Ferring Pharmaceuticals, Inc. v. Burwell , 169 F. Supp. 3d 199 ( 2016 )


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  •                             UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF COLUMBIA
    FERRING PHARMACEUTICALS, INC.,                    :
    :
    Plaintiff,                                 :       Civil Action No.:      15-0802 (RC)
    :
    v.                                         :       Re Document Nos.:      20, 22
    :
    SYLVIA M. BURWELL, et al.,                        :
    :
    Defendants.                                :
    MEMORANDUM OPINION
    GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
    AND DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
    I. INTRODUCTION
    Plaintiff Ferring Pharmaceuticals, Inc. (“Ferring”) is the manufacturer of PREPOPIK, a
    fixed-dose combination drug product that contains three drug substances: sodium picosulfate,
    magnesium oxide, and anhydrous citric acid. When it submitted a New Drug Application
    (“NDA”) for PREPOPIK to the U.S. Food and Drug Administration (“the FDA”), Ferring sought
    a five-year period of marketing exclusivity because one of the drug substances, sodium
    picosulfate, had never previously been approved in a NDA. The Federal Food, Drug, and
    Cosmetics Act (“FDCA”) provides for a five-year period of marketing exclusivity when a drug
    application is approved “for a drug, no active ingredient (including any ester or salt of the active
    ingredient) of which has been approved in any other application.” 21 U.S.C. § 355(j)(5)(F)(ii).
    During that five-year period, “no application may be submitted . . . which refers to the drug for
    which the subsection (b) application was submitted.” 
    Id. The dispute
    in this case is whether the statutory term “drug,” as used in this provision of
    the FDCA, can reasonably be read to refer to a “drug product” (the finished dosage form of a
    drug), or must be read to refer to a “drug substance” (the active ingredient of the drug). See 21
    C.F.R. § 314.3 (defining “drug product” and “drug substance”). Because PREPOPIK’s other
    two active ingredients had previously been approved for market, the FDA applied its then-
    existing interpretation of the FDCA and determined that PREPOPIK was not entitled to a five-
    year period of marketing exclusivity. Ferring filed a Citizen Petition challenging the FDA’s
    interpretation. In response, the FDA—acknowledging the policy concerns Ferring and two other
    pharmaceutical companies raised regarding the agency’s interpretation—concluded that the
    FDCA could reasonably be read to refer to “drug substances,” and announced that it would
    change its interpretation and permit five-year exclusivity for fixed-combination drug products
    that contained a novel drug substance, even if that drug product also contained other previously-
    approved drug substances. Yet, the victory was a pyrrhic one for Ferring: the FDA concluded
    that it would apply its interpretation only prospectively, and declined to alter its exclusivity
    determination for PREPOPIK.
    In this Administrative Procedure Act (“APA”) action, Ferring challenges the FDA’s prior
    interpretation as contrary to the plain language of the FDCA, or an unreasonable interpretation of
    statutory ambiguity, under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 
    467 U.S. 837
    (1984). Alternatively, Ferring claims that even if the FDA’s prior interpretation was
    permissible, the agency’s refusal to apply its new interpretation retroactively is arbitrary and
    capricious. For the foregoing reasons, the Court concludes that the term “drug” as used in the
    five-year exclusivity provision is ambiguous and that the FDA’s prior interpretation was a
    reasonable one. This conclusion preserves the agency’s discretion to choose among the
    reasonable interpretations of an ambiguous statutory term, and accords with the Supreme Court’s
    admonition that “‘change is not invalidating, since the whole point of Chevron is to leave the
    2
    discretion provided by the ambiguities of a statute with the implementing agency.’” Nat’l Cable
    & Telecomms. Ass’n v. Brand X Internet Servs., 
    545 U.S. 967
    , 981 (2005) (quoting Smiley v.
    Citibank (South Dakota), N.A., 
    517 U.S. 735
    , 742 (1996)). Thus, the Court will grant summary
    judgment in part to Defendants on the Chevron issues. The Court concludes that supplemental
    briefing is necessary on the retroactivity question, however, and the Court will deny both
    motions for summary judgment on that ground, without prejudice. The Court will direct the
    parties to file renewed motions for summary judgment on the retroactivity issue that discuss the
    authorities identified below.
    II. FACTUAL & STATUTORY BACKGROUND
    A. Statutory Background
    The FDCA requires that all new prescription drugs be approved by the FDA before they
    can be marketed. See 21 U.S.C. § 355(a). Generally, when a pharmaceutical manufacturer
    submits a NDA for approval, it must support that application with full reports of clinical studies
    that demonstrate that the product is safe and effective. See 
    id. § 355(b).
    In 1984, Congress
    altered aspects of this process when it enacted what are popularly referred to as the Hatch-
    Waxman Amendments. See Drug Price Competition and Patent Term Restoration Act, Pub. L.
    No. 98-417, 98 Stat. 1585 (1984); see also Abbott Labs. v. Young, 
    920 F.2d 984
    , 985 (D.C. Cir.
    1990). The Hatch-Waxman Amendments “created a new system for protecting both the interests
    of drug manufacturers who produce new drugs and the interests of generic drug manufacturers
    and their consumers.” Abbott 
    Labs., 920 F.2d at 985
    . “Facing the classic question of the
    appropriate trade-off between greater incentives for the invention of new products and greater
    affordability of those products, Congress struck a balance between expediting generic drug
    applications and protecting the interests of the original drug manufacturers.” 
    Id. 3 As
    part of that balance, Congress simplified the approval process for generic versions of
    listed drugs. The Hatch-Waxman Amendments provided for the submission of an abbreviated
    new drug application (“ANDA”) for the generic version of a previously approved drug. See 21
    U.S.C. § 355(j)(1). To file an ANDA, a pharmaceutical manufacturer may rely on the FDA’s
    finding that a previously approved drug—referred to as the “listed drug”—is safe and effective,
    so long as the applicant can demonstrate that the proposed generic drug is the “same as” the
    reference listed drug in several essential respects. See generally 
    id. § 355(j)(2)(A).
    The Hatch-
    Waxman Amendments also provide for the approval of a NDA in which some or all of the
    investigations relied upon to show that the drug is safe and effective “were not conducted by or
    for the applicant and for which the applicant has not obtained a right of reference or use from the
    person by or for whom the investigations were conducted.” 
    Id. § 355(b)(2).
    Such applications
    are referred to as “505(b)(2) applications.”
    Despite the availability of these less onerous approval avenues, Congress also put in
    place incentives to promote the development of new drugs. As relevant to this case, the Hatch-
    Waxman Amendments established a five-year marketing exclusivity period for certain types of
    drugs, protecting a manufacturer from the submission of an ANDA or 505(b)(2) application and,
    thus, from generic competition. As amended, the FDCA provides that:
    If an application submitted under subsection (b) of this section [21 U.S.C.
    § 355(b)] for a drug, no active ingredient (including any ester or salt of the active
    ingredient) of which has been approved in any other application under subsection
    (b) of this section, is approved after September 24, 1984, no application may be
    submitted under this subsection [concerning ANDAs] which refers to the drug for
    which the subsection (b) application was submitted before the expiration of five
    years from the date of the approval of the application under subsection (b) of this
    section . . . .
    21 U.S.C. § 355(j)(5)(F)(ii); see 
    id. § 355(c)(3)(E)(ii)
    (parallel provision providing the same
    five-year exclusivity period to prevent the filing of a 505(b)(2) application).
    4
    Even if a drug is not eligible for a five-year period of marketing exclusivity, the Hatch-
    Waxman Amendments provide for a shorter, three-year period of exclusivity for certain changes
    to previously approved drugs. If an applicant submits one or more new clinical studies in
    support of a change in the conditions of an approved drug’s use, the FDCA confers a three-year
    period of marketing exclusivity, so long as the FDA considers those studies to have been
    essential to the agency’s approval of the change. 21 U.S.C. § 355(j)(5)(F)(iii); see also 
    id. § 355(c)(3)(E)(iii).
    Unlike the five-year exclusivity provision, which prohibits the FDA from even
    accepting an application during the exclusivity period, the three-year exclusivity provision only
    precludes the FDA from making a new ANDA or 505(b)(2) application effective before the end
    of the three-year period. Compare 
    id. § 355(j)(5)(F)(ii),
    with 
    id. § 355(j)(5)(F)(iii).
    The two clauses of the five-year exclusivity provision relevant to this case are what the
    parties refer to as the “eligibility” and the “bar” clauses. See A.R. 203; Pl.’s Mem. Supp. Summ.
    J. at 13 (“Pl.’s Mem. Supp.”), ECF No. 20-1. The “eligibility clause” describes whether a drug is
    eligible for five-year exclusivity. To be eligible, a drug must be “a drug, no active ingredient
    (including any ester or salt of the active ingredient) of which has been approved in any other
    application under subsection (b) of [§ 355].” 21 U.S.C. § 355(j)(5)(F)(ii). If a drug meets that
    requirement, it will bar the types of ANDAs or 505(b)(2) applications identified in the “bar
    clause.” Specifically, “no application may be submitted . . . which refers to the drug for which
    the subsection (b) application was submitted before the expiration of five years from the date of
    the approval of the application.” 
    Id. (emphasis added).
    The meaning of the word “drug” as used in the five-year exclusivity provision (or the
    other exclusivity provisions, for that matter) is not defined in section 355. In the FDCA
    Congress has codified various definitions of that term. See 21 U.S.C. § 321(g)(1). “Drug” can
    5
    alternatively mean: “articles recognized in the official United States Pharmacopoeia, official
    Homoeopathic Pharmacopoeia of the United States, or official National Formulary, or any
    supplement to any of them”; “articles intended for use in the diagnosis, cure, mitigation,
    treatment, or prevention of disease in man or other animals”; or “articles (other than food)
    intended to affect the structure or any function of the body of man or other animals.” 
    Id. § 321(g)(1)(A)–(C).
    But, “drug” can also mean any “articles intended for use as a component of
    any article specified in” those prior three definitions. 
    Id. § 321(g)(1)(D)
    (emphasis added).
    By regulation, the FDA has also defined two key terms that the parties invoke in this
    case: “drug product” and “drug substance.” The FDA defines a “[d]rug product” as “a finished
    dosage form, for example, tablet, capsule, or solution, that contains a drug substance, generally,
    but not necessarily, in association with one or more other ingredients.” 21 C.F.R. § 314.3(b). A
    “[d]rug substance” is defined in relevant part as “an active ingredient that is intended to furnish
    pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or
    prevention of disease or to affect the structure or any function of the human body.” 
    Id. Until recently,
    the FDA read the term “drug” in the “eligibility clause” to refer to a
    finished “drug product.” In a 1988 guidance letter to the industry, and before regulations
    implementing the Hatch-Waxman Amendments were promulgated, Dr. Carl Peck, Director of
    the Center for Drug Evaluation and Research, advised NDA and ANDA holders and applicants
    that the FDA “considers a drug product eligible for the five-year period if it contains no active
    moiety that was previously approved by the agency.” A.R. 324 (emphasis added). To assist the
    agency in making exclusivity determinations, Dr. Peck therefore encouraged applicants to inform
    the agency whether “any active moiety in the drug product for which approval is sought has ever
    6
    been approved in another drug product in the United States either as a single entity or as part of
    a combination product.” 
    Id. (emphases added).
    The FDA codified its interpretation of the five-year exclusivity provision in 21 C.F.R. §
    314.108, proposed in 1989 and finalized in 1994. See Abbreviated New Drug Application
    Regulations, 54 Fed. Reg. 28,872 (July 10, 1989) [hereinafter “Proposed Rule”]; see also
    Abbreviated New Drug Application Regulations; Patent and Exclusivity Provisions, 59 Fed. Reg.
    50,338 (Oct. 3, 1994) [hereinafter “Final Rule”]. The regulation provides that:
    If a drug product that contains a new chemical entity was approved after
    September 24, 1984, in an application submitted under section 505(b) of the act,
    no person may submit a 505(b)(2) application or abbreviated new drug
    application under section 505(j) of the act for a drug product that contains the
    same active moiety as in the new chemical entity for a period of 5 years from the
    date of approval of the first approved new drug application . . . .
    21 C.F.R. § 314.108(b)(2). The regulation further defines several of these terms. First, the FDA
    defined “new chemical entity” as “a drug that contains no active moiety that has been approved
    by FDA in any other application submitted under section 505(b) of the [A]ct.” 
    Id. § 314.108(a).
    “[A]ctive moiety,” in turn, is defined as “the molecule or ion, excluding those appended portions
    of the molecule that cause the drug to be an ester, salt (including a salt with hydrogen or
    coordination bonds), or other noncovalent derivative (such as a complex, chelate, or clathrate) of
    the molecule, responsible for the physiological or pharmacological action of the drug substance.”
    
