FR Doc 07-3218 [Federal Register: July 3, 2007 (Volume 72, Number 127)] [Notices] [Page 36487-36504] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr03jy07-94]

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 07-7]

Southwood Pharmaceuticals, Inc.; Revocation of Registration

On November 30, 2006, I, the Deputy Administrator of the Drug Enforcement Administration, issued an Order to Show Cause and Immediate Suspension of Registration to Southwood Pharmaceuticals, Inc. (Respondent), of Lake Forest, California. The Order immediately suspended Respondent's DEA Certificate of Registration, RS0204898, based on my preliminary finding that its continued registration "constitute[s] an imminent danger to the public health and safety because of the substantial likelihood that Southwood [would] continue to supply pharmacies that divert large quantities of controlled substances.'' Show Cause Order at 3. The Order also sought the revocation of Respondent's registration on the ground that its continued registration is "inconsistent with the public interest.'' Id. at 1 (citing 21 U.S.C. 823(d) & 824(a)(4)).

The Show Cause Order alleged that between November 2005 and August 2006, Respondent's sales to pharmacies of hydrocodone products "increased from approximately 7,000 dosage units per month to approximately 3,000,000 dosage units per month,'' and that the increase was "directly attributable to [its] supplying controlled substances to pharmacies that it knew or should have known were engaged in the widespread diversion of controlled substances.'' Id. The Show Cause Order alleged that several of Respondent's customers were distributing "large amounts of hydrocodone based on orders placed by customers using various Internet Web sites.'' Id.

The Show Cause Order specifically alleged that "from December 12, 2005, to August 31, 2006, [Respondent] distributed approximately 8,671,000 dosage units of hydrocodone products to Medipharm-Rx, Inc.,'' and did so "under circumstances that clearly indicated that Medipharm was engaged in the diversion of controlled substances.'' Id. at 1-2. The Show Cause Order further alleged that these circumstances included that "ninety-nine percent of Medipharm's business [with Respondent] involved the sale of controlled substances,'' that Medipharm was owned by an individual who also owned a Web site "that solicit[ed] orders for controlled substances'' and used practitioners who issued prescriptions outside of "the usual course of professional practice,'' and that "Medipharm's orders were of an unusual size, deviated substantially from a normal pattern, and were of an unusual frequency.'' Id. at 2.

Relatedly, the Show Cause Order alleged that Respondent had "also supplied controlled substances under similarly suspicious circumstances'' to fourteen other pharmacies. Id. The Show Cause Order thus alleged that Respondent "repeatedly supplied excessive quantities of hydrocodone to pharmacies that it knew or should have known were diverting hydrocodone.'' Id. Moreover, the Show Cause Order alleged that notwithstanding "the unusual size and frequency of the orders placed by Medipharm and others, as well as the fact that the orders substantially deviated from the normal pattern of orders received by'' it, Respondent never reported any of the orders as suspicious. Id. at 2-3.

Next, the Show Cause Order alleged that on July 17, 2006, the Office of Diversion Control's E-Commerce Section held a conference call with Respondent's representatives to discuss "the distribution of controlled substances to Internet pharmacies.'' Id. at 3. During the call, DEA officials allegedly presented Respondent with "information on the characteristics of Internet pharmacies and the nature of their illegal activities.'' Id. DEA officials also allegedly discussed with Respondent such subjects as DEA's 2001 Guidance Document on the use of the Internet to prescribe controlled substances, the requirement for a valid prescription under federal law and existing professional standards, DEA's regulation requiring the reporting of suspicious orders, and the "practices and ordering patterns of internet pharmacies.'' Id. The Show Cause Order further alleged that notwithstanding this information, in August 2006, Respondent proceeded to distribute large quantities of hydrocodone to five different internet pharmacies. Id. The Show Cause Order thus alleged that Respondent "has failed to maintain effective controls against diversion and that [its] continued registration * * * would be inconsistent with the public interest.'' Id.

On December 6, 2006, the Show Cause Order was served on Respondent. ALJ Ex. 2. Thereafter, on December 29, 2006, Respondent, through its counsel, requested a hearing. ALJ Ex. 3. The matter was assigned to Administrative Law Judge (ALJ) Gail Randall, who conducted a hearing in Arlington, Virginia, from February 5 through February 8, 2007. At the hearing, both parties called witnesses and introduced documentary evidence. Following the hearing, both parties submitted briefs containing proposed findings of fact, conclusions of law, and argument.

On March 30, 2007, the ALJ issued her recommended decision (ALJ). In that decision, the ALJ concluded that DEA had proved that "Respondent's continued registration to handle hydrocodone products would be against the public interest.'' ALJ at 61-62. The ALJ concluded, however, that Respondent "has kept an open dialogue with the DEA and has attempted to come into compliance with the DEA's regulations.'' Id. at 62. While acknowledging "the egregious quantities of hydrocodone products the Respondent irresponsibly sold to registered [i]nternet pharmacies during 2005 and 2006,'' the ALJ nonetheless "conclude[d] that revocation of * * * Respondent's entire DEA registration is too severe a remedy.'' Id.

Continuing, the ALJ explained that "the record contains no evidence of * * * Respondent's improper handling of any other controlled substances, especially in its sales of manufactured products to its practitioner customers.'' Id. Noting that Respondent had hired an "experienced officer who will be making the final decisions concerning [its] compliance measures,'' and that this would provide "an increased level of protection of the public interest,'' the ALJ recommended that Respondent's authority to handle hydrocodone products be revoked but that it retain its

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authority to handle other controlled substances. Id. The ALJ further recommended that DEA monitor Respondent to ensure that it comply with both her proposed restrictions and Respondent's decision to cease distributing to Florida-based internet pharmacies. Id.

