[Federal Register Volume 67, Number 109 (Thursday, June 6, 2002)]
[Notices]
[Pages 39041-39046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14218]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Johnson Matthey, Inc.: Conditional Grant of Registration To 
Import Schedules II Substances

I. Background

    Johnson Matthey, Inc., (Johnson Matthey) is registered with DEA to 
import phenyl acetone, a Schedule II controlled substance, and as a 
bulk manufacturer of a number of Schedule I and II substances, 
including oxycodone and hydrocodone. On December 23, 1998, Johnson 
Matthey submitted an application for renewal of its registration as an 
importer of Schedule II controlled substances. The application sought 
to renew Johnson Matthey's registration to import phenyl acetone, and 
to modify Johnson Matthey's registration to include importation of the 
narcotic raw materials concentrate of poppy straw (CPS) and raw opium 
(hereinafter referred to collectively as ``NRMs''). On December 23, 
1998, Johnson Matthey also applied for renewal of its registration to 
manufacture Schedule I and II controlled substances in bulk. On April 
9, 1999, DEA published notice of these applications in the Federal 
Register. The notices advised that any manufacturer holding or applying 
for registration as a manufacturer of this basic class of controlled 
substance could file written comments or objections to the applications 
and could also file a written request for a hearing on the applications 
in accordance with 21 CFR 1301.43.
    In response to the publication, on May 10, 1999, both Mallinckrodt, 
Inc., (Mallinckrodt) and Noramco of Delaware, Inc., (Noramco) submitted 
comments, objections and requests for hearing in connection with 
Johnson Matthey's application to import NRMs. A Notice of 
Administrative Hearing, Summary of Comments and Objections was 
published in the Federal Register on December 3, 1999.
    The requested hearing was held in Arlington, Virginia, from January 
5, 2000, through January 13, 2000, before Administrative Law Judge Gail 
A. Randall. At the hearing, each party called witnesses to testify and 
introduced documentary evidence. After the hearing, each party 
submitted Proposed Findings of Fact, Conclusions of Law and Argument. 
The Antitrust Division of the Department of Justice filed a brief as 
amicus curiae. On September 21, 2000, the Administrative Law Judge 
issued her Recommended Rulings, Findings of Fact, Conclusions of Law 
and Decision, recommending that the Deputy Administrator issue a 
regulation permitting the importation of NRMs and that he conditionally 
grant Johnson Matthey's application for registration as an importer of 
NRMs. Both Noramco and Mallinckrodt filed exceptions to the 
Administrative Law Judge's Findings. Johnson Matthey filed a response 
to the exceptions, Johnson Matthey, Noramco and Mallinckrodt also 
submitted Reply Briefs to the brief of the Antitrust Division.
    On September 21, 2000, the Administrative Law Judge certified and 
transmitted the record to the Deputy Administrator of DEA. The record 
included the Recommended Rulings, Findings of Fact, Conclusions of Law 
and Decision of the Administrative Law Judge, the findings of fact and 
conclusions of law proposed by all parties, the exceptions filed by the 
parties, the brief filed by the Antitrust Division of the Department of 
Justice, the reply briefs, motions filed by all counsel, all of the 
exhibits and affidavits, and the transcript of the hearing sessions.

II. Preliminary Matters

A. Regulatory Context

    Because Johnson Matthey 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 Johnson 
Matthey may lawfully import into the United States the Schedule II 
controlled substances raw opium and CPS pursuant to 21 U.S.C. 952(a). 
Johnson Matthey 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,

[[Page 39042]]

Johnson Matthey 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 Johnson 
Matthey's application for registration as an importer of the Schedule 
II controlled substances raw opium and concentrate of poppy straw. 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 Johnson Matthey's application unless 
Johnson Matthey establishes that the requirements of 21 U.S.C. 
Sec. 958(a) and Sec. 823(a) and 21 C.F.R. 1301.34(b)-(f) are met to 
show that Johnson Matthey's plans are 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 Johnson Matthey's 
registration to import will be granted. MD Pharmaceutical, Inc. v. DEA, 
No. 95-1267, 1996 U.S. App. LEXIS 1229 (D.C. Cir. 1996) (unpublished 
opinion.)