    Id. Consistent with
    Dr. Peck’s guidance letter, the FDA admits that it interpreted the term
    “drug” in the regulation’s definition of a “new chemical entity” (“a drug that contains no active
    moiety that has been approved . . .”) to mean a “drug product.” See, e.g., A.R. 208. Under that
    interpretation, those “drug products” that contain no active moiety that had previously been
    approved would be eligible for five-year exclusivity. See 
    id. At the
    time it promulgated the
    7
    regulation, however, the FDA acknowledged that the statute posed a potential problem for the
    exclusivity holder, and that the Act “is ambiguous as to which ANDA[s] or 505(b)(2)
    applications are affected by an innovator’s exclusivity.” Proposed Rule, 54 Fed. Reg. at 28,897.
    Specifically, under a narrow interpretation of the “bar clause,” in which the “protection offered
    by exclusivity is that exclusivity covers only specific drug products . . . , an innovator’s
    exclusivity could lose its value as soon as FDA approved a second full new drug application for
    a version of the drug.” 
    Id. That is
    because “an ANDA could be approved by reference to the
    second approved version of the drug”—a separate drug product—“which would not be covered
    by exclusivity.” 
    Id. (emphasis added).
    Thus, “[d]epending on the meaning of the phrase ‘refer
    to’ and the word ‘drug,’” the FDA was concerned that the five-year exclusivity provision and the
    other exclusivity provisions in the Hatch-Waxman Amendments “could be interpreted to allow
    ANDA[s] and 505(b)(2) applicants, once FDA approved subsequent new drug applications for
    different versions of the same drug, to circumvent the innovator’s exclusivity by ‘referring to’
    the subsequent versions of the innovator’s drug.” 
    Id. 1 By
    contrast, FDA noted that a possible “broader interpretation” of the bar clause “is that
    it covers the active moieties in new chemical entities . . . rather than covering only specific drug
    1
    This possibility assumes that the bar clause bars only ANDAs and section 505(b)(2)
    applications, and does not similarly prevent the submission of a new full NDA for a novel drug.
    The parties appear to share this assumption, although they do not fully explain it. In any event,
    the FDA preamble does note that “[t]he exclusivity provisions of the act do not provide any
    protection from the marketing” of a drug if that drug “is the subject of a full new drug
    application submitted under section 505(b)(1) of the act.” Proposed Rule, 54 Fed. Reg. at
    28,896; see also Small Business Assistance: Frequently Asked Questions for New Drug Product
    Exclusivity, U.S. Food & Drug Admin. (Feb. 11, 2016), http://www.fda.gov/Drugs/
    DevelopmentApprovalProcess/SmallBusinessAssistance/ucm069962.htm (explaining that the
    “new drug product exclusivity provisions do not provide any protection” from “the marketing of
    a duplicate version of the same drug product if the duplicate version is the subject of a full new
    drug application submitted under 505(b)(1) of the Act”).
    8
    products,” which “would protect the new active moiety of a new chemical entity . . . from
    generic competition even after FDA had approved subsequent full new drug applications for
    subsequent versions of the drug.” 
    Id. Because the
    FDA did not “believe that Congress intended
    the exclusivity provisions to discourage innovators from making improvements in their drug
    products nor from authorizing the marketing of competitive products,” the FDA concluded that
    the “broader interpretation of the scope of exclusivity should be applied.” 
    Id. The FDA
    has
    coined this interpretation its “umbrella policy,” which it describes as providing that “5-year NCE
    [new chemical entity] exclusivity does not attach only to the first approved drug product that was
    eligible for 5-year NCE exclusivity, but also to the line of products containing the same active
    moiety.” A.R. 206. And, although it is not quite spelled out in the proposed rule’s preamble, the
    FDA now acknowledges that its umbrella policy resulted from the agency’s interpretation of
    “drug” in the bar clause to mean “drug substance.” 
    Id. at 225.
    Taken together, then, prior to 2014, the FDA interpreted the five-year exclusivity
    provision to provide that only drug products containing no previously approved drug substances
    were eligible for exclusivity. Once eligible, however, the FDA interpreted the bar clause to bar
    all ANDAs and 505(b)(2) applications referencing that drug product or any later-approved
    products containing the product’s drug substances, in order to preserve the innovator’s
    exclusivity to the greatest extent possible.
    B. Factual & Procedural History
    Ferring’s drug product PREPOPIK is intended for use in cleansing the colon in
    preparation for colonoscopy in adults. Compl. ¶ 32, ECF No. 2. PREPOPIK is a fixed-dose
    combination drug product. 
    Id. Fixed-dose combination
    drug products “generally include two or
    more drug substances (active ingredients) in a fixed ratio, synthetically combined in a single
    9
    dosage form.” A.R. 200. PREPOPIK in fact contains three different active ingredients: sodium
    picosulfate, magnesium oxide, and anhydrous citric acid. 
    Id. at 201;
    Compl. ¶ 32. Two of these
    ingredients, magnesium oxide and anhydrous citric acid, had previously been approved in a
    NDA. By contrast, sodium picosulfate, a stimulant laxative, had never previously been approved
    in any NDA. A.R. 201. Because sodium picosulfate constituted a new drug substance, Ferring
    sought five-year exclusivity for PREPOPIK when it submitted its NDA. See Pl.’s Mot. Summ. J.
    Ex. 3 at 2, ECF No. 20-6. Ferring alleges that it was unable to seek a NDA for sodium
    picosulfate as a single-ingredient drug product because picosulfate’s therapeutic benefit is
    realized only in combination with the other active ingredients. A.R. 70 Ferring points out that
    the FDA did not require factorial studies—which are employed to evaluate the contribution of
    each of a drug product’s individual substances to the drug’s overall efficacy—because of
    “serious ethical concerns” that “each component as a stand alone would result in inadequate
    colon cleansing for colonoscopy.” Pl.’s Mot. Summ. J. Ex. 2 at 40; A.R. 70.
    The FDA approved Ferring’s NDA for PREPOPIK on July 16, 2012. See Compl. ¶ 33;
    A.R. at 201. Consistent with its interpretation of the five-year exclusivity provision, however,
    the FDA only awarded Ferring three-year exclusivity because the drug product contained two
    active moieties (magnesium oxide and citric acid) that had previously been approved. See Pl.’s
    Mot. Summ. J. Ex. 3 at 3; A.R. at 201.
    Ferring submitted a Citizen Petition on January 29, 2013 requesting that the FDA change
    its exclusivity determination. A.R. 64. In short, Ferring argued that the FDA’s denial of five-
    year exclusivity was inconsistent with Congress’s intent in passing the Hatch-Waxman
    Amendments, as discerned from the relevant legislative history, 
    id. at 70–76,
    and that the
    interpretation also conflicted with various other FDA policies, 
    id. at 76–94.
    Around the same
    10
    time, two other pharmaceutical companies, Gilead Sciences, Inc., and Bayer Healthcare
    Pharmaceuticals, Inc., whose respective fixed-combination drug products had also been denied
    five-year exclusivity on the ground that at least one of the active ingredients had been previously
    approved, filed similar Citizen Petitions challenging the FDA’s prevailing interpretation. See
    generally 
    id. at 98–140;
    id. at 144–158.
    
