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Hospira Acquires TheraDoc

TheraDoc’s Infection Control Assistant provides continuous infection monitoring, intelligent alerts, and timely analysis of hospital infections. TheraDoc has approximately 85 employees and the company’s products are also under evaluation by hospitals in Canada, the United Kingdom and Australia.

Licensing Agreement between Intelliject and Sanofi-Aventis

Sanofi-Aventis will make an initial up-front payment of $25 million. Intelliject will also be eligible to receive development and commercial milestones up to $205 million and tiered double-digit royalties on sales of any products commercialized under the license.

Stryker Acquires Ascent Healthcare Solutions

Ascent currently provides cardiovascular, orthopedics, gastroenterology, and general surgery devices to 1800 hospitals and numerous Group Purchasing Organizations in North America. It’s sales in 2008 were more than $100 million.
The closing is conditioned on the expiration or termination of all applicable waiting periods pursuant to the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. Each companies’ board of directors and shareholders have approved the transaction.

TransEnterix Named Most Innovative in North Carolina

TransEnterix is scheduled to launch its Spider Surgical System, a multi-channel advanced laparoscopic platform that offers surgeons true triangulation and 360-degree articulation. It collaborated with surgeons, preclinical labs, and rapid prototyping, to establish a new business model that allows it to bring new technologies to market more quickly. The company has secured $75 million in venture capital funding. The Spider System recently was recognized by the Society of Laparoendoscopic Surgeons as an “Innovation of the Year.”

MarketPulse: Industry Sees Brighter Future in 2010

Click to enlarge
Source: Emergo www.emergogroup.com.
A recent survey from Emergo asked medtech employees to assess the industry going into 2010. Results were generally optimistic. However, when asked about their companies’ hiring trend for 2010, the response was more cautious. Although 72% of medical device companies expect their company sales to increase in 2010, less than 52% expect their company to hire more employees. This would seem to indicate that, while optimistic, companies are reluctant to ramp up hiring until they are sure the economy will not sink into recession again. The lag in hiring is common in many industries. Results to this question varied by company size. Only 39% of companies with more than 1,000 employees expect their companies to have more employees one year from now compared to about 55% for smaller companies with fewer than 100 employees.

Antibribery Crackdown Transforms Business Practices in China

As a result, products supported by bribery sell more quickly and at a higher price than products for which lower or no bribes are paid, regardless of the devices’ inherent value or effectiveness. The overall effect is that prices rise for all medical devices.

Henry Chen
Eric Hargan
Problems such as those cited here are driving the Chinese government to eliminate bribery in relation to cai wu (literally, cash and valuables) or bribery by other means (e.g., tourism) by expanding efforts to make it harder to offer and accept bribes. This push is part of a general evolution of China’s judicial concepts and legal system. This change is inseparable from China’s business, cultural, and economic environment, as privatization and rapid economic growth require new judicial and cultural frameworks. Manufacturers of medical device and diagnostic products need to become familiar with all the provisions of the new anti-bribery regime, so that they and their sales agents can ensure that their activities in China comply with these complex and demanding regulations and market requirements.
Bribes, Kickbacks, Theft
Bribery is a major worry for all multinational companies, of course. Integrity Interactive, which helps global corporations manage and reduce the risk of compliance failures, recently announced the results of its new annual study of the top 12 corporate compliance concerns expressed by global companies. According to the study, companies are putting greater focus on public compliance concerns in the world at large as they focus on preventing legal problems for themselves. The leading corporate ethics and compliance concern for 2009 was anti-bribery requirements. Understanding these requirements helps companies avoid the difficulties caused by investigation for charges relating to official corruption.1
Given the growth of multinational business activity in China, it is unfortunate that bribery is pervasive there, and indeed, it is a global problem not limited to China. In 2008 Ernst & Young conducted its 10th global fraud survey and interviewed 1186 business leaders in large organizations across 33 countries. The survey found that 23% of companies admitted their organizations had faced pressure to make illegal payments, while 18% said they had lost business to a competitor as a result of a bribe.2 A study by the Carnegie Endowment in 2007 estimated that around 10% of Chinese government spending, contracts, and transactions are used as bribes, kickbacks, or theft. Foreign firms also contribute to the problem.3 In the 2008 Corruption Perception Index by Berlin-based Transparency International, China scored 3.6 on a scale of 10 to 0, with a rating of zero indicating corruption is very intensive and rampant.4 The Chinese Communist Party Central Committee issued a 36-page policy paper in 2004 calling corruption “a life-and-death struggle” for the Party.5
Some people attribute the existing level of corruption to political reasons. Others take it as a matter of culture. To quote one recent academic study, “[s]ome people hold the view that China’s corruption problems have their root deep in the Chinese culture. They argue that the Chinese people, as well as most of their counterparts in Asian countries, have a long tradition of placing personal connections above the law, and that this is the real source of corruption.”6 No matter what the reasons are, the problem cannot be cured very easily.
Under the crackdown governmental authorities are financially motivated to fight bribery. Each regional office of the Administration for Industry and Commerce (AIC), the central body that administers China’s companies and enterprises, is assigned an annual target for imposing and collecting anti-bribery fines. For example, according to a 2006 news report, Wuxi AIC, Chong’an Branch, has five subsidiaries and one economic examination team, or a total of six investigative units. Each unit was assigned the task of collecting as much as RMB 1 million ($1460,000) in annual fines while the economic team was to collect as much as RMB 2.5 million in fines. Thus, the annual target totaled RMB 7.5 million for all six units. Chong’an Branch reached that mark in 2004 and exceeded it in 2005 by collecting RMB 8.4 million in fines, according to the report.
The government’s collection efforts continue to grow. In the first six months of 2006 alone Chong’an Branch took in fines totaling RMB 5.8 million.7 The financial incentive might give a falsely positive impression of the AIC’s efforts, but it does indicate the Chinese government’s long-standing drive to stamp out bribery.
Definitions Differ
Companies in China, whether foreign or domestic, risk running afoul of antibribery and corruption rules, according to a report by KMPG Forensic. “[W]ith the recession companies are having to fight harder than ever to win new contracts, and as a result there could be an increased pressure on those in the front line to override antibribery and corruption laws.”8 Adding to the difficulty is the uneven nature of law enforcement in China, as different governmental authorities may have different opinions regarding what is bribery. Some definitions of bribery are either extremely harsh or difficult to understand.
The case of one medical clinic is a good example of this problem. The Yi Chang City Women and Infants Clinic, was investigated and fined for engaging in commercial bribery because of actions that might be allowed for nonprofits in other countries. The clinic, in proportion to the sale price of the pharmaceuticals it purchased from certain suppliers, took some donations of cash and an air conditioner from the suppliers in 1998 and 1999. The clinic accounted for the cash donation under the entry of “other revenue,” and the air conditioner under the entry of “fixed assets.” Yi Chang AIC determined that the clinic took a commercial bribe from the suppliers and fined it accordingly.
The clinic brought an administrative lawsuit against the Yi Chang AIC for its decision, which was upheld by the courts. The AIC and the courts determined that the clinic did not account for the donations appropriately. By entering the donations in their books as “other revenue” and “fixed assets,” the clinic did not account for donations to set off the costs of purchasing pharmaceuticals. To avoid the bribery conviction, the Yi Chang City Women and Infants Clinic should have accounted for the donations as discounts for the goods it purchased, or credited administrative expenses with the donations. Yi Chang AIC and the courts determined that by failing to take either of these actions the clinic was booking the donations “off the accounting book” and “secretly.” Therefore, the clinic should assume an administrative liability for taking a commercial bribe.9
Please bear it in mind that law enforcement in China is uneven. The case is just one example that indicates how the Yi Chang AIC and the court treated such a scenario. Regional AICs and courts of some other areas may have different determinations, which makes risk management a tougher job in China.
Differences in interpretation should also be considered in the following discussion about the specifics of China’s new anti-bribery crackdown.
Centralized Systems Established
As discussed earlier, China’s central government and local governments are taking major steps in their efforts to curb bribery and reduce the prices of certain drugs. These steps include establishing online, centralized procurement systems and procedures in order to blacklist businesses that offer bribes and to punish doctors for taking bribes for purchasing or prescribing healthcare products.
In January 2009, several government agencies, including the Ministry of Health and the State Food and Drug Administration, issued jointly the Opinions on Strengthening the Centralized Procurement of Drugs by Medical Institutions. These rulings, which in practice encompass some medical devices as well, are intended to regulate the procurement processes of medical institutions, control unreasonably high prices, and regulate purchases and sales in order to restrict and prohibit commercial bribery and reduce the high cost of medical supplies. For example, Beijing Health Bureau required that the medical consumables be procured on a concentrated basis.10
Implementation of centralized, online medical procurement is under the direction of local government at the provincial level. Going forward, all not-for-profit medical institutions under governmental jurisdiction at the county level or above or all state-owned enterprises (including state holding enterprises), must participate in this centralized procurement process that, in principle, will be conducted once a year. All other medical institutions are also encouraged to participate.
The system features a procurement catalogue that will include, with some specified exemptions, almost all drugs and other medical products used by medical institutions. Listings in the catalogue are secured by means of public tendering and bidding, online auction, collective bargaining, and listing online. Medical purchases that have been made collectively several times at consistent prices may be listed directly online. Products listed in the system will, in principle, be dispatched to medical institutions by manufacturers or trading enterprises, as authorized by manufacturers. Some experts in China estimate that the number of pharmaceutical companies will decrease by one-third as a direct result of the reform.
Bribery Blacklist
According to the “Rules Regarding Maintaining Records of Commercial Bribery in Medical Sales” issued by the Ministry of Health in 2007, each provincial health department must maintain and publish a “bribery blacklist” of manufacturers or traders of healthcare products. By law, medical institutions cannot purchase any medical products from blacklisted companies for two years. Companies are added to the list if they:
 