B. The Record

    Nearly two months after the hearing, Johnson Matthey filed a Motion 
to Reopen the Record. In the motion, Johnson Matthey asked the court to 
allow into evidence the Report of the International Narcotics Control 
Board (INCB) for 1999. Among other things, the report contained 
information concerning the world-wide supply of opiate raw materials 
and consumption of opiates. Both Mallinckrodt and Noramco filed 
oppositions to the motion. By Memorandum and Order of March 15, 2000, 
the Administrative Law Judge denied Johnson Matthey's motion.
    In an adjudication, the Deputy Administrator issues his final order 
based on the record made before the Administrative Law Judge. The 
Deputy Administrator has the authority, however, to request that the 
Administrative Law Judge reopen the record and admit evidence that was 
not introduced in the hearing. The party seeking to introduce such 
evidence must show, however, that the evidence was previously 
unavailable and is relevant to the issues in dispute. Immigration and 
Naturalization Service v. Abudu, 485 Y.S. 94 (1988).
    There is no requirement, however, that the decision regarding the 
issuance of a regulation be made solely on the record. In a rulemaking, 
the purpose of the procedure is to gather evidence. As a result, the 
informal rulemaking proceeding does not end with the same degree of 
finality as does a formal adjudication. The Deputy Administrator may 
consider evidence submitted after the close of the comment period. See 
Hoffman-La Roche, Inc., v. Kleindienst, 478 F.2d 1, 13-15 (3rd Cir. 
1973). Nonetheless, at some point the agency must make a decision, and 
it is free to ignore comments that were filed late.
    By Memorandum and Order of March 15, 2000, the Administrative Law 
Judge denied Johnson Matthey's motion to reopen the record. In reaching 
her decision, she noted that the record already contained much 
information derived from the INCB, information that was highly disputed 
during the hearing. She also found that the exclusion of the report 
``does not fundamentally alter the core issues presented in this 
proceeding.''
    With respect to both the adjudication and rulemaking aspects of 
this matter, the Deputy Administrator will not permit a reopening of 
the record to include the INCB report. While it appears that the report 
was unavailable until after the hearing, the report's relevance seems 
questionable in light of the Deputy Administrator's final decision in 
this matter, and the similar and highly disputed evidence already in 
the record.

C. Designations of Confidentiality

    Pursuant to a Protective Order issued by the Administrative Law 
Judge on December 2, 1999, Mallinckrodt and Noramco requested that 
portions of the transcript of the hearing of this matter be designated 
as ``confidential'' or ``highly confidential.'' After the hearing, the 
parties were provided an opportunity to file by motion requests for the 
specific marking of the transcript. Noramco filed a Motion for 
Designation of Confidentiality and Mallinckrodt filed its 
Confidentiality Designations. In response, Johnson Matthey filed an 
Objection to Noramco and Mallinckrodt's Proposed Confidentiality 
Designations. Mallinckrodt then filed a Response to Objection of 
Johnson Matthey Inc. to Noramco's and Mallinckrodt's Inc.'s Proposed 
Confidentiality Designations.
    By order of December 21, 2000, the Administrative Law Judge ruled 
on these motions, granting some of the requested designations of 
confidentiality and denying others. The Deputy Administrator has 
reviewed the pleadings on this issue, and hereby adopts the 
Administrative Law Judge's December 21, 2000, order.

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. The Deputy Administrator adopts 
the Findings of Fact, Conclusions of Law, and Decision of the 
Administrative Law Judge in their entirety. They are incorporated into 
this final order as though they were set forth at length herein. The 
adoption of the judge'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.

