Registrant Actions - 2012
[Federal Register Volume 77, Number 113 (Tuesday, June 12, 2012)]
[Notices]
[Pages 35031-35054]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14307]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 10-51]
4 OTC, Inc.; Decision and Order
On September 22, 2011, Administrative Law Judge (ALJ) Gail A.
Randall issued the attached Recommended Decision. Therein, the ALJ
recommended that I deny Respondent's application for a Certificate of
Registration as an importer of ephedrine, a list I chemical. Neither
party filed exceptions to the decision.\1\
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\1\ The ALJ initially issued a decision on July 22, 2011, to
which both parties filed exceptions. However, after the record was
forwarded to this Office, the ALJ requested that the record be
returned. Subsequently, the ALJ re-issued her decision. Neither
party filed exceptions to this decision. However, I have considered
the exceptions which the parties submitted following the ALJ's
issuance of her first opinion.
All citations to the ALJ's decision are to the slip opinion as
originally issued by her which includes a cover page and table of
contents.
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Having considered the record as a whole, including the parties'
briefs, I have decided to adopt the ALJ's findings of fact and
conclusions of law except as explained below. Because I agree with the
ALJ's conclusion that Respondent has failed to prove that the proposed
importation of its combination ephedrine products is "necessary to
provide for medical, scientific, or other legitimate purposes" and
thus, it is not entitled to the issuance of a rule under 21 U.S.C.
952(a)(1) authorizing the importation of such products, this alone is
reason to adopt the ALJ's recommendation. ALJ at 54-57. I further agree
with the ALJ's ultimate conclusion that Respondent's registration would
be "inconsistent with the public interest." 21 U.S.C. 958(c)(2)(A);
ALJ at 80-81. Accordingly, Respondent's application will be denied.
The Section 952 Analysis
As the ALJ noted, in 2006, Congress enacted the Combat
Methamphetamine Epidemic Act of 2005 (CMEA), Public Law 109-177, 120
Stat. 256. Among the CMEA's provisions was section 715, 120 Stat. 264-
65, which amended 21 U.S.C. 952(a) by adding the listed chemicals
ephedrine, pseudoephedrine, and phenylpropanolamine to those substances
(i.e., narcotic raw materials and coca leaves) for which importation is
not authorized unless the Attorney General finds the amount "to be
necessary to provide for medical, scientific, or other legitimate
purposes." 21 U.S.C. 952(a)(1). Upon such a finding, the controlled
substance or listed chemical "may be so imported under such
regulations as the Attorney General shall prescribe." Id. 952(a).
In multiple cases involving applications for a registration to
import a substance subject to section 952(a)(1), DEA has held that an
applicant "cannot be registered as an importer of [such substance]
unless the [Agency] finds that [it] will be allowed to import [the
substance] pursuant to 21 U.S.C. 952(a)(1)." Johnson Matthey, Inc., 67
FR 39041, 39042 (2002); see also Chattem Chemicals, Inc., 71 FR 9834,
9835 (2006); Penick Corp., Inc., 68 FR 6947, 6948 (2003). As previously
explained, a finding that the proposed importation complies with
section 952(a) is "a prerequisite to [an applicant's] registration as
an importer" of a substance subject to this provision. Roxane
Laboratories, Inc., 63 FR 55891, 55892 (1998). Moreover, it is settled
that because the applicant is the proponent of the rule authorizing a
proposed importation of a substance subject to section 952(a)(1), "it
must establish by a preponderance of the evidence that such a rule can
be issued." Johnson Matthey, 67 FR at 39042; see also Chattem, 71 FR
at 9835; Penick, 68 FR at 6948.
As the ALJ concluded, Respondent failed to establish by a
preponderance of the evidence that its proposed importation of its
combination ephedrine/guaifenesin product is "necessary to provide for
medical, scientific, or other legitimate purposes."
[[Page 35032]]
ALJ at 56-57. Indeed, Respondent offered no evidence that importation
of its combination product is necessary to provide for any legitimate
purpose.
In its post-hearing brief, Respondent asserts that its "product
will be strictly marketed for bronchial and asthma related conditions
as per the Food and Drug Administration [FDA] monograph for over-the-
counter bronchodilator drugs" and that "[t]he FDA monograph allows
for the use of ephedrine for bronchial and asthma related conditions."
Resp. Proposed Findings of Fact, Conclusions of Law, and Argument, at 1
& nn.1-2 (citing Cold, Cough, Allergy, Bronchodilator Products, and
Antiasthmatic Drug Products for Over-The-Counter Human Use; Final
Monograph for OTC Bronchodilator Products, 51 FR 35,326 (1986)
(codified at 21 CFR part 341)). Respondent further asserts that
"[t]here exists a strong market for [its] ephedrine product, allowing
asthma suffers [sic] an option to obtain relief without having to
obtain a prescription. Individuals without medical insurance or the
ability to visit a physician immediately will be able to obtain cost-
effective relief from the comfort of their home," presumably because
Respondent will sell its product over the internet. Id. at 2.
However, the fact that the FDA approved combination ephedrine/
guaifenesin products for OTC use years ago does not establish that
there is a continuing need for these products to treat any of the
conditions for which these products may be lawfully marketed under the
Federal Food, Drug Cosmetic Act, 21 U.S.C. 301-399d. Moreover, as the
ALJ observed, Respondent produced no evidence establishing that there
is a continuing need for combination ephedrine/guaifenesin products to
treat any of the conditions for which they may be lawfully marketed.
See ALJ at 55-56; see also Johnson Matthey, 67 FR at 39042-43
(discussing testimony of a physician and expert in pharmacology that
"derivatives manufactured from narcotic raw materials are necessary to
the United States medical community, as there are medical demands that
cannot be met by non-opiate narcotics" and that "the medical
community continues to rely upon opium-derived alkaloids rather than
synthetic opiate analgesics").\2\ Nor did Respondent produce any
evidence showing that these products have any accepted medical use
(i.e., per a doctor's recommendation) beyond those for which they can
be lawfully marketed,\3\ or produce any evidence that these products
are "necessary to provide for * * * scientific[] or other legitimate
purposes." 21 U.S.C. 952(a)(1).
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\2\ Subsequent to Johnson Matthey, other Agency decisions
involving narcotic raw materials found, without recounting any
medical evidence, that the proposed importations were necessary
within the meaning of section 952(a)(1). See Chattem, 71 FR at 9835;
Penick, 68 FR at 6948. However, these cases did not involve show
cause proceedings brought by the Agency but rather challenges
brought by manufacturers who sought to block the applicant's
entrance into the market. See Chattem, 71 FR at 9834; Penick, 68 FR
at 6947. Given that many of these entities were themselves importers
of the same narcotic raw materials which the respective applicant
sought authority to import, they could hardly claim that the
importation of these substances was not necessary for legitimate
medical uses and thus did not dispute this proposition. See Chattem,
71 FR at 9834; Penick, 68 FR at 6949. The same does not hold here.
\3\ Noting that in 2004, the FDA banned the marketing of
ephedrine as a dietary supplement, the Government equates the
statutory term "medical purposes" with those indications for which
FDA has approved a drug product for marketing. See Gov. Exceptions
at 5; Gov. Prop. Findings at 6-11 ("DEA law precludes any
importation of ephedrine for other than legitimate medical needs and
ephedrine is limited to asthma treatment."). To make clear, this is
too narrow a view of what constitutes a valid medical purpose as
there may be bona fide medical evidence supporting a product's use,
under a physician's supervision, for other than its FDA-approved
indications. However, Respondent had the burden of proof on the
issue of showing what medical purpose its product would serve and
steadfastly maintained that it would serve only the bronchodilator
market.
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The ALJ nonetheless observed that some "DEA publications * * * may
demonstrate some need for ephedrine in the United States for the
purpose for which the Respondent proposes to import." ALJ at 56 n.21
(citing Final Rule, Registration Requirement for Importers and
Manufacturers of Prescription Drug Products Containing Ephedrine,
Pseudoephedrine, or Phenylpropanolamine, 75 FR 4973 (2010), and
Established Assessment of Annual Needs for the List I Chemicals
Ephedrine, Pseudoephedrine, and Phenylpropanolamine for 2011, 75 FR
79407 (2010)). The ALJ thus suggested that I may wish to take official
notice of these documents.
However, Respondent did not file exceptions nor otherwise request
that I re-open the record to consider these documents. Moreover, even
were I do so, neither document establishes that the importation of
combination ephedrine/guaifenesin products (as opposed to ephedrine
itself) is necessary to provide for medical purposes. For example,
while the Assessment of Annual Needs lists several yearly figures for
ephedrine sales by registered manufacturers, it does not establish
whether any of these sales were for combination ephedrine/guaifenesin
products. See 75 FR at 79409. As for the Final Rule on the Registration
of Importers and Manufacturers of Ephedrine, Pseudoephedrine, and
Phenylpropanolamine, while it observes that all three chemicals "are
used to produce drug products lawfully marketed under the" FDCA,
including both prescription and non-prescription drugs, it provides no
information as to the need for combination ephedrine/guaifenesin
products to provide for medical purposes. 75 FR at 4973-74.
Accordingly, I adopt the ALJ's conclusion that Respondent has
failed to establish that its proposed importation is "necessary to
provide for medical, scientific, or other legitimate purposes." 21
U.S.C. 952(a)(1). And because establishing its entitlement to a rule
authorizing the importation is a prerequisite for Respondent's
registration as an importer of ephedrine, its application can be denied
on this basis alone.
The Public Interest Factors
The ALJ also found that "Respondent's registration would be
inconsistent with the public interest due to its current inability to
comply with state and FDA law, its lack of candor, and its attitude
towards diversion." ALJ at 80-81. While I agree with the ALJ's
ultimate conclusion that Respondent's registration would be
inconsistent with the public interest, I disagree with several of her
subsidiary conclusions.
The ALJ found that "the Government has established a clear
violation by the Respondent of the FDA's misbranding provisions." ALJ
at 72. The basis for this finding was the ALJ's conclusion that under
the OTC monograph, the label on Respondent's product is required to
contain "under the heading 'indications' " the following statement:
" 'For temporary relief of shortness of breath, tightness of chest,
and wheezing due to bronchial asthma.' " ALJ at 72-73 (quoting 21 CFR
341.76(b) & (b)(1)). However, Respondent's proposed label does not. See
RX 5. While this label does not comply with FDA's requirements, and its
product would be deemed misbranded if it was introduced into interstate
commerce, 21 U.S.C. 331(b), there is no evidence that Respondent has
introduced this product into interstate commerce. Thus, Respondent has
not violated the FDCA yet.
In its Exceptions (to the ALJ's first decision), Respondent
asserted that these were minor deficiencies which "are easily
rectifiable and will be corrected prior to marketing." Resp.
Exceptions at 1. While I accept this assertion and conclude that by
itself, this would not be ground to deny the application, when
considered with
[[Page 35033]]
other evidence such as that Respondent's standard operating procedures
(SOPs) had numerous inconsistencies with various States' laws, see ALJ
at 75-77, I conclude that it calls into question its ability to
properly comply with applicable Federal and State laws. See 21 U.S.C.
823(h)(2).
The ALJ further asserted that "[d]espite numerous assertions to
the contrary, there is substantial evidence that the Respondent would
market its product [in a manner] similar to its stated competitor
Vasapro," an entity, which, the ALJ found markets its product in a
manner "rais[ing] serious misbranding concerns." ALJ at 74-75 (citing
FoF 91, 92, 102, 111, 124, & 143(d)(vi)).\4\ However, in the cited
findings, the ALJ noted that Respondent's standard operating procedures
required it to market its product only in compliance with the FDCA and
the FDA's regulations; that its principal owner testified that it
"would not sell its product for any other purpose than as a
bronchodilator"; and that it would not be sold through a Web site (4
Ever Fit USA) its principals own which markets fitness-related
products, such as supplements, protein powders and weight-management
products. See ALJ at 28 (FoF 102); 30 (FoF 111); 33 (FoF 124); and 41
(FoF 143(d)(i)). Given that the ALJ made these findings, several of
which were based on the testimony of Respondent's principals and that
there is no finding that she found this testimony incredible, it is
unclear why the findings provide substantial evidence that Respondent
would market its products in violation of the FDCA.
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\4\ The correct citation appears to be to FOF 143(d)(vi). See
ALJ at 41.
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In its brief, the Government argues that Vasapro (as well as
Kaizen, a Canadian competitor) marketed ephedrine products for weight
loss. See Gov. Br. 38. No further explanation was offered as to why
Vasapro's conduct is probative of whether Respondent would violate the
FDCA, and I conclude that it is completely irrelevant.
The Government also points to the Web sites of two Canadian firms
(Kaizen and Gorilla Jack) which it maintains sold ephedrine at retail
for non-lawful purposes. Id. While the Government maintains that the
Kaizen Web site sold ephedrine manufactured by 4 Ever Fit, a firm owned
by Respondent's owner, the exhibit it cites as support for this
assertion is actually that of an entity known as "Supplement Source"
and not Kaizen. See GX 8. Most significantly, regarding this Web site,
an Agency witness testified that: "and if it works the same as it
worked on the other sites that I was on, you would click on [the
product category] and then you could pull up the 4 Ever Fit or
whatever, they are naming all the brand names and 4 Ever Fit is one of
them." Tr. 148. However, even ignoring the equivocal nature of this
testimony, which strongly suggests that she did not even visit the Web
site, none of the eleven ephedrine products shown on the printout
include products of 4 Ever Fit. See GX 8.
Likewise Government Exhibit 9 (the printout of the GorillaJack.com
Web pages) establishes only that this business was selling Kaizen
Ephedrine HCL (and not Respondent's or its related firm's product) for
its metabolic boosting properties. See GX 9, at 8. Thus, the evidence
pertaining to the marketing of ephedrine products by these two entities
is not relevant in assessing whether Respondent would market its
product in violation of the FDCA. I therefore reject as unsupported by
substantial evidence the conclusion that Respondent intends to market
its product in violation of the FDCA.\5\
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\5\ In its Exceptions, the Government requests that I "make a
specific finding that [Respondent's] ephedrine market would be
consumers who would purchase the ephedrine in violation of the
Federal Food, Drug and Cosmetic Act." Gov. Exceptions at 1.
However, the Government cites no authority for the proposition that
a consumer violates the FDCA if he/she purchases an OTC drug product
with the intent to use that product for a non-approved (but
otherwise legal) use. Accordingly, I decline the Government's
request.
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This is not to say that the conduct of an applicant's customers
(which does not involve diversion of the product into the illicit
manufacture of methamphetamine \6\) would never be relevant in
assessing its likely compliance with applicable laws related to listed
chemicals. See 21 U.S.C. 823(h)(2). For example, proof that an entity
sold products to a firm when it either knew or had reason to know that
the firm was unlawfully marketing the product (i.e., for unapproved
purposes) would be relevant in assessing its likely future compliance
with applicable laws and the CSA. So too, proof that an entity
continued to sell its product to a firm after it knew that the latter
had engaged in illegal acts is also relevant in determining the public
interest. See 21 U.S.C. 823(h)(4) & (5) (authorizing Agency to consider
applicant's "past experience" in distributing chemicals, as well as
"other factors as are relevant to and consistent with the public
health and safety").
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\6\ Such conduct is always relevant in assessing whether a
registrant/applicant has effective controls against diversion. See
21 CFR 1309.71(a).
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Here, for example, the ALJ found that one of the entities to which
a related firm of Respondent \7\ distributed ephedrine was Better
Bodies Nutrition, a Canadian firm which unlawfully shipped these
products to three stores in Arizona in violation of both U.S. and
Canadian law because it lacked both a DEA Importer's Registration and a
Canadian Dealer's License and Export Permit. See ALJ at 22-23; see also
id. at 68 n.26 (citing 21 U.S.C. 957 and Health Canada, Precursor
Control Regulations Sec. 6, 7, 32). The shipments were seized by U.S.
Customs and Board Patrol agents at Seattle International Airport,
Washington. ALJ at 21-22.
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\7\ The ALJ found that the product was manufactured by GFR
Pharma, and distributed through 4 Ever Fit, Ltd., to Better Bodies
Nutrition, the firm which sold the ephedrine to the three Arizona
stores. ALJ at 22. There is no dispute that GFR Pharma; 4 Ever Fit,
Ltd.; and 4 OTC are related entities, and that Mr. Richard Pierce is
the President and CEO of all three entities. RX 4; see also ALJ at
18, 24, 25, 27.
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Regarding this incident, Mr. Richard Pierce, Respondent's principal
owner (and the CEO of the related companies) testified that he had no
knowledge that Better Bodies was selling his firm's ephedrine product
to U.S. customers. Tr. 276. However, when asked by the ALJ what his
business had done to address this incident, Mr. Pierce testified:
Well, we have no control over them buying the product from us
and shipping it without our knowledge. The regulatory body in Canada
has been informed of that, and obviously, Better Bodies is now--my
understanding, has dealt with Health Canada in some form or fashion
to ensure them that they're not going to do that and understand the
repercussions if they do.
Tr. 362.
Notably, Mr. Pierce did not testify that his firms had discontinued
supplying Better Bodies with ephedrine products or even that his firms
had threatened to cut off Better Bodies if they did so again in the
future. Indeed, in its Exceptions, Respondent acknowledges as much,
stating that: "Mr. Pierce iterated that he did still do business with
Better Bodies in Canada." Resp. Exceptions at 6. While Respondent then
asserts that Mr. Pierce simply "expressed that he had no control over
this specific illegal shipment at question," id., this misses the
point. As the ALJ explained:
GFR does have control over to whom it sells its product, and
GFR's decision to continue to supply a company that has illegally
handled its product reflects a general apathy towards diversion * *
*. [T]his factor raises a concern that he would similarly turn a
blind eye to the misuse of the Respondent's product in the United
States.
ALJ at 80.
[[Page 35034]]
Indeed, this Agency has previously revoked a list I distributor's
registration based, in part, on similar testimony from its principal.
See D & S Sales, 71 FR 37607, 37610 (2006) (holding "fundamentally
inconsistent with the obligations of a DEA registrant" testimony of
business owner that "I could care less about who buys [my products] or
who, you know, I have no control over the retail end of those sales. I
drop them off to the store and I'm done"). See also R & M Sales
Company, Inc., 75 FR 78734, 78745 (2010) (citing testimony of firm's
owner that "I've guess I've taken the attitude that I have no control
on what the retail public does with the product" as evidence of firm's
indifference to its obligations to comply with the law).
In its Exceptions, Respondent further argues that the ALJ
"unfairly note[d] Mr. Pierce's attitude towards diversion as one that
would be inconsistent with the public interest" and that "[t]his
factor alone cannot qualify as the preponderance of the evidence that
is needed to justify a denial of [its application], when all other
factors weigh in favor of granting" it a registration. Resp.
Exceptions at 8.
However, all other factors do not support granting Respondent's
application (even ignoring the threshold question of whether it is
entitled to a rule authorizing the importation), and in any event, it
is settled that findings under a single factor can be sufficient to
support the denial of an application. See Dewey C. Mackay, 75 FR 49956,
49973 (2010), pet. for rev. denied 664 F.3d 808 (10th Cir. 2011).
Moreover, there is additional evidence to support the denial of
Respondent's application.
Here, the evidence shows that Respondent is a closely-held
corporation and that one of its shareholders is Kevin McIsaac, who was
a principal and President of McIsaac Distribution Ltd., a firm based in
KeLowna Bridge, British Columbia, which sold various products including
a single entity ephedrine product under the brand of "4 Ever Fit."
Tr. 32, 34, 82; GX 20, at 23. Mr. McIsaac was also President of
Respondent and submitted its application for a DEA registration. Id. at
34; GX 20, at 24.
On May 27 through 29, 2008, Inspectors from Health Canada conducted
an inspection of McIsaac Distribution during which they found various
violations. GX 20, at 24-28. Most significantly, Health Canada found
that McIsaac had engaged in multiple suspicious transactions involving
ephedrine when the firm had "reasonable grounds to suspect that the
transaction is related to the diversion of a precursor to an illicit
market or use." Id. at 26.
