On Friday, the Northern District of California dismissed with prejudice claims alleging that a failure to obtain supplemental approval for major changes in manufacturing processes created FCA liability. U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-0941 (N.D. Cal. June 12, 2015). The court also adopted a narrow reading of “worthless services” in the context of pharmaceutical products. Together, these holdings deal a significant blow to those seeking to premise FCA suits on violations of current Good Manufacturing Practices (“cGMPs”).

As we reported here, the relators’ lengthy first amended complaint was dismissed in January 2015 with leave to amend. Having been instructed by the court to streamline their second amended complaint, the relators focused their cGMP-related claims on the theory that Gilead violated a CMS condition of payment when it implemented major manufacturing changes without seeking supplemental approval of those changes from FDA through a prior approval supplement (“PAS”). Relators also argued that the subsequently-filed PAS contained false statements.

The court first analyzed Relators’ claims under the implied false certification theory of liability. The court explained that it had dismissed relators’ claims earlier in the year because, although FDA approval was a condition of payment for pharmaceutical products, the relators had been unable to establish that the drug at issue had not received FDA approval. Relators now argued that their second amended complaint cleared this hurdle because supplemental approval was also a condition of payment, and the defendant had failed to obtain such approval for changes to its manufacturing process. The court agreed with relators that Medicare and Medicaid condition payment for covered drugs on approval under section 505 of the Food, Drug, and Cosmetic Act (“FDCA”). However, because this section relates only to NDA approval, and not supplemental approval (which is governed by section 506), the court ruled that the failure “to obtain the necessary supplemental approval does not preclude eligibility for federal payment,” and thus could not form the basis for FCA liability. As in its January 2015 opinion, the court also emphasized the policy rationale supporting the ruling. Supplemental approval is required for all “major manufacturing changes,” and the court was hesitant for the judicial system to “be forced into an evaluation of the FDCA regulatory scheme and into making determinations likely dependent upon the expertise of the FDA in the first instance – i.e., is the manufacturing change at issue ‘major’ or not?”

The relators also argued that even if supplemental approval were not a condition of payment, any prior NDA approvals had been rendered void ab initio once Gilead began using an Active Pharmaceutical Ingredient (“API”) manufacturing facility that had not been initially listed on its NDAs. Under this theory, because FDA requires NDA applicants to list the facilities to be used in the manufacturing process, when Gilead began using an alternate API manufacturing facility, the affected NDAs were no longer accurate and retroactively had no effect. The court rejected this proposition, explaining that it lacked any support in the statutory scheme and, furthermore, the fact that the FDCA contains a provision permitting FDA to withdraw NDA approval under certain conditions supports the interpretation that some affirmative action must be taken by FDA in order for NDA approval to be voided.

In its January ruling, the court left open the possibility that the relators could establish a “worthless services” claim, but the court emphasized the narrowness of the theory, agreeing with the Seventh Circuit’s recent holding in United States ex rel. Absher v. Momence Meadows Nursing Center, Inc. (discussed here) that the relators would need to establish that the products were truly “worthless.” In Friday’s opinion, the district court ruled that the relators still had not met this standard because the second amended complaint contained “allegations that suggest reduced medical value, but [it has] failed to adequately plead no medical value at all.”

One of the relators also filed a retaliation claim under the FCA. The court agreed with the defendant that because the relator had been investigating regulatory violations and not false claims, his conduct was not in “furtherance of an action” under the FCA and accordingly was not protected conduct. As with the other FCA claims, the court dismissed the retaliation claim with prejudice.

A copy of the court’s opinion can be found here.