[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62698-62708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24621]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 08-6]
Lannett Company, Inc.; Grant of Registration To Import Schedule I
Substance
On November 15, 2012, I, the Administrator of the Drug Enforcement
Administration, issued a Declaratory Order in the above-captioned
matter.\1\ Therein, I held that Lannett Company, Incorporated's
(hereinafter, Lannett) proposed importation of synthetic dronabinol
(THC) in finished dosage form, a schedule I controlled substance, for
the purpose of conducting stability and bioequivalency studies to
support an Abbreviated New Drug Application (ANDA), constitutes
``scientific, analytical, or research uses'' and is therefore a
permissible importation under 21 U.S.C. 952(a)(2)(C). Declaratory
Order, at 36. However, I further held that Lannett had not justified
that the quantities of the proposed importations (300,000 dosage units)
were ``limited quantities'' as required by section 952(a)(2)(C). Id. at
35-36. I therefore ordered Lannett to provide justification for the
quantities it sought to import. Id. at 40. I also held that upon
Lannett's ``providing adequate justification for the quantit[ies] of
the [proposed] importation[s],'' its ``registration would be consistent
with
[[Page 62699]]
the public interest.'' Id. (citing 21 U.S.C. 823(a)).\2\
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\1\ All citations to the Declaratory Order are to the slip
opinion and not to the Order as published here in the Appendix.
\2\ However, I held that Lannett's application for a
registration to import THC should be held in abeyance.
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In response, Lannett filed a new application, seeking to import
10,000 dosage units for each of the three dosage strengths for which it
intends to file an ANDA.\3\ See Lannett Company, Inc.'s Response To The
Administrator's Declaratory Order of November 15, 2012. Thereafter, the
Government objected to Lannett's new proposed quantities, contending
that Lannett had not adequately justified them. Government's Request To
Have Lannett Company, Inc., Amend Its Import Application To Conform To
The Administrator's Declaratory Order of November 15, 2012, at 2.
Thereupon, I directed Lannett to file a response to the Government's
request. Order (June 12, 2013).
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\3\ Neither of the firms which objected to Lannett's application
(Rhodes Technologies and Mallinckrodt) filed a response to its
submission. See Declaratory Order at n.32.
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On June 28, 2013, Lannett filed an amended application, explaining
that it now needs 7,000 capsules of each dosage strength for which it
intends to file an ANDA. Lannett Company, Inc.'s Response to the
Administrator's Declaratory Order of June 11, 2013. Neither the
Government, nor the firms which objected to Lannett's application,
filed a response to the amended application. Having reviewed Lannett's
amended application, I conclude that it should be granted.
Order
Pursuant to the authority vested in me by 21 U.S.C. 958(a) and 28
CFR 0.100(b), I order that the application of Lannett Company,
Incorporated, for a DEA Certificate of Registration authorizing it to
import Tetrahydrocannibinols (Drug Code 7370) for the purpose of
conducting research be, and it hereby is, granted. Pursuant to the
authority vested in me by 21 U.S.C. 952(a)(2)(C), I further order that
a rule be, and it hereby is, issued, authorizing Lannett Company,
Incorporated, to import the amounts of Tetrahydrocannibinols set forth
in its amended application.\4\
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\4\ As stated in the Declaratory Order, the quantities of
Tetrahydrocannibinols imported pursuant to this rule may only be
used for the purpose of conducting research in support of its ANDA
and may not be commercially distributed.
Dated: October 8, 2013.
Michele M. Leonhart,
Administrator.
Appendix
Docket No. 08-6
LANNETT COMPANY, INC.
DECLARATORY ORDER
Introduction
Under the Controlled Substances Import Export Act (hereinafter,
``CSIEA''), a person seeking to lawfully import a schedule I or II
controlled substance into the United States must obtain from the
Drug Enforcement Administration both a registration as an importer
and permission to import the substance. See 21 U.S.C. Sec. Sec.
952(a); 958(a). Under section 952(a), other than in the case of
narcotic raw materials, it is unlawful ``to import into the United
States'' any schedule I or II controlled substance ``except that
such amounts of any controlled substance in schedule I or II . . .
that the Attorney General finds to be necessary to provide for the
medical, scientific, or legitimate needs of the United States'' may
be imported pursuant to ``such regulations as the Attorney General
shall prescribe'' if one of three conditions is satisfied. Id. Sec.
952(a)(2).
Relevant here are subparagraphs (2)(B) and (2)(C). The former
provision authorizes an importation ``[i]n any case in which the
Attorney General finds that competition among domestic manufacturers
is inadequate and will not be rendered adequate by the registration
of additional manufacturers under [21 U.S.C. Sec. ] 823.'' Id.
Sec. 952(a)(2)(B). The latter provision authorizes an importation
``in any case in which the Attorney General finds that such
controlled substance is in limited quantities exclusively for
scientific, analytical, or research uses.'' Id. Sec. 952(a)(2)(C).
Procedural History
On October 10, 2006, Lannett Company, Inc., of Philadelphia,
Pennsylvania (hereinafter, Lannett), applied for a DEA Certificate
of Registration authorizing it to import tetrahydrocannabinols
(THC), a schedule I controlled substance.\1\ ALJ Ex. 1, at 1.
Lannett sought to import the THC ``for analytical testing on a
formulated product for submission to the U.S. Food and Drug
Administration (FDA) for generic product approval.'' Id. While
Lannett's application is not in the record, according to the
affidavit of its Chief Executive Officer, the company sought to
import three ``submission batches of . . . finished dronabinol
capsules,'' comprised of 100,000 capsules each, which would be
tested at both its facility ``and at a clinical laboratory that will
conduct bioequivalency testing'' to provide data to support the
filing of an Abbreviated New Drug Application (ANDA) with FDA. LX 1,
at 6; Tr. 37.\2\
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\1\ Lannett also applied for a registration authorizing it to
import methylphenidate and morphine, both of which are schedule II
controlled substances. ALJ Ex. 1, at 1. Lannett, however,
subsequently withdrew its application to import these two
substances. ALJ Ex. 7.
\2\ According to the affidavit of Lannett's Chief Executive
Officer (CEO), the company sought ``to import one (or possible [sic]
two) submission batches of . . . approximately 3,000 capsules.''
LX1, at 6. However, at the hearing, its CEO testified that the
Company was seeking permission to import (in finished dosage form)
three batches of 100,000 units each. Tr. 37.
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It is undisputed that the dronabinol, which is the subject of
Lannett's application, is a schedule I controlled substance. 21 CFR
1308.11(d)(30). However, when synthetic dronabinol in sesame oil is
encapsulated in a soft gel capsule, and is an FDA-approved drug, it
is a schedule III controlled substance. Id. 1308.13(g).
On September 19, 2007, the Deputy Assistant Administrator,
Office of Diversion Control, published the Notice of Application.
ALJ Ex. 1, at 1. Therein, the Deputy Assistant Administrator
specifically noted that ``[p]ursuant to 21 U.S.C. 958(i), the
Attorney General shall, prior to issuing a registration under this
Section to a bulk manufacturer of a controlled substance in schedule
I or II and prior to issuing a registration[sic] \3\ under 21 U.S.C.
952(a) authorizing the importation of such substances, provide
manufacturers holding registrations for the bulk manufacture of the
substances an opportunity for a hearing.'' Id. (quoting 21 U.S.C.
Sec. 958(i)). The Notice of Application then stated that ``[a]ny
manufacturer who is presently, or is applying to be, registered with
DEA to manufacture such basic classes of controlled substances may
file comments or objections to the issuance of the proposed
registration and may, at the same time, file a written request for a
hearing on such application pursuant to 21 CFR 1301.43 and in such
form as prescribed by 21 CFR 1316.47.'' Id. at 1-2.
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\3\ The notice mistakenly used the word ``registration'' rather
than ``regulation.'' See 21 U.S.C. Sec. 958(i). Section 952 is not
a registration provision; rather it requires that an importer
establish that the proposed importation is permissible under one of
the various provisions set forth therein. See 21 U.S.C. Sec.
952(a).
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Thereafter, Rhodes Technologies timely requested a hearing on
the application, noting that it is registered as a bulk manufacturer
of THC and is therefore ``among the category of firms entitled to a
hearing on the proposed registration pursuant to 21 CFR
1301.34(a).'' ALJ Ex. 2, at 1-2. Rhodes further explained that it
sought ``to be heard on the issue of whether . . . the proposed
registration of [Applicant] as an importer of THC . . . is
consistent with the applicable legal standards reflected in the DEA
regulations at 21 CFR 1301.34(b) and the Controlled Substances Act
at 21 U.S.C. Sec. Sec. 952(a), 958(a), and 823(a).'' Id. at 2.
Mallinckrodt, Inc., another registered manufacturer of THC, also
filed comments and objections to the application.\4\ ALJ Ex. 3,
[[Page 62700]]
at 1. Mallinckrodt objected on the grounds that: 1) THC has no
currently accepted medical use, and that therefore, it ``is not the
type of controlled substance that should be imported unless
necessary,'' id. at 6; 2) that ``a medical substitute [Marinol]
readily exists in sufficient supply which is at least as effective
and [which] is much less dangerous,'' and that therefore, Lannett's
proposed importation of THC is not ``necessary to provided for the
medical needs of the United States'' under 21 U.S.C. Sec. 952(a),
and that by denying Lannett's application, ``DEA can entirely avoid
the risk of such international diversion.'' Id. at 7.
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\4\ Mallinckrodt also requested a hearing on Lannett's
applications for registrations as an importer of methylphenidate and
morphine. ALJ Ex. 3, at 1. As noted above, see n.1, on March 18,
2009, Lannett withdrew its applications for registration to import
these two controlled substances.
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Thereafter, both Lannett and the Government moved to dismiss the
proceeding on the ground that under 21 U.S.C. Sec. 958(i), a third-
party manufacturer such as Rhodes is entitled to request a hearing
only where the applicant for an import registration is also a bulk
manufacturer of the substance. Motion of Lannett to Dismiss and
Terminate Proceedings, at 4. Lannett maintained that it is a
``finished dosage form'' manufacturer, and not a ``bulk
manufacturer'' of controlled substances, id. at 3, and that
therefore, ``there is no jurisdictional basis for a hearing in this
matter.'' Id. at 2.\5\ Relying on a Federal Register notice in which
I directed an Administrative Law Judge to dismiss a hearing which
was docketed when several companies sought to challenge an
application to import narcotic raw materials because the objecting
companies did not bulk manufacture these substances\6\, see 72 FR
3417\7\ (2007), Lannett also contended that while Rhodes and
Mallinckrodt are bulk manufacturers of THC, it ``does not seek to
import such substances in bulk form.'' Lannett's Mot. to Terminate,
at 5.
