A Deep Dive Into the Second Circuit’s Caronia Decision, Potential Next Steps, and Potential Enforcement Fallout

December 12, 2012

As we promised in an earlier post, we provide here a deeper analysis of the Second Circuit’s holding in United States v. Caronia and the context in which it should be viewed by industry.

Since the 2004 Warner-Lambert settlement, the federal government has investigated hundreds of companies for promotion of approved products for unapproved uses, commonly known as “off-label promotion.”  Many of the publicly known investigations have been fueled by whistleblowers who file qui tam suits under the federal False Claims Act ("FCA") in hopes of gaining a share of the government’s recovery.  These civil suits rely on an underlying violation of the Federal Food, Drug, and Cosmetic Act ("FDCA") to support the theory that certain claims for reimbursement from federal programs were false.  The government also has litigated a number of criminal prosecutions of companies and individuals for their alleged off-label promotion.  In light of the Second Circuit’s statement about the Agency’s wrongful criminalization of this type of conduct, we address below whether Caronia is likely to curtail future enforcement efforts by the government.

I.     Legal Framework

Much to the surprise of many companies, the term “off-label promotion” is not found anywhere in the FDCA.  FDA’s authority to regulate off-label promotion draws from the FDCA prohibitions against introducing an “unapproved new drug” or a “misbranded” drug into interstate commerce.  21 U.S.C. §§ 331(a), (d).  If a company promotes a drug for a use that is not embodied in the FDA-approved labeling, then it can be deemed a “new drug” because it is not generally recognized as safe and effective “for use under the conditions prescribed, recommended, or suggested in the labeling thereof.”   21 U.S.C. § 321(p).  This definition of “new drug” requires that the new intended use be evident in the “labeling” of the product.  The definition of “labeling” is quite broad.  It includes “all labels and other written, printed, or graphic matter . . . accompanying such article,” 21 U.S.C. § 321(m), and could include brochures, leaflets, letters, and arguably websites.  Under this “unapproved new drug” theory, the off-label claims must be contained in the labeling, i.e., the company’s written promotional materials. 

Drug and device marketing, however, is often conducted through oral communications between a company’s sales and marketing team and healthcare providers.  Therefore, the government may not have evidence sufficient to support an unapproved new drug charge.  Instead, the government proceeds under a convoluted misbranding charge, called the “backdoor new drug” charge, to support its civil and criminal cases.  Under this theory, a drug is misbranded for failing to bear adequate directions for its intended uses.  21 U.S.C. § 352(f)(1).  FDA relies on an exemption contained in the regulations precluding prescription drugs from ever meeting this requirement, 21 C.F.R. § 201.5, and then uses the oral promotional statements of the company’s sales representatives as evidence of the company’s intended use.  21 C.F.R. § 201.128. 

The use of speech to support a “backdoor new drug” charge has withstood earlier First Amendment challenges.  For example, in Whitaker v. Thompson, 353 F.3d 947 (D.C. Cir. 2004), the plaintiff argued that he had a First Amendment right to label his product with a disease claim, even though FDA had not reviewed and approved the claim.  The D.C. Circuit determined that the “use of speech to infer intent, which in turn renders an otherwise permissible act unlawful, is constitutionally valid.”  Id. at 953.  In fact, it ruled the First Amendment allows “the evidentiary use of speech to establish the elements of a crime or to prove motive or intent.”  Id. 

The government justifies its crackdown on off-label promotion on the ground that it is protecting the integrity of FDA’s drug approval process.  The notion is that a manufacturer might seek approval of a new product for only a narrow (and easily approvable) claim, and once the drug is approved, the sky would be the limit for the company to make other claims that would lead to larger sales.  This perception, however, ignores other reasons why a manufacturer would not illegally off-label promote, such as litigation commenced under states’ product liability laws for ineffective products and the resulting reputational harm from such lawsuits.

