[Federal Register Volume 60, Number 94 (Tuesday, May 16, 1995)]
[Notices]
[Pages 26050-26054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11934]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 93-18]
Johnson Matthey, Inc.; Approval of Registration
On September 14, 1992, Johnson Matthey, Inc. of West Deptford, New
Jersey (Johnson Matthey) applied for registration under 21 U.S.C.
823(a) with the Drug Enforcement Administration (DEA) as a bulk
manufacturer of methylphenidate, a Schedule II controlled substance.
Notice of Johnson Matthey's application was published in the Federal
Register on November 13, 1992 (57 FR 53935). On December 11, 1992, MD
Pharmaceutical, Inc. of Santa Ana, California (MD), a registered bulk
manufacturer of methylphenidate, objected to the proposed registration
and filed a request for a hearing on Johnson Matthey's application
pursuant to 21 CFR 1301.43(a).
The matter was docketed before Administrative Law Judge Mary Ellen
Bittner. On July 27, 1993, Judge Bittner issued a memorandum, ruling
and protective order designating as ``confidential and protected''
certain exhibits, as well as the identification of certain witnesses.
Following extensive prehearing proceedings, a hearing was held in
Arlington, Virginia on August 10, 11, 12, and 20 and September 28,
1993. Johnson Matthey, MD, the Government and a third party research
partner of Johnson Matthey introduced testimony and documentary
evidence. During opening statements, the Government stated the DEA, at
that time, had no information upon which to base a decision that the
application of Johnson Matthey for registration as a bulk manufacturer
of methylphnidate should not be approved.
On September 29, 1994 the administrative law judge issued her
opinion and recommended ruling, findings of fact, conclusions of law
and decision, as well as an order allowing all parties to submit
motions to redact confidential and protected information from the
opinion pursuant to the terms of the July 27, 1993 protective order. A
redacted opinion was issued on November 1, 1994. Exceptions to the
opinion were filed by MD, Johnson Matthey and the Government.
The administrative law judge transmitted the record of the
proceedings to the Deputy Administrator on November 30, 1994. Portions
of the transcript and certain exhibits were designated confidential and
protected pursuant to the protective order. Additionally, the Deputy
Administrator received redacted versions of the opinion and such
motions, briefs, exceptions and other pleadings subject to the
protective order. On January 10, 1995, MD filled with the Deputy
Administrator a response to the Government's exceptions to the opinion
of the administrative law judge.
The Deputy Administrator has carefully considered the record in
this matter in its entirety, as well as all exceptions thereto.
Pursuant to 21 CFR 1301.57, the Deputy Administrator hereby issues his
final order in this matter based upon findings of fact and conclusions
of law as set forth herein.
The administrative law judge made the following findings of fact as
background for her opinion. Methylphenidate, a central nervous system
stimulant, is a Schedule II controlled substance. There currently are
two DEA registered bulk manufacturers of methylphenidate: CIBA
Pharmaceutical Company (CIBA), which manufactures methylphenidate under
its brand name ``Ritalin''; and MD, which manufactures a generic form
of methylphenidate. Johnson Matthey produces some bulk pharmaceuticals
and is a major manufacturer of platinum-based anti-cancer drugs. The
principal controlled substance manufactured by Johnson Matthey is
fentanyl, a Schedule II controlled substance.
The administrative law judge found that Johnson Matthey applied for
registration as a researcher and bulk manufacturer of methylphenidate
in 1989. The researcher registration was issued by DEA on January 26,
1990. Johnson Matthey withdrew its application for registration as a
bulk manufacturer of methylphenidate following the filing of an
objection by CIBA.
The administrative law judge referred to testimony that, in the
fall of 1990, Johnson Matthey began initial studies on methylphenidate.
In November of 1990, Johnson Matthey applied for a researcher
registration for methylphenidate, but did not apply for a registration
to manufacture it. Judge Bitter noted testimony by Johnson Matthey's
compliance and regulatory manager that he was advised by DEA that
Johnson Matthey's application for registration as a researcher had been
processed and that drug codes did not have to be reported on the
application unless Johnson Matthey intended to import or manufacture
Schedule II controlled substances as a coincident activity of its
researcher registration. The administrative law judge noted evidence
that Johnson Matthey responded, by letter dated January 30, 1991,
advising DEA that Johnson Matthey does manufacture on a research basis
and therefore must be registered. She further noted that the letter did
not indicate how much methylphenidate Johnson Matthey had manufactured
or intended to manufacture in the future.
