By Donielle Tigay Stutland, J.D.
Federal judge finds the owner and manager of a drug compounding facility not guilty of conspiring to defraud the FDA because the FDA did not have regulatory oversight over compounding facilities.
On June 7, 2019, two defendants were acquitted on fraud charges in connection with a drug compounding facility; a federal judge found that a conspiracy conviction when the FDA’s regulatory authority was not clearly established would be legally impossible and in violation of due process. This case involved one of the owners and the director of operations of the New England Compounding Center (NECC), a drug compounding center responsible for a fungal meningitis outbreak in 2012 stemming from its packaging of steroid injections. On December 16, 2014, a federal grand jury indicted fourteen co-conspirators, all former owners and employees of NECC. On appeal, a court granted motions for judgments of acquittal for an owner and an operations director, finding the two not guilty because the conspiracy conviction was legally impossible. The court reasoned that the FDA did not regulate pharmaceutical compounding facilities, and as such violated due process because there was no warning that the actions would be subject to prosecution (United States v. Conigliaro, June 7, 2019, Stearns, R.).
Facts. NECC was described by as a "small scale, family-run, compounding only pharmacy, not a drug manufacturer." State-regulated compounding pharmacies produce customized drugs pursuant to patient-specific prescriptions to address individual needs. In 2012, NECC became notorious, as injectable steroids it packaged were tied to a fungal meningitis outbreak. This outbreak injured hundreds and resulted in over 60 deaths, and was all traced back to tainted batches of methylprednisolone acetate emanating from NECC. According to the court, NECC "willfully deviated from pharmaceutical industry standards in a mad pursuit of profits."
On December 16, 2014, a federal grand jury indicted fourteen former owners and employees of NECC, including the owner and the director. The indictment focused on three conspiracies: a racketeering conspiracy, a conspiracy to illicitly structure bank transactions; and the count focused on in this case, a conspiracy to defraud the government, specifically the FDA, in violation of 18 USC §371.
On appeal, the owner and director of NECC focused their defense on legal impossibility and a violation of due process. They argued that there is no discernible federal law defining any clear distinction between a compounding pharmacy and drug manufacturer, as such as a compounding pharmacy, NECC was not subject to FDA regulation. Prosecutors had argued that regardless of the FDA’s authority over state licensed drug compounders, NECC had acted as a drug manufacturer and as such would fall under FDA purview.
Legal Impossibility. The court concluded that a legal impossibility defense could be available if the FDA did not have regulatory authority over NECC. The crux of the analysis came down to whether at the time of the transgressions by NECC, the FDA was in fact responsible for regulating NECC and compounding pharmacies. Stearns reasoned that if, at the time of the events by NECC that caused the meningitis outbreak, the FDA did not have regulatory authority over NECC, in his opinion a legal impossibility defense would be available.
Evidence on the scope of FDA’s authority. For the first fifty years after the enactment of the FDC Act (21 U.S.C. §301 et seq.), the regulation of compounding was left to the states. In 2002, the FDA issued a Compliance Policy Guide emphasizing that the FDA was choosing to focus its regulatory oversight on large scale manufacturer, continuing to leave the regulation of the smaller compounding pharmacies to the states. Following the outbreak, the FDA noted that its ability to take action against compounding "has been hampered by limitations and ambiguities in the law." The court noted that only in the aftermath of the meningitis outbreak was the FDA given the appropriate tools with which to more fully regulate the industry, as new laws were written in 2013. The court believed that at the critical times, the owner and manager of NECC could not have defrauded the FDA because there were no regulatory functions with which they could have interfered with.
The case is Criminal Action No. 14-10363-RGS.
Attorneys: Amanda P. Strachan, U.S Attorney's Office, for the United States. Daniel M. Rabinovitz (Murphy & King) for Gregory A. Conigliaro.
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