• Provide financial or other benefits to medical institutions or their representatives.
• Were convicted of bribery as a criminal offense.
• Were investigated and punished for bribery by the discipline supervision authorities.
• Attracted administrative punishment for bribery from the relevant authorities.
• Fulfilled other criteria as may be stipulated by provincial health administrative departments.

Local governments are implementing the blacklisting rules vigorously. For example, in November 11, 2009, the Fujian Provincial Department of Health published a list of six pharmaceutical and medical device companies from inside and outside the province that engaged in commercial bribery within Fujian. These six companies are restricted from participating in the Fujian bidding and tendering process for two years, and hospitals in the Fujian province may not procure any health care products from the blacklisted companies for two years.11

Plugging Loopholes
Bribery may also expose the parties on both sides of the transaction to criminal liability. There are two categories of criminal bribery in relation to individuals. Originally, only state employees could be found guilty of having accepted a bribe, but the law has been changed to include individuals not employed by the state. If the recipient of a bribe works for the state (for example, as a public official working in a state-owned enterprise), he or she would commit what is known as the crime of taking a bribe, which domestic Chinese lawyers usually refer as the crime of a state employee taking a bribe. If the recipient of a bribe does not work for the state, he or she would commit what is known as the crime of a nonstate employee taking a bribe. An example of a nonstate employee is a general manager who does not have the status of a public official and works in a privately owned Chinese enterprise or in a business that receives foreign investment. The distinction is significant because the punishment for state employees is much harsher than it is for nonstate workers.
It has long been debated whether a doctor not employed by the state could be criminally liable for committing the crime of a nonstate employee taking a bribe, because a doctor is more of an independent practitioner than an employee of a company or enterprise. In addition, some hospitals are not considered a company or enterprise in China but rather are not-for-profit organizations. To resolve these issues, in November 2008, the Supreme People’s Court and the Supreme People’s Prosecuting Institute jointly issued a judicial interpretation, “Opinions on Several Issues on Application of Laws on Handling Criminal Cases Regarding Commercial Bribery.”
This judicial interpretation holds that a doctor can be subject to criminal liability for taking a bribe for the purpose of prescribing healthcare products. The judicial interpretation also emphasizes that if the recipient of a bribe works in a medical facility that person can also be criminally liable. The specifics of the crime and penalty depend on whether the person charged is an employee of the state. What is clear is that the Chinese government is closing ambiguities in the law, making it increasingly difficult for doctors to accept bribes.
Criminal law prohibits anyone (both state employees and employees of businesses or enterprises) from taking advantage of his position to demand cai wu or receive cai wu in order to confer illegitimate benefits on the giver. The use of cai wu as a bribe is also prohibited under administrative law. Cai wu tends to consist of cash or valuables that are usually tangible. Previously, nontangible items, such as entertainment in the form of travel or events, were not considered to be cai wu or to be a means of bribery under the criminal law. The judicial interpretation has now changed the definition of what constitutes cai wu in this context, as the scope has broadened to cover “gifts” that are financially quantifiable and have rights of property. Such financial interests and rights include improvements to houses and apartments, membership cards with financial value, cash substitutes or coupons, and travel.
If a medical device company, or any other provider of healthcare products, pays for a doctor to take a vacation, that vacation may make both the company and the doctor criminally liable for bribery. Because judicial interpretations are applicable retrospectively, those who have engaged in activities that fall within the new definitions may face criminal investigations for their actions in the past. As a result, the exposure to compliance and risk to reputation has increased for companies and enterprises active in the medical products market in China.
Start of a New Era
Outlawing practices as engrained as cai wu and instituting a bribery blacklist mark the start of a new era for doing business in China. These actions indicate that China’s legal and regulatory system is fully capable of conforming and supporting established international norms of doing business. Medical device manufacturers that export to China, as well as their business agents in that country, will ultimately benefit from such efforts to integrate China into the global legal and business system. Any temporary disruptions in business strategies to accommodate such a change will be far outweighed by the positive impact of this integration process.
 
