[Federal Register: February 11, 2003 (Volume 68, Number 28)]
[Notices]
[Page 6947-6952]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe03-97]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Penick Corporation, Inc., Grant Registration to Import Schedule
II Substances
I. Background
On April 11, 2000, Penick Corporation, Inc. (Penick) applied to the
Drug Enforcement Administration (DEA) for registration under 21 U.S.C.
Sec. 958(i) as an importer of coca leaves, raw opium, poppy straw, and
poppy straw concentrate (narcotic raw materials or NRMs), all Schedule
II controlled substances. On the same day, Penick also applied with DEA
for registration as a manufacturer of a number of Schedule II
controlled substances, including oxycodone, hydrcodone, morphine,
hydromorphone and codeine. Pursuant to 21 CFR 1301.34(a), Mallinckrodt,
Inc. (Mallinckrodt), and Normaco of Delaware, Inc. (Normaco), requested
a hearing on Penick's application for registration as an importer of
raw opium and concentrate of poppy straw (CPS). A hearing was held in
Arlington, Virginia, on July 9 through 13 and August 13 through 15,
2001, with Penick, Noramco, Mallinckrodt and the Government
participating and represented by counsel. All parties called witnesses
to testify and introduced documentary evidence. After the hearing, all
parties filed proposed findings of fact, conclusions of law, and
argument. Penick, Moramco, and Mallinckrodt filed reply briefs.
[[Page 6948]]
On May 29, 2002, the Administrative Law Judge (ALJ) filed her
Opinion and Recommended Ruling, Findings of Fact, Conclusions of Law
and Decision of the Administrative Law Judge. The ALJ recommended that
Penick's Application be granted. Mallinckrodt and Noramco filed
exceptions to the ALJ's recommended decision. Penick filed a response
to the exceptions filed by Mallinckrodt and Noramco. After considering
all of the evidence and post hearing submissions, the Deputy
Administrator adopts the Filings of Fact, Conclusions of Law, and
Decision of the Administrative Law Judge in their entirety. They are
incorporated into this final order as through they were set forth at
length herein. The adoption of the ALJ's opinion is in no manner
diminished by any recitation of facts, issues and conclusions herein,
or of any failure to mention a matter of fact or law.
II. Preliminary Matters
A. Regulatory Context
Because Penick is applying for both a renewal of its registration
and permission to import, this proceeding is a combined adjudication
and rulemaking. The rulemaking determines whether Penick may lawfully
import into the United States the Schedule II controlled substances raw
opium and CPS pursuant to 21 U.S.C. Sec. 952(a). Penick has the burden
of proof, and must establish by a preponderance of the evidence that
such a rule can be issued. In order to do this, Penick must show by a
preponderance of the evidence that the raw opium and CPS that it
intends to import are ``necessary'' to provide for medical, scientific
or other legitimate purposes.
The adjudication determines whether DEA should grant Penick's
application for registration as an importer of the Schedule II
controlled substances raw opium and CPS. In accordance with the DEA
Statement of Policy and Interpretation on Registration of Importers, 40
FR 43,745 (1975), the Deputy Administrator will not grant Penick's
application unless Penick establishes that the requirements of 21
U.S.C. Sec. 958(a) and Sec. 823(a) and 21 CFR 301.34(b)(1)-(7) are
met to show that Penick's registration to import is in the public
interest. DEA has the discretion to determine the weight assigned to
each of the factors that must be considered to determine whether
Penick's registration to import will granted. MD Pharmaceutical, Inc.
v. DEA, No. 95-1267, 1996 U.S. App. LEXIS 1229 (D.C. Cir. 1996)
(unpublished opinion.)
B. The Right to a Hearing
On December 19, 2000, Penick filed various motions requesting inter
alia, that the objections to their registration be struck and that
their application be summarily granted. As the basis for Penick's
Motions, Penick asserted that because Organichem, Mallinckrodt, and
Normaco are not bulk manufactures of the substances that Penick seeks
to import, none of them had standing to object, comment upon, or
request a hearing on Penick's application. Penick further asserted that
none of the objecting manufactures had prudential standing to comment,
object or request a hearing.