FDA has made clear that it does not intend to go after all promotional statements.  For example, it recognizes that truthful and non-misleading speech about an approved use of an approved drug does not by itself establish a new intended use of the drug.  See Declaration of Rachel E. Sherman, submitted in support of Defendant’s Memorandum in Support of Motion to Dismiss, in Par v. United States, No. 1:11-cv-1820, ¶ 14 (D.D.C. Jan. 11, 2012).  “While manufacturer speech is always a relevant factor in determining intended use, in the absence of other evidence that an unapproved use is intended, a drug manufacturer that engages in truthful and non-misleading speech about an approved use is not placing itself in violation of the FDCA.”  Defendant’s Memorandum in Par, at 27.

FDA also recognizes the value of manufacturers providing off-label information in certain contexts.  It has drafted guidance documents describing parameters under which a manufacturer can disseminate reprints of peer-reviewed scientific literature, sponsor educational programs, and respond to unsolicited requests for off-label information.  FDA states that if a manufacturer meets the factors contained in the guidance, the Agency will not use the activity as evidence that the company created a new intended use for the product.

II.     United States v. Caronia

On November 30, 2009, a jury found Alfred Caronia guilty of misdemeanor conspiracy to introduce misbranded drugs into interstate commerce.  His conviction was based on off-label statements he made while employed as a pharmaceutical sales representative for Orphan Medical, Inc. (“Orphan”).  Specifically, Caronia verbally promoted the drug Xyrem, a central nervous system depressant approved only for the treatment of certain categories of narcolepsy patients, to treat a variety of other conditions including insomnia, fibromyalgia, and Parkinson’s.  He also promoted Xyrem for use in an unapproved patient population – individuals under the age of 16.

The government began its investigation of Orphan in 2005, when former Orphan saleswoman Shelley Lauterbach filed a qui tam suit against the company.  During the course of the investigation, Caronia was recorded on two occasions discussing off-label uses of Xyrem.  On both occasions, Caronia was recorded speaking alongside Dr. Peter Gleason, a doctor that Caronia had engaged to participate in “speaker programs” intended to educate other physicians about Xyrem.  Caronia and Dr. Gleason discussed off-label uses for Xyrem with Dr. Jeffrey Charo, an undercover informant for the government.  In 2006, the government filed charges against Orphan, Dr. Gleason, Caronia, as well as David Tucker (a former Orphan sales manager) for conspiring to promote Xyrem for off-label uses, and thereby introduce a misbranded drug into interstate commerce.

In March 2007, David Tucker pleaded guilty to a single felony misbranding charge.  In July 2007, Orphan pleaded guilty to felony charges, and its parent company, Jazz Pharmaceuticals, Inc., agreed to pay $20 million and enter into a Corporate Integrity Agreement to resolve both criminal and civil charges.  In August 2008, Dr. Gleason also pleaded guilty to criminal misbranding charges. 

Caronia, however, did not plead guilty and filed a motion to dismiss his case based inter alia on First Amendment grounds.  The District Court denied his motion, but noted that the allegations against Caronia included First Amendment-protected speech.  Nevertheless, the District Court concluded that the government’s interpretation of the FDCA was constitutional under the commercial speech doctrine because it did not limit speech more than was necessary to achieve the government’ objectives.  On appeal of Caronia’s criminal conviction, the Second Circuit disagreed.

The Second Circuit first clarified that the government did, in fact, prosecute Caronia for “mere off-label promotion.”  Slip op. at 26.  The court’s opinion details the government’s statements to that effect, as well as the jury instructions that reflected a focus on the off-label promotion rather than promotion as evidence of the intended use of Xyrem.  The court next concluded that strict scrutiny should apply to the government’s interpretation of the FDCA misbranding provisions to prohibit and criminalize off-label promotion.  According to the court, the government’s position was speaker-based:  many individuals (physicians, researchers, etc.) were permitted to access off-label information and make off-label statements, while others (pharmaceutical companies and sales representatives) were not.   It also was content-based because it restricted off-label promotion while permitting favored on-label promotion.  The court determined that Caronia’s prosecution failed to pass strict scrutiny.