    On February 21, 2014, the FDA issued a single response to all three companies’ Citizen
    Petitions. 
    Id. at 199.
    In that response, the FDA summarized its prior interpretation of the FDCA
    and its own regulation. 
    Id. at 207–09.
    The FDA stated that although it believed its “current
    interpretation of the relevant statute and regulations is permissible, Petitioners have articulated
    an alternative interpretation of the relevant statute and regulations that would also be
    permissible.” 
    Id. at 212.
    As the FDA asserted, “in either the eligibility or the bar clause, FDA
    may reasonably interpret ‘drug’ narrowly to mean ‘drug product’ or broadly to mean ‘drug
    substance.’” 
    Id. The agency
    further acknowledged, however, that “recent changes in drug
    development, particularly in the field of fixed-combination development in the last 20 years, and
    the importance of fixed-combinations to key therapeutic areas—such as HIV, cardiovascular
    disease, tuberculosis, and cancer—warrant[ed] revising [its] current policy,” particularly as
    “fixed-combinations containing new active moieties are becoming more prevalent in drug
    development.” 
    Id. The FDA
    noted that combination therapies could improve treatment
    response, lower risks of developing resistance to drugs, and lower the rate of adverse effects, in
    addition to simplifying drug regimens and improving patients’ adherence to those regimens. 
    Id. at 212–13.
    Because of these changes, the FDA conceded that its existing interpretation “may
    result in drug development strategies that are suboptimal from a public health perspective”
    because if sponsors “prefer to submit two NDAs”—one for a single-entity drug containing the
    11
    new active moiety and another for a combination product—“undue importance” may be placed
    on “the order in which these two NDAs are approved.” 
    Id. at 213–14.
    Additionally, “in some
    situations, such a strategy may not be available if a new active moiety does not clinically lend
    itself to approval in a single-entity drug product.” 
    Id. at 214.
    As a result, the FDA “agree[d] that the increasing importance of fixed-combinations for
    certain therapeutic areas means that it would be in the interest of public health to encourage the
    development of fixed-combinations as a policy matter,” and determined that “[o]ne way to
    accomplish this goal would be to adopt a new interpretation of the relevant statutory and
    regulatory authorities that would encourage the development of fixed-combinations that contain
    novel drug substances . . . irrespective of whether the fixed-combination also includes a drug
    substance that contains a previously approved active moiety or moieties.” 
    Id. at 214.
    To that
    end, the FDA issued draft guidance and proposed to seek public comment on a new
    interpretation which would “recognize 5-year NCE exclusivity for a drug substance that does not
    contain a previously approved active moiety, even where such a drug substance is approved in a
    fixed-combination with another drug substance that contains at least one previously approved
    active moiety.” 
    Id. Despite altering
    its interpretation of the five-year exclusivity provision, the FDA declined
    to recognize five-year exclusivity for PREPOPIK and the other drugs sponsored by the
    companies that had filed the Citizen Petitions. See 
    id. at 216.
    The agency concluded that
    “[e]xclusivity runs from the date of approval of a product,” and noted that the agency’s existing
    interpretation had been in effect when the drugs at issue were approved. 
    Id. at 215.
    The agency
    based its decision on several factors, including that its “existing interpretation of these provisions
    is longstanding and has been consistently applied in many prior cases presenting similar facts,”
    12
    that the agency wished to “avoid any unnecessary disruptions to the regulated industry,” and that
    the new interpretation “could impose a burden on the ANDA sponsors, who relied on [the
    agency’s] existing interpretation in filing their applications.” 
    Id. The agency
    also concluded that
    applying its new interpretation to the companies’ drugs would not further the goals of the Hatch-
    Waxman Amendments because the products had “already . . . been developed and approved.”
    
