Large, early-phase CRO Cetero Research seemed blindsided by the FDA’s letter to the company last week accusing it of falsifying data and manipulating samples over a five-year period at its Houston bioanalytics lab.

In a response statement, the Carey, N.C.-based Cetero called the FDA’s actions “difficult to understand,” since it had contacted the FDA once it realized that six chemists in the lab had misreported the date that samples were extracted prior to analysis in order to get paid for weekend hours they hadn’t actually worked.

Cetero—the largest phase I company in the industry with 1,500 beds and 1,400 employees—said it immediately notified the FDA to self-report its preliminary findings on the matter, as well as to seek agency feedback on its plan to investigate what had happened. Cetero said it also called sponsors to notify them of the situation.

But then, said Cetero, it got silence from the FDA. That is, until the agency sent its “Untitled Letter” to Cetero July 26 and posted the letter on its web site.

Troy McCall, Cetero’s CEO since January 2010, said, “We brought this to their attention in June of 2009. We provided them with the details of our preliminary findings. We also hired an independent consultant—a well-respected individual. We provided them with our investigation plan and we requested a meeting, because our view is that we believe in the mandate of the FDA to ensure that all marketed drugs are demonstrated to be safe and effective, and we take our responsibility very seriously. We wanted to make sure we were entirely transparent.”

Over an 18-month period, McCall said Cetero contacted the FDA about every six weeks with updates of its investigation as well as formal requests for communication with the agency. “Unfortunately, our requests were either denied or ignored,” he said. “We were surprised and disappointed, as all along we had wanted to collaborate with the agency on the issue.”

McCall added that the six chemists in question were hired by Ba Research, the Houston bioanalytics lab with which Cetero merged in late 2006. Cetero’s internal investigation covered five years (from April 2005 to June 2010) and the 1,780 studies that were conducted by the CRO during that time. McCall added that the misconduct did not go on for the entire five years, but rather that Cetero, in trying to be comprehensive, decided to scrutinize all activity at its Houston location for a wide time frame just to make sure.

The FDA inspected Cetero’s Houston facility in May and December of 2010. As expected, said Cetero in a statement addressing the matter, Form 483s and notices of observations were issued regarding the rogue chemists. Cetero said responses to those citations were submitted to the agency “in a timely fashion, with no response [from the FDA] until the public announcement to the press and on its safety web site... despite numerous follow-up requests for resolution with the FDA.”

Cetero also noted that the FDA wrote in its letter: “It is unlikely that these concerns relating to data integrity affect the overall safety and efficacy of drugs already on the market and, at this time, there is no evidence of problems with the safety, quality, purity or potency of drugs already approved.” But at the same time, the agency said it is asking drug sponsors to review the testing in question conducted by Cetero to make sure data are completely reliable. In addition, the FDA said it will send letters to sponsors with pending applications, requesting they either repeat the bioequivalence testing done by Cetero or retest drug samples using a different test laboratory or contractor.

The next step, said McCall, is a meeting with the FDA, which the agency now has acknowledged is warranted. Details of the meeting are being worked out, he said.

Some industry observers are stunned and angry about Cetero’s treatment.

“Cetero was clearly taking this seriously; they were the ones who discovered the irregularities, and they were the ones who disclosed them to the FDA,” said Neal McCarthy, managing director of investment banking firm Fairmount Partners. “The FDA itself says there is nothing to worry about regarding safety of the drugs. So why does the FDA unload on Cetero with both barrels, without so much as a courtesy copy to Cetero?”

“This kind of government intimidation can’t be tolerated,” he continued. “The FDA should be saving this type of attack for the Chinese company that killed 81 people with poisoned Heparin ingredients—not for upstanding members of the pharmaceutical research community who have done their own QC/QA and aired their own miniscule amount of dirty laundry.”

No matter how it is resolved, Cetero’s reputation has been called into question and mid-tier CROs could take a hit as a result. “A reputation for quality is extremely important in the CRO industry, given the high stakes of drug development and the potential costs of trial mismanagement,” said Lauren Migliore, a Morningstar analyst who watches the CRO space. “We believe one of the primary reasons the top-tier CROs like PPD and Covance are winning the lucrative long-term strategic partnerships is due to their reputation for quality.”

The most recent CRO scandal hit MDS Pharma Services, a CRO that has since been broken into various pieces and sold off. In 2007, the FDA called into question the accuracy and validity of certain pharmacokinetic studies conducted by MDS Pharma in Canada from 2000 to 2004, recommending the CRO’s affected clients reevaluate studies conducted at that time. MDS rebounded from the scandal well, but due to other financial problems was sold off in chunks from its parent company, MDS.

In 2006, the industry was rocked by the SFBC International scandal, in which the phase I company’s 675-bed Miami facility, housed in a former Holiday Inn, was paying undocumented immigrants to participate in drug trials under ethically dubious conditions. The company paid $28.5 million to settle a class-action lawsuit. SFBC had bought PharmaNet Development Group prior to the scandal. After the scandal, the company closed the Miami facility and continued operating as PharmaNet. PharmaNet was acquired by inVentiv this year.

The early 1990s marked the Bolar and PharmaKenetics scandal. Senior officials at Bolar, a major generic manufacturer based in Long Island, N.Y., had ordered product substitutions, cover-ups and other criminal misconduct so the company could derail federal investigations and continue to sell a successful generic hypertension drug, which was later removed from the market at the request of the FDA. A federal judge sentenced the head of Bolar to a five-year prison term and a $1.25 million fine—at the time the largest penalty against an individual since the government began investigating generic drug fraud in the late 1980s. Baltimore-based PharmaKinetics Laboratories was implicated in the product-switching scheme. Bolar was its largest client.

Cetero was launched in 2006 when holding company Contract Research Solutions (CRS) bought the large Fargo, N.D.-based phase I company PRACS, founded in 1983. CRS constituted a collection of investors including KRG Capital Partners, the Weinberg & Bell Group and PRACS’ founder James Carlson. That same year, CRS bought PRACS’s main competitor, St. Louis-based Gateway Medical Research. Soon after, the group merged with Ba Research, the bioanalytics lab at which the recent misconduct took place. The owners of Ba, Summit Partners, then became part owners of Cetero. Combined, all three became Cetero.

Suz Redfearn