SECOND CIRCUIT IMPOSES ADDITIONAL LIMITS ON CONSTITUTIONAL PROTECTION FOR OFF-LABEL STATEMENTS BY DRUG MANUFACTURERS

Off-label statements and conduct of pharmaceutical manufacturers that rise to the level of misbranding under the Federal Food, Drug & Cosmetics Act are not protected by the First Amendment. 

OVERVIEW

On May 17, 2016, the United States Court of Appeals for the Second Circuit affirmed dismissal of a False Claims Act case against Pfizer, holding that National Cholesterol Education Program (NCEP) Guidelines as to the prescription of Lipitor were advisory rather than mandatory or required by the FDA-approved label.  Accordingly, marketing outside these Guidelines did not constitute off-label promotion as relator claimed.[1]

Although this direct holding has garnered the most attention from the legal world, the Court’s clarification and cabining of its decision in United States v. Caronia is by far the more broadly significant aspect of its decision.

REASONING 

In the controversial decision of United States v. Caronia, 703 F.3d 149 (2d Cir. 2012), the Second Circuit held that the FDCA does not prohibit or criminalize the promotion of a drug’s off-label use if the promotion is truthful and not misleading in order to avoid First Amendment concerns.  However, the Caronia court reaffirmed that off-label promotion that was false or misleading did not enjoy constitutional protection.  The decision was praised by pharmaceutical manufacturers but criticized in many other quarters.  The decision is not binding outside the Second Circuit and has been sharply cabined or rejected outright by district courts in other jurisdictions.[2]  Likewise, in response to a post-Caronia bill designed to loosen the restrictions on off-label promotion, the White House issued a Statement of Administration Policy explaining that the bill “could undermine regulatory standards by allowing unproven uses of therapies to be marketed to health care payors as though such uses had been proven safe and effective.”[3]

In Polansky, a unanimous decision by the Second Circuit itself has now cabined Caronia and identified additional conduct (and statements in furtherance thereof) that do not enjoy constitutional protection.  Citing to Caronia for the proposition that there is potential value to off-label drug use and that certain off-label statements by manufacturers are permitted, the Court carefully identified off-label statements and conduct that is not constitutionally protected.  The Court explained that pharmaceutical manufacturers “are generally prohibited from promoting off-label uses of their products if the off-label marketing is false or misleading, or if it evidences that a drug is intended for such off-label uses and is therefore misbranded.” (emphasis added).  The Court further explained that a drug is misbranded “if its labeling lacks ‘adequate directions’ for safe use by a layperson ‘for the purposes for which it was intended” and affirmed that “Caronia left open” the “government’s ability to prove misbranding on a theory that promotional speech provided evidence that a drug is intended for a use that is not included on the FDA-approved label.”

IMPLICATIONS 

The implications are significant.  For example, obtaining approval for one indication and intending to market and marketing a drug for a wholly different indication upon approval qualifies as misbranding under the law and would not be constitutionally protected speech or conduct under the Second Circuit’s decision in Polansky.  Off-label statements made in furtherance of a manufacturer’s efforts to sell a drug for an indication unrelated to those for which it sought and obtained approval are not protected.  Other jurisdictions continue to take a stricter view of permissible conduct and statements, refusing to affirm the existence of constitutional protection for any off-label promotion or statements by pharmaceutical manufacturers.

Caronia  has not proven to provide the license to promote off-label that many anticipated, and pharmaceutical manufacturers should continue to proceed cautiously.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys assist qui tam relators and the United States government in prosecuting fraud and provide compliance counseling to companies wishing to avoid legal liability under the False Claims Act and other federal and state statutes. GBB has litigated some of the nation’s largest qui tam cases to date.

————————————————————————————–

[1] United States ex rel. Polansky v. Pfizer, Inc., 2016 U.S. App. LEXIS 8974, No. 14-4774 (2d Cir. May 17, 2016).  Off-label promotion has long been recognized as a violation of the Federal, Food, Drug and Cosmetic Act (FDCA) and a predicate for False Claims Act liability.  Since 2004, there have been at least 31 False Claims Act settlements where a predicate allegation has been promotion of a drug in violation of the FDCA.  Many of these cases settled for billions or hundreds of millions of dollars.