    Id. Ferring filed
    a Petition for Reconsideration and Petition for Stay, arguing that the FDA’s
    new interpretation is the correct one—indeed, the only one in line with congressional intent—
    and that, in any event, it was arbitrary and capricious for the agency to decline to apply its new
    interpretation to Ferring’s products. See 
    id. at 1–42.
    The FDA denied that petition. See 
    id. at 829–42.
    Ferring then initiated this APA action, alleging that the FDA’s action was contrary to the
    FDCA and the agency’s own regulations, and that its decision was arbitrary and capricious, in
    violation of 5 U.S.C. § 706(2)(A). See Compl. ¶¶ 58–71. Ferring has now moved for summary
    judgment (ECF No. 20), and the government has cross-moved for summary judgment (ECF No.
    22).
    III. LEGAL STANDARD
    A court may grant summary judgment when “the movant shows that there is no genuine
    dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
    R. Civ. P. 56(a). When assessing a motion for summary judgment in an APA case, however,
    “the district judge sits as an appellate tribunal.” Am. Bioscience, Inc. v. Thompson, 
    269 F.3d 1077
    , 1083 (D.C. Cir. 2001). In such cases the complaint “actually presents no factual
    allegations, but rather only arguments about the legal conclusion to be drawn about the agency
    13
    action.” Marshall Cnty. Health Care Auth. v. Shalala, 
    988 F.2d 1221
    , 1226 (D.C. Cir. 1993).
    Therefore, “[t]he entire case on review is a question of law, and only a question of law.” 
    Id. The Court’s
    review “is based on the agency record and limited to determining whether the agency
    acted arbitrarily or capriciously,” Rempfer v. Sharfstein, 
    583 F.3d 860
    , 865 (D.C. Cir. 2009), or
    in violation of another standard set out in section 10(e) of the APA, see 5 U.S.C. § 706.
    IV. ANALYSIS
    Ferring challenges the FDA’s action here as “arbitrary, capricious, an abuse of discretion,
    or otherwise not in accordance with law” in several ways. 5 U.S.C. § 706(2)(A). First, Ferring
    contends that the FDA’s prior interpretation, under which PREPOPIK was denied five-year
    exclusivity, contravened the plain language of the FDCA. Second, Ferring argues that, even if
    the language of the FDCA is ambiguous, the FDA’s interpretive choice to read “drug” in the
    eligibility clause to mean “drug product” was an unreasonable reading of the statute or was
    arbitrary and capricious because it treated similarly situated parties differently. Finally, Ferring
    claims that, even if the FDA’s prior interpretation was permissible, its decision not to apply the
    new interpretation retroactively was arbitrary and capricious. The Court considers each
    argument in turn.
    A. Chevron Step One
    First, Ferring argues that “Congress plainly intended that a drug substance would be
    entitled to five-year exclusivity if it is based on a novel active ingredient.” 2 Pl.’s Mem. Supp. at
    2
    The FDA briefly asserts that Ferring failed to make a plain language argument below.
    See Nuclear Energy Inst., Inc. v. EPA, 
    373 F.3d 1251
    , 1297 (D.C. Cir. 2004) (“It is a hard and
    fast rule of administrative law, rooted in simple fairness, that issues not raised before an agency
    are waived and will not be considered by a court on review.”). Yet, the agency does not
    explicitly invoke waiver as a bar to the Court’s consideration of the argument, so the Court will
    consider the Chevron Step One claim. In any event, and contrary to the FDA’s contention, it
    14
    12 (emphasis in original). The interpretation of an administrative agency’s guiding statute
    typically follows a two-step process. “First, always, is the question whether Congress has
    directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end
    of the matter; for the court, as well as the agency, must give effect to the unambiguously
    expressed intent of Congress.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 
    467 U.S. 837
    , 842–43 (1984). However, if “Congress has not directly addressed the precise question at
    issue, the court does not simply impose its own construction of the statute, as would be necessary
    in the absence of an administrative interpretation.” 
    Id. at 843
    (footnote omitted). In this latter
    situation, a court instead proceeds to step two of the Chevron framework: “[I]f the statute is
    silent or ambiguous with respect to the specific issue, the question for the court is whether the
    agency’s answer is based on a permissible construction of the statute.” 
    Id. “[A] court
    may not
    substitute its own construction of a statutory provision for a reasonable interpretation by the
    administrator of an agency.” 
    Id. at 844.
    The five-year exclusivity provision does not itself define the term “drug.” And the
    FDCA, generally, is of limited assistance. The Act provides several alternative definitions of the
    term, which the parties agree can encompass both the terms “drug product” and “drug
    substance.” See 21 U.S.C. § 321(g)(1); see also Pl.’s Mem. Supp. at 13–14; Defs.’ Mem. Supp.
    Cross-Mot. Summ. J. & Opp’n Pls.’ Mot. at 15 (“Defs.’ Mem. Supp.”), ECF No. 22. Even the
    Supreme Court has acknowledged that the FDCA’s definition must include both “active
    ingredient” and “drug product”—lest the fourth statutory definition be rendered mere surplusage.
    does appear that the agency understood the companies’ claims to encompass a plain language
    argument. See, e.g., A.R. 831 (noting on reconsideration that in FDA’s original response “we
    disagreed with Petitioners that the term drug can only mean drug substance in the 5-year NCE
    exclusivity eligibility context” (emphasis added)).
    15
    See United States v. Generix Drug Corp., 
    460 U.S. 453
    , 458–60 (1983) (concluding that the term
    drug “is plainly intended throughout the Act to include entire drug products, complete with
    active and inactive ingredients” and must “include more than just active ingredients . . . unless
    subsection (D) is to be superfluous”). Collectively, these circumstances strongly indicate that an
    ambiguous statutory term is at hand.
    Ferring resists this conclusion by pointing out that a term that appears ambiguous in the
    abstract may, upon closer inspection and, after considering statutory structure and context, reveal
    itself to be unambiguous. See Pl.’s Mem. Supp. at 12–13; see also Brown v. Gardner, 
    513 U.S. 115
    , 118 (1994) (“Ambiguity is a creature not of definitional possibilities but of statutory
    context.”). True enough. But here Ferring has not persuasively identified any statutory structure
    or context that definitively resolves whether “drug,” when used in the five-year exclusivity
    provision, means “drug product” or “drug substance.”
    Ferring first contends that both uses of the term “drug” must be read the same. Ferring
    relies on the eligibility clause’s use of the indefinite article “a” in the phrase “a drug, no active
    ingredient . . . of which has been approved,” followed by the bar clause’s subsequent use of the
    definite article “the” in the phrase “no application . . . which refers to the drug for which the
    subsection (b) application was submitted.” 21 U.S.C. § 355(j)(5)(F)(ii) (emphases added); see
    Pl.’s Mem. Supp. at 14–15. In Ferring’s view, Congress’s use of “the” definitively indicates that
    “the drug” was meant to refer back to the same “a drug” mentioned earlier in the eligibility
    clause. Ferring cites several cases construing Congress’s use of the definite article “the” in this
    way. 3 See, e.g., Work v. U.S. ex rel. McAlester-Edwards Coal Co., 
    262 U.S. 200
    , 208 (1923);
    3
    Ferring’s reading of Work is not quite accurate, and thus not as closely aligned to the
    five-year exclusivity provision as its memorandum makes the case appear. Although Ferring
    reads the Supreme Court in Work to have concluded that Congress’s use of the word “the”
    16
    United States v. Wilcox, 
    487 F.3d 1163
    , 1176 (8th Cir. 2007) (determining that “the victim”
    referred to in the federal restitution statute referred to “the victim described at the beginning of
    the subsection” (emphasis in original)); Nat’l Foods, Inc. v. Rubin, 
    936 F.2d 656
    , 660 (2d Cir.
    1991) (construing a New York statute’s second use of the term “the court” as referencing “the
    same [court] referred to the first time”). Moreover, Ferring invokes the familiar principle of
    statutory construction that, absent some indication to the contrary, a statutory term should be
    given the same meaning when repeated in close proximity. See, e.g., 
    Brown, 513 U.S. at 118
    (“[T]here is a presumption that a given term is used to mean the same thing throughout a statute,
    a presumption surely at its most vigorous when a term is repeated within a given sentence.”
    (citation omitted)).
    Even if one were to share Ferring’s conclusion that the two uses of “drug” should be read
    to mean the same thing, however, the weak link in Ferring’s chain of reasoning is that nothing in
    the statute indicates which definition of “drug” Congress intended to apply in the eligibility or
    bar clauses. Ferring latches onto the agency’s interpretation of the bar clause’s use of “drug” to
    mean “drug substance.” Pl.’s Mem. Supp. at 14. Only by doing so is Ferring able to claim that
    “the first ‘drug’—the ‘a’ drug—must mean drug substance, too.” 
    Id. Contrary to
    Ferring’s
    claim, though, the FDA’s interpretation was not grounded on “clear Congressional intent,” at
    least in the sense that the FDA had concluded that the term could only mean “drug substance.”
    Instead, the FDA specifically concluded that the FDCA was “ambiguous as to which ANDA[s]
    or 505(b)(2) applications are affected by an innovator’s exclusivity.” Proposed Rule, 54 Fed.
    demonstrated an intent to refer to “the appraisement referenced earlier in the same sentence,”
    Pl.’s Mem. Supp. at 14, 15, the Court in fact concluded that “the appraised value” of the surface
    lands at issue referred to the appraisement provided for in an entirely separate statute that had
    been passed six years previously—and not the mineral appraisement that was, by contrast,
    referenced in the same sentence, see 
    Work, 262 U.S. at 208
    .
    17
    Reg. at 28,897. That the FDA believed one reading would more readily further Congress’s intent
    does not indicate that the statute must unambiguously be read that way at Chevron Step One.
    There is nothing in the statute, so far as either party has identified, compelling a particular
    definition for “drug.” 4
    Accordingly, the Court considers the term “drug” to be ambiguous at Chevron Step One.
    B. Chevron Step Two
    The Court therefore moves to Step Two of the Chevron framework, and assesses whether
    the FDA’s interpretation in effect when PREPOPIK was approved was reasonable.
    Chevron instructs that if a statute is “silent or ambiguous with respect to the specific
    issue, the question for the court is whether the agency’s answer is based on a permissible
    construction of the 
    statute.” 467 U.S. at 843
    . Unlike the Court’s assessment under Step One, the
    Court’s review at Step Two “is ‘highly deferential.’” Village of Barrington, Ill. v. Surface
    Transp. Bd., 
    636 F.3d 650
    , 665 (D.C. Cir. 2011) (quoting Nat’l Rifle Ass’n of Am., Inc. v. Reno,
    