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\5\ In its motion, Lannett also represented that it sought to
import only ``approximately 3,000 capsules for the purpose of
testing them in its laboratory,'' and that it was not seeking to
``import those bulk substances.'' Motion of Lannett to Dismiss and
Terminate, at 6-7. However, at the hearing, Lannett's Chief
Executive Officer testified that the Company was seeking permission
to import (in finished dosage form) three batches of 100,000 units
each. Tr. 37.
\6\ Indeed, no one in the United States does. See Authorized
Sources of Narcotic Raw Materials, 73 FR 6843, 6844 (2008) (``The
United States, based on long-standing policy, does not cultivate or
produce [Narcotic Raw Materials], but relies solely on opium, poppy
straw, and [concentrate of poppy straw] produced in other countries
for the NRM necessary to meet the legitimate medical needs of the
United States.'').
\7\ Importer of Controlled Substances: Correction to Notice of
Application, 72 FR 3417 (2007) (Cody); Importer of Controlled
Substances: Correction to Notice of Application, 72 FR 3417 (2007)
(Rhodes).
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The Government supported Lannett's motion, arguing that ``under
the express terms of section Sec. 958(i), the applicant also must
be a bulk manufacturer'' of the controlled substance in order to
trigger the right of another bulk manufacturer to challenge the
application for an import registration. Gov. Mot. to Dismiss The
Hearing Requested By the Intervenors at 3-4. According to the
Government, because Lannett ``is not a bulk manufacturer of any of
the controlled substances it seeks to import[,] . . . under the
plain terms of Section 958(i) and the quoted language from the
Federal Register decision [72 FR 3417], the interveners do not have
the statutory authority to obtain a hearing.'' Id. at 4.
On May 28, 2008, the ALJ issued her ruling on the motion to
dismiss. See Memorandum To Counsel and Ruling on Request for
Hearing. Therein, the ALJ noted that ``[n]one of the parties has
asserted that Lannett is a current bulk manufacturer, or is
attempting to gain registration as a bulk manufacturer'' of THC. Id.
at 20. Because ``Lannett is not a bulk manufacturer of
tetrahydrocannabinols,'' the ALJ concluded that ``the hearing right
provided by Sec. 958(i) is not triggered prior to the DEA issuing a
registration to Lannett to import tetrahydrocannabinols.'' Id.
The ALJ further noted, however, that ``[t]he rulemaking
provision of Sec. 958(i) provides manufacturers, who currently hold
registrations as bulk manufactures of a Schedule I or II substances,
the right to a hearing before the DEA issues a regulation under
Sec. 952(a) that authorizes the importation of a substance that
those manufacturers are registered to bulk manufacture.'' Id. at 21.
According to the ALJ, ``[b]y its plain language, this hearing right
does not appear to be limited to situations in which the importer of
the controlled substance is also a bulk manufacturer.'' Id. The ALJ
reasoned, however, that ``[n]othing in the language of the statute
signals Congress' intention that the rulemaking authorized by this
provision be made after formal [on the record] proceedings,'' and
that DEA is required to provide only for notice and comment
rulemaking pursuant to 5 U.S.C. Sec. 553(c). Id.
The ALJ then addressed whether the Objectors had a right to a
hearing under 21 CFR 1301.34(a). See id. According to the ALJ,
``[p]ursuant to 21 CFR 1301.34(a) current bulk manufacturers of a
Schedule I or II controlled substance are entitled to a hearing on
an application for registration to import that substance, if the
Administrator is acting under the authority of 21 U.S.C. Sec.
952(a)(2)(B).'' Id. The ALJ noted that ``Lannett never explicitly
asserted in any of its briefs that it was attempting to import any
of the substances at issue under [the authority of section]
952(a)(2)(C),'' the provision which authorizes the importation of a
schedule I controlled substance ``necessary to provide for the
medical, scientific, or other legitimate needs of the United States
. . . in any case in which the Attorney General finds that such
controlled substance is in limited quantities exclusively for
scientific, analytical, or research uses.'' Id. at 22 n.29.
While acknowledging that Lannett sought to use the substances to
do various tests which are necessary to file an Abbreviated New Drug
Application (ANDA) with the FDA, the ALJ relied on a DEA Policy
Statement, which states that dosage form development activities do
not constitute research for purposes of the CSA's registration
provisions,\8\ to conclude that Lannett's activities do not appear
to constitute ``research'' for the purpose of section 952(a)(2)(C).
Id. at 24. In the ALJ's view, this conclusion was significant
because ``[i]f this import were under the authority of Sec.
952(a)(2)(C), neither Rhodes nor Mallinckrodt would be entitled to a
hearing to determine the details of the importation of the
substances at issue or to examine any risks of possible diversion.''
Id. Noting that there was ``ambiguity'' as to ``the amounts that
Lannett plans to import,'' and that this ``raises an issue of
whether the import would preserve the closed system of distribution,
or promote security, recordkeeping, and reporting requirements,''
the ALJ reasoned that the proposed importation could only be
permitted ``under the authority of section 952(a)(2)(B) and
therefore, [the objectors] are entitled to an on-the-record
hearing'' pursuant to 21 CFR 1301.34(a).''\9\ Id. at 25-26. The ALJ
thus denied Lannett's and the Government's motions to terminate; she
also denied the Government's request to take an interlocutory
appeal. Id. at 26.
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\8\ See Clarification of Coincident Activities for Researchers,
60 FR 55310 (Oct. 31, 1995).
\9\ The ALJ never asked Lannett to clarify whether it was
seeking permission under subparagraph B, subparagraph C, or both
provisions.
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Thereafter, the ALJ conducted a hearing at which Lannett and
Rhodes elicited the testimony of witnesses and introduced extensive
exhibits into the record, and at which the Government also
participated. Thereafter, the parties filed briefs containing their
proposed findings of fact, conclusions of law, and argument.\10\
Moreover, in its post-hearing brief, the Government again maintained
that Rhodes was not entitled to an adjudicatory hearing under either
21 U.S.C. Sec. 958(i) or 21 CFR 1301.34(a), but that it was
``entitled to an informal hearing under section 952(a)(2)(C) and
958(i).'' Gov. Post-Hearing Br. at 4.
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\10\ In light of the lengthy titles of these briefs, they will
be referred to as the respective party's ``Post-Hearing Brief.'' The
parties' exceptions to the ALJ's recommended decision will be
referred to as their ``Exceptions.''
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On April 6, 2010, the ALJ issued her decision. Therein, the ALJ
reiterated the conclusions of her May 2008 ruling that Rhodes was
entitled to an on-the-record hearing. Moreover, noting that Lannett
(and the Government) also maintained that the application should be
considered under section 952(a)(2)(C), the ALJ turned to the
question of whether Rhodes was entitled ``to a hearing if Sec.
952(a)(2)(B) does not apply.'' ALJ at 49. The ALJ noted that in
several instances, I directed the Office of Administrative Law
Judges to dismiss requests for a hearing on the application of an
entity to import a narcotic raw material on the ground that the
entity which had requested the hearing was not registered as a bulk
manufacturer of the same substance. See id. (citing 72 FR 3417). The
ALJ further noted that subsequent to the publication of these two
Federal Register notices, the Agency has published (as it did in
this case) notices of application for import registrations which
have continued to offer hearing rights ``on proposed importations of
non-narcotic raw material Schedule I or II controlled substances.''
Id. at 51. Reasoning that an Agency has discretionary authority to
grant
[[Page 62701]]
an on-the-record hearing to the objectors, the ALJ explained that
``there is no purpose to publishing the notice of application and
affording the opportunity to object, comment, or request a hearing,
unless the [Agency] intends that other importers avail themselves of
the opportunity.'' Id. The ALJ thus concluded that the Agency
``exercised this authority, and that holding the hearing in this
matter was appropriate.'' Id. Turning to the merits, the ALJ held
that Lannett had not established that its proposed importation was
permissible under section 952(a)(2)(B) because it had not shown that
``competition in the domestic market for dronabinol is inadequate
and will not be rendered adequate by the registration of additional
manufacturers.'' Id. at 53. The ALJ further rejected Lannett's
contention that it was entitled to import under section
952(a)(2)(C), explaining that the purpose of section 952(a)(2) is to
``establish a strong system of domestic controls, support the
domestic manufacturers who bear the cost of these controls, and [to]
discourage the expansion of foreign production under less stringent
controls.'' Id. at 53. The ALJ then observed that the legislative
history of the research exception shows that it ``was intended to
allow importation of substances for comparative studies on compounds
developed abroad.'' Id. Noting that ``Lannett seeks to import a
total of some 300,000 capsules,'' the ALJ reasoned that ``[w]hatever
the limit may be on the quantity that qualifies for the research
exception, 300,000 dosage units would likely exceed it.'' Id. at 54.
The ALJ thus concluded that the proposed importation was not
permissible under section 952(a)(2)(C) and recommended that I
decline to issue a rule permitting the importation. Id. at 58.\11\
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\11\ Cf. Johnson Matthey, 67 FR 3904, 39042 (2002) (holding that
applicant ``cannot be registered as an importer of NRMs unless the
Deputy Administrator finds that Johnson Matthey will be allowed to
import NRMs pursuant to 21 U.S.C. 952(a)(1)'').
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While the ALJ recognized that a finding that the proposed
importation is permissible under either exception (2)(B) or (2)(C)
is a prerequisite to obtaining a registration as an importer, ALJ at
54, she also made findings under each of the public interest
factors. With respect to factor one, which directs the Agency to
consider the maintenance of effective controls against diversion
``by limiting the importation and bulk manufacture of such
controlled substances to a number of establishments which can
produce an adequate and uninterrupted supply . . . under adequately
competitive conditions for legitimate medical, scientific, research
and industrial purposes,'' the ALJ found that ``[t]here is no
evidence that competition among [the] manufacturers'' of dronabinol
``or their products is inadequate.'' Id. at 56. The ALJ further
found ``that there are currently enough registered bulk
manufacturers of THC to produce an adequate and uninterrupted supply
of this substance under adequately competitive conditions.'' Id.
With respect to factor two--the applicant's compliance with
applicable State and local law--the ALJ found ``that there is not
sufficient evidence in the record to make a finding.'' Id. As to
factor three--whether the applicant's registration would promote
technical advances in the art of manufacturing dronabinol or
developing new substances--the ALJ found that there was no evidence
on the issue. Id. at 57.
