BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON
          BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
                              Senator Jerry Hill, Chair
                                2015 - 2016  Regular 

          Bill No:            SB 1193         Hearing Date:    April 18,  
          2016
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          |Author:   |Hill                                                  |
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          |Version:  |April 13, 2016    Amended                             |
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          |Urgency:  |No                     |Fiscal:    |Yes              |
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          |Consultant|Sarah Mason                                           |
          |:         |                                                      |
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                     Subject:  Pharmacy: outsourcing facilities


          SUMMARY: Extends the operation of the Board of Pharmacy (Board) and  
          Pharmacy Law until 2021 and makes various changes to the  
          Pharmacy Law intended to improve Board oversight of licensees  
          involved in the acquisition, storage, distribution and  
          dispensing of dangerous drugs and dangerous devices, including:  
          oversight by the Board for outsourcing facilities; registration  
          with the Board for use of an automated delivery device by a  
          pharmacy; timeline requirements for the Board to approve clinic  
          licenses; and technical changes.

          Existing law:
          
          1)Establishes the United States Food and Drug Administration  
            (FDA) to protect the public health by assuring the safety,  
            effectiveness, quality, and security of human and veterinary  
            drugs, vaccines and other biological products, and medical  
            devices through the Food, Drug, and Cosmetic Act (FDCA).  (21  
            United States Code (USC) § 301 et seq.)

          2)Establishes the Drug Supply Chain Security Act as part of the  
            Drug Quality and Security Act (DQSA), which outlines steps to  
            build an electronic, interoperable system to identify and  
            trace certain prescription drugs as they are distributed in  
            the United States.

          3)Establishes the DQSA, which:







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             a)   Defines an outsourcing facility as a facility at one  
               geographic location or address that:

               i)     Is engaged in the compounding of sterile human  
                 drugs.

               ii)    Has elected to register as an outsourcing facility.

               iii)   Complies with all of the requirements in the newly  
                 enacted Section 503B, including: 

                  1.        Reporting biannually to the Secretary of  
                    Health and Human Services (HHS) on what drugs are  
                    compounding in the facility, the source of ingredients  
                    used to compound, and submission of all adverse event  
                    reports.

                  2.        Compliance with the Current Good Manufacturing  
                    Practice (CGMP) regulations.

                  3.        Drugs are compounded under the direct  
                    supervision of a licensed pharmacist in a registered  
                    facility.

                  4.        Annual registration with the FDA. 

             a)   Exempts drug products compounded at an outsourcing  
               facilities from FDA approval requirements in Section 505 of  
               the FDCA and from requirements to label products with  
               adequate directions from use if the requirements in Section  
               503B listed above are met.  (21 USC § 353b)

          5)Under the Pharmacy Law, provides for the licensure and  
            regulation of pharmacies, pharmacists and wholesalers of  
            dangerous drugs or devices by the Board within the Department  
            of Consumer Affairs (DCA) until January 1, 2017.  (Business  
            and Professions Code (BPC) § 4000 et seq.)  

          6)Requires the Board to adopt regulations establishing standards  
            for compounding injectable sterile drug products (sterile  
            injectables) in a pharmacy.  Clarifies that a pharmacy cannot  
            compound sterile injectables unless the pharmacy is licensed  
            by the Board.  States that a license to compound sterile  








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            injectables cannot be renewed without a Board inspection.   
            (BPC §§ 4127-4127.1) 

          7)States that a nonresident pharmacy cannot compound sterile  
            drug products for shipment into California without a sterile  
            compounding pharmacy license issued by the Board.  (BPC §  
            4127.2)

          8)Authorizes the Board to issue a cease and desist order to a  
            pharmacy compounding sterile injectables whenever the Board  
            has reasonable belief, based on information obtained through  
            an investigation or inspection, that there is an immediate  
            threat to public health or safety.  (BPC § 4127.3)

          9)Authorizes a pharmacy to provide pharmacy services to a health  
            facility through the use of an automated drug delivery system  
            (ADD) that need not be located at the same location as the  
            pharmacy.  Provides that drugs stored in an ADD shall be part  
            of the inventory of the pharmacy providing pharmacy services  
            to that facility, and drugs dispensed from ADD shall be  
            considered to have been dispensed by that pharmacy.  (BPC §  
            4119.1)

          10) Outlines the types of licensed professionals authorized to  
            establish a professional corporation.  (Corporations Code §  
            13401.5)

          This bill:

          1) Extends the operation of the Board and Board Executive  
             Officer (EO) until January 1, 2021.

