[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Proposed Rules]
[Pages 56712-56731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21989]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Parts 1303 and 1315

[Docket No. DEA-455]
RIN 1117-AB49


Management of Quotas for Controlled Substances and List I 
Chemicals

AGENCY: Drug Enforcement Administration, Department of Justice.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Drug Enforcement Administration (DEA) proposes to revise 
existing regulations that manage the quotas for controlled substances 
and the list I chemicals, ephedrine, pseudoephedrine, and 
phenylpropanolamine, held by DEA-registered manufacturers. This rule is 
being proposed to: Define the types of quotas, update the method to 
abandon quota, clarify the current language to ensure that both 
manufacturers and distributors are required to obtain certification of 
a buyer's quota, reduce overall inventories, formalize the existing 
practice of use-specific subcategories for individual manufacturing and 
procurement quotas, and modify existing deadlines to fix/issue quotas. 
The DEA is also amending certain regulations to implement updates to 
the Controlled Substances Act made by the Substance Use-Disorder 
Prevention that Promotes Opioid Recovery Treatment for Patients and 
Communities Act. The DEA emphasizes that all of these revisions and 
amendments would apply to both bulk and dosage-form manufacturers, as 
well as importers of the list I chemicals ephedrine, pseudoephedrine, 
and phenylpropanolamine. The changes are necessary to reduce the 
potential for diversion, and would align regulations with current 
manufacturing business practices.

DATES: Written comments must be postmarked, and electronic comments 
must be sent, on or before December 23, 2019.
    All comments concerning collection of information under the 
Paperwork Reduction Act must be submitted to the Office of Management 
and Budget (OMB) on or before December 23, 2019.

ADDRESSES: To ensure proper handling of comments, please reference 
``RIN-1117-AB49/Docket No. DEA-455'' on all correspondence, including 
any attachments.
     Electronic comments: The Drug Enforcement Administration 
encourages that all comments be submitted electronically through the 
Federal eRulemaking Portal which provides the ability to type short 
comments directly into the comment field on the web page or to attach a 
file for lengthier comments. Please go to http://www.regulations.gov 
and follow the online instructions at that site for submitting 
comments. Upon completion of your submission you will receive a Comment 
Tracking Number for your comment. Please be aware that submitted 
comments are not instantaneously available for public view on 
Regulations.gov. If you have received a Comment Tracking Number, your 
comment has been successfully submitted and there is no need to 
resubmit the same comment.
     Paper comments: Paper comments that duplicate the 
electronic submission are not necessary and are discouraged. Should 
you, however, wish to mail a paper comment in lieu of an electronic 
comment, it should be sent via regular or express mail to: Drug 
Enforcement Administration, Attention: DEA Federal Register 
Representative/DPW, 8701 Morrissette Drive, Springfield, Virginia 
22152.
    All comments concerning collections of information under the 
Paperwork Reduction Act must be submitted to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for DOJ, 
Washington, DC 20503. Please state that your comment refers to RIN 
1117-AB49/Docket No. DEA-455.

FOR FURTHER INFORMATION CONTACT: Scott A. Brinks, Regulatory Drafting & 
Policy Section, Diversion Control Division, Drug Enforcement 
Administration; Mailing Address: 8701 Morrissette Drive, Springfield, 
Virginia 22152; Telephone: (202) 598-6812.

SUPPLEMENTARY INFORMATION:

Posting of Public Comments

    Please note that all comments received are considered part of the 
public record. They will, unless reasonable cause is given, be made 
available by DEA for public inspection online at http://www.regulations.gov and in DEA's public docket. Such information 
includes personal identifying information (such as your name, address, 
etc.) voluntarily submitted by the commenter.
    If you want to submit personal identifying information (such as 
your name, address, etc.) as part of your comment, but do not want it 
to be posted online or made available in the public docket, you must 
include the phrase ``PERSONAL IDENTIFYING INFORMATION'' in the first 
paragraph of your comment. You must also place

[[Page 56713]]

all the personal identifying information you do not want posted online 
or made available in the public docket in the first paragraph of your 
comment and identify what information you want redacted.
    If you want to submit confidential business information as part of 
your comment, but do not want it to be posted online or made available 
in the public docket, you must include the phrase ``CONFIDENTIAL 
BUSINESS INFORMATION'' in the first paragraph of your comment. You must 
also prominently identify confidential business information to be 
redacted within the comment. If a comment has so much confidential 
business information that it cannot be effectively redacted, all or 
part of that comment may not be posted online or made available in the 
public docket.
    Personal identifying information and confidential business 
information identified and located as set forth above will be redacted 
and the comment, in redacted form, will be posted online and placed in 
the DEA's public docket file. Please note that the Freedom of 
Information Act applies to all comments received. If you wish to 
inspect the agency's public docket file in person by appointment, 
please see the FOR FURTHER INFORMATION CONTACT paragraph.

I. Executive Summary

A. Summary of the Purposes and Provisions of Rule

1. Types of Quota
    Through this Notice of Proposed Rulemaking (NPRM), the DEA is 
proposing to add new sections to the regulations that would introduce 
and define the types of quotas for controlled substances in schedules I 
and II and the list I chemicals \1\ ephedrine, pseudoephedrine, and 
phenylpropanolamine. The types of quotas are as follows:
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    \1\ For the purposes of this document only, ``list I chemicals'' 
refers to ephedrine, pseudoephedrine, and phenylpropanolamine for 
legitimate medical, scientific, research, and industrial needs. The 
phrase ``list I chemical(s)'' will be used going forward.
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     Aggregate production quota (APQ) (for controlled 
substances);
     Assessment of Annual Needs (AAN) (for listed chemicals);
     Individual Manufacturing Quota (for controlled substances 
and listed chemicals);
     Procurement Quota (for controlled substances and listed 
chemicals); and
     Import Quota (for listed chemicals).
    Also, the DEA is proposing a change in the regulations to stay up 
to date with modern technology. The proposed change would involve 
formalizing the current practice of filing to abandon quota with the 
United Nations (UN) Reporting and Quota Section in the online Quota 
Management System.
2. Conforming Changes From the Substance Use-Disorder Prevention That 
Promotes Opioid Recovery Treatment for Patients and Communities Act
    In accordance with the Substance Use-Disorder Prevention that 
Promotes Opioid Recovery Treatment for Patients and Communities Act 
(hereinafter ``the SUPPORT Act''),\2\ the DEA is performing an update 
to the current regulations to comply with the new law. The SUPPORT Act 
now gives the Administrator, by way of delegation from the Attorney 
General, the authority to establish APQs, individual manufacturing 
quotas, and procurement quotas in terms of pharmaceutical dosage-form 
prepared from or containing a controlled substance. This Act also 
changed the deadline by which the DEA is to fix the individual 
manufacturing quota for schedules I and II controlled substances. The 
SUPPORT Act defines the phrase ``covered controlled substance'' and 
mandates that the amount of diversion of a covered controlled substance 
be estimated when establishing any quota. When estimating diversion, 
the DEA must consult with the Department of Health and Human Services 
(HHS) on rates of overdose deaths and abuse and overall public health 
impact related to the covered controlled substances and may take into 
consideration other sources of information the DEA deems reliable. The 
SUPPORT Act requires that ``appropriate quota reductions'' be made 
after estimating diversion. The Act does not require quota increases.
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    \2\ The SUPPORT for Patients and Communities Act, Public Law 
115-271.
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3. Procurement Quota Certification
    The DEA is proposing to change the regulations to provide that both 
manufacturers and distributors selling to a manufacturer would be 
required to obtain certification of the buyer's quota when an order is 
placed. This change would be implemented by changing the words 
``importer,'' ``manufacturer,'' and ``bulk manufacturer'' to 
``registrant.''
4. Reduction of Inventory Allowances
    The DEA proposes to revise the regulations to reduce the allowable 
individual inventory held by both bulk and dosage-form manufacturers of 
controlled substances in schedules I and II and list I chemicals, which 
would decrease the risk of diversion while ensuring the needs of the 
United States are met. The proposed amendments are:
     Decrease the inventory allowance issued by the DEA for 
individual manufacturing quotas to 30 percent;
     Decrease the inventory allowance issued by the DEA for 
procurement quotas to 30 percent;
     Suspend quota issued by the DEA if a registrant's 
inventory exceeds 45 percent of the registrant's estimated net 
disposal; and
     Grant request of additional quota by registrant if 
inventory is less than 20 percent of the registrant's estimated net 
disposal.
5. Subcategories for Quotas
    The DEA is proposing the addition of use-specific subcategories for 
individual manufacturing and procurement quotas to formalize the 
current, on-going practice of the use of these subcategories by 
registrants. The use-specific subcategories are:
     Quota for Commercial Sales;
     Quota for Transfer;
     Quota for Product Development;
     Quota for Replacement; and
     Quota for Packaging/Repackaging and Labeling/Relabeling.
6. New Deadlines To Establish Quotas
    With this NPRM, the DEA proposes to change the deadlines for fixing 
or establishing the different types of quotas to allow more time for 
processing and communicating with applicants and to make the 
regulations consistent with the SUPPORT Act. The proposed changes are 
as follows:
     Deadline to establish the APQ and the AAN: Change to 
September 1.
     Deadline to issue procurement quota, import quota, and 
individual manufacturing quota: Change to December 1.
     Deadline to adjust individual manufacturing quota: Change 
to July 1.

B. Legal Authority

    The Controlled Substances Act (CSA) authorizes the Administrator of 
the DEA (by delegation from the Attorney General) to promulgate rules 
and regulations that he deems necessary and appropriate for the 
efficient execution of his functions under subchapter I (Control and 
Enforcement) and subchapter II (Import and Export) of the Act, 21 
U.S.C. 871(b) and 958(f). Subchapter I includes provisions which 
require the Administrator to establish the APQ for each basic class of 
controlled substance listed in schedules I and II and the AAN for the 
list I chemicals to be manufactured in the United States each calendar 
year to provide for the estimated medical,

[[Page 56714]]

scientific, research, and industrial needs of the United States, lawful 
export requirements, and the establishment and maintenance of reserve 
stocks. 21 U.S.C. 826. The Administrator shall take the following quota 
actions for a basic class of controlled substance or list I chemical 
pursuant to stipulated conditions: Limit or reduce individual 
production quotas for each registered manufacturer,\3\ and fix 
individual manufacturing quotas for registrants.\4\
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    \3\ 21 U.S.C. 826(b).
    \4\ 21 U.S.C. 826(d).
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    On October 24, 2018, Congress made revisions to the CSA through the 
SUPPORT Act. These revisions will be noted and included in these 
proposed regulations, where applicable. Through this Act, the 
Administrator, by way of delegation from the Attorney General, may now 
set quota in terms of the pharmaceutical dosage-form.

C. Summary of the Benefits and Costs of the Proposed Rule

    There are six key provisions in this proposed rule, five of which 
are anticipated to have benefits and costs. As explained below, some of 
these provisions are mandated by Congress under recent legislation, and 
some others are being proposed pursuant to the DEA's general rulemaking 
authority under the CSA. The anticipated effect of each provision is 
summarized in this section. The following discussion is only a summary; 
for a complete analysis of the benefits and costs of each provision, 
see the Regulatory Analysis section.
1. Defining Types of Quota and Filing To Abandon Quota
    These provisions of the proposed rule will codify two existing DEA 
practices. It will formally define the different types of quota issued 
by the DEA for schedules I and II controlled substances and list I 
chemicals. It will also formalize the current reporting practice for a 
registrant to abandon quota in the DEA's online Quota Management 
System. The formal definition of quota types will have no practical 
impact on registrants, and formalizing the procedure to abandon quota 
is simply a codification of existing DEA practice. While these proposed 
provisions will have no economic costs or benefits, the DEA believes 
there are benefits to accurately codifying existing practices. These 
proposed provisions are expected to enhance clarity, certainty, and 
efficiency.
2. Conforming Revisions Related to the SUPPORT Act
    The SUPPORT Act gives the DEA discretionary authority to establish 
quotas in terms of pharmaceutical dosage-form. The DEA's current 
practice is to establish quotas necessary for the manufacture of 
finished dosage-forms in terms of kilograms, and manufacturers then 
determine how to allocate those kilograms to different Food and Drug 
Administration (FDA) approved dosage-forms. While the SUPPORT Act gives 
the DEA the authority to establish quotas in terms of pharmaceutical 
dosage-form, the DEA will continue to use its current process of 
establishing quota in terms of kilograms, for the time being. While it 
is impossible to know all the circumstances in which this authority 
would be used, it is the DEA's current intention that any 
implementation of dosage-form quotas will be rare occurrences in 
response to specific events, and will coexist alongside kilogram 
quotas. The DEA recognizes that dosage-form manufacturers are in the 
best position to understand the demand for their products, in dosage-
form. However, if the DEA were to reallocate a manufacturer's quota to 
prevent diversion or alleviate shortages based on specific dosage-form, 
or to prevent an overproduction, the DEA would make this adjustment for 
a manufacturer that is producing those specific FDA-approved dosage-
forms, and who therefore is able to shift production with minimal 
disruption or delay. Therefore, this provision of the proposed rule 
will have minimal impact.
    The SUPPORT Act also requires the DEA to estimate the amount of 
diversion when establishing quota for a ``covered controlled 
substance'' (fentanyl, oxycodone, hydrocodone, oxymorphone, or 
hydromorphone) using all reliable information, including information 
from HHS. This requirement will expand upon the DEA's current practice, 
as it has considered the amount of diversion when establishing quotas 
for covered controlled substances when data has been made available. 
Therefore, considering additional reliable information gathered from 
outside the agency to estimate the amount of diversion will result in 
minimal additional cost. Also included in these SUPPORT Act updates are 
extending the DEA's deadline to fix individual manufacturing quotas for 
schedules I and II controlled substances from October to December, 
which will also have minimal impact on registrants or the DEA.
3. Procurement Quota Certification
    This provision requires that manufacturers purchasing their active 
pharmaceutical ingredients (API) from distributors, as well as other 
manufacturers, first certify in writing that quantities ordered do not 
exceed the requesting manufacturer's quota for the year. Current 
regulations stipulate that only entities registered as ``importer,'' 
``manufacturer,'' or ``bulk manufacturer'' must certify quota before a 
purchase.\5\ This provision is expected to result in more 
accountability for affected distributors and manufacturers and bring 
them into compliance with the CSA and regulations as intended.
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    \5\ 21 CFR 1303.12(f) and 1315.32(h).
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    This new requirement that manufacturers produce and submit 
certification of quota to be reviewed by the distributor will impose 
costs on both manufacturers and distributors. The DEA estimates the 
cost of this provision to be $35,241 per year ($23,494 of which is 
incurred by manufacturers while the remaining $11,747 is incurred by 
distributors).
4. Reduction of Inventory Allowances
    This provision has one key benefit: It is expected to reduce the 
potential for the diversion of schedules I and II controlled substances 
and list I chemicals by lowering the inventory allowance from one year 
to the next year from 50% to 30%. Practically speaking, this equates to 
a reduction from half of a year's sales supply allowed to be held as 
inventory to nearly four months. Since regulations governing inventory 
allowances were first implemented, the number of firms manufacturing 
controlled substances and list I chemicals has grown. For example, the 
DEA records show that the number of registered manufacturers grew by 
17.3 percent from 330 to 387 during the period of 2008 to 2018. Because 
of this expansion of suppliers, the lower inventory allowance 
authorized per firm is not expected to increase the likelihood of drug 
shortages. Generally, there are now more manufacturers that can 
increase production to meet demand if one or more manufacturers were to 
have production issues.
    Regarding costs, the DEA believes a reduction of inventory 
allowance to 30%, with flexibility to produce up to 45% at any given 
point in a year, would have minimal impact on registrants while 
continuing to provide adequate inventory for registrants to respond to 
fluctuations in demand in pharmaceutical markets. Over a ten year 
period from 2008 to 2017, as reported to