References

1. “Bribery Tops List as Number One Risk Concern of Global Companies for 2009,” Supply and Demand Chain Executive, December 30, 2008; available from Internet: www.sdcexec.com/online/article.jsp?siteSection=16&id=10919&pageNum=2.

2. “Corruption or Compliance—Weighing the Costs: The 10th Global Fraud Survey,” Ernst & Young, May 2008; available from Internet: www.ey.com/GL/en/Newsroom/News-releases/Media---Press-Release---Senior-executives-see-jump-in-anti-corruption-enforcement.

3. Sue Lannin, “Foreign Companies ‘Bribe’ their Way into China,” ABCNews, July 2009; available from Internet: www.abc.net.au/news/stories/2009/07/23/2634561.htm.

4. Corruption Perception Index, Transparency International; available from Internet: www.transparency.org/policy_research/surveys_indices/cpi/2009.

5. “China Leaders Warn of Corruption,” BBC News Online, September 2004; available from Internet: http://news.bbc.co.uk/2/hi/asia-pacific/3692530.stm.

6. Shuntian Yao, “Privilege and Corruption: The Problems of China’s Socialist Market Economy—New Perspectives on Transition Economics: Asia,” American Journal of Economics and Sociology 61, no. 1 (January 2002): 279.

7. Gongshang Industry and Commerce, www.gcgs.gov.cn/NewsView.aspx?id=2364, [in Chinese].

8. “Companies Failing to Take Bribery and Corruption Risk Seriously,” Continuity Central; available from Internet: www.continuitycentral.com/news04711.html

9. Yichang City Intermediate People’s Court about the Case on the Conflict Regarding the Administrative Punishment of Yi Chang Women and Infants Clinic v. Yi Chang City Administration of Industry and Commerce, the Administrative Judgment of Hubei Province (2000). Yi Zhong Hang Zhong Zi Di 28 Hao.

10. Beijing Health Bureau, www.bjmbc.org.cn/homenew/news_detail.aspx?record_id=11315. [In Chinese]

11. Circular to Announce the Fourth Checklist of the Enterprises with Bribery Record at the Link of the Purchase and Sale of Pharmaceuticals, Fujian Provincial Health Department, available from Internet: www.fjphb.gov.cn/fjphb/infodetail/?infoid=287ced3d-b44f-40a7-8e84-36396a52f2df&categoryNum=003 [in Chinese].

Henry (Litong) Chen, the commissioner of the economic committee of All China Lawyers’ Association, is a partner of MWE China Law Offices in Shanghai. He is licensed in the PRC and the State of New York. Chen’s practice includes international arbitration, domestic litigation, compliance with the Chinese Anti-Monopoly Law, antitrust filings, and U.S. Foreign Corrupt Practices Act (FCPA) investigations. E-mail: HenryChen@mwechinalaw.com.
Formerly deputy secretary and regulatory policy officer for the U.S. Department of Health and Human Services, Eric Hargan is a partner with McDermott Will & Emery’s Chicago office, advising on transactions, healthcare regulations, healthcare policy, and government relations. He also previously worked in East and Southeast Asia as a corporate lawyer. During his time with HHS, Hargan worked with Japan’s Ministry of Health on U.S.-Japan health issues, served as cochair of the U.S.-Australia Medicines Working Group, and was a member of the U.S. delegation at the inaugural U.S.-China Strategic Economic Dialogue. Email: ehargan@mwe.com.

Device Tax? Readers Weigh In on the Tax and Healthcare Reform

The opinions came in response to a posting titled, “AdvaMed Chairman Says a Device Tax Is Necessary.” The blog pointed to a Reuters quote from AdvaMed chairman Michael Mussallem saying, “We’re not huge fans of [the tax], but I think at this point we very much believe that this is something that we need to do....” The blog also noted that Mussallem hopes the tax will be less than the $40 billion that the Senate is proposing. Here are a few reader comments on the topic:

  • Now I understand why St. Jude [Medical] pulled out of the group. And other device makers would be well advised to do the same! What kind of CEO would advocate the partners pay for this healthcare “reform?” It’s going to go down as costly for the Democratic Congress in terms of the next election and bad for the AdvaMed leader who recommended payment.
  • Are not all taxes paid in a product’s supply chain eventually paid by the end-user? So, in order to make healthcare more affordable, we need to make it more costly? Heck, why not just create a special sales tax for healthcare in order to pay for it?.
  • Any tax on a manufacturer is ultimately a tax on the consumer. Does anyone think that a tax is going to stop at this percentage rate? At what point is the cost going to be passed on to the consumer? What will be the cost of reduced finances available for developing innovative devices that ultimately advance quality and quantity of life? Reducing costs by limiting usage and limiting reimbursement puts pricing pressure on manufacturers and taxing the supply of devices pushes the cost of making the devices higher. This is a no win for us evil profit-making manufacturers.
  • The medical device industry already contributes more than anyone else. How about not socializing the medical system. The next steps are everyone’s salaries in the industry, especially the direct care givers.
  • Labeling the healthcare reform bill as socialism misses the point. The way we pay for healthcare in this country is not sustainable and is yeilding substandard outcomes. The vast majority of Americans want the system to change. If we in the industry resort to outdated stereotypes, we will be seen (rightly) as part of the problem. Accepting a reasonable tax of some sort will keep keep our voices at the table.
  • It seems that little attention is given to reducing healthcare costs. All this reform is doing is deciding who will pay for it and how much. The tax discussed here is evidence of that, and it is a sad display of service by our Congress to its people, and by an industry advocate (AdvaMed) to its members. The elephant in the room is the money being made within the healthcare industry. Reduce, remove, and restructure and we will all benefit.
  • This is not really healthcare reform, it is health insurance reform. If medical device companies think they can just add a tax onto their devices to pay for this, and everything will continue on as normal, I think they are looking through rose-colored glasses. One of our countries biggest strengths has been our medical R&D. We do not want to lose this edge, and we will if this legislation passes.
These represent just a sampling of the thoughts swirling around healthcare reform and its effect on the industry, particularly in light of this looming tax. Decide for yourself and let us know what you think is right.

