U.S. v. Baxter Healthcare Corp., s. 89-2087

• Decision Date: 06 June 1990
• Docket Number: Nos. 89-2087,89-2088,s. 89-2087
• Citation: 901 F.2d 1401
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. BAXTER HEALTHCARE CORPORATION, Defendant-Appellant, and Glaxo Specialties, Inc., a corporation, Intervenor/Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1401

901 F.2d 1401

UNITED STATES of America, Plaintiff-Appellee, v. BAXTER HEALTHCARE CORPORATION, Defendant-Appellant and Glaxo Specialties, Inc., a corporation Intervenor/Defendant-Appellant.

Nos. 89-2087, 89-2088.

United States Court of Appeals Seventh Circuit.

Argued Jan. 11, 1990.

Decided May 7, 1990.

Rehearing and Rehearing En Banc Denied June 6, 1990.

Anton R. Valukas, U.S. Atty., Frederick H. Branding, Asst. U.S. Atty., Office of the U.S. Atty., Chicago, Ill., and Eric M. Blumberg, Federal Drug Admin., Rockville, Md., for plaintiff-appellee.

Steven M. Kowal and George M. Burditt, Burditt, Bowles, Radzius & Ruberry, Chicago, Ill., for defendant-appellant.

Thomas P. Sullivan, William A. Von Hoene, Jr., Jenner & Block, Chicago, Ill., and Paul M. Hyman, Hyman, Phelps & McNamara, Washington, D.C., for intervenor-appellant.

Before CUMMINGS and WOOD, Jr., Circuit Judges, and PELL, Senior Circuit Judge.

CUMMINGS, Circuit Judge.

The federal Food and Drug Administration (FDA) challenges a program involving the reconstitution, repackaging, freezing, and distribution of already approved drugs without specific FDA approval for final products of the program as new drugs. The district court granted the FDA's motion for a preliminary injunction prohibiting Baxter Healthcare Corporation ("Baxter") and intervenor Glaxo Specialties, Inc. ("Glaxo") from producing (so far as is relevant to this appeal) eight ready-to-use frozen antibiotic drug products pending trial on the merits. 712 F.Supp. 1352 (N.D.Ill.) (May 16, 1989, amending opinion of April 26, 1989). The FDA claims that Baxter and Glaxo must apply to the FDA for separate approval to combine drug powders and liquids that have already been approved by the FDA into packages that are readily usable by the hospitals, clinics, and physicians to whom they are sold. Addressing a much broader array of drug products than is involved in this appeal, the district judge held that the FDA could permissibly read the Federal Food, Drug, and Cosmetic Act of 1938 as amended (the FDCA) (Title 21 U.S.C. Sec. 301-393) to prohibit the activities of the firms. Baxter and Glaxo respond that the FDA unreasonably demands more than one approval for the same drug products. The companies assert that they do not violate the FDCA in acting without separate FDA approval because by the FDA's admission the drugs which are the components of the final products have already been approved by the FDA and, the companies assert, are being combined in FDA-approved containers in the detailed manner prescribed by the FDA through manufacturing practices open to inspection by the FDA. Baxter seeks to avoid submitting the products to the FDA's new drug approval system. Because we cannot say that the FDA's action against the antibiotics is an impermissible exercise of the agency's legislatively delegated authority, the order of the district court as to those drug products must be affirmed.

I. Background

Baxter is a large manufacturer and distributor of health-care products incorporated in Delaware originally as Travenol Laboratories, Inc. Since July 1982, Baxter has operated or attempted to operate a Travenol Regional Compounding Center ("TRC"), first opening a center in Morton Grove, Illinois, later adding a second in Bridgeport, New Jersey. Baxter created the TRC program because many drugs do not leave drug manufacturers in final form for administration to patients, but instead are purchased in either lyophilized (freeze-dried) or liquid concentrate form. Hospitals have commonly responded to the need to prepare the drugs for administration to patients by operating their own centralized drug preparation programs for the reconstitution, dilution, repackaging, and in some cases freezing, of antibiotics in batches. The TRC program is designed to transform such powders and concentrates on a large scale into dosage packages suitable for immediate use by health-care providers, who then administer the drugs without further reconstitution or dilution.

The scale is large indeed. Baxter states that 6.9 million TRC products have been produced since 1985 and that approximately 1,200 hospitals have relied on Baxter for the reconstituted antibiotics (Joint Appendix (JA) at 32; Baxter Br. at 5). Through the TRCs, Baxter hopes to make a profit by performing more efficiently and safely operations otherwise left to hospitals and individual physicians. The TRC process is described in more detail below.