Thereafter, the Government filed exceptions. In its exceptions, the Government contended that the record established that Respondent had also distributed excessive quantities of other controlled substances included phentermine and alprazolam. See Gov. Exceptions at 2-9. The Government also contended that the ALJ's reliance on Respondent's hiring of a new Chief Operating Officer (COO) was misplaced because the company had, in fact, sold increasing amounts of controlled substances to "rogue [i]nternet pharmacies'' for several months thereafter. Id. at 11. The Government further argued that under the "day to day leadership'' of its new COO, Respondent had continued to constructively distribute controlled substances to its physician clients after its registration was suspended. Id. According to the Government, this conduct "refutes the ALJ's hypothesis that [the new COO] will effectively manage Respondent's compliance program.'' Id.

In response, Respondent argued that the Government had "largely buried its concerns'' regarding the distribution of phentermine noting that the drug was not mentioned in the Show Cause Order, the lengthy stipulation of facts, or in the Government's opening statement. Respondent's Resp. at 2-3. Respondent further argued that it has stipulated that it will not "ship phentermine to any pharmacy, should its registration be restored.'' Id. at 2. With respect to alprazolam, Respondent argued that "the government wholly buried its concern with this substance, making explicit reference to it only in its Exceptions.'' Id. Finally, Respondent argued that the ALJ's findings regarding its new COO are based on credibility determinations and are entitled to deference. Id. at 4-6.

Thereafter, on May 8, 2007, the ALJ forwarded the record to me for final agency action. Having reviewed the record as a whole, I hereby issue this decision and final order. I adopt the ALJ's findings of fact and conclusions of law except as expressly noted herein. However, for reasons explained below, I conclude that the ALJ's proposed remedy is insufficient to protect the public interest. While I am mindful of the corrective measures engaged in by Respondent, its sales of extraordinary quantities of controlled substances to entities which it had reason to know were diverting the drugs caused extraordinary harm to public health and safety. Therefore, Respondent's registration will be revoked and its pending renewal application will be denied. I make the following findings.

Findings

Respondent Southwood Pharmaceuticals, Inc., is the holder of DEA Certificate of Registration, RS0204898, which authorizes it to manufacture controlled substances in schedules 3, 3N, 4, and 5. GX 1. While the expiration date of its registration was February 28, 2007, see id., Respondent submitted a timely renewal application. See Resp. Ex. 110. Respondent's registration thus remains in effect (although in suspended status) pending the issuance of this order. 5 U.S.C. 558(c).

Respondent's market niche was the repackaging of oral dose generic drug products into common prescription quantities which it then distributed. ALJ at 3. Until December 2005, Respondent's customer base was primarily comprised of dispensing physicians who specialized in treating injured workers, pain management and urgent care. Id. at 3-4. Respondent also distributed its products to group practices, specialty clinics and some traditional retail pharmacies. Id. Among the drugs distributed by Respondent were schedule III controlled substances containing hydrocodone.\1\ See 21 CFR 1308.13(e).

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\1\ By itself, hydrocodone is a schedule II controlled substance. 21 CFR 1308.12(b)(1). Respondent did not, however, distribute schedule II hydrocodone. Throughout this decision, the term hydrocodone refers to those schedule III controlled substances which contain hydrocodone.

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Respondent's Hydrocodone Sales

According to data submitted by Respondent through DEA's ARCOS system, during the four-month period from August through November 2005, it sold 3,949,454 dosage units of hydrocodone products. ALJ at 4. Of this amount, Respondent's individual practitioner customers purchased 3,882,507 dosage units of the drug. Id. By contrast, Respondent sold approximately 29,940 dosage units of hydrocodone products to its retail pharmacy customers, for an average of 7,485 dosage units per month. Id. at 5.

On December 7, 2005, Respondent entered a new line of business-- supplying internet pharmacies--by selling hydrocodone to Medipharm-Rx, Inc. (Medipharm), a Florida-based internet pharmacy.\2\ Id. Over the ensuing months, Respondent acquired numerous additional internet pharmacy customers to whom it repeatedly sold large quantities of hydrocodone.

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\2\ For purposes of this decision, the term "internet pharmacy'' refers to a pharmacy that fills a prescription that is issued by the physician without the physician having entered into a legitimate doctor-patient relationship under existing professional standards. Typically, a person seeking controlled substances goes to an internet site, fills out a questionnaire which requests basic medical information and payment/shipping information, and requests a specific drug; some Web sites may require that the patient submit a medical record, which is easily falsified. Thereafter, the customer's information is forwarded to a physician either contracted to or employed by the Web site, who reviews the information and issues a prescription, either with or without the benefit of a perfunctory telephone consultation, but always without having conducted a face-to-face review of the person's medical history and a physical exam. The prescription is then either forwarded to the pharmacy or downloaded electronically by the pharmacy; the pharmacy then fills the prescription and ships it to the customer. See GX 3.

