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Athenex Inc. v. Azar

United States District Court, District of Columbia

August 1, 2019

ATHENEX INC., et al., Plaintiffs,
v.
ALEX M. AZAR II, et al. Defendants.

          MEMORANDUM OPINION

          Amit P. Mehta United States District Court Judge

         I. INTRODUCTION

         In 2013, Congress added Section 503B to the Food, Drug, and Cosmetic Act, creating a new category of drug manufacturer known as an “outsourcing facility.” Such facilities are permitted to sell large quantities of compounded drugs directly to hospitals and health care professionals without receiving premarket approval from the Food and Drug Administration (“FDA”), so long as the facility satisfies certain statutory requirements. One such requirement concerns when an outsourcing facility can use a “bulk drug substance”-that is, a drug's active ingredient-to compound a drug product. In such cases, FDA must declare there to be a “clinical need” for the “bulk drug substance” as a precondition to compounding with such substance.

         Plaintiffs presently operate an outsourcing facility that produces a drug product using the bulk drug substance vasopressin. On March 4, 2019, FDA announced that vasopressin is not a “bulk drug substance for which there is a clinical need” because already available on the market is an FDA-approved drug that could be used to meet the very patient needs that Plaintiffs claim make it necessary to bulk compound using vasopressin. FDA's decision, if valid, forecloses Plaintiffs from selling their product.

         Plaintiffs filed this action challenging FDA's refusal to place vasopressin on the Section 503B “clinical need” list. They contend that FDA's inquiry improperly took the availability of a branded drug product into account when assessing “clinical need.” Instead, Plaintiffs argue, the “clinical need” inquiry should be confined to simply asking whether there is a therapeutic use for the bulk drug substance, and vasopressin easily meets that standard. Alternatively, Plaintiffs maintain that, even under FDA's reading of “clinical need, ” vasopressin qualifies.

         The court finds that FDA's method of determining whether there is a “clinical need” for a bulk drug substance gives effect to the unambiguously expressed intent of Congress. The court also concludes that FDA's exclusion of vasopressin from the “clinical need” list was not arbitrary and capricious. Accordingly, the court grants Defendants' Cross-Motions for Summary Judgment and denies Plaintiffs' Motion for Summary Judgment.

         II. BACKGROUND

         A. Factual Background

         1.Compounding

         In the pharmaceutical drug industry, the term “compounding” refers to the act of “combining, admixing, mixing, diluting, pooling, reconstituting, or otherwise altering of a drug or bulk drug substance to create a drug.” 21 U.S.C. § 353b(d)(1). The compounding of drugs performs “an important role for patients for whom an FDA-approved drug is not appropriate.” Administrative Record, ECF No. 35 [hereinafter R.], at 89. Take the case of a person who is allergic to a particular ingredient in an FDA-approved drug. Through compounding, an approved drug can be reconstituted to eliminate the allergen while still delivering the drug's therapeutic benefit. Id. Another example is that certain patient populations may have difficulty ingesting a drug in its approved pill form. Such a drug can be compounded to liquid form for easier consumption.

         Historically, local pharmacists have been responsible for compounding drugs, typically in small quantities to fill the needs of individual patients with valid prescriptions. That practice still exists today. FDA has not in the past, nor does it now, require local pharmacists to obtain regulatory approval before creating and selling a compounded drug product. See generally 21 U.S.C. § 353a (Section 503A of the Food, Drug, and Cosmetic Act).

         Over time, however, a new kind of drug manufacturer emerged, one that compounded drugs in bulk quantities and marketed such drugs directly to hospitals and physicians. Even though they manufactured on a larger scale, these bulk compounders, like local pharmacists, were not required to subject their compounded drug products to “premarket review for safety, effectiveness, and quality” by FDA before bringing them to market. R. at 89.

         2. Drug Quality and Security Act

         The era of lightly regulated bulk compounding ended following a tragic event. In 2012, the New England Compounding Center (“NECC”) in Framingham, Massachusetts, produced contaminated injections that caused a meningitis outbreak, killing more than 60 people and infecting hundreds more. See Id. Within fourteen months of the NECC outbreak, Congress passed the Drug Quality and Security Act (“DQSA”), which added Section 503B to the Food, Drug, and Cosmetic Act (“FDCA”). Section 503B created a new category of drug maker called an “outsourcing facility.” See 21 U.S.C. § 353b. An outsourcing facility may compound drug products in large quantities without obtaining a prescription for “an identified individual patient[ ].” Compare 21 U.S.C. § 353b(d)(4)(C) with 21 U.S.C. § 353a. Such facilities are permitted to sell bulk compounded drug products to health care practitioners and hospitals as “office stock, ” for providers to have available and to use on an as-needed basis. See R. at 52.