The FDA alleges that the TRC activities violate the FDCA because, in essence, the drug packages produced at the TRCs are new drugs which must be separately tested for safety and efficacy. The FDA states that Baxter is inappropriately relying on a labeling system intended to be used in the best professional judgment of medical professionals in the context of hospitals and clinics, not by commercial manufacturers on a large scale. Baxter and Glaxo ¹ respond that the products at issue are in no sense new drugs because they are the direct result of the reconstitution of already approved component drugs in a manner which they assert is dictated by the FDA labels. The companies assert that they can follow the labels even more reliably and efficiently than can individual hospitals or doctors.

In June 1982, Baxter first advised the FDA that it would commence the TRC operation. There were earlier inspections by the FDA, but the record reflects that the FDA began to raise serious questions regarding the TRC program in 1986. Beginning in May 1986, FDA inspectors staged a series of inspections and held numerous meetings with Baxter employees, including one six-week inspection of the Morton Grove operation. This FDA activity culminated in a seizure of drug products at the Morton Grove TRC in May 1987 pursuant to a complaint for forfeiture. The drug company, then still called Travenol, sought release of those seized drugs that had not yet been reconstituted. The district judge held that the release of drugs that had not yet become finished products of the TRC program in advance of condemnation was proper because the drugs were perishable and could be used lawfully without violating the FDCA, even as the FDA read the Act. United States v. Undetermined Quantities of Drugs as Described in Attachment A, 675 F.Supp. 1113 (N.D.Ill.1987) (Duff, J.). Finished products worth an estimated $180,000 were released by the district court to be destroyed by the drug company. Id. at 1114 n. 2.

The action involving the seizure was voluntarily dismissed by the government by an order dated May 12, 1988. The action giving rise to this appeal was a complaint for injunction filed by the FDA on April 28, 1988, an action separate from the seizure just described. The new complaint for injunction, followed shortly by a motion for preliminary injunction, is described below. It was similar to the first action except that it enlarged the number of challenged antibiotics from nine to eleven and added allegations that the drugs at issue were adulterated because they were not manufactured consistent with "good manufacturing practices."

In its complaint for injunction filed on April 28, 1988, the FDA relied primarily upon 21 U.S.C. Sec. 321(p), in which the FDCA defines a "new drug" as "any drug * * * [which is] not generally recognized * * * as safe and effective [or] which has not, otherwise than in [safety and effectiveness] investigations, been used to a material extent or for a material time * * *." The FDA alleged the following violations regarding the TRC venture: (1) six drugs used in antitumor (chemotherapeutic) treatment were distributed in violation of 21 U.S.C. Sec. 355(a) because they were "new drugs" within the meaning of 21 U.S.C. Sec. 321(p) and were not approved pursuant to 21 U.S.C. Sec. 355(b); (2) the same drugs were new, unapproved drugs misbranded in violation of 21 U.S.C. Sec. 352(f)(1); and (3) eleven antibiotic drugs were misbranded in violation of 21 U.S.C. Sec. 352(l ) because they were not certified pursuant to 21 U.S.C. Sec. 357(a) and not exempt from certification as provided in 21 U.S.C. Sec. 357(c). The drug products directly relevant to this appeal are eight of the eleven antibiotics in this last category.

The FDA also alleged that all of these drugs were adulterated as defined in 21 U.S.C. Sec. 351(a)(2)(B) because they were not being produced through "good manufacturing practices" as specified in 21 C.F.R. Parts 210 and 211. Title 21 U.S.C. Sec. 351(a)(2)(B) provides that a drug "shall be deemed to be adulterated" if:

* * * the methods used in, or the facilities or controls used for, its manufacture, processing, packing, or holding do not conform to or are not operated or administered in conformity with current good manufacturing practice to assure that such drug meets the requirements of this chapter as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess; * * *.

Baxter takes the position that the FDA is fully authorized to raise issues of "good manufacturing practices" and that the power to require such practices is the exclusive tool the FDA should use in policing the TRCs. The parties agreed, however, to separate disputes regarding issues of "good manufacturing practices" from this case. The district judge so ordered. Baxter Healthcare, 712 F.Supp. at 1356 n. 8. Thus the FDA does not attack the conditions under which drugs are reconstituted at the TRCs in this case, only the fact that they are being reconstituted without separate FDA approval. By the same token, of course, Baxter's assertion that it has developed in the TRCs a thoroughly safe, ideally aseptic operation "more sophisticated than those in virtually any hospital or physician's office" (Baxter Br. at 13) must be ignored since resolution of such claims requires expertise that the FDA has not applied to this appeal.

The district court concluded that, with an...