After a thorough review of the relevant parts of the Controlled
Substances Act (CSA), the implementing regulations and the CSAS's
legislative history, the ALJ found that the objecting manufacturers had
standing to challenger DEA's action if it granted Penick's application.
The ALJ also found that the CSA and its regulation do not expressly
grant a right to hearing to importers of NRMs upon the application of
another manufacture to import the same substance. She concluded,
however, that DEA has the discretionary authority to afford that
hearing right and that it has done so in other proceedings as well as
the instant matter. On that basis, the ALJ denied the motion to strike.
With respect to Penick's motion for an order, the ALJ determined that
she has no jurisdiction over Penick's application to import coca leaves
or poppy straw, which was not part of the hearing. Accordingly, the ALJ
denied the Motion for an Order. The Deputy Administrator adopts the
well-reasoned ruling of the ALJ in denying Penick's motions.
C. Designations of Confidentiality
Pursuant to a Protective Order issued by the Administrative Law
Judge on April 26, 2001, and a Revised Protective Order issued on May
24, 2002, the parties filed various motions, both before and after the
hearing, for the designation of certain testimony and exhibits as
``confidential'' and ``highly confidential.'' Some of the parties
objected to the requests for confidentiality filed by other parties.
After the hearing, the parties were provided an opportunity to file by
motion requests for specifying such confidential material within the
transcript. The Deputy Administrator has reviewed the pleadings on this
issue, and hereby concurs with the Administrative Law Judge's orders on
designations of confidentiality.
D. Motion To Reopen Record
On December 5, 2001, Normaco filed a letter asserting that Penick
had changed its position with respect to the standard for registering
applicants to import in a letter commenting on another manufacturers's
application to import. Noramco moved to reopen the record in order for
the ALJ to consider this letter. The ALJ concluded that no useful
purpose would be served by considering Pencik's purported change of
position, and denied Normaco's request. The Deputy Administrator
concurs with the ALJ's decision denying the motion.
III. Final Order
The Deputy Administrator has carefully reviewed the entire record
in this matter, as defined above, and hereby issues this final rule and
final order prescribed by 21 CFR 1316.67 and 21 CFR 1301.46, based upon
the following findings and conclusions.
A. The Rulemaking
As explained above, Penick cannot be registered as an importer of
NRMs unless the Deputy Administrator finds that Penick will be allowed
to import NRMs pursuant to 21 U.S.C. 952(a)(1). Because Penick is the
proponent of such a rule, it must establish by a preponderance of the
evidence that such a rule can be issued.
21 U.S.C. 952(a)(1) makes it unlawful to import controlled
substances in Schedule I or II except ``such amounts of crude opium,
poppy straw, concentrate of poppy straw and coca leaves as the Attorney
General finds to be necessary to provide for medical scientific or
other legitimate purposes.'' Whether Penick's importation of opium and
CPS is ``necessary'' was not highly disputed at the hearing of this
matter.
The ALJ found that it is undisputed that Penick seeks to import
narcotic raw materials for legitimate uses. She also noted that the
actual amounts of NRMs necessary for those uses is made in subsequent
proceedings to establish quotas pursuant to 21 U.S.C. 826 and to grant
permits to import pursuant to 21 CFR Part 1312, which are not part of
this case. Accordingly, the Deputy Administrator adopts the ALJ's
ruling and finds that Penick shall be permitted to import raw opium and
CPS.
B. The Adjudication
Longstanding Federal policy prohibits the cultivation of the opium
poppy in the United States, and also generally prohibits the
importation of bulk narcotic alkaloids such as morphine and codeine.
The NRMs raw opium and CPS therefore must be imported into the
[[Page 6949]]
United States for purposes of extracting morphine and codeine for
pharmaceutical use. Following the extraction of these alkaloids, the
manufacturers convert them into active pharmaceutical ingredients
(APIs), such as oxycodone and hydrocodone. These APIs are then sold to
other manufacturers to produce either dosage formulations or other
APIs. The formulated drugs are then sold to drug wholesalers or
directly to health care entities.
Noramco and Mallinckrodt are the only companies registered with DEA
as importers of NRMs and bulk manufacturers of codeine and morphine.