The administrative law judge noted testimony that, in 1991, Johnson
Matthey discussed with a third party research partner the possibility
of Johnson Matthey manufacturing bulk methylphenidate for the third
party to market and, if Johnson Matthey [[Page 26051]] obtained the
requisite approvals to manufacture methylphenidate, the third party
would purchase Johnson Matthey's output. She further noted that, in
August 1991, DEA, in response to Johnson Matthey's request to
manufacture methylphenidate coincidental to its researcher
registration, authorized Johnson Matthey to produce 0.1 kg of
methylphenidate for use by the third party in its product development.
At this time, DEA also authorized the third party to procure
methylphenidate from Johnson Matthey, although DEA did not know at the
time if Johnson Matthey had, in fact, produced and methylphenidate yet.
Judge Bittner found that, in November 1991, Johnson Matthey applied
for both re-registration as a researcher and additionally applied for
registration as a bulk manufacturer of methylphenidate. She further
noted testimony by Johnson Matthey that DEA, again, notified Johnson
Matthey that there was no need to report drug codes unless
manufacturing would be a coincident activity to its research
activities.
The administrative law judge found that, in April 1992, Johnson
Matthey made its first scale-up lot of methylphenidate. Judge Bittner
also noted that Johnson Matthey shipped methylphenidate to the third
party pursuant to DEA order forms. In May 1992, when Johnson Matthey
received the first order form from the third party, Johnson Matthey
realized that the third party had put Johnson Matthey's fentanyl
manufacturer registration number on the form. Judge Bittner found that
it was uncontroverted that the third party listing of that number was
improper both because the supplier, rather than the purchaser, is
required to fill in the supplier's registration number and because, in
any event, the form should have shown Johnson Matthey's researcher
registration number instead of its fentanyl manufacturer number.
Johnson Matthey's compliance and regulatory affairs manager
testified that Johnson Matthey assumed that its 1992 application for
registration as a manufacturer for methylphenidate had been approved
because they had not heard anything to the contrary. Consequently, the
compliance and regulatory affairs manager wrote to DEA requesting 1993
manufacturing quotas for Johnson Matthey's production of fentanyl and
methylphenidate. In August 1992, Johnson Matthey received a 1993 quota
for fentanyl, but did not receive any DEA quota for methylphenidate.
Following inquiries by Johnson Matthey, DEA advised Johnson Matthey
that there was no record of Johnson Matthey being registered to
manufacture methylphenidate.
Judge Bittner noted testimony by DEA maintaining that it had not
been advised, either orally or in writing, that Johnson Matthey had
manufactured 3.5 kg of methylphenidate under its researcher
registration in April 1992, nor was it aware that Johnson Matthey had
been producing the quantity of methylphenidate that it had actually
manufactured.
The administrative law judge also noted that, on December 12, 1992,
the third party ordered another 500 grams of methylphenidate from
Johnson Matthey who subsequently shipped 325 grams on December 16,
1992. On December 30, 1992, Johnson Matthey shipped approximately 7.8
kilograms to the third party pursuant to its December 23, 1992 order
for 8.0 kilograms. The administrative law judge found that there was no
dispute that the third party compensated Johnson Matthey for costs
incurred in the manufacturing of these amounts of methylphenidate.
The administrative law judge referred to 21 CFR 1301.22(b)(5) which
allows a researcher to manufacture controlled substances for which it
is registered to conduct research ``if and to the extent that such
manufacture is set forth in a statement filed with the application for
registration . . .'' Judge Bittner held that it is undisputed that
Johnson Matthey did not file such a statement with DEA for any of the
applications for registration as a researcher for methylphenidate
discussed throughout the course of this proceeding.
As a threshold matter, the administrative law judge first addressed
the complicated issue of allocation of the burden of proof. Title 21
U.S.C. 823(a) provides that the Deputy Administrator shall register an
applicant to manufacture controlled substances in Schedules I and II
upon a determination that such registration is consistent with the
public interest. Before taking action to deny any such application for
registration, the Deputy Administrator, in accordance with 21 U.S.C.