[2] E.g. Hawkins v. Medtronic, Inc., No. 13-00499, 62 F. Supp. 3d 1144 (E.D. Cal. Feb. 15, 2016);Beavers-Gabriel v. Medtronic, Inc., 15 F. Supp. 3d 1021 (D. Haw. 2014); McDonald-Lerner v. Neurocare Assocs., P.A., No. 373859-V, 2012 Md. Cir. Ct. (Md. Cir. Ct. Aug. 29, 2013).

[3] STATEMENT OF ADMINISTRATION POLICY: H.R. 6 – 21st Century Cures Act (July 8, 2015), available at  https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr6r_20150708.pdf

DE SUPREME COURT RULES ON STATUTE OF LIMITATIONS FOR BAD FAITH CLAIMS AGAINST INSURANCE COMPANY

Delaware Supreme Court rules the three-year statute of limitations for an insurance bad-faith claim accrues when an excess judgment becomes final and is no longer appealable. 

OVERVIEW
On March 4, 2016, the Delaware Supreme Court addressed when bad-faith-failure-to-settle claims accrue in the case of Connelly v. State Farm Mutual Automobile Insur. Co., Del. Supr., No. 426, 2015 (Mar. 4. 2016). In a decision authored by Chief Justice Leo Strine, the Court held that the three-year SOL accrues when an excess judgment becomes final and no longer appealable.

REASONING 
The Court began its analysis with basic principles. It first applied the condition of “good faith and fair dealing” imposed upon all Delaware contracts. The Court explained that in the insurance context, the implied covenant historically “included a duty to settle claims within policy limits where recovery in excess of those limits is substantially likely.” The Court also drew upon reasoning from jurisprudence in the area of indemnification of directors and officers. In that context, indemnity claims do not accrue until there is a final judgment. The Court reasoned that insurance claims are also a type of indemnity because the obligation to cover an indemnified party’s costs only arises if and when a final and non-appealable excess judgment to a third-party claim arises. Applying Delaware General Corporation Law (“DGCL”) Section 145, the Court determined that in non-advancement indemnity claims, the “corporation’s obligation to indemnify its fiduciary, employee, or agent, is also conditioned on that party meeting the standard of conduct.” It further held that similarities between insurance and traditional D&O indemnity claims warrant application of the same policies of “litigative efficiency and preventing waste of judicial resources that have led Delaware courts to determine that an indemnity claim accrues when there is a final judgment.”

IMPLICATIONS 
The case is particularly interesting for its application of director and officer indemnity jurisprudence outside its typical context and because many litigators will benefit from knowing when the SOL begins to run for a claim against an insurance company for bad faith failure to settle within policy limits. Although arguing for a different rule, State Farm accepted the decision “as fair,” telling the Delaware Law Weekly through counsel that “[i]t’s fine, as long as we know what it is.” The decision does provide sound guidance and needed certainty moving forward and establishes precedent for other jurisdictions to adopt.

CONTACTS
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB will be opening its Delaware office on April 1, 2016 to better serve institutional investors and corporate clients.

DEPARTMENT OF LABOR’S WHITE COLLAR OVERTIME RULES TO TAKE EFFECT – ARE YOU PREPARED?

Final rules that dramatically expand the class of employees entitled to overtime could take effect by spring of 2016. 

The Department of Labor (DOL) sent its final rule revising the white collar overtime exemption regulations of the federal Fair Labor Standards Act (FLSA) to the White House Office of Management and Budget (OMB) on Monday March, 14, 2016.

The proposed rule was issued in July of 2015 and would dramatically expand the class of employees entitled to overtime pay. It proposes to:

  • Increase the salary level governing the FLSA’s white collar exemptions from $455 per week ($23,660 per year) to approximately $970 per week (or $50,440 per year) and implement an automatic adjustment to the salary test going forward to ensure that salary levels continue to provide an effective and useful test for the exemption;
  • Raise the minimum salary test for the highly compensated exemption from $100,000 per year to $122,148 per year and index the level to the 90th percentile of weekly full-time employee earnings so that the level stays appropriate and relevant over time; and
  • Seek additional input as to whether the DOL should alter the duties requirements for various exemptions.

