FDA Exclusion Provision Creates Insurance Complications for Nutraceutical Industry

February 14, 2024

By Andrew Wagner, Partner, Managing Account Executive and National Life Science & Technology Practice Leader at Conner Strong & Buckelew

If NAC, NMN or others are on your shelves, is the product insured?

Manufacturers of n-acetyl cysteine (NAC) and other nutraceutical products may be at risk of coverage gaps because of one often overlooked U.S. Food and Drug Administration (FDA) rule – the drug preclusion provision.

When the COVID-19 pandemic struck, demand for NAC skyrocketed as many touted the product’s ability to treat cough and other lung complications. As the product, which was being sold over the counter, flew off the shelves, a pharmaceutical company filed a new drug application for a product using NAC as active pharmaceutical ingredient (API) in a clinical trial.

In doing so, this caused the FDA to trigger a lesser-known clause of the Dietary Supplement Health and Education Act (DSHEA) referred to by many as the “drug preclusion provision.” This provision states that a dietary supplement may not include an ingredient or article that has already been approved as a new drug, or an article authorized for investigation as a new drug for which substantial clinical investigations have been instituted and made public.

With an investigation for NAC now underway, the FDA placed NAC on its exclusion list and issued a cease and desist to all nutraceutical companies creating and selling it. This led to two citizen petitions from the Council for Responsible Nutrition (CRN) and the Natural Products Association (NPA) asking the agency to take NAC off the exclusion list considering its long history of safe usage. After several months of consideration, the FDA ruled that while it will not take NAC off the exclusion list, it will exercise enforcement discretion with respect to the sale and distribution of certain NAC-containing products that are labeled as dietary supplements.

What Does This Mean for NAC Producers?
While NAC manufacturers and distributors are currently free from FDA enforcement to produce and sell the product, this ruling may have significant implications for their product liability insurance coverage. Many product liability policies in the life sciences industry contain language that excludes coverage for products containing articles and ingredients listed on the FDA’s exclusion list. This means that producers & retailers of products containing NAC today may not have product liability coverage in place.

Product liability policies usually include their own list of products that are excluded from coverage. Adding to the confusion is the fact that NAC is typically not on these lists, but coverage still may be excluded considering NAC’s designation as an “excluded article” by the FDA. This coverage caveat is not specific to NAC and applies to many other commonly used nutraceuticals, like nicotinamide mononucleotide (NMN). Producers of products containing NMN and other articles on the exclusion list may also be lacking critical insurance coverage.

What Life Sciences Companies Can Do Now
In light of these conditions, all nutraceutical companies producing or distributing over-the counter dietary supplements should consider taking a few steps today to ensure they have proper coverage in place. As life sciences insurance experts with decades of experience reviewing policy language and negotiating terms for our clients, here are three things we believe life sciences companies need to do now:

1. Closely review current insurance policy language: All dietary supplement producers and distributors should start by taking a close look at their existing product liability insurance policies. It’s important to look for any language that eliminates coverage for products containing articles listed on the FDA’s exclusion list. This language can be complex and difficult to understand. But an experienced broker will be able to read through your specific policy and identify any gaps that need to be addressed.

2. If uncovered, seek out a solution: Nutraceutical companies discovering they are uninsured will need to get creative when seeking a solution. They will most likely need to work with a smaller, specialty insurer, perhaps an offshore provider who operates outside of the confines of the U.S. regulatory and legal system. Nutraceutical providers should consider if their broker has the expertise necessary to evaluate coverage properly and make certain that they consider approaching these underwriters with the assistance of a knowledgeable broker that has the background, relationships, and negotiating experience to secure the best coverage and terms.

3. Assess contracts and legal liability: When reviewing insurance policy language, it’s also a good time to assess contracts with manufacturers, distributors, and other business partners in the event of a product liability lawsuit. Depending on how these contracts are written, companies can be named in a lawsuit for their specific role in bringing a product to market.

The CSB Advantage
At Conner Strong & Buckelew, we have decades of experience helping life sciences companies navigate the FDA regulatory landscape. We’re experts in complex insurance language and possess the industry connections to ensure our clients are getting the coverage they need. As regulations continue to shift and the FDA puts out new guidance, we can help interpret the implications for your business and offer counsel on how to best protect yourself. We will serve as your advocate as you seek to secure maximum coverage at the most favorable terms, a task that is even more important in today’s persistent hard marketplace.

 

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Life Sciences, Pharmacy & PBM Management

Practice Leader

Andrew H. Wagner

Partner, Managing Account Executive, National Life Science & Technology Practice Leader