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Top 5 Immeasurable Costs of a Warning Letter

A Warning Letter Form FDA 483 “Inspectional Observations,” is a form used by the FDA to communicate concerns and document observations made by the FDA representative(s) during the inspection of a Life Sciences facility.No one can really quantify the cost of a warning letter, not even an average cost, due to an immense number of variables and intangibles associated with it.  Life Sciences companies know that the impact and immeasurable costs to their company from a warning letter or 483 can be quite considerable.  A company’s failure to comply with the CFR’s or GMP requirements and their inadequacies are made public record by the FDA.  In addition, the idea of quantifying a warning letter from the FDA is nearly impossible as each company incurs different expenses and underlying abstract expenses.  The severity of the warning also determines the amount of corrective action that needs to be taken or if a Quality Systems Improvement Initiative needs to be implemented.

Due to the many abstract variables and possible expenses, it is almost impossible to measure the cost to a company. This begs the question; is it important to try to financially quantify the impact of Warning Letter observations or is it more important to understand the types of observations that can impact a company?

As part of a two piece series, we are laying out those warning letter inspection observations that typically pose the most impact and costs to a company’s viability – both measurable and immeasurable.

The top 5 immeasurable costs of receiving a warning letter:

  1. Reputation Damage – Publicly posted warning letters are the leading cause of reputation damage among Pharmaceutical, Biotech, and Medical Device companies. The two biggest players in alerting the public of these warnings are news media outlets and social media platforms. The news media loves to raise awareness of FDA warnings on Life Sciences companies especially if there is a direct tie from the warning letter to the consumer.  Reputation damage as a result of public fear has been seen in numerous and high profile cases in the past. The effects on the manufacturer’s reputation are long lasting in the consumer’s minds.
  2. Competitor Leverage – This goes hand and hand with reputation damage. As warning letters are posted publicly and the news media highlights them, competitors will utilize a company’s mistake to enhance their own market position. In the past, competitors have offered free products when their competition receives a warning letter as a means for consumers to make the switch.  Warning letters present a competitor with leverage that could forever damage a company and cost a countless number of future sales.
  3. Loss of Business – Warning letters can affect contracts, both new and current.  The federal and state governments and private companies may not pursue, stop pursuing or cancel current contracts with a company based upon the degree of severity of a warning letter.
  4. Stockholder Confidence – Undoubtedly, shareholders will lose confidence in a company that receives a warning letter or 483. If stockholders begin to sell or stop buying company stock, the company will suffer greatly – especially with the loss of potential new shareholders.
  5. Diversion away from jobs – Another cost that companies typically do not consider is the warning letters / 483’s effect on the workforce. Warning letters divert management and other personnel’s attention, away from their daily activities, to work to correct the errors and avoid possible litigation.

With the large number of immeasurable costs, there are an equal number of measurable costs to receiving a warning letter. Join us for the 2nd part of this series as we delve into the top 5 measurable costs to a warning letter.

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