compounding pharmacy must face drugmaker's Lanham Act claims based on false 503B compliance statements

Pacira BioSciences, Inc. v. Nephron Sterile Compounding Center, LLC, No. 3:23-cv-05552-CMC, 2026 WL 2267750 (D.S.C. Aug. 6, 2026)

Pacira sells an FDA-approved pain management drug called EXPAREL. Nephron allegedly made various false and misleading statements about two of Nephron’s competing compounded drug products. Specifically, Nephron allegedly represented those products as compliant with Section 503B of the FDCA, and as safe, effective, and superior to EXPAREL. The court granted partial summary judgment to both sides on the resulting Lanham Act claim.

Section 503B defines an “outsourcing facility” as a facility that “is engaged in the compounding of sterile drugs”; “has elected to register as an outsourcing facility”; and “complies with all of the requirements of [Section 503B].” Outsourcing facilities may distribute compounded drugs without obtaining a patient-specific prescription. They are also exempt from the FDCA’s new-drug approval process and certain labeling and supply-chain requirements. But they have to satisfy 11 statutory “conditions.”

The condition central to this case restricts outsourcing facilities’ use of “bulk drug substances” in compounding. They can’t be used unless the government properly identifies a clinical need or a drug shortage. In 2016, the FDA said it needed time to evaluate nominations and wouldn’t act when a bulk drug substance appeared on a list of “Category 1” substances the FDA maintained on its website, which “may be eligible for inclusion on the [clinical need] list, were nominated with adequate supporting information for FDA to evaluate them, and [had] not been identified by FDA as presenting significant safety risks.”

Nephron compounded BKK, a compounded drug product consisting of bupivacaine, ketorolac, and ketamine; later, it switched to RKK, with ketorolac, ketamine, and ropivacaine. Nephron advertised and sold them as “503B products” and as lower-cost alternatives to Pacira’s EXPAREL. In August 2019, Pacira wrote to the FDA urging it to take action against Nephron over its “illegal marketing and promotion” of BKK. It sued in November 2023, alleging false advertising of both products in terms of 503B compliance, comparability to/substitutability for Exparel, and related safety/efficacy claims.

Laches barred claims based on BKK; Pacira knew about the alleged false advertising since at least August 2019 and failed to offer more than conclusory argument to rebut the presumption of prejudice arising from its more than four-year delay in filing suit (period borrowed from state law). Even without the presumption of prejudice, defendants noted that several key witnesses no longer work for Pacira; some witnesses often could not recall basic facts related to the litigation during their depositions, and two, “both of whom reside beyond the subpoena power of the court, indicated they do not intend to appear at trial.” Of the 28 Nephron employees identified in Pacira’s Rule 26(a) initial disclosures, 17 were now former employees, including 11 who “would have still been current employees had Pacira filed within three years of January 2020.” “The unavailability of witnesses, faded memories, and changes in personnel are all indicators of evidentiary prejudice.”

But RKK came later and was allegedly discovered later. Nephron identified no “facts otherwise indicating a lack of vigilance” on the part of Pacira.

The court first held that the RKK Section 503B claims weren’t statements of opinion. Though lay claims about law are generally opinion, sometimes a law is “so clear on its face that no good faith doubt concerning its interpretation [is] possible, even without an explicit statement from [a court or agency].” In that circumstance, the law’s meaning is “so clear as to be a fact for Lanham Act purposes,” and Section 503B is “clear on its face.” Determining whether an outsourcing facility’s claims of compliance with Section 503B’s “bulk drug substance” provision are true “requires no more than consulting two lists.”

Nephron argued that Section 503B permits an outsourcing facility to market and sell a drug (say, RKK) without FDA approval as long as the individual components of that drug appear on the drug shortage list. But that wasn’t true: the drug shortage exception allows outsourcing facilities to “compound using bulk drug substances” only if “the drug compounded from such bulk drug substance appears on the drug shortage list.” Section 503B also defines “compounding” as “the combining, admixing, mixing, diluting, pooling, reconstituting, or otherwise altering of a drug or bulk drug substance to create a drug.” That’s what making RKK is.