824(c), shall provide the applicant the opportunity to be heard
pursuant to an order to show cause. Pursuant to 21 CFR 1301.43(a), a
hearing on a proposed application for registration as a manufacturer
also may be requested by bulk manufacturers who are registered, or have
applied for registration, to manufacture Schedule I or II controlled
substances. Title 21 CFR 1301.55(a) specifically provides:
At any hearing on an application to manufacture any controlled
substance listed in Schedule I or II, the applicant shall have the
burden of proving that the requirements for such registration
pursuant to * * * [21 U.S.C. 823(a)] are satisfied. Any other person
participating in the hearing pursuant to 1301.43 shall have the
burden of proving any propositions of fact or law asserted by him in
the hearing.
In keeping with the plain language of 21 CFR 1301.55(a), the
administrative law judge assigned the initial burden of proof to
Johnson Matthey, as the applicant, to demonstrate by a preponderance of
credible evidence, that its application for registration as a bulk
manufacturer of methylphenidate met the statutory criteria. She also
found that MD and the Government had the burden to show that the
registration of Johnson Matthey as a bulk manufacturer nonetheless is
not in the public interest.
The administrative law judge further asked the Deputy Administrator
to overrule the standard for allocating burdens of proof elicited by
Administrative Law Judge Young in a series of decisions starting with
McNeilab, Inc., 46 FR 22089 (1981). Although not explicitly decided by
the then-Administrator, Judge Young's opinion in McNeilab was adopted
by the then-Administrator. In McNeilab and its progeny, Judge Young
construed 21 CFR 1301.55(a) as assigning the burden of proof to the
applicant seeking registration as a Schedule II bulk manufacturer only
if an order to show cause had been issued. In all other situations, the
applicant had the initial burden to make a preliminary showing to the
agency that registration met the public interest criteria, but had no
obligation at the hearing except to rebut adverse evidence presented by
third parties.
In the present case, Judge Bittner's opinion noted that Judge
Young's interpretation did not comport with the plain language of 21
CFR 1301.55(a) which specifically assigns the burden of proof to the
applicant at any hearing concerning registration of a manufacturer of
Schedule I and Schedule II controlled substances. Judge Bittner also
expressed concern that McNeilab did not address the potential problem
where the Government does not initially oppose the application but
nonetheless participates in the hearing. In such a situation, if the
Government later concludes that the application should be denied, a
literal reading of 21 U.S.C. 824(c) would require the subsequent
issuance of a show cause order and a second hearing pursuant to that
order. Beyond the hardship this would impose on the applicant, an
issuance is raised as to whether the [[Page 26052]] Government should
be estopped from introducing evidence at the second hearing that it
knew or should have known existed at the time of the first hearing.
In assigning the burden of proof in this matter, Judge Bittner
noted that such assignment would promote judicial economy by avoiding
multiple hearings. She stated that, although the regulations provide
that a hearing may be requested either by an applicant in response to
an order to show cause, or by a third party pursuant to 21 CFR
1301.43(a), the issue of the applicant's compliance with the statutory
criteria for registration as a manufacturer, as well as any third party
objections, should be raised in a single hearing with the applicant
bearing the burden of proof as to his or her compliance with the
statutory requirements. She concluded that the language contained in 21
U.S.C. 824(c) should be interpreted as a notice provision rather than a
condition precedent to the denial or revocation of a registration.
Judge Bittner concluded that the burden is on Johnson Matthey to
prove, by a preponderance of the credible evidence, that its
application for registration as a bulk manufacturer of methylphenidate
meets the public interest criteria of 21 U.S.C. 823(a), and, if so,
whether any other party has demonstrated, by a preponderance of the
credible evidence, that Johnson Matthey's registration, nonetheless,
would not be in the public interest.