The MX Q&A: CardioGenics’ Yahia Gawad

Yahia Gawad
Yahia Gawad has designed his company’s cardiac diagnostic test for that moment. The founder and CEO of CardioGenics (Mississauga, ON, Canada) claims the QL Care Analyzer offers highly accurate, rapid results at a sensitivity level heretofore unavailable in the POC immunoassay market. The device is the first of its kind to use chemiluminescence outside of a large lab analyzer, he says. This capability is particularly acute at a time of evolving definitions of ischemia, a growing need for more-sensitive tests, and increasing pressure to pare healthcare costs.
“Cardiologists and emergency room physicians are demanding more than just yes/no answers,” Gawad says, adding that “market penetration figures testify that the climate requires more than the existing cardiac test offerings.”
A physician, Gawad has been taking the pulse of the cardiac diagnostic test market for nearly two decades, having taken cardiac diagnostic devices from concept to commercialization for the past 18 years. Combining his training in cardiology, biochemistry, and immunology, he founded CardioGenics in 1997 after cofounding Skye PharmaTech (Toronto), a stroke diagnostics firm where he was vice president of medical affairs. The company changed its name in 2000 to SYN X. Before his stint at SYN X, Gawad was director of clinical research at Spectral Diagnostics (Toronto), a manufacturer of antisepsis diagnostic products. As of mid-December, CardioGenics Holdings reported a market cap of $83.8 million on the Over-the-Counter Bulletin Board (OTCBB), a quotation service for securities not listed or traded on NASDAQ or a national securities exchange.
In this exchange with MX, Gawad touches on the technical and market challenges of developing the QL Care device, the rigors of the FDA approval process, IVD trends, and the investment climate for immunoassay products following CardioGenics’ recent business agreement with a European firm.
MX: You say the QL Care Analyzer is a leap forward for immunoassay point-of-care cardiac diagnostic treatment. What was the nature of cardiac diagnostic treatment before the introduction of the device?
Yahia Gawad: The QLCA is a leap forward in POC diagnostics. It is the first POC platform to bring chemiluminescence to the POC immunoassay testing market for those seeking quantitative results. Fundamentally, the QLCA is an immunoassay analyzer that is set up to perform one test at a time in whole blood samples. It is not a miniaturized lab analyzer, in the sense that the technology was imported from lab-based machines. The core technology was specifically developed for the QLCA and works in tandem with numerous other technologies inside it.
Other POC platforms on the market employ fluorescence. Light emission from a chemical involves either fluorescence, in which an existing light source is used to elicit light from a chemical, or chemiluminescence. That involves the emission of light through a chemical reaction and does not use a pre-existing light source. Historically, chemiluminescence is difficult to perform in the absence of large laboratory analyzers because it’s a demanding technique that requires technically sophisticated design. With regard to current cardiac diagnostics, all are either qualitative, giving simple “yes” or “no” answers, or they employ fluorescence, which has a low detection limit.
MX: What business and technological changes or challenges have you seen in the IVD business since you were director of clinical research at Spectral Diagnostics?
YG: Back in the Spectral days, there was a trend to push for cardiac POC products, just to provide the yes/no answers for acute cardiac care. Currently, cardiologists and emergency room physicians are demanding more than just yes/no answers. Although many companies are still developing these products, the market penetration figures testify that the climate requires more than the existing cardiac test offerings.
As for the technical changes and challenges, the new data and definitions of acute coronary syndromes focus on pushing the sensitivity level of any analyzer, even central lab analyzers, to the limit to detect the lowest level of markers of cardiac damage. This is evident by the introduction of second- and third-generation cardiac diagnostic test products.
The definition of acute myocardial ischemia has evolved in such a way that the boundary between heart attack and unstable angina has been blurred. Any small damage to the heart muscle is now considered a heart attack, and this has large implications for the required testing sensitivity, let alone the economic implications.
MX: Cardiogenics is seeking FDA approval for the QL Care Analyzer and three additional tests in three-month intervals. What is the thinking behind this business approach for your company?
YG: The thinking behind the business plan and series of test product offerings is as follows: the first launch product has a predicate device. This means two things. Approval will be in a 510K equivalency, and, as a first test, it will diagnose a heart attack quickly in those patients whose EKGs do not reveal clear evidence of one.
The second test, the PIA-1 test, is a triage test for optimizing the performance of tPA, even though cardiac markers are not the indicators for administering tPA. Currently, the patient is diagnosed with a heart attack by means of the EKG and thereby becomes a candidate for tPA. The physician must decide whether the patient should be given tPA. Although the benefits of tPA are very clear, the failure rate is high. This new test is a treatment triage test.
The third test product is the HFRS, which targets another group of patients—those with heart failure. In 90% of heart failure cases, the patient had suffered a previous heart attack. This test paves the way toward the pre-selection of optimal treatment for heart failure patients, in contrast to the current trial and error approach.
The logic behind these three tests is to diagnose those with no clear EKG evidence of heart attack, to triage those with clear evidence, and to assess biochemically the risk borne by those who have had a previous heart attack.
MX: How did you determine the timeline of 12 to 14 months for the 510k application for the troponin l cardiovascular test?
YG: We based our estimate on the time for each of the steps required to take the TnI from its current state to FDA submission. The time for each step has a 25% contingency.
MX: Speaking of FDA, how is the regulatory climate for immunoassay products in general?
YG: In general, FDA is reviewing its current test approval practices. From my experience with Spectral and having taken products through FDA, informing FDA during the data collection phase is important, both from a strategic viewpoint as well as in terms of pre-approving the protocols for speedy approval.
MX: In January 2009, Cardiogenics signed an agreement with Merck Chimie to develop paramagnetic beads. How did the agreement come about? Was it difficult finding a partner in this economic climate?
In the very beginning, we were looking for beads for our QL Care Analyzer. We approached all kinds of suppliers. Knowing that the product needed to be custom-built, we took the initiative to develop the beads in-house, and this was driven mainly by cost issues. We developed the beads and generated enough data to demonstrate their value. Merck invited us to present our data at an international conference hosted by them, and we realized the commercial opportunity for the beads as a standalone product. We subsequently expanded on the data set and presented the data in 2007, which sparked the real interest.
Doing an agreement with a multinational partner is always an exercise in patience, and the corporate strategies of the large multinationals are not always disclosed. The fundamentals of needs, and specifically who needs whom more, drive the outcome of discussions and negotiations as in any other market segment.
MX: Regarding the economy, how would you describe the investment climate and its effect on Cardiogenics?
YG: The investment climate over the last few years has been very difficult for companies without revenue, let alone private companies in the developmental stage. The difficult economics have delayed our product launch by a few years, although the needs of the marketplace are very clear, as illustrated by numerous meetings with the various multinationals.
How have immunoassay products performed in the market over the past two to three years? What IVD trends do you see in the near future and how will these affect business?
Immunoassay products represent the fastest-growing segment of the IVD market, as reported by various market researchers. This trend will continue over the next decade or so, although the format might differ slightly. Almost every major manufacturer has an immunoassay platform, and they continue to add to their offerings menu. As for the IVD trends, the push for novel products and miniaturization will be a key in new product offerings.
Because Cardiogenics is based in Canada, you have a perspective on the difference in healthcare systems between it and the U.S. What are the advantages and disadvantages of both countries’ systems for a device manufacturer?
The answer to this question could take pages and pages. Although I’m no expert on healthcare policy, it’s my opinion that neither system is perfect. In both North America and Europe, disease predominance, [and the] economic and political climates dictate the major portions of healthcare offerings. The systems in the U.S. and Canada will have to close their gaps for providing healthcare in terms better than the currently existing ones. This is clear from the new healthcare reforms on the table in the U.S.
MX: There has been talk of including a device tax in the U.S. healthcare reform bill. Critics of the proposed tax say that it will stifle innovation by reducing profits, while supporters say device companies will make more money because they’ll have many more customers. What are your thoughts?
YG: I think both sides are right and both are wrong, as it all depends on the size of the IVD company. Large IVD companies will benefit in the end. However, for smaller IVD firms, the up-front hurtles to product development and commercialization are increasing.
You recently sent a letter to shareholders on three key initiatives. What response have you received from shareholders regarding your business strategy going forward?
Overall, the shareholders understand that the strategy is solid, and Cardiogenics will be profitable in the long term.