[[Page 56715]]

the U.N., year-end inventories for manufacturers averaged 39%, well 
within the 30% to 45% range allowed by this rule. For this reason DEA 
believes this provision will have a minimal impact on registrants.
    See the Regulatory Analysis section for a complete discussion of 
the impact of this provision.
5. Subcategories for Quotas
    The benefit of the formalization of subcategories is in the 
alignment of regulatory language with current DEA practice, which 
removes any ambiguity that may be perceived by regulated entities. 
Because these subcategories are already in use, through voluntary and 
cooperative efforts between registrants and DEA, the DEA believes this 
provision will have no economic impact on registrants or the DEA.
6. New Deadlines To Establish Quota
    By updating the deadlines for establishing and publishing the APQ, 
AAN, procurement, import, individual manufacturing, and adjusted 
individual manufacturing quotas, registrants are expected to benefit 
from having the regulations accurately reflect realistic deadlines. 
This will allow registrants to plan their production year appropriately 
and remove any uncertainty related to these publication dates. The DEA 
estimates there would be no cost associated with this provision.

II. Background

A. Types of Quota

1. APQ and AAN
    Section 306 of the CSA \6\ requires the Attorney General to 
establish APQ and AAN each year for each basic class of controlled 
substance listed in schedules I and II and the list I chemicals, 
respectively.\7\ The APQ and AAN represent the total quantity of each 
basic class of controlled substance listed in schedules I and II and 
list I chemicals necessary to be manufactured during the calendar year 
to provide for the estimated medical, scientific, research, and 
industrial needs of the United States, for lawful export requirements, 
and for the establishment and maintenance of reserve stocks. The APQs 
are issued as individual manufacturing and procurement quotas to DEA-
registered manufacturers. The AANs are issued as individual 
manufacturing, procurement and import quotas. The quota system is meant 
to ensure an adequate and uninterrupted supply of schedules I and II 
controlled substances and list I chemicals for legitimate medical and 
scientific needs, while preventing the production of excess quantities, 
which present an increased risk of diversion.
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    \6\ 21 U.S.C. 826.
    \7\ The responsibility for the establishment of the APQs and 
individual manufacturing and procurement quotas for DEA-registered 
manufacturers of schedules I and II controlled substances and list I 
chemicals has been delegated to the Administrator of DEA, 28 CFR 
0.100.
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    DEA-registered manufacturers apply for individual manufacturing, 
import, or procurement quotas based on their manufacturing activities 
and projected needs. Manufacturing activities authorized under a 
manufacturer registration include dosage-form manufacturing (both 
commercial and product development), manufacturing of other substances, 
as well as packaging, labeling, repackaging, or relabeling efforts. 
Projected needs may include product development for new suppliers or 
new process requirements, increased commercial sales, estimated 
improved market share based on new customers, purchase orders in hand, 
or the launch of new FDA-approved drug products. Registrants can 
include any other factor they want DEA to consider when evaluating 
their applications for quota.
2. Individual Manufacturing Quota
    An individual manufacturing quota represents the maximum quantity 
of a schedule I or II controlled substance or list I chemical a 
manufacturer is authorized to manufacture in a calendar year.\8\ The 
sum total of all individual manufacturing quotas issued to bulk 
manufacturers for a particular basic class of controlled substance in 
schedule I or II or list I chemical must be equal to or lower than the 
established APQ for that basic class or AAN for that chemical as 
determined in accordance with 21 CFR 1303.11 and 1315.11. A bulk 
manufacturer may request an increase in any of the quotas for a 
schedule I or II controlled substance or list I chemical at any time 
during the calendar year for which it applies.\9\ Procurement and 
import quotas inform the amount of individual manufacturing quotas. 
Only DEA-registered bulk manufacturers may apply for, and subsequently 
be issued, individual manufacturing quotas and/or procurement quotas.
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    \8\ 21 CFR 1303.21 and 1315.21.
    \9\ 21 CFR 1303.12(d), 1303.25(a), 1315.25(a), 1315.32(g), and 
1315.36(b).
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    Any manufacturer assigned an individual manufacturing quota for a 
schedule I or II controlled substance or list I chemical may at any 
time abandon their right to manufacture all or any part of such quota 
pursuant to 21 CFR 1303.27 and 1315.27. Currently, to abandon all or 
part of an individual manufacturing quota for a schedule I or II 
controlled substance, a manufacturer files a written notice with the 
Drug & Chemical Evaluation Section. To abandon any part of an 
individual manufacturing quota for a list I chemical, a manufacturer 
would file a written notice with the UN Reporting & Quota Section of 
DEA.
3. Procurement Quota
    A DEA-registered manufacturer who procures a schedule I or II 
controlled substance or list I chemical for the purpose of conducting 
non-bulk manufacturing activities such as dosage-form manufacturing, 
product development, packaging, labeling, repackaging or relabeling, or 
transfer, must apply \10\ for and receive a procurement quota. A 
procurement quota represents the maximum quantity of a schedule I or II 
controlled substance or list I chemical a registrant is authorized to 
acquire in a calendar year for the purpose of manufacturing controlled 
substances into dosage-forms or to acquire to convert into another 
schedule I or II controlled substance (with corresponding individual 
manufacturing quota for that new drug code) and also for packaging, 
repackaging, labeling, and relabeling.\11\ Finished dosage-form 
manufacturers and packagers may apply for procurement quota only.
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    \10\ 21 CFR 1303.12 and 1315.32(a).
    \11\ 21 CFR 1303.12 and 1315.32.
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    Under the current regulations, when a person with a procurement 
quota orders a quantity of a basic class of a schedule I or II 
controlled substance or a list I chemical, they have to certify that 
the quantity ordered does not exceed their unused and available 
procurement quota for that current calendar year. This certification is 
required only if purchasing from a manufacturer. Because of the wording 
of the regulations, many registrants do not have to certify their 
purchases. Outsourcing facilities are an example of this. An 
``outsourcing facility'' is defined as a facility at one geographic 
location or address that is engaged in compounding sterile drugs, 
either with or without prescriptions for identified individual 
patients, that elects to register with the FDA and complies with the 
statutory requirements in section 503B of the Federal Food, Drug, and 
Cosmetic Act.\12\ Because outsourcing facilities compounding controlled 
substances meet the CSA

[[Page 56716]]

definition of ``manufacturer,'' \13\ the DEA has registered these newly 
designated facilities as manufacturers. Currently, outsourcing 
facilities registered with DEA as manufacturers are not required to 
follow the procurement quota regulations, because they buy their API 
from distributors rather than another manufacturer. DEA has discussed 
the issue with manufacturers. Several manufacturers have stated that 21 
CFR 1303.12(f) does not apply to them because they are not purchasing 
material from another manufacturer. This proposed rule would make these 
changes.
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    \12\ 21 U.S.C. 353b(d)(4).
    \13\ 21 U.S.C. 802(15).
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4. Import Quota
    DEA-registered importers that import list I chemicals must apply 
for and receive an import quota. 21 CFR 1315.34(a). An import quota 
represents the maximum amount of a list I chemical an importer may 
bring into the United States during the calendar year. Importers of 
list I chemicals may apply for import quota only.

B. Conforming Changes From the SUPPORT Act

    While the Administrator of DEA, as delegated by the Attorney 
General, has always been required \14\ annually to establish APQs and 
individual manufacturing quotas by the CSA and procurement quotas by 
DEA's regulations,\15\ there was no authorization given or a 
requirement to establish APQs, individual manufacturing quotas or 
procurement quotas in terms of pharmaceutical dosage-forms prior to the 
SUPPORT Act. Before the signing of the SUPPORT Act, the CSA \16\ stated 
that quotas for controlled substances should only be established in 
terms of quantities and not in terms of individual pharmaceutical 
dosage-forms. The DEA had no authority to issue the APQ based on 
separate forms of drugs. The DEA could not demand that quota be used 
for a specific dosage-form. Also, prior to the SUPPORT Act, the 
individual manufacturing quota had to be fixed on or before October 1. 
Furthermore, the CSA did not expressly require the estimation of 
diversion for any controlled substance.
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    \14\ 21 U.S.C. 826.
    \15\ 21 CFR 1303.12(a).
    \16\ 21 U.S.C. 826(a).
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C. Reduction of Inventory Allowances

    The DEA's mandate by the CSA is to provide for the estimated 
medical, scientific, research, and industrial needs of the United 
States, for lawful export requirements, and for the establishment and 
maintenance of reserve stocks, while preventing the diversion of 
controlled substances and list I chemicals. The current regulations 
\17\ contribute to increased inventories at multiple manufacturing 
processes/steps which can lead to an increased risk of diversion.
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    \17\ 21 CFR 1303.24 and 1315.24.
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    The 2017 National Survey on Drug Use and Health from the Substance 
Abuse and Mental Health Services Administration (SAMHSA) reported that 
about 6.6% (18 million) of people ages 12 or older misused prescription 
psychotherapeutic drugs (pain relievers, tranquilizers, stimulants and 
sedatives) in the past year and 4.1% (11 million) misused pain 
relievers (i.e., hydrocodone, oxycodone, and morphine).\18\
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    \18\ SAMHSA, Center for Behavioral Health Statistics and 
Quality, 2017 National Survey on Drug Use and Health, available at 
https://www.samhsa.gov/data/sites/default/files/cbhsq-reports/NSDUHDetailedTabs2017/NSDUHDetailedTabs2017.pdf.
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    According to the 2014 National Drug Threat Assessment Summary from 
the DEA, between 2009 and 2013 there was a 222% increase in the total 
U.S. drug seizures for oxycodone, hydrocodone and hydromorphone.\19\ 
According to the Healthcare Cost and Utilization Project from the 
Agency for Healthcare Research and Quality (AHRQ) between the year 2008 
and 2015, the rate of opioid-related Emergency Department visits 
increased by 120.7% (i.e., from 94.6 per 100,000 population in 2008 to 
208.8 per 100,000 population in 2015).\20\ Data from the SAMHSA 
Treatment Episode Data Set revealed that between 2005 and 2015, there 
was a 75% increase (from 71,499 to 124,943) in the number of hospital 
admissions (ages 12 and older) due to or caused by primary non-heroin 
opiates/synthetics.\21\
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    \19\ National Drug Threat Assessment 2014, (p. 45) available at 
https://www.dea.gov/resource-center/dir-ndta-unclass.pdf.
    \20\ Agency for Healthcare Research and Quality (2017), Opioid-
Related Inpatient Stays and Emergency Department Visits by State, 
2008-2015. http://www.hcup-us.ahrq.gov/faststats/landing.jsp.
    \21\ Department of Health and Human Services (Feb 2017). 
Treatment Episode Data Set (TEDS) 2005-2015 State Admissions to 
Substance Abuse Treatment Services.
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    The purpose of the inventory allowance is to provide for efficiency 
and flexibility in managing the sale and distribution of schedule I and 
II controlled substances and list I chemicals so that the manufacturer 
can meet the actual or reasonably estimated demand for the schedule I 
and II controlled substances and list I chemicals. Under the current 
inventory allowance issued with the quota is intended to: 1. Provide 
saleable material for approximately four months of sales (net disposal) 
into the next calendar year while the manufacturer begins new 
production in the next calendar year; 2. Manage an unexpected uptick in 
sales during the calendar year; and 3. Address incidents limiting 
manufacturing or supply such as natural disasters or labor strikes. 
Manufacturers are encouraged to apply for adjustments to their quota at 
any time during the calendar year with appropriate documented 
supporting justification.\22\
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    \22\ 21 CFR 1303.25.
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    The mission of the DEA is to prevent diversion of controlled 
substances and list I chemicals while still providing sufficient 
availability for the legitimate medical, scientific, research, and 
industrial needs of the United States. The DEA is committed to ensuring 
the availability of controlled substances in schedules I and II and 
list I chemicals to manufacturers to meet the legitimate medical, 
scientific, research, and industrial needs of the United States. 
However, the DEA must strike an appropriate balance between ensuring 
the availability of drug products containing controlled substances in 
schedules I and II and list I chemicals to meet these needs, and the 
risk to the public health and safety. The DEA has observed an increase 
in the production of many controlled substances over the years, 
including those substances requiring quotas. The changes in the 
industry, including the increase in the number of manufacturers, has 
led to accumulations of inventory.
    When the current regulations were promulgated, there were only one 
or two bulk-manufacturing suppliers and finished dosage-form 
manufacturers for each controlled substance. Each manufacturer needed 
enough material to ensure the safe and continuous coverage of the 
market place for legitimate patient needs and a significant amount of 
inventory (50%) to handle potential market fluctuations in case the 
other manufacturer had an emergency or other disruptive situation. 
However, the number of generic dosage-form manufacturers entering the 
marketplace has grown significantly, especially since the enactment of 
the Drug Price Competition and Patent Term Restoration Act of 1984 
(Hatch-Waxman Amendments). When the DEA considers each manufacturer's 
portion of the market, the amount of inventory each manufacturer needs 
to hold in reserve to ensure legitimate medical needs are met, due to 
other manufacturers' potential production disruptions, is

[[Page 56717]]

much smaller than when the CSA was originally written. There are 
currently so many brand and generic manufacturers for each controlled 
substance with an FDA-approved drug product, that if one or two 
manufacturers ceased production, the overall market would not be 
affected. For instance, in 2007, the DEA registered nine bulk 
manufacturers who could provide oxycodone to 88 dosage-form (non-bulk) 
manufacturers. By contrast, as of 2015, the DEA registered 11 bulk 
manufacturers of oxycodone who could provide bulk oxycodone to 166 
dosage-form (non-bulk) manufacturers. As of March 2017, these non-bulk 
manufacturers were responsible for producing FDA-approved dosage-forms 
including 10 branded and 30 generic products, each of which has 
multiple strengths and various immediate and extended release 
formulations. These manufacturers are all competing for the U.S. market 
and an increasing export market.

