Virtus Pharm. v. Garland, Civil Action 21-2308 (CKK)

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtCOLLEEN KOLLAR-KOTELLY United States District Judge
PartiesVIRTUS PHARMACEUTICALS, LLC, Plaintiff, v. MERRICK GARLAND, et al., Defendants.
Docket NumberCivil Action 21-2308 (CKK)
Decision Date22 September 2021

VIRTUS PHARMACEUTICALS, LLC, Plaintiff,
v.

MERRICK GARLAND, et al., Defendants.

Civil Action No. 21-2308 (CKK)

United States District Court, District of Columbia

September 22, 2021


MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY United States District Judge

Virtus Pharmaceuticals, LLC (“Virtus”) is a “virtual” drug manufacturer. As part of its business model, Virtus owns the technical applications necessary to produce various pharmaceuticals regulated under the Controlled Substances Act. But because Virtus is not itself registered with the United States Drug Enforcement Agency (“DEA”) to handle controlled substances, the company outsources its manufacturing and distribution operations to third parties that are registered with the DEA. As relevant here, Virtus contracts with a logistics company called Woodfield Distribution, LLC (“Woodfield”) for the storage and distribution of Virtus's pharmaceutical products through Woodfield's facilities in both Sugar Land, Texas and Boca Raton, Florida.

On August 11, 2021, the DEA served Woodfield with an order that immediately suspended Woodfield's registrations to import and distribute controlled substances from its Sugar Land facility. The DEA based this suspension on Woodfield's alleged compliance failures, which facilitated the illicit diversion of controlled substances and threatened public health. In conjunction with that suspension order, the DEA placed all controlled substances at Woodfield's Sugar Land facility under seal, including the pharmaceutical products Woodfield was storing for Virtus. According to the DEA, Virtus's drugs currently remain under seal at undisclosed DEA facilities for safekeeping. While these drugs remain under seal with the DEA, Virtus is unable to send them to market and the company now contends that this supply shortage is causing it significant financial harm.

To address this alleged harm, Virtus has filed a [2] Motion for a Temporary Restraining Order (“TRO”) against the DEA. Therein, Virtus requests a court order compelling the DEA to release Virtus's drug supply to a new third-party distributor, so that that Virtus can resume its sale operations for those drugs. Upon consideration of the pleadings, the relevant legal authorities, and the record as a whole, [1] the Court will DENY Virtus's [2] Motion for a Temporary Restraining Order.

I. BACKGROUND

A. Controlled Substances Act

In 1970, Congress passed the Comprehensive Drug Abuse Prevention and Control Act, Pub. L. No. 91-513, 84 Stat. 1236, (the “Controlled Substances Act” or “CSA”), with the goal of regulating the manufacture, importation, possession, and distribution of certain controlled substances. 21 U.S.C. § 801 et seq.; see also Gonzales v. Oregon, 546 U.S. 243, 250 (2006) (discussing the legislative history of the CSA). “A central feature of the CSA is its ‘closed system' of distribution in which all persons in the ‘legitimate distribution chain' of controlled substances must register with [the] DEA.” Wedgewood Vill. Pharmacy v. DEA, 509 F.3d 541, 542 (D.C. Cir. 2007); see also 21 U.S.C. §§ 821, 822; 21 C.F.R. § 1301.11. Entities not properly registered with the DEA under the CSA may not manufacture, distribute, or dispense controlled substances. 21 U.S.C. §§ 822, 823. To carry out and enforce this regulatory regime, the DEA has authority to “promulgate rules and regulations and to charge reasonable fees relating to the registration and control of the manufacture, distribution, and dispensing of controlled substances . . . ” 21 U.S.C. § 821; see also 28 C.F.R. § 0.100(b) (delegating authority under the CSA from the Attorney General to the DEA Administrator).

The DEA “closely observes [registrants] to ensure that their operations are ‘consistent with the public interest.'” Masters Pharm., Inc. v. DEA, 861 F.3d 206, 212 (D.C. Cir. 2017) (quoting 21 U.S.C. § 824(a)(4)). In the case of registered distributors and manufacturers, for example, the DEA determines whether the registrant maintains “effective control[s] against diversion of particular controlled substances.” 21 U.S.C. § 823(a)(1), (b)(1). The DEA also considers whether the registrant complies with state and local laws or has any prior criminal convictions related to the possession of controlled substances. Id. at § 823(a)(2)-(4), (b)(2)-(3). More generally, the CSA directs the DEA to take into account “such other factors as may be relevant to and consistent with the public health and safety.” Id. § 823(a)(6), (b)(5). Relatedly, the CSA's implementing regulations also set forth compliance requirements for DEA registrants. For example, registrants must “design and operate a system to disclose . . . suspicious orders of controlled substances, ” 21 C.F.R. § 1301.74(b), report instances of theft to the DEA, id. at § 1301.74(c), and maintain certain physical security conditions at their facilities, see id. at §§ 1301.72-73.