2009: Turmoil Erupts at CDRH

Turmoil overtook other areas of CDRH’s bailiwick as well, such as its checkered enforcement of medical device reporting (MDR) requirements for ambulatory surgical facilities performing LASIK vision enhancement procedures, its slothful handling of device recalls, and its growing concern over regulatory standards for laboratory-developed diagnostic tests. Other sources of turmoil include the center’s controversial decision not to enforce its Good Laboratory Practice regulation, its scientifically flawed final rule on mercury-based dental amalgam, and on and on…
510(k) Reform
It broke out into the open during the transition to Obama’s administration in January, and by September it was a full-blown, $1.3 million Institute of Medicine (IOM) study commissioned by FDA: how to fix the 510(k) program at CDRH. Back on January 7, nine unnamed, dissident CDRH physicians and scientists wrote a six-page letter to the transition term leader, John D. Podesta, alleging “longstanding pandemic corruption” within the center “that cries out for new leadership at FDA from the bottom up.”
The complaints resonated with the incoming administration, especially then-acting commissioner Joshua Sharfstein, who is now an extraordinarily energetic effector of change as principal deputy commissioner. He was disturbed by their charges that scientific dissent on new product submissions was frequently overruled by managers at the behest of sponsors and politicians. Former CDRH director Daniel G. Schultz was depicted as complicit and he made no effort to deny it. Outgoing commissioner Andrew von Eschenbach offered to meet with the dissidents at the height of the publicity they generated, but they declined.
Sharfstein’s review found that FDA management did not adequately explain its rationale for decisions.
In May, after new public disclosures from the dissidents implicated a tortured 510(k) clearance that had been granted by Schultz over staff objections to ReGen Biologics for its Menaflex collagen scaffold, Sharfstein ordered a preliminary internal review of the matter. The company had enlisted no fewer than four New Jersey congressmen to show CDRH their “concern” over the company’s 17 years of efforts through four submissions to demonstrate “substantial equivalence.”
Whenever a regulatory agency doesn’t do its job properly, as CDRH hasn’t with its 510(k) program, there’s a higher likelihood that injured patients will sue a product’s manufacturer. This was the case in May, when the New York Times reported on 510(k)-related product liability litigation against Mentor Corp. that illustrated what Sharfstein’s review panel would later call “predicate creep.”
In September, Sharfstein’s review produced a report that found a “definite threat” that the Menaflex review’s integrity had been compromised. “We found that over the 17-year review history of the [collagen scaffold] device, multiple departures from processes, procedures, and practices occurred,” the report said. “Our ability to assess the effect of these departures on the decision-making process was in many cases undermined by the failure of important decision makers to sufficiently explain and document the bases for their decisions in an administrative record.” These actions constitute “a clear deviation from the principles of integrity used in this review and undermines the ability of the agency to counter the suggestion that lobbying on behalf of ReGen affected the decision.”
The report noted that several interviewees, including individuals with 30 years of FDA experience, described the ReGen matter as
 
Tillman says that ODE plans to publish an update to the 510(k) modifications guidance next year.
Among the worst experiences in their professional careers, in large part because of the chaotic sense created by persistent pressure on agency decision makers and processes. The pressure came not only from congressional members and the company’s political consultant, but also from FDA leadership—in particular, the FDA commissioner (von Eschenbach). Beginning around this time and continuing until the months before clearance of ReGen’s final 510(k) on 12/18/08, the commissioner became involved in decisions typically committed to the review division or, if escalated, the center director.
 
