FDA Watch

Drug Manufacturing or Pharmacy Compounding?

By D. Kyle Sampson, J.D., and Brian J. Wesoloski, J.D., Hunton & Williams LLP | July 18, 2012

Court Limits FDA’s authority to regulate pharmacy compounding

In the recent case of United States v. Franck’s Lab, Inc., 816 F. Supp. 2d 1209 (M.D. Fla. 2011), a federal district court ruled that the U.S. Food and Drug Administration (“FDA” or “Agency”) lacks authority to enjoin the “long-standing, widespread, state-regulated practice of pharmacists filling a veterinarian’s prescription for a non food-producing animal by compounding from bulk substances.” Compounding is a process by which a pharmacist combines, mixes, or alters ingredients pursuant to a valid prescription to create a medication tailored to the needs of an individual human or animal patient. In so holding, the court criticized FDA for attempting to “eradicate the line” between traditional pharmacy compounding on the one hand, and unlawful manufacturing on the other. The district court’s decision currently is on appeal before the U.S. Court of Appeals for the Eleventh Circuit, which has scheduled oral argument for the week of October 29, 2012.1
The District Court’s Opinion
FDA initiated an enforcement action against Franck’s Lab, Inc. and individual defendants (collectively “Franck’s”) in April 2010, seeking to enjoin Franck’s practice of distributing animal drugs that had been compounded from bulk substances. FDA brought the enforcement action after a drug compounded by Franck’s for the Venezuelan national polo team resulted in the death of 21 polo horses. The drug had been improperly compounded due to a mathematical error in the conversion of an ingredient (which went unnoticed by the prescribing veterinarian).
The Florida Board of Pharmacy thoroughly investigated and resolved this matter to its satisfaction, but the incident prompted FDA to conduct multiple inspections of Franck’s facilities.

Subsequent to one of the inspections, FDA issued a Form FDA 483 citing various observations primarily involving quality assurance and training issues. None of the observations identified compounding from bulk ingredients as a concern. Franck’s responded to the Form 483 by arguing that, among other things, FDA’s observations involve the practice of pharmacy, over which the Florida Board of Pharmacy has jurisdiction, and that Franck’s was not subject to FDA’s authority because it is not a drug manufacturer. Without further discussion, FDA filed a lawsuit against Franck’s, arguing that Franck’s was engaged in the illegal manufacturing and distribution of animal drugs in violation of the Federal Food, Drug, and Cosmetic Act (“FD&C Act” or “Act”). 
At the outset of its opinion, the district court noted, “FDA acknowledges that this is the first time it has sought to enjoin a state-licensed pharmacist from bulk compounding of animal medications.” In addition, the court stated that FDA had put forward “the bright-line position that any compounding of animal medications from bulk substances violates [the FD&C Act], even when conducted by a state-licensed pharmacist for an individual animal patient pursuant to a valid veterinary prescription.” The central issue in the case, therefore, was whether the Act, “as originally enacted in 1938, provides the FDA with statutory authority to enjoin Franck’s from engaging in traditional compounding of animal drugs from bulk” ingredients.
In response to FDA’s arguments, Franck’s submitted a number of declarations from expert and fact witnesses in support of its position that its drug compounding activities did not amount to the unlawful manufacturing of unapproved animal drugs.2 The district court’s opinion observed that FDA chose not to dispute these declarations, despite having “ample opportunity” to do so, “resting instead on its position that compounding animal drugs from bulk . . . constitutes a per se violation of the [Act].” The Agency also asserted that this was a “simple case” because “the literal, plain language of the original [Act], enacted in 1938, gives it the enforcement authority to prevent pharmacists from bulk compounding medications for non food-producing animals.” FDA thus contended that “it is authorized to enjoin a licensed pharmacist’s state-authorized practice of compounding animal drugs from bulk substances, even where a single medication is compounded for an individual non food-producing animal pursuant to a valid veterinary prescription.” In short, the Agency essentially argued, “this traditional compounding practice implicates the same concerns under the [FD&C Act] as the mass-production, mass-marketing, and mass-distribution of unapproved animal drugs by an unlicensed manufacturer.”
In response, Franck’s argued that Congress never intended to authorize FDA “to prohibit the long-standing and widespread practice” of compounding from bulk substances “when done by a state-licensed, state-regulated pharmacist, acting on an individual prescription written by a veterinarian for a non food-producing animal.” Alternatively, Franck’s contended that the Agency failed to properly exercise its authority by neglecting to promulgate regulations through notice-and-comment rulemaking prior to seeking an injunction against Franck’s.
The court rejected what it characterized as FDA’s “‘maximalist’ interpretation of its authority,” finding that so-called Chevron deference, where courts grant deference to a government agency’s interpretation of a statute which it administers, was not appropriate. After providing a lengthy analysis of the FD&C Act’s “structure and legislative history through the lens of several canons of statutory construction so as to place the [Act’s] treatment of traditional pharmacy compounding in its proper context,” the court held, “in enacting the [Act] in 1938, Congress did not intend to give the FDA per se authority to enjoin the long-standing, widespread, state-regulated practice of pharmacists filling a veterinarian’s prescription for a non food-producing animal by compounding from bulk substances.” In so holding, the court pointed to “a significant problem with the FDA’s position: the agency has never attempted to test its views concerning bulk compounding for non-food-producing animals by notice and comment review.” 