With respect to factor four--the applicant's conviction record
of offenses related to the manufacture or distribution of controlled
substances--the ALJ found that Lannett has never been convicted of
such an offense and that this factor supported a finding that its
registration ``would be consistent with the public interest.'' Id.
at 57. Likewise, as to factor five--the applicant's experience in
manufacturing controlled substances and the existence of effective
controls against diversion--the ALJ found that Lannett ``has
expertise in manufacturing and developing pharmaceutical products.''
Id. The ALJ also found that its security measures are adequate and
``that there is minimal risk of diversion of dronabinol at Lannett's
facility.'' Id. The ALJ thus found that this factor supports a
finding that its registration ``would be in the public interest.''
Id.
Finally, with respect to the sixth factor--``other factors as
may be relevant to and consistent with the public health and
safety''--the ALJ noted the testimony of Lannett's CEO that granting
the application, ``would make more low cost generic drugs available
to the public.'' Id. However, because Lannett did not produce ``any
evidence that its proposed importation would reduce the price [of
Dronabinol] to consumers,'' the ALJ concluded that ``the record does
not support a finding that this factor weighs either in favor of or
against'' the application. Id.
Summarizing her findings, the ALJ concluded that ``factor one
weighs strongly against a finding that Lannett's registration would
be in the public interest,'' and that while factors four and five
supported granting the application, they ``are not dispositive.''
Id. ``[C]onclud[ing] that a preponderance of the record does not
support a finding that Lannett's registration would be in the public
interest,'' id., the ALJ recommended that I direct the Office of
Diversion Control to issue an Order to Show Cause proposing the
denial of its application. Id. at 58.
Thereafter, both Lannett and the Government filed exceptions to
the ALJ's Decision. The ALJ then forwarded the record to me for
final agency action.
Having considered the record as a whole, I agree with the ALJ's
holding that Rhodes was entitled to a hearing under section 958(i)
even though Lannett is not a bulk manufacturer of THC. While I
disagree with the ALJ's conclusion that Lannett has not established
that the proposed importation is permissible under section
952(a)(2)(C), I conclude that Lannett has established that it is
necessary to import only a portion of the dronabinol.
With respect to the public interest factors, while I generally
agree with the ALJ's findings with respect to each of the factors,
for reasons explained below, I reject her conclusion that ``factor
one weighs strongly against a finding that Lannett's registration
would be in the public interest.'' I further conclude that Lannett
is entitled to a registration provided that it can adequately
justify the amount it seeks to import; however, such registration
shall be limited to authorizing it to import a quantity sufficient
to conduct the studies necessary for filing an Abbreviated New Drug
Application and barring it from subsequent commercial distribution
of those quantities imported under this authority.
The Threshold Issue--Was Rhodes entitled to a hearing on either
lannett's application for registration or its application for a rule
authorizing the importation?
It is undisputed that Lannett does not hold a manufacturer's
registration for THC and has never engaged in the bulk manufacture
of this substance. Tr. 74. Moreover, it is undisputed that the
dronabinol which Lannett seeks permission to import will be in
finished dosage form. Id. at 37. The record also suggests that the
dronabinol will have been bottled prior to the importation, that it
will not be repackaged or relabeled, and that none of it will be
sold commercially. Tr. 37, 164.
In their exceptions, both Lannett and the Government contend
that Rhodes was not entitled to an on-the-record hearing to
challenge Lannett's application. Lannett contends that because it is
not a bulk manufacturer of THC, ``[t]here is no basis for a hearing
under [section] 958(i)'' because this provision `` `gives the right
to request a hearing . . . only in those [cases] in which the
applicant for the import registration is a bulk manufacturer and
only where the person seeking the hearing is a bulk manufacturer.'
'' Lannett Exc., at 2 (quoting 72 FR at 3419). Lanett further
contends that the ALJ erred in construing 21 CFR 1301.34(a) to
provide a hearing as doing so ``conflicts with the limitation in 21
U.S.C. Sec. 958(i) of such hearings to cases where both the
applicant and the party seeking a hearing are bulk manufacturers.''
Id. In Lannett's view, ``[e]ven if one considers 21 U.S.C. Sec.
958(i) ambiguous on this issue, the ALJ's interpretation is
impermissible and unsupported because it would grant to [the Agency]
latitude to act in the absence of statutory prohibition rather than
requiring statutory authority in the first instance.'' Id. (citing
Chevron U.S.A., Inc., v. Natural Res. Def. Council, 467 U.S. 837,
842-43 (1984)).
Lannett thus contends that because the regulation ``enacts 21
U.S.C. Sec. Sec. 952 and 958[,] [it] cannot be read to permit what
the statutes prohibit'' and that the Agency's grant of a right to a
hearing to third party bulk manufacturers is an ultra vires act. Id.
It likewise argues that the Agency has no discretion to grant a
hearing on its application because ``there is no basis for the
hearing in the statute and regulations.'' Id. at 3.
In its Exceptions, the Government states its agreement with the
ALJ's holding that section 958(i) does not require an on-the-record
hearing on either the issue of whether Lannett is entitled to be
registered or whether it is entitled to a rule authorizing the
importation. Gov. Exc. at 3. The Government also states that it
agrees with the ALJ's holding that section 958(i) provides an
[[Page 62702]]
objector with the right to a hearing on an application for an import
registration, only when both the applicant and the objector are bulk
manufacturers of the substances. Id. at 4.
The Government, however, disagrees with the ALJ's construction
of section 958(i) as requiring a hearing on an application for a
rule under section 952(a)(2) even where the applicant is not
registered as a bulk manufacturer. Id. According to the Government,
``section 958(i) calls for `a [one] hearing,' '' and ``[t]he ALJ's
construction mandates a hearing under two separate circumstance,
i.e.[,] when all parties are bulk manufacture[r]s and when just the
objectors are bulk manufacturers.'' Id. The Government further
reasons that because section 958(i) ``uses the conjunction `and,'
[this] indicates that both conditions, i.e.[,] the applicant being a
bulk manufacturer for purpose of obtaining a registration under
Section 958(a) and the objectors being bulk manufacturers for
purposes of challenging the proposed importation under [section]
952(a), must be met.'' Id.
However, the Government then acknowledges that its argument
``may only highlight the ambiguity in the statute'' and that ``the
ALJ's interpretation might be acceptable.'' Id. The Government
further concedes that because ``it is important for DEA to
scrutinize import applications under 21 U.S.C. Sec. Sec. 958(a) and
823(a), the ALJ's interpretation may be preferable in terms of
policy implications.'' Id. at 5.
The Government also takes issue with the ALJ's interpretation
that 21 CFR 1301.34(a) does not require that an applicant be a bulk
manufacturer to trigger the right of bulk manufacturers to a hearing
on both the application for registration and the rule authorizing
the import. Id. at 9. The Government contends that ``[w]hat the ALJ
describes as `discretion' to allow Rhodes to have a hearing under
Rule 1301.34(a) (which would not otherwise be authorized under
Section 958(i)) is really an interpretation of the rule to expand
the persons who may obtain a hearing under Section 958(i),'' and
that the Agency ``need not and should not interpret [the rule] to
expand the persons who have authority to seek hearings under'' the
statute. Id. The Government thus concludes that ``Section 958(i) and
Rule 1301.34(a) do not give DEA [authority] to authorize hearings to
objectors that are not authorized by law.'' Id.
Analysis
The resolution of this issue must, of course, begin with the
language of the statute and the Agency's regulation. Gonzales v.
Oregon, 546 U.S. 243, 258 (2006). Section 958(i) provides that:
Except in emergency situations as described in section
952(a)(2)(A) of this title, prior to issuing a registration under
this section to a bulk manufacturer of a controlled substance in
schedule I or II, and prior to issuing a regulation under section
952(a) of this title authorizing the importation of such a
substance, the Attorney General shall give manufacturers holding
registrations for the bulk manufacture of the substance an
opportunity for a hearing.
21 U.S.C. Sec. 958(i).
Shortly after the CSIEA's enactment, DEA promulgated the
regulation which implements this provision and which is now codified
at 21 CFR 1301.34(a). See Proposed Regulations Implementing the
Comprehensive Drug Abuse Prevention and Control Act of 1970, 36 FR
4928, 4959 (Mar. 13, 1971).\12\ In its current form, the rule (which
has remained unchanged throughout this proceeding), provides in
relevant part:
---------------------------------------------------------------------------
\12\ This provision was originally codified at 21 CFR 311.42. In
promulgating the final rule, the Bureau of Narcotics and Dangerous
Drugs (DEA's predecessor) noted that ``[s]everal manufacturers
objected strongly to the proposed Sec. 311.42(b), (c).''
Regulations Implementing the Comprehensive Drug Abuse Prevention and
Control Act of 1970, 36 FR 7776, 7777 (Apr. 24, 1971). These
provisions of the proposed rule, however, involved the substantive
standards for determining whether competition is adequate among
domestic manufacturers ``within the meaning'' of section
952(a)(2)(B). See id. By contrast, the notice promulgating the Final
Rule made no mention of any objections to the language of the
hearing provision of subsection(a). See id.
---------------------------------------------------------------------------
In the case of an application for registration or reregistration
to import a controlled substance listed in Schedule I or II, under
the authority of . . . . 21 U.S.C. 952(a)(2)(B), the Administrator
shall, upon the filing of such application, publish in the Federal
Register a notice naming the applicant and stating that such
applicant has applied to be registered as an importer of a Schedule
I or II controlled substance, which substance shall be identified. A
copy of said notice shall be mailed simultaneously to each person
registered as a bulk manufacturer of that controlled substance and
to any other applicant therefor. Any such person may, within 30 days
from the date of publication of the notice in the Federal Register,
file written comments on or objections to the issuance of the
proposed registration, and may, at the same time, file a written
request for a hearing on the application . . . . If a hearing is
requested, the Administrator shall hold a hearing on the application
in accordance with Sec. 1301.41.\13\
---------------------------------------------------------------------------
\13\ This regulation provides that ``[i]n any case where the
Administrator shall hold a hearing on any registration or
application therefor, the procedures for such hearing shall be
governed generally by the adjudication procedures set forth in the
Administrative Procedure Act (5 U.S.C. 551-559) and . . . by
Sec. Sec. 1301.42-1301.46 of this part, and by the procedures for
administrative hearings under the Act set forth in Sec. Sec.
1316.41-1316.67 of this chapter.'' 21 CFR 1301.41.