Penick has applied with DEA to be registered as an importer of NRMs, so
that the company can manufacture its own codeine and morphine. Noramco
and Mallinckrodt oppose Penick's application.
Any company that wishes to import NRMs must comply with the ``80-20
rule,'' which requires that 80 percent of the NRMs imported into the
United States have their original source as Turkey and India. The
remaining 20 percent must come from Yugoslavia, France, Poland,
Hungary, or Australia. 21 CFR 1312.13(f).
Pursuant to 21 U.S.C. Sec. Sec. 958a and 823(a), DEA is required
to register Penick as an importer of Schedule I and II substances if
the registration is ``consistent with the public interest and with
United States obligations under international treaties, conventions, or
protocols in effect on May 1, 1971.'' In determining the public
interest, DEA must consider the factors enumerated at U.S.C. 823(a)(1)-
(6) and 21 CFR 1301.34(b)(1)-(7), some of which are identical.
Accordingly, the Deputy Administrator will first consider United States
obligations under international treaties, then each of the factors
delineated in 21 U.S.C. 823(a) and 21 CFR 1301.34(b)(1)-(7), as
follows.\1\
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\1\ In this proceeding, Penick, as the applicant, has the burden
of proof of showing that the public interest will be served by its
registration to import NRMs. 21 CFR Sec. Sec. 1301.44(c). Noramco
and Mallinckrodt, however, have the burden of proving any
propositions of fact or law asserted by them in the hearing. Id.;
Roxane, 63 FR 55,891 (DEA 1998).
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1. Treaty Obligations
As the ALJ found, there is no evidence that the importation of NRMs
by Penick would be inconsistent with United States obligations under
international treaties, conventions or protocols. Under the United
Nations Single Convention on Narcotic Drugs of 1961, as amended by the
1972 Protocol (collectively, the Single Convention), the United States
is obligated to take all necessary measures to ensure that the
international movement of narcotics is limited to legitimate medical
and scientific needs. Peter B. Bensinger, former Administrator of DEA,
and Chuck Koczwara, Mallinckrodt's Director of Purchasing and Strategic
Procurement, both testified that the primary goals of the Single
Convention are to limit the manufacture, trade, and consumption of
narcotic drugs to legitimate medical and scientific purposes; and
ensuring availability of these drugs for medical use. Peter B.
Bensinger also testified that any new registrant represents a potential
for diversion, and that inasmuch as it is impossible to reduce the risk
of diversion to zero, it is in the public interest to limit access to
NRMs to a much smaller number of companies than would be appropriate in
a free market.
The ALJ found, however, as explained below in consideration of the
possibility of diversion of controlled substances, there is no evidence
that entry of Penick into the market for importation of NRMs would
result in significant diversion or contravene the Single Convention.
2. Maintenance of Effective Controls Against Diversion of Particular
Controlled Substances and any Controlled Substance in Schedule I or II
Compounded Therefrom Into Other Than Legitimate, Medical, Scientific,
Research or Industrial Channels, by Limiting the Importation of and
Bulk Manufacture of Such Controlled Substances to a Number of
Establishments Which can Produce an Adequate and Uninterrupted Supply
of These Substances Under Adequately Competitive Conditions for
Legitimate Medical, Scientific Research, and Industrial Purposes
a. Diversion
The ALJ found that there is no evidence that specific activities
involving Penick's importation of NRMs would increase diversion of
those substances. John McRoberts, Penick's Vice President of
Operations, testified extensively about Penick's internal security
measures. The DEA Diversion Investigator (DI) who conducted the
investigation of Penick's application testified favorably about
Penick's security for shipments of NRMs from India and Turkey and
Penick's distribution of its products via common carriers. The DI
further testified that Penick's security systems and employee
screenings met the requirements of DEA regulations. Neither Noramco nor
Mallinckrodt adduced evidence that Penick's security arrangements were
faulty.
Noramco Vice President Michael Kindergan testified that Penick's
use of inefficient technology would increase the likelihood of
diversion of opium in India because it would cause an increase in
demand and in cultivation and production. Mr. Kindergan stated further
that he believes that DEA personnel involved in investigating Penick's
application focus on security within the manufacturing plant. Noramco
does not claim that diversion from Penick's facility is likely; indeed,
the manufacturing plant is probably the ``area of least exposure.''
