Health Law Daily Pharmaceutical manufacturer succeeds in motion to dismiss False Claims Act charges
Thursday, May 21, 2020

Pharmaceutical manufacturer succeeds in motion to dismiss False Claims Act charges

By George Basharis, J.D.

Relator loses motion to dismiss claims but allowed to amend complaint.

A relator’s claims against pharmaceutical manufacturer Vanda Pharmaceuticals, Inc. (Vanda) did not state a viable claim under the False Claims Act (FCA) (31 U.S.C. §3729 et seq), the federal district court in Washington, D.C. found. The relator charged that Vanda submitted numerous false claims to Medicare and Medicaid by promoting and marketing two of its drugs for off-label uses. After the Department of Justice declined to intervene in the lawsuit Vanda moved to dismiss the lawsuit. At the relator’s request, a seconded amended complaint was filed to remedy pleading deficiencies (U.S. ex real Gardner v. Vanda Pharmaceuticals, Inc., May 19, 2020, Mehta, A.).

Vanda is a pharmaceutical manufacturer based in Washington, D.C., and the relator was a regional business leader managing a sales force for Vanda in 2015 and 2016. Vanda owns and markets Fanapt® and Hetlioz®. Fanapt is a drug described as an "atypical antipsychotic" used for the treatment of schizophrenia in adults. Prior to the market release of Fanapt, Vanda sold the rights to it to Titan, which sold the development, manufacturing, and marketing rights to Novartis. Novartis marketed it until Vanda took over marketing responsibilities in December 2014. Hetlioz is a circadian regulator approved by the FDA for a sleep disorder mainly afflicting blind people. The relator claimed that Vanda promoted Fanapt and Hetlioz for off-label uses, in addition to several other prohibited promotional strategies.

The FDA approved Fanapt solely to treat adult schizophrenia patients, but the relator claimed that Vanda promoted the drug to treat bipolar and other disorders. Relator charged that Vanda was aware that "a significant portion" of the prescriptions for the drug were for off-label uses. Vanda also targeted competitors by setting sales goals in line with those of other antipsychotic drugs. The relator claimed tat these target lists, which included pediatric patients, were used to shield Vanda from liability and would not allow sales representatives to meet their goals. According to the relator, Vanda’s sales projections included off-label prescriptions. The relator added a number of secondary claims regarding Vanda’s improper promotion of Fanapt.

The FDA granted "orphan drug" status to Hetlioz to treat Non-24 in blind patients without light perception, a condition from which about 90,000 blind individuals in the United States suffer. However, the relator claimed that Vanda targeted sighted patients as the primary target for Hetlioz, citing marketing strategies implemented by Vanda. The relator alleged that Vanda promoted the drug to psychiatrists as an effort to "commercialize" Hetlioz and as a treatment option for all sleep disorders, not just those in blind patients. A second employee testified that prescriptions for sighted patients had difficulty being approved by insurance companies for patients not completely blind. The employee claimed that Vanda assisted in programs to ensure Hetlioz would be covered. The relator contended that these actions violated the Anti-Kickback Statute (AKS) (42 U.S.C. §1320a-7b).

The court noted that the putative victims of Vanda’s alleged fraud are the Medicare and Medicaid programs. Medicare Part D pays for prescription drug benefits. Beneficiaries also are responsible for some amount of out-of-pocket prescription costs. Medicaid provides healthcare benefits for certain low-income and disabled individuals via a joint federal-state program.

To make a successful FCA claim, a relator must show not only that the defendant submitted a claim, but also that the claim was false and that the defendant knew the claim was false. However, the court noted that FCA liability does not attach to violations of federal law or regulations that are independent of any false claim, including a reverse false claim. Relator did not allege anything to suggest Vanda owed any payments to governmental insurance payors, so there was no false claim, the court found.

Relator alleged that under the implied false certification theory, Vanda violated the FCA by marketing the drugs for off-label uses, which caused fraudulent claims to be submitted by prescribers to government payors under the Medicare and Medicaid programs. Vanda contended that the relator did not plausibly allege the required FCA elements of materiality or falsity. The relator based the materiality allegation primarily on noncompliance with statutory requirements as a condition of payment. The court determined that the relator exaggerated the obligatory nature of an off-label use as a condition of payment, at least as related to Medicaid. According to the court, the complaint did not plead materiality. There was no plausible inference that the off-label prescription of Fanapt and Hetlioz was material to government payment decisions under either the Medicare or Medicaid programs.

The court also agreed with Vanda that the relator did not make out a plausible case of falsity due to pervasive pre-authorization requirements for the drug, and therefore the pleading of falsity with respect to off-label claims for Hetlioz fell short. However, because Vanda made no other argument with respect to the falsity of Fanapt claims, the court found that element satisfied at the pleading stage. The court sided with the relator on the allegations of submitting false claims. The relator’s amended complaint provided factual specificity as to the type of fraud involved and how it was implemented.

The case is No. 17-cv-00464 (APM).

Attorneys: Bradford W. Muller (Stone & Magnanini LLP) for Richard Gardner. David S. Rosenbloom (McDermott Will & Emery LLP) for Vanda Pharmaceuticals Inc.

Companies: Vanda Pharmaceuticals Inc.

MainStory: TopStory CMSNews AntikickbackNews DrugBiologicNews FCANews FraudNews PrescriptionDrugNews ProviderNews QuiTamNews

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