21 CFR 1301.34(a).
Also relevant to understanding the scope of section 958(i) and
21 CFR 1301.34(a), are the registration provisions of the Controlled
Substances Act (CSA). See 21 U.S.C. Sec. 823. Under the CSA, there
are only two categories of registration under which a person may
lawfully engage in the commercial distribution of schedule I or II
controlled substances: 1) as a manufacturer, see id. Sec. 823(a);
and 2) as a distributor.\14\ Id. Sec. 823(b). However, neither the
CSA nor DEA regulations define the term ``bulk manufacturer.'' See
generally id. Sec. 802; 21 CFR 1300.01. Nor has the Agency
previously defined the term in an adjudication.
---------------------------------------------------------------------------
\14\ The CSA also authorizes practitioners (including
pharmacies) to dispense controlled substances in schedule II (as
well as practitioners conducting research with a schedule I
controlled substance pursuant to an approved protocol). See 21
U.S.C. Sec. 823(f). However, ``[t]he term `distribute' means to
deliver (other than by administering or dispensing) a controlled
substance.'' 21 U.S.C. Sec. 802(11). DEA's regulations do, however,
allow a practitioner (such as a pharmacy) to engage in a limited
amount of distributions to another practitioner, without being
registered as a distributor, ``for the purpose of general dispensing
by the practitioner to patients.'' 21 CFR 1307.11(a).
---------------------------------------------------------------------------
Congress did, however, define the terms ``manufacture'' and
``manufacturer.'' Under the CSA, the term ``manufacture'' is broad
in scope and includes ``the production, preparation, propagation,
compounding, or processing of a drug or other substance . . . and
includes any packaging or repackaging of such substance or labeling
or relabeling of its container.'' \15\ Id. Sec. 802(15); see also
id. (``The term `manufacturer' means a person who manufactures a
drug or other substance.''). By contrast, ``[t]he term `distribute'
means to deliver (other than by administering or dispensing) a
controlled substance.'' Id. Sec. 802(11); see also id. (``The term
`distributor' means a person who so delivers a controlled substance
. . . .''). Under an Agency regulation, a manufacturer can lawfully
distribute a controlled substance which it is registered to
manufacture. See 21 CFR 1301.13(e)(1) (table of authorized
coincident activities). A distributor cannot, however, lawfully
manufacture (even if the activity involves packaging, repackaging,
labeling or relabeling) a controlled substance. See id.
---------------------------------------------------------------------------
\15\ The term, however, ``does not include the preparation,
compounding, packaging, or labeling of a drug or other substance in
conformity with applicable State or local law by a practitioner as
an incident to his administration or dispensing of such drug or
substances in the course of his professional practice.'' 21 U.S.C.
Sec. 802(15).
---------------------------------------------------------------------------
In section 958(i), Congress clearly instructed the Agency to
provide ``an opportunity for a hearing'' on two separate issues: 1)
whether to grant an application for an import registration, and 2)
whether ``to issu[e] a regulation under section 952(a) . . .
authorizing the importation of such a substance.'' 21 U.S.C. Sec.
958(i). Moreover, in enacting the provision, which was enacted at
the same time as the CSA, Congress was well aware that under the
CSA, both manufacturers registered under section 823(a) and
distributors registered under section 823(b) would have authority to
engage in the commercial distribution of schedule I or II controlled
substances and thus could presumably seek a registration to import a
schedule I or II controlled substance.\16\ See 21 U.S.C. Sec. Sec.
823(a), 823(b).
---------------------------------------------------------------------------
\16\ As explained above, while a distributor's registration
conveys only the authority to distribute, as long as the controlled
substance is not being repackaged or relabeled, a distributor acts
within the scope of its registration.
---------------------------------------------------------------------------
In section 958(i), however, Congress made it clear enough that a
current bulk manufacturer of a schedule I or II controlled substance
is entitled to a hearing on another entity's application for
registration to import a schedule I or II controlled substance, only
if the applicant is itself ``a bulk manufacturer of the substance.''
21 U.S.C. Sec. 958(i) (``prior to issuing a registration under this
section to
[[Page 62703]]
a bulk manufacturer of a controlled substance in schedule I or II .
. . the Attorney General shall give manufacturers holding
registrations for the bulk manufacturer of the substance an
opportunity for a hearing'').
Indeed, had Congress intended to provide bulk manufacturers with
the right to a hearing to challenge any application for an
importer's registration, it could have simply used the phrase
``applicant to import'' instead of ``a bulk manufacturer'' as it did
in subsection (a) of this provision. See id. Sec. 958(a) (``The
Attorney General shall register an applicant to import . . . a
controlled substance in schedule I or II if he determines that such
registration is consistent with the public interest . . . .''). This
language would clearly have embraced not only the situation in which
the applicant for an import registration is a ``bulk manufacturer,''
but also when the applicant is a distributor of the controlled
substance. See Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 452
(2002) (``[W]hen `Congress includes particular language in one
section of a statute but omits it in another section of the same
Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.''') (quoting
Russello v. United States, 464 U.S. 16, 23 (1983) (int. quotations
and other citation omitted)).
As found above, Lannett is not a bulk manufacturer of THC.
Moreover, as long as Lannett does not repackage or relabel the
containers that the dronabinol has been packaged in by its
manufacturer, Lannett does not need to hold a manufacturer's
registration. Thus, it is clear that under the statute, Rhodes was
not entitled to a hearing to challenge Lannett's application for a
registration because the latter was not, and need not be, registered
as a bulk manufacturer of THC to lawfully distribute the dronabinol
for testing.\17\
---------------------------------------------------------------------------
\17\ To make clear, if an applicant for an importer's
registration will engage in an activity (such as repackaging or
relabeling) which requires that it obtain a manufacturer's
registration, it cannot circumvent the hearing requirement of 958(i)
by failing to apply for a manufacturer's registration. However,
Lannett's proposed activities with the dronabinol do not require
that it obtain a manufacturer's registration.
It is noted that on DEA's Application for Registration (Form
225), the Agency recognizes both ``Manufacturer'' and ``Manufacturer
BULK'' as different categories of ``Business Activity.'' The
Application further recognizes four different stages of
manufacturing: 1) ``Bulk synthesis/extraction,'' 2) ``Dosage Form
manufacture,'' 3) ``Package/Repackage'' and ``Label/Relabel,'' and
4) ``Non-human consumption.'' However, the Agency has not defined by
regulation the term ``Bulk Manufacturer'' and the Government has
provided no guidance in this case as to the Agency's view on what
distinguishes a ``Bulk Manufacturer'' from a ``Manufacturer'' and
which of the above stages it considers to be bulk manufacturing. In
any event, because Lannett need not engage in any of the four stages
to conduct its tests, it is clear that it does not need to be
registered as either a bulk manufacturer or manufacturer.
---------------------------------------------------------------------------
By contrast, section 958(i) does not clearly provide that a bulk
manufacturer's right to challenge the issuance of a regulation under
section 952(a) is--as the Government and Lannett maintain--triggered
only by the application of a bulk manufacturer (of the substance) to
import. The relevant text of section 958(i), which immediately
follows the ``prior to issuing a registration . . . to a bulk
manufacturer'' clause, states: ``and prior to issuing a regulation
under section 952(a) of this title authorizing the importation of
such a substance, the Attorney General shall give manufacturers
holding registrations for the bulk manufacture of the substance an
opportunity for a hearing.'' 21 U.S.C. Sec. 958(i). Construing this
provision, the ALJ reasoned that ``[b]y its plain language, this
hearing right does not appear to be limited to situations in which
the importer of the controlled substance is also a bulk
manufacturer.'' Memorandum to Counsel and Ruling on Request for
Hearing, at 21.
The Government and Lannett disagree. As noted above, the
Government maintains that the insertion of the word ``and'' between
the two clauses manifests that the right to a hearing on the
issuance of the regulation is also triggered only when the applicant
for such a regulation is a bulk manufacturer. Contrary to the
Government's contention, the clause is self-contained and seems
clear enough. Absent other textual evidence of an intent to limit
the hearing right to where the applicant is a bulk manufacturer,
Congress's use of the word ``and'' (as opposed to ``or'') to conjoin
the two clauses is too thin a reed to conclude that Congress
intended for the right to a hearing to challenge the issuance of a
regulation under section 952 to be triggered only where an applicant
is a bulk manufacturer.
Indeed, had Congress intended to limit the right to challenge
the issuance of a regulation only to the instance in which the
importer was a bulk manufacturer, it could have clarified that by
inserting the same limitation in this clause. Moreover, the
Government's proposed construction would exclude from the hearing
right any application by a distributor to import a schedule I or II
controlled substance. Yet, as the Government then recognizes in its
brief, ``it is important for DEA to scrutinize import applications''
to ensure that the proposed import complies with Federal law. Gov.
Exc., at 5. This is so whether the importer holds a manufacturer's
registration or a distributor's registration.
As for Lannett, it cites the 2007 Federal Register notices in
which I directed the Office of Administrative Law Judges to dismiss
two hearings which were docketed after bulk manufacturers sought to
challenge the applications of two entities to import narcotic raw
materials because the requesting parties were not registered to
manufacturer these substances. Lannett Exc., at 2 (citing 72 FR at
3417-19). The applications were, however, filed under section
952(a)(1), and these notices did not address the separate issue of
whether section 958(i) requires the Agency to provide a bulk
manufacturer with ``an opportunity for a hearing'' to challenge
whether an importation is permissible under section 952(a)(2).
Lannett also argues that ``there [was] no basis for a hearing
under 21 CFR 1301.34(a),'' because section 958(i) limits the hearing
right ``to cases where both the applicant and the party seeking a
hearing are bulk manufacturers.' '' Lannett Exc., at 2. It further
contends that ``21 CFR 1301.34(a) enacts 21 U.S.C. Sec. Sec. 952
and 958 and thus cannot be read to permit what the statutes
prohibit.'' Id. at 3. Finally, Lannett argues that the ALJ erred in
holding that the Agency has discretion to provide the hearing which
Rhodes requested. Id. According to Lannett, ``[if] there is no basis
for the hearing in the statute and regulations, the [Agency's] offer
of the hearing was erroneous in the first instance.'' Id.
I conclude that it is not necessary to decide whether the ALJ
correctly held that Rhodes was entitled to a full evidentiary
hearing under 21 CFR 1301.34(a) even though Lannett is not a bulk
manufacturer. As held above, section 958(i) obligates the Agency to
provide ``an opportunity for a hearing'' to challenge whether
Lannett's proposed importation complies with section 952(a).
