Ferring Pharmaceuticals, Inc. v. Burwell

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
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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.
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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).
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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
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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
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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”).
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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
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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
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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
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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,”
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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
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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
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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)).
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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
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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
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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
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