OMB review is the last step in the regulatory process before revised regulations take effect and are published in the Federal Register. The OMB is allotted 90 days to review proposed regulations, but it usually reviews and publishes proposed regulations in far less time. Accordingly, a final rule revamping the white collar overtime exemption regulations could be published as early as this spring.

IMPLICATIONS FOR EMPLOYERS
Larger and more sophisticated employers have been well aware that these changes are coming. Given the likely rollout date, it is time to start planning for them. Large and small employers can and should plan ahead to ensure they will be in compliance with the proposed salary requirements. Although potential changes to the duties test remain unclear, employers may also benefit from considering the nature and sophistication of their workforce and revisiting their staffing needs. As for employees, employees should take a hard look at their pay stubs and consider their job duties and consult a qualified attorney if they feel they are being improperly compensated.

CONTACTS
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB assists employers in navigating the complexities of employment law and assists employees in adjudicating their rights.

 

 

President Obama’s Supreme Court nominee has a history of siding with health agencies

The Food and Drug Administration and other public health agencies will likely be pleased by President Barack Obama’s nomination Wednesday of Merrick Garland to the Supreme Court.

That’s because Garland, currently chief judge on the US Court of Appeals in Washington, D.C., is known for backing federal agencies like FDA and the Environmental Protection Agency against legal challenges on health-related cases.

Read the full article on STATnews.com.

FDA AND AMARIN REACH SETTLEMENT ON OFF-LABEL STATEMENTS IMPLICATING FIRST AMENDMENT ISSUES

Settling claims that drug maker Amarin promoted its fish-oil pills for unapproved uses, the FDA stresses the settlement does not signify a position on the First Amendment and commercial speech. It refused to acknowledge that the First Amendment allows a pharmaceutical manufacturer to promote off-label if the promotion is truthful. 

OVERVIEW
On March 8, 2016, the United States District Court for the Southern District of New York approved a settlement between the Food and Drug Administration (“FDA”) and drug company Amarin Pharma, Inc. in connection with Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al. The case focused on a legal dispute concerning Amarin’s promotion of off-label claims for its fish oil product Vascepa®.[1]

In a prior decision, the district court had applied a 2012 decision by the U.S. Court of Appeals for the Second Circuit in the case of United States v. Caronia finding that pharmaceutical and medical device companies have a constitutionally protected right to provide truthful and non-misleading information regarding off-label uses of their products.[2] The previous Amarin decision, in a limited preliminary injunction context, ruled against the FDA and upheld the rights of Amarin to make truthful and non-misleading statements regarding off-label uses of its FDA-approved drug, including the right to make those promotional statements to healthcare providers through sales representatives. The court also held that truthful and non-misleading promotional statements do not alone form the basis of a prosecution for misbranding in violation of the Food, Drug and Cosmetics Act.

TERMS OF THE AMARIN SETTLEMENT AGREEMENT
Under the settlement agreement, the FDA agreed to be bound by the District Court’s preliminary injunction decision that Amarin may engage in truthful, non-misleading speech promoting off-label use of Vascepa® to treat patients with persistently high triglycerides. The FDA also agreed that the materials that provided a basis for the court’s preliminary decision, including disclosures and scientific information (as modified by court order) were truthful and non-misleading.

The settlement makes Amarin responsible for assuring that future communications to doctors regarding off-label use of Vascepa® are truthful and not misleading. The settlement also allows Amarin, at its discretion, to provide up to two communications regarding the off-label use of Vascepa® per year to FDA for comment and identification of objections. This may assist but cannot reasonably be said to guarantee that all of Amarin’s future off-label communications will be truthful and not misleading. The settlement agreement imposes time requirements on FDA to provide feedback to Amarin on its off-label communications and a set period for Amarin to respond to this feedback. It also allows the parties to submit a motion to the District Court to hear disputes as to whether particular off-label statements are misleading. The court review process will remain in place until 2020. The FDA insists the case is narrow and specific, involving a single drug and single company. In an agency statement, the FDA expressly stated “[t]his settlement is specific to this particular case and situation,” and “does not signify a position on the First Amendment and commercial speech.”[3]