Nor did the FDCA preclude Pacira’s Lanham Act claim. The “logical building blocks” of Pom Wonderful apply with equal force to “drug marketing, medical device labeling, cosmetics branding, or any other kind of marking or representation which would fall under both the Lanham Act and the FDCA,” Thus, “courts adjudicating Lanham Act disputes outside of the food and beverage realm” have “almost uniformly” interpreted POM Wonderful “to cover products in other FDA-regulated industries,” including pharmaceuticals. The issue here was not an exception because it wouldn’t “require the expertise of the FDA to resolve,” would call on the court “to make an original determination on an issue committed to the FDA’s discretion,” or would “otherwise conflict with an affirmative policy judgment by the FDA.”

The court declined to consider alleged falsehoods not identified in the complaint: statements allegedly conveying that RKK was compounded “in compliance with Section 503B” or “in a 503B-compliant outsourcing facility,” along with the specific statements that RKK is “generic to or substitutable for EXPAREL,” provides “improved value” over EXPAREL, “reduces post-operative pain[,] complications, risk of readmission, length of stay, [and] patient morbidity and mortality,” “eliminates opioid related adverse drug effects,” and has “low reported incidents of nausea and vomiting.”

Were they false? Nephron’s product lists and pricing sheets were distributed to members of group purchasing organizations (GPOs), healthcare systems, and individual hospitals, enough to constitute commercial advertising/promotion. They listed RKK among Nephron’s “503B Products.” This was a false claim as matter of law: “By listing RKK under that heading, Nephron necessarily communicated to purchasers that RKK belonged to the class of products meeting the statute’s requirements; no other conclusion can be drawn from its designation as a ‘503B Product.’”

But statements that Nephron is “a leading manufacturer of 503B outsourcing products” weren’t literally false; appearing at the bottom of a Nephron “Opioid Free” product handout featuring BKK, RCK, and RKK “could be understood as conveying that Nephron manufactures ‘503B outsourcing products’ as part of its broader business, without necessarily implying that BKK, RCK, and RKK fall within that category.” Pacira’s survey didn’t test the “leading manufacturer” statement, so Nephron got summary judgment.

Nephron’s “503B outsourcing facility” logo appeared throughout Nephron’s materials, including the “Opioid Free” handout and the product label for RKK. Again, this was too ambiguous to be literally false. Here Pacira did have a survey, presenting respondents with a sample marketing email about BKK. Pacira’s expert concluded that a net 14.8% of respondents believed BKK was a Section 503B-compliant drug. “That percentage would ordinarily be sufficient to support a finding that an advertisement misled or tended to mislead consumers.”

The court denied Nephron’s motion to exclude. First, though the email shown to participants focused only on BKK, the deception rate calculated by Butler could be “extrapolated” to RKK; the difference went to weight rather than admissibility:

This is not a scenario where Pacira seeks to extend survey results to an entirely separate and untested statement (as with the “leading manufacturer” statement). Rather, the same “503B outsourcing facility” logo appeared on the product labels for both BKK and RKK, and it is not immediately clear consumers would perceive the logo differently depending on the product to which it was affixed. Under these circumstances, the weight to be given [the survey’s] findings, as applied to RKK, is for the jury to decide.

Other challenges also went to weight: Using closed-ended questions after open-ended questions has both critics and supporters and their limits could be the subject of cross-examination. The survey asked, “Which of the following, if any, are message(s) communicated by this email?” and offered the following response options:

1. BKK, an admixture of bulk drug substances from Nephron, is a 503B compliant drug

2. BKK, an admixture of bulk drug substances from Nephron, is opioid free

3. BKK, an admixture of bulk drug substances from Nephron, is packaged in syringe form

4. None of these

5. Don’t know / unsure

Respondents who selected the first option were asked a follow-up open-ended question to assess why they believed this.