    216 F.3d 122
    , 137 (D.C. Cir. 2000)). The permissibility of an agency’s interpretation is assessed
    “in light of [the statute’s] language, structure, and purpose.’” Nat’l Treasury Empls. Union v.
    Fed. Labor Relations Auth., 
    754 F.3d 1031
    , 1042 (D.C. Cir. 2014) (quoting Am. Fed’n of Labor
    v. Chao, 
    409 F.3d 377
    , 384 (D.C. Cir. 2005)). Chevron Step Two “does not require the best
    4
    For similar reasons, the Court rejects Ferring’s argument that “drug” must mean “drug
    substance” because the FDA has often interpreted the phrase “a drug no active ingredient
    (including any ester or salt of the active ingredient) of which has been approved” when used
    elsewhere in the statute to refer to a “drug substance.” See Pl.’s Mem. Supp. at 17–18. Yet
    again, none of these examples cast useful light on the interpretation compelled by the statute.
    Moreover, Ferring also concedes that the FDA has taken the alternative position in at least one
    circumstance, although that proposed guidance was never finalized. 
    Id. at 17
    n.8. And the most
    recent guidance Ferring relies upon, involving the approval of priority review vouchers for rare
    pediatric diseases, was promulgated after the FDA changed its interpretation of the bar clause in
    this case, making that example of limited use in attempting to cast the FDA’s prior interpretation
    as an outlier. 
    Id. at 18
    (noting that the draft guidance was promulgated in November 2014).
    18
    interpretation, only a reasonable one,” Am. Forest & Paper Ass’n v. FERC, 
    550 F.3d 1179
    , 1183
    (D.C. Cir. 2008), and the court therefore “need not conclude that the agency construction was the
    only one it permissibly could have adopted to uphold the construction, or even the reading the
    court would have reached if the question initially had arisen in a judicial proceeding,” 
    Chevron, 467 U.S. at 843
    n.11. If “the implementing agency’s construction is reasonable, Chevron
    requires a federal court to accept the agency’s construction of the statute, even if the agency’s
    reading differs from what the court believes is the best statutory interpretation.” Nat’l Cable &
    Telecomms. Ass’n v. Brand X Internet Servs., 
    545 U.S. 967
    , 980 (2005).
    An agency’s interpretation of an ambiguous statutory term may invariably require some
    measure of policy-making or line drawing. And it is “entirely appropriate” for an agency “to
    make such policy choices—resolving the competing interests which Congress itself either
    inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the
    administration of the statute in light of everyday realities.” 
    Chevron, 467 U.S. at 865
    –66.
    “Chevron demands” a court’s “deference when an agency’s interpretation is ‘a reasonable
    accommodation of conflicting policies that were committed to the agency’s care by the statute.’”
    Van Hollen, Jr. v. FEC, 
    811 F.3d 486
    , 494 (D.C. Cir. 2016) (quoting 
    Chevron, 467 U.S. at 845
    ).
    At Step Two, a court must simply ask whether the agency “has reasonably explained how the
    permissible interpretation it chose is ‘rationally related to the goals of’ the statute.” Village of
    Barrington, 
    Ill., 636 F.3d at 665
    (quoting AT&T Corp. v. Iowa Utils. Bd., 
    525 U.S. 366
    , 388
    (1999)). A “‘reasonable’ explanation of how an agency’s interpretation serves the statute’s
    objectives is the stuff of which a ‘permissible’ construction is made.” Northpoint Tech., Ltd. v.
    FCC, 
    412 F.3d 145
    , 151 (D.C. Cir. 2005) (quoting 
    Chevron, 467 U.S. at 863
    ).
    19
    In the Court’s view, and assessed with the appropriate level of deference to the FDA, the
    agency’s prior interpretation of the term “drug” in the eligibility clause as referring to a “drug
    product” was reasonable. As already noted, the FDCA explicitly defines the term “drug” in a
    way that encompasses entire drug products. See 21 U.S.C. § 321(g)(1); accord Generix Drug
    
