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The provider of an experimental diabetes treatment was permanently barred by court order from dealing in a product containing human and rabbit cells imported from Russia.
Loran Medical Systems Inc. was effectively put out of business Oct. 16 when Judge Stephen Wilson, of the U.S. District Court for the Central District of California, imposed a permanent injunction on the Oxnard, Calif., company. Despite warnings from FDA, the company had failed to correct a two-year history of violations.
The injunction prohibits the company from importing from Russia an experimental cell product made up of rabbit and human fetal and organ cells and injecting it into human patients. Loran claimed that the product could stimulate diabetic patients' own production of insulin and allow them to reduce or eliminate their need for insulin injections.
FDA considered Loran's cell product to fit the legal definition of a new drug because it was used to treat human disease. The product also fit the legal definition of a biologic because it was "analogous to a toxin and antitoxin," according to FDA regulations, and intended to treat disease through a specific immune process. So, to use the product in patients, the company needed either an approved investigational new drug application or a biologic license.
FDA officials say the agency put Loran on notice several times for violating the law before taking legal action against the company. When Loran failed to respond adequately, FDA initiated proceedings that led to a temporary restraining order in June 1996, a preliminary injunction the following month, and, most recently, the permanent injunction.
The case began in January 1995, when a routine inspection of Loran by FDA's Los Angeles district office turned up promotional material revealing that the company intended to treat diabetic patients with human and animal cell material from Russia. In April, FDA sent Loran a letter advising the company not to administer the cell product because it was an unapproved new drug and an unlicensed biologic. FDA also warned Loran that promotional materials for prospective patients contained false or misleading safety and effectiveness claims.
In a letter a month later, Loran replied that it didn't consider the cell product to be a biologic or a drug and felt it wasn't subject to FDA regulation.
An FDA inspection of Loran in November and December 1995 revealed numerous violations of clinical testing requirements, including promotion and sale of unapproved drugs, failure to follow import requirements, lack of adequate informed consent procedures, and failure to keep adequate records.
In a January 1996 letter, FDA again warned Loran citing the company's lack of conformance with procedures for conducting investigational studies because its product was an unapproved new drug and unlicensed biological product.
Again, Loran argued that its product was not a biological product or drug under existing statutes. In a March 1996 reply, FDA stated that it would proceed with enforcement action if the company didn't change its behavior.
In May 1996, an FDA investigator posing as a patient called a Loran representative, who told the investigator that Loran was planning to treat patients with the imported cell product the following month. The representative gave the investigator other information, including the history of the procedure. The representative also said the procedure would cost $20,000. Several days later, the investigator received promotional materials from Loran that claimed the procedure could effectively treat diabetes. At month's end, the company, still maintaining that it was breaking no laws, confirmed to FDA its plans to treat additional patients with the Russian product. This prompted the agency to seek the temporary restraining order, granted on June 20, 1996.
"We needed to put a quick stop to this scheduled treatment," says Mary Davis Lopez, compliance officer in FDA's Center for Biologics Evaluation and Research. She explains that FDA took immediate action because the agency, fearing possible patient exposure to communicable disease, saw the planned treatments as a potential health hazard. The later court actions put a permanent end to Loran's unapproved activity.
John Henkel is a staff writer for FDA Consumer.
U.S. District Court Judge Donald Walter, sitting in the Southern District of Texas, sentenced Ronnie Serl Haas Oct. 7, 1997. Haas' June 12 conviction on six criminal counts included delivering misbranded drugs into interstate commerce and conspiring to defraud FDA.
Haas was director and general manager of North American Pharmaceutical Services (NAPS), an international mail-order prescription business based in San Antonio. Haas also managed and operated a counterpart to NAPS called Servicios Farmaceuticos de Norte America in Nuevo Laredo, Mexico, across the border from Laredo, Texas.
An investigation by FDA and the Texas State Board of Pharmacy found that NAPS placed advertisements for prescription drugs, such as Zantac (ranitidine), Premarin (conjugated estrogens), and Nolvadex (tamoxifen), in publications directed toward senior citizens. The ads invited customers to send their prescriptions to post office boxes in San Antonio and Laredo. Haas' Mexican affiliate then filled the prescriptions with unapproved generic versions of the drugs and shipped them into the United States.
The investigation began when Haas contacted U.S. Customs and FDA in September 1994. He wanted to know how, under FDA's personal importation policy, he could import prescription drugs approved in Mexico but unapproved in the United States into this country. Haas, who is not a licensed pharmacist, told FDA he wanted to start a prescription mail-order business.
FDA advised Haas that his plans did not fit the personal importation policy, which allows individuals to bring into the country small quantities of drugs for personal use, as long as:
On Oct. 6, Strucker, along with representatives of the pharmacy board, met again with Haas at his San Antonio facility. During that meeting, the representatives noted that NAPS was not licensed to practice pharmacy, and, as a result, its advertising of "Pharmacy Devices" and its practice of keeping prescriptions on file conflicted with state law. Strucker also reiterated FDA's personal importation guidelines.
