New GMPs Will Help Define Relationships

Contracts between manufacturers and marketers will help ensure the safety and efficacy of products in light of the new GMPs.

By Todd Harrison

The industry is quickly approaching the first anniversary of FDA finalizing the current good manufacturing practices (cGMPs) for dietary supplements. By the end of this month, companies that employ more than 500 employees will be subject to FDA enforcement activities related to the cGMPs. While the cGMPs represent an important milestone, they may have a more practical impact in defining the relationship between marketers (i.e., private label distributors) and their various contract manufacturers. Indeed, the new cGMPs are now the minimum floor that will define the roles each play in the other’s business activities from the sourcing of raw materials to the marketing of finished products.

The Need for Contractual Agreements

A manufacturer will no longer be able to avoid identity testing simply because the marketer sourced a branded raw material. The manufacturer and marketer will need to have a serious discussion on the type of testing required to confirm the identity of the raw materials. Indeed, the cGMPs will start to define with greater clarity the relationship between the manufacturer and the marketer—both parties will need to develop a business relationship that clearly defines each other’s roles in the business relationship. The business relationship that develops will need to protect both parties, while helping avoid potential disputes over the proper interpretation of each other’s responsibility under the new cGMPs.

Unlike the pharmaceutical industry, the business relationships in the supplement industry are not necessarily set forth in a formal manufacturing and distribution agreement. Rather, the marketer simply places a purchase order with the manufacturer and supplies the finished label and/or packaging and the manufacturer simply produces the finished product. While this system provides greater flexibility for the marketer, allowing it to search for the best price, it is not consistent with a mature industry that has specific rules and regulations to meet. In other words, this industry is not the same industry it was almost 15 years ago when DSHEA was enacted, and in the intervening years in which FDA basically abrogated its responsibilities by not attempting to define manufacturing standards. The industry has become an increasingly sophisticated one that is about to move into an era of more regulatory oversight by FDA. This makes it imperative that marketers and manufacturers start entering into agreements that define the relationship between the parties. For instance, companies need to define who has primary responsibility for ensuring that a product is not adulterated or misbranded. It is easy for the manufacturer to state that it is the marketer’s responsibility and vice versa. But the fact of the matter is both parties are required to make sure a violative product is not introduced into interstate commerce. To highlight the potential issues that the lack of a defined relationship between the two parties may have, let’s take a look at product testing, formulation and claims.

Product Testing

The new cGMPs require identity testing of incoming raw materials. What the new cGMPs do not require is a specific method of testing. Indeed, it is silent on this issue. However, it is the manufacturer that is in the best position to conduct identity testing, not the marketer. But it is the marketer that could ultimately be held liable if the ingredient is not in the product. To avoid any complications, there should be a written agreement that sets out the type of testing to be performed on inbound raw materials by the manufacturer, regardless of whether it is sourced by the manufacturer or the marketer.

The manufacturing and distribution agreement should also specify that the manufacturer provide a certificate of analysis (CofA) for all the batches of finished products it provides to the marketer. However, the marketer should not simply rely on a CofA. To safeguard both parties, the manufacturing and distribution agreement between the parties should also indicate that finished products be routinely tested at an independent lab. Specific steps also need to be defined in the event of a failure, including additional testing, holding product that has failed, and recall steps if it becomes necessary. It is also recommended that the marketer routinely send out samples it retains for testing as a further precaution.

Formulation & Claim Issues

Testing is not the only instance where the lack of a formal agreement can create issues between the manufacturer and marketer. Product formulation and claims can stir up problems as well. For example, the manufacturer may or may not comment on the product label or the finished formula provided by the marketer. And often times the manufacturer will produce the finished product without investigating the safety of the particular formulation that the marketer provided. Sometimes, the manufacturer will provide the marketer with a final formulation and the claims it believes can be made for the product and the marketer will simply accept it without question. All of these approaches have the potential to result in disaster.

In the worst case, a manufacturer may become part of a class action lawsuit if the product formulation causes injury, and it will be hollow defense to state in a lawsuit that the company was unaware that the marketer’s formula was potentially dangerous.

In regards to marketing claims supplied by the manufacturer, one only has to review the long list of FTC consent decrees to find out that it is the marketer that is generally held responsible for the deceptive claims, not the manufacturer. This dynamic could change in private litigation as the attorneys of the marketer would most certainly bring the manufacturer into the lawsuit.

In the new regulatory environment, the marketer should be required to have done its due diligence on its formulations and provide it to the manufacturer so the manufacturer can make an in­formed decision as to whether to produce the product. Conversely, if the manu­­facturer is recommending a particular formula, it should be contractually required to provide the marketer with all safety and efficacy substantiation. Specific contractual language can help reduce potential conflicts between the marketer and manufacturer down the road.

What Lies Ahead…

The supplement industry is heading into a new era of greater regulatory oversight. Without debating the merits of this increased scrutiny, it does require the marketer and contract manufacturer to define their respective roles in the process. The cGMPs represent a good starting point to initiate the conversation, but they are not de­signed, nor meant to define the roles between the two parties. To define these roles and add a layer of protection for both the contract manufacturer and marketer, a manufacturing and distribution agreement will certainly help further ensure the safety and efficacy of the products being manufactured and distributed.NW