          2) Related to outsourcing facilities:  Requires outsourcing  
             facilities [as defined under federal law] to be licensed by  
             the Board; prohibits an outsourcing facility to be  
             simultaneously licensed with the Board as a sterile  
             compounding pharmacy at the same location; prohibits a  
             licensed outsourcing facility from filling patient specific  
             prescriptions; requires an outsourcing facility to notify the  
             Board of any disciplinary or other action taken by another  
             state or the FDA or of any recall notices or any adverse  
             events potentially attributable to an outsourcing facility's  
             products; requires the Board to inspect the location of a  
             nonresident outsourcing facility to ensure that the facility  








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             is in compliance with all laws and regulations before issuing  
             or renewing a nonresident outsourcing facility's license;  
             authorizes the Board to issue a cease and desist order to an  
             outsourcing facility if the Board has reasonable belief that  
             the products produced by the facility poses an immediate  
             threat to the public health or safety and; establishes a $780  
             fee for outsourcing facility licensure.

          3) Requires a pharmacy using an automated drug delivery system  
             (ADD) to register use of the ADD with the Board, including  
             the address at which the ADD is being used.

          4) Requires the Board to issue a license to, or incorporate  
             changes reported by, a clinic, within 30 days of receiving a  
             completed application and payment of any prescribed fees.

          5) Authorizes the Board to issue a cease and desist to an entity  
             practicing activities without a license if those activities  
             would require licensure by the Board.

          6) Includes pharmacists in the list of licensed professionals  
             authorized to establish a professional corporation.
          
          FISCAL EFFECT:  Unknown.  This bill is keyed "fiscal" by  
          Legislative Counsel.  
          
          COMMENTS:
          
          1. Purpose.  This bill is sponsored by the  Author  , and is one of  
             five "sunset bills" the Author is sponsoring this year.   
             According to the Author, this bill is necessary to make  
             changes to the Pharmacy Law in order to improve Board  
             oversight of licensees involved in the acquisition, storage,  
             distribution and dispensing of dangerous drugs and dangerous  
             devices.

          2. Oversight Hearings and Sunset Review of Licensing Boards and  
             Programs.  Beginning in 2015, the Senate Business and  
             Professions Committee and the Assembly Business and  
             Professions Committee (Committees) began their comprehensive  
             sunset review oversight of 12 regulatory entities:  DCA,  
             Acupuncture Board, Board of Behavioral Sciences, California  
             Massage Therapy Association, Court Reporters Board, Board of  
             Pharmacy, Physician Assistant Board, Board of Podiatric  








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             Medicine, BPPE, Board of Psychology, Bureau of Real Estate,  
             Bureau of Real Estate Appraisers and Veterinary Medical  
             Board.

             The Committees conducted three oversight hearings in March.   
             This bill and the accompanying sunset bills are intended to  
             implement legislative changes as recommended by staff of the  
             Committees and which are reflected in the Background Papers  
             prepared by Committee staff for each agency and program  
             reviewed this year.