Meanwhile, CDRH Office of Device Evaluation (ODE) director Donna-Bea Tillman in September told her staff she was taking immediate steps to strengthen the 510(k) program. In a memo that precipitated industry jitters that 510(k) reviews will be slowed down as center scientists examine them more carefully for signs of “predicate creep,” she said she had already established a center-wide 510(k) working group to look at ways to strengthen the program and expected to be “implementing recommendations from that group in the coming months.” In addition, Tillman wrote, ODE is planning to update the 510(k) modifications guidance next year.
Tillman’s memo told her division directors that she had asked their review branch chiefs to let her know when they get a new 510(k) for an indication that has never been cleared for that type of device. She stressed that this doesn’t mean she is actually going to do her own reviews, but that she is just gathering information. “I will be posting what I find in [an online location],” she wrote.
Daniel Schultz Resigns
Calling it “one of the hardest” decisions in his 35-year career, CDRH director Daniel G. Schultz told center employees on August 11 that he had resigned, effective at the end of the month. He said his resignation was based on discussions with commissioner Margaret Hamburg “and a mutual agreement that my stepping down at this time would be in the best interest of the center and the agency.”
On his departure, Schultz praised CDRH staff for making medical devices “safer, more effective, and more user-friendly.”
Although AdvaMed and other industry voices made appreciative testimonial statements about his tenure, the activist Project on Government Oversight (POGO) called Schultz’s announcement a “long-awaited opportunity for openness and reform.” Schultz seemed almost to recognize this when he said “it is a decision that I am convinced is the right decision for me and for the special people at CDRH, who, over the last
15 years, have been my colleagues, friends, and second family.”
In an all-hands memo, Hamburg ignored the cloud of controversy over Schultz and instead lavished praise on his “tremendous legacy,” saying he had “worked tirelessly to advance the public’s health through the approval and monitoring of innovative and safe medical devices. The staff he has led for five years are among the world’s leaders in the evaluation of the design and the development of the next generation of advanced diagnostics and medical interventions.”
Schultz’s own announcement reflected a sunny view of his five years as center director and 10 more years in lesser positions. His record “is something that I will cherish and carry with me for the rest of my life,” Schultz told his
coworkers. “Anyone who has followed the course of medical care over the last two decades as an analyst, care provider, or patient will recognize the impact that device technology has had in improving healthcare delivery through advanced diagnostics, minimally invasive interventions, smart drug-delivery systems, etc.” But Schultz said that the staff at CDRH “have made [these products] safer, more effective, and more user-friendly.”
Associate commissioner for policy and planning Jeff Shuren, a neurologist and lawyer in his 10th year at FDA, is serving as acting CDRH director. A national search will be conducted for a permanent director.
LASIK Vision Enhancement Turmoil
Patient dissatisfaction with the adverse after-effects of LASIK surgery reached a critical tipping point at CDRH in 2009. Complaints include permanent quality of life issues like dry eye, night vision disturbances that prohibit driving, emotional depression, and unemployment. Patients have also criticized CDRH for collaborating with an ophthalmologists’ organization in dealing with these issues.
A potent Internet network of injured LASIK patients bombarded the agency with criticisms, petitions, and complaints until CDRH sent a letter in May to eye care professionals informing them about proper advertising and promotion practices related to the procedure. The agency acknowledged that eye care professionals’ advertisements for LASIK procedures failed to inform consumers of the indications, limitations, and risks associated with the procedure.
FDA has vigorously denied the injured patients’ charges that it has failed to follow up on the April 2008 advisory panel hearing. Among its follow-ups, FDA has cited developing an FDA LASIK Web site; updating LASIK-related information in the SightNet program for health professionals to emphasize that halos, glare, night vision, and dry eye problems from LASIK should be reported to FDA; and developing a patient information card with the American Academy of Ophthalmology to help LASIK doctors calculate the lens implant power should patients need cataract surgery in the future. FDA says that it has also recognized the new LASIK standard from the American National Standards Institute and opened a public docket for LASIK so that any interested person can submit comments.
None of this, apparently, was enough to placate the patients’ network. It kept up the pressure until, in October, FDA announced that it had sent warning letters to 17 LASIK ambulatory surgical centers after recent inspections revealed that they had inadequate systems for reporting adverse events related to the vision correction surgery. The letters did not identify problems with the devices themselves, but cited the recipients for failing “to develop, maintain, and implement written MDR procedures as required by 21 CFR 803.17.”
FDA also announced that it had begun a “collaborative study with the National Eye Institute and the U.S. Department of Defense to examine the potential impact on quality of life…” The project’s goals are to determine the percentage of patients with significant quality of life problems after having vision correction surgery and to identify predictors of these problems. The project will run until the end of 2012 and consists of three phases:
 