         Section 503B also enhanced FDA's authority to regulate outsourcing facilities. An outsourcing facility remains exempt from the FDCA's premarket approval requirements and certain labeling and supply-chain requirements, but only if it satisfies eleven statutory criteria. See 21 U.S.C. § 353b(a) (exempting compounded drugs from 21 U.S.C. §§ 352(f)(1), 355, and 360eee-1). A non-exhaustive list of these criteria include: (1) the manufactured drug is compounded at a facility that is subject to specified FDA licensing, reporting, fees, and inspection requirements, id. §§ 353b(a)(1), (a)(9), (a)(11), 353b(b); (2) the ingredients used in the compounding process meet national standards, id. § 353b(a)(3); (3) FDA has not deemed the drug to be unsafe, nor difficult to compound, id. §§ 353b(a)(4), (a)(6); (4) “the drug is not essentially a copy of one or more approved drugs, ” id. § 353b(a)(5); (5) the drug is labeled in accordance with statutory requirements, id. § 353b(a)(10); and (6) the drug will not be sold or transferred by an entity other than the outsourcing facility, id. § 353b(a)(8).

         In addition to the foregoing requirements, Section 503B authorizes two ways in which to bulk compound a drug. The first is known as “sterile-to-sterile compounding.” Under this approach, an outsourcing facility starts with an FDA-approved drug, disassembles it, and alters it into a finished drug product for sale. The second method is known as “bulk compounding.” That process starts with a “bulk drug substance, ” instead of an FDA-approved drug. A “bulk drug substance” is an ingredient that furnishes pharmacological activity and is incorporated into a finished drug product to achieve the intended purpose of compounding, such as removal of an allergen.[1] The FDA requires that a drug must be “compounded in an outsourcing facility that does not compound using bulk drug substances . . ., unless the bulk drug substance appears on a list established by the Secretary identifying bulk drug substances for which there is a clinical need . . ., ” id. § 353b(a)(2)(A)(i), or “the drug compounded from such bulk drug substance appears on the drug shortage list, ” id. at (A)(ii). Thus, an outsourcing facility's legal authority to compound using a bulk drug substance depends in the first instance on a listing determination by FDA.

         3. FDA's Decision Not to List Vasopressin

         Plaintiffs Athenex Inc. and its affiliated entities operate an outsourcing facility that compounds with a bulk drug substance called vasopressin. Vasopressin “increase[s] blood pressure in adults with vasodilatory shock . . . who remain hypotensive despite fluids and catecholamines.” R. at 27. As a result of the DQSA, Plaintiffs cannot continue to manufacture their bulk drug product using vasopressin, unless FDA places it on the “clinical need” list. The “drug shortage” list is not at issue in this case.

         Plaintiffs began the process to get vasopressin listed years ago. In 2013 and 2014, FDA issued a notice seeking nominations of bulk drug substances to place on the “clinical need” list, and FDA provided “more detailed information on what it needs to evaluate a nomination.” See R. at 1, 4. In 2015, FDA again clarified the requirements for a nomination. See Id. at 9-13. Fifteen months later, in January 2017, FDA issued an “interim regulatory policy” for the “clinical need” list. See Id. at 34-45. The interim guidance placed each of the nominated substances into one of three categories: Category 1 substances signified those under evaluation; Category 2 included substances that raise significant safety risks; and Category 3 identified substances without adequate support for listing. See Id. at 40-41. FDA classified vasopressin as a Category 1 substance. See Id. at 45. For Category 1 substances, like vasopressin, FDA stated that it “d[id] not intend to take action against an outsourcing facility for compounding a drug using a bulk drug substance” during the interim review period. See Id. at 43. Therefore, Plaintiffs continued to manufacture their bulk drug product while vasopressin remained under review for “clinical need” listing.

         As of early 2018, FDA had yet to explain how it would determine whether a bulk drug substance would qualify for the “clinical need” list. That changed in March 2018, when the agency issued a draft guidance document titled, “Evaluation of Bulk Drug Substances Nominated for Use in Compounding Under Section 503B of the Federal Food, Drug, and Cosmetic Act.” See Id. at 46-67. The draft guidance stated that, if the bulk drug substance is a component of an FDA-approved drug product, the agency will consider two threshold questions. FDA framed the first question as follows:

Is there a basis to conclude, for each FDA-approved product that includes the nominated bulk drug substance, that (i) an attribute of the FDA-approved drug product makes it medically unsuitable to treat certain patients for a condition that FDA has identified for evaluation, and (ii) the drug product proposed to be compounded is intended to address that attribute?

Id. at 60. FDA explained the reason for asking this first question is that, “[u]nless an attribute of the FDA-approved drug is medically unsuitable for certain patients, and a drug product compounded using a bulk drug substance that is a component of the approved drug is intended to address that attribute, there is no clinical need to compound using that bulk drug substance.” Id. As to the second threshold inquiry, FDA would ask:

Is there a basis to conclude that the drug product proposed to be compounded must be produced from a bulk drug substance rather than from an FDA-approved drug product?