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According to the stipulated facts, from December 2005 through October 2006, Respondent supplied Medipharm with an average of 1,011,882 dosage units of hydrocodone per month. ALJ at 5. Respondent also supplied Medipharm with approximately 538,290 dosage units of hydrocodone during the first half of November 2006, at which time Medipharm's registration was immediately suspended under 21 U.S.C. 824(d). Id. at 5-6. The following table reflects Respondent's monthly distributions of hydrocodone to Medipharm:

Id. at 5. According to a July 2006 report created by Respondent of its largest purchasers of controlled substances from December 2005 through June 2006, controlled substances constituted ninety-nine percent of its prescription drug sales to Medipharm. Resp. Ex. 47. On December 19, 2005, Respondent obtained another Florida-based internet pharmacy customer, Accumed Rx, Inc. (Accumed). ALJ at 7. Respondent supplied Accumed with approximately 5,884,212 dosage units of hydrocodone as tabulated below:

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Id. at 8. Between December 2005 and June 2006, controlled substances comprised ninety-nine percent of Respondent's prescription drug sales to Accumed. Resp. Ex. 47. On December 21, 2005, Respondent obtained another Florida-based internet pharmacy customer, Avee Pharmacy, Inc. (Avee). ALJ at 6. Respondent's sales of hydrocodone to Avee averaged 566,259 dosage units a month and are tabulated below:

Id. Respondent also supplied Avee with 238,140 dosage units during the first five days of December 2006. Id. at 7. From December 2005 through June 2006, controlled substances constituted one hundred percent of Respondent's sales to Avee. Resp. Ex. 47.

On November 17, 2006, Respondent notified Avee by letter that effective December 15, 2006, it would not supply the pharmacy, whose registration had been continued on a day-to-day basis past its expiration date and not renewed, unless it obtained a renewal of its registration.\3\ Resp. Ex. 77. Between November 17 and December 5, 2006, however, Respondent supplied Avee with approximately 1,804,940 dosage units of hydrocodone. ALJ at 7.

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\3\ Effective December 15, 2006, Respondent instituted a policy of not supplying registrants whose registration remained in effect on a day-to-day basis for more than two months past the expiration date. Resp. Ex. 77. Respondent's DEA registration was suspended before the policy became effective.

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On January 4, 2006, United Prescription Services, Inc. (United), another internet pharmacy, became a customer of Respondent. ALJ at 14. Respondent sold an average of 92,988 dosage units of hydrocodone per month to United as tabulated below:

Id.

From the date United became a customer through June 2006, controlled substances constituted one hundred percent of Respondent's prescription drug sales to it. Resp. Ex. 47. On November 17, 2006, Respondent notified United that it would stop supplying the pharmacy if it did not obtain a renewal of its registration. Id. at 14. From November 21, 2006, through December 5, 2006, however, Respondent distributed to United approximately 158,280 dosage units of hydrocodone. Id.

On January 25, 2006, Respondent acquired two more internet pharmacy customers, RKR Holdings, d/b/a Medichem RX Pharmacy (Medichem), and Bi- Wise Drugs, Inc. (Bi-Wise). ALJ at 11, 13. Between January and November 2006, Respondent sold Medichem a monthly average of 216,638 dosage units of hydrocodone as tabulated below:

Id. at 11-12. From the date it became a customer through June 2006, controlled substances constituted one hundred percent of Respondent's prescription drug sales to Medichem. Resp. Ex. 47.

From January 25 through October 2006, Respondent's hydrocodone sales to Bi-Wise averaged 117,150 dosage units per month. ALJ at 13. Moreover, from the date Bi-Wise became a customer through the end of June 2006, controlled substances constituted ninety-nine percent of Respondent's prescription drugs sales to it. Resp. Ex. 47. Respondent's hydrocodone sales to Bi-Wise are tabulated below:

ALJ at 13.

On February 16, 2006, Respondent acquired another internet pharmacy customer, Vin-Kash, Inc., d/b/a/ Medicom RX. Id. at 12. Through October 2006, Respondent supplied Medicom with an average of 190,281 dosage units of hydrocodone per month. Id. Respondent's sales are tabulated below:

Id. Respondent also supplied Medicom with approximately 82,750 dosage units of hydrocodone during the first five days of December 2006. Id. at 13. Moreover, from the date it became a customer through June 2006, controlled substances comprised one hundred percent of Respondent's prescription drug sales to Medicom. Resp. Ex. 47.

On February 20, 2006, Respondent obtained another internet pharmacy customer, Discount Mail Meds (Discount). ALJ at 8. From the inception of the relationship through November 2006, Respondent supplied Discount with an average of 330,324 dosage units of hydrocodone per month as tabulated below:

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Id. at 9. Respondent also supplied Discount with 43,200 dosage units of hydrocodone during the first five days of December 2006. Id. Moreover, from the date it became a customer through June 2006, controlled substances comprised one hundred percent of Respondent's prescription drug sales to Discount. Resp. Ex. 47.

On February 22, 2006, Respondent commenced doing business with Universal Rx (Universal). ALJ at 9. From February through October 2006, Respondent supplied Universal with an average of 308,679 dosage units of hydrocodone per month as tabulated below:

Id. at 9-10. From the date it became a customer through June 2006, controlled substances comprised one hundred percent of Respondent's prescription drug sales to Universal. Resp. Ex. 47.

On November 17, 2006, Respondent notified Universal that, effective December 15, 2006, it would stop supplying the pharmacy unless it obtained a renewal of its registration. ALJ at 10. During the last two weeks of November 2006, Respondent shipped approximately 150,210 dosage units of hydrocodone to Universal. Id. On November 30, 2006, Respondent stopped shipments to Universal. Id

On March 3, 2006, Respondent began doing business with Medcenter, Inc. (Medcenter), an entity owned by the same person who owned Medipharm. Id. at 10-11. From March through October 2006, Respondent supplied Medcenter with an average of 333,063 dosage units of hydrocodone per month as tabulated below:

Id. Additionally, during the first two weeks of November, at which point Medcenter's DEA registration was suspended pursuant to 21 U.S.C. 824(d), Respondent distributed 313,680 dosages units of hydrocodone to it. Id. at 11. Moreover, from the date it became a customer through June 2006, controlled substances constituted one hundred percent of Respondent's prescription drug sales to Medcenter. Resp. Ex. 47.