A. The Rulemaking

    As explained above, Johnson Matthey cannot be registered as an 
importer of NRMs unless the Deputy Administrator finds that Johnson 
Matthey will be allowed to import NRMs pursuant to 21 U.S.C. 952(a)(1). 
Because Johnson Matthey 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 makes it unlawful to import controlled substances in 
Schedule I or II except that ``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 Johnson Matthey's importation of 
opium and poppy straw is ``necessary'' was highly disputed at the 
hearing of this matter.
    Peter Bensinger, a former Administrator of DEA, testified that 
United States policy prohibits the cultivation or production of NRMs in 
the United States in favor of imports, in order to limit the potential 
diversion problems of domestic cultivation and production. Gerald 
Dumont, a consultant to the INCB, testified that he believed that the 
major suppliers of NRM would be willing to sell to Johnson Matthey, if 
registered. Mr. Dumont also believed that the registration of Johnson 
Matthey would not cause shortages, price increases or any change to the 
total U.S. allocation of NRMs. Dr. William Beaver, a physician and 
expert in pharmacology, testified that the derivatives manufactured 
from NRMs are necessary to the United States medical community, as 
there are medical demands that cannot be met by non-opiate narcotics. 
Dr. Beaver also testified that opiate pharmaceuticals have a long 
history of medical use and the medical community continues to rely upon 
opium-derived alkaloids rather than synthetic opiate analgesics.

[[Page 39043]]

These alkaloids and their semi-synthetic derivatives such as a 
hydromorphone, hydrocodone, and oxycodone are critical therapeutic 
agents today. Dr. Beaver concluded that morphine, codeine, 
hydromorphone, hydrocodone and oxycodone are necessary to the United 
States medical community.
    Mallinckrodt and Noramco asserted that they have maintained an 
adequate and uninterrupted supply of opiate pharmaceuticals from their 
processing of opium and CPS. Therefore, in their opinion, Johnson-
Matthey's importation of such substances is not ``necessary,'' as 
required by 21 U.S.C. Sec. 952. They also argued that the statutory 
scheme required a full blown inquiry into the adequacy of competition 
among existing manufacturers.
    As the Administrative Law Judge explained, the term ``necessary'' 
is not defined in the Controlled Substances Act. The ``necessary'' 
standard, however, has been employed since the inception of narcotics 
legislation. Moreover, the legislative history shows that the 
prohibition of 21 U.S.C. Sec. 952 was intended to reduce diversion of 
illicit drugs, while the exception was intended to supply the drugs 
required by the medical community. There is nothing in the legislative 
history that would support any intention to limit the number of 
importers under the statute. Indeed, any such interpretation would mean 
that if the needs for NRMs could be satisfied by one company, no other 
companies would be allowed to import the raw materials. There is no 
evidence, however, that Congress intended this provision to create a 
monopoly for a single company. Nor does the legislative history show 
any concern with competition among NRM importers. Accordingly, for 
purposes of this rulemaking, the economic data supplied by the parties 
is not relevant.
    Based upon the above, the Deputy Administrator finds that Johnson 
Matthey has met its burden of proof in showing that its proposed 
importation of NRMS is ``necessary'' to provide for legitimate medical 
purposes.

