Manufacturer of Controlled Substances; Notice of Registration

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

Manufacturer of Controlled Substances; Notice of Registration

By notice dated August 14, 1995, and published in the Federal

Register on August 22, 1995 (60 FR 43613), Ganes Chemicals, Inc.,

Industrial Park Road, Pennsville, New Jersey 08070, made application to

the Drug Enforcement Administration (DEA) to be registered as a bulk

manufacturer of methylphenidate.

A registered manufacturer of bulk methylphenidate filed a comment

alleging that DEA's notice of application, published in the Federal

Register, did not comply with notice and comment rulemaking

requirements of the Administrative Procedure Act (APA). In addition,

the commentor stated that Ganes' registration would be contrary to the

public interest under 21 U.S.C. 823(a).

The commentor maintains that DEA ``has deprived [the commentor] and

other registered manufacturers and applicants of the opportunity to

offer fully-informed comments on Ganes' application.'' In support of

its position, the commentor submits that ``registration of bulk

manufacturers of schedule I-II controlled substances is subject to

notice and comment rulemaking.'' For the reasons provided below, this

conclusion is an incorrect interpretation of the APA. First, the

commentor ignores the basic definitions set forth in the APA and, in so

doing, confuses notice and comment rulemaking with agency licensing

proceedings. The commentor argues that DEA proceedings to grant or deny

an application for registration as a bulk manufacturer are rulemakings.

However, the clear language of the definition of a ``rule'' exposes the

error of this analysis. The APA defines ``rule making'' to mean an

``agency process for formulating, amending, or repealing a rule.'' 5

U.S.C. 551(5).

The APA defines a ``rule'' as:

The whole or a part of an agency statement of general or

particular applicability and future effect designed to implement,

interpret, or prescribe law or policy or describing the

organization, procedure, or practice requirements of an agency and

includes the approval or prescription for the future of rates,

wages, corporate or financial structures or reorganizations thereof,

prices, facilities, appliances, services or allowances therefore or

of valuations, costs, or accounting, or practices bearing on any of

the foregoing.

5 U.S.C. 551(4).

Review of the APA's definitions of license \1\ and licensing \2\

reveals that the granting or denial of a manufacturer's application for

registration is a licensing action, not a rulemaking. Courts have

[[Page 24958]]

frequently distinguished between agency licensing actions and

rulemaking proceedings. See, e.g., Gateway Transportation Co. v. United

States, 173 F. Supp. 822, 828 (D.C. Wis. 1959); Underwater Exotics,

Ltd. v. Secretary of the Interior, 1994 U.S. Dist. LEXIS 2262 (1994).

Since courts have interpreted agency action relating to licensing as

not falling within the APA's rulemaking provisions, it is probably not

an oversight that the commentor has not cited any cases in which an

agency action on a license was required to comport with Sec. 553 of the

APA.

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\1\ Section 551(8) of the APA defines license as ``the whole or

a part of an agency permit, certificate, approval, registration,

charter, membership, statutory exemption or other form of

permission.'' (emphasis added).

\2\ Licensing is defined as ``agency process respecting the

grant, renewal, denial, revocation, suspension, annulment,

withdrawal, limitation, amendment, modification, or conditioning of

a license.'' 5 U.S.C. 551(9).

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In Underwater Exotics, the United States District Court for the

District of Columbia drew the distinction between an agency placing

conditions on a license and agency creation of a rule. In that case,

the Fish and Wildlife Service (Service) imposed certain conditions on

the plaintiff's import/export license; the plaintiff sued, arguing,

inter alia, that the Service failed to comply with the APA's rulemaking

requirements.

The court looked to the APA's definitions of ``licensing'' and

``rule'' and concluded that ``the Service's imposition of these

conditions on a license did not violate the APA, because the Service's

actions did not involve the creation of a rule.'' 1994 U.S. Dist. LEXIS

2262, *26. The court explained that:

The Service's imposition of conditions on the plaintiff's

import/export license clearly fall within the definitions of

``license'' and ``licensing,'' * * * this agency action is not a

``rule making.'' Absent specific statutory direction otherwise, a

court should not force an agency to employ a certain procedural

format * * *.

Id.

Since the registration of bulk manufacturers is not a ``rule,'' DEA

is not required to follow traditional notice and comment rulemaking

procedures when granting or denying applications for such registration.

In fact, the D.C. Circuit, in a case cited by the commentor, clearly

supported this analysis in a decision in which the court stated that

``agency action that clearly falls outside the definition of `rule' is

also freed from rulemaking procedures.'' Batterton v. Marshall, 648 F.

2d 694, 701 n. 25 (D.C. Cir. 1980).