D. Formalization of Subcategories

    Administering the quota provisions of the CSA is becoming more 
complex as registrants increasingly engage in product development 
efforts and subcontract various aspects of the manufacturing process to 
other DEA-registered manufacturers, thus moving away from single source 
production of pharmaceutical drug products. A key objective of the 
quota system is to track how much of a controlled substance or list I 
chemical is available so the DEA can fulfill its mandate of ensuring 
that there is sufficient material to meet the estimated medical, 
scientific, research, and industrial needs of the United States, for 
lawful exports, and for the establishment and maintenance of reserve 
stocks. The large number of manufacturing registrants that move 
material from one manufacturer to another presents a growing challenge 
in that multiple quotas have to be issued for the various stages of 
manufacturing, while at the same time, avoiding ``double counting'' the 
legitimate needs as the material moves from registrant to registrant 
which would artificially increase the APQ.

E. New Deadlines To Establish Quotas

    Under current regulations (established nearly 50 years ago), the 
DEA is unduly burdened by unreasonable deadlines for establishing and 
granting quotas. Since the establishment of the original deadlines, the 
number of manufacturers has more than tripled and the number of 
requests for quota has increased 560 percent, yet the deadlines have 
remained the same. Because there have been no accommodations made for 
the substantial increases in both manufacturers and quota requests, the 
DEA is required to work within challenging parameters in order to meet 
the current deadlines. Under current regulations, the DEA is required 
to publish the APQ and the AAN by May 1.\23\ This deadline constitutes 
an undue burden given the applications for import and procurement quota 
are due April 1 \24\ and manufacturing quota are due May 1.\25\ The DEA 
cannot provide a thorough and careful assessment of the quota needs and 
the assessment of annual needs for the following year in 30 days or 
less, particularly given the substantial increase in the number of 
applications the DEA must consider at the time it proposes the APQ and 
AAN.
---------------------------------------------------------------------------

    \23\ 21 CFR 1303.11(c) and 1315.11(c).
    \24\ 21 CFR 1303.12(b), 1315.32(e), and 1315.22.
    \25\ 21 CFR 1303.22.
---------------------------------------------------------------------------

    In 2016, the DEA issued 548 initial individual manufacturing 
quotas, 1,083 initial procurement quotas, 33 import quotas, and 
adjusted 250 individual manufacturing quotas. Under the current 
regulations, the DEA is required to issue individual manufacturing, 
procurement, and import quotas by July 1 \26\ of the calendar year 
preceding the year in which the quota is to be used. The individual 
manufacturing quota is to be adjusted by March 1 \27\ of the calendar 
year in which the quota is to be used. The DEA needs sufficient time to 
compile and consider all requests for quota in order to ensure that 
each manufacturer is provided with an adequate amount of quota for 
their legitimate production requests, in light of legitimate medical, 
scientific, research, and industrial needs, while also ensuring that 
quotas are not unwarranted, causing an increase in the risk of 
diversion. It is imperative that the DEA not be forced to make a choice 
between staying within the deadlines established in the regulations and 
providing a thorough and accurate review of each application for quota.
---------------------------------------------------------------------------

    \26\ 21 CFR 1303.21(a), 1315.21, 1303.12(c), 1315.32(f) and 21 
CFR 1315.34(f).
    \27\ 21 CFR 1303.23(c) and 1315.23(c).
---------------------------------------------------------------------------

III. Provisions of the Proposed Rule

A. Types of Quota

    The DEA proposes adding sections 21 CFR 1303.03 and 1315.06 to 
introduce and define the types of quotas in the current quota system. 
The DEA proposes creating 21 CFR 1303.03 to define the three types of 
quota for schedule I and II controlled substances: APQ, individual 
manufacturing quotas, and procurement quotas. The DEA would use the 
creation of 21 CFR 1315.06 to define the four types of quotas available 
for list I chemicals: AAN, individual manufacturing quotas, procurement 
quotas and import quotas.
    As previously stated, the regulations were written many years ago 
before DEA had the advanced, modern technology that we know today. As 
the years have passed, DEA has turned to managing many aspects of the 
quota system online. To abandon any or all parts of the individual 
manufacturing quota for schedule I and II controlled substances, the 
DEA is proposing that 21 CFR 1303.27 be updated to require that the 
manufacturer must now submit a quota application with the UN Reporting 
and Quota Section in the online Quota Management System, instead of a 
written notice submitted to the Drug and Chemical Evaluation Section. 
For list I chemicals, 21 CFR 1315.27 would be updated to mandate that a 
manufacturer also file in the online Quota Management System, as the 
regulations were previously updated \28\ to change the name of the 
Section.
---------------------------------------------------------------------------

    \28\ 81 FR 96992, December 30, 2016.
---------------------------------------------------------------------------

B. Conforming Changes From the SUPPORT for Communities and Patients Act

    Pursuant to the SUPPORT Act, the Administrator of the DEA (by 
delegation from the Attorney General) now has the authority to 
establish APQ, individual manufacturing quotas and procurement quotas 
in terms of pharmaceutical dosage-forms, if he determines it will 
assist in avoiding the overproduction, shortages, or diversion of a 
controlled substance. The SUPPORT Act does not require the DEA to grant 
quotas in terms of dosage-form, it just grants the authority to do so, 
if it will be helpful. This authorization will be added to DEA's 
regulations using 21 CFR 1303.11(a), 1303.12(a) and 1303.21(a). The 
SUPPORT Act also revised the CSA by changing the dates to fix the 
individual manufacturing quota from ``on or before October 1'' to ``on 
or before December 1.'' DEA will be revising 21 CFR 1303.21(a) and 
1315.21 to keep the dates for fixing individual manufacturing quotas in 
accordance with the statute.
    As a result of the SUPPORT Act, the CSA has also been amended to 
require the Administrator to estimate the amount of diversion of a 
``covered controlled substance'' in the United States when establishing 
quotas for that covered controlled substance and make appropriate 
reductions. Furthermore, when estimating diversion, information deemed 
reliable by the Administrator, in consultation with the Secretary of

[[Page 56718]]

HHS, about rates of overdose deaths and abuse and public health impact 
must be considered. The Administrator may also consider any other 
sources of information that he determines to be reliable. Moving 
forward, any year where the approved APQ for a covered controlled 
substance is higher than that of the previous year, the Administrator 
must consult with the Secretary of HHS and explain in the final order 
``why the public health benefits of increasing the quota clearly 
outweigh the consequences of having an increased volume of the covered 
controlled substance available for sale, and potential diversion, in 
the United States.'' Congress defines a ``covered controlled 
substance'' as fentanyl, oxycodone, hydrocodone, oxymorphone, or 
hydromorphone.

C. Procurement Quota Certification

    Regarding certification of procurement quota, this proposed rule 
would clarify the current language in 21 CFR 1303.12(f) and 1315.32(h) 
and ensure that both manufacturers and distributors are required to 
obtain certification of a buyer's quota for the requested schedule I 
and II controlled substances, as well as list I chemicals when the 
buyer is a manufacturer.
    In the 2000s, DEA began to notice a subset of manufacturers 
reporting purchases and distributions of schedule II controlled 
substances, even though they were not granted procurement quota. The 
DEA determined that this subset of manufacturers was conducting 
packaging/repackaging and labeling/relabeling activities. These 
activities constitute manufacturing as the term is defined in the 
CSA,\29\ and as such, require quota when the product falls within 
schedules I or II or is a list I chemical. These manufacturers appear 
to fill a niche market of providing their customers with drug products 
in packaged count sizes that regular manufacturers do not market. While 
DEA is not averse to manufacturers fulfilling legitimate medical needs, 
DEA is required to ensure that enough quota is granted to meet 
legitimate medical, scientific, and research needs, while preventing 
diversion. To prevent diversion, the DEA maintains a closed 
distribution system for schedule I and II controlled substances and 
list I chemicals when manufacturers follow the laws and regulations of 
the CSA and CFR. One method of doing this is to hold manufacturers to 
the requirement of providing proof of quota through certification, 
which ensures that purchases and distributions do not exceed the 
procurement quota set by DEA.
---------------------------------------------------------------------------

    \29\ 21 U.S.C. 802(15).
---------------------------------------------------------------------------

    In order to ensure the system is closed, the DEA manages the quota 
process by providing each manufacturer a letter stating the quantity of 
controlled substance(s) and/or list I chemical(s) the manufacturer may 
obtain during a calendar year. This letter provides legal documentation 
that the manufacturer is authorized to obtain a specified quantity of 
the controlled substance(s) and/or list I chemical(s). The CSA and the 
DEA's implementing regulations require proof of quota when transferring 
controlled substances and list I chemicals between manufacturers. When 
the CSA and DEA's regulations were first drafted, neither contemplated 
that distributors would be used to move controlled substances and list 
I chemicals between manufacturers.
    When distributors provided schedule II controlled substances to 
this subset of manufacturers without verification of the manufacturers' 
quota authorization, it circumvented the quota process of verifying 
quota to the supplier. This prevents the DEA from performing its 
oversight responsibilities and leads to unauthorized distribution of 
drug products. These unauthorized distributions are only noted as 
sales, which artificially inflates the estimation of legitimate medical 
need, a heavily weighted factor in the setting and revising of the APQ. 
By requiring that all manufacturers provide a certification of quota 
before receiving any quantity of controlled substance or list I 
chemical, DEA is better able to maintain the closed distribution 
system.

D. Reduction of Inventory Allowances

    The DEA proposes to revise 21 CFR 1303.24 and 1315.24 to reduce the 
overall inventory held by DEA-registered bulk and dosage-form 
manufacturers. These revisions are necessary, in light of the 
increasingly complex controlled substances manufacturing business 
practices, to reduce the potential for the diversion of schedule I and 
II controlled substances and list I chemicals.
    The DEA has noticed inventory fluctuation changes at various stages 
of the manufacturing process for certain schedule II controlled 
substances and changes in market conditions. The market conditions have 
changed from being a vertically integrated manufacturing practice to a 
horizontal manufacturing structure, which includes an increased number 
of manufacturers and demand for lower cost generic drug products 
containing controlled substances. This proposed rule would address the 
need to reduce the overall inventory allowance for each individual 
manufacturer.
    The proposed revisions are as follows:
     21 CFR 1303.24(a)--decreases the inventory allowance 
issued by DEA for individual manufacturing quotas from 50 to 30 percent 
for schedules I and II controlled substances;
     21 CFR 1303.24(b)--establishes an inventory allowance 
issued by DEA for procurement quotas of 30 percent for schedules I and 
II controlled substances;
     21 CFR 1303.24(c)--suspends quota issued by DEA if 
inventory exceeds 45 percent of the registrant's estimated net disposal 
for schedules I and II controlled substances;
     21 CFR 1303.24(d)--grants request of additional quota by 
registrant if inventory is less than 20 percent of the registrant's 
estimated net disposal for schedules I and II controlled substances;
     21 CFR 1315.24(a)--decreases the inventory allowance 
issued by DEA for individual manufacturing quotas from 50 to 30 percent 
for the list I chemicals;
     21 CFR 1315.24(b)--decreases the inventory allowance 
issued by DEA for procurement quotas from 50 to 30 percent for the list 
I chemicals;
     21 CFR 1315.24(c)--suspends quota issued by DEA if 
inventory exceeds 45 percent of the registrant's estimated net disposal 
for the list I chemicals; and
     21 CFR 1315.24(d)--grants request of additional quota by 
registrant if inventory is less than 20 percent of the registrant's 
estimated net disposal for the list I chemicals.
    Lowering all manufacturers to a 30 percent inventory allowance will 
allow the DEA to better manage individual quotas based on fluctuations 
in market shares from the entrance of the new manufacturers. The 
decrease in inventory will prevent excess accumulation of drug product 
or bulk API by the manufacturers who lose market share, lowering the 
risk of diversion. By reducing the percentage of the inventory 
allowance from 50 percent to 30 percent, the DEA will be able to 
prevent the manufacture of unnecessary quantities of controlled 
substances and list I chemicals, while still ensuring adequate 
availability for the legitimate medical, scientific, research, and 
industrial needs of the United States, thereby decreasing the overall 
risk of diversion to illicit purposes.
    The DEA understands that manufacturers of controlled substances and 
list I chemicals need to maintain an additional inventory in case of 
market fluctuations while balancing the risks of public health and 
safety, but believes that a 50 percent inventory allowance is too 
large. An inventory allowance of 50 percent is half of a year's sales 
supply

[[Page 56719]]

(net disposal) for each manufacturer, which the DEA believes increases 
the risk of potential diversion and abuse. For example, the increase in 
oxycodone dosage-form manufacturers from 2007 to 2017 shows multiple 
firms vying for an existing market. Their contract and purchase order 
negotiations frequently require the DEA to reallocate quotas during the 
same calendar year to maintain a balance between manufacturer 
production and patient needs. During the calendar year, if the 
inventory of a basic class held by a manufacturer exceeds 45 percent of 
estimated net disposal, the quota for that class would be automatically 
suspended and would remain suspended until inventory is less than 40 
percent of the estimated net disposal. The current inventory allowance 
of 50 percent for each individual manufacturer is too high when 
compared to individual manufacturer market share necessary to support 
legitimate medical, scientific, research, and industrial needs for a 
specific controlled substance or list I chemical.
    The DEA believes that a decrease to a 30 percent inventory 
allowance is necessary because it reflects nearly four months of sales 
supply (net disposal) for each manufacturer, which allows for market 
fluctuations among all manufacturers of that class without disruption 
to patients. Under this proposed rule, manufacturers would continue to 
receive manufacturing and procurement quotas sufficient to meet their 
manufacturing and inventory requirements to sustain the domestic demand 
for controlled substances and list I chemicals within the United 
States. DEA invites comment on whether the proposed reductions will 
lead to shortages or delays in drug supply.
    The complexity of current business practices is multifactorial and 
includes increased specialization in the manufacturing process itself, 
the development of niche markets for specifically formulated drug 
products, a change from vertically integrated manufacturing practices 
to a much more horizontal manufacturing structure, and the increasing 
numbers of manufacturers receiving FDA approval to market generic 
products. Due to this evolution of complexity in the pharmaceutical 
industry and the inflexible nature of the regulations by which the DEA 
must calculate inventory allowances for manufacturers of controlled 
substances and list I chemicals, the current inventory allowances 
provide an opportunity for the disproportionate accumulation of 
controlled substance for United States needs. These proposed revisions 
would rectify a situation where the DEA's ability under the statute and 
regulations to strike an appropriate balance between ensuring the 
availability of controlled substances and list I chemicals to patients 
and reducing the risk to public health and safety is compromised. DEA 
invites comment, including studies, data, or other evidence, as to 
whether the reductions will result in less diversion.