          3. Background on the Board.  The Board is responsible for  
             enforcing federal and state laws pertaining to the  
             acquisition, storage, distribution and dispensing of  
             dangerous drugs (including controlled substances) and  
             dangerous devices.  The Board has over 140,000 licensees in  
             23 license categories that include both personal and business  
             licenses.  As an agency that regulates the individuals and  
             businesses that dispense, compound, provide, store and  
             distribute prescription drugs and devices and pharmaceutical  
             services to the public, or to other health care practitioners  
             in compliance with state and federal law, the licensing of  
             pharmacists, pharmacies, and pharmacy technicians is the  
             primary focus of Board activity, with consumer protection at  
             the core of the Board's operations.  The Board's regulatory  
             authority, as described in the Pharmacy Law, extends over  
             individuals and firms located both within and outside  
             California, if they provide services into California.  The  
             Board notes that it also ensures the safety of drug products  
             dispensed to patients and regulates those who handle, store  
             and ship products from the manufacturer through the supply  
             chain to the pharmacy and ultimately to the patient.
             
             The Board is a special fund agency whose activities are  
             funded through regulatory fees and license fees.  Board  
             licensees are integral to the delivery of quality health  
             care.  They compound, transport, dispense and store  
             prescription drugs and devices for patients that are  
             essential for patient care and treatment.  Pharmacists also  
             convey information related to drug therapy management and are  
             the health care provider most educated on pharmaceutical care  
             and management.  The Board has a highly diverse and detailed  
             licensing program for the individuals and facilities the  
             Board regulates, reflecting the careful and deliberative  








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             manner in which the U.S. regulates the manufacturing,  
             distributing, and dispensing of prescription drugs and  
             devices.

             The Board's enforcement activities are the core of its  
             program, with the majority of its staff and resources  
             dedicated to enforcement functions.  The Board aims to  
             prevent events that could result in patient harm and ensure  
             that there are consequences to deter events from occurring in  
             other pharmacies.  The Board believes its greatest tool in  
             performing the broad range of investigations and inspections  
             required to regulate such a diverse licensing population are  
             licensed pharmacist inspectors.  These investigators work  
             from home offices throughout the state and perform random,  
             unannounced inspections to detect violations, investigate  
             complaints, monitor licensees on probation, educate licensees  
             about Pharmacy Law requirements, serve as expert witnesses in  
             disciplinary hearings and identify violations and issues that  
             non-pharmacists may not be able to identify.

          4. Review of the Board - Issues Identified and Review of the  
             Board - Issues Identified and Recommended Changes.  The  
             following are some of the major issues pertaining to the  
             Board along with background information concerning the  
             particular issue.  Recommendations were made by Committee  
             staff regarding the particular issue areas which needed to be  
             addressed.  
             
              a)   Issue  :  Outsourcing Facilities.

                Background  :  DQSA was signed into law by President Obama on  
               November 27, 2013.  Prompted by the fatal fungal meningitis  
               outbreak in 2012 linked to unsanitary conditions at a  
               Massachusetts compounding pharmacy, as well as concerns  
               regarding increases in counterfeit, falsified, substandard  
               and dangerous prescription medications, DQSA contained two  
               parts - the Compounding Quality Act and the Drug Supply  
               Chain Security Act. 

               The Compounding Quality Act created a voluntary compliance  
               regime in which large-scale compounding pharmacies may  
               voluntarily register as "outsourcing facilities" and be  
               subject to oversight by the FDA in much of the same way  
               that traditional pharmaceutical manufacturers are  








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               monitored.  These facilities must adhere to more stringent  
               current good manufacturing practices and are subject to a  
               risk-based inspection schedule.  The FDA has registered 59  
               outsourcing facilities, three of which are in California.

               California law does not currently recognize outsourcing  
               facilities because state law authorizes only limited  
               anticipatory pharmacy compounding, either for prescriber  
               office use or to meet customary demand.  For a number of  
               years, the Board and other federal and state regulatory  
               agencies have grappled with establishing a tipping point at  
               which a pharmacy compounds enough medications to become a  
               manufacturer.  

               The Board currently licenses entities that would be  
               considered outsourcing facilities as sterile compounding  
               pharmacies - "resident" if they are located in California  
               and "non-resident" if located out of state and ships into  
               California.  There is no distinction between large scale  
               and small scale facilities. 
                   
