United States v. Sage Pharmaceuticals, Inc.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 99-30425

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

VERSUS

SAGE PHARMACEUTICALS, INC.,
JIVN REN CHEN,

Defendants-Appellees.

Appeal from the United States District Court
For the Western District of Louisiana

April 20, 2000

Before HIGGINBOTHAM and PARKER, Circuit Judges and JACK,

District Judge.*

JANIS GRAHAM JACK, District Judge.

This is an enforcement action brought by the United States

against Sage Pharmaceuticals, Inc., a manufacturer of prescription

and over-the-counter drugs, and its president, Jivn Ren Chen

(collectively, Sage). The United States sought to enjoin the

*
District Judge of the Southern District of Texas, sitting
by designation.
distribution of adulterated drugs and unapproved new drugs in

violation of the Federal Food, Drug, and Cosmetic Act (FDCA).1

Following a three day bench trial, the district court entered an

order enjoining Sage from distributing drugs until compliance with

Current Good Manufacturing Practice (CGMP) regulations had been

established to the satisfaction of the Food and Drug Administration

(FDA). The district court, however, declined to enjoin Sage from

introducing into interstate commerce unapproved new drugs Palgic D

and Palgic DS. The United States appeals from this portion of the

district court’s order. Because we conclude that the district

court’s denial of an injunction constitutes an abuse of discretion,

we reverse.

I. Facts and Procedural History

Sage is a pharmaceutical manufacturer located in Shreveport,

Louisiana. Sage manufactured Menogen and Menogen H.S.,

prescription drugs indicated in the treatment of moderate to severe

vasomotor symptoms (hot flashes) associated with menopause in those

patients not improved by estrogen alone, and Palgic D and Palgic

1
See 21 U.S.C. §§ 331(a), 351(a)(2)(B) (dealing with
adulterated drugs and current good manufacturing practices); §§
331(d), 355(a)(addressing unapproved new drugs); and §
332(a)(providing for injunctions against violations of § 331).
The text of the provisions relevant to this appeal is set out in
Part II of this opinion.

2
DS, prescription drugs used for the symptomatic relief of seasonal

and perennial allergic rhinitis and vasomotor rhinitis. Although

Sage made and sold Palgic and Palgic DS since 1995 and Menogen and

Menogen H.S. since 1997, none of the Menogen or Palgic series of

drugs was the subject of approved new drug or abbreviated new drug

applications. Prior to the initiation of this lawsuit, the FDA

conducted five CGMP inspections2 of Sage from March of 1995 to

October of 1997. The FDA conducted a sixth inspection during the

trial court proceedings in July of 1998. FDA inspectors reported

a substantial number of CGMP violations during their investigations

of Sage. These purported violations of CGMP regulations prompted

the FDA to recommend that the United States institute enforcement

proceedings against Sage. The new drug charge which forms the

basis of this appeal was added to the CGMP violations in the United

States’ complaint against Sage.

2
In addition to determining the safety and efficacy of new
drugs as it authorizes new drug applications, the FDA also
inspects facilities used to manufacture, pack, and store drugs to
ensure that the drugs are not adulterated by the manufacture,
package, or storage in improper conditions. See 21 U.S.C. §
374(a). The FDA’s CGMP regulations set forth the minimum
requirements for all aspects of drug manufacturing, including
component control, production and process control, packaging and
labeling control, and maintenance of required records and
reports. See 21 C.F.R. Parts 210, 211.

3
 At trial, the government demonstrated that Sage distributed

adulterated drugs in violation of the FDCA by failing to comply

with CGMP regulations. The district court enjoined Sage from

distributing certain drugs until compliance with the CGMP

regulations was established to the FDA’s satisfaction. As to the

new drug charge, the district court fashioned a conditional

injunction order stating that “Sage agrees not to sell Palgic D and

Palgic [DS]3 unless other manufacturers are currently selling
4
products ‘substantially similar’ to Palgic D and Palgic [DS].”

The determination of whether other manufacturers are selling

Palgic-like drugs was to be made by the trial court, effectively

removing the FDA from the approval process. The United States

moved to alter or amend the judgment on October 7, 1998, asking the

court to enjoin Sage from selling unapproved new drugs in

contravention of the FDCA. After denial of this motion by the

trial court, the United States filed its notice of appeal.

