CLA-2 OT:RR:CTF:TCM H108097 HkP
Sean T. Murray, Esq.
Miller & Company P.C.
Attorneys at Law
4929 Main Street
Kansas City, MO 64112
RE: Heading 9817.85.01, HTSUS, Prototype Determination; Intermediate Chemical Compound
Dear Mr. Murray:
This is in response to your letter dated May 27, 2010, on behalf of your client, Eli Lilly and Company (“Lilly), requesting a ruling on the eligibility of a pharmaceutical chemical [xxxxxxxx] to be classified as a prototype under heading 9817.85.01 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Your submission was reviewed by the U.S. Customs and Border Protection Laboratories and Scientific Services Division. In reaching our decision, we have taken into consideration additional information submitted to this office on February 28, 2011.
You have asked that certain information submitted in connection with your request be treated as confidential. Inasmuch as your request conforms to the requirements of 19 C.F.R. §177.2(b)(7), your request for confidentiality is approved. The information described in your submissions as business confidential will not be released to the public and will be withheld from the published version of this ruling.
FACTS:
According to the information submitted, Lilly plans to import a novel pharmaceutical chemical compound [xxxxxxx] as part of a drug development program being conducted pursuant to the Federal Food, Drug and Cosmetic Act (FDCA) and in accordance with the Food and Drug Administration (FDA) requirements. The compound is a chemical intermediate, created at the third step of the six-step manufacturing process for Investigational New Drug (IND) number [xxxxxxx], which is currently in Phase II of FDA clinical trials. It is alleged to have a unique chemical structure that will remain the same throughout the entire pharmaceutical manufacturing process.
The compound will be used in several aspects of Lilly’s drug development program. Some quantities of the imported chemical will be used for quality control testing while other quantities will be used for development testing to expand Lilly’s knowledge of the chemical molecules and the manufacturing process. Other portions may be processed into an Active Pharmaceutical Ingredient (API), in some cases into [xxxxxxx] for further development and testing and later manufactured into dosage form. The API in dosage form could also be administered in clinical trials to test the safety and effectiveness of the drug. All of these activities will be conducted and the results recorded in order to generate the body of development data necessary to complete the technical requirements section of the FDA approval application to market a new drug.
Lilly anticipates importing 330 kilograms of the compound, although this amount may change and may be divided into an undetermined number of shipments, for use in Phases II and III of the drug development process (clinical trials). You have stated that none of the imported compound will be sold or used in saleable products and that it is not subject to any quantitative restrictions, antidumping orders, or countervailing duty orders.
ISSUE:
Whether the chemical compound imported by Lilly qualifies as a prototype within the meaning of heading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Pursuant to section 1433 of the Product Development and Testing Act of 2000 (PDTA), enacted as part of the Tariff Suspension and Trade Act of 2000 (Pub.L. 106-476, § 1433), articles described as “prototypes” under the Act may be imported duty-free. To provide for duty-free entry of prototypes section 1433 of the PDTA inserted heading 9817.85.01 into Subchapter XVII of Chapter 98, HTSUS, which provides for:
Prototypes to be used exclusively for development, testing, product evaluation, or quality control purposes …
U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS, provides, in relevant part:
The following provisions apply to heading 9817.85.01:
For the purposes of the subchapter, including heading 9817.85.01, the term “prototypes” means originals or models of articles that –
(i) are either in the preproduction, production, or postproduction stage
and are to be used exclusively for development, testing, product
evaluation, or quality control purposes[.]
….
(i) Prototypes may be imported only in limited noncommercial quantities
in accordance with industry practice.
(ii) Except as provided for the Secretary of the Treasury, prototypes or
parts of prototypes may not be sold after importation into the United States or be incorporated into any other products that are sold.
Articles subject to quantitative restrictions, antidumping orders, or countervailing duty orders may not be classified as prototypes under this note. Articles subject to licensing requirements, or which must comply with laws, rules, or regulations administered by agencies other than the United States Customs Service before being imported, may be classified as prototypes if they comply with all applicable provisions of law and otherwise meet the definition of “prototypes” under paragraph (a).
You argue that all activities performed to support FDA drug development protocols should be considered “development” activities within the meaning of U.S. Note 7 because they are necessary to the production of the finished pharmaceutical. Specifically, you state that Lilly needs to obtain data on the drug and its six different manufacturing steps in order to prepare Lilly’s application for FDA approval of the final drug. In support of your argument, you have provided a copy of the FDA’s Guidance for Industry, INDs for Phase 2 and Phase 3 Studies, Chemistry, Manufacturing and Control Information, the purposes of which are to ensure that drug developers submit sufficient data to the FDA so that it may assess the safety and quality of a proposed clinical study, expedite the entry of new drugs into the marketplace by clarifying the type, extent and reporting of CMC requirements, and facilitate drug discovery and development. Thus, you argue, the development of a drug requires that manufacturing and testing be performed together at multiple critical stages to ensure the safety and quality required to gain FDA approval. You also state that, regardless of the specific use to which it is put, all of the compound to be imported is solely dedicated to the purpose of drug development.