               However, this regulatory system is losing its viability as  
               a solution for two reasons.  First, it does not recognize  
               the federal outsourcing requirements that permit large  
               scale compounding.  Second, it does not align with other  
               states' systems; multiple states are moving to establish  
               regulatory frameworks to license outsourcing facilities as  
               separate entities and some prohibit licensure of these  
               facilities as sterile compounding pharmacies, contrary to  
               California's structure. 

               In 2015, the Board sponsored legislation (SB 619, Morrell)  
               to license outsourcing facilities.  The Board believes that  
               licensing these entities both within and outside California  
               will ensure that the state's hospitals and practitioners  
               have access to high quality, carefully compounded sterile  
               medication.
               
                Recommendation and Proposed Statutory Change  :  The  
               Committee suggests adding an outsourcing facility license  
               to the Pharmacy Law and recommends that the Board conduct a  
               careful calculation of costs associated with regulating  
               these facilities to ensure that budget imbalances do not  
               result (in the event that the workload and travel necessary  








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               for the scope of this work) exceed the revenue from fees.  

               This bill makes the following changes to the Pharmacy Law  
               related to outsourcing facilities:

               Requires outsourcing facilities [as defined under federal  
               law] to be licensed by the Board; prohibits an outsourcing  
               facility to be simultaneously licensed with the Board as a  
               sterile compounding pharmacy at the same location;  
               prohibits a licensed outsourcing facility from filling  
               patient specific prescriptions; requires an outsourcing  
               facility to notify the Board of any disciplinary or other  
               action taken by another state or the FDA or of any recall  
               notices or any adverse events potentially attributable to  
               an outsourcing facility's products; requires the Board to  
               inspect the location of a nonresident outsourcing facility  
               to ensure that the facility is in compliance with all laws  
               and regulations before issuing or renewing a nonresident  
               outsourcing facility's license; authorizes the Board to  
               issue a cease and desist order to an outsourcing facility  
               if the Board has reasonable belief that the products  
               produced by the facility poses an immediate threat to the  
               public health or safety and; establishes a $780 fee for  
               outsourcing facility licensure.

              b)   Issue  :  Automated Drug Delivery Systems.

                Background  :  Current law authorizes the use of ADDs which  
               are a mechanical system controlled remotely by a pharmacist  
               that performs operations or activities, other than  
               compounding or administration, relative to the storage,  
               dispensing, or distribution of prepackaged dangerous drugs  
               or dangerous devices.  An automated drug delivery system is  
               required to collect, control, and maintain all transaction  
               information to accurately track the movement of drugs into  
               and out of the system for security, accuracy, and  
               accountability.  Under some circumstances the pharmacist  
               must authorize the release of medication.

               Pharmacies are able to operate automated delivery devices  
               in various settings away from a licensed pharmacy or within  
               a licensed facility. This includes in skilled nursing homes  
               and other specified health care facilities, certain  
               clinics, and hospitals for drug storage and access outside  








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               of the pharmacy. 

               The demand for additional use of these delivery devices is  
               growing. A pilot study is currently underway that would  
               allow patients to pick up medication from a delivery device  
               that is not specifically located in a pharmacy so long as  
               patient consultation is first provided.

               The Board reports that it is not currently able to track  
               how many of these delivery devices are in use, where they  
               are in use, or which pharmacy is responsible for specific  
               delivery devices.  A registration would enable the Board to  
               identify which pharmacies operate these delivery devices  
               and where each is located.  

                Recommendation and Proposed Statutory Change  :  The  
               Committees may wish to authorize the Board to establish a  
               registration requirement that links automated delivery  
               device systems to the pharmacy that owns and is responsible  
               for the medications stored and released from the device.   
               As part of the registration, the Committees may wish to  
               require that the Board is provided with the policies and  
               procedures that demonstrate appropriate security of the  
               device and how patient consultation is being provided.   
               Registration of these systems may also require a reporting  
               function to ensure that the Board is made aware of drug  
               losses from the machines, similar to the requirement for  
               pharmacies to report drug loss information.

