U.S. v. Articles of Drug

• Decision Date: 01 December 1978
• Docket Number: No. 77-2100,77-2100
• Citation: 585 F.2d 575
• Parties: UNITED STATES of America v. ARTICLES OF DRUG, etc. Appeal of the LANNETT COMPANY, INC.
• Court: U.S. Court of Appeals — Third Circuit

Page 575

585 F.2d 575

UNITED STATES of America v. ARTICLES OF DRUG, etc Appeal of the LANNETT COMPANY, INC.

No. 77-2100.

United States Court of Appeals Third Circuit.

Argued May 4, 1978.

Decided Aug. 14, 1978.

As Amended Dec. 1, 1978.

Jacob Laufer, Milton A. Bass, Sheldon S. Lustigman, Bass, Ullman & Lustigman, New York City, for appellant.

Alexander Ewing, Jr., Asst. U. S. Atty., Philadelphia, Pa., Stephen R. McSpadden, U. S. Dept. of Justice, Consumer Affairs Section, Washington, D. C., Harry Shulman, Food and Drug Administration, Rockville, Md., for appellee.

Before ADAMS, ROSENN and VAN DUSEN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

On August 11, 1976, the United States filed a complaint in the district court for the Eastern District of Pennsylvania seeking condemnation and destruction of certain articles of drugs manufactured and owned by the Lannett Company, Inc. ("Lannett" or "claimant"). The Government alleged that the drugs were subject to seizure under the Food, Drug and Cosmetic Act ("Drug Act"), 52 Stat. 1052 (1938), Codified as amended at, 21 U.S.C. §§ 301-92 (1976), because they were "misbranded"; that is, their labels did not contain adequate instructions for lay use. Essentially, the Government asserted: (1) that the seized articles were all prescription drugs not generally recognized as safe and effective; (2) that as such, they were "new drugs"; and (3) that as "new drugs" they could not be labeled satisfactorily for lay use without the approval of a New Drug Application ("NDA") by the Food and Drug Administration ("FDA"). On this theory, the Government moved for summary judgment in the district court, and the motion was granted. Because we believe that the district court incorrectly decided that motion, we reverse.

I.

Federal regulation of the drug industry may be traced to the passage of the Pure Food and Drug Act of 1906 ¹ in which Congress required the producers of drugs to list the quantity and nature of potent ingredients in their products and to refrain from labeling their products with false of misleading statements. Some safety requirements were imposed on drug manufacturers under this legislation as well, but the statute contained no provisions to ensure the effectiveness of drug products.

In 1938, the present Drug Act was introduced and more stringent controls governing the demonstration of a drug's safety were imposed on drug manufacturers. Under the Act, FDA approval was required for all drugs not generally recognized as safe for human consumption. Such "new drugs" could not be sold by any company until it had received premarketing clearance by the FDA; only established, generally recognized drug products could bypass the approval mechanism. The legislation, however, provided only limited "effectiveness" provisions. ²

Lannett applied for and received marketing clearance, under the 1938 Act, for several of its articles of drugs, including those seized in the instant case. ³ Approval, certified that the FDA regarded Lannett's products as safe for human consumption and with such FDA certification, Lannett was able to market its drugs. By 1962, Lannett's products were sold to and widely used in the medical profession.

In 1962, however, the Drug Act was amended and the statutory definition of "new drug" was broadened to add greater protection for the consuming public. Under the new standards, a drug would be treated as a "new drug," subject to premarketing clearance, if "not generally recognized . . . as safe And effective" for the purposes for which the drug was being marketed. 21 U.S.C. § 321(p)(1) (1976) (emphasis supplied). ⁴ The new effectiveness requirement of the 1962 legislation was made retroactive to all drugs which had been the subject of new drug applications under the 1938 statute. Thus, it applied to all drugs which previously had secured FDA premarketing approvals as those received by Lannett for the drugs seized in this case.

The FDA, recognizing that a transitional period would be necessary to review all drug products affected by the 1962 amendments, granted a two-year grace period before revoking any NDAs given under the 1938 Act. This period of time was to be used to assess the evidence of "effectiveness" of approved drug products. Two years proved to be insufficient time to permit the FDA to evaluate the status of all drugs potentially made "new drugs" by the 1962 amendments. Therefore, in order to expedite the task of evaluation, the FDA arranged with the National Academy of Sciences National Research Council ("NAS-NRC") to have them review the qualities of the potential "new drugs."