On March 9, 2006, Respondent commenced doing business with CRJ Pharmacy, Inc. (CRJ). ALJ at 15. From March through October 2006, Respondent sold CRJ an average of 79,803 units of hydrocodone per month as tabulated below:

Id. From the date it became a customer through June 2006, controlled substances comprised ninety-eight percent of Respondent's prescription drug sales to CRJ. Resp. Ex. 47.

In May 2006, Respondent acquired another two customers, Grand Pharmacy (Grand), and Akshar Chemists, Inc., d/b/a Medicine Shoppe (Medicine Shoppe). ALJ at 16-17. Respondent supplied Grand with an average of 144,102 dosage units of hydrocodone per month between May and November 2006 as tabulated below:

Id. at 17. During the same period, Respondent supplied the Medicine Shoppe with an average of 73,365 dosage units of hydrocodone per month as tabulated below:

Id. During the first five days of December 2006, Respondent also supplied the Medicine Shoppe with approximately 17,010 dosage units of hydrocodone. Id.

In July 2006, Q-R-G, Inc., d/b/a Duane's Discount Group (Duane's), began purchasing hydrocodone from Respondent. Id. at 16. From July through November 2006, Respondent supplied Duane's with an average of 191,808 dosage units of hydrocodone per month as tabulated below:

Id. During the first five days of December 2006, Respondent supplied Duane's with an additional 74,850 dosage units of hydrocodone.\4\ Id.

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\4\ Respondent also sold 502,750 dosage units of hydrocodone to Woody Pharmacy Waterside, Inc., during April and May 2006, for an average of 251,375 units per month. ALJ at 15-16. Respondent also supplied Elite Pharmacy, Inc., with 140,000 dosage units of hydrocodone during the month of January 2006. Id. at 18.

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From the date it began supplying internet pharmacies in December 2005 through November 2006, Respondent sold a total of approximately 44,087,355 dosage units of hydrocodone to these entities. Gov. Ex. 43. at 1.\5\ Respondent's monthly sales of hydrocodone to these entities grew from approximately 1.44 million dosage units in December 2005 to 5.78 million dosage units in November 2006. Id. at 2. By contrast, during the even longer time frame of August 2005 through November 2006, Respondent's sales of hydrocodone to its retail pharmacy customers never exceeded more than 16,040 dosage units in a month and typically never exceeded 10,000 dosage units in a month. Id. at 3.

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\5\ This exhibit covers the period from August 2005 through November 2006. Gov. Ex. 43. As found above, Respondent did not begin distributing to internet pharmacies until December 2005.

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The Government also introduced into evidence a table showing the average purchase of hydrocodone products by retail pharmacies in the State of Florida and nationwide during the period October 1, 2005, through January 31, 2006. See Gov. Ex. 45, at 8. This evidence established that Florida retail pharmacies purchased an average of 23,850 dosage units of hydrocodone during the four month period; nationwide, retail pharmacies bought an average of 24,227 dosage units of the drug. Id.

The record further establishes that many of Respondent's Florida- based pharmacy customers were, in fact,

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dispensing illegal prescriptions for controlled substances. More specifically, the record demonstrates that Avee (see GX 51), Medipharm (see GX 53 & 62), United (see GX 54), YPM Total Care Pharmacy (see GX 66), CRJ (GX 67), Bi-Wise (see Tr. 671-72); Universal (see id.), and Accumed (see id.), were dispensing large numbers of prescriptions which were not issued in the course of a legitimate doctor-patient relationship and thus violated Federal law. See 21 CFR 1306.04; see also Tr. 628-29, 639-45, 655-57, 660-67.

Respondent's Due Diligence Efforts

During the events at issue here, Mr. Robert Goodrich was Respondent's Director of Operations and Regulatory Affairs. Tr. 311. According to Mr. Goodrich, from "a regulatory perspective,'' Respondent's due diligence in approving a new customer was limited to verifying that the customer had a State license and a DEA registration. Id. at 313-14. When asked by the Government whether Respondent had any processes in place prior to approving a new customer to purchase controlled substances, Mr. Goodrich testified that the primary process was to check the customer's DEA registration and that there was "no'' secondary process. Id. at 318; see also ALJ at 34 (FOF 117). Based solely on its verifications of the entities' DEA registrations and state licenses, Respondent commenced to ship large quantities of controlled substances to the various internet pharmacies.

In early February 2006, Mr. Goodrich traveled to the Tampa Bay, Florida area, to conduct on-site visits with Respondent's sales representative, Tom Mollick, at several of the internet pharmacy customers which Respondent had recently acquired including Medipharm, Accumed, Medichem, Bi-Wise, and Avee. Tr. 319. According to Mr. Goodrich, the pharmacies were selected because "it was apparent that they were a different type of a customer than what we'd been used to dealing with.'' Id.

At Medipharm, Mr. Goodrich found that it was filling 700 prescriptions a day and noted that it was a "Closed-Door (Mail Order) Pharmacy.'' GX 16. In his report, Mr. Goodrich specifically noted that "[t]he mail order business has ties to internet pharmacy with a large amount of pain management and a growing percentage of traditional maintenance medications.'' Id.

At Accumed, Mr. Goodrich determined that it was filling 350 prescriptions a day and that it also was a "Closed-Door (Mail Order) Pharmacy.'' GX 17. In his report, Mr. Goodrich observed that Accumed has "ties to the internet and * * * explained [its] requirement to check prescriber credentials.'' Id.