E. Subcategories for Quotas

    The DEA proposes formalizing the addition of use-specific 
subcategories by adding 21 CFR 1303.04 and 1315.07. As a practical 
matter, the DEA acknowledges that the subcategories proposed within 
this rule are already in use through voluntary and cooperative efforts 
of the DEA registrants.
    This proposed rule would codify DEA's current utilization of 
subcategories while facilitating the issuance of individual 
manufacturing quotas. The formalization of subcategories also provides 
benefits to the registrant, by allowing for a more detailed level of 
communication with the DEA as to why a registrant requires specific 
controlled substances and list I chemicals and how those substances 
will be utilized.
    Additionally, as the number of manufacturers continues to increase 
and industry practices and specializations change, the ability to 
methodically track movements of material between registrants at all 
stages of manufacturing becomes more critical. The specification of 
quota subcategories improves the efficiency of the application and 
reporting process for DEA-registered manufacturers.
    Use-specific quota subcategories reflect the manufacturing activity 
of the applying DEA registrant and have facilitated the issuance of 
manufacturing and procurement quotas and provided a more accurate 
calculation of the APQs for the United States. These subcategories are: 
(1) Quota for Commercial Sales; (2) Quota for Transfer; (3) Quota for 
Product Development; (4) Quota for Replacement; and (5) Quota for 
Packaging/Repackaging and Labeling/Relabeling. The specification of 
subcategories for manufacturing and procurement quotas enhances the 
DEA's ability to administer and manage the APQs and individual 
manufacturing, importation, and procurement quotas consistent with 
Congress' intent that the DEA monitor and track controlled substances 
and list I chemicals as they move through a closed system of 
distribution. Additionally, as the number of manufacturers continues to 
increase and industry practices and specializations continue to evolve, 
the DEA's ability to track movement of material between registrants at 
all stages of manufacturing is critical.
    By amending sections 21 CFR 1303.12(b), 1303.22, 1315.22, and 
1315.32(a), the DEA proposes to revise the procedure for applying for 
both manufacturing and procurement quotas. Through adding new sections 
21 CFR 1303.04(d) and 1315.07(d), the DEA proposes to revise the 
application process for a request of replacement quota for schedules I 
and II controlled substances to include either a completed DEA Order 
Form, or Form for Inventory Surrendered, (Form DEA-222 and DEA-41, 
respectively) to justify a replacement quota application.
    The new subcategories for quota are as follows:
    1. Quota for Commercial Sale: This subcategory applies to both bulk 
manufacturers and dosage-form manufacturers. This subcategory 
identifies the amount of bulk API manufactured and acquired by a DEA 
registrant for the dosage-form manufacture of FDA-approved controlled 
substance and list I chemical drug products, the amount of API acquired 
by FDA-registered 503B outsourcing facilities, as well as amounts 
needed for research, scientific, and industrial purposes. Any bulk 
manufacturer that produces API for sale to a manufacturer for the 
purpose of finished dosage-form development receives individual 
manufacturing quota for commercial sale. Any manufacturer that receives 
material and conducts blending into dosage-form for sale receives 
procurement quota for commercial sale. By keeping this item as a 
separate category, DEA calculates how much bulk API needs to be 
manufactured for a particular calendar year, which assists DEA in 
setting the APQs and AANs. An appropriate inventory allowance is 
established for this type of quota, as specified in 21 CFR 1303.24 and 
1315.24. Manufacturing and procurement quotas for commercial sale are 
not able to be used to support product development efforts.
    2. Quota for Transfer: This subcategory captures material moved 
from one manufacturing registrant back to the preceding registrant 
through the closed distribution system during the manufacturing 
process. The intent of this category is to track quota used to support 
the transfer of schedules I and II controlled substances, as well as 
the list I chemicals, whether it is bulk API, in-process material, or 
finished dosage-

[[Page 56720]]

forms, from one DEA-registered manufacturer to another. This quota is 
not to be used to assist the DEA in setting APQs and AANs because the 
material was previously captured and applied against the APQ and AAN 
when it was originally manufactured; therefore, the transfer of the 
material cannot be counted against the APQ and AAN again. This 
subcategory of procurement quota is ideal to track the return of 
finished material to the manufacturer to complete the manufacturing 
process and disposition after the occurrence of any of the 
aforementioned manufacturing activities or return of rejected material 
to the upstream manufacturer for destruction or additional processing.
    3. Quota for Product Development: In recent years, the DEA has 
observed a sizeable increase in requests for quota to conduct product 
development and FDA validation batches. These activities obscure how 
much material is commercially available to patients for legitimate 
medical purposes because a registrant's individual quota currently 
represents both commercial manufacturing efforts, as well as product 
development and validation efforts. It is critical to accurately 
capture the amount of material being utilized specifically for product 
development versus commercial manufacturing. This subcategory of 
individual manufacturing quota and procurement quota specifically 
grants the quota for development of new drug product(s), reformulation 
work, validation, and development manufacturing efforts. The product 
development quota is limited only to the development efforts noted in 
the application; it cannot be used or substituted for commercial 
production or the development of a different product. All products 
manufactured under this subcategory are non-saleable, with the 
exception of validation batches post-FDA approval. This subcategory is 
used to assist the DEA in setting the APQs and AANs. No inventory 
allowance is provided for this type of procurement quota.
    4. Quota for Replacement: Replacement quota is intended to replace 
material from the current quota year and not a means to replace 
disposed samples, analytical samples of product development material or 
inventory acquired or manufactured under previous quota years. This 
subcategory of individual manufacturing quota and procurement quota 
includes quota granted to a registrant after the registrant obtained 
material that was initially intended for commercial sale, but is unable 
to be marketed. Examples include failed batches due to a contaminant, 
material that is out of specification and can no longer be used, lots 
that reached their expiration date, or unusable material from a dosage-
form manufacturer.
    Replacement quota is granted on a case-by-case basis. The merit of 
the request is determined by the specifics of the registrant's 
justification and situation. The DEA reviews the submitted DEA Form 41 
or DEA Form 222 documenting the destruction of the controlled substance 
and evaluates the justification for the destruction to determine if 
replacement quota is the appropriate course of action and whether or 
not the destroyed material is required to meet the legitimate demand of 
the market. Replacement quota is also considered in setting the APQ and 
the AAN.
    5. Quota for Packaging/Repackaging and Labeling/Relabeling: In 
recent years, the DEA has a rise in specialty manufacturers that only 
conduct packaging of controlled substances. This results in frequent 
movement of materials from one facility to another facility for the 
performance of packaging/repackaging and labeling/relabeling 
activities. The performance of packaging/repackaging and labeling/
relabeling activities can occur within a company with multiple 
manufacturing locations and thus multiple DEA registration numbers, 
between a contract packager performing the activity for a manufacturer 
or a third party, or a packaging/repackaging and labeling/relabeling 
company who will bring the product to market. The formalization of a 
subcategory for packaging quota allows the DEA to be more efficient in 
accounting for these types of manufacturing activities. This 
subcategory is used to assist the DEA in setting the AAN, but not the 
APQ. This subcategory of quota is considered in determining the AAN 
because most of the finished dosage-forms and bulk API required to meet 
US legitimate need are imported rather than manufactured domestically. 
The accounting is necessary to prevent circumvention of the quota 
system as it applies to the list I chemicals specifically mentioned by 
Congress in the Combat Methamphetamine Epidemic Act (2005).
    Assigning quota to specific subcategories allows the DEA to 
indicate how much of a registrant's quota may be used to receive bulk 
material, in-process, or finished dosage units, as well as how much may 
be used for product development, commercial production, or the 
launching of new products. Additionally, registrants are prevented from 
using their quota for a purpose other than that originally intended and 
justified to DEA.\30\
---------------------------------------------------------------------------

    \30\ 21 U.S.C. 842(b).
---------------------------------------------------------------------------

F. New Deadlines for the Establishment of Quotas

    The DEA is proposing to revise 21 CFR 1303.11(c), and 1315.11(c) to 
change the deadlines for the establishment of the APQ and the AAN. This 
modification will allow a more reasonable amount of time for processing 
and responding to applications for quota. The DEA also proposes to 
revise 21 CFR 1303.23(c) and 1315.23(c) to modify the existing 
deadlines for adjusting the individual manufacturing quotas, allowing 
more time for reviewing applications for adjustment of individual 
manufacturing quotas and responding to each applicant. Along with the 
deadline change for individual manufacturing quotas, the DEA proposes 
to revise 21 CFR 1303.12(c), 1315.32(f), and 1315.34(f), which would 
change the deadlines for the establishment of procurement quotas for 
both schedules I and II controlled substances and list I chemicals, as 
well as the deadline for import quota of list I chemicals. The proposed 
changes to the import quota and the procurement quotas are necessary to 
stay in accordance with the deadline for individual manufacturing 
quota, as they are all published at the same time when the DEA 
establishes the APQ and AAN.
    The DEA continues to collect various data to administer the United 
States quota system. Moving the deadlines previously established would 
allow the DEA to obtain additional relevant data from multiple Federal 
and state agencies, which would enable better analysis of legitimate 
demand, strengthening the DEA's ability to allocate quota to the 
appropriate manufacturers of these substances. These revisions would 
allow DEA sufficient time to compile and consider all requests for 
quota in order to ensure that each manufacturer is provided with an 
adequate amount of quota for their legitimate production needs, while 
also ensuring that quotas are not unwarranted, which increases the risk 
of diversion.
    The proposed changes are as follows:
     Establishment of the APQ and the AAN: Change from May 1 to 
September 1.
     Deadline to issue procurement quota: Change from July 1 to 
December 1.
     Deadline to issue import quota: Change from July 1 to 
December 1.

[[Page 56721]]

     Deadline to adjust individual manufacturing quota: Change 
from March 1 to July 1.
    Establishment and Publication of the APQ and AAN: The DEA is 
seeking to move the publication date for the APQ and the AAN to 
September 1. Allowing additional time to review applications for 
import, procurement, and individual manufacturing quota would provide 
the DEA enough time to assess the needs of industry within the new 
established timeline for publication of the APQ and AAN, while still 
maintaining the statutory deadline of December 1 \31\ for issuing 
individual manufacturing quotas.
---------------------------------------------------------------------------

    \31\ 21 U.S.C. 826(c).
---------------------------------------------------------------------------

    Issuing Procurement Quotas: Under the proposed rule, this deadline 
would be moved to December 1 to allow DEA an adequate amount of time to 
review each application for procurement quota, identify the 
corresponding bulk manufacturing quota, and then respond to each 
application. In addition, as stated previously, moving the deadline 
would allow the continuation of the current practice of issuing the 
quota at the same time as the individual manufacturing quota.
    Issuing Import Quotas: Here, the DEA proposes to move the deadline 
for issuing import quotas to December 1 (three months after publication 
of the AAN) to allow the DEA an adequate time to identify the 
corresponding procurement quotas and then respond to each application. 
Moving the deadline also allows the import quota to be issued in the 
same document.
    Adjusting Individual Manufacturing Quotas: The DEA proposes to move 
this deadline to July 1 to allow the DEA an adequate time to review 
each application for adjusting individual manufacturing quota, revise 
the APQ, and respond to each application.

Regulatory Analyses

Executive Orders 12866 (Regulatory Planning and Review), 13563 
(Improving Regulation and Regulatory Review), and 13771 (Reducing 
Regulation and Controlling Regulatory Costs)

    This rule has been developed in accordance with the principles of 
Executive Orders 12866 and 13563. Executive Order 12866 directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
public health and safety, and environmental advantages, distributive 
impacts, and equity). Executive Order 13563 is supplemental to and 
reaffirms the principles, structures, and definitions governing 
regulatory review as established in Executive Order 12866. The 
Executive Order classifies a ``significant regulatory action'' 
requiring review by the Office of Management and Budget (OMB) as any 
regulatory action that is likely to result in a rule that may: (1) Have 
an annual effect on the economy of $100 million or more, or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, environment, public health or safety, 
or State, local, or tribal governments or communities; (2) create a 
serious inconsistency or otherwise interfere with an action taken or 
planned by another agency; (3) materially alter the budgetary impact of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    While this proposed rule is not economically significant, it is a 
significant regulatory action under Executive Order 12866, section 3(f) 
subjecting it to review by OMB. The DEA analyzed the economic impact of 
each provision of this proposed rule and estimated the annual cost to 
be $35,241. Certain provisions are estimated to also have benefits; 
however, the DEA does not have a basis to estimate those benefits due 
to many unknowns. Because of this, the benefits of this proposed rule 
are discussed qualitatively. The rule contains clarification of 
regulatory language and the codification of existing DEA and registrant 
practices regarding subcategories for quotas, certification of 
procurement quota, and additional considerations for revisions to APQs. 
The results of the analysis of each provision are as follows:
Defining Types of Quota and Filing To Abandon Quota
    These provisions simply codify existing DEA practices, and will 
result in no economic impact on registrants or the DEA. The formal 
definition of quota types will have no practical impact on registrants, 
and formalizing the procedure to abandon quota is simply a codification 
of DEA's current procedure. While these proposed provisions will have 
no economic costs or benefits, DEA believes there are benefits to 
accurately codifying existing practices. These proposed provisions are 
expected to enhance clarity, certainty, and efficiency.
Conforming Revisions Related to the SUPPORT Act
    As indicated above, the SUPPORT Act gives the DEA discretionary 
authority to establish quotas in terms of pharmaceutical dosage-form. 
At the present time, the DEA is not deviating from its current practice 
of establishing quotas necessary for the manufacture of finished 
dosage-forms in terms of kilograms, and allowing manufacturers to 
determine how to best allocate those kilograms to different FDA-
approved dosage-forms. While the SUPPORT Act gives DEA the authority to 
establish quotas in terms of pharmaceutical dosage-form, the DEA will 
continue to use its current process of establishing quota in terms of 
kilograms, for the time being. While it is impossible to know all the 
circumstances in which this authority would be used, it is the DEA's 
current intention that any implementation of dosage-form quotas will be 
the exception rather than the rule, and will coexist alongside kilogram 
quotas. The DEA recognizes that dosage-form manufacturers are in the 
best position to understand the demand for their products, in dosage-
form. Because, at the present time, the DEA is likely to use this 
authority sparingly, and only adjust quotas for manufacturers producing 
the dosage-form, the DEA anticipates that this provision of the 
proposed rule will have minimal impact.
    The SUPPORT Act also requires the DEA to estimate the amount of 
diversion when establishing quota for a covered controlled substance 
using all reliable information, including information from HHS and 
other agencies. The DEA has considered information and data regarding 
the amount of diversion for covered controlled substances when 
applicable during the process of determining the APQ. This function is 
a regular part of DEA's operations. Therefore, considering additional 
reliable information gathered from outside the agency to estimate the 
amount of diversion will result in minimal additional cost.
    The SUPPORT Act updates also extend the DEA's deadline to fix 
individual manufacturing quotas for schedules I and II controlled 
substances from October to December, and formally define the phrase 
``covered controlled substance'' to include fentanyl, oxycodone, 
hydrocodone, oxymorphone, or hydromorphone. The deadline extension will 
have minimal impact on registrants, as the DEA currently does not meet 
the October deadline. This extension will align the regulations with 
reality for registrants