B. The Adjudication

    Federal law 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 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.
    Johnson Matthey, Noramco and Mallinckrodt are currently registered 
with DEA as bulk manufacturers of a number of Schedule I and II 
substances, including the Schedule II controlled substances oxycodone 
and hydrocodone. Noramco and Mallinckrodt are the only companies 
registered with DEA, however, as importers of NRMs and bulk 
manufacturers of codeine and morphine.
    Since Johnson Matthey is not registered to import NRMs, it cannot 
manufacture its own codeine and morphine, but must purchase these 
compounds from Noramco and Mallinckrodt. In recent years, Noramco has 
been unwilling or unable to supply Johnson Matthey with all of the 
codeine and morphine that Johnson Matthey has requested. Johnson 
Matthey 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 Johnson Matthey's application.
    Pursuant to 21 U.S.C. 958a, and 823(a), DEA is required to register 
Johnson Matthey as an importer and manufacturer 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 823(a)(1)-(6). 
See also 21 C.F.R. 1301.34(b)(1)-(6)(i). Accordingly, the Deputy 
Administrator will first consider United States obligations under 
international treaties, then each of the factors delineated in 21 
C.F.R. 1301(b)(1)-(6)(i), as follows.\1\
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    \1\ In this proceeding, Johnson Matthey, as the applicant, has 
the burden of proof of showing that the public interest will be 
served by its registration to import NRMs. 21 C.F.R. 1301.44(c). 
Noramco and Mallinckrodt, however, have the burden of proving and 
propositions of fact or law asserted by them in the hearing. Id.; 
Roxane, 63 Fed Reg. 55,891 (DEA 1998).
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1. Treaty Obligations
    There is no evidence that the importation of NRMs by Johnson 
Matthey would be inconsistent with United States obligations under 
international treaties, conventions or protocols. Under the treaty 
Single Convention on Narcotic Drugs, 1961, 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 Deputy Administrator 
of DEA, credibly testified that the primary goal of the Single 
Convention and relevant United States drug policy is to encourage 
production of NRMs only in countries that can control the illicit 
diversion of these substances. DEA has developed a quota system to 
meet, in part, the obligations of the United States under this treaty. 
This ``80/20 rule,'' which requires the United States to purchase at 
least 80 percent of its NRMs from India and Turkey, is designed to 
achieve the goal of the Single Convention treaty. There is no evidence 
that entry of Johnson Matthey into the market for importation of NRMs 
would contravene this rule.
    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 product an adequate and 
uninterrupted supply of these substances under adequately competitive 
conditions for legitimate medical, scientific research, and industrial 
purposes.
    As the Administrative Law Judge noted, DEA has previously 
interpreted identical language in the context of analyzing an 
application for manufacturing a Schedule I and Schedule II controlled 
substance as follows: ``The Drug Enforcement Administration of the 
United States Department of Justice, presently interprets the statute 
as requiring the registration of otherwise qualified applicants to 
manufacture any controlled substance as long as the total number of 
registrants remains within the effective control by the Administration. 
We believe that (this section of the statute) permits the Drug 
Enforcement Administration to restrict entry to a number of registrants 
constituting adequate competition only when actually necessary to 
maintain effective controls against diversion.'' Bulk Manufacture of 
Schedule I and II Substance, 39 Fed. Reg. 12,138 (DEA 1974).
    Furthermore, DEA has written that, stated conversely, DEA is 
``required to register an applicant who meets all the other statutory 
requirements, without regard to the adequacy of competition, if the 
Administration determines that registering another manufacturer will 
not increase the difficulty of maintaining effective controls against

[[Page 39044]]