IMPLICATIONS AND KEY TAKEAWAYS
Putting aside the merits of whether truthful off-label promotion should be permissible and enjoy First Amendment protection, the Amarin case and its predecessor Caronia inject substantial uncertainty into False Claims Act jurisprudence and liability for criminal misbranding. Since 2004, there have been at least 31 settlements by pharmaceutical companies to resolve allegations of off-label promotion of drugs. Many of these settlements involved significant civil damages under the False Claims Act and often involved guilty pleas to criminal misbranding in violation of the Federal Food, Drug and Cosmetic Act. Individual settlements have run into hundreds of millions, and in some cases, billions of dollars. Billion dollar settlements post-date Caronia.[4] In what was the largest pharmaceutical settlement in U.S. history at the time, Pfizer reached a $2.3 billion settlement with the Department of Justice to resolve criminal charges and civil claims under the False Claims Act for the alleged off-label promotion of Bextra, Geodon, Zyvox, and Lyrica. The Second Circuit is the only appellate court to currently hold that off-label promotion of drugs enjoys constitutional protection, and lower courts in other jurisdictions have sharply cabined Caronia, in some cases outright rejecting the decision and its reasoning regarding free speech.[5] Moreover, all courts to confront the issue have agreed that false or misleading off-label promotion does not enjoy constitutional protection, a position the Caronia court itself reiterated.

Pharmaceutical companies should view the Amarin decision and settlement with caution and should not view Caronia or its successors as providing free license to promote off-label. Companies face the risk that a court in another jurisdiction will reject the rationale of the Caronia majority, perhaps adopting the rationale set forth in the Caronia dissent, authored by Judge Debra Ann Livingston, which would have upheld bans on truthful off-label promotion as constitutionally viable. Along the lines of Judge Livingston’s dissent, the United States government could be expected – in another case – to argue that an outright prohibition on off-label promotion is the only reasonable means of achieving FDA goals because off-label promotion, by its nature, so inherently strays into being misleading that the concept of truthful off-label promotion is not possible to apply. Drug and device manufacturers also run the risk that promotion they view as being truthful could be found by a fact-finder to be false or misleading on the grounds that it overstates product efficacy, minimizes safety concerns, lacks fair balance, or for a myriad of other reasons. Nevertheless, Caronia and Amarin do provide one avenue for pharmaceutical companies accused of off-label promotion to avoid liability if they can convince a court to accept Caronia and Amarin‘s rationale and establish that the promotion at issue was truthful.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys assist qui tam relators and the United States government in prosecuting fraud and provide compliance counseling to companies wishing to avoid legal liability under the False Claims Act and other federal and state statutes.

————————————————————————————–

[1] Stipulation and Order of Settlement, Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al., No. 15 Civ. 3588 (S.D.N.Y. Mar. 8, 2016).

[2] Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al., 119 F. Supp. 3d 196 (S.D.N.Y., 2015) (applying U.S. v. Caronia, No. 09-5006 (2d Cir. Dec. 3, 2012).

[3] See https://www.washingtonpost.com/national/health-science/fda-settles-with-drug-company-on-promotion-of-fish-oil-pill-for-unapproved-uses/2016/03/08/0403a5ea-e57d-11e5-bc08-3e03a5b41910_story.html?postshare=7361457531156927&tid=ss_mail

[4] For example, in November 2013, Johnson & Johnson reached a $1.391 billion settlement to resolve false claims resulting from its off-label promotion of Risperdal, Invega, and Natrecor. Companies also entered into settlements in the hundreds of millions of dollars after the Second Circuit decided Caronia. In July 2013, Wyeth agreed to pay $257.4 million to resolve claims involving off-label promotion of the immunosuprressant drug Rapamune. In February 2014, Endo Pharmaceuticals agreed to pay $171.9 million to resolve civil liability under the False Claims Act for its off-label promotion of Lidoderm.

[5] E.g. Hawkins v. Medtronic, Inc., No. 13-00499, 62 F. Supp. 3d 1144 (E.D. Cal. Feb. 15, 2016); Beavers-Gabriel v. Medtronic, Inc., 15 F. Supp. 3d 1021 (D. Haw. 2014); McDonald-Lerner v. Neurocare Assocs., P.A., No. 373859-V, 2012 Md. Cir. Ct. (Md. Cir. Ct. Aug. 29, 2013).