II. Applicable Law

Although this court reviews the denial of a permanent

injunction for an abuse of discretion, “[t]he district court abuses

3
Sage previously ceased the manufacture and distribution of
Menogen and Menogen H.S. in August of 1997 pursuant to a consent
permanent injunction entered in a private lawsuit.
4
Although the district court’s order is labeled a
“Settlement Order,” no formal agreement was reached between the
parties. It appears from the record that the district court
attempted to facilitate a settlement between the parties, perhaps
in an attempt to save jobs in the community.
4
its discretion . . . if it relies on erroneous conclusions of law

when deciding to grant or deny the permanent injunction.” Peaches

Entertainment v. Entertainment Repertoire Assocs., 62 F.3d 690, 693

(5th Cir. 1995). This court reviews the district court’s

conclusions of law under the de novo standard. Id.

The FDCA, 21 U.S.C. §§ 301 et. seq., as enacted in 1938,

heralded a new system of drug regulation requiring pre-market

approval before a drug could be sold. United States v. Generix

Drug Corp, 460 U.S. 455, 458, 103 S.Ct. 1298, 1301 (1983). The

FDCA prohibits the sale of unapproved new drugs5 in interstate

commerce: “No person shall introduce or deliver for introduction

into interstate commerce any new drug, unless an approval of an

application [to the FDA] is effective with respect to such drug.”

21 U.S.C. § 355(a). A drug manufacturer or distributor obtains FDA

approval by submitting a new drug application (NDA) or abbreviated

5
The term “new drug” means --
(1) Any drug...the composition of which is such that
such drug is not generally recognized among experts qualified
by scientific training and experience to evaluate the safety
and effectiveness of drugs, as safe and effective for use
under the conditions prescribed, recommended, or suggested in
the labeling thereof;...or (2) Any drug...the composition of
which is such that such drug, as a result of investigations to
determine its safety and effectiveness for use under such
conditions, has become so recognized, but which has not,
otherwise than in such investigations, been used to a material
extent or for a material time under such conditions.
21 U.S.C. § 321(p).

5
new drug application (ANDA)6 in accordance with the statute and FDA

regulations. See 21 U.S.C. § 355(b)-(b)(1); 21 C.F.R. § 314.50

(detailing contents of NDA). The United States enforces the FDCA

by, among other things, seeking injunctive relief against

manufacturers and distributors which violate its terms. See 21

U.S.C. § 332(a).

In 1962, the FDCA was amended to require NDAs to show that a

drug is not only safe, but also effective for its intended uses.

See Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609,

612-14, 93 S.Ct. 2469, 2474-75 (1973). The amendments also

required the FDA to act affirmatively to approve an NDA, instead of

allowing it to become effective through inaction. Hynson, Wescott,

412 U.S. at 613, 93 S.Ct. at 2475. The 1962 amendments applied

retroactively to drugs already on the market with approved NDAs

based upon safety alone.7 Id. In order to expedite review of the

effectiveness of drugs with approved NDA’s based solely upon their

safety, the FDA instituted the Drug Efficacy Study Implementation

6
An alternative to the NDA is available for generic drugs.
A generic version of an approved pioneer drug may obtain FDA
approval by filing an ANDA. 21 U.S.C. § 355(j).
7
All new drugs require an approved NDA or ANDA before
marketing unless they are generally recognized among experts as
safe and effective for their labeled uses (the “GRASE” exception)
or fall within a limited grandfather clause exempting certain
drugs from the additional effectiveness requirements. Hynson,
Westcott, 412 U.S. at 613-615, 93 S.Ct. 2475-76. Neither
exception to the amendments is applicable to the Palgic drugs.

