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After a two-year investigation, the Department of Justice charged Intermune with misbranding the drug Actimmune by promoting it off-label to treat idiopathic pulmonary fibrosis.

(We like to use sentences like that. It gets our sophisticated readers salivating while discouraging the rest.)

After the deferred prosecution agreement and payment of the $42.5 million fine, the deluge.

(Readers with exceptional memories will recall that we discussed this case more than a year ago, when the DoJ chose to indict Intermune’s CEO, which was an exceptional event.)

In re Actimmune Marketing Litig., No. C 08-02376-MHP, 2009 U.S. Dist. LEXIS 36133 (N.D. Cal. Apr. 28, 2009), involved the putative class action alleging that Intermune’s allegedly illegal off-label promotion defrauded consumers and third-party payors into buying Actimmune. Plaintiffs pleaded claims for violations of RICO, state consumer protection statutes, and unfair enrichment. Defendants moved to dismiss. Judge Patel saw the light, granting the motions to dismiss all claims, but giving plaintiffs the chance to replead.

The RICO claims failed for several reasons. First, “many of plaintiffs’ allegations conflate a false and misleading statement under the FDCA, i.e., one that occurs when the drug label does not match the promoted assertion about the drug, and a false and misleading statement about the drug itself that can give rise to a claim under RICO.” Id. at *34-35 (italics in original).

Here’s our translation of that sentence: A drug is approved to treat headaches. The drug also treats cancer, but the FDA hasn’t yet approved the drug to treat cancer. If the manufacturer promotes the drug to treat cancer, that promotional statement might simultaneously (1) constitute misbranding in violation of the FDCA, and (2) be absolutely true. The Department of Justice may be able to prosecute the manufacturer under the FDCA, but private plaintiffs can’t sue for fraud.

Judge Patel continued: “A RICO violation is not focused on the drug’s label, but rather whether the promoted assertion was knowingly false as to a material matter about the drug, i.e., if it constituted actionable fraud.” Id. at *35. “Plaintiffs need to pare down the allegations accordingly and focus on those sorts of representations in this action.” Id.

The RICO allegations also failed to plead causation: “Purchasers of Actimmune do not suffer an injury cognizable under RICO simply because they paid for the drug. . . . Plaintiffs need to allege what specific information the individual plaintiffs or their physicians had about the drug, the extent to which they relied upon that information, and that the information relied upon was false . . . . Plaintiffs also need to allege when the drug was prescribed, purchased and administered, and whether these actions would not have been taken if not for the concealment/misrepresentations of facts made regarding the efficacy or lack thereof about Actimmune for treating IPF.” Id. at *36 & *38.

Imposing that pleading standard properly forces plaintiffs to state a claim. If plaintiffs are able to plead that claim, it will be self-evident that the RICO claim isn’t suitable to be certified as a class.

The court also dismissed the consumer protection and unjust enrichment claims. “First, the court looks askance at any attempt on the part of plaintiffs to use a fraud-on-the-market theory to circumvent the reliance element of the state law claims. The court will not let plaintiffs escape their burden to plead and prove the element of reliance by using a market-based fraud theory to handwave the requirements that there be a connection between the misdeed complained of and the loss suffered under state law.” Id. at *45.

Not bad.

Second, “[i]t does not necessarily follow that off-label promotion plus resulting profits equals fraudulent conduct. . . . . Plaintiffs fail to allege that specific representations were made to the individual plaintiffs’ physicians, let alone that such representations were misleading.” Id. at *46. “The issue is whether the [published] studies themselves [reporting on the efficacy of the drug for the off-label use] could have provided another basis for physician reliance, apart from the allegedly misleading representations by defendants to physicians.” Id. at *49.

Along the way, the court applied Twombley in the context of this drug promotion case and cited Bridge v. Phoenix Bond for the proposition that plaintiffs must establish proximate cause in order to show injury “by reason of” a RICO violation.

This is a smart, well-reasoned opinion (and it’s not the first by Judge Patel that we’ve liked). What we said in that prior post – ““Justice Patel” sounds pretty good to us” – is even more relevant today.

And speaking of relevance, if you’re playing in the third-party payor/RICO sandbox, don’t overlook Actimmune.