The court went further.  Even assuming that off-label promotion triggered only intermediate scrutiny under the Central Hudson test, the Second Circuit found that Caronia’s prosecution would not pass this lower threshold.   First, the off-label speech in question concerned lawful activity and was not false or misleading.  Second, while the government’s interests in drug safety and the public health were substantial, its construction of the FDCA to prohibit off-label promotion did not directly advance those interests.  Third, because physicians can prescribe and patients can receive drugs off-label, even if pharmaceutical manufacturers could not promote drugs for such uses, prohibition of truthful promotion did not directly further the government’s goals: “the government’s prohibition of off-label promotion by pharmaceutical manufacturers ‘provides only ineffective or remote support for the government’s purpose.’”  Id. at 47.

Finally, the court determined that the government’s interpretation of the FDCA – a “complete and criminal ban on off-label promotion by pharmaceutical manufacturers” – was not narrowly drawn to protect its interests.  The court construed “the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA-approved prescription drugs.”  The court cited several less-restrictive methods the government could have used to protect its interests instead, such as developing a warning or disclaimer system, and concluded “that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.”  Id. at 51.

III.     Potential Next Steps in Caronia

Under the Federal Rules of Appellate Procedure, the government has a few options for handling the Second Circuit’s decision.  Of course the government could do nothing, and let the Caronia decision stand as law in the Second Circuit. 

The government also could petition the Second Circuit for a rehearing, or a rehearing en banc, or both.  See Fed. R. App. P. 35 – 35.1, 40.  Rehearing is generally disfavored, and will not be ordered unless “en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or . . . the proceeding involves a question of exceptional importance.”  Id. at Rule 35.  Should the government proceed with a rehearing, it must file its petition within 14 days after the entry of judgment, which occurred on December 3, 2012.  Therefore, the deadline for this petition is December 17, 2013

Alternatively, the government may petition for writ of certiorari to the United States Supreme Court.  A writ of certiorari is not a matter of right, but of judicial discretion, and the Court may consider granting certiorari if a “Circuit Court decision conflicts with that of another Circuit Court on the same ‘important matter.’”  S. Ct. Rule 10.  The petition must be filed with the Supreme Court clerk within 90 days of entry of the judgment.  S. Ct. Rule 13.  Therefore, if no petition for rehearing or rehearing en banc is filed, the government must file a writ of certiorari by March 4, 2013.  If the government petitions for a rehearing and/or en banc, then the time to file a writ of certiorari is 90 days from the date of the denial of the rehearing.  Even if the Supreme Court grants review, it may dispose of the case by summary affirmance or reversal, or by simply vacating the judgment below and remanding for further proceedings.

There is no circuit split that would make likely the Supreme Court’s granting of the writ.  The government may claim that the D.C. Circuit’s opinion in Whitaker v. Thompson creates a split of opinions.  Whitaker, however, was not a criminal prosecution like Caronia, and the Second Circuit went to great pains to highlight that Caronia did not involve a situation in which the government used speech as evidence of establishing intended use. 

Although oral argument was heard on December 6, 2012, in the Ninth Circuit in another high-profile off-label case, United States v. Harkonen, the former CEO of InterMune was convicted of wire fraud, not the FDCA misbranding charge at issue in Caronia (see our previous posts here and here).  While Harkonen’s defense team consistently has attempted to raise the First Amendment issue throughout trial and on appeal, the Ninth Circuit is likely to remain silent on the issue due to the allegations by the government of the false or misleading nature of Harkonen’s statements. 

The decision to seek rehearing en banc and/or seek Supreme Court review is made by the Solicitor General of the United States, not FDA.  If FDA seeks further review of the decision, we expect that the Solicitor General will surely require FDA to demonstrate why it cannot live with this ruling.