However, because of the 80/20 rule, any new production of morphine will
come from India, and in taking any action DEA should also consider that
action's impact on the NRM market and on diversion at the grower level.
As the ALJ noted, however, there is nothing in the Single
Convention treaty that would require a government agency to consider
the impact on overseas diversion of NRMs. Accordingly, the ALJ found
that DEA is not required to consider the impact on diversion in India
in assessing Penick's application, a conclusion with which the Deputy
Administrator agrees. Moreover, the Deputy Administrator found that
even if the registration of Penick were to cause diversion of NRMs
overseas, there is nothing in the Single Convention or DEA regulations
that would require DEA to limit registration to import NRMs to only two
companies, regardless of the adequacy of competition. Accordingly, the
Deputy Administrator finds that this factor weighs in favor of Penick.
b. Adequate Competition
The issue of whether there is adequate competition in the NRM
processing market was highly disputed. The ALJ conducted a thorough
review of the evidence offered by the parties in coming to her
conclusions. Under 21 CFR 1301.34(d), the Deputy Administrator is
obligated to consider the following factors in determining whether
competition is adequate.
(1) The extent of price rigidity in light of changes in raw
materials and other costs and conditions of supply and demand.
(2) The extent of service and quality competition among the
domestic manufacturers for shares of the domestic market including (i)
shifts in market shares and (ii) shifts in individual customers among
domestic manufacturers.
(3) The existence of substantial differentials between domestic
prices
[[Page 6950]]
and the higher of prices generally prevailing in foreign markets or the
prices at which the applicant for registration to import is committed
to undertake to provide such products in the domestic market in
conformity with the Act. In determining the existence of substantial
differentials hereunder, appropriate consideration should be given to
any additional costs imposed on domestic manufactures by the
requirement of the Act and such other cost-related and other factors as
the Administrator may deem relevant. In no event should an importer's
offering prices in the United States be considered if they are lower
than those prevailing in the foreign market or markets from which the
importer is obtaining his/her supply.
(4) The existence of competitive restraints imposed upon domestic
manufacturers by governmental regulations and
(5) Such other factors as may be relevant to the determinations
required under this paragraph.
Michael I. Cragg, Ph.D. testified on behalf of Penick. Dr. Cragg
concluded that Penick's reentry into the market will result in lower
prices and a more reliable supply of narcotic products. Dr. Cragg
relied upon theories of competition presented in economics literature
to support the proposition that prices fall as the number of
competitors increases. Dr. Cragg also testified that based upon the
criteria used by the United States Department of Justice, competition
in the narcotics industry is limited and Penick's reentry will increase
competition. He found that at the critical stage of the production
chain, competition is especially inadequate in the market for semi-
processed APIs as there are only two importers and producers of semi-
processed APIs, Johnson & Johnson and Mallinckrodt. Dr. Cragg explained
that this situation creates a competitive bottleneck that affects all
levels of the production chain. Despite this level of concentration,
there has been no significant entry into the API market in the last
decade. Furthermore, no entry has occurred despite the 150 percent
increase in the size of the narcotics finished goods market from 1995
to 2000 and an almost five-fold increase in API revenues over that same
period.
Dr. Cragg further testified that during this period of static
duopoly, the prices of narcotic APIs have risen faster than when there
were more competitors. From 1995 to 2000 estimated profits for narcotic
APIs grew from $26 million to $246 million--a growth rate of 57 percent
annually. Dr. Cragg concluded that these returns arose because revenues
were growing faster than costs during the period when the number of
importers was limited to only two. With respect to Penick's reentry
into the NRM and API markets, Dr. Cragg expected such entry to raise
the level of competition in the API market and lead to lower API
prices.
Mark A. King, a consultant, testified on behalf of Noramco. He
testified that Dr. Cragg's conclusions were incorrect, because they
were based largely upon (1) a failure to consider structural factors
inherent in the narcotic market as a whole; and (2) inaccurate data for
NRM and API prices, and/or (3) selective application of general free
market economic theories to one of the world's most highly regulated
industries. Mr. King argued, in part, that NRM price increases have
consistently outstripped the prices charged for narcotic APIs by
Noramco during the period from 1995 to 2000; therefore, the value-added
margins of narcotic APIs produced have declined, not increased. Mr.