[[Page 56722]]

and the DEA. Defining ``covered controlled substance'' will not change 
how those substances or the registrants that are authorized to handle 
those substances are regulated. Therefore, these provisions will have 
minimal impact on registrants or the DEA.
    While the benefits of the SUPPORT Act updates were not quantified 
due to many unknowns, it is possible to discuss some of these benefits 
in qualitative terms. With these conforming revisions related to the 
SUPPORT Act, DEA has the ability to respond to adverse market 
conditions with increased speed and flexibility in order to minimize 
public harm. Dosage-form quotas would be used by the DEA to alleviate 
the rare occurrence of a drug shortage in the market by targeting the 
specific dosage-forms that are in short supply instead of simply 
increasing the total amount of kilograms of a drug to be produced, 
resulting in a benefit to the public. Another benefit is that updating 
the deadlines for setting individual manufacturing quotas so they 
reflect DEA's current practice removes regulatory uncertainty for 
manufacturers. Regulations that realistically reflect current DEA and 
industry practice will benefit the planning processes of current and 
future market participants. Therefore, the DEA believes the benefits of 
these conforming revisions related to the SUPPORT Act outweigh their 
minimal costs.
Procurement Quota Certification
    The proposed rule would require that all DEA registrants supplying 
schedules I and II controlled substances and list I chemicals to DEA 
manufacturers obtain certification of the manufacturer's quota before 
completing the transaction. In practice, this certification may be any 
written declaration issued by manufacturers to distributors. This 
provision prevents manufacturers from purchasing their API or finished 
dosage-forms from distributors without quota verification as currently 
required when manufacturers request API or finished dosage-forms from 
other manufacturers. Current regulations stipulate that only entities 
registered as ``importer,'' ``manufacturer,'' or ``bulk manufacturer'' 
must certify \32\ quota before a sale.
---------------------------------------------------------------------------

    \32\ 21 CFR 1303.12(f) and 1315.32(h).
---------------------------------------------------------------------------

    In order to estimate the cost of this provision, the DEA utilized 
internal data tracking the sale of schedules I and II controlled 
substances and list I chemicals from distributors to manufacturers 
during the three year period of January 1, 2015 to December 31, 2017. 
DEA's analysis revealed that over this three year period, distributors 
filled an average of 3,000 orders to manufacturers per year. Using 
Bureau of Labor Statistics (BLS) wage data for Compliance Officers, the 
type of registrant employee that would be tasked with certifying quota, 
the DEA estimated the labor cost of quota certification to distributors 
and manufacturers. Based on its knowledge of registrant business 
operations, DEA estimates a manufacturer compliance officer requires 10 
minutes to draft a quota certification letter after placing a purchase 
request to a distributor, while the distributor compliance officer 
requires five minutes to review and verify the manufacturer's 
certification letter. This results in a combined labor burden of 15 
minutes (0.25 hours). Multiplying the loaded median hourly wage rate 
for compliance officers by 0.25 and applying that to the estimated 
3,000 certification letters per year yields a total yearly labor cost 
of $35,241 ($23,494 of which is incurred by manufacturers while the 
remaining $11,747 is incurred by distributors).
Reduction of Inventory Allowances
    The proposed rule would reduce the inventory allowance for 
manufacturers of controlled substances and list I chemicals from 50 
percent to 30 percent of the registrant's estimated net disposal. The 
30 percent inventory allowance would be for the purposes of determining 
the quota for the coming year and to allow inventory at the beginning 
of a manufacturer's new quota year. Manufacturers may exceed the 30 
percent inventory allowance during the year. If at any time during the 
year, the inventory of a basic class held by a manufacturer exceeds 45 
percent of estimated net disposal, the quota for that class is 
automatically suspended and would remain suspended until inventory is 
less than 40 percent of the estimated net disposal. Practically 
speaking, the inventory allowance equates to a reduction from half of a 
year's sales supply (50 percent) allowed to be held as inventory to 
nearly four months (30 percent). Additionally, the 45 percent maximum 
inventory during the year would give manufacturers the flexibility to 
have inventory equal to nearly six months of sales supply in order to 
account for any unplanned fluctuations in demand or timing in orders 
for their product throughout the year.
    DEA expects this reduction in allowance will result in minimal to 
no economic impact on affected registrants as the following data show. 
From 2008 to 2017, as reported to the U.N., end-of-year combined 
average inventory balances for holders of both manufacturing and 
procurement quotas of internationally controlled narcotics ranged from 
32 percent to 46 percent, for a 10-year average of 39 percent. This 
average is a result of the bulk manufacturing quotas, which by 
regulation have a 50 percent inventory allowance, and procurement quota 
inventories, which are not explicitly stated in the regulations, but 
are held to a range of 30-50 percent based on specific risk factors, 
including increased documentation of misuse and abuse discovered by 
various components within HHS and the Department of Justice (DOJ). The 
reduction of inventory allowance to 30 percent, with flexibility to 
produce up to 45 percent at any given point in a year, is not 
anticipated to impact the current operations of registrants, given that 
over a 10-year period, the average year-end inventories for 
manufacturers was 39 percent.
    Registrants also routinely request adjustments to their quota 
throughout the year due to fluctuations in market conditions. This is a 
normal part of a manufacturer's business operations. The DEA quickly 
responds to these requests within six to eight weeks, ensuring 
legitimate business is not disrupted, and will continue to do so once 
this rule is promulgated. For example, in 2017 (the last year in which 
data are available), the DEA processed 1,752 initial quota applications 
and 2,299 requests for adjustment to quota.
    For these reasons, the DEA believes a reduction of inventory 
allowance to 30 percent would have minimal impact on registrants while 
continuing to provide adequate inventory for registrants to respond to 
fluctuations in demand in pharmaceutical markets. However, DEA invites 
public comment on its assumption that the market supply of controlled 
substances and list I chemicals will not be impacted by the reduction 
in inventory allowance.
Formalization of Subcategories for Manufacturing Quotas and Procurement 
Quotas
    This provision of the proposed rule is a codification of existing 
voluntary and cooperative efforts between registrants and the DEA that 
have been in place since 2001 and allows a more accurate calculation of 
APQs for the United States. The establishment of subcategories of (1) 
Quota for Commercial Sales; (2) Quota for Transfer; (3) Quota for 
Product Development; (4) Quota for Replacement; and (5) Quota for 
Packaging/Repackaging and Labeling/Relabeling are already being 
utilized by

[[Page 56723]]

the DEA with full cooperation from all registrants. Therefore, this 
provision simply updates 21 CFR 1303.03, 1303.04, 1315.06, and 1315.07 
to reflect current DEA procedure for the establishment of quota. 
Therefore, this provision of the proposed rule will have no economic 
impact on registrants or the DEA.
New Deadlines for Establishing Quotas
    The proposed rule would modify the deadlines for establishing and 
publishing the APQ, AAN, procurement quota, and manufacturing quotas 
and any adjustments to manufacturing quotas. The current publishing 
deadlines for the establishment of the APQ and the AAN of May 1, and 
the issuing of individual procurement, manufacturing and import quotas 
of July 1 are frequently missed by the DEA due to the expansion of the 
market and the increase in the number of manufacturers and importers 
since that deadline was implemented almost 50 years ago. Applications 
for import and procurement quota are due April 1, giving the DEA only 
30 days before the May 1 deadline for publication of the APQ and AAN. 
Given that the DEA has historically missed these deadlines, since it 
must take adequate time to provide a thorough and careful assessment of 
each application, both the DEA and industry have already become 
accustomed to a delayed publishing schedule. Therefore, this provision 
is expected to have minimal economic impact as it simply aligns the 
regulatory deadlines with the current business practices of the DEA and 
industry.
    DEA invites public comment on the preceding discussion of the 
potential impact of this proposed rule.
    Executive Order 13771 was issued on January 30, 2017, and published 
in the Federal Register on February 3, 2017. 82 FR 9339. Section 2(a) 
of Executive Order 13771 requires an agency, unless prohibited by law, 
to identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment or otherwise 
promulgates a new regulation. In furtherance of this requirement, 
Section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations, to the extent permitted by law, 
be offset by the elimination of existing costs associated with at least 
two prior regulations. Guidance from OMB, issued on April 5, 2017, 
explains that the above requirements only apply to each new 
``significant regulatory action that . . . . imposes costs.'' The same 
OMB guidance also clarifies that: ``de minimis costs may qualify for an 
exemption . . . [if, for example] the agency estimates the action would 
have present value costs of $50,000 spread over a large number of 
persons and/or entities.'' The DEA expects the costs of this proposed 
rule to be de minimis. Therefore, this proposed rule is not expected to 
be an Executive Order 13771 regulatory action.

Executive Order 12988, Civil Justice Reform

    This rulemaking meets the applicable standards set forth in 
Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice 
Reform to eliminate ambiguity, minimize litigation, establish clear 
legal standards, and reduce burden.

Executive Order 13132, Federalism

    This rulemaking does not preempt or modify any provision of State 
law; nor does it impose enforcement responsibilities on any State; nor 
does it diminish the power of any State to enforce its own laws. 
Accordingly, this rulemaking does not have federalism implications 
warranting the application of Executive Order 13132.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This rule does not have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (RFA), the DEA 
evaluated the impact of this rule on small entities. The DEA's 
evaluation of economic impact by size category indicates that the rule 
will not, if promulgated, have a significant economic impact on a 
substantial number of these small entities.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities unless it can certify that the rule will not have a 
significant impact on a substantial number of small entities. For 
purposes of the RFA, small entities include small businesses, nonprofit 
organizations, and small governmental jurisdictions. The DEA evaluated 
the impact of this rule on small entities and discussions of its 
findings are below.
    As discussed in the ``Executive Orders 12866 (Regulatory Planning 
and Review), 13563 (Improving Regulation and Regulatory Review), and 
13771 (Reducing Regulation and Controlling Regulatory Costs)'' section 
above, this proposed rule has six key components as described below.
Defining Types of Quota and Filing To Abandon Quota
    This provision simply codifies existing DEA practices, and will 
result in no economic impact on registrants or the DEA. The formal 
definition of quota types will have no practical impact on registrants, 
and formalizing the procedure to abandon quota is simply a codification 
of DEA's current procedure. Therefore, this proposed provision will 
have no costs.
Conforming Revisions Related to the SUPPORT Act
    While the SUPPORT Act gives the DEA the authority to establish 
quotas in terms of pharmaceutical dosage-form, the DEA will continue to 
use its current process of establishing quota in terms of kilograms. 
Therefore, this provision of the proposed rule will have no impact.
    Additionally, the SUPPORT Act defines the phrase ``covered 
controlled substance'' to include fentanyl, oxycodone, hydrocodone, 
oxymorphone, and hydromorphone and requires the DEA to estimate the 
amount of diversion when establishing quota for covered controlled 
substances by consulting with the Secretary of HHS and considering 
reliable information on the rates of overdose deaths and abuse and 
overall public health impact in the U.S. that is determined to be 
reliable. The DEA has considered the amount of diversion when 
establishing quotas when data has been available, and this is a regular 
part of DEA's operations. Therefore, considering additional reliable 
information gathered from outside the agency to estimate the amount of 
diversion will result in minimal additional cost.
    The SUPPORT Act updates also extend the DEA's deadline to fix 
individual manufacturing quotas for schedules I and II controlled 
substances from October to December. The deadline extension will have 
minimal impact on registrants, as the DEA currently does not meet the 
October deadline. This extension will align the regulations with 
reality for registrants. Therefore, these provisions will have minimal 
impact on registrants or the DEA.
Procurement Quota Certification
    The proposed rule would require that all DEA registrants supplying 
schedules I and II controlled substances and list I chemicals to DEA 
manufacturers to obtain certification of the manufacturer's quota 
before completing the transaction. In practice, this certification must 
be a written

[[Page 56724]]

declaration issued by manufacturers to distributors containing the 
information as required in the regulations.\33\ This provision prevents 
manufacturers from purchasing their API or finished dosage-forms from 
distributors without quota verification as currently required when 
manufacturers request API or finished dosage-forms from other 
manufacturers. Current regulations stipulate that only entities 
registered as ``importer,'' ``manufacturer,'' or ``bulk manufacturer'' 
must certify \34\ quota before a sale.
---------------------------------------------------------------------------

    \33\ 21 CFR 1303.12(f) and 1315.32(h).
    \34\ Id.
---------------------------------------------------------------------------

