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story.lead_photo.caption Raw materials used in drug manufacturing are shown at a Cantrell Drug facility in 2011.

Cantrell Drug Co., an outsourcing drug compounding operation in Little Rock, reached an "agreement in principal" Thursday to settle legal issues with the Food and Drug Administration that company attorneys said could have spelled the end of the business by next week.

The agreement needs approval from senior FDA officials in Washington, attorneys said.

Word of the proposed agreement came midway through what was supposed to be the first full day of a hearing before U.S. Bankruptcy Judge Phyllis Jones that Cantrell Drug sought to prevent the U.S. Department of Justice and the FDA from effectively shutting down the company.

The federal agencies sued the pharmaceutical firm in U.S. District Court last week, seeking to enjoin it from manufacturing and distributing injectable drugs primarily used in hospitals.

The Justice Department complaint said Cantrell Drug has been distributing what the FDA calls adulterated drugs across state lines. The FDA defines adulterated drugs as those that fail tests for generic pharmaceutical raw materials and finished products regarding quality, strength or purity.

The complaint noted that Cantrell Drug initiated voluntary recalls of drugs in 2016 and 2017, and that FDA inspections found evidence of insanitary conditions, poor environmental monitoring and lack of documentation at the company's facility in 2013, 2016 and 2017. The FDA issued a warning letter to the company in 2015.

In the 2017 inspection, according to the complaint, the FDA "documented evidence of insanitary conditions and significant deviations from current good manufacturing practice regulations," the Justice Department said in a release.

The recalls, in particular, led the company to file for bankruptcy protection last fall. Negotiations over a consent decree broke down earlier this year, leading to the complaint.

But while company executives expected the complaint and were confident that they had a way forward, they said they were blindsided by an FDA news release issued the same day as the Justice Department news release that they said left the business "devastated."

The news release said the FDA was "alerting health care professionals and patients not to use drug products produced by Cantrell Drug Company of Little Rock, Arkansas, including opioid products and other drugs intended for sterile injection, that were produced by the company and distributed nationwide."

The release included a statement from the FDA commissioner, Scott Gottlieb, who said that "despite the FDA's concerns about egregious conditions observed at Cantrell's facility, during several inspections, with the most recent in 2017, the company continued to compound and distribute drugs without adequately addressing their potentially dangerous conditions.

"This reckless activity threatens patient safety and will not be tolerated."

The FDA said in the release that it wasn't aware of any report of illnesses connected with the use of Cantrell Drug products.

Kevin Keech, an attorney for Cantrell Drug, told Jones at the hearing Wednesday afternoon that the effect of the news release was the same as if the Justice Department and the FDA had prevailed in court.

"As a result of the press release, Cantrell Drug is not going to make it past next week."

Pointing to about 50 employees packed into the courtroom, Keech said, "They want to know whether they have a job next week or not."

He said the release "usurped the authority of the court" and amounted to a "violation of due process, the Administrative Procedures Act and the FDA's own internal guidance."

Keech said his client was asking Jones to direct the FDA to clarify and correct the news release.

"That's the only way we know ... to unring the bell," Keech told Jones.

The company is valued at $20 million as a going concern, he said. It is worth considerably less if it is liquidated.

He also wanted Jones to "put the brake" on the civil complaint for 45 days.

"We believe the issues raised by the FDA do not constitute a public emergency," he said. "We want folks to sit down and look at what's actually going on" and "come up with a consent decree that allows Cantrell Drug to operate."

But Raquel Toledo, an attorney for the Justice Department's consumer protection branch, said the company's products "represented a real risk to public health," and that it was "extremely rare" for her agency and the FDA to seek a preliminary injunction against a company.

She rejected Keech's assertions that the news release damaged Cantrell Drug, adding that the harm to the company was "self-inflicted."

James D. McCarley testified that the company was operating under a bankruptcy agreement that projected $340,000 in sales weekly. After the FDA news release, sales dropped 77 percent, with scores of the company's hospital customers around the nation canceling orders and trying to return product, he said.

"Our sales have been decimated," McCarley said. "Sales are virtually nonexistent."

McCarley and his wife purchased the company from his father-in-law when the latter retired in 1992 after 30 years operating it as a traditional retail pharmacy. McCarley began focusing on compounding around 2000. By 2017, the company had expanded from three employees, including McCarley, to about 150 employees.

But the FDA troubles came amid turmoil surrounding the departures of key employees, including the company president, an operations director and microbiologist, prompting McCarley to delay an expansion.

In response to questioning by Justice Department attorney Jeffrey Steger, McCarley acknowledged that he was aware of the FDA's concerns with Cantrell Drug's deficiencies relating to quality and sterility.

Compounding pharmacies have come under stricter FDA oversight after a deadly outbreak of fungal meningitis from compounded drugs provided by a pharmacy in Massachusetts in 2012.

Word of the proposed agreement came after a lunchtime conference between the attorneys. That was preceded by Jones' questioning McCarley about how important his company was to the medical supply chain. Cantrell Drug focuses on producing drugs that are on the FDA's critical shortage list, which now includes a form of morphine used in hospitals.

While there are about 70 compounding pharmacies under the same FDA regulatory oversight as Cantrell Drug, all but a handful might be able to begin producing the morphine, which also requires a permit from the U.S. Drug Enforcement Administration.

Business on 03/09/2018

Print Headline: Cantrell Drug, FDA said to reach accord

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