King also testified that Dr. Cragg's analysis was faulty because (1) he
relied on Mallinckrodt's list prices in place of actual prices, (2)
that U.S. API prices are driven not by industry concentration, but by
DEA's policy of prohibiting the domestic cultivation and processing of
opium poppies and (3) there is no persuasive evidence that Noramco or
Mallinckrodt have been able to exert inordinate power over purchasers
of APIs.
Walter H.A. Vandaele, Ph.D. testified on behalf of Mallinckrodt.
Dr. Vandaele concluded generally that there is considerable competition
between Mallinckrodt and Noramco in the bulk narcotic API market. Dr.
Vandaele argued that significant discounting of list price and frequent
switching by large customers from one bulk supplier to another evidence
a significant degree of competition in the current market. Significant
increases in bulk API prices reflect higher marginal costs of supplying
increased demand in the face of tight supplies of raw material. Bulk
suppliers' partial downstream integration into finished products
provides no increase in their ability to price anti-competitively. Dr.
Vandaele further argued that Penick's entry as an NRM importer and bulk
API supplier would provide an insignificant impact on the level of
competition in either the bulk API market or the narcotic finished
product market, and no measurable impact on consumer prices.
The Deputy Administrator agrees with the ALJ that Penick has
demonstrated that the opiate API market was not operating under
``adequately competitive conditions'' as of the date of the hearing. As
the ALJ noted, it is undisputed that prices of APIs increased
substantially during the 1990s. With respect to the other factors
listed in 21 CFR 1301.34(d), The Deputy Administrator also agrees with
the ALJ that the customer switches referenced in the records do not
demonstrate strong competition. With respect to the other factors
listed, the Deputy Administrator agrees with the ALJ that they are not
relevant in this case or the record is not sufficient to warrant a
finding. Having found that the market is not adequately competitive,
the Deputy Administrator concludes that this factor weights in favor of
granting Penick's application, even though Noramco and Mallinckrodt are
capable of maintaining an adequate and uninterrupted supply.
3. Compliance with Applicable State and Local Law;
Penick adduced evidence that it was substantially in compliance
with state and local law, and Noramco and Mallinckrodt did not produce
evidence to the contrary. The Deputy Administrator therefore finds that
this factor weighs in favor of granting Penick's application.
4. Promotion of Technical Advances in the Art of Manufacturing these
Substances and the Development of new Substances.
The evidence showed that Penick has patented processes to produce
oxycodone and narcotic antagonists from morphine or codeine instead of
thebaine, and has invented processes to produce hydrocodone and
hydromorphone. There was also evidence that Penick has a more efficient
process to produce oxycodone from thebaine in that Penick is able to
utilize both opium and CPS as the raw materials for producing various
opiate APIs. There was further evidence that Penick plans to upgrade
its facilities and has committed at least $30 million to the projects.
Noramco adduced evidence, on the other hand, that Penick's proposed
technology for producing oxycodone is not as efficient as Noramco's
technology, and both Noramco and Mallinckrodt emphasized that Penick's
proposed processes have not been tested in commercial production.
Noramco also claimed that Penick had not demonstrated the necessary
commitment of resources to adequately upgrade its operation.
While there is controversy over the quality of Penick's proposed
technology that cannot be resolved by the record in this matter, The
Deputy Administrator concludes that Penick's patents and
[[Page 6951]]
development of manufacturing processes promote technical advances in
the manufacture of controlled substances. Therefore this factor weighs
in favor of granting Penick's application.
5. Prior Conviction Record of Applicant under Federal and State Laws
Relating to the Manufacture, Distribution, or Dispensing of such
Substances;
It is undisputed that neither Penick nor any of its officer,
agents, or key employees has been convicted of any Federal or State law
relating to the manufacture, distribution, or dispensing of controlled
substances. The Deputy Administrator therefore concludes that this
factor weighs in favor of granting Penick's application.
6. Past Experience in the Manufacture of Controlled Substances and the
Existence in the Establishment of Effective Controls Against Diversion.