At Medichem, Mr. Goodrich found that it was both a "Retail & Closed-Door (Mail-Order) Pharmacy'' with a volume of 100 prescriptions per day. GX 18. Mr. Goodrich noted that while "Medichem is primarily filling prescriptions on a local and state level * * * there was evidence of prescriptions being mailed out-of-state as well.'' Id. Mr. Goodrich further observed that Medichem does "have some ties to the internet community and they appear to be in the process of determining their market niche.'' Id.

At Avee, Mr. Goodrich found that it was a "Closed-Door (Mail- Order) Pharmacy,'' with a prescription volume of 500 per day. GX 20. Mr. Goodrich specifically noted that "Avee operates a closed pharmacy that provides mail order fulfillment of prescriptions from various sources, including internet-connected medical providers who provide patient assessments and diagnosis through unconventional practice models. Many of these prescriptions are connected to pain management therapies involving the prescription of controlled substances.'' GX 20 (emphasis added).

Mr. Goodrich's report further noted that DEA investigators had inspected Avee "earlier that day.'' Id. Moreover, Avee's management discussed with him "the concerns that DEA had with establishing the validity of the doctor-patient relationship that formed the basis of the digital diagnosis that resulted in a prescription for controlled substances being submitted to Avee for filling. Id. (emphasis added). Mr. Goodrich further noted that the position of Avee's management "was that if the prescriber was not authorized to prescribe controlled substances, then the DEA should revoke the prescriber's DEA registration.'' Id. According to Mr. Goodrich's report, DEA investigators had suggested to Avee's management that they meet with the physicians "from whom they receive the most prescriptions to better evaluate them.'' Id.

When asked by the Government what constitutes an "unconventional practice model?,'' Mr. Goodrich testified that as he "understood it, that did not involve a patient going to the doctor's office necessarily and presenting themselves in person.'' Tr. 347. Mr. Goodrich subsequently acknowledged that he knew as early as February 2006, that "[s]ome of the prescriptions [Avee] filled were not the result of physical contact between the doctor and the patient.'' Id. at 348. Mr. Goodrich also testified that Avee had provided him with the names of two internet sites which were the source of some of the prescriptions it filled. Id. at 351-52.

Notwithstanding the information he obtained during his visit with Avee, Mr. Goodrich made no follow-up inquiries with its management regarding whether they had determined if the physicians were writing legitimate prescriptions. Id. at 352-53. Indeed, Mr. Goodrich made no further inquiries of Avee regarding its business practices until the middle of August 2006, after a meeting with DEA. Id. at 353. When asked by the Government whether he was concerned by the fact that DEA had visited Avee, Mr. Goodrich acknowledged that he did not "know[] much about this telemedicine thing,'' but "felt that if [Avee] weren't doing what they were supposed to do right, DEA wouldn't allow them to continue in business.'' Id. at 354. Mr. Goodrich also testified that he was not troubled by Avee management's contention that "if the prescriber was not authorized to prescribe controlled substances, then the DEA should revoke the prescriber's DEA registration.'' Id.

Mr. Goodrich further acknowledged that at the time of his visit to Avee, he was not "versed'' in the requirement that a prescription must be issued by a physician acting in the usual course of professional practice even though he asserted that he was then "aware that pharmacies had obligations to ensure that they had valid prescriptions.'' Id. at 355. Mr. Goodrich admitted that he had not gone to DEA's website prior to Respondent's engaging in business with internet pharmacies to determine whether the Agency had posted any guidance on the subject. Id. at 358. Mr. Goodrich further testified that he "received most of'' the information regarding the requirements for a valid prescription from DEA during a July 2006 meeting (which will be described more fully below). Id. at 357.

Mr. Goodrich also attempted to visit Bi-Wise, but found that it was closed. Tr. 321; GX 19. According to his report, Bi-Wise was a retail and closed-door pharmacy with minimal prescription volume. GX 19. Mr. Goodrich further described it as a "[v]ery small retail unit located in strip mall'' and that the "[c]ustomer is in [the] process of determining direction for [the] business.'' Id.

Mr. Goodrich testified that he did not attempt to go back to the pharmacy when it was open, Tr. 322, and never contacted anyone from Bi- Wise to further inquire into the nature of its business. Id. at 323. Furthermore,

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notwithstanding that Bi-Wise's purchases of hydrocodone from Respondent increased from 18,240 dosage units in February 2006 to 152,750 dosage units in March 2006, Mr. Goodrich never followed up with anyone at Bi- Wise to determine the reason for the increase. Id. at 325-26. This was so, Mr. Goodrich testified, because he did not "routinely look[] at'' the data regarding the purchases of Respondent's customers. Id. at 326.

As found above, during the ensuing months, Respondent took on additional internet pharmacies as customers and Respondent proceeded to sell extraordinary quantities of hydrocodone to them. Other than the five pharmacies visited on or about February 8, 2006, there is no evidence that Mr. Goodrich visited any of the other internet pharmacies which Respondent began supplying.