In accordance with the provisions of 21 U.S.C. 823)a) the Deputy
Administrator shall register an applicant to manufacture controlled
substances in Schedules I and II upon a determination that such
registration is consistent with the public interest. The following
factors are to be considered in determining whether registration is
consistent with the public interest:
(1) 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 and bulk manufacture of such controlled substances to a
number of establishments which can produce an adequate and
uninterrupted supply to these substances under adequately competitive
conditions for legitimate medical, scientific, research and industrial
purpose;
(2) Compliance with applicable State and local law;
(3) Promotion of technical advances in the art of manufacturing
these substances and the development of new substances;
(4) Prior conviction record of applicant under Federal and State
laws relating to the manufacture, distribution, or dispensing of such
substances;
(5) Past experience in the manufacture of controlled substances,
and the existence in the establishment of effective control against
diversion; and
(6) Such other factors as may be relevant to and consistent with
the public health and safety. 21 U.S.C. 823(a).
It is well established that the Deputy Administrator is not
required to make findings with respect to each of the above-listed
factors, but has discretion to give each factor the weight he deems
appropriate, depending upon the facts and circumstances in each case.
See Michael J. Schnitzer, M.D., 56 FR 67331 (1991).
The administrative law judge stated in her opinion that Johnson
Matthey and MD had agreed that competition in the methylphenidate
market is not an issue in this proceeding. Further, Judge Bittner found
that there is no dispute concerning Johnson Matthey's physical
security, nor whether Johnson Matthey has complied with applicable
state and local law, that registration of Johnson Matthey as a bulk
manufacturer of methylphenidate would promote technical advances in
manufacturing controlled substances, nor whether Johnson Matthey has
any prior convictions relating to the manufacture, distribution or
dispensing of controlled substances. Therefore, the only public
interest factors which remain to be considered in this matter are 21
U.S.C. 823(a) (1) and (5).
The administrative law judge found that there is insufficient
evidence in the record to make any findings as to 21 U.S.C. 823(a)(1).
Judge Bittner, referring to the legislative history of the Controlled
Substances Act, concluded that 21 U.S.C. 823(a)(1) contemplates that
the concern for diversion of controlled substances would determine the
maximum number of manufacturers to be registered and, similarly, that
concern for insuring an adequate and uninterrupted supply of the same
substances would determine the minimum number. However, in the instant
case, the administrative law judge found that there is no evidence that
registering an additional bulk manufacturer would increase the risk of
diversion, nor is there evidence that the two bulk manufacturers
currently registered to manufacture methylphenidate are incapable of
assuring an adequate supply of the drug.
With respect to 21 U.S.C. 823(a)(5), the administrative law judge
found that there is no evidence of diversion of any of the controlled
substances, such as fentanyl, that Johnson Matthey has manufactured
pursuant to its existing manufacturer registration. Judge Bittner
specifically found that Johnson Matthey's successful past experience in
manufacturing fentanyl weighed in favor of granting its application to
manufacture methylphenidate.
With respect to Johnson Matthey's experience producing
methylphenidate, the administrative law judge found that Johnson
Matthey's history with regard to compliance with DEA regulations is
much less satisfactory. On a number of occasions, Johnson Matthey
failed to file a statement with DEA specifying how much methylphenidate
the company intended to manufacture coincident to its researcher
registration, as required by 21 CFR 1301.32(e). Additionally, order
forms used to transfer methylphenidate from Johnson Matthey to the
third party were altered to reflect Johnson Matthey's researcher
registration number instead of a manufacturer registration number.
Judge Bittner further found that Johnson Matthey's principal
witness with respect to the company's handling of methylphenidate, its
compliance and regulatory affairs manager, was unfamiliar with DEA
regulations and procedures and concluded that he was not a particularly
credible witness. She additionally found that the record does not
establish that Johnson Matthey advised any DEA official how much
methylphenidate it had manufactured or that it intended to manufacture
coincidental to its researcher registration.
The administrative law judge found that the record did not provide
support for Johnson Matthey's argument that these incidents were merely
technical violations of DEA regulations and, therefore, do not indicate
that Johnson Matthey's registration as a bulk manufacturer would be
inconsistent with the public interest. Johnson Matthey further argued
that DEA officials were aware of its handling of methylphenidate at all
times and approved of it.