    In order to estimate the cost of this provision, the DEA utilized 
internal data tracking the sale of schedules I and II controlled 
substances and list I chemicals from distributors to manufacturers 
during the three year period of January 1, 2015 to December 31, 2017. 
DEA's analysis revealed that over this three year period, distributors 
filled an average of 3,000 orders to manufacturers per year. Using BLS 
wage data for Compliance Officers, the type of registrant employee that 
would be tasked with certifying quota, the DEA estimated the labor cost 
of quota certification to distributors and manufacturers. Based on its 
knowledge of registrant business operations, DEA estimates a 
manufacturer compliance officer requires 10 minutes to draft a quota 
certification letter after placing a purchase request to a distributor, 
while the distributor compliance officer requires five minutes to 
review and verify the manufacturer's certification letter. This results 
in a combined labor burden of 15 minutes (0.25 hours). Multiplying the 
loaded median hourly wage rate for compliance officers by 0.25 and 
applying that to the estimated 3,000 certification letters per year 
yields a total yearly labor cost of $35,241 ($23,494 of which is 
incurred by manufacturers while the remaining $11,747 is incurred by 
distributors).
Reduction of Inventory Allowances
    The proposed rule would reduce the inventory allowance for 
manufacturers of controlled substances and list I chemicals from 50 
percent to 30 percent of the registrant's estimated net disposal. The 
30 percent inventory allowance would be for the purposes of determining 
the quota for the coming year and to allow inventory at the beginning 
of a manufacturer's new quota year. Manufacturers may exceed the 30 
percent inventory allowance during the year. If at any time during the 
year, the inventory of a basic class held by a manufacturer exceeds 45 
percent of estimated net disposal, the quota for that class is 
automatically suspended and would remain suspended until inventory is 
less than 40 percent of the estimated net disposal. Practically 
speaking, the inventory allowance equates to a reduction from half of a 
year's sales supply (50 percent) allowed to be held as inventory to 
nearly four months (30 percent). Additionally, the 45 percent maximum 
inventory during the year would give manufacturers the flexibility to 
have inventory equal to nearly six months of sales supply in order to 
account for any unplanned fluctuations in demand or timing in orders 
for their product throughout the year.
    DEA expects this reduction in allowance will result in minimal to 
no economic impact on affected registrants as the following data show. 
From 2008 to 2017, as reported to the U.N., end-of-year combined 
average inventory balances for holders of both manufacturing and 
procurement quotas of internationally controlled narcotics ranged from 
32 percent to 46 percent, for a 10-year average of 39 percent. This 
average is a result of the bulk manufacturing quotas, which by 
regulation have a 50 percent inventory allowance, and procurement quota 
inventories, which are not explicitly stated in the regulations, but 
are held to a range of 30-50 percent based on specific risk factors, 
including increased documentation of misuse and abuse discovered by 
various components within HHS and DOJ. For example, the DEA currently 
sets the inventory allowance for fentanyl, hydrocodone, hydromorphone, 
and oxycodone procurement quotas at 30 percent for FDA-approved dosage-
forms. The reduction of inventory allowance to 30 percent, with 
flexibility to produce up to 45 percent at any given point in a year, 
is not anticipated to impact the current operations of registrants, 
given that over a 10-year period, the very upper range of year-end 
inventories for manufacturers was 46 percent.
    Registrants also routinely request adjustments to their quota 
throughout the year due to fluctuations in market conditions. This is a 
normal part of a manufacturer's business operations. The DEA quickly 
responds to these requests within six to eight weeks, ensuring 
legitimate business is not disrupted, and will continue to do so once 
this rule is promulgated. For example, in 2017 (the last year for which 
data are available), the DEA processed 1,752 initial quota applications 
and 2,299 requests for adjustment to quota.
    For these reasons, the DEA believes a reduction of inventory 
allowance to 30 percent would have minimal impact on registrants while 
continuing to provide adequate inventory for registrants to respond to 
fluctuations in demand in pharmaceutical markets. However, DEA invites 
public comment on its assumption that the market supply of controlled 
substances and list I chemicals will not be impacted by the reduction 
in inventory allowance.
Formalization of Subcategories for Manufacturing Quotas and Procurement 
Quotas
    This provision of the proposed rule is a codification of existing 
voluntary and cooperative efforts between registrants and the DEA that 
have been in place since 2001 and allows a more accurate calculation of 
APQs for the United States. The establishment of subcategories of (1) 
Quota for Commercial Sales; (2) Quota for Transfer; (3) Quota for 
Product Development; (4) Quota for Replacement; and (5) Quota for 
Packaging/Repackaging and Labeling/Relabeling are already being 
utilized by the DEA with full cooperation from all registrants, 
therefore this provision simply updates 21 CFR 1303.03, 1303.04, 
1315.06, and 1315.07 to reflect current DEA procedure for the 
establishment of quota. Therefore, this provision of the proposed rule 
will have no economic impact on registrants or the DEA.
New Deadlines for Establishing Quotas
    The proposed rule would modify the deadlines for establishing and 
publishing the APQ, AAN and procurement and manufacturing quotas and 
any adjustments to manufacturing quotas. The current publishing 
deadlines for the establishment of the APQ and the AAN of May 1, and 
the issuing of individual procurement, manufacturing and import quotas 
of July 1 are frequently missed by the DEA due to the expansion of the 
market and the increase in the number of manufacturers and importers 
since that deadline was implemented almost 50 years ago. Applications 
for import and procurement quota are due April 1, giving the DEA only 
30 days before the May 1 deadline for publication of the APQ and AAN. 
Given that the DEA has historically missed these deadlines since it 
must take adequate time to provide a thorough and careful assessment of 
each application, both the DEA and industry have already become 
accustomed to a delayed publishing schedule. Therefore, this provision 
is expected to have minimal economic impact as it simply aligns the 
regulatory deadlines with the current business practices of the DEA and 
industry.

[[Page 56725]]

Summary
    In summary, only the Procurement Quota Certification requirement 
imposes a cost, $23,494 to all manufacturers combined and $11,747 to 
all distributors combined for a grand total cost of $35,241.

Description and Estimate of the Number of Small Entities

    This proposed rule has the potential to affect entities registered 
with the DEA as manufacturers, distributors and importers of controlled 
substances and list I chemicals. Based on a review of respective 
representative North American Industry Classification System (NAICS) 
codes for manufacturers,\35\ distributors and importers \36\ there are 
the following number of firms: \37\
---------------------------------------------------------------------------

    \35\ The DEA believes `Pharmaceutical Preparation Manufacturing' 
(325412) includes 503B outsourcing facilities.
    \36\ The DEA believes `Drugs and Druggists' Sundries Merchant 
Wholesalers' (424210) includes both distributors and importers of 
controlled substances and (human form) list I chemicals.
    \37\ For the purposes of this analysis, the term ``firm'' is 
synonymous with ``entities.''

 935 `Pharmaceutical Preparation Manufacturing' (325412)
 6,666 `Drugs and Druggists' Sundries Merchant Wholesalers' 
(424210)

    The U.S. Small Business Administration (SBA) considers a size 
standard as the largest that a concern can be and still qualify as a 
small business for Federal Government programs. For the most part, size 
standards are the average annual receipts or the average employment of 
a firm. The SBA Size Standards for the two industries are 1,250 
employees for Pharmaceutical Preparation Manufacturing and 250 
employees for Drugs and Druggists' Sundries Merchant Wholesalers.\38\
---------------------------------------------------------------------------

    \38\ SBA ``Table of Small Business Size Standards Matched to 
North American Industry Classification System Codes, Effective 
October 1, 2017.''
---------------------------------------------------------------------------

    Comparing the SBA size standards to the U.S. Census Bureau, 
Statistics of U.S. Businesses (SUSB) detailed data on establishment 
size by NAICS code for each affected industry, the DEA estimates the 
following number of small entities (and percent of establishments that 
are small entities) by industry:

 866 (92.6% of total) `Pharmaceutical Preparation 
Manufacturing' (325412)
 6,394 (95.9% of total) `Drugs and Druggists' Sundries Merchant 
Wholesalers' (424210)

    The table below summarizes the calculation for the estimated number 
of small entities (establishments) above.

                                     Detailed Analysis of Percentage of Entities That Are Small Entities by Industry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Firm size by average                                           SBA size                     Small entities
           NAICS description                       employees                 Firms       Establishments      standard     Small entities        (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
325412--Pharmaceutical Preparation       Total........................             935              1170           1,250             866            92.6
 Manufacturing.
                                        ----------------------------------------------------------------------------------------------------------------
                                         <500.........................             833               856           1,250             833             100
                                         500-749......................              19                32           1,250              19             100
                                         750-999......................              10                16           1,250              10             100
                                         1,000-1,499..................               7                14           1,250               4              50
                                         1,500-1,999..................               5                 9           1,250               0               0
                                         2,000-2,499..................               7                12           1,250               0               0
                                         2,500-4,999..................              19                67           1,250               0               0
                                         5,000+.......................              35               164           1,250               0               0
                                        ----------------------------------------------------------------------------------------------------------------
424210--Drugs and Druggists' Sundries    Total........................           6,666             9,915             250           6,394            95.9
 Merchant Wholesalers.
                                        ----------------------------------------------------------------------------------------------------------------
                                         <100.........................           6,369             6,380             250           6,225             100
                                         100-149......................             102               137             250             102             100
                                         150-199......................              42                59             250              42             100
                                         200-299......................              50                73             250              25              50
                                         300-399......................              29                58             250               0               0
                                         400-499......................              18                90             250               0               0
                                         500-749......................              35                55             250               0               0
                                         750-999......................              17                31             250               0               0
                                         1,000-1,499..................              21               109             250               0               0
                                         1,500-1,999..................              12                23             250               0               0
                                         2,000-2,499..................              12                24             250               0               0
                                         2,500-4,999..................              34               114             250               0               0
                                         5,000+.......................              69             2,762             250               0               0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Because DEA registrants frequently hold more than one registration 
for separate locations, many registrations may be held by one entity. 
The DEA estimates the number of affected entities by multiplying the 
number of DEA registrations in each business activity by its ``firm-to-
establishment'' ratio in order to find the total amount of entities. 
The firm-to-establishment ratio is calculated by dividing the number of 
firms in each industry NAICS code by the total number of establishments 
found in the third and fourth columns of the previous table.\39\ The 
DEA analyzed how each provision of the proposed rule will affect DEA 
registrants, including how many entities will be affected by each 
provision, and found that 550 DEA registered entities will be affected 
by at least one provision of this proposed rule. A summary of this 
analysis is detailed in the table below:
---------------------------------------------------------------------------

    \39\ For example, the firm-to-establishment ratio for NAICS 
325412 is obtained by dividing the 935 total firms in the industry 
by the 1170 total establishments in the industry, yielding a ratio 
of .80. The exact same calculation for NAICS code 424210 yields a 
ratio of .67.

[[Page 56726]]



                                        Summary of DEA Registered Entities Affected by Provision of Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Provisions
                                                   DEA     ---------------------------------------------------------------------------------   Affected
                   Activity                    registrants   Inventory   APQ and AAN                                                          entities *
                                                             allowance      dates      Subcategories  SUPPORT Act  Definitions   Quota cert
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturer CS, Bulk........................           34          Yes          Yes             Yes          Yes          Yes           No           27
----------------------------------------------             ---------------------------------------------------------------------------------
Manufacturer List I, Bulk                                           Yes          Yes             Yes          Yes          Yes           No
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturer CS, Dosage......................          417          Yes          Yes             Yes          Yes          Yes          Yes          334
----------------------------------------------             ---------------------------------------------------------------------------------
Manufacturer List I, Dosage                                         Yes          Yes             Yes          Yes          Yes          Yes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Importer List I..............................           35           No          Yes              No           No          Yes           No           23
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distributor CS...............................          143           No           No              No           No          Yes          Yes           96
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distributor List I...........................          104           No           No              No           No          Yes          Yes           70
                                              ----------------------------------------------------------------------------------------------------------
    Total....................................  ...........  ...........  ...........  ..............  ...........  ...........  ...........          550
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Firm-to-establishment ratios of .80 for manufacturers and .67 for distributors and importers were used to calculate the number of affected entities.

    After accounting for how many DEA registered entities are affected 
by each provision, DEA applied the estimated percentage of 
establishments that are small entities to each respective business 
activity in order to estimate the number of affected small entities. 
The DEA estimates that of the 550 affected entities 515 are small 
entities: 159 distributors, 334 manufacturers and 22 importers. In 
summary, the percentages of small entities affected are as follows:

 38.6% `Pharmaceutical Preparation Manufacturing' (325412)
 2.8% `Drugs and Druggists' Sundries Merchant Wholesalers' 
(424210)

    The table below summarizes the estimated number of small entities, 
number of affected small entities, and the percentage of small entities 
affected.

                       Summary of Industry, SBA Size Standard, and Affected Small Entities
----------------------------------------------------------------------------------------------------------------
                                                                Estimated number     Estimated
                                                 Small entity       of small         number of     Percentage of
        NAICS code          NAICS description   threshold/ SBA      entities      affected small  small entities
                                                 size standard  (establishments)     entities        affected
----------------------------------------------------------------------------------------------------------------
325412...................  Pharmaceutical                1,250               866             334            38.6
                            Preparation
                            Manufacturing.
424210...................  Drugs and                       250             6,394           * 181             2.8
                            Druggists'
                            Sundries Merchant
                            Wholesalers.
rrrrrrrrrrrrrrrrrrrrrrrrrr
    Total................  ...................  ..............             7,260             515             N/A
----------------------------------------------------------------------------------------------------------------
* 159 distributors and 22 importers.

    As described above, if promulgated this proposed rule is estimated 
to cost $23,494 to all manufacturers combined and $11,747 to all 
distributors or an average cost of $70 ($23,494/334) per affected 
manufacturer and $71 ($11,747/166) per distributor. The DEA generally 
uses 30 percent as a ``substantial'' number of affected small entities. 
The analysis reveals that a non-substantial amount (2.8 percent) of 
small distributor entities will be affected, while a substantial amount 
(38.6 percent) of small manufacturing entities will be affected by this 
proposed rule. The DEA generally considers impacts that are greater 
than 3 percent of yearly revenue to be a ``significant economic 
impact'' on an entity. The DEA compared the compliance cost of $70 and 
$71 to the average annual receipts of manufacturers and distributors/
imports, respectively, for each size range.\40\ For even the smallest 
of entities, the costs calculated above are much less than 3 percent of 
yearly revenue and are insignificant.
---------------------------------------------------------------------------

    \40\ Small Business Administration, Office of Advocacy ``Table 
2--Number of firms, establishments, receipts, employment, and 
payroll by firm size (in receipts) and industry, 2012.'' https://www.sba.gov/advocacy/firm-size-data, accessed 5/24/2018.
---------------------------------------------------------------------------

    The table below summarizes the analysis.