In January 1995, the Texas Pharmacy Board issued a warning letter to Haas, advising him to cease operations until he could comply with state requirements. A month later, Todd Cato, an import compliance officer with FDA's Dallas district office, informed Strucker that he had issued 61 detention notices during the previous 38 days for NAPS' packages containing unapproved drug products. U.S. Customs in Dallas had received the packages.
In February, the Texas Pharmacy Board placed an undercover order with NAPS, and OCI special agents recovered the package mailed in response. The package contained what FDA determined was a foreign version of the prescription drug Zantac. FDA ruled that the drug was illegal because its maker had never submitted a new drug application to FDA for approval. In addition, the directions, which were in Spanish, were inadequate.
FDA issued two warning letters to Haas in 1995, citing his operation as illegal and urging him to cease business immediately. Further investigation revealed that by November 1995, Haas had shut down the San Antonio facility, but he had begun to work out of his home. As a result, in February 1996, OCI special agents and the Texas Pharmacy Board executed a search warrant at Haas' residence and obtained records, invoices and packages of drugs as evidence.
After several opportunities to negotiate a plea, Haas decided to plead his case in front of a jury, which convicted him after a one-week trial. He began serving his prison term in November 1997.
--Herb Burkholz and Paula Kurtzweil
Questions surrounding Kumaralingam Nagalingam's medical practice came to FDA's attention in January 1995, when a special agent with the U.S. Department of Labor told FDA of possible criminal violations reported by a former Nagalingam employee.
The next month, a special agent with FDA's Office of Criminal Investigations, J. MacKay Spears, and an agent with the U.S. Department of Health and Human Services interviewed four ex-employees of Nagalingam whose duties ranged from receptionist to nurse or nurse assistant.
In addition to describing Nagalingam's overbilling of Medicare by charging multiple times for a single medical test, the witnesses said Nagalingam sold sample drugs to his patients, usually for $40 or more per supply of medication.
Drug companies give drug samples free to doctors to promote their products' use. The Prescription Drug Marketing Act, part of the Federal Food, Drug, and Cosmetic Act, prohibits the sale of drug samples, which are generally marked "Not for Resale" or "Physician sample--not to be sold."
Nagalingam instructed his employees to remove the drug samples from the original marked, sealed containers (called "punching" the drugs) and put them in standard pharmacy vials with his own office label.
Not only was Nagalingam financially profiting from the illegal sales, says OCI special agent Rodney Turner, but he was disturbing safeguards that help ensure the effectiveness of drugs. "Once you take the drugs out of the packaging, the pedigree is lost," he says. "There's no way to know the expiration dates of these punched drugs or if they're even effective."
The government's investigation revealed that the doctor covered up his illegal drug sales by almost always taking cash payments and by not keeping standard, itemized records of the drugs sold and the amounts charged for them. Also, he instructed his office nurse to hide empty sample containers when drug company sales representatives made their calls and to keep the salespeople from seeing the doctor's unusually large stock of sample drugs.
During a search of Nagalingam's office in March 1995, OCI agents found a closet and kitchen-sized lab with shelves of sample drugs in their original packaging. Agents seized office records as evidence and spoke with employees, who said that sample sales made up more than 80 percent of the doctor's total pharmacy business. Based on employee accounts, FDA estimated that the doctor received $20,000 to $40,000 annually from these sales.
During the search, Nagalingam told an OCI agent that he was helping his patients, not hurting them, by beating regular pharmacy prices. "He said he was doing them a great favor," Turner says, "but these were elderly people in deep poverty. If he really had their best interests at heart, he would have passed along the drug samples to his patients free like he was supposed to."
Initially, the doctor pleaded guilty to one of 14 counts charged of illegal sample drug sales and one of 10 counts charged of mail fraud related to his Medicare overcharges. But Nagalingam later withdrew his guilty plea in favor of a trial.
Based on further analysis of the evidence seized during the March search, Nagalingam's July 1997 trial in the U.S. District Court for the Eastern District of Kentucky involved 95 counts of sample sales and 27 counts of mail fraud. He was convicted on all these counts but found not guilty of an additional charge alleging that he counseled a witness to lie to a grand jury about the sample sales.
In fining Nagalingam and sentencing him to more than a year in prison, the judge said that the victims of the sample drug sales scheme were not the big drug companies, which the defense claimed could easily afford the loss, but the doctor's poor, elderly patients.
An investigation continues into Nagalingam's misdeeds, with the pursuit of a large civil penalty by the U.S. Attorney's Office and Department of Health and Human Services.
--Tamar Nordenberg
FDA Consumer magazine (March-April 1998)