Judge Bittner found that Johnson Matthey's refusal to acknowledge
that it had engaged in substantial misconduct indicates that the
responsible officials of the company lacked not only understanding of
DEA's regulatory scheme, but respect for it. Further, by not filing the
requisite statement with DEA and not otherwise advising DEA of its
intentions, Johnson Matthey was able to manufacture significant
quantities of [[Page 26053]] methylphenidate while avoiding, not only
the regulatory restrictions on bulk manufacturers, but also the
scrutiny of potential competitors. The administrative law judge
concluded that sufficient grounds exist to deny Johnson Matthey's
application.
Notwithstanding this finding, Judge Bittner recommended that the
Deputy Administrator grant Johnson Matthey's application, subject to
certain requirements, because Johnson Matthey has demonstrated that it
had no relevant prior convictions or history of noncompliance with
state and local law, that its security systems are adequate to handle
methylphenidate, and that it has a satisfactory history of handling
other controlled substances. Judge Bittner additionally relied on her
finding that DEA's own actions served to complicate the issue by
granting Johnson Matthey's application for a researcher registration
even though Johnson Matthey's yearly applications for researcher
registration clearly expressed the company's intent to manufacture
methylphenidate but were not accompanied by statements of the quantity
of methylphenidate the company intended to manufacture. Further, DEA
had not published any clarification of the permissible scope of
manufacturing under a researcher registration, and that Johnson
Matthey's conduct may already have resulted in adverse consequences to
that company in view of the lengthy hearing and consequent delay in
achieving the registration. Finally, Johnson Matthey's most recent
application for renewal of registration as a researcher, lists the
quantity of methylphenidate that the company intends to manufacture,
indicating that Johnson Matthey may have learned from the experience.
The administrative law judge recommended that Johnson Matthey's
application be granted subject to the requirements that: (1) within 120
days following issuance of its registration to manufacture bulk
methylphenidate, Johnson Matthey provide, at its own expense, training
for its regulatory and compliance affairs staff about DEA regulations
(the curriculum and number of hours of such training to be approved by
the Deputy Assistant Administrator of the Office of Diversion Control
or his designee); (2) until such time as Johnson Matthey receives an
individual manufacturing quota to manufacture methylphenidate pursuant
to 21 CFR 1303.21, Johnson Matthey receive permission from DEA's office
of Drug and Chemical Evaluation in advance of undertaking any
manufacture of methylphenidate; and (3) Johnson Matthey limit such
manufacture to a quantity authorized in writing by the Office of Drug
and Chemical Evaluation of DEA.
Johnson Matthey took exception to the administrative law judge's
conclusion that there is no evidence that the two currently registered
bulk manufacturers of methylphenidate were incapable of assuring an
adequate supply of methylphenidate. Johnson Matthey argued that these
two producers cannot produce an adequate and uninterrupted supply of
methylphenidate and, therefore, that the market situation is not
competitive. Johnson Matthey also took exception to Judge Bittner's
statements that the record does not support Johnson Matthey's
contention that DEA knew that it was manufacturing methylphenidate,
arguing that the record provides ample evidence of DEA's knowledge.
Additionally, Johnson Matthey took exception to the administrative law
judge's conclusions that Johnson Matthey's record with regard to
methylphenidate presented a ``history of evasion and/or outright
violations of DEA regulations,'' arguing that Johnson Matthey never
deliberately misled DEA and DEA has no written public policy defining
research and quantities permitted to be manufactured under a researcher
registration. Johnson Matthey also noted that it had hired a new DEA
coordinator who had already attended training, that Johnson Matthey's
training plan is broader in scope than that recommended by the
administrative law judge, and that Johnson Matthey already had
presented its curriculum to DEA for approval.
MD, while concurring with the majority of the administrative law
judge's findings of fact and conclusions of law, took exception to
Judge Bittner's recommendation to grant Johnson Matthey's registration
subject to certain restrictions. MD argued that Johnson Matthey's
conduct and its part experience in manufacturing controlled substances,
particularly methylphenidate, are bases to deny Johnson Matthey's
application. MD argued that the administrative law judge's proposed
restrictions are inadequate and improperly reward Johnson Matthey's
illegal activities. Additionally, MD argued that the instant proceeding
is similar in many respects to that of Alra Laboratories, Inc., 59 FR
50620 (1994) wherein the application for registration as a manufacturer
was denied by the Deputy Administrator after the administrative law
judge recommended approval. MD submitted that DEA registration of
Johnson Matthey would not be in the public interest.