Moreover, while 21 CFR 1301.34(a) appears to limit the Agency's
obligation to publish notice of the application and to grant bulk
manufacturers a hearing to those instances in which a rule
authorizing the importation is sought under 952(a)(2)(B) (i.e.,
where competition among domestic manufacturers is shown to be
inadequate), Lannett ignores that under 958(i), the only instance in
which the Agency is not obligated to provide a hearing is ``in
emergency situations as described in section 952(a)(2)(A) of this
title.'' 21 U.S.C. Sec. 958(i); see also id. Sec. 952(a)(2)(A)
(authorizing importation of ``such amounts of any controlled
substance in schedule I or II . . . that the Attorney General finds
to be necessary to provide for the medical, scientific, or other
legitimate needs . . . during an emergency in which domestic
supplies of such substance or drug are found by the Attorney General
to be inadequate''). Accordingly, the plain language of section
958(i) obligates the Agency to provide an opportunity for a hearing
to a bulk manufacturer even when importation is sought ``in any case
in which the Attorney General finds that such controlled substance
is in limited quantities exclusively for scientific, analytical, or
research uses[.]'' Id. Sec. 952(a)(2)(C).\18\
---------------------------------------------------------------------------
\18\ Subparagraph (2)(C) was not part of the Act as originally
enacted in 1970. See Comprehensive Drug Abuse Prevention and Control
Act of 1970, Pub. L. 91-513, Sec. 1002(a)(2), 84 Stat. 1236, 1285
(1970). Section 1008(h) of the 1970 Act provided the hearing
requirement which is now codified at 21 U.S.C. Sec. 958(i). See 84
Stat. 1289 (``prior to issuing a regulation under section 1002(a)
authorizing the importation of such a substance, the Attorney
General shall give manufacturers holding registrations for the bulk
manufacture of the substance an opportunity for a hearing'').
In 1984, Congress amended the statute to add subparagraph
(2)(C). See Continuing Appropriations, 1985-Comprehensive Crime
Control Act of 1984, Pub. L. 98-473, Sec. 520, 98 Stat. 1837, 2075
(1984) (codified at 21 U.S.C. Sec. 952(a)(2)(C)). While in this
statute, Congress redesignated subsection (h) as subsection (i), it
did not amend the hearing requirement to limit it to those cases in
which importation was sought on the ground that competition is
inadequate. See id. Sec. 525, 98 Stat. 2076-77.
As for Lannett's argument that the regulation is ultra vires
because it provides for a hearing on the issue of its registration
when the statute does not, it is noted that the ALJ's pre-hearing
ruling was somewhat unclear as to whether Rhodes was entitled to a
hearing on the issue. See Memorandum to Counsel and Ruling on
Request for Hearing, at 26 (``I have found that the only exception
to the general prohibition of importation of controlled substances
that would apply here is an importation authorized under Sec.
952(a)(2)(B). Therefore, I find that Rhodes [is] entitled to a
formal `on the record' hearing on the application[ ] to import the
substance that [it] respectively holds registration to bulk
manufacture.''). However, Lannett did not seek clarification from
the ALJ as to whether the hearing would encompass the public
interest factors applicable to the issue of its registration, and it
chose to put on evidence on the factors. I thus conclude that it has
waived its argument.
---------------------------------------------------------------------------
[[Page 62704]]
In her various rulings, the ALJ concluded that section 958 does
not require that the Agency provide an ``on the record'' hearing as
part of the rulemaking process under section 952(a). ALJ Memorandum
to Counsel, at 21; ALJ at 48. This holding is amply supported by
Supreme Court precedent. See United States v. Florida East Coast
Ry., 410 U.S. 224 (1973); see also United States v. Allegheny-Ludlum
Steel Corp., 406 U.S. 742 (1972).
To the extent Lannett contends that the Agency did not have
discretion to grant Rhodes a formal hearing on its application (in
essence, an argument that the Agency has granted too much process),
the Supreme Court has long recognized that ``the formulation of
procedures was basically left within the discretion of the agencies
to which Congress had confided the responsibility for substantive
judgments.'' Vermont Yankee Nuclear Power Corp., v. NRDC, Inc., 435
U.S. 519, 524 (1978). As the Court recognized, ``this principle [is]
`an outgrowth of the congressional determination that administrative
agencies and administrators will be familiar with the industries
which they regulate and will be in a better position than federal
courts or Congress itself to design procedural rules adapted to the
peculiarities of the industry and the tasks of the agency
involved.'' Id. at 525 (quoting FCC v. Schreiber, 381 U.S. 279, 290
(1965)). See also FCC v. Pottsville Broadcasting Co., 309 U.S. 134,
143 (1940) (administrative agencies ``should be free to fashion
their own rules of procedure and to pursue methods of inquiry
capable of permitting them to discharge their multitudinous
duties''). Consistent with this authority, this Agency has long held
that the Administrator has discretion under section 958(i) to grant
or deny a hearing to any party on issues concerning the importation
of controlled substances even where the party seeking the hearing
was not entitled to a hearing because it did not hold a registration
to manufacture the substance sought to be imported. See Importation
of Controlled Substances--Application, 43 FR 35403 (1978) (McNeilab,
Inc.).\19\ Because it is clear that under section 958(i), Rhodes was
entitled to a hearing on the issue of whether a regulation should
issue authorizing the importation, I conclude that it is within the
Agency's discretion to provide a formal hearing on the application.
---------------------------------------------------------------------------
\19\ I acknowledge that the 2007 Notice of Correction called
into question the Agency's discretionary authority to hold hearings
in cases involving narcotic raw materials where the parties who
requested a hearing were not manufacturers of the substance as
required under both section 958(i) and 21 CFR 1301.34(a). However,
as explained above, under section 958(i), Rhodes was entitled to a
hearing to challenge the issuance of a regulation authorizing the
importation.
---------------------------------------------------------------------------
Is Lannett's proposed importation permissible under Section 952(a)(2)?
Under section 952(a)(2), it is unlawful to import into the
United States a schedule I or II controlled substance ``except that
. . . such amounts of any controlled substance in schedule I or II .
. . that the Attorney General finds to be necessary to provide for
the medical, scientific, or other legitimate needs of the United
States'' may be imported if one of three findings is made. 21 U.S.C.
Sec. 952(a)(2). These are:
(A) During an emergency in which domestic supplies of such
substance or drug are found by the Attorney General to be
inadequate,
(B) [i]n any case in which the Attorney General finds that
competition among domestic manufacturers of the controlled substance
is inadequate and will not be rendered adequate by the registration
of additional manufacturers under section 823 of this title, or
(C) in any case in which the Attorney General finds that such
controlled substance is in limited quantities exclusively for
scientific, analytical, or research uses[.]
21 U.S.C. Sec. 952(a)(2).
In its Post-Hearing Brief, Lannett contends that its proposed
importation is permissible under both subparagraphs B and C.\20\
Lannett's Post-Hearing Br., at 6-7. While the Government took no
position on whether the importation is permissible under
subparagraph B, it argues that ``Lannett's application should be
assessed under'' subparagraph C and appears to endorse Lannett's
position that the importation is permissible on this basis. Gov.
Post-Hearing Br., at 11; see also id. at 12 (``The phrase `limited
quantities exclusively for . . . research uses' should not be
construed to have a numerical limit. If the amounts are definitive
and will be used for research, then Section 952(a)(2)(C) should
apply.''). By contrast, Rhodes argues that Lannett has not
established that the proposed importation is permissible under
either provision. Rhode's Post-Hearing Br., at 66-77.
---------------------------------------------------------------------------
\20\ Lannett does not claim that an emergency exists because
domestic supplies of dronabinol are inadequate.
---------------------------------------------------------------------------
In its Exceptions, Lannett further argues that because its
application presents ``no increased risk of diversion,'' the Agency
can grant its application ``without regard to 21 U.S.C. Sec.
952(a).'' Lannett's Exc., at 3. In Lannett's view, because the
overarching purpose of the CSA and the CSIEA is to prevent the
diversion of controlled substances, and there is no evidence that
granting its application will increase the risk of diversion, DEA
can disregard section 952(a). Id. at 3-4. As support for this
proposition, Lannett cites Penick Corp. v. DEA, 491 F.3d 483, 489
n.8 (D.C. Cir. 2007), and Noramco of Delaware, Inc., v. DEA, 375
F.3d 1148, 1153 (D.C. Cir. 2004), both of which upheld Agency
decisions to grant registrations to importers of narcotic raw
materials under 21 U.S.C. Sec. 958(a) without analyzing the
adequacy of competition under factor one of the public interest
standard (21 U.S.C. Sec. 823(a)(1)) because there was no evidence
that granting the registration would increase the risk of diversion.
Lannett's argument fails, however, because both cases involved
an application of the Agency's discretionary authority under the
public interest standard used to determine whether to grant an
application for registration, and not whether an importation was
permissible under section 952(a)(2)(B). See Penick, 491 F.3d at 486-
488 n.5; \21\ Noramco, 375 F.3d at 1153. As the D.C. Circuit
recognized in Penick, ``section 823(a)'s enumerated factors
represent components of the public interest rather than independent
requirements for registration and thus, the [Agency] may find a
registration consistent with the public interest even if one (or
possibly more) of the public interest factors is not satisfied.''
491 F.3d at 490 (citing Johnson Matthey, Inc., 60 FR 26050, 26052
(1995) (``It is well established that the Deputy Administrator is
not required to make findings with respect to each of the [section
823(a)] factors, but has discretion to give each factor the weight
he deems appropriate, depending upon the facts and circumstances in
each case.'')); cf. Air Line Pilots Ass'n v. Dep't of Transp., 791
F.2d 172, 177-78 (D.C. Cir. 1986).
---------------------------------------------------------------------------
\21\ Indeed, in Penick, the D.C. Circuit noted that the
objectors did not challenge the rulemaking aspect of the proceeding.
See 491 F.3d, at 488 n.5. Moreover, under section 952(a)(1), the
importation of narcotic raw material does not require a finding of
inadequate competition. See 21 U.S.C. Sec. 952(a)(1) (authorizing
importation of ``such amounts of crude opium, poppy straw,
concentrate of poppy straw, and coca leaves . . . as the Attorney
General finds to be necessary to provide for medical, scientific, or
other legitimate purposes'').
---------------------------------------------------------------------------
By contrast, section 952(a)(2) sets forth the affirmative
requirement that the Agency make one of three findings before
issuing a regulation approving a proposed importation of a schedule
I or II controlled substance. As section 952 makes plain, DEA does
not have discretion under the statute to authorize an importation in
the absence of a finding that one of the three conditions exists.
Accordingly, I reject Lannett's argument that because there is no
evidence that the importation will increase the risk of diversion,
the Agency can grant its application without regard to whether its
proposed importation is permissible under section 952.