               This bill makes the following changes to the Pharmacy Law  
               related to ADDs:

               Requires a pharmacy using an automated drug delivery system  
               (ADD) to register use of the ADD with the Board, including  
               the address at which the ADD is being used.

              c)   Issue  :  Backlogs.

                Background  :  The Board's failure to timely issue a license  
               to an individual or entity prevents or at least delays that  
               individual or business from working.  For example, if the  
               Board delays a licensing decision because it is  
               investigating an applicant's criminal background, the job  
               intended for that applicant may be given to another  








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               individual.  As a result, the Board's delay in licensing,  
               while often necessary, has a direct impact on consumers and  
               practitioners.

               The Board aims to issue a permit as quickly as possible  
               once the applicant has been determined to be qualified for  
               licensure.  The Board notes that it works with applications  
               from new businesses that must be licensed by the Board, and  
               strives to ensure that they can open on the date they  
               desire, even when they turn applications in very close to  
               the desired opening date.  According to the Board, this  
               usually can be accomplished but there are a number of  
               components that must be completed before an applicant can  
               receive a new pharmacy or wholesaler license.  The Board  
               does have the ability to issue temporary licenses to  
               pharmacies and wholesalers if a certain number of  
               requirements are fulfilled, which in turn permits the new  
               business to operate and the Board can then finalize review  
               of the licensing documents over the course of 180 days. 

               The Board may also benefit from a statutory clarification  
               related to processing timelines for applications filed by  
               clinics opening a new location, reporting a change to an  
               existing location or updating certain information like  
               changes to corporate officers.  Similarly, a streamlined  
               process for commonly-owned clinics to use just one  
               application may speed up timelines and improvements may be  
               realized if clinic corporations owning more than one  
               Board-licensed clinic are authorized to renew all of their  
               permits at one time.  

               Recommendation and Proposed Statutory Change  :  The  
                                         Committees may wish to amend the Pharmacy Law to require  
               clinic applications to be processed within 30 days, to  
               create a streamlined process for commonly-owned clinics to  
               report organization-wide changes in corporate officers,  
               consulting pharmacists and medical directors and to create  
               one renewal date for all clinic permits, ensuring that  
               commonly owned clinics could be renewed in a timely manner.

               This bill makes the following changes to the Pharmacy Law  
               related to licensure processing:

               Requires the Board to issue a license to, or incorporate  








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               changes reported by, a clinic, within 30 days of receiving  
               a completed application and payment of any prescribed fees.  
               

              d)   Issue  :  Cease and Desist for Unlicensed Activity.

                Background :  The Board continues to focus on unlicensed  
               activity and take swift action to prevent harm to  
               California patients.  One particular are of unlicensed  
               activity that the Board has identified is the provision of  
               services to Californians from a business or individual  
               located out of state, that may be licensed to do business  
               in that state, but is not licensed under the Board as a  
               nonresident pharmacy or wholesaler.  Sometimes the Board  
               may come across pharmacy services being performed outside  
               of a pharmacy but not licensed by the Board.  Periodically,  
               the Board identifies brokers who make prescription drug  
               transactions without licensure; for example, a wholesaler  
               broker offers to sell to a pharmacy prescription drugs,  
               however the broker is not licensed in California as  
               required.

               The Board does not currently have the authority to issue a  
               cease and desist order to businesses involved in unlicensed  
               activity.  Simply citing and fining an unlicensed business  
               is often an insufficient consequence to stop unlicensed  
               activity because the Board reports that frequently the  
               business will continue to do the very action which violates  
               the law.

                Recommendation and Proposed Statutory Change  : The  
               Committees may wish to amend the Pharmacy Law to allow the  
               Board to issue a cease and desist order for unlicensed  
               activity.      
               
               This bill makes the following changes to the Pharmacy Law  
               related to unlicensed activity:

          Authorizes the Board to issue a cease and desist to an entity  
          practicing activities without a license if those activities  
          would require licensure by the Board.

              e)   Issue  :  Professional Corporations.