These included: (1) a transaction in which McIsaac sent more than
15,000 bottles of ephedrine (6.048 kg) to an individual in Montreal
"representing his business as Liquidation Depot" while the invoice
indicated that the shipment was to be sent to "Bella Labs" at an
address in Vancouver, B.C., and (2) a shipment of 51,840 bottles of
ephedrine (20.74 kg) which was also "sent on behalf Liquidation
Depot" but "was sent to the attention of Bella Labs" at a different
Vancouver address. Id. at 26. In addition, on two separate dates less
than a week apart, McIsaac shipped 2,016 bottles (.8 kg) and 10,080
bottles (4.032 kg) to a post office box in a Mail Boxes Etc. store in
Richmond Hill, Ontario; however, the latter shipment was subsequently
re-routed to a residential address in the same city. Id.
Finally, Health Canada found that between October 8, 2007 and March
25, 2008, McIsaac made ten sales to Liquidation Depot for a total of
137.1 kg of ephedrine; the shipments ranged in size from 15,120 to
51,480 bottles and several involved "large cash deposits and related
bank charges." Id. at 27. Moreover, some of the shipments occurred
either on the same day or within days of previous shipments. For
example, on December 21, 2007, McIsaac filled invoices for 34,560 and
34,416 bottles, and on February 28 and 29, as well as March 3, 2008,
McIsaac filled invoices for 40,992; 51,480; and again 51,480 bottles
respectively. Id. at 27. Health Canada "noted that the quantities of
ephedrine * * * sold to Liquidation Depot during this period far
exceeded the quantities purchased by all other clients." Id.
Health Canada further advised McIsaac "that as a licensed
dealer," his firm was not permitted to "sell a Class A precursor to a
person for any licensed activity (export, produce, package, sell and
provide), unless that person holds the appropriate license or is
exempted under section 5" of its Precursor Control Regulations. Health
Canada also expressed its "concerns about [McIsaac's] capacity to
comply with the regulatory requirement to detect and record suspicious
transactions." Id.\8\ While Health Canada directed Kevin McIsaac to
submit a written corrective action plan, McIsaac notified Health Canada
that he was cancelling his Canadian Chemical Precursor license and that
he had sold his business to GFR Pharma, Ltd. Id. at 29-30. However,
according to Richard Pierce, McIsaac had sold only the assets of 4 Ever
Fit to GFR Pharma. Tr. 260.
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\8\ Apparently, under Canadian regulations, a licensed dealer is
only "required to record" and not report "any suspicious
transaction." GX 20, at 25 (citing Health Canada, Precursor Control
Regulations 86). Under U.S. law, a regulated person must report
suspicious transactions. See 21 U.S.C. 830(b)(1)(A).
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At the hearing, Mr. Pierce asserted that neither Kevin McIsaac nor
his brother are involved in the day-to-day operation of GFR Pharma and
do not own any part of this business. Tr. 273. However, Mr. Pierce
subsequently acknowledged that Kevin McIsaac owns ten percent of
Respondent but then denied that he is involved in its day-to-day
operations.\9\ Id. at 284. Mr. Pierce further testified that he owns
sixty percent of Respondent through his ownership of 4 Pharma, LLC. Id.
at 364. While other testimony establishes that fifteen percent of
Respondent is owned by one Mike Schiefelbein, the President of 4 EF,
Inc. (another firm owned by Richard Pierce through his ownership of 4
Pharma, LLC, and which does business as 4 Ever Fit USA, id. at 280-81,
373), this only accounts for eighty-five percent of Respondent's
ownership.
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\9\ An Agency DI contended that Mr. McIsaac actually owns 70% of
Respondent. Tr. 34-35.
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While noting that she was "troubled by Mr. McIsaac's violations of
Canada's regulations" which she found "to be more significant than
GFR's," the ALJ was "persuaded by the fact that Mr. Schiefelbein will
oversee the day-to-day operations of the company and that Mr. McIsaac
will have no participation in that operation." ALJ at 70. Unlike the
ALJ, I find that Mr. McIsaac's ownership interest in Respondent
(without regard to whether he will be involved in its day-to-day
operations) provides ample reason to warrant the denial of its
application.
As found above, the findings set forth in the Health Canada letter
support the conclusion that these products were likely diverted into
the illicit manufacture of methamphetamine. As the Canadian authorities
found with respect to the transactions, there were "reasonable grounds
to suspect that the transaction[s] [were] related to the diversion of a
precursor to an illicit market or use." GX 20, at 25 (citing Precursor
Control Regulation 86). In short, given the quantities involved and the
circumstances (such as cash payments, different billing and shipping
addresses, frequency of the transactions, shipping to a P.O. Box and/or
re-routing the shipment to a residence, and shipping large quantities
to non-licensed entities), there is substantial evidence that McIsaac
sold ephedrine to customers who were likely diverting it
[[Page 35035]]
into the illicit manufacture of methamphetamine.\10\
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\10\ Even though this conduct occurred in Canada and thus cannot
be considered under factor two, it is actionable under either factor
four, which authorizes the consideration of "any past experience of
the applicant in the * * * distribution of chemicals," or factor
five, which authorizes the consideration of "such other factors as
are relevant to and consistent with the public health and safety."
21 U.S.C. 823(h). It should be further noted that had McIsaac
committed this conduct in the United States, he would have committed
a felony offense. See 21 U.S.C. 841(c) (providing that "[a]ny
person who knowingly or intentionally * * * possesses or distributes
a listed chemical knowing, or having reasonable cause to believe,
that the listed chemical will be used to manufacture a controlled
substance except as authorized by" the CSA "shall be fined in
accordance with Title 18 or imprisoned not more than 20 years").
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In a long line of cases, "DEA has consistently held that the
registration of a corporate registrant may be revoked upon a finding
that a natural person who is an owner, officer, or key employee, or who
has some responsibility for the operation of the registrant's
controlled substance business, has been convicted of a felony offense
relating to controlled substances." Absecon Pharmacy; 55 FR 9029, 9030
(1990) (citing cases). Likewise, the Agency has applied this rule in
other cases where there is proof that a corporate applicant's owner,
officer, or key employee has engaged in diversion or otherwise violated
applicable laws. See Orlando Wholesale, L.L.C., 71 FR 71555, 71557
(2006) (denying application noting evidence that "one of Respondent's
managing members had previously operated a business which distributed
List I chemicals without a valid registration and [that Respondent]
fail[ed] to provide any documentation that this individual no longer
has a management or ownership interest in it") (emphasis added); City
Drug Co., 64 FR 59212, 59214 (1999) (holding, where former owner had
diverted controlled substances, that the Agency "may look to who
exerts influence over the registrant; sometimes the bonds linking the
former owner to the new owner are too close to ensure that the former
owner will have no influence over the operation of the" registrant).
While Respondent maintains that Mr. McIsaac will have no
involvement in its day-to-day operations, given his ownership interest
in Respondent, which is a closely held corporation, it strains
credulity to suggest that he will not have some influence over its
business and policies. In any event, in making the public interest
determination, DEA is authorized to consider an applicant's "past
experience * * * in the distribution of chemicals" as well as "other
factors [that] are relevant to and consistent with the public health
and safety." 21 U.S.C. 823(h)(4) & (5). When an applicant's ownership
group includes a person who clearly diverted either listed chemicals or
controlled substances, that conduct is properly considered against the
applicant as ground to deny the application.\11\
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\11\ I do not find it persuasive that Mr. McIsaac owns only ten
percent of Respondent. In other contexts, an ownership interest of
five percent by a person who has engaged in misconduct has been
deemed sufficient to bar the entity from participating in a federal
program. See 42 U.S.C. 1320A-7(b)(8) (authorizing exclusion from
participation in federal health care programs of an entity
controlled by a sanctioned individual "who has a direct or indirect
ownership or control interest of 5 percent or more in the entity");
see also id. 1320A-3(a)(3) (defining "the term 'person with an
ownership or control interest' " to include "a person who * * *
has directly or indirectly * * * an ownership interest of 5 per
centum or more in the entity"). This is not to suggest that if Mr.
McIsaac owned less than five percent of Respondent, his ownership
interest would not bar granting Respondent's application.
---------------------------------------------------------------------------
Moreover, even crediting Respondent's evidence as to the respective
ownership interests of Mssrs. Pierce, Schiefelbein, and McIsaac, it has
offered no evidence as to who owns the remaining fifteen percent of it.
As noted above, DEA has long held that misconduct committed by an
entity's officers or key employees is ground to deny an application.
Thus, in addition to Mr. McIsaac's involvement, because Respondent has
not disclosed who the remaining owners are, there are further grounds
to deny the application.
Finally, Respondent contends that it has "demonstrated a strong
understanding for regulations that govern the * * * sale of ephedrine
within the United States" and that Mssrs. Pierce and Schiefelbein have
expressed their intent and commitment to remaining compliant with both
federal and state laws." Resp. Exceptions, at 4. Yet at the hearing,
the Government established multiple instances in which Respondent's
standard operating procedures were inconsistent with various state laws
applicable to the sale of ephedrine products. See ALJ at 36-39.
Moreover, while some States have made ephedrine a scheduled drug, Mr.
Pierce stated that he was "unfamiliar" with drug schedules. Tr. 345.
Also, while Respondent seeks registration to operate in Arizona, at the
time of the hearing, it did not have an Arizona Board of Pharmacy
ephedrine wholesaler's license to import ephedrine into the State and
Mr. Pierce was unaware that Respondent needed this license until it was
pointed out to him by Government counsel on cross-examination. Tr. 371,
443.
In its Exceptions, Respondent argues that it "recognize[s] the
need to remain abreast of regulations and [has] expressed its intent to
continuously work with regulatory counsel * * * to remain knowledgeable
on key changes in state laws." Resp. Exceptions at 5. However, it is
not too much to expect that an applicant seeking to show its intent to
comply with applicable state laws, would produce SOPs which were not
riddled with misstatements of those laws and which correctly reflected
those States where its proposed method of operation would be unlawful.
Accordingly, I find Respondent's exception unpersuasive.
In conclusion, I hold that the Government's contention that
Respondent would market its product in violation of the FDCA to be
unsupported by substantial evidence. I also conclude that there is no
basis in law for the Government's contention that a consumer violates
the FDCA if he/she purchases an ephedrine product with the intent to
use it for a purpose which has not been approved by the FDA.\12\
---------------------------------------------------------------------------
\12\ However, under the CSA, "[a]ny person who knowingly or
intentionally * * * possesses a listed chemical [such as ephedrine]
with intent to manufacture a controlled substance except as
authorized by" the CSA, or who "possesses or distributes a listed
chemical knowing, or having reasonable cause to believe, that the
listed chemical will be used to manufacture a controlled substance
except as authorized by" the CSA, commits a felony offense. 21
U.S.C. 841(c)(1) & (2).
---------------------------------------------------------------------------
Nonetheless, I find that substantial evidence supports the denial
of Respondent's application for registration. This evidence includes:
(1) Mr. Pierce's continuing to sell ephedrine products to Better
Bodies, notwithstanding that it had unlawfully exported ephedrine to
three stores in Arizona, and his insistence at the hearing that he has
no control over what his customers do with his products; (2) that on
multiple occasions, Mr. McIsaac, who has a substantial ownership
interest in Respondent, sold ephedrine under circumstances which
provided reason to believe that the ephedrine would be diverted into
the illicit manufacture of methamphetamine; (3) that even crediting Mr.
Pierce's testimony regarding the respective ownership interests in
Respondent, he did not account for the remaining fifteen percent; and
(4) that even as of the date of the hearing, Respondent's SOPs still
did not accurately reflect various State laws prohibiting its proposed
method of distribution. Accordingly, I also adopt the ALJ's ultimate
conclusion that Respondent's registration would be
[[Page 35036]]
"inconsistent with the public interest." 21 U.S.C. 823(h).
Because Respondent has not established that it is entitled to a
rule authorizing the importation of its combination ephedrine products
and the Government has established that Respondent's registration would
be "inconsistent with the public interest," id., I will adopt the
ALJ's recommended order. ALJ at 81. Respondent's application will
therefore be denied.\13\
---------------------------------------------------------------------------
\13\ Because there are ample grounds to deny the application, I
conclude that it is not necessary to decide the question of whether
the Agency can require an applicant for an Importer's registration
to provide a customer list as a condition of granting its
application. See ALJ at 78-79. I therefore do not adopt the ALJ's
discussion, which suggests that because neither the Combat
Methamphetamine Epidemic Act nor Agency regulations require that an
importer produce a customer list at the time it seeks registration,
the Agency cannot require such. See id.; but see 21 U.S.C. 823(h)(1)
(directing Agency to consider whether an applicant will maintain
effective controls against diversion); 21 CFR 1309.35 (authorizing
Agency to "require an applicant to submit such documents or written
statements of fact relevant to the application as [it] deems
necessary to determine whether the application should be granted").
---------------------------------------------------------------------------
Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h) and
958(c), as well as 28 CFR 0.100(b), I order that the application of 4
OTC Inc., for a DEA Certificate of Registration as an Importer of List
I chemicals, be, and it hereby is, denied. This Order is effective July
12, 2012.
Dated: June 4, 2012.
Michele M. Leonhart,
Administrator.
Brian Bayly, Esq., for the Government
Ashish Talati, Esq., for the Respondent
RECOMMENDED RULINGS, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND DECISION
OF THE ADMINISTRATIVE LAW JUDGE
I. Procedural Background
Administrative Law Judge Gail A. Randall. On April 6, 2010, the
Deputy Assistant Administrator, Drug Enforcement Administration
("DEA" or "Government"), issued an Order to Show Cause ("Order")
proposing to deny (1) the application of 4 OTC, Inc., ("Respondent"
or "4 OTC") to import the list I chemical ephedrine pursuant to 21
U.S.C. Sec. 958(c)(2) and 958(d)(2), because 4 OTC's import
registration would be inconsistent with the public interest, as that
term is used in 21 U.S.C. Sec. 823(h); (2) 4 OTC's two applications to
distribute the list I chemical ephedrine pursuant to 21 U.S.C. 823(h),
because 4 OTC's distribution registrations would be inconsistent with
the public interest, as that term is used in 21 U.S.C. 823(h); and (3)
4 OTC's application to export the list I chemical ephedrine pursuant to
21 U.S.C. Sec. 958(c)(2) and 958(d)(2), because 4 OTC's export
registration would be inconsistent with the public interest, as that
term is used in 21 U.S.C. 823(h). [Administrative Law Judge Exhibit
("ALJ Exh.") 1].
The Order asserted that 4 OTC is a company that currently sells
over-the-counter nutritional supplements to customers who solicit such
products over 4 OTC's website, for health and fitness. 4 OTC plans to
import finished form, combination ephedrine from a Canadian company and
sell the product via the internet to ultimate consumers in the U.S. and
other countries.
Further the Order asserted that 4 OTC's application to import
should be denied on the basis that it did not identify its customer in
the United States, either retail or mail order, and 4 OTC was not
familiar with DEA laws pertaining to domestic distribution sales limits
as well as other application laws. [Order at 2 (citing 21 U.S.C. Sec.
823(h)(1), (h)(2), and (h)(5))].
In addition, the Order stated that the Respondent's applications
should be denied based on its common ownership with McIsaac
Distribution, which merged with GFR in 2008. The Order provided that
GFR would be the Respondent's supplier and that Health Canada cited
both McIsaac and GFR for failure to report to Health Canada suspicious
sales of ephedrine products, for shipping ephedrine products to
unverified addresses and for a shortage of .008 kilograms of ephedrine
based upon an accountability audit. [Id.].
The Order further alleges that GFR and McIsaac's ephedrine sales
records reveal other suspicious sales of ephedrine that were not cited
by Health Canada but that would be violations of 21 U.S.C. 830(b)(1)(A)
because such sales involved an extraordinary quantity or were made to
retail outlets that do not normally sell ephedrine products, such as
gymnasiums. [Id. (citing Sec. 823(h)(1), h(4), and (h)(5))].
The Order alleged that although the Respondent's personnel stated
that 4OTC's product, labeled "4 Ever Fit," would be marked only as an
OTC medication to treat asthma, 4 OTC's present customers and product
lines are not consistent with this professed intent, and that the
product would be imported for other than a legitimate medical purpose.
[Id. (citing Sec. 823(h)(1), (h)(2), (h)(5) and 952(a)(1))].
Last, the Order alleged that the Respondent's applications should
be denied on the basis that 4 OTC's ephedrine brand product, "4 Ever
Fit," was seized at the Canadian borders when Better Bodies Nutrition
attempted to ship it illegally into the U.S. to stores who plan to
market the product as a weight loss product, and hence, the company has
failed to maintain effective controls against diversion. [Id. at 3
(citing 823(h)(1))].
On May 7, 2010, the Respondent, through counsel, timely filed a
letter requesting a hearing in the above-captioned matter. [ALJ Exhibit
Exh. 3].
On May 24, 2010, the Government filed a Motion For Summary Judgment
And To Stay The Dates For The Parties To Submit Prehearing Statements
("Motion for Summary Judgment"). [ALJ Exh. 4]. Therein, the
Government moved for summary judgment on the basis that the Respondent
lacked a bona fide registered address. The Government stated that it
unsuccessfully attempted to serve the Respondent with the Order to Show
Cause at the address listed in its application as its registered
address, 8160 Blakeland Dr., Littleton, Colorado 80125. In addition,
the Government stated that the DEA later visited that location and
discovered that the Respondent was not located at that address. [Id. at
1-2].
In a letter dated June 10, 2010, the Respondent requested to amend
its application by changing its proposed registered address from 8160
Blakeland Drive, Littleton, Colorado 80125, to Freeport Logistics, 431
N. 47th Avenue, Phoenix, Arizona 85043. [ALJ Exh. 15].
On June 14, 2010, the Respondent filed its response to the
Government's Motion for Summary Judgment. Therein, the Respondent
stated that it had moved to a new location in Phoenix, Arizona, and
that the Respondent's counsel had spoken with the Government's counsel,
and the Government's counsel had no objection to it amending its
application to include a new registered address. The Respondent stated
that it had already begun the process to amend its applications. [ALJ
Exh. 5 at 1-3].
In a letter dated November 10, 2010, the Respondent sought to
withdraw its applications to export ephedrine, to distribute ephedrine,
and to distribute ephedrine at retail. [ALJ Exh. 17 at 5].
Because those requests were issued after the Order to Show Cause,
the Respondent was required to request permission to amend its
application and withdraw three of its application. [ALJ Exh. 17 at 3
(citing 21 CFR 1301.16(a))].
The Deputy Assistant Administrator granted both requests on April
13, 2011. [Id. at 3].
The hearing was held on January 19, 2011, at DEA Headquarters in
Arlington, VA. It continued on March 9, 2011, in Phoenix, Arizona. [ALJ
Exh. 14, 16].
[[Page 35037]]
II. Issue
The remaining issue in this proceeding is whether or not the record
as a whole establishes by a preponderance of the evidence that the Drug
Enforcement Administration should deny 4OTC's application for a DEA
Certificate of Registration to import the list I chemical ephedrine
into the United States because to grant the Respondent's application
would be inconsistent with the public interest pursuant to 21 U.S.C.
Sec. 823(h), 958(c)(2), and 958(d)(2). [Tr. 5-7].
III. Findings of Fact
A. Stipulated Facts
1. Ephedrine is a list I chemical. [21 CFR 1310.02(a)(3)].
2. Ephedrine is also classified as a Scheduled Listed Chemical
Product ("SLCP") under the Combat Methamphetamine Epidemic Act of
2005 ("CMEA"). 21 U.S.C. 802(45)(A); 21 CFR 1300.02(34)(i).\1\ [ALJ
Exh. 15].
---------------------------------------------------------------------------
\1\ The remaining stipulated facts repeat the procedural history
of this case. [ALJ Exh. 15].
---------------------------------------------------------------------------
B. Background
1. Ephedrine
3. The CMEA aimed to enhance controls of chemicals and equipment
that are used in the clandestine manufacture of methamphetamine and
other illegal substances. [Tr. 27, 242].
