The Second Circuit Court of Appeals has ruled that the criminalization of truthful, non-misleading, off-label promotion of FDA-approved pharmaceuticals violates the First Amendment. United States v. Caronia, No. 09-5006-cr (2d Cir. Dec. 3, 2012).

In addition to its implications for criminal off-label cases, the case could have a substantial impact on civil False Claims Act (FCA) cases that involve off-label use allegations.

How the Issue Teed Up

Defendant Alfred Caronia was a sales representative for Orphan Medical (a Jazz Pharmaceuticals subsidiary). Working with a cooperating witness doctor, the government taped Caronia on two occasions promoting Xyrem for unapproved uses, including unapproved indications and unapproved subpopulations.

The government later indicted Orphan, Dr. Gleason (a physician hired by Orphan to promote Xyrem) and Caronia for misbranding and conspiracy to misbrand, both criminal violations of the Food, Drug, and Cosmetics Act (FDCA). Orphan and Gleason pleaded guilty (Orphan paid $20 million to settle the criminal charges and a related civil FCA case). The district court denied Caronia’s motion to dismiss, and he was convicted on one of two counts of misbranding following a 10-day trial.

The FDCA prohibits “misbranding,” defined as “[t]he introduction or delivery for introduction into interstate commerce of any … drug … that is … misbranded.” 21 U.S.C. § 331(a). A drug can be misbranded if its labeling fails to bear “adequate directions for use,” 21 U.S.C. § 352(f), which FDA regulations define as “directions under which the lay[person] can use a drug safely and for the purposes for which it is intended.” 21 C.F.R. § 201.5.4.

These regulations, as the Second Circuit noted, “do not expressly prohibit the ‘promotion’ or ‘marketing’ of drugs for off-label use. The regulations do recognize that promotional statements by a pharmaceutical company or its representatives can serve as proof of a drug’s intended use. See 21 C.F.R. § 201.5.” The government has used this statutory and regulatory regime to criminalize the truthful, nonmisleading off-label promotion of drugs and medical devices as either a felony or a misdemeanor. 21 U.S.C. § 333(a).

On appeal, the government contended that no First Amendment issue was implicated because, as described by the court, “‘[p]romoting an approved drug for off-label uses is not itself a prohibited act under the FDCA’ and ‘the promotion of off-label uses plays an evidentiary role in determining whether a drug is misbranded under 21 U.S.C. § 352(f)(1).’”

The government (and the dissent) took the position that Caronia was convicted of misbranding and that his speech regarding off-label uses was merely evidence of intent. The Second Circuit, however, found that, based on the record, this was simply not true—it was Caronia’s speech that was prosecuted.

The court then considered whether such a prosecution was permissible. Relying heavily on Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), the court examined “the government’s theory of prosecution under the Sorrell Court’s two-step analysis to determine whether it runs afoul of the First Amendment. First, we conclude that the government’s construction of the FDCA’s misbranding provisions imposes content—and speaker-based restrictions on speech subject to heightened scrutiny. Second, we conclude the government cannot justify a criminal prohibition of offlabel promotion even under [a] less rigorous intermediate test.”

Following a lengthy constitutional analysis, the court found that because the regulation was content- and speaker-based, it was subject to heightened scrutiny which it failed to survive. Perhaps to strengthen its opinion, the court also found that the regulations could not satisfy a lower level of scrutiny, the intermediate test. The court concluded “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.”

Likely Application to Civil FCA Matters

In addition to its obvious impact on all criminal cases relating to off-label marketing, this case will also affect civil FCA matters involving allegations of off-label use. Importantly, this decision does not have an impact on Medicare’s decision not to cover pharmaceuticals prescribed for (most) off-label uses. That has been and will remain Medicare’s policy. The Caronia court’s decision arguably does negate, however, the causation prong of FCA cases relating to alleged off-label marketing.

In the typical off-label FCA case, the government alleges that it was the defendant’s improper off-label marketing of the product in violation of the FDCA that caused the physician to prescribe the drug (or use the medical device). The complaint then argues that this off-label marketing of the drug or device kick-started a chain of events leading to the submission of a claim to the government for a non-covered treatment. If, however, the off-label promotion is not prohibited, then the causation chain is broken, and there can be no FCA liability.

Besides its impact on the ability of the government to prove causation in an off-label FCA case, the Caronia decision will also likely affect the government’s ability to obtain the increasingly large joint criminal and civil settlements that typify many off-label matters.

Previously, the government was able to use criminal misbranding charges and the threat of mandatory HHS-OIG exclusion following a felony conviction or plea to obtain quick and large criminal and civil settlements. Without the threat or criminal prosecution and with the greatly reduced risk, if any, of exclusion, defendants will be less likely to settle quickly (and expensively) and will begin to actively litigate civil FCA matters.

The Second Circuit appears to recognize that its decision will affect civil FCA matters as well. It supports its statement that “[t]he government has repeatedly prosecuted— and obtained convictions against—pharmaceutical companies and their representatives for misbranding based on their off-label promotion” with citations to numerous cases that involved both a criminal plea and civil FCA settlement including several large settlements including one for $3 billion.

Assuming that the decision stands upon further appeal—and appeal to the U.S. Supreme Court is a near certainty—the court’s decision will affect a wide variety of criminal, civil and administrative actions.