A. Is Lannett's proposed importation permissible under Subparagraph B?
As the ALJ recognized, to import pursuant to this provision, an
applicant must show that competition among domestic manufacturers of
the controlled substance is inadequate and will not be rendered
adequate by the registration of additional manufacturers. ALJ at 52.
In her decision, the ALJ found that Lannett had failed to establish
that competition among domestic manufactures of dronabinol is
inadequate. ALJ at 52-53. More specifically, she noted that
Lannett's evidence was largely confined to the testimony of its CEO
as to several
[[Page 62705]]
unsuccessful efforts the company made to find a domestic
manufacturer/supplier of dronabinol during the period of 2002-2003.
ALJ at 53. The ALJ further noted that ``Lannett did not offer any
evidence as to the market for bulk dronabinol in 2009,\22\ about
competition in that market, or about the factors'' set forth in the
Agency's regulation for determining whether competition among the
domestic manufacturers of bulk dronabinol is inadequate. Id. (citing
21 CFR 1301.34(d), (e), and (f)).\23\
---------------------------------------------------------------------------
\22\ It is acknowledged that Lannett introduce several exhibits
providing data as to the price of dosage-form dronabinol over a
multi-year period which concluded shortly before the hearing
convened. This data included the average unit and wholesale prices
of dronabinol (both generic and branded) sold by various
manufacturers and distributors to non-retail settings, as well as
the average retail price of a prescription for various strengths and
quantities of both the generic and branded drugs (which were also
listed by manufacturer) at retail and mail-order pharmacies. LX 5-8.
Lannett did not, however, offer any evidence as to the costs of bulk
dronabinol in the domestic market at the time of its application.
While the average wholesale and retail prices of dosage form
dronabinol might provide some evidence that competition is
inadequate among the domestic manufacturers of bulk dronabinol,
Lannett did not put on any testimony, let alone that of an expert,
to explain how this evidence shows that competition in the bulk
dronabinol market is inadequate. Moreover, Lannett does not even
cite this evidence in its brief.
\23\ Summarized, these factors include: 1) ``[t]he extent of
price rigidity''; 2) ``[t]he extent of service and quality
competition among the domestic manufacturers for shares of the
domestic market''; 3) ``[t]he existence of substantial differentials
between domestic prices and the higher of prices generally
prevailing in foreign markets or the price at which the applicant .
. . is committed to undertake to provide such products in the
domestic market in conformity with the Act''; 4) ``[t]he existence
of competitive restraints imposed upon domestic manufacturers by
governmental regulations''; and 5) ``[s]uch other factors as may be
relevant to the determinations required under this paragraph.'' 21
CFR 1301.34(d).
DEA regulations further direct that ``[i]n considering the scope
of the domestic market, consideration shall be given to substitute
products which are reasonably interchangeable in terms of price,
quality and use,'' id. Sec. 1301.34(e); and ``[t]he fact that the
number of existing manufacturers is small shall not demonstrate, in
and of itself, that adequate competition among them does not
exist.'' Id. Sec. 1301.34(f).
---------------------------------------------------------------------------
As for Lannett's evidence regarding its inability (circa 2002-
03) to find a domestic manufacturer to supply it, the ALJ properly
held that this evidence was too stale to support a finding of
inadequate competition. Notably, the statutory text requires a
finding that competition ``is inadequate and will not be rendered
adequate by the registration of additional manufacturers.'' 21
U.S.C. Sec. 952(a)(2)(B) (emphasis added). Consistent with the
statute, DEA has previously held that the relevant time period for
assessing the adequacy of competition is at the time of the hearing.
Cf. Penick Corp., Inc., 68 FR 6947, 6950 (2003) (``The Deputy
Administrator agrees with the ALJ that Penick has demonstrated that
the opiate API market was not operating under `adequately
competitive conditions' as of the date of the hearing.''). Moreover,
Lannett offered no evidence to rebut Rhode's contention that there
are currently multiple domestic manufacturers which are able to
supply the bulk dronabinol market. Tr. 387-88; RX 28, at 5-7.
Accordingly, I agree with the ALJ that Lannett has failed to show
that proposed importation is permissible under section 952(a)(2)(B).
A. Is Lannett's proposed importation permissible under Subparagraph C?
Lannett (supported by the Government) argues that the
importation is nonetheless permissible under the exception for ``
`limited quantities exclusively for scientific, analytical, or
research uses.' '' Lannett's Exc., at 7 (quoting 21 U.S.C. Sec.
952(a)(2)(C)). As found above, the evidence shows that Lannett seeks
to import three batches of 100,000 dosage units each for the purpose
of conducting testing to establish the stability of the drug and to
show that the dronabinol is bioequivalent to Marinol, the FDA-
approved legend drug; Lannett will then submit the data to the FDA
as part of an ANDA. Lannett also established that the reason why the
test batches are 100,000 dosage units is because the FDA generally
requires that the test batch be the same size as the eventual
production batch and that if Lannett's ANDA is approved, it does not
want to limit the production batches ``to less than 100,000 dosage
units per batch.'' LX 1, at 3-4; LX 4, at 6 (``OGD's Procedure and
Policy Guide . . . 22-90 . . . requires that the test batch size be
determined based on the proposed production batch.''); see also 21
CFR 314.94(a)(9) (an ANDA ``shall contain the proposed or actual
master production record . . . to be used for the manufacture of a
commercial lot of the drug product'').
Lannett's CEO also testified that as a general matter, to comply
with FDA's standards, three batches must be produced to validate the
manufacturing process, although the batches need not necessarily be
made consecutively. Tr. 37-39. However, the FDA's Guidance on the
Packaging of Test Batches states that ``ANDAs . . . are usually
approved based on data from a single test batch.'' LX 3, at 1.
Moreover, it is not clear why the validation of the additional
batches requires that they be imported into the United States.\24\
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\24\ According to FDA's recently published Guidance for
Industry, Process Validation: General Principles and Practices (Jan.
2011), of which I take official notice, FDA Current Good
Manufacturing Process ``regulations define the various aspects of
validation. For example, Sec. 211.110(a), Sampling and testing of
in-process materials and drug products, requires that control
procedures `` `. . . be established to monitor the output and to
validate the performance of those manufacturing processes that may
be responsible for causing variability in the characteristics of in-
process material and the drug product.'' ' '' Process Validation, at
6. Continuing, the Guidance states that ``[u]nder this regulation,
even well-designed processes must include in-process control
procedures to assure final product quality.'' Id. (emphasis added).
---------------------------------------------------------------------------
The ALJ concluded that the proposed importation is not
permissible under subparagraph C. In so concluding, the ALJ relied
on the testimony of a former agency official who was involved in
drafting the provision and reasoned that the legislative history of
the amendment indicates ``that (1) the purpose of the broad
prohibition on importing Schedule I and II bulk active
pharmaceutical ingredients was to establish a strong system of
domestic controls, support the domestic manufacturer who bears the
cost of these controls, and discourage the expansion of foreign
production under less stringent controls; and (2) the research
exception from the prohibition was intended to allow importation of
substances for comparative studies on compounds developed abroad.''
ALJ at 53.
The ALJ also relied on a 1995 Policy Statement which was issued
in response to the practice of some companies that were engaging in
dosage-form development activities, including bulk manufacturing,
without obtaining a manufacturer's registration; these firms claimed
that their activities were coincident activities which could be
lawfully performed under a researcher's registration. Id. at 54; see
also Clarification of Coincident Activities for Researchers, 60 FR
55310, 55311 (1995).\25\
---------------------------------------------------------------------------
\25\ The Clarification specifically noted that some of these
firms were engaged in the ``production of batches as mandated by
the'' FDA and further stated that:
[f]or purposes of 21 CFR part 1301, the following dosage form
development activities are not considered research and must be
conducted under a manufacturer registration: (a) Activities for the
purpose of satisfying regulatory requirements such as FDA submission
or good manufacturing practice; (b) activities associated with
establishing the manufacturing processes and procedures, including,
but not limited to, production of material used for pilot, scale-up
and reformulation studies, as well as the studies themselves; and
(c) all activities associated with such development including, but
not limited to, bioavailability, formulation, stability, and
validation. While these activities may be considered research under
FDA requirements, 21 CFR part 1301 must be read within the context
of the CSA and its attendant requirements concerning quotas,
recordkeeping, security and reporting. DEA does not consider such
dosage form development to be a coincident research activity as
contemplated by 21 CFR 1301.22(b); the production of material for
such activities is manufacturing.
60 FR at 55311.
---------------------------------------------------------------------------
The ALJ observed that ``[a] major concern expressed in the
Clarification was that some dosage form manufacturers had obtained
large quantities of Schedule II substances under a researcher
registration and did not have in place the safeguards required of a
firm registered to manufacture. A continuing theme in discussions of
the research exception is that the quantities involved are small.''
ALJ at 53-54. Noting that Lannett seeks to import 300,000 capsules,
the ALJ reasoned that ``[w]hatever the limit may be on the quantity
that qualifies for the research exception, 300,000 dosage units
would likely exceed it.'' Id. The ALJ thus found that the
importation ``does not qualify as an importation for research
purposes within the meaning of 21 U.S.C. Sec. 952(a)(2)(C).''
As originally enacted, subsection 952(a)(2) did not contain this
provision. See 84 Stat. 1242. Rather, the exception was enacted as
part of the Dangerous Drug Diversion Control Act of 1984. See
Continuing Appropriations, 1985-Comprehensive Crime Control Act of
1984, Public Law 98-473, tit. V, Sec. 520, 98
[[Page 62706]]
Stat. 1837, 2075 (1984). Significantly, neither the statute nor the
Agency's regulations define the provision's critical terms of ``in
limited quantities'' and ``exclusively for scientific, analytical,
or research uses.'' 21 U.S.C. Sec. 952(a)(2)(C). See id. Sec. 951
(defining only the terms ``import'' and ``customs territory of the
United States'' and otherwise providing that the definitions of the
CSA apply); id. Sec. 802 (CSA's definitions); see also 21 CFR Part
1300; id. Sec. 1312.02.
Rhodes points to the legislative history of both the original
CSIEA and the Amendment, as well as the testimony of the former DEA
official who was involved in drafting the provision, and contends
that subparagraph (2)(C) was only intended to address the statute's
failure to provide a mechanism (as had a Treasury Department
regulation enacted under the Narcotic Manufacturing Act of 1960) to
allow researchers to import foreign-source materials to perform
comparative studies on them when the domestic supply is inadequate
because the foreign-source material is unique and/or to develop
reference standards. Rhodes Post-Hearing Br. at 76; RX 31, at 20-23.