In a final rule which amended 21 CFR Sec. 1301.43(a), effective

July 20, 1995, DEA eliminated the right of current bulk manufacturers

or applicants to request a hearing on an application to bulk

manufacture a Schedule I or II controlled substance. In the regulation

as amended, however, DEA continued to invite comments and objections

from such manufacturers or applicants on a pending application. (60 FR

32099 (June 20, 1995)). The commentor claims that DEA voluntarily

adopted the APA's notice and comment procedures when it changed the

third party hearing regulation in the final rule of June 20, 1995. This

contention, however, is not supported by either the notice of proposed

rulemaking (59 FR 3055) or the final rule. In fact, while the final

rule does invite written comments from current manufacturers and

applicants, nowhere in this rule does DEA state, implicitly or

explicitly, that it intended to follow notice and comment rulemaking

procedures when acting upon a bulk manufacturer's application. DEA

simply stated in the final rule that it would take into account such

written comments when deciding whether to grant a particular

registration or whether to issue an Order to Show Cause proposing to

deny an application.

The commentor contends that ``[w]ithout access to * * * Ganes'

application, any reports of DEA inspections of Ganes, or DEA's

assessment of how it might apply the statutory public interest test, it

is impossible for [the commentor] and other registered manufacturers to

offer fully-informed comments on Ganes' fitness for registration.''

Nowhere in the final rule was it contemplated that DEA would turn over

information in its files in order for others to determine whether to

object or not. DEA is well aware of what it has in its own files and

will supplement that information with any comments filed in rendering a

decision whether or not to grant an application. In determining whether

an applicant meets the public interest standard, DEA is perfectly

capable of analyzing its own investigative reports. Therefore, it is

not necessary for DEA to turn over information it has gathered on a

particular applicant to another registered manufacturer.

Moreover, under 21 U.S.C. 824(a), only the Attorney General has the

discretion to decide whether or not to file an Order to Show Cause. The

rule amending 21 CFR 1301.43 did not and, indeed, could not, authorize

a third party to exercise such discretion in light of the clear

statutory mandate to place such decisions exclusively with the Attorney

General.

If DEA determines, based upon its own investigation and upon

information provided to it through written comments, that the

registration of an applicant would not be in the public interest, an

Order to Show Cause will be issued. If the applicant requests a

hearing, the ensuing adjudicatory proceedings will comply with the APA.

DEA's decision to address applications via individual adjudication, and

not by notice and comment rulemaking, is within its discretion and in

conformity with both the APA and the Controlled Substances Act (CSA).

Courts have held that agencies have this discretion to determine

whether to proceed by rulemaking or individual adjudication. See PBW

Stock Exchange v. Securities and Exchange Commission, 485 F. 2d 718,

731 (3d Cir. 1973), cert. denied 94 S. Ct. 1992.

Finally, the commentor's citation to Rodway v. USDA, 514 F. 2d 809

(D.C. Cir. 1975) and Heron v. Heckler, 576 F. Supp. 218 (N.D. Cal.

1983) is inappropriate. In those cases, as the commentor itself

acknowledges, the agencies in question had either promulgated a

regulation or adopted a policy statement specifically espousing the

APA's notice and comment requirements. DEA has done neither.

The commentor also submitted that the sixty day comment period was

inadequate because that commentor needed more time to obtain and assess

documents from DEA and the U.S. Department of Health and Human

Services, Food and Drug Administration. The regulation, as amended June

20, 1995, contemplated that DEA would receive information from

qualified third parties that is already available and known to such

parties. As explained above, the intent of the regulation never was to

have other bulk manufacturers or applicants become an independent

investigative branch. Under these circumstances, the sixty-day comment

period is adequate.

DEA's action upon a bulk manufacturer's application is not a

rulemaking action. DEA is therefore not required to follow notice and

comment rulemaking when considering these applications. Neither the APA

nor the CSA requires DEA to follow notice and comment rulemaking when

acting upon bulk manufacturer applications. While DEA invites comments

from other bulk manufacturers and applicants, such invitation does not

translate into an implicit adoption of notice and comment rulemaking.

Consequently, the sixty day comment in which to file comments is

reasonable and adequate.

On February 14, 1996, the Commentor filed a belated, additional

comment. This comment maintained that the dictum set forth in MD

Pharmaceutical, Inc. v. Drug Enforcement Administration, No. 95-1267

(D.C. Cir. January 2, 1996) required DEA to set forth the reasons why

DEA intends to register Ganes under certain factors set forth in 21

U.S.C. 823(a). Whether or not the Commentor's interpretation is correct

or not, DEA will adequately address the commentor's objections and

[[Page 24959]]

set forth the reasons why DEA believes Ganes' application should be

granted under the factors pursuant to 21 U.S.C. 823(a) as set forth

below.