The Government took exception to the administrative law judge's
finding that ``once [a] hearing is requested [on an application to
manufacture controlled substances under Schedule I or II], the issue of
the applicant's compliance with the statutory requirements and any
other issued raised by a third party should be litigated in a single
hearing.'' The Government further objected to the administrative law
judge's conclusion that 21 U.S.C. 824(c), requiring that a show cause
proceeding be initiated prior to the denial of such application, is
simply a ``notice provision'', stating that the Government was not ware
of any situation in which the DEA did not require the issuance of a
show cause order prior to denying an application for registration. The
Government concurred with Judge Young's conclusion in McNeilab, that
separate hearings could be required for a third party request under 21
CFR 1301.43, or under a show cause order pursuant to 21 U.S.C. 824(c)
and 21 CFR 1301.44.
With regard to the allocation of burdens of proof, the Deputy
Administrator concurs with, and hereby adopts, Judge Bittner's reliance
on the plain language of 21 CFR 1301.55(a) which clearly assigns to the
applicant the burden to the applicant to prove the statutory
requirements for registration as a manufacturers
The Deputy Administrator gave favorable consideration to the
exceptions filed by Johnson Matthey, but concurs with the
administrative law judge's recommended restrictions concerning the
granting of Johnson Matthey's registration to manufacture bulk
methylphenidate.
The Deputy Administrator finds that the exceptions filed by MD were
fully considered by the administrative law judge. The Deputy
administrator rejects MD's argument that the decision rendered in Alra
is applicable to the present case because the facts at issue in Alra
are markedly different from those in the present case. In Alra, the
denial of its application as a manufacturer of controlled substances
followed findings of numerous recordkeeping violations, a failure to
ensure proper security, failure to ensure proper DEA registration as a
manufacturer, illegal possession and distribution of controlled
substances and a lengthy history of Food, Drug & Cosmetic Act
violations with respect to the manufacture and distribution of
prescription drugs. Further, Alra twice had been the subject of seizure
of its product, and its president consistently demonstrated that he had
not taken his responsibilities concerning controlled substances
seriously. Contrary to Alra, Johnson Matthey has an history of
[[Page 26054]] responsible manufacture of controlled substances in
accordance with its previous manufacturing registration. Additionally,
Johnson Matthey has addressed and corrected prior regulatory
discrepancies in a timely manner, demonstrating the commitment required
of a DEA registrant.
Finally, concerning the administrative law judge's recommendation
with respect to duplicative mandated hearing provisions, the Deputy
Administrator disagrees with Judge Bittner's conclusion in this
proceeding that the requirement of an order to show cause, pursuant to
21 U.S.C. 824(c), comprises simply a ``notice provision.'' Rather, the
Deputy Administrator finds that, as currently written, the statute
mandates that the Government issue an order to show cause whenever it
seeks to deny or revoke a DEA Certificate of Registration. The Deputy
Administrator acknowledges that, in some cases, this may subject an
applicant to multiple hearings. however, whether the Government would
be estopped from raising issues at a show cause hearing subsequent to a
``third-party hearing'' would depend on whether the issues were
actually litigated and determined. In any event, this decision could
only be determined on a case-by-case basis. The Deputy Administrator
also notes, as provided in the regulations, that hearings conducted
pursuant to an order to show cause may be consolidated with a hearing
requested by a third-party. 21 CFR 1301.43(a). The Deputy Administrator
encourages that parties to these type of proceedings consolidate these
hearings whenever possible.
The Deputy Administrator hereby adopts the administrative law
judge's findings of fact and conclusions of law, except as previously
noted. Accordingly, the Deputy Administrator of the Drugs Enforcement
Administration, pursuant to the authority vested in him by 21 U.S.C.
823 and 824 and 28 CFR 0.100(b) and 0.104, hereby orders that the
application of Johnson Matthey, Inc. for registration as a bulk
manufacturer of methylphenidate, be, and it hereby is, approved subject
to the requirements enumerated by the administrative law judge.
Dated: May 8, 1995.
Stephen H. Greene,
Deputy Administrator.
[FR Doc. 95-11934 Filed 5-15-95; 8:45 am]
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