    Corp., 460 U.S. at 458
    –60. Unless the statute unambiguously requires otherwise—and the Court
    has already determined that it does not—it would be odd for the Court to nevertheless conclude
    that the agency’s choice of one statutory definition over the other was unreasonable. In addition,
    the eligibility clause makes reference to “an application submitted under subsection (b) of [§
    355] for a drug . . . .” 21 U.S.C. § 355(j)(5)(F)(ii) (emphasis added). The agency contends that
    because “applications are generally submitted for drug products, not drug substances, a reading
    of ‘drug’ as ‘drug product’ flows logically” from this language. A.R. 208. To be sure, the
    reference to an application may not be definitive. Ferring urges that because the subsection
    continues on to reference “no active ingredient . . . of which has been approved in any other
    application,” the FDA’s reading is inconsistent with the statute because active ingredients, in
    addition to drug products, are “approved” through NDAs. See Pl.’s Mem. Supp. at 16; Pl.’s
    Mem. in Opp’n to Defs.’ Cross-Mot. for Summ. J. & Reply at 6 (“Pl.’s Reply”), ECF No. 23;
    accord Amarin Pharm. Ir. Ltd. v. FDA, 
    106 F. Supp. 3d 196
    , 214 (D.D.C. 2015) (concluding that
    “[i]t is not correct, however, to say that the FDA does not approve ‘active ingredients’ when it
    approves drugs or drug products”). Yet, the FDA draws what the Court considers a conceivable
    distinction between the article for which an application is submitted—a finished drug product—
    and what the agency approves, even if a drug’s approval inevitably results in the approval of the
    active ingredients or drug substances contained within a finished drug product. See Defs.’ Mem.
    20
    Supp. at 18; A.R. 208. This distinction is not implausible, and lends at least some measure of
    support to the agency’s reading. 5
    In addition, the statute speaks of a drug “no active ingredient . . . of which has been
    approved,” implying that the “drug” may contain several active ingredients. 21 U.S.C.
    § 355(j)(5)(F)(ii). But the agency’s definition of a “drug substance” appears to treat a drug
    substance as the equivalent of a single active ingredient. 21 C.F.R. § 314.3(b) (defining “[d]rug
    substance” as “an active ingredient that is intended to furnish pharmacological activity or other
    direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease or to affect the
    structure or any function of the human body”). Ferring seems to share this view. Pl.’s Mem.
    Supp. at 6 (asserting that “[a] drug substance usually is comprised of an active ingredient
    intended to furnish pharmacological activity”). Thus, the Court does not consider it
    unreasonable for the FDA to have read “drug” to refer to an article that presumably might
    include more than one active ingredient. This tracks the agency’s regulation implementing the
    various exclusivity provisions—analyzed in more detail below—which asks whether an entire
    “drug product” contains “a new chemical entity” or instead contains “an active moiety that has
    been previously approved.” 21 C.F.R. § 314.108(b)(2), (b)(4)(iii).
    Indeed, there appears to have been an implicit assumption persisting from the time of Dr.
    Peck’s guidance letter, through the agency’s promulgation of its regulations, and unchallenged—
    at least as far as the parties have identified—until Ferring’s Citizen Petition, that the term “drug”
    5
    The Court acknowledges that the bar clause contains similar language when it prohibits
    an application from being “submitted . . . which refers to the drug for which the subsection (b)
    application was submitted,” 21 U.S.C. § 355(j)(5)(F)(ii), and that, in that context, the agency
    interpreted drug to mean “drug substance.” As explained below, however, the FDA did so
    because it concluded that a broader definition was more compatible with its understanding of
    Congress’s purpose. See Proposed Rule, 54 Fed. Reg. at 28,897.
    21
    in the eligibility clause meant “drug product.” Although the Court acknowledges that the
    presumption in favor of reading a statutory term in close proximity to mean the same thing is a
    weighty one, once the FDA resolved the eligibility clause’s ambiguity in favor of the term “drug
    product,” it made ample sense for the agency to broadly interpret the five-year exclusivity
    provision “once it attaches, such that it protects not only the drug product that is the subject of
    the application but also subsequently approved drug products that contain the same active
    moiety.” A.R. 209. To conclude otherwise would have meant that “an innovator’s exclusivity
    could lose its value as soon as FDA approved a second full new drug application for a version of
    the drug.” Proposed Rule, 54 Fed. Reg. at 28,897. The FDA “d[id] not believe that Congress
    intended the exclusivity provisions to discourage innovators from making improvements in their
    drug products nor from authorizing the marketing of competitive products.” 
    Id. Under these
    circumstances, and although the FDA appreciated that reading the bar clause to also refer to
    “drug products” “would have been the more natural reading,” the agency reasonably “declined to
    adopt this reading in the context of the umbrella policy, because such a reading would not
    preserve the incentive to innovate and improve upon the initially approved product during the
    exclusivity period.” A.R. 209.
    To the extent Ferring hints that the need to make such an accommodation should have
    caused the FDA to doubt its eligibility clause interpretation—and to instead conclude that both
    clauses referred to drug substances—nothing in the record indicates that to have been a
    contemporaneous concern. The proposed and final rulemaking notices contain absolutely no
    discussion of the issue, nor do they reflect any comments urging the agency to interpret “drug”
    as referring to “drug substance” or raising the types of policy concerns Ferring raised in its
    Citizen Petition. See Proposed Rule, 54 Fed. Reg. at 28,896–902; see also Final Rule, 59 Fed.
    22
    Reg. at 50,356–60. This is unsurprising. The record in fact suggests that the submission of
    NDAs for fixed-combination drug products that contain new drug substances is of more recent
    vintage. See A.R. 212 (explaining that, as of February 2014, “[i]n the nearly 20 years since FDA
    finalized the regulations on exclusivity, the Agency has approved 19 NDAs for fixed-
    combinations containing at least one new active moiety,” and that “[m]ore than half of these
    NDAs have gained approval within the last 7 years,” which “suggest[s] that fixed-combinations
    containing new active moieties are becoming more prevalent in drug development”). It simply
    appears that in 1988 and 1994, in light of the science and circumstances at that time, the FDA
    had not anticipated the possibility that fixed-combination drug products containing a novel drug
    substance could be disadvantaged by the agency’s interpretation. The agency has now, of
    course, revisited its interpretation in light of more “recent changes in drug development” and
    “the increasing importance of fixed-combinations for certain therapeutic areas.” 
    Id. at 212,
    214.
    But that interpretive revision turns on questions of policy, left to the agency’s discretion. See
    
    Chevron, 467 U.S. at 865
    –66; A.R. 214 (concluding that “it would be in the interest of public
    health to encourage the development of fixed-combinations as a policy matter”). Nothing
    indicates that the FDA’s initial interpretation, selecting one statutory definition of “drug product”
    over the other, was unreasonable.
    Ferring’s various counterarguments are not persuasive. First, Ferring contends that the
    FDA’s prior interpretation patently conflicts with the agency’s own regulation. That regulation,
    as noted above, provides that:
    If a drug product that contains a new chemical entity was approved after
    September 24, 1984, in an application submitted under section 505(b) of the act,
    no person may submit a 505(b)(2) application or abbreviated new drug
    application under section 505(j) of the act for a drug product that contains the
    same active moiety as in the new chemical entity for a period of 5 years from the
    date of the approval of the first approved new drug application . . . .
    23
    21 C.F.R. § 314.108(b)(2). A “new chemical entity,” in turn, is defined as “a drug that contains
    no active moiety that has been approved by FDA in any other application submitted under
    section 505(b) of the act.” 
    Id. § 314.108(a)
    (emphasis added). From these definitions, Ferring
    contends that the regulation makes clear that a drug product contains the “new chemical entity,”
    requiring one to read the reference to “drug” in the “new chemical entity” definition to mean
    “drug substance.” Pl.’s Mem. Supp. at 20–21. Were one instead to read “drug” to mean “drug
    product,” and substitute that definition in the place of “new chemical entity,” Ferring urges that
    the regulation would redundantly read: “If a drug product that contains a drug product that
    contains no active moiety . . . . .” 
    Id. at 21.
    Courts are “hesitant to substitute an alternative
    reading” of a regulation “for the Secretary’s unless that alternative reading is compelled by the
    regulation’s plain language or by other indications of the Secretary’s intent at the time of the
    regulation’s promulgation.” Gardebring v. Jenkins, 
    485 U.S. 415
    , 430 (1988). But Ferring
    claims this is one such instance. See Pl.’s Mem. Supp. at 21.
    The Court disagrees. “An agency’s interpretation of its own regulations is entitled to
    judicial deference.” Actavis Elizabeth LLC v. FDA, 
    625 F.3d 760
    , 763 (D.C. Cir. 2010). That
    deference is “all the more warranted when” a regulation concerns “‘a complex and highly
    technical regulatory program,’ in which the identification and classification of relevant ‘criteria
    necessarily require significant expertise and entail the exercise of judgment grounded in policy
    concerns.’” Thomas Jefferson Univ. v. Shalala, 
    512 U.S. 504
    , 512 (1994) (quoting Pauley v.
    BethEnergy Mines, Inc., 
    501 U.S. 680
    , 697 (1991)). An “agency’s interpretation of its own rule
    is given ‘controlling weight unless it is plainly erroneous or inconsistent with the regulation.’”
    High Plains Wireless, L.P. v. FCC, 
    276 F.3d 599
    , 606 (D.C. Cir. 2002) (quoting Capital Network
    Sys., Inc. v. FCC, 
    28 F.3d 201
    , 205 (D.C. Cir. 1994)). The Court acknowledges that the
    24
    regulation is imprecise—and perhaps internally redundant—because it uses the general term
    “drug” following the more specific term “drug product.” Even the FDA concedes “this reading
    is cumbersome.” Defs.’ Reply at 6, ECF No. 25. But, as Dr. Peck’s guidance letter evidences,
    even before it first promulgated the regulation, the FDA maintained that the statute granted five-
    year exclusivity to new drug products only if they contained no previously-approved active
    moiety. See A.R. 324. It would be strange, indeed, to conclude that the FDA unintentionally
    hamstrung itself from achieving its stated interpretation through its somewhat confusingly
    worded regulation. Moreover, both the three- and five-year exclusivity provisions in the
    regulation are framed at the “drug product” level, and ask whether a “drug product” contains a
    “new chemical entity” or “an active moiety that has been previously approved.” Compare 21
    C.F.R. § 314.108(b)(2), with 
    id. § 314.108(b)(4)(iii).
    Although the FDA now interprets “drug”
    in the definition of “new chemical entity” to mean “drug substance,” and not “drug product,” it is
    difficult to conclude that the regulation’s text plainly compels that reading, given its overall
    emphasis on “drug products.” At most, like the statute, the regulation is somewhat ambiguous,
    and thus falls short of providing the “plain language” necessary to compel Ferring’s preferred
    interpretation. 6
    This conclusion similarly brushes aside Ferring’s second contention: that the FDA’s prior
    interpretation merits less deference because “the agency has offered several different inconsistent
    interpretations of the statute.” Pl.’s Mem. Supp. at 22. In the Court’s view the agency has taken
    only two positions. And those interpretations are not erratic, as Ferring seems to imply. While
    an “[u]nexplained inconsistency” might be “a reason for holding an interpretation to be an
    6
    This conclusion also resolves Ferring’s duplicative argument that, even beyond Chevron
    Step Two, the FDA’s prior interpretation is invalid because it conflicts with the agency’s
    regulation. See Pl.’s Mem. Supp. at 23.
    25
    arbitrary and capricious change from agency practice under the Administrative Procedure Act,”
    Brand 
    X, 545 U.S. at 981
    , “[a]n initial agency interpretation is not instantly carved in stone,”
    