diversion.'' Id.6 Accordingly, the Deputy Administrator finds that if 
DEA determines that there would be no increased difficulty in 
controlling diversion, the requirements of this provision are 
satisfied, and an analysis of adequate competition is not required.
    At the hearing, Noramco and Mallinckrodt attempted to show that 
Johnson Matthey's registration as an importer of NRMs would cause 
further diversion of controlled substances and a potential interruption 
in the supply of NRMs. Michael Misolovich, a Mallinckrodt executive, 
testified that if Johnson Matthey was inefficient in extracting 
narcotics from NRMs, its entry into the market would exaggerate 
legitimate demand, resulting in more cultivation of NRMs than is 
necessary and thereby increasing the risk of diversion. Richard A. 
Hoyt, another Mallinckrodt executive, testified that registration of 
Johnson Matthey could trigger a shortage of NRMs if Johnson Matthey 
were inefficient in processing NRMs.
    The Deputy Administrator finds that neither Mallinckrodt nor 
Noramco offered any solid evidence in support of the view that 
registration of Johnson Matthey to import NRMs would cause increased 
diversion or a shortage of NRMs. Mr. Misolovich admitted that only 
basis for his allegation that Johnson Matthey would be inefficient in 
processing NRMs was based solely on the fact that Johnson Matthey had 
not processed NRMs in the past. Indeed, none of the evidence offered in 
support of these contentions rose above mere speculation. As noted 
above, Gerard Dumont, a gentleman with 30 years experience in the 
international market for NRMs, testified that the registration of 
Johnson Matthey would not cause shortages, price increases, or any 
change to the total U.S. allocation of NRMs. David Connor, an employee 
of Johnson Matthey with twelve years experience in purchasing NRMs on 
the world market, testified that supplied of NRMs from India, Turkey 
and other countries would be adequate to meet Johnson Matthey's needs. 
Mr. Connor testified further that Johnson Matthey's entry into the 
market would not result in an increase in the demand for NRMs, but 
would simply result in the displacement of NRMs from one buyer to 
another. Furthermore, the Deputy Administrator notes that neither 
Mallinckrodt nor Noramco has been unable to supply its customers with 
sufficient product during the ``shortages'' of NRMs over the past 
several years.
    With regard to Johnson Matthey's efficiency in processing NRMs, 
Frank Stermitz, Ph.D., a professor of chemistry, testified credibly 
that the extraction of alkaloids from opium was a simple, uncomplicated 
and well established procedure known for 200 years, and that permitting 
Johnson Matthey to import NRMs would pose little danger to the world 
supply of NRMs. Other witnesses testified credibly that Johnson 
Matthey's registration as an importer of NRMs would not cause an 
increase in Indian production, but would simply redistribute the same 
amount of product among three, rather than two, companies.
    Based upon the above, the Deputy Administrator finds that both 
Noramco and Mallinckrodt have failed to meet their burdens of proof to 
show that registration of Johnson Matthey as an importer of NRMs would 
increase diversion of controlled substances or cause an interruption in 
the supply of NRMs. Accordingly, the Deputy Administrator need not 
conduct an analysis of adequate competition.\2\
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    \2\ The Deputy Administrator also finds that even if he had 
found that competition in the market for codeine phosphate and 
morphine sulfate was adequate, he would still find it appropriate to 
register Johnson Matthey as an importer of NRMs, since each of the 
other factors to be considered in determining the public interest 