Because of the large quantities of hydrocodone that Respondent was distributing to these entities, Respondent "was invited to the DEA Field Office in Riverside to be educated on the [Agency's] view of Internet pharmacies.'' ALJ at 22 (FOF 72). On July 17, 2006, Michael Mapes, Chief of the Office of Diversion Control's E-Commerce Section, conducted a conference call with Mr. Goodrich and Ms. Grace Gonzales, Respondent's operations manager \6\ to discuss various issues related to the dispensing of controlled substances by internet pharmacies. GX 49. Prior to the conference call, Mr. Goodrich was provided with a document entitled "Internet Diversion of Controlled Pharmaceuticals.'' Tr. 411-12; GX 45. Included in the document was a table which showed the average sales by McKesson, another distributor, to seven internet pharmacies during the month of October 2005. See GX 45, at 7. Six of the seven pharmacies listed were Respondent's customers: Avee, Medipharm, Accumed, United, Universal, and Bi-Wise. Id. The table included a notation that the "Average Sales by McKesson to Each Targeted Pharmacy'' was "311,057 dosage units.'' Id. (emphasis added). It further indicated that McKesson's average sales of hydrocodone "to other customers'' was "2,413 dosage units.'' \7\ Id. The document also included a page labeled "The Internet Pharmacies'' which included photographs of both Avee and Medipharm. Id. at 9.

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\6\ Additional DEA personnel were on the call including Group Supervisor (GS) Lisa Young and Diversion Investigator (DI) Cynthia Hooks of the DEA Riverside Office. GX 49.

\7\ The document also included the data (discussed earlier) regarding the average hydrocodone purchases over a four month period of pharmacies in Florida and nationwide, as well as the average purchases by the "Targeted Internet Pharmacies.'' GX 45, at 8.

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At the time of the conference call, Mr. Goodrich was provided with an additional package of materials which included a powerpoint presentation, two Supreme Court decisions,\8\ two agency final orders revoking the registrations of internet pharmacies for dispensing prescriptions that were not issued in the course of valid physician- patient relationships,\9\ DEA's April 2001 Guidance Document on "Dispensing and Purchasing Controlled Substances over the Internet,'' \10\ and a copy of 21 CFR 1301.74, which sets forth the requirements pertaining to suspicious orders. See Gov. Ex. 61. The materials also contained a document from the National Association of Boards of Pharmacy entitled "Verified Internet Pharmacy Practice Sites (VIPPS [supreg]) Most Frequently Asked Questions,'' the American Medical Association's "Guidance for Physicians on Internet Prescribing,'' the Federation of State Medical Boards' "Model Guidelines for the Appropriate Use of the Internet in Medical Practice,'' and a list of suggested questions for determining the legitimacy of internet pharmacies. See id. Finally, DEA provided Mr. Goodrich with a copy of 21 U.S.C. 823. Id.

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\8\ Direct Sales Co., Inc. v. United States, 319 U.S. 703 (1943); United States v. Moore, 423 U.S. 122 (1975).

\9\ EZRX, LLC, 69 FR 63178 (2004); RX Network of South Florida, LLC, 69 FR 62093 (2004).

\10\ Published at 66 FR 21181 (2001).

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During the conference call, Mr. Mapes specifically discussed the activities of Medipharm, Avee, Accumed, United, Bi-Wise and Universal in distributing controlled substances "through the internet'' and reviewed the various slides from the Power Point presentation. Tr. at 30-31. Mr. Mapes also discussed various issues that Respondent should consider in assessing the legitimacy of its customers including the size and frequency of a pharmacy's orders, the range of products ordered by the pharmacy, the percent of controlled substances versus non-controlled drugs ordered, and the locations of/type of facility used by the pharmacies. Id. at 36-38. More specifically, Mr. Mapes advised that eighty percent of U.S. "pharmacies * * * are buying less than 5,000 dosages of hydrocodone in a month's time,'' and that "in a typical retail pharmacy,'' controlled substances might amount to between five and twenty percent of the pharmacy's purchases'' with the other eighty to ninety percent of its purchases being non-controlled drugs. Id. at 37. Mr. Mapes also advised Respondent that as a distributor it was required to maintain effective controls against diversion. Id. at 39-40.

Mr. Mapes later discussed with Mr. Goodrich and Ms. Gonzales the requirement under Federal Law that for a prescription to be valid, it must be issued in the usual course of medical practice, and "that an internet questionnaire alone is not sufficient to legally prescribe controlled substances.'' Id. at 42-43; see also 21 CFR 1306.04(a). Mr. Mapes also discussed the factors that are necessary to establish a bonafide doctor-patient relationship. These include that a patient has a medical complaint, that a history be taken of the patient, that a physical exam be conducted, and that there be a nexus between the complaint, the history, the exam and the drug being prescribed. Id. at 42-43, 45-46; GX 61, at 13.

Mr. Mapes also provided Mr. Goodrich and Ms. Gonzales with several examples of illegal internet pharmacies. Tr. at 48-49. In one of the examples, which involved a Florida pharmacy, the pharmacy's purchases of phentermine had doubled in a five month period from approximately 200,000 to 400,000 units and "one hundred percent of the drugs purchased by [the] pharmacy were controlled substances.'' GX 61, at 10; Tr. 49. In another example, the pharmacy was located in an industrial warehouse and sold only hydrocodone and alprazolam (a schedule IV controlled substance), which it purchased in large quantities. Tr. 49; GX 61, at 11. In the final example, the pharmacy had advised the distributor that they were doing business over the Internet. Tr. 50. The pharmacy did not, however, have a VIPPS certification, made frequent large purchases of hydrocodone and various benzodiazepines, and ninety-nine percent of the drugs it ordered were controlled substances. Id.; GX 61, at 12.

Mr. Mapes informed Mr. Goodrich and Ms. Gonzales that "a pattern of drugs being distributed to pharmacies [which] are diverting controlled substances demonstrates a lack of effective controls against diversion by the distributor'' and could lead to the revocation of the distributor's registration. Tr. 51. Mr. Mapes further advised "that any distributor who was selling controlled substances that are being dispensed outside the course of professional practice must stop that distribution immediately.'' Id.

