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The Boston Globe

Metro

Little scrutiny as drug compounder expanded

Early fears about tainted products, but no crackdown

New England Compounding was located in the same Framingham complex as a business owned by his wife’s family.

David L. Ryan/Globe Staff

New England Compounding was located in the same Framingham complex as a business owned by his wife’s family.

In February 2003, 11 federal and state health regulators gathered around a conference table in Boston, joined by three colleagues patched in on telemonitors from Washington, to decide the fate of New England Compounding ­Center.

The tiny Massachusetts pharmacy seemed too obscure to require so much firepower. But at least four patients had recently died of meningitis caused by contaminated steroid injections made by compounding pharmacies in California and South Carolina, and federal investigators were worried they could have another public health crisis on their hands, according to documents provided by a US Senate committee and the US Food and Drug ­Administration.

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Similar steroids mixed by New England Compounding were believed to contain toxins — they had possibly sickened at least four patients. And the company was expanding — fast. Despite initially promising to sell medicines only to Massachusetts doctors, co-owner Barry ­Cadden had acquired pharmacy licenses in at least 13 states, filed applications in many more, and begun to hire a sales force to exploit the burgeoning and profitable market for custom-made drugs.

Before the group of regulators disbanded, they decided the state, not the FDA, would take the lead in disciplining the specialty pharmacy. That proved to be a key choice. California and South Carolina regulators took strong steps that cost the compounders involved in the earlier contamination cases their businesses.

But Massachusetts ultimately would take no significant ­action against New England Compounding, the company that a decade later is blamed for a national meningitis outbreak that has sickened 541 people and killed 36 — allowing it to flourish into a national distributor of thousands of steroids, painkillers, and other medicines to doctors and hospitals.

“Barry owned the market of pain management,’’ said Jim Nahill, who owns Pallimed Pharmacy in Woburn.

The Massachusetts pharmacy board did not take action against New England Compounding until October of this year. It forced the pharmacy to shut down after investigators traced the meningitis outbreak to one of its drugs — methylprednisolone acetate — one of the two steroids believed to have sickened patients in 2002.

Was retail pharmacist

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Before Cadden started New England Compounding, he was a traditional retail pharmacist at a Rhode Island Walgreens store for eight years, with no experience managing a business. In his 1998 application for a Massachusetts pharmacy ­license, Cadden said he planned to customize drugs for Massachusetts doctors, particularly those in the suburbs west of Boston.

The Framingham pharmacy was located in the same red brick complex as a recycling business owned by his wife’s family, the Conigliaros, who helped him start New England Compounding.

Right away, Cadden struck others compounders, who tend to share recipes, as reticent — almost like he wanted to fly ­under the radar.

“They were still setting up when I knocked on the door,’’ recalled Dennis Katz, the owner of Hopkinton Drug, a compounding pharmacy 15 minutes away from New England Compounding. “I said, ‘Welcome to the area. If I can help you with a formula, let me know.’ I was not invited in, which I thought was weird.’’

New England Compounding was among dozens of independent pharmacies that eagerly began compounding around then, as chain drugstores and Internet mail order outfits threatened small pharmacies by taking over much of the business of filling traditional prescriptions. Insurers were ­also clamping down on payments, and by the early 2000s, the number of independent pharmacies in the United States had plunged to 23,000 from 40,000 in 1980.

There was also a desire among doctors and patients to more aggressively treat pain, with doses and drug combinations not supplied by big pharmaceutical companies. Patients wanted natural hormone replacement therapies, anti-aging formulas, and veterinary drugs. Consultants and compounders boasted that impossibly large profits could be made.

“Anybody know what the average margin on a compounded product is?’’ businessman Mickey Letson, then president of a major compounding supply company, asked a group at a national trade show in Atlanta in 2002. “Seventy-five percent minimum gross profits. Depending on what field you’re in it can run into the thousands of percent.’’

Lester Nathan of Schenec­tady, N.Y., who dubbed himself the “million dollar marketing coach,’’ helped over 300 pharmacies market their compounded products. “The raw materials are cheap and the pharmacist is getting paid for a higher level of product,’’ Nathan said in an interview. “Compounding is one of the areas they should have been in anyway, in order to serve their patients better because it’s customizing medicine.’’

A Texas-based company called Professional Compounding Centers of America, started by a Houston pharmacist in 1981, received a growing number of calls from traditional pharmacists who wanted to learn to custom make drugs. The company mailed kits that included formulas, chemicals, and equipment. Customers included New England Compounding, which bought nonsterilized chemical powder to mix into sterile injectable drugs, the riskiest, most demanding form of compounding.

