U.S. v. Algon Chemical, Inc.

• Decision Date: 11 July 1989
• Docket Number: No. 88-5478,88-5478
• Citation: 879 F.2d 1154
• Parties: UNITED STATES of America, Appellant, v. ALGON CHEMICAL INC., a corporation, and Edward Latinsky, an individual.
• Court: U.S. Court of Appeals — Third Circuit

Page 1154

879 F.2d 1154

UNITED STATES of America, Appellant, v. ALGON CHEMICAL INC., a corporation, and Edward Latinsky, an individual.

No. 88-5478.

United States Court of Appeals Third Circuit.

Argued Jan. 9, 1989.

Decided July 11, 1989.

John R. Bolton, Asst. Atty. Gen., Samuel A. Alito, Jr., U.S. Atty., Kevin J. McKenna, Asst. U.S. Atty., John R. Fleder, Director, Lawrence G. McDade (argued), Asst. Director, Office of Consumer Litigation, Civil Div., U.S. Dept. of Justice, Washington, D.C., (Thomas Scarlett, Chief Counsel, Richard E. Geyer, Associate Chief Counsel, Food and Drug Administration, of counsel), Rockville, Md., for appellant.

James R. Phelps (argued), Robert A. Dormer, A. Wes Siegner, Jr., Washington, D.C., for appellees.

Before STAPLETON, and MANSMANN, Circuit Judges, and HUYETT, District Judge ^*.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

In this case we are asked to decide whether the Food and Drug Administration ("FDA") can enforce regulations promulgated pursuant to its delegated authority under the Federal Food, Drug and Cosmetic Act, 21 U.S.C. Sec. 301 et seq. ("FDCA" or the "Act"), that essentially limit the sale of new bulk pharmaceuticals exclusively to holders of "new animal drug applications." The district court held that these regulations were inconsistent with the history and purpose of the FDCA when applied, as in this case, to bulk drugs intended for sale to veterinarians solely for use in the course of their professional practices. 689 F.Supp. 394. We conclude that the FDA acted within its statutory authority in promulgating and enforcing the regulations at issue, and accordingly will reverse the judgment of the district court.

I.

The facts in this case are uncontroverted. Algon Chemical, Inc., the appellee here, distributes drugs in bulk form to veterinarians and to others who in turn distribute to veterinarians. Bulk drugs are active ingredients intended for manufacture into finished drug products. A major customer of Algon's is Schuyler Laboratories, a company that sells bulk drugs exclusively to veterinarians. The veterinarians who purchase the bulk drugs supplied by Algon or Schuyler then compound these bulk drugs into final dosage form for administration to animals. The United States, the appellant in this case, brought this action seeking to enjoin Algon from continuing to distribute in interstate commerce 13 lots of bulk drugs which had previously been embargoed by the state of New Jersey at the Government's request, and asking for an injunction against any such future sales of similar drugs by Algon.

The FDCA, enacted in 1938 and amended in 1962 and 1968, establishes procedures for review of drug safety and efficacy by the FDA. The basic regulatory scheme of the Act, applicable to both animal and human drugs, is the requirement that "any new drug," unless it is intended solely for investigative use or is exempt under one of the Act's grandfather provisions, must be approved by the FDA before it is marketed. 21 U.S.C. Sec. 355. A new animal drug is defined under 21 U.S.C. Sec. 321(w) to be essentially any drug intended for use in animals that is not generally recognized as safe and effective for the uses stated in its labeling. ¹

To obtain approval from the FDA to market a new animal drug, a sponsor must file a new animal drug application ("NADA") which demonstrates by substantial evidence, consisting of adequate and well-controlled investigations by qualified experts, that the drug will be safe and effective for its labeled uses. A new animal drug not so approved is deemed unsafe and therefore adulterated under the Act. 21 U.S.C. Sec. 351(a)(5). No veterinarian currently holds a NADA; NADAs are apparently held exclusively by pharmaceutical and animal feed companies which, unlike the veterinarians, have the resources to develop and test the drugs according to the rigors of the Act.

With respect to the bulk drugs at issue in this case, the FDA has approved finished drug products containing these same active ingredients. Thus, the government does not claim that the drugs in bulk form are unsafe and therefore adulterated. Rather, it maintains that the drugs are misbranded because "there are no directions for use on the labeling, and the drugs are not exempt from the requirement of adequate directions for use under provision of exempting regulations promulgated by the FDA." App. at 3.