U.S. Note 7(a) provides, in relevant part, that prototypes are “originals or models of articles” that fulfill the conditions set out in subparagraphs (i) and (ii) of the Note. The adjective “original” in the Oxford English Dictionary is defined, in relevant part, as, “Designating the thing, as a document, text, picture, etc., from which another is copied or reproduced; that is the original.” Likewise, that same publication defines the adjective “model” as, “B.1 … serving or intended to serve as a pattern for imitation; exemplary, ideal.” Based on these definitions, we conclude that the phrase “originals or models of articles” used in the umbrella text of U.S. Note 7(a) means that a prototype must be the pattern of a manufactured article that is copied or reproduced.
In addition, to comply with the terms of the Note, these original or models can only be used for development, testing, product evaluation or quality control purposes at any stage of the production process. See U.S. Note 7(a)(i). The term “development” is not defined in the HTSUS. You note that Webster’s New International Dictionary defines “development” as the “act, process, or result of developing, or state of being developed; the disclosing [of] that which is unknown; … a gradual unfolding by which anything is developed, as a plan or method …; gradual advance or growth through progressive changes; evolution, as a stage of development.” Webster’s at 713. In turn, that same publication defines the root term “develop” as “to go through a process of natural evolution or growth, by successive changes from a less perfect to a more perfect or more highly organized state; to advance from a simpler form of existence to one more complex either in structure or function[.]”
With specific regard to prototype development, based on the definitions you have provided, we find that the Note allows a prototype to be imported so that it may be further developed from its original or model state. Our interpretation of U.S. Note 7(a) conforms to the common and commercial definition of the term “prototype.” See, for example, the Oxford English Dictionary:
Prototype, A. n.
1. a. The first or primary type of a person or thing; an original on which something is modeled or from which it is derived; an exemplar, an archetype.
…
3. A first full-size working version of a new vehicle, machine, etc., of which further improvements may be made; a preliminary version made in small numbers for evaluation, or from which improved or modified versions may be developed.”
Available at www.oed.com.
The compound to be imported into the U.S. is a novel chemical intermediate created at the third step of a six-step manufacturing process. The compound will be used in various ways: (1) for quality control testing, (2) to expand Lilly’s knowledge of the chemical molecules (3) to expand Lilly’s knowledge of the manufacturing process, and, (4) to be further manufactured into a specified API for further development and testing in clinical trials. Moreover, none of the imported compound will be sold or used in saleable products, and it is not subject to any quantitative restrictions, antidumping orders, or countervailing duty orders.
After reviewing all the pertinent information, we accept your explanation that the drug development process requires that certain manufacturing and testing operations be performed together. In addition, we find that the compound is an original product that will be imported at a preproduction stage to be used exclusively for product development and testing. Accordingly, the requirements of subparagraph (a)(i) of U.S. Note 7 are met. We have previously found that compounds under IND protocol, imported into the United States to be tested and evaluated, fall within the preproduction stage of pharmaceuticals and satisfied the “testing, product evaluation, or quality control purposes” requirements of heading 9817.85.01, HTSUS. See HQ 563139, February 8, 2005. Subparagraph (a)(ii) of the Note is not applicable because the compound will be neither in the production nor postproduction stage when imported.
In compliance with U.S. Note 7(b), we find that the compound will be imported in noncommercial quantities and will not be sold after importation or be integrated into other products that are sold. According to the information submitted, of the proposed quantity of the compound to be imported (330 kg), some will be manufactured into dosage form for use in FDA Phase II and III clinical trials, and the remainder will be used for Lilly drug development and quality control purposes. We have previously found large quantities of pharmaceutical prototypes to be noncommercial quantities when used for development and testing. See, for e.g., HQ 563139, Feb 8, 2005 (in which 102.8 kg of a drug prototype was found to be consistent with dosage requirements for its clinical trial and not a commercial quantity).
Finally, you have stated that the imported compound is not subject to any of the restrictions specified in subparagraph (c) of U.S. Note 7.
Based on the totality of the facts, we find that the compound to be imported satisfies the applicable terms of U.S. Note 7, Subchapter XVII, Chapter 98, HTSUS. Accordingly, the compound may be classified in heading 9817.85.01, HTSUS, as a prototype, assuming the terms of subparagraph (c) are met.
HOLDING:
The pharmaceutical chemical [xxxxxxxxx] to be imported by Lilly qualifies as a prototype within the meaning of heading 9817.85.01, HTSUS. The information submitted indicates that the compound satisfies the provisions of U.S. Note 7(a) to Subchapter XVII, Chapter 98, HTSUS.
A copy of this ruling letter should be attached to entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch