Health Law Daily Claims against nasal spray manufacturer for misleading statements survive dismissal
Wednesday, September 4, 2019

Claims against nasal spray manufacturer for misleading statements survive dismissal

By Jeffrey H. Brochin, J.D.

The complaint sufficiently alleged that customers have been led to believe that the nasal spray is an FDA approved product.

A California district court dismissed part of a complaint filed against Lannett Company, Inc. (Lannett), alleging that the drug manufacturer misled consumers into believing that the company only sells FDA-approved products. Although the opposing company, Genus Lifesciences, Inc. (Genus), properly pleaded that Lannett’s labeling and packaging of C-Topical® nasal spray and statements made on Lannett’s website are misleading, it failed to establish that Lannett’s statements in SEC filings or investor calls were made for the purpose of influencing customers (Genus Lifesciences, Inc. v. Lannett Company, Inc., September 3, 2019, Orrick, W.).

Competitor’s product not FDA-approved. Genus manufactures an FDA-approved cocaine hydrochloride nasal spray under the brand name GOPRELTO®, and Lannett manufactures an unapproved spray under the brand name C-Topical. Genus’s survey of Lannett’s customers revealed that 73.4% falsely believed that C-Topical was FDA-approved, and that 70.4% of Lannett’s customers falsely believed that Lannett only sold FDA-approved products. Genus used the survey evidence to bolster its claims that C-Topical’s packaging and labeling, as well as Lannett’s websites, were unlawfully misleading. Genus filed suit against Lannett for several claims, including violations of the Lanham Act.

SEC filings and investor calls. Genus cited Lannett’s SEC filings and investor calls that referenced statements made by Lannett or by its directors that C-Topical was "grandfathered" or sold under a preliminary new drug application (NDA) as misleading statements. The court previously ruled that such statements were not actionable because they were not accompanied by specific allegations that they were made for the purpose of influencing the customers of cocaine hydrochloride solutions to buy C-Topical, or were disseminated sufficiently to the relevant purchasing public (pharmacists, hospitals, and doctors) to constitute "advertising" or "promotion" within the pharmaceutical industry. However, Genus sought to buttress those claims by bringing them in combination with the advertisements describing C-Topical as a "pre-1938" product (referring to a product on the market before the Food, Drug and Cosmetic Act (FDC Act) required products to meet safety standards) and that together, they rendered the statements contained in the SEC filings and investor calls actionable.

The court disagreed, noting that Lanham Act claims must be evaluated on a statement-by-statement basis, and that the court could not assume context. There was no indication that consumers would have observed the SEC filings and statements in the investor calls along with the pre-1938 ads, and they accordingly dismissed the SEC and investor call claims.

"Approval" versus "Authorized." Notwithstanding the problem of relying on the pre-1938 statement to bolster the SEC claims, the court further examined use of the term in Lannett’s advertising. It concluded that the claim was sufficiently pleaded by Genus to allege that people in the market for a prescription drug such as C-Topical would know what pre-1938 meant in that context and what the implication of submitting clinical data pursuant to an NDA would be. The only reason Lannett would advertise C-Topical as pre-1938 or state that it had submitted an NDA, would be to convince consumers that C-Topical was an unapproved grandfathered drug product or otherwise authorized by the FDA.

However, the court only agreed with Genus up to a point. Although Gannett alleged that customers care about FDA approval, the court was persuaded by Lannett’s argument on the difference between approval and authorization. The complaint did not allege that customers care about FDA authorization, and Genus’s argument that they must implicitly care about it was rejected by the court. In sum, Genus had not actually pleaded that FDA authorization, versus approval, was material to customers of cocaine hydrochloride, and it did not state a claim based on the pre-1938 ads. Its claims based on those ads were dismissed with leave to amend.

Packaging and labeling. The court previously ruled that alleged misleading representations on Lannett’s packaging and labeling did not constitute an overt false statement, but was merely misleading in context, and that Genus would have to allege that it actually conveyed the implied message that C-Topical was FDA-approved and that it deceived a significant portion of recipients. In response, Genus conducted a survey of Lannett’s customers that found that allegedly 73.4% of them falsely believed that C-Topical was FDA-approved after reviewing its packaging. In its motion to dismiss, Lannett claimed that this additional factual allegation was still insufficient because Genus did not allege that any of the information on the label or package was false. According to Lannett, while the Lanham Act forbids misleading as well as false claims, misleading does not include factual propositions that are susceptible to misunderstanding, and it asked the court to disregard Genus’s survey allegations because a survey cannot be used to ascribe a misleading meaning to an otherwise accurate statement.

Lannett further argued that it was required by federal law to include the various statements on the packaging and label and that under Genus’s theory, Lannett could only avoid liability by eliminating essential information. The court ruled that Lannett’s attack on the merits of the survey evidence failed at the motion to dismiss stage; although it could later attack the survey’s methodology and findings successfully, it may not do so now. Accordingly, the court denied Lannett’s motion to dismiss the packaging and labeling claim.

The case is No.: 3:18-cv-07603-WHO.

Attorneys: Jason Nathaniel Haycock (K & L Gates LLP) for Genus Lifesciences Inc. George G. Gordon (Dechert LLP) for Lannett Co., Inc. and Cody Laboratories, Inc.

Companies: Genus Lifesciences Inc.; Lannett Co., Inc.; Cody Laboratories, Inc.

MainStory: TopStory FDCActNews AdvertisingNews DrugBiologicNews LabelingNews CaliforniaNews

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