More specifically, the government relies on a series of regulations concerning the misbranding of drugs. First, Section 502(f)(1) of the Act, 21 U.S.C. Sec. 352(f)(1), provides that a drug is misbranded unless its labeling bears "adequate directions for use." ² Subsequently promulgated FDA regulations have defined this provision to require adequate directions for use of the drug by laymen for the purposes for which it is intended. 21 C.F.R. Sec. 201.5. In the present case, the labeling on the bulk drugs sold by Algon consisted merely of the name of the drug, the country of origin and numerical information such as the net weight of the contents, although some of the labeling also contained the following cautionary statement, "Caution: For manufacturing, processing or repacking."

Drugs need not bear "adequate directions for use" under Sec. 352(f), however, where the Secretary has determined that such instructions are not "necessary for the protection of the public health." See footnote 2, supra. In an exercise of that authority, the FDA in 1952 promulgated a number of exemption provisions, including the predecessor of what is now 21 C.F.R. Sec. 201.122, which provides an exemption from the labeling requirements for the sale of bulk drugs. Yet, a proviso in the bulk drug exemption limits the exemption to drugs that are not new or that are sold to holders of approved NADAs. The pertinent portion of Sec. 201.122 is as follows:

A drug in a bulk package, except tablets, capsules, or other dosage unit forms, intended for processing, repacking, or use in the manufacture of another drug, shall be exempt from Sec. 502(f)(1) of the act if its label bears the statement "Caution: For manufacturing, processing, or repacking"; and, if in substantially all dosage forms in which it may be dispensed it is subject to section 503(b)(1), the statement "Caution: Federal law prohibits dispensing without a prescription".... But the exemption shall not apply to a substance intended for a use in manufacture, processing, or repacking which causes the finished article to be a new drug, unless:

(a) An approved new drug application or new animal drug application covers the production and delivery of the drug substance to the application holder by persons named in the application, and, for a new drug substance, the export of it by such persons under Sec. 314.410 of this chapter; ...

21 C.F.R. Sec. 201.122 (emphasis added).

On the basis of these regulations, the government argues, first, that Algon bears the burden of proving that it is exempted from the Act's labeling requirements. Second, the government maintains that the bulk drugs exemption is inapplicable because Algon has failed to demonstrate that the finished drugs to be made from the bulk drugs are not new drugs, and therefore the drugs are misbranded as a matter of law. ³

In response to the government's complaint, Algon argues that the FDA is not empowered to control the manner in which veterinarians compound medicines for use solely in the course of their professional practices, that the FDA, accordingly, cannot interfere with veterinarians' access to new bulk drugs to be used in compounding and that, therefore, the FDA was required to exempt sales of new bulk drugs to veterinarians, as well as sales to holders of NADAs, from the "adequate directions for use" requirements. Algon stresses that, because the list of FDA approved animal drugs is woefully inadequate, veterinarians would be limited in their treatment options without access to bulk drugs, and the consequence of this would be the death and suffering of countless animals.

The district court dismissed the government's application for a preliminary injunction and granted Algon's motion for summary judgment. The court concluded that the proviso limiting the exemption for new bulk drugs to transactions involving a NADA was inconsistent with the purposes of the FDCA as applied to drugs sold for use in the practice of veterinary medicine. Having stricken that proviso as invalid, the court held that the drugs in question were exempt from the requirement of "adequate directions for use" by virtue of the bulk drugs exemption, 21 C.F.R. Sec. 201.122. In reaching its conclusions, the court relied on the Act's legislative history which indicates a reluctance on the part of Congress to interfere with the "healing arts" or the state's regulation of the practice of medicine.

The court also relied on certain statutory exceptions that apply to veterinarians, declaring that: "[I]n order to apply for and become holders of new animal drug approvals, veterinarians would have to comply with registration and inspection provisions of the Act from which they have been expressly exempted. This is an unreasonable expectation given Congress' consistent approach of staying out of the regulation of the healing arts." App. at 189. The court further ruled that the burden could not be put on Algon to prove that the drugs would ultimately be used lawfully, because meeting that burden would be impossible. This appeal followed.

The standard of review of the district court's grant of summary judgment, involving the application of law to undisputed facts, is plenary. Koshatka v. Philadelphia Newspapers Inc., 762 F.2d 329, 333 (3d Cir.1985).

II.

The district court's decision relied extensively on, and reached the same conclusion as, the decision in United States v. 9/1 KG. Containers, More or Less, of an Article of Drug for Veterinarian Use, 674 F.Supp. 1344 (C.D.Ill.1987). That decision, however, was...