In stating that Ganes Chemicals, Inc.'s application to manufacture

methylphenidate would be contrary to the public interest under 21

U.S.C. 823(a), the commentor argues that Ganes would lack effective

controls against diversion of methylphenidate; that Ganes' past

experience in the manufacture of controlled substances and experience

in the establishment of effective control against diversion were

questionable; that there is currently an adequate and uninterrupted

supply of methylphenidate under adequately competitive conditions; and

that there were other relevant factors to indicate that Ganes'

registration would be contrary to the public health and safety.

In support of the contentions that Ganes lacks effective controls

to prevent diversion and that Ganes' past experience in this regard was

questionable, the commentor states that as a result of an Order to Show

Cause issued by DEA and a Civil Complaint filed in the United States

District Court for the District of New Jersey charging Ganes with

various security and record-keeping violations and with manufacturing

controlled substances in excess of quotas, Ganes entered into a Consent

Agreement in December 1980, agreeing to withdraw its application to

bulk manufacture methaqualone and not reapply until 1984 and pay a

$25,000 fine.

Ganes' application is based on the firm's request to add

methylphenidate to its existing registration as a bulk manufacturer.

Ganes has been and is currently registered with DEA as a bulk

manufacturer of other Schedule II controlled substances. Both the Order

to Show Cause and the civil complaint occurred over fifteen years ago.

The firm has been investigated by DEA on a regular basis since that

time to determine if the firm maintains effective controls against

diversion and if its continued registration is consistent with the

public interest. These investigations have included, in part,

inspection and testing of the firm's physical security, audits of the

firm's records, verification of compliance with state and local law and

a review of the firm's background and history. The investigations have

found Ganes to be in compliance with the CSA and its implementing

regulations.

The commentor argues that there is an adequate and uninterrupted

supply of methylphenidate under adequately competitive conditions. In

support of this argument, the commentor asserts that the present bulk

manufacturers are adequate for this purpose, that quota restrictions

have been eased sufficiently since 1988, and that the commentor sells

methylphenidate in dosage form to itself and other distributors.

Under Title 21, CFR 1301.43(b), DEA is not required to limit the

number of manufacturers solely because a smaller number is capable of

producing an adequate supply, provided effective controls against

diversion are maintained. DEA has determined that effective controls

against diversion will be maintained by Ganes.

The commentor, in support of its argument that Ganes' registration

would be contrary to the public health and safety, cites Ganes'

manufacture of the List I chemicals, ephedrine and pseudoephedrine. The

commentor states that DEA has reported that ephedrine and

pseudoephedrine are used in the clandestine manufacture of

methamphetamine and methcathinone and that companies such as Ganes may

be the source of these chemicals.

With respect to Ganes' manufacture of ephedrine and

pseudoephedrine, there is no evidence of any violations of the Chemical

Diversion and Trafficking Act (CDTA) and the Domestic Chemical

Diversion Control Act (DCDCA).

Another factor which the commentor claims is relevant is that the

Food and Drug Administration (FDA) has made various inspections of

Ganes' two production centers between 1980 and 1994, and noted various

problems with record keeping, manufacturing practices and product-

complaint procedures. The commentor states that some of these findings

pertain to controlled substances.

The FDA violations are based on the practices of another federal

agency within another department of government operating under the

authority of distinctly different statutes. Moreover, DEA has verified

with FDA that Ganes' drug registration under the Federal Food, Drug and

Cosmetic Act is current, that the nature of the indicated (or noted)

FDA citations against Ganes and the FDA actions to ensure compliance do

not warrant a finding that Ganes' compliance with Federal laws is so

lacking or inadequate as to warrant denial under the CSA.

It is within DEA's sole discretion to decide whether or not to file

an Order to Show Cause after reviewing all of the evidence, including

the comments and objections provided to DEA under 21 CFR 1301.43(a).

After reviewing all the evidence, including the comment filed, DEA has

determined, pursuant to 21 U.S.C. 823(a), that it is consistent with

the public interest to grant Ganes' application to manufacture

methylphenidate at this time. Therefore, pursuant to 21 U.S.C. 823 and

28 CFR 0.100 and 0.104, the Deputy Assistant Administrator, Office of

Diversion Control, hereby orders that the application submitted by the

above firm for registration as a bulk manufacturer of the basic classes

of controlled substances listed above is granted.

Dated: May 13, 1996.

Gene R. Haislip,

Deputy Assistant Administrator Office of Diversion Control Drug

Enforcement Administration.

[FR Doc. 96-12429 Filed 5-16-96; 8:45 am]

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