4. Ma Huang and Ephedra are ephedrine products. [Tr. 94, 141].
a. Sale and Use of Ephedrine as a Dietary Supplement
5. In 2003, the Administrator of the Department of Health and Human
Services ("DHHS") pulled ephedrine off of the market as a dietary
supplement. [Tr. 141]. The ban went into effect in 2004. [Tr. 148].
6. Ma Huang may be sold as a dietary supplement in Canada, however.
[See Tr. 161].
7. Using ephedrine as a dietary supplement poses serious health
risks. According to an article introduced by the Government, "the FDA
has on record over 80 deaths and 1400 adverse-effect complaints,
including strokes, coronaries, and seizures." [Govt. Exh. 17 at 2].
Further, the article notes that "nearly all the deaths and
complications from the use of ephedra are the result of gross abuse of
the product . . .." [Id.].
8. The DEA has not promulgated regulations restricting or
prohibiting the importation of ephedrine into the United States for the
purpose of weight loss. [Tr. 168]. In addition, the DEA does not
currently prohibit the sale of ephedrine products for weight loss. [Tr.
244]. However, since 2004, the Food and Drug Administration ("FDA")
has banned the sale of an ephedrine product as a dietary supplement.
[Tr. 148; see also 69 FR 6788 (2004)].
b. Product Trends
9. John Kronebusch is a program analyst at DEA. [Tr. 53]. He has
worked in that capacity since 1990. [Tr. 54].\2\
---------------------------------------------------------------------------
\2\ Mr. Kronebusch manages a database that contains firms that
handle List I or List II chemicals. [Tr. 54]. Since 2007, he has
also been assigned oversight of mail order firms. [Tr. 54].
---------------------------------------------------------------------------
10. Mr. Kronebusch credibly testified that there are substantially
more mail order reports for pseudoephedrine products than ephedrine
products. [Tr. 60].
11. Mr. Kronebusch testified that most of the pseudoephedrine and
ephedrine reports are submitted by well-known national companies such
as CVS, Drugstore Pharmacy, or Eckerd. [Tr. 61].
12. Mr. Kronebusch testified that there has been a significant
decline in ephedrine transactions since 2008. [Tr. 61-2]. Two
companies, who had prior to 2009 reported significant numbers of mail
order sales of ephedrine, closed their mail order business in 2009.
[Id.].
2. DEA's Retailer Requirements
a. Retail Sales Limit
13. The DEA does not require mail order distributors \3\ of
ephedrine products to register with the DEA. [Tr. 57]. However, the DEA
imposes daily and monthly sales limits on the amounts retailers may
sell to one person and requires that they report their sales on the
15th of every month to the DEA. [Tr. 35-36, 54-55]. The reports
required by DEA must identify the purchaser of the List I chemical
product. [Tr. 56-57]. A government ID or driver's license would satisfy
this requirement. [Tr. 57].
---------------------------------------------------------------------------
\3\ Retail distributors sell to non-regulated persons, i.e.
persons that will use rather than redistribute the ephedrine
product. [Tr. 55, 57]
---------------------------------------------------------------------------
14. The retail sales limit for ephedrine used to be 24 grams per
month but is now 3.6 grams per day per person, and 7.5 grams per month.
[Tr. 35-36].
15. The retailer is also required to keep a record of all ephedrine
sales. [Tr. 36, 51-2, 432].
b. Self-Certification
16. The owner of a retail distributor of list I chemicals must
become self-certified with the DEA. [Tr. 229-230]. To do so, the owner
must go online and follow several steps, including: teaching his
employees who have the ability to sell the product over the counter
about the thresholds for daily and monthly purchases and developing a
logbook for sales. [Tr. 230]. The retailer must then display its retail
self-certification in its store prior to selling the product. [Tr. 230]
3. DEA's Importer Requirements
17. The DEA requires an importer to obtain an importer registration
to import list I chemicals into the United States, and to fill out a
Form 486, 15 days prior to any importation, notifying the DEA of an
upcoming import. [Tr. 231-233].
a. Requirement of Providing a Customer List
18. According to Marian Klett, a program analyst in the Office of
Diversion Control at DEA,\4\ the DEA requires applicants for importer
registrations, even those who have yet to go into business, to include
in their application a list of proposed customers. This requirement
began as DEA policy pursuant to a mandate by the Department of Justice
that the DEA establish protocols to better regulate precursors to
methamphetamine production. [Tr. 170-71; 445-9].
---------------------------------------------------------------------------
\4\ Ms. Klett has been in that position since 1997 and has been
with DEA since 1995. Ms. Klett conducts a preliminary review of
incoming List I chemical pre-registration packages. The
preregistration package contains all documents that are forwarded by
the applicable field office to the DEA when a company applies for a
DEA registration. Ms. Klett is familiar with the Combat
Methamphetamine Act. [Tr. 119-120]. Prior to working as a Program
Analyst, Ms. Klett was an Intel Research Specialist from 1988-1997.
In addition, from January 2000 to February 2003, Ms. Klett was an
Intel Analyst in the Office of Diversion Control for an LSD
investigation. [Tr. 122].
---------------------------------------------------------------------------
19. Ms. Klett testified that as of 2000, the DEA will not grant a
DEA registration if an applicant does not have a customer list, because
the agency cannot determine whether the product will be diverted. [Tr.
446]. This is not, however, a requirement for domestic mail order
sales, i.e. retail distributors. [Tr. 446].
20. After the applicant provides a list of customers, the DEA will
then verify those customers. [Tr. 447-8]. Ms. Klett testified that when
Congress passed the CMEA, it put specific language in the act that
mandated the DEA to ask for downstream customers from the proposed
importer. The DEA does so for importers on its Form 486A. [Tr. 448-9].
21. As for start-up companies, Ms. Klett testified that how the
company ascertains its downstream customers is up to them. [Tr. 450].
22. Ms. Klett testified that the DEA has never before entertained
an importer application for a company that wished to sell strictly
retail. [Tr. 453]. In addition, she testified that the form 486
requires a customer list, which is a form that the registrant fills out
prior to the
[[Page 35038]]
actual importation, and post registration. [Tr. 452-53].
b. Canadian Regulation of Ephedrine
23. Diversion Investigator David Hargroder \5\ ("DI Hargroder")
testified about information he obtained from Health Canada, the
Canadian agency that regulates listed chemicals. [Tr. 84]. DI Hargroder
testified that Canada's regulation of List I Chemicals is similar to
the DEA's. [Tr. 80]. He testified that Health Canada requires entities
to obtain Class A Licenses. [Tr. 80].
---------------------------------------------------------------------------
\5\ David Hargroder is a Diversion Investigator at DEA
Headquarters. [Tr. 77]. DI Hargroder conducts chemical
investigations involving ephedrine, pseudoephedrine, and
methamphetamine. [Tr. 77]. DI Hargroder started his law enforcement
career at DEA in 1980, prior to which he served as an investigator
in various territories and worked for the New Orleans Police
Department. [Tr. 77]. He currently serves as a staff coordinator for
the pharmaceutical section of the Office of Divergence and Synthetic
Chemicals ("ODS") at DEA. He was transferred to that section only
three days prior to the hearing, before which he served for the
chemical section of ODS. [Tr. 78-79]. There, he was responsible for
reviewing pre-registration investigations involving appeal. [Tr.
79].
---------------------------------------------------------------------------
C. The Respondent
24. The Respondent, 4 OTC, Inc. ("4 OTC") is a company seeking to
import finished form ephedrine products into the United States and to
sell it to retail customers via the internet. [Tr. 33, 393].
25. The Respondent intends to store the listed chemical products in
a warehouse in Phoenix, Arizona. [Tr. 337]. 4 OTC is ready for
operation but not yet up and running. [Tr. 255].
26. The Respondent first applied for a DEA registration on August
14, 2007. [Respt. Exh. 1].
27. Richard Pierce, who testified on behalf of the Respondent,
stated that 4 OTC would only sell its ephedrine product as a
bronchodilator. [Tr. 277].
1. Initial Investigation
28. In January of 2008, Richard Quintero, a Diversion Investigator
for the DEA in the Denver Colorado division,\6\ traveled to the
Respondent's proposed location at 8160 Blakeland Drive, Unit H,
Littleton, Colorado 80125. [Tr. 27-28].
---------------------------------------------------------------------------
\6\ [Tr. 25; Govt. Exh. 12 at 1]. DI Quintero has worked in that
capacity for 12 years. [Tr. 26]. DI Quintero was assigned to
investigate the List I chemical applications of the Respondent. [Tr.
27].
---------------------------------------------------------------------------
29. During that visit, DI Quintero met with the Respondent's Vice
President, Mike Schiefelbein. DI Quintero asked Mr. Schiefelbein basic
information about 4 OTC, including the company from whom the Respondent
intended to import ephedrine, the person who would maintain record-
keeping and security, and the Respondent's intended customers. [Tr. 28-
29].
30. In July of 2008, DI Quintero returned to the Respondent's
proposed location, at 8160 Blakeland Drive, to conduct a second
investigation of 4 OTC. [Tr. 29]. On that visit, DI Quintero was
accompanied by Dan McCormick, another Diversion Investigator from the
Denver, Colorado field division. [Tr. 30].
31. However, on that visit the Respondent was no longer located in
Unit H; it was then located in Unit C of the same address. [Tr. 29].
The Respondent was renting a small part of this warehouse from Allison
Medical Supply on a month to month basis per an oral agreement. [Govt.
Exh. 12 at 1-2]. The Respondent had advised the DEA of the new address
via telephone yet had not submitted a written request for an address
modification. [Govt. Exh. 12 at 1].
32. On May 12, 2010, DIs Quintero and McCormick returned to Unit C.
[Tr. 39]. The receptionist told the DIs that 4 OTC was no longer at
that location. The receptionist stated that the Respondent had moved to
Arizona and not left a forwarding address. [Tr. 39]. The local post
office also had no record of a forwarding address for 4 OTC. [Tr. 40;
Govt. Exh. 12 at 2]. The Respondent had not advised the DEA of the new
address. [Govt. Exh. 12].
2. Current Location
33. Respondent is currently located at Freeport Distribution's
Warehouse, 431 N. 47th Avenue, Phoenix, AZ 85043. [Resp. Exh. 9 at 1].
The warehouse is also occupied by other tenants. [Tr. 396-97].
34. Mr. Pierce testified that the Respondent's facility was
inspected by the DEA and that, to his knowledge, the agency did not
have any issues with the security. [Tr. 285]. In addition, the
Respondent hired a consultant, John Mudri,\7\ who inspected the
facility and testified he observed where the ephedrine product would be
located, whether there were alarm transceivers, the doors, gating, and
who had access. [Tr. 410-11]. He testified that the Respondent's
security features are ones that an entity would consider if securing
Schedules III through V controlled substances and thus are greater than
that required for scheduled listed chemicals. [Tr. 410-412].
---------------------------------------------------------------------------
\7\ [Tr. 380, 398]. Mr. Mudri began working for DEA as a
Diversion Investigator in 1972 in the Cleveland, Ohio branch. He
then served as a Senior Investigator for that branch from 1974-1979.
From 1979 to 1986, he served as an Investigative Supervisor in the
Detroit, Michigan branch and later served in the same capacity in
Tampa, Florida. He became a Staff Coordinator for the Diversion
Policy Section of DEA in 1993, and held that same position in the
Diversion Liaison Section from 1995-1996. From 1996-1998, he was the
Chief of the DEA's Domestic Chemical Operations section. He then
became a Senior Investigator again in 1998 for the Tampa, Florida
branch, after which he left DEA in 2001. [Respt. Exh. 11 at 2]. In
addition to consulting, as well as other professional activities, he
currently teaches a course called Controlled Substances Laws in the
University of Florida graduate pharmacy program. [Tr. 401-2].
---------------------------------------------------------------------------
35. Respondent introduced a document from Freeport Distribution
which describes the security and building features of the warehouse.
[Resp. Exh. 9]. Mr. Mudri testified that this document accurately
reflects the Respondent's warehouse security. [Tr. 410-412]. Among
those listed, the Respondent stated that all warehouse employees
undergo background checks, including screens for substance abuse, that
the warehouse is guarded by two guards during non-operational hours but
guards do not have keys or access to the facility, that there are
cameras in place, and that the facility is completely fenced with an 8
foot fence topped with razor wire. [Respt. Exh. 9 at 1]. The document
further states that "all Freeport contractors for hire must show proof
of background checks for anyone entering" the facility. [Resp. Exh. 9
at 1].
3. Respondent's Source
a. McIsaac Distribution
36. The Respondent originally listed McIsaac Distribution as the
source from which it would import ephedrine. [Govt. Exh. 11]. McIsaac
Distribution is a Canadian distributor of sports nutrition products
such as protein powders, and other natural health products. [Govt. Exh.
20 at 17]. It used to sell a product called 4 Ever Fit, a single-entity
ephedrine product. It sold 4 Ever Fit as a muscle building and weight
loss product in Canada to mostly retail locations such as gyms and
health and fitness stores. [Tr. 122-129; Govt. Exh. 20 at 6-8].
37. McIsaac Distribution is located in KeLowna Bridge, Columbia in
Canada. [Tr. 32, 82].
38. Kevin McIsaac is the president of McIsaac Distributions. [Tr.
34, 82; Government Exhibit ("Govt. Exh.") 12 at 1]. He was also the
original signee on the Respondent's importation application. [Tr. 34].
39. McIsaac Distribution possessed a Class A precursor license in
Canada, that it later withdrew. [See Govt. Exh. 10].\8\ McIsaac
Distribution relinquished its Class A precursor license because it was
"no longer able to sell ephedrine." [Tr. 260].
---------------------------------------------------------------------------
\8\ On its precursor license application, the company stated
that it intended to purchase ephedrine, "MaHuang," from GFR and
Biopark Ltd. [Govt. Exh. 20 at 19].
---------------------------------------------------------------------------
[[Page 35039]]
40. In 2008, McIsaac Distribution sold certain assets, including
the 4 Ever Fit product, to GFR Pharma. [Tr. 33, 106, 258, 262, 294;
Respt. Exh. 8; Govt. Exh. 20 at 30, 46-47].
41. GFR Pharma Ltd. ("GFR") is a company located in Maple Ridge,
British Columbia, Canada. [Tr. 33; 252]. The company used to be named
GFR Nutritionals Ltd. [Govt. Exh. 20 at 5]. Prior to its purchase of
assets from McIsaac Distribution, GFR Pharma manufactured and sold 4
Ever Fit to McIsaac Distribution. [Tr. 294-5].
42. Prior to the sale of certain assets to GFR Pharma, McIsaac
Distribution was inspected by Health Canada. [Govt. Exh. 20 at 24].
Health Canada noted several concerns. First, it noted that McIsaac
Distribution had failed to obtain the Minister's approval prior to
making changes of its internal protocols as cited in its initial
application. Specifically, in contrast to what was stated on its
application, McIsaac failed to lock the drawer that contained the key
to the Class A precursor cage. In addition, McIsaac failed to keep an
ephedrine movement log. Next, Health Canada noted McIsaac's
recordkeeping violations, including failing to record cage ephedrine
movements and failing to record the full name of person(s) accessing
the cage. Last, Health Canada noted several "suspicious transactions"
that the company failed to record. A suspicious transaction is one
where "there are reasonable grounds to suspect that the transaction is
related to the diversion of a precursor to an illicit market for use."
Some of the factors that Health Canada lists as to being indicative of
diversion are: (1) delivery by dubious route; (2) Using a private house
or post office box number as the address from which the order is made;
and (3) irregular order and quantities. The agency found two
transactions that were delivered by dubious route, where a combined
total of 66,960 bottles of hydrochloride ephedrine (26.778 Kg) were
sent from McIsaac Distribution via Liquidation Depot to Bella Labs.
Each shipment listed a separate address for Bella Labs, and the first
shipment's address for Bella Labs was deemed not a legal address. Next,
the agency found two instances where a combined total of 12,096 bottles
of ephedrine chloride (4.832 Kg) were shipped to a post-office box in a
Mail Boxes, Etc., of which the second shipment was rerouted to a
residential address. The agency then found that McIsaac Distribution's
largest sales between April 27, 2007, and May 27, 2008, were to
Liquidation Depot (a total of 341,952 bottles of hydrochloride
ephedrine were sold) and "these transactions were * * * suspicious
because they were triggered by large cash deposits and related bank
charges." Health Canada noted that in light of the foregoing it had
"strong concerns about [McIsaac Distribution's] capacity to comply
with the regulatory requirement to detect and record suspicious
transactions." [Govt. Exh. 20 at 24-27].\9\
---------------------------------------------------------------------------
\9\ Ms. Klett found it most noteworthy that Health Canada
believed there were "suspicious transactions" between McIsaac and
its purchasers that McIsaac failed to report to Health Canada. Ms.
Klett testified that the DEA finds any kind of cash transaction,
above the retail level, suspicious. [ Tr. 136].
---------------------------------------------------------------------------
43. In response to those suspicious transactions, on November 19,
2008, Health Canada ordered McIsaac Distribution to submit a "written
corrective action plan" to it by December 19, 2008. [Govt. Exh. 20 at
28; Tr. 159]. Prior to that order, however, on November 17, 2008,
McIsaac Distribution notified Health Canada, by email, of its sale to
GFR. On November 19, 2008, Health Canada received an email from McIsaac
Distribution reflecting its desire to close its Class A Precursor
License. [Govt. Exh. 10]. On December 3, 2008, McIsaac Distribution
faxed Health Canada a document regarding the closure of its Class A
Precursor License. [Govt. Exh. 20 at 30].
44. A review of the 4 Ever Fits sales list, while that product was
sold by McIsaac Distributions, revealed an internet sale of 10 bottles
of ephedrine hydrocholoride 8 mg to Marcy LeBlanc, whose address could
not be confirmed, and a sale of 96 bottles of ephedrine hydrochloride 8
mgs to Body FX, whose address also could not be confirmed. [Tr. 139-
140; Govt. Exh. 20 at 48].
45. In addition, many of 4 Ever Fit's customers as of 2007 were
health and fitness stores. [See Gov't. Exh. 20 at 6-15]. A few of those
customers contained on that list had addresses in the United States.
[See id. at 6, 15 (listing 12 locations for Bally Total Fitness in
Chicago, Illinois and one location for Vitamin World in New York)].
However, a second report documenting actual ephedrine sales for January
of 2007, fails to record any sales of the 4 Ever Fit product to U.S.
companies. [Id. at 41-44].
b. GFR Pharma, Ltd.
46. The Respondent maintains that it will purchase its ephedrine
product from GFR Pharma ("GFR") and not McIsaac Distribution. [Tr.
Govt. Exh. 11 at 2].
47. Richard Pierce is the President and CEO of GFR. [Tr. 252]. As
President and CEO of GFR, Richard Pierce runs the day-to-day operations
of the corporation, including overseeing quality control, purchasing,
sales, and marketing. [Tr. 252]. He has dealt with the sale of
ephedrine since 2004. [Tr. 252].
48. According to Mr. Pierce, Kevin McIsaac has no role at GFR
Pharma. [Tr. 259].
49. GFR currently has its own Canadian precursor license. [Resp.
Exh. 8; Tr. 102]. "As a holder of this license, GFR is authorized to
produce, package, sell, import, and export precursor substances such as
ephedrine (both ephedrine salt and Ma Huang)." [Govt. Exh. 11 at 2].
50. GFR manufactures ephedrine by purchasing the raw material from
a registered supplier with a precursor license. The quantities of that
purchase are verified by the Canadian government. The raw material is
then immediately put in a holding cage that is locked and monitored by
camera. The ephedrine is then quality-control inspected and released
for manufacturing. The ephedrine is then blended with the proper
ingredients. The raw material is placed back into the holding cage. The
product is once again removed and placed in a tablet press, placed back
into the cage, and then sent to be packaged, after which it is once
again placed in the cage. [Tr. 256-57].
51. GFR manufactures approximately 200 kilograms of ephedrine per
year. [Tr. 253].
52. GFR converts that ephedrine into 25 million tablets. [Tr. 253-
254, 257].