weigh in Johnson Matthey's favor.
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    3. Compliance with applicable State and local law;
    David M. Connor testified that Johnson Matthey has never been 
convicted of any offense relating to controlled substances under either 
Federal or State Law, and that Johnson Matthey complies with all New 
Jersey laws relating to controlled substances. There is nothing in the 
record to contradict this assertion.
    4. Promotion of technical advances in the art of manufacturing 
these substances and the development of new substances.
    Johnson Matthey has developed a patent that permits the manufacture 
of hydrocodone in a one-step process and has four other patent 
applications pending. It has also filed a patent application in Europe 
for the production of thebaine, a precursor to oxycodone. Thus it 
appears that Johnson Matthey promotes technical advances in the 
manufacturing of oxycodone and hydrocodone.
    5. Prior conviction record of applicant under Federal and State 
laws relating to the manufacture, distribution, or dispensing of such 
substances;
    David Conner testified without contradiction that Johnson Matthey 
has never been convicted of any offense relating to controlled 
substances under Federal or State law.
    6. Past experience in the manufacture of controlled substances and 
the existence in the establishment of effective control against 
diversion.
    Johnson Matthey has been registered by DEA as a manufacturer of 
Schedule I, II, and III controlled substances since 1985. Forrest F. K. 
Sheffy, Ph.D., a Johnson Matthey employee, testified that Johnson 
Matthey was founded in 1817 as a precious metals company, and has grown 
into a large, international corporation with businesses in numerous 
fields, including the manufacture of active pharmaceutical ingredients 
for sale to pharmaceutical companies. Mr. Sheffy also testified that 
Johnson Matthey today is a leader in the manufacture of controlled 
substances for use in pharmaceuticals.
    A DEA Diversion Investigator (DI), testified that he conducted a 
303 analysis of Johnson Matthey. The DI credibly concluded that Johnson 
Matthey's record keeping and security practices were in compliance with 
relevant law and regulation. DEA's Chief of the Drug Operations 
Section, Office of Diversion Control, credibly testified that his 
office found no reason why DEA should not grant the application of 
Johnson Matthey to import raw opium and CPS.
    Johnson Matthey also hired former DEA agent, to conduct a review of 
the security of its physical plant and of its standard operating 
procedures. The former agent credibly testified that Johnson Matthey is 
in compliance with DEA regulations to prevent diversion with respect to 
the handling of controlled substances.
    David Connor is responsible for Johnson-Matthey's compliance with 
DEA regulations. He previously worked for Noramco, and has 15 years 
experience in DEA compliance issues. At the hearing, he testified that 
Johnson Matthey is committed to the ``highest level of compliance with 
DEA regulations.'' Since he has worked for Johnson Matthey, there have 
been three on-site visits by DEA inspectors, without any violations. In 
the fourth quarter of 1998, DEA conducted an on-site inspection of the 
Johnson Matthey plant in New Jersey. At the end of the inspection the 
DEA investigator advised him that she had found no violations of DEA 
regulations, and since that time Johnson Matthey has received no notice 
of violations from DEA.
    Accordingly, the Deputy Administrator finds that Johnson Matthey 
has had sufficient experience in the manufacture of controlled 
substances. The Deputy Administrator also finds that Johnson Matthey is 
in compliance with DEA regulations,