Id. at 60. If the answer to either threshold question is “no, ” FDA stated, it would not list the bulk drug substance. See Id. If the agency determines the answer is “yes” to both questions-or if the bulk drug substance is not a component of an FDA-approved drug product-the agency would make a second inquiry. At this step, FDA would consider various additional factors, including the “physical and chemical characterization of the substance; any safety issues raised by the use of the substance in compounding; the available evidence of effectiveness or lack of effectiveness of a drug product compounded with the substance, if any such evidence exists; and current and historical use of the substance in compounded drug products.” Id. As to this second-step inquiry, FDA said that it would “conduct a balancing test . . . under which [it] would consider each factor in the context of others and to balance them, on a substance-by-substance basis, to determine whether the substance is appropriate for inclusion” on the “clinical need” list. Id.

         In August 2018, FDA announced its intention not to include vasopressin on the “clinical need” list. See Id. at 109. The agency followed the two-step inquiry described in the draft guidance. FDA decided that vasopressin did not make it past the first step. See Id. FDA explained that the nomination of vasopressin “[did] not identify an attribute of Vasostrict, ” the FDA-approved drug containing vasopressin, “that makes [Vasostrict] medically unsuitable for patients.” Id. Thus, there was no “clinical need” to bulk compound with vasopressin. FDA also specifically rejected the need for vasopressin at a higher concentration than the approved product. Id.

         Plaintiffs submitted a comment challenging FDA's intent to exclude vasopressin. Plaintiffs argued that FDA had misinterpreted Section 503B and that, properly understood, the statute simply requires the agency to answer whether there is a “clinical need” for the bulk drug substance itself, without reference to the availability and suitability of an FDA-approved product. Id. at 273-78. Thus, under Plaintiffs' reading, vasopressin meets the standard of “clinical need” simply because it has a demonstrated therapeutic value. Id. Alternatively, Plaintiffs maintained that, even under FDA's interpretation of Section 503B, vasopressin qualified for listing. Specifically, Plaintiffs asserted that Vasostrict was medically unsuitable to treat certain patients because: (1) Vasostrict contains chlorobutanol, an allergen for some patients, and (2) it is not available in ready-to-use form but must be diluted before use. See Id. at 256. Plaintiffs' product, they insisted, filled these therapeutic gaps.

         Rejecting both arguments, FDA issued a final notice on March 4, 2019, stating that it would not place vasopressin on the “clinical need” list. See Id. at 1600-05. As to Plaintiffs' statutory interpretation argument, FDA adhered to its understanding that “Congress intended for the Agency” as part of the “clinical need” assessment “to evaluate the need for outsourcing facilities to use the bulk drug substances to compound drug products.” Id. at 69. With respect to Plaintiffs' alternative position, FDA found lacking the asserted needs for bulk-produced vasopressin. FDA observed that there is available a chlorobutanol-free formulation of Vasostrict, and Plaintiffs “fail[ed] to explain why that formulation would be medically unsuitable for patients who have an allergy to chlorobutanol.” See Id. at 1604. The agency also rejected the need for a ready-to-use product, concluding that Plaintiffs “d[id] not show that [Vasostrict], when not manufactured in the ready-to-use form, is medically unsuitable for certain patients.” Id. at 1605. Furthermore, even if Vasostrict were medically unsuitable, the agency found that Plaintiffs did not “establish that drug products in the relevant concentrations, including ready-to-use products, cannot be prepared from [Vasostrict]”-and instead must be prepared using vasopressin. Id. Other commenters had noted that a different outsourcing facility, owned by PharMEDium, compounds a ready-to-use drug with Vasostrict as its starting material. Id. at 198. Consequently, FDA declined to find a “clinical need” for bulk-compounded vasopressin under Section 503B.

         B. Procedural Background

         On March 4, 2019, the very same day that FDA announced its final decision not to list vasopressin, Plaintiffs filed suit under the Administrative Procedure Act (“APA”) and moved for a temporary restraining order and preliminary injunction. See Compl. ECF No. 1 [hereinafter Compl.]; see also Pls.' Mot. for Temporary Restraining Order and Preliminary Injunction, ECF No. 2. FDA agreed to stay any enforcement action with respect to Plaintiffs' continued bulk compounding of vasopressin until the court issued a decision on the merits. See Joint Mot. to Enter Scheduling Order, ECF No. 19. The court therefore denied the motion and entered a scheduling order for summary judgment briefing. See Order, ECF No. 20; see also Order, ECF No. 22. The court also permitted Par Sterile Products, LLC and Endo Par Innovation Company, LLC, the owners of Vasostrict, to intervene as defendants. See Order, ECF No. 20.

         Plaintiffs filed their Motion for Summary Judgment on March 18, 2019, see generally Pls.' Mot., ECF No. 23 [hereinafter Pls.' Mot.], and the Federal Defendants[2] and Defendants Par Sterile Products and Endo Par Innovation Company filed their motions on March 29, 2019, see FDA Def.'s Mot., ECF No. 25 [hereinafter FDA Mot.]; see also ...


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