• Phase 1, which began in July, is to design and implement a Web-based questionnaire to assess patient-reported outcomes and evaluate quality of life issues after LASIK.
• Phase 2 will evaluate the quality of life and satisfaction following LASIK as reported by patients in a select, active-duty population treated at the Navy Refractive Surgery Center.
• Phase 3 will involve a national clinical trial and will study the effect of the procedure on quality of life following LASIK in the general population.
“The results of the project will help identify factors that can affect quality of life following LASIK and potentially reduce the risk of adverse effects that can impact the surgical outcome,” FDA said. “If any of these factors are related to the safety or effectiveness of the lasers used in LASIK surgery, the FDA will evaluate whether any action is necessary.”
Sloth in Responding to Recalls
CDRH has customarily had problems with promptly reporting medical device recalls. Its public postings lag behind its sister center’s drug recall postings by months and sometimes years.
In industry and Bush administration circles, this tended to be seen as “not a problem.” After all, medical device manufacturers conduct their recalls expeditiously within their own supply lines—reporting them equally expeditiously to FDA simply invites complications, like product liability lawsuits.
All this came to a head in March, when Public Citizen Health Research Group director Sidney Wolfe began a series of well-publicized complaints about CDRH’s tardiness in posting recalls. First, he complained, the center took nearly three months to tell the public about a Class I Covidien recall of Nellcor’s Shiley 3.0 PED tracheostomy tube. “Often the public does not become aware of a problem with a medical device until well after a company has already begun the recall process,” Wolfe said.
The next day, he asked why CDRH had waited for 47 days to classify as Class I a recall of Baxter Healthcare’s Colleague infusion pumps after the company warned users about serious problems “that lead to an interruption of therapy,” which itself “may lead to serious injury and/or death.”
And the day after that, Wolfe wanted to know why CDRH had not yet announced Welch Allyn’s Class I recall the previous month of 14,054 automatic external defibrillators (AEDs). In his third letter in as many days to FDA acting commissioner Frank Torti, Wolfe said the Welch Allyn recall was the largest of six recalls of “these dangerously problematic devices to date.”
Wolfe said the “recall once again makes it clear that the entire category of AEDs, a Class III medical device, is insufficiently regulated by FDA. Because of their risk, Class III devices are to be regulated under the [premarket approval] pathway; this requires direct evidence of safety and effectiveness before being marketed. However, because FDA has failed to meet statutory requirements established in 1990, AEDs and a handful of other Class III devices are still regulated under a less-stringent premarket review mechanism, the 510(k) pathway.”
Diagnostic Tests
Controversy over the bifurcated regulation of laboratory-developed tests (LDTs) increased in 2009 amid indications that new leadership at FDA may be less inclined than its predecessors to tolerate the status quo. Analysts have said confusion over the extent of FDA regulatory authority came up several years ago when the agency said it retains authority to regulate in vitro diagnostic multivariate index assays. The agency took several opportunities this year to send speakers out to industry meetings to say that, contrary to speculation, it still intends to regulate LDTs now regulated under the Clinical Laboratory Improvement Amendments (CLIA) by its sister HHS agency, the Center for Medicare and Medicaid Services (CMS).
The controversy gained momentum in December 2008 when Genentech filed a citizen petition asking FDA to regulate all LDTs, saying that this would provide greater consistency in FDA enforcement and better protect the public health. The Coalition for 21st Century Medicine, which represents diagnostics firms, clinical laboratories, researchers, physicians, venture capitalists, and patient advocacy groups, has said that if FDA agrees with Genentech, it would result in delayed introduction of critically needed diagnostic tests. The group also says that taking Genentech’s position would impose high costs on laboratories and put significant pressure on FDA’s budget and personnel.
However, CDRH Office of In Vitro Diagnostic Device Evaluation and Safety deputy director Alberto Gutierrez said in August that LDTs are often legally marketed for wider use without being subjected to the rigors of the FDA approval process. He says this “two-tier” approval system presents some unfortunate gaps in regulatory oversight: whereas FDA requires a research phase for approvals, CLIA does not; FDA requires analytical validations, while CLIA does not; FDA requires clinical validations, but CLIA does not. In addition, FDA requires reports on adverse events, but there is no such requirement for CLIA-approved tests, and no system in place for receiving or analyzing adverse-event reports.
Gutierrez noted that it is difficult or impossible for insurers to determine the true value of such tests in order to subject them to “pay-for-performance” reimbursement schemes, nor is there any good way to judge their comparative effectiveness. Since 1997, FDA has attempted to partially close the regulatory space that exists between laboratory tests that have been marketed through the FDA process and those that have come to market under CLIA rules.
The issue of whether—and to what degree—FDA may second-guess the use of CLIA-regulated tests in clinical practice remains a question of major interest for industry and for laboratories, Gutierrez said.
Then in September, CDRH acting director of chemistry and toxicology devices Courtney Harper amplified Gutierrez’s message at a Regulatory Affairs Professionals Society (RAPS) meeting. She said that CMS-regulated LDTs are tolerated under FDA “enforcement discretion.” They “present risks to patients,” she said, defining them as tests that have been fully developed in a single laboratory for use only in that laboratory, and that have no premarket review, no independent research basis, and no requirement for clinical validity. While the agency has no timeline to take over all LDTs—a step that doubtless would require notice-and-comment rulemaking—it’s clear that there’s a rising drumbeat at the center for this to happen.
Amalgam Turmoil
In August, FDA published a final rule reclassifying mercury-based dental amalgam as a Class II device. This action shocked many dental and toxicology experts, who quickly submitted two petitions seeking reconsideration before the rule’s effective date, November 2.
Two experts on mercury amalgams criticized the final rule’s literature-review and procedural foundations, saying that they upheld prior controversial agency assertions that continued use of mercury in amalgams is safe, except for allergic patients. In addition, dentists have long been retreating from amalgam in favor of safer, less-durable, and more-expensive alternatives.
Former International Academy of Oral Medicine and Toxicology resident David Kennedy, a San Diego-based preventive dentist and international lecturer on toxicology and restorative dentistry, told us he had read the complete document and had “found numerous errors in [FDA’s] assumptions.” In particular, he said, the preamble to the rule minimized the effect of mercury amalgams on children between the ages of two and seven as measured clinically in urine. He said the preamble discounted the significance of clinical studies that showed progressively less mercury leaking into the urine of children, particularly boys, year to year. “If less and less is leaking into urine, it’s obviously accumulating in the body,” Kennedy said.
Kennedy also faulted FDA for adhering to the agency’s 2006 white paper declaring mercury amalgams safe—even after it was soundly rejected by a joint meeting of its Dental Products Panel and Central Nervous System Drugs Advisory Committee. The second expert criticism of FDA’s rule came from University of Washington’s James S. Woods. The research professor said that the rule’s preamble had erroneously used three out of nine citations to his publications on the effects of mercury amalgams in humans.
All this and more had little effect on FDA’s public face. “The FDA does not agree with the characterizations of its rulemaking,” said agency spokesperson Mary Long. “The agency’s findings and conclusions are based on an extensive review and analysis of the scientific data pertaining to potential adverse health effects from exposure to mercury vapor from dental amalgams in the general population and in sensitive subpopulations. The FDA believes its rulemaking is in compliance with the Administrative Procedures Act.”
Moms Against Mercury national counsel Charles Brown then mounted a trenchant Internet campaign against agency commissioner Margaret Hamburg for having a conflict of interest on amalgam based on prior stockholdings in and employment by a major amalgam shipper. This campaign was also waged against deputy commissioner Joshua Sharfstein for being responsible, after Hamburg’s recusal, for such a scientifically flawed rule.
This campaign consisted of a flood of carefully orchestrated e-mails to both officials from members of Brown’s 5000-strong network of people opposed to mercury amalgam. The success or failure of this intense effort is to be seen in whether FDA accedes to two petitions seeking the final rule’s reconsideration.

Avoiding Legal Land Mines in Your E-mails and FDA Records

The plaintiff’s lawyer chooses to draw the inference that due to financial constraints, the company failed to make improvements to the device in question.

 
Nancy Singer
And now imagine that the jury believes the inference. What would be the result? The jury would want to compensate the little girl’s family both for the pain and suffering endured by the child and for her medical expenses. In addition, the jury would want to punish the company with a heavy fine in order to ensure that it bears the consequences of what the jury believes to be highly irresponsible actions.
 
This e-mail is a “legal land mine.” What is a legal land mine? It is a written statement in a company’s paper or electronic files that could cause irreparable damage were it to be uncovered during a lawsuit. Most companies are likely to have thousands of these in their files. This article will walk you safely through the minefield and offer recommendations for creating a communications culture that is designed to be land-mine free.
 
Employees Must Take Care 
 
Every day, device company employees send thousands of e-mails via their companies’ networks. These can be retrieved indefinitely. It’s not that employees don’t care how their statements might be used by a prosecutor or plaintiff’s lawyer to infer inappropriate conduct; it’s just that they don’t know how to properly word them, and they aren’t aware of the potential exposure.
 
Top managers of medical device and pharmaceutical firms are rapidly becoming aware of the problem caused by dangerous documents, as the number of reported criminal prosecutions and product liability actions continues to increase. The senior executives of firms need to understand their fiduciary duty to train their employees to understand that they are ambassadors for their companies and must express the firm’s commitment to quality in their written correspondence.
 