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                Background  :  Corporations Code § 13401.5 authorizes the  
               formation of various healing arts professional corporations  
               and establishes which healing arts licensees who are not of  
               the same license type as the corporation may be  
               shareholders, officers, and directors of that corporation.   
               Any person licensed under the BPC, the Chiropractic Act, or  
               the Osteopathic Act may be employed by these professional  
               corporations.  Thus, the services of professional  
               corporations are not limited to the named profession.  For  
               example, a nursing corporation may have a director who is a  
               chiropractor, a shareholder who is an acupuncturist, and  
               employ an accountant, podiatrist, and a marriage and family  
               therapist, none of which would traditionally be seen as  
               providing the professional services of nursing.     

               Current law authorizes a medical corporation to have the  
               following licensees as officers, directors, and  
               shareholders:  

               (1) Licensed doctors of podiatric medicine.
               (2) Licensed psychologists.
               (3) Registered nurses.
               (4) Licensed optometrists.
               (5) Licensed marriage and family therapists.
               (6) Licensed clinical social workers.
               (7) Licensed physician assistants.
               (8) Licensed chiropractors.
               (9) Licensed acupuncturists.
               (10) Naturopathic doctors.
               (11) Licensed professional clinical counselors.
               (12) Licensed physical therapists.

               Stakeholders have requested that pharmacists be added to  
               this list, given the recent expansion of the pharmacists'  
               scope of practice by  SB 493  (Hernandez, Chapter 469,  
               Statutes of 2013).  

               Pharmacy corporations were authorized in 1996 in the  
               Pharmacy Practice Act, rather than the Corporations Code.   
               Current law allows a pharmacy corporation's officers,  
               directors, and shareholders to be anyone who is a "licensed  
               person" as defined in Section 13401 of the Corporations  
               Code: 









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               "Licensed person" means any natural person who is duly  
               licensed under the provisions of the Business and  
               Professions Code, the Chiropractic Act, or the Osteopathic  
               Act to render the same professional services as are or will  
               be rendered by the professional corporation or foreign  
               professional corporation of which he or she is, or intends  
               to become, an officer, director, shareholder, or employee.

               Since the "same professional services" rendered by the  
               corporation is an expansive concept, it can be argued that  
               a physician can be an officer, director, or shareholder of  
               a pharmacy corporation.  It follows, then, that it would be  
               equitable for a pharmacist to be an officer, director, or  
               shareholder of a medical corporation.    

                Recommendation and Proposed Statutory Change  : The  
               Committees may wish to amend the Pharmacy Law to allow the  
               Board to issue a cease and desist order for unlicensed  
               activity.      
               
               This bill makes the following changes to the Corporations  
               Code related to professional corporations:

               Includes pharmacists in the list of licensed professionals  
               authorized to establish a professional corporation.

              f)   Issue  :  Continued Regulation by the Board.

                Background  :  The Board of Pharmacy has shown over the years  
               a strong commitment to improve its overall efficiency and  
               effectiveness and has worked cooperatively with the  
               Legislature and this Committee to bring about necessary  
               changes.   The Board should be continued with a four-year  
               extension of its sunset date so that the Committee may  
               review once again if the issues and recommendations in this  
               Background Paper and others of the Committee have been  
               addressed.

                Recommendation and Proposed Statutory Change  : Recommend  
               that the pharmacist profession, pharmacies and other  
               licensees necessary in the delivery of medication to  
               patients continue to be regulated by the current Board  
               members in order to protect the interests of the public and  
               be reviewed once again in four years.   








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               This bill makes the following changes to the Pharmacy Law  
               related to the Board's continued operation:

               Extends the operation of the Board and Board EO until  
               January 1, 2021.

          5. Arguments in Support.  Planned Parenthood Planned Parenthood  
             Affiliates of California supports the provisions in this bill  
             related to processing efficiencies for clinic applications.    
             


          SUPPORT AND OPPOSITION:
          
           Support:  

          Planned Parenthood Affiliates of California 

           Opposition:  

          None on file as of April 12, 2016.



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