IV.     Potential Impacts on Enforcement Activity

Assuming the Caronia decision stands, can industry expect any changes in FDA’s enforcement focus?   The federal government frequently touts the multi-million dollars it has recovered in settlements for off-label promotion cases.  It would be premature to believe that the government would give up easily on these high-profile and lucrative recoveries, and we certainly do not expect the case to have any effect on relators, who will continue to bring off-label promotion allegations to the attention of the government.  But the Second Circuit’s holding represents an unmistakable setback for the government from continuing business as usual.

Even though the FDCA allows for strict liability prosecution, criminal charges have generally been brought against manufacturers and their agents only in cases involving intentionally false or misleading statements.  These selective prosecutions may have been due to prescient prosecutors who recognized the potential First Amendment implications of these cases, or simply an effort to enhance the jury appeal of a case.  With Caronia, industry can expect to see even closer review of criminal charges to ensure there is strong evidence that a company lied about the safety or efficacy of a drug or device, or made mistakes and/or incomplete statements about the product at issue.  It is unlikely that we will see prosecutors bringing criminal charges against companies, and companies willing to pay money, in cases in which there is strong scientific support for an unapproved use of a product, absent clear evidence that there also were false or misleading statements.  

Indeed one of the key factors the government considers in deciding to pursue a criminal off-label case is whether the company had previously sought, and FDA had explicitly denied, the use that the company is allegedly promoting.  In such cases, the government generally views the company’s conduct as a direct attack on FDA’s drug approval process, and has been more inclined to prosecute the company criminally.  But in light of Caronia, and other FDA guidance, there is a strong argument that the company should be allowed to provide truthful and non-misleading information that may have developed since FDA’s original review of the unapproved use without fear of criminal prosecution. 

We wonder if we will see FDA shift its focus to the “unapproved new drug” charge to support off-label promotion cases against pharmaceutical manufacturers.  Note that there is no analogous “new device” definition contained in the FDCA. This shift would require evidence of labeling containing the drug’s new intended use.  Companies should continue to scrutinize promotional materials to be sure they do not contain false or misleading claims.

Companies also should be wary that FDA may use knowledge of a drug’s intended use as independent evidence to support a misbranding charge.  21 C.F.R. §§ 201.128, 801.4.  Under its regulations, FDA requires manufacturers to provide adequate labeling for a product that the company knows is being used off-label, even if there is no active promotion by the manufacturer.  This requirement has been rarely enforced, but we are aware of a recent Warning Letter in which it was cited to require changes to a product’s labeling.  After Caronia, FDA may look to creative ways, such as this, to curtail off-label promotion without using the manufacturer’s speech.

It is important to note that the holding from Caronia is only the law of the Second Circuit, which covers Connecticut, New York, and Vermont.  Given the broad reach of the Commerce Clause, it is difficult to imagine that any FDA-regulated industry can claim that it is not subject to jurisdiction outside the Second Circuit.  Indeed the U.S. Attorney’s Office in Boston is the most active prosecutor of off-label promotion cases, but only a handful of the companies it has prosecuted have been headquartered in its district.  

The Caronia decision also may have some bearing on the federal False Claims Act, and its state counterparts.  In this context, there arguably has always been a requirement that the government demonstrate that the claim involves falsity – thus the name “false claim” – used to obtain fraudulent reimbursement from a federal healthcare program.  Caronia makes clear that if promotional statements about a product are true and scientifically supported, FDA cannot prohibit this truthful, non-misleading speech.  Therefore it follows that neither can a sister agency of FDA use that same speech to recover hundreds of millions of dollars.  Thus we expect companies to challenge the government and relators on their burden to prove that the claim is actually false.  This may affect future False Claims Act settlements, which have been some of the government’s most sizable.

Although Caronia has made some waves, the tide has far from turned.  Industry remains exposed to substantial risk if it exercises its First Amendment right to free speech by promoting off-label.  Now seems like a ripe opportunity for FDA to provide further clarification to industry on how it will proceed in its enforcement actions after Caronia.