Where such safety and security conditions are not met, the CSA authorizes the DEA to suspend or revoke the registration of a non-compliant entity. See 21 U.S.C. § 824(a); 21 C.F.R. § 1301.36(a). For example, the DEA may revoke or suspend registration where a registrant has “committed such acts as would render [its] registration . . . inconsistent with the public interest.” 21 U.S.C. § 824(a)(4). Before revoking or suspending an entity's registration, however, the DEA must serve the impacted registrant with “an order to show cause why [its] registration should not be denied, revoked, or suspended.” Id. at § 824(c)(1). The impacted registrant is then entitled to an administrative hearing before the DEA, for the purpose of submitting evidence regarding the issues involved in the proposed revocation or suspension. See id. at § 824(c); 21 C.F.R. §§ 1301.36(d), 1301.42.

But where a registrant poses “an imminent danger to public health or safety, ” the CSA authorizes the immediate suspension of that entity's registration. 21 U.S.C. § 824(d)(1). Such an “imminent threat to public health and safety” exists where a registrant's conduct presents “a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration.” Id. at § 824(d)(2). If the DEA effectuates an immediate suspension, it shall include with the show cause order served upon the registrant “an order of immediate suspension which . . . contain[s] a statement of [the DEA's] findings regarding the danger to public health or safety.” 21 C.F.R. § 1301.36(e). The DEA possesses the authority to withdraw an immediate suspension order, 21 U.S.C. § 824(d)(1), and it also “may limit revocation or suspension of a registration to the particular controlled substance . . . with respect to which grounds for revocation or suspension exist, ” id. § 824(b).

Importantly, the CSA and its implementing regulations also govern how the DEA may treat the controlled substances affected by a registrant's suspension or revocation. In the event of a suspension or revocation, the DEA may either (1) direct the impacted registrant to “[d]eliver all controlled substances in [the registrant's] possession to the nearest office of the Administration or to authorized agents of the Administration, ” or (2) “[p]lace all controlled substances in [the registrant's] possession under seal.” 21 C.F.R. § 1301.36(f)(1)-(2); see also 21 U.S.C. § 824(f). But in such cases, “[n]o disposition may be made of any controlled substances . . . under seal until the time for taking an appeal [of the suspension or revocation] has elapsed or until all appeals have been concluded, except that a court . . . may at any time order the sale of perishable controlled substances.” 21 U.S.C. § 824(f). Where an entity's “registration has expired, ” however, or where the entity “has ceased to practice or do business in the manner contemplated by [its] registration, ” the DEA may either place that entity's controlled substances under seal or, alternatively, “seize” the controlled substances. Id. at § 824(g).

B. Virtus Pharmaceuticals

As described in its complaint, Virtus Pharmaceuticals, LLC (“Virtus”) is “a small, privately held . . . specialty pharmaceutical company that markets safe and effective products by specializing in underserved markets, offering its customers a niche product portfolio covering a range of therapeutic areas.” Compl. ¶ 1. Of note, Virtus is the owner of the Abbreviated New Drug Application (“ANDA”) for levorphanol tartrate 2 mg tablets (“levorphanol”). Id. ¶ 2. Levorphanol is a Schedule II opioid under the CSA, used primarily for patients who are in extreme pain and resistant to other opioid pain medications. Smith Decl., ECF No. 3-2, at ¶¶ 5, 12-14. [XXXXX]

Virtus is also the owner of the ANDA for “phendimetrazine 35 mg immediate release tablets, ” as well as a New Drug Application (“NDA”) for phendimetrazine 105 mg extended release capsules (collectively, “phendimetrazine”). Compl. ¶ 2; see also Smith Decl., ECF No. 3 2, at ¶ 4. Phendimetrazine is a Schedule III controlled substance “indicated for the management of exogenous obesity as a short term adjunct . . . in a regimen of weight reduction based on caloric restriction” in certain high-risk patients “who have not responded to appropriate weight reducing regimen (diet and/or exercise) alone.” Compl. ¶ 24; see also Smith Decl., ECF No. 3-2, at ¶ 24. [XXXXX]

Virtus, however, does not possess its own DEA registration to manufacture or distribute controlled substances. Compl. ¶ 25; see also 21 U.S.C. § 822(a)(1). Accordingly, Virtus itself does not physically or directly handle its pharmaceutical products, including its levorphanol or phendimetrazine. Compl. ¶ 25. Instead, Virtus is a “virtual” drug manufacturer that contracts with third parties for the manufacture and distribution of its drugs. For manufacturing, Virtus currently contracts with Halo Pharmaceutical, Inc. in New...

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