                                                                   Summary of Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                Small entity    Estimated number     number of     Percentage of small entities     Economic impact of
       NAICS code          NAICS description    threshold/SBA  of small entities  affected small             affected                   compliance
                                                size standard   (establishments)     entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
325412..................  Pharmaceutical                1,250                866             334  38.6% (Substantial)...........  Not significant.
                           Preparation
                           Manufacturing.
424210..................  Drugs and                       250              6,394           * 181  2.8% (Not Substantial)........  Not Significant.
                           Druggists'
                           Sundries Merchant
                           Wholesalers.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 159 distributors and 22 importers.


[[Page 56727]]

    The DEA examined the economic impact of the proposed rule for each 
affected industry for various size ranges. Based on the analysis above, 
and because of these facts, the DEA believes this proposed rule, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities.

Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more (adjusted for inflation) in any one year, and will 
not significantly or uniquely affect small governments. Therefore, no 
actions were deemed subject to the provisions of the Unfunded Mandates 
Reform Act of 1995, 2 U.S.C. 1532.

Paperwork Reduction Act of 1995

    Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521), this action would revise existing information collections 1117-
0006, 1117-0008, and 1117-0047, and create one new information 
collection. The DEA is proposing to amend its regulations for 
establishing quotas for United States companies manufacturing schedules 
I and II controlled substances and ephedrine, pseudoephedrine, and 
phenylpropanolamine, and for procurement quota certification and 
recordkeeping requirements. The DEA has submitted these collection 
requests to the Office of Management and Budget (OMB) for review and 
approval.
A. Collections of Information Associated With the Proposed Rule
    1. Title: Application for Individual Manufacturing Quota for a 
Basic Class of Controlled Substance and for Ephedrine, Pseudoephedrine, 
and Phenylpropanolamine.
    OMB Control Number: 1117-0006.
    DEA Form Number: DEA-189.
    The DEA is proposing to formally implement the use of subcategories 
to facilitate the issuance of manufacturing quotas and provide a more 
accurate calculation of the aggregate production quotas for the United 
States. The DEA proposes the addition of the following five 
subcategories for quota: (1) Quota for Commercial Sales; (2) Quota for 
Transfer; (3) Quota for Product Development; (4) Quota for Replacement; 
and (5) Quota for Packaging/Repackaging and Labeling/Relabeling. All 
types of quota could be requested using the same application and format 
registrants are accustomed to using, in an online form. Manufacturers 
of schedules I and II controlled substances and list I chemicals would 
continue to receive manufacturing and procurement quotas appropriate to 
their manufacturing and inventory requirements, and the DEA would 
retain greater control over the amount of these controlled substances 
and listed chemicals produced, thereby reducing the amount of 
inventories at risk of diversion.
    The DEA estimates the following number of respondents and burden 
associated with reporting:
     Number of respondents: 33.
     Frequency of response: Annually/As-needed (26.0303 
average).
     Number of responses: 859.
     Burden per response: 0.5 hour.
     Total annual hour burden: 430.
    2. Title: Application for Procurement Quota for Controlled 
Substances and for Ephedrine, Pseudoephedrine, and Phenylpropanolamine.
    OMB Control Number: 1117-0008.
    DEA Form Number: DEA-250.
    The DEA is proposing to formally implement the use of subcategories 
to facilitate the issuance of procurement quotas and provide a more 
accurate calculation of the aggregate production quotas for the United 
States. The DEA proposes the addition of the following five 
subcategories for quota: (1) Quota for Commercial Sales; (2) Quota for 
Transfer; (3) Quota for Product Development; (4) Quota for Replacement; 
and (5) Quota for Packaging/Repackaging and Labeling/Relabeling. All 
types of quota could be requested using the same application and format 
registrants are accustomed to using, in an online form. Manufacturers 
of schedules I and II controlled substances and list I chemicals would 
continue to receive manufacturing and procurement quotas appropriate to 
their manufacturing and inventory requirements, and the DEA would 
retain greater control over the amount of these controlled substances 
and listed chemicals produced, thereby reducing the amount of 
inventories at risk of diversion.
    The DEA estimates the following number of respondents and burden 
associated with reporting:
     Number of respondents: 344.
     Frequency of response: Annually/As-needed (8.9128 
average).
     Number of responses: 3,066.
     Burden per response: 0.5 hour.
     Total annual hour burden: 1,533.
    3. Title: Application for Import Quota for Ephedrine, 
Pseudoephedrine, and Phenylpropanolamine.
    OMB Control Number: 1117-0047.
    DEA Form Number: DEA-488.
    The DEA is proposing to formally implement the use of subcategories 
to facilitate the issuance of import quotas and provide a more accurate 
calculation of the assessment of annual needs for the United States. 
The DEA proposes the addition of the following five subcategories for 
quota: (1) Quota for Commercial Sales; (2) Quota for Transfer; (3) 
Quota for Product Development; (4) Quota for Replacement; and (5) Quota 
for Packaging/Repackaging and Labeling/Relabeling. All types of quota 
could be requested using the same application and format registrants 
are accustomed to using, in an online form. Importers of list I 
chemicals would continue to receive import quotas appropriate to their 
manufacturing and inventory requirements, and the DEA would retain 
greater control over the amount of these listed chemicals produced, 
thereby reducing the amount of inventories at risk of diversion.
    The DEA estimates the following number of respondents and burden 
associated with reporting:.
     Number of respondents: 49.
     Frequency of response: Annually/As-needed (2.5714 
average).
     Number of responses: 126.
     Burden per response: 0.5 hour.
     Total annual hour burden: 63.
    4. Title: Procurement Quota Certification and Recordkeeping 
Requirements.
    OMB Control Number: 1117-New.
    DEA Form Number: N/A.
    This proposed rule would require all DEA registrants supplying 
schedules I and II controlled substances or list I chemicals to DEA 
manufacturers to obtain certification of the manufacturer's procurement 
quota before completing the transaction. This provision would prevent 
manufacturers from purchasing active pharmaceutical ingredients from 
distributors, rather than other manufacturers, without including a 
quota certification. Current DEA regulations stipulate only that orders 
to entities registered as importers, manufacturers, or bulk 
manufacturers must include quota certifications.\41\ Manufacturers 
procuring schedules I and II controlled substances or list I chemicals 
must maintain a copy of the certification they provide with their order 
for a period of two years from the date of the certification. Under the 
proposed rule, this recordkeeping requirement would apply to 
certifications included with orders for schedules I and II controlled 
substances or list I chemicals to all registrants, including 
distributors.
---------------------------------------------------------------------------

    \41\ 21 CFR 1303.12(f), 1315.32(h).
---------------------------------------------------------------------------

    The DEA estimates that distributors fill an average of 3,000 orders 
to manufacturers per year, which under

[[Page 56728]]

this proposed rule, will require 3,000 certification letters to be 
drafted and retained by manufacturers, and reviewed by distributors. 
The estimated yearly cost of this activity is $35,241.The DEA will 
update the below figures based on public comments received. For the 
purposes of this proposed rule, the DEA estimates the following number 
of respondents and burden associated with the proposed requirement that 
procuring manufacturers create and retain copies of schedules I and II 
controlled substance and list I chemical quota certifications for two 
years:
     Number of respondents: 500 (334 manufacturers and 166 
distributors).
     Frequency of response: 9 per year.
     Number of responses: 3,000.
     Burden per response: .25 (minimal).
     Total annual hour burden: 750 (minimal).
B. Request for Comments Regarding the Proposed Information Collections
    The DEA is soliciting comment on the following issues related to 
these information collections:
     The need for the information collection and its usefulness 
in carrying out the proper functions of the DEA.
     The accuracy of the DEA's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Written comments and suggestions from the public and affected 
entities concerning the proposed collections of information are 
encouraged. Please send written comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for DOJ, 
Washington, DC 20503. Please state that your comments refer to RIN 
1117-AB49/Docket No. DEA-455. All comments must be submitted to OMB on 
or before December 23, 2019. The final rule will respond to any OMB or 
public comments on the information collection requirements contained in 
this proposal.
Congressional Review Act
    This proposed rule is not a major rule as defined by the 
Congressional Review Act, 5 U.S.C. 804. This rule will not result in an 
annual effect on the economy of $100,000,000 or more; a major increase 
in costs or prices; or significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based companies to compete with foreign-based companies 
in domestic and export markets.

List of Subjects

21 CFR Part 1303

    Administrative practice and procedure, Drug traffic control.

21 CFR Part 1315

    Administrative practice and procedure, Chemicals, Drug traffic 
control, Imports, Reporting and recordkeeping requirements.

    For the reasons set forth above, the DEA proposes to amend 21 CFR 
parts 1303 and 1315 as follows:

PART 1303--QUOTAS

0
1. The authority citation for 21 CFR part 1303 continues to read as 
follows:

    Authority: 21 U.S.C. 821, 826, 871(b).

0
2. Add Sec. Sec.  1303.03, 1303.04, and 1303.05 immediately following 
the undesignated center heading ``Aggregate Production and Procurement 
Quotas'' to read as follows:


Sec.  1303.03  Types of quotas.

    The three types of quotas are:
    (a) Aggregate production quotas, which establish the total quantity 
of each basic class of schedules I and II controlled substances that 
may be produced by all manufacturers in a calendar year.
    (b) Individual manufacturing quotas, which establish the maximum 
quantity of each basic class of schedules I and II controlled 
substances that a registered manufacturer may manufacture during a 
calendar year. This type of quota is only issued to DEA-registered bulk 
manufacturers.
    (c) Procurement quotas, which establish the maximum quantity of 
each basic class of schedules I and II controlled substances that a 
registered manufacturer may procure during a calendar year for the 
purpose of manufacturing into dosage-forms or other substances.


Sec.  1303.04  Subcategories of manufacturing and procurement quotas.

    The five subcategories of manufacturing and procurement quotas are:
    (a) Quota for Commercial Sale. This is a quota for the amount of 
bulk active pharmaceutical ingredients (API) initially acquired by a 
registrant for the manufacture of approved schedule I or II controlled 
substance drug products by the Food and Drug Administration, and bulk 
API acquired by outsourcing facilities, manufacturers, etc. This quota 
category is used to capture bulk API moving from a bulk manufacturer to 
other registered manufacturers for their commercial manufacturing 
efforts. This type of quota may only be used to support commercial 
manufacturing efforts and may not be used to support other 
manufacturing efforts.
    (b) Quota for Transfer. This is a quota for the amount of material 
moved upstream from one registrant to another and does not include 
material captured under procurement quota for commercial sale. Examples 
include: 1. Bulk API being transferred back to the original registrant 
after milling; 2. Transfer of in-process material or finished dosage-
forms for additional manufacturing efforts (coating, beading, 
encapsulation, and so forth) back to the preceding registrant; and 3. 
Return of material after the specified manufacturing activity has been 
completed or return of rejected material to the upstream manufacturer 
for destruction or additional processing.
    (c) Quota for Product Development. This is a quota for the amount 
of material needed for product development and validation of 
manufacturing efforts. This quota is limited to that activity only and 
only for the development efforts noted in the application; it shall not 
be used or substituted for commercial production or the development of 
a different product. This quota is issued with the understanding that 
this material is not intended for commercial use, with the exception of 
post-FDA approved validation batches. Validation batches shall be noted 
specifically in an application and shall be considered product 
development material that will be taken into account for net disposal 
once a product is FDA-approved for commercial sale. No inventory will 
be granted for these efforts, nor will replacement quota be considered 
for destroyed material issued under this quota subcategory.
    (d) Quota for Replacement. This is a type of individual 
manufacturing quota or procurement quota that is granted to a 
registrant after the registrant disposes of material that was initially 
intended for commercial sale, but for some reason was unable to be 
marketed. This quota is separate and shall not count against a 
registrant's other issued quota. Replacement quota will be granted on a 
case-by-case basis. The merits of the request will be determined by the 
specifics of the registrant's justification and situation. The DEA will 
review the submitted DEA Form 41 or DEA Form 222 documenting the 
destruction of the controlled substance and evaluate the

[[Page 56729]]

justification for the destruction to determine if replacement quota is 
warranted and whether or not the destroyed material is required to meet 
the legitimate demand of the market. Replacement quota is intended to 
replace material from the current quota year and not a means to replace 
disposed samples, analytical samples, product development material, or 
inventory acquired under previous quota years.
    (e) Quota for Packaging/Repackaging and Labeling/Relabeling. This 
is a quota for the amount of material moved to a registrant to undergo 
packaging and labeling activities. This quota is limited to that 
activity only and only for the packaging/repackaging and labeling/
relabeling noted in the application; it may not be used or substituted 
for commercial production. Packaging/Repackaging and Labeling/
Relabeling quota is intended for tracking of schedules I and II 
controlled substances as they undergo packaging/labeling activities; 
however, packaging/repackaging and labeling/relabeling quotas shall not 
be counted against the aggregate production quotas.


Sec.  1303.05  Estimation of diversion.

    (a) In establishing any quota under the sections in this part for a 
covered controlled substance, the Administrator shall estimate the 
amount of diversion of the covered controlled substance that occurs in 
the United States.
    (b) In estimating diversion under the sections in this part, the 
Administrator--
    (1) Shall consider information the Administrator, in consultation 
with the Secretary of Health and Human Services, determines reliable on 
rates of overdose deaths and abuse and overall public health impact 
related to the covered controlled substance in the United States; and
    (2) May take into consideration whatever other sources of 
information the Administrator determines reliable.
    (c) After estimating the amount of diversion of a covered 
controlled substance, the Administrator shall make appropriate quota 
reductions, as determined by the Administrator, from the quota the 
Administrator would have otherwise established had such diversion not 
been considered.
    (d) For purposes of this part, the term ``covered controlled 
substances'' refers to fentanyl, oxycodone, hydrocodone, oxymorphone, 
and hydromorphone.
0
3. Amend Sec.  1303.11 by:
0
a. Adding a sentence to the end of paragraph (a);
0
b. Removing ``May'' and adding in its place ``September'' in the first 
sentence of paragraph (c); and
0
c. Adding paragraph (d).
    The additions read as follows:


Sec.  1303.11  Aggregate production quotas.