By 2002, the year the FDA started investigating the firm, it was clear that New England Compounding’s strategy went far beyond the local focus Cadden had promised. Yet state and federal regulators did next to nothing to slow its growth.

That year, the pharmacy took over a neighboring store to double its space. Cadden proudly told federal regulators he planned to sell drugs in all 50 states. And pharmacy boards — apparently largely unaware of the company’s tussles with regulators — cooperated, quickly granting New England Compounding licenses.

In one instance, Charles Young, then executive director of the Massachusetts pharmacy board, assured his counterparts in Florida that the pharmacy was in “good standing.’’ Young dated the letter April 10, 2002 — the same day FDA and board investigators arrived at the pharmacy to investigate potential contamination of the steroid betamethasone and found Cadden refusing to provide records.

During these years, the company marketed its products aggressively, borrowing techniques from large drug manufacturers. Cadden set up an exhibit booth at a national meeting of eye doctors in 2003, faxed fliers to doctors’ offices in 2004 advertising fast-acting “extra strength triple anesthetic cream,’’ and cosponsored the Eastern Pain Association meeting in Manhattan in 2005.

In promotional materials faxed to doctors’ offices and distributed at national meetings, the company promoted its rigorous sterility testing and attention to industry standards. One 2005 pamphlet boasted the company was licensed in 49 states, included a “state-of-the-art laboratory,” and used an independent testing firm.

Doctors say Cadden sometimes shipped large amounts of drugs to them on consignment, requiring them to fax patient names only as each dose was used. It is a more convenient system for physicians than providing a prescription before receiving each vial — as required by Massachusetts law.

“When you are good at what you do in our business, you create waves of business you can’t predict,’’ said Nahill, the Woburn compounder. It’s a competitive business, he added, and if a compounder isn’t responsive to doctors’ needs, “they will go somewhere else.’’

Cadden’s company got invaluable help along the way from his brother-in-law, a Florida anesthesiologist with contacts among fellow pain specialists and years of experience using compounded pain drugs.

Dr. Douglas Conigliaro, whose wife, Carla, was listed as the pharmacy’s majority owner, started a marketing company in 2002 that promoted New England Compounding’s products. And he introduced Cadden to a Florida pharmacist who had long supplied Conigliaro with compounded medicines.

“I think Doug wished Barry would do a little more volume,’’ said Sam Pratt, recalling that Conigliaro was interested in how many prescriptions he mixed per day. The men talked in 2005 at a Florida pharmacy conference, where Cadden was in high demand. Pratt said Cadden answered constant cellphone calls as they walked the convention floor.

Conigliaro has not responded to request for comment. Cadden has declined to comment through his attorney.

While Conigliaro was viewed by workers as an aggressive businessman, Cadden was friendly, they said. One former salesman, who did not want to be identified because he is afraid of damaging his career, said Cadden was “very dynamic” and loved talking about his compounding work. During his job interview, he estimated Cadden talked for 43 of the 45 minutes.

Beneath Cadden’s outgoing personality, however, he had a competitive nature.

Several years after they met in Florida, Pratt decided to call Cadden for a favor. He wanted to know how to make a certain medication, but Cadden was tight-lipped. “He said if he was going to do it for anyone, he’d do it for me,’’ Pratt recalled. “He wouldn't tell me. It was his market.’’

Sometimes uncooperative

Cadden was similarly circumspect when FDA inspectors visited New England Compounding to investigate reports that several patients had developed meningitis-like symptoms after injections with the company’s drugs. He chafed and sometimes turned uncooperative, according to internal agency reports.

One day in April 2002, inspectors noted that Cadden had stored a 1,000-milliliter beaker of ­betamethasone — the steroid believed to have sickened at least two patients — in a protective hood while awaiting results of sterility tests, which could take a week. Cadden had covered the beaker with several sheets of aluminum foil.

Investigators warned the solution could become contaminated sitting out that long, but Cadden said he did not want “to waste money” on vials until he knew the product was sterile and could be sold. At a meeting a week later, Cadden told investigators the beaker did not contain betamethasone at all.

Federal and state officials inspected New England Compounding nine times in 2002 and 2003, and the FDA issued the pharmacy two form 483s — a formal list of concerns ­ob­served during inspections — identifying problems with the sterilization and mixing of drugs.

In response to one, Cadden said he had hired a consultant and taken a series of corrective actions, including sanitizing work spaces on a regular schedule and cleaning and testing the autoclave, used for sterilizing equipment.

The investigation occurred amid the unfolding tragedies in California and South Carolina. These cases were a key component of the FDA’s presentation to state pharmacy regulators at the February 2003 meeting.