Rhodes cites the written testimony of the former official, who, in
turn, cites the Senate Report Committee Report, which states:
Under current 21 U.S.C. 952(a)(2), the importation of controlled
substance in Schedules I and II . . . for medical, scientific, and
other legitimate purposes is generally limited to those cases in
which there is a finding that competition among domestic
manufactures is inadequate. This requirement has created
difficulties in situations which routinely arise when researchers
need specific substances for comparative studies on foreign-
developed compounds that are unique in their manufacture. Section
518 [this amendment] would accommodate the need to import such
substances by adding a new provision to 21 U.S.C. 952(a)(2) that
would allow importation of limited quantities of controlled
substances for purposes exclusive of ultimate scientific, analytic,
or research uses.
S. Rep. No. 98-225, at 269-70, reprinted at 1984 U.S.C.C.A.N.
3182, 3451-52.
According to the former official:
The principal purpose of this statutory amendment was . . . to
restore an important exception to the prohibition that had (perhaps
inadvertently) been left out of the 1970 Act. The commercial
purposes for which Lannett wishes to import these substances merely
to satisfy FDA regulatory requirements, in my view, certainly do not
relate to the purpose for which this amendment is intended. These
are not unique substances or laboratory standards, and are not being
sought for any such characteristics or purposes.
RX 31, at 21. Rhodes thus argues that because Lannett's purpose
in importing the dronabinol is to establish that it is bioequivalent
to the domestically-produced innovator drug and not to show that it
is a unique substance, ``its proposed importation does not fit
within the purposes for which th[e] provision is intended.'' Rhodes
Post-Hearing Br. at 75.
Rhodes also argues that its position is supported by 21 CFR
1312.13(a)(3) & (4), which were promulgated to implement section
952(a)(2)(C). Id. at 75-76. As Rhodes observes, this regulation
``requires a finding `that the domestic supply of any controlled
substance is inadequate for scientific studies, and that the
importation of that substance for scientific purposes is only for
delivery' '' to a person registered or exempt from registration
under section 957 and 958, ``or `that the importation of the
controlled substance is for ballistics \26\ or other analytical or
scientific purposes, and that the importation of that substance is
only for delivery''' to a person registered or exempt from
registration under section 957 and 958. Id. (quoting 21 CFR
1312.13(a)(3) & (4)). According to the former agency official, ``it
is no accident that the terminology used in subsections
1312.13(a)(3) and (a)(4) reflects the language previously cited in
the Treasury Department regulations implementing the Narcotics
Manufacturing Act of 1960.'' RX 31, at 22.\27\ Rhodes further argues
that a narrow reading of the term ``research'' is supported by the
longstanding Federal policy which prohibited the importation of
narcotic drugs with limited exceptions for narcotic raw materials as
were necessary to provide for medical and other legitimate uses.
Rhodes Resp. to Gov's. & Lannett's Exceptions, at 10-11 (citing
Narcotic Drugs Import and Export Act, Sec. 2(b), Public Law 67-227,
42 Stat. 596 (1922)).
---------------------------------------------------------------------------
\26\ The former official explained that the term ``ballistics''
``refers to the scientific examination of drugs, typically in dosage
form, by forensic chemists to determine their origin, properties,
identifying marks, or impurities, usually for evidentiary
purposes.'' RX 31, at 22.
\27\ Under former 21 CFR 307.151, the Commissioner of Narcotics
was authorized to ``issue a formal permit to certain classes of
persons desiring to import any narcotic drug or drugs . . . for
scientific purposes only.'' Under this regulation, importation was
``limited to narcotic drugs not readily available to the applicant
from sources within the United States, unless questions of origin,
types or particular methods of productions are elements of the
research objectives.''
The regulation, however, further provided that:
Applicants for import permits licensed under section 8 of the
Narcotics Manufacturing Act of 1960, who as part of their
manufacturing business maintain branch or subsidiary manufacturing
establishments in foreign countries, or are themselves a branch or
subsidiary of a foreign parent organization, may be issued import
permits for occasional imports of samples of the products of these
foreign branches, subsidiaries or parent organizations for the
purpose of research or spot check analyses to establish or maintain
proper chemical and therapeutical standards of their products.
However, an applicant will not be granted import permits to make
continuous or regular imports of samples of recurring batches or
lots of the same product for routine factory controls.
Id. Section 8 of the 1960 Act was the predecessor of 21 U.S.C.
Sec. 823(a) and required that ``every person'' engaged in the
manufacture of narcotic drugs obtain ``a separate license for the
manufacture of each basic class of narcotic drug.'' Narcotics
Manufacturing Act of 1960, Sec. 8, Public Law 86-429, 74 Stat. 55,
62 (1960).
---------------------------------------------------------------------------
It cannot be disputed that prior to the enactment of the CSIEA,
longstanding Federal policy prohibited the importation of narcotics
other than raw materials such as crude opium and coca leaves. The
CSIEA, however, substantially modified this policy by allowing for
the importation of additional controlled substances, including not
only schedule I and II drugs, in accordance with the provisions of
subsection 952(a)(2), but also nonnarcotic schedule III through V
drugs, under the provisions of subsection 952(b). See 21 U.S.C.
Sec. 952(b). Significantly, in the case of a nonnarcotic schedule
III controlled substance, the latter provision does not condition
approval of a proposed importation upon a finding that competition
among domestic manufacturers of the drug is inadequate. Rather, the
statute requires only that the drugs be ``imported for medical,
scientific, or other legitimates uses,'' and that ``in the case of
any nonnarcotic controlled substance in schedule III, [pursuant to]
such import permit, notification, or declaration, as the Attorney
General may by regulation prescribe.'' Id. See also 21 CFR
1312.30(a) (requiring import permit for synthetic dronabinol in
sesame oil encapsulated in soft gelatin in an FDA approved product).
Given that the CSIEA fundamentally changed Federal policy as to the
scope of permissible importations of controlled substances, its
provisions, and not historical practice, are dispositive.\28\
---------------------------------------------------------------------------
\28\ As noted above, the ALJ also reasoned that ``the purpose of
the broad prohibition on importing Schedule I and II bulk active
pharmaceutical ingredients was to establish a strong system of
domestic controls, support the domestic manufacturers who bear the
cost of these controls, and discourage the expansion of foreign
production under less stringent controls.'' ALJ at 54. However,
Lannett is not seeking to import ``bulk active pharmaceutical
ingredients,'' but rather a drug in finished dosage form. Moreover,
both the manufacturers of the active pharmaceutical ingredient and
the finished dosage form are located in Switzerland, a country which
is a party to the Single Convention on Narcotic Drugs, and which has
agreed to comply with extensive control measures.
---------------------------------------------------------------------------
Thus, even conceding Rhodes' contention that ``[t]he principal
purpose'' of the provision was to restore the exception provided for
under the Treasury Department regulation, that does not mean that
this was Congress' exclusive purpose. To the contrary, the statutory
text is the best evidence of Congress's purpose, see West Va. Univ.
Hospitals, Inc., v. Casey, 499 U.S. 83, 98 (1991); and section
952(a)(2)(C)'s text is substantially broader in scope than what was
necessary to effectuate the purpose indicated in the legislative
history of limiting the exception to allowing researchers to obtain
``specific substances for comparative studies on foreign-developed
compounds that are unique in their manufacture.'' S. Rep. No. 98-
225, at 269-70.
Moreover, under the former Treasury Department regulation,
importation ``for the purpose of research or spot check analyses to
establish or maintain proper chemical and therapeutical standards of
their products'' was deemed to be ``for scientific purposes.'' 21
CFR 307.151 (1962). Other than the fact that Lannett seeks to do the
stability and bioequivalence studies to support an ANDA (and
eventually market a drug), there is little difference between the
nature of these studies and those permitted under the former
regulation. Indeed, as is made clear by the testimony of the former
official, it is not the
[[Page 62707]]
nature of the activity which Lannett will use the dronabinol for,
but the fact that it seeks to eventually commercially distribute the
drug which, in Rhodes' view, bars the importation under the research
exception.
However, performing stability and bioequivalence studies on a
drug clearly constitutes a ``scientific, analytical or research
use[]'' as required by the statute even if these activities are
being done for the purpose of being able to obtain approval to
commercially distribute a drug. While subsection (a)(2)(C) further
requires that the importation be ``exclusively'' for these purposes,
effectuating the statutory mandate can be accomplished by
prohibiting the subsequent commercial distribution of any of the
drugs imported under this provision.
Contrary to Rhodes' position, neither the Agency's regulation
nor the 1995 Policy Statement preclude the Agency from construing
952(a)(2)(C) to permit the importation. Under the regulation, the
Agency may authorize an importation upon a finding that ``the
controlled substance is for ballistics or other analytical or
scientific purposes.'' 21 CFR 1312.13(a)(4) (emphasis added).
Notably, the regulation does not contain any language limiting the
scope of what constitutes ``analytical or scientific purposes.'' Id.
Thus, on its face, the regulation clearly permits importation to
establish stability and bioequivalence of a drug.
The ALJ's reliance on the 1995 Policy Statement was also
misplaced. Most significantly, the Policy Statement did not address
the issue of what activities constitute ``scientific, analytical, or
research uses'' under subsection 952(a)(2)(C), but rather the
question of whether manufacturers could engage in ``the production
of material'' in batch sizes for dosage-form development activities
under a researcher's registration. 60 FR at 55311. The scale of the
latter activity clearly raised a variety of concerns involving the
security and recordkeeping of the bulk active pharmaceutical
ingredients used in the manufacturing process, and DEA's regulations
have long imposed far more extensive security and recordkeeping
requirements on manufacturers than they have on researchers. Compare
21 CFR 1304.22(a) (recordkeeping requirement for manufacturers) with
id. 1304.22(c) (recordkeeping requirements for researchers); compare
21 CFR 1301.72 and 1301.73 (physical security controls for non-
practitioners) with id. 1301.75 (physical security controls for
practitioners and researchers).
While these concerns remain valid, they are not implicated by
Lannett's proposed importation. Notably, Lannett seeks to import
controlled substances which are already in finished dosage form and
packaged. The importation thus does not raise the same security and
recordkeeping concerns as does the practice of manufacturing large
batches of dosage form drugs from active pharmaceutical ingredients.
Because the 1995 Policy Statement clearly did not consider this
situation, I decline to give it any weight in the analysis. Cf.
Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944).
Subsection (a)(2)(C) does, however, require that the importation
be ``in limited quantities.'' Based on this requirement, the ALJ
reasoned that ``[w]hatever the limit may be on the quantity that
qualifies for the research exception, 300,000 dosage units would
likely exceed it.'' ALJ at 54.