53. The brand of ephedrine product that GFR markets in Canada is 4
Ever Fit. [Tr. 254]. Richard Pierce testified that the product is used
as a decongestant in Canada. [Tr. 254]. However, 4 Ever Fit's customer
list suggests that product is sold as a dietary supplement in Canada.
[See Govt. 20 at 42-44 (listing the purchase of 4 Ever Fit by numerous
health food stores and gyms)].\10\
---------------------------------------------------------------------------
\10\ In addition, I do not find this statement of Mr. Pierce's
credible, as it is unreasonable that persons would purchase a
product labeled "4 EverFit" as a nasal decongestant. In addition,
he is not qualified to testify as to how his product is actually
used by GFR's customers. T
---------------------------------------------------------------------------
54. Mr. Pierce testified that he has never sold this product to a
U.S. based company because that would be illegal. [Tr. 254]. Mr. Pierce
testified that in Canada "we can sell it to health food stores * * *
to sports nutrition stores, a wide variety [of stores]." [Tr. 254].
55. The DEA obtained information from Health Canada regarding GFR
Pharma. including any and all audits, photos, copies of registration
forms, product distribution lists, copies of all Canadian licenses,
formal letters between Health Canada and the
[[Page 35040]]
company, export documents, documents regarding the sale of McIsaac
Distribution to GFR Pharma, documents regarding the transfer of
products from McIsaac to GFR Pharma, and documents regarding common
ownership of the GFR and McIsaac Distribution. The DEA also obtained
the FDA's records regarding the two companies. [Govt. Exh. 20 at 1-3;
Tr. 90-91]. All of the records that the DEA obtained related to the
ephedrine and pseudoephedrine products. [Tr. 91].
56. In 2010, GFR had a shortage of 79,000 tablets. [Tr. 257]. They
reported this shortage to Health Canada. [Tr. 258]. Health Canada did
not cite GFR Pharma, however, they did make a recommendation on how the
company could account for the loss. [Tr. 258]. Mr. Pierce stated that
the loss was just a "manufacturing loss." [Tr. 260].
57. On an unspecified date, Health Canada inspected GFR Pharma and
noted the following concerns: (1) "although only two GFR designated
employees have access to raw bulk ephedrine (possess the physical
keys), all 61 employees conceivably have access to ephedrine at other
stages of production (i.e. blending, bulk tableting, packaging, as well
as shipping);" (2) record could not be found for certain inbound
transportation shipments; (3) no records exist to quantify past
destruction; and (4) there are conflicts between processing stages in
GFR's records, namely the actual yield is less than the projected
yield; and (5) "GFR does not maintain a precursor access log. No
record exists tracking personnel accessing stock either within the
precursor cage, or within the overall warehouse." [Govt. Exh. 20 at
22].
58. Mr. Pierce testified that Health Canada would not renew its
license if it found serious violations. [Tr. 271].
59. In Mr. Pierce's experience, he has dealt with Health Canada
regarding licensure and inspection, including surprise inspection. [Tr.
252-53]. GFR has been inspected by Health Canada on three occasions.
[Tr. 253]. GFR must re-apply for its licensure yearly and its license
has been renewed by Health Canada every year. [Tr. 252-253]. The DEA
was not informed of any citations by Health Canada of GFR. [Tr. 164].
60. The DEA reviewed Health Canada's records on the sale of the
precursor product, 4 Ever Fit-Ephedrine Hydrochloride 8 mgs by GFR to
various companies from January 6, 2009 to January 29, 2009. [Tr. 129;
Govt. Exh. 20 at 42-44]. None of the companies listed in that report
had addresses in the United States. [Govt. Exh. 20 at 42-44]. The DEA
did not obtain any evidence that GFR Pharma marketed 4 Ever Fit as a
weight loss product and sold it as such into the United States. [Tr.
173].
(1) Customs Seizure
61. During its investigation, the DEA found evidence that GFR
Pharma was the source of ephedrine that a third party had purchased and
attempted to ship illegally into the United States. [Tr. 86-87]
62. On or about January 27, 2010, U.S. Customs and Border Patrol
seized three packages with suspicious labels at Seattle International
Airport, Washington. [Tr. 86, 212]. The packages were en route to
Phoenix, Arizona. [Tr. 86]. The sender listed on the packages was
Better Bodies Nutrition. [Tr. 87, 217-18; Govt. Exh. 15 at 2; Govt.
Exh. 20 at 6].
63. Better Bodies Nutrition is a company that sells nutritional
supplements via the internet. [Govt. Exh. 15]. Better Bodies Nutrition
Web site markets ephedrine and advertises the sale of the 4 Ever Fit
Product. [Govt. Exh. 15; Tr.144]. Specifically, they have purchased the
8 mg ephedrine hydrochloride product. [See Tr. 143-44].
64. The products originated from GFR Pharma. [Tr. 87]. While,
Better Bodies Nutrition is not a direct customer of GFR Pharma, GFR
supplies to 4 Ever Fit, Ltd. who then sells to Better Bodies. [Tr. 275,
368]. Regardless, GFR has knowledge of where 4 Ever Fit sells its
product. [Tr. 368].
65. The products were destined for a company called One Stop
Nutrition in Phoenix, Arizona. [Tr. 113].
66. The shipping labels indicated that the packages contained
"vitamins." [Govt. Exh. 14; see also Tr. 214].
67. After customs observed the suspicious shipping labels, they
opened the packages to confirm the contents. [Tr. 212-13]. Each box
contained 48 bottles, labeled "4 Ever Fit." [Tr. 215]. Each bottle
contained 50/8 mg ephedrine tablets. [Tr. 215].
68. On February 4, 2010, DI Morgan, U.S. Postal Services, and a
member of the Arizona Board of Pharmacy visited all three addresses
listed on the seized packages and discovered all three were One Stop
Nutrition Stores, which sold health and body supplements and vitamins.
[Tr. 220-221]. In addition, all three stores shared parking lots with
fitness clubs. [Tr. 221-222]. Each store had ordered one box,
containing 48 bottles, of the 4 Ever Fit product. [Tr. 240].
69. The One Stop Nutrition stores were located in Scottsdale,
Tempe, and Phoenix, AZ. [Tr. 222, 224, 225]. DI Morgan spoke with each
of those store's owners, respectively, Justin Denis, Brian Kerry, and
Matt Denis [Tr. 223, 224, 225]. Each of those individuals stated that
they purchased the 4 Ever Fit product to replace a product called
Vasapro, which was no longer available. [Tr. 223, 224, 226]. Each owner
intended to sell 4 Ever Fit as a weight loss product. [Tr. 223, 225,
228].
70. While the Tempe and Phoenix One Stop Nutrition Stores were
self-certified with DEA, Justin Denis had not self-certified his
location in Scottsdale. [Tr. 231].
71. In addition, none of the One Stop Nutrition stores that DI
Morgan visited had importer registrations nor did they fill out a Form
486 prior to their orders of 4 Ever Fit from Better Bodies Nutrition.
[Tr. 232-233].
72. Similarly, Better Bodies Nutrition did not have a Canadian
export license. [Tr. 115-16].
73. Mr. Pierce testified that he had no knowledge of Better Bodies
Nutrition selling or trying to sell 4 Ever Fit into the United States.
[Tr. 276]. When questioned whether GFR had done anything about its
relationship with Better Bodies Nutrition to ensure that the improper
shipment doesn't occur again, Mr. Pierce testified "[w]e have no
control over them buying the product from us and shipping it without
our knowledge. [Health Canada] . . . has been informed" and it is his
understanding that they have dealt with Better Bodies to ensure that
they don't attempt to ship into the United States and are familiar with
the repercussions of that. [Tr. 362].
D. Other Entities
1. 4 Ever Health Distribution Ltd.
74. 4 Ever Heath Distribution Ltd. is a Canadian company owned by
Richard Pierce. [Tr. 280].
75. 4 Ever Health Distribution distributes the 4 Ever Fit product
in Canada. [Tr. 280].
2. 4 Ever Fit Companies
76. There are two 4 Ever Fit companies: 4 Ever Fit 2008 Ltd. ("4
Ever Fit"), a Canadian company, and 4EF Inc. d/b/a 4 Ever Fit USA
("4EF USA"), a United States company. [Respt. Exh. 4; Tr. 280-81].
3. 4 Ever Fit--Canada
77. Richard Pierce is also the President and CEO of 4 Ever Fit.
[Tr. 252].
78. 4 Ever Fit sells sport supplement style products such as
proteins as well as the 4 Ever Fit product. [Tr. 255, 280].
79. Mr. Pierce testified that he does not sell ephedrine products
directly into the United States. [Tr. 268].
[[Page 35041]]
4. 4 Ever Fit--USA
80. 4EF Inc., d/b/a 4 Ever Fit USA ("4EF USA") is a United States
company. [Tr. 280-81].
81. It is owned by Richard Pierce, through a company called 4
Pharma, LLC. [Tr. 280].
82. Mike Schiefelbein is the president of 4EF USA. [Tr. 373]. It is
currently based in Peoria, Arizona. [Tr. 373].
83. Mr. Schiefelbein has been in the sports nutrition supplement
business for approximately 13 years. He has prior experience selling
ephedrine as a dietary supplement when it was legal to do so in the
United States. [Tr. 374-5].
84. 4 Ever Fit USA does not sell ephedrine products. [Tr. 374]. It
only sells supplements, nutritional products, protein powders, amino
acids, weight gainers, weight-management products to health stores and
fitness facilities in the United States. [Tr. 281, 365, 374].
85. A small percentage of 4EF USA's business is end users. Most of
their customers are brick-and-mortar retailers and distributors. [Tr.
374, 389]. Approximately 10-15% of its business is internet sales. [Tr.
391].
86. 4EF USA's products will be kept in the same warehouse as 4
OTC's products, however, the 4 OTC product will be kept separate in a
cage. [Tr. 395]. In addition, 4OTC will have separate access logs and
inventory logs than 4EF USA. [Tr. 395-6].
5. 4 Pharma, LLC
87. Richard Pierce owns 4 Pharma, LLC ("4 Pharma"). [Tr. 363].
88. 4 Pharma owns 4EF USA. [Tr. 280].
89. 4 Pharma also owns 60% of 4 OTC. [Tr. 364].
90. 4 Pharma will not be part of the distribution chain of
ephedrine from GFR to 4 OTC, Inc. [Tr. 363].
6. Vasapro
Megapro is a U.S. company that sells Vasapro, an ephedrine HCL
product. Megapro markets Vasapro as a bronchodilator expectorant.
[Govt. Exh. 5; Tr. 144-45]. Specifically, Megapro's Web site states
that the product is "taken for the temporary respite of shortness of
breathing, accumulation in the chest and wheezing because of bronchial
asthma . . . [and it] also helps slime relaxation and empowers thin
bronchial secretions to draining out bronchial tubes." [Govt. Exh. 5
at 1]. However, that Web site is also titled in large font "Ephedrine
Weight Loss Products." [Id.]. In addition, the left hand side of the
page has links for other "ephedrine weight loss products." [Id.]. The
right hand side of the Web site contains the following statements:
c. "Using Ephedrine To Burn Fat, Increase Strength and Muscle."
d. "Ephedrine Effects on Fat Loss and Muscle Growth . . . When
administered, ephedrine noticeably stimulates the central nervous
system, increasing the heart rate and has an overall heat producing
(thermic) effect on most tissues in the body--this includes muscle and
fat tissue, helping the user burn more body fat, as well as having
stimulatory effect on other target cells."
e. "Ephedrine Protects Lean Tissue (Muscle) . . . Researches show
that Ephedrine plus Caffeine combo protects lean tissue (muscle) while
on reduced calorie diets." [Id.].
91. Mr. Pierce testified that Vasapro is the only competitor that
he could think of for 4 OTC as he is not familiar with other companies
selling "the combinations." [Tr. 314].
7. Other Retail Sellers of Ephedrine Product
92. SupplementSource is a Canadian company that sells the 4 EverFit
product via the internet. [Tr. 147-8; Govt. Exh. 8 at 1].
93. There are other companies that market ephedrine bronchodilators
similar to how Megapro markets Vasapro. GorillaJack.com ("Gorilla
Jack") is a company that sells Kaizen Ephedrine HCL 8 mg via the
internet. [Govt. Exh. 9 at 8]. Its Web site states that it will ship
any of its products anywhere in the world as it is impossible for them
"to keep up with all the regulations/laws in every country." [Tr.
150; Govt. Exh. 9 at 4]. Gorilla Jack markets the Kaizen ephedrine
product as an oral and decongestant yet also notes that the drug "has
strong metabolic boosting properties . . . [and] [d]espite its
effectiveness as a . . . body fat reduction product, it can only be
officially sold as an oral nasal decongestant." [Govt. Exh. 9 at 18].
There is no relationship between Gorilla Jack and GFR Pharma. [Tr. 163-
4]. To the best of Mr. Pierce's knowledge, GFR Pharma does not sell to
this company. [Tr. 279].
E. Respondent's Ownership and Operation
94. Kevin McIsaac signed 4 OTC's DEA applications. [Tr. 34].
95. Richard Pierce is the President and CEO of 4 OTC. [Tr. 252].
Mr. Pierce also testified that he is the majority owner of 4 OTC. [Tr.
279, 284]. He testified that he owns 4 OTC, Inc. through 4 Pharma LLC.
[Tr. 364].
96. Mr. Schiefelbein owns fifteen percent (15%) of 4 OTC. [Tr. 35,
376].
Mr. Schiefelbein testified that he fully intends to comply with all
state, local and federal regulations. [Tr. 380]. He also testified that
he has no prior convictions. [Tr. 380]. Mr. Schiefelbein testified that
he will oversee the day-to-day duties of 4OTC. [Tr. 392-3].
97. According to DI Quintero's investigation, Kevin McIsaac owns
seventy percent (70%) of 4 OTC. [Tr. 34-35]. However, according to Mr.
Pierce's testimony, Kevin McIsaac only owns ten percent (10%) of 4 OTC
and Mr. McIsaac is not involved in the day-to-day operations. [Tr.
284]. If in fact, Kevin McIsaac only owns 10% of 4 OTC, then that
leaves 15% of 4 OTC unaccounted for. [See FOF 103 (Mr. Schiefelbein
owns 15%); FOF 102, 95 (Mr. Pierce owns 60% of the Respondent through 4
Pharma)]. Accordingly, I will not make a finding as to the actual
ownership interest of Kevin McIsaac in the Respondent.
98. Mr. Schiefelbein informed DEA Diversion Investigators that 4
OTC intended to procure the ephedrine from McIsaac Distribution. [Tr.
31]. At the hearing, however, Mr. Pierce testified that GFR Pharma is
the supplier of ephedrine for the Respondent. [Tr. 289].
99. Mr. Pierce testified that Kevin McIsaac will have "nothing to
do with the company," as he will be located in Canada and not in
Phoenix. He also testified that he, Mr. Schiefelbein, and "[their]
quality control . . . office in Canada" will be in charge of shipping
the ephedrine from GFR Pharma down to Phoenix. [Tr. 296].
100. Mr. Schiefelbein stated that his sale of ephedrine would be
conducted 100% via the internet. [Tr. 33].
101. Mr. Pierce testified that 4 OTC would not sell its product for
any other purpose other than as a bronchodilator. [Tr. 277]. 4 OTC only
intends to sell its product on a retail level to end users. [Tr. 393].
102. 4 OTC is kept separate from 4EF USA to avoid "comingling of
products and product categories." [Tr. 375].
F. The 4 OTC Product
103. The 4 OTC product will be sold as a combination of ephedrine
and guaifenesin. [Tr. 302; Resp. Exh. 5]. The product will come in a
12.5 mg ephedrine/200 mg guaifenesin formula, a 25 mg ephedrine/400 mg
guaifenesin formula, and a 12.5 mg ephedrine/400 mg guaifenesin
formula. [Tr. 306-07]. Mr. Pierce is not familiar with any other
company selling a 12.5 ephedrine/400 mg guaifenesin combination product
in the United States. [Tr. 308].
104. Mr. Pierce testified that he inherited these formulas and that
his understanding of the reasons for having
[[Page 35042]]
the different kinds was so that there was a regular and an extra
strength product. [Tr. 306-7]. His consultant testified that he has
mostly seen a 12.5/200 ephedrine/guaifenesin product and less a 25/400
mg combination product. [Tr. 423]. He has never seen a 12.5/400 mg
product. [Tr. 423-4].
105. Neither the Respondent nor its owners have any experience in
dealing with guaifenesin. [Tr. 305]. GFR Pharma currently produces a
single entity product in Canada. [Tr. 303-4].
106. Mr. Pierce believes his quality-control department contacted
the FDA about bringing this product into the United States.\11\ [Tr.
307].
---------------------------------------------------------------------------
\11\ The record contains no further information about this
contact.
---------------------------------------------------------------------------
107. Mr. Pierce testified that he believes that these products meet
the FDA's criteria as far as quantities of listed chemical products
allowed based on Mr. McIsaac's representation to him that that was the
case when he purchased the company. [Tr. 309-11].
108. GFR will manufacture the ephedrine/guaifenesin product in the
same facility that it manufactures the 4 Ever Fit product. [Tr. 311-2].
109. To make the 4 OTC product GFR must increase the size of the
tool that currently makes its single entity ephedrine product to
account for the additional excipient, guaifenesin. It must also add
more binders and fillers to hold that product together. GFR will then
quality control that product. [Tr. 312-14].
G. Marketing and Sale of the Respondent's Product
110. Throughout the hearing, representatives of the Respondent
maintained that it would only sell its product as a bronchodilator in
the United States. Indeed, Mr. Pierce testified that 4 OTC would not
sell it for any other purpose. [Tr. 277, 290-91]. Mr. Pierce testified
that the guaifenesin is intended to bring up the mucous in the body and
help loosen it up. [Tr. 304].
111. During his initial interview with DIs Quintero and McCormick
in July of 2008, Mr. Schiefelbein gave the DI's Standard Operating
Procedures ("SOPs") for the Respondent. [Tr. 29, 33]. Those SOPs
included a brand label for the 4 Ever Fit product. [Tr. 34]. The
Respondents current SOPs contain the same label without the words "4
Ever Fit." [Tr. 47-48; Respt. Exh. 5].
112. The label that Respondent intends to use for its product reads
"eases breathing for asthma patients by reducing spasms of bronchial
muscles. For the temporary relief of bronchial asthma." [Resp. Exh. 5
at 1; Tr. 290].
113. Mr. Pierce testified that 4 OTC had yet to devise a "brand
name" that would go on the actual labels. He stated that the company
did not intend to place the 4 Ever Fit logo on the package of the 4 OTC
product. He stated that "we're just going to sell it as the name
ephedrine hydrochloride." [Tr. 299-301].
114. Mr. Schiefelbein testified that 4 OTC will not use the
customer base of 4 Ever Fit to sell the ephedrine product. [Tr. 377].
However, when DI Quintero asked Mr. Schiefelbein for a customer list,
he was unable to provide one. [Tr. 28-29].
115. Mr. Pierce testified that he did not conduct any market
research, investigating the potential customer base for the 4 OTC
product, prior to his purchasing of his interest in 4 OTC. He also
testified that while he believes Mr. McIsaac conducted such research,
he has not seen any of that research. [Tr. 324-5]. When asked how he
knew that customers would need ephedrine to be treated for asthma and
would be inclined to purchase that product over the internet, he
responded "Well, considering the statistics on how many people buy off
the Internet, it seems that more people are interested, especially if
people are looking for these type [sic] of products, to order them off
the Internet. It's a very convenient method." [Tr. 326-7]. He later
testified that because 4 OTC has not done market projections, they
don't know the quota that they would seek from the DEA. [Tr. 366-7].
116. Mr. Pierce testified that there is a need for an ephedrine
bronchodilator in the United States. [Tr. 282]. He stated that need is
the helping of people with asthma. [Tr. 282].
117. Mr. Pierce also testified that certain persons may want to buy
this product through the internet, as opposed to going to a pharmacy or
convenience store, because it is more convenient to do so. [Tr. 282].