    Chevron, 467 U.S. at 853
    –64. An agency “must consider varying interpretations and the wisdom
    of its policy on a continuing basis.” 
    Id. Thus, “if
    the agency adequately explains the reasons for
    a reversal of policy, ‘change is not invalidating, since the whole point of Chevron is to leave the
    discretion provided by the ambiguities of a statute with the implementing agency.’” Brand 
    X, 545 U.S. at 981
    (quoting Smiley v. Citibank (South Dakota), N.A., 
    517 U.S. 735
    , 742 (1996)).
    Here, the agency has thoroughly explained both its prior and its new position, and thus there is
    no reason to avoid deferring to either.
    Finally, Ferring claims that the FDA’s prevailing interpretation at the time it submitted
    the NDA for PREPOPIK was out of step with the statute’s purpose because the interpretation
    denied exclusivity to some fixed-dose combination products that contained a new active
    ingredient. In Ferring’s view, it “should not matter under the statute whether the active
    ingredient is approved alone or in combination with other, older active ingredients” because the
    statute was intended to “encourage drug companies to research and develop new drug
    substances.” Pl.’s Mem. Supp. at 23. But the legislative history phrases that purpose in the most
    general terms and, facing “the classic question of the appropriate trade-off between greater
    incentives for the invention of new products and greater affordability of those products,”
    Congress endeavored to strike “a balance between expediting generic drug applications and
    protecting the interests of the original drug manufacturers.” Abbott 
    Labs., 920 F.2d at 985
    . The
    ambiguous use of the word “drug” leaves some question about exactly where Congress intended
    to draw that line. In such circumstances, courts leave it to the relevant agency to “resolv[e] the
    competing interests which Congress itself either inadvertently did not resolve, or intentionally
    26
    left to be resolved by the agency charged with the administration of the statute in light of
    everyday realities.” 
    Chevron, 467 U.S. at 865
    –66. While the FDA now acknowledges that
    “recent changes” in the development and importance of fixed-combination drugs “warrant[ed]
    revisiting [its] current policy,” A.R. 212, the Court does not view the FDA’s previous
    interpretation as outside the boundaries of the reasonable policy choice that the ambiguous
    phrase “drug” committed to the agency’s discretion.
    This conclusion largely resolves Ferring’s related claim that FDA’s prior interpretation
    was arbitrary and capricious. The scope of a court’s “arbitrary and capricious” review “is
    narrow” and “a court is not to substitute its judgment for that of the agency.” Motor Vehicle
    Mfrs. Ass’n v. State Farm Mut. Ins. Co., 
    463 U.S. 29
    , 43 (1983). To satisfy the standard, an
    agency “must examine the relevant data and articulate a satisfactory explanation for its action
    including a ‘rational connection between the facts found and the choice made.’” 
    Id. (quoting Burlington
    Truck Lines v. United States, 
    371 U.S. 156
    , 168 (1962)). “The analysis of disputed
    agency action under Chevron Step Two and arbitrary and capricious review is often ‘the same,
    because under Chevron step two, [the court asks] whether an agency interpretation is arbitrary or
    capricious in substance.’” Agape Church, Inc. v. FCC, 
    738 F.3d 397
    , 410 (D.C. Cir. 2013)
    (quoting Judulang v. Holder, 
    132 S. Ct. 476
    , 483 n.7 (2011)); see also Nat’l Ass’n of Broad. v.
    FCC, 
    789 F.3d 165
    , 171 (D.C. Cir. 2015) (“[A] Chevron step-two argument and a claim that the
    agency has acted arbitrarily and capriciously (which petitioners also assert here) overlap.”).
    Ferring argues, however, that even if the FDA’s prior interpretation was a reasonable
    reading of the statute, it arbitrarily treated similarly situated fixed-dose combination drug
    products differently. See Pl.’s Mem. Supp. at 25–27; see also, e.g., Indep. Petroleum Ass’n of
    Am. v. Babbitt, 
    92 F.3d 1248
    , 1258 (D.C. Cir. 1996) (noting that, to “satisfy the arbitrary and
    27
    capricious standard” an agency “must treat similar cases in a similar manner unless it can
    provide a legitimate reason for failing to do so”). Ferring posits that the FDA’s interpretation
    and umbrella policy, in combination, created circumstances in which a drug substance’s
    eligibility for the five-year exclusivity period turned arbitrarily on the order in which NDAs were
    approved. Ferring contends that “if a single-entity drug product containing a new active
    ingredient is approved before a fixed-dose combination drug product containing the same active
    ingredient, both products—the single-entity and the combination—receive the benefit of the five-
    year NCE exclusivity,” but that if “the order of the approvals had been reversed and the fixed-
    dose combination drug product had been approved just hours before the single-ingredient
    product, none of the products would have been awarded NCE exclusivity.” Pl.’s Mem. Supp. at
    25, 26 (emphases in original). Ferring cites several examples of situations in which a single-
    entity product was first approved and then a combination-drug product including that new single-
    entity product was later approved and, by operation of the umbrella policy, was therefore able to
    share in whatever remained of the original product’s exclusivity period. See Pl.’s Mem. Supp. at
    25–27; see also A.R. 907–10.
    If there were, in fact, situations in which a drug was eligible for five-year exclusivity
    under the FDA’s prevailing interpretation but failed to receive it because of the order in which it
    was approved, those circumstances might render the FDA’s policy arbitrary and capricious.
    Instead, the distinction Ferring identifies flows naturally from the policy choice the FDA made
    when it settled on its prior interpretation. In each example Ferring identifies, a drug was first
    approved in a single entity drug product, 7 and then later approved as part of a fixed-combination
    7
    Although neither Ferring nor the FDA identify an example, presumably a new drug
    substance would also receive exclusivity if it was included in a fixed-combination drug product
    28
    product—a straightforward application of the FDA’s umbrella policy. See A.R. 209 (explaining
    that, under the umbrella policy, once exclusivity “attaches,” it “protects not only the drug
    product that is the subject of the application but also subsequently approved drug products that
    contain the same active moiety”). Moreover, although in some instances the FDA approved the
    NDAs for the single-entity drug and later iterations on the same day, the administrative record
    reveals that the NDAs for each of the single-entity drug products were submitted long before the
    combination-drug products (in some cases only six months prior, but in others up to eighteen
    months prior). See 
    id. at 907–10.
    This progression accords with the umbrella policy’s effort to
    ensure that innovators would not be discouraged from “making improvements in their drug
    products.” Proposed Rule, 54 Fed. Reg. at 28,897.
    What distinguishes PREPOPIK is not the mere sequence in which its NDA was
    approved, but that PREPOPIK’s novel active ingredient, sodium picosulfate, was not appropriate
    in a single-entity form. The difference is subtle, but significant. Unlike the other drug
    substances Ferring identifies (and unless sodium picosulfate was included in a combination
    product that contained only new active ingredients) the drug substance was never even eligible
    for five-year exclusivity under the FDA’s prevailing policy. This distinction aligns with the
    agency’s resolution of the statute’s ambiguity by granting exclusivity only to the “most
    innovative drugs” and focusing on entire “drug products.” A.R. 208. Indeed, everything in the
    record indicates that before the FDA altered its policy, it took a consistent position that only
    entire drug products that contained never-before approved active ingredients were eligible for
    five-year exclusivity—even if fixed-combination drug products including those novel drug
    in which all of the active ingredients were new—in line with the FDA’s contemporaneous
    interpretation that all active moieties in the drug product must be novel.
    29
    products also received protection under the umbrella policy, and even if the FDA’s focus on final
    “drug products” collaterally excluded drug substances that were inappropriate for use in a single-
    ingredient drug from exclusivity eligibility. As the FDA explains, the “‘pattern’ of different
    decisions regarding 5-year NCE exclusivity that Ferring trumpets was merely a by-product of
    FDA’s consistent application of its established interpretation to the facts of each individual
    product.” Defs.’ Reply at 9.
    As a result of the statute’s ambiguity, the FDA was left to determine at what level of
    specificity to define “drug”: at the “drug product” level, and in reference to all of the product’s
    “drug substances,” or at the “drug substance” level. Although scientific and policy
    considerations may have now persuaded the FDA to modify its interpretation, given the statutory
    ambiguity and the considerations discussed above, it was neither unreasonable nor arbitrary and
    capricious for the FDA to define “drug,” in the “eligibility clause” as “drug product,” and to
    thereafter ensure the greatest benefit for pharmaceutical manufacturers who are provided with
    exclusivity by interpreting “drug” in the “bar clause” as “drug substance.” Therefore, Ferring’s
    Chevron Step Two argument fails.
    C. Retroactivity
    That leaves Ferring’s argument regarding the FDA’s decision to apply its new
    interpretation only prospectively. Ferring frames the issue as a question of whether the FDA
    acted arbitrarily and capriciously. Yet, neither party cites a case considering an agency’s
    decision to apply a new interpretation retroactively (or not) under that framework. Overall, the
    parties’ arguments on this issue are thin on legal citations. In addition, the Court’s review of the
    FDA’s initial response to Ferring’s Citizen Petition reveals that the agency cited the D.C.
    Circuit’s decision in Retail Wholesale & Department Store Union v. NLRB, 
    466 F.2d 380
    (D.C.
    Cir. 1972) as support for the agency’s conclusion that its retroactivity decision “strikes the
    30
    appropriate balance among the congressional intent of the Hatch-Waxman Amendments and the
    interests of the parties who may be affected by [the FDA’s] decision.” A.R. 215. And that case
    does appear to be potentially relevant here.
    The D.C. Circuit has described Retail Union as “provid[ing] the framework for
    evaluating retroactive applications of rules announced in agency adjudications.” Clark-Cowlitz
    Joint Operating Agency v. FERC, 
    826 F.2d 1074
    , 1081 (D.C. Cir. 1987) (en banc); see also
    Williams Nat. Gas Co. v. FERC, 
    3 F.3d 1544
    , 1553–54 (D.C. Cir. 1993). Retail Union instructs
    a court to consider the following when determining whether retroactive application of a new
    interpretation is warranted, or should be avoided:
    (1) whether the particular case is one of first impression, (2) whether the new rule
    represents an abrupt departure from well established practice or merely attempts
    to fill a void in an unsettled area of law, (3) the extent to which the party against
    whom the new rule is applied relied on the former rule, (4) the degree of the
    burden which a retroactive order imposes on a party, and (5) the statutory interest
    in applying a new rule despite the reliance of a party on the old 
    standard. 466 F.2d at 390
    . These “factors ‘boil down . . . to a question of concerns grounded in notions of
    equity and fairness,” Cassell v. FCC, 
    154 F.3d 478
    , 486 (D.C. Cir. 1998) (quoting Clark-
    