NAS-NRC undertook a study of some 4,000 drug formulations for the express purpose of assessing the efficiency of the product. This study, known as the Drug Efficiency Study, was submitted to the FDA for evaluation; the FDA retained authority to accept or reject the findings of NAS-NRC. As a result of the NAS-NRC findings, the FDA set forth in the Federal Register its conclusions and assessment ("Drug Efficiency Study Implementation" or "DESI" notices) of whether a particular drug could be considered "effective" for use as required by the 1962 amendments to the Drug Act.

Each of the drugs confiscated in this action, at least in its generic form, was included in the DESI notices. It is conceded that NAS-NRC and the FDA found every one of the claimant's drugs, in its generic form, to be effective for the purposes that Lannett was selling them. Nonetheless, because of possible variations in the manufacturing process used by each individual drug producer, FDA classified all of the drugs tested as "new drugs," requiring each producer of the tested drug to file for marketing clearance. In recognition of NAS-NRC's positive effectiveness evaluation of the drugs, however, the FDA requested that manufacturers file only an Abbreviated New Drug Application ("ANDA"), a short form, requiring proof that the individual manufacturing process for a particular drug yielded an effective product. Filing for an ANDA was intended to ensure that each version of a generic drug would match the generic compound certified as effective in the DESI notice. ⁵ In response to the FDA requirements, Lannett filed ANDAs for each of the drug products seized in this action.

Although the generic equivalents of Lannett's drugs were certified as effective for the purposes indicated by Lannett, each of the drugs was also found not to be recognized as effective for other purposes indicated by different manufacturers. As to the indications for which a drug was not found to be effective, the FDA declared the drugs to be "new drugs" and required manufacturers of the drug for those indications to file an NDA. The FDA further announced that it would give a hearing to any person affected adversely by the withdrawal of the approved drug status for any specific indication of a drug. Lannett could not have qualified for such a hearing, as its drugs were being marketed only for indications approved by the FDA.

During the pendency of Lannett's ANDA application, the FDA allowed it to continue to market its drugs. Under FDA policy, Lannett could continue to manufacture and sell its drug products so long as it attempted to secure an approval of its application. In 1975, however, in response to a district court opinion, ⁶ the FDA altered its marketing policy and ordered that marketing of "new drugs" cease until they were approved by the FDA. ⁷ Lannett nonetheless continued to market its drugs with pending ANDAs. Not until April of 1976 did the FDA order Lannett to cease the marketing of its drugs. At that time, the FDA informed Lannett that its drugs were unapproved "new drugs" which could not be marketed legally. Lannett responded to the FDA notice and asserted that it had applications for approval pending and that it needed continued marketing of the drugs pending approval for economic reasons. FDA did not respond to Lannett's letter and some four months later, it brought this action to condemn and destroy the seized articles of drugs.

II.

In its complaint, the Government asked for the seizure of Lannett's drugs all of which are prescription drugs alleging that they were misbranded under 21 U.S.C. § 352 (1976) which provides, in pertinent part, that:

A drug or device shall be deemed to be misbranded

(f) Directions for use and warnings on label

Unless its labeling bears (1) adequate directions for use; . . . Provided, That where any requirement of clause (1) of this subsection, as applied to any drug or device, is not necessary for the protection of the public health, the Secretary shall promulgate regulations exempting such drug or device from such requirement.

21 U.S.C. § 352(f)(1) (1976).

Adequate directions for use "means directions under which the layman can use a drug safely and for the purposes for which it is intended," 21 C.F.R. § 201.5 (1977). In its complaint the Government argued that Lannett's drugs, as prescription drugs, by their very nature could not be used to inform the layman. Therefore, the Government contended that unless the drugs were exempt from the "adequate directions" requirement, they would be misbranded.

FDA regulations provide that a prescription drug for human consumption shall be exempt from the requirement that it bear adequate instructions for lay use if either (a) it is an "old drug" generally recognized as safe and effective or (b) it is a "new drug" the labeling of which is authorized by an approved NDA. 21 C.F.R. § 201.100(c)(2) (1977); See 21 C.F.R. § 201.115 (1977).

The Government contended that all of Lannett's drugs were "new drugs" which had not received approval by the FDA. Therefore, the Government claimed that the drugs could not be exempt from the "adequate directions" requirement of section 352(f)(1) and that they were misbranded. Consequently, FDA asked that the drugs be condemned under 21 U.S.C. § 334(a)(1) (1976) as articles held for sale...