118. Mr. Schiefelbein testified that he was a party to the decision
to initially move forward with the 4 OTC venture. [Tr. 384]. He
testified that the decision was made because "there may be a gap and a
need in terms of . . . the asthma-related conditions." [Tr. 384-85].
When asked why an individual would chose to treat their asthma with the
4 OTC product versus a prescription medication, Mr. Schiefelbein
testified that the 4 OTC product would serve various markets where
individuals may not be able to afford medication for an asthma
condition. [Tr. 380]. However, Mr. Schiefelbein did not calculate that
there was an under-supply of ephedrine in the U.S. market. [Tr. 386].
119. When Mr. Pierce was asked whether the intended market for the
4OTC product was "anyone who wishes to buy ephedrine products on the
Internet" he responded "well . . . I guess it is to people who will
use for a bronchial dilator, but yes." He then stated that 4 OTC has
no mechanism by which to know whether, in fact, the product will be
used for that purpose. [Tr. 365]. He stated that he would just market
it to people who need it directly as a bronchodilator for bronchial
asthma. [Tr. 302].
120. Mr. Pierce also stated that he doesn't anticipate any of the
customers who purchase his dietary supplements would also purchase the
4 OTC "unless they have a condition that requires the product." [Tr.
327].\12\
---------------------------------------------------------------------------
\12\ Given Mr. Pierce's prior testimony about the lack of
research he reviewed or conducted regarding the use of ephedrine as
a bronchodilator in the United States, I find most, if not all, of
his testimony as to why the Respondent's product would be purchased
and used unfounded and incredible.
---------------------------------------------------------------------------
121. When asked whether it would be better to market a single
entity ephedrine product, Mr. Pierce testified that the combination was
that which he "inherited with the company . . . [He] didn't want to
change the direction of what [they were] doing." [Tr. 328].
122. When asked about other bronchodilators, Mr. Pierce was
unaware. For example, he was unaware of the products Primatene and
Bronkaid. [Tr. 334]. In addition, Mr. Pierce was unaware that ephedrine
products are sold to convenience stores in the United States. [Tr.
334].
1. Website
123. Mr. Pierce testified that 4 OTC does not currently have a Web
site. [Tr. 289]. However, he also testified that 4 OTC does not plan to
market its product on the 4 Ever Fit Web site. [Tr. 293]. His testimony
indicates that the company has not yet finalized how they will
advertise the product. [See Tr. 329 (stating that the product could be
located by Google search or elsewhere depending on "where we could
advertise the product. We'd have to confirm that")]. Mr. Pierce did
testify that at some point, 4 OTC will have a Web site separate from
the 4 Ever Fit Web site. [Tr. 364]. 4 OTC will also not advertise 4 EF
USA's products on its Web site. [Tr. 379].
124. Mr. Pierce testified that the product will be marketed as a
hard tablet, and not a gel cap. [Tr. 301].
[[Page 35043]]
2. Packaging, Labeling, and Sale of the 4 OTC product
125. Mr. Pierce correctly identified and testified that he is aware
of the retail daily and monthly sales limits for ephedrine in the
United States. [Tr. 291].\13\ He stated that 4 OTC plans to sell
twenty-four (24) tablets in one carton. [Tr. 292]. Therefore, to exceed
the daily limit, a person would have to purchase twelve boxes. He
testified that that is a large order and that he doesn't anticipate
someone ordering that amount. [Tr. 292].
---------------------------------------------------------------------------
\13\ However, the initial 4 OTC SOPs incorrectly recounted the
sales limitations. [Tr. 35-36]. The current SOPs correctly note the
sales limits to retail (i.e. mail order) customers. [Resp. Exh. 10
at 16].
---------------------------------------------------------------------------
He testified that the product would be sold as a hard tablet in
blister packs in a box. [Tr. 301]. The products packages will be
labeled as follows:
a. On the Front Cover:
i. EPHEDRINE HYDROCHOLORIDE (24 tablets)
ii. Eases Breathing For Asthma Patients By Reducing Spasms Of
Bronchial Muscles for the Temporary Relief of Bronchial Asthma.
iii. Contains: Ephedrine HCl ----mg, Guaifenesin ----mg per tablet
b. On the Back Cover:
i. Under Drug Facts
1. Active Ingredients
a. Ephedrine HCl----mg[hellip][hellip]..bronchodilator
b. Guaifensin----mg[hellip][hellip][hellip][hellip].expectorant
2. Uses
a. For temporary relief of bronchial asthma
b. Eases breathing for asthma patients by reducing spasms of
bronchial muscles
c. Helps loosen phlem [sic] (mucus) and thin bronchial secretions
to make coughs more productive.
3. Warnings
a. Do not use this product unless a diagnosis of asthma has been
made by a doctor. Do not use this product if you have heart disease,
high blood pressure, thyroid disease, diabetes, or difficulty in
urination due to enlargement of the prostrate gland unless directed by
a doctor. Do not use this product if you have ever been hospitalized
for asthma or if you are taking any prescription drugs for asthma
unless directed by a doctor. Do not continue to use this product, but
seek medical assistance immediately if symptoms are not relieved within
1 hour or become worse. Some users of this product may experience
nervousness, tremor, sleeplessness, nausea, and loss of appetite. If
these symptoms persist or become worse, consult your doctor. A
persistent cough may be a sign of a serious condition. If cough
persists for more than one week, tends to recur, or is accompanied by a
fever, rash or persistent headache, consult your doctor. DRUG
INTERACTION PRECAUTION: Do not use if you are now taking a monoamine
oxidase inhibitor (MAOI) (certain drugs for depression, psychiatric, or
emotional conditions, or Parkinson's' disease) or for 2 weeks after
stopping the MAOI drug. If you do not know if your prescription drug
contains an MAOI, ask a doctor before taking this product.
c. On the top cover:
i. Directions
a. Adults and children 21 years of age and over: oral dosage is 1
tablet every 4 hours, not to exceed 4 tablets in 24 hours, or as
directed by a doctor. Do not exceed recommended dose unless directed by
a doctor.
Children under 21 years of age: Consult a doctor. [Resp. Exh. 5].
H. Respondent's SOPs
126. The SOPs that the Respondent introduced at the hearing are
distinct from those that the Respondent first gave to the DEA. The
Respondent revised its SOPs after the Order to Show Cause was issued in
this proceeding. [Tr. 298].
1. SOPs Regarding State Laws
127. Some states regulate ephedrine more stringently than the
federal government. [Tr. 63]. For example, some states have scheduled
ephedrine and, therefore, a firm would need a registration,
certificate, or a license to sell an ephedrine product in that state.
[Tr. 63]. In some cases--a state will send a "cease and desist"
letter to a firm selling ephedrine via the mail. [Tr. 69].
128. In its SOPs, the Respondent via chart addresses various state
requirements, including the maximum number of grams/packages permitted
to be sold per transaction, day, week, and month; \14\ whether there
are limitations on the combinations of ephedrine/guaifenesin that may
be sold; how long the entity must keep records; the minimum age for the
purchaser; and whether ID, signature, employee training, and state
licensure are required. [Respt. Exh. 10 at 27].
---------------------------------------------------------------------------
\14\ In describing the permissible number of packages that may
be sold, however, the Respondent does not identify what combination
ephedrine/guaifenesin product it is referring to, i.e. 12.5/200, 25/
400, or 12.5/400. [See Respt. Exh. 10 at 27].
---------------------------------------------------------------------------
129. In addition, the SOPs address in bullet format each state's
requirements. [Resp. Exh. 10 at 20-26]. For example, the SOPs state
that in Alabama a purchaser must "sign special electronic or paper
register maintained for two years. These records must be maintained for
at least 180 days." [Resp. Exh. 10 at 20].
130. Under the bulleted outline for New Hampshire, the SOPs only
state "comply with federal regulations." [Resp. Exh. 10 at 23]. When
Mr. Pierce was questioned about this SOP he agreed that he could be
pretty certain that New Hampshire would allow 4 OTC to sell ephedrine
into the state, so long as they were compliant with federal
regulations. [Tr. 340]. Later in the SOPs, however, on the chart for
state requirements, there is a "Y" under the column marked "state
license" corresponding to the state of New Hampshire. [Resp. Exh. 10
at 29].
131. In addition, there are several states where the Respondent is
not likely to get licensed. [See Govt. Exh. 19C (Arizona); Govt. Exh.
19D (Arkansas); Govt. Exh. 19M (Iowa); Govt. Exh. 19J (Kansas); and
Govt. Exh. 19N (Louisiana)]. However, that likelihood is not included
in the Respondent's SOPs. [Tr. 341-3; Resp. Exh. 10]. Mr. Pierce agreed
that state law restrictions would preclude 4 OTC from lawfully handling
ephedrine products in Montana, New Mexico, Michigan, North Carolina,
and Louisiana. [Tr. 341-46].
132. With respect to the requirements for the State of Michigan,
the Respondent's SOPs indicate that state license is required, the
maximum number of packages that may be sold per transaction is 2, the
maximum number of grams of the 4 OTC product that can be sold per month
is 9 and cannot exceed a 25/400 ephedrine/guaifenesin combination, the
Respondent must keep records for 6 months, the minimum age for purchase
is 18, and both photo ID and signature are required. [Resp. Exh. 10 at
28]. However, the Respondent's SOPs overlook the fact that Michigan
expressly prohibits the internet sale of ephedrine into its territory.
[Govt. Exh. 19-P at 5].
133. With regard to additional state regulations, not contained in
the Respondent's SOPs, Mr. Pierce testified that "we are relying on
our attorney's to complete our due diligence on that, once we move to
the next level." [Tr. 347-8].
134. He also stated that SOPs are always a "work in progress."
[Tr. 357]. Although some states made ephedrine products Schedule IV or
V controlled substances, Mr. Pierce was unfamiliar with the concept of
scheduled substances. [See Govt. Exh. 19S
[[Page 35044]]
(Missouri; Govt. Exh. 19AA (Oklahoma); Govt. Exh. 19Z (Ohio); Tr. 345].
135. At the hearing, Mr. Pierce appeared unaware of an Arizona
Board of Pharmacy requirement that the Respondent obtain a state
license as an ephedrine wholesaler prior to importing ephedrine into
the state, until the Government's counsel pointed the need for it on
cross-examination. [Tr. 371].
136. At the time of the hearing, the Respondent did not have such a
license. [Tr. 443]. Mr. Mudri, the Respondent's expert later testified
that there seems to be some confusion as to whether that is in fact
required. [Tr. 424]. The Respondent later acquired that license. [Resp.
Exh. 12].
137. Mr. Mudri testified that he cannot speak for the accuracy of
the Respondent's SOPs regarding state laws. [Tr. 426].
138. In light of the various state regulations, Mr. Pierce agreed
that he is not certain how many states the Respondent will be able to
obtain licensure in. [Tr. 351-52]. In addition, Mr. Pierce has not
projected in which states there would be the most potential to sell.
[Tr. 352].
139. He also stated that his decision to sell via the internet may
be affected by state licensure requirements. [Tr. 369].
2. 4 OTC's SOPs Regarding DEAs Regulations
140. When the Respondent first presented its SOPs to DI Quintero,
those SOPs stated that the ephedrine retail sales limit was 24 grams
and the ephedrine limit for record-keeping was 1 kilogram. [Tr. 35-36].
Currently, the Respondent's SOPs state the following with regard to
complying with the DEA's regulations:
a. Warehouse Security
i. All Schedule listed chemicals will be stored in a caged area
that is locked and will have limited access to designated employees
\15\ of the company.
---------------------------------------------------------------------------
\15\ The term employee is defined in the SOP as "all persons
that perform any business related activity at the facility or
regarding the ephedrine chemical drug product." [Respt. Exh. 10 at
2].
---------------------------------------------------------------------------
ii. The doors to the cage will be self-locking, self-closing doors.
iii. Access to the cage will be recorded in an access log.
iv. In working hours--the caged area is protected by surveillance
and guard station, and in non-working hours by a central station alarm
service with a duty to respond and notify local law enforcement to
respond.
v. All schedule listed chemical products "are immediately placed
within the storage area upon receipt or returned to the storage area
when not being transported." [Resp. Exh. 10 at 2-3].
b. Employee Hiring:
i. That the company will only hire employees without a criminal or
drug related criminal background.
ii. Backgrounds and drug tests will be conducted initially and then
randomly afterwards.
iii. Employees will be trained in all facets of dealing with list I
chemicals, including self-certification and downstream distribution
requirements for the company's customers.
iv. The company has established a reporting procedure similar to 21
CFR 1301.91 for reporting diversion. [Resp. Exh. 10 at 5-6].
c. Importation
i. The company must apply for an importation quota annually via
Form 250 (included in SOPs).
ii. The company must either provide information to establish a
"regular business relationship" with its Canadian supplier or notify
the DEA 15 days prior to any importation via form 486 (included in
SOPs). [Resp. Exh. 10 at 8].
d. Marketing Sales and Shipping
i. The company must identify the party who is receiving the
product, such as a driver's license, and verify the existence and
validity of the customer.
ii. In addition, the company will obtain a second form of
identification from the customer that corroborates the driver's
license.
iii. The company will adhere to state by state restrictions
regarding the sale of the ephedrine chemical drug product.
iv. The company will ship by U.S. Mail or other common carrier.
v. "While temporarily stored in preparation for shipment outside
of the caged area within Freeport Logistics, the product will be under
constant observation by employees of the company and shipping
containers will be unmarked, not indicated [sic] they contain [schedule
listed chemicals] to guard against in-transit losses."
vi. The company shall comply with FDA and FTC regulations regarding
the advertising of over the counter drugs. The advertising will be
truthful and non-misleading. [Resp. Exh. 10 at 15-18].
e. Recordkeeping
i. To keep reports, inventories and sales of schedule listed
chemical products consistent with Part 1310 of the Code of Federal
Regulations. [Resp. Exh. 10 at 31].
141. When Mr. Pierce was questioned about how he intended to comply
with the DEA's 486 Form requirement that the Respondent inform DEA who
the product is going to be sold to before importation, the Respondent
answered "One of the ways, we could presell the product and take
orders, showing that we have orders from customers, and then bring the
product in." [Tr. 359]. He also testified that they could do "auto
ship, if people wished to sign up for a monthly shipment." [Tr. 360].
142. Throughout the hearing, Mr. Pierce and Mr. Schiefelbein stated
their intent to comply with all state and federal regulations that
govern the Respondent's practice. [Tr. 293, 358, 359, 372, 380, 395-
96].
143. Mr. Mudri testified the Respondent's SOPs adequately address
the DEA's recordkeeping requirements. [Tr. 430-1].
144. Mr. Mudri testified that he believes that 4 OTC's management
has an understanding of DEA regulations and that the company's SOPs
"are a good start with regards to operations." He clarified, "I
think that maybe down the road there may have to be some things
added." [Tr. 413].
145. Mr. Mudri was unfamiliar with the DEA's requirement that any
person who desires to sell ephedrine via the internet must self-
certify. [Tr. 435-6].\16\
---------------------------------------------------------------------------
\16\ To keep apprised of DEA regulations, which Mr. Mudri admits
is a "difficult task," he does his best to read the laws that have
changed, including the Combat Meth Act, monitors show cause hearing,
and keeps up with what's going on within DEA and the community. [Tr.
402]. Mr. Mudri admitted that there have been several changes to the
list I chemical laws since he served as Chief of the Domestic
Chemical Operations and since he left DEA in 2001. [Tr. 407]. He has
served as a consultant for businesses that handle listed chemicals,
although his practice consulting importers has been somewhat
limited. [Tr. 403].
---------------------------------------------------------------------------
I. Letter from Respondent to DEA Regarding its DEA Application.
146. On February 19, 2009, the Respondent, through counsel, sent a
letter to DEA Diversion Group Supervisor Helen Kaupang. Therein, the
Respondent identified as the Government's primary concerns the internet
sale of ephedrine and the lack of proper identification of its
customers. [Govt. Exh. 11 at 1].
147. The Respondent explained that it had developed SOPs to ensure
full compliance with federal and state laws, and that all of the
employees and management of both the Respondent and the Respondent's
affiliate, 4 Ever Fit, are familiar with the SOPs. [ Govt. Exh. 11 at
2].
148. The Respondent stated "[o]ther companies are selling and
distributing ephedrine products on the Internet. These companies such
as Mega-Pro and their Vasapro product-obtained
[[Page 35045]]
controlled substance licenses which included Internet sales and have
had these licenses renewed." [Govt. Exh. 11 at 2].
149. The Respondent then stated that "[b]ecause these other
internet companies exist, the DEA must be satisfied that there are ways
to properly identify customers and comply with Federal and State
controlled substance laws." [Govt. Exh. 11 at 2].
150. With regard to the Respondent's prior experience in handling
controlled substances, the letter states "4OTC has operated a business
in Canada under the name of 4 EverFit since 2001. 4 OTC's management
owned McIsaac Distribution, Ltd., who was the distributor of their
products both in Canada and internationally until 4OTC formed a
partnership with GFR Pharma Ltd." [Govt. Exh. 11 at 2].
151. Respondent stated that "4OTC formed a partnership with GFR
Pharma Ltd. in 2008 . . . [and] GFR will be the exclusive manufacturer
of products distributed by 4OTC in the United States." [Govt. Exh. 11
at 2]. The Respondent further explained that "[k]ey personnel involved
in handling precursor substances for GFR Pharma include Richard Pierce
the CEO of GFR . . . [and] Maribel Aloria [who] is Vice President,
Quality Control/Research & Development for GFR." [Govt. Exh. 11 at 2].
152. With regard to the list of potential customers, the Respondent
provided that "4OTC does not currently have any customer list. 4 OTC
will be happy to provide a customer list after approval of their
applications as such information becomes available." [Govt. Exh. 11 at
3].
IV. Statement of Law and Discussion
A. Position of the Parties
1. Government's Position
The Government asserts that the Respondent's application should be
denied on the following basis: (1) that there has been a drop in the
ephedrine market; (2) 4 OTC's Canadian affiliate and potential
competitors sell ephedrine for non-legitimate purposes; (3) 4 OTC has
not established any basis to show a legitimate ephedrine market in the
United States; (4) 4 OTC's Canadian companies lack relevant experience;
(5) 4 Ever Fit ephedrine is sold to convenience stores in the United
States; (6) the Respondent has failed to consider the state laws
pertaining to ephedrine; (7) 4 OTC's Canadian companies have violated
Canadian regulatory provisions; (8) 4 OTC's decision to change its logo
after the OTSC indicates that if the Respondent's registration had been
granted it would have been marketed in a name that implied ephedrine's
illicit use; and (9) Respondent's failure to notify DEA of its proposed
address and failure to obtain a lease and proper security for a new
lease indicates the Respondent's application is fraught with problems.
[Government' Proposed Findings of Fact and Conclusions of Law "(Govt.
Brief) at ii; 44].
Specifically, the Government argues that ephedrine sales have
substantially declined in both the overall over-the-counter market and
particularly for mail orders. The Government thus questions why the
Respondent would enter a market that is clearly declining. [Govt. Brief
at 37]. Likewise, the Government avers that the market for 25/400 mg
ephedrine product that 4 OTC seeks to market is declining, the
pseudoephedrine market is significantly higher than the ephedrine
market, and that the 12.5/400mg ephedrine product that 4 OTC seeks to
market does not even exist in the U.S. market. [Govt. Brief at 37-38].
The Government argues that 4 OTC's competitors, Vasapro and Kaizen,
sell ephedrine for other than a legitimate medical purpose. The
Government alleges that the Respondent does not dispute it intends to
compete with Vasapro and that Vasapro clearly markets its product "to
increase strength and muscle." [Govt. Brief at 38].
The Government then asserts that Kaizen was one of the 4 Ever Fit's
competitors in Canada, and that company advertised ephedrine as a
"supplement source." [Id.].
The Government thus argues that there is a market for illegitimate
uses of ephedrine, i.e. as a dietary supplement. [Id. at 39]. The
Government further asserts that those facts in addition to the fact
that the Respondent was unaware of two other brands of ephedrine,
Primatene and Bronkaid, indicate the Respondent's product is not
destined for any legitimate market. [Id. at 40].
