29 August 2005
Melbourne, 29 August 2005: Companies operating in the pharmaceuticals and medical devices sectors will be forced to review their business practices if proposed changes to the regulatory regime under which they operate are passed through Federal Parliament, according to a leading corporate lawyer.
Clayton Utz partner Ms Robyn Baker said proposed amendments to the Therapeutic Goods Act exposing management to personal liability where they failed to ensure the company's employees, agents and contractors were on top of the Act's requirements would add to the already heavy regulatory burden on companies in these sectors.
Ms Baker, who is a former adviser to government in the area of health, said the proposed changes were a "sleeper" issue that all players in the pharmaceuticals and medical devices sectors needed to prepare for.
"It raises a particular concern for those involved in the day-to-day management of companies operating in these sectors. In failing to take steps to adequately educate their own employees and ensure that their agents and contractors understand what the company's obligations are under the Act, management may find themselves on the wrong end of the law."
The changes are contained in the Therapeutic Goods Amendment Bill 2005, which among other changes introduces two new sections dealing with the liability of executive officers of companies that are found to have breached the Act.
Under the proposed new sections 54B and 54C, any-one involved in the management of the business may be found personally liable if they knew the company would breach the Act and were in a position to influence its conduct but failed to take reasonable steps to prevent the contravention. The Bill also gives broader powers to the Therapeutic Goods Administration to release information to the public about the company's breaches of the Act.
Possible breaches include a failure to comply with manufacturing standards and failing to inform the Therapeutic Goods Administration of issues with the quality, safety or efficacy of a pharmaceutical good or device.
Certain breaches carry a maximum criminal penalty for individuals of $440,000 and up to 5 years imprisonment and a civil penalty of $550,000.
In determining what are 'reasonable steps', the court will be asked to consider what action the director or manager took to ensure the company's employees, agents and contractors had a "reasonable knowledge and understanding" of the Act's requirements.
"Directors and managers who take a 'head in the sand' approach to compliance with the Act now stand to suffer enormous personal consequences. This is a very significant measure which places them in the front line of the increasingly demanding obligations of corporate governance in Australia," Ms Baker said.
"The proposals also stand to drastically impact the way in which companies in the pharmaceuticals and medical devices sectors do business. It may no longer be enough for the company to have a blanket provision in underlying contracts (such as contract manufacturing agreements) that require the other party to comply with the Act and relevant standards. The company - be they a pharmaceuticals manufacturer, retailer, supplier or distributor - should now ensure it has hard evidence that those acting on behalf of their business understand the Act's requirements."
Ms Baker said the new regime was a 'carrot and stick' approach aimed at encouraging companies to examine their own internal practices to ensure compliance with the Act rather than waiting for a breach to happen.
"Companies in this sector would be well advised to take steps now to ensure they have the appropriate systems and documentation in place not only to ensure they avoid breaching the Act but also to protect their management from personal liability ," Ms Baker added.
The proposed changes were prompted by the Pan Pharmaceuticals recall, which raised concerns that the existing regulatory regime was inadequate. Ms Baker said that while the proposed amendments significantly strengthened the regime by expanding the power of the Therapeutic Goods Administration to enforce the Act's provisions, they were a double-edged sword for companies and their management.
"The full impact of the changes will not be clear however until the Act is in operation," Ms Baker said.
The Therapeutic Goods Amendment Bill 2005 also introduces a raft of other changes to the Act, including a tiered regime of criminal offences with new maximum penalties of up to $440,000 and 5 years imprisonment, civil penalties of up to $550,000 for individuals and $5.5 million for companies applicable to certain existing offences, infringement notices as an alternative to prosecution and provision for enforceable undertakings. The Bill is currently before Parliament.