[[Page 39045]]

maintain effective controls against diversion of controlled substances 
and Johnson Matthey's importation of NRMs will not increase the risk of 
diversion of these substances for illicit uses.
    7. Such other factors as may be relevant to and consistent with the 
public health and safety.
    As the Administrative Law Judge noted, registration of Johnson 
Matthey as an importer of NRMs would also serve the public interest as 
further assurance that opiate pharmaceutical products such as oxycodone 
and hydrocodone will be available to the public. At present, all 
pharmaceuticals derived from NRMs in this country are manufactured by 
only two companies. Adding a third company would reduce the risk of 
supply problems in the event of regulatory recalls, fire, flood or 
other natural disasters.
8. 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 1304.34(b)(1)-(6)i to grant Johnson Matthey's application to be 
registered as an importer of NRMs.

C. Exceptions

    Both Noramco and Mallinckrodt filed exceptions to the 
Administrative Law Judge's Recommended Ruling, Findings of Fact, 
Conclusions of Law and Decision. Johnson Matthey 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, many 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, Normaco contends that licensing Johnson Matthey 
to import NRMs will ``dramatically'' weaken the standards for such 
licensing. Noramco claims that granting Johnson Matthey a license 
before the company has demonstrated that it is immediately prepared to 
start processing NRMs will create a standard by which any company will 
be able to obtain a license to import NRMs. This argument has no merit. 
Johnson Matthey has not yet constructed a new facility to process NRMs, 
but plans to do so in the near future. Furthermore, Johnson Matthey has 
had extensive experience in manufacturing controlled substances. 
Moreover, DEA's licensing of Johnson Matthey will be contingent upon 
Johnson Matthey's providing to DEA, prior to the receipt of the first 
shipment of NRMs, sufficient information concerning its facilities and 
procedures.
    Noramco also contends that the Administrative Law Judge failed to 
correctly balance the risk of diversion that will result from the 
licensing of Johnson Matthey to import NRMs. This argument also has no 
merit. On the contrary, the Administrative Law Judge made extensive 
findings concerning the issue of potential diversion. The 
Administrative Law judge correctly stated that both Mallinckrodt and 
Noramco, without offering any specific evidence, speculated that merely 
permitting another party to import NRMs increases the risk that those 
NRMs will be diverted, on both the national and international level. 
The Administrative Law Judge found that Johnson Matthey has had a great 
deal of experience in handling opiate-derived compounds, without any 
alleged violations of DEA security regulations, and the The DI 
testified at the hearing that he had inspected Johnson Matthey's 
facilities and concluded that its security plans and practices comport 
with DEA regulations. Accordingly, the Deputy Administrator finds that 
there is no evidence that the licensing of Johnson Matthey to import 
NRMs would result in diversion of controlled substances.
    In its exceptions, Mallinckrodt contends that the Administrative 
Law Judge erred in her finding that Johnson Matthey intends to import 
both CPS and raw opium. As evidence of Johnson Matthey's alleged intent 
only to import CPS, Mallinckrodt points to the fact that Johnson 
Matthey has only allocated $10 million to building a new facility to 
process NRMs. With little discussion, Mallinckrodt's witnesses 
testified that a plant to process both CPS and raw opium would required 
two separate lines and would cost more than $10 million. Mallinckrodt 
failed to demonstrate, however, that Johnson Matthey would be unable to 
process both raw opium and CPS. The Deputy Administrator finds that 
Johnson Matthey is still in the preliminary stages of its importation 
and processing of NRMs. If it turns out that the projected costs are 
greater than expected, there is no evidence that Johnson Matthey would 
fail to allocate sufficient funds to process both raw opium and CPS. 
Indeed, Forrest K. Sheppy, a Johnson Matthey executive, testified that 
the company was committed to expending the necessary sums to install an 
appropriate manufacturing facility.
    Mallinckrodt also contends that the Administrative Law Judge, in 
her determination that an analysis of adequacy of competition was not 
necessary in this matter, erred in applying a DEA policy statement that 
referred to the manufacturing, rather than the importation, of 
controlled substances. In the policy statement, DEA stated that it 
interpreted the language of 21 U.S.C. 823(a)(1) to permit DEA to 
restrict entry to a number of registrants constituting adequate 
competition only when actually necessary to maintain effective controls 
against diversion. Mallinckrodt's argument has no merit. As the 
Administrative Law Judge stated, she found the statement of policy 
``instructive'' rather than ``determinative.'' Moreover, the policy 
statement interpreted the exact same standards at issue here. Pursuant 
to 21 U.S.C. 958, in determining whether a license to import is in the 
public interest, the Deputy Administrator must look to the standards 
applicable to manufacturers at 21 U.S.C. 823. Thus for purposes of 
determining whether the importation or manufacture of controlled 
substances is in the public interest, Congress, in enacting the 
statute, made clear that both importers and manufacturers are to be 
treated alike in determining the public interest will be served.

IV. Conclusion

    The Deputy Administrator concludes that, except for one factor, 
Johnson Matthey has satisfied all of the factors to be considered in 
both a rulemaking and adjudication to permit registration of Johnson 
Matthey to import NRMs. The unsatisfied factor concerns the fact that 
Johnson Matthey's proposal to import NRMs is not now adequately 
supported by concrete pans or proposals regarding the location and type 
of processing facility that it intends to use in processing NRMs. 
Johnson Matthey has neglected to produce sufficient evidence to show 
that its intended facility will substantially comply with requirements. 
The Deputy Administrator agrees with the Administrative Law Judge that 
this is not an insurmountable obstacle, however, and pursuant to the 
authority vested in him by 21 U.S.C. 952 and 958 and 28 CFR 0.100(b), 
hereby grants Johnson Matthey a conditional registration until such 
time as Johnson Matthey's facilities are complete and DEA can complete 
its requisite physical security and record keeping evaluation to ensure 
Johnson Matthey's continued protection of NRMs against diversion. The 
Deputy Administrator also finds that Johnson Matthey should provide DEA 
with a timetable of its proposed activities and submissions so that DEA

[[Page 39046]]

may plan for the prompt scheduling of its inspection and review 
activities. This decision is effective July 8 2002.

    Dated: May 22, 2002.
John Brown III.
Deputy Administrator.
[FR Doc. 02-14218 Filed 6-5-02; 8:45 am]
BILLING CODE 4410-09-M