announcing product launch and pricing can be false advertising if no launch occurs

Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC, 2016 WL 1271082, No. 3:14CV00016 (W.D. Va. Mar. 29, 2016)

 

Concordia bought the Donnatal line of pharmaceutical products from former plaintiff PBM. Donnatal is a prescription line of combination phenobarbital and belladonna alkaloid (PBA) products that is used in the treatment of irritable bowel syndrome and acute enterocolitis. They’re grandfathered drugs; the FDA was required to conduct a retrospective evaluation of such drugs in 1962.  Concordia benefits from conditional approval ANDAs that allow Donnatal to be legally marketed until the FDA resolves questions regarding the drugs’ effectiveness under the FDCA; the FDA has concluded that Donnatal is safe.

 

Donnatal faced competition from generic PBA products that were pharmaceutically equivalent to Donnatal for many years, but then manufacturers of the generic versions began to take their products off the market, making Donnatal the only PBA product available for prescription.

 

Method, a wholesale drug distribution company, tried to enter the market with a PBA product it planned to call Me-PB-Hyos, and sought a manufacturer for a product that would be pharmaceutically equivalent to Donnatal. Method issued four purchase orders to another company, Winder, for the development of Me-PB-Hyos, including a purchase order for stability tests. Winder and Method agreed on the price that Winder would charge and discussed commercial production.

 

Method listed the Me-PB-Hyos products with two pharmaceutical industry databases, used nationwide by wholesalers, third-party payors, pharmacies, and pharmacists.  Based on the information provided by Method, the Me-PB-Hyos products were assigned the same Generic Product Identifier as Donnatal by one database, with a marketing start date of June 1, 2014, and the marketing category was listed as “unapproved drug other.”  The other database listed the Me-PB-Hyos products in early June 2014.  In both databases, the price information provided by Method indicated a lower price than that for Donnatal.

 

This lawsuit began, and Method contacted Winder, stating “We think it might be best to bail on this project at Winder and not bring Winder into the litigation.”  On the same day, Method advised one of the databases that “Me-PB-Hyos is an active product and will be available to ship by 11/15/14.” Following up, Method explained that “The products were never launched. Within days of our listing with Medi-Span back in April, Method was sued by a competitor… Based on the status of the case, Method intends to launch in mid-November.”  But it never did, and about a month later, the databases removed their active listings for the Me-PB-Hyos products.

 

After the Me-PB-Hyos products were listed on the databases, pharmacists began to submit claims for the product.  There were instances in which insurance coverage for Donnatal was refused; at least once, a claim for Donnatal was refused while a subsequent claim for Me-PB-Hyos was approved. But because Me-PB-Hyos was unavailable, the patient was switched to different medications and didn’t receive a prescription for Donnatal.  Third-party payors began placing Me-PB-Hyos on their formularies as a generic alternative to Donnatal, and at least once Donnatal was actually removed from a formulary with Me-PB-Hyos listed as the preferred generic alternative.  Some doctors stopped prescribing Donnatal altogether based on the mistaken belief that it was no longer available. One doctor testified that “12 or 14 prescriptions ... were turned down” in June of 2014, and that she “slowly stopped writing [prescriptions] because [she] didn’t want to get the phone calls back” from pharmacies indicating that Donnatal wasn’t available.  The total number of Donnatal prescribers decreased by nearly eighteen percent in the twelve-month period following Method’s claimed launch date, and weekly prescription counts for Donnatal also decreased, though the causation was disputed.

 

From January 2012 to June 2014, the prices of Donnatal products increased by 1,480%, and then in June Concordia doubled the price again.  Its profits and profit margin increased after Method’s Me-PB-Hyos products were listed with the databases, though Concordia argued that it would have made even more had Method not listed its products.

 

Concordia argued that the listings were literally false, since no Me-PB-Hyos products were ever manufactured.  Method responded that the mere existence of a listing for a product in a pharmaceutical drug database is not a representation of current commercial availability, and that at least one pharmaceutical industry representative deposed by Concordia testified that it was common to find a database listing for a product that was not yet commercially available. Concordia’s own pleadings stated that databases are “used ... to evaluate medications that are currently or will soon be on the market.”  There was a genuine issue of material fact about literal falsity as to availability; a reasonable jury could conclude that there was literal falsity by necessary implication.

 

Concordia also argued that  Method made literally false statements indicating that the Me-PB-Hyos products had been approved by the FDA, because the package inserts included the following: “FDA has classified the following indications as “possibly” effective: For use as adjunctive therapy in the treatment of irritable bowel syndrome (irritable colon, spastic colon, mucous colitis) and acute enterocolotis ....”  Method responded that it never claimed that its own product had been approved, and specifically advised the listing services of the absence of FDA approval (thus the category “unapproved drug other”).   Its reference, Method argued, was to PBA drug products, and it noted that product labels and package inserts for other generic PBA drug products previously on the market contained similar language.  The court still found a factual issue as to literal falsity: “reasonable minds could differ as to whether FDA approval was conveyed by necessary implication as a result of the indications and usage section of the package inserts.”

 

Concordia also argued that Method made false claims of pharmaceutical equivalence, because it had no products with the same active ingredients in the same amounts—it hadn’t produced anything.  (Isn’t this really an unusual lack of substantiation claim?  Before there is a product, it seems that it’s neither true nor false that the product is pharmaceutically equivalent.  The product isn’t.  That doesn’t mean it’s not pharmaceutically equivalent, because the failure to be comes before it could be evaluated as equivalent or not.)  Indeed, the court’s phrasing makes clear that this is a lack of substantiation claim: “Concordia argues that Method had no basis for the information contained in the labels and inserts” (emphasis added).  Method argued that it intended to distribute a pharmaceutically equivalent product, and was only halted by this lawsuit. 

 

The court again found a material issue of fact, hinging in part on whether Method falsely represented that the products were commercially available.  If a jury so found, it could also find the descriptions of ingredients to be literally false.  But if the listing merely indicated an intent to market, a jury could find that there was no literal falsity. 

 

The court went through the same reasoning with respect to Method’s price claims.

 

Materiality: assuming that the Fourth Circuit would require a showing of materiality even in cases of literal falsity, there was a genuine issue of material fact on materiality. A jury could find that claims of pharmaceutical equivalence, price, FDA approval, and availability were likely to influence purchasing decisions.  So too with harm, even without Fourth Circuit guidance on when a presumption of harm might be allowed, given the (contested) evidence of harm recited above.  (There was other evidence of alternative causes—for example, “Donnatal was pulled up with no generic product showing” at three major pharmacy chains, and the doctor who testified might have been told that Donnatal was no longer being made because one version had in fact been discontinued.)

 

State-law unfair competition claims survived for the same reason, but not Virginia Consumer Protection Act claims, because that law doesn’t provide competitors with standing. Likewise, unjust enrichment failed because there was no evidence that Method received any value from using Donnatal product labels to create its own labels.  (Anyway, that theory sounds like a FDCA preemption claim waiting to happen.) Nor could conspiracy claims survive; employees of a corporation can’t conspire with the corporation, and there was no evidence that Winder was part of any conspiracy; even though it knew that Method wanted to make a competing product, there was no evidence that it knew about the database listings, the only source of harm here.  Tortious interference also failed for want of evidence of any specific, existing contractual relationship or business expectancy that was destroyed.