6
(DESI) Program. See Hynson, Westcott, 412 U.S. at 615-16 & n.7, 93

S.Ct. at 2476 & n.7. Under the DESI program, the FDA and the

National Academy of Sciences-National Research Council (NAS-NRC)

convened expert panels to consider the efficacy of classes of drugs

already on the market with approved NDA’s at the time of the 1962

amendments for supplemental NDA approval. Hynson, Westcott, 412

U.S. at 614-15, 93 S.Ct. at 2475-76. If the FDA concurred with

the panel’s determination under the DESI review, a notice was

published in the federal register and a supplemental NDA was

approved for the drug. Florida Breckenridge, Inc. v. Solvay

Pharmaceuticals, Inc., 174 F.3d 1227, 1229 (11th Cir. 1999),

withdrawn at the request of the court.

The DESI program was the basis for a short-lived policy under

which the FDA permitted the continued sale of some drugs without

effective NDAs. Hoffman-LaRoche, Inc. v. Weinberger, 425 F.Supp.

890, 892-93 (D.D.C. 1975). However, this policy was challenged in

1975 as inconsistent with the FDCA, which requires pre-market

approval before a drug is sold. Hoffman-LaRoche, 425 F.Supp. at

894. In response to the Hoffman-LaRoche decision, the FDA in 1976

adopted its Compliance Policy Guide 7132c.02 (CPG) wherein it

acknowledges the presence of unapproved drugs on the market. The

CPG “reaffirm[s] that all products marketed as drugs under the DESI

program are new drugs, and therefore, require an approved NDA or

ANDA for marketing.” CPG 7132c.02 § 440.100 at 134, quoted in

Florida Breckenridge, 174 F.3d at 1229. The CPG also sets forth

7
the FDA’s priorities for enforcing the statutory prohibition

against selling unapproved new drugs. CPG 7132c.02 § 440.100 at

134.

III. Analysis

Sage concedes the following: (1) the Palgic drugs are new

drugs within the meaning of the FDCA; (2) for which Sage has not

obtained FDA approval by submitting a NDA; and (3) which Sage was

manufacturing and distributing, until shortly after the institution

of this enforcement action by the United States. Section 355(a)

of the FDCA clearly mandates FDA approval before any drug can be

sold or otherwise introduced into interstate commerce. See 21

U.S.C. 355(a). “[T]here is no magical exception that allows [a drug

company] to opt out of the FDA approval process.” Florida

Breckenridge, 174 F.3d at 1233. By manufacturing and distributing

Palgic D and Palgic DS without FDA approval, Sage clearly violated

the statute.

Notwithstanding its admitted violations of the FDCA, Sage

argues that it should be permitted to sell the Palgic drugs because

the FDA’s Compliance Policy Guide (“CPG”) provides that the agency

enforce the FDCA on a “class-wide basis” against all manufacturers

of unapproved new drugs. Sage points to other pharmaceutical

companies selling Palgic-like drugs without FDA approval, some

under the same Palgic trade name, which have not come under

government scrutiny.

Sage asserts that FDA policy embodied in its CPG 7132c.02

8
allows the sale of unapproved new drugs in certain categories

unless the FDA takes affirmative steps to remove the entire

category from the market. The policy guide, adopted after the

successful challenge of FDA procedure in Hoffman-LaRoche,

acknowledges the continued marketing of new drugs without approval

and “reaffirm[s] that all products marketed as drugs under the DESI

program are new drugs” which require an approved NDA or ANDA for

marketing. CPG 7132c.02 § 440.100 at 134. The policy provides

that the FDA must proceed to remove such new drugs from the market.

Id. Confronted with limited resources and a multitude of

unapproved drugs already on the market, the FDA outlined its

strategy and priorities for removal of drugs from the market: “The

District Offices will then initiate regulatory action against any

violative products on the market in accordance with the Compliance

Program regarding that specific category of drugs.” Id. at 135.

Notwithstanding the priorities for enforcement listed in the CPG,

the FDA clearly reserves the right to include a new drug charge in

an enforcement proceeding against a manufacturer of “a drug subject

to this policy which become[s] violative under another provision of

the act.” Id. at 136.

The FDCA’s comprehensive scheme of drug regulation is designed

to ensure the nation’s drug supply is safe and effective.

See United States v. Dotterweich, 320 U.S. 277, 280, 64 S.Ct. 134,

136 (1943). Congress has determined that the best way to meet the

FDA’s goals is to prohibit the sale of drugs before they are

9
rigorously tested and subjected to the careful scrutiny of federal

regulators. See Hyson, Westcott, 412 U.S. at 623, 93 S.Ct. at 2480

(discussing addition in 1938 of the pre-market approval requirement

for drugs sold in commerce). The FDA’s policy of adding a new

drug charge to a CGMP proceeding fosters efficiency and minimizes

the risk of duplicative litigation.

Here, Sage’s violations of the CGMP regulations led to the

initiation of an enforcement action to which a new drug charge was

added. The sale of the Palgic drugs without approval came to the

attention of the FDA following the repeated violations of

production standards at Sage.8 The policy clearly permits the FDA

to address the unapproved status of a particular drug outside the

established priorities in the same enforcement proceeding as other

violations of the FDCA. It would be inefficient to expect the

government to address the problems at Sage in a piecemeal fashion,

enforcing the CGMP regulations and drug approval provisions of the

FDCA in separate proceedings.

Nevertheless, Sage argues for the first time on appeal that

the government’s action against it violates the Administrative

Procedure Act (APA) as it is arbitrary and capricious because the

8
The three day trial in the district court focused on Sage’s
repeated and pervasive violations of the CGMP requirements. As
the FDA’s District Director testified, those violations included
“validation problems, not properly validating their manufacturing
process or qualifying their equipment, stability issues as far as
the drug products are concerned...[record keeping] issues, and
laboratory controls.”
10
government has not taken similar action against its competitors.

See Allergan, Inc. v. Shalala, 6 FDC Law Rep. (CCH) ¶38,375 (D.D.C.

November 10, 1994)(action to compel FDA to treat similarly situated

companies alike by continuing enforcement action against Allergan’s

competitor), vacated as moot, August 14, 1995. The Supreme Court

has held, however, that the APA prohibits review of the FDA’s

enforcement decisions, at least when the FDA declines to enforce

the Act against a manufacturer. Heckler v. Chaney, 470 U.S. 821,

835, 105 S.Ct. 1649, 1658 (1985) (holding that the FDA’s decision

not to seek an injunction is left entirely to the discretion of the

FDA and cannot be reviewed under APA). Assuming arguendo that

Heckler permits review of the FDA’s recommendation that the United

States seek enforcement against Sage, a claim that the FDA’s action

is arbitrary and capricious is not a defense to an enforcement

proceeding. See Heckler, 470 U.S. at 825, 105 S.Ct. at 1652.

(review sought under APA of FDA’s failure to enforce FDCA’s

prohibition of allegedly misbranded drugs used in executions by

lethal injection).

Sage also argues for the first time on appeal that the FDA’s

decision to enforce the FDCA against Sage, while ignoring similarly

situated companies manufacturing the same drugs, constitutes an

equal protection violation. To prevail on a claim of selective

prosecution, Sage must show that others similarly situated have not

been subject to enforcement proceedings by the government and that

there was an impermissible basis for the decision to institute

11
enforcement action against Sage, “‘such as race, religion, or other

arbitrary classification.’” United States v. Armstrong, 517 U.S.

456, 464, 116 S.Ct. 1480, 1486 (1996)(quoting Oyler v. Boles, 368

U.S. 448, 456, 82 S.Ct. 501, 506 (1962)). Sage does not assert,

nor does the record establish, that the United States had an

improper motive for initiating this enforcement proceeding.

Instead, the record clearly supports the government’s contention

that the enforcement action was prompted by Sage’s repeated

violations of the CGMP violations. Therefore, Sage cannot show an

equal protection violation.

In sum, the plain language of the statute provides that Sage

must not sell new drugs without FDA approval. Sage cannot show any

legitimate justification for avoiding the clear mandate of the

FDCA.

IV. Conclusion

For the foregoing reasons, the district court’s judgment

denying an injunction against Sage is reversed. This action is

remanded to the district court with directions to modify its

judgment to enjoin Sage from manufacturing or distributing Palgic

D or Palgic DS without FDA approval in accordance with the FDCA, 21

U.S.C. § 355(a).

REVERSED AND REMANDED.

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