To find out whether your employees need training in creating safe documents at work, ask yourself if any of them would agree with one or more of the following five statements:
 
1. I have an expectation of privacy when I write e-mails using the company e-mail system.
2. To be helpful, I send e-mails about my opinion on regulatory issues to the people who are responsible for taking remedial action.
3. Wherever possible, I try to write detailed minutes of meetings including the names of participants and what position they took with regards to each topic discussed.
4. I might write “Confidential” or “For Internal Use Only” on sensitive documents in order to prevent outside parties from gaining access to them.
5. If I notify my boss about a potential public health issue and he ignores me, I would write a memo to place in the file in order to show that I have fulfilled my obligation. 
 
If you have observed any of the attitudes listed above, your company has legal land mines. Now let’s examine each one in detail and defuse the mines.
 
Land Mine One—An Unrealistic Expectation of Privacy. Employees who have an expectation of privacy when they use the company e-mail system harbor an unrealistic belief. They would experience the consequences of this misconception if the company were sued.
 
When a company is sued, there is a period of pretrial discovery during which the lawyers gather pertinent information they need for the case. During this process, the lawyers have access to all e-mails and other documents that are in any way relevant to the lawsuit. The courts interpret “relevance” broadly, so thousands of e-mails that are saved on a company’s servers and backup files will have to be provided.
 
Industry leaders like Guidant, Bayer Astrazeneca, Merck, and Eli Lilly have all learned this lesson the hard way—through costly lawsuits. The media has reported that these companies during the lawsuits were forced to produce documents that contained embarrassing statements. In a particularly noteworthy antitrust case recently, Microsoft was subject to the same fate after it came to light in a written document that Bill Gates asked: “How much do we have to pay you to screw Netscape?”
 
Land Mine Two—E-mailing Opinions. Employees should not send e-mails expressing their regulatory opinions if they are not professionally trained and authorized to take corrective action. If the employee were subpoenaed, a prosecutor or plaintiff’s lawyer could argue that the employee who had voiced his opinion had spoken on behalf of the company.
 
Take for example a staff member in the manufacturing division who states in an e-mail that the company is producing a “misbranded” product that should be “recalled.” If the staff member does not have the requisite legal training, he would not be in a position to make these legal judgments. He should restrict his comment to a factual description, such as that the product’s package does not contain the manufacturer’s street address. Then he would have the lawyers determine whether or not this constitutes misbranding, and what action, if any, the company is obligated to take.
 
Employees generally should limit their e-mails to factual statements, leaving legal conclusions and corrective action to those who have the requisite knowledge and responsibility for the matter.
 
Land Mine Three—Detailed Minutes of Meetings. Many employees think they are being conscientious and helpful when they write detailed minutes of meetings explaining who said what. However, these minutes, rather than helping the company, could serve as ammunition in a product liability case.
 
Here are three examples of potentially incriminating notes:
 
“ John Lester said that we should recall the product.”
“ Susan James said that the probability of the event occurring was remote and the risk to the patient was minimal, so the cost would not justify the benefit.”
“ It was decided not to recall the product.”
 
In a product liability lawsuit, the plaintiff’s lawyer could focus on John’s comment about recalling the product and infer from the e-mail that the firm had acted irresponsibly.
 
Land Mine Four—The Belief That Headings Such as “Confidential” Prevent Disclosure. Many company employees are under the impression that writing “Confidential” or “For Internal Use Only” on a document protects it against being disclosed to the opposing party in the case of a lawsuit. This is a mistake.
 
Documents marked in this way are not afforded any special protection. As they do with e-mails, a plaintiff’s lawyer or a prosecutor has legal access to documents marked “Confidential” or “For Internal Use Only” if those documents are requested during the discovery process.
 
Land Mine Five—The Exculpatory Memo. Having been ignored in their attempts to draw attention to a product concern, some employees believe that recording their request in a memo will shield them if a public health problem arises. This is a misconception.
 
If an actionable incident occurs, neither the government nor the public will accept the employee’s memo as a sufficient and blameless course of action. When there is a public health issue at stake, employees need to formally meet with the compliance officer, legal counsel, or the head of human resources. Or employees should report the situation through the company hotline rather than merely write a memo stating that they casually spoke to someone concerning the problem.
 
A Document Is Forever 
 
There is little you can do about the land mines presently in your files. However, your company would be well advised to evaluate your practices and, if necessary, institute a training program on appropriate and professional communication. All levels of personnel need to be involved.
 
Top management needs to understand:
 
• How frequently employees write inappropriate documents.
• The risk associated with these documents.
• The key elements of a preventive action program. 
 
Middle management needs to understand:
 
• How to recognize inappropriate statements in documents.
• What to do when it encounters inappropriate statements.
• How to train staff to prevent employees from writing these statements.
• Methods to evaluate staff members on their ability to write documents that reflect the company’s core values. 
 
The technical staff should learn and practice skills that are directly related to its specific responsibilities. The credibility of the training will be increased if a lawyer, who has prosecuted and defended companies, is the instructor. Employing advocacy skills used in the courtroom, the lawyer can demonstrate how a hastily written e-mail can be taken out of context to imply illicit conduct. The training might include asking participants to:
 
• Rewrite a memo to assess their writing skills.
• Discuss the do’s and don’ts for handling customer complaints.
• Debate whether e-mails written on company computers should be audited.
• Rewrite sentences that, when taken out of context, appear to be inflammatory.
• Study how the former New York State attorney general used carelessly written documents.
• Read and learn from news coverage about inappropriate e-mails sent by employees of Guidant, Bayer, Merck, and Eli Lilly. 
 
After participating in the training and focusing on the problem, employees come to understand and embrace the concept that documents are like diamonds. They are very precious, and they last forever. They learn to appreciate that their written correspondence may some day be scrutinized by an aggressive prosecutor or plaintiff’s lawyer who will try to create inferences of inappropriate conduct, negligence, or even incompetence. Understanding that the best defense is to write concise, factual statements that will not be subject to misinterpretation, the employees change what they write and how they write it.
 
Unfortunately, even the best training cannot guarantee that all your employees will refrain from ever writing an inappropriate statement. However, if you don’t provide training, it is likely that every day one or more of your employees will write an incriminating e-mail or other hard-copy document, leaving a legal land mine that could well endanger your company’s financial health.
 
Nancy Singer is president of Compliance- Alliance (Washington, D.C., a firm that specializes in professional development for employees in the device and drug industries. A former prosecutor and defense attorney, Singer provides training on how firms can set up programs to prevent dangerous documents. She can be reached at nancy@compliance-alliance.com. Her Web site is www.compliance-alliance.com.