests using Internet Explorer to allow full navigation through the webcast.

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Helpful links from the presentation include FDA’s PowerPoint presentation the proposed regulations here: http://www.cfsan.fda.gov/~lrd/fr030313.html and a side-by-side comparison between the proposed dietary supplement GMP’s and the food GMP’s here: http://www.cfsan.fda.gov/~dms/dscgmps3.html. Also, more information courtesy of CRN is here: http://www.crnusa.org/pdfs/GMP4way.pdf.

Moderator Lambert observed that GMP implementation will probably result in “trial runs” by FDA inspectors of large facilities to allow FDA to become comfortable with the new regulations and their application.

LeDoux emphasized that GMP implementation will impact foreign supplement and ingredient manufacturers because the regulations will will apply to foreign firms that produce products imported into the US. The new GMP regulations may also be copied by some foreign governments, including ones in Asia, looking to create their own standards. LeDoux also observed that GMP implementation will also allow US firms to operate on an even playing field with foreign firms in countries that already have GMP regulations in place.

On a side note, one attendee noted that the implementation of GMP regulations may prompt plaintiffs lawyers in products liability cases to use the GMP’s as a standard of care for manufacturers in personal injury litigation. Good point.

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