What Type of Business Entity Best Suits Your Priorities and Goals?

For many inventors-turned-entrepreneurs, the most enjoyable part of their professional lives, and where their collective passion truly lies, is the challenge of building upon and improving established ideas and inventing revolutionary products that improve their lives and the lives of others. Unfortunately, for those same entrepreneurs, pursuing those challenges requires attention to at least one mind-numbing issue – selecting the best form of business entity for a new business.

"But why do I have to choose a business entity to run my business?!," one might ask.

Well, let's start with the basics. There are several types of business entities available and, more importantly, each type of entity offers advantages and disadvantages based on the owner's priorities and goals. It is essential that these priorities and goals are adequately addressed at the outset by selecting the most appropriate type of business entity.

The basic types of entities are sole proprietorships, corporations (both "C Corporations" and "S Corporations"), limited liability companies, limited partnerships and general partnerships. The advantages and disadvantages of these entities arise when considering several basic issues that all business owners must address. The most common, and often most important, issues that must be addressed are:

  1. Protection from personal liability.
  2. Minimization of taxes.
  3. Availability of established comprehensible legal precedent as they relate to internal governance, management, fiduciary duties, compensation and similar issues.
  4. Availability of debt and equity financing.
  5. Exit strategies.

Each of these issues, and other issues that are common to start-up businesses, can be addressed in different ways based on the form of entity selected. The business owner's personal and professional priorities and goals will dictate which issues are most important and which type of entity best addresses those important issues.

So, in the rush and excitement of starting a new business and chasing one's passion, an entrepreneur must be mindful of his or her personal and professional priorities and goals and must be certain that those priorities and goals can be achieved efficiently and fully by selecting the form of business entity that best serves those priorities and goals.

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FDA Issues Draft Guidance on Use of Antimicrobial Drugs in Food Animals

On June 28, FDA issued draft guidance intended to help reduce the development of resistance to medically important antimicrobial drugs used in food animals. The draft guidance was issued in response to public and medical industry concern over the growing resistance to antimicrobial drugs in the global population. Relying on a number of published reports, FDA states that the weight of the evidence supports the conclusion that rampant use of antimicrobials for nontherapeutic purposes, such as enhancing animal growth, is contributing to the widespread failure of antimicrobial therapies in humans.

FDA is most concerned about the use of antimicrobial drugs that were approved prior to 1993, that are used in food producing animals for production purposes, are available over the counter, and are given continuously through feed or water or to large groups of animals. FDA recommends that antimicrobial drugs only be used judiciously, which it defines as when “necessary and appropriate.”

The guidance states only two principles:

  • The use of medically important antimicrobial drugs in food-producing animals should be limited to those uses that are considered necessary for assuring animal health.
  • The use of medically important antimicrobial drugs in food producing animals should be limited to those uses that include veterinary oversight or consultation.

In regards to the first principle, FDA states that it considers uses that are expressly associated with the treatment, control or prevention of specific diseases to be uses that are necessary for ensuring the health and safety of food animals. However, production based uses that do not target specific diseases and are instead intended to promote growth or improve feed efficiency are considered “injudicious” uses. The second principle merely reinforces the importance of veterinary oversight of the use of antimicrobial drugs in food producing animals.

In its Q&A, FDA states that it "does not want the recommendations to negatively impact animal health or disrupt the animal agriculture industry." Although it remains to be seen what effect these draft guidelines will have on the industry, it is likely to be small. Even if implemented, the principles have no teeth as they’re currently drafted and don’t mandate the industry to take any particular actions. That’s disappointing, particularly in light of the glut of available information that demonstrates the negative impact that current food production techniques are having on human health.

FDA is inviting comments on the draft guidance through August 30, 2010.

FDA Says Its on Target to Issue Guidelines on Social Media by Year End But Will Not Address Adverse Event Issues

Medical Marketing & Media Magazine reports that FDA is on track to issue much sought after draft guidance by the end of 2010 on the promotion of regulated products via the internet and social media. Those following the issue will recall that FDA held hearings in November 2009 and solicited comments on suggested guidelines regarding the use of social media by FDA regulated entities. The primary issues that concerned both FDA and the industry were (1) the kinds of online communications manufacturers, packers and distributors could be held accountable for; (2) how those entities could fulfill regulatory requirements when using social media tools with strict space limitations, such as Twitter and other micro-blogging services; (3) what parameters should apply to the posting of corrective information on web sites controlled by third parties, (4) when the use of links from branded web sites to other informational sources is appropriate; and (5) a number of questions specific to how FDA regulated entities should respond to or report alleged adverse event reports gleaned through the internet. Jean-Ah Kang, Special Assistant with the DDMAC, indicated that FDA intends to address all of the issues discussed, with the exception of adverse event reporting.

