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ALRA LABS, RAJ BHUTANI AND NEELAM BHUTANI CHARGED IN FIVE- COUNT CRIMINAL INDICTMENT; CHARGES CONCERN 1988 BATCH OF LACTULOSE SYRUP; ARRAIGNMENT SEPT. 9

Executive Summary

Alra Laboratories and two corporate officers, Raj Bhutani and Neelam Bhutani, have been charged in a five-count criminal indictment concerning the production of generic lactulose syrup at Alra's Gurnee, Ill. facility in 1988 and the selling of the product to distributors in East Hartford, Conn. and Brooklyn, N.Y. The criminal indictment was handed down Aug. 11 in Chicago federal court following the findings of an April 1993 grand jury. The Chicago U.S. Attorney's office said the investigation is continuing. An arraignment is set for Sept. 9 in the court of Judge John Grady. The five-count indictment names Alra Labs, its president and treasurer, Baldev Raj Bhutani, PhD, 52, and his wife, Alra Corporate Secretary and quality Control Lab Director Neelam Bhutani, 43. If convicted, the corporate defendant Alra could be sentenced to pay fines of up to $2.5 mil. The Bhutanis each face 15-year prison terms and fines of up to $1.25 mil. The indictments mark the latest, and most serious, charges of FD&C Act and GMP regulation violations by the generic drug manufacturer. Alra has been involved in a series of FDA inspections and reinspections, recalls, regulatory letters, and consent decrees dating back to 1989. In the most recent action, the defendants are charged with providing false and misleading labeling on lactulose syrup USP. They are said to have affixed a false expiration date to the label and shipped the product into interstate commerce after the expiration date had passed. The false labeling date was September 1989. The lot, however, was manufactured in June 1986 and already had expired, the indictment states. Lactulose syrup is indicated for the "prevention and treatment of portal-systemic encephalopathy, including the stages of hepatic pre-coma and coma." None of the product included in the indictment remains on the market. The defendants are also charged, the indictment states, with adulteration of lactulose syrup with intent to defraud and mislead in that: "the product consisted in part of a decomposed substance [partly decomposed lactulose]; the product had not been manufactured in accordance with Good Manufacturing Practices; and the manufacturing procedures for this drug product had been materially altered by adding an undocumented substance, sodium hydroxide, more than two years after the original manufacture." The sodium hydroxide was added, the indictment charges, in an attempt to mask the deterioration of the drug. The indictment further charges that the defendants failed to establish and maintain accurate batch production records "in that they materially altered the manufacturing procedures" by adding the sodium hydroxide, "but, in order to conceal this unauthorized procedure from the FDA, failed to document this unapproved manufacturing procedure in the production batch records." The fourth and fifth counts of the indictment charge the defendants with shipping in interstate commerce lots of lactulose syrup that were, as a result of the above actions, adulterated and misbranded. As it has done in past regulatory incidents, Alra responded to the indictments with an Aug. 26 press release proclaiming "vehement denials" to the charges. Alra maintained that the two batches of lactulose syrup covered in the indictment "were manufactured between 1986 and 1988 and met all quality standards and stability requirements up to and for one year beyond the expiration date of September 1989. Stability reports were properly generated and filed" with FDA, the company said. Continuing its pre-arrangement defense, Alra said: "Written procedures were followed in the manufacture and testing of the [lactulose syrup], and...no prior claims have been made to challenge the product's quality, strength, purity or potency throughout its assigned shelf life. Alra affirms that the product they manufactured and sold was safe and effective and did not at any time pose a threat to customers." Alra noted that sodium hydroxide is an approved ingredient in the manufacture of lactulose syrup. The company suggested that FDA's allegations arose from disgruntled ex-employees. This "handful" of former employees, Alra charged, "have openly and repeatedly threatened retribution for their termination." Alra said it will fight the indictment in court. Alra Labs received the first approvals for generic versions of lactulose syrup on July 26, 1988. The company sells versions of the drug as Constilac (a generic of Marion Merrell Dow's Chronulac) and Cholac (a generic of MMD brand Cepulac), as well as under other drug company labels. FDA, in a series of inspections beginning in the fall of 1989, found major problems at the Gurnee facility. A September-October 1989 FDA inspection of the Gurnee facilities uncovered numerous GMP violations, including discrepancies in recordkeeping, production, process control, packaging, labeling, lab control, written procedures and employee training. An inspection in February-March 1990 found a continuing pattern of violations that resulted in a regulatory letter (a form of FDA notification since replaced by warning letters) being issued to the company in April of that year. The company contended in January 1991 that its responses to the reg letter "satisfied" FDA officials ("The Pink Sheet" Jan. 14, 1991, p. 10) The Gurnee plan was reinspected from Jan. 22 to March 5, 1991. An FDA investigator from the Chicago District Office, Joseph Stojak, testified at a March 7, 1991 hearing before Rep. Dingell's (D-Mich.) House Energy & Commerce/Oversight Subcommittee that he found the company "completely out of control" and had recommended an injunction against Alra ("The Pink Sheet" March 11, 1991, p. 9). Stojak wrote a July 1990 memo to his superiors in the Chicago District Office expressing his frustration with Alra and his belief that the company would not take adverse inspection reports seriously unless FDA sought court action. District Office Director Ray Mlecko told the subcommittee that he was "absolutely not" in agreement with the decision not to prosecute Alra, saying the company had a "chronic violative history." Alra President Bhutani appeared at the March 7 hearing under subpoena ("The Pink Sheet" March 18, 1991, p. 11). He invoked his Fifth Amendment rights against self-incrimination, declining to testify when asked by Rep. Dingell whether he had ever supplied false or fraudulent documents to FDA or to the agency's Chicago District Office. Shortly after the March 1991 hearing, on March 19, Alra's entire production line was seized by FDA for failure to comply with GMP regs ("The Pink Sheet" March 25, 1991, T&G-11). Fraud was not alleged during the seizure action. In July 1991, the company entered into a consent agreement with FDA, agreeing to have all of its batch records reviewed by an independent audit team and to test samples of its entire inventory to assure the potency and purity of each product. Alra also was required to post a $750,000 bond to ensure that no product would be shipped. The company was cleared to manufacture again in December 1991 following an August-September 1991 reinspection. Alra resumed shipping prescription and OTC products in December 1991. An order issued March 19, 1992 by Chicago federal court Judge Milton Shadur found that Alra had met all the terms of the consent agreement ("The Pink Sheet" March 30, 1992, T&G-2). In issuing the indictment, the Chicago Deputy U.S. Attorney's office and the Department of Justice specifically picked out Mlecko, Stojak and fellow district investigator Gretchen Kraus for commendations for the work they did on the case. The Justice attorney directing the case is Deborah Smolover, from the department's Office of Consumer Litigation in Washington, D.C.

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