Can You Sue FDA for Negative Audit Findings? Indian Company Tests US Legal System
​​[Posted on: Thursday, February 1, 2018]

Negative FDA audits could have catastrophic consequences for the companies at the receiving end. It could lead to drastic financial losses, loss of credibility and even push the defaulter out of business. If a company is destroyed by a negative FDA audit, can it sue FDA for damages? Can a company successfully claim that the FDA inspectors were biased and have ulterior motives to target the company’s business. This will be tested in a court case filed by an Indian CRO that got annihilated after FDA declared all results generated by it void based on negative audit findings. In April 2016, after a 6 month FDA investigation that started during an audit of Semler Research in Bangalore India, FDA concluded that none of the results generated by the analytical labs at Semler could be trusted. FDA went further ahead and took an unprecedented action of declaring that all ANDA applications relying on bioequivalence (BE) data generated by Semler to repeat the BE studies or face further regulatory action. FDA’s announcement had a domino effect with WHO and EMA drawing similar conclusions, to a large extent based on FDA’s findings, and declaring that products approved based on data from Semler be subjected to severe regulatory actions. Semler could not recover from this having lost all its credibility, with several clients suing for damages, and wiping out all existing service contracts, leading it to go out of business shortly thereafter. Now, after more than an year and half, last week the owners of Semler filed a law suit against FDA in the California Central District Courts claiming “lack of due process, intent to inflict financial distress, and actions without reasonable care and diligence” and hence a financial claim of $50 million. In their lawsuit, the company specifically identified all the inspectors who visited its facilities in India for the fateful audit, and their supervisors in the FDA offices in Maryland. There are several interesting new facts that are the highlights of this lawsuit. First, Semler claims that a rogue employee working in concert with former disgruntled employees intentionally placed a defective spreadsheet on its servers and then pointed FDA inspectors to it. Second, Semler claims that the FDA inspectors had a conflict of interest in their “personal relationship” with competing CROs and acted with the intent to “eliminate” Semler from competition. Third, Semler states that the inspectors did not follow due process. While errors were found in a few studies conducted by the company, FDA extrapolated the findings to all studies conducted by Semler, even those that had previously been audited and cleared by FDA, hence the lack of due process. The company does not deny the accuracy of the findings by FDA inspectors. It also does not justify how its data systems could be breached by one rogue employee or why it could not clarify the errors pointed by FDA inspectors. The court has accepted the case and given FDA 60 day summons to appear. If this case even goes to the full hearing, it would likely be the first time a company has been able to do it for a lawsuit like this. The odds are stacked high against Semler. FDA has the ultimate authority to take any action necessary for non-compliant companies. Law and policy requires FDA to take strong action against fraud, so by definition FDA making a defaulter go out of business for fraud would be an acceptable outcome. The key question for the Court would be if FDA pushed the envelope too far and if the actions did not fit the violation. It should be noted that Semler had been audited and cleared by FDA multiple times before. So, a case can be made that if FDA inspectors were incompetent previous times. In any case, FDA with its vast legal resources will fight this precedence-setting case to the squash it as quickly as possible. Semler, on the other hand, may find that it has taken upon a bigger foe than it can handle. And Semler would not be the first company to feel that. Should this case somehow end up in favor of the company, it would open a floodgate for similar lawsuits by other companies, particularly in India and China that have been at the receiving end of similar FDA actions in the last few years. We will keep our fingers crossed in case things become interesting.