    (a) * * * The Administrator may establish an aggregate production 
quota in terms of pharmaceutical dosage-forms prepared from or 
containing the schedule I or II controlled substance, if he determines 
it will assist in avoiding the overproduction, shortages, or diversion 
of a controlled substance.
* * * * *
    (d) For any year for which the approved aggregate production quota 
for a covered controlled substance, as defined in Sec.  1303.05(d), is 
higher than the approved aggregate production quota for the covered 
controlled substance for the previous year, the Administrator, in 
consultation with the Secretary of Health and Human Services, shall 
include in the final order an explanation of why the public health 
benefits of increasing the quota clearly outweigh the consequences of 
having an increased volume of the covered controlled substance 
available for sale, and potential diversion, in the United States.
0
4. Amend Sec.  1303.12 by:
0
a. Adding a sentence to the end of paragraph (a);
0
b. Revising the first sentence in paragraph (b);
0
c. Removing ``July'' and adding in its place ``December'' in the 
introductory text of paragraph (c); and
0
d. Removing ``manufacturer'' and ``bulk manufacturer'' and adding in 
their place ``registrant'', and removing ``Manufacturers'' and adding 
in its place ``A registrant'' in paragraph (f).
    The addition and revision read as follows:


Sec.  1303.12  Procurement quotas.

    (a) * * * The Administrator may establish a procurement quota in 
terms of pharmaceutical dosage-forms prepared from or containing the 
schedule I or II controlled substance, if he determines it will assist 
in avoiding the overproduction, shortages, or diversion of a controlled 
substance.
    (b) Any person who is registered to manufacture controlled 
substances listed in any schedule and who desires to use during the 
next calendar year any basic class of controlled substances listed in 
schedule I or II (except raw opium being imported by the registrant 
pursuant to an import permit) for purposes of manufacturing, shall 
apply on DEA Form 250 for procurement quota and shall state separately 
for each subcategory, as defined in 21 CFR 1303.04, each quantity of 
such basic class. * * *
* * * * *
0
5. Amend Sec.  1303.21 by removing ``July'' and adding in its place 
``December'' and adding a sentence after the first sentence in 
paragraph (a).
    The addition reads as follows:


Sec.  1303.21  Individual manufacturing quotas.

    (a) * * * The Administrator may establish an individual 
manufacturing quota in terms of pharmaceutical dosage-forms prepared 
from or containing the schedule I or II controlled substance, if he 
determines it will assist in avoiding the overproduction, shortages, or 
diversion of a controlled substance. * * *
* * * * *
0
6. Amend Sec.  1303.22 by revising the first sentence of the 
introductory text to read as follows:


Sec.  1303.22  Procedure for applying for individual manufacturing 
quotas.

    Any person who is registered to manufacture any basic class of 
controlled substance listed in schedule I or II and who desires to 
manufacture a quantity of such class shall apply on DEA Form 189 for a 
manufacturing quota and shall state separately for each subcategory, as 
defined in 21 CFR 1303.04, each quantity of such class. * * *
* * * * *


Sec.  1303.23  [Amended]

0
7. In Sec.  1303.23, remove ``March'' and add in its place ``July'' in 
the first sentence of paragraph (c).
0
8. Revise Sec.  1303.24 to read as follows:


Sec.  1303.24  Inventory allowance.

    (a) For the purpose of determining individual manufacturing quotas 
pursuant to Sec.  1303.23, each registered manufacturer shall be 
allowed as part of such quota an amount sufficient to maintain an 
inventory equal to:
    (1) For current manufacturers, 30 percent of his average estimated 
net disposal for the current calendar year and the last preceding 
calendar year; or
    (2) For new manufacturers, 30 percent of his reasonably estimated 
net disposal for the next calendar year as determined by the 
Administrator.
    (b) For the purpose of determining procurement quotas pursuant to 
Sec.  1303.12, each registered manufacturer shall be allowed as part of 
such quota an amount sufficient to maintain an inventory:
    (1) For current manufacturers, 30 percent of his average estimated 
net

[[Page 56730]]

disposal for the current calendar year and the last preceding calendar 
year; or
    (2) For new manufacturers, 30 percent of his reasonably estimated 
net disposal for the next calendar year as determined by the 
Administrator.
    (c) During each calendar year, each registered manufacturer shall 
be allowed to maintain an inventory of a basic class not exceeding 45 
percent of his estimated net disposal of that class for that year, as 
determined at the time his quota for that year was determined. At any 
time the inventory of a basic class held by a manufacturer exceeds 45 
percent of his estimated net disposal, his quota for that class is 
automatically suspended and shall remain suspended until his inventory 
is less than 40 percent of his estimated net disposal. The 
Administrator may, upon application and for good cause shown, permit a 
manufacturer whose quota is, or is likely to be, suspended pursuant to 
this paragraph (c) to continue manufacturing and to accumulate an 
inventory in excess of 45 percent of his estimated net disposal, upon 
such conditions and within such limitations as the Administrator may 
find necessary or desirable.
    (d) If, during a calendar year, a registrant has manufactured the 
entire quantity of a basic class allocated to him under an individual 
manufacturing quota, and his inventory of that class is less than 20 
percent of his estimated net disposal of that class for that year, the 
Administrator may, upon application pursuant to Sec.  1303.25, increase 
the quota of such registrant sufficiently to allow restoration of the 
inventory to 30 percent of the estimated net disposal for that year.
0
9. Amend Sec.  1303.27 by revising the first sentence to read as 
follows:


Sec.  1303.27  Abandonment of quota.

    Any manufacturer assigned an individual manufacturing quota for any 
basic class of controlled substance listed in schedule I or II pursuant 
to Sec.  1303.23 may at any time abandon his right to manufacture all 
or any part of such quota by filing a notice of such abandonment with 
the UN Reporting and Quota Section, Diversion Control Division, Drug 
Enforcement Administration in the online Quota Management System. * * *

PART 1315--IMPORTATION AND PRODUCTION QUOTAS FOR EPHEDRINE, 
PSEUDOEPHEDRINE, AND PHENYLPROPANOLAMINE

0
10. The authority citation for 21 CFR part 1315 continues to read as 
follows:

    Authority: 21 U.S.C. 802, 821, 826, 871(b), 952.

0
11. Add Sec.  1315.06 to read as follows:


Sec.  1315.06  Assessment of annual needs; types of quotas.

    The four types of quotas are:
    (a) Assessment of annual needs, which establishes the total 
quantity of ephedrine, pseudoephedrine, and phenylpropanolamine 
necessary to be manufactured and imported by all manufacturers and 
importers in a calendar year.
    (b) Individual manufacturing quotas, which establish the maximum 
quantity of ephedrine, pseudoephedrine, and phenylpropanolamine that a 
registered manufacturer may manufacture during a calendar year. This 
type of quota is only issued to DEA-registered bulk manufacturers.
    (c) Procurement quotas, which establish the maximum quantity of 
ephedrine, pseudoephedrine, and phenylpropanolamine that a registered 
manufacturer may procure during a calendar year for the purpose of 
manufacturing into dosage-forms or other substances.
    (d) Import quotas, which establish the maximum quantity of 
ephedrine, pseudoephedrine, and phenylpropanolamine that a registered 
importer may import during the calendar year for distribution to their 
DEA-registered customers.
0
12. Add Sec.  1315.07 to read as follows:


Sec.  1315.07  Subcategories of manufacturing and procurement quota.

    The five subcategories are:
    (a) Quota for Commercial Sale is a quota for the amount of bulk 
active pharmaceutical ingredients (API) initially acquired by a 
registrant for the manufacture of ephedrine, pseudoephedrine, and 
phenylpropanolamine products and bulk API acquired by outsourcing 
facilities, manufacturers, etc. This type of quota shall only be used 
to support commercial manufacturing efforts and shall not be used to 
support other manufacturing efforts.
    (b) Quota for Transfer is a quota for the amount of material moved 
from one registrant to another and does not include material captured 
under procurement quota for commercial sale. Examples include:
    (1) Bulk API being transferred back to the original registrant 
after milling;
    (2) Transfer of in-process material or finished dosage-forms for 
additional manufacturing efforts (coating, beading, encapsulation, and 
so forth) back to the preceding registrant; and
    (3) Return of material after the specified manufacturing activity 
has been completed.
    (c) Quota for Product Development is a quota for the amount of 
material needed for product development and validation manufacturing 
efforts. This quota is limited to that activity only and only for the 
development efforts noted in the application; it shall not be used or 
substituted for commercial production or the development of a different 
product. This quota is issued with the understanding that this material 
is not intended for commercial use, with the exception of FDA-approved 
or OTC Monograph validation batches. Validation batches shall be noted 
specifically in an application and shall be considered product 
development material that will be taken into account once a product is 
FDA-approved for commercial sale. No inventory shall be granted for 
these efforts, nor shall replacement quota be considered for destroyed 
material issued under this quota subcategory.
    (d) Quota for Replacement is a type of individual manufacturing 
quota or procurement quota that is granted to a registrant after the 
registrant disposes of material that was initially intended for 
commercial sale, but for some reason was unable to be marketed. This 
quota is separate and shall not count against a registrant's other 
issued quota. Replacement quota will be granted on a case by case 
basis. The merits of the request shall be determined by the 
registrant's justification. Replacement quota is intended to replace 
material from the current quota year and shall not be used to replace 
disposed samples, analytical samples, product development material or 
inventory acquired under previous quota years.
    (e) Quota for Packaging/Repackaging and Labeling/Relabeling is 
quota for the amount of material moved to a registrant to undergo 
packaging and labeling activities. This quota is limited to that 
activity only and only for the packaging/repackaging and labeling/
relabeling noted in the application; it shall not be used or 
substituted for commercial production or the packaging of a different 
product.


Sec.  1315.11   [Amended]

0
13. Amend Sec.  1315.11 by removing ``May'' and adding in its place 
``September'' in the first sentence of paragraph (c).


Sec.  1315.21  [Amended]

0
14. Amend Sec.  1315.21 by removing ``July'' and adding in its place 
``December'' in the first sentence.

[[Page 56731]]

0
15. Amend Sec.  1315.22 by revising the first sentence of the 
introductory text to read as follows:


Sec.  1315.22  Procedure for applying for individual manufacturing 
quotas.

    Any person who is registered to manufacture ephedrine, 
pseudoephedrine, or phenylpropanolamine and who desires to manufacture 
a quantity of the chemical must apply on DEA Form 189 for a 
manufacturing quota for the quantity of the chemical and shall state 
separately for each subcategory, as defined in 21 CFR 1315.07, each 
quantity of such chemical. * * *
* * * * *


Sec.  1315.23  [Amended]

0
16. Amend Sec.  1315.23 by removing ``March'' and adding in its place 
``July'' in the first sentence of paragraph (c).
0
17. Revise Sec.  1315.24 to read as follows:


Sec.  1315.24  Inventory allowance.

    (a) For the purpose of determining individual manufacturing quotas 
pursuant to Sec.  1315.23, each registered manufacturer shall be 
allowed as part of such quota an amount sufficient to maintain an 
inventory:
    (1) For current manufacturers, 30 percent of his average estimated 
net disposal for the current calendar year and the last preceding 
calendar year; or
    (2) For new manufacturers, 30 percent of his reasonably estimated 
net disposal for the next calendar year as determined by the 
Administrator.
    (b) For the purpose of determining procurement quotas pursuant to 
Sec.  1315.32, each registered manufacturer shall be allowed as part of 
such quota an amount sufficient to maintain an inventory:
    (1) For current manufacturers, 30 percent of his average estimated 
net disposal for the current calendar year and the last preceding 
calendar year; or
    (2) For new manufacturers, 30 percent of his reasonably estimated 
net disposal for the next calendar year as determined by the 
Administrator.
    (c) During each calendar year, each registered manufacturer shall 
be allowed to maintain an inventory of a chemical not exceeding 45 
percent of his estimated net disposal of that chemical for that year, 
as determined at the time his quota for that year was determined. At 
any time the inventory of a chemical held by a manufacturer exceeds 45 
percent of his estimated net disposal, his quota for that chemical is 
automatically suspended and shall remain suspended until his inventory 
is less than 40 percent of his estimated net disposal. The 
Administrator may, upon application and for good cause shown, permit a 
manufacturer whose quota is, or is likely to be, suspended pursuant to 
this paragraph (c) to continue manufacturing and to accumulate an 
inventory in excess of 45 percent of his estimated net disposal, upon 
such conditions and within such limitations as the Administrator may 
find necessary or desirable.
    (d) If, during a calendar year, a registrant has manufactured the 
entire quantity of a chemical allocated to him under an individual 
manufacturing quota, and his inventory of that chemical is less than 20 
percent of his estimated net disposal of that class for that year, the 
Administrator may, upon application pursuant to Sec.  1315.25, increase 
the quota of such registrant sufficiently to allow restoration of the 
inventory to 30 percent of the estimated net disposal for that year.
0
18. Amend Sec.  1315.27 by revising the first sentence to read as 
follows:


Sec.  1315.27   Abandonment of quota.

    Any manufacturer assigned an individual manufacturing quota for a 
chemical pursuant to Sec.  1315.23 may at any time abandon his right to 
manufacture all or any part of such quota by filing a notice of such 
abandonment with the UN Reporting and Quota Section, Diversion Control 
Division, Drug Enforcement Administration in the online Quota 
Management System. * * *
0
19. Amend Sec.  1315.32 by:
0
a. Revising the first sentence in paragraph (a);
0
b. Removing ``July'' and adding in its place ``December'' in the 
introductory text of paragraph (f);
0
c. Removing ``manufacturer or importer'' and adding in its place 
``registrant'' in paragraph (h).
    The revision reads as follows:


Sec.  1315.32  Obtaining a procurement quota.

    (a) Any person who is registered to manufacture ephedrine, 
pseudoephedrine, or phenylpropanolamine, or whose requirement of 
registration is waived pursuant to Sec.  1309.24 of this chapter, and 
who desires to use during the next calendar year any ephedrine, 
pseudoephedrine, or phenylpropanolamine for purposes of manufacturing 
(including repackaging or relabeling), must apply on DEA Form 250 for a 
procurement quota for the chemical and shall state separately for each 
subcategory, as defined in 21 CFR 1315.07, each quantity of such 
chemical. * * *
* * * * *


Sec.  1315.34  [Amended]

0
20. Amend Sec.  1315.34 by removing ``July'' and adding in its place 
``December'' in paragraph (f).

    Dated: September 28, 2019.
Uttam Dhillon,
Acting Administrator.
[FR Doc. 2019-21989 Filed 10-22-19; 8:45 am]
 BILLING CODE 4410-09-P