CEO SUMMARY: In the short term, it’s Abbott Laboratories which must deal with increasingly aggressive FDA regulators. But the real story behind the story is that the FDA is stepping up regulatory oversight of the entire diagnostics industry. Abbott faces serious consequences if it cannot resolve its disagreement with government regulators about quality issues in manufacturing reagents for its diagnostic instruments.
ON SEPTEMBER 28, Abbott Laboratories, Inc. disclosed that it had received notification by the Food and Drug Administration (FDA) of alleged noncompliance with FDA Quality System Regulations.
Potentially, the FDA’s action could lead to a complaint for injunctive relief which would include “the cessation of manufacturing and sale for a period of time of a number of diagnostic products.” Effectively, the FDA would seek to put Abbott out of the reagent business until it agreed to government terms.
For its part, Abbott Laboratories continues to negotiate with the FDA. This process would probably lead to a consent decree, where the company would agree to fix problems without admitting any wrongdoing.
The alleged violations apparently involve the company’s diagnostics division manufacturing plant in Lake County, Illinois. This plant produces as much as $1.5 billion per year of reagents and test kits used in Abbott’s diagnostic instruments, including its TDx, TDx FLx, IMx, and AxSym products.
The FDA inspected this manufacturing plant during the fall of 1998. The inspection led to a warning letter, dated March 17, 1999, in which FDA inspectors cited problems with how Abbott monitored the quality of certain products, including reagents.
Further, the March 17 letter, which was made public through the FDA’s Freedom of Information Act Office, also raised issues with Abbott’s handling of software defects with its AxSym instruments.
The FDA letter states that the company knew about glitches with AxSym’s software that might lead to incorrect test results for ten months before notifying customers of this situation. FDA inspectors also noted that Abbott retained no records supporting its decision to delay informing customers about this situation.
Abbott Laboratories finds itself in a no-win situation. Over the last year, it has apparently failed to show the degree of responsiveness and cooperation sought by FDA regulators. Even if the FDA’s allegations prove to have no merit, Abbott’s actions now make it a high-profile target for regulators.
It means the company will now spend tens of millions of dollars over several years to regain a favorable standing with the FDA. This is capital and management time which could have been better invested in developing new technology for the laboratory marketplace.
More Aggressive Stance
Moreover, clients of THE DARK REPORT should know that we consider the FDA’s enforcement actions against Abbott Laboratories as confirmation that the agency is taking a more aggressive stance in regulating the entire diagnostics industry.
On the day before the news broke about Abbott’s troubles with the FDA, THE DARK REPORT was meeting with the CEO of another billion-dollar diagnostics giant. This CEO revealed that, only a year or so earlier, his company’s manufacturing processes had come under similar FDA scrutiny.
They were slow to respond to FDA concerns, which caused regulators to escalate their warnings. As a result of that “near miss,” this diagnostics vendor is spending $60 million over a three-year period to fully meet all FDA good manufacturing requirements.
This means bringing documentation of its quality processes up-to-date, revamping audit procedures, and working with FDA inspectors to insure that its overall operations are in full compliance with FDA requirements.
THE DARK REPORT will not be surprised if, over the next 12 months, any major diagnostics company finds itself in the public eye as a result of FDA action. Clearly the enforcers are more aggressive. They want the diagnostics industry to pay more attention. This compliance effort can be seen as parallel trend with that of clinical laboratory compliance by HCFA and the OIG.
Ultimately, this will probably result in increased costs to the diagnostics vendors. It will make it more difficult for them to reduce product prices to their clinical laboratory customers.
Just as importantly, Abbott’s current problems with FDA regulators provide a timely reminder that good relations with government enforcers is good business practice.