Next, the Government asserts that the Respondent only speculates as
to who would purchase the product, and hence has no idea what its quota
would be. Indeed, the company never calculated whether there was an
undersupply of ephedrine in the United States. [Id. at 39-40].
The Government then argues that GFR Pharma has never produced an
OTC product for medical use and thus lacks the requisite experience to
be 4 OTC's supplier. [Id. at 40-41]. The Government states that it is
very apparent that the Canadian company's customer base is not composed
of those who purchase ephedrine for asthma treatment. [Id. at 41].
Next, the Government argues that GFR does not have control over its
customers, specifically 4 EverFit, and that it should have taken steps,
including refusal to sell ephedrine to Better Bodies Nutrition as a
result of that company's attempted illegal shipment into the United
States. [Id. at 41-42]. The Government asserts that the Respondent
"gives DEA no assurance that 4 OTC would be responsible for its
customers." [Id. at 42].
In addition, the Government argues that the Respondent is
unfamiliar with the state laws that would govern its practice.
Specifically, it asserts the Respondent's SOPs fail to note that the
Respondent would be unable to obtain licenses in states where ephedrine
is a controlled substance or required to be sold only by a pharmacy,
and that Washington has a number of restrictions for retail stores that
sell ephedrine that may preclude the Respondent from acquiring an
ephedrine license. [Id. at 42-43]. The Government concludes that the
Respondent's lack of awareness of state requirements renders it unable
to even "guestimate" as to its actual customer base. [Id. at 43].
Next, the DEA argues that both McIsaac Distribution and GFR
violated various Canadian laws, including McIsaac's selling of
ephedrine to customers whose addresses could not be confirmed, and
failure to report suspicious sales. The DEA argues that despite Health
Canada never taking any civil or criminal action against GFR, 4 OTC's
supplier, these past actions should be considered as negative
experience in distributing List I chemicals. [Id.].
The Government also finds it significant that the Respondent
amended its SOPs to correct errors regarding DEA's requirements,
specifically an outdated sales limit of 24 grams and a confusion of
recordkeeping versus sales limits. [Id. at 44].
The Government then argues that the Respondent's decision to
changes its ephedrine package label to remove the "4 Ever Fit" logo
after the Order to Show Cause was issued indicates that if the
Respondent's registration had been granted then the Respondent would
have been marketing ephedrine under a brand name "that implied
ephedrine's illicit use and had no relation to legitimate use." [Id.].
The Government further argues that the Respondent's changing of its
registered address and failure to obtain a lease and security for a new
lease reflects that its "application process
[[Page 35046]]
continues to be fraught with problems and unresolved issues." [Id.].
The Government concludes by stating the Respondent has not provided
any evidence justifying its reason for entering the ephedrine market in
the U.S., which the Government argues is declining. It argues all
evidence indicates that the Respondent's ephedrine is destined for
customers who use it for weight loss and energy and other "illicit
purposes." [Id. at 45].
The Government argues that the Respondent's experience is much too
involved with marketing ephedrine for illicit uses and consequently its
lack of experience in the U.S. market, exacerbated by this negative
experience in Canada, forms a basis for denying its application. [Id.
at 46]. "4 OTC is not prepared to market ephedrine legally and has not
established that its customers would purchase ephedrine for legitimate
medical reasons." [Id. at 47].
2. Respondent's Position
The Respondent argues that granting its importation application is
"well within the public's interest." [4 OTC's Proposed Findings Of
Fact, Conclusions Of Law, And Argument ("Resp. Brief") at 2].
First, the Respondent argues that "there exists a strong market"
for its ephedrine product, "allowing asthma sufferers an option to
obtain relief without having to obtain a prescription." [Id. at 2].
The Respondent cites to the FDA monograph that permits the use of
ephedrine for bronchial and asthma related conditions. [Id. at 1
(citing Cold, Cough, Allergy, Bronchodilator Products, and
Antiasthmatic Drug Products for Over-The-Counter Human Use; Final
Monograph for OTC Bronchodilator Products, 51 FR 35,326 (1986)
(codified at 21 CFR Part 341)].
The Respondent then argues that it has effective controls against
diversion so as to render its registration in the public's interest.
[Resp. Brief at 7-8]. Specifically, it states that its facility has
adequate security, as DI Gary Linder, "said it was okay." [Id. at 8
(citing Tr. 207)]. In addition, Mr. Mudri, the Respondent's consultant,
agreed that those security measures were more than adequate. [Id. at
8]. The Respondent then states that it has adequate systems for
monitoring the receipt, distribution, and disposition, of List I
chemicals in its operations" as outlined in its SOPs, which also
evidence the "sophistication and effectiveness of 4 OTC's security and
anti diversion systems." [Id.].
In this same discussion, the Respondent addresses Canada's
citations of McIsaac Distribution, and states that "its principals and
its employees have not been involved in excessive or suspicious sales
of ephedrine products." [Id.]. To support this argument, the
Respondent argues that these transactions were legal transactions and
made before Mr. Pierce acquired assets of McIsaac. [Id. at 8-9]. The
Respondent also argues that GFR had no knowledge of the shipment by
Better Bodies of 4 Ever Fit into the United States and has not been
cited by Health Canada, that the DEA is concerned about mere
observations \17\ by that agency. [Id. at 9-10].
---------------------------------------------------------------------------
\17\ The Respondent argues that an observation report "simply
recommends improvements and is not considered a citation." [Id. at
10].
---------------------------------------------------------------------------
Next, the Respondent argues that it is in compliance with federal
and state laws and has demonstrated that it will continue to comply
with those laws. [Id. at 10]. Specifically, it states that it has yet
to import ephedrine, or market its proposed ephedrine products, and
regularly consults with regulatory counsel and an expert in DEA
regulations. [Id.].
The Respondent asserts that it has developed a formula and label
that is fully compliant with the FDA's requirements for over-the-
counter products. In addition, the Respondent emphasizes that "the 4
OTC ephedrine product would not be used for weight loss or body
building." [Id. at 12 (emphasis in original)"].
As for compliance with state laws, the Respondent states that it
has obtained an Arizona Non-Prescription Drug Permit and its SOPS
"contain a comprehensive summary of state variations, evidencing [its]
intent to comply with all state and local laws." [Id. at 13]. It
further states that "it will work with its attorneys and expert
consultant to update its SOPs to include any changes to state
regulations that may have occurred in the interim." [Id. at 13].
Next, the Respondent notes that none of its officers or employees
have any prior convictions relating to ephedrine or any other
controlled substance or chemical and that this factor weights in favor
of the Respondent's registration. [Id. at 14]. The Respondent also
points out its stringent hiring policy which will screen future
employees to determine whether any such convictions exist. [Id.].
The Respondent emphasizes Mr. Pierce's experience in handling
ephedrine as weighing in favor of its registration. The Respondent
states that Mr. Pierce has "extensive experience in dealing with
ephedrine having manufactured ephedrine since 2004 . . . as well as
retail experience sufficient to warrant registration in the United
States." [Id. (emphasis in original)]. The Respondent also emphasizes
GFR's separate Quality Control department and the fact that it has no
significant violations of Canadian law pertaining to the manufacture
and sale of ephedrine. [Id. at 14-15].
Last, the Respondent argues that there is a legitimate need for its
product in the United States, as the FDA recognizes its use as an OTC
bronchodilator. [Id. at 15-16]. Further, the Respondent argues that the
amount of due diligence it has put forth thus far justify its
registration. [Id. at 16].
The Respondent then addresses the DEA's diversion concerns, and
states "the Government did not proffer any specific statistics, data
or evidence, nor did it present an expert witness, to show that the
type of ephedrine combination product that 4 OTC intends to use can
readily be used in the production of methamphetamine . . . or that this
specific combination-ingredient product actually does show up in
clandestine labs." [Id. at 16]. In addition, the Respondent argues
that the Government failed to demonstrate that products marketed for
off label uses, i.e. for mental alertness and weight loss, are diverted
for methamphetamine production. The Respondent adds that off-label
marketing is within the jurisdiction of the FDA and not the DEA. [Id.
at 17]. "The Government did not show that ephedrine products marketed
for weight loss appear in 'illicit traffic in the United States.' "
[Id.].
Next, the Respondent addresses its failure to produce a customer
list at the time of application. It states that such is not required by
law but instead is only required to be produced 15 days prior to
importation. The Respondent then argues that if the DEA desired to
impose a requirement on applicants that they provide a customer list at
the time of application, it would have to use notice and comment
rulemaking to do so. [Id. at 18-20]. In addition, the Respondent argues
that the reason it did not provide such a list is because it was non-
operational at the time of application, and viewed soliciting sales of
a DEA regulated product without proper registration as possibly
illegal. [Id. at 20]. The Respondent assures, however, that it will
provide a list of customers on its DEA 486 form as well as in the
monthly sales reports that it provides to DEA. [Id. at 21].
The Respondent thus concludes that based on its arguments and the
findings
[[Page 35047]]
of its expert, that its registration would be consistent with the
public interest. [Id. at 22-23].
B. Statement of Law and Analysis
1. Rulemaking
In 2006, via the Combat Methamphetamine Epidemic Act ("CMEA"),
Congress amended 21 United States Code section 952(a)(1) to read, "it
shall be unlawful to import into the United States . . . ephedrine,
pseudoephedrine, and phenylpropanolamine . . . except such amounts . .
. as the Attorney General finds necessary to provide for medical,
scientific, or other legitimate purposes." [21 U.S.C. 952(a)(1)
(2006)].
Subsequently, the DEA promulgated regulations pursuant to the new
statutory amendments. In a 2010 preamble to its final rule, the agency
stated that via 952(a)(1), "Congress essentially imposed the same
requirements for importation of ephedrine, pseudoephedrine, and
phenylpropanolamine as are imposed on narcotic raw materials--crude
opium, poppy straw, concentrate of poppy straw and coca leaves." [75
FR 4,973 (DEA 2011)].
Accordingly, pursuant to DEA precedent as to the registration of
importers of crude opium and poppy straw under 952(a)(1), there is a
rulemaking aspect to this proceeding that shall be addressed.
Specifically, to permit the Respondent's importation, the DEA must
issue a rule finding that the Respondent's product is necessary to
provide for medical, scientific, or other legitimate purposes in the
United States. [See 5 U.S.C. Sec. 556(d); Johnson Matthey, Inc., 67 FR
39,401, 39,401 (DEA 2002)]. Because the Respondent is the proponent of
such rule, it bears the burden of proof. [Johnson Matthey, 67 FR at
39,402; see also Penick Corporation, 68 FR 6947, 6948 (DEA 2003)].
a. Medical, Scientific, or Other Legitimate Purpose
The Controlled Substances Act ("CSA") does not define "medical,
scientific, or other legitimate purposes" as that phrase is used in
952(a)(1). Instead, the statute gives authority to the Attorney General
to find whether an import is necessary for those purposes. [21 U.S.C.
958(a)(1)]. The Attorney General delegated that authority to the
Administrator of the DEA, who delegated the authority to the Deputy
Administrator of the DEA.\18\ Therefore, on its face, the statute
grants significant deference to the DEA in determining not only what
those purposes are, but also, whether an import would satisfy those
purposes. [Zuber v. Allen, 90 S. Ct. 314 (1969) (finding that
"defining of a particular statutory term is a function that should, in
the first instance, be left to the appropriate administrative body")].
---------------------------------------------------------------------------
\18\ 28 CFR 0.100 and 0.104.
---------------------------------------------------------------------------
While the DEA has not formally defined how 952(a)(1) shall be
interpreted in the context of the importation of ephedrine, in its
final rule issued in 2010 removing the recordkeeping thresholds for the
List I chemicals pseudoephedrine and phenylpropanolamine, the agency
described some of ephedrine's licit purposes. It stated, "ephedrine,
pseudoephedrine, and phenylpropanolamine all have therapeutic uses in
both over-the-counter and prescription drug products. Ephedrine is
lawfully marketed under the Federal Food, Drug, and Cosmetic Act as an
ingredient in nonprescription ("over-the-counter" (OTC)) drugs as a
bronchodilator for the treatment of asthma. Ephedrine is also available
as a nonprescription product in combination with the active ingredient
guaifenesin, which is an expectorant." [75 FR 38,915]. The DEA also
described some of the illicit purposes for ephedrine. None of those
purposes, however, included the use of an ephedrine product as a
dietary supplement. The purpose for which 4 OTC, Inc. intends to import
ephedrine into the United States was a highly contested issue in this
proceeding. The Respondent maintains that it intends to import finished
form ephedrine, specifically a guaifenesin/ephedrine combination
product, into the United States for use as a bronchodilator. As
indicated by recent DEA publications, this purpose is a legitimate one.
[See 75 FR 38,915 (DEA 2010)]. However, the Government argues that the
Respondent instead intends to serve the dietary supplement market with
its combination product, despite its assurances that its product will
be lawfully marketed in accordance with FDA law.
Nevertheless, it is the Respondent that bears the burden of proving
the purpose for its proposed import. Here, the Respondent has failed to
meet this burden. Although the Respondent's representatives made
assurances throughout the hearing that it intends to import ephedrine
for use as a bronchodilator, the evidence in this record is
inconsistent with that intent.
Specifically, the Respondent was generally unfamiliar with the
bronchodilator ephedrine market. Indeed, Mr. Pierce testified that he
conducted no market research on the use of an ephedrine/gauifenisen as
a bronchodilator in the United States. [FOF 116].\19\ Yet, he
speculated that "there is a need for an ephedrine bronchodilator in
the United States . . . and that need is helping people with asthma."
[FOF 92; see also 117]. As a result of Mr. Pierce's failure to research
the basis for that conclusion, I found that most if not all of his
testimony regarding why the Respondent's product would be purchased and
used speculative. [FOF 121, n. 13].
---------------------------------------------------------------------------
\19\ Although later in this decision I find Mr. Pierce's
testimony regarding his failure to conduct market research
incredible, to clarify, I do find credible his testimony that he
failed to conduct such research on the bronchodilator market.
---------------------------------------------------------------------------
Further, while Mr. Schiefelbein testified that the decision was
made for the Respondent to sell its product because "there may be a
gap and a need in terms of . . . the asthma-related conditions," he
otherwise offered no evidence as to the basis for his inference that
such a gap may exist. [FOF 119]. In addition, despite Mr. Pierce's
assertion that the bronchodilator marketplace was where the Respondent
intended to enter, he could only name one competitor. [FOF 123]. Thus
he demonstrated his lack of knowledge concerning the bronchodilator
market. [Id.].
In total, such speculative conduct is not tantamount to substantial
evidence that the Respondent is one who seeks to sell its product as a
bronchodilator in the United States. [See Alvin Darby, M.D., 75 FR
26,993, 26,999 (DEA 2010) (citing NLRB v. Columbian Enameling &
Stamping Co., 306 U.S. 292, 300 (1939) ("under the substantial
evidence test, the evidence must do more than create a suspicion of the
existence of the fact to be established.")]. Accordingly, I find the
Respondent has failed to establish that its product would be imported
to provide for medical, scientific, or other legitimate purpose.
Therefore the Respondent failed to carry its burden of proof under
952(a)(1).
b. Necessity
The Respondent has similarly failed to satisfy the second prong of
the CSA's standard: that its product is necessary to meet the stated
purpose. While the DEA has clarified that the term "necessary" is not
meant to limit competition in a valid marketplace, the proponent must
still establish such need exists. [See Johnson Matthey, 67 FR at
39,043]. Again, the Respondent has failed to meet that burden. Even
assuming the Respondent had demonstrated that the intended purpose for
its product was medical, use as a bronchodilator, it introduced no
evidence as to the need
[[Page 35048]]
for any ephedrine/guaifenesin combination product in the United States
for such use.\20\ Indeed, it only speculated that persons would
purchase its product for that purpose. [FOF 116, 117, 119, 120, 121,
123]. Similarly, despite the Respondent's recognition that a 12.5 mg
ephedrine/400 mg guaifenisen OTC product is not currently available in
the United States, it speculated that that product was necessary as an
"extra strength" formula. [FOF 104, 105]. Such speculation, however,
is not substantial evidence of need. [See Darby, 75 FR at 26,999].
---------------------------------------------------------------------------
\20\ Although, I recognize the Respondent's emphasis that the
FDA approves marketing products similar to the Respondents' as
bronchodilators in the United States, such is not evidence of actual
need for that type of product.
---------------------------------------------------------------------------
Accordingly, this case is starkly different from earlier DEA
rulemakings under 952(a)(1). In Johnson Matthey, 67 FR at 39,041, the
Respondent introduced extensive expert testimony as to the need for
narcotic raw materials ("NRMs") in the United States. The expert
concluded that NRMs are "necessary to the United States medical
community, as there are medical demands that cannot be met by non-
opiate narcotics" He clarified, "opiate pharmaceuticals have a long
history of medical use and the medical community continues to rely upon
opium-derived alkaloids rather than synthetic opiate analgesics. These
alkaloids and their semi-synthetic derivatives such as hydromorphone,
hydrocodone, and oxycdone are critical therapeutic agents today." He
concluded, "that morphine, codeine, hydromorphone, hydrocodone and
oxycodone are necessary to the United States medical community." [Id.
at 39,042-3].
Here, the Respondent failed to present such evidence of need for
its product. Therefore, based on this record, the DEA cannot similarly
conclude that Respondent's import is necessary in the United
States.\21\
---------------------------------------------------------------------------
\21\ However, in the event that the Deputy Administrator wishes
to take official notice of DEA publications regarding the
importation of ephedrine then those publications may demonstrate
some need for ephedrine in the United States for the purpose for
which the Respondent proposes its import. [See 75 FR 4973, 4973-4
(DEA 2010) (stating "ephedrine, pseudoephedrine, and
phenylpropanolamine are used to produce drug products lawfully
marketed under the Federal Food, Drug and Cosmetic Act (FFD&CA),
many of which are prescription drugs . . . . These chemicals are
also used in over-the-counter (OTC) drug products (lawfully marketed
and distributed under the FFD&CA as a non-prescription drug"); 75
FR 79,407 (DEA 2010) (setting forth the established assessment of
annual needs for 2011 for ephedrine in the United States)].
---------------------------------------------------------------------------
Accordingly, as the Respondent has failed to prove by a
preponderance of the evidence that its importation of an ephedrine/
guaifenesin product is necessary for medical, scientific, or other
legitimate purposes in the United States, it is my recommendation that
the DEA not initiate rulemaking proceedings to permit such importation
based on this record.
2. Adjudication
Consistent with 21 U.S.C. 958(c)(2)(A) "The Attorney General shall
register an applicant to import . . . a list I chemical unless the
Attorney General determines that registration of the applicant is
inconsistent with the public interest." [21 U.S.C. 958(c)(2)(A)].
Likewise, the public interest shall be determined consistent with the
provisions in section 823(h). [21 U.S.C. 958(c)(2)(B)]. In making this
determination, Congress directed that the Administrator consider the
following:
(1) Maintenance by the applicant of effective controls against
diversion of listed chemicals into other than legitimate channels;
(2) Compliance by the applicant with applicable Federal, State and
local law;
(3) Any prior conviction record of the applicant under Federal or
State laws relating to controlled substances or to chemicals controlled
under Federal or State law;
(4) Any past experience of the applicant in the manufacture and
distribution of chemicals; and
(5) Such other factors as are relevant to and consistent with the
public health and safety.
[21 U.S.C. 823(h)].
"These factors are considered in the disjunctive." [Joy's Ideas,
70 FR 33,195, 33,197 (DEA 2005)]. The Administrator may rely on any one
or a combination of factors, and may give each factor the weight she
deems appropriate in determining whether an application for
registration should be denied. [See e.g., David M. Starr, 71 FR 39,367
(DEA 2006); Energy Outlet, 64 FR 14269 (DEA 1999); Morall v. DEA, 412
F.3d. 165, 173-4 (DC Cir. 2005)]. The Administrator bears the burden of
proof with regard to this adjudication. [21 C.FR. 1301.44].
a. 4 OTC's maintenance of effective controls against diversion into
other than legitimate channels.
