A “Big” Bulks Decision for Outsourcing Facilities and Athenex: Court Affirms FDA’s Method of Determining “Clinical Need” in a Resounding Blow for Outsourcing Facilities

In a much-anticipated decision for those that have been following the saga of whether FDA has appropriately set the test for determining how it may include bulk substances on its list of substances that may be used in compounding under Section 503B of the Federal Food, Drug, and Cosmetic Act, the D.C. District Court provided its answer in a decision handed down late last week.  The closely watched matter involves a fierce battle between big pharma and compounders that started in the summer of 2017  and has been documented on this blog here and here.  Recall briefly that, back in 2017, FDA approved Vasostrict®; certain outsourcing facilities had nominated – and FDA approved – the addition of the bulk active pharmaceutical ingredient vasopressin to its interim list of bulk drug substances that may be used in compounding.  After a flurry of litigation activity in the fall of 2017 and early 2018, FDA resolved to revise its process for reviewing nominations to its bulk substances list, which effectively stayed the pending litigation against the Agency brought by Endo Pharmaceuticals, maker of Vasostrict®.  In early 2019, FDA announced its revised process for determining whether to include substances on its bulks list. FDA’s new process, described here, ultimately resulted in FDA’s determination to remove vasopressin from the bulks list, and, unsurprisingly brought about more litigation.

All of this leads us to the United States District Court for the District of Columbia’s recent decision.  Recall that Athenex sued FDA over the Agency’s interpretation of the bulks nomination process and subsequent removal of vasopressin from the bulks list.  See Athenex, et al. v. Alex M. Azar II, et al., Civ. No. 19-cv-00603 (APM) (D.D.C. 2019), here.  In a detailed 31-page memorandum opinion, the District Court ruled in favor of FDA, considering the text, structure and legislative history of Section 503B.  While the ultimate outcome may not be all that surprising given the deference shown to federal agencies under the Supreme Court’s landmark Chevron administrative deference standard, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), what is somewhat surprising to those that have been following the matter is that the Court decided the issue based on the first prong of Chevron.  This means that the Court found unambiguous the underlying statutory text, structure, and legislative history of Section 503B;  thus, FDA’s interpretation of the same gave effect to the “unambiguously expressed intent of Congress.” The Court also determined that FDA’s exclusion of vasopressin from the bulks list was not arbitrary and capricious.

The Court reviewed the new test for nominations that FDA first published in March 2018 and finalized a year later.  The new guidance considers, as a threshold matter, whether the bulk substance is a component of an FDA-approved drug produc.  It also considers whether that FDA-approved product has an attribute that makes it medically unsuitable to treat certain patients, which attribute the proposed compounded formulation will address.  FDA then considers whether there is a basis to conclude that the proposed compounded drug product must be produced from a bulk substance rather than an FDA-approved drug.

Reviewing the “plain meaning” of the statute, the Court disagreed with Athenex’s interpretation of “clinical need” for use of a bulk substance.  Athenex argued that the Agency’s framing of “clinical need” improperly replaces “bulk drug substances” as the term appears in Section 503B(a)(2)(A), with the term “compounded drug product,” thus making FDA’s nomination process a review of approved products and not the bulk substances in those products.  Not buying Athenex’s reason, the Court held Athenex’s interpretation would produce an unreasonable result –– as there is a “clinical need” for every bulk substance because, by definition, a bulk drug substance is one “intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment or prevention of disease….”  Mem. Op.  at 14.  The Court noted that Athenex’s interpretation draws “no actual distinction among bulks substances- there is a ‘clinical need’ for all.”  Id.  The Court further found (among other reasons for ruing against Athenex under Chevron’s first prong) that Congress knew how to permit compounding with FDA-approved drug products, because that provision is included in Section 503A’s provision permitting compounding with components of FDA-approved drug products.  A similar provision is non-existent in Section 503B.

Athenex also pointed to the statute’s “essentially copies” provision, arguing that FDA’s interpretation of “clinical need” makes that provision redundant.  Specifically, the “essentially copies” provision ensures that compounders “will not compound drug products that rival FDA-approved drugs, so the clinical need provision cannot fulfill the same purpose.”  Mem. Op. at 23.  Refusing to take Plaintiff’s bait, the Court stated that Section 503B’s redundancies reflect the broader purpose of creating a clear market advantage for approved drugs, and that compounded drug products are used essentially to fill the gaps left by FDA-approved drug products.  Specifically, the Court held that both the “essentially a copy” provision and the “clinical need” inquiry are directed at identifying “whether the compounded product is one that fills a therapeutic purpose unmet by the approved drug.”  Notwithstanding the sparse legislative record reflecting the passage of the Drug Quality and Security Act, the Court also found that FDA’s method of determining “clinical need” comports with Congress’s mission of protecting the public health in the wake of the 2012 New England Compounding Center tragedy.

As if the Court’s Chevron step one reasoning was not clear enough, in the “interest of completeness” Judge Mehta also held that FDA would prevail at Chevron step two.  In brief, the Court held that FDA offered a “reasoned explanation” for its interpretation of Section 503B.  Lastly, the Court found that FDA’s decision to exclude vasopressin from the bulk substances list was not arbitrary and capricious.  Noting that its review of the Agency’s decision making was “narrow,” the Court found that the Agency’s rejection of Plaintiff’s “clinical need” arguments – namely its “advantageous” ready-to-use and chlorobutanol-free formulation – were not arbitrary.

It remains to be seen what effect if any, the Court’s decision will have on the Section 503B bulks list generally, especially for those listed substances that are components of approved drug products.