Fifth Circuit Vacates District Court “Second Inspection Ruling” in Compounding Pharmacy Case

By Kurt R. Karst –      

In a win for compounding pharmacies and a loss for FDA, the U.S. Court of Appeals for the Fifth Circuit ruled last week in Med. Ctr. Pharmacy v. Holder that the U.S. District Court for the Western District of Texas violated the law-of-the-case waiver doctrine and that FDA forfeited its ability to argue that the Agency may conduct limited inspections of pharmacy records to determine if pharmacy-compounded drugs comply with FDC Act § 503A (pharmacy compounding) and § 512(a) (new animal drugs) when FDA failed to raise any objection to an initial district court decision on the issue.

The case was before the fifth Circuit for the second time.  In July 2008, the Court ruled in Med. Ctr. Pharmacy v. Mukasey, 536 F.3d 383 (5th Cir. 2008) (see our previous post here), that, although there are reasons to believe Congress did not intend to deem all compounded drugs unapproved “new drugs,” compounded drugs are not exempt from the “new drug” definition at FDC Act § 201(p), and that compounded veterinary drugs fall within the statutory definition of “new animal drug.”  Notwithstanding this determination, however, the Court said that compounded drugs are exempt from the FDC Act’s adulteration, misbranding, and new drug approval provisions if they comply with the conditions set forth in FDC Act §§ 503A and 512(a).

On remand to the Texas District Court, FDA argued that the Fifth Circuit’s July 2008 decision enlarged the Agency’s authority to inspect the records of compounding pharmacies under FDC Act § 704.  The district court agreed with FDA and declared that notwithstanding the pharmacy inspection exception at FDC Act § 704(a)(2)(A), the Agency may, consistent with FDC Act § 704(a)(1), conduct limited inspections of pharmacy records to determine if pharmacy-compounded drugs comply with the conditions set forth in FDC Act §§ 503A and 512(a).  (Previously, the Texas District Court had ruled that state law-compliant pharmacies are exempt from FDA records inspections under FDC Act § § 503A(a)(2)(A).)  The plaintiffs in the case, a group of ten compounding pharmacies, appealed the district court’s new inspection ruling and argued that FDA forfeited the inspection issue because the Agency did not appeal the original inspection ruling, and that the district court therefore erred by reopening the issue on remand.

In its February 25, 2011 decision vacating and remanding the case back to the district court, the Fifth Circuit agreed with the compounding pharmacies.  Under the so-called “waiver doctrine” of the “law-of-the-case doctrine,” an issue that a party could have raised in an earlier appeal in the case, but that was not raised, is barred from consideration (see United States v. Castillo, 179 F.3d 321 (5th Cir. 1999).  The Fifth Circuit ruled that “[t]he instant case . . . fits squarely within the waiver doctrine,” and that because “FDA failed to raise its objection to the district court’s original inspection declaration in the first appeal,” and indeed, “expressly disavowed any intent to raise the inspection issue,” the Agency “forfeited the inspection issue, and the district court erred by reversing its prior inspection ruling on remand.” 

The Fifth Circuit’s ruling in Med. Ctr. Pharmacy v. Holder, although it really only applies to the ten compounding pharmacy plaintiffs in the case and does not match the same level of overall success compounders had in Thompson v. Western States Med. Ctr., 535 U.S. 357 (2002), is nevertheless a win for the plaintiffs on what is to them an important inspectional issue.