The evidence showed that Penick manufactured narcotics from 1947
until sometime in the 1990s. Although Mallinckrodt and Noramco asserted
that regulatory requirements have changed since Penick exited the
market, they adduced no evidence that Penick would be unable to comply
with current or future requirements.
Penick presented evidence of its security systems and procedures,
and Noramco and Mallinckrodt acknowledge that there is little
likelihood of diversion from Penick's plant. The Deputy Administrator
therefore concludes that this factor weighs in favor of granting
Penick's application.
7. Such other Factors as may be Relevant to and Consistent with the
Public Health and Safety.
The ALJ found three factors relevant to the public health and
safety:
a. Diversion of Opium: Both Noramco and Mallinckrodt asserted that
Penick's importation of NRMs would be likely to result in increased
diversion of opium in India. The ALJ found that DEA is not required to
consider the impact on diversion in India in assessing Penick's
application. She also found that such claims were speculative at best.
The Deputy Administrator agrees that this consideration need not be
addressed under this factor. The Deputy Administrator also finds,
however, that nothing in the Single Treaty or DEA regulations requires
DEA to attempt to eliminate diversion by limiting the licensing of NRM
importers to two companies, despite the absence of competition.
b. Waste of Narcotic Raw Materials: Noramco and Mallinckrodt also
asserted that Penick's unproven technology will result in the waste of
scarce NRMs. The ALJ found these assertions speculative because Penick
could not begin its scaling up of operations until it obtained a
registration to manufacture Schedule II controlled substances. The
Deputy Administrator agrees with the ALJ that these contentions are too
speculative to warrant consideration.
c. Compliance with Federal Statutes and Regulations: Although DEA
found Penick to have committed numerous record keeping violations in a
1988 investigation, with Penick paying $40,000 to settle a consequent
civil action, the DI testified that subsequent DEA regulatory
investigations indicated that Penick was substantially in compliance
with DEA requirements. With respect to FDA regulations, Penick has not
been cited for any deficiencies since a 1993 warning letter. With
respect to EPA requirements, the evidence showed that Penick hold the
requisite permits and is operating within them and that any remediation
issues with the New Jersey Department of Environmental Protection are
the responsibility of Bestfoods rather than of Penick.
C. Exceptions
Both Noramco and Mallinckrodt filed exceptions to the
Administrative Law Judge's Recommended Ruling, Findings of Fact,
Conclusions of Law and Decision. Penick responded to those exceptions.
Having considered the record in its entirety, including the parties'
exceptions and responses, the Deputy Administrator finds no merit in
Noramco and Mallinckrodt's exceptions, all of which concerned matters
that were addressed at length at the hearing. The exceptions were
extensive and are part of the record. Only some of the exceptions merit
further discussion, and they will not be restated at length herein.
In its exceptions, Noramco contends that the ALJ failed to give
consideration to the risk of diversion both inside and outside the
United States, (2) securing an adequate supply to meet the needs of the
medical community and (3) ensuring that the prices consumers pay for
pain medication and narcotic APIs are reasonable and not inflated.
With regard to diversion within the United States, Noramco urges
consideration of Penick's compliance history. At the hearing, however,
the ALJ considered Penick's compliance history and did not find it
evidence of the possibility of increased diversion. The DI testified
that although a 1988 DEA investigation revealed numerous record keeping
violations, requiring Penick to pay $40,000 to settle a civil action,
inspections since 1994 have shown Penick to be substantially in
compliance with record keeping requirements. In May 1990 the FDA found
three deficiencies. Penick promised to correct two of them and to make
some corrections to the third. Pursuant to an anonymous compliant that
Penick was making narcotics and antibiotics in an unsanitary manner,
FDA investigators conducted another inspection in June 1991; the
inspectors found no problems. The FDA inspected Penick again in January
and February 1993 and raised a number of concerns. A warning letter was
issued to Penick in March 1993 alleging various deficiencies in
Penick's validation processes and record keeping and a lack of
sufficient quality control personnel. Following correspondence between
the FDA and Penick, the FDA inspected again in September 1993 and found
that Penick has corrected the deficiencies. Penick underwent another
FDA inspection in August 1996 and no deficiencies were found. Thus,
while Penick has regulatory problems in 1988, it has been substantially
in compliance with DEA regulations since 1994. The 1988 violations, and
the apparently minor problems with FDA regulatory compliance on a few
occasions in the 90s, do not rise to a level that would warrant a
denial of Penick's registration based on the possibility of increased
diversion.