Nephron argued that closed-ended questions should be avoided when testing consumer deception because they are “highly susceptible to demand effects and focalism.” But “there is nothing inherently wrong in using closed-ended questions to test consumer impressions.” They can be “suitable for assessing choices between well-identified options” and “may remind respondents of options that they would not otherwise consider or which simply do not come to mind as easily.” And open-ended questions have their own problems, such as decreasing reporting of actually-held views: “respondents answering open-ended questions may be less likely to report some information that they would reveal in response to a closed-ended question when that information seems self-evident or irrelevant” (quoting Shari Diamond). They also require subjective coding: “Because respondents are answering in their own words and may not provide precise answers, many answers are simply not clear enough to definitively evaluate or categorize reliably.” Also, the “Don’t know / unsure” answer choice is a recognized way “to screen out respondents who may not have an opinion on the issue under investigation.”

Nephron also argued that the survey expert made “excessive and biased” changes to the stimulus shown to the control group. The control group saw an email that (1) removed both instances of the “503B outsourcing facility” logo; (2) added a disclaimer stating, “Note: the admixture of bulk drug substances sold as BKK is not compounded in compliance with Section 503B”; (3) removed the statement “Nephron continues to strive to provide drugs that are critically short and meet all needs of the Country!”; and (4) modified the statement “This is something that will be huge in helping hospitals decrease opioid and Exparel use” by deleting the reference to EXPAREL. The disclaimer, Nephron argued, was “overly broad and inaccurate” because it “would likely lead participants to conclude that no part of BKK is 503B-compliant.”

It was logical to address only BKK in the disclaimer because that was the specific product being tested by the survey. “The court struggles to see why respondents needed to be informed of the compliance status of bupivacaine, ketorolac, and ketamine individually when they were being asked about the admixture BKK.” Anyway, this was for cross-examination.

Finally, Nephron argued that the survey was an improper “reading test” because the stimulus was visible while respondents answered questions. Again, experts disagree on this, so it was for cross-examination and competing expert testimony. Thus, there was a genuine issue of material fact on misleadingness for use of “503B outsourcing facility” logo on the “Opioid Free” product handout and RKK’s product label.

Statements that RKK (1) is “generic to or substitutable for EXPAREL” and (2) provides “improved value” over EXPAREL: Pacira didn’t show any use of the exact phrase. The closest it got was one email stating “Nephron produces BKK, RKK, & RCK as generic, clinical need medications as requested by physicians across the country.” That didn’t mention EXPAREL at all.  Summary judgment granted on (1).

The “improved value” statement was in the “Opioid Free” product handout. But it didn’t make an express or implicit comparison to EXPAREL, and it was puffery.

RKK safety and efficacy: these statements claimed that RKK (1) “reduces post-operative pain[,] complications, risk of readmission, length of stay, [and] patient morbidity and mortality”; (2) “eliminates opioid related adverse drug effects”; and (3) has “low reported incidents of nausea and vomiting.” These weren’t establishment claims [side note that courts used to be much more open to the argument that scientific/health claims are establishment claims by necessary implication, which seems right to me], and Pacira showed only that they weren’t substantiated.

Of the remaining statements, there was no genuine dispute that “503B Product” was material, given that GPO customers “required Nephron to warrant that the compounded drugs it sold complied with Section 503B.” “Parties do not typically bargain for guarantees on matters they consider unimportant. That Nephron’s contracts with GPOs included an express warranty of Section 503B compliance is compelling evidence that such compliance mattered to purchasers of RKK.”

But the materiality of the “503B outsourcing facility” logo was still in dispute.

There was also a factual issue of injury based on evidence that certain customers who had previously purchased EXPAREL (1) began buying RKK when it came on the market, (2) simultaneously reduced their purchases of EXPAREL, and (3) were members of GPOs that had received Nephron pricing sheets listing RKK as a “503B Product.” So these issues, and damages and/or disgorgement, remained for trial.