In line with DEA precedent, "this factor encompasses a variety of
considerations including, inter alia, the adequacy of physical
security, the adequacy of recordkeeping, and whether a registrant is
selling excessive quantities of the products." [CBS Wholesale
Distributors, 74 FR 36,746, 36,749 (DEA 2009)]. In addition, under this
factor, the DEA will consider whether the Respondent is serving an
illegitimate market based on whether the sale of ephedrine products is
inconsistent with the known legitimate market and known end-user demand
for products of this type. [See e.g. Hilmes Distributing, Inc., 75 FR
49,951 (DEA 2010); Gregg & Sons Distributors, 74 FR 17,517 (DEA 2009)].
(1) Illegitimate Market
The illegitimate market that the Government purports to exist in
this case, is distinct from that contemplated in other list I chemical
cases. In prior cases, the DEA has expressed its concern about the sale
of ephedrine into the "grey market," i.e. to convenience stores and
gas stations, as individuals seeking to convert ephedrine into
methamphetamine typically seek out these retailers versus their larger
national chain competitors. [Joys Ideas, 70 FR 33,195, 33,196 (DEA
2005) (describing the grey versus traditional market); Gregg & Sons, 74
FR at 17,523 (clarifying that such distribution is a factor and not a
per se rule precluding a respondent's registration)]. The agency's
concerns about grey market distribution are best summarized as follows:
"the illegal manufacture and abuse of methamphetamine pose a grave
threat to this Nation. . . . Methamphetamine abuse has destroyed
numerous lives and families, and has had a devastating impact on many
communities. Moreover, because of the toxic nature of the chemicals
used in making the drug, illicit methamphetamine laboratories create
serious environmental harms." [CBS Wholesale, 74 FR at 36,747].
Here, the Government argues that the illegitimate market that the
Respondent would serve is the market for ephedrine as a dietary
supplement. [See Govt. Brief at 40 (stating that the Respondent's
product is not "destined for a legitimate market")] [Id. at 44
(stating the Respondents marketing "implied ephedrine's illicit
use")]. The FDA banned the sale of an ephedrine product as a dietary
supplement in 2004, finding that such a product is "adulterated." The
FDA prohibits the adulteration of a drug as well as the introduction,
delivery, or the receipt of an adulterated product in interstate
commerce. 21 U.S.C. 331 (a)-(c). [See 69 FR 6,788 (FDA 2003); 21 C.F.R
119.1 (2010)]. The FDA further prohibits the marketing of a
bronchodilator as a dietary supplement as such constitutes misbranding.
[21 U.S.C. 331(b)]. Consequently, the dietary supplement
[[Page 35049]]
market for an ephedrine product remains an illegitimate market.\22\
---------------------------------------------------------------------------
\22\ It is important to note, however, that contrary to the
Government's assertion, it is the sale, and not the use, of an
ephedrine product as a dietary supplement that makes this market an
illegitimate one. [See Govt. Brief at 39].
---------------------------------------------------------------------------
The Government has provided no evidence of the actual legitimate
market for ephedrine as a bronchodilator, other than general
information as to market trends. [See FOF 9-12]. These generally
downward market trends for ephedrine as an asthma medication, however,
lend credence to the possibility that the Respondents in fact intend to
sell its product as a dietary supplement. Yet, as it is impossible to
ascertain whether the Respondent's importation would exceed legitimate
demand, I cannot find on this record that the Respondent's product is
thus likely to be diverted for such sale or for another illicit
purpose, such as the conversion of it into methamphetamine. I am
similarly unmoved to find the evidence in this record of market trend
analysis weighs in favor of denying the application. [See Greg & Sons,
74 FR at 17,520; CBS Wholesale, 74 FR at 36,748].
(2) Security Measures
Whether the Respondent has adopted adequate controls against the
diversion of its product for illicit use, i.e. its conversion into
methamphetamine, in accordance with DEA regulation is also relevant to
the ultimate issue of whether its registration is in the public's
interest.
In 1995, DEA promulgated 21 C.F.R 1309.71(a), which directed that
"[a]ll applicants and registrants shall provide effective controls and
procedures to guard against theft and diversion of list I chemicals."
This regulation, which remains in effect, further explained that "[i]n
evaluating the effectiveness of security controls and procedures, the
Administrator shall consider:
(1) the type, form, and quantity of list I chemical handled;
(2) the location of the premises and the relationship such location
bears on the security needs;
(3) the type of building construction comprising the facility and
the general characteristics of the building or buildings;
(4) the availability of electronic detection and alarm systems;
(5) the extent of unsupervised public access to the facility;
(6) the adequacy of supervision over employees having access to
List I chemicals;
(7) the procedures for handling business guests, visitors,
maintenance personnel, and nonemployee service personnel in areas where
List I chemicals are processed or stored; and
(8) the adequacy of the registrant's or applicant's systems for
monitoring the receipt, distribution, and disposition of List I
chemicals in its operations."
[Id.].
The Government does not address the Respondent's security measures
at its new location. The Government only refers to the Respondent's
initial location and its failure to have proper security for the
assertion that the Respondent's application has been "fraught with
problems." [Govt. Brief at 44].
The Respondent, however, argues that its security exceeds that
required by the DEA for the storage of list I chemicals and therefore
adequately protects against diversion. [Id. at 7-8].
i. Type, Form, and Quantity of Ephedrine
The Respondent intends to handle finished form combination
ephedrine. The Respondent's proposed combinations include a 12.5 mg
ephedrine/200 mg guaifenesin formula, a 25 mg ephedrine/400 mg
guaifenesin formula, and a 12.5 mg ephedrine/400 mg guaifenesin
formula. [FOF 104]. Although the Government argues that the
Respondent's 12.5/400 mg guaifenesin formula is unprecedented, it does
not argue nor has it produced any evidence that the Respondent's
product includes an atypical or excessive amount of ephedrine.
Accordingly, the Respondent's security measures do not merit a finding
that it has inadequate diversion controls under this provision.
ii. Location of the Premises
Next, the Respondent's proposed location is in Phoenix, Arizona.
[FOF 33]. The Respondent proposes to store the chemical in a large
warehouse where other companies store their products. Due to this
location, increased security measures may be required. However, the
Respondent's procurement of a locked cage with limited access that is
guard monitored during the day and alarm monitored with law enforcement
notification at night, addresses these concerns. [FOF 143(a)].
iii. Building
The Respondent's building is secured by an eight foot fence topped
with razor wire, as well as surveyed by guards during normal business
hours. The Government has provided no evidence that such is inadequate
security. [FOF 35].
iv. Availability of Electronic Detention and Alarm Systems
The Respondent's SOPs as well as the security document by Freeport
Logistics demonstrate that the Respondent has electronic detection and
alarm systems that are active at night and triggered to notify
authorities in the event of a break-in. [FOF 35; 143(a)]. Once again,
there is no evidence that such inadequately protects against diversion.
v. Extent of Unsupervised Public Access
Although the Respondent's chemicals would be stored in a warehouse
where other companies could conceivably have access, the products are
not otherwise accessible by the public. In addition, other companies'
access to those products is prevented by the Respondent's SOP that
those chemicals be stored in a locked cage to which only the
Respondent's employees have access. [FOF 142(a)].
vi. Adequacy of Supervision Over Employees Having Access to Ephedrine
Although the Respondent has stated in its SOPs that only designated
employees will have access to this cage, the Respondent's definition of
employees is unusually broad. [See FOF 143(a) n. 16 (defining employees
as "all persons that perform any business related activity at the
facility or regarding the ephedrine chemical drug product")]. This
concern is somewhat exacerbated by the fact that GFR was noted by
Health Canada for a similar issue. [See FOF 57 (stating "although only
two GFR designated employees have access to raw bulk ephedrine (posses
the physical keys), all 61 employees conceivably have access to
ephedrine at other stages of the production (blending, bulk, tableting,
packaging, as well as shipping)")]. However, the Respondent will
screen those employees by conducting background investigations and drug
testing. The Respondent also will only allow designated employees
access to the cage. There being no evidence to the contrary, the
Respondent's security measures appear adequate under this provision.
[FOF 143(a), (b)].
vii. Procedures For Handling Business Guests and Visitors
It is the warehouse's policy that "all Freeport contractors for
hire must show proof of background checks for anyone entering" the
facility. [FOF 35]. While neither the SOPs nor Freeport's security
document address the Respondent's handling of other non-employees that
enter the premises, the Respondent's policy to disallow non-designated
employees access to the ephedrine cage
[[Page 35050]]
adequately addresses any concerns that may arise under this provision.
[See FOF 143].
viii. Adequacy Of Systems For Monitoring The Receipt, Distribution And
Disposition Of List I Chemicals In Its Operation.
As for the Respondent's measures under this provision, the
Respondent's SOPs state that all schedule listed chemical products
"are immediately placed within the storage area upon receipt or
returned to the storage area when not being transported." [FOF
143(a)(v)]. In addition, the SOPs state "when temporarily stored in
preparation for shipment outside of the caged area within Freeport
Logistics, the product will be under constant observation by employees
of the company and shipping containers will be unmarked, not indicated
[sic] they contain [schedule listed chemicals] to guard against in-
transit losses." [FOF 143(d)(v)]. Although the Respondent does not
address its policy on disposition, the Government does not argue such
warrants an adverse finding under this provision.
Therefore, the Government has not introduced any evidence that the
Respondent has inadequate security at its current location. In
addition, Mr. Mudri credibly testified that the Respondent's security
measures are adequate to store controlled substances and thus exceed
that required to store list I chemical products. [FOF 34, 35].
Although, as discussed infra, while I give less weight to other
portions of Mr. Mudri's testimony, based on the remoteness in time of
his most recent tenure at DEA, as well as the scope of his work for
this agency, I find that his experience renders him more than qualified
to testify as to the Respondent's compliance with security regulations
that have been in effect, in relevant part, since 1995. [See 21 CFR
1309.71 (1995), FOF 34, n.8].
In addition, the relevant inquiry is whether the Respondent's
current measures \23\ are adequate, so that if it were granted a
registration today, such would be consistent with the public's
interest. [See Mr. Checkout, 75 FR 4,418 (DEA 2010) (finding that where
the Government has only met its burden of proof regarding allegations
that Respondent violated storage regulations for List I chemicals, and
Respondent, after notification of violation, quickly corrected the
infraction, the Respondent's registration is consistent with the public
interest)].
---------------------------------------------------------------------------
\23\ Although the Government assessed the Respondent's prior
location, [FOF 28-32], I find that assessment nonpersuasive given
the additional facts pertaining to the Respondent's current location
and its SOPs regarding security issues.
---------------------------------------------------------------------------
Therefore, I find that factor I weighs in favor of granting the
Respondent's application.
b. 4 OTC's Experience in Handling List I Chemicals and Compliance with
Applicable Federal, State, and Local Law.
Under factor two, the agency will consider the Respondent's past
compliance with applicable federal, state, and local law as well as the
Respondent's experience in handling list I chemicals. It has been this
agency's longstanding principle that past performance is the best
indicator of future compliance. [See Alra Labs v. DEA, 54 F.3d 450, 452
(7th Cir. 1995)]. Therefore, where the Respondent has negative
experience in handling list I chemicals, the agency will find this
factor weighs in favor of revocation or denial of an application. [ATF
Fitness Products, Inc., 72 FR 9,967, 9,968-9 (DEA 2007)]. In addition,
where the Respondent has no experience in handling list I chemicals and
cannot otherwise demonstrate compliance, the agency has denied the
Respondent's registration. [Express Wholesale, 69 FR 62,086, 62,089
(DEA 2004) (lack of experience plus absence of an adequate business
plan is significant); Joys Ideas, 70 FR at 33,198; (likewise); Matthew
D. Graham, 67 FR 10,229, 10,230 (DEA 2002)].
(1) Respondent's Compliance With DEA Law.
i. Past Experience of Richard Pierce and Kevin McIsaac in Handling
Ephedrine
Here, the Respondent is a new company and therefore has no
experience in importing, handling, or distributing list I chemicals in
the United States. [FOF 25]. Two of the Respondents owners, Kevin
McIsaac and Richard Pierce, however, have held Canadian Class A
Precursor Licenses. [FOF 39, 40, 47, 49, 96, 98]. The DEA has
previously held that actions of a company's owners must be imputed to
the company itself. [See e.g. Jacqueline Lee Pierson Energy Outlet, 64
FR 14,269, 14,271 (DEA 1999) (stating "DEA has consistently held that
a retail store operates under the controls of its owners, stockholders,
or other employees, and therefore the conduct of these individuals is
relevant in evaluating the fitness of an applicant for
registration."]. Therefore, to the extent that Canada's regulation of
list I chemicals mirror the DEA's requirements, these individuals'
track record of compliance with Canadian law is helpful in determining
whether the Respondent could or would similarly comply with DEA law.
[See FOF 23].
The Government has proven several violations of Canadian law by
Kevin McIsaac. Specifically, McIsaac failed to lock the drawer that
contained the key to the Class A precursor cage, failed to keep an
ephedrine movement log, and failed to record cage ephedrine movements
and the full name of person(s) accessing the cage. In addition, the
agency found several "suspicious transactions" that McIsaac failed to
record. [FOF 42]. The Government has provided circumstantial evidence
\24\ that those violations formed a basis for McIsaac's surrendering of
its precursor license to Health Canada in 2008. [FOF 43]. The
Government also produced evidence that McIsaac shipped ephedrine to
addresses that could not be confirmed. [FOF 44]. However, while 4 Ever
Fit's customer list included companies with U.S. addresses while Mr.
McIsaac owned that product, the Government failed to prove that the 4
Ever Fit product was actually purchased by those U.S. customers during
his ownership. [FOF 45, 46].
---------------------------------------------------------------------------
\24\ The Respondent asserts that Mr. McIsaac surrendered his
precursor license because his company no longer needed the
registration. Mr. Pierce already had such a registration. Yet I do
note the violations as being relevant here.
---------------------------------------------------------------------------
Although the Respondent argues that "these transactions . . . were
made before Richard Pierce acquired the brand name 4 Ever Fit in 2008"
that fact is entirely irrelevant to this inquiry. [Resp. Brief at 8].
There is no dispute that Kevin McIsaac has a current ownership interest
in the Respondent.\25\ Therefore, by entrusting the Respondent with a
DEA registration, so would Kevin McIsaac be entrusted. Accordingly,
Kevin McIsaac's history of non-compliance with Canadian law, and the
significance of that non-compliance given his decision to then
relinquish his Class A license, negatively impacts a finding that he
could ensure the Respondent's compliance with DEA law.
---------------------------------------------------------------------------
\25\ The actual percentage ownership interest that Mr. McIsaac
has in 4OTC, however, is unclear. [See FOF 98].
---------------------------------------------------------------------------
Next, the Government introduced evidence that GFR violated Canada's
precursor regulations. [See FOF 55]. Specifically, the Government
introduced Health Canada's inspection report of the Respondent, which
stated "GFR does not maintain a precursor access log. No record exists
tracking personnel accessing stock either within the precursor cage, or
within the overall warehouse." [FOF 57].
[[Page 35051]]
The Respondent, however, argues that "conduct amounts to activity
that is legal within Canada" and those were mere "observations" and
not "citations" in Health Canada's report. [Resp. Brief at 9-10]. Not
only is this argument unpersuasive, it is untrue. Canadian law clearly
states "[a] licensed dealer shall keep, at the licensed site, a record
showing, for each day on which a person has access to a place at the
site where a Class A precursor is kept, the person's name and the date
of access." [Canada Department of Justice, Precursor Control
Regulations, Sec. 85(3) (2010)]. Therefore, in failing to maintain such
an access log, GFR violated Canadian law. In addition, the Government
established that GFR had a shortage of 79,000 tablets of ephedrine, and
the Respondent does not address corrective measures proposed to prevent
this type of shortage in the future. [FOF 56; See gen. Resp. Brief].
Nevertheless, I do find it significant that despite this regulatory
infraction and shortages, and after numerous inspections by Health
Canada, GFR Pharma has maintained a precursor license in Canada. [FOF
58-60]. Indeed, the record reflects that GFR handles a significant
amount of ephedrine and its business practices reflect that it has
relevant experience in handling ephedrine in Canada and could similarly
handle ephedrine in the United States, where the DEA's laws are
similar. [See FOF 49-52].
The Government further introduced evidence of a custom's seizure of
GFR's product to suggest that the Respondent's past experience in
handling ephedrine weighed in favor of denying its registration. [FOF
61-73]. However, the illegal aspects of that shipment cannot be
attributed to the Respondent; therefore, the Government's argument on
this basis fails. While Better Bodies attempted import violated both
Canadian and U.S. law,\26\ and One Stop Nutrition's failure to self
certify violated DEA law,\27\ the Government has failed to prove that
Mr. Pierce was aware that Better Bodies would attempt to ship its
product into the United States or in any way encouraged or facilitated
that shipment other than selling its product in accordance with normal
business practices. [FOF 73]. Therefore, under these circumstances, the
fact that Better Bodies purchased GFR's product and attempted to ship
it illegally does not weigh in favor of denying this Respondent's
registration.\28\
---------------------------------------------------------------------------
\26\ Canada has exportation requirements similar to the DEA's
and the DEA requires an entity to register with the DEA prior to
importing a list I chemical into its territory. [See Health Canada,
Precursor Control Regulations 6, 7, 69 (2010) (requiring an exporter
of precursor chemicals to register with Health Canada; 21 U.S.C.
957(a) (2006) (requiring an importer of precursor chemicals to
register with DEA); FOF 17].
\27\ FOF 16, 70.
\28\ However, as discussed further under Factor V, Mr. Pierce's
reaction to that shipment does weigh against the Respondent's
registration.
---------------------------------------------------------------------------
ii. Respondent's Lack of Experience in Complying with DEA's Laws
As there are some aspects of DEA law that are unique, the
Respondent's lack of experience in complying with such law will weigh
against its registration, unless it can otherwise demonstrate it is
capable of compliance. [See Express Wholesale, 69 FR at 62,089; Joy's
Ideas, 70 FR at 33,198].
Here, the Respondent introduced its Standard Operating Procedures
into evidence to demonstrate it is capable of complying with DEA law.
[FOF 143]. Therein, the Respondent addressed the DEA's sales and
recordkeeping requirements, shipping policies, importation
requirements, and employee hiring mandates. [FOF 143]. The Respondent
introduced testimony by its consultant that these policies were "a
good start with regard to operations." [FOF 147]. However, I give less
weight to Mr. Mudri's testimony regarding the Respondent's compliance
with these laws, as opposed to the security laws discussed supra, as he
has not acted for the DEA in over 10 years, and the law has developed
since his departure. [FOF 34, n.8, FOF 147, n. 17]. Indeed, he was
unaware of the DEA's new requirement that retail sellers of ephedrine
via the internet must self-certify with the DEA. [FOF 148].
Nevertheless, the Government has introduced no evidence nor made any
argument that the Respondent's SOPs inadequately address the DEA's
requirements,\29\ therefore, I do not find that its lack of experience
in complying with DEA law weighs in favor of denying its registration
under factors II and IV.
---------------------------------------------------------------------------
\29\ [See gen. Govt. Brief].
---------------------------------------------------------------------------
Accordingly, in total I do not find the Respondent's experience in
handling ephedrine weighs against its registration. While I am troubled
by Mr. McIsaac's violations of Canada's regulations as I find those to
be more significant than GFR's, I am persuaded by the fact that Mr.
Schiefelbein will oversee the day-to-day operations of the company and
that Mr. McIsaac will have no participation in that operation. [FOF 97,
98]. Furthermore, while I take notice of GFR's Canadian regulatory
infractions, Mr. Pierce otherwise has a good track record of compliance
with Health Canada's laws. [FOF 58-60]. Therefore, this experience
lends credence to the fact that he would similarly comply with the
DEA's laws. [See Gregg & Sons, 74 FR at 17, 524 (finding that despite
infractions, the Respondent's overall record of compliance indicated he
could be entrusted with a DEA registration)]. In addition, the
Respondent's lack of experience in complying with DEA law is mitigated
by the adequacy with which its SOPs address these laws, and the
Government's failure to challenge them.
