CBP Rules Fallback Method Appropriate for Pharmaceutical Products in Clinical Trials

CBP ruled that the fallback method was appropriate for appraising several pharmaceutical products being imported for use in clinical trials. The ruling, dated Feb. 28, looked at three different valuation scenarios, each for pharmaceutical products that were provided to the importer conducting the clinical trial by related companies but were not actually sold.

Company A imports active pharmaceutical ingredients, drug products and comparators for use in manufacturing clinical drugs and trial kits to “support clinical trials,” and finished drug products for ongoing trials where it or a related company is the sponsor, CBP said. The finished drug products, drug products, and APIs are manufactured by its parent "pharmaceutical group," Company B, or by external third-party manufacturers that contract with Company B, CBP said.

APIs are substances incorporated in a finished drug which furnishes pharmacological activity or other direct effect. Clinical drug products are produced by combining APIs with excipients, and may not be in dosage form or have their final packaging or labeling. Finished drug products are formulated in dosage form, with final packaging and labeling in the form in which it will be provided to a patient. Comparators are drugs produced by other companies that are used for comparison in clinical trials, CBP said.

For all the pharmaceutical products, the drugs are not sold for export prior to their importation by Company A; they are provided by the Company A's affiliates without a sale. Likewise, none are sold after importation by Company A. That made transaction value unavailable.

CBP looked at three scenarios in the ruling: (1) finished drug products, drug products and APIs lacking any approval for commercial sale to treat any disease indication and for which commercial prices are not available; (2) finished drug products, drug products and APIs with approval for commercial sale to treat at least one disease indication and commercial prices available; and (3) comparators purchased in foreign countries by Company A's related entities and shipped to another related entity in the U.S. without a sale.

For the products without commercial prices and for comparators, CBP said that the company could use a modified computed value as a fallback method. The products weren't sold for export, so the transaction value method is not applicable. The transaction value of identical and similar merchandise were also not available because there were no available importations of identical or similar merchandise to appraise. Deductive value wasn't available because there was no sale after importation to start with.

Computed value was unavailable for the products without commercial prices because Company A didn't always have the information to determine the actual cost of clinical products at the unit level because clinical trial stage products are not always inventoried, and costs are expensed. Computed value was unavailable for the comparators because Company A the cost to produce the goods is unknown.

Company A proposed a modified computed value for appraising the products by adding the average cost per unit “average actual per unit price” charged by unrelated third-parties during the prior year, the assist values, and the actual or average “commercially available market prices of packaging,” if required to prepare the product for shipment, CBP said. CBP found that the method was acceptable as a fallback method.

For comparators, Company A proposed a similar modified computed value which included the annual average price per unit, the annual average price for processing to over-label or “over-encapsulate” incurred, transportation costs, and additional packaging. CBP ruled that the method was also acceptable.

For finished drug products, drug products, and API that are available for sale and have commercial prices available, CBP said Company A could use transaction value of identical or similar merchandise when commercial products are imported “at or about the same time and from the same country of export.”

However, for some of the commercially available APIs, finished drug products and drug products, transaction value of identical or similar merchandise wasn't available because they weren't imported at or about the same time or from the same country of export as another importation of an identical or similar good.

CBP instead approved the use of a fallback method based on the transaction value of identical or similar merchandise: Company A will "add" the intercompany price for the commercial finished drug products, drug products and APIs when sold for export to the United States, as well as an amount for additional packaging if required for transportation to the U.S., CBP said. "Based on these specific circumstances and assuming that the relationship between the buyer and the seller does not affect the price actually paid or payable for the identical or similar merchandise, we find that the use of the modified transaction value of identical or similar merchandise methodology, as described above, is an acceptable means to appraise" to goods, CBP said.