Mr. Mapes also discussed with Respondent's representatives whether it could ship an order which it had reported as suspicious. Id. at 57. Mr.

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Mapes advised that even if Respondent reported the order, the company still had to make the decision as to whether to ship the order. Id. at 57-58; GX 61, at 9. Moreover, Respondent's personnel asked DEA whether it should stop shipping controlled substances to the internet pharmacies. Tr. 79, 119-20, 342-43. DEA personnel told Mr. Goodrich and Ms. Gonzales that it cannot tell a distributor whether a particular order is legitimate or not, GX 61, at 9; and that whether to ship was "a business decision,'' Tr. 79; but that Respondent "had an obligation to ensure that the products [it] distributed were used for legitimate medical purposes.'' Id. 343.

Following the meeting, Respondent continued to distribute large quantities of hydrocodone to numerous internet pharmacies including the six pharmacies that DEA officials specifically referred to as "targeted.'' For instance, in August 2006, Respondent distributed "in excess of 1.2 million'' dosage units of hydrocodone to Accumed. Id. at 341.

Mr. Goodrich cited several reasons to justify Respondent's decision to continue shipping hydrocodone to Accumed. First, he stated that DEA "did not instruct us to cease shipments'' and thus Respondent did not "have distinct direction.'' Id. at 343-44. Second, Mr. Goodrich asserted that Respondent was conducting due diligence. Id. at 343. Third, Mr. Goodrich did not believe that Accumed was acting illegally. Id. at 345.

In August 2006, Respondent also shipped large quantities of hydrocodone to the other internet pharmacies which DEA officials had referred to as "targeted.'' It shipped 1,246,560 dosage units to Medipharm, 506,340 units to Avee, 185,940 units to Bi-Wise, and 399,070 units to Universal. Respondent also shipped large quantities to other entities which it had identified as internet pharmacies. See Resp. Ex. 52.

Moreover, Respondent continued to make large shipments of hydrocodone to many of these pharmacies until either its registration was immediately suspended or the pharmacies' registrations were suspended. For example, it shipped Medipharm 1.45 million dosage units in September 2006 and just over 1 million dosage units in October 2006; it shipped Accumed 1.56 million dosage units in November 2006; it shipped Avee 2.11 million dosage units in November 2006; and it shipped Discount over 500,000 dosage units in both October and November 2006.

Following the July 2006 conference call, Respondent did undertake additional measures to investigate the business activities of the pharmacies it had identified as filling prescriptions issued through the internet. On July 31, 2006, Mr. Goodrich wrote the Executive Director of the Florida State Board of Pharmacy identifying nineteen pharmacies located in the Tampa Bay area which, as a result of the DEA conference call and "additional research'' conducted by Respondent, had led it to "question whether or not these pharmacies are operating legitimately.'' Resp. Ex. 49, at 1-2. Respondent thus requested that the Florida Board "provide additional information to enable us to qualify the legitimacy of these customers.'' Id. at 2.

By letter dated August 14, 2006, the Executive Director of the Florida Board responded. Resp. Ex. 50. In the letter, the Executive Director wrote that "[t]he Board of Pharmacy can verify for you that these particular pharmacies do have active community pharmacy licenses in the state of Florida. Id. The Executive Director further advised that "only one of these licenses [sic] has been disciplined by the Florida Board,'' that pharmacy being Avee, and enclosed a copy of the Board's final order pertaining to it.\11\ Id. The letter, however, offered no specific information regarding the legitimacy of the various pharmacies' activities. See id.

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\11\ According to the materials, Avee was sanctioned because it shipped hydrocodone to a person in Tennessee when it did not hold a Tennessee license authorizing it to dispense to residents of that State. See Resp. Ex. 50. Avee entered into a stipulation with the State under which it was fined $2,000 and required to pay $719.95 as costs. See id. Avee did, however, retain its Florida license.

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On August 15, 2006, Mr. Goodrich sent out a six-page questionnaire to seventeen of the pharmacies including all of the pharmacies which DEA had described as "targeted.'' Resp. Ex. 51. The questionnaire noted that Respondent was conducting a "due diligence review of our business relationship'' which had been prompted by four factors: (1) An "[e]xtremely high percentage of controlled substance purchases vs. non controlled substance purchases,'' (2) "[e]xtremely high volume of controlled substance dosage units,'' (3) "[i]dentification of your operation as an internet pharmacy,'' and (4) "[i]dentification of your pharmacy filling prescriptions based on telemedicine.'' Id. The questionnaire then stated that Respondent "has a responsibility to insure [sic] that all medications we distribute are used for legitimate medical purposes, much in the same way that your pharmacy has an obligation to ensure that every prescription you fill is a result of a valid medical examination by an authorized prescriber.'' Id.

The document asked a variety of questions. The first question asked the pharmacies to indicate the "overall percentage of controlled substances filled by [the] pharmacy,'' and to list their other suppliers. Id. The second question was prefaced with the observation that "[t]he volume of controlled substances purchased by your pharmacy far exceeds the `average' quantity of controlled substances purchased by pharmacies nationwide.'' Id. at 2. The questionnaire then asked the pharmacy to "provide an explanation for the volume of your controlled substance purchases.'' Id.

The next set of questions began by noting that "[y]our pharmacy has been identified as an `internet pharmacy,' '' and that "both the FDA and DEA have raised concerns citing the potential for abuse.'' Id. at 2. The questions then asked the pharmacy to provide the "percentage of prescriptions filled by your pharmacy [that] originate from the Internet,'' to "list the website identifying your pharmacy,'' to describe how "a patient provides prescriptions to your pharmacy,'' and to indicate how patients pay for their prescriptions. Id. at 2-3.

Later, the questionnaire observed that the "[u]se of the internet in a medical practice has raised many issues in regards to the issuance of a prescription, including, but not limited to, ensuring the validity of medical examinations, the establishment of a `bona fide' doctor/ patient relationship and the appropriateness of treatment where the physician is located in a different jurisdiction from the patient's residence.'' Id. at 4. The questionnaire then asked a series of questions regarding how the pharmacies performed their "due diligence on prescriptions issued by doctors who use the internet in the course of their medical practice.'' Id. These included asking the pharmacy to "list the web sites identifying the physicians who most commonly issue prescriptions filled by your pharmacy,'' whether the pharmacy verified the physician's state license and DEA registrations, and whether the pharmacy verified that the physician was "also authorized to practice medicine in the state in which the patient is located.'' Id. The questionnaire also asked whether the pharmacy had a protocol to ensure that "prescriptions issued through an internet-assisted encounter constitute[d] a valid medical exam.'' Id.

Next, the questionnaire observed that "a preponderance of prescription orders issued by a physician for the same

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products in the same prescription quantities'' was indicative of "potential prescription abuse'' and asked the pharmacy to attach its "policies and procedures that address prescription abuse.'' Id. at 5. Finally, the questionnaire noted that "[m]any states have adopted laws and regulations pertaining to internet prescribing'' that mandate "direct contact between the doctor and patient and the requisite physical exam(s).'' Id. The questionnaire thus asked the pharmacy to "list those states [it had] identified that allow the filling of prescriptions issued without a face-to-face encounter between the physician and the patient.'' Id.\12\

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\12\ In a letter dated August 15, 2006, Mr. Goodrich transmitted a copy of the questionnaire to the DEA Diversion Group Supervisor and advised that he had requested that the pharmacies respond "by the end of the month.'' Resp. Ex. 52. Mr. Goodrich further wrote that "[i]f we do not receive a response, we will cease business with that particular company.'' Id.

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Upon receiving the questionnaires, which Respondent sent by certified mail, the pharmacies responded in a variety of ways. Some, such as Bi-Wise, did not respond at all. See Resp. Ex. 58. Others, such as CRJ and YPM, failed to answer questions or indicated "N/A.'' See Resp. Ex. 59 & 71. Others such as Accumed completed the questionnaire maintaining that they were not internet pharmacies, indicated "N/A'' when asked to list the websites of the physicians who wrote the prescriptions they filled, and answered affirmatively that they had a protocol to ensure that the prescriptions were issued pursuant to a valid medical exam. Resp. Ex. 54. Likewise, Duane's stated that zero percent of the prescriptions it filled originated on the internet, that it had retained counsel to implement a strict compliance program to ensure that the prescriptions it filled were valid, and indicated "N/ A'' where asked to list the websites of the physicians who were commonly issuing the prescriptions that it filled. Res. Ex. 61.

Some of the pharmacies provided information which Respondent deemed adequate but which clearly suggested that the prescriptions were illegal. For example, Respondent deemed Grand Pharmacy's response adequate. See ALJ at 24 (FOF 81). Yet in a letter, Grand's owner/ president indicated that "[a]ll doctors Grand deal with require a current physical done in a physician's presence. All doctors Grand deal with have a physical or extended phone dialogue with the patient to establish the diagnosis and need for the medication.'' Resp. Ex. 63, at 2 (emphasis added). It is noteworthy that Grand's response did not say that the physical was performed by the prescribing physician, what constituted a "current physical,'' or that the doctors prescribing on the basis of a telephone call were the same doctors that had performed the physical exam. Notwithstanding the suspicious nature of the information, Mr. Goodrich deemed the answers satisfactory and did not inquire further, see Resp. Ex. 64; Respondent continued to ship large quantities of hydrocodone to Grand.

The questionnaires completed by the Medicine Shoppe and Medicom, which apparently were owned by the same person, were of similar nature. For example, while the Medicine Shoppe's questionnaire indicated that it was "not an internet pharmacy,'' and that only one to two percent of the prescriptions it filled originated on the internet, it also indicated the name of a website used by the "physicians who most commonly issue prescriptions filled by [the] pharmacy.'' Resp. Ex. 65, at 2-4. Furthermore, in answer to the question of whether the pharmacy verified that the physicians were "authorized to practice medicine in the state [where] the patient is located,'' the Medicine Shoppe stated: "No. The doctor[s] makes the consult from [the] state in which they are licensed.'' Id. at 4.

The Medicom questionnaire indicated that "[w]e are not [an] internet pharmacy; I receive Rx from doctors who have spoken [to] patients, discussed therapy, and also reviewed entire medical history.'' Resp. Ex. 66, at 2. The questionnaire also indicated that it received prescriptions "via telemedicine,'' and included the names of three websites used by physicians whose prescriptions the pharmacy was filling. Id. at 3-4. Furthermore, when asked whether the pharmacy verified that the physicians were "authorized to practice medicine in the state in which the patient is located,'' Medicom likewise stated: "No. The doctor makes the consultation from the state they are licensed'' in.\13\ Id. at 4.

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\13\ Both the Medicine Shoppe and Medicom included logs showing that the pharmacies had reviewed medical records pertaining to internet prescriptions and a form letter the pharmacy represented as sending to the physicians and which the physicians were supposedly required to sign and return to the pharmacies. See, e.g., Resp. Ex. 66. The record does not establish whether these two pharmacies actually sent the letter and whether the physicians signed it.

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Mr. Goodrich d