As noted above, in enacting this provision, Congress did not
define the term ``limited quantities.'' I conclude that the best
reading of this provision is that it does not impose an absolute
numerical limit on the size of a permissible importation, but
rather, requires an assessment of the quantity sought to be imported
in light of the substance's intended use.
Accordingly, while the absolute size of a proposed importation
does not necessarily render it impermissible, absent a clear
justification to support the quantity, the importation does not
comply with the ``limited quantities'' standard. An applicant must
therefore justify the amount of the proposed importation based on
the underlying purpose of the research.\29\ However, where the
applicant justifies the amount of the proposed importation, the
importation qualifies as ``in limited quantities.''
---------------------------------------------------------------------------
\29\ DEA has extensive regulations governing the conduct of
research using controlled substances. For example, under DEA's
regulations, a researcher is required to submit a protocol setting
forth, inter alia, a ``[d]escription of the research to be
conducted, including the number and species of research subject, the
dosage to be administered, the route and method of administration,
and the duration of the project,'' as well as a ``[s]tatement of the
security provisions for storing the controlled substances . . . and
for dispensing [them] in order to prevent diversion.'' 21 CFR
1301.18(a). Moreover, ``[i]n the case of a clinical investigation
with controlled substances listed in Schedule I, the application
shall submit three copies of a Notice of Claimed Investigational
Exemption for a New Drug (IND) together with a statement of the
security provisions . . . to, and have such submission approved by,
the'' FDA. Id. 1301.18(b).
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Here, Lannett's evidence shows that FDA generally requires that
the test batch be the same size as the eventual production batches
and that these batches should be 100,000 dosage units. LX 1, at 3-4;
LX 3, at 1-2. Moreover, according to the FDA Guidance, the samples
which are used to conduct stability and bioequivalency tests should
be selected from ``packaged product'' and should either ``be
systematically selected at intervals from the packaging line,'' or
selected by ``a random sampling procedure.'' LX 3, at 3-4. The same
FDA Guidance Document includes a table for solid oral dosage form
drugs indicating the number of bottles that should be selected based
on the number of dosage units in a package. Id. at 4. This table
suggests that where a drug is packaged in 100 dosage unit bottles,
only twenty-eight bottles are needed for the requisite stability and
bioequivalence studies and for reserves; this table thus also
suggests that a figure closer to Lannett's original request to
import 3,000 dosage units may suffice. Id. Moreover, even crediting
the testimony that validating the manufacturing process requires the
production of three batches, Lannett has not established why it is
necessary for it to import the additional two batches.
It is further noted that under an FDA regulation, that Agency
``strongly recommends that . . . any person planning to conduct a
bioavailability or bioequivalence study submit the proposed protocol
for the study to FDA for review prior to the initiation of the
study'' and that FDA ``will offer advice with respect to whether''
the design of the ``study is appropriate'' and whether ``[t]he
proposed chemical and statistical analytical methods are adequate.''
21 CFR 320.30. Lannett should therefore submit its protocol for
review by the FDA and should obtain advice from FDA as to whether
its study will be acceptable if the samples are selected prior to
importation at the manufacturer (as the Guidance suggests) rather
than selected after importation. Lannett should then submit its
protocol and the FDA's review of the protocol to this Agency. If
Lannett still seeks to import the remaining two batches, it must
provide further evidence to support its contention that these
batches need to be imported to validate the manufacturing process.
Accordingly, I conclude that conducting stability and
bioequivalency testing constitutes ``scientific, analytical, or
research uses'' and is a permissible basis for importing a schedule
I or II controlled substance under section 952(a)(2)(C). However,
before the Agency issues a regulation approving Lannett's proposed
importation, Lannett must demonstrate that the quantity is
``limited'' in accordance with the above discussion.
* * * * *
While I hold that the importation of a schedule I or II
controlled substance for the purpose of conducting stability and
bioequivalency testing in support of an ANDA is permissible under
section 952(a)(2)(C), the provision must be construed in a manner
that also gives effect to the language of 952(a)(2)(B). Accordingly,
any controlled substances which are imported under the authority of
952(a)(2)(C) cannot thereafter be commercially distributed.
Moreover, where an importer succeeds in obtaining FDA approval to
market a drug, subsequent importation of the drug for commercial
distribution must comply with the applicable provision of section
952. Thus, where an FDA-approved drug has been placed in schedule
II, or involves a narcotic drug in schedules III through V, an
applicant will be granted permission to import only if it
establishes ``that competition among domestic manufacturers is
inadequate and will not be rendered adequate by the registration of
additional manufacturers under section 823.'' 21 U.S.C. Sec.
952(a)(2)(B).
Is Lannett entitled to a registration?
As held above, section 958(i) does not provide a bulk
manufacturer with the right to a hearing on the issue of whether
Lannett was entitled to a registration. While the ALJ recognized as
much, she nonetheless allowed the objectors to litigate the issue
and made recommended findings. See ALJ at 48, 55-58. The ALJ further
concluded that granting Lannett's application for registration would
be inconsistent with the public interest. Id. at 58.
Having concluded that the objectors were not entitled to a
hearing on the issue of whether Lannett was entitled to be
registered,
[[Page 62708]]
the ALJ should not have allowed the objectors to litigate the issue.
However, because Lannett may be entitled to the issuance of a rule
authorizing the importation, I conclude that it is appropriate to
issue a declaratory order on the issue of whether Lannett has
established its entitlement to be registered. See 5 U.S.C. Sec.
554(e) (``The agency, with like effect as in the case of other
orders, and in its sound discretion, may issue a declaratory order
to terminate a controversy or remove uncertainty.'').
Pursuant to section 303(a) of the CSA, ``[t]he Attorney General
shall register an applicant to manufacture controlled substances in
schedule I or II if he determines that such registration is
consistent with the public interest and with the United States
obligations under international treaties, conventions, or protocols
in effect on May 1, 1971.'' 21 U.S.C. Sec. 823(a). ``In determining
the public interest,'' section 303(a) directs the Attorney General
to consider the following factors:
(1) Maintenance of effective controls against diversion of
particular controlled substances and any controlled substances in
schedule I or II compounded there from into other than legitimate
medical, scientific, research, or industrial channels, by limiting
the importation and bulk manufacture of such controlled substances
to a number of establishments which can produce an adequate and
uninterrupted supply of these substances under adequately
competitive conditions for legitimate medical, scientific, research,
and industrial purposes;
(2) compliance with applicable State and local law;
(3) promotion of technical advances in the art of manufacturing
these substances and the development of new substances;
(4) prior conviction record of applicant under Federal and State
laws relating to the manufacture, distribution, or dispensing of
such substances;
(5) past experience in the manufacture of controlled substances,
and the existence in the establishment of effective controls against
diversion; and
(6) such other factors as may be relevant to and consistent with
public health and safety.
Id. It is well settled that the Agency need not make findings as to
all of the factors and that it may give each factor the weight it
deems appropriate in determining the public interest. See Novelty,
Inc., v. DEA, 571 F.3d 1176, 1181 (D.C. Cir. 2009).
While there is insufficient evidence to make findings with
respect to factors two, three, and six, the record establishes that
Lannett has experience in the manufacture and development of
pharmaceutical products and that it maintains effective controls
against diversion (factor five). The record also establishes that
Lannett has not been convicted of an offense related to the
manufacture or distribution of controlled substances (factor four).
Both of these findings support the conclusion that granting
Lannett's application for a registration would be consistent with
the public interest.
The ALJ found that Lannett had not shown that competition among
domestic manufactures of dronabinol is inadequate and that the
current manufacturers were incapable of producing an adequate and
uninterrupted supply of this substance (factor one). Relying on Lyle
E. Craker, 74 FR 2101 (2009), the ALJ thus concluded this factor
``weighs strongly against a finding that Lannett's registration
would be in the public interest,'' and concluded that the record
does not support granting its application.
I conclude, however, that Craker does not require that Lannett's
application be denied. As the D.C. Circuit has held, ``section
823(a)'s enumerated factors represent components of the public
interest rather than independent requirements for registration and
thus, the [Agency] may find a registration consistent with the
public interest even if one (or possibly more) of the public
interest factors is not satisfied.'' Penick, 491 F.3d at 490. As
Penick recognized, the principal purpose of factor one is to provide
the Agency with authority ``to maintain control over diversion `by
limiting the [number of firms engaged in the] importation and bulk
manufacture' of controlled substances.'' Id. at 491.
Craker involved an application to manufacture a schedule I
controlled substance on a continuing basis. By contrast, the
activity for which Lannett seeks an importer's registration (to
perform stability and bioequivalency testing) does not involve an
activity of a continuing nature, but rather, three separate acts (at
most) of importation. As such, granting its application does not
raise the same concerns with respect to the Agency's ability to
maintain effective controls against diversion.
Accordingly, I conclude that factor one does not preclude the
issuance of an import registration to Lannett, subject to the
condition that its authority to import dronabinol as a schedule I
drug be limited to the quantity which is necessary to support an
ANDA.\30\ I therefore conclude that upon providing adequate
justification for the quantity of the importation, Lannett's
registration would be consistent with the public interest.\31\ 21
U.S.C. Sec. 823(a).
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\30\ DEA has long held that it has authority to impose
conditions on a registration. See Alfred Khalily, 64 FR 31289
(1999); Gordon M. Acker, D.M.D., 53 FR 50309 (1988).
\31\ Nor does the record establish any reason why granting
Lannett's application would be inconsistent with the United States'
obligations under international treaties and the Single Convention.
See Penick Corp., 491 F.3d at 492-93.
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Order
Lannett is hereby directed to file with this Office its testing
protocol and an itemization setting forth the various quantities it
needs to import for bioequivalency and stability studies, as well as
reserves. If FDA requires that it import the entire batch that will
be used for bioequivalency and stability testing and will not permit
it to select its test samples from the production batch and import
only those quantities, Lannett should provide evidence supporting
this. Finally, if Lannett intends to pursue importation of the
additional batches, it must provide additional justification for
doing so. Lannett must serve a copy of all filings on the objectors.
Lannett's submission shall be due no later than 90 days from date of
the issuance of this Order; Lannett shall timely inform this Office
of any delays in obtaining a response from FDA.\32\ It is further
ordered that Lannett's application for a registration to import
dronabinol be held in abeyance.
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\32\ The Objectors shall have thirty days from the date of
receipt of Lannett's filing to submit a response.
Dated: November 15, 2012
Michele M. Leonhart
Administrator
[FR Doc. 2013-24621 Filed 10-21-13; 8:45 am]
BILLING CODE 4410-09-P