statements about legality are only factual if the law is really, really clear

Azurity Pharms., Inc. v. Edge Pharma, LLC, --- F.4th ----, 2022 WL 3335823, No. 21-1492 (1^st Cir. Aug. 12, 2022)

Many FDA-related false advertising claims about pharmaceuticals are preempted because of the special role FDA plays in regulating them, but not all, as this case explains, applying Pom Wonderful to the pharmaceutical context.

Azurity sells a hydrochloride vancomycin drug that received FDA pre-market approval. Edge is a drug compounding company that sells a hydrochloride vancomycin drug that competes with Azurity’s, but that has not been given pre-market FDA approval.

Azurity sued Edge under the Lanham Act and a Massachusetts consumer protection law, Mass. Gen. Laws. ch. 93A for falsely advertising that Edge is not in violation of section 503B of the FDCA, which authorizes drug compounders who meet certain conditions to market their compounded drugs without first obtaining FDA approval. In addition, Edge allegedly falsely touted its vancomycin drug as superior to Azurity’s.

The district court dismissed the claims because they would require the court to interpret the FDCA and interfere with FDA’s authority; the court of appeals affirmed the dismissal of the main 503B-related claim and vacated as to the superiority claim.

Pre-approval isn’t required for some compounded drugs made in outsourcing facilities, as detailed by 503B. Among other things, an “outsourcing facility” may not compound a drug that is “essentially a copy of one or more approved drugs,” and Azurity alleged that this was the situation here.

Edge made various statements about being a “503B Outsourcing Facility” that was “registered,” “inspected,” and “compliant” with, inter alia, FDA regulations and guidelines. It also stated that “commercially available options are not ideal for use in the hospital setting,” which Azurity alleged was a false superiority statement.

Without ruling on preclusion, the court of appeals affirmed the dismissal of the non-superiority literaly falsity claims on the ground that claims about the legality of a product or service, made by a nonlawyer, are usually not factual in the absence of “clear and unambiguous” guidance from appropriate authorities (usually regulators), adopting reasoning from other circuits. Coastal Abstract Service, Inc. v. First American Title Insurance Co., 173 F.3d 725 (9th Cir. 1999); Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484 (D.C. Cir. 1996).

“Essentially a copy”: Azurity argued that the rules here were sufficiently clear and unambiguous to found its claims, given nonbinding FDA guidance about the meaning of “essentially a copy.” It argued that, as to each element the FDA said it would consider, it alleged facts that would mean a violation. But there was no ruling by the FDA or any court that Edge had in fact violated section 503B by engaging in conduct barred by the “essentially a copy” provision. Nor was there a binding ruling by an agency or a court about the meaning of the “essentially a copy” provision itself with respect to what the “applicable factors” were for determining whether two drugs are identical or nearly identical. [Azurity offered a different theory of violation, relating to whether the compounded drug offered a “clinical difference,” but the complaint didn’t allege facts related to that theory. The district court could consider whether to allow amendment on remand, and also consider whether preclusion would also apply to this theory.]

Misleadingness: Azurity’s theory was that while Edge’s representations that it is a “registered” outsourcing facility might be literally true, such representations gave health care providers the false impression “that Edge complies with state and federal law,” including “[section] 503B.” But, for the same reasons, this wasn’t a misleading representation of fact.

Azurity also alleged that Edge was acting unlawfully because of a different provision of 503B, which restricts compounders from using a “bulk drug substance” unless the substance/compounded drug is listed by HHS as one a compounder can make.

The court noted that the theory—there’s a list, and Edge’s product isn’t on it—was factually distinguishable from the “regulatory compliance statements are just opinion” cases. Given the requirement that outsourcing facilities can’t market a compounded drug without preapproval “unless” the substance, or the drug, appears on a relevant list, “there is no interpretation necessary” to determine what it takes to comply with the law. “[T]he statutory provision at issue is of a kind that is unusually susceptible of being clear enough on its face as to what condition it establishes for the scope of the condition to be a fact.” Nor was there any contradictory agency interpretation; to the contrary, the only available agency guidance identified vancomycin hydrochloride as not on the list, and noted that a compounding entity that compounds something that is not on the list “does not meet the conditions of section 503B(a)(2).”

So the compliance statements were plausibly literally false. [Though a court could conclude that the statements represented only that Edge complied with the law “as the FDA said it was going to enforce it.”] Azurity also alleged that Edge’s claim to be “registered” with FDA was misleading, for the same reasons, but didn’t plead nonconclusory facts about misleadingness. Because it didn’t explain how or why the statements could mislead consumers about Edge’s conduct with respect to bulk drug substances specifically, its claim failed.

What about preclusion of the literal falsity claim? The FDA hasn’t made enforcement of the bulk drug substances rules a policy priority, as it has stated in its interim guidance. Edge thus argued that, “because the FDA has indicated that it does not intend to take action against outsourcing facilities compounding drugs by using vancomycin hydrochloride, the FDCA precludes the claim at issue.” Thus, to allow the claim would “directly conflict[ ] with the agency’s policy choice” or otherwise “undermin[e] an agency judgment,” under Pom Wonderful.

The court of appeals disagreed. The FDA didn’t preapprove the statements at issue. And Pom Wonderful found no preclusion “even where an FDA regulation governed some aspects of the challenged label.” The case for no preclusion was stronger here, where no FDA regulation governed the kinds of statements outsourcing facilities can make in advertising, and Edge would not be subject to inconsistent obligations. Relatedly, this wasn’t an attempt to enforce the FDCA directly, but a false advertising claim.

Edge relied on the Federal Circuit’s holding that “a complainant fails to state a cognizable claim [based on alleged violations of the Lanham Act] where that claim is based on proving violations of the FDCA and where the FDA has not taken the position that the articles at issue do, indeed, violate the FDCA.” Amarin Pharma, Inc. v. Int’l Trade Comm’n, 923 F.3d 959 (Fed. Cir. 2019). But that case actually involved an “unclear” statutory question requiring FDA expertise, not a clear statutory interpretation. “[T]he FDA’s choice not to enforce the terms of this provision against outsourcing facilities that use such bulk drug substances does not mean that the terms of the provision are less than perfectly clear.”

Claims based on the superiority statement failed as puffery. Even assuming the statement necessarily implied that Edge’s product was “ideal for use in the hospital setting” and Azurity’s wasn’t, Azurity’s argument for falsifiability presumed that reasonable consumers would measure “ideal-ness” by whether there was FDA approval. But Azurity didn’t explain why that would be what reasonable consumers would do, nor did the statement itself mention FDA approval. “Because there are, perhaps, many other factors that go into whether a drug is ‘ideal for use in the hospital setting,’ such as ease of administration or reliable supply of the drug in large quantities, that FDA approval itself may not have a bearing on, we see no reason why FDA approval is the only measure by which a consumer of these drugs would measure the ‘ideal-ness’ of them.” Nor was “ideal” specifically measurable.

Although preemption, not preclusion, is the appropriate doctrine for the Massachusetts state law claims, the analysis was functionally the same and the district court was affirmed/vacated as to the same claims.