Todd Harrison09.01.08
Due Diligence
All parties are responsible for doing their due diligence—failing to do so could lead to significant regulatory and/or legal complications.
By Todd Harrison
The last “Capitol Comments” column discussed the relationship between the marketer and the manufacturer and the importance of defining that relationship so each party knows what to expect from each other. This column is an outgrowth of that earlier column, but is targeted toward the development and marketing of final products. It is not uncommon for a marketer to approach a contract manufacturer and ask the manufacturer to develop a proprietary formula that is intended to address a particular health solution. For instance, a marketer may ask the manufacturer to develop a joint health or blood sugar product. This scenario is often complicated because the development of the product is based on information provided by a supplier or a third-party formulator. However, it is not always clear how deeply either the marketer or contract manufacturer delves into the information provided by these third parties. Indeed, these ancillary relationships are not always well-defined, and it may appear to some that little due diligence is being done by any of the parties in determining whether the product formula is safe and whether the claims are properly substantiated for the final product formulation.
This column, however, is not about whether a product is properly substantiated, nor is it about whether the claim is considered a permissible structure/function claim or whether there is reasonable substantiation. I have often written about these issues, and it should be clear by now that you cannot promote a product to cure, treat or prevent a disease. Although, the boundaries between permissible structure/function claims are more gray than not. The same is true regarding whether a claim is properly substantiated. But, I digress. This column is about the parties doing their due diligence. For it does not do the marketer any good to have a product developed that lacks scientific support. Likewise, the manufacturer is vulnerable if it produces a product that is unsafe for human consumption. Either situation could leave both parties vulnerable not only to adverse regulatory action, but also to a potential class action lawsuit. The latter, in many instances, is a greater threat to a company’s stability compared to an FDA or FTC investigation.
What Does Due Diligence Entail?
Interestingly, most issues could be avoided by all parties if they simply carry out their due diligence. What does due diligence mean? It simply requires taking the appropriate steps to ensure that the product being developed is not only safe, but is also supported by the scientific evidence. In this regard, the marketer and manufacturer should be wary of stock formulations provided by third parties. These formulations may sound good and have all the right ingredients in them, but often none of the ingredients rise to the level of anything more than pixie dust.
Here’s a scenario: a marketer asks manufacturer to develop a male sexual enhancement product. The manufacturer consults with a formulator who provides a formula in which the primary ingredient is L-arginine. The rationale provided for the use of L-arginine is that it increases nitric oxide in the blood. However, the science, to the extent there is science, suggests the level needed to improve sexual function far exceeds the 500 mg per day dose in the formulation. Moreover, add the likelihood the claims may be over-hyped, and the marketer and manufacturer may very well be setting themselves up for an FTC investigation or a class action lawsuit with little-to-no defense available to them if challenged.
Similarly, there has been an explosion of new dietary ingredients on the scene lately. Many of these ingredients have not been the subject of new dietary ingredient (NDI) notifications to FDA for one reason or another. The most likely reason is that the supplier will take the position that it was available in the food supply and therefore exempt from the notification provisions. From a strict legal perspective that may be a good legal argument. However, it does not alleviate the necessity that these NDIs should have a substantial safety profile before they are marketed. It is not a defense to simply state that a notification was not required if someone is injured because they consumed the product.
Every person in the supply chain will be held responsible if a potential injury should occur, and a plaintiff’s attorney is going to look for the deepest pocket(s) possible. That could be the contract manufacturer, the marketer or the supplier. Moreover, while contractually defining the relationship may help with regulators, indemnity and hold harmless agreements are as good as the paper they are written on. In other words, the manufacturer receives an indemnity and hold harmless agreement from the marketer that a particular product formulation is safe. That may help with FDA (that is a maybe), however, it will not help the manufacturer when a consumer sues both the marketer and the manufacturer for placing an unsafe product into commerce that caused them injury. The marketer and manufacturer will both be sued and will likely be held jointly and severely liable. This simply means that both parties are on the hook to satisfy the judgment, and the party with the indemnity and hold harmless agreement will be filing a lawsuit against the other to recoup their costs if the other party does not satisfy the judgment voluntarily.
As you can see, it is imperative that the marketer and manufacturer each properly do their own due diligence. While it is impossible to completely eliminate your risk, there are some considerations the marketer and manufacturer should take into account when developing products from both a safety and efficacy standpoint. (See Table 1.)
To summarize, it is important that marketers and manufacturers do their due diligence when developing products to ensure they are safe and efficacious. The failure to do so leaves both parties vulnerable to adverse regulatory action and private lawsuit. The steps I have outlined in this column are helpful in limiting potential liability but not eliminating it. As such, each party should seek proper guidance in developing product formulations and claims.NW