    Cowlitz, 826 F.2d at 1082
    n.6), and a Court should ask whether “the inequity in applying” the
    new rule in the case before the agency “outweighs the interests that might be furthered if it were
    applied,” Retail 
    Union, 466 F.2d at 390
    ; accord McDonald v. Watt, 
    653 F.2d 1035
    , 1044 (5th
    Cir. Unit A Aug. 1981) (“In general, the ill effect of retroactivity is the frustration of the
    expectations of those who have justifiably relied on a prior rule; the ill effect of prospectivity is
    the partial frustration of the statutory purpose which the agency has perceived to be advanced by
    the new rule.” (citing Retail 
    Union, 466 F.2d at 390
    )). Determining “[w]hich side of the balance
    preponderates” in a particular instance is “a question of law,” which a court should resolve “with
    31
    no overriding obligation of deference to the agency decision.” Retail 
    Union, 466 F.2d at 390
    ;
    accord Qwest Servs. Corp. v. FCC, 
    509 F.3d 531
    , 537 (D.C. Cir. 2007).
    The Circuit has also drawn a “basic distinction . . . between (1) new applications of law,
    clarifications, and additions, and (2) substitution of new law for old law that was reasonably
    clear.’” Williams Nat. Gas 
    Co., 3 F.3d at 1554
    (internal quotation mark omitted) (quoting
    Aliceville Hydro Assocs. v. FERC, 
    800 F.2d 1147
    , 1152 (D.C. Cir. 1986)). In the former
    circumstances, the court “start[s] with the presumption of retroactivity for adjudications,” 
    Qwest, 509 F.3d at 539
    , but under the latter circumstances the D.C. Circuit has suggested that a “new
    rule may justifiably be given prospective[]-only effect in order to ‘protect the settled
    expectations of those who had relied on the preexisting rule,’” Pub. Serv. Co. of Colo. v. FERC,
    
    91 F.3d 1478
    , 1488 (D.C. Cir. 1996) (quoting Williams Nat. Gas 
    Co., 3 F.3d at 1554
    ). If the
    Retail Union line of authority applies in this case, this distinction may also be of import.
    Despite the FDA’s citation to Retail Union, the parties’ here neither grapple with that
    case and its progeny nor explain, alternatively, why it is inapplicable. The parties’ limited
    reliance on case law is also a hindrance to the Court’s analysis of the retroactivity question. And
    because the Court has held that the FDA’s prior interpretation passes muster under Chevron, the
    retroactivity issue will be dispositive of Ferring’s claims. Accordingly, the Court will deny each
    party’s motion for summary judgment on this ground, without prejudice. The parties will be
    directed to file renewed motions for summary judgment that more fully address the retroactivity
    issue, as reflected in the order accompanying this memorandum opinion.
    V. CONCLUSION
    For the foregoing reasons, Defendants’ motion for summary judgment (ECF No. 22) is
    GRANTED IN PART AND DENIED WITHOUT PREJUDICE IN PART and Ferring’s
    32
    motion for summary judgment (ECF No. 20) is DENIED WITHOUT PREJUDICE. An order
    consistent with this Memorandum Opinion is separately and contemporaneously issued.
    Dated: March 15, 2016                                        RUDOLPH CONTRERAS
    United States District Judge
    33
    

Document Info

Docket Number: Civil Action No. 2015-0802

Citation Numbers: 169 F. Supp. 3d 199, 2016 U.S. Dist. LEXIS 33059, 2016 WL 1060199

Judges: Judge Rudolph Contreras

Filed Date: 3/15/2016

Precedential Status: Precedential

Modified Date: 11/7/2024

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Pauley v. BethEnergy Mines, Inc. , 111 S. Ct. 2524 ( 1991 )

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Public Service Company of Colorado v. Federal Energy ... , 91 F.3d 1478 ( 1996 )

Smiley v. Citibank (South Dakota), N. A. , 116 S. Ct. 1730 ( 1996 )

At&T Corp. v. Iowa Utilities Board , 119 S. Ct. 721 ( 1999 )

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Judulang v. Holder , 132 S. Ct. 476 ( 2011 )

Chevron U. S. A. Inc. v. Natural Resources Defense Council, ... , 104 S. Ct. 2778 ( 1984 )

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Rempfer v. Sharfstein , 583 F.3d 860 ( 2009 )

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Maude E. McDonald v. James G. Watt, Etc. , 653 F.2d 1035 ( 1981 )

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