The agency’s officials wanted to impress on the pharmacy board “the potential for serious public health consequences if NECC’s compounding practices, particularly those relating to sterile products, are not improved,’’ David Elder, then director of compliance for the agency’s New England office, told the group, according to a memo summarizing the meeting.

Thirteen patients were hospitalized, including five with meningitis, and three died, ­after receiving injections of the steroid betamethasone made by Doc’s Pharmacy in Walnut Creek, Calif. — cases that came to light in the summer of 2001. In South Carolina the next year, four patients contracted fungal meningitis from methylprednisolone made by Urgent Care in Spartanburg, and at least one died.

During the meeting, the FDA also pointed out that an April 2002 US Supreme Court ruling had weakened its authority over compounding pharmacies, while leaving intact its power to regulate manufacturers.

Though New England Compounding had begun its national expansion by that time, the regulators, for reasons that are unclear, decided the company was still a compounder, and the FDA handed over primary oversight responsibility to the state.

The state pharmacy board initially proposed a three-year probation and reprimand of the company, but backed off when the firm protested that the ­action would threaten its ­national business by scaring off customers. Instead, the board signed a consent agreement with the pharmacy in 2006 that required it to improve its sterile compounding procedures.

By that time, William Koch, a patient injected with the pharmacy’s methylprednisolone acetate in 2002 at a Rochester, N.Y., hospital, had died of bacterial meningitis, according to a lawsuit filed against the pharmacy in 2004 and confidentially settled.

Harold Sparr, a Massachusetts pharmacy board member from 1992 to 2006, said board members did not understand what was going on inside New England Compounding. Maybe, he said, the company “let things slide for the almighty buck.’’

State health officials now ­acknowledge they missed ­opportunities to ensure the pharmacy’s practices were safe and say they have now stepped up enforcement.

Meanwhile, the FDA remained involved, sending New England Compounding an official warning letter in 2006 detailing deficiencies it found during its inspections.

Cadden wrote back in 2007 that the findings were invalid because the letter came so long after the 2002 and 2003 inspections. The FDA sent a final letter in 2008 threatening follow-up inspections or even closure of the pharmacy, but never made good on those threats.

In response to Globe questions about why Cadden was uncooperative with the FDA during the early 2000s, his attorney said, “This sort of historical retrospective sheds no light on the current issue.’’

“Whatever alleged conditions in the NECC lab may be dredged up from many years back simply shed no light on the mystery of what went so terribly wrong for the first time in June and August, and why,” Bruce Singal said in a written statement.

Undertook big expansion

Its problems with the FDA apparently settled, New England Compounding embarked on the largest expansion in its history. Cadden and Gregory Conigliaro, younger brother to Doug, launched another company, Ameridose, in 2006, which focused on repackaging and custom-making medications for hospitals.

The pharmacy focused on small pain and eye clinics, but as a growing number of drugs became backlogged, hospitals signed on as customers and its sales exploded.

One former manager of its sister marketing company said that by 2008, New England Compounding was “wildly profitable,’’ earning $13 million in revenue, of which more than $5 million was pretax income. The manager wanted to remain anonymous because he is worried about being sued.

The company grew from about 20 employees in 2009 to 50 by the time it shut down two months ago.

“It was crazy, crazy expansion,” said one former sales representative who did not want to be identified because he signed a confidentiality agreement.

Another salesman, the one who did not want to be identified because he was afraid it would hurt his career, said Cadden wanted his pharmacy to grow, particularly after watching Ameridose become much larger. “He had sort of a love-hate relationship with Ameridose.”

But New England Compounding benefited from its ties to Ameridose, which frequently referred customers to its sister company for products it couldn’t supply itself.

FDA records for this year show that more than three ­dozen hospitals purchased drugs in shipments of 500 doses or more — even though ­Mas­sachusetts law prohibited New England Compounding from selling drugs without patient-specific prescriptions because it was not licensed as a manufacturer.

Gaston Memorial Hospital in North Carolina purchased 900 vials of nalbuphine, a powerful painkiller, in July alone. The hospital acknowledged it did not have individual prescriptions for each dose.

Hospital spokeswoman ­Dallas Wilborn said the hospital was forced to buy from the company “due to a shortage of medications from our traditional suppliers.”

The salesman who signed the confidentiality agreement said hospitals were desperate for medications in short supply. “They were freaking out,” he said. “If they couldn’t get these drugs, patients were going to die.”

Liz Kowalczyk can be reached at kowalczyk@globe.com. Todd Wallack can be reached at twallack@globe.com.

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