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
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.

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