Noramco also argues that registration of any new participants
increases the risk of diversion, and that the ALJ correctly determined
that Noramco and Mallinckrodt have the means and capacity to produce an
adequate and uninterrupted supply of APIs. As these issues were
adequately discussed in the ALJ's recommended decision, there is not
need for further discussion here.
Noramco also contends that competition is adequate in the active
pharmaceutical ingredient market, citing the ALJ's statement that she
did expect Penick's entry into the market to have a significant impact
on the prices that consumers pay for opiate drugs. Noramco fails to
note, however, that despite conclusion, the ALJ also concluded that
Penick has demonstrated that the opiate active pharmaceutical
ingredient market was not operating under ``adequately competitive
conditions.''
Mallinckrodt also filed exceptions to the ALJ's opinion and
recommended ruling. In its first exception, Mallinckrodt argues that
the ALJ erred in finding that competition was inadequate. The Deputy
Administrator finds, however, that all of
[[Page 6952]]
Mallinckrodt's arguments in this regard were thoroughly considered by
the ALJ at the hearing and in her opinion and recommended ruling.
Accordingly, the exception does not warrant consideration.
Mallinckrodt further argues that it is not in the public interest
to register Penick when supply is adequate. Mallinckrodt contends that
the ALJ failed to take into account the large investments of Noramco
and Mallinckrodt, versus the lesser amount of investment by Penick.
Mallinckrodt fails to provide a reasonable explanation, however, of how
the size of the parties' investments would effect the adequacy of
supply.
Mallinckrodt also contends that Penick's technology does not
support its registration. It asserts that there is no evidence that
Penick has an efficient technology for producing hydrocodone and that
Penick's method of making oxycodone is outdated. As the ALJ noted,
however, there is clearly some controversy over the quality of Penick's
proposed technology, a controversy that the ALJ concluded the record
was not sufficient to resolve. The ALJ concluded, however, that
Penick's patents and development of processes promote technical
advances in the manufacture of controlled substances. Under 21 U.S.C.
823(a)(3), that factor, along with the development of new substances,
is all that is to be considered. Accordingly, the Deputy Administrator
agrees with the ALJ and concludes that this factor weighs in favor of
granting Penick's registration.
Mallinckrodt argues further that the ALJ erred in not considering
the impact on diversion in the overseas NRM market. Mallinckrodt
contends that in later cases, DEA has taken the position that such
issues are relevant. This issue has been fully discussed in the ALJ's
recommended decision and hereinabove. Moreover, the Deputy
Administrator finds that even if the possibility of increased diversion
overseas were taken into account, Noramco and Mallinckrodt's arguments
in this regard are too speculative to warrant serious consideration.
Finally, Mallinckrodt argues that at a minimum, the ALJ should have
recommended that conditions be placed on Penick's registration. Having
reviewed the record in it's entity, the Deputy Administrator concludes
that the evidence showed that Penick does not intend to use its
registration as a ``shelf registration.'' There is sufficient evidence,
and no controverting evidence, that Penick had made concrete plans to
upgrade and expand its controlled substance manufacturing facilities
once it is clear that Penick will receive requisite DEA registrations.
IV. Conclusion
Based upon the foregoing, the Deputy Administrator finds that it is
in the public interest, as defined by 21 U.S.C. 823(a)(1)-(6) and 21
CFR 1301.34(b)(1)-(7), to grant Penick's application to be registered
as an importer of NRMs. In light of Penick's long experience in
manufacturing bulk pharmaceuticals, including opiates, it is not
necessary to grant a conditional application. This decision is
effective March 13, 2003.
Dated: January 29, 2003.
John B. Brown, III,
Deputy Administrator.
[FR Doc. 03-3299 Filed 2-10-03; 8:45 am]
BILLING CODE 4410-09-M