(2) Compliance with FDA law
The Controlled Substances Act makes clear that the DEA is to
consider the Respondent's compliance with all applicable federal law in
ascertaining whether to grant it a DEA registration. [21 U.S.C.
823(h)(2); See also ATF Fitness, 72 FR 9,967, 9,969 (DEA 2007) (stating
"Congress did not limit the subject matter of the laws that are
properly considered in determining whether an applicant's compliance
record supports granting it a registration")]. Indeed, where the
Respondent has violated FDA law, the DEA has denied it a registration.
[See ATF Fitness, 72 FR at 9,969 (where the FDA inspected the
Respondent and found (1) it had in its possession products that were
banned in 2004; (2) it had failed to comply with the FDA's
recordkeeping requirements; and (3) it had possessed mislabeled
products)]. Therefore, if the Respondent's proposed practice will
violate FDA law, the Respondent's application could be denied.
However, in a recent decision, the Administrator emphasized that
she is without authority to definitively interpret the Food Drug and
Cosmetic Act, and will not do so. [Tony T. Bui, M.D., 75 FR 49,799,
49,989 (DEA 2010)]. The Administrator then applied this ruling in Paul
Weir Battershell, N.P., Doc. No. 09-51 (July 15, 2011) (unpublished).
There, she refused to find a violation of FDA law by a nurse-
practitioner's prescription of Human Growth Hormone ("HGH") on the
basis that "whether Congress intended to criminalize all prescribing
of HGH by non-physicians, including those who can lawfully prescribe
under state law, is quintessentially one for judicial cognizance."
[Id. at 33, n.27]. However, she also found that "Respondent's plea
agreement does . . . establish that he violated the FDCA by causing the
introduction of a misbranded drug into interstate commerce." [Id.].
Accordingly, two principles emerge from the Administrator's
rulings. First, if the Government presents evidence of
[[Page 35052]]
conduct by the Respondent that is plainly inconsistent with FDA law,
then it has met its burden of proof as to the Respondent's
noncompliance. Similarly, if the Government establishes a violation
through plea agreement, or other irrefutable evidence, such will also
weigh negatively against its registration, specifically, a finding of
the Respondent's ability to comply with the CSA. [See id.; ATF Fitness,
72 FR at 9,969]. If, however, the Government presents evidence of
conduct that may be a violation of FDA law, yet would require the
agency to render an interpretation of the FDCA to reach such a
violation, then such exercise is beyond the jurisdiction of the DEA and
will have no bearing on the Respondent's registration under Factor
II.\30\
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\30\ Here, although the Government urges throughout its brief
that the Respondent's practice would violate FDA law, the Government
has failed to point out any specific provision of FDA law that the
Respondent's proposed practice would violate. [(See Govt. Brief)].
---------------------------------------------------------------------------
i. FDA Labeling and Misbranding Provisions
Here, the Government has established a clear violation by the
Respondent of the FDA's misbranding provisions.
The Food and Drug Administration regulates over-the-counter
medications by setting forth approved over the counter combinations and
guidelines for labeling those products in an OTC Monograph. [See Cold,
Cough, Allergy, Bronchodilator, and Antiasthmatic Drug Products for
Over-the-Counter Human Use, Final Monograph, 51 FR 35326 (1986)
(codified at 21 CFR part 341)]. If a product's label lacks required
information or contains false or misleading information, the FDA deems
that product misbranded. [21 U.S.C. 352(a),(c); FDA, Key Legal
Concepts: "Interstate Commerce," "Adulterated," "Misbranded" 1
(Feb. 9, 2006) (stating "under the FD&C the term 'misbranding' applies
to . . . [f]alse or misleading information . . . [and l]ack of required
information . . . .")]. The FDA prohibits the introduction of a
misbranded product into interstate commerce. [21 U.S.C. 331(b)].
The FDA Monograph requires an OTC bronchodilator \31\ label to
contain the following statement under the heading "indications:"
"For temporary relief of shortness of breath, tightness of chest, and
wheezing due to bronchial asthma." [21 CFR 341.76(b), (b)(1]. The FDA
emphasizes that including this language is not discretionary. [Compare
21 CFR 341.76(b)(1) with (b)(2).]. The Respondent's proposed packages
do not contain the required language. [See FOF 127]. Therefore, as the
Respondent's proposed packaging plainly violates the FDCA, such weighs
in favor of denying its registration.\32\
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\31\ The FDA's monograph on OTC medications currently approves
the use of ephedrine as a primary ingredient in OTC bronchodilators.
[21 CFR 341.16]. Although in 1995, the agency promulgated a proposed
rule to remove ephedrine from the monograph, the agency has not
taken final action on that rule. [See 60 FR 38,643]. Similarly,
although the FDA issued a proposed rule in 2005, eliminating
combination ephedrine/guaifenesin from the OTC Monograph, due to its
determination of the limited clinical effectiveness of guaifenesin
in the treatment of asthma, the FDA has yet to issue a final ruling
on that regulation. [See 70 FR 40,232 (2005)]. Therefore, under the
FDA's current monograph, the Respondent's product may be sold over
the counter as bronchodilator medications. [See FOF 104; 21 CFR
341.18 (listing guaifenesin as the expectorant active ingredient
included in the cough-cold monograph)].
\32\ The FDA Monograph requires OTC bronchodilators to have a
"statement of identity." Accordingly, the Monograph requires the
label to contain "the established name of the drug, if any, and
identifies the product as a "bronchodilator." [21 U.S.C. 341.76].
Here, the Respondent's label contains the word "bronchodilator,"
albeit inconspicuously, under the term "Purpose" and under the
section labeled "Drug Facts." [FOF 127(b)(1)]. However as this
language is not plainly inconsistent with FDA's regulation, I do not
find the Respondent's proposed "statement of identity" weighs in
favor of denying its registration.
The OTC Monograph further requires bronchodilator products be
labeled with the following warnings and directions for use:
(1) "Do not use this product unless a diagnosis of asthma has
been made by a doctor."
(2) "Do not use this product if you have heart disease, high
blood pressure, thyroid disease, diabetes, or difficulty in
urination due to enlargement of the prostate gland unless directed
by a doctor."
(3) "Do not use this product if you have ever been hospitalized
for asthma or if you are taking any prescription drug for asthma
unless directed by a doctor."
(4) Drug interaction precaution. "Do not use if you are now
taking a prescription monoamine oxidase inhibitor (MAOI) (certain
drugs for depression, psychiatric, or emotional conditions, or
Parkinson's disease), or for 2 weeks after stopping the MAOI drug.
If you do not know if your prescription drug contains an MAOI, ask a
doctor or pharmacist before taking this product."
(i) "Do not continue to use this product, but seek medical
assistance immediately if symptoms are not relieved within 1 hour or
become worse."
(ii) "Some users of this product may experience nervousness,
tremor, sleeplessness, nausea, and loss of appetite. If these
symptoms persist or become worse, consult your doctor."
(iii)"Adults and children 12 years of age and over: Oral dosage
is 12.5 to 25 milligrams every 4 hours, not to exceed 150 milligrams
in 24 hours, or as directed by a doctor. Do not exceed recommended
dose unless directed by a doctor. Children under 12 years of age:
Consult a doctor."
[21 CFR 341.76]. The Respondent's proposed packaging label
contains that language verbatim. [See FOF 127].
---------------------------------------------------------------------------
In addition to requiring certain labeling, the FDA permits OTC
bronchodilators to list other indications, as provided in Sec.
371.76(b), as well as other truthful and nonmisleading statements
describing those indications. [21 CFR 341.76(b)]. None of those
indications include using the bronchodilator for weight loss or
otherwise as a dietary supplement. [341.76(b)(2)]. In addition, the
definition of "label" in the context of misbranding has been
construed broadly by federal courts to include a circular, pamphlet,
brochure, newsletter, or other piece of literature that helps sell a
product, even if it did not accompany the drug when traveling across
state lines. [See V.E. Irons, Inc. v. United States, 244 F. 2d 34 (1st
Cir. 1957); United States v. 47 Bottles, More or Less, Jenasol Rj
Formula 60, 320 F.2d 564 (3d Cir. 1963)].
Here, the Respondent's packaging originally contained a logo naming
the product "4 Ever Fit." Although this label raises concerns under
the FDA's proscription against nonmisleading statements on the products
packaging, the Respondent's current label, which lacks that logo, does
not. [See FOF 112, 127]. Therefore, I find whether, under these
circumstances, there would have been a violation of this regulation is
moot in light of the Respondent's new measures.
In addition, whether the Respondent's internet sale of its product
further violates the FDCA's misbranding provisions, depends entirely on
how it intends to market its product. Despite numerous assertions to
the contrary, there is substantial evidence that the Respondent would
market its product similar to its stated competitor, Vasapro. [See FOF
143(d)(i) (assertion of compliance with FDA law); FOF 102, 111, 124
(asserting the product will only be sold as a bronchodilator and will
be sold separate from 4EF USA's products); FOF 91 (asserting its only
competitor is Vasapro)]. The marketing of Vasapro's product raises
serious misbranding concerns. [FOF 92 (marketing of Vasapro as weight
loss and dietary supplement)]. Nevertheless, whether the FDA would deem
such statements misleading and, accordingly, such marketing misbranding
is an issue beyond the ken of this tribunal, and therefore will not
weigh in favor of nor against the Respondent's registration.
In light of the foregoing, I find that the Respondent's practice
will plainly violate the FDCA's required labeling for indications by
not stating that the product is "for temporary relief of shortness of
breath, tightness of chest, and wheezing due to bronchial asthma."
However, I do not find, in toto, that the Respondent's level of
compliance with FDA law indicates that the Respondent is either
unwilling or unable to comply with the CSA.
[[Page 35053]]
(3) State Law
Similar to the FDA's laws, the Respondent has no experience in
complying with the complex state regulatory and statutory schemes that
apply to ephedrine. [FOF 125; See FOF 129]. Some states have scheduled
ephedrine as a controlled substance, therefore prohibiting the
Respondent from selling its product in that state. [Id.]. Other states
require licensure. [Id.].
Although the Respondent has assured this tribunal throughout its
DEA application, the hearing, and in its post-hearing brief that it
intends to comply with all laws governing its practice,\33\ the
Respondent has also demonstrate a general unfamiliarity with state
laws. For example, the Respondent failed to recognize the need for a
non-drug wholesale permit in Arizona, the state where it intends to
store ephedrine, prior to the hearing in this matter, when the
Government's counsel highlighted the need for it on cross-examination.
[FOF 137, 138].
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\33\ FOF 97, 150; Respt. Brief at 11 (stating "4 OTC has
expended a great amount of time and resources in ensuring that its
intended activities relating to the import and distribution of
ephedrine containing products within the United States will be in
compliance with all pertinent federal and state laws").
---------------------------------------------------------------------------
In addition, deficiencies in its SOPs fail to provide further
assurance that it is capable of compliance with state law. For example,
the SOPs' requirements for the State of Michigan indicate that a state
license is required; they list the maximum number of packages that may
be sold per transaction as 2; state the maximum number of grams of the
4 OTC product that can be sold per month as 9 and cannot exceed a 25/
400 ephedrine/guaifenesin combination; indicate the Respondent must
keep records for 6 months; and further provide the minimum age for
purchase is 18, and both photo ID and signature are required. However,
the SOPs completely overlook the fact that the state of Michigan
expressly prohibits the internet sale of ephedrine into its territory.
[FOF 134]. Therefore, if the Respondent was to rely on its SOPs and
sell its products through the internet to customers in Michigan, it
would violate state law.
In addition, under the bulleted outline for New Hampshire, the SOPs
only state "comply with federal regulations." When Mr. Pierce was
questioned about this SOP he agreed that he could be pretty certain
that New Hampshire would allow 4 OTC to sell ephedrine into the state,
so long as they were compliant with federal regulations. [FOF 132].
Later in the SOPs, however, on the chart for state requirements, there
is a "Y" under the column marked "state license" corresponding to
the state of New Hampshire. [FOF 132]. While the Government has not
provided evidence of whether in fact New Hampshire does require such
licensure, this internal inconsistency raises compliance concerns if
this document were to be relied on by the Respondent. Furthermore, the
Respondent's expert, Mr. Mudri, was unfamiliar with state law and
therefore could not ensure the Respondent's compliance. [FOF 139].
The inadequacies of the Respondents SOPs on state law underscore my
concerns with its registration. Although the Respondent argues that it
has completed its due diligence in investigating their legal
obligations, they also state that their SOPs are a "work in progress"
and that they are relying on their counsel to bring them further into
compliance. [FOF 135-36]. However, as the Respondent points out, its
application has been pending before this agency since 2007. [FOF 26].
Despite that amount of time, the Respondent has yet to ascertain how to
conduct its internet business within the confines of state law.
Therefore, I am not persuaded that it would be able to do so in the
immediate future, and I find accordingly that its lack of experience,
and failure to otherwise demonstrate compliance with state law, weighs
against its registration.
c. Respondent's Prior Conviction Record Under Federal or State Laws
Relating To Controlled Substances Or To Chemicals Controlled Under
Federal or State Law;
Neither the Respondent, nor its owners have been convicted of an
offense related to controlled substances or list I chemicals,
therefore, this factor weighs neither in favor nor against granting the
Respondent's registration. [See Dewey C. Mackay, M.D., 75 FR 49,956,
49,973 (DEA 2010) (stating "while a history of criminal convictions
for offenses involving the distribution or dispensing of controlled
substances is a highly relevant consideration, there are any number of
reasons why a registrant may not have been convicted of such an
offense, and thus, the absence of such a conviction is of considerably
less consequence in the public interest inquiry") (citing Jayam
Krishna-Iyer, 74 Fed Reg. 459, 461 (DEA 2009); Edmund Chein, M.D., 72
FR 6,580, 6,593 n.22 (DEA 2007)].
d. Other Factors Affecting the Public's Interest
The DEA will consider factors I through IV as well as other factors
that affect the public interest to determine whether the Respondent's
registration is consistent with the public interest. The agency has
clarified the bounds of the considerations it makes under Factor V,
however, in stating it is limited "to those where there is "a
substantial relationship between the conduct and the CSA's purpose of
preventing drug abuse and diversion." [Bui, 75 FR at 49,988; See also
ATF Fitness, 72 FR at 9,967].
Here, the Government does not allege that the Respondent's
registration will be used as a conduit for the diversion of ephedrine
into the clandestine manufacture of methamphetamine. Indeed, the threat
of diversion created by the Respondent's registration is the internet
sale of its products. However, the DEA does not outlaw the sale of
ephedrine via the internet and has instead promulgated regulations
setting daily and monthly sales limits and requiring records of all
sales to address this issue. [See 21 U.S.C. 1310, et seq. and 1314.100 et seq.]. Therefore, the Respondent's internet sales alone do not weigh
in favor of denial of its registration under this factor.
The Government argues, however, that the Respondent's registration
is inconsistent with the public interest, due to its failure to
disclose a list of customers at the time of registration. During the
hearing Ms. Klett testified on behalf of the DEA that the agency
requires a customer list along with an importer registration because
the Department of Justice urged the DEA to implement new protocols to
better regulate precursors to methamphetamine production. [FOF 18].
Therefore, once the DEA receives the customer list, it verifies each
customer to ensure that the importer's product will not be diverted.
[FOF 19, 20]. That directive is not in the CMEA, however, nor has the
DEA promulgated that requirement into regulation. [See 21 U.S.C. 971 (requiring an importer to disclose to whom the list I chemical will be
transferred upon import (not application)) and 21 CFR Part 1313)].
Also, the DEA has no such requirement for domestic mail order sales,
inferably because the DEA regulates those sales by imposing daily and
monthly sales limits to protect against diversion. [See FOF 13-15; 21
CFR 1314.01-13.14.155 (2011)].
Here, however, the DEA's policies behind requiring a customer list
are satisfied by the Respondent acting as both an importer and a
retailer; therefore, the Government's argument for denial of the
Respondent's application on this basis fails. Here, unlike most other
importers, the Respondent does not intend to sell its product to
companies who will then distribute it to end users. Instead the
[[Page 35054]]
Respondent intends to both import and distribute its product to end
users. [FOF 22, 24]. In that regard, the Respondent has already
provided the DEA with a customer list of its retail distributors, as it
has only one: itself. In addition, not only has the DEA verified that
customer, it has specifically investigated that customer to ensure that
it has protocols in place to protect against diversion. [FOF 28, 29,
34]. Accordingly, both the purpose behind the CMEA and DEA's policy are
met by the disclosure that the Respondent has made in this case, and
the Respondent's failure to disclose its retail customers does not
otherwise weigh against its registration. [See FOF 3 (describing
purpose behind CMEA); FOF 19 (describing purpose behind requiring
customer list)].\34\
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\34\ However, to ensure that the Respondent doesn't evade the
customer list disclosure laws by acting as both a retailer and a
distributor, I would recommend that if the Respondent's registration
is granted, it should be limited to importation and retail sales
only and the Respondent should be precluded from selling its product
to other distributors without first coordinating such registration
modification with the DEA. [FOF 117, 118].
---------------------------------------------------------------------------
However, under this factor, I find Mr. Pierce's reaction to the
Better Bodies shipment into the United States, and his general
credibility weigh in favor of denial. When asked whether he still
conducted business with Better Bodies after the customs seizure, he
stated, "[w]e have no control over them buying the product from us and
shipping it without our knowledge. [Health Canada] . . . has been
informed." [FOF 73]. However, GFR does have control over to whom it
sells its product, and GFR's decision to continue to supply a company
that has illegally handled its product reflects a general apathy
towards diversion. As Mr. Pierce is the President and CEO of GFR, and
the principle owner of the Respondent, this factor raises a concern
that he would similarly turn a blind eye to the misuse of the
Respondent's product in the United States.
Furthermore, Mr. Pierce's testimony throughout this proceeding
raises credibility concerns and consequently concerns about whether he
could be trusted with a DEA registration. Specifically, during the
hearing Mr. Pierce testified that he conducted no market research on
the Respondent prior to investing in it, yet was certain that there was
a need for its product in the United States as a bronchodilator and
that individuals would purchase it over the internet for that purpose.
[FOF 116-122]. I find the assertion that he invested in the Respondent
blindly, in light of his extensive business experience at GFR and other
companies, highly unlikely. [See FOF 47, 77, 81, 87]. In addition, I
find it more likely that he was aware of the market for ephedrine as a
dietary supplement in the United States based on Mr. Schiefelbein's
experience selling it as such prior to the FDA's ban in 2004, as well
as his own experience selling it for that purpose in Canada. [FOF 83,
53, 54]. Such knowledge likely motivated his investment, a fact he made
efforts to conceal during this proceeding. Such lack of candor weighs
against the Respondent's registration. [Net Wholesale, 70 FR 24,626,
24,627 (DEA 2005)].
V. Conclusion and Recommendation
In light of the foregoing, I find that the Government has proved by
a preponderance of the evidence that the Respondent's registration
would be inconsistent with the public interest due to its current
inability to comply with state and FDA law, its lack of candor, and its
attitude towards diversion. Once the Government has met its burden of
proof, the burden shifts to the Respondent to establish that its
Registration would otherwise be consistent with the public interest.
Here, the Respondent argues that its registration is consistent
with the public interest because, among other reasons, it has completed
its due diligence to ensure compliance with all applicable laws and
regulations. [See Resp. Brief at 10 (stating "4 OTC has expended a
great amount of time and resources in ensuring that its intended
activities relating to the import and distribution of ephedrine
containing products within the United States will be in compliance with
all pertinent federal and state laws")]. However, it is clear that the
Respondent has yet to grasp those laws, because its stated practices
stand contrary to them, and its SOPs otherwise fail to adequately
address them.
Accordingly, it is my recommendation that the Respondent's
application be denied.
Dated: September 22, 2011
/s/Gail A. Randall
Administrative Law Judge
[FR Doc. 2012-14307 Filed 6-11-12; 8:45 am]
BILLING CODE 4410-09-P
NOTICE: This is an unofficial version. An official version of this publication may be obtained
directly from the Government Printing Office (GPO).
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