Arguments Before the Eleventh Circuit
Franck’s appellate brief argues that, on appeal, the government is attempting to abandon the unsuccessful per se position it advanced before the district court that the FD&C Act, as enacted in 1938, criminalized all pharmacy compounding and that the Agency subsequently exercised enforcement discretion for 50 years. In particular, the government argues on appeal that FDA’s authority to regulate the compounding of animal drugs is found not only in the plain meaning of 
the 1938 Act, but also in the Animal Medicinal Drug Use Clarification Act (“AMDUCA”) and the Food and Drug Administration Modernization Act (“FDAMA”). Franck’s, however, argues that the government conceded in the proceedings below that both of these amendments are inapplicable. Similarly, Franck’s argues that the government is attempting to raise on appeal other arguments that it had abandoned below, including claims that Franck’s engaged in illegal drug manufacturing under the guise of pharmacy compounding. In addition, Franck’s contends that the Agency never attempted to promulgate an enforceable regulation that interprets the FD&C Act, AMDUCA, or FDAMA as prohibiting traditional pharmacy compounding of animal drugs, and that “FDA has certainly not sought to stamp out the common practice of compounding from bulk ingredients.” Franck’s also maintains that the government’s interpretation of the FD&C Act should be rejected because it invites arbitrary enforcement, thereby raising “serious constitutional doubts.”
An amicus brief filed by former FDA officials concurred with Franck’s. The brief states that the amicus curiae former FDA officials have an interest in the proper interpretation of FDA’s authority to regulate traditional pharmacy compounding and in FDA’s exercise of that authority, properly understood, in a fair and consistent manner. Their brief emphasizes that the FD&C Act’s “new drug” provisions were intended to regulate drug manufacturers, not pharmacists engaged in traditional pharmacy compounding. In addition, the former FDA officials maintain that the fundamental difference between drug manufacturing and traditional pharmacy compounding turns on the existence of a pharmacist-prescriber-patient relationship, not on whether the drug is compounded from bulk ingredients versus an approved drug product.
For its part, the government puts forward a number of arguments in favor of reversal of the district court’s opinion. First, the government argues that the definition of the term “new animal drug” set forth in the FD&C Act “is sweeping and literally includes compounded animal drugs,” and that Congress “has never excluded pharmacy-compounded animal drugs from that definition.” Second, the government contends that nothing in the Act requires the Agency to 
promulgate regulations through notice-and-comment rulemaking prior to initiating an enforcement action. Third, the government argues that FDA’s enforcement action in this 
case does not displace or interfere with state regulation of pharmacies, because “the regulation of drugs, in particular the requirement that new drugs and new animal drugs be approved by FDA before distribution in interstate commerce, is neither an obscure grant of authority to FDA 
nor an area traditionally supervised by the States.” Finally, the government argues that the district court erred in finding that FDA waived its arguments that Franck’s manufactures animal drugs under the guise of pharmacy compounding. 
The Washington Legal Foundation submitted an amicus curiae brief in support of affirmance of the district court’s decision, arguing that FDA may not impose a new rule of general applicability on the compounding industry without first following notice-and-comment rulemaking procedures under the Administrative Procedure Act. The Animal Health Institute and the Generic Animal Drug Alliance each filed an amicus curiae brief in support of FDA. 
The Eleventh Circuit’s decision in the Franck’s Lab case likely will have implications that reach far beyond the specific context of animal drug compounding. Resolution of the case, for example, will affect the legitimacy of FDA enforcement actions — one way or the other — against entities that compound human drugs. In addition, the lower court’s criticism of FDA’s attempt to regulate through issuing guidance documents in lieu of regulations, unless reversed on appeal, may provide ammunition to challengers of FDA’s use of guidance documents in other contexts.  
  1. The authors of this article submitted an amicus curiae brief in the case on behalf of former FDA officials in support of the Defendants-Appellees, Franck’s Lab, Inc., et al., for affirmance of the district court’s decision. 
  2. Franck’s expert witnesses included Sheldon T. Bradshaw, who is a partner and Co-Chair of the Food and Drug Practice at Hunton & Williams LLP, and was the former Chief Counsel of the FDA. Mr. Bradshaw is one of the former FDA officials that filed an amicus curiae brief and is represented by the authors of this article in the appeal of the Franck’s Lab case pending before the Eleventh Circuit. 

D. Kyle Sampson is a partner in the Washington, D.C. office of Hunton & Williams LLP and a member of the Firm’s Food and Drug Practice. He can be reached by email at 
ksampson@hunton.com. Brian J. Wesoloski is an associate in the Firm’s Food and Drug Practice. He can be reached at bwesoloski@hunton.com.

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