FDA's failure to provide guidance regarding how the industry should handle adverse event reports causes some level of concern. As stated in the Federal Register notice, FDA expects that entities responsible for reporting will promptly review all adverse event information obtained through the internet and social marketing sources and report such adverse events to FDA when appropriate. FDA noted that this responsibility raises a number of important questions, including how entities with postmarketing responsibilities are using the internet to monitor adverse events, and how adverse event information is being received, reviewed and processed. In addition, FDA sought information regarding the kinds of challenges presented in handling adverse event information, and the kinds of uncertainties the industry faces regarding what should and should not be reported from these sources to meet FDA reporting obligations.

From both a business and a legal standpoint, FDA's failure to provide guidance regarding reporting obligations is particularly problematic. The internet and social media tools contain an incalculable amount of information that increases constantly and exponentially. The industry needs guidance to determine what its responsibilities are to track alleged adverse event reports across a relatively infinite number of websites, blogs, microblogs, message boards and chatrooms. Is it responsible for policing only its own sites or must it also police third party sites? If it is responsible for reviewing and processing information from third party sites, must the sites have some level of legitimacy to fall within the industry's purview?

Also, in many, if not most, instances, the source of information is anonymous and unverifiable. How can a responsible entity determine which adverse event reports are legitimate and which are falsified? How can the entity determine the identity of the individual making the statement? How can the entity determine exactly which product or device was involved with the alleged incident? How far does the entity have to reach to learn this information? If the individual making the statement is completely anonymous and posting on a third party site, does the entity have to engage in subpoena practice to obtain the individual's identity or IP address? If so, does the entity have to then engage in further subpoena practice to obtain the individual's identity from their internet service provider?

Conceptually, the industry's reviewing and reporting responsibilities, and the costs associated with those responsibilities, are limitless. While its no surprise that FDA will not issue guidance regarding the above issues, we can only hope that it revisit the issue in the near future.

How Can An Ad Be A "Bad Ad"?

If your company manufactures, sells and/or distributes prescription pharmaceuticals, you need to be aware that the FDA has just launched a promotional campaign to solicit volunteered information from medical professionals concerning "bad ads". What is a "Bad Ad"? A "bad ad" is one in which:

  • advantages of a drug are being promoted with no mention of risks to a patient;
  • the effectiveness of a drug is being overstated:
  • the use of drugs is being promoted off-label, or for unapproved uses, beyond the use or uses for which the drug was submitted to the Food and Drug Administration; and/or
  • drug comparisons are being made that are misleading.

Your company should be aware of this program. When a "bad ad" is promoted, the FDA's Division of Drug Marketing, Advertising and Communications, or DDMAC. will be investigated by DDMAC by being evaluated to determine if regulatory action need be taken, such as, in order of increasing severity:

  • Untitled Letter;
  • Warning Letter;
  • Notice of Violation Letter; or
  • Referral for criminal investigation.

The FDA will begin Phase 1 of the "Bad Ad Program" campaign in May, 2010, by initially exhibiting at booths at major medical conferences where reviewers will be speaking with prescribers regarding how to recognize misleading prescription drug promotion and how to report any potential violations to the FDA.

You can be proactive to protect your company, by assuring: that all promotional ads are accurate, that they balance the risk and benefit information, that they are consistent with the prescribing information approved by the FDA, and that they only include information that is supported by strong evidence from clinical studies.

For more information, see: http://health.law360.com or http://www.fda.gov.

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Welcome to the Fox Rothschild Life Sciences Practice Group Blog

For our inaugural post, we felt it would be appropriate to introduce ourselves, tell you a bit about the Fox Rothschild Life Sciences Practice Group, and explain what we plan to do with this blog. Based in Philadelphia, Fox Rothschild is a full service, nationwide firm with fifteen offices in eight states with approximately five hundred attorneys.

Our Life Sciences Practice Group provides comprehensive representation to companies engaged in the full spectrum of life sciences, including pharmaceuticals, medical devices, biologics and biosimilars, foods, dietary supplements, cosmetics, animal feed and drugs, radiation-emitting products, and nanotechnologies. We draw on the skill and knowledge of attorneys from across our firm, from litigation and corporate transactional specialists, to intellectual property, venture finance, regulatory and health law.

As everyone involved in the industry is aware, the current regulatory and economic environment has sown seeds of both great opportunity for and challenges to growth for the life sciences industry. Maximizing the potential for success with new products while minimizing attendant risk requires legal counsel intimately familiar with the science and technology behind the scenes as well as the short- and long-term business and operational needs of life sciences companies.

Our goal with this blog is, of course, to keep you apprised of industry developments and FDA regulations, guidelines and decisions as they are handed down. However, we don’t want this to be a one way street – this blog is the perfect forum for us to have a conversation with you, the reader. If there are topics that you would like to see us address, please take a moment and email any of our contributors.

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