Regulatory Update: CGMP Compliance

Critical CGMP Compliance Risks Go Beyond The CEO and The Park Doctrine

BY Philip Crooker, J.D., Vice President, Technical, Parexel - 11.19.19 -

If you work in the pharmaceutical industry or follow the industry news, you’ve likely heard the phrases “Park doctrine” or “responsible corporate officer (RCO) doctrine” mentioned when the government is considering a criminal prosecution for violations of the Food, Drug and Cosmetic Act (FDCA).

Briefly, these phrases have their origin in the case United States v. Park, 421 U.S. 658 (1975).  Mr. Park was the president of a food company who was convicted of a misdemeanor violation because of the filthy conditions of a warehouse where food products were being held.  Mr. Park did not have direct responsibility for the conditions in the warehouse but as the chief executive officer (CEO) he was responsible for overall operations of the company.  The U.S. Supreme Court upheld his conviction.

But what about civil liability to aggrieved shareholders or consumers alleging harm for claims that aren’t criminal violations of the FDCA that the government investigates and would prosecute?   Although a CEO maybe the public face of a company, in many business organizations the CEO reports to a board of directors and is responsible for implementing board decisions and initiatives.  Because boards of directors typically consult with management regarding strategic direction of the company and monitors company performance, the board – and not just the CEO – could confront the issue whether it can be held liable for lapses in compliance with current good manufacturing practices (CGMP).

Based on a recent case from the State of Delaware, boards of directors could be liable where is no board-level process for monitoring essential compliance issues.  In 2015, Blue Bell Creameries, a large manufacturer of ice cream, experienced a listeria outbreak, which contaminated its products and led to the death of three people.  The company recalled its products and shut down production. 

The 2015 listeria outbreak followed years of alleged problems at Blue Bell’s manufacturing plants. There was abundant evidence of Food and Drug Administration (FDA) and state regulatory findings of compliance failures from 2009 to 2013 and a series of repeated, positive tests for listeria at the company’s plants beginning in 2013.  Lawsuits followed.

In the case Marchand v. Barnhill, No. 533, 2018 (Del. June 19, 2019), the Delaware Supreme Court determined that no system of board-level compliance monitoring and reporting existed at the company.  The Court reached this conclusion despite the presence of safety procedures as part of the company’s day-to-day operations—e.g., employee safety manuals, occasional audits, and inspections by governmental regulators.  But such day-to-day operational safeguards are inadequate for the board to give attention to the company’s central compliance risks.

Like the food industry, manufacturing in the pharmaceutical industry is pervasively regulated by both the FDA and in some cases state regulatory agencies.  Essential or mission critical current good manufacturing practices (CGMP) compliance risks and issues that pharmaceutical manufacturers are facing must be reported and discussed at the board level.  Having only a day-to-day operational compliance program where issues are reported to management but not necessarily escalated for a board of director’s consideration is not likely to insulate the organization from future harm and liability.

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